What changed in this filing

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Item 1. Financial Statements

2024-05-03 compared with 2023-11-03 · 188 added, 560 removed, 401 unchanged (65% of the section changed)

1 unchanged sentence

KOPPERS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

Three Months Ended September 30,

Nine Months Ended September 30,

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

Three Months Ended March 31,

(Dollars in millions, except share and per share amounts)

1 unchanged sentence

Depreciation and amortization

(Gain) on sale of assets

Selling, general and administrative expenses

(Gain) on sale of assets

Operating profit

Other income, net

Other loss, net

Interest expense

Income from continuing operations before income taxes

Income before income taxes

Income tax provision

Income from continuing operations

Loss on sale of discontinued operations

Net income (loss) attributable to noncontrolling interests

Net income attributable to noncontrolling interests

Net income attributable to Koppers

Earnings (loss) per common share attributable to Koppers

common shareholders:

Continuing operations

Discontinued operations

Earnings per basic common share

Continuing operations

Discontinued operations

Earnings per diluted common share

Comprehensive income (loss)

Comprehensive income (loss) attributable to

noncontrolling interests

Comprehensive income (loss) attributable to Koppers

Earnings per common share attributable to Koppers common shareholders:

Weighted average shares outstanding (in thousands):

KOPPERS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Three Months Ended March 31,

(Dollars in millions)

Changes in other comprehensive income (loss):

Currency translation adjustment

Cash flow hedges, net of tax expense of $ 2.8 and $ 1.9

Pension adjustments, net of tax expense of $ 0.1 and $ 0.1

Comprehensive income

Comprehensive income attributable to noncontrolling interests

Comprehensive income attributable to Koppers

The accompanying notes are an integral part of these condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEET

September 30,

(Dollars in millions, except share and per share amounts)

7 unchanged sentences

of $ 479.4 and $ 473.2

Operating lease right-of-use assets

Intangible assets, net

Operating lease right-of-use assets

Deferred tax assets

5 unchanged sentences

Long-term debt

Operating lease liabilities

Accrued postretirement benefits

Deferred tax liabilities

Operating lease liabilities

Other long-term liabilities

11 unchanged sentences

Treasury stock, at cost, 4,441,930 and 4,302,996 shares

Total Koppers shareholders’

Total Koppers shareholders’ equity

Noncontrolling interests

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in millions)

5 unchanged sentences

Non-cash interest expense

(Gain) on sale of assets

Loss (gain) on sale of assets

Insurance proceeds

6 unchanged sentences

Other working capital

Net cash provided by operating activities

Net cash (used in) operating activities

Cash (used in) provided by investing activities:

4 unchanged sentences

Cash provided by (used in) financing activities:

Net increase in credit facility borrowings

Borrowings of long-term debt

Borrowings of credit facility

Repayments of credit facility

Repayments of long-term debt

5 unchanged sentences

Effect of exchange rate changes on cash

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

5 unchanged sentences

KOPPERS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

Three Months Ended March 31,

(Dollars in millions, except per share amounts)

Balance at beginning and end of period

Additional paid-in capital

Balance at beginning of period

Employee stock plans

Issuance of common stock

Balance at end of period

Retained earnings

Balance at beginning of period

Net income attributable to Koppers

Common Stock dividends ($ 0.07 and $ 0.06 per share)

Balance at end of period

Accumulated other comprehensive loss

Balance at beginning of period

Currency translation adjustment

Cash flow hedges, net of tax (1)

Pension adjustments, net of tax (2)

Balance at end of period

Treasury stock

Balance at beginning of period

Balance at end of period

Noncontrolling interests

Balance at beginning of period

Net income attributable to noncontrolling interests

Balance at end of period

Total equity – beginning of period

Total equity – end of period

(1) Amounts reclassified from accumulated other comprehensive income to net income related to derivative financial instruments, net of tax, were $ 1.1 million and $ 1.7 million during the three months ended March 31, 2024 and 2023 , respectively.

(2) Amounts reclassified from accumulated other comprehensive income to net income consist of amounts shown for pension adjustments.

This component of accumulated other comprehensive income is included in the computation of net periodic pension cost as disclosed in Note 10 – Pensions and Post-Retirement Benefit Plans.

The accompanying notes are an integral part of these condensed consolidated financial statements.

KOPPERS HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

2 unchanged sentences

Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments considered necessary for a fair presentation of Koppers Holdings Inc.’s and its subsidiaries’

(Koppers, Koppers Holdings, the Company, we or us) financial position and interim results as of and for the periods presented have been included.

In the opinion of management, all adjustments considered necessary for a fair presentation of Koppers Holdings Inc.’s and its subsidiaries’ (Koppers, Koppers Holdings, the Company, we or us) financial position and interim results as of and for the periods presented have been included.

All such adjustments are of a normal recurring nature unless disclosed otherwise.

1 unchanged sentence

The Condensed Consolidated Balance Sheet as of December 31, 2023 has been summarized from the audited balance sheet contained in the Annual Report on Form 10-K as of and for the year ended December 31, 2023.

Certain prior period amounts in the condensed consolidated financial statements and notes to the condensed consolidated financial statements have been reclassified to conform to the current period’s presentation.

The financial information included herein should be read in conjunction with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023 .

New Accounting Pronouncements

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

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

Fair Value Hedging—Portfolio Layer Method.

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.

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.

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

This ASU updates reportable segment disclosures by expanding the frequency and extent of segment disclosures.

2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The amendments should be applied retrospectively to all prior periods presented in the financial statements.

We are currently evaluating this ASU to determine its impact on our disclosures.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

This ASU updates income tax disclosures by requiring annual disclosures of consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction.

2023-09 is effective for fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The amendments should be applied on a prospective basis.

We are currently evaluating this ASU to determine its impact on our disclosures.

Fair Value Measurements

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

September 30, 2023

March 31, 2024

December 31, 2023

3 unchanged sentences

Financial liabilities:

Long-term debt

Investments and other assets –

Represents the broker-quoted cash surrender value on universal life insurance policies.

Long-term debt (including current portion)

Investments and other assets – Represents the broker-quoted cash surrender value on universal life insurance policies.

This asset is classified as Level 2 in the valuation hierarchy.

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 Credit Facility (as defined in Note 11 –

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

See Note 12 –

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 September 30,

Nine Months Ended September 30,

(Dollars in millions)

Changes in other comprehensive income (loss):

Currency translation adjustment

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

tax (expense) benefit of $( 0.6 ), $ 4.9 , $( 1.0 ) and $ 21.1

Unrecognized pension net loss, net of tax expense

of $ 0.1 , $ 0.1 , $ 0.2 and $ 0.2

Comprehensive income (loss)

Comprehensive income (loss) attributable to

noncontrolling interests

Comprehensive income (loss) attributable to Koppers

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

This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost as disclosed in Note 10 –

Pensions and Post-Retirement Benefit Plans.

Other amounts reclassified from accumulated other comprehensive income (loss) related to derivative financial instruments, net of tax, were $ 0.2 million and $ 5.8 million during the three months ended September 30, 2023 and 2022, respectively, and $ 2.5 million and $ 27.0 million during the nine months ended September 30, 2023 and 2022, respectively.

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 Credit Facility (as defined in Note 11 – Debt) approximates carrying value due to the variable rate nature of this instrument.

See Note 12 – Derivative Financial Instruments, for the fair value of our derivative financial instruments.

The following table presents changes in common stock and treasury stock:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(Shares in thousands)

7 unchanged sentences

Balance at end of period

The following tables present the changes in equity:

(Dollars in millions)

Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Loss

Noncontrolling

Balance at June 30, 2023

Net income (loss)

Dividends ($ 0.06 per

Issuance of common stock

Repurchases of common

Employee stock plans

Other comprehensive

(loss) income

Currency translation

Unrealized gain on

cash flow hedges

Unrecognized pension

Balance at September 30,

(Dollars in millions)

Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Loss

Noncontrolling

Balance at June 30, 2022

Net income (loss)

Dividends ($ 0.05 per

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,

(Dollars in millions)

Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Loss

Noncontrolling

Balance at December 31,

Dividends ($ 0.18 per

Issuance of common stock

Repurchases of common

Employee stock plans

Other comprehensive

(loss) income

Currency translation

Unrealized gain on

cash flow hedges

Unrecognized pension

Balance at September 30,

(Dollars in millions)

Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Loss

Noncontrolling

Balance at December 31,

Net income (loss)

Dividends ($ 0.15 per

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,

On November 2, 2023 , we declared a quarterly dividend of $ 0.06 per common share, payable on December 11, 2023 to shareholders of record as of November 24, 2023 .

Earnings per Common Share

Common Stock Outstanding

Earnings and Dividends per Common Share

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 and per share amounts)

Net income attributable to Koppers

Loss on sale of discontinued operations

Income from continuing operations attributable to Koppers

Weighted average common shares outstanding (in thousands):

Effect of dilutive securities

Earnings per common share –

continuing operations:

Basic earnings per common share

Diluted earnings per common share

Earnings per common share:

Antidilutive securities excluded from computation of diluted earnings per common share

On May 2, 2024 , we declared a quarterly dividend of $ 0.07 per common share, payable on June 10, 2024 to shareholders of record as of May 24, 2024 .

Stock-based Compensation

3 unchanged sentences

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, 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.

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

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

1 unchanged sentence

If minimum performance criteria are not achieved, no performance stock units will vest.

For the awards granted in January 2023, target shares for units with market conditions were 78,411 and target shares for units with performance conditions were 188,238 .

For the awards granted in January 2024 , target shares for units with a market condition totaled 56,796 and target shares for units with a performance condition totaled 125,399 .

We calculated the fair value of the restricted stock units and performance stock units with a performance condition using the market price of the underlying common stock on the date of grant.

12 unchanged sentences

Credited from dividends

Non-vested at September 30, 2023

Non-vested at March 31, 2024

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

6 unchanged sentences

Outstanding at December 31, 2023

Outstanding at September 30, 2023

Exercisable at September 30, 2023

Stock Compensation Expense

The following table presents total stock-based compensation expense recognized:

Three Months Ended September 30,

Nine Months Ended September 30,

Outstanding at March 31, 2024

Exercisable at March 31, 2024

The following table presents total stock-based compensation expense recognized in the condensed consolidated statement of operations:

Three Months Ended March 31,

(Dollars in millions)

Stock-based compensation expense recognized:

Selling, general and administrative expenses

6 unchanged sentences

The reportable segments are each managed separately because they manufacture and distribute distinct products with different production processes.

Our RUPS segment sells treated and untreated wood products, manufactured products and services primarily to the railroad and public utility markets.

Railroad products and services include procuring and treating items such as crossties, switch ties and various types of lumber used for railroad bridges and crossings and the manufacture of rail joint bars.

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 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 to a diverse range of end-markets including infrastructure, residential and commercial construction, and agriculture.

Our RUPS segment primarily sells pressure-treated railroad ties to the railroad industry and treated utility poles to utility markets.

Railroad products and services include procuring and treating items such as crossties, switch ties and various types of lumber used for railroad bridges and crossings.

Utility products include the pressure treatment of transmission and distribution poles for electric and telephone utilities.

In addition, we provide untreated wood products and rail joint bars, which are steel bars used to join rails together for railroads, to the railroad markets and inspection services to the utility markets.

We also operate a railroad services business that conducts engineering, design, repair and inspection services for railroad bridges and a business related to the recovery of used crossties, serving the same customer base as our North American railroad business.

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

Our CMC segment is primarily a manufacturer of creosote, carbon pitch, naphthalene, phthalic anhydride and carbon black feedstock.

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

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

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

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

Phthalic anhydride is used in the production of plasticizers, polyester resins and alkyd paints.

Our primary measure of segment profitability is adjusted earnings before interest, income taxes, depreciation, amortization and certain non-cash and/or non-recurring items that do not contribute directly to management’s evaluation of our operating results (as defined by us, adjusted EBITDA).

These items include impairment, restructuring and plant closure costs, mark-to-market commodity hedging, gain or loss on sale of assets and LIFO inventory effects.

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, 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 $ 7.8 million and $ 8.3 million are recorded within accounts receivable, net of allowance within the condensed consolidated balance sheet as of September 30, 2023 and December 31, 2022, respectively.

Contract assets of $ 5.1 million and $ 7.8 million are recorded within accounts receivable, net of allowance within the condensed consolidated balance sheet as of March 31, 2024 and December 31, 2023, respectively.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in millions)

2 unchanged sentences

Utility poles

Railroad infrastructure services

Railroad infrastructure products and services

Total Railroad and Utility Products and Services

5 unchanged sentences

Pitch and related products

Phthalic anhydride and other chemicals

Phthalic anhydride, naphthalene, and other chemicals

Carbon black feedstock and distillates

Other products

Total Carbon Materials and Chemicals

3 unchanged sentences

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in millions)

9 unchanged sentences

LIFO expense (1)

Impairment, restructuring and plant closure costs

Gain on sale of assets

Mark-to-market commodity hedging losses

Mark-to-market commodity hedging gains

Interest expense

1 unchanged sentence

Income tax provision

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 assets and goodwill allocated to each of our segments:

September 30,

(Dollars in millions)

12 unchanged sentences

federal statutory tax rate due to:

September 30,

Federal income tax rate

4 unchanged sentences

GILTI inclusion, net of foreign tax credits

Interest expense deduction limitation

Estimated annual effective income tax rate

Income taxes as a percentage of pretax income were 24.1 and 41.0 percent for the three months ended September 30, 2023 and 2022, respectively, and 26.8 and 37.3 percent for the nine months ended September 30, 2023 and 2022, respectively.

These percentages for the three and nine months ended September 30, 2023 were lower than the estimated annual effective income tax rate due to adjustments to our 2022 US income tax provision primarily resulting from a July 2023 IRS notice that clarified existing tax regulations.

For the three months ended September 30, 2022, the actual percentage was higher than the estimated annual effective income tax rate due to additional tax expense recognized in the quarter as a result of increases in the estimated annual effective income tax rate from the prior period.

For the nine months ended September 30, 2022, the actual percentage was higher than the estimated annual effective income tax rate due to forecasted pre-tax losses of certain foreign subsidiaries not expected to generate a future tax benefit.

Income taxes as a percentage of pretax income were 25.3 percent and 27.4 percent for the three months ended March 31, 2024 and 2023, respectively.

Both periods were lower than the estimated annual effective income tax rate of 28.3 percent and 28.4 percent due to discrete items, principally an excess tax deduction for vested stock awards.

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 nine months ended September 30, 2023.

Effective January 1, 2024, certain jurisdictions in which we operate have enacted legislation that is consistent with one or more Organization for Economic Co-operation and Development Global Anti-Base Erosion Model Rules (commonly referred to as "Pillar Two").

These Pillar Two rules include minimum domestic top up taxes, income inclusion rules and undertaxed profit rules all aimed to ensure that multinationals pay a minimum effective corporate tax rate of 15 percent in each jurisdiction in which they operate.

We do not expect these Pillar Two rules to materially impact our annual effective rate in 2024.

Unrecognized Tax Benefits

7 unchanged sentences

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

As of September 30, 2023 and December 31, 2022, unrecognized tax benefits of $ 1.5 million and $ 1.4 million, respectively, would affect the effective tax rate if recognized.

As of March 31, 2024 and December 31, 2023, unrecognized tax benefits of $ 1.5 million for both periods would affect the effective tax rate if recognized.

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

Inventories, net

September 30,

(Dollars in millions)

5 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.

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.

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.

We are evaluating the termination of our United States qualified pension plan and are targeting the potential completion of this effort in the first quarter 2025.

We estimate that a termination will require additional cash funding of $ 25 million and will result in an estimated settlement loss of $ 40 million, before tax, subject to changes to certain assumptions including the discount rate.

In connection with the planned termination of 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 has been substantially completed and we expect to recognize a pre-tax pension settlement loss of approximately $ 20 million upon the pension obligation becoming irrevocably settled sometime in 2024.

The timing of the conversion to a buy-out policy may be impacted by a ruling from the High Court of Justice in the United Kingdom in the case of Virgin Media Limited v NTL Pension Trustees II Limited and Others related to certain amendments to UK pension plans.

This ruling is currently under appeal.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in millions)

6 unchanged sentences

Interest Rate

September 30,

(Dollars in millions)

Credit Facility

Senior Notes due 2025

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

2 unchanged sentences

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.

We have a credit agreement (the Credit Facility) with a consortium of banks.

The Credit Facility provides for an $ 800.0 million revolving credit facility, 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 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.

Borrowings under the Credit Facility are secured by a first priority lien on substantially all of the assets (excluding real property and other customary assets) of Koppers Inc., Koppers Holdings Inc.

and their material domestic subsidiaries.

The Credit Facility contains certain covenants that limit Koppers Inc.

and its restricted subsidiaries, including, without limitation, limitations on additional indebtedness, liens, dividends, investments, acquisitions, subsidiary and certain other distributions, asset sales, transactions with affiliates and modifications to material documents, including organizational documents.

In addition, such covenants give rise to events of default upon the failure by Koppers Inc.

and our material domestic subsidiaries.

The Credit Facility contains certain covenants that may limit Koppers Inc.

and its restricted subsidiaries from taking certain actions.

These limitations include, among others, restrictions on additional indebtedness, liens, dividends, investments, acquisitions, certain distributions, asset sales, transactions with affiliates and modifications to material documents, including organizational documents.

In addition, such covenants may give rise to events of default upon the failure by Koppers Inc.

and its restricted subsidiaries to meet certain financial ratios.

As of September 30, 2023, we had approximately $ 350 million of unused revolving credit availability after restrictions from certain letter of credit commitments and other covenants.

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

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

1 to the Credit Facility 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 .

During the nine months ended September 30, 2023, we entered into interest rate swap agreements with an aggregate notional value of $ 250.0 million.

The interest rate swaps effectively convert the variable rate component of our borrowings to a weighted average fixed rate of 3.63 percent for a portion of our variable rate debt.

This weighted average fixed rate amount excludes the interest rate margin of 4 .00 percent as of September 30, 2023.

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.

As of March 31, 2024, we had approximately $ 301 million of unused revolving credit availability after restrictions from certain letter of credit commitments and other covenants.

As of March 31, 2024, $ 7.8 million of commitments were utilized by outstanding letters of credit.

In April 2023, a new class of senior secured term loans under the Credit Facility (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.

The interest rate margins applicable to adjusted Term SOFR Rate or adjusted Daily Simple SOFR loans are 3.50 percent with a floor of 0.50 percent.

The principal balance of the Term Loan B is repayable in quarterly installments in an amount equal to 0.25 percent of the principal amount, commencing on January 1, 2024 and on the last business day of each quarterly period thereafter, with the balance due at maturity on April 10, 2030 .

Interest Rate Swaps

See Note 12 – Derivative Financial Instruments for discussion of the interest rate swap agreements, which effectively convert the variable rate to a fixed rate for a portion of our variable rate debt.

Subsequent Events

On October 11, 2023, we entered into Amendment No.

2 to the Credit Facility which reduced the interest rate margins applicable to the Term Loan B by 0.50 percent to 3.50 percent with a floor of 0.50 percent, in the case of adjusted Term SOFR Rate or adjusted Daily Simple SOFR loans, among other modifications.

The principal balance of the Term Loan B will be repayable in quarterly installments in an amount equal to 0.25 percent of the principal amount, commencing on January 1, 2024 and on the last business day of each March, June, September and December thereafter, with the balance due at maturity on April 10, 2030 .

On April 12, 2024, we entered into Amendment No.

3 to the Credit Facility (Amendment No.

3) which, among other modifications:

(i) provides for the incurrence of incremental term loans in an aggregate principal amount of $ 100 million to be used for general corporate purposes, thereby increasing the aggregate principal amount of the Term Loan B to $ 497 million as of April 12, 2024 and (ii) effectively reduces the interest rate margins applicable to the Term Loan B by 0.50 percent to 3.00 percent with a floor of 0.50 percent, in the case of adjusted Term SOFR Rate or adjusted Daily Simple SOFR loans.

Derivative Financial Instruments

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, foreign currency exchange risk, principally the U.S.

dollar and Australian dollar, and interest rate risk associated with variable rate borrowings.

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

dollar, Australian dollar and British pound sterling, and interest rate risk associated with variable rate borrowings.

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

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

We enter into heating oil swap contracts to manage price risk associated with fuel oil purchases for our plant operations and certain raw material requirements.

The fair value associated with these swap contracts are not designated as hedges, and the related unrealized gain or loss on the derivative is reported in current earnings.

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

As of March 31, 2024 and December 31, 2023 , we had contracts totaling 1.7 million and 1.5 million gallons, respectively.

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.

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

The fair value associated with forward contracts related to foreign currency that are not designated as hedges, and the related unrealized 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.

We enter into interest rate swaps to effectively convert portions of our variable interest debt into fixed rate debt to add stability to interest expense and to manage our exposure to interest rate movements .

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

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.

We enter into interest rate swaps to effectively convert portions of our variable interest rate debt into fixed rate debt to add stability to interest expense and to manage our exposure to interest rate movements.

We entered into interest rate swap agreements with an aggregate notional value of $ 400.0 million at a weighted average fixed SOFR rate of 3.97 percent for a portion of our variable rate debt.

All swap agreements expire in April 2027 .

The interest rate swaps have been designated as cash flow hedges on interest payments involving 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.

See the condensed consolidated statement of comprehensive income and condensed consolidated statement of shareholders' equity for amounts recorded in other comprehensive income and for amounts reclassified from accumulated other comprehensive income into net income.

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

September 30,

Heating Oil Contracts

Foreign Currency

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Derivative contracts

Accrued liabilities

Other long-term liabilities

Net asset (liability) on balance sheet

Accumulated other comprehensive gain (loss),

Net asset on balance sheet

Accumulated other comprehensive gain,

Heating Oil Contracts

Foreign Currency

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Accrued liabilities

Net asset on balance sheet

Accumulated other comprehensive gain, net of tax

Over the next twelve months , we estimate unrealized losses of $ 0.6 million for commodity price hedging as well as unrealized gains of $ 3.2 million for interest rate swaps will be reclassified from accumulated other comprehensive income into earnings.

Other long-term liabilities

Net asset (liability) on balance sheet

Accumulated other comprehensive gain (loss),

Over the next twelve months , we estimate unrealized gains of $ 4.2 million for commodity price hedging as well as unrealized gains of $ 2.8 million for interest rate swaps will be reclassified from accumulated other comprehensive income into earnings.

Copper Swap Contracts

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Units Outstanding (in Pounds)

Net Fair Value - (Liability) Asset

September 30,

Net Fair Value – Asset

(Amounts in millions)

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Contracts where hedge accounting was not

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

Three Months Ended September 30,

Nine Months Ended September 30,

The unrealized gain from copper swaps 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 not

Gain from contracts where hedge accounting was not elected

Foreign Currency Forward Contracts

The net currency units outstanding for contracts were:

September 30,

(In millions)

Australian Dollars

United States Dollars

Interest Rate Swap Contracts

See Note 11 –

Debt for discussion of the interest rate swap agreements, which effectively convert the variable rate to a fixed rate for a portion of our variable rate debt.

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.

British Pound Sterling

Australian Dollars

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 September 30, 2023 and December 31, 2022.

As of September 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.

There were 51 plaintiffs in 27 cases pending as of March 31, 2024 and December 31, 2023.

As of March 31, 2024 and December 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.

Plaintiffs in 24 of those cases also seek to recover punitive damages.

The plaintiffs in the 26 cases filed in Pennsylvania seek unspecified damages in excess of the court’s minimum jurisdictional limit.

The plaintiff in the Tennessee state court case seeks damages of $ 15.0 million.

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We have agreements with former owners of certain of our operating locations under which the former owners retained, assumed and/or agreed to indemnify us against certain environmental and other liabilities.

The most significant of these agreements was entered into at Koppers Inc.’s formation on December 29, 1988 (the Acquisition).

Under the related asset purchase agreement between Koppers Inc.

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

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Currently, at the properties acquired from Beazer East (which includes the National Priorities List site and all but one of the sites permitted under the Resource Conservation and Recovery Act (RCRA)), a significant portion of all investigative, cleanup and closure activities are being conducted and paid for by Beazer East pursuant to the terms of the Indemnity.

In addition, other of Koppers Inc.’s sites are or have been operated under RCRA and various other environmental permits, and remedial and closure activities are being conducted at some of these sites.

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.

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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 September 30, 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.

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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, 2023, our estimated environmental remediation liability for these acquired sites totals $ 3.8 million.

As of March 31, 2024, our estimated environmental remediation liability for these acquired sites totals $ 3.8 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, 2023 , our estimated environmental remediation liability for the acquired site totals $ 1.2 million.

As of March 31, 2024 , 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 $ 2.4 million and $ 2.5 million are classified as current liabilities as of September 30, 2023 and December 31, 2022 , respectively.

September 30,

A total of $ 2.2 million was classified as current liabilities as of March 31, 2024 and December 31, 2023.

(Dollars in millions)

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Balance at end of period

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

This report and any documents incorporated herein by reference contain “forward-looking statements”

within the meaning of the Private Securities Litigation Reform Act of 1995 and may include, but are not limited to, statements about sales levels, acquisitions, restructuring, declines in the value of Koppers assets and the effect of any related impairment charges, profitability and anticipated expenses and cash outflows.

All forward-looking statements involve risks and uncertainties.

All statements contained herein that are not clearly historical in nature are forward-looking, and words such as “believe,”

“anticipate,”

“expect,”

“estimate,”

“may,”

“will,”

“should,”

“continue,”

“plans,”

“potential,”

“intends,”

“likely,”

or other similar words or phrases are generally intended to identify forward-looking statements.

Any forward-looking statement contained herein, in press releases, written statements or documents filed with the Securities and Exchange Commission, or in Koppers communications and discussions with investors and analysts in the normal course of business through meetings, phone calls and conference calls, regarding future dividends, expectations with respect to sales, earnings, cash flows, operating efficiencies, restructurings, product introduction or expansion, the benefits of acquisitions and divestitures, or other matters as well as financings and debt reduction, are subject to known and unknown risks, uncertainties and contingencies.

Many of these risks, uncertainties and contingencies are beyond our control, and may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements.

Factors that might affect such forward-looking statements, include, among other things, the impact of changes in commodity prices, such as oil and copper, on product margins;

general economic and business conditions;

disruption in the U.S.

and global financial markets;

potential difficulties in protecting our intellectual property;

the ratings on our debt and our ability to repay or refinance our outstanding indebtedness as it matures;

our ability to operate within the limits of our debt covenants;

potential impairment of our goodwill and/or long-lived assets;

demand for Koppers goods and services;

competitive conditions;

interest rate and foreign currency rate fluctuations;

availability and costs of key raw materials, such as coal tar, and unfavorable resolution of claims against us, as well as those discussed more fully elsewhere in this report and in documents filed with the Securities and Exchange Commission by Koppers, particularly our latest annual report on Form 10-K and subsequent filings.

We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you.

In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this report and the documents incorporated by reference herein may not in fact occur.

Any forward-looking statements in this report speak only as of the date of this report, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited financial statements and related notes included in Item 1 of this Part I as well as the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2022.

We are a leading integrated global provider of treated wood products, wood preservation chemicals and carbon compounds.

Our products and services are used in a variety of niche applications in a diverse range of end-markets, including the railroad, specialty chemical, utility, residential lumber, agriculture, aluminum, steel, rubber and construction industries.

We serve our customers through a comprehensive global manufacturing and distribution network, with manufacturing capabilities in North America, South America, Australasia and Europe.

We operate three principal businesses:

RUPS, PC and CMC.

Through our RUPS business, we believe that we are the largest supplier of wood crossties to the Class I railroads in North America.

Our other treated wood products include utility poles for the electric, telephone, and broadband utility industries in the United States and Australia and construction pilings in the U.S.

We also provide rail joint bar products as well as various services to the railroad industry in North America.

Through our PC business, we believe that we are the global leader in developing, manufacturing and marketing wood preservation chemicals and wood treatment technologies for use in the pressure treating of lumber for residential, industrial and agricultural applications.

Our CMC business processes coal tar into a variety of products, including creosote, carbon pitch, carbon black feedstock, naphthalene and phthalic anhydride, which are intermediate materials necessary in the pressure treatment of wood, and the production of aluminum, steel, carbon black, high-strength concrete, plasticizers and specialty chemicals, respectively .

Non-GAAP Financial Measures

We utilize certain financial measures that are not in accordance with U.S.

generally accepted accounting principles (U.S.

GAAP) to analyze and manage the performance of our business.

We believe that adjusted EBITDA provides information useful to investors in understanding the underlying operational performance of the company, our business and performance trends, and facilitates comparisons between periods.

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.

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

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.

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

understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP financial measures and should be read in conjunction with the relevant GAAP financial measures.

Other companies in a similar industry may define or calculate these measures differently than we do, limiting their usefulness as comparative measures.

Because of these limitations, these non-GAAP financial measures should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP.

Adjusted EBITDA is a non-GAAP financial measure defined as net income from continuing operations before interest, income taxes, depreciation, amortization and other adjustments.

These other adjustments are items that we believe are not representative of underlying business performance.

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, mark-to-market commodity hedging and other unusual items.

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

See Adjusted EBITDA Reconciliation in the below section for reconciliations from adjusted EBITDA to net income on a consolidated basis.

Trend Overview

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 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;

(iv) competitive conditions in global carbon pitch markets;

and (v) changes in foreign exchange rates.

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.

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

The demand for pallet lumber has eased, the price has moderated on slowing consumer spending and the demand for board roads and mats has weakened, which have all contributed to improved crosstie availability.

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 September 30, 2023 was up 0.3 percent and intermodal units were down 8.2 percent.

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

traffic decreased 4.3 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.

Conversely, rail carloads of industrial products are performing much better, reflecting relative strength in 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.

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 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 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.

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 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 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.

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.

This modernization was substantially complete by the end of the third quarter of 2023.

Performance Chemicals

As most of the products sold by PC are copper-based products, changes in the price and availability of copper can have a significant impact on product pricing and margins.

We attempt to moderate the variability in copper pricing over time by entering into hedging transactions for the majority of our copper needs, which primarily range from six months up to 36 months.

These hedges typically match expected customer purchases and from time to time, we enter into forward transactions based upon long-term forecasted needs of copper.

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 September declined 2.0 percent from August and on a year-over-year basis, sales were lower by 15.4 percent.

Existing-home sales declined and pending home sales in August registered a decrease of 7.1 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 September.

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, a moderate decline in annual spending on improvements and repairs for owner-occupied homes is expected over the next year.

The LIRA predicts a 7.7 percent decrease in annual homeowner expenditures for home renovations and maintenance through the third quarter of 2024.

The housing market’s continued weakness, attributed to high interest rates and a limited supply of existing homes, is projected to impact remodeling activity in the coming year.

The annual spending on home improvements and repairs is expected to drop from $489 billion to $452 billion over the next four quarters.

Reductions in household moves will likely result in a decline in remodeling and repair activity in 2024, offset by homeowners deciding to 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.

In September 2023, the Conference Board’s Consumer Confidence Index saw a decrease for the second month, landing at 103.0 from a revised 108.7 in August.

This decline in consumer confidence was widespread among consumers with increasing focus on rising prices, political instability, and sustained higher interest rates.

Conversely, expectations among economists have recently indicated a lesser likelihood of a recession in the short-term.

Carbon Materials and Chemicals

The primary products produced by CMC are creosote, which is a registered pesticide in the United States and used primarily in the pressure treatment of railroad crossties, and carbon pitch, which is sold primarily to the aluminum industry for the production of carbon anodes used in the smelting of aluminum.

We have realigned capacity in our CMC plants in North America and Europe over the past several years to levels required to meet creosote demand in North America for the treatment of railroad crossties.

The CMC business currently supplies our North American RUPS business with its creosote requirements.

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

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 a slowdown in the near-term in manufacturing overall as well as in the steel, aluminum and carbon black industries.

The October 2023 S&P Global Mobility report noted approximately 150,000 units of production have been lost due to plant strikes particularly in the United States.

The near-term outlook remains unclear with continued strikes and auto consumers facing vehicle affordability issues (rising interest rates, credit tightening and high vehicle prices).

Inventory levels, which will continue to be closely monitored as long as the United Auto Workers strike persists, will be pressured through November and December.

The S&P Global Mobility forecast saw 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.

Seasonality and Effects of Weather on Operations

Our quarterly operating results fluctuate due to a variety of factors that are outside of our control, including inclement weather conditions, which in the past have affected operating results.

Operations at some of our facilities have at times been reduced during the winter months.

Moreover, demand for some of our products declines during periods of inclement weather.

As a result of the foregoing, we anticipate that we may experience material fluctuations in quarterly operating results.

Historically, our operating results have been significantly lower in the first and fourth calendar quarters as compared to the second and third calendar quarters.

Results of Operations –

Comparison of Three Months Ended September 30, 2023 and 2022

Consolidated Results

Net sales are summarized by segment in the following table:

Three Months Ended September 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 $20.3 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.

These increases were partly offset by lower activity in our other maintenance of way businesses and volume decreases in our Australian utility pole business.

Foreign currency changes compared to the prior year period had an unfavorable impact on sales in the current year period of $0.4 million, mainly from our Australian utility pole business.

PC net sales increased as a result of global price increases of $15.7 million, or 10.3 percent in the current year period, particularly in the Americas for our copper-based preservatives.

Volumes increased by 7.1 percent globally, including a 10.2 percent increase in the Americas, partly offset by volume decreases in Australasia.

Foreign currency changes compared to the prior year period had an unfavorable impact on sales in the current year period of $0.3 million.

CMC net sales decreased mainly due to $24.3 million of lower sales prices across most products, including carbon pitch where prices were down ten percent globally, along with $25.9 million of lower volumes of carbon pitch and phthalic anhydride.

The decreases in carbon pitch prices and volumes were driven by reduced market demand in the current year period.

These decreases were partly offset by volume increases for refined tar and carbon black feedstock.

Foreign currency changes compared to the prior year period from our international markets had a favorable impact on sales in the current year period of $1.5 million.

Cost of sales as a percentage of net sales was 80 percent, 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.

Depreciation and amortization charges were $2.6 million lower when compared to the prior year period as the prior year included an increase in asset retirement obligation within our European CMC business.

Selling, general and administrative expenses were $7.1 million higher when compared to the prior year period due mainly to an increase in compensation related costs along with an increase in insurance, consulting and travel expenses.

Interest expense was $7.6 million higher when compared to the prior year period due primarily to higher interest rates.

Income tax expense decreased by $4.9 million when compared to the prior year period due to a lower estimated annual effective income tax rate, which is mainly due to the geographical mix of earnings and interest expense deduction limitations in the prior year, in addition to favorable return to provision adjustments in 2023.

Segment Results

Segment adjusted EBITDA and adjusted EBITDA margin 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

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 $3.8 million from improved plant utilization, which combined to more than offset higher raw material, operating and selling, general and administrative expenses of $14.3 million.

The domestic utility pole businesses' increased sales, operating profit and adjusted EBITDA contributed to the strong results.

PC adjusted EBITDA increased as renegotiated customer contracts allowed us to increase prices to recapture the higher raw material and other operating costs we began experiencing last year, along with a volume increase for wood treatment preservatives in the Americas.

These price increases more than offset higher raw material costs of $3.9 million and increased selling, general and administrative expenses.

CMC adjusted EBITDA decreased due to price and volume decreases, partly offset by a $4.2 million reduction in raw material costs and operating expense, particularly in North America, along with $2.3 million of insurance proceeds recognized in the current year period.

Results of Operations –

Comparison of Nine Months Ended September 30, 2023 and 2022

Consolidated Results

Net sales 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 largely due to a net $65.0 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.

These increases were partly offset by lower activity in our other maintenance of way businesses and volume decreases in our Australian utility pole business.

Foreign currency changes compared to the prior year period had an unfavorable impact on sales in the current year period of $2.0 million, mainly from our Australian utility pole business.

PC net sales increased as a result of global price increases of $61.4 million, or 14 percent in the current year period, particularly in the Americas for our copper-based preservatives.

Volumes increased by 2.6 percent globally, including an 8.1 percent increase in the Americas, partly offset by volume decreases in Australasia and Europe.

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 decreased due mainly to $32.3 million of volume decreases, primarily carbon pitch and phthalic anhydride, partly offset by volume increases for refined tar and carbon black feedstock.

Higher sales prices added $23.5 million, primarily for carbon pitch driven by strong end markets and constrained raw material supply in the first half of the year, partly offset by lower pricing across other product lines.

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 $2.3 million.

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 2023 was related to the sale of our former coal tar distillation facility located in China while the prior year gain was related to the sale of our utility pole treating facility in Sweetwater, Tennessee.

Selling, general and administrative expenses were $12.7 million higher when compared to the prior year period due mainly to an increase in compensation related costs along with an increase in travel and company meeting expenses.

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

Interest expense was $21.0 million higher when compared to the prior year period due primarily 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 11 –

Income tax expense decreased by $1.6 million when compared to the prior year period due to a lower estimated annual effective income tax rate, which is mainly due to the geographical mix of earnings and interest expense deduction limitations in the prior year, in addition to favorable return to provision adjustments in 2023.

This is offset by a higher amount of income from continuing operations before income taxes when compared to the prior year period.

Segment Results

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

Nine Months Ended September 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 $14.9 million from improved plant utilization, which combined to more than offset higher raw material, operating and selling, general and administrative expenses of $61.9 million.

The domestic utility pole businesses' increased sales, operating profit and adjusted EBITDA contributed to the strong results.

PC adjusted EBITDA increased as renegotiated customer contracts allowed us to increase prices to recapture the higher raw material and other operating costs we began experiencing last year, along with an 8.1 percent volume increase in the Americas for wood treatment preservatives.

These price increases more than offset higher raw material costs of $26.8 million and increased selling, general and administrative expenses.

CMC adjusted EBITDA decreased due to an increase of $52.4 million in raw material costs, particularly in North America and Europe, along with volume decreases, partly offset by higher pricing globally and lower operating costs in North America compared to the prior year period as well as $2.3 million of insurance proceeds recognized in the current year period.

Foreign currency changes from our international markets had an unfavorable impact on profitability in the current year period of $1.4 million.

Adjusted EBITDA Reconciliation.

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

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in millions)

Interest expense

Depreciation and amortization

Income tax provision

Discontinued operations

Adjustments to arrive at adjusted EBITDA:

LIFO expense (1)

Impairment, restructuring and plant closure costs (2)

(Gain) on sale of assets

Mark-to-market commodity hedging losses

Total adjustments

Adjusted EBITDA

(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.

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

Net cash provided by operating activities for the nine months ended September 30, 2023 was $79.5 million compared to $67.4 million in the prior year.

The increase was primarily the result of higher net sales, partly offset by higher costs and unfavorable changes in working capital consistent with higher costs.

Net cash used in investing activities for the nine months ended September 30, 2023 was $88.3 million compared to $75.1 million in the prior year 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 nine months ended September 30, 2023 was $31.6 million compared to $12.3 million in the prior year.

The primary source of financing cash flows was net borrowings of $46.9 million and the primary uses of financing cash flows were repurchases of common stock, payments of debt issuance costs and dividends paid.

In the prior year, the primary source of financing cash flows was net borrowings of $37.9 million and the primary uses of financing cash flows were repurchases of common stock, payments of debt issuance costs and dividends paid.

Liquidity and Capital Resources

Our Credit Facility is described in Note 11 –

Restrictions on Dividends to Koppers Holdings

Koppers Holdings depends on the dividends from the earnings of Koppers Inc.

and its subsidiaries to generate the funds necessary to meet its financial obligations, including the payment of any declared dividend of Koppers Holdings.

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 percent of market capitalization.

As of September 30, 2023, the maximum amount available under the Credit Facility considering restrictions from debt covenants was approximately $350 million.

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.

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 spending, dividends and share repurchases.

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

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, 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.

Debt Covenants

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 September 30, 2023 was 3.1.

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 September 30, 2023 was 4.2.

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 needs over at least the next twelve months.

Effective during the first quarter of 2024, the total net leverage ratio is not permitted to exceed 4.75.

Legal Matters

The information set forth in Note 13 to the Condensed Consolidated Financial Statements of Koppers Holdings Inc.

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

Recently Issued Accounting Guidance

The information set forth in Note 2 to the Condensed Consolidated Financial Statements of Koppers Holdings Inc.

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

Critical Accounting Policies

There have been no material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

Environmental and Other Matters

The information set forth in Note 13 to the Condensed Consolidated Financial Statements of Koppers Holdings Inc.

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

Subsequent Events

On April 1, 2024, we completed our acquisition of substantially all of the assets of Brown Wood Preserving Company, Inc.

and certain of its affiliates (Brown Wood) for approximately $ 100 million in cash, subject to a post-closing working capital adjustment to be determined.

Brown Wood is a utility pole treating business with principal operating locations in Alabama and Mississippi.

We financed the acquisition with cash and available borrowings under our Credit Facility.

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