Koppers Holdings Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report and any documents incorporated herein by reference contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and may include, but are not limited to, statements about sales levels, acquisitions, restructuring, declines in the value of Koppers assets and the effect of any related impairment charges, profitability and anticipated expenses and cash outflows. All forward-looking statements involve risks and uncertainties. All statements contained herein that are not clearly historical in nature are forward-looking, and words such as “believe,” “anticipate,” “expect,” “estimate,” “may,” “will,” “should,” “continue,” “plans,” “potential,” “intends,” “likely,” or other similar words or phrases are generally intended to identify forward-looking statements. Any forward-looking statement contained herein, in press releases, written statements or documents filed with the Securities and Exchange Commission, or in Koppers communications and discussions with investors and analysts in the normal course of business through meetings, phone calls and conference calls, regarding expectations with respect to sales, earnings, cash flows, operating efficiencies, restructurings, product introduction or expansion, the benefits of acquisitions and divestitures, or other matters as well as financings and debt reduction, are subject to known and unknown risks, uncertainties and contingencies. Many of these risks, uncertainties and contingencies are beyond our control, and may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. Factors that might affect such forward-looking statements, include, among other things, the impact of changes in commodity prices, such as oil and copper, on product margins; general economic and business conditions; existing and future adverse effects as a result of the coronavirus (COVID-19) pandemic; disruption in the U.S. and global financial markets; potential difficulties in protecting our intellectual property; the ratings on our debt and our ability to repay or refinance our outstanding indebtedness as it matures; our ability to operate within the limits of our debt covenants; potential impairment of our goodwill and/or long-lived assets; demand for Koppers goods and services; competitive conditions; interest rate and foreign currency rate fluctuations; availability and costs of key raw materials and unfavorable resolution of claims against us, as well as those discussed more fully elsewhere in this report and in documents filed with the Securities and Exchange Commission by Koppers, particularly our latest annual report on Form 10-K and subsequent filings. We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this report and the documents incorporated by reference herein may not in fact occur. Any forward-looking statements in this report speak only as of the date of this report, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited financial statements and related notes included in Item 1 of this Part I as well as the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020. Overview We are a leading integrated global provider of treated wood products, wood preservation chemicals and carbon compounds. Our products and services are used in a variety of niche applications in a diverse range of end-markets, including the railroad, specialty chemical, utility, residential lumber, agriculture, aluminum, steel, rubber and construction industries. We serve our customers through a comprehensive global manufacturing and distribution network, with manufacturing capabilities in North America, South America, Australasia and Europe. We operate three principal businesses: Railroad and Utility Products and Services (“RUPS”), Performance Chemicals (“PC”) and Carbon Materials and Chemicals (“CMC”). Through our RUPS business, we believe that we are the largest supplier of wood crossties to the Class I railroads in North America. Our other treated wood products include utility poles for the electric, telephone, and broadband utility industries in the United States and Australia and construction pilings in the U.S. We also provide rail joint bar products as well as various services to the railroad and utility industries in North America. Through our PC business, we believe that we are the global leader in developing, manufacturing and marketing wood preservation chemicals and wood treatment technologies for use in the pressure treating of lumber for residential, industrial and agricultural applications. Our CMC business processes coal tar into a variety of products, including creosote, carbon pitch, carbon black feedstock, naphthalene and phthalic anhydride, which are intermediate materials necessary in the pressure treatment of wood, the production of aluminum, the production of carbon black, the production of high-strength concrete, and the production of plasticizers and specialty chemicals, respectively. 23 Outlook Trend Overview Our businesses and results of operations are affected by various competitive and other factors including (i) the impact of global economic conditions on demand for our products, including the impact of imported products from competitors in certain regions where we operate; (ii) raw material pricing and availability, in particular the cost and availability of hardwood lumber for railroad crossties and softwood lumber for utility poles, scrap copper prices, and the cost and amount of coal tar available in global markets, which is negatively affected by reductions in blast furnace steel production; (iii) volatility in oil prices, which impacts the cost of coal tar and certain other raw materials, as well as selling prices and margins for certain of our products including carbon black feedstock, phthalic anhydride, and naphthalene; (iv) competitive conditions in global carbon pitch markets; and (v) changes in foreign exchange rates. Effects of COVID-19 on our operations Our operating results may fluctuate due to a variety of factors that are outside of our control, including from the effects of the current pandemic. The COVID-19 outbreak began to have a global effect in the first quarter of 2020 and continues to have a significant impact on global markets driven by supply chain and production disruptions, workforce restrictions, trends in spending patterns and other factors. During the COVID-19 pandemic, substantially all of our global businesses have continued to operate without significant disruption. In the U.S., Koppers was designated as an essential business, as determined by the Cybersecurity and Infrastructure Security Agency (CISA) within the Department of Homeland Security. As a result, we have been able to meet the demands of our customers in the various markets we serve by continuing to operate to transport critical goods, provide power and connectivity to homes and businesses, and keep our infrastructure running reliably. Our condensed consolidated financial statements and discussion and analysis of financial condition and results of operations reflect estimates and assumptions made by us as of September 30, 2021, including those related to COVID-19. Events and changes in circumstances arising after September 30, 2021, including those resulting from the impacts of COVID- 19, will be reflected in our estimates for future periods. Railroad and Utility Products and Services We provide our customers with treated and untreated wood products, rail joint bars and services primarily for the railroad markets in the United States and Canada. We also operate a railroad services business that conducts engineering, design, repair and inspection services primarily for railroad bridges in the U.S. and Canada. In addition, we supply treated utility poles for the utility sector in the United States and Australia. The primary end-markets for RUPS are the North American railroad industry, which has an installed base of approximately 450 million wood crossties, and the utility industry which utilizes wooden distribution and transmission poles. Both crossties and utility poles require periodic replacement. For the past several years, the major companies in the rail industry substantially reduced both operating and capital spending from peak spending levels, which had a negative impact on sales of various products and services that we provide to that industry. We currently supply all seven of the North American Class I railroads and have long-standing relationships with these customers. Approximately 70 percent of our North American sales are under long-term contracts and we believe that we are positioned to maintain or grow our current market position. Historically, North American demand for crossties had been in the range of 22 million to 25 million crossties annually. However, the crosstie replacement market has been significantly lower in recent years. According to the Railway Tie Association (“RTA”), the reported total crosstie installations in 2020 were approximately 18 million, of which 14 million were for Class I railroads. T hroughout 2020, there was a decline in freight-rail traffic, which prompted larger track maintenance windows to be available and, as a result, the railroad industry managed to offset lower volumes with increased productivity as certain railroads used the reduced track time to increase maintenance on their infrastructure. According to a mid-year forecast update issued by the RTA, demand for crossties in 2021 is expected to be 18.9 million, or 4.7 percent growth. However, the RTA reports that significant forces are weighing upon the markets for wood and crossties. A number of sawmills are continuing to utilize their capacity to process softwood logs instead of hardwoods for crossties due to higher profitability in cutting construction lumber. Additionally, the sawmills are facing supply chain issues resulting from a combination of a lack of available labor, insufficient number of truck drivers, and a rise in freight costs. 24 According to the American Association of Railroads (“AAR”), for the year-to-date period through September 30, 2021, total U.S. carload traffic increased 7.9 percent from the prior year, while intermodal units increased by 9.9 percent. The combined U.S. traffic for carloads and intermodal units was higher by 9.0 percent as compared with the prior year. In recent months, the limited availability of downstream truck and warehouse capacity has negatively affected rail intermodal volumes due to the lack of freight outflows in order to make room for new freight inflows. The AAR reports that in an attempt to help mitigate these issues, the railroads are bringing intermodal yard capacity back online to increase storage availability as well as working with their customers and truckers to accelerate container pickup and other efforts as applicable. With respect to our utility products business, utilities need to maintain their infrastructure to avoid interruptions in service as large sections of the population continue to work remotely due to the COVID-19 pandemic. As long as there are not any extended supply chain disruptions, we anticipate that 2021 demand will be relatively stable to slightly higher, given that the overall industry is trending toward expanded and upgraded transmission networks. We continue to evaluate opportunities to potentially expand our market presence in the U.S. as well as certain overseas markets. From a long-term perspective, we believe there remains an overall need for sustained investment in infrastructure and capacity expansion. We believe that with our vertical integration capabilities in wood treatment and strong customer relationships, we will ultimately benefit from increased demand. For distribution poles, nearly half of the installed base is over 40 years old, and demand has historically been in the range of two million to three million poles annually. On an overall basis, we believe that the rate at which utilities purchase utility poles will grow as they continue replacement programs within their service territories. As a whole, the key factors that drive growth in the utility poles market include growing global energy consumption as well as expansion of the global telecommunication industry. In the U.S., a significant amount of utility poles are treated with pentachlorophenol (“penta”), a wood preservative. The s ole producer of penta in North America announced plans to exit penta production at the end of 2021. Given that penta availability will begin to be phased out over the next 12 months, we will transition from using penta for treating utility poles to other wood-treatment preservatives. Our internally-produced creosote and chromated copper arsenate (“CCA”) products are viable alternatives to penta and are currently used in the treatment of utility poles. As a result, we are currently working with our utility customers who use penta-treated poles to evaluate the use of CCA or creosote as potential treatment options. In July 2021, we began the process of converting our facilities that previously utilized penta to other wood preservatives for the treatment of utility poles. We anticipate that this will be completed by mid-2022, after which those facilities will be able to offer a variety of preservative treatment options to customers, including copper naphthenate, CCA and creosote. In undertaking this effort, we believe that Koppers will be in an optimal position to respond quickly to future market needs. With respect to raw materials, we expect that there will be an unfavorable effect on the availability of pole supply due to construction lumber continuing to be in high demand. T he supply for untreated crossties can vary at times based upon weather conditions in addition to other factors. We have a nationwide wood procurement team that maintains close working relationships with a network of sawmills. We procure untreated crossties, either on behalf of our customers, or for our own inventory for future treating. We also procure switch ties and various other types of lumber used for railroad bridges and crossings. Untreated crossties go through a six to nine-month air seasoning process before they are ready to be pressure treated. After the air seasoning process is complete, the crossties are pressure treated using creosote-only treatment or a combined creosote and borate treatment. During any given year, there is a seasonal effect in the winter and spring months on our crosstie business depending on weather conditions for harvesting lumber and crosstie installation. Currently, there are several key factors impacting the untreated crosstie market and the related availability of crosstie supply. Due to a strong market for housing construction, the sawmills are producing fewer crossties as well as dealing with a labor shortage, consequently leading to higher input prices. Strategic Initiatives and Integration Synergies As part of optimizing our business, we continue to evaluate a number of opportunities to improve efficiencies in our operational processes, people and facilities. With our 15 North American RUPS treating facilities operating at less than full utilization, our goal is to either capture more volume through the existing facilities or consolidate our operating footprint. In the second quarter of 2021, we exited our Jasper, Texas facility lease and relocated the production of utility products to our Somerville, Texas plant . Separately, in the third quarter of 2020, we permanently closed our Denver, Colorado wood treatment facility. Concurrent with the decision to close the Denver facility, we announced our plan to modernize and upgrade parts of our treating network, specifically at our facility in North Little Rock, Arkansas, which will be primarily funded through proceeds from the sale of non-core assets, including the Denver facility. In October 2021, we sold the Denver, Colorado facility and will recognize a gain on the transaction of approximately $23 million during the three months ended December 31, 2021. 25 Performance Chemicals The largest geographic market for wood treating chemicals sold by our PC business is in North America, and the largest application for our products is the residential remodeling market. We also have a market presence in Europe, South America, Australia, New Zealand and Africa. We believe that PC is the largest global manufacturer and supplier of water-based wood preservatives and wood specialty additives to treaters that supply pressure treated wood products to large retailers and independent lumber dealers. These retailers and dealers, in turn, serve the residential, agricultural and industrial pressure-treated wood market. Our primary products are copper-based wood preservatives and fire-retardant chemicals (“FlamePro®”). Our copper-based wood preservatives include micronized copper azole (“MicroPro®”) and micronized pigments (“MicroShades®”). Applications for these products include decking, fencing, utility poles, construction lumber and other outdoor structures. In North America, we are vertically integrated due to our manufacturing capabilities for copper compounds for our copper-based wood preservatives. We believe our vertical integration is part of our proprietary processes and reflects an important competitive advantage. As most of the products sold by PC are copper-based products, changes in the price and availability of copper can have a significant impact on product pricing and margins. We attempt to moderate the variability in copper pricing over time by entering into hedging transactions for the majority of our copper needs, which primarily range from six months up to 36 months. These hedges typically match expected customer purchases and receive hedge accounting treatment, with any ineffectiveness reflected in current earnings. From time to time, we enter into forward transactions based upon long-term forecasted needs of copper. These forward positions are typically marked to market. Currently, we have forward swap positions for copper extending to the end of 2022. Product demand for our PC business has historically been closely associated with consumer spending on home repair and remodeling projects, and therefore, trends in existing home sales serve as a leading indicator. Overall, the market for existing homes are showing strong demand. According to the National Association of Realtors® (“NAR”), total existing-home sales rose 7.0 percent on a seasonally adjusted annual rate from August to September, with all regions showing an increase. The inventory of unsold homes decreased 0.8 percent from August to September. The median existing-home sales price was higher year-over-year by 13.3 percent, as prices rose in each region and marked 115 consecutive months of year-over-year increases. Supply has improved in prior months which helped to drive up sales in September. Housing demand remains strong as buyers are likely looking to secure a home before interest rates potentially increase further in the next year. According to the Leading Indicator of Remodeling Activity (“LIRA”) reported by the Joint Center for Housing Studies of Harvard University, the annual growth in home renovation and repair expenditures is now projected to reach 9.0 percent in the fourth quarter and maintain that pace into 2022 and reach $400 billion in annual remodeling expenditures to owner-occupied homes by the third quarter of 2022. Residential remodeling is anticipated to continue to benefit from a strong housing market. With significant price appreciation in many markets, the expansion of homeowners’ equity is likely to fuel demand for more home improvement projects. Nevertheless, there may be some headwinds that could still taper the expected growth in remodeling activity including the rising cost of labor and building materials. The Conference Board Consumer Confidence Index® increased in October, following declines in the prior three months. The Index now stands at 113.8, up from 109.8 in September. The Conference Board reports that consumer confidence improved, reversing a three-month downward trend as concerns eased about the spread of the Delta variant and consumers continued to spend money on travel and in-person services. While short-term inflation concerns showed an increase, the impact on confidence was muted. Also, the proportion of consumers planning to purchase homes, automobiles, and major appliances all increased in October—a sign that economic growth will likely continue through the end of 2021. The market data and projections for home improvements are continually changing and w e are closely monitoring customer demand for residential treated wood in North America, primarily in the U.S. Overall, strong gains in retail sales of building materials suggest that the remodeling market will continue to be supported by do-it-yourself activities. 26 Carbon Materials and Chemicals The primary products produced by CMC are creosote, which is a registered pesticide in the United States and used primarily in the pressure treatment of railroad crossties, and carbon pitch, which is sold primarily to the aluminum industry for the production of carbon anodes used in the smelting of aluminum. We have realigned capacity in our CMC plants in North America and Europe over the past several years to levels required to meet creosote demand in North America for the treatment of railroad crossties. The CMC business currently supplies our North American RUPS business with its creosote requirements. The availability of coal tar, the primary raw material for our CMC business, is linked to levels of metallurgical coke production. As the global steel industry, excluding Asia, has reduced the production of steel using metallurgical coke, the volumes of coal tar have been reduced. Also, coal tar raw material supply remains constrained globally due to reductions in blast furnace steel capacity. For the past decade, the coal tar distillation industry has operated in an excess capacity mode, which further increased the competition for a limited amount of coal tar in North America. As part of our restructuring initiatives beginning in 2015, we have now consolidated our operating footprint and significantly lowered production levels at the same time that we added distribution assets to move finished products from Europe to the United States more efficiently. As a result, our raw material needs in North America have been significantly less than historically required. While the sale of carbon pitch remains a significant portion of our sales volume, the reduction of aluminum smelting capacity in the United States, Australia and Western Europe has led to sharply lower demand for carbon pitch over the past several years. Accordingly, we have experienced significantly lower sales volumes due to the reduction in aluminum production in parts of the world where the majority of our production facilities are located. For the external markets served by our CMC business, we anticipate a relative stability in manufacturing overall as well as in the steel, aluminum and carbon black industries. According to IHS Markit Automotive Group (IHS), light vehicle production has been revised from 1.6 percent growth in 2021 globally to 0.3 percent. The adjustment to the outlook reflects heightened risk as challenges to the supply chain are expected to remain entrenched for the next six to twelve months. IHS now anticipates double- digit production growth in 2022, projected to be at 10.6 percent year-over-year growth, compared with 9.1 percent previously. Seasonality and Effects of Weather on Operations Our quarterly operating results fluctuate due to a variety of factors that are outside of our control, including inclement weather conditions, which in the past have affected operating results. Operations at some of our facilities have at times been reduced during the winter months. Moreover, demand for some of our products declines during periods of inclement weather. As a result of the foregoing, we anticipate that we may experience material fluctuations in quarterly operating results. Historically, our operating results have been significantly lower in the first and fourth calendar quarters as compared to the second and third calendar quarters. Results of Operations – Comparison of Three Months Ended September 30, 2021 and 2020 Consolidated Results Net sales for the three months ended September 30, 2021 and 2020 are summarized by segment in the following table: Three Months Ended September 30, 2021 2020 Net Change (Dollars in millions) Railroad and Utility Products and Services $ 186.9 $ 191.0 -2 % Performance Chemicals 115.2 147.9 -22 % Carbon Materials and Chemicals 122.7 98.6 24 % $ 424.8 $ 437.5 -3 % 27 RUPS net sales decreased by $4.1 million or two percent compared to the prior year period. The sales decrease was primarily due to volume decreases of untreated crossties for our Class I customers. Increased demand for lumber driven by strong construction markets resulted in decreased supply and decreased purchasing activity of untreated crossties by our customers during the current period. Volume decreases in our utility pole business due to transitioning production from the Texas Electric Cooperatives’ Jasper, Texas plant to our Somerville, Texas plant also contributed to the reduction from the prior year period. These decreases were offset, in part, by volume increases in our commercial crosstie business and pricing increases in various markets within the segment. PC net sales decreased by $32.7 million or 22 percent compared to the prior year period. The sales decrease was primarily due to volume decreases for preservatives in North America as high lumber prices and a temporary change in consumer spending habits have tempered customer demand in the current year period coupled with high levels of demand in the prior year period as a result of the pandemic. The decreases were offset, in part, by pricing increases in the current year period for our copper-based preservatives. Foreign currency changes compared to the prior year period from our international markets had a favorable impact on sales in the current year period of $1.5 million. CMC net sales increased by $24.1 million or 24 percent compared to the prior year period due mainly to higher sales prices for carbon pitch, carbon black feedstock and phthalic anhydride in the current year period. These increases were offset, in part, by lower sales volumes of carbon pitch in the current year period. Cost of sales as a percentage of net sales was 82 percent for the quarter ended September 30, 2021 compared to 75 percent in the prior year quarter. Gross margin at RUPS was unfavorably impacted in the current year period by LIFO expense of $7.5 million compared to the prior year period which was favorably impacted by a LIFO benefit of $2.9 million. Gross margin at PC was unfavorably impacted in the current year period by sales volume decreases and a $4.4 million unrealized loss from our copper swap contracts compared to the prior year period which was favorably impacted by an $3.9 million unrealized gain from our copper swap contracts. Gross margin at CMC was negatively affected in the current year period by higher raw material costs. Depreciation and amortization charges for the quarter ended September 30, 2021 were $0.5 million higher when compared to the prior year period due mainly to an increase in capitalized assets in our North American RUPS operations. Impairment and restructuring charges for the quarter ended September 30, 2021 were $1.5 million lower when compared to the prior year period . The prior year period included accelerated depreciation, demolition and other plant closure period costs related to the closure of our Denver, Colorado facility. Selling, general and administrative expenses for the quarter ended September 30, 2021 were $3.2 million higher when compared to the prior year period due mainly to an increase of $2.2 million for consulting and professional services and $1.2 million for employee benefit related expenses. Interest expense for the quarter ended September 30, 2021 was $1.6 million lower when compared to the prior year period primarily due to our lower average debt level and lower interest rates due to the significant decrease in underlying LIBOR rates. In the third quarter of 2020, we used the net proceeds of the KJCC sale to reduce our borrowings under the Credit Facility. Income tax expense for the quarter ended September 30, 2021 was $4.8 million, a decrease of $3.8 million when compared to the prior year quarter. The decrease is primarily due to a significant reduction in pre-tax income of $32.4 million in the current period when compared to the prior year period. Additionally, this decrease was mitigated by the favorable discrete benefit of $3.1 million recorded in the third quarter of 2020 related to coronavirus tax relief measures and an amended tax return. Discontinued operations for the quarter ended September 30, 2021 resulted in a loss of $0.5 million primarily due to a working capital adjustment to the sales price of our noncontrolling interest in KJCC, which was sold in 2020. 28 Segment Results. Segment operating profit for the three months ended September 30, 2021 and 2020 is summarized by segment in the following table: Three Months Ended September 30, 2021 2020 % Change (Dollars in millions) Operating profit (loss): Railroad and Utility Products and Services $ (0.7 ) $ 15.0 -105 % Performance Chemicals 11.6 30.4 -62 % Carbon Materials and Chemicals 14.9 13.7 9 % Corporate (1.2 ) (0.5 ) -140 % $ 24.6 $ 58.6 -58 % Operating profit (loss) as a percentage of net sales: Railroad and Utility Products and Services -0.4 % 7.9 % -8.3 % Performance Chemicals 10.1 % 20.6 % -10.5 % Carbon Materials and Chemicals 12.1 % 13.9 % -1.8 % 5.8 % 13.4 % -7.6 % RUPS operating loss was $0.7 million for the three months ended September 30, 2021. RUPS operating profit was $15.0 million for the three months ended September 30, 2020. Operating loss as a percentage of net sales was 0.4 percent, compared to operating profit as a percentage of net sales of 7.9 percent in the prior year period. Operating loss as a percentage of net sales for the quarter ended September 30, 2021 was unfavorably impacted primarily by LIFO expense of $7.5 million compared to the prior year period which was favorably impacted by a LIFO benefit of $2.9 million. Excluding the effect of LIFO, our operating profit as a percentage of net sales was 3.6 percent in the current year period compared with 6.4 percent in the prior year period. The current year period was also unfavorably impacted by the effect on profitability from volume decreases of untreated crosstie sales to our Class I customers, including the effects of reduced utilization of plant capacity. PC operating profit decreased by $18.8 million compared to the prior year period. Operating profit as a percentage of net sales decreased to 10.1 percent from 20.6 percent in the prior year period. The current year period was unfavorably impacted by sales volume decreases for our copper-based preservatives in North America compared to high levels of demand in the prior year period as a result of the pandemic. The current year period was also unfavorably impacted by a $4.4 million unrealized loss from our copper swap contracts compared to the prior year period which was favorably impacted by a $3.9 million unrealized gain from our copper swap contracts. Excluding the effect of unrealized gains and losses from our copper swap contracts, our operating profit as a percentage of net sales was 13.9 percent in the current year period compared with 17.9 percent in the prior year period. CMC operating profit increased by $1.2 million compared to the prior year period. Operating profit as a percentage of net sales decreased to 12.1 percent from 13.9 percent in the prior year period. Operating profit margin for the quarter ended September 30, 2021 was unfavorably impacted primarily by higher raw material costs in the current year period. These increased costs were offset, in part, by higher sales prices for carbon pitch, carbon black feedstock and phthalic anhydride in the current year period. Results of Operations – Comparison of Nine Months Ended September 30, 2021 and 2020 Consolidated Results Net sales for the nine months ended September 30, 2021 and 2020 are summarized by segment in the following table: Nine Months Ended September 30, 2021 2020 Net Change (Dollars in millions) Railroad and Utility Products and Services $ 574.3 $ 590.9 -3 % Performance Chemicals 384.4 396.4 -3 % Carbon Materials and Chemicals 314.6 288.7 9 % $ 1,273.3 $ 1,276.0 0 % 29 RUPS net sales decreased by $16.6 million or three percent compared to the prior year period. The sales decrease was primarily due to volume decreases in the commercial crosstie market as well as volume decreases of untreated crossties for our Class I customers. Increased demand for lumber driven by strong construction markets resulted in decreased supply and decreased purchasing activity of untreated crossties by our customers during the current period. Volume decreases in our utility pole business due to transitioning production from the Texas Electric Cooperatives’ Jasper, Texas plant to our Somerville, Texas plant also contributed to the reduction from the prior year period. These decreases were offset, in part, by volume increases in our maintenance-of-way and crosstie disposal businesses and pricing increases in various markets within the segment. Foreign currency changes compared to the prior year period had a favorable impact on sales in the current year period of $3.8 million, mainly from our Australian utility pole business. PC net sales decreased by $12.0 million or three percent compared to the prior year period. The sales decrease was primarily due to volume decreases for preservatives in North America as high lumber prices and a temporary change in consumer spending habits have tempered customer demand in the current year period coupled with high levels of demand in the prior year period as a result of the pandemic. The increases were offset, in part, by higher demand for preservatives in our international markets resulting from continued pent-up demand after the lifting of earlier restrictions associated with the pandemic. PC also benefitted from pricing increases in the current year period for our copper-based preservatives. Foreign currency changes compared to the prior year period from our international markets had a favorable impact on sales in the current year period of $6.8 million. CMC net sales increased by $25.9 million or nine percent compared to the prior year period due mainly to higher sales prices for carbon black feedstock, carbon pitch and phthalic anhydride in the current year period . Foreign currency translation also had a favorable impact on sales in the current year period of $13.0 million, mainly from our Australian and European markets. These increases were offset, in part, by lower sales volumes of carbon pitch and phthalic anhydride in the current year period. Cost of sales as a percentage of net sales was 79 percent for the nine months ended September 30, 2021, consistent with prior year. Gross margin at CMC was favorably impacted by higher sales prices for carbon black feedstock, carbon pitch and phthalic anhydride in the current year period, a recovery of $2.9 million from insurance proceeds in the current year period and a reduction in certain restructuring-related charges from the prior year period. These favorable drivers were offset, in part, by gross margin at RUPS which was negatively affected in the current year period by LIFO expense of $10.3 million compared to the prior year period which was favorably impacted by a LIFO benefit of $5.2 million as well as volume decreases in our domestic utility pole business, our commercial crosstie market and volume decreases of untreated crossties for our Class I customers principally due to decreased supply and decreased purchasing activity of untreated crossties due to higher lumber prices . Gross margin at PC was relatively consistent with the prior year period. Depreciation and amortization charges for the nine months ended September 30, 2021 were $3.7 million higher when compared to the prior year period due mainly to an increase in asset retirement obligations at our European CMC operations as well as an increase in capitalized assets in our North American RUPS operations. Gain on sale of assets for the nine months ended September 30, 2021 was $7.8 million and is primarily related to the sales of two previously decommissioned plants as described in Note 3 – “Plant Closures and Divestitures”. Impairment and restructuring charges for the nine months ended September 30, 2021 were $3.3 million lower when compared to the prior year period . We recorded charges of $2.9 million for asset retirement obligations and $1.3 million for fixed asset write-offs and severance in the nine months ended September 30, 2020 related to the announced closure of our Denver, Colorado facility. The current year period included remaining demolition and other plant closure period costs related to the closure . Selling, general and administrative expenses for the nine months ended September 30, 2021 were $6.5 million higher when compared to the prior year period due mainly to an increase of $4.9 million in employee benefit related expenses and $1.8 million for consulting and professional services. Interest expense for the nine months ended September 30, 2021 was $8.1 million lower when compared to the prior year period primarily due to our lower average debt level and lower interest rates due to the significant decrease in underlying LIBOR rates. In the third quarter of 2020, we used the net proceeds of the KJCC sale to reduce our borrowings under the Credit Facility. Income tax expense for the nine months ended September 30, 2021 was $22.4 million, an increase of $7.6 million when compared to the prior year period. The increase is primarily due to a reduction in the amount of favorable discrete items when compared to the prior year period. The discrete items in the prior year period were primarily related to coronavirus tax relief measures. 30 Discontinued operations for the nine months ended September 30, 2021 resulted in income of $0.4 million compared to a loss of $3.8 million in the prior year period. In the prior year period, the loss was driven by a reduction in net sales and lower end market demand attributable to the economic effects of COVID-19 on our KJCC operations, which was sold in the third quarter of 2020 and resulted in a gain on sale of discontinued operations of $35.8 million. See Note 4 – “Discontinued Operations” for further detail. Segment Results. Segment operating profit for the nine months ended September 30, 2021 and 2020 is summarized by segment in the following table: Nine Months Ended September 30, 2021 2020 % Change (Dollars in millions) Operating profit (loss): Railroad and Utility Products and Services $ 12.3 $ 40.4 -70 % Performance Chemicals 65.1 67.1 -3 % Carbon Materials and Chemicals 39.1 15.9 146 % Corporate (3.7 ) (1.5 ) -147 % $ 112.8 $ 121.9 -7 % Operating profit as a percentage of net sales: Railroad and Utility Products and Services 2.1 % 6.8 % -4.7 % Performance Chemicals 16.9 % 16.9 % 0.0 % Carbon Materials and Chemicals 12.4 % 5.5 % 6.9 % 8.9 % 9.6 % -0.7 % RUPS operating profit decreased by $28.1 million compared to the prior year period. Operating profit as a percentage of net sales decreased to 2.1 percent from 6.8 percent in the prior year period. Operating profit as a percentage of net sales for the nine months ended September 30, 2021 was unfavorably impacted primarily by LIFO expense of $10.3 million compared to the prior year period which was favorably impacted by a LIFO benefit of $5.2 million. Excluding the effect of LIFO, our operating profit as a percentage of net sales was 3.9 percent in the current year period compared with 6.0 percent in the prior year period. The effect on profitability from volume decreases in the commercial crosstie market as well as volume decreases of untreated crossties for our Class I customers and volume decreases in our utility pole business, including the effects of reduced utilization of plant capacity also contributed to reduced margins. These decreases were offset, in part, by higher margins in our Australian utility pole business. PC operating profit decreased by $2.0 million compared to the prior year period. Operating profit as a percentage of net sales of 16.9 percent is consistent with the prior year period. The current year period was favorably impacted by pricing increases for our copper-based preservatives, higher demand for preservatives in our international markets and lower realized net raw material costs associated with our copper hedging program. These favorable drivers were offset primarily by sales volume decreases for preservatives in North America. CMC operating profit increased by $23.2 million compared to the prior year period. Operating profit as a percentage of net sales increased to 12.4 percent from 5.5 percent in the prior year period. Operating profit for the nine months ended September 30, 2021 was favorably impacted by higher sales prices for carbon black feedstock, carbon pitch and phthalic anhydride in the current year period, a recovery of $2.9 million from insurance proceeds in the current year period and a reduction in certain restructuring-related charges from the prior year period. Cash Flow Net cash provided by operating activities for the nine months ended September 30, 2021 was $59.6 million compared to net cash provided by operating activities of $65.5 million in the prior year period. The net decrease of $5.9 million in cash provided by operations was due primarily to higher working capital usage of $12.5 million compared to the prior year period, mainly due to a decrease in accrued liabilities in the current year period. These drivers were partly offset by an increase in certain other operating activities of $6.6 million from the prior year period, which had a favorable result on cash provided by operations in the current year period. Net cash used in investing activities for the nine months ended September 30, 2021 was $78.7 million compared to net cash provided by investing activities of $35.0 million in the prior year period. The net change of $113.7 million in cash used in investing activities was primarily due to an increase in capital expenditures of $43.8 million in the current year period and net cash of $78.1 million provided by the sale of KJCC in the prior year period, partially offset by cash received related to sales of two previously decommissioned CMC plants and insurance proceeds in the current year period. 31 Net cash provided by financing activities was $28.3 million for the nine months ended September 30, 2021 compared to $93.7 million of net cash used in financing activities in the prior year period. The cash provided by financing activities in the nine months ended September 30, 2021 reflected net borrowings of debt of $29.5 million partially offset by repurchases of common stock of $3.3 million related to long-term incentive compensation plans. The cash used in financing activities in the prior year period primarily reflected net repayments of debt of $93.1 million. Liquidity and Capital Resources We have a $600.0 million senior secured revolving credit facility and a $100.0 million secured term loan facility (collectively, the “Credit Facility”) as described in Note 14 “Debt.” Restrictions on Dividends to Koppers Holdings Koppers Holdings depends on the dividends from the earnings of Koppers Inc. and its subsidiaries to generate the funds necessary to meet its financial obligations, including the payment of any declared dividend of Koppers Holdings. The Credit Facility prohibits Koppers Inc. from making dividend payments to Koppers Holdings unless (1) such dividend payments are permitted by the indenture governing Koppers Inc.’s $500 million Senior Notes due 2025 (the “2025 Notes”), (2) no event of default or potential default has occurred or is continuing under our Credit Facility, and (3) we are in pro forma compliance with our fixed charge coverage ratio covenant after giving effect to such dividend. The indenture governing the 2025 Notes restricts Koppers Inc.’s ability to finance our payment of dividends if (1) a default has occurred or would result from such financing, (2) Koppers Inc., or a restricted subsidiary of Koppers Inc. which is not a guarantor under the indenture, is not able to incur additional indebtedness (as defined in the indenture), and (3) the sum of all restricted payments (as defined in the indenture) have exceeded the permitted amount (which we refer to as the “basket”) at such point in time. The basket is governed by a formula based on the sum of a beginning amount, plus or minus a percentage of Koppers Inc.’s consolidated net income (as defined in the indenture), plus the net proceeds of Koppers Inc.’s qualified stock issuance or conversions of debt to qualified stock, plus the net proceeds from the sale of or a reduction in an investment (as defined in the indenture) or the value of the assets of an unrestricted subsidiary which is designated a restricted subsidiary. At September 30, 2021, the basket totaled $258.8 million. Notwithstanding such restrictions, the indenture governing the 2025 Notes permits an additional aggregate amount of $0.30 per share each fiscal quarter to finance dividends on the capital stock of Koppers Holdings, whether or not there is any basket availability, provided that at the time of such payment, no default in the indenture has occurred or would result from financing the dividends. In addition, certain required coverage ratios in Koppers Inc.’s Credit Facility may restrict the ability of Koppers Inc. to pay dividends. Liquidity The following table summarizes our estimated liquidity as of September 30, 2021 (dollars in millions) : Cash and cash equivalents ( 1) $ 42.6 Amount available under Credit Facility 283.4 Total estimated liquidity ( 2) $ 326.0 (1) Cash includes approximately $41.9 million held by foreign subsidiaries and excludes approximately $2.3 million of restricted cash. (2) Liquidity will fluctuate before, after and throughout periods based upon timing of receipts and payments. Our liquidity was $344 million as of December 31, 2020. Our need for cash in the next twelve months relates primarily to contractual obligations which include debt service, pension plan funding, purchase commitments and operating leases, as well as working capital, capital maintenance programs, the funding of plant consolidation and rationalizations and share repurchases. We may also use cash to pursue other potential strategic acquisitions or voluntary pension plan contributions. Capital expenditures in 2021, excluding acquisitions, if any, are expected to total approximately $115 to $120 million and are expected to be funded by cash from operations. We anticipate that our estimated liquidity will continue to be adequate to fund our cash requirements for the next twelve months. 32 Debt Covenants The covenants that affect availability of the Credit Facility and which may restrict the ability of Koppers Inc. to pay dividends include the following financial ratios: ◾ The fixed charge coverage ratio, calculated as of the end of each fiscal quarter for the four fiscal quarters then ended, is not permitted to be less than 1.10. The fixed charge coverage ratio as of September 30, 2021 was 1.77. ◾ The total secured leverage ratio, calculated as of the end of each fiscal quarter for the four fiscal quarters then ended, is not permitted to exceed 2.75. The total secured leverage ratio as of September 30, 2021 was 1.36. ◾ The total leverage ratio, calculated as of the end of each fiscal quarter for the four fiscal quarters then ended, is not permitted to exceed 5.00. The total leverage ratio as of September 30, 2021 was 3.51. The maximum permitted total leverage ratio will step down to 4.75 on December 31, 2021. This change is not expected to have a material impact on liquidity. We are currently in compliance with all covenants governing the Credit Facility. Our continued ability to meet those financial ratios can be affected by events beyond our control, however, excluding possible acquisitions, we currently expect that our net cash flows from operating activities and funds available from our Credit Facility will be sufficient to provide for our working capital needs and capital spending requirements over the next twelve months. Non-GAAP Financial Measures We utilize certain financial measures that are not in accordance with U.S. generally accepted accounting principles (GAAP) to analyze and manage the performance of the business. We believe that EBITDA (as defined below), adjusted EBITDA, adjusted EBITDA margin, and net leverage ratio provide information useful to investors in understanding the underlying operational performance of our business and performance trends, and facilitate comparisons between periods and with other corporations in similar industries. The exclusion of certain items permits evaluation and a comparison of results for ongoing business operations, and it is on this basis that our management internally assesses our performance. In addition, our board of directors and executive management team use adjusted EBITDA as a performance measure under our annual incentive plans. Although we believe that these non-GAAP financial measures enhance investors’ understanding of its business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP basis financial measures and should be read in conjunction with the relevant GAAP financial measures. Other companies in a similar industry may define or calculate these measures differently than we do, limiting their usefulness as comparative measures. Because of these limitations, these non-GAAP financial measures should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP. EBITDA is a non-GAAP financial measure defined as net income from continuing operations before income taxes and interest, depreciation and amortization. The adjustments to arrive at adjusted EBITDA are items that we believe are not representative of underlying business performance. Adjusted items typically include certain expenses associated with impairment, restructuring and plant closure costs, significant gains and losses on asset disposals or business combinations, other non-recurring items or recurring income or expense items such as LIFO and mark-to-market commodity hedging. A reconciliation of segment net income to adjusted segment EBITDA is not available without unreasonable efforts as we do not measure net income at the segment level or use it as a measure of operating performance. 33 The following table summarizes EBITDA and adjusted EBITDA on a consolidated basis as calculated by us for the three and nine mont h periods indicated below: Three Months Ended September 30, Nine Months Ended September 30, (amounts in millions) 2021 2020 2021 2020 Net income $ 10.0 $ 75.5 $ 62.7 $ 102.4 Interest expense 10.2 11.8 30.5 38.6 Depreciation and amortization 13.4 12.9 43.4 39.7 Depreciation in impairment and restructuring charges 0.7 1.3 0.7 2.0 Income tax provision 4.8 8.6 22.4 14.8 Discontinued operations 0.5 (36.4 ) (0.1 ) (32.0 ) EBITDA with noncontrolling interests 39.6 73.7 159.6 165.5 Adjustments to arrive at adjusted EBITDA: Impairment, restructuring and plant closure (benefits) costs (0.7 ) 1.9 (3.5 ) 11.4 Non-cash LIFO expense (benefit) 10.6 (5.0 ) 15.8 (8.8 ) Mark-to-market commodity hedging losses (gains) 4.4 (3.9 ) 2.8 (4.2 ) Total adjustments 14.3 (7.0 ) 15.1 (1.6 ) Adjusted EBITDA $ 53.9 $ 66.7 $ 174.7 $ 163.9 The following table summarizes EBITDA and adjusted EBITDA on a consolidated and segment basis as calculated by us for the three and nine month periods indicated below: Three Months Ended September 30, Nine Months Ended September 30, (amounts in millions) 2021 2020 2021 2020 EBITDA with noncontrolling interests: Railroad and Utility Products and Services $ 3.8 $ 20.9 $ 27.3 $ 56.3 Performance Chemicals 15.8 35.4 79.7 81.9 Carbon Materials and Chemicals 19.5 17.2 51.0 26.8 Corporate unallocated 0.5 0.2 1.6 0.5 Total EBITDA with noncontrolling interests $ 39.6 $ 73.7 $ 159.6 $ 165.5 Adjusted EBITDA: Railroad and Utility Products and Services $ 10.7 $ 18.5 $ 39.1 $ 55.1 Performance Chemicals 20.2 31.5 82.5 77.7 Carbon Materials and Chemicals 22.5 16.5 51.5 30.6 Corporate unallocated 0.5 0.2 1.6 0.5 Total Adjusted EBITDA $ 53.9 $ 66.7 $ 174.7 $ 163.9 Adjusted EBITDA margin as a percentage of GAAP sales: Railroad and Utility Products and Services 5.7 % 9.7 % 6.8 % 9.3 % Performance Chemicals 17.5 % 21.3 % 21.5 % 19.6 % Carbon Materials and Chemicals 18.3 % 16.7 % 16.4 % 10.6 % Total Adjusted EBITDA margin 12.7 % 15.2 % 13.7 % 12.8 % The decrease in adjusted EBITDA of $12.8 million for the three months ended September 30, 2021 from the prior year period is primarily due to decreased profitability at RUPS, which was unfavorably impacted primarily by the effect on profitability from volume decreases of untreated crosstie sales to our Class I customers, including the effects of reduced utilization of plant capacity. An increase in raw material costs, including the price of hardwoods as the pandemic continues, also contributed to reduced margins. PC’s adjusted EBITDA was unfavorably impacted by volume decreases for our copper-based preservatives in North America in the current year period . These drivers were offset, in part, by increased profitability at CMC, which was favorably impacted by higher sales prices for carbon pitch and carbon black feedstock in Europe and Australia and phthalic anhydride in North America in the current year period. 34 The increase in adjusted EBITDA of $10.8 million for the nine months ended September 30, 2021 over the prior year period is primarily due to profitability at CMC, which was favorably impacted by higher sales prices for carbon black feedstock and carbon pitch in Europe and Australia as well as phthalic anhydride in North America in the current year period, a recovery of insurance proceeds in the current year period and a reduction in certain restructuring-related charges from the prior year period. EBITDA at PC was favorably impacted by higher sales volumes for preservatives in our international markets along with pricing increases in the current year period for our copper-based preservatives in the Americas . These favorable drivers were offset, in part, by lower EBITDA at RUPS which was negatively affected in the current year period by volume decreases in the commercial crosstie market as well as volume decreases of untreated crossties for our Class I customers principally due to decreased supply and decreased purchasing activity of untreated crossties due to higher lumber prices . A reconciliation of operating profit (loss) to adjusted EBITDA on a segment basis is presented below: Three Months Ended September 30, 2021 Corporate RUPS PC CMC Unallocated Consolidated Operating profit (loss) $ (0.7 ) $ 11.6 $ 14.9 $ (1.2 ) $ 24.6 Other income (loss) (0.8 ) 0.1 (0.1 ) 1.7 0.9 Depreciation and amortization 5.3 4.1 4.0 0.0 13.4 Depreciation in impairment and restructuring charges 0.0 0.0 0.7 0.0 0.7 EBITDA with noncontrolling interest $ 3.8 $ 15.8 $ 19.5 $ 0.5 $ 39.6 Adjustments to arrive at adjusted EBITDA: Impairment, restructuring and plant closure benefits (0.6 ) 0.0 (0.1 ) 0.0 (0.7 ) Non-cash LIFO expense 7.5 0.0 3.1 0.0 10.6 Mark-to-market commodity hedging losses 0.0 4.4 0.0 0.0 4.4 Adjusted EBITDA $ 10.7 $ 20.2 $ 22.5 $ 0.5 $ 53.9 Adj. EBITDA % of Consolidated Adj. EBITDA (excluding corporate unallocated) 20.0 % 37.8 % 42.1 % Three Months Ended September 30, 2020 Corporate RUPS PC CMC Unallocated Consolidated Operating profit (loss) $ 15.0 $ 30.4 $ 13.7 $ (0.5 ) $ 58.6 Other income (loss) (0.3 ) 0.7 (0.2 ) 0.7 0.9 Depreciation and amortization 4.9 4.3 3.7 0.0 12.9 Depreciation in impairment and restructuring charges 1.3 0.0 0.0 0.0 1.3 EBITDA with noncontrolling interest $ 20.9 $ 35.4 $ 17.2 $ 0.2 $ 73.7 Adjustments to arrive at adjusted EBITDA: Impairment, restructuring and plant closure costs 0.5 0.0 1.4 0.0 1.9 Non-cash LIFO benefit (2.9 ) 0.0 (2.1 ) 0.0 (5.0 ) Mark-to-market commodity hedging gains 0.0 (3.9 ) 0.0 0.0 (3.9 ) Adjusted EBITDA $ 18.5 $ 31.5 $ 16.5 $ 0.2 $ 66.7 Adj. EBITDA % of Consolidated Adj. EBITDA (excluding corporate unallocated) 27.8 % 47.4 % 24.8 % 35 Nine Months Ended September 30, 2021 Corporate RUPS PC CMC Unallocated Consolidated Operating profit (loss) $ 12.3 $ 65.1 $ 39.1 $ (3.7 ) $ 112.8 Other income (loss) (1.9 ) 1.0 (1.7 ) 5.3 2.7 Depreciation and amortization 16.9 13.6 12.9 0.0 43.4 Depreciation in impairment and restructuring charges 0.0 0.0 0.7 0.0 0.7 EBITDA with noncontrolling interest $ 27.3 $ 79.7 $ 51.0 $ 1.6 $ 159.6 Adjustments to arrive at adjusted EBITDA: Impairment, restructuring and plant closure (benefits) costs 1.6 0.0 (5.1 ) 0.0 (3.5 ) Non-cash LIFO expense 10.2 0.0 5.6 0.0 15.8 Mark-to-market commodity hedging losses 0.0 2.8 0.0 0.0 2.8 Adjusted EBITDA $ 39.1 $ 82.5 $ 51.5 $ 1.6 $ 174.7 Adj. EBITDA % of Consolidated Adj. EBITDA (excluding corporate unallocated) 22.6 % 47.7 % 29.8 % Nine Months Ended September 30, 2020 Corporate RUPS PC CMC Unallocated Consolidated Operating profit (loss) $ 40.4 $ 67.1 $ 15.9 $ (1.5 ) $ 121.9 Other income (loss) (0.9 ) 1.6 (0.8 ) 2.0 1.9 Depreciation and amortization 14.8 13.2 11.7 0.0 39.7 Depreciation in impairment and restructuring charges 2.0 0.0 0.0 0.0 2.0 EBITDA with noncontrolling interest $ 56.3 $ 81.9 $ 26.8 $ 0.5 $ 165.5 Adjustments to arrive at adjusted EBITDA: Impairment, restructuring and plant closure costs 4.0 0.0 7.4 0.0 11.4 Non-cash LIFO benefit (5.2 ) 0.0 (3.6 ) 0.0 (8.8 ) Mark-to-market commodity hedging gains 0.0 (4.2 ) 0.0 0.0 (4.2 ) Adjusted EBITDA $ 55.1 $ 77.7 $ 30.6 $ 0.5 $ 163.9 Adj. EBITDA % of Consolidated Adj. EBITDA (excluding corporate unallocated) 33.7 % 47.6 % 18.7 % Net leverage ratio is a non-GAAP financial measure defined as net debt (total debt, calculated as total debt less unamortized debt issuance costs, less cash and restricted cash) divided by adjusted EBITDA for the latest twelve months and is a financial measure used by us to assess our borrowing capacity and ability to service our debt. The following table summarizes net leverage ratio as calculated by us for the twelve month periods indicated below: Twelve Months Ended (amounts in millions) September 30, 2021 December 31, 2020 September 30, 2020 Total Debt $ 807.2 $ 775.9 $ 809.8 Less: Cash 44.9 38.5 39.5 Net Debt $ 762.3 $ 737.4 $ 770.3 Adjusted EBITDA $ 221.8 $ 211.0 $ 203.7 Net Leverage Ratio 3.4 3.5 3.8 Our net leverage ratio decreased over the past 12 months primarily due to an increase in adjusted EBITDA of $18.1 million during that period, along with an $8.6 million decrease in net debt, principally due to cash generated from operating activities. 36 The following table summarizes EBITDA and adjusted EBITDA on a consolidated basis as calculated by us for the twelve month periods indicated below: Twelve Months Ended September 30, 2021 December 31, 2020 September 30, 2020 Net income $ 81.3 $ 121.0 $ 119.5 Interest expense 40.8 48.9 52.9 Depreciation and amortization 58.5 56.1 54.4 Income tax provision 28.6 21.0 8.1 Discontinued operations, net of tax (0.1 ) (31.9 ) (30.6 ) EBITDA 209.1 215.1 204.3 Adjustments to arrive at adjusted EBITDA: Impairment, restructuring and plant closure costs 0.9 15.7 16.8 Non-cash LIFO expense (benefit) 11.0 (13.7 ) (9.2 ) Mark-to-market commodity hedging gains (2.3 ) (9.2 ) (8.2 ) Pension settlement 0.1 0.1 0.0 Discretionary incentive 3.0 3.0 0.0 Adjusted EBITDA with noncontrolling interests $ 221.8 $ 211.0 $ 203.7 Legal Matters The information set forth in Note 18 to the Condensed Consolidated Financial Statements of Koppers Holdings Inc. included in Item 1 of this Part I is incorporated herein by reference. Recently Issued Accounting Guidance The information set forth in Note 2 to the Condensed Consolidated Financial Statements of Koppers Holdings Inc. included in Item 1 of this Part I is incorporated herein by reference. Critical Accounting Policies There have been no material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020. Environmental and Other Matters The information set forth in Note 18 to the Condensed Consolidated Financial Statements of Koppers Holdings Inc. included in Item 1 of this Part I is incorporated herein by reference. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There are no material changes to the disclosure on this matter made in our Annual Report on Form 10-K for the year ended December 31, 2020.