What changed in this filing

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Item 1. Financial Statements

2020-05-07 compared with 2019-11-07 · 253 added, 318 removed, 535 unchanged (52% of the section changed)

1 unchanged sentence

KOPPERS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

Three Months Ended September 30,

Nine Months Ended September 30,

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

Three Months Ended March 31,

(Dollars in millions, except per share amounts)

4 unchanged sentences

Operating profit

Other income (loss), net

Other income, net

Interest expense

Income before income taxes

Income from continuing operations before income taxes

Income tax provision

1 unchanged sentence

(Loss) income from discontinued operations, net

of tax expense of $ 0.0 , $ 0.0 , $ 0.0 , and $( 0.3 )

Net income (loss) attributable to noncontrolling

Net income attributable to Koppers

Earnings per common share attributable to

of tax benefit (expense) of $ 0.8 and $( 1.1 )

Net (loss) income

Net (loss) income attributable to noncontrolling interests

Net (loss) income attributable to Koppers

Earnings (loss) per common share attributable to

Koppers common shareholders:

1 unchanged sentence

Discontinued operations

Earnings per basic common share

(Loss) 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

Weighted average shares outstanding (in

(Loss) earnings per diluted common share

Comprehensive (loss) income

Comprehensive (loss) income attributable to noncontrolling interests

Comprehensive (loss) income attributable to Koppers

Weighted average shares outstanding (in thousands):

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 per share amounts)

3 unchanged sentences

Inventories, net

Assets of discontinued operations held for sale

Other current assets

4 unchanged sentences

Deferred tax assets

Non-current assets of discontinued operations held for sale

Accounts payable

2 unchanged sentences

Current maturities of long-term debt

Liabilities of discontinued operations held for sale

Total current liabilities

3 unchanged sentences

Operating lease liabilities

Non-current liabilities of discontinued operations held for sale

Other long-term liabilities

17 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in millions)

Cash provided by (used in) operating activities:

Adjustments to reconcile net cash provided by (used in) operating activities:

Cash (used in) provided by operating activities:

Net (loss) income

Adjustments to reconcile net cash (used in) provided by operating activities:

Depreciation and amortization

Loss on disposal of assets and investment

Insurance proceeds

Change in derivative liability

Stock-based compensation

Non-cash interest expense

Deferred income taxes

Insurance proceeds

Change in other liabilities

Non-cash interest expense

Stock-based compensation

Changes in working capital:

3 unchanged sentences

Other working capital

Net cash provided by operating activities

Net cash used in operating activities

Cash (used in) provided by investing activities:

Capital expenditures

Acquisitions, net of cash acquired

Insurance proceeds received

1 unchanged sentence

Net cash used in investing activities

Cash (used in) provided by financing activities:

Net (decrease) increase in credit facility borrowings

Borrowings of long-term debt

Cash provided by (used in) financing activities:

Net increase in credit facility borrowings

Repayments of long-term debt

2 unchanged sentences

Payment of debt issuance costs

Net cash (used in) provided by financing activities

Net cash provided by financing activities

Effect of exchange rate changes on cash

Net increase in cash and cash equivalents

Change in cash and cash equivalents of discontinued operations held for sale

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

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The Condensed Consolidated Balance Sheet as of December 31, 2019 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, 2019.

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

Certain prior period amounts in the consolidated financial statements and notes to the consolidated financial statements have been reclassified to conform to the current period’s presentation as a result of reporting discontinued operations.

See Note 4 – “Discontinued Operations.”

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, 2019.

COVID-19 Assessment

In March 2020, the World Health Organization categorized the current coronavirus disease (“COVID-19”) as a pandemic.

COVID-19 continues to spread throughout the United States and other countries across the world, and the duration and severity of its effects are currently unknown.

While we expect the effects of the pandemic to continue to negatively impact our results of operations, cash flows and financial position, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact cannot be reasonably estimated at this time.

Our condensed consolidated financial statements presented herein reflect certain estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented.

Such estimates and assumptions affect, among other things, our goodwill, long-lived asset and identifiable intangible asset valuation;

inventory valuation;

assessment of the annual effective tax rate;

valuation of deferred income taxes;

the allowance for doubtful accounts;

and measurement of cash incentive plans.

Due to COVID-19, we determined that a goodwill impairment evaluation triggering event occurred during the three months ended March 31, 2020.

After performing an interim review of impairment as of March 31, 2020, our reporting units continue to have estimated fair values greater than their respective carrying values.

Events and changes in circumstances arising after March 31, 2020, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.

New Accounting Pronouncements

In August 2018, the Securities and Exchange Commission (“SEC”) issued SEC Release No.

33-10532, “Disclosure Update and Simplification”, which expanded the interim period disclosure requirements for stockholders' equity.

Under the release, a reconciliation of the changes in each caption of stockholders' equity must be provided in a note or separate statement for each period that an income statement is required to be filed.

We reflected the requirements of this release in “Note 6 – Comprehensive Income and Equity” .

In August 2017, the Financial Accounting Standards Board ("FASB") issued ASU No.

2017-12, “Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedging Activities.” This ASU amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements.

We adopted this ASU effective January 1, 2018 and we reclassified a $ 3.9 million unrealized gain, net of tax, from retained earnings to accumulated other comprehensive loss upon adoption.

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2019-12, “Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes.” ASU 2019-12 is meant to simplify accounting for income taxes by removing certain exceptions to the principles in Topic 740 and amends existing guidance to facilitate consistent application.

We adopted the standard as of January 1, 2020 and there was no material impact on our financial statements.

In June 2016, the FASB issued ASU No.

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The update is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

The new standard is effective for fiscal years beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018.

We are evaluating the effect the guidance will have on our consolidated financial statements, which is not expected to be material.

In February 2016, the FASB issued ASU No.

2016-02, “Leases (Topic 842)”.

ASU 2016-02 requires an entity to recognize a right-of-use asset and lease liability for all leases.

The standard was effective January 1, 2019 and measurement and presentation of expenses depends on classification as a finance or operating lease.

We adopted ASU 2016-02 effective January 1, 2019 using the modified retrospective approach with no restatement of comparative periods presented.

The adoption is accounted for as a change in accounting principle in conformity with FASB Accounting Standards Codification 250, “Accounting Changes and Error Corrections”.

We elected a suite of practical expedients, including retaining our current classification of existing leases upon adoption, separating lease and non-lease components for certain asset classes and excluding leases expiring within twelve months.

The initial impact of adopting this new standard on our consolidated statement of operations and consolidated statement of cash flows was not material.

Approximately $ 119 million of right-of-use assets and lease liabilities were recognized in the consolidated balance sheet upon adoption.

Refer to “Note 16 – Leases” for more details regarding leases as of September 30, 2019.

We adopted the standard as of January 1, 2020 and there was no material impact on our financial statements.

Plant Closures and Divestitures

Over the past five years, we have been restructuring our Carbon Materials and Chemicals (“CMC”) segment in order to concentrate our facilities in regions where we believe we hold key competitive advantages to better serve our global customers.

Over the past six years, we have been restructuring our Carbon Materials and Chemicals (“CMC”) segment in order to concentrate our facilities in regions where we believe we hold key competitive advantages to better serve our global customers.

These closure activities include:

In February 2020, we entered into a definitive agreement to sell Koppers (Jiangsu) Carbon Chemical Company Limited (“KJCC”) to Fangda Carbon New Material Co., Ltd and C-Chem Co., Ltd., a subsidiary of Nippon Steel Chemical & Material Co., Ltd.

Refer to “Note 4 – Discontinued Operations” for more details.

The cessation of naphthalene refining activities at our Follansbee, West Virginia coal tar distillation facility in the fourth quarter of 2018 subsequent to the commissioning of a new naphthalene refining plant in Stickney, Illinois.

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In addition, in 2011, we ceased carbon black production at our CMC facility located in Kurnell, Australia.

Costs associated with this closure are included in income from discontinued operations on the consolidated statement of operations and comprehensive income.

Costs associated with this closure are included in (loss) income from discontinued operations on the consolidated statement of operations and comprehensive (loss) income.

Details of the restructuring activities and related reserves are as follows:

1 unchanged sentence

employee benefits

Environmental

(Dollars in millions)

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Reserve at December 31, 2019

Cost charged against assets

Reversal of accrued charges

Reserve at September 30, 2019

On April 10, 2018, Koppers Inc.

acquired Cox Industries, Inc.

(“Cox”) for net cash consideration of $ 201.3 million.

The transaction was funded by borrowings on Koppers Inc.’s credit facility discussed in “Note 14 - Debt.” Cox was renamed Koppers Utility and Industrial Products Inc.

(“UIP”) subsequent to the acquisition.

UIP is a manufacturer of treated wood transmission and distribution poles for utility and cooperative utility companies.

It is also a manufacturer of treated wood pilings used for construction and marine applications.

UIP manufactures and sells its treated wood poles and pilings through a network of eight manufacturing facilities and 19 distribution yards located throughout the United States.

UIP treats its products with a variety of wood protection chemicals, including chromated copper arsenate and creosote, which are produced by our PC and CMC segments, respectively.

On February 28, 2018, Koppers Inc.

acquired M.A.

Energy Resources, LLC (“MAER”) for net cash consideration of $ 62.8 million.

The purchase price was funded by borrowings on Koppers Inc.’s credit facility.

MAER was renamed Koppers Recovery Resources LLC (“KRR”) subsequent to the acquisition.

KRR is a vertically-integrated company that provides material recovery services for crossties that have been taken out of service and other biomass material.

KRR converts this recovered material into alternative fuels, such as crosstie-derived or biomass-derived fuel, that are used as a substitute for conventional higher-cost carbon-based fuel.

KRR currently operates two processing facilities, each of which is located to serve its Class I railroad customer base .

Combined costs related to these two acquisitions were $ 0.6 million and $ 6.2 million for the three and nine months ended September 30, 2018, respectively, and are recorded within selling, general and administrative expenses in the consolidated statement of operations.

The following unaudited pro forma information presents a summary of our revenues and income from continuing operations as if the UIP acquisition occurred on January 1, 2017 (the first day of the most recently completed fiscal year prior to the acquisition).

The unaudited pro forma information is not necessarily indicative of operating results that would have been achieved had the acquisition been completed as of January 1, 2017 and is not intended to project our future financial results after the acquisition.

The unaudited pro forma information is based on certain assumptions, which management believes are reasonable, and does not reflect the cost of any integration activities or the benefits from the acquisition and synergies that may be derived from any integration activities.

Three Months Ended September 30,

Nine Months Ended September 30,

Reserve at March 31, 2020

Discontinued Operations

On February 18, 2020, we entered into a definitive agreement to sell KJCC to Fangda Carbon New Material Co., Ltd and C-Chem Co., Ltd., a subsidiary of Nippon Steel Chemical & Material Co., Ltd.

KJCC is located in China and is a 75 percent-owned coal tar distillation company which is part of our CMC segment.

The sales price is $ 107.0 million, subject to adjustment for cash, debt and working capital at closing, which is expected to occur four to six months after signing due to required regulatory approvals in China and achievement of other customary closing conditions.

At closing, we estimate the gain on the sale of KJCC will be approximately $ 45 million and net cash proceeds to Koppers will be approximately $ 65 million, after noncontrolling interest, taxes and expenses.

The sale of KJCC represents a strategic shift that will have a major effect on our operations and financial results and is, therefore, classified as discontinued operations in our consolidated financial statements and notes, which have been restated accordingly.

Net sales and operating (loss) profit from discontinued operations for the three months ended March 31, 2020 and 2019 consist of the following amounts:

Three Months Ended March 31,

(Dollars in millions)

Pro forma revenue

Pro forma income from continuing operations

attributable to Koppers

Pro forma earnings per share - continuing operations:

Revenue Recognition

Effective January 1, 2018 we adopted ASC 606, “Revenue from Contracts with Customers”, using the modified retrospective method.

The cumulative effect to the opening balance of retained earnings recognized at January 1, 2018 was an increase of $ 0.3 million, consisting of $ 5.3 million in revenue and $ 5.0 million in cost of goods sold not previously recognized during the year ended December 31, 2017.

ASC 606 impacted the timing of revenue recognized related to certain services to untreated crossties within our RUPS segment where those specific performance obligations were fulfilled prior to shipment and were historically not recognized as revenue until shipped.

Refer to “Note 9 – Segment Information” for relevant disclosures regarding the disaggregation of revenue.

Contract Balances

The timing of revenue recognition in accordance with ASC 606 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 $ 5.4 million and $ 10.5 million are recorded within accounts receivable, net of allowance within the consolidated balance sheet as of September 30, 2019 and December 31, 2018, respectively.

Comprehensive Income and Equity

Total comprehensive income for the three and nine months ended September 30, 2019 and 2018 is summarized in the table below:

Three Months Ended September 30,

Nine Months Ended September 30,

Operating (loss) profit

The cash flows related to KJCC have not been restated in the consolidated statement of cash flows.

Net cash inflows and outflows from discontinued operations for the three months ended March 31, 2020 and 2019 consist of the following amounts:

Three Months Ended March 31,

(Dollars in millions)

Changes in other comprehensive income:

Net cash (used in) provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Effect of exchange rate changes on cash

Net (decrease) increase in cash and cash equivalents

Assets Held for Sale

Assets and liabilities (the “disposal group”) are classified as held for sale when, among other items, the sale of the asset is probable and the completed sale is expected to occur within one year.

Upon classification as held for sale, such assets are no longer depreciated or depleted, and a measurement for impairment is performed to determine if there is any excess of carrying value over fair value less costs to sell.

Subsequent changes to estimated fair value less the cost to sell will impact the measurement of assets held for sale if the fair value is determined to be less than the carrying value of the assets.

The agreement to sell KJCC met all of the criteria to classify its assets and liabilities as held for sale in the first quarter of 2020.

As part of the required evaluation under the held for sale guidance, we determined that the approximate fair value less costs to sell the operations exceeded the carrying value of the net assets and no impairment charge was recorded.

The following represents the carrying amount of assets and liabilities, by major class, classified as held for sale on the Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019:

(Dollars in millions)

Cash and cash equivalents

Accounts receivable

Income tax receivable

Inventories, net

Property, plant and equipment, net

Operating lease right-of-use assets

Other current assets

Total current assets held for sale

Property, plant and equipment, net

Operating lease right-of-use assets

Total non-current assets held for sale

Total assets held for sale

Accounts payable

Accrued liabilities

Current operating lease liabilities

Deferred tax liabilities

Other current liabilities

Total current liabilities held for sale

Deferred tax liabilities

Operating lease liabilities

Other long-term liabilities

Total non-current liabilities held for sale

Total liabilities held for sale

The above amounts are excluded from the respective balance sheet footnotes as of March 31, 2020 and December 31, 2019.

We have incurred aggregated deal costs related to this divestiture of $ 1.0 million during the three months ended March 31, 2020, which are included in (loss) income from discontinued operations on the Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income.

Fair Value Measurements

Carrying amounts and the related estimated fair values of our financial instruments as of March 31, 2020 and December 31, 2019 are as follows:

March 31, 2020

December 31, 2019

(Dollars in millions)

Financial assets:

Cash and cash equivalents, including restricted cash

Investments and other assets (a)

Financial liabilities:

Excludes equity method investments.

Cash and cash equivalents – The carrying value approximates fair value because of the short maturity of those instruments.

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 and is measured from values received from financial institutions.

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

Comprehensive (Loss) Income and Equity

Total comprehensive (loss) income for the three months ended March 31, 2020 and 2019 is summarized in the table below:

Three Months Ended March 31,

(Dollars in millions)

Net (loss) income

Changes in other comprehensive (loss) income:

Currency translation adjustment

Unrealized loss on cash flow hedges, net

of tax benefit of $ 1.7 , $ 3.7 , $ 0.6 and $ 12.0

Change in accounting standard

Unrealized (loss) gain on cash flow hedges, net

of tax benefit (expense) of $ 11.3 and $( 2.8 )

Unrecognized pension net loss, net of tax

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

Total comprehensive income (loss)

Comprehensive income (loss) attributable to

(expense) of $( 0.1 )

Total comprehensive (loss) income

Comprehensive (loss) income attributable to

noncontrolling interests

Comprehensive income (loss) attributable to Koppers

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

This component of accumulated other comprehensive loss is included in the computation of net periodic pension cost as disclosed in “Note 13 – Pensions and Post -R etirement Benefit Plans .

” Other amounts reclassified from accumulated other comprehensive loss include income related to derivative financial instruments, net of tax, of $ 1.8 million and $ 3.3 million for the three and nine months ended September 30 , 201 9 , respectively, and $ 1.1 million and $ 6.5 million for the three and nine months ended September 30 , 201 8 , respectively.

The following tables present the change in equity for the three months ended September 30, 2019 and 2018, respectively:

(Dollars in millions)

Additional Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive (Loss)

Treasury Stock

Noncontrolling

Balance at June 30,

Issuance of common stock

Employee stock plans

Other comprehensive

Currency translation

Unrealized loss on

cash flow hedges

Unrecognized pension

Balance at September 30, 2019

(Dollars in millions)

Additional Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive (Loss)

Treasury Stock

Noncontrolling

Balance at June 30,

Issuance of common stock

Employee stock plans

Other comprehensive

Currency translation

Unrealized loss on

cash flow hedges

Unrecognized pension

Repurchases of common

Balance at September 30, 2018

The following tables present the change in equity for the nine months ended September 30 , 201 9 and 201 8 , respectively:

Comprehensive (loss) income attributable to Koppers

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

This component of accumulated other comprehensive loss is included in the computation of net periodic pension cost as disclosed in “Note 13 – Pensions and Post-Retirement Benefit Plans.” Other amounts reclassified from accumulated other comprehensive loss include amounts related to derivative financial instruments, net of tax, of $( 1.1 ) million for the three ended March 31, 2020, and $ ( 0.6 ) million for the three months ended March 31, 2019.

The following tables present the change in equity for the three months ended March 31, 2020 and 2019, respectively:

(Dollars in millions)

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Employee stock plans

Other comprehensive

Other comprehensive (loss) income

Currency translation

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Repurchases of common

Balance at September 30, 2019

Balance at March 31, 2020

(Dollars in millions)

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Employee stock plans

Other comprehensive

Other comprehensive income

Currency translation

Unrealized loss on

Unrealized gain on

cash flow hedges

Change in accounting

Unrecognized pension

Repurchases of common

Balance at September 30, 2018

Balance at March 31, 2019

Earnings per Common Share

3 unchanged sentences

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

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

Net income attributable to Koppers

Net (loss) income attributable to Koppers

(Loss) income from discontinued operations

Non-controlling loss (income) from discontinued operations

Income from continuing operations attributable to Koppers

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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”) and the 2018 Long-Term Incentive Plan (the “2018 LTIP”).

Both the 2005 LTIP and the 2018 LTIP are collectively referred to as the “LTIP”.

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 (the “2020 LTIP”).

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

On May 6, 2020, the 2020 LTIP was approved by our shareholders and the 2018 LTIP was frozen.

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

Performance stock units for the 2016-2018 performance period vested at 13 percent of the target share amount in March 2019.

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

March 2020 Grant

May 2018 Grant

March 2019 Grant

May 2018 Grant

March 2018 Grant

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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 September 30, 2019:

The following table shows a summary of the performance stock units as of March 31, 2020:

Performance Period

The following table shows a summary of the status and activity of non-vested stock units for the nine months ended September 30, 2019:

Performance stock units for the 2017 – 2019 performance period vested in March 2020 at 100 percent of the target share amount of 110,262 .

The following table shows a summary of the status and activity of non-vested stock units for the three months ended March 31, 2020:

Weighted Average

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Non-vested at December 31, 2019

Non-vested at September 30, 2019

Non-vested at March 31, 2020

Stock Options

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March 2020 Grant

May 2018 Grant

March 2019 Grant

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Risk-free interest rate

Grant date fair value per share

We suspended our dividend in February 2015 and we do not expect to declare any dividends for the foreseeable future.

Grant date fair value per share of option awards

We do not expect to declare any dividends for the foreseeable future.

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

2 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 nine months ended September 30, 2019:

The following table shows a summary of the status and activity of stock options for the three months ended March 31, 2020:

Weighted Average

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Outstanding at December 31, 2019

Outstanding at September 30, 2019

Exercisable at September 30, 2019

Outstanding at March 31, 2020

Exercisable at March 31, 2020

Stock Compensation Expense

Total stock-based compensation expense recognized under our LTIP and employee stock purchase plan for the three and nine months ended September 30, 2019 and 2018 is as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Total stock-based compensation expense recognized under our LTIP and employee stock purchase plan for the three months ended March 31, 2020 and 2019 is as follows:

Three Months Ended March 31,

(Dollars in millions)

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Decrease in net income attributable to Koppers

Intrinsic value of exercised stock options

Cash received from the exercise of stock options

As of September 30, 2019, total future compensation expense related to non-vested stock-based compensation arrangements totaled $ 19.9 million and the weighted-average period over which this expense is expected to be recognized is approximately 27 months .

As of March 31, 2020 , total future compensation expense related to non-vested stock-based compensation arrangements totaled $ 23.0 million and the weighted-average period over which this expense is expected to be recognized is approximately 32 months .

Segment Information

3 unchanged sentences

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

Our Railroad and Utility Products and Services segment sells treated and untreated wood products, manufactured products and services primarily to the railroad and public utility markets.

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.

The segment also operates 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.

In April 2018, we acquired UIP, a manufacturer of treated wood utility transmission and distribution poles for utility and cooperative utility companies.

It is also a manufacturer of treated wood pilings used for construction and marine applications.

In February 2018, we acquired KRR, a vertically-integrated provider of crosstie recovery and disposal services.

KRR converts recovered material into alternative fuels, such as crosstie-derived or biomass-derived fuel, that is used as a substitute for conventional higher-cost carbon-based fuel.

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

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

The segment also manufactures treated wood utility transmission and distribution poles for utility and cooperative utility companies and treated wood pilings used for construction applications.

In addition, RUPS operates a railroad services business that conducts engineering, design, repair and inspection services for railroad bridges as well as a business related to the recovery of used crossties.

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

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.

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

We evaluate performance and determine resource allocations based on a number of factors, including earnings before interest, taxes, depreciation and amortization (“EBITDA”) and operating profit or loss from operations.

We evaluate performance and determine resource allocations based on a number of factors, including operating profit or loss from operations and earnings before interest, taxes, depreciation and amortization (“EBITDA”).

Operating profit does not include other loss, interest expense, income taxes or operating costs of Koppers Holdings Inc.

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018, except for those described in “Note 2 – New Accounting Pronouncements.” Intersegment transactions are eliminated in consolidation.

Intersegment transactions are eliminated in consolidation.

Contract Balances

The timing of revenue recognition in accordance with ASC 606, “Revenue from Contracts with Customers”, 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 $ 5.6 million and $ 5.1 million are recorded within accounts receivable in our RUPS segment, net of allowance within the consolidated balance sheet as of March 31, 2020 and December 31, 2019, respectively.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in millions)

2 unchanged sentences

Performance Chemicals

Carbon Materials and Chemicals

Carbon Materials and Chemicals (a)

Intersegment revenues:

Railroad and Utility Products and Services

Performance Chemicals

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Performance Chemicals

Carbon Materials and Chemicals

Carbon Materials and Chemicals (b)

Operating profit (loss):

1 unchanged sentence

Performance Chemicals

Carbon Materials and Chemicals

Corporate (a)

Operating loss for Corporate includes primarily general and administrative costs for Koppers Holdings Inc., the parent company of Koppers Inc.

Carbon Materials and Chemicals (c)

Revenue excludes KJCC discontinued operations of $ 9.9 million and $ 58.0 million for the three months ended March 31, 2020 and 2019, respectively.

Depreciation and amortization expense excludes KJCC discontinued operations of $ 1.0 million for the three months ended March 31, 2020 and 2019.

Operating profit (loss) excludes KJCC discontinued operations of $( 5.1 ) million and $ 4.1 million for the three months ended March 31, 2020 and 2019, respectively.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in millions)

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

September 30,

(Dollars in millions)

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Performance Chemicals

Carbon Materials and Chemicals

Carbon Materials and Chemicals (a)

Railroad and Utility Products and Services

Performance Chemicals

Increase in total assets as of September 30, 2019 includes $ 116.0 million attributable to the implementation of ASU No.

2016-02 “Leases (Topic 842).”

The Carbon Materials and Chemicals segment includes $ 67.5 million and $ 76.4 million of discontinued operations assets held for sale related to our KJCC business at March 31, 2020 and December 31, 2019, respectively.

Effective Tax Rate

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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 discussed above, was 31.1 percent and 37.1 percent for the nine months ended September 30, 2019 and 2018, respectively.

The estimated annual effective income tax rate, excluding discrete items discussed above, was 30.7 percent and 31.4 percent for the three months ended March 31, 2020 and 2019, respectively.

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

federal statutory tax rate due to:

September 30,

Federal income tax rate

Interest expense deduction limitation

Foreign earnings taxed at different rates

Nondeductible expenses

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Change in tax contingency reserves

Valuation allowance adjustments

Foreign earnings taxed at different rates

Interest expense deduction limitation

Estimated annual effective income tax rate

In 2018, the estimated annual effective income tax rate included a benefit related to the release of a valuation allowance adjustment for a subsidiary in China.

Management determined that sufficient positive evidence existed to support that this entity’s net operating losses were more likely than not to be realized.

Income taxes as a percentage of pretax income were 14.9 percent for the three months ended September 30, 2019.

This is lower than the estimated annual effective income tax rate due to discrete items.

Discrete items included in income taxes for the three months ended September 30, 2019 were a net benefit of $ 3.0 million.

Discrete items were primarily related to favorable provision-to-return adjustments that were recorded as a result of filing the Company’s 2018 U.S.

These favorable adjustments were predominately due to various tax return positions which enabled us to increase our U.S.

taxable income and therefore decrease the limitation on our interest expense deduction as originally estimated.

Income taxes as a percentage of pretax income were 55.5 percent for the three months ended September 30, 2018.

This was higher than the estimated annual effective income tax rate due to a higher estimated interest expense deduction limitation.

Discrete items included in income taxes for the three months ended September 30, 2018 were a net cost of $ 1.0 million, which includes additional income tax expense to account for the filing of the Company’s 2017 domestic and foreign tax returns.

Income taxes as a percentage of pretax income were 19.6 percent for the nine months ended September 30, 2019.

In reaction to the effects of the COVID-19 pandemic, on March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law.

This legislation provides stimulus and relief for affected entities and individuals and broadly provides tax payment relief and significant business incentives, and makes certain technical corrections to the 2017 Tax Cuts and Jobs Act.

Among its many provisions, the CARES Act modifies the limitation on the interest expense deduction for tax years beginning in 2019 and 2020.

This modification increases the allowable business interest expense deduction from 30 % of adjusted taxable income to 50 % of adjusted taxable income .

This modification impacts both our 2019 and 2020 income tax provisions and we have included the net impact in the three months ended March 31, 2020 income tax provision.

We have recorded a benefit of $ 1.0 million for a recalculation of our 2019 tax provision and benefit of $ 1.9 million for the release of a valuation allowance that was recorded for interest expense deduction limitations that were previously not expected to be realized.

Other provisions of the CARES Act do not have a material impact to our income tax provision.

Income taxes as a percentage of pretax income were lower than the estimated annual effective income tax rate due to discrete items for the three months ended March 31, 2020.

Discrete items included in income taxes for the three months ended March 31, 2020 were a net benefit of $ 1.8 million.

Discrete items included the benefits due to the enactment of the CARES Act, which was offset by a tax deduction reduction for vested stock awards.

Income taxes as a percentage of pretax income were ( 14.1 ) percent for the three months ended March 31, 2019.

This is lower than the estimated annual effective income tax rate due to discrete items.

Discrete items included in income taxes for the nine months ended September 30, 2019 were a net benefit of $ 6.7 million.

Discrete items were primarily related to the reversal of various unrecognized tax benefits due to the closure of the Company’s U.S.

tax audit and favorable provision-to-return adjustments that were recorded as a result of filing the Company’s 2018 U.S.

These favorable adjustments were predominately due to various tax return positions which enabled us to increase our U.S.

taxable income and therefore decrease the limitation on our interest expense deduction as originally estimated.

Income taxes as a percentage of pretax income were 43.9 percent for the nine months ended September 30, 2018.

This was higher than the estimated annual effective income tax rate due to discrete items.

Discrete items included in income taxes for the nine months ended September 30, 2018 were a net cost of $ 3.8 million.

Discrete items of $ 6.1 million include income tax expense related to the impact of the Tax Act and based on the filings of the Company’s 2017 domestic and foreign tax returns.

This expense is offset by $ 2.3 million of excess tax benefits for stock-based compensation and an income tax benefit of $ 0.5 million for the reversal of uncertain tax positions due to statute expirations.

Discrete items included in income taxes for the three months ended March 31, 2019 were a net benefit of $ 3.8 million.

Discrete items were primarily related to the reversal of various unrecognized tax benefits due to audit closures .

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, 2019.

Unrecognized Tax Benefits

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income tax examinations by tax authorities for years prior to 2016.

Unrecognized tax benefits totaled $ 2.1 million and $ 7.0 million as of September 30, 2019 and December 31, 2018, respectively.

As of September 30, 2019 and December 31, 2018, the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate, was approximately $ 2.0 million and $ 3.7 million, respectively.

Unrecognized tax benefits totaled $ 2.1 million as of March 31, 2020 and December 31, 2019.

As of March 31, 2020 and December 31, 2019, the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate, was approximately $ 2.1 million and $ 2.0 million as of March 31, 2020 and December 31, 2019, respectively.

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

As of September 30, 2019 and December 31, 2018, we had accrued approximately $ 0.8 million and $ 2.2 million for interest and penalties, respectively.

As of March 31, 2020 and December 31, 2019, we had accrued approximately $ 0.9 million and $ 0.8 million for interest and penalties, respectively.

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

Net inventories as of September 30, 2019 and December 31, 2018 are summarized in the table below:

September 30,

Net inventories as of March 31, 2020 and December 31, 2019 are summarized in the table below:

(Dollars in millions)

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Less revaluation to LIFO

Net inventories excludes $ 5.5 million and $ 10.6 million of discontinued operations assets held for sale related to our KJCC business at March 31, 2020 and December 31, 2019, respectively.

Property, Plant and Equipment

Property, plant and equipment as of September 30, 2019 and December 31, 2018 are summarized in the table below:

September 30,

Property, plant and equipment as of March 31, 2020 and December 31, 2019 are summarized in the table below:

(Dollars in millions)

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Less accumulated depreciation

Impairments – There were no impairment charges incurred for the nine months ended September 30, 2019 and 2018.

Net Property, plant, and equipment excludes $ 54.8 million and $ 56.6 million of discontinued operations assets held for sale related to our KJCC business at March 31, 2020 and December 31, 2019, respectively.

Pensions and Post-Retirement Benefit Plans

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

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

We maintain a number of defined benefit and defined contribution plans to provide retirement benefits for employees in the United States, as well as employees outside the United States These plans are maintained and contributions are made in accordance with the Employee Retirement Income Security Act of 1974 (“ERISA”), local statutory law or as determined by the board of directors.

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

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

In the U.S., 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.

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.

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

The following table provides the components of net periodic benefit cost for the pension plans for the three and nine months ended September 30, 2019 and 2018:

Three Months Ended September 30,

Nine Months Ended September 30,

The following table provides the components of net periodic benefit cost for the pension plans for the three months ended March 31, 2020 and 2019:

Three Months Ended March 31,

(Dollars in millions)

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Defined contribution plan expense

Debt as of September 30, 2019 and December 31, 2018 was as follows:

Debt as of March 31, 2020 and December 31, 2019 was as follows:

Interest Rate

September 30,

(Dollars in millions)

Revolving Credit Facility

Construction and other loans

Senior Notes due 2025

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Credit Facility

On May 1, 2019, we entered into the Third Amendment (the “Third Amendment”) to our $ 600 million senior secured revolving credit facility and our $ 100 million secured term loan facility (collectively the “Credit Facility”) to, among other things:

(1) reset the Credit Facility termination date to May 1, 2024 ;

and (2) revise certain financial statement covenants and related definitions and other covenants, including revising the definition of Consolidated EBITDA to increase the permitted add back of non-recurring, non-cash charges incurred in connection with the discontinuation or sale of business operations and excluding dividends and distributions made during the fiscal quarter ended September 30, 2018 from the definition of fixed charge coverage ratio.

On February 26, 2020, we entered into the Fourth Amendment and amended our $ 600.0 million senior secured revolving credit facility and our $ 100.0 million secured term loan facility (collectively, the Credit Facility”) to, among other things:

(1) revise the LIBOR replacement language in the Credit Facility, (2) revise certain provisions regarding mandatory prepayments of the term loan facility with proceeds of equity issuances and associated definitions, (3) remove the step downs in the maximum total secured leverage ratio and maximum total leverage ratio which would otherwise occur at the time of a first equity issuance, and (4) revise certain provisions regarding disposition of assets by certain subsidiaries of Koppers Inc.

All other material terms, conditions and covenants with respect to the Credit Facility remain unchanged.

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and its restricted subsidiaries to meet certain financial ratios.

As of September 30, 2019, we had $ 207.6 million of unused revolving credit availability for working capital purposes after restrictions from certain letter of credit commitments and other covenants.

As of September 30, 2019, $ 7.5 million of commitments were utilized by outstanding letters of credit.

Construction Loans

Our 75 -percent owned subsidiary, Koppers (Jiangsu) Carbon Chemical Company Limited (“KJCC”) entered into a committed loan facility agreement with a third-party bank consisting of a working capital line and a construction loan.

As of September 30, 2019, there are no borrowings under the working capital line and the construction loan was fully repaid in September 2019.

Borrowings under the working capital line would be secured by a letter of credit issued by a bank under the Credit Facility.

As of March 31, 2020, we had $ 129.9 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, 2020, $ 7.5 million of commitments were utilized by outstanding letters of credit.

Senior Notes due 2025

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

September 30,

(Dollars in millions)

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Balance at end of period

As described in Note 2 – “New Accounting Pronouncements,” on January 1, 2019, we adopted the provisions of ASU 2016-02 and recognized lease obligations and associated right-of-use assets for existing non-cancelable leases.

We adopted the provisions of ASU 2016-02 and ASU 2018-10 on January 1, 2019 and recognized lease obligations and associated right-of-use assets for existing non-cancelable leases.

We have non-cancelable operating leases primarily associated with railcars, office and manufacturing facilities, storage tanks, ships, production equipment and vehicles.

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For the remaining asset classes, we have elected the practical expedient to account for these components as a single lease component.

Upon adoption, we elected other practical expedients as well, including retaining our current classification of existing leases upon adoption and excluding leases expiring within twelve months.

Many of our leases include one or more options to renew.

The exercise of the lease renewal option is generally at our sole discretion.

We evaluate renewal options at the lease commencement date and regularly thereafter to determine if we are reasonably certain to exercise the option, in which case we include the renewal period in our lease term.

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

Operating lease costs were $ 7.1 million and $ 23.0 million and variable lease costs were $ 0.8 million and $ 2.5 million during the three and nine months ended September 30, 2019, respectively.

The following table presents information about the amount and timing of cash flows arising from our operating leases as of September 30, 2019:

Operating lease costs were $ 7.8 million and $ 8.0 million and variable lease costs were $ 1.0 million and $ 0.9 million during the three months ended March 31, 2020 and 2019, respectively.

The following table presents information about the amount and timing of cash flows arising from our operating leases as of March 3 1 , 20 20 :

(Dollars in millions)

2 unchanged sentences

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

September 30, 2019

Three Months Ended March 31,

(Dollars in millions)

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

Generally, we will not hedge cash flow exposures for durations longer than 36 months and we have hedged certain volumes of copper through early 2022.

Generally, we will not hedge cash flow exposures for durations longer than 36 months and we have hedged certain volumes of copper through 2022.

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

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In accordance with ASC Topic 815-10, we designate certain of our commodity swaps as cash flow hedges of forecasted purchases of commodities.

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

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

Gains and losses on the derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

1 unchanged sentence

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

As of September 30, 2019 and December 31, 2018, we had outstanding copper swap contracts of the following amounts:

As of March 31, 2020 and December 31, 2019, we had outstanding copper swap contracts of the following amounts:

Units Outstanding (in Pounds)

Net Fair Value - Asset (Liability)

September 30,

Net Fair Value - (Liability) Asset

(Amounts in millions)

1 unchanged sentence

Not designated as hedges

As of September 30, 2019 and December 31, 2018, the fair value of the outstanding copper swap contracts is recorded in the balance sheet as follows:

September 30,

As of March 31, 2020 and December 31, 2019, the fair value of the outstanding copper swap contracts is recorded in the balance sheet as follows:

(Dollars in millions)

Other current assets

Accrued liabilities

Other long-term liabilities

Net liability on balance sheet

Accumulated other comprehensive loss, net of tax

Based upon contracts outstanding at September 30, 2019, in the next twelve months we estimate that $ 4.6 million of unrealized losses, net of tax, related to commodity price hedging will be reclassified from comprehensive income into earnings .

See “Note 6 – Comprehensive Income and Equity”, for amounts recorded in comprehensive income and for amounts reclassified from accumulated other comprehensive loss to net income for the periods specified below.

For the three and nine months ended September 30, 2019 and 2018, the (loss) gain from contracts not designated as hedges is as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Net (liability) asset on balance sheet

Accumulated other comprehensive (loss) gain, net of tax

Based upon contracts outstanding at March 31, 2020, in the next twelve months we estimate that $ 11.7 million of unrealized losses, net of tax, related to commodity price hedging will be reclassified from comprehensive (loss) income into earnings .

See “Note 6 – Comprehensive (Loss) Income and Equity”, for amounts recorded in comprehensive (loss) income and for amounts reclassified from accumulated other comprehensive loss to net (loss) income for the periods specified below.

For the three months ended March 31, 2020 and 2019, the (loss) gain from contracts not designated as hedges is as follows:

Three Months Ended March 31,

(Dollars in millions)

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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 September 30, 2019 and December 31, 2018, the fair value of outstanding foreign currency forward contracts is recorded in the balance sheet as follows:

September 30,

These amounts are classified in cost of sales in the Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income.

As of March 31, 2020 and December 31, 2019, the fair value of outstanding foreign currency forward contracts is recorded in the balance sheet as follows:

(Dollars in millions)

2 unchanged sentences

Net asset (liability) on balance sheet

As of September 30, 2019 and December 31, 2018, the net currency units outstanding for these contracts were:

September 30,

As of March 31, 2020 and December 31, 2019, the net currency units outstanding for these contracts were:

(In millions)

2 unchanged sentences

United States Dollars

Canadian Dollars

Commitments and Contingent Liabilities

5 unchanged sentences

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 64 plaintiffs in 34 cases pending as of September 30, 2019, compared to 65 plaintiffs in 35 cases pending as of December 31, 2018 .

As of September 30, 2019, there were 33 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 64 plaintiffs in 34 cases pending as of March 31, 2020 and as of December 31, 2019.

As of March 31, 2020, there were 33 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 34 pending cases seek to recover compensatory damages.

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No trial dates have been set in any of these cases.

Pavement Sealer Cases .

is one of ten defendants in separate federal lawsuits, which have been filed since December 2018, by eleven municipalities in the state of Minnesota.

The other defendants in these lawsuits include Beazer East, Ruetgers Canada, Inc., Stella-Jones Corp., Coopers Creek Chemical Corporation, Lone Star Specialty Products, LLC, Bonsal American, Inc., The Brewer Company, Specialty Technology & Research, Inc.

and Vance Brothers, Inc.

These lawsuits were filed in the United States District Court for the District of Minnesota.

Plaintiffs in each of the lawsuits claim that contamination allegedly caused by coal tar-based pavement sealer products has impacted their stormwater retention ponds, resulting in substantially increased disposal costs when the ponds are periodically dredged.

The plaintiffs seek to recover compensatory damages and other costs in addition to compelling the defendants to remove the alleged contamination from the plaintiffs’ stormwater retention ponds and other stormwater-management devices.

The cases are being coordinated by the Court for discovery purposes only, which has not commenced.

On May 17, 2019, defendants (including Koppers Inc.) filed a joint motion to dismiss the lawsuits and four defendants (not including Koppers Inc.) filed individual motions to dismiss for lack of personal jurisdiction.

The hearing on these motions was held on September 20, 2019 and the Court has not yet issued a ruling.

No trial dates have been set in any of these lawsuits.

We have no t provided a reserve for the coal tar pitch or pavement sealer lawsuits because, at this time, we cannot reasonably determine the probability of a loss, and the amount of loss, if any, cannot be reasonably estimated.

We have not provided a reserve for the coal tar pitch lawsuits because, at this time, we cannot reasonably determine the probability of a loss, and the amount of loss, if any, cannot be reasonably estimated.

The timing of resolution of these cases cannot be reasonably determined.

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In addition, the EPA reviewed one facility’s compliance with an earlier consent order regarding above ground storage tank integrity testing.

We continue to meet and correspond with the EPA to discuss and present relevant information related to the allegations.

We currently cannot estimate the potential penalties, fines or other expenditures, if any, that may result from any EPA actions relating to the alleged potential violations and, therefore, we cannot determine if the ultimate outcome of this matter will have a material impact on our financial position, results of operations or cash flows.

In December 2019, the EPA presented Koppers Inc.

with a proposed penalty of $ 2.8 million regarding the alleged violations and we are currently in discussions with the EPA to resolve the matter.

Accordingly we have accrued our estimated liability of the probable penalty as of March 31, 2020.

has been named as one of the potentially responsible parties (“PRPs”) at the Portland Harbor CERCLA site located on the Willamette River in Oregon.

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Yakama Nation seeks recovery for future response costs and the costs of assessing injury to natural resources and recovery for past costs of overseeing investigations conducted on the site.

Although certain motions are still pending, under the recent court rulings, the Yakama Nation case will be stayed pending completion of the private allocation process for the Portland Harbor CERCLA site.

Following the most recent court rulings, the Yakama Nation case has been stayed pending completion of the private allocation process for the Portland Harbor CERCLA site .

In September 2009, Koppers Inc.

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is a de minimis party at this site.

We have accrued the estimated costs of participating in the PRP group at the Portland Harbor and Newark Bay CERCLA sites and estimated de minimis settlement amounts at the sites totaling $ 2.2 million at September 30, 2019.

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 September 30, 2019, our estimated environmental remediation liability for these acquired sites totals $ 4.4 million.

As of March 31, 2020, our estimated environmental remediation liability for these acquired sites totals $ 4.3 million.

Foreign Environmental Matters .

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(“KCMC”), in relation to an incident which occurred at our Mayfield, Australia plant on October 20, 2018.

The NSW EPA alleges that KCMC committed an offense under Australian law by failing to maintain its plant and equipment in a proper and efficient working condition.

The NSW EPA alleges that KCMC did not properly maintain a valve which failed and released heated coal tar pitch into a bunded area on our site and released fumes into the atmosphere.

The first hearing on the proceeding is scheduled to be held on November 22, 2019 in the Land and Environment Court of New South Wales.

The maximum fine for the proceeding is $ 1.0 million AUD (approximately $ 0.7 million USD) plus legal costs incurred by the NSW EPA.

The NSW EPA alleged that KCMC committed an offense under Australian law by failing to maintain its plant and equipment in a proper and efficient working condition.

The NSW EPA alleged that KCMC did not properly maintain a valve which failed and released heated coal tar pitch into a bunded area on our site and released fumes into the atmosphere.

The first hearing on the proceeding was held on November 22, 2019 in the Land and Environment Court of New South Wales and we entered a guilty plea with respect to the allegations.

The maximum fine for the proceeding is $ 1.0 million AUD (approximately $ 0.7 million) plus legal costs incurred by the NSW EPA.

The Land and Environment Court also has the authority to order KCMC to make certain improvements to its operations at the site of the incident.

We have accrued our estimated liability associated with the proceeding during the three months ended September 30, 2019.

The Land and Environment Court is expected to enter a final order and assess a fine within the next three to four months.

We have accrued our estimated liability associated with the matter as of March 31, 2020.

We also continue to meet and correspond with the NSW EPA to discuss and present relevant information related to inquiries regarding other incidents at the facility, primarily related to odor complaints.

1 unchanged sentence

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, 2019, our estimated environmental remediation liability for this acquired site totals $ 1.3 million.

As of March 31, 2020, our estimated environmental remediation liability for this acquired site totals $ 1.2 million.

Environmental Reserves Rollforward.

The following table reflects changes in the accrued liability for environmental matters, of which $ 2.9 million and $ 3.5 million are classified as current liabilities at September 30, 2019 and December 31, 2018, respectively:

September 30,

The following table reflects changes in the accrued liability for environmental matters, of which $ 2.7 million and $ 2.8 million are classified as current liabilities at March 31, 2020 and December 31, 2019, respectively:

(Dollars in millions)

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Balance at end of period

Related Party Transactions

At December 31, 2017, KJCC had an outstanding loan from its 25 -percent non-controlling shareholder of $ 2.5 million.

This loan was repaid in November 2018.

Fair Value Measurements

Carrying amounts and the related estimated fair values of our financial instruments as of September 30, 2019 and December 31, 2018 are as follows:

September 30, 2019

December 31, 2018

(Dollars in millions)

Financial assets:

Cash and cash equivalents, including restricted cash

Investments and other assets (a)

Financial liabilities:

Excludes equity method investments.

Cash and cash equivalents – The carrying value approximates fair value because of the short maturity of those instruments.

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 and is measured from values received from financial institutions.

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

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