Compass Minerals International Inc (CMP) 2005 Q4 法說會逐字稿

Good morning. My name is Lee and I will be your conference facilitator today. At this time I would like to welcome everyone to the Compass Minerals International fourth quarter and full year 2005 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 Ms. Peggy Landon, Director of Investor Relations. You may begin.

Thank you operator. Thank you all for joining our fourth quarter and year-end conference call. With me here today are Michael Ducey our President and CEO and Rodney Underdown our Vice President and Chief Financial Officer. Before we begin I will remind you that today's discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the Company's current expectations and involve risk and uncertainties that could cause the Company's actual results to differ materially. The differences could be caused by a number of factors including those identified in Compass Minerals Form 10-K filed with the Securities and Exchange Commission on March 16, 2005. The Company will not update any forward-looking statements made today to reflect future events or developments.

You can find reconciliations of any non-GAAP financial information that we discuss today in our earnings release which is available in the Investor Relations section of our website at CompassMinerals.com. Now it is my pleasure to introduce Michael Ducey.

Thank you Peggy. Good morning everyone. As you saw in our earnings release we had a record-breaking quarter and another record-breaking year. We definitely benefited from the weather in both the first quarter and the fourth quarters 2005 but I don't want to obscure the fact that we also grew the underlining business. And quite frankly I am extremely proud of our people for achieving that underlying growth in a year that presented us with some very tough challenges. Our full year sales grew 16% over 2004 to a record $742 million and our product sales -- that excludes shipping and handling costs -- increased 13% over 2004 to $515 million.

Our net earnings from continuing operations on a GAAP basis declined year-over-year from 48 million in 2004 to $27 million in 2005. However, when you exclude special onetime transactions from both years our earnings grew by 27% from $41 million in 2004 to $52 million in 2005. And our adjusted EBITDA improved by 13% year-over-year from $162 million in 2004 to $183 million in 2005. We have established methods for measuring the impact that weather has on sales and earnings to Compass Minerals and although it isn't an exact science the method is consistent on a year-to-year basis. Last year we estimated that approximately 7 to $10 million of our 2004 operating earnings were due to above normal weather. Whereas in 2005 we estimate that the weather improved our operating earnings by approximately 12 to $18 million. So if you remove the effects of heavier than average winter weather on both years you can see that we actually showed double-digit growth in our normal weather operating earnings in 2004 to 2005.

I believe that improvement in our underlying normal weather operations is particularly important in the context of the cost pressures that we were faced with in 2005. One of our biggest challenges was transportation particularly after Hurricane Katrina. We were hit with higher fuel surcharges for barges, ships, trains, trucks any type of distribution we used in the third and fourth quarters. Plus the hurricane relief efforts soaked up much of the already tight truck supply which also drove our costs up. So we did see shipping and handling increases as a percent of sales but the price improvements that we put through last year combined with some pretty creative strategies such as sharing trucks with other shippers, helped moderate the impact on our business.

I would like to tell you that we see a reprieve on the horizon but I am not ready to say that yet. It is difficult to predict the price of fuel but right now I don't see any further significant changes in shipping costs at least in the near-term. Natural gas prices also rose significantly in 2005. We have often discussed our natural gas hedging which has protected us from erratic movements in gas prices but we have also worked to use less natural gas. We have been implementing Energy Conservation Programs for several years which benefited us in 2005. Plus our largest general trade plant has some degree of flexibility to switch the fuels it uses for its evaporators when gas prices become higher. So we were able to take advantage of lower-cost synergy at that plant this past year. These steps combined with our hedging program kept our year-over-year increase in energy costs to significantly less than if we had been on the spot basis for these purchases.

For the full year our energy costs accounted for approximately 13% of our production costs. We are just over 80% hedged for both the first quarter and full year at prices that approximate the current market. Importantly, the price increases we put through during the year combined with the effects of higher volumes, our constant focus on process improvement and heads up management throughout our organization helped us offset a large part of the 2005 cost pressures.

Taking a look at the full year results of our reported segments again excluding shipping and handling, product sales for salt increased 11% over 2004 to $427 million and SOP product sales were up 19% over the same period to $88 million.

As we look at the components of our salt sales increases our fourth quarter highway deicing sales tons were up 28% over the fourth quarter of 2004, primarily due to unusually severe winter weather throughout much of the service area North America and also in the U.K. We also had above average weather in the first quarter of the year and we have made modest improvements in our rock salt sales to the chemical customers. Together these factors helped lift full year sales tons by 12% over 2004.

You may have noticed that our fourth quarter average price per ton for highway deicing salt was up 9% over the fourth quarter of 2004, where as we told you I believe in our last conference call to expect 8%. The actual average sales price is affected by where the winter storms happened to occur in North America so you will typically see some variation in that figure. Obviously, our highway deicing sales benefited the most from the severe weather and that product line is also impacted the most by mild weather. I know many of you are questioning about how the mild January will impact our business.

Through January 31st the 2005, 2006 winter season was in the average range, meaning that from the late fall of 2005 through January of 2006, we sold about as much salt as we would expect to sell during a normal winter season. Keep in mind that what we call winter begins in the first quarter and concludes in March or even early April. So this year higher than average snowfall in December has been offset by lower than average snowfall in January.

I also want to speak up front and I am not going to give you any predictions on winter season sales. In the first quarter of 2005 January was about what we expected. February was very mild, and March was extremely active winter period. I haven't found anyone yet who can accurately forecast mid-range and long-term weather patterns and I'm certainly not going to try at this point. However, we have been doing this a long time and we are used to weather fluctuations. It is why we have driven as many of our costs as we can to a variable cost structure and why our discretionary capital spending is heavily weighted toward the latter half of the year. We have not adjusted our workforce on our mines yet because our midseason inventories are approximately where we would expect them to be. However we do have the ability to partially scale back the production force at our mines should we continue to experience mild weather for the rest of the season. Keep in mind that our general trade results are also impacted by weather. We saw an 11% increase in fourth quarter general trade sales tons compared to the light period of 2004. When you exclude the effects of the strong winter weather our general sales trade sales tons grew by 4% over the prior year quarter. Strong winter weather also had an impact on our general trade full year sales, but I don't want to mask some important gains we have made in this area.

We have made solid improvements in water conditioning sales and sales to the agricultural industry indicating that we are being successful in our efforts to shift our product mix towards higher value products. Our fourth quarter and full year sulfate of potash or SOP as we call it sales grew on the strength of price improvements we implemented last year. We told you last quarter that we had encouraged our international customers to take their year-end deliveries in the third quarter so that we could improve our shipping efficiencies at Ogden. That volume shift is reflected in a modest year-over-year decline in our fourth quarter sales volumes. We are continuing to see strong demand for our SOP products and we introduced a $20 a ton price increase just a few days ago at the beginning of February.

Our full year SOP volume growth of 3% was only limited by our production capacity. Our capacity is primarily a function of the amount of SOP we evaporate in the summer months and based on our full fall harvest of raw material, we don't foresee a significant change in production in 2006. As you've seen in our earnings release we had some significant transactions during the fourth quarter. First in mid-December we made important progress towards improving our debt structure. We took out 323 million face value of our 10% senior subordinated notes and replaced those notes and the small amount that was remaining on our term loan at that point with a new bank credit facility. Beyond the obvious interest rate benefit this transaction went a long way towards improving our financial flexibility because it gives us the ability to prepay debt without penalty.

The other significant transaction in 2005 resolved the challenges we were facing in the British general trade salt market. As I told you on previous calls the British chemical industry had undergone significant changes which substantially reduced the market for our general trade salt. We found a strategic buyer, INEOS Enterprises, for whom our general trade plant seemed to be a perfect fit. They were the plant's brine supplier as well as its largest customer. We sold the plant to INEOS on December 30. After considering some stranded overheads which our U.K. deicing business will need to fully absorb, our sales price multiple was approximately eight times EBITDA. I believe this is a very positive transaction for both parties.

Also in the U.K. our Minosus joint venture is about where we expected it to be. The waste business is on track for the measured growth we expected and the document storage business continues to grow. We had a small loss in 2005 but it was immaterial to our results. We will continue to update you as we go forward during 2006. Clearly, it was a positive and very active quarter and 2005 was a very solid growth year even excluding the above average winter weather.

Our decision to increase Compass' dividend by 11% to $1.22 per share per year or $0.305 per share per quarter reflects our commitment to deliver value to our shareholders and our confidence in the future of the company. Now I will turn the call over to Rod Underdown who will discuss details of our fourth quarter and full year performance.

You undoubtedly know that due to the sale of our British general trade salt plant our results have been recast to exclude the effects of the U.K. general trade salt business. And to show those results as discontinued operations. Since Mike discussed the key components of our sales I will simply add that foreign exchange contribute $1.8 million to our year-over-year increase in fourth quarter sales.

Our gross margin percentage decline for the quarter and the year reflect the impact of higher shipping and handling costs. Our fourth quarter gross margin of 29% decline 2% from the 2004 quarter and for the year our gross margin declined from 28% in 2004 to 27% in 2005. However, because of increasing prices to our customers and increases in sales volumes which were in large part weather related, our gross profit increased $14.7 million for the quarter and almost $20 million for the year.

Our SG&A expense declined $2.2 million or 13% in the fourth quarter compared to the fourth quarter of 2004 primarily due to lower variable compensation costs, professional services and advertising expense. For the year, SG&A increased 2% over the prior year due to higher professional service costs and the foreign exchange effect of translating our Canadian expenses into American dollars.

Our fourth quarter operating earnings improved 48% over the prior year; however it is important to remember that we incurred other charges of $4.9 million in last year's fourth quarter because of the secondary offering of our stock and determination of the management consulting agreement with a former majority stockholder. Excluding these prior year charges, operating earnings increased 34% for the fourth quarter and 15% for the full year over 2004. Interest expense was 6% or $900,000 higher in the fourth quarter than in 2004 and for the full year interest expense increased $2.6 million. In both cases the increase was driven by the accretion on our discount note which was modestly offset by lower average borrowing.

In the fourth quarter we incurred charges of $33.2 million in conjunction with the tender offer of our 10% senior subordinated notes. Of that amount $26.5 million was the tender premium and related fees. These costs are recorded in other net in the statement of operations. In the fourth quarter of 2005 our income tax expense was increased by $4.1 million when we decided to repatriate $70 million of foreign earnings under the American Jobs Creation Act. The repatriation occurred in January 2006 and will result in no incremental debt net borrowings for Compass.

Excluding the effects of the tax charge for the repatriation, our fourth-quarter income tax expense decreased from prior-year quarter because of the lower earnings from continuing ops. Our cash tax payments were $24 million in 2005, and we were expecting our 2006 tax payment to be a little lower than this, while our book tax rate should remain in the low to mid 30% range.

Our fourth quarter net earnings from continuing operations were $9.3 million or $0.29 per diluted share excluding the cost of our tender for the 10% note and the onetime charge to income tax for the repatriation of foreign funds, fourth quarter net earnings from continuing operations were $33.9 million or $1.05 per share. Our full year net earnings from continuing operations were $26.8 million excluding the special items that occurred in the fourth quarter as well as other special items during the year our net earnings from continuing operations were $52 million in 2005 or $1.62 per share. EBITDA for the fourth quarter was $43.1 million compared to $51.5 million in the fourth quarter of 2004. In fourth quarter adjusted EBITDA increased 29% over the prior year quarter to $77.4 million. For the full year EBITDA was $144.2 million compared to $148.5 million in 2004, and adjusted EBITDA increased 13% to $182.9 million.

As Mike discussed both our fourth quarter and our full year results reflect the benefit of above average winter weather. We have estimated that approximately 35 to $45 million of our fourth quarter revenues and approximately 8 to $12 million of our fourth quarter operating earnings was due to more severe than average weather. The weather during the fourth quarter of 2004 was in the normal range and didn't reflect any significant departure from average weather. For the full year 2005, we estimate that more severe than average weather added 60 to $70 million to our sales and approximately 12 to $18 million to our full year operating earnings.

By comparison full year 2004 sales benefited by an estimated 35 to $45 million from the severe winter weather and operating earnings benefited by approximately 7 to $10 million. To reiterate what Mike said earlier when you normalize our results to remove the effects of severe winter weather we recorded substantial year-over-year improvement in our adjusted EBITDA for the fourth quarter and the full year.

Our debt balance at December 31, 2005 stood at $615.9 million. The components of that were $2 million remaining on the 10% senior subordinated notes, $97.1 million of 12.75 senior discount notes, $135.8 million of 12% senior subordinated discount notes, and $350 million on the new term loan and $31 million on the new revolving credit facility, both of which financed the tender for the senior subordinated notes.

At year-end the weighted average interest rate on the term loan and revolver was 6.14%. The new term loan carries an interest rate at 1.5% over LIBOR and we entered into an interest rate swap that will lock the underlying LIBOR at 4.87% on $250 million of principal through March 2007. After that time the principal to which the interest rate swap applies will decline by $50 million per year. The revolver portion of the facility carries a drawn interest rate of 1.75% over LIBOR. We expect to save approximately $10 million per year in interest as a result of refinancing our 10% senior subordinated notes.

We had $47.1 million in cash at December 30 which was primarily related to the [$30.2] million we received from the sale of our British general trade salt business on December 30. We plan to use approximately $4 million of the proceeds from this sale of the contribution to our British general pension plan with the remainder to be used for general corporate purposes including debt reduction and investment.

Our capital spending of $31.8 million was $4.9 million above last year's spending which is consistent with the guidance we provided on our third quarter conference call. As you will recall we increased our estimated capital spending by approximately $5 million in 2005 for the expansion of our magnesium chloride capacity at Great Salt Lake and for the installation of a new (indiscernible) Goderich mine. We will spend approximately $12 million to complete these projects in 2006 bringing our current expectation of 2006 capital expenditures to approximately $40 million.

Our 2005 depreciation expense of $43.6 million includes $3.6 million of depreciation related to our discontinued operations. Considering the effects of our discontinued operations which have been sold our estimate of 2006 depreciation is approximately $40 million. Cash flow from operations of $87.9 million represents a decline of $11.8 million from 2004 primarily due to an increase in working capital. In connection with the refinancing of our senior subordinated notes we paid $11.4 million of interest on the redemption of those notes in December which lowered our cash flow from operations. This interest would normally have been paid in February 2006.

We made several strategic moves in 2005, particularly in the fourth quarter and we are proud of the results. These transactions were undertaken to improve the Co8mpany's financial flexibility and improve shareholder value in the years ahead. So now we will open up the call for questions.

(OPERATOR INSTRUCTIONS). Your first question comes from David Begleiter with Deutsche Bank.

Mike, at what point would you adjust production rates of your, of your mines given the warmer weather?

I would say David we are putting the plans together right now. I mean the cold weather that is currently in place is making us feel a lot better right now. As you know a storm went through the southern parts this weekend up through New England. There is an arctic front coming down so there is a return to winter weather. One nice thing about this business is the fact about this business is you got to have cold weather and moisture come together. We have had moisture but no cold weather. So the pattern is helping. We're seeing the sales pick up because of the current pattern that we are seeing. As I mentioned our inventory levels at the end of January were almost spot on to where they were last year. We were running at very high rates of utilization particularly in our northern mine, Goderich, over the whole season last year. So I would say right now we have plans in place, but we are not anywhere close to pulling the trigger on reduction until we see how this season plays out.

And could you remind us again of your East Coast exposure versus maybe more of a Midwest, Upper Great Lakes exposure?

Yes, I mean we don't sell along the coast, the eastern coast. We always said because of weather there is so variable the last two or three years it hasn't been nearly as variable as historical patterns would led us to believe. So our impact on the East Coast is very small but that storm, the storm this weekend, went up through the Ohio Valley, Tennessee, Kentucky, West Virginia, Western North Carolina, Western Virginia where we do participate quite nicely in that market so we did see a nice bump from that storm.

And one last thing Rod what is your forecast for interest expense for 2006?

Dave, the only thing I would add to that last comment and then I will answer your question on interest expenses -- we do have some consumer and commercial deicing products that we sell on the East Coast and we do get some pull-through benefit from those sales. In terms of interest we haven't given any sort of guidance other than to say that we would expect to save about $10 million on the -- from the refinancing of the notes and replacing those with the bank debt. So we should see that savings of course, the discount notes do have some incremental accretion on them each year so the consolidated interest expense will be the savings -- will be slightly less than the $10 million more in the $8 million range.

(OPERATOR INSTRUCTIONS). David Silver, JPMorgan.

I have a couple of questions. So Mike maybe on the general and trade sales volume increase, if I understood your comments there was an 11% increase and I think you were attributing perhaps 7 percentage points of the growth to maybe weather-related effects but then a 4 percentage points attributable to kind of Company's specific moves. I was wondering if you could maybe highlight what initiatives I guess led to the underlying growth and whether you think that that type of growth is sustainable as we look forward? In other words are there geographic strategies? Are there products or marketing strategies that led to this stronger underlying performance and what I imagine is kind of a flattish kind of organic growth, kind of business on the general trade side?

As population type brings growth historically has been somewhere around 2% from an organic standpoint. But several things are taking place in this particular market that are encouraging for us anyway and that is the businesses are in the competitors plants as we estimated are all running at pretty high rates of utilization. Which can enable people to play with how they allocate their products across their business. Some segments of this market are growing better than other segments, more mature segments. Take the word mature. This business has growth associated with it. Those like water conditioning market segments particularly in areas that have hard water contents are showing significant growth particularly in the premium side of water conditioning. I mean they can range anywhere from 3 to 6 percentage points growth depending on what type of product you're talking about. So there are opportunities to niche market these products into areas where you can exhibit a greater growth than the general underlying organic growth that you would expect in the business. And that is how we have tended to manage the business over a period of time is trying to find those areas we can differentiate ourselves. Also there is some regional out steps that you can take. That is being a little bit constricted because of the high distribution costs. That also means as your market is constructed because you can't ship as far that also means competitors can't ship as far into some regional markets. So I think that underlying shift of distribution economics is giving some regional players a greater growth rate than others.

And then a question about the specialty potash business. You mentioned a $20 price increase that is on the table for February 1 implementation. So I was wondering if you could maybe comment or is it too early to comment at this point on the success of that? And I know you generally refer to kind of the ratio of specialty to commodity potash and my sense is that ratio you know is still in your favor. Can you comment on that please?

It is. That is true. We still have room to move the SOP value proposition against straight murate of potash. The $20 price gets us closer particularly if the $10 increase I think that has been announced for the MOP producers doesn't happen, there is some pressure on that as we have seen in the marketplace, but I can say right now the $20 price increase has gone through. People are ordering normally against that price increase as the spring season kicks off in some places like Southern California. So we have not seen an impact on order patterns that would lead us to believe that the $20 increase is soft.

Michael Kagan of Salomon Brothers.

Can you run through your debt? Just talk about what debt you have outstanding? What maturities and when you have or which you have restrictions on prepaying and which you are free to pay down right now?

I will be happy to do that. Of the roughly $616 million of debt we had at the end of December we had just $2 million remaining on the senior sub notes. Those are callable in August of this year and are due in 2011. We have $97.1 million outstanding on our 12.75 senior discount notes. Those are callable in December 2007 and mature December 2012. We have $135.8 million outstanding on our 12% senior subordinated discount notes. Those are first callable in June of 2008 and mature in June of 2013. We have $350 million on the term loan which is a seven-year term loan and a $31 million outstanding on the revolver which is a five-year revolver.

And the term loan you can get back anytime you want to?

Yes, the term loan is prepayable without penalty at anytime.

Michael, I'd like to make a comment concerning the refinancing and the debt and the term loan. I think the result of the outcome of that refinancing, the 1.5 bips over LIBOR was absolutely a stunning outcome for our Company. I think it really reflects the faith that not only our investors have in the Company but the lending facilitators out there. For a small cap company with what S&P and Moody would be viewed as near junk bond type ratings, the type of savings that we got by refinancing the Company at this point was compelling to our shareholders. It also in that agreement -- bank agreement lets us expand that agreement to take out the very high-cost debt when it becomes advantageous for us to do. So that was part of the deal that was very favorable I think for the Company and for our shareholders going forward. So I just wanted to bring that out because it also helps us in the future when it comes to the flexibility we wanted to attack that very high-cost debt.

I apologize for cheerleading but I'm a big fan of what you're doing with the company both operationally and financially. So thank you.

David Silver, JPMorgan.

I'm back again. A couple of questions for Rod. The tax rate -- I don't recall if you mentioned this here but could you give us your thoughts on the accrual rate you expect for 2006? And also if you can what you think the cash tax rate might work out to be?

Yes, I will. I did mention that and I'll go ahead and repeat it. We expect that our accrual rate for the year will be in the low to mid 30s, probably about similar or maybe just a little higher than the book rate that we were on during 2005. In terms of the cash taxes our cash tax payments in 2005 were $24 million; we are expecting our 2006 tax payment to be just a little lower than that. In the low 20s.

Okay. Cash tax. In millions of dollars.

I'm sorry. In millions of dollars. Yes.

Sorry for making you repeat all that.

That's all right.

Not at all.

And then I had a question I guess maybe I am looking at the balance sheet and in particular at the inventory level and inventories are down year-over-year although there may be some apples and oranges effects there with the sale of the U.K. unit. But I guess I was wondering if you could put that $81 million inventory level at December 31 into some perspective in terms of -- you know I think you have sold quite a bit in the fourth quarter in terms of deicing salt -- but how does that relate to kind of where you think you need to be in terms of inventory overall for your business and in particular for the rest of the highway selling season? Any or you might be a little bit light here at running the plants a little harder in January or is this kind of where you think you want to be overall?

Good question David. It's an interesting -- it's a very interesting business in this regard because as you know we produce effectively from April 1 through December 31 as hard as we can in anticipation of the upcoming winter season. And then you are sort of a little bit beginning in late December through the rest of the winter season a little bit in limbo trying to figure out your inventories and what you need to produce in order to adequately serve your customer base for the winter season. The decline in inventories is very minorly affected by the sale of the white salt business, so I would take that off the table as a reduction. You might remember earlier in the year, both the second and third quarter Mike and I had been talking to you about increasing our investment in working capital by producing more inventory early in the year. We did that for a couple of reasons but ultimately that proved to be very successful both as it relates to some of the transportation issues that we ended up with out of the barge situation because of Hurricane Katrina as well as the significant December snowfalls that we saw that allowed us to adequately serve our customer base all during December.

You might have heard Mike mention in his comments that through January 31 our inventories were about at normal levels. So by the time we factored in some of the mild winter in January, our inventories are really spot on with where they were last year. And we haven't yet pulled the trigger on any sort of inventory adjustment strategy in terms of production because inventories really aren't that out of line by the time we get to where we are at today. So yes, they were lower than normal at the end of December. That is the result of the significant December sales that we saw. That is also why you see receivables up quite a bit year-over-year and we feel fine with where inventory is as we said today.

David, if the weather in late November and December would have continued at the pace that it was happening back then, this industry could not have handled a very harsh January. I mean our inventory levels are reflective of what the inventory levels were for the industry as a whole. That kind of draw against inventory would have absolutely been unprecedented and would have caused major disruptions I believe to our customer base if there hadn't been -- now January was a little too mild for our taste but an average to moderately mild January was actually helpful from the standpoint of replenishing. Also the fact that the lakes didn't freeze let us use the Great Lakes system to deliver a lot of product during January. So all in all while we certainly didn't like the January weather as mild as it was it was fortunate so to speak for the industry to have that happen.

I'd like to maybe ask one more question of Mike. So looking at your working capital on the balance sheet and you talked some refinancing I guess was going to ask you, is there a chance that your capital program could expand beyond the $40 million that you have for 2006? And where I am coming from its there is a little bit of a window of opportunity here before your next economical major refinancing opportunity. And my sense is that in the past you have talked about a whole series of projects that you consider based on paybacks and capital requirements and cash levels. So I guess maybe if you had a little extra cash Mike how do you think it is best put to work? Is it more rapid paydown or are there some quick payback or high return capital projects that you might pursue?

There are some capital projects we want to pursue to fuel top line growth. I believe this business is not as mature as a lot of people I think view the business. I think we have been able to demonstrate since the day we took the company public that there is between pricing and organic growth more growth in this business than people would be led to believe. We have to invest in some topline growth projects. We took the first one this last year which was the expansion of the magnesium chloride business. I think there are other projects out there that we can redeploy the cash. Part of the whole analysis around the white salt business in the U.K. was we were not using that $30.5 million, net $30 million of cash for the best benefit of us as shareholders of the company. We would like to redeploy that in growth projects here in North America. We have two or three of those on our mind. We have one actually that has been worked on to a large degree. The mild weather we have always said we would be disciplined in capital; we would always pay down debt. But I think you're right Dave we have an opportunity to redeploy some cash to fuel the topline growth of the business, not be foolish with it but I think make good decisions for long-term value creating and we're going to be doing that.

Nancy Traub, Credit Suisse.

Just to summarize I know Mike went through or I guess it could have been Rod went through the numbers we had for the fourth quarter '05, the revenue bump we had was 35 to 45 for the cold weather, the stormy weather and 8 to 12 million for operating earnings, and for the full year was 60 to 70 revenue, 12 to 18 for operating earnings. Now is it fair to say that the rest of it besides what was in fourth quarter would have been in the first quarter? The 25 million extra revenue and the 4 to $6 million in operating earnings?

I think what we would say is that normally we would expect that those revenues and the amount of snowfall that resulted in the salt sales would have been more evenly spread across the winter season. So what the excess was that was in the fourth quarter of 2005 we would have normally seen in much of that in the first quarter of 2006.

Right. But I was saying that the big bump you had for the full year '05 that would have occurred either in the fourth or the first quarter '05?

Yes, there was a combination of better than average winter in both the first quarter of '05 and the fourth quarter of '05.

Right. So if we had a normal first quarter '06 we might expect revenue to be down $25 million and operating earnings 4 to $6 million just for that part of the business.

That's right. And that would have been consistent with the way that we recorded the numbers at the end of the winter season last year. On our early May conference call.

I wondered if Mike could speak a little more about Minosus. You said it was on track. We had a small loss. What is your planned ramp up in '06 in expectations?

I would say the ramp up of the waste is going slightly slower than we would have expected. The U.K. EPA has been requiring more prior testing of the waste going into the mine around areas like battery waste, lead, that type of stuff that is waste over in the U.K. that is ideal for our mine. So I would say that Minosus is probably at least one quarter behind on the waste side of it than we would have liked to have seen it at at this particular time. We're picking up the pace there hopefully with our joint venture partner to accelerate that in 2006. The document storage business is right on track. It is hitting the growth targets that we are looking for. That has always been of course that business has been around a lot longer than the waste business. We aren't going to give a forecast Nancy on what we think is going to be on the business other than a little bit slower on the waste side, and right on track for our document storage.

If you had to estimate the operating rate or for the waste storage, what would you say?

I would say we had originally talked operating rates in terms of about 50% for 2006 and we are maybe one-third off of that at this point, so more in the 30 to 35% range would I think be our expectation for '06.

I would like to reiterate it is not that we don't have the customers wanting to store; it is more around the regulatory issues of getting the stuff approved to store rather than not having the customers asking to have something done with their waste.

Understood. And the last question I know Mike has announced that he plans to retire and I wondered what progress you have made in the succession planning?

The Board has established a committee, a search committee, independent search committee. They have hired -- there is not a clear internal candidate to succeed me. Unfortunately that is probably a shortfall on my part during the time I have been here is developing an internal candidate for that, I accept the failure on that part of it. So we are on the outside looking for a candidate to replace me. The progress is going well. We have a number of candidates being interviewed for the position. My commitment to the Board is I will be here through the end of '06. If we don't find anybody by the end of '06 and they want me to stay around and help a little longer I will be more than glad to do that. There is no pressing part of that. We just want to make sure that we get the right person in the position and has the right strategy and vision for the Company that melds with our Board and hopefully with me.

David Begleiter with Deutsche Bank.

Mike can you pass on the SOP strategy for increasing some of your volume capacity?

Yes. We are, we put in a Pond expansion out there. I think if you remember we spent the capital in 2004. That will come on this summer and fall from the form of increased available SOP raw material and as I mentioned in my comments SOP raw material is the prime driver for the capacity of the plant. So that capital that we spent back then will generate some available product starting in 2006. Now in order to make another quantum leap jump, it will take some further investments down the road to get the capacity improved.

Is much of that capacity expansion result in terms of volume growth in '07 for the SOP business?

The product will be available in '07, right.

Can you increase volumes 5% of SOP in '07 versus '06 or is that too much?

I think that's about right. I think the physical plant can handle up to 425,000 tons and we have not been able to stretch that. We are very good by the way at stretching nameplate capacity, so we have to get the feed up. And once we get the feed up then we can start working on our tricks on increasing utilization rates and capacity. So yes, about 5%, we might be able to do better.

Peter Park with Park West.

My question was already asked and answered. Thanks.

David Silver, JPMorgan.

I know it's great to meet you guys finally. I'm going to chalk this up to the fact that I have only had one cup of coffee this morning. But I just wanted to clarify a couple of things you mentioned about your natural gas hedging. So I think you mentioned that 80% hedged at and I'm just trying to clarify this point and you said it was at roughly market prices but was that market price as of December 31, or is it as of yesterday or today?

That is as of today. So as that gas price has been falling over the last roughly six weeks we find ourselves hedged at prices in '06 that are very close to where the current market is.

Thanks for clarifying that. And in terms of volumes of natural gas consumption I have been using approximately 3 million in MMBtu's per year, and I know you had some comments about energy efficiency projects. But is that still a reasonable number for a full year (inaudible)?

That is still a reasonable number. We continue to increase as you have seen or you have heard Mike talk about the evaporated salt sales and some of the increases there. So we have been increasing production rates in our evaporated facilities but we have been using roughly the same amount of gas which is in the 3 million MMBtu range.

And when you talked about some opportunities or capabilities for fuel flexibility could you maybe just elaborate on what the alternate fuel might be?

We have at our alliance facility we can use fuel oil and we can use different grades of fuel oil in that particular process. Our permit -- I can't remember exactly what the permit requirements are as far as on a percentage basis -- but do you remember what they are, Rod?

I don't.

I don't either. We can switch according to our permit into fuel oil at that particular facility and fuel oil at times, particularly in this particular region particularly at lower grade fuel oil we have been able to get some really good bargains over the last 12 months, so we have used as much as our permit will allow us. We are also looking at modifying that permit. We are also looking at going back to the state and working with the state through best controls that we can put on to expand that permit and use more alternate fuels. So that is the only facility that we have today that has that capability but we're also looking at our other facilities that are large enough to justify the capital to potentially do the same dual sourcing.

That's terrific. Thanks much.

Ladies and gentlemen, we have reached the conclusion of today's question-and-answer session. I will now turn the conference back over to Mike Ducey for his closing remarks.

I would like to conclude our call by summarizing some of the key points that we have tried to make today. First I think we had a phenomenal fourth quarter and also a full 2005 year. We had the dual benefit of above average winter weather in both the first and the fourth quarters; however in addition to that and the weather benefit I just talked about I think we delivered a solid growth in improvement results for our shareholders in the value that they received in the business. Regardless of what the weather brings this quarter the fundamentals of our Company have not changed and neither has our operating principles. We remain focused and we remain disciplined. And thank you for joining us today. I look forward to talking to you again after the conclusion of the winter season.

This concludes today's Compass Minerals International fourth quarter and full year 2005 earnings conference call. You may all disconnect.