Koppers Holdings Inc (KOP) 2008 Q2 法說會逐字稿

Good morning. My name is Raquel and I will be your conference operator today. At this time, I would like to welcome everyone to the Koppers Holdings Inc. Second Quarter 2008 Results Conference Call. (OPERATOR INSTRUCTIONS.)

Mr. Snyder, you may begin your conference.

Thanks, Raquel, and good morning, everyone. Welcome to our Second Quarter Conference Call. My name's Mike Snyder and I'm the Director of Investor Relations for Koppers.

At this time, each of you should have received a copy of our press release. If you haven't, one is available on our website, or please call Rose Relinsky at 412-227-2444 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 of 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 over the call over to Walt Turner. Walt?

Thank you, Mike, and welcome to our 2008 Second Quarter Conference Call.

I'm very pleased overall with our second quarter results. When compared to the second quarter of 2007, we saw sales increase 15% to $375 million, adjusted EBITDA growing 4% to $54 million, and adjusted earnings per share before the sale of Monessen increasing 12% to $1.20, compared to $1.07 in the second quarter 2007.

We saw particularly strong revenue growth outside the US, where sales grew by 34%. Sales outside the US represented approximately 40% of the total company sales in the quarter.

During the second quarter, we continued to benefit from the positive fundamentals in our core end markets of aluminum, rubber and construction. And we also benefited from an increase in the pace of buying by the Class 1 railroads from the first quarter. We continued to see strong demand in our end markets in the quarter and see this trend continuing through the remainder of 2008 and into 2009, which is prompting us to revise our guidance upwards, as you can see from our second quarter earnings release.

To meet the demand of the new smelters in the Middle East, we continue to execute our strategy of adding new tar distillation capacity in China, with production expected to come on line in early 2009.

We're also benefiting from the Class 1 railroads, are continuing to invest in their infrastructure, and, most notably, are continuing to -- their tie insertion program levels at or above those of the prior year.

In our global Carbon Materials & Chemicals segment, second quarter 2008 sales increased 24% to $251 million, as volumes increased 11%, primarily as a result of higher sales of carbon pitch, carbon black and carbon black feedstocks.

Average prices in the quarter increased 7% due to higher sales prices for distillates, primarily as a result of higher oil prices.

Overall, demand for carbon pitch and distillates, which include creosote and carbon black feedstocks, remains strong.

Sales outside North America were particularly strong, with total revenues up 35% over the prior year quarter.

Sales of our railroad utility products in the second quarter were $124 million, slightly higher than the second quarter of 2007, as higher volumes and prices for commercial crossties, offset by lower volumes of untreated crossties and treating services for the Class 1 railroads.

As indicated during our last call, we got off to a slow start in the second quarter, due primarily to poor weather coupled with a weak lumber market, but we did see volumes increase in June. Our expectation is that the increase in demand for entry to crossties from the Class 1 customers that we saw in June will continue through the rest of the year and that sales of untreated ties in the second half will be up significantly over the first half.

Our long-term outlook remains very strong for this segment, as tie insertions continue at high levels.

As you probably know, in August, we entered into an agreement to sell our coke facility in Monessen, Pennsylvania for approximately $160 million. This unique opportunity, provided by the strength of the global coke market, will result in a substantial profit from the sale, but more importantly, it monetizes a non-core asset and results in a significant cash inflow to Koppers, presenting us with opportunity to deploy capital for growth. Brian will cover this in more detail during his remarks.

I would also like to mention that we have opportunistically purchased shares of Koppers stock under the share repurchase program that was announced in February. To date, we have purchased 338,000 shares, resulting in a total cash outlay of a little over $14 million. We believe the share repurchase plan offers us an opportunity to effectively utilize our strong liquidity position. We continue to monitor the financial markets with respect to opportunities for repurchasing additional stock.

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

Brian?

Thanks, Walt.

Before we get into the detailed financial results for the quarter, I'd like to walk you through the Monessen transaction that Walt mentioned.

Most of you will recall that we produced a relatively small amount of metallurgical coke -- about 2% of total North American production -- that we sold entirely to Arcelor Mittal under what was essentially a fixed price, long-term contract expiring at the end of 2009.

Generally speaking, on an annualized basis, the plant generated about $70 million of revenues with an expected EBITDA of about 5%.

We also realized about $5 million of energy tax credits that were included as a reduction of tax expense as a result of alternate fuel tax credit legislation that also expires at the end of 2009.

The initial sales price of $160 million will be adjusted for working capital at closing. Using today's working capital amounts will result in gross proceeds to Koppers of approximately $170 million. Closing is subject to, among other things, Hart-Scott-Rodino approval and assignment of certain rights by the Pennsylvania Department of Environmental Protection that could take up to 60 days to complete.

Based on the current book value basis of the plant, we'll recognize a gain of approximately $140 million at closing. Net cash proceeds to the Company will be about $90 million and, for projections, has been assumed to pay down debt.

I do expect that the Company's effective tax rate will be impacted by the loss of tax credits and should note that the rate for the remainder of the year will be in the 37% range. This represents about a 1% to 2% reduction in prior years' effective tax rate after excluding tax credits and is due to the interaction of this year's foreign and domestic profitability and lower foreign tax rates.

For purposes of analysis, we've excluded the Monessen results from our discussion since it is not a part of ongoing operations.

Specific details of the impact on second quarter and year-to-date sales are included in our press release as well as our 10-Q.

Included as an adjustment to EBITDA and net income in the second quarter is $1.4 million and $900,000, respectively, related to a boiler failure at our Green Spring, West Virginia wood treating plant. Boiler repairs were completed in July and the plant is operating at full capacity.

Now let's get into the results for the quarter.

Sales for the second quarter increased 14.9% to $375.3 million, as compared to $326.7 million for the prior year's quarter. Increase in sales was a result of higher sales in the Carbon Materials and Chemical segment, which increased 23.6%, or $47.9 million, coupled with slightly higher sales in the Railroad and Utility Segment, which increased $700,000.

Second quarter sales increase in the Carbon Materials and Chemicals segment was due primarily to a 5%, or $10.9 million, increase in sales of carbon materials; a 7%, or $14.3 million, increase in sales of distillates; a 1%, or $1.7 million, increase in sales of coal tar chemicals; and an 11%, or $21.1 million, increase in sales of other products.

Second quarter carbon materials sales were positively impacted by $3.7 million due to higher volumes of carbon pitch sales, primarily from European operations, and $2.4 million due to price increases attributable primarily to higher costs of raw materials and higher contract pricing.

Underscoring the impact of the timing of ship movements on our quarterly results, we did have a relatively large shipment in Australia occur at the end of the month that resulted in about $2 million positive profit impact in the quarter.

Sales of distillates were positively impacted by higher volumes amounting to $3.8 million and higher prices totaling $8.3 million. Benchmark pricing was affected by a substantial increase in average oil prices from the second quarter of 2007 to the second quarter of 2008.

North American sales of phthalic anhydride in the second quarter, representing 7% of total sales for Koppers, continued to be strong. On a year-to-date basis, phthalic volumes have increased about 2% over prior year levels. We continue to monitor this product, since it does sell into end markets that can be impacted by US economic conditions. However, year-to-date volumes have been promising.

Overall, carbon materials and chemicals sales in the quarter were positively impacted by 6%, or $12.3 million, due to foreign exchange.

Sales of railroad and utility products increased slightly in the second quarter to $124.4 million. Higher sales of commercial crossties essentially offset lower sales of treated and untreated crossties to the Class 1 railroads, as several of our Class 1 customers reduced their requirements due to poor weather conditions and a weak lumber market, and only began to accelerate buying towards the end of the second quarter.

We expect their tie purchasing programs to be back-loaded into the second half of the year to maintain current tie replacement programs into 2009.

Sales of commercial ties, both domestically and into the export market, have remained strong, with volumes increasing 12% in the second quarter of 2008 compared to 2007.

On a consolidated basis, second quarter adjusted EBITDA increased 4.5% to $53.6 million, compared to second quarter 2007 EBITDA of $51.3 million. EBITDA margin dollars were positively impacted by higher volumes and prices for most product lines in the Carbon Materials and Chemicals segment which more than offset the reduction in profit in Railroad and Utility Products segment.

Net income from continuing operations for the second quarter was $22.3 million, compared to net income from continuing operations of $19.7 million in the second quarter of 2007. Diluted EPS from continuing operations for the second quarter was $1.11 per share, compared to $0.94 per share in 2007.

For terms of reference, second quarter 2008 adjusted net income and EPS before the effects of discontinued operations, which relates to the Monessen transaction, amounted to $25.2 million, or $1.20 per share, compared to second quarter 2007 net income and EPS of $22.3 million, or $1.07 per share.

Total debt at June 30, 2008, was $445 million, compared to $440 million at December 31, 2007, reflecting seasonal borrowings for working capital, primariliy as a result of higher sales. On an LTM basis, proforma for the sale of Monessen and the share buybacks, our net-debt-to-adjusted-EBITDA ratio is 2.1 times.

Capital expenditures for the quarter were $7.9 million, compared to $5 million in 2007, and include $1.2 million for capacity expansion at our existing JV in China and $2 for our new JV in China. Estimated CapEx for the full year 2008 is $35 million, including JV investments and plant expansion in China.

Before I turn it back over to Walt, I would like to emphasize that our business is seasonally impacted by demand for our products. Financial performance in the first and fourth quarters is historically lower than the second and third quarters. We saw this trend continuing. At this time, I'd like to turn it back over to Walt.

Thanks, Brian.

In the past, you've heard me mention that longer-term projections call for global aluminum production to grow at an annualized rate of 7% to 8%. In the nearer term, the industry is estimating global aluminum smelting capacity is expected to grow by 17% through 2009, with new projects coming online in Oman, Qatar and the United Arab Emirates in the Middle East by 2011.

As you are aware, our primary product -- carbon pitch -- which represents 50% of our tar distillation process, is consumed as a part of the electrolysis process, providing us with the opportunity to grow as well. 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 capacity, as well as increasing existing capacity in China. In addition, we have continued our efforts in both China and Russia to convert these markets to our pitch product, based on the quality benefits realized by the 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 to work more closely with the smelters in these regions.

In the near term, we continue to execute on our fundamental strategy of capacity expansion to meet this increase in demand for carbon pitch. Our progress is continuing at both our capacity expansion projects in China, which will amount to a total increase in distillation capacity of 400,000 metrics 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 towards completion by year-end and will provide growth opportunities for us in 2009.

We continue to focus on additional capacity expansion opportunities in China and are seeing increasing potential for opportunities in India and Russia as well. You may have seen recent announcements regarding aluminum production cutbacks in China due to energy restrictions. This should not impact us and may actually benefit us, as metal is imported to China from western smelters. We also continue to see a great emphasis being placed on the construction of new, more efficient smelters being built in China in the future.

Demand for carbon black feedstocks that represent about 30% of our tar distillation process, a raw material used in the production of carbon black for the rubber industry, and naphthalene -- 20% of our tar distillation process, which is used as a concrete additive and in dye stuffs, remain very strong. Demand for these products is primarily driven by growth in Asian economies and contributes significantly to the profitability of our European and Asian operations that supply these markets. Carbon black feedstocks are generally priced off a benchmark oil index, which has resulted in higher selling prices in 2008.

Worldwide growth in the rubber industry is very positive, with industry growth projections of about 4% per year through 2015, with higher growth in China and in Russia.

Demand for concrete, the primary market for naphthalene outside of North America also remains strong in China and other Asian markets where construction continues to be robust.

As you may have heard, our largest carbon black customer in Australia, South Pacific Tire, which is a part of Goodyear, recently announced a closure of their tar plant in Australia. This closure impacts about 15% of our planned output. We expect that about half of their lost sales can be replaced within the Australian market, with the remainder being sold into the export market, which is already absorbing about 50% of the plant production. We do not expect this to significantly impact us as we go into 2009.

We expect demand for North American Class 1 railroads for crossties in 2008 to be more back-loaded into the second half of the year as the demand for increases in the lumber market strengthens. Insertions of wood crossties are expected to remain at or above levels seen in 2007, which reaffirms our belief in the fundamental strength of this market. Despite a slow start in the first half of 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.

I was pleased to see that we were able to profitably manage our way through the first half raw material price increases. Our strategy of linking our long-term procurement contracts and our sales contracts with price formulas has proven an effective way of managing in a volatile cost environment, as we have been able to preserve and grow our EBIT dollars.

Now I'd like to talk about our outlook for the rest of 2008.

I am certainly pleased that year-to-date results are above expectations and fully expect that trend to continue through the remainder of 2008. Therefore, after excluding Monessen's operating results and special charges from all periods, we are increasing our annual guidance for 2008 sales growth to be between 14% and 17% from restated 2007 sales of $1.26 billion, adjusted EBITDA to grow between 14% and 17% from restated 2007 EBITDA of $162 million, and earnings per share to increase between 37% and 41% from restated 2007 earnings per share of $2.49. Please refer to our press release for a schedule of the excluded operating results for Monessen.

We remain very positive about the long-term strength of our primary end markets -- aluminum and railroads -- and are optimistic about the new distillation capacity in China that will come online in 2009, which reflects our optimism about the continuing growth -- global growth in aluminum demand. We look forward to the opportunities over the balance of this year and into the future.

At this time, I would like to open it up for any questions that any of you may have for us.

(OPERATOR INSTRUCTIONS.) Your first question comes from Saul Ludwig.

(Inaudible), guys. Very, very encouraging to hear the more optimistic outlook. I'm curious. At the end of the first quarter call, you did not change your guidance. You expressed some reservation about wanting to see how economic conditions were to play out as we moved through the second quarter before reconsidering any change in outlook. What is it that sort of changed that gives you so much more optimism now than you had at the end of the first quarter, because for sure, economic conditions didn't get any better as we moved through the second quarter. So I'm curious as to why so much more optimistic now than you were just three months ago?

Saul, I'll start the first part of the answer, and that is we really were sort of concerned about the availability of [white] ties, or the untreated ties for the Class 1s, and as we mentioned earlier in the call, that really started happening in early June. And because of that availability increasing, I think that was also part of our conservatism at that point in time back in May.

Saul, I also think -- I don't know that we were expressing potentially bad news. I think we wanted to get a better perspective on the year, particularly because of the seasonality of our business -- to be able to get a better handle on what the year was going to be. So I don't know that we were necessarily pessimistic about the year. I think we were -- just wanted to get a little bit more of the year behind us before we adjusted guidance.

Next question is, you don't now sell any pitch in China, yet there's aluminum production there. What do your marketing people tell you about opportunities for potentially penetrating the Chinese market?

Actually, Saul, we are selling pitch in the Chinese market. It's a fairly small line, but I can tell you the interest continues to grow very rapidly there for us. As we mentioned, we've added technical resources there and continue to really work with potential and current customers we have in China. I can tell you that it's not just the aluminum industry there. It's also the -- what I'll call the commercial carbon or the electrode manufacturers, and that interest -- and actually, selling more pitch -- you'll see more of that going forward.

Great. That's good to hear. Thank you very much.

Your next question comes from Lawrence Alexander.

Good morning, Lawrence.

Hi. This is Lucy Watson speaking for Lawrence.

Good morning, Lucy. Sorry.

Just a quick question on the Monessen impact. Do you have a year-to-date EBITDA number?

Yes. Hold on a second. It's about $2 million.

And are you seeing -- in the CM&C business, are you seeing any signs of capacity reductions on the parts of your competitors in phthalic anhydride?

On phthalic anhydride, our primary market -- really, our only market is really North America, and I think we mentioned in our last call that there were about 250 million pounds or so of production taken out of the industry down in Texas.

Okay. And just one last question. Can you give any more clarity on the weather impacts on the crosstie business and possibly if there was an impact from the flooding in the Midwest on order timing?

Fortunately, the sun's shining here in Pittsburgh today, so that's good. Actually, that's a good question, and I think, on the Midwest flooding -- most of the Midwest flooding was in the upper Midwest and that actually helped bring us some additional volumes in the month of June. So that flooding was not a negative impact on us. I think earlier in the second quarter, we did have a lot of rain sort of in the lower Midwest, which is a lot where -- of our procurement area, and we were struggling at that point in time with whether to get our ties out of the woods.

Thank you.

And typically, that's an annual deal where the first quarter, obviously, from winter to rains to whatever -- that's an ongoing thing that we definitely have each year.

Great. Thank you.

Your next question comes from Steve Schwartz.

If you could just help me reconcile something. I'm referring to this table -- the last table on the press release. The adjusted EPS guidance range now, if we just call that, say, $3.45, if we were to assume Monessen was going to bring in $0.30 of earnings this year, that puts you up at around $3.75, which is way above where consensus is right now, and consensus assume Monessen existed. Where has the Street missed by so much what you guys are going to do this year, particularly in the second half?

I think -- a couple things. First, the $0.30 per share on Monessen is too high a number. So I think if you look at the long-term contract that we had with Mittal -- and it was pretty well married up with the long-term raw material supply agreements -- the plant was actually experiencing deteriorating profitability. So if you look at last year's numbers and this year's numbers, you can see that. So I think part of what you're seeing is the fact that Monessen was never going to be generating that level of profitability for us. And I think to offset that, really -- a couple things. Really three things. One is the increased profitability of the business, a lot of which we're seeing overseas, and that's having a positive impact on us in our effective tax rate that I mentioned during the script. And that's probably a 1 to 2 percentage reduction in effective tax rate. And also with the net proceeds coming in from the sale, there is also interest expense reduction.

Okay. So you took out $0.47 from last year for Monessen. You did $0.15 in the first half of this year. So you're saying this was actually a declining business at a pretty rapid rate.

Well, if you look at the year-to-date results, I think, in the press release, I think that shows you that.

It looks like the second quarter was better than the first, so that's why I wondered if there wasn't an upward trajectory to Monessen this year. So -- and that's where I thought I was conservative in assuming $0.30 this year.

If you look at the 6-month profitability for Monessen, it went from essentially $4 million to $1 million, so it's about a 75% profit reduction.

Okay.

Year on year.

Alright. No, I understand your answer, though, Brian. That's good. Thank you. On the railroad business, you mentioned that the Class 1s didn't really step up their buying until June, and you mentioned that their tie insertions are at or above previous year levels. If you consider that it takes 6 to 9 months to season a tie, what that means is we don't see a pick-up in your more profitable treatment business until '09. Do you see something different than that in the second half? Do you see some higher profit -- what I'll call urgency business for treating in the second half?

Well, I'll tell you. Just the first half, Steve, I think we -- I think Brian mentioned it's commercial ties, which is a different -- sort of a different size, a different specification tie increase, and I think that market looks like it's going to continue to be strong as it was in the first half. We've got that overshadowing some of the Class 1 issues, but I think -- we also, as I think I mentioned on the last call -- we can also go to the vulcanizing, which sort of gives us a better opportunity to treat the ties earlier than [their] seasoning -- that sort of thing as well. But I think you're right. You're going to see a stronger -- with the air drying and most of the ties, you're going to see that happen later.

Yes. I think -- maybe a couple additional thoughts on that, Steve. I think the second quarter probably was less impacted by the railroads' buying patterns than it was by the availability or ability to get ties out from the sawmillers because of weather and also because of just the overall hardwood market. We did see the railroads increasing the price that they're willing to pay for the crossties, which, to us, is a signal that they're getting a heightened level of urgency in getting these ties into their inventory system. But I think your point is probably right, although we are expecting the second half of the year to be strong. I think one of the things that we are seeing is that we're pushing probably some of this into 2009.

Okay. And then if you could just confirm on this commercial business. Is this typically higher-margin, out-of-contract-type business that you sell?

Yes. It also does include the export order, which itself is a pretty large order. So I'd say most of the business in commercial is much smaller sales orders, but I think the one exception would be a very large export order that we have that's in there.

And that export order is -- that's like 360,000 ties or something like that?

360.

Okay. And at the time you announced that order, you were expecting a pretty consistent shipment rate across four quarters. Is that still the pace at which that's occurring?

(Inaudible.)

Yes.

Okay. And then just one last question. There have been some articles out recently about the Middle East and Abu Dhabi and Saudi. Because of the value of natural gas, I understand that they've either put on hold or cancelled a number of smelter projects. Is that what you're seeing or hearing about?

I think you're right, Steve, is that because of the gas in the Middle East is becoming more available (inaudible) the liquefication and ships being built to move liquefied gas. That does put a little bit of a concern on some of the smelters based on --. They're going there for cheaper energy, so as -- and so gas values might be increasing. But there are four projects right now that are -- three of which are already being built. You've got aluminum consumption that's continuing to grow every year. We know for a fact that three of these projects are going to be completed. The fourth will be starting here real soon. I think one project that was sort of taken off the list, if you will, was a Rio Tinto project in Abu Dhabi, but that really wasn't even on our radar screen because that was projected -- it was built to come onstream late 2012. So that's really out there. But no, Middle East is still going very strong. We still expect aluminum production in the Middle East to grow from about 1.8 million tons up to about 4 million tons over the next 2-1/2, 3 years. So it's still very much there. But back to your point. The energy cost might be a tad higher than what they expected when they first started these projects.

Okay. Alright. Thanks for taking my questions.

Your next question comes from Chris Shaw.

Hi, Chris.

A lot of what I wanted to ask has been asked, but I guess just, on the rail side, are there any new CapEx plans there by any of those guys or is it mostly what you expect over the -- I don't know -- next 6 to 9 months? Mostly maintenance trackwork and maintenance tie replacement, or is there -- anyone got any new track plan?

I think, from what we've been reading in the short term of 2008, there may have been a couple of new projects that were basically delayed, and that goes back maybe 6 or 7 months ago, actually. But no, I think overall -- over the longer term -- those projects are still for real and the railroads -- I'm not going to quote a number because it's a very large number and I don't want to misquote it, but a very large number that these railroads are planning to spend going out several years.

I think the other -- I think the DM&E acquisition is still awaiting approval. I think that's an early fourth quarter?

I think October was the last I heard.

Yes. The last -- we haven't heard that that slipped. That's probably the next really major project that we see, at least near term, that might get some (inaudible).

I'm sorry. I couldn't hear you. You said the DM&E might be -- the approval's up for October?

That's our understanding, is it's still on schedule to be approved in October, but we don't -- we're not predicting approval -- government approval process, but that's probably a fairly significant project that would be out there that might -- at least (inaudible).

That would be -- for next year --

Yes.

Assuming that -- yes.

Right. Right. That's a good point. I forget -- naphthalene -- is that priced on a formula as well or is it -- I know it's based on oil in some regards, but is it actual formula?

Not really. It's really a market pricing and the demand has really been very strong over the last several years and I think we're expecting it to continue to be quite strong with all the construction going on, especially in the Asian economies. But it's been very strong and I think we see it that way for a while.

Okay. Got nothing else. Thanks.

Thank you.

(OPERATOR INSTRUCTIONS.) Your next question comes from Lee Lignos.

Hi, Lee.

Good morning, Lee.

Congrats on a great quarter and I wanted to get on and just congratulate you on selling your Monessen plant for 45 times EBITDA. I wonder if Google is a potential buyer of that. Anyway, a couple questions there. Can you talk about any kind of working capital arrangements you have with Mittal going forward? And let me just check off my questions. That's the first one. The second one, you mentioned, in terms of the proceeds of the sale -- the $90 million or so -- I think you mentioned -- I was on the call late, but you mentioned paying down debt was a priority. Maybe you could talk about that. And I guess to that point, where do you guys see the balance sheet kind of towards the end of the year? We're coming up close to the refinancing of half of the notes outstanding, and maybe you can kind of give us an update, Brian, in terms of what the market looks like there, if you've talked to your bankers. And then also, I guess, now that you are -- I guess, historically, you're probably towards the very low end of the range in terms of leverage -- kind of what the view is going forward as far as proceeds of free cash flow.

I'm trying to write all those down.

Yes. Sorry. We could go -- yes. The first one's the working capital --

If I miss any -- if we miss any, just --

That's fine. The first one's the working capital range.

You asked about working capital with Mittal. I'm not quite sure I understand --

Did you get any favorable terms with them as far as gaining access to coal tar and -- was that part of the agreement?

We buy a lot of coal tar from Mittal.

Okay.

So I think one of the benefits for us to sell to Mittal, obviously, is that it helps us cement that relationship.

Right. Okay. And so you'll be the only purchaser of coal tar from that facility then?

In that facility, yes.

Okay.

(Inaudible) a contract -- a long-term contract -- for that facility's coal tar to come to us.

Okay.

I think one of the things you mentioned -- I'm not sure whether I misspoke or whether maybe you may have misheard. I wouldn't say our priority is to pay down debt. In the projections that we gave in our guidance estimates, we assumed that the proceeds went to pay down the bank debt.

Got it. Okay.

We haven't done anything with refinancing in our guidance that we're giving, or we haven't reflected any other use of proceeds other than paying down bank debt.

So the guidance would reflect a lower interest rate than assuming you'd pay down $100 million of debt?

No. We did not assume any calling of that debt. It's just -- is pay down the bank debt.

The bank debt. Okay.

Now a couple things I think you're talking about. What would the balance sheet look like at the end of the year? It's sort of rolling out the way we're projecting it and something that may or may not actually happen, depending on refinancing or other uses of proceeds. Just an update on the refinancing market. Yes, we watch this a lot. We talk to our bankers. The market certainly seems to be fairly choppy right now. What we're getting sort of is -- the word, generally speaking, is that refinancings can get done. The pricing may not be beneficial. So I would say our perspective on refinancing right now, with the refinancing date coming up in mid-October, is pretty much the same as it was before, which is we don't see a reason to do it soon.

Right.

And if the market's behaving and it gives us a compelling economic answer, then we'll probably look to refinance around the middle of October.

Okay.

I think the cash proceeds, certainly from Monessen, give us an opportunity that you touched on to really take a look at the capital structure of the Company. And from a use of proceeds, I think it's pretty much the same as it's always been. We'd love to be able to use our borrowing capacity. I think now it's up 2.1 times debt to EBITDA, assuming the Monessen cash closes, and we don't want to get ahead of ourselves. We've still got 60 days to close.

Right. What is that in aggregate dollars? If you're assuming you pay down all the bank debt, how much debt would there be proforma for that?

There wouldn't be any bank debt left.

I'm sorry. How much debt from the notes would it be roughly?

If we used the proceeds to pay down the notes?

If you use the proceeds -- if you assume zero bank debt at the end of the year and just had the notes out --

Oh, okay. There's about, say, $50 million of bank debt right now.

Okay.

About $90 million of proceeds. So I'd say roughly $40 million would go against the notes.

Got it. Okay.

That sort of methodology.

Okay. So in the 300 range then, right? Low 300's?

Yes.

Okay.

Yes.

Okay. Well, it sounds good. Congrats again. I think you answered my questions. Appreciate it.

Thank you.

(OPERATOR INSTRUCTIONS.) You have a follow-up question from Steve Schwartz.

Just one on Monessen, from an operational standpoint. Given the coal tar situation in North America, you're giving up some captive supply. Was it a significant part of your total coal tar supply?

Walt Turner. No. We're going to continue to purchase that coal tar, Steve, and that's about 3.5 million gallons of tar per year, but the long-term (inaudible) -- we'll continue to purchase that tar.

Okay. 3.5 million gallons. And so, of your total coal tar consumption, how much is that?

Globally, less than 2%, I would guess.

Okay. Okay. Great. Thank you.

(OPERATOR INSTRUCTIONS.) There are no further questions at this time. I would now like to turn the conference over to Mr. Turner. Please go ahead, sir.

Thank you, Raquel. We certainly thank all of you 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. Diversity is the key word for us -- in our major products, our end markets and our geographic locations around the world. We see continued strong demand in our end markets, particulary based on the committed aluminum capacity additions coming online in 2009. We are very 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 or create shareholder value, particularly in the light of the cash inflow resulting from the sale of the Monessen coke plant.

And finally, we remain firmly committed to enhancing shareholder value by executing our strategy and providing our customers with the highest-quality products and services, while continuing to focus on safety, health and environmental issues.

We look forward to speaking to you again. And again, thank you very much for participating.

Thank you. This concludes today's Koppers Holdings Inc. Second Quarter 2008 Results Conference Call. You may now disconnect.