# Compass Minerals International Inc: Form 10-Q for the period ended Sep 30, 2018

- Company: [Compass Minerals International Inc](/companies/cmp.md) (CIK 1227654)
- Form: 10-Q
- Filed: 2018-11-01
- Accepted by EDGAR: Nov 1, 2018, 20:17 ET
- Period: 2018-09-30
- Accession: 0001227654-18-000207
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1227654/000122765418000207/cmp-20180930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1227654/000122765418000207/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2018-07-01 to 2018-09-30 | $322.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2018-01-01 to 2018-09-30 | $1.01bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Gross profit | 3 months, 2018-07-01 to 2018-09-30 | $71.4m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2018-01-01 to 2018-09-30 | $179.3m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2018-07-01 to 2018-09-30 | $38.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2018-01-01 to 2018-09-30 | $117.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2018-07-01 to 2018-09-30 | $32.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2018-01-01 to 2018-09-30 | $62.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2018-07-01 to 2018-09-30 | $15.9m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2018-01-01 to 2018-09-30 | $44.5m | us-gaap:InterestExpense |
| Income tax | 3 months, 2018-07-01 to 2018-09-30 | $1.7m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2018-01-01 to 2018-09-30 | $1.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2018-07-01 to 2018-09-30 | $12.8m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2018-01-01 to 2018-09-30 | $17.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2018-07-01 to 2018-09-30 | $0.37 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2018-01-01 to 2018-09-30 | $0.51 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2018-07-01 to 2018-09-30 | $0.37 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2018-01-01 to 2018-09-30 | $0.52 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2018-07-01 to 2018-09-30 | 33,851,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2018-01-01 to 2018-09-30 | 33,846,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2018-01-01 to 2018-09-30 | $165.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2018-01-01 to 2018-09-30 | $72.2m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 9 months, 2018-01-01 to 2018-09-30 | $73.4m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2018-09-30 | $36.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2018-09-30 | $645.1m | us-gaap:AssetsCurrent |
| Total assets | at 2018-09-30 | $2.35bn | us-gaap:Assets |
| Current liabilities | at 2018-09-30 | $252.9m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2018-09-30 | $1.31bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2018-09-30 | $28.2m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2018-09-30 | $531.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 44,503 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: risks related to our mining and industrial operations; geological conditions; dependency on a limited number of key production and distribution facilities and critical equipment; strikes, other forms of work stoppage or slowdown or other union activities, including the impact of the Goderich mine strike; weather conditions; the inability to fund necessary capital expenditures or successfully complete capital projects; supply constraints or price increases for energy and raw materials used in our production processes; our indebtedness and ability to pay our indebtedness; restrictions in our debt agreements that may limit our ability to operate our business or require accelerated debt payments; tax liabilities; financial assurance requirements; the inability of our customers to access credit or a default by our customers of trade credit extended by us or financing we have guaranteed; restrictions on our ability to pay dividends; the impact of competition on the sales of our products; risks associated with our international operations and sales; the impact of anticipated changes in plant nutrition product prices and customer application rates; conditions in the agricultural sector and supply and demand imbalances for competing plant nutrition products; increasing costs or a lack of availability of transportation services; the seasonal demand for our products; our rights and governmental authorizations to mine and operate our properties; compliance with foreign and U.S. laws and regulations applicable to our international operations; compliance with environmental, health and safety laws and regulations; environmental liabilities; misappropriation or infringement claims relating to intellectual property; product liability claims and product recalls; inability to obtain required product registrations or increased regulatory requirements; changes in industry standards and regulatory requirements; our ability to successfully implement our strategies; our ability to expand our business through acquisitions, integrate acquired businesses and realize anticipated benefits from acquisitions; the ability to access and control our computer systems and information technology or the inability to protect confidential data; the loss of key personnel; domestic and international general business and economic conditions; and other risks referenced from time to time in this report and our other filings with the Securities and Exchange Commission (the “SEC”), including the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2017.

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 statements about the highway deicing markets; weather; our expected sales, sales volumes, sales prices, Goderich mine post-strike transition impacts and logistics costs; fertilizer demand; farmer economics, crop prices; the seasonal distribution of working capital requirements; our reinvestment of foreign earnings outside the U.S.; our ability to optimize cash accessibility, minimize tax expense and meet debt service requirements; future tax payments and tax refunds; outcomes of matters with taxing authorities; the effects of currency fluctuations and inflation; and the seasonality of our business. 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 to the “Company,” “Compass Minerals,” “our,” “us” and “we” refer to Compass Minerals International, Inc. (“CMI,” the parent holding company) and its consolidated subsidiaries. Except where otherwise noted, references to North America include only the continental United States (the “U.S.”) and Canada, and references to the United Kingdom (the “U.K.”) include only England, Scotland and Wales. Except where otherwise noted, all references to tons refer to “short tons” and all amounts are in U.S. dollars. One short ton equals 2,000 pounds.

### Critical Accounting Estimates

Preparation of our consolidated financial statements in accordance with U.S. generally accepted accounting principles (“U.S. 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, 2017 describe the significant accounting estimates and policies used in preparation of our consolidated financial statements. For a description of our critical accounting policies and estimates affecting revenue recognition, see Note 2 to our Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. Actual results in these areas could differ from management’s estimates.

### Company Overview

Compass Minerals is a leading producer of essential minerals, including salt, sulfate of potash (“SOP”) specialty fertilizer and magnesium chloride. As of September 30, 2018, we operated 22 production and packaging facilities, including:

- The largest rock salt mine in the world in Goderich, Ontario, Canada;
- The largest dedicated rock salt mine in the U.K. in Winsford, Cheshire;
- A solar evaporation facility located in Ogden, Utah, which is both the largest SOP production site and the largest solar salt production site in the Western Hemisphere;
- Several mechanical evaporation facilities producing consumer and industrial salt; and
- Several facilities producing essential agricultural nutrients and specialty chemicals in Brazil.

Our salt business provides highway deicing salt to customers in North America and the U.K. as well as consumer deicing and water conditioning products, ingredients used in consumer and commercial food preparation, and other salt-based products for consumer, agricultural and industrial applications in North America. In the U.K., we operate a records management business utilizing excavated areas of our Winsford salt mine with one other surface location in London, England.

Our plant nutrition business produces and markets specialty plant nutrition products worldwide to distributors and retailers of crop inputs, as well as growers. Our principal plant nutrition product in our Plant Nutrition North America segment is SOP, which we market under the trade name Protassium+. We also sell various secondary nutrients as well as premium micronutrient products under our Wolf Trax brand.

Our Plant Nutrition South America segment operates two primary businesses in Brazil—agricultural productivity, which manufactures and distributes a broad offering of specialty plant nutrition solution-based products; and chemical solutions, which manufactures and markets specialty chemicals, primarily for the water treatment industry and for use in other industrial processes.

### Consolidated Results of Operations

The following is a summary of our consolidated results of operations for the three and nine months ended September 30, 2017 and September 30, 2018, respectively. 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 AND NINE MONTHS ENDED SEPTEMBER 30

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

### COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30, 2017 AND 2018

- Total sales increased 11%, or $31.8 million, due to increases in all three segments.
- Operating earnings increased 4%, or $1.2 million, due to increases in our Plant Nutrition South America segment, which was partially offset by a decline in our Salt segment.
- Earnings before interest, taxes, depreciation and amortization (“EBITDA”)\* adjusted for items management believes are not indicative of our ongoing operating performance (“Adjusted EBITDA”)\* decreased 2%, or $1.6 million.
- Diluted net earnings per share decreased 61%, or $0.57.

### COMMENTARY: NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2018

- Total sales increased 11%, or $100.6 million, due to increases in all three segments.
- Operating earnings decreased 21%, or $16.8 million, due to lower operating earnings in Salt and Plant Nutrition North America segments, which was partially offset by an increase in the Plant Nutrition South America segment.
- Adjusted EBITDA\* decreased 4%, or $6.3 million.
- Diluted net earnings per share decreased 63%, or $0.87.

### THREE AND NINE MONTHS ENDED SEPTEMBER 30

### COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30, 2017 AND 2018

### Gross Profit: Decreased 6%, or $4.7 million; Gross Margin decreased 4 percentage points

- The Salt segment gross profit decreased $11.9 million primarily due to higher per-unit product costs at our Goderich mine facility resulting from the strike and higher per-unit shipping and handling costs.
- The plant nutrition business, on a combined basis, increased $7.1 million. The Plant Nutrition North America segment gross profit increased $0.3 million primarily due to higher micronutrient sales volumes, which was mostly offset by higher depreciation expense. The Plant Nutrition South America segment gross profit increased $6.8 million primarily due to higher sales, which was partially offset by a weaker Brazilian reais compared to the U.S. dollar.

### COMMENTARY: NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2018

### Gross Profit: Decreased 12%, or $23.3 million; Gross Margin decreased 4 percentage points

- The Salt segment contributed approximately $21.9 million to the decrease in gross profit. The decrease resulted primarily from higher per-unit product costs including costs associated with the Goderich mine strike and higher shipping and handling costs.
- The plant nutrition business, on a combined basis, contributed $1.7 million to the decrease in gross profit. The Plant Nutrition North America segment gross profit decreased $6.0 million primarily due to higher depreciation expense which was partially offset by lower per-unit shipping and handling costs. The Plant Nutrition South America segment gross profit increased $4.3 million due to higher sales which were partially offset by higher per-unit costs and a weaker Brazilian reais compared to the U.S. dollar.

### OTHER EXPENSES AND INCOME

### COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30, 2017 AND 2018

### SG&A: Decreased $5.9 million; Decreased 3.4 percentage points as a percentage of sales from 15.4% to 12.0%

- The decrease in SG&A expense was primarily due to restructuring costs incurred in the third quarter of 2017 of approximately $2 million impacting corporate SG&A and our Salt and Plant Nutrition North America segments and a decrease in SG&A costs in our Plant Nutrition South America segment resulting from a weaker Brazilian reais compared to the U.S. dollar. In addition, a portion of the decrease is due to a decrease in marketing and advertising expenses in our Salt segment.

### Interest Expense: Increased $2.4 million to $15.9 million

- The increase was primarily due to higher interest rates and an increase in borrowings under our revolving credit facility.

### Other Expense (Income), Net: Decreased $4.0 million from income of $1.2 million to an expense of $2.8 million

- We realized foreign exchange losses of $3.5 million and foreign exchange gains of $1.1 million in the third quarter of 2018 and 2017, respectively.

### Income Tax Expense (Benefit): Expense increased $14.2 million from a benefit of $(12.5) million to an expense of $1.7 million

- The income tax benefit in the third quarter of 2017 was primarily due to the release of approximately $17 million of valuation allowances related to our Brazil business, of which approximately $13 million was accounted for as a discrete item and approximately $4 million was included in our annual effective tax rate.
- Our income tax provision in both periods differs from the U.S. statutory rate primarily due to U.S. statutory depletion, 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 a benefit of (64)% in the third quarter of 2017 to an expense of 12% in the third quarter of 2018.

### COMMENTARY: NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2018

### SG&A: Decreased $6.5 million; Decreased 2.1 percentage points as a percentage of sales from 13.7% to 11.6%

- The decrease in SG&A expense was primarily due to restructuring costs incurred in the third quarter of 2017 of approximately $2 million impacting corporate SG&A and our Salt and Plant Nutrition North America segments and a decrease in SG&A costs in our Plant Nutrition South America segment resulting from a weaker Brazilian reais compared to the U.S. dollar. The decrease in SG&A expense was partially offset by an increase in corporate depreciation expense related to a significant software system upgrade implemented in the latter half of 2017.

### Interest Expense: Increased $5.0 million to $44.5 million

- The increase was primarily due to higher U.S. interest rates and an increase in borrowings under our revolving credit facility, which was partially offset by lower interest rates for our Produquímica debt.

### Other Expense (Income), Net: Improved $0.9 million from an expense of $0.5 million to income of $(0.4) million

- We realized foreign exchange losses of $2.3 million and $2.9 million for the first nine months of 2018 and 2017, respectively. In addition, a portion of the improvement related to increases in interest income in 2018.

### Income Tax Expense(Benefit): Expense increased $8.7 million from a benefit of $(7.7) million to an expense of $1.0 million

- The increase was primarily due to the release of $18 million of Brazilian valuation allowances in 2017 which was partially offset by lower 2018 pretax earnings.
- 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 a benefit of (20)% in the first nine months of 2017 to an expense of 5% in the first nine months of 2018.

### Operating Segment Performance

The following financial results represent consolidated financial information with respect to sales from our Salt, Plant Nutrition North America and Plant Nutrition South America segments. The results of operations of the consolidated records management business and other incidental revenues include sales of $2.6 million and $2.5 million for the third quarter of 2018 and 2017, respectively, and $8.1 million and $7.4 million for the first nine months of 2018 and 2017, respectively. These revenues are not material to our consolidated financial results and are not included in the following operating segment financial data.

### Salt

### THREE AND NINE MONTHS ENDED SEPTEMBER 30

|  | 3Q 2018 | 3Q 2017 | 2018 YTD | 2017 YTD |
| --- | ---: | ---: | ---: | ---: |
| **Salt Sales (in millions)** | $137.0 | $124.7 | $574.0 | $508.5 |
| **Salt Operating Earnings (in millions)** | $12.1 | $22.5 | $58.7 | $78.6 |
| **Salt Sales Volumes (thousands of tons)** |  |  |  |  |
| Highway deicing | 1,302 | 1,157 | 6,765 | 5,596 |
| Consumer and industrial | 474 | 446 | 1,379 | 1,412 |
| Total tons sold | 1,776 | 1,603 | 8,144 | 7,008 |
| **Average Salt Sales Price (per ton)** |  |  |  |  |
| Highway deicing | $49.15 | $49.04 | $53.21 | $53.07 |
| Consumer and industrial | $154.17 | $152.39 | $155.26 | $149.83 |
| Combined | $77.16 | $77.79 | $70.48 | $72.56 |

### COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30, 2017 AND 2018

- Salt sales increased 10%, or $12.3 million, primarily due to higher sales volumes in both salt businesses.
- Salt average sales prices decreased 1% due to product sales mix, as highway deicing products, which have a lower average sales price, were a higher proportion of total sales in the current period.
- Highway deicing average sales prices were essentially flat as a significant portion of our sales during the quarter was related to our 2017-2018 winter season sales contracts. Consumer and industrial average sales prices increased 1%.
- Salt sales volumes increased 11%, or 173,000 tons, and contributed approximately $11.4 million to the increase in Salt segment sales. Highway deicing sales volumes increased 13% as a result of strong restocking orders in the U.K. and an increase in restocking orders in North America compared to the prior year. Consumer and industrial sales volumes increased 6% due to higher sales of consumer deicing products.
- Salt operating earnings decreased 46%, or $10.4 million, primarily due to higher logistics costs and higher costs as a result of the strike at our Goderich mine facility, including costs of purchased salt as a result of lower production volumes experienced during and subsequent to the Goderich mine strike. The third quarter of 2017 results also include a $2.0 million restructuring charge.

### COMMENTARY: NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2018

- Salt sales increased 13%, or $65.5 million, due to increases in sales in both businesses.
- Salt average sales price decreased 3% due to product mix, as highway deicing products, which have a lower average sales price than consumer and industrial products, were a higher proportion of total sales in the current period.
- Highway deicing average sales prices were relatively flat. Consumer and industrial average sales prices increased 4% due to price increases introduced over the last year as well as an improvement in product sales mix.
- Salt sales volumes increased 16%, or 1,136,000 tons, and contributed approximately $57.1 million to the increase in Salt segment sales. Highway deicing sales volumes increased 21% as a result of significantly above average winter weather in the U.K. and more winter weather events in North America in the first quarter of 2018 compared to the mild prior year. The consumer and industrial business sales volumes decreased 2%.
- Salt operating earnings decreased 25%, or $19.9 million, due to higher per-unit product and logistics costs in North America as well as higher-cost inventory produced in 2017 and sold in 2018. The higher per-unit product and logistics costs resulted primarily from lower Goderich mine production levels and higher carryover inventory costs due to the Goderich mine ceiling fall in the second half of 2017 and lower production levels at the Goderich mine related to the strike in 2018. The reduced inventory levels led to higher costs as a result of purchased salt and higher logistics costs to move salt into markets typically served by our Goderich mine. In addition, the 2017 period also included a restructuring charge of $3 million.

### Plant Nutrition North America

### THREE AND NINE MONTHS ENDED SEPTEMBER 30

|  | 3Q 2018 | 3Q 2017 | 2018 YTD | 2017 YTD |
| --- | ---: | ---: | ---: | ---: |
| **Plant Nutrition North America Sales (in millions)** | $41.7 | $40.3 | $146.4 | $140.0 |
| **Plant Nutrition North America Operating Earnings (in millions)** | $2.3 | $2.3 | $11.4 | $17.5 |
| **Plant Nutrition North America Sales Volumes (thousands of tons)** | 64 | 65 | 231 | 222 |
| **Plant Nutrition North America Average Sales Price (per ton)** | $658 | $626 | $635 | $631 |

33

### COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30, 2017 AND 2018

- Plant Nutrition North America sales increased 3%, or $1.4 million.
- Plant Nutrition North America sales volumes decreased 2%, or 1,000 tons, and partially offset the increase in sales by approximately $0.6 million. The decrease in sales volumes was attributable to SOP, which was partially offset by stronger micronutrient sales.
- Plant Nutrition North America average sales prices increased 5% and contributed approximately $2.0 million to the increase in Plant Nutrition North America sales reflecting a stronger mix of micronutrient sales which have higher average sales prices.
- Plant Nutrition North America operating earnings were flat as operational improvements resulted in lower per-unit product costs, which were offset by higher depreciation expense associated with commissioning new production assets at our Ogden facility. In addition, the third quarter of 2017 results included a restructuring charge of $1 million.

### COMMENTARY: NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2018

- Plant Nutrition North America sales increased 5%, or $6.4 million.
- Plant Nutrition North America sales volumes increased 4%, or 9,000 tons, and contributed approximately $5.6 million to the increase in Plant Nutrition North America sales. This increase was due to an increase in both SOP and micronutrient sales volumes.
- Plant Nutrition North America average sales prices increased 1% and contributed approximately $0.8 million to the increase in Plant Nutrition North America sales.
- Plant Nutrition North America operating earnings decreased 35%, or $6.1 million, due to an increase in depreciation expense associated with commissioning new production assets at our Ogden facility and additional potassium chloride feedstock used to boost SOP production during the first half of the year, partially offset by lower logistics costs. In addition, the 2017 period included a restructuring charge of approximately $1 million.

### Plant Nutrition South America

### THREE AND NINE MONTHS ENDED SEPTEMBER 30

|  | 3Q 2018 | 3Q 2017 | 2018 YTD | 2017 YTD |
| --- | ---: | ---: | ---: | ---: |
| **Plant Nutrition South America Sales (in millions)** | $141.2 | $123.2 | $278.6 | $250.6 |
| **Plant Nutrition South America Operating Earnings (in millions)** | $31.2 | $21.4 | $32.7 | $24.0 |
| **Plant Nutrition South America Sales Volumes (thousands of tons)** |  |  |  |  |
| Agricultural productivity | 180 | 163 | 331 | 302 |
| Chemical solutions | 74 | 70 | 222 | 214 |
| Total tons sold | 254 | 233 | 553 | 516 |
| **Average Plant Nutrition South America Sales Price (per ton)** |  |  |  |  |
| Agricultural productivity | $656 | $604 | $622 | $580 |
| Chemical solutions | $313 | $354 | $328 | $353 |
| Combined | $557 | $529 | $504 | $486 |

### COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30, 2017 AND 2018

- Plant Nutrition South America sales increased 15%, or $18.0 million, despite a 23% unfavorable weighted average change in the Brazilian reais versus the U.S. dollar from the prior year.
- Plant Nutrition South America sales volumes increased 9%, or 21,000 tons, and contributed approximately $12.0 million to the increase in Plant Nutrition South America sales. Agricultural productivity sales volumes increased 10% primarily driven by an increase in sales a result of improved crop economics in Brazil versus the prior year. Chemical solutions sales volumes increased 6% due to higher demand for chlor-alkali products.
- A 5% increase in Plant Nutrition South America average sales price contributed approximately $6.3 million to the Plant Nutrition South America sales increase. The increase in average sales price was primarily due to a 9% increase in agriculture product sales prices, partially offset by a 12% decrease in chemical solutions product prices and reflect shifts in product sales mix and price increases, partially offset by a weaker Brazilian reais versus the U.S. dollar.
- Plant Nutrition South America operating earnings increased 46%, or $9.8 million, due to higher sales, which was partially offset by higher commodity costs and a weaker Brazilian reais versus the U.S. dollar.

### COMMENTARY: NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2018

- Plant Nutrition South America sales increased 11% or $28.0 million.
- Plant Nutrition South America sales volumes increased 7%, or 37,000 tons, and contributed approximately $19.7 million to the increase in Plant Nutrition South America sales. The increase in sales volumes was primarily driven by an increase in early season sales of agricultural productivity products as a result of the economic environment in Brazil in 2018. Chemical solutions sales were negatively impacted by the national truck driver strike in Brazil.
- A 4% increase in Plant Nutrition South America average sales price contributed approximately $8.6 million to the Plant Nutrition South America sales increase. The increase in average sales price was primarily due to a 7% increase in agriculture product sales prices, partially offset by a 7% decrease in chemical solutions product prices due to shifts in product sales mix and a weaker Brazilian reais versus the U.S. dollar.
- Plant Nutrition South America operating earnings increased 36%, or $8.7 million, primarily due to increased sales in 2018, which was partially offset by increased commodity costs, a weaker Brazilian reais versus the U.S. dollar and a $1.9 million gain recognized in the first quarter of 2017 related to the settlement of the contingent consideration for the acquisition of Produquímica.

### Outlook

- Due to strong price results achieved during this year’s North American highway deicing bid season and price expectations for consumer and industrial salt products, we expect fourth quarter 2018 Salt revenue growth of approximately 15% compared to the prior year, assuming average winter weather. These Salt sales price increases are expected to be partially offset by increased logistics costs and the remaining cost impacts from lower third quarter 2018 production rates at the Goderich mine. We expect Salt sales volumes to range from 11.6 million to 12.0 million tons in 2018.
- Fourth quarter 2018 Plant Nutrition North America sales are expected to benefit from strong SOP demand and a seasonal increase in demand for micronutrients. Plant Nutrition North American sales volumes are expected to range from 345,000 to 360,000 tons in 2018.
- Continued improvement in broad agriculture fundamentals in Brazil is expected to result in an increase in Plant Nutrition South America sales volumes in 2018 when compared to the prior year. Plant Nutrition South America sales volumes are expected to range from 740,000 to 780,000 tons in 2018.

### Liquidity and Capital Resources

Historically, our cash flows from operating activities have generally been adequate to fund our basic operating requirements, ongoing debt service and sustaining investment in property, plant and equipment. We have also used cash generated from operations to fund capital expenditures which strengthen our operational position, pay dividends, fund smaller acquisitions and repay our debt. To a certain extent, our ability to meet our short- and long-term liquidity and capital needs is subject to general economic, financial, competitive, legislative, regulatory, weather, effects of climate change, geological variations in our mine deposits and other factors that are beyond our control. Historically, our working capital requirements have been the highest in the fourth quarter and lowest in the second quarter. As a result of the Produquímica acquisition (described in Note 3 to our Consolidated Financial Statements), we expect a less seasonal distribution of working capital requirements. When needed, we may fund short-term working capital requirements by accessing our $300 million revolving credit facility.

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 September 30, 2018, we had $14.0 million of cash and cash equivalents (in our Consolidated Balance Sheets) that was either held directly or indirectly by foreign subsidiaries. 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. In December 2017, U.S. tax reform legislation was enacted, including a one-time mandatory tax on previously deferred foreign earnings. As a result, in December 2017 we recorded tax expense of $55.2 million related to this one-time tax, which will be paid over an eight-year period. As of December 31, 2017, all non-U.S. undistributed earnings were subject to the one-time mandatory tax in the U.S. with the exception of outside basis differences of $59.3 million related to our Brazilian entities. 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 impacted by the transfer price charged on the transfer of our products between them. As discussed in Note 7 to our Consolidated Financial Statements, our calculated transfer price on certain products between one of our foreign subsidiaries and a domestic subsidiary has been challenged by Canadian federal and provincial governments. In the fourth quarter of 2017, we reached a federal settlement with Canadian and U.S. tax authorities related to our transfer pricing issues for our 2007-2012 tax years. The agreement resulted in intercompany cash payments from our U.S. subsidiary to our Canadian subsidiary of $85.7 million in the first quarter of 2018 and payments to the Canadian tax authorities of $18.4 million in the second quarter of 2018. We will also make an additional tax payment of $4.3 million to the Canadian tax authorities in the fourth quarter of 2018 in connection with this settlement. In addition, we have a corresponding tax refund due from U.S. taxing authorities of $22.8 million that is expected to be received in late 2018 or early 2019. There are ongoing challenges by Canadian provincial taxing authorities regarding our transfer prices of certain items. The final resolution of these challenges may not occur for several 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 materially impact the amount of earnings attributable to our domestic and foreign subsidiaries, which could impact the amount of permanently reinvested foreign earnings as well as future cash flows from our domestic operations. See Note 7 to our Consolidated Financial Statements for a discussion regarding our Canadian tax reassessments and settlement.

In September 2017, we entered into an amendment to our credit agreement to increase the maximum allowed leverage ratio under the credit agreement through September 2018. In connection with this amendment, we paid fees totaling $0.6 million ($0.1 million was recorded as an expense and $0.5 million was capitalized as deferred financing costs).

In the second half of 2017, we refinanced $54.3 million of loans we assumed in the Produquímica acquisition using proceeds from approximately $87 million of new loans. The new variable-rate loans bear interest rates ranging from 108.7% and 118% of CDI and mature in September and November 2019. In the first quarter of 2018, we entered into a new U.S. dollar denominated loan which matures in March 2020. No material fees were paid in connection with these transactions. A portion of the loans are denominated in U.S. dollars and a portion of the loans are denominated in Brazilian reais. We have also entered into foreign currency agreements whereby we agreed to swap interest and principal payments on the loans denominated in U.S. dollars for principal and interest payments denominated in Brazilian reais, Produquímica’s functional currency. See Note 12 to our Consolidated Financial Statements for a discussion of our foreign currency agreements. In September 2018, we paid off approximately $36 million of our Brazilian loans and entered into a new $20.0 million Brazilian loan. The new variable rate loan bears interest of 117.5% of CDI (an overnight inter-bank lending rate in Brazil) and matures in September 2020. In the third quarter of 2018, we sold approximately $9.2 million of receivables for $8.6 million in cash. We are contingently liable for up to 20% of the receivables balance if the banks are unable to collect on these accounts. The proceeds were used to refinance a portion of our Brazilian loans during the the third quarter of 2018.

Cash and cash equivalents as of September 30, 2018 of $36.1 million, decreased $0.5 million from December 31, 2017. We generated $165.4 million of operating cash flows in the first nine months of 2018. In the first nine months of 2018, we used cash on hand and cash flows from operations to make net payments on our debt of $11.3 million, fund capital expenditures of $72.2 million and pay dividends on our common stock of $73.4 million.

As of September 30, 2018, we had $1.34 billion of indebtedness, consisting of $250.0 million outstanding under our 4.875% Senior Notes due 2024, $1.02 billion of borrowings outstanding under our senior secured credit facilities (consisting of term loans and a revolving credit facility), including $184.2 million borrowed against our revolving credit facility, and $80.7 million of Brazilian debt. We had $10.3 million of outstanding letters of credit as of September 30, 2018, which reduced our revolving credit facility borrowing availability to $105.5 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 substantially 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 governing our term loans and revolving credit facility, 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 governing our senior notes. Although we are in compliance with our debt covenants as of September 30, 2018, 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.

The table below provides a summary of our cash flows by category:

| NINE MONTHS ENDED SEPTEMBER 30, 2018 | NINE MONTHS ENDED SEPTEMBER 30, 2017 |
| --- | --- |
| **Operating Activities:** |  |
| » Net earnings were $17.8 million. | » Net earnings were $47.1 million. |
| » Non-cash depreciation and amortization expense was $103.6 million. | » Non-cash depreciation and amortization expense was $89.1 million. |
| » Working capital items were a source of operating cash flows of $27.3 million. | » Working capital items were a source of operating cash flows of $3.0 million. |
| **Investing Activities:** |  |
| » Net cash flows used by investing activities included $72.2 million of capital expenditures. | » Net cash flows used by investing activities included $81.0 million of capital expenditures. |
| **Financing Activities:** |  |
| » Net cash flows used by financing activities included the payment of dividends of $73.4 million. » In addition, we had net payments on our debt of $11.3 million. | » Net cash flows used by financing activities included the payment of dividends of $73.3 million. » In addition, we had net borrowings on our debt of $2.9 million. » We also paid $14.7 million for the final payment related to the Produquímica acquisition. |

### Other Matters

See Notes 7 and 9 to our Consolidated Financial Statements for a discussion regarding labor, environmental and litigation matters.

### Sensitivity Analysis Related to EBITDA and Adjusted EBITDA

Management uses a variety of measures to evaluate our performance. While our 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 Adjusted EBITDA. Both EBITDA and Adjusted EBITDA are non-GAAP financial measures used to evaluate the operating performance of our core business operations, because 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 and our operating facilities are located in different taxing jurisdictions, which can cause considerable variation in net earnings. We also use these measures to assess our operating performance and return on capital, and to evaluate potential acquisitions or other capital projects. These measures 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 including restructuring costs and 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, 2018 | 2017 | Nine Months Ended September 30, 2018 | 2017 |
| --- | ---: | ---: | ---: | ---: |
| Net earnings | $12.8 | $32.0 | $17.8 | $47.1 |
| Interest expense | 15.9 | 13.5 | 44.5 | 39.5 |
| Income tax expense (benefit) | 1.7 | (12.5) | 1.0 | (7.7) |
| Depreciation, depletion and amortization | 34.0 | 32.7 | 103.6 | 89.1 |
| EBITDA | 64.4 | 65.7 | 166.9 | 168.0 |
| Adjustments to EBITDA: |  |  |  |  |
| Restructuring charges(a) | — | 4.3 | — | 4.3 |
| Other expense (income), net | 2.8 | (1.2) | (0.4) | 0.5 |
| Adjusted EBITDA | $67.2 | $68.8 | $166.5 | $172.8 |

(a) In July 2017, we initiated a restructuring plan to reduce ongoing costs and further streamline the organization.

### Recent Accounting Pronouncements

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

### Effects of Currency Fluctuations

Our operations outside of the U.S. are conducted primarily in Canada, Brazil 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 revenues and costs are denominated in U.S. dollars, with Canadian dollars, Brazilian reais and British pounds sterling also being significant. Significant changes in the value of the Canadian dollar, Brazilian reais 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 and countries in which we operate.

### Seasonality

We experience a substantial amount of seasonality in our sales. Our sales of our salt deicing products are seasonal. Consequently, our Salt sales and operating income are generally higher in the first and fourth quarters and lower during the second and third quarters of each 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.

Our plant nutrition business is also seasonal. The strongest demand for our Plant Nutrition South America products in Brazil typically occurs during the spring planting season. As a result, we and our customers generally build inventories during the low demand periods of the year to ensure timely product availability during the peak sales season. The seasonality of this demand results in our sales volumes and net sales for our Plant Nutrition South America segment usually being the highest during the third and fourth quarters of each year (as the spring planting season begins in September in Brazil).

## Market risk

As filed, 884 characters.

Our business is subject to various types of market risks that include interest rate risk, foreign currency exchange rate risk and commodity pricing risk. Management has taken actions to mitigate our exposure to commodity pricing and foreign currency exchange rate risk by entering into natural gas derivative instruments and foreign currency contracts. We may take further actions to mitigate our exposure to interest rates, exchange rates and 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, 2017.

## Controls and procedures

As filed, 1,799 characters.

#### Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, 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 September 30, 2018 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

Beginning January 1, 2018, the Company implemented new guidance related to revenue recognition. Though adoption of the guidance was not deemed to have a material effect on the amounts reported in its consolidated financial statements, the Company has implemented internal controls to monitor and analyze those business practices that, if changed, could have a material impact on the consolidated financial statements under the guidance.

## Risk factors

As filed, 411 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, 2017 and Part II, Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018. There have been no material changes to our risk factors as disclosed in such Annual Report and Quarterly Report.

Filed Nov 1, 2018.
Source: SEC EDGAR, the filing index for accession 0001227654-18-000207. Last ingested by Listed: Oct 24, 2026, 15:10 ET. No prices; not investment advice.