Compass Minerals International Inc (CMP) 2011 Q4 法說會逐字稿

Good day and welcome to the Compass Minerals fourth-quarter earnings conference. Today's call is being recorded. At this time I would like to turn the conference over to Ms. Peggy Landon. Please go ahead.

Thank you. Hello, everyone. Thanks for joining us this morning. With me here are Angelo Brisimitzakis, our president and CEO, and Rod Underdown, our CFO.

Before I turn the call over to them, 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 8, 2012, 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 Forms 10-K and 10-Q. 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.

Now I will turn the call over to Angelo.

Thanks, Peggy. Hello, everyone. First, let me say that I hope it is snowing where you are this morning.

It is no secret that winter got off to a very late and weak start this season, and you probably were not surprised by how much the mild weather depressed our fourth-quarter results. But despite very low snowfall in the fourth quarter, a devastating tornado that temporarily shut down our Goderich operations, and much too cool rainy weather at the Great Salt Lake this past summer that prevented us from reaching normal SOP solar evaporation production levels, our 2011 results were still the second best in our company's history when the weather and the other external factors are considered.

Our 2011 sales were up 3 percent to $1.1 billion, just 5 percent below our banner 2008 year. Our pro-forma net earnings were up 10 percent to $160 million, just 4 percent below our record set in 2009, and we generated more than $250 million in cash flow from operations, up 5 percent, which was just 1 percent below our record set in 2008. These are commendable results considering the obstacles we had to overcome during 2011.

So how did we do it? Well, the strength of Compass Minerals comes from our foundation of exceptional business fundamentals. We serve very attractive end markets. Our products are essential in their applications. Our primary assets have structural advantages, our production logistics and business units are well integrated, and we have creative and dedicated employees who found safe ways to overcome many of the challenges we faced. These are the strengths that give Compass Minerals its exceptional resilience.

Our salt segment faced some particularly difficult challenges in 2011. In the first quarter, our salt operating margins were compressed by the higher-cost inventory we carried over from 2010. We had sold through that inventory and production costs were returning to normal levels when a tornado struck Goderich, Ontario, causing, firstly, significant damage to our largest mine, then striking our mechanical evaporation plant located a couple of miles away. Tornado-related losses depressed our second-half salt operating earnings by more than $16 million.

Then late in the year, our primary North American sales region experienced the mildest fourth-quarter weather in more than a decade, further constraining fourth-quarter salt earnings. Even though it was a very unusual and difficult year, the salt segment still posted a 21 percent operating margin, which is very similar to our pre-2009 operating margins.

Excluding the impact of the tornado, the salt operating margin was about 23 percent for the year and 27 percent for the fourth quarter. Adding back the mild winter weather impact would make these attractive margins even higher.

While the effects of the tornado have certainly been expensive and challenging, I want to take a minute to recognize the creativity and dedication of employees throughout our organization who developed safe ways to overcome some pretty tough hurdles.

Immediately following the tornado, our primary concerns were employee safety and customer service. I will not spend much time here to elaborate on the safety measures we took, but I do want to applaud our team's focus on securing our worksites and addressing safety issues before any work resumed at either Goderich location.

On the customer service side, we immediately went to work finding unconventional ways to provide products to our customers. The solutions included purchasing highway deicing salt from third parties and ramping up operation at our other salt manufacturing facilities to compensate for lost production at Goderich. Then, once our Goderich mine and evaporation plant could operate again, our employees found ways to produce products to our high quality standards, even though we were missing some key equipment. So while our reported costs have been higher than normal, we successfully met our external obligations and maintained relationships with our customers while keeping our Goderich workforce safe and returning them quickly to work.

I'm very happy to say that we expect most of the damaged production assets to be repaired, replaced or worked around by the end of the second quarter. Our salt production capabilities and product costs should return to normal at that point. We believe business interruption insurance will cover the estimated profits we lost, but we cannot be sure that all the losses will be recovered or when we will receive reimbursements.

Now to elaborate a little further on the fourth-quarter winter weather, let's look at the 11 cities we use as proxy for our North American deicing service region. These 11 cities over the long term collectively averaged about 46 snow events in a fourth-quarter period. However, in the fourth quarter of 2011, those cities had only 16 snow events. That is the fewest snow events in any fourth quarter since 1998.

Our highway deicing sales volumes were somewhat cushioned from the full impact of the mild weather by strong pre-season demands and by more rock salt sales to chemical customers. Salt for chemical production is lower priced, and lower margin, than salt for highway deicing. Since we sold proportionally more salt for chemical production than in the 2010 fourth quarter, our reported highway deicing average selling price declined year over year, even though actual market prices increased in both applications.

We also had unusually low in-season demand for our consumer and commercial packaged deicing products. Selling proportionally less of our higher-priced deicing products also lowered the reported average selling price of our consumer and industrial products versus the 2010 quarter. In total, we estimate that the lack of snow events in our key North American deicing sales regions reduced our fourth-quarter operating earnings by about $15 million to $20 million.

Turning now to the 2011 performance of our specialty fertilizer segment, we started the year off with the successful acquisition of Canadian Big Quill Resources for $58 million in cash. Big Quill Resources brought new, higher-value products to our specialty fertilizer portfolio and actually contributed slightly more to our 2011 operating earnings than we had originally expected.

However, over the summer, early cold and wet weather systems interfered with the normal solar evaporation season at the Great Salt Lake. This reduced our SOP raw material harvest this past fall. With less product going through our processing plant, our per-unit cost increased in the last half of 2011.

However, SOP selling prices improved significantly year over year, and demand remains steady throughout 2011. The $77 million we generated in specialty fertilizer operating earnings in 2011 was the second best result in the segment's history, even without the addition of Big Quill Resources, and a 25 percent improvement over our 2010 results.

In order to serve our customers in 2012, we are purchasing a mineral feedstock to supplement our weak solar evaporation pond harvest. We expect this to help us achieve specialty fertilizer segment sales of approximately 375,000 tons in 2012 with about 90,000 tons of those in the first quarter.

As you know, SOP pricing is influenced by the broader potash market, but we currently expect first-quarter SOP prices to remain in a similar price-per-ton range as we posted in the last half of 2011.

The increase in our per-unit SOP production costs will accelerate beginning in the second quarter of 2012 because our higher cost of sourced mineral feedstock and lower throughput at our operating plants will come into effect.

We have decided to postpone the completion of our Phase I SOP plant expansion until the third quarter to avoid shutting the plant down for the final tie-in. We don't have enough feedstock to use the additional capacity in the short term anyway, so it just makes sense to time the completion until when the plant will already be idle for annual maintenance.

Our pond sealing project is about 60 percent complete, and we expect to have all of our east-side ponds sealed by the beginning of the solar evaporation season in May. It takes about two years for fresh brine to evaporate from these newly sealed ponds, but we will get some incremental harvest benefit from this project in late 2012.

With that incremental SOP harvest, a normal summer evaporation season and the final tie-in of the Phase I plant in the fall, we expect our specialty fertilizer business to end 2012 as a larger, more efficient, lower-cost operation.

Our salt operations should also return to normal in 2012, though our first-quarter results will be affected by the tornado and the mild fourth-quarter 2011 weather.

At the end of the fourth quarter, we began to reduce production of consumer and industrial deicing products to right-size our inventory. Assuming our customers will also be right-sizing their inventory, we expect our consumer and industrial sales volumes to be down about 5 percent year-over-year in the first quarter. Depending on how this affects our product mix, we could report a similar decline in average selling prices of our consumer and industrial business unit in the first quarter.

Unfortunately the mild winter has continued through January with a moderately below-average number of snow events occurring in our 11 benchmark cities. Assuming winter weather were average for the entire first quarter, our highway deicing volumes would be similar to the first quarter of 2011 but at prices about 3 percent above the prior season, which was a gain we made in last summer's bidding.

It will be difficult to know how to think about the 2012 highway deicing bid season until the winter is behind us. So we will discuss industry conditions and early bidding dynamics in April.

Our Goderich mine is still operating at only 85 percent of its pre-tornado rate, so we have continued to run our mines at full current capability despite the low snowfall to ensure we have adequate inventories for the 2012-2013 winter season. And, as I said earlier, we expect both of our Goderich operations to be producing at pre-tornado capabilities by the end of the second quarter, which will improve our reported salt product costs.

Lastly, we expect our magnesium chloride product to begin to make a greater contribution in 2012 and beyond, though the improvement is not likely to be material to earnings in the short term. We will be rolling out our magnesium chloride-based crop nutrient to some small but important new markets in the first half of this year. Plus, we are seeing increasing interest in our bulk liquid magnesium chloride-based dust control and deicing products. And if the weather cooperates, we believe that over time our mag chloride-based consumer-friendly packaged deicing products will secure an increasing share of the premium consumer deicing application.

In summary, Compass Minerals delivered solid performance and near-record results in the face of extraordinary external challenges in 2011. Some of these challenges will linger into 2012, but we have plans in place to mitigate their effects to the greatest extent possible.

We are optimistic about the future because we have shown that Compass Minerals has the strength to overcome just about any obstacle Mother Nature can put in our way. Our sustainable strains come from not only our advantaged assets, attractive end-/markets and integrated multi-mineral operations, but most importantly from the skills and determination of our people.

And finally, we are thankful for the confidence our investors have placed in us. We intend to reward your support by working hard to continue to deliver sustainable, profitable growth in the quarters and years ahead.

Now I will turn the call over to Rod to discuss our results in greater detail. Rod?

Thanks, Angelo, and good morning, everyone.

I will focus on our quarterly results, as well as the detail of the tornado special item and the effects of mild winter weather on the quarter before turning to our outlook for the first quarter and the year of 2012. Hopefully, in the end, you will have a better understanding of the underlying performance of Compass Minerals.

First, I will focus on our reported results, and since our specialty fertilizer segment does not have any special items to discuss, we will start there.

On balance the specialty fertilizer segment had a nice quarter, while the year-over-year sales volumes and revenue in this segment were down 21 percent and 7 percent respectively in comparison to the prior-year quarter. Higher average selling prices and the contribution of Big Quill Resources helped push operating earnings up 9 percent to $19.6 million.

Specialty fertilizer sales volumes of 84,000 tons in the quarter were ahead of our prior estimates of 70,000 tons. Now this reflects not only solid demand throughout the quarter, but also our confidence that our short-term purchase agreement for a mineral feedstock for our Ogden operations will provide the finished SOP tons necessary to maintain the majority of our sales relationships and position us for future growth when additional tons become available from our internal investments.

So average selling prices in the quarter was $631 per ton compared to $530 per ton in the prior year, which was an improvement of 19 percent. For the full year, average selling prices increased $92 per ton from $518 to $610 in 2011, in line with market price improvements reported in the broader potash fertilizer industry.

Price improvements and steady logistics costs helped us achieve a specialty fertilizer operating margin of 37 percent for both the quarter and the year, an increase of 5 percentage points over the prior-year quarter, and 4 percentage points over the prior full year.

I would like to take a few moments to discuss how we see 2012 developing for our niche of the potash market in Compass Minerals' business specifically. We expect to see some margin compression in 2012 as a result of the higher production costs Angelo mentioned. In the fourth quarter of 2011, unit costs, which include all production costs, depreciation, royalties and SG&A costs for that business segment, were around $330 per ton versus fourth quarter 2010 cost of $292 per ton. This increase reflects the impact of lower production volumes at our Ogden facility that we discussed last quarter and, to a lesser extent, the higher average cost of production from our acquired Big Quill Resources operation. We expect first-quarter 2012 per-unit costs to be similar to the fourth-quarter result as we continue to sell through our 2011 inventory. Costs should then increase by about $100 per ton on a year-over-year basis each quarter for the remainder of 2012.

Since we project low ending inventories in December 2012, we would expect little carryover impact into 2013. And, as Angelo mentioned, with incremental harvest from the pond sealing project, a planned normal-summer evaporation season, and the tie-in of our Phase I plant expansion in the fall, we expect specialty fertilizer business to end 2012 as a much more efficient, lower-cost operation.

As for the broader potash market, we note that the MOP segment has seen a slowdown in demand, beginning in late 2011, reportedly as a result of customer inventory levels which we have not experienced. You might also have noticed that the MOP segment experienced a small surge in demand in the middle of 2011 that we also did not see in our SOP business.

One reason for the divergence of sales trends is that much of our domestic SOP business operates under a just-in-time delivery model which reduces short-term demand swings. So while the 2009 fertilizer slowdown seemed to impact just about every potash producer, the current market conditions feel different to us.

Our view of current market conditions and our short-term raw materials purchasing agreement have allowed us to raise our 2012 sales outlook to 375,000 tons for the year versus the 325,000 tons we gave you last quarter. We expect to sell approximately 90,000 of those tons in the first quarter, and we expect that the first-quarter average selling price will be consistent with the last two quarters' average selling price of around $630 per ton.

And now turning to our salt segment results. Fourth-quarter salt revenues declined $48.7 million from a year ago to $250.1 million. This dip in sales can be attributed almost entirely to the effect of mild winter weather on sales volumes of highway and consumer and commercial deicing products. Highway deicing sales volumes were 17 percent lower, and consumer and industrial sales volumes were 8 percent lower versus the 2010 fourth quarter. The average highway deicing price was $2.50 below the prior year quarter also as a consequence of the mild weather, which negatively impacted our sales mix since we had a higher percentage of lower-priced sales to chemical customers this quarter compared to the fourth quarter.

On the consumer and industrial side, prices were basically flat with last year's quarter at approximately $157 per ton. Here again, weather played a role as these lower sales volumes reduced our sales price by about $4 per ton and muted the effect and the benefit of our shift to higher-priced and slightly higher-margined products.

Total operating earnings fell to $53.4 million or 30 percent from the 2010 fourth quarter, again principally due to the combined effects of the mild winter weather and the tornado.

We estimate that between $15 million and $20 million of the operating earnings decline was attributable to milder than average winter weather. I would like to remind you that we calculate the impact of winter weather on our sales and operating earnings using a consistent methodology, starting with contract commitment volumes for our North American highway deicing products where we have long-term data on how sales volumes compare to contractual bid commitments over time. We also use average consumer and commercial deicing volumes adjusted for changes in our distribution.

I do want to point out that our average winter operating earnings disclosure for this quarter includes the impact on an actual margin per ton, which was depressed due to the impacts of the tornado. So had that tornado not occurred, the estimated operating earnings impact of the mild weather on the fourth-quarter results would have been larger because our margins would have been better.

Angelo outlined earlier the components of the tornado special item. I would like to take a few minutes to provide a few more specifics. In the fourth quarter, we reported an estimated $16 million in lost profits as a special item. Of that $16 million, an estimated $3 million in lost margins was a result of missed sales opportunities due to tornado-related supply issues. Incremental per-unit costs were by far the largest impact, which had an estimated $13 million effect on our operating results.

We also expect about $20 million in tornado-related losses in the first quarter of 2012. This amount will again include both a sales impact and a per-unit cost impact. While we expect additional tornado-related losses after the first quarter, we expect the effects of each quarter thereafter to be much smaller.

As we have stated, we expect our insurance policies to cover most, if not all of these losses. Any insurance recoveries we receive for business interruption losses such as these will be recognized as reductions in product costs in our income statement only when the claim is finally settled. But the timing and final amount of these recoveries are uncertain.

If we look beyond the noise of the tornado and the mild winter weather, we are encouraged by improving salt production efficiencies. Factoring in both the weather and tornado effects, we estimated that our pro-forma salt segment operating earnings would have been more than $85 million compared to the $76 million reported in the fourth quarter of 2010. Additionally without the tornado impact, our per-unit salt costs improved approximately $1.40 per ton versus the prior year's fourth quarter. On the same pro-forma basis, we expect at least a $2 per ton year-over-year improvement in the first quarter of 2012, as well.

Our underlying salt segment results show real progress with cost reductions compared to 2010, though this is not readily apparent due to the effects of the reported tornado.

Net earnings for the quarter were $1.31 per share, or $43.9 million. Net earnings, excluding the special item, totaled $1.65 per share or $55 million compared to $1.70 or $56.8 million, excluding special items in the fourth quarter of 2010. Last year we had two special items, including a $5.9 million benefit from tax items, as well as a $2.5 million in costs related to amending and extending a maturity of a large portion of our long-term debt. Together these provided a net benefit to the fourth-quarter results last year.

Interest expense for the quarter totaled $5.1 million and $21 million for the year. We expect interest for 2012 to be about $5 million a quarter. We have about $152 million in long-term debt maturing in December, which we currently expect to refinance before maturity.

Income tax expense was $12.5 million in the fourth quarter; $48 million for the year. This represents a full-year tax rate of 24 percent. Our full-year tax rate was influenced by changes in profitability. We estimate our 2012 tax rate will be around 28 percent.

Depreciation for the full year 2011 was $64.7 million compared to $52 million in 2010. This increase resulted from the completion of several project late in 2010. We expect depreciation expense to increase 10 percent to around $70 million in 2012.

In 2011 we generated cash from operations of $252 million, which was 5 percent higher than the prior-year period. While our earnings for the year were similar to 2010, the current-year result includes about $12 million more in depreciation, depletion and amortization.

Capital expenditures amounted to $107 million in 2011. In addition to maintenance and business needs, this total included our continuing investment in pond sealing at the Great Salt Lake and approximately $17 million to replace assets destroyed or severely damaged by the tornado. We are projecting capital expenditures in the range of $150 million for 2012. Of this, about $40 million will be used to replace tornado-damaged or -destroyed assets, and approximately $60 million is expected to be spent for normal sustaining capital needs.

We will also begin investing in the introduction of continuous mining to our Goderich facility, as well as continuing our investment in completing the Phase I and Phase II projects at the Great Salt Lake.

We entered 2012 with no balance on our revolver, and outstanding debt totaled $482.7 million. Cash on hand at the end of the quarter was $130 million.

And so those are the details. With that, I will turn it back over to the operator. Brandi?

(Operator Instructions). Joel Jackson, BMO Capital Markets.

It is not snowing in Toronto unfortunately. I wish I had better news. But thanks for the updates today.

I had a couple of questions. Let's start with SOP, please. You have used the term "mineral feedstock" purchases for Ogden to help augment some of the solar harvest issues at the Great Salt Lake. Are you able to elaborate on exactly what you are buying in the process? Is it potash? Is it some sort of sulfur mineral feedstock as well?

That is a good question. A couple of years back we made the strategic decision to rely on what we think is the advantaged solar process, which is a kind of lower-cost, more environmentally-friendly, sustainable process, which will give us strategic advantages over the long term. There are only three places on earth that have this capability, and one of them is at the Great Salt Lake.

As you know in the past, we used to use KCl as a source material to extend our harvest, but there are other mineral options that we have in addition to the KCl one.

We don't think it serves as any competitive advantage. In fact, it would probably be a competitive disadvantage to disclose exactly what our sourcing is to extend our harvest. So we are really not disclosing that. But it is fair to say what we are using is a K source that will allow us to produce more through our existing process. It will not be as effective as our solar evaporation process, as the KCl route we used to use was not as effective either. But what it will allow us to do is to serve our customer base, which we will certainly need as our Phases I, II and III get implemented.

So I think it is a bridge. It was unfortunate we had the mild evaporation season, mild in this case being wet and cool, but we have a customer base that we need to serve, and this sourcing arrangement, although temporary, will give us that bridge to serve our customers.

And if I could just add to that answer, I want to make sure you know the feedstock itself does not come with a cost penalty per se as it relates to if we did not feed this mineral source our cost -- our unit costs would be roughly the same at that elevated level. So, as Angelo said, it is not as efficient or effective, but that particular purchase for 2012 is not providing a cost headwind per se to us.

So if I just expand upon that, the product that you will make will be the same SOP, a 50 percent K20 product, commercial product, and we should expect the same types of pricing you have achieved relative to MOP, etc., as we have seen in the past?

Yes. It will just give us the tonnage we would have expected to sell or close to what we would have expected to have sold had we had a normal evaporation process cycle, but we are using a different route to get there.

Okay. If you turn to salt please, you gave guidance that if Q1 snowfall was average, it was historically average, you would achieve roughly the same highway deicing shipments as the Q1 of 2011.

We know that snowfall seems to be trending a bit below average still into early February. So the question I want to ask is, does your guidance, assuming normal or assuming average Q1, take into account some shipments you would sell under any take-or-pay provisions triggering? And if we continue to have below-average snowfall in Q1 following what happened in Q4, how do you envision take-or-pay triggers happening across the next few months?

No, that is a good question. First by saying, we are not providing guidance that we expect the first quarter to be average. What we have provided was a benchmark which basically said, should the first-quarter snow events be average, here is what you could expect in our financials -- comparable volumes to the prior-year period at a 3 percent higher price.

We put that out kind of as a benchmark to judge us against, and we also commented that at least through January we are slightly off the normal or the average weather pace in the 10 percent to 15 percent range in snow events. There is still a lot of winter left; however, we would have to overcome the shortfall from January in the balance of the winter to get back to that average benchmark. It would be foolish to predict the weather going forward, so, therefore, we will not do that. We just gave you a benchmark. But obviously if it is average from here on out and we don't recover the January shortfall, then there will be a below-average result, and we cannot speculate where that will be right now. But you live by the weather, you die by the weather, and unfortunately the winter of 2011-2012 is not turning out to be one of the better ones. But, again, there is still February and March and even parts of April that give weather, and we are hopeful.

Maybe I can ask my question a little more specifically. In your benchmark or base-case you gave, assuming you have normal snowfall across Q1, you would assume to have the same rough shipments as in Q1 of last year. In that base-case scenario you gave, does that assume some take-or-pay triggers or some take-or-pay clauses were triggered?

No.

Okay. And generally you have given guidance of about 80 percent, roughly 80 percent, sometimes 75 percent of your book can have -- sorry, of your book can average 75 percent to 80 percent take-or-pay provision. Can you give some ideas of what we should expect this year in a very bad case scenario?

Well, again, if the weather is robust enough to exceed -- meet or exceed the minimums, which are typically around 80 percent of the average demand, then these provisions don't apply. And then, frankly, in some geographies -- we may take the Quebec area, Montreal specifically -- we are seeing well above-average snowfall.

So you cannot really generalize. Every season, just about every season, there are a few places or there are places where certain counties, certain cities, certain states fail to meet their minimum purchase requirements. And, again, that take-or-pay kind of sounds like a one-sided handcuffs on a customer.

I kind of look at it a little bit differently. We contract with our customers for an average volume, and we make a commitment to our customers that we will keep typically 20 percent more inventory than they have any intention of buying. And they make a commitment to us that no matter what the weather is, they will buy at least 80 percent of the commitment that they intended to buy.

So it is a symmetrical risk that we are both taking, and sometimes we are carrying inventory that they never buy that we end up absorbing and holding to the next period. And sometimes they end up buying some inventories that they don't really need because of weather that then they use in the subsequent period.

So I think it is symmetrical. But, at the end of most winters, there are usually some geographies where we have to have a discussion with our customer to say, okay, what would you prefer to do? Would you prefer to take that inventory now? Would you want to take it maybe between now and next winter? Do you want to roll it into the next winter's demand? What do you want to do? And we will work those out on a case-by-case basis.

But it's not as stark as you provide where we send them some kind of letter and threaten them if they don't take it.

All right. Have there been cases in previous winters where maybe geographies had poor snow and it has been triggered where you have actually kept salt for them in some of your depots? And if that is the case, what sort of monthly fees or quarterly fees do you charge to do that?

It is on a case-by-case. If a customer comes to us and says, listen, I only took 70 percent of what I targeted, I needed to take 80 percent. But you know what? I will roll my volume commitment into the next year, and I will give you so much price for that if you don't make me take the 10 percent I really don't need right now and let me take it next year. We will work that out on the basis of a selling-price adjustment for the next season.

We really don't get into, well, we will charge X percent per month. It is not like a credit card per se. It is more of a negotiation. I mean these customers we have had for decades, and we hope to have for many more decades. So they are often large government entities that have a very large public customer base that they have that we have to be transparent and we have to make it a win-win for both of us.

I know I did not answer your specific question, but I wanted to put it kind of in the context of the process that we use for bidding and setting prices.

Ivan Marcuse, KeyBanc Capital Markets.

Real quick, actually more on the positive side. So with the weather being mild, does the fact that maybe the lake is not freezing, does that help your operations to catch up with what you lost previously, and does that ultimately help your operating rates or your unit costs in fourth quarter of next year and going into 2012-2013?

Yes, that is a great silver-lining question. I mean, to put it into context, remember, we are digging out of a hole that the August tornado created. And we acknowledge that we had to go out and buy a product from competitors. We acknowledge that we had to forego some bidding. We acknowledge that we are operating at less than 100 percent capability. We are only operating at approximately 85 percent capability. So it is kind of an offset, a positive offset, that the mild weather, while we would again prefer severe weather and strong demand, is providing us a bigger window to produce longer at our Goderich mine than we would normally be able to produce. So it will give us an opportunity to ship more product during the winter and catch up from the hole that the tornado created, both the hole that it created while we were down for several weeks and the hole that it continues to create by our 15 percent-approximately-reduced capability.

So it is a silver lining. I would rather have the harsh winter and worry about producing the salt later in the year, but we are taking advantage -- if that is the right word -- of the mild winter to get our inventory right as we come out of the first quarter.

Got you. And then your chemical customers I guess first quarter tended to be a little bit seasonally stronger for them than the fourth quarter. So do you see, assuming the weather is one of these mild winter-weather seasons, would you expect to see the same phenomenon in your price mix in the salt business in the first quarter versus the fourth quarter, or would it be even stronger just because you have more of a seasonal strength out of your chemical customer base?

Good question. In terms of the seasonal use of rock salt for chemical, we don't see a tremendous variation quarterly in that, at least our customers. But the same dynamic would hold true if we have the same kind of chemical volumes which we would expect to have, and lower deicing volumes and that same mix impact effect that we saw in the fourth quarter would exist in the first quarter as well.

Great. And then look at the SOP. I understand the constraints that you have this year, but looking out to 2013, what is your goal range for unit operating costs going from 2013 and beyond?

Well, I think, as we talked during 2010, we saw several things that impacted us, and we were kind of inline -- not kind of inline -- we were definitely on track to reverse those per-unit cost increases from 2010 and 2011 to be much closer to 2009 levels. So, for example, in the second quarter, our per-ton salt costs were just over $2 per ton lower. In the third quarter, they were almost $3 per ton lower than --

I'm sorry, on SOP?

I'm sorry, I thought you were asking the question on salt--

No, so 2013 when you have the plant up and going, you have the pond sealed, assuming that it is sunny in May in Utah, does your unit cost drop below $300 on an average basis, or what is your goal or what is in the back of your mind of where those costs go on a unit basis?

The marker we put out there in the past that we still feel really good about is post-Phase I, at kind of full operating rates, we would be in the $225 per ton basis on production cost.

Okay. So that is unchanged then?

That is correct.

And then on your corporate expense going in the 2012 or I guess the line item "Corporate and Other," it jumped up about $6 million on a year-over-year basis. Where do you expect that to come in in 2012 versus 2011?

We have not certainly guided specifically to that, but I can tell you there were a few million dollars in special projects and professional services, some things going on in 2011 that we would not expect in 2012. So while we would expect it to be higher than 2010, we would expect it to be flat to lower as we move into 2012.

David Begleiter, Deutsche Bank.

Angelo, in terms of the take-or-pay contracts, has the trend been towards more or less take-or-pay contracts over the last few years?

I like to call them min-max, but they are about the same. You see a higher concentration of those in the U.S. than you do in Canada. You do see more multiyear agreements in Canada than you do in the U.S. There really has not been a noticeable change. I don't know, Rod, if you have any color on that, but about the same.

And given the unusual weather, I know it is early to discuss pricing for next year, but obviously you need to regain some market share. There is a lot of inventory out there. Could you see actually highway deicing pricing being flat next year or even down? Are you still thinking about normal inflation-type price increases?

Yes, I mean obviously that is an important consideration. I think what we can say in general, and just looking over the history, is that bidding activity following a robust winter tends to yield higher prices than bidding activity following a mild winter. So, if winter were to end today with the mildness that we have experienced in the fourth quarter and so far in the first, you would expect a soft environment for price and volume.

Now when we say soft in salt, it is not like chemicals or other products where "soft" could be a double-digit decline in volumes and a significant decline in pricing. When we had a similar pattern recently, we saw a modest decline in volumes, a couple percent, with flat pricing. So, again, just the boundaries of soft are important.

Likewise, when we had a really strong winter, we saw some growth in volume, but not double digits or more, and we saw a 20 percent price acceleration. So those are kind of the benchmarks or the bookmarks of mild to severe winter.

The other wildcard that we maybe don't discuss enough and it is hard to really get a handle on is the fuel component of our selling price. If the dynamics and the psychology of the market is to have higher fuel costs, then we tend to be successful in super-sizing the price because, again, something like 90 percent of our sales in highway deicing, the seller bears the risk of the fuel, meaning we sell at a delivered-price basis, and that is fixed. So if the psychology is that crude oil is going to go up and stay up, while we are bidding, prices tend to be high. Likewise, if the psychology is flat or down, then that will serve to compress the increase that we are able to get.

So there are a lot of factors. It is really premature to speculate at this point. I think what we said is in April we will have a better view of those early bids, and we will be happy to talk about it in more detail.

And just lastly, you gave us the snow-event metrics for Q4, be average number of days in your 11 key cities. What is the number for Q1 average number of snow events for these 11 cities, and what do we have so far quarter-to-date?

We can provide that because you guys can look it up, too. What we don't want to do is to condition you to expect that this is an absolute perfect proxy to our sales because it is not. But in essence, there were about 85 percent of the normal number of snow-event days in January. The 10-year average would have been, let's see here, about 48 events, and for us in January we experienced about 40 in those targeted cities. So 40 was our experience. 48 was the 10-year average. You can look these up. I mean this is all coming from the weather service.

But I would caution you that -- several factors. Number one, these are points at airports or somewhere which might be quite different from where selling activity is occurring. I would also caution you that it is only 11 cities, and we sell in thousands of cities. And then finally, I would caution you that a snow event is not a snow event is not a snow event. You might have different intensities which will generate more salt consumption or less, and then our margins are different city to city to city.

So when we are looking at a surrogate that just looks at 40 cities across North America or 11 cities, 40 events across North America, it is tempting to make wild conclusions that do not reflect those multiple factors that will affect the bottom line. But it is a good proxy to say that when snow events are well above the average, sales are usually good, and when snow events are well below the average, sales are usually not as good. So I think from a qualitative point of view, I feel very comfortable providing that transparency to you.

Edward Yang, Oppenheimer.

Your shipping and handling costs per ton on the salt side was up year-over-year, but it was still better than your guidance. I think it was expected to be about $23 a ton. It was about 6 percent or 7 percent below that. What was the variance for that? Was that just all fuel costs, or were there any weather impacts in there?

Not many weather impacts at all. The increase was definitely fuel. And I think last year we had a little bit of some inefficient shipping that was going on that probably muted the effect of higher diesel prices on us this year.

Okay. And a lot of questions obviously about some of the future repercussions from this mild winter season, and Angelo talked about typically after a mild winter, you will have volumes being impacted maybe 1 percent or 2 percent and maybe some pricing impact as well. But maybe looking at it on the other side on shipping and handling costs again, since you have already created the salt and you have that salt at the depot, will future sales after a mild winter, will they typically hold less shipping and handling costs as well?

I don't know that they would hold less shipping and handling costs. They would certainly hold the costs that existed to deliver them to those depots. So to the extent fuel goes higher, those costs -- those tons on a relative basis would be lower. To the extent fuel goes lower in the future, those tons on a relative basis would be higher.

I see, okay.

So the freight in to those depots is inventoried and held in inventory until sold.

And the lost sales opportunity from the tornado that you mentioned, Rod, I think you carved out $3 million specifically. Was that adjusted for the weather impact, or was that considering a normal winter again?

Yes, it was adjusted for the weather impact. So we calculated what our sales shortfall would have been and adjusted it on a pro rata basis similar to the quarter-to-date as far as the winter effects thus far in December.

And just finally, I know in the past that the bugaboo has been, are there still going to be any economic impacts on some of your government customers or so on. Are you seeing -- a lot of companies that are more cyclical saw an economic impact in the fourth quarter. Did you see any effect at all from the economy either in your deicing business or consumer and industrial?

I mean one of the beauties of Compass Minerals is the non-cyclicality of our key demand applications. Although we see some effect on the ag cycle in the SOP business, with salt, particularly deicing, particularly highway deicing, I mean there is a very, very strong public safety element and a very, very important political ramification for governments to take risks with public safety.

So even in the worst -- the depths of the great recession, we saw very modest, if any, direct correlation between buying patterns of governments and the economy. Now they are probably saving a few bucks this cycle, so there might not be as much pressure on DOTs this next cycle. But generally I don't see a strong correlation there, so I think that is one of the strengths of Compass Minerals, the essential nature of our products.

Bob Koort, Goldman Sachs.

A couple of quick ones. Angelo, the seasonal pattern within the quarter was in the winter -- end of the winter. Is January normally the heaviest month, and how much would it taper off through February and March in an average year?

Probably, Rod, I know the first quarter is more important than the fourth quarter.

In terms of the three most important months, they are roughly equal December, January and February.

Got it. And then just so I understand what you are saying on the new mineral you can send through and make SOP from having no cost impact, that is a function of the costs are much higher this year from the evaporation issues? Is that what you mean, it is at parity with the higher costs this year?

Yes, that is right. So, if we did not supplement with the mineral, our per-unit cost guidance would be almost identical to what we gave and (multiple speakers) on much fewer tons.

Got it. And is the magic mineral at parity with KCl?

I don't know what that "parity" means, but you mean the cost?

Yes.

You know, there is no benefit going there. I think the point that Rod made is we were basically able to extend the amount of tons we can sell at no unit-cost penalty from what we would have been. So we will make margin on those tons, we will sell more, and we will retain customers most importantly, and our unit cost will be unchanged versus what they would have been. And then strategically it will position us much better for our expansion phase, which is what we hope to be talking about over the next number of years.

That leads me to my last question. On the expansion, it looks like you guys have pared back a little bit your expected capacity. I think you were at 570,000 before from those two expansions, and now it looks like maybe 525,000. What changed to cause that reduction?

Well, if we did that in our presentation, that was not our intent. I think what we pared back was the 2012 timing of the finalization of Phase I because we are going to now finalize that during our summer shutdown. We were already shutting down anyway in the summer as we normally do. Plus, we don't have enough harvest feed, so why go fast on that capital expenditure, take the plant down and then run out of harvest. But I don't -- Rod, do you recall a reduction?

No, there is not an end of reduction. I think it is slightly different phasing, Bob, so it would still be getting the Ogden operation to 570,000 (multiple speakers) by the end.

Elizabeth Collins, MorningStar.

I understand that using source material for SOP production is higher cost than what would be the case if you were at full capacity utilization at the ponds. But it seems to me like you are still going to be generating decent margins using the source materials. So why not leave the door open to opportunistically using the source materials in the future? Since you are not, I am wondering is this a market size issue, or does the fact that you are expanding pond pace capacity in the future mean that your ability to use source material is physically actually less?

Yes, that is a good question. Well, firstly, I'm not excluding the possibility of doing what we did now in the future. I'm just saying our strategy is built around expanding what is universally recognized as the lowest cost route to SOP, which is the solar evaporation route. So what we are saying is we are placing our bets and our investments on the advantaged route, which only exists as far as I'm aware at three places on the earth -- in Chile, in China and at the Great Salt Lake.

We always retain the opportunity to use a less efficient route, which is the addition of a K-containing mineral -- it could be KCl, it could be any K-containing mineral -- will serve that purpose as a feedstock to extend our solar harvest, which is the advantaged route.

However, as we expand our solar evaporation footprint and assuming good weather, we believe we will have more than enough harvest, which means enough K molecule, to run all the SOP that we are investing to have. However, in those occasions where the weather does not cooperate, we have this nice bridge and would not hesitate to explore it in the future. But it always comes down to an economic decision. And if you remember in the past, without getting too much into the details, those KCl sourcing agreements that we used to enjoy, they were kind of of a legacy nature. Remember, our roots are from companies that were in the KCl business. So there were some advantages there that just expire. But if somebody wanted to sell us KCl on a long-term basis to make us be able to operate those facilities at Ogden sustainably at a low cost, we would be happy to listen. But there are market dynamics in KCl and in potash that sometimes make those transactions unattainable and unsustainable.

That concludes today's question and answer session. I would like to turn the conference back to Mr. Angelo Brisimitzakis for any additional or closing remarks.

Thank you, Brandi, and I will be very brief. As we move into 2012 and beyond, we certainly look forward to having the opportunity to apply our qualities of strength and resilience to provide you with increasing shareholder value.

Thank you for joining us today. I look forward to talking to you again in April. Have a good day.

And this concludes today's conference. We do thank you for your participation.