Good day and welcome to the Koppers Holdings Inc. Third Quarter 2014 Earnings Conference Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Michael Snyder. Please go ahead.

Good morning, everyone. Welcome to our third quarter earnings conference call. My name is Mike Snyder, and I'm the Director of Investor Relations for Koppers. Each of you should have received a copy of our press release. If you haven't, one is available on our website or you can call Rose Helenski at 412-227-2444 and we can either fax or e-mail you a copy. Before we get started, I'd like to remind all of you that certain comments made during this conference call may be characterized as forward-looking under the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be affected by certain risks and uncertainties, including risks described in the cautionary statement included in our press release and in the company's filings with the Securities and Exchange Commission. In light of the significant uncertainties inherent in the forward-looking statements included in the company's comments, you should not regard the inclusion of such information as a representation that its objectives, plans and projected results will be achieved. The company's actual results could differ materially from such forward-looking statements. The company assumes no obligation to update any forward-looking statements made during this call. References may also be made today to certain non-GAAP financial measures. The company has provided with its press release, which is available on our website, reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. I'm joined on this morning's call by Walt Turner, President and CEO of Koppers; Leroy Ball, our Chief Operating Officer; and Mike Zugay, our Chief Financial Officer. At this time, I'd like to turn over the call to Walt Turner. Walt?

Thank you, Mike, and welcome, everyone, to our 2014 third quarter conference call. Our third quarter results reflect continued industry headwinds that resulted in significantly lower profitability for our Carbon Materials & Chemicals business here in North America and also in China, driven by lower sales prices for carbon pitch, carbon black feedstock and phthalic anhydride. This was partially offset by improvements in our Railroad and Utility Products & Services business and a contribution from the newly acquired Osmose businesses. We also incurred $3.7 million in integration and related costs that reduced adjusted EPS by $0.11 a share. Our North American Carbon Materials & Chemicals business was negatively impacted by a drop in aluminum production here in the US that resulted in lower sales volumes and prices for carbon pitch coupled with lower sales volumes and prices of phthalic anhydride, which were driven lower by orthoxylene prices. Lower prices for carbon pitch and carbon black feedstock adversely affected our Chinese operations and our KJCC joint venture incurred operating losses due to operational startup costs and having to sell our production into the competitive Chinese market, as we wait for our partner, Nippon Steel Chemical, to complete the construction and operational startups of their plants. In our Railroad and Utility Products & Services businesses, profit was up significantly over the second quarter and were slightly below the very strong prior-year quarter. Untreated crosstie sales volumes were down slightly over this last year, but were significantly higher than the second quarter of this year, as we're getting back to a more normalized level of procurement. However, due to the reduction in raw material volumes over the past year, treating volumes were lower as there was less dry material available for treating. Railroad and Utility Products & Services businesses now includes the railroad…

Thanks, Walt. Consolidated revenues for Q3 were $440 million, an increase of 11% from the prior-year quarter. This was driven by new revenues of $53 million from the Osmose acquisition, $11 million from the Ashcroft acquisition and $11 million from our new facility in China. These additions more than offset a $26 million reduction in sales for our legacy CM&C business. This reduction in CM&C revenues was discussed by Walt earlier. Third quarter adjusted EBITDA was $40 million or 9.1% of revenues compared to third quarter of 2013 adjusted EBITDA of $47 million or 11.9% of revenues. This decrease is primarily due to lower profitability in our CM&C segment including operational startup costs at our new facility in China. Adjusted net income and adjusted earnings per share for the third quarter were $12.3 million and $0.60 per share compared to $18.8 million and $0.90 per share for the third quarter of '13. This excludes $14.4 million of pre-tax charges related to impairment and plant closure costs, acquisition closing costs, the write-off of deferred financing costs related to the upsizing of our revolving credit facility for the acquisition. As mentioned earlier, our adjusted EPS of $0.60 was negatively impacted by $3.7 million on integrated and related costs that reduced adjusted earnings by just about $0.11 per share. Our effective tax rate for the quarter was 183% compared to 42% in the third quarter of 2013. Our unadjusted effective tax rate for '14 was unusually high due to the non-deductibility of our restructuring charges in Europe and China as well as the inability to record a tax benefit on pre-tax losses of certain of our foreign subsidiaries. These charges dramatically lowered our pre-tax income with no corresponding tax benefit. Adjusting for those non-deductible charges would result in a normalized effective tax rate…

In our global Carbon Materials & Chemicals business for the third quarter, sales of $226.6 million or 15% were 6% lower than sales of $241.6 million in the prior-year quarter, as $11.2 million in sales from the KJCC joint venture in China were more than offset by lower sales volumes and prices of carbon pitch and phthalic anhydride. Pitch products accounted for 5% or $11.5 million decrease in sales compared to the prior-year quarter, as sales prices for carbon pitch declined. It more than offset incremental pitch sales volumes from KJCC. Sales of distillates increased 1% or $3.1 million due to higher sales volumes for carbon black feedstock, which included incremental sales volumes from the KJCC facility. This increase was partially offset by lower sales prices for carbon black feedstock, driven by lower prices in Asia combined with lower sales volumes for creosote in North America. Sales of coal tar chemicals decreased 1% or $2.3 million, driven by lower sales volumes and prices for phthalic anhydride, which more than offset incremental naphthalene sales volumes from KJCC. The average price for orthoxylene was $0.50 for the third quarter of 2014 compared to $0.64 for the third quarter of 2013. This 6% reduction resulted in a similar reduction in our phthalic pricing. Orthoxylene prices are down to $0.51 in November, which is a $0.04 decline from October $0.55 price and $0.05 down from September. For comparative purposes, orthoxylene averaged $0.61 during the fourth quarter of 2013. The net result of a lower average orthoxylene prices will result in a $2 million negative impact on our comparative year-on-year fourth quarter operating profit. Carbon Materials & Chemicals adjusted operating profit for the quarter of $11.5 million, a decrease of $10.3 million from $21.8 million that was recorded in the third quarter of 2013. Adjusted…

Thank you, Leroy. I would like to close by summarizing what we are expecting for the rest of 2014 and then also in general terms for 2015. We expect that our sales and adjusted operating profit will be positively impacted in the fourth quarter, with contributions from the Osmose acquisition, continuing improvement in crosstie procurement, continued profit accretion from the Ashcroft acquisition, ongoing benefits from capacity rationalization in the Europe and operational improvements in the railroad business. As noted in our last call, we will continue to incur cost related to integration and operational improvements that will have a negative impact on earnings for the rest of this year. However, we view these costs as foundational investments, which will position us for higher sustainable earnings and operating margins beginning in 2015. 2014 has been and continues to be very active for Koppers, as we work to adjust our asset footprint to match our current and future expected business through capacity rationalizations in the mature geographies. We continue to devote resources towards driving margin improvement to identify projects while looking for more ways to reduce costs. The acquisition of the Osmose businesses should add meaningfully to our sales and profitability and help us to achieve our long-term goal. The various actions we have already taken this year and the continuation of cost savings initiatives that are in place for the balance of the year for restructuring and expanding our businesses in order to grow the top and bottomlines in a sustainable fashion gives me strong confidence that 2015 is shaping up to be a very strong year for Koppers, a significant improvement over our 2014 results. Now before I open the call for any questions that you may have on the quarter, I have an organizational announcement to share with you this morning as well. After two years of working with the Board of Directors on a succession planning process, I'm pleased to announce that the Board has chosen Leroy Ball to take over my position of President and Chief Executive Officer effective January 1, 2015. I'm both pleased and excited to turn the leadership of our company over to Leroy who has earned the respect and trust of our Board and our stakeholders. Our well established succession planning process has produced a capable and experienced executive who will lead Koppers to a new and exciting future. Under Leroy's leadership and guidance, Koppers will continue to embark on a new phase of growth and development. I will continue as an active member of the Board and assist Leroy and his management team in the succession planning process. So with that, at this time, I would like to open the call for any questions that you may have.

(Operator Instructions) We'll take our first question from Daniel Rizzo from Sidoti & Company. Daniel Rizzo - Sidoti & Company: The newly named Performance Chemicals segment, that's all just Osmose in its entirety or did you break that up a bit?

No, that's broken up the structural service business and a small wood treating plant in Houston, Texas, are now a part of the Railroad and Utility Products & Services business. And the Performance Chemicals is a wood treating chemicals business, which is very much global as well. Performance Chemicals is wood treating chemicals only. Daniel Rizzo - Sidoti & Company: With the JV in China, the main client customer is expected to be operational at the beginning of the year or what's the timeframe on that?

First of all, our joint venture partner for our tar distillation plant that we referred to as KJCC, we have a 25% joint venture partner called the Yizhou Group, which has coke making facilities next door to our tar distillation plant. The sales agreement that we have are very long-term sales agreement we have with Nippon Steel, Sumikin Chemical, so they will actually take about 80% of our production from this plant, and their plant is also next door to our tar distillation plant. Daniel Rizzo - Sidoti & Company: And that was Nippon Steel, I think there was delays in the past about when they were ready to start buying your products?

They will finish the two-plant projects at the end of this year. In fact, I personally saw them last week. They will finish those projects by year-end and then start through their startup phase starting in January. And then it will take them, I'm guessing, probably a good two or three months or so to get their startup phase completed and then start producing products that they will send out to customers for the customer approval. So I think we mentioned the last half of 2015 will have some minimal profit for that operation. Daniel Rizzo - Sidoti & Company: And then finally, just with coal tar supply, is that in any way, shape or form an issue at this point?

The tar supplies continue to be what we've been reporting over the last several years. In North America, we've always been short of coal tar. So there is products being imported into North America such as carbon pitch, creosote, what have you. China continues to have an abundance of coal tar. That's why we built our new plant in China. Europe continues to be an area that there is tar available. We do supplement our coal tar requirements from Russia. We have an excellent supply chain system set up there and it works well. As far as availability goes, not really much of a change. There has been some talk about US still closing their Hamilton plant in Canada, but I'm not sure if that's the final decision or not.

And I'll take our next question from (technical difficulty) from Jefferies.

Can you quantify or add some color to the size of potential savings in the US or perhaps any of the timings and rationalization and also if there is any upfront cash expense you might incur?

I think we mentioned in the prepared comments that capital associated with the new plant in Stickney would be in the range of $40 million to $45 million. The associated benefits right now we've estimated in the range of $10 million to $15 million. And any associated cost relative to our Follansbee plant we haven't talked about it yet.

How much capital is required to upfit some of the crosstie plants to treat with borate?

Typically in the range of $2 million to $2.5 million plant.

And we will take our next question from Liam Burke from Wunderlich Securities.

On the synergy savings that you are seeing from the acquisition of Osmose and which you'll complete in 2015, is that mostly on the Performance Chemicals side or is that sort of divided proportionally between the two businesses?

It is between the two businesses that's also within the overall corporate costs and services, back-office support and things like that. So it is a little bit of across the board, excluding the Carbon Materials & Chemicals business, Liam. So it involves Railroad and Utility Products piece of the business as well.

Because now that you break out the Performance Chemicals margins, we should see some lift as we finish 2015?

As the synergies start becoming to be realized, yes.

And 65% of treated ties will now be treated with borate to extend the life of the tie. How is the long-term volume in terms of tie coating affected as more and more ties use borate and lasting longer?

Are you talking about from the reduced usage of creosote or talking about just the longer life of the ties?

Longer life of the ties, Leroy.

I think that's something that is at least a 10-year period away from before we start to see really any effects associated with that. But with the increased volume on the infrastructure of the US railroads, the expectation is that the maintenance is only going to have to continue to be increased as a result of the increased stress on that infrastructure. So we're thinking that any reduction in volume as a result of longer-life ties will be offset by mechanical failure just due to the heavier loads and denser traffic.

And we have a question from Eugene Fedotoff from KeyBanc Capital Markets.

I guess first, you saw strong results in carbon black feedstock in the quarter. Have you seen any customer destocking in that market?

Not that we're aware of. We're not that close to it, Eugene.

Looking at financials for Osmose that you provided, there was an increase in operating margin in first half of '14 compared to 2013. I was just wondering if that was a benefit from lower raw material costs, maybe copper prices falling, or there is something else in that that benefited the margin?

Well, copper prices have been lower year-over-year. We have continued to practice that they had in place in terms of hedging the raw material supply. But yes, there has been some benefit from that in 2014.

Do you expect the benefit going forward as well?

We are hedged for a significant portion of 2015 volume. So we would expect to see some benefits in that.

And I think you mentioned that carbon pitch pricing in Middle East was still challenging in the quarter. Have you seen any stabilization or are prices continuing to decline there?

Well, it's been weak pricing for the last probably year-and-a-half or so. And unfortunately, I think we're going to continue to see weak pricing there at least for the end of this year and it's just a little bit of unknown right now what's going to happen. And in the beginning of next year, we're negotiating contracts and pricing, what have you, for 2015. So we're hoping that there is some upward pressure on pricing increases there in that part of the world.

And the last question if I may, on coal tar costs, I believe you said you are expecting these costs to increase in 2015. Can you provide a magnitude of the increase?

It's tough to say at this time. I think globally, we're probably looking at something in the 2% to 3% range from a global standpoint.

And we'll move on to our next question from Chris Shaw from Monness Crespi.

On the KJCC, I thought initially the thought was that before Nippon got up and operating with their plants that your business would run breakeven, but it sounds like there was a loss for the quarter. So is that something that's going to continue or should that actually run breakeven fourth quarter and into next year?

Most of the numbers that you're saying on KJCC for the last half this year is really third quarter, especially the startup costs and getting things lined up and so forth. So that was really sort of the losses there getting the plan up and running, which is now that's completed. We are, as we mentioned, selling the carbon pitch, the carbon black feedstock and naphthalene into the Chinese markets. And we're still faced in general with weak pricing in the China markets. We kind of think that they've sort of hit the bottom of the trough and then slowly coming back. So I'm hoping or at least we're looking at next year being a little more profitable, if you will, in the sort of carbon area end-markets in China. But as we also mentioned, this will probably go on till probably the second quarter of 2015, which is when Nippon Steel Chemical will begin using a fair amount of our products. So we're basically looking at the first half of next year as focusing on the local markets.

The year-over-year and the third-quarter growth for the Osmose businesses that you acquired, I know you gave them out for the first half and earlier, but what was the third quarter growth?

Well, we didn't talk specifically about the third quarter other than what we had recorded for the month-and-a-half that we consolidated them. What I did mention was year-to-date growth over 2013, the topline has been over 6% year-to-date 2014 compared to 2013. And operating profit is at a higher rate than that 6% topline growth.

And the topline growth for nine months was consistent. That was the same 6% you gave for six months, right?

No, it's for nine month. I didn't mention anything about six months. You're talking about the 8-K that was filed. Yes, that would in line with that, yes.

You talked about the LIFO charge for the quarter of $3 million and potentially $6 million for fourth quarter. A couple questions there. I guess in the third quarter, is that what showed up on the other line? I was trying to figure it out. Or was that not in the adjusted number?

The LIFO comes to the cost of sales. So that would be in the gross profit number.

So there would be a sequential likely $3 million hit in sales in the fourth quarter then?

Up to a $6 million hit in cost of sales as a result of increased LIFO charges is what we're looking at potentially right now.

Just one more on the interest, for the quarter, it seems higher than I would have imagined for just a half a quarter's worth of the new debt. But would you expect fourth quarter interest to be higher than the 11%, 12% you did this quarter?

Well, we had deferred financing costs that were written off that are also included in that number, and I think it was about $1.9 million.

Yes, $1.9 million. So that skews that number higher.

We'll take a question from Steve Schwartz from First Analysis.

My first question is with respect to coal tar inflation. You touched on it in an earlier question in your commentary. But when can we read through on that in terms of your demand? I mean obviously if prices are going up because coal tar demand is going up, is that a positive for you guys, outside of the cost inflation?

I'm sorry, Steve. Could you repeat the question one more time.

I guess it boils down to you're expecting higher coal tar prices because of higher coal tar demand. Does that essentially mean that there is a pickup in demand for pitch and downstream products? Does that mean that there is potentially higher pricing for your finished products to help offset the higher costs?

Hopefully. I mean we're still seeing the global aluminum industry continuing to grow year-over-year, at least 6% on an annualized basis. You take basically 44 million tons of aluminum production and add the 6% annualized growth. Yes, pitch demand continues to increase, which means there'll be more tar distilled. And yes, hopefully that demand does positively impact the product pricing, if you will.

And my second question on KJCC, it's clear from your last answer that this was a pretty disrupted quarter with the startup and what have you, but still trying to understand what we can take from the $11 million in revenue and the $2 million loss. What was the utilization like and what were the special expenses in the quarter?

Operationally, we started the plants up sort of mid late July, and that took some time. But at the moment, currently, we're operating the plant at capacity. So as far as the utilization we had in that July, August, September timeframe, I don't know the exact number, but going forward, our plan is to operate at the 300,000 ton capacity level. And between and now and, let's say, first quarter, we'll be supplying products into the Chinese market, perhaps exporting some CBF materials. And about that same time is when Nippon Steel Chemical will start taking product from us as they crank up their needle coke plant and carbon black plant.

I think the utilization was somewhere in the 75% range for the time that was up during the quarter. But we obviously have to step up to prepare to operate, getting people trained and all the rest of it. So you have those costs that we've been incurring kind of leading up to the kick-off of the operation starting. And then you deal with the traditional sorts of starts and stops associated with any facility coming up for the first time. And so you don't just kind of turn the switch and start off with production. And so those are the sorts of things that we're dealing with, which is not unlike most other chemical plants that come up for the first time.

But that $11 million then in other words was 75% for two months?

Approximately, yeah.

And then just one numbers question. Leroy, I didn't catch if you gave the white tie inventory coming out of the quarter? I know you had some qualitative comments.

I talked about it, I think, in terms of declines compared to maybe last year or something like that. I don't think I had given an inventory number, Steve, and I don't have one kind of at my fingertips here.

And we'll take a question from Bill Hoffmann from RBC Capital Markets.

I was looking at CapEx for next year. Could you talk about this, the Stickney chemicals plant, $40 million to $45 million? I assume that's all next year CapEx. Did you assume the other baseline is about similar to where you normally run?

You have the addition of CapEx for the Osmose businesses that have been added on as well. I would say to take the Osmose businesses, our kind of more traditional legacy Koppers capital and the amount of the project that could be spent next year, you're probably looking at somewhere in the, let's call it, $70 million to $80 million range.

And then just a question on the pitch markets, obviously the prices have been under pressure, and you are heading into negotiations. Do you guys feel like the markets are likely to at least to start to stabilize here as you're starting to see a little bit of demand recovery or are we not there yet?

Well, I have to think that with the increased demand going through as we see an increased production going the right direction, is it trough to hit the bottom yet, I would like to think so. But again, I think the demand is up, which typically allows you to improve on the pricing of that situation.

It appears we have no further questions. I would like to turn the conference back over to Mr. Turner for any closing remarks.

We thank you for your participation in today's call and appreciate your continued interest in Koppers. We will continue to pursue growth opportunities that make a strategic sense for us as well as looking for ways to improve profitability with our existing businesses. We remain firmly committed to enhancing shareholder value by maintaining our strategy and providing our customers with the highest quality products and services, while continuing to focus on our safety, health and environmental initiatives. Thank you. Good bye.