Koppers Holdings Inc (KOP) 2015 Q1 法說會逐字稿

Good day and welcome to the Koppers Holdings Inc. first quarter 2015 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Michael Snyder. Please go ahead, sir.

Thanks, Brian and good morning, everyone. Welcome to our first 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. I would also like to remind you that, as indicated in our earnings release this morning, we have posted materials to our Investor Relations website that will be referenced in today's call.

Before we get started, I would 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 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 Leroy Ball, President and CEO of Koppers and Mike Zugay, our Chief Financial Officer. At this time, I'd like to turn over the call to Leroy Ball. Leroy?

Thank you, Mike and welcome everyone to our 2015 first quarter conference call. I'd like to spend a couple of minutes walking through some of the highlights since our last conference call, before handing things over to Mike Zugay to review the first quarter comparative financial performance.

First, I couldn't be happier about our progress on our first quarter cash generation initiatives that allowed us to pay down debt by $35 million in what is historically a weaker cash flow quarter for us. To put this in perspective, our first quarter average cash flow from operations for the last three years was a negative operating cash flow of $8 million. This quarter alone, we generated positive operating cash flow of $20 million. We did that through a reduction in working capital of $6 million from year-end and that might not sound that impressive until you hear that working capital actually increased on average for each of the three previous year's first quarters by $25 million on average. And we were also, were able to take advantage of our new legal structure to bring back a significant amount of cash from overseas and apply it to debt reduction.

In fact, our net cash on hand decreased by nearly 50% to $26 million as of the end of the first quarter of 2015, from $51 million at year-end 2014. We're off to a good start to reach our goal of a minimum debt pay down of $100 million for 2015.

The second highlight I would like to mention is the record sales and EBITDA performance of our Railroad and Utility Products and Services business. Organic sales growth in the core North American rail related business year-over-year was 29%, while EBITDA almost doubled in this year's first quarter compared to 2014. As expected, we are continuing to see the trend of untreated tie procurement pick up year-over-year, which is driving much of the topline growth. Margin improvement can be attributed to the non-recurrence of certain one-time costs related to the Ashcroft Treating Plant acquisition in January of 2014, in addition to realizing the benefits associated with the operations excellence initiative that was started and mostly expensed in the first quarter of 2014.

Now, sticking with the RUPS segment for a moment, a third highlight in the early part of this year, with our recent announcement of two very important contract extensions with the BNSF and CSX railroads. We had been in discussions with both railroads for some time about extending our supply contracts with them from their 2017 expiration dates to sometime beyond 2020. A key element to the CSX extension involved reducing our treating network that serves CSX from three plants to two. As a result, we would be closing our Green Spring, West Virginia facility at the end of this year and rerouting crosstie volumes to our other two facilities serving the CSX, which will help reduce our environmental footprint and take out a portion of fixed costs.

For the BNSF, we will be spending some capital to add new switch-tie sorters over the next couple of years. But the end result is a net positive in terms of additional sales volumes and greater operating efficiency.

Now, one final piece of news I'd like to highlight actually involves one of our lines of business in the CM&C segment that has been under significant pressure over the past year, the phthalic anhydride business. During the first quarter, through market information, it became apparent that one of the three companies serving the US merchant market will exit the business in the second half of 2015. Now, that will result in us becoming one of only two suppliers to the US market, which will tighten supply and open up some opportunities to pick up sales volumes beginning in the latter half of this year.

Now, it's still too early so we're not really prepared to talk about what this might mean long-term for that business. But it is the first significant piece of good news that we've had in the CM&C North American markets for some time and we are excited to compete for new business that hasn't really been open to us as a supplier in the past.

I'll now turn it over to Mike Zugay to provide an overview of the results in more detail and after he's finished, I'll update you further on the products and our initiatives, and our outlook for the rest of the year. Mike?

Thanks, Leroy. As you can see on slide 2, consolidated revenues for Q1 were $398 million, which was an increase of $66 million or 20% over the prior year. This was driven by $88 million of new revenue from acquisitions net of divestitures, and a $23 million increase in our railroad business. These increases were partially offset by a net $44 million reduction in sales for CM&C, which was driven by reduced product pricing as a result of lower oil prices.

Moving to slide 3, first quarter adjusted EBITDA of $27 million was higher than that last year's first quarter amount of $25 million due to a $13 million benefit from acquisitions, again net of divestitures, and a $7 million increase for RUPS, as that segment had a record quarter for sales and adjusted EBITDA.

As Leroy mentioned, the improvement in margins and profitability for RUPS was driven by higher sales volumes for crossties, due to restocking and increased demand, the absence of acquisition costs for Ashcroft in early 2014, and the realization of benefits from the margin improvement initiative from an expense standpoint, that was expensed in the first quarter of last year. These increases were partially offset by a reduction in profitability for CM&C of $17 million, once again driven by lower oil prices.

Now, I'm going to discuss several items that are not referenced in our slide presentation. Adjusted net income and adjusted EPS for the first quarter were $600,000 and $0.03 positive per share compared to $6.6 million and $0.32 for 2014. The first quarter adjusted net income excludes approximately $4 million of pretax charges related to impairment and planned closure costs, and non-cash LIFO costs, which were partially offset by the gain on the sale of our North American utility business, which occurred this past January. Our first quarter results were also negatively impacted by about $2 million of lost profit as a result of a CM&C plant outage this quarter at a plant in North America.

Our effective tax rate was 12% and our normalized tax rate for the year is estimated to be around 35%, as we begin to realize the benefits of the tax restructuring project that became effective at the beginning of this year. The required onetime payment to do that of $16 million, which was previously discussed, was made in this first quarter of 2015. We were also able to repatriate excess cash from overseas during the first quarter, which nicely contributed to the improved $35 million debt pay down we achieved in Q1.

Cash provided from operations was $20 million compared to cash used in operations of $14 million for the same quarter last year. This substantial improvement was due mainly to cash generated from working capital, as Leroy mentioned, of a positive $6 million, compared to cash used for working capital of $19 million in the same quarter of last year.

Our first quarter 2015 CapEx expenditures were $7 million compared to a high number of $15 million in the first quarter of 2014, and this was unusually high then due to the construction expenditures for the KJCC joint venture in China in early 2014. As of March 31, we had approximately $176 million borrowed on our $500 million short-term revolver, $285 million outstanding on our term loan, $300 million in existing bonds, and $57 million of loans in China. And these total amounts are $35 million lower than their collective balances at the end of last year.

As of March 31, the interest rate on our revolver and term loans was 3.6% and our composite borrowing rate in total was 5.3%. Our leverage ratio for covenant purposes at March 31 of this year was 4.86, which was below the required ratio of 5.25. As a reminder, our goal with this particular leverage ratio is to reduce it to approximately three times within the next two years. Also at year-end, our fixed charge ratio was 1.52 as compared to our covenant of 1.1.

In addition to that, as mentioned in our last call, we continue to monitor the high yield bond market and look for another opportunity later this year to refinance our $300 million of seven and seven-eighths interest rate notes, which are due in 2019.

Now, I'd to turn the call over to Leroy for a further update on our businesses. Leroy?

Thanks, Mike. Now, I'd like to give you an update on each of the businesses and our expectations for the remainder of the year in each segment. First, the Railroad and Utility Products and Services business, as expected had a very strong quarter, and in fact as I mentioned my opening comments, had a record quarter for sales and EBITDA. Now, if you turn to page 5 of the slide presentation, you'll see that we are maintaining our 2015 guidance for this segment exactly as we presented it back in February of this year. Sales volumes for both untreated and treated crossties were up by 57% and 25% respectively compared to the first quarter of 2014, which contributed significantly to both the top and bottom line growth in this business segment in the quarter.

Treating services were down, however, compared to prior year by approximately 15%, as we don't have as much dry inventory to treat with the drawdown in untreated inventory over the past year. Pricing for treatment services was flat, while pricing for treated and untreated crossties averaged an increase of somewhere between 10% and 20% compared to prior year, and was reflective of the higher cost of untreated crossties. Untreated tie procurement is expected to remain strong throughout 2015, but the gap between procurement numbers for this year and last will narrow as the year goes on, as the pickup in sales began to kick in during the second half of 2014. The same will be true for pricing.

Treatment services will likely lag last year for at least the new two quarters, as inventories are increased. But overall, we still feel pretty good about realizing the overall $20 million increase in EBITDA in the RUPS segment in 2015. The fact that we have $7.6 million of that expected increase already effectively in the bank at the end of the first quarter gives me confidence in achieving our previously communicated guidance for the year in this segment.

And while crosstie procurement is still a risk, we view it as much less of a threat to our results for this year after a third of the year has passed. What is emerging is a potentially larger risk at this point, if any pullback in treatment from the class I's, given some of the risks they see around their volumes related to lower coal shipments. We feel pretty confident that any possible pullback could be absorbed by pent up commercial demand and at this point see no reason to alter our guidance.

In February, we communicated that we thought our newly acquired businesses, combined with our rail joint business could provide approximately $7 million of incremental EBITDA in 2015. As we enter the middle of the second quarter, we still feel pretty good about that projection as those businesses finished the first quarter already over a quarter towards that goal. Sales volumes remain healthy in all of those business lines and are expected to remain strong throughout the remainder of 2015, which will help to drive the bottom line performance.

We also continue to focus on margin enhancement for this business. As I mentioned previously as part of the recently announced CSX contract renewal, we agreed to close our treating plant in Green Spring, West Virginia, which will reduce costs and improve capacity utilization at the other two facilities that will continue to serve the CSX.

Also, as expected, we experienced during the quarter a 70/30 treatment ratio between value-added, dual-treated ties and regularly treated creosote crossties with the three new borate systems coming online during the first quarter. This is the treatment ratio we expect to continue moving forward, which will have a beneficial impact on margins.

Now, these items along with the full year benefits related to our operations excellence project that was implemented in 2014, and the realization of synergies from the Osmose acquisition that are expected to reduce the overhead allocation for this business should result in around $7 million of incremental EBITDA in 2015, and we are currently on pace to meet that number.

Now, moving onto slide 6 and Performance Chemicals, as we look at the global markets in which we participate in that segment, we continue to believe that 2015 is poised to be a strong year for that business as macro indicators are pointing towards positive trends in home repair and remodeling, which tends to drive demand for our products. In fact, March of 2015 represented the sixth consecutive month of year-over-year sales growth of existing home sales in the US, with March's annual increase of 10.4% representing the highest annual increase since August of 2013. Existing home sales traditionally make up approximately 90% of the housing market and have historically driven repair and remodeling spending.

North American sales in the Performance Chemicals segment made up approximately two-thirds of overall Performance Chemical segment sales in the first quarter, which is in line with the historical geographic mix. Now, as planned during the quarter we began converting the Canadian market from the traditional soluble copper products to our patented micronized copper products, with our MicroShades light brown color. We dealt with some startup issues at a few facilities, but have put that behind us as we've entered the second quarter and expect to see nice results from this product line as the year goes. Lower copper pricing during the quarter provided a modest benefit for the smaller portion of our business that is unhedged, and other raw material and operating costs were pretty much in line with our expectations.

Our international business for Performance Chemicals also turned in a seasonally strong quarter in local currency, and other than the strong dollar, we don't see any fundamental issues affecting demand for the year. I mentioned on our prior call that we were seeing nice growth in market share in each of our geographic markets, and that is still the case. As might be expected though, we are seeing a more aggressive competitive reaction to lost business. As a result, we are backing off slightly the expected EBITDA contribution expected from growing our market share in Performance Chemicals from the $8 million we targeted on our February call, to $6 million. As a result, our Performance Chemicals segment should now improve by approximately $50 million to $64 million for the full year of 2015. All other assumptions for this segment remain unchanged.

Now, turning to slide 7, the story for Carbon Materials and Chemicals hasn't changed much since last quarter but our expectations for the year have slightly improved. Oil continues to weigh heavily on the year-to-year comparison, as we saw an approximate $25 million impact on sales in the first quarter for the products that are either directly or indirectly tied to the price of oil. That represented over a 30% reduction in pricing from the first quarter of 2014 to 2015. $6 million of that $25 million impact was from lower phthalic anhydride pricing that we saw limited raw material recovery from. Approximately two-thirds or $13 million of the remaining $19 million price drop related to carbon black feedstock and naphthalene was recouped through lower coal tar costs, which left the net effect on profitability related to these products at approximately a $6 million on the quarter, plus the $6 million phthalic impact for a total of $12 million.

Now, we continue to expect the impact from oil to result in a significant reduction of EBITDA in 2015, but we have narrowed that range to be between $30 million and $35 million if crude oil averages in the neighborhood of $50 a barrel. I know that it's recently moved up to around $60, but we're not yet ready to change our assumption over the remainder of the year, and instead continue to hold a conservative view.

Now, the stronger dollar has also provided some headwind and we have increased our estimate of potential negative impact for the year to be between $5 million and $8 million based upon average exchange rates experienced in 2015, compared to the averages in 2014. The KMG creosote distribution business that we acquired in January of this year has thus far met expectations and we continue to expect a minimum contribution of EBITDA of $5 million through the additional volumes that we will be able to move in North America.

Our assumptions around margin improvement have changed for the worse, as we are projecting for Nippon Steel Chemical to not bring their new facility up until at least the third quarter of this year, as they continue to work towards getting their environmental permits in order to operate. In addition, we have included the $2 million impact from our unplanned outage at Stickney that occurred during the first quarter as a net reduction of our margin improvement activities. Finally, on the plus side of the ledger, we have now built in a $3 million improvement expectation related to volume and capacity utilization increases in the phthalic market that I referenced earlier.

So as outlined on slide 7, that all totals up to a net EBITDA reduction of between $20 million and $30 million in 2015, which would put adjusted EBITDA for CM&C of between $17 million and $27 million, which is slightly above where we had projected it to be back in February. Sales have been and will continue to be highly variable based upon the price of oil and the strength of the US dollar. We're continuing to work on a number of things behind the scenes to remedy the CM&C situation across the globe. It's not really prudent for me to get into specific details at this point on some of those actions, but you can expect to hear more as the year goes on related to several of the structural changes we're planning to make in the CM&C segment to continue shrinking our footprint and improving the operating model.

I mentioned on the previous call that you could see this business being only a third of our topline in just a couple of years and I still believe that's highly likely given some of the changes we're planning to make. CM&C actually only made up 40% of our first quarter sales and will probably remain in the 40% to 45% range of total sales throughout the remainder of the year.

Now, to reiterate our expectations for sales from the last call, if you go to slide 8, you will see that we can expect an increase from our railroad and utilities products and services segment of approximately $50 million, which would put full year sales for that segment at around the $650 million level, an increase from our Performance Chemicals segment of approximately $235 million and a net decline from our CM&C business of approximately $120 million, which would put CM&C sales at around $710 million and represent an overall sales increase of $165 million for Koppers in total. Adding that to our 2014 sales of $1.55 billion, we take 2015 to be around $1.72 billion on the topline.

Now, our guidance for EBITDA as shown on page -- on slide 9 continues to include an increase from RUPS of about $20 million, an increase from Performance Chemicals of around $50 million, and a decline in CM&C of between $20 million and $30 million. We have changed our expectation of corporate expenses slightly from an approximate $10 million reduction to a $9 million reduction due to the non-recurrence of due diligence and integration related expenses that were incurred on the Ashcroft and Osmose acquisitions in 2014. Now, the change from last quarter to this quarter on our corporate benefit is due to baking in some actual foreign exchange losses related to the establishment of the inter-company loans associated with the recent legal reorganization that were recognized during the first quarter of 2015 in our corporate expense category.

So adding those amounts to our 2014 adjusted EBITDA of $116 million would continue to provide for an EBITDA range for 2015 of between $165 million and $175 million, which remains in line with our previously communicated guidance. We are reducing our estimate for depreciation and amortization from $65 million to $63 million, while slightly increasing our previously communicated expectation of interest expense from $48 million to $50 million, which takes into account a slight increase in interest rates throughout the year.

Depending upon the geographic mix of earnings, we expect our effective tax rate to be between 30% and 35% but have modeled conservatively at 35%. Since the changes in depreciation and interest expense offset each other, our expectations for 2015 adjusted EPS would remain at the range communicated in February of $1.60 to $1.90 of diluted cents per share.

And we are now one quarter smarter about 2015 and feel pretty good about where things are heading. While I won't give specific quarterly guidance, I will say at least that we expect the third quarter of this year to be our strongest. The second quarter is expected to be our next strongest quarter, followed by the fourth quarter and finally, our first.

So with that, I would now like to open it up to questions.

(Operator Instructions) And we'll now take our first question from Ivan Marcuse with KeyBanc Capital Markets.

Hey, how you doing. Thanks for taking my questions. You may have -- I might have missed it. You put out a lot of numbers pretty quickly. The working capital that was a good source of cash this quarter, I think that you said last quarter that you were sort of expecting to generate $40 million, $45 million out of working capital. Is that still the goal or do you think now where you are in the first quarter that could be even better?

In Q2 and Q3 that's our largest earnings quarters. So we expected that a lot of the working capital increase and our ability to pay down debt to be focused on increased earnings in those two quarters more than our focus in Q1.

Ivan, I think the $40 million reduction target that you were talking about, we haven't changed our view on that. I think that $40 million we still believe is achievable and that's our target for the year. So from that standpoint, we haven't altered our expectations or guidance.

Okay, and just to be clear, we were talking about $40 million. Were you just talking about net working capital, right?

That's correct.

So when we get to the end of the year, net working capital should be hopefully a $40 million positive on the cash flow statement.

That's correct.

Okay, great. And then if you look at Performance Chemicals sort of I guess is our first year going through this business, I understand that -- what's biggest quarter from a seasonality? Is it the second quarter as like the Home Depots and the Lowes of the world build inventory going into the season? Or is it more of the third quarter? How should we think about the cadence of EBITDA improvement or EBITDA contribution from Performance Chemicals?

We're actually -- we're expecting the second and third quarters to look pretty similar and probably the first and fourth to look pretty similar. That's what certainly the recent history has indicated and that's how we've modeled it out as we've looked at the business for this year. So first and fourth are pretty similar. Second and third are pretty similar.

Right, and then just building on that, you mentioned it sounds like it's de minimis at this point, a couple million. But what's driving the competitive nature or why is it being competitive if you see volumes rising in this environment?

Well, I think because we -- I think I indicated on the last quarter's call, we've actually been able to pick up some market share. Now, we've not actively gone about, again, going in and trying to take share through reducing price. We've run into some situations where we've, quite frankly, been able to win some business just on our technology, and service capabilities, and things like that. As -- in that sort of situation, you typically run into it at some point in time, right, where our competitive reaction is going to come back as competitors are starting to lose share.

And so we're seeing a little more aggressiveness in the market as some of the competition has lost some business, despite the fact that demand overall is growing. And so that's all we're trying to do is hedge our bets a little bit based upon some of the stuff that we're seeing out there.

Great, and then last question, I'll get back in the queue. In terms of coal tar, I don't know if I listen to my steel analyst, it sounds like there are -- the steel industry, at least in the US and Europe for the most part, is not in great shape at this point. So how is that -- is that impacting -- how is that impacting your ability to get coal tar supply? Is that forcing pricing up as capacity comes out? Or is to date not really much material change? And if you could comment on the reach and just coal tar cost and availability?

Yes, it's a good question and a good observation. Yes, there has -- with steel production being taken out of the industry here in the US so far this year, that has resulted in a tightening of supply. We've talked for some time now about how the North American market is a short market for coal tar as it is. This has only made it shorter. It is a supply demand driven market from a pricing standpoint. So the fact of the matter is we have our volumes under contract for right now. And the volumes that have been taken out have not affected us directly from a supply standpoint. Now, as things move forward, if volumes don't come back it could create a more competitive environment for the remaining coal tar. But that's also why we have been heading down the path of really opening up our distribution network to be able to bring in coal tar from overseas to provide a relief out, to provide some competition for the short coal tar market here in North America.

And so we're continuing to head down that path. We bought the KMG creosote distribution business, which has tankage in the Gulf region. We're looking at other opportunities down there to bring in coal tar from overseas to help alleviate some of that. And in fact, we actually have that in our plans for this year and expect to execute upon that, and that's been part of our strategy here certainly, as we've seen the evolving steel market.

Okay, so still I guess bottom line, still a bit of a fluid situation and it is tightening, but right now you're managing it fine.

That's correct.

Great. Thank you.

(Operator Instructions) We'll now take our next question from Bill Hoffman with RBC Capital Markets.

Hi, Bill.

Hi, Bill.

And Mr. Hoffman, please check your mute function.

Sorry about that. I was wondering if you could talk a little bit about the phthalic market. We're obviously seeing prices come back up a little bit, certainly with oil, but it doesn't seem like ortho is moving back up. Can you just talk a little bit about the dynamics you're seeing in the markets right now from a pricing standpoint?

Yes, we have seen actually ortho move up a little bit here in March compared to January and February. The April number hasn't been released yet and we're expecting that at any day now and we are expecting a slight increase in April as well, but that hasn't been confirmed. So we are seeing actually the trend in ortho moving up with some of the increase that we've seen in oil. So again, we feel a little better about the phthalic business, although it's still obviously, at these levels is going to remain a little bit of a drag on the business.

The bigger and better thing for us, we think, is the news that we have one of the three companies serving the merchant market here, essentially making a decision to exit the business. And so that will provide some volume gains for us, we believe, and allow us to increase capacity utilization as that market starts returning. From a pricing standpoint, we can see some significant benefits coming through and dropping to the bottom line. So I didn't want to overplay that within my prepared comments, but we're pretty excited about that.

Thanks and then just with regards to margins in that business, I'm understanding you guys that your coal tar costs do adjust to what's going on in the market. Is that normal and is that adjustment happened in the first quarter (inaudible)? Go ahead.

Yes, so our coal tar markets, our coal tar costs adjust much more rapidly in Europe and in China. And in North America, not so much. Like I said, North America, because it is so short, the pricing on coal tar has remained relatively constant, in fact has moved up slightly over the past couple of years. The trend has been more in a upwards direction in North America as coal tar supply has tightened. In Europe and in China, you see much more movement as oil moves because there's an abundance of coal tar available there. So as oil is declining and some of the demand for some of those end products are also declining, then it tends to put pressure on the cost of the raw material. And we've seen that reflected, and I actually mentioned that in my prepared comments, I think, that we saw about a $19 million pricing reduction in our carbon black feedstock and naphthalene pricing in the first quarter compared to last year's first quarter, while we saw probably around a $13 million drop in coal tar costs associated with those product segments. And in most of that -- most of that change is in the European and China regions.

Great. Yes, that was exactly what I was thinking of. Thank you. And then the KJCC JV, can you just talk about the profitability of that and operating, how it's producing at this point?

Yes, KJCC operation in today's environment is not doing that great. It was built to serve the Nippon Steel needle coke and carbon black plants, and it really wasn't set up. It wasn't -- let's put it this way, if we were building it to serve the aluminum industry, we probably wouldn't have put it where we put it. So it's not in a great spot and with pricing over there for the naphthalene and the carbon black feedstock being down, it's not in a profitable situation at this point. We need the -- either the oil price recovery or Nippon to get their plant up and running for us to begin meeting the profit expectations that were -- that that plant was built off of. And with what we have heard from Nippon at this point, they are still working on trying to get their environmental permits in place in order to get up and operating. And they're still dealing with some issues with the local Chinese governments to make that happen.

Thank you. And the last question, from the capital spending this year, we've got sort of $45 million number. Is that still an expected target?

That's still the number.

Yes, we were low in Q1 but we expect to pick up that spending as we go and the forecast for 2015 does not remain changed. $45 million is our target.

Thank you very much for your help.

And we'll now take our next question from Laurence Alexander with Jefferies.

Hey, guys. This is Dan Rizzo in for Laurence. Just a follow-up question from before about you said you were going to open your distribution channels for coal tar and ship them overseas. Is that significantly more expensive or something that's only like kind of like -- I mean only comes into play now because it's so costly? Or is there a big difference?

Well, there is a huge difference today between the cost of European coal tar and coal tar in North America. Again, with oil being down and our ability to leverage on a long market, there is a significant advantage in the overseas coal tar. So in that sort of situation, we want to be able to take advantage of it. If oil moves back up and goes back up to levels of the $90 to $100 and the coal tar correspondingly moves up in Europe, to go along with that, it might not be in the track with that point in time. But certainly and today, sort of market does provide a pretty nice alternative that we felt.

Well, I guess transportation cost can be costly , correct?

Absolutely, but net, it is still a benefit for us.

Okay, thanks. And then with the plant closure in West Virginia, what's your utilization rates going to be in the remaining two plants?

I think in the remaining two plants, they are probably put the soft, probably somewhere in the -- I call it mid-80's range something like that.

And I mean just longer-term that you think what you, I mean, where you are heading toward you might be using a limit, it was be like north of 90 or, just a little color.

Yes, I mean I would love to find ourselves in that position at some point in the future. But I think that, I don't think we're going to have any issues in terms of worrying about running out of capacity at those remaining two locations. And certainly, if we got to that point, we'd look at again how we could possibly de-bottleneck some of the inbound unloading to help free that capacity up. That's really been the restriction in the bottleneck for us. It's not too much on the treating end, it's more on the unloading.

Got you. Okay, thanks. And then finally just, you're doing, it seems like you were ahead of schedule with the debt reduction plans. Would that mean that the asset sales are not as important now or that I mean, I was wondering where we are with that?

Yes, so we are still pursuing some things there. We are not at a point where we can talk about it or announce anything. The couple that are probably more imminent are relatively modest in terms of the contribution. They would almost be more for us just an elimination of businesses that probably are more a distraction than anything else. And so I don't look at those as being big cash contributors. There is one particular business that could provide a meaningful addition to cash, and we are still going down that path. So we're hoping to execute on a few of these here over the next couple of quarters. But only one really would have some kind of -- some meaningful impact on the cash situation; the other couple are relatively small.

I think we've mentioned before that the accumulation of all three of those is somewhere in the $20 million to $30 million cash range.

Okay, thank you guys.

And we'll now take our next question from Liam Burke with Wunderlich.

Thank you. Good morning, Leroy.

Hi, Liam, how you doing?

Good, thanks. Osmose rail services, how is that integrating with the rest of the business, and are you seeing growth there?

Well, it's probably -- I certainly can't say that we're seeing growth, yet as a result of folding that into our business. It's still a little early for that. We were just talking to a few of the people in that business segment just the other day, and talking about how we are planning on making some joint sales calls and stuff like that. Because they actually interface with a little bit different part of the class I's than what we do today. But what it does is it allows us to kind of bring our two businesses together and provide more exposure across the class I network.

The business itself, we're expecting is going to be pretty much in line with what they have done over the past couple of years, except for some additional benefit as a result of kind of some back office sort of synergies. But from a sales standpoint, we never really modeled in our expectations a big jump in synergistic sales and profits from bringing the businesses together. We kind of hold that out as something that we think could be achievable, but we didn't want to put that in our expectations for something that we needed to hit in order to kind of hit our return metrics.

So I think we'll see out over the next year or so kind of where things head. I would hope to be able to say here a year from now that, having owned them for a year and a half, we are starting to see some of those benefits. But as of right now it's still a little too early.

Okay. And with the borate-treated ties, how do you see the - I mean with them being able to last longer in the track-bed, how do you see the trend in the business?

Well, we don't see certainly any real impact in the short-term and by the short-term, I'm talking next five to seven years. This is extending the life of ties in a certain segment of their network. They are using -- most of the class I's at this point are using them across their entire network. And so for the ties that are already in spots of the US or North America where they're already getting extended tie lives, not sure what benefits it's really bringing to them because in most cases those ties will probably wear out due to mechanical wear before they do of decay.

But so this isn't a case where because we're treating 100% of their ties with this borate technology that it's necessarily extending 100% of the tie life in that network, and therefore going to have an impact all across the network moving forward. It is only for certain portions we think of the overall class I network and it's still several years down the road I think before you see really any of that impact flowing through volume wise.

Great. Thank you, Leroy.

And we'll now take our next question from Steve Schwartz with First Analysis.

Hi, good morning gentlemen.

Hi, Steve.

Hi, Steve.

If I could start with a continuation of the response you gave to Bill on KJCC. So with Nippon steel right now you are selling everything into the merchant market and in your mind, over time, what is your expectation for 100% in the merchant market, then transitioning to 0%? Does that happen in 2016, across 2016? Is it 2017? What do you think?

It's certainly dependent upon when Nippon gets up and running. If they get up and running in the third quarter of this year, then we'll be serving them throughout 2016 for all their needs. So basically only what we would be selling into the merchant market at that point would be the chemical stream, which we've always intended to, because they won't be using that part of the output and whatever is remaining over and above the volumes that they would need to take. So you're talking about probably something in the neighborhood of, call it, 60% to 70% would be going into Nippon in 2016, which would be the normalized level moving forward. But it's all dependent upon when they get their plant up and running.

Yes, and so it sounds to me like you think there's a reasonable probability, not a guarantee but a reasonable probability that they get things wrapped up by the end of this year.

Yes, Steve, I'd say that and I hesitate at this point to say anything related to this venture because it has continued to extend and I know the needle coke market is and has been in a depressed state here as of late. So I'm sure that Nippon is not excited to bring that plant up. How much of what is going on is being driven by the Chinese government versus Nippon taking a little bit of a relaxed atmosphere towards bringing the plant up, it's hard for us to tell. They're saying all the right things but we haven't seen, to this point, the permits. And therefore, they haven't been able to bring the plants up.

So I don't -- I just -- I don't want to say anything about that joint venture at this point in time, to be honest with you. I'm quite frankly a little bit frustrated with it.

Okay, understandable. When you say 60% to 70% to Nippon, what is the 30% to 40% that would continue to go into the merchant market?

That would be 100% of the naphthalene and some remaining carbon pitch/carbon black feedstock over and above their requirements.

You mentioned the pitch right now. Where are you selling that pitch? Is it into China or is it going all the way to the Middle East?

Right now, it is in China but we're having that facility approved with our Middle Eastern customers. So we're going through the approval process to be able to export from that facility.

Okay, which could mean a little bit of a better margin, it sounds like.

Yes.

Okay, and then if I could, my last question relates to railroad. And in your commentary, your expressed a certain amount of risk about perhaps the second half of the year around coal. My experience with those class I's, in going to their conferences and everything, is that they pretty much set the budget. And I think even in the past, you guys have talked about how steady their spending tends to be. So I guess, number one, I'm wondering why do you feel like there is a potential for a downturn in spending already this far into the year, number one? And number two, if you're calling out coal, is there something with a specific customer? Because I would almost expect you to call out crude by rail as a risk.

Sorry if I've created any confusion over those comments. From my standpoint, Steve, I think it's incumbent upon us, obviously, to talk about the issues that could potentially impact the numbers that we're projecting. As it relates to the rail we feel overall pretty good about that obviously, with the recent historic performance that we've had, we've talked about crosstie procurement, and that being a significant increase over the last year, year and a half. As I sit here today, I've gained more and more confidence there. So I guess as I -- if I need to look at a potential black cloud on the horizon, it is the class I's at some point just starting to slow down their treatment.

I agree with you, we've always had pretty good visibility into their numbers and they traditionally do set their budgets and hold to them. But if there's anything I guess at this point in this business that has been going so well that would cause me concern, it's not so much the crosstie procurement anymore. It is just if they would just decide to just slow things down a little bit. And so I just wanted to point it out, but certainly didn't mean to alarm anybody with it.

Okay, sounds good. Thanks, Leroy, for being so candid.

And we'll now take our next question from Kevin Hocevar with Northcoast Research.

Good morning, everybody. Wondering if the oil impacts on the CM&C business, I thought I caught with that what you were expecting or modeling, $50 a barrel oil for that. So just wondering if it stays at $60 a barrel, kind of around where it is today, what the sensitivity is? I mean are we looking at a $20 million to $25 million impact to EBITDA as opposed to $30 million to $35 million? Or just wondering if you could help us with the sensitivity to that?

It's probably in the neighborhood of around $5 million.

Okay. And on the phthalic anhydride portion, you expected a small bump due to the one competitor dropping out of the equation. I was wondering if you -- and I think you put $3 million of EBITDA as a result. I'm wondering if you can, I'm sure you can say or everything that you're modeling to get to that, but are you expecting that largely to be broken up in certain -- a certain percentage between you and the remaining competitor here domestically? Or are you expecting some imports to come in too and soak up some of that demand? Wondering if you could give me whatever you can around how you're expecting to get to that?

Sure. I think that certainly imports could take up part of that demand. Certainly, the other competitor remaining in this market you would expect would take up some of the demand. I think logically, it probably will be split three ways amongst us, the other domestic competitor, and some imports. But I do think a lot of this will remain domestic. At least, we feel pretty confident in that.

So that's about as specific as I can be.

Sure, and then I guess is that largely a back half number then you would expect to get that in the front half of next year as well as the benefit?

We would expect to do that, yes.

Okay. All right, thank you very much.

And we'll now take our next question from Chris Shaw with Monness Crespi.

Good morning, gentlemen. How you doing?

Good.

In CM&C, just curious what products are generating negative EBITDA margins at this point? Is it just mostly the North American products? Would that include pitch in North America as well or -- ?

Well, I'm not going to comment on specific EBITDA margins within the product segments. We don't disclose that information. Just say if you would take the -- if you would take the overall CM&C business and lay it out from a regional standpoint, at this point we are being hurt more in North America than any other region. Next probably in China and then followed by Europe, and Australia is actually doing fairly well, which is why I don't actually talk about it a lot.

But CM&C, because of the nature of that business model where you have the phthalic anhydride that is using, for us, a good portion of our naphthalene feedstock, and our inability to really move pricing on the raw material that produces that naphthalene, we get squeezed quite a bit in North America with not a lot of ability to kind of pull any of that back on raw material. As I've talked about several times, in China you do have much more of that ability to do that. And we've already seen that and experienced it. And it's been a little bit better in Europe than in China. And so that's sort of how it breaks down, but Australia is doing well. North America is probably on the other end of the spectrum and Europe and China are somewhere in between.

Okay, and then on pitch itself, have any of the sort of more recent smelter announcements, have they impacted or your volumes at all or potentially will impact your volumes?

Our volumes have remained pretty much in line with our expectations. So no, we don't expect to see a big change in our volumes of pitch certainly out over the next year or two as we see it today.

And then if I could ask another question on the KJCC. I remember the economics there initially were supposed to be, I don't want to say guaranteed, but I thought there was a built-in margin or built-in pricing. Was that right? And if so --

That's correct.

Does Nippon have any ability to renegotiate that? I mean I would assume that there might be more attractive merchant options for them if just -- are they allowed to sort of squeeze you at all at this point?

Yes, I think there's always an ability to negotiate any -- renegotiate any contract. So I mean that's really all I can say about that.

Okay, and if I could do one more on rail. Just on the contracts you signed, I can't remember, did you announce whether the -- I know there was no actual pricing detail, but were the contracts renewed at current prices? Or were they higher or lower, or were you not saying?

Yes, we can't really speak to pricing, but overall when you take those contracts in total, they will continue to be at or better than our margins within those business lines. And it's primarily due to the fact that, again, we got plant rationalization with one and we got some additional business through adding some capital into the other.

Great. Thank you. That's very helpful.

You're welcome.

(Operator Instructions) And with no further questions in the queue, I'd like to hand it back to Leroy Ball for any closing remarks.

Thank you. I hope that our shareholders are able to see the positive developments that have occurred throughout our business so far in the early going of 2015. I know that we're excited about where we believe we can take the Company and we remain committed to do so. So we thank you for your participation in today's call and appreciate your continued interest in Koppers. Thanks.

And ladies and gentlemen, that concludes today's conference call. We thank you for your participation.