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Compass Minerals International, Inc. (NYSE:CMP)

Q4 2008 Earnings Call

February 10, 2009 9:00 AM ET

Executives

Peggy Landon - Director of Investor Relations and Corporate Communications

Angelo Brisimitzakis - President and Chief Executive Officer

Rodney Underdown - Chief Financial Officer, Secretary and Treasurer

Analysts

Jason Miner - Deutsche Bank

Mark R. Gulley - Soleil Securities Group

Michael Judd - Greenwich Consultants

Elizabeth Collins - Morningstar Research

Olga Guteneva - J. P. Morgan

Scott B. Blumenthal - Emerald Advisers

Operator

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 Earning Conference Call. (Operator Instructions). Thank you.

I would now like to turn the call over to Ms. Peggy Landon, Director of Investor Relations and Corporate Communications. Please go ahead.

Peggy Landon

Well, thank you Regina and good morning everyone. Thank you for joining us for our 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 a number of factors, including those identified in Compass Minerals' most recent Form 10-K.

The company undertakes no obligation to update any forward-looking statements made to-date to reflect future events or developments. You can find reconciliation of any non-GAAP financial information that we discuss today in our earning release, which is available in the News section of our website at compassminerals.com.

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

Angelo Brisimitzakis

Thanks Peggy. Good morning everyone. Thank you for joining our call today. I'm very pleased to be able to talk to talk 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 and 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 could 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 reflect 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 historic low levels we experienced just in the third quarter of 2008.

While our standard potash... 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 are 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 winter weather in North America; but unlike last year, we had a 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 the same trends continue.

Our specialty potash prices are holding at around $1,000 a ton, though customer orders have continue 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. And 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 2008 North American 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 that this is a long-term trend, because the world's demand for food and therefore crop nutrients is still growing, not declining.

Turning to our salt segment. Much of the winter still remains. With 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.

Deicing demand in North America, were 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'll 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 scheduled 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 may understand that our company is structured to accommodate that variability. We believe that our long experience in managing to variable sales environment 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'd like to close by taking a look at the growth of Compass Minerals in the five years that we've been a public company, which we proudly celebrated on December 11th at the New York Stock Exchange.

Since our IPO in December of 2003, we've 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 non-discretionary 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've exceeded it. The mostly non-discretionary nature of our applications, the efficiency and effectiveness of our products and the high relative costs of transportation, all contribute to the ability to grow profitably this business. When you combine our low cost operations and our advantage position to expand to capture modest market growth, you 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 concentrating 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 help generate a 150% sales increase and 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 values created a further step change in 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 advantaged Goderich mine.

Our specialty fertilizer business has continued to push forward on expanding our production from lower cost solar evaporation pond 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 condition, 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.

Rodney Underdown

Yeah, 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 effects 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 affects 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 volumes 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 2000 sales... 2008 sales volumes exceeded the prior year, as volumes were boosted by higher sales in the UK, following last year's mild UK weather impact. We also had a nice volume gain in our non-deicing products in the consumer and industrial area.

Our per unit shipping and handling cost increased less than 5% from the 2007 quarter, as following 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're now are experiencing lower fuel costs in early 2009 than we experienced in early 2008.

So, our strong net price realization was the larger 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 a softened demand late in 2008, our fourth quarter sales were up 47% due to a 185% increase in average selling price, which averaged almost $1,000 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 its better 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 proceeds the rapid price increases of 2008. As we looks to the years ahead, we'll continue to buy MOP under this contract, as long as it continues to be beneficial. But as you know, we aren't 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 base production, as well as to provide us with a 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, our 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 to $18 million for the fourth quarter. Those benefits both exceed the comparable estimated fourth quarter 2007 severe winter weather affects.

These record quarterly results were achieved despite the impact of exchange rates on our reported U.S. dollar results. The stronger U.S. 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 both 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 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 segment.

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've 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 earning gains translated into strong cash generation, as full cash -- full year cash flow from operations more than doubled to $254 million.

In 2008, we reinvested almost $70 million of that cash flow and capital spending investments back into the company, including our capacity expansion. Our continued investments in these critical expansion projects, combined with investments in other 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 continued to balance investments 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'll now open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Jason Miner with Deutsche Bank.

Angelo Brisimitzakis

Good morning, Jason.

Jason Miner - Deutsche Bank

Yeah, thank you. Good morning. Just on salts, it sounds like we're 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 giving this setup?

Angelo Brisimitzakis

Yeah, this is Angelo. Yeah, I think last year's cycle entering the bidding season which really starts occurring at the end... in the second quarter, which is pretty closely upon us. We were looking at a $150 crude oil last year. We were looking at a severe supply demand situation. And I think those factors kind of came together in a 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 this 20% was certainly exceptional.

We benefited after the bids were placed than we were actually shipping the product which is now, some six to nine months later crude oil has retreated to $40 per barrel. So, thus the margin expansion. We don't expect crude oil to back to a $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 aren't as robust as they were last year as we entered the biding, but certainly no less than historically levels. So I would imagine something more moderate to be in effect for the upcoming season.

But, you got to remember, each line item, each county, each state is a field bid, and the low price 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. And we adjust accordingly through the bidding season.

Jason Miner - Deutsche Bank

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?

Angelo Brisimitzakis

Well, right now we're still working hard to satisfy our contract requirements. We shipped as long as we can through the winter, which means from our Southern mine down to Louisiana we 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 four spot sales, because essentially when the boats stop leaving the mine, all 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.

Jason Miner - Deutsche Bank

Okay, it's very helpful. Thanks. Then just lastly, I'll shift to fertilizer. You mentioned the MOP side and the purchase contract that you have 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.

And then I'll just... I'll add this long question, sorry, these volume declines might take you down much closer to what we would think will be your fully evaporated capacity, although, they perhaps exceed end-market declines at the moment. So, I guess it's a two part question. Could you talk about what are end markets versus de-stocking in a chain, sort of dealing versus this 50% decline in volumes? And then, where might you be mix wise evaporated versus MOP, if you need to cut that for economic reasons in the future? Thank you.

Angelo Brisimitzakis

Yeah. Well, that was a good question. 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.

Has there been changes in prices and some of these crops? Yes. Some have actually strengthened, some have weakened, many have stayed relatively stable during this period. And remember the percentage of revenue per acre that goes to fertilization for the specialty crop is much lower than the contribution that fertilizer has on low crops such as corn or wheat or soy. So we feel really good about the economic equation which has SOP at $1,000, selling into specialty crops that have a very high revenue per acre contribution and high margins for growers.

So, we believe that this demand change that we've 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. And they have been cogged with some inventory from prior purchases. And 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 and 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 amount of exposures that they want to live with. So, I really think until that sorts its way through, will the... and 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've chosen not to really give any specific guidance. But we remained, as convinced as before on the strength of our product in the market. And we also believe that the fundamentals of potash in general in SOP and specific are better then the other nutrients. So, we shouldn't 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.

Jason Miner - Deutsche Bank

Okay. That's very helpful. Thank you.

Operator

(Operator Instructions). Your next question comes from the line of Mark Gulley with Soleil Securities.

Angelo Brisimitzakis

Good morning, Mark.

Rodney Underdown

Hey Mark.

Mark Gulley - Soleil Securities Group

Good morning guys. Couple of things; one, Angelo, can you give some idea normally when the blenders will begin to buy SOP for their blending activities, normally during the course of the year when would that happen?

Angelo Brisimitzakis

Yeah, I mean 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're kind of in that quiet zone right now hoping for that pick-up to come March, April. We certainly would love to see some earlier signs, but it's really too early to make a definitive call.

Mark Gulley - Soleil Securities Group

Okay. Pushing gears now to your planned expansion, the trip in this 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?

Angelo Brisimitzakis

Again, our Great Salt Lake ambitions are quite a long-term proposition, multi-phase. Our first phase which we're in the process, there is $40 million investment we announced and that gets us about a 100,000 tons additional capacity. And that really doesn't affect any ponds. It's solely within our production unit and it really is more of a yield project and a productivity project and it's totally within our control. The remaining expansion, which we refer to, some 70,000 acres of additional leases, which we are now going through that long permitting process, is still uncertain.

As you correctly stated, it goes through an environmental impact process to get permitting. That it goes through a one or two year construction process, and then it goes through a three solar evaporation cycle. So, those capacity expansions are still out five years, still undefined, and 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've been operating, coupled with the fact that we make organic fertilizers using solar energy to feed people for healthy foods 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's certainly a long range project the details of which are still undefined.

Mark Gulley - Soleil Securities Group

And finally a third if I may; may be I should've asked this before. The dividend increase I saw back 6% up still growing clogs (ph) in your earnings increases. So, are you husbanding cash and cash flow for that project, for other frames, can you give us a feel for how you might intend to use your strong free cash flow?

Angelo Brisimitzakis

Well I think Rod, in Rod's comments he talked about the approximately 50% increase in CapEx spending in '09 and you do know we had a significant increase in '08. So, clearly those remains our priorities for the business. We've also opportunistically paid down the 12% high yield 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.

Mark Gulley - Soleil Securities Group

Thank you.

Operator

(Operator Instructions). Your next question comes from the line of Mike Judd with Greenwich Consultants.

Angelo Brisimitzakis

Good morning, Mike.

Michael Judd - Greenwich Consultants

Good morning. 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. But, and I understand that this is a long-term business, and the plans that 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 to get a sense if you could provide us with any kind of comparisons, whether it's sequentially or month-to-month or January versus December, anything that would help us understand volume trends.

And then, you obviously had a wonderful result in terms of the $975 per ton in the December quarter. But, and even -- on obviously lower volumes in January 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?

Angelo Brisimitzakis

Yeah. And as we said, we're really not 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.

Michael Judd - Greenwich Consultants

Okay. And just as a follow-up, and don't take any negative implications from this question, but, I mean, 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're not willing to view that as we see implications are that prices could potentially head lower?

Angelo Brisimitzakis

Well, I think when you hit a 50% volume speed bump in the fourth quarter, I mean, that's 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's why we're kind of sitting on the sidelines.

On pricing, our price is holding if not slightly improving. And we see no reason why that will change. But again, we'll have to be honest here, a wide of the foundation for SOP pricing is the MOP marketplace, which we do not play and in fact we're 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 a very dramatic steps to match production to demand. I believe right now approximately 50% of production is actually shut in to really match demand. And the MOP folks have said they're very confident in the pricing of MOP.

Also, I am comforted by the fact that the economics to build the new potash mine are very substantial; several years, multi-billion dollars investments, and 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 were to change an MOP in any dramatic way, it certainly will have some impact on SOP.

Michael Judd - Greenwich Consultants

Okay. And then just finally on demand for SOP, for those of us who're 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, California I guess is a larger area for some of those types of demand activities. Anything that we should be thinking about this year that might be different than past years?

Angelo Brisimitzakis

Well, last year we sold about 65% in the United States, 35% was export. Florida, citrus, California, fruits, vegetables, those are the two big segments. I don't see anything dramatically different. The only thing that happened that was different was the fall application was less for nutrients. That was a late harvest that contributed. There was some weather impact, but also I think growers pull back, and made the decision to either fertilize less, or not fertilize at all.

That will certainly have impact on yields; will certainly have impact on future quality of their products. So, we don't think it's a sustainable reduction. And again, until we see what happens during this very important spring application, it's hard to really get a read on our SOP demand for 2009.

Michael Judd - Greenwich Consultants

Thanks for the help.

Angelo Brisimitzakis

Thank you.

Operator

Your next question comes from the line of Elizabeth Collins with Morningstar.

Elizabeth Collins - Morningstar Research

Hello, thank you.

Angelo Brisimitzakis

Good morning.

Elizabeth Collins - Morningstar Research

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 in professional deicing products.

Rodney Underdown

We don't bring 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 the last year, about half of that was due to the increase... a little more than half was due to the increase of consumer deicing volumes. But the majority of the impact is definitely on the highway side.

Elizabeth Collins - Morningstar Research

Okay. So, is there increase in your consumer and industrial volumes been offset in anyway by weakness in demand, say from chemicals companies or pulp bleaching?

Rodney Underdown

Yeah, I think, what we've seen in consumer and industrial through the end of the year was a very little impact. We're 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 in the... 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 result.

Angelo Brisimitzakis

Certainly, this is Angelo I want add to that, we normally, our company is never happy when one of its applications is down due to the economy, and certainly the chemical industry is probably suffering the affects of the economic slowdown, as much as anyone. But in our case since we sell our 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 freeze up more rock salt to sell into the higher margin and short 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've been able to redeploy whatever we couldn't sell the chemicals into those badly needed communities that are suffering from a severe winter.

Rodney Underdown

But those changes are very marginal...

Angelo Brisimitzakis

Very marginal, but it will only be the impression that the chemical sales product is just piling up somewhere, we redeploy that and stick it into our deicing markets.

Elizabeth Collins - Morningstar Research

Okay, thank you. Your next question comes from the line of Jeff Zekauskas with J.P. Morgan.

Angelo Brisimitzakis

Good morning, Jeff.

Olga Guteneva - J. P. Morgan

Hi, good morning. Actually this is Olga Guteneva sitting for Jeff.

Angelo Brisimitzakis

Hi, Olga, how are you?

Rodney Underdown

Hi Olga.

Olga Guteneva - J. P. Morgan

Good. Just briefly on salt business, could 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?

Angelo Brisimitzakis

Yeah, 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. And unfortunately, Olga the split between our deicing business in the U.S., in Canada and the UK is something we really don't disclose. But I do give some color that, that really a lot of the increase we saw in the fourth quarter in deicing versus last year was driven by the UK. And 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 shipped double the amount we normally ship. And if you watch the news, I think the UK is experiencing a winter for the record book.

So, we don't get into the specifics. But I think it's fair to say that we're getting nice contribution from the UK from both the fourth quarter and so far in 2009.

Olga Guteneva - J. P. Morgan

Thank you. And, if we could switch to the SOP business. So, let's assume that the SOP demand remains weaken, just farmers decide against the plan in SOP for this season. So, in theory how much time do you have this before you have to reduce your SOP production?

Angelo Brisimitzakis

Yeah. That's an excellent question. Unfortunately, there is not a simple answer to that. To kind of just to break it down, we operate with two manufacturing processes. One is a time-based solar evaporation process, which is our 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 would ever need to slowdown 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 forward redeployed facilities. And because we are such a small part of the potash market, we have less than 1% share of the overall potash. Our production is really is not a factor. And also, if you recall from a previous answer to a question, our significant production increases don't 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 the demand will return, because I haven't heard a lot of situations where people are eating less fruit and less vegetables. I have also have not heard of lower population growth. And I have also not heard of anything that suggests people don't believe that more fertilizers improved yields. 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 of demand.

Olga Guteneva - J. P. Morgan

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

Angelo Brisimitzakis

No. Fortunately, it doesn't. So we are in the position, 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.

Olga Guteneva - J. P. Morgan

Okay. Thank you very much.

Angelo Brisimitzakis

Thank you.

Operator

Your last question comes from the line of Scott Blumenthal with Emerald Advisers.

Angelo Brisimitzakis

Good morning, Scott.

Scott Blumenthal - Emerald Advisers

Good morning. Thank you for taking my question.

Angelo Brisimitzakis

Yeah.

Scott Blumenthal - Emerald Advisers

Angelo, could you remind us whether a portion of your SOP sales is contracted or if that's all just kind of sold out there in the spot market?

Angelo Brisimitzakis

Scott, 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. And we worked very hard, and 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 fit 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.

Scott Blumenthal - Emerald Advisers

Okay. That's 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 (ph) lithium. I don't know if you saw that article. But apparently, the production of lithium is very similar using the same raw material and a similar process to the production of SOP at the Great Salt Lake. I was wondering if that's something that you are involved in, or is that's something that you are considering, or am I completely off base with that?

Angelo Brisimitzakis

No, no. I think anyone who operates a solar evaporation facility from a naturally occurring blinds from a lake, whether it's a lake in Chile, or a lake on the Dead Sea, or the Dead Sea, or the Great Salt Lake, it's looking at all the minerals and metals that are in that blind.

As you know on the Great Salt Lake, we currently have mined three different minerals. We mined sodium chloride salt, we mined sulfate to potash, or potassium sulfate, and we also mined 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 haven't made any definitive decision one way or the other to enter into any other production. Our focus right now is on expanding SOP. And 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.

Operator

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

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