Compass Minerals International Inc (CMP) 2007 Q3 法說會逐字稿

Good morning. My name is Michael and I will be your conference operator today. At this time I would like to welcome everyone to the third-quarter Compass Minerals 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) Thank you.

I'd like to turn the call over to Ms. Peggy Landon, Director of Investor Relations and Corporate Communications.

Thank you, Michael. Good morning everyone. Thanks for joining us this morning. With me here today are Angelo Brisimitzakis, our President and CEO, and Rod Underdown, our Chief Financial Officer. Before I turn the call over to them, I will read you our Safe Harbor statement.

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 risks 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 most recent Form 10-K. The Company undertakes no obligation to 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.

And with that, I'll turn the call over to Angelo.

Thank you, Peggy. Good morning, thank you for participating in our third-quarter conference call. We've been very active since our last conference call. In fact in just the last 60 days we've taken some important steps toward building profitable sustainable long-term growth and shareholder value. We've announced two significant capacity expansion projects. We've announced three aggressive pricing actions to support our growth initiatives and strengthen our margins. And we refinanced substantially all of our high cost 12 3/4% bonds.

In early September, we announced multi-phased plans to improve the productivity and production capacity of our sulfate of potash Specialty Fertilizer operations at the Great Salt Lake in Utah. In the first phase, we plan to leverage the superior assets to increase our production output by about 25,000 tons or approximately 6% in year one and by a cumulative 100,000 tons or nearly 25% by 2010. This first phase will consist of modification to our existing ponds and yield improvement and additional processing capacity at our processing plant.

We also plan a second phase of improvement which will increase our low-cost ton capacity by up to 70%. We'll determine the specific scope of the phase 2 expansion after the permitting and detailed engineering processes are complete. When these expansions and cost improvement projects are completed, we will have the flexibility to use our additional pond base SOP to either replace higher cost sourced MOP or expand our total SOP production depending on the strategy that creates the best shareholder value.

Later in September, we announced plans to further expand our rock salt production capacity at our mine in Goderich, Ontario. This will add approximately one million tons of annual production capacity by year 2010. This is in addition to the Phase 1 expansion we announced and began last year that will give us 750,000 tons of additional annual capacity by the end of 2008. So our Goderich mine, which is already the largest rock salt mine in the world, will have the capacity to produce 8.25 million tons of rock salt annually by the end of 2010.

I've talked about this before but I want to reiterate that capacity expansions in mining are very different from chemical plant expansion. In our mining operations, the capacity needs to be fully available before it is required and it can remain idle without having a material effect on the mine's cost structure. Once the infrastructure is in place, the primary cost of mining is labor and maintaining the equipment. So we can grow into the capacity at our own pace by efficiently hiring labor or purchasing equipment when the capacity is actually needed.

We've been demonstrating this concept for the past five years. Over this period, Compass Minerals has been growing into the full capacity of these two strategically favored assets which has allowed us to maintain above average growth rates. But now our unique operations in Utah and Ontario are becoming capacity constrained even in normal weather periods. The expansions we announced in September will provide the required infrastructure to enable us to continue into the future to implement profitable strategies to exceed standard industry growth.

In addition to launching these capacity expansions, we've announced in the third quarter price increases on our sulfate of potash, all of our consumer and industrial products and on a liquid magnesium chloride product. These increases will help support our overall growth initiatives as well as strengthen our margins and they are a continuation of the proactive pricing strategy which we initiated last year.

Those pricing actions along with mixed improvement strategies were the primary drivers of our third-quarter revenue gains of 13%. Our salt segment sales grew 10%. Volumes increased approximately 2% and our pricing was up by an average of 5% on our highway deicing line and by an average 15% on our consumer and industrial products. The pricing strength of our consumer and industrial products in particular has helped make important progress toward our goal of profitably growing nonwinter, nonseasonal third-quarter revenues.

Our 67,000 ton growth in salt segment volume came from strong rock salt sales to chemical customers and more early season sales to highway deicing customers. This was partially offset by a 31,000 ton decline in consumer and industrial sales volume. [C&I] volumes were lower because two customers closed plants in North America and because our pricing actions resulted in the loss of some very low margin accounts.

Our third-quarter salt segment results also reflect the effects of our planned expansions. Our earnings release talked about higher rock salt production costs due to lower production volumes and higher maintenance spending. I'd like to more fully explain what that meant.

Our lower production and higher maintenance costs are short-term consequences of the rock salt capacity expansion projects that I was just talking about. We incurred incremental maintenance costs as part of some planned major maintenance to prepare the Goderich mine and its infrastructure for a higher level of throughput in the coming years. And we had some inefficiencies in short-term production slowdowns caused by the underground expansion work that is currently in progress. These are essential expenditures which will support the multiphase investments we're making at our Goderich mine to take it to a higher level of reliable output.

Our Specialty Fertilizer segment grew 13% which was fully due to our 19% price improvement which partially offset a decline in volume caused by some of our international customers taking their shipments later this year than last year. The significant improvement in sulfate of potash prices helped us return our Specialty Fertilizer segment operating margin to levels that are more consistent with historical levels. This improvement was reflected in our third-quarter gross margin improvement as well.

In October, we announced another $35 a ton increase on SOP shipments to destinations in the U.S. and Canada beginning December 1 and a $60 per ton increase on all other shipments effective immediately. These improvements follow on increase of $10 per ton in March, $20 per ton in June, and $20 per ton in September. These improvements have strengthened our Specialty Fertilizer margins as they have been negotiated into renewing contracts.

Our net earnings excluding special items improved by $300,000 or 13% compared to the 2006 quarter and our cash flow from operations for the nine months ending September 30, 2007 improved by $7.8 million or 10% over the prior year period.

Looking ahead to the fourth quarter and beyond, we have submitted nearly all of our bids for the upcoming winter season and our award prices are approximately 4% higher than our bid awards for last season which from a historical perspective is a very typical price increase. Our bid award volume is expected to be about 5% higher than our prior season award volume which returns our bid volumes to pre strike levels demonstrating the resiliency of this business. Overall the bid results are in line with our goals for the season.

We expect moderately higher product costs year-over-year in the fourth quarter due to the infrastructure work at the Goderich mine that I discussed earlier. We're also expecting modest year-over-year increases in shipping and handling costs. As you may remember from the past, our arrangements with consumer and industrial customers typically allow us to recover increases in transportation related to fuel prices. However, if diesel costs continue to climb we may see some additional shipping cost pressure in our salt segment because in most cases we cannot pass fuel surcharges through to our highway deicing customers once our bid price has been accepted.

Despite the expected salt product cost increases and potential shipping and handling cost increases, we anticipate year-over-year improvements in fourth quarter salt segment sales and operating earnings based on higher prices and assuming a return to more normal weather patterns in our served market areas. You may recall that the December 2006 quarter was quite mild and had an unfavorable impact on revenue and operating earnings.

Also as we look ahead to the upcoming winter season, Keith Clark, who has been our vice president and general manager of our consumer and industrial business for many years will be taking over the reins of our North American highway business when John Fallis begins a transition to retirement. I'm very pleased that Keith has agreed to lead our highway operation as I don't think there is anyone more qualified to continue our history of strong leadership in this role.

We've also identified a great candidate whom we plan to bring on board in the next several weeks to succeed Keith as Vice President and General Manager of our consumer and industrial business. This leader brings a strong consumer product and retail marketing background which will make him very capable of accelerating the profitable growth strategy which we've initiated over the past several months.

Our fourth quarter Specialty Fertilizer segment sales are looking very robust and we expect to end the year with approximately 10% higher sales volumes than in 2006 due to the continuing strong demand for fertilizer. However, we don't expect the current MOP supply issues to have an immediate impact on our Specialty Fertilizer business. We don't produce or sell MOP or standard potash and we only compete against MOP in niche applications.

We also don't have a roller coaster style price increase and decrease that the MOP producers are used to. For example, when MOP prices declined in 2006, our SOP prices actually increased modestly. Of course over the long term,. we are impacted by movements in MOP pricing and their supply/demand factors but indirectly. There is a possibility that the recent MOP supply issues could positively affect us in the mid to long term but we won't know that until the extent of the supply disruptions become clearer.

In summary, this is a very exciting period for Compass Minerals as we are building for the future through essential capacity investments, proactive pricing initiatives, product and customer mix strategies and capital structure improvements.

I'll turn the call over to Rod now to discuss our third-quarter results in more detail.

Thank you, Angelo. Once again we had very solid sales growth of 13% this quarter primarily as a result of the significant year-over-year average price improvement in all of our primary product lines. Shipping and handling costs as a percent of sales increased modestly to 27% of sales in the 2007 quarter compared to 26% in the 2006 quarter. This reflects modest increases in rail and trucking costs and to some extent fuel surcharges from our carriers.

Our product costs were negatively affected by several factors this quarter and Angelo discussed the impact that our capital and maintenance improvements projects have had on our operation at the Goderich mine. These cost pressures were partially offset by improved margins for our SOP Specialty Fertilizer business. As you will probably recall in the third quarter of 2006, we experienced a sharp increase in the cost of the potassium chloride which we use to extend our sulfate of potash pond production. This input cost has now stabilized and we don't expect further significant changes in our raw material costs for several quarters.

To support our internal growth plans, we've made investments in personnel and training which contributed to our increase in SG&A expense compared to the 2006 quarter. The earlier increase also reflects a special benefit in the prior year quarter related to an insurance recovery, the SG&A costs of our records management business which was not part of our consolidated reporting in the prior year quarter, and several smaller items such as higher depreciation due to newly installed information systems.

Interest expense increased very modestly over the 2006 quarter as higher accreted interest on the Company's discount notes was partially offset by lower average borrowing on our credit facilities. Since the 2006 quarter, we have consistently reduced our term loan by at least $10 million per quarter primarily through voluntary early principal repayments.

Earlier this month we initiated a tender offer for a 12 3/4% senior discount notes. Approximately 97% or $120 million in face amount of the notes have been tendered of the $123.5 million face amount that were outstanding. On December 15th, we plan to call any notes that aren't tendered when the offer expires tonight at midnight.

Our fourth-quarter results are expected to include a onetime charge of $11 million pretax related to the redemption of these notes. We financed the tender with $127 million incremental term loan under our existing credit facility. The new term loan which is prepayable is essentially priced at LIBOR plus 2%. We also have an interest rate swap that fixes the underlying LIBOR at 4.565% on $50 million of incremental term loan through December 2010.

This refinancing transaction will provide interest savings of approximately $5 million over the next 12 months compared to the interest expense for the last 12 months on the note this bank debt replaces. In connection with this transaction, we received a corporate credit rating upgrade from Standard & Poor's going from the single B area to the double B area. This follows a similar action by Moody's during the summer.

Our October refinancing was the second phase of a three-step plan to remove our higher cost capital structure. Currently we have one final high-yield note which accretes interest at 12% with a fully accreted face value of approximately $180 million. Those notes are callable on June 1 of next year.

We continue to monitor the credit markets to determine whether to wait for the call date or tender for them early. We have the right under our credit -- existing credit facility to fully finance the tender or call for them through another incremental term loan though we may likely choose to use longer-term fixed-rate financing instead if the bond market is favorable.

As we said in the past, we intend to be opportunistic about the timing of the refinancing of the 12% note as we lay the declining early tender cost over time with the forward credit market expectation.

As we guided on our call back in July, we reduced our income tax provision during the September quarter by $4.1 million related to the resolution of a portion of the liability associated with an uncertain tax provision. Excluding this non-recurring, non-cash benefit, our effective tax rate on a year-to-date basis is approximately 25% which is consistent with our previous guidance.

Our net earnings were $6.7 million in the current quarter excluding the special item our earnings were $2.6 million or $0.08 per diluted share. This is a modest increase over our year-ago earnings of $2.3 million.

Capital expenditures for the quarter increased year-over-year by $4 million and are currently approximately $35 million year-to-date reflecting our previously announced capital programs. We continue to expect 2007 capital expense of approximately $45 million.

In 2008, we're anticipating standard maintenance of business capital spending in the $30 million to $35 million range and when combined with our expansion projects, total capital expenditures are expected to be closer to $60 million. Those projects include the capacity expansion and yield improvement projects of our operations in Utah and Ontario that Angelo discussed earlier and on which we expect to have nice returns over time.

Our cash flow from operations improved 10% from $79 million in the nine months ended September of '06 to $87 million for the nine months ended in '07.

And now we will open up the call for questions. Michael?

(OPERATOR INSTRUCTIONS) David Begleiter, Deutsche Bank.

Good morning. Angelo, just on the SOP pricing, how should we think about SOP pricing going forward given the aggressive price increases this year?

We have a very good foundation to be very proactive on pricing in SOP and that is kind of the hysteria that is going on in MOP which is fairly unique for that product. But again gives us a good platform to drive SOP prices from. We are now into our fourth increase this year and the size of those increases on price are getting larger each time we announce. Right now we are trying to implement the $35 domestically and the $60 internationally and that will occur over the next few months and we expect to be quite successful as we've been all year in achieving those price increases.

Depending on what plays out in the MOP market and our success on the SOP price increases through the year end, that will give us another decision point early next year as to whether there's additional room there. But we remain bullish on both volume and pricing on SOP.

That is helpful. And just on the highway deicing price increase for this year, is that enough to offset higher shipping, diesel costs, etc.?

We thought it would be enough. These bids occurred during the summer when they're looked to be some stability developing on transportation costs, crude oil, natural gas, things like that. We see now since the bids have been awarded some increased inflation on crude oil. It's setting records in the low to mid 90s per barrel. People are talking about crude oil now over $100. If crude oil were to spike and drag diesel, we may see some pressure on our transportation costs in the deicing side.

However, on the consumer side as I explained, we do have the opportunity to recover inflation through surcharges on transportation. But our exposure as I think is everyone's exposure on the highway side, once those bids are set and they've been set now, the supplier takes the risk through the season. Likewise if the costs go down, the suppliers get the benefit through the season. It's just the nature of the market structure.

And Angelo, just on Goderich, you're increasing capacity by about 27%. How long will it take to fill that capacity up, how many years?

Well, it's a tough question because there are really two items that feed into the demand at the mine. One is the kind of underlying growth in demand which in that segment, in that geography kind of the Great Lakes geography as we define it, has been pretty consistent and has grown at a couple percentages a year. So you can do the numbers.

We've grown a little bit more than that because we've had the available capacity. But there's another factor and that is the demand volatility related to weather events. And many of our contracts -- and I believe many of our competitors contracts obligate the supplier to have available up to 20% additional capacity should there be a very severe winter. So even though we report volume to you based upon the bid award, the contract actually requires us to have 20% typically of standby capacity available should the weather be severe.

So when we're talking about an expansion in the 20% to 30% range, when were required to have 20% standby and with an underlying growth rate of a couple percentage points a year, it fills up pretty quickly. We believe these capacity expansions at Goderich are absolutely essential for us to serve our existing market and customers both in normal and in severe winter situations and also to give us several years of above market type growth which we've enjoyed over the last few years those trends.

So we also were pretty fortunate that we had some very cost-effective expansion opportunities available to us. If you look at both the Phase I and Phase II Goderich expansions which we've announced over the last year, for a total of I believe it's $26 million of investment, we've expanded -- we will have expanded that mine by 1.75 million tons. And that volume is greater than most of the mines we compete with.

So I think if somebody were to try to put in a 1.75 million ton annual capacity somewhere else at a new mine, they would be spending multiple times more capital investment than we have spent. So they are very cost-effective expansions, they are essential because they address both the market growth, our typical growth but also the standby capacity that our customers require us to have contractually.

Sorry for the long answer but it's kind of a detailed question.

That is very helpful. Thank you very much.

Dave Silver, JPMorgan.

Yes, hi, good morning. I will apologize in advance. I'm jumping between two conference calls. I had a question regarding the results of your winter deicing bidding and in particular the 5% volume increase and the 4% average price increase. And I guess I was wondering how that result kind of compared internally with your projections? In other words you guys have a lot of experience at this very sophisticated model. Was the hit rate or the success rate on your bids kind of where you thought it would be? And if not, have the bidding strategies for your competitors seemed to change at all? Thanks.

Yes, a very good question. Let me bring you back first to last season which was affected -- we were affected by a strike event at our Goderich mine. I think you recall we indicated that we -- because we had the strike, we actually bid on less volume than we typically wanted to bid on, approximately 300,000 tons. And that was the prudent thing to do so we didn't over commit ourselves and then let down our customers contractually.

So part of our strategy for this bid season was to return to those pre strike level shares. And the 5% growth in volume returned us exactly to where we wanted to go on a share point of view on a volume point of view. So I would say the volume target was hit and we're quite comfortable with that. We're back to where we were on a pre strike level and now we look forward to enjoying the underlying growth rate that this market provides over the long term.

On the price side, again as I answered on the previous question, kind of the inflationary environment that all of us were bidding into this summer was a little more modest than I think the inflationary environment particularly on transportation might be shaping up to be particularly with crude oil now in the 90s. 4% price is kind of very typical and is kind of the average of this industry over the last 20 or 25 years.

So we are not unhappy with 4% but we do have some concern that there might be some new inflationary pressures that might compress some of our deicing margins if crude oil continues to expand to $100 per barrel. And as I stated on the previous answer, our consumer and industrial business is somewhat insulated from that as we had the ability through freight surcharges to recover that inflation.

And just to follow up, I think I understood you, Angelo, but would you say any kind of modest shortfall in the average price increase versus your cost increase? Is that -- that is kind of self-inflicted it's not representative of maybe a change in bidding strategies by the competition?

Yes, it's -- we bid 3000 line items. I would think the answer to your question in general is I've not seen any significant or material change in anyone's bidding strategy. There is always a couple of outliers that we look at and we kind of scratch our head and we also do know that one of our major competitors is evaluating strategic alternatives which might include potential sale of the business. So there are people that look at outliers and ascribe other motives to it. I can't conclude one way or the other.

But I haven't seen any major change and the fact that we were able to achieve the industry average 4% price increase, and we were able to recover the pre strike levels tells me that the market structure is unchanged in the 2007, 2008 season.

Okay thanks. And I'm going to follow up with a question on your sulfate of potash business and again, I apologize if I'm making you cover some ground here. I guess in general, could you take a moment maybe and describe your strategy that you're envisioning here for keeping pace with the pretty dramatic increases in the price of commodity potash? I'm sure you know that all the major KCl producers have stopped accepting new orders while the Russian situation works out. And you purchased KCl for a portion of your SOP production.

I mean do you anticipate matching what the KCl producers do or is there a risk of the margin squeeze? Could you just maybe talk about your strategy in these volatile markets?

Yes, good question and we addressed some of that in my opening comments. I mean we love the SOP business, and we love it even more now that MOP is as strong as it is. But SOP is not MOP and except for a few niche applications, we really don't compete and if we compete, it's indirectly. But MOP provides us a terrific foundation to continue to leverage SOP prices.

We're on our fourth price increase in 2007 on SOP and the last one which we just announced is by far our most aggressive one. So we very much are proactive on SOP prices and we are very much monitoring the MOP market very closely for two reasons. One is, we monitor it closely because it creates that foundation from which we can leverage SOP against. But as you correctly stated, MOP is also a key raw material in part of our SOP production. However, we have some favorable contracts on MOP so we are not going to see the inflationary pressure on our MOP price that the market is now seeing. There's a lag and it is a significant lag.

So our costs on SOP will be somewhat flat while our ability to raise price is surging right now and we expect to be very successful in our fourth price increase as we've been in our first, second and third price increases. So we love SOP. Capacity demand balances are good. The weak dollar is helping us as many of the overseas producers are finding it increasingly difficult to sell in our core U.S. market. Freight rates are also in our favor, again, preventing imports into the U.S.

We are the only major U.S. producer, North American producer of SOP and we've announced a strategy of expansion which will give us additional capacity and more importantly lower our production cost to make SOP and lower our dependence on MOP in the production of SOP.

So I think all the cards are right. I wish they could happen quicker but they're going to happen as they happen. We have a very detailed permitting process going on at the Great Salt Lake. It involves local, state and federal kind of entities, environmental impact studies, detailed engineering, that is a process that we have to go through but we are going through it diligently. And we are playing the SOP game for the long-term but we're also benefiting from the short-term environment.

And if I could just follow up and maybe Rod might be able to help. But this is a question about your SOP production for next year, for calendar 2008. So there is a couple of moving parts here I guess. There's a multiyear kind of normal production process and then you have your recently announced debottlenecking project which I think in part includes some process improvements. So from either one source or another, I mean can you relate how much SOP you will have available next year versus how much you had this year?

Well, that is a good question, David. It's something that we can't answer definitively at this time because part of the expansion project that we announced allows us to take two different courses of action. We can either or in combination of either one of these two things, we can either use our incremental pond base, our lower cost pond base product to reduce our KCl inputs or we can continue to buy the KCl and increase our ultimate production output of the plant and therefore theoretically also in the strong market our sales volumes.

So if we continue to produce at the full KCl input, we've said that we will have an additional 25,000 tons available and I think kind of where we're at in the '07 time period is about 10% greater than '06 so that puts us at that 415-ish kind of range so that additional 25 would move us up 25 from there. Is that helpful?

Yes. No, that is very helpful. I should have -- what is the word -- limited my question to maybe pond based KCl, but no that is fine. You touched right on it. Last question and sorry for taking so long here, but just jumping between a couple of conference calls unfortunately. Foreign exchange, so, Rod, I guess you get this question every quarter but the movements in the dollar versus the Canadian dollar and the pound I think had been especially volatile this quarter.

Can you just review what we should expect in terms of the sensitivity of either your earnings or some balance sheet items to changes in your key exchange rates?

Right. I will cover the simplest one first as it relates to the pound. Our UK operation is less than 10% of our total business. So movements in the pound versus the dollar are not that significant. All of our UK operations sell domestically within the UK. So a strengthening pound benefits us from an earnings perspective there. But it isn't a tremendous effect.

Then we have the Canadian dollar and the complicating effect for us there is that we not only sell in Canada and benefit from a strong Canadian dollar, but we are impacted negatively on imports into the U.S. and our Goderich mine sends a lot of its product across the border. When we look at our Canadian dollar exposure, we're effectively naturally hedged in that our input -- our flows in and out in Canadian dollar terms are similar. So it doesn't have a huge effect on us although our Canadian business does benefit from that.

What we certainly prefer is a strong U.S. dollar in the summer when we're importing a lot of products into the U.S. and a strong Canadian dollar in the winter when we're selling a lot inside Canada. Of course that is the ideal. I suppose the run-up here in the third quarter was significant late in the quarter. It looks like we're set up for a continuing strong Canadian dollar through the winter and on a net net basis, that would be a benefit for us. But not significant and probably not something to alter your expectations.

Okay, thanks a lot.

(OPERATOR INSTRUCTIONS) Mark Gulley, Soleil Securities.

Hey, I had two questions. First of all with respect to the diesel fuel situation as it pertains to ice control. Since you are committed to volumes and price for a winter season, let's say during (technical difficulty) forward several months. To what extent do you hedge your diesel fuel costs so you lock in both your prices and at least a portion of your costs?

Mark, we have not hedged our diesel fuel commitments. We have over time viewed that as something that it is a relatively short period of time so we are making our commitments in kind of the June through September time period. And we deliver that product from November to February being the two surge periods in both of those. And we have not previously done any hedging of our diesel fuel.

This is Angelo, just to add a little more to that. And again as I said on the consumer side, both deicing and non-deicing were kind of -- probably naturally hedged isn't the right word but we had the ability to recover through surcharges. And we've looked at hedging and from a cost benefit point of view, it just hasn't worked for us but we continue to look at that all the time.

Right. Secondly on this SOP and MOP situation which is pretty dynamic, you've already responded to a bunch of questions on that but can you give us any feel for how long will it take for these MOP price increases to hit the P&L?

Well, for us the MOP price increases which are kind of cost increases, they are contractual arrangement on MOP is staggered a year to two out so there is a lag in terms of when that hits us. So, Rod, help if I'm wrong here, but we don't see any significant impact through calendar year '08. So we are kind of in the sweet spot right now where we're getting the maximum benefit on SOP price with a very, very low impact on MOP costs. Now that may change in '09 but hopefully we'll be so far ahead on SOP pricing by then and have taken our strategic steps in expanding our pond base SOP capacity which is not dependent on MOP, that we'll be able to avoid that inflationary bubble that is working through the system that will hit us in 2009 or 2010.

Okay. That is helpful. And then a final third question. You talked about the need to have let's say surge capacity in the Great Lakes system so that is why you are expanding your Goderich mine. If the snow doesn't come, you're not going to need that capacity. Are there chief water links from the Great Lakes system to the Mississippi system so that that capacity could be made available for customers on the Mississippi River system?

We also have our plant down in Cote Blanche which is well situated on the River system so every year we kind of ship up from Cote Blanche and Louisiana and ship down from Goderich. And we have 75 storage depots along the river system. So we balance the supply chain as Goderich right now is kind of tight, we're shipping more north and as Goderich expands and has excess capacity and is our low cost favored plant, we ship south. So we will move that as part of our supply chain management.

But I don't think the fact that we're expanding Goderich or have available capacity in Louisiana, I don't think that really by itself increases our footprint of sales because that is really driven by how effectively we can ship product against competitive mines in other regions. We don't ship very much for example on the East Coast because it is too far away from our mines and it is more vulnerable to imports.

So we are pretty insulated which I think is good along the kind of Great Lakes Central region of Canada and the U.S.

Thanks, Angelo.

Bob Koort, Goldman Sachs.

Thank you, good morning. I guess I was thinking you might have a little bit stronger volumes this year against last year's comp given that it was somewhat weaker seasonally I think last year. Is this a reflection maybe of some carry-over inventory at your customer levels? And what is your production plant expectations in terms of how that is going to affect rock salt costs as we go into the winter?

This is Angelo. I will just take the first half. Our third quarter volumes particularly deicing are quite weak normally in a sense there's not a lot of sales going on. So I think those volume comparisons on deicing are thin. It's hard to make strong comparisons. We did see some strength in chemical sales of rock salt. We clearly have seen strength in our SOP long-term sales although we did have some timing issues on international shipments.

And obviously the fourth quarter and first quarter is where we will see and we hope to see the strong volume movement on deicing. We did see some contraction in our C&I volumes. And I think there are two factors there. One was just kind of the luck of two customers basically shutting down operations in our served area and moving I think in both cases overseas. We lost those customers and maybe that says something about U.S. manufacturing more broadly.

But we didn't have the corresponding gain of customers to offset that. And we also were pretty firm in our pricing and we achieved very, very strong price increases in our C&I consumer segment and we did risk a couple of very low -- and I put the word very in front of that -- margin accounts. And we were willing to walk if we didn't get the price. One of our competitors was willing to take that very low margin business.

I kind of scratch my head when that happens. It's kind of like the deicing discussion we had when there was a couple of bid lines that I look at and I don't understand -- it doesn't make sense. But on those low margin accounts we needed the price and we were going to stick with it. I wouldn't read a lot into the volume --

I'm sorry, Angelo, I probably misspoke a little bit. I was talking about the actual bid volumes that were out there. Because if I recall last year with some of the mine issues, didn't you guys take a little more cautious approach to the bid volumes and so this year they are up 5%. Could they have been higher? Again, is that an inventory issue or --?

No, I think the bid volumes, again, were up this year to pre strike levels. Our goal was to return to the levels that we were at pre strike, we are up 5% on our bid volumes. That is more than the industry grew in that period. So we basically recovered our share to pre strike levels and that was our target.

Share doesn't move a lot in this industry for a lot of reasons. The main reason is there's not a lot capacity available for share to move. And going forward, I believe we are going to be the only ones that have excess capacity and we're going to be very prudent on how we place that capacity as we've been prudent over the last half-dozen years.

That is helpful. And then in terms of your production plans and what that might do to your unit costs?

Yes, both of our mines are basically -- well both of our North American minds are planned to be run on a full production schedule. There is some continuing maintenance that will happen at the Goderich mine that may have to flow just for a short periods of time but effectively it is full production from now through the end of the year. And what we typically do is then we assess how the winter starts with the expectation of snows in December and make subsequent adjustments to our production plan during the winter season after the winter starts.

This is Angelo again. We had a very tricky production scenario to manage through in '07. Again, we are coming off the strike, we had some late snows in the first quarter and we had this goal to recover to pre strike levels which meant we had to produce a lot more than we did in the prior year to get back to where we wanted to be. Plus we had the phase 1 capacity expansion to kind of integrate into our production plan and not interfere day-to-day production.

That was a tough difficult thing to manage and we did experience some inefficiencies as we managed through that in '07 and I think you saw some of that in the third quarter. The good news is when we -- we're well-positioned for '08 and when we can get through '08, we will have then the full benefit of the 750 thousands tons expansion Phase 1 and then the seeds of Phase 2 beginning. So our production plans going forward will be a lot less stressful. And we will have a lot more flexibility in managing our Goderich asset in '08 and '09 versus what we had in '06 and '07.

Perfect, thanks for the help.

There are no further questions at this time. I will now turn the call back over to Mr. Brisimitzakis for some closing remarks.

Great, well thank you. In summary, I believe we are very well-positioned for the future in the short-term, in the medium-term and in the long-term. We are looking for a little help from winter weather but we are prepared to respond and build shareholder value no matter what the weather develops over the next few months.

Thank you for joining us today. I look forward to talking to you all again in February. Thank you.

This concludes today's conference call. You may now disconnect.