Koppers Holdings Inc.
436 Seventh Avenue
Pittsburgh, PA 15219-1800
412 227 2001
www.koppers.com
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World
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Financial Highlights
Years Ended December 31
2012
20111
20101
Shareholder Information
World Headquarters
(In millions, except share, per share and employee amounts)
Operating Performance
Net Sales
Operating Profit
Income from Continuing Operations
Net Income Attributable to Koppers
Diluted Earnings per Share – Continuing Operations
Financial Condition
Total Assets
Total Debt
Cash and Cash Equivalents
Other Data
Capital Expenditures
Number of Employees
Stock Information
Market Price per Share–High
Market Price per Share–Low
Dividends per Share
Shares Outstanding (000s)
$1,555.0
126.6
67.3
65.6
3.14
$780.0
296.1
66.7
$28.9
1,660
$40.61
29.30
0.96
20,634
$1,466.2
122.7
57.5
36.9
2.72
$730.7
302.1
54.1
$33.2
1,711
$46.14
23.59
0.88
20,603
$1,190.5
98.1
44.6
44.1
2.13
$669.2
296.4
35.3
$29.9
1,729
$36.47
19.77
0.88
20,578
12011 and 2010 Operating performance amounts, with the exception of net income attributable to Koppers, have been restated to exclude discontinued operations.
Value at
12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12
$51.09
$63.00
$66.21
$74.94
$79.67
$91.07
$91.67
$89.63
$93.60
$102.25
$108.58
$84.20
$106.81
$102.35
$119.08
Koppers
S&P 500
$100.00
$100.00
Russell 2000 $100.00
Koppers
Koppers
S&P 501
S&P 500
Russell 2001
Russell 2000
Comparison of
Cumulative Total Return
(Dollars)
Comparison of
Cumulative Total Return
(Dollars)
200
160
120
80
40
0
12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12
350
300
250
200
150
100
50
0
12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12
Set forth above are a line graph and table comparing the
cumulative total returns (assuming reinvestment of dividends)
during the period commencing December 31, 2007 and ending
December 31, 2012, of $100 invested in each of Koppers Holdings
Inc.’s common stock, the Standard & Poor’s 500 Index, and the
Russell 2000 Index. Because our competitors are principally privately
held concerns or subsidiaries or divisions of corporations engaged
in multiple lines of business, we do not believe it is feasible to
construct a peer group industry comparison. The Russell 2000
Index, which includes corporations both larger and smaller than
Koppers Holdings Inc., is composed of corporations with an
average market capitalization similar to ours.
Transfer Agent, Registrar of Stock and Dividend
Disbursing Agent
Computershare
P.O. Box 43006
Providence, RI 02940-3006
Koppers-dedicated phone: 866 293 5637
TDD for hearing impaired: 800 231 5469
Foreign holders: 201 680 6578
TDD for foreign holders: 201 680 6610
As a convenience to our shareholders who hold their shares
with our transfer agent, individuals can access their account
information and view 1099-DIVS by logging on at
www.computershare.com/investor.
Stock Exchange Listing
Koppers common stock is listed on the New York Stock
Exchange (symbol: KOP).
Investor Relations
General Koppers shareholder information may be obtained
from Michael W. Snyder, Director, Investor Relations, by
calling 412 227 2131, or by writing Koppers Holdings Inc.,
436 Seventh Avenue, Pittsburgh, PA 15219.
Company News
Visit www.koppers.com for Securities and Exchange
Commission (SEC) filings, quarterly earnings reports, and
other company news.
Copies of the annual report and Forms 10-K (Including the
financial statements and financial schedules) and 10-Q may
be requested at no cost at www.koppers.com or by writing
to Michael W. Snyder, Director, Investor Relations, at the
corporate headquarters address.
Annual Meeting of Shareholders
Thursday, May 2, 2013, 10 a.m. EDT
Pittsburgh Airport Marriott
777 Aten Road
Coraopolis, PA 15108
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Printed on recycled paper.
Cover: Sappi, McCoy Gloss – 10% post-consumer waste.
Text: Rolland Opaque – 30% post-consumer waste.
Koppers Holdings Inc.
436 Seventh Avenue
Pittsburgh, Pennsylvania
15219-1800
USA
Telephone: 412 227 2001
Global Locations
Carbon Materials and Chemicals
United States
Clairton, Pennsylvania
Follansbee, West Virginia
Harmarville, Pennsylvania
Portland, Oregon
Stickney, Illinois
United Kingdom
Port Clarence, Middlesbrough
Scunthorpe, North Lincolnshire
Denmark
Nyborg
Netherlands
Uithoorn
Australia
Newcastle, New South Wales
China
Tangshan, Hebei Province
Jingtang, Hebei Province
Railroad and Utility Products
United States
Denver, Colorado
Florence, South Carolina
Galesburg, Illinois
Green Spring, West Virginia
Guthrie, Kentucky
Huntington, West Virginia
Muncy, Pennsylvania
North Little Rock, Arkansas
Portsmouth, Ohio
Roanoke, Virginia
Somerville, Texas
Australia
Bunbury, Western Australia
Grafton, New South Wales
Longford, Tasmania
Takura, Queensland
Philippines
Makati City
8514CvrC1.indd 2
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Koppers Holdings Inc. 2012 Annual Report
To Our Shareholders,
The year 2012 exemplified one of the greatest strengths
of our company, namely its diversity. I am pleased that our
revenues and adjusted earnings per share surpassed our 2008
historical peak, driven by a record year for our Railroad and
Utility Products and Services business and significant earnings
improvement from our Chinese operations. However, these
results were not achieved without overcoming significant
challenges. First, the aluminum industry had slower growth
than was initially anticipated with an estimated four percent
increase in global consumption compared to ten percent
growth in 2011. This reduced growth rate was reflected in
lower aluminum prices and further capacity reductions in
Europe and Australia that negatively impacted our carbon
pitch volumes. Second, the European recession, combined
with the smelter closures mentioned earlier, affected our
financial results for the year. Finally, as a result of lower global
steel production, our higher coal tar raw material costs had
a negative impact on profit margins of several products.
Fortunately, the diversity of our geographic locations, our
products, and our end-markets ultimately resulted in a record
year for the company.
Our global Railroad and Utility Products and Services segment
had a record year for both sales and operating profit as a
result of strong end-market demand and significant progress
in implementing our margin improvement initiatives. During
the year, we renewed two large Class I sales contracts
through 2017, shipped a substantial crosstie export order
to Brazil, improved our product mix by increasing sales of
our valued-added products, increased our investment in our
plants to boost productivity and consolidated the production
of our Grenada, Mississippi wood treating facility to other
facilities that should provide future cost savings. On the
utility side of the business, our Australian pole business
had a successful year with increased sales and operating
profit over 2011 and in November, acquired a Western
Australian pole business that will generate $15-20 million
of annual sales. Additionally, our pole business in the
United States benefited from the Grenada, Mississippi plant
consolidation and the emergency response business from
the Hurricane Sandy disaster.
Regarding growth initiatives for the Carbon Materials and
Chemicals segment, in October, we entered into a joint
venture agreement with the Yizhou Group to construct our
third tar distillation plant in China, which we expect to be
completed in the second quarter of 2014. Through long-term
contracts, the 300,000 ton distillation plant will be part of
a carbon chemicals complex where our joint venture will
supply carbon pitch for needle coke production and carbon
black feedstock for carbon black production to the adjacent
facilities of Nippon Steel Sumikin Chemical Company.
We anticipate annual sales to be $150-$200 million. The
needle coke is a new end-market for Koppers that will
also provide future growth opportunities in other related
carbon products.
During 2012, we generated sufficient free cash flow to
finance the acquisition of the Australian pole business,
increase our dividend by nine percent, buy back 200,000
shares of our common stock for $6.4 million, and fund our
pension plans by $7 million more than the minimum funding
requirement as well as reduce our net debt. In February
2013, we announced a four percent increase of our quarterly
dividend. We concluded the year with total liquidity of $365
million and one of the highest dividend yields relative to our
peers. As we enter 2013, we are well positioned to capitalize
on the growth opportunities that lie ahead, and we will
continue to focus on investing cash back into our businesses.
Our consolidated adjusted operating profit for the year 2012
increased by seven percent to $130 million and adjusted
earnings per share increased by 14 percent to $3.27 per
share compared to the prior year(1). I am pleased with the
improvement of both the top and bottom lines in 2012,
and I am confident that we are positioned to show further
improvement in our core business in 2013.
Our employees and the Koppers culture are the foundation
of our success. In 2012, our strong commitment to safety,
health, and the environment resulted in another year of
improved performance for the company. As a new member of
the American Chemistry Council, we will continue to focus on
our goal of zero incidents with our safety and environmental
performance and become a more sustainable company.
In closing, I would like to thank our Board of Directors for
their continued guidance and support. In particular, I would
like to acknowledge the outstanding service over the past
six years that we have received from our Director and Audit
Committee Chairman, Jim Stalder, who will retire from our
Board this May. I also want to thank you, our shareholders,
for the trust you have placed in our management team and
our ability to generate shareholder value. It is a trust that
we take seriously and one that we will endeavor to earn
every day as we continue to move our company forward to
a bright future.
Sincerely,
Walter W. Turner
President and Chief Executive Officer
1
(1) Reconciliations of adjusted operating profit and adjusted earnings per share to the
appropriate GAAP amounts can be found on page 95 of this annual report.
8514TxtC1.indd 1
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Board of Directors
Standing from left: Al Neupaver, Sharon Feng, Jim Stalder, Steve Tritch, David Hillenbrand and Mike Young Seated from left: Walt Turner and Cynthia Baldwin
David M. Hillenbrand
Non-Executive Chairman of the Board
President and Chief Executive Officer
Carnegie Museums of Pittsburgh
Cynthia A. Baldwin
Retired Justice
Pennsylvania Supreme Court
2
Sharon Feng
Executive Director
Institute for Molecular Engineering
University of Chicago
Albert J. Neupaver
President and Chief Executive Officer
Westinghouse Air Brake Technologies Corporation
Senior Management
Walter W. Turner
President and Chief Executive Officer
Koppers Holdings Inc. and Koppers Inc.
Leroy M. Ball
Vice President and Chief Financial Officer
Koppers Holdings Inc. and Koppers Inc.
James T. Dietz
Vice President, Global Business Services
and Technology
Koppers Inc.
Joseph P. Dowd
Vice President, North American
Carbon Materials and Chemicals
Koppers Inc.
Donald E. Evans
Vice President, European Operations
Koppers Inc.
Daniel R. Groves
Vice President, Human Resources
Koppers Inc.
Leslie S. Hyde
Vice President, Safety and Environmental Affairs
Koppers Inc.
James C. Stalder
Retired Managing Partner, Pittsburgh Office
PricewaterhouseCoopers LLP
Stephen R. Tritch
Retired Chairman
Westinghouse Electric Company
Walter W. Turner
President and Chief Executive Officer
Koppers Holdings Inc.
T. Michael Young
Managing Partner
The CapStreet Group LLC
Steven R. Lacy
Senior Vice President, Administration,
General Counsel and Secretary
Koppers Holdings Inc. and Koppers Inc.
Thomas D. Loadman
Vice President and General Manager,
Railroad and Utility Products and Services
Koppers Inc.
Mark R. McCormack
Vice President, Australian Operations
Koppers Inc.
Brian H. McCurrie
Senior Vice President,
Global Carbon Materials and Chemicals
Koppers Inc.
Markus G. Spiess
Vice President, Global Sales and Marketing
Koppers Inc.
Louann Tronsberg–Deihle
Treasurer
Koppers Holdings Inc. and Koppers Inc.
Robin Zhu
Vice President, China Operations
Koppers Inc.
8514TxtC1.indd 2
3/19/13 6:38 PM
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
Commission file number 1-32737
KOPPERS HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Pennsylvania
(State of incorporation)
20-1878963
(IRS Employer Identification No.)
436 Seventh Avenue
Pittsburgh, Pennsylvania 15219
(Address of principal executive offices)
(412) 227-2001
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.01 per share
Title of Each Class
New York Stock Exchange
Name of Exchange on which registered
Securities registered pursuant to Section 12(g) of the Act: None
3
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act: Yes È No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ‘ No È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files). Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer È Accelerated filer ‘ Non-accelerated filer ‘ Smaller reporting company ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No È
The aggregate market value of Common Stock held by non-affiliates of the registrant, based on the closing sales price of the
Common Stock on the New York Stock Exchange on June 30, 2012 was $690.3 million (affiliates, for this purpose, have been
deemed to be Directors and executive officers of Koppers Holdings Inc.).
As of January 31, 2013, 20,634,103 shares of Common Stock of the registrant were issued and outstanding.
Portions of the registrant’s Proxy Statement for the 2013 Annual Meeting of Shareholders are incorporated by reference into
Part III of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Item
Business
Risk Factors
Part I
1.
1A.
1B. Unresolved Staff Comments
2.
3.
4.
Part II
5.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
6.
7.
7A. Quantitative and Qualitative Disclosures About Market Risk
8.
9.
9A. Controls and Procedures
9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Part III
4
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
10. Directors, Executive Officers and Corporate Governance
11.
12.
13. Certain Relationships and Related Transactions, and Director Independence
14.
Part IV
15.
Exhibits and Financial Statement Schedules
Principal Accountant Fees and Services
Signatures
Signatures
Page
5
10
21
22
22
23
25
26
27
37
38
82
82
83
84
84
84
84
84
85
91
Koppers Holdings Inc. 2012 Annual Report
FORWARD-LOOKING INFORMATION
This report and the documents incorporated herein by reference contain “forward-looking statements” within the meaning of
the Private Securities Litigation Reform Act of 1995 and may include, but are not limited to, statements about sales levels,
restructuring, profitability and anticipated expenses and cash outflows. All forward-looking statements involve risks and
uncertainties. All statements contained herein that are not clearly historical in nature are forward-looking, and words such as
“believe”, “anticipate”, “expect”, “estimate”, “may”, “will”, “should”, “continue”, “plans”, “intends”, “likely” or other
similar words or phrases are generally intended to identify forward-looking statements. Any forward-looking statement
contained herein, in press releases, written statements or other documents filed with the SEC, or in our communications with
and discussions with investors and analysts in the normal course of business through meetings, phone calls and conference calls
are subject to known and unknown risks, uncertainties and contingencies. Many of these risks, uncertainties and contingencies
are beyond our control, and may cause actual results, performance or achievements to differ materially from anticipated results,
performance or achievements. Factors that might affect such forward-looking statements include, among other things:
▪ general economic and business conditions;
▪ demand for our goods and services;
▪ availability of and fluctuations in the prices of key raw materials, including coal tar and timber;
▪ competitive conditions in the industries in which we operate;
▪ the ratings on our debt and our ability to repay or refinance our outstanding indebtedness as it matures;
▪ our ability to operate within the limitations of our debt covenants;
▪ interest rate fluctuations and other changes in borrowing costs;
▪ other capital market conditions, including foreign currency rate fluctuations;
▪ economic and political conditions in international markets, including governmental changes and restrictions on the ability to
transfer capital across countries;
▪ potential impairment of our goodwill and/or long-lived assets;
▪ parties who are obligated to indemnify us for legal and environmental liabilities fail to perform under their legal obligations;
▪ changes in laws, including increased tax rates, regulations or accounting standards, third-party relations and approvals, and
decisions of courts, regulators and governmental bodies;
▪ the effects of competition, including locations of competitors and operating and market competition;
▪ unfavorable resolution of litigation against us; and
▪ the other factors set forth under “Risk Factors.”
We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you.
In addition, in light of these risks and uncertainties, the matters referred to in the forward looking statements contained in this
report and the documents incorporated by reference herein may not in fact occur. We undertake no obligation to publicly
update or revise any forward looking statement as a result of new information, future events or otherwise, except as otherwise
required by law.
5
PART I
ITEM 1. BUSINESS
General
In this report, unless otherwise noted or the context otherwise requires, (i) the term “Koppers”, “Koppers Holdings”, the
“Company”, “we” or “us” refers to Koppers Holdings Inc. and its consolidated subsidiaries, (ii) the term “KH” refers to Koppers
Holdings Inc. and not any of its subsidiaries and (iii) the term “KI” refers to Koppers Inc. and not any of its subsidiaries. Koppers
Inc. is a wholly-owned subsidiary of Koppers Holdings Inc. Koppers Holdings Inc. has substantially no operations independent of
Koppers Inc. and its subsidiaries. The use of these terms is not intended to imply that Koppers Holdings and Koppers Inc. are not
separate and distinct legal entities from each other and from their respective subsidiaries.
Koppers Holdings Inc. was incorporated in November 2004 as a holding company for Koppers Inc. We are a leading integrated
global provider of carbon compounds and commercial wood treatment products and services. Our products are used in a variety
of niche applications in a diverse range of end-markets, including the aluminum, railroad, specialty chemical, utility, concrete
and steel industries. We serve our customers through a comprehensive global manufacturing and distribution network, with
manufacturing facilities located in the United States, Australia, China, the United Kingdom, the Netherlands and Denmark.
We operate two principal business segments: Carbon Materials & Chemicals and Railroad & Utility Products.
Our operations are, to a substantial extent, vertically integrated. Through our Carbon Materials & Chemicals business, we
process coal tar into a variety of products, including carbon pitch, creosote, naphthalene and phthalic anhydride, which are
intermediate materials necessary in the production of aluminum, the pressure treatment of wood, the production of high-
strength concrete, and the production of plasticizers and specialty chemicals, respectively. Through our Railroad & Utility
Products business, we believe that we are the largest supplier of railroad crossties to the North American railroads.
Carbon Materials & Chemicals
Carbon pitch, naphthalene, and creosote are produced through the distillation of coal tar, a by-product generated through the
processing of coal into coke for use in steel and iron manufacturing. Coal tar distillation involves the conversion of coal tar into
a variety of intermediate chemical products in processes beginning with distillation. During the distillation process, heat and
vacuum are utilized to separate coal tar into three primary components: carbon pitch (approximately 50 percent), chemical oils
(approximately 20 percent) and creosote (approximately 30 percent). The diagram below shows the streams derived from coal
tar distillation:
6
COAL
TAR
Carbon Pitch 50%
Chemical Oils 20%
Creosote 30%
Naphthalene
Phthalic Anhydride
PRIMARY END MARKETS
Aluminum and
Steel Industries
Construction,
Plastic and
Paint Industries
Wood Treating
and Carbon
Black Industries
PRIMARY END PRODUCTS
Carbon Anodes,
Cathodes and
Electrodes
Vinyl, Paint, Concrete
and Fiberglass
Railroad Crossties,
Utility Poles and
Automobile Tires
Our Carbon Materials & Chemicals business (“CM&C”) manufactures the following principal products:
▪ carbon pitch, a critical raw material used in the production of aluminum and steel;
▪ naphthalene, used for the production of phthalic anhydride and as a surfactant in the production of concrete;
▪ phthalic anhydride, used in the production of plasticizers, polyester resins and alkyd paints; and
▪ creosote and carbon black feedstock, used in the treatment of wood or as a feedstock in the production of carbon black,
respectively.
Koppers Holdings Inc. 2012 Annual Report
Carbon Pitch
Carbon pitch is a critical raw material used in the production of aluminum and for the production of steel in electric arc
furnaces. Approximately one ton of carbon pitch is required for every 10 tons of aluminum produced and there are currently no
known viable substitutes for carbon pitch in the aluminum production process. Over 90 percent of our carbon pitch is sold to
the aluminum industry, typically under long-term contracts ranging from three to five years. Many of these long-term contracts
have provisions for periodic pricing reviews. We have been a leading supplier of carbon pitch to the aluminum industry for over
20 years, and we believe we are the largest producer of carbon pitch for the aluminum industry. Competitive factors in the
carbon pitch market include price, quality, service and security of supply. We believe we have a competitive advantage based on
our global presence and long-term raw material supply contracts.
Naphthalene & Phthalic Anhydride
Chemical oils are further processed to produce naphthalene which we sell into the industrial sulfonate market for use as
dispersants or in the concrete additive and gypsum board markets. Additional end-uses include oil field additives, agricultural
emulsifiers, synthetic tanning agents and dyestuffs. In the United States, we also use naphthalene as a feedstock in the
manufacture of phthalic anhydride. The primary markets for phthalic anhydride are in the production of plasticizers, unsaturated
polyester resins and alkyd resins. We believe our ability to utilize our internally produced naphthalene gives us a more stable
supply and generally lower-cost feedstock for the production of phthalic anhydride compared to our competitors.
Creosote & Carbon Black Feedstock
In the United States, creosote is used as a commercial wood treatment chemical to preserve railroad crossties and lumber, utility
poles and piling. The majority of our domestically produced creosote is sold to our Railroad & Utility Products business. In
Australia, China and Europe, creosote is sold primarily into the carbon black market for use as a feedstock in the production of
carbon black. In Europe and China creosote is also sold to wood treaters. Our wood treating plants in the United States
purchase substantially all of their creosote from our tar distillation plants. We believe we are the only major competitor in this
market that is integrated in this fashion. The remainder of our creosote is sold to railroads and other wood treaters.
7
Other Products
Other products include the sale of refined tars, benzole and specialty chemicals.
Our CM&C business manufactures its primary products and sells them directly to our global customer base under long-term
contracts or through purchase orders negotiated by our regional sales personnel and coordinated through our global marketing
group in the United States. We believe we have a strategic advantage over our competitors based on our ability to access coal
tar from many global suppliers. Our nine coal tar distillation facilities including joint ventures and four carbon materials terminals
give us the ability to offer customers multiple sourcing and a consistent supply of high quality products.
Railroad & Utility Products
Our Railroad & Utility Products business (“R&UP”) sells treated and untreated wood products, rail joint bars and services
primarily to the railroad and public utility markets in the United States and Australia. We also produce concrete crossties, a
complementary product to our wood treatment business, through a joint venture in the United States.
Railroad products include procuring and treating items such as crossties, switch ties and various types of lumber used for
railroad bridges and crossings. Railroad products also include manufacturing and selling rail joint bars, which are steel bars used
to join rails together for railroads. Utility products include transmission and distribution poles for electric and telephone utilities
and piling used in industrial foundations, beach housing, docks and piers. The R&UP business operates 13 wood treating plants,
one rail joint bar manufacturing facility, one co-generation facility and 13 pole distribution yards located throughout the United
States and Australia. Our network of plants is strategically located near timber supplies to enable us to access raw materials and
service customers effectively. In addition, our crosstie treating plants are typically adjacent to our railroad customers’ track lines,
and our pole distribution yards are typically located near our utility customers.
Our R&UP business manufactures its primary products and sells them directly to our customers through long-term contracts and
purchase orders negotiated by our regional sales personnel and coordinated through our marketing group at corporate
headquarters.
Hardwoods, such as oak and other species, are the major raw materials in wood crossties. Hardwood prices, which account for
more than 50 percent of a finished crosstie’s cost, fluctuate with the demand from other hardwood lumber markets, such as
oak flooring, pallets and other specialty lumber products. Weather conditions can be a factor in the supply of raw material, as
unusually wet or inclement conditions may make it difficult to harvest timber.
In the United States, hardwood lumber is procured by us from hundreds of small sawmills throughout the northeastern,
midwestern and southern areas of the country. The crossties are shipped via rail car or trucked directly to one of our crosstie
treating plants, all of which are on line with a major railroad. The crossties are either air-stacked for a period of six to twelve
months or artificially dried by a process called boultonizing. Once dried, the crossties are pressure treated with creosote, a
product of our CM&C business.
We believe we are the largest supplier of railroad crossties in North America. There is one principal competitor and several
smaller regional competitors in the North American market. Competitive factors in the railroad crosstie market include price,
quality, service and security of supply. We believe we have a competitive advantage due to our national network of treating
plants and direct access to our major customers’ rail lines, which provide for security of supply and logistics advantages for our
customers.
Our R&UP business’ largest customer base is the North American Class I railroad market, which buys approximately 80 percent
of all crossties produced in the United States and Canada. We also have relationships with many of the approximately 550
short-line and regional rail lines. This also forms the customer base for our rail joint bar products. The railroad crosstie market is
a mature market with approximately 23 million replacement crossties (both wood and non-wood) purchased during 2012. We
currently supply all seven of the North American Class I railroads and have contracts with six of them.
8
Demand for railroad crossties may decline during winter months due to inclement weather conditions which make it difficult to
install railroad crossties. As a result, operating results may vary from quarter to quarter depending on the severity of weather
conditions and other variables affecting our products.
Utility poles are produced mainly from softwoods such as pine in the United States and from hardwoods of the eucalyptus
species in Australia. Most of these poles are purchased from large timber owners and individual landowners and shipped to one
of our pole-peeling facilities. We treat poles with a variety of preservatives, including pentachlorophenol, copper chrome
arsenates and creosote.
In the United States the market for utility pole products is characterized by a large number of small, highly competitive
producers selling into a price-sensitive industry. The utility pole market is highly fragmented domestically, with over 200
investor-owned electric and telephone utilities and 2,900 smaller municipal utilities and rural electric associations. In recent years
we have seen our utility pole volumes decrease due to industry deregulation, its impact on maintenance programs, and
overcapacity in the pole treating business. We expect demand for utility poles to remain at low levels. In Australia, in addition to
utility poles, we market smaller poles to the agricultural, landscape and vineyard markets.
We have a number of principal competitors in the U.S. utility products market. There are few barriers to entry in the utility
products market, which consists primarily of regional wood treating companies operating small to medium-size plants and
serving local markets.
Equity Investments
KSA Limited Partnership, located in Portsmouth, Ohio, produces concrete crossties, a complementary product to our wood
treatment crosstie business. We own 50 percent of KSA, with the other 50 percent owned by subsidiaries of Heidelberg Cement
AG. KSA Limited Partnership also provides concrete turnouts for rail traffic switching and used crosstie rehabilitation.
Tangshan Koppers Kailuan Carbon Chemical Company (“TKK”) is a coal tar distillation facility located in China in the Hebei
Province near the Jingtang Port. We hold a 30 percent investment in TKK.
Koppers Holdings Inc. 2012 Annual Report
Research and Development
Our research efforts are directed toward new product development regarding alternate uses for coal tar and technical service
efforts to promote the use of creosote and vacuum-distilled carbon pitch. Expenditures for research and development were $2.3
million, $1.9 million and $2.1 million, for the years ended December 31, 2012, 2011 and 2010, respectively.
Technology and Licensing
In 1988, we acquired certain assets from Koppers Company, Inc., including the patents, patent applications, trademarks,
copyrights, transferable licenses, inventories, trade secrets and proprietary processes used in the businesses acquired. The most
important trademark acquired was the name “Koppers.” The association of the name with the chemical, building, wood
preservation and coke industries is beneficial to our company, as it represents long-standing, high quality products. As long as
we continue to use the name “Koppers” and comply with applicable registration requirements, our right to use the name
“Koppers” should continue without expiration. The expiration of other intellectual property rights is not expected to materially
affect our business.
Backlog
Generally, Koppers does not manufacture its products against a backlog of orders. Inventory and production levels are typically
driven by expectations of future demand based on contractual obligations.
Seasonality
Demand for certain products may decline during winter months due to weather conditions. As a result, operating results may
vary from quarter to quarter depending on the severity of weather conditions and other variables affecting our products.
9
Segment Information
Please see Note 8, “Segment Information,” under Item 8 of this Form 10-K for financial information relating to business
segments and geographic areas. See also “Item 1A. Risk Factors – Risks Related to Our Business – Demand for our products is
cyclical and we may experience prolonged depressed market conditions for our products.”
Non-U.S. Operations
Koppers has a significant investment in non-U.S. operations. Therefore, we are subject to certain risks that are inherent to
foreign operations, including complying with applicable laws relating to foreign practices, the laws of foreign countries in which
we operate, political and economic conditions in international markets and fluctuations in foreign exchange rates.
Environmental Matters
Our operations and properties are subject to extensive federal, state, local and foreign environmental laws and regulations
relating to protection of the environment and human health and safety, including those concerning the treatment, storage and
disposal of wastes, the investigation and remediation of contaminated soil and groundwater, the discharge of effluents into
waterways, the emission of substances into the air, as well as various health and safety matters. Environmental laws and
regulations are subject to frequent amendment and have historically become more stringent over time. We have incurred and
could incur in the future significant costs as the result of our failure to comply with, and liabilities under, environmental laws
and regulations, including cleanup costs, civil and criminal penalties, injunctive relief and denial or loss of, or imposition of
significant restrictions on, environmental permits. In addition, we have been and could in the future be subject to suit by private
parties in connection with alleged violations of, or liabilities under, environmental laws and regulations. See “Item 1A. Risk
Factors – Risks Related to Our Business – We are subject to extensive environmental laws and regulations and may incur
significant costs as a result of continued compliance with, violations of or liabilities under environmental laws and regulations”
and Note 18 of the Notes to Consolidated Financial Statements, “Commitments and Contingent Liabilities.”
Employees and Employee Relations
As of December 31, 2012, we had 574 salaried employees and 1,086 non-salaried employees. Listed below is a breakdown of
employees by our businesses, including administration.
Business
Carbon Materials & Chemicals
Railroad & Utility Products
Administration
Total Employees
Salaried
Non-Salaried
Total
285
204
85
574
406
674
6
691
878
91
1,086
1,660
Of our employees, approximately 60 percent are represented by approximately 15 different labor unions and are covered under
numerous labor agreements. The United Steelworkers of America currently represent more than 250 of our employees at six of
our facilities and, therefore, represents the largest number of our unionized employees.
Internet Access
Our Internet address is www.koppers.com. Our recent filings on Form 10-K, 10-Q and 8-K and any amendments to those
documents can be accessed without charge on our website under Investor Relations – SEC Filings. The contents of our internet
site are not incorporated by reference into this document.
ITEM 1A. RISK FACTORS
10
You should carefully consider the risks described below before investing in our publicly traded securities. Our business is subject
to the risks that affect many other companies, such as competition, technological obsolescence, labor relations, general
economic conditions, geopolitical events and international operations.
Risks Related to Our Business
Conditions in the global economy and global capital markets may adversely affect our results of operations, financial
condition and cash flows.
The U.S and global economy and capital markets have experienced significant uncertainties and volatility in the past few years.
Our business and operating results for the last four years were significantly affected by these global economic issues. Many of
our customers have experienced deterioration of their business during the latest business cycle. They may experience cash flow
shortages and may have difficulty obtaining financing. As a result, our customers may delay or cancel plans to purchase our
products and may not be able to fulfill their payment obligations to us in a timely fashion. Our suppliers may be experiencing
similar conditions which could impact their ability to supply us with raw materials and otherwise fulfill their obligations to us. If
global economic conditions deteriorate significantly, there could be a material adverse effect to our results of operations,
financial condition and cash flows.
In addition, we rely on our $300.0 million revolving credit agreement with a consortium of banks to provide us with liquidity to
meet our working capital needs. At December 31, 2012, we had $290.0 million of available borrowing capacity under this
arrangement. Our ability to fund our liquidity needs and working capital requirements could be impacted in the event that
disruptions in the credit markets result in the banks being unable to lend to us under our revolving credit agreement.
Global economic issues could prevent us from accurately forecasting demand for our products which could have a material
effect on our results of operations and our financial condition.
Adverse global economic issues, market instability and volatile commodity price fluctuations make it increasingly difficult for us,
our customers and our suppliers to accurately forecast future product demands, which could cause us to procure raw materials
in excess of end-product demand. This could cause a material increase to our inventory carrying costs and result in significant
inventory lower of cost or market charges.
Koppers Holdings Inc. 2012 Annual Report
We may be required to recognize impairment charges for our long-lived assets.
At December 31, 2012, the net carrying value of long-lived assets (property, plant and equipment, goodwill, other intangible
assets and equity investments) totaled approximately $272 million. In accordance with generally accepted accounting principles,
we periodically assess these assets to determine if they are impaired. As recently as the year ended 2011, we recognized a
charge of $20 million related to a decision to close our Australian carbon black facility. Significant negative industry or economic
trends, disruptions to our business, unexpected significant changes or planned changes in use of the assets, divestitures and
market capitalization declines may result in impairments to goodwill and other long-lived assets. Future impairment charges
could significantly affect our results of operations in the periods recognized. Impairment charges would also reduce our
shareholder’s equity and could affect compliance with the covenants in our debt agreements.
We may not be able to compete successfully in any or all of the industry segments in which we operate.
The markets in which we operate are highly competitive, and this competition could harm our business, results of operations,
cash flow and financial condition. If we are unable to respond successfully to changing competitive conditions, the demand for
our products could be affected. We believe that the most significant competitive factor for our products is selling price. Some of
our competitors have greater financial resources and larger capitalization than we do.
Demand for our products is cyclical and we may experience prolonged depressed market conditions for our products.
Our products are sold primarily in markets which historically have been cyclical, such as the aluminum and specialty chemical.
▪ The principal consumers of our carbon pitch are primary aluminum smelters. Although the aluminum industry has
experienced growth on a long-term basis, there may be cyclical periods of weak demand which could result in decreased
primary aluminum production. Our pitch sales have historically declined during such cyclical periods of weak global demand
for aluminum.
▪ The principal use of our phthalic anhydride is in the manufacture of plasticizers and flexible vinyl, which are used mainly in
the housing and automobile industries. Therefore, a decline in remodeling and construction or global automobile production
could reduce the demand for phthalic anhydride.
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We are dependent on major customers for a significant portion of our net sales, and the loss of one or more of our major
customers could result in a significant reduction in our profitability as a whole or the profitability of a particular product. For the
year ended December 31, 2012, our top ten customers accounted for approximately 40 percent of our net sales. During this
same period, our two largest customers each accounted for approximately eight percent of our total net sales.
Fluctuations in the price, quality and availability of our primary raw materials could reduce our profitability.
Our operations depend on an adequate supply of quality raw materials being available on a timely basis. The loss of a key
source of supply or a delay in shipments could cause a significant increase in our operating expenses. For example, our
operations are highly dependent on a relatively small number of freight transportation services. We are also dependent on
specialized ocean-going transport vessels that we lease to deliver raw materials to our facilities and finished goods to our
customers. Interruptions in such freight services could impair our ability to receive raw materials and ship finished products in a
timely manner. We are also exposed to price and quality risks associated with raw material purchases. Such risks include the
following:
▪ The primary raw material used by our Carbon Materials & Chemicals business is coal tar, a by-product of furnace coke
production. A shortage in the supply of domestic coal tar or a reduction in the quality of coal tar could require us to increase
coal tar and carbon pitch imports, as well as the use of petroleum substitutes to meet future carbon pitch demand. This
could cause a significant increase in our operating expenses if we are unable to pass these costs on to our customers.
▪ In certain circumstances coal tar may also be used as an alternative to fuel. In the past, increases in energy prices have
resulted in higher coal tar costs which we have attempted to pass through to our customers. If these increased costs cannot
be passed through to our customers, it could result in margin reductions for our coal tar-based products.
▪ The availability and cost of softwood and hardwood lumber are critical elements in our production of pole products and
railroad crossties, respectively. Historically, the supply and cost of hardwood for railroad crossties have been subject to
availability and price pressures. We may not be able to obtain wood raw materials at economical prices in the future.
▪ Our price realizations and profit margins for phthalic anhydride have historically fluctuated with the price of orthoxylene and
its relationship to our cost to produce naphthalene; however, during periods of excess supplies of phthalic anhydride,
margins may be reduced despite high levels for orthoxylene prices.
If the costs of raw materials increase significantly and we are unable to offset the increased costs with higher selling prices, our
profitability will decline.
Our products may be rendered obsolete or less attractive by changes in regulatory, legislative or industry
requirements.
Changes in regulatory, legislative or industry requirements may render certain of our products obsolete or less attractive. Our
ability to anticipate changes in these requirements, especially changes in regulatory standards, will be a significant factor in our
ability to remain competitive. We may not be able to comply in the future with new regulatory, legislative and/or industrial
standards that may be necessary for us to remain competitive and certain of our products may, as a result, become obsolete or
less attractive to our customers.
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The development of new technologies or changes in our customers’ products could reduce the demand for our
products.
Our products are used for a variety of applications by our customers. Changes in our customers’ products or processes may
enable our customers to reduce consumption of the products we produce or make our products unnecessary. Customers may
also find alternative materials or processes that no longer require our products.
Hazards associated with chemical manufacturing may cause suspensions or interruptions of our operations.
Due to the nature of our business, we are exposed to the hazards associated with chemical manufacturing and the related use,
storage and transportation of raw materials, products and wastes in our manufacturing facilities and our distribution centers,
such as fires, explosions and accidents that could lead to a suspension or interruption of operations. Any disruption could
reduce the productivity and profitability of a particular manufacturing facility or of our company as a whole. Other hazards
include the following:
▪ piping and storage tank leaks and ruptures;
▪ mechanical failure;
▪ exposure to hazardous substances; and
▪ chemical spills and other discharges or releases of toxic or hazardous wastes, substances or gases.
These hazards, among others, may cause personal injury and loss of life, damage to property and contamination of the
environment, which could lead to government fines or work stoppage injunctions, cleanup costs and lawsuits by injured
persons. While we are unable to predict the outcome of such matters, if determined adversely to us, we may not have adequate
insurance to cover related costs or liabilities and, if not, we may not have sufficient cash flow to pay for such costs or liabilities.
Such outcomes could harm our customer goodwill and reduce our profitability.
We are subject to extensive environmental laws and regulations and may incur significant costs as a result of
continued compliance with, violations of or liabilities under environmental laws and regulations.
Like other companies involved in environmentally sensitive businesses, our operations and properties are subject to extensive
federal, state, local and foreign environmental laws and regulations, including those concerning the following, among other
things:
▪ the treatment, storage and disposal of wastes;
Koppers Holdings Inc. 2012 Annual Report
▪ the investigation and remediation of contaminated soil and groundwater;
▪ the discharge of effluents into waterways;
▪ the emission of substances into the air;
▪ the marketing, sale, use and registration of our chemical products, such as creosote;
▪ the European Union’s regulation under the Registration Evaluation Authorization and Restriction of Chemicals, which
requires manufacturers or importers of substances manufactured or imported into the EU in quantities of one tonne per year
or more to register with a central European Chemicals Agency; and
▪ other matters relating to environmental protection and various health and safety matters.
We have incurred, and expect to continue to incur, significant costs to comply with environmental laws and regulations and as a
result of remedial obligations. We could incur significant costs, including cleanup costs, fines, civil and criminal sanctions and
claims by third parties for property damage and personal injury, as a result of violations of or liabilities under environmental laws
and regulations. We accrue for environmental liabilities when a determination can be made that they are probable and
reasonably estimable. Total environmental reserves at December 31, 2012 and December 31, 2011 were $14.1 million and
$17.7 million, respectively, which include provisions primarily for environmental fines and remediation. For the last three fiscal
years, our annual capital expenditures in connection with environmental control facilities averaged approximately $5.1 million,
and annual operating expenses for environmental matters, excluding depreciation, averaged approximately $14.7 million.
Management estimates that capital expenditures in connection with matters relating to environmental control facilities will be
approximately $9.9 million for 2013. Contamination has been identified and is being investigated and remediated at many of
our sites by us or other parties. We believe that we will have continuing significant expenditures associated with compliance
with environmental laws and regulations and, to the extent not covered by insurance or available recoveries under third-party
indemnification arrangements, for present and future remediation efforts at plant sites and third-party waste sites and other
liabilities associated with environmental matters. There can be no assurance that these expenditures will not exceed current
estimates and will not have a material adverse effect on our business, financial condition, cash flow and results of operations.
Actual costs and liabilities to us may exceed forecasted amounts. Moreover, currently unknown environmental issues, such as
the discovery of additional contamination or the imposition of additional sampling or cleanup obligations with respect to our
sites or third party sites, may result in significant additional costs, and potentially significant expenditures could be required in
order to comply with future changes to environmental laws and regulations or the interpretation or enforcement thereof. We
also are involved in various litigation and proceedings relating to environmental matters and toxic tort claims.
Future climate change regulation could result in increased operating costs and reduced demand for our products.
Although the United States has not ratified the Kyoto Protocol, a number of federal laws related to “greenhouse gas,” or
“GHG,” emissions are being considered by Congress. Additionally, various federal, state and regional regulations and initiatives
have been enacted or are being considered.
Member States of the European Union each have an overall cap on emissions which are approved by the European Commission
and implement the EU Emissions Trading Directive as commitment to the Kyoto Protocol. Under this Directive, organizations
apply to the Member State for an allowance of GHG emissions. These allowances are tradable so as to enable companies that
manage to reduce their GHG emissions to sell their excess allowances to companies that are not reaching their emissions
objectives. Failure to purchase sufficient allowances will require the purchase of allowances at a current market price.
Legislation aimed at reducing GHG emissions by placing a cost on the production of GHG emissions was introduced and passed
by the Australian government in 2011. The legislation will be implanted using a two stage approach. The first stage is a fixed
price carbon pricing mechanism which commenced on July 1, 2012 with a price that will be fixed for the first three years. The
second stage is a market-based emissions trading arrangement commencing on July 1, 2015 where the carbon price will
transition from a fixed price to a market price.
Any laws or regulations that may be adopted to restrict or reduce emissions of GHGs could cause an increase to our raw
material costs, could require us to incur increased operating costs and could have an adverse effect on demand for our
products.
13
Beazer East and Beazer Limited may not continue to meet their obligations to indemnify us.
Under the terms of the asset purchase agreement between us and Koppers Company, Inc. (now known as Beazer East, Inc.)
upon the formation of KI in 1988, subject to certain limitations, Beazer East and Beazer Limited assumed the liability for and
indemnified us against, among other things, certain clean-up liabilities for contamination occurring prior to the purchase date at
sites acquired from Beazer East and certain third-party claims arising from such contamination (the “Indemnity”). Beazer East
and Beazer Limited (which are indirect subsidiaries of Heidelberg Cement AG) may not continue to meet their obligations. In
addition, Beazer East could in the future choose to challenge its obligations under the Indemnity or our satisfaction of the
conditions to indemnification imposed on us thereunder. The government and other third parties may have the right under
applicable environmental laws to seek relief directly from us for any and all such costs and liabilities. In July 2004, we entered
into an agreement with Beazer East to amend the December 29, 1988 asset purchase agreement to provide, among other
things, for the continued tender of pre-closing environmental liabilities to Beazer East under the Indemnity through July 2019.
As consideration for the agreement, we, among other things, paid Beazer East $7.0 million and agreed to share toxic tort
litigation defense costs arising from sites acquired from Beazer East. Qualified expenditures under the Indemnity are not subject
to a monetary limit.
The Indemnity provides for the resolution of issues between KI and Beazer East by an arbitrator on an expedited basis upon the
request of either party. The arbitrator could be asked, among other things, to make a determination regarding the allocation of
environmental responsibilities between KI and Beazer East. Arbitration decisions under the Indemnity are final and binding on
the parties. Periodically, issues have arisen between KI and Beazer East and/or other indemnitors that have been resolved
without arbitration. From time to time, KI and Beazer East have engaged in discussions that involve, among other things, the
allocation of environmental costs related to certain operating and closed facilities.
14
Without reimbursement under the Indemnity, the obligation to pay the costs and assume the liabilities relating to these matters
would have a significant impact on our net income. Furthermore, without reimbursement, we could be required to record a
contingent liability on our balance sheet with respect to environmental matters covered by the Indemnity, which could result in
our having significant negative net worth. Finally, the Indemnity does not afford us indemnification against environmental costs
and liabilities attributable to acts or omissions occurring after the closing of the acquisition of assets from Beazer East under the
asset purchase agreement, nor is the Indemnity applicable to liabilities arising in connection with other acquisitions by us after
that closing.
The insurance that we maintain may not fully cover all potential exposures.
We maintain property, casualty, general liability and workers’ compensation insurance, but such insurance may not cover all
risks associated with the hazards of our business and is subject to limitations, including deductibles and maximum liabilities
covered. We may incur losses beyond the limits, or outside the coverage, of our insurance policies, including liabilities for
environmental compliance and remediation. In addition, from time to time, various types of insurance for companies in our
industry have not been available on commercially acceptable terms or, in some cases, have not been available at all. In the
future, we may not be able to obtain coverage at current levels, and our premiums may increase significantly on coverage that
we maintain.
Adverse weather conditions may reduce our operating results.
Our quarterly operating results fluctuate due to a variety of factors that are outside our control, including inclement weather
conditions, which in the past have caused a decline in our operating results. For example, adverse weather conditions have at
times negatively impacted our supply chain as wet conditions impacted logging operations, reducing our ability to procure
crossties. In addition, adverse weather conditions have had a negative impact on our customers in the pavement sealer
businesses, resulting in a negative impact on our sales of these products. Moreover, demand for many of our products declines
during periods of inclement weather.
We are subject to risks inherent in foreign operations, including additional legal regulation and changes in social,
political and economic conditions.
We have operations in the United States, Australia, China, the United Kingdom, the Netherlands and Denmark, and sell our
products in many foreign countries. For the year ended December 31, 2012, net sales from products sold by our foreign
subsidiaries accounted for approximately 37 percent of our total net sales.
Koppers Holdings Inc. 2012 Annual Report
Doing business on a global basis requires us to comply with the laws and regulations of the U.S. government and various
international jurisdictions. These regulations place restrictions on our operations, trade practices and partners and investment
decisions. In particular, our international operations are subject to U.S. and foreign anti-corruption laws and regulations, such as
the Foreign Corrupt Practices Act, and economic sanction programs administered by the U.S. Treasury Department’s Office of
Foreign Assets Control. Violations of these laws and regulations may result in civil or criminal penalties, including fines.
In addition, as a global business, we are also exposed to market risks relating to fluctuations in interest rates and foreign
currency exchange rates. Our international revenues could be reduced by currency fluctuations or devaluations. Changes in
currency exchange rates could lower our reported revenues and could require us to reduce our prices to remain competitive in
foreign markets, which could also reduce our profitability. We have not historically hedged our financial statement exposure
and, as a result, we could incur unanticipated losses. We are also subject to potentially increasing transportation and shipping
costs associated with international operations. Furthermore, we are also exposed to risks associated with changes in the laws
and policies governing foreign investments in countries where we have operations as well as, to a lesser extent, changes in U.S.
laws and regulations relating to foreign trade and investment.
Our strategy to selectively pursue complementary acquisitions may present unforeseen integration obstacles or costs.
Our business strategy includes the potential acquisition of businesses and entering into joint ventures and other business
combinations that we expect would complement and expand our existing products and the markets where we sell our
products. We may not be able to successfully identify suitable acquisition or joint venture opportunities or complete any
particular acquisition, combination, joint venture or other transaction on acceptable terms. We cannot predict the timing and
success of our efforts to acquire any particular business and integrate the acquired business into our existing operations. Also,
efforts to acquire other businesses or the implementation of other elements of this business strategy may divert managerial
resources away from our business operations. In addition, our ability to engage in strategic acquisitions may depend on our
ability to raise substantial capital and we may not be able to raise the funds necessary to implement our acquisition strategy on
terms satisfactory to us, if at all. Our failure to identify suitable acquisition or joint venture opportunities may restrict our ability
to grow our business. In addition, we may not be able to successfully integrate businesses that we acquire in the future, which
could lead to increased operating costs, a failure to realize anticipated operating synergies, or both.
Litigation against us could be costly and time-consuming to defend, and due to the nature of our business and
products, we may be liable for damages arising out of our acts or omissions, which may have a material adverse
affect on us.
We produce chemicals that require appropriate procedures and care to be used in handling them or using them to manufacture
other products. As a result of the nature of some of the products we use and produce, we may face product liability, toxic tort
and other claims relating to incidents involving the handling, storage and use of and exposure to our products.
For example, we are a defendant in a significant number of lawsuits in which the plaintiffs claim they have suffered a variety of
illnesses (including cancer) and/or property damage as a result of exposure to coal tar pitch, benzene, wood treatment
chemicals and other chemicals. A further description of the material claims against us is included in Note 18 of the consolidated
financial statements.
We are indemnified for certain product liability exposures under the Indemnity with Beazer East related to products sold prior to
the closing of the acquisition of assets from Beazer East. Beazer East and Beazer Limited may not continue to meet their
obligations under the Indemnity. In addition, Beazer East could choose to challenge its obligations under the Indemnity or our
satisfaction of the conditions to indemnification imposed on us thereunder.
If for any reason (including disputed coverage or financial incapability) one or more of such parties fail to perform their
obligations and we are held liable for or otherwise required to pay all or part of such liabilities without reimbursement, the
imposition of such liabilities on us could have a material adverse effect on our business, financial condition, cash flows and
results of operations. Furthermore, we could be required to record a contingent liability on our balance sheet with respect to
such matters, which could result in us having significant negative net worth.
In addition to the above, we are regularly subject to legal proceedings and claims that arise in the ordinary course of business,
such as workers’ compensation claims, governmental investigations, employment disputes, and customer and supplier disputes
arising out of the conduct of our business. Litigation could result in substantial costs and may divert management’s attention
and resources away from the day-to-day operation of our business.
15
Labor disputes could disrupt our operations and divert the attention of our management and may cause a decline in
our production and a reduction in our profitability.
Of our employees, approximately 60 percent are represented by approximately 15 different labor unions and are covered under
numerous labor agreements. The United Steelworkers of America currently represent more than 250 of our employees at six of
our facilities and, therefore, represent the largest number of our unionized employees. Every year, a number of labor
agreements are scheduled to expire. We may not be able to reach new agreements without union action or on terms
satisfactory to us. Any future labor disputes with any such unions could result in strikes or other labor protests, which could
disrupt our operations and divert the attention of our management from operating our business. If we were to experience a
strike or work stoppage, it may be difficult for us to find a sufficient number of employees with the necessary skills to replace
these employees. Any such labor disputes could cause a decline in our production and a reduction in our profitability.
Our post-retirement obligations are currently underfunded. We expect to make significant cash payments to our
pension and other post-retirement plans, which will reduce the cash available for our business.
As of December 31, 2012, our benefit obligation under our defined benefit pension plans exceeded the fair value of plan assets
by approximately $80 million. Our pension asset funding to total pension obligation ratio was 69 percent as of December 31,
2012. The underfunding was caused, in large part, by fluctuations in the financial markets that have caused the value of the
assets in our defined benefit pension plans to be significantly lower than anticipated and by fluctuations in interest rates which
increased the discounted pension liabilities. In addition, our obligations for other post-retirement benefit obligations are
unfunded and total approximately $11 million at December 31, 2012.
During the years ended December 31, 2012 and December 31, 2011, we contributed $22.4 million and $16.4 million,
respectively, to our post-retirement benefit plans. With respect to our U.S. defined benefit pension plan which is our largest
plan, we had funding obligations of $10.3 million in 2012. We estimate that mandatory funding for this plan will be
approximately $7 million in 2013 and between $12 and $16 million in 2014 unless legislative changes occur.
16
Management expects that any future obligations under our post-retirement benefit plans that are not currently funded will be
funded from our future cash flow from operations. If our contributions to our post-retirement benefit plans are insufficient to
fund the post-retirement benefit plans adequately to cover our future obligations, the performance of the assets in our pension
plans does not meet our expectations or other actuarial assumptions or mandatory funding laws are modified, our contributions
to our post-retirement benefit plans could be materially higher than we expect, thus reducing the cash available for our
business.
We may incur significant charges in the event we close all or part of a manufacturing plant or facility.
We periodically assess our manufacturing operations in order to manufacture and distribute our products in the most efficient
manner. Based on our assessments, we may make capital improvements to modernize certain units, move manufacturing or
distribution capabilities from one plant or facility to another plant or facility, discontinue manufacturing or distributing certain
products or close all or part of a manufacturing plant or facility.
We depend on our senior management team and the loss of any member could adversely affect our operations.
Our success is dependent on the management, experience and leadership skills of our senior management team. Our senior
management team has an average of over 20 years of industry experience. The loss of any of these individuals or an inability to
attract, retain and maintain additional personnel with similar industry experience could prevent us from implementing our
business strategy. We cannot assure you that we will be able to retain our existing senior management personnel or to attract
additional qualified personnel when needed.
Risks Relating to Our Common Stock
Our stock price may be extremely volatile.
There has been significant volatility in the market price and trading volume of equity securities, which is unrelated to the
financial performance of the companies issuing the securities. These broad market fluctuations may negatively affect the market
price of our common stock.
Koppers Holdings Inc. 2012 Annual Report
Some specific factors that may have a significant effect on our common stock market price include the following:
▪ actual or anticipated fluctuations in our operating results or future prospects;
▪ the public’s reaction to our press releases, our other public announcements and our filings with the Securities and Exchange
Commission, or the SEC;
▪ strategic actions by us or our competitors, such as acquisitions or restructurings;
▪ new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
▪ changes in accounting standards, policies, guidance, interpretations or principles;
▪ adverse conditions in the financial markets or general economic conditions, including those resulting from war, incidents of
terrorism and responses to such events;
▪ sales of common stock by us, members of our management team or a significant shareholder; and
▪ changes in stock market analyst recommendations or earnings estimates regarding our common stock, other comparable
companies or the aluminum or railroad industry generally.
We cannot predict the extent to which investor interest in our company will continue to support an active trading market on the
New York Stock Exchange (the “NYSE”) or otherwise or how liquid that market will continue to be. If there does not continue
to be an active trading market for our common stock, you may have difficulty selling any of our common stock that you buy.
Future sales, or the perception of future sales, of a substantial amount of our common stock may depress the price of
the shares of our common stock.
Future sales, or the perception or the availability for sale in the public market, of substantial amounts of our common stock
could adversely affect the prevailing market price of our common stock and could impair our ability to raise capital through
future sales of equity securities at a time and price that we deem appropriate.
17
We may issue shares of our common stock, or other securities, from time to time as consideration for future acquisitions and
investments. We may also issue shares of our common stock, or other securities, in connection with employee stock
compensation programs and board of directors’ compensation. In addition, we may issue shares of our common stock or other
securities in public or private offerings as part of our efforts to raise additional capital. In the event any such acquisition,
investment, issuance under stock compensation programs or offering is significant, the number of shares of our common stock
or the number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be
significant. We may also grant registration rights covering those shares or other securities in connection with any such
acquisitions and investments. Any additional capital raised through the sale of our equity securities may dilute your percentage
ownership in us.
You may not receive dividends because our board of directors could, in its discretion, depart from or change our
dividend policy at any time.
We are not required to pay dividends, and our shareholders are not guaranteed, and do not have contractual rights, to receive
dividends. Our board of directors may decide at any time, in its discretion, to decrease the amount of dividends, otherwise
change or revoke the dividend policy or discontinue entirely the payment of dividends. Our board of directors could depart from
or change our dividend policy, for example, if it were to determine that we had insufficient cash to take advantage of other
opportunities with attractive rates of return or if we failed to reach a sufficient level of profitability. In addition, if we do not pay
dividends, for whatever reason, your shares of our common stock could become less liquid and the market price of our
common stock could decline.
The ability of Koppers Inc. and its subsidiaries to pay dividends or make other payments or distributions to us will depend on our
operating results and may be restricted by, among other things, the covenants in Koppers Inc.’s revolving credit facility. Our
ability to pay dividends is also limited by the indentures governing Koppers Inc.’s outstanding notes as well as Pennsylvania law
and may in the future be limited by the covenants of any future outstanding indebtedness we or our subsidiaries incur. If a
dividend is paid in violation of Pennsylvania law, each director approving the dividend could be liable to the corporation if the
director did not act with such care as a person of ordinary prudence would use under similar circumstances. Directors are
entitled to rely in good faith on information provided by employees of the corporation and experts retained by the corporation.
Directors who are held liable would be entitled to contribution from any shareholders who received an unlawful dividend
knowing it to be unlawful. Furthermore, we are a holding company with no operations, and unless we receive dividends,
distributions, advances, transfers of funds or other payments from our subsidiaries, we will be unable to pay dividends on our
common stock.
Provisions of our charter documents may inhibit a takeover, which could negatively affect our stock price.
Provisions of our charter documents and the Business Corporation Law of Pennsylvania, the state in which we are organized,
could discourage potential acquisition proposals or make it more difficult for a third party to acquire control of our company,
even if doing so might be beneficial to our shareholders. Our Amended and Restated Articles of Incorporation (our “Articles of
Incorporation”) and Bylaws provide for various procedural and other requirements that could make it more difficult for
shareholders to effect certain corporate actions. For example, our Articles of Incorporation, authorize our board of directors to
determine the rights, preferences, privileges and restrictions of unissued series of preferred stock without any vote or action by
our shareholders. Our board of directors can therefore authorize and issue shares of preferred stock with voting or conversion
rights that could adversely affect the voting or other rights of holders of our common stock. The following additional provisions
could make it more difficult for shareholders to effect certain corporate actions:
▪ Our board of directors is classified into three classes. Each director will serve a three-year term and will stand for re-election
once every three years.
▪ Our shareholders will be able to remove directors only for cause by the affirmative vote of the holders of a majority of the
outstanding shares of our capital stock entitled to vote in the election of directors. Vacancies on our board of directors may
be filled only by our board of directors.
▪ Under Pennsylvania law, cumulative voting rights are available to the holders of our common stock if our Articles of
18
Incorporation have not negated cumulative voting. Our Articles of Incorporation provide that our shareholders do not have
the right to cumulative votes in the election of directors.
▪ Our Articles of Incorporation do not permit shareholder action without a meeting by consent except for the unanimous
consent of all holders of our common stock. The Articles of Incorporation also provide that special meetings of our
shareholders may be called only by the board of directors or the chairman of the board of directors.
▪ Our Bylaws provide that shareholders seeking to nominate candidates for election as directors or to bring business before an
annual meeting of shareholders must provide timely notice of their proposal in writing to the corporate secretary.
These provisions may discourage acquisition proposals and may make it more difficult or expensive for a third party to acquire a
majority of our outstanding voting stock or may delay, prevent or deter a merger, acquisition, tender offer or proxy contest,
which may negatively affect our stock price.
Risks Relating to the Koppers Inc. 7 7⁄8% Senior Notes Due 2019 (the “Senior Notes”) and Other
Indebtedness
Our level of indebtedness could limit cash flow available for our operations and could adversely affect our ability to
service our debt or obtain additional financing, if necessary.
We have and will continue to have a significant amount of indebtedness. Our level of indebtedness could restrict our operations
and make it more difficult for us to satisfy our obligations under the Senior Notes. Among other things, our substantial
indebtedness could:
▪ limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions and general corporate
purposes;
▪ make it more difficult for us to satisfy our financial obligations, including those with respect to the Senior Notes;
▪ increase our vulnerability to general adverse economic and industry conditions;
▪ require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby
reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts
and other general corporate purposes;
Koppers Holdings Inc. 2012 Annual Report
▪ limit our flexibility in planning for, or reacting to, changes in our business and the markets in which we compete; and
▪ place us at a competitive disadvantage compared to our competitors that have less debt.
In addition, the indentures governing the Senior Notes and Koppers Inc.’s revolving credit facility contain financial and other
restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interests. Our failure to
comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of
the repayment of all of our debts.
Despite current indebtedness levels, we may still be able to incur substantially more debt. This could further
exacerbate the risks associated with our substantial leverage.
We may be able to incur substantial additional indebtedness in the future. The terms of the Senior Notes indenture and Koppers
Inc.’s revolving credit facility do not fully prohibit us from doing so. Koppers Inc.’s $300.0 million revolving credit facility permits
additional borrowing and all of those borrowings would rank senior to the Senior Notes and the guarantees to the extent of the
collateral securing such facility. In addition, the indenture relating to the Senior Notes will permit us to incur all of those
borrowings under Koppers Inc.’s revolving credit facility and substantial additional indebtedness, including additional secured
indebtedness. If new debt is added to our and our subsidiaries’ current debt levels, the related risks that we and they now face
could intensify.
To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on
many factors beyond our control.
Our ability to make payments on and to refinance our indebtedness, including the Senior Notes, and to fund planned capital
expenditures and research and development efforts will depend on our ability to generate cash in the future. Although there
can be no assurances, we believe that the cash provided by our operations will be sufficient to provide for our cash
requirements for the foreseeable future. However, our ability to satisfy our obligations will depend on our future operating
performance and financial results, which will be subject, in part, to factors beyond our control, including interest rates and
general economic, financial and business conditions. We cannot assure you, however, that our business will generate sufficient
cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay our
indebtedness, including the Senior Notes, or to fund our other liquidity needs. If we are unable to generate sufficient cash flow
to service our debt, we may be required to:
19
▪ refinance all or a portion of our debt, including the Senior Notes;
▪ obtain additional financing;
▪ sell some of our assets or operations;
▪ reduce or delay capital expenditures and acquisitions; or
▪ revise or delay our strategic plans.
If we are required to take any of these actions, it could have a material adverse affect on our business, financial condition and
results of operations. In addition, we cannot assure you that we would be able to take any of these actions, that these actions
would enable us to continue to satisfy our capital requirements or that these actions would be permitted under the terms of our
various debt instruments.
The covenants in Koppers Inc.’s revolving credit facility impose restrictions that may limit our ability to take certain
actions. Our failure to comply with these covenants could result in the acceleration of our outstanding indebtedness.
Koppers Inc.’s revolving credit facility contains minimum fixed charge coverage and maximum leverage ratios. Additionally, the
facility includes covenants limiting liens, mergers, asset sales, dividends and the incurrence of debt. Our ability to borrow under
Koppers Inc.’s revolving credit facility will depend upon satisfaction of these covenants. Events beyond our control can affect
our ability to meet those covenants.
If we are unable to meet the terms of our financial covenants, or if we break any of these covenants, a default could occur. A
default, if not waived, would entitle our lenders to declare all amounts borrowed under it immediately due and payable, which
could also cause the acceleration of obligations under certain other agreements. In the event of acceleration of our outstanding
indebtedness, there can be no assurance that we would be able to repay our debt or obtain new financing to refinance our
debt. Even if new financing is made available to us, it may not be on terms acceptable to us.
The Senior Notes are unsecured and are effectively subordinated to our current and future secured indebtedness.
The Senior Notes are unsecured, and are effectively subordinated to all our current secured indebtedness and any future
secured indebtedness that we may incur to the extent of the assets securing such indebtedness. At December 31, 2012, we
have a $300.0 million secured revolving credit facility. The revolving credit agreement and indenture governing the Senior Notes
permit us to incur a substantial amount of additional indebtedness. The Senior Notes do not have the right to any security
interests in any collateral.
In the event of our insolvency, bankruptcy, liquidation, reorganization, dissolution or winding up, we may not have sufficient
assets to pay amounts due on any or all of the Senior Notes then outstanding. Holders of the Senior Notes will participate
ratably with all holders of our unsecured indebtedness that is deemed to be of the same class as the Senior Notes, and
potentially with all of our other general creditors, based upon the respective amounts owed to each holder or creditor, in our
remaining assets. In any of the foregoing events, we cannot assure holders of our Senior Notes that there will be sufficient
assets to pay amounts due on the Senior Notes. As a result, holders of the Senior Notes may receive less, ratably, than holders
of our secured indebtedness.
We may not have the ability to raise the funds necessary to finance the change of control offer required by the
indenture or may be prohibited from making a repurchase offer required by the indenture.
Upon the occurrence of certain specific kinds of change of control events, we will be required to offer to repurchase all
outstanding Senior Notes at 101 percent of the principal amount thereof plus accrued and unpaid interest, if any, to the date of
repurchase. The source of funds for that purchase of Senior Notes will be available cash or cash generated from Koppers Inc. or
its subsidiaries operations or other potential sources, including borrowings, sales of assets or equity financing. It is possible that
we will not have sufficient funds at the time of the change of control to make the required repurchase of Senior Notes or that
restrictions in our other indebtedness will not allow such repurchases. In addition, certain important corporate events, such as
leveraged recapitalizations that would increase the level of our indebtedness, would not constitute a change of control under
the Senior Notes indenture.
20
Holders of Senior Notes may not be able to determine when a change of control giving rise to their right to have the
Senior Notes repurchased by us has occurred following a sale of “substantially all” of our assets.
A change of control, as defined in the indenture governing the Senior Notes, requires us to make an offer to repurchase all
outstanding Senior Notes. The definition of change of control includes a phrase relating to the sale, lease or transfer of “all or
substantially all” of our assets. There is no precise established definition of the phrase “substantially all” under applicable law.
Accordingly, the ability of a holder of Senior Notes to require us to repurchase its Senior Notes as a result of a sale, lease or
transfer of less than all of our assets to another individual, group or entity may be uncertain.
The claims of holders of Senior Notes will be structurally subordinated to claims of creditors of any of Koppers Inc’s
subsidiaries that do not guarantee the notes.
Only Koppers Holdings and the wholly-owned domestic restricted subsidiaries of Koppers Inc. guarantee the Senior Notes. The
Senior Notes are not guaranteed by any of our non-U.S. subsidiaries. Subject to certain limitations, the indenture governing the
Senior Notes permits the non-guarantor subsidiaries to acquire additional assets and incur additional indebtedness. Holders of
Senior Notes would not have any claim as a creditor against any of the non-guarantor subsidiaries to the assets and earnings of
those subsidiaries. The claims of the creditors of those subsidiaries, including their trade creditors, banks and other lenders, will
have priority over any of Koppers Inc.’s claims or those of Koppers Inc.’s other subsidiaries as equity holders of the non-
guarantor subsidiaries. Consequently, in any insolvency, liquidation, reorganization, dissolution or other winding-up of any of
the non-guarantor subsidiaries, creditors of those subsidiaries would be paid before any amounts would be distributed to
Koppers Inc. or to any of the other guarantors as equity and thus be available to satisfy the obligations under the Senior Notes
and the guarantees. Accordingly, there can be no assurance that any of the assets of the non-guarantor subsidiaries will be
available to satisfy the obligations under the Senior Notes and the guarantees. In addition, Koppers Holdings has substantially
no operations independent of Koppers Inc. and its subsidiaries, and there can be no assurance that Koppers Holdings will have
any assets available to satisfy the obligations under its guarantee. As of December 31, 2012, the non-guarantor subsidiaries had
approximately $126 million of liabilities (including trade payables but excluding intercompany indebtedness).
Koppers Holdings Inc. 2012 Annual Report
Our subsidiaries that do not guarantee the Senior Notes accounted for approximately $582 million, or 37 percent of our net
sales and approximately $50 million, or 39 percent of our operating profit, for the year ended December 31, 2012, and
approximately $378 million, or 49 percent of our total assets as of December 31, 2012. Amounts are presented after giving
effect to intercompany eliminations.
Federal or state laws allow courts, under specific circumstances, to void debts, including guarantees, and could
require holders of Senior Notes to return payments received from guarantors.
The Senior Notes are guaranteed by Koppers Holdings and the wholly-owned domestic restricted subsidiaries of Koppers Inc. If
a bankruptcy proceeding or lawsuit were to be initiated by unpaid creditors, the Senior Notes and the guarantees of the Senior
Notes could come under review for federal or state fraudulent transfer violations. Under federal bankruptcy law and comparable
provisions of state fraudulent transfer laws, obligations under the Senior Notes or a guarantee of the Senior Notes could be
voided, or claims in respect of the Senior Notes or a guarantee of the Senior Notes could be subordinated to all other debts of
the debtor or that guarantor if, among other things, the debtor or the guarantor, at the time it incurred the debt evidenced by
such Senior Notes or guarantee:
▪ received less than reasonably equivalent value or fair consideration for the incurrence of such debt or guarantee; and
▪ one of the following applies:
▪ it was insolvent or rendered insolvent by reason of such incurrence;
▪ it was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital; or
▪ it intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.
In addition, any payment by the debtor or guarantor under the Senior Notes or guarantee of the Senior Notes could be voided
and required to be returned to the debtor or guarantor, as the case may be, or deposited in a fund for the benefit of the
creditors of the debtor or guarantor.
21
The measure of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any
proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a debtor or a guarantor would be
considered insolvent if:
▪ the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all its assets;
▪ the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on
its existing debts, including contingent liabilities, as they become absolute and mature; or
▪ it could not pay its debts as they become due.
We cannot be sure as to the standards that a court would use to determine whether or not a guarantor was solvent at the
relevant time, or, regardless of the standard that the court uses, that the issuance of the guarantees of the Senior Notes would
not be voided or subordinated to the guarantor’s other debt. If a guarantee was legally challenged, it could also be subject to
the claim that, because it was incurred for our benefit, and only indirectly for the benefit of the guarantor, the obligations of
the guarantor were incurred for less than fair consideration. A court could thus void the obligations under a guarantee or
subordinate a guarantee to a guarantor’s other debt or take other action detrimental to holders of the Senior Notes.
The trading price of the Senior Notes may be volatile.
The trading price of the Senior Notes could be subject to significant fluctuations in response to, among other factors, changes in
our operating results, interest rates, the market for non-investment grade debt securities, general economic conditions and
securities analysts’ recommendations, if any, regarding our securities.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The following chart sets forth information regarding our production facilities. Generally, our production facilities are suitable
and adequate for the purposes for which they are intended and overall have sufficient capacity to conduct business in the
upcoming year.
Primary Product Line
Location
22
Carbon Materials & Chemicals
Carbon pitch
Carbon pitch
Carbon pitch(a)
Carbon pitch
Carbon pitch
Carbon pitch
Carbon pitch
Carbon pitch
Carbon pitch, phthalic anhydride
Carbon pitch
Carbon pitch
Railroad & Utility Products
Railroad crossties, utility poles
Railroad crossties, utility poles
Railroad crossties, utility poles
Railroad crossties
Utility poles
Railroad crossties
Railroad crossties
Rail joint bars
Utility poles
Railroad crossties
Railroad crossties
Concrete crossties(b)
Railroad crossties
Railroad crossties
Pine products
(a) Ownership percentage is 30 percent.
(b) Ownership percentage is 50 percent.
Clairton, Pennsylvania
Follansbee, West Virginia
Jingtang, Hebei Province, China
Mayfield, New South Wales, Australia
Nyborg, Denmark
Port Clarence, United Kingdom
Portland, Oregon
Scunthorpe, United Kingdom
Stickney, Illinois
Tangshan, Hebei Province, China
Uithoorn, the Netherlands
Bunbury, Western Australia, Australia
Denver, Colorado
Florence, South Carolina
Galesburg, Illinois
Grafton, New South Wales, Australia
Green Spring, West Virginia
Guthrie, Kentucky
Huntington, West Virginia
Longford, Tasmania, Australia
Muncy, Pennsylvania
North Little Rock, Arkansas
Portsmouth, Ohio
Roanoke, Virginia
Somerville, Texas
Takura, Queensland, Australia
Description of
Property Interest
Owned
Owned
Leased
Owned
Owned/Leased
Owned
Leased
Owned
Owned
Leased
Leased
Owned/Leased
Owned
Owned
Leased
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Our corporate offices are located in leased office space in Pittsburgh, Pennsylvania. The lease term expires on December 31,
2023.
ITEM 3. LEGAL PROCEEDINGS
We are involved in litigation and various proceedings relating to environmental laws and regulations, toxic tort, product liability
and other matters. An adverse outcome for certain of these cases could result in a material adverse effect on our business, cash
flows and results of operations. The information related to legal matters set forth in Note 18 to the Consolidated Financial
Statements of Koppers Holdings Inc. is hereby incorporated by reference.
Koppers Holdings Inc. 2012 Annual Report
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names, ages and positions of our and Koppers Inc.’s executive officers as of February 6, 2013.
Our executive officers hold their positions until the annual meeting of the board of directors or until their respective successors
are elected and qualified.
Name
Age
Position
Walter W. Turner
66
President and Chief Executive Officer of Koppers Holdings Inc. and Koppers Inc. and
Leroy M. Ball
James T. Dietz
Joseph P. Dowd
Donald E. Evans
Daniel R. Groves
Leslie S. Hyde
Steven R. Lacy
Director of Koppers Holdings Inc. and Koppers Inc.
44 Vice President and Chief Financial Officer, Koppers Holdings Inc. and Koppers Inc.
56 Vice President, Global Business Services and Technology, Koppers Inc.
52 Vice President, North American Carbon Materials & Chemicals, Koppers Inc.
47 Vice President, European Operations, Koppers Inc.
46 Vice President, Human Resources, Koppers Inc.
52 Vice President, Safety and Environmental Affairs, Koppers Inc.
57
Senior Vice President, Administration, General Counsel and Secretary, Koppers Holdings
Inc. and Koppers Inc.
Thomas D. Loadman
Mark R. McCormack
Brian H. McCurrie
Markus G. Spiess
58 Vice President and General Manager, Railroad and Utility Products & Services, Koppers Inc.
53 Vice President, Australian Operations, Koppers Inc.
52
52 Vice President, Global Sales and Marketing, Global Carbon Materials & Chemicals, Koppers
Senior Vice President, Global Carbon Materials & Chemicals, Koppers Inc.
23
Louann E. Tronsberg-Deihle
J. Robin Zhu
Treasurer, Koppers Holdings Inc. and Koppers Inc.
49
48 Vice President, China Operations, Koppers Inc.
Inc.
Mr. Turner was elected President and Chief Executive Officer in, and has been our director since, November 2004. He has been
President and Chief Executive Officer and director of Koppers Inc. since February 1998.
Mr. Ball was elected Vice President and Chief Financial Officer in August 2010. Prior to joining Koppers, Mr. Ball was Senior Vice
President and Chief Financial Officer of Calgon Carbon Inc. (granular activated carbon products and treatment systems) since
2002.
Mr. Dietz was elected Vice President, Global Business Services and Technology of Koppers Inc., in May 2011 effective July 2011.
He joined Koppers in 1995 and has held positions in operations and engineering. Most recently, he was Vice President,
European Operations of Koppers Inc., from January 2007 through June 2011.
Mr. Dowd joined Koppers Inc. and was elected Vice President, North American Carbon Materials & Chemicals, Koppers Inc.
effective July 2012. Prior to joining Koppers, Mr. Dowd was General Manager and Vice President of North American Recycling
for Exide Technologies, Inc. (lead-acid battery manufacturing) from September 2010 to October 2011. Prior to that, Mr. Dowd
was Global President and Chief Operating Officer of Silberline Manufacturing (specialty chemicals) from March 2005 to October
2009.
Mr. Evans was elected Vice President, European Operations, in May 2011 effective July 2011. Mr. Evans had been previously
elected Vice President, Strategic Planning and Growth of Koppers Inc. in August 2010, and prior to that had been elected Vice
President, Global Marketing, Sales and Development, Carbon Materials & Chemicals of Koppers Inc. in January 2007. From
October 2004 through December 2006, Mr. Evans was Vice President for Advanced Recycling Systems (industrial equipment
manufacturing).
Mr. Groves joined Koppers Inc. and was elected Vice President, Human Resources in May 2011. Prior to joining Koppers Inc. in
May 2011, Mr. Groves was Senior Vice President – HR Business Partner at PNC Financial Services Group, Inc. (financial services)
from May 2010 to April 2011. From April 2007 to July 2009, Mr. Groves was Vice President – Human Resources at Highmark,
Inc. (health insurance). Prior to that, Mr. Groves served as Director of Compensation and HRIS from March 2005 to April 2007
of Highmark, Inc.
Ms. Hyde was elected Vice President, Safety and Environmental Affairs of Koppers Inc. in January 2005. Prior to that date,
Ms. Hyde held the position of Manager, Environmental Department of Koppers Inc. since 1999.
Mr. Lacy was elected Senior Vice President, Administration, General Counsel and Secretary in November 2004 and has been
Senior Vice President, Administration, General Counsel and Secretary of Koppers Inc. since January 2004. Mr. Lacy had
previously been elected Vice President, Law and Human Resources and Secretary of Koppers Inc. in July 2002.
Mr. Loadman was elected Vice President and General Manager, Railroad and Utility Products & Services of Koppers Inc. in
November 1994.
Mr. McCormack was elected Vice President, Australian Operations of Koppers Inc. in November 2006. Mr. McCormack had
been elected Vice President, Global Marketing, Sales and Development, Carbon Materials & Chemicals of Koppers Inc. in
February 2002.
Mr. McCurrie was elected Senior Vice President, Global Carbon Materials & Chemicals of Koppers Inc. in February 2010.
Mr. McCurrie had been Vice President and Chief Financial Officer of Koppers Inc. since October 2003.
Mr. Spiess was elected Vice President, Global Sales and Marketing, Global Carbon Materials & Chemicals of Koppers Inc. in
February 2011. Mr. Spiess had been Vice President, Global Supply, European Marketing and Sales, European Operations of
Koppers Inc. since November 2007. From July 2007 through October 2007, Mr. Spiess was a Business Development Manager
for L&M Rohstoffhandelsgesellschaft GmbH (ferroalloy and bulk trading). Prior to that, Mr. Spiess was the executive Vice
President, Aromatics Division for Ruetgers Chemicals GmbH (coal tar distillation for chemical industry).
24
Ms. Tronsberg-Deihle was elected Treasurer of Koppers Holdings Inc. and Koppers Inc. in August 2008. In July 2008,
Ms. Tronsberg-Deihle was appointed as our Treasurer. Ms. Tronsberg-Deihle was the Assistant Treasurer and Risk Manager of
WESCO Distribution Inc. (global provider of services and procurement solutions) from 1995 to June 2008.
Mr. Zhu was elected Vice President, China Operations of Koppers Inc. in February 2013. Mr. Zhu had previously been appointed
Vice President, China Operations of Koppers Inc. in March 2011. Prior to that, Mr. Zhu served as Operations Manager, China
Operations of Koppers Inc. from January 2010 to March 2011. From December 2007 to January 2010, Mr. Zhu served as
General Manager of Koppers (China) Carbon & Chemical Co., Ltd.
Koppers Holdings Inc. 2012 Annual Report
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common shares are listed and traded on the NYSE under the symbol “KOP”.
The number of registered holders of Koppers common shares at January 31, 2013 was 94.
See Note 20 to the consolidated financial statements below for information concerning dividends and high and low market
prices of our common shares during the past two years.
Dividend Policy
Our board of directors adopted a dividend policy, which reflects its judgment that our shareholders would be better served if we
distributed to them, as quarterly dividends payable at the discretion of our board of directors, a portion of the cash generated
by our business in excess of our expected cash needs rather than retaining it or using the cash for other purposes. Our expected
cash needs include operating expenses and working capital requirements, interest and principal payments on our indebtedness,
capital expenditures, incremental costs associated with being a public company, taxes and certain other costs. On an annual
basis we expect to pay dividends with cash flow from operations, but, due to seasonal or other temporary fluctuations in cash
flow, we may from time to time use temporary short-term borrowings to pay quarterly dividends.
We are not required to pay dividends, and our shareholders will not be guaranteed, or have contractual or other rights, to
receive dividends. Our board of directors may decide, in its discretion, at any time, to decrease the amount of dividends,
otherwise modify or repeal the dividend policy or discontinue entirely the payment of dividends.
Because we are a holding company, substantially all the assets shown on our consolidated balance sheet are held by our
subsidiaries. Accordingly, our earnings and cash flow and our ability to pay dividends are dependent upon the earnings and
cash flows of our subsidiaries and the distribution or other payment of such earnings to us in the form of dividends. Our ability
to pay dividends is restricted by limitations on the ability of our only direct subsidiary, Koppers Inc., to pay dividends, as a result
of limitations imposed by Koppers Inc.’s credit agreement, the indenture governing Koppers Inc.’s 7 7⁄ 8% Senior Notes due 2019
(the “Senior Notes”) and by Pennsylvania law. See “Management’s Discussion and Analysis of Financial Condition and Results
of Operations – Liquidity and Capital Resources – Restrictions on Dividends to Koppers Holdings.”
25
Equity Compensation Plans
Plan Category
Number of securities
to be issued upon exercise
of outstanding options,
warrants and rights
Weighted-average exercise
price of outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
first column)
Equity compensation plans approved by security holders
745,862(1)
$15.16
916,848(2)
(1) Includes shares of our common stock that may be issued pursuant to outstanding options, time-based restricted stock units and performance-based restricted
stock units awarded under our Amended and Restated 2005 Long Term Incentive Plan.
(2) Includes shares of our common stock that remain available for issuance under our 2004 Restricted Stock Unit Plan and our Amended and Restated 2005 Long
Term Incentive Plan.
Issuer Purchases of Equity Securities
No shares were repurchased in the quarter ended December 31, 2012 under the current $75 million share repurchase program
approved in November 2011. The approximate dollar value of common shares that may yet be purchased under this program is
$68.6 million. The repurchase program has no expiration date.
ITEM 6. SELECTED FINANCIAL DATA
The following table contains our selected historical consolidated financial data for the five years ended December 31, 2012. The
selected historical consolidated financial data for each of the years ended December 31, 2012, 2011, 2010, 2009 and 2008
have been derived from our audited consolidated financial statements. This selected financial data should be read in conjunction
with Koppers’ Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K as
well as Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations.
2012
2011
2010
2009
2008
Year ended December 31,
(Dollars in millions, except share and per share amounts)
Statement of Income Data:
Net sales
Depreciation and amortization
Operating profit
Interest expense
Loss (gain) on extinguishment of debt(1)
Income from continuing operations
(Loss) income from discontinued operations(3)(4)
(Loss) gain on sale of Koppers Arch(2)
(Loss) gain on sale of Monessen(3)
Net income(4)
Net income attributable to Koppers
Earnings Per Common Share Data:
Basic – continuing operations
Diluted – continuing operations
26
Weighted average common shares outstanding (in thousands):
Basic
Diluted
Balance Sheet Data:
Cash and cash equivalents(5)
Total assets
Total debt
Other Data:
Capital expenditures:(6)
Cash dividends declared per common share
$1,555.0 $1,466.2 $1,190.5 $1,075.2
23.2
93.7
36.3
22.4
21.4
0.3
0.0
(0.3)
21.4
18.8
28.2
126.6
27.9
0.0
67.3
(0.1)
0.0
0.0
67.2
65.6
26.9
122.7
27.2
0.0
57.5
(19.9)
0.0
0.0
37.6
36.9
26.6
98.1
27.1
0.0
44.6
0.1
(0.2)
0.0
44.5
44.1
$1,299.9
28.5
128.5
42.6
(1.2)
47.1
5.7
0.0
85.9
138.7
138.0
$
3.18 $
3.14
2.75 $
2.72
2.14 $
2.13
0.92
0.91
$
2.24
2.24
20,681
20,927
20,599
20,833
20,543
20,676
20,446
20,561
20,651
20,767
$
66.7 $
54.1 $
35.3 $
780.0
296.1
730.7
302.1
669.2
296.4
58.4
644.4
335.3
$
$
28.9 $
0.96 $
32.5 $
0.88 $
28.5 $
0.88 $
17.5
0.88
$
$
$
63.1
661.1
374.9
33.7
0.88
(1) Includes loss (gain) on the extinguishment of Senior Discount Notes and Senior Secured Notes in 2009, a portion of the Senior Secured Notes in 2008 and a
portion of the Senior Discount Notes in 2006.
(2) In July 2007, we sold our 51 percent interest in Koppers Arch Investments Pty Limited and its subsidiaries (“Koppers Arch”). Koppers Arch’s results of operations
have been classified as a discontinued operation for all periods presented.
(3) In October 2008, we sold our 95 percent interest in Koppers Monessen Partners LP (“Monessen”). Monessen’s results of operations have been classified as a
discontinued operation for all periods presented.
(4) In March 2012, we completed run-off activities at our closed carbon black facility located in Kurnell, Australia (“carbon black facility”). The costs related to this
closure totaled $41.0 million in 2011. The carbon black facility’s results of operations have been classified as a discontinued operation for all periods presented.
(5) Includes cash of discontinued operations.
(6) Excludes capital expenditures of the carbon black facility, a discontinued operation, of $0.7 million, $1.4 million, $0.5 million and $3.0 million for the years
ended December 31, 2011, 2010, 2009 and 2008. Excludes capital expenditures by Monessen, a discontinued operation, of $0.4 million for the year ended
December 31, 2008.
Koppers Holdings Inc. 2012 Annual Report
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
We are a leading integrated global provider of carbon compounds and commercial wood treatment products and services. Our
products are used in a variety of niche applications in a diverse range of end-markets, including the aluminum, railroad,
specialty chemical, utility, rubber, concrete and steel industries. We serve our customers through a comprehensive global
manufacturing and distribution network, with manufacturing facilities located in the United States, Australia, China, the United
Kingdom, Denmark and the Netherlands.
We operate two principal businesses: Carbon Materials & Chemicals (CM&C) and Railroad & Utility Products (R&UP).
Through our CM&C business, we process coal tar into a variety of products, including carbon pitch, creosote, naphthalene and
phthalic anhydride, which are intermediate materials necessary in the production of aluminum, the pressure treatment of wood
and the production of carbon black, the production of high-strength concrete, and the production of plasticizers and specialty
chemicals, respectively. Through our R&UP business, we believe that we are the largest supplier of railroad crossties to the North
American railroads. Our other commercial wood treatment products include utility poles for the electric and telephone utility
industries in North America and Australia. We also provide rail joint bar products as well as various services to the railroad
industry.
In October 2012 we entered into an agreement with Nippon Steel and Sumikin Chemical and several other entities to develop
and construct a fully integrated coal tar based carbon products complex in Pizhou City, Jiangsu Province, China. The complex
will include a 300,000 metric ton tar distillation facility that will be majority-owned by Koppers, as well as a carbon black plant
and a needle coke plant that will be owned by Nippon Steel and Sumikin Chemical. A significant portion of the products
produced at the tar distillation plant will be sold under a long-term supply contract with Nippon Steel and Sumikin Chemical to
supply their carbon black and needle coke plants. The project has commenced and construction of the tar distillation plant is
expected to be completed in mid-2014.
27
Outlook
Trend Overview
Our businesses and results of operations are impacted by various competitive and other factors including (i) the impact of global
economic conditions on demand for our products; (ii) raw materials pricing and availability, in particular the amount and quality
of coal tar available in global markets, which is negatively affected by reductions in steel production; (iii) volatility in oil prices,
which impacts the cost of coal tar and certain other raw materials, as well as selling prices and margins for certain of our
products including carbon black feedstock and phthalic anhydride; (iv) competitive conditions in global carbon pitch markets;
and (v) changes in foreign exchange rates.
The availability of coal tar is linked to levels of metallurgical coke production. As the global steel industry has reduced
production of steel and metallurgical coke, the volumes of coal tar by-product were also reduced. Our ability to obtain coal tar
and the price we are able to negotiate has a significant impact on the level of profitability of our business. Many of our sales
contracts include provisions that allow for price increases based on increases in the price of raw materials, which has allowed us
to generally maintain profit dollars in our core businesses. However, significant increases in raw material costs can result in
margin dilution if only the increased cost of the raw material is passed on to the customer. Additionally, in certain regions such
as China that have competing markets for coal tar, or in regions where the available supply of our products exceeds demand,
we may not be able to recover raw material cost increases in the selling prices for our end products.
The primary product produced by CM&C is carbon pitch, which is sold primarily to the aluminum industry to be used in the
production of carbon anodes. The smelting of aluminum requires significant amounts of energy, which is a major cost
component for the aluminum industry. As a result, new production facilities are being built in regions with low energy costs
such as the Middle East, while regions with higher energy costs such as the United States and Western Europe have seen
significant amounts of smelting capacity idled or closed over the last several years.
In late 2011 and early 2012, reductions in aluminum pricing resulted in additional closures and curtailments in Europe and
Australia that have resulted in lower sales volumes of carbon pitch for us in those regions. While we expect to recover some of
these lower volumes from operations in China, margins may be negatively affected as our increased presence in Asia has had a
dilutive effect on margins due to market conditions in that region as well as the joint venture ownership structures of our
Chinese operations.
Our businesses and results of operations were negatively affected in 2012 by difficult economic conditions in Europe. Certain
key end markets experienced significant reductions in demand that have negatively affected the profitability for some of our
products produced and sold in Europe, and we expect this to continue through 2013.
Several of our products, particularly carbon black feedstock and phthalic anhydride, have end market pricing that is linked to oil.
Historically, when oil prices increase we have benefited in terms of revenues and profitability from the higher pricing for these
products as the cost of coal tar has not increased proportionally with oil. However, over the past few years, our coal tar costs
have demonstrated a stronger correlation with the price of oil, which has resulted in higher raw material and finished product
costs as the price of oil has increased. In response, we have instituted price increases in an attempt to recover the higher coal tar
costs from our customers.
The primary end-market for R&UP is the North American railroad industry, which has a large installed base of wood crossties
that require periodic replacement. As a result, our volumes for crossties and our operating results for this business have
historically been relatively stable. However, our railroad business can be negatively affected by weather conditions that make it
difficult for sawmills that provide our raw material to harvest timber from the forests. Additionally, some of our Class I railroad
customers, who make up the largest portion of our business, may reduce inventory levels at certain times to manage working
capital, which can adversely affect our volumes and profitability during certain periods.
We also sell crossties to commercial customers consisting primarily of short-line railroads, whose buying patterns have
historically been influenced by general economic conditions. As a result, during recessionary periods, sales volumes to our
commercial customers have typically been reduced, resulting in lower revenues and profitability for our business.
28
Seasonality and Effects of Weather on Operations
Our quarterly operating results fluctuate due to a variety of factors that are outside of our control, including inclement weather
conditions, which in the past have affected operating results. Operations at several facilities have at times been reduced during
the winter months. Moreover, demand for some of our products declines during periods of inclement weather. As a result of
the foregoing, we anticipate that we may experience material fluctuations in quarterly operating results. Historically, our
operating results have been significantly lower in the first and fourth calendar quarters as compared to the second and third
calendar quarters.
Results of Operations – Comparison of Years Ended December 31, 2012 and December 31, 2011
Consolidated Results
Net sales for the years ended December 31, 2012 and 2011 are summarized by segment in the following table:
(Dollars in millions)
Carbon Materials & Chemicals
Railroad & Utility Products
Year
Ended
December 31,
2012
2011
$ 999.7 $ 943.1
523.1
555.3
$1,555.0 $1,466.2
Net
Change
+6%
+6%
+6%
Koppers Holdings Inc. 2012 Annual Report
Carbon Materials & Chemicals net sales for the year ended December 31, 2012 increased by $56.6 million or six percent.
Sales volumes for distillates increased sales by six percent over the prior year due to higher sales volumes of carbon black
feedstock for Chinese operations combined with higher sales volumes of carbon black feedstock from Australian operations to
third parties as a result of the closure of our carbon black plant in 2011. Sales prices for distillates increased sales by two percent
due mainly to higher oil prices. Sales prices for pitch increased sales by five percent due to higher raw material costs, and were
partially offset by lower sales volumes for pitch of four percent of sales as lower sales volumes for North America, Australia and
Europe were partially offset by higher sales volumes from Chinese operations. The lower sales volumes were due mainly to
aluminum smelter closures and production cutbacks. Foreign currency translation resulted in a decrease in sales of two percent.
Railroad & Utility Products net sales for the year ended December 31, 2012 increased by $32.2 million or six percent. Sales
prices for railroad crossties increased sales by five percent and were partially offset by lower sales volumes for crossties of two
percent of sales for the year ended December 31, 2011, with the higher sales prices driven mainly by higher sales volumes of
value added products to our Class I railroad customers. Sales volumes and prices for utility poles increased sales by one percent
each driven by higher sales volumes in the United States and Australia and higher sales prices in Australia due to product mix.
Cost of sales as a percentage of net sales was 85 percent for the year ended December 31, 2012 which was unchanged from
the prior year. Overall, cost of sales increased by $82.3 million when compared to the prior year period due primarily to higher
CM&C and R&UP sales volumes.
Depreciation and amortization for the year ended December 31, 2012 was $1.3 million higher when compared to the prior
year due partially to a fixed asset impairment charge of $0.6 million related to future capital requirements in excess of net cash
generation expected from an electricity co-generation facility located at one of the Company’s wood treatment plants in the
United States.
Selling, general and administrative expenses for the year ended December 31, 2012 were $1.3 million higher when
compared to the prior year period due primarily to higher compensation-related expenses.
Interest expense for the year ended December 31, 2012 was $0.7 million higher when compared to the prior year period
reflecting a mix of changes in average levels of borrowings and interest rates in 2012.
29
Income taxes for the year ended December 31, 2012 were $5.4 million lower when compared to the prior year period. Our
effective income tax rate for the year ended December 31, 2012 was 33.1 percent as compared to the prior year period of 40.2
percent. The decrease in the effective income tax rate is primarily due to lower net tax reserves of $2.4 million recorded during
2012 as compared to 2011. Income tax expense was also favorably impacted in 2012 by the recognition of tax benefits related
to prior years related to foreign tax credits and domestic manufacturing deductions totaling $1.6 million and the recognition of
certain state tax net operating loss carryforwards related to prior tax years of $1.5 million.
Segment Results
Segment operating profit for the years ended December 31, 2012 and 2011 is summarized by segment in the following
table:
(Dollars in millions)
Operating profit:
Carbon Materials & Chemicals
Railroad & Utility Products
Corporate
Operating profit as a percentage of net sales:
Carbon Materials & Chemicals
Railroad & Utility Products
Year Ended
December 31,
2012
2011
% Change
$ 83.1 $ 89.1
34.8
(1.2)
45.1
(1.6)
-7%
+30%
-33%
$126.6 $122.7
+3%
8.3% 9.4% -1.1%
8.1% 6.7% +1.4%
8.1% 8.4% -0.3%
Carbon Materials & Chemicals operating profit for the year ended December 31, 2012 decreased by $6.0 million or seven
percent over the prior year. CM&C operating profit as a percent of sales decreased to 8.3 percent from 9.4 percent in the prior
year due mainly to lower pitch volumes, lower naphthalene prices and higher raw material costs combined with a $3.1 million
increase in our allowance for doubtful accounts due to a customer collection issue in Europe, $2.5 million of costs related to a
pitch tank leak in Australia, and $1.9 million of charges related to a plant outage in The Netherlands. The pitch tank leak and
plant outage are net of insurance recoveries. These items were partially offset by a refund of $3.6 million resulting from a
supplier audit of material transport weights.
Railroad & Utility Products operating profit for the year ended December 31, 2012 increased by $10.3 million or 30
percent. Operating profit as a percentage of sales increased to 8.1 percent from 6.7 percent in the prior year as higher sales
prices for railroad crossties driven by higher volumes of value added products more than offset lower sales volumes for crossties.
Operating profit was also positively impacted by higher profitability and margins from our utility pole business.
Results of Operations – Comparison of Years Ended December 31, 2011 and December 31, 2010
Consolidated Results
Net sales for the years ended December 31, 2011 and 2010 are summarized by segment in the following table:
(Dollars in millions)
Carbon Materials & Chemicals
Railroad & Utility Products
30
Year
Ended
December 31,
2011
2010
Net
Change
$ 943.1 $ 740.6
449.9
523.1
+27%
+16%
$1,466.2 $1,190.5
+23%
Carbon Materials & Chemicals net sales for the year ended December 31, 2011 increased by $202.5 million or 27 percent
over the prior year. Pricing for carbon materials increased sales by four percent over the prior year due to higher raw material
costs, and volumes for carbon materials increased sales by eight percent due to higher demand in all geographic regions as
global aluminum production increased over the prior year.
Distillate pricing increased sales by three percent due to higher average worldwide oil prices as compared to the prior year. The
increase in distillate sales volumes was due primarily to higher creosote sales in North America and higher carbon black
feedstock sales in Europe compared to the prior year.
For coal tar chemicals, increases in phthalic anhydride prices in the U.S. of three percent of sales offset a reduction in
naphthalene prices of one percent of sales. Sales of other products increased by one percent of sales as compared to the prior
year driven primarily by increased sales volumes from Chinese operations.
Foreign currency translation resulted in an increase in sales of six percent.
Railroad & Utility Products net sales for the year ended December 31, 2011 increased by $73.2 million or 16 percent. Sales
prices and volumes for railroad crossties increased three percent and six percent, respectively for the year ended December 31,
2011, driven by higher volumes of untreated crossties from the Class I railroad customers and higher volumes and prices for
crossties sold to commercial customers. Price increases for treating services increased one percent while volumes decreased two
percent as a result of higher volumes of treated ties sold to commercial customers. With respect to other products, higher
volumes of six percent related to sales of rail joint bars and related products from the Portec acquisition in December 2010.
Cost of sales as a percentage of net sales was 85 percent for the year ended December 31, 2011 as compared to 84 percent
for the year ended December 31, 2010. Overall, cost of sales increased by $238.9 million when compared to the prior year
period due primarily to higher CM&C and R&UP sales volumes.
Depreciation and amortization for the year ended December 31, 2011 was $0.3 million higher when compared to the prior
year.
Selling, general and administrative expenses for the year ended December 31, 2011 were $11.9 million higher when
compared to the prior year period due primarily to higher compensation-related expenses.
Koppers Holdings Inc. 2012 Annual Report
Interest expense for the year ended December 31, 2011 was $0.1 million higher when compared to the prior year period
reflecting a small increase in the average level of borrowing in 2011.
Income taxes for the year ended December 31, 2011 were $9.8 million higher when compared to the prior year period due
primarily to the increase in pretax income of $22.7 million as compared to the prior year. Our effective income tax rate for the
year ended December 31, 2011 was 40.2 percent as compared to the prior year period of 39.3 percent. The increase in the
effective income tax rate is primarily due to a $3.5 million tax reserve associated with our European restructuring project.
Segment Results
Segment operating profit for the years ended December 31, 2011 and 2010 is summarized by segment in the following
table:
(Dollars in millions)
Operating profit:
Carbon Materials & Chemicals
Railroad & Utility Products
Corporate
Operating profit as a percentage of net sales:
Carbon Materials & Chemicals
Railroad & Utility Products
Year Ended
December 31,
2011
2010
% Change
$ 89.1 $76.7
23.0
(1.6)
34.8
(1.2)
+16%
+51%
+25%
$122.7 $98.1
+25%
9.4% 10.4% -1.0%
6.7% 5.1% +1.6%
8.4% 8.2% +0.2%
31
Carbon Materials & Chemicals operating profit for the year ended December 31, 2011 increased by $12.4 million or 16
percent. Operating profit as a percentage of net sales decreased to 9.4 percent from 10.4 percent as higher raw material costs
and lower sales prices for naphthalene more than offset higher sales prices for pitch and phthalic anhydride.
Railroad & Utility Products operating profit for the year ended December 31, 2011 increased by $11.8 million or 51
percent. Operating profit as a percentage of net sales increased to 6.7 percent from 5.1 percent in the prior year as a result of
higher untreated crosstie volumes combined with higher prices and volumes for commercial crossties, higher volumes of value
added products and the acquisition of the rail joint bar business in December 2010.
Cash Flow
Net cash provided by operating activities was $77.8 million for the year ended December 31, 2012 as compared to net
cash provided by operating activities of $76.9 million for the year ended December 31, 2011. Net working capital uses for 2012
were $19.4 million as compared to net working capital uses of $5.7 million in 2011. The increase in working capital
requirements in 2012 was primarily due to increases in inventory totaling $26.5 million as a result of increased demand for
crossties and increased levels of carbon materials to better manage supply chain requirements.
Net cash provided by operating activities was $76.9 million for the year ended December 31, 2011 as compared to net cash
provided by operating activities of $105.3 million for the year ended December 31, 2010. Net cash flows from operating
activities decreased by approximately $28 million between periods due primarily to increased requirements for working capital.
Net working capital uses for 2011 were $5.7 million which was due primarily to increases in accounts receivable of $33.2
million partially offset by an increase in accounts payable of $15.3 million. The increase is due to higher sales and related
purchasing activity in 2011.
Net cash used in investing activities was $39.9 million for the year ended December 31, 2012 as compared to net cash used
in investing activities of $44.7 million for the year ended December 31, 2011. Increased acquisition expenditures of $14.0
million in 2012 were partially offset by the repayment of $2.2 million from the loan to Tangshan Koppers Kailuan Carbon
Chemical Company Limited and lower capital expenditures of $4.3 million.
Net cash used in investing activities was $44.7 million for the year ended December 31, 2011 as compared to net cash used in
investing activities of $63.4 million for the year ended December 31, 2010. Decreased acquisition expenditures of $34.9 million
were partially offset by a loan to Tangshan Koppers Kailuan Carbon Chemical Company Limited of $11.7 million.
Net cash used in financing activities was $27.3 million for the year ended December 31, 2012 as compared to net cash used
in financing activities of $13.3 million for the year ended December 31, 2011. The increase in cash used for financing activities
was principally due to net treasury stock repurchases of $8.1 million and net repayments of the revolving credit facility of $6.4
million as compared to net borrowings of debt totaling $5.4 million for the year ended December 31, 2011.
Net cash used in financing activities was $13.3 million for the year ended December 31, 2011 as compared to net cash used in
financing activities of $64.3 million for the year ended December 31, 2010. Net repayments of debt totaled $40.0 million in the
year ended December 31, 2010 as compared to net borrowings of debt totaling $5.4 million for the year ended December 31,
2011.
Dividends paid were $19.5 million for the year ended December 31, 2012 as compared to dividends paid of $18.2 million for
the year ended December 31, 2011. Dividends reflect an annual dividend rate of 96 cents per common share in 2012 as
compared to an annual dividend rate of 88 cents per common share in 2011.
Liquidity and Capital Resources
Restrictions on Dividends to Koppers Holdings
32
Koppers Holdings depends on the dividends from the earnings of Koppers Inc. and its subsidiaries to generate the funds
necessary to meet its financial obligations, including the payment of any declared dividend of Koppers Holdings. Koppers Inc.’s
credit agreement prohibits it from making dividend payments to us unless (1) such dividend payments are permitted by the
indenture governing Koppers Inc.’s Senior Notes and (2) no event of default or potential default has occurred or is continuing
under the credit agreement. The indenture governing Koppers Inc.’s Senior Notes restricts its ability to finance our payment of
dividends if (1) a default has occurred or would result from such financing, (2) a restricted subsidiary of Koppers Inc. which is
not a guarantor under the indenture is not able to incur additional indebtedness (as defined in the indenture), and (3) the sum
of all restricted payments (as defined in the indenture) have exceeded the permitted amount (which we refer to as the
“basket”) at such point in time.
The basket is governed by a formula based on the sum of a beginning amount, plus or minus a percentage of Koppers Inc.’s
consolidated net income (as defined in the indenture), plus the net proceeds of Koppers Inc.’s qualified stock issuance or
conversions of debt to qualified stock, plus the net proceeds from the sale of or a reduction in an investment (as defined in the
indenture) or the value of the assets of an unrestricted subsidiary which is designated a restricted subsidiary. At December 31,
2012 the basket totaled $201.8 million. Notwithstanding such restrictions, the indenture governing Koppers Inc.’s Senior Notes
permits an additional aggregate amount of $20.0 million each fiscal year to finance dividends on the capital stock of Koppers
Holdings, whether or not there is any basket availability, provided that at the time of such payment, no default in the indenture
has occurred or would result from financing the dividends.
In addition, certain required coverage ratios in Koppers Inc.’s revolving credit facility may restrict the ability of Koppers Inc. to
pay dividends. See “—Debt Covenants.”
Liquidity
The Koppers Inc. revolving credit facility agreement provides for a revolving credit facility of up to $300.0 million at variable
interest rates. Borrowings under the revolving credit facility are secured by a first priority lien on substantially all of the assets of
Koppers Inc. and its material domestic subsidiaries. The revolving credit facility contains certain covenants for Koppers Inc. and
its restricted subsidiaries that limit capital expenditures, additional indebtedness, liens, dividends and investments or
acquisitions. In addition, such covenants give rise to events of default upon the failure by Koppers Inc. and its restricted
subsidiaries to meet certain financial ratios.
As of December 31, 2012, we had $290.0 million of unused revolving credit availability for working capital purposes after
restrictions by various debt covenants and certain letter of credit commitments. As of December 31, 2012, $10.0 million of
commitments were utilized by outstanding letters of credit.
Koppers Holdings Inc. 2012 Annual Report
The following table summarizes our estimated liquidity as of December 31, 2012 (dollars in millions):
Cash and cash equivalents(1)
Amount available under revolving credit facility
Amount available under other credit facilities
Total estimated liquidity
$ 66.7
290.0
9.0
$365.7
(1) Cash includes approximately $62 million held by foreign subsidiaries, which if repatriated to the United States, would incur an estimated cash tax cost of
approximately $20 million.
Our estimated liquidity was $344.7 million at December 31, 2011. The increase in estimated liquidity from that date is due
primarily to an increase in cash and an increase in the availability under the revolving credit facility due to lower borrowings at
the end of the year.
In June 2012, we filed a registration statement on Form S-3 with the Securities and Exchange Commission which gives us the
opportunity to offer common stock, debt securities, preferred stock, depositary shares, warrants and units (or a combination of
these securities) from time to time in one or more offerings. In addition, Koppers Inc. may sell debt securities from time to time
under the registration statement. This registration statement expires in June 2015.
Our need for cash in the next twelve months relates primarily to contractual obligations which include debt service, purchase
commitments and operating leases, as well as working capital, capital maintenance programs and mandatory and voluntary
defined benefit plan funding. We may also use cash to pursue potential strategic acquisitions. Capital expenditures in 2013,
excluding acquisitions, are expected to total approximately $38 million. In October 2012, a subsidiary of the Company signed an
agreement to construct a coal tar distillation facility in China. Construction is expected to commence in early 2013 and be
completed by mid-2014. The Company’s expected future capital requirement commitment for the majority-owned facility is
approximately $50 million and will be financed by available cash and incremental financing. A significant portion of the capital
requirements will be provided over the next 18 months.
Schedule of Certain Contractual Obligations
The following table details our projected payments for our significant contractual obligations as of December 31, 2012. The
table is based upon available information and certain assumptions we believe to be reasonable.
33
(in millions)
Long-term debt (including accretion)
Interest on debt
Operating leases
Purchase commitments(1)
Total contractual cash obligations
Total
2013
2014-2015
2016-2017
Later years
Payments Due by Period
$ 300.0 $ 0.0
23.6
31.8
370.1
165.4
99.8
1,528.0
$ 0.0
47.3
25.1
537.8
$ 0.0
47.3
12.9
345.2
$300.0
47.2
30.0
274.9
$2,093.2 $425.5
$610.2
$405.4
$652.1
(1) Consists primarily of raw materials purchase contracts. These are typically not fixed price arrangements; the prices are based on the prevailing market prices. As a
result, we generally expect to be able to hedge the purchases with sales at those future prices.
Pension and other employee benefit plan funding obligations (for defined benefit plans) are not included in the table above. We
expect defined benefit plan contributions to total approximately $24 million in 2013. Estimated funding obligations are
determined by asset performance, workforce and retiree demographics, tax and employment laws and other actuarial
assumptions which may change the annual funding obligations in addition to decisions to fund in excess of statutorily required
amounts. The funded status of our defined benefit plans is disclosed in Item 8. Financial Statements and Supplementary Data –
Note 15.
Schedule of Certain Other Commercial Commitments
The following table details our projected payments for other significant commercial commitments as of December 31, 2012.
The table is based upon available information and certain assumptions we believe to be reasonable.
(in millions)
Lines of credit (unused)
Standby letters of credit
Total other commercial commitments
Total
2013
2014-2015
2016-2017
Later years
Payments Due by Period
$299.0 $ 9.0
10.8
10.8
$290.0
0.0
$309.8 $19.8
$290.0
$0.0
0.0
$0.0
$0.0
0.0
$0.0
Debt Covenants
The covenants that affect availability of the revolving credit facility and which may restrict the ability of Koppers Inc. to pay
dividends include the following financial ratios:
▪ The fixed charge coverage ratio, calculated as of the end of each fiscal quarter for the four fiscal quarters then ended, is not
permitted to be less than 1.10. The fixed charge coverage ratio at December 31, 2012 was 2.6.
▪ The leverage ratio, calculated as of the end of each fiscal quarter for the four fiscal quarters then ended, is not permitted to
exceed 4.50. The leverage ratio at December 31, 2012 was 1.73.
We are currently in compliance with all covenants in the credit agreement governing the revolving credit facility.
At December 31, 2012, Koppers Inc. had $300.0 million principal value outstanding of Senior Notes. The Senior Notes include
customary covenants that restrict, among other things, our ability to incur additional debt, pay dividends or make certain other
restricted payments, incur liens, merge or sell all or substantially all of the assets or enter into various transactions with affiliates.
We are currently in compliance with all covenants in the Senior Notes indenture.
Other Matters
Foreign Operations and Foreign Currency Transactions
We are subject to foreign currency translation fluctuations due to our foreign operations. For the years ended December 31,
2012, 2011 and 2010, exchange rate fluctuations resulted in an increase (decrease) to comprehensive income of $5.8 million,
$(2.5) million and $11.5 million, respectively. Foreign currency transaction gains and losses result from transactions
denominated in a currency which is different from the currency used by the entity to prepare its financial statements. Foreign
currency transaction losses were $1.7 million, $0.5 million and $2.3 million for the years ended December 31, 2012, 2011, and
2010, respectively.
34
Recently Issued Accounting Guidance
There is no recently issued accounting guidance that is expected to have a material impact on our financial results.
Critical Accounting Policies
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires
management to use judgment in making estimates and assumptions that affect the reported amounts of revenues and
expenses, assets and liabilities, and the disclosure of contingent liabilities. The following accounting policies are based on,
among other things, judgments and assumptions made by management that include inherent risks and uncertainties. Our
management’s estimates are based on the relevant information available at the end of each period.
Revenue Recognition. We recognize revenue from product sales at the time of shipment or when title passes to the customer.
We recognize revenue related to the procurement of certain untreated railroad crossties upon transfer of title, which occurs
upon delivery to our plant and acceptance by the customer. Service revenue, consisting primarily of wood treating services, is
recognized at the time the service is provided. Our recognition of revenue with respect to untreated crossties meets all the
recognition criteria of the Securities and Exchange Commission’s Staff Accounting Bulletin Topic 13A3, including transfer of title
and risk of ownership, the existence of fixed purchase commitments and delivery schedules established by the customer and the
completion of all performance obligations by us.
Accounts Receivable. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our
customers to make required payments. In circumstances where we become aware of a specific customer’s inability to meet its
financial obligations, a specific reserve for bad debts is recorded against amounts due. If the financial conditions of our
customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be
required. During 2012, we recorded an allowance for doubtful accounts totaling $3.1 million related to the bankruptcy of a
European customer.
Inventories. In the United States, CM&C and R&UP inventories are valued at the lower of cost, utilizing the last-in, first-out
(“LIFO”) basis, or market. Inventories outside the United States are valued at the lower of cost, utilizing the first-in, first-out
Koppers Holdings Inc. 2012 Annual Report
basis (“FIFO”), or market. Market represents replacement cost for raw materials and net realizable value for work in process and
finished goods. LIFO inventories constituted approximately 62 percent of the FIFO inventory value at December 31, 2012 and
2011. In 2012 and 2011, we recorded inventory writedowns of $0.4 million and $3.3 million, respectively, related to the
decision to cease manufacturing operations at our carbon black facility in Australia.
Long-Lived Assets. Our management periodically evaluates the net realizable value of long-lived assets, including property,
plant and equipment, based on a number of factors including operating results, projected future cash flows and business plans.
We record long-lived assets at the lower of cost or fair value, with fair value based on assumptions concerning the amount and
timing of estimated future cash flows. Since judgment is involved in determining the fair value of fixed assets, there is a risk that
the carrying value of our long-lived assets may be overstated. During 2012, we recorded a fixed asset impairment charge of
$0.6 million related to future capital requirements in excess of net cash generation expected from an electricity co-generation
facility located at one of the Company’s wood treatment plants in the United States. In 2011 we recorded a fixed asset
impairment charge of $20.2 million related to the decision to cease manufacturing operations at our carbon black facility in
Australia.
Goodwill. Goodwill is not amortized but is assessed for impairment at least on an annual basis. In making this assessment,
management relies on various factors, including operating results, estimated future cash flows, and business plans. There are
inherent uncertainties related to these factors and in our management’s judgment in applying them to the analysis of goodwill
impairment. Because management’s judgment is involved in performing goodwill impairment analyses, there is risk that the
carrying value of goodwill is overstated.
Goodwill valuations are performed using projected operating results of the relevant reporting units. We have three reporting
units for purposes of goodwill evaluation. These units consist of our Carbon Materials & Chemicals operating segment, Railroad
Products & Services and Koppers Wood Products. Railroad Products & Services and Koppers Wood Products are one level below
our Railroad & Utility Products operating segment. The Railroad Products & Services reporting unit primarily serves the rail
industry in the United States and the Koppers Wood Products primarily serves the utility and residential markets in Australia.
Changes in economic and operating conditions impacting these assumptions could result in goodwill impairments in future
periods. Additionally, disruptions to our business such as prolonged recessionary periods or unexpected significant declines in
operating results of the relevant reporting units could result in charges for goodwill and other asset impairments in future
periods.
Deferred Tax Assets. At December 31, 2012 our balance sheet included $85.3 million of deferred tax assets, net of an $17.4
million valuation allowance. We have determined that this valuation allowance is required for our deferred tax assets based on
future earnings projections. In order to fully realize our deferred tax assets in relation to our temporary differences and exclusive
to any net operating losses, we will have to generate approximately $255 million of taxable income. The realization of these
deferred tax assets is not subject to any expiration and is dependent upon the reversal of the underlying temporary
differences. In order to fully realize our deferred tax assets (net of valuation allowances) in relation to our state net operating
losses, we will have to generate approximately $500 million of taxable income before any applicable adjustments and
apportionment fractions per state laws between 2013 and 2026. To the extent that we encounter unexpected difficulties in
market conditions, adverse changes in regulations affecting our businesses and operations, adverse outcomes in legal and
environmental matters, or any other unfavorable conditions, the projections for future taxable income may be overstated and
we may be required to record an increase in the valuation allowance related to these deferred tax assets which could have a
material adverse effect on income in the future. In 2012, we recorded a deferred tax asset and offsetting valuation allowance
against that deferred tax asset of $8.8 million for foreign tax credits earned in prior tax years. In 2012, we recorded a reversal of
valuation allowances totaling $1.5 million relating to the recognition of certain state tax net operating loss carryforwards related
to prior tax years. Item 8. Financial Statements and Supplementary Data – Note 7 includes information on deferred tax activity
during the past two years.
Accrued Insurance. We are insured for property, casualty and workers’ compensation insurance up to various stop loss
amounts after meeting required retention levels. Losses are accrued based upon estimates of the liability for the related
retentions for claims incurred using certain actuarial assumptions followed in the insurance industry and based on our
experience. In the event we incur a significant number of losses beyond the coverage retention limits, additional expense
beyond the actuarial projections would be required. Item 8. Financial Statements and Supplementary Data – Note 2 includes
information on expense recognized during the past two years.
Asset Retirement Obligations. We measure asset retirement obligations based upon the applicable accounting guidance,
using certain assumptions including estimates regarding the recovery of residues in storage tanks. In the event that operational
35
or regulatory issues vary from our estimates, we could incur additional significant charges to income and increases in cash
expenditures related to the disposal of those residues. Certain conditional asset retirement obligations related to facilities have
not been recorded in the consolidated financial statements due to uncertainties surrounding the ultimate settlement date and
estimate of fair value related to a legal obligation to perform an asset retirement activity. At the date a reasonable estimate of
the ultimate settlement can be made, we will record an asset retirement obligation and such amounts may be material to the
consolidated financial statements in the period in which they are recorded. In 2011, we recorded asset retirement obligations of
$6.2 million related to the decision to cease manufacturing operations at our carbon black facility in Australia. Item 8. Financial
Statements and Supplementary Data – Note 2 includes information on expense recognized during the past two years.
Pension and Postretirement Benefits. Accounting for pension and other postretirement benefit obligations involves
numerous assumptions, the most significant of which relate to the following:
▪ the discount rate for measuring the present value of future plan obligations;
▪ the expected long-term return on plan assets;
▪ the rate of future increases in compensation levels; and
▪ health care cost projections.
We develop our demographics and utilize the work of third-party actuaries to assist in the measurement of these obligations.
We have selected different discount rates for our pension plans and our other post retirement benefit plans due to the different
projected benefit payment patterns. In determining the assumed discount rates for 2012, we use our third party actuary’s
discount rate model. This model calculates an equivalent single discount rate for the projected benefit plan cash flows using a
hypothetical bond portfolio to match expected cash flows under our benefit plans. The bonds used are rated AA or higher by a
recognized rating agency and only non-callable bonds are included with the exception of those with a “make-whole call”
feature. The actuary limited the selection to those bonds with a minimum of 100,000 outstanding issues. Outlier bonds whose
yields exceeded two standard deviations from the yield curve derived from similar quality bonds were excluded.
36
At December 31, 2011, the discount rate was determined based on all future expected benefit payments for the qualified plan
discounted using a spot rate yield curve. The appropriate equivalent discount rate was then calculated from the resulting
discount pension benefit cash flows. The yield curve was developed directly from the corporate bond market data using only
bonds rated AA by a nationally recognized ratings service.
Of the assumptions used to measure the year-end obligations and estimated annual net periodic benefit cost, the discount rate
has the most significant effect on the periodic benefit cost reported for the plans. Decreasing the discount rates of 4.33 percent
for our pension plans and 4.37 percent for our other postretirement benefit plans by 0.25 would increase pension obligations
and other postretirement benefit plan obligations by $8.4 million and $0.3 million, respectively, and would increase defined
benefit pension expense and other postretirement benefit plan expense by $0.6 million and $0.0 million, respectively.
The asset rate of return assumption considers the asset mix of the plans (currently targeted at approximately 60 percent equity
securities and 40 percent fixed income securities for the funded pension plans), past performance and other factors, included
expected re-allocations of asset mix occurring within a reasonable period of time. Our asset rate of return assumption is 7.25
percent for 2013 defined benefit pension expense. Decreasing the 7.25 percent asset rate of return assumption by 0.25 would
increase our defined benefit pension expense by $0.4 million.
Compensation change assumptions are based on historical experience, anticipated future management actions and
demographics of the benefit plans.
Health care cost trend assumptions are developed based on historical cost data, the near-term outlook and an assessment of
likely long-term trends.
Item 8. Financial Statements and Supplementary Data – Note 15 includes detailed information about the assumptions used to
calculate the components of our annual defined benefit pension and other postretirement plan expense, as well as the
obligations and accumulated other comprehensive loss reported on the year-end balance sheets.
Litigation and Contingencies. We record liabilities related to legal matters when an adverse outcome is probable and
reasonably estimable. To the extent we anticipate favorable outcomes to these matters which ultimately result in adverse
outcomes, we could incur material adverse impacts on earnings and cash flows. Because such matters require significant
Koppers Holdings Inc. 2012 Annual Report
judgments on the part of management, the recorded liabilities could be lower than what is ultimately required. Item 8. Financial
Statements and Supplementary Data – Note 18 includes information about litigation and other contingencies.
Environmental Liabilities. We are subject to federal, state, local and foreign laws and regulations and potential liabilities
relating to the protection of the environment and human health and safety, including, among other things, the cleanup of
contaminated sites, the treatment, storage and disposal of wastes, the discharge of effluent into waterways, the emission of
substances into the air and various health and safety matters. We expect to incur substantial costs for ongoing compliance with
such laws and regulations. We may also incur costs as a result of governmental or third-party claims, or otherwise incur costs,
relating to cleanup of, or for injuries resulting from, contamination at sites associated with past and present operations. We
accrue for environmental liabilities when a determination can be made that they are probable and reasonably estimable. In
2011 we recorded environmental reserves of $6.7 million related to the decision to cease manufacturing operations at our
carbon black facility in Australia. Item 8. Financial Statements and Supplementary Data – Note 18 includes information about
environmental liabilities.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Like other global companies, we are exposed to market risks relating to fluctuations in interest rates and foreign currency
exchange rates. The objective of our financial risk management is to minimize the negative impact of interest rate and foreign
exchange rate fluctuations on our earnings, cash flows and equity.
To manage the interest rate risks, we use a combination of fixed and variable rate debt. This reduces the impact of short-term
fluctuations in interest rates. To manage foreign currency exchange rate risks, we enter into foreign currency debt instruments
that are held by our foreign subsidiaries. This reduces the impact of fluctuating currencies on net income and equity. We also
use forward exchange contracts to hedge firm commitments up to twelve months and all such contracts are marked to market
with the recognition of a gain or loss at each reporting period.
The following analyses present the sensitivity of the market value, earnings and cash flows of our financial instruments and
foreign operations to hypothetical changes in interest and exchange rates as if these changes occurred at December 31, 2012
and 2011. The range of changes chosen for these analyses reflects our view of changes which are reasonably possible over a
one-year period. Market values are the present values of projected future cash flows based on the interest rate and exchange
rate assumptions. These forward-looking statements are selective in nature and only address the potential impacts from
financial instruments and foreign operations. They do not include other potential effects that could impact our business as a
result of these changes.
Interest Rate and Debt Sensitivity Analysis. Our exposure to market risk for changes in interest rates relates primarily to our
debt obligations. We have fixed and variable rate debt and the ability to incur variable rate debt under the Koppers Inc. credit
agreement.
At December 31, 2012 we had $296.1 million of fixed rate debt and no variable rate debt and at December 31, 2011, we had
$295.7 million of fixed rate debt and $6.4 million of variable rate debt. Our ratio of variable rate debt to fixed rate debt at
December 31, 2011 was approximately two percent. For fixed rate debt, interest rate changes affect the fair market value but
do not impact earnings or cash flows. For variable rate debt, interest rate changes generally do not affect the fair market value
but do impact future earnings and cash flows, assuming other factors are held constant.
Holding other variables constant (such as debt levels and foreign exchange rates), a one percentage point decrease in interest
rates at December 31, 2012 and 2011 would have increased the unrealized fair market value of the fixed rate debt by
approximately $18.4 million and $19.5 million, respectively. The earnings and cash flows for the year ending December 31,
2011, assuming a one percentage point increase in interest rates would have decreased approximately $0.1 million, holding
other variables constant for variable rate debt.
Exchange Rate Sensitivity Analysis. Our exchange rate exposures result primarily from our investment and ongoing
operations in Australia, Denmark, the Netherlands, China and the United Kingdom. Holding other variables constant, if there
were a ten percent reduction in all relevant exchange rates, the effect on our earnings, based on actual earnings from foreign
operations for the years ended December 31, 2012 and 2011, would be reductions of approximately $3.3 million and $0.1
million, respectively.
37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Koppers Holdings Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Statement of Income for the years ended December 31, 2012, 2011 and 2010
Consolidated Statement of Comprehensive Income for the years ended December 31, 2012, 2011 and 2010
Consolidated Balance Sheet as of December 31, 2012 and 2011
Consolidated Statement of Cash Flows for the years ended December 31, 2012, 2011 and 2010
Consolidated Statement of Shareholders’ Equity for the years ended December 31, 2012, 2011 and 2010
Notes to Consolidated Financial Statements
Page
39
40
41
42
42
43
44
45
46
38
Koppers Holdings Inc. 2012 Annual Report
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Koppers Holdings Inc. is responsible for establishing and maintaining adequate internal control over
financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with
accounting principles generally accepted in the United States of America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Management has assessed the effectiveness of Koppers Holdings Inc.’s internal control over financial reporting as of
December 31, 2012. In making this assessment, management has utilized the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Management concluded that
based on its assessment, Koppers Holdings Inc.’s internal control over financial reporting was effective as of December 31,
2012.
The effectiveness of Koppers Holdings Inc.’s internal control over financial reporting as of December 31, 2012, has been audited
by Ernst & Young LLP, the independent registered public accounting firm that also audited the consolidated financial statements
included in this annual report, as stated in their attestation report which appears on page 41.
February 25, 2013
/S/ WALTER W. TURNER
Walter W. Turner
President and Chief Executive Officer
LEROY M. BALL
/S/
Leroy M. Ball
Vice President and Chief Financial Officer
39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Koppers Holdings Inc.:
We have audited the accompanying consolidated balance sheets of Koppers Holdings Inc. as of December 31, 2012 and 2011,
and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2012. Our audits also included the financial statement schedule listed in the
Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Koppers Holdings Inc. at December 31, 2012 and 2011, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Koppers Holdings Inc.’s internal control over financial reporting as of December 31, 2012, based on criteria established in
Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 25, 2013 expressed an unqualified opinion thereon.
40
/s/
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
February 25, 2013
Koppers Holdings Inc. 2012 Annual Report
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Koppers Holdings Inc.:
We have audited Koppers Holdings Inc.’s internal control over financial reporting as of December 31, 2012, based on criteria
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Koppers Holdings Inc.’s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanying “Management’s Report on Internal Control Over Financial Reporting”. Our responsibility is to express an opinion
on the effectiveness of the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Koppers Holdings Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Koppers Holdings Inc. as of December 31, 2012 and 2011, and the related consolidated
statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period
ended December 31, 2012 of Koppers Holdings Inc. and our report dated February 25, 2013 expressed an unqualified opinion
thereon.
/s/
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
February 25, 2013
41
KOPPERS HOLDINGS INC.
CONSOLIDATED STATEMENT OF INCOME
(Dollars in millions, except share amounts)
Net sales
Cost of sales (excluding items below)
Depreciation and amortization
Selling, general and administrative expenses
Operating profit
Other income
Interest expense
Income before income taxes
Income taxes
Income from continuing operations
(Loss) income from discontinued operations, net of tax benefit (expense) of $0.2, $23.8 and $(0.2)
Loss on sale of Koppers Arch, net of tax benefit of $0.1
Net income
Net income attributable to noncontrolling interests
Net income attributable to Koppers
Earnings (loss) per common share:
Basic –
Continuing operations
Discontinued operations
42
Earnings per basic common share
Diluted –
Continuing operations
Discontinued operations
Earnings per diluted common share
Weighted average common shares outstanding (in thousands):
Basic
Diluted
Dividends declared per common share
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Dollars in millions)
Net income
Changes in other comprehensive income (loss):
Currency translation adjustment
Unrecognized pension transition asset, net of tax of $0.1, $0.1 and $0.1
Unrecognized pension prior service cost, net of tax of $0.0, $0.0 and $0.1
Unrecognized pension net gain (loss), net of tax of $(2.3), $9.2 and $0.6
Total comprehensive income
Comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to Koppers
The accompanying notes are an integral part of these consolidated financial statements.
Year Ended December 31,
2012
2011
2010
$1,555.0
1,324.6
28.2
75.6
$1,466.2
1,242.3
26.9
74.3
$1,190.5
1,003.4
26.6
62.4
126.6
1.9
27.9
100.6
33.3
67.3
(0.1)
0.0
67.2
1.6
122.7
0.7
27.2
96.2
38.7
57.5
(19.9)
0.0
37.6
0.7
98.1
2.5
27.1
73.5
28.9
44.6
0.1
(0.2)
44.5
0.4
$
65.6
$
36.9
$
44.1
$
$
$
$
3.18
(0.01)
3.17
3.14
(0.01)
3.13
$
$
$
$
2.75
(0.96)
1.79
2.72
(0.95)
1.77
$
$
$
$
2.14
0.00
2.14
2.13
0.00
2.13
20,681
20,927
0.96
$
20,599
20,833
0.88
$
20,543
20,676
0.88
$
Year Ended December 31,
2012
2011
2010
$67.2
$ 37.6
$44.5
5.8
(0.3)
0.0
2.8
75.5
1.8
(2.5)
(0.2)
0.1
(14.9)
20.1
1.2
11.5
(0.2)
0.2
(0.7)
55.3
0.7
$73.7
$ 18.9
$54.6
Koppers Holdings Inc. 2012 Annual Report
KOPPERS HOLDINGS INC.
CONSOLIDATED BALANCE SHEET
(Dollars in millions, except share amounts)
Assets
Cash and cash equivalents
Accounts receivable, net of allowance of $3.7 and $0.3
Income tax receivable
Inventories, net
Deferred tax assets
Loan to related party
Other current assets
Total current assets
Equity in non-consolidated investments
Property, plant and equipment, net
Goodwill
Deferred tax assets
Other assets
Total assets
Liabilities
Accounts payable
Accrued liabilities
Dividends payable
Total current liabilities
Long-term debt
Accrued postretirement benefits
Other long-term liabilities
Total liabilities
Commitments and contingent liabilities (Note 18)
Equity
Senior Convertible Preferred Stock, $0.01 par value per share; 10,000,000 shares authorized; no shares
issued
Common Stock, $0.01 par value per share; 40,000,000 shares authorized; 21,585,129 and 21,309,210
shares issued
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost; 951,026 and 706,161 shares
Total Koppers shareholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
The accompanying notes are an integral part of these consolidated financial statements.
43
December 31,
2012
2011
$ 66.7 $ 54.1
160.9
10.6
159.0
9.3
11.7
21.8
162.7
1.6
195.8
15.1
9.5
29.8
481.2
5.8
161.1
75.6
27.2
29.1
427.4
4.9
155.6
72.1
44.3
26.4
$780.0 $730.7
$103.5 $102.1
63.1
5.2
72.1
5.6
181.2
296.1
89.9
44.7
170.4
302.1
104.1
46.9
611.9
623.5
0.0
0.0
0.2
153.3
52.0
(22.0)
(32.9)
150.6
17.5
0.2
142.9
6.7
(30.2)
(24.8)
94.8
12.4
168.1
107.2
$780.0 $730.7
KOPPERS HOLDINGS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
Cash provided by (used in) operating activities
Net income
Adjustments to reconcile net cash provided by operating activities:
Depreciation and amortization
Loss (gain) on sale of assets
Deferred income taxes
Non-cash interest expense
Equity income of affiliated companies
Change in other liabilities
Stock-based compensation
Other
(Increase) decrease in working capital:
Accounts receivable
Inventories
Accounts payable
Accrued liabilities and other working capital
44
Net cash provided by operating activities
Cash provided by (used in) investing activities
Capital expenditures
Acquisitions, net of cash acquired
Net cash proceeds (payments) from loan to related party
Net cash proceeds from divestitures and asset sales
Net cash used in investing activities
Cash provided by (used in) financing activities
Borrowings of revolving credit
Repayments of revolving credit
Repayments on long-term debt
Issuances of Common Stock
Repurchases of Common Stock
Proceeds from issuance of noncontrolling interest
Excess tax benefit from employee stock plans
Payment of deferred financing costs
Dividends paid
Net cash used in financing activities
Effect of exchange rates on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flows information:
Cash paid (refunded) during the year for:
Interest
Income taxes
Noncash investing and financing activities:
Capital leases
The accompanying notes are an integral part of these consolidated financial statements.
Year Ended December 31,
2012
2011
2010
$ 67.2 $ 37.6 $ 44.5
28.2
0.1
8.0
1.7
(0.8)
(13.0)
6.9
(1.1)
(0.2)
(26.5)
(0.1)
7.4
77.8
(28.9)
(14.0)
2.2
0.8
(39.9)
259.4
(265.8)
0.0
1.5
(8.1)
3.7
1.6
(0.1)
(19.5)
(27.3)
2.0
12.6
54.1
48.8
(0.2)
(11.3)
1.6
(0.2)
4.0
5.3
(3.0)
(33.2)
5.1
15.3
7.1
28.1
(1.0)
5.0
1.7
0.0
(2.5)
3.3
0.8
(19.1)
8.2
9.7
26.6
76.9
105.3
(33.2)
(0.6)
(11.7)
0.8
(44.7)
218.0
(211.6)
(1.0)
0.3
(0.3)
0.0
0.0
(0.5)
(18.2)
(13.3)
(0.1)
18.8
35.3
(29.9)
(35.5)
0.0
2.0
(63.4)
152.1
(192.1)
(0.2)
0.1
(0.9)
0.0
0.2
(0.4)
(23.1)
(64.3)
(0.7)
(23.1)
58.4
$ 66.7 $ 54.1 $ 35.3
$ 26.0 $ 25.8 $ 25.5
(3.9)
13.6
25.7
0.0
0.0
0.1
KOPPERS HOLDINGS INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(Dollars in millions)
Senior Convertible Preferred Stock
Balance at beginning and end of year
Common Stock
Balance at beginning and end of year
Additional paid-in capital
Balance at beginning of year
Employee stock plans
Balance at end of year
Retained earnings (deficit)
Balance at beginning of year
Net income attributable to Koppers
Common Stock dividends
Balance at end of year
Accumulated other comprehensive loss
Currency translation adjustment:
Balance at beginning of year
Change in currency translation adjustment
Balance at end of year
Unrecognized pension transition asset:
Balance at beginning of year
Change in unrecognized pension asset, net of tax
Balance at end of year
Unrecognized pension prior service cost:
Balance at beginning of year
Change in unrecognized pension prior service cost, net of tax
Balance at end of year
Unrecognized pension net loss:
Balance at beginning of year
Change in unrecognized pension net loss, net of tax
Balance at end of year
Total balance at end of year
Treasury stock
Balance at beginning of year
Purchases
Balance at end of year
Total Koppers shareholders’ equity – end of year
Noncontrolling interests
Balance at beginning of year
Net income attributable to noncontrolling interests
Dividends to noncontrolling interests
Investment in noncontrolling interests
Currency translation adjustment
Balance at end of year
Total equity – end of year
The accompanying notes are an integral part of these consolidated financial statements.
Koppers Holdings Inc. 2012 Annual Report
Year Ended December 31,
2012
2011
2010
$
0.0
$
0.0
$
0.0
0.2
0.2
0.2
142.9
10.4
137.0
5.9
127.2
9.8
153.3
142.9
137.0
6.7
65.6
(20.3)
52.0
(11.7)
36.9
(18.5)
6.7
(37.3)
44.1
(18.5)
(11.7)
28.8
5.7
34.5
0.3
(0.3)
0.0
(0.2)
0.0
(0.2)
31.7
(2.9)
28.8
0.5
(0.2)
0.3
(0.3)
0.1
(0.2)
20.6
11.1
31.7
0.7
(0.2)
0.5
(0.5)
0.2
(0.3)
(59.1)
2.8
(44.2)
(14.9)
(43.5)
(0.7)
(56.3)
(59.1)
(44.2)
(22.0)
(30.2)
(12.3)
(24.8)
(8.1)
(24.5)
(0.3)
(23.6)
(0.9)
(32.9)
(24.8)
(24.5)
150.6
94.8
88.7
12.4
1.6
0.0
3.3
0.2
17.5
11.2
0.7
0.0
0.0
0.5
12.4
11.0
0.4
(0.6)
(0.6)
0.4
11.2
$168.1
$107.2
$ 99.9
45
KOPPERS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Parent company of Koppers Inc. – In these financial statements, unless otherwise indicated or the context requires otherwise,
when the terms “Koppers,” the “Company,” “we,” “our” or “us,” are used, they mean Koppers Holdings Inc. (“Koppers
Holdings”) and its subsidiaries on a consolidated basis. The use of these terms is not intended to imply that Koppers Holdings
and Koppers Inc. are not separate and distinct legal entities from each other and from their respective subsidiaries. Koppers
Holdings has no direct operations and no significant assets other than the stock of Koppers Inc. It depends on the dividends
from the earnings of Koppers Inc. and its subsidiaries to generate the funds necessary to meet its financial obligations. The
terms of Koppers Inc.’s revolving credit facility prohibit Koppers Inc. from paying dividends and otherwise transferring assets
except for certain limited dividends. Further, the terms of the indenture governing Koppers Inc.’s Senior Notes significantly
restrict Koppers Inc. from paying dividends and otherwise transferring assets to Koppers Holdings.
Business description – The Company is a global integrated producer of carbon compounds and treated and untreated wood
products and services for use in a variety of markets including the aluminum, railroad, specialty chemical, utility, concrete and
steel industries. The Company’s business is operated through two business segments, Carbon Materials & Chemicals and
Railroad & Utility Products.
The Company’s Carbon Materials & Chemicals segment is primarily a manufacturer of carbon pitch, naphthalene, phthalic
anhydride, creosote and carbon black feedstock. Carbon pitch is a critical raw material used in the production of aluminum and
for the production of steel in electric arc furnaces. Naphthalene is used for the production of phthalic anhydride and as a
surfactant in the production of concrete. Phthalic anhydride is used in the production of plasticizers, polyester resins and alkyd
paints. Creosote is used in the treatment of wood and carbon black feedstock is used in the production of carbon black.
46
The Company’s Railroad & Utility Products segment sells treated and untreated wood products, rail joint bars and services
primarily to the railroad industry and treated wood products to the utility industry. Railroad products include procuring and
treating items such as crossties, switch ties and various types of lumber used for railroad bridges and crossings and the
manufacture of rail joint bars. Utility products include transmission and distribution poles and pilings. The segment also
produces concrete crossties through a joint venture.
2. Summary of Significant Accounting Policies
Basis of presentation – The consolidated financial statements include the accounts of the Company and all majority-owned
subsidiaries for which the Company is deemed to exercise control over its operations. All significant intercompany transactions
have been eliminated in consolidation. The Company’s investments in 20 percent to 50 percent-owned companies in which it
has the ability to exercise significant influence over operating and financial policies are accounted for using the equity method
of accounting. Accordingly, the Company’s share of the earnings of these companies is included in the accompanying
consolidated statement of income.
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. Estimates have been
prepared on the basis of the most current and best available information and actual results could differ materially from these
estimates.
Foreign currency translation – For consolidated entities outside of the U.S. that prepare financial statements in currencies other
than the U.S. dollar, results of operations and cash flows are translated at average exchange rates during the period, and asset
and liabilities are translated at end-of-period exchange rates. Cumulative translation adjustments are included as a separate
component of accumulated other comprehensive loss in shareholders’ equity. Amounts credited (charged) to cumulative
translation adjustments for intercompany loans totaled $1.8 million in 2012, $(0.5) million in 2011 and $7.2 million in 2010.
Foreign currency transaction gains and losses result from transactions denominated in a currency which is different than the
currency used by the entity to prepare its financial statements. Foreign currency transaction losses were $1.7 million, $0.5
million and $2.3 million for the years ended December 31, 2012, 2011 and 2010, respectively.
Koppers Holdings Inc. 2012 Annual Report
Revenue recognition – The Company recognizes revenue when the risks and rewards of ownership and title to the product have
transferred to the customer. Revenue recognition generally occurs at the point of shipment; however in certain circumstances as
shipping terms dictate, revenue is recognized at the point of destination. Shipping and handling costs are included as a
component of cost of sales.
The Company recognizes revenue related to the procurement of certain untreated railroad crossties upon transfer of title to the
customer, which occurs upon delivery to the Company’s plant and acceptance by the customer. Service revenue, consisting
primarily of wood treating services, is recognized at the time the service is provided. Payment on sales of untreated railroad
crossties and wood treating services are generally due within 30 days of the invoice date. The Company’s recognition of
revenue with respect to untreated crossties meets all the recognition criteria of Securities and Exchange Commission Staff
Accounting Bulletin Topic 13.A.3., including transfer of title and risk of ownership, the existence of fixed purchase
commitments and delivery schedules established by the customer, and the completion of all performance obligations by the
Company. Revenue recognized for untreated crosstie sales for the years ended December 31, 2012, 2011 and 2010 amounted
to $109.0 million, $116.5 million and $106.4 million, respectively.
Research & development – Research and development costs are expensed as incurred and are included in selling, general and
administrative expenses. These costs totaled $2.3 million in 2012, $1.9 million in 2011 and $2.1 million in 2010.
Cash and cash equivalents – 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.
Accounts receivable – The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability
of its customers to make required payments. In circumstances where the Company becomes aware of a specific customer’s
inability to meet its financial obligations to Koppers, a specific reserve for bad debts is recorded against amounts due. If the
financial condition of the Company’s customers were to deteriorate, resulting in an inability to make payments, additional
allowances may be required.
47
Inventories – Inventories are carried at lower of cost or market on a worldwide basis. In the U.S., inventory cost (excluding
miscellaneous types of inventory) is determined primarily utilizing the last-in, first-out (“LIFO”) basis. Inventory cost outside the
U.S. is determined utilizing the first-in, first-out (“FIFO”) basis. Market represents replacement cost for raw materials and net
realizable value for work in process and finished goods. LIFO inventories constituted approximately 62 percent and 59 percent
of the FIFO inventory value at December 31, 2012 and 2011, respectively.
Property, plant & equipment – Property, plant and equipment are recorded at purchased cost and include improvements which
significantly increase capacities or extend useful lives of existing plant and equipment. Depreciation expense is calculated by
applying the straight-line method over estimated useful lives. Estimated useful lives for buildings generally range from 10 to 20
years and depreciable lives for machinery and equipment generally range from 3 to 10 years. Net gains and losses related to
asset disposals are recognized in earnings in the period in which the disposal occurs. Routine repairs, replacements and
maintenance are expensed as incurred.
The Company periodically evaluates whether current facts and circumstances indicate that the carrying value of its depreciable
long-lived assets may not be recoverable. 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.
Goodwill & 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. The Company performs impairment tests annually for goodwill, and
more often as circumstances require. When it is determined that impairment has occurred, an appropriate charge to earnings is
recorded. The Company performed its annual impairment test in the fourth quarters of 2012 and 2011 and determined that the
estimated fair values substantially exceeded the carrying values of all the reporting units and accordingly, there was no
impairment of goodwill.
Identifiable intangible assets, other than goodwill, are recorded at cost. Identifiable intangible assets that do not have indefinite
lives are amortized on a straight-line basis over their estimated useful lives.
Deferred income taxes – Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The effect on
deferred tax assets and liabilities of a change in tax laws is recognized in earnings in the period the new laws are enacted. A
valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such
assets will be realized. Deferred tax liabilities have not been recognized for the undistributed earnings of certain foreign
subsidiaries because management intends to permanently reinvest such earnings in foreign operations.
Self-insured liabilities – The Company is self-insured for property, casualty and workers’ compensation exposures up to various
stop-loss coverage amounts. Losses are accrued based upon the Company’s estimates of the liability for the related deductibles
of claims incurred. Such estimates utilize actuarial methods based on various assumptions, which include but are not limited to,
the Company’s historical loss experience and projected loss development factors. In 2012 and 2011, reversals of self-insured
liabilities occurred as a result of favorable loss trends related to self-insured claims.
(Dollars in millions)
Self-insured liabilities at beginning of year
Expense
Reversal of self-insured liabilities
Cash expenditures
Self-insured liabilities at end of year
2012
2011
$ 7.4 $ 7.9
2.1
(1.0)
(1.6)
2.4
(1.0)
(1.2)
$ 7.6 $ 7.4
48
Derivative financial instruments – The Company uses forward exchange contracts to hedge exposure to currency exchange rate
changes on transactions and other commitments denominated in a foreign currency. Contracts are generally written on a short-
term basis and are not held for trading or speculative purposes. The Company recognizes the fair value of the forward contracts
as an asset or liability at each reporting date. Because the Company has not elected to designate the forward exchange
contracts for hedge accounting treatment, changes in the fair value of the forward exchange contracts are recognized
immediately in earnings.
Asset retirement obligations – Asset retirement obligations are initially recorded at fair value and are capitalized as part of the
cost of the related long-lived asset when sufficient information is available to estimate fair value. The capitalized costs are
subsequently charged to depreciation expense over the estimated useful life of the related long-lived asset. The fair value of the
obligation is determined by calculating the discounted value of expected future cash flows and accretion expense is recorded
each month to ultimately increase this obligation to full value.
The Company recognizes asset retirement obligations for the removal and disposal of residues; dismantling of certain tanks
required by governmental authorities; cleaning and dismantling costs for owned rail cars; cleaning costs for leased rail cars and
barges; and site demolition.
The following table describes changes to the Company’s asset retirement obligation liabilities at December 31, 2012 and 2011:
(Dollars in millions)
Asset retirement obligation at beginning of year
Accretion expense
Revision in estimated cash flows
Cash expenditures
Currency translation
Asset retirement obligation at end of year
2012
2011
$21.3 $17.0
1.1
6.3
(3.1)
0.0
1.1
1.8
(3.0)
0.3
$21.5 $21.3
In 2011, the Company incurred $6.2 million of expense related to the closure of its carbon black facility in Kurnell, Australia.
Litigation & 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. Legal costs for litigation are expensed as
incurred.
Other current assets – Included in other current assets are prepaid expenses totaling $7.4 million and $9.9 million at
December 31, 2012 and December 31, 2011, respectively.
Koppers Holdings Inc. 2012 Annual Report
Environmental liabilities – The Company accrues for remediation costs and penalties when the responsibility to remediate is
probable and the amount of related cost is reasonably estimable. If only a range of potential liability can be estimated and no
amount within the range is more probable than another, the accrual is recorded at the low end of that range. Remediation
liabilities are discounted if the amount and timing of the cash disbursements are readily determinable.
Deferred revenue from extended product warranty liabilities – The Company defers revenues associated with extended product
warranty liabilities based on historical loss experience and sales of extended warranties on certain products. The following table
describes changes to the Company’s deferred revenue at December 31, 2012 and 2011:
(Dollars in millions)
Deferred revenue at beginning of year
Revenue earned
Deferred revenue at end of year
2012
2011
$ 4.8 $ 5.7
(0.9)
(0.9)
$ 3.9 $ 4.8
49
Stock-based compensation – The Company records compensation cost over the vesting period for share-based payments to
employees at an amount equivalent to the grant date fair value of the stock award. No compensation cost is recognized for any
stock awards that are forfeited in the event the recipient fails to meet the vesting requirements.
3. Business Acquisitions
Western Poles – On November 19, 2012, the Company acquired the pole distribution business (“Western Poles”) of Ridolfo
Forestry Products Pty Limited for cash of $13.8 million and expected future payments totaling $4.9 million (on a discounted
basis) to be paid over a period of 36 months assuming certain sales contracts remain in effect. The Western Poles business
mainly serves utility customers in Western Australia and complements our existing wood treatment business in Australia. The
preliminary allocation of purchase price to acquired assets consisted of inventory totaling $8.0 million, plant and equipment
totaling $1.0 million, intangible assets consisting primarily of customer relationships totaling $8.5 million, non-compete
agreements totaling $0.4 million deferred tax liabilities of $1.7 million and Australian nondeductible goodwill of $2.6 million.
The goodwill is allocated to the Railroad & Utility Products segment and the customer contracts will be amortized over a period
of 15 years and the non-compete agreement will be amortized over a period of 12 years.
Other acquisitions – In 2010, the Company completed three acquisitions. On March 1, 2010, the Company acquired 100
percent of the outstanding shares of privately-owned Cindu Chemicals B.V. (“Cindu”), a Dutch company which operates a
140,000 metric ton coal tar distillation plant in Uithoorn, Netherlands. The acquisition was funded with cash on hand and the
acquisition price was $21.6 million. Cindu was subsequently renamed Koppers Netherlands B.V. (“Koppers Netherlands”).
On October 31, 2010, the Company acquired the midwestern United States refined tar business of Stella Jones Inc. for cash of
$6.1 million. Finally, on December 22, 2010, the Company acquired the rail joint bar business of Portec Rail Products, Inc.
located in Huntington, West Virginia. The purchase price was cash of $10.7 million.
Pro-forma information – The consolidated pro forma results of operations if the acquisition had been completed as of the
beginning of the year in 2012 would have been pro forma revenue of $1,581.7 million and operating profit of $130.1 million
for the year ended December 31, 2012. The consolidated pro forma results of operations if the acquisition had been completed
as of the beginning of the year in 2011 would have been pro forma revenue of $1,480.3 million and operating profit of $123.7
million for the year ended December 31, 2011. The consolidated pro forma results of operations if the acquisitions had been
completed as of the beginning of the year in 2010 would have been pro forma revenue of $1,234.7 million and operating profit
of $99.9 million for the year ended December 31, 2010.
4. Discontinued Operations
In December 2011, the Company ceased manufacturing operations at its carbon black facility located in Kurnell, Australia. This
decision was made as a result of deteriorating business conditions including raw material availability and cost, competition in
the export markets due to the strength of the Australian dollar and a variety of other factors. The costs related to this closure
totaled $41.0 million in the fourth quarter of 2011. The Company estimates that total future closure costs related to this facility
will be approximately $0.8 million. The closure is expected to be completed by 2014. The results of operations of the carbon
black facility have been reclassified to discontinued operations for all periods presented as run-off activities were completed in
the first quarter of 2012. The facility is part of the Carbon Materials & Chemicals segment. Net sales from this discontinued
operation totaled $5.6 million, $72.7 million and $55.0 million for the years ended December 31, 2012, 2011 and 2010,
respectively. Operating (loss) profit from this discontinued operation totaled $(0.3) million, $(43.7) million and $0.9 million for
the years ended December 31, 2012, 2011 and 2010, respectively.
Details of the restructuring activities and related reserves for 2012 are as follows:
(Dollars in millions)
Reserve at January 1, 2011
Charges
Costs charged against assets
Cash paid
Reserve at December 31, 2011
Charges
Costs charged against assets
Reversal of accrued charges
Cash paid
Currency translation
Severance
and
employee
benefits
$ 0.0
3.4
0.0
(1.6)
$ 1.8
0.1
0.0
0.0
(1.7)
0.0
Environmental
remediation
Asset
impairment
Inventory
writedowns
Site
demolition
Other
Total
$ 0.0
6.7
0.0
0.0
$ 6.7
0.0
0.0
0.0
(0.1)
0.1
$ 0.0
20.2
(20.2)
0.0
$ 0.0
0.0
0.0
0.0
0.0
0.0
$0.0
3.3
(3.3)
0.0
$0.0
0.4
(0.4)
0.0
0.0
0.0
$0.0
6.2
0.0
0.0
$6.2
0.0
0.0
0.0
(0.4)
0.1
$0.0 $ 0.0
41.0
(23.5)
(1.6)
1.2
0.0
0.0
$1.2 $15.9
0.5
(0.4)
(0.6)
(2.7)
0.2
0.0
0.0
(0.6)
(0.5)
0.0
Reserve at December 31, 2012
$ 0.2
$ 6.7
$ 0.0
$0.0
$5.9
$0.1 $12.9
50
5. 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
nonvested nonqualified stock options and restricted stock units assuming such options and stock units were outstanding
common shares at the beginning of the period. The effect of antidilutive securities and performance restricted stock units that
have not met vesting criteria are excluded from the computation of diluted earnings per common share.
The following table sets forth the computation of basic and diluted earnings per common share:
Year Ended December 31,
2012
2011
2010
(Dollars in millions, except share amounts, in thousands, and per share amounts)
Net income attributable to Koppers
Less: discontinued operations
$ 65.6 $ 36.9 $ 44.1
(0.1)
(19.9)
(0.1)
Income from continuing operations attributable to Koppers
$ 65.7 $ 56.8 $ 44.2
Weighted average common shares outstanding:
Basic
Effect of dilutive securities
Diluted
Earnings per common share – continuing operations:
Basic earnings per common share
Diluted earnings per common share
Other data:
20,681
246
20,599
234
20,543
133
20,927
20,833
20,676
$ 3.18 $ 2.75 $ 2.14
2.13
3.14
2.72
Antidilutive securities excluded from computation of diluted earnings per common share
194
106
154
On February 6, 2013, the board of directors declared a quarterly dividend of 25 cents per common share, payable on April 8,
2013 to shareholders of record as of February 19, 2013.
Koppers Holdings Inc. 2012 Annual Report
6. Stock-based Compensation
The amended and restated 2005 Long-Term Incentive Plan (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.
Under the LTIP, the board of directors granted restricted stock units and performance stock units to certain employee
participants (collectively, the “stock units”) each year starting in 2007. The restricted stock units vest on the third anniversary of
the grant date, assuming continued employment by the participant. Performance stock units granted in 2011 and 2010 each
have a two-year performance objective. Performance stock units granted before 2010 and after 2011 have three-year
performance objectives. Regardless of whether the measurement period for the applicable performance objective is two or
three years, all performance stock units have a three-year period for vesting (if the applicable performance objective is
obtained). The applicable performance objective is based upon a multi-year cumulative value creation calculation commencing
on the first day of each grant year. The number of performance stock units granted represents the target award and
participants have the ability to earn between zero and 150 percent of the target award based upon actual performance. If
minimum performance criteria are not achieved, no performance stock units will vest.
Dividends declared on the Company’s common stock during the restriction period of the stock units are credited at equivalent
value as additional stock units and become payable as additional common shares upon vesting. In the event of termination of
employment, other than retirement, death or disability, any non-vested stock units are forfeited, including additional stock units
credited from dividends. In the event of termination of employment due to retirement, death or disability, pro-rata vesting of the
stock units over the service period will result for most participants. There are special vesting provisions for the stock units related
to a change in control.
Restricted stock units that vest immediately or 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 members of
management in connection with employee compensation.
51
Compensation expense for non-vested stock units is recorded over the vesting period based on the fair value at the date of
grant. The fair value of stock units is the market price of the underlying common stock on the date of grant.
The following table shows a summary of the performance stock units as of December 31, 2012:
Performance Period
2011 – 2012
2012 – 2014
Minimum
Shares
Target
Shares
Maximum
Shares
0
0
84,342 126,513
100,031 150,047
The following table shows a summary of the status and activity of non-vested stock awards for the year ended December 31,
2012:
Non-vested at January 1, 2012
Granted
Credited from dividends
Performance stock unit adjustment
Vested
Forfeited
Non-vested at December 31, 2012
Restricted
Stock Units
Performance
Stock Units
Total
Stock Units
156,665 297,715
67,012 104,598
7,072
(40,112)
(87,013)
(13,583)
3,779
0
(85,187)
(6,171)
454,380
171,610
10,851
(40,112)
(172,200)
(19,754)
Weighted Average
Grant Date Fair
Value per Unit
$26.43
$38.35
$35.67
$10.68
$18.69
$36.00
136,098 268,677
404,775
$36.11
Stock options to executive officers vest and become exercisable upon the completion of a three-year service period commencing
on the grant date. The stock options have a term of 10 years. In the event of termination of employment, other than
retirement, death or disability, any non-vested options are forfeited for most participants. In the event of termination of
employment due to retirement, death or disability, pro-rata vesting of the options over the service period will result for most
participants. There are special vesting provisions for the stock options related to a change in control.
In accordance with accounting standards, compensation expense for non-vested stock options is recorded over the vesting
period based on the fair value at the date of grant. The fair value of stock options on the date of grant is calculated using the
Black-Scholes-Merton model and the assumptions listed below:
Grant date price per share of option award
Expected dividend yield per share
Expected life in years
Expected volatility
Risk-free interest rate
Grant date fair value per share of option awards
February 2012 Grant
February 2011 Grant
August 2010 Grant
February 2010 Grant
$38.21
$40.26
$20.00
$28.10
2.75%
6.5
55.06%
1.34%
2.50%
6.5
60.00%
3.02%
2.50%
6.5
62.00%
3.05%
2.50%
6.5
62.00%
3.05%
$15.82
$19.28
$ 9.82
$13.81
The dividend yield is based on the Company’s current and prospective dividend rate which calculates a continuous dividend
yield based upon the market price of the underlying common stock. The expected life in years is based on the simplified method
permitted under Securities and Exchange Commission Staff Accounting Bulletin No. 14d.2 which calculates the average of the
weighted vesting term and the contractual term of the option. This method was selected due to the lack of historical exercise
data with respect to the Company. Expected volatility is based on the historical volatility of the Company’s common stock and
the historical volatility of certain other similar public companies. The risk-free interest rate is based on U.S. 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 year ended December 31, 2012:
52
Outstanding at January 1, 2012
Granted
Exercised
Expired
Forfeited
Outstanding at December 31, 2012
Exercisable at December 31, 2012
Weighted Average
Exercise Price
per Option
Weighted Average
Remaining
Contractual Term
(in years)
Aggregate Intrinsic
Value (in millions)
$27.65
$38.21
$15.69
$39.99
$36.00
Options
353,452
95,899
(103,719)
(2,413)
(11,420)
331,799
$34.07
116,849
$30.27
7.10
4.87
$1.5
$0.9
Total stock-based compensation expense recognized for the three years ended December 31, 2012 is as follows:
(Dollars in millions)
Stock-based compensation expense recognized:
Selling, general and administrative expenses
Less related income tax benefit
Decrease in net income attributable to Koppers
Year Ended December 31,
2012
2011
2010
$6.9 $5.3 $3.3
1.3
2.0
2.8
$4.1 $3.3 $2.0
As of December 31, 2012 total future compensation expense related to non-vested stock-based compensation arrangements
totaled $8.2 million and the weighted-average period over which this expense is expected to be recognized is approximately
21 months.
7. Income Taxes
Income Tax Provision
Components of the Company’s income tax provision from continuing operations are as follows:
Koppers Holdings Inc. 2012 Annual Report
Years Ended December 31,
2012
2011
2010
(Dollars in millions)
Current:
Federal
State
Foreign
Total current tax provision
Deferred:
Federal
State
Foreign
Total deferred tax provision (benefit)
Total income tax provision
$15.7 $24.7 $10.0
0.4
13.3
1.1
21.5
1.3
8.6
25.6
47.3
23.7
4.9
(1.2)
4.0
7.7
(6.7)
0.1
(2.0)
(8.6)
4.1
0.3
0.8
5.2
$33.3 $38.7 $28.9
Income before income taxes for 2012, 2011 and 2010 included $42.6 million, $51.8 million and $51.0, respectively, from
foreign operations.
The provision for income taxes is reconciled with the federal statutory rate as follows:
53
Federal income tax rate
State income taxes, net of federal tax benefit
Foreign earnings taxed at different rates
Domestic production activities deduction
Non-deductible fines and penalties
Deferred tax adjustments
Change in tax contingency reserves
Foreign tax credits
Other
Years Ended December 31,
2012
2011
2010
35.0% 35.0% 35.0%
0.7
(0.5)
1.4
0.5
(1.3)
(2.7)
0.2
0.0
0.1
(0.3)
3.8
1.2
0.0
(0.6)
0.3
0.5
0.7
2.4
(0.7)
0.0
0.0
0.2
0.0
1.7
33.1% 40.2% 39.3%
The Company has not provided any U.S. tax on undistributed earnings of foreign subsidiaries or joint ventures that are
reinvested indefinitely. At December 31, 2012 consolidated retained earnings of the Company included approximately $113
million of undistributed earnings, which are permanently invested, from these foreign entities. It is not practical at this time,
however, to estimate the amount of taxes that may be payable on the distribution of these earnings.
Taxes Excluded from Net Income Attributable to Koppers
The amount of income tax provision (benefit) 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 $2.2 million, $(9.3)
million and $(0.8) million for the years ended December 31, 2012, 2011 and 2010, respectively.
The amount of income tax benefit included in shareholders’ equity but excluded from net income attributable to Koppers
relating to the expense for restricted stock and employee stock options recognized differently for financial and tax reporting
purposes was $1.6 million for the year ended December 31, 2012 and $0.2 million for the year ended December 31, 2010.
Deferred Tax Assets and Liabilities
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred tax assets and liabilities are as follows:
(Dollars in millions)
Deferred tax assets:
Pension and other postretirement benefits obligations
Reserves, including insurance, environmental and deferred revenue
Accrued employee compensation
Tax credits
Net operating loss benefit
Asset retirement obligations
Book/tax inventory accounting differences
Capital loss benefit
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
54
Tax over book depreciation and amortization
Unremitted earnings of foreign subsidiaries
Tax/book inventory accounting differences
Other
Total deferred tax liabilities
Net deferred tax assets
December 31,
2012
2011
$ 33.2 $ 38.7
29.8
10.7
0.4
11.2
5.1
1.6
1.5
2.6
(10.2)
24.7
11.8
9.7
9.4
5.1
2.6
1.5
4.7
(17.4)
85.3
91.4
33.2
5.9
1.1
5.9
46.1
27.6
6.1
1.7
5.5
40.9
$ 39.2 $ 50.5
A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be
realized. At December 31, 2012, the Company has recorded a valuation allowance of $7.1 million for certain state net
operating loss carryforwards anticipated to produce no tax benefit. The Company has recorded a valuation allowance of $8.8
million for certain foreign tax credits in the United States expected to produce no benefit. These foreign tax credits will begin to
expire in 2018. Additionally, the Company has recorded a valuation allowance of $1.5 million for certain capital loss
carryforwards in Australia expected to produce no benefit. The Company has tax-effected state net operating losses of $9.2
million, which will expire from 2014 to 2030 and tax-effected foreign net operating losses of $0.2 million, a portion of which
expires in 2019.
For the year ended on December 31, 2012, the Company recorded a net valuation allowance release of $1.5 million on the
basis of management’s determination that sufficient positive evidence exists to support that certain state net operating losses
are more likely than not to be realized.
Uncertain Tax Positions
The Company or one of its subsidiaries files income tax returns in U.S. federal jurisdiction, individual U.S. state jurisdictions and
non-U.S. jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S.
income tax examinations by tax authorities for years before 2006.
Koppers Holdings Inc. 2012 Annual Report
As of December 31, 2012 and 2011, the total amount of unrecognized tax benefits that, if recognized, would affect the
effective tax rate, was approximately $5.5 million and $7.1 million, respectively. A reconciliation of the beginning and ending
amount of unrecognized tax benefits is as follows:
(Dollars in millions)
Balance at beginning of year
Additions based on tax provisions related to the current year
Additions for tax provisions of prior years
Reductions of tax provisions of prior years
Reductions as a result of payments and settlements
Reductions as a result of a lapse of the applicable statute of limitations
Balance at end of year
December 31,
2012
2011
2010
$ 9.9 $ 6.5 $ 4.0
0.4
4.0
2.6
0.0
0.0
0.0
0.0
0.0
(0.5)
(0.6)
0.5
1.3
(0.5)
(2.8)
(0.7)
$ 7.7 $ 9.9 $ 6.5
The Company recognizes interest expense and any related penalties from uncertain tax positions in income tax expense. For
each year ended December 31, 2012, 2011 and 2010, the Company recognized $0.3 million, $0.2 million and $0.2 million,
respectively, in interest and penalties. As of December 31, 2012 and 2011, the Company had accrued approximately $1.3
million and $0.9 million for interest and penalties, respectively.
8. Segment Information
The Company has two reportable segments: Carbon Materials & Chemicals and Railroad & Utility Products. The Company’s
reportable segments are business units that offer different products. The reportable segments are each managed separately
because they manufacture and distribute distinct products with different production processes. The business units have been
aggregated into two reportable segments since management believes the long-term financial performance of these business
units is affected by similar economic conditions.
55
The Company’s Carbon Materials & Chemicals segment is primarily a manufacturer of carbon pitch, naphthalene, phthalic
anhydride, creosote and carbon black feedstock. Carbon pitch is a critical raw material used in the production of aluminum and
for the production of steel in electric arc furnaces. Naphthalene is used for the production of phthalic anhydride and as a
surfactant in the production of concrete. Phthalic anhydride is used in the production of plasticizers, polyester resins and alkyd
paints. Creosote is used in the treatment of wood and carbon black feedstock is used in the production of carbon black.
The Company’s Railroad & Utility Products segment sells treated and untreated wood products, manufactured products and
services primarily to the railroad and public utility markets. Railroad products include procuring and treating items such as
crossties, switch ties and various types of lumber used for railroad bridges and crossings and the manufacture of rail joint bars.
Utility products include transmission and distribution poles and pilings.
The Company evaluates performance and determines resource allocations based on a number of factors, the primary measure
being operating profit or loss from operations. Operating profit does not include equity in earnings of affiliates, other income,
interest expense or income taxes. Operating profit also excludes the operating costs of Koppers Holdings Inc., the parent
company of Koppers Inc. 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.
Results of Segment Operations
(Dollars in millions)
Revenues from external customers:
Carbon Materials & Chemicals
Railroad & Utility Products
Total
Intersegment revenues:
Carbon Materials & Chemicals
Depreciation & amortization:
Carbon Materials & Chemicals
Railroad & Utility Products
Total
Operating profit:
Carbon Materials & Chemicals
Railroad & Utility Products
Corporate(a)
Total
Capital expenditures (including acquisitions):
56
Carbon Materials & Chemicals
Railroad & Utility Products
Corporate
Total
Year Ended December 31,
2012
2011
2010
$ 999.7 $ 943.1 $ 740.6
449.9
523.1
555.3
$1,555.0 $1,466.2 $1,190.5
$ 106.5 $
95.2 $
97.2
$
$
$
16.9 $
11.3
17.4 $
9.5
17.2
9.4
28.2 $
26.9 $
26.6
83.1 $
45.1
(1.6)
89.1 $
34.8
(1.2)
76.7
23.0
(1.6)
$ 126.6 $ 122.7 $
98.1
$
17.3 $
25.0
0.6
23.0 $
10.2
0.6
44.9
20.2
0.3
$
42.9 $
33.8 $
65.4
(a) Operating loss for Corporate includes general and administrative costs for Koppers Holdings Inc, the parent company of Koppers Inc.
Assets and Goodwill by Segment
(Dollars in millions)
Assets:
Carbon Materials & Chemicals
Railroad & Utility Products
Segment assets
Cash & cash equivalents
Income tax receivable
Deferred taxes
Deferred financing costs
Deferred charges
Other
Total
Goodwill:
Carbon Materials & Chemicals
Railroad & Utility Products
Total
December 31,
2012
2011
$516.3 $495.2
164.6
205.0
721.3
4.8
1.6
35.5
7.2
2.6
7.0
659.8
0.2
10.6
41.8
8.2
3.5
6.6
$780.0 $730.7
$ 70.2 $ 69.4
2.7
5.4
$ 75.6 $ 72.1
Revenues and Long-lived Assets by Geographic Area
(Dollars in millions)
United States
Australasia
Europe
Other countries
Total
Koppers Holdings Inc. 2012 Annual Report
Year
Revenue
Long-lived
assets
2012 $ 827.6 $162.9
161.6
787.5
2011
157.1
672.5
2010
72.4
318.9
2012
58.7
276.6
2011
79.8
221.9
2010
36.3
247.8
2012
35.7
248.0
2011
35.8
194.0
2010
0.0
160.7
2012
0.0
154.1
2011
0.0
102.1
2010
2012 $1,555.0 $271.6
2011 $1,466.2 $256.0
2010 $1,190.5 $272.7
Revenues by geographic area in the above table are attributed by the destination country of the sale. Revenues from non-U.S.
countries totaled $727.4 million in 2012, $681.1 million in 2011 and $573.0 million in 2010.
57
Segment Revenues for Significant Product Lines
(Dollars in millions)
Carbon Materials & Chemicals:
Carbon pitch
Creosote and carbon black feedstock
Phthalic anhydride
Naphthalene
Other products
Railroad & Utility Products:
Railroad crossties
Utility poles
Creosote
Rail joint bars
Other products
Total
Year Ended December 31,
2012
2011
2010
$ 442.4 $ 431.1 $
233.8
120.0
60.3
143.2
999.7
341.1
101.3
57.0
25.6
30.3
555.3
162.0
112.4
72.3
165.3
943.1
324.9
84.2
52.7
24.7
36.6
523.1
325.6
104.4
93.9
68.0
148.7
740.6
282.5
73.3
57.9
0.1
36.1
449.9
$1,555.0 $1,466.2 $1,190.05
9. Inventories
Inventories as of December 31, 2012 and 2011 were as follows:
(Dollars in millions)
Raw materials
Work in process
Finished goods
Less revaluation to LIFO
Net
December 31,
2012
2011
$118.2 $ 91.5
20.1
95.1
20.0
109.7
247.9
52.1
206.7
47.7
$195.8 $159.0
For the year ended December 31, 2011, liquidations of LIFO inventories increased operating profit by $0.3 million.
10. Equity Investments
The Company holds two investments in unconsolidated companies. KSA Limited Partnership is a 50 percent owned concrete
crosstie operation located in Portsmouth, Ohio. Tangshan Koppers Kailuan Carbon Chemical Company Limited (“TKK”) is a 30-
percent owned tar distillation facility in the Hebei Province of China. No dividends were paid for the three years ended
December 31, 2012. Equity in earnings for the three years ended December 31, 2012 were as follows:
58
(Dollars in millions)
2012
2011
2010
11. Property, Plant and Equipment
Property, plant and equipment as of December 31, 2012 and 2011 were as follows:
(Dollars in millions)
Land
Buildings
Machinery and equipment
Less accumulated depreciation
Net
Equity income
$0.8
0.2
0.0
December 31,
2012
2011
$ 7.0 $ 6.6
34.7
593.5
36.4
616.6
660.0
498.9
634.8
479.2
$161.1 $155.6
Depreciation expense for the years ended December 31, 2012, 2011 and 2010 amounted to $25.2 million, $46.0 million and
$25.6, respectively. Included in depreciation expense for 2012, 2011 and 2010 were impairment charges totaling $0.6 million,
$20.2 million and $1.8 million, respectively. The charge in 2012 related to a Railroad and Utility Products segment’s electricity
co-generation plant in the United States. The charge in 2011 related to the Carbon Material & Chemicals segment’s carbon
black facility in Australia and the charge in 2010 related to a Railroad and Utility Products segment’s wood treating plant in the
United States.
In February 2012, approximately 400 tons of liquid carbon pitch leaked from a storage tank at the Company’s terminal facility in
Portland, Victoria, Australia. All of the coal tar pitch was contained within the tank farm area and was recovered. Costs directly
associated with the leak were $2.5 million for the year ended December 31, 2012, net of estimated insurance recoveries
totaling $3.2 million which is recorded in other current assets. Expenses associated with the incident include inventory losses,
emergency response expenses, incremental logistics expenses, and material clean-up and removal expenses.
Koppers Holdings Inc. 2012 Annual Report
12. Goodwill and Other Identifiable Intangible Assets
The change in the carrying amount of goodwill attributable to each business segment for the years ended December 31, 2012
and December 31, 2011 was as follows:
(Dollars in millions)
Balance at December 31, 2010
Acquisitions
Currency translation
Balance at December 31, 2011
Acquisitions
Currency translation
Balance at December 31, 2012
Carbon Materials &
Chemicals
Railroad &
Utility Products
Total
$69.6
0.1
(0.3)
69.4
0.0
0.8
$ 2.5
0.3
(0.1)
2.7
2.6
0.1
$72.1
0.4
(0.4)
72.1
2.6
0.9
$70.2
$ 5.4
$75.6
The Company’s identifiable intangible assets with finite lives are being amortized over their estimated useful lives and are
summarized below:
December 31,
(Dollars in millions)
Customer contracts
Supply contracts
Non-compete agreements
Favorable lease agreements
Total
2012
Net
Gross
Carrying
Amount
Accumulated
Amortization
Accumulated
Amortization
Gross
Carrying
Amount
$20.9
2.8
1.7
0.8
$ 8.1
0.8
1.2
0.8
$12.8 $12.3
2.7
1.2
0.8
2.0
0.5
0.0
$6.8
0.5
1.2
0.5
$9.0
$26.2
$10.9
$15.3 $17.0
2011
Net
$5.5
2.2
0.0
0.3
$8.0
59
In 2012, the gross carrying value of identifiable intangible assets increased by $8.9 million due to acquisitions and by $0.3
million due to foreign currency translation. In 2011, the gross carrying value of identifiable intangible assets decreased by $0.8
million due to the finalization of purchase price adjustments from prior year acquisitions and by $0.2 million due to foreign
currency translation. The customer contracts have estimated useful lives of 10 to 15 years, the supply contracts have estimated
useful lives of 10 years, the non-compete agreements have estimated useful lives of 3 to 12 years and the favorable lease
agreements have estimated useful lives of 3 years. Total amortization expense related to these identifiable intangible assets was
$1.9 million, $1.5 million and $1.2 million for the years ended December 31, 2012, 2011 and 2010, respectively. Estimated
amortization expense for the next five years is summarized below:
(Dollars in millions)
2013
2014
2015
2016
2017
Estimated
annual
amortization
$1.9
1.8
1.8
1.4
1.2
13. Debt
Debt at December 31, 2012 and December 31, 2011 was as follows:
(Dollars in millions, except interest rates)
Revolving Credit Facility
Senior Notes
Total debt
Less short-term debt and current maturities of long-term debt
Long-term debt (excluding current portion)
Revolving Credit Facility
December 31,
Weighted
Average
Interest Rate Maturity
2012
2011
0.00% 2015
7 7/8% 2019
$ 0.0 $ 6.4
295.7
296.1
296.1
0.0
302.1
0.0
$296.1 $302.1
The Koppers Inc. revolving credit facility agreement provides for a revolving credit facility of up to $300.0 million at variable
rates. Borrowings under the revolving credit facility are secured by a first priority lien on substantially all of the assets of Koppers
Inc. and its material domestic subsidiaries. The revolving credit facility contains certain covenants for Koppers Inc. and its
restricted subsidiaries that limit capital expenditures, additional indebtedness, liens, dividends, investments or acquisitions. In
addition, such covenants give rise to events of default upon the failure by Koppers Inc. and its restricted subsidiaries to meet
certain financial ratios. Commitment fees totaled $1.0 million in 2012, $1.1 million in 2011 and $1.3 million in 2010 and are
charged to interest expense.
60
As of December 31, 2012, the Company had $290.0 million of unused revolving credit availability for working capital purposes
after restrictions from certain letter of credit commitments and other covenants. As of December 31, 2012, $10.0 million of
commitments were utilized by outstanding letters of credit.
Senior Notes
The Koppers Inc. 7 7/8 percent Senior Notes due 2019 (the “Senior Notes”) were issued on December 1, 2009 at an offering
price of 98.311 percent of face value, or $294.9 million and have a principal amount at maturity of $300.0 million. The Senior
Notes have an effective interest rate yield of 8 1/8 percent per annum. The Senior Notes are unsecured senior obligations that are
fully and unconditionally guaranteed by Koppers Holdings and certain of Koppers Inc.’s wholly-owned domestic subsidiaries.
The Senior Notes are structurally subordinated to indebtedness under the revolving credit facility.
Interest on the Senior Notes is payable semiannually on December 1 and June 1 each year. On or after December 1, 2014, the
Company is entitled to redeem all or a portion of the Senior Notes at a redemption price of 103.938 percent of principal value,
declining annually in ratable amounts until the redemption price is equivalent to the principal value on December 1, 2017.
The indenture governing the Senior 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. or its subsidiaries or enter into various transactions with
affiliates.
Debt Maturities and Deferred Financing Costs
At December 31, 2012 the aggregate debt maturities for the next five years are as follows:
(Dollars in millions)
2013
2014
2015
2016
2017
Thereafter
Total maturities
Future accretion on Senior Notes
Total debt
Koppers Holdings Inc. 2012 Annual Report
$ 0.0
0.0
0.0
0.0
0.0
300.0
300.0
(3.9)
$296.1
Unamortized deferred financing costs (net of accumulated amortization of $4.6 million and $3.4 million at December 31, 2012
and 2011, respectively) were $7.2 million and $8.3 million at December 31, 2012 and 2011, respectively, and are included in
other assets.
14. Leases
Future minimum commitments for operating leases having non-cancelable lease terms in excess of one year are as follows:
(Dollars in millions)
2013
2014
2015
2016
2017
Thereafter
Total
61
$31.8
15.2
9.9
7.6
5.3
30.0
$99.8
Operating lease expense for 2012, 2011 and 2010 was $44.3 million, $43.8 million and $42.5 million, respectively.
15. Pensions and Post-retirement Benefit Plans
The Company and its subsidiaries maintain a number of defined benefit and defined contribution plans to provide retirement
benefits for employees in the U.S., as well as employees outside the U.S. 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. Pension plans are funded except for three domestic non-qualified defined benefit pension plans for certain key
executives.
All qualified defined benefit pension plans for salaried employees have been closed to new participants and a number of plans,
including most plans for hourly employees, have been frozen or are scheduled to be frozen in the next two years. Accordingly,
these pension plans no longer accrue additional years of service or recognize future increases in compensation for benefit
purposes. In addition, a number of pension plans are subject to a “soft” freeze which precludes new employees from entering
the defined benefit pension plans.
The defined contribution plans generally provide retirement assets to employee participants based upon employer and employee
contributions to the participant’s individual investment account. The Company also provides retiree medical insurance coverage
to certain U.S. employees and a life insurance benefit to most U.S. employees. For salaried employees, the retiree medical and
retiree insurance plans have been closed to new participants.
Expense related to defined contribution plans totaled $4.7 million, $4.8 million and $4.7 million for the years ended
December 31, 2012, 2011 and 2010, respectively. Expense related to contributions to multi-employer pension plans totaled
$0.4 million, $0.7 million and $0.7 million for the years ended December 31, 2012, 2011 and 2010, respectively.
Net periodic pension costs for 2012, 2011 and 2010 were as follows:
Pension Benefits
December 31,
Other Benefits
2012
2011
2010
2012
2011
2010
(Dollars in millions)
Components of net periodic benefit cost:
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of net loss
Amortization of transition asset
Settlements and curtailments
Net periodic benefit cost
$ 3.5 $ 3.3 $ 3.1 $0.1 $0.2 $0.2
0.7
11.4
0.0
(9.9)
(0.1)
0.2
0.0
5.2
0.0
(0.3)
0.0
0.5
10.7
(10.7)
0.1
8.1
(0.3)
0.3
11.1
(11.0)
0.1
6.3
(0.3)
0.2
0.6
0.0
(0.1)
0.0
0.0
0.0
0.5
0.0
0.0
0.0
0.0
0.0
$ 11.7 $ 9.7 $10.2 $0.6 $0.7 $0.8
Net periodic pension cost that is expected to be recognized from the amortization of prior service cost and net loss is estimated
to total $0.1 million and $7.7 million, respectively, for all plans in 2013.
62
Koppers Holdings Inc. 2012 Annual Report
The change in the funded status of the pension and postretirement plans as of December 31, 2012 and December 31, 2011 is
as follows:
December 31,
Pension Benefits
Other Benefits
2012
2011
2012
2011
(Dollars in millions)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Actuarial losses (gains)
Settlements
Currency translation
Benefits paid
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contribution
Plan participants’ contributions
Settlements
Currency translation
Benefits paid
Fair value of plan assets at end of year
Funded status of the plan
Amounts recognized in the balance sheet consist of:
Noncurrent assets
Current liabilities
Noncurrent liabilities
$239.5 $215.9 $ 12.5 $ 12.8
0.1
0.6
0.0
(0.5)
0.0
0.0
(0.5)
3.5
10.7
0.2
10.3
(1.4)
2.4
(10.0)
3.3
11.2
0.2
20.2
(0.8)
(0.3)
(10.2)
0.1
0.5
0.0
(1.8)
0.0
0.0
(0.1)
255.2
239.5
11.2
12.5
146.6
15.7
22.4
0.2
(1.4)
2.1
(10.0)
141.6
0.1
15.9
0.2
(0.8)
(0.2)
(10.2)
175.6
146.6
0.0
0.0
0.1
0.0
0.0
0.0
(0.1)
0.0
0.0
0.0
0.5
0.0
0.0
0.0
(0.5)
0.0
$ (79.6) $ (92.9) $(11.2) $(12.5)
63
$ 0.2 $ 0.3 $ 0.0 $ 0.0
1.0
11.5
0.7
92.5
0.4
79.4
0.7
10.5
Pension plans with benefit obligations in excess of plan assets:
Benefit obligation
Fair value of plan assets
Pension plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligation
Fair value of plan assets
$247.5 $231.5
138.3
167.6
$229.0 $224.1
138.3
167.6
The measurement date for all pension and postretirement assets and obligations is December 31 for each respective year.
The accumulated benefit obligation for all defined benefit pension plans as of December 31, 2012 and 2011 was $235.9 million
and $231.5 million, respectively.
Expected Contributions for the 2013 Fiscal Year
The expected contributions by the Company for 2013 are estimated to be $22.7 million for pension plans and $0.8 million for
other benefit plans.
Projected Benefit Payments
Benefit payments for pension benefits, which are primarily funded by the pension plan assets, and other benefits, which are
funded by general corporate assets and reflecting future expected service as appropriate, are expected to be paid as follows:
(Dollars in millions)
2013
2014
2015
2016
2017
2018 – 2022
Weighted-Average Assumptions as of December 31
Discount rate
Expected return on plan assets
Rate of compensation increase
Initial medical trend rate
Pension Benefits
Other Benefits
$11.3
11.4
11.8
13.0
13.5
74.0
$0.8
0.8
0.8
0.8
0.8
4.1
Pension Benefits
December 31,
Other Benefits
2012
2011
2012
2011
4.33% 4.55% 4.37% 4.37%
7.25
3.10
7.68
3.09
7.35
7.80
64
Basis for the Selection of the Long-Term Rate of Return on Assets
The long-term rate of return on assets assumption was determined by using the plan’s asset allocation as described in the plan’s
investment policy and modeling a distribution of compound average returns over a 20-year time horizon. The model uses asset
class return, variance, and correlation assumptions to produce the expected return. The return assumptions used forward
looking gross returns influenced by the current bond yields, corporate bond spreads and equity risk premiums based on current
market conditions.
In general, the long-term rate of return is the sum of the portion of total assets in each asset class multiplied by the expected
return for that class, adjusted for expected expenses to be paid from the assets. To develop the expected long-term rate of
return on assets assumption, the Company considered the historical returns and the future expectations for returns for each
asset class, as well as the target asset allocation of the pension portfolio.
Investment Strategy
The weighted average asset allocation for the Company’s pension plans at December 31 by asset category is as follows:
Equity securities
Debt securities
Other
December 31,
2012
2011
61% 64%
35
4
30
6
100% 100%
The Company’s investment strategy for its pension plans is to maintain an adequate level of diversification, to reduce interest
rate and market risk and to provide adequate liquidity to meet immediate and future benefit payment requirements. The
Company’s overall investment strategy is to achieve a mix of growth seeking assets, principally U.S. and international public
company equity securities and income generating assets, principally debt securities, real estate and cash. Currently, the
Koppers Holdings Inc. 2012 Annual Report
Company targets an allocation of 60 percent to 70 percent growth seeking assets and 30 percent to 40 percent income
generating assets on an overall basis. The Company utilizes investment managers to assist in identifying and monitoring
investments that meet these allocation criteria. With respect to the largest pension plan, the Company has implemented a
strategy of reallocating pension assets from growth seeking assets to income generating assets as certain funded status levels
are reached.
The investment valuation policy of the Company is to value investments at fair value. Most of the assets are invested in pooled
or commingled investment vehicles. The Company’s 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. Equity securities held within these
investment vehicles are typically priced on a daily basis using the closing market price from the exchange the security is traded.
Debt securities held within these investment vehicles are typically priced on a daily basis by independent pricing services. The fair
value of real estate investments are either priced through a listing on an exchange or are subject to periodic appraisals.
The pension assets are all substantially held in pooled or commingled investment vehicles. The following table sets forth by level,
the Company’s pension plan assets at fair value, within the fair value hierarchy, as of December 31, 2012 and December 31,
2011:
As of December 31, 2012
(Dollars in millions)
U.S. equity securities
International equity securities
U.S. debt securities
International debt securities
Real estate and other investments
Cash and cash equivalents
(Dollars in millions)
U.S. equity securities
International equity securities
U.S. debt securities
International debt securities
Real estate and other investments
Cash and cash equivalents
65
Quoted prices
in active
markets for
identical assets
(Level 1)
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
$0.0
0.0
0.0
0.0
0.0
0.0
$0.0
$ 80.0
27.2
36.4
24.5
1.7
5.8
$175.6
$0.0
0.0
0.0
0.0
0.0
0.0
$0.0
Total
$80.0
27.2
36.4
24.5
1.7
5.8
$175.6
As of December 31, 2011
Quoted prices
in active
markets for
identical assets
(Level 1)
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
$0.0
0.0
0.0
0.0
0.0
0.0
$0.0
$ 71.8
22.6
22.0
22.4
1.6
6.2
$146.6
$0.0
0.0
0.0
0.0
0.0
0.0
$0.0
Total
$ 71.8
22.6
22.0
22.4
1.6
6.2
$ 146.6
Health Care Cost Trend Rates
The 2012 initial health care cost trend rate is assumed to be 7.35 percent and is assumed to decrease gradually to 4.5 percent
in 2027 and remain at that level thereafter. The assumed health care cost trend rate has a significant effect on the amounts
reported for other postretirement benefit liability. A one-percentage-point change in the assumed health care cost trend rate
would have the following effects:
(Dollars in millions)
Increase (decrease) from change in health care cost trend rates:
Postretirement benefit expense
Postretirement benefit liability
Incentive Plan
1% Increase
1% Decrease
$0.0
0.3
$ 0.0
(0.2)
The Company has short-term management incentive plans that pay cash bonuses if certain Company performance and
individual goals are met. The charge to operating expense for these plans was $5.2 million in 2012, $5.6 million in 2011 and
$5.0 million in 2010.
16. Common Stock and Senior Convertible Preferred Stock
Changes in senior convertible preferred stock, common stock and treasury stock for the three years ended December 31, 2012
are as follows:
66
(Shares in thousands)
Senior Convertible Preferred Stock:
Balance at beginning and end of year
Common Stock:
Balance at beginning of year
Issued for employee stock plans
Balance at end of year
Treasury Stock:
Balance at beginning of year
Shares repurchased
Balance at end of year
Year Ended December 31,
2012
2011
2010
0
0
0
21,309 21,278 21,124
154
276
31
21,585 21,309 21,278
(706)
(245)
(700)
(6)
(669)
(31)
(951)
(706)
(700)
17. Fair Value of Financial Instruments
Carrying amounts and the related estimated fair values of the Company’s financial instruments as of December 31, 2012 and
2011 are as follows:
December 31, 2012
December 31, 2011
Fair Value
Carrying
Value
Fair Value
Carrying
Value
(Dollars in millions)
Financial assets:
Cash and cash equivalents
Investments and other assets(a)
Financial liabilities:
$ 66.7
1.4
$ 66.7 $ 54.1 $ 54.1
1.3
1.4
1.3
Long-term debt (including current portion)
$331.1
$296.1 $324.4 $302.1
(a) Excludes equity method investments.
Koppers Holdings Inc. 2012 Annual Report
Cash – The carrying amount approximates fair value because of the short maturity of those instruments.
Investments and other assets – Represents the broker-quoted cash surrender value on life insurance policies. The cash surrender
value asset is classified as Level 2 in the valuation hierarchy and is measured from values received from the insuring entity.
Long-term debt – The fair value of the Company’s long-term debt is estimated based on the market prices for the same or
similar issues or on the current rates offered to the Company for debt of the same remaining maturities (Level 2). The fair values
of the revolving credit facility for 2011 approximate carrying value due to the variable rate nature of these instruments.
18. Commitments and Contingent Liabilities
The Company and its subsidiaries are involved in litigation and various proceedings relating to environmental laws and
regulations and toxic tort, product liability and other matters. Certain of these matters are discussed below. The ultimate
resolution of these contingencies is subject to significant uncertainty and should the Company or its subsidiaries fail to prevail in
any of these legal matters or should several of these legal matters be resolved against the Company or its subsidiaries in the
same reporting period, these legal matters could, individually or in the aggregate, be material to the consolidated financial
statements.
Legal Proceedings
Coal Tar Pitch Cases. Koppers Inc., along with other defendants, is currently a defendant in lawsuits filed in three 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 are approximately 136 plaintiffs in 75 cases pending as of December 31, 2012 as compared to 131
plaintiffs in 73 cases at December 31, 2011. As of December 31, 2012, there are a total of 70 cases pending in state court in
Pennsylvania, four in Arkansas, and one case pending in state court in Tennessee.
The plaintiffs in all 75 pending cases seek to recover compensatory damages, while plaintiffs in 67 cases also seek to recover
punitive damages. The plaintiffs in the 70 cases filed in Pennsylvania state court seek unspecified damages in excess of the
court’s minimum jurisdictional limit. The plaintiffs in the Arkansas state court cases each seek compensatory damages in excess
of $50,000 in addition to punitive damages. The plaintiffs in the Tennessee state court case each seek damages of $15.0
million. The other defendants in these lawsuits vary from case to case and include companies such as Beazer East, Inc., United
States Steel Corporation, Honeywell International Inc., Vertellus Specialties Inc., Dow Chemical Company, Rust-Oleum
Corporation, UCAR Carbon Company, Inc., Exxon Mobil Corporation, Chemtura Corporation, SGL Carbon Corporation, Alcoa,
Inc., and PPG Industries, Inc. Discovery is proceeding in these cases. No trial dates have been set in any of these cases.
67
The Company has not provided a reserve for these lawsuits because, at this time, the Company 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. Although Koppers Inc. is vigorously defending these cases, an unfavorable resolution of these
matters may have a material adverse effect on the Company’s business, financial condition, cash flows and results of
operations.
Gainesville. Koppers Inc. operated a utility pole treatment plant in Gainesville from December 29, 1988 until its closure in
2009. The property upon which the utility pole treatment plant was located was sold by Koppers Inc. to Beazer East, Inc. in
2010.
In November 2010, a class action complaint was filed in the Circuit Court of the Eighth Judicial Circuit located in Alachua
County, Florida by residential real property owners located in a neighborhood west of and immediately adjacent to the former
utility pole treatment plant in Gainesville. The complaint named Koppers Holdings Inc., Koppers Inc., Beazer East and several
other parties as defendants. The complaint alleges that chemicals and dust from the plant have contaminated and impacted
plaintiffs’ properties by reducing the fair market value. The complaint seeks injunctive relief and compensatory damages for
diminution in property values and for plaintiffs’ loss of use and enjoyment of the properties.
The case was removed to the United States District Court for the Northern District of Florida in December 2010. Koppers
Holdings Inc. filed a motion to dismiss alleging that the Court lacks personal jurisdiction over it. The Court has not yet ruled on
Koppers Holdings Inc.’s motion to dismiss. Discovery and all prior deadlines were stayed for nine months until January 2013
while the parties explored settlement possibilities. The stay was recently lifted and plaintiffs have indicated that they will file
another amended complaint which further expands the boundaries of the “class affected area,” introduces arsenic and
hexavalent chromium as additional “contaminants” of concern, adds multiple new defendants and injects additional causes of
action into the case. The Court has not yet scheduled a class certification hearing or trial.
The Company has not provided a reserve for this matter because, at this time, it cannot reasonably determine the probability of
a loss, and the amount of loss, if any, cannot be reasonably estimated. The timing of resolution of this case cannot be
reasonably determined. Although the Company is vigorously defending this case, an unfavorable resolution of this matter may
have a material adverse effect on the Company’s business, financial condition, cash flows and results of operations.
Other Matters. In July 2012, Koppers Netherlands B.V.’s (Koppers Netherlands) coal tar distillation plant suffered a series of
electrical disruptions which significantly affected plant operations and prevented the resumption of plant operations for a period
of approximately three weeks. As a result of the suspension of operations, the coal tar distillation plant was unable to provide
steam and other services to an adjacent unaffiliated plant. This unaffiliated plant and Koppers Netherlands’ plant share certain
services and plant infrastructure under a cost sharing agreement. In September 2012, Koppers Netherlands received a business
interruption claim from the owner of the unaffiliated plant that included a claim for lost profits of approximately $1.7 million.
Koppers Netherlands has not received detailed information used by the unaffiliated plant to determine this alleged loss, and, as
a result, Koppers Netherlands is unable to determine the validity of the actual loss incurred. The Company has not provided a
reserve for the claimed lost profits because, at this time, it cannot reasonably determine the probability of such loss, and the
amount of such loss, if any, cannot be reasonably estimated. The Company does not currently believe that resolution of this
matter will involve a loss contingency that would be material to the financial statements.
In October 2012, the Company received a claim from a customer alleging that a carbon product sold by the Company was
inadequate for its intended use. The customer requested a refund of the purchase price, recovery of transport costs and
reimbursement of “operational losses” associated with the use of the product. The Company reached an agreement in principle
to resolve this issue with the customer in the first quarter of 2013 for an amount not material to the financial statements.
68
Environmental and Other Litigation Matters
The Company and its subsidiaries are subject to federal, state, local and foreign laws and regulations and potential liabilities
relating to the protection of the environment and human health and safety including, among other things, the cleanup of
contaminated sites, the treatment, storage and disposal of wastes, the discharge of effluent into waterways, the emission of
substances into the air and various health and safety matters. The Company’s subsidiaries expect to incur substantial costs for
ongoing compliance with such laws and regulations. The Company’s subsidiaries may also face governmental or third-party
claims, or otherwise incur costs, relating to cleanup of, or for injuries resulting from, contamination at sites associated with past
and present operations. The Company accrues for environmental liabilities when a determination can be made that a liability is
probable and reasonably estimable.
Environmental and Other Liabilities Retained or Assumed by Others. The Company’s subsidiaries have agreements with
former owners of certain of their operating locations under which the former owners retained, assumed and/or agreed to
indemnify such subsidiaries against certain environmental and other liabilities. The most significant of these agreements was
entered into at Koppers Inc.’s formation on December 29, 1988 (the “Acquisition”). Under the related asset purchase
agreement between Koppers Inc. and Beazer East, subject to certain limitations, Beazer East retained the responsibility for and
agreed to indemnify Koppers Inc. against certain liabilities, damages, losses and costs, including, with certain limited exceptions,
liabilities under and costs to comply with environmental laws to the extent attributable to acts or omissions occurring prior to
the Acquisition and liabilities related to products sold by Beazer East prior to the Acquisition (the “Indemnity”). Beazer Limited,
the parent company of Beazer East, unconditionally guaranteed Beazer East’s performance of the Indemnity pursuant to a
guarantee (the “Guarantee”). In 1998, the parent company of Beazer East purchased an insurance policy under which the
funding and risk of certain environmental and other liabilities relating to the former Koppers Company, Inc. operations of
Beazer East (which includes locations purchased from Beazer East by Koppers Inc.) are underwritten by Centre Solutions (a
member of the Zurich Group) and Swiss Re. Beazer East is a wholly-owned, indirect subsidiary of Heidelberg Cement AG.
The Indemnity provides different mechanisms, subject to certain limitations, by which Beazer East is obligated to indemnify
Koppers Inc. with regard to certain environmental, product and other liabilities and imposes certain conditions on Koppers Inc.
before receiving such indemnification, including, in some cases, certain limitations regarding the time period as to which claims
for indemnification can be brought. In July 2004, Koppers Inc. and Beazer East agreed to amend the environmental
indemnification provisions of the December 29, 1988 asset purchase agreement to extend the indemnification period for pre-
Koppers Holdings Inc. 2012 Annual Report
closing environmental liabilities through July 2019. As consideration for the amendment, Koppers Inc. paid Beazer East a total
of $7.0 million and agreed to share toxic tort litigation defense costs arising from any sites acquired from Beazer East. The July
2004 amendment did not change the provisions of the Indemnity with respect to indemnification for non-environmental claims,
such as product liability claims, which claims may continue to be asserted after July 2019.
Qualified expenditures under the Indemnity are not subject to a monetary limit. Qualified expenditures under the Indemnity
include (i) environmental cleanup liabilities required by third parties, such as investigation, remediation and closure costs,
relating to pre-December 29, 1988, or (“Pre-Closing”), acts or omissions of Beazer East or its predecessors; (ii) environmental
claims by third parties for personal injuries, property damages and natural resources damages relating to Pre-Closing acts or
omissions of Beazer East or its predecessors; (iii) punitive damages for the acts or omissions of Beazer East and its predecessors
without regard to the date of the alleged conduct and (iv) product liability claims for products sold by Beazer East or its
predecessors without regard to the date of the alleged conduct. If the third party claims described in sections (i) and (ii) above
are not made by July 2019, Beazer East will not be required to pay the costs arising from such claims under the Indemnity.
However, with respect to any such claims which are made by July 2019, Beazer East will continue to be responsible for such
claims under the Indemnity beyond July 2019. The Indemnity provides for the resolution of issues between Koppers Inc. and
Beazer East by an arbitrator on an expedited basis upon the request of either party. The arbitrator could be asked, among other
things, to make a determination regarding the allocation of environmental responsibilities between Koppers Inc. and Beazer
East. Arbitration decisions under the Indemnity are final and binding on the parties.
Contamination has been identified at most manufacturing and other sites of the Company’s subsidiaries. Two sites currently
owned and operated by Koppers Inc. in the United States are listed on the National Priorities List promulgated under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (“CERCLA”). Currently, at the
properties acquired from Beazer East (which include all of the National Priorities List sites and all but one of the sites permitted
under the Resource Conservation and Recovery Act (“RCRA”)), a significant portion of all investigative, cleanup and closure
activities are being conducted and paid for by Beazer East pursuant to the terms of the Indemnity. In addition, other of
Koppers Inc.’s sites are or have been operated under RCRA and various other environmental permits, and remedial and closure
activities are being conducted at some of these sites.
69
To date, the parties that retained, assumed and/or agreed to indemnify the Company against the liabilities referred to above,
including Beazer East, have performed their obligations in all material respects. The Company believes that, for the last three
years ended December 31, 2012, amounts paid by Beazer East as a result of its environmental remediation obligations under
the Indemnity have averaged in total approximately $16 million per year. Periodically, issues have arisen between Koppers Inc.
and Beazer East and/or other indemnitors that have been resolved without arbitration. Koppers Inc. and Beazer East engage in
discussions from time to time that involve, among other things, the allocation of environmental costs related to certain
operating and closed facilities.
If for any reason (including disputed coverage or financial incapability) one or more of such parties fail to perform their
obligations and the Company or its subsidiaries are held liable for or otherwise required to pay all or part of such liabilities
without reimbursement, the imposition of such liabilities on the Company or its subsidiaries could have a material adverse effect
on its business, financial condition, cash flows and results of operations. Furthermore, the Company could be required to record
a contingent liability on its balance sheet with respect to such matters, which could result in a negative impact to the
Company’s business, financial condition, cash flows and results of operations.
Domestic Environmental Matters. Koppers Inc. has been named as one of the potentially responsible parties (“PRPs”) at the
Portland Harbor CERCLA site located on the Willamette River in Oregon. Koppers Inc. currently operates a coal tar pitch terminal
near the site. Koppers Inc. has responded to an Environmental Protection Agency (“EPA”) information request and has executed
a PRP agreement which outlines the process to develop an allocation of past and future costs among more than 80 parties to
the site. Koppers Inc. believes it is a de minimus contributor at the site. Additionally, a separate natural resources damages
assessment (“NRDA”) is being conducted by a local trustee group. The NRDA is intended to identify further information
necessary to estimate liabilities for remediation based settlements of national resource damages (“NRD”) claims. Koppers Inc.
may also incur liabilities under the NRD process and has entered into a separate process to develop an allocation of NRD cost.
On March 30, 2012, a draft Feasibility Study (“FS”) was submitted to EPA by the Lower Willamette Group (“LWG”), a group of
certain PRPs which has been conducting the investigation of the site. The draft FS identifies ten possible remedial alternatives
which range in cost from approximately $170 million to $1.8 billion. The FS does not determine who is responsible for
remediation costs or select remedies. The FS is under review by the EPA which will issue a final decision on the nature and
extent of the final remediation. Responsibility for implementing and funding that work will be decided in the separate allocation
process.
In September 2009, Koppers Inc. received a general notice letter notifying it that it may be a PRP at the Newark Bay CERCLA
site. In January 2010, Koppers Inc. submitted a response to the general notice letter asserting that Koppers Inc. is a de minimus
party at this site.
Other than the estimated costs of participating in the PRP group at the Portland Harbor and Newark Bay CERCLA sites totaling
$0.5 million at December 31, 2012, the Company has not provided a reserve for these matters because there has not been a
determination of the total cost of the investigations, the remediation that will be required, the amount of natural resources
damages or how those costs will be allocated among the PRPs. Accordingly, the Company believes that it cannot reasonably
determine the probability of a loss, and the amount of loss, if any, cannot be reasonably estimated. An unfavorable resolution
of these matters may have a material adverse effect on the Company’s business, financial condition, cash flows and results of
operations.
Australian Environmental Matters. Soil and groundwater contamination has been detected at certain of the Company’s
Australian facilities. At the Company’s tar distillation facility in Newcastle, New South Wales, Australia, soil contamination from
an abandoned underground coal tar pipeline and other groundwater contamination have been detected at a property adjacent
to the facility. In 2011, the Company and the owner of the adjacent property reached an agreement in which the Company will
contribute $1.6 million and the owner of the adjacent property will contribute $7.5 million toward remediation of the property.
The agreement provides that the Company will assume responsibility for the management of the remediation effort and will
indemnify the current owner for any remediation costs in excess of its agreed contribution. At the completion of the
remediation, the agreement provides that the property will be transferred to the Company. The remediation project
commenced in 2011 and the Company has reserved its expected remaining remediation costs of $5.0 million and has recorded
a receivable, net of cash collections, from the owner of the adjacent property of $3.1 million as of December 31, 2012.
In December 2011, the Company ceased manufacturing operations at its Continental Carbon facility located in Kurnell,
Australia. This decision was made as a result of deteriorating business conditions including raw material availability and cost,
competition in the export markets due to the strength of the Australian dollar and a variety of other factors. The Company has
accrued its expected cost of site remediation resulting from the closure of $6.7 million as of December 31, 2012.
Other Australian environmental matters include soil and groundwater remediation at a number of current and former facilities
in Australia. The Company has reserved $1.3 million for remediation costs at the remaining Australian sites.
Environmental Reserves Rollforward. The following table reflects changes in the accrued liability for environmental matters,
of which $8.5 million and $8.1 million are classified as current liabilities at December 31, 2012 and 2011, respectively:
70
(Dollars in millions)
Balance at beginning of year
Expense
Reversal of reserves
Cash expenditures
Assumed remediation liability in exchange for cash
Currency translation
Balance at end of year
Year Ended December 31,
2012
2011
$ 17.7 $ 6.6
8.0
(1.6)
(2.4)
7.5
(0.4)
1.0
(0.4)
(4.6)
0.0
0.4
$14.1
$17.7
Cash expenditures in 2012 and expenses in 2011 primarily related to Australian environmental matters.
19. Related Party Transactions
In November 2011, the Company loaned $11.7 million to TKK, a 30-percent owned company in China. During 2012, TKK made
repayments totaling $2.2 million; accordingly the amount of the loan is $9.5 million as of December 31, 2012. The loan is
repayable in November 2013.
20. Selected Quarterly Financial Data (Unaudited)
The following is a summary of the quarterly results of operations for the years ended December 31, 2012 and 2011:
Koppers Holdings Inc. 2012 Annual Report
(Dollars in millions, except per share amounts)
Statement of operations data:
Net sales
Operating profit
Income from continuing operations
Net income
Net income attributable to Koppers
Common stock data:
Earnings (loss) per common share attributable to Koppers common
shareholders:(b)
Basic –
Diluted –
Continuing operations
Discontinued operations(a)
Earnings per basic common share
Continuing operations
Discontinued operations(a)
Earnings per diluted common share
Dividends declared per common share
Price range of common stock:
High
Low
(Dollars in millions, except per share amounts)
Statement of operations data:
Net sales
Operating profit
Income from continuing operations
Net income (loss)(a)
Net income (loss) attributable to Koppers(a)
Common stock data:
Earnings (loss) per common share attributable to Koppers common
shareholders:(b)
Basic –
Continuing operations
Discontinued operations(a)
Earnings per basic common share
Diluted –
Continuing operations
Discontinued operations(a)
Earnings per diluted common share
Dividends declared per common share
Price range of common stock:
High
Low
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Fiscal Year
Year Ended December 31, 2012
$380.9
29.2
15.8
15.9
15.6
$411.3
40.7
21.1
20.9
20.4
$387.9
30.8
16.2
16.2
16.0
$374.9
25.9
14.2
14.2
13.6
$1,555.0
126.6
67.3
67.2
65.6
$ 0.74
0.01
$ 1.00
(0.01)
$ 0.77
0.00
$ 0.66
0.00
$ 0.75
$ 0.99
$ 0.77
$ 0.66
$ 0.74
0.01
$ 0.99
(0.01)
$ 0.77
0.00
$ 0.65
0.00
$ 0.75
$ 0.98
$ 0.77
$ 0.65
$ 0.24
$ 0.24
$ 0.24
$ 0.24
$
$
$
$
$
3.18
(0.01)
3.17
3.14
(0.01)
3.13
0.96
$40.61
32.15
$40.37
31.17
$37.82
29.30
$38.83
30.99
$ 40.61
29.30
71
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Fiscal Year
Year Ended December 31, 2011
$341.5
21.3
9.2
9.0
8.9
$374.5
38.3
20.4
19.9
19.8
$381.2
40.1
22.5
22.7
22.4
$369.0
23.0
5.4
(14.0)
(14.2)
$1,466.2
122.7
57.5
37.6
36.9
$ 0.44
(0.01)
$ 0.99
(0.03)
$ 1.07
0.01
$ 0.25
(0.94)
$ 0.43
$ 0.96
$ 1.08
$ (0.69)
$ 0.44
(0.01)
$ 0.99
(0.03)
$ 1.07
0.01
$ 0.24
(0.93)
$ 0.43
$ 0.96
$ 1.08
$ (0.69)
$ 0.22
$ 0.22
$ 0.22
$ 0.22
$
$
$
$
$
2.75
(0.96)
1.79
2.72
(0.95)
1.77
0.88
$42.88
34.76
$46.14
34.63
$39.23
23.59
$36.53
24.75
$ 46.14
23.59
(a) In the fourth quarter of 2011, the Company ceased manufacturing operations at its carbon black facility located in Kurnell, Australia. The costs related to this
closure totaled $41.0 million in the fourth quarter of 2011. The results of operations of the carbon black facility have been reclassified to discontinued operations
for all periods presented as run-off activities were completed in the first quarter of 2012.
(b) The cumulative sum of quarterly basic and diluted net income per share amounts may not equal total basic and diluted net income per share amounts for the
year due to differences in weighted average and equivalent shares outstanding for each of the periods presented.
22. Subsidiary Guarantor Information for Koppers Inc. Senior Notes
On December 1, 2009, Koppers Inc. issued $300.0 million principal value of Senior Notes. Koppers Holdings and each of
Koppers Inc.’s 100 percent-owned material domestic subsidiaries other than Koppers Assurance, Inc. fully and unconditionally
guarantee the payment of principal and interest on the Senior Notes. The domestic guarantor subsidiaries include World-Wide
Ventures Corporation, Koppers Delaware, Inc., Koppers Concrete Products, Inc., Concrete Partners, Inc., and Koppers Asia LLC.
Separate condensed consolidating financial statement information for Koppers Holdings Inc. (the parent), Koppers Inc.,
domestic guarantor subsidiaries and non-guarantor subsidiaries as of December 31, 2012 and 2011 and for the years ended
December 31, 2012, 2011 and 2010 is as follows. Certain amounts have been reclassified in the Condensed Consolidated
Statements of Comprehensive Income for the years ended December 31, 2011 and 2010 to reflect affiliated dividends and
affiliated interest income.
Condensed Consolidating Statement of Comprehensive Income
For the Year Ended December 31, 2012
(Dollars in millions)
Net sales
Cost of sales including depreciation and amortization
Selling, general and administrative
$ 0.0
0.0
1.6
$893.2
786.6
45.1
$97.5
78.0
2.1
$638.4
562.0
26.8
$(74.1)
(73.8)
0.0
$1,555.0
1,352.8
75.6
Parent
Koppers Inc.
Domestic
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
Operating profit (loss)
Other income (expense)
Interest expense (income)
Income taxes
72
Income from continuing operations
Discontinued operations
Noncontrolling interests
(1.6)
66.6
0.0
(0.6)
65.6
0.0
0.0
61.5
0.2
27.2
8.7
25.8
0.0
0.0
17.4
6.0
(5.1)
12.5
16.0
0.0
0.0
49.6
0.7
5.8
12.7
31.8
(0.1)
1.6
(0.3)
(71.6)
0.0
0.0
(71.9)
0.0
0.0
Net income attributable to Koppers
$65.6
$ 25.8
$16.0
$ 30.1
$(71.9)
Comprehensive income attributable to Koppers
$73.7
$ 29.8
$17.8
$ 32.4
$(80.0)
Condensed Consolidating Statement of Comprehensive Income
For the Year Ended December 31, 2011
126.6
1.9
27.9
33.3
67.3
(0.1)
1.6
65.6
73.7
$
$
(Dollars in millions)
Net sales
Cost of sales including depreciation and amortization
Selling, general and administrative
$ 0.0
0.0
1.2
$854.1
762.9
41.6
$72.6
55.0
1.8
$585.2
497.0
29.7
$(45.7)
(45.7)
0.0
$1,466.2
1,269.2
74.3
Parent
Koppers Inc.
Domestic
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
Operating profit (loss)
Other income (expense)
Interest expense (income)
Income taxes
Income from continuing operations
Discontinued operations
Noncontrolling interests
(1.2)
37.7
0.0
(0.4)
36.9
0.0
0.0
49.6
0.1
27.3
7.7
14.7
0.0
0.0
15.8
8.1
(5.4)
0.8
28.5
0.0
0.0
58.5
0.5
5.3
30.6
23.1
(19.9)
0.7
0.0
(45.7)
0.0
0.0
(45.7)
0.0
0.0
Net income attributable to Koppers
$36.9
$ 14.7
$28.5
$ 2.5
$(45.7)
Comprehensive income attributable to Koppers
$18.9
$ 1.1
$28.0
$ (1.4)
$(27.7)
122.7
0.7
27.2
38.7
57.5
(19.9)
0.7
36.9
18.9
$
$
Condensed Consolidating Statement of Comprehensive Income
For the Year Ended December 31, 2010
Koppers Holdings Inc. 2012 Annual Report
(Dollars in millions)
Net sales
Cost of sales including depreciation and amortization
Selling, general and administrative
Operating profit (loss)
Other income (expense)
Interest expense (income)
Income taxes
Income from continuing operations
Discontinued operations
Noncontrolling interests
Net income attributable to Koppers
Parent
Koppers Inc.
Domestic
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$ 0.0
0.0
1.6
$721.2
657.7
32.2
$45.8
32.5
3.3
$462.3
378.8
25.3
$(38.8)
(39.0)
0.0
$1,190.5
1,030.0
62.4
(1.6)
45.0
(0.2)
(0.5)
44.1
0.0
0.0
31.3
0.0
27.7
1.5
2.1
0.0
0.0
10.0
8.0
(5.0)
12.2
10.8
(0.2)
0.0
58.2
2.9
4.6
15.7
40.8
0.1
0.4
0.2
(53.4)
0.0
0.0
(53.2)
0.0
0.0
$44.1
$ 2.1
$10.6
$ 40.5
$(53.2)
98.1
2.5
27.1
28.9
44.6
(0.1)
0.4
44.1
54.6
$
$
Comprehensive income attributable to Koppers
$54.6
$ 1.8
$18.9
$ 43.0
$(63.7)
Condensed Consolidating Balance Sheet
December 31, 2012
(Dollars in millions)
ASSETS
Cash and cash equivalents
Receivables, net
Inventories, net
Deferred tax assets
Other current assets
Total current assets
Equity investments
Property, plant and equipment, net
Goodwill
Deferred tax assets
Other noncurrent assets
Total assets
LIABILITIES AND EQUITY
Accounts payable
Accrued liabilities
Total current liabilities
Long-term debt
Other long-term liabilities
Total liabilities
Koppers shareholders’ equity
Noncontrolling interests
Total liabilities and equity
Parent
Koppers Inc.
$ 0.0
6.9
0.0
0.0
0.0
6.9
148.7
0.0
0.0
0.0
0.0
$
4.8
91.5
102.2
16.4
6.4
221.3
77.1
105.7
39.8
33.5
15.8
Domestic
Guarantor
Subsidiaries
$ 0.0
324.9
0.0
(1.5)
2.8
326.2
27.3
0.0
0.0
(12.4)
126.7
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
73
$ 61.9
86.8
93.9
0.2
30.1
272.9
3.8
55.4
35.8
6.1
52.5
$
0.0
(345.8)
(0.3)
0.0
0.0
(346.1)
(251.1)
0.0
0.0
0.0
(165.9)
$ 66.7
164.3
195.8
15.1
39.3
481.2
5.8
161.1
75.6
27.2
29.1
$155.6
$ 493.2
$467.8
$426.5
$(763.1)
$780.0
$ 0.1
4.9
$ 371.7
15.9
$ 17.0
12.2
$ 60.6
44.7
$(345.9)
0.0
$103.5
77.7
5.0
0.0
0.0
5.0
150.6
0.0
387.6
397.6
101.2
886.4
(393.2)
0.0
29.2
0.0
2.4
31.6
436.2
0.0
105.3
64.4
31.0
200.7
208.3
17.5
(345.9)
(165.9)
0.0
(511.8)
(251.3)
0.0
181.2
296.1
134.6
611.9
150.6
17.5
$155.6
$ 493.2
$467.8
$426.5
$(763.1)
$780.0
Condensed Consolidating Balance Sheet
December 31, 2011
(Dollars in millions)
ASSETS
Cash and cash equivalents
Receivables, net
Inventories, net
Deferred tax assets
Other current assets
Total current assets
Equity investments
Property, plant and equipment, net
Goodwill
Deferred tax assets
Other noncurrent assets
Total assets
LIABILITIES AND EQUITY
Accounts payable
Accrued liabilities
Total current liabilities
Long-term debt
Other long-term liabilities
Total liabilities
Koppers shareholders’ equity
Noncontrolling interests
74
Parent
Koppers Inc.
$ 0.0
5.5
0.0
0.0
0.0
5.5
93.9
0.0
0.0
0.0
0.0
$
0.0
112.6
74.8
10.7
6.8
204.9
77.1
102.0
39.8
43.7
18.4
Domestic
Guarantor
Subsidiaries
$ 0.0
284.0
0.0
(1.5)
0.3
282.8
26.3
0.0
0.0
(10.5)
131.3
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$ 54.1
79.2
84.2
0.1
26.4
244.0
3.9
53.6
32.3
11.1
44.4
$
0.0
(309.8)
0.0
0.0
0.0
(309.8)
(196.3)
0.0
0.0
0.0
(167.7)
$ 54.1
171.5
159.0
9.3
33.5
427.4
4.9
155.6
72.1
44.3
26.4
$99.4
$ 485.9
$429.9
$389.3
$(673.8)
$730.7
$ 0.1
4.5
$ 344.5
27.2
$ 9.8
(0.8)
$ 57.5
37.4
$(309.8)
0.0
$102.1
68.3
4.6
0.0
0.0
4.6
94.8
0.0
371.7
400.8
116.5
889.0
(403.1)
0.0
9.0
0.0
2.5
11.5
418.4
0.0
94.9
69.0
32.0
195.9
181.0
12.4
(309.8)
(167.7)
0.0
(477.5)
(196.3)
0.0
170.4
302.1
151.0
623.5
94.8
12.4
Total liabilities and equity
$99.4
$ 485.9
$429.9
$389.3
$(673.8)
$730.7
Koppers Holdings Inc. 2012 Annual Report
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2012
(Dollars in millions)
Cash provided by (used in) operating activities
Cash provided by (used in) investing activities:
Capital expenditures and acquisitions
Loan to related party
Net cash proceeds (payments) from divestitures and asset
sales
Net cash used in investing activities
Cash provided by (used in) financing activities:
Repayments of long-term debt
Deferred financing costs
Dividends paid
Stock repurchased
Other financing receipts
Net cash provided by (used in) financing activities
Effect of exchange rates on cash
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of period
Parent
Koppers Inc.
Domestic
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$ 26.0
$ 50.5
$0.0
$21.1
$(19.8)
$77.8
0.0
0.0
0.0
0.0
0.0
0.0
(19.5)
(6.5)
0.0
(26.0)
0.0
(21.3)
0.0
0.4
(20.9)
(6.4)
(0.1)
(19.8)
(0.1)
1.6
(24.8)
0.0
0.0
0.0
0.0
4.8
$ 0.0
$ 4.8
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(21.6)
2.2
0.4
(19.0)
0.0
0.0
0.0
0.0
3.7
3.7
2.0
7.8
$54.1
$61.9
0.0
0.0
0.0
0.0
0.0
0.0
19.8
0.0
0.0
19.8
0.0
0.0
0.0
0.0
(42.9)
2.2
0.8
(39.9)
(6.4)
(0.1)
(19.5)
(6.6)
5.3
(27.3)
2.0
12.6
$54.1
$66.7
75
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2011
(Dollars in millions)
Cash provided by (used in) operating activities
Cash provided by (used in) investing activities:
Capital expenditures and acquisitions
Loan to related party
Net cash proceeds from divestitures and asset sales
Net cash used in investing activities
Cash provided by (used in) financing activities:
Borrowings (repayments) of long-term debt
Deferred financing costs
Dividends paid
Net cash provided by (used in) financing activities
Effect of exchange rates on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of period
Parent
Koppers Inc.
Domestic
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$ 18.1
$ 9.5
$0.0
$49.3
$0.0
$76.9
0.0
0.0
0.0
0.0
0.0
0.0
(18.1)
(18.1)
0.0
0.0
0.0
0.0
(24.5)
0.0
0.7
(23.8)
6.3
(0.5)
0.0
5.8
0.1
(8.4)
8.4
$ 0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(9.3)
(11.7)
0.1
(20.9)
(0.9)
0.0
(0.1)
(1.0)
(0.2)
27.2
26.9
$54.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(33.8)
(11.7)
0.8
(44.7)
5.4
(0.5)
(18.2)
(13.3)
(0.1)
18.8
35.3
$54.1
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2010
(Dollars in millions)
Cash provided by (used in) operating activities
Cash provided by (used in) investing activities:
Capital expenditures and acquisitions
Net cash proceeds from divestitures and asset sales
Net cash used in investing activities
Cash provided by (used in) financing activities:
Repayments of long-term debt
Deferred financing costs
Dividends paid
Stock issued (repurchased)
Net cash provided by (used in) financing activities
Effect of exchange rates on cash
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Parent
Koppers Inc.
Domestic
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$ 18.7
$ 75.2
$0.0
$15.9
$(4.5)
$105.3
0.0
0.0
0.0
0.0
0.0
(18.1)
(0.8)
(18.9)
0.0
(0.2)
0.2
(35.0)
0.2
(34.8)
(40.2)
(0.4)
(4.5)
0.2
(44.9)
0.0
(4.5)
12.9
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(30.4)
1.8
(28.6)
0.0
0.0
(5.0)
0.0
(5.0)
(0.7)
(18.4)
45.3
$26.9
0.0
0.0
0.0
0.0
0.0
4.5
0.0
4.5
0.0
0.0
0.0
0.0
(65.4)
2.0
(63.4)
(40.2)
(0.4)
(23.1)
(0.6)
(64.3)
(0.7)
(23.1)
58.4
$ 35.3
Cash and cash equivalents at end of period
0.0
$ 8.4
76
23. Subsidiary Guarantor Information for Shelf Registration
Under a registration statement on Form S-3, Koppers Holdings may sell a combination of securities, including common stock,
debt securities, preferred stock, depository shares, warrants and units, from time to time in one or more offerings. In addition,
Koppers Inc. may sell debt securities from time to time under the registration statement. Debt securities may be fully and
unconditionally guaranteed, on a joint and several basis, by Koppers Holdings, Koppers Inc. and/or other guarantor subsidiaries
which will correspond to certain subsidiaries in the United States, Europe and Australia which are 100 percent owned by either
Koppers Holdings or Koppers Inc. The non-guarantor subsidiaries consist of certain subsidiaries in the United States, China, India
and Mauritius. The guarantor subsidiaries that issue guarantees, if any, will be determined when a debt offering actually occurs
under the registration statement and accordingly, the condensed consolidated financial information for subsidiary guarantors
will be revised to identify the subsidiaries that actually provided guarantees.
Koppers Holdings Inc. 2012 Annual Report
Separate condensed consolidating financial statement information for the parent, Koppers Inc., domestic guarantor subsidiaries,
foreign guarantor subsidiaries and non-guarantor subsidiaries as of December 31, 2012 and 2011 and for the years ended
December 31, 2012, 2011 and 2010 is as follows. Certain amounts have been reclassified in the Condensed Consolidated
Statements of Comprehensive Income for the years ended December 31, 2011 and 2010 to reflect affiliated dividends and
affiliated interest income.
Condensed Consolidating Statement of Comprehensive Income
For the Year Ended December 31, 2012
Net income attributable to Koppers
$65.6
$ 25.8
$16.0
$ 27.5
$ 2.6
$(71.9)
Comprehensive income attributable to Koppers
$73.7
$ 29.8
$17.8
$ 30.2
$ 2.8
$(80.6)
Condensed Consolidating Statement of Comprehensive Income
For the Year Ended December 31, 2011
(Dollars in millions)
Net sales
Cost of sales including depreciation and
amortization
Selling, general and administrative
Operating profit (loss)
Other income (expense)
Interest expense (income)
Income taxes
Income from continuing operations
Discontinued operations
Noncontrolling interests
(Dollars in millions)
Net sales
Cost of sales including depreciation and
amortization
Selling, general and administrative
Operating profit (loss)
Other income (expense)
Interest expense (income)
Income taxes
Income from continuing operations
Discontinued operations
Noncontrolling interests
Parent
Koppers Inc.
Domestic
Guarantor
Subsidiaries
Foreign
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$ 0.0
$893.2
$97.5
$480.0
$158.6
$(74.3)
$1,555.0
0.0
1.6
(1.6)
66.6
0.0
(0.6)
65.6
0.0
0.0
786.6
45.1
61.5
0.2
27.2
8.7
25.8
0.0
0.0
78.0
2.1
17.4
6.0
(5.1)
12.5
16.0
0.0
0.0
414.6
23.4
147.6
3.4
42.0
0.0
3.9
10.5
27.6
(0.1)
0.0
7.6
0.7
1.9
2.2
4.2
0.0
1.6
(74.0)
0.0
(0.3)
(71.6)
0.0
0.0
(71.9)
0.0
0.0
1,352.8
75.6
126.6
1.9
27.9
33.3
67.3
(0.1)
1.6
65.6
73.7
$
$
77
Parent
Koppers Inc.
Domestic
Guarantor
Subsidiaries
Foreign
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$ 0.0
$854.1
$72.6
$443.6
$147.0
$(51.1)
$1,466.2
0.0
1.2
(1.2)
37.7
0.0
(0.4)
36.9
0.0
0.0
762.9
41.6
49.6
0.1
27.3
7.7
14.7
0.0
0.0
55.0
1.8
15.8
8.1
(5.4)
0.8
28.5
0.0
0.0
364.2
26.2
138.2
3.5
53.2
0.0
4.7
28.7
19.8
(19.9)
0.0
5.3
0.5
0.6
1.9
3.3
0.0
0.7
(51.1)
0.0
0.0
(45.7)
0.0
0.0
(45.7)
0.0
0.0
1,269.2
74.3
122.7
0.7
27.2
38.7
57.5
(19.9)
0.7
36.9
18.9
$
$
Net income attributable to Koppers
$36.9
$ 14.7
$28.5
$ (0.1)
$ 2.6
$(45.7)
Comprehensive income attributable to Koppers
$18.9
$ 1.1
$28.0
$ (5.1)
$ 3.5
$(27.5)
Condensed Consolidating Statement of Comprehensive Income
For the Year Ended December 31, 2010
(Dollars in millions)
Net sales
Cost of sales including depreciation and
amortization
Selling, general and administrative
Operating profit (loss)
Other income (expense)
Interest expense (income)
Income taxes
Income from continuing operations
Discontinued operations
Noncontrolling interests
Parent
Koppers Inc.
Domestic
Guarantor
Subsidiaries
Foreign
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$ 0.0
$721.2
$45.8
$358.5
$105.9
$(40.9)
$1,190.5
0.0
1.6
(1.6)
45.0
(0.2)
(0.5)
44.1
0.0
0.0
657.7
32.2
31.3
0.0
27.7
1.5
2.1
0.0
0.0
32.5
3.3
10.0
8.0
(5.0)
12.2
10.8
(0.2)
0.0
285.5
21.4
95.4
3.9
51.6
1.8
4.3
13.3
35.8
0.1
0.0
6.6
1.1
0.3
2.4
5.0
0.0
0.4
(41.1)
0.0
0.2
(53.4)
0.0
0.0
(53.2)
0.0
0.0
1,030.0
62.4
98.1
2.5
27.1
28.9
44.6
(0.1)
0.4
44.1
54.6
$
$
Net income attributable to Koppers
$44.1
$ 2.1
$10.6
$ 35.9
$ 4.6
$(53.2)
Comprehensive income attributable to Koppers
$54.6
$ 1.8
$18.9
$ 40.3
$ 5.1
$(66.1)
78
Koppers Holdings Inc. 2012 Annual Report
Condensed Consolidating Balance Sheet
December 31, 2012
(Dollars in millions)
ASSETS
Cash and cash equivalents
Receivables, net
Inventories, net
Deferred tax assets
Other current assets
Total current assets
Equity investments
Property, plant and equipment, net
Goodwill
Deferred tax assets
Other noncurrent assets
Parent
Koppers Inc.
Domestic
Guarantor
Subsidiaries
Foreign
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$ 0.0
6.9
0.0
0.0
0.0
6.9
148.7
0.0
0.0
0.0
0.0
$
4.8
91.5
102.2
16.4
6.4
221.3
77.1
105.7
39.8
33.5
15.8
$ 0.0
324.9
0.0
(1.5)
2.8
326.2
27.3
0.0
0.0
(12.4)
126.7
$ 40.7
65.9
86.7
0.0
17.6
210.9
30.2
40.7
34.4
7.6
12.1
$ 21.2
21.2
7.2
0.2
12.5
62.3
3.8
14.7
1.4
(1.5)
40.3
$
0.0
(346.1)
(0.3)
0.0
0.0
(346.4)
(281.3)
0.0
0.0
0.0
(165.8)
$ 66.7
164.3
195.8
15.1
39.3
481.2
5.8
161.1
75.6
27.2
29.1
Total assets
$155.6
$ 493.2
$467.8
$335.9
$121.0
$(793.5)
$780.0
LIABILITIES AND EQUITY
Accounts payable
Accrued liabilities
Total current liabilities
Long-term debt
Other long-term liabilities
Total liabilities
Koppers shareholders’ equity
Noncontrolling interests
$ 0.1
4.9
$ 371.7
15.9
$ 17.0
12.2
$ 42.2
35.7
$ 18.6
9.0
$(346.1)
0.0
$103.5
77.7
79
5.0
0.0
0.0
5.0
150.6
0.0
387.6
397.6
101.2
886.4
(393.2)
0.0
29.2
0.0
2.4
31.6
436.2
0.0
77.9
64.4
24.5
166.8
169.1
0.0
27.6
0.0
6.5
34.1
69.4
17.5
(346.1)
(165.9)
0.0
(512.0)
(281.5)
0.0
181.2
296.1
134.6
611.9
150.6
17.5
Total liabilities and equity
$155.6
$ 493.2
$467.8
$335.9
$121.0
$(793.5)
$780.0
Condensed Consolidating Balance Sheet
December 31, 2011
(Dollars in millions)
ASSETS
Cash and cash equivalents
Receivables, net
Inventories, net
Deferred tax assets
Other current assets
Total current assets
Equity investments
Property, plant and equipment, net
Goodwill
Deferred tax assets
Other noncurrent assets
Parent
Koppers Inc.
Domestic
Guarantor
Subsidiaries
Foreign
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$ 0.0
5.5
0.0
0.0
0.0
5.5
93.9
0.0
0.0
0.0
0.0
$
0.0
112.6
74.8
10.7
6.8
204.9
77.1
102.0
39.8
43.7
18.4
$ 0.0
284.0
0.0
(1.5)
0.3
282.8
26.3
0.0
0.0
(10.5)
131.3
$ 45.1
65.5
77.2
0.0
12.0
199.8
19.3
37.8
31.0
12.7
6.7
$ 9.0
13.7
7.0
0.1
14.4
44.2
3.9
15.8
1.3
(1.6)
37.7
$
0.0
(309.8)
0.0
0.0
0.0
(309.8)
(215.6)
0.0
0.0
0.0
(167.7)
$ 54.1
171.5
159.0
9.3
33.5
427.4
4.9
155.6
72.1
44.3
26.4
Total assets
$99.4
$ 485.9
$429.9
$307.3
$101.3
$(693.1)
$730.7
80
LIABILITIES AND EQUITY
Accounts payable
Accrued liabilities
Total current liabilities
Long-term debt
Other long-term liabilities
Total liabilities
Koppers shareholders’ equity
Noncontrolling interests
$ 0.1
4.5
$ 344.5
27.2
$ 9.8
(0.8)
$ 44.4
30.5
$ 13.2
6.9
$(309.9)
0.0
$102.1
68.3
4.6
0.0
0.0
4.6
94.8
0.0
371.7
400.8
116.5
889.0
(403.1)
0.0
9.0
0.0
2.5
11.5
418.4
0.0
74.9
62.7
25.8
163.4
143.9
0.0
20.1
6.3
6.1
32.5
56.4
12.4
(309.9)
(167.7)
0.1
(477.5)
(215.6)
0.0
170.4
302.1
151.0
623.5
94.8
12.4
Total liabilities and equity
$99.4
$ 485.9
$429.9
$307.3
$101.3
$(693.1)
$730.7
Koppers Holdings Inc. 2012 Annual Report
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2012
(Dollars in millions)
Cash provided by (used in) operating activities
Cash provided by (used in) investing activities:
Capital expenditures and acquisitions
Loan to related party
Net cash proceeds from divestitures and asset
sales
Net cash provided by (used in) investing
activities
Cash provided by (used in) financing activities:
Repayments of long-term debt
Deferred financing costs
Dividends paid
Stock repurchased
Other financing receipts
Net cash provided by (used in) financing
activities
Effect of exchange rates on cash
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents at beginning of year
Parent
Koppers Inc.
Domestic
Guarantor
Subsidiaries
Foreign
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$ 26.0
$ 50.5
$0.0
$14.2
$ 6.9
$(19.8)
$77.8
0.0
0.0
0.0
(21.3)
0.0
0.4
0.0
(20.9)
0.0
0.0
(19.5)
(6.5)
0.0
(6.4)
(0.1)
(19.8)
(0.1)
1.6
(26.0)
0.0
(24.8)
0.0
0.0
0.0
4.8
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(21.1)
0.0
0.4
(20.7)
0.0
0.0
0.0
0.0
0.0
0.0
2.1
(4.4)
45.1
(0.5)
2.2
0.0
1.7
0.0
0.0
0.0
0.0
3.7
3.7
(0.1)
12.2
9.0
0.0
0.0
0.0
(42.9)
2.2
0.8
0.0
(39.9)
0.0
0.0
19.8
0.0
0.0
19.8
0.0
0.0
0.0
(6.4)
(0.1)
(19.5)
(6.6)
5.3
(27.3)
2.0
12.6
54.1
Cash and cash equivalents at end of period
$ 0.0
$ 4.8
$0.0
$40.7
$21.2
$ 0.0
$66.7
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2011
81
(Dollars in millions)
Cash provided by (used in) operating activities
Cash provided by (used in) investing activities:
Capital expenditures and acquisitions
Loan to related party
Net cash proceeds from divestitures and asset
sales
Net cash used in investing activities
Cash provided by (used in) financing activities:
Borrowings (repayments) of long-term debt
Deferred financing costs
Dividends paid
Net cash provided by (used in) financing
activities
Effect of exchange rates on cash
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents at beginning of year
Parent
Koppers Inc.
Domestic
Guarantor
Subsidiaries
Foreign
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$ 18.1
$ 9.5
$0.0
$37.9
$11.4
$0.0
$76.9
0.0
0.0
0.0
0.0
0.0
0.0
(18.1)
(18.1)
0.0
0.0
0.0
(24.5)
0.0
0.7
(23.8)
6.3
(0.5)
0.0
5.8
0.1
(8.4)
8.4
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(8.6)
0.0
0.1
(8.5)
(0.9)
0.0
0.0
(0.9)
(0.4)
28.1
17.0
(0.7)
(11.7)
0.0
(12.4)
0.0
0.0
(0.1)
(0.1)
0.2
(0.9)
9.9
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(33.8)
(11.7)
0.8
(44.7)
5.4
(0.5)
(18.2)
(13.3)
(0.1)
0.0
0.0
$0.0
18.8
35.3
$54.1
Cash and cash equivalents at end of period
$ 0.0
$ 0.0
$0.0
$45.1
$ 9.0
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2010
(Dollars in millions)
Cash provided by (used in) operating activities
Cash provided by (used in) investing activities:
Capital expenditures and acquisitions
Net cash proceeds from divestitures and asset
sales
Net cash used in investing activities
Cash provided by (used in) financing activities:
Repayments of long-term debt
Deferred financing costs
Dividends paid
Stock issued (repurchased)
Net cash provided by (used in) financing
activities
Effect of exchange rates on cash
82
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents at beginning of year
Parent
Koppers Inc.
Domestic
Guarantor
Subsidiaries
Foreign
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$ 18.7
$ 75.2
$0.0
$ 9.1
$6.8
$(4.5)
$105.3
0.0
(35.0)
0.0
(30.0)
(0.4)
0.0
0.0
0.0
0.0
(18.1)
(0.8)
0.2
(34.8)
(40.2)
(0.4)
(4.5)
0.2
(18.9)
0.0
(44.9)
0.0
(0.2)
0.2
(4.5)
12.9
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.7
(28.3)
0.0
0.0
0.0
0.0
0.0
(0.7)
(19.9)
36.9
0.1
(0.3)
0.0
0.0
(5.0)
0.0
(5.0)
0.0
1.5
8.4
0.0
0.0
0.0
0.0
0.0
4.5
0.0
4.5
0.0
0.0
0.0
(65.4)
2.0
(63.4)
(40.2)
(0.4)
(23.1)
(0.6)
(64.3)
(0.7)
(23.1)
58.4
Cash and cash equivalents at end of period
$ 0.0
$ 8.4
$0.0
$17.0
$9.9
$ 0.0
$ 35.3
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, have evaluated the
effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange
Act of 1934, as of the end of the period covered by this report. Based on that evaluation, our chief executive officer and chief
financial officer have concluded that these controls and procedures were effective as of the end of the period covered by this
report.
(b) Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
See Management Report on page 39 for management’s annual report on internal control over financial reporting. See Report of
Independent Registered Public Accounting Firm on page 41 for Ernst & Young LLP’s attestation report on internal control over
financial reporting.
Koppers Holdings Inc. 2012 Annual Report
ITEM 9B. OTHER INFORMATION
On February 25, 2013, Koppers Inc. entered into an employment agreement (the “Agreement”) with Walter W. Turner. The
Agreement provides that Mr. Turner will serve as President and Chief Executive Officer of Koppers Inc. Mr. Turner has served as
President and Chief Executive Officer of Koppers Inc. since February 1998. The term of the Agreement commences with
retroactive effect to January 1, 2013 and continues until December 31, 2014. The Agreement establishes an initial minimum
base salary of $757,500, increasing to a minimum base salary of $807,500 on April 1, 2013, and thereafter is subject to
periodic review by the board of directors. The Agreement provides that Mr. Turner is entitled to participate in the Koppers
Corporate Senior Management Incentive Plan and the Koppers Holdings Inc. 2005 Long Term Incentive Plan, as amended and
restated (“LTIP”). With respect to awards previously made to Mr. Turner under the 2012 LTIP with a vesting period ending
December 31, 2014, the Agreement provides that such awards will be modified so that Mr. Turner will be eligible to receive the
full number of shares and options under such awards even if his employment terminates for specified reasons prior to
December 31, 2014. The Agreement makes similar provision for awards that were granted in 2013 and may be granted in 2014
under the LTIP. Under the Agreement, the terms of outstanding stock options held by Mr. Turner will be modified to extend the
post-termination exercise period from three years to five years, subject to certain limitations. In the event of termination of Mr.
Turner’s employment by the Company other than for cause, Mr. Turner will be entitled to receive his base salary through
December 31, 2014.
The Agreement contains provisions for certain benefits, comparable to those previously provided under the Company’s change
in control agreement with Mr. Turner as in effect before he reached age 65, that become payable if one of the following events
occurs within two years after a change in control has occurred.
(cid:129) Mr. Turner is required to relocate his primary office to a location greater than fifty miles from the then current location
of his office; or
(cid:129) Mr. Turner’s employment is terminated other than for cause or disability.
83
The benefits to which Mr. Turner would be entitled in the event of a termination of his employment under the above-specified
conditions following a change in control include:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
all of Mr. Turner’s accrued salary to the date of termination;
a pro-rata bonus for the year in which the termination occurs equal to the average of the of the bonus payments
awarded for the previous two years;
a lump sum payment equal to twice the sum of (i) Mr. Turner’s base salary and (ii) one half of the amounts awarded to
Mr. Turner under applicable incentive plans and bonus for each of the preceding two years;
all reasonable legal fees and expenses incurred by Mr. Turner as a result of his termination, subject to certain specified
exceptions;
life, disability, accident and group health benefits (or the monetary equivalent of such benefits) for two years or until
Mr. Turner receives comparable benefits from a third party; and
(cid:129)
continued indemnification for pre-termination acts and omissions.
The payments and benefits to which Mr. Turner would be entitled in the event he is terminated after a change in control will
also be reduced as necessary to cause the total payments and “parachute payments” (as defined in the tax code) to comply
with the limitation set forth in Section 280G of the tax code.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 401 of Regulation S-K with respect to directors is contained in our definitive Proxy Statement
for our 2013 Annual Meeting of Shareholders (the “Proxy Statement”) which we will file with the Securities and Exchange
Commission, pursuant to Regulation 14A, not later than 120 days after the end of the Company’s fiscal year under the caption
“Proxy Item 1 – Proposal for Election of Directors”, and is incorporated herein by reference.
The information required by this item concerning our executive officers is incorporated by reference herein from Part I of this
report under “Executive Officers of the Company”.
The information required by Item 405 of Regulation S-K is included in the Proxy Statement under the caption “Section 16(a)
Beneficial Ownership Reporting Compliance” and is incorporated herein by reference.
The information required by Item 407(d)(4) and Item 407(d)(5) of Regulation S-K is included in the Proxy Statement under the
caption “Board Meetings and Committees” and is incorporated herein by reference.
The audit committee and our board have approved and adopted a Code of Business Conduct and Ethics for all directors,
officers and employees and a Code of Ethics Applicable to Senior Officers, copies of which are available on our website at
www.koppers.com and upon written request by our shareholders at no cost. Requests should be sent to Koppers Holdings Inc.,
Attention: Corporate Secretary’s Office, 436 Seventh Avenue, Suite 1550, Pittsburgh, Pennsylvania 15219. We will describe the
date and nature of any amendment to our Code of Business Conduct and Ethics or Code of Ethics Applicable to Senior Officers
or any waiver (implicit or explicit) from a provision of our Code of Business Conduct and Ethics or Code of Ethics Applicable to
Senior Officers within four business days following the date of the amendment or waiver on our Internet website at
www.koppers.com. We do not intend to incorporate the contents of our website into this report.
84
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is contained in the Proxy Statement under the caption “Executive Compensation” and
“Committee Reports to Shareholders – Management Development and Compensation Committee Report” and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by Item 12 is contained Part II, Item 5 of this report under “Equity Compensation Plans” and in the
Proxy Statement under the caption “Common Stock Ownership” and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by Item 13 is contained in the Proxy Statement under the caption “Transactions with Related Persons”
and “Corporate Governance Matters – Director Independence” and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 is contained in the Proxy Statement under the caption “Auditors” and is incorporated
herein by reference.
Koppers Holdings Inc. 2012 Annual Report
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements
Financial statements filed as part of this report are included in “Item 8 – Financial Statements and Supplementary Data” as listed
on the index on page 38.
(a) 2. Financial Statement Schedules
“Schedule II – Valuation and Qualifying Accounts and Reserves is included on page 90. All other schedules are omitted because
they are not applicable or the required information is contained in the applicable financial statements of notes thereto.
(a) 3. Exhibits
85
EXHIBIT INDEX
Exhibit No.
Exhibit
2.1
3.1
3.2
4.1
4.2*
4.3
86
10.1
10.2
10.9*
10.12*
10.13*
10.14*
10.15*
10.22*
10.32
10.33*
Joint Venture Contract for the establishment of Koppers (Jiangsu) Carbon Chemical Company
Limited between Koppers International B.V. and Yizhou Group Company Limited dated
September 10, 2012 (incorporated by reference to exhibit 2.1 to the Company’s Quarterly Report
on Form 10-Q filed November 9, 2012).
Amended and Restated Articles of Incorporation of the Company (incorporated by reference to
exhibit 3.1 to the Company’s Current Report on Form 8-K filed February 7, 2006).
Amended and Restated Bylaws of the Company (incorporated by reference to exhibit 3.2 to the
Company’s Quarterly Report on Form 10-Q filed August 9, 2007).
Indenture, by and among Koppers Inc., Koppers Holdings Inc., the Subsidiary Guarantors party
thereto and Wells Fargo Bank, National Association, dated as of December 1, 2009 (incorporated by
reference to exhibit 4.1 of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2009 filed on February 19, 2010).
Subscription Agreement by and between Koppers Inc. and Mr. Walter Turner dated December 1,
2009 (incorporated by reference to exhibit 4.2 of the Company’s Annual Report on Form 10-K for
the year ended December 31, 2009 filed on February 19, 2010).
Exchange and Registration Rights Agreement by and among Koppers Inc., Koppers Holdings and the
other guarantors party hereto, Goldman, Sachs & Co., Banc of America Securities LLC, RBS
Securities Inc. and UBS Securities LLC, dated December 1, 2009 (incorporated by reference to exhibit
4.3 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 filed on
February 19, 2010).
Asset Purchase Agreement by and between Koppers Inc. and Koppers Company, Inc., dated as of
December 28, 1988 (incorporated by reference to respective exhibits to the Koppers Inc.’s
Prospectus filed February 7, 1994).
Asset Purchase Agreement Guarantee provided by Beazer PLC, dated as of December 28, 1988
(incorporated by reference to respective exhibits to the Koppers Inc.’s Prospectus filed February 7,
1994).
Employment agreement with Steven R. Lacy dated April 5, 2002 (incorporated by reference to
Exhibit 10.35 of the Koppers Inc. Form 10-K filed March 5, 2003).
Retirement Plan of Koppers Industries, Inc. and Subsidiaries for Salaried Employees (incorporated by
reference to Exhibits to the Koppers Inc. Prospectus filed February 7, 1994 pursuant to Rule 424(b)
of the Securities Act of 1933, as amended, in connection with the offering of the 8 1/2% Senior
Notes due 2004).
Koppers Industries, Inc. Non-contributory Long Term Disability Plan for Salaried Employees
(incorporated by reference to respective exhibits to the Koppers Inc. Prospectus filed February 7,
1994 pursuant to Rule 424(b) of the Securities Act of 1933, as amended, in connection with the
offering of the 8 1/2% Senior Notes due 2004).
Koppers Industries, Inc. Employee Savings Plan (incorporated by reference to respective exhibits to
the Koppers Inc. Prospectus filed February 7, 1994 in connection with the offering of the 8 1/2%
Senior Notes due 2004).
Koppers Industries, Inc. Survivor Benefit Plan (incorporated by reference to respective exhibits to the
Koppers Inc. Prospectus filed February 7, 1994 pursuant to Rule 424(b) of the Securities Act of
1933, as amended, in connection with the offering of the 8 1/2% Senior Notes due 2004).
Employment agreement with Brian H. McCurrie dated October 13, 2003 (incorporated by reference
to Exhibit 10.15 to the Koppers Inc. Form 10-K for the year ended December 31, 2003).
Amendment and Restatement to Article VII of the Asset Purchase Agreement by and between
Koppers Inc. and Beazer East, Inc., dated July 15, 2004 (incorporated by reference to Exhibit 10.33
to the Koppers Inc. Form 10-Q for the quarter ended June 30, 2004).
2004 Restricted Stock Unit Plan (incorporated by reference to Exhibit 10.34 to the Koppers Inc.
Form 10-Q for the quarter ended September 30, 2004).
Koppers Holdings Inc. 2012 Annual Report
Exhibit No.
Exhibit
10.34
10.36*
10.37*
10.42
10.44*
10.45
10.48
10.49
10.50
10.51*
10.52*
10.53*
10.54*
10.55*
10.56*
Agreement and Plan of Merger dated as of November 18, 2004, by and among Koppers Inc.,
Merger Sub for KI Inc. and Koppers Holdings Inc. (f/k/a KI Holdings Inc.) (incorporated by reference
to Exhibit 10.34 to the Koppers Holdings Inc. (f/k/a KI Holdings Inc.) Registration Statement on Form
S-4 filed February 14, 2005).
Form of Change in Control Agreement entered into as of October 20, 2005 between Koppers
Holdings Inc. (f/k/a KI Holdings Inc.) and certain executive officers (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 25, 2005).
Amended and Restated 2005 Long Term Incentive Plan (incorporated by reference to Appendix A to
the Company’s Definitive Proxy Statement for its 2010 Annual Meeting of Shareholders filed on
March 31, 2010).
Asset Purchase Agreement dated April 28, 2006 between Reilly Industries, Inc. and Koppers Inc.
(incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on
April 28, 2006).
Form of Amendment to Change in Control Agreement entered into as of May 25, 2006 between
the Company and the named Executive (incorporated by reference to the Company’s Current
Report on Form 8-K filed on May 26, 2006).
Joint Venture Contract in relation to the establishment of Tangshan Koppers Kailuan Carbon
Chemical Co., LTD, among Kailuan Clean Coal Company Limited, Koppers Mauritius, and Tangshan
Iron & Steel Co,. Ltd. (incorporated by reference to Exhibit 10.45 to the Koppers Holdings Inc.
Annual Report on Form 10-K for the year ended December 31, 2006).
Koppers Holdings Inc. Benefit Restoration Plan (incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q filed on August 9, 2007).
Purchase Agreement dated as of August 3, 2008 by and among Koppers Inc., Carbon Investments,
Inc., and ArcelorMittal S.A. (incorporated by reference to Exhibit 10.49 to the Company’s Quarterly
Report on Form 10-Q filed on November 6, 2008).
Amended and Restated Credit Agreement by and among Koppers Inc., the Guarantors party
thereto, the Lenders party thereto, PNC Capital Markets LLC and RBS Greenwich Capital as Co-Lead
Arrangers; PNC Capital Markets LLC, Banc of America Securities LLC and RBS Greenwich Capital, as
Joint Bookrunners; PNC Bank, National Association, as Administrative Agent; Bank of America, N.A.,
as Documentation Agent; and Citizens Bank of Pennsylvania, First Commonwealth Bank and Wells
Fargo Bank, N.A., as Syndication Agents, dated as of October 31, 2008 (incorporated by reference
to exhibit 10.50 of the Company’s Annual Report on Form 10-K for the year ended December 31,
2009 filed on February 19, 2010).
Koppers Inc. Supplemental Executive Retirement Plan I (incorporated by reference to exhibit 10.51
of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 filed on
February 20, 2009).
Koppers Inc. Supplemental Executive Retirement Plan II (incorporated by reference to exhibit 10.52
of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 filed on
February 20, 2009).
Amendment to Employment Agreement with Steven R. Lacy effective as of January 1, 2009
(incorporated by reference to exhibit 10.53 of the Company’s Annual Report on Form 10-K for the
year ended December 31, 2008 filed on February 20, 2009).
Amendment to Employment Agreement with Brian H. McCurrie effective as of January 1, 2009
(incorporated by reference to exhibit 10.54 of the Company’s Annual Report on Form 10-K for the
year ended December 31, 2008 filed on February 20, 2009).
Amendment to Koppers Holdings Inc. Benefit Restoration Plan effective as of January 1, 2009
(incorporated by reference to exhibit 10.55 of the Company’s Annual Report on Form 10-K for the
year ended December 31, 2008 filed on February 20, 2009).
Amendment to the Employee Savings Plan of Koppers Inc. and Subsidiaries effective as of January 1,
2008 (incorporated by reference to exhibit 10.56 of the Company’s Annual Report on Form 10-K for
the year ended December 31, 2008 filed on February 20, 2009).
87
Exhibit No.
Exhibit
10.57*
10.58
10.60*
10.61*
10.62* ***
10.63* ***
10.64* *** Notice of Grant of Stock Option.
10.65*
Amendment to the Retirement Plan for Koppers Inc. effective January 1, 2008 (incorporated by
reference to exhibit 10.57 of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008 filed on February 20, 2009).
Amendment No. 1 to Amended and Restated Credit Agreement by and among Koppers Inc., the
Guarantors party thereto, the Lenders party thereto, PNC Capital Markets LLC and RBS Greenwich
Capital, as Joint Bookrunners; PNC Bank, National Association, as Administrative Agent; Bank of
America, N.A., as Documentation Agent; and Citizens Bank of Pennsylvania, First Commonwealth
Bank and Wells Fargo Bank, N.A., as Syndication Agents, dated as of November 18, 2009
(incorporated by reference to exhibit 10.58 of the Company’s Annual Report on Form 10-K for the
year ended December 31, 2009 filed on February 19, 2010).
Senior Management Corporate Incentive Plan (incorporated by reference to Exhibit 10.60 to the
Company’s Quarterly Report on Form 10-Q filed on May 5, 2010).
Management Incentive Plan (incorporated by reference to Exhibit 10.61 to the Company’s Quarterly
Report on Form 10-Q filed on May 5, 2010).
Restricted Stock Unit Issuance Agreement – Time Vesting.
Restricted Stock Unit Issuance Agreement – Performance Vesting.
Amendment #2 to Employment Agreement with Brian H. McCurrie effective May 1, 2010.
(incorporated by reference to Exhibit 10.65 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2010 filed on February 22, 2011).
Form of Koppers Holdings Inc. Restricted Stock Unit Issuance Agreement Non-Employee Director –
Time Vesting (incorporated by reference to Exhibit 10.66 to the Company’s Quarterly Report on
Form 10-Q filed on May 5, 2011).
Letter Agreement dated October 4, 2006 (incorporated by reference to Exhibit 10.67 to the
Company’s Quarterly Report on Form 10-Q filed on May 5, 2011).
Summary of Terms and Conditions of Employment (incorporated by reference to Exhibit 10.68 to
the Company’s Quarterly Report on Form 10-Q filed on May 5, 2011).
Second Amendment to the Credit Agreement, dated as of February 24, 2010 by and among
Koppers Inc., Koppers Holdings Inc., the Guarantors party thereto, the Lenders party thereto, and
PNC Bank, National Association, as administrative agent (incorporated by reference to exhibit 10.69
of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 filed on
February 27, 2012).
Third Amendment to the Credit Agreement, dated as of March 22, 2011 by and among Koppers
Inc., Koppers Holdings Inc., the Guarantors party thereto, the Lenders party thereto, and PNC Bank,
National Association, as administrative agent (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on March 29, 2011).
88
10.66*
10.67*
10.68*
10.69
10.70
10.71* *** Amendment No. 1 to Change in Control Agreement by and between Leroy M. Ball, Jr. and the
Company, dated December 19, 2012.
10.72* *** Amendment No. 3 to Change in Control Agreement by and between Thomas D. Loadman and the
Company, dated December 19, 2012.
10.73* *** Amendment No. 2 to Employment Agreement with Steven R. Lacy effective December 19, 2012.
10.74* *** Amendment No. 3 to Employment Agreement with Brian McCurrie effective December 19, 2012.
10.75* ***
10.76* ***
10.77* ***
10.78* ***
12.1***
21***
23.1***
31.1***
31.2***
32.1***
Employment Agreement between Koppers Inc. and Walter W. Turner effective January 1, 2013.
2013 Restricted Stock Unit Issuance Agreement – Time Vesting for Walter W. Turner.
2013 Restricted Stock Unit Issuance Agreement – Performance Vesting for Walter W. Turner.
2013 Notice of Grant of Stock Option for Walter W. Turner.
Computation of ratio of earnings to fixed charges.
List of subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer pursuant to Rule 13a-14(a).
Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 1350.
Koppers Holdings Inc. 2012 Annual Report
Exhibit No.
Exhibit
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
* Management Contract or Compensatory Plan.
*** Filed herewith.
89
KOPPERS HOLDINGS INC.
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 2012, 2011 and 2010
(Dollars in millions)
2012
Allowance for doubtful accounts
Inventory obsolescence reserves
Deferred tax valuation allowance
2011
Allowance for doubtful accounts
Inventory obsolescence reserves
Deferred tax valuation allowance
2010
Allowance for doubtful accounts
Inventory obsolescence reserves
90
Deferred tax valuation allowance
Balance at
Beginning
of Year
Increase
(Decrease)
to Expense
Net
(Write-
Offs)
Recoveries
Currency
Translation
Balance
at End
of Year
$ 0.3
$ 3.2
$ 0.0
$ 0.2
$ 3.7
$ 1.4
$ 0.5
$(0.8)
$ 0.0
$ 1.1
$10.2
$ 8.8
$(1.6)
$ 0.0
$17.4
$ 0.1
$ 0.3
$(0.1)
$ 0.0
$ 0.3
$ 2.1
$ 4.2
$(4.9)
$ 0.0
$ 1.4
$11.4
$(1.2)
$ 0.0
$ 0.0
$10.2
$ 0.5
$(0.3)
$ 0.0
$(0.1)
$ 0.1
$ 3.9
$(1.7)
$ 0.0
$(0.1)
$ 2.1
$11.2
$ 0.2
$ 0.0
$ 0.0
$11.4
Koppers Holdings Inc. 2012 Annual Report
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Koppers Holdings Inc.
has duly caused this annual report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
KOPPERS HOLDINGS INC.
BY:/S/
LEROY M. BALL
Leroy M. Ball
Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this annual report on Form 10-K has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature
Capacity
Date
/S/ DAVID M. HILLENBRAND
David M. Hillenbrand
/S/ WALTER W. TURNER
Walter W. Turner
/S/
LEROY M. BALL
Leroy M. Ball
/S/ CYNTHIA A. BALDWIN
Cynthia A. Baldwin
/S/ X. SHARON FENG
X. Sharon Feng
/S/ ALBERT J. NEUPAVER
Albert J. Neupaver
/S/
JAMES C. STALDER
James C. Stalder
/S/
STEPHEN R. TRITCH
Stephen R. Tritch
/S/
T. MICHAEL YOUNG
T. Michael Young
Director and Non-Executive Chairman of
the Board
February 25, 2013
Director, President and Chief Executive
Officer
February 25, 2013
91
Vice President and Chief Financial Officer
(Principal Financial and Principal
Accounting Officer)
February 25, 2013
Director
Director
Director
Director
Director
Director
February 25, 2013
February 25, 2013
February 25, 2013
February 25, 2013
February 25, 2013
February 25, 2013
Exhibit 31.1
CERTIFICATIONS
I, Walter W. Turner, certify that:
92
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Koppers Holdings Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons
performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 25, 2013
/S/ WALTER W. TURNER
Walter W. Turner
President and Chief Executive Officer
Koppers Holdings Inc. 2012 Annual Report
Exhibit 31.2
CERTIFICATIONS
I, Leroy M. Ball, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Koppers Holdings Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
93
designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons
performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 25, 2013
/S/ LEROY M. BALL
Leroy M. Ball
Vice President and Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Koppers Holdings Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the
undersigned hereby certifies in his capacity as an officer of Koppers Holdings Inc., pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or
otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by
Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request.
94
/s/ WALTER W. TURNER
Walter W. Turner
President and Chief Executive Officer
/s/ LEROY M. BALL
Leroy M. Ball
Vice President and Chief Financial Officer
February 25, 2013
February 25, 2013
UNAUDITED RECONCILIATION OF NET INCOME ATTRIBUTABLE TO KOPPERS,
ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
Koppers Holdings Inc. 2012 Annual Report
(In millions)
Net income attributable to Koppers
Items impacting pre-tax income (1)
Impairment and closure costs
Sale of technology
Total items above impacting pre-tax income
Items impacting net income, net of tax
Income tax provision for European consolidation
Discontinued operations
Adjusted net income
Denominator for diluted earnings per share (000s)
Earnings per share:
Diluted earnings per share
Adjusted earnings per share
Twelve Months Ended
December 31,
2012
2011
$ 65.6 $ 36.9
3.4
—
3.4
2.2
0.8
0.1
—
(0.9)
(0.9)
(0.7)
3.5
19.9
$ 68.7 $ 59.6
20,927
20,833
$ 3.13 $ 1.77
$ 3.27 $ 2.86
(1) Cost of sales for the twelve months ended December 31, 2012 includes $2.8 million of plant closing charges related to our wood treating plant in Grenada,
Mississippi, and depreciation and amortization for the twelve months ended December 31, 2012 includes $0.6 million of impairment charges for our co-
generation plant located in Muncy, Pennsylvania. Income taxes for the twelve months ended December 31, 2012 includes $0.8 million of expense related to our
European consolidation project, and income taxes for the twelve months ended December 31, 2011 includes $3.5 million of expense related to our European
consolidation project. Cost of sales for the twelve months ended December 31, 2011 includes a gain of $0.9 million for the licensing of certain technology in
China. These amounts have been excluded for purposes of calculating adjusted net income.
95
UNAUDITED RECONCILIATION OF OPERATING PROFIT TO ADJUSTED OPERATING PROFIT
(In millions)
Operating profit
Unusual items impacting operating profit (1)
Impairment and closure costs
Sale of technology
Adjusted operating profit
Twelve Months Ended
December 31,
2012
2011
$126.6 $122.7
3.4
—
—
(0.9)
$130.0 $121.8
(1) Cost of sales for the twelve months ended December 31, 2012 includes $2.8 million of plant closing charges related to our wood treating plant in Grenada,
Mississippi, and depreciation and amortization for the twelve months ended December 31, 2012 includes $0.6 million of impairment charges for our co-
generation plant located in Muncy, Pennsylvania. Cost of sales for the twelve months ended December 31, 2011 includes a gain of $0.9 million for the licensing
of certain technology in China. These amounts have been excluded for purposes of calculating adjusted operating profit.
Financial Highlights
Years Ended December 31
2012
20111
20101
Shareholder Information
World Headquarters
(In millions, except share, per share and employee amounts)
Operating Performance
Net Sales
Operating Profit
Income from Continuing Operations
Net Income Attributable to Koppers
Diluted Earnings per Share – Continuing Operations
Financial Condition
Total Assets
Total Debt
Cash and Cash Equivalents
Other Data
Capital Expenditures
Number of Employees
Stock Information
Market Price per Share–High
Market Price per Share–Low
Dividends per Share
Shares Outstanding (000s)
$1,555.0
126.6
67.3
65.6
3.14
$780.0
296.1
66.7
$28.9
1,660
$40.61
29.30
0.96
20,634
$1,466.2
122.7
57.5
36.9
2.72
$730.7
302.1
54.1
$33.2
1,711
$46.14
23.59
0.88
20,603
$1,190.5
98.1
44.6
44.1
2.13
$669.2
296.4
35.3
$29.9
1,729
$36.47
19.77
0.88
20,578
12011 and 2010 Operating performance amounts, with the exception of net income attributable to Koppers, have been restated to exclude discontinued operations.
Value at
12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12
$51.09
$63.00
$66.21
$74.94
$79.67
$91.07
$91.67
$89.63
$93.60
$102.25
$108.58
$84.20
$106.81
$102.35
$119.08
Koppers
S&P 500
$100.00
$100.00
Russell 2000 $100.00
Koppers
Koppers
S&P 501
S&P 500
Russell 2001
Russell 2000
Comparison of
Cumulative Total Return
(Dollars)
Comparison of
Cumulative Total Return
(Dollars)
200
160
120
80
40
0
12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12
350
300
250
200
150
100
50
0
12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12
Set forth above are a line graph and table comparing the
cumulative total returns (assuming reinvestment of dividends)
during the period commencing December 31, 2007 and ending
December 31, 2012, of $100 invested in each of Koppers Holdings
Inc.’s common stock, the Standard & Poor’s 500 Index, and the
Russell 2000 Index. Because our competitors are principally privately
held concerns or subsidiaries or divisions of corporations engaged
in multiple lines of business, we do not believe it is feasible to
construct a peer group industry comparison. The Russell 2000
Index, which includes corporations both larger and smaller than
Koppers Holdings Inc., is composed of corporations with an
average market capitalization similar to ours.
Transfer Agent, Registrar of Stock and Dividend
Disbursing Agent
Computershare
P.O. Box 43006
Providence, RI 02940-3006
Koppers-dedicated phone: 866 293 5637
TDD for hearing impaired: 800 231 5469
Foreign holders: 201 680 6578
TDD for foreign holders: 201 680 6610
As a convenience to our shareholders who hold their shares
with our transfer agent, individuals can access their account
information and view 1099-DIVS by logging on at
www.computershare.com/investor.
Stock Exchange Listing
Koppers common stock is listed on the New York Stock
Exchange (symbol: KOP).
Investor Relations
General Koppers shareholder information may be obtained
from Michael W. Snyder, Director, Investor Relations, by
calling 412 227 2131, or by writing Koppers Holdings Inc.,
436 Seventh Avenue, Pittsburgh, PA 15219.
Company News
Visit www.koppers.com for Securities and Exchange
Commission (SEC) filings, quarterly earnings reports, and
other company news.
Copies of the annual report and Forms 10-K (Including the
financial statements and financial schedules) and 10-Q may
be requested at no cost at www.koppers.com or by writing
to Michael W. Snyder, Director, Investor Relations, at the
corporate headquarters address.
Annual Meeting of Shareholders
Thursday, May 2, 2013, 10 a.m. EDT
Pittsburgh Airport Marriott
777 Aten Road
Coraopolis, PA 15108
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Printed on recycled paper.
Cover: Sappi, McCoy Gloss – 10% post-consumer waste.
Text: Rolland Opaque – 30% post-consumer waste.
Koppers Holdings Inc.
436 Seventh Avenue
Pittsburgh, Pennsylvania
15219-1800
USA
Telephone: 412 227 2001
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Koppers Holdings Inc.
436 Seventh Avenue
Pittsburgh, PA 15219-1800
412 227 2001
www.koppers.com
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