Good day and welcome to the Koppers Holdings, Incorporated Fourth Quarter 2016 Earnings Conference Call. Today’s conference is being recorded. At this time, all participants are in a listen only mode. [Operator Instructions]. At this time I would like to turn the conference over to Quynh McGuire. Please go ahead.

Thanks, and good morning. My name is Quynh McGuire and I am the Director of Investor Relations and Corporate Communications. Welcome to our fourth quarter earnings conference call. We issued our quarterly earnings press release earlier today. You may access this announcement via our Web site at www.koppers.com or call Rose Hilinski at 412-227-2444 and we can send a copy to you. As indicated in our earnings release this morning, we have also posted materials to our Investor Relations page of our Web site that will be referenced in today’s call. Consistent with our practice in prior quarterly conference calls, this is being broadcast live on our Web site and a recording of this call will be available on our site for replay through march 24, 2017. Before we get started, I would like to remind all of you that certain comments made during this conference call maybe 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 statements 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 Web site, reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. I am joined on this morning’s call by Leroy Ball, President and CEO of Koppers and Louann Tronsberg-Deihle, Treasurer. Mike Zugay, our Chief Financial Officer who would normally be on the call is travelling internationally for business this week and not available today. At this time, I would like to turn the call over to Leroy Ball.

Thank you, Quynh. Welcome everyone to our fourth quarter 2016 earnings call. Before getting into the details of our financial results, I would like to recap some of our recent accomplishments. So let's start by reviving the progress made on journey to Zero Harm. We’re building on a momentum that followed our Koppers Zero Harm leadership forum held in September 2016, in the December quarter three of our facilities took part in the first in the series of safety leadership training workshop and the remaining locations are scheduled to participate throughout the first half of 2017. Now as I just mentioned, these comprehensive workshops for the first of many over the next several years and focus heavily on the empathetic leadership and behavior or reliability concepts, they are integral to the Zero Harm mindset. We will continue to invent additional resources for safety training and process improvement, this will help to ensure that all employees are well equipped to make Zero Harm possible. This safety-first culture is being embrace by our employees who proved Zero is indeed possible earnings every day. In fact, nine of our 31 operating facilities were accident free in 2016 and the numbers of recordable incidents were reduced by more than 15% year-over-year. Overall 2016 stands as our best safety performance year yet, and that's a direct result of the high level of engagement from our employees worldwide. Certainly, we still have a lot of work to do to get to Zero, but I'm encouraged by our progress and confident that we will see improved safety in operating performance as we strengthen our Zero Harm efforts. I'd now like to move on to highlighting several events that reinforced our strategy to improve profitability through a focus on wood treatment technologies. But recently we announced that we…

Thanks Leroy. I will be referring to the slide presentation that Quynh mentioned earlier. Starting on Slide 2, consolidated sales were $313.2 million for the fourth quarter of 2016, which was a decrease of 13.9% or $50.5 million from sales of $363.7 million in the prior-year quarter. The sales decline was primarily related to lower sales volumes from the CM&C business. This reflects the Company's strategy to focus on the higher value wood preservative market, reduce distillation capacity and lower sales prices for certain products. The RUPS segment experienced a reduction in sales volume for treated cross ties due to lower spending in the rail industry as well as pricing pressures in the commercial railroad tie market. However, the PC business reported strong sales volumes driven primarily by favorable market trends in the repair and remodeling market and existing home sales. Additionally, treated wood dealers were stocking and selling treated wood with high preservative retention levels. On Slide 3, consolidated revenues for 2016 were $1.4 billion, reflecting sales declines as we had expected in both RUPS and CM&C segments. Moving to Slide 4, adjusted EBITDA was $37.6 million for the fourth quarter, compared with $28.7 million in the prior-year quarter. This was due to higher profitability for the CM&C business which was partially offset by lower profitability for the RUPS segment. Adjustments to EBITDA for the fourth quarter of 2016 consisted of $5.4 million of pretax charges primarily related to restructuring expenses. Moving to Slide 5, shows our EBITDA bridge of $174 million in 2016 compared to $150 million in the prior year. The strong profitability from our PC and CM&C segments more than offset the decrease in the RUPS business. Now I'd like to discuss several items that are not referenced in our slide presentation. Adjusted net income was…

Thanks, Louann. Before I get into discussing the outlook on our business, I'd like to take some time to provide a high-level summary of all that's been done as part of transforming Koppers and strengthening our competitive edge in the marketplace over the past two years. Number one, as I alluded to in my opening, everything for us starts with safety for our people, the environment, and our communities. We tweaked our mission statement over the past year to reflect that. It now reads creating safe and environmentally responsible solutions that solve our customers' most important challenges and result in superior performance for shareholders. While safety performance tends to get defined as a metric, I prefer to think of it from a human perspective because I think it gives a better sense of what we've actually achieved while also putting into focus how far we still have to go to achieve Zero Harm. Over the past two years, we have reduced the number of our people that are injured on the job and had to seek medical attention by close to one-fourth and in 2016 had our best safety year ever. Imagine that. That equates to around 20 less people being injured on the job over the course of a year. Flip it around, however, and it shows that we still have 62 people that were injured during 2016, which is 62 too many. Zero will remain the goal and the focus, and I'm confident that, over time, we will get there. We plan to share our progress on the environmental and community front in our upcoming sustainability report for 2016 that should be issued sometime within the next couple of months. Number two, we believe Koppers is now the leading global producer of wood preservatives and number one in…

[Operator Instructions] And we will go first to Laurence Alexander with Jefferies.

It's Dan Rizzo on for Laurence. So when you are talking about performance chemicals, just so I can think about this correctly, you were talking about Zillow and fixer-upper home sales. But really what drives growth here is consumer confidence because, when dealing with decks, it's really about just putting a deck on your home, not really something that a lot of people do before or after they sell. Am I looking at that the right way -- [Multiple Speakers].

That's certainly a way to look at it. I think, as we look at it, when a person is looking to sell their home, they are in a process of maybe spending some money to improve upon it to drive a quicker sale or a higher sale price, trying to recoup some investment there, whereas you say people who are buying homes, they're looking to make some changes to the homes -- that the biggest purchase to have it be in line with their own personal taste. So we do see it on both sides in terms of how -- what is driving potential purchases in that particular segment.

And would I look at a company like Home Depot, demand trends that are coming to like Home Depot and Lowe's and see if, if that's doing well, that should be a pretty good indicator as well?

We talked for some time about using them as a pretty decent proxy for getting an understanding of how our business should be expected to perform as it relates to treated lumber sales.

We will go next to Scott Blumenthal with Emerald Advisers.

Leroy, you gave a couple of figures. I was wondering if you might be able to run through those again. Your anticipated EBITDA margin for the CM&C segment, that was in the 7.-something percent range?

Yes, around 7.5%.

Okay. And also you gave a number for what you think you're going to need to spend on Stickney again in 2017. Could you give me that number again? I'm sorry.

Yes. I think we talked overall between $70 million and $75 million in total CapEx. And for Stickney, it's in the $30 million ballpark range.

Okay, thank you. And did you give an approximate time, obviously sometime later this year or early next year, when you expect to be completely done there and have everything online?

We are shooting for 1-1-2018. That's what we are shooting for.

Okay. And you did mention a build-up in cross tie inventories.

Yes.

Can you maybe go into that in a little bit more detail, what happened there, and how are things looking right now?

Yes, I think it's mostly on the commercial end of things. I think I might've even mention on the last call that what goes on the Class 1 side tends to drive pricing in the markets on the commercial side because, if you have a healthy Class 1 market, then you have a lot of ties being driven there and it creates a little bit of a shortage or a tighter market on the commercial side which helps to support pricing. When Class 1s pull back and you end up putting more product on the ground for the commercial segment, higher inventory levels can create a situation where people have to move product and you see more pressure on pricing. So that's what we have seen going on here probably over the last quarter to quarter and a half is I think the expectation for a healthy market to continue has resulted in probably some over-buying on the commercial end of things. That has resulted in higher inventories and then the follow-on effect of putting pressure on pricing.

Okay. Can you remind us how much of your business -- I don't know if you've ever disclosed this?

It specifically runs anywhere from -- commercial for us, it runs anywhere from 20% to 30% in a given year. It's probably, over the last year or two, probably closer to the 20% range than the 30%. So I'd say, right now, we are probably in between 20%, 25%, something like that.

Okay. That's really helpful. And one last one if I may. Can you talk a little bit about the demand for pitch from some of your aluminum customers? Obviously, there's, a lot less now in the market. And it would appear to us that your steel suppliers are doing a little bit better, and so you've got a little bit more on the supply side, and if you can get a little bit more demand from the aluminum guys, it seems like the market is setting up pretty well for you.

Certainly, I would say our strategy of taking capacity out and tightening markets up, and just in general what's been going on globally, we have seen, I think, a trend, certainly outside of the US, for pitch pricing to move up. We've seen that happen certainly in China where we have much less exposure today. But we are seeing some of that spill over into other geographic markets. I'd say it is a healthier time for us certainly in terms of pricing. There is still a challenge out there. But overall, it is in a better spot today than it's been in some time for us, yes. That's probably the best that I can say at this point.

Okay, I appreciate it. Congratulations on everything that you've done. It's been a terrific two years, and your whole team deserves a lot of credit there.

Thanks for pointing out the team, because you are right about that. We have a great group of people who -- they are the ones who make it happen. So, thank you.

We will go next to David Deterding with Wells Fargo.

Just a quick question, just going back to the CM&C business, it sounds like you've kind of characterized it as in a pretty good place than it's been in a while. But if I look at your bridge on Page 10 for the business, I mean 23% to 32% is pretty modest, and $13 million of restructuring savings coming on top of that. Wouldn't you expect the business to be better just structurally in 2017 than 2016 from a pricing perspective?

It is, but I'd say that our view of that business is pretty consistent with what we've talked about over the past two years in terms of how we are restructuring it and resizing it. And it's consistent from actually a performance standpoint with I think the projections that we put out there. Things are getting healthier and that's why I think there is still some upside there. I'm not ready to go there yet in terms of making those sorts of commitments publicly. But yes, the sentiment -- and I even mentioned it in my prepared comments, I feel most confident in 2017 in our CM&C business' ability to meet or beat their projections based on some of the comments that you just made.

And then in terms of going back to your aluminum customers, [indiscernible] the WTO case it looks like. And can you just characterize some of the conversations that you are potentially having with guys that are left producing aluminum here in North America?

I'll just -- the first thing I would like to say is we -- and remind people -- is we have restructured our business to serve the North American railroad industry for creosote. Carbon pitch for us is a byproduct. And that carbon pitch, obviously, the major market for that is the aluminum industry, and we will continue to serve that aluminum industry and serve it well, but we are not pinning future hopes, pinning future profitability, projections or anything on an improved aluminum industry. The whole rationale for everything that we've done is to move away from that as being the big driver in moving our numbers from year-to-year. Overall, with where things are at, like I said, we are an in improved -- we are in a much-improved position with where those end markets are at in terms of being able to have -- to be in a better spot from a pricing standpoint than we've been in a long time. But that's not where we rely upon to provide the basis for the profitability in that business anymore.

Okay. And then just the last one. You mentioned on not hitting the debt target. One of the reasons was higher inventory that you guys built up in the quarter on the rail side. Can you quantify how much that is and when you expect that to potentially reverse itself out of working capital?

It was probably in the neighborhood I'd say -- so our inventories I believe in the quarter for that business segment on the cost side went up somewhere in the neighborhood of $15 million to $20 million. So it's somewhere in that $15 million to $20 million that we probably could have pulled back on and not put as much on the ground.

Can you expect that to reverse itself out sometime in 2017?

Well, if the markets don't -- if the markets basically go the way that we expect, yes. We would expect -- I don't know about a full reversal, but we would expect for that to move its way down a little bit.

We will go next to Rudy Hokanson with Barrington.

Thank you, Leroy. Very nice quarter. I just wanted to clarify a few things from the comment regarding interest expense that's expected in 2017, the $5 million less. Does that mean it should be somewhere around $46 million?

Probably in that targeted range, somewhere between $44 million to $46 million would be accurate.

Okay, thank you. And then dovetailing a little bit on the question about not bringing the debt down to the level you had hoped to by the end of the year, do you have any kind of target for further debt reduction, either in 2017 or over the next couple of years, as you get down to the 3.5 net leverage ratio, or is most of that due to increases in EBITDA?

That's a good question, Rudy. What I would say is -- and that's one of the reasons we are sort of trying to change the way we are looking and speaking about our debt, because, for us, debt needs to be a function of our current profitability and confidence in future profitability. And so that's why we've moved to really focusing on that leverage. And as you point out, there's two things that drive that. There's the debt side of the equation and there's the EBITDA side of the equation. We expect that getting down to a 3.5 or lower net leverage in 2017 will come as a result of a combination of improved EBITDA and lower debt. But the debt -- we hesitate at this point moving forward in putting strict debt reduction targets out because I think that's going to be somewhat dependent upon how we perform and where we might want to make key investments at a given time. So, 3 is still the target, kind of on average, and so 3.5 to a little bit lower than that, that still doesn't get us there, so we are still going to be focused on some combination of driving the EBITDA up and the debt down to get us there -- to keep us comfortable moving forward.

And then, again, one of the moving parts in that formula and also the longer-term strategy for the Company -- are you open to having that ratio move up if you found the appropriate acquisition or acquisitions during the year or, right now, are acquisitions more on hold and you are more focused on current operations and the balance sheet?

I think, Rudy, it's, again, another good question. I think we have to have our eyes on all of those balls. So acquisitions are in play. And while I say the goal is to move that net leverage down to an average of 3 times, it is an average of 3 times. So, if the right opportunity comes along and we need to be above 3 to get there, that's fine with us. We are comfortable in that range. In fact, we are comfortable, we talked about, in a range of 2 to 4 times really. What we don't want to do is we don't want to get really back up above that 4 times level and live in the world that we've lived the last couple of years. It puts a lot of pressure on the organization. It certainly puts a -- it gives I think the investment community a different view of the Company and it puts us in a situation where one bad surprise comes up and all of a sudden now you are really having some issues. So, we don't want to go back there. But we are -- we do think that, given where we are at, we can go look for some small tuck-in acquisitions, and we think there's some potential upside this year that, again, allows us to be in a position where we can take advantage of an opportunity, an attractive opportunity, if it's there, and still keep our leverage under 4, which is really where we want to make sure that we are at moving forward, with the ultimate goal to continue to push down towards 3.

Okay. And then, finally, can you give us an idea as to what we should look at for an effective tax rate given what you can see right now, since you said that you anticipated an increase in your effective tax rate from previous expectations?

So, I'm going to respond and maybe I shouldn't, but I'm going to respond and then I'm going to let Louann correct me if I say something incorrectly. But I think that our guidance on the EPS side of things factors in an effective tax rate range of around 31%-ish to 33% or 34%, something like that. And so 31%, if we hit 31%, that would be basically where we ended up this year. But we think that most likely is the lowest that we might get at in 2017, so we are trying to give some room for that number to be a little bit higher, and I'm looking at Louann to see -- is that pretty accurate?

Yes, I think we would look at that number being a little bit higher depending upon where some of our expectations may turn out with respect to depreciation and amortization as well as interest expense. With the construction project in Stickney as well as some other things we have planned for the PC business this year, that number may vary slightly from what we have in our forecast. And then similarly with interest rates, depending on what the Fed decides to do, there could be some slight variations there. Although $500 million is fixed, we still have the revolver, which is a floating-rate.

Okay. Thank you. Those are my questions.

And our next question comes from Chris Shaw with Monness, Crespi.

The new coal tar contracts, is there anything -- any changes in there that are sort of advantageous, whether the lower costs or some sort of more frequent pricing changes on that?

I can't really -- for a number of reasons, I can't really get into specifics on that sort of stuff. But certainly, the costs are significantly lower than what we've experienced, and that's just given where the markets are at. And I think we were able to lock in the pricing at a pretty good time in the market. There are escalation provisions, as you would expect, in that contract, and I would say there are different escalation provisions that what we've had in the past, and I think it helps to reduce some of the reliance or some of the tide we've had to changes in oil pricing over the past. And that's about as much as I can say about it. But we are happy with the partnership with Arcelor. They're great to work with. They are a great partner. And as evidenced by the 10-year agreement, we are both in it for the long term.

Okay, thanks. And then you mentioned, in CM&C, the impact from selling less creosote or using less creosote in the rail business. How does that work? Just curiously. Is that just the covering of fixed cost or is there margin embedded in what you smell the creosote to sort of rail business?

There is a margin. But as you point out, if there is less demand over there -- well, so it can go one of two ways. If there's less demand over there, then you need to distill less tar, so you aren't going to be able to cover your fixed costs to the same extent. Or if you choose to continue to distill the same volume, you're taking the product that was going into the higher value creosote market instead of pushing it to the lower value carbon feedstock market. And that's really not what we want to do. So it doesn't create a great scenario no matter what way you choose to handle it. Either way, it's a net negative.

What's the sort of seasonality? Has it changed much? I remember before you said some sort of summer tar that you would sell, but I guess now you have the seasonality around the performance chemicals business, right?

Actually, seasonality is pretty similar in all three of our segments. It's the second and third quarters that tend to be the strongest and, in any given year, could be one or the other. It's not always fixed to always being the second or always being the third, but it's in those two middle quarters. And then the first and the fourth tend to be the toughest as you enter into the colder part of the season. So, that's not really changed much and it's pretty similar across each of the three business segments.

And we'll go next to Curt Siegmeyer with KeyBank Capital Markets.

Congrats on the strong finish to the year. I'm just wondering if you could talk about just what we should expect in terms of the cadence of the cost savings that's baked into your outlook for CM&C, maybe by quarter, if you could, in 2017.

Okay. Again, without getting into specifics, I'll say that you will see most of those savings occur over the first six months of the year. Because a good portion of those savings come through the closure of the Clairton facility that occurred in late July. So, there's some that will spill over into the third quarter, but, for the most part, a lot of that is going to -- should hit in the first two quarters of the year.

Okay. Very helpful. And then just in terms of your EBITDA margins that you talked about for that business going to 7.5%, pretty nice improvement next year. I guess I'm just wondering how we should think about the margin potential in that business longer-term as kind of that double-digit range is sort of more normalized once volumes kind of recover again?

And it's not so much the volumes really as it is just the finalization of the whole restructuring, just keeping in mind -- just keeping in mind that what we tried to put together here is a business that can, at the bottom end of that range, in that 9%-ish range, be able to sustain those sorts of margins in a I'll call it modest crude oil environment, in a modest demand for the product market. I think we are on that path. Even though we -- as you would expect, we've had a lot go our way in the past couple of years. We've had some other stuff come back the other way as well. So it hasn't all been perfect, but we've still been able to maintain the targets that we set. We said, coming to last year that, we thought we could get close to $20 million in EBITDA performance from that business. We ended at $23 million. All through last year, we were talking about next are being $30 million or more. Our target right now is $32 million. We talked over the past two years of 2018 being $40 million or greater, and we still feel very comfortable with that. So I think we are on target to absolutely hit well within that range even at, again, with where the end markets and the supply markets are at the present time. So that's a pretty good fact pattern.

At this time, there are no further questions. Mr. Ball, I'll turn the call back over to you for closing remarks.

Okay, thank you. So, in summary, Koppers now has an improved portfolio of businesses and a more streamlined manufacturing footprint which has served us well over an economic cycle. We will stay the course and remain focused on finishing our restructuring efforts while we look for opportunities to expand our profitability through a combination of topline growth and realization of cost efficiencies. At the same time, we will also keep investing in R&D and promote innovation throughout our organization, particularly in our wood treating markets. Our business model today demonstrates sustainable improvements in earnings, coupled with lower overall volatility and cash flow, which I believe will drive increased shareholder value. Thank you all for joining us today.

That concludes today's teleconference. Thank you for joining us. You may now disconnect.