What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-23 compared with 2021-02-24 · 216 added, 325 removed, 999 unchanged (35% of the section changed)

6 unchanged sentences

Consolidated Statement of Operations for the years ended December 31, 2021, 2020 and 2019

Consolidated Statement of Comprehensive Income (Loss) for the years ended December 31, 2020, 2019 and 2018

Consolidated Statement of Comprehensive Income for the years ended December 31, 2021, 2020 and 2019

Consolidated Balance Sheet as of December 31, 2021 and 2020

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President and Chief Executive Officer

/ S / M ICHAEL J.

Chief Financial Officer

/ S / J IMMI S UE S MITH

Jimmi Sue Smith

Chief Financial Officer and Treasurer

Report of Independent Registered Public Accounting Firm

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), cash flows, and shareholders’ equity for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a)2 (collectively, the consolidated financial statements), and our report dated February 24, 2021 expressed an unqualified opinion on those consolidated financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and December 31, 2020, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes and financial statement schedule II (collectively, the consolidated financial statements), and our report dated February 23, 2022 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

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We have audited the accompanying consolidated balance sheets of Koppers Holdings Inc.

and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), cash flows, and shareholders’ equity for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a)2 (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S.

and subsidiaries (the Company) as of December 31, 2021 and December 31, 2020, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes and financial statement schedule II (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and December 31, 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 23, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) and ASU No.

2018-10, Codification Improvements to Topic 842, Leases .

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of the carrying value of Goodwill in the Utility Products Reporting Unit

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Developing an independent estimate of the Utility Products reporting unit’s fair value using the reporting unit’s cash flow forecast and an independently developed discount rate, and comparing the result of our estimate of fair value to the Company’s fair value estimate.

Evaluation of income tax expense

As discussed in Note 10 to the consolidated financial statements, the Company is subject to income taxes in the United States and various foreign jurisdictions in which it operates, which affect the Company’s provision for income taxes.

For the year ended December 31, 2020, the Company’s provision for income taxes was $21.0 million which included a benefit to income tax expense of $13.3 million as a result of enacted income tax laws and regulations in the current year.

We identified the evaluation of income tax expense as a critical audit matter.

Complex auditor judgment was required in evaluating the Company’s interpretation and application of tax laws and regulations in relevant jurisdictions and the related impact to income tax expense.

There is complexity in the evaluation of U.S.

income tax expense due to the impact of U.S.

tax reform on multinational operations such as the U.S.

tax on global intangible low-taxed income (GILTI) and foreign tax credits.

There is also complexity in evaluating the impact of changing domestic and foreign tax laws and regulations on income tax expense and specifically the enactment of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) during the year ended December 31, 2020.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s income tax process.

This included controls over the identification and application of changes to tax laws and regulations in the jurisdictions in which the Company operates, and specifically the CARES Act and the Company’s evaluation of the determination of GILTI and foreign tax credits.

We involved tax professionals with specialized skills and knowledge, who assisted in:

• Evaluating the application of the relevant tax laws and regulations in the determination of the Company’s income tax expense

• Evaluating the Company’s methodology used in the determination of GILTI and foreign tax credits by comparing to tax laws and regulations.

We have served as the Company’s auditor since 2016.

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Depreciation and amortization

Loss on sale of assets

Impairment and restructuring charges

Selling, general and administrative expenses

Impairment and restructuring charges

(Gain) on sale of assets

Operating profit

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Income from continuing operations

(Loss) income from discontinued operations, net of tax

benefit (expense) of $ 0.9 , $( 1.4 ) and $( 0.7 )

Gain on sale of discontinued operations, net of tax

expense of $ 8.3

Income (loss) from discontinued operations, net of tax benefit

(expense) of $ 0.0 , $ 0.9 and $( 1.4 )

(Loss) gain on sale of discontinued operations, net of tax benefit

(expense) of $ 0.1 , $( 8.3 ) and $ 0.0

Net (loss) income attributable to noncontrolling interests

Net income attributable to Koppers

Earnings per common share attributable to Koppers

Earnings (loss) per common share attributable to Koppers

common shareholders:

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KOPPERS HOLDINGS INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Year Ended December 31,

(Dollars in millions)

Changes in other comprehensive income (loss):

Changes in other comprehensive income:

Currency translation adjustment

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

(expense) benefit of $( 12.6 ), $( 4.1 ) and $ 10.0

Change in accounting standard

Unrecognized pension prior service benefit, net of

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

benefit (expense) of $ 0.5 , $( 12.6 ) and $( 4.1 )

Unrecognized pension prior service cost (benefit), net of

tax benefit of $ 0.0 , $ 0.0 and $ 0.0

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benefit (expense) of $ 1.3 , $ 0.4 and $( 0.8 )

Total comprehensive income (loss)

Comprehensive income attributable to noncontrolling interests

Comprehensive income (loss) attributable to Koppers

Total comprehensive income

Comprehensive (loss) income attributable to noncontrolling interests

Comprehensive income attributable to Koppers

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

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Accounts receivable, net of allowance of $ 3.3 and $ 2.6

Income tax receivable

Inventories, net

Assets of discontinued operations held for sale

Derivative contracts

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Deferred tax assets

Non-current assets of discontinued operations held for sale

Non-current derivative contracts

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Current maturities of long-term debt

Liabilities of discontinued operations held for sale

Total current liabilities

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Operating lease liabilities

Non-current liabilities of discontinued operations held for sale

Other long-term liabilities

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Non-cash interest expense

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

of assets and investment

Loss (gain) on sale of discontinued operations

(Gain) loss on sale of assets and investment

Insurance proceeds

Loss on sale of assets

Deferred income taxes

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Net cash provided by operating activities

Cash provided by (used in) investing activities:

Cash (used in) provided by investing activities:

Capital expenditures

Acquisitions, net of cash acquired

Insurance proceeds

Net cash provided by sale of discontinued operations and asset sales

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

Cash (used in) provided by financing activities:

Net (decrease) increase in credit facility borrowings

Borrowings of long-term debt

Net increase (decrease) in credit facility borrowings

Repayments of long-term debt

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Payment of debt issuance costs

Net cash (used in) provided by financing activities

Net cash used in financing activities

Effect of exchange rate changes on cash

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Net income attributable to Koppers

Change in accounting standards

Balance at end of year

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Balance at beginning of year

Loss on sale of subsidiary

Change in currency translation adjustment

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Balance at beginning of year

Change in accounting standard, net of tax expense of $ 0.0 , $ 0.0 and $ 1.3

Reclassification of unrealized (gains) losses on cash flow hedges to

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Utility products include transmission and distribution poles and pilings.

The segment also operates a railroad services business that conducts engineering, design, repair and inspection services for railroad bridges and a business related to the recovery of used crossties and utility poles.

The segment also operates a railroad services business that conducts engineering, design, repair and inspection services for railroad bridges, a business related to the recovery of used crossties and utility poles and a business related to the inspection of utility poles.

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

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

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

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

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

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Certain prior period amounts in the Notes to Consolidated Financial Statements have been reclassified to conform to the current period’s presentation.

Use of estimates – Accounting principles generally accepted in the U.S.

require management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies on the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period.

Use of estimates – Accounting principles generally accepted in the United States require management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies on the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period.

Estimates have been prepared on the basis of the most current and best available information and actual results could differ materially from these estimates.

Revenue recognition – Effective January 1, 2018, we adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, using the modified retrospective method.

We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings.

Revenue is recognized upon the completion of performance obligations under our contracts with customers and when control of a good or service is transferred to the customer.

Revenue recognition – Revenue is recognized upon the completion of performance obligations under our contracts with customers and when control of a good or service is transferred to the customer.

Substantially all of our contracts with customers are ship and invoice arrangements where revenue is recognized when we complete our performance obligations and transfer control to the customer .

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Cash, cash equivalents and restricted cash – Cash and cash equivalents include cash on hand and on deposit and investments in highly liquid investments with an original maturity of 90 days or less.

Restricted cash of $ 2.3 million as of December 31, 2020 is being held in an escrow account for a remaining period of 15 months to cover potential customary indemnity claims by the buyers of one of our businesses sold as described in Note 4 – “Plant Closures and Discontinued Operations.”

Restricted cash of $ 2.3 million as of December 31, 2021 is being held in an escrow account for a remaining period of three months to cover potential customary indemnity claims by the buyers of one of our businesses sold as described in Note 4 – “Plant Closures and Divestitures.”

Accounts receivable – We maintain allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments.

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Inventories – In the United States, CMC and RUPS inventories are valued at the lower of cost, utilizing the last-in, first-out (“LIFO”) basis, or net realizable value.

UIP inventories are valued at the lower of cost, utilizing the moving average cost basis, or net realizable value.

Utilities and industrial products inventories are valued at the lower of cost, utilizing the moving average cost basis, or net realizable value.

PC inventories and all other inventories outside of the United States are valued at the lower of cost, utilizing the first-in, first-out (“FIFO”) basis, and net realizable value.

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If an asset, or logical grouping of assets, is determined to be impaired, the asset is written down to its fair value using discounted future cash flows and, if available, quoted market prices.

Refer to Note 4 – “Plant Closures and Discontinued Operations” for additional information.

Refer to Note 4 – “Plant Closures and Divestitures” for additional information.

Goodwill and other intangible assets – Goodwill and other purchased intangible assets are included in the identifiable assets of the business segment to which they have been assigned.

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2021 Annual Report

Leases – Effective January 1, 2019, we changed our method of accounting for leases due to the adoption of Accounting Standards Update (ASU) No.

2016-02, “Leases (Topic 842)” and ASU No.

2018-10, “Codification Improvements to Topic 842, Leases”, using the modified retrospective method with no restatement of comparative periods presented.

The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

Lease arrangements are determined whether or not to be a lease at inception.

Leases – Lease arrangements are determined whether or not to be a lease at inception.

Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments.

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Balance at end of period

(a) Revision in estimated cash flows for 2020 and 2019 includes $ 2.9 and $ 3.4 million of charges related to restructuring activities, respectively.

See Note 4 – “Plant Closures and Discontinued Operations” for additional information.

(a) Revision in estimated cash flows for 2020 includes $ 2.9 million of charges related to restructuring activities.

See Note 4 – “Plant Closures and Divestitures” for additional information.

Litigation and contingencies – Amounts associated with litigation and contingencies are accrued when management, after taking into consideration the facts and circumstances of each matter including any settlement offers, has determined that it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.

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valuation of deferred income taxes;

and the allowance for doubtful accounts.

the allowance for doubtful accounts;

and measurement of cash incentive plans.

Events and changes in circumstances arising after December 31, 2021, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.

New Accounting Pronouncements

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

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 and will not require remeasurement or reassessment of a previous accounting determination at the modification date.

These practical expedients may be applied from March 12, 2020 through December 31, 2022.

Our debt agreements include the use of alternate rates if LIBOR is not available and we do not expect the change from LIBOR to an alternate rate will have a material impact to our consolidated financial statements.

This update provides temporary optional expedients and exceptions to U.S.

GAAP on contract modifications, hedging relationships, and other transactions affected by reference rate reform to ease entities' financial reporting burdens as the market transitions from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates.

The guidance was effective upon issuance and may be applied prospectively to contract modifications made, hedging relationships entered into, and other transactions affected by reference rate reform, evaluated on or before December 31, 2022, beginning during the reporting period in which the guidance has been elected.

Our debt agreements include the use of alternate rates when LIBOR is not available and we do not maintain hedging relationships applicable to this ASU.

We do not expect the application of this update to have a material impact on 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.

We do not expect the adoption of ASU No.

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

In June 2016, the FASB issued ASU No.

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

Measurement of Credit Losses on Financial Instruments.” ASU No.

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

We adopted ASU No.

2016-13 as of January 1, 2020 and there was no material impact on our financial statements.

Plant Closures and Discontinued Operations

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

The adoption of ASU No.

2020-01 did not have a material impact on our consolidated financial statements.

Plant Closures and Divestitures

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

These closure activities include:

In February 2021, we completed the sale of our Follansbee, West Virginia coal tar distillation facility.

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

Previously in 2018, we had ceased naphthalene refining activities at the facility subsequent to the commissioning of a new naphthalene refining plant in Stickney, Illinois.

In June 2021, we sold a subsidiary related to our closed facility located in Uithoorn, the Netherlands and we recorded a gain on sale of $ 0.3 million.

In April 2014, we had ceased coal tar distillation activities at the facility.

In February 2021, we sold our closed Follansbee, West Virginia coal tar distillation facility and we recorded a gain on sale of $ 5.7 million, consisting of $ 2.6 million from cash proceeds in addition to the assumption of certain liabilities by the buyer.

In September 2020, we sold Koppers (Jiangsu) Carbon Chemical Company Limited (“KJCC”) .

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

In November 2016, we sold our 30 -percent interest in Tangshan Kailuan Koppers Carbon Chemical Company Limited (“TKK”) located in the Hebei Province in China.

In July 2016, we discontinued coal tar distillation activities at our CMC plant located in Clairton, Pennsylvania.

In October 2018, we completed the sale of the facility.

In March 2016, we discontinued production at our 60 -percent owned CMC plant located in Tangshan, China.

In February 2016, we ceased coal tar distillation and specialty pitch operations at both of our United Kingdom CMC facilities.

In July 2016, we sold substantially all of our CMC tar distillation properties and assets in the United Kingdom.

In April 2014, we ceased coal tar distillation activities at our CMC facility located in Uithoorn, the Netherlands.

Refer to Note 5 – “Discontinued Operations” for more details.

In October 2018, we sold our closed Clairton, Pennsylvania coal tar distillation facility.

In March 2021, certain post-sale conditions were achieved and the buyer of the property released cash held in escrow to us resulting in a gain on sale of $ 1.8 million

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 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.

In August 2015, we closed a crosstie treating plant located in Green Spring, West Virginia.

In July 2015, we sold the assets of our 50 -percent interest in KSA Limited Partnership, a concrete crosstie manufacturer.

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

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

Koppers Holdings Inc.

2020 Annual Report

In October 2021, we sold our closed Denver, Colorado crosstie treating facility and we recorded a gain on sale of $ 23.4 million.

As part of the sales agreement, we may receive additional contingent post-closing payments secured by a guaranty from the buyer after applicable redevelopment milestones are reached.

At this time, we are unable to estimate how much, if any, of these additional funds will ultimately be paid to us.

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

9 unchanged sentences

Reversal of accrued charges

Currency translation

Sale of subsidiary

Reserve at December 31, 2021

Koppers Holdings Inc.

2021 Annual Report

Discontinued Operations

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.

(the Buyers).

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 estimated final net cash proceeds to Koppers will total $ 65.2 million, after payments for 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 and is recorded within Cash and Cash Equivalents as of December 31, 2020 to cover potential customary indemnity claims by the buyers for a remaining period of 15 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 Consolidated Statement of Cash Flows.

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 for the year ended December 31, 2020.

Restricted cash of $ 2.3 million is being held in an escrow account and is recorded within cash and cash equivalents as of December 31, 2021 to cover potential customary indemnity claims by the Buyers for a remaining period of three months .

On December 23, 2021, the Buyers issued claims totaling $ 1.6 million, of which our share is $ 1.2 million.

We have rejected the claims and until these claims are resolved, the escrow amount will not be fully released.

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

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Net decrease in cash and cash equivalents

Assets of Discontinued Operations Held for Sale

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

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

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 $ 4.9 million during the year ended December 31, 2020, which are included in (loss) income from discontinued operations and gain on the sale of discontinued operations on the Consolidated Statement of Operations.

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

(Dollars in millions)

Cash and cash equivalents

Accounts receivable

Income tax receivable

Inventories, net

Other current assets

Total current assets held for sale

Property, plant and equipment, net

Operating lease right-of-use assets

Total non-current assets held for sale

Total assets held for sale

Accounts payable

Accrued liabilities

Current operating lease liabilities

Total current liabilities held for sale

Deferred tax liabilities

Operating lease liabilities

Other long-term liabilities

Total non-current liabilities held for sale

Total liabilities held for sale

On April 10, 2018, Koppers Inc.

acquired its Utility and Industrial Products business (“UIP”) for net cash consideration of $ 201.3 million.

The transaction was funded by borrowings on Koppers Inc.’s Credit Facility discussed in “Note 15 - Debt.” UIP is a manufacturer of treated wood transmission and distribution poles for utility and cooperative utility companies.

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

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

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

On February 28, 2018, Koppers Inc.

acquired its Koppers Recovery Resources business (“KRR”) for net cash consideration of $ 62.8 million.

The purchase price was funded by borrowings on Koppers Inc.’s Credit Facility.

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

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

Koppers Holdings Inc.

2020 Annual Report

Combined acquisition costs related to these two transactions were $ 6.5 million for year ended December 31, 2018 and are recorded within selling, general and administrative expenses in the consolidated statement of operations for the year ended December 31, 2018.

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

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

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

Year Ended December 31,

(Dollars in millions)

Pro forma revenue

Pro forma income from continuing operations attributable to Koppers

Pro forma income per share - continuing operations:

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

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

Fair Value Measurements

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

Earnings per Common Share

Earnings and Dividends per Common Share

The computation of basic earnings per common share for the periods presented is based upon the weighted average number of common shares outstanding during the periods.

The computation of diluted earnings per common share includes the effect of non-vested nonqualified stock options and restricted stock units assuming such options and stock units were outstanding common shares at the beginning of the period.

The computation of diluted earnings per common share includes the effect of non-vested nonqualified stock options and stock units assuming such options and stock units were outstanding common shares at the beginning of the period.

The effect of antidilutive securities is excluded from the computation of diluted loss per common share, if any.

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Net income attributable to Koppers

(Loss) income from discontinued operations

Gain on sale of discontinued operations

Non-controlling (loss) income

Income (loss) from discontinued operations, net of tax

(Loss) gain on sale of discontinued operations

Noncontrolling interest related to discontinued

Income from continuing operations attributable to Koppers

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earnings per common share

On February 23, 2022 , the board of directors declared a quarterly dividend of five cents per common share, payable on April 4, 2022 to shareholders of record as of March 18, 2022 .

Stock-based Compensation

We have outstanding stock-based compensation awards that were granted under the amended and restated 2005 Long-Term Incentive Plan (the “2005 LTIP”), the 2018 Long-Term Incentive Plan (the “2018 LTIP”) and the 2020 Long-Term Incentive Plan (the “2020 LTIP”).

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

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

Similar to the 2018 LTIP, the 2020 LTIP provides for the grant to eligible persons of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance awards, dividend equivalents and other stock-based awards, which are collectively referred to as the “awards”.

The LTIP provides for the grant to eligible persons of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance awards, dividend equivalents and other stock-based awards, which are collectively referred to as the “awards.” On May 6, 2021, the shareholders approved an amendment to our 2020 LTIP and an Amended and Restated Employee Stock Purchase Plan to increase the number of shares available for grant by 1,500,000 and 300,000 , respectively.

Restricted Stock Units and Performance Stock Units

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For grants to most employees, the restricted stock units vest in four equal annual installments.

Restricted stock units that have one-year vesting periods are also issued under the LTIP to members of the board of directors in connection with annual director compensation and, from time to time, are issued to employees in connection with employee compensation with vesting periods of two years or less.

Restricted stock units that have one-year vesting periods are also issued as compensation under the LTIP to members of the board of directors and, from time to time, are issued to employees with vesting periods of two years or less.

Performance stock units have vesting based upon a market condition.

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

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

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

Koppers Holdings Inc.

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

March 2020 Grant

January 2021 Grant

March 2020 Grant

May 2018 Grant

March 2019 Grant

Grant date price per share of performance award

Grant date price per share of stock

performance award

Expected dividend yield per share

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Look-back period in years

Grant date fair value per share of performance award

Grant date fair value per share of stock

performance award

Dividends declared, if any, on our common stock during the period prior to vesting of the stock units are credited at equivalent value as additional stock units and become payable as additional common shares upon vesting.

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Performance Period

Performance stock units granted in March 2018 for the 2018 – 2020 performance period did not meet the minimum performance criteria and will not vest in March 2021.

The minimum, target and maximum shares above reflect the impact from completed performance periods.

Performance stock units granted in March 2019 for the 2019 – 2021 performance period will vest in March 2021 at 182.7 percent of the original target share amount of 140,665 stock units.

The following table shows a summary of the status and activity of non-vested stock awards for the year ended December 31, 2021:

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We calculated the fair value of stock options on the date of grant using the Black-Scholes-Merton model and the assumptions listed below:

March 2020 Grant

January 2021 Grant

March 2020 Grant

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March 2018 Grant

Grant date price per share of stock option award

Grant date price per share of stock

Expected dividend yield per share

2 unchanged sentences

Risk-free interest rate

Grant date fair value per share of option awards

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

Grant date fair value per share of stock

Prior to February 2022, we had not declared a dividend since 2014.

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

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Stock Compensation Expense

Total stock-based compensation expense recognized under our LTIP and employee stock purchase plan for the three years ended December 31, 2020 are as follows:

Total stock-based compensation expense recognized under our LTIP and employee stock purchase plan for the three years ended December 31, 2021 is as follows:

Year Ended December 31,

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As of December 31, 2021, total future compensation expense related to non-vested stock-based compensation arrangements totaled $ 16.2 million and the weighted-average period over which this expense is expected to be recognized is approximately 25 months.

Koppers Holdings Inc.

2021 Annual Report

Segment Information

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Utility products include transmission and distribution poles and pilings.

The segment also operates a railroad services business that conducts engineering, design, repair and inspection services for railroad bridges and a business related to the recovery of used crossties.

Koppers Holdings Inc.

2020 Annual Report

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

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

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

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

During 2021, we determined that our primary measure of segment profitability is adjusted earnings before interest, income taxes, depreciation, amortization and certain non-cash and/or non-recurring items that do not contribute directly to management’s evaluation of our operating results (as defined by us, “adjusted EBITDA").

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

This presentation is consistent with how our chief operating decision maker evaluates the results of operations and makes strategic decisions about the business.

In addition, adjusted EBITDA is the primary measure used to determine the level of achievement of management’s short-term incentive goals and related payout.

For these reasons, we believe that adjusted EBITDA represents the most relevant measure of segment profit and loss.

Adjusted EBITDA is reconciled to net income, the most directly comparable financial measure determined and reported in accordance with U.S.

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.

Intersegment transactions are eliminated in consolidation.

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

The following table sets forth certain sales and operating data, for our segments for the periods indicated:

Year Ended December 31,

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Carbon Materials and Chemicals (b)

Operating profit (loss):

Railroad and Utility Products and Services (c)

Adjusted EBITDA:

Railroad and Utility Products and Services

Performance Chemicals

Carbon Materials and Chemicals (d)

Corporate (e)

Capital expenditures (excluding acquisitions):

Carbon Materials and Chemicals

Capital expenditures:

Railroad and Utility Products and Services

Performance Chemicals

Carbon Materials and Chemicals (f)

Revenue excludes KJCC discontinued operations of $ 31.6 million, $ 135.8 million and $ 147.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Depreciation and amortization expense excludes KJCC discontinued operations of $ 0.6 million, $ 3.7 million and $ 3.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Includes $ 6.0 million of inventory fair value purchase price accounting adjustments from our acquisition of UIP in 2018.

Operating profit (loss) excludes KJCC discontinued operations of $( 5.0 ) million, $ 5.8 million and $ 26.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Operating loss for Corporate includes costs for Koppers Holdings Inc., the parent company of Koppers Inc., and acquisition-related costs.

Capital expenditures includes KJCC discontinued operations of $ 0.6 million, $ 3.9 million and $ 3.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Carbon Materials and Chemicals (c)

Revenue excludes KJCC discontinued operations of $ 31.6 million and $ 135.8 million for the years ended December 31, 2020 and 2019, respectively.

Depreciation and amortization expense excludes KJCC discontinued operations of $ 0.6 million and $ 3.7 million for the years ended December 31, 2020 and 2019, respectively.

Capital expenditures includes KJCC discontinued operations of $ 0.6 million and $ 3.9 million for the years ended December 31, 2020 and 2019, respectively.

Koppers Holdings Inc.

2021 Annual Report

The following table reconciles net income to adjusted EBITDA on a consolidated basis as calculated by us for the years indicated below:

Year Ended December 31,

(amounts in millions)

Interest expense

Depreciation and amortization

Depreciation in impairment and restructuring charges

Discontinued operations

Adjustments to arrive at adjusted EBITDA:

Impairment, restructuring and plant closure costs (1)

(Gain) on sale of assets

LIFO expense (benefit)

Mark-to-market commodity hedging losses (gains)

Pension settlement

Discretionary incentive (2)

Total adjustments

Adjusted EBITDA

Includes costs associated with restructuring, sales and closures of certain RUPS and CMC facilities as described in Note 4 – “Plant Closures and Divestitures”.

Represents a one-time employee incentive associated with the sale of KJCC as described in Note 5 – “Discontinued Operations”.

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

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Income tax receivable

Prepaid insurance and other assets

Deferred taxes

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Operating lease right-of-use assets

Prepaid insurance and other assets

Railroad and Utility Products and Services

Performance Chemicals

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.

Revenues and Long-lived Assets by Geographic Area

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Other countries

Revenue excludes KJCC discontinued operations of $ 31.6 million, $ 135.8 million and $ 147.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Long-lived assets exclude $ 59.3 million and $ 59.0 million of assets of discontinued operations held for sale related to our KJCC business at December 31, 2019 and 2018, respectively.

Revenue excludes KJCC discontinued operations of $ 31.6 million and $ 135.8 million for the years ended December 31, 2020 and 2019, respectively.

Long-lived assets exclude $ 59.3 million of assets of discontinued operations held for sale related to our KJCC business as of December 31, 2019.

Revenues by geographic area in the above table are attributed by the destination country of the sale.

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countries totaled $ 544.4 million in 2021, $ 499.0 million in 2020 and $ 495.8 million in 2019.

Koppers Holdings Inc.

2020 Annual Report

Segment Revenues for Significant Product Lines

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Other products

Revenue excludes KJCC discontinued operations of $ 31.6 million, $ 135.8 million and $ 147.5 million for the years ended December 31, 2020, 2019 and 2018, respectively .

Revenue excludes KJCC discontinued operations of $ 31.6 million and $ 135.8 million for the years ended December 31, 2020 and 2019, respectively .

Koppers Holdings Inc.

2021 Annual Report

Income Tax Provision

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Federal income tax rate

GILTI inclusion, net of foreign tax credits

Foreign earnings taxed at different rates

State income taxes, net of federal tax benefit

Transition tax from Tax Act

Deferred tax adjustments from Tax Act

Valuation allowance adjustments

GILTI inclusion, net of foreign tax credits

Intra-entity transfer of intangible assets

Change in tax contingency reserves

Deferred tax adjustments

Valuation allowance adjustments

In 2017, the Tax Cut and Jobs Act of 2017 (“Tax Act”) was enacted into law.

The Tax Act included a number of key changes that have impacted our tax provision for each of the years in the three-year period ended December 31, 2020:

a reduction in the U.S.

corporate income tax rate to 21 percent from 35 percent, imposition of a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries, imposition of a minimum tax on earnings of a foreign corporation (the global intangible low-taxed income tax or “GILTI tax”) and a limitation on our interest expense deduction.

Rate reduction – Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

During the year ended December 31, 2017, we initially recorded a charge to the carrying value of our deferred tax assets and liabilities in the United States upon enactment of the Tax Act.

After further analysis and after the effect of filing our 2017 U.S.

tax return, we revised this amount and recorded an income tax benefit of $ 3.8 million in the year ended December 31, 2018.

Transition tax – In the year ended December 31, 2017, we recorded an initial estimated charge related to the one-time transition tax.

In the year ended December 31, 2018, we revised our original estimate and recorded additional income tax expense of $ 8.6 million as a result of additional guidance issued by the Internal Revenue Service.

Due to the availability of net operating losses, our total cash payment for the one-time transition tax is approximately $ 5.1 million which is being paid in installments through 2024.

GILTI tax – We have recorded an income tax expense, net of foreign tax credits, of $ 4.4 million, $ 0.9 million and $ 6.6 million in the years ended December 31, 2020, 2019 and 2018, respectively.

However, the impact of the GILTI tax did not result in any incremental cash tax payments in the years ended December 31, 2019 and 2018 since it was offset by available net operating losses.

Interest expense deduction limitation – As enacted in 2017, the interest expense deduction is limited to 30 percent of adjusted taxable income as defined under the tax regulations and any such limitation that is disallowed in a year can be carried forward to future years.

In the years ended December 31, 2019 and 2018, we recorded a cumulative valuation allowance totaling $ 13.3 million for the disallowed interest expense deduction due to the uncertainly of when we could utilize the carryforward amounts.

During 2020, two events occurred which enabled us to adjust our interest expense limitations on our 2018 and 2019 U.S.

Change in tax contingency reserves

For each of the three years ended December 31, 2021, 2020 and 2019, we have recorded valuation allowance adjustments related to the value of certain deferred tax assets.

In 2021, we recorded a $3.3 million valuation allowance against net deferred tax assets of our United Kingdom entities as a result of a recent history of pre-tax losses and the reversal of a deferred tax liability associated with a defined benefit pension plan.

In 2020 and 2019, the valuation allowance adjustment was impacted by the interest expense deduction in the United States.

As originally enacted, the interest expense deduction is limited to 30 percent of adjusted taxable income as defined under the tax regulations and any such limitation that is disallowed in a year can be carried forward to future years.

As of December 31, 2019, we had recorded a cumulative valuation allowance totaling $ 13.3 million for the disallowed interest expense deduction due to the uncertainly of when we could utilize the carryforward amounts.

During 2020, new regulations were enacted and these new regulations impacted our interest expense limitation in our 2018 and 2019 U.S.

In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted and a provision of the CARES Act increased the allowable business interest expense deduction to 50 percent of adjusted taxable income retroactively to January 1, 2019.

In addition, the Internal Revenue Service released regulations that were retroactive to January 1, 2018 and favorably impacted our calculation of adjusted taxable income.

In July 2020, the Internal Revenue Service released regulations that were retroactive to January 1, 2018 and favorably impacted our calculation of adjusted taxable income.

After application of these new regulations, the limitation of our interest expense deduction was significantly reduced when compared to the same calculations under the previous regulations.

In the year ended December 31, 2020, we recorded a tax benefit of $ 13.3 million to reverse the previously-recorded valuation allowance as we are certain that we will utilize the remaining amount that was disallowed and carried forward.

Due to these changes, in the year ended December 31, 2020 we recorded an income tax benefit of $ 13.3 million, to adjust a previously recorded valuation allowance for disallowed interest expense deductions that are eligible for carry-forward as we determined that we would be able to fully utilize these disallowed interest expense deductions.

Effective January 1, 2021, the limitation on the deduction was restored to 30 percent.

In the year ended December 31, 2019, we recognized a one-time deferred tax benefit of $ 14.9 million upon the completion of a Dutch legal entity restructuring project.

This restructuring resulted in an intra-entity transfer of certain intangible assets and intellectual property, which under Dutch tax law are valued at fair value and are amortized over a period of nine to 14 years .

Koppers Holdings Inc.

2020 Annual Report

This restructuring resulted in an intra-entity transfer of certain intangible assets and intellectual property, which under Dutch tax law were valued at fair value and are amortized over a period of 9 to 14 years .

Taxes Excluded from Net Income Attributable to Koppers

The amount of deferred income tax expense (benefit) included in comprehensive income (loss) but excluded from net income attributable to Koppers relating primarily to adjustments to copper swap contracts is $ 12.6 million, $ 4.1 million, and $( 10.0 ) million for the years ended December 31, 2020, 2019 and 2018, respectively.

The amount of deferred income tax expense (benefit) included in comprehensive income (loss) but excluded from net income attributable to Koppers relating to adjustments to reflect the unfunded status of employee post-retirement benefit plans is $( 0.4 ) million, $ 0.7 million, and $( 0.1 ) million for the years ended December 31, 2020, 2019 and 2018, respectively.

The amount of deferred income tax (benefit) expense included in comprehensive income but excluded from net income attributable to Koppers relating primarily to adjustments to copper swap contracts is ($ 0.5 ) million, $ 12.6 million, and $ 4.1 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The amount of deferred income tax (benefit) expense included in comprehensive income but excluded from net income attributable to Koppers relating to adjustments to reflect the unfunded status of employee post-retirement benefit plans is $( 1.3 ) million, $( 0.4 ) million, and $ 0.7 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Deferred Tax Assets and Liabilities

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Federal and state tax loss carryforwards, expiring from 2021 to 2040

Reserves, including insurance and environmental

Pension and other postretirement benefits obligations

Reserves, including insurance and environmental

Foreign tax loss carryforwards

Asset retirement obligations

Accrued employee compensation

Book/tax inventory accounting differences

Asset retirement obligations

Valuation allowance

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Total deferred tax liabilities

Net deferred tax (liabilities) assets

Net deferred tax liabilities

As a result of the Tax Act and the one-time mandatory transition tax, all previously unremitted earnings for which a U.S.

deferred tax liability had not been accrued have now been subject to U.S.

At December 31, 2020, there was approximately $ 602 million of such unremitted earnings.

As of December 31, 2021, there was approximately $ 504 million of such unremitted earnings.

Substantially all unremitted earnings will remain indefinitely invested in our foreign subsidiaries for the foreseeable future unless we can remit any earnings as a dividend in a tax-free manner.

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Certain deferred tax assets reflected above are not expected to be realized and a valuation allowance has been provided for them.

Koppers Holdings Inc.

2021 Annual Report

Valuation allowances are recorded to offset the following deferred tax assets:

1 unchanged sentence

Federal foreign tax credits

Federal temporary differences

Foreign temporary differences, net operating losses and capital losses

Federal temporary differences

Total valuation allowances

The valuation allowance for Federal temporary differences, and specifically the valuation allowance on the disallowed U.S.

interest deductions, was reversed in the year ended December 31, 2020.

This is due to the changes to the U.S.

tax law that were enacted in 2020 and discussed in prior paragraphs.

Unrecognized Tax Benefits

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Less revaluation to LIFO

Inventories, net (a)

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

Koppers Holdings Inc.

2020 Annual Report

Inventories, net

Property, Plant and Equipment

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Less accumulated depreciation

Property, Plant and Equipment, net (a)

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 .

Property, plant and equipment, net

Depreciation expense for the years ended December 31, 2021, 2020 and 2019 amounted to $ 39.4 million, $ 33.7 million and $ 30.7 million, respectively.

Depreciation expense excludes KJCC discontinued operations of $ 0.6 million, $ 3.7 million and $ 3.9 million for the years ended December 31, 2020, 2019 and 2018, respectively

Depreciation expense excludes KJCC discontinued operations of $ 0.6 million and $ 3.7 million for the years ended December 31, 2020 and 2019, respectively.

Impairments – We did no t incur impairment charges in 2021, 2020 or 2019.

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Balance at December 31, 2019

Purchase accounting adjustment

Currency translation

Balance at December 31, 2020

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Favorable lease agreements

In 2020, the gross carrying value of identifiable intangible assets increased by $ 2.3 million.

Koppers Holdings Inc.

2021 Annual Report

In 2021, the gross carrying value of identifiable intangible assets decreased by a net $ 3.2 million, primarily due to foreign exchange translation.

Total amortization expense related to these identifiable intangible assets was $ 18.3 million, $ 19.8 million and $ 20.7 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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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.

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Net periodic benefit cost

Koppers Holdings Inc.

2020 Annual Report

The change in the funded status of the pension and postretirement plans as of December 31, 2021 and December 31, 2020 is as follows:

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Interest cost

Actuarial losses (gains)

Actuarial (gains) losses

Currency translation

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Funded status of the plan

In 2020, the net actuarial loss of $ 17.3 million is due principally to the decrease in the discount rate used to measure the benefit obligation as of December 31, 2020 compared to the prior year.

In February 2021, we entered into a pension plan buy-in transaction with respect to our defined benefit pension plan in the United Kingdom with an insurance company.

After completing a regulatory process which is expected to take up to ten months, our related pension obligation will be irrevocably settled.

In 2021, the net actuarial gain of $ 9.0 million is due principally to the increase of 38 basis points in the discount rate used to measure the benefit obligation as of December 31, 2021 compared to the prior year.

As discussed further in the following paragraph, the actual return on plan assets was negative in 2021 primarily due to the purchase of a bulk annuity insurance policy in February 2021 related to our defined benefit pension plan in the United Kingdom.

As of December 31, 2021, the fair value of the bulk annuity insurance policy of $ 52.3 million is based on the calculated pension benefit obligation and is classified as Level 3 within the fair value hierarchy.

During 2021, we entered into a buy-in bulk annuity insurance policy in exchange for a premium payment of $ 67.8 million, which is subject to adjustment as a result of subsequent data cleansing activities.

Under the terms of this buy-in insurance policy, the insurer is liable to pay the benefits of our defined benefit pension plan in the United Kingdom, but the plan still retains full legal responsibility to pay the benefits to the members of the plan using the insurance payments.

The buy-in policy will be treated as a plan asset going forward until such time as the buy-in policy is converted to a buy-out policy, which is when individual insurance policies will be assigned to each member of the plan and the plan will no longer have legal responsibility to pay the benefits to the members.

The data cleansing effort is expected to be completed in late 2022 or early 2023 at which time the pension obligation will be irrevocably settled.

Upon that event, we will recognize a pre-tax pension settlement loss of approximately $ 22 million.

This pension plan has a benefit obligation of $ 54.2 million and plan assets of $ 52.5 million as of December 31, 2021.

Koppers Holdings Inc.

2021 Annual Report

Year Ended December 31,

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Investment Strategy

The weighted average asset allocation for our pension plans at December 31 by asset category is as follows:

The weighted average asset allocation for our pension plans as of December 31 by asset category is as follows:

Debt securities

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and international public company equity securities and income generating assets, principally debt securities, real estate and cash.

Currently, we target an allocation of 30 percent to 40 percent growth seeking assets and 60 percent to 70 percent income generating assets on an overall basis.

For all pension plans not engaged in a buy-out process, we target an allocation of 30 percent to 40 percent growth seeking assets and 60 percent to 70 percent income generating assets on an overall basis.

We utilize investment managers to assist in identifying and monitoring investments that meet these allocation criteria.

With respect to the U.S defined benefit plan, we have implemented a strategy of reallocating pension assets from growth seeking assets to income generating assets as certain funded status levels are reached.

Koppers Holdings Inc.

2020 Annual Report

All assets are invested in pooled or commingled investment vehicles.

With respect to the U.S.

defined benefit plan, we have implemented a strategy of reallocating pension assets from growth seeking assets to income generating assets as certain funded status levels are reached.

All assets are invested in pooled or commingled investment vehicles with the exception of the insurance annuity contract.

Our interest in these investment vehicles is expressed as a unit of account with a value per unit that is the result of the accumulated values of the underlying investments.

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The fair value of real estate investments is either priced through a listing on an exchange or are subject to periodic appraisals.

The following table sets forth by level, our pension plan assets at fair value, within the fair value hierarchy, as of December 31, 2020 and December 31, 2019:

The following tables set forth by level, our pension plan assets at fair value, within the fair value hierarchy, as of December 31, 2021 and December 31, 2020:

December 31, 2021

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International debt securities

Real estate and other investments

Insurance annuity contract and other

Cash and cash equivalents

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(a) The fair value amounts presented in the table above are intended to permit reconciliations of the fair value hierarchy to the total plan assets.

Koppers Holdings Inc.

2021 Annual Report

December 31, 2020

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International debt securities

Real estate and other investments

Other investments

Cash and cash equivalents

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(a) The fair value amounts presented in the table above are intended to permit reconciliations of the fair value hierarchy to the total plan assets.

The table below sets forth a summary of changes in the fair value of the Level 3 pension plans’ assets for the year ended December 31, 2020:

December 31, 2020

Other Investments

(Dollars in millions)

Balance at beginning of year

Purchases, sales, issuances and settlements

Balance at the end of year

The amount of total losses during the period attributable to the change in unrealized

losses relating to Level 3 net assets still held at the reporting date

Incentive Plan

We have short-term management incentive plans that pay cash bonuses if certain Company performance goals are met.

The charge to operating expense for these plans was $ 17.3 million in 2020, $ 12.2 million in 2019 and $ 10.3 million in 2018.

Expenses incurred for these plans was $ 14.9 million in 2021, $ 17.3 million in 2020 and $ 12.2 million in 2019.

Debt as of December 31, 2021 and 2020 was as follows:

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The 2025 Notes pay interest semi-annually in arrears on February 15 and August 15 and will mature on February 15, 2025 unless earlier redeemed or repurchased.

We are entitled to redeem all or a portion of the 2025 Senior Notes at a redemption price of 104.5 percent of principal value, declining to a redemption price of 101.5 percent on or after February 15, 2022 until the redemption price is equivalent to the principal value on April 15, 2023.

The indenture governing the 2025 Senior Notes includes customary covenants that restrict, among other things, the ability of Koppers Inc.

We were entitled to redeem all or a portion of the 2025 Senior Notes at a redemption price of 104.5 percent of principal value, which declines to a redemption price of 101.5 percent on or after February 15, 2022 until the redemption price is equivalent to the principal value on April 15, 2023.

The indenture governing the 2025 Notes includes customary covenants that restrict, among other things, the ability of Koppers Inc.

and its restricted subsidiaries to incur additional debt, pay dividends or make certain other restricted payments, incur liens, merge or sell all or substantially all of the assets of Koppers Inc.

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(Dollars in millions)

Koppers Holdings Inc.

2020 Annual Report

Unamortized debt issuance costs (net of accumulated amortization of $ 12.1 million and $ 9.4 million at December 31, 2021 and 2020, respectively) were $ 5.6 million and $ 8.3 million at December 31, 2021 and 2020, respectively, and are included as a deduction from the carrying amount of long-term debt.

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

We recognize lease obligations and associated right-of-use assets for existing non-cancelable leases.

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

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For certain asset classes such as railcars, storage tanks and ships, we have separated the lease and non-lease components based on the estimated stand-alone price for each component.

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

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

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

In addition, we exclude leases expiring within twelve months from balance sheet recognition.

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

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Present value of lease liabilities

Koppers Holdings Inc.

2021 Annual Report

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

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The primary risks that we manage by using derivative instruments are commodity price risk associated with copper and foreign currency exchange risk associated with a number of currencies, principally the U.S.

dollar, the Canadian dollar, the New Zealand dollar, the Euro and British pounds.

dollar, the Euro and British pounds.

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

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

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

For those commodity swaps which are not designated as cash flow hedges, the fair value of the commodity swap is recognized as an asset or liability in the consolidated balance sheet and the related gain or loss on the derivative is reported in current earnings.

Gains and losses on the derivative instruments representing hedge ineffectiveness are recognized in current earnings.

For those commodity swaps where hedge accounting is not elected, the fair value of the commodity swap is recognized as an asset or liability in the consolidated balance sheet and the related gain or loss on the derivative is reported in current earnings.

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

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In the next twelve months , we estimate that $ 41.4 million of unrealized gains, net of tax, related to commodity price hedging will be reclassified from other comprehensive income into earnings.

See the consolidated statement of comprehensive income (loss) and consolidated statement of shareholders’ equity for amounts recorded in other comprehensive income and for amounts reclassified from accumulated other comprehensive income (loss) into net income for the periods specified below.

See the consolidated statement of comprehensive income and consolidated statement of shareholders’ equity for amounts recorded in other comprehensive income and for amounts reclassified from accumulated other comprehensive income into net income for the periods specified below.

For the years ended December 31, 2021 and 2020, the following amounts were recognized in earnings related to copper swap contracts:

1 unchanged sentence

(Dollars in millions)

Gain from contracts not designated as hedges

Koppers Holdings Inc.

2020 Annual Report

(Loss) gain from contracts where hedge accounting was not

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

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

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

As of December 31, 2021 and 2020, the fair value of outstanding foreign currency forward contracts is recorded in the balance sheet as follows:

(Dollars in millions)

1 unchanged sentence

Accrued liabilities

Net asset (liability) on balance sheet

Net (liability) asset on balance sheet

As of December 31, 2021 and 2020, the net currency units outstanding were:

1 unchanged sentence

British Pounds

New Zealand Dollars

United States Dollars

12 unchanged sentences

Balance at end of year

Koppers Holdings Inc.

2021 Annual Report

Commitments and Contingent Liabilities

5 unchanged sentences

is one of several defendants in lawsuits filed in two states in which the plaintiffs claim they suffered a variety of illnesses (including cancer) as a result of exposure to coal tar pitch sold by the defendants.

There were 64 plaintiffs in 34 cases pending as of December 31, 2020, which is unchanged from December 31, 2019.

There were 59 plaintiffs in 31 cases pending as of December 31, 2021, compared to 64 plaintiffs in 34 cases pending as of December 31, 2020.

As of December 31, 2021 , there were 30 cases pending in the Court of Common Pleas of Allegheny County, Pennsylvania, and one case pending in the Circuit Court of Knox County, Tennessee.

40 unchanged sentences

Arbitration decisions under the Indemnity are final and binding on the parties.

Koppers Holdings Inc.

2020 Annual Report

Contamination has been identified at most manufacturing and other sites of our subsidiaries.

11 unchanged sentences

Domestic Environmental Matters.

In June 2018, Koppers Inc.

received a letter from the U.S.

Environmental Protection Agency ("EPA") concerning potential violations of the Clean Water Act observed during inspections and review of Spill Prevention, Control and Countermeasure Plans and Facility Response Plans at our facilities in Follansbee, WV;

Green Spring, WV;

and Clairton, PA.

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

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

The consent decree was entered and became effective on February 4, 2021 and the penalty will be paid in the first quarter of 2021.

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

8 unchanged sentences

Responsibility for implementing and funding that work will be decided in the separate private allocation process which is ongoing.

Koppers Holdings Inc.

2021 Annual Report

Additionally, Koppers Inc.

11 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 $ 3.6 million as of December 31, 2020.

We have accrued the estimated costs of participating in the PRP group at the Portland Harbor and Newark Bay CERCLA sites and estimated de minimis contributor settlement amounts at the sites totaling $ 3.5 million as of December 31, 2021.

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.

3 unchanged sentences

Foreign Environmental Matters .

In October 2019, the New South Wales Environment Protection Authority (“NSW EPA”) filed a proceeding against one of our Australian subsidiaries, Koppers Carbon Materials & Chemicals Pty.

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

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

A proceeding was held in November 2019 in the Land and Environment Court of New South Wales and we entered a guilty plea with respect to the allegations.

In May 2020, the NSW EPA brought additional proceedings against KCMC related to a series of May 2019 incidents involving alleged air pollution and odor complaints.

The Company agreed to plead guilty to two of the charges and both the October 2019 and May 2020 proceedings were procedurally joined.

In February 2021, the Land and Environment Court entered a final order and assessed a fine of $ 0.1 million plus legal costs incurred by the NSW EPA.

We have accrued our estimated liability associated with the matters as of December 31, 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.

1 unchanged sentence

Environmental Reserves Rollforward .

The following table reflects changes in the accrued liability for environmental matters, excluding fines and penalties of which $ 2.9 million and $ 2.8 million are classified as current liabilities at December 31, 2020 and December 31, 2019, respectively :

The following table reflects changes in the accrual for environmental remediation.

A total of $ 2.8 million and $ 2.9 million are classified as current liabilities as of December 31, 2021 and December 31, 2020, respectively :

(Dollars in millions)

6 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data