<PAGE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       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, 1997

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 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]

  The aggregate market value of the voting stock held by non-affiliates of the
registrant as of December 31, 1997 was approximately $30 million. The amount
shown is based upon the actual cost of the stock. Shares of voting stock held
by the Management Investors (see Item 10. Directors and Executive Officers of
the Registrant) are not included in the computation. 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, 1998, amounted to 1,706,014 and
2,288,481 shares, respectively.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
 ITEM                                                                      PAGE
 ----                                                                      ----
 <C>  <S>                                                                  <C>
                                     PART I
  1.  Business...........................................................    1
  2.  Properties.........................................................   17
  3.  Legal Proceedings..................................................   18
  4.  Submission of Matters to a Vote of Security Holders................   18

                                    PART II
        Market for the Registrant's Common Equity and Related Stockholder
  5.  Matters............................................................   19
  6.  Selected Financial Data............................................   20
          Management's Discussion and Analysis of Financial Condition and
  7.  Results of Operations..............................................   22
  8.  Financial Statements and Supplementary Data........................   31
          Changes in and Disagreements with Accountants on Accounting and
  9.  Financial Disclosure...............................................   31

                                    PART III
 10.  Directors and Executive Officers of the Registrant.................   31
 11.  Executive Compensation.............................................   34
 12.  Security Ownership of Certain Beneficial Owners and Management.....   37
 13.  Certain Relationships and Related Transactions.....................   38

                                    PART IV
 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K...   40

                                   SIGNATURES
      Signatures.........................................................   94
</TABLE>
<PAGE>

                                    PART I

ITEM 1. BUSINESS

GENERAL

  Koppers Industries, Inc. (the "Company" or "Koppers") is a leading
integrated producer of carbon compounds and treated wood products for use in a
variety of markets including the chemical, railroad, aluminum 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 21 facilities in the
United States and, through its recent acquisition of the remaining outstanding
equity of Koppers Australia Pty. Limited ("Koppers Australia") an additional
14 operating 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 before
extraordinary items of $593.1 million and $1.0 million, respectively, for the
twelve months ended December 31, 1997. For the same period, the Company's
businesses, Carbon Materials & Chemicals, Railroad & Utility Products and Coke
Products accounted for 41%, 43% and 16% of net sales, respectively. The
Company's earnings results for 1997 were impacted by $45.4 million of
restructuring charges related to the closure of its Woodward, Alabama coke
facility (the "Woodward Facility") and the closure of a co-generation facility
and write-down of assets at the adjacent wood treating facility located in
Feather River, California.

  Koppers' Carbon Materials & Chemicals division processes coal tar into a
variety of intermediate products, including carbon pitch, phthalic anhydride
("PAA") and creosote, which are basic materials necessary in the production of
aluminum, polyester resins and plasticizers, and the pressure treatment of
wood, respectively. Koppers' Railroad & Utility Products division supplies
treated wood products, primarily railroad crossties and utility poles, to
United States railroads and the electric and telephone utility industries.
Koppers' Coke Products division converts coal into coke for sale to integrated
steel producers.

  Products and services provided by Koppers Australia are similar to those
provided by Koppers. Koppers Australia is Australia's largest manufacturer of
carbon pitch, wood preservatives and treated wood products and it markets
these products, as well as carbon black, a component in the manufacture of
rubber tires, in Australia, New Zealand and other Pacific Rim nations. For its
fiscal year ended June 30, 1997 Koppers Australia had operating revenues of
approximately $120 million.

 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 are 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
2,145,624 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 the Company (the
"Preferred Shares"), which entitles Saratoga to elect a majority of the Board
of Directors of the Company (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

                                       1
<PAGE>

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 New Notes have been and are being used to complete the following
transactions: (i) the acquisition of The 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 tendered pursuant to a tender offer and consent
solicitation which was commenced October 20, 1997 and which expired on
November 28, 1997 (the "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 (the "Bank Debt Refinancing"); (iv) the redemption of 1,813,200
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 up to 25% of the shares of common stock owned by the
current officers of Koppers and Clayton A. Sweeney (a member of the Board of
Directors) and the redemption of up to 100% of the shares of Common Stock
owned by other Management Investors, in an aggregate amount not to exceed
$15.0 million; (vi) the redemption of 436,508 non-voting shares of Common
Stock from Saratoga Koppers; and (vii) the payment of approximately $16.0
million of related fees and expenses. The New Credit Facilities, the sale of
the New 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 subject to closing adjustments. The assets acquired from Old
Koppers included the Woodward Facility and certain assets of its Chemical &
Allied Products Group which then became the Carbon Materials & Chemicals,
Railroad & Utility Products and Coke Products divisions of the Company. The
purchase was financed through (i) the issuance of $35.2 million of common and
preferred stock, (ii) term and working capital loans of $161.6 million, with
attached warrants, and (iii) a subordinated bridge loan of $30.0 million. In
February 1994, the Company issued $110 million of 10-year unsecured notes (the
"Senior Notes") to refinance existing indebtedness and to redeem $53.5 million
of preferred stock.

  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. See "Business--
Environmental Matters."

INDUSTRY OVERVIEW

CARBON MATERIALS & CHEMICALS

  The coal tar distillation business involves the conversion of coal tar, a
by-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.

                                       2
<PAGE>

  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. 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.

  Chemical oils resulting from the distillation of coal tars are further
refined 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.

  Because of the Clean Air Act Amendments and other environmental laws, future
coal tar availability from United States 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 coal tar.

RAILROAD & UTILITY PRODUCTS

  The Company's Railroad & Utility Products division consists of two
businesses: Railroad Products & Services and Utility & Construction Products.

 Railroad Products & Services

  The major product of Railroad Products & Services is pressure-treated wood
crossties, which are used in railroad track maintenance programs.
Approximately 15 million crossties are replaced by railroads every year.
United States Class 1 railroads (defined as the nine largest railroad systems
in the United States) maintain approximately 177,000 miles of track, estimated
to contain 540 million crossties. In addition to crossties, the division also
offers services to the railroads, such as assembling 39-foot track panel
sections, pre-plating ties, cleaning debris from cars, 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. Creosote, the preservative used to treat
crossties, accounts for approximately 10% of the finished tie's cost.

  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 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.

                                       3
<PAGE>

  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.

 Utility & Construction Products

  The Utility & Construction Products business treats utility poles and timber
piling for sale to electric utilities, telephone companies and the
construction industry. These products are produced from pine or fir trees. The
trees are cut to length and shipped to peeling locations at one of the
Company's seven pole treating facilities or a third party's site. The poles
are then either dried in kilns or put directly into treating cylinders
(autoclaves) and steam conditioned before treatment. Kiln drying and steam
conditioning are processes that remove the water from the wood before
treatment. The applicable preservative is then injected into the wood under
pressure, after which a vacuum is used to remove any excess chemical.

  Over the last two years, overall 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 affect both new and
replacement pole installation markets for the next several years.

  Pricing of raw materials has been significantly impacted over the last five
years due to a shortage of supply. Douglas fir availability has been affected
by logging restrictions on public land, resulting in increased demand for
southern yellow pine. According to Southern Pressure Treaters Association
statistics, pole prices have gone up over 65% during the last five years.

COKE PRODUCTS

  Coke is a carbon and fuel source required in the manufacture of steel and
iron. 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."

  Coke is consumed in three markets: steel mill blast furnaces, foundries and
other industrial operations. There are two basic types of coke which are
produced: furnace coke and foundry coke. Furnace coke, which is produced from
different coal blends and requires different heating periods than foundry
coke, is generally formed in smaller pieces than foundry coke and is used in
blast furnaces to make steel by acting as a reducing agent for the iron ore.
With the ceasing of operations at the Woodward Facility in January 1998 (see
"--Description of Business--Coke Products"), the Company currently produces
only furnace coke through its facility located in Monessen, Pennsylvania (the
"Monessen Facility").

  Coal is transformed into coke by a process beginning with the pulverizing,
blending and mixing of various types of coal to produce coke with the
appropriate chemical and physical specifications. The coal mixture is baked
approximately 18 hours for furnace coke and 28 hours for foundry coke at
temperatures reaching 2,000 degrees fahrenheit and is subsequently quenched
and screened in accordance with contract specifications before being loaded
for shipment. Volatile constituents, including gases, chemicals and coke oven
tar, are extracted and sold for a variety of industrial uses, with a portion
of the gas being returned to the coking chambers as heating fuel.

  The quality of coke is determined by its chemical and physical properties. A
high percentage of fixed carbon and low levels of sulfur, ash, and other
volatile matter are essential to the effectiveness of coke in the iron and
steel manufacturing processes. The most important physical properties of coke
are its ability to withstand breakage and its resistance to abrasion during
handling and use in blast furnaces.

                                       4
<PAGE>

  Domestic coke production capacity has decreased over the last ten years due
to high capital costs for coke oven maintenance and rebuilding, high operating
costs and increased expenditures resulting from new environmental compliance
standards. This reduction of United States coke production capacity is
expected to continue, as several of the large integrated steel companies have
recently shut down or announced plans to close their coke batteries, reducing
domestic capacity. Integrated steel producers are employing various methods to
displace a portion of the coke used in steel production to reduce their
reliance on existing suppliers and decrease raw material costs. In some cases,
companies have been successful in replacing a portion of their demand for coke
with pulverized-coal-injection technology.

DESCRIPTION OF COMPANY'S BUSINESS

<TABLE>
<CAPTION>
                                  SEGMENT SALES FOR YEARS ENDED DECEMBER 31,
                                 ----------------------------------------------
                                      1997            1996            1995
                                 --------------  --------------  --------------
                                            (Dollars in thousands)
<S>                              <C>      <C>    <C>      <C>    <C>      <C>
Carbon Materials & Chemicals.... $241,148  40.7% $239,298  40.7% $197,434  37.6%
Railroad & Utility Products.....  255,204  43.0   239,913  40.8   248,212  47.2
Coke Products...................   96,708  16.3   109,333  18.5    80,084  15.2
                                 -------- -----  -------- -----  -------- -----
                                 $593,060 100.0% $588,544 100.0% $525,730 100.0%
</TABLE>

CARBON MATERIALS & CHEMICALS

  The Company's Carbon Materials & Chemicals division manufactures three
principal products: carbon pitch, PAA and creosote. These products, used in
the production of aluminum, steel, plasticizers, polyester resins and the
treatment of wood, respectively, are produced through the distillation of coal
tar, a by-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 five operating facilities in the United States
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 1997, sales of carbon pitch, PAA and creosote (to outside customers only)
accounted for approximately 46%, 27% and 7% of the Carbon Materials &
Chemicals division's net sales, respectively. Other significant products
include roofing pitches and related products (10%), refined tar (5%), and
other chemical and tar products (5%).

  The Company believes it has a strategic advantage over its competitors based
on its ability to access coal tar from many United States and foreign
suppliers and subsequently blend such coal tars to produce carbon pitch with
the consistent quality important in manufacturing quality anodes for the
aluminum industry. The Company's four 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. The Company also
benefits from its ability to refine chemical oil, a carbon pitch by-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 business.

  Koppers' sales volume of carbon pitch increased by 45% from 1993 to 1997 due
to improved aluminum market conditions and the acquisition of the Clairton,
Pennsylvania coal tar distillation facility in April 1996. Overall, pricing
has trended moderately upward from 1993 through December 31, 1997. 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 has
fluctuated historically with United States production of primary aluminum.
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 45% of the division's net sales
for 1997. The Company's three main competitors in North America in the
production of carbon pitch are AlliedSignal, Inc., VFT Canada, and Reilly
Industries, Inc.

                                       5
<PAGE>

  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. At December
31, 1997, orthoxylene prices were $0.18 per pound. Koppers' cost to produce
naphthalene and PAA is primarily driven by its cost to procure coal tar.
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 three
Class 1 railroad customers, all of which take delivery of the creosote at one
of Koppers' wood treating facilities. Over the last eight years, the Railroad
& Utility Products division 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. Principal
competitors in the creosote market are AlliedSignal, Inc. and Reilly
Industries, Inc.

  Coal tar is purchased from a number of outside sources as well as from the
Monessen Facility. Primary suppliers are Bethlehem Steel Corporation, LTV
Steel Company, Inc. ("LTV"), USX Corporation ("USX") and Wheeling-Pittsburgh
Steel Corporation. The Monessen Facility currently provides approximately 2%
of Koppers' coal tar. On an annual basis, Koppers distills approximately 150
million gallons of coal tar representing approximately 76% of designed
capacity.

  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.

  Koppers Australia and Tarconord are major regional producers of carbon pitch
and related products and are strategically important to the Company because
they enable the Company to access global markets for its carbon pitch and
related products.

RAILROAD & UTILITY PRODUCTS

  The Company markets treated wood products almost exclusively 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 15 wood treating plants and 13 pole distribution yards located
throughout the United States, and the Company also has one used crosstie
burning cogeneration plant. 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.

                                       6
<PAGE>

 Railroad Products & Services

  The Railroad Products & Services business supplies treated crossties and
other products and services to the United States railroad industry. Railroad
Products & Services' largest customer base is the Class 1 railroad market,
which buys 77% of all crossties produced in the United States. Koppers is also
expanding key relationships with the approximately 500 short-line and regional
rail lines. The railroad crosstie market is a mature market with approximately
15.2 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 39-foot track sections and affixing fastening devices at the
treating plant rather than field locations; removing debris from railroad
freight cars; and disposing of discarded ties in an environmentally safe
manner in high temperature boilers. In 1997, approximately 11% of Railroad
Products & Services' 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,
car cleaning and railroad tie disposal.

  The Company's top 10 railroad accounts, which comprised approximately 58% of
Railroad & Utility Products' net sales for 1997, are serviced through long-
term contracts ranging from one to twelve years on a requirements basis. CSX
Transportation, Inc. ("CSX") accounted for 18% of Railroad & Utility Products'
net sales for 1997 and has a five-year treating agreement with the Company,
expiring in December 2001, which calls for a minimum treating volume of 1.8
million crossties annually. Koppers' sales to the railroad industry 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 eight years, Railroad & Utility
Products 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 1997, an estimated 1.3 million concrete crossties, or
6% 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. This facility produced approximately 152,000 concrete
crossties in 1997, or 12% of the U.S. estimated concrete tie market. While the
cost of material and installation of a concrete tie is much 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 & Construction Products

  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

                                       7
<PAGE>

exclusively with creosote, the Company treats poles with a variety of
preservatives including pentachlorophenol ("Penta"), chromated copper arsenate
("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 with over 300 investor-owned
electric and telephone utilities and 1,800 smaller local utilities and Rural
Electric Associations ("REAs"). Approximately 2.4 million poles are purchased
annually. In 1996 and 1997, 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 for the
next several years.

  In 1997, pole products accounted for approximately one-third of Railroad &
Utility Products' net sales. Koppers' sales to its ten largest pole customers
accounted for approximately 8% of Railroad & Utility Products' net sales for
1997. 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, estimated by the Company to
consist of mostly regional, wood treating companies which typically operate
small to medium size plants and serve local clients.

COKE PRODUCTS

  Since the closing of the Woodward Facility in January 1998, the Company's
coke business consists of only the Monessen Facility, which produces furnace
coke. Koppers has made capital expenditures of approximately $25.0 million to
modernize the Monessen Facility since its purchase in 1995 for $5.0 million.
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.

  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.
In 1997, the approximate value of this tax credit per ton of coke was $26.00.
The credit is available through December 31, 2002 and provided tax benefits to
Koppers of approximately $9.0 million and $7.0 million in 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 may monetize some or all
of these tax credits.

  Koppers has a contract with LTV covering production at the Monessen
Facility. The contract is a seven-year contract through 2002 and is for
240,000 tons per year, plus or minus 10% at LTV's option, at prices subject to
periodic adjustments. In 1998, the Company expects LTV to take close to 100%
of the Monessen Facility's production capacity.

  Due to the advanced ages of the coke oven batteries, ongoing environmental
compliance issues and significant capital expenditure requirements, all of
which had combined to reduce productive capacity and increase per unit costs,
the Company's Board of Directors authorized the Company to close the Woodward
Facility in early 1998. This resulted in a charge to earnings in the fourth
quarter of 1997 of $39.9 million, approximately $9.4 million of which are
estimated to be 1998 cash charges primarily for dismantling and employee
benefit costs. Sales and gross profit at the Woodward Facility for the twelve
months ended December 31, 1997 amounted to $51.8 million and ($8.1) million,
respectively.

  Due to unanticipated disruptions in United States coke consumption during
1996, along with the increasing availability of lower-priced imported coke,
the current market for coke remains relatively soft.

                                       8
<PAGE>

KOPPERS AUSTRALIA

  Koppers Australia is a wholly-owned subsidiary of the Company and is
Australia's largest manufacturer of carbon pitch, carbon black, wood
preservatives and treated wood products, and markets these products in
Australia, New Zealand and other Pacific Rim nations. Koppers Australia is the
only coal tar distiller in Australia, providing it with a significant
competitive advantage in serving the Australian aluminum smelting industry.
Products and services provided by Koppers Australia's coal tar division are
similar to those provided by the Company's Carbon Materials & Chemicals
division, with the exception that Koppers Australia produces carbon black and
does not have PAA production capabilities (see "--Carbon Materials &
Chemicals").

  Operations in coal tar processing, chemically treated wood products, and
carbon black accounted for 36%, 17% and 19% of Koppers Australia's net sales,
respectively, for its fiscal year ended June 30, 1997. Koppers Australia also
has a 51% interest in a wood preservative chemicals company, Koppers-Hickson
Investments Pty. Limited ("Koppers-Hickson"), which accounts for the remaining
28% of net sales. Koppers Australia has operations in five countries, enjoys
sizable market shares in each of its businesses and is well-positioned to take
advantage of anticipated growth in the aluminum industries in Australia, China
and Southeast Asia. Koppers Australia has entered into a marketing agreement
with a carbon pitch producer located in the People's Republic of China to
export carbon pitch from China to world markets. The wood preservation
operations of Koppers Australia are generally pole-related and are similar to
those of the Company's Railroad & Utility Products division.

  Historical operating results for Koppers Australia for the past three fiscal
years are as follows (based on average month-end rates for income statement
items and end of period rates for balance sheet items):

<TABLE>
<CAPTION>
                                                  FISCAL YEARS ENDING JUNE 30,
                                                  -----------------------------
                                                     1997      1996      1995
                                                  --------- --------- ---------
                                                   (U.S. dollars in millions)
<S>                                               <C>       <C>       <C>
Operating revenue................................ $   134.0 $   132.6 $   116.5
Operating profit.................................      22.1      22.3      16.8
Net income.......................................      14.8      14.3      10.7
Minority interest included in net income.........       1.5       2.1       2.2
Current assets...................................      53.2      47.9      46.1
Total assets.....................................     127.0     113.9     105.2
Current liabilities..............................      22.0      22.8      19.7
Total liabilities................................      35.1      35.7      33.5
</TABLE>

EQUITY INVESTMENTS AND RELATED PARTIES

 Tarconord

  Tarconord, located in Nyborg, Denmark, 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.

  Tarconord markets its primary product, carbon pitch, to aluminum producers
in Norway, the Netherlands, the states of the former Soviet Union and northern
Germany. Coal tar supplies are primarily purchased from steel producers in
Scandinavia, Poland, the states of the former Soviet Union and Germany.
Tarconord has a strategic location with respect to its largest customer
country, Norway, where liquid pitch shipments move directly by ship from
Tarconord's tar distillation facility at Nyborg to Norwegian smelters located
at deep water sites.

  In 1996 Tarconord acquired 100% of the capital stock of Bitmac, a United
Kingdom company engaged in tar distillation. Bitmac operates four plants in
the United Kingdom, and management believes this acquisition has been
strategically important in strengthening raw material supply and distillation
capacity.

                                       9
<PAGE>

  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 three continents. Management believes that this global presence
represents a significant competitive advantage in serving multinational and
domestic aluminum manufacturers.

 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, 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 joint ventures for fiscal years
ended 1997, 1996 and 1995.

<TABLE>
<CAPTION>
                                                      YEARS ENDED DECEMBER 31,
                                                    ----------------------------
                                                       1997      1996     1995
                                                    --------- --------- --------
                                                     (U.S. dollars in millions)
<S>                                                 <C>       <C>       <C>
TARCONORD
  Total sales...................................... $   107.1 $   118.2 $   72.4
  Equity in earnings...............................       1.7       1.6      3.1
  Dividends received...............................       1.2       2.4      0.7
KSA
  Total sales...................................... $    13.2 $    15.6 $   14.8
  Equity in earnings...............................       1.2       1.5      1.1
  Dividends received...............................       1.3       1.0      1.5
</TABLE>

RESEARCH AND DEVELOPMENT

  As of December 31, 1997, 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 regarding products 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 fiscal 1997,
1996 and 1995 were $1.1 million, $1.0 million and $0.9 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 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 refuse burners, pitch quality controls (both in tar plants
and aluminum plants), wood preservatives and additives, and tar refining.

                                      10
<PAGE>

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"). 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.

  The Jefferson County Department of Health ("Jefferson County") issued a
notice of violation in March 1996 in connection with various alleged
violations of Jefferson County's air pollution control regulations for
emissions from coke oven batteries at the Company's Woodward Facility during
the period May 26, 1992 through March 1, 1996. On February 14, 1997 the United
States Environmental Protection Agency ("EPA") issued a notice of violation
covering the same issues that were raised in the Jefferson County notice of
violation. Thereafter, the Company discovered that certain benzene abatement
equipment at the Woodward Facility had not been operational for several
months. Following a preliminary investigation, the Company also discovered
that certain reports and records contained incomplete and inaccurate
information and that certain environmental reports and certifications were not
filed when required. The Company has notified Jefferson County, the State of
Alabama and the EPA of the environmental irregularities, and the environmental
reporting status of the Woodward Facility has been brought up to date by the
Company. Counsel and independent investigators were retained to conduct a
complete and thorough investigation; and the benzene abatement equipment had
been returned to service prior to the ceasing of operations in January 1998.
However, the Company could be subject to significant liability in connection
with these matters, including fines and civil and criminal penalties and the
risk of third-party lawsuits. The Company and Jefferson County have negotiated
a settlement agreement (the "Settlement Agreement") which would have required
the Company to install monitoring and control equipment and institute
operational changes; subsequent to the Settlement Agreement, the Company has
permanently shut down all coke oven batteries at the Woodward Facility. The
Settlement Agreement included both the original Jefferson County notice of
violation and the self-reported benzene abatement violations. The Settlement
Agreement, in addition to the changes listed above, also required the Company
to pay a civil penalty in the amount of $450,000 to Jefferson County, which
was paid in 1997. On February 9, 1998 Jefferson County proposed a modified
settlement agreement to address alleged air exceedences from August 1997
through January 1998 which includes an additional penalty in the amount of
$575,000. 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 settlement with
Jefferson County will deter the EPA from pursuing its notice of violation and
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.

  During the investigation of the Woodward Facility described above, it was
also discovered that certain environmental records and reports relating to
discharges of treated process water and treated storm water

                                      11
<PAGE>

contained incomplete and inaccurate information. Corrected reports have been
submitted to the State of Alabama and the EPA. While no notice of violation
has been issued in connection with this matter, it is believed likely that a
notice of violation will be issued and substantial penalties may be sought by
the State of Alabama or the EPA.

  Koppers was served with a notice of violation from the Pennsylvania
Department of Environmental Protection ("PADEP"), which alleged Koppers was
not in compliance with a plan approval issued by PADEP for the Monessen
Facility. The notice alleges that the Monessen Facility is emitting more
nitrogen oxides than is allowed by the plan approval. Koppers also received a
notice of violation in connection with a failure to conduct timely emission
testing on the boilers at the Monessen Facility. Koppers has installed
additional equipment and modified existing equipment to improve the quality of
boiler emissions. Resolution of these matters could have a material adverse
effect on the business, financial condition, cash flow and results of
operations of the Company. Koppers has submitted an amended plan approval
application to PADEP that provides for limitations on the operation of the two
boilers at the Monessen Facility. PADEP is currently reviewing this
application. As a result of the failure to meet the original nitrogen oxide
emission limitations, it is expected that PADEP will propose a civil penalty
in an amount of approximately $100,000. However, there can be no assurance
that a higher penalty will not be sought.

  On June 12, 1996 PADEP issued a notice of violation in connection with an
alleged noncompliance with the terms of a consent agreement between the
Company and PADEP regarding liability for environmental conditions existing at
the time the Company purchased the Monessen Facility ("Consent Agreement").
The notice of violation alleged that the Company had not implemented the
corrective actions required under the Consent Agreement in a timely fashion.
The Company has completed the implementation of the corrective actions at
issue and has settled this matter by payment of a fine in the amount of
$261,000 in January 1998.

  In June 1997, during a routine environmental compliance audit of the
Logansport, Louisiana wood treating facility, it was discovered that certain
records and reports relating to discharges 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. While no notice
of violation has been issued in conjunction with this issue, it is likely that
a notice of violation will be issued and substantial penalties will be sought
by the local municipality, the State of Louisiana or the EPA.

  For each of the last three fiscal years, the Company's average capital
expenditures and operating expenses for environmental matters, including
depreciation, amounted to approximately $7.0 million and $16.0 million,
respectively. The Company believes that environmental operating costs will not
change materially from those incurred during the past three years. The Company
currently estimates that capital expenditures in connection with matters
relating to environmental control will be approximately $6.9 million for 1998.
Because Environmental Laws have historically become increasingly 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 aforementioned notices of
violations. 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. 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

                                      12
<PAGE>

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 sheets, 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 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. The Indemnity provides
that, with certain limited exceptions, Beazer East will be responsible for and
will indemnify Koppers against any liability, damage, loss, cost, expense and
any related fine or penalty, including liabilities for personal injury to
employees resulting from exposure to toxic or hazardous substances, arising
under any federal, state or local Environmental Law in connection with any
condition or activity at the sites purchased or leased from Beazer East
existing on or prior to the Acquisition, provided that, within twelve years
after the Acquisition (December 29, 2000) Beazer East either receives a claim
asserted by Koppers or a third party or receives specific and particularized
notice of a condition or activity that may give rise to a claim and such a
claim is at any time actually brought. However, claims related to hazardous
substances that were both generated at facilities owned or operated prior to
the Acquisition and disposed of at third-party locations before the date of
the Acquisition do not have to be asserted or identified before the twelfth
anniversary. Also, Beazer East indemnifies Koppers for ninety percent (90%) of
claims in excess of $100,000 in any year that are related to disposal of
contaminated soil generated as a result of a voluntary decision by Koppers. In
regard to personal injury environmental claims asserted by an employee
alleging exposure to toxic substances in the workplace, such claims are
allocated between Beazer East and Koppers according to how many months the
employee making the claim worked for each entity.

  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.

  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.

  In the event that Beazer East and Beazer Limited do not continue to fulfill
their commitments under the Indemnity and the Guarantee, Koppers may be
required to pay costs covered by the Indemnity. Koppers has been informed by
Beazer East that for the last three years, amounts paid by Beazer East under
the Indemnity have averaged approximately $14.0 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 Koppers were required to record a
liability regarding environmental matters covered by the Indemnity on its
balance sheets, the result could be that Koppers would have significant
negative net worth.

                                      13
<PAGE>

  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 the summer of 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 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 $135,000, and that identified third
parties are responsible for the remaining $18.1 million. 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 it 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 operation of the
Company.

  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"). U.S. Steel Group 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
environnmental 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
$500,000. Prior to Koppers' purchase of the tar distillation facility,
Aristech had made payments of approximately $175,000 under the USX indemnity
agreement. To date, Koppers has not made any payments

                                      14
<PAGE>

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 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. If contamination at the Monessen
Facility should be discovered which has not been identified pursuant to the a
consent order and agreement with the EPA (the "Monessen Consent Order"), or if
the EPA should require cleanup above the $550,000 "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 has made other asset acquisitions that involved 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.

  From time to time, Koppers is served with notices of violation and requests
for information relating to environmental compliance matters at the various
facilities it owns and operates. In November 1996, Koppers received an
information request from the EPA in regard to water discharges from its
facilities. Subsequent to this initial request, Koppers has received two
additional information requests from the EPA. The initial request, the first
supplemental request and the second supplemental request have been answered.
While the EPA has not issued a notice of violation in connection with these
requests, there can be no assurance that civil penalties or the requirement to
expend capital resources will not arise.

  In September 1996, the Company was served with a notice of violation from
the Illinois Environmental Protection Agency ("IEPA") relating to 16 releases
of hazardous materials which occurred at or from its facility located in
Stickney, Illinois between January 24, 1990 and May 3, 1996. The Company has
entered into negotiations with the IEPA to investigate four of the releases
which had the potential to cause groundwater contamination. Although the
Company believes that all such releases were remediated when they occurred,
there can be no assurances that the IEPA will not require additional action in
connection with this matter.

  In addition to the environmental issues discussed above, the Company has
received or expects to receive notices of violations and requests for
information at its Monessen Facility and the Stickney, Illinois and
Follansbee, West Virginia tar distillation and chemicals facilities that
relate to matters which the Company does not believe will have a material
impact on the business, financial condition, cash flow and results of
operations of the Company.

  On occasion, Koppers Australia has been served with notices relating to
environmental compliance issues arising in connection with its operations.
Koppers Australia was 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. Koppers Australia is currently in negotiations with the DELM
with respect to this issue. In addition, historic operations conducted at the
Koppers

                                      15
<PAGE>

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, 1998, the Company employed 661 salaried employees and
1,329 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............................   134       293     427
Railroad & Utility Products.............................   214       594     808
Coke Products...........................................    58       227     285
Koppers Australia.......................................   173       209     382
Administration..........................................    82         6      88
                                                           ---     -----   -----
  Total Employees.......................................   661     1,329   1,990
                                                           ===     =====   =====
</TABLE>

  Of the Company's 1,990 employees, approximately 1,200 are represented by 17
different unions and covered under 29 separate labor contracts. The United
Steelworkers of America, covering workers at six facilities, accounts for the
largest membership with more than 500 employees. Another significant
affiliation is the Oil, Chemical, and Atomic Workers Union, with approximately
300 employees at four facilities. Labor negotiations are conducted on a plant-
by-plant basis and approximately one-fourth of the outstanding contracts are
renegotiated in any one year.

  In the last five years, the Company has had three work stoppages due to
strikes at its Follansbee, Somerville and Galesburg facilities. The Follansbee
strike occurred in November 1993 and the Somerville and Galesburg strikes
occurred in March 1996. In each instance, the Company was able to continue
operation of the respective facilities at approximately 85% of capacity and to
reach agreement with each of the unions on terms satisfactory to the Company.
There can be no assurance that the Company would be able to continue operating
facilities in the event of further work stoppages or union disputes in the
future.

                                      16
<PAGE>

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 five Carbon Materials & Chemicals
facilities, 15 wood treating facilities, 14 facilities in the South Pacific
and the Monessen Facility. See "--Carbon Materials & Chemicals," "--Railroad &
Utility Products," "--Coke Products" and "--Koppers Australia." As of December
31, 1997, vehicles and equipment represented approximately 31% of the
Company's total assets, as reflected in its consolidated balance sheet. The
following chart sets forth information regarding the Company's facilities:

<TABLE>
<CAPTION>
                                                                                      DESCRIPTION OF
DIVISION/PLANT                                      LOCATION              ACREAGE    PROPERTY INTEREST
--------------                                      --------              ------- -----------------------
<S>                                     <C>                               <C>     <C>
CARBON MATERIALS & CHEMICALS
Clairton                                Clairton, PA                         17            Owned
Follansbee                              Follansbee, WV                       32            Owned
Portland                                Portland, OR                          6   Leased through 12/31/98
Stickney                                Cicero, IL                           38            Owned
Woodward                                Dolomite, AL                         23            Owned
RAILROAD & UTILITY PRODUCTS
Denver                                  Denver, CO                            5            Owned
Feather River                           Oroville, CA                        156            Owned
Florence                                Florence, SC                        200            Owned
Gainesville                             Gainesville, FL                      86            Owned
Galesburg                               S. Galesburg, IL                    125     Leased year to year
Green Spring                            Green Spring, WV                     98            Owned
Grenada                                 Tie Plant, MS                       154            Owned
Guthrie                                 Guthrie, KY                         122            Owned
Logansport                              Logansport, LA                       30            Owned
Montgomery                              Montgomery, AL                       84            Owned
North Little Rock                       N. Little Rock, AR                  148            Owned
Roanoke Valley                          Salem, VA                            91            Owned
Somerville                              Somerville, TX                      244            Owned
Superior                                Superior, WI                        120            Owned
Susquehanna                             Montgomery, PA                      109            Owned
COKE PRODUCTS
Monessen                                Monessen, PA                         45            Owned
KOPPERS AUSTRALIA
Koppers-Hickson                         Trentham, Victoria                   24            Owned
                                        Auckland, New Zealand               1.3           Leased
                                        Penang, Malaysia                      3           Leased
                                        Fiji                                 .7            Owned
                                        South Africa                         .3           Leased
Koppers Timber Preservation             Bunbury, West Australia            13.7           Leased
                                        Grafton, New South Wales            100            Owned
                                        Hume, Australia Capital Territory    50           Leased
                                        Longford, Tasmania                 16.5            Owned
                                        Rockhampton, Queensland             3.5           Leased
                                        Takura, Queensland                   79           Leased
                                        Thorton, New South Wales             15            Owned
Koppers Coal Tar Products               Mayfield, New South Wales            26            Owned
Continental Carbon Australia Pty. Ltd.  Kurnell, New South Wales             20           Leased
</TABLE>

                                      17
<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

  Jefferson County issued a notice of violation on March 11, 1996 in
connection with various alleged violations of Jefferson County's air pollution
control rules and regulations for emissions from coke oven batteries at
Koppers' Woodward Facility. On February 14, 1997, the EPA sent a notice of
violation to Koppers that covered the same issues identified in the Jefferson
County notice of violation. Koppers has entered into a settlement agreement
with Jefferson County which resulted in a payment of $450,000 by the Company
in 1997. On February 9, 1998 Jefferson County proposed a modified settlement
agreement to address alleged air exceedences from August 1997 through January
1998 which includes an additional penalty in the amount of $575,000; however,
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."

  Koppers was served with a notice of violation from PADEP, which alleged
Koppers was not in compliance with a plan approval issued by PADEP for the
Monessen Facility. The notice alleges that the Monessen Facility is emitting
more nitrogen oxides than is allowed by the plan approval. Koppers also
received a notice of violation in connection with a failure to conduct timely
emission monitoring testing on the boilers at the facility. Koppers has
installed additional equipment and modified existing equipment to improve the
quality of boiler emissions. Resolution of these matters could have a negative
effect on the business, financial condition, cash flow and results of
operations of the Company. Koppers has submitted an amended plan approval
application to PADEP that provides for limitations on the operation of the two
boilers at the Monessen Facility. PADEP is currently reviewing this
application. As a result of the failure to meet the original nitrogen oxide
emission limitations, it is expected that PADEP will propose a civil penalty
in an amount of approximately $100,000. See "Business--Environmental Matters."

  On June 12, 1996, PADEP issued a notice of violation in connection with an
alleged noncompliance with the terms of a Consent Agreement between the
Company and PADEP regarding liability for environmental conditions existing at
the time Koppers purchased the Monessen Facility. The notice of violation
alleged that Koppers had not implemented the corrective actions required under
the Consent Agreement in a timely fashion. PADEP has calculated a stipulated
penalty in the amount of $261,000, which was paid in January 1998. 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

  A meeting of the shareholders of the Company was held on November 13, 1997
at the corporate offices of the Company. The shareholders unanimously elected
Christian L. Oberbeck to serve on the Board of Directors of the Company;
Robert K. Wagner, Brooks C. Wilson, N. H. Prater, and Clayton A. Sweeney were
the continuing Directors.

                                      18
<PAGE>

                                    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, 1998 the Company had 1,706,014 shares of Common Stock $.01
par value outstanding. All of the Common Stock was owned by 118 Management
Investors. 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 December 1, 1997 (as amended, the "New
Stockholders' Agreement"). See "Directors and Officers of the Registrant--New
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.

                                      19
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                          YEARS ENDED DECEMBER 31,
                                ----------------------------------------------
                                  1997      1996      1995     1994     1993
                                --------  --------  -------- -------- --------
                                  (In thousands, except per share figures)
<S>                             <C>       <C>       <C>      <C>      <C>
INCOME STATEMENT DATA:
Net Sales.....................  $593,060  $588,544  $525,730 $476,448 $461,219
  Cost of sales...............   501,349   496,062   440,746  407,533  397,131
  Depreciation and
   amortization (1)...........    23,507    21,793    17,532   16,680   19,425
  Selling, general and
   administrative.............    28,068    27,545    27,604   24,068   19,559
  Restructuring charges (2)...    45,424    15,513        --    2,458       --
                                --------  --------  -------- -------- --------
Operating profit..............    (5,288)   27,631    39,848   25,709   25,104
Equity in earnings of
 affiliates...................     5,318     9,587     9,239    5,314    4,578
Other income (expense) (3)....    (1,414)  (12,623)      376      531      468
Interest expense..............    17,251    16,636    15,060   13,620   13,177
                                --------  --------  -------- -------- --------
Income (loss) before taxes....   (18,635)    7,959    34,403   17,934   16,973
Income taxes (benefit)........   (19,674)   (6,139)    9,963    5,017    6,508
                                --------  --------  -------- -------- --------
Income before extraordinary
 item and cumulative effect of
 changes in accounting
 methods......................     1,039    14,098    24,440   12,917   10,465
Net income (loss) (4).........    (5,657)   14,098    24,440   11,102    4,748
Payment-in-kind dividends on
 preferred stock..............        --        --        --      944    7,242
                                --------  --------  -------- -------- --------
Net income (loss) to common
 stock........................  $ (5,657) $ 14,098  $ 24,440 $ 10,158 $ (2,494)
Earnings per share of common
 stock before extraordinary
 item and cumulative effect of
 changes in accounting
 methods:
Basic earnings (loss) per
 share of common stock (5)....  $   0.17  $   1.54  $   3.18 $   2.16 $   0.57
                                ========  ========  ======== ======== ========
Diluted earnings (loss) per
 share of common stock........  $   0.12  $   1.47  $   2.36 $   1.13 $   0.32
                                ========  ========  ======== ======== ========
Earnings (loss) per share of
 common stock:
Basic earnings (loss) per
 share of common stock........  $  (0.92) $   1.54  $   3.18 $   1.83 $  (0.44)
                                ========  ========  ======== ======== ========
Diluted earnings (loss) per
 share of common stock........  $  (0.65) $   1.47  $   2.36 $   0.96 $  (0.25)
                                ========  ========  ======== ======== ========
Cash dividends per common
 share........................  $   0.26  $   0.34  $   0.25 $     -- $     --
BALANCE SHEET DATA (END OF
 PERIOD):
Working capital...............  $109,200  $ 77,688  $ 80,095 $ 79,078 $ 83,856
Total assets..................   500,175   411,180   348,955  294,193  282,520
Total debt (6)................   320,655   209,884   174,000  159,000  113,461
Preferred stock (7)...........        21        --       260      260   52,768
Redeemable common stock (8)...    26,355    23,957    23,715   15,450      800
Common equity.................   (14,579)   54,106    54,255   36,490   36,864
</TABLE>
--------
(1) The 1994 results reflect a $1.4 million reduction in depreciation expense
    for change in estimate of useful lives of certain assets effective July 1,
    1994. See Note 1 of the Notes to Consolidated Financial Statements of the
    Company.

(2) The 1997 results reflect $45.4 million of restructuring charges comprised
    of $39.9 million related to the closure of the Woodward Facility, and $5.5
    million related to the Feather River, California co-generation and
    treating plant. The 1996 results reflect $7.4 million of plant closing
    charges, 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 the Woodward Facility, and $2.6
    million of severance charges for salaried employees as a result of
    workforce reductions at various locations. The 1994 results reflect
    severance

                                      20
<PAGE>

    charges for salaried employees as a result of workforce reductions at
    various locations. See Note 2 of the Notes to Consolidated Financial
    Statements of the Company.

(3) 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.

(4) Net income for 1997 and 1994 include extraordinary losses on early
    extinguishments of debt, net of tax, of $6.6 million and $1.8 million,
    respectively. See Note 5 of the Notes to Consolidated Financial Statements
    of the Company. Net income for 1993 includes effects of SFAS No. 106,
    "Employers' Accounting for Postretirement Benefits Other Than Pensions" of
    $(5.2 million) net of tax, and SFAS No. 109, "Accounting for Income Taxes"
    of $(0.5 million).

(5) Earnings per share amounts prior to 1997 have been restated as required to
    comply with Statement of Financial Accounting Standards No. 128, Earnings
    Per Share. For further information regarding earnings per share and the
    impact of Statement No. 128, see Notes 1 and 10 of the Notes to
    Consolidated Financial Statements of the Company.

(6) 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).

(7) On December 1, 1997 the Company converted 2,117,952 shares of voting
    Common Stock and 27,672 shares of non-voting Common Stock held by Saratoga
    into 2,145,624 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 Koppers Industries, Inc. 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 of the Company which had been issued
    at the inception of the Company.

(8) 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.

                                      21
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

  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 three businesses prior to the acquisition of
Koppers Australia: Carbon Materials & Chemicals, Railroad & Utility Products
and Coke Products.

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,
                                                ------------------------------
                                                  1997       1996       1995
                                                --------   --------   --------
<S>                                             <C>        <C>        <C>
NET SALES (In thousands):
  Carbon Materials & Chemicals................. $241,148   $239,298   $197,434
  Railroad & Utility Products..................  255,204    239,913    248,212
  Coke Products................................   96,708    109,333     80,084
                                                --------   --------   --------
    Total...................................... $593,060   $588,544   $525,730
                                                ========   ========   ========
SEGMENT SALES AS PERCENTAGE OF TOTAL:
  Carbon Materials & Chemicals.................     40.7%      40.7%      37.6%
  Railroad & Utility Products..................     43.0%      40.8%      47.2%
  Coke Products................................     16.3%      18.5%      15.2%
                                                --------   --------   --------
    Total......................................    100.0%     100.0%     100.0%
GROSS MARGIN BY SEGMENT (AFTER DEPRECIATION):
  Carbon Materials & Chemicals.................     18.5%      17.0%      18.0%
  Railroad & Utility Products..................     11.1%      10.9%      12.4%
  Coke Products................................     (3.6)%      4.6%       2.5%
                                                --------   --------   --------
    Total......................................     11.5%      12.0%      12.8%
OPERATING MARGIN BY SEGMENT:
  Carbon Materials & Chemicals.................     15.1%      10.3%      13.9%
  Railroad & Utility Products..................      6.1%       7.0%       9.1%
  Coke Products................................    (47.5)%     (3.2)%      0.0%
  Corporate Unallocated Overhead...............     (1.9)%     (1.7)%     (1.9)%
                                                --------   --------   --------
    Total......................................     (0.9)%      4.7%       7.6%
</TABLE>

 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 0.8% higher
than in 1996. Net sales for Carbon Materials & Chemicals increased by 0.8% due
primarily to increases in volumes and prices for PAA of 18.2% and 6.2%,
respectively. The increase in net sales of 6.4% 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
Coke Products decreased by 11.5% due to lower production and shipments
primarily as the result of capacity rationalization at the Woodward Facility.

  GROSS PROFIT AFTER DEPRECIATION. As a percent of net sales, gross profit
after depreciation decreased to 11.5% for the year ended December 31, 1997
from 12.0% last year. Gross margin for Carbon Materials & Chemicals increased
to 18.5% from 17.0% in the prior year primarily as the result of increases in
volumes and pricing of PAA in 1997 as noted above. Gross margin for Railroad &
Utility Products increased to 11.1% from 10.9% in the prior year primarily as
the result of higher revenues for railroad crossties. Gross margin for Coke
Products decreased to (3.6%) from 4.6% due to higher unit costs incurred as
the result of reduced production at the Woodward Facility, coupled with costs
associated with unusual returns and credits issued to customers.

                                      22
<PAGE>

  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 for the year ended December 31, 1997 amounted to 4.7%
of net sales, which 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.

  RESTRUCTURING CHARGES. Restructuring charges for 1997 included $39.9 million
related to the closing of the Woodward Facility and $5.5 million related to
the closing of the co-generation 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 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 the
Woodward Facility 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 $4.3 million 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 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 effective income tax rate for the year ended December 31,
1997 was (80.1)% as compared to (77.1)% in the prior year period due to
restructuring charges in 1997 and restructuring and litigation charges in
1996, coupled with the utilization of $9.0 million and $7.0 million of energy
tax credits from the Monessen Facility in 1997 and 1996, respectively. The
credit is based on its production of coke as a non-conventional fuel source
and the sale thereof to unrelated third parties. The credit is available
through December 31, 2002 and, based on current production levels at the
Monessen Facility, could provide up to a maximum $10.4 million of tax credits
annually, unadjusted for inflation and assuming full production at the
Monessen Facility. Use of the tax credits is limited to the availability of
taxable income.

  NET INCOME. Net income for the year ended December 31, 1997 as compared to
the prior year decreased by $19.7 million 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.

 Comparison of Results of Operations for the Years Ended December 31, 1996 and
 1995.

  NET SALES. Net sales for the year ended December 31, 1996 were 11.9% higher
than the same period in 1995, due primarily to the effect of acquisitions in
the Carbon Materials & Chemicals and Coke Products businesses. Net sales for
Carbon Materials & Chemicals increased by 21.2% due primarily to sales of
approximately $44 million from the Clairton facility acquired April 1, 1996.
The effect of the acquisition was offset to some extent by a net reduction in
PAA sales due to a 31.9% reduction in average PAA prices. Net sales for
Railroad & Utility Products decreased by 3.3% due to a 12.2% reduction in
sales volumes for utility poles as a result of public utility deregulation and
its impact on maintenance programs and due to disruptions in shipments as a
result of severe weather conditions in the first quarter of 1996. Net sales
for Coke Products increased by 36.5% due primarily to sales of approximately
$44 million from the Monessen Facility in its first full year of operation.
This increase was offset to some extent by a 10.6% reduction in sales at the
Woodward Facility resulting primarily from suspensions of shipments to U.S.
Steel Group, a unit of USX Corporation, (due to an

                                      23
<PAGE>

explosion at one of their blast furnaces) and McLouth Steel Products Corp.
(due to its filing of a bankruptcy petition and its cessation of business) in
1996, as well as reduced production in the first quarter of 1996 as a result
of severe weather conditions.

  GROSS PROFIT AFTER DEPRECIATION. As a percent of net sales, gross profit
after depreciation decreased to 12.0% for the year ended December 31, 1996
from 12.8% for the prior year. Gross margin decreased to 17.0% from 18.0% for
Carbon Materials & Chemicals and to 10.9% from 12.4% for Railroad & Utility
Products, while gross margin for Coke Products increased to 4.6% from 2.5%.
The decrease for Carbon Materials & Chemicals was due to a 31.9% reduction in
PAA prices, which more than offset the positive margin effect of the Clairton
acquisition. The decrease in gross profit for Railroad & Utility Products was
due to higher unit costs for utility poles as a result of a 12.2% decline in
sales volumes and $0.6 million of costs associated with labor disruptions and
increased operating expenses as a result of severe winter weather in the first
quarter of 1996. The increase for Coke Products was due primarily to higher
coke prices of 2.8% coupled with higher volumes of 33.2%, as an increase in
volumes due to a full twelve months of operations at the Monessen Facility was
partially offset by volume reductions at the Woodward Facility.

  DEPRECIATION AND AMORTIZATION. The increase in depreciation and amortization
for 1996 as compared to the prior year was due primarily to the acquisition of
the Clairton tar distillation facility in April 1996, and the Monessen
Facility which started production in November 1995.

  SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for 1996 decreased to 4.7% of net sales from 5.3% of
net sales in the prior year, primarily due to a reduction in management
incentive accruals.

  RESTRUCTURING CHARGES. Restructuring charges 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 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 the
Woodward Facility primarily included property and equipment write-downs.
Severance charges totaling $2.6 million were incurred as a result of workforce
reductions of approximately 90 salaried employees at various field locations
and at corporate headquarters.

  EQUITY IN EARNINGS OF AFFILIATES. Equity in earnings of affiliates increased
to $9.6 million for 1996 from $9.2 million in the prior year as higher
earnings from Koppers Australia and KSA (as defined herein) were partially
offset by lower earnings from Tarconord as a result of weaker European market
conditions.

  LITIGATION CHARGES. Litigation charges for 1996 consisted of a $10.1 million
charge related to the OCF Settlement and a $2.5 million legal settlement
payment to CSX.

  INTEREST EXPENSE. Interest expense increased $1.6 million for 1996 compared
to the prior year primarily as a result of the additional $40.0 million in
indebtedness to finance the acquisition of the Clairton facility.

  INCOME TAXES. The effective income tax rate for 1996 was a benefit of
(77.1)% as compared to an effective rate of 29.0% in the prior year as a
result of lower pretax earnings in 1996 coupled with the utilization of a 1996
energy tax credit for the Monessen Facility.

  NET INCOME. Net income for 1996 as compared to the prior year decreased by
$10.3 million primarily as a result of $15.5 million of restructuring charges
and $12.6 million of litigation charges. These charges were offset in part by
lower tax expense of $16.1 million in 1996 as compared to the prior year.
Earnings from the recently acquired Monessen Facility and the Clairton
facility were offset by lower PAA prices and the suspension of coke shipments
to U.S. Steel Group and McLouth Steel Products Corp. for the reasons
indicated.


                                      24
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

  The Company's liquidity needs are primarily for debt service and capital
maintenance. 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, 1997 the Company had $92.7 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, 1997, $9.0 million of commitments were utilized by
outstanding standby letters of credit.

  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 and are being used to complete the following transactions: (i) the
acquisition of The 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 tendered
pursuant to a tender offer and consent solicitation which was commenced
October 20, 1997 and which expired on November 28, 1997 (the "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 (the "Bank Debt Refinancing"); (iv)
the redemption of 1,813,200 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 up to 25% of the shares of common
stock owned by the current officers of Koppers and Clayton A. Sweeney (a
member of the Board of Directors) and the redemption of up to 100% of the
shares of Common Stock owned by other Management Investors, in an aggregate
amount not to exceed $15.0 million; (vi) the redemption of 436,508 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, $26.0
million of which was outstanding at December 31, 1997 and a $65.0 million Term
Loan B, all of which was outstanding at December 31, 1997. The term loans and
the revolving credit facility under the New Credit Facilities provide for
interest at variable rates. At December 31, 1997 the effective rates on the
term loans were 7.69% for Term Loan A, 8.19% for Term Loan B and 5.27% for the
Australian term loan.

  Substantially all of the Company's assets, including the assets of any
significant subsidiary, 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, 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 $63.2 million for the year
ended December 31, 1997, compared to $44.7 million for the same period last
year, as lower earnings and higher deferred taxes in 1997 were more than
offset by higher dividends from affiliated companies, higher restructuring
reserves and lower working capital requirements in 1997 as compared to the
prior year.

  Capital expenditures for the Company were $19.8 million for 1997 versus
$21.7 million (excluding acquisitions for both years) for the same period last
year, with the decrease in 1997 due primarily to significant 1996 capital
improvements at the Stickney PAA plant and the Monessen Facility. In April
1996, Koppers

                                      25
<PAGE>

purchased the coal chemical business of Aristech Chemical Corporation
("Aristech") located in Clairton, Pennsylvania for approximately $40.0 million
cash and the assumption of certain liabilities. See Note 4 of the Notes to
Consolidated Financial Statements of the Company.

  For the year ended December 31, 1998 the Company anticipates capital
expenditures of $25.0 million. This amount includes environmental capital
expenditures of $6.9 million, with the remaining amount for capital
maintenance and improvements.

  Financing activities provided $8.2 million in cash for the year ended
December 31, 1997 compared to providing $16.1 million for the same period last
year. 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 the acquisition of Koppers Australia; and iv)
$6.4 million of premium payments related to the redemption of the 8 1/2%
Senior Notes due 2004. Cash supplied by financing activities in 1996 was
largely the result of the $35.0 million term loan for the Clairton acquisition
coupled with a net increase of $14.0 million in the revolving credit facility,
used in part to provide for a $14.0 million term loan repayment and a $12.3
million purchase of non-voting Common Stock of the Company. See Note 6 of the
Notes to Consolidated Financial Statements of the Company.

  In 1997, the Company paid three quarterly dividends totaling $2.3 million.

  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.

  Subsequent Events. The remaining 906,600 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. In addition, in January
1998 Saratoga purchased 142,857 Preferred Shares for a price of $14.00 per
share. The Company is offering to redeem, at $17.00 per share, up to 25% of
the shares of common stock owned by the current officers of Koppers and
Clayton A. Sweeney, and up to 100% of the shares of Common Stock owned by
other Management Investors, in an aggregate amount not exceeding $15.0
million. Additionally, all salaried employees of the Company may purchase
Common Stock of the Company at the price of $14.00 per share. Management
Investors may redeem shares at $17.00 or purchase shares at $14.00, but may
not do both simultaneously. The results of the redemption and purchase offers
will be known in early April 1998. The New Stockholders' Agreement provides
for stock redemptions of up to 5% of each stockholders' 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.

  Restructuring Charges. Restructuring charges of $45.4 million for 1997
consisted of approximately $24.4 million of cash charges, $11.4 million of
which are expected to be incurred in 1998. The remaining cash charges are
primarily for pension and postretirement benefits. Working capital reductions
at the Woodward Facility are expected to generate approximately $6.4 million
of cash flow in 1998, reducing the estimated 1998 net cash outlays from
restructuring charges to $5.0 million. Restructuring charges for 1996
consisted of $11.4 million and $4.1 million of cash and non-cash charges,
respectively. At December 31, 1997, none of the cash charges for the 1997
restructuring and substantially all of the cash charges for the 1996
restructuring had been expended.

  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 many 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.


                                      26
<PAGE>

  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 completed an assessment and will have to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. The total Year 2000
project cost is estimated at approximately $3.0 million (including Koppers
Australia), the majority of which is expected to be expensed when incurred. To
date, the Company has incurred and expensed approximately $0.2 million,
primarily for assessment of the Year 2000 issue and the development of a
modification plan.

  The project is estimated to be completed by March 31, 1999, which is prior
to any anticipated impact on its operating systems. 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
modifications and conversions are not made, or are not completed on a timely
basis, the Year 2000 Issue could have a material impact on the operations of
the Company.

  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' failure 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 an adverse effect on the Company's systems.

  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.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

  In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share", and Statement No. 129, "Disclosure of Information About
Capital Structure". Statement No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported earnings per
share for the Company. All earnings per share amounts for all periods have
been presented, and where appropriate, restated to conform to Statement No.
128 requirements. Statement No. 129 requires disclosures about an entity's
capital structure including liquidation preferences of preferred stock,
information about the pertinent rights and privileges of the outstanding
equity securities, and the redemption amounts for all issues of capital stock
that are redeemable at fixed or determinable prices on fixed or determinable
dates. The Company has complied with all of the disclosure requirements of
Statement No. 129.

  The following statements have been issued during 1997 and are effective for
fiscal years beginning after December 15, 1997:

  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.


                                      27
<PAGE>

  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 does not expect the effect of adoption of these statements to be
material.

ENVIRONMENTAL MATTERS

  Like companies involved in similar environmentally sensitive businesses, the
Company's operations and properties are subject to extensive 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.

  Jefferson County issued a notice of violation in March 1996 in connection
with various alleged violations of Jefferson County's air pollution control
regulations for emissions from coke oven batteries at the Company's Woodward
Facility during the period May 26, 1992 through March 1, 1996. On February 14,
1997 the EPA issued a notice of violation covering the same issues that were
raised in the Jefferson County notice of violation. Thereafter, the Company
discovered that certain benzene abatement equipment at the Woodward Facility
had not been operational for several months. Following a preliminary
investigation, the Company also discovered that certain environmental reports
and records contained incomplete and inaccurate information and that certain
environmental reports and certifications were not filed when required. The
Company has notified Jefferson County, the State of Alabama and the EPA of the
environmental irregularities, and the environmental reporting status of the
Woodward Facility has been brought up to date by the Company. Counsel and
independent investigators were retained to conduct a complete and thorough
investigation; and the benzene abatement equipment had been returned to
service prior to the ceasing of operations in January 1998. However, the
Company could be subject to significant liability in connection with these
matters, including fines and civil and criminal penalties and the risk of
third-party lawsuits. The Company and Jefferson County have negotiated a
settlement agreement (the "Settlement Agreement") which would have required
the Company to install monitoring and control equipment and institute
operational changes; subsequent to the Settlement Agreement, the Company has
permanently shut down all coke oven batteries at the Woodward Facility. The
Settlement Agreement included both the original Jefferson County notice of
violation and the self-reported benzene abatement violations. The Settlement
Agreement, in addition to the changes listed above, also required the Company
to pay a civil penalty in the amount of $450,000 to Jefferson County, which
was paid in 1997. On February 9, 1998 Jefferson County proposed a modified
settlement agreement to address alleged air exceedences from August 1997
through January 1998 which includes an additional penalty in the amount of
$575,000. 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 settlement with
Jefferson County will deter the EPA from pursuing its notice of violation and
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.

  During the investigation of the Woodward Facility described above, it was
also discovered that certain environmental records and reports relating to
discharges of treated process water and treated storm water

                                      28
<PAGE>

contained incomplete and inaccurate information. Corrected reports have been
submitted to the State of Alabama and the EPA. While no notice of violation
has been issued in connection with this matter, it is believed likely that a
notice of violation will be issued and substantial penalties may be sought by
the State of Alabama or the EPA.

  PADEP previously issued a notice of violation alleging that the boilers at
the Monessen Facility are emitting greater quantities of nitrogen oxides than
allowed under a plan approved by PADEP. The Company also received a notice of
violation in connection with a failure to conduct timely emission monitoring
testing on the boilers at the Monessen Facility. The Company has installed
additional equipment and modified existing equipment to improve the quality of
boiler emissions. Resolution of these matters could have a negative effect on
the business, financial condition, cash flow and results of operations of the
Company. The Company has submitted an amended plan approval application to
PADEP that provides for limitations on the operation of the two boilers at the
Monessen Facility. PADEP is currently reviewing this application. As a result
of the failure to meet the original nitrogen oxide emission limitations, it is
expected that PADEP will propose a civil penalty in an amount of approximately
$100,000. However, there can be no assurance that a higher penalty will not be
sought.

  On June 12, 1996 PADEP issued a notice of violation in connection with an
alleged noncompliance with the terms of a consent agreement between the
Company and PADEP regarding liability for environmental conditions existing at
the time the Company purchased the Monessen Facility ("Consent Agreement").
The notice of violation alleged that the Company had not implemented the
corrective actions required under the Consent Agreement in a timely fashion.
The Company has completed the implementation of the corrective actions at
issue and has settled this matter by payment of a fine in the amount of
$261,000 in January 1998.

  For each of the last three fiscal years, the Company's average capital
expenditures and operating expenses for environmental matters, including
depreciation, amounted to approximately $7.0 million and $16.0 million,
respectively. The Company believes that environmental operating costs as a
percentage of total operating costs will not change materially from those
incurred during the past three years. The Company currently estimates that
capital expenditures in connection with matters relating to environmental
control will be approximately $6.9 million for 1998. Because Environmental
Laws have historically become increasingly 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 aforementioned notices of violations. 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 Company's business, financial condition, cash flow and results
of operations.

  Under the terms of the Asset Purchase Agreement between Koppers Industries,
Inc. and Old Koppers (now known as Beazer East, Inc.) at the formation of the
Company 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 in the Indemnity. Beazer East's
performance of the Indemnity is unconditionally guaranteed by Beazer Limited
under the Guarantee. Contamination identified at sites owned and/or operated
by Koppers is being investigated and remediated under CERCLA, RCRA or state
cleanup programs. Currently, at the sites acquired from Beazer East (which
include all of the CERCLA sites and all but one of the RCRA sites),
substantially all investigation and remediation activities are being conducted
and paid for by Beazer East pursuant to the terms of the Indemnity; however,
there can be no assurance that Beazer East and Beazer Limited will continue to
meet their obligations. In the event they do not, Koppers may be required to
pay such costs which are believed to have averaged approximately $14.0 million
per year for the last three years. In addition, the government and other third
parties have the right under applicable Environmental Laws to seek relief
directly from Koppers for any and all such costs and liabilities. The
requirements to pay such costs and assume such liabilities without
reimbursement would have a material adverse affect 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

                                      29
<PAGE>

matters covered by the Indemnity on its balance sheets, the result could be
that the Company would have significant negative net worth.

  The Indemnity does not afford Koppers indemnification against environmental
costs and liabilities relating to activities or conditions occurring or
arising after the Acquisition, nor is the Indemnity applicable to liabilities
arising in connection with post-closing acquisitions. At the Clairton
facility, the Somerville facility and the Monessen Facility (each of which
Koppers acquired subsequent to the acquisition of the Beazer East sites),
investigations and remediations are being performed. All applicable
indemnification obligations are being honored at the Clairton and Somerville
facilities and Koppers believes that the sellers (or their predecessors) at
both of these facilities will continue to conduct and finance most activities
directly. Although the Company is not aware of any reason why such
environmental indemnification obligations will not be performed, if Koppers
were required to pay costs associated with these two sites, it could have a
material adverse effect on the Company's business, financial condition, cash
flow and results of operations. At the Monessen Facility, Koppers has entered
into the Monessen Consent Order with PADEP pursuant to which Koppers'
liabilities for environmental cleanup have been capped at $550,000 for matters
identified pursuant to the Monessen Consent Order. Although an environmental
indemnification was provided to Koppers 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 is not
identified pursuant to the Monessen Consent Order or if the EPA should require
cleanup above the $550,000 "cap" contained therein, costs associated with such
events could have a material adverse effect on the Company's business,
financial position, cash flow and results of operations. See "Business--
Environmental Matters."

OTHER MATTERS

  As a result of an internal investigation, the Company discovered in March
1997 that certain reports relating to the moisture of coke contained
incomplete and inaccurate information. Because of these discrepancies, certain
customers who purchased the coke were overbilled. Upon discovery of the
overbilling, refunds were made available to all the affected customers.

  For a fee, the Company treats waste water produced by Beazer East during
Beazer East's remediation of certain of the Company's facilities. Beazer East
performs these remediation activities pursuant to the Indemnity. During the
summer of 1997, Beazer East challenged the amounts of the charges for waste
water treatment services at the Florence and Follansbee facilities. Beazer
East alleged they had been overcharged by approximately $2.2 million at
Florence and by approximately $3.1 million at Follansbee. The Company has
contested these allegations and believes that if an overcharge occurred, the
amount of the overcharge is less than Beazer East has alleged.

  Due to the advanced ages of the coke oven batteries, ongoing environmental
compliance issues and significant capital expenditure requirements, all of
which have combined to reduce productive capacity and increase per unit costs,
the Company's Board of Directors authorized the Company to close the Woodward
Facility in early 1998. This resulted in a charge to earnings in the fourth
quarter of 1997 of $39.9 million, $9.4 million of which will be cash charges
in 1998, primarily for dismantling and severance costs. Net sales and gross
profit at the Woodward Facility for the year ended December 31, 1997 amounted
to $51.8 million and ($8.1) million, respectively.

  The Feather River, California Utility & Construction Products facility
("Feather River") includes both a wood treating and now-dormant wood-fired
cogeneration facility. The Company has found it difficult to compete in the
California utility pole market due to Feather River's limited treatment
capabilities, a shrinking product demand and the high cost of raw materials.
The Feather River cogeneration facility has been dormant for three years while
the Company explored potential opportunities for developing a treated wood
burning and disposal facility. The Company has been unable to locate a
customer for this process. The Company has taken a charge to earnings for 1997
of $5.5 million for the closing of the cogeneration facility and the write-
down of assets at the adjacent wood treating facility.

                                      30
<PAGE>

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 40 and are
listed in Item 14 hereof.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

  None

                                   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 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
----                     --- -------------------------
<S>                      <C> <C>
Robert K. Wagner........  66 Chairman and Director
Walter W. Turner........  51 President and Chief Executive Officer and Director
Clayton A. Sweeney......  66 Director
Brooks C. Wilson........  65 Director
N. H. Prater............  69 Director
Christian L. Oberbeck...  38 Director
Donald E. Davis.........  41 Vice President and Chief Financial Officer
Thomas D. Loadman.......  43 Vice President and General Manager, Railroad & Utility Products
Kevin J. Fitzgerald.....  45 Vice President and General Manager, Carbon Materials & Chemicals
William R. Donley.......  41 Vice President, Total Quality, Productivity and Strategic Planning
Randall D. Collins......  45 Vice President, Environmental, Health & Safety Affairs
Joseph E. Boan..........  51 Vice President, Human Resources
Robert H. Wombles.......  46 Vice President, Technology
M. Claire Schaming......  44 Treasurer and Assistant Secretary
</TABLE>

  Mr. Wagner served as President and Chief Executive Officer of the Company
from 1989 through November 1994, Chairman and Chief Executive Officer from
November 1994 through February 1996, and non-executive Chairman since February
1996. 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 will retain his responsibilities as Chairman and Director.
He has been a Director of Koppers since January 1989. 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 unit 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. He is also a Director of Koppers Australia and,
until March 1, 1996, was a Director of Tarconord.

  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. Turner is also Chairman of the Board of Directors of
Tarconord.

                                      31
<PAGE>

  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 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. Mr. Wilson has
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
Power International and Pacific Solar. He is also Chairman of Knox Grammar
School, Opportunity International Australia and Deputy Chairman of North Shore
Heart Research Foundation and a member of the Advisory Council, Australian
Graduate School of Management, University of New South Wales.

  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 currently serves as a Director of
Calgon Carbon Corporation, Melamine Chemical Inc. and Harsco Corporation. He
is a member of the Board of Trustees of Robert Morris College, Georgia
Institute of Technology, a special trustee of the University of Pittsburgh and
a Director of the University of Pittsburgh Medical Center, Pittsburgh
Presbyterian Hospital, and is Chairman of the Board of Visitors of the
University of Pittsburgh Graduate School of Public and International Affairs.

  Mr. Oberbeck has been a Director of Koppers since October 20, 1997. Mr.
Oberbeck has been a Managing Director of SBC Warburg Dillon Read Inc. since
September 1997. Previously, he was a Managing Director of Dillon, Read & Co.
Inc. from February 1995 to September 1997. 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 member of the
Saratoga Partners Investment Committee and a Director of Equality Specialties,
Inc., J&W Scientific Incorporated, Scovill Fasteners Inc., and USI Holdings
Corporation.

  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 Australia. 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 Koppers Sherman Abetong, a
Director of Koppers Timber Preservation Pty. Limited, a subsidiary of Koppers
Australia, and a Director and President of Koppers Concrete Products Inc. 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.

                                      32
<PAGE>

  Mr. Donley was appointed Vice President, Total Quality, Productivity and
Strategic Planning in March 1998. Mr. Donley had been appointed General
Manager of Utility & Construction Products in September 1995 and elected Vice
President in November 1995. He joined Old Koppers in 1979, serving the Company
in positions of increasing responsibility within the Railroad & Utility
Products business. Mr. Donley is a board member of the American Wood
Preservers Institute and serves on its Governmental Affairs Committee.

  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,
coordination of legal affairs and shareholder relations. 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.

NEW STOCKHOLDERS' AGREEMENT

  The Company is a party to a stockholders' agreement by and among the
Company, Saratoga and each Management Investor dated as of December 1, 1997
(as amended, the "New Stockholders' Agreement"). The Management Investors are
a group of 118 individual stockholders (each, a "Management Investor") with
various ownership interests in the Common Stock and collectively comprising
100% of the total outstanding shares of the voting Common Stock of the
Company. Saratoga owns 100% of the total outstanding Preferred Shares of the
Company. Each Management Investor is an officer, Board member or current or
former employee of either Koppers Industries, Inc. or one of its subsidiaries.
Pursuant to the New Stockholders' Agreement, each of the Management Investors
has appointed Walter W. Turner, who was elected as a Director along with being
elected President and Chief Executive Officer in February 1998, 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.

  As of December 31, 1997, Koppers was obligated to purchase approximately
136,000 shares of Common Stock from Management Investors no longer affiliated
with the Company.

  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.

                                      33
<PAGE>

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.
Additionally, Robert K. Wagner receives $25,000 annually related to chairman's
duties.

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, 1997, 1996 and
1995, of those persons who were at December 31, 1997 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 1997 (collectively, the "Named Executive Officers"):

                          SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                       ANNUAL COMPENSATION           LONG-TERM COMPENSATION
                                  ------------------------------  ----------------------------
                                                       OTHER        SECURITIES     ALL OTHER
                                                       ANNUAL       UNDERLYING    COMPENSATION
NAME AND PRINCIPAL POSITION  YEAR  SALARY   BONUS   COMPENSATION  OPTIONS/SARS(#)     (2)
---------------------------  ---- -------- -------- ------------  --------------- ------------
<S>                          <C>  <C>      <C>      <C>           <C>             <C>
Robert K. Wagner..........   1997 $     -- $ 90,000   $     --            --        $309,450(4)
  Chairman and former
   Chief                     1996  107,955   27,930      1,108            --         136,576(4)
  Executive Officer (1)      1995  380,000  228,000     14,143            --           4,649
Donald P. Traviss.........   1997  168,542       --         62            --         926,458(5)
  Former President and
   Chief                     1996  336,000  117,306        277            --          11,576
  Executive Officer (1)      1995  251,000  138,000    126,341(3)     45,000           3,861
Donald E. Davis...........   1997  169,860   62,424         --            --           6,164
  Vice President and Chief   1996  151,985   55,159         --            --          11,576
  Financial Officer          1995  132,860   61,446         --         7,500           4,038
Walter W. Turner..........   1997  150,060   36,293        181            --           6,164
  Vice President and
   General                   1996  128,400   53,305         --            --          11,876
  Manager, Carbon
   Materials                 1995  106,920   53,767         --         7,500           3,466
  & Chemicals (1)
Thomas D. Loadman.........   1997  139,400   44,911         --            --           6,164
  Vice President and
   General                   1996  125,300   29,117         --            --           6,298
  Manager, Railroad
   Products                  1995  109,600   57,185         --        10,500           8,494
  & Services
Joseph E. Boan............   1997  127,380   45,425         22            --           6,164
  Vice President             1996  120,980   43,428         --            --           9,613
  Human Resources            1995  116,380   56,792         --            --           2,853
</TABLE>
--------
(1) In February 1998 Mr. Turner was elected President, Chief Executive Officer
    and Director of the Company. On June 1, 1997 Mr. Traviss had resigned his
    position as President and Chief Executive Officer and Mr. Wagner was named
    Acting Chief Executive Officer. Previously, on March 1, 1996 Mr. Wagner
    had retired from the Company and resigned as Chief Executive Officer and
    was succeeded by Mr. Traviss.

(2) All other compensation consists of regular and supplemental matches to
    401(k) plan except as noted below.

(3) Includes $116,410 of reimbursement of moving expenses under Company
    relocation program.

                                      34
<PAGE>

(4) For 1997, includes $22,000 for director fees, $25,000 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 in accordance with the terms of his
    consulting contract. See "--Employment Contracts".

(5) Includes $771,458 related to termination settlement and $155,000 of net
    proceeds from stock option redemptions.

OPTION EXERCISES AND FISCAL YEAR-END VALUES

  Shown below is information with respect to options exercised in 1997 and
unexercised options granted in 1997 and prior years under the 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($)(1)
                         OPTIONS/SARS    VALUE     ------------------------- -------------------------
                          EXERCISED   REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
                         ------------ ------------ ----------- ------------- ----------- -------------
<S>                      <C>          <C>          <C>         <C>           <C>         <C>
Donald P. Traviss.......    45,000      $155,000         --          --       $     --    $       --
Donald E. Davis.........        --            --     26,400          --        316,986            --
Walter W. Turner........        --            --     22,350          --        256,592            --
Thomas D. Loadman.......        --            --     19,950          --        203,400            --
Joseph E. Boan..........        --            --     27,900          --        413,532            --
</TABLE>
--------
(1) The value of unexercised in-the-money options is calculated by subtracting
    the exercise price from the market value at December 31, 1997 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 were vested at December 31, 1997 due to a change
    of control in 1997.

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.

                                      35
<PAGE>

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, 1997 for each Named Executive
Officer: Robert K. Wagner, $402,635 and 7 years of service; Donald P. Traviss,
$324,551 and 2 years of service; Donald E. Davis, $146,460 and 9 years of
service; Walter W. Turner, $127,334 and 9 years of service; Thomas D. Loadman,
$117,239 and 9 years of service; and Joseph E. Boan, $130,834 and 9 years of
service.

  Effective December 1, 1997 the Board of Directors established a Supplemental
Executive Retirement Plan ("SERP") for each 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.

  Employment Contracts. 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 will pay consulting fees totaling $109,000 per year,
chairman fees totaling $25,000 per year, and director fees totaling $22,000
per year. The initial contract term is one year; however, the contract will
automatically renew 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
increased to $359,000 per year, plus participation in the Company's incentive
compensation program.

  In October 1994, the Company entered into an agreement with Donald P.
Traviss, President and Chief Executive Officer, which provided for an initial
base salary of $230,000, an incentive bonus of up to 60% of base salary, and a
one time bonus of $40,000 paid in Common Stock of the Company in lieu of 1994
incentive. Additionally, he received a grant of options to purchase 45,000
shares of Common Stock vesting over a three year period in accordance with the
terms of the Company's Stock Option Plan, and an interest free loan of
$115,000 to be repaid over a five year period, the proceeds of which were used
to purchase shares of Common Stock at the market value of $10.56 per share.
The loan was repaid in full in early 1997. Upon his resignation in June 1997,
Mr. Traviss received $155,000 for the redemption of all stock options,
$285,418 for the redemption of all shares of Common Stock, and $771,458 for
termination pay including severance and benefits.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

  Mr. Sweeney, Mr. Wilson and Mr. Prater 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.

                                      36
<PAGE>

  Mr. Wagner, Chairman and a Director of the Company, is a member of the
Compensation Committee of the Board of Directors of Koppers Australia. This
Committee reviews the compensation of Mr. Wilson, the Managing Director of
Koppers Australia.

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, 1998 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 "Management--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%
Saratoga Koppers (3).......                            2,288,481      100.00%
Management Investors
 (4)(5)....................  2,277,321      100.00%
Christian L. Oberbeck (3)..                            2,288,481      100.00%
Walter W. Turner (6).......     44,236        1.94%
Clayton A. Sweeney (6).....    138,960        6.10%
Robert K. Wagner (7).......    349,487       15.35%
Donald P. Traviss (8)......
Donald E. Davis (9)........     46,557        2.04%
Thomas D. Loadman (10).....     34,350        1.51%
Joseph E. Boan (11)........     74,493        3.27%
N. H. Prater (12)..........     26,569        1.17%
Brooks C. Wilson (13)......     96,579        4.24%
All Directors and officers
 as a group
 (14 persons)..............    980,037       43.03%
Total shares outstanding,
 including options.........  2,277,321      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. In addition, in January 1998 Saratoga purchased
    142,857 Preferred Shares for a price of $14.00 per share to be held in
    trust for Brown University.

(3) Saratoga is a private investment fund. Saratoga Koppers is an affiliate of
    Saratoga. The address for Saratoga and Saratoga Koppers is 535 Madison
    Avenue, New York, NY 10022. Saratoga and Saratoga Koppers have generally
    authorized Mr. Oberbeck, a Director of the Company, to vote the shares of
    the Company held by Saratoga and Saratoga Koppers. Mr. Oberbeck disclaims
    beneficial ownership of the Preferred Shares

                                      37
<PAGE>

     owned by Saratoga and Saratoga Koppers. 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.

(4)  Pursuant to the New Stockholders' Agreement, Mr. Turner and Mr. Sweeney
     were appointed as Representatives of the approximately 120 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 will be 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--New 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., 11 Stanwix Street, Pittsburgh, PA 15222.

(5)  Includes vested options held by the Management Investors to acquire
     571,307 shares of Common Stock which are exercisable at any time.

(6)  Mr. Turner and Mr. Sweeney, as Representatives of the Management
     Investors pursuant to the New Stockholders' Agreement, have the authority
     to vote the 1,706,014 shares held by the Management Investors and
     consequently may be deemed to have voting control of such shares (which
     include 21,886 shares directly owned by Mr. Turner and 138,960 shares
     directly owned by Mr. Sweeney).

(7)  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.

(8)  Mr. Traviss resigned his position as President and Chief Executive
     Officer in June 1997. As part of his termination agreement, Mr. Traviss
     redeemed 20,387 shares and 45,000 options of the Company.

(9)  Includes vested options to purchase 26,400 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.

(10) Includes vested options to purchase 19,950 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.

(11) Includes vested options to purchase 27,900 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.

(12) 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.

(13) 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.

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 "--Stockholders' Agreement."

  Pursuant to a resolution of the Board of Directors, Koppers redeemed, on
April 2, 1996, 25% of the shares of Common Stock then held by Mr. Wagner at
$12.33 per share.

                                      38
<PAGE>

  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 1,050,000 shares of the non-voting Common Stock at $11.67 per
share, 525,000 shares each from Cornerstone-Spectrum, Inc. and APT Holdings
Corporation. 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
shares of Common Stock held by APT Holdings Corporation were redeemed as part
of the Recapitalization.

  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.

  Koppers has entered into an advisory and consulting agreement with Saratoga
pursuant to which the Company will pay a management fee of $150,000 per
quarter to Saratoga. 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.

                                      39
<PAGE>

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

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, 1997,
   1996 and 1995
    Report of Independent Auditors........................................  41
    Consolidated Statement of Operations for the Years Ended
     December 31, 1997, 1996 and 1995.....................................  42
    Consolidated Balance Sheet at December 31, 1997 and 1996..............  43
    Consolidated Statement of Cash Flows for the Years Ended
     December 31, 1997, 1996 and 1995.....................................  45
    Consolidated Statement of Stockholders' Equity for the Years Ended
     December 31, 1997, 1996 and 1995.....................................  46
    Notes to Consolidated Financial Statements............................  47
Koppers Australia Pty. Limited
  Consolidated Financial Statements for the Years Ended June 30, 1997 and
   1996
    Report of Independent Auditors........................................  68
    Consolidated Profit and Loss Account for the Years Ended June 30, 1997
     and 1996.............................................................  69
    Consolidated Balance Sheet at June 30, 1997 and 1996..................  70
    Consolidated Statement of Cash Flows for the Years Ended June 30, 1997
     and 1996.............................................................  71
    Profit and Loss Account for the Years Ended June 30, 1997 and 1996....  72
    Balance Sheet at June 30, 1997 and 1996...............................  73
    Statement of Cash Flows for the Years Ended June 30, 1997 and 1996....  74
    Notes to and Forming Part of the Financial Statements.................  75

2.SCHEDULES FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

Schedule II Valuation and Qualifying Accounts.............................  97
  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 95 HEREOF.

  (B)REPORTS ON FORM 8-K.

    The Company filed a Form 8-K on December 15, 1997 relating to (i) The
    purchase of the remaining 50% of Koppers Australia Pty. Limited from
    the Broken Hill Proprietary Company Limited, and (ii) The closing of
    the Company's Woodward, Alabama coke facility.

                                      40
<PAGE>

                        REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Koppers Industries, Inc.

  We have audited the consolidated financial statements and schedule of
Koppers Industries, Inc. listed in the accompanying Index to Consolidated
Financial Statements [Item 14]. 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
accompanying Index to Consolidated Financial Statements present fairly, in all
material respects, the consolidated financial position of Koppers Industries,
Inc. at December 31, 1997 and 1996, and the consolidated results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, 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 30, 1998

                                      41
<PAGE>

                            KOPPERS INDUSTRIES, INC.

                      CONSOLIDATED STATEMENT OF OPERATIONS
                    (In thousands except per share figures)

<TABLE>
<CAPTION>
                                                    YEARS ENDED DECEMBER 31,
                                                   ----------------------------
                                                     1997      1996      1995
                                                   --------  --------  --------
<S>                                                <C>       <C>       <C>
Net sales......................................... $593,060  $588,544  $525,730
Operating expenses:
  Cost of sales...................................  501,349   496,062   440,746
  Depreciation and amortization...................   23,507    21,793    17,532
  Selling, general and administrative.............   28,068    27,545    27,604
  Restructuring charges...........................   45,424    15,513        --
                                                   --------  --------  --------
    Total operating expenses......................  598,348   560,913   485,882
Operating profit (loss)...........................   (5,288)   27,631    39,848
Equity in earnings of affiliates..................    5,318     9,587     9,239
Other income (expense)............................   (1,414)  (12,623)      376
                                                   --------  --------  --------
Income (loss) before interest expense, provision
 for income taxes and extraordinary item..........   (1,384)   24,595    49,463
Interest expense..................................   17,251    16,636    15,060
                                                   --------  --------  --------
Income (loss) before income tax provision
 (benefit) and extraordinary item.................  (18,635)    7,959    34,403
Income tax provision (benefit)....................  (19,674)   (6,139)    9,963
                                                   --------  --------  --------
Income before extraordinary item..................    1,039    14,098    24,440
Extraordinary loss on early extinguishment of
 debt, net of income tax benefit of $2,860........   (6,696)       --        --
                                                   --------  --------  --------
Net income (loss)................................. $ (5,657) $ 14,098  $ 24,440
                                                   ========  ========  ========
Earnings (loss) per share of common stock:
  Income before extraordinary item:
    Basic earnings per share...................... $   0.17  $   1.54  $   3.18
                                                   ========  ========  ========
    Diluted earnings per share.................... $   0.12  $   1.47  $   2.36
                                                   ========  ========  ========
  Net income (loss):
    Basic earnings (loss) per share............... $  (0.92) $   1.54  $   3.18
                                                   ========  ========  ========
    Diluted earnings (loss) per share............. $  (0.65) $   1.47  $   2.36
                                                   ========  ========  ========
</TABLE>

                            See accompanying notes.

                                       42
<PAGE>

                            KOPPERS INDUSTRIES, INC.

                           CONSOLIDATED BALANCE SHEET
                                 (In thousands)

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                          --------------------
                                                            1997       1996
                                                          ---------  ---------
<S>                                                       <C>        <C>
ASSETS
Current assets:
  Cash and short-term investments........................ $  19,993  $   1,526
  Accounts receivable less allowance for doubtful
   accounts of $797 in 1997 and $164 in 1996.............    83,818     72,229
  Inventories:
    Raw materials........................................    41,960     33,635
    Work in process......................................     2,938      3,168
    Finished goods.......................................    61,652     44,090
    LIFO reserve.........................................   (10,908)    (7,971)
                                                          ---------  ---------
      Total inventories..................................    95,642     72,922
  Deferred tax benefit...................................    24,441     10,927
    Other................................................     1,576      2,662
                                                          ---------  ---------
      Total current assets...............................   225,470    160,266
Investments:
  Koppers Australia Pty. Limited.........................        --     37,561
  Tarconord..............................................    12,577     13,673
  Koppers Sherman-Abetong................................     4,059      4,139
  Other..................................................     1,639         --
                                                          ---------  ---------
      Total investments..................................    18,275     55,373
Fixed assets:
  Land...................................................     7,318      5,673
  Buildings..............................................    16,571     10,173
  Machinery and equipment................................   354,287    280,842
                                                          ---------  ---------
                                                            378,176    296,688
    Less: accumulated depreciation and valuation
     reserves............................................  (187,292)  (123,468)
                                                          ---------  ---------
      Net fixed assets...................................   190,884    173,220
Goodwill, net of accumulated amortization................    31,395     11,974
Deferred tax benefit.....................................    10,585         --
Other assets.............................................    23,566     10,347
                                                          ---------  ---------
      Total assets....................................... $ 500,175  $ 411,180
                                                          =========  =========
</TABLE>


                            See accompanying notes.

                                       43
<PAGE>

                            KOPPERS INDUSTRIES, INC.

                           CONSOLIDATED BALANCE SHEET
                                 (In thousands)

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                           ------------------
                                                             1997      1996
                                                           --------  --------
<S>                                                        <C>       <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable........................................ $ 48,935  $ 37,255
  Payroll and compensation costs..........................   16,507    11,300
  Accrued liabilities.....................................   39,585    26,874
  Current portion of term loans...........................   11,243     7,149
                                                           --------  --------
    Total current liabilities.............................  116,270    82,578
Long-term debt:
  Revolving credit........................................       --    43,000
  Term loans..............................................  123,318    49,735
  Senior Subordinated Notes due 2007......................  175,000        --
  Senior Notes due 2004...................................   11,094   110,000
                                                           --------  --------
    Total long-term debt..................................  309,412   202,735
Deferred income tax.......................................       --     6,904
Product warranty and insurance reserves...................   19,419    17,379
Accrued postretirement benefits obligation................   21,077    15,675
Minority interest.........................................    6,188        --
Other.....................................................   16,033     7,846
                                                           --------  --------
    Total liabilities.....................................  488,399   333,117
Commitments and contingencies--See Note 12
Common stock subject to redemption........................   26,355    23,957
Senior convertible preferred stock, $.01 par value;
 3,000,000 shares authorized; 2,145,624 shares issued in
 1997.....................................................       21        --
Voting common stock, $.01 par value:
  37,000,000 shares authorized, 4,590,000 total shares
   issued in 1997 and 6,707,952 in 1996...................       46        67
Non-voting common stock, $.01 par value:
  10,000,000 shares authorized, 906,600 total shares
   issued in 1997 and 3,628,200 in 1996...................        9        36
Capital in excess of par value............................    8,712    11,675
Retained earnings.........................................    3,838    45,813
Cumulative translation adjustment.........................   (4,391)    2,181
Treasury stock, at cost, 2,782,511 shares in 1997 and
 1,531,511 shares in 1996.................................  (22,814)   (5,666)
                                                           --------  --------
    Total liabilities and stockholders' equity............ $500,175  $411,180
                                                           ========  ========
</TABLE>

                            See accompanying notes.

                                       44
<PAGE>

                            KOPPERS INDUSTRIES, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                    YEARS ENDED DECEMBER 31,
                                                   ----------------------------
                                                     1997      1996      1995
                                                   --------  --------  --------
<S>                                                <C>       <C>       <C>
Cash provided by operating activities:
  Net income (loss)..............................  $ (5,657) $ 14,098  $ 24,440
  Adjustments to reconcile net income to net cash
   provided by operating activities, net of
   acquisitions:
    Depreciation and amortization................    23,507    21,793    17,532
    Deferred income taxes........................   (26,993)  (10,915)    3,835
    Equity income of affiliated companies, net of
     dividends received..........................    13,211    (3,767)   (6,568)
    Extraordinary loss on early extinguishment of
     debt........................................     6,696        --        --
  Restructuring reserves.........................    38,184    14,990    (2,046)
  Increase in reserves...........................     3,331     5,086       955
  (Increase) decrease in working capital, net of
   acquisitions:
    Accounts receivable..........................     4,216    (4,626)   (5,774)
    Inventories..................................     4,377     9,281    (9,724)
    Accounts payable.............................     3,637    (5,433)   11,474
    Payroll and compensation costs...............      (454)     (710)    1,120
    Accrued liabilities..........................    (3,064)    5,985       766
    Other........................................     2,257    (1,038)     (734)
                                                   --------  --------  --------
      Net cash provided by operating activities..    63,248    44,744    35,276
                                                   --------  --------  --------
Cash used in investing activities:
  Acquisitions and related costs, net of cash
   acquired......................................   (34,113)  (39,517)  (34,948)
  Capital expenditures...........................   (19,815)  (21,717)  (15,193)
  Other..........................................       997       320      (202)
                                                   --------  --------  --------
      Net cash used in investing activities......   (52,931)  (60,914)  (50,343)
                                                   --------  --------  --------
Cash provided by (used in) financing activities,
 net of acquisitions:
  Borrowings of revolving credit.................   170,750   160,500   150,000
  Repayments of revolving credit.................  (213,750) (146,500) (155,000)
  Repayment of long term debt....................   (50,505)  (14,046)   (5,000)
  Proceeds from long term debt...................    86,903    35,930    25,000
  Purchase of Senior Notes due 2004..............  (105,301)       --        --
  Proceeds from issuance of Senior Subordinated
   Notes due 2007................................   175,000        --        --
  Payments of deferred financing costs...........   (15,987)   (1,217)       --
  Purchases of voting common stock...............    (2,774)   (3,247)   (1,637)
  Purchases of non-voting common stock...........   (33,943)  (12,250)       --
  Proceeds from exercise of warrants.............        --        --     2,667
  Dividends on common stock......................    (2,243)   (3,092)   (2,320)
                                                   --------  --------  --------
Net cash provided by financing activities........     8,150    16,078    13,710
                                                   --------  --------  --------
Net increase (decrease) in cash and short-term
 investments.....................................    18,467       (92)   (1,357)
Cash and short-term investments at beginning of
 year............................................     1,526     1,618     2,975
                                                   --------  --------  --------
Cash and short-term investments at end of year...  $ 19,993  $  1,526  $  1,618
                                                   ========  ========  ========
Supplemental disclosure of cash flow information:
  Cash paid during the year for:
    Interest.....................................  $ 20,234  $ 15,843  $ 15,135
    Income taxes.................................  $  7,882  $  2,315  $  7,399
</TABLE>

                            See accompanying notes.

                                       45
<PAGE>

                            KOPPERS INDUSTRIES, INC.

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                     (In thousands, except shares figures)

<TABLE>
<CAPTION>
                                        COMMON                    NON-
                          CONVERTIBLE   STOCK             VOTING VOTING CAPITAL IN           CUMULATIVE
                           PREFERRED  SUBJECT TO  STOCK   COMMON COMMON EXCESS OF  RETAINED  TRANSLATION TREASURY
                             STOCK    REDEMPTION WARRANTS STOCK  STOCK  PAR VALUE  EARNINGS  ADJUSTMENT    STOCK
                          ----------- ---------- -------- ------ ------ ---------- --------  ----------- ---------
<S>                       <C>         <C>        <C>      <C>    <C>    <C>        <C>       <C>         <C>
Balance at December 31,
 1994...................     $ 260     $15,450    $ 873    $ 67   $ --   $ 6,875   $ 32,750    $  (623)  $  (3,452)
Net income to common for
 1995...................        --          --       --      --     --        --     24,440         --          --
Foreign currency
 translation............        --          --       --      --     --        --         --        239          --
Net change in common
 stock subject to
 redemption.............        --       8,265       --      --     --        --    (8,265)         --          --
Options exercised, stock
 purchased and retired,
 46,749 shares..........        --          --       --      --     --        --       (435)        --          --
Treasury stock
 purchases, 161,013
 shares.................        --          --       --      --     --        --         --         --      (1,707)
Treasury stock sales,
 82,353 shares..........        --          --       --      --     --        --         --         --         916
Warrants exercised,
 2,799,950 shares.......        --          --     (873)     --     23     6,158         --         --          --
Common stock repurchased
 and retired, 61,650
 shares.................        --          --       --      --     --       (69)      (342)        --          --
Dividends on common
 stock, net of equity
 interest...............        --          --       --      --     --        --     (2,320)        --          --
                             -----     -------    -----    ----   ----   -------   --------    -------   ---------
Balance at December 31,
 1995...................       260      23,715       --      67     23    12,964     45,828       (384)     (4,243)
Net income to common for
 1996...................        --          --       --      --     --        --     14,098         --          --
Foreign currency
 translation............        --          --       --      --     --        --         --      2,565          --
Net change in common
 stock subject to
 redemption.............        --         242       --      --     --        --       (242)        --          --
Options exercised, stock
 purchased and retired,
 54,062 shares..........        --          --       --      --     --        --       (485)        --          --
Treasury stock
 purchases, 292,433
 shares.................        --          --       --      --     --       420         --         --      (3,835)
Treasury stock sales,
 194,883 shares.........        --          --       --      --     --        --         --         --       2,412
Conversion of Series B
 Preferred Stock........        --          --       --      --     23       237         --         --          --
Non-voting common stock
 repurchased and
 retired, 1,050,000
 shares.................      (260)         --       --      --    (10)   (1,946)   (10,294)        --          --
Dividends on common
 stock, net of equity
 interest...............        --          --       --      --     --        --     (3,092)        --          --
                             -----     -------    -----    ----   ----   -------   --------    -------   ---------
Balance at December 31,
 1996...................        --      23,957       --      67     36    11,675     45,813      2,181      (5,666)
Net loss to common for
 1997...................        --          --       --      --     --        --     (5,657)        --          --
Foreign currency
 translation............        --          --       --      --     --        --         --     (6,572)         --
Net change in common
 stock subject to
 redemption.............        --       2,398       --      --     --        --     (2,398)        --          --
Options exercised, stock
 purchased and retired,
 110,526 shares                 --          --       --      --     --        --       (724)        --          --
Treasury stock
 purchases, 1,330,043
 shares.................        --          --       --      --     --        --         --         --     (18,262)
Treasury stock sales,
 194,883 shares.........        --          --       --      --     --        --         --         --       1,114
Conversion of voting and
 non-voting stock to
 senior convertible
 preferred stock,
 2,145,462 shares.......        21          --       --     (21)    --        --         --         --          --
Non-voting common stock
 repurchased and
 retired, 2,693,928
 shares.................        --          --       --      --    (27)   (2,963)   (30,953)        --          --
Dividends on common
 stock, net of equity
 interest...............        --          --       --      --     --        --     (2,243)        --          --
                             -----     -------    -----    ----   ----   -------   --------    -------   ---------
Balance at December 31,
 1997...................     $  21     $26,355    $  --    $ 46   $  9   $ 8,712   $  3,838    $(4,391)  $(22,814)
                             =====     =======    =====    ====   ====   =======   ========    =======   =========
</TABLE>

                            See accompanying notes.

                                       46
<PAGE>

                           KOPPERS INDUSTRIES, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

 Organization

  Koppers Industries, Inc. (the "Company") is an integrated producer of carbon
compounds and treated wood products for use in a variety of industrial
applications. The Company's Carbon Materials & Chemicals division is a
supplier of carbon pitch, which is used primarily by the aluminum industry as
a binder in the manufacture of anodes. Carbon Materials & Chemicals also
produces several by-products, including creosote, a chemical preservative used
to pressure treat wood for the railroad and utility markets; phthalic
anhydride, used in the production of plasticizers and polyester resins; and
roofing pitch, used in the manufacture of built-up roofing systems. The
Company's Railroad & Utility Products division treats railroad crossties,
utility poles and pilings with preservatives for various uses. The Company's
Coke Products division produces foundry and furnace coke for sales to steel
mill blast furnaces and foundries; and coke by-products, including coal tars,
gases, oils and chemicals for sale to other industrial operations.

  The Company's recent acquisition, Koppers Australia Pty. Limited ("Koppers
Australia"), is headquartered in Sydney, Australia and has carbon materials,
wood treating and wood preserving chemical operations. Koppers Australia uses
coal tar from Australia's steel mills to make carbon pitch for aluminum
smelting, carbon black for rubber tire production, and naphthalene for use in
the manufacture of plasticizers, resins, paints and dye making. It also
manufactures chemicals for the protection of timber against termites, fungal
decay and weathering. It produces a wide range of preservative treated timber
products including utility poles, pilings, railroad crossties, landscaping
logs and rural fencing.

 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.

 Earnings Per Share/Capital Structure

  In 1997, the Financial Accounting Standards Board issued Statements No. 128,
"Earnings Per Share", and Statement No. 129, "Disclosure of Information About
Capital Structure". Statement No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported earnings per
share for the Company. All earnings per share amounts for all periods have
been presented, and where appropriate, restated to conform to Statement No.
128 requirements. Statement No. 129 requires disclosures about an entity's
capital structure including liquidation preferences of preferred stock,
information about the pertinent rights and

                                      47
<PAGE>

                           KOPPERS INDUSTRIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
privileges of the outstanding equity securities, and the redemption amounts
for all issues of capital stock that are redeemable at fixed or determinable
prices on fixed or determinable dates. The Company has complied with all of
the disclosure requirements of Statement No. 129.

 Inventories

  The Company utilizes both the last-in first-out ("LIFO") and first-in,
first-out ("FIFO") methods of inventory valuation. Carbon Materials &
Chemicals and Railroad & Utility Products inventories are valued at the lower
of cost, utilizing the LIFO method, or market. Market represents replacement
cost for raw materials and net realizable value for work in process and
finished goods. LIFO inventories constituted approximately 60% of total
inventory value at December 31, 1997.

 Revenue Recognition

  The Company recognizes revenue from product sales at the time of shipment.

 Investments

  Following is a combined financial summary of the equity investments of the
Company for their respective years ended 1997, 1996 and 1995. The fiscal year
end for amounts shown for Koppers Australia are as of and for the year ended
June 30.

<TABLE>
<CAPTION>
                                                       1997     1996     1995
                                                     -------- -------- --------
                                                           (In thousands)
   <S>                                               <C>      <C>      <C>
   Net Sales........................................ $254,275 $266,439 $203,639
   Operating Profit.................................   29,085   32,126   28,303
   Net Income.......................................   19,398   21,530   19,154
   Equity in Earnings...............................    8,376   10,765    9,577
   Current Assets...................................   94,539   94,058   88,776
   Total Assets.....................................  202,430  201,310  171,550
   Current Liabilities..............................   48,496   55,077   41,437
   Non-Current Liabilities..........................   29,233   33,405   23,951
   Net Assets.......................................  124,701  112,828  106,162
</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 thousands)
   <S>                                          <C>           <C>
   1997........................................    $2,363          $16,298
   1996........................................     6,540            2,769
   1995........................................     4,998              712
</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.

                                      48
<PAGE>

                           KOPPERS INDUSTRIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
                                                EQUITY INCOME DIVIDENDS RECEIVED
                                                ------------- ------------------
                                                         (In thousands)
   <S>                                          <C>           <C>
   1997........................................    $1,735           $1,217
   1996........................................     1,577            2,430
   1995........................................     3,139              731
</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 thousands)
   <S>                                          <C>           <C>
   1997........................................    $1,220           $1,300
   1996........................................     1,470            1,000
   1995........................................     1,102            1,500
</TABLE>

 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 self-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 aggregate
liability 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 short-term investments: The carrying amount approximates fair value
because of the short maturity of those instruments.

  Long-term debt: The carrying value of the Company's long-term debt is equal
to the fair value 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 $1.1 million for 1997, $1.0 million for
1996, and $0.9 million for 1995.

 Reclassification

  Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform to the current year presentation. Such
reclassification had no effect on net income (loss).

 Impact of Recently Issued Accounting Standards

  The following statements have been issued during 1997 and are effective for
fiscal years beginning after December 15, 1997:

                                      49
<PAGE>

                           KOPPERS INDUSTRIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  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.

  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 does not expect the effect of adoption of these statements 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
are 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
2,145,624 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 and the sale of the Old Notes have
been and are being used to complete the following transactions: (i) the
acquisition of The 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 tendered
pursuant to a tender offer and consent solicitation which was commenced
October 20, 1997 and which expired on November 28, 1997 (the "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 (the "Bank Debt Refinancing"); (iv)
the redemption of 1,813,200 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 up to 25% of the shares of common
stock owned by the current officers of Koppers and Clayton A. Sweeney (a
member of the Board of Directors) and the redemption of up to 100% of the
shares of Common Stock owned by other Management Investors, in an aggregate
amount not to exceed $15.0 million; (vi) the redemption of 436,508 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 (the "Woodward
Facility") 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 the Woodward Facility were
approximately $51.8 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.

                                      50
<PAGE>

                           KOPPERS INDUSTRIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  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 coke operations at the
Company's Woodward Facility; $2.6 million for severance charges; and $0.1
million for other.

  The total restructuring charges consist of the following cash and non-cash
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 and other employee benefits............................   8.3   3.3
  Other............................................................  10.1   4.5
                                                                    ----- -----
                                                                    $45.4 $15.5
</TABLE>

  At December 31, 1997 none of the cash charges for the 1997 restructuring and
substantially all of the cash charges from the 1996 restructuring had been
expended. Cash expenditures for 1998 related to the 1997 restructuring are
estimated to be approximately $11.4 million, while working capital
liquidations at the Woodward Facility in 1998 are expected to generate
approximately $6.4 million of cash flow.

4. ACQUISITIONS

  On December 1, 1997 the Company purchased the shares of Koppers Australia
that the Company did not already own 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.

  The results of operations for Koppers Australia are included in the
Company's 1997 results as a component of equity in earnings of affiliates due
to the Company's 50% ownership interest prior to the acquisition. The
following table presents the pro forma results of the Company as if the
Koppers Australia acquisition had taken place on January 1, 1996:
<TABLE>
<CAPTION>
                                                  YEARS ENDED DECEMBER 31,
                                              ----------------------------------
                                                      1997              1996
                                              ----------------  ----------------
                                              (Millions except shares figures)
<S>                                           <C>               <C>
Revenues as reported........................            $593.1            $588.5
Revenues pro forma..........................             708.0             722.1
Net income before extraordinary item as
 reported...................................               1.0              14.1
Net income before extraordinary item pro
 forma......................................               1.3              19.4
Basic earnings per share before
 extraordinary item as reported.............              0.17              1.54
Basic earnings per share before
 extraordinary item pro forma...............              0.26              2.42
Diluted earnings per share before
 extraordinary item as reported.............              0.12              1.47
Diluted earnings per share before
 extraordinary item pro forma...............              0.17              2.28
Net income (loss) as reported...............              (5.7)             14.1
Net income (loss) pro forma.................              (5.4)             19.4
Basic earnings (loss) per share as reported.             (0.92)             1.54
Basic earnings (loss) per share pro forma...             (1.12)             2.42
Diluted earnings (loss) per share as
 reported...................................             (0.65)             1.47
Diluted earnings (loss) per share pro forma.            $(0.71)            $2.28
Basic average shares outstanding as reported
 ...........................................         6,161,098         9,157,900
Basic average shares outstanding pro forma..         5,036,098         8,032,900
Diluted average shares outstanding as
 reported...................................         8,703,574         9,619,713
Diluted average shares outstanding pro
 forma......................................         7,578,574         8,494,713
</TABLE>

                                      51
<PAGE>

                           KOPPERS INDUSTRIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  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 $40.0 million and the assumption of approximately $8.0 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 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,
                                                              -----------------
                                                                1997     1996
                                                              -------- --------
                                                               (In thousands)
   <S>                                                        <C>      <C>
   Revolving credit.......................................... $     -- $ 43,000
   Term loans................................................  134,561   56,884
   Senior Subordinated Notes due 2007........................  175,000       --
   Senior Notes due 2004.....................................   11,094  110,000
                                                              -------- --------
                                                              $320,655 $209,884
                                                              ======== ========
</TABLE>

 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, $26.0
million of which was outstanding at December 31, 1997 and a $65.0 million Term
Loan B, all of which was outstanding at December 31, 1997. The term loans and
the Revolving Credit Facility under the New Credit Facilities provide for
interest at variable rates. At December 31, 1997 the effective rates on the
term loans were 7.69% for Term Loan A, 8.19% for Term Loan B and 5.30% for the
Australian term loan.

  Substantially all of the Company's assets, including the assets of any
significant subsidiary, 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, 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.

                                      52
<PAGE>

                           KOPPERS INDUSTRIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  At December 31, 1997 the aggregate debt maturities for the next five years
are as follows:

<TABLE>
   <S>                                                               <C>
   1998............................................................. $11,242,768
   1999.............................................................   7,447,667
   2000.............................................................  12,387,303
   2001.............................................................  12,325,073
   2002.............................................................  12,327,597
</TABLE>

 Senior Subordinated Notes Due 2007

  On December 1, 1997 the Company issued $175.0 million of 9 7/8% Senior
Subordinated Notes (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.

  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 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 $0.2 million at
December 31, 1997, $2.4 million at December 31, 1996 and $1.6 million at
December 31, 1995) were $16.0 million, $4.4 million and $4.3 million at
December 31, 1997, 1996 and 1995, respectively, and are included in other
assets.

  At December 31, 1997, the Company had $8.5 million of standby letters of
credit outstanding, with terms ranging from one to two years.

6. STOCK ACTIVITY

  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.

  The Company purchased 2,693,928 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 December 1, 1997 (as amended, the "New Stockholders'

                                      53
<PAGE>

                           KOPPERS INDUSTRIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Agreement"). The remaining 906,600 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. In addition, in January 1998
Saratoga purchased 142,857 Preferred Shares for $14.00 per share. If these
transactions had occurred on January 1, 1997 the effect on earnings per share
for 1997 would have been $(0.16) and $(0.06) for basic earnings per share and
diluted earnings per share, respectively.

  The Company is offering to redeem, at $17.00 per share, up to 25% of the
shares of Common Stock owned by the current officers of the Company and
Clayton A. Sweeney, and up to 100% of the shares of Common Stock owned by
other Management Investors, in an aggregate amount not exceeding $15.0
million. Additionally, all salaried employees of the Company may purchase
Common Stock of the Company at the price of $14.00 per share. Management
Investors may redeem shares at $17.00 or purchase shares at $14.00, but may
not do both simultaneously. The results of the redemption and purchase offers
will be known in early April 1998. The New Stockholders' Agreement provides
for stock redemptions of up to 5% of each stockholders' 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.

  In March 1996, Cornerstone-Spectrum, Inc. exercised its option to convert
all of the Series B Convertible Preferred Stock into 2,340,000 shares of non-
voting Common Stock of the Company. Subsequent to the exercise, the Company
purchased and retired 1,050,000 shares of non-voting Common Stock of the
Company in equal amounts from Cornerstone-Spectrum, Inc. and APT Holdings
Corporation, a wholly-owned subsidiary of Mellon Bank Corporation, the parent
of Mellon Bank, N.A. The effect of the purchase on stockholders' equity was to
decrease retained earnings and capital in excess of par value by $10.3 million
and $1.9 million, respectively.

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, 1997
and 1996 the maximum redemptions which could be paid under the New
Stockholders' Agreement, subject to existing debt covenants, were $26.4
million and $24.0 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 1.6 million and 1.7 million shares of Common Stock at December
31, 1997 and 1996, respectively, subject to the redemption provisions of the
New Stockholders' Agreement.

  The aggregate redemption amounts under the New Stockholders' Agreement for
the next three years based on termination events which have already occurred
are as follows:

<TABLE>
   <S>                                                              <C>
   1998............................................................ $2.3 million
   1999............................................................ $0.5 million
   2000............................................................ $0.3 million
</TABLE>

8. BENEFIT PLANS

  Pension--The Company has established benefit plans for its salaried
employees and is the sponsor of single employer defined benefit plans for the
hourly employees. Benefits under the plans are based upon employees'
compensation and years of service.


                                      54
<PAGE>

                           KOPPERS INDUSTRIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
  The funded status of the pension plans is as follows:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                               ----------------
                                                                1997     1996
                                                               -------  -------
                                                               (In thousands)
<S>                                                            <C>      <C>
Actuarial present value of benefit obligation:
  Vested benefits............................................. $67,954  $46,080
  Non-vested benefits.........................................   5,021    4,416
                                                               -------  -------
  Accumulated benefit obligation..............................  72,975   50,496
  Effect of future wage increases.............................   4,989    4,903
                                                               -------  -------
  Projected benefit obligation................................  77,964   55,399
Plan assets at fair value.....................................  69,501   52,297
                                                               -------  -------
Plan assets less than projected benefit obligation............  (8,463)  (3,102)
Unrecognized prior service costs..............................   1,381      453
Unrecognized net loss.........................................     482    2,758
                                                               -------  -------
Accrued pension costs (net of liabilities provided)........... $ 6,600  $   109
                                                               =======  =======
</TABLE>

  The components of pension expense are as follows:

<TABLE>
<CAPTION>
                                                    YEARS ENDED DECEMBER 31,
                                                    --------------------------
                                                      1997     1996     1995
                                                    --------  -------  -------
                                                         (In thousands)
<S>                                                 <C>       <C>      <C>
Service cost-benefits earned during the year....... $  3,331  $ 3,121  $ 2,176
Interest cost on projected benefit obligation......    4,057    4,037    3,252
(Gain) loss on plan assets.........................  (10,506)  (5,433)  (9,969)
Other..............................................    5,970      868    6,861
                                                    --------  -------  -------
Expense before curtailment loss.................... $  2,852  $ 2,593  $ 2,320
                                                    --------  -------  -------
Curtailment loss related to Woodward Coke plant
 closing...........................................    3,745       --       --
                                                    --------  -------  -------
Total expense...................................... $  6,597  $ 2,593  $ 2,320
                                                    ========  =======  =======
</TABLE>

  In determining the projected benefit obligation for funded status purposes,
a discount rate of 7.5% was used for both 1997 and 1996. In 1997 and 1996, the
assumed increase in future compensation was 4.0% for salaried employees and
3.5% for hourly employees. The long-term rate of return on plan assets is
assumed to be 9.0% annually. Plan assets consist of common stock, fixed income
securities and short-term investments. The Company currently funds the plans
based on ERISA requirements. The net increase in the accumulated benefit
obligation reflects the additional liabilities assumed by the Company
primarily as a result of the Koppers Australia acquisition and the closing of
the Woodward Facility in 1997.

  Postretirement Benefits--The Company sponsors a defined postretirement
benefit plan to provide medical and life insurance benefits to employees who
retire after attaining the required years of service with the Company,
including their spouses. Medical benefits are provided through a comprehensive
indemnity plan and community-rated health maintenance organizations.

  Currently, the Company pays a portion of the cost of such plans, but
reserves the right to modify cost-sharing provisions in the future. Life
insurance benefits are based primarily on the employee's compensation and are
also partially paid for by retiree contributions, which vary based upon
coverage chosen by the retiree.


                                      55
<PAGE>

                           KOPPERS INDUSTRIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
  In determining the accumulated postretirement benefit obligation for both
1997 and 1996, the Company used discount rates of 7.5%. Inflation factors for
the different types of medical costs were assumed to range from 9.7% to 13.0%
for 1997 and to decrease gradually to 6.7% per year within 14 years.

  The following summarizes the Company's accrued postretirement benefit
obligation:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                               ----------------
                                                                1997     1996
                                                               -------  -------
                                                               (In thousands)
   <S>                                                         <C>      <C>
   Accumulated postretirement benefit obligation:
     Active employees........................................  $13,723  $12,318
     Retired employees.......................................    2,194    1,841
                                                               -------  -------
       Total.................................................   15,917   14,159
   Plan assets...............................................       --       --
                                                               -------  -------
   Accumulated postretirement benefit obligation in excess of
    plan assets..............................................   15,917   14,159
   Unrecognized prior service cost...........................    5,006    2,853
   Unrecognized net gains....................................     (696)  (1,286)
                                                               -------  -------
   Accrued postretirement benefit obligation.................  $20,227  $15,726
                                                               =======  =======
</TABLE>

  Net periodic postretirement benefit cost includes the following components:

<TABLE>
<CAPTION>
                                                     YEARS ENDED DECEMBER 31,
                                                     ----------------------------
                                                        1997      1996     1995
                                                     ---------  -------- --------
                                                          (In thousands)
   <S>                                               <C>        <C>      <C>
   Service cost....................................  $     502  $   474  $   345
   Interest cost...................................        883      798      739
   Net amortization and deferrals..................       (699)    (313)    (368)
                                                     ---------  -------  -------
     Net periodic postretirement benefit cost
      before curtailment...........................        636      959      716
                                                     ---------  -------  -------
   Curtailment related to Woodward Coke plant
    closing........................................      3,180       --       --
                                                     ---------  -------  -------
     Net periodic postretirement benefit cost after
      curtailment..................................  $   3,816  $   959  $   716
                                                     =========  =======  =======
</TABLE>

  An increase of 1% in the assumed medical cost inflation rate as of the
beginning of the projection period would increase the accumulated
postretirement benefit obligation by 6.2% and would increase the net
postretirement benefit cost (excluding curtailment costs) by 20.6%.

  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 $2.6 million in 1997, $2.9 million in 1996, and $4.1
million in 1995. For incentive related to 1995 and 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 the
employees' contributions to the plan.

  The Company's regular contributions amounted to $0.5 million in 1997 and
$0.6 million in 1996 and 1995. The Company may also make a supplemental
contribution at the end of each Plan Year subject to Board

                                      56
<PAGE>

                           KOPPERS INDUSTRIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
approval. Expense for supplemental contributions amounted to $0.4 million,
$0.5 million and $1.1 million in 1997, 1996 and 1995, respectively. All
regular and supplemental matching contributions are made in voting Common
Stock of the Company held in Treasury.

9. INCOME TAXES

  Components of the Company's income tax (benefit) provision are as follows:

<TABLE>
<CAPTION>
                                                     YEARS ENDED DECEMBER 31,
                                                     --------------------------
                                                       1997     1996      1995
                                                     --------  --------  ------
                                                          (In thousands)
   <S>                                               <C>       <C>       <C>
   Current:
     Federal........................................ $  6,280  $  3,904  $5,133
     State and foreign..............................    1,039       872     995
                                                     --------  --------  ------
       Total current tax provision..................    7,319     4,776   6,128
   Deferred:
     Federal........................................  (23,578)   (9,965)  3,592
     State..........................................   (3,415)     (950)    243
                                                     --------  --------  ------
       Total deferred tax (benefit) provision.......  (26,993)  (10,915)  3,835
                                                     --------  --------  ------
   Total income tax (benefit) provision............. $(19,674) $ (6,139) $9,963
                                                     ========  ========  ======
</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,
                                                                ---------------
                                                                 1997    1996
                                                                ------- -------
                                                                (In thousands)
   <S>                                                          <C>     <C>
   Deferred tax assets:
     Alternative minimum tax credits........................... $10,566 $ 5,022
     OPEB obligation...........................................   8,996   6,237
     Reserves, including insurance and product warranty........  33,559  14,584
     Book/tax inventory accounting.............................   2,483   1,963
     Accrued vacation pay......................................   1,754   1,292
     Other.....................................................   2,383   2,463
                                                                ------- -------
       Total deferred tax assets...............................  59,741  31,561
                                                                ------- -------
   Deferred tax liabilities:
     Tax over book depreciation and amortization...............  21,841  25,184
     Other.....................................................   2,873   2,354
                                                                ------- -------
     Total deferred tax liabilities............................  24,714  27,538
                                                                ------- -------
     Net deferred tax assets................................... $35,027 $ 4,023
                                                                ======= =======
</TABLE>


                                      57
<PAGE>

                           KOPPERS INDUSTRIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
  The (benefit) provision for income taxes is reconciled with the federal
statutory rate as follows:

<TABLE>
<CAPTION>
                                                  YEARS ENDED DECEMBER 31,
                                                  ------------------------------
                                                    1997       1996       1995
                                                  --------   --------   --------
   <S>                                            <C>        <C>        <C>
   Federal.......................................    (35.0)%     35.0%     35.0%
     State, net of federal tax benefit...........     (7.5)      (3.7)      2.1
     Equity earnings of foreign affiliates.......     (5.1)     (35.7)     (8.3)
     Foreign taxes...............................      3.8       10.0       0.4
     Section 29 credits..........................    (37.9)     (87.9)       --
     Other.......................................      1.6        5.2      (0.2)
                                                  --------   --------   -------
                                                     (80.1)%    (77.1)%    29.0%
                                                  ========   ========   =======
</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, 1997 consolidated retained earnings of the Company included
approximately $6.0 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, 1997 and 1996 were approximately $9.0 million and
$7.0 million, respectively.

  The Company has an alternative minimum tax credit carryforward of
approximately $10.6 million. The credit has no expiration date.


                                      58
<PAGE>

                            KOPPERS INDUSTRIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                YEARS ENDED DECEMBER 31,
                                          -------------------------------------
                                                1997         1996         1995
                                          ------------ ------------------------
                                          (In thousands except shares figures)
<S>                                       <C>          <C>         <C>
Numerator for basic and diluted:
Net income to common stockholders before
 extraordinary item...................... $     1,039  $    14,098 $     24,440
    Net income (loss) to common
     stockholders........................      (5,657)      14,098       24,440
Denominators:
  Weighted-average voting common shares..   2,955,930    5,290,151    5,351,907
  Weighted-average non-voting common
   shares................................   3,205,168    3,867,749    2,338,200
                                          -----------  ----------- ------------
Denominators for basic earnings per
 share...................................   6,161,098    9,157,900    7,690,107
Effect of dilutive securities:
  Convertible Preferred Stock............   2,145,624           --    2,340,000
  Employee stock options.................     396,852      461,813      346,551
                                          -----------  ----------- ------------
Dilutive potential common shares.........   2,542,476      461,813    2,686,551
Denominators for diluted earnings per
 share--adjusted weighted-average shares
 and assumed conversions.................   8,703,574    9,619,713   10,376,658
Income before extraordinary item:
  Basic earnings per share............... $      0.17  $      1.54 $       3.18
  Diluted earnings per share............. $      0.12  $      1.47 $       2.36
Extraordinary item:
  Basic earnings per share............... $     (1.09) $        -- $         --
  Diluted earnings per share............. $     (0.77) $        -- $         --
Net income (loss):
  Basic earnings per share............... $     (0.92) $      1.54 $       3.18
  Diluted earnings per share............. $     (0.65) $      1.47 $       2.36
</TABLE>

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.

  The pro forma effect on net income and earnings per share for 1997, 1996 and
1995 of the fair value method required by Statement No. 123, "Accounting for
Stock-Based Compensation" is not substantially different than the method
utilized by the Company. 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 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; (b) for 1995, risk-free interest rate of 6%; dividend yield of
2.7%; volatility factor of .18; and an expected option life of 10 years.

  The Company's Board of Directors has awarded 802,800 options, approximately
626,000 of which were outstanding at December 31, 1997, to purchase shares of
voting common stock to certain key executives, at various exercise prices. All
options granted have 10-year terms and vest and become fully exercisable at the
end of three years of continued employment.

                                       59
<PAGE>

                           KOPPERS INDUSTRIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  A summary of the Company's stock option activity and related information for
the years ended December 31 follows:

<TABLE>
<CAPTION>
                                   1997                   1996                   1995
                          ---------------------- ---------------------- ----------------------
                                    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................     650       $ 4         705        $ 4          639       $ 3
Granted.................      88        14          --         --          113        11
Exercised...............    (111)        6         (54)         2          (47)        1
Forfeited...............      (1)       11          (1)        11           --        --
Outstanding at end of
 year...................     626       $ 5         650        $ 4          705       $ 4
Exercisable at end of
 year...................     626       $ 5         590        $ 4          607       $ 3
Weighted-average fair
 value of options
 granted during the
 year...................   $6.20                    --                   $2.84
</TABLE>

  Exercise prices for options outstanding as of December 31, 1997 ranged from
$1.11 to $14.00, and the weighted-average remaining contractual life of those
options was 4.7 years. Pursuant to the provisions of the Company's stock
option plan, all options became vested in 1997 due to a change of control.

12. COMMITMENTS AND CONTINGENCIES

  A number of lawsuits, claims and proceedings have been or may be asserted
against the Company relating to the conduct of its business, including those
pertaining to product liability, warranties, employment and employee benefits.
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 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. Under the
terms of the asset purchase agreement between Koppers Industries, Inc. and
Koppers Company, Inc. at the formation of the Company in 1988 (the "Asset
Purchase Agreement") Beazer East, Inc. ("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.

                                      60
<PAGE>

                           KOPPERS INDUSTRIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  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 $14 million per year. The requirement to pay such costs
without reimbursement would have a material adverse effect on the business,
financial condition and results of operations of the Company. Furthermore, if
the Company were required to record a contingent 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 pre-Closing operation of assets which the Company 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.

  The Company recently evaluated the environmental liabilities related to the
manufacturing sites acquired by the Company at its formation in 1988,
primarily located in the United States. The evaluation was based on a report
prepared by an independent consultant, which in turn was based on public
documents that had been submitted to various federal and state regulatory
entities on specific sites. In addition to the public documents, the
evaluation and report were also based on assumptions about the course of
future regulatory remediation requirements and the technical knowledge of the
Company and the independent consultant. The evaluation and report estimated
that approximately $111.1 million will be expended at these sites for
environmental remediation during the period of 1998 to 2042. The Company
estimates that approximately $92.9 million of this amount is covered under the
Indemnity, that it is responsible for approximately $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, 1998, 1999, 2000, 2001, and 2002
environmental expenses will total approximately $3.8 million, $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 and remediation of these sites will not exceed this estimate.
The factors that could affect the estimate include: new information about the
contamination at these sites, new interpretations of existing environmental
laws, new environmental laws, and more vigorous enforcement policies of
regulatory authorities. Further, in the event that Beazer East does not
fulfill its commitments, the Company may be required to pay costs that could
have a material adverse effect on the business, financial condition, cash
flow, and results of operations of the Company.

 Other Environmental Matters

  The Jefferson County Department of Health ("Jefferson County") issued a
notice of violation in March 1996 in connection with various alleged
violations of Jefferson County's air pollution control regulations for
emissions from coke oven batteries at the Company's Woodward Facility during
the period May 26, 1992 through March 1, 1996. On February 14, 1997 the United
States Environmental Protection Agency ("EPA") issued a notice of violation
covering the same issues that were raised in the Jefferson County notice of
violation. Thereafter, the Company discovered that certain benzene abatement
equipment at the Woodward Facility had not been operational for several
months. Following a preliminary investigation, the Company also discovered
that certain reports and records contained incomplete and inaccurate
information and that certain environmental

                                      61
<PAGE>

                           KOPPERS INDUSTRIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
reports and certifications were not filed when required. The Company has
notified Jefferson County, the State of Alabama and the EPA of the
environmental irregularities, and the environmental reporting status of the
Woodward Facility has been brought up to date by the Company. Counsel and
independent investigators were retained to conduct a complete and thorough
investigation; and the benzene abatement equipment had been returned to
service prior to the ceasing of operations in January 1998. However, the
Company could be subject to significant liability in connection with these
matters, including fines and civil and criminal penalties and the risk of
third-party lawsuits. The Company and Jefferson County have negotiated a
settlement agreement (the "Settlement Agreement") which would have required
the Company to install monitoring and control equipment and institute
operational changes; subsequent to the Settlement Agreement, the Company has
permanently shut down all coke oven batteries at the Woodward Facility. The
Settlement Agreement included both the original Jefferson County notice of
violation and the self-reported benzene abatement violations. The Settlement
Agreement, in addition to the changes listed above, also required the Company
to pay a civil penalty in the amount of $450,000 to Jefferson County, which
was paid in 1997. On February 9, 1998 Jefferson County proposed a modified
settlement agreement to address alleged air exceedences from August 1997
through January 1998 which includes an additional penalty in the amount of
$575,000. 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 settlement with
Jefferson County will deter the EPA from pursuing its notice of violation and
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.

  During the investigation of the Woodward Facility described above, it was
also discovered that certain environmental records and reports relating to
discharges of treated process water and treated storm water contained
incomplete and inaccurate information. Corrected reports have been submitted
to the State of Alabama and the EPA. While no notice of violation has been
issued in connection with this matter, it is believed likely that a notice of
violation will be issued and substantial penalties may be sought by the State
of Alabama or the EPA.

  The Pennsylvania Department of Environmental Protection ("PADEP") previously
issued a notice of violation alleging that the boilers at the Monessen,
Pennsylvania coke facility (the "Monessen Facility") are emitting greater
quantities of nitrogen oxides than allowed under a plan approved by PADEP. The
Company also received a notice of violation in connection with a failure to
conduct timely emission monitoring testing on the boilers at the Monessen
Facility. The Company has installed additional equipment and modified existing
equipment to improve the quality of boiler emissions. Resolution of these
matters could have a negative effect on the business, financial condition,
cash flow and results of operations of the Company. The Company has submitted
an amended plan approval application to PADEP that provides for limitations on
the operation of the two boilers at the Monessen Facility. PADEP is currently
reviewing this application. As a result of the failure to meet the original
nitrogen oxide emission limitations, it is expected that PADEP will propose a
civil penalty in an amount of approximately $100,000. However, there can be no
assurance that a higher penalty will not be sought.

  On June 12, 1996 PADEP issued a notice of violation in connection with an
alleged noncompliance with the terms of a consent agreement between the
Company and PADEP regarding liability for environmental conditions existing at
the time the Company purchased the Monessen Facility (the "Consent
Agreement"). The notice of violation alleged that the Company had not
implemented the corrective actions required under the Consent Agreement in a
timely fashion. The Company has completed the implementation of the corrective
actions at issue and has settled this matter by payment of a fine in the
amount of $261,000 in January 1998. At the Monessen Facility, the Company has
entered into a consent order and agreement with the EPA (the "Monessen Consent
Order") pursuant to which the Company's liabilities for environmental cleanup
have been

                                      62
<PAGE>

                           KOPPERS INDUSTRIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
capped at $550,000 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 has not been identified pursuant to the Monessen Consent
Order, or if the EPA should require cleanup above the $550,000 "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.

  In June 1997, during a routine environmental compliance audit of the
Logansport, Louisiana wood treating plant, it was discovered that certain
records and reports relating to discharges 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. While no notice
of violation has been issued in connection with this matter, it is believed
that it is likely a notice of violation will be issued and civil penalties
will be sought by the local municipality, the State of Louisiana and the EPA.

  In September 1996, the Company was served with a notice of violation from
the Illinois Environmental Protection Agency ("IEPA") relating to 16 releases
of hazardous materials which occurred at or from its facility located in
Stickney, Illinois between January 24, 1990 and May 3, 1996. The Company has
entered into negotiations with the IEPA to investigate four of the releases
which had the potential to cause groundwater contamination. Although the
Company believes that all such releases were remediated when they occurred,
there can be no assurances that the IEPA will not require additional action in
connection with this matter.

  In addition to the environmental issues discussed above, the Company has
received or expects to receive notices of violations and requests for
information at its Monessen Facility and the Stickney, Illinois and
Follansbee, West Virginia tar distillation and chemicals facilities that
relate to matters which the Company does not believe will have a material
impact on the business, financial condition, cash flow and results of
operations of the Company.

  On occasion, Koppers Australia has been served with notices relating to
environmental compliance issues arising in connection with its operations.
Koppers Australia was 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. Koppers Australia is currently in negotiations with the DELM
with respect to this issue. 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 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.

 Other Matters

  As a result of an internal investigation, the Company discovered in March
1997 that certain reports relating to the moisture of coke contained
incomplete and inaccurate information. Because of these discrepancies, certain
customers who purchased the coke were overbilled. Upon discovery of the
overbilling, refunds were made to all the affected customers.

  For a fee, the Company treats waste water produced by Beazer East during
Beazer East's remediation of certain of the Company's facilities. Beazer East
performs these remediation activities pursuant to the Indemnity.

                                      63
<PAGE>

                           KOPPERS INDUSTRIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the summer of 1997, Beazer East challenged the amounts of the charges
for waste water treatment services at the Florence, South Carolina wood
treating facililty and the Follansbee, West Virginia carbon materials and
chemicals facility. Beazer East alleged they had been overcharged by
approximately $2.2 million at Florence and by approximately $3.1 million at
Follansbee. The Company has contested these allegations and believes that if
an overcharge occurred, the amount of the overcharge is substantially less
than Beazer East has alleged.

 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 the fourth quarter of 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.

 Rents

  Rent expense for 1997, 1996 and 1995 was $13.5 million, $13.5 million, and
$11.1 million, respectively. Commitments during the next five years under
operating leases approximate $15 million per year.

                                      64
<PAGE>

                           KOPPERS INDUSTRIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

13. OPERATIONS BY BUSINESS SEGMENT

  The Company's operations have been carried out in three business segments
prior to the acquisition of Koppers Australia. Financial information about
each business segment is provided in the following table:

<TABLE>
<CAPTION>
                                     BUSINESS SEGMENTS
                          -----------------------------------------
                            CARBON    RAILROAD
                           MATERIALS  & UTILITY   COKE     KOPPERS
                          & CHEMICALS PRODUCTS  PRODUCTS  AUSTRALIA CORPORATE   TOTAL
                          ----------- --------- --------  --------- ---------  --------
                                                (In thousands)
<S>                       <C>         <C>       <C>       <C>       <C>        <C>
YEAR ENDED DECEMBER 31,
 1997:
Net sales...............   $241,148   $255,204  $ 96,708  $     --  $     --   $593,060
Operating profit (loss).     36,389     15,685   (45,915)       --   (11,447)    (5,288)
Identifiable assets.....    140,188    107,214    50,562   144,068    58,143    500,175
Depreciation and
 amortization...........      9,622      6,862     5,865        --     1,158     23,507
Capital expenditures....      7,048      6,154     6,191        --    34,535     53,928
YEAR ENDED DECEMBER 31,
 1996:
Net sales...............   $239,298   $239,913  $109,333  $     --  $     --   $588,544
Operating profit (loss).     24,705     16,685    (3,516)       --   (10,243)    27,631
Identifiable assets.....    150,377    111,804    69,521        --    79,478    411,180
Depreciation and
 amortization...........      8,654      6,362     5,726        --     1,051     21,793
Capital expenditures....     48,504      5,209     7,237        --       284     61,234
YEAR ENDED DECEMBER 31,
 1995:
Net sales...............   $197,434   $248,212  $ 80,084  $     --  $     --   $525,730
Operating profit (loss).     27,358     22,621        33        --   (10,164)    39,848
Identifiable assets.....     98,334    121,162    70,824        --    58,635    348,955
Depreciation and
 amortization...........      6,694      5,832     4,132        --       874     17,532
Capital expenditures....      7,623     16,229    26,289        --        --     50,141
</TABLE>

  Intersegment sales of $13.2 million, $13.9 million and $12.1 million have
been eliminated in 1997, 1996 and 1995, respectively, from the schedule of
segment information.

  Sales to LTV Steel Company, Inc. by the Coke Products business amounted to
10.8% of the Company's total net sales for 1996.

14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

  The following is a summary of the quarterly results of operations for the
years ended December 31, 1997 and 1996:

<TABLE>
<CAPTION>
                           1ST QUARTER    2ND QUARTER   3RD QUARTER   4TH QUARTER
                          -------------  ------------- ------------- --------------
                           1997   1996    1997   1996   1997   1996   1997    1996
                          ------ ------  ------ ------ ------ ------ ------  ------
                                  (In millions, except per share figures)
<S>                       <C>    <C>     <C>    <C>    <C>    <C>    <C>     <C>
Net sales...............  $134.0 $126.7  $157.6 $156.9 $160.7 $159.9 $140.8  $145.0
Operating profit (loss).  $  6.1 $  4.2  $ 11.3 $ 13.9 $ 14.5 $  3.2 $(37.3) $  6.3
Net income (loss) before
 extraordinary item.....  $  3.4 $ (7.7) $  6.3 $ 10.7 $ 12.4 $  2.5 $(21.2) $  8.6
Basic earnings (loss)
 per share..............  $ 0.39 $(0.78) $ 0.72 $ 1.20 $ 1.41 $ 0.29 $(4.53) $ 0.97
Diluted earnings (loss)
 per share..............  $ 0.37 $(0.78) $ 0.69 $ 1.14 $ 1.34 $ 0.27 $(4.53) $ 0.91
Net income (loss).......  $  3.4 $ (7.7) $  6.3 $ 10.7 $ 12.4 $  2.5 $(27.9) $  8.6
Basic earnings (loss)
 per share..............  $ 0.39 $(0.78) $ 0.72 $ 1.20 $ 1.41 $ 0.29 $(5.96) $ 0.97
Diluted earnings (loss)
 per share..............  $ 0.37 $(0.78) $ 0.69 $ 1.14 $ 1.34 $ 0.27 $(5.96) $ 0.91
</TABLE>


                                      65
<PAGE>

                           KOPPERS INDUSTRIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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, other than
Koppers Australia Pty. Limited, 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, 1997
                                (In thousands)

<TABLE>
<CAPTION>
                                                     NON-
                                     GUARANTOR    GUARANTOR
                           PARENT   SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
                          --------  ------------ ------------ ------------ ------------
<S>                       <C>       <C>          <C>          <C>          <C>
Current assets..........  $169,193    $98,958      $54,998     $ (97,679)    $225,470
Non-current assets......   288,580     99,668       16,106      (129,649)     274,705
Current liabilities.....   156,372     25,875       31,565       (97,542)     116,270
Non-current liabilities.   309,108     79,309       11,533       (27,821)     372,129
Net sales...............   592,852     12,574        7,178       (19,544)     593,060
Gross profit (after
 depreciation and
 restructuring).........     9,950     12,714        1,194        (1,078)      22,780
Net income (loss) before
 extraordinary item.....   (12,461)    11,318        2,615          (433)       1,039
Net income (loss).......   (19,157)    11,318        2,615          (433)      (5,657)
</TABLE>

                  SUMMARIZED CONDENSED FINANCIAL INFORMATION
                     FOR THE YEAR ENDED DECEMBER 31, 1996
                                (In thousands)

<TABLE>
<CAPTION>
                                                     NON-
                                     GUARANTOR    GUARANTOR
                           PARENT   SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
                          --------  ------------ ------------ ------------ ------------
<S>                       <C>       <C>          <C>          <C>          <C>
Current assets..........  $169,177    $19,636      $33,947      $(62,494)    $160,266
Non-current assets......   224,800     22,263       34,052       (30,201)     250,914
Current liabilities.....   122,108      7,718       15,246       (62,494)      82,578
Non-current liabilities.   237,272          5       13,262            --      250,539
Net sales...............   587,861     12,893        3,171       (15,381)     588,544
Gross profit (after
 depreciation &
 restructuring).........    44,997     10,681          163          (665)      55,176
Net income (loss) before
 extraordinary item.....    (1,694)    14,229        2,120          (557)      14,098
Net income (loss).......    (1,694)    14,229        2,120          (557)      14,098
</TABLE>

                                      66
<PAGE>

                            KOPPERS INDUSTRIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                   SUMMARIZED CONDENSED FINANCIAL INFORMATION
                      FOR THE YEAR ENDED DECEMBER 31, 1995
                                 (In thousands)

<TABLE>
<CAPTION>
                                                   NON-
                                   GUARANTOR    GUARANTOR
                          PARENT  SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
                          ------- ------------ ------------ ------------ ------------
<S>                       <C>     <C>          <C>          <C>          <C>
Net sales...............  525,206       523       1,955        (1,954)     525,730
Gross profit (after
 depreciation &
 restructuring).........   67,930    (1,393)        915            --       67,452
Net income (loss) before
 extraordinary item.....   14,878     5,503       4,410          (351)      24,440
Net income (loss).......   14,878     5,503       4,410          (351)      24,440
</TABLE>

                                       67
<PAGE>

                        REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of
KOPPERS AUSTRALIA PTY. LIMITED

  We audited the accompanying consolidated balance sheets of Koppers Australia
Pty. Limited as of June 30, 1997 and June 30, 1996, and the related
consolidated statements of profit and loss and cash flows for the two years
ended June 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

  We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

  In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the consolidated financial position
of Koppers Australia Pty. Limited at June 30, 1997 and 1996 and the
consolidated results of their operations and their cash flows for the years
ended June 30, 1997 and 1996 in conformity with generally accepted accounting
principles in the United States.

  As discussed in Note 1 to the financial statements, in fiscal 1997, the
Company changed its method of accounting for investments in associates.

                                          /s/ Ernst & Young

Sydney, Australia
August 25, 1997

                                      68
<PAGE>

                         KOPPERS AUSTRALIA PTY. LIMITED

                               (ACN 000 566 629)

                      CONSOLIDATED PROFIT AND LOSS ACCOUNT

                       YEARS ENDED 30 JUNE 1997 AND 1996

<TABLE>
<CAPTION>
                                                                1997     1996
                                                         NOTES A$'000   A$'000
<S>                                                      <C>   <C>      <C>
OPERATING REVENUE.......................................    2  171,460  173,763
                                                               =======  =======
OPERATING PROFIT BEFORE ABNORMAL ITEMS AND INCOME TAX...    2   29,977   29,194
ABNORMAL ITEMS BEFORE INCOME TAX........................    3   (1,663)      --
                                                               -------  -------
OPERATING PROFIT BEFORE INCOME TAX......................    2   28,314   29,194
INCOME TAX ATTRIBUTABLE TO OPERATING PROFIT.............    4    9,376   10,397
                                                               -------  -------
OPERATING PROFIT AFTER INCOME TAX.......................        18,938   18,797
OUTSIDE EQUITY INTERESTS IN OPERATING PROFIT AFTER
 INCOME TAX.............................................   24    1,877    2,750
                                                               -------  -------
OPERATING PROFIT AFTER INCOME TAX
  Attributable to members of Koppers Australia Pty.
   Limited..............................................    5   17,061   16,047
RETAINED PROFITS
  At the beginning of the financial year................        72,042   64,995
  Adjustments Resulting from Adoption of New Accounting
   Standard.............................................         8,970       --
                                                               -------  -------
TOTAL AVAILABLE FOR APPROPRIATION.......................        98,073   81,042
DIVIDENDS PAID..........................................    5    6,501    9,000
                                                               -------  -------
RETAINED PROFITS
  At the end of the financial year......................        91,572   72,042
                                                               =======  =======
</TABLE>



The Profit and Loss Account should be read in conjunction with the accompanying
                                     notes.

                                       69
<PAGE>

                         KOPPERS AUSTRALIA PTY. LIMITED

                               (ACN 000 566 629)

                           CONSOLIDATED BALANCE SHEET

                            AT 30 JUNE 1997 AND 1996

<TABLE>
<CAPTION>
                                                                  1997    1996
                                                           NOTES A$'000  A$'000
<S>                                                        <C>   <C>     <C>
CURRENT ASSETS
  Cash....................................................         6,379   1,805
  Receivables.............................................    7   25,737  23,566
  Inventories.............................................    8   37,494  33,809
  Other...................................................    9      989   1,680
                                                                 ------- -------
    TOTAL CURRENT ASSETS..................................        70,599  60,860
                                                                 ------- -------
NON-CURRENT ASSETS
  Receivables.............................................   10    6,355   6,355
  Inventories.............................................   11    1,765   1,765
  Investments.............................................   12   20,623   5,349
  Property, plant and equipment...........................   13   65,009  67,210
  Intangibles.............................................   14    1,229   1,332
  Other...................................................   15    2,876   1,717
                                                                 ------- -------
    TOTAL NON-CURRENT ASSETS..............................        97,857  83,728
                                                                 ------- -------
    TOTAL ASSETS..........................................       168,456 144,588
                                                                 ------- -------
CURRENT LIABILITIES
  Accounts payable........................................   16   12,178  12,041
  Borrowings..............................................   17    3,526   1,573
  Provisions..............................................   18   13,536  15,332
                                                                 ------- -------
    TOTAL CURRENT LIABILITIES.............................        29,240  28,946
                                                                 ------- -------
NON-CURRENT LIABILITIES
  Accounts payable........................................   19       22      --
  Borrowings..............................................   20   11,500  11,302
  Provisions..............................................   21    5,767   5,079
                                                                 ------- -------
    TOTAL NON-CURRENT LIABILITIES.........................        17,289  16,381
                                                                 ------- -------
    TOTAL LIABILITIES.....................................        46,529  45,327
                                                                 ------- -------
NET ASSETS................................................       121,927  99,621
                                                                 ======= =======
SHAREHOLDERS' EQUITY
  Share capital...........................................   22   14,559  14,559
  Reserves................................................   23    7,005   4,487
  Retained profits........................................        91,572  72,042
                                                                 ------- -------
  Total parent entity interest in equity..................       113,136  91,088
  Outside equity interest
    Issued capital........................................         2,940   2,940
    Reserves..............................................           467     230
    Retained profits......................................         5,384   5,003
                                                                 ------- -------
    Total outside equity interest.........................   24    8,791   8,173
                                                                 ------- -------
    TOTAL SHAREHOLDERS' EQUITY............................       121,927  99,261
                                                                 ======= =======
</TABLE>

  The Balance Sheet should be read in conjunction with the accompanying notes.

                                       70
<PAGE>

                         KOPPERS AUSTRALIA PTY. LIMITED

                               (ACN 000 566 629)

                      CONSOLIDATED STATEMENT OF CASH FLOWS

                       YEARS ENDED 30 JUNE 1997 AND 1996

<TABLE>
<CAPTION>
                                                              1997      1996
                                                      NOTES  A$'000    A$'000
<S>                                                   <C>   <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Receipts from customers............................        162,998   172,722
  Payments to suppliers and employees................       (129,110) (131,431)
  Interest received..................................            428       305
  Interest and other costs of finance paid...........         (1,185)   (1,941)
  Income tax paid....................................        (17,012)   (9,704)
                                                            --------  --------
NET CASH FLOWS FROM OPERATING ACTIVITIES.............   25    16,119    29,951
                                                            --------  --------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of shares in controlled entity............             --    (7,046)
  Acquisition of property, plant and equipment.......         (9,165)   (7,961)
  Proceeds from sale of property, plant and
   equipment.........................................            715       531
  Dividends received.................................            981       986
  Cash paid for investment in partnership............             --    (2,073)
                                                            --------  --------
NET CASH FLOWS FROM INVESTING ACTIVITIES.............         (7,469)  (15,563)
                                                            --------  --------
CASH FLOWS FROM FINANCING ACTIVITIES
  Dividends paid.....................................         (6,501)   (9,000)
  Dividends paid to outside equity interests.........         (1,496)   (2,790)
  Borrowing repayments...............................             --    (2,025)
  Proceeds from borrowings...........................          2,989        --
                                                            --------  --------
NET CASH FLOWS FROM FINANCING ACTIVITIES.............         (5,008)  (13,815)
                                                            --------  --------
NET INCREASE/(DECREASE) IN CASH HELD.................          3,642       573
  Add opening cash brought forward...................          3,950     3,626
  Effects of exchange rate changes on foreign
   currencies at beginning of the financial year.....            143      (249)
                                                            --------  --------
CLOSING CASH CARRIED FORWARD.........................   25     7,735     3,950
                                                            ========  ========
</TABLE>



The Statement of Cash Flows should be read in conjunction with the accompanying
                                     notes.

                                       71
<PAGE>

                         KOPPERS AUSTRALIA PTY. LIMITED

                               (ACN 000 566 629)

                            PROFIT AND LOSS ACCOUNT

                       YEARS ENDED 30 JUNE 1997 AND 1996

<TABLE>
<CAPTION>
                                                                   1997   1996
                                                            NOTES A$'000 A$'000
<S>                                                         <C>   <C>    <C>
OPERATING REVENUE..........................................    2   8,876 13,695
                                                                  ====== ======
OPERATING PROFIT...........................................    2   6,938 11,168
INCOME TAX ATTRIBUTABLE TO OPERATING PROFIT................    4     175    (95)
                                                                  ------ ------
OPERATING PROFIT AFTER INCOME TAX..........................        6,763 11,263
RETAINED PROFITS
  At the beginning of the financial year...................       13,970 11,707
                                                                  ------ ------
TOTAL AVAILABLE FOR APPROPRIATION..........................       20,733 22,970
DIVIDENDS PAID.............................................    6   6,501  9,000
                                                                  ------ ------
RETAINED PROFITS...........................................
  At the end of the financial year.........................       14,232 13,970
                                                                  ====== ======
</TABLE>





The Profit and Loss Account should be read in conjunction with the accompanying
                                     notes.

                                       72
<PAGE>

                         KOPPERS AUSTRALIA PTY. LIMITED

                               (ACN 000 566 629)

                                 BALANCE SHEET

                            AT 30 JUNE 1997 AND 1996

<TABLE>
<CAPTION>
                                                                    1997   1996
                                                             NOTES A$'000 A$'000
<S>                                                          <C>   <C>    <C>
CURRENT ASSETS
  Cash......................................................           --     10
  Receivables...............................................    7     956    248
  Other.....................................................    9      46      3
                                                                   ------ ------
    TOTAL CURRENT ASSETS....................................        1,002    261
                                                                   ------ ------
NON-CURRENT ASSETS
  Investments...............................................   12  45,692 45,692
  Property, plant and equipment.............................   13     120    114
  Other.....................................................   15     306    217
                                                                   ------ ------
    TOTAL NON-CURRENT ASSETS................................       46,118 46,023
                                                                   ------ ------
    TOTAL ASSETS............................................       47,120 46,284
                                                                   ------ ------
CURRENT LIABILITIES
  Accounts payable..........................................   16     285    160
  Borrowings................................................   17   1,369  2,286
  Provisions................................................   18     487    477
                                                                   ------ ------
    TOTAL CURRENT LIABILITIES...............................        2,141  2,923
                                                                   ------ ------
NON-CURRENT LIABILITIES
  Borrowings................................................   20   1,500     --
  Provisions................................................   21     330    474
                                                                   ------ ------
    TOTAL NON-CURRENT LIABILITIES...........................        1,830    474
                                                                   ------ ------
    TOTAL LIABILITIES.......................................        3,971  3,397
                                                                   ------ ------
NET ASSETS..................................................       43,149 42,887
                                                                   ====== ======
SHAREHOLDERS' EQUITY
  Share capital.............................................   22  14,559 14,559
  Reserves..................................................   23  14,358 14,358
  Retained profits..........................................       14,232 13,970
                                                                   ------ ------
    TOTAL SHAREHOLDERS' EQUITY..............................       43,149 42,887
                                                                   ====== ======
</TABLE>



  The Balance Sheet should be read in conjunction with the accompanying notes.

                                       73
<PAGE>

                         KOPPERS AUSTRALIA PTY. LIMITED

                               (ACN 000 566 629)

                            STATEMENT OF CASH FLOWS

                       YEARS ENDED 30 JUNE 1997 AND 1996

<TABLE>
<CAPTION>
                                                                  1997    1996
                                                           NOTES A$'000  A$'000
<S>                                                        <C>   <C>     <C>
CASH FLOW FROM OPERATING ACTIVITIES
  Interest received.......................................          154       8
  Receipts from customers.................................        2,126   2,630
  Dividends received......................................        6,542  11,710
  Payments to suppliers and employees.....................       (1,749) (1,816)
  Income tax paid.........................................         (164)   (260)
  Interest and other costs of finance paid................         (245)    (42)
                                                                 ------  ------
NET CASH FLOWS FROM OPERATING ACTIVITIES..................   25   6,664  12,230
                                                                 ------  ------
CASH FLOW FROM INVESTING ACTIVITIES
  Proceeds from sale of property, plant and equipment.....           54      --
  Acquisition of property, plant and equipment............          (92)    (14)
  Purchase of shares......................................           --  (7,046)
                                                                 ------  ------
NET CASH FLOWS USED IN INVESTING ACTIVITIES...............          (38) (7,060)
                                                                 ------  ------
CASH FLOW FROM FINANCING ACTIVITIES
  Borrowings--other.......................................        1,500      --
  Borrowings--related parties.............................       (1,704)  2,900
  Dividends paid..........................................       (6,501) (9,000)
                                                                 ------  ------
NET CASH FLOWS USED IN FINANCING ACTIVITIES...............       (6,705) (6,100)
                                                                 ------  ------
NET INCREASE/(DECREASE) IN CASH HELD......................          (79)   (930)
  Add opening cash brought forward........................           10     940
                                                                 ------  ------
CLOSING CASH CARRIED FORWARD..............................   25      69      10
                                                                 ======  ======
</TABLE>




The Statement of Cash Flows should be read in conjunction with the accompanying
                                     notes.

                                       74
<PAGE>

                        KOPPERS AUSTRALIA PTY. LIMITED

                               (ACN 000 566 629)

             NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

                             30 JUNE 1997 AND 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 a) Basis of accounting

  The financial statements are general purpose financial statements which have
been made out in accordance with the requirements of the Corporations Law
which include disclosures required by Schedule 5 and applicable Accounting
Standards and other mandatory professional reporting requirements (Urgent
Issues Group Consensus Views).

  The accounting policies adopted are consistent with those of the previous
year except as outlined below.

  In accordance with ASC Class Order 97/0798, the directors have elected to
adopt the provisions of Proposed Revised Accounting Standard AASB1016
Accounting for Investments in Associates. The effect is that investments in
associates are brought to account using the equity method of accounting under
which the carrying amount of the investment is increased or decreased to
recognise the investor's share of the post-acquisition profits or losses and
other changes in net assets of the associate. The investor's share of the
post-acquisition profits or losses of the associate is included in the
consolidated profit or loss account of the investor.

  Investments in associates were previously brought to account at cost. (Refer
Note 12)

 b) Foreign currencies

  Translation of foreign currency transactions

  Transactions in foreign currencies of entities within the economic entity
are converted to local currency at the rate of exchange ruling at the date of
the transaction.

  Amounts payable to and by the entities within the economic entity that are
outstanding at the balance date and are denominated in foreign currencies have
been converted to local currency using rates of exchange ruling at the end of
the financial year.

  Except for certain specific hedges and hedges of foreign currency
operations, all resulting exchange differences arising on settlement or
restatement are brought to account in determining the profit or loss for the
financial year, and transaction costs, premiums and discounts on forward
currency contracts are deferred and amortized over the life of the contract.

  Specific hedges

  Where a purchase or sale is specifically hedged, exchange gains or losses on
the hedging transaction arising up to the date of purchase or sale and costs,
premiums and discounts relative to the hedging transaction are included with
the purchase or sale. Exchange gains and losses arising on the hedge
transaction after that date are taken to the profit and loss account.

  Hedges of foreign operations

  Exchange gains and losses on transactions hedging investments in foreign
operations are taken to the foreign currency translation reserve on
consolidation.


                                      75
<PAGE>

                         KOPPERS AUSTRALIA PTY. LIMITED

       NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
  Translation of accounts of overseas operations

    All overseas operations are deemed self-sustaining as each is financially
  and operationally independent of Koppers Australia Pty. Limited. The
  accounts of overseas operations are translated using the current rate
  method and any exchange differences are taken directly to the foreign
  currency translation reserve.

 c) Cash

  For the purposes of the statement of cash flows, cash includes cash on hand
and in banks, and money market investments readily convertible to cash within
two working days, net of outstanding bank overdrafts.

 d) Inventories

  Inventories are valued at the lower of cost and net realisable value.

  Costs incurred in bringing each product to its present location and condition
are accounted for as follows:

  *  Raw materials--purchase cost on a first-in-first-out basis; and

  *  Finished goods and work-in-progress--cost of direct material and labour
     and a proportion of manufacturing overheads based on operating capacity.

 e) Recoverable amount

  Non-current assets are not revalued to an amount above their recoverable
amount, and where carrying values exceed this recoverable amount assets are
written down. In determining recoverable amount the expected net cash flows
have not been discounted to their present value.

 f) Property, plant and equipment

  Cost and valuation

  Items of property, plant and equipment comprising a class of non-current
assets are revalued at the same date on a consistent basis. Assets under
construction are brought to account at cost.

  Where assets have been revalued, the potential effect of the capital gains
tax on disposal has not been taken into account in the determination of the
revalued carrying amount.

  Depreciation

  Depreciation is provided on a straight line basis on all property, plant and
equipment, other than freehold land.

  Major depreciation periods are:

<TABLE>
       <S>                         <C> <C>
       Plant and equipment          -- 5 to 15 years
       Buildings on freehold land   -- 20 years
       Leasehold improvements       -- the lease term or the estimated
                                       useful life of the improvement,
                                       whichever is shorter.
</TABLE>

                                       76
<PAGE>

                        KOPPERS AUSTRALIA PTY. LIMITED

      NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)

 g) Intangibles

  Goodwill

  Goodwill is amortised by the straight line method over the period during
which benefits are expected to be received. This is taken as being 20 years.

 h) Other non-current assets

  Expenditure carried forward

  Significant items of carry forward expenditure having a benefit or
relationship to more than one period are written off over the periods to which
such expenditure relates.

 i) Employee entitlements

  A number of companies in the economic entity offer an employee incentive
scheme to full time permanent employees. Benefits based on growth in earnings,
are payable after a qualifying period of six years service and three years
membership in the plan. Provision for these employee entitlements, based on
the estimated amount payable to employees is charged to the profits annually.

  A trust has been established which offers benefits based on growth in
earnings to full time permanent staff. Benefits are payable after three years
membership in the plan. Provision for these employee entitlements, based on
the estimated amount payable to employees, is charged to the profits annually.

  Employee-contributory superannuation funds exist to provide benefits for the
economic entity's employees and their dependents on retirement, disability or
death. The contributions made to these funds by entities within the economic
entity are charged against profits.

  In respect of the economic entity's defined benefits superannuation plans,
any contributions made to the superannuation funds by entities within the
economic entity are charged against profits when due.


                                      77
<PAGE>

                         KOPPERS AUSTRALIA PTY. LIMITED

       NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
2. OPERATING REVENUE & OPERATING PROFIT

<TABLE>
<CAPTION>
                                                                  KOPPERS
                                                                 AUSTRALIA
                                              CONSOLIDATED     PTY. LIMITED
                                             ----------------  --------------
                                              1997     1996     1997    1996
                                             A$'000   A$'000   A$'000  A$'000
<S>                                          <C>      <C>      <C>     <C>
Included in the operating profit are the
 following items of operating revenue:
Sales revenue............................... 164,864  171,343     --       --
Equity income from associate company........   4,505       --     --       --
Other revenue...............................     324      618  2,126    1,989
Dividends--
  Associated companies......................      --      986  6,542   11,696
Partnership income..........................     624       --     --       --
Interest--
  Related bodies corporate..................      --       --    106        2
  Other persons/Corporations................     428      305     48        8
                                             -------  -------  -----   ------
                                             170,745  173,252  8,822   13,695
Proceeds on sale of non-current assets......     715      531     54       --
                                             -------  -------  -----   ------
Operating revenue........................... 171,460  173,783  8,876   13,695
                                             =======  =======  =====   ======
The operating profit before income tax is
 arrived at after charging/(crediting) the
 following items:
Amortisation of goodwill....................     146      144     --       --
Amortisation and depreciation of property,
 plant and equipment........................  10,689   10,500     40       44
Diminution in value of inventories..........      57      345     --       --
Bad and doubtful debts--Trade debtors
  Other persons/bodies corporate............     315      189     --       --
Interest expense--
  Related parties...........................      --       --    110        1
  Other persons/Corporations................   1,180    1,500    135       41
Finance charges--
  Lease liability...........................       5        2     --       --
Rental--operating lease.....................     554      439    113       --
Profit/Loss on sale of non-current assets...     (38)      46     (8)      --
Net foreign currency (gains)/losses.........    (707)     (76)   (89)      (8)
Provisions for employee entitlements........   3,325    3,786    235      559
Superannuation contributions................   1,184    1,010     35       29
Loss on write-off of investment.............      --       50     --       50

3. ABNORMAL ITEMS

Included in the operating profit are the
 following abnormal items:
Items charged
  Unscheduled dry-docking for ballast tank
   repair
   (Applicable income tax $716).............   1,990       --     --       --
Items credited
  Pole provision write-back (Applicable
   income tax $118).........................     327       --     --       --
                                             -------  -------  -----   ------
                                               1,663       --     --       --
                                             =======  =======  =====   ======
</TABLE>

                                       78
<PAGE>

                         KOPPERS AUSTRALIA PTY. LIMITED

       NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)

4. INCOME TAX

<TABLE>
<CAPTION>
                                                                  KOPPERS
                                                                 AUSTRALIA
                                               CONSOLIDATED    PTY. LIMITED
                                               --------------  --------------
                                                1997    1996    1997    1996
                                               A$'000  A$'000  A$'000  A$'000
<S>                                            <C>     <C>     <C>     <C>
The prima facie tax,* using tax rates
 applicable in the country of operation, on
 operating profit differs from the income tax
 provided in the accounts as follows:
Prima facie tax on operating profit...........  9,817  10,322   2,505   4,020
Tax effect of permanent differences--
  Rebatable dividends.........................     --      --  (2,344) (4,210)
  Other items (net)...........................   (727)     28      (2)    102
Future income tax benefit not brought to
 account......................................     14      76      --      --
Under/(over) provision of previous year.......    272     (26)     16      (7)
Prior year losses recouped....................     --      (3)     --      --
                                               ------  ------  ------  ------
Income tax attributable to operating profit...  9,376  10,397     175     (95)
                                               ======  ======  ======  ======
Future income tax benefit arising from tax
 losses of a controlled entity not brought to
 account at balance date as realisation of the
 benefit is not regarded as virtually certain.
                                                  176     189      --      --
                                               ======  ======  ======  ======
This future income tax benefit will only be
 obtained if:
  a) future assessable income is derived of a
   nature and of an amount sufficient to
   enable the benefit to be realised;
  b) the conditions for deductibility imposed
   by tax legislation continue to be complied
   with; and
  c) no changes in tax legislation adversely
   affect the economic entity in realising the
   benefit.
</TABLE>

--------
*The prima facie tax has been arrived at using tax rates applicable in the
country of operation.

<TABLE>
<S>                                            <C>     <C>     <C>     <C>
  Profit contribution from companies within
   the economic entity........................ 12,556  16,047      --      --
  Equity income from associate company--
   Koppers Industries, Inc....................  4,505      --      --      --
                                               ------  ------  ------  ------
                                               17,061  16,047      --      --
                                               ======  ======  ======  ======
</TABLE>

5. CONTRIBUTIONS TO PROFIT
<TABLE>
<S>                                            <C>     <C>     <C>     <C>
Dividends paid during the year
  Franked dividends...........................  6,501   9,000   6,501   9,000
  Unfranked dividends.........................     --      --      --      --
                                               ------  ------  ------  ------
                                                6,501   9,000   6,501   9,000
                                               ======  ======  ======  ======
</TABLE>

6. DIVIDENDS PAID OR PROVIDED


                                       79
<PAGE>

                         KOPPERS AUSTRALIA PTY. LIMITED

       NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)

7. RECEIVABLES (CURRENT)

<TABLE>
<CAPTION>
                                                                     KOPPERS
                                                                    AUSTRALIA
                                                  CONSOLIDATED    PTY. LIMITED
                                                  --------------  -------------
                                                   1997    1996    1997   1996
                                                  A$'000  A$'000  A$'000 A$'000
<S>                                               <C>     <C>     <C>    <C>
Trade debtors...................................  24,715  21,306    --     --
Provision for doubtful debts receivable.........    (591)   (386)   --     --
                                                  ------  ------   ---    ---
                                                  24,124  20,920    --     --
Short-term deposits.............................   1,581   2,543    --     --
Other...........................................      31      75    --     10
Amounts other than trade debts receivable
  Controlled entity.............................      --      --   955    237
  Associated entities...........................       1      28     1      1
                                                  ------  ------   ---    ---
                                                  25,737  23,566   956    248
                                                  ======  ======   ===    ===
(a)Aggregate amounts receivable from related
 parties
  Wholly-owned group............................      --      --   307    237
  Other related parties.........................       1      28   649      1
                                                  ------  ------   ---    ---
                                                       1      28   956    238
                                                  ======  ======   ===    ===
(b)Movement in provision for doubtful debts
  Balance at beginning of year..................     386            --
  Exchange movement.............................    (16)            --
  Bad debts previously provided for written-off
   during the year..............................     (94)           --
  Bad and doubtful debts provided for during the
   year.........................................     315            --
                                                  ------           ---
Balance at end of year..........................     591            --
                                                  ======           ===
Comparatives not included as this disclosure was
 not required prior
 to June 1997
(c) Australian dollar equivalent of amounts
    receivable in foreign currencies not
    effectively hedged:
  --United States dollars.......................   4,001     917    --     --
  --United Kingdom pounds.......................     115     299    --     --
  --Singapore dollars...........................      75     103    --     --
                                                  ------  ------   ---    ---
                                                   4,191   1,319    --     --
                                                  ======  ======   ===    ===

8. INVENTORIES (CURRENT)

Raw materials and stores........................  11,555   8,111    --     --
Work in progress................................     360      51    --     --
Finished goods..................................  26,131  26,523    --     --
Provision for diminution in value...............    (552)   (876)   --     --
                                                  ------  ------   ---    ---
Total inventories at lower of cost and net
 realisable value...............................  37,494  33,809    --     --
                                                  ======  ======   ===    ===
</TABLE>

                                       80
<PAGE>

                        KOPPERS AUSTRALIA PTY. LIMITED

      NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)

9. OTHER CURRENT ASSETS

<TABLE>
<CAPTION>
                                                                     KOPPERS
                                                                    AUSTRALIA
                                                    CONSOLIDATED  PTY. LIMITED
                                                    ------------- -------------
                                                     1997   1996   1997   1996
                                                    A$'000 A$'000 A$'000 A$'000
<S>                                                 <C>    <C>    <C>    <C>
Prepayments........................................    706 1,560      39      3
Other..............................................    283   120       7     --
                                                    ------ -----  ------ ------
                                                       989 1,680      46      3
                                                    ====== =====  ====== ======

10. RECEIVABLES (NON-CURRENT)

Loans and advances
  Other............................................  6,355 6,355      --     --
                                                    ------ -----  ------ ------
                                                     6,355 6,355      --     --
                                                    ====== =====  ====== ======

11. INVENTORIES (NON-CURRENT)

Finished goods.....................................  1,765 1,765      --     --
                                                    ------ -----  ------ ------
Total inventories at lower of cost and net
 realisable value..................................  1,765 1,765      --     --
                                                    ====== =====  ====== ======

12. INVESTMENTS (NON-CURRENT)

Investments at cost compromise:
Unlisted controlled entities.......................     --    --  45,692 45,692
Unlisted associated entities.......................  2,843 5,349      --     --
Equity accounted investments....................... 17,780    --      --     --
                                                    ------ -----  ------ ------
                                                    20,623 5,349  45,692 45,692
                                                    ====== =====  ====== ======
</TABLE>

  Included in investments at cost is an investment of A$3 in respect of 60% of
the issued capital of Koppers SEUT Pty. Limited. As this company acts solely
as the trustee for the Koppers Senior Executive Unit Trust, it is not
controlled by Koppers Australia Pty. Limited and has not been consolidated.

                                      81
<PAGE>

                        KOPPERS AUSTRALIA PTY. LIMITED

      NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)

  Investment in unlisted controlled entities comprises:

<TABLE>
<CAPTION>
                                                 BENEFICIAL           INVESTMENT
                                COUNTRY OF     PERCENTAGE HELD     KOPPERS AUSTRALIA
NAME                           INCORPORATION BY ECONOMIC ENTITY      PTY. LIMITED
----                           ------------- ------------------    -----------------
                                               1997       1996       1997     1996
                                                 %          %       A$'000   A$'000
<S>                       <C>  <C>           <C>        <C>        <C>      <C>
Koppers Investments
 (Aust.) Pty. Ltd.......  (ii) Australia           100        100     6,355    6,355
Koppers-Hickson
 Investments Pty.
 Limited................       Australia            51         51     3,060    3,060
Koppers Power Poles
 (Australia) Pty.
 Limited................  (ii) Australia           100        100       955      955
Continental Carbon
 Australia Pty. Limited.  (ii) Australia           100        100     8,572    8,572
KAP Investments Inc.....       U.S.A.              100        100    10,846   10,846
Koppers Timber
 Preservation Pty. Ltd..  (ii) Australia           100        100     6,899    6,899
Koppers Coal Tar
 Products Pty. Ltd......  (ii) Australia           100        100     9,005    9,005
Koppers Shipping Pty.
 Ltd....................  (ii) Australia           100        100        --       --
Koppers-Hickson Timber
 Protection Pty.
 Limited................       Australia            51         51        --       --
Koppers-Hickson (PNG)
 Pty Limited............   (i) P.N.G.               51         51        --       --
Koppers-Hickson Timber
 Protection (NZ)
 Limited................   (i) New Zealand          51         51        --       --
Koppers-Hickson Timber
 Protection (Fiji)
 Limited................   (i) Fiji                 51         51        --       --
Koppers-Hickson Timber
 Protection (Malaysia)
 SDN BHD................   (i) Malaysia             51         51        --       --
Koppers-Hickson Timber
 Protection (S) Pte Ltd.   (i) Singapore            51         51        --       --
Koppers-Hickson
 International Pty. Ltd.   (i) Australia            51         51        --       --
Koppers-Hickson (SA)
 (Pty) Ltd..............   (i) South Africa         51         51        --       --
                                                                   -------- --------
                                                                     45,692   45,692
                                                                   ======== ========
</TABLE>

Overseas controlled entities carry on business in the country of
incorporation.

(i) Controlled entities which are audited by other member firms of Ernst &
    Young International.

(ii) Pursuant to Class Order 95/1530, relief has been granted to this
     controlled entity of Koppers Australia Pty. Limited from the Corporations
     Law requirements for preparation, audit and publication of accounts.

   As a condition of the Class Order, Koppers Australia Pty. Limited and the
   controlled entities subject to the Class Order, have entered into a deed of
   indemnity on 18 May 1995. Continental Carbon Australia Pty Ltd was joined
   to this deed of cross guarantee by a deed of assumption executed on 20 May
   1996. The effect of the deed is that Koppers Australia Pty. Limited has
   guaranteed to pay any deficiency in the event of winding up of the
   controlled entity. The controlled entities have also given a similar
   guarantee in the event that Koppers Australia Pty. Limited is wound up. The
   aggregate assets and liabilities of the companies subject to the deed, and
   the aggregate result of these companies are as follows:

<TABLE>
<CAPTION>
                                                                  1997    1996
                                                                 A$'000  A$'000
   <S>                                                           <C>     <C>
   Total assets................................................. 123,488 100,945
   Total liabilities............................................  33,858  33,867
                                                                 ------- -------
   Net assets...................................................  89,630  67,078
                                                                 ======= =======
   Profit after income tax......................................   8,986  15,145
                                                                 ======= =======
</TABLE>

                                      82
<PAGE>

                        KOPPERS AUSTRALIA PTY. LIMITED

      NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)

  Investment in unlisted associated entities comprises:

<TABLE>
<CAPTION>
                                   ECONOMIC ENTITY      % HELD BY      DIVIDEND
                                      INTEREST       ECONOMIC ENTITY    REVENUE
                                   ----------------  --------------- -------------
                                    1997     1996     1997    1996    1997   1996
                                   A$'000   A$'000      %       %    A$'000 A$'000
<S>                                <C>      <C>      <C>     <C>     <C>    <C>
(i)Koppers-Coastchem..............   2,843    2,170     25.5    25.5  N/A    N/A
(ii)Koppers Industries, Inc.*.....      --    3,179       --    22.4   --    986
                                   -------  -------
                                     2,843    5,349
                                   =======  =======
</TABLE>
--------
*The investment in Koppers Industries, Inc. was previously brought to account
at cost, but is now brought to account using the equity method of accounting.
This represents a change in accounting policy as outlined in note 1.
(Accordingly comparatives have not been included in the following
disclosures).

  Koppers-Coastchem

  The interest in the partnership is carried at cost, plus the economic
entity's share of the partnership's result for the year. The economic entity's
share in the partnership's result is included in the economic entity's profit.

<TABLE>
<CAPTION>
                                                                        1997
                                                                       A$'000
<S>                                                                    <C>
Equity accounted investments comprise:
Carrying value of investment in Koppers Industries, Inc.
  Balance at the beginning of the financial year--at cost.............  3,179
  Equity cross-holding adjustment.....................................   (356)
  Initial application of equity accounting
    --retained profits................................................  8,970
    --reserves........................................................  2,095
  Share of operating profit after tax.................................  4,505
  Dividends received..................................................   (981)
  Share of movement in reserves.......................................   (641)
  Foreign exchange variation..........................................  1,009
                                                                       ------
Balance at the end of the financial year.............................. 17,780
                                                                       ======
Represented by:
  Investment at cost..................................................  2,966
  Share of retained profits........................................... 13,360
  Share of reserves...................................................  1,454
                                                                       ------
                                                                       17,780
                                                                       ======
Koppers Australia Pty. Limited retained profits attributable to
 Koppers Industries, Inc.:
  Balance at the beginning of the financial year......................  8,970
  Share of operating profit and extraordinary items after income tax
   expense............................................................  3,035
  Share of income tax expense.........................................  1,470
  Dividends received from Koppers Industries, Inc.....................   (981)
  Foreign exchange variation..........................................    866
                                                                       ------
Balance at the end of the financial year.............................. 13,360
                                                                       ======
</TABLE>

                                      83
<PAGE>

                        KOPPERS AUSTRALIA PTY. LIMITED

      NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
                                                                         1997
                                                                        A$'000
<S>                                                                     <C>
Koppers Australia Pty. Limited reserves attributable to Koppers
 Industries, Inc.:
  Balance at the beginning of the financial year....................... 2,095
  Share of movements during the financial year.........................  (719)
Foreign exchange variation.............................................    78
                                                                        -----
Balance at the end of the financial year............................... 1,454
                                                                        =====
</TABLE>

  The balance date of Koppers Industries, Inc. is 31 December

<TABLE>
<CAPTION>
                                                   30 JUNE 1997 31 DECEMBER 1996
                                                   ------------ ----------------
      <S>                                          <C>          <C>
      Ownership interest..........................    22.65%         22.65%
      Voting power................................    35.65%         35.71%
</TABLE>

  The issued capital of Koppers Industries, Inc. includes redeemable shares
issued to management investors. In addition, options to acquire shares have
also been issued to the management of Koppers Industries, Inc. Accordingly,
the percentages shown above may be subject to variations in the future through
redemptions of shares or exercise of options. The maximum dilution through
exercise of options as at 30 June 1997 is less than 2%.

  Koppers Industries, Inc. holds 100.0% of the issued capital of Koppers
Australia Pty. Limited.

  Principal activities of Koppers Industries, Inc. are:

    . Producer of Tar Products carbon pitch; creosote; phthalic anhydride
       (PAA); roofing pitch/bitumen

    . Producer of Wood Products treats railroad crossties, poles and
       pilings for various uses

    . Producer of Coke Products foundry & furnace coke and marketable by-
       products including coal tars, gases, oils and chemicals

  No adjustment has been made to reflect the dissimilar accounting policy
adopted by the associate company in relation to valuation of inventory. In
particular the last-in-first-out method of inventory valuation has been
adopted by Koppers Industries, Inc.

  Koppers Australia Pty. Limited paid dividends to Koppers Industries, Inc.
during the year totalling A$3,250,294 (1996 A$4,499,900) during the year.

                                      84
<PAGE>

                         KOPPERS AUSTRALIA PTY. LIMITED

       NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)

13. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
                                                         KOPPERS AUSTRALIA
                                        CONSOLIDATED       PTY. LIMITED
                                       ----------------  --------------------
                                        1997     1996      1997        1996
                                       A$'000   A$'000    A$'000      A$'000
<S>                                    <C>      <C>      <C>         <C>
Freehold land:
At cost...............................   1,239      334         --          --
At directors' valuation 1 July 1983...   1,245    1,247         --          --
                                       -------  -------   --------    --------
                                         2,484    1,581         --          --
                                       -------  -------   --------    --------
Buildings on freehold land:
At cost...............................   6,047    5,819         --          --
Provision for depreciation............  (1,194)  (1,145)        --          --
                                       -------  -------   --------    --------
                                         4,853    4,674         --          --
                                       -------  -------   --------    --------
At directors' valuation 1 July 1983...   2,671    2,671         --          --
Provision for depreciation............  (1,853)  (1,703)        --          --
                                       -------  -------   --------    --------
                                           818      968         --          --
                                       -------  -------   --------    --------
Leasehold improvements:
At cost...............................   2,568    2,337         --          --
Provision for amortisation............    (966)    (564)        --          --
                                       -------  -------   --------    --------
                                         1,602    1,773         --          --
                                       -------  -------   --------    --------
Total land and buildings..............   9,757    8,996         --          --
                                       -------  -------   --------    --------
Plant and equipment:
At cost...............................  95,125   89,931        175         188
At directors' valuation 1 July 1983...  14,779   14,779         --          --
Provision for depreciation............ (56,302) (48,299)       (55)        (74)
                                       -------  -------   --------    --------
                                        53,602   55,871        120         114
                                       -------  -------   --------    --------
Assets under construction.............   1,650    2,343         --          --
                                       -------  -------   --------    --------
Total property, plant and equipment...  65,009   67,210        120         114
                                       =======  =======   ========    ========
</TABLE>

 Valuations

  All valuations are estimates of the amounts for which the assets could be
exchanged between a knowledgeable willing buyer and a knowledgeable willing
seller in an arm's length transaction at the valuation date. The economic
entity does not have a set policy for regular revaluation of freehold land and
buildings.

14. INTANGIBLES

<TABLE>
<S>                                                          <C>   <C>   <C> <C>
Goodwill.................................................... 2,175 2,265  --  --
Provision for amortisation.................................. (946) (933)  --  --
                                                             ----- ----- --- ---
                                                             1,229 1,332  --  --
                                                             ===== ===== === ===
</TABLE>

                                       85
<PAGE>

                         KOPPERS AUSTRALIA PTY. LIMITED

       NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)

15. OTHER NON-CURRENT ASSETS

<TABLE>
<CAPTION>
                                                           KOPPERS AUSTRALIA
                                             CONSOLIDATED    PTY. LIMITED
                                             ------------- ------------------
                                              1997   1996    1997      1996
                                             A$'000 A$'000  A$'000    A$'000
<S>                                          <C>    <C>    <C>       <C>
Future income tax benefits..................  2,876  1,717      306       217
                                             ------ ------ --------  --------

16. ACCOUNTS PAYABLE (CURRENT)

Trade creditors.............................  7,833  6,432       84        22
Lease liabilities...........................     46     --       --        --
Amounts other than trade debts payable:
  Accrued expenses..........................  3,611  4,715      201       138
  Other.....................................    688    894       --        --
                                             ------ ------ --------  --------
                                             12,178 12,041      285       160
                                             ====== ====== ========  ========
Australian dollar equivalents of amounts
 payable in foreign currencies not
 effectively hedged:
  --United States dollars...................    385    697       --        --
  --United Kingdom pounds...................     95    249       --        --
  --Singapore dollars.......................      1      1       --        --
  --New Zealand dollars.....................    124     11       --        --
  --Australian dollars......................     17    108       --        --
                                             ------ ------ --------  --------
                                                622  1,066       --        --
                                             ====== ====== ========  ========

17. BORROWINGS (CURRENT)

Bills of exchange...........................     --    175       --        --
Bank loans..................................  3,300  1,000       --        --
Bank overdrafts.............................    225    398       69        --
Related parties.............................
Controlled entity...........................     --     --    1,300     2,286
Other related parties.......................      1     --       --        --
                                             ------ ------ --------  --------
                                              3,526  1,573    1,369     2,286
                                             ====== ====== ========  ========

18. PROVISIONS (CURRENT)

Taxation....................................  4,124  8,535       32       (99)
Employee entitlements.......................  5,380  5,066      455       576
Other.......................................  4,032  1,731       --        --
                                             ------ ------ --------  --------
                                             13,536 15,332      487       477
                                             ====== ====== ========  ========

19. ACCOUNTS PAYABLE (NON-CURRENT)

Lease liability.............................     22     --       --        --
</TABLE>


                                       86
<PAGE>

                         KOPPERS AUSTRALIA PTY. LIMITED

       NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
20. BORROWINGS (NON-CURRENT)

<TABLE>
<CAPTION>
                                                              KOPPERS AUSTRALIA
                                              CONSOLIDATED      PTY. LIMITED
                                              --------------  -----------------
                                               1997    1996     1997     1996
                                              A$'000  A$'000   A$'000   A$'000
<S>                                           <C>     <C>     <C>      <C>
Bills of Exchange and Bank Loans............. 11,500  11,300     1,500       --
Other........................................     --       2        --       --
                                              ------  ------  -------- --------
                                              11,500  11,302     1,500       --
                                              ======  ======  ======== ========

  Refer to Note 28 for details of security held over borrowings.

21. PROVISIONS (NON-CURRENT)

Employee entitlements........................  3,125   2,624       330      474
Deferred income tax liability................  2,642   2,455        --       --
                                              ------  ------  -------- --------
                                               5,767   5,079       330      474
                                              ======  ======  ======== ========

22. SHARE CAPITAL

Issued and fully paid up capital
  6,187,500 "A' class shares of A$1 each.....  6,188   6,188     6,188    6,188
  6,187,500 "B' class shares of A$1 each.....  6,188   6,188     6,188    6,188
  2,183,824 "C' class shares of A$1 each.....  2,183   2,183     2,183    2,183
                                              ------  ------  -------- --------
                                              14,559  14,559    14,559   14,559
                                              ======  ======  ======== ========

23. RESERVES

Reserves comprise:
  Share premium account......................  2,330   2,330     2,330    2,330
  Asset revaluation..........................  1,625   1,625    12,028   12,028
  Foreign currency translation...............  1,974     532        --       --
  Other reserves of associate................  1,454      --        --       --
  Equity cross-holding reserve...............   (378)     --        --       --
                                              ------  ------  -------- --------
    Total reserves...........................  7,005   4,487    14,358   14,358
                                              ======  ======  ======== ========
Movement in reserves
  Foreign currency translation
   Balance at beginning of year..............    532   1,934        --       --
   Transfer to outside equity interests......     --    (597)       --       --
   Gain/(loss) on translation of overseas
    controlled entities......................  1,442    (805)       --       --
                                              ------  ------  -------- --------
    Balance at end of year...................  1,974     532        --       --
                                              ======  ======  ======== ========
Equity cross-holding reserve
  Adjustment for initial application of
   equity accounting.........................   (356)     --        --       --
    Movement during the year.................    (22)     --        --       --
                                              ------  ------  -------- --------
    Balance at end of year...................   (378)     --        --       --
                                              ======  ======  ======== ========
</TABLE>

                                       87
<PAGE>

                         KOPPERS AUSTRALIA PTY. LIMITED

       NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)

24. OUTSIDE EQUITY INTEREST

<TABLE>
<CAPTION>
                                                          KOPPERS AUSTRALIA
                                          CONSOLIDATED      PTY. LIMITED
                                          --------------  --------------------
                                           1997    1996     1997       1996
                                          A$'000  A$'000   A$'000     A$'000
<S>                                       <C>     <C>     <C>        <C>
  Reconciliation of outside equity
   interest in controlled entities:
  --Opening balance.....................   8,173  15,518        --          --
  --Add: outside equity interest in
       translation reserve not
       previously brought to account....      --     597        --          --
  --Add: share of operating profit......   1,877   2,750        --          --
  --Less: dividends paid................  (1,496) (2,790)       --          --
  --Less: purchase of outside equity
   interest in subsidiary...............      --  (7,535)       --          --
  --Add: share of movement in reserves..     237    (367)       --          --
                                          ------  ------  --------   ---------
  --Closing balance.....................   8,791   8,173        --          --
                                          ======  ======  ========   =========

25. STATEMENT OF CASH FLOWS

a) Reconciliation of cash
  Cash balance comprises:
    --cash on hand......................   6,379   1,805        --          10
    --short-term deposits...............   1,581   2,543        --          --
    --bank overdraft....................    (225)   (398)      (69)         --
                                          ------  ------  --------   ---------
  Closing cash balance..................   7,735   3,950       (69)         10
                                          ======  ======  ========   =========
b) Reconciliation of the operating
  profit after tax to the net cash flows
  from operations
  Operating profit after tax............  18,938  18,797     6,763      11,263
  Dividends received (investing)........      --    (986)       --          --
  Depreciation and amortisation.........
    --property, plant and equipment.....  10,689  10,500        40          44
    --intangibles.......................     146     144        --          --
Diminution in value of inventories......      57     345        --          --
Loss on write-off of investments........      --      50        --          50
Provision for employee entitlements.....   3,116   3,786      (265)        559
(Profit)/loss on sale of non-current
 assets                                      (38)     46        (8)         --
Equity income of associate company......  (4,505)     --        --          --
Partnership income......................    (624)     --        --          --
Changes in assets and liabilities
  Trade receivables.....................  (3,204)    247        --          --
  Inventory.............................  (3,742)   (896)       --          --
  Prepayments...........................     854    (915)      (36)         --
  Other Current Assets..................     (92)    808         3         723
  Other Non-Current Assets..............    (559)   (691)       --          --
  Trade Creditors.......................     738  (1,657)      125         (45)
  Other Current Liabilities.............  (1,267)  1,498        --           3
  Other Non-Current Liabilities.........      20  (2,067)       --          --
  Tax Provision.........................  (4,411)  1,820       131        (314)
  Deferred income tax liability.........     187    (162)       --          --
  Future income tax benefit.............  (1,159)   (965)      (89)        (53)
  Exchange rate changes on opening cash     (143)    249        --          --
                                          ------  ------  --------   ---------
Net cash flow from operating activities.  16,119  29,951     6,664      12,230
                                          ======  ======  ========   =========
</TABLE>

                                       88
<PAGE>

                         KOPPERS AUSTRALIA PTY. LIMITED

       NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
                                                            KOPPERS AUSTRALIA
                                              CONSOLIDATED    PTY. LIMITED
                                              ------------- -------------------
                                               1997   1996    1997      1996
                                              A$'000 A$'000  A$'000    A$'000
<S>                                           <C>    <C>    <C>       <C>
c) Bank overdraft facility
  Refer to note 28 for details of group bank
   facility

26. EXPENDITURE COMMITMENTS

Capital expenditure commitments
Estimated capital expenditure contracted for
 at balance date but not
 provided for
  --payable not later than one year.........    516     --        --         --
                                              =====  =====   =======  =========
Lease expenditure commitments
Operating leases (non-cancelable):
  --Not later than one year.................    707    836       321        427
  --Later than one year and not later than
   two years................................    434    729        --        321
  --Later than two years and not later than
   five years...............................    642  1,017        --         --
  --Later than five years...................  2,481    212        --         --
                                              -----  -----   -------  ---------
Aggregate lease expenditure contracted for
 at balance date but not
 provided for...............................  4,264  2,794       321        748
                                              =====  =====   =======  =========
Finance leases:
  --Not later than one year.................     46     --        --         --
  --Later than one year and not later than
   two years................................     22     --        --         --
  --Later than two years and not later than
   five years...............................     --     --        --         --
  --Later than five years...................     --     --        --         --
                                              -----  -----   -------  ---------
  Total minimum lease payments..............     68     --        --         --
  Future finance charges....................     --     --        --         --
                                              -----  -----   -------  ---------
  Lease liability...........................     68     --        --         --
                                              =====  =====   =======  =========
  Current liability.........................     46     --        --         --
  Non-current liability.....................     22     --        --         --
                                              -----  -----   -------  ---------
                                                 68     --        --         --
                                              =====  =====   =======  =========

27. EMPLOYEE ENTITLEMENTS AND SUPERANNUATION COMMITMENTS
EMPLOYEE ENTITLEMENTS

The aggregate employee entitlement liability
 is comprised of:
  Accrued wages, salaries and costs.........    155     52        --         --
  Provisions (current)......................  5,380  5,066       455        576
  Provisions (non-current)..................  3,125  2,624       330        474
                                              -----  -----   -------  ---------
                                              8,660  7,742       785      1,050
                                              =====  =====   =======  =========
</TABLE>

                                       89
<PAGE>

                        KOPPERS AUSTRALIA PTY. LIMITED

      NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)

 Superannuation Commitments

  All employees are entitled to varying levels of benefits on retirement,
disability or death. The superannuation plan provides defined benefits based
on years of service and final average salary. Employees contribute to the
plans at various percentages of their wages and salaries. Up until the year
ended 30 June 1994, the economic entity did not contribute to the plan.
Commencing this year, the economic entity has contributed to the plan amounts
advised by the plan manager. These contributions are not of a systematic and
long-term nature as the plan has sufficient funds to satisfy all benefits
vested under the plan as at 30 June 1997.

  Details of the superannuation fund as extracted from the fund's most recent
annual report (31 August 1996) are as follows:

<TABLE>
<CAPTION>
                                                                          A$'000
<S>                                                                       <C>
Accrued benefits......................................................... 13,371
Net market value of plan assets.......................................... 14,116
                                                                          ------
Surplus of net market value of plan assets over accrued benefits.........    745
                                                                          ======
Vested benefits..........................................................
</TABLE>

  Actuarial assessment of the plan was made in February 1995 by Watson Wyatt
Worldwide.

28. CONTINGENT LIABILITIES

<TABLE>
<CAPTION>
                                                             KOPPERS AUSTRALIA
                                              CONSOLIDATED      PTY. LIMITED
                                             --------------- ------------------
                                              1997    1996     1997      1996
                                             A$'000  A$'000   A$'000    A$'000
<S>                                          <C>     <C>     <C>       <C>
Bank guarantees covering security deposits,
 contract performance and autopay...........  2,071   1,618      2,071    1,618
                                              =====   =====   ======== ========
</TABLE>

  Koppers Australia Pty. Limited and related companies, namely Koppers Power
Poles (Australia) Pty. Limited, Koppers Coal Tar Products Pty. Ltd.,
Continental Carbon Australia Pty. Limited, Koppers Timber Preservation Pty.
Ltd. and Koppers Investments (Aust.) Pty. Limited have collectively
unrestricted access to borrowing facilities to a maximum of A$47,850,000.

  The amount of credit unused at 30 June 1997 totaled A$36,350,000.

  The securities held by the bank over the above facilities comprise:

  1. Guarantee (unlimited) by Koppers Power Poles (Australia) Pty. Limited,
     Koppers Investments (Aust.) Pty. Limited, Koppers Timber Preservation
     Pty. Ltd., Koppers Coal Tar Products Pty. Ltd., Koppers Australia Pty.
     Limited and Continental Carbon Australia Pty. Limited.

  2. Letter of Comfort by BHP and Koppers Industries, Inc.

  3. Negative Pledge dated 2 July 1990.

  In addition, a fully interlocking guarantee has been provided by the above-
mentioned related companies, to provide security over the borrowing facilities
of the company and its related companies. Under the terms of an ASC Class
Order these above mentioned companies have guaranteed any deficiency of funds
if any of the companies is wound up. No such deficiency exists. Refer to Note
12.

                                      90
<PAGE>

                        KOPPERS AUSTRALIA PTY. LIMITED

      NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)

29. AUDITORS' REMUNERATION

<TABLE>
<CAPTION>
                                                          KOPPERS AUSTRALIA
                                            CONSOLIDATED    PTY. LIMITED
                                            ------------- -------------------
                                             1997   1996    1997       1996
                                            A$'000 A$'000  A$'000     A$'000
<S>                                         <C>    <C>    <C>        <C>
Amounts received or due and receivable by
 the auditors, of Koppers
 Australia Pty. Limited for:
  --an audit or review of the financial
   statements of the entity and any other
   entity in the economic entity...........  224    227          36         36
  --other services in relation to the
   entity and any other entity in the
   economic entity.........................   54     63          46         10
Amounts received or due and receivable by
 auditors other than the auditors of
 Koppers Australia Pty. Limited for:
  --an audit or review of the financial
   statements of subsidiary entities.......   37     17          --         --
                                             ---    ---    --------   --------
                                             315    307          82         46
                                             ===    ===    ========   ========
</TABLE>

30. SUBSEQUENT EVENTS

  There has been no significant event since balance date which requires
disclosure or adjustment in the financial statements of the entity.

31. RELATED PARTY DISCLOSURES

  The directors of Koppers Australia Pty. Limited during the financial year
were:

  D.P. Traviss (Resigned 24 June 1997);
  E.S. Bryon;
  M.J. Burns;
  D.R. Zimmerman;
  B.K. Jensen;
  P.J. Laver;
  R.K. Wagner;
  C.R. Newell;
  A.K. Purnell (Resigned 22 May 1997);
  B.C. Wilson

  The following related party transactions occurred during the financial year:

  Transactions with other related parties:

    i) Dividends received of A$980,769. (1996: A$986,193)

  Transactions with the Directors of Koppers Australia Pty. Limited and the
economic entity:

  Since 1992 Koppers Australia Pty. Limited has issued units in a management
incentive scheme to various executives of the group. Unit holders are
entitled, but not obliged, to exchange all or some of their units for cash
after holding units for a qualifying period of three years. The executives are
obliged to exchange all units for cash on their resignation, retirement or
dismissal from employment.

                                      91
<PAGE>

                        KOPPERS AUSTRALIA PTY. LIMITED

      NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)

  The growth in value of these units, and the resulting benefit to the
executives, is determined by reference to the profitability after tax of the
Koppers Australia group. Benefits from this scheme are funded by companies
within the Koppers Australia group. Three directors of Koppers Australia Pty.
Limited have been issued units in this scheme in accordance with the plan
rules. As at 30 June 1997, the combined value of the units issued to the above
directors is A$358,270 (1996: A$291,840).

  There have been no other transaction concerning shares between entities in
the reporting entity and directors of the reporting entity or their director-
related entities.

  All financial benefits provided by Koppers Australia Pty. Limited or its
controlled entities to related parties were provided at arms' length terms.

  Koppers Australia Pty. Limited is the ultimate Australian holding company.

32. SEGMENT INFORMATION

  The economic entity operates predominantly in four industries--timber
preservation, chemicals, carbon black and coal tar products, and in four
geographical areas--Australia, P.N.G., New Zealand and Fiji and South East
Asia. The manufacturing operations comprise the refinement and distribution of
coal tar products, the manufacture of wood preservation chemicals, the
preservation of timber products and carbon black.

<TABLE>
<CAPTION>
                                                         TIMBER                      CARBON       COAL TAR
                                                      PRESERVATION    CHEMICALS       BLACK       PRODUCTS        OTHER
                                               NOTES     A$'000        A$'000        A$'000        A$'000        A$'000
                                               ------ ------------- ------------- ------------- ------------- -------------
                                                       1997   1996   1997   1996   1997   1996   1997   1996   1997   1996
<S>                                            <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>
(a) Industry Segments
OPERATING REVENUE
Sales to
 customers
 outside the
 economic
 entity.........                                      28,831 34,424 42,621 40,046 33,220 35,638 62,142 62,656  4,646  1,019
Intersegment
 Sales..........                                  2      131    169  3,182  3,295     15     --  2,505 14,265  9,798 14,800
                                                      ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
                                                      28,962 34,593 45,803 43,341 33,235 35,638 64,647 76,921 14,444 15,819
                                                      ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Consolidated
 Operating
 Profit/(Loss)..                                  2    1,297  1,743  6,228  6,054  4,575  5,783  8,947 15,240 12,448 13,296
                                                      ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Segment Assets..                                      29,016 27,378 28,622 26,281 22,154 20,970 73,640 68,437 91,158 74,146
                                                      ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
(b) Geographical
 Segments
<CAPTION>
                                                ELIMINATIONS      CONSOLIDATION
                                                   A$'000            A$'000
                                               ----------------- ---------------
                                                1997     1996     1997    1996
<S>                                            <C>      <C>      <C>     <C>
(a) Industry Segments
OPERATING REVENUE
Sales to
 customers
 outside the
 economic
 entity.........                                    --       --  171,460 173,783
Intersegment
 Sales..........                               (15,631) (32,529)      --      --
                                               -------- -------- ------- -------
                                               (15,631) (32,529) 171,460 173,783
                                               ======== ======== ======= =======
Consolidated
 Operating
 Profit/(Loss)..                                (5,181) (12,922)  28,314  29,194
                                               ======== ======== ======= =======
Segment Assets..                               (77,184) (72,624) 167,406 144,588
                                               ======== ======== ======= =======
(b) Geographical
 Segments
</TABLE>

<TABLE>
<CAPTION>
                                                                               NEW ZEALAND,
                                                                                  FIJI &      SOUTH EAST
                                                        AUSTRALIA     P.N.G.    STH AFRICA       ASIA      ELIMINATIONS
                                               NOTES     A$'000       A$'000      A$'000        A$'000        A$'000
                                               ----- --------------- --------- ------------- ------------ ----------------
                                                      1997    1996   1997 1996  1997   1996   1997  1996   1997     1996
<S>                                            <C>   <C>     <C>     <C>  <C>  <C>    <C>    <C>    <C>   <C>      <C>
OPERATING REVENUE
Sales to customers
 outside the economic
 entity................                              140,460 145,947 513  676  19,522 19,891 10,965 7,269      --       --
Intersegment Sales.....                               15,455  32,242  --   --     176    287     --    -- (15,631) (32,529)
                                                ---  ------- ------- ---  ---  ------ ------ ------ ----- -------  -------
                                                  2  155,915 178,189 513  676  19,698 20,178 10,965 7,269 (15,631) (32,529)
                                                ---  ======= ======= ===  ===  ====== ====== ====== ===== =======  =======
Consolidated Operating
 Profit................                           2   28,540  37,659  92    9   3,440  3,760  1,443   688  (5,181) (12,922)
                                                ---  ======= ======= ===  ===  ====== ====== ====== ===== =======  =======
Segment Assets.........                              225,757 200,627 622  575  13,478 13,272  4,426 2,738 (77,184) (72,624)
                                                ---  ======= ======= ===  ===  ====== ====== ====== ===== =======  =======
<CAPTION>
                                                CONSOLIDATION
                                                   A$'000
                                               ---------------
                                                1997    1996
<S>                                            <C>     <C>
OPERATING REVENUE
Sales to customers
 outside the economic
 entity................                        171,460 173,783
Intersegment Sales.....                             --
                                               ------- -------
                                               171,460 173,783
                                               ======= =======
Consolidated Operating
 Profit................                         28,334  29,194
                                               ======= =======
Segment Assets.........                        167,099 144,588
                                               ======= =======
</TABLE>


                                      92
<PAGE>

                         KOPPERS AUSTRALIA PTY. LIMITED

       NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
33. REMUNERATION OF DIRECTORS

<TABLE>
<CAPTION>
                                                            KOPPERS AUSTRALIA
                                              CONSOLIDATED    PTY. LIMITED
                                              ------------- -------------------
                                               1997   1996    1997       1996
                                              A$'000 A$'000  A$'000     A$'000
<S>                                           <C>    <C>    <C>        <C>
Income paid or payable, or otherwise made
 available, in respect of the Financial
 year, to all directors of each entity in
 the economic entity, directly or
 indirectly, by the entities of which they
 are directors or any related party.........  1,919  1,836
                                              =====  =====
Income paid or payable, or otherwise made
 available, in respect of the Financial
 year, to all directors of Koppers Australia
 Pty. Limited, directly or indirectly, from
 the entity or any related party............                    1,028       836
                                                            =========   =======
The number of directors of Koppers Australia
 Pty. Limited whose Remuneration (including
 superannuation contributions) falls within
 the following bands:.......................
$0      --$  9,999..........................                        8         8
$190,000--$199,999..........................                       --         1
$220,000--$229,999..........................                        1        --
$250,000--$259,999..........................                       --         1
$270,000--$279,999..........................                        1        --
$350,000--$359,999..........................                       --        --
$380,000--$389,999..........................                       --         1
$530,000--$539,999..........................                        1        --
                                                            ---------   -------
                                                                   11        11
                                                            =========   =======
</TABLE>

  In the opinion of the directors, remuneration paid to directors is considered
reasonable.

                                       93
<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.

                                                    /s/ Donald E. Davis
                                          By: .................................
                                                    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 24,
      ROBERT K. WAGNER                                             1998

    /s/ Walter W. Turner
 .............................  President, Chief Executive Officer and Director
                               (Principal Executive Officer)
                                                                   March 26,
      WALTER W. TURNER                                             1998

     /s/ Donald E. Davis
 .............................  Chief Financial Officer(Principal Financial
                               Officer, Principal Accounting Officer)
                                                                   March 19,
       DONALD E. DAVIS                                             1998

   /s/ Clayton A. Sweeney
 .............................  Director                            March 18,
     CLAYTON A. SWEENEY                                            1998

  /s/ Christian L. Oberbeck
 .............................  Director                            March 19,
    CHRISTIAN L. OBERBECK                                          1998

    /s/ Brooks C. Wilson
 .............................  Director                            March 19,
      BROOKS C. WILSON                                             1998

       /s/ N.H. Prater
 .............................
         N.H. PRATER           Director                            March 24,
                                                                   1998



                                      94
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                 DESCRIPTION
 -------                               -----------
 <C>     <S>
  *3.1   Amended and Restated Articles of Incorporation of the Company
         (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).
  *3.2   Restated and Amended By-Laws of the Company (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).
  *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).
  *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 in connection with the offering of
         the 8 1/2% Senior Notes due 2004).
 *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
         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 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 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 in
         connection with the offering of the 8 1/2% Senior Notes due 2004).
 *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 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.
 *10.12  Treatment Agreement CSX-Koppers dated as of December 15, 1988
         (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).
</TABLE>

                                       95
<PAGE>

<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                 DESCRIPTION
 -------                               -----------
 <C>     <S>
 *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 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).
 *10.17  Koppers Industries, Inc. Voluntary Severance Plan (Incorporated by
         reference to respective exhibits to the Company's Form 10-K for the
         year ended December 31, 1994).
 *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 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).
 *10.25  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).
 *21.1   Amended List of Subsidiaries of the Company (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).
  27.1   Financial Data Schedule for year ended December 31, 1997.
  27.2   Financial Data Schedule for years ended December 31, 1996 and 1995.
  27.3   Financial Data Schedule for periods ended September 30, 1997.
  27.4   Financial Data Schedule for periods ended June 30, 1997.
  27.5   Financial Data Schedule for periods ended March 31, 1997 and 1996.
  27.6   Financial Data Schedule for periods ended September 30, 1996.
  27.7   Financial Data Schedule for periods ended June 30, 1996.
</TABLE>

--------
*Previously filed

                                       96
<PAGE>

                            KOPPERS INDUSTRIES, INC.

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)
                              FOR THE YEARS ENDED
                        DECEMBER 31, 1997, 1996 AND 1995
<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>
1997
Allowance for doubtful
 accounts................    $164       $102       $577        $ 46      $797
                             ====       ====       ====        ====      ====
1996
Allowance for doubtful
 accounts................    $342       $133       $ --        $311      $164
                             ====       ====       ====        ====      ====
1995
Allowance for doubtful
 accounts................    $296       $241       $ --        $195      $342
                             ====       ====       ====        ====      ====
</TABLE>

                                       97