KOPPERS COMPANY, INC. a Delaware Corporation IRS Employer Identification No

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, 1987 Commission File Number 1-3224 KOPPERS COMPANY, INC. A Delaware Corporation IRS Employer Identification No. 25.0904665

Koppers Building Pittsburgh, Pennsylvania 15219 (412) 227-2000

Securities registered pursuant to Section 12(b) of the Act: Common Stock Registered: $1.25 Par Value New York Stock Exchange Midwest Stock Exchange Pacific Stock Exchange Cumulative Preferred Stock Registered: 4% Series, $100 Par Value New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No

As of February 29, 1988, 28,122,361 shares of common stock were outstanding, and the aggregate market value of the shares of Koppers common stock (based upon the closing price of these shares on the New York Stock Exchange/composite tape) held by nonaffihiates was approximately $1,123 million. For this computa tion, Koppers has excluded the market value of all common stock beneficially owned by officers and directors of Koppers and their associates as a group. Such exclusion is not to signify in any way that any of such persons are “affiliates” of Koppers. KOPPERS COMPANY, INC. AND CONSOLIDATED SUBSIDIARIES

As used in this report, the terms “Koppers,” “Company,” and “Registrant” mean Koppers Company, Inc. and its consolidated subsidiaries, taken as a whole, unless the context indicates otherwise.

TABLE OF CONTENTS

Page Part I Item 1. Business 3 Item 2. Properties 6 Item 3. Legal Proceedings 6 Item 4. Submission of Matters to a Vote of Security Holders 7

Part II Item 5. Market for the Registrant’s Common Stock and Related Stockholder Matters 7 Item 6. Selected Financial Data 8 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 9 Item 8. Financial Statements and Supplementary Data 16 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 26

Part III Item 10. Directors and Executive Officers of the Registrant 29 Item 11. Executive Compensation 33 Item 12. Security Ownership of Certain Beneficial Owners and Management 37 Item 13. Certain Relationships and Related Transactions 38

Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 38

Signatures 40

2 Part I

Item 1. Description of Koppers Business in the West, 30% in the Southeast, and 30% in the North east. General Development of Koppers Business Koppers Company, Inc. was incorporated on September 30, Through Koppers 50% ownership in a joint venture with 1944. It succeeded by merger to the properties and business Redland USA Holdings, Inc., operations also include activi of four predecessor companies. Those companies grew logi ties in Colorado, Kansas, New Mexico and Wyoming. out of Koppers original business, established in 1907 to cally Operations were expanded significantly during 1987. For design and build chemical-recovery coke plants for the details, see the Capital Expenditures discussion later in this American steel industry. report. Prior to 1965, Koppers was highly dependent upon its origi nal steel plant construction business for earnings growth. Raw Materials and Fuel This was a cyclical business that had a disconcerting roller- Aggregate raw materials consist of sand and gravel, granite, coaster effect on the Company’s prospects for growth. limestone, traprock and sandstone, which come from quar ries and mines. Most of Koppers quarries are on land either In 1965, the Company began to diversify a manufacturing owned by the Company or held under long-term leases. It is organization. In 1966, Koppers organized its road materials estimated that, over all, Koppers present reserves of aggre business, building it into today’s rapidly growing Construc gates will be sufficient for more than 30 years at current tion Materials and Services segment. consumption rates. In those areas where reserves are being rapidly depleted, Koppers has a continuing program to The Company’s steel plant construction business was sold at develop new reserves. However, the operations of Koppers the start of 1984. In December 1985, Koppers announced in certain instances could be adversely affected if such new plans to divest itself of several manufacturing businesses and reserves are not available to it or are not available upon certain other operations in order to concentrate upon Con economically satisfactory terms. Other major raw materials struction Materials and Services, and Chemical and Allied include asphalt, cement, and steel rod and sheet, which are Products, which were its strongest units. purchased from oil companies and cement and steel produc Koppers total invested capital was $631.7 million on ers. Adequate supplies of raw materials and fuel are December 31, 1987, with approximately 73% attributed to expected to continue. Construction Materials and Services and the balance to Fuel oil satisfies nearly half of the energy requirements; Chemical and Allied Products. natural gas and diesel fuel provide about 20% each; the remainder comes from gasoline, kerosene, propane and coal. Construction Materials and Services The Business Competitive and Seasonal Conditions This unit consists of operating subsidiaries, in regional mar Construction Materials and Services operations are geo kets, producing crushed stone, sand, gravel and bituminous graphically diversified, with vertical integration in certain and ready-mix concrete, and providing engineering and con regional markets. Because mineral reserves are limited struction services. Related products include steel culvert within those regions, the Company usually holds a high pipe, welded wire fabric and certain specialty products used share of those markets in which it competes. in highway, bridge and other civil construction. A coatings Principal factors in competition are location, price and ser product line includes marine and swimming pool paints, vice. Prices for aggregates are determined by local condi structural steel coatings, and Wolman Wood Protection tions and are not affected substantially by nationwide Products for use on outdoor treated wood. demand, supply and capacity factors. Increasingly, this busi Sales of aggregates and construction services are divided ness has become service-oriented, calling for on-time deliv between publicly funded projects, such as road maintenance ery from a guaranteed source of supply. and new construction, and privately financed construction Business is seasonal, with more than 70% of sales occurring projects. Transportation is a major in factor total product during the peak construction period from May I to Novem cost. The delivered price doubles when crushed stone is ber 30. transported 20 to 30 miles. In order to compete effectively, aggregate sources must be close to their markets. Product inventories are controlled at volumes that reflect a balance between the most efficient production level and sup Construction Materials and Services operates more than 190 plying peak’ demand. Inventories normally grow substan domestic facilities. These serve markets in 20 states extend tially during spring months in anticipation of high summer ing from New York through Pennsylvania and Ohio and demand. It is not customary, however, to carry inventories into the Southeast and West Coast. About 40% of sales are or to provide financing for customers.

3 Backlog transmission, distribution and lighting poles and accessory Combined backlog at the end of 1987 was $211.9 million, equipment; building poles and timbers; foundation and versus $177.4 million a year earlier. The normal tendency is marine piling; and construction lumber and plywood. Wood for this backlog to increase during the first six months of the pressure treatments for these products use creosote, penta year and to decline thereafter. Orders in the backlog are chlorophenol and waterborne preservatives. Koppers also considered firm, and more than 95% of the year-end back provides contract wood-treating services for industrial and log is expected to result in 1988 sales. commercial customers.

Construction Materials and Services Raw Materials and Fuel Combined 1987 Sales by Major Primary raw materials for Chemical and Allied Products (S Millions) % Economic Sectors operations include coal and tar products, hardwood and Nonbuilding Construction S729.l 80.9% softwood timber, and preservative raw materials and Architectural Construction 128.0 14.2 petrochemicals such as benzene, styrene and phenol. Most Industrial Production 44.0 4.9 coal tar processed is purchased through contracts with steel $901.1 100% producers. Purchasing agreements cover such other raw materials as coal and benzene. For wood-treating opera Chemical and Allied Products tions, the major requirements are for Eastern and Southern The Business hardwood; and softwood timber, primarily Southern yellow Three operating sectors compose Chemical and Allied Prod pine and West Coast species. ucts. Most of its businesses market worldwide products and Energy is supplied by natural gas, fuel oil, coal and wood services associated with either the manufacture and use of waste. Certain plants also operate electrical cogeneration products derived from coal tar or the production of chemi systems; two of them sell excess power to local utilities. No cally treated wood and wood-treating chemicals. Other lines major disruption of business in 1988 is expected from serve specialty markets. shortages of raw materials or energy. Building Products Sector supplies materials for coal tar Competitive and Seasonal Conditions bitumen built-up roofing systems, phenolic foam insulation Chemical and Allied Products goods and services are sold in board and a range of high-quality maintenance materials. highly competitive markets. Except for certain proprietary This sector licenses proprietary processes and products items, there are suppliers of identical products in all busi using specialty chemicals under such trademarks as ness areas, as well as competition from alternative materials Dricon and Wolman to wood-treating companies performing the same functions. The principal factors in throughout the U.S. and in foreign countries. competition are price, quality and service. Chemical Systems Sector is a major supplier of resorcinol, Most businesses are affected to differing degrees by seasonal used primarily to produce adhesives for rubber tires and variations. For example, winter weather reduces volumes in laminated wood and as a precursor for a group of intermedi roofing and other construction industry products. ate chemicals; general purpose polyester thermoset resins for reinforced plastics; vinylester thermoset resins for parts Products are marketed worldwide through the group sales requiring corrosion resistance; high performance polyester organizations, through independent distributors and agents, thermoset resins for high strength applications; binder resins and through joint ventures and licensing agreements. Sub and fire-retardant resins; premium resins sold under the stantial inventories are maintained in many product Dion and Atlac trademarks; binder systems and refrac categories to ensure prompt, dependable service. tory coatings for foundries; adhesives and industrial sealants primarily for O.E.M. automotive markets; and a group of Backlog intermediate chemicals. Chemical and Allied Products 1987 year-end backlog was $162.4 million, versus $125.5 million a year earlier. The total Tar and Wood Products Sector produces coal tar deriva backlog is expected to be shipped during 1988, although tives, such as pitches used by the aluminum and commercial most unfilled orders are subject to cancellation at the carbon industries as binders in the manufacture of elec buyer’s option. trodes; creosote, a complex mixture of chemicals, used pri Allied Products marily as a wood preservative; naphthalene, used to produce Chemical and Combined 1987 Sales by Major phthalic anhydride and other chemical intermediates; and Economic Sectors (S Millions) % phthalic anhydride, used in production of alkyd and poly Industrial Production $366.8 60.5% ester resins and plasticizers for plastics. Nonbuilding Construction 161.5 26.6 Architectural Construction 77.9 12.9 This sector also sells treated wood products, which include chemically pressure-treated railroad crossties; utility, $606.2 100%

4 Miscellaneous systems. Formtek, Inc. produces software products for the management of technical information, which includes Keystone Environmental Resources, Inc. drawings, technical data, text and related documents. During the past 15 years, Koppers has developed the tech nology and technical expertise necessary for the resolution Other Corporate Matters of any likely environmental and health issues that may arise in its operations in the next decade. This capability was Employment organized in 1986 into Keystone Environmental Resources, The average number of persons employed in continuing Inc., a wholly owned subsidiary of Koppers. Keystone sells operations by the Company was 10,753 in 1987, compared its services outside of Koppers and is responsible for an with 10,944 in 1986. ongoing program of environmental management extensive Approximately 4,000 of the Company’s employees are cov of Koppers facilities. The program is aimed at developing ered by 120 different collective bargaining agreements. proactive, cost-effective plans for resolution of current and There were 45 labor contract negotiations successfully com future environmental problems. Koppers management pleted during the course of 1987. believes this environmental program serves to enhance the Company’s competitive position. Patents and Licensing Koppers owns nearly 400 existing United States patents and Venture Capital a large number of foreign patents covering many products a wholly owned venture capital subsidiary, was Kopvenco, and processes. Some of the patents and technology are 1980. Its primary mission is threefold: formed in licensed to other companies. The Company makes few of its • Identify and develop new core-business opportunities. products under licenses from other companies with respect to patents they own or technology they have supplied. No Gain access to emerging technologies and facilitate appli • single patent or license is considered material in relation to cation within Koppers. the Company’s overall performance. • Maintain profitability of the Company’s investment port folio. Research and Development The Company conducts research activities and supporting and early start-up investments A strategic focus on “seed” pilot plant operations at two locations in suburban Pitts and economic terms. has proved valuable in technological burgh. Additional activities include sponsored external investments include the following: Koppers research by high-technology research and development Advanced Materials—Ceramatec, Inc. develops and manu companies in which Koppers has an equity interest. products, including factures high-performance ceramic Koppers researchers explore advanced technologies, develop ceramics, specialty ceramic elec structural and technical new products, improve manufacturing processes and moni beta alumina for sodium-sulfur batter tronic packages, and tor new areas of technology. ies. Advanced Refractory Technologies, Inc. manufactures high-quality, high-purity advanced ceramic powders. Special services provided to all operations include environ Metcal, Inc. has unique self-regulating, temperature-source mental management, occupational health and safety, and heating technology with applications in the manufacture of analytical sciences and engineering support. electronic, mechanical and electrical interconnections, support each industrial process heating and medical devices. Development laboratories at several locations of the Company’s business segments with applied research, Life Sciences—DNA Plant Technology Corporation is a including customer and technical service. venture in agricultural biotechnology to develop superior The amount spent on research and development activities commercial crop strains. This company is working with was approximately $15.8 million in 1987, $16.7 million in Koppers to produce plant-disease diagnostic kits. 1986 and $16.3 million in 1985. Ecogen, Inc. employs advanced molecular genetic tech niques in biological pesticide development as alternatives to Environmental, Occupational Health and Safety current chemical controls. Regulations Koppers, in common with many other enterprises, is subject Software and Productivity—American Cimfiex Corporation to a multitude of federal, state and local laws and regula (formerly American Robot Corporation) is a leading man tions governing environmental as well as occupational ufacturer of electric-drive, high-precision robot systems with health and safety matters. Included are increasingly strin unique electronic vision capabilities and major applications gent regulations concerning the handling of many of the in the automation of industrial plants. In separate agree chemicals the Company uses, purchases or sells. ments with Ford Motor Company and BMW of West Ger many, American Cimfiex is developing computer communi Many of Koppers plants are, or will become, subject to cations networks for manufacturing and industrial vision environmental permit conditions and regulations which will

5 require investigations and remedial activities, as well as the Item 2. Properties closure of various Resource Conservation and Recovery Act (“RCRA”) units, and/or capital expenditures for pollution The Company has 252 operating locations in 30 states in the control devices. United States, and in Canada and Australia. They include Chemical and Allied Products, 49; and Construction Mate Koppers facilities, for many years, have shipped waste prod rials and Services, 192. Principal operations are predomi ucts to third party landfills for disposal. As a result of these nantly located in California, the Carolinas, Florida, Geor practices, Koppers is currently involved in proceedings gia, Indiana, New York, Ohio, and Pennsylvania. involving the investigation and/or remediation of approxi mately 37 different such sites under the Comprehensive In the opinion of management, the production capacities in Environmental Response, Compensation and Liability Act Koppers various business segments are adequate to operate (“CERCLA”) or comparable state laws. at a significantly higher volume than in 1987.

These proceedings are in various stages ranging from initial Item 3. Legal Proceedings inquiries to active settlement negotiations. In one case, the Company is negotiating a settlement which would require On August 7, 1981, Inland Steel Corporation filed an action payment by the Company of approximately $2.3 million. In against Koppers in Lake Superior Court, East Chicago, other cases, it is not possible to estimate the potential impact md., alleging that negligence, fraud and breach of contract on the Company because cleanup costs, and/or the Com in construction of a coke oven battery and blast furnace by pany’s share of those costs, are not known. Koppers at Inland’s Indiana Harbor Works had caused Inland damages in the Koppers facilities may have sent wastes to other sites in amount of $100 million. Koppers counterclaimed to recover $17 addition to these 37 and it is possible that Koppers may be million still unpaid by Inland on the contract for involved in future CERCLA and comparable state law construction of the coke oven battery and blast investigations and cleanups. Koppers share of the costs of furnace. A verdict was rendered on February 21, 1984 for Inland on its claims in investigating and remedying these sites, in the aggregate, is the amount of $74 million and for Koppers on its not currently expected to have a material impact on the counterclaim in the amount of $10 million, financial condition of the Company. for a net verdict in favor of Inland in the amount of $64 million, plus post judgment interest. The judgment was In addition, in the past, Koppers owned and/or operated a affirmed by the Court of Appeals of Indiana, and the number of facilities which are no longer owned or operated Supreme Court of Indiana refused to review the affirmance. by it. Some of these facilities are, or may become, subject to The Inland claim was settled in the fourth quarter of 1987 investigations and cleanups under CERCLA or comparable for cash and an agreement to supply coke in 1988. state laws. To date, approximately 32 of these formerly owned/operated plant sites are subject to such investiga Koppers is involved in environmental administrative pro tions and/or cleanups. In addition, during the recent past, ceedings and litigation with respect to certain of its operat ing plants, former the Company has sold a number of facilities in various busi plants and waste disposal sites. Where the nesses to third parties. In many of these transactions, the costs likely to arise from these proceedings and litigation are Company agreed to indemnify the purchaser against pre determinable, appropriate reserves have been established. As closing environmental liabilities. of December 31, 1987, Koppers had established in excess of $60 million in environmental reserves on its balance sheet. In order to manage effectively the impact of Koppers Since January 1, 1983, Koppers has spent approximately involvement in the off-site landfills mentioned above, as well $110 million on compliance with environmental laws and as these formerly owned/operated properties, Koppers has regulations at its operating plants and approximately $25 established a Previously Operated Properties (“POP”) million on investigations and remedial activities at its for group. The POP group, in conjunction with the Koppers merly operated properties. Legal Services Group, Finance Department and other sup port groups, negotiates with the government and third par In 1987, the United States filed a civil action against ties, develops strategies for each proceeding and investigates Koppers in the United States District Court for the North technologies to address each site in a manner which is cost- ern District of Ohio alleging that, beginning in July 1985, effective to Koppers. the Company’s former Toledo, Ohio coke plant violated the federal Clean Water Act’s pretreatment standards for three Environmental and health and safety laws and regulations constituents contained in the plant’s effluent. The United have not curtailed the Company’s operations significantly; States claims statutory civil penalties of up to $10,000 per however, compliance with such laws and regulations has day per violation (and up to $25,000 per day per violation had and will continue to have a substantial adverse effect on alleged to have occurred after the effective date of the 1987 the Company’s financial performance. The eventual effect of amendments to the Clean Water Act). In addition, in 1987 the laws and regulations and their potential costs is not the State of Alabama, together with the Jefferson County, determinable at this time. Alabama Health Department, filed several civil actions 6 [i; , ,

Stockholder ar and ongoing against pally tiatiOlls Item of groups dend the Streams shares a these n1ately results these tal monwealth Koppers KopperS incorporated. and cumulative include potentially During [ung-term pany’s the ing things, Koppers in permitted laws the Company’s A Parttctpation

Plan

1988.

political

a these

total ‘

pollution

specified

instances business

Midwest tar

iolations,

long-term

during

various 5.

for on

information. pages

matters in

dividends

every and

Koppers $730,000

Market plants

prohibit of

certain 1987 cases directed

the

Act

and

the

common

settled

was

operations.

1987.

subdivision

$21,900,000

17%

responsible

one

present

cost-free

debt

New

preferred

Matters

levels.

the to and

disposal

and

year where

and states Koppers the including

considered involve

have

debt

will

claim

Pennsylvania

for

of restrictive

The

alleging Dividend

two

year,

water and to

certain

York

Company the

toward agreements

available

Pacific

Cash stock, since

Koppers

The

its agreement

Koppers

have not the

Koppers

Dividend

distributions

of lawsuits federal by

number

payment

high

stock,

under

Stock

does of

pollution

violations most

Commonwealth been

state

waste

dividends

1944, that

Pennsylvania.

aggregate $1.25

2,117. Stock

settlement consolidated

Reinvestment

city

covenants.

and

for

shareowners

received

material

Common

not

restrictive

Clean CERCLA in believes Exchange

its

$100

environmental

that

and

and in Reinvestment/Cash alleging at

the cash of

par one

compliance low

Exchanges.

Woodward,

control

Participating believe

approximately

1987

civil

participants

have began

year

the

several

Water

value,

par

amounts market dividends of the

notices

of it its

adverse

Stock

These,

penalties

various

involving earnings provision,

and

may

Pennsylvania

terms been

Plan of

stock the

value,

regulations. these

that participated

number

comparable Act.

Pennsylvania

mature with prices is

public

have

Alabama and Company The

from

traded

paid

agencies

resolution listed among

at effect

from

environmen

shareholders

of matters

declined

Settlements

retained

January

applicable

the

contained

of generated tables

and

the Payment

Koppers on

approxi

sites.

interest exceed

also

princi

parties

on Series,

Nego

Clean

Corn in

Corn

other

these 1987,

coke

divi EPA

state

that

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the

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Part

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responsible claims business Koppers

purport ulations, seek toxic

der being affect management, • Item tions shares ing Cumulative Company, The • a invested par Shareholders April Holders by holders share, P.O. voluntary Koppers Common date than

date total Koppers

cost-free

Purchase

Elect

writing

value, 1987.

are

outstanding

damages

fixed

Box

of 4. tort

30,

the

contested.

27,

4,500,000 together

and

938,282 Submission

1,740,418

Koppers

involving

indeterminable

since

$449,721

including

has

and Board

Koppers consolidated

Stock claims 444, The

nor

1987.

that

for 4% cash

basis, substances

parties

lawsuits

Preferred invest

additional

not

may

resolution

redemption. its

more plan class

Pittsburgh, Mellon

Series,

the

whole

payments

with

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and

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submitted

to:

and

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shares.

product obtain

Directors

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common environmental

enables

last

actions,

than

purchase

other arising

order amounts

accrued

its may

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financial

Matters disposed

large

Bank

were

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of Annual

subsidiaries.

in further

60,

Pennsylvania of

cumulative

be liability

these

actions.

cooperate

the

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present,

outstanding

part,

stock;

purchased

Plan has involve

and/or

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out N.A.,

$25

redeemed

resolve

and

days’ are

12,167

Company’s

matters

position

approved at

matters

information

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ultimate

of at

matters;

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1987

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to of

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shareholders,

such

results

vote the

Security

not on

Koppers

plaintiffs

Stockholders, upon

repurchase

these

option

dividends

for

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any

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number

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total

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A Common Stock Annual Price Ranges and Volumes 1987 1986 1985 1984 1983 Common stock price ranges on NYSE/Composite: High $50% $30½ $21’% $23% S21/H Low 26/s 20 15½ 17½ 15¾ Close 31½ 29/s 21 18 21/4 Volume traded (in thousands) 27,007 27,879 18,207 16,415 12,890 % of shares outstanding 96% 96% 64% 57% 46%

Quarterly Common Stock Price Ranges and Dividends 1987 1986 Quarter High Low Dividend High Low Dividend 1st $38’% $29% $0.20 $28½ $20 $0.20 2nd 41/s 33¼ 0.20 30/s 24¼ 0.20 3rd 50% 401/4 0.30 29¼ 22/8 0.20 4th 49¾ 26/s 0.30 30½ 22¾ 0.20

Equity Security Holders Number of Shareholders of Record Title of Class on February 29, 1988 Common Stock, $1.25 Par Value 10,706 Cumulative Preferred Stock, $100 Par Value 897

Item 6. Selected Financial Data

Selected Financial Data (from continuing operations)

(S Millions, except per share data) 1987 1986 1985 1984 1983 Operating results: Net sales $1,515.7 $1,396.4 $1,400.2 $1,388.7 $1,183.6 Income (loss) from continuing operations $ 70.2 $ 63.2 $ (30.0) $ 24.0 $ 24.1 Income (loss) from continuing operations—per common share $ 2.44 $ 2.09* $ (1.23) $ 0.62 $ 0.59* At year end: Total assets $1,074.9 $1,067.2 $1,066.1 $1,154.7 $1,175.4 Long-term debt $ 172.4 $ 117.7 $ 215.5 $ 219.8 $ 232.9 Redeemable convertible preference stock $ — $ — $ 43.9 $ 46.5 $ 69.4 Total long-term debt and redeemable preference stock $ 172.4 $ 117.7 $ 259.4 $ 266.3 $ 302.3 Cash dividends declared per common share $ 1.00 $ 0.80 $ 0.80 $ 0.80 $ 0.80

*Per share figure excludes extraordinary gain of $0.50 and $0.21 in 1986 and 1983, respectively. Restated to conform with 1987 classifications.

8 [, Item 7. Management’s Discussion and Analysis of Performance in 1988 will benefit from high levels of capital financial Condition and Results of Operations investment in the two previous years, from turnarounds in certain Southern operations and in a Colorado joint venture Results From Continuing Operations as a depressed market begins to recover, and from a greater This section covers, for the period 1985-1987, the perform federal funding commitment to the nation’s infrastructure. ance of Koppers business segments, other factors in the The overall business outlook is favorably influenced by the Consolidated Statement of Operations that materially continuing shift in the highway market to greater emphasis , influenced the financial results, changes in liquidity and the on maintenance work, a segment in which Koppers has use of capital resources that affected Koppers financial con positioned itself through forward integration. CMS is posi dition at the close of 1987. tioned in 15 of the 20 states with the largest roadbuilding Net Sales and Income programs. States have responsibility for maintenance of the After remaining virtually identical in 1985 and 1986, sales federal highway system as well as state roads. Funding increased 8% in 1987. Construction Materials and Services sources continue to grow: 19 states increased gasoline taxes . sales have increased at a rate of 8% over the three-year in 1987; numerous others will present similar bills to [ period. Chemical and Allied Products, after experiencing a legislatures in 1988; tolls and private financing also are decline in sales during 1985 and 1986, showed a 3% expected to grow as a funding source, offsetting a slight drop increase in 1987. Traditionally, Koppers sales are lowest in in commitments from the Federal Highway Trust Fund. j the first quarter of any year and reach their peak during the second and third quarters, then begin to fall in the fourth Chemical and Allied Products (CAP) quarter because seasonal demand declines in most construc ($ Millions) 1987 1986 1985 r tion markets. Excluding nonoperating items, the Company’s Sales $606.2 $588.9 $618.6 income also normally follows this pattern. The Company Operating Income $ 31.3 $ 39.5 $(61.6) L posted a profit from continuing operations in the fourth quarter of 1987 that was 4% higher than 1986’s, compared Review with a loss in the same 1985 period. Operating income continued the turnaround begun in 1986, rising by more than 10% (excluding nonoperating items: Construction Materials and Services (CMS) . $18 million charge in 1987; $5.1 million charge in 1986; ($ Millions) 1987 1986 1985 $65.3 million charge in 1985). Nonoperating charge were Sales $901.1 $804.1 $777.4 associated with previously operated properties, environmen Operating Income $117.5 $105.3 $ 71.5 s tal reserves and additional product warranty reserves. s Review Tar and WoodProducts— (44% CAP sales, 39% CAP oper ,. Operating income rose 22% in 1987 (excluding nonoperat ating income, before charges) —Improved production effi ing items: a $2.2 million charge in 1987; a $7.5 million gain ciencies, continued cost reductions and a dramatic in 1986). All geographic regions contributed to the 12% turnaround in phthalic anhydride helped to offset declines in , sales increase. Greater highway maintenance and construc the creosote and wood-treating businesses. Phthalic volume tion activity was stimulated by the release of federal high gained 24%; prices improved. Carbon binder pitch way funds in the second quarter; private nonbuilding con improved steadily during the year as volume about equaled struction work also rose. Eastern operations had a major the 1986 level, but only a portion of an early 1987 price cut gain from strong markets and important contributions from was recovered. Creosote volume fell by 11% and crossties 1986 expansions. Southern markets improved. The West by 18% in a weak railroad market. Utility poles and other gained despite certain weak markets and a weather- treated-wood products also were significantly lower. shortened season. Total aggregate volume grew 7%, to 78 Chemical Systems— (36% CAP sales, 60% CAP operating million tons; prices improved moderately. Bituminous con income, before charges) —Income improved as resorcinol crete was up by 11% and construction services by 5%. Late products volume grew by more than 10%, helped by a 1987 acquisitions established Koppers in the Pacific North weakened U.S. dollar, plant production efficiencies and a west market and extended Georgia operations into new strong world tire market. Polyester resins had a modest gain areas. Combined, these add seven aggregate operations, four on a 35% sales growth; volatile raw material prices cut ready-mix and seven bituminous concrete plants and four margins. Thiem foundry products had a strong year, but did construction units, with $50 million potential annual sales. not offset declines in auto-related products. Actions were Coatings sales increased nearly 30%, to $44 million. The taken to strengthen our competitive position in the auto concreterejnforcing steel product business improved per market. formance in a weak construction market. Building Products— (20% CAP sales, I% CAP operating Near-Term Outlook income, before charges) —The unit had a $9 million Year-end 1987 backlog was 19% greater than a year earlier. turnaround in 1987. Improvement in phenolic foam insula

9 tion was the major factor. Foam board sales grew 42%; Near-Term Outlook strategic joint ventures were established with Manville Cor Continued growth of the environmental subsidiary should poration (U.S.) and Domtar Ltd. (Canada) to accelerate increase 1988 sales and income. Periodic sale of assets from distribution of this superior insulation material. Wolman the venture capital investment portfolio could produce capi wood-treating chemicals volume grew by 15%, aiding the tal gains in future years. Interest income will remain low, sector’s improved profitability. Roofing business remained weak; operations were streamlined and new strategy was Total Koppers initiated. (5 Millions) 1987 1986 1985 Sales $1,515.7 $1,396.4 $1,400.2 Near-Term Outlook Operating Income $ 149.9 $ 152.4 S 4.7

Continued strength in U.S. industrial production and rela General Corporate Overhead $ 24.9 $ 28.7 $ 28.7 tively stable interest rates will provide favorable market con Income (Loss) Before Interest for improvement in our chemical businesses. ditions further Expense and Income Taxes S 125.0 $ 123.7 $ (240) Actions in each sector are aimed at providing growth in 1988 and beyond. Results and Outlook by Markets Continued improvement in phthalic anhydride is expected Nonbuilding Construction from high-volume sales aided by strong export to come )$ Millions) 1987 1986 1985 demand and added plant efficiencies. Binder pitch should Sales $890.7 $838.5 $859.8 benefit from aluminum production and higher domestic % Total 58.8 60.0 61.4 expansions in Europe and the Far East. Crosstie sales will improve on market share expansion, aided by the start-up of an electric cogeneration plant that solves the problem rail Review roads have in disposing of used crossties. Delayed disbursements from the Federal Highway Trust Fund in early 1987 led to deferred projects and held spend Resorcinol demand will remain high, based on strong world ing for new highway and bridge construction to about the tire markets. Price restorations in early 1988 should help same level as in the previous year. The trend toward higher polyester resins recover raw material cost increases; volume maintenance expenditures continued, with 19 states passing levels will depend on stability in consumer markets. Thiem motor fuel tax increases. Spending for water and sewerage expanded its U.S. auto-manufacturing customer base; a joint systems rose 7%, while dams, harbors and other venture with Cemedine (Japan) will add volume among conservation-related projects recorded an even stronger Asian auto producers in the U.S.; and a strong domestic 12% gain. Both electric utilities and major railroads industrial sector will maintain high demand for foundry reduced maintenance programs moderately. products. Phenolic foam insulation performance will begin to feel the Near-Term Outlook benefits from our U.S. and Canadian joint ventures by the Passage of the Highway Transportation Act, Water end of 1988 as two additional plants are started up. New Resources Development Act and Safe Drinking Water Act products and new strategies are expected to begin to turn assures a high level of spending for infrastructure projects around roofing products by 1989. Our Wolman chemical on a sustained basis, even with the threat. from deficit- business should continue its rapid growth based on strong reduction programs. With state and local matching funds trends in the home improvement market and new product added, public works projects are likely to exceed $40 billion introductions. per year. More than 20 states will probably consider addi tional motor vehicle fuel tax increases during 1988, sup Miscellaneous porting highway and bridge maintenance programs. Record 5 Millions) 1987 1986 1985 levels of freight shipments and improved earnings may pre Sales $8.3 $3.4 $ 4.2 vent further erosion in railroad maintenance. Operating Income $1.1 $7.6 5(5.2) Architectural Construction

Review (S Millions) 1987 1986 1985 Sales grew as Company subsidiary Keystone Environmental Sales $205.9 $244.3 $230.4 Total Resources increased the level of work done for outside % 13.6 17.5 16.5 customers. This added to income, but the 1987 total fell because interest income was significantly lower than in Review 1986, when Koppers had a high level of cash from the sale New single-family housing exceeded one million units for of discontinued businesses. Also, 1987 income was penalized the fifth consecutive year, but multifamily starts dropped by by losses from an investment write-down by Kopvenco, 160,000 units to the lowest level since 1982. Remodeling and Koppers venture capital subsidiary. repair continued to surge. Lumber use increased 5% from 10 the housing mix, remodeling gains and a trend to larger While Cost of sales rose 7.8%, it remained constant as a homes. Nonresidential building construction fell by 3% as a percentage of sales compared with last year. The increase consequence of overbuilding in the previous boom period resulted from a combination of several factors, including and of tax reform. The major declines were in office struc higher environmental, maintenance and raw material costs, tures—nearly 10%, and industrial plants—down 5%. Edu which were partially offset by a significant reduction in pen cational and health-related facilities were in a rising trend. sion expense associated with the implementation of FAS 87, “Employers’ Accounting for Pensions” in 1987. (See Note Near-Term Outlook 3.) Single-family home construction should hold up well despite volatile interest rates and the stock market decline, but high Depreciation, depletion and amortization rose moderately because of high capital spending during the past three years, acancy rates will lead to a further drop in rental units. Home-improvement expenditures are expected to grow as well as from the addition of assets from 1986 acquisitions. moderately as the aftermath of strong sales of new and Also, Taxes other than income taxes rose slightly because of existing homes in recent years. Rising production rates and increased payroll and real estate taxes in 1987. capacity utilization should stimulate industrial construction, Selling, research, general and administrative expenses but office and retail building will remain weak as a result of declined primarily because of the previously mentioned the overhang of unused space, the loss of tax benefits and a effect of FAS 87 on pension expense, which resulted in a slower pace of consumer spending. decrease of $8.9 million in this category. Research expense fell by 19%, mostly from the incorporation of Koppers envi Industrial Production ronmental management subsidiary, Keystone Environmen $ Millions) 1987 1986 1985 tal Resources, Inc. These reductions were partially offset by Sales $419.1 $313.6 $310.0 increased employee, insurance and advertising costs. Total 27.6 22.5 22.1 General corporate overhead costs were reduced in 1987 largely as a result of lower costs related to retirement and Review employee compensation plans. The absence of 1986 sever Industrial production expanded by 3.6%, outpacing the rest ance and research expenses also to the of the economy. Chemicals, plastics, tires, aluminum, steel external contributed decrease in overhead. and paper all showed growing strength in output, spurred by rising export markets and reduced import competition as The Company realized gains from operations disposed of or a result of the dollar’s fall. Higher capacity utilization rates closed in 1987 primarily from the sale of a Pennsylvania led to firmer prices for many industrial commodities. timber mill operation. This gain was slightly reduced by Domestic auto sales fell by more than one million units, but costs associated with various plant closings. The previous light truck deliveries increased by about 100,000 units. year’s gain reflected the sale of certain paving and quarry operations to Western-Mobile, Inc., a 50% joint venture Near-Term Outlook formed in late 1986. A gain of 3% or more in industry output, faster than for other economic sectors, is anticipated as a result of the Other Income narrowing gap in the import/export balance. Consumer In 1987, nonoperating charges from continuing operations spending for major durable goods will slow, with domestic were responsible for a loss in Other income of $13.9 million. auto and light truck production expected to drop by another Nonoperating income contributed to the $15.0 million of several hundred thousand units. Reduced demand for new Other income in 1986. The 1985 loss also was caused by vehicle tires should be more than offset by strong replace significant nonoperating items. ment needs and an improving foreign trade balance. Both prices and volumes for aluminum, pulp and paper, chemi Additional environmental charges of $5.8 million were cals and plastics should maintain strength. recorded in 1987 to cover the cleanup costs of previously operated locations. The 1985 provision of $28.6 million resulted from actions taken by the Company to identify and Financial Results quantify the costs of future environmental remedies. Also in Operating Expenses 1987, the Company recorded provisions for warranty Koppers operating income was greatly influenced by various reserves totaling $12 million. nonoperating charges and gains. Profits on the sale of capital assets resulted from the sale of The profitability underlying Koppers operations is best dem certain Canadian properties in 1987. The sale of timberlands onstrated in the relationship between Sales and Cost of sales, in 1985 accounted for $15.2 million of the profits recorded shown as part of the Operating expenses in the Consolidated in that year. Koppers realized a loss on the sale of invest Statement of Operations. ments in 1987 due to the $1.8 million write-off of a venture

11 capital investment, Engenics, Inc., coupled with the absence Cash Decreased of significant 1986 gains from the sale of stock in DNA (S Millions) 1987 1986 1985 Plant Technology and Genex. Cash pros ded from (used in) Interest income fell sharply in 1987 primarily because of Operations S 67.4 S 306.5 S 124.5 Insesimen actisjties S( 112.2) 5 (12 .2) S 104.5) reduced investment. The previous year’s income of $10.1 Financing actisities S (7.6) 5)1 70.6) $ (29.1 million was realized on the high level of cash generated by the Company’s sale of certain discontinued operations in Increase/kjecrease) in cash S (52.3) $ 14.7 $ (9.2) Beginning cash balance S 72.5 $ 57.8 $ 67.0 1986. Ending cash balance S 20.2 $ 72.5 $ 57.8 Other income benefited from equity earnings of $1.5 million in 1987. The income resulted primarily from the Company’s The decrease in total cash on hand at the close of 1987 investment in Koppers Australia Pty. and the formation of resulted from the previously mentioned items: 1) capital the Tarconord joint venture in Denmark. The absence of expenditures for future growth and profitability, 2) dividend notable 1986 equity income from Western-Mobile, Inc. payments and 3) the repurchase of Koppers common stock, accounted for most of the decrease from the previous year. all of which were initiated to enhance shareholder value. (See Note 2.) The Consolidated Statement of Cash Flows was prepared in accordance with Financial Accounting Standard (FAS) 95 Interest Expense and provides a detailed accounting of the primary compo Interest expense declined by nearly 50% from the previous nents of cash flow broken down into the three major year. The prepayment of $95.5 million of 11.25% notes at categories required by FAS 95—cash provided from/ (used year-end 1986 was solely responsible for the decrease. in) Operations, Investment activities and Financing activi Koppers effective interest rate on average debt in 1987 was ties. 7.99%, down from the 1986 rate of 9.59%. (See Note 4.) Working Capital Decreased

Income Taxes (S Millions) 1987 1986* 1985 The 1987 income tax provision for continuing operations of Working Capital 5212.4 $223.7 5303.9 $43.6 million compared with a 1986 provision of $39.1 mil *Restated to conlorm with 1987 classifications. lion. The effective tax rate of 38.3% in 1987 nearly matched the 1986 rate of 38.2%. (See Note 8.) Koppers management has continued to concentrate its The effect of losses realized from Discontinued Operations efforts on controlling the Company’s working capital in late 1987 negated the Company’s recognition of a tax investment, which is. an important factor in maintaining benefit in 1987 similar to the 1986 utilization of net operat Koppers strong financial position and good liquidity. ing loss carryforwards (treated as an extraordinary item). (Working capital is the surplus of current assets over cur rent liabilities and indicates the financial flexibility to meet Financial Condition Remained Strong day-to-day obligations, withstand adversity and pay Koppers improved performance of $70.2 million after-tax dividends.) profit from continuing operations provided the funds to con The $11.3 million decline in working capital shown in the tinue a level of capital expenditures necessary for continued table above resulted from a $32.8 million decrease in current growth and profitability, to increase the common stock divi assets, mostly offset by a $21.5 million decline in current dend by 50% and to continue repurchasing Koppers com liabilities. The decrease in current assets was caused primar mon stock under the program initiated in December 1986. ily by the reduced level of cash on hand at year end, which The Company’s financial condition remained strong despite resulted from continued capital spending, increased divi the after-tax charge of $59.4 million against income from dend payments and the unfavorable settlement of the Inland discontinued operations in the fourth quarter of 1987, pri Steel suit, partially offset by increases in accounts receiv marily due to the payment of a damage award won by ables and inventories due to higher sales and production Inland Steel Corporation. levels. Current liabilities declined primarily because of reduced pension accruals associated with the implementa Liquidity Favorable tion of FAS 87, previously discussed, and were unaffected by Cash from continuing operations, working capital, debt the settlement of the Inland Steel suit, which produced a tax ratio and borrowing capacity all remained favorable. benefit that was essentially offset by an increase in amounts owed on contracts. Overall, working capital, at the close of 1987, was at a very acceptable level, resulting in a current ratio (current assets divided by current liabilities) of 1.81- to-I.

ban.

Additional additive of

through

Coatings

tion in

nous Construction

Arizona

joint

plants,

units

pany

Washington,

Construction

for

will cogeneration

mental on

lion

three Capital

were

tions

well ated

trated

especially

Nearly and

10. Capital

Capital

Company’s

mately ity

the

to secured

Steel

increase

The

while

During

Debt

Georgia

1987,

$200

this

the

Major

1986.

conform

company

year.

Services

concrete venture

units

sources

and

existing

for

will

years

settlement.

Higher

fund

tar

debt-due-in-one-year

the

four

DHH improvements

settlement.

expenditures

29%

one-half

will

Expenditures

the

Division

expenditures

million

Chemical

acquisitions.

1987,

improving in

significant

The

expenditures

network

upgrading

investments international

expand

high

still

and

are major

provide

adding

bituminous

Company’s

long-term

total

acquisitions.

conform

formed

Idaho,

plant

Materials provided

the

Materials

revolving

Investments,

plants,

that

Company’s

long-term

summarized

North

new

and

capitalization

additional

expanded Additional

capitalization,

expenditures),

and

materials

revolving

of fund

markets

seven

(See

the

aggregate

Oregon,

plant

1987’s

government

and

drumming

convert

one

Lower

marine were

The

were

all

debt

Carolina

and

Allied

and

Denmark

credit

market

concrete

business

necessary

core

Note

four

emerging

the

expanding

aggregate of debt

1987,

acquisitions

aggregate

efficiencies

debt

Services

its

Inc.

capital

was

Services

remaining

was

made

lower,

the

aggregate

credit borrowings

businesses.

operations

old

Montana,

current

agreement,

Products

4.)

over

warehouse

large

business

reserves.

gasoline

follows:

was

prior

total

reduced

level

acquisition.

due

consisting

segment

1987

was

crossties

facility

plants,

regulations.

will

funds

technologies

investment

the

loans

but

supplier

from

increased

largest

Construction

also plants,

plant, primarily

production

years,

debt

not

various expand has

and

funding.

EPA-mandated completed

capital

with

past

started

additive

reserves.

Nevada, the

required

three

into

added

are

(substantial

which

distributors.

averaged

into

was

competitive

1.1%

expenditure

of $1.2

internally $56

three

use

four

the

The

1986

addition

shown

Koppers

plants,

the

$54.6

nine

construction

electricity.

tar.

29.4% to

construction

expenditures

years.

vas

capabilities

million

acquisition

relevant

million.

provides

facilities at

nationally

ready-mix

new

Utah

construc

as the

the

Koppers

states

level

Materials

Environ

the

bitumi

approxi

the

concen

a million,

which

gener

Inland

capac

end

com

lead

posi

result

Note

The

posi

and

was past

were

was

The

the

BNS

Merger, the

verted

Common

their

Stock

“Merger”)

tors after

maximum

According

7.8%

that

and

consisting

Offer

in,

According

owned

wholly

PLC,

Speedward

company,

Brothers

indirect

gates

Purchase

terms

Stock

Preferred

redeemed standing

Preferred On

Tender

relating

Recent

modernizations

specialty

venture

tion

Mobile, pany’s

Indiana.

Koppers

(“BNS”),

wholly

price Purchase,

the

and

1986,

Offer.

they

SL-Merger,

appraisal

1985,

March

completion

of of

held

into

Inc.,

materials

and

Company.

subsidiary

BNS

enture

owned

Offer

subsidiary Developments

the

per

Common

Stock

with

English

Inc—a

beneficially shares

expenditures

Holding

dated

polyester

representation

owned strategic

According

(ii)

acquire

the Stock

subject

Stock

with filed

expenditures

have

associated

outstanding

Limited,

intends

the

the Bright

the

invalidated,

tender

Delaware

SL-Merger, Redland

rights

right

held

subsidiary

capital

March

1988,

BNS

and

the

stockholders

Inc.

acquisitions

Offer

of banking

at Tender

Offer

Construction

Bright

treasury

indirect

Purchase

control

Inc.,

Stock

Common

resin

plans

to by

the

$107.75

Company

additions

Aggregates

to NatWest

under

the

Common

own,

Beazer

offer

pursuant

Right,

(th,e

BNS covered

receive

stockholders

program.

USA

cause

the a

BNS

Aggregates

Offer

corporation business,

conditions

were

Purchase,

English

corporation.

are

1988.

(other

Purchase,

Inc.,

subsidiary

of, Delaware

(the

the

“Partnership”)

Delaware

Offer

Rights

PLC,

Stock,

Inc.,

$45.00

per Holdings,

and

the

continuing

and

the

National

Offer,

Statement

an in

Investment

consummate

the

Stock Company’s

Materials

According

largely

“BNS

BNS

Inc.,

than

Delaware

aggregate

aggregate,

Company,

amount share,

Common

Company Ohio,

all

the

company

which

acquisition

the

including

set

Purchase, who

Inc.

(the

per

corporation,

BNS

Delaware

paid English

and

outstanding

are

formation

law)

entire

Speedward

purpose

soon forth

Offer”)

for

Inc—and

Westminster

Shearson

and

each

properly

through

Pennsylvania

and

“Rights”)

(i)

Bank

a to

pursuant

intends

Board

corporation

would reserves.

Stock.

cash,

have

Schedule

a chemical

approximately

and

equity

and

cash

wholly

the

Bright

public

the

merger

Services

outstanding

prior

partnership

redeem

the

practicable

corporation

for

Limited,

BNS

Common

associated

disclosed

equal

and

upon

Common

Limited,

exercise

the

construc

Lehman

domestic

Western

interest

Offer

all

‘imited

to Direc

wholly

Aggre

owned

14D-1

con

Bank

BNS

seek Offer

Com

(the

plant

the

the joint

(iii)

and

out

all

to and

not

of the

of a Preferred Stock not purchased pursuant to the BNS Offer dent that would involve a sale of Common Stock to an for $107.75 per share (plus accrued and unpaid dividends). employee stock ownership plan and a substantial distribu The BNS Offer was originally scheduled to expire on March tion or dividend to holders of Common Stock. If any such 31, 1988. On March 21, 1988, BNS increased the price recapitalization plan is implemented, the Company’s finan offered per share of Common Stock to $56.00 and extended cial condition could be changed significantly, as a result of the offer to April 1, 1988. On March 25, 1988, BNS substantial borrowings or a sale of an equity interest in all or increased the price offered per share of Common Stock to a portion of the Company’s construction materials and ser $60.00 and extended the offer to April 7, 1988. vices business or a percentage of certain portions of that business. The Company has also commenced discussions The BNS Offer is conditioned upon, among other things, with third parties concerning the possible sale of the entire BNS’ obtaining sufficient financing to consummate the pur Company. chase of all the shares being sought and to pay related fees and expenses; BNS’ being satisfied that the restrictions con The foregoing discussion of recent developments regarding tained in Section 203 of the Delaware General Corporation the BNS tender offer is as of March 28, 1988. Law on certain business combinations are invalid, un enforceable, or otherwise inapplicable; the non-manage ment directors of Koppers approving the BNS Offer for purposes of the Rights or BNS’ otherwise being satisfied that the Rights are invalid or inapplicable to the BNS Offer and the Merger; the tendering (and non-withdrawal) of a number of shares of Common Stock such that, upon pur chasing such shares pursuant to the BNS offer, BNS, Bright Aggregates Inc., and the Partnership will beneficially own in the aggregate at least a majority of the shares of Common Stock; and BNS’ being satisfied that the Merger can be consummated without the need for a supermajority vote of Koppers stockholders pursuant to Article EIGHTH of Koppers Certificate of Incorporation. The Company has commenced litigation against BNS and its stockholders and other entities affiliated with BNS or its stockholders, seeking, among other things, to enjoin the BNS Offer on the grounds of illegality and non-disclosure of material facts. The Company also has intervened in litiga tion between BNS and the United States Justice Department with respect to certain anti-trust issues arising out of the BNS Offer, and has obtained a temporary restraining order against taking actions designed or intended to advance the consummation of the BNS Offer until April 4, 1988, in order to provide an opportunity for judicial review of a proposed settlement between BNS and the Justice Depart ment. BNS has commenced separate litigation against the Company and its directors, seeking to invalidate, or to cause the directors to redeem, the Rights and to declare unconsti tutional Section 203 of the Delaware General Corporation Law. BNS has also filed counterclaims in the action brought by the Company.

In connection with the BNS Ofl’er,the Company’s Board of Directors has considered the possibility of a number of transactions, including the implementation of a plan of recapitalization where the Company would remain indepen

14 Quarterly exepipershare_data Gross ei per Total Earn) Income Total

December

Total

Equity * 5 “

Debt

M(hons.

Other Commercial 6% .95% Industrial Total Common Total Debt I Preferred Preference*

Sun) \et

Does :ommon

sales

1.25%

i;gs

bonds

bank

profit*

Capitalization

Debt

Capitalization

ratios

sales

Notes

loss)

not

due Financial

loss

quarterly

Notes

share” loans

less include Promissory 31,

and

shown

within

development

Cost

paper

notes

Data

earnings

loss

with

one

sales

from

(from

and

redeem;ihlc

notes

year

(loss)

discontinued

including

continuing

per

$271.7

S(0.11)

1987

34.1

preference (3.0)

Ist

common

allocable

operations)—unaudited

Quarter

operatiolls

S257,0

S0.07

share 1986

33.7

(0.6)

portion

stock

does

included

559,4

not

$389.1

Depreciation,

1987

92.0

0.84 24.0

2nd million

Millions

equal

$430.9 S185.8 $631.7 S445.9

Quai

67.5 56.0

24.9 14.0

10.0 debt 13.4 15.0

total,

S370 (

S — —

52.08

1986

0,57 73.5

1987

17.8

depletion 15 for

since

per

1985

100.0%

68.2% 29.4% 10.7

70.6%

share).

2.2 8.9 2.1 3.9 Total 2.4 1.6

%of

—% —

5434.6

S would

and

1987

96.0 3rd

33.1

1.16 outstanding

amortii’ation

Quarter

5400.7 39.0

Millions

84.6 30.6

1.05

986

$479.1 $132.4 $626.5 $494.1

—

fluctuated

69.9

17.0 16.9 14.0

14.6 15.0

and

of — — —

total

1986

Taxes,

S420.4

1987

4th

82.0

0.56*** 16.1***

capitalization,

during

100.0%

76.5% 21.1%

78.9%

11.2

other

2.2 Total 2.7 Quarter 2.7 2.3 2.4

%of

— —% —

1987

S367.8

than

1Q86

0.53 79,5

5.4

and

ucome

with

—

Millions

1086.

$713.7 $420.1 $234.7 $479.0

equity

$1,515.7

taxes

93.5

71.9

43.9 20.0

18.0 12.0

15.0 19.3

304.1 —

1987

70.2* 2.44k”

1985

being

Total

100.0%

67.1% 58.9% 32.9%

10.1 13.1%

b1.0’.

1,396.4

2.5 2.8

6.2 2.7 Total 2.1

%of

1.7 —

271.3

1986

63.2

2.09

mon been

Earnings

20%

Investments—Companies

requirements.

amounts

substantially

Pension

basis; contracts

Long-Term

Other

accumulated

difference

When

basis

lives.

depreciated

Fixed

realizable basis.

which

the

LIFO

ries

market. Inventories—Inventories

aries.

include

Principles

solidated

below.

The

Statement

Koppers

Report Notes

For

Consolidated

December Consolidated This

Supplementary

Statement

Item

Consolidated

computed

inventories

are

for

major

losses

the

Timber

Income.

Market

land,

All

section

approximate

Assets—.Buildings,

(last-in,

The

Plans—The

units

accounted

(Loss)

the

Cost

1987

into

years

Consolidated

between

Company,

value entities

financial

intercompany

outstanding.

Contracts—Revenue

Certified

accounted of

are

accounting

standing

31,

accounts

word

all

produced.

depreciation

includes:

for

and

Accounting

accounting

Consolidation—The

trust

balance

statement

ended

first-out)

recognized

Per

1987,

the

represents

for

replacement

Data

statement statement

employees.

the

approximately

selling

“Company”

for

mineral

1986,

statements

Share—Earnings

work

straight-line

actual

Company

Public

well

Inc.

funds

timber

basis

December

1986

for

sheet

policies Financial

the

owned

transactions

price method.

respectively,

and

in as

the

are

policies

Policies

average

machinery

and

of of

properties

Accountants

operations

process

Company

Koppers

cost

equity

the

soon

the valued

Subsidiaries

The shareholders’

cash

the

and

has

property December

50%

accordance

1985

depletion,

31,

56%

Statements

method

average

percentage-of-completion

the

for

Cost

used

FIFO

cost,

pension flows

costs

long-term consolidated

Company

and

method.

1987,

(loss)

Company,

raw

Company

they

have

and

are

and

for

herein

the

less

after

finished

units

determined

(first-in,

number

over

materials

31,

1986

the

are depleted

all

58%

been

lower

per

plans

but

equity

equipmenf

standard

with

and

recognition

construction

1987

are

years

determined.

remainder includes

reflected

contributes

their

and

are

Inc.

eliminated.

goods.

its

statements

covering

sold,

first-out)

ERISA

invento

and

set

and

subsidi

ended

1985:

cost

com

have useful

than

costs,

forth

con

the

are

1986

net

the

of or 16 Consolidated

Operating Koppers Net

Total Operating

Other

Total

Interest Income Income Provision Discontinued Income

Extraordinary Income Net Dividends Average Net Earnings

‘See

income

year

sales

Taxes, Cost Depreciation, Selling,

Provision

Equity Profit Profit (Profit) Interest Miscellaneous

accompanying

income income Prepayment Cumulative Utilization Redeemable operating From From Net Extraordinary

other

income

(dividends Income Loss

Company,

expense (in

(loss) (loss)

(loss)

of number

[less

expenses: earnings 1985—S

(less profit

taxes

(benefit) (loss) on

other

(loss)

on:

continuing discontinued income in thousands) sales

research,

Statement on

loss income

(loss) (loss)

sales

operations

(expense): earnings for

applicable

before

from applicable from items: before

expenses

(loss) disposal

(loss)

statement than per

on preferred

premium

convertible environmental depletion 1,0851 received:

Inc.

operating of

(loss)

for applicable

for

(expense)

gain

operations continuing

continuing

sale

general

interest

capital

extraordinary from income

operations

the

of income

and

(losses)

operations

of of

income

(Notes

income

Operations

year

of stock discontinued accounting

discontinued

1 investments and Subsidiaries

987—$2,007;

loss assets, and

common preference

expense

common

taxes

retirement

taxes disposed

operations

amortization

7 and common

tax

carryforward tax

administrative before

and

affiliates

primarily

items

policies

provision

(Note warranty

provision:

and

stock:

stock

stock operations 1): (Note of

extraordinary

operations

stock

provision

1986—52,072; before

and

11.25%

outstanding

timberlands closed

notes

expenses

(benefit):

(Note

1985—54,000)

expenses

provision

promissory (benefit)

financial (Notes

gain

(Note

1987—5(39,615);

during 1

985—54,590)

(benefit)

statements.)

for

and

notes

income

for

(Note

taxes

$1,515,723

$ $ 1,109,628

$ $ $ $ 1,376,888

150,340

138,835

(17,752)

124,980 (13,855) 113,805

(59,388) 43,903 76,251

(3,234)

43,587 70,218 11,175

10,830 10,830

28,567 10,230

3,198 1987

1,537

(550)

(699)

(2.08)

411

2.44 0.36

600 — —

— Thousands, —

Years

$1,396,401

S 5 $ except $

1,029,008

1,287,704

ended

152,758

108,697

123,681

102,279

40,176 70,526

(4,764)

21,402 10,097 (3,644) 63,220 39,059 14,984

63,220

21,067 77,480

28,606 74,136

(6,807)

4,539 3,103

1,138 1986

2,744

(249)

per

0.50

2.59 2.09

600 December — —

figures)

31,

$1,400,166

$ $ $ $ S $

1,125,011

1,413,457

(101,071)

(101,071) (106,248) 149,879

(28,620) (13,291)

(24,023) (10,732) (47,696) (17,693) (30,003) 66,373 (68,608) 39,630 32,564

17,482 23,673

(4,242)

28,574 (2,460)

2,798

2,288

1985

4,577

(438)

(1.23) (3.72) (2.49)

600 — — — Consolidated

Assets

Koppers

Current

Total Investments

Fixed

Total Other Net

tmRestated

(See

Cash, Accounts

Refundable

Inventories Total

Total accompanying Net Prepaid

Affiliated Others

fixed Gross Buildings Machinery Net Depletable Land

investments

assets

assets,

assets and

and

assets:

Company,

At assets

Less $8,682

buildings,

Less

assets

FIFO

including LIFO

conform

$69,701

buildings,

$11,666

cost—FIFO

Balance

expenses,

(Note

Product Work

Raw

Total

receivable,

LIFO

companies,

accumulated

cost

cost:

federal

properties, and

in statement

(Note

inventories

discontinued

with

materials

Inc. 1987

2):

machinery in

current

short-term

equipment

(last-in,

Sheet

machinery

1987 1986 process

including

1986

1):

income

and

principally

(first-in,

classifications.

accounting

less

assets depreciation

Subsidiaries

equity and

$8,220

first-out)

and

operations

taxes investments accumulated

deferred

and

supplies

first-out)

equipment

policies

trade,

equipment

reserve 1986

and

tax

and

(Note

less

basis:

depletion

amortization

benefits

notes

$10,543

allowance

financial

$37,907

$12,202

for

1987

statements.)

doubtful

and

$61,819 1987

1987

accounts

1986

$1,074,886

1,045,935

(653,701)

189,340

162,251 120,479 473,440

(41,772)

943,533

392,234

476,544 102,402

20,217

70,218 89,252 13,968

44,072 85,364

66,684

76,531

41,127 43,183 48,371

2,781

9,847

1987

Thousands)

December

$1,067,222

31,

1,000,801

(626,821)

183,845

506,257 160,780 116,563 900,5 454,630 373,980 (44,217)

100,286

72,540

93,130

63,544

65,389 67,920

67,836 57,335 43,817

36,833 1986* 38,499 10,501

4,106

15 Consolidated Balance Sheet Liabilities

. December 31, Koppers Company, Inc. and Subsidiaries. . 1987 1986* )$ Thousands) Current liabilities:

Accounts payable, principally trade $ 76,148 S 70,550 Accrued liabilities: Income taxes 4,997 23,992 Pensions (Note 3) 2,313 24,076 Insurance 19,867 20,295 Payroll and other compensation costs 42,283 42,871 Warranty reserves 7,342 11,832 Environmental reserves 23,790 23,954 Other accruals 42,693 45,354 Advance payments and amounts owed on contracts 28,124 4,963 Term debt due within one year (Note 4) 13,430 14,625 Total current liabilities 260,987 282,512 Term debt due after one year (Note 4) 172,409 117,737 Deferred compensation (Note 6) 20,012 17,551 Deferred income taxes 30,781 41,797 Long-term environmental reserves 36,000 37,152 Long-term benefit reserves 68,371 47,057 Other long-term liabilities 40,452 29,267 Total Liabilities 629,012 573,073

Shareholders’ Equity Cumulative preferred stock (not subject to mandatory redemption), $100 par value: authorized 300,000 shares; issued and outstanding 150,000 shares, 4% series 15,000 15,000 Common stock, $1.25 par value: authorized 60,000,000 shares; issued 29,887,583 and outstanding 28,090,139 shares in 1987; issued 29,887,510 and outstanding 29,020,746 shares in 1986 37,359 37,359 Less cost of treasury stock: 1,797,444 shares in 1987 and 866,764 shares in 1986 (Note 5) (56,430) (24,677) Capital in excess of par value 176,514 176,631 Earnings retained in the business (Note 4) 273,431 289,836 Common shareholders’ equity (Note 5) 430,874 479,149 Total shareholders’ equity 445,874 494,149 Total liabilities and shareholders’ equity S1,074,886 $1,067,222 Restated to conform with 1987 classifications. See accompanying statement of accounting policies and notes to financial statements.)

19 Consolidated

Operations: Cash Koppers

Investment

Financing

Supplemental Beginning Ending Increase

(See

Restated

Adjustments

Income

Other

accompanying Adjustments Income (Increase)

Cash Capital provided Book Cash Term Common Other Treasury Preference

Dividends Cash

(Issuance)

operating

excluding

Cash Utilization

provided

Cash due

assets Cash

Cash

Interest Income

Company, cash

Depreciation, Other Provision Deferred

Equity

Accounts Refundable Prepaid Accounts Inventories Advance Accrued

Other Depreciation, Net

(decrease)

provided

held

cash

paid value

activities: debt

conform cash value dividends

after financing

activities:

(loss)

Statement

provided

investments

provided

used

(loss)

balance

disposed

assets

from

stock

disclosure

stock

noncurrent

decrease

for

taxes

from paid deferred

issued

stock

balance in (refunded)

activities: by retirements

statement

cash one

expenses

of income in

with in liabilities

payments

from

for income

Inc.

receivable capital payable

fixed

from

discontinued

investments

reconcile

of (used

(absorbed)

issued

reconcile

issued investment

net

financing federal year

activities

operations

received

and

from purchased

from

operations

depletion of

discontinued

(retired)

987 cash of

depletion

and

continuing

of expenses operating

assets

discontinued of

Cash taxes

in)

other

investments

classifications,

accounting

liabilities

(losses)

working

(acquired) continuing during

cash

operations

Subsidiaries

sold of

income

and

net

activities

notes

and

from Flows

activities financing

and

operations: flow

amounts

and income

disposed

income

loss

the

other operations

capital policies

operations

taxes

and

amortization

discontinued

amortization

information:

affiliated

operations

which

year

operations

carryforward

other

noncurrent

activities:

owed

and of

for:

are

net ,

net

notes

before

assets companies,

cash

closed

cash

accordance

operations

contracts

provided

financial

extraordinary

and

with

less

decline

statements.)

Financial

items

Accounting

5(52,323) $ $ $ (123,967)

(112,201)

(11,016)

116,124 (13,968) 116,124 (49,088)

(59,388)

(48,694)

(17,232) 70,218 (31,872) (29,126) Standard 76,251

23,848

23,161

(5,495) (3,916)

67,430 24,907 53,477

23,807 72,540 20,217

10,996

(7,552)

5,598

1987

4,969

5,725

4,091

(397)

337

591

(33) — — — —

(FAS)

Years

95,

Thousands)

$ $ $ 5

(190,726)

ended (109,179) (121,204)

(170,550)

Statement

306,517

146,132 167,199 (26,640)

139,318 127,904

63,220

(23,849) 70,526 (45,127) (26,219)

22,754 21,067 (1,213)

(1,636)

12,165 44,962 1986*

(3,899) 22,244 11,414 34,104

24,050 72,540 57,777

14,763

4,508 18,806

4,558

3,288

2,316

(901)

(598)

(280)

December — — —

Cash

31,

Flows.

$ $ $ $

(110,569)

(104,538)

(30,003)

142,947 (38,671) 142,947 (22,988)

124,453 (71,068)

(18,494)

(28,036) 66,373 (29,143) 25,101 23,712

83,614

1985* 36,385 10,347

16,189 67,005 24,308 57,777 10,353

(9,165)

(2,575)

(9,228)

(1,349) 4,475

4,224 9,712 6,172

4,843

1,574

(198) 597

282 — — —

92 Consolidated

Koppers

and

Cash Balance Net

Common

Redemption Foreign

Cash Balance Net

Common Amounts

Recovery Purchase

Redemption Common Redemption

Foreign

Cash Net Balance Common

Common Purchase Foreign Balance

See

per

loss

On On On

Plan Employee preference income tax

On On On (Net dividends to

escrow Profit

preference preference

to (Note to income dividends

(Note On On

to to

accompanying Savings share

(NoteS)

dividends

at Employee common preferred

currency for Company,

preference acquire Employee benefits) and at

common preferred

Stock Employee preference in

currency

stock

common at preferred currency

stock of of

December of

stock

of stock December thousands, Sharing stock

the

figures)

for 5) of December

claim common $189 Profit December

common

for of

Statement common

Plan

Savings

paid:

Option 26,100 stock issued year

paid: the

430,444 issued stock

8,456 MPM, stock

issued:

paid: stock, the issued

issued translation stock,

stock,

Savings in stock,

translation Savings

Inc.

Sharing stock,

translation Savings

stock, stock, statement

year Plan

stock,

1985

year related

31, except

(Note

31,

from

stock shares for shares

stock

(Note

Plan from and

stock 31,

and

Inc. 31,

$0.80

from

$4.00 to

shares $0.80

$4.00 1986

1984

$1.00 1985 common of

$4.00 1987

and $10.00

Employee

Plan 1986

$10.00

Profit shares

1987 Plan treasury

Subsidiaries

for 5)

treasury via (Note income

5) Shareholders’

of ftr

treasury:

per

accounting

per treasury

per

treasury

Sharing share

per share

share per

stock

policies

Equity

Cumulative

Preferred

$15,000

and

$15,000

Stock

notes — — — — — — — — — — — — — — —

Common financial

$35,764

$37,359

Stock

1,558 — — — — — — — — — —

35 — —

statements.) —. — — — 21

S Treasury

$124,677)

$(56,430)

(22,973)

Stock

(31,990)

916) (828)

(884) —

88 — — — —

234 — — — — — — 8

Capital

$145,320

Par

Excess

$145,359

$176,631

$176,514

Value

32,465 (2,152) —

(120) 921 of in

35 — —

— 35 — — 3

Adjustment

Translation

Currency

$(4,199

Foreign $16,998)

5(8,184)

$(6,293)

2,799)

(1,186)

1,891 — — — — — — — — — — — —

$375,866

(101,071)

$246,759 Earnings Retained

Business

(22,859

$298,020

$279,724

(22,875)

(4,577)

77,480

(28,526) (2,744)

10,830

(600)

the

(600) — — — — — — —

$566,835

(101,071)

$435,056

$494,149

$445,874

(22,875)

22,859)

(22,973)

(4,577)

77,480

(2,799)

(2,744) (28,526)

(31,990)

34,023 (2,152) Total

(1,186) 10,830

(600)

(884)

1,891

(600)

956 92

114

2 Notes to Financial Statements Following are combined financial summaries of the above equity investments for their respective fiscal years ended December 31, 1987, 1986 and 1985 1987 and 1986:

Millions) 1987 1986 1. Inventories ($ During 1986 and 1985, inventory quantities were reduced. Net sales $240,213 $205,182 45,678 4.4,671 This reduction resulted in a liquidation of LIFO inventory Gross profit Net income 6,762 11,859 at lower costs prevailing in prior years as quantities carried Koppers equity in earnings $ 2,952 $ 5,580 compared with the cost of purchases in current years, the Current assets $ 91,800 S 77,625 effect of which increased net earnings in 1986 and 1985 by Total assets 251,341 225,255 $277,000, approximately $1,574,000, or $0.06 per share, and Current liabilities 50,757 38,742 or $0.01 per share, respectively. There was no LIFO liquida Net assets 127,965 109,711 tion during 1987. Koppers share of net assets $ 61,156 S 50,683

At December 31, 1987 and 1986, the net assets of discontin Company reduced its investment ued operations included a LIFO reserve of $2,857,000 and Genex Corporation—The the sale of 656,000 common $2,776,000, respectively. in Genex in 1986 through shares, resulting in a pretax gain of $1,382,000, or $995,000 2. Investments after tax ($0.03 per share). The Company now accounts for The following describes activity related to the Company’s Genex on the cost basis because of this reduction in the significant investments. investment. During 1985, the Company sold common shares of Genex resulting in a pretax gain of $466,000, or $252,000 Tarconord—In 1987, the Company invested $5,300,000 in after tax ($0.01 per share). Equity losses during the years exchange for a 50% ownership interest in Tarconord, a joint ended December 31, 1986 and 1985 were $154,000 and venture formed in Denmark to process tar and produce $4,836,000, respectively. related products. Other Investments—In 1987, the Company’s venture capital Western-Mobile, Inc. (WMI)—In 1986, the Company issued subsidiary, Kopvenco, sold stock in investee companies 1,246,859 shares of common stock, valued at $34,023,000, resulting in a pretax gain of $1,276,000, or $842,000 after for the acquisition of the stock of MPM, Inc. (MPM). The tax ($0.03 per share). The write-down of an investment in Company contributed the stock of the MPM subsidiaries to 1987 produced a pretax loss of $1,827,000, or $1,206,000 WMI in exchange for a 50% ownership interest in WMI. after tax ($0.04 per share). Stock sales in 1986 and 1985 WMI then purchased the stock of certain Construction resulted in pretax gains of $1,798,000 and $2,332,000, or - Materials and Services Group subsidiaries for cash, resulting after-tax gains of $1,295,000 ($0.05 per share) and in a gain of $20,000,000 ($10,000,000 of which was recog $1,316,000 ($0.05 per share), respectively. nized tn 1986, and $10,000,000 of which is being deferred and amortized into income over the life of the assets 3. Retirement Plans acquired by WMI). The Company recognized equity losses Company Plans—The Company implemented the provisions from WMI of $249,000 in 1987, and income of $2,402,000 in of Financial Accounting Standard (FAS) 87, “Employers’ 1986. The Company’s investment in WMI at December 31, Accounting for Pensions,” on January 1, 1987. As a result, 1987, was $38,251,000. 1987 after-tax earnings benefited by approximately $5,771,000, or $0.20 per share. Total pension expense in Koppers Australia Pty. Ltd. (KAP)—The Company recog 1987 for continuing operations using an average rate of nized equity income during the years ended December 31, return of 9%, a 6% assumed level of annual compensation 1987, 1986 and 1985 of $2,371,000, $3,178,000, and increases and an 8.5% factor to determine the actuarial $3,309,000, respectively, on its 42.5% investment in KAP. present value of accumulated plan benefits was composed of the following:

(S Thousands)

Service cost benefits earned during the period S 7,638 Interest cost on projected benefit obligation 29,234 Return on plan assets (32,861) Net amortization and deferral (3,164)

Net periodic pension cost $ 847

22 Pension expense for continuing operations was $14,294,000 4. Term Debt Term debt due after one year is shown below: and $15,880,000 in 1986 and 1985, respectively.

The following table sets forth the plans’ funded status and (5 Thousands) 1987 1986 amounts recognized on the Consolidated Balance Sheet at 8.95% Promissory notes due $4,000 annually $ 10,000 S 14,000 December 31, 1987: 6’Y Notes due $3,000 annually 14,000 17,000 Commercial paper and bank loans 56,000 — Industrial development bonds and notes: 5 Thousands) 8.25% Bonds due 1987-2002 27,600 29,500 obligations: Actuarial present salue of benet 5.875% Tax-exempt bonds due 1998-2017 16,350 16,350 5369,414 Vested benetits 5.9% and 6% Notes due 1987-1998 8,600 9j05 34,824 Nonvested benefits Variable rate notes due 1996-2010 14,900 14,900 Accumu’ated benefit obligation 404,238 Other 24,959 16,882 51,930 $117,737 Effect of future salary increases Total term debt $172,409 Projected benefit obligation 456,168 Plan assets at fair value 504,919 Additional Debt Information—As of December 31, 1987, million are Plan assets in excess of projected benefit obligation 48,751 commercial paper and bank loans of $56 as long-term debt since Koppers intends to finance Unrecognized net assets at January I, 1987 172,685) reported Unrecognized prior service cost 13,325 that amount on a long-term basis either by refinancing Unrecognized net gain (8,290) through the existing revolving credit arrangements or by agreements. Accrued pension 1cost $( 18,899) replacing them with other long-term The current portion is 52.313.000. The remaining liability is included The Company has a revolving credit bank loan ageement, reserses. in long-term benefit which provides for revolving credit loans up to $200,000,000 until October 24, 1990. Commitment fees of up to ¼ of 1% historically funds the pension accrual in the The Company per annum are required on any unborrowed amounts. The year. In 1987, the Company contributed subsequent agreement calls for interest at one of three options chosen by the 1986 $20,336,000 to the Master Trust as payment of the Company, those being the prime rate or the certificate of liability. In 1988, the Company expects to contribute deposit rate or the Eurorate, with factors up to ½ of 1% $12,973,000 for the 1987 funding provision. added to those rates. There were no borrowings under the revolving credit facility during 1987 or 1986. The December 31, 1986, actuarial present value of accumu During 1986, the 11.25% promissory notes due in 2000 lated plan benefit obligations, based on a discount rate of were retired, with the repayment consisting of $93,500,000 8%, was $382,280,000 ($347,857,000 vested). of principal, $2,629,688 of accrued interest, and a 7.28% The net assets available for benefits amounted to prepayment premium of $6,807,000, which was classified as $496,951,000. Unfunded prior service costs were amortized an extraordinary item on the consolidated statement of over periods up to 40 years. operations.

In addition to providing pension benefits, the Company and The aggregate term debt maturity in the years 1988 through its subsidiaries provide certain health and life insurance ben 1992, respectively, is $13,430,000, $17,951,000, $11,998,000, efits for retired employees. These benefits are provided $9,417,000 and $9,311,000. through insurance contracts the premiums of which are Company’s term debt agreements contain various based on the benefits paid during the year. The Company The to dividend payments and incurrence of addi paid annual insurance premiums for these benefits totaling restrictions as As of December 31, 1987, under the $4,619,000, $3,320,000 and $2,961,000 for 1987, 1986 and tional indebtedness. most restrictive provisions, $21,900,000 of consolidated 1985, respectively. earnings retained in the business was available for the pay Multiemployer Plans—In addition to the expense for the ment of cash dividends, and the Company could incur addi Company-sponsored plans, the Company had pension tional indebtedness of $85,133,000. expense for full-time employees of $7,934,000, $8,873,000 Rent expense relative to operating leases was $35,582,000, and $7,033,000 in 1987, 1986 and 1985, respectively, for and $26,597,000 in 1987, 1986 and 1985, contributions to multiemployer plans as determined by vari $35,163,000 ous collective bargaining agreements. The relative position respectively. of the Company regarding the accumulated plan benefits and plan net assets of multiemployer plans is not determin 5. Stock Activity Redeemable Convertible Preference Stock—During 1986, able by the Company and is not included in the information above. the Company redeemed the remaining 438,900 outstanding shares of redeemable convertible preference stock for cash.

23 The Company repurchased 26,100 shares in 1985 as part of There was no discretionary contribution made in 1986 or a repurchase program approved by the Board of Directors. 1985.

Common Stock Repurchase Plan—Late in 1986, the Com Stock Option Plan—At the annual meeting held on April 28, pany’s Board of Directors approved the repurchase of up to 1986, the shareholders ratified the 1986 Stock Option Plan. 4,500,000 shares of outstanding common stock. In 1987 and The Plan provides for the award of stock options with a 1986, 938,282 and 802,136 shares were purchased at a cost right to purchase an amount of common stock equal to the of $31,915,000 and $22,973,000, respectively, and accounted options awarded. Additionally, certain options have for as treasury stock. attached stock appreciation rights that may be exercised in lieu of the stock options, resulting in the holder receiving Shareholder Rights Plan—In February, 1986, the Com cash equal to the difference between the current value of the pany’s Board of Directors approved a rights plan. Share Company’s common stock and the exercise price for the holders received as a dividend one individual stock purchase stock options established at the date of grant. The options right for each share of the Company’s common stock. Each become exercisable in installments commencing one year right will entitle shareholders to buy one one-hundredth of after the award date and expire if not exercised within 10 a newly issued share of Junior Participating Preference years from the date of grant. The compensation cost related Stock at an exercise price of $75. The rights will be exercis to stock appreciation rights charged to operating expense able only if a person or group either acquires 20% or more was $384,000 in 1987, while there was no charge to operat- of Koppers common stock or commences a tender offer for ing expense in 1986. 30% or more. All rights are redeemable at the Company’s discretion upon the occurrence of certain events at $0.05 per The following table summarizes stock option activity: right and are no longer exercisable after March 11, 1995. The Company authorized 350,000 shares of Junior Partici Shares Price pating Preference Stock with no par value. Options outstanding January 1, 1986 — — Options granted 277,225 523.375 6. Employee Compensation Plans Options canceled — Deferred Compensation Plan—The Company has a Deferred Options exercised — — Compensation Unit Plan for officers and other key employ Options outstanding December 31, 1986 277,225 23.375 Options granted 179,025 32,375 ees. Operating expense has been charged with $5,581,000, Options canceled — ‘ — $2,646,000 and $1,334,000 to provide for benefits accrued Options exercised 14,075 23.375 during 1987, 1986 and 1985, respectively. Options outstanding December 31, 1987 442,175 23.375—32.375 Incentive Plan—The Executive Incentive Plan is based on Options available for grant at December 31, 1987 and 1986 were 543,750 established target award levels for each participant if certain and 722,775, respectively. Company performance and individual goals are met. The charge o operating expense was $2,466,000 in 1987 and 7. Closed Operations and Disposals $2,500,000 in 1986. Because of the Company’s insufficient Discontinued Operations—Late in 1987, the Company rec return on investment, there was no charge to operating ognized a $59,388,000 after-tax loss ($2.08 per share) pri expense in 1985. marily due to the unfavorable settlement of the Inland Steel contract dispute relating to a Employee Savings Plan—The Company has an Employee litigation over a construction in 1984. Note In 1986 there were no Savings Plan for all eligible employees that conforms to business sold (See 11.) losses from discontinued operations. Section 401 (k) of the Internal Revenue Code. Under the During 1987, the Company concluded agreements for the plan, participating employees can elect to contribute up to sale of a significant portion of one of the two remaining 16% of their salaries with a regular Company matching business units (a component of Chemical and Allied Prod contribution in Koppers common stock equivalent to 25% ucts) reserved for in 1985, which is in addition to the eight of the first 2% of the tax-saver contributions. The Com units sold in 1986. Prior-year agreements for sale included pany’s contributions amounted to $499,000 in 1987, all those units within Engineered Metal Products operations $494,000 in 1986 and $548,000 in 1985. The Company also and components of Chemical and Allied Products. In makes annual supplemental contributions based upon its December 1985, net reserve provisions of $68,608,000 return on common shareholders’ equity. The return on com per share) were made for expected losses on these 10 mon equity was insufficient in 1987 and 1985; therefore, ($2.40 disposals. there was no charge to operating expense in either year. In 1986, the supplemental contribution expense was Net sales of the Discontinued Operations were $75,334,000, $3,400,000. In addition to the above, Koppers may make a $299,475,000 and $419,535,000 for 1987, 1986 and 1985, discretionary supplemental contribution at the end of each respectively. Plan Year subject to Board approval. In 1987, the discre tionary supplemental contribution expense was $1,600,000. Other Operations Closed or Disposed of—In 1987, a loss of 24 $602,000, or $361,000 after tax ($0.01 per share), was real 8. Income Taxes ized by Construction Materials and Services for provisions Income (loss) from continuing operations before provision related to plant closings. Also, a profit of $3,836,000, or (benefit) for income taxes and the components of income $2,302,000 after tax ($0.08 per share), was realized by taxes are as follows: Chemical and Allied Products for provisions related to plant (S Thousands) 1987 1986 1985 closings. Income (loss) from continuing In 1986, certain subsidiaries of the Construction Materials operations before provision and Services Group were sold to WMI. (See Note 2.) Also (benefit) for income taxes: Domestic operations $106,372 $ 96,175 5(55,797) a loss of $2,722,000, or $1,470,000 after tax ($0.05 per Foreign operations 7,433 6,104 8,101 share), was realized by Chemical and Allied Products for Total $113,805 $102,279 provisions related to plant closings. 5(47,696) Income tax expense (benefit): In 1985, provisions for plant closings in Chemical and Continuing operations $ 43,587 $ 39,059 5(17,693) Allied Products resulted in a loss of $29,056,000, or Discontinued operations (39,615) — 5,085 $15,690,000 after tax ($0.55 per share). Additionally, Total $ 3,972 $ 39,059 5(12,608) $16,629,000 was provided for environmental expenses at Current: plants currently operating, closed or disposed of in 1985. Federal 5(16,942) $ 29,891 $ 1,893 Foreign 1,455 2,495 1,545 In 1987, 1986 and 1985, provisions for environmental State 4,140 7,212 2,844 expenses at previously operated properties amounted to (11,347) 39,598 6,282 $5,752,000, or $3,451,000 after tax ($0.12 per share), and Deferred: $3,075,000, or $1,660,000 after tax ($0.06 per share), and Federal 15,313 (21,606) (18,816) $28,620,000, or $15,455,000 after tax ($0.54 per share), Foreign 6 — (74) respectively. 15,319 (21,606) (18,890) Provision in lieu of fed The effect on operations and the related profit or loss on eral income taxes — 21,067 — operations disposed of or closed is shown in the table below: Total income taxes (benefits) $ 3,972 $ 39,059 5(12,608)

* Foreign operations income before the provision for income taxes includes Other Operations Closed or Disposed of equity income from foreign investments of $3,746, $5,095 and $6,249 for (S Thousands) 1987 1986 1985 1987, 1986 and 1985, respectively. Net sales $18,470 $89,532 $204,558 The components of deferred tax expense (benefits) and Recurring operating expenses 19,197 76,617 198,204 related tax effect are shown below: Profit (loss) on disposal of net assets 3,234 4,764 (32,564) Provision for environmental (5 Thousands) 1987 1986 1985 expenses 0 0 (16,629) Excess (deficit) of tax over book depreciation $ 10,150 Operating profit (loss) $ 2,507 $17,679 5(42,839) $(3,458) $ 10,709 Difference in book and tax expense recognition: —Environmental expenses 3,686 3,997 (9,009) —Warranty expenses (932) 2,339 2,224 —Pension funding 4,852 535 (1,057) —Other (6,849) (2,554) (3,436) Difference in book and tax income recognition: —Construction contracts (1,421) (4,125) 5,226 —Inventory timing dif ference 667 1,030 (1,754) —Genes basis difference — 1,069 362 —Installment sales — (4,978) 5,949 Benefit of operating loss carryforwards used to reduce deferred tax liability — — (20,350) Provisions for operations dis continued, disposed of or closed 20,194 (27,521) (4,239) Other (1,420) (1,548) (3,515) Total deferred tax expense (benefit) $15,319 5(21,606) 5(18,890)

25 The

shown tax

Statutory

Current

Investment Nontaxable

Effect Effect

Minimum Other—net Total

The investment ing carryovers will December For tax tively, payable. On 2002,

ous ending pany Board on been

State, Federal

tional

depletion applicable

equity

items

(benefit)

differences

the

purposes, December

reduce credit tax

tax

standards

1986

determined.

below: year

must

net

and sales

investment

tax

which

lower

Company’s

(FASB) rate

December

purposes,

percentage tax

tax

The

earnings

loss

rate:

corporations

31, provision the

carryovers will

future

credit

tax federal

adopt

statutory

capital rates

carryforward

investment

operating

are

foreign 30, 1987,

between

tax for

expire

credits

issued transactions

income

tax

the

applicable this 1987, available over

preference 31,

gains

accounting

consolidated

interna tax the

for

benefit

Company

tax between

1989.

FAS

new

cost

rate the in and

the

Company loss

income

tax

$1,400,000 tax

credit

the

statutory

standard Financial

No.

The

and

expense to credit

40.0%

(0.6%)

(4.6%)

38.3% (1.9%)

4.6%

for

— 1987 0.8%

amount —

1992 reduce —

financial continuing

96, has

expires

effect

tax

had, income

carryover

which

investment and

and

no credit and by

Accounting has

future of

for

(11.8%)

$24,300,000.

later

46.0% 2001.

statements

(1.1%)

38.2% (5.1%)

(3.0%)

this 3.8% $900,000, been effective

2.9% —

6.5% 1986

supersedes taxes.

$12,100,000.

1992.

financial

operations

carryovers

than will income

new

reduced

and

The

Standards

expire

income

standard

the

(46.0%)

(37.1%)

report foreign

has respec 17.8%

(1.2%)

(8.6%)

(2.3%)

3.2%

These —

1985

previ —

Com —

taxes

are

that

year

not At

In for $23,900,000 operations using these pared earnings results December

Net

Income

Net

Earnings

Net

The 10. vided ments.

Because not revenues On against 11.

had tract Indiana, The nace unpaid coke of on the

of Inland interest. coke fourth review

on Item

None. continuing

operations

stock share continuing

operations

share Acquisitions

$66,400,000

sales

1987,

(loss)

$74

(loss)

February Indiana,

August Operations

Accounting disclosed.

Litigation

acquisitions. amount caused

Company

the

Company

oven

on by in

in (loss) from of in

9. of

(loss)

Financial

quarter million

the

the of

in common

by income

earnings

construction the Changes

1988. The operations

alleging of the and

purchase

a the

31,

have

these

battery

from in the

Company

7, Inland

affirmance.

pro

Inland

per

table

immateriality,

and

judgment 21,

of Company

cash.

identifiable 1987,

1981,

in Company

amount been and

of by

per

counterclaimed operates

and

acquisitions:

$10

forma

cash.

1984

the

that in information The

1987 and

Business

$1,592,127,000

S method $ In damages

for

1986

Inland

of Financial and

included

the million,

Supreme in

for

The 1986,

negligence,

72,013,000 following blast the 12,625,000

the

was

the

The for

basis, of at

Lake

Disagreements

following and

assets

principally

Inland

acquired

coke

contract acquisitions

$64 Inland’s $2.50 cash $0.42 Company Steel

Company 1987

affirmed

intersegment

of furnace.

Segments four

Inland

Superior

1985

for from

Disclosure

about

combines

accounting,

Court

the

from million,

oven

and

$1.55

Corporation $

$ unaudited on

companies

fraud

recover page.

with amount

the claim

65,960,000 its 80,220,000

three

for Indiana by net

an A

1,177,000

foreign each

on battery for

Court,

claims

verdict were the

respective

agreement

construction

with

and

$2.19 plus verdict $2.69 the

1986 two

its

Indiana

the

sales

was

Court companies segment

$17

summary, and of

counterclaim were

preacquisition

accounted

Harbor breach

operations

Accountants

filed years

post-judgment and $1,494,471,000

East business consolidated in

$100

was settled

along million

the

(25,835,000) in (96,903,000) results

acquired

refused

blast an dates

to Chicago,

rendered

favor ending

Appeals

million.

amount is of

($1.09) ($3.57)

Works action

supply of

1985

pre

with

pro

con for seg for

fur

still

of are of

the

of in to Note 10: Operations by Business Segments 5 Thousands) Construction Materials Chemical and Year ended December 31, 1987: and Services Allied Products Misc. Consolidated Net sales from continuing operations $901,144 $606,236 $ 8,343 $1,515,723

Operating profit (loss) before general corporate overhead $113,296 S 50,524 $ (93) $ 163,727

Other income (expense) 3,356 (21,548) 2,800 ( 15,392)

Equity in earnings (loss) of affiliates 800 2,368 ( 1,631) 1,537

Operating income $117,452 $ 31,344 $ 1,076 5 149,872 General corporate overhead 24,892 Interest expense 11,175 Income from continuing operations before provision for income taxes $ 113,805

Identifiable assets as of December 31, 1987 $533,312 $336,216 $31,980 S 901,508 General corporate assets 88,014 Net assets of discontinued operations 85,364 Total assets $1,074,886

Depreciation, depletion and amortization $ 42,699 S 29,623 $ 1,278 S 73,600 Depreciation and amortization of general corporate assets 2,651

S 76,251

Capital expenditures S 75,885 $ 42,085 $ 5,997 $ 123,967

Research and development $ 15,824 Year ended December 31, 1986:*

Net sales from continuing operations $804,144 $588,879 $ 3,378 $1,396,401

Operating profit (loss) before general corporate overhead $ 98,909 $ 39,646 $) 1,090) $ 137,465 Otherincome 2,171 (3,174) 11,448 10,445 Equity in earnings (loss) of affiliates 4,240 3,032 (2,733) 4,539

Operating income $105,320 $ 39,504 S 7,625 $ 152,449 General corporate overhead 28,768 Interest expense 21,402 Income from continuing operations before provision for income taxes $ 102,279

Identifiable assets as of December 31, 1986 $508,227 $341,513 $33,652 $ 883,392 General corporate assets 118,441 Net assets of discontinued operations 65,389 Total assets 51,067,222

Depreciation, depletion and amortization $ 39,295 S 28,673 $ 350 $ 68,318 Depreciation and amortization of general corporate assets 2.208

S 70,526

Capital expenditures $144,968 S 33,505 $12,253 $ 190,726

Research and Development $ 16,747 Year ended December 31, 1985:

Net sales from continuing operations $777,418 $618,612 S 4.136 $1,400,166

Operating profit (loss) before general corporate overhead $ 62,580 5)45,085) 5(2.038) $ 15,457 Other income (expense) 7) (Note 5,736 )19,958) 3,928 ( 10,294) Equity in earnings (loss) of affiliates 3,205 3,412 (7,055) (438)

Operating income (loss) $ 71,521 5)61,631) 5(5,165) $ 4,725 General corporate overhead 28,748 Interest expense 23,673 Loss from continuing operations before provision for income taxes $ (47,696)

Identifiable assets as of December 31, 1985 $408,642 5373,179 $30,784 $ 812,605 General corporate assets 99,339 Net assets of discontinued operations 154,109 Total assets $1,066,053

Depreciation, depletion and amortization $ 35,233 $ 28,786 S — $ 64,019 Depreciation and amortization of general corporate assets 2,354 5 66,373 Capital expenditures $ 53,729 $ 33,781 $ 6,284 $ 93.794 Research and development $ 16,268 Restated to conform with 1987 classifications. 27 Arthur Report

The Certified

We Koppers Our accompanying Koppers accepted cedures tests

In panying

our

have

Board

examinations

opinion,

Young

the

Index

Public Company,

auditing examined

Certified Company,

accounting

Directors

Index

considered

the

Accountants

Company

Consolidated

standards

were

Public the

financial

Inc.:

Inc.

records

consolidated

and

Consolidated made

Accountants

and necessary

and,

Shareholders

statements

and

Financial

subsidiaries

accordingly, accordance

such

financial

Financial

listed

other

the

Statements

circumstances.

with

listed included

in statements

auditing

Statements.

the

generally

accom present

such

pro

the

fairly and each pany,

except of principles

financial

1987, January Pittsburgh, 2400

accounting

the

Koppers

Inc.

the

for

consolidated

the

25,

statements.

conformity consolidated

and

the applied

Pennsylvania

three

1988

for

change,

subsidiaries

Building

pension

years

results

with

financial

consistent in

costs

15219

the

which

generally

December

operations

period

position

described

basis

concur,

ended

accepted

31,

during

and

Koppers

1987

December

cash

Note

the

accounting

and

flows

method 3

period,

Com to

1986,

the 31, for

Vice formerly

Fitzhugh Vice Corporate

and

Assistant

Thomas

President—Finance

Engineered

Vice

Counsel and

Engineered Vice

Development, Vice Construction

Lester

Donald

1986: Burnett

Glen

Executive

Deputy Charles

Vice

Manager—Foundry President Group. Chairman

Products

Corporate

President

1980. Koppers.) As Koppers

Item

1982;

Date

Roger

Chief

Secretary

President

President—Communications

President—Financial

President—Technology

President—Legal

President

C.Tenley

formerly

10.

formerly

February

L. in

H.Cuozzo

Chairman.

since

Vice

Beidler

Board

parentheses

Directors

Sector

Murray

Financial

and

Staff

Vice

Officers

Bartley, Pullin

Metal

Brown

St.

the

President—Investor

Materials

since

since Chief

1985

Chief

Vice

and

Clair

Vice

President

Chairman

Officers

29,

since

Board

Products

Directors

General

and

1988.

Officer and

Jr.

since 60 1985;

President

1987

Operating

Chairman

and

indicates

1984

(1955)

Services

(1960)

and

Assistant

and

Executive

(1946)

(1975) Industrial

and

(1962) 1984, formerly

(1968)

since

Services

since

and

Group.

Group

(1958)

Services Manager—Tar

Chief

Services

and

Comptroller

President

General

and

(1949)

Officer year

Officer—Road

Vice

Group,

Vice

1983

1984;

Secretary

the

Executive

Group

Executive

Relations General

since

Assistant

Officers

Group

Supply

this

President

since

President

and

Board

since

Manager—

formerly

General

person

1983.

since

President—

Business

Kopvenco

and

since

1984:

Division

Manager—

and

since

1986:

since

Officer

Officers

General

Materials

and

Treasurer

the

and

1985;

joined

Wood

Counsel

Vice

1978. formerly

1976.

formerly

1981

1980.

Registrant

General

since

and

Part

III

Brooks

Managing

General

Products

Vice

Robert

Technology

Sector

Vice

1978. Dr.

since

General

Services

James

Sector

Vice

Chemical

owned

Robert

Contracting

President—Koppers

Vice

Sully-Miller

Vice Company. Company,

R. since

Vice

David Vice Construction

Frederick

1982 and Raymond since Dr.

formerly formerly Vice

Vice

1983;

1982.

Kenneth

Alonzo

Donald

President

Corporate

President

President—Administrative President—Science

and

1981.

1988;

1985;

formerly

since

subsidiary

C. K.Wagner

Manager—Treated

Group

Manager—Engineering

Sector

Vice Vice

Branch

Harris

President

and

Director—Koppers

Wilson

Cruise

Wm.

since

formerly

MacGregor

1984;

1986;

Company. subsidiary

Contracting

Wingard

Moore

Materials

Allied

and

McGraw

and

President

President—Occupational

and

Growth

Vice

since

Lawrence

1981.

since

formerly

General

54 57 Manager—West Chairman

General

and

President—Road

Products

International

President—South

Corporate

1985;

1986;

1969.

(1965)

General Planning

(1954) and

(1973)

(1965)

and

(1953)

and

Company

Sully-Miller

formerly

Vice

Manager—Tar

formerly

Wood

Manager—Chemical Vice

(1970)

Manager—Building

Manager—Western

Manager—Eastern

Services

Manager—Marketing

Technology

(1952)

Australia

and

(1982)

(1978)

Medical

and

President—Science

President—Planning

Manager—Sully-Miller

Services

since

(1976)

Products

Chief

Canada

since

Coast

Vice

Construction

Vice

Materials

Contracting

Coast

1980.

Pty.

Executive

Health

Director

President

1988: Group

President since

Operations

and

Ltd.,

Division

Ltd.

Asphalt

Wood

formerly

1988;

Region

and

Products Region

Group.

since

Systems

since

wholly

Group

Officer—

Services

and

Safety

since

1985; since Other Jay Vice Richard Vice formerly Inc. Department Dr. Placement Vice Department formerly Robert President—Keystone 1986. Andrew A.Best from President President President—Purchasing Officers R. C. Vice Manager—Raw 1980 Moran for Hawkins C. since since 54 President—Environmental Koppers and and Middleton to 1985; 1985; 1978. (1956) Manager—TraflIc Manager—Human 63 Environmental 47 since formerly formerly (1947) Materials. (1971) 39 Department 1971. (1978) Manager—Selection with Resources and National Resources since Transportation Resources 1982; Intergroup, since since 1986; and 30 continuing

which each In

Charles

Fletcher

Richard William

Anthony Andrew

ASARCO Retired Money metallic Corporation, Investors Retired Inc., Corporation, Koppers. Advisory North Copperweld a Director Co., Micasu Company. commercial Chairman, strand). President Copperweld Chairman

Corporation, Inc., the Executive Company, Bank,

(basic

(manufactures (investment

director

each

following

and

February

Chrysler

H. M.

American

and

N.A.

Market

April

Corporation. April

Class

minerals). Barber—71

of has

Strategic

From

Byrom—69

Lehman

Fund, A

Knoell—63

Board,

and Cyert—66

Incorporated

Mathieson—59 Vice

and

specialty

Chief Imetal,

Mellon

director construction).

Corporation,

Allegheny Corporation. served management). Mm

Lehman

(5)

General 28,

26, tables Bryan—65 II

Trustee

29,

Corporation,

Funds,

welded

Chief

1977

Inc.,

President

and

Name; Business

Business Name; Unilever

Philips

Executive

and

1982

Ven,

Management

1988.

Planning

and

Bank

steels are

of and

and Class

Lehman

director until

Investors,

Executive of

Mellon

Age;

Reinsurance a Age;

as Inc.,

ASARCO

and

International,

PNC

Other

set

(production Other of

director

Corp.,

Carnegie-Mellon

Corporation,

Chairman

Chairman The

CLASS

PLC

and

of III

Employer; Also,

Principal NOMINEES Also,

Employer;

Principal

Officer

1981,

forth

Associates.

Lehman The

Also, seamless

Federal

Business

Richard

directors,

Business Capital Financial of

First

Bank

fabricated

& Ralston

Tax

Fund,

a The Lehman

Officer

also

Incorporated, N.y.

director Occupation;

and

director

Occupation; Business

Koppers

Boston

Corporation

Business

Free and

of to

Corporation. director

Management Affiliations(

Express Continental

Affiliations(1)

tubing,

Inc.,

DIRECTORS Fund,

served Chemical

For

Inc., the

each Director

nonferrous

and

his

Purina

Corp.

of Chief

steel

Funds,

FOR

Corporation,

University

Mellon

Experience; Board

American of Three-Year

Corporation,

Copperweld

Director Experience;

Lehman

Inc.,

Principal

and

bimetallic Duquesne

Principal

her as

Company,

products;

Executive

Allegheny

Company, the

ELECTION

The

Bank General

Inc.

President

the

(Europe),

Corporation,

age Lehman

Government

and

metals

Cyclops

four

Directors

Lehman

and

Capital

number

WHOSE

(education). Standard,

and

International

Terms

Lehman

Sons

nominees

industrial

Light

rod, Corporation

H.J.

Officer

Hamilton

President

Re and

Advisory

principal

International,

Management

Industries

Mellon

Fund,

wire Heinz

Expiring

non

Unisys

Funds,

TERMS

Inc.,

shares of

CLASS

for

Also,

and

occupation

Inc.,

Oil

election

EXPIRE

Koppers

1991

September

December

June January April April

DIRECTORS

and

Director

Class Director

date 28, Served

Served date

27,

30,

Common

business

31,

from

1981

1965 from

28,

1984 19,

1989

1972

directors,

1960

1981

experience,

Stock

beneficially and

Directly

Beneficially

February February

Common

the

2,000 1,000

1,477 to

period

400

600 510

each

29,

Indirectly

Stock

Stock owned

Owned

(7) (6)

1988(2)

during

the

by Romesh Wadhwani—40 April 28, 1986 600 Chairman and Chief Executive Officer of American Cimfiex Corporation (manufacturer of software-intensive, proprietary products and systems for computer integrated manufacturing). Chairman and Director of Instaplan Corporation and Chairman of Datatrak Systems, Inc.

Glen C. Tenley—60 July 28, 1986 8,052 (4) President and Chief Operating Officer of Koppers Company, Inc. From 1984 to 1986 Vice President and General Manager—Tar and Wood Products Sector. From 1980 to 1984 Vice President and General Manager—Foundry and Industrial Supply Division.

CLASS III DIRECTORS WHOSE TERMS EXPIRE IN 1990 Common Stock Name; Age; Principal Occupation; Principal Served as Beneficially Owned Business of Employer; Business Experience; Director to Directly or Indirectly and Other Business Aflhliations(1) date from on February 29, 1988(2) Evelyn Berezin—62 April 28, 1980 500 Director of CIGNA Corporation, and DNA Plant Technology Corporation. Until September 1987 was President of Greenhouse Management Corporation, a subsidiary of Rand Capital Corp. (venture capital investment). Also, until December 1987 was a Director of ALYX Medical Systems.

Daniel M. Galbreath—59 April 30, 1984 500 President of John W. Galbreath & Co. (real estate development). Also, a director of Churchill Downs Incorporated, Ohio Bell/Ameritech and Borden Chemical and Plastics Limited Partnership. Also, Chairman of the Board of Galbreath-Ruffin Corporation and Member of the Board of Federal Reserve Bank of Cleveland.

Charles R. Pullin—64 February 23, 1981 14,226 (4) Chairman of the Board of Directors and Chief Executive Officer of Koppers. From 1981 until 1982 Vice Chairman of the Board of Directors of Koppers. From 1978 until 1981 President (Chief Operating Officer) of Koppers Construction Materials and Services Group. Also, a director of Pittsburgh National Bank (3) and PNC Financial Corp.

Edward Donley—66 October 27, 1986 1,000 A Director and Chairman of the Executive Committee of the Board of Directors of Air Products and Chemicals, Inc. Also, Chairman of the Executive Committee and Director of the U.S. Chamber of Commerce. Director of American Standard Inc., Mellon Bank Corporation, Mellon Bank, N.A., Pennsylvania Power & Light Company and Cooper Tire & Rubber Company.

(1) In its normal course of business, Koppers is a seller to and a purchaser from several of the companies for which Koppers directors serve as directors and/or executive officers. The annual magnitude of the aggregate transactions varies, but in 1987 was not material to the annual sales of any of the companies with which the above directors are associated. All such sales and purchases were made in the ordinary course of business and at competitive prices and terms. (2) The shares shown in the tables as owned by the directors in no case exceed 0.1% of the total outstanding shares of Koppers.

(3) Pittsburgh National Bank is Trustee for the Employee Savings Plan of Koppers Company, Inc. and Subsidiaries and Koppers was engaged in various other banking transactions with Pittsburgh National Bank in 1987 for which Pittsburgh National Bank received fees. Fees paid to Pittsburgh National Bank are competitive and the terms of such transactions

32 were comparable to those obtainable from similar institutions. Koppers expects that these or similar arrangements will be continued.

(4) Includes shares held under Koppers Employee Savings Plan and shares which said directors have the right to acquire beneficial ownership of within 60 days through the exercise of options under Koppers 1986 Stock Option Plan. (5) During 1987, Koppers obtained various banking and pension management services from Mellon Bank, N.A. for which Mellon received fees. Fees paid to Mellon are competitive and the terms of such transactions were comparable to those obtainable from similar institutions. Koppers expects that these or similar arrangements will be continued.

(6) Does not include 81,928 shares (.3%) of Koppers Common Stock held in two trusts of which Mr. Mathieson is a co-trustee with others, including Mellon Bank, N.A. Mr. Mathieson has no direct beneficial interest in such shares although, as a co-trustee, he shares voting and investment power with respect to these shares. (7) Does not include 3,975 shares owned by Micasu Corp., a corporation in which Mr. Byrom owns 70% of the voting stock.

Item 11. Executive Compensation EXECUTIVE COMPENSATION Cash Compensation The following table shows the cash compensation of each of the five most highly compensated executive officers of Koppers and the cash compensation of all executive officers as a group for services performed during 1987 in all capacities for Koppers and its subsidiaries. (A) (B) (C) Name of Individual or Capacities in Cash Number of Persons in Group Which Served Compensation(1)

Charles R. Pullin Chairman of the Board of Directors $ 582,673 (Chief Executive Officer)

Glen C. Tenley President $ 391,404 Burnett G. Bartley, Jr. Executive Vice President $ 323,370 Thomas M. St. Clair Vice President, Treasurer and Chief Financial Officer $ 237,650

Lester L. Murray Vice President $ 222,454 All executive officers (including the $4,041,095 foregoing) as a Group of 18.

(1) Includes payments made to participants in Koppers 1979 Performance Share Plan, described hereafter, pursuant to the dividend equivalents feature of the Plan, payments made pursuant to Koppers 1987 Incentive Plan for certain officers and key employees, and payments accrued pursuant to various bonus plans for executive officers who would not have been eligible for the Incentive Plan in 1987. Bonus plans are adopted yearly by each of Koppers operating groups and are based on the accomplishment of group profit objectives and the achievement of individual performance objectives. The bonus plans are designed to provide incentive and competitive compensation, in addition to salary, to those key employees who contribute to the growth and profitability of Koppers. An Incentive Plan for 1988 will be submitted at the Company’s March Board of Directors’ meeting to the Directors for their approval. Said Plan will cover certain officers and key employees and awards under the Plan will be subject to the prior review by the Compensation Committee of the Board of Directors of 1988 company-wide operations and the attainment of personal objectives.

Director Compensation Directors not otherwise employed by Koppers are currently paid an annual fee of $15,000 and, in addition, $750 for attendance at each meeting of the Board of Directors and each committee of the Board but not more than $1,500 for all meetings held in any single day. The Chairman of each committee of the Board is also paid an annual fee of $1,500. On June 29, 1981 the Board of Directors adopted a deferred compensation plan which allows each director to elect to defer payment of compensation until retirement, at which time payment will be made as elected in a lump sum or in five annual installments.

33 eligible Employee Koppers participant period

regular may from contributions.

trustee $1,600,000. standard earn the

after immediately of disability vested forfeitable stated

become (ii) Company

participants contribution Koppers group—$59,947; G.

The Koppers participants

based Due benefits) Reform Participants credit participate —TRASOP”) Koppers allocated to is to contributions the Pension All year have credited participating Normal

the

made

make

purchase

the

make

executive Employee interest

Plan

the

zero

not

Tenley—$5,57l; of

above, on

annual withdrawal

contributions employees

monthly

index

adoption

non-forfeitable

maintains

service certain

index; Act

employment.

end contributions Plan

withdrawals

Retirement to

Common

one

a paid

Savings service Common

served

annual contributions to was retirement,

and

percentage Participants

take

“vested”

the of

accounts earlier

(to make

Koppers’

of of or fund

subsidiaries

70%

officers supplemental

until to

the

also

Savings an eligible

make which

life (iii)

are

matching

the more

restrictive

1986

5,367 as whom

employees

discretionary

supplemental prior the

of and

annual

Plan

an plan

designed

regular

amended,

Stock. insurance

employees

of Stock

they entitled

described.)

year a the

the allocated

benefits

distribution after-tax

Employee of

when

guaranteed

also

of all requires death

of The are

for

a to eligible

B. Plan regular

and

and contributions

that joint

proxy

Koppers

the case

tax

the retire

all compounded participant’s

for

the

participants—$2,098,964.

and

contributions

withdrawal.

The

1970),

provided

100% monthly

Plan

provisions

made.

available

contributions

who

to compensation effective who

tax have

to following

credit

which Bartley,—Jr.—$4,643;

Employee

are venture

the

effective contracts.

employees

are

employees savings

contributions

or participate materials

contributions

Koppers Plan supplemental closely

Savings

credit

provides extreme involuntary

are

plan

are computed is

vested

trustee been

income

otherwise plus

Annual

not

employed plan contributions

eligible

they

eligible generally

shares covered

October

for

are between

participants

eligible

of contributions funds

to rate

first

However, approximate

l4%

Savings

Koppers

Plan,

equal

and

withdrawal.

of are in were of

delivered the the contract financial

the a with

are

supplemental

(excluding of

the

systematic

employees discontinue

January at the of

terminate

1984,

as would

are which,

Plan

the distributed). by Plan,

termination

not company

Tax not

available of 1, to

Koppers to

the provides

made.

a joint Koppers participate

directed

Plan

Koppers

1985.

receive

maximum Terminal

not

if plan

25%

regular

the

less

permitted

for

with

are

rate

Koppers Reform hardship.

effective

tax T.

based

venture up

the (These until

1, with

participant’s eligible

and

last The

In-service the than

two

deferred

distributed

and

employment Participants available

M. with

savings

to Metropolitan

1983, to and

deferred contribution

for

tax contributions

retirement

composite Common

matching

non-contributory trustee

day the

allocated

they

all full regard St.

1% in Plan

without 16% on

Most to Salary

10.7%

the

Act

ownership

benefit voting

January

amounts Redland

credit

made unless

between

the

for If eligible

Clair—$3,559; to 34 the

receive first

Plan

program

compensation

retire

participant:

of is a

for

of enable

withdrawals

Plan

in-service

executive

to the Terminal

(currently contributions, return

participant’s upon

for intended

base in employment

contributions

Stock.

of are contributions

the for

Years

contributions withdrawal. benefits cause, with 1986, rate

1987

employees or

excess taxable Koppers

Life

USA certain the

for

include

Koppers

for

and

of an

not any of

participant

compensation

Koppers termination 1987.

otherwise

with

on of

Koppers.

compensation Koppers

period

after

the a the

the

equal Insurance With

earnings

permitted all

pension Holdings, Salary

officer

return withdrawals. officers

to Koppers

from Plan

(i)

Pittsburgh

defined year

years alternative and of

Plan the

1987

encourage

and

the

Company

a employment

Common $7,800

amount In respect

such ending

and

fund

participant’s

Koppers. effective

made

other

terminated

equal terminate not

for Plan of Common

1987

Koppers,

Murray—$3,350;

Redland

such

plan

thereon 1983,

make was

of Plan

Company

common

benefits at

to the

may

Inc.

regular

which

composed

Koppers employment

multiplied

National

Year

were December

to distributions

employee least

discretionary

make to

tax

case, for

amended

for

investment

Tax

excess

employee

Standard

Year 1984, Stock

contributions

tax

upon

at the

make

the

$128. Salaried

are salaried

USA

deferred

its employment Stock. each is

for

the age

for for the

only

credit credit

matching

stockholders

withdrawals

tax Plan

which

terminated

was

participating not 1986

follows:

1985,

the

of by are

which

Bank)

contributions

any

death 59½

Participants discretionary Holdings,

end

employee

by deferred

stock

31,

those

$7,800

This

and savings

the vested

and Koppers

in completion

employees

employees.

participants made contributions

contributions

choices

all

savings.

which

Plan

provides reason

1986 the eliminate

supplemental

1988; cash,

they

trustee

for

executive

C. contributions earnings Poors

Plan

would

annual ownership

the

of with

employee’s

until

Year

retirement.

(I due

and in R.

equity,

investment and

contribution,

receive

Inc.

were

and

unless

who

the

which

other

Common subsidiaries

Koppers

was

1986

the

Pullin—$7,492; the

are

composite

that

Koppers.

as % are

1987.

two Directors

supplemental of

investment

become

the

supplemental

$690,270 effective

who

(iv)

in thereon, made

Koppers, “TRASOP”

merged officers

not

directed

amount

for

retirement, a to

may

are

than

made. Plan special

funds

permits

eligible

full

plan

the one

ability

company

the

have towards

The

years

years election

allowed

and/or

Annual

held makes

by Stock;

would

range

those years

Plan.

year

Prior

Year. non-

and

date

Plan and

will

500

as who

the into Tax

(the Tax

was are

one

tax

its

of a

to in

of of

a k .

Credited Terminal

Service sales includes prior

annuity was excess December amended, tions, Murray—3 general

The will Company year recipient are Long more Effective Occurs. Terminal would

and exceeding Deferred sSee Koppers person. long-term and have three credited termination Participants’ Upon Koppers

not

as be

information

commissions

of by

dividend to

definitions

including

Term

and

directors

termination

occur

for

from

continued

employment.

funds follows:

basis, retirement

eligible

Each

basic promoting

right

Salary Service

with

January Earnings Deferred

Common would

from the

Compensation Salary*

Retirement 31,

adopted

1,000,000 returns

1.75.

$100,000 Disability

date

January

200,000 250,000 receipt 400,000 300,000

350,000

if 150,000

accounts

to election unit

Annual to maximum

1987,

unit

the the

any

not

of to

The

number

in C.

an vote, then

contained prior

°‘I

with

paid,

minus

participate 1,

Koppers of to affording

Compensation

pension the recipient a

in Stock in

the

amount employee the Benefits R.

equivalent

may following

its

All

1985, non-contributory,

Koppers

employment

receive

and excess

of Salary

his

Plan

to an

“Pension

(except Pullin—33.75;

number

stockholder and

present

executive

Unit 1983.

amount Primary

50%

Estimated on January

amount

or each

the in

dividend

trust.

of who co-annuitant

not overtime

the awarded is

the

defined

her a

the who

Plan

table

found

A Koppers

stockholders of

Pension

$16,000 when unit

to Normal

$ form.

highest

the

Plan”

dividend

are

103,571 121,071

138,571

The

above participant’s account

the permitted

Unit Social

one 33,571 68,571 51,071 86,071

equal officers

years

excess

draws

contains

point

Plan. Annual units

not

as to

the

payments)

Primary 1983.

Board

share reason

Plan description.

Long

plus

Plan Company, be

officer table of

Retirement* such

officers

Security

eligible

participant option

record

equal

dividends Eligible were of

each

no Credited

the

For

of by

was

1¾% to Retirement Koppers

100%

has

approximate

was

is average

view Term

Tenley—32.5; longer

Terminal Koppers Social $

aggregate

enabling

and

a January

129,626 to 107,751

151,501 service 173,376

and death,

approved adopted

to 42,126 for date.

64,001

85,876

director,

Disability

amended

of share

Inc.

salaried

25 paid among

the

Disability

participate,

other

Service

whenever

December the

payment elects in

benefit

Terminal

are Security

the

Each

amount

and

retirement

receipt

Common

from

under

during

Benefits

Koppers

five Salary

covered

fair

amount

key retirement

assuming Years

key

employees*

resolution Koppers one-half Subsidiaries

for

Award,

participant

from

35 (5)

market the

January

have $

employees Plan by

Disability

removing Salary

of employees.

the

of 208,181 of

129,431 155,681 103,181 each 181,931 31,

all

equals

but

dividend

50,681 76,931

consecutive

Koppers

Under stockholders Credited under

Stock

dividends 30

permitted

the

years

1987

Employee the for Social

will Bartley,

not

of retirement

attract

Common

benefits

value

in limiting disability

Salary

the

the salaried

the who 1, dividends

the

except

excess more for generally

(or and

the

Service the

Award.

1983

Security

out

Under

total individuals average

Credited

declared on

Plan.

Salaried his and

the are

Salaried

Jr.—38.42;

disability payable

Pension

years

than

Retirement the

212,361 242,986

120,486 151,111 181,736

such

based

that administrative of Stock

at be

benefits 59,236 at employees.

89,861 or

participants continuously

amount

retain

35 its

Directors

credited

$16,000

Retirement

age

March

amount

this

receive

paid

her

have

Disability

annual

40,000

the

date general

and

Service

on Employees

Pension

divided

65,

Plan.

the

beneficiary

named

plan stock

retirement

employees

from

employees disability are

the

his

of payable

26,

payments

(or

annual

multiplied ten

which

Income

units

amount Eligibility

who

incentive

Termination

assumption deferred computed

or funds

if would is

the

his 1956

at Award

207,791 242,791 277,791 disabled

172,791 102,791 137,791

committee in

Plan

(10)

67,791

less

issued,

her

St.

the

have

the

may or

on pension

Koppers the benefits

in continues

provision.

and of

than in

Security

years

account

have

made of Clair—29.33;

her

option

Koppers

cash

case

or by

outstanding

any

compensation

payments

closing not

higher

be for

the

for Compensation

death,

the

account

that

five

composed received designed

awarded

served

trust. compensation of of amount

based

participation on

the holders

five

may

years $

disability

Credited

death)

credited

until Act

salary

the

233,846 (5) 273,221 312,596

the 155,096

194,471 115,721 In

Common

market

the 76,346

rate

whichever

(5)

pay

and

upon

its

pension

years.

straight-line

of of

competence

which

participant,

if age

and

to to

months

employees

classifica

cash),

place,

is of

out

Credited

each

units

bonuses,

1974, the

improve

any

price Service

(which benefits

50%

entitled

at 65, 1%

As Stock.

is L.

table

units

such

plan

least

first unit

one

not the

the

are

its of L.

of on a selected value date) of the number of shares of Common Stock which is equal to the number of units in his or her account, minus the aggregate fair market value of such shares at the time such units were credited to his or her account, and to have the dividend units in his or her account converted into dollars at the fair market value of Koppers Common Stock on that date. On April 29, 1985, the stockholders approved an amendment and restatement of the Deferred Compensation Unit Plan which provides that with respect to any participant whose date of termination, of employment (“Termination Date”) is on or after May 1, 1985 that (i) units awarded on or after May 1, 1985 to such participant shall have a value on the date of award (“Award Date”) equal to the average of the closing prices of Koppers Common Stock on the New York Stock Exchange (“Closing Price”) on the trading days during one full year immediately prior to the Award Date; (ii) units and dividend units of such participant shall have a value as of the Termination Date equal to the highest of the annual averages of the Closing Prices for each of the three years immediately preceding the Termination Date; (iii) such participant’s account will be revalued on each of the first, second and third anniversaries of such participant’s Termination Date based on the average annual Closing Prices during each of such years, and any appreciation in the value of units and dividend units between such Termination Date and such anniversaries (or, if the Plan is terminated prior to the third anniversary, the value, if higher, as of such Plan Termination Date) be paid to such participant; (iv) if the Plan is terminated, such participant’s units and dividend units will be valued as of the Plan Termination Date at such value as the Board of Directors determines by reference to either the Closing Price on the Plan Termination Date or the highest Closing Price during the 90 trading days immediately prior to the Plan Termination Date; and (v) such participant’s ability to elect to have his or her units and dividend units valued after his or her Termination Date is eliminated. However, payment to each participant will continue to be made, at the participant’s option over a five or ten year period. As a condition to the award of units, a participant must agree to remain in the employ of Koppers (subject to the right of Koppers to terminate his or her employment at any time) for five years after the date of such award, or until retirement prior to the expiration of such five year period. Approximately 249 employees of Koppers were participants in the Deferred Compensation Unit Plan during 1987. In 1987, deferred compensation units were awarded as follows: C. R. Pullin—0, G. C. Tenley—7,600, B. 0. Bartley, Jr.—5,000, T. M. St. Clair—4,000, L. L. Murray— 3,000; all executive officers as a group—52,900 units; all employees—254,625 units; the aggregate dividend credits allocated to C. R. Pullin, G. C. Tenley, B. 0. Bartley, Jr., T. M. St. Clair, L. L. Murray, and such groups in 1987 were $60,249, $26,760, $59,334, $33,710, $22,020, $421,593, and $924,778, respectively.

1979 Performance Share Plan The 1979 Performance Share Plan, which was approved by Koppers stockholders on April 30, 1979, permits the grant of up to 500,000 performance shares to key employees of Koppers by the Compensation Committee of the Board of Directors. The Plan is designed to increase returns to stockholders by providing long-term incentives in the form of stock ownership to such ke.yemployees who are believed to have an opportunity to influence significantly Koppers long-term growth. Any performance shares which are forfeited by employees may be awarded again but no performance shares may be granted after December 31, 1988. The performance shares granted become earned, upon conclusion of the applicable performance period, only to the extent that Koppers growth in earnings per share of Koppers Common Stock during such period reaches certain levels specified by the Compensation Committee of the Board, none of whose members are eligible to receive performance shares. During the performance period, a participant receives cash equal in value to the dividends he or she would have received if each performance share were a share of Koppers Common Stock. If the performance goals are attained, in whole or in part, the number of performance shares earned by a participant are to be paid by delivering (a) a certificate for that number of shares of Koppers Common Stock which is equal to the number of performance shares earned, and (b) cash equal to the fair market value of the number of shares of Koppers Common Stock so delivered. If the performance goals are not attained, no award will be paid for the period to which such goals relate. The following annual payments were made pursuant to the dividend equivalents feature of the Plan in 1987 at an annual dividend rate of $1.00 in 1987: C. R. Pullin—$3,500; 0. C. Tenley—$l,400; B. G. Bartley, Jr.—$1,700; T. M. St. Clair—$l,400; and L. L. Murray—$l,200. The following annual payments were also made by Koppers pursuant to the dividend equivalents feature of the Plan during 1987: all executive officers as a group—$2 1,900; and all employees—$ 146,105.

1986 Stock Option Plan Koppers’ 1986 Stock Option Plan providing for the granting of incentive stock options, nonqualified stock options and stock appreciation rights to officers (including directors who also are officers) and other key employees, was approved by the stockholders on April 28, 1986. The Plan is administered by the Compensation Committee of the Board of Directors of Koppers (“Committee”) which is composed entirely of directors who are not eligible to participate in the Plan. Subject to the adjustments provided in the Plan, the aggregate number of shares of the common stock of Koppers for which options may be granted under the Plan is 1,000,000 shares. Subject to the provisions of the Plan, the Committee determines the persons to whom options shall be awarded and the number of shares to be covered by each option. The Committee has the authority, in its discretion, to grant “incentive stock options” 36 within the meaning of Section 422A of the Internal Revenue Code or to grant “nonqualified stock options” (options which do not qualify under Section 422A of the Internal Revenue Code) or to grant both types of options. Furthermore, the Committee may include a stock appreciation right in connection with a stock option, either at the time of grant or by subsequent amendment. The Committee establishes the option price at the time an option is granted at such amount as the Committee determines, except that with respect to incentive stock options such option price can not be less than 100% of the fair market value of such shares on the day such option is granted. The option price ofeach share purchased pursuant to an option must be paid in full at the time of purchase. Such price shall be payable in cash, or at the discretion of the Committee, by delivering to Koppers of other shares of common stock of Koppers owned by the optionee. Shares delivered to Koppers in payment of the option price shall be valued at the fair market value of the common stock of Koppers on the day preceding the date of the exercise of the option. A stock appreciation right (SAR) entitles the optionee to surrender to Koppers the related option, or any portion thereof, and receive from Koppers in exchange therefor an amount equal to the excess of the fair market value of one share of the common stock of Koppers on the day preceding the surrender of such option over the option price per share times the number of shares called for by the option or portion thereof, which is surrendered. The Committee has the right to determine that Koppers’ obligation to any optionee exercising a SAR shall be paid in cash, or partly in cash and partly in shares. During 1987, options for an aggregate of 179,025 shares of Koppers common stock were granted having an average per share exercise price of $32.375. Of the 179,025 shares of Koppers common stock subject to options granted during 1987, an aggregate of 89,513 shares were in tandem with SARs. Of the 442,175 options outstanding under the Plan, Directors and Executive Officers held as of December 31, 1987 options to purchase 211,700 shares under the Plan, representing approxi mately 48% of the outstanding options under the Plan at that date. As of December 31, 1987, 88,736 stock options were exercisable within 60 days. The table below shows information with respect to options and SARs granted, and the exercise of options and SARs, during 1987 for each person whose compensation is reported by name and for all persons who served as executive officers during 1987 as a group: For the Period January 1, 1987—December 31, 1987 Average Net Value Number of Number of Price of Realized Number Average SARs SARs not SARs not Upon of Option Granted in Granted in Granted in Exercise of Options Price Per Tandem Tandem Tandem Options/ Name/Group Granted Share (1) With Options With Options With Options SARa (2) Charles R. Pullin 20,000 32.375 10,000 Glen C. Tenley 9,500 32.375 4,750 Burnett G. Bartley, Jr. 7,000 32.375 3,500 Thomas M. St. Clair 5,000 32.375 2,500 Lester L. Murray 3,500 32.375 1,750 All executive officers (including the foregoing) as a Group (18) 81,000 32.375 40,500

(1) In all cases, option prices were at least 100 percent of market value ondates of grant. (2) In 1987, Mr. Tenley exercised nonqualified stock options in respect of 4,000 shares of common stock. On the date of exercise, the fair makret value of the shares of common stock acquired by Mr. Tenley upon the exercise of the option

exceeded the exercise price of such option by $ . Under the Code, Mr. Tenley is not required to report such amount as taxable income until the expiration of six months from the date of exercise, unless Mr. Tenley files an election under Section 83 (b) of the Code to accelerate the taxation of the gain. If no such election is filed, the actual amount subject to federal income tax shall be determined based upon the fair market value of such shares of common stock on the date such six month period expires.

Item 12. Security Ownership of Certain Beneficial Owners and Management Security Ownership of Principal Stockholders and Management The directors and officers of Koppers as a group (28 persons) owned beneficially 129,320 shares, or approximately .5%, of Koppers Common Stock at February 29, 1988, excluding the shares as to which Mr. Mathieson shares voting and investment 37 power as a co-trustee of trusts referred to in footnote 6 to the above tables.

Based upon information set forth in a Schedule 13G filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 and received by Koppers on February 8, 1988, Equitable Life Assurance Society of the United States and its two subsidiaries, Alliance Capital Management Corporation and Wood, Struthers & Winthrop Management are the beneficial owner of 1,861,150 shares of Koppers Common Stock, or 6.6% of such shares outstanding as of February 29, 1988.

Item 13. Certain Relationships and Related Transactions

See Item 10.

Part IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) (1) The following financial statements included in Koppers Annual Report to Stockholders for the year ended December 31, 1987 are included herein.

—Report of Certified Public Accountants —Statement of Accounting Policies —Consolidated Statement of Operations for the years ended December 31, 1987, December 31, 1986, and December 31, 1985 —Consolidated Balance Sheet as of December 31, 1987, and December 31, 1986 —Consolidated Statement of Cash Flows for the years ended December 31, 1987, December 31, 1986, and December 31, 1985 —Consolidated Statement of Stockholders’ Equity for the years ended December 31, 1987, December 31, 1986, and December 31, 1985 —Notes to Consolidated Financial Statements

(2) Schedules for the three years ended December 31, 1987. Schedule Number Schedule Title V Property, Plant and Equipment VI Accumulated Depreciation of Property, Plant and Equipment VIII Valuation and Qualifying Accounts and Reserves IX Short-Term Borrowings X Supplementary Income Statement Information Schedules I, II, Ill, IV, VII, XI, XII, XIII, and XIV are not given, as the subject matter thereof is not present or is not present in amounts sufficient to require submission of the schedules or because the information required is included in the financial statements or the notes thereto.

(3) Exhibits required to be filed by Item 601 of Regulation S-K are listed below and are filed as part hereof. Documents not designated as being incorporated herein by reference are filed herewith. The paragraph numbers correspond to the exhibit numbers designated in Item 601 of Regulation S-K. 1—3.1 Koppers Certificate of Incorporation, as amended, and the Certificate of Resolution, dated December 16, 1980, setting forth certain terms of Koppers $10 convertible preference stock, filed as exhibits 4.1 and 4.2 to Koppers Registration Statement No. 2-70174 and incorporated herein by this reference.

2—3.2 Certificate of Amendment to Koppers Certificate of Incorporation, dated May 1, 1984, filed as Exhibit 3.2 to Koppers Annual Report and Form 10-K for the year ended December 31, 1984 and incorporated herein by reference. 3—3.3 Certificate of Amendment to Koppers Certificate of Incorporation, dated April 28, 1987. 4—3.3 Koppers By-Laws as amended to December 14, 1987. 38 5—10.1 Koppers Restated Deferred Compensation Unt Plan, filed as Exhibit 10.2 to Koppers Annual Report and Form 10-K for the year ended December 31. 1Q84and incorporated herein by reference. —l0.2 Koppers Deferred Compensation Plan for Directors, tiled as Exhibit 10.3 In Koppers Annual Rcort and Form 10-K for the year ended December 31, 1984 and incorporated heren by this reference. 7—10.3 Koppers 1986 Stock Option Plan. flied as Exhibit 10.3 to Koppers Annua! Report and Form 10-K for the year ended December 31. 1986 and incorporated herein by reference. 8—10.4 Koppers 1979 Performiiwe Share Plan, filed as Exhibit 10.5 to Koppers Annual Report and Form 10-K for the year ended December 31, 1Q84and incorporated herein by reference. 9—10.5 Koppers 1988 Executive Incentive Plan. An Executi’.e lncenti’.e Plan for 1988 for certain officers and other key employees ‘.villhe submitted to Koppers Board of Directors at their March 1Q88 Board of Directors meeting. Said plan will pro’.ide that each plan participant will be assigned a target a’.’.ard level, and tie or she will receive an incentive payment if Company and mdi’.idual performance criteria are met. The Chair man will recommend to the Compensation Committee of the Board of Directors the distribution of such portion of the Plan fund as he deems appropriate: or if he so determines, he may recommend that no a’. ards be made for performance during the Plan year. Upon appropriate review of the Company’s performance during the Plan year, the Compensation Committee shall act upon the Chairman’s recommendations. Any award to the Chairman shall be determined by the Compensation Committee of the Board of Directors. 10—22 Listed below are the Koppers subsidiaries whose accounts are included in its consolidated financial state ments. Koppers has 46 other subsidiaries, which are not named here because all of them, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.

Subsidiary and Jurisdiction of Incorporation Davidson Mineral Properties, Inc.—Del. Associated Asphalt Products Co-—Ga. Reeves Construction Co—Ga, Cherokee Crushed Stone, Inc—Del. Meadow Steel Products, Inc—Del. DHH Investments, Inc.—Wash. Kaiser Sand & Gravel Co—Del. Acme Concrete Company—Wash. The Kentucky Stone Co—Ky. Yakima Concrete and Asphalt Company—Wash. Keystone Environmental Cunningham Sand and Gravel Co—Wash. Resources, Inc—Del. Eastern Rock Products, Inc—N.Y. Koppers International Canada Ltd—Canada Echols Brothers, Inc—Del. Lycoming Silica Sand Co—Pa. Fairfield Bridge Company, Inc—Del. Pettit Paint Company, Inc—N.J. France Stone Company—Ohio Sloan Construction Co., Inc—S.C. The General Crushed Stone Co—Del. Sully-Miller Contracting Co—Calif. Chester Carriers, Inc—Del. Kern Rock Company—Calif. Easron Mack Truck Sales, Inc—Pa. P&K Materials, Inc—Calif. Reed Paving, [nc—N.Y. South Coast Asphalt Products Co—Calif. The Stone Man, Inc—Del. Southern Pacific Milling Co.—Calif. Sim J. Harris Co.—Del. Nello L. Teer Co.—Del. Herbert R. Imbt, Inc—Pa. Comfort Engineers, Inc—NC. Keystone Pavement and Guest Associates, Inc—NC. Construction Company, lnc.—Pa. Nello L. Teer International, lnc.—Del. Southern Arizona Paving Thiem Corporation—Del. and Construction Company—Ariz. Western-Mobile, lnc.—Del. (50% equity investment) Holland Contracting Co—Ga. Ivy Steel & Wire Company, Inc—Del. 11—24 Consent of Arthur Young & Company, Certified Public Accountants Copies of the exhibits listed above will be furnished upon request to holders or beneficial holders of any class of Kopers stock, subject to payment in advance of the cost of reproducing the exhibits requested. b) The only Form 8-K filed by Koppers during the fourth quarter of 1987 was filed on November 30, 1987. That report related to the fact that Koppers would take an after-tax charge estimated at $63 million in the fourth quarter of 1987 relating to the Engineering and Construction business sold by Koppers in 1984.

39 Pursuant Form

Pursuant persons

/s/

10-K

CHARLES GLEN

FITZHUGH

Charles

Glen

Charles

Fitzhugh Anthony Evelyn

Fletcher Edward Dr. Daniel Dr. William

behalf

the

Richard

Romesh

Signature

requirements

Berezin

Tenley

signed

Donley

TENLEY L.

R. J.

Barber L. Gaibreath

Pullin

A. Byrom

Koppers Knoell

PULLIN Brown

M. Wadhwani

BROWN

Bryan

Cyert

its

behalf

the

Section

the

Securities

capacities

SIGNATURES

the 13

undersigned,

Exchange

and 15(d)

KOPPERS

Chairman

Director, Vice

Director Director Director Director Director Director Director Director Director

and

Chief

of REQUIRED

the

(Registrant)

President the

Act

Chief /s/

thereunto

Thomas

date

Operating

Securities

President

COMPANY,

THOMAS

indicated.

1934,

Executive

the

and

FOR

Capacity

By Board duly

this

Officer

Exchange St.

and

Comptroller .

FORM 7”.

authorized,

Form

Clair,

Officer

INC.

ST.

Directors .

P.Q-P.

Donald

CLAIR 10-K

Vice

Act

Attorney-in-Fact

10-K

President

of on

has

1934,

March

been

Cuozzo

Koppers

and

signed

29,

Chief

1988.

below

has

Financial

duly

March

the

caused

Date

following

Officer

29,

1988

1988 1988

1988

this

Pittsburgh,

ARTHUR

Koppers 2-89784

Inc.

Exhibit

the

included

No.

consent

and

Company,

YOUNG

Pennsylvania

33-6

Prospectus

the

Consents

107)

the

Inc.

Form

pertaining

incorporation

COMPANY

10-K

our

Experts

for

CONSENT

Report

the

and

year

reference

Employee

dated

Counsel

ended

January

CERTIFIED

with

Savings

December

respect

25,

Plan

1988

31,

PUBLIC

and

the

1987

included

financial

1986

ACCOUNTANTS

Stock

the

statements

Registration

the

Option

1987

Plan

and

Annual

Statements

schedules

Koppers

Report

(Forms

Company,

Koppers

Stockholders

S-8,

Company,

Numbers

Inc.

and of and Koppers Schedule

Classification For

1987

1986

1985

(1)

the Consolidated

Includes Land Buildings Depletable Machinery Depletable

1985 Buildings Machinery Land Depletable Depletable

Machinery Land Depletable Buildings Depletable

Years

Company,

V—Property,

$64,856

Ended Total

$300,921 Total

Total

timber mineral and

mineral

timber and

timber mineral and

Subsidiaries

Inc.

equipment

December

properties

properties Plant

properties

transfer

properties

1987,

and

$70,344

31,

Equipment

net

1987,

assets

1986

1986,

and

discontinued and

1985

$14,705

$1,093,117 $

$1,065,371

$ $1,289,945

1,005,451

Balance

beginning

900,515

100,286 872,595

101,410

136,039 in

operations. 48,358 36,833

47,665

36,693

51,307 82,150

14,998 of

7,125

7,008

1985

year

from

$113,931

$ $136,621

$ $106,297

operations Additions

96.564

99,754

94,692

11,609

18,904

4,843

4,084 5,723 5,333

4,178 2,270

1,468 2,028 3,749

1,650

cost

disposed

Retirements

Thousands)

$ $108,995

$ $330,105

227,102

sales(1)

57,751 72,261

72,329

38,522

38,234 12,295

18,211

16,607

4,812

6,235 4,007 3,134

2,153

9,640

329

(deductions)

closed.

and

Transfers

additions

$1,836

$7,660 $

$ S

4,205

1,595 — — — — —

other

(438)

(766) (285) (446)

495

120

(35)

Also, -

included

$1,142,447

$ $1,093,117

$ $1,065,371

943,533

900,515

102,402

872,595

100,286

101,410

43,183

Balance 50,971 48,358

36,833 47,665 at

36,693

2,358

7,125

7,008

year

in and Koppers Schedule

For

Description

1987

1986

1985(1)

(I)

(2) (3)

Consolidated the

Depreciation

Depletion

Depreciation Includes Includes Depletion Includes

1985 Depreciation Depletion

Years

Company,

VI—Accumulated

Ended provision Total $40,543

Total $2,745

Total $173,016

Subsidiaries

and

Inc.

December

in amortization

amortization

relating

transfer

1987,

Depreciation,

$4,558

$34,123

31,

both

Net

1987,

Assets in

continuing

1986, 1986

Depletion

1986,

and

Discontinued

and 1985

$53,277

and

$9,798

discontinued

Amortization

$626,821

$638,487 Balance

in $610,408

$629,108

$666,128

$682,693

beginning

1 1985

Operations.

18,700 of

16,565

1985

1,666

year

from

operations.

valuation

charged

operations Additions

$69,705

573.531

$66,754

$70,208

$78,074 $81,665

income

3,826

3,454

3,591

reserves

Retirements(2)

disposed

Thousands)

S $

$175,587 $188,160

43,777 47,061

50,659 61,085

10,426

12,573

3,284

for

operation

additions(3)

closed.

$ S

$41,793 $52,910

11,117

Other

952

946

318

256

closed

(62)

(6)

Also,

included

$653,701 $665,903

$626,821 $638,487

$610,408 disposed. $629,108 -

Balance

12,202

(if

18,700

1,666

year

in and Schedule Koppers For

1987

1986

1985(1)

(1) (2)

Consolidated the

Accounts Includes Allowance Allowance Allowance

Allowance Allowance Allowance

Years

Company,

Vill—Valuation

Description

provision

Ended

written

for for for for

for for

for for for

Subsidiaries

Inc.

doubtful doubtful decline

doubtful doubtful

decline doubtful doubtful decline

December

off,

relating

less and

accounts notes

value

recoveries.

Qualifying

31,

receivable both

receivable

1987,

investment

continuing

1986

Included

Accounts

and

1985

discontinued

$459

Balance

operations.

transfer

beginning

$15,135

$ $13,846

$ $11,374

4,145

2,770 4,567 8,220

2,770 6,509

3,872 2,049 5,453

year

net

assets

Additions

$1,636

$1,636 charged

$4,951 $4,951

$3,354 $4,770

income

695 721 — — — —

Thousands)

discontinued

Deductions(2)

$1,174 $5,319

$3,240 $3,662

$2,298

4,145

422 — — — —

operations.

$11,452

$ $15,135

$ $13,846

Balance

2,770 8,682

4,145

4,567 2,770 8,220

6,509

2,770

year — and Koppers

Schedule For

1987

1986

1985

(I) Category (2)

Consolidated

the

Amounts

Commercial

Amounts The Commercial average

Included Amounts Commercial

Years

Company,

tX—Short-Term

average

Short-Term

interest Ended

payable

Subsidiaries

term paper

paper amount

Inc. paper

December

Borrowings

rate

debt to

banks

banks Borrowing for

outstanding banks

due

each

31,

within

period 1987,

for

one

1986

was

each

year.

computed and

period

1985

was

computed

weighting

Balance

$1,150(2)

$l,286(2)

$1,307(2)

end period -

the —

of —

using —

effective

eighted

daily

average

interest

17.0%

10.8%

interest

13.5% — —

—

rate

average

amount

rate

Maximum

during

$35,000 Thousands) $40,000

$ standing

$ $59,750

during

- period

over 1,307

2,221

out

the —

the

amount

the

during

period(

year. $ $11,440

$ standing

$ Average $19,610

year.

4,206

1,146

1,208

out

the

The

period(

%eighted

weighted

rate

average

interest

ing

12.1%

14.5%

8.9% 7.1%

8.2%

dur

the