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Executives

Mike Snyder - Director of Investor Relations

Walt Turner - President and CEO

Brian McCurrie - Vice President and CFO.

Analysts

Saul Ludwig - KeyBanc

Steve Stewarts - Post Analysis

Lucy Watson – Jefferies

Chris Shaw - UBS

Bruce Wilcox – Cumberland Associates

Andrew O’Conor - Millennium Partners

Scott Blumenthal - Emerald Advisors

Koppers (KOP) Q4 2007 Earnings Call February 20, 2008 11:00 AM ET

Operator

Good morning. My name is Shakena and I will be your conference operator today. At this time, I would like to welcome everyone to the Koppers fourth quarter 2007 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. (Operator Instructions)

I would now like to turn the conference over to Mike Snyder. Please go ahead, sir.

Michael Snyder

Thanks Shakena and good morning everyone. Welcome to our fourth quarter conference call. My name is Mike Snyder and I'm the Director of Investor Relations for Koppers. At this time, each of you should have received a copy of our press release. If you haven’t, one is available on our website or else you can call Rose Relinsky at 412-227-2444 and we can either fax or email you a copy.

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 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 has 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 would like to turn over the call to Walt Turner. Walt?

Walter Turner

Thank you Mike; good morning and welcome again to our 2007 fourth quarter conference call. I was very pleased to see the momentum from the first three quarters of the year continuing into the fourth quarter. When compared to the fourth quarter of 2006, sales increased 21% to $327 million, adjusted EBITDA grew 20% to $33 million and adjusted basic earnings per share increased to $0.44 compared to $0.31 in the fourth quarter 2006. During the fourth quarter, we continued to benefit from the positive fundamentals in our core end markets.

For the year 2007, our sales increased 20% to $1.3 billion and adjusted EBITDA rose 34% to $170 million. We have seen consistent demand in our end markets throughout 2007 and see this continuing through 2008 and even more so into 2009 with new aluminum melting capacity coming online in the Middle East and as global carbon shares in chemicals segment fourth quarter 2007 sales increased 27% to $217 million. As volumes increased 10% primarily as a result of higher sales of carbon materials and so called chemicals. Average prices in the quarter increased 12% to the higher sales prices for carbon material products and distillate, primarily as we evolved at higher raw material costs and higher contract pricing.

Overall volumes for chemicals products remain strong driven by higher volumes for naphthalene. Sales outside North America were particularly strong with total revenues up by 34% over the prior quarter. Third quarter adjusted operating margins in this business segment increased at 8.2% from 8.1% in 2006 reflecting seasonal demand towards certain products. Year 2007 sales for carbon materials and chemicals increased 26% to $848 million due to the full year of Reilly higher pricing for all major products which reflecting higher raw material cost, higher contract pricing and higher volume reflecting stronger product demand. Year 2007 adjusted operating margins increased to 11.4% from 9.5% due primarily to the full year Reilly higher contract pricing and strong product demand for naphthalene and carbon block they stock in the Asian markets.

Sales of the Railroad utility products in the fourth quarter were at a $110 million an increase of a 11% from the fourth quarter of 2006. The key drivers of this growth were price increases and higher volumes for untreated cost times, treatment services and utility products partially offset by marginal lower volumes of class time. We believe that road sum optimistic buying by the class I rail roads in advance of their 2008 requirements. Average adjusted operating margins in this business increased to 6.5% from 6.0% in 2006 due primarily to price and volume increases. The year 2007 sales increased 11% to $480 million driven by higher volumes and prices for lower class tires and preservative and higher prices for utility holds. Year 2007 adjusted operating margins increased 8.9% from 7.2% through the higher contract pricing and higher volumes for trading services and preservatives.

As you undoubtedly are aware, we announced the share buy back program of $75 million that extends over the next two years. They also announced a 29% increases in our quarterly dividend to $0.22 per share. I want to be very clear here so that the message is understood. We still strongly believe in the opportunities offered by expansion in growth markets and through the consolidation of more mature markets. This is a priority of our capital utilization. The share purchase plan will allow us to take advantage of buying opportunities that will no way interfere the Company’s ability to grow. What drive us the credit markets to the right funding growth are refinancing opportunities. After Brian completes the financial review, I will give you a status update on our clearing markets as well as provide some insight into what we are expecting in 2008. Brian.

Brian McCurrie

Thanks Walt. Before I get started I want to refer everyone to our press release where we provided detailed reconciliations between GAAP numbers and the numbers we’ve referred to as adjusted as well as the nature of the specific adjustments we are making. Adjustments identified in the fourth quarter of $6.8 million relate to the write-off of acquisition costs related to the possible purchase of a carbon distiller that appears to have been sold to a private equity firm. While we are naturally disappointed by the outcome we continue to believe that there are acquisition opportunities in our core markets that will be available in the future. The other adjustment of $6.8 million also relates to the game realized in the third quarter from the sale of our interest in the Kop research joint venture.

Sales for the fourth quarter increased 21% to $326.8 million as compared to $269.2 million from the prior year’s quarter. The increase in sales is a result of higher sales in the carbon materials and chemical segment which increased 27% or $46.66 million and higher sales in Railroad & Utility segment which increased 11% or $11 million.

The fourth quarter sales increased in the Carbon Materials & Chemicals segment was due primarily to a 13% or $22 million increase in sales of carbon materials and 6% or $10 million increase in sales of distillates, a 3% or $4.8 million increase in sales of coal tar chemicals, and a 6% or $10.1 million increase in sales of other products.

Fourth quarter carbon material sales were positively impacted by $5.4 million due to higher volumes of carbon pitch sales and $12.2 million due to price increases attributable primarily to higher raw material costs and higher contract pricing. Sales of distillates were positively impacted by higher volumes amounting to $2.4 million and higher prices totaling $6.3 million and sales of coal tar chemicals were positively impacted by higher volumes for both naphthalene and phthalican hydride that contributed increased sales of $3.3 million and $1.5 million respectively. Overall, Carbon Materials & Chemicals sales in the quarter were positively impacted by 6% or $9.9 million due to foreign exchange.

Sales of Railroad & Utility Products increased 11% in the fourth quarter to $110.3 million. Approximately $1.8 million of this increase was due to increased sales of treatment services, $4 million due to increased sales of distribution poles and $4.8 million due to sales of other products that most significantly include treatment chemicals.

Fourth quarter sales of Railroad Products were impacted by higher prices in volumes marginally offset by lower pass through prices for raw materials. The decreases in volumes associated with the sales of treated crossties were more than offset by increased volumes for untreated crossties and switch ties in the quarter.

On a consolidated basis, fourth quarter adjusted EBITDA increased 20% to $33 million compared to 2006 adjusted EBITDA of $27.6 million. EBITDA margin dollars were positively impacted by approximately $1.4 million due to favorable foreign exchange. Adjusted EBITDA for 2007 was a $170.5 million compared to $127.3 million in 2006 with the increase due primarily to a full year of the Reilly assets, higher volumes in prices for most core products due to higher raw material prices and strong product demand and higher foreign exchange rates.

Adjusted net income for the fourth quarter excluding the $6.8 million pretax write-off of acquisition costs was $9.1 million compared to adjusted net income of $6.5 million in the fourth quarter 2006. Adjusted net income for the fourth quarter of 2006 included an incremental tax benefit of $3 million from timing of energy tax credits compared to $900,000 of energy tax credits in the fourth quarter of 2007.

Adjusted basic EPS for the fourth quarter is $0.44 per share compared to $0.31 per share in 2006. 2007 adjusted net income is $60.6 million compared to adjusted net income in 2006 of $30.4 million. For 2007, adjusted basic EPS of $2.92 per share compared to the prior year adjusted EPS of $1.47 per share.

Total debt at December 31, 2007 was $440.2 million compared to $475.9 million at December 31, 2006, reflecting $53.2 million of debt reduction including the impact from the sale of Koppers-Arch and before $17.5 million of accretion on our discount notes. Bond debt increased to $387.3 million from $369.8 million due primarily to accretion on the discount notes and bank debt decreased 50% to 52.9 million from a 106.1 million. Curve rates and RUS bank debt which comprises the majority of our bank debt is liable plus 150 basis points and was approximately 5% at year end. The wolver availability at December 31, 2007 under the current structure was approximately $94 million. We believe that based on current levels of receivable in inventories this facility could be increased by an additional $30 million if necessary.

The balance sheet driven by operating cash flow is $65.2 million in 2007, an increase of $33.6 million over 2006 is well positioned for capital deployment for M&A, refinancing opportunities and as previously noted by Walt, an increase in our dividend and a stock repurchase program. On a year-to-date basis our debt to adjust the EBITDA ratio is 2.5 times. For 2008 we anticipate debt reduction before share buybacks of approximately $47 million before accretion of $17 million for net reduction in debt of $30 million. Capital expenditures for the year were 24.3 million, compared to 28.5 million in 2006 and certain projects including gross capital for the China expansion were moved into 2008. Estimated CapEx for 2008 is expected to be $35 million including JV investment and plant expansion in China.

We have seen accelerated delivering of our balance sheet in 2007 as profits in cash flows have exceeded expectation. We continue to believe that consistent cash generation in delivering is the unique characteristic of the Kopper stores. 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 first and fourth quarters financial performance are historically lower than the second and third quarter run rates. We do see this trend continuing as we move into the first quarter of 2008.

At this time I would like to turn it back over to Walt.

Walt Turner

Right. Thank you Brian and before I provide our guidance for 2008, I would like to take a few moments and talk about our quarter in markets. Growth in the Global building capacity is expected to grow by 17% through 2009 with new projects coming on line in Oman and Qatar in the Middle East. In order to meet this demand we had increased our raw material sourcing in Russia and they are in the process of building new capacity as well as increasing existing capacity in China. As these and other new projects come on line over the next several years we anticipate adding additional distillation capacity in China to meet the increase of such demands. We have continued our efforts in both China and Russia to convert these markets to our such products based on the benefits realized by the conversion of Western Snipers decades ago. This is a long term process but the benefits of converting these markets can lead to accelerated growth for Koppers. To support this initiative we are adding technical resources in China to work more closely with the Chinese smelters.

Although we have not seen a slow down in our US based business we have seen the 40% of our sales outside of the US remain quite robust with fourth quarter sales including 34% helped by higher prices, strong product demand and more expansion. Product pricing for carbon materials and chemicals particularly in North America are expected to increase in 2008 due to the increase in oil prices we experienced in the second half of 2007. Due to our contract term for higher bench mark pricing of our down stream chemical products we have been and will continue to recover these increased costs throughout the year. The US rail road demand for crossties in 2008 is expected to be somewhat flat with demand for commercial ties for the short line rail roads increasing moderately. We saw one of the cross way rail roads accelerate by in the fourth quarter of 2007, however we won’t find increasing interest in exports of lower ties primarily in the support of various money projects in Africa, in South America. As an example we have recently entered into an agreement with the worlds largest steel company with a fly across a 140,000 cross ties to our money expansion project in Africa. We remain very optimistic about this business and through the North American rail road continuing to invest in their infrastructures.

On our raw material side we have seen a short term crossties availability tighten as a slowdown in the housing construction coupled with weather conditions because there is a little reduction in logging activities by the various saw mills. Although this may indicate a more difficult procurement market, we are well positioned with the largest and most geographically diverse crosstie procurement organization in North America. We believe that this may result in lower untreated tie volumes in the first part of the year though we don’t expect availability to improve as we move into the second and third quarters. This is another example of why we view our business on an annual rather than a quarterly basis.

Demand for carbon black feedstock and raw material used in the production of carbon black for the rubber industry and naphthalene which is used as a concrete additive and then also in the livestock’s industry continue to remain strong. The demand for these products is primarily driven by growth in the Asian economies and contributes significantly to the profitability of our European and Asian operations that supply these markets. Carbon black feedstocks are generally priced off of a benchmark oil index which has resulted in higher selling prices.

And speaking of Asian economies, we are looking forward to the completion of the construction of our new Chinese joint venture which we refer to as TKK. Construction of the 300,000 ton distillation plant is on schedule for completion at the end of this year. This new construction will be in tandem with a 33% expansion of our existing plant in Tangshan which should also be completed by the end of 2008 and these two projects combined will provide for an additional 350,000 tons of distillation capacity which will allow us to supply our customers who have new smelting capacity coming online in 2009. We are also hopeful that we will be announcing another joint venture in China at some point during 2008. In addition to the strong markets for the downstream distillation products, naphthalene and carbon black feedstock in the Asian economies this area of the world is also producing the majority of the world’s coal tar, our primary raw material.

I'm pleased to tell you that production levels at our Australian carbon black facility had optimal capacity levels in January and we expect the process contribution that did lag in 2007 to be more fully realized in 2008. We are very pleased to see that the higher levels of profitability and cash flow of the Company that included the divestiture of our investments in a joint venture in Australasia allowed us to exceed our debt reduction target. We see cash flows increasing as profits have improved over our expected levels. We are well positioned for supporting the refinancing of our bond when appropriate and M&A opportunities even though we are in sort of an uncertain credit market.

Now I would like to talk about our outlook for 2008. Our expectations for 2008 are that sales will increase between 5% and 8%, adjusted EBITDA will grow between 6% and 9%, and that basic earnings per share will increase between 10% and 13%. We remain very positive about the long-term strength of our primary end markets, aluminum railroads and excited about the new distillation capacity in China that will come online in 2009 which reflects our optimism about the continuing global growth in aluminum demand. 29% increase in our dividend and a $75 million stock repurchase plan and actually announced today supported our belief that the underlying strength of the profitability and the cash flows we saw in our business in 2007 and that we expect continuing in 2008 and 2009. Again, these actions will in no way impair our ability to deploy capital as additional growth opportunities present themselves. We look forward to those opportunities in 2008 and beyond.

At this time, I would like to open the conference call to any questions that any one may have out there. Operator, are there any questions, please.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from the line of Saul Ludwig with KeyBanc.

Walt Turner

Hey Sal before you ask your question, did you hear everything we said?

Saul Ludwig - KeyBanc

I think so. I don’t know the part you said that I didn’t hear.

Walt Turner

Good, we didn’t want you to hear it anyway.

Saul Ludwig - KeyBanc

What do you expect in energy tax credits this year?

Walt Turner

Should be another $5 million or so.

Saul Ludwig - KeyBanc

Okay. Then on the comments that all made about carbon black in Australia that you didn’t have all the act together in 2007 and it appears that we are off to a good start in 2008, how much delta could that mean in terms of up income?

Walt Turner

It might be in the couple of million dollar range or so.

Saul Ludwig - KeyBanc

Say I never really…

Walt Turner

That facility ramped up over the end of 2007 so.

Saul Ludwig - KeyBanc

So it could be $2 million more in our income.

Walt Turner

Yeah

Saul Ludwig - KeyBanc

Okay and then you commented also about the you expect short line Railroad volume to actually be up a little bit in ties. Do they have some sort of a tax credit that really boosted their purchases in 2007 and the expiration of that tax credit that particularly as a release of the first part of the year, why are you expecting short line Railroad volume to be up when it sort of logic will suggest may be it’s going to be down?

Walt Turner

Well, Sal back in 2007 you are right I mean the energy of the, please excuse me the tax credits that were, have been faster in going forward projected expiry at the end of the year, so that’s why your saw a acceleration of this buying the first six months of last year and it did slow down a little bit in the second half. Currently the tax credits have been past by the house and have not yet been passed by the senate but at this particular point we see, continue to see a lot of projects out there and continue to see moderately being a little prepared higher then we were last year this particular time in the year.

Saul Ludwig - KeyBanc

But you still mean that tax credits are going to ultimately pass.

Walt Turner

Yes I think the other thing is and you have to remember this business as a pretty well cycle to it. The ties have to aero see in for six months. So the forecast that the sales people are getting today are pretty reflective of what expected demand is going to be as well.

Saul Ludwig - KeyBanc

And then finally you mentioned the export opportunities for railroad cars, I don’t think we have heard anything about that.

Walt Turner

You haven’t. I mean we obviously we continue both on the Railroad cross ties as well as utility polls continue to look for potential export sales which we have in the past. Right now though however there are a lot of analog and other mining projects that they are really trying to open up in South America and South Africa as well as all of Africa actually and this particular order is a fairly large order for us and we are really excited about that but relative to that we are looking at a couple of other marketing projects that will open the doors perhaps more exports to grow our ties, so is this something that we haven’t talked of too much because of these smaller ones but this happens to be a fairly larger line and we are looking at additional potential opportunities in that part of the world.

Saul Ludwig - KeyBanc

I just want to ask the final financial strategic question. You are on the verge of moving into positive equity but what’s the rational behind drawing out and repurchasing $75 million dollars worth of stock which would sort of move you back into negative equity versus using that cash for repaying high cost debt at the end of 2008.

Walt Turner

Yeah I don’t -- I mean there is a couple of things. Number one I think the negative equity is not something that concerned us. I know it’s a nice thing to turn positive. I don’t know if that fundamentally changes the way the business runs or the cash flow that it generates and I think the amount of the size in full or the stock buy back when we design that we certainly have the refinancing opportunities that we are out there ahead of us in mind, so we are not looking at this being something that was preclude any refinancing opportunities.

Saul Ludwig - KeyBanc

Alright thank you very much.

Walt Turner

Thank you Sal.

Operator

Thank you, your next question comes from the line of Steve Stewarts with Post Analysis.

Steve Stewarts – Post Analysis

Hi, everyone.

Walt Turner

Hi, good morning Steve.

Steve Stewarts – Post Analysis

I guess the first question, looking at 2008, you know as you finished up ’07 your operating margins were at historic highs and in part I think that was because of the first half of the year and all the short-line buying. I'm wondering, are you expecting to hit that same level? It seems as if you are, and if so how, because if I look at the fourth quarter, it looks like your operating margin growth tapered off a little bit on a sequential basis.

Walt Turner

Steve a couple of things. One we have to be pretty careful with that because of our seasonal products and margins for us tend to compress in the first and fourth quarters versus the second and third quarters. That’s another fourth quarter, I would hold out as indicative of what we look at for full year margins for next year.

Steve Stewarts – Post Analysis

Okay, but even still, I mean you saw over a 200 basis point increase in op margin in railroad in ’07 versus ’06 and I know that short-line buying had a huge impact on that. I just -– it doesn’t sound like you are going to see that type of business come through in ’08.

Walt Turner

Oh, I think the short-line business should be there. I don’t know, the short-line business is important to us but it’s not a huge part of our business.

Steve Stewarts – Post Analysis

Once you’re in the first half of the year….

Walt Turner

Were reflective I think in the movement in the margins and things like the new CSX contract that we talked about.

Steve Stewarts – Post Analysis

Okay, okay.

Walt Turner

We do tend to get some decent traction in the contract negotiation.

Steve Stewarts – Post Analysis

Okay, and then Brian, I think you mentioned the carbon pitch volume added like $5.5 million to revenue in the fourth quarter, is that right?

Brian McCurrie

I think that’s right, yeah.

Steve Stewarts – Post Analysis

5.4. I guess you know on a base of a 160 million in the fourth quarter of ’06, that would be about 3 % volume growth and we’ve been talking, you guys especially about this huge growth in aluminum production and yet it doesn’t look like your carbon pitch volumes over the past couple of quarters have been keeping up with that. What’s happening there?

Brian McCurrie

I will start the answer. First of all, just in the US, if you look say the month of January, the primary aluminum production in the US increased 16 % and half of that was ore aluminum done in Ohio, that’s imports from various places around the world, and so that sort of takes away from it and also some other increases, I don’t know West Coast which did not happen to be our particular customer in that case, but when you look at what’s going on around the world, I think you do see a carbon pitch increasing but you are going to see more of a significant increase once we bring in more capacity in production in China for these new smelters.

Steve Stewarts – Post Analysis

Okay, and then the last thing I know Brian, in your commentary, you talked about the differential in the tax credits. Did you mention what else was in that drop, the tax rate, so low in the fourth quarter?

Brian McCurrie

Of ’06?

Steve Stewarts – Post Analysis

Of ’07.

Brian McCurrie

’07, the tax rate dropped is really just due to the interaction of our foreign and domestic income. We do get some volatility in that as our mix changes and I think what you saw in the fourth quarter was some higher foreign earnings that affected the tax rate.

Steve Stewarts – Post Analysis

Okay, would you consider that one-time or will that carry over into the first and maybe second quarters?

Brian McCurrie

I think if you are using the tax rate for ’08, I would stick with the 32 % range, I think that would reflect a pretty good approximation of the year. Now again we may get some volatility that shakes out in the year but 32 % would be a good number to run with.

Steve Stewarts – Post Analysis

Okay, in ’07, you took maybe 60 % or more than half of your tax credits in the first half of the year. Do you ever feel or how you will layout, using up the tax credits through ’08?

Brian McCurrie

No, I think just maybe, just to give you a little history there, in 2006, most of the benefit in the tax rate, I am sorry, the tax credit resided in the fourth quarter. The legislation still had phased out our provisions in it that weren’t modified until the end of the year. That caused us to concentrate that benefit in the fourth quarter, that’s about the $3 million benefit I think that impacted EPS in that $0.31 per share fourth quarter 2006.

Steve Stewarts – Post Analysis

I'm sorry if I said ’06, I meant ‘07

Brian McCurrie

The 2007 tax credit is pretty evenly spread over the year and it would be the same in 2008.

Steve Stewarts – Post Analysis

Okay, alright, thank you all.

Brian McCurrie

Thank you.

Operator

Thank you, your next question comes from the line of Lawrence Alexander with Jefferies.

Lucy Watson - Jefferies

Hi, Lawrence.

Lucy Watson - Jefferies

Lucy Watson speaking for Lawrence. I just had a question about the CM&C business. Can you give more detail on the trends in phthalic anhydride and naphthalene?

Walt Turner

Phthalic anhydride, we have one production facility which is here in the US and that continues to be a fairly strong market for us. I mean there are three producers of phthalic in the merchant market in the US, ourselves, BSF, as well as step in, but the plastics resins industries as well and it’s just going to continue like to be somewhat at least at the moment, the same levels that we saw in 2007 and naphthalene is a global product that we are primarily supplying all of Europe as well as China and Australia. As we mentioned earlier, that’s going as a concrete additive for some factors as well as a dye stuffs industry and again as I mentioned, because of the strong Asian economy especially China, India and so forth, there continues to be fairly strong end markets for us.

Brian McCurrie

And just to sort of underlying what Walt said I think we have been talking about the link between phthalic anhydride and sort of the US housing market probably now almost a year and a half now and frankly the volumes have stayed pretty consistent. I mean you should be aware that it is entering in that market. You really haven’t seen significant impact and our volumes just remain fairly strong and as a whole phthalic anhydride is about 7 % of our revenues. Well we use naphthalene as a raw material to produce in phthalic in North America. The naphthalene product that we sell directly into the naphthalene markets is sold primarily in Europe and in Asia and it goes into the Asian concrete dyestuff markets.

Lucy Watson - Jefferies

Okay, thank you. And in your Railroad & Utilities business, given the amount of double tracking that over the period to be discussing, what does that imply for your volume assumptions in 2008 and 2009?

Walt Turner

There are obviously several double, triple tracking projects primarily between the West Coast and Chicago and what’s been going in the past has been I would say more than half or maybe closer majority would be concrete ties and we are not participating in that particular market because it’s logistically too far away from where our concrete tie plant is located in Ohio but then going forward, I really can't comment on that as where it’s going to go with the concrete or weather or what have you but…

Brian McCurrie

As the Railroad invest in their infrastructure, I think that’s everything you read, that they are putting out, they are going to continue to invest in their infrastructure. I think that will benefit Koppers because we have really significant market shares in the railway ties side of the business. I think in the shorter term, we see some – we have some fairly flat volumes in that business but I think in the longer term, as the year rolls out I think again we are very optimistic about this business.

Walt Turner

And then just to further add to that, we still see 91% to 92 % of all penetrations are going to continue to be worked and with this strong market share that we have on the wood side is just that we reiterate so that the strength that we have with the railroads and the infrastructure that Brian is mentioning.

Lucy Watson - Jefferies

Okay, thank you very much.

Operator

Thank you, your next question from the line of Chris Shaw with UBS.

Walt Turner

Good morning, Chris.

Chris Shaw - UBS

I'm just curious, how does the competitive environment change. I think at all now that I guess we are excited because [inaudible] Europe and North America so I know it’s -- how you guys doing that now?

Walt Turner

I bet that transaction is trying to get worked right on that was to clearly clarify that the part that the business -- so nothing has changed or anything specific in the early stages, so really not much we can comment on as far as markets, conditions or changes.

Brian McCurrie

I mean as far as we know, we are not aware of type in earning, any other coal tar distillation assets anywhere else in the world, so I don’t know that it looks like it will be much different than what we have done before frankly.

Chris Shaw - UBS

But are there any coal tar assets left in Europe that is outside marketers that are attractive?

Walt Turner

As I mentioned that that market, that part of the industry is, several players over there, some small, some medium, some larger -- is consolidation still needed, we [inaudible] opportunities, we continue to think there will be opportunities in the situation.

Chris Shaw - UBS

Medium players that are there?

Walt Turner

I'm sorry?

Chris Shaw - UBS

Who are the medium sized players out there?

Walt Turner

They will be I guess guys in the Czech Republic, [inaudible] Chemicals in Holland would be a few of them.

Chris Shaw - UBS

Okay and then I guess you just kind of address this last question but just looking at the RTA’s network for I guess high demand and I guess the 2% number, that relatable to when you guys see or actually maybe you guys see it into that number, did you give them your outlook and then they produced the number or vice versa?

Walt Turner

Well they all make a lot of input progressive from the platforms in it and I think that the basis for the number that they are pulling together and I would guess we…

Brian McCurrie

We are receiving same iteration from [inaudible] the RTA.

Chris Shaw - UBS

Okay, great. Thank you.

Operator

Thank you, your next question comes from the line of Bruce Wilcox with Cumberland Associates.

Bruce Wilcox – Cumberland Associates

Do you -- with the evolution of your business, what do you consider your sustaining CapEx to be? You gave us a forecast for actual CapEx. I guess at 35 million including JV’s but what do you consider to be your sort of baseline maintenance number to be?

Walt Turner

That’s probably around the $25 million.

Bruce Wilcox – Cumberland Associates

Okay. And then, curious whether you think there are any opportunities in working capital management? I mean the increase was about in line with sales and if you just took the year-end points, but I'm just –- could you talk about whether or not there were any working capital management opportunities?

Walt Turner

I think, yeah, if you look at receivables for us and you see the turn and you look at the reserves, our receivables tend to be with very large, well established companies and they turn pretty well, I mean we are always focused on trying to squeeze an extra day out of the receivable turns, I mean it’s a priority for us because obviously cash flows and the returns on capital is a real focus for us.

Bruce Wilcox – Cumberland Associates

Okay.

Walt Turner

I think there is probably more of an opportunity on the inventory side although I think having the product at your sites and being able to secure supply is important for us but I think as far as a place where we can probably focus and look at maybe trying to improve our cycles is there, but that being said, our inventory turns on an annual basis are pretty high already. If I had to choose one of those two, I would say inventory is probably the place where you spend more time trying to optimize.

Bruce Wilcox – Cumberland Associates

Okay, so it sounds like it’s coming along pretty well from your perspective though and I'm just curious whether you guys have sort of monitoring the market, what you think your retire rate would be today if you know I'm not suggesting that you will take that action, but what do you think your pricing would look like?

Walt Turner

We like it more a year ago, sure we all do. We really haven’t modeled it to give a specific number but I mean there has to be 1% or 2% benefit in there somewhere and that’s off the top of my head.

Bruce Wilcox – Cumberland Associates

Okay. Alright, and finally just back on road curves. I mean what odds would you give at having another shot at that?

Walt Turner

Yeah, we are really not able to comment on that.

Bruce Wilcox – Cumberland Associates

Okay, okay. I’ll take that as very hard. Thank you guys very much. It was a terrific series of action, the dividend share repurchase, I really appreciate all that.

Walt Turner

Thanks very much.

Bruce Wilcox – Cumberland Associates

Thank you.

Operator

Thank you. Your next question comes from the line of Andrew O’Conor with Millennium Partners.

Andrew O’Conor - Millennium Partners

Walt, Brian, morning guys.

Walt Turner

Morning.

Andrew O’Conor - Millennium Partners

Wanted to -- regarding the new tar distillation plant in China, what I thought I heard you say that the initial output capacity is 300,000 tons for 2009.

Walt Turner

300,000 tons of raw material which equates to about 150,000 tons of carbon pitch that would go into the aluminum industry.

Andrew O’Conor - Millennium Partners

Okay.

Walt Turner

And about 90,000 tons or so going into the carbon black industry and about 30,000 tons of naphthalene.

Bryan

But that is for 2009 period. That production will ramp up over the year. I know Walt’s expectation are probably in weeks but it will ramp up and it is an equity method with about 30% joint venture, so we will get 20% of the profit some of the equity method. We get a 100% of the export pitch products in our sales as we exported through our Company and earn a commission on it.

Walt Turner

We also are responsible for the demand from the operation in the processes and so forth.

Andrew O’Conor - Millennium Partners

Okay.

Bryan

The expansion project at our existing joint venture is fully consolidated.

Andrew O’Conor - Millennium Partners

Okay. What output capacity would you expect by say 2012 again for the new tar distillation plant.

Bryan

On the one that we are building this year I mean no later than mod year it should be up to full production like middle of 2009 I would say.

Andrew O’Conor - Millennium Partners

Okay

Brian McCurrie

Somehow from a strategic perspective and this is sort of macro type things I mean it would sort of like to be adding new capacity essentially every other year to match the projected capacity increase in aluminums melting. So we are really, we are watching the projected new smelters coming on line and developing our capacity expansions around that.

Andrew O’Conor - Millennium Partners

Okay so the new facility under construction you have the chance or the ability to add to this incrementally as market demands evolve.

Brian McCurrie

But we are also looking at a service with a joint venture there as well. It takes minimum two years and some cases as much as four years depending on the energy source of these aluminum smelter projects. I gave that example prime to work with our customers and plan ahead if you will on the raw material claimants and the distillation capacity needed to produce these products for these expansions, so today it’s a very nice situation to be in where you can plan ahead playing your raw materials, playing your production accordingly.

Andrew O’Conor - Millennium Partners

Got you and then thanks for that and then secondly your ‘08 sales guidance for 5% to 8% increase. Can you guys break up to total sales growth between carbon materials and railroad? That should be a portion in the overall 5% to 50%.

Brian McCurrie

No we don’t know how to do that but I think it’s probably going to be related more towards carbon materials then railroad.

Andrew O’Conor - Millennium Partners

Okay

Brian McCurrie

You mention that and someone asked the questions it’s all the RTA numbers about a lower single digit projection and volume growth on the warehouse that see the organic growth coming out of the leverage business is probably going to be a bit smaller then in the raw materials and chemicals business.

Andrew O’Conor - Millennium Partners

Alright and then Brian could I infer that in that ‘08 EBITDA guidance of 69% increase with that also be, may be more weighted towards carbon materials versus railroad.

Brian McCurrie

Correct.

Andrew O’Conor - Millennium Partners

Okay, alright so thanks so much.

Walt Turner

No problem.

Operator

(Operator Instructions) Your next question comes from the line Scott Blumenthal with Emerald Advisor.

Scott Blumenthal - Emerald Advisors

Good morning Walt, Brian, Mike.

Walt Turner

Hi there

Scott Blumenthal - Emerald Advisors

Okay. Congratulations on the quarter.

Walt Turner

Thanks

Scott Blumenthal - Emerald Advisors

Again in hands of the into the 5 to 8% sales growth Brian can you give us may be some of your assumptions putting price versus volume there.

Brian McCurrie

I am sorry you are breaking up on me a bit. Could you repeat the question?

Scott Blumenthal - Emerald Advisors

Sure, could you give up really some of your assumptions regarding how much of that you expect to get some price versus volume?

Brian McCurrie

What the 2008?

Scott Blumenthal - Emerald Advisors

Yes

Brian McCurrie

Yeah I think generally speaking the volume growth out of the railroad business is rather the digit well if you look at the growth in volume out of the aluminum side or the smelting side of the business is generally drives around a mid single digit.

Scott Blumenthal - Emerald Advisors

Okay, so you’re 5% to 8% sales growth you expect a little bit more pricing from railroad and a little bit more volume from carbon materials.

Brian McCurrie

Not necessarily, I mean we are really breaking that down per say. I mean I think with the combination of two that’s actually going to drive that answer and we are not giving guidance on specifically growth rate for the railroad business or specifically growth rates and sales recorded sales in chemical business.

Scott Blumenthal - Emerald Advisors

Okay fair enough. Can we look at the other side of the income statement and may be do you expect average acquisition cost for raw materials specifically coal tar could be up and can you give us may be some type of a percentage as compared to overall in 2007.

Walt Turner

That’s kind of vary depending on where you are in the world that I would say as the price of oil has gone up. It’s tensed with more pressures on our negotiated price with our coal tar suppliers because of our contract terms we had price formulas that allow us to pass along those escalations into our pricing formulas that will phase in through 2008. Generally speaking I think oil price is going up and it’s probably going to drive generally speaking raw material cost there. Although it does have different effects in the world depending on supply and demand.

Scott Blumenthal - Emerald Advisors

Sure, I understand that there is a field component in what it is that you are going after. I was just wondering if your assumptions for the next year assume that you are going to be paying more as a percentage or less?

Walt Turner

More, they generate more.

Scott Blumenthal - Emerald Advisors

Okay, okay and can you just a couple of clean up items. The SG&A number which was up significantly, sequentially, can you give us some ideas to what was in that?

Walt Turner

In the -- this is the annual number. The $72 million dollars includes the $6.8 million write off with the acquisition cost. If you take those out you are going to get a more representative number. If you look at SG&A absent at special charge it’s about 5% which it generally holds. Well even Walt mention in his talk, I think if you look at the place where we are investing probably if it more in SG&A is in China.

Scott Blumenthal - Emerald Advisors

Okay and since there was a previous callers that ask the question about the balance sheet. We conceive that the dollar values of inventory is up year-over-year. Can you talk about the actual volumes that you are holding an inventory, are those about the same?

Walt Turner

We generally target I will say about 45 days inventory in our plants generally speaking although again it’s hard thing to point to at the end of the year and say is that the exact number because we can try to get some more inventory in under a secret price formula than following it. In January I think because of the demand in the products we probably have kept bit more volumes on hand and you mention that from your last couple of years.

Scott Blumenthal - Emerald Advisors

Okay

Walt Turner

And I think we are comfortable with the levels of inventory that we have.

Scott Blumenthal - Emerald Advisors

Okay very good. Fair enough, thank you.

Walt Turner

Thank you

Operator

Thank you. At this time there are no further questions. I would now turn the conference back over to management for closing remarks.

Michael Snyder

Thank you and obviously we thank all of you for participating in today’s call and I really appreciate that continued interest of our Company. I do believe that we continue to be well positioned for a strong 2008 and beyond. We see continued strong demand in our markets as we have been talking about. They are in particular placed on a committed aluminum capacity those things that are coming online in 2009 and beyond. We are particularly well positioned given capacity additions on their way in China. Our balance sheet is well positioned not only for these editions, but also for potential other opportunities to stimulate growth and create the share holder value. We remain committed to enhancing share holder value by executing our strategy and providing our customers with highest quality products and services we are continuing to focus on a safety, healthy, environmental issues and we finally look forward to speaking to you again soon and thanks again for being a part of today’s call.

Operator

Thank you for participating in today’s Koppers fourth quarter 2007 earnings conference call. You may now disconnect.

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