Prompt:
Human: That release has further information about these adjustments and reconciliations to comparable GAAP financial measures.
Let me start with the headlines for the quarter.
Organic sales increased 3% with good underlying momentum and benefits from increased demand related to COVID-19.
We significantly increased our growth investments and improved our market positions.
We had another strong quarter of achieving cost savings and returning cash to shareholders.
And finally, while earnings were down as expected, we are increasing our full-year outlook.
Now let's look at the details of our results, starting with sales.
Our third quarter net sales were $4.7 billion.
That's up 1% from year ago and includes a two-point drag from currency rates.
Volumes were up 2% and the combined impact of changes in net selling prices and product mix increased sales by 1%.
By segment, organic sales rose 10% in Consumer Tissue and 5% in Personal Care, but declined 15% in K-C Professional.
Mike will talk more about our top-line and our market share performance in just a few minutes.
Moving on to profitability.
Third quarter adjusted gross margin was 36.2%, up 40 basis points year-on-year.
Adjusted gross profit increased 2%.
We had excellent cost savings performance in the quarter.
Combined savings from our FORCE and restructuring programs totaled $140 million, including continued strong productivity improvements.
Commodities were a benefit of $25 million in the quarter driven by pulp and other raw materials.
Other manufacturing costs were higher year-on-year that included incremental costs related to COVID-19.
Foreign currencies were also a headwind reducing operating profit by a high single digit rate in the quarter.
Moving further down the P&L.
Between the lines spending was 18.9% of sales.
That's up 180 basis points and driven by a big step up in digital advertising.
G&A also increased including capability-building investments and higher incentive compensation expenses.
We expect between the lines spending will rise further sequentially in the fourth quarter.
Our SG&A spending is typically high in the fourth quarter and this year we'll also have project activities that were temporarily delayed because of COVID-19.
All in all, for the fourth quarter-for the third quarter, sorry, adjusted operating profit was down 6% and operating margin was 17.2%, down 130 basis points versus year ago.
By segment, operating margins were up in Consumer Tissue and Healthy and Personal Care.
K-C Professional margins were down significantly, including an approximate 600 basis-point drag from fixed costs under absorption.
On the bottom-line, adjusted earnings per share were $1.72 in the quarter, compared to $1.84 in the year-ago period.
Turning to cash flow and capital efficiency.
Cash provided by operations in the third quarter was $559 million compared to $886 million in the year-ago quarter.
The decrease was as expected and driven by the timing of tax payments and higher working capital.
We continue to allocate capital in shareholder-friendly ways.
Third quarter dividends and share repurchases totaled approximately $560 million.
And for the full year, we expect the total will be $2.15 billion.
So let me now turn to the full year.
The overall headline is that we're raising our top and bottom-line outlook.
On the top-line, we now expect organic sales growth of 5% compared to our prior target of 4% to 5%.
Through nine months, organic sales are up nearly 6% and we expect a solid fourth quarter.
On average, we expect slightly less headwinds from currency rates than previously anticipated.
In addition, we'll begin consolidating the Softex Indonesia business into our results on November 1 on a one-month lag.
All in all, we expect net sales will grow 2% to 3% this year.
That's one point better than our previous estimate.
On the bottom-line, our new outlook is for adjusted earnings per share of $7.50 to $7.65.
That represents year-on-year growth of 9% to 11%.
Our prior outlook was for adjusted earnings per share of $7.40 to $7.60.
The increase in our outlook is driven by improved top line, partially offset by higher incentive compensation expense and other manufacturing costs.
Overall, I'm encouraged that we're improving our near-term outlook and investing significantly in the business for longer-term growth.
I'll begin by reinforcing that we remain focused on three near-term priorities that we established since the outbreak of COVID-19.
First, we're focused on protecting the health and safety of our employees and our consumers.
Second, we're proactively managing our supply chain to ensure supply of our essential products.
And third, we're prudently managing the business through near-term volatility, while continuing to strengthen the long-term health of Kimberly Clark.
Our 40,000 employees continue to do heroic work in this COVID environment.
Our supply chain operations have remained online with strong productivity gains and fewer COVID-related disruptions over the last three months.
The environment is still dynamic and we're closely monitoring virus hotspots.
And thus far, our supply chain has been resilient and our teams have done a great job overcoming daily challenges.
Now turn to our results focusing on organic sales category conditions and our market shares.
As Maria mentioned, organic sales increased 3% in the quarter.
In North American consumer products, organics sales rose 8%.
Now within that Personal Care grew 6% driven by broad-based volume growth in baby and child care.
We improved our market shares on diapers, baby wipes, and in child care.
In late July, we launched Pull-Ups New Leaf training pants which features super-soft natural materials and is our most premium training pants.
This is another example of our elevate the core strategy and action.
And New Leaf is off to a very good start.
In North American consumer tissue, organic sales increased to 11% and that reflects strong demand due to the COVID-19 work from home environment and strong momentum on Kleenex facial tissue.
Bathroom tissue shipments benefited from our efforts to restore customer inventory levels.
In the fourth quarter, we expect more benefit from those efforts and from people continuing to spend more time at home.
Our market share performance in North American consumer products was strong in the third quarter; shares were upper even in six of eight categories.
Turning to K-C Professional North America, organic sales declined 15%.
Sales were down about 35% in washroom products.
And as you'd expect, the category has been significantly impacted.
There are fewer people working in offices and lower levels of business activity, including in travel and lodging.
Sales were a bit better in September, but we're planning for only a modest near-term improvement in the environment.
On the other hand, KCP sales were up double digits in wipers, safety and other products.
Our efforts to expand our face mask business by leveraging our superior non-wovens technology is off to a good start.
We're also expanding our wipers line-up with Scott 24-Hour, which delivers long-lasting surface protection from bacteria.
Moving to D&E markets, organic sales were up 2% that was driven by 7% growth in Personal Care.
In terms of key personal care markets, organic sales were up mid-teens in China, mid-single digits in both Latin America and Eastern Europe and strong double-digits in India.
Organic sales were down mid-single digits in ASEAN.
We also improved our market shares in many countries in the quarter.
And that includes Brazil, China, throughout Eastern Europe, India, and Peru.
While category conditions remain difficult in many D&E countries, government restrictions on social mobility and store operations have eased somewhat since the last quarter.
Finally, in developed markets, organic sales were up 3% driven by strong growth in consumer tissue.
Looking ahead, we're launching Kleenex Proactive Care in the UK and other markets in EMEA.
This lineup includes hand towels, anti-bacterial hand and face wipes, sanitizing gel, and face masks.
Now in terms of market share performance, we continue to make good progress.
We're on track to grow or maintain share in approximately 60% of the 80 category/country combinations that we track.
This is a result of higher investment levels, innovations, and strong in-market executions.
Our capabilities are driving our results and our investments are working hard for us.
Through nine months, I'm very encouraged with our performance, how we're navigating this environment and how our teams are taking care of each other and our customers.
Before closing, I'd like to comment on our recent acquisition of Softex.
This transaction is a strong strategic fit with our focus on accelerating growth in personal care in D&E markets.
Softex expands our presence in a high-growth market where we had limited exposure.
The diaper market in Indonesia is already the sixth largest in the world, and that's projected to nearly triple in size over the next decade.
Our Softex team has built a strong business with deep local market knowledge, excellent brands and market positions and strong profitability.
This transaction improves our underlying growth prospects, and we're looking forward to leveraging our combined strengths in innovation, marketing, and go-to-market.
In conclusion, we're managing through the COVID environment safely and effectively.
We remain optimistic about our opportunities to generate long-term growth and create shareholder value.
We're investing in our brands and improving our market positions.
We are raising our full-year outlook and are on track to achieve excellent financial results.
And we continue to operate our business with a balanced and sustainable approach as we execute K-C strategy 2022.
 Assistant:

Chosen response:
compname announces q3 adjusted earnings per share $1.72.
q3 adjusted earnings per share $1.72.
q3 sales $4.7 billion versus refinitiv ibes estimate of $4.59 billion.
sees fy 2020 adjusted earnings per share $7.50 to $7.65.
now targeting full-year 2020 organic net sales growth of 5 percent and adjusted earnings per share of $7.50 to $7.65.
q3 personal care segment sales of $2.3 billion increased 1 percent.
delivered solid organic sales growth in q3, with good underlying performance and increased demand because of covid-19.
q3 consumer tissue segment sales of $1.6 billion increased 9 percent.
qtrly consumer tissue segment sales of $1.6 billion increased 9 percent.
sees fy adjusted operating profit growth of 8 to 10 percent.
outlook continues to assume no significant impact from potential supply chain disruptions as a result of covid-19.
sees fy net sales increase of 2 to 3 percent.


Prompt:
Human: We will be referring to that slide deck throughout today's call.
I'm Kelly Boyer, Vice President of Investor Relations.
Joining me on the call today are Chris Rossi, President and Chief Executive Officer; and Damon Audia, Vice President and Chief Financial Officer.
And as such, involve a number of assumptions, risks and uncertainties that could cause the company's actual results, performance or achievements to differ materially from those expressed in or implied by such statements.
Risk factors and uncertainties are detailed in Kennametal's SEC filings.
In addition, we will be discussing non-GAAP financial measures on the call today.
Reconciliations to GAAP financial measures that we believe are most directly comparable can be found at the back of the slide deck and on our Form 8-K on our website.
I'll start today's call with some general comments on our strong results this quarter and some recent strategic wins as well as our expectations for Q2 and the full year.
We posted strong results this quarter by successfully executing our commercial and operational excellence initiatives as underlying demand continued to improve.
Our sales performance was in line with our expectations, increasing 19% organically year-over-year and outpacing our normal quarter-over-quarter seasonal trend.
Year-over-year, we experienced growth in all regions and end markets due to our strategic initiatives and improvement in underlying demand.
Within our end markets, the strongest performance was in general engineering, energy and aerospace, with aero returning to growth this quarter after eight quarters of decline.
Transportation increased as well with 14% growth year-over-year and outpaced the normal sequential decline.
That said, increasing production cuts due to chip shortages and other supply chain challenges limited transportation customer demand in the quarter.
Our strong operating leverage resulted in adjusted EBITDA margin improving significantly by 730 basis points to 18.6%, demonstrating the benefits of the investments we have made over the last few years.
Operating expense as a percentage of sales decreased year-over-year to 21% and sequentially was flat on lower sales.
Our target for operating expense remains at 20%.
Adjusted earnings per share improved significantly to $0.44 compared to $0.03 in the prior year quarter.
Free cash flow was approximately breakeven, which is significantly better than our typical Q1 use of cash.
As a reminder, cash flow in the first quarter of the fiscal year is affected by the payment of performance-based compensation.
We also began our recently announced share repurchase program, buying back $13 million of shares in the quarter, reflecting the high level of confidence we have in our growth and margin improvement initiatives and free cash flow generation.
Looking ahead, we believe the underlying market demand is strong.
However, some customers' production levels in the near-term are being affected to varying degrees by supply chain bottlenecks and other uncertainties.
For example, there's not yet been a notable improvement in the supply of semiconductor chips, which affects the metal cutting operations of our transportation and associated general engineering customers.
And although we do not expect the situation to get worse, we believe it is likely to continue to constrain customer production levels in Q2.
However, public comments for auto companies suggest the situation may start to improve in the second half of fiscal year 2022.
So, we expect revenue growth in transportation and associated general engineering to improve when our customers are able to increase production to meet the pent-up demand.
Another source of uncertainty is related to potential power disruptions in certain regions like China, where they are rationing power to varying degrees in some provinces, which could affect customer production levels.
Thus far, we've not seen a material effect on customer demand, but it is a source of uncertainty going forward.
Nevertheless, despite the production slowdowns related to the chip shortages and other uncertainties, we expect Q2 sales to be up 9% to 14% year-over-year and in line with the normal sequential growth pattern of 1% to 2%, which highlights the relative strength of our other end markets outside of transportation.
Now, as it relates to our own operations, inflation, supply chain bottlenecks and other uncertainties are presenting some challenges, but we believe to a far lesser extent than some of our customers and other manufacturers.
We're benefiting from our in-region/for-region local supply chain setup and inventory planning geared toward increasing on-time performance and availability levels.
And our proactive pricing approach, we believe, will continue to be effective in dealing with inflationary pressures.
So, as always, we'll continue to focus on what we can control.
And despite the existing market and supply chain uncertainties, we remain confident in driving strong underlying operating leverage for the full year.
We've always had world-class application engineering expertise and product innovation, and we continue to leverage these core strengths to win with customers.
In addition, the investments we've made over the last few years have improved quality and delivery performance, resulting in higher levels of customer service.
As you can see from the slide, our commercial excellence initiatives continue to deliver.
Through our innovation and leadership in machining electric vehicle components, we continue to win business with auto manufacturers as they add more hybrid and electric vehicles to their product portfolios.
Our focus on channel access and fit-for-purpose video brand tooling, we have seen success in displacing competitors at aero tier suppliers in Asia Pacific.
We continue to deliver innovative solutions for machining components and renewable energy equipment like wind turbines, where we provided a new drilling solution, improving productivity by 200% and extending tool life by 700%.
Finally, we continue to drive share gains through our focus on expanding our wear-resistant solutions to mining adjacencies like surface mine.
So, collectively, our product innovations and commercial and operational excellence are a winning value proposition, driving share gains and strong operating leverage.
I will begin on slide four with a review of Q1 operating results on both the reported and adjusted basis.
As Chris mentioned, we leverage our modernizes footprint to drive strong results this quarter.
Sales increased by 21% year-over-year and 19% on an organic basis with foreign currency contributing 2%.
On a sequential basis, sales declined only 6%, which is less than our normal Q4 to Q1 seasonal decline.
Adjusted gross profit margin increased 650 basis points to 33.5%.
Adjusted operating expense as a percentage of sales decreased 210 basis points year-over-year to 21.2%, approaching our target of 20%.
Adjusted EBITDA and operating margins were up significantly by 730 and 870 basis points, respectively.
The strong year-over-year margin performance was due to significantly higher volume and associated absorption as well as strong manufacturing performance, including some simplification/modernization carryover benefits.
Price and mix were also positive contributors.
These factors were partially offset by the removal of $15 million of temporary cost control actions taken in the prior year and a slight headwind from higher raw material costs beginning to flow through the P&L.
The adjusted effective tax rate in the quarter of 26.9% was lower year-over-year, primarily as a result of higher pre-tax income.
We reported GAAP earnings per share of $0.43 versus an earnings per share loss of $0.26 in the prior year period.
On an adjusted basis, earnings per share was $0.44 per share versus $0.03 in the prior year.
The main drivers of our improved adjusted earnings per share performance are highlighted on the bridge on slide five.
The effect of operations this quarter were $0.33, which included approximately $0.04 of simplification/modernization carryover benefits and the negative effect of approximately $0.12 from temporary cost control actions taken last year.
The factors contributing to a substantial improvement are the same as the drivers of our strong margin performance this quarter that I just reviewed.
Taxes and currency contributed $0.04 and $0.02, respectively.
Slide six and seven detail the performance of our segments this quarter.
Metal Cutting sales in the first quarter increased 19% organically year-over-year compared to a 23% decline in the prior year period.
A foreign currency benefit of 2% was partially offset by fewer business days, which amounted to 1%.
All regions posted year-over-year sales growth with the Americas leading at 22%, followed by EMEA at 21%.
Asia Pacific posted more modest growth at 7%, reflective of the timing of the economic recovery from the pandemic, reduced government subsidies for wind energy year-over-year as well as lower industrial activity, mainly in transportation.
Year-over-year, all end markets also posted gains this quarter with general engineering, leading with strong growth of 23%.
Aerospace grew 19% year-over-year and transportation, 14%.
Energy grew 1% year-over-year.
Adjusted operating margin increased substantially to 10.2%, a 920 basis point increase over the prior year quarter.
The increase was driven by higher volume, mix, favorable pricing versus raw material increases and manufacturing performance, including benefits from simplification/modernization carryover.
These were partially offset by temporary cost control actions taken in the prior year.
Turning to slide seven for Infrastructure.
Organic sales increased by 19% year-over-year compared to a decline of 18% in the prior year period.
A foreign currency benefit of 3% was partially offset by fewer business days of 1%.
Again, all regions were positive year-over-year, with the Americas leading at 28%, EMEA at 8% and Asia Pacific at 7%.
The strength in the Americas was driven mainly by the improvement in the U.S. oil and gas market as seen in the continued increase in the U.S. land only rig count.
By end market, energy was up 37% year-over-year and general engineering was up 23%.
Earthworks was also up 3%, but down sequentially, reflecting the typical seasonal decline we experienced in Q1 related to the traditional road construction season.
Adjusted operating margin improved by 760 basis points year-over-year to 14.1%.
This increase was driven by higher volume, favorable pricing exceeding raw material increases and manufacturing performance, including some simplification/modernization carryover benefits, partially offset by temporary cost control actions taken last year.
Now, turning to slide eight to review our balance sheet and free operating cash flow.
We continue to maintain a strong liquidity position, healthy balance sheet and debt maturity profile.
At quarter end, we had combined cash and revolver availability of $807 million and we're well within our financial covenants.
Primary working capital decreased year-over-year to $608 million and was effectively flat on a sequential basis.
On a percentage of sales basis, primary working capital was 32.1%, a decrease both year-over-year and sequentially.
Net capital expenditures were $17 million, a decrease of approximately $22 million from the prior year.
We continue to expect fiscal year '22 capital expenditures to be in the range of $110 million to $130 million.
Our first quarter free operating cash flow was negative $2 million, an improvement of $27 million from the prior year quarter, reflecting the strong sales and operating performance this quarter.
We also paid the dividend of $17 million in the quarter.
And finally, as Chris noted, we repurchased $13 million of shares during the quarter under our recently announced repurchase program.
The full balance sheet can be found on slide 14 in the appendix.
Starting with the second quarter, we currently expect sales to be up approximately 9% to 14% year-over-year and in the range of $480 million to $500 million.
As Chris mentioned, this implies sequential growth in line with our normal seasonality of around 1% to 2%, reflecting the challenges in the transportation end market and continued uncertainty in the general macro environment, offsetting strength in aerospace, energy and general engineering.
At the midpoint, we've assumed transportation sales to be approximately flat sequentially, given the continued production challenges our customers are dealing with due to the chip shortage.
Additionally, we do not expect disruptions due to supply chain or energy issues to worsen.
Lastly, given that we believe customers will continue to maintain their cautious behavior, we aren't forecasting meaningful restocking.
Adjusted operating income is expected to be a minimum of $46 million, implying continued strong operating leverage year-over-year, excluding $10 million of temporary cost actions taken last year.
Sequentially, higher raw material costs will begin to flow through the P&L as expected.
When coupled with the timing of annual merit increases and incremental D&A, the sequential increase in costs will be approximately $10 million.
Lastly, for Q2, we expect the adjusted effective tax rate to remain in the range of 25% to 28% and free operating cash flow to be positive.
Turning to slide 10 regarding the full year.
We believe the recovery is still underway, but the uncertainties we discuss make the pace and trajectory difficult to forecast.
That said, we expect sales in the second half to exceed normal sequential patterns, assuming that transportation starts to recover in Q3 and other market uncertainties do not worsen.
On that basis, as Chris mentioned, we expect year-over-year growth and strong operating leverage on an annual basis, excluding temporary cost control headwinds from the prior year.
In terms of the sequential cadence, we continue to expect operating leverage to be more favorable in the first half due to the timing of strong net price versus raw material benefits and simplification/modernization carryover benefits.
On a year-over-year basis, the second half will be affected by the above normal leverage we saw in the fourth quarter last year due to net price versus raw material benefits.
The second half will also be affected by other inflationary pressures.
Nevertheless, we remain committed to driving strong operating leverage for the full year.
The above average leverage in the first half and these effects in the second half serve as a reminder of the unevenness that can occur in year-over-year operating leverage comparisons from quarter-to-quarter.
This is why, as we've discussed, looking at leverage over a longer time frame, such as the full year, is more representative of the underlying performance of the business.
Moving on to other variables, they are essentially unchanged from last quarter.
This includes depreciation and amortization increasing $15 million to $20 million year-over-year to a range of $140 million to $145 million, capital expenditures to be in the range of $110 million to $130 million and working capital to trend toward our 30% goal by fiscal year-end.
Together, over the full year, these assumptions translate to free operating cash flow generation at approximately 100% of adjusted net income, in line with our long-term target, further demonstrating our progress transforming the company.
Turning to slide 11.
Let me take a few minutes to summarize.
We posted an excellent quarter and is demonstrated by our strong operating leverage, simplification/modernization investments are contributing to improved financial performance.
Furthermore, our product innovations and commercial and operational excellence initiatives have well positioned us to drive share gain and improve margins as markets continue to recover.
And although supply chain bottlenecks and other uncertainties are limiting visibility, we currently expect to exceed normal sequential quarterly growth patterns in the second half of fiscal year 2022 and are confident in driving strong full year operating leverage.
Strength of our balance sheet and free operating cash flow gives us the flexibility to both continue investing in our strategic initiatives and optimize capital allocation.
And I remain fully confident we will meet our adjusted EBITDA profitability target of 24% to 26% when sales reached the range of $2.5 billion to $2.6 billion.
 Assistant:

Chosen response:
q1 adjusted earnings per share $0.44.
q1 earnings per share $0.43.
q1 sales rose 21 percent to $484 million.
sees q2 sales up 9 to 14 percent.
q2 sales expected to be up 9 - 14 percent compared to prior year quarter.


Prompt:
Human: We will be referring to that slide deck throughout today's call.
I'm Kelly Boyer, Vice President of Investor Relations.
Joining me on the call today are Chris Rossi, President and Chief Executive Officer, and Damon Audia, Vice President and Chief Financial Officer.
These risk factors and uncertainties are detailed in Kennametal's SEC filings.
In addition, we will be discussing non-GAAP financial measures on the call today.
Reconciliations to GAAP financial measures that we believe are most directly comparable can be found at the back of the slide deck and on our Form 8-K on our website.
I'll start today's call with some general comments and a brief review of the quarter, and then discuss our expectations for Q3 and strategic initiatives.
These solid results were driven by improving sequential sales, reflecting both market improvement and growth from our strategic initiatives, as well as increasing benefits from simplification/modernization.
Sales this quarter increased sequentially by 10%, outpacing the 1% to 2% increase from Q1 to Q2 that we typically see.
Transportation and General Engineering end-markets, although still declining year-over-year, continued to show the highest levels of recovery.
As a reminder, those two end-markets totaled more than 65% of our sales.
Energy and Aerospace, as you know, continue to be challenged.
On a year-over-year basis, organic sales declined 14% on top of a 12% decline in the prior year.
However, through disciplined execution of our strategic initiatives and cost control actions, we were able to improve profitability despite the drop in volume and associated under-absorption.
Adjusted EBITDA margin improved by 160 basis points to 13% versus 11.4% in the prior year quarter.
The year-over-year improvement in EBITDA margin was driven by lower raw material costs, increasing benefits from simplification/modernization, and effective cost control actions.
Operating expense as a percentage of sales increased year-over-year to 22% due to lower sales, however, in dollar terms, decreased 9%.
Our target for operating expense remains at 20%.
Adjusted earnings per share of $0.16 was essentially flat versus $0.17 in the prior year quarter, reflecting the factors I just mentioned.
Looking ahead, visibility in this environment continues to be limited; however, there are some reasons for optimism, such as recent end-market momentum and some modest indications of restocking, as well as the early stages of the vaccine rollout.
Nevertheless, with possible additional shutdowns being contemplated in some regions due to recent spikes in COVID-19 cases, it remains difficult to forecast how end-markets and our customers will be affected.
Therefore, similar to the last couple of quarters, we will not be providing a full-year outlook for fiscal year '21.
However, I will provide some color on what we expect in the third quarter.
Based on monthly sales in Q2, early indications from our January sales and assuming that there are no additional significant COVID-19 related shutdowns in the quarter, we expect Q3 sales to see mid to high-single digit growth sequentially with part of the sequential sales growth coming from FX.
We expect the underlying organic growth, excluding the effect of FX, to be in the mid-single digits, which is modestly above our typical sequential growth pattern of 3% to 4%.
Regardless of the pace and trajectory of the recovery, we will continue to focus on the things we can control, such as executing our operational and commercial excellence initiatives to gain share and improve profitability levels throughout the economic cycle.
On the operational excellence side, simplification/modernization initiatives delivered $23 million this quarter, a 117% year-over-year increase and are on track to deliver approximately $80 million in benefits this year as expected.
As a reminder, we expect to complete our original footprint rationalization activities with the closure of the Johnson City, Tennessee plant, and downsizing the Essen, Germany plant, by the end of this fiscal year.
Total cumulative savings from inception of the program are expected to be $180 million by the end of this fiscal year, which is within the original target range we laid out in December 2017 and will be achieved despite much lower volume levels than originally planned.
This is a major accomplishment and sets us up well for the recovery.
Capital spending associated with simplification/modernization is essentially complete, and as such, will result in more normalized capex levels going forward.
Total capex is expected to be between $110 million and $130 million this year, a 50% reduction year-over-year.
Free operating cash flow was $29 million for the quarter, bringing the year-to-date figure to approximately breakeven.
This was excellent performance by the team as they remained focused on working capital without compromising customer service.
Based on the year-to-date performance and current second half outlook, we now expect positive free operating cash flow for the second half and total year, which Damon will go into more detail on.
As you recall, at the end of fiscal year '20, we announced two important changes as part of our commercial excellence strategy.
First, the combination of our two Metal Cutting business segments to better direct our commercial resources, products and technical expertise on capturing a larger share of wallet.
And second, repositioning the Widia brand and portfolio to address the multibillion-dollar fit-for-purpose application space within Metal Cutting that we had not previously focused on.
This approach opens up a 40% increase in served market opportunity while offering better service in tooling options for our customers.
Overall, progress on these initiatives is tracking with our expectations.
And I'm very encouraged by the wins we are seeing in fit-for-purpose applications as we roll the program out globally.
We presented this slide on the last earnings call and have updated the graphs to reflect this quarter's results.
As a reminder, the last time the Company experienced a sales decline close of the one we are currently experiencing was during The Great Recession in 2009.
Graph show trailing 12 month sales on the left and the corresponding adjusted operating margin on the right.
As you can see, we have been able to maintain significantly higher levels of profitability throughout this downturn.
And in this quarter, the 12 month profitability level is approximately the same, but on a much lower revenue.
This is due to the benefits of simplification/modernization that we have already captured combined with stronger and more timely cost control actions.
Two additional points to note.
First, the present day numbers do not yet include the full run rate effect of simplification/modernization.
We are anticipating an additional approximately $40 million in savings by the end of this fiscal year.
And secondly, we have not yet exited the downturn.
The previous downturn lasted about five quarters.
This downturn has already lasted seven quarters, and we are just now starting to see early signs of recovery.
In summary, I'm very encouraged by these results.
We have maintained higher profitability throughout this downturn and are well positioned to outperform as markets recover due to the initiatives we've executed over the last several years.
I will begin on Slide 4 with the review of Q2 operating results, both on a reported and an adjusted basis.
As Chris mentioned, the sequential performance of our sales outpaced our expectations and the typical seasonal pattern.
On a year-over-year basis, total sales declined 13% and 14% organically.
Foreign currency and business days each contribute approximately 1% and a business divestiture had a negative effect of 1% in the quarter.
Adjusted gross profit margin of 28.2% was up 140 basis points year-over-year.
Adjusted operating expenses of $98 million were down $10 million or 9% year-over-year.
Adjusted EBITDA margin of 13% was up 160 basis points from the previous year quarter.
Sequentially, despite rolling back many temporary cost control actions in the quarter, which should amounted to close to $10 million, our adjusted EBITDA margin improved by 170 basis points due to the improving market conditions and continued simplification/modernization savings.
Adjusted operating margin of 5.3% was up 50 basis points year-over-year and 240 basis points sequentially.
The improved year-over-year performance in our margin was primarily due to the positive effect of raw materials as expected, which contributed approximately 590 basis points, incremental simplification/modernization benefits, and temporary cost control actions, partially offset by lower volumes and associated under-absorption.
The adjusted effective tax rate in the quarter of 24.7% was lower year-over-year due to the effects of higher pre-tax income and geographical mix.
Our current expectation is for the adjusted effective tax rate for the fiscal year to be approximately 30%.
Longer-term, we continue to expect our adjusted effective tax rate to be in the low 20% range as profitability levels increase beyond fiscal year '21.
We reported a GAAP earnings per share of $0.23 versus an earnings per share loss of $0.07 in the prior year period.
On an adjusted basis, earnings per share was $0.16 per share versus $0.17 in the prior year.
The main drivers for our adjusted earnings per share performance are highlighted on the bridge on Slide 5.
Effective operations this quarter amounted to negative $0.20.
This compares positively to both the negative $0.62 in the prior year quarter and the negative $0.28 last quarter.
The largest factor contributing to the $0.20 was the effect of lower volumes and associated under-absorption, partially offset by positive raw materials of $0.25 and temporary cost control actions.
The negative effect of operations this quarter was basically offset by $0.19 or $23 million of benefits from simplification/modernization, a significant increase from $0.10 in the prior year quarter.
This brings the cumulative benefits of simplification/modernization to $145 million since inception.
As Chris mentioned, our expectation continues to be that simplification/modernization benefits for the total year will be approximately $80 million, driven by actions already taken or announced, bringing the total expected cumulative savings to $180 million by the end of fiscal year 2021.
Slide 6 and 7 detail the performance of our segments in this quarter.
Metal Cutting sales in the quarter declined 14% organically on top of a 10% decline in the prior year period.
All regions posted year-over-year sales decreases with the largest decline in the Americas at negative 20%, followed by EMEA at 12%, and Asia-Pacific at 6%.
Sequentially, however, we saw improvement across all regions.
The performance in Asia Pacific relative to other regions reflects more positive economic activity led by China, which was flat year-over-year and an improvement in India, which was down low-single digits.
From an end-market perspective, we experienced the best performance in Transportation and General Engineering, which declined 4% and 12%, respectively.
Energy declined 18% year-over-year with the declines in the oil and gas portion of the Energy end-market more than offsetting continued strength in renewable energy, mainly in Asia Pacific.
Aerospace continues to be our most challenged end-market with sales down 43% in Q2 as COVID-19 continues to affect production levels and air travel.
Sequentially, the increase in Metal Cutting was mainly driven by the Transportation and associated General Engineering end-markets.
Adjusted operating margin of 6.1% was down 280 basis points year-over-year, but well above the 1% we experienced in the first quarter.
Year-over-year decrease was primarily driven by a decline in volume and mix, partially offset by incremental simplification/modernization benefits, temporary cost control actions, and raw materials that contributed 230 basis points.
Turning to Slide 7 for Infrastructure.
Organic sales declined 14% on top of a 14% decline in the prior year period.
Other factors affecting Infrastructure sales were divestiture of 1%, partially offset by a benefit from business days of 1% and FX of 1%.
Regionally, again, the largest decline was in the Americas at 18%, then EMEA at 12%, followed by 1% growth in Asia Pacific.
By end-market, the results were primarily driven by Energy, which declined 24% year-over-year, due mainly to the roughly 60% decline in the US land only rig count.
Sequentially, our sales in the Energy end-market improved as customers increased their orders with the increasing rig count.
Earthworks was down 10% year-over-year driven by underground mining and construction weakness in the US.
General Engineering was down 7% year-over-year, an improvement from the 14% decline we experienced in Q1.
Adjusted operating margin of 4.4% was up 620 basis points year-over-year.
This increase was mainly driven by favorable raw materials, which contributed 1,230 basis points as expected, simplification/modernization benefits, and temporary cost control actions, partially offset by lower volumes and associated under-absorption.
Our expectation is that raw materials will be neutral year-over-year for Q3 and Q4 given the tungsten prices have been relatively stable for around six quarters.
Now turning to Slide 8 to review our balance sheet and free operating cash flow.
We continue to believe that maintaining a conservative financial profile is appropriate to ensure the Company has ample liquidity, particularly in this environment, as well as the ability to continue to execute on our strategy.
Our current debt profile is made up of two $300 million notes, maturing in February of 2022 and June of 2028, as well as the US $700 million revolver that matures in June of 2023.
At quarter end, we had $25 million outstanding on the revolver with combined cash and revolver availability of approximately $780 million and we were well within our financial covenants.
Primary working capital decreased year-over-year to $638 million, given our continued focus on inventory.
On a percentage of sales basis, primary working capital increased to 37.3% as sales remained depressed.
Our target primary working capital to sales ratio remains 30%.
Capital expenditures were $29 million, a decrease of $46 million from the prior year as expected, as our capital spending on simplification/modernization is substantially complete.
Year-to-date, we have spent $69 million and continue to expect capital expenditures for the year to be in the range of $110 million to $130 million.
Free operating cash flow for the quarter improved year-over-year to $29 million.
Sequentially, free operating cash flow also improved due to lower capex and stronger profitability.
Year-to-date, our free operating cash flow is approximately breakeven and $59 million more favorable compared to last year.
Consistent with prior quarters, we paid the dividend of $17 million.
The full balance sheet can be found on Slide 13 in the appendix.
As a reminder, this slide details how we expect key factors to affect earnings per share and free operating cash flow.
The slide has been updated to show how these factors will affect the second half on a year-over-year basis and highlights meaningful sequential differences where appropriate.
Starting with simplification/modernization, as we already mentioned, we expect to achieve benefits of approximately $80 million in FY '21, which implies around $40 million of incremental year-over-year savings in the second half.
Temporary cost control actions, unlike in the first half, will be a significant year-over-year headwind of $50 million to $55 million, with $40 million to $45 million in the fourth quarter.
These headwinds are reflective of the aggressive cost control actions implemented last year that are not expected to repeat this year.
Given the phase out of cost control actions in the second quarter, Q3 will face a sequential headwind of approximately $10 million relative to Q2.
Due to the significant level of temporary cost control actions in place last year in the second half, year-over-year leverage will be distorted and not accurately reflect the underlying improved operational performance.
Based on current material prices, particularly tungsten, we do not expect raw materials to have a material effect either year-over-year or sequentially in the second half.
Although depreciation and amortization were only modestly higher year-over-year in the first half, we still expect them to be approximately $10 million higher for the full year as new equipment comes online.
Lastly, for the earnings per share drivers, we have lowered our adjusted effective tax rate expectations for fiscal year '21 to approximately 30% from our previous estimate of 33%, which was also the effective tax rate last year.
This improvement is reflective of the higher pre-tax income and geographical mix.
In terms of free operating cash flow drivers, as Chris and I already mentioned, capital spending for the year is expected to be in the range of $110 million to $130 million.
This implies lower capex both year-over-year and sequentially in the second half.
We expect cash restructuring to be slightly higher both year-over-year and sequentially in the second half.
And we now expect the full year cash restructuring to be higher by $20 million to $25 million versus the approximate $40 million spent in FY '20.
This represents a modest decrease versus our original expectation.
Given our strong inventory reductions year-to-date and continued improving market conditions, we now expect working capital to be a modest use of cash in the second half.
With our focus on working capital, combined with improved market conditions, we now expect free operating cash flow to be positive in the second half and the full year.
Finally, as it relates to Q3, as Chris mentioned, we expect sales to be up mid to high-single digit sequentially with part of the sequential sales growth coming from FX.
We expect the underlying organic growth, excluding the effect of FX, to be in this mid-single digits and above our typical sequential growth pattern of 3% to 4%.
Turning to Slide 10, let me take a few minutes to summarize.
I'm encouraged by our results this quarter despite the ongoing challenges in our end-markets.
Our commercial excellence initiatives are progressing well to drive growth and market share gain, and our operational excellence initiatives are on track with simplification/modernization nearing completion.
The strength of our balance sheet and cash flow allows us to continue to optimize capital allocation, while further improving profitability and customer service throughout the economic cycle.
 Assistant:

Chosen response:
compname reports q2 earnings per share $0.23.
q2 earnings per share $0.23.
will not be providing an fy21 outlook at this time, outside of capital spending, which is unchanged.


Prompt:
Human: I'm Quynh McGuire, Vice President of Investor Relations.
You may access this announcement via our website at www.
As indicated in our announcement, we've also posted materials to the Investor Relations page of our website that will be referenced in today's call.
References may also be made today to certain non-GAAP financial measures.
Joining me for our call today are Leroy Ball, President and CEO of Koppers; and Mike Zugay, Chief Financial Officer.
I'll now turn over this discussion to Leroy.
As the pandemic continues, I hope that you and those you care about remain safe and healthy.
And I'd also like to wish all of you a happy healthy and prosperous 2021.
Our next call will be on February 24th, to report final 2020 results and provide our view into 2021 at that time.
As the starting point for today is shown on Slide 4, Koppers has continued to retain its designation as an essential business as determined by the U.S. Cybersecurity and Infrastructure Security Agency or CISA within the Department of Homeland Security.
I mean, we've been able to continue operating during the pandemic to transport critical goods, provide power and connectivity to homes and businesses, and keep our infrastructure running reliably.
We at Koppers, take great pride in carrying out this critical responsibility.
In many ways, last year, seemed like a whirlwind of activity as we work to adapt to the many changes brought on by the pandemic while serving our essential customer base with critical products and services.
Through a different lens, there were also periods where it seems the time stood still as many team members adjusted to the different stress points of working virtually.
Collectively, we're all happy to move past 2020 and step closer to seeing return to our new normal.
Same time there is a lot to look back on fondly, as it relates to Koppers' performance last year, and I'd be remiss if I didn't point out some of the highlights.
So let's move to Slide 6.
As I usually do, I'd like to start with an update on a number of achievements related to our Zero Harm culture.
I'm proud to announce that operationally, we finished 2020 with our lowest total recordable rate for any 12-month period in our company's history.
We have been successfully holding firm and emphasizing the importance of leading activities such as hazard identification to driving down exposure in injury rates.
Throughout 2020, we saw a 30% increase in leading activities and a corresponding 20% decrease in recordable cases, which is quite significant.
In November, we held a modified virtual version of our Leadership Forum with key team members worldwide who are responsible for the care and well-being of our team members.
Koppers' primary focus was on aligning the expectations of leadership at Koppers to ensure we are working toward a safer, stronger, and more inclusive workplace.
In December, we held our annual safety, health, and environmental coordinator conference also virtually, providing interactive training on best practices to reduce harm to the environment and better protect our people.
Despite what has been a chaotic year due to the unexpected challenges associated with COVID-19, these accomplishments prove that our team is not slowing down our efforts to ensure safety, but rather figuring out new and innovative ways to keep us pushing down the path to zero.
On the financial side of things, we also expect to finish the year on a positive note in spite of much in our world being turned on its head.
Our consolidated sales for the year at $1.67 billion represents a new high in the fourth consecutive year of growth when we exclude KJCC from prior results.
Now, while not yet final, we do expect to finish the year with a new high for operating profit of approximately $161 million, which would represent a 28% increase from 2019.
2020 will also represent a new-high watermark for adjusted EBITDA excluding KJCC as we expect to finish between $211 million and $212 million.
Now this compares to $201 million earned in 2019 and exceeds both our recent guidance range of $204 million to $210 million and even more incredibly exceeds our original pre-pandemic guidance for the year of $200 million to $210 million of EBITDA.
That level of EBITDA equates to a margin of 12.6% to 12.7%, which will be our highest margin since 2017.
It will also be the fifth straight year with adjusted EBITDA margins between 12% and 14% after seven straight years with margins hovering between 8% and 11%, just another indication of how we have truly transformed our business model.
For the year, we expect adjusted earnings per share to be between $4.10 and $4.20 per share, which again would represent a new high for Koppers beating our previous high of $3.68 per share back in 2017.
2020's expected result would represent an approximate 30% increase over 2019 adjusted earnings per share of $3.18.
Finally, we will have saved approximately $9.5 million in SG&A cost compared to 2019.
That's about $2.5 million shy of our original goal of $12 million, which was primarily due to our better-than-expected performance resulting in higher bonus accruals, and special bonuses paid out to our team members at year-end for their extraordinary efforts in extraordinary times.
Our balance sheet and cash flow perspective is outlined on Slide 7.
In addition to receiving $65 million of net proceeds from selling our KJCC coal tar distillation facility in China at the end of September, we also had one of our strongest cash flow years generating over $120 million of cash, which will go down as our second-best cash flow year ever.
Now, doing so enabled us to reduce net debt by $131.5 million, which represents our largest net-debt reduction in any given year in our public company history.
Finally, the combination of the higher EBITDA generation and strong-debt reduction allowed us to reduce our net leverage ratio to 3.5 as of year-end compared to 4.3 at the end of 2019.
This is the first year-end since 2017 that we finished the year with net leverage below 4 times as we continue to remain focused on reducing leverage to average between 2 and 3 times.
We spent just under $70 million of capital for the year, which was near the high-end of our most recent guidance and was primarily due to the treatment expansion project North Little Rock.
On a final note, the book value per share of our equity has never been higher as we finish out 2020.
It was truly an extraordinary year for Koppers in 2020.
We look forward to providing more insight into what we expect in 2021 on our February call coming up in less than a month.
Until then, I'll update you briefly on a number of other things going on at Koppers before handing it over to Mike to review the quarterly results in more details.
Moving to Slide 9, currently, we have 20 employees or about 1% of our total employee population self-quarantining for the coronavirus.
To date, we have had 232 employees worldwide, or 11%, who'd have tested positive.
And on a cumulative basis, we've seen close to 2,000 occurrences of employees testing positive or having -- of employee testing positive or quarantining, many of them more than once.
Consistent with national worldwide trends, we have seen an increase in cases throughout the last quarter and early part of 2021.
And while we continually reinforce the importance of practicing safe behaviors and are diligent in ensuring the proper safety measures like thoroughly cleaning and disinfecting any affected areas, the virus has proven to be a formidable obstacle to overcome in our operating environment.
Face coverings are required at all North American facilities and we provided these to our employees.
Our strict protocols governing personal protection into processes such as social distancing and diligent hygiene have also continued and includes using rapid self-administered saliva testing kits at our locations in North America.
We also recently began using a pool-testing method to screen all U.S.-based plant employees on a periodic basis as that is the employee base where 99% of our infections have come from.
In the screenings done to date, we've identified multiple asymptomatic employees and we're able to mitigate the potential spread of infection at those plants by keeping the virus outside of our fence lines.
Given the importance of effectively addressing COVID, Koppers has established a new life-saving role that's designed to raise awareness of infection hazards, bind more discipline to our routines and identify job tasks that have higher risk.
For the higher-risk job tasks, we'll require more stringent standards of respiratory protection which include N95 masks and advanced level respirators.
Regarding our communications efforts, we began holding our quarterly all-employee meeting in three time zones to better accommodate our employees in the U.S. and Europe, and in Australia, New Zealand.
The new format has encouraged discussion of topics most relevant to each geographic region.
Beyond that, we continue to hold virtual chat with employees in our plants and those working remotely, and also I continue to provide updates and encouragement to our employees worldwide through weekly videos, which were also posted on Koppers' Facebook and LinkedIn pages.
Looking at our operations continuity on Slide 11, we see that all worldwide Koppers manufacturing facilities remain operational with no furloughs or layoffs.
Travel continues to be restricted to essential business only.
We continue to carefully evaluate potentially holding a limited number of in-person facility visits, but only if necessary in order to reinforce health and safety goals.
Our office employees are strongly encouraged to keep working remotely with a return to the office postponed until April 1st of '21 at the earliest.
Now, of course, anyone working on site is required to follow all face-covering and other COVID-prevention protocols.
And on the vaccines front, we do not plan to require employees to be vaccinated to enter our facilities but we are strongly encouraging it to the extent that we plan to offer financial incentives through our employee-wellness program to those that supply proof of their vaccination.
Getting as many of our employees through the vaccination process is the quickest way for us to move forward without the specter of COVID-19 and its effects hanging over us.
Now, as another example of technology enabling us to run our business even better, we recently implemented a fleet safety dashboard in order to improve the safety and efficiency of our trucking operations.
Also, we're deploying new visitor management system at our facilities to help with keeping our employees and visitor safe.
We also continue to leverage every available technology to conduct meetings, make virtual facility visits, conduct virtual training programs, and conduct virtual ISO audits.
Slide 13 illustrates our continuing efforts to engage employees in meaningful ways.
Three of our female members of Koppers' leadership council were featured in the first installment of an empowerment series for employees, which was held virtually in the fourth quarter.
As we hired our Chief Sustainability Officer, Stephanie Apostolou, our General Counsel and Corporate Secretary, and Quynh McGuire, our Vice President of Investor Relations participated in a panel discussion that covered topics such as carving their path to success, discovering their individual leadership styles, building their support networks, and managing their work-life balance.
Hosted by LINKwomen, one of our employee resource groups, the event was well attended and will serve as a model for similar programs to be held in the future.
In the fourth quarter, we launched our annual global employee engagement survey, which gives everyone the chance to provide me and our leadership team with open, honest, and confidential feedback about what it's like to work at Koppers and how we can further enhance the employee experience.
We've been parsing through the results, and we'll shortly be implementing certain changes to better address areas where we fall short.
It remains a core commitment to create positive change based on employee input.
We strive to differentiate Koppers as an employer of choice and to use that as a competitive advantage in an environment where talent is at a premium.
Slide 15 shows two tangible examples of our employees caring for the environment.
During our 2019 safety, health, and environmental conference, participants traveled to our Newsoms, Virginia facility to create floating wetlands or man-made rafts that float on the water surface and house native wetland plants, providing homes to beneficial water cleaning microorganisms.
A year later, our team checked in during the fourth quarter of 2020, and the wetlands are growing well to successfully do their job.
Our facility in Stickney, Illinois, employees recently planted hardwood to enhance soil quality and create a more attractive green space for the community at a neighboring terminal, where we began a phytoremediation project in 2019.
Photos show the new hardwoods, along with the growth of many other plants since the start of the project.
Going to Slide 17, here are some of the examples of how Koppers' teams are serving our neighbors.
For the fifth year, Koppers Railroad Structures participated in the Leukemia & Lymphoma Society's virtual Light The Night event in Madison, Wisconsin, bringing its cumulative impact to more than $91,000 in donations.
Additionally, Vice President of Railroad Structures, Mike Tweet, a bone marrow recipient, has worked with the University of Wisconsin in Madison to support Be The Match, which brings donors and recipients together.
Our utility and industrial products group continued with deploying its storm response teams in August, restoring power to 25 million utility customers affected by devastating winds sweeping across Iowa.
In November, our UIP team again implemented its 24/7 storm recovery program to help those in Georgia, affected by Hurricane Zeta.
At roughly the same time, our UIP crews also responded to a major ice storm in Oklahoma, supplying more than 3,500 poles and crossties to aid in post-storm recovery.
The feedback that we've received from key municipal and utility customers has been uniformly positive and highly appreciative.
Over the holidays, at year-end, Koppers' employees across our worldwide footprint continue making a difference by reaching out to those in need, as shown on Slide 18.
Those at our Ashcroft, British Columbia facility donated 600 pounds of food to the Ashcroft community food bank, 150 pounds of household items to The Equality Project, and funds to the Jackson House Assisted Living facility.
Our Rock Hill employees donated more than 300 pounds of canned goods to their local food pantry and supported the local Toys for Tots campaign.
And at our Queen City facility, employees donated gently used clothing to a local shelter as part of clean out your closets for the homeless.
Our people and our company have been making headlines over the past quarter, as seen on Slide 20.
In November, our Performance Chemicals business purchased land adjacent to its plant in Rock Hill, South Carolina to be used for future expansion.
The announcement led to local Rock Hill Herald to write a feature on plant manager, Ida Luchey, about the expansion in her career as one of the few female chemical manufacturing plant managers in the industry.
Also, I'm proud to say that Koppers was recently named the Newsweek Magazine's listing of America's Most Responsible Companies for 2021, placing among the top half, number 179 of 400 companies selected and ranking 30th overall in the social category, which scored us on items, including Board diversity, employee engagement, and community giving.
Newsweek and Statista compiled the list based on a rigorous vetting process.
This recognition stands as a testament to the incredible work that our employees have done to exemplify our sustainability mindset and our Zero Harm culture of putting the care of people, environment, and communities first, while providing safe and responsible solutions to our customers.
This financial discussion is based on these preliminary results.
On Slide 22, consolidated sales were $393 million, an increase of $11 million from sales of $382 million in the prior-year quarter.
Sales for RUPS were $168 million, flat as compared to the prior-year quarter.
PC sales rose to $130 million from $105 million, and CM&C sales came in at $95 million, down from $108 million.
On Slide 23, adjusted EBITDA for RUPS was $10 million, which was the same as the prior year.
EBITDA for PC increased to $23 million from $14 million.
CMC EBITDA was $14 million compared with the prior year of $16 million.
Moving on to Slide 24, sales for RUPS were $168 million, relatively flat again year-over-year.
This was primarily due to lower crosstie volumes, offset by higher utility pole demand in the U.S. as well as Australia.
We also saw increased maintenance-of-way projects in the United States.
On Slide 25, adjusted EBITDA for RUPS was $10 million, also flat for the -- from the prior-year quarter, but which is in line, however, with the expected year-end slowdown in crosstie treating demand.
This is reflect -- this reflects our ability to main profitability due to increased pole demand and favorable conditions in our maintenance-of-way businesses.
Sales for the PC segment, as shown on Slide 26, were $130 million compared to sales of $105 million in the prior year.
This reflects continued strong demand for copper-based preservatives in the U.S., also driven by a strong housing market and higher demand in home remodeling and the increased use of discretionary funds for home improvement projects.
Overseas, reopening markets also helped PC sales through increased industrial and agricultural demand.
Adjusted EBITDA for PC on Slide 27 was $23 million compared with $14 million in the prior-year quarter.
Higher sales volumes, a favorable product mix, and better absorption on higher production volumes all contributed to these positive results.
Moving on to Slide 28, as this shows CM&C sales at $95 million compared to sales of $108 million in the prior-year quarter.
Sales were lower in every region, except Europe, but were in line with overall expectations.
The pandemic has meant lower average oil prices and a general market slowdown, which translates into lower pricing for carbon pitch globally and weaker U.S. demand for phthalic anhydride, which was partially offset by improved demand for carbon pitch in Europe and for carbon black feedstock in Australia.
On Slide 29, adjusted EBITDA for CM&C was $14 million compared to $16 million in the prior-year quarter, reflecting an expected decline due to the ongoing weak-end market demand.
However, Q4 performance reflects continued margin recovery, year-to-date adjusted EBITDA margins were only 7.5% at June 30th but as we predicted CM&C margins rebounded strongly in the second half of the year and year-to-date margins for the full year increased to 11.7%, reflecting a very, very strong second half of 2020.
Now let's review our debt and liquidity.
As seen on Slide 31, at the end of December, we had $737 million of net debt, with $346 million in available liquidity.
We reduced net debt by $131.5 million in 2020, which included the proceeds received from the KJCC divestiture.
We also remain in compliance with all debt covenants and do not have any significant debt maturities until 2024, when our revolver matures.
As of December 31, 2020, total debt was at $784 million.
In summary, I'm proud to say that every indication shows that Koppers will meet or exceed all major goals that we had set for 2020 prior to the pandemic.
Due to all the hard work and dedication of our global workforce, we are on track to achieve a new high of profitability post KJCC to surpass the high-end of our initial 2020 earnings target, to exceed our original net-debt reduction objective of $120 million, and to reduce our net leverage to 3.5, below our pre-pandemic 2020 goal of 3.6 to 3.8.
These 2020 achievements are all the more impressive given that our people had to deal with the pandemic and all that came with it and yet they dug deep and persevered.
More than ever, we're confident that placing people first leads to a stronger commitment to our customers, which in turn leads to success in all aspects of our business.
Even with everything that was going on in 2020, we improved our underlying safety rates to an all-time best performance, initiated our sustainability journey, strengthened our inclusion and diversity focus, and supported our team members and communities during a shared crisis.
Taken together, it makes for a truly historical year.
We are also on a curveball in 2020 but faced with such an unusual an unanticipated set of circumstances, at Koppers, we're still able to deliver strong performance while also working on pushing forward several initiatives focused on the future growth and success of the business in 2021 and beyond, which I look forward to sharing with you in a month's time.
With that, I'd like to open it up for any questions.
 Assistant:

Chosen response:
expects to invest $105 million to $115 million in capital expenditures in 2021.
in 2021, koppers plans to reduce debt by approximately $30 million.


Prompt:
Human: At the outset, I need to say that some of the information we will be discussing is forward looking in nature.
John will start the call with an update on our market conditions and review our operational and strategic activities.
I will discuss third quarter financial results and provide you with updated earnings guidance for 2021.
I'll start with some macroeconomic comments before getting into our leasing and capital allocation.
It's been just over 1.5 years since the pandemic began, and we are really starting to see the revitalization of cities across the West Coast.
City drillers are returning to their urban apartments and once again embracing city life.
After a tough 2020, residential net absorption is approaching 100,000 units in our five markets driven in large part by high density areas like Hollywood, South of Market, Downtown Seattle and Downtown Austin.
Restaurants, bars, coffeehouses are full, concerts and sporting events have returned and slowly but surely, more companies are coming back to the office.
The recent easing of the San Francisco mask mandate is another step in the right direction that we believe will continue to encourage more infers and gatherings and collaborations.
The technology and life science companies that make up so much of our portfolio continue to thrive.
Stock prices are near all time highs and VC fundraising is on track for a record year, which is translating into a war for talent, growth in job postings and additional real estate procurement.
Improving market conditions helped to drive a strong and productive leasing quarter for Kilroy.
We signed more leases in the third quarter than the first two quarters of 2021 combined.
Since the second quarter, we have signed just under 600,000 square feet of development, new and renewal leases.
For the 510,000 square feet in the stabilized portfolio that were signed, GAAP rents were up on average 26% and cash rents were up 14%.
Additionally, we have a number of leases under documentation.
And in Austin, we're very encouraged with the market and our early stage lease negotiations.
A few facts according to recent reports about Austin, there are 185 people moving to Austin on average each day, and interest among companies wanting to move to Austin and those that want to expand in Austin is above pre-pandemic levels.
Let's look at some of these transactions.
In the office sector, we signed a long-term 71,000 square foot lease in the UTC submarket of San Diego.
The lease is for a new development projects, which we commenced construction on just last month.
So now it's 100% leased just a month after starting construction.
The competition between technology tenants and life science tenants remains healthy.
Both sectors continue to grow and seek more modern, efficient work environments.
In life science, the third quarter was particularly active for us.
We signed three leases totaling 330,000 square feet of headquarters space with publicly traded companies in San Diego, including Tandem Diabetes Care, DermTech and Sorrento Therapeutics.
The mark to market rent increases on these three leases were approximately 45%, with an average term of approximately 12 years.
In residential, we now have fully leased all 608 units in our One Paseo project at rent levels that have increased 25% since the beginning of the year.
Jardine, our Hollywood luxury tower that was completed last quarter is now more than 60% leased, well ahead of projections.
With respect to leasing, I'd like to highlight the following trends, which we feel bode well for the future of our enterprise.
Sentiment among corporate real estate executives is more positive than it has been in the past 18 months.
We're experiencing significantly more tours and requests for proposals within our portfolio.
This is both for existing and development projects, rental rates and strategically located modern buildings are on the rise as the result of tenants seeking the best space in the market.
Vibrant and distinctive office, curated retail and residential experiences are drawing a talented labor force back to metropolitan areas.
Moving to our capital allocation activities.
We made two significant announcements during the quarter.
First, in September, we completed the off-market acquisition of West 8th in the Denny Regrade submarket of Seattle for $490 million.
West 8th is a 539,000 square foot lead platinum office tower situated on a full city block just steps from Amazon's five million square foot headquarters campus.
We like the opportunity for a number of reasons.
The location is terrific with unmatched transit access and proximity to numerous retail amenities, rents continue to increase in this submarket, and we see significant rental upside.
And given the quality and condition of the building, we expect limited capital investment in any releasing scenario.
year to date, this brings our total acquisitions to $1.2 billion, which have been funded by our $1.1 billion dispositions.
The second announcement relates to our continued allocation of capital to our life science platform.
Earlier this year, we commenced construction on the second phase of our approximately 50 acre, three million square foot Oyster Point project, which is a life science campus in South San Francisco.
KOP 2, which totals just under 900,000 square feet across three buildings will be a home to numerous amenities that will serve all phases.
We are particularly excited about phase two, given the strong demand, rising rental rates and timing.
No other competitive project will be delivering in this time frame.
We are in early discussions with multiple prospective tenants interested in securing major portions of the project and expect even more interest in the buildings once construction goes vertical in the first quarter of next year.
In addition to KOP, we are expanding our San Diego life science significantly.
Availability for top-tier space in the region's most sought after life science submarkets is essentially nonexistent.
Barriers to entry are high and rental rates are at historic levels.
And we are capitalizing on these dynamics in Del Mar, UTC and the I-56 corridor, where we have modern, highly convertible assets and a land pipeline.
In the UTC and Del Mar submarkets, as I noted in my earlier remarks, we signed 330,000 square feet of pre-leases across three buildings, which will be converted to life science use.
And just a few miles east on the 56 corridor, we expect to commence construction next year on the first of two phases of our Santa Fe Summit project.
Each phase consists of approximately 300,000 square feet.
To summarize, we will deliver 2.5 million square feet of state of the art life science facilities over the next 30 months.
And over time, the three future phases of Kilroy Oyster Point will expand our life science portfolio by another 1.5 million to two million square feet.
When completed, we have assembled a best in class life science portfolio in the strongest locations, which will total 5.5 million square feet with an average age under five years.
With full buildout, life science and healthcare tenants will be 25% to 30% of our NOI.
Lastly, delivering our in-process development and positioning our future development projects remain a high priority in our capital allocation strategy.
We have $2.6 billion of in-process projects on track for completion over the next two years.
This pipeline is 52% leased and 74% leased when excluding the just commenced KOP 2, which we started five months ago.
They will generate approximately $170 million in incremental cash NOI when stabilized, which will grow our current annual NOI by more than 20%, all else being equal.
The cost is fully funded through the year end 2022.
I'll wrap up with a few final observations.
In nearly every conversation we were having these days with our tenants and potential tenants, one big theme emerges, companies want a work environment that attracts, excites and motivates their workforce.
They want location, scale, a contemporary design, a healthy environment and relaxed ambience that will draw people in and support their creativity and productivity.
This is the most profound impact the pandemic has had on the office sector, and we think KRC is well positioned to capitalize on these conditions.
Over the last 10 years, we created the youngest best in class platforms across office, life science and residential and we are poised to deliver strong growth and value creation over the coming decade.
We're more encouraged every day about our market's recoveries.
The reopening is going to happen in fits and starts, but it is happening.
And a final comment on sustainability.
In GRESB rankings, we have been named number one in sustainability across all publicly traded companies across all asset classes in the Americas for the eighth year running.
That completes my remarks.
FFO was $0.98 per share in the third quarter.
Quarter over quarter, the $0.10 increase was largely driven by the acquisitions to date, NOI contribution from our One Paseo office and our residential projects as well as $0.015 of lease termination fees.
On a year over year basis, as a reminder, the sale of the exchange had an impact of approximately $0.13 of FFO per share.
On a same store basis, third quarter cash NOI was up 16.6%, reflecting strong rent growth and a $17 million cash termination payment.
GAAP same store NOI was up 3.2%.
This termination payment is related to the new 12 year lease we executed at 12400 High Bluff for 182,000 square feet of space.
On an earnings basis, approximately $7 million, which is a net amount after lease write offs, will be amortized over the next three years.
$700,000 of it was included in the third quarter.
Adjusted for termination payments, same store cash NOI was 3.7% and same store GAAP NOI was up 2.2%.
At the end of the third quarter, our stabilized portfolio was 91.5% occupied and 93.9% leased.
Third quarter occupancy was down 30 basis points from the prior quarter, driven by approximately 90,000 square feet of move outs, offset by the West 8th acquisition and the Cytokinetics lease at KOP 1, which was added to the stabilized portfolio at the end of the quarter.
Revenue recognition for 100% of this 235,000 square foot building commenced October first.
Turning to the balance sheet.
After funding the West 8th acquisition for $490 million, issuing $450 million of green bonds, which closed October seven and the redemption of $300 million of 3.8% bonds, which was completed earlier in the week, our liquidity today stands at approximately $1.5 billion, including $390 million in cash and full availability of the $1.1 billion under the revolver.
We have no material debt maturities until December 2024.
Our net debt to Q3 annualized EBITDA was 6.7 times, pro forma for the bond activities noted above, which should decline as we continue to deliver our lease development projects, all else being equal.
Lastly, our expirations over the next five years remain modest with an annual average expiration of 7.2%, excluding any impact from DIRECTV.
We do not have an update to provide on the DIRECTV matter at this time.
In 2022, we only have one lease expiration greater than 100,000 square feet in San Diego.
This tenant is likely to, this tenant is expected to vacate in early 2022.
To begin, let me remind you that we approach our near term performance forecasting with a high degree of caution, given all the uncertainties in today's economy.
Our current guidance reflects information and market intelligence as we know it today.
Any COVID-related restrictions or significant shifts in the economy, our markets, tenant demand, construction costs and new supply going forward could have a meaningful impact on our results in ways not currently reflected in our analysis.
Projected revenue recognition dates are subject to several factors that we can't control, including the timing of tenant occupancies.
With those caveats, our assumptions for 2021 are as follows.
Cap interest is expected to be approximately $80 million.
Same store cash NOI growth is expected to be between 5% and 5.5% for the year.
We expect year end occupancy of approximately, sorry, of approximately 91.5% for the office portfolio and north of 80% for residential.
Our guidance does not assume a material increase in transient parking.
But as we've noted on prior calls, we expect to pick up $1 million a month when we get back to pre-COVID levels.
With respect to the three San Diego life science transactions, we will be adding them to the redevelopment portfolio and capping interest in phases as follows.
On average, we are modeling six to nine months of redevelopment, which are estimates based on what we know today and could be impacted by a variety of factors, including tenant modifications.
At 12340 El Camino Real, which is 100% leased to DermTech, we expect to add this 96,000 square foot building to the redevelopment pipeline this quarter.
At 12400 High Bluff, which is approximately 85% leased to Tandem Diabetes, we expect to add 75% of this 182,000 square foot lease to the redevelopment pipeline in late 1Q next year.
At 4690 Executive Drive, which is 100% leased to Sorrento Therapeutics, we expect to add this 52,000 square foot lease to the redevelopment pipeline in two phases, half in late 1Q next year and the remainder in early 2023.
We do not have any additional acquisitions in our forecast.
Taking into account all these assumptions, we project 2021 FFO per share to range between $3.74 to $3.80 with a midpoint of $3.77.
This updated midpoint is the same as our prior guidance, even after including the debt redemption costs of $0.115 in the fourth quarter.
This is largely driven by the acquisition of West 8th, which contributed $0.06 to our results and earlier revenue recognition of Cytokinetics and better operating results, including $0.015 of lease termination fees, all totaling 5.5%, $0.55.
Excluding the $0.115 of debt redemption cost, the midpoint of our guidance would have been up 3% or $3.89 of FFO per share.
That completes my remarks.
 Assistant:

Chosen response: q3 ffo per share $0.98.