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Executives

Mike Snyder – Director of IR

Walt Turner – President and CEO

Brian McCurrie – VP and CFO

Analysts

Ivan Marcuse – KeyBanc Capital Markets

Chris Shaw – Ticonderoga Securities

Steve Schwartz – First Analysis

Amanda Seguin – Jefferies & Company

Koppers Holdings, Inc. (KOP) Q3 2009 Earnings Call Transcript November 5, 2008 11:00 AM ET

Operator

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

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

Mike Snyder

Thank you, Christine, and good morning, everyone. Welcome to our third quarter conference call. My name is Mike Snyder and I am the Director of Investor Relations for Koppers.

At this time, each of you should have received a copy of our press release. If you haven’t, one is available on our website or else you can call Rose Salinsky at 412-227-2444 and we can either fax or e-mail you a copy.

Before we get started, I’d like to remind all of you that certain comments made during this conference call may be characterized as forward-looking under the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be affected by certain risks and uncertainties, including risks described in the company’s filings with the Securities and Exchange Commission.

In light of the significant uncertainties inherent in the forward-looking statements included in the company’s comments, you should not regard the inclusion of such information as a representation that its objectives, plans, and projected results will be achieved. The company’s actual results could differ materially from such forward-looking statements.

I am joined on this morning’s call by Walt Turner, President and CEO of Koppers; and Brian McCurrie, Vice President and CFO.

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

Walt Turner

Thank you, Mike and welcome, everyone to our 2009 third quarter conference call. Before we get into the financial results, I would like to update you on what we see as the current status of our end markets. As anticipated, our third quarter results reflected sequentially stronger results in our Carbon Materials and Chemicals business, while we experienced an unexpected moderation in the North American Class one railroad.

Our end markets for Carbon Materials and Chemicals in North America and the Europe remained stable. Our Asian and Middle Eastern markets continued to show growth. Fuel production continues to increase slowly to provide relief on our raw materials side and although aluminum pricing has stabilized at higher levels, this is not yet translated into higher carbon pitch volumes in our North Americas and the European markets.

Our expectation continues to be that it will be at least several quarters before any significant amount of smelting capacity in North America and Europe comes back online. We continue to manage our business in a conservative manner, focusing on reducing costs, emphasizing cash flow, and taking advantage of consolidation opportunities in our core businesses when they present themselves. I will talk more about these later.

I continue to believe that as a market leader in our core products and end markets, we will emerge even stronger as the global economy recovers. Similar to our approach from the last call, my primary focus will be on sequential rather than year-over-year results. Brian will provide the year-over-year comparisons later on in our presentation.

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

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

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

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

As noted during our last call, our Railroad and Utility Products businesses was quite strong in the first half as the class one railroads accelerated their buying and insertion rates to take advantage of favorable market conditions and labor efficiencies with lower traffic volumes. As expected, volumes for untreated ties were reduced in the third quarter as our normal seasonal patterns began.

We expect volumes in those businesses to decline further in the fourth quarter due to normal seasonality coupled with the impact of the front-loading of maintenance programs into the first half of the year by the class ones. As a result, the decline in volumes of untreated ties from the second to the third quarter was about 27%. We were pleased to see that the class ones maintained program levels for the year despite a challenging economic environment.

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

As announced previously, we have imitated steps to reduce cost and optimize plant production and inventory levels around the company. I expect that the end market demand, although stabilizing, will remain soft and that the supply of coal tar will increase as the demand for steel rebounds.

We believe these operating conditions will continue not only through the year, but more – most probably, well into 2010. After Brian completes the financial review, I’ll give you a status update on our core end markets, as well as provide some insight into what we are expecting as move forward into 2010. Brian?

Brian McCurrie

All right. Thanks, Walt. Sales for the third quarter decreased 22% to $290 million as compared to $369 million for the prior year quarter, approximately $8 million of this decrease relating to foreign exchange. We continue to see the most significant impact of the global economic decline in our Carbon Materials and Chemicals business where we saw global volume decline lead to lower sales of 29% or $72 million, while sales in the Railroad and Utility segment decreased 6% or $7.7 million.

Sales of Railroad and Utility Products decreased $7.7 million or 6.2% in the quarter to $116.7 million from $124.4 million. Higher volumes of treated crossties and treating services for the class ones were more than offset by lower volumes for untreated and commercial crossties coupled with lower volumes for utility poles.

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

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

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

The third quarter carbon materials sales were negatively impacted by $27.3 million due to lower volumes as smelter closures and curtailments impacted customer volumes for carbon pitch. Particularly impacted were operations in Europe and North America where aluminum production curtailments were concentrated. As Walt indicated earlier, we believe we have seen some stabilization in carbon pitch volumes, but unfortunately we haven't seen strong indications that these smelters maybe coming back online in the near term.

Sales of distillates, which include third-party creosote sales and carbon black feedstock, were negatively impacted by lower volumes amounting to $7.1 million. Lower prices for carbon black feedstock amounted to $8.8 million, reflecting the decline in oil prices from the prior year’s quarter. North America sales of phthalic anhydride experienced a 23% reduction in third quarter volumes due to continued lower end market demand from the housing and auto industries. Orthoxylene prices are currently in the $0.40 range compared to $0.58 at the end of the third quarter of last year.

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

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

Margins were also impacted by $1 million for FX, as well as depressed end market conditions. As adjusted, operating margins dropped from 18.2% to 13.7%. On a more positive note, we did see third quarter margins increase to 13.7% from 12.4% margins in the second quarter, reflecting greater stability in the business, cost reductions, and higher prices for carbon black feedstock due to higher oil prices.

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

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

Adjusted net income for the third quarter of 2009 was $16.6 million compared to adjusted net income for the third quarter of 2008 of $24.6 million. The company’s effective tax rate decreased from 38% in the third quarter of 2008 to 25% in the third quarter of 2009 due to the company’s decision to reinvest cash in our European business rather than assume the consequences of repatriation. This change in assumption positively second quarter net income by about $2 million or approximately $0.10 per share compared to the third quarter of 2008.

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

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

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

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

Our debt, net of cash on hand at September 30th, 2009 was $258 million compared to $312 million at December 31st, 2008. Our strong cash flows in the first nine months of the year have allowed us to keep our leverage ratio around 2 on an LTM basis, despite significantly lower earnings over the past four quarters. We ended the third quarter with $131 million of cash on hand compared to $63 million at December 31st.

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

Before I turn it back over to Walt, I would like to emphasize that our business is seasonally impacted by demand for our products. The financial performance in the first and fourth quarters is historically lower than the second and third quarters. We see this trend continuing, potentially with more volatility than we would normally see as phthalic anhydride volumes will be impacted by the October outage and customers, particularly in the railroad end market, maybe looking to reduce year-end inventories to strengthen year-end balance sheets. This anticipated reduction in railroad demand that includes trading services will also negatively impact sales of creosote for our Carbon Materials and Chemicals segment.

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

Walt Turner

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

As mentioned on our last call, there has been a shifting of class one volumes into the first half of the year and therefore, we have seen some moderation of buying in the first half – buying patterns in the second half, but still within program levels. Thus far, the rate of tie insertions in 2009 by our class one customers has not been significantly impacted by economic conditions. Due to the importance of crossties to the rail infrastructure, we believe that the railroads will reduce spending on ties only as a last resort.

We are encouraged that at the end of September, there were 7.2 million crossties that are seasoning at our wood treating plants compared to 6.2 million at the end of 2008. As you may know, these ties, most of which are owned by the class ones, must be treated within a relatively short time after they are dry. This should be indicative of another strong trading year for us in 2010. We see this business, although having some risk for volatility in a very high uncertain economic environment, as having a more consistent performance in a market downturn.

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

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

Beginning in late 2008 and into 2009, we saw significant reductions in steel and coke production that have lead to reductions in coal tar availability. However, over the last two quarters, we have seen increases in global coal production that have resulted in an increase in coal tar.

Although we are constrained in certain regions of the world due to low volumes of tar, we have been able to meet our customer demand by blending tar with certain petroleum feedstock or by importing and exporting products throughout our global network of plants. This has allowed us to meet demand, but at a higher cost. We continue to believe that this will normalize in the latter part of 2009 and ultimately, lead to cost reductions as we head into 2010.

Speaking of petroleum products, we continue to see increased volumes at our new petroleum pitch business and are encouraged that this business will continue to strengthen and offer opportunities for growth also in 2010, particularly as the electrode market improves. I can assure that we continue to manage our plant capacities, as well as our raw material and production costs to optimize our results. We still believe in the longer-term growth of global aluminum production and believe that we will emerge a strong position to capitalize on this growth.

Our position in China provides us a base – basis from which we can capture business from increased smelting in the Middle East. For example, in 2009 we began our initial shipments of carbon pitch to the new smelter in Qatar and also expect to begin shipments later this year to the new EMAL smelter in the United Arab Emirates. For both of our core businesses, we continue to keep close watch on potential acquisition candidates around the world that give us the ability to grow our market shares and expand our market base.

Although we still see 2009 as a challenge, we will continue to manage our businesses to maximize efficiencies throughout this period of correction. Strength of our balance sheet should put us in a strong position to possibly use this downturn as a catalyst for further consolidation in our core markets. We expect that our Carbon Materials and Chemicals business along with the global economy has bottomed and will provide opportunities for growth in 2010.

The Railroad and Utility Products segment, although maintaining expected levels of demand from the class one railroads, will see additional moderation of profits as volumes return to expected annualized levels and are negatively impacted by normal seasonality due to winter weather. Early indications from the class ones are that buying patterns for crossties will remain strong in 2010.

Our expectation regarding our key raw material suppliers continue to be that steel production will rebound before aluminum production rebounds due to the fact that this is a very expensive issue to bring on idle smelter – smelters online and the aluminum producers will only do this if they see positive fundamentals well into the future.

Like aluminum customers, we are watching aluminum inventories and crisis, hoping to see it trend towards increased production. Although we have not seen inventories decline recently, we have seen price increases for aluminum that we believe reflect positive trends in this end market.

Although we see signs of stabilization in the steel and aluminum industries, there is still the potential for quarterly volatility and demand for these markets that compromises our ability to provide current guidance for the rest of 2009. We still anticipate that increases in aluminum production in North America and Europe will lag increases in steel production by as long as a year due to the aluminum inventory levels and the significant costs involved in restarting a potline [ph]. We continue to see opportunities for growth through the end of 2009 and well into 2010 in these markets and also through potential acquisitions.

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

Additionally, anticipated stimulus spending in the U.S., China, and other regions of the world where we operate and sell products should also provide some upside to our businesses, especially to the extent funds are spent on infrastructure projects. Not only are we focused on the financial stability of our existing operations, we are diligently working for consolidation opportunities within our core businesses. This, along with our expansion into petroleum pitch markets, and the acquisition of a railroad crosstie pre-plating business should position us for growth when markets become more normalized.

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

We do caution you that in addition to a normal seasonality, we are anticipating potential volatility in the fourth quarter as some customers maybe looking to reduce inventories to bolster year-end balance sheets. We believe that the current market conditions in places like the Europe and China will create opportunities for additional consolidation as we are all well positioned to take advantage of such opportunities. We look forward to these opportunities over the balance of this year and into the future.

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

Question-and-Answer Session

Operator

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

Ivan Marcuse – KeyBanc Capital Markets

Hey guys, how are you doing?

Walt Turner

Good morning. How are you doing?

Ivan Marcuse – KeyBanc Capital Markets

All right. With your change instead of – of not brining back cash into the U.S., do you see opportunities in the near future in Europe and what’s sort of your strategy or plan looking out next six, 12 months in Europe?

Brian McCurrie

I mean, I think a couple of things. I mean, the change in the tax rate is reflective not just of a change in what see as potential consolidation outlook in Europe, it’s also based on sort of the stability of the business in general. We don't need to bring the cash back. So we can position our cash for reinvestment in Europe. Ivan, I think our – we still believe that the opportunity for consolidation in Europe is pretty right. I mean, the continuing struggles in Europe we think are fairly positive signs for that, but as far as whether something can be done in six months or 12 months, that I think will remain to be seen.

Ivan Marcuse – KeyBanc Capital Markets

Great. What’s your market share right now in Europe in the carbon pitch business?

Walt Turner

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

Ivan Marcuse – KeyBanc Capital Markets

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

Brian McCurrie

Yes, for sure. We continue to see each month an increased demand for the petroleum – petroleum products.

Ivan Marcuse – KeyBanc Capital Markets

Great, thanks a lot guys.

Brian McCurrie

Well, thank you.

Operator

The next question comes from Chris Shaw from Ticonderoga Securities. Please go ahead.

Chris Shaw – Ticonderoga Securities

Hi, good morning, guys. How are you doing?

Walt Turner

Good morning, Chris.

Brian McCurrie

Good, Chris. How are you?

Chris Shaw – Ticonderoga Securities

Good. I sort of forgot – was the drop in raw material prices meaningful in the quarter? Was that a significant contributor to the margin increase sequentially in Carbon Materials?

Brian McCurrie

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

Chris Shaw – Ticonderoga Securities

Right. That wasn't that meaningful?

Brian McCurrie

In most – lot of our raw material contracts, we negotiate prices more on a calendar basis.

Chris Shaw – Ticonderoga Securities

Okay. And then just trying to – and just when you were talking about the impact I think in the fourth quarter, the 1 million to 2 million from phthalic outage, right?

Brian McCurrie

Right.

Chris Shaw – Ticonderoga Securities

Was that – sales or profit? I missed that.

Brian McCurrie

It’s profit.

Chris Shaw – Ticonderoga Securities

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

Brian McCurrie

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

Chris Shaw – Ticonderoga Securities

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

Brian McCurrie

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

Chris Shaw – Ticonderoga Securities

Great. Thanks.

Operator

The next question comes from Steve Schwartz from First Analysis. Please go ahead.

Steve Schwartz – First Analysis

Hi, good morning guys.

Walt Turner

Hi, good morning, Steve. How are you?

Steve Schwartz – First Analysis

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

Brian McCurrie

Correct. I mean, some of the cash would be used to pay that down, but you’ll see at the end of the year as that will be in the revolver.

Steve Schwartz – First Analysis

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

Brian McCurrie

I think one – I mean, I think as Walt mentioned, we are not seeing any indication from the class ones that tie demand is going to be down next year. The commercial business, that’s down about 50% this year for us. So sort of in a continuing environment, I would expect margins to probably look more like they like this year.

Walt Turner

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

Steve Schwartz – First Analysis

Okay. Walt, you threw out the 7.2 million. I didn’t catch what period is that as of the end of the third quarter, 7.2 million white ties in your seasoning.

Walt Turner

The inventory in our plants, right. That’s 1 million tie over what our inventory was at the end of 2008, which again as I mentioned, when you can see 7.2 million ties that are being air-stacked, they must be treated, as you recall, a certain times. And so that’s a good indicator for that business going forward.

Steve Schwartz – First Analysis

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

Brian McCurrie

Hold on a second. For the third quarter?

Steve Schwartz – First Analysis

Yes.

Brian McCurrie

It’s about $8.8 million – so say about $8.5 million for CM&C.

Steve Schwartz – First Analysis

Okay.

Brian McCurrie

About $4 million for R&UP.

Steve Schwartz – First Analysis

Okay. And then, there was 5 – half a million, $500,000?

Brian McCurrie

Which is in – yes, in the holdings company. Right.

Steve Schwartz – First Analysis

Okay, very good. Okay, thank you.

Walt Turner

Thank you.

Operator

The next question comes from Laurence Alexander from Jefferies & Company. Please go ahead.

Amanda Seguin – Jefferies & Company

Hi, this is Amanda Seguin on for Laurence.

Brian McCurrie

You don't sound like Laurence.

Amanda Seguin – Jefferies & Company

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

Brian McCurrie

Yes, I don't – I mean, on the cash I think, it’s certainly not our long-term interest to hold that much cash. I mean, we still have debt, even debt under the revolver to pay down. I think as business stabilizes, what we want to make sure we have is ample access to liquidity. So for us today that means maybe cash, may be a quarter or two from now, it doesn't have to be cash, maybe there will be some other mechanism.

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

Amanda Seguin – Jefferies & Company

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

Walt Turner

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

Amanda Seguin – Jefferies & Company

Okay, thank you.

Operator

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

Chris Shaw – Ticonderoga Securities

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

Walt Turner

Obviously, the announcement of the Burlington Northern Santa Fe with Warren Buffett, I think, is very good news for operators and even other railroad suppliers. I mean, it’s just sort of really supports and solidifies what we’ve been saying all along that the infrastructure of the railroads is going to continue to be a priority, especially on the maintenance of Way [ph] areas. I think just the strength of that really shows that the infrastructures are very key and there is going to be more freight moving from trucks to rail as we go forward. So I think it’s very good news for us as well as others.

Brian McCurrie

Yes, we couldn’t build our cash balance fast enough to make a run at them.

Chris Shaw – Ticonderoga Securities

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

Brian McCurrie

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

Chris Shaw – Ticonderoga Securities

And there is one more. Where do you report the equity income from the China JV? Is that in other or something?

Walt Turner

Yes, it’s in other.

Chris Shaw – Ticonderoga Securities

Okay, thanks.

Operator

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

Walt Turner

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

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

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

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

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

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Source: Koppers Holdings, Inc. Q3 2009 Earnings Call Transcript
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