Koppers Holdings Inc (KOP) 2008 Q1 法說會逐字稿

Good morning. My name is Arnika and I will be your conference operator today. At this time I would like to welcome everyone to the Koppers Holdings first-quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) Thank you. Mr. Snyder, you may begin your conference.

(technical difficulty) 2444 and we can either fax or e-mail you a copy.

Before we get started, I'd like to remind all of you that certain comments made during this conference call may be characterized as forward-looking under the Private Securities Litigation Reform Act 1995. These forward-looking statements may be affected by certain risks and uncertainties including risks described 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.

I'm joined on this morning's call by Walt Turner, President and CEO of Koppers, and Brian McCurrie, Vice president and CFO. At this time I'd like to turn the call over to Walt Turner.

Thank you, Mike, and welcome everyone again to our 2008 first quarter conference call.

Before we review our first-quarter results, I would like to take the minute to talk about a recent change regarding our Board of Directors. For those of you who haven't yet seen our press release or our proxy statement, our non-Executive Chairman of the Board, Bob Cizik, announced his retirement at yesterday's Board meeting as expected. Bob has been on the Board since 1999 has been very instrumental in the Company's successes. I want to sincerely think Bob for his many contributions in bringing Koppers to where it is today.

Our current Board member, David Hillenbrand, has been named as the new Chairman and I am pleased to be able to continue working with David and looking forward to his continuing efforts on behalf of Koppers. David, who is currently the President of the Carnegie Museum here in Pittsburgh has been on the Board since 1999 and also has significant chemical industry experience including the position of Executive Vice President with Bayer prior to his retirement in 2003.

Now let's talk about our first quarter. I was very pleased to see the momentum from 2007 continue into the first quarter 2008. When compared to the first quarter of 2007, our sales increased 13% to $348 million, adjusted EBITDA grew 10% to $39 million and our diluted earnings per share increased 26% to $0.63 compared to $0.50 in the first quarter of 2007. We saw particularly strong revenue growth outside the U.S. with sales growing by 40% over the prior year quarter and comprising 40% of our total sales for the Company.

During the first quarter, we continued to benefit from the positive fundamentals in our core end markets of aluminum, rubber and construction which more than offset what we believed to be a temporary reduction in white tie purchases for the Class 1 railroads. We have seen consistent demand in our end markets for Carbon Materials & Chemicals and see this continuing through 2008 and even more so into 2009 with [new tar] distillation capacity coming online to meet the demand of the new smelters in the Middle East.

Wood tie insertions by the Class 1 railroads have continued at rates seen in 2007. However, prior year purchases of ties have trended above that rate leading to inventory balancing by the railroads. We expect that the Class 1 railroads will increase buying and treatment services as well beginning in the third quarter and continuing through the end of the year. We do expect tie insertions to continue at recent levels.

In our global Carbon Materials & Chemicals segment, first-quarter 2008 sales increased 28% to $239 million as volumes increased 12% primarily as a result of higher sales of carbon pitch, carbon black and phthalic anhydride. Average prices in the quarter increased 9% due to the higher sales prices for carbon materials products and distillates primarily as a result of higher raw material costs and higher contract pricing. Overall, volumes for chemical products remain strong driven by higher volume for phthalic anhydride. Sales outside North America were also particularly strong with total revenues up 40% over the prior year quarter.

Sales of railroad utility products in the first quarter were $109 million, a decrease of 10% from the first quarter 2007 driven primarily by lower volumes of untreated cross ties due to the purchasing reductions by some of the Class 1 railroads.

On a positive note, the commercial tie business and the export business remained very robust. We believe there was some opportunistic buying by the Class 1 railroads in advance of 2008 requirements that is at least partially responsible for reductions in the first quarter. Again, we anticipate that these volumes will increase as the year progresses as inventories are replenished to meet 2009 tie insertion requirements.

Our long-term outlook remains very strong for this segment and tie insertions continue at high levels. Average operating margins did decrease to 6.6% from 10.5% in the quarter due to the volume declines also coupled with higher allocated SG&A expenses which reduced margins by 1.4%.

After Brian completes the financial review, I will give you a status of our update of our core end markets as well as provide some insight into what we are expecting for the balance of 2008. Brian?

Thank you, Walt. Sales for the first-quarter increased 12.6% to $347.5 million as compared to $308.6 million for the prior year's quarter. The increase in sales was the result of higher sales in the Carbon Materials & Chemicals segment which increased 27.6% or $51.6 million which more than offset lower sales in the Railroad & Utility segment which decreased 10.5% or $12.7 million.

The first-quarter sales increase in the Carbon Materials & Chemicals segment was due primarily to an 11% or $21 million increase in sales of carbon materials, a 5% or $10.2 million increase in sales of distillates, a 3% or $6.5 million increase in sales of coal tar chemicals and a 7% or $13.8 million increase in sales of other products.

First-quarter carbon materials sales were positively impacted by $8.9 million to the higher volumes of carbon pitch sales and $7 million due to price increases attributable primarily to higher raw material costs and higher contract pricing. Sales of distillates were positively impacted by higher volumes amounting to $1.6 million and higher prices totaling $6.7 million. Benchmark pricing was affected by an increase of nearly 70% in average oil prices from the first quarter of 2007 to the first quarter of 2008.

Sales of coal tar chemicals were positively impacted by higher volumes and prices for phthalic anhydride that contributed increased sales of $5.7 million. Overall, Carbon Materials & Chemicals sales in the quarter were positively impacted by 6% or $12 million due to foreign exchange.

Sales of Railroad & Utility Products decreased 10% in the first quarter to $108.7 million. Approximately $10 million of this decrease was due to reduced sales of treated and untreated cross ties as several of our Class 1 customers reduced their requirements in the first quarter. We believe this is partly an effort to reduce inventories. We have had indications that their tie purchasing programs will be backloaded into the second half of the year after railroad inventory levels are normalized to maintain current tie replacement programs. As Walt mentioned, we did see continued strength in the commercial ties and export markets.

On a consolidated basis, first-quarter EBITDA increased 10.1% to $39.2 million compared to first-quarter 2007 EBITDA of $35.6 million. EBITDA margin dollars were positively impacted by higher volumes in prices for most product lines in the Carbon Materials & Chemicals segment which more than offset the reduction in profit in Railroad & Utility Products.

Net income for the first quarter was $13.2 million compared to net income of $10.5 million in the first quarter of 2007. Diluted EPS for the first quarter was $0.63 per share compared to $0.50 per share in 2007.

Total debt at March 31, 2008 was $445 million compared to $440 million at December 31, 2007 reflecting seasonal borrowings for working capital as a result of higher sales coupled with inventory increases going into our highest sales quarters.

On an LTM basis, our debt to adjusted EBITDA ratio is 2.5 times. For year 2008, we anticipate debt reduction of approximately $47 million before accretion of $17 million for a net reduction in debt of $30 million. Capital expenditures for the quarter were $4.4 million compared to $4.8 million in 2007. Estimated CapEx through 2008 is $35 million and includes JV investments and plant expansions in China.

Before I turn it back over to Walt, I would like to emphasize that our business is seasonally impacted by demand for products. The financial performance in the first and fourth quarters is historically lower than or second -- I'm sorry -- our second and third quarter run rates. We saw this trend continuing in the first quarter of 2008. Additionally, we anticipate that our profitability in our two strongest quarters this year will be more heavily weighted toward the third quarter than the second quarter as pricing formulas for some of our carbon pitch customers will be reset beginning in the third quarter allowing us to more fully recover cost increases we have seen in coal tar this year and the Class 1 railroad volumes rebound.

At this time, I'd like to turn it back over to Walt.

Thanks, Brian. In regard to our core end markets, our global aluminum smelting capacity was expected to grow by 17% through 2009 with new projects coming on line in Oman, Qatar and the United Arab Emirates in the Middle East before 2011. In order to meet this growing global demand for our pitch products, we have increased raw material sourcing in Russia and Eastern Europe and are in the process of building new tar distillation capacity as well as increasing our existing capacity in China.

As these new smelters come on line over the next several years, we anticipate adding additional distillation capacity in China to meet this increased demand. In addition, we have continued our efforts in both China and Russia to convert these markets to our standard pitch product based on the benefits realized by the conversion of Western smelters decades ago. This is a long-term process but the benefits of converting these markets can lead to accelerated growth for Koppers. To support this process, we are adding technical resources in China to work more closely with the Chinese and Russian smelters who will use our products.

Although we have seen a temporary slowdown in our U.S.-based railroad business, as railroad inventories are reduced in line with tie insertions, we have seen our sales outside the U.S. which account for 40% of our total sales remain quite robust with first-quarter sales increasing 40% helped by higher prices, strong demand and foreign exchange rates. Raw material pricing for Carbon Materials & Chemicals, particularly in North America, have increased in 2008 due to the increased oil prices during the second half of 2007.

Due to our contract terms for carbon pitch and higher benchmark pricing for our downstream chemical product, we will continue to recover these increased costs through the year but will only fully realize the coal tar cost increases for some customers beginning in the third quarter. I expect North America Class 1 railroad demand for cross ties in 2008 to be more backloaded in the second half of this year as the railroads work down their inventories to a program level.

On a positive note, insertions of wood cross ties remain at levels seen in 2007 which reaffirms our belief in the fundamental strength of this market. We have found increasing interest in exports of railroad ties primarily to support the mining projects in Africa and South America. As an example, we've recently entered into an agreement with the world's largest steel company to supply approximately 360,000 ties to mining expansion projects in Africa. Despite a slow start in 2008, we remain very optimistic about this business and see the North American railroads continuing to invest in their infrastructures in 2008 and over the long term.

Demand for carbon black feedstock, a raw material used in the production of carbon black for the rubber industry and naphthalene, which is used as a concrete additive and also in die steps remain very strong. Demand for these products is primarily driven by growth in the Asian economies and contributes significantly to our profitability in our European and Asian operations that supply these markets. Carbon black feedstocks are generally priced off of benchmark oil index which has resulted in higher selling prices in 2008.

We continue to be excited regarding our capacity expansions in China which will amount to an increase in distillation capacity of about 350,000 metric tons of coal tar. The expansion of the plant in our existing joint venture and the construction of the plant for our new joint venture continue to move toward completion by year end.

I'm pleased to tell you that production levels at our Australian carbon black facility were near capacity in the first quarter which resulted in a significant contribution to our first-quarter results. And we expect the profit contribution that lagged in 2007 to be fully realized in 2008.

Now I'd like to talk about our outlook for the rest of 2008. I'm certainly pleased that the results are above expectations and fully expect that trend to continue through the year and into 2009. However, at this point, we are not yet adjusting our annual guidance that sales will increase between 5% and 8%, adjusted EBITDA growing between 6% and 9%, and that our earnings per share will increase between 10% and 13%. We remain very positive about the long-term strength of our primary end markets, aluminum and railroads, and excited about the new distillation capacity in China that will come on line in 2009 which reflects our optimism about the continuing global growth in aluminum demand. We look forward to the opportunities in 2008 and beyond.

At this time, I would like to open the conference call up for any questions that you may have.

Ivan Marcuse, KeyBanc.

In the first quarter, did you -- in the covered material segment -- did you receive maybe get some orders in the first quarter that you were expecting that maybe received in the second quarter due to lumpiness and that is why there was such a huge improvement year-over-year especially if there was going to be a pricing lag?

I don't think necessarily, no. It's the combination of I think volumes did increase in the total Carbon Materials & Chemicals group as well as we mentioned raw material increases but also through pricing increases under contracts that helped that growth. But as we forward, as you well know, the Carbon Materials & Chemicals is very much a global business and as I mentioned 40% of our revenues were offshore during that first quarter.

And, Ivan, I think one of the big drivers in volume, but certainly in carbon pitch was the Alcoa Iceland smelter. That certainly contributed to volume fairly significantly. I think the only product that we have that has a little bit of advanced buying could be phthalic because of the run-up in Ox, but it really hasn't been significant.

Okay, great. Looking at the second quarter, it appears that on the -- just switching to the railroad -- that you are looking for maybe a little bit more recovery in volume and demand from the commercial in the third quarter. So in the second quarter, are you -- would you expect railroad revenues to maybe be down in line with what it was in the first quarter? Or am missing something?

No, no, no. I think the -- the first quarter there is a lot of noise impacting the first quarter including weather and the ability to get raw material out of the woods, particularly flooding in the lower Midwest I think (multiple speakers) really impacted us. I mean, we still expect our normal ramp up in this business into the second quarter but I think what you are seeing and hearing us say is that we think some of that may ship potentially into the third quarter.

And then for sure as Brian said, when you look at first quarter this year versus first quarter last year, the weather conditions were much more severe here in the U.S.

Got you. And then one of the questions is you exceeded expectations in this quarter, you fully expect to exceed, as you said, expect to continue the momentum going forward. What is concerning you in the second or third or fourth quarter that is giving you maybe a little bit of reservation on upping your guidance?

I don't think you are really seeing reservation, I think we actually did this last year because our businesses is seasonal and the profitability concentrates so much in the second and third quarter, we really just want to wait until we get into the second quarter so we can give better guidance.

Great. And then one last question. Your interest expense went down a little bit. Was that just a subject of you have more cash or are you -- do you have some variable rates in some of your debt?

We have variable rates in our bank debt although we don't have that much bank debt. So some of it is a function of lower debt but it also some lower interest rates.

Great, I will jump back in the queue. Thanks.

Chris Shaw, UBS.

Good morning, how are you guys doing? I guess looking at rail again, if there is -- I guess if you expect some of the first-quarter white tie volumes I guess -- expect the better weather and then you take out some of the inventory correction -- would you expect those two to offset each other? I'm trying to get just an idea of what 2Q is going to look like.

Second quarter normally is going to be up over first quarter in this business. I mean there is that much of a seasonal impact.

Right.

So I don't know that -- it's certainly not enough to change that outlook in the business.

Was the volumes you lost because of weather on white ties, is that significant?

Because of weather?

Yes, because of wetness or flooding or --?

I think the timing was certainly significant.

And that is getting pushed to 2Q probably?

Yes, don't mistake this. I think we did see the railroads, the Class 1 railroads reducing their inventory levels. So I don't want to mislead you guys and think that this is a weather phenomenon. I mean we do have some reductions in buying because of the railroads wanting to lower their inventories. Now I think as Walt mentioned, the positive aspect is the tie insertions which means the ultimate end demand for these is still remaining quite strong. So it really is a temporary thing, it's a matter of timing.

I think that is the real key. You have to understand that this is definitely maintenance related. Tie insertions are still at the same levels of 2007 and also I think if you saw the first quarter I think in the railroads I think at least all but maybe one of the Class 1 railroads had what I thought was a very strong financial report for that first quarter. So the wood ties we are selling at least 90%, 92% of those ties are going in for maintenance and going in for tie insertions. And the volumes, the volumes are up as well. So it is maintenance related, the railroad is going to continue to maintain those railroad lines.

Now, what do think, guys, happened in 2007 -- were they -- did they build inventory -- I mean insertion levels are the same 2007 and 2008, were they just thinking they were going to do more than that and they just ended up with too much inventory or they just mispurchased?

Chris, you have been with us for quite a while and you have heard us talk pretty consistently that we always believe that the volume increases that we were seeing were not sustainable based on what we saw as the normal growth rates in tie insertions.

Right.

So I think that's -- what we are probably seeing is something we've been talking about probably for the better part of the year.

And you look back to the first quarter last year, it really was a robust quarter for us. The white ties were readily available. We didn't have the same issues that we had and so I think it is propelled throughout the year that way and there is some balancing going on.

You have no insight as to why they built inventory? It was just dumb on their parts I guess or I mean you shouldn't say that but -- ?

They are very smart they buy from us.

But you have to understand as we've said, that we supply a very large market share of this business. When you look at especially the Class 1s and you look at the long-term contracts we have, this is still a very strong core business for Koppers. So a little bit of a seasonal blip here in the first quarter but it is nothing obviously -- we like to have the increased volumes but as Brian keeps saying this is an annual business that we look at and nothing concerning.

Quickly one on pitch. When you -- the pricing comes up I guess in third quarter, what is the benchmarks for the price increases for carbon pitch?

Well I think the primary -- although it is cost base the primary driver is going to be the cost of the raw material, the coal tar. The third quarter price adjustment is one that has a six-month delay in it so what it's going to reflect is the increase in the raw material costs that we've seen here in the first part of the year.

Okay, great. Thanks, guys.

Saul Ludwig, KeyBanc

Good quarter. In the carbon materials, you must have had a pretty good increase in your gross profit margin even given the absence of price recovery in pitch. What is it that -- how much was your gross margin compare first quarter to first quarter in carbon materials? Should we think that that improvement should even get better in the third and fourth quarters as the new pricing in pitch kicks in?

We are looking for that number, Saul. But it is number one, I think you also have -- it's not just carbon pitch but a very strong chemicals business as well from the phthalic anhydride and especially the carbon black feedstocks which are really based on the oil index. So some good pricing on that as well. You really have to look at it basically on this total coal tar that we distill, the end markets for that total coal tar productline is very strong whether it is carbon pitch or carbon black feedstocks or naphthalene or the phthalic anhydride.

I mean the margins did move up pretty substantially, Saul, in that business you are right. And I do think, as Walt said, I think (multiple speakers)

Were they up 200, 300 basis points or --?

I think they are at to 8 to almost 11.

11 -- we're talking about gross margin?

I meant operating profit.

On, operating profit was -- okay, 11%. I was asking about the gross margin. It probably was the gross margin that drove the operating margin up not the expense side of the equation?

Correct.

I appreciate fully when you said that we are early here in the -- only one-third of the way through the second quarter and there is uncertainty about the timing of how things are going to play out on a seasonal basis. But last year at just about this time, you would have that same level of uncertainty, if you will. Yet you did have a substantial increase in your guidance that you were comfortable in making last year at the first-quarter conference call for the balance of the year.

What is it that you are seeing in April and early May that is giving you this cause for caution? Because from a seasonal standpoint, we are so different this year than last year.

I don't think there is -- you are hearing an undertone from us that we are very positive about the business. I mean the fundamentals of the business are still very strong. I think you are more seeing us wanting to give more accurate guidance. There are some things moving around this year, price of oil, foreign exchange, particularly how that may change later in the year, that could have some impact on our guidance. So I think all you are hearing from us is maybe just a little bit more conservatism in not wanting to come out with something that we need to change more dramatically in the second quarter.

What I am trying to understand is what is giving rise to -- what is it that you have seen in April that is giving rise to that conservatism this year that didn't give rise to the same conservatism last year?

Saul, as we've mentioned, about 40% of our revenues are offshore and we feel very good about that as well as the other 60% that are basically here in North America. But again, I would like to have another month or two just to feel a little bit more comfortable about what is going on here with the U.S. economy.

I think the FX and oil, Saul, are much bigger this year.

FX is a positive, right?

Positive, right.

So that is even getting better. Oil of course is rising but you have these contracts that allow for you -- you are so fortunate, one of the beauties of your company is you have these contracts that allow for the pass through.

Right and they are requirement contracts and again, pretty positive but just another month or two would make us a little more comfortable about what is going on.

Okay, so we should look to hear from you some time the end of June? Sounds like -- okay, great. Thank you very much.

(OPERATOR INSTRUCTIONS) Daniel Rizzo, Sidoti & Company.

I noticed you had a press release a couple months ago about some railroad ties to a mining company in Africa. Is that an area that there is room for more growth?

Really I think there is, and we are following a few potential projects. When you look at the box site requirements that are going to grow for the aluminum industry and you look which is we're saying is about an 8% annualized increase, and you look at the annual requirements of this growing steel industry around the world, which I think is projected to grow around 7% annually.

So there is going to be more emphasis on looking at bauxite mines, iron ore mines, and with that will come logistics and railroads to haul the material. So, yes, it is a positive potential market down the road.

Okay. And you mentioned that you are sourcing some of your raw materials, I think you said in Russia. Are those like long-term contracts? Is that like a spot price? How does that work?

In the past, going back a few years ago, it was sort of a spot. But we've made some nice inroads in Russia with long-term contracts, and more recently signed a three-year contract on coal tar coming out of Poland. So we've been taking raw material out of Russia for quite some time. In fact, we are in the midst of actually improving logistics on that coal tar from Russia, which most of it ends up in our Danish operation by entering into a long-term contract with a port facility in the Baltics in Latvia, which would even further streamline our movements there.

Have you ever experienced a point where the Russians are being maybe a little bit more unfavorable than they originally were? Just thinking along the lines of some things they've done in other industries, has that ever happened to you guys?

I think we've got some very good relationships with three of the steel companies in Russia, working with them not only on taking raw material out, but also looking at opportunities to do more there.

All right, thanks, guys.

We really haven't seen volatility in that. It has been pretty (inaudible), and I think the long-term relationships we have had have helped.

Okay. Thank you.

Steve Schwartz with First Analysis.

Good morning, guys. If you could help me out with the -- on the railroad part of the business and the Class 1s. Tell me where I'm wrong here. If they are drawing down their treated tie inventories, they are not ordering white ties, but they are going to come through and order white ties in the second half of the year like the third quarter, I see one of two things happening. Either your treated volumes are going to be low for the year or you are going to get a surge of treated business in the second half of the year, [vulcanizing] and all that, and it's high-margin business. So I see either a basement scenario or a through the roof scenario here.

Steve, I don't think there is a basement scenario here.

Okay.

I think depending if the railroads would come back and choose to accelerate the cycle time and sort of bypass the air seasoning process, you are right, it would lead to higher margin business.

It's a little bit of a -- sort of a delicate balancing, because you recall white ties, you can't extend the air drying that much. You've got to treat them. Also, if they find ourselves in a situation they need more treated ties than what the air drying cycles are giving us, well, as you said, vulcanizing is a very quick way to get that online. So whichever direction, we are there to maintain those volumes required for the tie insertions.

Do you agree that they are creating a dangerous gap here by not at least loading the channel with white ties at this point?

I don't think so, I really don't.

Particularly not in the first quarter, because it wouldn't be abnormal because of just the availability of the ties themselves.

Okay.

If there was a quarter to do it, this is probably a good one for them.

Okay. And over the past couple of quarters, you've seen some nice growth in your pitch volumes. Just looking at the Iceland smelter, I think they finished up at 90% utilization by the end of the first quarter, and they only averaged 70% for the quarter. So it looks like the majority of that ramp-up came in the first quarter. How much of this 5% volume growth is related just to the start-up?

Well, it's a little bit of a difficult question to answer, Steve. I mean this, as you may recall, the anode production for Iceland is in Norway. The Mosjoen operation that manufactures the anodes manufactures for other smelters as well. So it is difficult to break out our sales into that plant as far as how many exactly are going to Iceland versus other smelters in Norway. But for sure, the project is up and running, and we are obviously taking advantage of that opportunity now.

Okay, so you see sustainability in like this 5% volume growth number?

Yes.

Yes, I think you'll see sort of step improvement and you saw it with Iceland and your questions -- the right question because you are going to see a step up in volume as new facilities come online and we start to ship to them. And I think a next step up is going to be when you see the Middle Eastern plants come online.

Okay. And then regarding the coal tar pricing, we have talked in the past about the BTU value influencing coal tar pricing. I think this is one of the first times I have heard about a more direct benchmark connection. Is this just in Asia or does this apply to your global contract?

No, the benchmark is pricing of distillates outside of North America, the piece of our production that goes into the carbon black industry is priced off of a plat's oil derivative.

Okay, and that has been understood.

-- (multiple speakers) about our pitch customers it is just the (inaudible)

Okay. So then we are hearing about a shortage in global coal supplies and of course that is driving up the price of coal. So how much of that carries through into the tar side?

There is not really a link between the coal and the tar. And more of the discussion I think when you get in the negotiations is round the BTU value of the coal tar.

Okay.

Not the price of coal.

Okay. And then just the last one, this is quick, tax credits, did you use any in the quarter?

Well, we are recognizing them ratably across the year so the $5 million of credits or so that we get are roughly split 25% first quarter, --

So 1.25 we will call it?

Yes, it's about 1.1 say 1.1.

1.1, okay, great. Thanks, guys.

(inaudible), Columbia Management.

Good quarter. I have a question regarding your Africa expansion plan if I can call it that way. If you can give some details on the country and what other sort of the mitigation on the political risk if this is a hot area?

When we call it export, let me just maybe explain it at little bit, we are actually transferring title to the product in the United States. So the purchaser in this case, it is the large steel company, is actually taking title to the product in the United States. They are responsible for shipping, they are responsible for clearing it into the country, they are responsible for getting it to the location. They are actually paying us as it leaves the U.S.

Okay.

It's an export order but it is not -- we don't have the responsibility on the delivery side.

Okay. And in terms of growth -- I think somebody mentioned already asked that question but just to clarify -- so you see a potential additional mining project in Africa that you could have similar contracts?

Obviously we are aware of certain projects on paper perhaps that we are following. Again, (inaudible) when you look at the iron ore demand and bauxite demand increasing, there has to be more mining operations, more locations being looked at so we are following that at the moment as far as potential opportunities for the future.

(OPERATOR INSTRUCTIONS)

Okay, no further questions?

Steve Schwartz, First Analysis.

Just one follow-up and this touches on something that Saul had brought up earlier but what was your SG&A in the Railroad & Utility Products of the 16.8? Because you mentioned that you shifted or reallocated some SG&A into that segment?

I think one of the -- we had an increase in legal spending associated with some court cases down in Somerville Texas that are related to a wood treating plant.

Okay, would those be considered one time? Do we want to consider those a special item?

No, we don't -- well, we don't characterize our legal expenses as special items. So I think we invest a fair amount of money in defending ourselves in our legal cases so I would prefer you not to call them those things special although they do fluctuate --

-- practice (inaudible)

Right.

So, what was that SG&A number for the segment?

I think the total impact on margin was about 1.4% of total SG&A -- let me do the math on it. Hold on a second.

And not just for the specials but the total SG&A number if you could, please.

For Railroad & Utilities? (multiple speakers) About $6.3 million, the prior year was about $4.7 million.

Okay. So that would in fact as a percent of sales then your as SG&A to sales in CM&C dropped almost 100 basis points. So there was an improvement there in your cost.

Generally across the company SG&A does not grow as a percent of our top line. You probably saw more of that fall through in the Carbon Materials & Chemicals business than you did in the Railroad & Utility Products business.

Yes, that is certainly a nice improvement because it has been consistently coming down and by big chunks over the past couple of years. Okay, that is great. Good information. Thank you.

Michael Ainge with TIAA-CREF.

I'm not sure if you already covered this. I had to drop off the call for a couple of minutes. Have you given any thought to refinancing any of your current public bonds outstanding?

That is actually a good question. I mean we have the senior secured notes that are callable in I think of September of this year and then the [tech] notes are callable the following year following September, October timeframe. We are watching, they are both at 10 -- almost 9 7/8 -- almost 10% in interest. And the market is fairly volatile right now so I don't know that we have an opportunity today. But it certainly is an opportunity for us to look towards certainly the leverage of the company has come down substantially.

And you can look at our debt structure we are going to be running out of bank debt here fairly quickly. So it is an opportunity to optimize our capital structure.

Do you think that is something you would definitely wait until bonds become callable or would you think you would go after them more aggressively than that potentially?

I think that really depends on the market.

Fair enough.

David Woodyatt, Keeley.

(OPERATOR INSTRUCTIONS) At this time, there are no further questions. You may continue with your presentation or closing remarks.

Thank you, operator. Brian and I both thank you very much for participating in today's call and appreciate your continued interest in our company. I believe that we continue to be well-positioned for a strong 2008 and beyond. You must remember diversity a key for Koppers, diversity in our major projects, our end markets and our geographical locations around the world.

We see continued strong demand in our end markets particularly based on the committed aluminum capacity additions coming online in 2009. We are well positioned given capacity additions underway in China. Our balance sheet can easily support not only these additions but also other potential opportunities to stimulate growth and create shareholder value. And finally, we remain firmly committed to enhancing our shareholder value by executing our strategy and providing our customers with a highest quality of products and services while continuing to focus on our safety, health and environmental issues.

And we certainly look forward to speaking to you again soon. Thank you.

This concludes today's conference call. You may now disconnect.