Koppers Holdings Inc (KOP) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen and thank you for standing by. Welcome to the Koppers Holdings third quarter 2008 results conference call. During today's presentation all parties will be in a listen only mode. Following the presentation the conference will be open for questions. (OPERATOR INSTRUCTIONS). This conference is being recorded today, Thursday, November 6, 2008.

At this time I would like to time at the conference over to Mike Snyder. Please go ahead, sir.

Thanks, Marcy, and good morning everyone. Welcome to our third quarter conference call. My name is 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 at our website or else please call Rose Zalinsky at 412?227?2444, and we can either fax or e?mail you a copy.

Before we get started, I would like to remind all of you that certain comments made during this conference call me 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 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 to Walt Turner. Walt?

Thank you, Mike, and welcome, everyone, to our 2008 3rd quarter conference call. I'm very pleased overall with our third quarter results. When compared to the third quarter of 2007, we saw sales increase 12% to $369million; adjusted EBITDA growth, growing at 25% to $58million; and adjusted earnings per share excluding the sale of Monessen, increased 50% to $1.20 compared to $0.80 in the third quarter 2007.

We continue to see strong revenue growth outside the U.S. where sales grew by 20%. Sales outside the U.S. represented approximately 37% of total company sales in the quarter. During the third 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 second quarter, despite procurement difficulties resulting from Hurricane Ike.

In spite of much lower foreign exchange benefit than we saw in prior quarters this year, we were still able to exceed expectations in the quarter. We continued to see strong demand in our end markets in the quarter, although like other companies we see some short?term uncertainty around these trends which I will speak to later on this morning.

To meet the demand of new smelters in the Middle East, which are still expected to come on line with an estimated aluminum production of 542,000tons in 2009, we continue to execute our strategy of adding new tar distillation capacity in China with our carbon pitch production which is planned to come on line in early 2009.

We are also seeing the Class 1 railroads continuing to invest in their infrastructure and most notably this year, they are continuing high insertion programs at levels at or above those of prior year. Additionally, recent projections from the Railway Tie Association indicate that tie insertions for the U.S.?based Class 1s will increase approximately 3% in 2009 from 2008 levels. As a result, we expect treating volumes for the U.S. Class 1s to increase at slightly higher rates than the treating rate for 2008. Due to the reduced procurement volumes in 2008, we expect 2009 procurement volumes to increase 2 to 3 times faster than the tie insertion rates. We're still in the process of finalizing our 2009 growth estimates for commercial ties, but the reauthorization of tax credit legislation for the short line railroads should provide opportunities to maintain or increase commercial tie volumes.

In our global carbon materials and chemicals segment, third quarter 2008 sales increased 20% to $245 million, as volumes increased 5%, primarily as a result of higher sales of carbon pitch and creosote, which offset lower volumes of pthalic anhydride.

Average prices in the quarter increased 13% due to higher sales prices for all major product lines due to higher raw material prices, higher oil prices and higher contract pricing. Overall, demand for carbon pitch and distillates, which include creosote and carbon black feedstocks, remains strong. Sales outside North America were strong, with total revenues up 22% over the prior year quarter. Sales of railroad utility products in the third quarter were $124million, the same as the third quarter in 2007, as higher volumes and prices for treated crossties primarily offset anticipated 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 to primarily poor weather conditions coupled with a weak lumber market but we did see volumes increase in the third quarter compared to the second quarter, despite reductions in untreated crossties sales due to Hurricane Ike. Our expectation is that the increase in demand for untreated crossties from Class 1 customers should continue through the rest of the year, and that sales of untreated ties in the second half should go up over the first half, although margins for commercial crossties will continue to be lower due to higher raw material costs that should be passed through beginning in 2009. However, our long term outlook remains quite favorable for the segment as tie insertions continue at high levels.

As you probably know, on October1st we closed our sale of the coke facility in Monessen, Pennsylvania for approximately $160million. This will result in a substantial profit from the sale, but more importantly it monetized a non?core asset and resulted in a significant cash inflow to Koppers, presenting us with an opportunity to redeploy capital and strengthen our balance sheet.

In October we also entered into a bank agreement under which we believe are very favorable terms. The combined effect of these transactions has significantly strengthened our balance sheet and should position us favorably over the long term for the opportunities such as growth investments, bond redemptions, share buybacks and dividends. Brian will cover the refinancing in more detail during his remarks.

After Brian completes the financial review, I will 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 and some thoughts on 2009. Brian?

Thanks, Walt. I'd like to point out that both current and prior period results reflect Monessen as a discontinued operation and therefore have been excluded from this analysis as well as from our published results.

Sales for the third quarter increased 12.2% to $369.4 million, as compared to $329.1million for the prior?year quarter. Increase in sales was a result of higher sales in the carbon materials and chemicals segment, which increased 19.5% or $40million, coupled with slightly higher sales in the railroad and utility segment which increased $300,000. The third quarter sales increase in the carbon materials and chemicals segment was due primarily to an 8% or $16 million increase in sales of carbon materials, a 7% or $14.2million increase in sales of distillates, a 1% or $1.2million increase in sales of coal tar chemicals, and a 4% or $8.2million increase in sales of other products.

Third quarter carbon material sales were positively impacted by $4.4million due to higher volumes of carbon pitch sales, primarily from European operations, due largely to volumes associated with Alcoa's new Iceland smelter; $3.2million of higher volumes for other carbon material sales; and $7.8million due to price increases attributable primarily to higher raw material costs and higher contract pricing.

Sales of distillates, which include creosote and carbon black feedstocks, were positively impacted by higher volumes amounting to $3.5million in higher prices totaling $9.8million. Approximately 75% of the increase in prices was for carbon black feedstocks, where benchmark pricing was affected by a substantial increase in average oil prices from the third quarter of 2007 to the third quarter of 2008.

North American sales of pthalic anhydride in the third quarter, representing 8% of total sales for Koppers, experienced a 17% reduction in volumes due to delayed purchases as customers wait for prices to decline and lower end market demand from customers. This was largely offset by an 18% increase in prices as compared to the prior year. On a year?to?date basis, pthalic anhydride volumes have decreased about 5% from prior year levels. Fourth quarter volumes are expected to be lower than the third quarter due to seasonal reductions in demand and a planned plant shutdown of our facilities for maintenance in October. We recently announced margin increases effective November1, 2008 that should help partially mitigate softness in volumes expected for the fourth quarter.

Overall, carbon materials and chemical sales in the third quarter were positively impacted by 1% or $1.7million due to foreign exchange. We saw foreign?exchange upsides from the first and second quarters begin to moderate, and the resulting impact to third quarter earnings was less positive than we had anticipated.

Sales of railroad and utility products increased slightly in the third quarter to $124.4million. Higher sales of treated crossties helped offset lower sales of untreated crossties and treating services to the Class 1 railroads compared to the prior year, as Hurricane Ike negatively impacted untreated crosstie procurement and sales in the third quarter. However, as indicated previously, volumes of untreated crossties for the third quarter were higher than the second quarter and are expected to continue the upward trend for the fourth quarter of 2008.

Sales of commercial ties, both domestically and into the export market, have remained strong with volumes increasing 13% in the third quarter of 2008 compared to the same period in 2007.

On a consolidated basis, third quarter adjusted EBITDA increased 24.8% to $57.8million compared to third quarter 2007 EBITDA of $46.3million. EBITDA margin dollars were positively impacted by higher volumes and prices for most product lines in the carbon material and chemical segments as operating margins increased from 14.3% to 18.1%, which more than offset a reduction in profit in railroad and utility products. Operating margins for railroad and utility products decreased to 5.9% from 8% due primarily to higher input costs. During the year we have seen the cost of white ties increase $5 to $7, which has caused some dilution impact margins. We expect the impact from higher costs to be mitigated as price increases catch up.

Net income from continuing operations for the third quarter was $24.6million, compared to net income from continuing operations of $16.6million in the third quarter of 2007. Diluted EPS from continuing operations for the third quarter was $1.20 per share, compared to $0.80 per share in 2007.

Total debt at September30, 2008 was $450.7million, compared to $440.2million at December31, 2007, reflecting $20.7million of share repurchases and $5.1million of growth CapEx in China.

Operating cash flow in a year?to?date basis was $58.3million, compared to $49.5million in the prior year period. On an LTM basis, pro forma for the sale of Monessen, our net debt to adjusted EBITDA ratio was 1.9 times. Capital expenditures for the quarter were $12million compared to $3.6million in 2007.

Since our IPO in February2006, we have invested capital of approximately $127million, not only in our existing facilities, but to support our growth in North America through the acquisition of the Riley coal tar assets, to expand existing capacity as well as add new capacity in China, and to expand raw materials capabilities in Europe to meet new smelter demand in Iceland. We have also funded share repurchases, increased dividends to shareholders and reduced net debt by $58million since our IPO, including the proceeds from the sale Monessen and net of approximately $46million of accretion of our discount notes.

We recently closed on a bank refinancing that provides us with greater flexibility in generate shareholder returns. Closing of the sale of Monessen on October1 this year resulted in approximately $90million of net cash proceeds from the sale after taxes. We have used the proceeds to pay off our existing term loans and revolving credit facility, which were at $49.1million at September30, 2008.

On October31, 2008, we also entered into a new 4 year credit agreement that provides for a revolving credit facility of $300million at an initial interest rate of LIBOR plus 250 basis points. The agreement replaced the existing $125million revolver and term loan bank facilities that were due to expire in late 2009. We expect to use this additional liquidity and financial flexibility to look at opportunities to increase shareholder value including growth investment, share buybacks, bond redemptions and dividends. As an example, we were able to recently repurchase $17.5million of our senior secure bonds on the open market at a price below face value.

In the near term, in light of general market uncertainty we are placing a premium on balance sheet flexibility and liquidity. We believe that we are in excellent position to take full advantage of our strong balance sheet to create shareholder value.

Before I turn it back over to Walt, I would like to emphasize that our business is seasonally impacted by demand for our products. The financial performance in the first and fourth quarters is historically lower than the second and third quarters. We see 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 called for global aluminum production to grow at an annualized rate of 7% to 8%. Recent industry estimates indicate that global aluminum production is expected be flat in 2009, compared to 2008. However, the industry is estimating that global aluminum smelting capacity is still expected to grow by 6% in 2009, consistent with longer?term projections of increased demand with new projects in the Middle East, coming on line in Oman and Qatar in 2009, and the United Arab Emirates in 2010. Despite the current economic climate, all indications have been that this new lower cost, more efficient production capacity will come on line as projected, possibly displacing older and less efficient smelters in other parts of the world such as China.

As you are aware, our primary product, carbon pitch, which represents 50% of our distillation process, is consumed as part of the electrolysis process providing us 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 continue our technical efforts in China and Russia to convert these markets to our pitch product based on the quality benefits realized by the Western smelters decades ago. In the near term we will continue to execute on our fundamental strategy of capacity expansion to meet this increase in demand for carbon pitch.

Progress is continuing at both of our projects in China, which will amount to a total increase of distillation capacity of 400,000 metric tons of coal tar. The expansion of the plant and our existing joint venture and the construction of the plant for our new joint venture continue to move forward towards completion by year?end and should provide growth at opportunities for us in 2009, with the primary focus of being able to supply the new smelters coming on line in the Middle East. We also continue to focus on additional capacity expansion opportunities in China and continue to see increasing potential for opportunities in India and in Russia.

You may have seen in recent news regarding potential or actual aluminum production cutbacks in North America and other parts of the Western world as a result of the decline in aluminum prices over the past several months, coupled with expectations of lower short?term global aluminum consumption. Due to our market shares and proximity to lower cost smelters, we believe we are well?positioned to optimize around what we see as limited reductions of production.

We have seen some production cutbacks in China, however, this is not a market we play in significantly. And this could even be a net benefit to Koppers if China has to import aluminum from other smelters that are outside of China. Although we view China as a huge potential market for our pitch, we currently sell very small amounts of pitch into the Chinese market.

Although there have been indications of softness in aluminum pricing and production in the short term, over the medium and long term we remain very confident in the global growth projections of aluminum production, given the dramatic differences in a per capita consumption of aluminum in developing economies compared to the industrialized nations and see this market returning to more normalized levels in 2009.

There's also been news recently relating to the production cutbacks by the integrated steel producers. We are watching this very closely since it could have an impact on availability of coal tar raw material. We have seen some limited reductions at some coke factories but have been and expect to be successful managing through this. At this point, we see [inaudible] indicating a three to four month curtailment of production with less of an impact on coke production.

Now I'd like to talk to you about our outlook for the rest of 2008. After excluding Monessen's operating results and special charges from all periods we are affirming our annual guidance for 2008. But we do caution that due to short?term volatility of foreign exchange rates and general market conditions, we may trend towards the lower end of our range. Please refer to our press release for reconciliation of our guidance and a schedule of the exclusive operations resulting for Monessen.

To conclude, although there is some uncertainty in some of our and markets in the near term, we remain very positive about the long term strength of our primary end markets, aluminum and railroads. We see positive impact in 2009 from our railroad business and the new distillation capacity in China that will come on line in 2009, as well as the flexibility afforded to us by the strength of our balance sheet going forward.

Although lower foreign exchange rates and oil prices will have a short?term negative impact, lower oil prices should eventually work their way back to lower raw material cost. Every cloud has a silver lining. Like we see in other industries those companies that have taken steps to become a clear market leader in their industries and invested in ?? for growth -- have been the winners in the longer term. We hope that the current market instability in places like Europe and China will create opportunities for additional consolidation as we are all well positioned to take advantage of such opportunities. We look forward to these opportunities over the balance of this year and into the future.

At this time I would like to open up our meeting for any questions that you may have.

Thank you, sir. We will now begin the question and answer session. (OPERATOR INSTRUCTIONS). Our first question is from Lawrence Alexander with Jeffries & Company. Please go ahead.

Good morning.

Good morning.

First, can you revisit how much capacity you're bringing on stream, as a percentage of your current capacity base? And how much of that is effectively presold where you already have contracts to cover the capacity?

We are increasing our tar distillation capacity in China with the 400,000tons that I mentioned and that would be about a 15% increase over our former capacity.

And I'm sorry, the latter part, Lawrence?

And just be clear, I think maybe if you could revisit how much of that is presold? How much of that you have visibility on the order fills?

All I can say at this point is that we're working very closely with all of these new smelter projects, Lawrence.

Right, but ??

It's probably reasonable to assume that a large portion of that will be linked to the aluminum production coming on line in the Middle East.

Right.

Right. And I guess secondly, can you walk through sort of a, call it a 12 to 18 month downside case for how you see through the coke supply and the demand side for the carbon pitch playing out? If you were to be surprised negatively, what would be a worst case for you?

Well, that's a long time, 12 to 18 months, Lawrence. I don't really think it would be that long, but excuse me, I can talk to you a little bit about let's say the next six months, perhaps.

Okay.

You really have to look at the regions that we play in. You've seen, I'm sure, where ArcelorMittal has cut back about 30% of their integrated steel production and that's primarily in Europe but less emphasis on coke production. We're thinking maybe as much as maybe 10% to 12% in that range, perhaps.

We are seeing sort of a deeper cut in coke production in some areas like the Ukraine and Poland where they are more so merchant coke producers than they are part of the integrated steel. So with that, and when we look at our tar supplies, as you also recall, we made some very, very serious inroads into Russia over the last 2 years. We've got our new Baltic port facility which is running very well and maybe even if you see a 10% to 15% cut in coke production in Europe including Eastern Europe and the Ukraine, I think we can still manage our pitch requirements that our customers are expecting us to supply without any real trouble whatsoever.

We also have going around the world, we've not seen any cutbacks in Australia. We are the only tar distiller there and we have a very solid raw materials base that we use for Australian operation. In the U.S., we have seen obviously steel cutbacks here, but just very small coke cutback at this particular point, maybe as much as 5% to 7%, perhaps. But with that is, you also, I'm sure, hear us talking about in the past is that we have the capability of using petroleum raw materials that are compatible with coal tar which we do extend our coal tar when we need to, and also have a very strong import program where we can import pitches if needed to fulfill our customer requirements.

So overall, yes, unless there's a real, real extreme, but at the moment it sounds like, based on comments from ArcelorMittal and a few other steel companies actually that this hopefully would be maybe a first quarter sort of a deep cutback and then resuming.

I am still very confident that when you look at the growth economies in China and India, that they're going to be at least 7% to 9% growth in their GDP. China, I think part of their stimulus announced over a $200billion railroad infrastructure plan which will consume a lot of steel. India continues, just being there a few weeks ago, continues to have a very strong growth in their GDP with both the steel industry increasing production dramatically, as well as the aluminum industry over the next 3 to 5 years is going to add another 1.8 to 2milliontons of aluminum capacity as they go forward.

As you know, with our geographic diversity we are in very good shape overall and to look at these opportunities as well as confront any raw material issues that we see along way.

And then, with respect to the balance sheets, how are you ranking the opportunities in terms of share buyback, buying back the debt in the public market and the consolidation opportunities that you're currently seeing in Europe in particular? If you can just give us a snapshot, so to speak.

Yes. It's sort of been consistent with what our overall theme has been before. We would still love to deploy capital, number one, to grow the business. To the extent there is M & A opportunity out there; that would obviously be our preference. Although I think, as you've seen, really, in neither of the share buyback or the bond market or in dividends, we've also been able to contribute into those. But from a ranking perspective I think we'd love to do more around the growth side to be honest, Lawrence.

But are you seeing sort of a M & A multiples down around the 4 times EBITDA level which I guess the shares have been trading at?

Well I think when you at our core businesses, it's a bit hard to see where companies are trading because it's a very select few. It's not like there's much public information particularly about the European market. But I think from a longer term perspective that's where we'd still like to look.

Okay, thank you. I'll drop back in queue.

Thank you.

Thank you. Our next question is from Chris Shaw with UBS. Please go ahead.

Hey, good morning guys. How're you doing?

Good morning, Chris.

Just from your?? what would you expect ?? you were saying that you expect global aluminum capacity to be up 6% next year? Would you still expect positive volumes in your aluminum business knowing ?? next year, knowing what you know now? Are you going to share in that -- in some of those new projects, that new capacity?

Well obviously that is definitely a growth for us as we work with those new smelter projects for 2009. I guess sort of the unknown, Chris, is because these new projects, new smelters, will be much more efficient -- lower energy costs and what have you -- we really don't know at this point how much negative impact that could put on higher cost smelters in other parts of the world. So that's sort of the unknown at the moment. But again, I think we're positioned pretty well around the world with what I think are lower cost smelters like the Iceland smelter that Alcoa built, as well as some of these new smelters coming up the stream.

I think just to reiterate that I think the capacity coming on line in the Middle East, we are pretty uniquely positioned to be able to service that market. So I think that is a good opportunity for us going into 2009.

So you think you'll have your typical market share in the new capacity comes on next year or is going to be more than your normal share?

We would hope that it would be more.

Okay.

I can see in places like Western Europe where aluminum production may come down a bit, our market share and our position there will probably allow us to still retain market share there and retain volumes there. We should be in a position to increase market shares in new capacity coming on line in the Middle East.

And pitch volumes are a product of exactly how much the aluminum guys are producing, it's a pretty easy correlation?

Right.

Is there any, is there any advantage of any of the guys take down, the smelters take downtime that you could get some more orders in because people need to change it out or something?

No, I don't think that would apply here.

Okay. And I was just reading the other day, I guess, CP finally took control of the DM&E. Have you guys talked to them at all or do you have any insight into what they might be doing with that [powder and basin] project?

Absolutely talking to them all the time. Every week, basically, because we are a supplier to both of those companies which are now, as you say, they took over last Sunday, I think it was. It's still a tad early for them to commit on additional time requirements that the DM&E were quoting let's say a year ago, but obviously there's some upside there. We just aren't quite sure what that's going to be or how much capital they'll be spending over the next let's say 18 months or so, but we're anxiously awaiting.

I think the growth numbers that Walt was quoting earlier in the presentation did not include DM&E capital investments. So that would improve those numbers.

Okay. And then on pthalic, obviously you were saying customers may be waiting for the pricing to come down. How long can they wait? Because it looks like it's going to continue to come down. How many months can they wait until they purchase more? Or is demand that weak in general that they can wait?

And I think you have an uncertain demand and then you have product that's seasonal so you're heading into a slow period anyway.

Yes.

So, it could soften in the fourth quarter here even more, but I think the real indication on pthalic is going to be as we get into the early part of next year in the March?April timeframe.

Basically October through January are typically slower months as it is, but you're right, Chris, there's a certain point that they have to start buying.

Okay, thanks. I'll get back in queue.

Thank you. Our next question is from Saul Ludwig from Key Bank Capital Markets. Please go ahead.

Good morning, guys.

Good morning, Saul.

How much did FX help your profits in the first 9 months of this year?

I think in the?? it's not an easy correlation, Saul, because there are some ups and downs I think from some of the foreign operation so it doesn't quite pass through exactly, but if you look at the second quarter, we probably had about a $1.5 million dollar help in the second quarter on FX.

Okay.

I think in the third quarter it was fairly nominal. It was almost nil.

Back in the first quarter?

I don't remember the exact number, but it would have been less than the $1.5 million.

So maybe a million bucks or so?

Yes. I think the rates sort of spiked up in the second quarter.

Okay. You said you repurchased 17 million what, of the 9.875?

The senior secured, the Koppers, Inc. notes.

And the rate on those was?

On the repurchase?

No, the debt level, the interest rate on those notes.

Yes, 9.875.

And you repurchased, what did you say, 17million?

Seventeen and a half million.

In the fourth quarter?

Yes.

Did you make a gain on that? Is that gain included in your guidance?

There was a gain. It's not that huge, Saul, so that's, it's going to be in there, but to be honest it's not, you're not looking at huge driver.

To what degree ?? every year you renegotiate roughly 20% of your contracts for pitch and for railroad ties, which contracts came up for, are going to be renewed now for next year and what was sort of the outcome?

Well, we've made ?? to date we've made the press release announcements on those that we can talk about in the past several months. We have two or three others that we're working on at the moment which actually look very good at this time. You'll hear more about that shortly, Saul.

Could you explain again, you talking about the railroad ties, white ties went up $5 to $7. Don't your customers immediately pay you for that? Does that affect your profits at all, the fact that those railroad ties went up in price?

Not all. The commercial customers do not pay us immediately for them and one of the Class 1s does not. Most do, but it's also a reimbursement, so it's dilutive on the margins.

So probably 20% to 25% of those are not, Saul, and that's what that infers.

Okay. And then just a, there was so much discussion about aluminum demand, aluminum capacity, your additions, is there any concern that you're going to have excess capacity that will result in unabsorbed overhead expenses or is it you're with the right customers? It is sort of confusing as to how you were relating industry comments about aluminum and your particular footprint as it will affect you in aluminum in '09 if you assume that the market is going to have no growth in '09?

I think if you look at that regionally for us, Saul, it's probably the easiest way to walk through that. If you look at North America, about 25% of the carbon pitch requirement that's needed in North America is imported, which we do import from other producers. So to the extent that there's a 8% to 10% reduction in aluminum production in North America will displace import pitch.

And it wouldn't be your import pitch?

Well, we would be importing it but it wouldn't be pitch we produced.

Right, right, right.

We would buy from other producers.

So you would just buy less.

Buy less. The capacity utilization in North America would still stay pretty much the same.

Okay.

In Europe, we have less market share but our plants are located up north in Europe, much closer to Scandinavia, where the more cost?effective smelters would be. So we think our capacity utilization would still remain pretty much intact there. You might see some reductions down in main Europe which would affect some of our other competitors.

In Australia, we see those aluminum producers still producing similar quantities, so the plant there will run a pretty high capacity. Now the Chinese capacity is coming on line, this is going to ramp up, particularly the large addition is going to ramp up over a year. So you're going to see some ability to manage timing relative to shipments in the Middle East relative to how that plant can be commissioned.

So wrapping up, what you're saying is, you don't think that there will be any diminution in your operating rates in your pitch plants in '09 because of the reasons that you just enunciated, even if the macro forces of aluminum aren't -- are modest?

There could be some slight reductions, Saul, it's typically, going forward here if we see more aluminum production cutbacks, it's going to be not restarting idle pots, it could be a partial line, but it's going to be throughout I think the global system where the aluminum companies will be looking at their highest cost smelters so it will be taking a little bit here, a little bit there, which will have a minor slight impact again as Brian says, there's some serious expansions coming online next year and we're prepared for that.

And then finally, Brian, what you see your year?end debt, total debt being?

Net debt should be about $150million, if I'm not mistaken?

How much?

Net debt of cash.

Right.

In the 350, 340 range?

And no plans to?? are you going to continue to buy some of these bonds under par if you can?

I think right now we're sort of taking a flexible approach so, if the opportunity would present itself we would look at that, yes.

But you're not going to call these bonds that you can call?

I can't say whether we will or we won't.

Well, what would influence that?

It's going to be the overall market opportunities that we see at that time.

Gotcha. Okay, terrific. Thank you very much.

Thank you.

Thank you. Our next question is from Steve Schwartz from First Analysis. Please go ahead.

Good morning, guys.

Good morning, Steve.

I think it was in the fourth quarter of last year that Alcoa started up its Scandinavian operations and so you saw a nice bump. Can you, in this third quarter, Brian you put out $4.4million, if you backed out your pitch for Alcoa in Scandinavia, what would your pitch volumes have been?

It's about ?? for the quarter?

Yes, you threw out about 4.4million.

?? 20,000tons up into that Icelandic smelter per year. So, without having the exact numbers in front, you'd say about 5,000 a quarter?

Okay, but from the dollar amount, just where you have the $4.4million if you backed out Alcoa, Finland, from there, what would that number have been? Would it have still been positive?

On a year to date basis. Yes.

Okay.

Yes, it increases?? that's year to date '07, '08, increases are about roughly 34,000 - 35,000tons.

Okay. So as you lap the startup of that facility in the fourth quarter here, you would still expect your pitch volumes to be positive? You're not going to go negative because that start up and that is not in there?

That's correct. That's the general thought there.

Okay. And then Brian, you threw out a number of $7.8million for price. I thought that was for the entire CM&C segment. But then you gave a distillates price of $9.8 million.

Yes, that $7.8 million was for carbon materials ,so that includes carbon pitch and some of our refined tar products. So there are other products in there.

Okay. What was the total for the segment?

On price?

Yep.

Hold on a second. For the quarter? Price -- it's about $26million.

Okay. And, the reason I'm asking is because your operating margin, and I'm going to presume gross margin, was up significantly compared to the year prior quarter. And we would normally expect that when you get that strong pricing because of the dollar for dollar adjustment, that the percentage would go down. But, I think that's, correct me if I'm wrong, is because you saw higher raw material costs in the first half of the year which hurt your margin in the second quarter year over year, and now you've got the price catching up. Is that in fact what's happened here?

Yes, one of the big North American customers had a price adjustment July1 and so, I guess that does help it.

Okay. And then Walt, you threw out 4,000 metric tons of coal tar capacity, distillation capacity coming on. That is in one new facility and the expansion of you first facility, right?

In total, yes. Three hundred thousandtons of the new, and 100,000tons of the current.

And please remember the 300,000 ton facility we have a minority interest in.

Yes, okay. For the expansion, that was a higher number at one point. Wasn't that 150 or 200 at one point?

We could have been using a tad higher but basically it's a net 75,000tons of pitch.

The capacities in those haven't changed.

Okay. And then, just one last one. You mentioned carbon black feedstock sales were strong. You sell carbon black feed out of Denmark and Australia, right?

And China.

Just into China. Oh, and China.

No, no. We produce in China for the China market. We produce in Australia ?? less than half stays in Australia. 50% to 60% actually goes up into southern Asia. And then in Europe we produce out of Denmark and that sells in the U. K and sells into Western Europe.

I'll presume based on the results of one carbon black producer that your Western Europe business was down, Asia was up?

Yes, I think in the third quarter our carbon black volumes, I don't have them right in front me, I don't think that we had much weakness in the third quarter in volumes in Western Europe.

Okay. Okay great. Thanks a bunch.

They were and continue to be very strong in Asia.

Okay. Gotcha. Thank you.

Thank you.

Thank you. Our next question is from [Bob Svetch] from [Ford Ebbett]. Please go ahead.

Good morning, gentlemen.

Good morning, Bob. How are you?

Very good. In regards?? do you have any floating rate debt left?

Not as of today.

Not as of today, okay.

As of September30 we had the bank debt and the term loans that were out. They were floating. Those were paid off with the Monessen closure in October1.

Okay.

I'm sorry, we do have actually a swap on our bonds that's out there for $50 million swap. So actually the answer is $50million floating.

And what are you looking at for, just refresh me on your CapEx numbers for this year and next approximately.

Yes. CapEx for us, we communicated a number of about $35million, and we're trending a bit behind that so it might come in a bit lower. We haven't communicated the CapEx number for next year. The $35million in this year included probably $6million around China growth. That won't recur next year and I think just in general with where we're seeing things, I think we would probably look to manage that number down a bit. That $35million is higher than what would be a normal CapEx for us.

Okay, so it sounds like sub 30, anyhow. For next year.

Yes, keep those steel prices coming down.

Yes. Looking at your 9 month depreciation, just under $20million, are we going to be somewhere in the mid upper 20s for the year then? Do you think?

Yes, hold on, hold on. Yes, yes. About $27million for the year.

Okay. So, next year you should be generating free cash, I guess, will be greater than net income then, right?

Yes.

Or just about that, I guess.

Yes. There's also some amortization in there from bonds ?? that's in that $27million. Yes, I think cash flow should be yes, higher than net income.

Okay, so then again, I guess, getting back to the question on uses. You've got a dividend and earning run rates you have even if you were earning half as much as you were right now should still be fairly well covered number one, right?

Correct.

Now how large is your repurchase that's outstanding currently?

It's $75million. You're talking about the share repurchase?

Yes, right.

Seventy?fivemillion, and we've spent about $20million on it.

Okay, now since you averaged over $40 a share have you gotten more aggressive recently? And what determines the pace at which you acquire shares?

It's more opportunistic than a specific model. I'll be honest, we've been a lot more conservative probably in the last month.

Even though the stock's more attractive, right?

Yes, I think right now as I said, we're placing a premium on liquidity right now just to let things settle out.

Right. That's understood. It seems like the whole world has been doing that, obviously, for good reasons. But if one feels that they've got visibility on their cash flows, it seems like you could at least be investing what you're generating while not touching current reserves or your current balance sheet, correct?

Right.

Okay. And ??

It's a good place to be sitting, where we are. I think there's still ?? the balance sheet gives us the opportunity to pull some levers. I think right now we'd just like a little more clarity exactly on the things you're talking about.

You can correct me if I'm not accurate, but I think you said '01, '02 in the past was the last time EBITDA did not grow and that was during a period where you have the major shutdowns in North America smelters from 10 to 4. What sort of scenario do you think is required for you not to show any growth in '09?

There is additional?? it's hard, with additional capacity coming on line and the railroads projecting growth in tie insertions, those are two pretty good growth drivers for us. I think the FX sort of clouds that and as oil, lower oil sort of works it's that way back through pricing, those may have some pricing impacts on us. Fundamentally, those will sort out from a volume perspective. I think it seems like a pretty good opportunity for growth next year. We will be distilling more product. We will be producing more product.

Right. Again, with the markets that you're serving, relative to industrial companies you've got the kind of visibility, 90% of the companies out there would like to have themselves, my guess is.

Yes, I think that's fair, yes.

And is there any way that you can participate more directly in, I've read a number of articles recently as well about the tremendous expansion in the Chinese railroad system over the next few years.

We're certainly looking and I think the stimulus they're talking about is $200 or so billion. We are, have been looking at how can we be involved. As you know, we are a concrete tie producer here in the U.S. and perhaps there might be something there that we can look at but it's quite a growth projection. And I think it'll happen because China's going to continue to find ways to continue growth and moving west where they need railroads and what have you, and everything that comes with it.

So are you looking at acquisitions principally to serve the market?

I think it's too early to even comment.

It's our logic that we probably leverage our existing relationships that we have. But I think it's important backup. It's not a wooden tie market, it's a concrete tie market, so it would be around a concrete product. So if we were to look at it we would probably look at the relationships we have and try to build off of that in the regions where we have some strength.

And is it actual spending that's taking place today or is it still planned spending?

On the?? in China?

In China, yes.

They've been spending a lot but these are projected spending.

Actually, it was just in Business Week November3, just indicated they've got 49,000 miles of rails, which is only a third of what we have, and yet they're ??

Right. Yet they're expanding another 75,000 miles.

Yet they're equal to our size and talking about another 75,000 so that's proportionately, it's a dramatic increase in their own rail system.

And it's ?? it'll touch us in other areas as well because it'll touch us in concrete, because of some of the end market products that we have there. It'll be ?? that sort of investment will help us in our core carbon materials and chemicals business.

Now, again balancing the liquidity issue. You've got the means and you've got a revolver now, too. Does that kind of put on hold acquisitions as well, until things as you define them stabilize somewhat?

I don't, I don't -- I don't think so. I think we would sort of hope that maybe this market might actually help initiate some consolidations. So it's, particularly in Europe, somebody who might be more heavily weighted in the European market and not be able to participate in growth in Asia or elsewhere, might be ?? might find their issues more focused.

You're going to see us more ?? we've been proactive looking at things that would fit well. And we've not stopped that looking whatsoever, so I think if the right opportunity comes along we certainly are capable of doing it.

No, I just found in the past that it seems that when the best ones at the best prices are available is when everybody for one reason or another holds back from moving forward because of a lack of visibility and yet, if you kind of wait around for everything to get better and more visible, then one's always paying a lot more for something. And that's the only way to sell it to a board. But if one has the financial wherewithal and the conviction, to move on something that makes a lot of sense.

I think what you're saying is more of, maybe I'm trying to express when I say we're keeping flexibility. What we don't want to do is commit ourselves to commit our capital in share repurchases and bond repurchases when you may want to be using that on an M&A front. That's more what you're hearing, I think.

Okay. And let me make sure I got that opening comment right. You said tie insertions are expected to be up 3% but you expect volumes actually to be up 2 to 3 times that because the orders this year have been below the needs.

What we said was that the U.S. Class 1s were going to be up 3% and procurement is going to be even better than that for the U.S. Class 1.

Yes, Bob, you're probably right. The treatment volumes will grow with the rate of insertions but the white tie procurement will grow faster because of the cutback in procurement this year.

Okay, okay. That pertains to the white ties.

Right.

Okay. All right, thank you.

Thank you, Bob.

Thank you. We have time for one last question and our last question is from Lawrence Alexander. Please go ahead.

Lawrence, you're back for more questions.

I'll try, I'll keep this down to one. With the imported carbon pitch into the U.S. that Koppers brings in from elsewhere, how should we think about the margin impact of a 10% loss in volume on that part of the business?

You should think of it nominally, because it's essentially a commission. So if you make a 3% commission on it we'd be replacing that with a product that we would be making 20%, 25% margin on.

I guess the impression from your prior comments was that as actual demand contracts, it hits the imported volume but it's not that you're displacing it with higher margin products, it's just that it's being displaced.

Right, right.

Okay.

So we would retain our higher margin profit, but we would lose a lower margin commission.

Right. So think about a 3% to 4% margin on that business.

Unfortunately a small impact on our overall possibility.

Okay, then lastly, if I can squeeze one other one in under the wire. Given all the gives and takes, if you were looking at next year with a 10% hit to the, or 10% strengthening of the U.S. dollar, are there any rules of thumb that you would benchmark for how it would affect each of the segments?

Well, it's --

Just a rough swag.

Strengthening 10% from today?

Yes, just as an example.

Well, it's ??

Or it's from ?? or year over year strengthening, to make it easier.

I look at where it was ?? if you look at the second quarter compared to the third quarter, that's probably more than a 10% strengthening.

Okay.

And I think that had about a $1.5 million change in profit impact?

Okay, perfect. Thank you.

Thank you, Lawrence.

Thank you. That concludes our question and answer session. I would now like to turn the conference over to Walt Turner for closing remarks.

Thank you, operator. We certainly thank all of you today for participating in our 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, as you've heard us talk about a lot, is certainly key for us, in our major products, and our geographic locations around the world. We can see continued strong demand in our end markets, particularly based on the committed aluminum capacity additions coming online in 2009. We are very well positioned given the capacity initiatives under way in China.

Our balance sheet can easily support not only these additions but also potential opportunities to stimulate growth or create shareholder value particularly in light of the cash from the sale of the Monessen plant combined with the new bank agreement which does provide us significant stability and flexibility going forward.

And finally, we remain committed to enhancing our shareholder value by executing our strategy of providing our customers with the highest quality products and services while continuing to focus on our safety, health and environmental issues. And we certainly look forward to speaking with you again soon. Thank you very much. Thank you.

Thank you, ladies and gentlemen. This concludes the Koppers Holdings third quarter 2008 results conference call. If you would like to listen to a replay of today's conference call, please dial 303?590?3030 or 800?406?7325, with access code 3932945 followed by the pound sign.

I would like to thank you for your participation. At this time you may disconnect.