Koppers Holdings Inc (KOP) 2009 Q3 法說會逐字稿

Ladies and gentlemen, welcome to the Koppers third quarter 2009 earning conference call on the 5th of November 2009. Throughout today's recorded presentation, all participants will be in a listen-only mode. After the presentation there will be an opportunity to ask questions. (Operator Instructions)

I will now hand the conference over to Mike Snyder. Please go ahead, sir.

Thank you, Christine, and good morning, everyone. Welcome to our third 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 else you can call Rose Salinsky at (412) 227-2444 and we can either fax or email 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 to Walt Turner. Walt.

Thank you, Mike, and welcome, everyone to our 2009 third quarter conference call. Before we get into the financial results, I would like to update you on what we see is the current status of our end markets. As anticipated, our third quarter results reflected sequentially stronger results in our Carbon Materials and Chemicals business, while we experienced an expected moderation in the North American class I railroads. While end markets for Carbon Materials and Chemicals in North America and Europe remain stable, our Asian and Middle Eastern markets continue to show growth.

Fuel production continues to increase slowly to provide relief on our raw materials side. And although aluminum pricing has stabilized at higher levels, this has not yet translated into higher carbon pitch volumes in our North American and European markets. Our expectation continues to be that it will be at least several quarters before any significant amount of smelting capacity in North America and Europe comes back online.

We continue to manage our business in a conservative manner, focusing on reducing costs, emphasizing cash flow, and taking advantage of consolidation opportunities in our core businesses when they present themselves. I will talk more about these later.

I continue to believe that as a market leader in our core products and end markets we will emerge even stronger as the global economy recovers.

Similar to our approach from the last call, my primary focus will be on sequential rather than year-over-year results. Brian will provide the year-over-year comparisons later on in our presentation.

Although carbon pitch volumes declines 12% from the second quarter, we estimate that only about 2% is due to smelter curtailments, with remaining volumes due to timing of shipments. This decline was substantially offset by increases in refined tire and petroleum pitches of 41% and 141% respectively. We believe that we have seen the market bottom for carbon pitch, and that aluminum and steel production are stabilizing and, in certain areas, increasing.

While sales of creosote to the wood treating industry declined 33% as volumes declined compared to the second quarter, this decline was more than offset by an increase in volumes for carbon black feedstock to the carbon black producers of 61%, as demand for product in Asia and Middle East was quite robust and indicative of growth in rubber production in those regions. This increased demand was also reflected in an increase in volumes from our carbon black plant in Australia of 26% compared to the second quarter.

Prices for carbon black and for the carbon black feedstocks increased from the second quarter as a result of the increases in oil prices. Sales volumes for phthalic anhydride in the third quarter were down 14% compared to the second quarter, as housing and auto industries in the US continue to be depressed. Fortunately, a 10% increase in pricing helped to offset the volume decline as higher oil prices impacted orthoxylene and phthalic prices.

Relatively speaking, end market demand for carbon fuels and chemicals still remains depressed over prior year levels. However, we seem to have found signs of stability and even growth in the end markets for rubber and construction outside the US.

As noted during our last call, our Railroad and Utility Products businesses was quite strong in the first half as the class I railroads accelerated their buying and insertion rates to take advantage of favorable market conditions and labor efficiencies with lower traffic volumes. As expected, volumes for untreated ties were reduced in the third quarter, as our normal seasonal patterns began. We expect volumes in this business to decline further in the fourth quarter due to normal seasonality, coupled with the impact of the front loading of maintenance programs in the first half of the year by the class I's. As a result, the decline in volumes of untreated ties from the second to the third quarter was about 27%. We were pleased to see that the class I's maintained program levels for the year, despite a challenging economic environment.

Interestingly, although revenues in this segment for the third quarter of 2009 were down year-over-year, EBIT increased $2.7 million or 38% from the third quarter of 2008, as the sales mix changed to higher-margin treatment services and cost reduction initiatives have also had an impact on this business.

As announced previously, we have initiated steps to reduce costs and optimize plant production and inventory levels around the company. I expect that the end market demand, although stabilizing, will remain soft, and that the supply of coal tar will increase as the demand for steel rebounds. We believe these operating conditions will continue not only through the end of the year, but more -- most probably well into 2010.

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 as we move forward into 2010. Brian.

All right. Thanks, Walt. Sales for the third quarter decreased 22% to $290 million as compared to $369 million for the prior year quarter. Approximately $8 million of this decrease relating to foreign exchange.

We continue to see the most significant impact of the global economic decline in our carbon materials and chemicals business where we saw global volume declines lead to lower sales of 29% or $72 million, while sales in the Railroad and Utilities segment decreased 6% or $7.7 million. Sales of railroad and utility products decreased $7.7 million or 6.2% in the third quarter, to $116.7 million from $124.4 million. Higher volumes of treated crossties and treating services for the class ones were more than offset by lower volumes for untreated and commercial crossties, coupled with lower volumes for utility poles.

Adjusted EBIT in Railroad and Utility products increased 38% to $9.9 million from $7.2 million in the prior year due to product mix and cost reduction efforts. Adjusted operating margins for R&UP increased to 8.6% from 5.9% due primarily to cost reduction efforts and product mix, as higher sales of treating services replaced sales of untreated ties compared to the prior year quarter.

We have seen significantly less spending in the export market and by the short lines in 2009, and anticipate continued pressure on volumes and margins in this part of our business, as volumes for commercial ties in the first nine months of 2009 were down 47% from what was an exceptionally strong first nine months in 2008. Hopefully, the return of this end market demand will provide some upside opportunity in 2010.

Third quarter sales declined in Carbon Materials and Chemicals as compared to the prior year quarter, was impacted by [high end] markets as well as raw material availability. The decline was comprised of an 11% or $26.2 million decrease in the sales of carbon materials, a 7% or $17.6 million reduction in sales of distillates, a 6% or $15.7 million decline in sales of coal tar chemicals, and a 5% or $12.6 million decrease in sales of other products, which includes carbon black, fuels, freight, and other miscellaneous products.

The third quarter carbon materials sales were negatively impacted by $27.3 million due to lower volumes, as smelter closures and curtailments impacted customer volumes for carbon pitch. Particularly impacted were operations in Europe and North America where aluminum production curtailments were concentrated.

As Walt indicated earlier, we believe we have seen some stabilization in carbon pitch volumes, but, unfortunately, we haven't seen strong indications that these smelters may be coming back online in the near term.

Sales of distillates, which include third-party creosote sales and carbon black feedstock, were negatively impacted by lower volumes amounting to $7.1 million. Lower prices for carbon black feedstocks amounted to $8.8 million, reflecting the decline in oil prices from the prior year's quarter.

North American sales of phthalic anhydride experienced a 23% reduction in third quarter volumes due to continued lower end market demand from the housing and auto industries, [with] the xylene prices are currently in the $0.40 range compared to $0.58 at the end of the third quarter of last year.

Sequentially volumes were down somewhat from an already depressed second quarter. As of yet, we've not seen increased demand driven by news in the housing and auto end markets. Unfortunately, a two-week maintenance outage for the phthalic plant scheduled to be from late September through mid-October was extended for two additional weeks due to some unforeseen mechanical problems and will have a negative profit impact on phthalic volumes in the fourth quarter of potentially between $1 and $2 million. As of today, this plant is back online and fully operational.

Carbon Materials and Chemical's adjusted EBIT for the quarter of $23.7 million, declined 46% from $43.9 million in the third quarter of 2008. EBIT margin dollars were negatively impacted by lower volumes across all product lines and by lower prices in phthalic anhydride, carbon black, naphthalene, and carbon black feedstocks.

Margins were also impacted by $1 million for FX as well as depressed end market conditions, as adjusted operating margins dropped from 18.2% to 13.7%.

On a more positive note, we did see third quarter margins increase to 13.7% from 12.4% margins in the second quarter, reflecting greater stability in the business, cost reductions, and higher prices for carbon black feedstocks to the higher oil prices.

Overall Carbon Materials and Chemical sales in the third quarter were negatively impacted by 3% or $7.3 million due to foreign currency exchange rates as compared to the prior year. Average oil prices through the nine months of 2009, are about $56 per barrel, compared to about $109 per barrel in the first nine months of 2008. This has led to lower benchmark pricing and lower profitability for our carbon black feedstock, phthalic anhydride products. We did see some benefit in the second and third quarters, as oil prices increased over first quarter levels.

On a consolidated basis, third quarter adjusted EBITDA decreased 32% to $39.4 million, compared to third quarter 2008 adjusted EBITDA of $57.9 million. Compared to the second quarter of 2009, adjusted EBITDA in the third quarter was level at $39.4 million. Adjusted EBITDA for the third quarter excludes a $400,000 impact for an outage at our TKK joint venture in China.

Adjusted net income for the third quarter of 2009 was $16.6 million, compared to adjusted net income for the third quarter of 2008 of $24.6 million.

The company's effective tax rate decreased from 38% in the third quarter of 2008 to 25% in the third quarter of 2009, due to the company's decision to reinvest cash in our European business, rather than assume the consequences of repatriation. This change in assumption positively impacted third quarter net income by about $2 million or approximately 0.10 per share compared to the third quarter of 2008.

Third quarter adjusted EPS with the lower effective tax rate was $0.81 per share compared to prior year's adjusted EPS of $1.19 per share and second quarter 2009 EPS of $0.57 per share. The impact on EPS of changing the effective tax rate in the third quarter compared to the second quarter of 2009, was a benefit of about $0.18. For future purposes, a reasonable assumption for effective tax rate should be in the range of about 36%.

As Walt mentioned, we have targeted cost reductions of about $35 to $40 million that include raw material cost reductions in addition to reductions in personnel, logistics, fuel, and other costs. Currently several wood treating plants in North America are operating at reduced levels due to reduced demand, resulting in some incremental cost reductions. We believe that at the end of September profit had already benefited by approximately $30 million of these cost reductions, and we will continue to press for further reductions in cost.

As noted previously, our cost structure is such that about two-thirds of cost of sales is raw materials. We believe that about 85% to 90% of our cost of sales is variable. This allows us to reduce a significant portion of our cost structure by managing plant operations until end market demand returns to some level of stability and also allows us to optimize production around the most cost-sensitive areas such as access to raw materials, logistics costs, and plant costs.

As noted earlier, we plan to optimize our fourth quarter wood treating plant operations around end market demand.

Operating cash flow in the third quarter fell to $29.8 million compared to $38.7 million in the prior year quarter, and a year-to-date total of $92.6 million, compared to $58.3 million in the comparable period in 2008. We have targeted and are well on our way to achieving specific inventory and capital expenditure reduction goals for the year. As mentioned in our last call, we're planning to reduce capital spending by at least $15 million over 2008 totals, to $20 million in 2009, spending $11.2 million in the first three quarters of 2009.

Our debt, net of cash on hand at September 30th, 2009, was $258 million compared to $312 million at December 31st, 2008. Our strong cash flows in the first nine months of the year have allowed us to keep our leverage ratio around two on an LTM basis, despite significantly lower earnings over the past four quarters. We ended the third quarter with $131 million of cash on hand compared to $63 million at December 31st.

We continue to maintain a very defensive capital structure, even after the call of our 9-7/8 senior secured notes. Should incremental investments for expansion or consolidation arise, we will review these prudently, but would like to be able to take advantage of additional business improvement opportunities as they present themselves.

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, potentially with more volatility than we would normally see, as phthalic anhydride volumes will be impacted by the October outage and customers, particularly in the railroad end market, may be looking to reduce year-end inventories to strengthen year-end balance sheets. This anticipated reduction in railroad demand that includes treating services will also majorly impact sales of creosote for our Carbon Materials and Chemical segment.

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

Thank you, Brian. Through the third quarter of 2009, our two business segments, Carbon Materials and Chemicals and Railroad and Utility Products, were 56% and 44% respectively of our total revenues. The growth in the Railroad and Utility Product segment in the first half of the year has normalized as expected in the third quarter, as the demand for untreated wood crossties have reverted to normal program levels.

As mentioned in our last call, there's been a shifting of class I volumes into the first half of the year. Therefore, we have seen some moderation of buying in the first half -- buying patterns in the second half, but still within program levels. Thus far, the rate of tie insertions in 2009 by our class I customers has not been significantly impacted by economic conditions. Due to the importance of crossties to the rail infrastructure, we believe that the railroads will reduce spending on ties only as a last resort. We are encouraged that at the end of September, there were 7.2 million crossties that are seasoning at our wood treating plants compared to 6.2 million at the end of 2008. As you may know, these ties, most of which are owned by the class I's, must be treated within a relatively short time after they are dry.

This should be indicative of another strong trading year for us in 2010. We see this business, although having some risk for volatility in a very uncertain economic environment, as having a more consistent performance in a market downturn.

We also continue to review the government stimulus plan closely and are hopeful that infrastructure spending will have a positive impact on the railroads, although this would be likely on the commercial side of the business. Considering that we have seen our commercial tie business down at historic low levels, this negative impact in 2009 should provide opportunities for volume growth going into 2010.

Carbon Materials and Chemical segment is largely tied to the production of steel and aluminum. As you may recall, we use a byproduct of metallurgical coke process making, coal tar, as our raw material to produce carbon pitch for the aluminum industry, carbon black feedstocks for the rubber market, and naphthalene as feedstocks for concrete additives and also for further processing in the phthalic anhydride for the plastics and resins market.

But beginning in late 2008 and into 2009, we saw significant reductions in steel and coke production that have led to reductions in coal tar availability. However, over the last two quarters, we have seen increases in global coke production that have resulted in an increase in coal tar. Although we are constrained in certain regions of the world due to low volumes of tar, we have been able to meet our customer demand by blending tar with certain petroleum feedstocks, or by importing and exporting products throughout our global network of plants. This has allowed us to meet demand but at a higher cost. We continue to believe that this will normalize in the latter part of 2009 and ultimately lead to cost reductions as we head into 2010.

Speaking of petroleum products, we continue to see increased volumes at our new petroleum pitch business and are encouraged that this business will continue to strengthen and offer opportunities for growth also in 2010, particularly as the electrode market improves.

I can assure you that we continue to manage our plant capacities as well as our raw material and production cost to optimize our results. We still believe in the longer term growth of global aluminum production and believe that we will emerge a strong position to capitalize on this growth.

Our position in China provides us a base -- basis for which we can capture business from increased smelting in the Middle East. For example, in 2009, we began our initial shipments of carbon pitch to the new smelter in Qatar and also expect to begin shipments later this year to the new EMAL smelter in the United Arab Emirates.

For both of our core businesses, we continue to keep close watch on potential acquisition candidates around the world that give us the ability to grow our market shares and expand our market base.

Although we still see 2009 as a challenge, we will continue to manage our businesses to maximize efficiencies throughout this period of correction. The strength in our balance sheet should put us in a strong position to possibly use this downturn as a catalyst for further consolidation in our core markets. We expect that Carbon Materials and Chemicals business, along with the global economy, has bottomed, and will provide opportunities for growth in 2010. The Railroad and Utility Products segment, although maintaining expected levels of demand from the class I railroads, will see additional moderation of profits as volumes return to expected annualized levels and are negatively impacted by normal seasonality due to winter weather.

Early indications from the class I's are that buying patterns for crossties will remain strong in 2010. Our expectation regarding our key raw material suppliers continue to be that steel production will rebound before aluminum production rebounds, due to the fact that this is a very expensive issue to bring on idle smelter -- smelters online, and the aluminum producers will only do this if they see positive fundamentals well into the future.

Like our aluminum customers, we are watching aluminum inventories and prices, hoping to see a trend towards increased production. Although we have not seen inventories decline recently, we have seen price increases for aluminum that we believe reflect positive trends in this end market. Although we see signs of stabilization in the steel and aluminum industries, there is still the potential for quarterly volatility in demand for these markets that compromises our ability and provide current guidance for the rest of 2009.

We still anticipate that increases in aluminum production in North America and Europe will lag increases in steel production by as long as a year due to the (inaudible) inventory levels and the significant cost involved in restarting a potline. We continue to see opportunities for growth through the end of 2009 and well into 2010 in these markets and also through potential acquisitions.

To conclude, although today we have seen increased stability in our end markets, they're still all at significantly reduced levels. We remain very positive about the long-term strength of our primary end markets, aluminum and railroads. We have seen positive impacts in 2009 from our railroad business and also from the new distillation capacity in China, as well as the flexibility afforded to us by the strength of our balance sheet. With our capacity expansions in China, we are well positioned to capitalize on increased global demand for aluminum when markets return to the normal levels.

Additionally, anticipated stimulus spending in the US, China, and other regions of the world where we operate and sell products, should also provide some upside to our businesses, especially to the extent funds are spent on infrastructure projects.

Not only are we focused on the financial stability of our existing operations, we are diligently looking for consolidation opportunities within our core businesses. This, along with our expansion in the petroleum pitch markets and the acquisition of a railroad crosstie pre-plating business should position us for growth when markets become more normalized.

Regarding our Chinese operations, we experienced an outage several months ago at our new 30%-owned joint venture TKK, resulting in the temporary idling of the plant operations. I am pleased to report that as of early October, the plant is back online again, and -- although third quarter results for TKK operations resulted in a loss of equity income of $400,000 as a result of the shutdown.

We do caution you that in addition to normal seasonality, we are anticipating potential volatility in the fourth quarter, as some customers may be looking to reduce inventories to bolster year-end balance sheets. We believe that the current market conditions in places like Europe an d 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 ask for any questions that you may now have.

Thank you, sir. (Operator Instructions) The first question comes from Ivan Marcuse from KeyBanc Capital Markets. Please go ahead.

Hey, guys. How you doing?

Good morning. How are you?

Hi, Ivan.

All right. With your change instead of -- in of not bringing back cash into the US, do you see opportunities in the near future in Europe? And what's sort of your strategy or plan looking out the next six to 12 months in Europe?

I mean, I think a couple things. I mean, the change in the tax rate is reflective not just of a change in what we see as potential consolidation outlook in Europe. It's also based on sort of the stability of the business in general. In other words, we don't need to bring the cash back so we can position our cash for reinvestment in Europe.

Ivan, I think our -- we still believe that the opportunity for consolidation in Europe is pretty ripe. I mean, the continuing struggles in Europe we think are fairly positive signs for that. But as far as whether something can be done in six months or 12 months, that, I think, will remain to be seen.

Right. What's your market share right now in Europe in the carbon -- in the carbon pitch business?

The carbon pitch business is probably -- well, currently it's in the, probably the 15% to 18% range with the various smelter effects.

Got you. And then last question is, the markets that you've recently entered to, were they contributors in the third quarter, the targets and the electrodes?

Yes, for sure. We continue to see each month that increase demand for the petroleum, petroleum products.

Great. Thanks a lot, guys.

No, thank you.

The next question comes from [Chris Shaw] from (inaudible) Securities. Please go ahead.

Hi. Good morning, guys. How you doing?

Hey. Good morning, Chris.

Good, Chris. How are you?

Good. I was trying to figure out, was the drop in raw material prices meaningful in the quarter? Was that a significant contributor to the margin increase sequentially in Carbon Materials?

Right. I think you'll see more of that as we get closer to the end of the year and into next year, Chris.

All right. That wasn't that meaningful?

Right. And most -- a lot of our raw material contracts renegotiate prices more on a calendar basis.

Okay. Then I was just trying to -- I missed when you were talking about the impact, I think in the fourth quarter, the one to two million from phthalic outage, right?

Right.

Was that a sales or profit? I missed that.

That's profit.

Okay, profit. And then just, the balance sheet as of the end of the quarter, that reflected all the moves in the calling of the bonds?

No, actually that's a good question, Chris. The bonds were called on September 15th. They actually were not physically redeemed until October 15th. So the actual replacement of the bonds with the revolver facility and the write off of the deferred financing costs and also the call premium, will all be reflected in the fourth quarter.

Did you use any cash or was it all from the revolver?

It's a bit of a combination, but I don't know that we talked about that.

Bit of a combination.

Great. Thanks.

Your next question comes from Steve Schwartz from first analysis. Please go ahead.

Hi. Good morning, guys.

Hi. Good morning, Steve. How are you?

Good. Brian, just to continue on Chris' dialogue. So, in other words, the money you have or the liability you have in short-term debt, will get transferred into long-term once the fourth quarter balance sheet comes out?

Correct. I mean, some of the cash would be used to pay that down. But what you'll see at the end of the year is that that debt will be in the revolver.

Okay. And then, you know, if tie demand, there are some forecasters saying tie demand goes back to 18 million ties a year. At that point, what do you think your operating margin goes to? I mean, in '05, '06, I think you were around 7% annualized and you're now up to 8.5%, 9%. So what do you think --

I think, well, I mean, I think as Walt mentioned, we're not seeing any indication from the class I's that tie demand is going to be down --

-- that low.

-- next year. The commercial business, that's down about 50% this year for us. So sort of in a continuing environment, I would expect margins to probably look more like they looked this year.

Steve Schwartz Okay.

In fact, if you look at the third quarter, as we mentioned, third quarter margins improved very nicely over 2008. And so we're doing some good things as far as plant cost controls and managing costs a little Brian Turner.

Okay. Walt, you threw out the 7.2 million. I didn't catch what period. Is that as of the end of the third quarter? 7.2 million [white] ties and their seasoning.

Oh, the --

No.

The inventory in our plants, right. That's a million ties over when our -- or what our inventory was at the end of 2008, which, again, as I mentioned, when you can see $7.2 million ties being [aero] stacked, they must be treated, as you recall, at certain times. And so that's a good indicator for that business going forward.

Okay. And then just one last one, some numbers. Can you give us the SG&A split between the segments? So how does that 13 million break out?

Hold on a second. For the third quarter?

Yes, please.

It's about 8.8 million -- I hope I have the right -- so say about 8.5 million for CM&C.

Okay.

About 4 million for R&UP.

Okay. And then there's 5 -- there's 0.5 million --

Yes.

-- 500 K --

Which is in the holdings company, right.

Okay. Very good. Okay. Thank you.

Thank you.

Your next question comes from Laurence Alexander; Jefferies and Company. Please go ahead.

Hi. This is [Amanda Sigmund] on for Laurence.

You don't sound like Laurence.

First question, you've been building up some cash on the balance sheet. Just wondering what level of cash you're comfortable with going forward? And on that note, as far as uses of cash, it sounds like M&A is certainly a priority. If you could drill down a little bit into kind of the size of acquisitions and which end markets you're -- which segments you're most interested in.

I don't -- I mean, on the cash, I think it's certainly not our long-term interest to hold that much cash. I mean, we still have debt, even debt under the revolver to pay down. I think as business stabilizes and what we want to make sure we have is ample access to liquidity. So for us, today, that means maybe cash. Maybe a quarter or two from now it doesn't have to be cash, maybe they'll be some other mechanism. But I think what you're seeing is more of a defensive posture right now.

As far as M&A, I think for us it's -- we'd like to be focused on things in our core. So not -- relative conservative approach. I don't think -- you know, never say never. But there's probably not a huge desire to add an awful lot of leverage on the books right now. So small, more accretive transactions like coastal timbers or like the petroleum pitch business, they're very attractive to us.

Okay. And just one question on the cost savings. It sounds like it was about 15 million benefit in the third quarter and still on track for the full-year target. Is -- what portion of that is sustainable going forward as volumes come back?

We're looking at somewhere between 20% and 25% is our goal to move forward [with the] costs that we had this year. So at least 20%, 25% range.

Okay. Thank you.

We have a follow-up question from Chris Shaw. Please go ahead.

Yes. I was just curious, amongst the [buffer] news the other day that there was, I guess Norfolk Southern was -- had some news around the Crescent Corridor Project. I know they've been talking about it for a long time. Was there anything incremental in terms of what they were doing that was announced the other day?

Well, obviously, the announcement of the Burlington Northern Santa Fe with (inaudible) I think is very good news for Koppers and even other railroad suppliers. I mean, it just sort of really supports and solidifies what we've been saying all along, that the infrastructure of the railroads is going to continue to be a priority, especially on the maintenance of weigh areas. I think just the strength of that really shoes that the infrastructures are very key and there's going to be more freight moving from trucks to rail as you go forward. So I think it's very good news for us as well as others.

Yes. We couldn't build our cash balance fast enough to make a run at them.

Was there anything specific in that Crescent Corridor news that came out?

No. I think the other comment you made, the NS news on the Crescent Project, I mean, I think for us these are more -- they're not going to provide incremental growth in volumes for us. But I think they're more indicative of a long-term investment in infrastructure. So I think, for us, I think that's one of the reasons we're pretty bullish around what the class I railroads are doing.

And just one more. Where do you report the equity income from the China JV? Is it in other or something, or?

Yes, it's in other. Exactly.

Okay. Thanks.

(Operator Instructions) Thank you. Mr. Turner, there appear to be no further questions. Please continue with any other points you wish to raise.

Thank you. And we thank you all for attending today's -- for participation and being part of our third quarter call and appreciate your continued interest in our company. We continue to see the benefit of diversity in our products and our end markets in 2009, as the strength of our railroad business in the first have of 2009 mitigated the negative impact of the global recession on our Carbon Materials and Chemicals businesses.

In the second half of this year, our expectation is that our Carbon Materials and Chemicals business will improve over the first half of the year, while the railroad business slows to a more normalized seasonal program level.

Although our markets remain significant impacted, I hope you have heard our message today, that we are seeing signs of stability in our aluminum and steel markets. We see continued strong demand in our end markets in the long term, particularly based on the committed aluminum capacity additions coming online in the least this year and 2010. And we're very well positioned, given capacity additions in China.

Our balance sheet strength has and should continue to provide potential opportunities to stimulate growth and create shareholder value. We will continue to operate the business and manage our capital structure in a conservative manner, and we do believe strongly in the long-term strength of our end markets, and our position as a market leader in our core businesses.

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

Thank you for participating.