Koppers Holdings Inc (KOP) 2009 Q4 法說會逐字稿

Welcome to the Koppers Holdings Inc. fourth-quarter 2009 earnings conference call on 17 February 2010. Throughout today's 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.

Thanks, Vivian. Good morning, everyone. Welcome to our fourth-quarter conference call. My name is Mike Snyder and I am 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 Zalinski] 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 SEC.

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?

Good morning. Thank you, Mike, and welcome to our 2009 fourth-quarter conference call.

In 2009, the worst recession in over 50 years impacted us like most companies, resulting in a lower end market demand for many of our products. Nevertheless, I am proud of what we accomplished during 2009, notably our earnings proved resilient and we achieved the strongest cash flow in the Company's history by reducing costs and optimizing our operations.

In addition, we refinanced our debt, saving $10 million a year in interest expense, and extended our bond maturities 10 years.

Last but not least, we took actions to increase our market shares for carbon pitch in the Middle East and in Europe, as well as for cross ties in North America and also phthalic anhydride and new petroleum pitch products in North America. When markets do return to normal levels, we will be in a stronger position to capture additional volumes and improved profitability.

I would like to share some perspective on what we see as the current status of our end markets. Our fourth-quarter results, which Brian will talk about shortly, reflect an increasing stability in our carbon materials and chemicals business. While end markets for carbon materials and chemicals in North America and in Europe showed improved stability, our Asian and Middle Eastern markets continued to show growth in our carbon pitch, carbon black feedstock, and naphthalene products.

Field production continues to increase globally and should provide relief on the raw material side. 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 in Europe comes back online. Recent projections by the CRU International Group continue to forecast longer-term average annual growth rates for aluminum production of 6% through 2013.

For our railroad and utility products business, we are pleased that overall volumes for the Class 1s for 2009 increased significantly over the year 2008, despite a challenging economic environment. As an indication of our expected strength in our Class 1 railroad business, we ended 2009 with $7.2 million untreated ties in inventory, an increase of 1 million ties over the year-end 2008.

We continue to focus on reducing costs, emphasizing cash flow, and taking advantage of consolidation opportunities such as the recently announced letter of intent to purchase the Cindu Chemicals business in the Netherlands. I will talk more about these later.

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

In terms of growing our business, we took advantage of market conditions and expanded our market shares for certain products and markets in both carbon materials and chemicals and railroad utility products, including increased sales of carbon pitch in the Middle East, higher anticipated volumes from the pending Cindu acquisition, introduced new petroleum products in North America as the only domestic producer of those products, and acquired a cross-tie pre-plating machine with the Coastal Timbers acquisition, and also increased our cross-tie procurement with the recently announced Barham-Sevier acquisition.

We feel strongly that we have significantly improved our position as the market leader in our industries. These events will pay significant dividends when our end markets further stabilize and return to normalized growth rates.

As a result of the refinancing mentioned earlier, we should save at least $10 million annually on interest expense and have significantly extended our debt maturities at favorable rates. This refinancing of our debt should not only provide us with ongoing flexibility in terms of having a secure safety net for potential volatility, but also ready access to capital as these reasonable growth opportunities do arise. We will continue to approach these opportunities conservatively in these somewhat uncertain market conditions.

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?

Thank you, Walt. On a consolidated basis, sales for the fourth quarter declined 6% compared to the prior-year quarter, as slightly higher sales for carbon materials and chemicals were more than offset by lower sales for railroad and utility products, as the railroad business declined as expected from a strong first half of the year.

Fourth-quarter sales increased to $175.7 million in carbon materials and chemicals compared to the prior-year quarter, due to a positive impact from foreign exchange amounting to $12.6 million. Fourth-quarter volumes were mixed compared to the fourth quarter of 2008.

Although fundamental demand remains improved, short-term customer actions regarding management of year-end inventory levels impacted certain product lines that increased our volumes on hand, resulting in an unanticipated $6 million LIFO impact in the quarter. Absent the LIFO impact, the carbon materials and chemicals business had better profitability compared to the prior-year quarter, consistent with overall improved stability in the business.

In the fourth quarter, we had an 11%, or $11.8 million, decrease in sales of carbon materials, primarily due to lower carbon pitch volumes; a 3%, or $4.4 million, increase in sales of distillates as higher carbon black feedstock volumes more than offset lower creosote volumes; a 3%, or $5.7 million, increase in sales of coal tar chemicals as naphthalene and phthalic volumes improved; and a 2%, or $3.8 million, increase in sales of other products, which include carbon black, fuels, freight, and other miscellaneous products.

Fourth-quarter carbon material sales were negatively impacted by $14.5 million due to 2009 smelter closures and curtailments that resulted in reduced carbon pitch volumes. Particularly impacted were operations in Europe and North America, where aluminum production curtailments were concentrated. As Walt indicated earlier, we believe we have seen stabilization in carbon pitch volumes, although we haven't seen indication that these smelters will be coming back online or increasing production in the near term.

Sales of distillates, which include third-party creosote sales and carbon black feedstock, were positively impacted by higher volumes amounting to $2.5 million and higher prices amounting to $1.6 million, reflecting higher oil prices. North American sales of phthalic anhydride experienced a 19% increase in fourth-quarter volumes, reflecting improved end-market demand despite production issues experienced in October.

The impact of lower average prices compared to the prior-year quarter amounted to $3 million. Orthoxylene prices currently are in the $0.47 range compared to $0.28 at the end of the fourth quarter of 2008, so we see some potential opportunity for phthalic pricing in 2010, especially if housing and auto end markets show improvement resulting in increases in phthalic demand.

Carbon materials and chemicals' adjusted operating profit for the quarter of $11.3 million declined 24% from $14.9 million in the fourth quarter of 2008. Operating profit margin dollars were negatively impacted by lower carbon pitch volumes, since the majority of smelter curtailments were in early 2009, and by $6.1 million of LIFO impact due to higher volumes of coal tar in inventory at the end of the year and higher prices for petroleum products.

If you added back the LIFO impact, adjusted operating profit for the quarter would've been $17.4 million, or a 17% increase over the fourth quarter of 2008.

On a more positive note, we did see fourth-quarter carbon pitch volumes increase 24% from third-quarter volumes, reflecting greater stability in the business and new volumes from our Chinese operations being delivered to new smelters in the Middle East. Overall, carbon materials and chemical sales in the fourth quarter were positively impacted by 7%, or $12.6 million, due to foreign currency exchange rates as compared to the prior year.

Average oil prices for the fourth quarter of 2009 were approximately $73 a barrel, compared to about $55 a barrel in the fourth quarter of 2008. This has led to higher benchmark pricing for our carbon black feedstock and should lead to improved pricing opportunities in 2010.

On a year-over-year basis, carbon materials and chemical sales were down 27%, or $237 million, as lower volumes reduced carbon material sales by $87.2 million, or 10%; distillates sales by $43.5 million, or 5%; coal tar chemical sales by $40.8 million, or 5%; and other sales by $65.3 million, or 7%.

Total coal tar distillation for 2009 was down about 20% from 2008 as lower coal tar availability and lower end-product demand resulted from depressed global economic conditions. Although we have seen this trend begin to reverse as steel production has increased, overall volumes were down $169.9 million, or 20%; price is down $36.1 million, or 4%; and foreign exchange rates reduced sales by $30.8 million, or 3%, compared to the prior year.

Adjusted operating margins for 2009 for carbon materials and chemicals dropped to 9.4% from 13.6% in the prior year, as lower volumes, lower oil prices, and foreign exchange rates negatively impacted profitability.

Sales of railroad and utility products decreased $20.7 million, or 18%, to $94.6 million in the fourth quarter, compared to the fourth quarter of 2008, due to expected lower volumes of untreated crossties and treating services for the Class 1 railroads. As mentioned earlier and in previous calls, our railroad business was front-loaded into the first half of 2009, so the Class 1 railroads could take advantage of reduced rail traffic to maximize maintenance efficiencies and reduce costs.

Adjusted operating profit in railroad and utility products declined from $3.5 million to $2.4 million, with seasonally-impacted adjusted operating margins at 2.5% compared to 3% in the prior year, as better results from our Australian coal business combined with cost-reduction efforts partially offset the impact of volume declines compared to the prior-year quarter.

On a year-over-year basis, sales for railroad and utility products were down less than 1% as higher volumes from the Class 1 railroads were offset by significantly lower volumes from the commercial railroads. Crosstie sales were down $9 million, or 2%. Treating services, which generally apply only to the Class 1 railroads, increased by $8.3 million, or 2%. Utility poles were down $8.5 million, or 2%, and sales of other products were up $5.6 million, or 2%, as compared to the prior year.

On an overall basis, volumes were down $30.2 million, or 6%; prices increased $28.5 million, or 6%; and foreign exchange rates reduced sales by $2 million, or 1%, compared to the prior year.

On a consolidated basis, fourth-quarter adjusted EBITDA, which includes $5.6 million of negative LIFO impact, decreased 22% to $20.4 million, compared to fourth-quarter 2008 adjusted EBITDA of $26.1 million.

Adjusted EBITDA for the fourth quarter of 2009 excludes $4.2 million of charges, comprised of $600,000 for an outage at our TKK joint venture in China, $1.4 million for the phthalic plant outage, $600,000 for the Gainesville plant closure costs; and $1.6 million for expense acquisition costs relating to the pending acquisition of Cindu.

Not excluded from adjusted EBITDA is $5.6 million of negative LIFO impact that was mainly the result of higher quantities of coal tar due to increased availability and lower-than-expected year-end shipments, combined with higher prices for petroleum-based products. Adjusted EBITDA for the fourth quarter of 2008 excludes $11.7 million for LIFO and lower cost-to-market adjustments, $1 million for a co-gen plant outage, $800,000 for severance charges.

Absent the 2009 fourth-quarter LIFO impact, the fourth quarter of 2009 was very similar to the fourth quarter of 2008. Adjusted net income for the fourth quarter of 2009 was $4.7 million, or $0.23 per share, compared to adjusted net income for the fourth quarter of 2008 of $5.5 million, or $0.27 a share. The impact on EPS from LIFO in the fourth quarter of 2009 was about $0.17 per share.

The Company's annualized effective tax rate decreased from 46% in 2008 to 39% in 2009, due primarily to the Company's decision to reinvest cash in our European business rather than assume the tax consequences of repatriation. The impact of this change and assumption is already included in the 2008 adjusted income and adjusted EPS numbers.

For the year 2009, adjusted EBITDA amounted to $124 million, compared to $176.3 million in 2008. After adding back $5 million of charges in 2009 and $14.9 million of charges in 2008, adjusted net income and adjusted EPS were $37.7 million and $1.83, respectively, for 2009, compared to $65.4 million and $3.15, respectively, for 2008.

Operating cash flow was $112.3 million for 2009, the highest in the Company's history, compared to $102.3 million for 2008 after adding back the cash taxes related to the gain on the sale of the Monessen plant. Our debt, net of cash on hand at December 31, 2009, was $277 million, compared to $312 million at December 31, 2008. Our strong cash flows in 2009 allowed us to achieve a leverage ratio of 2.2, despite significantly lower earnings coupled with $22 million of cash expenses related to refinancing of our debt during the year.

We ended the year with $58 million of cash on hand, compared to $63 million at December 31.

During 2009, we took advantage of our stable results and favorable financial market conditions to refinance substantially all of our debt at more favorable rates with a longer term. We expect that we will save at least $10 million in interest expense in 2010 compared to 2009 as a result of these refinancing activities.

We believe this puts us in a favorable position should incremental investments for expansion or consolidation arise. As always, 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. Financial performance in the first and fourth quarters is historically lower than the second and third quarters.

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

Thanks, Brian. For the year 2009, our two business segments, carbon materials and chemicals and railroad utility products, were 58% and 42%, respectively, of our total revenues.

Carbon materials and chemicals segment is largely tied to the production of steel and aluminum. As you may recall, we use a byproduct of the metallurgical coke process, 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 phthalic anhydride for the plastics and resins markets.

Beginning in late 2009, we have seen modest increases in global steel and coke production that have led to increases in coal tar availability. Due to the increases in coal-tar supply in certain geographic reasons where we operate, we believe we will be able to achieve modest cost reductions that will ultimately be passed along to our customers in those regions.

As mentioned earlier, during 2009 we took advantage of market conditions and expanded our market shares for carbon pitch in the Middle East and in Europe, as well as with petroleum pitch and phthalic anhydride in North America. We continued to be the global market leader in tar distillation and related products, and believe the increase in market shares will be beneficial to us in 2010 and beyond.

We are confident in the longer-term growth of global aluminum production and believe that we will emerge in a stronger position to capitalize on this growth. For example, the CRU International Group recently projected that global aluminum consumption will increase by 9% in 2010, 9% in 2011, and 10% in 2012, while aluminum production is projected to increase on average of 6% annually through 2013, which ultimately leads to reduced inventories and a better balance between supply and demand.

Our position in China has provided a base from which we will -- we are capturing business from increased smelting of aluminum in the Middle East. In late 2009, we began our initial shipments of carbon pitch to the new smelters in Qatar and EMAL. In Europe, the pending acquisition of Cindu, when completed, should improve our market share in Europe as well as provide us with synergies to better access the continental markets as well as provide easier access to export markets.

Similar to 2009, we see the year 2010 as a year to position ourselves for growth and we will continue to manage our businesses accordingly. With challenges usually comes opportunities, and we believe we will continue to see opportunities to grow our core businesses and our profitability as key end-market drivers remain positive.

Expectations for railroad and utility products for 2010 are that they should be as strong as 2009, albeit with a potential for quarterly volatility as we have seen in 2009 and in the past. We do see some potential upside from the commercial side of the business as stimulus spending and economic recovery come to fruition in 2010.

Our expectation regarding our key raw materials continues to be that steel-production recovery will precede aluminum due to the fact that it's very expensive to bring back idle smelters on-line and the aluminum producers will only do this if they see a 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.

We have seen price increases for aluminum that we believe reflect positive trends in this end market and we have seen positive projections regarding aluminum demand as noted earlier. Additionally, we have recently seen pricing premiums increasing for aluminum in the Midwest region of the U.S. that we hope is an indicator of a possible rebound in North American aluminum smelting in the coming months.

I do want to mention that extreme weather conditions we have been experiencing over much of the United States over the past two months are also having an impact on our business. Plant operations from Texas to Pennsylvania have been negatively impacted by the heavy snowstorms. We are experiencing not only higher operating and logistical comps, but also having difficulty shipping products to our customers. We continue to work to mitigate the effects of these conditions, but we do expect an overall negative impact on first-quarter 2010 results.

To conclude, we continue to see increased stability in our end markets and we remain very positive about the long-term strength of our primary end markets, aluminum and railroads. We see strong potential for earnings growth from higher market shares and lower interest expense as the economy improves. We are continuing our recent practice of not giving guidance, but will revisit this as we see seasonal improvement start in the next quarter.

At this time, I would like to ask for any questions that you may have.

(Operator Instructions). Laurence Alexander, Jefferies & Company.

I guess the first question was can you give us a sense for what your total gap has been between pricing and raw materials in 2009, and how much of that you expect to recoup in 2010? Or do you expect to pass most of it back to your customers on the aluminum side?

Well, obviously, as you've heard us say before, pricing for the most part on the long-term pitch contracts and other contracts relate to a pricing formula, so we will share reductions based on those formula calculations that go back in those particular regions that we do see decreases, but as far as your question on gap --

Yes, I think maybe also if you look at some of the downstream products, things like carbon black feedstocks and phthalic anhydride that priced off of oil benchmark, the oil benchmark has moved higher. So, I think from an overall perspective, if I'm understanding your question, if coal-tar costs moderate, some of our downstream products should get improved margin in an elevated petroleum end market.

And in terms of market-share gains, are you taking any share in the co-products? Or is it just in the core business through the acquisitions?

I think some of the market-share increases are coming out of the production in China. So -- that would refer to an acquisition. So the increased production of pitch that's going into the Middle East out of China is contributing significantly to the increased market share out of our current plant.

The other acquisitions that we mentioned would be the other area where we are increasing market shares.

Do you have a sense, just as a very rough swag, sort of what the hit would be in Q1 from weather, assuming that we have good weather for March?

It's just a little bit early to talk about that. I mean, it's been primarily delaying shipments because of the various railroads switching our plants and so forth. So it's really difficult to give you any kind of indication what that is at the moment.

But it's going to be primarily on -- I don't think we're losing much in terms of business, but it's delaying because of shipments and having rail cars available to make those shipments. So it's difficult to --

And Laurence, you have to tell us when it's going to stop snowing.

And I guess just lastly one quick one, if I may, is if raw-material prices were flat from current levels, would you be expecting a LIFO hit in Q1 or are we done?

You had to ask about LIFO. You know how long it took me to get Walt's fingers pried from around my neck?

LIFO? Ugh.

I would -- you would -- the LIFO impact in the fourth quarter, although we didn't call it special, was an anomaly compared to what our normal LIFO impact would be. So if you looked at our LIFO -- and you have to throughout the end of 2008, that was an anomaly as well, it generally is in sort of a zero to $2 million, maybe $3 million range, so on a quarter basis, you're talking about less than $1 million.

But we wouldn't think it would be occurring. That's one of the reasons we highlighted it. But we didn't choose to call it special. Yes, it did cause Walt to get angry.

Adam Goodwin, Goldman Sachs.

I just had a couple of quick questions. I apologize if I missed this in your prepared remarks, but you guys had a $12.6 million topline benefit due to the higher foreign translation rates. What was the impact, if any, on adjusted EBITDA for the quarter?

It doesn't have a direct impact. But if you, generally speaking, take the percent, it's going to be some -- a little bit less than that in an EBITDA, so if the percent on sales for the quarter were -- what's $12 million on 270? What's that, about -- a little less than 5%, so maybe 3% or 4% in EBITDA.

Do you guys have a comfort level with regard to your cash balances?

When you say comfort level, you mean our investments in banks, or --

No, just in terms of your cash on hand. Would you guys -- would you take cash down? I guess what I'm asking, in a roundabout way, do you plan to fund Cindu through cash on hand or through the revolver?

A large portion of the cash on hand is in Europe. So -- and because it's not terribly efficient to bring cash out of Europe, and also we have cash in Mauritius, which is sort of an Asian investment engine, rather than bring that cash back and pay tax, we leave it reinvested over there for reinvestment in growth opportunities.

So, the cash -- we'd look to use cash on hand for Cindu.

Okay. And then, lastly, you guys noted that you are seeing increased stability in your aluminum end markets. But it looked like aluminum production for January in the U.S. was down pretty sharply on a year-over-year basis. Have things been improving through February?

You're talking U.S., which was still a little balancing back here and there, and so forth, but on a global basis, I think we do see very strong stability, especially when you include the new production coming online throughout 2010.

In fact, just even this morning, Hydro announced that they're going to not further reduce any capacity at this point. They are not adding any increased capacity with the exception of their partnership with the Qatalum smelter in the Middle East. But January could've been a little bumpy in the U.S. and that's (multiple speakers)

Adam, are you comparing it to January in the prior year?

Yes.

If you look at smelter curtailments, they really started to curtail through the first and second quarter of 2009. So that (multiple speakers) the aluminum production that we are seeing is really more steady. You're right, I mean it's down compared to the prior year, but I think what you're seeing is the curtailment activities that happened in the first and second quarter of 2009.

Ivan Marcuse, KeyBanc Capital Markets.

The shipments going to the Mideast, is that up to an annual run rate right now or is that still continuing to ramp up?

It's going to continue to ramp up throughout the year. The most recent start was the EMAL project, which the carbon plant is now producing the anodes. And you'll see EMAL sell their increasing aluminum production as the year goes forward.

I don't recall the exact time, but I think some time third quarter they should be up to full production. Qatalum should be up to full production, I would say, by mid-year.

Okay, so with stabilization showing in North America and Europe, and you're starting to lap some easier comps, and then with Asia kicking in, you'd expect carbon pitch volumes to be up year over year in 2010, right?

Yes. Absolutely.

And then, the next question is how -- in 2009, rail ties were -- tended to be front-end loaded versus -- and then got weaker towards the second half, since they did it all the same. Do you think it will be sort of the reverse this year with the weather and sort of the -- how do you see rail-tie shipments sort of playing out through the year?

I think it will be a little -- going back to probably the history as far as seasonality goes, but yes, the first nine months last year were pretty strong, and then the cutbacks after the railroads sort of achieved their program goals within the first nine months of the year.

But this year will be more historical, seasonal, and delaying, so first quarter, not so strong, and then getting into the second, third quarters like they typically have been.

Yes, that first-quarter comp for us in railroad and utility products from 2010 to 2009, there's no way we're going to be able to beat that.

Right, and then with weather hitting, it would probably be even worse, right?

Yes, I mean I think they're having trouble getting their contractors out on the job these days.

Then one last question. Brian, how should I model a tax rate for 2010? Is it 39% or --

You can probably use 38%.

Steve Schwartz, First Analysis Securities.

Good morning, guys. I guess the first question, and I'm sorry to bring this up again, Brian, but on LIFO, last year you guys considered it a special and even outlined it in your table. What's the distinction why last year is special, this year not?

Yes, I think last year when we looked at this, and we didn't call all the LIFO special last year but we did call a large portion of it because we couldn't distinguish between LIFO and the lower of cost or market adjustments that happened from the collapse in the markets.

If you remember, we had orthoxylene prices going from, I think, $0.50 to $0.25. As we looked at those, we saw those as really being more end-market driven.

And this year, although the LIFO number is highly unusual for us, it's really due to two main issues. It's due to us having more tar inventory and less shipments at the end of the year because of our customers managing their balance sheets at our account, and also because of an increase -- it was more of a nominal increase, I think, in some petroleum products, which is actually good news for 2010, that had a negative impact on LIFO.

We don't normally call LIFO special. So we didn't really see them as being the same. We struggled with it. We highlighted it as best as we could in our releases, but we didn't feel like it was really the same animal that existed at the end of 2008.

Okay. Just in talking about the topic of inventories, am I correct in perceiving that your higher inventories are not just because of customer order curtailments, but also because you were building inventory?

The fourth quarter of this year, the steel industry was also increasing production, so they were producing more coal tar. So the amount of raw material that was coming through the door was higher as well.

Okay. And you were doing that. You were taking that material because you see inflation on the horizon or your inventories had been --

Most of this is -- most of this is U.S.. LIFO's only a U.S.. So it's really because the inventories were short. We're not seeing anticipated increases in volume for production of aluminum.

But if by the same sense, we are tar short, so we can use the raw material product here in North America.

And then, as you know, we've got seasonal products coming onstream starting early second quarter as well that require coal tar too.

Just as a follow on with respect to Cindu, do you see any opportunity for consolidation of fixed assets there in such a way that we could get closer to what might be a Reilly-type deal?

I think it won't -- in a Reilly deal, for people who don't recall Reilly in 2006, we basically acquired the raw materials and raw material contracts and customer contracts of Reilly Industries' coal tar assets. So we didn't acquire any fixed assets. It had a very immediately accretive result for the Company.

Cindu is not that type of acquisition. We're acquiring the company, so we do have assets that we are acquiring, so opportunities for physical consolidation in Europe won't happen as quickly, and so it's not something that you're going to see day one.

Down the road there could be indirect benefits, as you'll see, perhaps.

There will be indirect -- there will be benefits from consolidation.

I have a few more, but I'll get back in queue. Thanks.

Saul Ludwig, KeyBanc Capital Markets.

At a high level, talking about 2010, you're talking about stability and railroad business coming back. You've got the Cindu acquisition, you've got higher oil prices affecting your downstream chemical-product stability, and the pitch business particularly coming -- improving in the Middle East. You talked about a lot of pluses, maybe not a repeat of the LIFO charge in the fourth quarter. In terms of headwinds, you talked about some early [piece in] weather, but when you put it all together directionally, it sounds like you're expecting a pretty good increase in your results in 2010, albeit you can't give a definitive forecast. But, directionally, would you think that is correct?

Directionally, I think you're right, Saul. It may not be quite as fast as we'd like to see it, but directionally we do see the end markets that we are participating in and there are several key indicators there that are positive at the moment.

And when you look outside North America, you're still looking at pretty close to double-digit growth rates in several areas of the world that we're continuing to take advantage of, like China and some other places. So, directionally, yes. 2009 was a year that we want to get through and forget about, really.

Other than the weather, are there any other important headwinds that we should give consideration to?

You are probably hearing this a lot -- obviously there was a lot of expense reduction in 2009 related to rollback of incentive programs, so those are going to go back in, so -- for the 2010, so there will be some expense increases for that, but it's not enormous.

I think there's -- it's still a tough market, Saul. There's a lot of pricing pressure out there. There's a lot of capacity -- excess capacity out there around the world right now, and I think it's going to be for 2010 sort of how prices roll out (multiple speakers) managed are going to be really a key challenge for us.

That's a good point. Controlling oil costs, and again because of the lower demand out there, competitiveness will play a small part, I'm sure.

And finally, you talked about the increase in the coal tar in the fourth quarter. Was the price that you were paying -- how does the price that you were paying for coal tar in the fourth quarter compare with where you were at the third quarter or the fourth quarter a year ago?

The coal tar prices actually had gone up in 2009 compared to 2008. (multiple speakers) For the year -- overall, year over year. That was largely due to the fact that the steel industry was reducing production in 2008 before the aluminum industry reduced production in early 2009. So it left us with actually higher raw material costs for the year. That should moderate into 2010.

And that was true third to fourth quarter as well? An increase?

(Multiple speakers). I don't think the trend was that different. There may have been some mix impacts as certain producers came back online, but I don't think overall, generally speaking, we weren't seeing large cost increases on coal tar from third quarter to fourth quarter.

No.

Scott Blumenthal, Emerald Advisers, Inc..

Brian, can you talk maybe a little bit about how the mix -- sales mix differed from Q3 to Q4? You know, we had about a 7% sequential decrease in sales, but the cost of sales was basically level, so.

I think probably -- this is really off the top of my head, Scott, without too much in front of me -- I would think we probably had a mix impact overall between railroad and carbon materials and chemicals.

I think we saw declines -- pretty strong declines in volumes on our railroad side of the business. And although I think generally speaking the pitch numbers were up quarter on quarter, there was a mix between, I think, North America and Europe and China.

I think we're going to have to go back and get the actual numbers.

Scott, that may be something I probably should look at.

I guess I can follow up with Mike a little bit later on that one. And maybe, Walt, if you could possibly give us an idea of what percentage of pitch volume during the course of a quarter? I believe you said that we started up China -- in China, shipping in the -- through the course of the quarter. What percentage of overall pitch volume would come -- are coming out of there now currently and where you expect that to be once we're fully ramped?

Well, the TKK plant, as you know, was started up in -- actually full start back in end of October. That's a 300,000-ton distillation facility that at capacity can produce 150,000 tons of pitch.

As the year goes on through 2010, we expect to be fairly close to capacity, which means that there could be anywhere from 135,000 tons to 150,000 tons of additional pitch that we are expecting that we could produce from that facility based on its capacity. And when you look at the pitch demand going into the new smelters in the Middle East, that could be reality. But we'll play it out as we go through the year.

Scott, just as -- some statistics. If you look at the fourth quarter of 2009, our China pitch sales were about 10% of our total pitch sales. In the fourth quarter of 2009, it was about 20% (multiple speakers) total pitch sales, so it had doubled.

And as Walt said, that will continue to increase as a percent of our sales. That's probably also having some of the margin impact that you were mentioning in your last question.

That would make sense if we're not --

Coming out of joint ventures rather than wholly-owned subsidiaries.

Sure. Brian, then, I guess my last one, could you tell us what you're running, at least domestically, as far as utilization rates right now? In the CM&C business?

Is that the U.S.?

Please.

This would be a round park -- ballpark number, but probably counting the petroleum products, probably in the 75% range. 70% to 75%.

Fair enough. Thank you.

Steve Schwartz, First Analysis Securities.

I guess the first one, in the rail business, given that that seems a very price-sensitive business, what's your opinion of this potential Stella-Jones/Tangent Rail merger and how do you think that would impact your business?

Well, I guess that's still pending, but assuming it is -- comes to a conclusion, I really don't see that much of a change.

If you remember, even going back, Stella purchased the Burke-Parsons-Bowlby business, which -- about 1.5 years ago, which did not have very little, if any, Class 1 business, and now with buying Tangent, Tangent does have Class 1 business, so it gets them a little more involved.

But, again, we really don't see that much of a change in market share, per se. I think that's our view.

I think, also, plant location is really important in that business. So, I think Stella and Tangent's business is much more aligned to the Canadian railroads and also to the commercial industry, although they have some Class 1s, so to a certain extent, whether we were competing with Tangent or competing with Stella, it's the same.

But I also think, generally speaking, more consolidation is generally good. So, it's -- we wouldn't have liked to have done it, if we could have, but certainly we think it's good for the market.

Yes, I was recently surprised to hear how involved the Class 1s are with high-speed rail, and as the Class 1s talk about double-tracking expansion and high-speed rail, a lot of that sounds like it's concrete or even steel ties. Your announcement yesterday further integrates you into wood. What's your thinking about getting more involved in concrete or steel?

Well, concrete ties for this past -- 2009 actually decreased market share by probably 40% or so.

But back to your comments about high-speed rail, high-speed rail in the U.S. is a little bit different than high-speed rail in other parts of the world. But, definitely, we have some of these new projects, some of the stimulus money that's been around, I think it's been like $8 billion worth of stimulus that's been talked about going into regions like Florida, out in California, and then, the Midwest that could connect Cleveland, Cincinnati, Columbus. Those would be concrete ties, and as you well know we have a concrete tie plant in Portsmouth, Ohio, that could take advantage of some of that.

But I don't think we're going to see much more than the concrete ties back in 2007-2008 having more than 7%, 8% of the market share. And in this Barham-Sevier procurement arm acquisition that we announced yesterday, that's just further adds to the belief that 90% or more of the tie replacements are going to continue to be wood ties, primarily because it's the most economical long-time life tie that they can use, and will continue to use. So that just further [adds] the strength of our wood position.

Steve, I think our concrete-tie plant that we have is well positioned to take advantage of some of those volumes.

I also think it's interesting that some of those high-speed lines that you're talking about are actually higher speed. They're not actually running at speeds where you have to have the concretes, that you can use wood ties for them.

True, true. Thanks for the color on that. Then my last one is a numbers-related segment, SG&A, for carbon materials and chemicals.

You're not going to ask me about LIFO again, are you?

No, I won't do that to you again, Brian. I'm so sorry. I owe you a lunch for that one.

On SG&A as far as (multiple speakers)

Overall SG&A, I think, this year was about, I think, 5.2% of sales.

In the quarter, though, rather? Just as a break-out.

(Multiple speakers). Give me a second here. I think we did a very good job of managing our SG&A for the year 2009, and as far as the quarter goes, we're trying to find that number right now.

If it's easier for us to follow up afterwards, we can do that.

It would have to be close to that 5%. Mike can get back to you.

Let us get back to you on it.

(Operator Instructions). There appear to be no further questions at this time. I'd like to hand the call back to Walt Turner. Please go ahead.

Thank you very much. Both Brian and I thank you for your participation in today's call and appreciate your continued interest in our Company. We continue to see the benefit of diversity in our products and our end markets as the strength of our railroad business in 2009 mitigated the negative impact of the global recession that we saw on the carbon materials and chemicals businesses.

In 2010, our expectation is that our carbon materials and chemicals business will improve over 2009 while the railroad business remains static. Although our margins remain impacted, I hope you have heard our message today that we are seeing signs of stability in our aluminum and steel markets, as well as growth in the demand of our downstream products in China and the Middle East. We see continued strong demand in our end markets in the long run, particularly based on the committed aluminum capacity additions coming online in the Middle East this year and beyond. And we are all very well positioned given capacity additions in China.

Our balance-sheet strength continues to provide potential opportunities to stimulate growth as well as 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 business.

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 safety, health, and environmental issues. Thank you very much. Thank you, Operator.

Thank you very much and this concludes the Koppers Holdings Inc. fourth-quarter 2009 earnings call. Thank you for participating and you may now disconnect.