What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-04 compared with 2020-08-05 · 206 added, 160 removed, 679 unchanged (35% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in millions, except per share amounts)

4 unchanged sentences

Operating profit

Other income (loss), net

Other income, net

Interest expense

2 unchanged sentences

Income from continuing operations

Income (loss) from discontinued operations, net of

(Loss) income from discontinued operations, net of

tax benefit (expense) of $ 0.4 , $( 0.7 ), $ 1.4 , and $( 1.8 )

Net income (loss) attributable to noncontrolling

Gain on sale of discontinued operations, net of tax

expense of $ 8.3

Net (loss) income attributable to noncontrolling

Net income attributable to Koppers

Earnings (loss) per common share attributable to

Earnings per common share attributable to

Koppers common shareholders:

6 unchanged sentences

Comprehensive income

Comprehensive income (loss) attributable to

Comprehensive (loss) income attributable to

noncontrolling interests

4 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEET

September 30,

(Dollars in millions, except per share amounts)

Cash and cash equivalents

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

Accounts receivable, net of allowance of $ 2.3 and $ 2.6

39 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

(Dollars in millions)

5 unchanged sentences

Non-cash interest expense

Loss on disposal of assets and investment

(Gain) on sale of discontinued operations and loss on disposal of

assets and investment

Insurance proceeds

7 unchanged sentences

Net cash provided by operating activities

Cash (used in) provided by investing activities:

Cash provided by (used in) investing activities:

Capital expenditures

Insurance proceeds received

Net cash provided by divestitures and asset sales

Net cash used in investing activities

Cash provided by (used in) financing activities:

Net increase in credit facility borrowings

Net cash provided by sale of discontinued operations and asset sales

Net cash provided by (used in) investing activities

Cash (used in) provided by financing activities:

Net decrease in credit facility borrowings

Repayments of long-term debt

2 unchanged sentences

Payment of debt issuance costs

Net cash provided by financing activities

Net cash used in financing activities

Effect of exchange rate changes on cash

25 unchanged sentences

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.

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

This current level of uncertainty over the economic and operational impacts of COVID-19 means the related future 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 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;

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

inventory valuation;

3 unchanged sentences

and measurement of cash incentive plans.

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.

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 September 30, 2020 and, therefore, an interim review of impairment was not required.

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

New Accounting Pronouncements

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 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.

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

This update provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as the London Interbank Offered Rate (“LIBOR”).

This ASU includes practical expedients for contract modifications due to reference rate reform.

Generally, contract modifications related to reference rate reform may be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date.

This ASU is effective March 12, 2020 through December 31, 2022.

The Company’s debt agreements include the use of alternate rates when LIBOR is not available.

We do not expect the change from LIBOR to an alternate rate will have a material impact to our financial statements and, to the extent we enter into modifications of agreements that are impacted by the LIBOR phase-out, we will apply such guidance to those contract modifications.

In January 2020, the FASB issued ASU No.

2020-01, “Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

Early adoption is permitted.

The Company does not expect the adoption of ASU No.

2020-01 to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU No.

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.

1 unchanged sentence

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.

This guidance is effective for fiscal years ending after December 15, 2020 and is not expected to have a material impact on the Company’s financial statements and disclosures.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820-10):

Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which changes the fair value measurement disclosure requirements of ASC Topic 820, Fair Value Measurements and Disclosures.

Under this ASU, certain disclosure requirements for fair value measurements are eliminated, amended or added.

These changes aim to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing the disclosures.

This guidance is effective for fiscal years ending after December 15, 2020 and is not expected to have a material impact on the Company’s financial statements and disclosures.

In June 2016, the FASB issued ASU No.

2016-13, “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses.

Measurement of Credit Losses on Financial Instruments,” which has subsequently been amended by ASU No.

2019-04 and ASU No.

2016-13 replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses.

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.

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

We adopted ASU No.

2016-13 as of January 1, 2020 and ASU No.’s 2019-04 and 2020-03 as of July 1, 2020 and there was no material impact on our financial statements.

Plant Closures and Divestitures

1 unchanged sentence

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.

In August 2019, we ceased remaining production activities at the plant.

In September 2020, we sold 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.

as discussed in “Note 4 – Discontinued Operations” .

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

In August 2019, we ceased remaining production activities at the Follansbee plant.

In September 2018, we sold our UK-based specialty chemicals business.

7 unchanged sentences

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

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.

These acti vities include:

In June 2020, we announced the closure of a crosstie treating plant located in Denver, Colorado and in the third quarter of 2020 we discontinued production activities at this location.

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

2 unchanged sentences

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 (loss) from discontinued operations on the Condensed Consolidated Statement of Operations and Comprehensive Income.

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

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

9 unchanged sentences

Reversal of accrued charges

Reserve at June 30, 2020

Reserve at September 30, 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 in the third quarter of 2020 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, expenses and working capital adjustments.

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,

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

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

The sales price was $ 107.0 million, subject to adjustments for cash, debt and working capital as defined in the sale and purchase agreement.

The pre-tax gain on the sale of KJCC was $ 44.1 million and the after tax gain on the sale was $ 35.8 million.

The net cash proceeds to Koppers was $ 65.2 million, after noncontrolling interest, Chinese capital gain taxes, transaction costs and estimated working capital adjustments.

Included in the cash proceeds is restricted cash of $ 2.3 million which is being held in an escrow account to cover potential customary indemnity claims by the buyers for a period of 18 months.

We have previously elected to include proceeds received from the sale of a subsidiary that is separately reported as a discontinued operation within cash flows from continuing operations on the Condensed Consolidated Statement of Cash Flows.

The sale of KJCC represents a strategic shift that has a major effect on our operations and financial results and was, 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 nine months ended September 30, 2020 and 2019 consist of the following amounts:

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in millions)

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 six months ended June 30, 2020 and 2019 consist of the following amounts:

Six Months Ended June 30,

The cash flows related to KJCC have not been restated in the Condensed Consolidated Statement of Cash Flows.

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

Nine Months Ended September 30,

(Dollars in millions)

Net cash (used in) provided by operating activities

Net cash provided by (used in) investing activities

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

1 unchanged sentence

Net (decrease) increase in cash and cash equivalents

Assets Held for Sale

Assets of Discontinued Operations 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.

1 unchanged sentence

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 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:

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 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 below amounts are excluded from the respective balance sheet footnotes as of December 31, 2019.

We have incurred aggregated transactions costs related to this divestiture of $ 3.7 million and $ 4.9 million during the three and nine months ended September 30, 2020, respectively, which are included in (loss) income from discontinued operations and gain on the sale of discontinued operations on the Condensed Consolidated Statement of Operations and Comprehensive Income.

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

(Dollars in millions)

3 unchanged sentences

Inventories, net

Property, plant and equipment, net

Operating lease right-of-use assets

Deferred tax assets

Other current assets

7 unchanged sentences

Current operating lease liabilities

Other current liabilities

Total current liabilities held for sale

4 unchanged sentences

Total liabilities held for sale

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 June 30, 2020 and December 31, 2019 are as follows:

June 30, 2020

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

September 30, 2020

December 31, 2019

11 unchanged sentences

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,

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

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in millions)

7 unchanged sentences

Total comprehensive income

Comprehensive income (loss) attributable to

Comprehensive (loss) income attributable to

noncontrolling interests

1 unchanged sentence

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:

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 $ 1.3 million and $ 2.1 million for the three and nine months ended September 30, 2020, respectively, and $ 1.8 million and $ 3.3 million for the three and nine months ended September 30, 2019, respectively.

Additionally, $ 2.5 million was reclassified from cumulative translation adjustment to net income attributable to Koppers for the three and nine months ended September 30, 2020.

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

(Dollars in millions)

4 unchanged sentences

Noncontrolling

Balance at March 31, 2020

Balance at June 30, 2020

Issuance of common stock

Employee stock plans

Sale of discontinued

Other comprehensive

2 unchanged sentences

Unrecognized pension

Balance at June 30, 2020

Balance at September 30,

(Dollars in millions)

4 unchanged sentences

Noncontrolling

Balance at March 31, 2019

Balance at June 30,

Issuance of common stock

5 unchanged sentences

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:

Balance at September 30,

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

(Dollars in millions)

7 unchanged sentences

Employee stock plans

Sale of discontinued

Other comprehensive

3 unchanged sentences

Repurchases of common

Balance at June 30, 2020

Balance at September 30,

(Dollars in millions)

13 unchanged sentences

Repurchases of common

Balance at June 30, 2019

Balance at September 30,

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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

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

Net income attributable to Koppers

Income (loss) from discontinued operations

Non-controlling income (loss)

(Loss) income from discontinued operations

Gain on sale of discontinued operations

Non-controlling (loss) income

Income from continuing operations attributable to Koppers

39 unchanged sentences

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

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

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

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

Weighted Average

2 unchanged sentences

Non-vested at December 31, 2019

Non-vested at June 30, 2020

Non-vested at September 30, 2020

Stock Options

21 unchanged sentences

Treasury bill rates for the expected life of the option.

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

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

Weighted Average

5 unchanged sentences

Outstanding at December 31, 2019

Outstanding at June 30, 2020

Exercisable at June 30, 2020

Outstanding at September 30, 2020

Exercisable at September 30, 2020

Stock Compensation Expense

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,

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

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in millions)

3 unchanged sentences

Decrease in net income attributable to Koppers

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 .

Cash received from the exercise of stock options

As of September 30, 2020 , total future compensation expense related to non-vested stock-based compensation arrangements totaled $ 17.7 million and the weighted-average period over which this expense is expected to be recognized is approximately 27 months .

Segment Information

19 unchanged sentences

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 $ 5.4 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.

Contract assets of $ 4.2 million and $ 5.1 million are recorded within accounts receivable in our RUPS segment, net of allowance within the Condensed Consolidated Balance Sheet as of September 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in millions)

4 unchanged sentences

Intersegment revenues:

Railroad and Utility Products and Services

Performance Chemicals

8 unchanged sentences

Carbon Materials and Chemicals (c)

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.

Revenue excludes KJCC discontinued operations of $ 8.8 million and $ 40.7 million for the three months ended September 30, 2020 and 2019, respectively, and $ 31.6 million and $ 124.7 million for the nine months ended September 30, 2020 and 2019, respectively.

Depreciation and amortization expense excludes KJCC discontinued operations of $ 0.1 million and $ 1.0 million for the three months ended September 30, 2020 and 2019, respectively, and $ 0.6 million and $ 2.9 million for the nine months ended September 30, 2020 and 2019, respectively.

Operating profit (loss) excludes KJCC discontinued operations of $ 0.3 million and $ 3.1 million for the three months ended September 30, 2020 and 2019, respectively, and $( 5.0 ) million and $ 7.5 million for the nine months ended September 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in millions)

9 unchanged sentences

Pitch and related products

Creosote and distillates

Phthalic anhydride and other chemicals

Creosote and distillates

Other products

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)

5 unchanged sentences

Performance Chemicals

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.

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

Effective Tax Rate

The income tax provision for interim periods is comprised of an estimated annual effective income tax rate applied to current year ordinary income and tax associated with discrete items.

These discrete items generally relate to excess stock compensation deductions, changes in tax laws, adjustments to unrecognized tax benefits and changes of estimated tax to the actual liability determined upon filing tax returns.

These discrete items generally relate to excess stock compensation deductions, changes in tax laws, adjustments to unrecognized tax benefits and changes of estimated tax liability to the actual liability determined upon filing tax returns.

To determine the annual effective tax rate, management is required to make estimates of annual pretax income in each domestic and foreign jurisdiction in which we conduct business.

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 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, excluding discrete items discussed above, was 25.8 percent and 31.6 percent for the nine months ended September 30, 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

1 unchanged sentence

Nondeductible expenses

GILTI inclusion, net of foreign tax credits

State income taxes, net of federal tax benefit

GILTI inclusion, net of foreign tax credits

Change in tax contingency reserves

2 unchanged sentences

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.

This legislation provides stimulus and relief for affected entities and individuals, 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 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.

To determine adjusted taxable income, taxpayers compute their taxable income and then add or subtract specified adjustments, including, for taxable years beginning before 2022, adding back depreciation and amortization.

On July 28, 2020, the Internal Revenue Service released finalized regulations and proposed new regulations that modify the calculation of adjusted taxable income.

The finalized regulations provide that any depreciation, amortization, or depletion capitalized to inventory and included in cost of goods sold may be added back in the year capitalized.

These modifications and finalized regulations impact both our 2019 and 2020 income tax provisions and we have included the net impact as discrete items in the nine months ended September 30, 2020.

We have recorded a benefit of $ 4.0 million for changes to our 2019 tax provision and a benefit of $ 2.4 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 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 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.

Income taxes as a percentage of pretax income were 18.0 percent for the three months ended September 30, 2020.

This is lower than the estimated annual effective income tax rate due to discrete items, which were a net benefit of $ 3.1 million for the three months ended September 30, 2020.

Discrete items were primarily related to the legislative changes and finalized regulations regarding the limitation on the interest expense deduction and a benefit due to an amended tax return.

Income taxes as a percentage of pretax income were 13.7 percent for the three months ended September 30, 2019.

This is lower than the estimated annual effective income tax rate due to discrete items, which were a net benefit of $ 3.0 million for the three months ended September 30, 2019.

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 17.4 percent for the nine months ended September 30, 2020.

This is lower than the estimated annual effective income tax rate due to discrete items, which were a net benefit of $ 7.3 million for the nine months ended September 30, 2020.

Discrete items were primarily related to the legislative changes and finalized regulations regarding the limitation on the interest expense deduction and a benefit due to an amended tax return .

These discrete items were offset by a tax deduction reduction for vested stock awards.

Income taxes as a percentage of pretax income were 18.7 percent for the nine months ended September 30, 2019.

This is lower than the estimated annual effective income tax rate due to discrete items, which were a net benefit of $ 6.7 million for the nine months ended September 30, 2019.

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 .

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 six months ended June 30, 2020.

Unrecognized Tax Benefits

We and our subsidiaries file income tax returns in the U.S.

The Company files income tax returns in the U.S.

federal jurisdiction, individual U.S.

5 unchanged sentences

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

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.

Unrecognized tax benefits totaled $ 1.9 million and $ 2.1 million as of September 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 $ 1.9 million and $ 2.0 million as of September 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 June 30, 2020 and December 31, 2019, we had accrued approximately $ 1.0 million and $ 0.8 million for interest and penalties, respectively.

As of September 30, 2020 and December 31, 2019, we had accrued approximately $ 0.8 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 June 30, 2020 and December 31, 2019 are summarized in the table below:

Net inventories as of September 30, 2020 and December 31, 2019 are summarized in the table below:

September 30,

(Dollars in millions)

3 unchanged sentences

Less revaluation to LIFO

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.

Net inventories excludes $ 10.6 million of assets of discontinued operations held for sale related to our KJCC business as of December 31, 2019.

Property, Plant and Equipment

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

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

September 30,

(Dollars in millions)

1 unchanged sentence

Less accumulated depreciation

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.

Net property, plant, and equipment excludes $ 56.6 million of assets of discontinued operations held for sale related to our KJCC business as of December 31, 2019.

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 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.

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.

6 unchanged sentences

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 six months ended June 30, 2020 and 2019:

Three Months Ended June 30,

Six Months Ended June 30,

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

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in millions)

4 unchanged sentences

Defined contribution plan expense

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

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

Interest Rate

September 30,

(Dollars in millions)

Revolving Credit Facility

Revolving Credit Facility and other

Senior Notes due 2025

4 unchanged sentences

Credit Facility

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.

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

The Company maintains a $ 600.0 million senior secured revolving credit facility and a $ 100.0 million secured term loan facility (collectively, the Credit Facility”), as amended.

The secured term loan has a quarterly amortization of $ 2.5 million and the interest rate on the Credit Facility is variable and is based on LIBOR .

5 unchanged sentences

and its restricted subsidiaries to meet certain financial ratios.

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.

As of September 30, 2020, we had $ 307.3 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, 2020, $ 7.0 million of commitments were utilized by outstanding letters of credit.

Senior Notes due 2025

13 unchanged sentences

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

September 30,

(Dollars in millions)

15 unchanged sentences

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

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:

Operating lease costs were $ 8.1 million and $ 23.2 million during the three and nine months ended September 30, 2020, respectively, and $ 7.1 million and $ 23.0 million during the three and nine months ended September 30, 2019, respectively.

Variable lease costs were $ 0.8 million and $ 2.7 million during the three and nine months ended September 30, 2020, respectively, and $ 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, 2020:

(Dollars in millions)

2 unchanged sentences

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

September 30,

(Dollars in millions)

22 unchanged sentences

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

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

As of September 30, 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,

(Amounts in millions)

1 unchanged sentence

Not designated as hedges

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:

As of September 30, 2020 and December 31, 2019, the fair value of the outstanding copper swap contracts is recorded in the balance sheet as follows:

September 30,

(Dollars in millions)

2 unchanged sentences

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,

Based upon contracts outstanding at September 30, 2020, in the next twelve months we estimate that $ 9.7 million of unrealized gains, 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, 2020 and 2019, the gain (loss) from contracts not designated as hedges is as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in millions)

2 unchanged sentences

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:

As of September 30, 2020 and December 31, 2019, the fair value of outstanding foreign currency forward contracts is recorded in the balance sheet as follows:

September 30,

(Dollars in millions)

1 unchanged sentence

Accrued liabilities

Net liability on balance sheet

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

Net asset (liability) on balance sheet

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

September 30,

(In millions)

9 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 June 30, 2020.

There were 64 plaintiffs in 34 cases pending as of September 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.

As of September 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.

60 unchanged sentences

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 June 3 0 , 2020.

with a proposed penalty of $ 2.8 million regarding the alleged violations .

In October 2020, we signed a consent decree with the EPA and agreed to a total penalty of $ 1.0 million.

We expect the consent decree order will be entered and be declared effective by December 1, 2020.

Accordingly we have accrued our estimated liability of the probable penalty as of September 30, 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.

18 unchanged sentences

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 $ 2.1 million at June 30, 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 June 30, 2020, our estimated environmental remediation liability for these acquired sites totals $ 4.3 million.

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

Foreign Environmental Matters .

9 unchanged sentences

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.

We have accrued our estimated liability associated with the matters as of September 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 June 30, 2020, our estimated environmental remediation liability for this acquired site totals $ 1.3 million.

As of September 3 0 , 2020 , our estimated environmental remediation liability for th is acquired site total s $ 1.4 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 June 30, 2020 and December 31, 2019, respectively:

The following table reflects changes in the accrued liability for environmental matters, excluding files and penalties of which $ 2.7 million and $ 2.8 million are classified as current liabilities at September 30, 2020 and December 31, 2019, respectively:

September 30,

(Dollars in millions)

2 unchanged sentences

Cash expenditures

Currency translation

Balance at end of period

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