Compass Minerals International Inc (CMP) 2008 Q4 法說會逐字稿

Good morning. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the Compass Minerals fourth-quarter and full-year 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 call over to Ms. Peggy Landon, Director of Investor Relations and Corporate Communications. Please go ahead.

Thank you, Regina, and good morning, everyone. Thank you for joining us for a discussion of our fourth-quarter and full-year results this morning.

Before I turn the call over to Angelo Brisimitzakis, our President and CEO, and Rod Underdown, our CFO, let me 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 expectations as of today's date, February 10, 2009, and involve risks and uncertainties that could cause the Company's actual results to differ materially. The differences could be caused by 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 results 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 news section of our Web site at CompassMinerals.com.

Now, I'll turn the call over to Angelo Brisimitzakis.

Thanks, Peggy. Good morning, everyone. Thank you for joining our call today. I am very pleased to be able to talk to you this morning about another quarter and another full year of record results for Compass Minerals.

Our 2008 revenues exceeded $1 billion for the first time and our full-year net earnings nearly doubled. In fact, our fourth-quarter net earnings were about the same as our combined earnings for all four quarters of 2007 and 2007 was also a record year for Compass Minerals. These gains have translated into deployable cash for the Company as our cash flow from operations more than doubled. Clearly, our company demonstrated an improving balance of strength and growth capabilities that I believe makes Compass Minerals somewhat unique in this current economic environment and gives us the enviable ability to continue to carefully execute our strategic long-term initiatives so we can continue to build long-term shareholder value.

Looking specifically at our fourth-quarter results, within our Specialty Fertilizer segment, operating earnings more than tripled despite substantially less sales volume than in the fourth quarter of 2007. This earnings growth was due to the year-over-year increase in the average selling price of our specialty potash to $975 per ton and reflects our view that price is the primary earnings driver in this business.

By focusing on price, we are enhancing our ability to invest in long-term capacity expansion so that we can be well positioned to improve growers' yields of healthy fruits and vegetables. Of course, in a broader way, this will help feed America and the world for years to come.

Because SOP sales volume was lower in the quarter, we were able to rebuild our specialty potash inventory to approximately normal levels at year end from the historic low levels we experienced just in the third quarter of 2008. While other standard potash producers have reduced their MOP production through temporary shutdowns and work stoppages, we have not slowed our SOP production. Our inventories were previously at unprecedented lows, we have plenty of storage capacity and our less than 1% share in the global broader potash market makes any inventory adjustment on our part insignificant to the whole supply picture. Besides, our three-year solar evaporation cycle doesn't easily lend itself to short-term starts and stops.

Our Salt segment also achieved record results significantly above the prior year. We posted volume growth of 4% over a very robust 2007 fourth quarter and Salt segment operating earnings increased 39%.

Both our highway deicing and consumer industrial sales volumes were aided by a second-year of more severe-than-normal normal winter weather in North America but unlike last year, we had strong highway deicing sales in the UK. We also had good volume growth contributed from our non-deicing consumer and industrial products as well. Our Salt segment earnings improvement was driven by this volume growth, combined with an 11% overall average price increase and aided by transportation costs that were much more moderate than we experienced earlier in 2008.

As we begin 2009, we are seeing many of these same trends continue. Our specialty potash prices are holding at around $1000 a ton, though customer orders have continued to be lower than in the first-quarter of 2008. We believe that the fertilizer blenders we sell to are trying to minimize their inventories in order to improve liquidity and that they are doing less forward buying because of the global financial and credit issues affecting the broader agricultural market.

The question of course is how long will this trend continue? Quite frankly, we don't know the precise answer. Some crops can survive without SOP for one season, but that will damage the crop yield and quality in the following season, so growers have to carefully weigh their options. The buying period for the spring SOP application hasn't yet begun, so we simply don't know whether or not the volume trend will be confined to the 2008 North America fall application period.

As a result, we are unable to give any specific specialty potash guidance for 2009 at this point. However, as I said earlier, we do not believe this is a long-term trend because the world demand for food, and therefore crop nutrients, is still growing, not declining.

Turning to our Salt segment, much of the winter still remains but so far in 2009, we continue to see more severe-than-normal conditions across the majority of our highway deicing service areas. For example, in the UK, December and January have been the largest consecutive months in terms of demand that Salt Union has ever experienced and we have shipped double the amount of salt that we would normally ship in a typical December and January period.

The deicing demand in North America, while not as dramatic as this, has also been robust so far in 2009. Therefore, even if weather returns to normal levels for the remainder of the winter, we will again end this season with seriously depleted inventories in North America just as we did last year. This illustrates why our ambitious rock salt capacity expansion program at our Goderich mine in Ontario is so critical. We will have the full 750,000 additional tons from the first phase of that expansion available to us for the upcoming 2009/2010 winter season, which should help reduce some of the tight supply challenges that our industry has experienced over the last year but it won't eradicate them. Fortunately, our second expansion phase is expected to bring another 1 million tons into the market for the winter after that.

Looking at the Company as a whole, our long-term shareholders are accustomed to the fact that we have a weather-variable business and they understand that our company is structured to accommodate that variability. We believe that our long experience in managing through variable sales environments is serving us well in this unusual economy. However, I realize that many investors who are newer to our business may not fully appreciate how our company can remain so strong and continue to grow. So I would like to close by taking a look at the growth of Compass Minerals in the five years that we have been a public company, which we proudly celebrated December 11 at the New York Stock Exchange.

Since our IPO in December of 2003, we have been demonstrating the recession-resistant nature of our business, the strength of our products and the profitable growth of our segments. Our salt revenues have nearly doubled from $500 million in 2003 to $923 million in 2008 on 26% volume growth and 49% price appreciation. We had a wide range of winter weather over the period, from extremely mild to extremely harsh, but the nondiscretionary nature of our products, our low cost operations and our natural competitive advantages have allowed us to steadily yet significantly grow our salt business.

Our Salt segment prices have not only kept pace with inflation but we have exceeded it. The mostly nondiscretionary nature of our applications, the efficiency and effectiveness of our products and the higher relative cost of transportation all contribute to the ability to grow the profitability of this business. When you combine our low-cost operations and our advantaged position to expand to capture modest market growth, you've got a recipe for success that we've been able to enjoy.

Our Specialty Fertilizer segment has a different business model than salt but shares many of the beneficial characteristics of our Salt segment. Our SOP sales have more than quadrupled since our IPO from $54 million in 2003 to $233 million in 2008 due to our steady focus on the growth potential inherent in our specialty potash fertilizer. Rather than concentrate on simply capturing share from other SOP producers, we instituted a marketing strategy focused on increasing the size of the SOP market by illustrating how fruit and vegetable growers can better utilize SOP and achieve an increased return on their investment. These strategies alone helped generate 150% sales increase and a 375% increase in operating earnings from 2003 to 2007.

Of course, you already know that during 2008, the market for all potash fertilizers turned very positive and the resulting increase in product value created a further step change in the margins and profitability of our specialty fertilizer business.

The steady growth these last five years in the value of our two segments, combined with significant improvement in our capital structure, has also improved the credit profile of Compass Minerals. Our corporate credit rating has been raised three notches since 2003. Our interest expense has declined 22% from the 2003 IPO levels, and our leverage ratio has improved from 4.6 times adjusted EBITDA in 2003 to 1.6 times at year end 2008.

As a result of our improved financial structure and our significant cash flow, we have the financial flexibility to remain focused on our long-term profitable growth strategies, even during these challenging economic times.

We look to the future with the same optimism we had in 2003 but with a slightly different set of goals. Our products are still essential in their applications. Our salt business has plans to capture additional organic growth through the expansion of our advantage Goderich mine. Our specialty fertilizer business has continued to push forward on expanding our production with lower-cost solar evaporation ponds and we expect to make significant progress on our SOP yield enhancement project in 2009. We will also be investing in innovative new products and more efficient processes to ensure that we are capturing the profitable growth opportunities that are available while positioning ourselves for further leadership tomorrow.

In short, we believe that our proven ability to execute our strategies despite widely varying market conditions, our recession-resistant businesses, our natural competitive advantage, our strong earnings and cash flow capacity, and our increasing financial flexibility will allow us to continue to grow and prosper in 2009 and beyond.

Now, Rod will discuss our fourth-quarter and full-year results in more detail.

Thanks, Angelo. Our 87% increase in net earnings, excluding specials, was driven by a few key factors. In our Salt segment, the 16% improvement in sales was primarily driven by price improvements and a second consecutive quarter and year of severe winter weather. The 12% year-over-year improvement in fourth-quarter average selling prices for highway deicing salt reflects the affects of the 20% improvement in average bid award prices in North America that we achieved over the summer which locked in our winter pricing through the end of March 2009.

Our realized average year-over-year price increase of almost $5 a ton was unfavorably impacted by the effect of the strengthened U.S. dollar on international sales. This foreign exchange impact was approximately $4 per ton on the average selling price for the quarter.

Salt sales volume was up 4%. As a reminder, our 2007 fourth-quarter deicing sales were well above normal due to very severe weather in North America. Despite this tough comparison period, our 2008 sales volume exceeded the prior year as volumes were boosted by higher in sales in the UK following last year's mild UK weather impact. We also had nice volume gains in our non-deicing products in the consumer and industrial area.

Our per-unit shipping and handling costs increased less than 5% from the 2007 quarter as falling fuel surcharges from carriers during the fourth quarter of 2008 offset, almost completely offset, the impacts of the rising fuel costs during the prior-year quarter. Those high fuel costs continued throughout much of 2008. We are now experiencing lower fuel costs in early 2009 than we experienced in early 2008.

So our strong net price realization was the largest factor in our Salt segment operating earnings percentage increase from 24% to 29% in the 2008 fourth quarter. This improvement resulted in an approximate $25 million increase to 2008 fourth-quarter Salt segment operating earnings.

Likewise, our Specialty Fertilizer segment operating earnings also improved approximately $25 million in the December quarter. Although we saw softened demand late in 2008, our fourth-quarter sales were up 47% due to a 185% increase in average selling price, which averaged almost $1000 per ton for the quarter. We also had higher per-unit costs for our SOP compared to the fourth quarter of 2007 because of higher raw materials, royalties and maintenance costs.

Regarding raw materials costs, I think it bears repeating that our contract to purchase MOP is still very favorable. The price was set much earlier in 2008 for the 2009 full-year purchases. So, it is based on a formula that uses data that precedes the rapid price increases of 2008. As we look to the years ahead, we will continue to buy MOP under this contract as long as it continues to be beneficial. But as you know, we are not required to purchase any minimum quantities.

At the same time, our expansion programs at the Great Salt Lake are intended to increase our solar pond-based production as well as to provide us with the flexibility to grow or to reduce MOP purchases if it were to ever become strategically more desirable. The bottom line is that our ongoing investments are long-term strategies that provide us with a variety of good options.

Our quarterly results also reflect the impact of more-severe-than-average winter weather in both 2008 and 2007. The fourth-quarter of 2008 impact is estimated to have increased sales by almost $50 million while the operating earnings impact was positively impacted by an estimated $16 million to $18 million for the fourth quarter. Those benefits both exceed the comparable estimated fourth-quarter 2007 severe winter weather effects.

These record quarterly results were achieved despite the impact of exchange rates on our reported US dollar results. The stronger US dollar experienced during the fourth quarter of 2008, when compared to the prior-year exchange rates, unfavorably impacted our operating earnings by approximately $6 million.

Interest expense declined by $4.3 million from the 2007 quarter because of our capital structure improvements during 2008, including the partial redemption of $90 million of 12% notes during 2008. We still have approximately $90 million of those notes remaining and we will continue to look for opportunities to reduce or replace those notes. With our current debt structure, we expect our interest expense to further decline another $6 million to $7 million in calendar year 2009.

We did incur $1.4 million of costs for the October call of $20 million of the 12% notes which was recorded in other expense in our consolidated income statement. The year-over-year change in income tax expense reflects the 2008 effective tax rate of approximately 30% compared to tax benefits recorded in the 2007 quarter that were related to items that were unique to that tax year. We continue to expect our 2009 effective tax rate to be in the low 30% range.

Our fourth-quarter net earnings improved 59% over the 2007 quarter to $80.1 million or $2.41 per share. Excluding the cost of calling the $20 million of high yield debt, our net earnings were $81 million, or $2.44 per diluted share.

So, looking back on the full year of 2008, we've done a lot of things right and we have had several things break our way despite the sluggish economy providing some headwinds. We started the year with strong sales volumes in both business segments, as weather and fertilizer demand was robust. The resulting price increases in our specialty fertilizer area were dramatic and are assisting in our ability to pay for strategic solar pond-based expansions in that business. Late-year impacts from the economic uncertainty have made crop growers and fertilizer blenders cautious in their short-term fertilizer application and forward buying commitments.

As for salt, demand for deicing products from the 2007/2008 winter resulted in low levels of inventory that had this current season's normal winter demand outpacing our ability to fully serve the market. The resulting price improvements for this current winter and lower fuel costs have widened salt margins as we go into 2009.

The impact of these events has grown our normal winter levels of annual revenues and earnings to record levels in 2008. These significant earnings gains translated into strong cash generation as full-year cash flow from operations more than doubled to $254 million. In 2008, we reinvested almost $70 million of that cash flow as capital spending investments back into the Company, including our capacity expansions. Our continued investments in these critical expansion projects, combined with investments in other growth and productivity improvements, are expected to increase our anticipated 2009 capital expenditures by approximately 50%.

We also announced yesterday a 6% increase to our quarterly dividend rate as we continue to balance investment and debt reduction with a larger direct return of cash flow generated to our shareholders.

2008 was also a year when our credit profile changed dramatically. The combination of using part of our free cash flow to pay down debt along with our improved earnings resulted in a decline in our debt-to-EBITDA leverage from 3.3 times at the beginning of 2008 to 1.6 times by the end of the year.

Regina, we will now open up the call for questions.

(Operator Instructions). Jason Miner, Deutsche Bank.

Just on salt, it sounds like we are seeing another very strong winter and this is the sort of situation that set us up for the strong 20% price increases we saw last year. But at the same time with fuel costs easing, I know there is an impact in what you might expect. How should we think about the coming bidding season given this set up?

Yes, this is Angelo. Yes, I think last year's cycle entering the bidding season, which really starts occurring in the second quarter, which is pretty close upon us, we were looking at $150 crude oil last year. We were looking at a severe supply/demand situation. I think those factors kind of came together in really an unprecedented kind of escalation of pricing through that bid process. Typically, the price increases have been in the 4% to 5% range so 20% was certainly exceptional.

We benefited after the bids were placed. When we're actually shipping the product, which is now some six to nine months later, crude oil has retreated to $40 per barrel, thus the margin expansion. We don't expect crude oil to go back to $150 so, therefore, the inflationary pressures will be much reduced. However, the supply/demand balance should be the same.

So although we don't give -- I won't speculate on price exactly -- certainly, the dynamics are not as robust as they were last year as we entered the bidding but certainly no less than historical levels. So I would imagine something more moderate to be in effect for the upcoming season.

But you have got to remember, each line item, each county, each state is a sealed bid and the low-priced guy gets it. So there will be literally thousands of face-offs between Compass Minerals and our numerous competitors, line item by line item, that will establish the price. We adjust accordingly through the bidding season.

Fair enough. Actually on salt again, can you give us a sense of how much spot sales above the upper limit of contracts you might be seeing so far this season?

Right now, we are still working hard to satisfy our contract requirements. We ship as long as we can through the winter, which means from our southern mine down in Louisiana we end attempt to ship through the winter; from our northern mine at Goderich, we ship as long as the lakes don't freeze. So we are at that point now where we will transition to spot sales and depending on how long winter lasts, that will determine how much spot sales we have. The Goderich mine has a pretty large capacity of for-spot sales because essentially when the boats stop leaving the mine, all of the sales from the mine are trucked and a majority of those sales will be spot. So we look forward to some upside from spot sales, but it all depends on how much winter we have between now and the end of the season.

Okay, that is very helpful. Thanks. Lastly, I will shift to fertilizer. You mentioned the MOP side and the purchase contract that you have an advantage on. I know, with the lag, there is potential for that to be set much higher in the future but probably offsetting that, you're clearly expanding capacity. Then I will just add to this long question, sorry. These volume declines might take you down much closer to what we would think would be your fully evaporated capacity although they perhaps exceed end-market declines at the moment. So, I guess it is a two-part question. Could you talk about what are end markets versus destocking the chain sort of doing versus this 50% decline in volumes? Then where might you be mix-wise, evaporated versus MOP, if you need to cut back for economic reasons in the future?

That was a good question. You know, the end markets for fruits and vegetables we believe have been unaffected in terms of demand. I mean people are still eating fruits and vegetables. The populations are still growing around the world, so those fundamental long-term demand drivers, which are consumer demands for food, are still there.

Have there been changes in prices in some of these crops? Yes. Some have actually strengthened; some have weakened; many have stayed relatively stable during this period.

Remember, the percentage of revenue per acre that goes to fertilization for these specialty crops is much lower than the contribution that fertilizer has on a row crops such as corn or wheat or soy. So we feel really good about the economic equation which has SOP at $1000 selling into specialty crops that have a very high revenue per-acre contribution and high margins for growers.

So we believe this demand change that we have experienced now in the fourth quarter and continues in the first quarter is really further up the food chain to the blenders, the people we actually sell to. They have been caught with some inventory from prior purchases. You have to remember also that nitrogen and phosphorus purchases that they made, those prices have declined substantially. So those blenders have suffered some erosion in the valuations of their inventories from the decline in those products. There is also pressure on them for credit and liquidity. So they have really pulled back on the amount of forward buying and the amount of exposure they want to live with. So I really think, until that sorts its way through, will the end consumer demand pull-through to nutrient producers such as Compass Minerals.

So, how long this blip will last, I am not sure. That's why we have chosen not to really give any specific guidance, but we remain as convinced as before on the strength of our products in the markets. We also believe that the fundamentals of potash in general and SOP in specific are better than the other nutrients. So we should not paint all nutrients with the same brush. We believe SOP is the best of the potash group, and we believe potash in general is the best of the big three nutrients.

Okay. That's very helpful. Thank you.

(Operator Instructions). Mark Gulley, Soleil Securities.

Good morning, guys. A couple of things -- one, Angelo, can you give us some idea, normally, when the blenders would begin to buy SOP for their blending activities? Normally during the course of the year, when does that happen?

For the spring application season, which is a big application season for North America which makes it a big application season for us, the strong demand is kind of late March, April. So we are kind of in that quiet zone right now hoping for that pick-up come March/April. We certainly would love to see some earlier signs but it is really too early to make a definitive call.

Okay. Switching gears now to your planned expansion, the tripling of capacity at the Great Salt Lake, I know you're still in the process of getting permits, but if I were to tell you that you're probably going to get a relatively severe environmental impact statement, can you kind of ballpark the kind of CapEx you would expect that project might absorb?

Again, our Great Salt Lake ambitions are quite a long-term proposition multiphase. Our first phase, which we are in the process of, is the $40 million investment we announced. That gets us about 100,000 tons of additional capacity. That really does not affect any ponds. It is solely within our production unit and it really is more of a yield project and a productivity project and it is totally within our control.

The remaining expansion which you refer to, some 70,000 acres of additional leases, which we are now going through that long permitting process, it is still uncertain. As you correctly stated, it goes through an environmental impact process to get permitting and then it goes through a one or two-year construction process, and then it goes through a three-year solar evaporation cycle. So those capacity expansions are still out five years, still undefined. They will start as soon as we know how much of that 70,000 acres that we have leased we will actually get permits for. It will be a challenge to obtain those permits. However, we believe the combination of our strong environmental stewardship over the 40 years we have been operating, coupled with the fact that we make organic fertilizers using solar energy to feed people healthy fruits and vegetables, I can't imagine a better project in our industry and certainly believe there is strong support, both within the government in Utah and within the citizenry of the state, our neighbors, our employees and yes even some environmentalists. So I am quite optimistic we will prevail, but it is certainly a long-range project, the details of which are still undefined.

Finally, for my third if I may, maybe I should have asked this before. The dividend increased -- I applaud that -- 6% up. It still really lags your earnings increases. So are you husbanding cash and cash flow for that project for other things? Can you give us a feel for how you might intend to use your strong free cash flow?

I think, in Rod's comments, he talked about the approximately 50% increase in CapEx spending in '09. You do know we had a significant increase in '08. So, clearly, those remained priorities for the business. We have also opportunistically have paid down the 12% highyield debt. That remains an opportunity for us. So when you balance the various opportunities we have for deployment, fortunately we have those opportunities, we felt a 6% increase in the dividend was the right balance to strike.

Thank you.

(Operator Instructions). Mike Judd, Greenwich Consulting.

Going back to the SOP, I realize that much of the volume is going to move out later in the quarter and also in the second quarter. I understand that this is a long-term business and the plans you are making certainly are longer-term in nature. But unfortunately, as analysts, we also have to focus in on the short-term. So I wanted to try get a sense if you could provide us with any kind of comparisons, whether it is sequentially or month-to-month or January versus December, anything that would help us understand volume trends. Then you obviously had a wonderful result in terms of the $975 per ton in the December quarter and even obviously lower volumes in January or whatever. If you could help us in any way understand what pricing might have looked like for anything that potentially moved out of the door in January?

Yes. As we said, we're not really going to give any forward-looking statements or guidance on potash just because the uncertainty is too great and I don't want to come back in three months and say everything I told you was wrong. But to kind of give you a flavor for January, which is kind of completed, the volumes in January, the pace of our demand, was similar to what we saw in the fourth quarter. So, really, we started '09 the same way we finished '08 from a volume point of view. So that kind of gives you some flavor for the demand. Again, neither the fourth quarter or the first quarter are those high-volume periods, but the order rates were similar.

On the pricing side -- and again, we think pricing right now is by far the bigger lever on the profitability. Our price is actually slightly higher in January than we experienced in the fourth quarter and I believe the fourth-quarter average was $975. So we see no drop-off in price and we see a similar volume pattern so far this year as we finished out the fourth quarter of 2008.

Okay. Just as a follow-up -- and don't take any negative implications from this question -- but certainly, as prices and volumes were heading up last year, you guys seemed to be able to forecast what your expectations were. Should we read anything into the fact that you are not willing to do that as at least the implications are that prices could potentially head lower?

I think, when you hit a 50% volume speed bump in the fourth quarter, that is kind of unprecedented in terms of our prior forecasting efforts. So, not knowing where the volume will be and having encountered a 50% reduction, I think it would be naive for us to say we know exactly when the demand will return and that is why we're kind of sitting on the sidelines.

On pricing, our price is holding, if not slightly improving. We see no reason why that will change. But again, we will have to be honest here. A lot of the foundation for SOP pricing is the MOP marketplace, which we do not play in. In fact, we are a large customer of MOP. So we watch as the MOP producers release their earnings and as they talk about their industry and as they take very dramatic steps to match production to demand. I believe, right now, approximately 50% of production is actually shuttered to really match demand and the MOP folks have said they are very confident in the pricing of MOP.

Also, I am comforted by the fact that the economics to build a new potash mine are very substantial -- several years, multibillion dollars investments. They require selling prices of MOP at or above the current MOP price to justify those investments. So based on those extremely strong fundamentals in MOP, the long-term supply/demand balance of MOP, the behaviors of the MOP producers and the strength of the MOP pricing in the marketplace, I remain optimistic that SOP pricing will remain strong. But again, if that where to change on MOP in any dramatic way, it certainly will have some impact on SOP.

Okay. Then just finally on demand for SOP, for those of us who are more familiar with the commodity crops and the demand, seasonal demand patterns for fertilizer for those, can you just remind us, for fruits and vegetables, given I guess that California I guess is a larger area for some of those types of demand activities, anything we should be thinking about this year that might be different than past years?

Last year, we sold about 65% in the United States; 35% was export. Florida, citrus; California, fruits and vegetables. Those are the two big segments. I don't see anything dramatically different. Anything that happened that was different was the fall application with less for nutrients. There was a late harvest that contributed. There was a weather impact but also I think growers pulled back and made the decision to either fertilize less or not fertilize at all. That will certainly have an impact on yields. It will certainly have impact on the future quality of their products. So we don't think it is a sustainable reduction. Again, until we see what happens during this very important spring application, it is hard to really get a read on our SOP demand for 2009.

Thanks for the help.

Elizabeth Collins, Morningstar.

In your press release, you outlined the total revenue contributed by the winter weather effect. I was wondering if you could break it out and comment on what specifically came from the extra demand for consumer and professional deicing products?

We don't break that out but, Elizabeth, I can tell you that the majority of it does come from the highway deicing portion of the results. While the consumer deicing -- the consumer and industrial volumes were up about 70,000 tons over last year, about half of that was due to the increase -- a little more than half was due to the increased consumer deicing volumes. But the majority of the impact is definitely on the highway side.

Okay, so is the increase in your consumer and industrial volumes being offset in any way by weakness in demand, say, from chemicals companies or pulp bleaching?

Yes. I think what we have seen in consumer and industrial through the end of the year was very little impact. We are very early into 2009 and some of the chemical applications have declined but those volumes, which are really contained in the highway deicing business, are minor or moderate, much smaller components of our overall volume than the highway deicing side. Some of our retail and consumer applications have seen some levels of modest volume decline here early in 2009 but nothing that we would regard as a trend at this point and certainly nothing that would be significant to our results.

Certainly. This is Angelo. To add to that, normally a company is never happy when one of its applications is down due to the economy. Certainly, the chemical industry is probably suffering the effects of the economic slowdown as much as anyone.

But in our case, since we sell rock salt, (that same rock salt that goes into deicing) to the chemical industry, in a strange way or in a fortunate way for us at least the decline in chemical demand frees up more rock salt to sell into the higher-margin deicing market. So we feel pretty good about it because, remember, our rock salt for deicing is really a public safety issue. So we feel really good that we have been able to redeploy whatever we couldn't sell to chemicals into those badly needed communities that are suffering from a severe winter.

But those changes are very marginal.

Very marginal. I just didn't want to leave the impression that the chemical sales product is just piling up somewhere. We redeploy that and stick it into our deicing market.

Okay, thank you.

Jeff Zekauskas, JPMorgan.

Actually this is Olga sitting in for Jeff. Just briefly on the salt business, would you remind us how big is your UK salt business and what was the effect of more severe winter in terms of sales and operating income in the quarter?

This is Angelo. Because all of our competitors I think don't even disclose -- none of our competitors disclose the kind of information about their salt business that we do because either they are not public or they are part of a big corporation. We are very cautious not to give away too much information.

Unfortunately, the split between our deicing business in the U.S. and Canada and the UK is something we really do not disclose. But I did give some color that really a lot of the increase we saw in the fourth quarter in deicing versus last year was driven by the UK. Also, so far this year, we have shipped a lot of salt in the UK. I think if you look at December and January, we have shipped double the amount that we normally ship. If you watch the news, I think the UK is experiencing a winter for the record books. So we don't get into the specifics. I think it is fair to say that we are getting a nice contribution from the UK from both the fourth quarter and so far in 2009.

Thank you. If we could switch to the SOP business. So let's assume that the SOP demand remains weak and that farmers decide against applying any SOP for this season. So, in theory, how much time do you have before you have to reduce your SOP production?

Yes, that is an excellent question. Unfortunately, there is not a simple answer to that. To kind of just break it down, we operate with two manufacturing processes. One is a pond-based solar evaporation process, which is low cost and our majority process. So, certainly, we would favor that process over our other process which starts with sourced MOP. So our options are, if we were to ever need to slow down production, it would be through consuming less sourced MOP, which is our higher-cost production, which is a simple ability to adjust.

However, we have a lot of storage capability on the Great Salt Lake and within our forwardly deployed facilities. Because we are us such a small part of the potash market, we have less than 1% share of the overall potash, our production is not really a factor. Also, if you recall from a previous answer to a question, our significant production increases do not occur for at least another five years.

So, I think we would be very reluctant to give away an opportunity that we won't be able to recover from and not build some inventory for future use, because we truly believe that demand will return because I have not heard of a lot of situations where people are eating less fruit and less vegetables. I also have not heard of lower population growth. I've also not heard of anything that suggests people don't believe that more fertilizers improve yield.

So the fundamentals are still good. SOP is still a value nutrient. So I think we will continue to find ways to manage our inventory. However, the best solution would be a return in demand.

Right. As a follow-up, does your MOP contract have take or pay provision?

No. Fortunately, it doesn't. So we are in the position of taking it as long as we need it and if and when should we not need it, we don't have to take it. However, it is a favorable contract to us and we intend to continue to take it as long as we need it because of its favorability.

Scott Blumenthal, Emerald Advisors.

Thank you for taking my question. Angelo, could you remind us whether a portion of your SOP sales is contracted or if that is all just sold out there in the spot market?

If you remember in '08, we had a challenge in getting our prices up. We had a lot of one-year contracts. In fact, the majority of our sales were one-year price-guaranteed contracts. So we were trying to get our prices up but our contracts were preventing us. We worked very hard. The team did an excellent job in renegotiating all of those contracts, maintaining the customers, renewing the contracts but with only 90 days or less price guarantees. So we still sit in the same type of contract-to-spot balance but now our contracts have much more favorable pricing terms in our ability to adjust price. So I would look at our contract-to-spot balance similarly to what it was except that the pricing provision is much more favorable to us and much shorter-term in nature.

Okay, that is really helpful. I guess, staying on the SOP line of questioning, there was an article last week, I believe it was Tuesday, in the New York Times that discussed, of all things, Lithium. I don't know if you saw that article but apparently the production of Lithium is very similar using the same raw materials and a similar process to the production of SOP at the Great Salt Lake. I was wondering if that is something you are involved in or if that is something you are considering or am I completely off base with that?

No. I think anyone who operates a solar evaporation facility from naturally occurring brines from a lake, whether it is a lake in Chile or a lake on the Dead Sea or the Great Salt Lake, is looking at all of the minerals and metals that are in that brine. As you know, on the Great Salt Lake, we currently mine three different minerals. We mine sodium chloride, salt; we mine sulfate of potash, potassium sulfate; and we also mine magnesium chloride. We have neighbors on the lake that mine magnesium metal and there are trace amounts of other minerals and metals in the lake.

So, yes, we do look at the economics and demand of all of those metals and minerals that are in the lake. We have not made any definitive decision one way or the other to enter into any other production. Our focus right now is on expanding SOP. As we expand SOP, we bring along additional magnesium chloride and additional sodium chloride. So, we kind of have our hands full with that activity and the ambitious rock salt expansion we have at Goderich. But certainly harvesting additional metals and minerals from the Great Salt Lake is always part of our long-term planning.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation. You may now disconnect.