Good day, everyone, and welcome to Koppers Holdings, Inc. Second Quarter 2015 Earnings Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Michael Snyder. Please go ahead, sir.

Thanks, Dana. Good morning, everyone. Welcome to our second quarter earnings conference call. My name is Mike Snyder and I am 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 Hilinski at 412-227-2444 and we can either fax or email you a copy. I would also like to remind you that as indicated in our earnings release this morning we have posted materials to our investor relations website that will be referenced in today's call. Before we get started I would 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 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 Leroy Ball, President and CEO of Koppers, and Mike Zugay, our Chief Financial Officer. At this time I would like to turn over the call to Leroy Ball. Leroy?

Thank you, Mike, and welcome everyone to our 2015 second-quarter conference call. Before I turn it over to Mike Zugay, I would like to spend a couple of minutes highlighting what I think were a couple of good wins for us as we finish the second quarter and head into the back half of this year. The first is our cash generation initiatives that has allowed us to pay down debt by $56 million in what has historically been our weaker half of the year for cash flow. Through the first six months this year we generated positive operating cash flow of $78 million compared to negative operating cash flow of $9 million in the first half of last year. Even excluding the $30 million payment we received as part of the restructuring of our supply agreement with Nippon Steel's subsidiary, C-Chem, we still generated $48 million of operating cash flow through the first six months; $28 million of that coming in this quarter. The last time that we found ourselves with at least $48 million of operating cash flow through the first six months of the year was after the second quarter of 2009, as we were responding to the global financial crisis and drawing down working capital to fit a pullback in our business at that time. Strong cash flow plus the receipt of the $30 million payment from Nippon supports my belief that we will likely finish the year at the upper end of our $100 million to $125 million debt reduction target for 2015 which is a great story. The second area I would like to highlight of course is the stronger financial performance that we realized in the second quarter compared to last year. As expected, this was driven by strong results for both our…

Thanks, Leroy. As you can see on slide two, revenues were $432 million, an increase of $75 million or 21% over the prior year. This was driven by $112 million of new revenue from acquisitions, net of divestitures, an $18 million increase in our railroad business, and $13 million from our new joint venture in China. These increases were partially offset by a $68 million reduction in legacy sales for CMC which was driven by reduced product pricing as a result of lower oil prices. Moving to slide three, second quarter adjusted EBITDA of $46 million was higher than last year's adjusted EBITDA of $27 million, due to a $23 million benefit from acquisitions net of divestitures, a $7 million increase for legacy RUPS business, as that segment had another record quarter for both sales and adjusted EBITDA, and a $3 million reduction in corporate expenses related to acquisition costs last year. These increases were partially offset by a reduction in profitability for CMC of $10 million, again driven by lower oil prices and losses from the new JV in China. Now I am going to discuss several items that are not referenced in our slide presentation. Adjusted net income and adjusted EPS were $14 million and $0.68 per share compared to $8.1 million and $0.39 per share for the second quarter of 2014. The second quarter adjusted net income excludes $5.4 million of pretax charges related to impairment and plant closure costs as well as non-cash LIFO expense. Our effective tax rate for the quarter was 40% and our normalized tax rate for the year is estimated to be between 30% and 35% as we continue to realize the benefits of the tax restructuring project that became effective at the beginning of this year. Excluding discrete items, our effective…

Thanks, Mike. Now I would like to take the time to walk through what’s going on in each of the businesses. Starting with Railroad and Utility Products and Services, that business as expected had a very strong quarter. In fact, as I mentioned in my opening comments, it had a record quarter for sales and EBITDA. If you turn to page six of the slide presentation you will see that we are maintaining our 2015 guidance for this segment exactly as we presented it back in February this year, although there does continue to be some risks due to the continued slowdown in rail traffic and its impact on the railroad industry's operating results. Adjusted EBITDA for the RUPS segment for the second quarter was $22 million compared to $16.8 million in 2014, which equates to a $5.2 million increase. $3 million of that increase came from the incremental contribution from our 2014 acquisitions combined with our rail joint business and net of our utility divestiture. Through six months we are approximately 75% toward our full year $7 million target for net acquisitions and overall feel pretty confident in reaching that number. Sales volumes for untreated cross ties were up by 28% compared to the second quarter of 2014, which contributed significantly to both the top and bottom line organic growth in this business segment in the second quarter. While volumes were up significantly in all procurement regions, growth in the Eastern U.S. was more pronounced due to the drier spring weather in that region. Overall we are expecting untreated cross type procurement to continue to outpace prior year but it will taper off as the year goes on as the trend of an increase in procurement volumes began around the middle of the third quarter of 2014. Treated volumes…

[Operator Instructions] We will go first to Bill Hoffmann with RBC Capital Markets.

Thanks and good morning. Wondered if you could just spend a little bit more time on the CMC business talking about what you were seeing in the carbon pitch side of the equation and then also on the phthalic side, just given the change in the Ortho prices, I would have thought you would have been a little bit more bullish on that segment.

So carbon pitch, nothing much has changed in regards to what we are seeing from a demand standpoint in carbon pitch. I think in all regions things continue to be pretty much in line with what we had expected coming into the year. So there is no major changes that we are seeing or expecting from a volume standpoint. On the phthalic side in terms of -- with the positive developments there and whether that should have us be more bullish on the segment, certainly the positives there will help to push us, I think potentially up in that middle to top end of the range of CMC. The thing that is pulling back from that a little bit is the recent weakening in naphthalene prices globally. China has begun to export naphthalene, which has depressed some pricing in those markets. We are seeing a little bit of it in Europe, certainly we are seeing it in China. We are seeing it in Australia. And so again, these markets are very fluid. We are in a number of different markets and that is why it can be difficult, sometimes, you get positive bumps on one end and sometimes negatives that go against you in another. With so much stuff that is moving around despite, I think, the bullish expectations that we do have on the phthalic side of things, we just don't feel appropriate changing our guidance given the fact that there is just other things that could potentially work against us. So for that reason we are maintaining where we originally expected CMC to be.

Thanks. Just one final question, on the rail and utilities business, the untreated ties obviously, it feels like there is some bit of a catch-up this year on untreated ties. What do you think about in 2016 on the sustainability of the volumetric trends there?

It is good question. I would say that from our standpoint, inventory levels are still down overall and while again overall untreated tie procurement is up significantly, if you would break it down into an even lower level of detail, a lot of that is coming on the Eastern side of our business. So when you get into the Midwest and the West, Southwest, tie procurement has not been as strong as we would hope. It is still up over prior year but we are still trying to catch up significantly over reductions in inventories for our Western based customers and we haven't really been able to make much progress because of where tie procurement has been in those areas due to the really, really wet weather that they have had here in the spring season so far. So I don't see, they want basically anything they can get our hands on in the West. So I think tie procurement will continue to stay strong there. In the East it is going to moderate. But I still think in 2016 I don't expect that we are going to see a pullback on procurement.

Great. Thank you.

And we will take our next question from Laurence Alexander with Jefferies.

This is Dan Rizzo on for Laurence. With the phthalic anhydride, the competitor selling out, is that competitor just shutting down or are they just selling to a different firm? I guess what I'm getting at is, is there opportunity for consolidation against you or something you can do yourselves?

They are not selling. They are not selling, they are just getting out of the production aspect of that.

Okay. And then I think you said the goal was the leverage ratio to get it down to I think below three, within two years.

Not below three, Dan. But around three, yes.

Sorry, to about three within two years. If you hit your goals and I'm sure you said this before, but if you hit your goals you would strongly consider reinstituting the dividend at that point?

I think we will assess that as we go. I am not necessarily looking to reinstitute the dividend, if we have other opportunities to grow shareholder value through a deployment of capital in other areas. So it will be a consideration but not a given.

Okay. Final question, I know you are looking to just divest non-core assets and maybe you've touched on this before but would you ever consider like a bigger move and maybe just selling all of CMC or most of it? Is that something that’s conceivable?

I think we have gotten that question before. The position I have maintained is that we have come into this -- I have come into this role putting everything on the table. So we are taking a hard look at all of our businesses and seeing what makes the most sense in terms of capturing as much value for our shareholders as possible. We think there is a lot of low hanging fruit in the CMC business that can improve that business' profitability dramatically. The one thing I would say about that business from a sales standpoint is the environment that we are in with lower oil and the over capacity, if you would want to sell that business you would be selling it at fire sale prices which we certainly wouldn't be interested in doing. That has been a business that’s been core and really the identity of Koppers and who we have been historically. I wouldn't necessarily pick on or point to that business on its own. We want to constantly challenge and evaluate all the businesses in our portfolio to meet certain levels of profitability and return, CMC is no different. But there is a lot of work here in the midterm that we are focusing on that we think can create tremendous value for our shareholders and as we go through that process we will continue to evaluate whether CMC makes sense as a part of the overall portfolio but I don't see anything in the near-term certainly.

All right, thank you.

And we will take our next question from Ivan Marcuse with KeyBanc Capital Markets.

Hi, thanks for taking my questions. With your debt pay down going well, you had a lot of CapEx projects that you were considering over the next -- that you had to sort of kick out. So do you expect in terms of your footprint sort of invest in those in 2016?

That’s what we are looking at, Ivan. The decision to invest in some of those projects and how much we might invest in some of those projects is going to be dependent upon how the remainder of the year turns out, where we ultimately stand within our covenants and what our expectations are for 2016. So obviously the sooner we can get moving on some of that stuff the quicker we can add to value, but we also need to make sure that we again, we don't leave ourselves in a vulnerable position with little room for a market shock that could throw us out of compliance. So we would love to be able to start spending money on our North American plant consolidation in 2016 and we already are spending a little bit of money on it, on prep work and stuff like that. But we would like to give the signal to go full bore in 2016 but it is going to be dependent on a bunch of different factors.

Thanks.

Ivan, this is Mike. From a standpoint of our confidence level in getting to the higher end of the range in 2015 on the pay down to about $125 million, is based on the following things. We know we are going to pay somewhere down between $10 million and $15 million down on the China debt based on the $30 million that we received on the last day of the month. So that was not figured into our original $100 million debt pay down, so that helps. We had the sale of our concrete tie business. As you know, it wasn't a lot of funds but those funds are going to be used to pay down debt as well. The second half of our year, as Leroy mentioned earlier historically is a much more positive cash flow and stronger than the first half of the year. And in addition just to refresh everybody's memories in the first part -- in the first quarter of 2015, we had this special $16 million cash payment to the IRS for kind of the cost of entry into getting into that tax legal reorganization that we did at the end of the year. And in addition to that, we have some other miscellaneous cash flow generating projects that really we are not at liberty to discuss at the moment. So from a 2015 standpoint, as we sit here today halfway through the year, we are fairly confident that we are going to hit the high-end of that debt pay down range for ‘15.

Great, thanks for that detail. The second question I have is in terms of the working capital. You have done a nice job in taking that down. Is this sustainable, I guess sort of holding energy prices and et cetera, in check which is hard to do, but do you see this as sustainable or what is your goal if you looked at net working capital as a percentage of sales? Or I don't know how you look at it right now, where you think you could get and where it would be sustainable or do you expect in 2016 as you get through this sort of rough patch and if things sort of normalize, you would start see -- would you have to build working capital?

I do believe that in most cases for the things that we have been doing that it is sustainable. We do look at net working capital as a percent of sales. We were intent on bringing that number down by about 2.5% this year. I think we finished last year somewhere about 15.5% or something like that. There has probably been no bigger rallying point here within the company in terms of people understanding how important this is and everybody has been incredibly dedicated and devoted to finding ways to help on the working capital front. And that message hasn't changed. Everybody was aware it wasn't a one-time thing. They need to continue to focus on those efforts. I do believe it is sustainable. Of course as a business grows, you do need growth in working capital to help fund that but from a percent of sales standpoint our target is to try and keep things probably in a 12 to 12.5-ish sort of range.

Okay, great. Thanks for taking my questions.

[Operator Instructions]. We will go next to Liam Burke with Wunderlich.

Thank you. Good morning, Leroy, good morning, Mike. Leroy, on KPC, you mentioned new businesses, are those new products of an existing value stream or new businesses in general, new markets?

It is more new business, Liam. It is not necessarily -- it depends on how you want to define new products. I guess some of them are related to newer products but it has really been more about gaining a little bit of share.

Okay, thank you. And on Europe, on CMC, relatively speaking it had a pretty good quarter versus China, Australia and North America, are you getting any lift on additional creosote sales in the KMG acquisition?

We are. I didn't talk about that much. It wasn't big in the second quarter but it was a contributor. We do expect it to be an even bigger contributor in the second half of the year and maintain our guidance in terms of its overall $5 million contribution to our numbers for that segment this year.

Great. Thank you, Leroy.

And we will go next to Michael Henderson-Cohen with Andalusian Capital Partners.

Hi, good morning. Hi, thanks for taking my question. Just one for you here and just thinking back I guess it sounds like you are now targeting on the higher end of the debt pay down range for 2015. And just thinking back to how you guys were thinking about the two-year plan at year-end 2014, I believe it was maybe a $200 million to $250 million pay down and it seemed like to get to that higher range maybe additional asset divestitures would have to occur or something to that extent. And I'm just curious…

Right.

Okay, and so I don't want to put you on the spot we are now still 18 months away but just in thinking about that range, I guess is that now feasible without additional asset sales to get to the upper end of that two year range would you still think about needing to sell additional businesses? I guess it’s still just in this context of being at the higher end of the range for ‘15 now?

Fair question, Michael, and here is the way I would describe it. So 200 to 250 was the target; 100 to 125 in each of the two years. And yes, you are right, we talked about the fact that for us to -- so kind of making up the difference between 200 to 250 certainly divestitures were a good chunk of that and then there were other sorts of things that we unfortunately couldn't talk about but were going on in the background that we knew could develop and ultimately play a part in that. So one of those things was as an example, the agreement with Nippon Steel. Those discussions have been ongoing for probably nine months or more. So we knew that was going on in the background but we couldn't talk about it. So that was certainly an element to being able to get to the higher end of the range as well as the divestitures as well as a couple of other things that we still have going on but again we can't really talk about. So yes, we pulled two of the three divestitures off because we didn't see value coming forth that made sense to sell them and one of the two is the one that would have made up the lion's share of the proceeds that would have come so that certainly will affect getting to the 250, there is no question about it. But as an example, the Nippon agreement did come through and so -- and that is one of the things that we are really pointing to is driving us probably closer to the upper end this year. So as we think about it moving forward, yes, I would say there is probably $25 million of that $200 million to $250 million that for today is probably off the table. And so that is the way that I would describe it if that is helpful.

Yes, okay, appreciate it. Thank you.

[Operator Instructions]. We will go next to Chris Shaw with Moness, Crespi.

Yeah, good morning, everyone. Hi, in railroad, a little concerned about the sort of slowdown from the demand from the Class 1s and I know you can make it up with the commercial side of the business but the old story with rail was that they were fairly consistent in their demand, didn't matter so much what their volumes and traffic was sort of replacement. Are they cutting back strictly because their business is down and the rail traffic is slowing a bit from the energy side or is there something else? Do you think it is going to be longer-term?

So here is my take on it, just like us certainly the public ones which are the majority of them, they have earnings targets, shareholders to satisfy and things of that nature. So as they see pressures doing their business they look for ways where they might be able to help offset that and still be able to meet their guidance and expectations. Again this is a repair and replacement business. They cannot cut back significantly and in some cases I think they've gone on record as saying that while they are looking at things they probably will have little opportunity to really affect anything on the repair and maintenance or capital side for the remainder of this year. I am sure they will look at it hard for 2016. I think it is all to balance expectations with shareholders but they are going to do the right thing in terms of investing in their network and for safety and growth and things like that. So I don't see it as a long-term, I view it more as how they are trying to manage through a little bit tougher situation here in the near-term and what we have seen so far it’s been relatively minor and modest. I only point it out because it is out there and so we are keeping a close eye on it. We are lucky that today there is a strong amount of pent-up commercial demand that we can move production to if necessary but to date we haven't seen anything significant.

Thanks. And then if I could move to phthalic for a second or back to phthalic. I saw that the industry got a $0.03 I think, margin versus the orthoxylene price recently. Can you just talk about how that happened and are you guys benefiting from this one other supplier who you said was exiting the market. Is that part of the dynamic there?

It is. I think anytime you have a tightening of supply in the market, it could create potential opportunities for pricing. Yes, our other competitor in this business has gone out with a price increase, we have gone out with a price increase as well. We think it’s fair and warranted given the environment that we are in but I think that's just kind of natural economics. It’s a depressed market still today even with an improving orthoxylene pricing and as things continue to improve and orthoxylene pricing goes up whether those sorts of spreads will be able to be maintained, it is tough to say. And just because you go out with a price increase doesn't mean that you necessarily are able to even get it but we are doing everything we can to try and improve the profitability in that business.

Great, thanks.

And with no further questions in the queue I would like to turn the conference back over to Mr. Ball for any additional or closing comments.

Thank you. I hope our shareholders are able to see the positives that have occurred throughout our business in the first half of 2015. I know we are excited about where we believe we can take this company and we remain committed to do so. So we thank you for your participation in today's call and appreciate your continued interest in Koppers. Thank you.