Koppers Holdings Inc (KOP) 2014 Q3 法說會逐字稿

Good day and welcome to the Koppers Holdings Inc. third-quarter 2014 earnings conference call. Today's conference is being recorded, and at this time I would like to turn the conference over to Michael Snyder. Please go ahead.

Thanks, Nicole, and good morning, everyone. Welcome to our third-quarter earnings conference call. My name is Mike Snyder, and I'm the Director of Investor Relations for Koppers. Each of you should have received a copy of our press release. If you haven't, one is available on our website, or you can call Rose Hilinski 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 cautionary statement included in our press release and 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 objections, objectives, plans, and projected results will be achieved. The Company's actual results could differ materially from such forward-looking statements. The Company assumes no obligation to update any forward-looking statements made during this call.

References may also be made today to certain non-GAAP financial measures. The Company has provided with its press release, which is available on our website, reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures.

I'm joined on this morning's call by Walt Turner, President and CEO of Koppers; Leroy Ball, our Chief Operating Officer; and Mike Zugay, our Chief Financial Officer.

At this time, I'd like to turn over the call to Walt Turner. Walt?

Thank you, Mike. Welcome everyone to our 2014 third-quarter conference call. Our third-quarter results reflect continued industry headwinds that resulted in significantly lower profitability for our Carbon Materials and Chemicals business here in North America and also in China, driven by lower sales prices for carbon pitch, carbon black feedstock, and phthalic anhydride. This was partially offset by improvements in our railroad and utility products and services business and a contribution from the newly-acquired Osmose businesses. We also incurred $3.7 million in integration and related costs that reduced adjusted EPS by $0.11 per share.

Our North American Carbon Materials and Chemicals business was negatively impacted by a drop in aluminum production here in the U.S. that resulted in lower sales volumes and prices for carbon pitch, coupled with lower sales volumes and prices for phthalic anhydride which were driven lower by orthoxylene prices.

Lower prices for carbon pitch and carbon black feedstock adversely affected our Chinese operations, and our KJCC joint venture incurred operating losses due to operational startup costs and having to sell our production into the competitive Chinese market as we wait for our partner, Nippon Steel Chemical, to complete the construction and operational startups of their plants.

In our Railroad and Utility Products and Services business, profit was up significantly over the second quarter and was slightly below the very strong prior year quarter. Untreated crosstie sales volumes were down slightly over last year, but were significantly higher than the second quarter of this year as we are getting back to a more normalized level of procurement. However, due to reduction in raw material volumes over the past year, treating volumes were lower as there was less drive material available for treating.

Our Railroad and Utility Products and Services business now includes the Railroad Structures business that we acquired as a part of the Osmose transaction, as well as a small wood treating plant located in Houston. These businesses contributed $7 million in sales and $800,000 of adjusted operating profit for the period August 15 through September 30, and we view this as a meaningful contribution for half of the quarter.

Our newly acquired Performance Chemicals business reported $46.1 million in sales and $4 million of adjusted operating profit. So this business is also off to a strong start for us. Both sales and profitability continue to track above comparable 2013 results with expectations that this trend will continue in the near term.

Now I'd like to give you an update on our growth initiatives. We completed the Osmose acquisition in the third quarter, which should add more than $400 million in annualized sales at EBITDA margins that are expected to be at or above our target level of 12%. The integration process continues to go well, and we expect the North American integration to be completed by the end of this year. Net sales and adjusted operating profit for the combined Osmose businesses for the 45-day period since the closing were $53 million and $4.8 million, respectively.

Taking into account the integration-related charges and the additional interest expense as a result of the additional debt added to the financial transaction, the Osmose acquisition had no effect on the adjusted earnings per share for the third quarter, which was as expected. The estimated pretax synergies from the acquisition are expected to be at least $12 million, and we anticipate the annual run rate will be realized by the end of 2015.

The Ashcroft acquisition in Canada is now fully integrated and was accretive to earnings in the third quarter. KJCC, our new China joint venture, began operating at the end of the July and is currently producing pitch, naphthalene, and carbon black feedstock, which are being sold into the local Chinese markets. We anticipate that our partner on the sales side, Nippon Steel Sumikin Chemical, will have their carbon black and needle coke plants completed by the end of the year and should be fully operational during the second half of 2015. As a result, contribution from this business will be minimal in 2015.

Moving on to the initiatives we have undertaken to improve margins in the third quarter, adjusted operating margins for our European operations improved by 140 basis points over the same period last year. As you know, we stopped distillation activities at our Uithoorn facility in the Netherlands in April and moved those production volumes to our remaining two European facilities.

For our US carbon materials and chemicals operations, the restructuring activities taken last year are providing cost savings, but the benefit is being overshadowed, due mainly to lower sales volumes and prices for carbon pitch and phthalic anhydride.

Our operational excellence initiative is now underway for our North American Carbon Materials and Chemicals business, and we expect this process to be completed by the end of the first quarter of next year. We expect to achieve significant cost reductions as a result of this initiative, beginning in the second quarter of 2015.

Our Railroad and Utility Products business continues to invest in structural improvements such as the addition of the borate treatment process at three additional facilities by the end of this year, as well as the Ashcroft and Osmose Railroad Structures acquisitions completed in January and August of this year.

Additionally we are currently benefiting from the operational improvements that were initiated during the first half of this year.

In the first three quarters of 2014, we spent over $550 million net of cash for the Osmose and Ashcroft acquisitions, construction and startup costs for the KJCC joint venture, the Osmose integration costs, cash costs for restructuring, and consulting costs related to operational improvements, all of which are in line with our focus on deploying capital to enhance returns.

The strategic steps we've taken, along with the signs of a stronger global aluminum market and a slowly recovering economy in Europe, give me confidence that 2015 will be a strong year for Koppers with significant and sustainable profit improvement over 2014.

I now want to turn the call over to Mike Zugay to provide some additional detail on the quarter. Mike?

Thanks, Walt. Consolidated revenues for Q3 were $440 million, an increase of 11% from the prior year quarter. This was driven by new revenues of $53 million from the Osmose acquisition, $11 million from the Ashcroft acquisition and $11 million from our new facility in China. These additions more than offset a $26 million reduction in sales for our legacy CM&C business. This reduction in CM&C revenues was discussed by Walt earlier.

Third-quarter adjusted EBITDA was $40 million or 9.1% of revenues compared to third-quarter 2013 adjusted EBITDA of $47 million or 11.9% of revenues. This decrease is primarily due to lower profitability in our CM&C segment, including operational startups -- startup costs at our new facility in China.

Adjusted net income and adjusted earnings per share for the third quarter were $12.3 million and $0.60 per share compared to $18.8 million and $0.90 per share for the third quarter of 2013. This excludes $14.4 million of pretax charges related to impairment and plant closure costs, acquisition closing costs, the write-off of deferred financing costs related to the upsizing of our revolving credit facility for the acquisition. As mentioned earlier, our adjusted EPS of $0.60 was negatively impacted by $3.7 million of integration and related costs that reduced adjusted earnings by just about $0.11 per share. Our effective tax rate for the quarter was 183% compared to 42% in the third quarter of 2013. Our unadjusted effective tax rate for 2014 was unusually high due to the non-deductibility of our restructuring charges in Europe and China, as well as the inability to record a tax benefit on pretax losses of certain of our foreign subsidiaries. These charges dramatically lowered our pretax income with no corresponding tax benefit. Adjusting for those nondeductible charges would result in a normalized effective tax rate of approximately 41% for 2014.

We do plan to reorganize our global legal entity organization later this year in order to drive a lower effective tax rate for us beginning in 2015. And based on our current estimates, we expect the effective tax rate benefit from this global reorganization to be as much as 600 basis points. With this structure in place today, our normalized effective tax rate would be approximately 35%, and the annual earnings-per-share benefit would be about $0.30.

In order to implement this structure, we need to recapture the overall foreign losses that we have accumulated to date, and this will result in a one-time accelerated tax payment of approximately $22 million that we will make in either late 2014 or early 2015.

Year-to-date cash provided by operations was $10.8 million compared to $65.6 million for the same period in 2013, and this decrease was due primarily to lower net income driven by costs to consolidate our European facilities, as well as costs associated with the Osmose acquisition and this combined with higher working capital usage, which was driven by increases in inventory.

Our capital expenditures year-to-date were $59 million, up from $29 million for the same period last year and mainly as a result of expenditures related to our new manufacturing facility in China.

As a result of the new financing raised to close the Osmose acquisition, we now have a new capital structure. As of September 30, we had approximately $215 million borrowed on our new $500 million revolver, $300 million borrowed for a new term loan, $300 million borrowed in existing bonds and another $56 million of construction loans related to our joint venture in China. Our outstanding debt net of our cash on hand at the end of the quarter was approximately $792 million.

The current interest rate on our new revolver and new term loan is 3.64%, and this low rate has substantially reduced our average borrowing rate to approximately 5.2% as of September 30. While this additional debt we incurred has taken our leverage ratio to over 4.5 times, our goal will be to get this down to 3 times within the next two years.

We also continue to look to refinance our $300 million of 7 7/8 notes due in 2019. We are continuously monitoring the high yield bond market, and hopefully we can complete this refinancing by the end of this year.

Now I'd like to turn the call over to Leroy to give everyone an update on the specific performance of our business segments.

Thanks, Mike. In our global Carbon Materials and Chemicals business for the third quarter, sales of $226.6 million were $15 million or 6% lower than sales of $241.6 million in the prior year quarter as $11.2 million in sales from the KJCC joint venture in China were more than offset by lower sales volumes and prices for carbon pitch and phthalic anhydride.

Pitch products accounted for a 5% or $11.5 million decrease in sales compared to the prior year quarter as sales prices for carbon pitch declined, which more than offset incremental pitch sales volumes from KJCC.

Sales of distillates increased 1% or $3.1 million due to higher sales volumes for carbon black feedstock, which included incremental sales volumes from the KJCC facility. This increase was partially offset by lower sales prices for carbon black feedstock driven by lower prices in Asia combined with lower sales volumes for creosote in North America.

Sales of coal tar chemicals decreased 1% or $2.3 million driven by lower sales volumes and prices for phthalic anhydride, which more than offset incremental naphthalene sales volumes from KJCC.

The average price for orthoxylene was $0.60 for the third quarter of 2014 compared to $0.64 for the third quarter of 2013. This 6% reduction resulted in a similar reduction in our phthalic pricing. Orthoxylene prices are down to $0.51 in November with a $0.04 decline from October's $0.55 price and $0.05 down from September.

For comparative pricing purposes, orthoxylene averaged $0.61 during the fourth quarter of 2013. The net result of the lower average orthoxylene prices will result in a $2 million negative impact on our comparative year-over-year fourth-quarter operating profit.

Carbon Materials and Chemicals adjusted operating profit for the quarter was $11.5 million, a decrease of $10.3 million from $21.8 million that was recorded in the third quarter of 2013. Adjusted operating profit margins were 5.1% and 9% respectively, which decreased mainly as a result of lower profitability from North American and Chinese operations that included an operating loss of $2.6 million for KJCC.

Global aluminum consumption for 2014 is projected to increase by 5% to 6% and to outpace production for the first time since before the recession. As a result, LME inventory levels have declined from over 5 million tons at the beginning of the year to about 4.5 million tons, and aluminum pricing has been around the $2000 a ton level.

Despite the growth in Middle East aluminum production, competition remains strong, and pitch prices continue to be depressed in that region. We are producing more carbon black feedstock material and less pitch at our Chinese facilities to maximize profit. As a result, third-quarter sales volumes for pitch were down 4% for Chinese operations, excluding the new KJCC plant, but carbon black feedstock volumes were up 46% compared to the prior year quarter.

Demand for phthalic anhydride is being positively impacted by North American light vehicle production, which is expected to increase 5% in 2014 to 16 million units, as well as total US housing starts, which are up substantially compared to 2013.

Our carbon black feedstock sales volumes increased substantially in the third quarter compared to the same period last year, but were offset by lower sales prices, mainly in Asia. Carbon black feedstock sales volumes are impacted by global tire demand, which is projected to have average annual growth rates of 3% through 2018, driven by a higher demand from the emerging markets in Asia.

Naphthalene sales volumes were higher in the third quarter compared to the same period last year, due mainly to incremental sales volumes from KJCC. Globally, coal tar prices have been down slightly compared to last year as availability remains stable. However, our expectation for 2015 is for average global tar costs to increase due to increased competition.

Our North American CM&C business continues to be challenged by difficult market conditions, and we are working hard to lower our cost structure and right-size our business to adapt to these conditions. We recently announced that we are considering building a new chemicals plant at our Stickney, Illinois facility, which would significantly lower costs and potentially allow us to discontinue production at our Follansbee facility.

We have applied for all necessary permits for this project. In addition, we have applied for various tax incentives from the state of Illinois. We expect to receive approvals on the permits and tax incentives within the next few weeks and plan to begin construction of the naphthalene plant before the end of this year with an estimated completion in early 2016. We expect construction costs to be approximately $40 million to $45 million with annual savings of $10 million to $15 million if we are successful in moving it forward.

The European economy appears to be slowly recovering, and a modest increase in end-market demand, combined with cost savings from the closure of our plant in the Netherlands, resulted in higher earnings from our European operations in the third quarter compared to the third quarter last year. Our Australian operations continue to perform well, despite the closing of the Point Henry smelter, and overall sales volumes have been higher on a year-over-year basis compared to 2013 as we moved the majority of those volumes to other smelters.

Our Chinese operations reduced production of pitch in favor of carbon black feedstock in the third quarter, and as result, sales volumes for pitch were lower but were more than offset by higher carbon black feedstock volumes. Sales prices for both products were lower than the prior year quarter as excess product continues to be available in China, as well as in the Middle East.

The introduction of more carbon pitch into our carbon black feedstock product is a strategy that we've been working on in North America and Europe. CBF, supplemented with carbon pitch, provides value to carbon black manufacturers over their traditional petroleum-based feedstock by providing them with higher carbon content and reduced sulfur content. The expanded use of this new product application is a way of generating overall greater value for our carbon products. In addition to Asia, we are now moving forward with this new enhanced product into the CBF markets in Europe and expect to start doing so in North America shortly.

Moving on to Railroad and Utility Products and Services, sales increased by $13.8 million or 9% for the third quarter compared to the same period last year, due to $17.3 million of incremental sales from the Ashcroft and Osmose acquisitions, which more than offset lower sales volumes for utility poles. Adjusted operating profit for the quarter decreased to $17.4 million from $17.9 million in the prior year quarter with adjusted operating margins of 10.4% compared to 11.7%. This was driven by reduced crosstie treating volumes and reduced margins for our utility pole business in Australia as a result of lower sales volumes compared to the prior year quarter.

Our third-quarter sales volumes for crosstie treating decreased compared to the third quarter of last year, due mainly to a reduction in the availability of raw material as inventory levels have been drawn down over the past 18 months. However, crosstie procurement increased by 15% over the second quarter of 2014 and by 11% over the third quarter last year as the railroads have increased the price they are willing to pay and the sawmill industry continues to increase production levels in response to higher demand.

After drawing down our untreated tie inventories by 1 million times in 2013 and another 800,000 through the first half of this year, in the third quarter, our untreated tie inventory inventories actually increased slightly. Although we expect it to take 12 to 18 months for the industry to return to normalized levels, we had a meaningful increase in procurement during the third quarter that we expect will continue for the foreseeable future.

The downside to higher crosstie costs and a buildup in inventory is the effect on our LIFO inventory evaluation. Through the first nine months, we have recognized a $3 million non-cash charge to expense to adjust our LIFO evaluation. For the fourth quarter, that non-cash charge could be as high as $6 million due to the expected higher procurement levels.

Overall rail traffic and railroad customer profitability continue to be strong as higher shipments of oil, fracking sand, and other products more than offset lower coal shipments. Continued high levels of rail traffic with heavier carloads require additional track maintenance, which translates into a need for more crossties.

We continue to treat a higher portion of our crossties with the creosote borate process, and we are making capital investments at three more of our treatment plants this year to add the borate treating process. This should take us through from our current proportion of about 40% of ties being treated with borate to around 65% in 2015, which should continue to help us achieve higher profit margins in our Railroad and Utility Products and Services segment.

Moving on to Performance Chemicals, in this new segment it contributed $46 million in sales and $4 million in adjusted operating profits for the half quarter since the closing and continues to show improvement over 2013 results. In fact, if you look at its sales through nine months, they are up by over 6% in each of the four geographies that we operate in and have shown year-over-year improvement. Performance Chemicals year-to-date operating profit has also increased at an even greater rate than the top line as our higher value micronized copper products continue to experience greater market penetration.

The main end-market drivers for this business are existing home sales and spending for remodeling, both of which continue to be fairly strong in all regions.

I would like to caution you that this business does have an element of seasonality, similar to our other businesses that is impacted by winter weather conditions in certain regions in North America.

I will now turn it back over to Walt who has a few closing comments. Walt?

Thank you, Leroy. I would like to close by summarizing what we are expecting for the rest of 2014 and then also in general terms for 2015. We expect that our sales and adjusted operating profit will be positively impacted in the fourth quarter with contributions from the Osmose acquisition, continuing improvement in crosstie procurement, continued profit accretion from the Ashcroft acquisition, ongoing benefits from capacity rationalization in Europe, and operational improvements in the railroad business.

As noted in our last call, we will continue to incur costs related to integration and operational improvements that will have a negative impact on earnings for the rest of this year. However, we view these costs as foundational investments, which will position us for higher sustainable earnings and operating margins beginning in 2015.

2014 has been and continues to be very active for Koppers as we work to adjust our asset footprint to match our current and future expected business through capacity rationalization into mature geographies. We continue to devote resources towards driving margin improvement, to identify projects while looking for more ways to reduce costs. The acquisition of the Osmose businesses should add meaningfully to our sales and profitability and help us to achieve our long-term goals. With the various actions we have already taken this year and the continuation of the cost savings initiatives that are in place for the balance of the year from restructuring and expanding our businesses in order to grow the top and bottom lines in a sustainable fashion gives me strong confidence that 2015 is shaping up to be a very strong year for Koppers with significant improvement over our 2014 results.

Before I open the call for any questions that you may have on the quarter, I have an organizational announcement to share with you this morning as well. After two years of working with the Board of Directors on a succession planning process, I am pleased to announce that the board has chosen Leroy Ball to take over my position of President and Chief Executive Officer, effective January 1, 2015. I am both pleased and excited to turn the leadership of our Company over to Leroy, who has earned the respect and trust of our board and our stakeholders. Our well-established succession planning process has produced a capable and experienced executive who will lead Koppers to a new and exciting future. Under Leroy's leadership and guidance, Koppers will continue to embark on a new phase of growth and development. I will continue as an active member of the board and assist Leroy and his management team in the succession planning process.

So with that, at this time I would like to open the call for any questions that you may have.

(Operator Instructions). Daniel Rizzo, Sidoti & Company.

Good morning, guys. The newly named Performance Chemicals segment, that's all just Osmose in its entirety, or did you break that up a little bit?

No, that's broken up. The bridge structural services business and the small wood treating plants in Houston, Texas are now a part of the Railroad and Utility Products and Services business, and the Performance Chemicals is a wood treating chemicals business, which is very much global as well. But the Performance Chemicals is wood treating chemicals only.

Okay. And then with the JV in China, is your partner still expected to be -- or I should say the main client customer is expected to be operational at the beginning of the year, or what's the timeframe on that?

First of all, our joint venture partner for our tar distillation plant that we referred to as KJCC, we have a 25% joint venture partner called the Jiangsu Group, which has coke making facilities next door to our car distillation plant. The sales agreement that we have -- a very long-term sales agreement we have -- is with Nippon Steel Sumikin Chemical, and they will actually take about 80% of our production from this plant, and their plant is also next door to our tar distillation plant.

Right. That was Nippon Steel. I think there were delays in the past about when they were ready to start buying your products?

Yes. They will finish their two plant projects at the end of this year. In fact, I personally saw them last week. They will finish those projects by year end and then start through their startup phase starting in January, and it will take them I'm guessing probably a good two or three months or so to get their startup phase completed and start the producing products that they will send out to customers for their customer approval. So I think we mentioned the last half of 2015 will have some minimal profit for that operation.

Okay. And then finally, just with coal tar supply, is that in any way, shape or form an issue at this point?

It continues -- the tar supplies continue to be what we have been reporting over the last several years. In North America we've always been short of coal tar. So there's products being imported into North America such as carbon pitch, creosote, what have you. China continues to have an abundance of coal tar, and that's why we built our new plant in China. Europe continues to be an area that there is tar available. We do supplement our coal tar requirements from Russia, and we have an excellent supply chain system set up there. It works well.

But as far as availability goes, there is not really much of a change. There has been some talk about US Steel closing their Hamilton plant in Canada, but I'm not sure if that's a final decision or not.

Okay. Thank you.

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Hi. Can you quantify or add some color to the size of potential savings in the US or perhaps any of the timing from the rationalization? And also if there's any upfront cash expense that you might incur?

Yes. I think we mentioned in the prepared comments that capital associated with the new plant in Stickney would be in the range of $40 million to $45 million. The associated benefits right now we've estimated in the range of $10 million to $15 million, and any associated costs relative to our Follansbee plant we haven't talked about yet.

Great. And then how much capital is required to upfit some of the crosstie plants to use borate and to treat with borate?

Typically in the range of $2 million to $2.5 million a plant.

Perfect. Thank you.

Liam Burke, Wunderlich Securities.

Yes. Thank you. On the synergy savings that you are seeing from the acquisition of Osmose and which you will complete in 2015, is that mostly on the performance chemicals side, or is that sort of divided proportionally between the two businesses?

It is between the two businesses. It's also within the overall corporate costs and services, back office support and things like that. So it is a little bit across the board, excluding the Carbon Materials and Chemicals business, Liam, so it involves the Railroad and Utility Products piece of the business as well.

Okay. Because now that you break out the Performance Chemicals margins, we should see some lift as we finish 2015 -- 2014?

2015 -- as the synergies start to becoming to be realized? Yes.

Okay. And 65% of the treatment -- I think I have this right -- of treated ties will now be treated with borate to extend the life of the ties. How does the long-term volume in terms of tie coating affect it as more and more ties use borate and are lasting longer?

Are you talking about from the reduced usage of creosote or talking about just the longer life of the ties?

Longer life of the ties, Leroy.

I think that's something that is at least a 10-year period away from before we start to see really any effects associated with that. But with the increased volume on the infrastructure of the US railroads, the expectation is that the maintenance is only going to have to continue to be increased, as a result of the increased stress on that infrastructure. So we're thinking that any reduction in volume as a result of longer life of ties will be offset by mechanical failure just due to the heavier loads and denser traffic.

Great. Thank you very much.

Eugene Fedotoff, KeyBanc Capital Markets.

I guess first you saw strong results in carbon black feedstock in the quarter. Have you seen any customer destocking in that market?

Not that we are aware of, but we are not that close to it.

Okay. Got it. And then just second question, looking at the financials for Osmose that you provided, there was an increase in operating margin in the first half of 2014 compared to 2013. I was just wondering if that was a benefit from lower raw material costs, maybe if copper price is falling or there is something else in that that benefited the margin?

Well, copper prices have been lower year over year. We have continued the practice that they continue -- that they had in place in terms of hedging the raw material supply. But yes, there has been some benefit from that in 2014.

Okay. Do you expect the benefit going forward as well?

Well, it obviously depends on -- we are hedged for a significant portion of 2015 volume, so we would expect to see some benefit from that.

Okay. And I think you mentioned that carbon pitch pricing in the Middle East was still challenging in the quarter. Have you seen any stabilization, or the price is continuing to decline there?

Well, it's been weak pricing for the last probably a year and a half or so. Unfortunately I think we are going to continue to see weak pricing there at least for the end of this year, and it's just a little bit unknown right now what's going to happen. In the beginning of next year, we are obviously getting close to negotiating contracts and pricing what have you for 2015. So we are hoping that there is some upward pressure on pricing increases there in that part of the world.

Okay. And the last question if I may on coal tar costs, I believe you said you are expecting these costs to increase in 2015. Can you provide a magnitude of the increase? Thank you.

Sure. It's tough to say at this time. I think globally we are probably looking at something in the 2% to 3% range, from a global standpoint.

Chris Shaw, Monness Crespi.

Good morning, guys. I'd like to extend my congratulations to both of you in your new roles. First, on the KJCC, I thought initially the thought was that before Nippon got up and operating with their plants that your business would run breakeven. But it sounded like there was a loss for the quarter. So is that something that is going to continue, or does that actually run breakeven in fourth quarter into next year?

Most of the numbers that you are seeing on KJCC for the last half of this year is really third quarter especially are the startup costs and getting things lined out and so forth. So that was really sort of the losses there, getting the plant up and running, which is now -- that's completed.

We are, as we mentioned, selling the carbon pitch -- the carbon black feedstocks and naphthalene into the Chinese markets, and we are still faced in general with weak pricing in the China markets. We kind of think that they have sort of hit the bottom of the trough and then slowly coming back. So I'm hoping -- at least we are looking at next year being a little more profitable, if you will, in sort of the carbon area end markets in China.

But, as we also mentioned, this will probably go on until probably the second quarter of 2015, which is when Nippon Steel Chemical will begin using a fair amount of our products. So we are basically looking at the first half of next year as focusing on the local markets.

Okay. You might have given some details -- I might have missed that -- the year-over-year and the third-quarter growth for the Osmose businesses that you acquired -- I think you gave them out for the first half and earlier, but what was the third-quarter growth?

Well, we didn't talk specifically about the third quarter other than what we had recorded for the month and a half that we consolidated them. What I did mention was their year-to-date growth over 2013, and from a top line standpoint, it has been over 6% topline growth year-to-date 2014 compared to 2013. And operating profit is at a higher rate than that 6% topline growth.

And the topline growth for nine months was consistent -- that was the same 6% you gave for six months, right?

No, it was for nine months. I didn't mention anything about six months.

No, but I forget whatever filing you filed --

Oh, you are talking about the 8-K that was filed. Yes, that would be in line with that, yes.

And then a question -- you talked about the LIFO charge for the quarter of $3 million -- potentially $6 million for fourth quarter. A couple questions there. I guess in the third quarter, is that what showed up on the other line -- I was trying to figure it out -- or was that not in the adjusted number?

No. That on the other line is -- the LIFO comes through the cost of sales, so that would be in the gross profit number.

So there would be a sequential -- likely $3 million hit in sales in the fourth quarter, then?

Up to a $6 million hit in cost of sales as a result of increased LIFO charges is what we are looking at potentially right now.

Just one more -- on the interest for the quarter, it seems higher than I would have imagined for just a half a quarter's worth of the new debt, but would you expect fourth-quarter interest to be higher than the 11%, 12% you did this quarter?

Well, we had deferred financing costs that were written off that are also included in that number. I think it was about $1.9 million.

Yes, about $1.9 million. So that skews that number higher.

Right. I forgot to adjust for that. All right. Perfect. Thanks a lot.

(Operator Instructions). Steven Schwartz, First Analysis.

Good morning, guys. Congratulations, Leroy, and Walt, we are going to miss your industry perspective on these calls.

I'll be close by.

Good, good. So my first question is with respect to coal tar inflation. You touched on it in an earlier question in your commentary, but when can we read through on that in terms of your demand? I mean obviously if prices are going up because coal tar demand is going up, is that a positive for you guys -- outside of the cost inflation?

I'm sorry, Steve. Could you repeat the question one more time?

I guess it boils down to you are expecting higher coal tar prices because of higher coal tar demand. Does that essentially mean that there's a pickup in demand for pitch and downstream products? Does that mean that there is potentially higher pricing for your finished products to help offset the higher costs?

Hopefully. I mean we are still seeing the global aluminum industry continuing to grow year over year at least 6% on an annualized basis. So there is -- if you take basically 44 million tons of aluminum production and add the 6% annualized growth -- yes, pitch demand continues to increase, which means there will be more tar to distill. And yes, hopefully that demand does positively impact the product pricing, if you will.

Okay. And my second question on KJCC, it's clear from your last answer that this was a pretty disrupted quarter with the startup and what have you. But still trying to understand what we can take from the $11 million in revenue and the $2 million loss. What was the utilization like, and what were the special expenses in the quarter?

Well, operationally -- and we started the plant up sort of late July -- mid-late July so that took some time. But at the moment currently, we are operating the plant at capacity. So, as far as the utilization we had in that July/August/September timeframe, I don't know the exact number. But going forward our plan is to operate at the 300,000 ton capacity level, and between now and, let's say, first quarter, we'll be supplying products into the Chinese market, perhaps exporting some CBF materials, and about that same time is when Nippon Steel Chemical will start taking product from us as they crank up their needle coke plant and carbon black plant.

Steve, I think the utilization was somewhere in the 75% range for the time that it was up during the quarter, but we obviously have to step up to prepare to operate, getting people trained and all the rest of it. So you have those costs that we've been incurring kind of leading up to the kickoff of the operation starting. And then you deal with the traditional sorts of starts and stops associated with any facility coming up for the first time.

So you don't just kind of turn a switch and start off with smooth production. So those are the sorts of things that we are dealing with, which is not unlike most other chemical plants that come up for the first time.

Okay. But that $11 million then in other words was 75% for two months?

Approximately, yes.

Okay. And then just one numbers question, Leroy, I didn't catch if you gave the white-tie inventory coming out of the quarter? I know you had some qualitative comments.

I don't think I did. I talked about it I think in terms of declines compared to maybe last year or something like that. I don't think I did give an inventory number, Steve. I don't have one kind of at my fingertips here. I apologize.

Okay. We'll let it go, then. All right. Well, thank you for taking the questions.

Bill Hoffmann, RBC Capital Markets.

Yes, thanks. Most of my questions have been answered. Just a final one. I was looking at CapEx for next year. Could you talk about this KJCC chemicals plant -- $40 million to $45 million -- I assume that's all next year CapEx. Assume the other baseline is about similar to where you normally run?

Well, you have the addition of CapEx for the Osmose businesses that have been added on as well. I would say if you take the Osmose businesses -- our kind of more traditional legacy Koppers capital and the amount of the project that could be spent next year, you are probably looking at somewhere in the $70 million to $80 million range.

Perfect. Thank you. And then just a question on the pitch markets, obviously the prices have been under pressure, and you are hedging into negotiation. Do you guys feel like the markets are likely at least to start to stabilize here as you are starting to see a little bit of demand recovery, or are we not there yet?

Well, I have to think that with the increased demand going through as we see an increased production that things will be going in the right direction. Has trough hit the bottom yet? I'd like to think so. But, again, I think overall demand is up, which typically allows you to improve on the pricing with that situation.

Great. Thank you for your help.

(Operator Instructions). And it appears we have no further questions. I would like to turn the conference back over to Mr. Turner for any closing remarks.

Thank you, Nicole. We thank you for your participation in today's call and appreciate your continued interest in Koppers. We will continue to pursue growth opportunities that make strategic sense for us, as well as looking for ways to improve profitability with our existing businesses, and we remain firmly committed to enhancing our shareholder value by maintaining our strategy of providing our customers with the highest quality products and services while continuing to focus on our safety, health and environmental initiatives.

Thank you. Goodbye.

And once again, ladies and gentlemen, that does conclude today's conference. We appreciate your participation today.