Compass Minerals International Inc (CMP) 2012 Q4 法說會逐字稿

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

Thank you, Noah, and thank you, everyone, for joining us this morning. I am pleased to be joined this morning by Fran Malecha, our new CEO who joined us about three weeks ago, and Rod Underdown, our CFO. I'll turn the call over to them in just a minute but first 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 6, 2013, 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'll turn the call over to Fran.

Thank you, Peggy. Good morning. I'm pleased to be here today and pleased to be leading Compass Minerals. And I want to tell you a bit about myself and why I believe Compass Minerals and I are a good fit. I've spent my entire career in agribusiness, so I understand many of the dynamics that can affect fertilizer businesses like Compass Minerals' Specialty Fertilizer segment. And during my career, I've come to understand that an efficient and competitively advantaged distribution system can create significant value. That has direct application to Compass Minerals because moving materials efficiently and effectively is one of the keys to our businesses, especially salt.

And maybe most importantly, I have extensive experience working in and running large multinational operations.

And even though I've only been here a short time, it's already clear to me that we have a powerful arsenal of competitive strengths and attractive businesses. We have a strong portfolio of assets, including our mines and our solar evaporation leases, that gives us an advantage over much of our direct competition. Another strength is a range of products that serve essential needs and hold leading positions in the markets in which we participate. And finally, we have dedicated and resilient employees intent on maximizing value from our assets while serving our customers' needs. Those elements -- advantaged assets, essential products and great employees -- are the core elements of any successful business, and it explains why I am pleased to be here and confident about our future.

All that said, this company has faced some substantial challenges recently that have significantly affected our results in the last couple of years. And those challenges include wet weather at the Great Salt Lake that disrupted the evaporation process and raised our per-unit product costs in 2012, the tornado that hit Goderich, Ontario in 2011 causing loss of life and severe damage to the town and to our operations there. And the biggest factor impeding our fourth-quarter performance has been continuing mild winter weather. As I'm sure all of you remember, the past 2011/2012 winter was extraordinarily mild. Not only did we sell less salt but less of the salt that we sold was applied. As a result, Compass Minerals and our customers came into the 2012/2013 winter with significant inventories, a very unusual situation for the salt business.

Had we rebounded to average winter weather in the fourth quarter of 2012, those inventories would have been absorbed and our production would have returned to normal levels. But instead the mild weather continued.

Now, I don't want to suggest that we are simply at the mercy of the weather. We have become very adept at dealing with weather variability. In mild weather, we employ a protocol that incorporates a variety of measures to keep costs low while maintaining our market position. So for example, over the past 60 days, we've reduced shift schedules at almost all of our deicing operations. Our flexibility to scale back with short notice is important to a business like this, and you will notice other cost savings in our underlying results which have helped reduce the mild winter impact.

Now, I've spent my entire career in agribusiness, so I've learned that it's best to keep a long-term perspective when watching the weather. And the fact is that the fewest snow events in our market areas occurred not in 2012 but in 1998 and in 2006. And as a point of reference, the mild winter of 2006 and 2007 was followed by an extremely harsh winter in which all of North American deicing suppliers ran out of inventory. To cope with that variability, our salt business must be able to quickly adjust our entire supply chain to meet significantly stronger or weaker demand for deicing salt. That's why we maintain a relatively variable cost structure that enables us to ramp up production or down as needed over the course of the year.

Back to 2012, to summarize the year, persistently mild weather together with the carryover impact of the wet solar season and the tornado reduced demand and increased per-unit production costs with predictable effects on our earnings and our margins.

The good news is that 2012 once again demonstrated our strong business fundamentals. Despite low weather-driven demand, salt pricing remains stable and salt EBITDA margins for the quarter and year were near historic averages. And while the wet 2011 solar season impacted our specialty fertilizer production costs throughout 2012, prices and demand have remained healthy.

We continue to generate strong cash flow, which we use to fund our internal investments.

In a few minutes, we will talk about how we will turn the corner on cost issues during 2013. I'll turn it over to Rod who will provide details about our financial performance in 2012 and our short-term outlook.

Thank you, Fran. So I'll take a few moments to run through the details of our fourth-quarter and year-end financial results and then look at some of our current expectations for the first quarter of 2013.

Starting with our salt results, total sales in the quarter were $206.7 million, down from $250.1 million in the fourth quarter of 2011, largely due to lower weather-driven demand for deicing products and the effects of customers' carry-over inventories. Although not as mild as last year's December quarter, this year's winter has been slow to develop with almost all of the fourth quarter's snow events occurring at the end of December. This mild winter weather, combined with high customer inventory levels, resulted in lower deicing salt sales to highway, consumer and commercial deicing customers. Total salt segment sales volumes dropped 16% compared to the fourth quarter of 2011. Within our salt segment, highway deicing experienced a 17% sales volume decline and consumer and industrial sales volumes dropped 13%.

Looking at our sales by end use rather than by business unit, all of the volume weakness was attributable to lower deicing demand. In other words, sales to all of our non-deicing uses combined, such as water conditioning, chemical processing and other industrial uses, food, and agriculture, were not impacted by the weather and were above the prior year fourth quarter.

Highway deicing prices were essentially flat with the prior-year quarter at $52.56 per ton. Consumer and industrial average selling prices, however, dropped 4% to $150.95 per ton, reflecting the impact of reduced sales volumes of higher priced deicing products this quarter compared to the fourth quarter of 2011. Operating earnings for the salt segment totaled $47.9 million compared to $53.4 million in the prior-year quarter. Now, both of these quarterly results still include some lingering effects from the 2011 Goderich tornado. Excluding these estimated tornado related losses, segment operating earnings in the fourth quarter were $50.9 million compared to $69.8 million in last year's quarter.

Salt operating margins in this quarter were also impacted by increased per unit product costs due to non-mining and non-manufacturing costs and efficiencies which primarily resulted from the impact of significantly lower sales resulting from the mild weather. Although a meaningful component of the operating costs to produce rock salt and packaged deicing is variable, some costs are not, such as maintaining our extensive distribution network.

So when stepping back and looking at our average salt costs, we ended this year, 2012, at about $38 per ton and net of the tornado effect, the result was about $36 per ton. This pro forma salt cost is $2 per ton higher than our current annual target of $34 per ton for average full-year salt costs.

So while we produced only about 70% of our average winter salt volume, our 2012 average salt costs, again, net of the tornado effects, were only about 6% above our target. This in large part is due to our variable mining and manufacturing cost structure.

Now, effects from the 2012 winter will continue to impact our per-unit costs in early 2013 as we sell our higher-cost 2012 inventories. And our lower expected sales volume in the first quarter will impact our average per unit costs for non-mining activities. So, we expect per unit costs to be approximately $34 per ton in the first quarter of 2013.

At this time, it's too early to project second-half salt costs until we know a little more about how that next season will shape up from a sales perspective. The primary variables will be the number of snow events during the remainder of the March 2013 quarter and the resulting usage by our customers. In considering the possible scenarios on the more favorable side, we could see enough snow events to cause governments to meet their minimum purchase requirements and end the season with much less inventory than in the prior year, and that's the typical situation for highway deicing salt. This could happen even in a moderately mild winter. Should that happen, we would expect customer bid requests to significantly rebound from this past season's depressed levels. This would likely result in much greater production volume in 2013 in preparation for the coming winter.

On the other hand, if February and March have very mild winter weather, we would likely need to scale production back again, resulting in continued per-unit cost pressure. So between these two scenarios, we could see a potential range of full-year per-unit salt costs anywhere from our target level of $34 per ton to something more similar to our 2012 per unit production -- product costs of $36 per ton. We will update you over the next couple of quarters as the rest of this winter season and the summer bid season unfolds.

We have guided to sales of 3.3 million tons in the first quarter of 2013. Now it's always tricky this time of year to be predicting sales in the short term because of how weather events can change quickly. However, I will say, as we sit here today, our expectations would currently be on the bullish side of that guidance.

We expect our first-quarter shipping and handling costs to be about the same as the prior-year first quarter, so factoring in the higher product costs, a 2% lower a highway deicing price which is the result from this past bid season, our salt margin could contract to around 15% in the first quarter of 2013.

On the bright side, we do not anticipate any losses to be reported related to the 2011 tornado in 2013. And as a reminder, we still expect to report a gain sometime in the second half of 2013 related to the settlement of our insurance claims. Of course, we will call that out as a special item when it is recognized.

Turning to our Specialty Fertilizer segment, total sales increased 6% from the prior year to $56.6 million. Strong sales in the Western US pushed average selling prices in the quarter up 2% sequentially to $626 per ton while volumes held study steady at 90,000 tons. This compares to volume of 85,000 tons and an average price of $631 in last year's fourth quarter. Our sequential improvement in average price was principally due to a favorable quarter-to-quarter change in customer mix. So on a mix-adjusted basis, prices were essentially flat.

Specialty Fertilizer operating earnings for the fourth quarter continued to be pressured by short-term cost increases associated with purchasing potassium mineral feedstock to supplement our production. As a reminder, we purchased this higher cost feedstock after the wet 2011 solar evaporation season which diminished our own lower-cost mineral feedstock, and that purchase product was primarily used in 2012 production. By supplementing our pond-based feedstock, we could more fully serve our existing customer base during 2012.

The Specialty Fertilizer per-unit product costs, calculated net sales minus operating earnings per ton, rose to $438 per ton compared to $330 per ton in the fourth quarter of last year. While these per unit costs were also higher on a sequential basis, it wasn't totally unexpected. There was some downtime at Ogden that was planned and some unscheduled downtime, but furthermore, our ongoing supply agreement at our Big Quill resources SOP operation in Saskatchewan included an annual true-up price adjustment which impacted overall costs reported during the quarter.

As a result of these factors, our Specialty Fertilizer operating margin compressed to 19% compared to 37% in the prior-year quarter. However, we do expect a sharp rebound in operating margin percent during 2013 in the Specialty Fertilizer segment.

Of note, we've been encouraged by recent operating performance at our Ogden sulfate and potash operations. The pond sealing project has started to increase our solar pond harvest and when you combine that with the favorable weather for solar evaporation this past 2012 summer, it is starting to appear that we may have a record deposit of raw minerals from that solar season.

And, our SOP processing plant has more recently been steadily approaching design rates following the Phase I plant yield improvement project. Thus, we're cautiously optimistic about 2013 and we expect to see improvement in our per unit production costs beginning in the first quarter of this year. Currently, our initial estimate is for per unit Specialty Fertilizer costs to drop roughly $75 per ton in the first quarter of 2013 from the fourth quarter of 2012 levels. And then we are tentatively projecting SOP costs of around $325 per ton for the second through the fourth quarters of 2013. This estimate does include a remnant of higher cost, purchased potassium-based feedstock to be consumed in 2013 and that impacts our 2013 costs almost $15 per ton.

We expect demand for our Specialty potash products to remain stable with sales volumes for the first half of 2013 similar to 2012 at about 175,000 tons. Pricing for SOP is expected to remain near 2012 levels at approximately $600 per ton.

Our pricing strength rests on our fundamentals of our particular niche in the fertilizer industry and our position within that niche. Growers of chloride sensitive crops value the yield and quality improvements SOP provides and our product line is a good fit with grower trends that incorporate greater water conservation. As we previously explained, we sell to blenders who buy on a just-in-time basis, thus minimizing the role of price speculation in SOP. And lastly, because of our own capacity constraints, we've been able to optimize the value of each ton of our specialty fertilizer.

And now I'll finish with a few items regarding our consolidated results. Our income tax rate for the quarter was 22%. We currently expect the full-year 2013 tax rate to be approximately 28%. Interest expense amounted to $4.5 million in the fourth quarter, which should be about the quarterly average throughout 2013

Cash flow from operations was $151.7 million for the full year compared to $252 million in 2012. This reduction reflects lower earnings and an increase in working capital which was mostly the result of lower deicing sales.

We continued to invest in our advantage assets throughout 2012, spending approximately $131 million. In addition to the maintenance of business capital, we completed the pond sealing program at the Great Salt Lake and made significant progress on adding continuous mining technology to our Goderich mine.

Also in 2012, we had around $30 million of capital investment related to replacing assets which were damaged or destroyed in the 2011 tornado.

And now while we are at full pre-tornado capability at both our salt mine and evaporation plant in Goderich, we have not yet completed the permanent replacements of our assets there. We expect to spend less than $10 million in early 2013 to complete that permanent asset replacement. So including that spend, we expect 2013 capital investment to be similar to 2012. We have several areas of focus in addition to our sustaining investments. We have an additional $25 million for some special nonrecurring sustaining investments at Goderich and Ogden, and we will plan to spend around $40 million on our Phase II plant expansion at the Great Salt Lake as well as on our final installation of continuous miners at Goderich.

So, in conclusion, once the headwinds from mild winters diminish and we return to producing all of our Specialty Fertilizer products at the Great Salt Lake from our own solar pond-based SOP feedstock, we should begin to see attractive returns on our prior investments, and we will be even better prepared for growth in all of our key markets.

So I'll turn the call back over to Fran now.

Thanks, Rod.

First, a few words about 2013. As Rod mentioned, the first quarter of 2013 will continue to reflect the effects of the higher per-unit costs of our salt and SOP inventories. If we return to more typical winter weather in the remainder of the first quarter, we would expect customer salt inventories would be much more depleted than last year. And this would result in the bidding season returning to higher volume levels. These factors would greatly aid in lowering our per-unit costs.

Early indications are that our Specialty Fertilizer segment has the opportunity to have a great year both because of consistent demand and pricing and because we should see per-unit cost improvement on our SOP products as a little larger solar pond harvest enables us to transition away from more expensive sourced feedstock.

I'm in my early days here at Compass Minerals and my primary task is to continue to learn all I can about the Company. So over the next few weeks and months, I'll be talking to employees and customers and visiting our facilities. I'll also begin to meet our investors and the analysts who follow us, including a number of you on this call. I look forward to getting to know you and learning about your perspective on the Company. As I gather information, I'll work with the board of directors and the leadership team to fine tune our strategic agenda. In the meantime, I can say that I don't see a need for sweeping change but we will continue to sharpen our game and make the adjustments that will enable us to improve and grow.

In particular, the market fundamentals of our Specialty Fertilizer business are strong and I believe will continue well into the future. So I think the business can be important source of growth for us. Our salt business is clearly a business in which we have a strong foundation of solid assets. In particular, our expanded capacity at Goderich will enable us to increase production when severe weather causes demand to spike and position us to make more than our proportional share of long-term market growth.

Let me close by repeating my confidence that the elements are here to create profitable growth and superior shareholder value over the long term. And over the coming months, I look forward to sharing our plans to do that.

That completes our remarks, so now let's open the call for questions.

(Operator Instructions). David Begleiter, Deutsche Bank.

Fran, just on SOP, given the good evaporation harvest last year, what's the potential for volumes in the back half of the year?

I think we probably see the volumes in the back half pretty similar to what we've been talking about here for the first half.

Dave, I mean, as you know, in the potash world, things can change and have in the past changed rapidly but we seem to have experienced a period of relative stability here over the last several years for SOP in relation to MOP even in the last couple of years. So, we don't have any formal guidance out there, but there's no reason to think that it would change from its current rate that we saw last year, you know, at this point.

And as you've heard us talk, we're a bit constrained compared to our -- what would have been viewed as our historic normal sales volume. So that would be our current outlook.

Understood. And Fran, just on your salt production costs, is the $34 long-term target, in your view, is that aggressive, conservative, the correct one? Just thoughts on that?

I think it's probably the correct target. I think we can always work to increase our efficiency and lower our costs. And one of our strategies here is around operational excellence, and I think we'll continue to find ways to be more efficient going forward.

And just lastly Fran, just on normalized pricing in highway deicing, do you think it is 2% to 3% per year or should it be higher given the value you provide to your customers?

I'll let Rod take that question.

Yes, I mean, Dave, we always talk about long-term averages here. And you know that, following a mild winter, there is usually pressure on that long-term average and following a very severe winter, they tend -- the pricing tends to expand out. Those are really just based on basic supply/demand fundamentals as, for example, a severe winter really results in the industry having a hard time serving the entire market even through the following year. So you know, that was one of the bases of our expansion of our Goderich mine, et cetera.

But I would say, on pricing, you know, we really never think about it differently other than our typical 3% to 4% price per year.

Thank you very much.

Joel Jackson, BMO Capital Markets.

Hi, good morning. I wanted to talk about C&I a little bit. It's been several quarters now and consecutively we've had year-over-year declines in C&I and pricing. Can you talk about how C&I pricing is trending for both the consumer deicing side of it and the nonconsumer deicing side of it and how we should look at it going forward?

Yes, sure Joel. We recognize that the price, the reported price has been lower for several quarters in a row. And I really hate to keep using mix, it sounds like a bit of an excuse, but our average consumer salt product is higher priced. We just completed a calendar year where we sold less consumer deicing products than in any period in our ten-year history, and it was by far the lowest deicing volume result we've had in a calendar year. So, the non-deicing prices are actually higher year-over-year, and that has been a trend. I will say it's not a lot, probably around 1%. I don't remember the exact number. But the impact of the mild winters has drug on the average price in C&I.

So, okay, and on the deicing part of it, how have prices fared?

Yes, those prices are typically set in the spring, kind of the spring kind of time frame, similar but a totally different process to highway. So over the spring and summer, the winter prices are set there. And I would say this last season, they were down just a little bit but not enough to cause average 4% or 5% price declines like we've seen quarter over quarter in that business unit.

Okay, thank you for that. And switching to SOP, you've had a few quarters now some good SOP over what seems to be good SOP over MOP spread expansion -- SOP over MOP, sorry, spread expansion after we had it seemed like several quarters of the reverse. Even I think your SOP, your average price went up in Q4 versus Q3. It could've been on mix. But could you talk about where do you see SOP prices going? Would you expect them to, in 2013, to fall lagging some of the MOP price declines we've seen the last several quarters? Maybe you can just comment on that please?

I think that maybe the one comment on the SOP prices as they compared to MOP and the recent declines in MOP pricing over the last quarter, that's really been driven by lack of offshore demand for MOP. Our SOP business isn't as heavily geared towards offshore demand, so I would expect that our prices will remain stable and the fundamentals in the commodity markets are strong, so we would expect fertilizer pricing in general to be relatively strong and stable in the year ahead.

So just extrapolating, you expect Q1 SOP prices to be similar to Q4?

I think what we guided to, Joel, was about $600 per ton --

Okay.

-- which would be a less rich Western US mix in the first quarter than we saw in the fourth quarter.

But North American pricing level similar in Q1 versus Q4?

Yes, yes.

Okay, that's great. Thanks.

Yes.

Ivan Marcuse, KeyBanc Capital Markets.

A couple of quick questions. First, on where we stand today, and you talked about there's upside to your 3.3 million tons of deicing. How below average was January versus historical norms, or what are we tracking at right now on a below average rate?

Yes, it's interesting. The sales for January were off what we would have expected but not as much as the weather would have suggested. The snow events in January were only about half of the normal amounts. But one of the dynamics that happened during January is most of the fourth-quarter storms and weather occurred very late in December and so we saw kind of a pop in early January as people came back from their vacations and holidays and reordered salt from what were very full inventory levels.

We've become a little bit more bullish, and I mentioned that in my remarks, because our recent activity very recently in the last week has been strong. And just as we look out over the next couple of weeks, both the rest of this week and next week, there does appear to be a number of events that should be happening in our markets. So, that's kind of a synopsis of how the quarter has unfolded at this point. As I mentioned in my remarks, it's really dangerous for us to be forecasting in the middle of the winter what we kind of expect volumes to be because weather events can change dramatically in a really short period of time.

Okay. And then on your salt down in Louisiana, your salt mine down there, are you seeing any pressure on transportation costs with -- because I know you put the salt on barges and move it up. Are you seeing any sort of pressure there due to the water level and some of the things, the news headlines you've been hearing about there or is that not a big deal for you?

Well, it currently has not been a material factor to us but of course any time they talk about closing the waterways, it could be a material factor for us. The Cote Blanche mine is on an island and the only opportunity for us to ship salt from there is by barge. We can't truck or rail from that facility. So we always are monitoring for that. This past fall, there were some periods of time where we had reduced the amount of salt for short periods of time that we actually put in each barge to adjust for draft levels. And there have been some tributary river closings that have moderately affected us but I would say to date it's been touch and go but no significant issues.

Okay. And then moving over to SOP real quick, you -- I understand your guidance for $325. Is that $325 in the last three quarters, is that sort of $325 straight across or are you looking for just sort of a continual downward improvement in your costs and average would be $325. How do you think about that?

We think about it mostly as steady. There are things that happen in an individual quarter that cause some to be up or down, but the goal there was to say it should be that for each of the three quarters.

Right. And then my last question is you talked about a true-up in your -- up at your Saskatchewan facility. How much did that impact profits and is that something that happens every year or is this year big enough where you had to sort of point it out?

Yes and yes. It does happen every year but for the last two years we have owned that facility. Last year was just a very minor adjustment. This year, it was more significant and was order of magnitude across our entire SOP business about $15 per ton. So, it was a fairly sizable adjustment this year.

Got it. Thanks for taking my questions.

You bet.

Christopher Parkinson, Credit Suisse.

Just a real quick question -- based on what you have seen thus far this winter, can you comment on what you're hearing from customers regarding their current inventory levels? And do you have any sense of where they are relative to the beginning of the year, particularly in the last week or two?

Yes, it's -- a good question Christopher. I, mean at the end of the day, where our customers end their inventory at March 31, or the end of the winter season, will be a direct effect on the bid season. And if they end with low inventories, we'd expect a very large pop back up in our bid sizes and that would be a very good thing for the industry.

The inventory that's in the system is very dispersed. There's literally thousands of locations, and so talking generally about inventory in the system is kind of a tough thing to do. I will say that, in southern locations, places like, say, Tennessee, Kentucky, those kind of things, it's likely that they still have pretty full inventories. Areas across the northern tier of our service territory, there has recently been enough activity that we suspect those inventory levels are coming down.

So ultimately what we need is enough snow events to not only sell our product but also for our customers to use not only what we sell them but what they have in inventory. And that won't become apparent until we start getting the bid requests in kind of in the April/May time frame although I suspect that by the end of March, we'd have a really good sense of where our customer inventories are.

Perfect, thank you. And just a real quick follow-up, and this may be a little early, but you mentioned CapEx is going to be essentially in line with what you saw in 2012. Do you have any preliminary thoughts on what we are looking for next year as well or is it too early?

Yes, I guess I'm not -- I think what I heard you ask was whether we had given any guidance on the 2013 capital investment?

Well, I thought you said it was similar but just heading into 2014, do you any kind of sense on what that's going to look like now?

Oh yes, I'm sorry. So that to a large extent will be dependent upon the progress of our Phase II expansion at our Great Salt Lake facility, and I would say it is too early to project what that would look like at this point.

Perfect, thank you very much.

Edward Yang, Oppenheimer.

Given your guidance for highway deicing salt for the first quarter, if you did sell that 3.3 million volume, would most of your customers be above or below your take-or-pay agreements?

Yes, at that kind of volume level, there would be not very many take-or-pay minimums left. Of course the take-or-pay is by region -- I mean by customer -- and so depending on the regions that the snow events occur and the sales occur, there can always be exceptions to that. But at 3.3 million tons, we wouldn't expect there to be a lot of minimums remaining.

Okay, thank you.

Robert Koort, Goldman Sachs.

Good morning. This is Neal Sangani on for Bob. Just a follow-up to the previous question, looking at last year's inventories and the way you renegotiated some contracts to normalize the inventory situation for your customers, is there something in the works for this year as well that could be taken if the demand doesn't match up to expectations?

Yes, you know, I think it's way too early for that. February is a very important month; March is a big month for deicing salt use; and so there isn't any real urgency to start any kind of contract negotiations. If demand shapes up as we are expecting it to and as recent and forecasted weather events happen, we wouldn't expect there to be nearly as much of that this year as there was last. Is that helpful Neal?

Yes, thanks. Sorry, I was on mute there. In that 3.3 million ton guidance, is there an assumption around what's expected for demand versus the obligations that were either renegotiated from last year or minimums under this year?

Yes, that 3.3 million is really an assessment of what normal average winter weather would give us. If we were to have mild weather or pockets of mild weather that resulted in some customers needing to take their minimum, that isn't really factored into the 3.3 million tons. So, I mean, the 3.3 million is meant to be if we had a normal amount of winter events for the remainder of the season and it doesn't factor in any minimum take or pays regionally.

(Operator Instructions). Elizabeth Collins, Morningstar.

Hi, thanks. A question about your CapEx expectations for this year of about $130 million. I think that is a little bit less by about $20 million than what you have mentioned in the past. So could you talk about any areas you're holding back on?

Yes, you know, I think, in the past, we had talked about it being around $150 million and our program could end up of that size again in 2013. I think, as we think about kind of where we are with some of our more major projects, we assess that the spending is going to come in a little slower than we had previously anticipated. And that's primarily around some of our expansion plans as we continue to fine-tune our Phase I completion. So, I think that is probably one of the more major factors in the change in the guidance there.

Okay, thanks. Then a question on the SOP cost outlook for the remainder of 2013 at $325 a ton, I think that's a little bit higher than what was mentioned recently. So could you talk about more like what type of conditions $325 reflects? Does that still reflect purchased potassium-based products? Just more comments on that $325 please.

Yes, great question Elizabeth. And I did mention in my remarks that it does include some purchased potassium feedstock. And maybe just add a little more color to that -- we did purchase some potassium-based minerals in 2012. We are no longer purchasing any of those minerals because we expect our pond harvest was adequate, and in fact we are actually starting to see that it could be a record in terms of a mineral deposit at our solar pond in Ogden.

But when we purchased the product in 2012, we completed the purchases last year, but just in order to optimize our plant production yields, we decided not to use all of that potassium-based feedstock. Our current projection is that we will use the remaining part of that in 2013 and that, as I mentioned in my remarks, would add about $15 to our full-year cost estimate. So that's kind of the color.

It's possible that we will decide to not use that feedstock, and really just retain it for kind of the future -- some might call it a weather hedge. But at this point, the operating plan would call for us using that.

I will say that the forecast also includes getting to and sustaining our Phase I design rates. And we've been getting closer to those and closer and more sustained recently, but it would require completion of that by the middle of the year in a very sustained way for the back half of the year. So those are the parameters upon which our cost estimate is based.

Great, thanks.

That concludes the time allotted for the Compass Minerals fourth-quarter conference call. You may now disconnect.