Quynh McGuire - Director of Investor Relations and Corporate Communications Leroy Ball - President and Chief Executive Officer Mike Zugay - Chief Financial Officer.

Dan Rizzo - Jefferies Liam Burke - Wunderlich Rudy Hokanson - Barrington Chris Shaw - Monness, Crespi Curt Siegmeyer - KeyBanc Scott Blumenthal - Emerald Advisers.

Good day and welcome to the Koppers’ First Quarter 2017 Earnings Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Quynh McGuire. Please go ahead..

Thank you and good morning. My name is Quynh McGuire and I am the Director of Investor Relations and Corporate Communication. Welcome to our first quarter earnings conference call. We issued our quarterly earnings press release earlier today. You may access this announcement via our website at www.koppers.com.

As indicated in our earnings release this morning, we have also posted materials to the Investor Relations page of our website that will be referenced in today’s call.

Consistent with our practice in prior quarterly conference calls, this is being broadcast live on our website and a recording of this call will be available on our site for replay through June 5, 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 statements 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 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 am joined on this morning’s call by Leroy Ball, President and CEO of Koppers; and Mike Zugay, our Chief Financial Officer.

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

Thank you, Quynh. Welcome everyone to our first quarter 2017 earnings call. Now before discussing the details of our financial results, I would like to provide an update on some events during the March quarter. As always, let’s begin with an update on our path to Zero Harm.

We know that Zero Harm is about continuously improving safety and environmental performance and we realized it’s only possible by first fostering a strong culture that values feedback, connectivity, positive reinforcement and new ideas.

During the first quarter, employees from across the globe continue to participate in the first two sessions of a four year safety leadership training series that combined coaching, skill building and engagement activities.

To date, 27 locations have completed the first two workshops and I'm encouraged by the positive feedback we started to receive from our frontline leaders. Now recently we issued our 2016 corporate sustainability report highlighting the achievements that we've made to protect the environment and communities that we serve.

And while we printed sustainability summary brochures that are available upon request, I’d encourage everyone to visit the sustainability section of our corporate website for our in-depth report which highlights several areas where we've improved our environmental performance.

Overall, I’m pleased with the progress that we've made to date to strengthen our Zero Harm culture and we will continue to update you as we reach new milestones.

Moving onto the financial results, I'm encouraged to see that our consolidated sales have stabilized after experiencing double-digit declines on a year-over-year basis for five consecutive quarters.

The stabilization which we expect to continue for the remainder of 2017 largely contributed to the significant growth in our profitability as well as improved earnings per share for the quarter.

Now I’d like to talk about some specifics in each of our business segments and would like to begin with the bad news story first, our Railroad and Utility Products and Services or RUPS segment.

In that segment, we experience lower sales volumes to both treated and untreated ties as well as lower pricing in both the Class 1 and commercial market, which drove our 11% reduction in sales and 36% decline in adjusted EBITDA.

Now part of the pricing decline was driven by lower average raw material prices in part was driven by an excessive inventory in the market putting pressure on pricing. Our railroad structures business also contributed about $1 million of the decline as they had a tough comp due to an especially strong first quarter in 2016.

Profitability of our Australian utility pole business was flat year-over-year. Now unfortunately our comps for the railroad business don't improve until we get past August, so the second quarter is likely to be difficult as well, which I’ll articulate later.

For PC segments, or performance chemicals, higher sales volumes were the main driver for sales and profitability improvement and that volume increase was primarily due to treated wood dealers stocking and selling treated wood with higher preservative retention levels.

Additionally, the trend for existing home sales continue to be favorable benefiting the repair and remodeling market. We also saw some net benefits in raw material costs. These gains were offset in part by higher customer development costs, which are reflected as reduction in net sales.

Now while both top line and adjusted EBITDA increases were driven by North America, once again our international performance chemical locations all posted strong results and contributed to the gains as well. Adjusted EBITDA margins were very strong at 23.7%, which will be difficult to hold throughout the year as I will speak to later in the call.

Now for our car maturely Carbon Materials and Chemicals or CM&C business, we were able to put together our second straight strong quarter relatively speaking as higher sales volumes related to carbon black feedstock and other coal tar chemicals were partially offset by lower global sales for carbon pitch.

The considerable margin improvement of $10.1 million was primarily due to improved average pricing and the benefit of restructuring savings and lower average raw material costs. Crude oil prices averaged approximately 54% higher in Q1 2017 versus 2016 and contributed partly to higher average pricing levels.

There's currently a lot of positive momentum in this segment even with creosote volumes down due to lower cross tie treatment and we expect that positive momentum to continue throughout 2017 and carry into 2018.

Now before I turn it over to Mike, I want to make a mention that we finally received a $9.5 million loan owed to us by our former minority held Chinese JV TKK. It was repaid in full through installments throughout the first quarter and we are now officially out of all ties with that joint venture.

Now I’d like to turn it over to Mike to discuss some of the key financial highlights from the first quarter of 2017.

Mike?.

Thanks, Leroy. I will begin by referring to the slide presentation that we have provided on our website. Starting on Slide 4, sales were $347 million for the first quarter, which were flat when compared to sales of $347 million in the prior year. The PC business had strong sales volumes primarily driven by higher demand in North America.

The CM&C segment reported higher sales volumes for carbon black feedstock and other coal tar products and higher sales prices for certain products, which was partially offset by lower demand for carbon pitch and creosote.

Sales for the RUPS segment were unfavorably impacted by lower volumes of treated cross ties, utility products and structured services. Moving to Slide 5, adjusted EBITDA was $42 million, compared with $33 million in the prior year.

This was due primarily to higher profitability from the CM&C and PC segments partially offset by lower profitability for the RUPS segment. Now I’d like to discuss several items that are not referenced in our slide presentation. Adjusted net income was $14.8 million, compared with $5.9 million in the prior year.

Adjustments to pretax income totaled $14.2 million for the first quarter and $11.6 million for the prior year quarter and primarily consisted of debt refinancing in 2017 and restructuring expenses in both periods. Adjusted EPS was $0.68 per share for the first quarter, compared to $0.28 per share in the prior year quarter.

Our adjusted income tax rate for the first quarter was approximately 27%. This lower effective tax rate is primarily due to a higher amount of earnings coming from foreign subsidiaries where the tax rates are lower than in the United States, specifically, Australia Canada and Europe.

Now we expect this trend to continue throughout 2017 and we now estimate that our annual effective tax rate to be below 30% for the full year. Cash used in operating activities for the first quarter was $23.9 million to cash generated from operations $2.5 million in the prior year.

The higher working capital usage was related to higher accounts receivable and inventory balances, a decrease in accounts payable, a decrease in the accrued liabilities as well.

Also having a negative impact on cash in the quarter was the $19 million we paid out in cash for our bond tender premiums and transaction expenses related to our bond and bank debt refinancing, which we completed in the first quarter. Capital expenditures in the first quarter were $14.9 million, compared to $8.7 million for the prior year.

This reflects the ongoing construction project for the new naphthalene unit at our Stickney, Illinois facility, which we expect to complete by the end of 2017. At year-end 2016, we began using a net leverage ratio to monitor our debt status.

The calculation of this metric is included in the non-GAAP reconciliation schedules, which we provided in our earnings announcement. Using this new metric, our net leverage ratio at the end of the first quarter was 3.7 times, which was right in line with the ratio as of December 31, 2016.

This reflects our disciplined approach to optimizing our balance sheet especially in a quarter that historically requires very high cash usage. Now we expect to be at a net leverage ratio of 3.5 times or lower by the end of 2017 and our long range goal continues to be in net leverage ratio of 3.0 times or lower.

The loss on the early extinguishment of debt for the first quarter was $13.3 million and is shown as a separate line item on our income statement. All of our senior notes which were due in 2019 were repurchased at a premium and accordingly we realized a loss on the extinguishment of this debt totaling $10 million.

This consisted of $7.3 million for the bond premium and as well as tender expenses and $2.7 million for the write-off of unamortized debt issuance cost. In addition to that we repaid our term loan in full and also entered into a new revolving credit facility.

Accordingly, we realized an additional loss of $3.3 million for the write-off of unamortized debt issuance cost. Now all these were one-time expenses in the quarter and will not affect any future period.

We accomplished this balance sheet refinancing in early 2017 and it is expected to reduce our interest expense by approximately $5 million per year on a go-forward basis. Now I'd like to turn the discussion back over to Leroy..

Thanks, Mike. Now looking at each of the three business segments and the outlook associated with them, I'm going to start with railroad and utility products and services. As I indicated earlier, with a tough start to the year and that likely won't be improving until at least the beginning of 2018 as we see it.

Putting aside an improving rail traffic situation, which will eventually have a positive impact on us, the rail industry continues to be under immense pressure to improve their operating ratio by cutting costs and it has reached the tie industry.

In addition, we are finding that certain railroads are being much more aggressive on their inventory management method. As a result, green tie orders have declined and we're seeing a pullback in treatment by certain railroads.

Some of the treatment reduction is being replaced by gains in other areas, but on a net basis we expect treating volumes to be down by 7% to 10% for the year most of which will be reflected in the first two-thirds of the year.

Now as reflected on Slide 7, we're ratcheting down our 2017 adjusted EBITDA guidance for our RUPS segment by approximately $8 million from our February 2017 guidance. That would equate to a fairly pessimistic $56 million of adjusted EBITDA, which is a $16 million decrease from prior year.

Now I do believe that 2017 will be the trough for this segment and 2018 will begin the climb back up based upon an improving rail industry as well as some specific measures that we're taking to improve profitability that I will talk about more as the year progresses.

In our performance chemicals business, we once again saw a year-over-year double-digit volume increase driven by the factors mentioned earlier. Looking ahead, the industry move to higher retention treated products began in earnest during the second quarter of 2016. So our sales and volume comps will begin to get tougher as the year moves on.

Now while remodeling spending in North America is projected to remain pretty robust for this year at 6.1% as estimated by the Leading Indicator of Remodeling Activity or LIRA realized by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University.

The pace will begin to slow in Q2 and by Q1 2018 spending is predicted at that point to be sequentially flat indicating some cooling off in building products. Now our average raw material comps driven primarily by copper pricing will also get worse as the year goes on if copper continues to hold in the $2.50 to $2.50 per pound range.

Despite all that, we're still raising our EBITDA guidance for performance chemicals in 2017 from $85 million to $87 million as you can see on Page 8 of our slide presentation.

However, as a result of taking into account everything that I previously detailed, I don't believe we'll be able to continue duplicating the 28% year-over-year adjusted EBITDA improvement that we saw in the first quarter.

For the year, we see adjusted EBITDA margins finishing at approximately the 21% mark, which is a little lower than where we finished the first quarter, but slightly ahead of 2015.

Moving now to the outlook regarding our CM&C business, we currently stand at an LTM adjusted EBITDA of over $33 million and expect that to improve further as the year progresses.

Our combined North American European business, which was expected to drive the majority of our improvement over 2016 is still expected to deliver as planned and maybe even better despite having to make up for lower creosote volumes.

Our Australia and China regions, however, are exceeding expectations due a tightened supply market in China, which has driven up pricing in both regions.

As a result, we are increasing our adjusted EBITDA guidance from the $32 million communicated in February to $38 million as indicated on Slide 9, which represents a $15 million improvement over prior year. Now going back a year, our original target for CM&C was to reach $40 million of adjusted EBITDA and a minimal 9% margin by the end of 2018.

We now have an outside shot to get there a year early with even more benefit to come in 2018.

On Slide 10, you can see the ups and downs that we expect on the sales line in 2017, while CM&C will benefit from higher pricing and a stabilization of volumes and PC demand is expected to stay strong, softness in our RUPS business will likely keep consolidated sales for 2017 at approximately $1.4 billion, which is no different than what we communicated a few months ago.

Turning to Slide 11, our guidance for 2017 consolidated EBITDA on an adjusted basis is still targeted to be $180 million compared with $174 million in the prior year.

Now, while I was tempted to raise our EBITDA guidance given the continued positive trends in our PC and CM&C businesses, the headwinds facing our RUPS business and a little uncertainty on how PC will fare against stronger comps as the year goes on, has me cautious at this early stage in the year, but as always we will continue to keep you informed every quarter regarding any updates in our outlook.

Our adjusted EPS guidance is projected to be between $2.80 and $3 compared with $2.60 in 2016. The increase in adjusted EPS is primarily due to a lower expected effective tax rate as Mike talked about earlier. Capital expenditures in 2017 are still expected to be approximately $70 million to $75 million.

Construction on our new naphthalene unit Stickney, Illinois will be kicking into higher gear beginning in the second quarter and our overall capital requirements for CM&C consolidation plan are in line with expectations.

Certain capacity additions for our PC business will be completed and come on line by the time we do our next call in August while the remaining PC projects will be completed by year-end.

During the next few quarters, we plan to offer deferred terminated vested employees of our pension plan an opportunity to receive a lump sum benefit similar to the program that we ran last year.

In addition, we plan to sell the smaller dollar tail end of our retiree annuity pension payments to an insurance company both actions will result in a lowering of our pension liabilities and cost us no current cash since it'll be funded from the pension plan assets.

It will result in operating cost savings due to lower administrative costs as well as lower our overall risk moving forward by taking a sizeable slice of our pension liability off the balance sheet.

There will likely be a non-cash charge associated with those transactions when they occur that we plan to isolate as a special charge similar to when we conducted a similar program during 2016.

Now pleased to say that we continue to move down a path of significant improvement and I believe that on balance the improvement is sustainable moving forward.

At the same time, we’re reducing risk in many different ways such as improving our capital structure, lowering our leverage, taking pension liabilities off the balance sheet and even making positive progress in certain legal proceedings, which you can read about more in our 10-Q.

Each quarter I'm more encouraged by our progress and more excited about the opportunities that lie ahead of us. I now like to open it up for any questions..

Thank you. [Operator Instructions] And we'll go first to Laurence Alexander from Jefferies..

Hi, guys. It’s Dan Rizzo on for Laurence.

How are you?.

Good, Dan.

How are you doing?.

Hi, Dan..

You mentioned that with RU&P it’s going to a little rough until probably 2018 at the earliest..

Yes..

But do you still anticipate the same seasonality that we've historically seen in the business?.

Yes, yes, I would. So I think that you can expect a better second and third quarter relatively speaking compared to our first quarter and then our fourth quarter will again be seasonally down from that..

Okay, thank you.

And then with the PC segment, I don’t know, with the change in spec additive [ph] requirements, is that still going according to plan or it is as expected?.

Yeah, it's still moving forward and I think I mentioned in my prepared remarks that really didn't start having a positive impact on us until we got into the second quarter of last year. So we still had this first quarter where we had a much lower comp.

We're now more or less a full year into it and there is still people adopting, so we still think we can see some volume gains throughout the remainder of the year, but it's not going to be as dramatic as it's been over the last four quarters..

Is adoption – I mean, beside the initial surges, is adoption a multiyear process?.

Yeah, it’s – right. So, each treater and retailer are adopting at their own pace, so you have some that came out early and did it, you have others that are holding off and taking a little more time. So, yeah, it's over time, Dan..

Thank you very much..

You're welcome..

Thank you. And we will go next to Liam Burke from Wunderlich..

Thank you..

Hi, Liam..

Good morning, Leroy. Good morning, Mike..

Hi, Liam..

Hi..

Leroy, could you give us a little more color on some of the non-tie related products like bonding insulated joints, how that’s fitting? How they are affected by the rail CapEx? Are you seeing any life along that line of business?.

So, we saw actually – that was a business that probably had more downside associated with it earlier in rail cycles till last year. We were seeing – we're getting hit harder by a downturn in that business, I'd say, right out of the gate in 2016.

And so we had a tough year in rail joints throughout the entire year whereas ties didn’t start really getting impact until, like I said, at the end of the third quarter. We have seen a little bit of pick up in that business, a pickup in bid activity and we're pretty optimistic that is already starting to see a little bit of a comeback.

So that one seems to be just a little out of sync with maybe our tie business in terms of where it fits within the cycle..

Okay. And you mentioned tough comps on the bridge business, the bridge engineering business..

Yeah, yeah..

How does that look as we go through 2017?.

It's going to be down this year compared to last year. Last year they had their best year ever. And that's a big project oriented business, so you get a couple of large projects and that can have a significant impact on any given year’s revenues and profit. That’s what they had.

Essentially last year was a couple of really sizeable projects and that help drive their results to their best year ever. And we weren’t able to replace those projects at, I'd say, at the dollar level and profitability level as we headed into 2016.

So this year actually looks like it’s turning out to or projected to be a little more a normal – what I call a normal year for them as opposed to last year, which was a really, really strong year..

Okay.

And Mike very quickly on the cash flow, as you mentioned the working capital needs, presuming it's just the seasonality of the working capital or is there anything in there that's different than the normal?.

Yeah, the only thing Liam that’s in there that’s different than the normal is the $19 million in cash we paid out for the debt restructuring both the bonds as well as the new credit agreement with our banking group. So other than that it appeared fairly well.

I think as we as we go forward, our cash generation is greatest in Q2 and Q3; we expect that to continue as well as a little bit into Q4. So, no change there and really the only one major item was the refinancing..

Great. Thank you, Leroy. Thank you, Mike..

You are welcome. Thanks, Liam..

You are welcome..

Thank you. And we will go next to Rudy Hokanson from Barrington..

Hi, Rudy..

Well..

Hi, Rudy..

Hi, Rudy..

Sorry. I pressed the wrong button on my phone.

A couple of questions, one, do you have guidance for what this final interest expense will be for 2017?.

Yes, interest expense is going to be about $5 million less than it was in 2016..

Okay..

Now that’s on an apples-to-apples basis. If we continue to have Fed rate increases, which will impact our variable borrowings, which is our bank debt that may go up slightly.

But as it stands right now, on an apples-to-apples basis, when we refinance the bonds and we refinanced our bank agreement, when you took a look at the lower interest rates we're able to receive on both those pieces of the restructuring, we estimated at that time our interest expense for a full year to be about $5 million less on an annual basis..

Okay, thank you.

On the CMC business, are there some macro trends or something that you can depend upon more than maybe a quarter or two out right now that you see and is there any geographical issue that's influencing CMC business that is noteworthy?.

Well, I'd say Rudy certainly the tightening in pitch supply in China is something that we're – we've seen here over the past – certainly over the early part of this year and we do – we don't see that changing as we look out over the remainder of this year, which has driven pricing in China up, it's driven pricing in Australia up and that's again one of the contributing factors to us really increasing our CM&C guidance for the year.

Does that change or tail off in 20 18? Actually, we say there's – we would think that there’d be a greater likelihood that that continues out into the nearer term with everything going with all the noise surrounding a heavy industry and obviously tariff talks in the U.S. around a lot of stuff coming out of China.

I don't see that really changing anytime in the near-term, so I think that's something that we're banking on even as we move out into 2018, which, like I said, given the benefits that are – that will come on after we have our naphthalene plant up and running in Stickney, really put us in a great position to have CM&C be well ahead of where we were projecting it to be just a year or so ago..

Thank you.

And is that an important part of the reason for lowering the tax rate to geographical distribution of earnings is what's going to be coming out of there?.

Yes..

Okay, thank you.

And on the PC business, are there any new products or markets that you could highlight, you mentioned that internationally it's doing well, but what percentage of sales right now is coming internationally from PC and are there any new products or developments that you could highlight for us besides what we've seen happening?.

Yeah, so it’s about two-thirds North America, about a third international business. We are actually looking at some things internationally to build around the businesses that we have there.

Those businesses, I’d just say, certainly, since we've owned – and I think pretty much in its history the most volatility we've seen out of those international business has probably been Europe. Our Australia and New Zealand business has been a pretty steady stable business throughout most of its history and it continues to perform that way.

We've made a number of improvements in Europe since we took that business on. It was basically a break even business when we bought performance chemicals.

We have a young man Thomas Christensen, who runs that business for us, who has done a fantastic job of really improving the performance over there and he's got a lot of great ideas for how we can continue to benefit it moving forward. [indiscernible] who runs our South and Central American business there, he’s done a great job building that up.

He continues to look for opportunities there. We think we have some opportunity to actually to add to our core business and maybe branch out in a couple different products, not far from what we do that are interesting that I really can't get into a lot of detail about.

And then as we look at North America, yeah, there’s some things that we have in development. It’s not for me to talk about on this call, but interesting opportunities that will continue to build right – either within – directly within our core of what we do or build really right around our core.

So we're excited about the opportunities for that business moving forward..

Okay.

And not too long ago you were talking about having capacity issues with the PC business and I was just wondering is that all rectified now or do you still find yourself relying on outside sources that are putting some pressure on your margins?.

Yeah..

Or are we seeing things to, you know, right now more normalized?.

Yeah, so there are several things that we're doing from a capacity standpoint in terms of investment on PC. So, it's not just like one silver bullet magic project. There’s several projects involved.

There's a few of those that will get completed here in the second quarter or early in the third quarter – I think I indicated by the time we do our next call in August, we will have a few of the smaller projects completed, which will help to take some pressure off. The larger project won't be completed probably until near the end of the year.

So – and even then I think based upon what were projecting is demand, we will still have a piece of our business that we will have to go outside and buy from third party in terms of intermediates.

And we will look about – again what we want to do from a capacity standpoint as we go into 2018 as well, but we will have closed that gap by decent amount here by the end of this year.

But we're going to – we're still going to be dependent upon third parties for a piece of our intermediate raw material supply throughout the remainder this year for sure..

Okay. Thank you. Those are my questions..

Okay, thank you, Rudy..

Thank you..

Thank you. And we will go next to Chris Shaw from Monness, Crespi..

Yeah, hi, good morning, everyone.

How are you doing?.

Hi, Chris..

Hi, Chris..

If I could ask about the PC margin, I know you are – you said they are not going to last at these levels, but just in the first quarter the incremental – I mean, they seem to – they were up more than I’d have thought and I’m just trying to get – is that just volume growth, I mean, you mentioned volume [indiscernible] lower cost, I guess I’m just trying to get at maybe what the incremental margin is there and is there a really big fixed cost base that you are covering when you get higher volume?.

Yes. A big part of it is volume related. As I mentioned the whole ground contacting higher retention preserver products really didn’t take off or taken off to second quarter of last year. So we got a pretty nice year-over-year volume increase here in the first quarter that contributed quite a bit to it.

We had our overall first quarter raw material pricing probably hedged in on a comparable basis, good amount lower than where we were at from a cost structure standpoint in the first quarter last year.

Those two things were probably the biggest contributors but as we move out over the year, we’re going to see that gap between our raw material cost this year versus last year really start to converge. So we’re going to lose some of that, a lot of that benefit year-over-year benefit as we move out as well as the volumes.

I think our volumes will continue to be up year-over-year as we move out through the remainder of the year but they’re not going to be up by nearly the percentage that they were in the first quarter..

Can I ask what the year-over-year lower raw material was in the first quarter? Was that your biggest, it’s not copper, what was down..?.

There is a whole host of things that go into that, copper is a piece of it, there is some intermediate materials and stuff like that. We don’t have that number that we are able to share here, Chris. So I can’t give it to you..

I’m not looking for a number but what are the intermediates and what kind of class it is?.

So we buy the copper, we buy the scrap copper and we produce cuprous oxide and copper carbonate right and that goes into the products that we make as well as several buy sides and different things like that. So there is a whole host of different things..

Okay, got it. And then just with – oil was sort of weaker than we thought, maybe think about you guys – with all the restructuring and exiting of JVs in CMC, is there a number of how greatly you reduce the exposure to oil in that segment? Give us a general idea..

We’ve reduced it dramatically. I tell you that, it used to be almost one for one right and now looking at my care if you can recall the last fence we put around that..

Yes, it was like you’ve already said historically or is it about one to one, so for every $1 drop or increase in the barrel of oil or EBITDA would go up $1 million.

But now a closer rule of thumb to that and it continues to decline but a closer rule of thumb is for every $5 of increase in oil per barrel whether up or down or EBITDA is impacted by only $2 million up or down. So we are pretty far from that one to one ratio that we have previously.

Currently close to the two for five and somewhere along the line we’re going to be down below two to be honest with you..

Okay, that’s very helpful. And then just this might be diplomatic, but the increased EBITDA forecast we are seeing on the slide, the bucket is restructuring phase.

Can you talk about it more like it was improvement in Australia, China I think - is that the same bucket or it might?.

There are some of that in there. Yes, it certainly relates to China, no question about it. The other China, Australia piece I think is, the improvement is probably buried into the other piece of that bridge offset by some things that are going the other way..

Okay, great. Thanks guys..

Thank you. And we’ll go next to Curt Siegmeyer from KeyBanc..

Hi, good morning guys..

Hi, Curt..

Hi, Curt..

Just to follow-up on that question on CMC, so your outlook suggest $15 million in EBITDA growth in 2017 and we saw $10 million in the first quarter.

So just kind of bridging that for the rest of the year, do you – is there pricing headwinds or what was the chunk of savings in the first quarter disproportionately large or how do we of?.

Yes, sure. There were two big events last year that didn’t happen until the beginning of the third quarter that allowed us to capture, if you remember, most of the benefit – the most of the year-over-year improvement last year was driven in the second half of the year.

Those two events were the shutdown of our Clairton, Pennsylvania facility and the resetting of basically our raw material pricing. So we saw a dramatic sign in raw material pricing in the back half of the year. We saw a bunch of fixed cost come out in the back half of the year.

So here we sit in the first half of the year, first quarter in particular as you saw last year, we actually had a lot in the first quarter. And so, we are – the benefits that we received on the back half, we are now getting through the first half of this year on much lower comp.

So you should expect that much of the improved year-over-year improvement in CMC we will see in the first half of the year. It will get tougher as we get out into the second half of the year although there is still an opportunity I think to see improvement there as well.

But it will – again it won’t be as dramatic because we are getting some of the benefit here in the first half that we gotten about in last half of last year..

Okay, that makes sense. And then just on raw material inflation in general, what – I know there were some comments about lower cost in the first quarter.

So just kind of wondering what the puts and takes are there? Going forward, what your expectations are the rest of the year?.

Yes. I think we are in pretty good shape as it relates to raw materials in the CMC segment for most of the stuff that we have. We have an ability to move pricing with some of the changes in raw materials. I don’t worry about how that moves for the most part. I think we are fairly – we are much better protected there than what we have been in the past.

Railroad obviously we have the opportunity for the most part to pass through changes in crossties and that’s been a soft market any way. So on the performance chemical side, there again copper I think as we move throughout the year, we’re going to see higher average copper prices compared to where we were in the back half of last year.

Now again, we have a significant amount of ours under contract through hedging arrangement so and that’s the reason why we have those hedging arrangements in place to take out the volatility but as hedging contracts roll off and new ones roll on you are eventually if the pricing doesn’t change or eventually going to gravitate to a higher average level of pricing.

And if pricing doesn’t change, that’s where we’re ultimately going to be moving towards and so 2018 as an example based upon where things are at today is likely to be, if nothing else changes, it is likely to be higher.

So we’re going to see some pressure coming from raw material pricing in that respect if nothing changes in terms of where copper is at. So those are kind of high level, the bigger items. Copper is the one that probably we’re keeping the closest eye on right now..

Okay, that’s helpful. Thank you..

Okay. You’re welcome..

Thank you. And we’ll go next to Scott Blumenthal from Emerald Advisers..

Good morning, gentlemen and Quynh..

Hi, Scott..

Good morning..

Leroy, congratulations and getting closure on TKK, [indiscernible] into a loan here but any update you can give us on KJCC at this point?.

First of all, there is no – we got the money back so it’s fantastic actually, I’m happy about that. KJCC is funny enough, was built to supply Needle Coke into an NSCC’s subsidiary plans in the Needle Coke market.

I couldn’t tell you where it is exactly today, still depressed well below the levels that Needle Coke was out when they made the decision to enter into the arrangement and build their plans.

They are taking a very, very small amount of product out of that plant but again the flexibility that we have in terms of being able to take products to other markets and the protection that we have within the agreement with them in terms of protecting us on the margin standpoint has allowed us to actually have a pretty nice quarter in that business.

I told you that pitch market tightened up over there. We are getting a lot of enquiries to take product and capacity that’s available right now and move it out in nice prices. So we’re in a good spot right now with that business.

And again even that other – even if the pitch markets drive back up, we still have the protection of the – the margin protection within the agreement. So, I think, we are in pretty good shape..

So you haven’t seen any change in the behavior of Nippon Steel at this point?.

No, no. They’ve been a great partner. They, you know, other than not taking the volumes, they’ve done everything that they are required to do contractually and we – the thing I would say is we had good protections in that contract.

So, nobody really could have forced all what happened over the last three years in those markets or four years really since we signed that agreement, but we really took a lot of risk off the table when we entered into that agreement.

And even with the adjustment or renegotiation we did in the middle 2015 when we got to $30 million payment, we still were able to protect our downside, we had to give up some upside, but we were really able to protect our downside. So all in all, I think, it’s been a pretty good outcome so far..

And the utilization of that facility currently compared to, I guess, kind of where you were…?.

Yeah, I was just looking at it actually and I think we are somewhere in the 75% to 80% utilization range over there something like that. And hang on a second, about mid-80s% something like that, it looks like..

Okay.

So it’s a decent business right now?.

Yeah, last year around the first quarter, we probably – we ran less than 60% over there..

Okay, super.

And jumping around here a bit, can you remind us as the size of the bridge overall or as a portion of RUPS?.

Yeah, it’s a $40 million to $45 million business year-to-year. It doesn’t really stray from that range..

Thanks. That’s helpful. Thank you. And I guess my last one is for Mike.

Mike, I think you mentioned $70 million to $75 million of CapEx this year, is that correct?.

That is correct..

And I think, if I’m not mistaken, you did have about half of the investment in Stickney coming this year half, last year – correct me if I’m not right – so can you maybe breakdown the rest of the $70 million to $75 million, obviously, some of that’s increasing capacity PC and [indiscernible]?.

Scott, I will say, you are little off in terms of the breakdown, we didn’t spend half of that investment in Stickney last year and we have a number of projects that kind of fall under that umbrella.

So I’d say of the $70 million to $75 million, still probably I’d say the majority of that is CM&C consolidation and improvement project related including that naphthalene project in Stickney. Breaking down that $75 million, we probably have $12 million, $13 million of that in railroad, something like that.

A similar sort of number probably in performance chemicals, maybe a little higher because of the capacity expansions that we are doing there that will maybe make up $8 million of that number, something like that and then the balance will be CM&C, which includes naphthalene and a number of other projects associated with it..

That’s really helpful. Thank you, Mike..

You are welcome..

We will turn it back over to the speakers for any additional or closing remarks..

Thank you. Just to summarize, I want to thank our team worldwide for all the hard work that they done to improve our company financially, operationally and culturally. I think we have a solid foundation to sustain our safety first culture with the goal of Zero Harm.

I’m also proud to say that today we have a stronger balance sheet, less risk and volatility within our business, improve profitability and we are well positioned to further expand our presence in the marketplace. As always, we will remain highly focused on delivering shareholder value.

Thank you all for your continuing support and for joining us today..

That does conclude today’s conference. Thank you for your participation..