What changed in this filing

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Item 1. Financial Statements

2020-08-05 compared with 2020-05-07 · 194 added, 143 removed, 645 unchanged (34% of the section changed)

1 unchanged sentence

KOPPERS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

Three Months Ended March 31,

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in millions, except per share amounts)

4 unchanged sentences

Operating profit

Other income, net

Other income (loss), net

Interest expense

Income from continuing operations before income taxes

Income from continuing operations before income

Income tax provision

Income from continuing operations

(Loss) income from discontinued operations, net

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

Income (loss) from discontinued operations, net of

tax benefit (expense) of $ 0.2 , $ 0.0 , $ 1.0 , and $( 1.1 )

Net income (loss) attributable to noncontrolling

Net income attributable to Koppers

Earnings (loss) per common share attributable to

2 unchanged sentences

Discontinued operations

(Loss) earnings per basic common share

Earnings per basic common share

Continuing operations

Discontinued operations

(Loss) earnings per diluted common share

Comprehensive (loss) income

Comprehensive (loss) income attributable to noncontrolling interests

Comprehensive (loss) income attributable to Koppers

Earnings per diluted common share

Comprehensive income

Comprehensive income (loss) attributable to

noncontrolling interests

Comprehensive income attributable to Koppers

Weighted average shares outstanding (in thousands):

45 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

(Dollars in millions)

Cash (used in) provided by operating activities:

Net (loss) income

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

Cash provided by (used in) operating activities:

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

Depreciation and amortization

Change in derivative liability

Stock-based compensation

Change in derivative liability

Non-cash interest expense

Deferred income taxes

Loss on disposal of assets and investment

Insurance proceeds

Deferred income taxes

Change in other liabilities

4 unchanged sentences

Other working capital

Net cash used in operating activities

Net cash provided by operating activities

Cash (used in) provided by investing activities:

12 unchanged sentences

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

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

4 unchanged sentences

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

Supplemental disclosure of cash flow information:

Non-cash investing activities

Accrued capital expenditures

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

15 unchanged sentences

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.

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 such 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;

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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.

In consideration of COVID-19, we evaluated our financial position and determined that a goodwill impairment evaluation triggering event did not occur during the three months ended June 30, 2020 and, therefore, an interim review of impairment was not required.

Events and changes in circumstances arising after June 30, 2020, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.

New Accounting Pronouncements

2 unchanged sentences

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

In August 2018, the FASB issued ASU 2018-14, “Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans,” which amends ASC 715-20, Compensation – Retirement Benefits – Defined Benefit Plans.

The ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.

The disclosure requirements to be removed include the amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit costs over the next fiscal year and the effect of a one percentage point change in assumed health care cost trend rates on the aggregate service cost and benefit obligation for postretirement health care benefits.

The new disclosure requirements include an explanation of significant gains and losses related to changes in benefit obligations.

This guidance is effective for fiscal years ending after December 15, 2020.

In June 2016, the FASB issued ASU No.

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These activities include:

In June 2020, we announced the closure of a crosstie treating plant located in Denver, Colorado and we have targeted the third quarter of 2020 for discontinuing activities at this location and, as such, we recorded charges of $ 2.9 million for asset retirement obligations and $ 1.3 million for fixed asset write-offs and severance in the three months ended June 30, 2020.

In August 2019, we sold our utility pole treatment plant located in Blackstone, Virginia.

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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 (loss) income from discontinued operations on the consolidated statement of operations and comprehensive (loss) income.

Costs associated with this closure are included in income (loss) from discontinued operations on the Condensed Consolidated Statement of Operations and Comprehensive Income.

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

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Reserve at December 31, 2019

Cost charged against assets

Reversal of accrued charges

Reserve at March 31, 2020

Reserve at June 30, 2020

Discontinued Operations

1 unchanged sentence

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,

The sales price is $ 107.0 million, subject to adjustment for cash, debt and working capital at closing, which is expected to occur in the third quarter of 2020 due to required regulatory approvals in China and achievement of other customary closing conditions.

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 condensed consolidated financial statements and notes, which have been restated accordingly.

Net sales and operating (loss) profit from discontinued operations for the three and six months ended June 30, 2020 and 2019 consist of the following amounts:

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in millions)

1 unchanged sentence

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,

Net cash inflows and outflows from discontinued operations for the six months ended June 30, 2020 and 2019 consist of the following amounts:

Six Months Ended June 30,

(Dollars in millions)

Net cash (used in) provided by operating activities

Net cash used in investing activities

Net cash provided by (used in) investing activities

Net cash used in financing activities

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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:

The agreement to sell KJCC met all of the criteria to classify its assets and liabilities as held for sale in the first quarter and 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 Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019:

(Dollars in millions)

5 unchanged sentences

Operating lease right-of-use assets

Deferred tax assets

Other current assets

7 unchanged sentences

Current operating lease liabilities

Deferred tax liabilities

Other current liabilities

5 unchanged sentences

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.

The above amounts are excluded from the respective balance sheet footnotes as of June 30, 2020 and December 31, 2019.

We have incurred aggregated deal costs related to this divestiture of $ 0.2 million and $ 1.2 million during the three and six months ended June 30, 2020, respectively, which are included in income (loss) from discontinued operations on the Condensed Consolidated Statement of Operations and Comprehensive 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

Carrying amounts and the related estimated fair values of our financial instruments as of June 30, 2020 and December 31, 2019 are as follows:

June 30, 2020

December 31, 2019

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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,

Comprehensive Income and Equity

Total comprehensive income for the three and six months ended June 30, 2020 and 2019 is summarized in the table below:

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in millions)

Net (loss) income

Changes in other comprehensive (loss) income:

Changes in other comprehensive income (loss):

Currency translation adjustment

Unrealized (loss) gain on cash flow hedges, net

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

Unrealized gain (loss) on cash flow hedges, net

of tax (expense) benefit of $( 11.6 ), $ 2.0 ,

$( 1.7 ) and $( 1.2 )

Unrecognized pension net loss, net of tax

(expense) of $( 0.1 )

Total comprehensive (loss) income

Comprehensive (loss) income attributable to

expense of $ 0.0 , $ 0.1 , $ 0.1 and $ 0.2

Total comprehensive income

Comprehensive income (loss) attributable to

noncontrolling interests

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:

Comprehensive income attributable to Koppers

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

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 related to derivative financial instruments, net of tax, of $ 2.3 million and $ 3.4 million for the three and six months ended June 30, 2020, respectively, and $ 0.9 million and $ 1.5 million for the three and six months ended June 30, 2019, respectively.

The following tables present the change in equity for the three months ended June 30, 2020 and 2019, respectively:

(Dollars in millions)

4 unchanged sentences

Noncontrolling

Balance at December 31,

Balance at March 31, 2020

Issuance of common stock

Employee stock plans

Other comprehensive (loss) income

Other comprehensive

Currency translation

Unrealized gain on cash

Unrecognized pension

Balance at June 30, 2020

(Dollars in millions)

Additional Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Loss

Treasury Stock

Noncontrolling

Balance at March 31, 2019

Issuance of common stock

Employee stock plans

Other comprehensive

Currency translation

Unrealized loss on

1 unchanged sentence

Unrecognized pension

Balance at June 30, 2019

The following tables present the change in equity for the six months ended June 30, 2020 and 2019, respectively:

(Dollars in millions)

Additional Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Loss

Treasury Stock

Noncontrolling

Balance at December 31,

Issuance of common stock

Employee stock plans

Other comprehensive

Currency translation

Unrealized gain on cash

Unrecognized pension

Repurchases of common

Balance at March 31, 2020

Balance at June 30, 2020

(Dollars in millions)

7 unchanged sentences

Employee stock plans

Other comprehensive income

Other comprehensive

Currency translation

Unrealized gain on

Unrealized loss on

cash flow hedges

1 unchanged sentence

Repurchases of common

Balance at March 31, 2019

Balance at June 30, 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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

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

Net (loss) income attributable to Koppers

(Loss) income from discontinued operations

Non-controlling loss (income) from discontinued operations

Net income attributable to Koppers

Income (loss) from discontinued operations

Non-controlling income (loss)

Income from continuing operations attributable to Koppers

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

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

The following table shows a summary of the performance stock units as of June 30, 2020:

Performance Period

Performance stock units for the 2017 – 2019 performance period vested in March 2020 at 100 percent of the target share amount of 110,168 .

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

The following table shows a summary of the status and activity of non-vested stock units for the six months ended June 30, 2020:

Weighted Average

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Non-vested at December 31, 2019

Non-vested at March 31, 2020

Non-vested at June 30, 2020

Stock Options

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Risk-free interest rate

Grant date fair value per share of option awards

Grant date fair value per share of option

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

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Treasury bill rates for the expected life of the option.

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

The following table shows a summary of the status and activity of stock options for the six months ended June 30, 2020:

Weighted Average

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Outstanding at December 31, 2019

Outstanding at March 31, 2020

Exercisable at March 31, 2020

Outstanding at June 30, 2020

Exercisable at June 30, 2020

Stock Compensation Expense

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,

Total stock-based compensation expense recognized under our LTIP and employee stock purchase plan for the three and six months ended June 30, 2020 and 2019 is as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in millions)

3 unchanged sentences

Decrease in net income attributable to Koppers

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 .

As of June 30, 2020 , total future compensation expense related to non-vested stock-based compensation arrangements totaled $ 20.4 million and the weighted-average period over which this expense is expected to be recognized is approximately 29 months .

Segment Information

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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.

Contract assets of $ 5.4 million and $ 5.1 million are recorded within accounts receivable in our RUPS segment, net of allowance within the consolidated balance sheet as of June 30, 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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in millions)

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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.

Revenue excludes KJCC discontinued operations of $ 12.9 million and $ 26.0 million for the three months ended June 30, 2020 and 2019, respectively, and $ 22.8 million and $ 84.0 million for the six months ended June 30, 2020 and 2019, respectively.

Depreciation and amortization expense excludes KJCC discontinued operations of $( 0.4 ) million and $ 1.0 million for the three months ended June 30, 2020 and 2019, respectively, and $ 0.5 million and $ 1.9 million for the six months ended June 30, 2020 and 2019, respectively.

Operating profit (loss) excludes KJCC discontinued operations of $( 0.2 ) million and $ 0.3 million for the three months ended June 30, 2020 and 2019, respectively, and $( 5.3 ) million and $ 4.5 million for the six months ended June 30, 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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in millions)

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Performance Chemicals

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.

The Carbon Materials and Chemicals segment includes $ 68.1 million and $ 76.4 million of discontinued operations assets held for sale related to our KJCC business at June 30, 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 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, excluding discrete items discussed above, was 27.8 percent and 34.7 percent for the six months ended June 30, 2020 and 2019, respectively.

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

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Estimated annual effective income tax rate

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.

In reaction to the economic 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.

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

This modification impacts both our 2019 and 2020 income tax provisions and we have included the net impact in the six months ended June 30, 2020 income tax provision.

We have recorded a benefit of $ 1.0 million for changes to our 2019 tax provision and a benefit of $ 4.4 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.

Income taxes as a percentage of pretax income were 21.4 percent for the three months ended June 30, 2020.

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 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 .

Discrete items included in income taxes for the three months ended June 30, 2020 were a net benefit of $ 2.4 million.

Discrete items were primarily related to a benefit for the release of a valuation allowance that was recorded for interest expense deduction limitations that were previously not expected to be realized.

Income taxes as a percentage of pretax income were 35.9 percent for the three months ended June 30, 2019.

This is higher than the estimated annual effective income tax rate due to a change in the geographical mix of earnings and due to an increase in unfavorable US tax adjustments for the interest expense deduction limitation and the GILTI inclusion.

Income taxes as a percentage of pretax income were 16.5 percent for the six months ended June 30, 2020.

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

Discrete items included in income taxes for the six months ended June 30, 2020 were a net benefit of $ 4.2 million.

Discrete items included a benefit for the release of a valuation allowance that was recorded for interest expense deduction limitations that were previously not expected to be realized which was offset by a tax deduction reduction for vested stock awards.

Income taxes as a percentage of pretax income were 22.1 percent for the six months ended June 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 six months ended June 30, 2019 were a net benefit of $ 3.7 million.

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

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

To the extent that actual results vary from these estimates, the actual annual effective income tax rate at the end of the year could be materially different from the estimated annual effective income tax rate for the three months ended March 31, 2020.

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 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.

Unrecognized tax benefits totaled $ 2.2 million and $ 2.1 million as of June 30, 2020 and December 31, 2019, respectively.

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 June 30, 2020 and December 31, 2019, respectively.

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

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.

As of June 30, 2020 and December 31, 2019, we had accrued approximately $ 1.0 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 March 31, 2020 and December 31, 2019 are summarized in the table below:

Net inventories as of June 30, 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.

Net inventories excludes $ 5.9 million and $ 10.6 million of discontinued operations assets held for sale related to our KJCC business at June 30, 2020 and December 31, 2019, respectively.

Property, Plant and Equipment

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

Property, plant and equipment as of June 30, 2020 and December 31, 2019 are summarized in the table below:

(Dollars in millions)

1 unchanged sentence

Less accumulated depreciation

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.

Net property, plant, and equipment excludes $ 55.2 million and $ 56.6 million of discontinued operations assets held for sale related to our KJCC business at June 30, 2020 and December 31, 2019, respectively.

Pensions and Post-Retirement Benefit Plans

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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 months ended March 31, 2020 and 2019:

Three Months Ended March 31,

The following table provides the components of net periodic benefit cost for the pension plans for the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in millions)

4 unchanged sentences

Defined contribution plan expense

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

Debt as of June 30, 2020 and December 31, 2019 was as follows:

Interest Rate

7 unchanged sentences

Credit Facility

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:

On February 26, 2020, we entered into the Fourth Amendment to 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.

7 unchanged sentences

and its restricted subsidiaries to meet certain financial ratios.

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.

As of June 30, 2020, we had $ 157.5 million of unused revolving credit availability for working capital purposes after restrictions from certain letter of credit commitments and other covenants.

As of June 30, 2020, $ 7.1 million of commitments were utilized by outstanding letters of credit.

Senior Notes due 2025

18 unchanged sentences

Cash expenditures

Currency translation

Balance at end of period

10 unchanged sentences

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

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 :

Operating lease costs were $ 7.4 million and $ 15.2 million during the three and six months ended June 30, 2020, respectively, and $ 7.9 million and $ 15.9 million during the three and six months ended June 30, 2019, respectively.

Variable lease costs were $ 0.8 million and $ 1.8 million during the three and six months ended June 30, 2020, respectively, and $ 0.9 million and $ 1.8 million during the three and six months ended June 30, 2019, respectively.

The following table presents information about the amount and timing of cash flows arising from our operating leases as of June 30, 2020:

(Dollars in millions)

1 unchanged sentence

Present value of lease liabilities

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

Three Months Ended March 31,

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

(Dollars in millions)

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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 (loss) 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 income (loss) 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 March 31, 2020 and December 31, 2019, we had outstanding copper swap contracts of the following amounts:

As of June 30, 2020 and December 31, 2019, we had outstanding copper swap contracts of the following amounts:

Units Outstanding (in Pounds)

Net Fair Value - (Liability) Asset

Net Fair Value - Asset (Liability)

(Amounts in millions)

1 unchanged sentence

Not designated as hedges

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:

As of June 30, 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) 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,

Asset on balance sheet

Accumulated other comprehensive gain, net of tax

Based upon contracts outstanding at June 30, 2020, in the next twelve months we estimate that $ 1.2 million of unrealized gains, net of tax, related to commodity price hedging will be reclassified from comprehensive income (loss) into earnings .

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

For the three and six months ended June 30, 2020 and 2019, the gain (loss) from contracts not designated as hedges is as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in millions)

(Loss) gain from contracts not designated as hedges

Gain (loss) from contracts not designated as hedges

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

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

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

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

As of June 30, 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)

1 unchanged sentence

Accrued liabilities

Net asset (liability) on balance sheet

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

Net liability on balance sheet

As of June 30, 2020 and December 31, 2019, the net currency units outstanding for these contracts were:

(In millions)

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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 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.

There were 64 plaintiffs in 34 cases pending as of June 30, 2020.

This is the same number of plaintiffs and cases pending as of December 31, 2019.

As of June 30, 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.

61 unchanged sentences

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.

Accordingly we have accrued our estimated liability of the probable penalty as of June 3 0 , 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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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 March 31, 2020.

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

1 unchanged sentence

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

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

As of June 30, 2020, our estimated environmental remediation liability for these acquired sites totals $ 4.3 million.

Foreign Environmental Matters .

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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.

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.

We currently cannot estimate the potential penalties, fines or other expenditures, if any, that may result from these NSW EPA inquiries 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 May 2020, the NSW EPA brought additional proceedings against KCMC related to a series of May 2019 incidents involving alleged air pollution and odor complaints.

The Company agreed to plead guilty to two of the charges and the remaining charges were dropped by the NSW EPA.

Both the October 2019 and May 2020 proceedings were procedurally joined and The Land and Environment Court is expected to enter a final order and assess a fine by the end of the year.

We have accrued our estimated liability associated with the matters as of June 30, 2020.

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

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

As of June 30, 2020, our estimated environmental remediation liability for this acquired site totals $ 1.3 million.

Environmental Reserves Rollforward.

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:

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 June 30, 2020 and December 31, 2019, respectively:

(Dollars in millions)

5 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements