# Compass Minerals International Inc: Form 10-Q for the period ended Sep 30, 2015

- Company: [Compass Minerals International Inc](/companies/cmp.md) (CIK 1227654)
- Form: 10-Q
- Filed: 2015-10-28
- Accepted by EDGAR: Oct 28, 2015, 16:13 ET
- Period: 2015-09-30
- Accession: 0001227654-15-000006
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1227654/000122765415000006/cmp-20150930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1227654/000122765415000006/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2015-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2015-07-01 to 2015-09-30 | $232.7m | us-gaap:SalesRevenueGoodsNet |
| Revenue | 9 months, 2015-01-01 to 2015-09-30 | $809.4m | us-gaap:SalesRevenueGoodsNet |
| Gross profit | 3 months, 2015-07-01 to 2015-09-30 | $68.0m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2015-01-01 to 2015-09-30 | $231.8m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2015-07-01 to 2015-09-30 | $27.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2015-01-01 to 2015-09-30 | $82.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2015-07-01 to 2015-09-30 | $40.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2015-01-01 to 2015-09-30 | $149.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2015-07-01 to 2015-09-30 | $5.4m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2015-01-01 to 2015-09-30 | $16.1m | us-gaap:InterestExpense |
| Income tax | 3 months, 2015-07-01 to 2015-09-30 | $12.7m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2015-01-01 to 2015-09-30 | $41.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2015-07-01 to 2015-09-30 | $27.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2015-01-01 to 2015-09-30 | $100.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2015-07-01 to 2015-09-30 | $0.80 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2015-01-01 to 2015-09-30 | $2.97 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2015-07-01 to 2015-09-30 | $0.80 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2015-01-01 to 2015-09-30 | $2.98 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2015-07-01 to 2015-09-30 | 33,708,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2015-01-01 to 2015-09-30 | 33,687,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2015-01-01 to 2015-09-30 | $95.1m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 9 months, 2015-01-01 to 2015-09-30 | $154.4m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 9 months, 2015-01-01 to 2015-09-30 | $67.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2015-09-30 | $119.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2015-09-30 | $554.2m | us-gaap:AssetsCurrent |
| Total assets | at 2015-09-30 | $1.53bn | us-gaap:Assets |
| Current liabilities | at 2015-09-30 | $176.0m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2015-09-30 | $619.6m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2015-09-30 | $3.9m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2015-09-30 | $620.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 44,984 characters.

All statements, other than statements of historical fact, contained herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to, the following: domestic and international general business and economic conditions; uninsured risks and hazards associated with underground mining operations; losses for acts of nature which may not be fully reimbursable through our insurance carriers; the timing of any insurance reimbursements may not correspond to the period in which the loss was incurred; governmental policies affecting the agricultural industry, consumer and industrial industry or highway maintenance programs in localities where we or our customers operate; weather conditions; the impact of competitive products; pressure on prices realized by the Company for its products; constraints on supplies and prices of raw materials and energy used in manufacturing certain of our products and the price or availability of transportation services; capacity constraints limiting the production of certain products; the ability to successfully complete acquisitions or integrate acquired businesses; the ability to attract and retain skilled personnel as well as labor relations including without limitation, the impact of work rules, strikes or other disruptions, wage and benefit requirements; difficulties or delays in the development, production, testing and marketing of products; difficulties or delays in receiving or renewing required governmental and regulatory approvals; the impact of new technology on the demand for our products; market acceptance issues, including the failure of products to generate anticipated sales levels; the effects of and changes in trade, monetary, environmental and fiscal policies, laws and regulations; the impact of the Company’s indebtedness and interest rates changes; foreign exchange rates and fluctuations in those rates; the costs and effects of legal and tax proceedings, including environmental and administrative proceedings involving the Company; customer expectations about future potash market prices and availability and agricultural economics; the impact of credit and capital markets, including the risks of customer and counterparty defaults and declining credit availability; changes in tax laws or estimates; cyber security issues; and other risks referenced from time to time in this report and other filings of ours with Securities and Exchange Commission (“SEC”), including the “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “should,” “could,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We undertake no duty to update any of the forward-looking statements after the date hereof or to reflect the occurrence of unanticipated events.

Unless the context requires otherwise, references in this quarterly report to the “Company,” “Compass,” “Compass Minerals,” “CMP,” “we,” “us” and “our” refer to Compass Minerals International, Inc. (“CMI,” the parent holding company) and its consolidated subsidiaries.

### Critical Accounting Estimates

Preparation of our consolidated financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management believes the most complex and sensitive judgments result primarily from the need to make estimates about matters that are inherently uncertain. Management’s Discussion and Analysis and Note 2 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2014, describe the significant accounting estimates and policies used in preparation of our consolidated financial statements. Actual results in these areas could differ from management’s estimates.

### Results of Operations

#### Salt Segment

Salt is indispensable and enormously versatile with thousands of reported uses. In addition, there are no known cost-effective alternatives for most high-volume uses. As a result, our cash flows from salt have not been materially impacted through a variety of economic cycles. Our high-grade salt deposits, which are among the most extensive in the world; our use of effective mining techniques; and our efficient production processes position us among the lowest-cost salt producers in our markets. Since the highway deicing business accounts for nearly half of our annual sales, our business is seasonal, therefore results and cash flows will vary depending on the severity of the winter weather in our markets.

Deicing products, consisting of deicing salt and magnesium chloride used by highway deicing and consumer and industrial customers, constitute a significant portion of our salt segment sales. Our deicing sales are seasonal and can fluctuate from year to year depending on the severity of the winter season weather in the markets we serve. Inventory management practices are employed to respond to the varying level of sales demand which impacts our production volumes, the resulting per-ton cost of inventory and ultimately profit margins, particularly during the second and third quarters when we build our inventory levels for the upcoming winter. Net earnings are typically lower during the second and third quarters than in the first and fourth quarters.

We assess the severity of winter weather compared to recent averages, using official government snow data and comparisons of our sales volumes to historical trends and other relevant data. Weather affects our highway and consumer and industrial deicing salt sales volumes and resulting gross profit. In our assessment, the winter weather in the markets we serve was near average in the 2014-2015 winter season, as the fourth quarter of 2014 was below average and the first quarter of 2015 was above average. However, the timing of the sales during the winter season was inconsistent with typical sales patterns creating a favorable impact in the fourth quarter of 2014 with an offsetting negative impact in sales and earnings in the first quarter of 2015. In our assessment, the effect of winter weather in the markets we serve was above average in the first quarter of 2014. Due to the severe 2013-2014 winter season, we purchased imported salt in the second half of 2014 and into 2015 in order to serve greater customer demand. These purchases favorably impacted our gross profit but unfavorably impacted our per-unit production costs. In addition, unplanned downtime at our North American mines in the first quarter of 2015 resulted in additional purchases of imported salt and unfavorably impacted our per-unit production costs. The more severe winter weather in the first quarter of 2014 favorably impacted our sales and our operating earnings and depleted inventories in the market compared to the first quarter of 2015. The depleted inventories in 2014 strained the supply for deicing products and resulted in higher contract highway deicing prices during the 2014-2015 winter season. For the upcoming 2015-2016 winter season, we expect lower contract highway deicing prices compared to the prior year as a result of the near average 2014-2015 winter season in the markets we serve. However, contracted volumes for our highway deicing business are expected to increase for the upcoming winter season due to more highway deicing commitment volumes won in North America compared to the prior year.

#### Plant Nutrition Segment

Our plant nutrition segment includes sales of specialty plant nutrition products including SOP as well as micronutrient and other products under our Wolf Trax® product line. SOP, a specialty potassium fertilizer product which is also an ingredient in specialty fertilizer blends, is used as a potassium source for high-value or chloride-sensitive crops and turf. The yields and/or quality of many high-value or chloride-sensitive crops are generally better when SOP is used as a potassium nutrient rather than potassium chloride (“KCl”). Our SOP product is marketed under the brand name Protassium+™. Our Wolf Trax® product line is produced using proprietary and patented technologies.

The fertilizer market is influenced by many factors such as world grain and food supply, changes in consumer diets, general levels of economic activity, governmental food programs, and governmental agriculture and energy policies around the world. Economic factors may impact the amount or type of crop grown in certain locations or the type or amount of fertilizer product used. Over the last decade, worldwide consumption of potash and other crop nutrients has increased in response to growing populations and the need for additional food supplies. We expect the long-term demand for potassium and other plant nutrients to continue to grow as arable land per capita decreases, thereby requiring crop yield efficiencies.

Our domestic sales of Protassium+™ are concentrated in the Western and Southeastern U.S. where the crops and soil conditions favor the use of low-chloride potassium nutrients, such as SOP. Consequently, weather patterns and field conditions in these locations can impact the amount of plant nutrient sales volumes. Additionally, the demand for and market price of Protassium+™ may be affected by the broader potash market and the economics of the specialty crops SOP serves. In the third quarter of 2015, our SOP sales have been unfavorably impacted by weakness in the broader agricultural market in certain regions of North America.

Our SOP production facility in Ogden, Utah, the largest in North America and one of only three large-scale SOP solar brine evaporation operations in the world, utilizes naturally occurring brines in its production process. The brine moves through a series of solar evaporation ponds over a two to three-year production cycle. Since our production process relies on solar evaporation during the summer to produce SOP at our Ogden facility, the intensity of heat and wind speeds and relative dryness of the weather conditions during that time impacts the amount of solar evaporation which occurs and correspondingly, the amount of mineral feedstock available to convert into finished product. We expect the solar, pond-based effective capacity to be up to 320,000 tons annually for the Ogden facility when weather conditions at our site are typical. We are focusing our sales efforts domestically in markets which typically yield higher average selling prices, net of shipping and handling costs, due to their proximity to our facilities.

Our SOP production in Saskatchewan, Canada contributes 40,000 tons to our SOP capacity. We combine sulfate-rich brine with sourced KCl to create SOP through ion exchange and glaserite processes at this facility. We purchase the KCl under a long-term supply agreement. This product is high-purity and in addition to crop nutrient applications is often used in specialty, non-agricultural applications.

In April 2014, we completed the acquisition of Wolf Trax Inc., a privately-held Canadian corporation (renamed Compass Minerals Manitoba Inc. (“Compass Manitoba”)), for approximately $86.5 million at the closing date in cash after customary post-closing adjustments. The acquisition enhanced our position as a key resource for premium plant nutrition products by adding innovative crop nutrient products based upon proprietary and patented technologies.

Beginning in the latter half of 2013, we purchased and consumed KCl feedstock at our Ogden facility to supplement the potassium available for our SOP harvest, and we increased the volume of KCl feedstock in 2014. These KCl feedstock purchases helped increase production volumes, yet resulted in increased per-unit costs. In addition, we experienced heavy localized rainfall during the summer of 2014 which limited our deposit of raw materials and will result in a continuation of the purchases of KCl and/or potassium feedstock in 2015 and at higher levels than in 2014. The 2015 SOP solar harvest was also impacted by wet weather at the end of the evaporation season. We have yet to determine the impact on our 2015 harvest. As the spread between market prices for SOP and KCl has increased, the economics of producing SOP partly from KCl has improved for our unique KCl conversion process. While these KCl purchases will increase our expected full-year product cost and reduce the resulting margin percentages, they are also expected to increase our gross profit. Future purchases of KCl will be based upon several factors, including but not limited to, the cost of utilizing the sourced KCl in our SOP process, our SOP solar harvest and KCl market prices. We currently expect to continue to supplement our pond-based SOP production as long as it is economically feasible to do so.

#### General

We contract bulk shipping vessels, barge, trucking and rail services to move products from our production facilities to distribution outlets and customers. Our North American salt mines and SOP production facilities are near either water or rail transport systems, which reduces our shipping and handling costs compared to alternative methods of distribution. However, shipping and handling costs still account for a relatively large portion of the total delivered cost of our products. Fuel prices declined in the latter half of 2014 and declined further in the first nine months of 2015. However, portions of the transportation industry have been impacted by supply constraints, particularly the trucking and rail sectors, which have increased costs in 2015 in some of our service regions. Future period shipping and handling per-unit costs will continue to be influenced by oil-based fuel costs and transportation supply constraints.

Manpower costs; energy costs; packaging; and certain raw material costs, particularly KCl, which can be used to make a portion of our SOP, deicing and water conditioning products, are also significant. Our production workforce is typically represented by labor unions with multi-year collective bargaining agreements. Our energy costs result from the consumption of electricity with relatively stable, rate-regulated pricing, and natural gas, which can have significant pricing volatility. We manage the pricing volatility of our natural gas purchases with natural gas forward swap contracts up to 36 months in advance of purchases, helping to reduce the impact of short-term spot market price volatility.

The consolidated financial statements have been prepared to present the historical financial condition, results of operations and cash flows for the Company which include our salt segment, plant nutrition segment, our records management business and unallocated corporate activities. The results of operations for Compass Manitoba have been included in our plant nutrition segment results from the date of acquisition. The results of operations of the records management business and other incidental revenues include sales of $2.6 million and $2.4 million and $8.6 million and $7.4 million for the three and nine months ended September 30, 2015 and 2014, respectively, and are not material to our consolidated financial statements and consequently, are not included in the table below. The following tables and discussion should be read in conjunction with the information contained in our consolidated financial statements and the accompanying notes included elsewhere in this quarterly report.

| Salt Sales (in millions) | Three Months Ended September 30, 2015 | 2014 | Nine Months Ended September 30, 2015 | 2014 |
| --- | ---: | ---: | ---: | ---: |
| Salt sales | $179.9 | $175.4 | $612.9 | $647.3 |
| Less: salt shipping and handling | 48.5 | 51.6 | 178.1 | 211.7 |
| Salt product sales | $131.4 | $123.8 | $434.8 | $435.6 |
| **Salt Sales Volumes (thousands of tons)** |  |  |  |  |
| Highway deicing | 1,618 | 1,460 | 6,476 | 7,192 |
| Consumer and industrial | 600 | 612 | 1,573 | 1,823 |
| Total tons sold | 2,218 | 2,072 | 8,049 | 9,015 |
| **Average Salt Sales Price (per ton)** |  |  |  |  |
| Highway deicing | $55.62 | $57.19 | $59.32 | $53.24 |
| Consumer and industrial | 149.82 | 150.16 | 145.39 | 145.04 |
| Combined | 81.10 | 84.65 | 76.14 | 71.80 |
| **Plant Nutrition Sales (in millions)** |  |  |  |  |
| Plant nutrition sales | $50.2 | $62.7 | $187.9 | $194.4 |
| Less: Plant nutrition shipping and handling | 4.7 | 5.9 | 17.8 | 21.3 |
| Plant Nutrition product sales | $45.5 | $56.8 | $170.1 | $173.1 |
| **Plant Nutrition Sales Volumes (thousands of tons)** | 67 | 86 | 249 | 291 |
| **Plant Nutrition Average Price (per ton)** | $751 | $736 | $756 | $669 |

### Three Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014

#### Sales

Sales for the third quarter of 2015 of $232.7 million decreased $7.8 million, or 3% compared to $240.5 million for the same quarter of 2014. Sales primarily include revenues from our salt and plant nutrition products, or “product sales,” as well as revenues from our records management business, and shipping and handling costs incurred to deliver salt and plant nutrition products to our customers. Shipping and handling costs decreased $4.3 million from $57.5 million in the third quarter of 2014 to $53.2 million in the third quarter of 2015 due primarily to lower per-unit salt shipping and handling costs and lower plant nutrition sales volumes in the third quarter of 2015 compared to same period of 2014.

Product sales for the third quarter of 2015 of $176.9 million decreased $3.7 million compared to $180.6 million for the same period of 2014, principally reflecting lower plant nutrition segment product sales offset partially by higher salt segment product sales.

Salt product sales for the third quarter of 2015 of $131.4 million increased $7.6 million, or 6% compared to $123.8 million for the same period in 2014. Salt sales volumes in the quarter increased by 146,000 tons from 2014 levels principally due to higher highway deicing sales volumes, primarily in the U.K., and higher sales volumes to our chemical customers. The increase in salt sales volumes contributed approximately $11 million to the increase in salt product sales. These increases were offset partially by the impact of exchange rates used to translate our operations denominated in foreign currencies into U.S. dollars in the third quarter of 2015 compared to the exchange rates used in the third quarter of 2014, which unfavorably impacted salt product sales by approximately $5 million.

Plant nutrition product sales for the third quarter of 2015 of $45.5 million decreased $11.3 million, or 20% compared to $56.8 million for the same period in 2014. This decrease was due primarily to a decrease in plant nutrition sales volumes of 19,000 tons (22%) in the third quarter of 2015 compared to the prior year due to the impact of the weakness in the broader agricultural market in North America. This decrease was partially offset by an increase in our average per-ton market price of approximately 2% during the third quarter of 2015 compared to the same period in 2014.

#### Gross Profit

Gross profit for the third quarter of 2015 of $68.0 million decreased $81.8 million, or 55% compared to $149.8 million in the third quarter of 2014 due to decreases in both the salt and plant nutrition segments. As a percent of total sales, the gross margin for the third quarter of 2015 decreased by 33 percentage points from 62% in the third quarter of 2014 to 29% in the third quarter of 2015. The gross profit for the salt segment decreased by approximately $73 million due primarily to the settlement of the insurance claim related to the tornado in Goderich, Ontario. In the third quarter of 2014, we recognized a gain related to the insurance settlement in the salt segment which increased gross profit by $82.3 million (see Note 2). In addition, the gross profit for the salt segment was favorably impacted by higher sales volumes for highway deicing products, lower shipping and handling costs and the favorable impact of product mix on gross profit. Salt per-unit costs in both periods were unfavorably impacted by sales of imported salt purchased to supplement our production as a result of the more severe 2013-2014 winter season.

The gross profit for the plant nutrition segment decreased by approximately $10 million in the third quarter of 2015 compared to the same period in the prior year. The decrease in plant nutrition gross profit was primarily due to a decline in plant nutrition sales volumes and an increase in per-unit production costs, as we purchased and consumed KCl and other mineral feedstock to supplement production due to the poor 2014 evaporation season.

#### Selling, General and Administrative Expenses

Selling, general and administrative expenses for the third quarter of 2015 of $27.2 million increased $0.4 million compared to $26.8 million for the same period of 2014 and increased from 11.1% to 11.7% as a percentage of sales. The increase in expense is principally due to higher employee compensation expenses and information technology costs in corporate and other, and higher advertising expenses in our plant nutrition segment. These increases were offset partially by lower employee compensation expenses in our salt segment.

#### Other (Income) Expense, Net

Other income was $4.3 million for the third quarter of 2015 and was $3.1 million for the third quarter of 2014. Net foreign exchange gains were $4.1 million in the third quarter of 2015 and $2.7 million in the third quarter of 2014.

#### Income Tax Expense

Income tax expense for the third quarter of 2015 was $12.7 million as compared to $32.7 million for the third quarter of 2014. Our effective tax rate for the three months ended September 30, 2015 increased from the prior year due to refinements made in the third quarter of 2015 related to the expected full-year effective tax rate. Our income tax provision differs from the U.S. statutory federal income tax rate primarily due to U.S. statutory depletion, domestic manufacturing deductions, state income taxes (net of federal tax benefit), foreign income tax rate differentials, foreign mining taxes, and interest expense recognition differences for book and tax purposes.

### Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014

#### Sales

Sales for the nine months ended September 30, 2015 of $809.4 million decreased $39.7 million, or 5% compared to $849.1 million for the nine months ended September 30, 2014. Shipping and handling costs were $195.9 million during the first nine months of 2015, a decrease of $37.1 million compared to $233.0 million for the same period in 2014. The decrease in shipping and handling costs is primarily due to lower salt and plant nutrition sales volumes and lower per-unit shipping and handling costs in the first nine months of 2015 compared to the same period of 2014.

Product sales for the first nine months of 2015 of $604.9 million decreased $3.8 million from $608.7 million in the same period of 2014, reflecting slightly lower product sales in the plant nutrition and salt segments.

Salt product sales of $434.8 million for the nine months ended September 30, 2015 decreased $0.8 million compared to $435.6 million in the same period of 2014. The decrease in the first nine months of 2015 was due primarily to lower salt sales volumes, which contributed approximately $51 million to the decrease in salt product sales. Salt sales volumes in the first nine months of 2015 decreased by 1.0 million tons from 2014 levels due to lower North American highway and consumer deicing sales volumes.

The winter weather experienced in the first quarter of 2014 was more severe in the markets we serve in North America compared to the winter weather experienced in the first quarter of 2015. In addition, the exchange rates used to translate our operations denominated in foreign currencies into U.S. dollars in the first nine months of 2015 unfavorably impacted salt product sales by approximately $16 million compared to the exchange rates used in the first nine months of 2014. The decrease in salt product sales was offset partially by an increase in highway salt deicing average selling prices which favorably impacted salt product sales by approximately $65 million due primarily to higher contract sales prices compared to the prior year.

Plant nutrition product sales during the first nine months of 2015 of $170.1 million decreased $3.0 million, or 2% compared to $173.1 million for the same period in 2014. The decrease in plant nutrition product sales was primarily due to a 14% decrease in sales volumes. This decrease was offset partially by a 13% increase in average selling price realized during the first nine months of 2015 compared to the same period in the prior year. The average selling price for plant nutrition products benefited from higher market prices for SOP products in the first nine months of 2015 compared to the first nine months of 2014.

#### Gross Profit

Gross profit for the first nine months of 2015 of $231.8 million decreased $47.8 million, or 17% compared to $279.6 million in the same period of 2014. As a percent of sales, gross margin decreased by four percentage points, from 33% in the first nine months of 2014 to 29% in the first nine months of 2015. The gross profit for the salt segment decreased by approximately $48 million due primarily to the settlement of the insurance claim related to a tornado in Goderich, Ontario in 2011. In the third quarter of 2014, we recognized a gain related to the insurance settlement in the salt segment which increased gross profit by $82.3 million (see Note 2). The first nine months of 2015 was also impacted by higher average selling prices for highway deicing products, which was offset partially by lower salt sales volumes. Salt per-unit costs were unfavorably impacted by unplanned downtime at our North American mines in the first quarter of 2015, additional costs of $2 million in the first quarter of 2015 related to a 2010 labor dispute and imported purchased salt used to supplement our 2015 production as a result of the more severe 2013-2014 winter season. In addition, the effects of exchange rates used to translate our operations denominated in foreign currencies into U.S. dollars in the first nine months of 2015 unfavorably impacted salt gross profit by approximately $3 million compared to the exchange rates used in the first nine months of 2014.

Gross profit for the plant nutrition segment decreased by approximately $3 million in the first nine months of 2015 due principally to lower plant nutrition sales volumes and an increase in per-unit production costs, as we purchased and consumed KCl and other mineral feedstock to supplement production due to the poor 2014 evaporation season, which was offset partially by higher average sales prices realized compared to the same period in the prior year. Both periods were impacted by higher per-unit production costs as we purchased and consumed KCl and other mineral feedstock to supplement production although costs in the first nine months of 2015 were higher than the same period in 2014.

#### Selling, General and Administrative Expenses

Selling, general and administrative expenses for the first nine months of 2015 of $82.3 million increased $6.1 million compared to $76.2 million for the same period of 2014 and increased to 10.2% from 9.0% as a percentage of sales. The increase in expense is partially related to higher costs in our plant nutrition segment due to the increased costs associated with the ongoing operation of Wolf Trax Inc. which was acquired in April 2014. In addition, selling, general and administrative expenses were higher in corporate and other due to higher information technology and variable compensation costs.

#### Interest Expense

Interest expense for the first nine months of 2015 of $16.1 million increased $1.7 million compared to $14.4 million for the same period in 2014. This increase in interest expense is primarily due to the refinancing of our $100.0 million 8% Senior Notes with $250.0 million 4.875% Senior Notes in June 2014.

#### Other (Income) Expense, Net

Other income was $9.0 million for the first nine months of 2015 and other expense was $0.9 million in the first nine months of 2014. The second quarter of 2014 includes a $6.9 million charge related to the refinancing of our 8% Senior Notes in June 2014, comprised of call premiums of $4.0 million, the write-off of existing deferred financing fees of $1.4 million and the $1.5 million write-off of the original issue discount on our 8% Senior Notes. Foreign exchange gains increased from $5.0 million in the first nine months of 2014 to $8.2 million in the first nine months of 2015.

#### Income Tax Expense

Income tax expense of $41.6 million for the nine months ended September 30, 2015 decreased $9.1 million from $50.7 million for the same period in 2014 reflecting a decrease in pretax income in 2015. Our income tax provision differs from the U.S. statutory federal income tax rate primarily due to U.S. statutory depletion, domestic manufacturing deductions, state income taxes (net of federal tax benefit), foreign income tax rate differentials, foreign mining taxes, and interest expense recognition differences for book and tax purposes.

### Liquidity and Capital Resources

Historically, we have used cash generated from operations to meet our working capital needs, to fund capital expenditures, to pay dividends and to repay our debt. Principally due to the nature of our deicing business, our cash flows from operations are seasonal with the majority of our cash flows from operations generated during the first half of the calendar year. When we have not been able to meet our short-term liquidity or capital needs with cash from operations, whether as a result of the seasonality of our business or other causes, we have met those needs with borrowings under our $125 million revolving credit facility. We expect to meet the ongoing requirements for debt service, any declared dividends and capital expenditures from these sources. To a certain extent, this is subject to general economic, financial, competitive, legislative, regulatory, weather and other factors that are beyond our control.

Cash and cash equivalents of $119.1 million as of September 30, 2015 decreased $147.7 million over December 31, 2014. We generated $95.1 million of operating cash flows in the first nine months of 2015. We used cash on hand and cash flows from operations to fund capital expenditures of $154.4 million and to pay dividends on our common stock of $67.0 million.

As of September 30, 2015, we had $623.5 million of principal indebtedness consisting of $250.0 million 4.875% Senior Notes due 2024 and $373.5 million of borrowings outstanding under our credit agreement. No amounts were outstanding under our $125 million revolving credit facility as of September 30, 2015. We had $6.3 million of outstanding letters of credit as of September 30, 2015, which reduced our revolving credit facility borrowing availability to $118.7 million.

Our debt service obligations could, under certain circumstances, materially affect our financial condition and impair our ability to operate our business or pursue our business strategies. As a holding company, CMI’s investments in its operating subsidiaries constitute substantially all of its assets. Consequently, our subsidiaries conduct all of our consolidated operating activities and own substantially all of our operating assets. The principal source of the cash needed to pay our obligations is the cash generated from our subsidiaries’ operations and their borrowings. Our subsidiaries are not obligated to make funds available to CMI. Furthermore, we must remain in compliance with the terms of our credit agreement, including the total leverage ratio and interest coverage ratio, in order to make payments on our 4.875% Senior Notes or pay dividends to our stockholders. We must also comply with the terms of our indenture. Although we are in compliance with our debt covenants as of September 30, 2015, we can make no assurance that we will remain in compliance with these ratios nor can we make any assurance that the agreements governing the current and future indebtedness of our subsidiaries will permit our subsidiaries to provide us with sufficient dividends, distributions or loans to fund scheduled interest payments on the 4.875% Senior Notes, when due. If we consummate an additional acquisition, our debt service requirements could increase. Furthermore, we may need to refinance all or a portion of our indebtedness on or before maturity; however, we cannot provide assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

We have been able to manage our cash flows generated and used across the Company to permanently reinvest earnings in our foreign jurisdictions or efficiently repatriate those funds to the U.S. As of September 30, 2015, we had $90.3 million of cash and cash equivalents (in the consolidated balance sheets) that was either held directly or indirectly by foreign subsidiaries. Due in large part to the seasonality of our deicing salt business, we experience large changes in our working capital requirements from quarter to quarter. Typically, our consolidated working capital requirements are the highest in the fourth quarter and lowest in the second quarter. When needed, we fund short-term working capital requirements by accessing our $125 million revolving credit facility. Due to our ability to generate adequate levels of domestic cash flow on an annual basis, it is our current intention to permanently reinvest our foreign earnings outside of the U.S. However, if we were to repatriate our foreign earnings to the U.S., we may be required to accrue and pay U.S. taxes in accordance with the applicable U.S. tax rules and regulations as a result of the repatriation. We review our tax circumstances on a regular basis with the intent of optimizing cash accessibility and minimizing tax expense.

In addition, the amount of permanently reinvested earnings is influenced by, among other things, the profits generated by our foreign subsidiaries and the amount of investment in those same subsidiaries. The profits generated by our domestic and foreign subsidiaries are, to some extent, impacted by the values charged on the transfer of our products between them. We calculate values charged on transfers based on guidelines established by the multi-national organization which publishes accepted tax guidelines recognized in all of the jurisdictions in which we operate, and those calculated values are the basis upon which our subsidiary income taxes, profits and cash flows are realized. Some of our calculated values have been approved by taxing authorities for certain periods, while the values for those same periods or different periods have been challenged by the same or other taxing authorities. While we believe our calculations are proper and consistent with the accepted guidelines, we can make no assurance that the final resolution of these matters with all of the relevant taxing authorities will be consistent with our existing calculations and resulting financial statements. Additionally, the timing for settling these challenges may not occur for many years. We currently expect the outcome of these matters will not have a material impact on our results of operations. However, it is possible the resolution could impact the amount of earnings attributable to our domestic and foreign subsidiaries, which could impact the amount of permanently reinvested earnings and the tax-efficient access to consolidated cash on hand in all jurisdictions, as well as future cash flows from operations.

See Note 6 to our Consolidated Financial Statements for a discussion regarding our Canadian tax reassessments. See Note 8 to our Consolidated Financial Statements for a discussion regarding labor and litigation matters.

### For the Nine Months Ended September 30, 2015 and 2014

Net cash flows provided by operating activities for the nine months ended September 30, 2015 were $95.1 million, a decrease of $34.6 million compared to $129.7 million for the first nine months of 2014. We had an increase in working capital items of $73.8 million in the first nine months of 2015 compared to an increase of $17.5 million in the first nine months of 2014. These increases reflect the seasonal nature of our deicing products and will vary largely due to the severity and timing of the winter weather in our regions.

Net cash flows used in investing activities of $155.3 million and $147.5 million for the nine months ended September 30, 2015 and 2014, respectively, resulted from capital expenditures of $154.4 million and $83.5 million, respectively. Our capital expenditures in 2015 include multi-year projects to refurbish and expand our Ogden, Utah plant and a shaft relining project at our Goderich, Ontario mine. The remaining capital expenditures were primarily for routine replacements. In April 2014, we acquired Wolf Trax Inc. for $86.5 million on the closing date, and subject to customary post-closing adjustments. In addition, we received $19.4 million of insurance receipts related to the tornado in Goderich, Ontario, that were presented as investment activities during the first nine months of 2014.

Financing activities during the first nine months of 2015 used $67.5 million of cash flows to make dividend payments of $67.0 million and debt payments of $2.9 million. During the first nine months of 2014, financing activities were a source of cash flows of $84.3 million, primarily as a result of the refinancing of our $100.0 million 8% Senior Notes with $250.0 million 4.875% Senior Notes. We also paid dividends of $60.6 million in the first nine months of 2014. Both periods included proceeds received from stock option exercises.

### Sensitivity Analysis Related to EBITDA and Adjusted EBITDA

Management uses a variety of measures to evaluate the performance of CMI. While the consolidated financial statements, taken as a whole, provide an understanding of our overall results of operations, financial condition and cash flows, we analyze components of the consolidated financial statements to identify certain trends and evaluate specific performance areas. In addition to using U.S. GAAP financial measures, such as gross profit, net earnings and cash flows generated by operating activities, management uses EBITDA and EBITDA adjusted for items which management believes are not indicative of our ongoing operating performance (“Adjusted EBITDA”). Both EBITDA and Adjusted EBITDA are non-GAAP financial measures used to evaluate the operating performance of our core business operations. Our resource allocation, financing methods and cost of capital, and income tax positions are managed at a corporate level, apart from the activities of the operating segments, and the operating facilities are located in different taxing jurisdictions, which can cause considerable variation in net earnings. We also use EBITDA and Adjusted EBITDA to assess our operating performance and return on capital, and to evaluate potential acquisitions or other capital projects. EBITDA and Adjusted EBITDA are not calculated under U.S. GAAP and should not be considered in isolation or as a substitute for net earnings, cash flows or other financial data prepared in accordance with U.S. GAAP or as a measure of our overall profitability or liquidity. EBITDA and Adjusted EBITDA exclude interest expense, income taxes and depreciation and amortization, each of which are an essential element of our cost structure and cannot be eliminated. Furthermore, Adjusted EBITDA excludes other cash and non-cash items in other (income) expense. Our borrowings are a significant component of our capital structure and interest expense is a continuing cost of debt. We are also required to pay income taxes, a required and ongoing consequence of our operations. We have a significant investment in capital assets and depreciation and amortization reflect the utilization of those assets in order to generate revenues. Consequently, any measure that excludes these elements has material limitations. While EBITDA and Adjusted EBITDA are frequently used as measures of operating performance, these terms are not necessarily comparable to similarly titled measures of other companies due to the potential inconsistencies in the method of calculation. The calculation of EBITDA and Adjusted EBITDA as used by management is set forth in the table below (in millions).

|  | Three Months Ended September 30, 2015 | 2014 | Nine Months Ended September 30, 2015 | 2014 |
| --- | ---: | ---: | ---: | ---: |
| Net earnings | $27.0 | $87.9 | $100.8 | $137.4 |
| Interest expense | 5.4 | 5.5 | 16.1 | 14.4 |
| Income tax expense | 12.7 | 32.7 | 41.6 | 50.7 |
| Depreciation, depletion and amortization | 19.6 | 20.0 | 57.8 | 57.2 |
| EBITDA | 64.7 | 146.1 | 216.3 | 259.7 |
| Adjustments to EBITDA: |  |  |  |  |
| Gain from insurance settlement | — | (83.3) | — | (83.3) |
| Other (income) expense, net | (4.3) | (3.1) | (9.0) | 0.9 |
| Adjusted EBITDA | $60.4 | $59.7 | $207.3 | $177.3 |

Our operating earnings were favorably impacted in the first quarter of 2014 and unfavorably impacted in the first quarter of 2015 by winter weather in the markets we serve. In both periods of 2014, our operating results include a gain of $83.3 million resulting from the settlement of an insurance claim due to a tornado at our salt facilities in Goderich, Ontario in August 2011.

### Recent Accounting Pronouncements

See Note 1 to our Consolidated Financial Statements for a discussion of recent accounting pronouncements.

### Effects of Currency Fluctuations

We conduct operations in Canada and the U.K. Therefore, our results of operations are subject to both currency transaction risk and currency translation risk. We incur currency transaction risk whenever we or one of our subsidiaries enter into either a purchase or sales transaction using a currency other than the local currency of the transacting entity. With respect to currency translation risk, our financial condition and results of operations are measured and recorded in the relevant local currency and then translated into U.S. dollars for inclusion in our historical consolidated financial statements. Exchange rates between these currencies and the U.S. dollar have fluctuated significantly from time to time and may do so in the future. The majority of our revenues and costs are denominated in U.S. dollars, with British pounds sterling and Canadian dollars also being significant. Significant changes in the value of the Canadian dollar or British pound sterling relative to the U.S. dollar could have a material effect on our financial condition.

Although inflation has not had a significant impact on our operations, our efforts to recover cost increases due to inflation may be hampered as a result of the competitive industries in which we operate.

### Seasonality

We experience a substantial amount of seasonality in our sales, primarily with respect to our deicing products. Consequently, sales and operating income are generally higher in the first and fourth quarters and lower during the second and third quarters of each calendar year. In particular, sales of highway and consumer deicing salt and magnesium chloride products vary based on the severity of the winter conditions in areas where the product is used. Following industry practice in North America, we seek to stockpile sufficient quantities of deicing salt in the second, third and fourth quarters to meet the estimated requirements for the winter season.

## Market risk

As filed, 821 characters.

Our business is subject to various types of market risks that include, but are not limited to, interest rate risk, foreign currency exchange rate risk and commodity pricing risk. Management has taken actions to mitigate our exposure to commodity pricing by entering into forward derivative instruments and may take further actions to mitigate our exposure to interest rates and to changes in the cost of transporting our products due to variations in our contracted carriers’ cost of fuel, which is typically diesel fuel. However, there can be no assurance that our hedging activities will eliminate or substantially reduce these risks. We do not enter into any financial instrument arrangements for speculative purposes. Our market risk exposure related to these items has not changed materially since December 31, 2014.

## Controls and procedures

As filed, 1,453 characters.

*Evaluation of Disclosure Controls and Procedures –* As of the end of the period covered by this report, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) was performed under the supervision and with the participation of the Company’s management, including the CEO and CFO. Based on that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2015 to ensure that information required to be disclosed in the reports it files and submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

For this purpose, disclosure controls and procedures include controls and procedures designed to ensure that information that is required to be disclosed under the Exchange Act is accumulated and communicated to the Company's management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

*Changes in Internal Control Over Financial Reporting -* There has been no change in the Company’s internal control over financial reporting during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 274 characters.

For a discussion of the risk factors applicable to the Company, please refer to Part I, Item 1A. “Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2014. There have been no material changes to the Company’s risk factors as disclosed in such Form 10-K.

Filed Oct 28, 2015.
Source: SEC EDGAR, the filing index for accession 0001227654-15-000006. Last ingested by Listed: Oct 24, 2026, 15:10 ET. No prices; not investment advice.