What changed in this filing

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Item 1. Financial Statements

2022-05-06 compared with 2021-11-04 · 153 added, 233 removed, 549 unchanged (41% of the section changed)

1 unchanged sentence

KOPPERS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

Three Months Ended September 30,

Nine Months Ended September 30,

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

Three Months Ended March 31,

(Dollars in millions, except per share amounts)

7 unchanged sentences

Interest expense

Income from continuing operations before income

Income from continuing operations before income taxes

Income tax provision

Income from continuing operations

Income (loss) from discontinued operations, net of

tax benefit of $ 0.0 , $ 0.4 , $ 0.0 and $ 1.4

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

tax benefit (expense) of $ 0.2 , $( 8.3 ), $ 0.3 , $( 8.3 )

Net loss attributable to noncontrolling

Loss on sale of discontinued operations, net of tax benefit of $ 0.0 and $ 0.1

Net loss attributable to noncontrolling interests

Net income attributable to Koppers

7 unchanged sentences

Earnings per diluted common share

Comprehensive (loss) income

Comprehensive (loss) income attributable to

noncontrolling interests

Comprehensive (loss) income attributable to Koppers

Comprehensive income

Comprehensive loss attributable to noncontrolling interests

Comprehensive income attributable to Koppers

Weighted average shares outstanding (in thousands):

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEET

September 30,

(Dollars in millions, except per share amounts)

9 unchanged sentences

Deferred tax assets

Non-current derivative contracts

Accounts payable

26 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in millions)

Cash provided by (used in) operating activities:

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

Adjustments to reconcile net cash used in operating activities:

Depreciation and amortization

11 unchanged sentences

Other working capital

Net cash provided by operating activities

Net cash used in operating activities

Cash (used in) provided by investing activities:

2 unchanged sentences

Cash provided by sale of assets

Net cash (used in) provided by investing activities

Net cash used in investing activities

Cash provided by (used in) financing activities:

Net increase (decrease) in credit facility borrowings

Net increase in credit facility borrowings

Repayments of long-term debt

2 unchanged sentences

Payment of debt issuance costs

Net cash provided by (used in) financing activities

Dividends paid

Net cash provided by financing activities

Effect of exchange rate changes on cash

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

Net increase in cash and cash equivalents

18 unchanged sentences

The Condensed Consolidated Balance Sheet as of December 31, 2021 has been summarized from the audited balance sheet contained in the Annual Report on Form 10-K as of and for the year ended December 31, 2021.

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

See Note 4 – “Discontinued Operations.”

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

The financial information included herein should be read in conjunction with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2021.

COVID-19 Assessment

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

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

This current level of uncertainty over the economic and operational impacts of COVID-19 means the related future financial impact cannot be reasonably estimated at this time.

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

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

COVID-19 continues to impact the United States and other countries across the world.

There remains a level of uncertainty over the economic and operational impacts of COVID-19, and as a result the related future financial impact cannot be reasonably estimated at this time.

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

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

4 unchanged sentences

and measurement of cash incentive plans.

Events and changes in circumstances arising after September 30, 2021, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.

Events and changes in circumstances arising after March 31, 2022, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.

New Accounting Pronouncements

7 unchanged sentences

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.

Recent closure activities include:

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.

We have restructured 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 recent restructuring activities which had an impact on our reported results include:

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.

3 unchanged sentences

In the first quarter of 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.

Most recently, we discontinued production activities at our crosstie treating plant located in Denver, Colorado in the third quarter of 2020.

In October 2021, we sold the facility and will recognize a gain on the transaction of approximately $ 23 million during the three months ended December 31, 2021.

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

Severance and

employee benefits

(Dollars in millions)

Reserve at December 31, 2019

Cost charged against assets

Reversal of accrued charges

Currency translation

Reserve at December 31, 2020

Cost charged against assets

Reversal of accrued charges

Sale of subsidiary

Reserve at September 30, 2021

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

In January 2022, we began curtailing operations at our utility pole treating facility in Sweetwater, Tennessee.

We sold the facility in March 2022 and recorded a gain on sale of $ 2.5 million.

In October 2021, we sold our closed Denver, Colorado crosstie treating facility and 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 .

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.

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 September 30, 2021 to cover potential customary indemnity claims by the buyers for a remaining period of six months .

In addition, an amount of $ 6.1 million and $ 5.6 million is recorded in accrued liabilities as of September 30, 2021 and December 31, 2020, respectively, in anticipation of final post-closing working capital adjustments payable to the buyers and related withholding taxes.

This final adjustment was paid to the buyers in October 2021.

The sale of KJCC represented a strategic shift that had a major effect on our operations and financial results in 2020 and were, therefore, classified as discontinued operations in our condensed consolidated financial statements.

Net sales and operating loss from discontinued operations for the three and nine months ended September 30, 2020 consisted of the following amounts:

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in millions)

Operating income (loss)

Restricted cash of $ 2.3 million is being held in an escrow account and is recorded within cash and cash equivalents as of March 31, 2022 to cover potential customary indemnity claims by the Buyers.

On December 23, 2021 and March 31, 2022, the Buyers issued various claims, which after negotiation were settled in April 2022 for $ 0.9 million, of which our share is $ 0.7 million.

After reduction for the settlement, we expect the escrow amount will be fully released by the end of the second quarter.

The sale of KJCC represented a strategic shift that had a major effect on our operations and accordingly is classified as discontinued operations in our condensed consolidated financial statements and notes.

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

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

This entity is also reflected as a discontinued operation in our condensed consolidated financial statements and notes.

Fair Value Measurements

Carrying amounts and the related estimated fair values of our financial instruments as of September 30, 2021 and December 31, 2020 are as follows:

September 30, 2021

Carrying amounts and the related estimated fair values of our financial instruments as of March 31, 2022 and December 31, 2021 are as follows:

March 31, 2022

December 31, 2021

8 unchanged sentences

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

Comprehensive (Loss) Income and Equity

Total comprehensive (loss) income for the three and nine months ended September 30 , 2021 and 2020 is summarized in the table below:

Three Months Ended September 30,

Nine Months Ended September 30,

Comprehensive Income and Equity

Total comprehensive income for the three months ended March 31 , 2022 and 2021 is summarized in the table below:

Three Months Ended March 31,

(Dollars in millions)

Changes in other comprehensive (loss) income:

Changes in other comprehensive income:

Currency translation adjustment

Unrealized (loss) gain on cash flow hedges, net

of tax benefit (expense) of $ 6.1 , $( 5.3 ),

$ 1.2 and $( 6.9 )

of tax benefit (expense) of $ 2.1 and $( 4.5 )

Unrecognized pension net loss, net of tax

expense of $( 0.1 ) and $( 0.1 )

Total comprehensive (loss) income

Comprehensive (loss) income attributable to

noncontrolling interests

Comprehensive (loss) income attributable to Koppers

Total comprehensive income

Comprehensive loss attributable to noncontrolling interests

Comprehensive income attributable to Koppers

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

This component of accumulated other comprehensive loss is included in the computation of net periodic pension cost as disclosed in Note 13 – “Pensions and Post-Retirement Benefit Plans.” Other amounts reclassified from accumulated other comprehensive loss related to derivative financial instruments, net of tax, of $ 11.1 million and $ 31.0 million for the three and nine months ended September 30, 2021, respectively, and $ 1.3 million and $ 2.1 million for the three and nine months ended September 30, 2020, respectively.

The following tables present the change in equity for the three months ended September 30, 2021 and 2020, respectively:

(Dollars in millions)

Additional Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Loss

Treasury Stock

Noncontrolling

Balance at June 30,

Net income (loss)

Issuance of common stock

Employee stock plans

Other comprehensive

income (loss)

Currency translation

Unrealized loss on cash

Unrecognized pension

Repurchases of common

Balance at September 30,

(Dollars in millions)

Additional Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Loss

Treasury Stock

Noncontrolling

Balance at June 30,

Net income (loss)

Issuance of common stock

Employee stock plans

Sale of discontinued

Other comprehensive

Currency translation

Unrealized gain on

cash flow hedges

Unrecognized pension

Balance at September 30,

The following tables present the change in equity for the nine months ended September 30, 2021 and 2020, respectively:

This component of accumulated other comprehensive loss is included in the computation of net periodic pension cost as disclosed in Note 13 – “Pensions and Post-Retirement Benefit Plans.” Other amounts reclassified from accumulated other comprehensive loss related to derivative financial instruments, net of tax, of $ 10.1 million for the three months ended March 31, 2022, and $ 7.2 million for the three months ended March 31, 2021.

The following tables present the change in equity for the three months ended March 31, 2022 and 2021, respectively:

(Dollars in millions)

5 unchanged sentences

Balance at December 31,

Net income (loss)

Issuance of common stock

Repurchases of common

Employee stock plans

2 unchanged sentences

Currency translation

Cumulative translation

adjustment loss on

sale of subsidiary

Unrealized loss on cash

Unrecognized pension

Repurchases of common

Balance at September 30,

Balance at March 31, 2022

(Dollars in millions)

7 unchanged sentences

Issuance of common stock

Repurchases of common

Employee stock plans

Sale of discontinued

Other comprehensive

income (loss)

(loss) income

Currency translation

2 unchanged sentences

Unrecognized pension

Repurchases of common

Balance at September 30,

Balance at March 31,

For the three months ended March 31, 2022, we declared dividends totaling $ 0.05 per common share.

On May 5, 2022 , we declared a quarterly dividend of $ 0.05 per common share, payable on June 13, 2022 to shareholders of record as of May 27, 2022 .

Earnings per Common Share

3 unchanged sentences

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

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

Net income attributable to Koppers

Income (loss) from discontinued operations, net of tax

(Loss) gain on sale of discontinued operations

Noncontrolling interest related to discontinued

Loss on sale of discontinued operations, net of

tax benefit of $ 0.0 and $ 0.1

Income from continuing operations attributable to Koppers

9 unchanged sentences

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

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

12 unchanged sentences

January 2022 Grant

January 2021 Grant

March 2020 Grant

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

The following table shows a summary of the performance stock units as of September 30, 2021:

The following table shows a summary of the performance stock units as of March 31, 2022:

Performance Period

The following table shows a summary of the status and activity of non-vested stock units for the nine months ended September 30, 2021:

The following table shows a summary of the status and activity of non-vested stock units for the three months ended March 31, 2022:

Weighted Average

3 unchanged sentences

Performance share adjustment

Non-vested at September 30, 2021

Non-vested at March 31, 2022

Stock Options

7 unchanged sentences

January 2022 Grant

March 2020 Grant

January 2021 Grant

March 2020 Grant

6 unchanged sentences

Grant date fair value per share of option

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

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.

2 unchanged sentences

Treasury bill rates for the expected life of the option.

The following table shows a summary of the status and activity of stock options for the nine months ended September 30, 2021:

The following table shows a summary of the status and activity of stock options for the three months ended March 31, 2022:

Weighted Average

5 unchanged sentences

Outstanding at December 31, 2021

Outstanding at September 30, 2021

Exercisable at September 30, 2021

Outstanding at March 31, 2022

Exercisable at March 31, 2022

Stock Compensation Expense

Total stock-based compensation expense recognized under our LTIP and employee stock purchase plan for the three and nine months ended September 30, 2021 and 2020 is as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Total stock-based compensation expense recognized under our LTIP and employee stock purchase plan for the three months ended March 31, 2022 and 2021 is as follows:

Three Months Ended March 31,

(Dollars in millions)

5 unchanged sentences

Cash received from the exercise of stock options

As of September 30, 2021 , total future compensation expense related to non-vested stock-based compensation arrangements is expected to total $ 19.5 million and the weighted-average period over which this expense is expected to be recognized is approximately 27 months .

As of March 31, 2022 , total future compensation expense related to non-vested stock-based compensation arrangements is expected to total $ 26.7 million and the weighted-average period over which this expense is expected to be recognized is approximately 32 months .

Segment Information

We have three reportable segments:

Railroad and Utility Products and Services, Performance Chemicals (“PC”) and Carbon Materials and Chemicals.

RUPS, Performance Chemicals (“PC”) and CMC.

Our reportable segments contain multiple aggregated business units since management believes the long-term financial performance of these business units is affected by similar economic conditions.

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

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.

Consolidated 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.

Contract Balances

The timing of revenue recognition results in both billed accounts receivable and unbilled receivables, both classified as accounts receivable, net of allowance within the condensed consolidated balance sheet.

Contract assets of $ 13.3 million and $ 5.8 million are recorded within accounts receivable, net of allowance within the condensed consolidated balance sheet as of September 30, 2021 and December 31, 2020, respectively.

Contract assets of $ 5.4 million and $ 7.9 million are recorded within accounts receivable, net of allowance within the condensed consolidated balance sheet as of March 31, 2022 and December 31, 2021, respectively.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in millions)

2 unchanged sentences

Performance Chemicals

Carbon Materials and Chemicals (a)

Carbon Materials and Chemicals

Intersegment revenues:

4 unchanged sentences

Performance Chemicals

Carbon Materials and Chemicals (b)

Operating profit (loss):

Carbon Materials and Chemicals

Adjusted EBITDA:

Railroad and Utility Products and Services

Performance Chemicals

Carbon Materials and Chemicals (c)

Revenue excludes KJCC revenue of $ 8.8 million and $ 31.6 million for the three and nine months ended September 30, 2020, respectively.

Depreciation and amortization expense excludes KJCC expenses of $ 0.1 million and $ 0.6 million for the three and nine months ended September 30, 2020, respectively.

Operating profit (loss) excludes KJCC amounts of $ 0.3 million and $( 5.0 ) million for the three and nine months ended September 30, 2020, respectively.

Carbon Materials and Chemicals

Items excluded from the determination of segment profit:

Impairment, restructuring and plant closure costs

Gain on sale of assets

Mark-to-market commodity hedging (losses) gains

Corporate unallocated

Interest expense

Depreciation and amortization

Income tax provision

Discontinued operations

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in millions)

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

September 30,

(Dollars in millions)

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Entities that have historical pre-tax losses and current year estimated pre-tax losses that are not projected to generate a future benefit are excluded from the estimated annual effective income tax rate.

The estimated annual effective income tax rate, excluding discrete items discussed above, was 26.8 percent and 25.8 percent for nine months ended September 30, 2021 and 2020, respectively.

The estimated annual effective income tax rate, excluding discrete items, was 32.9 percent and 25.8 percent for three months ended March 31, 2022 and 2021, respectively.

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

federal statutory tax rate due to:

September 30,

Federal income tax rate

Foreign earnings taxed at different rates

Interest expense deduction limitation

Nondeductible expenses

GILTI inclusion, net of foreign tax credits

State income taxes, net of federal tax benefit

Change in tax contingency reserves

GILTI inclusion, net of foreign tax credits

Estimated annual effective income tax rate

Income taxes as a percentage of pretax income were 31.4 percent for the three months ended September 30, 2021.

This is higher than the estimated annual effective income tax rate primarily due to an increase in the estimated annual effective income tax rate when compared to the previous quarter’s estimate.

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

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

Discrete items were primarily related to the legislative changes and finalized regulations regarding the allowable business interest expense deduction that is discussed below and a benefit due to an amended tax return.

Income taxes as a percentage of pretax income were 26.4 percent for the nine months ended September 30, 2021.

This is lower than the estimated annual effective income tax rate due to several discrete items , none of which are material.

Income taxes as a percentage of pretax income were 17.4 percent for the nine months ended September 30, 2020.

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

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

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

During 2020, two events occurred which enabled us to adjust our interest expense limitations on 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 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.

Due to these changes, in the three and nine months ended September 30, 2020 we recorded an income tax expense of $ 2.0 million and an income tax benefit of $ 2.4 million, respectively, to adjust a previously recorded valuation allowance for disallowed interest expense deductions that are eligible for carry-forward.

After review and application of these changes, 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.

Income taxes as a percentage of pretax income were 33.4 percent for the three months ended March 31, 2022.

This is higher than the estimated annual effective income tax rate due to various discrete items, which were not material in the aggregate or individually.

The interest expense deduction limitation is limited to 30 percent of adjusted taxable income as defined under the tax regulations.

Starting January 1, 2022, the calculation of adjusted taxable income excludes an addback for depreciation and amortization whereas previous years’ determination of adjusted taxable income included an addback for depreciation and amortization.

This change in the determination of adjusted taxable income has decreased the amount of interest expense we can deduct and has had a significant unfavorable impact on our estimated annual effective income tax rate for the current year.

Income taxes as a percentage of pretax income were 24.5 percent for the three months ended March 31, 2021.

This was lower than the estimated annual effective income tax rate due primarily to an excess tax deduction for vested stock awards.

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

To the extent that actual results vary from these estimates, the actual annual effective income tax rate at the end of the year could be materially different from the estimated annual effective income tax rate for the three and nine months ended September 30, 2021.

Unrecognized Tax Benefits

7 unchanged sentences

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

Unrecognized tax benefits totaled $ 2.3 million and $ 2.5 million as of September 30, 2021 and December 31, 2020.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate, was approximately $ 2.3 million and $ 2.5 million as of September 30, 2021 and December 31, 2020.

Unrecognized tax benefits totaled $ 1.5 million as of March 31, 2022 and December 31, 2021.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate, was approximately $ 1.5 million as of March 31, 2022 and December 31, 2021.

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

As of September 30, 2021 and December 31, 2020, we had accrued approximately $ 0.8 million and $ 0.8 million for interest and penalties, respectively.

As of March 31, 2022 and December 31, 2021, we had accrued approximately $ 0.4 million for interest and penalties.

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

Net inventories as of September 30, 2021 and December 31, 2020 are summarized in the table below:

September 30,

Net inventories as of March 31, 2022 and December 31, 2021 are summarized in the table below:

(Dollars in millions)

4 unchanged sentences

Property, Plant and Equipment

Property, plant and equipment as of September 30, 2021 and December 31, 2020 are summarized in the table below:

September 30,

Property, plant and equipment as of March 31, 2022 and December 31, 2021 are summarized in the table below:

(Dollars in millions)

8 unchanged sentences

Accordingly, these pension plans no longer accrue additional years of service or recognize future increases in compensation for benefit purposes.

With respect to our defined benefit pension plan in the United Kingdom, in 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.

The defined contribution plans generally provide retirement assets to employee participants based upon employer and employee contributions to the participant’s individual investment account.

2 unchanged sentences

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

The following table provides the components of net periodic benefit cost for the pension plans for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended September 30,

Nine Months Ended September 30,

The following table provides the components of net periodic benefit cost for the pension plans for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

(Dollars in millions)

4 unchanged sentences

Defined contribution plan expense

Debt as of September 30, 2021 and December 31, 2020 was as follows:

Debt as of March 31, 2022 and December 31, 2021 was as follows:

Interest Rate

September 30,

(Dollars in millions)

1 unchanged sentence

Senior Notes due 2025

Less short-term debt and current maturities of

long-term debt

Less short-term debt and current maturities of long-term debt

Less unamortized debt issuance costs

2 unchanged sentences

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

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

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

As of March 31, 2022, the secured term loan has been fully repaid.

Borrowings under the Credit Facility are secured by a first priority lien on substantially all of the assets of Koppers Inc., Koppers Holdings Inc.

4 unchanged sentences

and its restricted subsidiaries to meet certain financial ratios.

As of September 30, 2021, we had $ 283.4 million of unused revolving credit availability for working capital purposes after restrictions from certain letter of credit commitments and other covenants.

As of September 30, 2021, $ 7.7 million of commitments were utilized by outstanding letters of credit.

As of March 31, 2022, we had $ 257.8 million of unused revolving credit availability for working capital purposes after restrictions from certain letter of credit commitments and other covenants.

As of March 31, 2022, $ 7.8 million of commitments were utilized by outstanding undrawn letters of credit.

Senior Notes due 2025

The 2025 Notes are senior obligations of Koppers Inc., are unsecured and are guaranteed by Koppers Holdings Inc.

Koppers Inc.’s $ 500 million Senior Notes due 2025 (the “2025 Notes”) are senior obligations of Koppers Inc., are unsecured and are guaranteed by Koppers Holdings Inc.

and certain of Koppers Inc.’s domestic subsidiaries.

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.

We are entitled to redeem all or a portion of the 2025 Senior Notes at a redemption price of 101.5 percent of principal value as of February 15, 2022 until April 15, 2023 when the 2025 Notes are redeemable at principal value.

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

8 unchanged sentences

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

September 30,

(Dollars in millions)

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

Operating lease costs were $ 7.5 million and $ 22.8 million during the three and nine months ended September 30, 2021, respectively, and $ 8.1 million and $ 23.2 million during the three and nine months ended September 30, 2020, respectively.

Variable lease costs were $ 0.8 million and $ 2.4 million during the three and nine months ended September 30, 2021, respectively, and $ 0.8 million and $ 2.7 million during the three and nine months ended September 30, 2020, respectively.

The following table presents information about the amount and timing of cash flows arising from our operating leases as of September 30, 2021:

Operating lease costs were $ 7.5 million and $ 7.7 million during the three months ended March 31, 2022 and 2021, respectively.

Variable lease costs were $ 0.8 million during the three months ended March 31, 2022 and 2021.

The following table presents information about the amount and timing of cash flows arising from our operating leases as of March 31, 2022:

(Dollars in millions)

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

September 30,

(Dollars in millions)

15 unchanged sentences

Currently, our agreements do not require cash collateral.

ASC Topic 815-10, “Derivatives and Hedging,” requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet.

The Company recognizes all derivative instruments as either assets or liabilities at fair value in the balance sheet.

Derivative instruments’ fair value is determined using significant other observable inputs, or Level 2 in the fair value hierarchy.

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

We designate certain of our commodity swaps as cash flow hedges of forecasted purchases of commodities.

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

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

As of September 30, 2021 and December 31, 2020, we had outstanding copper swap contracts of the following amounts:

As of March 31, 2022 and December 31, 2021, we had outstanding copper swap contracts of the following amounts:

Units Outstanding (in Pounds)

Net Fair Value - Asset

September 30,

Net Fair Value - Asset (in Dollars)

(Amounts in millions)

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Contracts where hedge accounting was not

As of September 30, 2021 and December 31, 2020, the fair value of the outstanding copper swap contracts is recorded in the balance sheet as follows:

September 30,

As of March 31, 2022 and December 31, 2021, the fair value of the outstanding copper swap contracts is recorded in the balance sheet as follows:

(Dollars in millions)

Derivative contracts

Non-current derivative contracts

Asset on balance sheet

Accumulated other comprehensive gain, net of tax

In the next twelve months , we estimate that $ 34.4 million of unrealized gains, net of tax, related to commodity price hedging will be reclassified from other comprehensive (loss) income into earnings .

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

For the three and nine months ended September 30, 2021 and 2020, the unrealized (loss) gain from contracts where hedge accounting was not elected is as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

In the next twelve months , we estimate that $ 36.8 million of unrealized gains, net of tax, related to commodity price hedging will be reclassified from other comprehensive income into earnings .

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

For the three months ended March 31, 2022 and 2021, the unrealized (loss) gain from contracts where hedge accounting was not elected is as follows:

Three Months Ended March 31,

(Dollars in millions)

(Loss) gain from contracts where hedge accounting was not

(Loss) gain from contracts where hedge accounting was not elected

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

These amounts are classified in cost of sales in the condensed consolidated statement of operations and comprehensive (loss) income.

As of September 30, 2021 and December 31, 2020, the fair value of outstanding foreign currency forward contracts is recorded in the balance sheet as follows:

September 30,

These amounts are classified in cost of sales in the condensed consolidated statement of operations and comprehensive income.

As of March 31, 2022 and December 31, 2021, 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 (liability) asset on balance sheet

As of September 30, 2021 and December 31, 2020, the net currency units outstanding for these contracts were:

September 30,

Net liability on balance sheet

As of March 31, 2022 and December 31, 2021, the net currency units outstanding for these contracts were:

(In millions)

British Pounds

United States Dollars

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Certain of these matters are discussed below.

The ultimate resolution of these contingencies is subject to significant uncertainty and should we fail to prevail in any of these legal matters or should several of these legal matters be resolved against us in the same reporting period, these legal matters could, individually or in the aggregate, be material to the consolidated financial statements.

Legal Proceedings

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

There were 61 plaintiffs in 32 cases pending as of September 30, 2021, compared to 64 plaintiffs in 34 cases pending as of December 31, 2020.

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

There were 57 plaintiffs in 30 cases pending as of March 31, 2022, compared to 59 plaintiffs in 31 cases pending as of December 31, 2021.

As of March 31, 2022 , there were 29 cases pending in the Court of Common Pleas of Allegheny County, Pennsylvania, and one case pending in the Circuit Court of Knox County, Tennessee.

The plaintiffs in all 30 pending cases seek to recover compensatory damages.

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

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

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

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

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The ROD does not determine who is responsible for remediation costs.

The net present value and undiscounted costs of the selected remedy as estimated in the ROD are approximately $ 1.1 billion and $ 1.7 billion, respectively.

At that time, the net present value and undiscounted costs of the selected remedy as estimated in the ROD are approximately $ 1.1 billion and $ 1.7 billion, respectively.

These costs may increase given the remedy will not be implemented for several years.

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is a de minimis party at this site.

We have accrued the estimated costs of participating in the PRP group at the Portland Harbor and Newark Bay CERCLA sites as a de minimis contributor and estimated such settlement amounts at the sites totaling $ 3.4 million as of September 30, 2021.

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 $ 3.4 million as of March 31, 2022.

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

1 unchanged sentence

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

As of September 30, 2021, our estimated environmental remediation liability for these acquired sites totals $ 4.2 million.

As of March 31, 2022, our estimated environmental remediation liability for these acquired sites totals $ 4.0 million.

Foreign Environmental Matters .

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 site.

As of September 30, 2021, our estimated environmental remediation liability for the site totals $ 1.4 million.

As of March 31, 2022 , our estimated environmental remediation liability for the acquired site totals $ 1.4 million.

Environmental Reserves Rollforward.

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 September 30, 2021 and December 31, 2020:

September 30,

A total of $ 2.6 million and $ 2.8 million are classified as current liabilities as of March 31, 2022 and December 31, 2021:

(Dollars in millions)

5 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements