# Compass Minerals International Inc: Form 10-Q for the period ended Mar 31, 2016

- Company: [Compass Minerals International Inc](/companies/cmp.md) (CIK 1227654)
- Form: 10-Q
- Filed: 2016-04-26
- Accepted by EDGAR: Apr 26, 2016, 16:32 ET
- Period: 2016-03-31
- Accession: 0001227654-16-000155
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1227654/000122765416000155/cmp-20160331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1227654/000122765416000155/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-01-01 to 2016-03-31 | $345.7m | us-gaap:SalesRevenueGoodsNet |
| Gross profit | 3 months, 2016-01-01 to 2016-03-31 | $102.6m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2016-01-01 to 2016-03-31 | $28.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2016-01-01 to 2016-03-31 | $74.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2016-01-01 to 2016-03-31 | $5.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2016-01-01 to 2016-03-31 | $20.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2016-01-01 to 2016-03-31 | $49.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2016-01-01 to 2016-03-31 | $1.46 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2016-01-01 to 2016-03-31 | $1.47 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2016-01-01 to 2016-03-31 | 33,748,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2016-01-01 to 2016-03-31 | $92.6m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 3 months, 2016-01-01 to 2016-03-31 | $43.8m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2016-01-01 to 2016-03-31 | $23.5m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2016-03-31 | $85.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2016-03-31 | $459.8m | us-gaap:AssetsCurrent |
| Total assets | at 2016-03-31 | $1.65bn | us-gaap:Assets |
| Current liabilities | at 2016-03-31 | $136.1m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2016-03-31 | $712.5m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2016-03-31 | $4.9m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2016-03-31 | $702.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 29,558 characters.

All statements, other than statements of historical fact, contained in this Quarterly Report on Form 10-Q 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: hazards of mining, including acts of nature; uninsured risks; difficulties or delays in receiving or renewing required governmental or regulatory approvals; the impact of new technology on the demand for our products; the price or lack of availability of transportation services; agricultural economics, customer expectations about future plan nutrition prices and customer application rates; weather conditions; cyber security issues; the ability to attract and retain skilled personnel or avoid a disruption in our workforce; the impact of competitive products; governmental policies affecting highway maintenance programs, or consumer, industrial or agricultural sectors in localities where we or our customers operate; constraints on supplies and prices of raw materials and energy used in manufacturing certain of our products; changes in tax laws or estimates; domestic and international general business and economic conditions; foreign exchange rates and their fluctuations; the effects of and changes in trade, monetary, environmental and fiscal policies, laws and regulations; the costs and effects of legal and tax proceedings, including environmental and administrative proceedings; the impact of indebtedness and interest rates, including access to additional credit and capital markets; the ability to complete the acquisition of our unconsolidated equity investee; the ability to successfully complete acquisitions or integrate acquired businesses; misappropriation or infringement claims relating to intellectual property; capacity constraints limiting the production of certain products; difficulties or delays in the development, production, testing and marketing of products; market acceptance issues, including the failure of products to generate anticipated sales levels; and other risks referenced from time to time in this report and other filings of ours with the Securities and Exchange Commission (“SEC”), including the “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2015.

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,” the negative of these terms or other comparable terminology. Forward-looking statements include without limitation our expected outlook, including expected bid volumes, sales volumes, plant nutrition results, weakness in the agricultural market, imports of SOP, selling prices, production costs, inventory sales and savings from our cost structure review; our ability to meed debt service requirements, optimize cash accessibility and minimize tax expense; outcomes of any matters with taxing authorities; and amount of debt we may assume if we purchase the remaining equity in Produquímica. These forward-looking 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,” “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 U.S. generally accepted accounting principles (“GAAP”) 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, 2015, 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.

### COMPANY OVERVIEW

Based in the Kansas City metropolitan area, Compass Minerals is a leading producer of essential minerals, including salt, sulfate of potash specialty fertilizer (“SOP”) and magnesium chloride. As of March 31, 2016, we operated 13 production and packaging facilities, including the largest rock salt mine in the world in Goderich, Ontario, Canada and the largest dedicated rock salt mine in the United Kingdom (“U.K.”) in Winsford, Cheshire. Our salt business produces and sells sodium chloride and magnesium chloride, which are used for highway deicing, dust control, consumer deicing, water conditioning, consumer and industrial food preparation, and agricultural and industrial applications. Our solar evaporation facility located in Ogden, Utah, is both the largest SOP production site and the largest solar salt production site in North America. In addition, we operate a records management business utilizing excavated areas of our Winsford salt mine with one other location in London, U.K., which provides services to businesses throughout the U.K.

### CONSOLIDATED RESULTS

The following is a summary of our consolidated results of operations for the quarters ended March 31, 2016, and March 31, 2015. The following discussion should be read in conjunction with the information contained in our Consolidated Financial Statements and the Notes thereto included in this Quarterly Report on Form 10-Q.

### THREE MONTHS ENDED MARCH 31

- Sales decreased 12% to $345.7 million.
- Operating earnings decreased 12% to $74.3 million.
- Salt segment operating earnings increased 7%, partially offsetting a 75% decline in plant nutrition operating earnings.
- Restructuring plan is underway to reduce costs and streamline structure.
- Adjusted earnings before interest, income taxes, depreciation and amortization (“EBITDA”)\* decreased 9% to $94.6 million.
- Diluted earnings per share decreased 18% to $1.46.

\* Refer to “—Sensitivity Analysis Related to EBITDA and Adjusted EBITDA” for a reconciliation to the most directly comparable GAAP financial measure and the reasons we use this non-GAAP measure.

### Gross Profit: Decreased $10.6 million or 9%; Gross Margin increased 1 percentage point from 29% to 30%

- Salt gross profit increased by approximately $5 million.
- The increase in salt gross profit was due primarily to lower sales of purchased salt and lower logistics costs.
- Salt gross profit in the first quarter of 2015 was unfavorably impacted by unplanned downtime at our North American mines and the cost of purchased salt to supplement production.
- The increase in salt gross profit was partially offset by lower salt average selling price and lower salt sales volumes in the first quarter of 2016.
- Lower gross profit for the plant nutrition segment contributed approximately $15 million to the decrease in gross profit.
- The decrease in plant nutrition gross profit was primarily due to lower plant nutrition average sales prices and lower plant nutrition sales volumes.
- In addition, an increase in per-unit production costs contributed to the decline in plant nutrition gross profit.
- The decrease in plant nutrition segment gross profit was partially offset by a $1.9 million gain from the disposition of property at our Ogden, Utah facility.

### OTHER EXPENSES AND INCOME

### SG&A: Decreased $0.2 million; Increased 0.9 percentage points to 8.2% from 7.3% as a percentage of sales

- The decrease in expense was due to a $1.2 million decrease in professional services expenses, primarily in corporate, and lower total corporate salaries expense.
- The decrease was partially offset by $1.7 million of plant nutrition and corporate severance costs related to the restructuring of our business.

### Interest Expense: Increased $0.4 million to $5.8 million

- The increase was primarily due to the $100 million term loan used to fund the acquisition of our 35% equity interest in Produquímica Indústria e Comércio S.A., a Brazilian corporation (“Produquímica”), in December 2015.

### Net Earnings from Equity Investment: Increased $0.4 million to $0.4 million

- We recognized earnings of $0.4 million related to our share of Produquimica’s net earnings from the date of acquisition through December 31, 2016.

### Other Income: Decreased $2.7 million to $0.8 million

- The decrease was primarily the result of lower foreign exchange gains.

### Income Tax Expense: Decreased $2.2 million to $20.0 million

- The decrease in income tax expense was primarily due to lower pre-tax income.
- Our income tax provision in both periods differs from the U.S. statutory rate primarily due to U.S. statutory depletion, domestic manufacturing deductions, state income taxes, foreign income, mining and withholding taxes and interest expense recognition differences for tax and financial reporting purposes. Our effective tax rate increased from 27% in the first quarter of 2015 to 29% in the first quarter of 2016.

### OUTLOOK

- Because of mild winter weather in the first quarter or 2016, we expect that bid volumes for the upcoming highway deicing season will be reduced from 2015 levels. We expect full-year salt sales volumes to range from 11 million tons to 11.8 million tons.
- We believe that the plant nutrition outlook continues to be negatively impacted by the overall weakness in the agriculture market, as well as increased imports of SOP driven largely by the current strength of the U.S. dollar.
- We believe that our annual 2016 plant nutrition selling prices will be negatively impacted in some geographies as we look to drive SOP sales volumes up to more normal levels.
- We expect annual 2016 plant nutrition sales volumes to surpass annual 2015 sales volumes.
- We expect to benefit from improved plant nutrition production costs in the second half of 2016 after we sell through higher-cost, KCl-based inventory from 2015.
- In February 2016, we announced steps to align our inventories with market demand and we are undergoing a thorough review of our cost structure. This effort resulted in a restructuring charge in the first quarter of 2016 of $3.2 million, or $0.06 per diluted share, related to a workforce reduction of approximately 150 positions. A significant portion of this total results from our investment in continuous mining at our Goderich, Ontario location. We expect the majority of the workforce reduction to be completed by the end of 2016. We expect ongoing annualized savings of approximately $15 million beginning in 2018.

### OPERATING SEGMENT PERFORMANCE

The following financial results represent consolidated financial information with respect to sales from our salt and plant nutrition segments. Sales primarily include revenues from the sales of our products, or “product sales,” and the impact of shipping and handling costs incurred to deliver salt and plant nutrition products to our customers.

The results of operations of the consolidated records management business and other incidental revenues include sales of $2.5 and $2.7 million for first quarter of 2016 and 2015, respectively. These revenues are not material to our consolidated financial results and are not included in the following operating segment financial data.

### SALT SEGMENT RESULTS

### THREE MONTHS ENDED MARCH 31

- Salt sales were $292.1 million, a decrease of 8%, primarily due to lower average salt selling prices and mild winter weather in the first quarter of 2016.
- Salt average selling price decreased 5%.
- Salt volumes were down 3%.

### Salt Product Sales: Decreased 6% or $13.1 million

- Salt sales volumes declined 148,000 tons, or 3%, due to lower highway and consumer deicing sales volumes as a result of milder winter weather experienced in the first quarter of 2016 in the U.K. when compared to the same period in the prior year.
- Salt sales volumes in North America were favorably impacted by increased highway deicing commitment volumes resulting from the prior bid season.
- A decrease of 5% in salt average selling prices contributed approximately $16 million to the decline in salt product sales, and included the unfavorable foreign currency exchange rates.
- Favorable logistics costs partially offset the decline in salt product sales.

### PLANT NUTRITION SEGMENT RESULTS

### THREE MONTHS ENDED MARCH 31

- Plant nutrition sales were $51.1 million, a decrease of 31%.
- Plant nutrition sales volumes decreased by 24%.
- Plant nutrition average selling price decreased by 9%.

### Plant Nutrition Product Sales: Decreased 32% or $21.5 million

- Plant nutrition sales volumes declined 23,000 tons, or 24%, and contributed approximately $15 million to the decrease in plant nutrition product sales due to weak demand in the agriculture market.
- The 9% decrease in plant nutrition average selling price contributed approximately $7 million to the decrease in plant nutrition product sales.

### Liquidity and Capital Resources

Historically, we have used cash generated from operations to meet our working capital needs, fund capital expenditures, pay dividends and 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 $85.2 million as of March 31, 2016, increased $26.8 million over December 31, 2015. We generated $92.6 million of operating cash flows in the first three months of 2016. In the first three months of 2016, we used cash on hand and cash flows from operations to fund capital expenditures of $43.8 million and to pay dividends on our common stock of $23.5 million.

As of March 31, 2016, we had $717.4 million of indebtedness, net of deferred financing costs, consisting of $246.6 million 4.875% senior notes due July 2024 and $470.8 million of borrowings outstanding under our credit agreement. No amounts were outstanding under our $125 million revolving credit facility as of March 31, 2016. We had $6.0 million of outstanding letters of credit as of March 31, 2016, which reduced our revolving credit facility borrowing availability to $119.0 million. In April 2016, we entered into a new $700 million secured credit agreement that consists of a $400 million term loan and a $300 million revolving credit facility, which replaced our previously existing term loan and revolving credit facility. The new credit agreement has a final maturity of July 1, 2021.

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 debt 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 March 31, 2016, 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 our debt 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 Compass Minerals to permanently reinvest earnings in our foreign jurisdictions or efficiently repatriate those funds to the U.S. As of March 31, 2016, we had $71.9 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 a 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.

In December 2015, we completed the acquisition of a 35% equity stake in Produquímica, one of Brazil’s leading manufacturers and distributors of specialty plant nutrients. The all-cash transaction was valued at $452.4 million Brazilian reals ($114.1 million U.S. dollars at closing), subject to customary post-closing adjustments. Of the 35% equity stake, 6% consists of common shares and the remaining 29% consists of preferred shares that will be converted to common shares upon the settlement of certain post-closing adjustments, including additional consideration to be paid by us based upon Produquímica’s 2015 financial performance. The additional consideration of $4.7 million U.S. dollars at current exchange rates will be paid in the second quarter of 2016 and has been recorded as an increase in the investment in equity investee in our first quarter 2016 consolidated balance sheets.

As part of the Produquímica investment, the majority shareholders have a put option that may be exercised in October 2016, 2017 or 2018 to sell to us the remaining equity in Produquímica. The funding and closing of the acquisition would occur early the following year, subject to regulatory review. We also have a call option to purchase the remaining equity in Produquímica that is exercisable in October 2018. The put and call option exercise price is based on full-year adjusted EBITDA at a multiple of 9.4x (2016), 9.3x (2017) or 9.2x (2018). Currently, we estimate that the cost to purchase the remaining equity in Produquímica would be approximately $250 to $270 million U.S. dollars based upon the projected performance of Produquímica and current exchange rates. In addition, if we purchase the remaining equity in Produquímica, we expect to assume debt denominated in Brazilian reals of approximately $100 million U.S. dollars; however, the ultimate amount of consideration paid for the acquisition will be dependent upon the future performance of Produquímica and the exchange rate of the Brazilian reals to U.S. dollars. To fund the acquisition, we may need to obtain new financing, use other sources of funding, use cash on hand or any combination thereof.

| Q1 2016 | Q1 2015 |
| --- | --- |
| **Operating Activities:** |  |
| » Net earnings were $49.7 million. » Working capital items were a source of operating cash flows of $24.6 million. | » Net earnings were $60.6 million. » Working capital items were a source of operating cash flows of $34.3 million. |
| **Investing Activities:** |  |
| » Net cash flows used by investing activities included $43.8 million of capital expenditures. | » Net cash flows used by investing activities included $41.7 million of capital expenditures. |
| **Financing Activities:** |  |
| » Net cash flows used by financing activities included the payment of dividends of $23.5 million. » In addition, we had net payments on our debt of $5.7 million and $0.6 million in proceeds received from stock option exercises. | » Net cash flows used by financing activities included the payment of dividends of $22.4 million. » In addition, we made net payments on long-term debt of $0.9 and received proceeds from stock option exercises of $2.1 million |

### Sensitivity Analysis Related to EBITDA and Adjusted EBITDA

Management uses a variety of measures to evaluate the performance of Compass Minerals. 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 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, cost of capital and income tax positions are managed at a corporate level, apart from the activities of the operating segments. In addition, 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 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 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 March 31, 2016 | 2015 |
| --- | ---: | ---: |
| Net earnings | $49.7 | $60.6 |
| Interest expense | 5.8 | 5.4 |
| Income tax expense | 20.0 | 22.2 |
| Depreciation, depletion and amortization | 19.9 | 19.1 |
| EBITDA | 95.4 | 107.3 |
| Adjustments to EBITDA: |  |  |
| Other income, net | (0.8) | (3.5) |
| Adjusted EBITDA | $94.6 | $103.8 |

26

### 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. We also have an equity investment in Produquímica, a Brazilian corporation. 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, British pound sterling or Brazilian real 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, 2015.

## Controls and procedures

As filed, 1,603 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”)) was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2016, to ensure that information required to be disclosed in the reports it files and submits under the Exchange Act 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 Chief Executive Officer and Chief Financial Officer, 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, 280 characters.

For a discussion of the risk factors applicable to Compass Minerals, please refer to Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015. There have been no material changes to our risk factors as disclosed in such Annual Report.

Filed Apr 26, 2016.
Source: SEC EDGAR, the filing index for accession 0001227654-16-000155. Last ingested by Listed: Oct 24, 2026, 15:10 ET. No prices; not investment advice.