Michael Snyder - Director, IR Leroy Ball - President & CEO Mike Zugay - CFO.

George D'Angelo - Jefferies Ivan Marcuse - KeyBanc Capital Markets Bill Hoffmann - RBC Capital Markets Chris Shaw - Monness Crespi Jordan Hollander - Deutsche Bank Steve Schwartz - First Analysis Kevin Hocevar - Northcoast Research.

Welcome to the Koppers Holdings Inc. Fourth Quarter 2014 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Michael Snyder. Please go ahead..

Thanks, Lisa and good morning, everyone. Welcome to our fourth 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 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 on 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 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 Leroy Ball, President and CEO of Koppers and Mike Zugay, our Chief Financial Officer.

At this time, I'd like to turn over the call to Leroy Ball.

Leroy?.

Thank you, Mike and welcome, everyone, to our 2014 fourth quarter conference call.

We have quite a bit to update everyone on as a number of things have occurred since our last conference call on November 6, but before I get to that I would like everyone to note that we're trying something new on this call in an attempt to improve our communications with shareholders.

Accompanying our narrative today will be a slide deck that provides supplemental information to aid in the explanation of our financial results and projections. Before we get to that, I would like to summarize briefly all that we've been working on during the past three months.

First and foremost, we had the retirement of our long-time CEO, Walt Turner, effective 12/31, with me assuming the reins as of the first of the year. We've also made several organizational changes that will both lower costs and provide a better alignment of skill sets with the challenges we face. We made a decision to exit the U.S.

utility pole market, as evidenced by our sale of that business in January to Cox Industries. We completed the strategic acquisition of the KMG creosote assets in January for $15 million which vastly improves our distribution network for both creosote and coal tar by opening up the channels for European supply.

We attempted to refinance our 7 7/8 bonds in January, but we're unsuccessful due to unfavorable market conditions. We completed the legal entity reorganization that will provide a substantial cash tax and effective rate benefit beginning in 2015.

We finalized our synergy plans for the Osmose acquisition and validated the $12 million of savings that we estimated during the due diligence process.

We completed the integration of our new North American Performance Chemicals business into our ERP platform and terminated the majority of the services under our transition services agreement with Osmose.

We completed three new borate-treating projects that will increase the mix of this value-added product by up to as much as 70% of the treated ties that we expect to ship to Class 1 railroads in 2015.

Finally, we set a two-year target for debt reduction of $200 million to $250 million in order to reduce our leverage from just under 5 to our longer-term target of 3. To achieve that, we have, number one, temporarily delayed the construction of a new naphthalene facility at our Stickney plant.

Two, identified certain non-core businesses for divestiture. Three, established working capital reduction targets. And, four, temporarily suspended our dividend.

While we were busy managing everything that I just reviewed, crude oil prices dropped by over 50% which has caused several analysts to lower 2015 estimates while also calling into question our ability to navigate through a tighter covenant environment as interest and mandatory debt repayments ramp up.

Later on this call, I will attempt to provide more transparency on where I think we're at currently, where I'd like to see us be and what I believe it will take to get there. In the meantime, we're doing everything we can to ensure that 2015 marks the first major step forward for the new Koppers.

In the meantime, I will hand the call over to Mike to give us the rearview perspective of the business.

Mike?.

Thanks, Leroy. As you can see on slide 2, consolidated revenues for Q4 were $427 million, an increase of $85 million or 25% from the prior year.

This was driven by new revenues of $96 million from the Osmose and Ashcroft acquisitions and $25 million from our new facility in China which more than offset a $43 million reduction in sales for our legacy CMC business.

On slide 3, consolidated revenues for 2014 were positively impacted by the acquisitions and the new revenues from China which more than offset $109 million of lower sales in legacy CMC due primarily to both lower product pricing and volumes.

Moving to slide 4, you can see the Q4 adjusted EBITDA of $24 million was lower than 2013 adjusted EBITDA of $33 million, as a $9 million benefit from acquisitions was more than offset by a loss of $4 million from the KJCC joint venture in China, $10 million of lower profitability from the legacy CMC business and $5 million of corporate integration costs related to Osmose.

The decrease in profitability for legacy CMC was driven by reduced product pricing for carbon pitch, phthalic anhydride, naphthalene and carbon black feedstock which, with the exception of carbon pitch, were impacted by lower oil. The loss for KJCC was the result of product pricing declining at a faster rate than our raw material costs.

Slide 5 shows our EBITDA bridge for the year.

The reduced profitability for CMC, including the new JV, was $33 million which, along with $8 million in lower profits from RUPS due to the crosstie shortage and an $11 million corporate loss that relates to Osmose integration costs, this amounts to $52 million of lower profitability that was partially offset by $18 million of incremental profits from acquisitions.

Now I'm going to discuss several items that are not referenced in our slide presentation. Adjusted net loss and adjusted loss per share for Q4 were $5.6 million and $0.27 per share compared to adjusted net income and adjusted earnings per share of $9 million and $0.44 for Q4 of 2013.

The adjusted net loss of $5.6 million excludes $7.1 million of pre-tax charges related to impairment and plant closure costs, acquisition costs, non-cash LIFO costs and $24.3 million of non-cash tax expense related to our recent legal entity restructuring project.

I would also like to note that our fourth quarter adjusted results were negatively impacted by $6 million of Osmose integration expenses and Osmose transition services costs.

The good news is that the majority of these costs are now behind us and the integration process is substantially complete in North America and North America represents about 70% of this business. Our adjusted effective tax rate for the year was about 40%.

Our unadjusted effective tax rate was unusually high due to the non-deductibility of our restructuring charges both in Europe and China as well as the inability to record a tax benefit on pre-tax losses of certain foreign subsidiaries. These charges had the impact of lowering our pre-tax income with no corresponding tax benefit.

As announced previously, we have reorganized our global legal entities in order to effectively repatriate excess foreign cash and drive a lower effective tax rate beginning in 2015. Based on our current estimates, we expect the effective tax rate benefit from this global reorganization to be about 800 basis points.

As a result of this initiative alone, our normalized effective tax rate would be at 35% and the annual earnings per share benefit would be about $0.30 per share.

To implement this structure, we were required to recapture the overall foreign losses that we had accumulated to date and this will result in a one-time accelerated payment of approximately $16 million that is scheduled to be paid this March.

Cash provided by operations for the year was $36 million compared to $118 million for 2013 and was due mainly to lower net income driven by lower profitability from CMC, cost to consolidate our European facilities and expenses associated with the Osmose acquisition.

Our 2014 capital expenditures were $84 million, slightly up from $73 million, mainly as a result of completing our new facility in China combined with adding borate capabilities to three more of our wood-treating plants.

At year-end we had approximately $204 million borrowed on our $500 million revolver, $292 million on our term loan, $300 million in existing bonds and approximately $56 million of loans in China. Our outstanding debt, net of $51 million of cash on hand, at December 31, 2014 was about $800 million.

As of December 31, the interest rate on our revolver and term loans was 3.6% and our composite borrowing rate was 5.3%. Our leverage ratio for covenant purposes at December 31, 2014 was 4.7 times which compares to the not-to-exceed ratio of 5.25 times.

As mentioned in previous communications, our goal is to reduce this leverage to 3 times within the next two years. Also, at year-end, our fixed-charge ratio was 1.8 times as compared to our covenant of 1.1 times.

As Leroy mentioned earlier, we had to cancel plans to refinance our $300 million of bonds which were due in 2019, but we will continue to monitor the high-yield bond market and look for another refinancing opportunity later in this year.

Returning back to the slide presentation, on page 6, sales for our global CM&C business for 2014 were lower than in the prior year as incremental sales from the KJCC joint venture in China were more than offset by lower sales prices for virtually all major products.

The trend of lower sales and prices has been consistent since 2001 and the tar distillation industry has suffered from overcapacity. The profitability trend since 2011 for CMC has been even worse than the trend for sales.

And, as you can see, the significant reduction in adjusted EBITDA margins from 8.8% in 2013 to 5.8% in 2014; this reflects the negative impact of lower oil on product pricing and the increased portion that China makes up of our overall sales.

Referring to slide 7, in our global Railroad and Utility Products business, we see the opposite trend from CMC as sales and margins have steadily increased since 2011 with the exception of a slight pull-back in margins in 2014 as a result of crosstie availability issues.

Adjusted EBITDA for the Railroad segment since 2011 has been a great story for us and even with the crosstie headwind in 2014 we're showing a 300 basis point improvement from 2011. As Leroy will explain shortly, we believe this business will not only equal the 12.6% margins that it achieved in 2013, but we think we can surpass it in 2015.

While we don't have a slide to show this segment since there's not a historical comparison, our new Performance Chemical business contributed $78 million in sales and $7 million in adjusted EBITDA for the quarter, reflecting normal seasonality and inventory write-downs to reflect the drop in copper prices.

Since the acquisition in mid-August, sales and adjusted EBITDA for Performance Chemicals for 2014 were $124 million and $14 million respectively. The year-over-year sales are up about 5% in this business as each of the four geographies that we operate in have shown improvement.

Now, I would like to turn the call over to Leroy for an update on the businesses and some guidance for 2015..

Thanks, Mike. As we finish a second straight year with disappointing results, it is time to step back and reevaluate where we're, where we want to go and what is the best path to take us there. I will attempt to do that in the context of each of the three businesses before pulling it all together at the end.

As 2011 concluded, we set a long-range goal for the company to reach a 12% sustainable EBITDA margin beginning in 2015. Due to a series of unfortunate events over the last few years, we will unfortunately not reach that goal.

We do, however, believe the goal is still realistically achievable and are continuing to work towards achieving it in the 2016-2017 timeframe.

To get there will require the continued restructuring of the global CM&C business that will result in not only shrinking the asset base in the developed regions, but also potentially exiting parts of that business in China if we cannot change our business model to allow us to generate an acceptable level of profitability.

The final result will most likely be a reduced emphasis on the more volatile CM&C business moving forward which I think is appropriate given the relative stability and earnings profile of our other two businesses.

I will share my perspective on what we plan to do in the near term to get there while lending particular emphasis to what we expect to see in 2015. Let me begin by reviewing what has been the bright spot over the past few years and that is the Railroad and Utility Products and Services business.

While this segment took a small step backward in 2014 due to reduced crosstie availability, it still remains our best avenue to top-line and EBITDA growth due to several factors. The first is the relative overall health of the North American railroad industry which is still expecting sizeable growth in freight traffic over the next five years.

More cars, heavier loads and denser traffic will only put increased stress and wear on the infrastructure which will require a steady stream of replacement ties, bridge timbers and joints. So what does the supply situation look like? Actually, much improved from the past two years.

As you can see on slide 8, we've had to draw down our crosstie inventories over the past couple years due to lower availability and higher prices. However if you turn to slide 9, you can see that the trend has started to reverse over the second half of 2014 and into 2015.

And our average monthly tie purchases so far in 2015 were up by 50% compared to purchases in the first quarter of 2014. While overall Koppers' tie procurement was down by 19% in 2013 and 2014 compared to 2012, the fourth quarter of 2014 was significantly stronger than 2013.

And the first eight weeks of this year are showing a continuation of that trend. If this sort of supply dynamic continues throughout the year as we expect, we should see a minimum EBITDA impact of around $6 million.

The second factor is our strategic network of treating locations that in the past year has been expanded to include our Ashcroft location in the Canadian province of British Columbia. While we have always done some business with the Canadian Class 1's, the volumes have always been less than desired to lack of operating presence in Canada.

That acquisition has now opened the door for us to replicate our full-service model that has worked so well in the U.S. and expand it into Canada. Third is our strategy to expand our offerings to the railroad industry beyond just crossties to include other maintenance of way products and services.

By leveraging our reputation and relationships on the crosstie side of the business, we believe that we can take acquired businesses, stirring other niches in maintenance of way and grow them beyond their current market share.

The rail joint business that we bought in 2010 is a perfect example of that as we have taken market share over the past year by just being able to provide a dependable, quality product at our customers' request. As a result, we expect around 10% compound annual top-line growth from this business over the next three-year period.

Over time, we would expect to do the same thing with our new railroad structures business and will continue to look for small, profitable additions to continue adding to this segment. Between Ashcroft and our other maintenance of way businesses, we should see approximately $7 million of incremental EBITDA added in 2015.

The fourth and final driver of the RUPS segment in 2015 and beyond is our continued focus on margin enhancement. One area that will provide margin growth is the increase in our borate-treating capabilities for the Class 1 railroads.

We estimate that approximately 70% of our crossties shipped to the Class 1's will be dual-treated compared to 55% in 2014. That ratio will likely be the sustainable level in the near term as non-adopting railroads continue to evaluate the particular benefits of dual-treated ties for their network.

Another area of margin growth should come from a full year of benefits related to our Operations Excellence project that was implemented in 2014. We were fortunate to be able to complete the project during a time of lower volume which allowed for a greater focus on execution.

Now that volumes are ramping up, we should see even greater benefits and more efficiencies in how we run our plants. Another are that we expect to provide margin improvement in 2015 is through the realization of a portion of the $9 million of acquisition synergies related to lower direct and corporate expenses.

Potential plant consolidation could provide additional margin expansion in 2015 and beyond through lower operating costs. Finally, while we will lose margin dollars as a result of the sale the U.S.

utility business in January to Cox Industries, shedding the lower-margin business will enhance margins while also freeing up working capital to apply towards debt reduction.

As an added bonus, we were able to use the sale of the platform to begin a wood preservative chemical supply relationship with Cox in our new Performance Chemicals segment which will serve to offset some of the lost sales and profit from the sale of the business.

We expect that margin improvement items in total should bring around $7 million of EBITDA in 2015. Referring to slide 10, if we look at the total RUPS segment, we expect an overall EBITDA increase of approximately $20 million in 2015 which would represent almost a 30% improvement over 2014.

Including a full year of sales from the acquisitions and subtracting out the U.S. utility business, we would expect 2015 sales for RUPS to approximate $645 million which would put EBITDA margins between 13% and 14%. Beyond 2015, we would expect the business to grow organically at between a 2% and 3% rate.

We would, however, like to look at continuing to selectively add to our products and services serving the railroad maintenance of way industry as capital frees up. From an adjusted EBITDA margin perspective, we believe that this business can operate pretty consistently between 12% and 14% over the long term.

Now, moving on to Performance Chemicals, as we look at the global markets in which we participate there, we believe that 2015 is poised to be a strong year for that business segment as the macro indicators are pointing towards continued growth in new building construction and home repair and remodeling which tend to drive demand for our products.

More specific to the North American business, the Canadian market will begin converting from the traditional soluble copper products to our patented micronized copper products with our MicroShades light brown color. The micronized copper products have been very well received in many markets due to the environmental benefits and certifications.

In addition, our MicroShades products which are our color-enhanced micronized copper products, continue to gain greater acceptance in several world markets, but most specifically in the U.S. and Canadian markets. Performance Chemicals also remains committed in all global markets to providing other niche products which should be accretive to margins.

The industrial markets in North America which includes CCA for pole and piling treatments and borates for rail tie production, make up approximately 20% of the overall North American business. We're expecting continued growth in the industrial market share that began back in the fourth quarter of 2014.

To be clear, our strategy has not been nor will it be going forward to take market share at the expense of margins. Similar to what we have seen in rail joints in the RUPS segment, we're gaining market share in the best possible way; by filling a customer need for customer services and product quality and value.

Product innovation technologies, such as the micronization of preservatives and additive enhancements, remain a top priority supported by our global research team. We're proud of the reputation we have earned in treating industry as a trusted supplier over many years.

That reputation was one of the attractions of Osmose as we were considering the acquisition so it's nice to see us realizing some of the benefits of that so early in our ownership.

Without getting into a lot of detail on the international piece of the Performance Chemicals business, end-market dynamics in all three markets, Latin America, Europe and Australasia, appears solid for 2015 which should allow for some top-line growth in local currency.

Much of that growth, however, will likely be wiped away in translation due to the stronger U.S. dollar. Overall, from a global standpoint, we expect to be able to add around $8 million of EBITDA through product substitution, market growth and share growth in 2015. Globally, the cost side of the equation is expected to move in our favor in 2015.

Performance Chemicals remains committed to being the low-cost manufacturer on all products, especially the copper-based products. Our policy has been to hedge copper based on customer commitment in order to limit exposure to major copper price fluctuations throughout the year.

Performance Chemicals' higher 2015 volumes will result in greater fixed-cost absorption in our manufacturing plants and provide some incremental benefit to margins. Also, a significant portion of the $9 million in 2015 synergies is expected to be realized in the Performance Chemical segments of our business.

Most of those savings will begin to be realized in the early part of 2015 as we have cut over to Koppers ERP system as of January 1st, terminated the majority of the services under our transition services agreement with Osmose in February and made several higher-level positions redundant as of year-end.

We've also moved certain production from Osmose's Buffalo location to our Millington, Tennessee and Rock Hill, South Carolina facilities by the end of the first quarter of this year.

Additionally, we've begin supplying our pole-treating operations in Australia with Performance Chemicals products as of the fourth quarter of 2014, engineered a supply agreement with the acquirer of our U.S. utility business that will take effect this quarter and consolidated our various insurance coverages late last year.

Performance Chemicals will take on a proportionate share of corporate overhead which will offset some of the cost savings, but will provide a benefit to the RUPS and CM&C segments that will experience an offsetting reduction in their allocations.

Overall, from a synergy and other cost savings standpoint, we should see a net improvement of $6 million for Performance Chemicals in 2015.

Now, looking at slide 11, if we step back and look at the total Performance Chemicals segment, we expect an overall EBITDA increase of approximately $52 million in 2015 compared to the approximate $14 million that Koppers recognized in the four-and-a-half months of ownership.

Approximately $38 million of that increase is simply due to having the business for the full year instead of a partial year like in 2014 while the remaining $14 million is expected to come from the volume and share growth and cost initiatives that I mentioned previously.

From a sales standpoint, we're expecting full-year 2015 sales to approximate $360 million. Looking beyond 2015 for this business, we would expect organic top-line growth to fall between 3% and 5%.

While there may be select opportunities to further consolidate the industry in places like Europe, the major focus from a capital deployment standpoint for Performance Chemicals will involve adding our own blending capabilities in Brazil and looking at the potential of how we can continue to lower our operating costs through engineered solutions.

It is presently too early in our ownership to fully understand what opportunities we might have to further grow margins in this business. But, at the present moment, our goal is to sustain adjusted EBITDA margins on a go-forward basis between 12% and 18% through the normal economic cycle.

Finally, we have Carbon Materials and Chemicals where we have continued to be challenged by a variety of different factors over the past couple of years that have more than offset any of the advances we have made to improve the business.

The reality of this business is that the end markets have contracted over the past several years in the developed markets while capacity has moved to Asia and the Middle East.

While Koppers has pursued a strategy of trying to replace the volume that has left North America, Europe and Australia, we have not yet addressed the overcapacity that would eventually plague these regions as end markets have contracted.

At the same time, we're dealing with competitors in the emerging markets that operate under a different business model and have a different tolerance for earning return. The profit erosion in this business has been massive over the past four years.

The latest issue that we've been dealing with is the drop in crude oil prices over the past six months which has had a significant impact on the pricing of certain products that are tied either directly or indirectly to oil indices, such as carbon black feedstock, naphthalene and phthalic anhydride.

Mike already covered the impact that the drop in oil had on our fourth quarter so I'll try and give you a feel for what that could mean for 2015 in the CM&C business and what we're doing to try and offset some of those headwinds by restructuring the business to better withstand the down cycles.

Let me begin by discussing the outlook for our North American and European businesses. As we have talked about fairly extensively over the past 18 months, we're in the process of a significant restructuring of the operations footprint to more economically serve North America and Europe.

As carbon pitch demand has contracted in these regions over the past several years, we have seen capacity utilization drop dramatically which has made it increasingly difficult to cover our fixed costs.

Beginning in 2015, we're now looking at those two geographies as one larger region which we think is more reflective of how the market is served with product freely flowing from Europe to North America.

From an organic standpoint, we believe that demand has stabilized in these regions and will continue at relatively small growth rates into the foreseeable future. We used to serve these two regions with six facilities that we reduced to five with the closure of our Alcorn plant in April of 2014.

As a result of that consolidation, we were able to distill approximately the same volume of coal tar in 2014 at a cost of $12 million less than what it cost in 2013. We ultimately believe that we can serve the future of demand in these regions with three facilities in total with some amount of modest investment.

With a smaller footprint, we would not only reduce our fixed costs dramatically as demonstrated with the Alcorn closure, but we would also significantly reduce our environmental exposure in what will most certainly continue to be a more onerous regulatory climate.

We believe that this region in a restructured form can realistically achieve EBITDA margins ranging from 9% to 15% through an economic cycle.

Presently, however, we're capital-constrained to make the investment needed to move forward in a big way on the Follansbee part of the consolidation due to our leverage and growing fixed charges in a low oil environment which has affected earnings in a meaningful way.

Once we're able to get leverage back under 3.5 times, we can begin thinking about potentially moving this project forward. Our China region is the other area of our CM&C business that will be undergoing change in the next couple of years.

While we have demonstrated a nice ability to replace sales that have moved from the developed regions into the emerging markets over the past five years, our ability to generate an acceptable level of profitability from those sales has been sporadic at best.

In fact, the highest adjusted EBITDA margins we have been able to produce since 2011 has only been around 4%. That's clearly unacceptable. The problem is that the existing business model, excluding KJCC, would likely not leave much room for margin expansion.

Our China team has been tasked with figuring out a more profitable way of serving that market that reduces our risk and doesn't include additional capital investments. If a realistic solution isn't brought forward by the end of this year, we will look to exit our non-KJCC joint ventures and redeploy the capital into reducing debt.

As for KJCC, while it has been disappointing that Nippon has yet to receive their operating permits to begin operating their facilities, it should only be matter of time before they are in operation. From what they're telling us, they are expecting to be able to start production sometime over the next couple of months.

While 2015 will not bring much in the way of contribution from KJCC, 2016 should bring EBITDA margins at a level well above China's historic highs.

So, what does that mean as it relates to 2015 expectations for global CM&C? Well, if you turn to slide 12 and just beginning with the expected impact from oil, we could see a reduction of EBITDA in 2015 of between $25 million and $35 million if crude oil averages around $50 a barrel.

The relationship is not necessarily linear and there is an element of cost recovery that will occur as we're able to realize raw material reductions over time. For the 30% to 35% of the CM&C businesses that have links to oil that should provide a pretty decent gauge of earnings variability. The stronger dollar will also provide some headwind.

At current rates, the impact will be approximately $5 million. On the positive side of things, we expect the addition of the KMG creosote distribution business that we acquired last month will contribute a minimum of $5 million of EBITDA through the additional volumes that we will be able to move in North America.

In addition, it provides us an infrastructure to increase our access to European coal tar which will give us a greater ability to manage the limited supply of coal tar in North America.

From an operating cost standpoint, we expect improvement of approximately $12 million related to the non-recurrence of KJCC startup costs, a full-year benefit of the Alcorn consolidation and various operating cost improvement initiatives.

That all totals up to a net EBITDA reduction of between $23 million and $33 million in 2015 which would put adjusted EBITDA for CM&C at between $14 million and $24 million.

Sales will also be highly variable based upon oil and the strength of the dollar, but our current estimate based upon $50 oil and current rates is approximately $700 million which would put adjusted EBITDA margins at 2% to 3%.

While it might seem inconceivable that we could get this business back to an overall 9% to 15% EBITDA margin business, keep in mind that the sales numbers I just mentioned include approximately $220 million of sales from China that are generating a negative EBITDA in the current environment.

Changing the landscape on how we do business or exiting certain pieces will, by itself, have a significant impact on margins while the further restructuring of the North American and European businesses over the next two to three years could bring an additional $30 million to $40 million improvement with no change in pricing.

The bottom line for the CM&C business is that it will continue to shrink as a percentage of our overall sales moving forward as we de-emphasize its growth strategy and focus on reducing our risks and optimizing profitability. With the Osmose acquisition, it has already dropped from two-thirds of our top line to just under half on a pro forma basis.

It is conceivable that by the time we get to the end of 2017, this business could make up as little as one-third of our overall business through a combination of exiting certain pieces of it while growing the other two in a targeted fashion.

So, to summarize our expectations for sales, if you go to slide 13, you see that we can expect an increase from our RUPS segment of approximately $52 million, an increase from our Performance Chemicals segment of approximately $237 million and a net decline from our CM&C business of approximately $134 million which would total an overall sales increase of $155 million.

Adding to that our 2014 sales of $1.55 billion would take 2015 to around $1.7 billion on the top line. A recap of what we see for EBITDA, as shown on slide 14, is an increase from RUPS of $20 million, an increase from Performance Chemicals of $52 million and a decline in CM&C of between $23 million and $33 million.

In addition, we expect to see a reduction of our corporate expenses by approximately $10 million due to the non-recurrence of due diligence and integration-related expenses that were incurred on the Ashcroft and Osmose acquisitions in 2014.

Adding those amounts to our 2014 adjusted EBITDA of $116 million would provide an EBITDA range for 2015 of somewhere between $165 million and $175 million. Depreciation and amortization is expected to be approximately $65 million while interest expense is estimated at approximately $48 million.

As expected, our effective tax rate for 2015 will be much lower due to the recent legal reorganization. Depending upon the geographic mix of earnings, we expect our effective rate to be between 30 and 35%. Doing the math would put our expectation for 2015 adjusted EPS between $1.60 and $1.90.

With cash generation and debt pay down a primary short-term objective, we're targeting $100 million to $125 million of debt reduction in 2015 with a similar target for 2016. That would put our total debt at that point between $590 million and $640 million.

That should put our leverage at somewhere around our 3-times longer-term target and give us much more freedom to look at a strategy that mixes returning capital back to shareholders and making the structural changes in the business that are necessary to allow us to create a company that is in a much better position to withstand the down parts of the cycle.

The cash that we will be using to pay down debt will come from operations, proceeds from strategic non-core divestitures, working capital management and, at least temporarily, the proceeds that have been used to pay dividends.

While it was a painful decision to make in regards to suspending our dividend payment, I believe it was the right decision in light of our short-term situation.

I believe that our shareholders will be better served with a lower-levered and more stable business that is not operating with a thin margin of error where one more negative situation that arises could put us in jeopardy of our covenants.

Unfortunately, if we come in at the low end of the ranges I articulated earlier, without the dividend cut we will be at that thin margin so we needed to create some room. My hope is that as we weather this storm and put the company back on track, we can revisit the dividend in a reasonable period of time.

With that, I would now like to open it up for questions..

[Operator Instructions]. We will take our first question from Lawrence Alexander with Jefferies..

This is actually George D'Angelo on for Lawrence this morning.

Can you guys be a little more specific on the dividend? What type of payout ratio would you initially target and what kind of financial metrics do you think would be a signal to us that a dividend reinstatement might be likely?.

I think for us, getting down certainly below 4 times, I think and creating some room for us to provide a mix of returning capital to shareholders through a dividend as well as being able to execute on some of the needed restructuring activities to allow us to be a more stable, profitable business moving forward is imperative.

So, I think, at a minimum, we need to get down below that 4-times target. And in terms of a payout ratio, it's tough to say at this point. Though, I would say that we would probably look to do something working our way back into things before moving back up to what has been more similar payout ratios.

I think we tend to look at the yield in regards to our peer group and try and ensure that we're staying sort of in-line with that. That typically, we've been at the high end of that range when we have been in the 2.5% to 3% yield range. So, I would expect that we would target something that would be in that 2% range.

But, for us, in the near term, it is providing the operating flexibility to be able to make the needed improvements that we need to make to get the CM&C business back healthy again..

And just one more. If I'm looking at Performance Chemicals, you guys expect your EBITDA margins next year to be around 18%. If I heard correctly, that's pretty close to the top of the margin range you guys said you hope to achieve.

So, just like for the out years, how do you see the margins evolving in that business?.

Well I think we mentioned in there that we're targeting a range kind of on a go-forward basis through the cycle of 12% to 18%. Yes, next year we do think that we can be near the top end of that range. I would say as we move out over the years beyond 2015 we think we probably can maintain something in that 15% to 18% range.

But, I wouldn't necessarily bank on that staying up at that level out over those years. Again, there is just a lot that can go on especially with volatility in copper and things like that which we do hedge, but we like to give ourselves a little bit of room and flexibility.

So, I would say somewhere in that 15% to 18% range is how we would view the outer years beyond 2015..

And we will go next to Ivan Marcuse, KeyBanc Capital Markets..

The first one is on the China. So, I may have missed this, but the timeframe on the, I guess, the one remaining JV.

Are you looking to sell that or are you just sort of closed down and move on? And then the second part of that question, I know it's some different products, but what gives you comfort that KJCC doesn't sort of go the same way as the other JVs?.

I think that in terms of the other JV that we have over there, the one we're a minority holder on, I think we'll work through several possible scenarios there, having discussions with the majority owner in terms of their interest of taking that business on, again, if we can't come up with a plan that allows for that business to change its profitability dynamics dramatically.

But, certainly, we'll start with working with our partners and move out from there. In terms of KJCC and what confidence do we have that that doesn't kind of head in the same direction, it is a different business model.

It is a model with a captive customer that has profit margins worked into the agreement that are of a different magnitude than what we're faced with out on the open market.

So, once we can get Nippon having their plant and running, there's a lot less risk involved in that business if we're not out having to sell on the open market especially in an environment like we're in today..

And then it sounds like there's a lot of opportunity once you're past sort of this debt pay down in terms of the CM&C of getting their restructuring going and taking out the plants and the cost savings, etc.

So, was there any sort of way - I don't what the appetite is - but maybe issuing equity or doing something in that sense in terms of just instead of freezing everything down and paying down debt in that way and then that way you could move forward faster with your restructuring? Or how did you sort of weigh the plusses and minuses of, I guess, these decisions?.

Well, I think as we looked at the business today, we're dealing with a number of different things. Not only are we dealing with things from an operational standpoint that have been difficult, but our credibility in the marketplace isn't exactly the strongest right now either.

As we've had to continually report disappointing results over the past several years, that's obviously put our stock in lows that it hasn't seen in probably five years. The environment for going out and raising equity for us we've felt is not worth the cost at this point in time.

We think that through a very targeted plan of paying down debt we can get there in a relatively reasonable period of time. And there's still some things we can do in the interim that puts us in a great position to act very quickly once capital frees up.

So, from that perspective, we just felt that the plan that we chose in terms of targeting that leverage reduction and unfortunately using some of the dividend proceeds as part of that was the best route to go..

Okay. And then my last question and I'll jump back in the queue.

If you look at your raw material costs with oil coming down, is that going to bring down your overall average cost for the year? And when do you see that benefit? Is it different region to region?.

Yes, it will come down overall. It is different region to region. Our pricing in North America does not move as much. Europe and China are much more volatile in terms of how they move. So we have seen reductions in our coal tar cost over, starting here in the fourth quarter.

They've been behind the curve as they typically are, but they're starting to catch up as we're in the early part of 2015 and we will see absolutely lower coal tar costs as a result of the lower oil..

And we will go next to Bill Hoffmann with RBC Capital Markets..

Just a couple questions on the CMC business. I wonder if you can kind of walk us through the carbon black feedstock, the phthalic anhydride and the naphthalene markets for where your margins were Q4, where they currently are and how you see those markets developing this year..

Sure. I won't get into specific margins. We don't get into that sort of detail.

I will just maybe put it in perspective by saying that, as an example, in a couple of our regions, again, that are more volatile if you look at Europe and China, we saw overall reductions in pricing in the fourth quarter of this year compared to the last by anywhere of 30% to 50%.

And when you look at it sequentially they were down by close to 30% for third quarter to fourth quarter. Now we've seen that settle here in the early part of this year. Like I said, we've seen lower cost of tar during that period as well.

I'd say, in Europe, the change in our underlying raw material costs have been more in-line or closer in-line with our pricing as opposed to China, but the numbers are starting to catch up as we get into the early part of this year.

There is still some further drops that we'll probably see in the early part of this year, but not nearly as dramatic as what we saw in the back half of 2014. So, pricing will be down, absolutely. Our raw material costs will be down.

But depending, again, upon the region, like in Europe we'll be closer to offsetting those costs as opposed to China where there still may be some variance between the overall price reduction versus cost reduction..

And is it the same with the phthalic and naphthalene equations as well?.

Well the only difference with phthalic - again I'll give you a sense. So, fourth quarter of this year compared to fourth quarter of last year, phthalic pricing was down 16%. But in North America, as I mentioned earlier, we don't see the sorts of changes in raw material pricing that we see in other parts of the world.

So, while we've had relatively flat costs in our raw materials, we've had to deal with a 16% decline in phthalic year over year in fourth quarter..

And then second question, just on the Performance Chemicals business. Could you just help us a little bit with seasonality? I mean I'm assuming Q4 is a pretty weak seasonal quarter.

But how should we think about Q1 on a relative basis and then Q2, Q3 obviously a bigger building season?.

Yes, because a lot of their business does go into residential construction, as you would imagine, the fourth quarter and the first quarter, they're seasonally lower quarters. That's one of the things that impacted the margins in the fourth quarter.

First quarter, I would imagine you're not going to see much difference there in terms of sales and margins. It will probably pick up in the first quarter a little bit just because of some of the integration costs that we would have endured in the fourth quarter of 2014 that won't be there in the first quarter.

So, I would say that the margins should pick up by at least 100 basis points or so in the first quarter. And then, you'll see the second quarter and third quarter really be their strong quarters as they're serving that residential construction market..

Is it fair to think about that maybe 60% as Q2, Q3 versus 40% the other two quarters? Or is it higher than that?.

I would at a minimum, it would that 60%-40%..

And then just the last question. Capital spending for 2015, I don't know if you gave that..

Approximately $45 million..

And we will go next to [inaudible] with Stifel..

I wanted to see if you could help me bridge some of the cash sources and uses for 2015 and how you get to the $100 million to $125 million debt pay down. How should we think about working capital sources and then potential divestitures? Because we've got roughly $50 million of interest and then $45 million of the CapEx..

Yes. Let me take a crack at that. From that standpoint, we have excess cash in our foreign operations we've identified, at minimum, of $20 million.

So, with our new tax reorganization that became effective as of the first of the year, we're able to repatriate through a repayment of principle and interest on the debt we allocated to these new entities and we believe - well, currently, for instance, they have about $60 million outside the U.S.

in cash and we believe they can operate from a working capital perspective right around half of that. So, what we've done is we've done a study and what we're going to do in the first quarter is bring back $20 million of that excess cash virtually tax-free, again, under the new reorg and apply that to a debt repayment.

In addition to that, we've taken a good hard look and put together a plan for the entire 2014 year to squeeze out $40 million more from just better working capital management; payables, receivables. There are certain instances in our locations where we don't bill on a daily basis; we gather shipments and bill weekly.

We're going to change that and do it daily. We pay, for instance, daily on the accounts payable side. We're going to change that. There's some slow-moving inventory. There are some leases that are coming up and under normal circumstances we would go ahead and buy that equipment out as a CapEx expenditure and have cash go out the door.

And we've been negotiating with the current lessors to go ahead and not buy that equipment out, but continue to lease it at much lower rates on a go-forward basis and delay that cash payment out into the future. So, we've got $40 million globally coming back and just managing our working capital much better.

Leroy mentioned the elimination of the dividend. That's going to help. Leroy also mentioned that there's divestitures of non-core businesses that we're going to be taking a look at. And, of course, when we generate this cash and pay down debt, what happens is that the interest expense that we pay on that debt reduction becomes lower and lower.

So, we're going to get an impact from interest expense as well, less interest expense going out the door. And again, from a standpoint of the tax reorg, we're going to paying less money to the IRS on an effective tax rate basis.

So when you add all those up, including the possible divestitures of a couple of our operations that are non-core, we believe that that $100 million to $125 million bogey that Leroy talked about in 2015 is doable..

And that tax reorg payment is that 16, one-six?.

Yes it is, one-six..

Okay. And then a final question. When you were going through the guidance for CMC EBITDA, you mentioned that at the current pricing the $220 million of sales China are EBITDA negative.

Could you give us a sense for what that figure is, whether it's 0% to 5%, 5% to 10%, or something higher?.

It's 0% to 5%..

And we will go next to Chris Shaw with Monness Crespi..

What's the level of distillation capacity that is needed to, I guess, satisfy internal needs, satisfy the rail and I guess possibly Performance Chemicals? And is that equal to the sort of reduction you're looking for to go down to three plants from five?.

So I'm not sure if this is the question you're asking or not, Chris. But our objective in moving from the five we're at to three would still leave us some slack. We still need to have some slack in the system.

When you're operating with three plants to cover two regions, if you run into a situation where you need to take a plant down for a period of time and move supply around a little bit, you need to have some of that slack. But it will take us up to an overall, probably, utilization level of somewhere in the 85% to 90% range.

Whereas today, we're operating somewhere probably closer to a 60% to 65% range..

I guess what I'm trying to get at more is what is the determining factor of how much capacity you need.

Is it how much commitment globally you have for carbon pitch or is it how much internally you need to like creosote and maybe some other chemicals?.

Well I think certainly creosote is an important part of our business in terms of serving the Class 1 railroads and supporting our Railroad and Utility Products business. So, we absolutely need to make sure that we have enough to cover our requirements there, but that won't be an issue. Carbon pitch since it makes up half of the product that comes off.

I think it's still going to drive the amount of distillation that we do. So, it will be pitch that will continue, I think, to be the driver of the distillation capacity that we will need to cover that..

To that point, then, you probably won't give me the exact margin, but in terms of what the outlook for margins for pitch itself this year is it - I doubt you'll give the exact number, but is it going to be higher than the overall margin for the segment this year or lower or is it sort of in-line?.

Well I think our feeling is that for the first time in a few years it has stabilized in the developed markets. And so, if anything, we expect to see some small pickup on pitch in 2015..

Okay.

And then if I can go back to the dividend for a second, I was just curious, did you have any discussions with, I guess, your lenders at all? Or trying to go back and maybe sort of negotiate the covenants at all? Or would that just have been too expensive on interest?.

I think certainly that's always an option. We felt that there was a certain piece at this point right now that we - going back to the lenders when we're at a leverage of 5, to me, just wasn't the best route.

I mean we need to get our leverage down and providing additional room or margin to account for, again, if another unexpected event happens, wasn't the preferred approach at this point in time. So, we're focusing on the debt pay down..

Just a real quick one on the fourth quarter in Carbon Materials, the loss that the segment reported.

Was that just strictly just because of how quickly pricing fell or was there something else there, a one-timer or some inventory charge that I might have missed?.

A little bit of everything. Certainly, a lot of it had to do with pricing drops in advance of raw material cost drops. Some of it had to do with a lower cost to market write-down of some inventory. Some of it had to do with some increased tank and rail car cleaning expenses and things of that nature.

So, it was a number of different things that factored into it. But, the predominant piece of it was in the pricing drop..

And we will go next to Jordan Hollander with Deutsche Bank..

Most of my questions have been answered. So, I just have a couple of kind of housekeeping ones. In terms of the covenant leverage, you guys gave at 4.7 times, I kind of back into LTM EBITDA of $170 million.

Is that the right number to be using and is there any expected Osmose synergies baked into that?.

You're talking about the covenant calculations at the end of Q4?.

Yes..

Yes. We're at 4.7 times and we have to be under 5.25. So, we've got a lot of cushion there. And that does include - there is a little bit of a difference between what's reported as EBITDA through the financials and the definition of what EBITDA is in the bank covenant agreement.

So, the banks give us a little more leeway for any non-cash charges or one-time charges.

So, we believe, at this point in time, to go back to the previous question about possibly going to the banks and asking for some negotiations on covenants, we believe at this point in time that we're going to be able to manage through that compliance on the covenants on our own accord..

And then as far as the working capital, you said expecting somewhere around about $40 million this year.

When do you expect most of that - is that something that happens pretty quickly with raws going down in price or is that over the course of the year? How do you see the timing of that?.

What we've put in our projections in relationship to the covenants has been very, very conservative. We put $5 million of that $40 million in the first quarter, $10 million in the second and then $10 million and $15 million in Q4. So we back-loaded it, but I have to be honest with you; we're moving already. The $5 million in Q1 is very, very light.

We've done a lot of things over the last three weeks to get this process started and, even though worldwide and operation by operation throughout the world we're taking a look at how we can increase working capital, there are things that we can do that are coming in every day that we're implementing.

So I think from our standpoint, again when we project out the covenants we've been very, very conservative on the $40 million working capital improvement, but what we've seen so far in the last three weeks is that we're going to generate those savings much quicker than what we anticipated..

And then just on to talk about - just on talking about Osmose just talking about how that integration process is going, how you see the synergy targets you kind of laid out, just expectation as to when are those fully running through..

Well, the $12 million is the overall analyzed target and we expect to be at that run rate by the fourth quarter of this year. We expect $9 million of the $12 million to be recognized in 2015. It's a combination of a number of different things. Again it's insurance savings, it's sale of Performance Chemicals products to our sister businesses.

It's, again, a pickup of some business through other relationships. It's eliminating some redundant positions. It's a whole host of different things, but $9 million is what we have in this year's numbers, 2015..

And we will go next to Steve Schwartz with First Analysis..

I guess my first question ties into a question asked at the beginning about Performance Chemicals and the cycle. And I'm just trying to get a better understanding of what the risks are to you being at the top of the margin cycle. So I think in your response you mentioned the price of copper. We know there's a housing factor in there as well.

Can you just kind of rank the top two or three things that really could pull you into 12%?.

I think you just hit the two big ones. When they have been in the down part of it before, it has been through a drop in demand. It has been through an environment of higher copper prices. They have instituted a hedging program from a copper standpoint several years ago that we've continued to carry on.

The downside of that is it doesn't allow us to really participate in an environment like today where copper pricing has dropped quite a bit, but it does give us protection on the upside and has allowed them to actually lock in forward business that they weren't able to do in the past.

This business is typically an annual purchase order driven business and it doesn't have long term contracts. So, each year you're kind of going out and trying to re-win the business.

This environment they've been in has allowed them to actually lock in business beyond just that 12-month period by being able to lock in their customer's raw material requirements, but you talked about, again, the demand side of it.

Certainly, they tend to look at repair and remodeling metrics to look at the health of their business or the drivers of their business as opposed to new housing starts, but, certainly, that also plays into it.

I think any reduction in consumer spending, any reduction in consumer confidence, you would have to expect is going to affect demand and have an effect on their business. But those are the two big drivers..

Okay. And just as follow-up and this touches on a question Chris brought up about the closure of the facilities in CMC. It really is only creosote where CM&C serves the wood-treating business.

Is that correct?.

That's correct..

And so, is there a possibility where you would sell these assets off and just get into a long term supply agreement for creosote?.

Well it's premature for certainly me to say anything on this call relative to something like that. I just say, in general, as we're looking at the business everything is on the table. I mean we're trying to get this business which is the overall company, back to the point where we can deliver stable, profitable, sustainable results.

And as we look at that piece of the business, if we can't see a path that makes sense that doesn't reduce our risk profile for the return that we're getting on it, then to me that's an option. But, it's way too premature to really be talking about anything like that at this point..

And we will go next to [inaudible] with Prudential..

One kind of cleanup question.

What we're your actual cash taxes in 2014?.

The actual cash taxes in 2014 were about, I think, $12 million to $15 million. I would have to double check that and get back to you, but I think that's the ballpark range..

Okay.

And then, in terms of the $200 million to $250 million that you want to generate over the next couple years, how much of that do you think you can do internally and how much is really dependent upon asset sales?.

I feel pretty confident in the lower end of that range without asset sales. I think getting to the upper end of that range will require the divestitures that we're looking at..

Jay, your question on cash taxes for 2014 was $16.3 million..

Okay.

And so, in 2015, excluding the $16 million payment you have to make to get the improved tax treatment, your 2015 cash taxes on an apples-to-apples basis would be lower than 2014?.

Correct. A couple million dollars lower..

Okay.

And then, as you guys think about the business and what's core and what's not core, can you help us think about what kind of assets you consider are not core and not meeting the return hurdles that you --?.

Yes. First of all, I would say just to be clear, the businesses we're talking about are fairly small businesses. Again, when you get into the CMC&C and the distillation assets, that's all tied together and really you're talking about the same thing in terms of the Railroad and Utility Products operations segment. But we do have small businesses.

We don't really talk about them and I'm not going to get into the details on this call. But we have a few small businesses that kind of sit outside of those that - again, there is no reason or need to have them and, at least in a couple of the cases, they are margin-dilutive.

So, I think divesting them and recouping whatever cash we can at this point makes the most sense..

And we will go next to Kevin Hocevar with Northcoast Research..

If you decide to divest some of these assets, you mentioned the Chinese assets were EBITDA-dilutive, how quickly do you think you can sell these and is there an active market out there looking for these types of assets?.

Well, let me clarify on that, too, because, again, the two joint ventures outside of KJCC, right? One is the majority-held KCCC which has already been in, more or less, shutdown mode. That's the one where our partner has been ordered to shut down their coke ovens and it's just matter of time before they get there.

And the assets essentially go away with that business. The question becomes, do we want to retain volume by moving it to the other locations and/or moving into a [inaudible] arrangement or not? But that wouldn't involve an asset sale.

That would just involve making a decision to exit a certain piece of that business, The other business, again we're a minority partner. In terms of whether there would be interest in our portion of that business, that's what we're trying to gauge right now. I would think that there would be. We think that there will be.

But we're going through that process. So it's tough for me to speak for others, but we would have to believe that there would be some interest there..

Okay. And just a final question.

If things don't go according to kind of how you laid out, how much wiggle room is there to the downside on the EBITDA guidance before the covenants get close to getting breached? And what are your options at that point if that does happen?.

Well as I say, that's really a difficult question to answer because there continues to be some other levers that can be pulled to help withstand or offset some of that, the primary one being capital expenditures. So, I would rather not get into a specific number.

I mean you see - Mike mentioned the leverage ratio that we were at, at the end of the year, 4.7 versus the 5.25 that's required. I think, again, the fixed charge; 1.8 versus 1.1.

Just from our standpoint, again, we don't want to potentially put ourselves in a situation where we're having to take other desperate measures if the EBITDA comes in at that lower end of the range or even a little bit lower.

So it's just trying to create some room so that we can get to the point moving forward where we have that greater operating flexibility..

And that concludes our Q&A. I'll turn the call back to Mr. Ball..

Thank you. We thank you for your participation in today's call, appreciate your continued interest in Koppers. As mentioned earlier, our primary goal for 2015 is to pay down debt and reduce our leverage.

We will also continue to pursue opportunities that make strategically sense for us as well as looking for ways to improve profitability within our existing businesses.

We remain firmly committed to enhancing shareholder value by maintaining our strategy of providing our customers with the highest quality products and services while continuing to focus on safety, health and environmental issues. Thank you..

This concludes today's conference call. Thank you for your participation..