<PAGE>
 
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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
                                   FORM 10-K
                               ----------------
 
(Mark One)
 
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
 
For the fiscal year ended December 31, 1998
 
OR
 
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
 
For the transition period        to       Commission file number 1-12716
 
                           KOPPERS INDUSTRIES, INC.
            (Exact name of registrant as specified in its charter)
 
             Pennsylvania                            25-1588399
     (State or other jurisdiction                 (I.R.S. Employer
   of incorporation or organization)             Identification No.)
 
                              436 Seventh Avenue
                        Pittsburgh, Pennsylvania 15219
                                 412-227-2001
                  (Addresses of principal executive offices)
            (A registrant's telephone number, including area code)
                               ----------------
          Securities Registered Pursuant to Section 12(b) of the Act:
 
<TABLE>
<CAPTION>
                                                        Name of each exchange
        Title of each class                              on which registered
        -------------------                            -----------------------
   <S>                                                 <C>
   9 7/8% Senior Subordinated Notes due 2007           New York Stock Exchange
   8 1/2% Senior Notes due 2004                        New York Stock Exchange
</TABLE>
                               ----------------
       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 (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
                                  Yes X No
 
  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X]
 
  There is no voting stock held by non-affiliates of the registrant as of
December 31, 1998. Shares of voting stock held by the Management Investors
(see Item 10. Directors and Executive Officers of the Registrant) are not
included. However, the Registrant has made no determination that such
individuals are "affiliates" within the meaning of Rule 405 under the
Securities Act of 1933, as amended.
 
  Voting Common Stock and Senior Convertible Preferred Stock, both par value
$.01 per share, outstanding at March 1, 1999, amounted to 1.5 million and 2.3
million shares, respectively.
 
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<PAGE>
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
 Item                                                                      Page
 ----                                                                      ----
 <C>  <S>                                                                  <C>
                                     PART I
 1.   Business...........................................................    1
 2.   Properties.........................................................   14
 3.   Legal Proceedings..................................................   15
 4.   Submission of Matters to a Vote of Security Holders................   15
 
                                    PART II
 5.   Market for the Registrant's Common Equity and Related Stockholder
      Matters............................................................   15
 6.   Selected Financial Data............................................   16
 7.   Management's Discussion and Analysis of Financial Condition and
      Results of Operations..............................................   17
 7a.  Market Risk........................................................   26
 8.   Financial Statements and Supplementary Data........................   27
 9.   Changes in and Disagreements with Accountants on Accounting and
       Financial Disclosure..............................................   27
 
                                    PART III
 10.  Directors and Executive Officers of the Registrant.................   28
 11.  Executive Compensation.............................................   32
 12.  Security Ownership of Certain Beneficial Owners and Management.....   35
 13.  Certain Relationships and Related Transactions.....................   36
 
                                    PART IV
 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K....   38
 
                                   SIGNATURES
      Signatures.........................................................   66
</TABLE>
<PAGE>
 
                                    PART I
 
ITEM 1. Business
 
General
 
  Koppers Industries, Inc. (the "Company" or "Koppers") is a global integrated
producer of carbon compounds and treated wood products for use in a variety of
markets including the railroad, aluminum, chemical and steel industries. The
"Koppers" name has been associated with the carbon compounds and wood treating
businesses for over 70 years, and the Company has a leading position in most
of its markets. The Company operates 22 facilities in the United States and,
through the acquisition in December 1997 of the remaining outstanding equity
of Koppers Australia Pty. Limited ("Koppers Australia"), an additional 13
facilities in the South Pacific (primarily Australia and New Zealand). The
Company also maintains indirect ownership interests in an additional facility
in the United States through its domestic joint venture KSA (as defined
herein) and in five facilities overseas (one in Denmark and four in the United
Kingdom) through its Danish joint venture Tarconord A/S ("Tarconord"). The
Company recorded net sales and net income of $670.6 million and $20.1 million,
respectively, for the twelve months ended December 31, 1998. For the same
period, the Company's businesses, Carbon Materials & Chemicals and Railroad &
Utility Products, accounted for 51.7% and 47.8% of net sales, respectively.
The remaining net sales were from the liquidation of inventories at the
Company's coke facility in Woodward, Alabama ("Woodward Coke") which ceased
operations in January 1998.
 
  The Company's Carbon Materials & Chemicals division is a supplier of a)
carbon pitch, which is used primarily by the aluminum industry as a binder in
the manufacture of anodes; b) phthalic anhydride ("PAA"), used in the
manufacture of plasticizers, resins, paints and dye making; c) creosote and
chemicals used in the protection of timber against termites, fungal decay and
weathering; d) roofing pitch, used in the manufacture of built-up roofing
systems; e) carbon black, used in the production of rubber tires; and f)
furnace coke, used in the manufacture of steel. The Company's Railroad &
Utility Products division a) provides various products and services to
railroads, including crossties (both wood and concrete), track and switch pre-
assembly, and disposal services; b) supplies treated wood utility poles to
electric and telephone utilities; and c) performs various wood treating
services for vineyards, construction and other commercial applications.
 
 Saratoga Investment and Recapitalization
 
  On October 15, 1997, KAP Investments, Inc. ("KAP", a wholly-owned subsidiary
of Koppers Australia) and a group of approximately 120 individual investors
who were either officers, Board members or current or former employees of
either Koppers Industries, Inc. or one of its subsidiaries (the "Management
Investors") (collectively, the "Offeree Stockholders") acquired from
Cornerstone-Spectrum, Inc. (an affiliate of Beazer East, Inc. and Hanson PLC)
its voting and non-voting shares of common stock of Koppers Industries, Inc.
("Common Stock"). The Offeree Stockholders utilized $52.5 million of financing
from Koppers, Saratoga Partners III, L.P. ("Saratoga") and Saratoga Koppers
Funding, Inc. ("Saratoga Koppers"). On December 1, 1997, Saratoga exchanged
2.1 million shares of Common Stock it acquired as part of the financing of the
acquisition of Common Stock from Cornerstone-Spectrum, Inc. for shares of a
new series of senior convertible preferred stock of Koppers Industries, Inc.
(the "Preferred Shares"), which entitles Saratoga to elect a majority of the
Board of Directors of Koppers Industries, Inc. (the "Board of Directors") and
to exercise a majority of the voting power over all outstanding stock of
Koppers Industries, Inc. with respect to all other matters subject to a
stockholder vote.
 
  The Company sold $175.0 million of 9 7/8% Senior Subordinated Notes (the
"New Notes") due 2007 on December 1, 1997 in a private placement and
established with Swiss Bank Corporation, Stamford Branch and Mellon Bank, N.A.
a total of $135.0 million of senior term loan facilities and a $140.0 million
senior revolving credit facility ($40.0 million and $20.0 million of which was
reserved for use in connection with a term loan and a revolving credit
facility, respectively, of Koppers Australia) (the "New Credit Facilities").
The proceeds from the New Credit Facilities have been used to complete the
following transactions: (i) the acquisition of The
 
                                       1
<PAGE>
 
Broken Hill Proprietary Company Limited's ("Broken Hill's") 50% interest in
Koppers Australia; (ii) the repayment of $98.9 million of the 8 1/2% Senior
Notes of Koppers Industries, Inc. due February 1, 2004 (the "Old Notes")
tendered pursuant to a tender offer, plus $6.4 million of redemption premium
thereof; (iii) the repayment of outstanding indebtedness of approximately
$88.1 million under the Company's term loan and revolving credit facilities;
(iv) the redemption of 1.8 million shares of non-voting Common Stock owned by
APT Holdings Corporation, an affiliate of Mellon Bank, N.A. for $22.9 million;
(v) the redemption, at $17.00 per share, of 0.5 million shares of Common Stock
owned by current and former employees of Koppers and Clayton A. Sweeney (a
member of the Board of Directors) for $8.8 million; (vi) the redemption of 0.4
million non-voting shares of Common Stock from Saratoga Koppers; and (vii) the
payment of related fees and expenses of approximately $16.0 million. The New
Credit Facilities, the sale of the Old Notes and the above transactions are
collectively referred to herein as the "Recapitalization."
 
  The Company was formed in October 1988 under the laws of the Commonwealth of
Pennsylvania by management, Beazer, Inc. and KAP to facilitate the acquisition
of certain assets of Koppers Company, Inc. in a management-led leveraged
buyout that closed on December 29, 1988 (the "Acquisition"). Koppers Company,
Inc., now known as Beazer East, Inc. ("Beazer East," but referred to herein as
"Old Koppers" for periods prior to the Acquisition) had been acquired in June
1988 by BNS Acquisitions, Inc., a wholly-owned indirect subsidiary of Beazer
PLC, now known as Beazer Limited ("Beazer Limited") for a purchase price of
$226.8 million. The assets acquired from Old Koppers included Woodward Coke
and certain assets of its Chemical & Allied Products Group which then became
the Carbon Materials & Chemicals and Railroad & Utility Products divisions of
the Company.
 
  Under the purchase agreement executed at the Acquisition (the "Asset
Purchase Agreement"), Beazer East assumed the responsibility for and
indemnified the Company against certain liabilities, damages, losses and
costs, to the extent attributable to acts or omissions occurring prior to the
Acquisition, including, with certain limited exceptions, liabilities and costs
of compliance with environmental laws (the "Indemnity"). Beazer Limited
unconditionally guaranteed Beazer East's performance of the Indemnity pursuant
to a guarantee (the "Guarantee"). Beazer Limited became a wholly-owned
indirect subsidiary of Hanson PLC on December 4, 1991. On August 5, 1998
Hanson PLC announced that an agreement had been signed under which the funding
and risk of the environmental liabilities relating to the former Koppers
Company operations of Beazer PLC (which includes locations purchased from
Beazer East by the Company) will be underwritten by subsidiaries of two of the
world's largest reinsurance companies, Centre Solutions (a member of the
Zurich Group) and Swiss Re. See "Business--Environmental Matters."
 
Industry Overview
 
Carbon Materials & Chemicals
 
  The coal tar distillation business involves the conversion of coal tar, a
co-product of the transformation of coal into coke, into a variety of
intermediate chemical products in processes beginning with distillation.
During the distillation process, heat and vacuum are utilized to separate coal
tar into three primary components: carbon pitch (approximately 50%), creosote
oils (approximately 30%) and chemical oils (approximately 20%). The most
critical element in producing high quality tar products is the ability to
obtain and blend multiple coal tars, with various specifications, from several
sources in order to achieve the consistent properties desired by the customer.
 
  The aluminum industry is the largest user of carbon pitch, which acts as a
binding material for the anodes used in the electrolysis process required in
aluminum smelting. Because all coal tar products are produced in relatively
fixed proportion to carbon pitch, the level of carbon pitch consumption
generally determines the level of production of other coal tar products. The
commercial carbon industry, the second largest user of carbon pitch, uses
carbon pitch to produce electrodes and other specialty carbon products for the
steel industry.
 
  Creosote is used in the wood preservation industry as a preservative for
railroad crossties and lumber, utility poles and pilings. Approximately two-
thirds of the total United States market requirements are used for railroad
construction and maintenance, with the remainder used primarily for utility
poles and pilings. The Australian
 
                                       2
<PAGE>
 
creosote market is similar in configuration to that of the United States. To
the extent that creosote cannot be sold for use in treating wood products,
distillate oils are sold into the carbon black market rather than being
blended to creosote specifications.
 
  Carbon black in the Company's Australian operations is manufactured at a
carbon black facility using both petroleum oil and coal tar based feedstocks
which are subjected to heat and rapid cooling within a reactor. In the
Company's domestic operations, tar based carbon black feedstock is
manufactured as a co-product of the tar distillation process and can be
produced at the Company's four domestic and one Australian tar distillation
facilities.
 
  Chemical oils resulting from the distillation of coal tars are further
refined by the Company into naphthalene, which is the primary feedstock used
by the Company for the production of PAA. The primary markets for PAA are in
the production of plasticizers, polyester resins and alkyd resins.
 
  Roofing pitch and refined tars are also produced in smaller quantities and
are sold into the commercial roofing and pavement sealer markets,
respectively.
 
  The main product manufactured in the Company's wood preservation chemicals
business, which is based in Australia, is copper chrome arsenates ("CCA")
which is marketed primarily in Australasia. The wood preservation chemicals
business also markets creosote, a co-product of the tar distillation process.
 
  Furnace coke is a carbon and fuel source required in the manufacture of
steel. Coal, the primary raw material, is carbonized in oxygen-free ovens to
obtain the finished product. Coke manufacturers are either an integrated part
of a steel company or, as in the case of the Company, operate independently
and are known as "merchant producers."
 
  Because of the Clean Air Act Amendments and other environmental laws, future
coal tar availability from both domestic and foreign coke production is
expected to decline. Management believes that the Company's ability to source
coal tar and carbon pitch from overseas markets, as well as its research of
petroleum feedstocks, will assist in securing an uninterrupted supply of
carbon pitch feedstocks.
 
Railroad & Utility Products
 
  The major product of Railroad & Utility Products is pressure-treated wood
crossties, which are used in railroad track maintenance programs.
Approximately 18 million wood crossties are replaced domestically by railroads
every year. United States Class 1 railroads (defined as the nine largest
railroad systems in the United States) maintain approximately 170,000 miles of
track, estimated to contain approximately 500 million crossties. In addition
to crossties, the division also offers services to the railroads, such as
assembling track panel sections and specialty track items, pre-plating ties
and disposing of discarded ties in an environmentally safe manner.
 
  Historically, investment trends in track maintenance by railroads have been
linked to general economic conditions in the country. During recessions, the
railroads have typically deferred track maintenance until economic conditions
improve. Demand has been relatively stable since 1993. Recently, several of
the major Class 1 railroads have merged. Management believes these mergers
will not have an adverse effect on the future demand for crossties.
 
  Hardwoods, such as oak and other species, are the major raw materials in
wood crossties. Hardwood prices, which account for approximately 60% of a
finished tie's cost, fluctuate with the demand from competing hardwood lumber
markets, such as oak flooring, pallets and other specialty lumber products.
Normally, raw material price fluctuations are passed through to the customer
according to the terms of the applicable contract. Weather conditions can be a
factor in the supply of raw material, as unusually wet conditions may make it
difficult to harvest timber.
 
 
                                       3
<PAGE>
 
  In the United States, hardwood lumber is procured by the division from
hundreds of small sawmills throughout the northeastern, midwestern, and
southern areas of the country. The ties are shipped via rail car or trucked
directly to one of the division's thirteen crosstie treating plants, all of
which are on line with a major railroad. The ties are either air-stacked for a
period of six to twelve months or artificially dried by a process called
boultonizing. Once dried, the ties are pressure treated with creosote, a
product of Koppers' Carbon Materials & Chemicals division.
 
  The Class 1 railroads have demonstrated a desire to outsource their non-core
business activities. This desire, coupled with Koppers' long-standing
relationships with the Class 1 railroads, has positioned the Company for a new
growth opportunity. The Company is now offering new services to the railroads
at a cost lower than the railroads' internal cost, and the Company believes
that there is an opportunity for future growth in such related areas.
 
  Over the last several years, utility pole demand has dropped as utilities
have reduced non-essential spending in anticipation of competitive pressure
arising from deregulation. It is expected that deregulation will continue to
negatively affect both new and replacement pole installation markets.
 
Description of Company's Business
 
<TABLE>
<CAPTION>
                                  Segment Sales For Years Ended December 31,
                                 -----------------------------------------------
                                      1998            1997            1996
                                 --------------- --------------- ---------------
                                            (Dollars in millions)
<S>                              <C>     <C>     <C>     <C>     <C>     <C>
Carbon Materials & Chemicals.... $ 346.7   51.7% $ 285.9   48.2% $ 281.6   47.9%
Railroad & Utility Products.....   320.7   47.8    255.2   43.0    239.9   40.8
All other.......................     3.2    0.5     52.0    8.8     67.0   11.3
                                 ------- ------  ------- ------  ------- ------
                                 $ 670.6  100.0% $ 593.1  100.0% $ 588.5  100.0%
                                 ======= ======  ======= ======  ======= ======
</TABLE>
 
Carbon Materials & Chemicals
 
  The Company's Carbon Materials & Chemicals division manufactures four
principal products: a) carbon pitch, used in the production of aluminum and
steel; b) PAA, used in the production of plasticizers and polyester resins; c)
creosote, used in the treatment of wood; and d) furnace coke, used in steel
production. Carbon pitch, PAA and creosote are produced through the
distillation of coal tar, a co-product of the transformation of coal into
coke. The Carbon Materials & Chemicals division's profitability is impacted by
its cost to purchase coal tar in relation to its prices realized for carbon
pitch, PAA and creosote. The Company has four tar distillation facilities in
the United States and one in Australia, strategically located to provide
access to coal tar and to facilitate better service to its customers with a
consistent supply of high-quality products. For 1998, sales of carbon pitch,
PAA, creosote and coke accounted for approximately 38%, 13%, 10% and 11% of
the Carbon Materials & Chemicals division's net sales, respectively.
 
  The Company believes it has a strategic advantage over its competitors based
on its ability to access coal tar from many United States and Australasian
suppliers and subsequently blend such coal tars to produce carbon pitch with
the consistent quality important in the manufacturing of quality anodes for
the aluminum industry. The Company's five coal tar distillation facilities and
one carbon pitch melting facility give it the ability to offer customers
multiple sourcing and consistent supply of high quality products. In
anticipation of potential shutdowns of United States coke capacity, the
Company has secured coal tar supply through long-term contracts and
acquisitions. In the past, the Company has generally benefited from its
ability to process chemical oil, a carbon pitch co-product, into naphthalene,
for use as a low-cost feedstock for PAA production and from its ability to
sell a large portion of its creosote production internally to the Railroad &
Utility Products division.
 
  Over 75% of Koppers' carbon pitch is sold to the aluminum industry under
long-term contracts ranging from three to seven years. Demand for carbon pitch
generally has fluctuated with United States production of primary aluminum.
However, an excess supply of carbon pitch in Europe during the past year has
resulted in
 
                                       4
<PAGE>
 
pricing pressures in domestic markets. This situation has negatively impacted
the Company's domestic pitch volumes in 1998, and continued pricing pressures
are anticipated in 1999 and beyond. There are currently no known viable
substitutes for carbon pitch in the production of carbon anodes. The Carbon
Materials & Chemicals division's ten largest customers represented
approximately 49% of the division's net sales for 1998. The Company's three
main competitors in North America in the production of carbon pitch are
AlliedSignal, Inc., VFT Canada and Reilly Industries, Inc.
 
  On a worldwide basis, naphthalene and orthoxylene, a petroleum derivative,
can both be used in the manufacturing of PAA and are considered to be
interchangeable. In the United States, however, the Company is the only PAA
producer capable of utilizing both orthoxylene and naphthalene in its
manufacturing process, with naphthalene being a generally lower cost
feedstock. Koppers' price realizations and profit margins for PAA have
historically fluctuated with the price of orthoxylene and its relationship to
Koppers' cost to produce naphthalene. Although the price of orthoxylene was
relatively stable prior to 1994, due to increased demand the price of
orthoxylene increased from $0.14 per pound in March 1994 to $0.38 per pound in
May 1995. As a result, PAA prices increased by approximately 101% during that
period, providing Koppers with a significant cost advantage over its
competition and a temporary expansion of margins. In 1996, however, the
average price for orthoxylene declined to approximately $0.16 per pound,
resulting in a corresponding decline in PAA prices and margins. During 1998,
orthoxylene prices have declined significantly, falling from $0.18 per pound
at the beginning of 1998 to $0.125 per pound at December 31, 1998. As a
result, PAA margins have declined significantly, resulting in a reduction in
operating profit for PAA of approximately $11 million in 1998 as compared to
1997. Koppers' cost to produce naphthalene and PAA is primarily driven by its
cost to procure coal tar, which has historically remained relatively stable.
Koppers' four principal PAA competitors, Exxon Chemical Company, Aristech
Chemical Corporation ("Aristech"), BASF Corporation and Stepan Company, can
use only orthoxylene in the production of PAA.
 
  Approximately one-third of Koppers' creosote production is sold to the
Railroad & Utility Products division. An additional one-third is sold to Class
1 railroad customers, all of which take delivery of the creosote at one of
Koppers' wood treating facilities. Over the last ten years, the Railroad &
Utility Products division has purchased all of its requirements of creosote
from the Carbon Materials & Chemicals division. Koppers is the only competitor
in this market that is integrated in this fashion. The remainder of its
creosote materials are sold to railroads, to other wood treaters or into the
carbon black market as a component in the manufacture of rubber tires. The
principal competitor in the creosote market is KMG Bernuth, Inc.
 
  Coal tar is purchased from a number of outside sources as well as from the
Company's coke facility located in Monessen, Pennsylvania (the "Monessen
Facility"). Primary suppliers are Bethlehem Steel Corporation, LTV Steel
Company, Inc. ("LTV"), USX Corporation ("USX"), China Steel Chemical
Corporation, Broken Hill (Australia) and Wheeling-Pittsburgh Steel
Corporation. The Monessen Facility currently provides approximately 3% of
Koppers' coal tar. The Company's carbon black business, located in Australia,
manufactures carbon black from an oil and tar based feedstock which is
subjected to heat and rapid cooling within a reactor. The tar distillation
plant in Australia is the major raw material supplier of coal tar based
feedstock for the Company's carbon black business. Carbon black is a raw
material in the manufacture of rubber tires.
 
  The timber preservation chemicals division operates throughout Australasia,
Southeast Asia, Japan and South Africa. Timber preservation chemicals are used
to impart durability to timber products used in building/construction,
agricultural and heavy duty industrial markets. The most commonly used
chemicals are creosote, CCA, Copper Co-Biocides, Sapstain Control Products and
Light Organic Solvent Preservatives (LOSP).
 
  Since the closing of Woodward Coke in January 1998, the Company's coke
business consists of only the Monessen Facility, which produces furnace coke.
The plant consists of two batteries with a total of 56 ovens and has a total
capacity of approximately 350,000 tons of furnace coke per year. All of the
ovens were rebuilt in 1980 and 1981, which, together with recent improvements,
makes the Monessen Facility one of the most modern coking facilities in the
United States. The Monessen Facility is self-sufficient in all its energy
needs other than electricity.
 
                                       5
<PAGE>
 
  The Monessen Facility qualifies for a tax credit based on its production of
coke as a non-conventional fuel and the sale thereof to unrelated third
parties. The tax credit generated per ton of coke is tied to a per-barrel of
oil equivalent determined on a BTU basis and adjusted annually for inflation.
The approximate value of this tax credit per ton of coke is $26.00. The credit
is available through December 31, 2002 and provided tax benefits to Koppers of
approximately $9.5 million, $9.3 million and $7.0 million in 1998, 1997 and
1996, respectively, and could provide up to $10.4 million per year thereafter,
unadjusted for inflation and assuming the availability of taxable income and
full production at the Monessen Facility. The Company is currently pursuing
alternatives, including the sale of the Monessen Facility, to monetize some or
all of these tax credits.
 
  Other Carbon Materials & Chemicals products include roofing pitch, used in
the construction of built-up roofing systems, and refined tars, sold to
manufacturers of pavement sealers for driveways and parking lots.
 
  Tarconord is a major regional producer of carbon pitch and related products
and is strategically important to the Company because it enables the Company
to access European markets for its carbon pitch and related products.
 
  Potential Acquisition. The Company has entered into a joint venture
agreement with Tangshan Iron & Steel Co. ("TISCO") and Jingtan Port Authority
to rehabilitate and operate a tar distillation facility in China for a Company
contribution of approximately $10.5 million. The joint venture, which will be
60% owned by the Company, is expected to begin production of coal tar products
by the end of 2000. The projected cash outlays are anticipated to be $6.0
million in 1999 and $4.5 million in 2000. The Company anticipates the closing
will occur during the second quarter of 1999, subject to certain conditions
including the approval of various governmental authorities.
 
Railroad & Utility Products
 
  The Company markets treated wood products primarily to the railroad and
public utility markets, primarily in the United States and Australia. The
Railroad & Utility Products division's profitability is primarily influenced
by the demand for railroad products and services by Class 1 railroads, demand
for transmission and distribution poles by electric utilities and its cost to
procure wood. Historically, sales of railroad products and services have
represented approximately two-thirds of the Railroad & Utility Products
division's net sales. Railroad products include items such as crossties,
switch ties and various types of lumber used for railroad bridges and
crossings. Utility products include transmission and distribution poles for
electric and telephone utilities and pilings used in industrial foundations,
beach housing, docks and piers. The Railroad & Utility Products division
operates 22 wood treating plants and 12 pole distribution yards located
throughout the United States and Australasia. The Company's network of plants
is strategically located near timber supplies to enable it to access raw
materials and service customers effectively. In addition, Koppers' crosstie
treating plants abut railroad customers' track lines, and its pole
distribution yards are located near Koppers' utility customers in the
northeast and midwest regions of the United States.
 
  The Railroad & Utility Products business supplies treated crossties and
other products and services to the railroad industry. The Railroad & Utility
Products division's largest customer base is the Class 1 railroad market,
which buys 67% of all crossties produced in the United States. Koppers has
also been expanding key relationships with the approximately 500 short-line
and regional rail lines. The railroad crosstie market is a mature market with
approximately 18 million replacement crossties purchased per year. The Company
currently has contracts with eight of the nine United States Class 1 railroads
and has enjoyed long-standing relationships, some of more than 50 years, with
this important customer base. These relationships, coupled with a growing
interest on the part of railroads to outsource non-core activities, have
enabled the Company to position itself for growth by offering new services to
railroads at a cost lower than the railroads' internal cost. Such new services
include assembling track sections and affixing fastening devices at the
treating plant rather than field locations; fabricating specialty track items
such as turnouts; and disposing of discarded ties in an environmentally safe
manner in high temperature boilers. In 1998, approximately 12% of Railroad &
Utility Products' net sales were derived from these types of services to
railroads. The Company intends to capitalize on its relationships with
railroads by expanding its current service offerings, including track panels,
specialty track components and railroad tie disposal.
 
                                       6
<PAGE>
 
  The division's top 10 customer accounts comprised approximately 65% of
Railroad & Utility Products' net sales for 1998 and are serviced through long-
term contracts ranging from one to twelve years on a requirements basis.
Koppers' sales to the railroad and utility industries are coordinated through
its office in Pittsburgh, Pennsylvania. The Company's principal competitor in
the railroad products market is Kerr-McGee Chemical Corp.
 
  Hardwood lumber accounts for approximately 60% of a finished crosstie's
cost. The Company obtains its hardwood supply from hundreds of small sawmills
throughout the northeastern, midwestern and southern areas of the United
States. Hardwood prices fluctuate with demand from competing hardwood lumber
markets such as flooring and pallets. The wood is taken by either truck or
rail from Company-operated collection points directly into its treating
plants, where it is pressure treated with creosote, a product of the Carbon
Materials & Chemicals division. Over the last ten years, the Railroad &
Utility Products division purchased all of its creosote requirements from the
Carbon Materials & Chemicals division. In addition, several railroads procure
their own raw materials and ship them into the Company's plants for treating
services.
 
  The Company believes that the threat of substitution for the wood crosstie
is low due to the higher cost of alternative materials. Concrete ties,
however, have been identified by the railroads as a feasible alternative to
wood crossties in limited circumstances. In 1991, the Company acquired a 50%
partnership interest in KSA Limited Partnership ("KSA"), a concrete crosstie
manufacturing facility in Portsmouth, Ohio, in order to take advantage of this
growth opportunity. In 1998, an estimated 1.3 million concrete crossties, or
7% of total tie insertions, were installed by Class 1 railroads. The Company
believes that concrete ties will continue to command approximately this level
of market share. KSA produced approximately 165,000 concrete crossties in
1998, or 13% of the U.S. estimated concrete tie market. While the cost of
material and installation of a concrete tie is higher than that of a wood tie,
the average life of wood and concrete ties are similar, although concrete
generally performs better in high weight bearing, high traffic areas and is
attractive to railroads for these purposes.
 
  Utility poles are produced mainly from softwoods such as pine and fir, which
have been subject to steady price increases in recent years due primarily to
increased demand for softwood materials in the paper and construction
industries. The majority of the softwood used for poles is purchased from
large timber owners and individual landowners and shipped to one of the
Company's pole-peeling facilities. While crossties are treated exclusively
with creosote, the Company treats poles with a variety of preservatives
including pentachlorophenol ("Penta"), CCA and creosote.
 
  The market for utility pole products is characterized by a large number of
smaller, highly competitive producers selling into a price-sensitive industry.
The utility pole market is highly fragmented domestically with over 300
investor-owned electric and telephone utilities and 1,800 smaller municipal
utilities and Rural Electric Associations ("REAs"). Approximately 2.4 million
poles are purchased annually in the United States, with a smaller market in
Australia. From 1996 to 1999, the Company has seen its utility pole volumes
decrease due to industry deregulation and its impact on maintenance programs.
The Company expects demand for utility poles to remain at lower levels.
 
  In 1998, pole products accounted for approximately one-fourth of Railroad &
Utility Products' net sales. Principal competitors in the utility products
market are McFarland Cascade, North Pacific Lumber and Atlantic Wood
Industries Inc. There are few barriers to entry in the utility products
market, believed by the Company to consist of mostly regional wood treating
companies which typically operate small to medium size plants and serve local
clients.
 
Equity Investments and Related Parties
 
 Tarconord
 
  Tarconord, with one operating location in Denmark and four in the United
Kingdom, produces and markets carbon pitch, naphthalene and related products
for the European and Middle Eastern markets. The Company's 50% partner in
Tarconord is Tarco A/S, a road paving and industrial piping company also
located in Denmark.
 
                                       7
<PAGE>
 
  Tarconord markets its primary product, carbon pitch, to aluminum producers
in Norway, the Netherlands and northern Germany. Coal tar supplies are
primarily purchased from steel producers in Scandinavia, Poland, the states of
the former Soviet Union, Germany and the United Kingdom.
 
  Tarconord helps to position the Company as not only one of the two largest
carbon pitch suppliers in the world, but also as the only such supplier
operating on four continents. Management believes that this global presence
represents a significant competitive advantage in serving multinational and
domestic aluminum manufacturers.
 
  Tarconord's profitability in 1998 has been negatively impacted by excess
supplies of carbon pitch in Europe. This situation is expected to continue in
the near term.
 
 Domestic Joint Venture: KSA
 
  KSA, located in Portsmouth, Ohio, produces concrete crossties, a
complementary product to the Company's treated wood crosstie business.
 
  Other interests are held by Sherman International Corp. (24%), Abetong
America, Inc. (24%) and Sherman Abetong, Inc. (2%). KSA was formed to
construct, own and operate a concrete railroad crosstie manufacturing facility
located in Portsmouth, Ohio. KSA's major customer is CSX Transportation, Inc.
("CSX"), which has a contract with the joint venture for 1.0 million concrete
ties, approximately 0.75 million of which have been supplied since the start-
up of operations in 1992. It has also expanded its product offerings to
include concrete turnouts, used in rail traffic switching, and used crosstie
rehabilitation.
 
  The following table presents total sales, equity in earnings and dividends
received with respect to each of the Company's significant joint ventures,
excluding Koppers Australia which is now consolidated, for the years ended
December 31, 1998, 1997 and 1996.
 
<TABLE>
<CAPTION>
                                                      Years Ended December 31,
                                                    ----------------------------
                                                      1998      1997      1996
                                                    -------- --------- ---------
                                                     (U.S. dollars in millions)
<S>                                                 <C>      <C>       <C>
Tarconord
  Total sales...................................... $   94.1 $   107.1 $   118.2
  Equity in earnings...............................      0.0       1.7       1.6
  Dividends received...............................      0.6       1.2       2.4
KSA
  Total sales...................................... $   17.8 $    13.2 $    15.6
  Equity in earnings...............................      1.8       1.2       1.5
  Dividends received...............................      0.5       1.3       1.0
</TABLE>
 
Research and Development
 
  As of December 31, 1998, the Company had eleven full-time employees engaged
in research and development and technical service activities. The Company's
research efforts are directed toward further development and utilization of
products and technology developed from coal tar and technical service efforts
to promote further use of creosote. The Company believes the research and
technical efforts currently expended in these areas are adequate to maintain a
leadership position in the technology related to these products. Expenditures
for research and development for 1998, 1997 and 1996 were $2.3 million, $1.8
million and $1.0 million, respectively.
 
Technology and Licensing
 
  In 1988, Koppers acquired certain assets from Old Koppers including the
patents, patent applications, trademarks, copyrights, transferable licenses,
inventories, trade secrets, and proprietary processes used in the businesses
acquired. The most important trademark acquired was the name "Koppers." The
association of the
 
                                       8
<PAGE>
 
name with the chemical, building, wood preservation and coke industries is
beneficial to the Company, as it represents longstanding, high-quality
products. Included in the patents that were acquired by Koppers were patents
for pitch quality controls (both in tar plants and aluminum plants), wood
preservatives and additives, and tar distillation.
 
Environmental Matters
 
  Like companies involved in similar environmentally sensitive businesses, the
Company's operations and properties are subject to extensive federal, state,
local and foreign environmental laws and regulations, including those
concerning, among other things, the treatment, storage and disposal of wastes,
the investigation and remediation of contaminated soil and groundwater, the
discharge of effluents into waterways, the emissions of substances into the
air or otherwise relating to environmental protection and various health and
safety matters (collectively, "Environmental Laws"). In the United States, the
Clean Air Act and Clean Water Act, each as amended, impose stringent standards
on air emissions and water discharges, respectively. Under the Resource
Conservation and Recovery Act, as amended ("RCRA"), a facility that treats,
stores or disposes of hazardous waste on-site may be liable for corrective
action costs, and a facility that holds a RCRA permit may have to incur costs
relating to the closure of certain "hazardous" or "solid" waste management
units. Under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA") and similar state laws, an owner
or operator of property at which releases of hazardous substances have
occurred may be liable for investigation and remediation of any resulting
contamination and related natural resource damages. In addition, under CERCLA,
the generator of hazardous substances may be strictly, and jointly and
severally liable for any required investigation or remediation at third-party
disposal sites and related natural resource damages. The Environmental Laws
are subject to frequent amendment. The sanction for failure to comply with
such Environmental Laws can include significant civil penalties, criminal
penalties, injunctive relief and denial or loss of, or imposition of
significant restrictions on, environmental permits. In addition, the Company
could be subject to suit by third parties in connection with violations of or
liability under Environmental Laws.
 
  In addition, Koppers Australia holds licenses issued by the various
regulatory authorities which regulate the use and management of chemicals
stored on operational sites and the management of discharges to air,
surface/groundwater and waste disposal.
 
  In October 1996 the Company received a Clean Water Act information request
from the United States Environmental Protection Agency ("EPA"). This
information request asked for comprehensive information for a period of five
years on discharge permits, applications for discharge permits, discharge
monitoring reports, and the analytical data in support of the reports and
applications. The Company responded in full to the information request and
delivered the requested information to the EPA in November 1996. During the
subsequent two year period, the Company supplemented its initial response to
the EPA several times as the EPA made supplemental requests. In January 1999
the Company met with officials of the EPA to discuss the EPA's review of the
information submitted by the Company and the EPA requested additional
information from October 1996 to December 1998. In the meeting, the EPA
suggested that the Company and the EPA negotiate an agreement. Included among
the suggestions for settlement were a continuation of the Company's ongoing
efforts to develop a better environmental management system, to conduct third
party environmental audits, and to evaluate aging equipment and facilities
that may have the potential to impact adversely the quality of wastewater
discharged to the environment or to publicly owned treatment facilities. The
EPA did not propose a penalty or suggest a range in which a penalty, if any,
might be sought. At this time without knowing the details behind the summary
of the EPA's alleged violations, it is impossible to predict the amount of any
penalty. There can be no assurance that any monetary penalty and the cost of
any supplemental environmental projects will not have a material adverse
effect on the business, financial condition, cash flow and results of
operations of the Company.
 
  Part of the allegations asserted by the EPA concern Woodward Coke and the
Logansport, Louisiana wood treating plant. During a Company-initiated
investigation at Woodward Coke, it was discovered that certain environmental
records and reports relating to the discharge of treated process water
contained incomplete and
 
                                       9
<PAGE>
 
inaccurate information. Corrected reports were submitted to the State of
Alabama and the EPA. In June 1997, during a routine third party environmental
compliance audit of the Logansport plant, it was discovered that certain
records and reports relating to the discharge of treated process water
contained incomplete and inaccurate information. Corrected reports have been
submitted to the local municipality, the State of Louisiana and the EPA.
 
  In 1997 the Company paid a civil penalty in the amount of $0.5 million to
the Jefferson County Department of Health ("Jefferson County") in settlement
of various alleged air pollution violations concerning emissions from Woodward
Coke for the period from May 25, 1992 to March 1, 1996 and in settlement of
various alleged air pollution violations concerning benzene abatement
equipment at Woodward Coke that had been discovered as a result of a Company-
initiated investigation. On February 14, 1997 the EPA issued a notice of
violation for the same alleged air pollution violations concerning emissions
which were the subject of the Jefferson County suit. In January 1998 the
Company ceased operations at Woodward Coke. On February 8, 1998 Jefferson
County requested that the original settlement agreement be modified to include
alleged air emission violations for the period of August 1997 to January 1998
and proposed an additional civil penalty of $0.6 million. The Company is
currently in the process of reviewing the proposed modification and has
entered into negotiations with Jefferson County regarding this matter. There
can be no assurance that the EPA will not seek additional actions or penalties
that could have a material adverse effect on the business, financial
condition, cash flow and results of operations of the Company.
 
  For the last three fiscal years, the Company's average capital expenditures
for environmental matters were approximately $3.4 million, and operating
expenses for environmental matters, including depreciation, averaged
approximately $13.9 million. The Company currently estimates that capital
expenditures in connection with matters relating to environmental control will
be approximately $5.9 million for 1999. Because Environmental Laws have
historically become more stringent, costs and expenses relating to
environmental control and compliance may increase in the future. Also, Koppers
may have to incur additional capital expenditures and compliance costs (which
it is unable to estimate at this time) in connection with the resolution of
the EPA matters. As such, there can be no assurance that costs of compliance
with existing and future Environmental Laws will not exceed current estimates
and will not have a material adverse effect on the business, financial
condition, cash flow and results of operations of the Company.
 
  Under the terms of the Asset Purchase Agreement between the Company and Old
Koppers (now known as Beazer East, Inc.) at the formation of Koppers in 1988,
Beazer East assumed the liability for and indemnified Koppers against (among
other things) cleanup liabilities for contamination occurring prior to the
purchase date at sites acquired from Beazer East, and third-party claims
arising from such contamination under the Indemnity. Beazer East's performance
of the Indemnity is unconditionally guaranteed by Beazer Limited under the
Guarantee. The obligations of Beazer Limited under the Guarantee may be
enforced directly against Beazer Limited without notice of default to Beazer
East and without making any demand on, obtaining any judgment or order or
commencing any legal proceeding against, or taking any other action against
Beazer East. Beazer East is actively fulfilling its obligations to conduct
investigative, cleanup and closure programs at the properties which Koppers
acquired from Beazer East in accordance with the requirements of regulatory
authorities. The Indemnity is not applicable to sites acquired since the
formation of Koppers, for which separate indemnifications have been negotiated
where appropriate. Management believes that for the last three years amounts
paid by Beazer East under the Indemnity have averaged approximately $12
million per year. However, if such indemnification was not available for any
reason, including the inability of Beazer East and/or Beazer Limited to make
such indemnification payments, and if Koppers were required to pay such costs,
it could have a material adverse effect on the business, financial condition,
cash flow and results of operations of the Company. Furthermore, if Koppers
were required to record a contingent liability in respect of environmental
matters covered by the Indemnity on its balance sheet, the result could be
that Koppers would have significant negative net worth.
 
  Five of the sites owned and/or operated by Koppers are listed on the
National Priorities List ("NPL") promulgated under CERCLA. These sites are the
Feather River, California wood treating facility, the Gainesville, Florida
wood treating facility, the Galesburg, Illinois wood treating facility, the
Florence, South Carolina wood
 
                                      10
<PAGE>
 
treating facility, and the Follansbee, West Virginia carbon materials and
chemicals facility. In addition, many of Koppers' sites are or have been
operated under RCRA permits, and RCRA remedial and closure activities are
being conducted on several such sites. Currently, at the properties acquired
from Beazer East (which include all of the NPL sites and all but one of the
RCRA-permitted sites), substantially all investigative, cleanup and closure
activities are being conducted and paid for by Beazer East pursuant to the
terms of the Indemnity. In regard to environmental claims or environmental
cleanup liabilities, the Indemnity provides four different mechanisms by which
Beazer East will indemnify Koppers. First, if the claim or liability involves
hazardous substances that were generated at facilities owned or operated
before the Acquisition and disposed of at third-party locations before the
Acquisition, then Beazer East will indemnify Koppers regardless of when the
claim or liability is asserted. Second, if the claim involves a personal
injury asserted by an employee as a result of exposure to toxic substances in
the workplace, then the claim is allocated in proportion to the length of time
the employee worked for each entity. Third, if the claim involves costs for
disposal of contaminated soil from facilities owned or operated before the
Acquisition and generated as a result of a voluntary decision by Koppers, then
Beazer East will indemnify Koppers for ninety percent (90%) of all disposal
costs over $0.1 million in any single year. Fourth, if the claim or cleanup
liability involves investigation, response, removal, or remedial costs at
facilities owned or operated before the Acquisition and for conditions
occurring or existing prior to or at the Acquisition, then Beazer East will
indemnify Koppers provided the claim or liability is a pre-Acquisition
environmental claim or a pre-Acquisition environmental cleanup liability. A
claim or liability can acquire the pre-Acquisition status two ways. It can be
asserted by a third party (someone other than Koppers) before the twelfth
anniversary of the Acquisition (December 29, 2000). Or Beazer East can receive
from anyone, including Koppers, "specific and particularized notice with
respect to acts, omissions, conditions or circumstances that may give rise" to
the claim or liability before the twelfth anniversary of the Acquisition.
 
  Costs and liabilities associated with investigative, cleanup and closure
activities at the NPL sites and RCRA-permitted facilities acquired from Beazer
East are expected to be significant. While Beazer East has retained and
accepted responsibility for investigative, cleanup and closure activities
relating to pre-Acquisition contamination at such properties (including being
the signatory on several consent agreements relating to such sites) and has
paid, to date, for substantially all such investigative, remedial and closure
costs, the government has the right under applicable Environmental Laws to
seek relief directly from Koppers for any and all such pre-Acquisition
obligations and liabilities at or on sites owned or operated by Koppers.
Although Beazer East and Beazer Limited have performed their respective
obligations since 1989, there can be no assurances that Beazer East and Beazer
Limited will continue to meet their obligations under the Indemnity and the
Guarantee, respectively. Since 1991, Beazer East and Beazer Limited have been
wholly-owned indirect subsidiaries of Hanson PLC.
 
  In addition, Beazer East has defended and is presently defending certain
toxic tort actions arising from the pre-Acquisition operation of assets which
the Company acquired from Beazer East. These tort actions were not assumed by
Koppers under the Asset Purchase Agreement and are within the scope of the
Indemnity.
 
  As a result of a lawsuit among CSX, Beazer East and the Company, CSX has
assumed Beazer East's obligations under the Indemnity in connection with
Koppers' facility located in Green Spring, West Virginia. There can be no
assurance that CSX will perform its obligations and if Koppers were required
to pay such costs, it could have a material adverse effect on the business,
financial condition, cash flow and results of operations of the Company.
 
  The Indemnity does not afford Koppers indemnification against environmental
costs and liabilities relating to activities or conditions occurring or
arising after the Acquisition, nor does the Indemnity cover liabilities
arising in connection with post-Acquisition acquisitions.
 
  In 1997 Koppers evaluated the environmental liabilities related to the
manufacturing sites associated with the Acquisition. The evaluation was based
on a report prepared by an independent consultant, which utilized site-
specific public information to the extent available, as supplemented by (among
other things) its technical knowledge and expertise, published resources
regarding costing of remediation techniques and specified technical cost and
regulatory assumptions. The evaluation and report estimated that approximately
$111.1 million would
 
                                      11
<PAGE>
 
be expended at these sites for environmental remediation during the period of
1998 to 2042. Koppers estimates that approximately $92.9 million of this
amount is covered under the Indemnity, that it is responsible for $0.1
million, and that identified third parties are responsible for the remaining
$18.1 million. Information derived from the independent consultant's report
indicates that, for the years ending December 31, 1999, 2000, 2001 and 2002
environmental expenses will total approximately $8.1 million, $6.9 million,
$9.1 million and $10.8 million, respectively. There can be no assurance,
however, that the actual liabilities associated with the investigation,
cleanup and closure of these sites will not exceed this estimate. The factors
that could affect the continuing validity of the estimate include: new
information about the contamination at the sites that is contrary to previous
assumptions, new interpretations of existing Environmental Laws, new and more
stringent Environmental Laws, and more vigorous enforcement policies of
regulatory authorities. Further, in the event that Beazer East does not
fulfill its commitments under the Indemnity or the identified third parties do
not fulfill their commitments, Koppers may be required to pay costs that would
have a material adverse effect on the business, financial condition, cash flow
and results of operations of the Company.
 
  On August 5, 1998 Hanson PLC announced that an agreement had been signed
under which the funding and risk of the environmental liabilities relating to
the former Koppers Company operations of Beazer PLC (which includes locations
purchased from Beazer East by the Company) will be underwritten by
subsidiaries of two of the world's largest reinsurance companies, Centre
Solutions (a member of the Zurich Group) and Swiss Re.
 
  At the acquisition of the Monessen Facility, the Company entered into a
consent order and agreement with the Pennsylvania Department of Environmental
Protection ("PADEP") (the "Monessen Consent Order") pursuant to which the
Company's liabilities for environmental cleanup have been capped at $0.6
million for matters identified pursuant to the Monessen Consent Order.
Although an environmental indemnification was provided to the Company by the
seller of that facility, the Company does not expect that such obligations
will be honored. If contamination at the Monessen Facility should be
discovered which was not identified pursuant to the Monessen Consent Order, or
if the EPA should require cleanup above the $0.6 million "cap" contained in
the Monessen Consent Order, the costs associated with such events could have a
material adverse effect on the Company's business, financial condition, cash
flow and results of operations.
 
  Koppers purchased a wood treating facility located in Somerville, Texas from
Atchison, Topeka & Santa Fe Railway Company ("Santa Fe") in March 1995. At the
time of the purchase there were several existing environmental issues at the
facility. Santa Fe retained responsibility for remediating and monitoring all
closed solid waste units and surface impoundments at the facility that were in
existence at the time of the sale. Santa Fe indemnified Koppers for all
violations of Environmental Laws or releases of hazardous substances or
petroleum products that occurred before the sale. In addition, for the first
twelve years following the sale, Santa Fe is obligated to indemnify Koppers
for costs that exceed a specified annual cap ($50,000) when such costs arise
from a construction project that Koppers voluntarily initiates and also arise
from complying with Environmental Laws governing containment, disposal or
monitoring of hazardous substances at the site.
 
  Koppers purchased a tar distillation facility located in Clairton,
Pennsylvania from Aristech in April 1996. This tar distillation facility is
located within the boundaries of a coke facility owned and operated by U.S.
Steel Group, Inc. ("U.S. Steel"), a subsidiary of USX. USX had sold the tar
distillation facility to Aristech in 1986. At the time of the purchase there
were several existing environmental issues at the tar distillation facility.
When USX sold the tar distillation facility to Aristech, it provided Aristech
with a broad indemnity for environmental contamination that predated the 1986
sale of the tar distillation facility to Aristech. When Koppers purchased the
tar distillation facility from Aristech, it assumed Aristech's obligations and
gained Aristech's protections under the USX indemnity agreement. The principal
obligation is that Koppers must pay for ten percent (10%) of the environmental
remediation costs incurred by USX in implementing a consent decree concerning
the tar distillation facility and USX's surrounding coke facility, up to a
maximum combined payment by both Koppers and Aristech of $0.5 million. Prior
to Koppers' purchase of the tar distillation facility, Aristech had made
payments of approximately $0.2 million under the USX indemnity agreement. To
date, Koppers has not made any payments under this indemnity provision. As
part of the agreement with Aristech, Koppers agreed to indemnify Aristech for
environmental claims arising from operations at the tar distillation facility.
However, the
 
                                      12
<PAGE>
 
requirement for Koppers to indemnify Aristech has several exceptions,
including but not limited to: claims for which USX will provide
indemnification, personal injury claims arising from a pre-sale chemical
release, and any incident listed on a schedule to the asset purchase
agreement.
 
  At the Clairton facility, the Somerville facility and the Monessen Facility
(all of which Koppers acquired subsequent to the acquisition of the Beazer
East properties), remedial actions are being performed in accordance with
applicable regulations and all indemnification obligations are being honored
at the Clairton and Somerville facilities. The Company believes that the
sellers (or their predecessors) at both of these sites will conduct and
finance most investigative and cleanup activities directly. Although the
Company is not aware of any reason why such indemnification obligations will
not be performed, if Koppers were required to pay costs associated with
environmental contamination at these two sites, it could have a material
adverse effect on the business, financial condition, cash flow and results of
operations of the Company. The Monessen Facility was purchased pursuant to a
bankruptcy sale. Although an environmental indemnification was provided by the
seller of that facility to Koppers, Koppers does not expect that such
indemnification obligations will be honored.
 
  Koppers has made other asset acquisitions that involved the purchase of real
property. While environmental indemnifications were obtained as part of the
transactions, the limited financial resources of the selling parties makes
fulfillment of these indemnifications unlikely. Material pre-purchase
environmental conditions identified during the due diligence leading up to
these acquisitions were addressed either before the purchase or immediately
afterwards.
 
  On occasion, Koppers Australia has been served with notices relating to
environmental compliance issues arising in connection with its operations.
Koppers Australia had been served with a notice by the Tasmanian Department of
Environment and Land Management ("DELM") which alleged that the Longford,
Tasmania facility was not in compliance with certain water discharge
requirements; the DELM rescinded this notice in 1998. In addition, historic
operations conducted at the Koppers Australia facilities have resulted in
identified and potential soil and groundwater contamination of varying
degrees. The Trentham, Victoria facility is listed on the Victorian register
of contaminated sites. The Rockhampton and Takura, Queensland facilities are
listed on the Queensland register of contaminated sites as "probable sites".
In addition, Koppers Australia has identified various levels of groundwater
contamination at the Mayfield, New South Wales and Bunbury, Western Australia
facilities. Although the relevant regulatory authorities have not required the
investigation or remediation of these or other Koppers Australia facilities to
date, these authorities may require such work if Koppers Australia does not
undertake such activities itself. Costs associated with these activities may
be material and there can be no assurance that such costs will not have a
material adverse effect on the business, financial condition, cash flow and
results of operations of the Company.
 
Employees and Employee Relations
 
  As of January 31, 1999, the Company employed 622 salaried employees and
1,306 hourly employees. Listed below is a breakdown of employees by business
segment, including administration.
 
<TABLE>
<CAPTION>
                                                                    Non-
Division                                                 Salaried Salaried Total
--------                                                 -------- -------- -----
<S>                                                      <C>      <C>      <C>
Carbon Materials & Chemicals............................   267       572     839
Railroad & Utility Products.............................   263       728     991
Administration..........................................    92         6      98
                                                           ---     -----   -----
  Total Employees.......................................   622     1,306   1,928
                                                           ===     =====   =====
</TABLE>
 
  Of the Company's 1,928 employees, approximately 58% are represented by 17
different unions and covered under 29 separate labor contracts. The United
Steelworkers of America, covering workers at six facilities,
 
                                      13
<PAGE>
 
accounts for the largest membership with more than 500 employees. Another
significant affiliation is the Paper, Allied-Industrial, Chemical & Energy
Workers' International Union (PACE), with approximately 300 employees at four
facilities. Labor contracts expiring in 1999 represent approximately 13% of
total employees.
 
ITEM 2. Properties
 
  The principal fixed assets of the Company consist of its production,
treatment, and storage facilities and its transportation and plant vehicles.
Its production facilities consist of 12 Carbon Materials & Chemicals
facilities and 23 Railroad & Utility Products facilities. See "Business--
Carbon Materials & Chemicals," and "Business--Railroad & Utility Products". As
of December 31, 1998, vehicles and equipment represented approximately 35% of
the Company's total assets, as reflected in its consolidated balance sheet.
The following chart sets forth information regarding the Company's operating
facilities:
 
<TABLE>
<CAPTION>
                                                                           Description of
Segment/Primary Product Line              Location              Acreage   Property Interest
----------------------------              --------              -------   -----------------
<S>                           <C>                               <C>     <C>
Carbon Materials &
 Chemicals
Wood Preservation
 Chemicals                    Auckland, New Zealand               1.3          Leased
Carbon Pitch                  Clairton, Pennsylvania               17           Owned
Wood Preservation
 Chemicals                    Fiji                                 .7           Owned
Carbon Pitch                  Follansbee, West Virginia            32           Owned
Carbon Black                  Kurnell, New South Wales             20          Leased
Carbon Pitch                  Mayfield, New South Wales            26           Owned
Furnace Coke                  Monessen, Pennsylvania               45           Owned
Wood Preservation
 Chemicals                    Penang, Malaysia                      3          Leased
Carbon Pitch                  Portland, Oregon                      6          Leased
Carbon Pitch, PAA             Stickney, Illinois                   38           Owned
Wood Preservation
 Chemicals                    Trentham, Victoria                   24           Owned
Carbon Pitch                  Woodward, Alabama                    23           Owned
Railroad & Utility
 Products
Prefabricated Rail
 Sections                     Alorton, Illinois                  12.2   6.6 Leased, 5.6 Owned
Utility Poles                 Bunbury, West Australia              40    12 Leased, 28 Owned
Utility Poles, Railroad
 Crossties                    Denver, Colorado                     64           Owned
Utility Poles                 Feather River, California           156           Owned
Utility Poles                 Florence, South Carolina            200           Owned
Utility Poles                 Gainesville, Florida                 86           Owned
Railroad Crossties            Galesburg, Illinois                 125          Leased
Utility Poles                 Grafton, New South Wales            100           Owned
Railroad Crossties            Green Spring, West Virginia          98           Owned
Utility Poles, Railroad
 Crossties                    Grenada, Mississippi                154           Owned
Railroad Crossties            Guthrie, Kentucky                   122           Owned
Utility Poles                 Hume, Australia Capital Territory    50       99 Year Lease
Utility Poles                 Logansport, Louisiana                30           Owned
Utility Poles                 Longford, Tasmania                 16.5           Owned
Utility Poles                 Montgomery, Alabama                  84           Owned
Railroad Crossties            N. Little Rock, Arkansas            148           Owned
Railroad Crossties            Roanoke, Virginia                    91           Owned
Utility Poles                 Rockhampton, Queensland             3.5          Leased
Railroad Crossties            Somerville, Texas                   244           Owned
Railroad Crossties            Superior, Wisconsin                 120           Owned
Railroad Crossties            Susquehanna, Pennsylvania           109           Owned
Utility Poles                 Takura, Queensland                   79          Leased
Utility Poles                 Thornton, New South Wales            15           Owned
</TABLE>
 
 
                                      14
<PAGE>
 
  The Company's corporate headquarters are located in approximately 50,000
square feet of leased office space in the Koppers Building, Pittsburgh,
Pennsylvania. The office space is leased from Axiom Real Estate Management,
Inc. pursuant to an 11-year lease, with the initial term expiring December 31,
2003. The lease provides for an additional five-year renewal option.
 
ITEM 3. Legal Proceedings
 
  In 1997 the Company paid a civil penalty in the amount of $0.5 million to
the Jefferson County Department of Health in settlement of various alleged air
pollution violations concerning emissions from Woodward Coke for the period
from May 25, 1992 to March 1, 1996 and in settlement of various alleged air
pollution violations concerning benzene abatement equipment at Woodward Coke
that had been discovered as a result of a Company-initiated investigation. On
February 14, 1997 the EPA issued a notice of violation for the same alleged
air pollution violations concerning emissions as was the subject of the
Jefferson County suit. In January 1998 the Company ceased operations at
Woodward Coke. On February 8, 1998 Jefferson County requested that the
original settlement agreement be modified to include alleged air emission
violations for the period of August 1997 to January 1998 and proposed an
additional civil penalty of $0.6 million. The Company is currently in the
process of reviewing the proposed modification and has entered into
negotiations with Jefferson County regarding this matter. There can be no
assurance that the EPA will not seek additional actions or penalties that
could have a material adverse effect on the business, financial condition,
cash flow and results of operations of the Company. See "Business--
Environmental Matters."
 
  The Company is involved in various other proceedings relating to
environmental laws and regulations. See "Business--Environmental Matters."
 
  The Company is involved in various other proceedings incidental to the
ordinary conduct of its business. The Company believes that none of these
other proceedings will have a material adverse effect on the business,
financial condition, cash flow and results of operations of the Company.
 
ITEM 4. Submission of Matters to a Vote of Security Holders
 
  At a special meeting of shareholders on November 13, 1998, Robert Cizik was
unanimously elected to the Board of Directors effective January 1, 1999. Not
voted upon, but continuing as Directors after the meeting were Robert K.
Wagner, Walter W. Turner, Clayton A. Sweeney, Brooks C. Wilson, N. H. Prater,
Christian L. Oberbeck and Charles P. Durkin, Jr.
 
                                    PART II
 
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
 
  Currently, there is no established public trading market for the Common
Stock. At March 1, 1999 the Company had 1.5 million shares of Common Stock
outstanding. Of the total, 1.2 million shares of the Common Stock were owned
by 181 Management Investors, with the remainder owned by the Company's
Employee Savings Plan. The terms and conditions of ownership, including voting
rights and dividends, are governed by the Restated Articles of Incorporation
of the Company and the stockholders' agreement by and among the Company,
Saratoga and the Management Investors, dated as of December 1, 1997 (as
amended, the "New Stockholders' Agreement"). See "Directors and Executive
Officers of the Registrant--Stockholders' Agreement."
 
  Each share of Common Stock has an equal and ratable right to receive
dividends to be paid from the Company's assets legally available therefor
when, as, and if declared by the Board of Directors. The declaration and
payment of dividends on the Common Stock are subject to the Company's credit
and loan agreements, are subject to the provisions of the indenture which
governs the New Notes, are subject to the supermajority vote requirements of
the New Stockholders' Agreement, and are subject to the provisions of any
series of preferred stock, including the Preferred Shares held by Saratoga,
which may, at the time, be outstanding. On February 25, May 30, and August 29,
1997 the Company declared dividends of $0.085 per common share and common
share equivalent. There were no dividends declared or paid in 1998.
 
                                      15
<PAGE>
 
ITEM 6. Selected Financial Data
 
<TABLE>
<CAPTION>
                                            Years Ended December 31,
                                     ------------------------------------------
                                       1998     1997     1996     1995    1994
                                     -------  -------  -------  ------- -------
                                       (In millions except shares figures)
<S>                                  <C>      <C>      <C>      <C>     <C>
Income Statement Data:
Net Sales........................... $ 670.6  $ 593.1  $ 588.5  $ 525.7 $ 476.4
  Cost of sales.....................   555.7    501.4    496.1    440.7   407.5
  Depreciation and amortization.....    30.6     23.5     21.8     17.5    16.7
  Selling, general and
   administrative...................    37.7     28.1     27.5     27.6    24.0
  Restructuring charges (1).........    (1.0)    45.4     15.5       --     2.5
                                     -------  -------  -------  ------- -------
Operating profit (loss).............    47.6     (5.3)    27.6     39.9    25.7
Equity in earnings of affiliates....     2.4      5.3      9.6      9.2     5.3
Other income (expense) (2)..........      --     (1.4)   (12.6)     0.4     0.5
Interest expense....................    29.7     17.3     16.6     15.1    13.6
                                     -------  -------  -------  ------- -------
Income (loss) before income tax
 provision (benefit), minority
 interest and extraordinary item....    20.3    (18.7)     8.0     34.4    17.9
Income tax provision (benefit)......    (0.3)   (19.7)    (6.1)    10.0     5.0
Minority interest...................     0.5       --       --       --      --
                                     -------  -------  -------  ------- -------
Income before extraordinary item....    20.1      1.0     14.1     24.4    12.9
Net income (loss) (3)...............    20.1     (5.7)    14.1     24.4    11.1
Payment-in-kind dividends on
 preferred stock....................      --       --       --       --     0.9
                                     -------  -------  -------  ------- -------
Net income (loss) to common stock... $  20.1  $  (5.7) $  14.1  $  24.4 $  10.2
Earnings per share of common stock
 before extraordinary item:
  Basic earnings per share of common
   stock............................ $ 12.64  $  0.17  $  1.54  $  3.18 $  2.16
                                     =======  =======  =======  ======= =======
  Diluted earnings per share of
   common stock..................... $  4.85  $  0.12  $  1.47  $  2.36 $  1.13
                                     =======  =======  =======  ======= =======
Earnings (loss) per share of common
 stock:
  Basic earnings (loss) per share of
   common stock..................... $ 12.64  $ (0.92) $  1.54  $  3.18 $  1.83
                                     =======  =======  =======  ======= =======
  Diluted earnings (loss) per share
   of common stock.................. $  4.85  $ (0.65) $  1.47  $  2.36 $  0.96
                                     =======  =======  =======  ======= =======
Balance Sheet Data (end of period):
Working capital..................... $ 104.9  $ 109.2  $  77.7  $  80.1 $  79.1
Total assets........................   481.6    500.2    411.2    349.0   294.2
Total debt (4)......................   332.7    320.7    209.9    174.0   159.0
Preferred stock (5).................      --       --       --      0.3     0.3
Common stock subject to redemption
 (6)................................    21.1     26.4     24.0     23.7    15.5
Common equity.......................    (8.6)   (14.6)    54.1     54.3    36.5
Other Data:
Cash dividends per common share..... $    --  $  0.26  $  0.34  $  0.25 $    --
Capital expenditures................    20.2     19.8     21.7     15.2    16.3
Acquisitions and related capital
 expenditures.......................     2.6     34.1     39.5     34.9      --
</TABLE>
--------
(1) The 1997 charges were comprised of $39.9 million related to the closure of
    Woodward Coke, and $5.5 million related to the Feather River, California
    co-generation and wood treating facilities. In 1998, approximately $1.0
    million of plant closing reserves were credited to income as the result of
    a negotiated reduction in a contractual penalty obligation related to the
    Feather River, California cogeneration facility. The 1996 charges included
    $7.4 million primarily related to the closing of the Company's tar
    distillation facility located in Houston, Texas, $5.4 million of charges
    related to capacity rationalization at Woodward Coke, and $2.6 million of
    severance charges for salaried employees as a result of workforce
    reductions at various locations. The 1994 charges reflect severance costs
    for salaried employees as a result of workforce reductions at various
    locations. See Note 3 of the Notes to Consolidated Financial Statements of
    the Company.
 
                                      16
<PAGE>
 
(2) Other expense for 1997 is for the write-off of expenses related to an
    Initial Public Offering which was withdrawn in 1997. Other expense for
    1996 consists of a $10.1 million charge related to a settlement for a
    legal judgment rendered against the Company in connection with product
    liability claims from the Company's roofing business for years prior to
    the formation of the Company in 1988 (the "OCF Settlement"), and a $2.5
    million legal settlement to CSX. See Note 12 of the Notes to Consolidated
    Financial Statements of the Company.
 
(3) Net income for 1997 and 1994 includes extraordinary losses on early
    extinguishment of debt of $6.6 million and $1.8 million, respectively. See
    Note 5 of the Notes to Consolidated Financial Statements of the Company.
 
(4) The Company sold $175.0 million of 9 7/8% Senior Subordinated Notes due
    2007 on December 1, 1997 in a private placement and established with Swiss
    Bank Corporation, Stamford Branch and Mellon Bank, N.A. a total of $135.0
    million of senior term loan facilities and a $140.0 million senior
    revolving credit facility ($40.0 million and $20.0 million of which was
    reserved for use in connection with a term loan and a revolving credit
    facility, respectively, of Koppers Australia). See Note 5 of the Notes to
    Consolidated Financial Statements of the Company.
 
(5) On December 1, 1997 the Company converted 2.1 million shares of voting and
    non-voting Common Stock held by Saratoga into 2.1 million Preferred
    Shares, which entitles Saratoga to elect a majority of the Board of
    Directors and to exercise a majority of the voting power over all
    outstanding stock of the Company with respect to all other matters subject
    to a stockholder vote. See Notes 2 and 6 of the Notes to Consolidated
    Financial Statements of the Company. On February 10, 1994 the Company
    issued $110.0 million of unsecured ten-year, 8 1/2% senior notes, of which
    $53.5 million was used to redeem all the Series A exchangeable preferred
    stock which had been issued at the inception of the Company.
 
(6) Represents the amount necessary to redeem stock held by Management
    Investors upon termination of their employment with the Company pursuant
    to the New Stockholders' Agreement. See Note 7 of the Notes to
    Consolidated Financial Statements of the Company.
 
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
 
  Change in Composition of Segments. The Company is a leading integrated
producer of carbon compounds and treated wood products for use in a variety of
markets. The Company's products and operations are divided into two
businesses: Carbon Materials & Chemicals and Railroad & Utility Products. In
early 1998, the Company ceased operations at Woodward Coke; subsequently, its
remaining operational coke facility located in Monessen, Pennsylvania has been
added to the Carbon Materials & Chemicals division. Additionally, Koppers
Australia, which operates in businesses similar to the Company's domestic
businesses, has been incorporated into those segments because management
believes the long-term financial performance of the businesses comprising
these segments is affected by similar economic conditions. Results related to
Woodward Coke are included in "All Other". Segment information has been
reconfigured to reflect these changes, and 1997 and 1996 have been restated to
provide comparability with the current presentation.
 
                                      17
<PAGE>
 
Results of Operations
 
  The following table sets forth certain sales and operating data, net of all
inter-segment transactions, for the Company's businesses for the periods
indicated:
<TABLE>
<CAPTION>
                                               Years Ended December 31,
                                              ------------------------------
                                                 1998       1997       1996
                                              --------   --------   --------
<S>                                           <C>        <C>        <C>
Net sales (In millions):
  Carbon Materials & Chemicals...............   $346.7     $285.9     $281.6
  Railroad & Utility Products................    320.7      255.2      239.9
  All Other..................................      3.2       52.0       67.0
                                              --------   --------   --------
    Total....................................   $670.6     $593.1     $588.5
                                              ========   ========   ========
Segment sales as percentage of total:
  Carbon Materials & Chemicals...............     51.7%      48.2%      47.9%
  Railroad & Utility Products................     47.8%      43.0%      40.8%
  All Other..................................      0.5%       8.8%      11.3%
                                              --------   --------   --------
    Total....................................    100.0%     100.0%     100.0%
Gross margin by segment (after depreciation
 and amortization):
  Carbon Materials & Chemicals...............     14.5%      16.8%      15.8%
  Railroad & Utility Products................     11.3%      10.9%      10.9%
  All Other..................................     (0.3)%     (1.5)%       --%
                                              --------   --------   --------
    Total....................................     12.6%      11.3%      12.0%
Operating margin by segment:
  Carbon Materials & Chemicals...............      7.9%      11.2%       7.7%
  Railroad & Utility Products................      7.0%       4.0%       5.1%
  All Other..................................     (0.3)%     (8.0)%     (1.1)%
                                              --------   --------   --------
    Total....................................      7.1%      (0.9)%      4.7%
</TABLE>
 
 Comparison of Results of Operations for the Years Ended December 31, 1998 and
1997.
 
  Net Sales. Net sales for the year ended December 31, 1998 were higher than
the same period in 1997, as approximately $105 million of net sales from the
acquisition of Koppers Australia more than offset a reduction of $52.0 million
of sales as a result of the closure of Woodward Coke. Net sales for Carbon
Materials & Chemicals increased as Koppers Australia contributed $84.8 million
of net sales to this segment. Net sales for the domestic portion of Carbon
Materials & Chemicals decreased compared to the prior year period due to
reductions in sales for PAA as a result of lower pricing coupled with
reductions in carbon pitch volumes. Net sales for Railroad & Utility Products
increased compared to the prior year due to $20.6 million in net sales from
Koppers Australia coupled with increases in sales volumes and prices for
railroad crossties. Net sales for All Other represent liquidation of remaining
inventories at Woodward Coke.
 
  Gross Profit after Depreciation and Amortization. As a percent of net sales,
gross profit after depreciation and amortization increased due to the positive
effects of the ceasing of operations at Woodward Coke and the acquisition of
Koppers Australia more than offsetting lower PAA prices and lower carbon pitch
volumes in 1998. Gross margins for Carbon Materials & Chemicals decreased as a
result of a 23.5% reduction in PAA prices as compared to the prior year
period, coupled with higher unit costs for carbon pitch as a result of lower
production volumes in 1998. Gross margin for Railroad & Utility Products
increased due to higher volumes and prices for railroad crossties.
 
  Depreciation and Amortization. The increase in depreciation and amortization
for 1998 as compared to the prior year was due to additional depreciation and
amortization for Koppers Australia more than offsetting the reduction in
depreciation as a result of the closure of Woodward Coke.
 
 
                                      18
<PAGE>
 
  Selling, General and Administrative Expense. Selling, general and
administrative expense as a percent of net sales increased as a result of the
consolidation of Koppers Australia and $1.8 million of Year 2000 computer
costs more than offsetting $0.8 million of severance charges in the prior year
period.
 
  Restructuring Charges. The restructuring credit for 1998 was the result of a
negotiated reduction in a contractual penalty obligation related to the
Feather River, California cogeneration facility. Restructuring charges for
1997 included $39.9 million related to the closing of Woodward Coke and $5.5
million related to the closing of the cogeneration facility and write-down of
assets at the adjacent wood treating facility located in Feather River,
California.
 
  Equity in Earnings of Affiliates. Equity earnings for 1998 were lower than
the prior year period as a result of the consolidation of Koppers Australia
coupled with lower earnings from Tarconord A/S in 1998 due to difficult market
conditions for carbon pitch in Europe.
 
  Interest Expense. Interest expense increased in 1998 as compared to the
prior year due to higher debt levels in 1998 as a result of the
Recapitalization.
 
  Income Taxes. The Company's effective income tax rate for the year ended
December 31, 1998 increased due to restructuring charges of $45.4 million and
an extraordinary loss of $9.6 million in 1997. The reduction from statutory
rates for both years was due primarily to energy tax credits at the Monessen
Facility. The credit is available through December 31, 2002 and, based on
current production levels at the Monessen Facility, could provide up to $10.4
million of tax credits annually, unadjusted for inflation. Use of the tax
credits is limited to the availability of taxable income.
 
  Net Income. Net income for 1998 compared to the same period last year
increased primarily as the result of non-recurring charges in 1997 coupled
with earnings from Koppers Australia in 1998 more than offsetting lower
earnings from the domestic Carbon Materials & Chemicals business and higher
interest expense in 1998.
 
  Earnings Per Share. Earnings per share for 1998 have been positively
impacted by approximately $55 million of net share repurchases from December
1997 through April 1998.
 
 Comparison of Results of Operations for the Years Ended December 31, 1997 and
1996.
 
  Net Sales. Net sales for the year ended December 31, 1997 were higher than
in 1996 as higher sales for PAA and railroad crossties more than offset
reductions in sales for Woodward Coke and utility poles. Net sales for Carbon
Materials & Chemicals increased due primarily to increases in volumes and
prices for PAA of 18.2% and 6.2%, respectively. The increase in net sales for
Railroad & Utility Products was due to higher railroad crosstie volumes and
prices, which more than offset a 5.7% reduction in sales volumes for utility
poles. Net sales for All Other decreased due to lower production and shipments
as the result of capacity rationalization at Woodward Coke.
 
  Gross Profit After Depreciation and Amortization. As a percent of net sales,
gross profit after depreciation and amortization decreased due primarily to
losses incurred at Woodward Coke. Gross margin for Carbon Materials &
Chemicals increased primarily as the result of increases in volumes and
pricing of PAA in 1997 as noted above. Gross margin for Railroad & Utility
Products was consistent with the prior year. Gross margin for All Other
decreased due to higher unit costs incurred as the result of reduced
production at Woodward Coke, coupled with costs associated with unusual
returns and credits issued to customers.
 
  Depreciation and Amortization. The increase in depreciation and amortization
for 1997 as compared to the prior year was due primarily to the Company's
ongoing capital expenditures program.
 
  Selling, General and Administrative Expense. Selling, general and
administrative expense as a percent of net sales was consistent with the prior
year period, as lower expenses for salaries and benefits were offset by modest
increases in various other expenses in 1997.
 
 
                                      19
<PAGE>
 
  Restructuring Charges. Restructuring charges for 1997 included $39.9 million
related to the closing of Woodward Coke and $5.5 million related to the
closing of the cogeneration facility and write-down of assets at the adjacent
wood treating facility located in Feather River, California. Restructuring
charges for 1996 were comprised of plant closing charges of $7.4 million,
capacity rationalization charges of $5.4 million and severance charges of $2.6
million. Plant closing charges included $6.5 million for the Houston, Texas
carbon materials facility and $0.9 million for the Carrollton, Ohio refractory
materials facility. The plant closing charges consisted primarily of write-
downs of property and equipment, environmental remediation and severance
costs. Capacity rationalization charges of $5.4 million at Woodward Coke
primarily included property and equipment write-downs. See "--Liquidity and
Capital Resources- Restructuring Charges."
 
  Equity in Earnings of Affiliates. Equity earnings for the year ended
December 31, 1997 were lower than the prior year period primarily as a result
of lower earnings from Koppers Australia. The lower earnings were due to
higher maintenance and repair expenses, a stronger U.S. currency rate, and
compensation costs related to the acquisition of Koppers Australia by the
Company in 1997.
 
  Other Expense. Other expense for the year ended December 31, 1997 consisted
of the write-off of $1.4 million of deferred expenses related to the Initial
Public Offering which was withdrawn in the second quarter. Other expense for
the prior year period consisted of litigation charges related to the OCF
Settlement and CSX. See Note 12 of the Notes to Consolidated Financial
Statements of the Company.
 
  Income Taxes. The similar negative effective income tax rates for the years
ended December 31, 1997 and 1996 were due to restructuring charges in 1997 and
restructuring and litigation charges in 1996, coupled with the utilization of
$9.3 million and $7.0 million of energy tax credits from the Monessen Facility
in 1997 and 1996, respectively. The credit is based on the production of coke
as a non-conventional fuel source and the sale thereof to unrelated third
parties.
 
  Net Income. Net income for the year ended December 31, 1997 decreased due
primarily to restructuring charges of $45.4 million and extraordinary charges
of $6.6 million exceeding 1996 restructuring charges of $15.5 million and
litigation charges of $12.6 million.
 
Liquidity and Capital Resources
 
  The Company's liquidity needs are primarily for debt service, capital
maintenance and acquisitions. The Company believes that its cash flows from
operations and available borrowings under its bank credit facilities will be
sufficient to fund its anticipated liquidity requirements for the next twelve
months. In the event that the foregoing sources are not sufficient to fund the
Company's expenditures and service its indebtedness, the Company would be
required to raise additional funds.
 
  As of December 31, 1998 the Company had $16.0 million of revolving credit
availability under the New Credit Facilities for working capital purposes,
subject to restrictions imposed under the indenture related to the New Notes.
As of December 31, 1998, $9.5 million of commitments were utilized by
outstanding standby letters of credit.
 
  The Company sold $175.0 million of 9 7/8% Senior Subordinated Notes due 2007
on December 1, 1997 in a private placement and established with Swiss Bank
Corporation, Stamford Branch and Mellon Bank, N.A. a total of $135.0 million
of senior term loan facilities and a $140.0 million senior revolving credit
facility ($40.0 million and $20.0 million of which was reserved for use in
connection with a term loan and a revolving credit facility, respectively, of
Koppers Australia). The proceeds from the New Credit Facilities have been used
to complete the following transactions: (i) the acquisition of Broken Hill's
50% interest in Koppers Australia; (ii) the repayment of $98.9 million of the
Old Notes tendered pursuant to a tender offer, plus $6.4 million of redemption
premium thereof; (iii) the repayment of outstanding indebtedness of
approximately $88.1 million under the Company's term loan and revolving credit
facilities; (iv) the redemption of 1.8 million shares of non-voting Common
Stock owned by APT Holdings Corporation, an affiliate of Mellon Bank, N.A.,
for $22.9 million; (v) the redemption,
 
                                      20
<PAGE>
 
at $17.00 per share, of 0.5 million shares of Common Stock owned by current
and former employees of Koppers and Clayton A. Sweeney for $8.8 million; (vi)
the redemption of 0.4 million non-voting shares of Common Stock from Saratoga
Koppers; and (vii) the payment of related fees and expenses of approximately
$16.0 million.
 
  The New Credit Facilities provide for a $70.0 million Term Loan A, $44.0
million of which was outstanding at December 31, 1998 and a $65.0 million Term
Loan B, $64.0 million of which was outstanding at December 31, 1998. In
addition, $34.3 million was outstanding on the Australian term loan at
December 31, 1998. The term loans and the revolving credit facility under the
New Credit Facilities provide for interest at variable rates. At December 31,
1998 the effective rates on the term loans were 7.23% for Term Loan A, 7.76%
for Term Loan B and 6.69% for the Australian term loan.
 
  Substantially all of the Company's assets, including the assets of
significant subsidiaries, are pledged as collateral for the New Credit
Facilities. The New Credit Facilities contain certain covenants which limit
capital expenditures by the Company and restrict its ability to incur
additional indebtedness, create liens on its assets, enter into leases, pay
dividends and make investments or acquisitions. In addition, such covenants
give rise to events of default upon the failure by the Company to meet certain
financial ratios.
 
  Cash provided by operating activities totaled $25.0 million for the year
ended December 31, 1998, compared to $63.2 million for the same period last
year, as higher earnings in 1998 were more than offset by lower deferred taxes
and lower dividends from affiliated companies in 1998 as compared to the prior
year. Additionally, in 1998 restructuring reserves used $12.5 million in cash
compared to $38.2 million of non-cash restructuring charges in 1997, and
approximately $6 million of compensation payments were made in 1998 as a
result of the acquisition of Koppers Australia in December 1997.
 
  Capital expenditures for the Company were $20.2 million for 1998 versus
$19.8 million (excluding acquisitions for both years) for the same period last
year, with the increase in 1998 due primarily to the acquisition of Koppers
Australia in December 1997.
 
  Potential Acquisition. The Company has entered into a joint venture
agreement with Tangshan Iron & Steel Co. ("TISCO") and Jingtan Port Authority
to rehabilitate and operate a tar distillation facility in China for a Company
contribution of approximately $10.5 million. The joint venture, which will be
60% owned by the Company, is expected to begin production of coal tar products
by the end of 2000. The projected cash outlays are anticipated to be $6.0
million in 1999 and $4.5 million in 2000. The Company anticipates the closing
will occur during the second quarter of 1999, subject to certain conditions
including the approval of various governmental authorities.
 
  For fiscal year 1999 the Company anticipates capital expenditures of $24.0
million excluding acquisitions. This amount includes environmental capital
expenditures of approximately $5.9 million, with the remainder for capital
maintenance and improvements. The Company expects to finance 1999 capital
expenditures primarily through cash flow generated from operations. The
Company's projection of 1999 capital expenditures is based on a continuation
of the Company's program to maintain and modernize existing manufacturing
capacity and to comply with existing environmental regulations. The actual
level of capital expenditures may be higher in the event of unforeseen
breakdowns of equipment or changes in environmental requirements, or lower in
the event of inadequate cash flow from operations.
 
  Financing activities used $4.2 million in cash for the year ended December
31, 1998 compared to providing $8.2 million for the same period last year.
Cash used in 1998 was due primarily to $15.0 million of borrowings used to
provide for $20.8 million of purchases of voting and non-voting Common Stock
in 1998. Cash provided in 1997 consisted primarily of net proceeds from the
Refinancing of approximately $119.0 million, which was used for i) the
acquisition of Koppers Australia for $63.0 million; ii) the purchase of $34.0
million of non-voting Common Stock; iii) $16.0 million of fees and expenses
related to the Refinancing; and iv) $6.4 million of premium payments related
to the redemption of the 8 1/2% Senior Notes due 2004.
 
  Stock Redemptions. In 1999, anticipated stock redemptions total $2.0
million. See "Certain Relationships and Related Transactions."
 
                                      21
<PAGE>
 
  Impact of Deferred Taxes. Energy tax credits from the Monessen Facility
provided tax benefits to Koppers of approximately $9.5 million, $9.3 million
and $7.0 million in 1998, 1997 and 1996, respectively, and could provide up to
$10.4 million per year thereafter, unadjusted for inflation and assuming the
availability of taxable income and full production at the Monessen Facility.
The Company is currently pursuing alternatives, including the sale of the
Monessen Facility, to monetize some or all of these tax credits. Based on the
Company's earnings history, along with the implementation of various tax
planning strategies, the Company believes the deferred tax assets on the
Consolidated Balance Sheet at December 31, 1998 are realizable. In the event
that the Company retains the Monessen Facility, tax expense is likely to be
significantly less than actual cash outlays for taxes.
 
  Foreign Operations and Foreign Currency Transactions. The Company is subject
to foreign currency translation fluctuations due to its foreign operations,
the most significant of which is Koppers Australia, which has operations in
Australia and various Pacific Rim nations.
 
  Seasonality; Effects of Weather. The Company's quarterly operating results
fluctuate due to a variety of factors that are outside Koppers' control,
including inclement weather conditions, which in the past have affected
operating results. Operations at several of Koppers' facilities have been
halted for short periods of time during the winter months. Moreover, demand
for some of Koppers' products declines during periods of inclement weather. As
a result of the foregoing, the Company anticipates that it may experience
material fluctuations in quarterly operating results.
 
  Restructuring Charges. At December 31, 1998 approximately $12.5 million of
the cash charges for the 1997 restructuring and substantially all of the cash
charges from the 1996 restructuring had been expended. The majority of the
remaining cash expenditures related to the 1997 restructuring are primarily
pension and postretirement benefits expected to be paid over approximately a
ten-year period. Approximately $1.0 million of plant closing reserves were
credited to income for 1998 as the result of a negotiated reduction in a
contractual penalty obligation related to the Feather River, California
cogeneration facility.
 
  Impact of Year 2000. Most of the Company's computer programs were written
using two digits rather than four to define the applicable year. As a result,
those computer programs have time-sensitive software that recognize a date
using "00" as the year 1900 rather than the year 2000. This could cause a
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
 
  The Company has organized its activities to address Year 2000 issues in
three phases: 1) initial assessment; 2) remediation; and 3) implementation and
testing. There is considerable overlap in these phases due to the timing and
nature of this project. The Company has substantially completed the first
phase, which included an assessment of hardware and software applications;
assessment of embedded chips in manufacturing equipment and various process
control systems; identification of, and communication with, significant
vendors and customers; establishment of compliance and testing programs; and
development of the project plan.
 
  The Company has assessed its information technology systems, such as
business computing systems, end user computer systems and technical
infrastructure, as well as embedded systems commonly found in manufacturing
and service equipment, testing equipment and environmental operations. The
assessments also included an evaluation of the readiness of its suppliers and
service providers, personal computers, communication systems and electronic
data interchange (EDI). The Company has completed the assessment phase, and
has completed remediation for most of its systems. Options for remediation
have included replacement, modification or continued use depending on
information gathered during the assessment stage. The remediated systems will
be tested and reviewed before the determination is made as to the readiness of
the system. A project committee meets regularly to review the status of the
investigation into and resolution of the Year 2000 issues.
 
  The Year 2000 project is expected to be completed by June 30, 1999, which is
prior to any anticipated impact on the Company's operations. The Company
believes that with modifications to existing software, the Year 2000 Issue
will not pose significant operational problems for its computer systems.
However, if such
 
                                      22
<PAGE>
 
modifications and conversions are not made, or are not completed on a timely
basis, the Year 2000 Issue could have a material adverse effect on the results
of operations of the Company.
 
  The primary financial information systems for the Company include 1)
Corporate; 2) Carbon Materials & Chemicals; 3) Railroad & Utility Products;
and 4) Koppers Australia. Assessments have been completed for all these
systems, and remediation has been completed for the Corporate, Carbon
Materials & Chemicals and Railroad & Utility Products systems. The Koppers
Australia system replacement has been substantially completed.
 
  Non-financial information systems and embedded systems for the Company
consist primarily of process control systems for the various manufacturing
processes the Company uses in manufacturing its products, as well as
environmental process controls. Engineers and consultants have been engaged to
assess and remediate such non-financial and embedded systems as deemed
necessary. Domestically, the Company has completed the assessment phase for
these systems and is in the process of remediation; Koppers Australia is
currently in the assessment phase for these systems. The Company believes all
such remediation will be completed by March 31, 1999 and that all
implementation and testing will be completed by June 30, 1999.
 
  The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failures to remediate
their own Year 2000 issues. There can be no assurance that the systems of
other companies on which the Company's systems rely will be corrected on a
timely basis and will not have a material adverse effect on the Company's
results of operations.
 
  The total Year 2000 project cost is estimated at approximately $3.0 million,
$2.5 million of which is expected to be expensed when incurred. At December
31, 1998, the Company had incurred approximately $2.3 million, of which
approximately $1.8 million has been expensed, primarily for assessment and
remediation of the Year 2000 issue, and the replacement of the majority of
information systems for Koppers Australia.
 
  Management of the Company believes it has an effective program in place to
resolve the Year 2000 Issue in a timely manner. As noted above, the Company
has completed all remediation for financial systems, but has not yet completed
all necessary phases of the Year 2000 project. In the event the Company does
not complete any additional phases, certain manufacturing locations could have
significant production failures. Additionally, disruptions in the economy
generally resulting from Year 2000 issues could also materially adversely
affect the Company. The amount of potential liability and lost revenue cannot
be reasonably estimated at this time.
 
  The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no assurance that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
 
  The Company has been developing a contingency plan which outlines
alternatives available to the Company in the event that critical systems fail
in the year 2000. This contingency plan, which is estimated to be completed by
June 30, 1999 will outline the steps to be taken in the event that problems
occur in critical systems such as invoicing, inventory control and certain
production processes.
 
Safe Harbor Statement
 
  This discussion contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Actual
results could differ materially from those forward-looking statements. The
Company's efforts to ensure its operations are not materially affected by the
arrival of the year 2000 depend upon the accuracy and completeness of its
remediation assessments and activities. In addition, the Company
 
                                      23
<PAGE>
 
could be adversely impacted by the failures of third parties with which it has
a material relationship for which the Company's contingency plans are
inadequate. Furthermore, the Company's efforts are dependent upon the
continued availability of qualified personnel.
 
  There are other important factors not described above which could also cause
actual results to differ materially from those in any forward-looking
statement made for or on behalf of the Company.
 
Impact of Recently Issued Accounting Standards
 
  Statement No. 130, Reporting Comprehensive Income, requires enterprises to
classify items of comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital. The Company
has adopted Statement No. 130 and restated prior periods to provide
comparability.
 
  Statement No. 131, Disclosure about Segments of an Enterprise and Related
Information, changes the way companies report segment information in annual
reports and in interim financial statements. The Company has adopted Statement
No. 131 and restated prior periods to provide comparability.
 
  Statement No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits, was issued in February 1998. The Statement supersedes
the disclosure requirements in Statements No. 87, Employers' Accounting for
Pensions, No. 88, Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits, and No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions. The overall
objective is to improve and standardize disclosures about pensions and other
postretirement benefits and to make the required information easier to prepare
and more understandable. Statement No. 132 is effective for fiscal years
beginning after December 15, 1997. The Company has adopted Statement No. 132
and restated prior periods to provide comparability.
 
  Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued in June 1998. The Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments imbedded in other contracts, and for hedging activities. It
requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The accounting for changes in the fair value of a
derivative (i.e., gains and losses) depends on the intended use of the
derivative and the resulting designation. Statement No. 133 is effective for
fiscal years beginning after June 15, 1999. The Company does not expect the
effect of the adoption of this statement to be material.
 
Environmental Matters
 
  Like companies involved in similar environmentally sensitive businesses, the
Company's operations and properties are subject to Environmental Laws. The
Clean Air Act and Clean Water Act, each as amended, impose stringent standards
on air emissions and water discharges, respectively. Under RCRA, a facility
that treats, stores or disposes of hazardous waste on-site may be liable for
corrective action costs, and a facility that holds a RCRA permit may have to
incur costs relating to the closure of certain "hazardous" or "solid" waste
management units. Under CERCLA and similar state laws, an owner or operator of
property at which releases of hazardous substances have occurred may be liable
for investigation and remediation of any resulting contamination and related
natural resource damages. In addition, under CERCLA, the generator of
hazardous substances may be strictly, and jointly and severally liable for any
required investigation or remediation at third-party disposal sites and
related natural resource damages. The Environmental Laws are subject to
frequent amendment. The sanction for failure to comply with such Environmental
Laws can include significant civil penalties, criminal penalties, injunctive
relief and denial or loss of, or imposition of significant restrictions on,
environmental permits. In addition, the Company could be subject to suit by
third parties in connection with violations of or liability under
Environmental Laws.
 
 
                                      24
<PAGE>
 
 Environmental Indemnity and Guarantee
 
  The Company has several environmental indemnification agreements related to
the various former owners of its operating locations. The most significant of
these indemnifications was obtained at the Company's inception. At the
formation of the Company in 1988, the Company and Beazer East entered into the
Asset Purchase Agreement. Under the terms of the Asset Purchase Agreement,
Beazer East indemnified the Company by issuing the Indemnity and the
Guarantee. However, if such indemnification was not available for any reason,
including the inability of Beazer East and/or Beazer Limited to make such
indemnification payments, the Company may not have sufficient resources to
meet such liabilities.
 
  Beazer East has adhered to the terms of the Indemnity agreement and is
actively fulfilling its obligations to conduct investigative and remedial
programs at the properties which the Company acquired from Beazer East in
accordance with the requirements of regulatory authorities. The Indemnity is
not applicable to sites acquired since the formation of the Company, for which
separate indemnifications have been negotiated where appropriate. At the
properties which the Company acquired subsequent to the acquisition of the
Beazer East properties, all remedial actions are being performed in accordance
with applicable regulations and all indemnification obligations are being
honored.
 
  In the event that Beazer East and Beazer Limited do not continue to fulfill
their commitment under the Indemnity and the Guarantee, the Company may be
required to pay costs covered by the Indemnity. The Company believes that for
the last three years amounts paid by Beazer East under the Indemnity have
averaged approximately $12 million per year. The requirement to pay such costs
without reimbursement would have a material adverse effect on the business,
financial condition, cash flow and results of operations of the Company.
Furthermore, if the Company were required to record a liability in respect of
matters covered by the Indemnity on its balance sheet, the result could be
that the Company would have significant negative net worth.
 
  In addition, Beazer East is presently defending certain toxic tort actions
arising from the operation of assets prior to the inception of the Company
which were acquired from Beazer East. These tort actions were not assumed by
the Company under the Asset Purchase Agreement and, in any event, are within
the scope of the Indemnity.
 
  On August 5, 1998 Hanson PLC announced that an agreement had been signed
under which the funding and risk of the environmental liabilities relating to
the former Koppers Company operations of Beazer PLC (which includes locations
purchased from Beazer East by the Company) will be underwritten by
subsidiaries of two of the world's largest reinsurance companies, Centre
Solutions (a member of the Zurich Group) and Swiss Re.
 
 Other Environmental Matters
 
  In October 1996 the Company received a Clean Water Act information request
from the EPA. This information request asked for comprehensive information for
a period of five years on discharge permits, applications for discharge
permits, discharge monitoring reports, and the analytical data in support of
the reports and applications. The Company responded in full to the information
request and delivered the requested information to the EPA in November 1996.
During the subsequent two year period, the Company supplemented its initial
response to the EPA several times as the EPA made supplemental requests. In
January 1999 the Company met with officials of the EPA to discuss the EPA's
review of the information submitted by the Company and the EPA requested
additional information from October 1996 to December 1998. In the meeting, the
EPA suggested that the Company and the EPA negotiate an agreement. Included
among the suggestions for settlement were a continuation of the Company's
ongoing efforts to develop a better environmental management system, to
conduct third party environmental audits, and to evaluate aging equipment and
facilities that may have the potential to impact adversely the quality of
wastewater discharged to the environment or to publicly owned treatment
facilities. The EPA did not propose a penalty or suggest a range in which a
penalty, if any, might be sought. At this time without knowing the details
behind the summary of the EPA's alleged violations, it is
 
                                      25
<PAGE>
 
impossible to predict the amount of any penalty. There can be no assurance
that any monetary penalty and the cost of any supplemental environmental
projects will not have a material adverse effect on the business, financial
condition, cash flow and results of operations of the Company.
 
  Part of the allegations asserted by the EPA concern Woodward Coke and the
Logansport, Louisiana wood treating plant. During a Company-initiated
investigation at Woodward Coke, it was discovered that certain environmental
records and reports relating to the discharge of treated process water
contained incomplete and inaccurate information. Corrected reports were
submitted to the State of Alabama and the EPA. In June 1997, during a routine
third party environmental compliance audit of the Logansport plant, it was
discovered that certain records and reports relating to the discharge of
treated process water contained incomplete and inaccurate information.
Corrected reports have been submitted to the local municipality, the State of
Louisiana and the EPA.
 
  In 1997 the Company paid a civil penalty in the amount of $0.5 million to
Jefferson County in settlement of various alleged air pollution violations
concerning emissions from Woodward Coke for the period from May 25, 1992 to
March 1, 1996 and in settlement of various alleged air pollution violations
concerning benzene abatement equipment at Woodward Coke that had been
discovered as a result of a Company-initiated investigation. On February 14,
1997 the EPA issued a notice of violation for the same alleged air pollution
violations concerning emissions which were the subject of the Jefferson County
suit. In January 1998 the Company ceased operations at Woodward Coke. On
February 8, 1998 Jefferson County requested that the original settlement
agreement be modified to include alleged air emission violations for the
period of August 1997 to January 1998 and proposed an additional civil penalty
of $0.6 million. The Company is currently in the process of reviewing the
proposed modification and has entered into negotiations with Jefferson County
regarding this matter. There can be no assurance that the EPA will not seek
additional actions or penalties that could have a material adverse effect on
the business, financial condition, cash flow and results of operations of the
Company.
 
  At the acquisition of the Monessen Facility, the Company entered into the
Monessen Consent Order pursuant to which the Company's liabilities for
environmental cleanup have been capped at $0.6 million for matters identified
pursuant to the Monessen Consent Order. Although an environmental
indemnification was provided to the Company by the seller of that facility,
the Company does not expect that such obligations will be honored. If
contamination at the Monessen Facility should be discovered which was not
identified pursuant to the Monessen Consent Order, or if the EPA should
require cleanup above the $0.6 million "cap" contained in the Monessen Consent
Order, the costs associated with such events could have a material adverse
effect on the Company's business, financial condition, cash flow and results
of operations.
 
  On occasion, Koppers Australia has been served with notices relating to
environmental compliance issues arising in connection with its operations.
Koppers Australia had been served with a notice by the Tasmanian DELM which
alleged that the Longford, Tasmania facility was not in compliance with
certain water discharge requirements; the DELM rescinded this notice in 1998.
In addition, historic operations conducted at the Koppers Australia facilities
have resulted in identified and potential soil and groundwater contamination
of varying degrees. The Trentham, Victoria facility is listed on the Victorian
register of contaminated sites. The Rockhampton and Takura, Queensland
facilities are listed on the Queensland register of contaminated sites as
"probable sites". In addition, Koppers Australia has identified various levels
of groundwater contamination at the Mayfield, New South Wales and Bunbury,
Western Australia facilities. Although the relevant regulatory authorities
have not required the investigation or remediation of these or other Koppers
Australia facilities to date, these authorities may require such work if
Koppers Australia does not undertake such activities itself. Costs associated
with these activities may be material and there can be no assurance that such
costs will not have a material adverse effect on the business, financial
condition, cash flow and results of operations of the Company.
 
ITEM 7a. Market Risk
 
  Like other global companies, Koppers is exposed to market risks relating to
fluctuations in interest rates and foreign currency exchange rates. The
objective of financial risk management at Koppers is to minimize the
 
                                      26
<PAGE>
 
negative impact of interest rate and foreign exchange rate fluctuations on the
Company's earnings, cash flows and equity.
 
  To manage the interest rate risks, the Company uses a combination of fixed
and variable rate debt. This reduces the impact of short-term fluctuations in
interest rates. To manage foreign currency exchange rate risks, the Company
uses foreign currency debt to hedge long-term investments in foreign
subsidiaries. This reduces the impact of fluctuating currencies on net income
and equity.
 
  As required by the Securities and Exchange Commission rules, the following
analyses present the sensitivity of the market value, earnings and cash flows
of the Company's financial instruments and foreign operations to hypothetical
changes in interest and exchange rates as if these changes occurred at
December 31, 1998. The range of changes chosen for these analyses reflect the
Company's view of changes which are reasonably possible over a one-year
period. Market values are the present values of projected future cash flows
based on the interest rate and exchange rate assumptions. These forward
looking statements are selective in nature and only address the potential
impacts from financial instruments and foreign operations. They do not include
other potential effects which could impact the Company's business as a result
of these changes.
 
  Interest Rate and Debt Sensitivity Analysis. The Company's exposure to
market risk for changes in interest rates relates primarily to the Company's
long-term debt obligations, including the current portion. As described in
Note 5 of the Notes to Consolidated Financial Statements, the Company has both
fixed and variable rate debt to manage interest rate risk and to minimize
borrowing costs.
 
  At December 31, 1998 the Company had $187.9 million of fixed rate debt and
$144.8 million of variable rate debt, reflecting the Company's strategy of
maintaining variable rate debt at 30%-50% of total debt. For fixed rate debt,
interest rate changes affect the fair market value but do not impact earnings
or cash flows. For variable rate debt, interest rate changes generally do not
affect the fair market value but do impact future earnings and cash flows,
assuming other factors are held constant.
 
  Holding other variables constant (such as debt levels and foreign exchange
rates) a one percentage point decrease in interest rates would increase the
unrealized fair market value of the fixed rate debt by approximately $11.2
million. The earnings and cash flows for the next year assuming a one
percentage point increase in interest rates would decrease approximately $1.5
million, holding other variables constant.
 
  Exchange Rate Sensitivity Analysis. The Company's exchange rate exposures
result primarily from its investment and ongoing operations in Australia.
Holding other variables constant, if there were a ten percent reduction in
exchange rates, the effect on earnings of the Company, based on actual
earnings from foreign operations in 1998, would be a reduction of
approximately $0.8 million.
 
ITEM 8. Financial Statements and Supplementary Data
 
  The financial statements and supplementary data required by Item 8 are
included in this Annual Report on Form 10-K beginning on page 38 and are
listed in Item 14 hereof.
 
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
 
  None
 
 
                                      27
<PAGE>
 
                                   PART III
 
ITEM 10. Directors and Executive Officers of the Registrant
 
  The following table sets forth the names and ages of the executive officers
and Directors of the Company as of March 19, 1999 and the positions which they
hold. Directors hold their positions until the annual meeting of the
stockholders at which their term expires or until their respective successors
are elected and qualified. Executive officers hold their positions until the
annual meeting of the Board of Directors or until their respective successors
are elected and qualified.
 
<TABLE>
<CAPTION>
 Name                          Age Position with the Company
 ----                          --- -------------------------
 <C>                           <C> <S>
 Robert K. Wagner............   67 Non-Executive Chairman and Director
 Walter W. Turner............   52 President and Chief Executive Officer and
                                   Director
 Clayton A. Sweeney..........   67 Director
 Brooks C. Wilson............   65 Director
 N. H. Prater................   70 Director
 Christian L. Oberbeck.......   39 Director
 Charles P. Durkin, Jr.......   60 Director
 Robert Cizik................   67 Director
 David M. Hillenbrand........   51 Director
 Donald E. Davis.............   42 Vice President and Chief Financial Officer
 Thomas D. Loadman...........   44 Vice President and General Manager, Railroad
                                   Products & Services
 Kevin J. Fitzgerald.........   46 Vice President and General Manager, Carbon
                                   Materials & Chemicals
 Ernest S. Bryon.............   53 Vice President, Australasian Operations and
                                   Managing Director, Koppers Australia Pty.
                                   Limited
 Randall D. Collins..........   46 Vice President, Environmental, Health &
                                   Safety Affairs and Secretary
 Joseph E. Boan..............   52 Vice President, Human Resources
 Robert H. Wombles...........   47 Vice President, Technology
 M. Claire Schaming..........   45 Treasurer and Assistant Secretary
</TABLE>
 
  Mr. Wagner served as President and Chief Executive Officer of the Company
from 1989 through November 1994 and as Chairman and Chief Executive Officer
from November 1994 through February 1996. In March 1996 Mr. Wagner retired
from active employment with the Company and assumed the position of Non-
Executive Chairman and Director. He served as acting Chief Executive Officer
from June 1997 through February 1998, at which time a new President and Chief
Executive Officer was elected. Mr. Wagner has retained his responsibilities as
Non-Executive Chairman and Director. He joined Old Koppers in 1953 and after
an early career in communications, moved into the forest products business in
1968 and held sales, marketing and raw materials posts until being appointed
Vice President and Manager of the Pressure-Treated Products unit in 1975. Mr.
Wagner became Vice President and General Manager of this division in 1978 and
was named Vice President and General Manager of the Tar and Wood Products
Sector in 1986. Mr. Wagner also served as a Director of Integra Financial
Corporation of Pittsburgh, Pennsylvania from 1992 until 1996 and as a Director
of Trion, Inc. of Sanford, North Carolina from 1978 until his resignation in
April 1995.
 
  Mr. Turner was elected President, Chief Executive Officer and Director in
February 1998. Mr. Turner had been appointed Vice President and General
Manager, Carbon Materials & Chemicals division in early 1995. Mr. Turner had
been elected Vice President and Manager, Marketing & Development, Industrial
Pitches and Related Products in February 1992. Mr. Turner was Marketing
Manager, Industrial Pitches and Creosote Oils for Old Koppers' Tar and Wood
Products Sector. Mr. Turner joined Old Koppers in 1969 and has served in
various positions in the controller's department and as Product Manager, Tar
Operations.
 
  Mr. Sweeney has been a Director of Koppers since January 1989. Mr. Sweeney
is the President and a member of Sweeney Metz Fox McGrann & Schermer L.L.C.
Mr. Sweeney had been a shareholder and Director of Dickie, McCamey & Chilcote,
P.C. since 1987 and served as Managing Director from 1988 to September
 
                                      28
<PAGE>
 
1993. Mr. Sweeney previously served as Executive Vice President, Chief
Administrative Officer, Vice Chairman, and a Director of Allegheny
International, Inc., as Senior Vice President and a Director of Allegheny
Ludlum Industries, and as a Director of Wilkinson Sword Group, Ltd. U.K.,
Landmark Savings and Loan Association, Halbouty Energy Company and Liquid Air
Corporation. Mr. Sweeney currently serves as a Director of Schaefer
Manufacturing Inc., Schaefer Equipment, Inc., and Schaefer Marine Inc., and as
Chairman of the Boards of St. Francis Health System and St. Francis Medical
Center.
 
  Mr. Wilson has been a Director of Koppers since January 1989. Prior to his
retirement in October 1998, Mr. Wilson had been the Managing Director of
Koppers Australia since 1970, having joined Old Koppers in 1965 as a member of
the Koppers International Far East Office (Sydney, Australia). He is currently
a Director of Pacific Power, Pacific Solar and Atlas Copco Australia Pty.
Limited. He is also Chairman of Knox Grammar School and Opportunity
International Australia. Mr. Wilson is a member of the Advisory Board of the
Australian Graduate School of Management, University of New South Wales, and
is a member of the Board of Outward Bound Australia.
 
  Mr. Prater has been a Director of Koppers since May 1989. Mr. Prater retired
from Mobay Corporation, where he served as the President and Chief Executive
Officer from July 1986 to July 1990. He served as a visiting Professor at the
University of Virginia and currently serves as a Director of Calgon Carbon
Corporation and Harsco Corporation. He is a member of the Board of Trustees of
Robert Morris College and the Georgia Institute of Technology, and is a
special trustee of the University of Pittsburgh.
 
  Mr. Oberbeck has been a Director of Koppers since October 1997. Mr. Oberbeck
is one of the founders of Saratoga Partners where he has been a Managing
Director since its formation as an independent entity in September 1998. Prior
to that time Mr. Oberbeck was a Managing Director of SBC Warburg Dillon Read
Inc. since September 1997, the successor entity of Dillon, Read & Co. Inc.
where he was a Managing Director from February 1995 to September 1997,
responsible for the management of the Saratoga funds. Prior to joining Dillon,
Read & Co. Inc., Mr. Oberbeck was a Managing Director of Castle Harlan, Inc.
where he worked from October 1987 until February 1995. Mr. Oberbeck is a
Director of Equality Specialties, Inc., J&W Scientific Incorporated, and
Scovill Fasteners Inc.
 
  Mr. Durkin has been a Director of Koppers since May 1998. Mr. Durkin is one
of the founders of Saratoga Partners, where he has been a Managing Director
since its formation as an independent entity in September 1998. Prior to that
he had been a Managing Director of SBC Warburg Dillon Read Inc. since
September 1997, the successor entity of Dillon, Read & Co. Inc. where Mr.
Durkin started his investment banking career in 1966 specializing in mergers
and acquisitions, and became a Managing Director in 1974. Mr. Durkin is a
director of a number of companies, including Equality Specialties, Inc.,
Scovill Fasteners, Inc. and USI Holdings Corporation.
 
  Mr. Cizik has been a Director of Koppers since January 1999. Mr. Cizik
retired from Cooper Industries, Inc. where he served as President, Chief
Executive Officer and Chairman of the Board from 1973 to 1996. He currently
serves as Non-Executive Chairman of Stanadyne Automotive and as a Director of
Air Products and Chemicals Inc., Harris Corp. and Temple-Inland Inc. Mr. Cizik
has also served as a Director and Chairman of the National Association of
Manufacturers.
 
  Dr. Hillenbrand was elected as a Director of Koppers in February 1999. Dr.
Hillenbrand has been the President and Chief Executive Officer of Bayer, Inc.
(formerly Miles Canada Inc.) since 1994. Prior to 1994, Dr. Hillenbrand was
Senior Vice President and Elkhart General Site Manager, Miles Inc. (now Bayer
Corporation). In that position, he was responsible for the administration
services and operations at Bayer's largest North American site, which included
chemical manufacturing facilities. Dr. Hillenbrand is a member of the Board of
Directors of Bayer Inc. and Afga Inc., and is on the Board of Representatives
of the Gustafson Partnership. In addition he is a member of the Canadian
Chemical Producers Association (CCPA), and chairs its Public Affairs
Committee. Dr. Hillenbrand is also a member of the Board of the Canadian
German Chamber of Industry and Commerce Inc.
 
                                      29
<PAGE>
 
  Mr. Davis was elected Vice President and Chief Financial Officer of Koppers
in November 1994. Mr. Davis had been General Manager of Koppers' Recovery
Resources Group from June 1992 to March 1996 and served as Treasurer from 1988
until 1992. He joined Old Koppers in 1978 and held various positions in the
corporate accounting and auditing departments until being named General
Manager of the Chemical Systems Sector at Old Koppers in 1988. He is also a
Director of Koppers-Hickson and Tarconord. Mr. Davis is a certified public
accountant.
 
  Mr. Loadman was appointed Vice President and General Manager, Railroad &
Utility Products in March 1998. Mr. Loadman had been elected Vice President
and General Manager, Railroad Products & Services in November 1994, and had
been the Transportation Plants Operations Manager of the Railroad & Utility
Products division since January 1989. He joined Old Koppers in 1979 and served
in various management assignments including plant manager and cogeneration
plant manager. Mr. Loadman is a Director of KSA. He is also a member of the
American Wood Preservers Association and the Railway Tie Association.
 
  Mr. Fitzgerald was appointed Vice President and General Manager, Carbon
Materials & Chemicals division in March 1998. After serving as plant manager
of the Stickney, Illinois Carbon Materials & Chemicals plant in 1996 and 1997,
Mr. Fitzgerald was appointed Vice President and Manager, Carbon Materials &
Chemicals in January 1998. He joined Old Koppers in 1975 and had several
operations and office positions at the Stickney plant before being named as
plant manager of the Houston, Texas carbon materials facility in 1988. He was
Product Manager Industrial Pitches from 1991 to 1995.
 
  Mr. Bryon was appointed Vice President, Australasian Operations and Managing
Director, Koppers Australia Pty. Limited on October 1, 1998. Mr. Bryon had
served as General Manager of Koppers Coal Tar Products Pty. Ltd. (a subsidiary
of Koppers Australia) since 1993. Mr. Bryon is a Director of Koppers-Hickson.
 
  Mr. Collins was elected Vice President and Secretary in November 1994, and
has been Secretary of Koppers since January 1989. Mr. Collins was Manager of
Loss Control for Old Koppers. He joined Old Koppers in 1974 and held various
line and staff assignments including personnel, industrial relations, and
plant operations. Currently Mr. Collins serves the Company as Vice President,
Corporate Services. His responsibilities include establishing policy and
assuring regulatory compliance for environmental, safety and health matters,
risk management, external communications, legal affairs and shareholder
matters. Mr. Collins is a member of the American Society of Corporate
Secretaries.
 
  Mr. Boan has been Vice President, Human Resources since January 1989. Mr.
Boan was Manager, Labor Relations for Old Koppers. He joined Old Koppers in
1969. Prior to 1987, Mr. Boan held the position of Director, Human Resources,
for three Old Koppers subsidiaries in the Construction Materials and Services
Group. In 1987, he was named Manager, Labor Relations for Old Koppers. Mr.
Boan is a member of the Pennsylvania Bar.
 
  Mr. Wombles joined the Company in June 1997 and was elected Vice President,
Technology. Prior to joining Koppers, Mr. Wombles was Vice President,
Research, Applications and Development for Ashland Oil, Inc. Mr. Wombles has
published a series of technical articles on hydrocarbon processing and holds
five patents on related methodologies.
 
  Ms. Schaming was elected Treasurer in May 1992. Her previous position was
Assistant Treasurer and Manager of Cash Operations. Ms. Schaming joined Old
Koppers in 1976, where she held various positions in corporate and Chemical
Systems Sector accounting, including controller for the Polyester Resins
Division. Ms. Schaming is a certified cash manager.
 
Stockholders' Agreement
 
  The Company is a party to the New Stockholders' Agreement. The Management
Investors are a group of 181 individual stockholders with various ownership
interests in the Common Stock and collectively comprising
 
                                      30
<PAGE>
 
81% of the total outstanding shares of the voting Common Stock of the Company.
The remaining 19% is held indirectly by approximately 600 current and former
employees through the Company's Employee Savings Plan. Each Management
Investor is an officer, Board member or current or former employee of either
Koppers or one of its subsidiaries. Pursuant to the New Stockholders'
Agreement, each of the Management Investors has appointed Walter W. Turner and
Clayton A. Sweeney as the two representatives ("Representatives") of the
Management Investors and granted to the Representatives an irrevocable proxy
for the term of the New Stockholders' Agreement to vote all his or her voting
shares.
 
  The New Stockholders' Agreement sets forth supermajority voting requirements
for the Board of Directors for certain matters, including the issuance of
additional stock, mergers, consolidations, acquisitions, significant asset
sales, and the incurrence of material indebtedness and changes in certain
senior management. Saratoga is entitled to nominate a majority of the Board of
Directors. The New Stockholders' Agreement requires the Company to redeem
shares upon a Management Investor's ceasing for any reason to be employed by
the Company.
 
  As of December 31, 1998, Koppers was obligated to purchase approximately 0.1
million shares of Common Stock from Management Investors no longer actively
affiliated with the Company.
 
Director Compensation
 
  Koppers does not pay compensation to Directors who are also employees. Each
Director who is not an employee is paid a fee of $22,000 per year, except for
the Saratoga Directors as noted below. Additionally, the Chairman of the Board
of Directors receives $20,000 annually related to Chairman's duties.
 
  Stock Option Grants to Directors. In December 1998, Mr. Cizik received stock
options for 35,294 shares of Common Stock, and Mr. Prater received stock
options for 15,000 shares, both with exercise prices at the market value when
granted. These options have vesting periods of 5 years and expire in 10 years.
 
 Consulting Agreements
 
  Koppers has entered into an advisory and consulting agreement with Saratoga
pursuant to which the Company pays a management fee of $150,000 per quarter to
Saratoga in lieu of Director's fees to Mr. Oberbeck and Mr. Durkin. In
addition, Saratoga will provide the Company with advisory services in
connection with significant business transactions, such as acquisitions, for
which the Company will pay Saratoga compensation comparable to compensation
paid for such services by similarly situated companies.
 
  In February 1996 the Company entered into an agreement with Robert K.
Wagner, Chairman and Director, under which in exchange for consulting services
and continuing in the position as Chairman of the Board of Directors, the
Company pays consulting fees totaling $108,000 per year, Chairman fees
totaling $20,000 per year, and Director fees totaling $22,000 per year. The
initial contract term was one year; however, the contract automatically renews
for four additional one year periods unless either party elects to cancel the
contract. Mr. Wagner has agreed not to engage in any business activity that
competes with the Company during the term of this consulting agreement. Upon
his assumption of the position of Acting Chief Executive Officer of the
Company in June 1997, the consulting fees were temporarily increased to
$358,000 per year, plus participation in the Company's incentive compensation
program. In March 1998 Mr. Wagner's consulting fees were reduced to $58,000
per year.
 
                                      31
<PAGE>
 
ITEM 11. Executive Compensation
 
Summary of Cash and Certain Other Compensation
 
  The following table sets forth information concerning the compensation for
services in all capacities to the Company, including options and stock
appreciation rights ("SARS"), for the years ended December 31, 1998, 1997 and
1996, of those persons who were at December 31, 1998 the current and former
Chief Executive Officers and each of the other four most highly compensated
executive officers of the Company who earned more than $100,000 in salary and
bonus in 1998 (collectively, the "Named Executive Officers"):
 
                          SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                       Annual Compensation          Long-Term Compensation
                                  ----------------------------- -------------------------------
                                                      Other       Securities
                                                      Annual      Underlying       All Other
Name and Principal Position  Year  Salary   Bonus  Compensation Options/SARS(#) Compensation(2)
---------------------------  ---- -------- ------- ------------ --------------- ---------------
<S>                          <C>  <C>      <C>     <C>          <C>             <C>
Robert K. Wagner..........   1998 $     -- $    --                  $    --        $150,000(3)
  Chairman and former
   Chief                     1997       --  90,000        --             --         309,450(3)
  Executive Officer (1)      1996  107,955  27,930     1,108             --         136,576(3)
 
Walter W. Turner..........   1998  278,060      --       567         40,000           3,513
  President and Chief        1997  150,060  36,293       181             --           6,164
  Executive Officer (1)      1996  128,400  53,305        --             --          11,876
 
Donald E. Davis...........   1998  188,560      --        --         15,000           3,513
  Vice President and Chief   1997  169,860  62,424        --             --           6,164
  Financial Officer          1996  151,985  55,159        --             --          11,576
 
Thomas D. Loadman.........   1998  152,400  28,602        --         15,000           3,513
  Vice President and
   General                   1997  139,400  44,911        --             --           6,164
  Manager, Railroad &
   Utility                   1996  125,300  29,117        --             --           6,298
  Products
 
Joseph E. Boan............   1998  133,380      --        10          5,000           3,513
  Vice President,            1997  127,380  45,425        22             --           6,164
  Human Resources            1996  120,980  43,428        --             --           9,613
 
Ernest S. Bryon...........   1998  117,180  19,916    12,033          7,000          95,224(4)
  Vice President,
   Australasian
  Operations and Managing
  Director, Koppers
   Australia
</TABLE>
--------
(1)  In February 1998 Mr. Turner was elected President and Chief Executive
     Officer and a Director of the Company, succeeding Mr. Wagner.
 
(2)  All other compensation consists of regular and supplemental matches to
     the Company's 401(k) plan except as noted below.
 
(3)  For 1998 and 1997, includes $22,000 for Director fees, $20,000 for
     Chairman fees and the remainder for consulting fees to the Company. For
     1996, includes $17,500 for director fees, $16,667 for Chairman fees and
     the remainder for consulting fees to the Company. See "Directors and
     Executive Officers of the Registrant--Director Compensation".
 
(4)  Consists of payments from the Koppers Australia Senior Executive Unit
     Trust, which was liquidated due to a change of control upon the
     acquisition of Koppers Australia by the Company.
 
 
                                      32
<PAGE>
 
Stock Options
 
  The following table sets forth information regarding the grant of stock
options during 1998 under the Company's stock option plan to each Named
Executive Officer.
 
                     Option/SAR Grants in Last Fiscal Year
 
<TABLE>
<CAPTION>
                                          Individual Grants (1)
                         -------------------------------------------------------
                         Number of   % of Total
                         Securities   Options    Exercise
                         Underlying  Granted to   or Base              Present
                          Options   Employees in   Price   Expiration  Value of
Name                     Granted(#) Fiscal Year  ($/share)   Date     Options(2)
----                     ---------- ------------ --------- ---------- ----------
<S>                      <C>        <C>          <C>       <C>        <C>
Walter W. Turner........   25,000       18.7%     $14.00    03/01/08   $105,000
                           15,000       11.2       17.00    12/14/08     76,500
Donald E. Davis.........   15,000       11.2       17.00    10/01/08     76,500
Thomas D. Loadman.......   15,000       11.2       17.00    10/01/08     76,500
Joseph E. Boan..........    5,000        3.7       17.00    10/01/08     25,500
Ernest S. Bryon.........    7,000        5.2       17.00    10/01/08     35,700
</TABLE>
--------
(1)  Options become exercisable over a five-year period, except for the
     options granted to Mr. Turner on March 1, 1998 which become exercisable
     over a three-year period. Any unexercised options expire after ten years.
     The stock option price is equal to the fair market value of a share of
     Common Stock on the grant date.
 
(2)  Option values reflect Black-Scholes model output for options. The
     assumptions used in the model were risk-free interest rate of 5.56%,
     dividend yield of 0.0%, volatility factor of .2, and an expected option
     life of ten years.
 
Option Exercises and Fiscal Year-End Values
 
  Shown below is information with respect to options exercised in 1998 and
unexercised options granted in 1998 and prior years under the Company's stock
option plan. No SARS were granted to any of the Named Executive Officers and
none of the Named Executive Officers held any unexercised SARS at the end of
the fiscal year.
 
              Aggregated Option/SAR Exercises in Last Fiscal Year
                     and Fiscal Year-End Option/SAR Values
 
<TABLE>
<CAPTION>
                          Number of                 Number of Securities      Value of Unexercised
                          Securities               Underlying Unexercised     In-the-money Options/
                          Underlying              Options/SARS at FY-End(#)   SARS at FY-End($)(1)
                         Options/SARS    Value    ------------------------- -------------------------
Name                      Exercised   Realized($) Exercisable Unexercisable Exercisable Unexercisable
----                     ------------ ----------- ----------- ------------- ----------- -------------
<S>                      <C>          <C>         <C>         <C>           <C>         <C>
Walter W. Turner........        --     $     --     22,350       40,000      $517,180      $85,000
Donald E. Davis.........     6,300       94,500     20,100       15,000       227,511        3,750
Thomas D. Loadman.......     6,750       99,520     13,200       15,000       107,180        3,750
Joseph E. Boan..........    20,700      316,964      7,200        5,000        98,368        1,250
Ernest S. Bryon.........        --           --         --        7,000            --        1,750
</TABLE>
--------
(1)  The value of unexercised in-the-money options is calculated by
     subtracting the exercise price from the market price as of December 31,
     1998 as determined by the Board of Directors pursuant to the provisions
     of the New Stockholders' Agreement. Pursuant to the provisions of the
     Company's stock option plan, all options granted prior to December 1,
     1997 became vested due to a change of control.
 
                                      33
<PAGE>
 
Benefit Plans
 
  Pension Plan. All executive officers of the Company are covered by the
Retirement Plan of Koppers Industries, Inc. and Subsidiaries for Salaried
Employees (the "Salaried Plan"). The following table contains approximate
retirement benefits payable under the Salaried Plan, assuming retirement at
age 65, payments made on the straight-life annuity basis and no election of a
co-annuitant option. Annual retirement benefits are computed at the rate of
1.2% of Terminal Salary (as defined below) not in excess of $16,000, plus 1.6%
of Terminal Salary in excess of $16,000, all multiplied by years of Credited
Service (as defined below). Terminal Salary is determined based on the average
annual salary (defined as salary plus one half of any incentive payments) for
the five highest consecutive years of the last ten years of credited service,
or during all years of such credited service if less than five. Credited
Service includes all accumulated service as a salaried employee of the Company
(excluding its predecessors) except for any period of layoff or leave of
absence. In 1998 the Company amended the Salaried Plan to provide a minimum
pension equal to 1.2% of Terminal Salary multiplied by years of Credited
Service up to 35 years reduced by any pension benefit paid by the pension plan
of Old Koppers.
 
Estimated Annual Retirement Benefit Under the Salaried Retirement Plan
 
<TABLE>
<CAPTION>
                       Years of Credited Service at Retirement
TERMINAL    -------------------------------------------------------------------------
 SALARY        5          10           15           20           25           30
--------    -------     -------     --------     --------     --------     --------
<S>         <C>         <C>         <C>          <C>          <C>          <C>
$100,000    $ 7,680     $15,360     $ 23,040     $ 30,720     $ 38,400     $ 46,080
 150,000     11,680      23,360       35,040       46,720       58,400       70,080
 200,000     15,680      31,360       47,040       62,720       78,400       94,080
 250,000     19,680      39,360       59,040       78,720       98,400      118,080
 300,000     23,680      47,360       71,040       94,720      118,400      142,080
 350,000     27,680      55,360       83,040      110,720      138,400      166,080
 400,000     31,680      63,360       95,040      126,720      158,400      190,080
 450,000     35,680      71,360      107,040      142,720      178,400      214,080
 500,000     39,680      79,360      119,040      158,720      198,400      238,080
</TABLE>
 
  The following describes the Terminal Salary and Years of Service,
respectively, accrued as of December 31, 1998 for each participating Named
Executive Officer: Robert K. Wagner, $402,635 and 7 years of service; Walter
W. Turner, $186,562 and 10 years of service; Donald E. Davis, $182,460 and 10
years of service; Thomas D. Loadman, $154,698 and 10 years of service; and
Joseph E. Boan, $142,750 and 10 years of service.
 
  Effective December 1, 1997 the Board of Directors established a Supplemental
Executive Retirement Plan ("SERP") for each participating Named Executive
Officer and all other officers of the Company. The SERP will pay an annual
benefit equal to 2% of final pay multiplied by years of service up to 35
years, reduced by the sum of: i) pension benefits received from the Company;
ii) pension benefits received from Old Koppers; iii) One half of any Social
Security benefits; and iv) the value of Company paid Common Stock in the
individual's Employee Savings Plan account.
 
Compensation Committee Interlocks and Insider Participation
 
  Mr. Sweeney, Mr. Prater, Mr. Oberbeck and Mr. Cizik serve on the Human
Resources and Compensation Committee of the Board of Directors of the Company,
which establishes compensation levels for the Company's three most highly paid
executive officers. Mr. Sweeney is the Managing Director of Sweeney Metz Fox
McGrann & Schermer L.L.C. of Pittsburgh, Pennsylvania which has been retained
as counsel to the Company.
 
                                      34
<PAGE>
 
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
 
  The following table sets forth certain information regarding the beneficial
ownership of the Company's voting Common Stock and Senior Convertible
Preferred Stock as of March 1, 1999 by (i) each person known to the Company to
beneficially own more than 5% of the outstanding shares of voting Common
Stock, (ii) each Director of the Company, (iii) each officer named in the
Summary Compensation Table under the heading "--Executive Compensation," and
(iv) all officers and Directors of the Company as a group.
 
<TABLE>
<CAPTION>
                                                         Senior Convertible
                               Voting Common Stock       Preferred Stock(2)
                            ------------------------- -------------------------
                               Shares     Percentage     Shares     Percentage
                            Beneficially Beneficially Beneficially Beneficially
Name of Beneficial Owner      Owned(1)     Owned(1)      Owned        Owned
------------------------    ------------ ------------ ------------ ------------
<S>                         <C>          <C>          <C>          <C>
Saratoga (3)...............                            2,288,481      100.00%
Management Investors
 (4)(5)....................  1,880,095      100.00%
Robert K. Wagner (6).......    264,487       14.07%
Walter W. Turner (7).......     54,569        2.90%
Clayton A. Sweeney (7).....    104,220        5.54%
Brooks C. Wilson (8).......     96,579        5.14%
N. H. Prater (9)...........     26,569        1.41%
Christian L. Oberbeck (3)..          0           *     2,288,481      100.00%
Charles P. Durkin, Jr......          0           *
Robert Cizik...............          0           *
David M. Hillenbrand.......          0           *
Donald E. Davis (10).......     50,857        2.71%
Thomas D. Loadman (11).....     29,854        1.59%
Joseph E. Boan (12)........     60,790        3.23%
Ernest S. Bryon............          0           *
All Directors and officers
 as a group (17 persons)...    798,465       42.91%
Total shares outstanding,
 including vested options..  1,880,095      100.00%    2,288,481      100.00%
</TABLE>
--------
*1% or less.
 
(1)  Beneficial ownership is determined in accordance with the rules of the
     Securities and Exchange Commission, and includes voting and/or investment
     power with respect to the shares shown as beneficially owned.
 
(2)  On December 1, 1997 2,117,952 shares of voting Common Stock and 27,672
     shares of non-voting Common Stock held by Saratoga were converted into
     2,145,624 Preferred Shares, entitling Saratoga to elect a majority of the
     Board of Directors of the Company and to exercise a majority of the
     voting power over all outstanding stock of the Company with respect to
     all matters subject to a stockholder vote. The Preferred Shares have
     voting (except as described below) and dividend rights equal to voting
     Common Stock, and have a liquidation preference equal to par value. The
     Preferred Shares are convertible into voting Common Stock at any time on
     a one-for-one basis. The holders of the Preferred Shares vote as a
     separate series from all other classes of stock, and are entitled to
     elect a majority of the Board of Directors.
 
(3)  With respect to 142,857 of these shares, Saratoga has voting power with
     respect to such shares and Koppers has been informed that Brown
     University Third Century Fund has dispositive directive power with
     respect to such shares subject to the terms of the New Stockholders'
     Agreement. Saratoga is a private investment fund. The address for
     Saratoga is 535 Madison Avenue, New York, NY 10022. Saratoga has
     generally authorized Mr. Oberbeck, a Director of the Company, to vote the
     shares of the Company held by Saratoga. Mr. Oberbeck disclaims beneficial
     ownership of the Preferred Shares owned by Saratoga. Saratoga is entitled
     to elect a majority of the Board of Directors and to exercise a majority
     of the voting power of all outstanding stock of the Company.
 
                                      35
<PAGE>
 
(4)  Pursuant to the New Stockholders' Agreement, Mr. Turner and Mr. Sweeney
     were appointed as Representatives of the approximately 180 Management
     Investors and granted irrevocable proxies to vote the shares of Common
     Stock owned by the Management Investors for the term of the New
     Stockholders' Agreement. Upon consummation of the share redemption and
     purchase offer by the Company, new proxies were executed by the current
     shareholder employees appointing Mr. Turner and Mr. Sweeney as
     representatives of the Management Investors. See "Directors and Executive
     Officers of the Registrant-- Stockholders' Agreement". The address for
     Mr. Turner is Koppers Industries, Inc., 436 Seventh Avenue, Pittsburgh,
     PA 15219. The address for Mr. Sweeney is Sweeney Metz Fox McGrann &
     Schermer L.L.C., 18th Floor, 11 Stanwix Street, Pittsburgh, PA 15222.
 
(5)  Includes vested options held by the Management Investors to acquire
     370,393 shares of Common Stock which are exercisable at any time.
 
(6)  Pursuant to the New Stockholders' Agreement, Mr. Wagner has granted an
     irrevocable proxy to the Representatives of the Management Investors to
     vote the shares owned by him.
 
(7)  Mr. Turner and Mr. Sweeney, as Representatives of the Management
     Investors pursuant to the New Stockholders' Agreement, have the authority
     to vote the 1,509,702 shares held by the Management Investors and
     consequently may be deemed to have voting control of such shares (which
     include 23,886 shares directly owned by Mr. Turner and 104,220 shares
     directly owned by Mr. Sweeney).
 
(8)  Mr. Wilson directly owns 96,579 shares. Pursuant to the New Stockholders'
     Agreement, Mr. Wilson has granted an irrevocable proxy to the
     Representatives of the Management Investors to vote the shares owned by
     him. Mr. Wilson retired as Managing Director of Koppers Australia
     effective October 1, 1998. The Company will be redeeming all of Mr.
     Wilson's shares in July 1999.
 
(9)  Pursuant to the New Stockholders' Agreement, Mr. Prater has granted an
     irrevocable proxy to the Representatives of the Management Investors to
     vote the shares owned by him.
 
(10)  Includes vested options to purchase 20,100 shares. Pursuant to the New
      Stockholders' Agreement, Mr. Davis has granted an irrevocable proxy to
      the Representatives of the Management Investors to vote the shares owned
      by him.
 
(11)  Includes vested options to purchase 13,200 shares. Pursuant to the New
      Stockholders' Agreement, Mr. Loadman has granted an irrevocable proxy to
      the Representatives of the Management Investors to vote the shares owned
      by him.
 
(12)  Includes vested options to purchase 7,200 shares. Pursuant to the New
      Stockholders' Agreement, Mr. Boan has granted an irrevocable proxy to
      the Representatives of the Management Investors to vote the shares owned
      by him.
 
ITEM 13. Certain Relationships and Related Transactions
 
  Sweeney Metz Fox McGrann & Schermer L.L.C. of Pittsburgh, Pennsylvania, has
been retained as general counsel to the Company. Clayton A. Sweeney, a
shareholder and Director of the Company, is also the President and a member of
Sweeney Metz Fox McGrann & Schermer L.L.C. Mr. Sweeney is one of two
Representatives of the Management Investors appointed pursuant to the New
Stockholders' Agreement and, as such, was granted an irrevocable proxy for the
term of the New Stockholders' Agreement to vote the shares of the Management
Investors. See "Directors and Executive Officers of the Registrant--
Stockholders' Agreement."
 
  The Company has agreed to redeem Mr. Wilson's 96,579 shares of Common Stock
in July 1999 based on the market value at that time.
 
  On March 13, 1996, Cornerstone-Spectrum, Inc. converted all of its shares of
Series B Junior Convertible Preferred Stock into shares of non-voting Common
Stock, $.01 par value, in accordance with Section 8(e) of the Certificate of
Designation of the Series B Preferred Stock. On March 22 and March 25, 1996,
Koppers redeemed
 
                                      36
<PAGE>
 
1.1 million shares of the non-voting Common Stock at $11.67 per share, 0.5
million shares each from Cornerstone-Spectrum, Inc. and APT Holdings
Corporation, respectively. In October 1997, all shares of Common Stock held by
Cornerstone-Spectrum, Inc. were purchased by the Offeree Stockholders and
subsequently transferred to the Company, Saratoga and Saratoga Koppers. In
addition, all remaining shares of Common Stock held by APT Holdings
Corporation were purchased by the Company in 1997 and 1998.
 
  In connection with the Recapitalization, the Company paid a transaction fee
of $1.4 million to an affiliate of Saratoga, and a financial advisory fee of
$1.4 million to SBC Warburg Dillon Read Inc., in consideration for advisory
services related to the structuring and financing of the Saratoga Investment
and the Recapitalization.
 
                                      37
<PAGE>
 
                                    PART IV
 
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
 
(a) 1.Financial Statements
 
  The following financial statements of Koppers Industries, Inc. are required
to be filed by Part II, Item 8:
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
   <S>                                                                     <C>
   Koppers Industries, Inc.
     Consolidated Financial Statements for the Years Ended
      December 31, 1998, 1997 and 1996
       Report of Independent Auditors....................................   39
       Consolidated Statement of Operations for the Years Ended
        December 31, 1998, 1997 and 1996.................................   40
       Consolidated Balance Sheet at December 31, 1998 and 1997..........   41
       Consolidated Statement of Cash Flows for the Years Ended
        December 31, 1998, 1997 and 1996.................................   43
       Consolidated Statement of Stockholders' Equity for the Years Ended
        December 31, 1998, 1997 and 1996.................................   44
       Notes to Consolidated Financial Statements........................   45
 
 
  2. Schedules for the Years Ended December 31, 1998, 1997 and 1996
 
   Schedule II--Valuation and Qualifying Accounts........................   70
     All other schedules for which provision is made in the applicable
      accounting regulations of the Securities and Exchange Commission
      are not required under the related instructions or are
      inapplicable, and therefore have been omitted.
</TABLE>
 
 
  3. See Exhibit Index on page 67 hereof.
 
(b) Reports on Form 8-K.
 
  There were no reports on Form 8-K filed in the fourth quarter of 1998.
 
                                       38
<PAGE>
 
                        REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors
Koppers Industries, Inc.
 
  We have audited the accompanying consolidated financial statements and
schedule of Koppers Industries, Inc. listed in the above Index to Consolidated
Financial Statements [Item 14(a)]. These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the consolidated financial statements listed in the above
Index to Consolidated Financial Statements present fairly, in all material
respects, the consolidated financial position of Koppers Industries, Inc. at
December 31, 1998 and 1997, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects, the information set forth therein.
 
                                          /s/ ERNST & YOUNG LLP
 
Pittsburgh, Pennsylvania
January 29, 1999
 
                                      39
<PAGE>
 
                            KOPPERS INDUSTRIES, INC.
 
                      CONSOLIDATED STATEMENT OF OPERATIONS
                     (In millions except per share figures)
 
<TABLE>
<CAPTION>
                                                    Years Ended December 31,
                                                   ----------------------------
                                                      1998      1997      1996
                                                   --------  --------  --------
<S>                                                <C>       <C>       <C>
Net sales........................................  $  670.6  $  593.1  $  588.5
Operating expenses:
  Cost of sales..................................     555.7     501.4     496.1
  Depreciation and amortization..................      30.6      23.5      21.8
  Selling, general and administrative............      37.7      28.1      27.5
  Restructuring charges..........................      (1.0)     45.4      15.5
                                                   --------  --------  --------
    Total operating expenses.....................     623.0     598.4     560.9
                                                   --------  --------  --------
Operating profit (loss)..........................      47.6      (5.3)     27.6
Equity in earnings of affiliates.................       2.4       5.3       9.6
Other income (expense)...........................        --      (1.4)    (12.6)
                                                   --------  --------  --------
Income (loss) before interest expense, income tax
 provision (benefit),
 minority interest and extraordinary item........      50.0      (1.4)     24.6
Interest expense.................................      29.7      17.3      16.6
                                                   --------  --------  --------
Income (loss) before income tax provision
 (benefit), minority
 interest and extraordinary item.................      20.3     (18.7)      8.0
Income tax provision (benefit)...................      (0.3)    (19.7)     (6.1)
Minority interest................................       0.5        --        --
                                                   --------  --------  --------
Income before extraordinary item.................      20.1       1.0      14.1
Extraordinary loss on early extinguishment of
 debt, net of income
 tax benefit of $2.9.............................        --      (6.7)       --
                                                   --------  --------  --------
Net income (loss)................................  $   20.1  $   (5.7) $   14.1
                                                   ========  ========  ========
Earnings (loss) per share of common stock:
  Income before extraordinary item:
    Basic earnings per share.....................  $  12.64  $   0.17  $   1.54
                                                   ========  ========  ========
    Diluted earnings per share...................  $   4.85  $   0.12  $   1.47
                                                   ========  ========  ========
  Net income (loss):
    Basic earnings (loss) per share..............  $  12.64  $  (0.92) $   1.54
                                                   ========  ========  ========
    Diluted earnings (loss) per share............  $   4.85  $  (0.65) $   1.47
                                                   ========  ========  ========
</TABLE>
 
                            See accompanying notes.
 
                                       40
<PAGE>
 
                            KOPPERS INDUSTRIES, INC.
 
                           CONSOLIDATED BALANCE SHEET
                                 (In millions)
 
<TABLE>
<CAPTION>
                                                                December 31,
                                                               ----------------
                                                                1998     1997
                                                               -------  -------
<S>                                                            <C>      <C>
ASSETS
Current assets:
  Cash and cash equivalents..................................  $  16.6  $  20.0
  Accounts receivable less allowance for doubtful accounts of
   $1.2 in 1998
   and $0.8 in 1997..........................................     71.9     83.8
  Inventories:
    Raw materials............................................     52.6     42.0
    Work in process..........................................      2.8      2.8
    Finished goods...........................................     52.6     61.7
    LIFO reserve.............................................    (12.3)   (10.9)
                                                               -------  -------
      Total inventories......................................     95.7     95.6
  Deferred tax benefit.......................................      7.7     24.4
  Other......................................................      1.6      1.6
                                                               -------  -------
      Total current assets...................................    193.5    225.4
Investments:
  Tarconord..................................................     12.6     12.6
  Koppers Sherman-Abetong....................................      5.4      4.1
  Other......................................................      1.7      1.6
                                                               -------  -------
      Total investments......................................     19.7     18.3
Fixed assets:
  Land.......................................................      6.5      6.6
  Buildings..................................................     15.0     15.3
  Machinery and equipment....................................    313.0    298.4
                                                               -------  -------
                                                                 334.5    320.3
    Less: accumulated depreciation...........................   (153.1)  (129.4)
                                                               -------  -------
      Net fixed assets.......................................    181.4    190.9
Goodwill, net of accumulated amortization of $2.7 in 1998 and
 $1.6 in 1997................................................     29.4     31.4
Deferred tax benefit.........................................     36.0     10.6
Other assets.................................................     21.6     23.6
                                                               -------  -------
      Total assets...........................................  $ 481.6  $ 500.2
                                                               =======  =======
</TABLE>
 
                            See accompanying notes.
 
                                       41
<PAGE>
 
                            KOPPERS INDUSTRIES, INC.
 
                           CONSOLIDATED BALANCE SHEET
                     (In millions except per share figures)
 
<TABLE>
<CAPTION>
                                                                 December 31,
                                                                 --------------
                                                                  1998    1997
                                                                 ------  ------
<S>                                                              <C>     <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable.............................................  $ 45.9  $ 48.9
  Payroll and compensation costs...............................     7.9    16.5
  Accrued liabilities..........................................    22.2    39.6
  Current portion of term loans................................    12.6    11.3
                                                                 ------  ------
    Total current liabilities..................................    88.6   116.3
Long-term debt:
  Revolving credit.............................................     2.3      --
  Term loans...................................................   131.7   123.3
  Senior Subordinated Notes due 2007...........................   175.0   175.0
  Senior Notes due 2004........................................    11.1    11.1
                                                                 ------  ------
    Total long-term debt.......................................   320.1   309.4
Product warranty and insurance reserves........................    18.4    19.4
Accrued other postretirement benefits obligation...............    20.0    21.1
Minority interest..............................................     5.4     6.2
Other..........................................................    16.6    16.0
                                                                 ------  ------
    Total liabilities..........................................   469.1   488.4
Commitments and contingencies--See Note 12
Common stock subject to redemption.............................    21.1    26.4
Senior convertible preferred stock, $.01 par value;
   3.0 shares authorized; 2.5 shares issued in 1998 and 2.1
   shares issued in 1997.......................................      --      --
Voting common stock, $.01 par value:
   37.0 shares authorized, 2.3 total shares issued in 1998 and
   4.6 in 1997.................................................      --     0.1
Non-voting common stock, $.01 par value:
   10.0 shares authorized, zero total shares issued in 1998 and
   0.9 in 1997.................................................      --      --
Capital in excess of par value.................................     7.5     8.7
Retained earnings..............................................     4.9     3.8
Accumulated other comprehensive loss:
   Foreign currency translation adjustment.....................    (7.8)   (4.4)
Treasury stock, at cost, 1.0 shares in 1998 and 2.8 shares in
 1997..........................................................   (13.2)  (22.8)
                                                                 ------  ------
    Total liabilities and stockholders' equity.................  $481.6  $500.2
                                                                 ======  ======
</TABLE>
 
                            See accompanying notes.
 
                                       42
<PAGE>
 
                            KOPPERS INDUSTRIES, INC.
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (In millions)
 
<TABLE>
<CAPTION>
                                                    Years Ended December 31,
                                                   ----------------------------
                                                      1998      1997      1996
                                                   --------  --------  --------
<S>                                                <C>       <C>       <C>
Cash provided by operating activities:
  Net income (loss)..............................   $  20.1   $  (5.7)  $  14.1
  Adjustments to reconcile net income to net cash
   provided by operating activities,
   net of acquisitions:
    Depreciation and amortization................      30.6      23.5      21.8
    Deferred income taxes........................      (8.7)    (27.0)    (10.9)
    Equity income of affiliated companies, net of
     dividends received..........................      (1.4)     13.2      (3.8)
    Extraordinary loss on early extinguishment of
     debt........................................        --       6.7        --
  Restructuring reserves.........................     (12.5)     38.2      15.0
  Increase in reserves...........................       1.7       3.3       5.0
  (Increase) decrease in working capital, net of
   acquisitions:
    Accounts receivable..........................      11.1       4.2      (4.6)
    Inventories..................................      (1.1)      4.4       9.3
    Accounts payable.............................      (2.3)      3.6      (5.4)
    Payroll and compensation costs...............      (5.3)     (0.4)     (0.7)
    Accrued liabilities..........................      (7.6)     (3.1)      6.0
    Other........................................       0.4       2.3      (1.1)
                                                   --------  --------  --------
      Net cash provided by operating activities..      25.0      63.2      44.7
                                                   --------  --------  --------
Cash used in investing activities:
  Acquisitions and related capital expenditures,
   net of cash acquired..........................      (2.6)    (34.1)    (39.5)
  Capital expenditures...........................     (20.2)    (19.8)    (21.7)
  Other..........................................        --       1.0       0.3
                                                   --------  --------  --------
      Net cash used in investing activities......     (22.8)    (52.9)    (60.9)
                                                   --------  --------  --------
Cash provided by (used in) financing activities,
 net of acquisitions:
  Borrowings of revolving credit.................     102.5     170.8     160.5
  Repayments of revolving credit.................    (100.2)   (213.8)   (146.5)
  Proceeds from long term debt...................      25.0      86.9      35.9
  Repayments on long term debt...................     (12.3)    (50.5)    (14.0)
  Purchase of Senior Notes due 2004..............        --    (105.3)       --
  Proceeds from issuance of Senior Subordinated
   Notes due 2007................................        --     175.0        --
  Payments of deferred financing costs...........      (0.4)    (16.0)     (1.2)
  Issuance of Senior Convertible Preferred Stock.       2.0        --        --
  Purchases of voting common stock...............      (9.4)     (2.8)     (3.2)
  Purchases of non-voting common stock...........     (11.4)    (33.9)    (12.3)
  Dividends on common stock......................        --      (2.2)     (3.1)
                                                   --------  --------  --------
Net cash provided by (used in) financing
 activities......................................      (4.2)      8.2      16.1
                                                   --------  --------  --------
Effect of exchange rates on cash.................      (1.4)       --        --
                                                   --------  --------  --------
Net increase (decrease) in cash and cash
 equivalents.....................................      (3.4)     18.5      (0.1)
Cash and cash equivalents at beginning of year...      20.0       1.5       1.6
                                                   --------  --------  --------
Cash and cash equivalents at end of year.........  $   16.6  $   20.0  $    1.5
                                                   ========  ========  ========
Supplemental disclosure of cash flow information:
  Cash paid during the year for:
    Interest.....................................  $   29.6  $   20.2  $   15.8
    Income taxes.................................  $    7.9  $    7.9  $    2.3
</TABLE>
 
                            See accompanying notes.
 
                                       43
<PAGE>
 
                            KOPPERS INDUSTRIES, INC.
 
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                 (In millions)
 
<TABLE>
<CAPTION>
                                                      Common                                            Accumulated
                                                      Stock    Convertible Voting  Capital In              Other     Compre-
                                                    Subject to  Preferred  Common  Excess of  Retained Comprehensive hensive
                                                    Redemption    Stock    Stock   Par Value  Earnings Income (Loss) Income
                                                    ---------- ----------- ------  ---------- -------- ------------- -------
<S>                                                 <C>        <C>         <C>     <C>        <C>      <C>           <C>
Balance at December 31, 1995............              $ 23.7      $ 0.3    $ 0.1     $13.0     $ 45.8      $(0.4)
Net income to common for 1996...........                  --         --       --        --       14.1         --     $ 14.1
Foreign currency translation............                  --         --       --        --         --        2.6        2.6
                                                                                                                     ------
Comprehensive income....................                                                                             $ 16.7
                                                                                                                     ======
Net change in common stock subject to
 redemption.............................                 0.3         --       --        --       (0.3)        --
Options exercised, stock purchased and
 retired, 0.1 shares....................                  --         --       --        --       (0.4)        --
Treasury stock purchases, 0.3 shares....                  --         --       --       0.4         --         --
Treasury stock sales, 0.2 shares........                  --         --       --        --         --         --
Conversion of Series B Preferred Stock..                  --         --       --       0.2         --         --
Non-voting common stock repurchased
 and retired, 1.1 shares................                  --       (0.3)      --      (1.9)     (10.3)        --
Dividends on common stock,
 net of equity interest.................                  --         --       --        --       (3.1)        --
                                                      ------      -----    -----     -----     ------      -----
Balance at December 31, 1996............                24.0         --      0.1      11.7       45.8        2.2
Net loss to common for 1997.............                  --         --       --        --       (5.7)        --     $ (5.7)
Foreign currency translation............                  --         --       --        --         --       (6.6)      (6.6)
                                                                                                                     ------
Comprehensive income (loss).............                                                                             $(12.3)
                                                                                                                     ======
Net change in common stock subject to
 redemption.............................                 2.4         --       --        --       (2.4)        --
Options exercised, stock purchased and
 retired, 0.1 shares....................                  --         --       --        --       (0.7)        --
Treasury stock purchases, 1.3 shares....                  --         --       --        --         --         --
Treasury stock sales, 0.2 shares........                  --         --       --        --         --         --         --
Conversion of voting and non-voting
 stock to senior convertible preferred
 stock, 2.1 shares......................                  --         --       --        --         --         --
Non-voting common stock repurchased
 and retired, 2.7 shares................                  --         --       --      (3.0)     (31.0)        --
Dividends on common stock,
 net of equity interest.................                  --         --       --        --       (2.2)        --
                                                      ------      -----    -----     -----     ------      -----
Balance at December 31, 1997............                26.4         --      0.1       8.7        3.8       (4.4)
Net income to common for 1998...........                  --         --       --        --       20.1         --     $ 20.1
Foreign currency translation............                  --         --       --        --         --       (3.4)      (3.4)
                                                                                                                     ------
Comprehensive income....................                                                                             $ 16.7
                                                                                                                     ======
Net change in common stock subject to
 redemption.............................                (5.3)        --       --        --        5.3         --
Options exercised, 0.3 shares, stock
 purchased and retired, 0.1 shares .....                  --         --       --       0.2        0.7         --
Treasury stock purchases, 0.5 shares....                  --         --     (0.1)       --         --         --
Treasury stock sales, 0.1 shares........                  --         --       --        --         --         --
Issuance of senior convertible preferred
 stock, 0.1 shares......................                  --         --       --       2.0         --         --
Non-voting common stock repurchased
 and retired, 0.9 shares................                  --         --       --      (1.0)     (10.4)        --
Retirement of 2.3 shares held by Koppers
 Australia..............................                  --         --       --      (2.4)     (14.6)        --
                                                      ------      -----    -----     -----     ------      -----
Balance at December 31, 1998............              $ 21.1      $  --    $  --     $ 7.5     $  4.9      $(7.8)
--------------------------------------------------
                                                      ======      =====    =====     =====     ======      =====
<CAPTION>
                                                    Treasury
                                                     Stock
                                                    --------
<S>                                                 <C>
Balance at December 31, 1995............             $ (4.3)
Net income to common for 1996...........                 --
Foreign currency translation............                 --
Comprehensive income....................
Net change in common stock subject to
 redemption.............................                 --
Options exercised, stock purchased and
 retired, 0.1 shares....................                 --
Treasury stock purchases, 0.3 shares....               (3.8)
Treasury stock sales, 0.2 shares........                2.4
Conversion of Series B Preferred Stock..                 --
Non-voting common stock repurchased
 and retired, 1.1 shares................                 --
Dividends on common stock,
 net of equity interest.................                 --
                                                    --------
Balance at December 31, 1996............               (5.7)
Net loss to common for 1997.............                 --
Foreign currency translation............                 --
Comprehensive income (loss).............
Net change in common stock subject to
 redemption.............................                 --
Options exercised, stock purchased and
 retired, 0.1 shares....................                 --
Treasury stock purchases, 1.3 shares....              (18.2)
Treasury stock sales, 0.2 shares........                1.1
Conversion of voting and non-voting
 stock to senior convertible preferred
 stock, 2.1 shares......................                 --
Non-voting common stock repurchased
 and retired, 2.7 shares................                 --
Dividends on common stock,
 net of equity interest.................                 --
                                                    --------
Balance at December 31, 1997............              (22.8)
Net income to common for 1998...........                 --
Foreign currency translation............                 --
Comprehensive income....................
Net change in common stock subject to
 redemption.............................                 --
Options exercised, 0.3 shares, stock
 purchased and retired, 0.1 shares .....                 --
Treasury stock purchases, 0.5 shares....               (8.9)
Treasury stock sales, 0.1 shares........                1.5
Issuance of senior convertible preferred
 stock, 0.1 shares......................                 --
Non-voting common stock repurchased
 and retired, 0.9 shares................                 --
Retirement of 2.3 shares held by Koppers
 Australia..............................               17.0
                                                    --------
Balance at December 31, 1998............             $(13.2)
--------------------------------------------------
                                                    ========
</TABLE>
 
                            See accompanying notes.
 
                                       44
<PAGE>
 
                           KOPPERS INDUSTRIES, INC.
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. Significant Accounting Policies
 
 Business
 
  Koppers Industries, Inc. (the "Company" or "Koppers") is a global integrated
producer of carbon compounds and treated wood products for use in a variety of
markets including the railroad, aluminum, chemical and steel industries. The
Company's business is managed as two business segments, Carbon Materials &
Chemicals and Railroad & Utility Products.
 
  The Company's Carbon Materials & Chemicals division is a supplier of a)
carbon pitch, which is used primarily by the aluminum industry as a binder in
the manufacture of anodes; b) phthalic anhydride ("PAA"), used in the
manufacture of plasticizers, resins, paints and dye making; c) creosote and
chemicals used in the protection of timber against termites, fungal decay and
weathering; d) roofing pitch, used in the manufacture of built-up roofing
systems; e) carbon black, used in the production of rubber tires; and f)
furnace coke, used in the manufacture of steel.
 
  The Company's Railroad & Utility Products division a) provides various
products and services to railroads, including crossties (both wood and
concrete), track and switch pre-assembly, and disposal services; b) supplies
treated wood utility poles to electric and telephone utilities; and c)
performs various wood treating services for vineyards, construction and other
commercial applications.
 
 Basis of Financial Statements
 
  The consolidated financial statements include the accounts of the Company
and all majority-owned subsidiaries. All significant intercompany transactions
have been eliminated.
 
  The Company's investments in 20% to 50% owned companies in which it has the
ability to exercise significant influence over operating and financial
policies are accounted for on the equity method. Accordingly, the Company's
share of the earnings of these companies is included in the accompanying
consolidated statement of operations.
 
 Use of Estimates
 
  The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
 
 Cash Equivalents
 
  The Company considers all liquid investments with a maturity of 90 days or
less to be cash equivalents.
 
 Inventories
 
  In the United States, Carbon Materials & Chemicals and Railroad & Utility
Products inventories are valued at the lower of cost, utilizing the last-in,
first-out ("LIFO") basis, or market. Market represents replacement cost for
raw materials and net realizable value for work in process and finished goods.
LIFO inventories constituted approximately 74% and 60% of total inventory
value at December 31, 1998 and 1997, respectively.
 
 Revenue Recognition
 
  The Company recognizes revenue from product sales at the time of shipment.
 
                                      45
<PAGE>
 
                           KOPPERS INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 Investments
 
  Following is a combined financial summary of the equity investments of the
Company for their respective years ended 1997 and 1996. No amounts are shown
for 1998 because equity investments taken as a whole do not constitute a
significant portion of consolidated assets or income as a result of the
consolidation of Koppers Australia. The fiscal year end for amounts shown for
Koppers Australia are as of and for the years ended June 30.
 
<TABLE>
<CAPTION>
                                                                    1997   1996
                                                                   ------ ------
                                                                   (In millions)
   <S>                                                             <C>    <C>
   Net Sales...................................................... $254.3 $266.4
   Operating Profit...............................................   29.1   32.1
   Net Income.....................................................   19.4   21.5
   Equity in Earnings.............................................    8.4   10.8
   Current Assets.................................................   94.5   94.1
   Total Assets...................................................  202.4  201.3
   Current Liabilities............................................   48.5   55.1
   Non-Current Liabilities........................................   29.2   33.4
   Net Assets.....................................................  124.7  112.8
</TABLE>
 
  The following describes activity related to the Company's significant equity
investments as included in the consolidated statement of operations as of and
for each of the years ended December 31:
 
Koppers Australia Pty. Limited (Koppers Australia)
 
  Prior to December 1, 1997 the Company held a 50% investment in Koppers
Australia.
 
<TABLE>
<CAPTION>
                                                Equity Income Dividends Received
                                                ------------- ------------------
                                                         (In millions)
   <S>                                          <C>           <C>
   1997........................................     $2.4            $16.3
   1996........................................      6.5              2.8
</TABLE>
 
Tarconord
 
  The Company owns a 50% equity interest in Tarconord, a carbon materials
operation headquartered in Denmark, with operations in Denmark and the United
Kingdom.
 
<TABLE>
<CAPTION>
                                                Equity Income Dividends Received
                                                ------------- ------------------
                                                         (In millions)
   <S>                                          <C>           <C>
   1998........................................     $0.0             $0.6
   1997........................................      1.7              1.2
   1996........................................      1.6              2.4
</TABLE>
 
KSA Limited Partnership (KSA)
 
  The Company holds a 50% investment in KSA, a concrete crosstie operation
located in Ohio.
 
<TABLE>
<CAPTION>
                                                Equity Income Dividends Received
                                                ------------- ------------------
                                                         (In millions)
   <S>                                          <C>           <C>
   1998........................................     $1.8             $0.5
   1997........................................      1.2              1.3
   1996........................................      1.5              1.0
</TABLE>
 
                                      46
<PAGE>
 
                           KOPPERS INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 Depreciation and amortization
 
  Buildings, machinery, and equipment are recorded at purchased cost and
depreciated over their estimated useful lives (5 to 20 years) using the
straight-line method.
 
 Accrued insurance
 
  The Company is insured for property, casualty and workers' compensation
insurance up to various stop loss coverages for its domestic operations.
Losses are accrued based upon the Company's estimates of the liability for the
related deductibles for claims incurred using certain actuarial assumptions
followed in the insurance industry and based on Company experience.
 
 Disclosures About Fair Value of Financial Instruments
 
  Cash and cash equivalents: The carrying amount approximates fair value
because of the short maturity of those instruments.
 
  Long-term debt: The fair value of the Company's long-term debt is estimated
based on the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same remaining
maturities.
 
 Research and Development
 
  Research and development costs, which are included in selling, general and
administrative expenses, amounted to $2.3 million for 1998, $1.8 million for
1997 and $1.0 million for 1996.
 
 Impact of Recently Issued Accounting Standards
 
  Statement No. 130, Reporting Comprehensive Income, requires enterprises to
classify items of comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital. The Company
has adopted Statement No. 130 and restated prior periods to provide
comparability.
 
  Statement No. 131, Disclosure about Segments of an Enterprise and Related
Information, changes the way companies report segment information in annual
reports and in interim financial statements. The Company has adopted Statement
No. 131 and restated prior periods to provide comparability.
 
  Statement No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits, was issued in February 1998. The Statement supersedes
the disclosure requirements in Statements No. 87, Employers' Accounting for
Pensions, No. 88, Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits, and No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions. The overall
objective is to improve and standardize disclosures about pensions and other
postretirement benefits and to make the required information easier to prepare
and more understandable. Statement No. 132 is effective for fiscal years
beginning after December 15, 1997. The Company has adopted Statement No. 132
and restated prior periods to provide comparability.
 
  Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued in June 1998. The Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments imbedded in other contracts, and for hedging activities. It
requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments
 
                                      47
<PAGE>
 
                           KOPPERS INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
at fair value. The accounting for changes in the fair value of a derivative
(i.e., gains and losses) depends on the intended use of the derivative and the
resulting designation. Statement No. 133 is effective for fiscal years
beginning after June 15, 1999. The Company does not expect the effect of the
adoption of this statement to be material.
 
2. Saratoga Investment and Recapitalization
 
  On October 15, 1997, KAP Investments, Inc. (a wholly-owned subsidiary of
Koppers Australia) and a group of approximately 120 individual investors who
were either officers, Board members or current or former employees of either
Koppers Industries, Inc. or one of its subsidiaries (the "Management
Investors") (collectively, the "Offeree Stockholders") acquired from
Cornerstone-Spectrum, Inc. (an affiliate of Beazer East, Inc. and Hanson PLC)
its voting and non-voting shares of common stock of Koppers Industries, Inc.
("Common Stock"). The Offeree Stockholders utilized $52.5 million of financing
from Koppers, Saratoga Partners III, L.P. ("Saratoga") and Saratoga Koppers
Funding, Inc. ("Saratoga Koppers"). On December 1, 1997, Saratoga exchanged
2.1 million shares of Common Stock it acquired as part of the financing of the
acquisition of Common Stock from Cornerstone-Spectrum, Inc. for shares of a
new series of senior convertible preferred stock of Koppers Industries, Inc.
(the "Preferred Shares"), which entitles Saratoga to elect a majority of the
Board of Directors of Koppers (the "Board of Directors") and to exercise a
majority of the voting power over all outstanding stock of the Company with
respect to all other matters subject to a stockholder vote.
 
  The Company sold $175.0 million of 9 7/8% Senior Subordinated Notes (the
"New Notes") due 2007 on December 1, 1997 in a private placement and
established with Swiss Bank Corporation, Stamford Branch and Mellon Bank, N.A.
a total of $135.0 million of senior term loan facilities and a $140.0 million
senior revolving credit facility ($40.0 million and $20.0 million of which was
reserved for use in connection with a term loan and a revolving credit
facility, respectively, of Koppers Australia) (the "New Credit Facilities").
The proceeds from the New Credit Facilities and the sale of the Old Notes have
been used to complete the following transactions: (i) the acquisition of The
Broken Hill Proprietary Company Limited's 50% interest in Koppers Australia;
(ii) the repayment of $98.9 million of the 8 1/2% Senior Notes of Koppers
Industries, Inc. due February 1, 2004 tendered pursuant to a tender offer,
plus $6.4 million of redemption premium thereof; (iii) the repayment of the
outstanding indebtedness of approximately $88.1 million under the Company's
term loan and revolving credit facilities; (iv) the redemption of 1.8 million
shares of non-voting Common Stock owned by APT Holdings Corporation, an
affiliate of Mellon Bank, N.A. for $22.9 million; (v) the redemption, at
$17.00 per share, of 0.5 million shares of Common Stock owned by current and
former employees of Koppers and Clayton A. Sweeney (a member of the Board of
Directors) for $8.8 million; (vi) the redemption of 0.4 million non-voting
shares of Common Stock from Saratoga Koppers; and (vii) the payment of related
fees and expenses of approximately $16.0 million.
 
3. Restructuring Charges
 
  Restructuring charges of $45.4 million for 1997 included $39.9 million for
the closing of the Company's Woodward, Alabama coke facility ("Woodward Coke")
and $5.5 million for the closing of a co-generation facility and the write-
down of assets at an adjacent wood treating facility in Feather River,
California. Net sales for 1997 and 1996 at Woodward Coke were approximately
$52.0 million and $67.0 million, respectively, and gross profit totals
excluding plant closing and capacity rationalization charges for 1997 and 1996
were approximately $(8.1) million and $1.0 million, respectively.
 
  The restructuring charges of $15.5 million for 1996 included $6.5 million
for the closing of a tar distillation facility in Houston, Texas; $0.9 million
related to the closing of a refractory materials facility in Carrollton, Ohio;
$5.4 million related to the idling of part of the operations at Woodward Coke;
$2.6 million for severance charges; and $0.1 million for other.
 
                                      48
<PAGE>
 
                           KOPPERS INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
  The total restructuring charges consisted of the following charges for each
of the years ended December 31 (in millions):
 
<TABLE>
<CAPTION>
                                                                    1997  1996
                                                                    ----- -----
   <S>                                                              <C>   <C>
   Non-cash
     Write-downs of equipment...................................... $21.0 $ 4.1
   Cash
     Dismantling...................................................   6.0   3.6
     Severance.....................................................   8.3   3.3
     Other.........................................................  10.1   4.5
                                                                    ----- -----
                                                                    $45.4 $15.5
                                                                    ===== =====
</TABLE>
 
  At December 31, 1998 approximately $12.5 million of the cash charges for the
1997 restructuring and substantially all of the cash charges from the 1996
restructuring had been expended. The majority of the remaining cash
expenditures related to the 1997 restructuring are primarily pension and
postretirement benefits expected to be paid over approximately a ten-year
period. Approximately $1.0 million of plant closing reserves were credited to
income for 1998 as the result of a negotiated reduction in a contractual
penalty obligation related to the Feather River, California cogeneration
facility.
 
4. Acquisitions
 
  On December 1, 1997 the Company purchased shares of Koppers Australia for a
cash purchase price of approximately $48 million (after receipt of a dividend
of approximately $13.9 million). This acquisition resulted in Koppers
Australia being wholly-owned by the Company. The acquisition was accounted for
as a purchase, and the excess purchase price paid over the fair value of the
net assets acquired, based on a preliminary allocation of purchase price, was
approximately $17.6 million and has been recorded as goodwill, which is being
amortized on a straight-line basis over 20 years.
 
  Prior to 1998, the results of operations for Koppers Australia are included
in the Company's results as a component of equity in earnings of affiliates
due to the Company's 50% ownership interest prior to the acquisition.
 
  On April 1, 1996 the Company purchased a tar distillation plant and certain
assets located in Clairton, Pennsylvania for a cash purchase price of
approximately $40 million and the assumption of approximately $8 million of
liabilities, primarily for employee benefits, tank cleaning and dismantling of
idle equipment. The acquisition was accounted for as a purchase and,
accordingly, operating results of this business subsequent to the date of
acquisition are included in the Company's consolidated financial statements.
The excess purchase price over the fair value of the net assets acquired was
approximately $12.0 million and has been recorded as goodwill which is being
amortized on a straight-line basis over 25 years.
 
5. Debt
 
<TABLE>
<CAPTION>
                                                                  December 31,
                                                                  -------------
                                                                   1998   1997
                                                                  ------ ------
                                                                  (In millions)
   <S>                                                            <C>    <C>
   Revolving credit.............................................. $  2.3 $   --
   Term loans....................................................  144.3  134.6
   Senior Subordinated Notes due 2007............................  175.0  175.0
   Senior Notes due 2004.........................................   11.1   11.1
                                                                  ------ ------
                                                                  $332.7 $320.7
                                                                  ====== ======
</TABLE>
 
                                      49
<PAGE>
 
                           KOPPERS INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 New Credit Facilities
 
  In November 1997 the Company established New Credit Facilities of $275.0
million with Swiss Bank Corporation, Stamford Branch and Mellon Bank, N.A. The
New Credit Facilities are syndicated among several lenders who are parties
thereto. The New Credit Facilities provide for term loans totaling $135.0
million and revolving credit facilities of $140.0 million (the "Revolving
Credit Facility"), subject to sublimits of $20.0 million aggregate for standby
and trade letters of credit and up to $40.0 million and $20.0 million for the
Australian Term Letter of Credit (as defined below) and the Australian
Revolving Letter of Credit (as defined below), respectively. National
Australia Bank, Limited provided an Australian dollar ("A$") denominated term
loan to Koppers Australia and certain of its subsidiaries in an aggregate
principal amount equivalent to US$40 million. An A$ denominated letter of
credit (the "Australian Term Letter of Credit") was issued under the Revolving
Credit Facility to such Australian lender in the amount of A$59.3 million.
Commonwealth Bank of Australia provided an A$ denominated revolving loan
facility for the benefit of Koppers Australia and certain of its subsidiaries
with availability of up to the equivalent of US$10 million. An A$ denominated
letter of credit (the "Australian Revolving Letter of Credit") was issued
under the Revolving Credit Facility to such Australian lender in the amount of
A$14.8 million. To the extent that currency fluctuations cause the face amount
of the Australian Term Letter of Credit or the Australian Revolving Letter of
Credit to exceed on a US$ equivalent basis their respective subfacility
limits, availability will be correspondingly reduced under the Revolving
Credit Facility. Commitment fees ranging from 0.2% to 0.5% per annum are
required on the undrawn portions of the Revolving Credit Facility and the term
loans.
 
  The New Credit Facilities provide for a $70.0 million Term Loan A, $44.0
million of which was outstanding at December 31, 1998 and a $65.0 million Term
Loan B, $64.0 million of which was outstanding at December 31, 1998. In
addition, $34.3 million was outstanding on the $A denominated term loan at
December 31, 1998.
 
  The term loans and the Revolving Credit Facility under the New Credit
Facilities provide for interest at variable rates. At December 31, 1998 the
effective rates on the term loans were 7.23% for Term Loan A, 7.76% for Term
Loan B and 6.69% for the Australian term loan.
 
  Substantially all of the Company's assets, including the assets of
significant subsidiaries, are pledged as collateral for the New Credit
Facilities. The New Credit Facilities contain certain covenants which limit
capital expenditures by the Company and restrict its ability to incur
additional indebtedness, create liens on its assets, enter into leases, pay
dividends and make investments or acquisitions. In addition, such covenants
give rise to events of default upon the failure by the Company to meet certain
financial ratios.
 
  At December 31, 1998 the aggregate debt maturities for the next five years
are as follows (in millions):
 
<TABLE>
   <S>                                                                     <C>
   1999................................................................... $12.6
   2000...................................................................  17.6
   2001...................................................................  17.5
   2002...................................................................  17.5
   2003...................................................................  37.8
</TABLE>
 
 Senior Subordinated Notes Due 2007
 
  On December 1, 1997 the Company issued the New Notes in a private placement
transaction. The New Notes were subsequently registered with the Securities
and Exchange Commission effective January 23, 1998. The New Notes bear
interest at 9 7/8% per annum, with interest payable on June 1 and December 1
of each year, commencing June 1, 1998. The New Notes are unsecured and rank
junior to all existing and future senior debt of the Company, and are
effectively subordinated to all secured obligations to the extent of the
assets securing such obligations.
 
                                      50
<PAGE>
 
                           KOPPERS INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
  The New Notes are redeemable, at the Company's option, at any time on or
after December 1, 2002 and prior to maturity, at redemption prices ranging
from 104.938% of the principal amount in 2002 to 100.0% of the principal
amount in 2005. In addition, the Company may redeem up to 35% of the aggregate
principal amount of the New Notes with the net proceeds of one or more
issuances of common stock at a redemption price of 109.875% plus accrued
interest.
 
  The prepayment of debt on December 1, 1997 resulted in an extraordinary loss
of $6.7 million on a net-of-tax basis, comprised of charges of $4.5 million
for purchase premium and $2.2 million for the write-off of deferred financing
costs. Deferred financing costs associated with the New Credit Facilities and
the issuance of the New Notes totaled approximately $16.0 million and are
being amortized over the life of the related debt.
 
  Deferred financing costs (net of accumulated amortization of $2.2 million at
December 31, 1998, $0.2 million at December 31, 1997 and $2.4 million at
December 31, 1996) were $14.4 million, $16.0 million and $4.4 million at
December 31, 1998, 1997 and 1996, respectively, and are included in other
assets.
 
  At December 31, 1998, the Company had $9.5 million of standby letters of
credit outstanding, with terms ranging from one to two years.
 
6. Stock Activity
 
  During 1998, the Company purchased approximately 0.5 million shares of
Common Stock from, and sold 0.1 million shares to, current and former
employees and directors of the Company for $8.8 million and $1.0 million,
respectively, related to a stock purchase and redemption plan.
 
  During 1998, 2.2 million shares of Common Stock held by Koppers Australia
were retired, resulting in reductions to treasury stock, capital in excess of
par and retained earnings of the Company. The shares held by Koppers Australia
had previously been accounted for as treasury stock.
 
  On December 1, 1997 2.1 million shares of voting and non-voting Common Stock
held by Saratoga were converted into 2.1 million Preferred Shares, entitling
Saratoga to elect a majority of the Board of Directors of the Company and to
exercise a majority of the voting power over all outstanding stock of the
Company with respect to all matters subject to a stockholder vote. The
Preferred Shares have voting (except as described below) and dividend rights
equal to voting Common Stock, and have a liquidation preference equal to par
value. The Preferred Shares are convertible into voting Common Stock at any
time on a one-for-one basis. The holders of the Preferred Shares vote as a
separate series from all other classes of stock, and are entitled to elect a
majority of the Board of Directors.
 
  The Company purchased 2.7 million shares of non-voting Common Stock in 1997,
all of which were subsequently retired and cancelled in accordance with the
stockholders' agreement among the Company, Saratoga and the Management
Investors dated as of December 1, 1997 (as amended, the "New Stockholders'
Agreement"). The remaining 0.9 million shares of non-voting Common Stock were
purchased from APT Holdings Corporation on January 5, 1998 for $11.4 million
and were subsequently retired and cancelled.
 
  The New Stockholders' Agreement provides for stock redemptions of up to 5%
of each stockholder's outstanding shares annually beginning in 1999 at the
Company's option, provided that all relevant covenants with the Company's
lenders and noteholders are met.
 
                                      51
<PAGE>
 
                           KOPPERS INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
7. Common Stock Subject to Redemption
 
  The New Stockholders' Agreement requires the Company, subject to cash
payment limitations under the terms of existing debt covenants, to redeem
certain shares of Common Stock owned by members of management upon a
"termination event" relative to a management employee. A termination event is
defined as retirement, death, disability or resignation. At December 31, 1998
and 1997 the maximum redemptions which could be paid under the New
Stockholders' Agreement, subject to existing debt covenants, were $21.2
million and $26.4 million, respectively. The value of shares subject to
redemption under the terms of the New Stockholders' Agreement is segregated
from other Common Stock on the face of the balance sheet. There were
approximately 1.2 million and 1.6 million shares of Common Stock at December
31, 1998 and 1997, respectively, subject to the redemption provisions of the
New Stockholders' Agreement.
 
  The aggregate redemption amounts under the New Stockholders' Agreement for
the next four years based on termination events which have already occurred
are as follows:
 
<TABLE>
   <S>                                                              <C>
   1999............................................................ $2.0 million
   2000............................................................ $0.2 million
   2001............................................................ $0.2 million
   2002............................................................ $0.1 million
</TABLE>
 
 
                                      52
<PAGE>
 
                            KOPPERS INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Pension and Other Postretirement Benefit Plans
 
<TABLE>
<CAPTION>
                                         Pension Benefits    Other Benefits
                                           December 31,       December 31,
                                         ------------------  ----------------
                                            1998      1997     1998     1997
                                         --------  --------  -------  -------
                                           (In millions)      (In millions)
<S>                                      <C>       <C>       <C>      <C>
Change in benefit obligation:
  Benefit obligation at beginning of
   year................................. $   75.3  $   55.6  $  15.9  $  15.4
  Service cost..........................      3.5       3.3      0.3      0.5
  Interest cost.........................      5.2       4.0      1.0      0.8
  Amendments............................      0.2       1.4       --     (2.9)
  Actuarial gains (losses)..............      2.0       2.8     (2.1)    (0.7)
  Acquisitions..........................       --       7.6       --       --
  Benefits paid.........................     (4.2)     (3.2)    (0.7)    (0.4)
  Curtailments and special termination
   benefits.............................       --       3.8       --      3.2
                                         --------  --------  -------  -------
Benefit obligation at end of year....... $   82.0  $   75.3  $  14.4  $  15.9
                                         ========  ========  =======  =======
Change in plan assets:
  Fair value of plan assets at beginning
   of year.............................. $   66.9  $   51.3  $    --  $    --
  Actual return on plan assets..........     11.4      10.5       --       --
  Employer contribution.................      0.7       0.7      0.7      0.4
  Benefits paid.........................     (4.2)     (3.2)    (0.7)    (0.4)
  Acquisitions..........................       --       7.6       --       --
                                         --------  --------  -------  -------
Fair value of plan assets at end of
 year................................... $   74.8  $   66.9  $   0.0  $   0.0
                                         ========  ========  =======  =======
Funded status of the plan............... $   (7.2) $   (8.5) $ (14.4) $ (15.9)
Unrecognized actuarial (gain) loss......     (3.2)      0.5     (1.4)     0.7
Unrecognized prior service cost.........      1.4       1.4     (4.3)    (5.0)
                                         --------  --------  -------  -------
Net amount recognized................... $   (9.0) $   (6.6) $ (20.1) $ (20.2)
                                         ========  ========  =======  =======
Disclosures:
Amounts recognized in the statement of
 financial position consist of:
  Prepaid benefit cost.................. $    4.0  $    4.0  $    --  $    --
  Accrued benefit liability.............    (13.8)    (11.4)   (20.1)   (20.2)
  Intangible asset......................      0.8       0.8       --       --
                                         --------  --------  -------  -------
Net amount recognized................... $   (9.0) $   (6.6) $ (20.1) $ (20.2)
                                         ========  ========  =======  =======
Weighted-average assumptions as of
 December 31:
Discount rate...........................     7.00%     7.25%    7.00%    7.25%
Expected return on plan assets..........     9.00%     9.00%
Rate of compensation increase...........     4.00%     4.00%
Initial medical trend rate..............                        9.00%   11.00%
</TABLE>
 
   The 1998 initial medical trend rate was assumed to decrease gradually to
6.0% in 2011 and remain at that level thereafter.
 
 
                                       53
<PAGE>
 
                           KOPPERS INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
                                          Pension Benefits    Other Benefits
                                            December 31,       December 31,
                                          ------------------  ----------------
                                            1998      1997      1998     1997
                                          --------  --------  -------  -------
                                            (In millions)      (In millions)
<S>                                       <C>       <C>       <C>      <C>
Components of net periodic benefit cost:
  Service cost........................... $    3.5  $    3.3  $   0.3  $   0.5
  Interest cost..........................      5.2       4.0      1.0      0.8
  Expected return on plan assets.........     (5.8)     (4.5)      --       --
  Amortization of prior service cost.....      0.2        --     (0.7)    (0.7)
  Curtailment and special termination
   benefits..............................       --       3.8       --      3.2
                                          --------  --------  -------  -------
Net periodic benefit cost................ $    3.1  $    6.6  $   0.6  $   3.8
                                          ========  ========  =======  =======
</TABLE>
 
  The Company acquired Koppers Australia on December 1, 1997, including its
pension benefit plan.
 
  The Company has two nonpension postretirement benefit plans. Health care
benefits are contributory except for hourly employees of Woodward Coke, which
was closed in January 1998. The contributions for health benefits are adjusted
annually; the life insurance plan is noncontributory. The accounting for the
health care plan anticipates future cost-sharing changes to the written plan
that are consistent with the Company's expressed intent to increase retiree
contributions each year by 50%-100% of any increases in premium costs.
 
  The assumed health care cost trend rate has a significant effect on the
amounts reported. A one-percentage-point change in the assumed health care
cost trend rate would have the following effects:
 
<TABLE>
<CAPTION>
                                                        1% Increase 1% Decrease
                                                        ----------- -----------
   <S>                                                  <C>         <C>
   Effect on total of service and interest cost
    components in 1998.................................    $0.1       ($0.1)
   Effect on postretirement benefit obligation as of
    December 31, 1998..................................    $1.1       ($1.0)
</TABLE>
 
  Incentive Plan--The Company has established a management incentive plan
based on established target award levels for each participant if certain
Company performance and individual goals are met. The charge to operating
expense for this Plan was $0.8 million in 1998, $2.6 million in 1997 and $2.9
million in 1996. For incentive related to 1996 results, participating
employees were able to elect to receive up to 50% of their incentive
compensation in voting Common Stock of the Company.
 
  Employee Savings Plan--The Company has established an employee savings plan
for all eligible salaried employees that conforms to Section 401(k) of the
Internal Revenue Code. Under the plan, participating employees can elect to
contribute up to 16% of their salaries with a regular Company matching
contribution equivalent to 100% of the first 1% plus 50% of the next 2% of
tax-saver contributions.
 
  The Company's regular contributions amounted to $0.5 million in 1998 and
1997, and $0.6 million in 1996. The Company may also make a supplemental
contribution at the end of each Plan Year subject to approval by the Board of
Directors. Expense for supplemental contributions amounted to $0.1 million,
$0.4 million, and $0.5 million in 1998, 1997 and 1996, respectively. All
regular and supplemental matching contributions were made in voting Common
Stock of the Company held in Treasury until October 1, 1998 at which time such
contributions were made in cash.
 
                                      54
<PAGE>
 
                            KOPPERS INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
9. Income Taxes
 
  Components of the Company's income tax provision (benefit) are as follows:
 
<TABLE>
<CAPTION>
                                                            Years Ended
                                                            December 31,
                                                        ----------------------
                                                         1998    1997    1996
                                                        ------  ------  ------
                                                           (In millions)
   <S>                                                  <C>     <C>     <C>
   Current:
     Federal........................................... $  5.4  $  6.3  $  3.9
     State.............................................    0.6     1.0     0.9
     Foreign...........................................    2.4      --      --
                                                        ------  ------  ------
       Total current tax provision.....................    8.4     7.3     4.8
   Deferred:
     Federal...........................................  (11.5)  (23.6)  (10.0)
     State.............................................    1.3    (3.4)   (0.9)
     Foreign...........................................    1.5      --      --
                                                        ------  ------  ------
       Total deferred tax provision (benefit) .........   (8.7)  (27.0)  (10.9)
                                                        ------  ------  ------
   Total income tax provision (benefit) ............... $ (0.3) $(19.7) $ (6.1)
                                                        ======  ======  ======
</TABLE>
 
  Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities (including deferred items
reflected as extraordinary loss) are as follows:
 
<TABLE>
<CAPTION>
                                                                   December 31,
                                                                   -------------
                                                                    1998   1997
                                                                   ------ ------
                                                                   (In millions)
   <S>                                                             <C>    <C>
   Deferred tax assets:
     Alternative minimum tax credits..............................  $15.0  $10.5
     Other postretirement benefits obligation.....................    9.9    9.0
     Reserves, including insurance and product warranty...........   18.1   33.6
     Book/tax inventory accounting................................    2.4    2.5
     Accrued vacation.............................................    1.8    1.7
     Other........................................................    2.0    2.4
     Excess tax basis on Koppers Australia assets.................   19.0     --
                                                                   ------ ------
       Total deferred tax assets..................................   68.2   59.7
                                                                   ------ ------
   Deferred tax liabilities:
     Tax over book depreciation and amortization..................   19.8   21.8
     Other........................................................    4.7    2.9
                                                                   ------ ------
     Total deferred tax liabilities...............................   24.5   24.7
                                                                   ------ ------
     Net deferred tax assets......................................  $43.7  $35.0
                                                                   ====== ======
</TABLE>
 
  Income before income taxes and extraordinary loss for 1998 included $10.4
million from foreign operations.
 
                                       55
<PAGE>
 
                           KOPPERS INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
  The provision (benefit) for income taxes is reconciled with the federal
statutory rate as follows:
 
<TABLE>
<CAPTION>
                               Years Ended December 31,
                              ------------------------------
                                1998       1997       1996
                              --------   --------   --------
   <S>                        <C>        <C>        <C>
   Federal...................     35.0%     (35.0)%     35.0%
     State, net of federal
      tax benefit............      6.9       (7.5)      (3.7)
     Equity in earnings of
      foreign affiliates.....     (0.1)      (5.1)     (35.7)
     Foreign taxes...........      4.0        3.8       10.0
     Section 29 credits......    (46.8)     (37.9)     (87.9)
     Other...................     (0.4)       1.6        5.2
                              --------   --------   --------
                                  (1.4)%    (80.1)%    (77.1)%
                              ========   ========   ========
</TABLE>
 
  The Company has not provided any U.S. tax on undistributed earnings of
foreign subsidiaries or joint ventures that are reinvested indefinitely. At
December 31, 1998 consolidated retained earnings of the Company included
approximately $9 million of undistributed earnings from these investments. The
Company began earning non-conventional fuels credits on coke production at its
Monessen, Pennsylvania facility during 1995. Credits utilized for the years
ended December 31, 1998, 1997 and 1996 were approximately $9.5 million, $9.3
million and $7.0 million, respectively. The Company has an alternative minimum
tax credit carryforward of approximately $15.0 million. The credit has no
expiration date.
 
10. Earnings Per Share
 
  The following table sets forth the computation of basic and diluted earnings
per share:
 
<TABLE>
<CAPTION>
                                              Years Ended December 31,
                                      -----------------------------------------
                                           1998          1997          1996
                                      ------------- -------------  ------------
                                       (In millions except per share figures)
   <S>                                <C>           <C>            <C>
   Numerator for basic and diluted:
   Net income to common stockholders
    before extraordinary item........ $        20.1 $         1.1  $       14.1
     Net income (loss) to common
      stockholders...................          20.1          (5.7)         14.1
   Denominators:
     Weighted-average voting common
      shares.........................           1.6           3.0           5.3
     Weighted-average non-voting
      common shares..................            --           3.2           3.9
                                      ------------- -------------  ------------
   Denominators for basic earnings
    per share........................           1.6           6.2           9.2
   Effect of dilutive securities:
     Convertible preferred stock.....           2.3           2.1            --
     Employee stock options..........           0.3           0.4           0.5
                                      ------------- -------------  ------------
   Dilutive potential common shares..           2.6           2.5           0.5
   Denominators for diluted earnings
    per share--adjusted
    weighted-average shares and
    assumed conversions..............           4.2           8.7           9.7
   Income before extraordinary item:
     Basic earnings per share........ $       12.64 $        0.17  $       1.54
     Diluted earnings per share...... $        4.85 $        0.12  $       1.47
   Extraordinary item:
     Basic earnings per share........ $          -- $       (1.09) $         --
     Diluted earnings per share...... $          -- $       (0.77) $         --
   Net income (loss):
     Basic earnings per share........ $       12.64 $       (0.92) $       1.54
     Diluted earnings per share...... $        4.85 $       (0.65) $       1.47
</TABLE>
 
 
                                      56
<PAGE>
 
                           KOPPERS INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Stock Options
 
  The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and, accordingly, recognizes no compensation expense for stock
option grants. In 1998 the Company recognized $1.5 million of expense related
to the redemption of stock options.
 
  The pro forma effect on net income and earnings per share for 1998, 1997 and
1996 of the fair value method required by Statement No. 123, "Accounting for
Stock-Based Compensation" is immaterial. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions: (a) for 1998, risk-free interest
rate of 5.56%, dividend yield of 0.0%, volatility factor of .2, and an
expected option life of 10 years; (b) for 1997, risk-free interest rate of
5.75%, dividend yield of 0.0%, volatility factor of .14, and an expected
option life of 10 years.
 
  The Company's Board of Directors has awarded a total of 1.1 million options,
approximately 0.5 million of which were outstanding at December 31, 1998, to
purchase shares of voting Common Stock to certain key executives at various
exercise prices. All options granted have 10-year terms; all vest and become
fully exercisable at the end of three years of continued employment, except
for 0.16 million options granted in the fourth quarter of 1998, which have a
vesting period of five years.
 
  A summary of the Company's stock option activity and related information for
the years ended December 31 follows:
 
<TABLE>
<CAPTION>
                                   1998                   1997                   1996
                          ---------------------- ---------------------- ----------------------
                                    Weighted-              Weighted-              Weighted-
                          Options    Average     Options    Average     Options    Average
                           (000)  Exercise Price  (000)  Exercise Price  (000)  Exercise Price
                          ------- -------------- ------- -------------- ------- --------------
<S>                       <C>     <C>            <C>     <C>            <C>     <C>
Outstanding at beginning
 of year................    626        $ 5         650        $ 4         705        $ 4
Granted.................    184         17          88         14          --         --
Exercised...............   (264)         3        (111)         6         (54)         2
Forfeited...............     --         --          (1)        11          (1)        11
                           ----                   ----                    ---
Outstanding at end of
 year...................    546        $10         626        $ 5         650        $ 4
                           ====                   ====                    ===
Exercisable at end of
 year...................    362        $ 7         626        $ 5         590        $ 4
                           ====                   ====                    ===
Weighted-average fair
 value of options
 granted during the
 year...................     $5                     --        $ 6
</TABLE>
 
  Exercise prices for options outstanding as of December 31, 1998 ranged from
$2 to $17, and the weighted-average remaining contractual life of those
options was 6.4 years. Pursuant to the provisions of the Company's stock
option plan, all options granted prior to December 1, 1997 became vested in
1997 due to a change of control.
 
12. Commitments and Contingencies
 
  From time to time lawsuits, claims and proceedings are asserted against the
Company relating to the conduct of its business, including those pertaining to
product liability, warranties, employment and employee benefits. While the
outcome of litigation cannot be predicted with certainty, and some of these
lawsuits, claims or proceedings may be determined adversely to the Company,
management does not believe that the disposition of any such pending matters
is likely to have a material adverse effect on the Company's financial
condition or
 
                                      57
<PAGE>
 
                           KOPPERS INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
liquidity, although the resolution in any reporting period of one or more of
these matters could have a material adverse effect on the Company's results of
operations for that period.
 
 Environmental Indemnity and Guarantee
 
  The facilities of the Company are subject to a number of federal, state and
local laws and regulations governing, among other things, the treatment,
storage and disposal of wastes, the discharge of effluent into waterways, the
emission of substances into the air and various health and safety matters.
These laws and regulations are subject to frequent amendment. The Company
expects to incur substantial costs for ongoing compliance with such laws and
regulations. In addition, it is possible that the Company may face third-party
claims for cleanup or for injuries resulting from contamination.
 
  The Company has several environmental indemnification agreements related to
the various former owners of its operating locations. The most significant of
these indemnifications was obtained at the Company's inception. At the
formation of the Company in 1988, the Company and Beazer East, Inc. ("Beazer
East", formerly known as Koppers Company, Inc.) entered into an asset purchase
agreement (the "Asset Purchase Agreement"). Under the terms of the Asset
Purchase Agreement, Beazer East assumed the liability for and indemnified the
Company against cleanup liabilities for past contamination occurring prior to
the purchase date at properties acquired from Beazer East, as well as third-
party claims arising from such past contamination (the "Indemnity"). Beazer
Limited unconditionally guaranteed Beazer East's performance of the Indemnity
pursuant to a guarantee (the "Guarantee"). However, if such indemnification
was not available for any reason, including the inability of Beazer East
and/or Beazer Limited to make such indemnification payments, the Company may
not have sufficient resources to meet such liabilities.
 
  Beazer East has adhered to the terms of the Indemnity agreement and is
actively fulfilling its obligations to conduct investigative and remedial
programs at the properties which the Company acquired from Beazer East in
accordance with the requirements of regulatory authorities. The Indemnity is
not applicable to sites acquired since the formation of the Company, for which
separate indemnifications have been negotiated where appropriate. At the
properties which the Company acquired subsequent to the acquisition of the
Beazer East properties, all remedial actions are being performed in accordance
with applicable regulations and all indemnification obligations are being
honored.
 
  In the event that Beazer East and Beazer Limited do not continue to fulfill
their commitment under the Indemnity and the Guarantee, the Company may be
required to pay costs covered by the Indemnity. The Company believes that for
the last three years amounts paid by Beazer East under the Indemnity have
averaged approximately $12 million per year. The requirement to pay such costs
without reimbursement would have a material adverse effect on the business,
financial condition, cash flow and results of operations of the Company.
Furthermore, if the Company were required to record a liability in respect of
matters covered by the Indemnity on its balance sheet, the result could be
that the Company would have significant negative net worth.
 
  In addition, Beazer East is presently defending certain toxic tort actions
arising from the operation of assets prior to the inception of the Company
which were acquired from Beazer East. These tort actions were not assumed by
the Company under the Asset Purchase Agreement and, in any event, are within
the scope of the Indemnity.
 
  On August 5, 1998 Hanson PLC announced that an agreement had been signed
under which the funding and risk of the environmental liabilities relating to
the former Koppers Company operations of Beazer PLC (which includes locations
purchased from Beazer East by the Company) will be underwritten by
subsidiaries of two of the world's largest reinsurance companies, Centre
Solutions (a member of the Zurich Group) and Swiss Re.
 
                                      58
<PAGE>
 
                           KOPPERS INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 Other Environmental Matters
 
  In October 1996 the Company received a Clean Water Act information request
from the United States Environmental Protection Agency ("EPA"). This
information request asked for comprehensive information for a period of five
years on discharge permits, applications for discharge permits, discharge
monitoring reports, and the analytical data in support of the reports and
applications. The Company responded in full to the information request and
delivered the requested information to the EPA in November 1996. During the
subsequent two year period, the Company supplemented its initial response to
the EPA several times as the EPA made supplemental requests. In January 1999
the Company met with officials of the EPA to discuss the EPA's review of the
information submitted by the Company and the EPA requested additional
information from October 1996 to December 1998. In the meeting, the EPA
suggested that the Company and the EPA negotiate an agreement. Included among
the suggestions for settlement were a continuation of the Company's ongoing
efforts to develop a better environmental management system, to conduct third
party environmental audits, and to evaluate aging equipment and facilities
that may have the potential to impact adversely the quality of wastewater
discharged to the environment or to publicly owned treatment facilities. The
EPA did not propose a penalty or suggest a range in which a penalty, if any,
might be sought. At this time without knowing the details behind the summary
of the EPA's alleged violations, it is impossible to predict the amount of any
penalty. There can be no assurance that any monetary penalty and the cost of
any supplemental environmental projects will not have a material adverse
effect on the business, financial condition, cash flow and results of
operations of the Company.
 
  Part of the allegations asserted by the EPA concern Woodward Coke and the
Logansport, Louisiana wood treating plant. During a Company-initiated
investigation at Woodward Coke, it was discovered that certain environmental
records and reports relating to the discharge of treated process water
contained incomplete and inaccurate information. Corrected reports were
submitted to the State of Alabama and the EPA. In June 1997, during a routine
third party environmental compliance audit of the Logansport plant, it was
discovered that certain records and reports relating to the discharge of
treated process water contained incomplete and inaccurate information.
Corrected reports have been submitted to the local municipality, the State of
Louisiana and the EPA.
 
  In 1997 the Company paid a civil penalty in the amount of $0.5 million to
the Jefferson County Department of Health ("Jefferson County") in settlement
of various alleged air pollution violations concerning emissions from Woodward
Coke for the period from May 25, 1992 to March 1, 1996 and in settlement of
various alleged air pollution violations concerning benzene abatement
equipment at Woodward Coke that had been discovered as a result of a Company-
initiated investigation. On February 14, 1997 the EPA issued a notice of
violation for the same alleged air pollution violations concerning emissions
which were the subject of the Jefferson County suit. In January 1998 the
Company ceased operations at Woodward Coke. On February 8, 1998 Jefferson
County requested that the original settlement agreement be modified to include
alleged air emission violations for the period of August 1997 to January 1998
and proposed an additional civil penalty of $0.6 million. The Company is
currently in the process of reviewing the proposed modification and has
entered into negotiations with Jefferson County regarding this matter. There
can be no assurance that the EPA will not seek additional actions or penalties
that could have a material adverse effect on the business, financial
condition, cash flow and results of operations of the Company.
 
  At the acquisition of the Monessen, Pennsylvania coke facility (the
"Monessen Facility"), the Company entered into a consent order and agreement
with the Pennsylvania Department of Environmental Protection ("PADEP") (the
"Monessen Consent Order") pursuant to which the Company's liabilities for
environmental cleanup have been capped at $0.6 million for matters identified
pursuant to the Monessen Consent Order. Although an environmental
indemnification was provided to the Company by the seller of that facility,
the
 
                                      59
<PAGE>
 
                           KOPPERS INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company does not expect that such obligations will be honored. If
contamination at the Monessen Facility should be discovered which was not
identified pursuant to the Monessen Consent Order, or if the EPA should
require cleanup above the $0.6 million "cap" contained in the Monessen Consent
Order, the costs associated with such events could have a material adverse
effect on the Company's business, financial condition, cash flow and results
of operations.
 
  On occasion, Koppers Australia has been served with notices relating to
environmental compliance issues arising in connection with its operations.
Koppers Australia had been served with a notice by the Tasmanian Department of
Environment and Land Management ("DELM") which alleged that the Longford,
Tasmania facility was not in compliance with certain water discharge
requirements; the DELM rescinded this notice in 1998. In addition, historic
operations conducted at the Koppers Australia facilities have resulted in
identified and potential soil and groundwater contamination of varying
degrees. The Trentham, Victoria facility is listed on the Victorian register
of contaminated sites. The Rockhampton and Takura, Queensland facilities are
listed on the Queensland register of contaminated sites as "probable sites".
In addition, Koppers Australia has identified various levels of groundwater
contamination at the Mayfield, New South Wales and Bunbury, Western Australia
facilities. Although the relevant regulatory authorities have not required the
investigation or remediation of these or other Koppers Australia facilities to
date, these authorities may require such work if Koppers Australia does not
undertake such activities itself. Costs associated with these activities may
be material and there can be no assurance that such costs will not have a
material adverse effect on the business, financial condition, cash flow and
results of operations of the Company.
 
 Litigation Settlements
 
  The Company settled litigation with CSX Transportation, Inc. ("CSX") related
to a Complaint served by CSX on May 24, 1996 which alleged that the Company
failed to fulfill environmental obligations under two contracts executed by
CSX and the Company's predecessor in 1988 and performed by the Company. The
Complaint also sought reimbursement of any damages incurred in connection with
a 1992 lawsuit filed by Beazer East against CSX in which Beazer East sought
contribution for environmental cleanup at certain facilities including some
presently owned by the Company. The settlement agreement requires the Company
to pay certain amounts over a five year period. The Company recorded a $2.5
million charge to pretax earnings in 1996 as a result of the agreement.
 
  On October 4, 1996 the Company settled litigation with Owens-Corning
Fiberglas Corporation ("OCF") which involved matters which occurred before the
Company came into existence. The case went to trial in early 1996 and, in
April 1996 resulted in a jury verdict against the Company for $10.3 million
plus legal fees and claims for pre-trial and post-trial interest. The Company
entered into a confidential settlement with OCF under which the Company paid
$12.7 million, in settlement of all claims. The charge to earnings for 1996
for the settlement and related legal fees was $10.2 million, as $3 million had
been provided for previously.
 
 
                                      60
<PAGE>
 
                           KOPPERS INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 Rents
 
  Rent expense for 1998, 1997 and 1996 was $15.0 million, $13.5 million and
$13.5 million, respectively. Commitments during the next five years under
operating leases aggregate to $21 million, ranging from $6 million in 1999 to
$2 million in 2003.
 
13. Operations by Business Segment
 
 Description of the Types of Products and Services From Which Each
 Reportable Segment Derives Its Revenues.
 
  The Company has two reportable segments, Carbon Materials & Chemicals and
Railroad & Utility Products. The Company's Carbon Materials & Chemicals
division consists of four basic product lines: carbon pitch, which is sold
primarily to aluminum smelters for use in the production of anodes; PAA, which
is sold to the reinforced plastics industry and is used in the production of
vinyl, paint, coatings and fiberglass; creosote, used in the treatment of
wood; and furnace coke, used in steel production. The Company's Railroad &
Utility Products division produces railroad crossties and performs various
services for the railroad industry, and produces treated utility poles for the
electric and telephone utility industries, as well as various other treating
services. All Other includes Woodward Coke, which ceased operations in January
1998.
 
 Measurement of Segment Profit or Loss and Segment Assets.
 
  The Company evaluates performance and allocates resources based on profit or
loss from operations before interest and income taxes. The accounting policies
of the reportable segments are the same as those described in the summary of
significant accounting policies.
 
 Factors Management Used to identify the Company's Reportable Segments.
 
  The Company's reportable segments are business units that offer different
products. The reportable segments are each managed separately because they
manufacture and distribute distinct products with different production
processes. The business units have been aggregated into two reportable
segments since management believes the long-term financial performance of
these reportable segments is affected by similar economic conditions.
 
                                      61
<PAGE>
 
                            KOPPERS INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
<TABLE>
<CAPTION>
                            Business Segments
                          ---------------------
                            Carbon    Railroad
                           Materials  & Utility  All
                          & Chemicals Products  Other  Total
                          ----------- --------- -----  ------
                                    (In millions)
<S>                       <C>         <C>       <C>    <C>
Year ended December 31,
 1998:
Revenues from external
 customers..............    $346.7     $320.7   $ 3.2  $670.6
Intersegment revenues...      16.6         --      --    16.6
Depreciation and
 amortization...........      19.6        8.9     2.1    30.6
Operating profit (loss).      27.3       22.1    (1.8)   47.6
Segment assets..........     255.7      132.8    93.1   481.6
Capital expenditures....      12.5        9.2     1.1    22.8
 
Year ended December 31,
 1997:
Revenues from external
 customers..............    $285.9     $255.2   $52.0  $593.1
Intersegment revenues...      11.2         --     2.0    13.2
Restructuring charges...        --        5.5    39.9    45.4
Non-cash portion of
 restructuring charges..        --        3.3    17.7    21.0
Depreciation and
 amortization...........      11.7        6.9     4.9    23.5
Operating profit (loss).      32.0       10.2   (47.5)   (5.3)
Segment assets..........     273.3      126.6   100.3   500.2
Capital expenditures....      39.6       11.7     2.6    53.9
 
Year ended December 31,
 1996:
Revenues from external
 customers..............    $281.6     $239.9   $67.0  $588.5
Intersegment revenues...      11.2         --     2.7    13.9
Restructuring charges...       7.0        1.1     7.4    15.5
Non-cash portion of
 restructuring charges..       0.7         --     3.4     4.1
Depreciation and
 amortization...........      10.3        6.4     5.1    21.8
Operating profit (loss).      21.8       12.3    (6.5)   27.6
Segment assets..........     186.2      111.8   113.2   411.2
Capital expenditures....      53.2        5.2     2.8    61.2
</TABLE>
 
 
                                       62
<PAGE>
 
                            KOPPERS INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
                                                   Years Ended December 31,
                                                  ----------------------------
                                                     1998      1997      1996
                                                  --------  --------  --------
                                                        (In millions)
<S>                                               <C>       <C>       <C>
Revenues
Total external revenues for reportable segments.. $  667.4  $  541.1  $  521.5
Intersegment revenues for reportable segments....     16.6      11.2      11.2
Revenues from Woodward Coke......................      3.2      54.0      69.7
Elimination of intersegment revenues.............    (16.6)    (13.2)    (13.9)
                                                  --------  --------  --------
  Total consolidated revenues.................... $  670.6  $  593.1  $  588.5
                                                  ========  ========  ========
Profit or Loss
Operating profit for reportable segments......... $   49.4  $   42.2  $   34.1
Corporate depreciation and amortization..........     (2.1)     (1.2)     (1.1)
Equity in earnings of affiliates.................      2.4       5.3       9.6
Woodward Coke....................................       --     (47.6)     (4.4)
Other income (expense)...........................      0.3      (0.1)    (13.6)
                                                  --------  --------  --------
  Income (loss) before interest expense, income
   tax provision (benefit),
   minority interest and extraordinary item...... $   50.0  $   (1.4) $   24.6
                                                  ========  ========  ========
Assets
Total assets for reportable segments............. $  388.5  $  399.9  $  298.0
Equity investments...............................     18.0      16.6      55.4
Deferred financing...............................     14.4      16.0       4.4
Deferred taxes...................................     43.7      35.0      10.9
Prepaid pension..................................      4.0       4.0       4.0
Fixed assets.....................................      2.2       1.4       1.5
Other............................................      3.6      (0.5)     (4.3)
Cash and short-term investments..................     11.7      15.2       1.5
Woodward Coke....................................      0.9      14.4      40.8
Elimination of intercompany receivables..........     (5.4)     (1.8)     (1.0)
                                                  --------  --------  --------
  Total consolidated assets...................... $  481.6  $  500.2  $  411.2
                                                  ========  ========  ========
Geographic Information
Australia and Pacific Rim:
Revenues from external customers................. $  105.5  $     --  $     --
Long-lived assets................................     55.8      60.7        --
</TABLE>
 
All other revenues and long-lived assets are related to operations based in the
United States.
 
Sales to one customer amounted to 10.8% of the Company's total net sales for
1996.
 
                                       63
<PAGE>
 
                           KOPPERS INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
14. Selected Quarterly Financial Data (Unaudited)
 
  The following is a summary of the quarterly results of operations for the
years ended December 31, 1998 and 1997:
 
<TABLE>
<CAPTION>
                            1st Quarter    2nd Quarter   3rd Quarter   4th Quarter
                           -------------- ------------- ------------- -------------
                            1998    1997   1998   1997   1998   1997   1998   1997
                           ------  ------ ------ ------ ------ ------ ------ ------
                                   (In millions except per share figures)
 <S>                       <C>     <C>    <C>    <C>    <C>    <C>    <C>    <C>
 Net sales...............  $156.5  $134.0 $174.2 $157.6 $181.2 $160.7 $158.7 $140.8
 Operating profit (loss).  $  7.2  $  6.1 $ 14.8 $ 13.9 $ 14.8 $ 14.5 $ 10.8 $(37.3)
 Net income (loss) before
  extraordinary item.....  $ (0.2) $  3.4 $  6.8 $  6.3 $  9.7 $ 12.4 $  3.8 $(21.2)
 Income (loss) per share
  of Common Stock:
  Income before
   extraordinary item:
   Basic earnings (loss)
    per share............  $(0.10) $ 0.39 $ 4.48 $ 0.72 $ 6.38 $ 1.41 $ 2.46 $(4.53)
   Diluted earnings
    (loss) per share.....  $(0.10) $ 0.37 $ 1.67 $ 0.69 $ 2.42 $ 1.34 $ 0.93 $(4.53)
  Net income (loss)......  $ (0.2) $  3.4 $  6.8 $  6.3 $  9.7 $ 12.4 $  3.8 $(27.9)
   Basic earnings (loss)
    per share............  $(0.10) $ 0.39 $ 4.48 $ 0.72 $ 6.38 $ 1.41 $ 2.46 $(5.96)
   Diluted earnings
    (loss) per share.....  $(0.10) $ 0.37 $ 1.67 $ 0.69 $ 2.42 $ 1.34 $ 0.93 $(5.96)
</TABLE>
 
15. Financial Information for Subsidiary Guarantors
 
  The Company's payment obligations under the 9 7/8% Senior Subordinated Notes
due 2007 are fully and unconditionally guaranteed on a joint and several basis
by Koppers Industries, Inc. (parent), Koppers Industries International Trade
Corporation, Koppers Australia Pty. Limited, Koppers Industries of Delaware,
Inc. and Koppers Industries B.W., Inc. (collectively, the "Guarantor
Subsidiaries"). The New Notes have not been guaranteed by KHC Assurance, Inc.,
Tarconord A/S, and KSA Limited Partnership (collectively, the "Non-Guarantor
Subsidiaries"). In accordance with previous positions established by the
Securities and Exchange Commission, the following summarized financial
information illustrates separately the composition of the Guarantor
Subsidiaries and the Non-Guarantor Subsidiaries. Separate complete financial
statements of the respective Guarantor Subsidiaries are not presented because
management has determined that they would not provide additional material
information that would be useful in assessing the financial composition of the
guarantors and non-guarantors. The principal elimination entries eliminate
investments in subsidiaries and intercompany balances and transactions.
 
                  Summarized Condensed Financial Information
                     For the year ended December 31, 1998
                                 (In millions)
 
<TABLE>
<CAPTION>
                                  Guarantor   Non-Guarantor
                          Parent Subsidiaries Subsidiaries  Eliminations Consolidated
                          ------ ------------ ------------- ------------ ------------
<S>                       <C>    <C>          <C>           <C>          <C>
Current assets..........  $140.3    $ 84.1       $105.6       $(136.5)      $193.5
Non-current assets......   324.4      54.8         88.3        (179.4)       288.1
Current liabilities.....   189.9      19.5         15.9        (136.7)        88.6
Non-current liabilities.   338.9      44.8          0.8          (4.0)       380.5
Net sales...............   565.2     117.4           --         (12.0)       670.6
Gross profit (after
 depreciation,
 amortization
 & restructuring).......    55.9      35.1          1.5          (7.2)        85.3
Net income (loss).......     6.7      15.7          3.5          (5.8)        20.1
</TABLE>
 
                                      64
<PAGE>
 
                            KOPPERS INDUSTRIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
                   Summarized Condensed Financial Information
                      For the year ended December 31, 1997
                                 (In millions)
 
<TABLE>
<CAPTION>
                                   Guarantor   Non-Guarantor
                          Parent  Subsidiaries Subsidiaries  Eliminations Consolidated
                          ------  ------------ ------------- ------------ ------------
<S>                       <C>     <C>          <C>           <C>          <C>
Current assets..........  $169.2     $99.0         $55.0       $ (97.7)      $225.5
Non-current assets......   288.6      99.7          16.1        (129.7)       274.7
Current liabilities.....   156.4      25.9          31.6         (97.6)       116.3
Non-current liabilities.   309.1      79.3          11.5         (27.8)       372.1
Net sales...............   592.9      12.6           7.2         (19.6)       593.1
Gross profit (after
 depreciation,
 amortization
 & restructuring).......    10.0      12.7           1.2          (1.1)        22.8
Net income (loss) before
 extraordinary item.....   (12.5)     11.3           2.6          (0.4)         1.0
Net income (loss).......   (19.2)     11.3           2.6          (0.4)        (5.7)
</TABLE>
 
                   Summarized Condensed Financial Information
                      For the year ended December 31, 1996
                                 (In millions)
 
<TABLE>
<CAPTION>
                                   Guarantor   Non-Guarantor
                          Parent  Subsidiaries Subsidiaries  Eliminations Consolidated
                          ------  ------------ ------------- ------------ ------------
<S>                       <C>     <C>          <C>           <C>          <C>
Current assets..........  $169.2     $19.6         $33.9        $(62.4)      $160.3
Non-current assets......   224.8      22.3          34.1         (30.3)       250.9
Current liabilities.....   122.1       7.7          15.2         (62.4)        82.6
Non-current liabilities.   237.3        --          13.2            --        250.5
Net sales...............   587.9      12.9           3.2         (15.5)       588.5
Gross profit (after
 depreciation,
 amortization
 & restructuring).......    45.0      10.7           0.2          (0.8)        55.1
Net income (loss).......    (1.7)     14.2           2.1          (0.5)        14.1
</TABLE>
 
                                       65
<PAGE>
 
                                  SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, as amended, Koppers Industries, Inc. has duly caused
this annual report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized.
 
                                          Koppers Industries, Inc.
 
<TABLE>
<S>  <C>
                                          By:     /s/ Donald E. Davis
                                            ...................................
                                                    Donald E. Davis,
                                                 Chief Financial Officer
 
  Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this annual report on Form 10-K has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
date indicated.
 
    /s/ Robert K. Wagner
 .............................  Chairman and Director           March 25, 1999
      Robert K. Wagner
 
    /s/ Walter W. Turner
 .............................  President, Chief                March 25, 1999
      Walter W. Turner         Executive
                               Officer and Director
                               (Principal Executive
                               Officer)
 
     /s/ Donald E. Davis
 .............................  Chief Financial                 March 25, 1999
       Donald E. Davis         Officer
                               (Principal Financial
                               Officer,
                               Principal Accounting
                               Officer)
 
   /s/ Clayton A. Sweeney
 .............................  Director                        March 25, 1999
     Clayton A. Sweeney
 
  /s/ Christian L. Oberbeck
 .............................  Director                        March 25, 1999
    Christian L. Oberbeck
 
    /s/ Brooks C. Wilson
 .............................  Director                        March 25, 1999
      Brooks C. Wilson
 
       /s/ N.H. Prater
 .............................  Director                        March 25, 1999
         N.H. Prater
 
 /s/ Charles P. Durkin, Jr.
 .............................  Director                        March 25, 1999
   Charles P. Durkin, Jr.
 
      /s/ Robert Cizik
 .............................  Director                        March 25, 1999
        Robert Cizik
 
  /s/ David M. Hillenbrand
 .............................
    David M. Hillenbrand       Director                        March 25, 1999
</TABLE>
 
 
 
                                      66
<PAGE>
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
 Exhibit
   No.                                 Description
 -------                               -----------
 <C>     <S>
   *3.1  Restated and Amended Articles of Incorporation of the Company
         (Incorporated by reference from Exhibit 4.1 of the Company's Form S-8
         Registration Statement filed December 22, 1997).
   *3.2  Restated and Amended By-Laws of the Company (Incorporated by reference
         from Exhibit 4.2 of the Company's Form S-8 Registration Statement
         filed December 22, 1997).
   *4.1  Indenture between the Company and Integra Trust Company, National
         Association, as Trustee (Incorporated by reference to respective
         exhibits to the Company's Form 10-K for the year ended December 31,
         1993).
   *4.2  Indenture, dated as of December 1, 1997 between the Company and PNC
         Bank, National Association (the "Trustee") (Incorporated by reference
         to respective exhibits to the Company's Form S-4 Registration
         Statement filed December 22, 1997 in connection with an Exchange Offer
         for $175 million of 9 7/8% Senior Subordinated Notes due 2007).
   *9.1  Stockholders' Agreement by and among Koppers Industries, Inc., KAP
         Investments, Inc., Cornerstone-Spectrum, Inc., APT Holdings
         Corporation and the Management Investors referred to therein, the most
         recent amendment dated as of August 16, 1995 (Incorporated by
         reference to respective exhibits to the Company's Amendment No. 1 to
         Form S-1 Registration Statement filed June 18, 1996 in connection with
         the offering of 7,001,922 shares of Common Stock).
   *9.2  Stock Subscription Agreement dated as of December 26, 1988
         (Incorporated by reference to respective exhibits to the Company's
         Prospectus filed February 7, 1994 pursuant to Rule 424(b) of the
         Securities Act of 1933, as amended, in connection with the offering of
         the 8 1/2% Senior Notes due 2004).
   *9.3  Stockholders' Agreement by and among Koppers Industries, Inc.,
         Saratoga Partners III, L. P. and the Management Investors referred to
         therein, dated December 1, 1997 (Incorporated by reference from
         Exhibit 4.3 of the Company's Form S-8 Registration Statement filed
         December 22, 1997).
  *10.1  Asset Purchase Agreement, dated as of December 28, 1988, between the
         Company and Koppers Company, Inc. (Incorporated by reference to
         respective exhibits to the Company's Prospectus filed February 7, 1994
         pursuant to Rule 424(b) of the Securities Act of 1933, as amended, in
         connection with the offering of the 8 1/2% Senior Notes due 2004).
  *10.2  Asset Purchase Agreement Guarantee, dated as of December 28, 1988,
         provided by Beazer PLC (Incorporated by reference to respective
         exhibits to the Company's Prospectus filed February 7, 1994 pursuant
         to Rule 424(b) of the Securities Act of 1933, as amended, in
         connection with the offering of the 8 1/2% Senior Notes due 2004).
  *10.3  Credit Agreement, dated as of February 10, 1994 by and between the
         Company, the Banks from time to time parties thereto and Mellon Bank,
         N.A., as agent (Incorporated by reference to respective exhibits to
         the Company's Form 10-K for the year ended December 31, 1993).
  *10.4  Revolving Credit Agreement, dated as of February 10, 1994, from the
         Company to the Banks and Mellon Bank, N.A. (Incorporated by reference
         to respective exhibits to the Company's Form 10-K for the year ended
         December 31, 1993).
  *10.5  Term Loan Agreement, dated as of February 10, 1994, from the Company
         to the Banks and Mellon Bank, N.A. (Incorporated by reference to
         respective exhibits to the Company's Form 10-K for the year ended
         December 31, 1993).
  *10.6  Retirement Plan of Koppers Industries, Inc. and Subsidiaries for
         Salaried Employees (Incorporated by reference to respective exhibits
         to the Company's Prospectus filed February 7, 1994 pursuant to Rule
         424(b) of the Securities Act of 1933, as amended, in connection with
         the offering of the 8 1/2% Senior Notes due 2004).
  *10.7  Koppers Industries, Inc. Non-contributory Long Term Disability Plan
         for Salaried Employees (Incorporated by reference to respective
         exhibits to the Company's Prospectus filed February 7, 1994 pursuant
         to Rule 424(b) of the Securities Act of 1933, as amended, in
         connection with the offering of the 8 1/2% Senior Notes due 2004).
</TABLE>
 
                                       67
<PAGE>
 
<TABLE>
<CAPTION>
 Exhibit
   No.                                 Description
 -------                               -----------
 <C>     <S>
 *10.8   Koppers Industries, Inc. Employee Savings Plan (Incorporated by
         reference to respective exhibits to the Company's Prospectus filed
         February 7, 1994 in connection with the offering of the 8 1/2% Senior
         Notes due 2004).
 *10.10  Koppers Industries, Inc. Survivor Benefit Plan (Incorporated by
         reference to respective exhibits to the Company's Prospectus filed
         February 7, 1994 pursuant to Rule 424(b) of the Securities Act of
         1933, as amended, in connection with the offering of the 8 1/2% Senior
         Notes due 2004).
 *10.11  Koppers Industries, Inc. Stock Option Plan, as Restated and Amended as
         of February 21, 1996 (Incorporated by reference to respective exhibits
         to the Company's Amendment No. 1 to Form S-1 Registration Statement
         filed June 18, 1996 in connection with the offering of 7,001,922
         shares of Common Stock).
 *10.15  LTV Steel Company, Inc. Coke Sales Agreement dated as of December 10,
         1993 (Incorporated by reference to the Company's Prospectus filed
         February 7, 1994 pursuant to Rule 424(b) of the Securities Act of 1933
         in connection with the offering of the 8 1/2% Senior Notes due 2004).
 *10.16  Alcoa/Koppers Solid Pitch Supply Agreement Warrick, Indiana; Rockdale,
         Texas; Point Comfort, Texas; and Wenatchee, Washington dated as of
         January 1, 1994 (Incorporated by reference to respective exhibits to
         the Company's Form 10-K for the year ended December 31, 1993).
 *10.18  Employment Contract for Donald P. Traviss dated October 17, 1994
         (Incorporated by reference to respective exhibits to the Company's
         Form 10-K for the year ended December 31, 1995).
 *10.19  Employment Contract for Robert K. Wagner dated February 29, 1996
         (Incorporated by reference to respective exhibits to the Company's
         Form 10-K for the year ended December 31, 1995).
 *10.20  Standby Term Loan Note, dated as of March 31, 1995 from the Company to
         the Banks and Mellon Bank, N.A (Incorporated by reference to
         respective exhibits to the Company's Form 10-K for the year ended
         December 31, 1995).
 *10.21  Amendment to Standby Term Loan Note, dated as of March 18, 1996 from
         the Company to the Banks and Mellon Bank, N.A (Incorporated by
         reference to respective exhibits to the Company's Form 10-K for the
         year ended December 31, 1995).
 *10.22  Amendment to Revolving Credit Notes, dated as of March 18, 1996 from
         the Company to the Banks and Mellon Bank, N.A (Incorporated by
         reference to respective exhibits to the Company's Form 10-K for the
         year ended December 31, 1995).
 *10.23  Asset Purchase Agreement, dated as of March 11, 1996, between the
         Company and Aristech Chemicals Corporation (Incorporated by reference
         to respective exhibits to the Company's Form 10-K for the year ended
         December 31, 1995).
 *10.24  Term Loan Agreement, dated as of March 18, 1996 from the Company to
         the Banks and Mellon Bank, N.A (Incorporated by reference to
         respective exhibits to the Company's Form 10-K for the year ended
         December 31, 1995).
 *10.25  Restated and Amended Employee Stock Option Plan (Incorporated by
         reference to respective exhibits to the Company's Amendment No. 1 to
         Form S-1 Registration Statement filed June 18, 1996 in connection with
         the offering of 7,001,922 shares of Common Stock).
 *10.26  Employment contract for Donald N. Sweet dated August 1, 1996
         (Incorporated by reference to respective exhibits to the Company's
         Form 10-Q for the quarterly period ended September 30, 1996).
 *10.27  Volume Treatment Agreement CSX-Koppers dated as of January 30, 1997
         (Incorporated by reference to respective exhibits to the Company's
         Form 10-K for the year ended December 31, 1996).
 *10.28  Credit Agreement, dated as of December 1, 1997 by and among the
         Company, the Banks from time to time parties thereto and Swiss Bank
         Corporation and Mellon Bank, N.A. (Incorporated by reference to
         respective exhibits to the Company's Form S-4 Registration Statement
         filed December 22, 1997 in connection with an Exchange Offer for $175
         million of 9 7/8% Senior Subordinated Notes due 2007).
 *10.29  Advisory Services Agreement between the Company and Saratoga Partners
         III, L.P. (Incorporated by reference to respective exhibits to the
         Company's Form S-4 Registration Statement filed December 22, 1997 in
         connection with an Exchange Offer for $175 million of 9 7/8% Senior
         Subordinated Notes due 2007).
</TABLE>
 
                                       68
<PAGE>
 
<TABLE>
<CAPTION>
 Exhibit
   No.                                 Description
 -------                               -----------
 <C>     <S>
 *21.1   Amended List of Subsidiaries of the Company (Incorporated by reference
         to respective exhibits to the Company's Form S-4 Registration
         Statement filed December 22, 1997 in connection with an Exchange Offer
         for $175 million of 9 7/8% Senior Subordinated Notes due 2007).
  23.1   Consent of Ernst & Young LLP
  27.1   Financial Data Schedule
</TABLE>
--------
*Previously filed
 
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<PAGE>
 
                            KOPPERS INDUSTRIES, INC.
 
                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
                                 (In millions)
                              For the years ended
                        December 31, 1998, 1997 and 1996
 
<TABLE>
<CAPTION>
                          Balance at Additions    Koppers              Balance
                          beginning   charged    Australia             at close
                           of year   to Expense Acquisition Deductions of year
                          ---------- ---------- ----------- ---------- --------
<S>                       <C>        <C>        <C>         <C>        <C>
1998
Allowance for doubtful
 accounts................    $0.8       $0.6       $ --        $0.2      $1.2
                             ====       ====       ====        ====      ====
1997
Allowance for doubtful
 accounts................    $0.2       $ --       $0.6        $ --      $0.8
                             ====       ====       ====        ====      ====
1996
Allowance for doubtful
 accounts................    $0.4       $0.1       $ --        $0.3      $0.2
                             ====       ====       ====        ====      ====
</TABLE>
 
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