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Financial Risks
Our indebtedness and abilityany inability to pay our indebtedness could adversely affect our business and financial condition.
We have a significant amount of indebtedness and may incur additional debt in the future. As of December 31, 2018,2020, we had $1.37$1.41 billion of outstanding indebtedness, including $1.03 billion$520.3 million of borrowings under our senior secured credit facilities, which are further described in Part II, Item 8, Note 10 of our Consolidated Financial Statements. We pay significant interest on our indebtedness, with variable interest on our borrowing under our senior secured credit facilities based on prevailing interest rates. Significant increases in interest rates will increase the interest we pay on our debt. Our indebtedness could:
•require us to agree to less favorable terms, including higher interest rates, in order to incur additional debt, and otherwise limit our ability to borrow additional money or sell our stock to fund our working capital, capital expenditures and debt service requirements;
•impact our ability to implement our business strategy and limit our flexibility in planning for, or reacting to, changes in our business as well as changes to economic, regulatory or other competitive conditions;
•place us at a competitive disadvantage compared to our competitors with greater financial resources;
•make us more vulnerable to a downturn in our business or the economy;
•require us to dedicate a substantial portion of our cash flow from operations to the repayment of our indebtedness, thereby reducing the availability of our cash flow for other purposes;
•restrict us from making strategic acquisitions or cause us to make non-strategic divestitures; and
•materially and adversely affect our business and financial condition if we are unable to meet our debt service requirements or obtain additional financing.
In the future, we may incur additional indebtedness or refinance our existing indebtedness. If we incur additional indebtedness or refinance, the risks that we face as a result of our leverage could increase. Financing may not be available when needed or, if available, may not be available on commercially reasonable or satisfactory terms. Any downgrades from credit rating agencies such as Moody’s or Standard & Poor’s may adversely impact our ability to obtain financing or the terms of such financing. In June 2017, Standard & Poor’s downgraded our credit rating to a BB- rating.
Our ability to make payments on our indebtedness, refinance our indebtedness and fund planned capital expenditures will depend on our ability to generate future cash flows from operations. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. There can be no assurance that our business will generate sufficient cash flows from operations or that future borrowings will be available to us under our revolving credit facility in an amount sufficient to enable us to make payments with respect to our indebtedness or to fund our other liquidity needs. If this were the case, we might need to refinance all or a portion of our indebtedness on or before maturity, sell assets, reduce or delay capital expenditures or seek additional equity financing. Our inability to obtain needed financing or generate sufficient cash flows from operations may require us to abandon or curtail capital projects, strategic initiatives or other investments, cause us to divest our business or impair our ability to make acquisitions, enter into joint ventures or engage in other activities, which could materially impact our business.
The agreements governing our indebtedness impose restrictions that may limit our ability to operate our business or require accelerated debt payments.
Our agreements governing our indebtedness contain covenants that potentially limit our ability to:
•incur additional indebtedness or contingent obligations or grant liens;
•pay dividends or make distributions to our stockholders;
•repurchase or redeem our stock;
•make investments or dispose of assets;
•prepay, or amend the terms of, certain junior indebtedness;
•engage in sale and leaseback transactions;
•make changes to our organizational documents or fiscal periods;
•create or permit certain liens on our assets;
•create or permit restrictions on the ability of certain subsidiaries to make certain intercompany dividends, investments or asset transfers;
•enter into new lines of business;
•enter into transactions with our stockholders and affiliates; and
•acquire the assets of, or merge or consolidate with, other companies.
The credit agreement governing our senior secured credit facilities also requires us to maintain financial ratios, including an interest coverage ratio and a total leverage ratio, which we may be unable to maintain. As of December 31, 2018,2020, our total leverage ratio (as calculated under the terms of our credit agreement) was 4.3x, and if our leverage ratio exceeds 4.5x as of March 31, 2021, or the last day of any quarter thereafter, we would be in default under our credit agreement.
Various risks, uncertainties and events beyond our control could affect our ability to comply with the covenants, financial tests and ratios required by the agreements governing our indebtedness. If we default under our agreements governing our
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indebtedness, our lenders could cease to make further extensions of credit, accelerate payments under our other debt instruments (including hedging instruments) that contain cross-acceleration or cross-default provisions and foreclose upon any collateral securing that
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debt as well as restrict our ability to make certain investments and payments, pay dividends, repurchase our stock, enter into transactions with affiliates, make acquisitions, merge and consolidate, or transfer or dispose of assets.
If our lenders were to require immediate repayment, we may need to obtain new financing to be able to repay them immediately, which may not be available or, if available, may not be available on commercially reasonable or satisfactory terms. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations.
We are subject to tax liabilities which could adversely impact our profitability, cash flow and liquidity.
We are subject to income tax in the U.S., Canada, Brazil and U.K. Our effective tax rate could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities and the discovery of new information in the course of our tax return preparation process. Our effective tax rate, tax expense and cash flows could also be adversely affected by changes in tax laws.laws. In December 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act,” which is commonly referred to as “U.S. tax reform”). The Act makesmade broad and complex changes to the U.S. tax code,code. While significant guidance has been issued in the form of Treasury regulations and IRS Notices, it will take time for additional clarifying guidance and legislation to be issued, which are necessaryas well as for the interpretation of these comprehensive changes. Based on our current understanding of the law, wethose items to be analyzed and their impacts determined. The Act may have recorded significant impacts to our fourth quarter and full year 2018 and 2017 financial results. Thea material impact of the Act on our financial results may differ, possibly materially, due to potential changes in the Act (including with respect to the regulations promulgated under the Act) or changes to its interpretation. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Operations—Investments, Liquidity and Capital Resources” and Part II, Item 8, Note 8 to our Consolidated Financial Statements for more details. We are also subject to audits in various jurisdictions and may be assessed additional taxes as a consequence of an audit.
Canadian provincial tax authorities have challenged our tax positions and assessed additional taxes on us, which are described in Part II, Item 8, Note 8 of our Consolidated Financial Statements. These tax assessments and future tax assessments could be material if the disputes are not resolved in our favor.
In the ordinary course of our business, there are many transactions and calculations that could be challenged by taxing authorities. This includes the values charged on the transfer of products between our subsidiaries. Although we believe our tax estimates and calculations are reasonable, they have been challenged by taxing authorities in the past. The final determination of any tax audits and litigation may take several years and be materially different from our historical income tax provisions and accruals in our consolidated financial statements. If additional taxes are assessed as a result of an audit, assessment or litigation, there could be a material adverse effect on our financial condition, income tax provision and net income in the affected periods as well as future profitability, cash flows and our ability to pay dividends and service our debt.
We are subject to financial assurance requirements and failure to satisfy these requirements could materially affect our business, results of our operations and our financial condition.
In connection with our dispute of tax assessments made by Canadian provincial tax authorities (described in more detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Investments, Liquidity and Capital Resources” and Part II, Item 8, Note 8 of our Consolidated Financial Statements), we are required to post and maintain financial performance bonds. In addition, as part of our business operations, we are required to maintain financial surety or performance bonds with certain of our North American deicing customers and to fund reclamation and site cleanup following the ultimate closure of our mines and certain other facilities. We incur costs to maintain these financial assurance bonds and failure to satisfy these financial assurance requirements could materially affect our business, the results of our operations and our financial condition.
If our customers are unable to access credit, they may be not be able to purchase our products. In addition, we extend trade credit to certain customers and guarantee financing that certain customers use to purchase our products. The results of our operations may be adversely affected if customers default on these obligations.
Some of our customers require access to credit in order to purchase our products. A lack of available credit to customers, due to global or local economic conditions or for other reasons, could adversely affect demand for our products and the sales of our products.
We extend trade credit to our customers in the United StatesU.S. and throughout the world, in some cases for extended periods of time. In Brazil, where there are fewer third-party financing sources available to farmers, we also have several programs under which we guarantee customers’ financing from financial institutions that they use to purchase our products. If these customers are unable to repay the trade credit from us or financing from their financial institutions, the results of our operations could be adversely affected. Our customers may be unable to repay the trade credit from us or financing from their financial institutions as a result of market conditions in the agricultural sector, adverse weather conditions and increases in prices for other inputs that could increase the working capital requirements, indebtedness and other liabilities of our customers. We may not be able to limit our credit and collectability risk or avoid losses.
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We may not pay cash dividends or pay smaller cash dividends on our common stock in the future.
We have regularly declared and paid quarterly cash dividends on our common stock consistently since becoming a public company. Any future payment and the amount of any future payment of cash dividends will depend upon our financial condition, earnings, legal requirements, restrictions in our debt agreements and other factors deemed relevant by our boardBoard of directors.Directors. Although our operations are conducted through our subsidiaries, none of our subsidiaries is obligated to make funds available to
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pay dividends on our common stock. Accordingly, our ability to pay dividends to our stockholders is dependent on the earnings and the distribution of funds from our subsidiaries. Certain agreements governing our indebtedness contain limitations on our ability to pay dividends (including regular annual dividends), as described under “—The agreements governing our indebtedness impose restrictions that may limit our ability to operate our business or require accelerated debt payments.” We cannot provide assurances that the agreements governing our current and future indebtedness will permit us to pay dividends on our common stock.
Competition, Sales and Pricing Risks
Our products face strong competition and if we fail to successfully attract and retain customers and invest in product development, capital improvements, productivity and quality improvements, sales of our products could be adversely affected.
We encounter strong competition in many areas of our business and our competitors may have significantly more financial resources than we do. Competition in our product lines is based on a number of factors, including product quality and performance, logistics (especially in salt distribution and Brazil chlor-alkali products), brand reputation, price and quality of customer service and support. Many of our customers attempt to reduce the number of vendors from which they purchase in order to increase their efficiency. Our customers demand a broad product range and we must continue to develop our expertise in order to manufacture and market these products successfully. To remain competitive, we need to invest in manufacturing, productivity, product innovation, marketing, customer service and support and our distribution networks. We may not have sufficient resources to continue to make such investments or maintain our competitive position. We may have to adjust our prices, strategy, product innovation, distribution or marketing efforts to stay competitive.
The demand for our products may be adversely affected by technological advances or the development of new or less costly competing products. For example, the development of substitutes for our plant nutrition products that can more efficiently mix with other agricultural inputs or have more efficient application methods may impact the demand for our products. Many of our products, including sodium chloride, magnesium chloride and SOP, have historically been characterized by a slow pace of technological advances. However, new production methods or sources for our products or the development of substitute or competing products could materially and adversely affect the demand and sales of our products.
Changes in competitors’ production, geographic or marketing focus could have a material impact on our business. We face global competition from new and existing competitors who have entered or may enter the markets in which we sell, particularly in our plant nutrition business. Some of our competitors may have greater financial and other resources than we do or are more diversified, making them less vulnerable to industry downturns and better positioned to pursue new expansion and development opportunities. Our competitive position could suffer if we are unable to expand our operations through investments in new or existing operations or through acquisitions, joint ventures or partnerships.
Risks associated with our international operations and sales and changes in economic and political environments could adversely affect our business and earnings.
We have significant operations in Canada, Brazil and the U.K. Our 20182020 sales outside the U.S. were 48%44% of our total 20182020 sales. Our overall success as a global business depends on our ability to operate successfully in differing economic, political and cultural conditions. Our international operations and sales are subject to numerous risks and uncertainties, including:
•economic developments including changes in currency exchange rates, inflation risks, exchange controls, tariffs, economic sanctions, other trade protection measures and import or export licensing requirements;
•difficulties and costs associated with complying with laws, treaties and regulations, including tax, labor and data privacy laws, treaties and labor regulations, and changes to laws, treaties and regulations;
•restrictions on our ability to own or operate subsidiaries, make investments or acquire new businesses;
•restrictions on our abilityability to repatriate earnings from our non-U.S. subsidiaries to the U.S. or the imposition of withholding taxes on remittances and other payments by our subsidiaries;
•political developments (including uncertainty and potential trade difficulties caused by the U.K.’s exit from the EU, commonly referred to as “Brexit”), government deadlock, political instability, political activism, terrorist activities, civil unrest and international conflicts; andand
•uncertain and varying enforcement of laws and regulations and weak protection of intellectual property rights.
A significant portion of our cash flow is generated in Canadian dollars, Brazilian reais and British pounds sterling and our consolidated financial results are reported in U.S. dollars. Our reported results can significantly increase or decrease based on
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exchange rate volatility after translation of our results into U.S. dollars. Exchange rate fluctuations could also impact our ability to meet interest and principal payments on our U.S. dollar-denominated debt. In addition, we incur currency transaction risk when we enter into a purchase or a sales transaction using a currency other than the local currency of the transacting entity. We may not be able to effectively manage our currency risks. For more information, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Effects of Currency Fluctuations and Inflation,” and Item 7A, “Quantitative and Qualitative Disclosures About Market Risk.”
In addition, we may face more competition in periods when foreign currency exchange rates are favorable to our competitors. A relatively strong U.S. dollar increases the attractiveness of the U.S. market for some of our international competitors while decreasing the attractiveness of other markets to us. Similarly, a relatively strong Brazilian real increases the attractiveness of the Brazil market for our international competitors.
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The decision by U.K. voters to leave the EU could cause volatility in global stock markets, currency exchange rate fluctuations and increased regulatory complexities. These changes may adversely affect the results of our operations.
Anticipated changes in plant nutrition prices and customer application rates can have a significant effect on the demand and price for our plant nutrition products.
When customers anticipate increasing plant nutrition selling prices, they tend to accumulate inventories in advance of the expected price increase. Similarly, customers tend to delay their purchases when they anticipate future selling prices for plant nutrition products will stabilize or decrease. These customer expectations can lead to a lag in our ability to realize price increases for our products and adversely impact our sales volumes and selling prices.
Growers’ decisions to purchase plant nutrition products and the application rate for plant nutrition products depend on many factors, including expected grower income, crop prices, plant nutrition product prices, commodity prices, input prices and nutrient levels in the soil. Customers are more likely to decrease purchases and application rates when they expect declining agricultural economics or relatively high plant nutrition costs, other costs and soil nutrient levels. This variability can materially impact our prices and volumes sold.
Conditions in the agricultural sectorsectors where we sell products and supply and demand imbalances for competing plant nutrition products can impact the price and demand for our products.
Conditions in the North American and Brazilian agricultural sectors can significantly impact both of our plant nutrition business.businesses. The North America and Brazil agricultural sector can be affected by a number of factors, including weather conditions, field conditions (particularly during periods of traditionally high plant nutrition application), government policies, tariffs and import and export markets.
Demand for our products in the agricultural sector is affected by crop prices, crop selection, planted acreage, application rates, crop yields, product acceptance, population growth, livestock consumption and changes in dietary habits, among other things. Supply is affected by available capacity, operating rates, raw material costs and availability, feasible transportation, government policies, tariffs and global trade. In addition, the demand and price of plant nutrition products can be affected by factors such as plant disease. For example, Asian soybean rust and African swine flu has in certain years affected soybean and other crops in Brazil and the United States,U.S., reducing demand for plant nutrition products.
MOP is the least expensive form of potash fertilizer and, consequently, it is the most widely used potassium source for most crops. SOP is utilized by growers for many high-value crops, especially crops for which low-chloride content fertilizers or the presence of sulfur improves quality and yield, such as almonds and other tree nuts, avocados, citrus, lettuce, tobacco, grapes, strawberries and other berries. Lower prices or demand for these crops could adversely affect demand for our products and the results of our operations.
When the demand and price of potash are high, our competitors are more likely to increase their production and invest in increased production capacity. An over-supply of MOP or SOP domestically or worldwide could unfavorably impact the prices we can charge for our SOP, as a large price disparity between potash products could cause growers to choose MOP or other less-expensive alternatives, which could adversely impact our sales volume and the results of our operations.
Similarly, conditions in the Salt sector can significantly impact our Salt business. These conditions include weather conditions as well as import and export markets. Supply and demand imbalances can be caused by a number of factors, including weather conditions, operating rates, transportation costs and global trade.
Increasing costs or a lack of availability of transportation services could have an adverse effect on our ability to deliver products at competitive prices.
Transportation and handling costs are a significant component of our total delivered product cost, particularly for our salt products. The high relative cost of transportation favors producers whose mines or facilities are located near the customers they serve. We contract bulk shipping vessels, barges, trucking and rail services to move our products from our production facilities to distribution outlets and customers. A reduction in the dependability or availability of transportation services, a significant increase in transportation service rates, adverse weather and changes to water levels on the waterways we use could impair our ability to deliver our products economically to our customers or expand our markets. For example, ifwhen the Mississippi river were to floodfloods significantly (as it did during 2019), barges may be unable to traverse the river system and we may be prevented from
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timely delivering our salt products to our customers, which could increase costs to deliver our products and adversely impact our ability to fulfill our contracts, resulting in significant contractual penalties and loss of customers.
In addition, diesel fuel is a significant component of our transportation costs. Some of our customer contracts allow for full or partial recovery of changes in diesel fuel costs through an adjustment to the selling price. However, a significant increase in the price of diesel fuel that is not passed through to our customers could materially increase our costs and adversely affect our financial results.
Significant transportation costs relative to the cost of certain of our products, including our salt products and certain products sold by our Plant Nutrition South America segment, limit our ability to increase our market share or serve new markets. In addition, policies in Brazil to set minimum freight rates, enacted following the May 2018 truckers’ strike in Brazil, could materially reduce demand for our products and impact our prices and volumes sold.
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The demand for our products is seasonal.
The demand for our salt and plant nutrition products is seasonal, and the degree of seasonality can change significantly from year to year due to weather conditions, including the number of snow events, rainfall and other factors.
Our salt deicing business is seasonal. On average, in each of the last three years, approximately two-thirds of our deicing product sales occurred during the North American and European winter months of November through March. Winter weather events are not predictable, yet we must stand ready to deliver deicing products to local communities with little advance notice under the requirements of our highway deicing contracts. As a result, we attempt to stockpile our highway deicing salt throughout the year to meet estimated demand for the winter season. Failure to deliver under our highway deicing contracts may result in significant contractual penalties and loss of customers. Servicing markets typically serviced by one production facility with product from an alternative facility may add logistics and other costs and reduce profitability.
Our plant nutrition business is also seasonal. For example, the strongest demand for our plant nutrition 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).
If seasonal demand is greater than we expect, we may experience increased costs and product shortages, and our customers may turn to our competitors for products that they would otherwise have purchased from us. If seasonal demand is less than we expect, we may have excess inventory to be stored (in which case we may incur increased storage costs) or liquidated (in which case the selling price may be below our costs). If prices for our products rapidly decrease, we may be subject to inventory write-downs. Our inventories may also become impaired through obsolescence or the quality may be impaired if our inventories are not stored properly. Low seasonal demand could also lead to increased unit costs.
Legal, Regulatory and Compliance Risks
Our operations depend on our rights and governmental authorizations to mine and operate our properties.
We hold numerous environmental and mineral extraction permits, water rights and other permits, licenses and approvals from governmental authorities authorizing operations at each of our facilities. A decision by a governmental agency to revoke, substantially modify, deny or delay renewal of or apply conditions to an existing permit, license or approval could have a material adverse effect on our ability to continue operations at the affected facility and result in significant costs. For example, certain indigenous groups have challenged the Canadian government’s ownership of the land under which our Goderich mine is operated. There can be no assurances that the Canadian government’s ownership will be upheld or that our existing mining and operating permits will not be revoked or otherwise affected. In addition, although we do not engage in fracking, laws and regulations targeting fracking could lead to increased permit requirements and compliance costs for non-fracking operations, including our salt operations, which require permitted wastewater disposal wells.
Furthermore, many of our facilities are located on land leased from governmental authorities or third parties. Our leases generally require us to continue mining in order to retain the lease, the loss of which could have a material adverse effect on our ability to continue operations at the affected facility and result in significant costs. In some instances, we have received access rights or easements from third parties which allow for a more efficient operation than would exist without the access or easement. Loss of these access rights or easements could have a material adverse effect on us. In addition, many of our facilities are located near existing and proposed third-party industrial operations that could affect our ability to fully extract, or the manner in which we extract, the mineral deposits to which we have mining rights. For example, certain neighboring operations or land uses may require setbacks that could prevent us from mining portions of our mineral reserves or using certain mining methods.
Expansion of our operations or production capacity, or preservation of existing rights in some cases, is also predicated upon securing any necessary permits, licenses and approvals. For example, we may require additional permits, licenses and approvals to continue diverting water from the Great Salt Lake based on lake conditions or to further expand our production capacity at our SOP facility located near the Great Salt Lake.Ogden, Utah facility. We may not be granted the necessary permits, licenses and approvals. A decision by a governmental
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agency to deny, delay issuing or apply conditions to any new permits, licenses and approvals could adversely affect our ability to operate and the results of our operations.
Compliance with foreignimport and U.S. laws and regulations applicable to our operations, includingexport requirements, the Foreign Corrupt Practices Act (the “FCPA”)FCPA and other applicable anti-corruption and anti-competition laws may increase the cost of doing business inbusiness.
Our operations and activities inside and outside the U.S., as well as the shipment of our products across international jurisdictions.
Variousborders, require us to comply with a number of federal, state, local and foreign laws and regulations, associated with our operationswhich are complex and increase our cost of doing business. These laws and regulations include import and export requirements, antitrusteconomic sanctions laws, anti-competition regulationscustoms laws and anti-corruption laws, such as the FCPA, the Brazilian Clean Companies Act and the U.K. Bribery Act. We cannot predict how these laws or their interpretation, administration and enforcement will change over time. There can be no assurance that our employees, contractors, agents, distributors, or customers of third parties working on our behalf will not take actions in violation of these laws. Any violations of these laws could subject us to civil or criminal penalties, including fines or prohibitions on our ability to offer our products in one or more countries, debarment from government contracts (and termination of existing contracts) and could also materially damage our reputation, brand, international
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expansion efforts, business and operating results. In addition, changes to trade or anti-competitionanti-corruption laws and regulations could affect our operating practices or impose liability on us in a manner that could materially and adversely affect our business, financial condition and results of operations.
We are subject to EHS laws and regulations which could become more stringent and adversely affect our business.
Our operations are subject to an evolving set of international, national, federal, foreign, state, provinciallocal and localforeign EHS laws and regulations. New or proposed EHS regulatory programs, as well as future interpretations and enforcement of existing EHS laws and regulations, may require modification to our facilities, require substantial increases in equipment and operating costs, subject us to fines, penalties or lead to interruptions, modifications or a termination of operations, which could involve significant capital costs, increases in operating costs or other significant impacts.
For example, governmental initiatives to limit greenhouse gas emissions under consideration and future initiatives could, if adopted, restrict our operations and require us to make capital expenditures to be compliant with these initiatives. Wewe are also impacted by the Clean Air Act and other EHS laws and regulations that regulate air emissions. These regulatory programs may subject us to fines or penalties or require us to install expensive emissions abatement equipment, modify our operational practices, obtain additional permits or make other expenditures. Our UtahOgden facility is located in an area expected to be of continued scrutiny by the Environmental Protection Agency and Utah Air Quality Board with respect to certain air emissions and related issues under the Clean Air Act.
In addition, if new Clean Water Act regulations are adopted or increased compliance obligations are imposed on existing regulations, we could be adversely affected. For example, a significant portion of our salt products are distributed through salt depots owned and operated by third parties. If these depots are required to adopt more stringent stormwater management practices or are subject to increased compliance requirements under existing Clean Water Act regulations, these depots may pass on any increased costs to us, exit the depot business (requiring us to find new depot partners or establish Company-owned depots) or otherwise cause an adverse impact to our ability to deliver salt to our customers. Additionally, governmental agencies could restrict the use of road salt for highway deicing purposes.purposes or adopt laws and regulations to address climate change and greenhouse gases, which could have a material impact on us. See “Business—Environmental, Health and Safety and Other Regulatory Matters” for more information about EHS laws and regulations affecting us and their potential impact on us.
We could incur significant environmental liabilities with respect to our current, future or former facilities, adjacent or nearby third-party facilities or off-site disposal locations.
Risks of environmental liabilities is inherent in our current and former operations. At many of our past and present facilities, releases and disposals of regulated substances have occurred and could occur in the future, which could require us to investigate, undertake or pay for remediation activities under CERCLA and other similar EHS laws and regulations. The use, handling, disposal and remediation of hazardous substances currently or formerly used by us, or the liabilities arising from past releases of, or exposure to, hazardous substances may result in future expenditures that could materially and adversely affect our financial results, cash flows or financial condition. Our facilities are also subject to laws and regulations which require us to monitor and detect potential environmental hazards and damages. Our procedures and controls may not be sufficient to timely identify and protect against potential environmental damages and related costs.
We record accruals for contingent environmental liabilities when we believe it is probable that we will be responsible, in whole or in part, for environmental investigation or remediation activities and the expenditures for these activities are reasonably estimable. For example, we have ongoing investigation and remediation activities at our property located in Kenosha, Wisconsin, plant, which are described in Part II, Item 8, Note 12 of our Consolidated Financial Statements. However, the extent and costs of any environmental investigation or remediation activities are inherently uncertain and difficult to estimate and could exceed our expectations, which could materially affect our financial condition and operating results.
Additionally, we previously sold a portion of our U.K. salt mine to a third party, which operates a waste management business. The third party’s business, under governmental permits, is allowed to securely dispose certain hazardous waste at the
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property they own and they pay us fees for engaging in this activity. We also operate a mercury cell facility at our Igarassu facility. We could incur future expenditures to address risks related to this hazardous waste disposal and mercury use or to remediate any contamination. See “Business—Environmental, Health and Safety and Other Regulatory Matters” for more information.
Our intellectual property may be misappropriated or subject to claims of infringement.
Intellectual property rights, including patents, trademarks, and trade secrets, are a valuable aspect of our business. We attempt to protect our intellectual property rights primarily through a combination of patent, trademark, and trade secret protection. The patent rights that we obtain may not provide meaningful protection to prevent others from selling competitive products or using similar production processes. Pending patent applications may not result in an issued patent. If we do receive an issued patent, we cannot guarantee that our patent rights will not be challenged, invalidated, circumvented, or rendered unenforceable.
We also rely on trade secret protection to guard confidential unpatented technology, manufacturing expertise, and technological innovation. Although we generally enter into confidentiality agreements with our employees, third-party consultants and advisors to protect our trade secrets, we cannot guarantee that these agreements provide meaningful protection or that adequate remedies will be available in the event of an unauthorized use or disclosure of our trade secrets.
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Our brand names and the goodwill associated therewith are an important part of our business. We seek to register our brand names as trademarks where it makes business sense. Our trademark registrations may not prevent our competitors from using similar brand names. Many of our brand names are registered as trademarks in the U.S. and foreign countries. The laws in certain foreign countries in which we do business do not protect trademark rights to the same extent as U.S. law. As a result, these factors could weaken our competitive advantage with respect to our products, services and brands in foreign jurisdictions, which could adversely affect our financial performance.
Our intellectual property rights may not be upheld if challenged. Such claims, if proven, could materially and adversely affect our business and may lead to the impairment of the amounts recorded for goodwill and other intangible assets. If we are unable to maintain the proprietary nature of our technologies, we may lose any competitive advantage provided by our intellectual property. In addition, although any such claims may ultimately prove to be without merit, the necessary management attention to and legal costs associated with defending our intellectual property rights could be significant.
We may face significant product liability claims and product recalls, which could harm our business and reputation.
We face exposure to product liability and other claims if our products cause harm, are alleged to have caused harm or have the potential to cause harm to consumers. In addition, our products or products manufactured by our customers using our products could be subject to a product recall as a result of product contamination, our failure to meet product specifications or other causes. For example, our customers use our food-grade salt products in food items they produce, such as cheese and bread, which could be subject to a product recall if our products are contaminated or adulterated. Similarly, the use and application of our animal feed and plant nutrition products could result in a product recall if it were alleged that they were contaminated. Additionally, our production and sale of water treatment chemicals and other chemical solutions products could result in contaminants entering waterways and the public water system, leading to significant liabilities and costs.
A product recall could result in significant losses due to the costs of a recall, the destruction of product inventory and production delays to identify the underlying cause of the recall. We could be held liable for costs related to our customers’ product recall if our products cause the recall or other product liability claims if our products cause harm to our customers. Additionally, a significant product liability case, product recall or failure to meet product specifications could result in adverse publicity, harm to our brand and reputation and significant costs, which could have a material adverse effect on our business and financial performance.
We may be negatively impacted if we are unable to obtain required product registrations or if we face increased regulatory requirements.
Globally, there are directives, laws and regulations that require registration of our products before they can be sold, impose labelinglabelling requirements and require our products to be manufactured to certain specifications. Each country, state and province appoints regulatory agencies responsible for these requirements, and many of our products must be registered with these regulatory agencies. A decision to deny the registration of a new product or to delay, revoke or modify an existing product registration may have a material adverse effect on us and could impede our ability to implement our business strategies. In addition, regulatory and labeling requirements could increase, which could require increased expenditures. For example, many regulatory agencies continue to evaluate potential health and environmental impacts that could arise from the handling and use of new and existing plant nutrition products. These evaluations or other developments could result in additional regulatory requirements for plant nutrition producers, including us, or for our customers, and could negatively impact the demand for our products.
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We are subject to costs and risk associated with a complex regulatory, compliance and legal environment, and we may be adversely affected by changes in laws, industry standards and regulatory requirements.
Our global business is subject to thecomplex requirements of federal, state, local and foreign laws, regulations and regulatory authorities as well as industry standard-setting authorities. Changes in the standards and requirements imposed by these laws, regulations and authorities or adoption of any new laws or regulations could negatively affect our ability to serve our customers or our business. In the event that we are unable to meet any new or modified standards when adopted, our business could be adversely affected. Some of the federal, state, local and foreign laws and regulations that affect us include those relating to EHS matters; taxes; antitrust and anti-competition laws; data protection and privacy; advertisement and marketing; labor and employment; import, export and anti-corruption; product liability; product registrations; and intellectual property
For example, if significant import duties were imposed on the salt we import into the U.S. from our Goderich mine, or if we were unable to include the transfer price of such salt in the cost of goods sold for tax purposes, our financial condition and operating results would be materially and adversely affected. We could also be adversely impacted by changes in tariffs imposed by countries or other trade protection measures, which could increase competitiondecrease our sales in markets where we sell our products. In addition, failure to comply with applicable laws and regulations or to comply with any of contracts we have with governmental entities could preclude us from conducting business with governmental entities and lead to penalties, injunctions, civil remedies or fines.
COVID-19, Strategic and GeneralOther Business Risks
The COVID-19 pandemic, or other outbreaks of infectious disease or similar public health threats, could materially and adversely affect our business, financial condition and results of operations.
The ongoing COVID-19 pandemic, and any other outbreaks of contagious diseases or other adverse public health developments in the U.S. or worldwide, could have a material adverse effect on our business, financial condition and results of operations. As an essential business, we have continued producing and delivering products that support critical industries such as transportation, agriculture, chemical, food, pharmaceutical and animal nutrition. However, COVID-19 has significantly impacted economic activity and markets worldwide, and it has and may continue to negatively affect our business in a number of ways. These effects include, but are not limited to:
•Disruptions or restrictions on our employees’ ability to work effectively due to illness, travel bans, quarantines, shelter-in-place orders or other limitations could impact our business.
•Temporary closures or disruptions at our facilities or the facilities of our customers or suppliers could reduce demand for our products or affect our ability to timely meet our customer’s orders and negatively impact our supply chain. For example, we experienced lost sales in 2020 primarily for certain customers of our non-deicing salt products due to manufacturing outages and retail disruptions related to COVID-19. Compliance with new governmental regulations could increase our operational costs. COVID-19 has not interrupted the operations of our mining and manufacturing operations in North America and Brazil; however, operations at our U.K. salt mine were idled near the end of March 2020 through mid-May 2020 due to the mild 2019-2020 winter weather experienced in that market, along with U.K. government guidance on COVID-19 preventative measures. In addition, we have incurred increased costs and disruptions related to health and safety precautions we have put in place at our facilities, such as increased sanitation of offices and common areas, additional personal protective equipment requirements, staggered shift schedules and pre-shift screenings.
•A COVID -19 outbreak at one or more of our facilities could result in a regulatory agency mandated closure or shut down until the outbreak is controlled and the regulatory authority allows the facility to reopen.
•Our mining and manufacturing facilities rely on raw materials and components provided by our suppliers. The impacts of COVID-19 could cause delays or disruptions in our supply chain and we could experience a mining or manufacturing slow-down or seek to obtain alternate sources of supply, which may not be available or may be more expensive. Disruptions to our supply chain and business operations, or to our suppliers’ or customers’ supply chains and business operations, could include disruptions from the closure of supplier and manufacturer facilities, interruptions in the supply of raw materials and components, personnel absences, or restrictions on the shipment of our or our suppliers’ or customers’ products, any of which could have adverse ripple effects on our business.
•Global health concerns, such as COVID-19, have resulted in and may continue to result in social, economic and labor instability in the countries and localities in which we or our suppliers and customers operate. Any of these uncertainties could have a material adverse effect on our business, financial condition or results of operations.
•The failure of third parties on which we rely, including our suppliers, customers, contractors, commercial banks, transportation service providers and external business partners, to meet their respective obligations to us, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties, could have an adverse impact on our business, financial condition or results of operations.
•Remote work arrangements for our employees could strain our technology resources and introduce operational risks, including heightened cybersecurity risk. Remote working environments may be less secure and more susceptible to
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hacking attacks, including phishing and other social engineering attempts that seek to exploit the COVID-19 pandemic. These risks could also impact the third parties on which we rely.
•The COVID-19 pandemic has significantly increased economic and demand uncertainty and has led to disruption and volatility in the global credit and financial markets, which increases the cost of capital and adversely impacts access to capital for both us and our customers and suppliers. Disruption and volatility in the global and financial markets or other factors may also cause adverse fluctuations in foreign currency exchange rates, particularly an increase in the value of the U.S. dollar against the Canadian dollar, the Brazilian real or the U.K. pound sterling, which could negatively affect our business, financial condition and reported results of operations.
The impact of COVID-19 may also exacerbate other risks discussed elsewhere in this section of this report, any of which could have a material adverse effect on us. The extent to which the COVID-19 pandemic, or other outbreaks of disease or similar public health threats, materially and adversely impact our business, financial condition and results of operations is highly uncertain and will depend on future developments. Such developments may include the geographic spread and duration of the virus, the severity of the disease and the actions that may be taken by various governmental authorities and other third parties in response to the outbreak. In addition, how quickly, and to what extent, normal economic and operating conditions can resume cannot be predicted, and the resumption of normal business operations may be delayed or constrained by lingering effects on our suppliers, third-party service providers and customers. There is also no certainty about when the adverse impacts of the COVID-19 pandemic will end.
We may not successfully implement our strategies.
Our success depends, to a significant extent, on successful implementation of our business strategies, including our growth strategy, our efforts to increase the balance between our salt and plant nutrition businesses,strategic priorities, our cost savings initiatives, our enterprise optimization initiatives and theany other strategies described in the “Business” section of this report. We cannot assure that we will be able to successfully implement our strategies or, if successfully implemented, we may not realize the expected benefits of our strategies.
Although we make substantial investments in product innovation, we cannot be certain that we will be able to develop, obtain or successfully implement
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new products or technologies on a timely basis or that they will be well-received by our customers. Moreover, our investments in new products and technologies involve certain risks and uncertainties and could disrupt our ongoing business. New investments may not generate sufficient revenue, may incur unanticipated liabilities and may divert our limited resources and distract management from our current operations. We cannot be certain that our ongoing investments in new products and technologies will be successful, will meet our expectations and will not adversely affect our reputation, financial condition and operating results.
On February 16, 2021, we announced our plans to separate our South America assets into two businesses, chemicals and specialty plant nutrition, with the intention of enabling a targeted and efficient sales process to unlock maximum value for each set of assets. We cannot predict the timing or outcome of the sale processes for our South America businesses. We may not be successful in identifying a purchaser or purchasers or in obtaining an offer at an acceptable price and/or on acceptable terms and conditions. In addition, the strategic evaluation and potential sales may be time consuming and disruptive to our business operations, we may incur substantial expenses in connection with the evaluation and, if we are unable to effectively manage the process, our business, financial condition and results of operations could be adversely affected. We also cannot assure that any potential transaction or other strategic alternative, if identified, evaluated and consummated, will provide greater value to our stockholders than that reflected in our current stock price. Any potential transaction or other strategic alternative would be dependent upon a number of factors that may be beyond our control, including, among other factors, market conditions, industry trends, the interest of third parties in our South America businesses and the availability of financing to potential buyers on reasonable terms.
Our business is dependent upon highly skilled personnel, and the loss of key personnel may have a material adverse effect on our performance.
Our business is dependent on our ability to attract, develop and retain highly skilled personnel. We may not be able to attract, develop and retain the personnel necessary for the efficient operation of our business, and our inability to do so could result in decreased productivity and efficiency, higher costs, the use of less-qualified personnel and reputational harm, which may have a material adverse effect on our performance. In addition, we are currently conducting a search for a President and Chief Executive Officer. The transition to a new President and Chief Executive Officer may be disruptive to our operations and create uncertainty about our business and future direction, which could materially adversely affect our business. Until a new President and Chief Executive Officer is identified, it may be more difficult for us to hire and retain other key personnel.
To help attract, retain and motivate qualified personnel, we use stock-based incentive awards such as employee stock options, restricted stock units and performance stock units. If the value of these stock awards does not appreciate as measured by our common stock price, performance conditions in these awards are not met or if our stock-based compensation otherwise ceases to be viewed as a valuable benefit, our ability to attract, retain and motivate personnel could be weakened, which could harm our business.
The loss of certain key employees could damage critical customer relationships, result in the loss of vital institutional knowledge, experience and expertise, and impact our ability to successfully operate our business and execute our business strategy. We may not be able to find qualified replacements for these key positions and the integration of replacements may be disruptive to our business. In addition, the loss of our key employees who have in depthin-depth knowledge of our research and
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development, mining, manufacturing or engineering processes could lead to increased competition to the extent that those employees are hired by a competitor and are able to recreate our processes or share our confidential information.
If our computer systems, information technology or operations technology are compromised, our ability to conduct our business will be adversely impacted.
We rely on computer systems, information technology and operations technology to conduct our business, including cash management, order entry, invoicing, plant operations, vendor payments, employee salaries and recordkeeping, inventory and asset management, shipping of products, and communication with employees and customers. We also use our systems to analyze and communicate our operating results and other data to internal and external recipients. We continue to make updates and improvements to our enterprise resource planning system, network and other core applications, which could impact substantially all of our key processes. Any implementation issues could have adverse effects on our ability to properly capture, process and report financial transactions, distribute our products, invoice and collect from our customers and pay our vendors and could lead to increased expenditures or operational disruptions.
We are susceptible to cyber-attacks, computer viruses and other technological disruptions, which generally continue to increase due to evolving threats and our expanding information technology footprint. We have experienced attempts by unauthorized agents to gain access to our computer systems through the internet, e-mail and other access points. To date, none have resulted in any material adverse impact to our business or operations. While we have programs, policies and procedures in place to identify, prevent and detect any unauthorized access, this does not guarantee that we will be able to detect or prevent unauthorized access to our computer systems. A material failure or interruption of access to our computer systems for an extended period of time or the loss of confidential or proprietary data could adversely affect our operations, reputation and regulatory compliance. While we have mitigation and data recovery plans in place, it is possible that significant expenditures, capital investments and time may be required to correct any of these issues. Additional capital investment and expenditures needed to address, prevent, correct or respond to any of these issues may negatively impact our business, financial condition and results of operations.
We may not be able to expand our business through acquisitions, and acquisitions may not perform as expected. We may not successfully integrate acquired businesses and anticipated benefits may not be realized.
Our business strategy includes supplementing organic growth with acquisitions of complementary businesses. We may not have acquisition opportunities because we may not identify suitable businesses to acquire, we compete with other potential buyers, we may not have or be able to obtain suitable financing for an acquisition and we may be hindered by competition and regulatory laws. If we cannot make acquisitions, our business growth may be limited.
Acquisitions of new businesses may not perform as expected, may not positively impact our financial performance and could increase our debt obligations. Acquisitions involve significant risks and uncertainties, including diversion of management attention, greater than expected liabilities and expenses, inadequate return of capital and unidentified issues not discovered in our due diligence.
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Our ability to realize benefits from our October 2016 Produquímica acquisition depends on several factors, including the growth and health of the Brazilian and international agribusiness industry, weather conditions, our ability to innovate and develop new products, the continued demand for innovative specialty plant nutrition products and successful geographical expansion inside and outside Brazil. We may not successfully implement our proposed business strategies, which could cause a material adverse effect on our business, financial condition and results of operations.
The success of any acquisition will also depend on our ability to successfully combine and integrate the acquired business. We may fail to integrate acquired businesses in a timely and efficient manner. The integration process could result in the loss of key employees, higher than expected costs, ongoing diversion of management attention from other strategic opportunities or operational matters, the disruption of our ongoing businesses or increased risk that our internal controls are found to be ineffective.
Future climateClimate change and related laws and regulations could adversely affect us.
The potential impact of climate change on our operations, product demand and the needs of our customers remains uncertain. Scientists have proposed that the impacts of climate change could include changes in rainfall patterns, water shortages, changing sea levels, changing storm patterns and intensities and changing temperature levels. These changes could be severe and vary by geographic location. These changes could negatively impact customer demand for our products and our costs and ability to produce our products. For example, prolonged period of mild winter weather could reduce the market for deicing products. Drought conditions could similarly impact demand for our plant nutrition products. Climate change could also lead to disruptions in production or the distribution of our products due to major storm events or prolonged adverse conditions, changing temperature levels or flooding from sea level changes. In addition, potentialgovernmental initiatives to address climate change regulations or othergreenhouse gas emissions (including carbon or emissions taxestaxes) and future initiatives could, result in higher costs.if adopted, restrict our operations, require us to make capital expenditures to be compliant with these initiatives, increase our costs, impact our ability to compete or negatively impact efforts to obtain permits, licenses and other approvals for existing and new facilities. Our inability to timely respond to the risks posed by climate change and the costs of compliance with climate change laws and regulations could have a material impact on us.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
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ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
ITEM 2. PROPERTIES
Information regarding our plants and properties is included in the “Business” section of this report.
ITEM 3. LEGAL PROCEEDINGS
We are involved in the legal proceedings described in Part II, Item 8, Note 8 and Part II, Item 8, Note 12 to our Consolidated Financial Statements and, from time to time, various routine legal proceedings and claims arising from the ordinary course of our business. These primarily involve tax assessments, disputes with former employees and contract labor, commercial claims, product liability claims, personal injury claims and workers’ compensation claims. Management cannot predict the outcome of legal proceedings and claims with certainty. Nevertheless, management believes that the outcome of legal proceedings and claims, which are pending or known to be threatened, even if determined adversely, will not, either individually or in the aggregate, have a material adverse effect on our results of operations, cash flows or financial condition.
ITEM 4. MINE SAFETY DISCLOSURES
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ITEM 4. | MINE SAFETY DISCLOSURES |
Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this report.
Information about our Executive Officers of the Registrant
The following table sets forth the name and position ofBelow is information about each person who was or is an executive officer as of December 31, 2018,2020, and as of the date of the filing of this report. The table sets forth each person’s name, position and age as of the date of the filing of this report.
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Name | | Age | | Position |
RichardKevin S. GrantCrutchfield | | 7259 | | Interim President and Chief Executive Officer and Chairman of the BoardDirector |
James D. Standen | | 4345 | | Chief Financial Officer |
Mary L. Frontczak | | 54 | | Chief Legal and Administrative Officer and Corporate Secretary |
S. Bradley Griffith | | 5153 | | Senior Vice President, Plant NutritionChief Commercial Officer |
Angela Y. JonesGeorge J. Schuller | | 5557 | | Senior Vice President, People and Culture |
Anthony J. Sepich | | 48 | | Senior Vice President, Salt |
Diana C. Toman | | 40 | | Senior Vice President, General Counsel and Corporate SecretaryChief Operations Officer |
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RichardKevin S. Grant, InterimCrutchfield, President and Chief Executive Officer and Director,has been serving in joined Compass Minerals and assumed his current positionsince November 2018. in May 2019. Mr. Grant hasCrutchfield also serves as member of our Board of Directors. Prior to joining Compass Minerals, Mr. Crutchfield served as Chairman of the Board since November 2018CEO and has been a member of the Company’s Boardboard of Directors since April 2004. From 1998 until his retirement in 2002, Mr. Grant served as Chief Executivedirectors of BOC Process Gas Solutions, Alpha Metallurgical Resources, Inc. (f/k/a global business providing utilities and services primarily to the chemical, petrochemical and metals industries. Concurrently, he served as a director of the BOC Group plc and Chairman of CNC sa, a Mexican joint venture. Mr. Grant was a director of BlueLinx Holdings,Contura Energy, Inc.), a publicly traded, distributor of building products, from 2005 to 2017. Mr. Grant alsoleading coal supplier, since the company’s inception in 2016. Previously, he served as the Company’s Lead Independent DirectorCEO from the creation of the position in 20052009 to November 2018, except during his short service as Compass Minerals’ Interim Chief Executive Officer2016 and chairman from December 2012 to January 2013.2016 of Alpha Natural Resources, Inc., a coal producer. From 2003 to 2009, he held roles of increasing responsibility at Alpha Natural Resources. Prior to Alpha Natural Resources, Mr. Crutchfield spent over 15 years working at El Paso Corporation, a natural gas and energy provider, as well as other coal and gas producers. He also previously served on the Board of Directors of Couer Mining Inc.
James D. Standen, Chief Financial Officer, joined Compass Minerals in MarchApril 2006 and assumed his current position in August 2017. Prior to this position, Mr. Standen served as the Company’s Interim Chief Financial Officer and Treasurer starting in April 2017. He also served as the Company’s Vice President, Finance and Treasurer from October 2016 to April 2017, as Treasurer from July 2011 to October 2016 and as Assistant Treasurer from April 2006 to June 2011. Prior to joining the Company, Mr. Standen spent six years at Kansas City Southern in various finance roles after spending two years with the public accounting firm Mayer Hoffman McCann P.C.
S. Bradley Griffith, Senior Vice President, Plant NutritionMary L. Frontczak, Chief Legal and Administrative Officer and Corporate Secretary, joined Compass Minerals in November 2019 and assumed her current position in February 2020. Prior to her current role, she served as the Company’s Chief Legal Officer and Corporate Secretary. Before joining Compass Minerals, Ms. Frontczak had served as Senior Vice President and General Counsel of POET LLC, an ethanol and other biorefined products producer, since 2017. Prior to POET, she headed the legal department at Bunge North America, an agribusiness and food ingredient company, from 2015 to 2017 and held roles of increasing responsibility at Peabody Energy Corporation, the world’s largest private sector coal company, from
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2005 to 2015 and The May Department Store Company from 1996 to 2005. Her experience also includes five years in private practice.
S. Bradley Griffith, Chief Commercial Officer, joined Compass Minerals in August 2016 and assumed his current position in July 2019. Prior to this position, Mr. Griffith served as the Company’s Senior Vice President, Plant Nutrition from August 2016.2016 to July 2019. Before joining Compass Minerals, Mr. Griffith spent eight years working at Monsanto Company, a global provider of agricultural products. While at Monsanto, he held various positions, including Vice President, Global Strategic Accounts, Vice President, Global Microbials and Vice President, Western Business Unit (USA Row Crops). Prior to Monsanto, Mr. Griffith held a number of pharmaceutical and medical sales roles, most recently at Sanofi.
Angela Y. Jones,Senior Vice President, People and Culture, joined Compass Minerals in January 2018 and assumed her current position in September 2018. Prior to her current position, Ms. Jones served as the Company’s Vice President, Human Resources. Prior to joining the Company, Ms. Jones, served as Vice President, Human Resources at both Rembrandt Enterprises from 2016 to 2018 and at ConAgra Brands, Inc. from 2007 to 2016. Prior to ConAgra Brands, Ms. Jones gained significant operations experience, with roles such as Director ofGeorge J. Schuller, Chief Operations and Plant General Manager for The Clorox Company as well as progressively responsible supply chain and operations roles with Proctor & Gamble.
Anthony J. Sepich, Senior Vice President, SaltOfficer,joined Compass Minerals and assumed his current roleposition in November 2016.September 2019. Prior to joining the Company, Mr. Sepich came to Compass Minerals from Archer Daniels Midland Company (“ADM”), one ofSchuller spent more than three decades working at Peabody Energy Corporation, the world’s largest agricultural processors, whereprivate sector coal company. While at Peabody Energy, he served both surface and underground mining operations in the United States and Australia, most recently servedserving as President of ADM Corn Europe. He joined ADM in 1997President-Australia from 2017 to 2019 and Chief Operating Officer-Australia from 2013 to 2017. Prior to those positions, Mr. Schuller served in a numberroles of capacities, primarily in ADM’s cocoa division, where he held positions in risk management and sales, including Vice President of Sales.
Diana C. Toman, Senior Vice President, General Counsel and Corporate Secretary, joined Compass Minerals and assumed her current role in November 2015. From March 2010 to October 2015, Ms. Toman worked at General Cable Corporation, a global wire and cable manufacturing company, most recently as Vice President, Strategy and General Counsel, Asia Pacific and Africa based in Thailand. Ms. Toman served as legal counsel with increasing levels of responsibility at Gardner Denver, Inc. from 2006 to 2010Peabody Energy, gaining experience in continuous improvement and Waddell & Reed Financial, Inc. from 2003 to 2006. She began her career as an attorney withtechnical services in the law firmareas of Levy & Craig, P.C.health, safety, operations, sales and marketing, product delivery and support functions.
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PART II
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ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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ITEM 5. | MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
COMMON STOCK DATA
Our common stock, $0.01 par value, trades on the New York Stock Exchange under the symbol CMP.
HOLDERS
On February 25, 2019,23, 2021, the number of holders of record of our common stock was 121.184.
DIVIDEND POLICY
We intend to pay quarterly cash dividends on our common stock. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our boardBoard of directorsDirectors and will depend upon many factors, including our financial condition, earnings, legal requirements, restrictions in our debt agreements and other factors our boardBoard of directorsDirectors deems relevant.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information at December 31, 2018,2020, concerning our common stock authorized for issuance under our equity compensation plans:
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| Plan category | Number of shares to be issued upon exercise of outstanding securities | Weighted-average exercise price of outstanding securities | Number of securities available for issuance under plan |
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| Equity compensation plans approved by shareholders: | | | |
| Stock options | 708,746 |
| $ | 70.76 |
| |
| Restricted stock units | 83,308 |
| N/A |
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| Performance stock units | 126,638 |
| N/A |
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| Deferred stock units | 99,274 |
| N/A |
| |
| Total securities under approved plans(a) | 1,017,966 |
| | 1,672,160 |
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| Equity compensation plans not approved by shareholders(b): | | |
| Deferred stock units | 17,775 |
| N/A |
| |
| Total | 1,035,741 |
| | 1,672,160 |
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Plan Category | | Number of shares to be issued upon exercise of outstanding securities | | Weighted-average exercise price of outstanding securities | | Number of securities available for issuance under plan |
Equity compensation plans approved by stockholders: | | | | | | |
Stock options | | 868,772 | | $ | 63.06 | | | |
Restricted stock units | | 207,982 | | N/A | | |
Performance stock units | | 241,794 | | N/A | | |
Deferred stock units | | 158,880 | | N/A | | |
Total securities under approved plans(a) | | 1,477,428 | | | | 2,818,263 |
Equity compensation plans not approved by stockholders(b): | | | | | | |
Deferred stock units | | 16,792 | | N/A | | |
Total | | 1,494,220 | | | | 2,818,263 |
(a)In 2015, shareholdersMay 2020, stockholders approved the 20152020 Incentive Award Plan. No new awards will be made under the 2005 Incentive Award Plan or the 2015 Incentive Award Plan subsequent to the approval of the 20152020 Incentive Award Plan.
(b)Prior to 2008, non-employee directors were issued common stock and deferred stock units in connection with their service as a director under the 2004 Directors Deferred Share Plan. In 2008, we began issuing non-employeesnon-employee director shares of common stock and deferred stock units under equity plans approved by shareholders.stockholders. No new awards will be granted under the 2004 Directors Deferred Share Plan.
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ITEM 6. SELECTED FINANCIAL DATA
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ITEM 6. | SELECTED FINANCIAL DATA |
The information included in the following table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and accompanying Notes thereto included elsewhere in this report.
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| | For the Year Ended December 31, |
(Dollars in millions, except share data) | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
Statement of Operations Data: | | | | | | | | | | |
Sales | | $ | 1,373.5 | | | $ | 1,490.5 | | | $ | 1,493.6 | | | $ | 1,364.4 | | | $ | 1,138.0 | |
Shipping and handling cost(a) | | 266.6 | | | 312.5 | | | 320.0 | | | 267.5 | | | 244.9 | |
Product cost(a) | | 794.6 | | | 841.2 | | | 879.7 | | | 770.3 | | | 593.6 | |
Depreciation, depletion and amortization(b) | | 137.9 | | | 137.9 | | | 136.9 | | | 122.2 | | | 90.3 | |
Selling, general and administrative expenses(a) | | 171.8 | | | 173.2 | | | 163.6 | | | 167.4 | | | 124.9 | |
Operating earnings(a) | | 140.5 | | | 163.6 | | | 130.3 | | | 159.2 | | | 174.6 | |
Interest expense | | 71.2 | | | 68.4 | | | 62.5 | | | 52.9 | | | 34.1 | |
Net earnings from continuing operations(a) | | 59.5 | | | 62.5 | | | 68.8 | | | 42.7 | | | 162.7 | |
Net earnings available for common stock(a) | | 58.2 | | | 61.4 | | | 68.3 | | | 42.2 | | | 161.9 | |
Share Data: | | | | | | | | | | |
Weighted-average common shares outstanding (in thousands): | | | | | | |
Basic | | 33,928 | | | 33,882 | | | 33,848 | | | 33,819 | | | 33,776 | |
Diluted | | 33,928 | | | 33,882 | | | 33,848 | | | 33,820 | | | 33,780 | |
Net earnings from continuing operations per share: | | | | | | | | |
Basic | | $ | 1.72 | | | $ | 1.82 | | | $ | 2.02 | | | $ | 1.25 | | | $ | 4.79 | |
Diluted | | 1.72 | | | 1.81 | | | 2.02 | | | 1.25 | | | 4.79 | |
Cash dividends declared per share | | 2.88 | | | 2.88 | | | 2.88 | | | 2.88 | | | 2.78 | |
Balance Sheet Data (at year end): | | | | | | | | | | |
Total cash and cash equivalents | | $ | 21.0 | | | $ | 34.7 | | | $ | 27.0 | | | $ | 36.6 | | | $ | 77.4 | |
Total assets(c) | | 2,262.4 | | | 2,443.2 | | | 2,367.9 | | | 2,571.0 | | | 2,466.5 | |
Total debt(c) | | 1,401.4 | | | 1,416.0 | | | 1,364.7 | | | 1,362.5 | | | 1,325.0 | |
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| | For the Year Ended December 31, |
(Dollars in millions, except share data) | | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
Statement of Operations Data: | | | | | | | | | | |
Sales | | $ | 1,493.6 |
| | $ | 1,364.4 |
| | $ | 1,138.0 |
| | $ | 1,098.7 |
| | $ | 1,282.5 |
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Shipping and handling cost | | 320.0 |
| | 267.5 |
| | 244.9 |
| | 261.5 |
| | 337.7 |
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Product cost(a)(c) | | 757.6 |
| | 661.5 |
| | 509.4 |
| | 433.1 |
| | 449.1 |
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Depreciation, depletion and amortization(b) | | 136.9 |
| | 122.2 |
| | 90.3 |
| | 78.3 |
| | 78.0 |
|
Selling, general and administrative expenses | | 163.6 |
| | 167.4 |
| | 124.9 |
| | 108.7 |
| | 110.4 |
|
Operating earnings(c) | | 130.3 |
| | 159.2 |
| | 174.6 |
| | 221.4 |
| | 311.0 |
|
Interest expense | | 62.5 |
| | 52.9 |
| | 34.1 |
| | 21.5 |
| | 20.1 |
|
Net earnings from continuing operations(c) | | 68.8 |
| | 42.7 |
| | 162.7 |
| | 159.2 |
| | 217.9 |
|
Net earnings available for common stock(c) | | 68.3 |
| | 42.2 |
| | 161.9 |
| | 158.2 |
| | 216.4 |
|
Share Data: | | | | | | | | | | |
Weighted-average common shares outstanding (in thousands): | | | | | | |
Basic | | 33,848 |
| | 33,819 |
| | 33,776 |
| | 33,677 |
| | 33,557 |
|
Diluted | | 33,848 |
| | 33,820 |
| | 33,780 |
| | 33,692 |
| | 33,581 |
|
Net earnings from continuing operations per share: | | | | | | | | |
Basic | | $ | 2.02 |
| | $ | 1.25 |
| | $ | 4.79 |
| | $ | 4.70 |
| | $ | 6.45 |
|
Diluted | | 2.02 |
| | 1.25 |
| | 4.79 |
| | 4.69 |
| | 6.44 |
|
Cash dividends declared per share | | 2.88 |
| | 2.88 |
| | 2.78 |
| | 2.64 |
| | 2.40 |
|
Balance Sheet Data (at year end): | | | | | | | | | | |
Total cash and cash equivalents | | $ | 27.0 |
| | $ | 36.6 |
| | $ | 77.4 |
| | $ | 58.4 |
| | $ | 266.8 |
|
Total assets(d) | | 2,367.9 |
| | 2,571.0 |
| | 2,466.5 |
| | 1,624.8 |
| | 1,632.2 |
|
Total debt(d) | | 1,364.7 |
| | 1,362.5 |
| | 1,325.0 |
| | 722.9 |
| | 621.4 |
|
(a)In the fourth quarter of 2020, we released an $11.0 million domestic tax reserve due to statute expiration. In 2019, we incurred $2.8 million of additional logistics costs related to Mississippi River flooding and $2.3 million of severance and other costs related to executive transition. In 2018, we incurred costs of $5.1 million related to the transition of our Chief Executive Officer. Also in 2018, we recorded a tax benefit of $3.0 million related to the U.S. Tax Cuts and Jobs Act, the release of $7.2 million of valuation allowances related to our Plant Nutrition South America segment and incurred $3.4 million of tax expense related to the repatriation of approximately $150 million. In the fourth quarter of 2017, we recorded a net charge of $46.8 million in connection with the U.S. Tax Cuts and Jobs Act and $13.8 million related to a tax settlement with the U.S. and Canadian tax authorities. In addition, we released approximately $25 million of valuation allowances related to our Plant Nutrition South America segment deferred tax assets (see Item 8, Note 8 to our Consolidated Financial Statements for further discussion regarding these items) and incurred $4.3 million of restructuring charges. In the fourth quarter of 2016, we recognized a gain of $59.3 million related to the remeasurement of our previously held equity investment in Compass Minerals South America upon the acquisition of the remaining outstanding shares.
(b)Depreciation, depletion and amortization include amounts also included in product cost and in selling, general and administrative expenses.
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(a) | “Product cost” is presented exclusive of depreciation, depletion and amortization. |
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(b) | Depreciation, depletion and amortization include amounts also included in selling, general and administrative expenses. |
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(c) | In the fourth quarter of 2018, we incurred costs of $5.1 million related to the transition of our Chief Executive Officer. Also in 2018, we recorded a tax benefit of $3.0 million related to the U.S. Tax Cuts and Jobs Act, the release of $7.2 million of valuation allowances related to our Brazil business and incurred $3.4 million of tax expense related to the repatriation of approximately $150 million. In the fourth quarter of 2017, we recorded a net charge of $46.8 million in connection with the U.S. Tax Cuts and Jobs Act and $13.8 million related to a tax settlement with the U.S. and Canadian tax authorities. In addition, we released approximately $25 million of valuation allowances related to our Brazilian deferred tax assets (see Note 8 to our Consolidated Financial Statements for further discussion regarding these items). In the fourth quarter of 2016, we recognized a gain of $59.3 million related to the remeasurement of our previously held equity investment in Produquímica (see Note 4 to our Consolidated Financial Statements). In the third quarter of 2014, we recognized a gain of $83.3 million ($60.6 million, net of taxes) from an insurance settlement relating to damage sustained as a result of a tornado that struck our rock salt mine and evaporation plant in Goderich, Ontario in 2011. We recognized $82.3 million of the gain in product cost and $1.0 million of the gain in selling, general and administrative expenses in the Consolidated Statements of Operations. |
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(d) | In 2016, we adopted guidance which requires the presentation of debt issuance costs as a reduction to debt rather than in assets. Prior years have been adjusted to reflect this change. |
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| | COMPASS MINERALS INTERNATIONAL, INC. |
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The statements in this discussion regarding the industry outlook, our expectations for the future performance of our business, and the other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in Item 1A, “Risk Factors.” You should read the following discussion together with Item 1A, “Risk Factors” and the Consolidated Financial Statements and Notes thereto included elsewhere in this report.
COMPANY OVERVIEW
Compass Minerals is a leading provider of essential minerals thatfocused on safely delivering where and when it matters to help solve nature’s challenges includingfor customers and communities. Our salt forproducts help keep roadways safe during winter roadway safetyweather and are used in numerous other consumer, industrial and agricultural uses; specialtyapplications. Our plant nutrition mineralsbusiness manufactures an innovative and diverse portfolio of products that improve the quality and yield of crops; andcrops, while supporting sustainable agriculture. Additionally, our specialty chemicals forchemical business serves the water treatment industry and other industrial processes. As of December 31, 2018,2020, we operated 22operate 21 production and packaging facilities with more than 3,000 personnel throughout the U.S., Canada, Brazil and the U.K, 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 near Ogden, Utah, which is both the largest SOP specialty fertilizer production site and the largest solar salt production site in the Western Hemisphere;
•Several mechanical evaporation facilities producing consumer and industrial salt; and
•Multiple facilities producing essential agricultural nutrients and specialty chemicals in Brazil.
Our salt businessSalt segment 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 producesbusinesses produce and marketsmarket 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 premium micronutrient products under our Wolf Trax brand.and other brands.
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 (see Note 4 to our Consolidated Financial Statements for more information).processes.
We focus on building intrinsic value by growing our earnings before interest, taxes, depreciation and amortization (“EBITDA”) and by improving our asset quality. We can employ our operating cash flow and other sources of liquidity to pay dividends, re-invest in our business, pay down debt and make acquisitions.
COVID-19 Pandemic
The ongoing COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. As an essential business, we have continued producing and delivering products that support critical industries such as transportation, agriculture, chemical, food, pharmaceutical and animal nutrition. However, we have instituted several measures in response to the COVID-19 pandemic and the COVID-19 pandemic has negatively affected our business in a number of ways.
•Employee welfare: Our management team has taken multiple actions to limit the exposure of employees to the spread of COVID-19, including instituting remote working where possible, adjusting shift schedules and crew sizes, restricting visitation to operational sites, curtailing all business-related commercial air travel, and increasing sanitation of offices and common areas within our facilities.
•Operations and sales: The COVID-19 pandemic has not interrupted the operations of our mining and manufacturing facilities in North America and Brazil. Operations at our U.K. salt mine were idled near the end of March 2020 through mid-May 2020 due to the very mild winter weather experienced in that market, along with U.K. government guidance on COVID-19 preventative measures. During 2020, we also experienced an impact to some of our sales channels due to manufacturing outages and retail disruptions related to COVID-19, primarily for our non-deicing salt products. In total, we estimate that the combined impact of lost sales and incremental operating costs related to the COVID-19 pandemic totaled approximately $10 million on a year-to-date basis.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
•Supply chain and logistics: To date, we have experienced no material supply chain or logistics issues related to COVID-19. We continue to evaluate potential supply chain and logistics impacts, proactively increase inventory levels of critical sourced inputs and identify secondary suppliers where possible. Both our operations and our logistics partners are deemed “essential” under current governmental guidance, and we have worked to ensure we understand and comply with their safety precautions to limit potential disruptions.
The ultimate impact that COVID-19 will have on our future results is unknown at this time. For more information, see “Part I, Item 1A, Risk Factors.”
Consolidated Results of Operations
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| | COMPASS MINERALS INTERNATIONAL, INC. |
* Refer to “—Sensitivity Analysis RelatedReconciliation of Net Earnings 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.
CONSOLIDATED RESULTS COMMENTARY: 20172019 – 20182020
•Total sales increased 9%, or $129.2decreased $117.0 million, due to increasesa decrease in all segments.the Salt and Plant Nutrition South America segments, partially offset by an increase in the Plant Nutrition North America segment.
•Operating earnings decreased 18%14%, or $28.9$23.1 million, due to lower operating earnings in our Salt and Plant Nutrition North America segments and higher corporate and other operating earnings.expenses.
•Diluted earnings per share increased 62%decreased 5%, or $0.77. Diluted earnings per share in 2018 was negatively impacted by $5.1 million due to expenses incurred related to the transition of our Chief Executive Officer (“CEO”). Diluted earnings per share in 2017 was negatively impacted by a charge of $46.8 million for the impact of the U.S. Tax Cuts and Jobs Act legislation enacted in December 2017 and other tax-related items (see Note 8 to our Consolidated Financial Statements).$0.09.
•EBITDA* adjusted for items management believes are not indicative of our ongoing operating performance (“Adjusted EBITDA”)* decreased 5%8%, or $13.2$24.4 million.
CONSOLIDATED RESULTS COMMENTARY: 20162018 – 20172019
•Total sales increased 20%, or $226.4decreased $3.1 million, due to the impact of a full year of Produquímica sales anddecrease in both plant nutrition businesses, partially offset by an increase in Plant Nutrition North Americathe Salt segment.
•Operating earnings increased 26%, or $33.3 million, due to higher operating earnings in our Salt segment, sales. This increasewhich was partially offset by a decline in Salt segment sales.
Operating earnings decreased 9%, or $15.4 million, due to lower Salt segment operating earnings partially offset by the inclusionin both of Produquímica in our operating results and an increase in Plant Nutrition North America operating earnings.plant nutrition businesses.
•Diluted earnings per share decreased 74%10%, or $3.54. Diluted earnings per share in 2017 was negatively impacted by a charge of $46.8 million related to U.S. tax reform. In contrast, 2016 diluted earnings per share was positively impacted by a $59.3 million gain as a result of remeasuring our prior equity investment in Produquímica held before the business combination (see Note 4 to our Consolidated Financial Statements).$0.21.
•Adjusted EBITDA* increased 4%12%, or $11.5$32.5 million.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
GROSS PROFIT & GROSS MARGIN COMMENTARY: 20172019 – 2018
2020Gross Profit: Decreased 10%7%, or $32.7$24.5 million; Gross Margin decreased 4 percentage points to 20% from 24%was 23% in both periods
•Salt segment gross profit decreased $24.7$8.8 million primarily due to higher per-unit costs at our Goderich mine resulting from the strike at the mine that began in April 2018 and ended in July 2018 and higher per-unit shipping and handling costslower sales volumes, which were partially offset by higher sales.average sales prices and lower logistics costs (see “—Operating Segment Performance—Salt” for additional information).
The•Gross profit for the plant nutrition business,businesses, on a combined basis, was responsible for $7.8 million of the decrease in gross profit.
Gross profit fordecreased $16.5 million. Plant Nutrition North America segment gross profit decreased $2.0$13.3 million primarily due primarily to lower average sales prices and higher depreciation expense during 2018, which wasproduct costs including an inventory adjustment of $7.4 million related to an overstatement of bulk SOP stockpiles, feedstock inconsistency and unplanned downtime at our Ogden facility, partially offset by higher sales volumes. Gross profit for Plant Nutrition South America segment gross profit decreased $5.8$3.2 million primarily due primarily to a weaker Brazilian real compared to the U.S. dollar, which was partially offset by higher agricultural product sales prices and volumes.
GROSS PROFIT & GROSS MARGIN COMMENTARY: 20162018 – 20172019
Gross Profit: Increased 9%15%, or $27.1$42.9 million; Gross Margin decreased 2increased 3 percentage points to 24%23% from 26%20%
•Salt segment gross profit increased $54.0 million primarily due to higher average sales prices, which were partially offset by lower sales volumes, increased per-unit shipping and handling costs and higher product costs (see “—Operating Segment Performance—Salt” for additional information).
•The plant nutrition business, on a combined basis, contributed $86.0 million to the increase in gross profit primarily due to the full-year inclusion of Produquímica in our operating results.
Gross profit fordecreased $10.7 million. Plant Nutrition North America was favorably impacted by highersegment gross profit decreased $1.8 million primarily due to lower sales volumes and lower per-unit product costs, which were partially offset by increasedhigher per-unit shipping and handling costs and higher depreciation expense during 2017.
A $61.6 million decrease in Saltdue to an unfavorable geographic sales mix, partially offset by improved per-unit product costs. Plant Nutrition South America segment gross margin partially offsetprofit decreased $8.9 million primarily due to higher raw material costs, lower chemical solutions product prices and a weaker Brazilian real compared to the combined plant nutrition business’ increase. The decrease resulted from lower sales volumes, increased per-unit product and increased shipping and handling costs, and higher depreciation expense.U.S. dollar.
OTHER EXPENSES AND INCOME COMMENTARY: 20172019 – 20182020
SG&A: Decreased $3.8$1.4 million; Decreased 1.3Increased 0.9 percentage points as a percentage of sales to 11.0%12.5% from 12.3%11.6%
•The decreasereduction in SG&A expense was primarily due to a weaker Brazilian real comparedlower travel expenses due to the U.S. dollar and lower professional service fees in all three of our segments. The decrease in SG&A expenseCOVID-19, which was partially offset by higher restructuring costs in 2018 due to CEO transition costs of $5.1 millioncorporate incentive compensation and higher corporate depreciation expense related to a significant software system upgrade implemented in the second half of 2017.expense.
Interest Expense: Increased $9.6$2.8 million to $62.5$71.2 million
•The increase was primarily due to higher U.S. interest rates and an increase in borrowings underinterest rates due to the refinancing of our revolving credit facility.debt in the fourth quarter of
2019, which was partially offset by lower debt levels.
Net Earnings in Equity Investee: Increased from $0.8$0.7 million to $1.0$1.4 million
•Net earnings in our equity investee increased by $0.2$0.7 million to $1.0 million.$1.4 million due to higher sales volumes.
(Gain) loss on Foreign Exchange: Improved $13.4 million from a loss of $13.0 million in 2019 to a gain of $0.4 in 2020
•The improvement of $13.4 million was due primarily to changes in foreign currency exchange rates on our non U.S. dollar denominated intercompany loans between our U.S. and foreign subsidiaries.
Other (Income) Expense,Income, Net: Improved $13.2decreased $1.6 million from expenseincome of $4.4$1.7 million to income of $8.8$0.1 million
•The increase wasdecrease in other income, net is primarily due to foreign exchange gains of $5.8 millionfees related to our U.S. securitization facility and lower interest income in 2018, compared to losses of $7.1 million in 2017.2020.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
Income Tax Expense:Decreased $51.2$10.4 million to $8.8$11.7 million
•Income tax expense and our income tax rate decreased in 20182020 due to $60.6the release of domestic tax reserves in 2020.
•Our effective tax rate decreased from 26% in 2019 to 16% in 2020. Our effective tax rate in 2020 was impacted by the release of domestic tax reserves due to statute expirations.
•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, global intangible low-taxed income (“GILTI”) and interest expense recognition differences for tax and financial reporting purposes.
OTHER EXPENSES AND INCOME COMMENTARY: 2018 – 2019
SG&A: Increased $9.6 million; Increased 0.6 percentage points as a percentage of sales to 11.6% from 11.0%
•The increase in SG&A expense was primarily due to higher employee-related costs to bolster operational and mining expertise in our Salt and Plant Nutrition North America segments, corporate incentive compensation and higher corporate professional services expense.
Interest Expense: Increased $5.9 million recordedto $68.4 million
•The increase was primarily due to an increase in 2017average outstanding borrowings under our revolving credit facility and higher interest rates on our term loans.
Net Earnings in Equity Investee: Decreased from $1.0 million to $0.7 million
•Net earnings in our equity investee decreased by $0.3 million to $0.7 million.
(Gain) loss on Foreign Exchange: Decreased from gain of $5.8 million to loss of $13.0 million
•The change resulted from differences in foreign exchange rates on our non U.S. dollar denominated intercompany loans between our U.S. and foreign subsidiaries.
Other Income, Net: decreased $1.3 million from income of $3.0 million to income of $1.7 million
•The decrease was primarily due to lower interest income and debt refinance fees in 2019.
Income Tax Expense:Increased $13.3 million to $22.1 million
•Income tax expense and our income tax rate increased in 2019 due to the release of valuation allowances related to U.S.Plant Nutrition South America in 2018 and discrete tax reform and aexpense items in 2019 compared to benefits in 2018.
•Our effective tax settlement agreement, partially offsetrate increased from 11% in 2018 to 26% in 2019. Our effective tax rate in 2018 was impacted by the release of valuation allowances related to our Brazil business.Plant Nutrition South America.
Our effective tax rate decreased from 58% in 2017 to 11% in 2018. Our effective tax rates were impacted by U.S. tax reform and a tax settlement agreement in 2017 and the release of valuation allowances in 2018 related to our Brazil business.
•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.
OTHER EXPENSES AND INCOME COMMENTARY: 2016 – 2017OPERATING SEGMENT PERFORMANCE
SG&A: Increased $42.5 million, which represented a 1.3 percentage points of sales increase to 12.3% from 11.0%
The increase in SG&A expense was primarily due to the full year inclusion of Produquímica in our operating results in 2017 and approximately $2 million in higher corporate depreciation related to a significant software system upgrade.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
In addition, we incurred charges of approximately $2 million related to ongoing restructuring activities primarily impacting corporate SG&A.
Interest Expense: Increased$18.8 million to $52.9 million
The increase was primarily due to our higher aggregate debt level driven by the acquisition of Produquímica, which was partially offset by lower interest rates due to the refinancing of our term loans and revolving credit facility in April 2016.
Net (Earnings) Loss in Equity Investee: Increased from a loss of $1.4 million to earnings of $0.8 million
The $0.8 million of earnings in 2017 represents our share of Fermavi Eletroquímica Ltda.’s (“Fermavi”) net earnings. As a result of the full acquisition of Produquímica, we hold a 50% interest in Fermavi, which was previously held by Produquímica.
The $1.4 million loss in 2016 was primarily comprised of our share of Produquímica’s net loss based on our initial 35% equity interest in Produquímica prior to the full acquisition.
Gain from Remeasurement of Equity Method Investment
We recognized a gain of $59.3 million in 2016 related to our previously held equity investment in Produquímica, which was remeasured to fair value upon our full acquisition of the business in October 2016.
Other Expense (Income), Net: Increased $3.3 million to $4.4 million
The increase was primarily due to foreign exchange losses of $7.1 million in 2017, compared to losses of $0.1 million in 2016.
The increase was partially offset by the inclusion of $3.0 million of refinancing fees in 2016 and increased interest income in 2017.
Income Tax Expense: Increased $25.4 million to $60.0 million
Income tax expense and our income tax rate increased in 2017 due to the impact of U.S. tax reform, which resulted in an increase in tax expense of $46.8 million, and due to a tax settlement agreement. These increases were partially offset by the release of valuation allowances related to our Brazil business.
Our effective tax rate was 58% in 2017 and 18% in 2016. Our effective tax rates were impacted by U.S. tax reform and a tax settlement agreement in 2017 and the non-taxable gain recognized from the remeasurement of our previously held equity investment in Produquímica in 2016.
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.
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 for the years ended December 31, 2018, 20172020, 2019 and 2016.2018. Sales primarily include revenue from the sales of our products, or “product sales,” and the impact of shipping and handling costs incurred to deliver our 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 $10.1 million, $9.7 million and $10.5 million $10.2 millionfor 2020, 2019 and $9.6 million for 2018, 2017 and 2016, respectively. These revenuessales are not material to our consolidated financial results and are not included in the following operating segment financial data.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
SALT SEGMENT RESULTS
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| 2020 | | 2019 | | 2018 |
Salt Sales (in millions) | $ | 779.4 | | | $ | 889.5 | | | $ | 858.1 | |
Salt Operating Earnings (in millions) | $ | 161.8 | | | $ | 168.0 | | | $ | 115.7 | |
Salt Sales Volumes (thousands of tons) | | | | | |
Highway deicing | 7,534 | | 8,748 | | 9,597 |
Consumer and industrial | 1,906 | | 2,175 | | 2,030 |
Total tons sold | 9,440 | | 10,923 | | 11,627 |
Average Salt Sales Price (per ton) | | | | | |
Highway deicing | $ | 62.89 | | | $ | 62.36 | | | $ | 55.44 | |
Consumer and industrial | $ | 160.33 | | | $ | 158.09 | | | $ | 160.65 | |
Combined | $ | 82.56 | | | $ | 81.43 | | | $ | 73.80 | |
SALT SEGMENT RESULTS COMMENTARY: 2019 – 2020
•Salt sales decreased 12%, or $110.1 million, due to lower Salt sales volumes, which was partially offset by higher average sales prices.
•Salt sales volumes decreased 14%, or 1,483,000 tons, and contributed approximately $118 million to the decrease in sales. Highway deicing sales volumes decreased 14% as a result of mild weather in North America and the U.K. when compared to 2019, which was partially offset by higher sales volumes to our chemical customers. Consumer and industrial sales volumes decreased 12% due to lower sales of deicing products due to the mild weather in 2020 and lower non-deicing sales volumes primarily due to COVID-19.
•Salt average sales price increased 1% and partially offset the decrease in sales by approximately $8 million due to slightly higher average sales prices.
•Highway deicing average sales prices increased 1%, reflecting higher prices realized in the first half of the year from higher North American highway deicing contract prices for the 2019-2020 winter season, and higher chemical customer prices, partially offset by lower North American highway deicing contract prices for the 2020-2021 winter season. Consumer and industrial average sales prices increased 1% due to non-deicing price increases in 2020.
•Salt operating earnings decreased 4%, or $6.2 million, due to lower sales volumes and higher per-unit product costs in 2020, which was partially offset by lower per-unit logistics costs. Per-unit product costs were higher in 2020 due to higher per-unit costs in the U.K. and at our consumer and industrial plants largely due to lower production volumes.
SALT SEGMENT RESULTS COMMENTARY: 2018 – 2019
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SALT SEGMENT RESULTS
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| 2018 | | 2017 | | 2016 |
Salt Sales (in millions) | $ | 858.1 |
| | $ | 769.2 |
| | $ | 811.9 |
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Salt Operating Earnings (in millions) | $ | 115.7 |
| | $ | 138.0 |
| | $ | 200.6 |
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Salt Sales Volumes (thousands of tons) | | | | | |
Highway deicing | 9,597 |
| | 8,565 |
| | 8,966 |
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Consumer and industrial | 2,030 |
| | 2,035 |
| | 2,147 |
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Total tons sold | 11,627 |
| | 10,600 |
| | 11,113 |
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Average Salt Sales Price (per ton) | | | | | |
Highway deicing | $ | 55.44 |
| | $ | 53.13 |
| | $ | 54.73 |
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Consumer and industrial | $ | 160.65 |
| | $ | 154.34 |
| | $ | 149.63 |
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Combined | $ | 73.80 |
| | $ | 72.56 |
| | $ | 73.06 |
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SALT SEGMENT RESULTS COMMENTARY: 2017 – 2018
•Salt sales increased 12%4%, or $88.9$31.4 million, due to higher highway deicing average sales increases in both businesses.prices and higher consumer and industrial sales volumes, which was partially offset by lower highway deicing sales volumes.
•Salt sales volumes increased 10%decreased 6%, or 1,027,000704,000 tons, and contributed approximately $54 million towhich offset the increase in Salt segment sales.sales by approximately $24 million. Highway deicing sales volumes increased 12%decreased 9% as a result of significantly above average wintermild weather in the U.K. and morewhen compared to the significantly above average U.K. winter weather events in North America in the first quarter of 2018 comparedand lower North American contract volumes in the 2018-2019 bid season due primarily to the same periodlower production volumes at our Goderich mine in 2017.2018. Consumer and industrial sales volumes were essentially flat with the prior year.increased 7% due to higher sales volumes of deicing and non-deicing products.
•Salt average sales price increased 2%10% and contributed approximately $35$55 million to the increase in Salt segment sales as averagedue to higher highway deicing prices and product sales prices were higher in both businesses. Salt average sales price was negatively impacted by product mix, as highway deicingconsumer and industrial products, which have a lowerhigher average sales price than consumer and industrialhighway deicing products, were a higher proportion of total sales in 2018.the current period.
•Highway deicing average sales prices increased 4%12%, primarily as a result of the realization of higher North American highway deicing bid prices for the 2018-2019 winter season in the fourth quarter of 2018 reflecting tighter salt supply following a more typical winter season as compared to the prior weak2019-2020 winter season. Consumer and industrial average sales prices increased 4%decreased 2% due to price increases introduced over the last year and an improvement in product sales mix.
•Salt operating earnings decreased 16%increased 45%, or $22.3$52.3 million, due to higher per-unithighway deicing prices in 2019. Per-unit product and logistics costs were higher in North America as well as higher-cost inventory produced in 2017 and sold in 2018 compared2019 due to a lower-cost 2017 beginning inventory. The higher per-unit product and logistics costs resulted primarily from lower Goderich mine production levels and higher carryover inventory costs due the Goderich mine ceiling fall in the second halfmix of 2017 and lower production levels at the Goderich mine related to the strike at the mine that began in April 2018 and ended in July 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. This decrease in operating earnings was partially offset by a restructuring charge of approximately $2 million that occurred in 2017.
SALT SEGMENT RESULTS COMMENTARY: 2016 – 2017
Salt sales decreased 5%, or $42.7 million, due to lower highway deicing and consumer and industrial sales which have a higher per-unit cost. Per-unit production costs and volumes and lower highway deicing average sales prices. This decreaseat our North American mines have improved from 2018 which was partially offsetunfavorably impacted by higher consumer and industrial average sales prices.the labor strike at the Goderich mine.
Salt sales volumes decreased 5%, or 513,000 tons, and contributed approximately $39 million to the decline in Salt segment sales. Highway deicing sales volumes decreased 4% and consumer and industrial sales volumes decreased 5% primarily due to the carryover impact of two consecutive mild winters, which resulted in increased customer deicing inventories.
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Salt average sales price decreased 1% and contributed approximately $4 million to the decrease in Salt segment sales. The decrease in average sales price was due to a decrease in highway deicing average sales prices, partially offset by an increase in consumer and industrial average sales prices.
Highway deicing average sales prices decreased 3% primarily as a result of lower North American highway deicing bid prices for the 2016-2017 winter season partially offset by favorable geographic sales mix in the fourth quarter of 2017. Consumer and industrial average sales prices increased 3% due to price increases introduced in 2016 as well as an improvement in product sales mix.
Salt operating earnings decreased 31%, or $62.6 million, primarily due to higher per-unit product and logistics costs, lower average sales prices and higher depreciation expense.
We experienced lower mine operating rates throughout 2016 due to high deicing inventory and unplanned downtime at our Goderich mine in the fourth quarter of 2016, which increased 2017 per-unit product costs.
In addition, results include restructuring costs related to our cost savings initiatives of approximately $2 million during 2017.
PLANT NUTRITION NORTH AMERICA RESULTS
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| 2020 | | 2019 | | 2018 |
Plant Nutrition North America Sales (in millions) | $ | 239.6 | | | $ | 206.2 | | | $ | 233.2 | |
Plant Nutrition North America Operating Earnings (in millions) | $ | 12.1 | | | $ | 22.5 | | | $ | 25.3 | |
Plant Nutrition North America Sales Volumes (thousands of tons) | 383 | | | 317 | | | 362 | |
Plant Nutrition North America Average Sales Price (per ton) | $ | 626 | | | $ | 651 | | | $ | 645 | |
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| 2018 | | 2017 | | 2016 |
Plant Nutrition North America Sales (in millions) | $ | 233.2 |
| | $ | 210.0 |
| | $ | 203.0 |
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Plant Nutrition North America Operating Earnings (in millions) | $ | 25.3 |
| | $ | 27.7 |
| | $ | 21.1 |
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Plant Nutrition North America Sales Volumes (thousands of tons) | 362 |
| | 327 |
| | 313 |
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Plant Nutrition North America Average Sales Price (per ton) | $ | 645 |
| | $ | 642 |
| | $ | 648 |
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PLANT NUTRITION NORTH AMERICA RESULTS COMMENTARY: 20172019 – 20182020
•Plant Nutrition North America sales increased 11%16%, or $23.2$33.4 million, primarily due primarily to higher sales volumes.volumes, which was partially offset by lower sales prices.
•Plant Nutrition North America sales volumes increased 11%21%, or 35,00066,000 tons, and contributedincreased sales by approximately $22 million$43 million. The volume increase was primarily the result of suppressed demand in the first half of 2019 due to the increasecold and wet weather conditions in sales. The sales volumes increase resulted from increaseskey North American markets and an upturn in both SOP and micronutrient volumes.the agriculture market during 2020.
•Plant Nutrition North America average sales prices were essentially flat and contributed approximately $1 million to the increase in sales.
Plant Nutrition North America operating earnings decreased 9%, or $2.4 million, primarily due to an increase in depreciation expense associated with commissioning new production assets at our Utah facility and additional potassium chloride feedstock used to boost SOP production during the first half of 2018. The decrease was partially offset by lower logistics costs and a restructuring charge of approximately $1 million that occurred in 2017.
PLANT NUTRITION NORTH AMERICA RESULTS COMMENTARY: 2016 – 2017
Plant Nutrition North America sales increased 3%, or $7.0 million, primarily due to higher sales volumes partially offset by lower average sales prices.
Plant Nutrition North America sales volumes increased 4%, or 14,000 tons, and contributed approximately $9 million to the increase in sales as the North American SOP market stabilized during 2017
Plant Nutrition North America average sales price decreased 1% which partially offset the increase in sales by approximately $2$10 million.
•Plant Nutrition North America operating earnings increased 31%decreased 46%, or $6.6$10.4 million, primarily due to a reduction inhigher per-unit product costs the impact ofand lower average sales prices, which was partially offset by unfavorable logistics costs, higher depreciation expensesales volumes and approximately $1lower SG&A expenses. The higher per-unit product cost in 2020 was due to an inventory adjustment of $7.4 million related to an overstatement of restructuring costs.bulk SOP stockpiles, unplanned downtime and feedstock inconsistency at our Ogden facility.
PLANT NUTRITION NORTH AMERICA RESULTS COMMENTARY: 2018 – 2019
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•Plant Nutrition North America sales decreased 12%, or $27.0 million, primarily due to lower sales volumes.
•Plant Nutrition North America sales volumes decreased 12%, or 45,000 tons, and reduced sales by approximately $29 million. The volume decrease was primarily the result of lower demand due to the wet weather conditions in key North American markets in the first half of 2019.
•Plant Nutrition North America average sales prices increased 1% which partially offset the decrease in sales by approximately $2 million.
•Plant Nutrition North America operating earnings decreased 11%, or $2.8 million, due to lower sales volumes, higher per-unit shipping and handling costs, a less favorable geographic sales mix and higher cost carryover inventory from 2018 into 2019, as compared to 2018 beginning inventory. This decrease was partially offset by lower production costs resulting from improved production yield from our pond-based feedstock.
PLANT NUTRITION SOUTH AMERICA RESULTS
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| 2020 | | 2019 | | 2018 |
Plant Nutrition South America Sales (in millions) | $ | 344.4 | | | $ | 385.1 | | | $ | 391.8 | |
Plant Nutrition South America Operating Earnings (in millions) | $ | 40.3 | | | $ | 40.0 | | | $ | 48.7 | |
Plant Nutrition South America Sales Volumes (thousands of tons) | | | | | |
Agricultural productivity | 485 | | | 452 | | | 461 | |
Chemical solutions | 339 | | | 338 | | | 300 | |
Total tons sold | 824 | | | 790 | | | 761 | |
Average Plant Nutrition South America Sales Price (per ton) | | | | | |
Agricultural productivity | $ | 562 | | | $ | 655 | | | $ | 644 | |
Chemical solutions | $ | 212 | | | $ | 264 | | | $ | 316 | |
Combined | $ | 418 | | | $ | 488 | | | $ | 515 | |
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| 2018 | | 2017 | | 2016 |
Plant Nutrition South America Sales (in millions) | $ | 391.8 |
| | $ | 375.0 |
| | $ | 113.5 |
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Plant Nutrition South America Operating Earnings (in millions) | $ | 48.7 |
| | $ | 49.1 |
| | $ | 7.4 |
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Plant Nutrition South America Sales Volumes (thousands of tons) | | | | | |
Agricultural productivity | 461 |
| | 432 |
| | 122 |
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Chemical solutions | 300 |
| | 289 |
| | 72 |
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Total tons sold | 761 |
| | 721 |
| | 194 |
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Average Plant Nutrition South America Sales Price (per ton) | | | | | |
Agricultural productivity | $ | 644 |
| | $ | 632 |
| | $ | 713 |
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Chemical solutions | $ | 316 |
| | $ | 351 |
| | $ | 372 |
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Combined | $ | 515 |
| | $ | 520 |
| | $ | 587 |
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PLANT NUTRITION SOUTH AMERICA RESULTS COMMENTARY: 20172019 – 20182020
•Plant Nutrition South America sales increased 4%decreased 11% or $16.8 million.$40.7 million due to a 32% unfavorable weighted average change in the Brazilian real versus the U.S. dollar from the prior year, which was partially offset by higher sales volumes.
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•Plant Nutrition South America sales volumes increased 6%4%, or 40,00034,000 tons, andwhich contributed approximately $22 million to the increase in Plant Nutrition South America sales. Agricultural productivity sales volumes increased 7% due primarily as a resultto improvements in farmer economics and affordability of improved crop economics in Brazil versus the prior year.fertilizer products due to foreign exchange and barter rates. Chemical solutions sales volumes increased 4% due towere essentially unchanged from the prior year as higher demand forsales of chlor-alkali products were offset by reduced sales of water conditioning products.
•A 1%14% decrease in Plant Nutrition South America average sales price resulted in a decrease of approximately $63 million in Plant Nutrition South America sales due to the weakening of the Brazilian real versus the U.S. dollar. In local currency, average sales prices were up 14% due primarily to a 14% increase in agricultural productivity product sales prices as a result of a stronger product mix and price increases in most product lines.
•Plant Nutrition South America operating earnings increased 1%, or $0.3 million, primarily due to higher sales volumes and improved chemical margins due to production efficiencies, which were mostly offset by the weaker Brazilian real and higher SG&A costs in local currency due to incentive compensation and professional services.
PLANT NUTRITION SOUTH AMERICA RESULTS COMMENTARY: 2018 – 2019
•Plant Nutrition South America sales decreased 2% or $6.7 million as lower average sales prices were partially offset theby higher sales increase byvolumes.
•Plant Nutrition South America sales volumes increased 4%, or 29,000 tons, and added approximately $5 million.$6 million to Plant Nutrition South America sales. Chemical solutions sales volumes increased 13% due to new water treatment business in São Paulo. Agricultural productivity sales volumes decreased 2% primarily due to lower sales through our distribution sales channel which more than offset strong growth in our direct to grower sales channel.
•A 5% decrease in Plant Nutrition South America average sales price resulted in a decrease of approximately $13 million in Plant Nutrition South America sales. The decrease in average sales price was primarily due to a 10%16% decrease in chemical solutions average sales prices due to shifts in product sales mix, a weaker Brazilian real and competitive pressure for industrial and water treatment products. This decrease was partially offset by a 2% increase in agricultural productivityagriculture product prices. The decrease in average sales prices was due to adespite the weaker Brazilian real versus the U.S. dollar partially offset by a favorable shift in product sales mix.real.
•Plant Nutrition South America operating earnings decreased 1%18%, or $0.4$8.7 million, primarily due to a weaker Brazilian real versus the U.S. dollarlower chemical solutions prices, higher raw materials input costs and a $1.9 million gain recognizedcontinued investment in the first quarter of 2017 relatedour direct to the settlement of contingent consideration for the acquisition of Produquímica. In local currency, operating earnings increased 22% over 2017 results as highergrower sales were partially offset by higher commodity costs.force.
PLANT NUTRITION SOUTH AMERICA RESULTS COMMENTARY: 2016 – 2017
Financial results for 2016 represent consolidated financial information with respect to our Plant Nutrition South America segment from October 3, 2016, the Produquímica acquisition date, through December 31, 2016. As such, 2016 results are not comparable to full-year 2017 consolidated financial results.
Plant Nutrition South America’s operating results are impacted by seasonality. Sales volumes are usually higher in the third and fourth quarter and lower in the first and second quarters. See “—Seasonality” for more information.
OUTLOOK
Commitment volumes for our North American highway deicing bid season have declined from our prior bid season. •We expect Salt sales volumes to range from 10.011.0 million to 10.511.8 million tons in 2019.2021.
Salt EBITDA is expected to be approximately $65 million to $80 million in the first half of 2019.
•Plant Nutrition North America sales volumes are expected to range from 350,000 to 400,000380,000 tons in 2019.2021.
Plant Nutrition North America EBITDA is expected to range from $30 million to $40 million in the first half of 2019.
•We expect 20192021 Plant Nutrition South America sales volumes to range from 800,000850,000 to 900,000925,000 tons.
Plant Nutrition•We have initiated a strategic evaluation of the long-term fit of our South America EBITDA is expectedbusiness and a strategic separation of our South American assets into two businesses, chemicals and specialty plant nutrition, with the intention of enabling a targeted and efficient sales process to range from $10 million to $20 millionunlock maximum value for each set of assets. This evaluation and separation could result in a variety of outcomes (see “Risk Factors—We may not successfully implement our strategies.” for more information).
•For information about the first halfimpact of 2019.the COVID-19 pandemic on the Company, see “–COVID-19 Pandemic” and “Risk Factors.”
Investments, Liquidity and Capital Resources
Overview
Over the last several years, we have made significant investments in order to strengthen our operational capabilities.
•We shifted all of our Goderich mine production to continuous mining in the fourth quarter of 2017 following significant investments in this technology. Our continuous mining and haulage system at the Goderich mine is expected to provide a safer, more sustainable production environment and enhance our ability to ramp up and down to meet demand fluctuations. In addition, we are near completion ofrecently completed our shaft relining project at our Goderich mine, which we undertook to help secure the integrity of our Goderichthe mine and our hoisting capacity for the future.
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•We have invested in our UtahOgden facility to strengthen our solar-pond-based SOP production through upgrades to our processing plant and our solar evaporation ponds. This included modifying our existing solar evaporation ponds to increase the annual solar harvest and increasingas well as the extraction yield and processing capacity of our SOP plant. We recently completed a projectplant, which allows us to further expand our SOP production capacity and expand our ability to compact product into various product grades at our Utah facility, which increasedincrease our SOP production capacity to approximately 550,000 tons when supplemental KCl feedstock is used. We also recently completed a project to expand our ability to compact product into various product grades at our Ogden facility.
In October 2016, we acquired the remaining 65% of the issued and outstanding capital stock of Produquímica (see Note 4 to our Consolidated Financial Statements for more information).
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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 operations and own substantially all of our operating assets. The principal source of 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 the credit agreement governing our credit facilities, including the total leverage ratio and interest coverage ratio, in order to pay dividends to our stockholders. We must also comply with the terms of our indentureindentures governing our 4.875% Senior Notes due July 2024 (the "4.875% Notes"“4.875% Notes”) and our 6.75% Senior Notes due December 2027 (the “6.75% Notes), which limitslimit the amount of dividends we can pay to our stockholders. We are in compliance with our debt covenants as of December 31, 2018.2020. See Item 8, Note 10 to our Consolidated Financial Statements for a discussion of our outstanding debt.
Historically, our cash flows from operating activities have generally been adequate to fund our basic operating requirements, ongoing debt service and sustaining investment in our property, plant and equipment. We have also used cash generated from operations to fund capital expenditures which strengthen our operational position, to pay dividends, to fund smaller acquisitions and to repay our debt. 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 December 31, 2018,2020, we had $18.7$14.8 million of cash and cash equivalents (in our 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 have experienced large changes in our working capital requirements from quarter to quarter. Historically, our working capital requirements have been the highest in the fourth quarter and lowest in the second quarter. With the addition of our Plant Nutrition South America segment, we expect a less seasonal distribution of working capital requirements. When needed, we fund short-term working capital requirements by accessing our $300 million revolving credit facility.
We have historically considered the undistributed earnings of our foreign subsidiaries to be permanently reinvested. In December 2017, however, U.SU.S. tax reform legislation was enacted, which included a one-time mandatory tax on previously deferred foreign earnings. As a result,such, we have revised our permanently reinvested assertion and we now expect to repatriate approximately $150 million of unremitted foreign earnings on which we have recorded $3.4$4.3 million of income tax expense has been recorded for foreign withholding tax and state income tax nettaxes, consisting of foreign exchange loss.$0.9 million recorded in 2019 and $3.4 million recorded in 2018. All of our non-U.S. undistributed earnings through December 31, 2017, were subject to the one-time mandatory tax for which we recorded a net tax expense of $52.1 million, which is comprised of tax expense of $55.2 million in 2017 offset by a benefit of $3.1 million in 2018. Due to our ability to generate adequate levels of U.S. cash flow on an annual basis, it is our current intention to continue to reinvest the remaining undistributed earnings of our foreign subsidiaries indefinitely. We review our tax circumstances on a regular basis with the intent of optimizing cash accessibility and minimizing tax expense. As of December 31, 2018,2020, we have $173.5$213.6 million of non-U.S. undistributed earnings and outside basis differences for which no deferred taxes have been recorded. See Item 8, Note 8 to our Consolidated Financial Statements for a discussion regarding U.S. tax reform.
In addition, the amount of permanently reinvested foreign 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 U.S. and foreign subsidiaries are impacted by the transfer price charged on the transfer of our products between them. As discussed in Item 8, Note 8 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 settlement agreement with federal Canadian and U.S. tax authorities related to our transfer pricing for our 2007-2012 tax years. During 2018, in accordance with the settlement agreement, our U.S. subsidiary made intercompany cash payments of $85.7 million to our Canadian subsidiary and tax payments were made to Canadian taxing authorities of $17.5 million. Additional tax payments of $5.3 million were made during 2019 with the remaining $3.3liability of $1.4 million expected to be paid to Canadian taxing authorities during 2019.in 2021. Corresponding tax refunds of $1.7$22.2 million werehave been received during 2018as of December 31, 2020, from U.S. taxing authorities with the remaining refund of approximately $21$0.9 million of tax refunds expected to be received from U.S. taxing authorities in 2019.2021. Additionally during the fourth quarter of 2018, we reached a settlement agreement on transfer pricing and management fees as part of an advanced pricing agreement with federal Canadian and U.S. tax authorities covering our 2013-2021 tax years. The agreement will resultrecording of this settlement in intercompany cash payments from our U.S. subsidiary to2018 resulted in increased sales for our Canadian subsidiary of $106.1 million and offsetting expenses for our U.S. subsidiary causing a domestic loss and significant foreign income in 2018. During 2019, in accordance with the settlement agreement, our U.S. subsidiary made an intercompany cash payment of $106.1 million to our Canadian subsidiary and tax payments were made to Canadian taxing authorities of $28.5$29.9 million with a correspondingthe remaining $1.4 million balance paid during 2020. Corresponding tax refund duerefunds of $59.7 million have been received as of December 31, 2020, from U.S. taxing authorities, with the remaining refund of $60.5 million. The timing of the refund is$1.9 million expected to lag the payment to the Canadian tax authorities.in 2021. Canadian provincial taxing authorities continue to challenge 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
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to our foreign subsidiaries, which could impact the amount of permanently reinvested foreign earnings. See Item 8, Note 8 to our Consolidated Financial Statements for a discussion regarding our Canadian tax reassessments and settlements.
Principally due to the nature of our deicing business, our cash flows from operations have historically been seasonal, with the majority of our cash flows from operations generated during the first half of the calendar year (see “—Seasonality” section below for more information). 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 revolving credit facility. We expect to meet the ongoing requirements for debt service, any declared dividends and capital expenditures
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from these sources. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
The table below provides a summary our cash flows by category and year.
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2020 | 2019 | 2018 |
Operating Activities: |
Net cash flows provided by operating activities were $175.2 million.
»Net earnings were $59.5 million.
»Non-cash depreciation and amortization expense was $137.9 million.
»Working capital items were a use of operating cash flows of $42.9 million. | Net cash flows provided by operating activities were $159.6 million.
»Net earnings were $62.5 million.
»Non-cash depreciation and amortization expense was $137.9 million.
»Working capital items were a use of operating cash flows of $59.9 million. | Net cash flows provided by operating activities were $182.3 million.
»Net earnings were $68.8 million.
»Non-cash depreciation and amortization expense was $136.9 million.
»Working capital items were a use of operating cash flows of $19.9 million. |
Investing Activities: |
Net cash flows used by investing activities were $88.2 million.
»Included $84.9 million of capital expenditures. | Net cash flows used by investing activities were $100.4 million.
»Included $98.1 million of capital expenditures. | Net cash flows used by investing activities were $99.6 million.
»Included $96.8 million of capital expenditures. |
Financing Activities: |
Net cash flows used by financing activities were $96.2 million.
»Included net proceeds from the issuance of debt of $6.9 million, payments of dividends of $99.1 million and payments of $1.0 million related to deferred financing costs. | Net cash flows used by financing activities were $50.5 million.
»Included net proceeds from issuance of debt of $62.0 million, payments of dividends of $98.1 million and payments of $12.8 million related to deferred financing costs. | Net cash flows used by financing activities were $85.9 million.
»Included net proceeds from issuance of debt of $14.5 million, payments of dividends of $97.7 million and payments of $1.7 million related to deferred financing costs. |
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2018 | 2017 | 2016 |
Operating Activities: |
Net cash flows provided by operating activities were $190.7 million.
» Net earnings were $68.8 million.
» Non-cash depreciation and amortization expense was $136.9 million.
» Working capital items were a use of operating cash flows of $19.9 million. | Net cash flows provided by operating activities were $146.9 million.
» Net earnings were $42.7 million.
» Non-cash depreciation and amortization expense was $122.2 million.
» Working capital items were a use of operating cash flows of $6.9 million. | Net cash flows provided by operating activities were $167.3 million.
» Net earnings were $162.7 million which included a non-cash remeasurement gain of $59.3 million related to the acquisition of Produquímica.
» Non-cash depreciation and amortization expense was $90.3 million.
» Working capital items were a use of operating cash flows of $31.7 million. |
Investing Activities: |
Net cash flows used by investing activities were $99.6 million.
» Included $96.8 million of capital expenditures. | Net cash flows used by investing activities were $119.0 million.
» Included $114.1 million of capital expenditures. | Net cash flows used by investing activities were $467.8 million.
» Included $182.2 million of capital expenditures and cash payments of $4.7 million relating to our previously held equity investment and $277.7 million for the full acquisition of Produquímica. |
Financing Activities: |
Net cash flows used by financing activities were $85.9 million.
» Included net proceeds from issuance of debt of $14.5 million, payments of dividends of $97.7 million and payments of $1.7 million related to deferred financing costs. | Net cash flows used by financing activities were $73.4 million.
» Included net proceeds from issuance of debt of $38.7 million, payments of dividends of $97.5 million and payments of $14.7 million related to contingent consideration from the Produquímica acquisition. | Net cash flows provided by financing activities were $314.6 million.
» Included net proceeds from issuance of debt of $416.7 million, payments of dividends of $94.1 million and payments of $8.5 million related to the refinancing of debt. |
Capital Resources
We believe our primary sources of liquidity will continue to be cash flow from operations and borrowings under our revolving credit facility. We believe that our current banking syndicate is secure and believe we will have access to our entire revolving credit facility. We expect that ongoing requirements for debt service and committed or sustaining capital expenditures will primarily be funded from these sources.
Our debt service obligations could, under certain circumstances, materially affect our financial condition and prevent us from fulfilling our debt obligations. See Item 1A, “Risk Factors – Factors—Our indebtedness and abilityany inability to pay our indebtedness could adversely affect our business and financial condition.” Furthermore, CMI is a holding company with no operations of its own and is dependent on its subsidiaries for cash flow. As discussed in Item 8, Note 10 to our Consolidated Financial Statements, at December 31, 2018,2020, we had $1.37$1.41 billion of outstanding indebtedness consisting of $250.0 million under our 4.875% Notes, $1.03 billion$500.0 million under our 6.75% Notes, $520.3 million of borrowings outstanding under our senior secured credit facilities (consisting of term loans and a revolving credit facility), including $197.0$130.3 million borrowed against our revolving credit facility, and $95.5$92.8 million of debt related to our Produquímica businessPlant Nutrition South American segment in Brazil. Letters of credit totaling $10.6$12.5 million as of December 31, 20182020, reduced available borrowing capacity under the revolving credit facility to $92.4$157.2 million.
On June 30, 2020, certain of our U.S. subsidiaries entered into a three-year committed revolving accounts receivable financing facility for up to $100.0 million of borrowing with PNC Bank, National Association, as administrative agent and lender, and PNC Capital Markets, LLC, as structuring agent. At December 31, 2020, we had $51.2 million of outstanding loans under this accounts receivable financing facility. See Item 8, Note 10 to our Consolidated Financial Statements for more information.
In the future, including in 2019,2021, we may borrow amounts under the revolving credit facility or enter into additional financing to fund our working capital requirements, potential acquisitions and capital expenditures and for other general corporate purposes.
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Our ability to make scheduled interest and principal payments on our indebtedness, to refinance our indebtedness, to fund planned capital expenditures and to fund acquisitions will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Based on our current level of operations, we believe that cash flow from operations and available cash, together with available borrowings under our revolving credit facility, will be adequate to meet our liquidity needs over the next 12 months.
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We have various foreign and state net operating loss (“NOL”) carryforwards that may be used to offset a portion of future taxable income to reduce our cash income taxes that would otherwise be payable. However, we may not be able to use any or all of our NOL carryforwards to offset future taxable income and our NOL carryforwards may become subject to additional limitations due to future ownership changes or otherwise. At December 31, 2018,2020, we had $28.4$7.8 million of gross NOL carryforwards ($27.27.7 million of gross foreign federal NOL carryforwards that have no expiration date and $1.2$0.1 million of gross foreign federal NOL carryforwards that expire in 2033) and $0.2 million of net operating tax-effected state NOL carryforwards that expire beginning in 2027.
We have a defined benefit pension plan for certain of our current and former U.K. employees. Beginning December 1, 2008, future benefits ceased to accrue for the remaining active employee participants in the plan concurrent with the establishment of a defined contribution plan for these employees. Generally, our cash funding policy is to make the minimum annual contributions required by applicable regulations. AlthoughAs of December 31, 2020, the fair value of the plan’s assets are in excess ofless than the accumulated benefit obligations and we expect tocould be required to use cash from operations above our historical levels to fund the plan in the future.
Off-Balance Sheet Arrangements
At December 31, 2018,2020, we had no off-balance sheet arrangements that have or are likely to have a material current or future effect on our consolidated financial statements.
Contractual Obligations
Our contractual cash obligations and commitments as of December 31, 2018,2020, are as follows (in millions):
Payments Due by Period
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Contractual Cash Obligations | | Total | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter |
Long-term Debt | | $ | 1,414.3 | | | $ | 63.7 | | | $ | 57.8 | | | $ | 72.5 | | | $ | 270.0 | | | $ | 450.3 | | | $ | 500.0 | |
Interest(a) | | 330.4 | | | 61.0 | | | 58.3 | | | 56.5 | | | 50.9 | | | 36.2 | | | 67.5 | |
Finance Lease Obligations(b) | | 12.0 | | | 1.8 | | | 1.2 | | | 1.1 | | | 0.9 | | | 0.9 | | | 6.1 | |
Operating Leases(b) | | 66.5 | | | 16.4 | | | 13.1 | | | 8.4 | | | 5.7 | | | 4.9 | | | 18.0 | |
Unconditional Purchase Obligations(c) | | 84.3 | | | 43.6 | | | 13.3 | | | 10.0 | | | 7.8 | | | 2.1 | | | 7.5 | |
One-time Transition Tax Obligation | | 35.8 | | | 3.7 | | | 3.8 | | | 7.1 | | | 9.4 | | | 11.8 | | | — | |
Estimated Future Pension Benefit Obligations(d) | | 73.3 | | | 3.2 | | | 3.2 | | | 3.3 | | | 3.4 | | | 3.4 | | | 56.8 | |
Total Contractual Cash Obligations | | $ | 2,016.6 | | | $ | 193.4 | | | $ | 150.7 | | | $ | 158.9 | | | $ | 348.1 | | | $ | 509.6 | | | $ | 655.9 | |
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Other Commitments | | Total | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter |
Letters of Credit | | $ | 12.5 | | | $ | 12.5 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Performance Bonds(e) | | 51.4 | | | 41.2 | | | 10.1 | | | 0.1 | | | — | | | — | | | — | |
Total Other Commitments | | $ | 63.9 | | | $ | 53.7 | | | $ | 10.1 | | | $ | 0.1 | | | $ | — | | | $ | — | | | $ | — | |
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Contractual Cash Obligations | | Total | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter |
Long-term Debt | | $ | 1,371.4 |
| | $ | 43.7 |
| | $ | 63.3 |
| | $ | 1,010.8 |
| | $ | 1.9 |
| | $ | 1.7 |
| | $ | 250.0 |
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Interest(a) | | 195.1 |
| | 66.5 |
| | 63.2 |
| | 34.4 |
| | 12.2 |
| | 12.2 |
| | 6.6 |
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Capital Lease Obligations(b) | | 12.2 |
| | 2.3 |
| | 1.8 |
| | 1.3 |
| | 1.1 |
| | 1.1 |
| | 4.6 |
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Operating Leases(b) | | 55.0 |
| | 16.4 |
| | 10.6 |
| | 5.7 |
| | 4.4 |
| | 3.6 |
| | 14.3 |
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Unconditional Purchase Obligations(c) | | 47.8 |
| | 26.2 |
| | 8.6 |
| | 6.7 |
| | 6.2 |
| | 0.1 |
| | — |
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One-time transition tax obligation | | 36.0 |
| | 2.5 |
| | 3.2 |
| | 3.2 |
| | 3.2 |
| | 6.0 |
| | 17.9 |
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Estimated Future Pension Benefit Obligations(d) | | 58.6 |
| | 2.8 |
| | 2.9 |
| | 3.0 |
| | 3.1 |
| | 3.2 |
| | 43.6 |
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Total Contractual Cash Obligations | | $ | 1,776.1 |
| | $ | 160.4 |
| | $ | 153.6 |
| | $ | 1,065.1 |
| | $ | 32.1 |
| | $ | 27.9 |
| | $ | 337.0 |
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Other Commitments | | Total | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter |
Letters of Credit | | $ | 10.6 |
| | $ | 10.6 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Bank Letter Guarantees(e) | | 8.5 |
| | 8.5 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Performance Bonds(e) | | 181.4 |
| | 181.4 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total Other Commitments | | $ | 200.5 |
| | $ | 200.5 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
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(a)Based on maintaining existing debt balances to maturity. Interest on our credit facilities varies with the Eurodollar rate and the base rate. The December 31, 2020 blended rate of 4.5%, including the applicable spread, was used for this calculation for CMI debt. The amounts in the table do not include interest payments of approximately $5.4 million each year which may be required to be deposited with the taxing authorities if other collateral arrangements cannot be made as long as disputes with Canadian taxing authorities remain outstanding. Item 8, Note 8 to our Consolidated Financial Statements provides additional information related to our Canadian tax reassessments.
(b)We lease property and equipment under non-cancelable operating and capital leases for varying periods.
(c)We have contracts to purchase certain amounts of electricity, equipment and raw materials. In addition, we have minimum throughput commitments in certain depots and warehouses.
(d)Item 8, Note 9 to our Consolidated Financial Statements provides additional information.
(e)Item 8, Note 12 to our Consolidated Financial Statements provides additional information.
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(a) | Based on maintaining existing debt balances to maturity. Interest on our credit facilities varies with the Eurodollar rate and the base rate. The December 31, 2018 blended rate of 4.4%, including the applicable spread, was used for this calculation for CMI debt. The amounts in the table do not include interest payments of approximately $4 million each year which may be required to be deposited with the taxing authorities if other collateral arrangements cannot be made as long as disputes with Canadian taxing authorities remain outstanding. Note 8 to our Consolidated Financial Statements provides additional information related to our Canadian tax reassessments. |
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(b) | We lease property and equipment under non-cancelable operating and capital leases for varying periods. |
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(c) | We have contracts to purchase certain amounts of electricity, equipment and raw materials. In addition, we have minimum throughput commitments in certain depots and warehouses. |
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(d) | Note 9 to our Consolidated Financial Statements provides additional information. |
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(e) | Note 12 to our Consolidated Financial Statements provides additional information. |
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| | COMPASS MINERALS INTERNATIONAL, INC. |
Sensitivity Analysis RelatedReconciliation of Net Earnings 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. generally accepted accounting principles (“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 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 against other companies, 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, including restructuring costs, refinancing costs, stock-based compensation 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. Our employees are vital to our operations and we utilize various stock-based awards to compensate and incentivize our employees. 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).
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| | For the Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
Net earnings | | $ | 59.5 | | | $ | 62.5 | | | $ | 68.8 | |
Interest expense | | 71.2 | | | 68.4 | | | 62.5 | |
Income tax expense | | 11.7 | | | 22.1 | | | 8.8 | |
Depreciation, depletion and amortization | | 137.9 | | | 137.9 | | | 136.9 | |
EBITDA | | 280.3 | | | 290.9 | | | 277.0 | |
Adjustments to EBITDA: | | | | | | |
| | | | | | |
Stock-based compensation - non cash | | 9.4 | | | 6.3 | | | 7.8 | |
(Gain) loss on foreign exchange | | (0.4) | | | 13.0 | | | (5.8) | |
Executive transition costs | | — | | | 2.3 | | | 5.1 | |
Logistics impact from flooding | | — | | | 2.8 | | | — | |
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Other income, net | | (0.1) | | | (1.7) | | | (3.0) | |
Adjusted EBITDA | | $ | 289.2 | | | $ | 313.6 | | | $ | 281.1 | |
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| | For the Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
Net earnings | | $ | 68.8 |
| | $ | 42.7 |
| | $ | 162.7 |
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Interest expense | | 62.5 |
| | 52.9 |
| | 34.1 |
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Income tax expense | | 8.8 |
| | 60.0 |
| | 34.6 |
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Depreciation, depletion and amortization | | 136.9 |
| | 122.2 |
| | 90.3 |
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EBITDA | | $ | 277.0 |
| | $ | 277.8 |
| | $ | 321.7 |
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Adjustments to EBITDA: | | | | | | |
Restructuring charges | | $ | — |
| | $ | 4.3 |
| | $ | — |
|
CEO transition costs | | 5.1 |
| | — |
| | — |
|
Gain from remeasurement of equity method investment | | — |
| | — |
| | (59.3 | ) |
Business acquisition related items | | — |
| | — |
| | 8.4 |
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Indefinite-lived intangible asset impairment | | — |
| | — |
| | 3.1 |
|
Fees and premiums paid to redeem debt | | — |
| | — |
| | 3.0 |
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Other (income) expense, net | | (8.8 | ) | | 4.4 |
| | (1.9 | ) |
Adjusted EBITDA | | $ | 273.3 |
| | $ | 286.5 |
| | $ | 275.0 |
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In 2019, operating results included $2.8 million of additional logistics costs related to Mississippi river flooding and $2.3 million of severance and other costs related to executive transition. In 2018, we incurred $5.1 million of CEOexecutive transition costs. In 2017, we incurred charges of $4.3 million related to ongoing restructuring activities. Key adjustments in 2016 included a partial write-down of a trade name acquired in our Wolf Trax acquisition, a gain of $59.3 million related to the remeasurement of our previously held equity investment in Produquímica (see Note 4 to our Consolidated Financial Statements) and $8.4 million of costs in connection with the acquisition of Produquímica, primarily related to the step-up of finished goods inventory to fair value, which was recorded in product cost as the inventory was sold. Adjusted EBITDA also includes other non-operating income, primarily non-cash stock-based compensation expense, foreign exchange gains (losses) resulting from the translation of intercompany obligations, interest income and investment income (loss) relating to our nonqualified retirement plan.
Our net earnings, EBITDA and Adjusted EBITDA are impacted by other events or transactions that we believe to be important in understanding our earnings trends such as the variability of weather. The impact of weather has not been adjusted in the amounts presented above. Our 2017 and 20162020 results were unfavorably impacted by mild winter weather in the markets we serve.serve and 2019 results were favorably impacted by above average winter weather. In 2018, winter weather was average.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
Management’s Discussion of Critical Accounting Policies and Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the reporting date and the reported amounts of revenue and expenses during the reporting period. Actual results could vary from these estimates. We have identified the critical accounting policies and estimates that are most important to the portrayal of our financial condition and results of operations. The policies set forth below require significant subjective or complex judgments by management, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Goodwill – We test goodwill for impairment annually in the fourth quarter or more frequently if an impairment indicator is present. The quantitative impairment test requires judgment, including the identification of reporting units and the determination of fair value of each reporting unit. We determine the estimated fair value for each reporting unit based on discounted cash flow projections (income approach) and market values for comparable businesses (market approach). Under the income approach, we are required to make judgments about appropriate discount rates, long-term revenue growth rates and the amount and timing of expected future cash flows. The cash flows used in our estimates are based on the reporting unit's forecast, long-term business plan, and recent operating performance. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting unit and market conditions. Our estimates may differ from actual future cash flows. The risk adjusted discount rate used is consistent with the weighted average cost of capital of our peer companies and is intended to represent a rate of return that would be expected by a market participant. Under the market approach, market multiples are derived from market prices of stocks of companies in our peer group. The appropriate multiple is applied to the forecasted revenue and earnings before interest, taxes, depreciation and amortization of the reporting unit to obtain an estimated fair value.
As of December 31, 2020, we have recorded goodwill of $281.3 million, primarily including $56.4 million in our Plant Nutrition North America segment and $218.8 million in our Plant Nutrition South America segment. As of the October 1, 2020 annual measurement date, each segment had an estimated fair value that exceeded its carrying value. The most critical assumptions used in the calculation of the fair value are the projected revenue growth rates, long-term operating margin, working capital requirements, terminal growth rates, discount rate, and the selection of market multiples. The projected long term operating margin utilized in our fair value estimates is consistent with our operating plan and is dependent on the successful execution of our long-term business plan, overall industry growth rates and the competitive environment. The discount rate could be adversely impacted by changes in the macroeconomic environment and volatility in the equity and debt markets. Although management believes its estimate of fair value is reasonable, if the future financial performance falls below our expectations or there are negative revisions to significant assumptions, or if our market capitalization declines, we may need to record a non-cash goodwill impairment charge in a future period.
Mineral Interests – As of December 31, 2018,2020, we maintained $123.3$123.1 million of net mineral properties as a part of property, plant and equipment. Mineral interests include probable mineral reserves. We lease mineral reserves at several of our extraction facilities. These leases have varying terms, and many provide for a royalty payment to the lessor based on a specific amount per ton of mineral extracted or as a percentage of revenue.sales.
Mineral interests are primarily depleted on a units-of-production method based on third-party estimates of recoverable reserves. Our rights to extract minerals are generally contractually limited by time or lease boundaries. If we are not able to continue to extend lease agreements, as we have in the past, at commercially reasonable terms, without incurring substantial costs or incurring material modifications to the existing lease terms and conditions, if the assigned lives realized are less than those projected by management, or if the actual size, quality or recoverability of the minerals is less than the estimated probable reserves, then the rate of amortization could be increased or the value of the reserves could be reduced by a material amount.
Income Taxes – Developing our provision for income taxes and analyzing our potential tax exposure items requires significant judgment and assumptions as well as a thorough knowledge of the tax laws in various jurisdictions. These estimates and judgments occur in the calculation of certain tax liabilities and in the assessment of the likelihood that we will be able to realize our deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expense, carryforwards and other items. Based on all available evidence, both positive and negative, the reliability of that evidence and the extent such evidence can be objectively verified, we determine whether it is more likely than not that all, or a portion of, the deferred tax assets will be realized.
In evaluating our ability to realize our deferred tax assets, we consider the sources and timing of taxable income, our ability to carry back tax attributes to prior periods, qualifying tax planning and estimates of future taxable income exclusive of reversing temporary differences. In determining future taxable income, our assumptions include the amount of pre-tax operating income according to multiple federal, international and state taxing jurisdictions, the origination of future temporary differences and the implementation of feasible and prudent tax planning. These assumptions require significant judgment about material estimates, assumptions and uncertainties in connection with the forecasts of future taxable income, the merits in tax law and assessments regarding previous taxing authorities’ proceedings or written rulings. While these assumptions are consistent with
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| | COMPASS MINERALS INTERNATIONAL, INC. |
the plans and estimates we use to manage the underlying businesses, differences in our actual operating results or changes in our tax planning, tax credits, tax laws or our assessment of the tax merits of our positions could affect our future assessments.
In addition, the calculation of our tax liabilities involves uncertainties in the application of complex tax regulations in multiple jurisdictions. We recognize potential liabilities in accordance with applicable U.S. GAAP for anticipated tax issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. If our estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result. See Item 8, Note 8 to our Consolidated Financial Statements for further discussion of our income taxes.
We have elected to account for Global Intangible Low-Taxed Income (“GILTI”)GILTI in the year the tax is incurred, rather than recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years.
Taxes on Foreign Earnings – Our 2018 and 2017 effective tax rates includerate includes a tax benefit of $3.1 million and tax expense of $55.2 million, respectively, related to the one-time mandatory tax on non-U.S. undistributed earnings deemed repatriated under U.S tax reform. During the fourth quarter of 2018,As such, we changedrevised our permanently reinvested assertion and we now expect to repatriate approximately $150 million of unremitted foreign earnings on which is subjected to the one-time mandatory tax under U.S. tax reform. Income$4.3 million of income tax expense of $3.4 million has been recorded in 2018 for foreign withholding tax and state income tax nettaxes, consisting of foreign exchange loss.$0.9 million recorded in 2019 and $3.4 million recorded in 2018. We consider all remaining non-U.S. earnings to be permanently reinvested outside the U.S. to the extent these earnings are not subject to U.S. income tax under an anti-deferral tax regime. As of December 31, 2018,2020, we have approximately $173.5$213.6 million of non-U.S. undistributed earnings and outside basis differences.differences on which no deferred taxes have been recorded.
U.K. Pension Plan – We have a defined benefit pension plan covering some of our current and former employees in the U.K. The U.K. pension plan was closed to new participants in 1992. As we elected to freeze our pension plan, weour remaining active employees ceased to accrue future benefits under the plan beginning December 1, 2008. We select the actuarial assumptions for our pension plan after consultation with our actuaries and consideration of market conditions. These assumptions include the discount rate and the expected long-term rates of return on plan assets, which are used in the calculation of the actuarial valuation of our defined benefit pension plans.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
If actual conditions or results vary from those projected by management, adjustments may be required in future periods to meet minimum pension funding or to increase pension expense or our pension liability. An adverse changeA decrease of 25 basis points in our discount rate would have increased our projected benefit obligation as of December 31, 2018,2020, by approximately $2.1$2.6 million and would decreaseincrease our net periodic pension benefitexpense for 20182020 by approximately $0.1$0.3 million. An adverse changeA decrease of 25 basis points in our expected return on assets assumption as of December 31, 2018,2020, would decreaseincrease our net periodic benefitexpense for 20182020 by approximately $0.1$0.2 million.
We set our discount rate for our U.K. pension plan based on a forward yield curve for a portfolio of high credit quality bonds with expected cash flows and an average duration closely matching the expected benefit payments under the plan. The assumption for the return on plan assets is determined based on expected returns applicable to each type of investment within the portfolio expected to be maintained over the next 15 to 20 years. Our funding policy has been to make the minimum annual contributions required by applicable regulations. However, we have made special payments during some years when changes in the business could reasonably impact the pension plan’s available assets and when special early retirement payments or other inducements are made to pensioners. Contributions totaled $0.7$0.4 million, $0.8$1.7 million and $1.4$0.7 million during the years ended December 31, 2018, 20172020, 2019 and 2016,2018, respectively. If supplemental benefits were approved and granted under the provisions of the plan, or if periodic statutory valuations cause a change in funding requirements, our contributions could increase to fund all or a portion of those benefits. See Item 8, Note 9 to theour Consolidated Financial Statements for additional discussion of our U.K. pension plan.
Other Significant Accounting Policies – Other significant accounting policies not involving the same level of measurement uncertainties as those discussed above are nevertheless important to an understanding of our consolidated financial statements. Policies related to revenue recognition, allowance for doubtful accounts, valuation of inventory reserves, valuation of equity compensation instruments, intangible assets, legal reserves, derivative instruments and environmental accruals require judgments on complex matters.
Effects of Currency Fluctuations and Inflation
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
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| | COMPASS MINERALS INTERNATIONAL, INC. |
Canadian dollars, Brazilian reais and British pounds sterling also being significant. We generated 49%43% of our 20182020 sales in foreign currencies, and we incurred 50%44% of our 20182020 total operating expenses in foreign currencies. Additionally, we have approximately $1.02$1.0 billion of net assets denominated in foreign currencies. In 2016, the average rate for the U.S. dollar strengthened against the British pound sterling2018 and since the October 2016 Produquímica acquisition date, against the Brazilian real. The average rate for the U.S. dollar weakened against the Canadian dollar in 2016. In 2017,2019, the average rate for the U.S. dollar strengthened against the Brazilian real, the Canadian dollar and weakened against the British pound and the Canadian dollar.sterling. In 2018,2020, the average rate for the U.S. dollar strengthened against the Brazilian real but weakened against the Canadian dollar and the British pound sterling. Significant changes in the value of the Canadian dollar, Brazilian real or the British pound sterling relative to the U.S. dollar could have a material adverse effect on our financial condition and our ability to meet interest and principal payments on U.S. dollar-denominated debt, including borrowings under our senior secured credit facilities.
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, including our salt deicing product sales. Consequently, our Salt segment 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 isbusinesses are also seasonal. The strongest demand for our Plant Nutrition South America segment 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).
Recent Accounting Pronouncements
See Item 8, Note 2 to our Consolidated Financial Statements for a discussion of recent accounting pronouncements.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Our business is subject to various types of market risks that include, but are not limited to, interest rate risk, foreign currency risk and commodity pricing risk. Management may take actions to mitigate our exposure to these types of risks including entering into forward purchase contracts and other financial instruments. 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.
Interest Rate Risk
As of December 31, 2018,2020, we had $1.03 billion$520.3 million of debt outstanding under our credit agreement (consisting of term loans and revolving credit facility) and $95.5$92.8 million of debt related to our Produquímica businessPlant Nutrition South America segment in Brazil, bearing interest at variable rates. Accordingly, our earnings and cash flows will be affected by changes in interest rates to the extent the principal balance is unhedged. Assuming no change in the amount of debt outstanding, a 100 basis point increase in the average interest rate under these borrowings would have increased the interest expense related to our variable rate debt by approximately $11.2$6.1 million based upon our debt outstanding as of December 31, 2018.2020. Actual results may vary due to changes in the amount of variable rate debt outstanding.
As of December 31, 2018,2020, a significant portion of the investments in the U.K. pension plan are in bond funds. Changes in interest rates could impact the value of the investments in the pension plan.
Foreign Currency Risk
In addition to the U.S., we primarily conduct our business in Canada, Brazil and the U.K. Our operations are, therefore, subject to volatility because of currency fluctuations, inflation changes and changes in political and economic conditions in these countries. Sales and expenses are frequently denominated in local currencies, and our results of operations may be affected adversely as currency fluctuations affect our product prices and operating costs or those of our competitors. We may engage in hedging operations,activities, including forward foreign currency exchange contracts, to reduce the exposure of our cash flows to fluctuations in foreign currency exchange rates. We do not engage in hedging for speculative investment purposes. Any hedging operationsactivities may not eliminate or substantially reduce risks associated with fluctuating currencies. See “Risk Factors—Risks associated with our international operations and sales and changes in economic and political environments could adversely affect our business and earnings.”
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| | COMPASS MINERALS INTERNATIONAL, INC. |
Considering our foreign earnings, a hypothetical 10% unfavorable change in exchange rates compared to the U.S. dollar would have an estimated $1.9$3.2 million impact on our operating earnings for the year ended December 31, 2018.2020. Actual changes in market prices or rates will differ from hypothetical changes.
Our Produquímica businesssubsidiary in Brazil has U.S. dollar denominated debt. We have entered into foreign currency swap agreements whereby Produquímica has 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’sreal, the subsidiary’s functional currency. The objective of the swap agreements is to mitigate the foreign currency fluctuation risk related to holding debt denominated in a currency other than Produquímica’sthe subsidiary’s functional currency. We may either continue to hedge this exposure or borrow in Brazilian reaisreal to meet the capital needs of our Brazilian operations.
Commodity Pricing Risk
We have a hedging policy to mitigate the impact of fluctuations in the price of natural gas. The notional amounts of volumes hedged are determined based on a combination of factors, including estimated natural gas usage, current market prices and historical market prices. We enter into contractual natural gas price arrangements, which effectively fix the purchase price of our natural gas requirements up to 36 months in advance of the physical purchase of the natural gas. We may hedge up to approximately 90% of our expected natural gas usage. Because of the varying locations of our production facilities, we also enter into basis swap agreements to eliminate any further price variation due to local market differences. We have determined that these financial instruments qualify as cash flow hedges under U.S. GAAP. As of December 31, 2018,2020, the amount of natural gas hedged with derivative contracts totaled 1.02.5 million MMBtus, all of which 1.7 million MMBtus will expire within one year.
Excluding natural gas hedged with derivative instruments, a hypothetical 10% adverse change in our natural gas prices during the year ended December 31, 20182020, would have increased our product cost of sales by approximately $0.6$0.4 million. Actual results will vary due to actual changes in market prices and consumption.
We are subject to increases and decreases in the cost of transporting our products due to variations in our contracted carriers’ cost of fuel, which is typically diesel fuel. We may engage in hedging operations,activities, including forward contracts, to reduce our exposure to changes in our transportation cost due to changes in the cost of fuel in the future. Our historical results do not reflect any direct fuel hedging activity. However, hedging activities may not eliminate or substantially reduce the risks associated with changes in our transportation costs. Due to the difficulty in meeting all of the requirements for hedge accounting under current U.S. GAAP, any such cash flow hedges of transportation costs would likely be accounted for by marking the hedges to market at each reporting period. Our historical results do not reflect any direct fuel hedging activity. However, hedging operations may not eliminate or substantially reduce the risks associated with changes in our transportation costs. We do not engage in hedging for speculative investment purposes.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
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| | COMPASS MINERALS INTERNATIONAL, INC. |
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Compass Minerals International, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Compass Minerals International, Inc. (the Company) as of December 31, 20182020 and 2017,2019, and the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018,2020, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (2) (collectively, referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 201926, 2021, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.
| | | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
| | | | | | | | |
| | Valuation of Goodwill |
Description of the Matter |
| At December 31, 2020, the Company’s consolidated goodwill was $281.3 million, of which $218.8 million is recorded within the Company’s Plant Nutrition South America segment and $56.4 million is recorded in the Company’s Plant Nutrition North America segment. As discussed in Note 2 of the consolidated financial statements, goodwill is tested for impairment at least annually, or more frequently if indicators exist, at the reporting unit level. The Company uses both qualitative and quantitative methods to test goodwill for impairment, as deemed appropriate. The Company’s goodwill is initially assigned to its reporting units on the acquisition date at its determined fair value.
Auditing management’s annual goodwill impairment test was complex and judgmental due to the significant estimation required in determining the fair value of the Company’s Plant Nutrition South America and Plant Nutrition North America reporting units. In particular, the fair value estimate was sensitive to significant assumptions such as the weighted average cost of capital at the impairment assessment date and projected revenue growth rates, operating margins and the Company’s terminal growth rates which are affected by expectations about future market or economic conditions. Additionally, there were significant judgments around the Company’s selection of guideline company market multiples. |
How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment assessment process. For example, we tested controls over management's review of the significant assumptions (e.g., weighted average cost of capital, projected revenue growth rates, operating margins, the Company’s terminal growth rates, and selection of guideline company market multiples) used to develop the prospective financial information and guideline company data for the quantitative analysis. We also tested management's controls to validate that the data used in the quantitative analysis was complete and accurate.
To test the estimated fair value of the Company’s Plant Nutrition South America and Plant Nutrition North America reporting units, we performed audit procedures that included, among others, assessing the fair value methodologies utilized and testing the significant assumptions discussed above, as well as the underlying data used by the Company in its analysis. We involved our specialists to assist in the review of the Company’s model, method, and the more sensitive assumptions such as the weighted average cost of capital and the Company’s terminal growth rate assumptions. We compared the significant assumptions used by management to current industry and economic trends, changes to the Company’s business model, customer base or product mix and other relevant factors. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions. In addition, we reviewed the reconciliation of the fair value of all of the Company’s reporting units to the market capitalization of the Company. |
| | | | | |
/s/ Ernst & Young LLP | |
| |
/s/ Ernst & Young LLP | |
| |
We have served as the Company’s auditor since 2005.
| |
| |
Kansas City, Missouri | |
February 28, 201926, 2021 | |
|
| | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Compass Minerals International, Inc.
Opinion on Internal Control overOver Financial Reporting
We have audited Compass Minerals International, Inc.’s internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Compass Minerals International, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20182020 and 2017,2019, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018,2020, and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) and our report dated February 28, 201926, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Controls Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| | | | | |
/s/ Ernst & Young LLP | |
| |
/s/ Ernst & Young LLP | |
| |
Kansas City, Missouri | |
February 28, 201926, 2021 | |
| | | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
Consolidated Balance Sheets
|
| | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
Consolidated Balance Sheets
|
| | | | | | | | |
| | December 31, |
(In millions, except share data) | | 2018 | | 2017 |
ASSETS | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 27.0 |
| | $ | 36.6 |
|
Receivables, less allowance for doubtful accounts of $9.9 in 2018 and $10.9 in 2017 | | 311.6 |
| | 344.5 |
|
Inventories | | 266.6 |
| | 289.9 |
|
Other | | 116.0 |
| | 66.5 |
|
Total current assets | | 721.2 |
| | 737.5 |
|
Property, plant and equipment, net | | 1,052.0 |
| | 1,138.1 |
|
Intangible assets, net | | 115.9 |
| | 143.6 |
|
Goodwill | | 350.8 |
| | 405.0 |
|
Investment in equity method investee | | 24.5 |
| | 24.6 |
|
Other | | 103.5 |
| | 122.2 |
|
Total assets | | $ | 2,367.9 |
| | $ | 2,571.0 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY | | |
| | |
|
Current liabilities: | | |
| | |
|
Current portion of long-term debt | | $ | 43.5 |
| | $ | 32.1 |
|
Accounts payable | | 111.3 |
| | 123.5 |
|
Accrued expenses | | 54.9 |
| | 54.4 |
|
Accrued salaries and wages | | 31.8 |
| | 23.9 |
|
Income taxes payable | | 32.1 |
| | 25.9 |
|
Accrued interest | | 9.7 |
| | 8.2 |
|
Total current liabilities | | 283.3 |
| | 268.0 |
|
Long-term debt, net of current portion | | 1,321.2 |
| | 1,330.4 |
|
Deferred income taxes, net | | 100.8 |
| | 127.0 |
|
Other noncurrent liabilities | | 122.4 |
| | 151.0 |
|
Commitments and contingencies (Note 12) | |
|
| |
|
|
Stockholders' equity: | | | | |
|
Common stock: | | | | |
$0.01 par value, 200,000,000 authorized shares; 35,367,264 issued shares | | 0.4 |
| | 0.4 |
|
Additional paid-in capital | | 110.1 |
| | 102.5 |
|
Treasury stock, at cost — 1,513,808 shares at December 31, 2018 and 1,539,763 shares at December 31, 2017 | | (2.9 | ) | | (2.9 | ) |
Retained earnings | | 643.5 |
| | 672.5 |
|
Accumulated other comprehensive loss | | (210.9 | ) | | (77.9 | ) |
Total stockholders' equity | | 540.2 |
| | 694.6 |
|
Total liabilities and stockholders' equity | | $ | 2,367.9 |
| | $ | 2,571.0 |
|
The accompanying notes are an integral part of the consolidated financial statements.
|
| | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
Consolidated Statements of Operations
|
| | | | | | | | | | | | |
| | For the Year Ended December 31, |
(In millions, except share data) | | 2018 | | 2017 | | 2016 |
Sales | | $ | 1,493.6 |
| | $ | 1,364.4 |
| | $ | 1,138.0 |
|
Shipping and handling cost | | 320.0 |
| | 267.5 |
| | 244.9 |
|
Product cost | | 879.7 |
| | 770.3 |
| | 593.6 |
|
Gross profit | | 293.9 |
| | 326.6 |
| | 299.5 |
|
Selling, general and administrative expenses | | 163.6 |
| | 167.4 |
| | 124.9 |
|
Operating earnings | | 130.3 |
| | 159.2 |
| | 174.6 |
|
Other expense (income): | | | | | | |
Interest expense | | 62.5 |
| | 52.9 |
| | 34.1 |
|
Net (earnings) loss in equity investee | | (1.0 | ) | | (0.8 | ) | | 1.4 |
|
Gain from remeasurement of equity method investment | | — |
| | — |
| | (59.3 | ) |
Other, net | | (8.8 | ) | | 4.4 |
| | 1.1 |
|
Earnings before income taxes | | 77.6 |
| | 102.7 |
| | 197.3 |
|
Income tax expense | | 8.8 |
| | 60.0 |
| | 34.6 |
|
Net earnings | | $ | 68.8 |
| | $ | 42.7 |
| | $ | 162.7 |
|
Basic net earnings per common share | | $ | 2.02 |
| | $ | 1.25 |
| | $ | 4.79 |
|
Diluted net earnings per common share | | $ | 2.02 |
| | $ | 1.25 |
| | $ | 4.79 |
|
Weighted-average common shares outstanding (in thousands): | | | | | | |
Basic | | 33,848 |
| | 33,819 |
| | 33,776 |
|
Diluted | | 33,848 |
| | 33,820 |
| | 33,780 |
|
Cash dividends per share | | $ | 2.88 |
| | $ | 2.88 |
| | $ | 2.78 |
|
The accompanying notes are an integral part of the consolidated financial statements.
|
| | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
Consolidated Statements of Comprehensive (Loss) Income
|
| | | | | | | | | | | | |
| | For the Year Ended December 31, |
(In millions) | | 2018 | | 2017 | | 2016 |
Net earnings | | $ | 68.8 |
| | $ | 42.7 |
| | $ | 162.7 |
|
Other comprehensive income (loss): | | | | | | |
Unrealized (loss) gain from change in pension costs, net of tax of $0.1, $0.0 and $(0.1) in 2018, 2017 and 2016 | | (0.6 | ) | | (0.2 | ) | | 0.1 |
|
Unrealized gain (loss) on cash flow hedges, net of tax of $(0.2), $0.8 and $(1.3) in 2018, 2017 and 2016 | | 0.4 |
| | (1.5 | ) | | 2.2 |
|
Cumulative translation adjustment | | (132.6 | ) | | 28.7 |
| | 1.1 |
|
Comprehensive (loss) income | | $ | (64.0 | ) | | $ | 69.7 |
| | $ | 166.1 |
|
| | | | | | | | | | | | | | |
| | December 31, |
(In millions, except share data) | | 2020 | | 2019 |
ASSETS | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 21.0 | | | $ | 34.7 | |
Receivables, less allowance for doubtful accounts of $11.1 in 2020 and $10.7 in 2019 | | 296.7 | | | 342.4 | |
Inventories | | 370.6 | | | 311.5 | |
Other | | 68.9 | | | 96.4 | |
Total current assets | | 757.2 | | | 785.0 | |
Property, plant and equipment, net | | 964.9 | | | 1,030.8 | |
Intangible assets, net | | 85.0 | | | 103.0 | |
Goodwill | | 281.3 | | | 343.0 | |
Investment in equity investee | | 20.0 | | | 24.9 | |
Other | | 154.0 | | | 156.5 | |
Total assets | | $ | 2,262.4 | | | $ | 2,443.2 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | |
Current liabilities: | | | | |
Current portion of long-term debt | | $ | 63.7 | | | $ | 52.1 | |
Accounts payable | | 116.8 | | | 126.2 | |
Accrued salaries and wages | | 38.7 | | | 34.4 | |
Income taxes payable | | 5.5 | | | 10.4 | |
Accrued interest | | 10.4 | | | 11.3 | |
Accrued expenses and other current liabilities | | 61.2 | | | 61.5 | |
Total current liabilities | | 296.3 | | | 295.9 | |
Long-term debt, net of current portion | | 1,337.7 | | | 1,363.9 | |
Deferred income taxes, net | | 87.5 | | | 89.9 | |
Other noncurrent liabilities | | 153.9 | | | 163.9 | |
| | 0 | | 0 |
Stockholders' equity: | | | | |
Common stock: | | | | |
$0.01 par value, 200,000,000 authorized shares; 35,367,264 issued shares | | 0.4 | | | 0.4 | |
Additional paid-in capital | | 127.0 | | | 117.1 | |
Treasury stock, at cost — 1,407,926 shares at December 31, 2020 and 1,481,611 shares at December 31, 2019 | | (4.4) | | | (3.2) | |
Retained earnings | | 567.3 | | | 607.4 | |
Accumulated other comprehensive loss | | (303.3) | | | (192.1) | |
Total stockholders' equity | | 387.0 | | | 529.6 | |
Total liabilities and stockholders' equity | | $ | 2,262.4 | | | $ | 2,443.2 | |
The accompanying notes are an integral part of the consolidated financial statements.
| | | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
Consolidated Statements of Operations
|
| | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
Consolidated Statements of Stockholders’ Equity
|
| | | | | | | | | | | | | | | | | | | | | | | | |
(In millions) | | Common Stock | | Additional Paid-In Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total |
Balance, December 31, 2015 | | $ | 0.4 |
| | $ | 91.7 |
| | $ | (3.2 | ) | | $ | 659.1 |
| | $ | (108.3 | ) | | $ | 639.7 |
|
Comprehensive income | | | | | | | | 162.7 |
| | 3.4 |
| | 166.1 |
|
Dividends on common stock/equity awards | | | | 0.2 |
| | | | (94.3 | ) | | | | (94.1 | ) |
Shares issued for stock units | | | | (0.2 | ) | | 0.2 |
| | | | | | — |
|
Income tax deficiencies from equity awards | | | | (0.2 | ) | |
|
| | | | | | (0.2 | ) |
Stock options exercised | | | | 0.7 |
| | | | | | | | 0.7 |
|
Stock-based compensation | |
|
| | 4.9 |
| |
|
| |
|
| |
|
| | 4.9 |
|
Balance, December 31, 2016 | | $ | 0.4 |
| | $ | 97.1 |
| | $ | (3.0 | ) | | $ | 727.5 |
| | $ | (104.9 | ) | | $ | 717.1 |
|
Comprehensive income | | | |
|
| | | | 42.7 |
| | 27.0 |
| | 69.7 |
|
Dividends on common stock/equity awards | | | | 0.2 |
| |
|
| | (97.7 | ) | | | | (97.5 | ) |
Shares issued for stock units | | | | (0.1 | ) | | 0.1 |
| | | | | | — |
|
Stock options exercised | | | | 0.3 |
| | | | | | | | 0.3 |
|
Stock-based compensation | | | | 5.0 |
| | | | | | | | 5.0 |
|
Balance, December 31, 2017 | | $ | 0.4 |
| | $ | 102.5 |
| | $ | (2.9 | ) | | $ | 672.5 |
| | $ | (77.9 | ) | | $ | 694.6 |
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
| 68.8 |
|
| (132.8 | ) |
| (64.0 | ) |
Stranded tax effect from tax reform |
|
|
|
|
|
|
|
|
|
| 0.2 |
|
| (0.2 | ) |
| — |
|
Dividends on common stock/equity awards |
|
|
|
| 0.3 |
|
|
|
|
| (98.0 | ) |
|
|
|
| (97.7 | ) |
Stock-based compensation |
|
|
|
| 7.3 |
|
|
|
|
|
|
|
|
|
|
| 7.3 |
|
Balance, December 31, 2018 |
| $ | 0.4 |
|
| $ | 110.1 |
|
| $ | (2.9 | ) |
| $ | 643.5 |
|
| $ | (210.9 | ) |
| $ | 540.2 |
|
| | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, |
(In millions, except share data) | | 2020 | | 2019 | | 2018 |
Sales | | $ | 1,373.5 | | | $ | 1,490.5 | | | $ | 1,493.6 | |
Shipping and handling cost | | 266.6 | | | 312.5 | | | 320.0 | |
Product cost | | 794.6 | | | 841.2 | | | 879.7 | |
Gross profit | | 312.3 | | | 336.8 | | | 293.9 | |
Selling, general and administrative expenses | | 171.8 | | | 173.2 | | | 163.6 | |
Operating earnings | | 140.5 | | | 163.6 | | | 130.3 | |
Other expense (income): | | | | | | |
Interest expense | | 71.2 | | | 68.4 | | | 62.5 | |
Net earnings in equity investee | | (1.4) | | | (0.7) | | | (1.0) | |
(Gain) loss on foreign exchange | | (0.4) | | | 13.0 | | | (5.8) | |
Other, net | | (0.1) | | | (1.7) | | | (3.0) | |
Earnings before income taxes | | 71.2 | | | 84.6 | | | 77.6 | |
Income tax expense | | 11.7 | | | 22.1 | | | 8.8 | |
Net earnings | | $ | 59.5 | | | $ | 62.5 | | | $ | 68.8 | |
Basic net earnings per common share | | $ | 1.72 | | | $ | 1.82 | | | $ | 2.02 | |
Diluted net earnings per common share | | $ | 1.72 | | | $ | 1.81 | | | $ | 2.02 | |
Weighted-average common shares outstanding (in thousands): | | | | | | |
Basic | | 33,928 | | | 33,882 | | | 33,848 | |
Diluted | | 33,928 | | | 33,882 | | | 33,848 | |
The accompanying notes are an integral part of the consolidated financial statements.
| | | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
Consolidated Statements of Comprehensive (Loss) Income
| | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, |
(In millions) | | 2020 | | 2019 | | 2018 |
Net earnings | | $ | 59.5 | | | $ | 62.5 | | | $ | 68.8 | |
Other comprehensive (loss) income: | | | | | | |
Unrealized loss from change in pension costs, net of tax of $0.8, $0.5 and $0.1 in 2020, 2019 and 2018, respectively | | (2.5) | | | (2.4) | | | (0.6) | |
Unrealized gain on cash flow hedges, net of tax of $(0.3), $(0.1) and $(0.2) in 2020, 2019 and 2018, respectively | | 0.8 | | | 0.1 | | | 0.4 | |
Cumulative translation adjustment | | (109.5) | | | 21.1 | | | (132.6) | |
Comprehensive (loss) income | | $ | (51.7) | | | $ | 81.3 | | | $ | (64.0) | |
|
| | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
Consolidated Statements of Cash Flows
|
| | | | | | | | | | | | |
| | For the Year Ended December 31, |
(In millions) | | 2018 | | 2017 | | 2016 |
Cash flows from operating activities: | | | | | | |
Net earnings | | $ | 68.8 |
| | $ | 42.7 |
| | $ | 162.7 |
|
Adjustments to reconcile net earnings to net cash flows provided by operating activities: | | | | | | |
Depreciation, depletion and amortization | | 136.9 |
| | 122.2 |
| | 90.3 |
|
Finance fee amortization | | 2.2 |
| | 2.2 |
| | 2.0 |
|
Early extinguishment and refinancing of long-term debt | | — |
| | — |
| | 0.7 |
|
Impairment of intangible asset | | — |
| | — |
| | 3.1 |
|
Stock-based compensation | | 7.8 |
| | 5.0 |
| | 4.9 |
|
Deferred income taxes | | (16.7 | ) | | (16.5 | ) | | (11.3 | ) |
Net (earnings) loss in equity investee | | (1.0 | ) | | (0.8 | ) | | 1.4 |
|
Gain on settlement of acquisition-related contingent consideration | | — |
| | (1.9 | ) | | — |
|
Gain from remeasurement of equity method investment | | — |
| | — |
| | (59.3 | ) |
Unrealized foreign exchange loss | | 8.5 |
| | 0.3 |
| | — |
|
Other, net | | 4.1 |
| | 0.6 |
| | 4.5 |
|
Changes in operating assets and liabilities, net of acquisition: | |
|
| |
|
| |
|
|
Receivables | | 16.4 |
| | (22.7 | ) | | (76.9 | ) |
Inventories | | (16.8 | ) | | (5.9 | ) | | 65.1 |
|
Other assets | | (18.4 | ) | | (72.8 | ) | | 35.4 |
|
Accounts payable, income taxes payable and accrued expenses | | 21.1 |
| | (3.6 | ) | | (56.0 | ) |
Other liabilities | | (22.2 | ) | | 98.1 |
| | 0.7 |
|
Net cash provided by operating activities | | 190.7 |
| | 146.9 |
| | 167.3 |
|
Cash flows from investing activities: | |
|
| |
|
| |
|
|
Capital expenditures | | (96.8 | ) | | (114.1 | ) | | (182.2 | ) |
Investment in equity method investee | | — |
| | — |
| | (4.7 | ) |
Acquisition of a business, net of cash and cash equivalents acquired | | — |
| | — |
| | (277.7 | ) |
Other, net | | (2.8 | ) | | (4.9 | ) | | (3.2 | ) |
Net cash used in investing activities | | (99.6 | ) | | (119.0 | ) | | (467.8 | ) |
Cash flows from financing activities: | |
|
| |
|
| |
|
|
Proceeds from revolving credit facility borrowings | | 457.4 |
| | 295.8 |
| | 384.3 |
|
Principal payments on revolving credit facility borrowings | | (429.1 | ) | | (232.0 | ) | | (283.4 | ) |
Proceeds from the issuance of long-term debt | | 54.3 |
| | 98.7 |
| | 850.9 |
|
Principal payments on long-term debt | | (68.1 | ) | | (123.8 | ) | | (535.1 | ) |
Dividends paid | | (97.7 | ) | | (97.5 | ) | | (94.1 | ) |
Acquisition-related contingent consideration payment | | — |
| | (14.7 | ) | | — |
|
Premium and other payments to refinance debt | | — |
| | (0.2 | ) | | (2.8 | ) |
Deferred financing costs | | (1.7 | ) | | (0.7 | ) | | (5.7 | ) |
Proceeds received from stock option exercises | | — |
| | 0.3 |
| | 0.7 |
|
Excess tax deficiencies from equity compensation awards | | — |
| | — |
| | (0.2 | ) |
Other | | (1.0 | ) | | 0.7 |
| | — |
|
Net cash (used in) provided by financing activities | | (85.9 | ) | | (73.4 | ) | | 314.6 |
|
Effect of exchange rate changes on cash and cash equivalents | | (14.8 | ) | | 4.7 |
| | 4.9 |
|
Net change in cash and cash equivalents | | (9.6 | ) | | (40.8 | ) | | 19.0 |
|
Cash and cash equivalents, beginning of the year | | 36.6 |
| | 77.4 |
| | 58.4 |
|
Cash and cash equivalents, end of year | | $ | 27.0 |
| | $ | 36.6 |
| | $ | 77.4 |
|
Supplemental cash flow information: | |
|
| |
|
| |
|
|
Interest paid, net of amounts capitalized | | $ | 52.1 |
| | $ | 42.7 |
| | $ | 26.7 |
|
Income taxes paid, net of refunds | | $ | 38.3 |
| | $ | 27.2 |
| | $ | 59.4 |
|
| | | | | | |
See Note 4 to the Consolidated Financial Statements for detail regarding the non-cash effects of the 2016 business acquisition. |
The accompanying notes are an integral part of the consolidated financial statements.
| | | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
Consolidated Statements of Stockholders’ Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In millions) | | Common Stock | | Additional Paid-In Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total |
Balance, December 31, 2017 | | $ | 0.4 | | | $ | 102.5 | | | $ | (2.9) | | | $ | 672.5 | | | $ | (77.9) | | | $ | 694.6 | |
Comprehensive income (loss) | | | | | | | | 68.8 | | | (132.8) | | | (64.0) | |
Stranded tax effect from tax reform | | | | | | | | 0.2 | | | (0.2) | | | 0 | |
Dividends on common stock/equity awards ($2.88 per share) | | | | 0.3 | | | | | (98.0) | | | | | (97.7) | |
Stock-based compensation | | | | 7.3 | | | | | | | | | 7.3 | |
Balance, December 31, 2018 | | $ | 0.4 | | | $ | 110.1 | | | $ | (2.9) | | | $ | 643.5 | | | $ | (210.9) | | | $ | 540.2 | |
Comprehensive income | | | | | | | | 62.5 | | | 18.8 | | | 81.3 | |
Cumulative effect of change in accounting principle | | | | | | | | (0.1) | | | | | (0.1) | |
Dividends on common stock/equity awards ($2.88 per share) | | | | 0.4 | | | | | (98.5) | | | | | (98.1) | |
Stock-based compensation | | | | 6.6 | | | | | | | | | 6.6 | |
Shares issued for stock units, net of shares withheld for taxes | | | | | | (0.3) | | | | | | | (0.3) | |
Balance, December 31, 2019 | | $ | 0.4 | | | $ | 117.1 | | | $ | (3.2) | | | $ | 607.4 | | | $ | (192.1) | | | $ | 529.6 | |
Comprehensive income (loss) | | | | | | | | 59.5 | | | (111.2) | | | (51.7) | |
Dividends on common stock/equity awards ($2.88 per share) | | | | 0.5 | | | | | (99.6) | | | | | (99.1) | |
Shares issued for stock units, net of shares withheld for taxes | | | | | | (1.1) | | | | | | | (1.1) | |
Stock-based compensation | | | | 9.4 | | | | | | | | | 9.4 | |
Stock options exercised, net of shares withheld for taxes | | | | | | (0.1) | | | | | | | (0.1) | |
Balance, December 31, 2020 | | $ | 0.4 | | | $ | 127.0 | | | $ | (4.4) | | | $ | 567.3 | | | $ | (303.3) | | | $ | 387.0 | |
The accompanying notes are an integral part of the consolidated financial statements.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
Consolidated Statements of Cash Flows
| | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, |
(In millions) | | 2020 | | 2019 | | 2018 |
Cash flows from operating activities: | | | | | | |
Net earnings | | $ | 59.5 | | | $ | 62.5 | | | $ | 68.8 | |
Adjustments to reconcile net earnings to net cash flows provided by operating activities: | | | | | | |
Depreciation, depletion and amortization | | 137.9 | | | 137.9 | | | 136.9 | |
Finance fee amortization | | 3.2 | | | 2.8 | | | 2.2 | |
Refinancing of long-term debt | | 0.1 | | | 0.3 | | | 0 | |
| | | | | | |
Stock-based compensation | | 9.4 | | | 6.3 | | | 7.8 | |
Deferred income taxes | | 5.4 | | | (11.8) | | | (16.7) | |
Net earnings in equity investee | | (1.4) | | | (0.7) | | | (1.0) | |
| | | | | | |
Unrealized foreign exchange (gain) loss | | (2.8) | | | 15.0 | | | 0.1 | |
Other, net | | 6.8 | | | 7.2 | | | 4.1 | |
Changes in operating assets and liabilities: | | | | | | |
Receivables | | 19.5 | | | (31.3) | | | 16.4 | |
Inventories | | (71.4) | | | (45.4) | | | (16.8) | |
Other assets | | 21.1 | | | 23.9 | | | (18.4) | |
Accounts payable and accrued expenses and other current liabilities | | (3.7) | | | (12.1) | | | 21.1 | |
Other liabilities | | (8.4) | | | 5.0 | | | (22.2) | |
Net cash provided by operating activities | | 175.2 | | | 159.6 | | | 182.3 | |
Cash flows from investing activities: | | | | | | |
Capital expenditures | | (84.9) | | | (98.1) | | | (96.8) | |
Other, net | | (3.3) | | | (2.3) | | | (2.8) | |
Net cash used in investing activities | | (88.2) | | | (100.4) | | | (99.6) | |
Cash flows from financing activities: | | | | | | |
Proceeds from revolving credit facility borrowings | | 300.0 | | | 574.1 | | | 457.4 | |
Principal payments on revolving credit facility borrowings | | (329.7) | | | (611.1) | | | (429.1) | |
Proceeds from issuance of long-term debt | | 115.8 | | | 1,001.8 | | | 54.3 | |
Principal payments on long-term debt | | (79.2) | | | (902.8) | | | (68.1) | |
Dividends paid | | (99.1) | | | (98.1) | | | (97.7) | |
| | | | | | |
| | | | | | |
Deferred financing costs | | (1.0) | | | (12.8) | | | (1.7) | |
Shares withheld to satisfy employee tax obligations | | (1.1) | | | (0.3) | | | 0 | |
| | | | | | |
Other, net | | (1.9) | | | (1.3) | | | (1.0) | |
Net cash used in financing activities | | (96.2) | | | (50.5) | | | (85.9) | |
Effect of exchange rate changes on cash and cash equivalents | | (4.5) | | | (1.0) | | | (6.4) | |
Net change in cash and cash equivalents | | (13.7) | | | 7.7 | | | (9.6) | |
Cash and cash equivalents, beginning of the year | | 34.7 | | | 27.0 | | | 36.6 | |
Cash and cash equivalents, end of period | | $ | 21.0 | | | $ | 34.7 | | | $ | 27.0 | |
| | | | | | |
Supplemental cash flow information: | | | | | | |
Interest paid, net of amounts capitalized | | $ | 65.0 | | | $ | 60.7 | | | $ | 52.1 | |
Income taxes paid, net of refunds | | $ | (10.3) | | | $ | 33.9 | | | $ | 38.3 | |
The accompanying notes are an integral part of the consolidated financial statements.
| | | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
Notes to Consolidated Financial Statements
1. ORGANIZATION AND FORMATION
Compass Minerals International, Inc. (“CMI”), through its subsidiaries (collectively, “CMP,” “Compass Minerals” or the “Company”), is a leading producer of essential minerals thatfocused on safely delivering where and when it matters to help solve nature’s challenges includingfor customers and communities. Its salt forproducts help keep roadways safe during winter roadway safetyweather and are used in numerous other consumer, industrial and agricultural uses, and specialtyapplications. Its plant nutrition mineralsbusiness manufactures an innovative and diverse portfolio of products that improve the quality and yield of crops, andwhile supporting sustainable agriculture. Additionally, its specialty chemicals forchemical business serves the water treatment industry and other industrial processes. The Company’s principal products are salt, consisting of sodium chloride and magnesium chloride, sulfate of potash (“SOP”), secondary nutrients and various other micronutrient products.micronutrients; and specialty chemicals. The Company’s production sites are located in the United States (“U.S.”), Canada, Brazil and the United Kingdom (the “U.K.(“U.K.”). The Company also provides records management services to businesses located in the U.K.
CMI is a holding company with no operations other than those of its subsidiaries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Management Estimates:
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) as included in the Accounting Standards Codification requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
b. Basis of Consolidation:
The Company’s consolidated financial statements include the accounts of CMI and its wholly-owned domestic and foreign subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
c. Reclassifications:
The Company has made reclassifications of prior year amounts in Consolidated Statements of Operations to conform to current year presentation.
d. Foreign Currency:
Assets and liabilities are translated into U.S. dollars at end of period exchange rates. Revenues and expenses are translated using the monthly average rates of exchange during the year. Adjustments resulting from the translation of foreign-currency financial statements into the reporting currency, U.S. dollars, are included in accumulated other comprehensive loss. The Company recorded foreign exchange (losses) gainslosses of $(72.6) million, $(1.2) million and $(56.5) million $5.8 millionin 2020, 2019 and $15.8 million in 2018, 2017 and 2016, respectively, in accumulated other comprehensive loss related to intercompany notes which were deemed to be of long-term investment nature. Aggregate exchange gains (losses)(gains) losses from transactions denominated in a currency other than the functional currency, which are included in other expense (income), for the years ended December 31, 2020, 2019 and 2018, 2017were $(0.4) million, $13.0 million and 2016, were $(5.8) million, $7.1 million and $0.1 million, respectively.
d.e. Revenue Recognition:
In May 2014, the FASB issued newThe Financial Accounting Standards Board (the “FASB”) revenue recognition guidance. The guidance provides a single, comprehensive model for recognizing revenue from contracts with customers. The new revenue recognition model supersedes existing guidance and requires revenue recognition to depictbe recognized upon the transfer of promised goods or services to customers in an amount that reflects the consideration an entity expects to receive in exchange for those goods or services. The Company adopted the guidance effective January 1, 2018 using the modified retrospective transition method, which requires the cumulative effect of adoption, if any, to be recognized as an adjustment to opening retained earnings in the period of adoption. The Company’s revenue arrangements generally consist of a single performance obligation to transfer promised goods or services. As a result, the Company did not identify any material differences in the amount and timing of revenue recognition for its revenue streams. Accordingly, the Company did not record any transition adjustment upon adoption of the new guidance. Under the new standard, substantially all of the Company’s revenue is recognized at a point in time when control of the goods transfers to the customer.
During comparative periods, theThe Company typically recognizedrecognizes revenue at the time of shipment to the customer, which coincides with the transfer of title and risk of ownership to the customer. Sales represent billings to customers net of sales taxes charged for the sale of the product. Sales include amounts charged to customers for shipping and handling costs, which are expensed when the related product is sold.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
f. Cash and Cash Equivalents:
The Company considers all investments with original maturities of three months or less to be cash equivalents. The Company maintains the majority of its cash in bank deposit accounts with several commercial banks with high credit ratings in the U.S., Canada, Brazil and Europe. Typically, the Company has bank deposits in excess of federally insured limits. Currently, the Company does not believe it is exposed to significant credit risk on its cash and cash equivalents.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
f.g. Accounts Receivable and Allowance for Doubtful Accounts:
Receivables consist almost entirely of trade accounts receivable. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing trade accounts receivable. The Company determines the allowance based on historical write-off experience by business line and a current assessment of its portfolio, including information regarding individual customers. The Company reviews its past due account balances for collectability and adjusts its allowance for doubtful accounts accordingly. Account balances are charged off against the allowance when the Company believes it is probable that the trade accounts receivable will not be recovered.
In the latter half of 2018,During 2020, the Company sold approximately $32.7$22.1 million of receivablesBrazilian trade accounts receivable for $30.4 million in cash.$21.0 million. The proceeds of thisthe transaction were used to maintain liquidity for working capital needs. The Company is contingently liable for up to 20% of the sale balance up to $4.1 million if the banks are unable to collect on these accounts.
During 2019, the Company sold approximately $16.4 million of trade accounts receivable for $15.6 million. The proceeds of these transactions were used to refinance Brazilian loans (see Note 10)10). The Company is contingently liable for up to 20% of the receivablessale balance up to $2.7 million if the banks are unable to collect on these accounts. During 2018, the Company sold approximately $32.7 million of trade accounts receivable for $30.4 million. The Company does not believe the amount towhich may ultimately be ultimately payable for any unpaid receivables to be material to its consolidated financial statements. The Company has no further involvement with these accounts.
g.h. Inventories:
Inventories are stated at the lower of cost or net realizable value. Finished goods and raw material and supply costs are valued using the average cost method.method on a first-in-first-out basis. Raw materials and suppliessupply costs primarily consist of raw materials purchased to aid in the production of mineral and chemical products, maintenance materials and packaging materials. Finished goods are primarily comprised of salt, magnesium chloride, and plant nutrition and chemical products readily available for sale. Substantially all costs associated with the production of finished goods at the Company’s production locations are captured as inventory costs. As required by U.S. GAAP, a portion of the fixed costs at a location are not included in inventory and are expensed as a product cost if production at that location is determined to be abnormally low in any period. Additionally, since the Company’s products are often stored at third-party warehousing locations, the Company includes in the cost of inventory the freight and handling costs necessary to move the product to storage until the product is sold to a customer.
h.i. Other Current Assets:
In the fourth quarter of 2015, the Company began marketing certain assets used in farming operations. Management remains committed to sell these assets, and the assets continue to be marketed at a reasonable price. The Company has performed an impairment analysis and concluded that the fair market value of these assets exceeds their carrying value. These assets have been recorded in other current assets in the Consolidated Balance Sheets as of December 31, 20182020 and 2017. During the fourth quarter of 2016, a $2.2 million loss was recognized to record inventory at the lower of cost or market. The loss is included in product cost in the Consolidated Statement of Operations.2019. The amounts classified as held for sale as of December 31, 2018 include property, plant2020 and equipment2019, of approximately $2.8$6.8 million and $7.2 million, respectively, include water rights of approximately $5.2 million.million with the remaining balance consisting of property, plant and equipment. In February 2021, the Company completed the sale of the remaining assets and any gain or loss recognized is expected to be immaterial. In addition, other current assets as of December 31, 20182020 and 20172019, include $81.5$2.8 million and $21.8$58.3 million, respectively, of tax refunds from U.S. taxing authorities pursuant to the tax settlement with Canadian and U.S. tax authorities described in Note 8.8. The remaining other amounts included in other current assets as of December 31, 20182020 and 2017,2019, respectively, consist principally of prepaid expenses.
i.j. Property, Plant and Equipment:
Property, plant and equipment is stated at cost and includes capitalized interest. The costs of replacements or renewals, which improve or extend the life of existing property, are capitalized. Maintenance and repairs are expensed as incurred. Upon retirement or disposition of an asset, any resulting gain or loss is included in the Company’s operating results.
Property, plant and equipment also includes mineral interests. The mineral interests for the Company’s Winsford U.K. mine are owned. The Company leases probable mineral reserves at its Cote Blanche and Goderich mines, its UtahOgden facility and several of its other North American facilities. These leases have varying terms, and many provide for a royalty payment to the lessor based on a specific amount per ton of mineral extracted or as a percentage of revenue.sales. The Company’s rights to extract minerals are contractually limited by time. The Cote Blanche mine is operated under land and mineral leases, and the mineral lease expires in 2060 with two2 additional 25-year renewal periods. The Goderich mine mineral reserve lease expires in 2022
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| | COMPASS MINERALS INTERNATIONAL, INC. |
with the Company’s option to renew until 2043 after demonstrating to the lessor that the mine’s useful life is greater than the lease’s term. The UtahOgden facility mineral reserve lease renews annually. The Company believes it will be able to continue to extend lease agreements as it has in the past, at commercially reasonable terms, without incurring substantial costs or material modifications to the existing lease terms and conditions, and therefore, management believes that assigned lives are appropriate. The Company’s mineral interests are depleted on a units-of-production basis based upon the latest available mineral study. The weighted average amortization period for the leased probable mineral reserves is 9290 years as of December 31, 2018.2020. The Company also owns other mineral properties. The weighted average life for the probable owned mineral reserves is 3836 years as of December 31, 20182020, based upon management’s current production estimates.
Buildings and structures are depreciated on a straight-line basis over lives generally ranging from 10 to 30 years. Portable buildings generally have shorter lives than permanent structures. Leasehold and building improvements typically have shorter estimated lives of 5 to 20 years or lower based on the life of the lease to which the improvement relates.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
Property, plant and equipment recognized as a result of the full acquisition of Produquímica Indústria e Comércio S.A. (“Produquímica,” which is now known as Compass Minerals América do Sul Indústria e Comércio S.A.) (see Note 4) were recorded at fair value as of the acquisition date and are being depreciated based on estimated weighted-average remaining useful lives. The Company’s other fixed assets are amortized on a straight-line basis over their respective lives. The following table summarizes the estimated useful lives of the Company’s different classes of property, plant and equipment:
|
| | | | |
| Years |
Land improvements | 10 to 25 |
Buildings and structures | 10 to 30 |
Leasehold and building improvements | 52 to 40 |
Machinery and equipment – vehicles | 32 to 10 |
Machinery and equipment – other mining and production | 32 to 50 |
Office furniture and equipment | 32 to 10 |
Mineral interests | 20 to 99 |
The Company has capitalfinance leases which are recorded in property, plant and equipment at the beginning of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Lease payments are recorded as interest expense and a reduction of the lease liability. A capitalfinance lease asset is depreciated over the lower of its useful life or the lease term.
The Company has capitalized computer software costs of $23.6$13.4 million and $29.5$16.0 million as of December 31, 20182020 and 2017,2019, respectively, recorded in property, plant and equipment. The capitalized costs are being amortized over five years. The Company recorded $7.3$5.8 million, $4.7$6.6 million and $3.1$7.3 million of amortization expense related to capitalized computer software for 2018, 20172020, 2019 and 2016,2018, respectively.
The Company recognizes and measures obligations related to the retirement of tangible long-lived assets in accordance with applicable U.S. GAAP. Asset retirement obligations are not material to the Company’s consolidated financial position, results of operations or cash flows.
The Company reviews its long-lived assets and the related mineral reserves for impairment whenever events or changes in circumstances indicate the carrying amounts of such assets may not be recoverable. If an indication of a potential impairment exists, recoverability of the respective assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate, to the carrying amount, including associated intangible assets, of such operation. If the operation is determined to be unable to recover the carrying amount of its assets, then intangible assets are written down first, followed by the other long-lived assets of the operation, to fair value. Fair value is determined based on discounted cash flows or appraised values, depending upon the nature of the assets.
j.k. Leases:
In February 2016, the FASB issued guidance which requires lessees to recognize on their balance sheet a right-of-use asset which represents a lessee’s right to use the underlying asset, and a lease liability which represents a lessee’s obligation to make lease payments for the right to use the asset. In addition, the guidance requires expanded qualitative and quantitative disclosures. The Company adopted this guidance on January 1, 2019, using a modified retrospective transition method, which required the cumulative effect of this change in accounting of $0.1 million to be recorded as an adjustment to beginning retained earnings. The Company elected the transition provisions available for existing contracts, which allowed entities to carryforward the historical assessment of whether the contract contained a lease and the lease classification. Refer to Note 4 for additional details.
l. Goodwill and Intangible Assets:
The Company amortizes its intangible assets deemed to have finite lives on a straight-line basis over their estimated useful lives which, for the Company, range from 4 to 50 years. The Company reviews goodwill and other indefinite-lived intangible
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| | COMPASS MINERALS INTERNATIONAL, INC. |
assets annually for impairment. In addition, goodwill and other intangible assets are reviewed when an event or change in circumstances indicates the carrying amounts of such assets may not be recoverable.
k.m. Investments:
The Company uses the equity method of accounting for equity securities when it has significant influence or when it has more than a minor ownership interest or more than minor influence over an investee’s operations but does not have a controlling financial interest. Initial investments are recorded at cost (including certain transaction costs) and are adjusted by the Company’s share of the investees’ undistributed earnings and losses. The Company may recognize its share of an investee’s earnings on a lag, if an investee’s financial results are not available in a timely manner.
Prior to the full acquisition of Produquímica, which was completed on October 3, 2016, theThe Company’s initial 35% equity interest in Produquímica was accounted for under the equity method of accounting (see Note 4 for more information). As a result of the full acquisition of Produquímica, the Company now alsoBrazilian subsidiary holds a 50% interest in Fermavi Eletroquímica Ltda. (“Fermavi”), which was previously held by Produquímica.. Fermavi, which was founded in 1987, is a Brazilian corporation with headquarters in Varginha, Minas Gerais, Brazil, and its operations focus on the production and sale of manganese-based products. The Company’s investment in Fermavi was recorded at its estimated fair value in conjunction with the preliminary purchase price allocation as of the date the Company completed the full acquisition of Produquímica,Compass Minerals América do Sul Indústria e Comércio Ltda. (“Compass Minerals South America”), which was in excess of the book value of net assets acquired. This basis difference was approximately $16$2 million and $17$4 million as of December 31, 20182020 and 2017,2019, respectively. The portion of the basis differences related to tangible and intangible assets will beis amortized over their remaining useful lives, as appropriate. The Company accounts for its investment in Fermavi under the equity method of accounting.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
l.n. Other Noncurrent Assets:
Other noncurrent assets include certain inventories of spare parts and related inventory, net of reserve, of $32.4$27.9 million and$11.8and $31.0 million at December 31, 20182020 and 2017,2019, respectively, which will be utilized with respect to long-lived assets. As of December 31, 2020 and 2019, other noncurrent assets also include net operating lease assets of $55.6 million and $53.7 million, respectively.
The Company sponsors a non-qualified defined contribution plan for certain of its executive officers and key employees as described in Note 9.9. As of December 31, 20182020 and 2017,2019, investments in marketable securities representing amounts deferred by employees, Company contributions and unrealized gains or losses totaling $1.8$1.9 million and $2.2$1.4 million, respectively, were included in other noncurrent assets in the Consolidated Balance Sheets. The marketable securities are classified as trading securities and accordingly, gains and losses are recorded as a component of other expense (income), net in the consolidated statementsConsolidated Statements of operations.Operations. As of December 31, 2017, the Company had $49.3 million recorded related to tax positions with Canadian and U.S. tax authorities described in Note 8.
m.o. Income Taxes:
The Company accounts for income taxes using the liability method in accordance with the provisions of U.S. GAAP. Under the liability method, deferred taxes are determined based on the differences between the consolidated financial statementstatements and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company’s foreign subsidiaries file separate company returns in their respective jurisdictions.
The Company recognizes potential liabilities in accordance with applicable U.S. GAAP for anticipated tax issues in the U.S. and other tax jurisdictions based on its estimate of whether, and the extent to which, additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when the Company determines the liabilities are no longer necessary. If the Company’s estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result. Any penalties and interest that are accrued on the Company’s uncertain tax positions are included as a component of income tax expense.
In evaluating the Company’s ability to realize deferred tax assets, the Company considers the sources and timing of taxable income, including the reversal of existing temporary differences, the ability to carryback tax attributes to prior periods, qualifying tax-planning strategies, and estimates of future taxable income exclusive of reversing temporary differences. In determining future taxable income, the Company’s assumptions include the amount of pre-tax operating income according to different state, federal and international taxing jurisdictions, the origination of future temporary differences, and the implementation of feasible and prudent tax-planning strategies.
If the Company determines that a portion of its deferred tax assets will not be realized, a valuation allowance is recorded in the period that such determination is made. In the future, if the Company determines, based on the existence of sufficient evidence, that more or less of the deferred tax assets are more likely than not to be realized, an adjustment to the valuation allowance will be made in the period such a determination is made.
As discussed in Note 8, on December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”) which subjects U.S. shareholders, including the Company, to tax on Global Intangible Low-Taxed Income (“GILTI”) earned by certain foreign subsidiaries. The FASB issued guidance stating that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has elected to account for GILTI as a period expense only.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
p. Environmental Costs:
Environmental costs, other than those of a capital nature, are accrued at the time the exposure becomes known and costs can be reasonably estimated. Costs are accrued based upon management’s estimates of all direct costs. Amounts reserved for environmental matters were not material at December 31, 20182020 or 2017.2019.
o.q. Equity Compensation Plans:
The Company has equity compensation plans under the oversight of the Company’s boardBoard of directors,Directors, whereby stock options, restricted stock units, performance stock units, deferred stock units and shares of common stock are granted to the Company’s employees and directors. See Note 13 for additional discussion.
p.r. Earnings per Share:
TheWhen calculating earnings per share, the Company’s participating securities are accounted for in accordance with guidance related to the computation of earnings per share under the two-class method. The two-class method requires allocating the Company’s net earnings to both common shares and participating securities based upon their rights to receive dividends. Basic earnings per share is computed by dividing net earnings available to common shareholdersstockholders by the weighted-average number of outstanding common shares during the period. Diluted earnings per share reflects the potential dilution that could occur under the more dilutive of either the treasury stock method or the two-class method for calculating the weighted-average number of outstanding common shares. The treasury stock method is calculated assuming unrecognized compensation expense, income tax benefits and proceeds from the potential exercise of employee stock options are used to repurchase common stock.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
q.s. Derivatives:
The Company is exposed to the impact of fluctuations in foreign exchange and interest rates on its borrowings and fluctuations in the purchase price of natural gas consumed in operations. The Company hedges portions of these risks through the use of derivative agreements.
The Company accounts for derivative financial instruments in accordance with applicable U.S. GAAP, which requires companies to recordrecords derivative financial instruments as assets or liabilities measured at fair value. Accounting for the changes in the fair value of a derivative depends on its designation and effectiveness. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the derivative instrument and the related change in value of the underlying hedged item. For qualifying hedges, the effective portion of the change in fair value is recognized through earnings when the underlying transaction being hedged affects earnings, allowing a derivative’s gains and losses to offset related results from the hedged item in the statementsConsolidated Statements of operations.Operations. Until the effective portion of a derivative’s change in fair value is recognized in the statementConsolidated Statements of operations,Operations, the changeschange in fair value is recognized in other comprehensive income. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. The Company formally documents, designates and assesses the effectiveness of transactions that receive hedge accounting treatment initially and on an ongoing basis.
r.t. Concentration of Credit Risk:
The Company sells its salt and magnesium chloride products to various governmental agencies, manufacturers, distributors and retailers primarily in the Midwestern U.S. and throughout Canada and the U.K. The Company’s plant nutrition products are sold across the Western Hemisphere and globally. No single customer or group of affiliated customers accounted for more than 10% of the Company’s sales in any year during the three-year period ended December 31, 2018,2020, or more than 10% of accounts receivablereceivables at December 31, 20182020 or 2017.2019.
s.u. Recent Accounting Pronouncements:
In August 2018, the FASB issued guidance to require customers in a cloud computing arrangement that is a service contract to follow the internal use software guidance to determine which implementation costs to capitalize as assets. The capitalized implementation costs related to these arrangements are required to be amortized over the term of the hosting arrangement. The guidance also clarifies the presentation requirements for these costs in an entity’s financial statements. The guidance is effective for periods beginning after December 15, 2019 and interim periods within those fiscal years. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.
In February 2018, the FASB issued guidance to address the income tax accounting treatment of the tax effects within other comprehensive income due to the enactment of the Act. This guidance allows entities to elect to reclassify the tax effects of the change in the income tax rates from other comprehensive income to retained earnings. The guidance is effective for periods beginning after December 15, 2018, although early adoption is permitted. The Company adopted this guidance in the first quarter of 2018 and reclassified $0.2 million of tax benefit to retained earnings.
In August 2017, the FASB issued guidance which amends the current hedge accounting model and requires certain new or modified disclosures to enable entities to better portray the economics of their risk management activities in their financial statements. The modifications include a tabular disclosure related to the effect on the income statement of fair value and cash flow hedges and eliminate the requirement to disclose the ineffective portion of the change in fair value of hedging instruments. The amendments also require new tabular disclosures related to cumulative basis adjustments for fair value hedges. The guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, although early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In March 2017, the FASB issued guidance on the presentation of net periodic pension and postretirement benefit costs in the statement of operations and on the components eligible for capitalization. This guidance requires that an entity report the service cost component of the net periodic benefit costs in the same income statement line item as other compensation costs arising from services rendered by employees during the period. The non-service-cost components of net periodic benefit costs are to be presented in the statement of operations separately from the service cost components and outside a subtotal of income from operations. The guidance also allows for the capitalization of the service cost components, when applicable. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Company adopted this guidance in the first quarter of 2018. The impact of the adoption was not material to the Company’s consolidated financial statements.
In January 2017, the FASB issued guidance to simplify the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remainremains largely unchanged. The adoption of this guidance on January 1, 2020, did not have an impact on the Company’s consolidated financial statements.
On January 1, 2020, the Company adopted guidance issued by the FASB related to credit losses for financial instruments, which replaces the incurred loss methodology with a current expected credit loss methodology (“CECL”). The Company has determined that its receivables are the only financial instrument that is effectivewithin scope of this CECL guidance. The CECL methodology requires financial assets to be recorded at the net amount expected to be collected over the lifetime of the asset such that the estimated losses are accrued on the day the asset is acquired. The CECL methodology also requires financial assets to be aggregated and evaluated within pools with similar risk characteristics.
The Company has recorded an allowance on its receivables based on historical loss rates modified to consider supportable forecasts related to customer-specific and macroeconomic factors. For instance, the Company’s 2020 allowance for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for annual and interim goodwill
doubtful
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| | COMPASS MINERALS INTERNATIONAL, INC. |
accounts considered the potential impact that the COVID-19 pandemic could have on the collectability of its outstanding receivables. The Company’s customer pools are comprised of North American highway deicing customers, U.K. highway deicing customers, U.K. storage customers, North American consumer and industrial customers, Plant Nutrition North America customers, Plant Nutrition South America customers and customers whose outstanding receivable balances have been sent to collections or put on a payment plan. Customers grouped within these pools have similar risk characteristics. The Company’s allowance for doubtful accounts consists of estimates of expected credit losses and accruals for returns and allowances. At the transition date of January 1, 2020, the implementation of CECL had an immaterial impact of less than $0.1 million on the Company’s consolidated financial statements. Under CECL, the Company had an allowance for doubtful accounts of $9.4 million and $11.1 million as of January 1, 2020, and December 31, 2020, respectively.
3. REVENUES
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| | COMPASS MINERALS INTERNATIONAL, INC. |
impairment testing dates after January 1, 2017. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.
In August 2016, the FASB issued guidance to clarify how certain cash receipts and payments should be presented and classified in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and early adoption is permitted. The Company adopted this guidance in the first quarter of 2018. The adoption of this guidance did not have a material impact on the financial statements.
In June 2016, the FASB issued guidance for estimating credit losses on certain types of financial instruments, including trade receivables, by introducing an approach based on expected losses. The expected loss approach will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, requires a modified retrospective transition method and early adoption is permitted. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements.
In February 2016, the FASB issued guidance which requires lessees to recognize on their balance sheet a right-of-use asset which represents a lessee’s right to use the underlying asset, and a lease liability initially measured as the present value of minimum lease payments over the term of the lease. In addition, the standard requires expanded qualitative and quantitative disclosures. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and allows a modified retrospective transition method.
The Company will adopt this guidance on January 1, 2019 using the modified retrospective transition method, which requires any cumulative effect of the change in accounting to be recorded as an adjustment to beginning retained earnings. The Company has revised its controls and processes to ensure compliance with this guidance, including the required disclosures. The Company currently expects to recognize approximately $47 million to $52 million of assets and liabilities on its Consolidated Balance Sheets related to the recognition of its operating leases that are in excess of 12 months. The Company does not expect this guidance to have a material effect on its consolidated results of operations or cash flows.
3. REVENUES
As discussed in Note 2, the Company adopted new revenue guidance effective January 1, 2018. The adoption of the guidance resulted in expanded disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers.
Nature of Products and Services
The Company’s Salt segment products include salt and magnesium chloride for use in road deicing and dust control, food processing, water softeners, and agricultural and industrial applications. The Company’s plant nutrition products include SOP, secondary nutrients, micronutrients and magnesium chloride for agricultural purposes and chemicals for the industrial chemical industry. In the U.K., the Company operates a records management business utilizing excavated areas of the Winsford salt mine with one other location in London, England.
Identifying the Contract
The Company accounts for a customer contract when there is approval and commitment from both parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
Identifying the Performance Obligations
At contract inception, the Company assesses the goods and services it has promised to its customers and identifies a performance obligation for each promise to transfer to the customer a distinct good or service (or bundle of goods or services). Determining whether products and services are considered distinct performance obligations that should be accounted for separately or aggregated together may require significant judgment.
Identifying and Allocating the Transaction Price
The Company’s revenues are measured based on consideration specified in the customer contract, net of any sales incentives and amounts collected on behalf of third parties such as sales taxes. In certain cases, the Company’s customer contracts may include promises to transfer multiple products and services to a customer. For multiple-element arrangements, the Company generally allocates the transaction price to each performance obligation in proportion to its stand-alone selling price.
When Performance Obligations Are Satisfied
The vast majority of the Company’s revenues are recognized at a point in time when the performance obligations are satisfied based upon transfer of control of the product or service to a customer. To determine when the control of goods is transferred, the Company typically assesses, among other things, the shipping terms of the contract, as shipping is an indicator of transfer of control. Some of the Company’s products are sold when the control of the goods transfers to the customer at the time of shipment. There are also instances when the Company provides shipping services to deliver its products. Shipping and handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs. The Company has made an accounting policy election to recognize any shipping and handling costs that are incurred after the customer obtains control of the goods as fulfillment costs which are accrued at the time of revenue recognition.
Significant Payment Terms
The customer contract states the final terms of the sale, including the description, quantity and price of each product or service purchased. Payment is typically due in full within 30 days of delivery. As a practical expedient, the Company does not adjust the consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the good or service is transferred to the customer and when the customer pays for that good or service will be one year or less.
Refunds, Returns and Warranties
The Company’s products are generally not sold with a right of return and the Company does not generally provide credits or incentives, which may be required to be accounted for as variable consideration when estimating the amount of revenue to be recognized. The Company uses historical experience to estimate accruals for refunds due to manufacturing or other defects.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
Practical Expedients and Accounting Policy Elections
Upon adoption of the guidance, the Company elected (i) to exclude disclosures of transaction prices allocated to remaining performance obligations when the Company recognized such revenue for all periods prior to the date of initial application of the new guidance, (ii) not to adjust the amount of consideration for the effects of a significant financing component when the Company expects, at contract inception, that the period between the Company's transfer of a product or service to a customer and when the customer pays for that product or service will be one year or less, (iii) to expense costs to obtain a contract as incurred for costs when the Company expects that the amortization period would have been one year or less, (iv) not to recast revenue for customer contracts that begin and end in the same fiscal period, and (v) not to assess whether promised goods or services are performance obligations if they are immaterial in the context of the customer contract.
See Note 1155 for disaggregation of revenuesales by segment, type and geographical region.
4. ACQUISITIONLEASES
Background and Financing
On December 16, 2015, Compass Minerals do Brasil Ltda., a wholly-owned subsidiary of the Company (“Compass Minerals Brazil”), entered into (i) a subscription agreement and other covenants (as amended, the “Subscription Agreement”) with certain Produquímica shareholders and Produquímica and (ii) a share purchase and sale agreement and other covenants (the “Purchase Agreement”) with certain Produquímica shareholders and Produquímica. Pursuant to the Subscription Agreement and the Purchase Agreement, Compass Minerals Brazil acquired 35% of the issued and outstanding capital stock of Produquímica on December 23, 2015, for R$452.4 million Brazilian reais (“R” or “BRL”), or $114.1 million U.S. dollars at closing, and paid additional consideration of $4.7 million in the second quarter of 2016 related to Produquímica’s 2015 financial performance.
The Subscription Agreement also contained a put right (the “Put”), allowing the Produquímica shareholders to sell the remainder of their interests in Produquímica to Compass Minerals Brazil. On August 12, 2016, Produquímica shareholders notified Compass Minerals Brazil of their exercise of the Put. On October 3, 2016, the Company acquired the remaining 65% of the issued and outstanding capital stock of Produquímica.
The Company entered into a new $100.0 million term loan tranche in the fourth quarter of 2015 to fund the acquisition of the 35% of Produquímica’s equity. In September 2016, the Company entered into a new $450.0 million term loan tranche to fund the acquisition of the remaining 65% of Produquímica’s equity. See Note 10 for more information regarding these financings.
Based in São Paulo, Brazil, Produquímica operates two primary businesses – agricultural productivity and chemical solutions. The agricultural productivity division manufactures and distributes a broad offering of specialty plant nutrition solution-based products. These include micronutrients, controlled release fertilizers and other specialty supplements that are used in direct soil and foliar applications, as well as through irrigation systems and for seed treatment. Many of these products are developed through Produquímica’s research and development capabilities. Produquímica also manufactures and markets specialty chemicals used primarily in the industrial chemical and water treatment industries in Brazil. The acquisition broadens the Company’s geographic scope of operations and expands its specialty plant nutrition portfolio while reducing the Company’s dependence on winter weather conditions.
Purchase Price Allocation
The Company accounted for the Produquímica acquisition as a business combination in accordance with U.S. GAAP. The accounting guidance for business combinations requires estimates and judgments regarding expectations for future cash flows of the acquired entity as well as other valuation assumptions and an allocation to the net assets acquired. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management’s best estimates. As of September 30, 2017, the purchase price allocation was finalized.
A summary of the acquisition-date fair value of the consideration transferred is presented in the table below:
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| | | |
Fair Value of Consideration Transferred (in millions) | October 3, 2016 |
Cash paid at closing | $ | 317.1 |
|
Additional cash due at closing | 20.6 |
|
Fair value of contingent consideration | 31.4 |
|
Fair value of 35% equity investment | 178.7 |
|
Total | $ | 547.8 |
|
The calculation of the purchase price at closing was based in part on an estimate of full-year 2016 operating results of Produquímica. As of the acquisition closing date, some of the periods included in the 2016 operating results of Produquímica had not ended and actual results were not known. The portion of the purchase price which was based on management’s estimate of results relating to periods which occurred after the closing date was classified as contingent consideration. There were no thresholds or tiers in the payment structure, and management used an income approach to estimate the acquisition date fair value of the contingent consideration. As of the closing date, the Company had estimated the fair value of contingent consideration to be $31.4 million.
During the first quarter of 2017, the purchase price was adjusted based on the final full-year 2016 operating results of Produquímica, and a final payment was made to the Produquímica shareholders. The difference between the estimated closing date fair value of the contingent consideration and the final amount paid resulted in the recognition of a gain of $1.9 million in the first quarter of 2017, which was included as a component of operating earnings in the Company’s Plant Nutrition South America segment.
Prior to the acquisition closing date, the Company accounted for its 35% interest in Produquímica as an equity method investment. The acquisition-date fair value of the previously held equity investment was $178.7 million and is included in the consideration transferred. To measure the acquisition closing date fair value of the equity interest the Company utilized a market-based approach which relied on Level 3 inputs (see Note 14 for a discussion of the levels in the fair value hierarchy). The Company recognized a
The Company enters into leases for warehouses and depots, rail cars, vehicles, mobile equipment, office space and certain other types of property and equipment. The Company determines whether an arrangement is or contains a lease at the inception of the contract. The right-of-use asset and lease liability are recognized based on the present value of the future minimum lease payments over the estimated lease term. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company estimates its incremental borrowing rate for each lease based upon the estimated lease term, the type of asset and the location of the leased asset. The most significant judgments in the application of the FASB guidance include whether a contract contains a lease and the lease term.
Leases with an initial term of 12 months or less are not recorded on the Company’s Consolidated Balance Sheets. The Company recognizes lease expense for these short-term leases on a straight-line basis over the lease term. Many of the Company’s leases include one or more options to renew and extend the initial lease term. The exercise of lease renewal options is generally at the Company’s discretion. The lease term includes renewal periods in only those instances in which the Company determines it is reasonably assured of renewal.
The depreciable lives of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. In these instances, the assets are depreciated over the useful life of the asset.
The Company has elected the practical expedient available under the FASB guidance to not separate lease and non-lease components on all of its lease categories. As a result, many of the Company’s leases include variable payments for services (such as handling or storage) or payments based on the usage of the asset. In addition, certain of the Company’s lease agreements include rental payments that are adjusted periodically for inflation. The Company’s lease agreements do not contain any material residual value guarantees or any material restrictive covenants. The Company’s sublease income is immaterial.
The Company’s Consolidated Balance Sheets includes the following (in millions):
| | | | | | | | | | | | | | |
| Consolidated Balance Sheets Location | December 31, 2020 | | December 31, 2019 |
Assets | | | | |
Operating lease assets | Other assets | $ | 55.6 | | | $ | 53.7 | |
Finance lease assets | Property, plant and equipment, net | 7.2 | | | 5.8 | |
Total lease assets | | $ | 62.8 | | | $ | 59.5 | |
Liabilities | | | | |
Current liabilities: | | | | |
Operating | Accrued expenses and other current liabilities | $ | 14.8 | | | $ | 12.8 | |
Finance | Accrued expenses and other current liabilities | 1.3 | | | 1.1 | |
Noncurrent liabilities: | | | | |
Operating | Other noncurrent liabilities | 42.8 | | | 41.0 | |
Finance | Other noncurrent liabilities | 7.0 | | | 6.2 | |
Total lease liabilities | | $ | 65.9 | | | $ | 61.1 | |
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| | COMPASS MINERALS INTERNATIONAL, INC. |
The Company’s components of lease cost are as follows (in millions):
| | | | | | | | | | | |
| Year Ended December 31, 2020 | | Year Ended December 31, 2019 |
Finance lease cost: | | | |
Amortization of lease assets | $ | 1.8 | | | $ | 1.1 | |
Interest on lease liabilities | 0.6 | | | 0.6 | |
Operating lease cost | 17.4 | | | 19.2 | |
Variable lease cost(a) | 11.7 | | | 18.8 | |
Total lease cost | $ | 31.5 | | | $ | 39.7 | |
(a)Short-term leases are immaterial and included in variable lease cost.
Maturities of lease liabilities are as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Operating Leases | | Finance Leases | | Total |
2021 | $ | 16.4 | | | $ | 1.8 | | | $ | 18.2 | |
2022 | 13.1 | | | 1.2 | | | 14.3 | |
2023 | 8.4 | | | 1.1 | | | 9.5 | |
2024 | 5.7 | | | 0.9 | | | 6.6 | |
2025 | 4.9 | | | 0.9 | | | 5.8 | |
After 2025 | 18.0 | | | 6.1 | | | 24.1 | |
Total lease payments | 66.5 | | | 12.0 | | | 78.5 | |
Less: Interest | (8.9) | | | (3.7) | | | (12.6) | |
Present value of lease liabilities | $ | 57.6 | | | $ | 8.3 | | | $ | 65.9 | |
Supplemental lease term and discount rate information related to leases is as follows:
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
Weighted-average remaining lease term (years) | | | |
Operating leases | 7.0 | | 7.7 |
Finance leases | 9.3 | | 7.2 |
Weighted-average discount rate | | | |
Operating leases | 3.7 | % | | 4.3 | % |
Finance leases | 7.3 | % | | 7.6 | % |
Supplemental cash flow information related to leases is as follows (in millions):
| | | | | | | | | | | |
| Year Ended December 31, 2020 | | Year Ended December 31, 2019 |
Cash paid for amounts included in the measurement of lease liabilities | | | |
Operating cash flows from operating leases | $ | 15.3 | | | $ | 18.9 | |
Operating cash flows from finance leases | 0.6 | | | 0.6 | |
Financing cash flows from finance leases | 1.8 | | | 1.3 | |
Leased assets obtained in exchange for new operating lease liabilities | 16.5 | | | 20.3 | |
Leased assets obtained in exchange for new finance lease liabilities | 3.8 | | | 0.2 | |
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| | COMPASS MINERALS INTERNATIONAL, INC. |
5. INVENTORIES
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| | COMPASS MINERALS INTERNATIONAL, INC. |
$59.3 million non-cash gain during the fourth quarter of 2016 as a result of remeasuring its prior equity interest in Produquímica held before the business combination.
Under the acquisition method of accounting, the total purchase price was allocated on a preliminary basis to Produquímica’s assets and liabilities based upon their estimated fair values as of the closing date of the acquisition. During the first nine months of 2017, the Company adjusted the preliminary purchase price allocation based on additional information obtained regarding facts and circumstances which existed as of the acquisition date. These adjustments resulted in a decrease of $3.6 million to goodwill, a decrease of $4.4 million to other noncurrent liabilities and an increase of $0.8 million to net deferred income taxes. Additionally, during the third quarter of 2017 in connection with finalizing the accounting for the acquisition, the Company recorded an adjustment increasing depreciation expense by $1.9 million. This adjustment resulted from finalizing the Company’s estimate of the useful lives of acquired tangible assets.
Based upon the final purchase price and the updated valuation, the final purchase price allocation is presented in the table below:
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Recognized amounts of identifiable assets acquired and liabilities assumed (in millions): | Purchase Price Allocation |
Cash and cash equivalents | $ | 73.8 |
|
Accounts receivable | 89.4 |
|
Inventories | 77.1 |
|
Other current assets | 13.7 |
|
Property, plant and equipment | 189.4 |
|
Intangible assets | 81.2 |
|
Investment in equity method investee | 24.5 |
|
Other noncurrent assets | 6.9 |
|
Accounts payable | (27.1 | ) |
Accrued expenses | (40.3 | ) |
Current portion of long-term debt | (129.6 | ) |
Other current liabilities | (14.0 | ) |
Long-term debt, net of current portion | (62.0 | ) |
Deferred income taxes, net | (66.0 | ) |
Other noncurrent liabilities | (21.9 | ) |
Total identifiable net assets | 195.1 |
|
Goodwill | 352.7 |
|
Total fair value of business combination | $ | 547.8 |
|
The total purchase price in excess of the net identifiable assets has been recognized as goodwill in the amount of $352.7 million and has been assigned to the Company’s Plant Nutrition South America segment. The goodwill recognized is attributable primarily to expected synergies with the Company’s existing plant nutrition business and the assembled workforce of Produquímica. The future deductibility of the goodwill for income tax purposes is uncertain at this time.
The Company determined that the book value of the accounts receivable included in the purchase price allocation approximates their fair value due to their short-term nature. The gross contractual amounts of the receivables exceeded their fair value by the amount of an allowance for doubtful accounts of approximately $8 million.
In connection with the acquisition, the Company acquired identifiable intangible assets which consisted principally of trade names, developed technologies and customer relationships. The fair values were determined using Level 3 inputs (see Note 14 for a discussion of the levels in the fair value hierarchy). The fair values of the identifiable intangible assets were estimated using an income approach method.
The estimated fair values and weighted average amortization period of the identifiable intangible assets are presented in the table below:
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| | COMPASS MINERALS INTERNATIONAL, INC. |
|
| | | | |
| Estimated Fair Value (in millions) | Weighted-Average Amortization Period (in years) |
Trade names | $ | 36.9 |
| 11.0 |
Developed technology | 37.5 |
| 5.3 |
Customer relationships | 6.8 |
| 13.5 |
Total identifiable intangible assets | $ | 81.2 |
| 8.6 |
Impact on Operating Results
During the year ended December 31, 2016, Produquímica contributed revenues of $113.5 million and net income of $3.6 million since the acquisition date of October 3, 2016. Produquímica contributed sales of $391.8 million and $375.0 million during the twelve months ended December 31, 2018 and 2017, respectively. Produquímica contributed net income of $28.3 million $43.3 million and during the twelve months ended December 31, 2018 and 2017, respectively.
The following table presents the combined unaudited pro forma results for the full years ended December 31, 2016 and 2015. The pro forma financial information combines the historical results of operations for Produquímica and Compass Minerals as though the acquisition occurred on January 1, 2015. The pro forma information does not purport to represent the actual results of operations that Produquímica and Compass Minerals would have achieved had the companies been combined during the periods presented nor is the information intended to project the future results of operations. Certain adjustments to Produquímica’s historical results have been made to conform to U.S. GAAP, and amounts have been translated to U.S. dollars.
|
| | | | | | |
| Twelve Months Ended, |
Unaudited Combined Pro Forma Results of Operations (in millions) | December 31, 2016 | December 31, 2015 |
Revenues | $ | 1,381.3 |
| $ | 1,421.3 |
|
Net earnings | $ | 108.1 |
| $ | 128.0 |
|
Significant adjustments to the pro forma information above include:
Adjustments to exclude non-recurring direct incremental costs of the acquisition;
Adjustments to expenses relating to the financing transactions described above;
Adjustments to reflect incremental amortization and depreciation from the preliminary allocation of the purchase price;
Adjustments to reflect certain income tax effects of the acquisition;
Adjustments to remove net loss related to the previously held 35% equity interest in Produquímica; and
Adjustment to remove the gain from the remeasurement of the previously held 35% equity interest in Produquímica
The Company incurred acquisition costs of $1.8 million that were expensed during the year ended December 31, 2016. These costs are included in the “Selling, general and administrative expenses” line item in the Consolidated Statement of Operations.
5. INVENTORIES
Inventories consist of the following at December 31 (in millions):
| | | | 2018 | | 2017 | | | 2020 | | 2019 |
Finished goods | | $ | 202.2 |
| | $ | 208.4 |
| Finished goods | | $ | 287.4 | | | $ | 235.3 | |
Raw materials and supplies | | 64.4 |
| | 81.5 |
| Raw materials and supplies | | 83.2 | | | 76.2 | |
Total inventories | | $ | 266.6 |
| | $ | 289.9 |
| Total inventories | | $ | 370.6 | | | $ | 311.5 | |
Based on the nature of the Company’s inventories, and specifically related to bulk SOP stockpiles, certain estimates are required to measure the amount of inventories at any point in time. During the third quarter of 2020, the Company identified an error in the valuation of its bulk SOP stockpile inventory at its Ogden facility when one of its stockpiles was largely depleted, which resulted in an estimated overstatement of inventories of approximately $7.4 million. The Company evaluated the error and believes it is not material to any previous period and has therefore recorded this additional expense to product cost within its Plant Nutrition North America segment during 2020.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31 (in millions):
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
Land, buildings and structures and leasehold improvements | | $ | 626.8 | | | $ | 596.0 | |
Machinery and equipment | | 1,085.1 | | | 1,001.9 | |
Office furniture and equipment | | 53.3 | | | 60.7 | |
Mineral interests | | 172.4 | | | 171.1 | |
Construction in progress | | 58.7 | | | 141.3 | |
| | 1,996.3 | | | 1,971.0 | |
Less accumulated depreciation and depletion | | (1,031.4) | | | (940.2) | |
Property, plant and equipment, net | | $ | 964.9 | | | $ | 1,030.8 | |
|
| | | | | | | | |
| | 2018 | | 2017 |
Land, buildings and structures and leasehold improvements | | $ | 580.7 |
| | $ | 552.5 |
|
Machinery and equipment | | 983.2 |
| | 942.3 |
|
Office furniture and equipment | | 54.4 |
| | 53.1 |
|
Mineral interests | | 168.1 |
| | 173.1 |
|
Construction in progress | | 118.3 |
| | 213.4 |
|
| | 1,904.7 |
| | 1,934.4 |
|
Less accumulated depreciation and depletion | | (852.7 | ) | | (796.3 | ) |
Property, plant and equipment, net | | $ | 1,052.0 |
| | $ | 1,138.1 |
|
The cost of leased property, plant and equipment under capitalfinance leases included above was $10.1$11.2 million and $7.2$9.2 million with accumulated depreciation of $4.0 million and $3.4 million as of December 31, 20182020 and 2017, respectively, and accumulated depreciation was $2.7 million and $2.6 million as of December 31, 2018 and 2017,2019, respectively.
|
| | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
7. GOODWILL AND OTHER INTANGIBLE ASSETS
The asset value and accumulated amortization as of December 31, 20182020 and 20172019 for the finite-lived intangibles assets are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Supply Agreement | SOP Production Rights | Customer/Distributor Relationships | Lease Rights | Trade Names | Developed Technologies | Patents | Other | Total |
December 31, 2020 | | | | | | | | | |
Gross intangible asset | $ | 28.5 | | $ | 24.3 | | $ | 11.6 | | $ | 1.8 | | $ | 30.3 | | $ | 26.2 | | $ | 16.2 | | $ | 1.3 | | $ | 140.2 | |
Accumulated amortization | (5.7) | | (16.6) | | (6.8) | | (0.6) | | (11.8) | | (21.4) | | (9.6) | | (1.0) | | (73.5) | |
Net intangible assets | $ | 22.8 | | $ | 7.7 | | $ | 4.8 | | $ | 1.2 | | $ | 18.5 | | $ | 4.8 | | $ | 6.6 | | $ | 0.3 | | $ | 66.7 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Supply Agreement | SOP Production Rights | Customer/Distributor Relationships | Lease Rights | Trade Names | Developed Technologies | Patents | Other | Total |
December 31, 2018 | | | | | | | | | |
Gross intangible asset | $ | 26.6 |
| $ | 24.3 |
| $ | 12.5 |
| $ | 1.6 |
| $ | 37.5 |
| $ | 33.8 |
| $ | 15.1 |
| $ | 1.3 |
| $ | 152.7 |
|
Accumulated amortization | (4.3 | ) | (14.7 | ) | (4.9 | ) | (0.4 | ) | (7.6 | ) | (16.1 | ) | (6.3 | ) | (0.7 | ) | (55.0 | ) |
Net intangible assets | $ | 22.3 |
| $ | 9.6 |
| $ | 7.6 |
| $ | 1.2 |
| $ | 29.9 |
| $ | 17.7 |
| $ | 8.8 |
| $ | 0.6 |
| $ | 97.7 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Supply Agreement | SOP Production Rights | Customer/Distributor Relationships | Lease Rights | Trade Names | Developed Technologies | Patents | Other | Total |
December 31, 2019 | | | | | | | | | |
Gross intangible asset | $ | 27.9 | | $ | 24.3 | | $ | 12.7 | | $ | 1.7 | | $ | 36.8 | | $ | 32.8 | | $ | 16.0 | | $ | 1.3 | | $ | 153.5 | |
Accumulated amortization | (5.0) | | (15.6) | | (6.1) | | (0.5) | | (10.9) | | (21.7) | | (8.1) | | (0.9) | | (68.8) | |
Net intangible assets | $ | 22.9 | | $ | 8.7 | | $ | 6.6 | | $ | 1.2 | | $ | 25.9 | | $ | 11.1 | | $ | 7.9 | | $ | 0.4 | | $ | 84.7 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Supply Agreement | SOP Production Rights | Customer/Distributor Relationships | Lease Rights | Trade Names | Developed Technologies | Patents | Other | Total |
December 31, 2017 | | | | | | | | | |
Gross intangible asset | $ | 28.9 |
| $ | 24.3 |
| $ | 14.1 |
| $ | 1.8 |
| $ | 43.3 |
| $ | 39.3 |
| $ | 16.5 |
| $ | 1.4 |
| $ | 169.6 |
|
Accumulated amortization | (4.0 | ) | (13.7 | ) | (4.3 | ) | (0.4 | ) | (4.8 | ) | (11.0 | ) | (5.5 | ) | (0.6 | ) | (44.3 | ) |
Net intangible assets | $ | 24.9 |
| $ | 10.6 |
| $ | 9.8 |
| $ | 1.4 |
| $ | 38.5 |
| $ | 28.3 |
| $ | 11.0 |
| $ | 0.8 |
| $ | 125.3 |
|
| | | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
The estimated lives of the Company’s finite-lived intangible assets are as follows:
|
| | | | |
Intangible asset | Estimated Lives |
Supply agreement | 50 years |
SOP production rights | 25 years |
Patents | 10-20 years |
Developed technology | 4-7 years |
Lease rights | 25 years |
Customer and distributor relationships | 10-14 years |
Trademarks | 10 years |
Noncompete agreements | 5 years |
Trade names | 10-11 years |
None of the finite-lived intangible assets have a residual value. Aggregate amortization expense was $10.7 million in 2020, $13.6 million in 2019 and $15.0 million in 2018 $16.2 million in 2017 and $7.0 million in 2016 and is projected to be between $8$5 million and $14$10 million per year over the next five years. The weighted average life for the Company’s finite-lived intangibles is 1820 years.
In addition, the Company had water rights of $17.7 million as of December 31, 20182020 and 2017,2019, and trade names of $0.5 million and $0.6 million as of December 31, 20182020 and 2017, respectively,2019, which have indefinite lives. In the fourth quarter of 2016, the Company recorded a $3.1 million impairment of its Wolf Trax trade name acquired in 2014 as part of its annual impairment assessment. The estimated fair value as of October 1, 2016 of the trade name was calculated using Level 3 inputs and an income-based valuation approach. The impairment loss was recorded in its Plant Nutrition North America segment in selling, general and administrative expenses in the Consolidated Statements of Operations.
The Company has goodwill of $350.8$281.3 million and $405.0$343.0 million as of December 31, 20182020 and 2017,2019, respectively, in its Consolidated Balance Sheets. The Company has recorded goodwill of $52.6$56.4 million and $57.3$55.4 million as of December 31, 20182020 and 2017,2019, respectively, in its Plant Nutrition North America segment. Additionally, the Company has recorded goodwill of $292.3$218.8 million and $341.6$281.6 million as of December 31, 20182020 and 2017,2019, respectively, in its Plant Nutrition South America segment. The remaining amounts in both periods were immaterial and recorded in its corporate and other and Salt segment. The decrease in the balance of goodwill from December 31, 20172019, was due to changes in foreign currency exchange rates.
8. INCOME TAXES
The Company files tax returns in the U.S., Canada, Brazil and the U.K. at the federal and local taxing jurisdictional levels. The Company’s U.S. federal tax returns for tax years 20122017 forward remain open and subject to examination. Generally, the Company’s state, local and foreign tax returns for years as early as 2002 forward remain open and subject to examination, depending on the jurisdiction.
Tax Cuts and Jobs Act
On December 22, 2017, the U.S. enacted the Act (which is commonly referred to as “U.S. tax reform”). The Act significantly changes U.S. corporate income tax laws by reducing the U.S. corporate income tax rate to 21% beginning in 2018 and creating a quasi-territorial tax system with a one-time mandatory tax on previously deferred foreign earnings. As of December 31, 2018, the Company has completed its accounting for the tax effects of enactment of the Act. In the fourth quarter of 2017, the Company recorded a reasonable estimated net charge of $46.8 million, consisting of $55.2 million related to the one-time mandatory tax on unremitted foreign earnings, offset by aan $8.4 million benefit related to the remeasurement of the Company’s deferred tax liabilities at the new income tax rate. During the fourth quarter of 2018, the Company finalized the accounting for the enactment of the Act and recorded a tax benefit of $3.0 million, consisting of a $3.1 million tax benefit related to the one-time mandatory tax on unremitted foreign earnings offset by a $0.1 million charge related to the remeasurement of the Company’s deferred tax liabilities. Both the 2017 andThe 2018 tax effects of the Act are included in income tax expense in the Company’s consolidated statementsConsolidated Statements of operations.Operations.
Although the unremitted foreign earnings subjected to the one-time mandatory tax on unremitted foreign earnings would not be subject to additional U.S. federal income tax, the Company must still account for the tax consequences of outside basis differences and other tax impacts of ourits investments in non-U.S. subsidiaries. As such, the Company was still evaluating how the Act would impact our existing indefinite reinvestmentrevised its permanently reinvested assertion as of December 31, 2017, no deferred tax impacts for this item were recorded in 2017.
In 2018, the Company modified its unremitted earnings assertion and now expects to repatriate approximately $150 million. Taxmillion of unremitted foreign earnings on which $4.3 million of income tax expense of $3.4 million has been recorded for foreign withholding tax and state income taxes, consisting of $0.9 million recorded in 2018 on these amounts.2019 and $3.4 million recorded in 2018. All remaining unremitted earnings of non-U.S. subsidiaries and outside basis differences are considered permanently reinvested.
| | | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
The following table summarizes the Company’s income tax provision related to earnings for the years ended December 31 (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
Current: | | | | | | |
Federal | | $ | (22.3) | | | $ | 5.3 | | | $ | 8.1 | |
State | | 0.4 | | | 2.0 | | | 4.3 | |
Foreign | | 28.2 | | | 26.6 | | | 13.1 | |
Total current | | 6.3 | | | 33.9 | | | 25.5 | |
Deferred: | | | | | | |
Federal | | 1.2 | | | (7.2) | | | (8.6) | |
State | | (1.2) | | | (1.9) | | | (0.5) | |
Foreign | | 5.4 | | | (2.7) | | | (7.6) | |
Total deferred | | 5.4 | | | (11.8) | | | (16.7) | |
Total provision for income taxes | | $ | 11.7 | | | $ | 22.1 | | | $ | 8.8 | |
|
| | | | | | | | | | | | |
| | 2018 | | 2017 | | 2016 |
Current: | | | | | | |
Federal | | $ | 8.1 |
| | $ | 0.5 |
| | $ | 27.6 |
|
State | | 4.3 |
| | (9.8 | ) | | 6.7 |
|
Foreign | | 13.1 |
| | 85.8 |
| | 11.6 |
|
Total current | | 25.5 |
| | 76.5 |
| | 45.9 |
|
Deferred: | | |
| | |
| | |
|
Federal | | (8.6 | ) | | (4.4 | ) | | (2.8 | ) |
State | | (0.5 | ) | | (0.5 | ) | | (0.7 | ) |
Foreign | | (7.6 | ) | | (11.6 | ) | | (7.8 | ) |
Total deferred | | (16.7 | ) | | (16.5 | ) | | (11.3 | ) |
Total provision for income taxes | | $ | 8.8 |
| | $ | 60.0 |
| | $ | 34.6 |
|
|
| | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
The following table summarizes components of earnings before income taxes and shows the tax effects of significant adjustments from the expected income tax expense computed at the federal statutory rate for the years ended December 31 (in millions):
| | | | | | | | | | | 2020 | | 2019 | | 2018 |
| | 2018 | | 2017 | | 2016 | |
Domestic (loss) income | | $ | (80.6 | ) | | $ | (41.2 | ) | | $ | 123.6 |
| |
U.S. (loss) income | | U.S. (loss) income | | $ | (4.1) | | | $ | 31.7 | | | $ | (80.6) | |
Foreign income | | 158.2 |
| | 143.9 |
| | 73.7 |
| Foreign income | | 75.3 | | | 52.9 | | | 158.2 | |
Earnings before income taxes | | $ | 77.6 |
| | $ | 102.7 |
| | $ | 197.3 |
| Earnings before income taxes | | $ | 71.2 | | | $ | 84.6 | | | $ | 77.6 | |
Computed tax at the U.S. federal statutory rate of 21% in 2018, 32.7% in 2017 and 35% in 2016 | | 16.3 |
| | 33.6 |
| | 69.1 |
| |
Computed tax at the U.S. federal statutory rate of 21% | | Computed tax at the U.S. federal statutory rate of 21% | | 15.0 | | | 17.8 | | | 16.3 | |
Foreign income rate differential, mining, and withholding taxes, net of U.S. federal deduction | | 0.9 |
| | 1.6 |
| | (1.7 | ) | Foreign income rate differential, mining, and withholding taxes, net of U.S. federal deduction | | 9.3 | | | 10.2 | | | 0.9 | |
Percentage depletion in excess of basis | | (4.7 | ) | | (6.4 | ) | | (8.6 | ) | Percentage depletion in excess of basis | | (4.4) | | | (5.8) | | | (4.7) | |
Other domestic tax reserves, net of reversals | | 1.5 |
| | — |
| | — |
| Other domestic tax reserves, net of reversals | | (9.7) | | | 0.2 | | | 1.5 | |
Domestic manufacturers deduction | | — |
| | — |
| | (1.4 | ) | |
State income taxes, net of federal income tax benefit | | 2.1 |
| | 0.8 |
| | 3.9 |
| State income taxes, net of federal income tax benefit | | (0.9) | | | 0 | | | 2.1 | |
Change in valuation allowance on deferred tax asset | | (5.7 | ) | | (23.9 | ) | | (1.4 | ) | Change in valuation allowance on deferred tax asset | | 2.4 | | | 0.2 | | | (5.7) | |
Interest expense recognition differences | | (3.6 | ) | | (5.6 | ) | | (5.9 | ) | Interest expense recognition differences | | (3.5) | | | (3.5) | | | (3.6) | |
Nontaxable remeasurement gain | | — |
| | — |
| | (20.2 | ) | |
GILTI | | GILTI | | 3.8 | | | 1.0 | | | 1.0 | |
Tax Cuts and Jobs Act of 2017 | | (3.0 | ) | | 46.8 |
| | — |
| Tax Cuts and Jobs Act of 2017 | | 0 | | | 1.6 | | | (3.0) | |
Tax on repatriated amounts | | 3.4 |
| | — |
| | — |
| Tax on repatriated amounts | | 0 | | | 0.9 | | | 3.4 | |
Transfer pricing settlement with taxing authorities | | 2.2 |
| | 13.8 |
| | — |
| Transfer pricing settlement with taxing authorities | | 0 | | | 0 | | | 2.2 | |
Other, net | | (0.6 | ) | | (0.7 | ) | | 0.8 |
| Other, net | | (0.3) | | | (0.5) | | | (1.6) | |
Provision for income taxes | | $ | 8.8 |
| | $ | 60.0 |
| | $ | 34.6 |
| Provision for income taxes | | $ | 11.7 | | | $ | 22.1 | | | $ | 8.8 | |
Effective tax rate | | 11 | % | | 58 | % | | 18 | % | Effective tax rate | | 16 | % | | 26 | % | | 11 | % |
|
| | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
Under U.S. GAAP, deferred tax assets and liabilities are recognized for the estimated future tax effects, based on enacted tax law, of temporary differences between the values of assets and liabilities recorded for financial reporting and tax purposes, and of net operating losses and other carryforwards. The significant components of the Company’s deferred tax assets and liabilities were as follows at December 31 (in millions):
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
Deferred tax assets: | | | | |
Reluz Nordeste Indústria e Comércio Ltda net operating loss carryforwards | | $ | 0.4 | | | $ | 0.6 | |
Compass Minerals South America net operating loss carryforwards | | 0 | | | 3.3 | |
Excess interest expense | | 9.9 | | | 14.9 | |
Foreign tax credit | | 39.4 | | | 38.1 | |
Right of use lease liability | | 11.3 | | | 11.1 | |
Stock-based compensation | | 2.0 | | | 2.3 | |
Other, net | | 20.5 | | | 16.5 | |
Total deferred tax assets before valuation allowance | | 83.5 | | | 86.8 | |
Valuation allowance | | (42.0) | | | (39.8) | |
Total deferred tax assets | | 41.5 | | | 47.0 | |
Deferred tax liabilities to be netted with deferred tax assets: | | | | |
Property, plant and equipment | | 17.2 | | | 21.2 | |
Right of use lease asset | | 11.3 | | | 11.1 | |
Other, net | | 1.4 | | | 1.0 | |
Total deferred tax liabilities to be netted with deferred tax assets | | 29.9 | | | 33.3 | |
Net noncurrent deferred tax assets | | $ | 11.6 | | | $ | 13.7 | |
| | | | |
Deferred tax assets to be netted with deferred tax liabilities: | | | | |
| | | | |
Net operating loss carryforwards | | $ | 1.7 | | | $ | 2.2 | |
| | | | |
Right of use lease liability | | 1.9 | | | 0.9 | |
Other, net | | 0.9 | | | 2.1 | |
Total deferred tax assets before valuation allowance | | 4.5 | | | 5.2 | |
Valuation allowance | | (1.4) | | | (1.4) | |
Total deferred tax assets to be netted with deferred tax liabilities | | 3.1 | | | 3.8 | |
Deferred tax liabilities: | | | | |
Property, plant and equipment | | 66.5 | | | 63.7 | |
Intangible asset | | 22.2 | | | 29.1 | |
Right of use lease asset | | 1.9 | | | 0.9 | |
Total deferred tax liabilities | | 90.6 | | | 93.7 | |
Net deferred tax liabilities | | $ | 87.5 | | | $ | 89.9 | |
|
| | | | | | | | |
| | 2018 | | 2017 |
Deferred tax assets: | | |
| | |
|
Reluz Nordeste Indústria e Comércio Ltda net operating loss carryforwards | | $ | 0.6 |
| | $ | 0.8 |
|
Produquímica Indústria e Comércio S.A. net operating loss carryforwards | | 7.0 |
| | 12.9 |
|
Other, net | | 6.8 |
| | 8.0 |
|
Total deferred tax assets before valuation allowance | | 14.4 |
| | 21.7 |
|
Valuation allowance | | (0.6 | ) | | (9.0 | ) |
Total noncurrent deferred tax assets: | | $ | 13.8 |
| | $ | 12.7 |
|
| | | | |
Deferred tax assets to be netted with deferred tax liabilities: | | | | |
Net operating loss carryforwards | | $ | 2.1 |
| | $ | 2.3 |
|
Stock-based compensation | | 2.9 |
| | 2.7 |
|
Other, net | | 12.1 |
| | 9.3 |
|
Total deferred tax assets before valuation allowance | | 17.1 |
| | 14.3 |
|
Valuation allowance | | (2.9 | ) | | (1.2 | ) |
Total deferred tax assets to be netted with deferred tax liabilities | | 14.2 |
| | 13.1 |
|
Deferred tax liabilities: | | |
| | |
|
Property, plant and equipment | | 82.3 |
| | 98.1 |
|
Intangible asset | | 32.7 |
| | 42.0 |
|
Total deferred tax liabilities | | 115.0 |
| | 140.1 |
|
Net deferred tax liabilities | | $ | 100.8 |
| | $ | 127.0 |
|
At December 31, 20182020 and 2017,2019, the Company had $27.2$7.7 million and $46.1$18.8 million, respectively, of gross foreign federal net operating loss (“NOL”) carryforwards that have no expiration date, $1.2$0.1 million and $5.7$1.7 million, respectively, of gross foreign federal NOL carryforwards which expire in 2033 and $0.2 million and $0.7$0.3 million, respectively, of net operating tax-effected state NOL carryforwards which will expire beginning in 2027.
The Company has recorded a valuation allowance for a portion of its deferred tax asset relating to various tax attributes that it does not believe are, more likely than not to be realized. During the fourth quarter of 2018, the Company determined it is more likely than not that all of its Brazilian deferred tax assets acquired in connection with the acquisition of ProduquímicaCompass Minerals South America will be used to reduce taxable income. As a result, the Company released the remaining $7.2 million of valuation allowances during the year ending December 31, 2018. During 2017, the Company released approximately $25 million of valuation allowances related to its acquisition of Produquímica. As of December 31, 20182020 and 2017,2019, the Company’s valuation allowance was $3.5$43.4 million and $10.2$41.2 million, respectively. In the future, if the Company determines, based on existence of sufficient evidence, that it should realize more or less of its deferred tax assets, an adjustment to the valuation allowance will be made in the period such a determination is made.
| | | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations in multiple jurisdictions. The Company recognizes potential liabilities for unrecognized tax benefits in the U.S. and other tax jurisdictions in accordance with applicable U.S. GAAP, which requires uncertain tax positions to be recognized only if they are more likely than not to be upheld based on their technical merits. The measurement of the uncertain tax position is based on the largest benefit amount that is more likely than not (determined on a cumulative probability basis) to be realized upon settlement of the matter. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when the Company determines the liabilities are no longer necessary. If the Company’s estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense may result.
The Company’s uncertain tax positions primarily relate to transactions and deductions involving U.S., Canadian and Brazilian operations. If favorably resolved, $41.6$28.8 million of unrecognized tax benefits would decrease the Company’s effective tax rate. Management believes that it is reasonably possible that unrecognized tax benefits will decrease by approximately $0.3$1.1 million in the next twelve months largely as a result of tax returns being closed to future audits. In the fourth quarter of 2018,2020, the Company’s
|
| | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
income tax expense included a benefit of approximately $1.8$11.0 million related to the release of uncertain tax positions due to the expiration of statutes of limitations.
The following table shows a reconciliation of the beginning and ending amount of unrecognized tax benefits (in millions):
| | | | 2018 | | 2017 | | 2016 | | | 2020 | | 2019 | | 2018 |
Unrecognized tax benefits: | | | | | | | Unrecognized tax benefits: | |
Balance at January 1 | | $ | 67.4 |
| | $ | 20.7 |
| | $ | 18.3 |
| Balance at January 1 | | $ | 47.4 | | | $ | 50.9 | | | $ | 67.4 | |
Additions resulting from current year tax positions | | 8.0 |
| | 1.3 |
| | 0.1 |
| Additions resulting from current year tax positions | | 0 | | | 0.2 | | | 8.0 | |
Additions relating to tax positions taken in prior years | | 2.6 |
| | 51.7 |
| | 0.5 |
| Additions relating to tax positions taken in prior years | | 1.4 | | | 4.5 | | | 2.6 | |
Additions relating to current year acquisitions | | — |
| | — |
| | 2.4 |
| |
Reductions due to settlements | | (25.0 | ) | | (4.5 | ) | | — |
| Reductions due to settlements | | 0 | | | 0 | | | (25.0) | |
Reductions due to cash payments | | Reductions due to cash payments | | 0 | | | (7.5) | | | 0 | |
Reductions relating to tax positions taken in prior years | | (0.3 | ) | | (1.4 | ) | | — |
| Reductions relating to tax positions taken in prior years | | (0.1) | | | (0.4) | | | (0.3) | |
Reductions due to expiration of tax years | | (1.8 | ) | | (0.4 | ) | | (0.6 | ) | Reductions due to expiration of tax years | | (10.4) | | | (0.3) | | | (1.8) | |
Balance at December 31 | | $ | 50.9 |
| | $ | 67.4 |
| | $ | 20.7 |
| Balance at December 31 | | $ | 38.3 | | | $ | 47.4 | | | $ | 50.9 | |
The Company accrues interest and penalties related to its uncertain tax positions within its tax provision. During the years ended December 31, 2018, 20172020, 2019 and 2016,2018, the Company accrued interest and penalties, net of reversals, of $(2.1)$2.0 million, $11.9$4.6 million and $0.9$(2.1) million, respectively. As of December 31, 20182020 and 2017,2019, accrued interest and penalties included in the Consolidated Balance Sheets totaled $15.8$22.3 million and $18.0$20.3 million, respectively.
The Company has historically considered the undistributed earnings of its foreign subsidiaries to be permanently reinvested. In December 2017, however, U.S. tax reform legislation was enacted, which included a one-time mandatory tax on previously deferred foreign earnings. As such, in 2018, the Company has revised its permanently reinvested assertion and now expects to repatriate approximately $150 million of unremitted foreign earnings on which it has recorded $3.4$4.3 million of income tax expense has been recorded for foreign withholding tax and state income tax nettaxes, consisting of foreign exchange loss.$0.9 million recorded in 2019 and $3.4 million recorded in 2018. The Company intends to continue its permanently reinvested assertion on the remaining undistributed earnings of its foreign subsidiaries indefinitely. As of December 31, 2018,2020, the Company has approximately $173.5$213.6 million of non-U.S. undistributed earnings and other outside basis differences on which no deferred taxes have been recorded as the determination of the unrecognized deferred taxes is not practicable.
Canadian provincial tax authorities have challenged tax positions claimed by one of the Company’s Canadian subsidiaries and have issued tax reassessments for years 2002-2013.2002-2015. The reassessments are a result of ongoing audits and total approximately $108.5$153.4 million, including interest, through December 31, 2018.2020. The Company disputes these reassessments and plans to continue to work with the appropriate authorities in Canada to resolve the dispute. There is a reasonable possibility that the ultimate resolution of this dispute, and any related disputes for other open tax years, may be materially higher or lower than the amounts the Company has reserved for such disputes. In connection with this dispute, local regulations require the Company to post security with the tax authority until the dispute is resolved. The Company has posted collateral in the form of a $77.4$120.1 million performance bond and has paid $36.2$39.0 million (most of which is recorded in other assets in the Consolidated Balance Sheets)Sheets at December 31, 2020), which is necessary to proceed with future appeals or litigation.
The Company expects that it will be required by local regulations to provide security for additional interest on the above unresolved disputed amounts and for any future reassessments issued by these Canadian tax authorities in the form of cash, letters of credit, performance bonds, asset liens or other arrangements agreeable with the tax authorities until the disputes are resolved.
| | | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
The Company expects that the ultimate outcome of these matters will not have a material impact on its results of operations or financial condition. However, the Company can provide no assurance as to the ultimate outcome of these matters and the impact could be material if they are not resolved in the Company’s favor. As of December 31, 2018,2020, the Company believes it has adequately reserved for these reassessments.
Additionally, the Company has other uncertain tax positions as well as assessments and disputed positions with taxing authorities in its various jurisdictions.
Settlements
Canadian federal and provincial taxing authorities had reassessed the Company for years 2004-2006, which had been previously settled by agreement among the Company, the Canada Revenue Agency (“CRA”) and the U.S. Internal Revenue Service (“IRS”). The Company sought to enforce the agreement, which provided the basis upon which the returns were previously filed and settled. In July 2016, a trial commenced in the Tax Court of Canada with respect to the Canadian federal tax issues for these matters, and in March 2017, the Tax Court of Canada ruled in favor of the Company. The decision of the Tax Court of Canada was not appealed by the CRA. As a result, the reassessed Canadian tax, penalties and interest for the Company for years 2004-2006 of approximately $94.7 million are effectively resolved. The Company is in the process of having certain posted collateral returned in connection with the resolution of the dispute.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
In the fourth quarter of 2017, the Company, the CRA and the IRS reached a settlement agreement on transfer pricing for its 2007-2012 tax years. As a result of this settlement, the Company recognized $13.8 million of income tax expense in its 2017 consolidated statementthe Consolidated Statement of operationsOperations related to the Company’s Canadian tax positions for the years 2007-2016. The recording of this settlement resulted in increased sales for the Company’s Canadian subsidiary of $85.7 million and increased offsetting expenses for its U.S. subsidiary in 2017 causing a domestic loss and significant foreign income. During 2018, in accordance with the agreement, the Company’s U.S. subsidiary made intercompany cash payments of $85.7 million to its Canadian subsidiary and tax payments were made to Canadian taxing authorities of $17.5 million. Additional tax payments of $5.3 million were made during 2019 with the remaining $3.3liability of $1.4 million of tax paymentsexpected to be paid during 2019.in 2021. Corresponding tax refunds of $1.7$22.2 million werehave been received during 2018as of December 31, 2020, from U.S. taxing authorities with the remaining refund of approximately $21$0.9 million expected in 2019.2021 (recorded in other current assets in the Consolidated Balance Sheets). Additionally, the reassessed Canadian tax, penalties and interest for the Company for years 2007 and 2008 of approximately $34.2 million are effectively resolved.
In the fourth quarter of 2018, the Company, the CRA and the IRS reached a settlement agreement on transfer pricing and management fees as part of an advanced pricing agreement that covers tax years 2013-2021. The income tax expense was previously recognized in 2017. The agreement will result2017, however the recording of this settlement resulted in intercompany cash payments fromincreased sales for the Company’s U.S. subsidiary to its Canadian subsidiary of $106.1 million and offsetting expenses for its U.S. subsidiary in 2018 causing a domestic loss and significant foreign income. During 2019, in accordance with the settlement agreement, the Company’s U.S. subsidiary made intercompany cash payments of $106.1 million to its Canadian subsidiary and tax payments were made to Canadian taxing authorities of $28.5$29.9 million, with a correspondingthe remaining $1.4 million balance paid during 2020. Corresponding tax refund duerefunds of $59.7 million have been received as of December 31, 2020, from U.S. taxing authorities, of $60.5 million. The timing ofwith the refund isremaining $1.9 million expected to lagin 2021 (recorded in other current assets in the payment to the Canadian tax authorities.Consolidated Balance Sheets).
9. PENSION PLANS AND OTHER BENEFITS
The Company has a defined benefit pension plan for certain of its U.K. employees. Benefits of this pension plan are based on a combination of years of service and compensation levels. This plan was closed to new participants in 1992. Beginning December 1, 2008, future benefits ceased to accrue for the remaining active employee participants in the pension plan concurrent with the establishment of a defined contribution plan for these employees. In addition, the Company has a defined benefit plan with certain ProduquímicaCompass Minerals South America employees. The pension assets, obligations and net pension expense related to this plan are immaterial.
The Company’s U.K. pension fundplan investment strategy is to maximize return on investments while minimizing risk. This is accomplished by investing in high-grade equity and debt securities. The Company’s portfolio guidelines recommend that equity securities comprise approximately 75% of the total portfolio and that approximately 25% be invested in debt securities. The Company’s portfolio has shifted to a smaller proportion of equity funds due to the increased volatility of these funds over the last several years, and it is researching strategies that will reduce volatility, while also maximizing returns. Investment strategies and portfolio allocations are based on the U.K. pension plan’s benefit obligations and its funded or underfunded status, expected returns, and the Company’s portfolio guidelines and are monitored on a regular basis. The weighted-average asset allocations by asset category are as follows:
| | | | | | | | | | | | | | |
| | Plan Assets at December 31, |
Asset Category | | 2020 | | 2019 |
Cash and cash equivalents | | 2 | % | | 3 | % |
Blended funds | | 48 | % | | 51 | % |
Bond funds | | 50 | % | | 46 | % |
| | | | |
Total | | 100 | % | | 100 | % |
| | | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
|
| | | | | | |
| | Plan Assets at December 31, |
Asset Category | | 2018 | | 2017 |
Cash and cash equivalents | | 3 | % | | 3 | % |
Blended funds | | 32 | % | | 32 | % |
Bond funds | | 45 | % | | 45 | % |
Insurance policy | | 20 | % | | 20 | % |
Total | | 100 | % | | 100 | % |
The fair value of the Company’s U.K. pension plan assets at December 31, 20182020 and 20172019, by asset category (see Note 14 for a discussion regarding fair value measurements) are as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | Level One | | Level Two | | Level Three |
Asset category: | | | | | | | | |
Cash and cash equivalents(a) | | $ | 1.3 | | | $ | 1.3 | | | $ | 0 | | | $ | 0 | |
Blended funds(b) | | 34.9 | | | 0 | | | 34.9 | | | 0 | |
Bond funds(c): | | | | | | | | |
Treasuries | | 35.9 | | | 0 | | | 35.9 | | | 0 | |
| | | | | | | | |
Total Pension Assets | | $ | 72.1 | | | $ | 1.3 | | | $ | 70.8 | | | $ | 0 | |
|
| | | | | | | | | | | | | | | | |
| | Market Value at December 31, 2018 | | Level One | | Level Two | | Level Three |
Asset category: | | | | | | | | |
Cash and cash equivalents(a) | | $ | 1.9 |
| | $ | 1.9 |
| | $ | — |
| | $ | — |
|
Blended funds(b) | | 19.6 |
| | — |
| | 19.6 |
| | — |
|
Bond funds(c): | | |
| | |
| | |
| | |
|
Treasuries | | 27.3 |
| | — |
| | 27.3 |
| | — |
|
Insurance policy(d) | | 11.9 |
| | — |
| | — |
| | 11.9 |
|
Total Pension Assets | | $ | 60.7 |
| | $ | 1.9 |
| | $ | 46.9 |
| | $ | 11.9 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | Level One | | Level Two | | Level Three |
Asset category: | | | | | | | | |
Cash and cash equivalents(a) | | $ | 1.9 | | | $ | 1.9 | | | $ | 0 | | | $ | 0 | |
Blended funds(b) | | 33.6 | | | 0 | | | 33.6 | | | 0 | |
Bond funds(c): | | | | | | | | |
Treasuries | | 30.1 | | | 0 | | | 30.1 | | | 0 | |
| | | | | | | | |
Total Pension Assets | | $ | 65.6 | | | $ | 1.9 | | | $ | 63.7 | | | $ | 0 | |
(a)The fair value of cash and cash equivalents is its carrying value.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
|
| | | | | | | | | | | | | | | | |
| | Market Value at December 31, 2017 | | Level One | | Level Two | | Level Three |
Asset category: | | | | | | | | |
Cash and cash equivalents(a) | | $ | 2.2 |
| | $ | 2.2 |
| | $ | — |
| | $ | — |
|
Blended funds(b) | | 22.3 |
| | — |
| | 22.3 |
| | — |
|
Bond funds(c): | | |
| | |
| | |
| | |
|
Treasuries | | 31.2 |
| | — |
| | 31.2 |
| | — |
|
Insurance policy(d) | | 13.4 |
| | — |
| | — |
| | 13.4 |
|
Total Pension Assets | | $ | 69.1 |
| | $ | 2.2 |
| | $ | 53.5 |
| | $ | 13.4 |
|
| |
(a) | The fair value of cash and cash equivalents is its carrying value. |
| |
(b) | (b)The Company is invested in a diversified growth fund. The diversified growth fund is valued at the last traded or official close for the underlying equities and bid or mid for the underlying fixed income securities depending on the portfolio benchmark. Where representative prices are unavailable, underlying fixed income investments are valued based on other observable market-based inputs. |
| |
(c) | This category includes investments in investment-grade fixed-income instruments and funds linked to U.K. treasury notes. The funds are valued using the bid amounts for each fund. All of the Company’s bond fund pension assets are invested in U.K.-linked treasuries as of December 31, 2018 and 2017. |
| |
(d) | The insurance policy has been written by an insurance company with an A+ rating from Standard and Poors. The policy derives its value primarily from its underlying investments which consists of separate funds also managed by the underwriter. The policy’s holdings consist primarily of a unit trust fund, which is valued based on its underlying holdings of equities, fixed income securities, cash and derivative instruments. Those underlying investments are valued at bid price on the last business day of the period when available. Other investments use the last available authorized price of the last business day of the period. Unquoted investments are valued based upon the fund manager’s opinion of fair value based primarily on other observable market-based inputs. Open positions in derivative contracts or foreign currency transactions are included at their mark to market value. Money market instruments are valued based upon amortized cost. Term deposits are valued at their nominal value. |
The changes in Level 3 U.K. pension plan assets for the year endedunderlying equities and bid or mid for the underlying fixed income securities depending on the portfolio benchmark. Where representative prices are unavailable, underlying fixed income investments are valued based on other observable market-based inputs.
(c)This category includes investments in investment-grade fixed-income instruments and funds linked to U.K. treasury notes. The funds are valued using the bid amounts for each fund. All of the Company’s bond fund pension assets are invested in U.K.-linked treasuries as of December 31, 20182020 and 2017 were as follows (in millions):2019.
|
| | | | |
| | Value of Insurance Policy |
Beginning balance as of January 1, 2017 | | $ | 11.9 |
|
Unrealized gain | | 0.3 |
|
Currency fluctuation adjustment | | 1.2 |
|
Ending balance as of December 31, 2017 | | $ | 13.4 |
|
Unrealized loss | | (0.8 | ) |
Currency fluctuation adjustment | | (0.7 | ) |
Ending balance as of December 31, 2018 | | $ | 11.9 |
|
As of December 31, 20182020 and 2017,2019, amounts recognized in accumulated other comprehensive income,loss, net of tax, consisted of actuarial net losses of $4.5$9.4 million (including $5.6$10.4 million of accumulated loss less prior service cost of $1.0 million) and $6.8 million (including $7.9 million of accumulated loss less prior service cost of $1.1 million) and $3.9, respectively. During 2020, the amounts recognized in accumulated other comprehensive loss, net of tax, consisted of actuarial net losses of $(2.9) million, (including $5.4amortization of loss of $0.8 million, amortization of accumulated loss less prior service cost of $1.5 million), respectively. $(0.1) million and foreign exchange of $(0.3) million.
During 2019, the amounts recognized in accumulated other comprehensive loss, net of tax, consisted of actuarial net losses of $(2.4) million, amortization of loss of $0.4 million, amortization of prior service cost of $(0.1) million and foreign exchange of $(0.3) million.
During 2018, the amounts recognized in accumulated other comprehensive (loss) income,loss, net of tax, consisted of actuarial net losses of $(1.2) million, amortization of loss of $0.3 million, amortization of prior service cost of $(0.1) million and foreign exchange of $0.4 million. During 2017, the amounts recognized in accumulated other comprehensive income (loss), net of tax, consisted of actuarial net gains of $0.1 million, amortization of loss of $0.3 million, amortization of prior service cost of $(0.1) million and foreign exchange of $(0.5) million. During 2016, the amounts recognized in accumulated other comprehensive income (loss), net of tax, consisted of actuarial net losses of $(1.0) million, amortization of loss of $0.3 million, amortization of prior service cost of $(0.1) million and foreign exchange of $0.9 million. The Company expects to recognize approximately $0.4$1.4 million ($0.51.5 million of amortization of loss less $0.1 million of prior service cost) of losses from accumulated other comprehensive incomeloss as a component of net periodic pension cost in 2019.2021. Total net periodic pension cost (benefit) in 20192021 is expected to be $(0.1)$0.1 million.
The assumptions used in determining pension information for the plansU.K. pension plan for the years ended December 31 were as follows:
| | | | 2018 | | 2017 | | 2016 | | | 2020 | | 2019 | | 2018 |
Discount rate | | 2.90 | % | | 2.80 | % | | 3.80 | % | Discount rate | | 1.20 | % | | 2.00 | % | | 2.90 | % |
Expected return on plan assets | | 3.70 | % | | 3.70 | % | | 4.50 | % | Expected return on plan assets | | 3.10 | % | | 3.10 | % | | 3.70 | % |
The overall expected long-term rate of return on plan assets is a weighted-average expectation based on the fair value of targeted and expected portfolio composition. The Company considers historical performance and current benchmarks to arrive at expected
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| | COMPASS MINERALS INTERNATIONAL, INC. |
long-term rates of return in each asset category. The Company determines its discount rate based on a forward yield curve for a portfolio of high-credit-quality bonds with expected cash flows and an average duration closely matching the expected benefit payments under the plan.
| | | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
The Company’s funding policy is to make the minimum annual contributions required by applicable regulations or agreements with the plan administrator. Management expects totalthere will be no contributions during 2019 will be approximately $1.7 million.2021. In addition, the Company may periodically make contributions to the plan based upon the underfunded status of the plan or other transactions, which warrant incremental contributions in the judgment of management.
The U.K. pension plan includes a provision whereby supplemental benefits may be available to participants under certain circumstances after case review and approval by the plan trustees. Because instances of this type of benefit have historically been infrequent, the development of the projected benefit obligation and net periodic pension cost (benefit) has not provided for any future supplemental benefits. If additional benefits are approved by the trustees, it is likely that an additional contribution would be required and the amount of incremental benefits would be expensed by the Company.
The Company expects to pay the following benefit payments (in millions):
| | | | | |
Calendar Year | Future Expected Benefit Payments |
2021 | $ | 3.2 | |
2022 | 3.2 | |
2023 | 3.3 | |
2024 | 3.4 | |
2025 | 3.4 | |
2026-2030 | 18.4 | |
|
| | | |
Calendar Year | Future Expected Benefit Payments |
2019 | $ | 2.8 |
|
2020 | 2.9 |
|
2021 | 3.0 |
|
2022 | 3.1 |
|
2023 | 3.2 |
|
2024 – 2028 | 17.3 |
|
The following table sets forth pension obligations and plan assets for the Company’s defined benefitU.K. pension plan, as of December 31 (in millions):
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
Change in benefit obligation: | | | | |
Benefit obligation as of January 1 | | $ | 64.1 | | | $ | 58.6 | |
Interest cost | | 1.2 | | | 1.7 | |
Actuarial loss | | 8.3 | | | 4.8 | |
Plan amendment | | 0.1 | | | 0 | |
Benefits paid | | (2.9) | | | (3.5) | |
Currency fluctuation adjustment | | 2.5 | | | 2.5 | |
Benefit obligation as of December 31 | | 73.3 | | | 64.1 | |
Change in plan assets: | | | | |
Fair value as of January 1 | | 65.6 | | | 60.7 | |
Actual return | | 6.7 | | | 4.2 | |
Company contributions | | 0.4 | | | 1.7 | |
Currency fluctuation adjustment | | 2.3 | | | 2.5 | |
Benefits paid | | (2.9) | | | (3.5) | |
Fair value of plan assets as of December 31 | | 72.1 | | | 65.6 | |
(Underfunded) Overfunded status of the plan | | $ | (1.2) | | | $ | 1.5 | |
|
| | | | | | | | |
| | 2018 | | 2017 |
Change in benefit obligation: | | | | |
Benefit obligation as of January 1 | | $ | 67.0 |
| | $ | 61.7 |
|
Interest cost | | 1.6 |
| | 1.8 |
|
Actuarial (gain) loss | | (3.7 | ) | | 0.2 |
|
Plan amendment | | 0.3 |
| | — |
|
Benefits paid | | (2.9 | ) | | (2.6 | ) |
Currency fluctuation adjustment | | (3.7 | ) | | 5.9 |
|
Benefit obligation as of December 31 | | 58.6 |
| | 67.0 |
|
Change in plan assets: | | |
| | |
|
Fair value as of January 1 | | 69.1 |
| | 62.3 |
|
Actual return | | (2.3 | ) | | 2.7 |
|
Company contributions | | 0.7 |
| | 0.8 |
|
Currency fluctuation adjustment | | (3.9 | ) | | 5.9 |
|
Benefits paid | | (2.9 | ) | | (2.6 | ) |
Fair value of plan assets as of December 31 | | 60.7 |
| | 69.1 |
|
Overfunded status of the plan | | $ | 2.1 |
| | $ | 2.1 |
|
The Company’s defined benefitU.K. pension plan was underfunded as of December 31, 2020, and overfunded as of December 31, 2018 and 20172019, and accordingly, $2.1$1.2 million in each period,and $1.5 million has been recorded as a noncurrent liability and a noncurrent asset, respectively, in the Company’s Consolidated Balance Sheets. The accumulated benefit obligation for the defined benefitU.K. pension plan was $58.6$73.3 million and $67.0$64.1 million as of December 31, 20182020 and 2017,2019, respectively. The plan assets were less than the accumulated benefit obligation as of December 31, 2020, but were in excess of the accumulated benefit obligation as of December 31, 2018 and 2017.2019. The vested benefit obligation is the actuarial present value of the vested benefits to which the employee is currently entitled but based on the employee’s expected date of retirement. Since all employees are vested, the accumulated benefit obligation and the vested benefit obligation are the same amount.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
The Company uses a straight-line methodology of amortization subject to a corridor based upon the higher of the fair value of assets and the pension benefit obligation over a five-year period. The components of net periodic pension expensecost (benefit) were as follows for the years ended December 31 (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
Interest cost on projected benefit obligation | | $ | 1.2 | | | $ | 1.7 | | | $ | 1.6 | |
Prior service cost | | (0.1) | | | (0.1) | | | (0.1) | |
Expected return on plan assets | | (1.9) | | | (2.2) | | | (2.5) | |
Plan amendment | | 0.1 | | | 0 | | | 0 | |
Net amortization | | 1.0 | | | 0.5 | | | 0.3 | |
Net periodic pension cost (benefit) | | $ | 0.3 | | | $ | (0.1) | | | $ | (0.7) | |
|
| | | | | | | | | | | | |
| | 2018 | | 2017 | | 2016 |
Interest cost on projected benefit obligation | | $ | 1.6 |
| | $ | 1.8 |
| | $ | 2.3 |
|
Prior service cost | | (0.1 | ) | | (0.1 | ) | | (0.1 | ) |
Expected return on plan assets | | (2.5 | ) | | (2.4 | ) | | (2.8 | ) |
Net amortization | | 0.3 |
| | 0.4 |
| | 0.4 |
|
Net pension benefit | | $ | (0.7 | ) | | $ | (0.3 | ) | | $ | (0.2 | ) |
The Company has defined contribution and pre-tax savings plans (the “Savings Plans”) for certain of its employees. Under each of the Savings Plans, participants are permitted to defer a portion of their compensation. Company matching contributions to the Savings Plans are based on a percentage of employee contributions. Additionally, certain of the Savings Plans have a profit-sharing feature for salaried and non-union hourly employees. The Company contribution to the profit-sharing feature is discretionary and based on the Company’s financial performance and other factors. Expense attributable to allthe Savings Plans was $12.6$12.5 million, $13.1$11.6 million and $10.9$12.6 million for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, respectively.
The Savings Plans include a non-qualified plan for certain executive officers and other key employees who are limited in their ability to participate in qualified plans due to existing regulations. These employees are allowed to defer a portion of their compensation, upon which they will be entitled to receive Company contributions despite the limitations imposed by current U.S. regulations for qualified plans. The Company’s contributions to the Savings Plans include Company matching contributions based on a percentage of the employee’s deferred salary, discretionary profit sharing contributions and any investment income (loss) that would have been credited to their account had the contributions been made according to employee-designated investment specifications. Although not required to do so, the Company invests amounts equal to the salary deferrals, the corresponding Company matching contribution and discretionary profit sharing amounts according to the employee-designated investment specifications. As of December 31, 20182020 and 2017,2019, investments in marketable securities totaling $1.8$1.9 million and $2.2$1.4 million, respectively, were included in other noncurrent assets with a corresponding deferred compensation liability included in other noncurrent liabilities in the Consolidated Balance Sheets. Compensation expense recorded for the non-qualified plan was immaterial for each of the years ended December 31, 2018, 20172020, 2019 and 2016,2018, including amounts attributable to investment income, and was included in other, net in the Consolidated Statements of Operations.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
10. LONG TERM DEBT
Third-party long-termLong-term debt consists of the following at December 31 (in millions):
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
4.875% Senior Notes due July 2024 | | $ | 250.0 | | | $ | 250.0 | |
Term Loan due January 2025 | | 390.0 | | | 400.0 | |
Revolving Credit Facility due January 2025 | | 130.3 | | | 160.0 | |
6.75% Senior Notes due December 2027 | | 500.0 | | | 500.0 | |
AR Securitization Facility expires June 2023 | | 51.2 | | | 0 | |
3.7% Banco Itaú loan due March 2020 | | 0 | | | 15.4 | |
Banco Santander loan due October 2020 | | 0 | | | 16.2 | |
Banco Itaú loan due February 2021 | | 10.4 | | | 0 | |
Banco Rabobank loan due July 2021 | | 6.8 | | | 17.4 | |
Banco BTG loan due July 2021 | | 2.6 | | | 0 | |
Banco Santander loan due September 2021 | | 0 | | | 19.9 | |
Banco do Brasil loan due September 2021 | | 9.6 | | | 12.4 | |
Banco Rabobank loan due September 2021 | | 6.8 | | | 0 | |
Banco BTG loan due October 2021 | | 2.6 | | | 0 | |
Banco Rabobank loan due November 2021 | | 13.5 | | | 17.4 | |
Banco Santander loan due December 2021 | | 0 | | | 14.9 | |
Banco BTG loan due January 2022 | | 1.0 | | | 0 | |
Banco Votorantim loan due February 2022 | | 7.7 | | | 0 | |
Banco Bradesco loan due February 2022 | | 4.8 | | | 0 | |
Banco Santander loan due March 2022 | | 2.9 | | | 0 | |
Banco BTG loan due April 2022 | | 1.0 | | | 0 | |
Banco BTG loan due July 2022 | | 2.6 | | | 0 | |
Banco Safra loan due October 2022 | | 3.9 | | | 0 | |
Banco Santander loan due October 2022 | | 12.5 | | | 0 | |
Financiadora de Estudos e Projetos loan due November 2023 | | 4.1 | | | 7.2 | |
| | | | |
| | 1,414.3 | | | 1,430.8 | |
Less unamortized debt issuance costs | | (12.9) | | | (14.8) | |
Total debt | | 1,401.4 | | | 1,416.0 | |
Less current portion | | (63.7) | | | (52.1) | |
Long-term debt | | $ | 1,337.7 | | | $ | 1,363.9 | |
|
| | | | | | | | |
| | 2018 | | 2017 |
Term Loans due July 2021 | | $ | 828.9 |
| | $ | 837.4 |
|
Revolving Credit Facility due July 2021 | | 197.0 |
| | 168.9 |
|
4.875% Senior Notes due July 2024 | | 250.0 |
| | 250.0 |
|
Banco Rabobank Loan due November 2019 | | 18.1 |
| | 21.1 |
|
Banco Itaú Loans due May 2019 to April 2020 | | 0.8 |
| | 1.9 |
|
Financiadora de Estudos e Projetos Loan due November 2023 | | 9.3 |
| | 13.1 |
|
Banco do Brasil Loan due February 2018 | | — |
| | 0.2 |
|
Banco Santander Loan due September 2019 | | — |
| | 19.6 |
|
Banco Santander Loan due November 2019 | | — |
| | 24.1 |
|
Banco Itaú Loan due March 2019 | | 2.5 |
| | 12.4 |
|
Banco Scotiabank Loan due September 2019 | | 10.3 |
| | 20.5 |
|
3.7% Banco Itaú loan due March 2020 | | 15.4 |
| | — |
|
Banco Santander loan due September 2020 | | 20.6 |
| | — |
|
Banco Santander loan due October 2020 | | 16.8 |
| | — |
|
Other | | 1.7 |
| | — |
|
| | 1,371.4 |
| | 1,369.2 |
|
Less unamortized debt issuance costs | | (6.7 | ) | | (6.7 | ) |
Total debt | | 1,364.7 |
| | 1,362.5 |
|
Less current portion | | (43.5 | ) | | (32.1 | ) |
Long-term debt | | $ | 1,321.2 |
| | $ | 1,330.4 |
|
Credit Agreement
In November 2019, the Company entered into an agreement to amend and restate its credit agreement (the “2019 Credit Agreement”), which matures in January 2025. The 2019 Credit Agreement provides for senior secured financing consisting of a $400 million term loan facility and a $300 million revolving credit facility. The term loan is repayable in quarterly installments of interest and principal which began in March 2020 with principal payments equal to 2.5% per year during the first 2 years and 5% per year during the final 3 years. The Company may elect for the credit facility to bear interest at either an alternate base rate or an adjusted eurocurrency bank deposit rate plus, in each case, an interest rate margin, based upon a defined consolidated leverage ratio. The outstanding term loan can be prepaid at any time without penalty. Prior to the 2019 Credit Agreement, the Company’s credit agreement consistsconsisted of two senior secured term loans and a senior secured revolving credit facility which maturematured in July 1, 2021. Interest on the Company’s borrowings under the previous outstanding credit agreement borrowings iswas variable based on either the LIBOR or a base rate (defined as the greater of a specified U.S. or Canadian prime lending rate or the federal funds effective rate, increased by 0.5%) plus a margin which iswas dependent upon the Company’s leverage ratio and the type of term loan borrowing. As of December 31, 2018,2020, the weighted average interest rate was 4.4%2.2% on all borrowings outstanding under the 2019 Credit Agreement. Both credit agreement. The outstanding term loans are payable in quarterly installments of interest and principal and can be prepaid at any time without penalty. The credit agreement requiresagreements require the Company to maintain certain financial ratios, including a minimum interest coverage ratio and a maximum total leverage ratio. In September 2017, the Company entered into an amendment to its credit agreement, which increased the maximum allowed leverage ratio under the credit agreement through September 2018.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
Under the current revolving credit facility, up to $40 million may be drawn in Canadian dollars and $10 million may be drawn in British pounds sterling. Additionally, the revolving credit facility includes a sub-limit for short-term letters of credit in an amount not to exceed $50 million. As of December 31, 2018,2020, there was $197.0$130.3 million outstanding under the revolving credit facility, and, after deducting outstanding letters of credit totaling $10.6$12.5 million, the Company’s borrowing availability was $92.4$157.2 million. The Company incurs participation fees related to its outstanding letters of credit and commitment fees on its available borrowing capacity. The rates vary depending on the Company’s leverage ratio. Bank fees are not material.
In connection with the 2019 Credit Agreement, the Company paid $4.1 million of fees ($3.8 million was capitalized as deferred financing costs with $0.3 million recorded as an expense). The Company also wrote-off $0.3 million of previously capitalized deferred financing costs as part of this refinancing in 2019.
In December 2018, the Company entered into an amendment to its credit agreement, which eased restrictions in certain covenants contained in the agreement. In connection with this amendment, the Company paid fees totaling $1.4 million ($1.4 million was capitalized as deferred financing costs with less than $0.1 million recorded as an expense).
The Company’s credit agreement2019 Credit Agreement borrowings are secured by substantially all existing and future U.S. assets of the Company, the Goderich mine in Ontario, Canada, and capital stock of certain subsidiaries. As of December 31, 2018,2020, the Company was in compliance with each of its covenants under the credit agreement.2019 Credit Agreement.
Senior Notes
In November 2019, the Company also issued $500 million 6.75% Senior Notes due December 2027 (the “6.75% Notes”), which are subordinate to the 2019 Credit Agreement borrowings. The 6.75% Notes are unsecured obligations and are guaranteed by certain of the Company’s domestic subsidiaries. Interest on the 6.75% Notes is due semi-annually in June and December beginning in 2020. The 6.75% Notes are subordinated to all existing and future indebtedness. In connection with the 6.75% Notes, the Company paid $8.2 million of fees, all of which were capitalized as deferred financing costs.
The 4.875% Senior Notes due July 2024 (the "4.875% Notes"“4.875% Notes”) are subordinate to the credit agreement2019 Credit Agreement borrowings. Interest on the 4.875% Notes is due annually in January and July. The credit agreement2019 Credit Agreement and the agreements governing the 4.875% Notes and the 6.75% Notes and other indebtedness contain covenants that limit the Company’s ability, among other things, to incur additional indebtedness or contingent obligations or grant liens; pay dividends or make distributions to stockholders; repurchase or redeem the Company’s stock; make investments or dispose of assets; prepay, or amend the terms of certain junior indebtedness; engage in sale and leaseback transactions; make changes to the Company’s organizational documents or fiscal periods; enter into third-party agreements that
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| | COMPASS MINERALS INTERNATIONAL, INC. |
limit the Company’s ability to grant liens on the Company’s assets or make certain intercompany dividends, investments or asset transfers; enter into new lines of business; enter into transactions with the Company’s stockholders and affiliates; and acquire the assets of or merge or consolidate with other companies.
The
Other Debt
As of December 31, 2020, the Company had $92.8 million of loans related to the Company’s Produquímica business in BrazilCompass Minerals South America, which have maturity dates ranging from March 2019February 2021 through November 2023 and bear interest at rates atof either a percentage of CDI, an overnight inter-bank lending rate in Brazil, or LIBOR plus a margin. A portion of the loans are denominated in U.S. dollars and a portion of the loans are denominated in Brazilian reais, Produquímica’sreal, Compass Minerals South America’s functional currency. The Company has entered into foreign currency swap agreements in relation to some of these loans whereby the Company agreed to swap interest and principal payments on loans denominated in U.S. dollars for principal and interest payments denominated in Brazilian reaisreal (see NoteNote 11 for further discussion). In September and November 2017,the first quarter of 2020, the Company refinanced $54.3entered into 3 loans totaling $20.0 million which mature between February 2021 and March 2022, respectively. NaN of the loans it assumedwere denominated in Brazilian real and 1 loan was denominated in euros. In connection with the Produquímica acquisition using proceedsloan denominated in euros, the Company entered into a swap to exchange principal and interest payments denominated in euros to Brazilian real (see Note 11). These loans bear interest ranging from approximately $87 million143% - 150% of new loans. TheCDI. During the third quarter of 2020, the Company entered into 6 new loans totaling $15.1 million which mature between July 2021 and July 2022. These loans are denominated in Brazilian real and bear interest rates ranging from 108.7%200% - 204% of CDI. The liquidity created from these loans allowed the Company to prepay $15.4 million worth of existing loans with maturity date of September 2021.
During the fourth quarter of 2020, the Company entered into 3 new loans totaling $21.2 million which mature between February 2022 and 118.0%October 2022. These loans are denominated in Brazilian real and bear interest rates ranging from 171% - 186% of CDICDI. The proceeds of the new loans were used to pay a loan that matured in October 2020 and a loan scheduled to mature in November 2019.December 2021.
In the first quarter of 2018,2019, the Company entered into a new U.S. dollar denominated loan2 Brazilian real-denominated loans totaling $18.0 million which maturesmatured in March 2020. No material fees were paid in connection with these transactions. A portionJuly and September of the2019, respectively. These loans are denominated in U.S. dollarsbore interest at 123% and a portion128% of the loans are denominated in Brazilian reais. The Company has also entered into foreign currency agreements whereby the Company 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 11 for further discussion). During theCDI, respectively. In the third quarter of 2018,2019, the Company paid off approximately $36 million of its Brazilian loans and entered into Brazilian real-denominated loans totaling $36.0 million which mature in July and September of 2021. These loans bear interest at 120% and 141% of CDI, respectively. During the fourth quarter of 2019, the Company entered into 2 Brazilian real-denominated loans totaling $27.3 million which mature in September and December 2021. These loans bear interest at 126% and 129% of CDI, respectively. The Company also refinanced a loan with
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| | COMPASS MINERALS INTERNATIONAL, INC. |
Rabobank that expired during the fourth quarter of 2019 in the amount of $17.4 million with a new $20.0 million Brazilian loan. The new variable rate loan with the same principal that bears interest of 117.5%at 122% of CDI and matures in September 2020.November 2021.
Securitization
On June 30, 2020, certain of the Company’s U.S. subsidiaries entered into a three-year committed revolving accounts receivable financing facility (the “AR Facility”) of up to $100.0 million with PNC Bank, National Association (“PNC”), as administrative agent and lender, and PNC Capital Markets, LLC, as structuring agent.
In connection with the fourth quarterAR Facility, two of 2018,the Company’s U.S. subsidiaries, from time to time, sell and contribute receivables and certain related assets to a special purposes entity and wholly-owned U.S. subsidiary of the Company entered into $18.4 million(the “SPE”). The SPE finances its acquisition of the receivables by obtaining secured loans from PNC and the other lenders party to a receivables financing agreement. A U.S. subsidiary of the Company services the receivables on behalf of the SPE for a fee. In addition, the Company has agreed to guarantee the performance by its subsidiaries. The Company and its subsidiaries do not guarantee the loan principal or interest under the receivables financing agreement or the collectability of the receivables under the AR Facility. As of December 31, 2020, the Company received proceeds from the AR Facility in Brazil which bearthe amount of $51.2 million.
The purchase price for the sale of receivables consists of cash available to the SPE from loans under the AR Facility and from collections on previously sold receivables and, to the extent the SPE does not have funds available to pay the purchase price due on any day in cash, through an increase in the principal amount of a subordinated intercompany loan. The SPE pays monthly interest at 133.1%and fees with respect to amounts advanced by the lenders under the AR Facility.
The SPE’s sole business consists of CDIthe purchase or acceptance through capital contributions of the receivables and maturethe subsequent granting of a security interest in Junethese receivables and Octoberrelated rights to PNC on behalf of 2019.the lenders under the AR Facility. The SPE is a separate legal entity with its own separate creditors who will be entitled, upon its liquidation, to be satisfied out of the SPE’s assets prior to any assets or value in the SPE becoming available to the Company and the assets of the SPE are not available to pay creditors of the Company or any of its affiliates other than the SPE.
Future maturities of long-term debt for the years ending December 31, are as follows (in millions):
| | | | | | | | |
| | Debt Maturity |
2021 | | $ | 63.7 | |
2022 | | 57.8 | |
2023 | | 72.5 | |
2024 | | 270.0 | |
2025 | | 450.3 | |
Thereafter | | 500.0 | |
Total | | $ | 1,414.3 | |
|
| | | |
| Debt Maturity |
2019 | $ | 43.7 |
|
2020 | 63.3 |
|
2021 | 1,010.8 |
|
2022 | 1.9 |
|
2023 | 1.7 |
|
Thereafter | 250.0 |
|
Total | $ | 1,371.4 |
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11. DERIVATIVE FINANCIAL INSTRUMENTS
The Company is subject to various types of market risks, including interest rate risk, foreign currency exchange rate transaction and translation risk and commodity pricing risk. Management may take actions to mitigate the exposure to these types of risks, including entering into forward purchase contracts and other financial instruments. Currently, the Company manages a portion of its commodity pricing and foreign currency exchange rate risks by using derivative instruments. From time to time, the Company may enter into immaterial foreign exchange contracts to mitigate foreign exchange risk on its sales and accounts receivable. The Company does not seek to engage in trading activities or take speculative positions with any financial instrument arrangement. The Company has entered into natural gas derivative instruments and foreign currency derivative instruments with counterparties it views as creditworthy. However, the Company does attempt to mitigate its counterparty credit risk exposures by, among other things, entering into master netting agreements with some of these counterparties. The Company records derivative financial instruments as either assets or liabilities at fair value in the consolidated balance sheets.
Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the derivative instrument and the related change in value of the underlying hedged item. Depending on the exposure being hedged, the Company must designate the hedging instrument as a fair value hedge, a cash flow hedge or a net investment in foreign operations hedge. For the qualifying derivative instruments that have been designated as hedges, the effective portion of the change in fair value is recognized through earnings when the underlying transaction being hedged affects earnings, allowing a derivative’s gains and losses to offset related results from the hedged item in the statements of operations. Any ineffectiveness
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| | COMPASS MINERALS INTERNATIONAL, INC. |
related to these hedges was not material for any of the periods presented. For derivative instruments that have not been designated as hedges, the entire change in fair value is recorded through earnings in the period of change.
Natural Gas Derivative Instruments
Natural gas is consumed at several of the Company’s production facilities, and a change in natural gas prices impacts the Company’s operating margin. The Company’s objective is to reduce the earnings and cash flow impacts of changes in market prices of natural gas by fixing the purchase price of up to 90% of its forecasted natural gas usage. It is the Company’s policy to consider hedging portions of its natural gas usage up to 36 months in advance of the forecasted purchase. As of December 31, 2018,2020, the Company had entered into natural gas derivative instruments to hedge a portion of its natural gas purchase requirements through December 2019.2022. As of December 31, 20182020 and 2017,2019, the Company had agreements in place to hedge forecasted natural gas purchases of 1.02.5 million and 2.62.8 million MMBtus, respectively. All natural gas derivative instruments held by the Company as of December 31, 20182020 and 2017,2019, qualified and were designated as cash flow hedges. As of December 31, 2018,2020, the Company expects to reclassify from accumulated other comprehensive loss to earnings during the next twelve months $0.6$0.3 million of net lossesgains on derivative instruments related to its natural gas hedges.
Foreign Currency Swaps not Designated as Hedges
In March 2020, the Company entered into forward instruments to swap currency denominated in U.S. dollars to Canadian dollars for a future intercompany payment from a U.S. subsidiary to a Canadian subsidiary. These instruments matured in April 2020 with combined notional amounts of $89.9 million. The objective of the instruments was to mitigate the foreign currency fluctuation risk related to intercompany payments denominated in a currency other than U.S. dollars, the Company’s functional currency. The instrument was not designated as a hedge. When these agreements settled in April 2020, the Company recognized a foreign exchange loss of $3.1 million in its Consolidated Statements of Operations.
In February 2018, the Company entered into a forward instrument to swap currency denominated in Brazilian reaisreal to Canadian dollars for the amounts borrowed under an intercompany note. The instrument matured in November 2018 and was for a notional amount of approximately $19.9 million U.S. dollars. The objective of the instrument was to mitigate the foreign currency fluctuation risk related to holding debt denominated in a currency other than Produquímica’sCompass Minerals South America’s functional currency. The instrument was not designated as a hedge. During 2018, the Company recognized a net gain of $1.5 million in other expense in its Consolidated Statements of Operations for this agreement.
In the latter half of 2018, the Company entered into non-deliverable forward contracts to fix $11.9 million of its net position in accounts receivablereceivables and accounts payable in Brazil that arewere U.S. dollar denominated. The objective of these instruments iswas to mitigate the foreign currency fluctuation risk related to the Company’s receivables and accounts receivable and payable denominated in a currency other than Produquímica’sCompass Minerals South America’s functional currency. These forward contracts arewere not designated as hedges.hedges and matured in December 2018. During 2018, the Company recognized a net loss of $1.0 million in other expense in its Consolidated Statements of Operations for these forward contracts.
From time to time, the Company’s Brazilian subsidiary may enter into forward instruments to swap currency for sales invoices that are denominated in Brazilian real. These instruments are not material to the Company’s consolidated financial statements.
Foreign Currency Swaps Designated as Hedges
The Company has entered into U.S. dollar-denominatedeuro-denominated debt instruments to provide funds for its operations in Brazil (see Note 1010 for more information). The Company may also concurrently enter into foreign currency agreements whereby the Company agrees to swap interest and principal payments on loans denominated in U.S. dollarseuros for principal and interest payments denominated in Brazilian reais, Produquímica’sreal, its South American subsidiary’s functional currency. The objective of the swap agreements is to mitigate the foreign currency fluctuation risk related to holding debt denominated in a currency other than Produquímica’sthe Company’s South American subsidiary’s functional currency. As of both December 31, 2018,2020 and 2019, the Company had one swap agreementsagreement in place to hedge $28.5$10.5 million and $15.7 million, respectively, of loans denominated in currenciesa currency other than Produquímica’sits South American subsidiary’s functional currency. Payments on these loansthe December 31, 2020, loan are due on various dates extending through February 2021, while payments on the December 31, 2019, loan were due on various dates extending through March 2020. As of both December 31, 2018, these2020 and 2019, the foreign currency derivative instrumentsinstrument qualified and werewas designated as a cash flow hedges.hedge. As of December 31, 2018,2020, the Company expects to reclassify from accumulated other comprehensive loss to earnings during the next twelve months $2.2$2.6 million of net gains on derivative instruments related to thesethis foreign currency swap agreements.agreement.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
The following tables present the fair value of the Company’s derivatives as of December 31, 2018,2020 and 20172019 (in millions):
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| | Asset Derivatives | | Liability Derivatives |
Derivatives designated as hedging instruments: | | Consolidated Balance Sheet Location | | December 31, 2020 | | Consolidated Balance Sheet Location | | December 31, 2020 |
Commodity contracts | | Other current assets | | $ | 0.4 | | | Accrued expenses and other current liabilities | | $ | 0.1 | |
Commodity contracts | | Other assets | | 0.1 | | | Other noncurrent liabilities | | 0.2 | |
Swap contracts | | Other current assets | | 2.6 | | | Accrued expenses and other current liabilities | | — | |
Total derivatives designated as hedging instruments(a)(b) | | | | $ | 3.1 | | | | | $ | 0.3 | |
|
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| | Asset Derivatives | | Liability Derivatives |
Derivatives designated as hedging instruments: | | Balance Sheet Location | | December 31, 2018 | | Balance Sheet Location | | December 31, 2018 |
Commodity contracts | | Other current assets | | $ | — |
| | Accrued expenses | | $ | 0.6 |
|
Swap contracts | | Other current assets | | 2.2 |
| | Accrued expenses | | — |
|
Swap contracts | | Other assets | | 2.3 |
| | Other noncurrent liabilities | | — |
|
Total derivatives designated as hedging instruments(a)(b) | | | | $ | 4.5 |
| | | | $ | 0.6 |
|
(a)The Company has master netting agreements with its commodity hedge counterparties and accordingly has netted in its Consolidated Balance Sheets $0.3 million of its commodity contracts that are in payable positions against its contracts in receivable positions.
| |
(a) | The Company has master netting agreements with its commodity hedge counterparties and accordingly has netted in its Consolidated Balance Sheets less than $0.1 million of its commodity contracts that are in a receivable position against its contracts in payable positions. |
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(b) | The Company has both commodity hedge and foreign currency swap agreements with two counterparties each. Amounts recorded as liabilities for the Company’s commodity contracts are payable to both counterparties, and amounts recorded as assets for the Company’s swap contracts are receivable from both counterparties. |
(b)The Company has commodity hedge agreements with 2 counterparties and a foreign currency swap agreement with 1 counterparty. Amounts recorded for the Company’s commodity contracts are receivable from both counterparties.
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| | Asset Derivatives | | Liability Derivatives |
Derivatives designated as hedging instruments: | | Consolidated Balance Sheet Location | | December 31, 2019 | | Consolidated Balance Sheet Location | | December 31, 2019 |
Commodity contracts | | Other current assets | | $ | 0.3 | | | Accrued expenses and other current liabilities | | $ | 0.8 | |
Commodity contracts | | Other assets | | 0.1 | | | Other noncurrent liabilities | | 0.2 | |
Swap contracts | | Other current assets | | 2.8 | | | Accrued expenses and other current liabilities | | 0 | |
Total derivatives designated as hedging instruments(a)(b) | | | | $ | 3.2 | | | | | $ | 1.0 | |
(a)The Company has master netting agreements with its commodity hedge counterparties and accordingly has netted in its Consolidated Balance Sheets $0.4 million of its commodity contracts that are in a receivable position against its contracts in payable positions.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
(b)The Company has both commodity hedge and foreign currency swap agreements with 2 counterparties each. Amounts recorded as liabilities for the Company’s commodity contracts are payable to both counterparties, and amounts recorded as assets for the Company’s swap contracts are receivable from both counterparties.
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| | Asset Derivatives | | Liability Derivatives |
Derivatives designated as hedging instruments: | | Balance Sheet Location | | December 31, 2017 | | Balance Sheet Location | | December 31, 2017 |
Commodity contracts | | Other current assets | | $ | — |
| | Accrued expenses | | $ | 1.0 |
|
Commodity contracts | | Other assets | | — |
| | Other noncurrent liabilities | | 0.4 |
|
Swap contracts | | Other current assets | | 0.9 |
| | Accrued expenses | | — |
|
Swap contracts | | Other assets | | 0.4 |
| | Other noncurrent liabilities | | — |
|
Total derivatives designated as hedging instruments(a)(b) | | | | $ | 1.3 |
| | | | $ | 1.4 |
|
| |
(a) | The Company has master netting agreements with its commodity hedge counterparties and accordingly has netted in its Consolidated Balance Sheets less than $0.1 million of its commodity contracts that are in a receivable position against its contracts in payable positions. |
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(b) | The Company has both commodity hedge and foreign currency swap agreements with two counterparties each. Amounts recorded as liabilities for the Company’s commodity contracts are payable to both counterparties, and amounts recorded as assets for the Company’s swap contracts are receivable from both counterparties. |
The following tables present activity related to the Company’s other comprehensive (loss) income before taxes for the twelve monthsyears ended December 31, 20182020 and 20172019 (in millions):
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| | | | Year Ended December 31, 2020 |
Derivatives in Cash Flow Hedging Relationships | | Location of Gain Reclassified from Accumulated OCI Into Income (Effective Portion) | | Amount of Gain Recognized in OCI on Derivative (Effective Portion) | | Amount of Gain Reclassified from Accumulated OCI Into Income (Effective Portion) |
Commodity contracts | | Product cost | | $ | (1.8) | | | $ | 1.0 | |
Swap contracts | | Interest expense | | (3.9) | | | 3.6 | |
Total | | | | $ | (5.7) | | | $ | 4.6 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | Year Ended December 31, 2019 |
Derivatives in Cash Flow Hedging Relationships | | Location of Gain Reclassified from Accumulated OCI Into Income Effective Portion) | | Amount of Gain Recognized in OCI on Derivative (Effective Portion) | | Amount of Gain Reclassified from Accumulated OCI Into Income (Effective Portion) |
Commodity contracts | | Product cost | | $ | (0.8) | | | $ | 0.9 | |
Swap contracts | | Interest expense | | (2.5) | | | 2.2 | |
Total | | | | $ | (3.3) | | | $ | 3.1 | |
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| | | | Twelve Months Ended December 31, 2018 |
Derivatives in Cash Flow Hedging Relationships | | Location of Gain (Loss) Reclassified from Accumulated OCI Into Income (Effective Portion) | | Amount of (Gain) Loss Recognized in OCI on Derivative (Effective Portion) | | Amount of Gain (Loss) Reclassified from Accumulated OCI Into Income (Effective Portion) |
Commodity contracts | | Product cost | | $ | (0.7 | ) | | $ | (0.2 | ) |
Swap contracts | | Interest expense | | (2.6 | ) | | 3.0 |
|
Total | | | | $ | (3.3 | ) | | $ | 2.8 |
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| | COMPASS MINERALS INTERNATIONAL, INC. |
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| | | | | | | | | | |
| | | | Twelve Months Ended December 31, 2017 |
Derivatives in Cash Flow Hedging Relationships | | Location of Gain (Loss) Reclassified from Accumulated OCI Into Income Effective Portion) | | Amount of (Gain) Loss Recognized in OCI on Derivative (Effective Portion) | | Amount of Gain (Loss) Reclassified from Accumulated OCI Into Income (Effective Portion) |
Commodity contracts | | Product cost | | $ | 3.0 |
| | $ | (0.6 | ) |
Swap contracts | | Interest expense | | (1.9 | ) | | 1.9 |
|
Total | | | | $ | 1.1 |
| | $ | 1.3 |
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12. COMMITMENTS AND CONTINGENCIES
Contingent Obligations:
The Company was involved in proceedings alleging unfair labor practices at its Cote Blanche, Louisiana, mine. This matter arose out of a labor dispute between the Company and the United Steelworkers Union over the terms of a contract for certain employees at the mine. These employees initiated a strike that began on April 7, 2010, and ended on June 15, 2010. In September 2012, the U.S. National Labor Relations Board (the “NLRB”) issued a decision finding that the Company had committed unfair labor practices in connection with the labor dispute. Under the ruling, the Company is responsible for back pay to affected employees as a result of changes made in union work rules and past practices beginning April 1, 2010. In the fourth quarter of 2013, this ruling was upheld by an appeals court. As of December 31, 2016, the Company had recorded a reserve of $7.4 million in its consolidated financial statements related to expected payments, including interest, required to resolve the dispute.
In March 2017, the Company reached a settlement with the United Steelworkers Union and the NLRB with respect to this matter. Under the terms of the agreement, the Company paid $7.7 million to the affected employees in the second quarter of 2017. As a result of the settlement, the Company recognized an immaterial loss in its consolidated financial statements in 2017.
On July 16, 2018, the Company’s unionized employees at its Goderich mine ratified a three-year collective bargaining agreement, ending a strike that began on April 27, 2018.
The Wisconsin Department of Agriculture, Trade and Consumer Protection (“DATCP”) has information indicating that agricultural chemicals are present within the subsurface area of the Company’s Kenosha, Wisconsin plant.property. The agricultural chemicals were used by previous owners and operators of the site. None of the identified chemicals have been used in association
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| | COMPASS MINERALS INTERNATIONAL, INC. |
with the Company’s operations since it acquired the property in 2002. DATCP directed the Company to conduct further investigations into the possible presence of agricultural chemicals in soil and ground water at the Kenosha plant.property. The Company has completed initial on-property investigations and has provided the findings to DATCP.��All investigations and mitigation activities to date, and any potential future remediation work, are being conducted under the Wisconsin Agricultural Chemical Cleanup Program (the “ACCP”), which provides for reimbursement of some of the costs. The Company may seek participation by, or cost reimbursement from, other parties responsible for the presence of any agricultural chemicals found in soil and ground water at this site if the Company does not receive an acknowledgment of no further action and is required to conduct further investigation or remedial work that may not be eligible for reimbursement under the ACCP.
The Company conducts business operations in several countries and is subject to various federal and local labor, social security, environmental and tax laws. While the Company believes it complies with such laws, they are complex and subject to interpretation. In addition to the tax assessments discussed in Note 8, the Company’s Brazilian subsidiaries are party to administrative tax proceedings and claims which totaled $15.9$7.9 million and $18.1$15.8 million as of December 31, 20182020 and 2017,2019, respectively, and relate primarily to value added tax, state tax (ICMS) and social security tax (PIS and COFINS) assessments. The Company has assessed the likelihood of a loss at less than probable and therefore, has not established a reserve for these matters. The Company also has assumed liabilities for labor-related matters in connection with the acquisition of Produquímica,Compass Minerals South America, which are primarily related to compensation, labor benefits and consequential tax claims and totaled $7.8$3.5 million and $10.5$5.6 million as of December 31, 20182020 and 2017,2019, respectively. The Company believes the maximum exposure for these other labor matters totaled approximately $31$16 million and $41$25 million as of December 31, 20182020 and 2017,2019, respectively. The Division of Enforcement of the U.S. Securities and Exchange Commission (“SEC”) is investigating the Company’s disclosures concerning the operation of the Goderich mine. The Company has cooperated with this investigation and will continue to do so. While it is not possible to predict the timing or the outcome of the SEC inquiry, the Company believes that this matter will not have a material impact on its results of operation, cash flows or financial position.
The Company is also involved in legal and administrative proceedings and claims of various types from the ordinary course of the Company’s business.
Management cannot predict the outcome of legal claims and proceedings with certainty. Nevertheless, management believes that the outcome of legal proceeding and claims, which are pending or known to be threatened, even if determined adversely, will not, individually or in the aggregate, have a material adverse effect on the Company’s results of operations, cash flows or financial position.
Approximately 50% of workforce in the U.S., Canada and the U.K. and approximately 30% of the Company’s global workforce is represented by collective bargaining agreements. Of the Company’s 1312 collective bargaining agreements five will expire in 2019, four will expire in 2020, threeeffect on January 1, 2021, 2 will expire in 2021 (including 1 for the Goderich mine, which expires on March 31, 2021), 5 will expire in 2022, 3 will expire in 2023 and one1 will expire in 2027. In addition, trade union membership is mandatory in Brazil, where approximately 40% of the Company’s global workforce is located.
Commitments:
Leases: The Company leases certain property and equipment under non-cancelable operating leases for varying periods. The aggregate future minimum annual rentals under lease arrangements as of December 31, 2018 are as follows (in millions):
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| | | |
| Operating Leases |
2019 | $ | 16.4 |
|
2020 | 10.6 |
|
2021 | 5.7 |
|
2022 | 4.4 |
|
2023 | 3.6 |
|
Thereafter | 14.3 |
|
Total | $ | 55.0 |
|
The Company also leases certain property and equipment under capital lease for various periods. The aggregate future minimum annual rentals under these lease arrangements as of December 31, 2018 are as follows (in millions):
|
| | | |
| Capital Leases |
2019 | $ | 2.3 |
|
2020 | 1.8 |
|
2021 | 1.3 |
|
2022 | 1.1 |
|
2023 | 1.1 |
|
Thereafter | 4.6 |
|
Total | $ | 12.2 |
|
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| | COMPASS MINERALS INTERNATIONAL, INC. |
Rental expense, net of sublease income, was $24.3 million, $22.0 million and $20.4 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Royalties: The Company has various private, state and Canadian provincial leases associated with the salt and specialty potash businesses, most of which are renewable by the Company. Many of these leases provide for a royalty payment to the lessor based on a specific amount per ton of mineral extracted or as a percentage of revenue. Royalty expense related to these leases was $14.8$18.3 million, $14.5$16.3 million and $15.2$14.8 million for the years ended December 31, 2020, 2019 and 2018, 2017 and 2016, respectively.
Performance Bonds: The Company has various salt and other deicing product sales contracts that include performance provisions governing delivery and product quality. These sales contracts either require the Company to maintain performance bonds for stipulated amounts or contain contractual penalty provisions in the event of non-performance. For the three years ended December 31, 2018,2020, the Company has had no material penalties related to these sales contracts. At December 31, 2018,2020, the Company had $181.4$51.4 million of outstanding performance bonds, which includes the bonds outstanding for the Company’srelated to Ontario mining tax reassessments, and $8.5 million for bank letter guarantees.reassessments.
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| | COMPASS MINERALS INTERNATIONAL, INC. |
Purchase Commitments: In connection with the operations of the Company’s facilities, the Company purchases utilities, other raw materials and services from third parties under contracts extending, in some cases, for multiple years. Purchases under these contracts are generally based on prevailing market prices. The Company has minimum throughput contracts with some of its depots and warehouses. The purchase commitments for these contracts are estimated to be $26.2$43.6 million for 2019, $8.6 million in 2020, $6.7 million in 2021, $6.2$13.3 million in 2022, and $0.1$10.0 million in 2023.2023, $7.8 million in 2024, $2.1 million in 2025 and $7.5 million thereafter.
13. STOCKHOLDERS’ EQUITY AND EQUITY INSTRUMENTS
The Company paid dividends of $2.88 per share in 20182020 and currently intends to continue paying quarterly cash dividends. The declaration and payment of future dividends to holders of the Company’s common stock will be at the discretion of the Company’s boardBoard of directorsDirectors and will depend upon many factors, including the Company’s financial condition, earnings, legal requirements, restrictions in its debt agreements (see Note 10)10) and other factors the Company’s boardBoard of directorsDirectors deems relevant.
Non-Employee Director Compensation
Non-employee directors may defer all or a portion of the fees payable for their service into deferred stock units, equivalent to the value of the Company’s common stock. Beginning in May 2020, the annual fees related to the director’s equity compensation were granted in deferred stock units or restricted stock units and vest at the next annual meeting. Additionally, as dividends are declared on the Company’s common stock, these deferred stock units are entitled to accrete dividends in the form of additional units based on the stock price on the dividend payment date. Accumulated deferred stock units are distributed in the form of Company common stock at a future specified date or following resignation from the boardBoard of directors,Directors, based upon the director’s annual election. During the years ended December 31, 2018, 20172020, 2019 and 2016,2018, members of the boardBoard of directorsDirectors were credited with 26,291, 17,20742,313, 33,883 and 10,07826,291 deferred stock units, respectively. During the year ended December 31, 2020, the directors were granted 3,750 restricted stock units. During the years ended December 31, 2020, 2019 and 2018, 20178,525, 9,041 and 2016, 6,728 6,668 and 12,153 shares of common stock, respectively, were issued from treasury shares for director compensation.
Preferred stock
The Company is authorized to issue up to 10,000,000 shares of preferred stock, of which no0 shares are currently issued or outstanding. Of those, 200,000 shares of preferred stock were designated as series A junior participating preferred stock in connection with the Company’s now expired rights agreement.
Equity Compensation Awards
In 2005, the Company adopted the 2005 Incentive Award Plan (as amended, the “2005 Plan”), which authorizesauthorized the issuance of 3,240,000 shares of Company common stock. In May 2015, the Company’s shareholdersstockholders approved the 2015 Incentive Award Plan (as amended, the “2015 Plan”), which authorizes the issuance of 3,000,000 shares of Company common stock. Upon the approval of the 2015 Plan , the Company ceased issuing equity awards under the 2005 Plan. In May 2020, the Company’s stockholders approved the 2020 Incentive Award Plan (the “2020 Plan”), which authorizes the issuance of 2,977,933 shares of Company common stock. Since the date the 20152020 Plan was approved, the Company ceased issuing equity awards under the 20052015 Plan. The 2005 Plan, 2015 Plan and 20152020 Plan allow for grants of equity awards to executive officers, other employees and directors, including shares of common stock, restricted stock units (“RSUs”), performance stock units (“PSUs”), stock options and deferred stock units. The grants occur following approval by the compensation committee of the Company’s board of directors, with the amount and terms communicated to employees shortly thereafter.
Options
Substantially all of the stock options granted under botheach of the 2005 Plan and 2015 Planplans vest ratably, in tranches, over a four-year service period. Unexercised options expire after 7seven years. Options do not have dividend or voting rights. Upon vesting, each option can be exercised to purchase one1 share of the Company’s common stock. The exercise price of options is equal to the closing stock price on the day of grant.
To estimate the fair value of options on the grant date, the Company uses the Black-Scholes option valuation model. Award recipients are grouped according to expected exercise behavior. Unless better information is available to estimate the expected term of the options, the estimate is based on historical exercise experience. The risk-free rate, using U.S. Treasury yield curves in effect at the time of grant, is selected based on the expected term of each group. The Company’s historical stock price is used to estimate expected volatility. The weighted average assumptions and fair values for options granted for each of the years ended December 31 is included in the following table.
| | | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
| | | | 2018 | | 2017 | | 2016 | | | 2020 | | 2019 | | 2018 |
Fair value of options granted | | $ | 8.77 |
| | $ | 9.54 |
| | $ | 10.17 |
| Fair value of options granted | | $ | 10.91 | | | $ | 9.15 | | | $ | 8.77 | |
Expected term (years) | | 4.5 |
| | 4.5 |
| | 4.5 |
| Expected term (years) | | 4.8 | | 4.5 | | 4.5 |
Expected volatility | | 22.9 | % | | 23.2 | % | | 24.4 | % | Expected volatility | | 29.3 | % | | 28.0 | % | | 22.9 | % |
Dividend yield | | 3.6 | % | | 3.5 | % | | 3.3 | % | Dividend yield | | 3.5 | % | | 4.1 | % | | 3.6 | % |
Risk-free interest rates | | 2.5 | % | | 1.8 | % | | 1.2 | % | Risk-free interest rates | | 1.6 | % | | 2.3 | % | | 2.5 | % |
RSUs
Substantially allMost of the RSUs granted under the 2015 Plan and 2020 Plan vest afterone to three years of service entitling the holders to one1 share of common stock for each vested RSU. The unvested RSUs do not have voting rights but are entitled to receive non-forfeitable dividends (generally after a performance hurdle has been satisfied for the year of the grant) or other distributions that may be declared on the Company’s common stock equal to the per-share dividend declared. The closing stock price on the day of grant is used to determine the fair value of RSUs.
PSUs
Substantially all of the PSUs granted under the 2015 Plan and 2020 Plan are either total shareholderstockholder return PSUs (the “TSR PSUs”) or, return on invested capital PSUs (the “ROIC PSUs”) or earnings before interest, taxes, depreciation and amortization growth PSUs (“EBITDA PSUs”). The actual number of shares of the Company’s common stock that may be earned with respect to TSR PSUs is calculated by comparing the Company’s total shareholderstockholder return to the total shareholderstockholder return for each company comprising the Russell 3000 IndexCompany’s peer group over the three-year performance period and may range from 0% to 150% or 0% to 200% of the target number of shares based upon the attainment of these performance conditions. The actual number of shares of common stock that may be earned with respect to ROIC PSUs is calculated based on the average of the Company’s annual return on invested capital for each year in the three-year performance period and may range from 0% to 200% of the target number of shares based upon the attainment of these performance conditions. The actual number of shares of common stock that may be earned with respect to EBITDA PSUs is calculated based on the attainment of EBITDA growth during the performance period.
ROICEBITDA PSUs granted in 20182020 have a two-year performance period that begins in 2021 and ends in 2022. Generally, TSR PSUs granted in 2020 have a three-year performance period that begins in 20182020 and ends in 2020. TSR PSUs granted in 2018 have a three-year performance period that begins on the grant date and ends on the third anniversary following the grant date.2022. Both types of PSUs granted in 20182020 vest three years fromin the grant date.first quarter of 2023. PSUs represent a target number of shares of Company common stock that may be earned before adjustment based upon the attainment of certain performance conditions. Holders of PSUs are entitled to receive non-forfeitable dividends or other distributions equal to those declared on the Company’s common stock for PSUs that are earned, which are paid when the shares underlying the PSUs are issued.
To estimate the fair value of the TSR PSUs on the grant date, the Company uses a Monte-Carlo simulation model, which simulates future stock prices of the Company as well as the companies comprising the Russell 3000 Index.peer group. This model uses historical stock prices to estimate expected volatility and the Company’s correlation to the Russell 3000 Index.peer group. The risk-free rate was determined using the same methodology as the option valuations as discussed above. The Company’s closing stock price on the grant date was used to estimate the fair value of the ROIC PSUs and EBITDA PSUs. The Company will adjust the expense of the ROIC PSUs and EBITDA PSUs based upon its estimate of the number of shares that will ultimately vest at each interim date during the three-year vesting period.
|
| | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
The following is a summary of the Company’s stock option, RSU and PSU activity and related information for the following periods:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stock Options | | RSUs | | PSUs |
| | Number | | Weighted-average exercise price | | Number | | Weighted-average fair value | | Number | | Weighted-average fair value |
Outstanding at December 31, 2017 | | 562,877 | | | $ | 75.89 | | | 70,856 | | | $ | 74.63 | | | 112,036 | | | $ | 79.48 | |
Granted | | 250,514 | | | 59.61 | | | 42,013 | | | 60.28 | | | 67,235 | | | 64.30 | |
Exercised(a) | | 0 | | | 0 | | | — | | | — | | | — | | | — | |
Released from restriction(a) | | — | | | — | | | (16,905) | | | 88.78 | | | (2,753) | | | 78.92 | |
Cancelled/Expired | | (104,645) | | | 71.65 | | | (12,656) | | | 66.53 | | | (49,880) | | | 85.51 | |
Outstanding at December 31, 2018 | | 708,746 | | | $ | 70.76 | | | 83,308 | | | $ | 65.75 | | | 126,638 | | | $ | 69.06 | |
Granted | | 369,716 | | | 54.15 | | | 218,071 | | | 49.73 | | | 123,003 | | | 56.88 | |
Exercised(a) | | 0 | | | 0 | | | — | | | — | | | — | | | — | |
Released from restriction(a) | | — | | | — | | | (32,630) | | | 66.95 | | | 0 | | | 0 | |
Cancelled/Expired | | (190,595) | | | 69.06 | | | (51,336) | | | 54.87 | | | (70,244) | | | 67.20 | |
Outstanding at December 31, 2019 | | 887,867 | | | $ | 64.21 | | | 217,413 | | | $ | 52.07 | | | 179,397 | | | $ | 61.43 | |
Granted | | 94,945 | | | 58.91 | | | 95,276 | | | 58.24 | | | 107,072 | | | 74.73 | |
Exercised(a) | | (4,454) | | | 57.02 | | | — | | | — | | | — | | | — | |
Released from restriction(a) | | — | | | — | | | (76,570) | | | 50.03 | | | (11,575) | | | 78.87 | |
Cancelled/Expired | | (109,586) | | | 69.00 | | | (28,137) | | | 51.85 | | | (33,100) | | | 68.18 | |
Outstanding at December 31, 2020 | | 868,772 | | | $ | 63.06 | | | 207,982 | | | $ | 55.68 | | | 241,794 | | | $ | 65.57 | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Stock Options | | RSUs | | PSUs |
| | Number | | Weighted-average exercise price | | Number | | Weighted-average fair value | | Number | | Weighted-average fair value |
Outstanding at December 31, 2015 | | 353,087 |
| | $ | 83.94 |
| | 91,008 |
| | $ | 80.65 |
| | 77,365 |
| | $ | 96.63 |
|
Granted | | 157,887 |
| | 70.48 |
| | 34,975 |
| | 72.06 |
| | 43,902 |
| | 73.86 |
|
Exercised(a) | | (11,377 | ) | | 62.50 |
| | — |
| | — |
| | — |
| | — |
|
Released from restriction(a) | | — |
| | — |
| | (53,983 | ) | | 75.18 |
| | (10,258 | ) | | 78.49 |
|
Cancelled/Expired | | (56,842 | ) | | 80.95 |
| | (8,220 | ) | | 83.16 |
| | (21,998 | ) | | 88.79 |
|
Outstanding at December 31, 2016 | | 442,755 |
| | $ | 80.07 |
| | 63,780 |
| | $ | 80.25 |
| | 89,011 |
| | $ | 89.43 |
|
Granted | | 227,351 |
| | 68.00 |
| | 34,635 |
| | 68.00 |
| | 58,878 |
| | 73.08 |
|
Exercised(a) | | (3,366 | ) | | 76.03 |
| | — |
| | — |
| | — |
| | — |
|
Released from restriction(a) | | — |
| | — |
| | (15,806 | ) | | 84.77 |
| | (12,946 | ) | | 105.77 |
|
Cancelled/Expired | | (103,863 | ) | | 76.44 |
| | (11,753 | ) | | 71.96 |
| | (22,907 | ) | | 86.81 |
|
Outstanding at December 31, 2017 | | 562,877 |
| | $ | 75.89 |
| | 70,856 |
| | $ | 74.63 |
| | 112,036 |
| | $ | 79.48 |
|
Granted | | 250,514 |
| | 59.61 |
| | 42,013 |
| | 60.28 |
| | 67,235 |
| | 64.30 |
|
Exercised(a) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Released from restriction(a) | | — |
| | — |
| | (16,905 | ) | | 88.78 |
| | (2,753 | ) | | 78.92 |
|
Cancelled/Expired | | (104,645 | ) | | 71.65 |
| | (12,656 | ) | | 66.53 |
| | (49,880 | ) | | 85.51 |
|
Outstanding at December 31, 2018 | | 708,746 |
| | $ | 70.76 |
| | 83,308 |
| | $ | 65.75 |
| | 126,638 |
| | $ | 69.06 |
|
(a)Common stock issued for exercised options, vested RSUs and vested and earned PSUs were issued from treasury shares.
| |
(a) | Common stock issued for exercised options, vested RSUs and vested and earned PSUs were issued from treasury shares. |
As of December 31, 2017,2019, there were 562,877887,867 options outstanding of which 221,212416,860 were exercisable. The following table summarizes information about options outstanding and exercisable at December 31, 2018.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable |
Range of exercise prices | | Options outstanding | | Weighted-average remaining contractual life (years) | | Weighted-average exercise price of options outstanding | | Options exercisable | | Weighted-average remaining contractual life (years) | | Weighted-average exercise price of exercisable options |
$53.75 - $54.38 | | 252,245 | | | 5.3 | | $ | 53.75 | | | 84,082 | | | 5.3 | | $ | 53.75 | |
$54.39 - $59.21 | | 159,424 | | | 5.7 | | 57.01 | | | 18,836 | | | 5.2 | | 55.01 | |
$59.22 - $63.75 | | 159,445 | | | 4.3 | | 59.50 | | | 110,700 | | | 4.3 | | 59.50 | |
$63.76 - $69.77 | | 119,357 | | | 3.1 | | 68.03 | | | 104,796 | | | 3.0 | | 68.01 | |
$69.78 - $91.75 | | 178,301 | | | 1.3 | | 81.51 | | | 178,301 | | | 1.3 | | 81.51 | |
Totals | | 868,772 | | | 4.1 | | $ | 63.06 | | | 496,715 | | | 3.1 | | $ | 68.05 | |
|
| | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable |
Range of exercise prices | | Options outstanding | | Weighted-average remaining contractual life (years) | | Weighted-average exercise price of options outstanding | | Options exercisable | | Weighted-average remaining contractual life (years) | | Weighted-average exercise price of exercisable options |
$59.50 - $63.75 | | 221,255 |
| | 6.3 | | $ | 59.50 |
| | 61,809 |
| | 6.3 | | $ | 59.50 |
|
$63.76 - $68.53 | | 163,599 |
| | 5.1 | | 68.00 |
| | 90,730 |
| | 5.0 | | 68.00 |
|
$68.54 - $71.09 | | 104,807 |
| | 4.1 | | 70.44 |
| | 80,971 |
| | 4.0 | | 70.48 |
|
$71.10 - $82.09 | | 83,457 |
| | 1.0 | | 75.64 |
| | 83,457 |
| | 1.0 | | 75.64 |
|
$82.10 - $91.75 | | 135,628 |
| | 2.7 | | 89.71 |
| | 129,827 |
| | 2.7 | | 89.61 |
|
Totals | | 708,746 |
| | 4.4 | | $ | 70.76 |
| | 446,794 |
| | 3.6 | | $ | 74.98 |
|
During the years ended December 31, 2018, 20172020, 2019 and 2016,2018, the Company recorded compensation expense of $7.8$9.9 million $5.0(includes $0.5 million paid in cash), $7.4 million (includes $1.1 million paid in cash) and $4.9$7.8 million, respectively, related to its stock-based compensation awards that are expected to vest. No amounts have been capitalized. The fair value of options vested was $1.4 million, $0.8 million and $2.7 million $1.4 millionin 2020, 2019 and $1.3 million in 2018, 2017 and 2016, respectively.
As of December 31, 2018,2020, unrecorded compensation cost related to non-vested awards of $4.7$14.7 million is expected to be recognized from 20192021 through 2022,2023, with a weighted average period of 2.21.8 years.
|
| | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
The intrinsic value of stock options exercised during the twelve monthsyears ended December 31, 2018, 20172020, 2019 and 20162018 each totaled less than $0.1 million. As of December 31, 2018,2020, the intrinsic value of options outstanding totaled $0.0$3.1 million, of which 446,794496,715 options with an intrinsic value of $0.0$1.0 million were exercisable. The number of shares held in treasury is sufficient to cover all outstanding equity awards as of December 31, 2018.2020.
Accumulated Other Comprehensive (Loss) IncomeLoss
The Company’s comprehensive (loss) income (loss) is comprised of net earnings, net amortization of the unrealized loss of the pension obligation, the change in the unrealized gain (loss) on natural gas and foreign currency cash flow hedges, and foreign currency translation adjustments. The components of and changes in accumulated other comprehensive income (loss)loss (“AOCI”AOCL”) for the twelve monthsyears ended December 31, 20182020 and 20172019 are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2020(a) | | Gains and (Losses) on Cash Flow Hedges | | Defined Benefit Pension | | Foreign Currency | | Total |
Beginning balance | | $ | (0.6) | | | $ | (6.9) | | | $ | (184.6) | | | $ | (192.1) | |
Other comprehensive income (loss) before reclassifications | | 3.9 | | | (3.2) | | | (109.5) | | | (108.8) | |
Amounts reclassified from accumulated other comprehensive loss | | (3.1) | | | 0.7 | | | 0 | | | (2.4) | |
Net current period other comprehensive income (loss) | | 0.8 | | | (2.5) | | | (109.5) | | | (111.2) | |
| | | | | | | | |
Ending balance | | $ | 0.2 | | | $ | (9.4) | | | $ | (294.1) | | | $ | (303.3) | |
|
| | | | | | | | | | | | | | | | |
Twelve Months Ended December 31, 2018(a) | | Gains and (Losses) on Cash Flow Hedges | | Defined Benefit Pension | | Foreign Currency | | Total |
Beginning balance | | $ | (0.9 | ) | | $ | (3.9 | ) | | $ | (73.1 | ) | | $ | (77.9 | ) |
Other comprehensive income (loss) before reclassifications | | 2.2 |
| | (0.8 | ) | | (132.6 | ) | | (131.2 | ) |
Amounts reclassified from accumulated other comprehensive loss | | (1.8 | ) | | 0.2 |
| | — |
| | (1.6 | ) |
Net current period other comprehensive income (loss) | | 0.4 |
| | (0.6 | ) | | (132.6 | ) | | (132.8 | ) |
Reclassification of stranded tax out of AOCI to retained earnings(b) | | (0.2 | ) | | — |
| | — |
| | (0.2 | ) |
Ending balance | | $ | (0.7 | ) | | $ | (4.5 | ) | | $ | (205.7 | ) | | $ | (210.9 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2019(a) | | Gains and (Losses) on Cash Flow Hedges | | Defined Benefit Pension | | Foreign Currency | | Total |
Beginning balance | | $ | (0.7) | | | $ | (4.5) | | | $ | (205.7) | | | $ | (210.9) | |
Other comprehensive income (loss) before reclassifications | | 2.2 | | | (2.7) | | | 21.1 | | | 20.6 | |
Amounts reclassified from accumulated other comprehensive loss | | (2.1) | | | 0.3 | | | 0 | | | (1.8) | |
Net current period other comprehensive income (loss) | | 0.1 | | | (2.4) | | | 21.1 | | | 18.8 | |
| | | | | | | | |
Ending balance | | $ | (0.6) | | | $ | (6.9) | | | $ | (184.6) | | | $ | (192.1) | |
(a)With the exception of the cumulative foreign currency translation adjustment, for which no tax effect is recorded, the changes in the components of AOCL presented in the table are reflected net of applicable income taxes. |
| | | | | | | | | | | | | | | | |
Twelve Months Ended December 31, 2017(a) | | Gains and (Losses) on Cash Flow Hedges | | Defined Benefit Pension | | Foreign Currency | | Total |
Beginning balance | | $ | 0.6 |
| | $ | (3.7 | ) | | $ | (101.8 | ) | | $ | (104.9 | ) |
Other comprehensive income (loss) before reclassifications | | (0.6 | ) | | (0.4 | ) | | 28.7 |
| | 27.7 |
|
Amounts reclassified from accumulated other comprehensive loss | | (0.9 | ) | | 0.2 |
| | — |
| | (0.7 | ) |
Net current period other comprehensive (loss) income | | (1.5 | ) | | (0.2 | ) | | 28.7 |
| | 27.0 |
|
Ending balance | | $ | (0.9 | ) | | $ | (3.9 | ) | | $ | (73.1 | ) | | $ | (77.9 | ) |
| |
(a) | With the exception of the cumulative foreign currency translation adjustment, for which no tax effect is recorded, the changes in the components of accumulated other comprehensive gain (loss) presented in the table are reflected net of applicable income taxes. |
| |
(b) | In the first quarter of 2018, the Company adopted guidance which allows entities to reclassify tax effects of the change in U.S. income tax rates from AOCI to retained earnings (see Note 2). |
|
| | | | | | |
Twelve Months Ended December 31, 2018 | | Amount Reclassified from AOCI | | Line Item Impacted in the Consolidated Statement of Operations |
Gains and (losses) on cash flow hedges: | | | | |
Natural gas instruments | | $ | 0.2 |
| | Product cost |
Foreign currency swaps | | (3.0 | ) | | Interest expense |
Income tax expense (benefit) | | 1.0 |
| | |
| | (1.8 | ) | | |
Amortization of defined benefit pension: | | |
| | |
Amortization of loss | | $ | 0.2 |
| | Product cost |
Income tax expense (benefit) | | — |
| | |
| | 0.2 |
| | |
Total reclassifications, net of income taxes | | $ | (1.6 | ) | | |
|
| | | | | | | |
Year Ended December 31, 2020 | | Amount Reclassified from AOCL | | Line Item Impacted in the Consolidated Statement of Operations |
Losses on cash flow hedges: | | | | |
Natural gas instruments | | $ | (1.0) | | | Product cost |
Foreign currency contracts | | (3.6) | | | Interest expense |
Income tax expense | | 1.5 | | | |
Reclassifications, net of income taxes | | (3.1) | | | |
Amortization of defined benefit pension: | | | | |
Amortization of loss | | $ | 0.9 | | | Product cost |
Income tax benefit | | (0.2) | | | |
Reclassifications, net of income taxes | | 0.7 | | | |
Total reclassifications, net of income taxes | | $ | (2.4) | | | |
|
| | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
| | | | | | | | | | | | | | |
Year Ended December 31, 2019 | | Amount Reclassified from AOCL | | Line Item Impacted in the Consolidated Statement of Operations |
Gains (losses) on cash flow hedges: | | | | |
Natural gas instruments | | $ | (0.9) | | | Product cost |
Foreign currency contracts | | (2.2) | | | Interest Expense |
Income tax expense | | 1.0 | | | |
Reclassifications, net of income taxes | | (2.1) | | | |
Amortization of defined benefit pension: | | | | |
Amortization of loss | | $ | 0.4 | | | Product cost |
Income tax benefit | | (0.1) | | | |
Reclassifications, net of income taxes | | 0.3 | | | |
Total reclassifications, net of income taxes | | $ | (1.8) | | | |
|
| | | | | | |
Twelve Months Ended December 31, 2017 | | Amount Reclassified from AOCI | | Line Item Impacted in the Consolidated Statement of Operations |
Gains and (losses) on cash flow hedges: | | | | |
Natural gas instruments | | $ | 0.6 |
| | Product cost |
Foreign currency swaps | | (1.9 | ) | | Interest Expense |
Income tax expense (benefit) | | 0.4 |
| | |
| | (0.9 | ) | | |
Amortization of defined benefit pension: | | |
| | |
Amortization of loss | | $ | 0.3 |
| | Product cost |
Income tax expense (benefit) | | (0.1 | ) | | |
| | 0.2 |
| | |
Total reclassifications, net of income taxes | | $ | (0.7 | ) | | |
14. FAIR VALUE MEASUREMENTS
The Company’s financial instruments are measured and reported at their estimated fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction. When available, the Company uses quoted prices in active markets to determine the fair values for its financial instruments (Level 1 inputs), or absent quoted market prices, observable market-corroborated inputs over the term of the financial instruments (Level 2 inputs). The Company does not have any unobservable inputs that are not corroborated by market inputs (Level 3 inputs) except as stated in Notes 4 and 9..
The Company holds marketable securities associated with its Savings Plans, which are valued based on readily available quoted market prices. The Company also holds short-term investments which are classified as trading securities with any gains or losses recognized through earnings. The Company utilizes derivative instruments to manage its risk of changes in natural gas prices and its risk of changes in foreign currency exchange rates (see Note 11)11). The fair value of the natural gas derivative instruments and the foreign currency swaps are determined using market data of forward prices for all of the Company’s contracts. The estimated fair values for each type of instrument are presented below (in millions).
| | | | December 31, 2018 | | Level One | | Level Two | | Level Three | | | December 31, 2020 | | Level One | | Level Two | | Level Three |
Asset Class: | | | | | | | | | Asset Class: | |
Mutual fund investments in a non-qualified savings plan(a) | | $ | 1.8 |
| | $ | 1.8 |
| | $ | — |
| | $ | — |
| Mutual fund investments in a non-qualified savings plan(a) | | $ | 1.9 | | | $ | 1.9 | | | $ | 0 | | | $ | 0 | |
Derivatives - foreign currency swaps, net | | 4.5 |
| | — |
| | 4.5 |
| | — |
| |
Derivatives – natural gas instruments, net | | Derivatives – natural gas instruments, net | | 0.2 | | | 0 | | | 0.2 | | | 0 | |
Derivatives - foreign currency contracts, net | | Derivatives - foreign currency contracts, net | | 2.6 | | | 0 | | | 2.6 | | | 0 | |
Total Assets | | $ | 6.3 |
| | $ | 1.8 |
| | $ | 4.5 |
| | $ | — |
| Total Assets | | $ | 4.7 | | | $ | 1.9 | | | $ | 2.8 | | | $ | 0 | |
Liability Class: | | |
| | |
| | |
| | |
| Liability Class: | | | | | | | | |
Liabilities related to non-qualified savings plan | | $ | (1.8 | ) | | $ | (1.8 | ) | | $ | — |
| | $ | — |
| Liabilities related to non-qualified savings plan | | $ | (1.9) | | | $ | (1.9) | | | $ | 0 | | | $ | 0 | |
Derivatives – natural gas instruments | | (0.6 | ) | | — |
| | (0.6 | ) | | — |
| |
Total Liabilities | | $ | (2.4 | ) | | $ | (1.8 | ) | | $ | (0.6 | ) | | $ | — |
| Total Liabilities | | $ | (1.9) | | | $ | (1.9) | | | $ | 0 | | | $ | 0 | |
(a)Includes mutual fund investments of approximately 30% in the common stock of large-cap U.S. companies, 10% in the common stock of small to mid-cap U.S. companies, 5% in the common stock of international companies, 15% in bond funds, 15% in short-term investments and 25% in blended funds.
| |
(a) | Includes mutual fund investments of approximately 25% in the common stock of large-cap U.S. companies, 15% in the common stock of small to mid-cap U.S. companies, 5% in the common stock of international companies, 20% in bond funds, 15% in short-term investments and 20% in blended funds. |
|
| | | | | | | | | | | | | | | | |
| | December 31, 2017 | | Level One | | Level Two | | Level Three |
Asset Class: | | | | | | | | |
Mutual fund investments in a non-qualified savings plan(a) | | $ | 2.2 |
| | $ | 2.2 |
| | $ | — |
| | $ | — |
|
Derivatives - foreign currency swaps, net | | 1.3 |
| | — |
| | 1.3 |
| | — |
|
Total Assets | | $ | 3.5 |
| | $ | 2.2 |
| | $ | 1.3 |
| | $ | — |
|
Liability Class: | | |
| | |
| | |
| | |
|
Liabilities related to non-qualified savings plan | | $ | (2.2 | ) | | $ | (2.2 | ) | | $ | — |
| | $ | — |
|
Derivatives - natural gas instruments | | (1.4 | ) | | — |
| | (1.4 | ) | | — |
|
Total Liabilities | | $ | (3.6 | ) | | $ | (2.2 | ) | | $ | (1.4 | ) | | $ | — |
|
| |
(a) | Includes mutual fund investments of approximately 30% in the common stock of large-cap U.S. companies, 15% in the common stock of small to mid-cap U.S. companies, 5% in the common stock of international companies, 10% in bond funds, 20% in short-term investments and 20% in blended funds. |
|
| | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | Level One | | Level Two | | Level Three |
Asset Class: | | | | | | | | |
Mutual fund investments in a non-qualified savings plan(a) | | $ | 1.4 | | | $ | 1.4 | | | $ | 0 | | | $ | 0 | |
Derivatives - foreign currency contracts, net | | 2.8 | | | 0 | | | 2.8 | | | 0 | |
Total Assets | | $ | 4.2 | | | $ | 1.4 | | | $ | 2.8 | | | $ | 0 | |
Liability Class: | | | | | | | | |
Liabilities related to non-qualified savings plan | | $ | (1.4) | | | $ | (1.4) | | | $ | 0 | | | $ | 0 | |
Derivatives - natural gas instruments, net | | (0.6) | | | 0 | | | (0.6) | | | 0 | |
Total Liabilities | | $ | (2.0) | | | $ | (1.4) | | | $ | (0.6) | | | $ | 0 | |
(a)Includes mutual fund investments of approximately 30% in the common stock of large-cap U.S. companies, 15% in the common stock of small to mid-cap U.S. companies, 5% in the common stock of international companies, 10% in bond funds, 20% in short-term investments and 20% in blended funds.
Cash and cash equivalents, accounts receivablereceivables (net of reserve for bad debts)doubtful accounts) and payablesaccounts payable are carried at cost, which approximates fair value due to their liquid and short-term nature. The Company’s investments related to its nonqualified retirement plan of $1.8$1.9 million and $2.2$1.4 million as of December 31, 20182020 and 2017,2019, respectively, are stated at fair value based on quoted market prices. As of December 31, 20182020 and 2017,2019, the estimated fair value of the Company’s fixed-rate 4.875% Notes, based on available trading information (Level 2), totaled $226.3$260.3 million and $246.9$249.1 million, respectively, compared with the aggregate principal amount at maturity of $250.0 million. As of December 31, 2020 and 2019, the estimated fair value of the Company’s fixed-rate 6.75% Notes, based on available trading information (Level 2), totaled $543.1 million and $530.6 million, respectively, compared with the aggregate principal amount at maturity of $500.0 million. The fair value at December 31, 20182020 and 20172019 of amounts outstanding under the Credit Agreement,Company’s term loans and revolving credit facility, based upon available bid information received from the Company’s lender (Level 2), totaled approximately $1.02 billion$513.8 million and $989.5$552.8 million, respectively, compared with the aggregate principal amount at maturity of $1.03 billion$520.3 million and $1.01 billion,$560.0 million, respectively. The Brazilian loans have floating rates and their fair value approximates their carrying value (see Note 10).
15. OPERATING SEGMENTS
The Company’s reportable segments are strategic business units that offer different products and services, and each business requires different technology and marketing strategies. The Company has three3 reportable segments: Salt, Plant Nutrition North America and Plant Nutrition South America. The Salt segment produces and markets salt and magnesium chloride for use in road deicing and dust control, food processing, water softeners and agricultural and industrial applications. SOP crop nutrients, industrial-grade SOP and micronutrients are produced and marketed through the Plant Nutrition North America segment. In October 2016, the Company acquired Produquímica, whichThe Company’s Plant Nutrition South America segment operates two2 primary businesses in Brazil – agricultural productivity and chemical solutions. See Note 4 for a further discussion of the acquisition. The agricultural productivity division manufactures and distributes a broad offering of specialty plant nutrition solution-based products that are used in direct soil and foliar applications, as well as through irrigation systems and for seed treatment. ProduquímicaIt also manufactures and markets specialty chemicals for the industrial chemical industry. The Company’s Plant Nutrition South America segment represents the results of the acquired business.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. All intersegment sales prices are market-based. The Company evaluates performance based on the operating earnings of the respective segments.
Segment information as of and for the years ended December 31, is as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2020 | | Salt | | Plant Nutrition North America | | Plant Nutrition South America | | Corporate& Other(a) | | Total |
Sales to external customers | | $ | 779.4 | | | $ | 239.6 | | | $ | 344.4 | | | $ | 10.1 | | | $ | 1,373.5 | |
Intersegment sales | | 0 | | | 5.4 | | | 0.3 | | | (5.7) | | | — | |
Shipping and handling cost | | 217.8 | | | 34.0 | | | 14.8 | | | 0 | | | 266.6 | |
Operating earnings (loss) | | 161.8 | | | 12.1 | | | 40.3 | | | (73.7) | | | 140.5 | |
Depreciation, depletion and amortization | | 66.6 | | | 40.4 | | | 17.4 | | | 13.5 | | | 137.9 | |
Total assets | | 1,020.8 | | | 520.8 | | | 579.2 | | | 141.6 | | | 2,262.4 | |
Capital expenditures | | 56.8 | | | 12.5 | | | 9.6 | | | 6.0 | | | 84.9 | |
|
| | | | | | | | | | | | | | | | | | | | |
2018 | | Salt | | Plant Nutrition North America | | Plant Nutrition South America | | Corporate& Other(a) | | Total |
Sales to external customers | | $ | 858.1 |
| | $ | 233.2 |
| | $ | 391.8 |
| | $ | 10.5 |
| | $ | 1,493.6 |
|
Intersegment sales | | — |
| | 5.6 |
| | 3.4 |
| | (9.0 | ) | | — |
|
Shipping and handling cost | | 272.4 |
| | 29.0 |
| | 18.6 |
| | — |
| | 320.0 |
|
Operating earnings (loss)(b) | | 115.7 |
| | 25.3 |
| | 48.7 |
| | (59.4 | ) | | 130.3 |
|
Depreciation, depletion and amortization | | 56.2 |
| | 48.6 |
| | 22.2 |
| | 9.9 |
| | 136.9 |
|
Total assets | | 948.9 |
| | 589.3 |
| | 709.9 |
| | 119.8 |
| | 2,367.9 |
|
Capital expenditures | | 58.7 |
| | 20.7 |
| | 10.1 |
| | 7.3 |
| | 96.8 |
|
|
| | | | | | | | | | | | | | | | | | | | |
2017 | | Salt | | Plant Nutrition North America | | Plant Nutrition South America | | Corporate& Other(a) | | Total |
Sales to external customers | | $ | 769.2 |
| | $ | 210.0 |
| | $ | 375.0 |
| | $ | 10.2 |
| | $ | 1,364.4 |
|
Intersegment sales | | — |
| | 6.5 |
| | — |
| | (6.5 | ) | | — |
|
Shipping and handling cost | | 220.6 |
| | 28.1 |
| | 18.8 |
| | — |
| | 267.5 |
|
Operating earnings (loss)(b) | | 138.0 |
| | 27.7 |
| | 49.1 |
| | (55.6 | ) | | 159.2 |
|
Depreciation, depletion and amortization | | 55.0 |
| | 36.9 |
| | 22.6 |
| | 7.7 |
| | 122.2 |
|
Total assets | | 1,030.6 |
| | 601.1 |
| | 808.0 |
| | 131.3 |
| | 2,571.0 |
|
Capital expenditures | | 65.8 |
| | 31.9 |
| | 11.3 |
| | 5.1 |
| | 114.1 |
|
|
| | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2019 | | Salt | | Plant Nutrition North America | | Plant Nutrition South America | | Corporate& Other(a) | | Total |
Sales to external customers | | $ | 889.5 | | | $ | 206.2 | | | $ | 385.1 | | | $ | 9.7 | | | $ | 1,490.5 | |
Intersegment sales | | 0 | | | 6.4 | | | 2.7 | | | (9.1) | | | — | |
Shipping and handling cost | | 267.4 | | | 28.5 | | | 16.6 | | | 0 | | | 312.5 | |
Operating earnings (loss)(b) | | 168.0 | | | 22.5 | | | 40.0 | | | (66.9) | | | 163.6 | |
Depreciation, depletion and amortization | | 60.4 | | | 44.6 | | | 22.4 | | | 10.5 | | | 137.9 | |
Total assets | | 1,056.3 | | | 575.5 | | | 715.3 | | | 96.1 | | | 2,443.2 | |
Capital expenditures | | 65.9 | | | 15.2 | | | 10.5 | | | 6.5 | | | 98.1 | |
| | 2016 | | Salt | | Plant Nutrition North America | | Plant Nutrition South America (c) | | Corporate& Other(a) | | Total | |
2018 | | 2018 | | Salt | | Plant Nutrition North America | | Plant Nutrition South America | | Corporate& Other(a) | | Total |
Sales to external customers | | $ | 811.9 |
| | $ | 203.0 |
| | $ | 113.5 |
| | $ | 9.6 |
| | $ | 1,138.0 |
| Sales to external customers | | $ | 858.1 | | | $ | 233.2 | | | $ | 391.8 | | | $ | 10.5 | | | $ | 1,493.6 | |
Intersegment sales | | — |
| | 5.2 |
| | — |
| | (5.2 | ) | | — |
| Intersegment sales | | 0 | | | 5.6 | | | 3.4 | | | (9.0) | | | — | |
Shipping and handling cost | | 214.5 |
| | 25.0 |
| | 5.4 |
| | — |
| | 244.9 |
| Shipping and handling cost | | 272.4 | | | 29.0 | | | 18.6 | | | 0 | | | 320.0 | |
Operating earnings (loss) | | 200.6 |
| | 21.1 |
| | 7.4 |
| | (54.5 | ) | | 174.6 |
| |
Operating earnings (loss)(b) | | Operating earnings (loss)(b) | | 115.7 | | | 25.3 | | | 48.7 | | | (59.4) | | | 130.3 | |
Depreciation, depletion and amortization | | 46.7 |
| | 33.4 |
| | 5.0 |
| | 5.2 |
| | 90.3 |
| Depreciation, depletion and amortization | | 56.2 | | | 48.6 | | | 22.2 | | | 9.9 | | | 136.9 | |
Total assets | | 980.3 |
| | 592.3 |
| | 844.9 |
| | 49.0 |
| | 2,466.5 |
| Total assets | | 948.9 | | | 589.3 | | | 709.9 | | | 119.8 | | | 2,367.9 | |
Capital expenditures | | 103.4 |
| | 63.6 |
| | 2.1 |
| | 13.1 |
| | 182.2 |
| Capital expenditures | | 58.7 | | | 20.7 | | | 10.1 | | | 7.3 | | | 96.8 | |
Disaggregated revenue by product type is as follows (in millions): | Year Ended December 31, 2020 | | Year Ended December 31, 2020 | | Salt | | Plant Nutrition North America | | Plant Nutrition South America | | Corporate & Other(a) | | Total |
Highway Deicing Salt | | Highway Deicing Salt | | $ | 473.8 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 473.8 | |
Consumer & Industrial Salt | | Consumer & Industrial Salt | | 305.6 | | | 0 | | | 0 | | | 0 | | | 305.6 | |
| | Twelve Months Ended December 31, 2018 | | Salt | | Plant Nutrition North America | | Plant Nutrition South America | | Corporate & Other(a) | | Total | |
Highway Deicing Salt | | $ | 532.0 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 532.0 |
| |
Consumer & Industrial Salt | | 326.1 |
| | — |
| | — |
| | — |
| | 326.1 |
| |
SOP and Specialty Plant Nutrients | | — |
| | 238.8 |
| | 300.2 |
| | — |
| | 539.0 |
| SOP and Specialty Plant Nutrients | | 0 | | | 245.0 | | | 272.8 | | | 0 | | | 517.8 | |
Industrial Chemicals | | — |
| | — |
| | 95.0 |
| | — |
| | 95.0 |
| Industrial Chemicals | | 0 | | | 0 | | | 71.9 | | | 0 | | | 71.9 | |
Eliminations & Other | | — |
| | (5.6 | ) | | (3.4 | ) | | 10.5 |
| | 1.5 |
| Eliminations & Other | | 0 | | | (5.4) | | | (0.3) | | | 10.1 | | | 4.4 | |
Sales to external customers | | $ | 858.1 |
| | $ | 233.2 |
| | $ | 391.8 |
| | $ | 10.5 |
| | $ | 1,493.6 |
| Sales to external customers | | $ | 779.4 | | | $ | 239.6 | | | $ | 344.4 | | | $ | 10.1 | | | $ | 1,373.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2019 | | Salt | | Plant Nutrition North America | | Plant Nutrition South America | | Corporate & Other(a) | | Total |
Highway Deicing Salt | | $ | 545.5 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 545.5 | |
Consumer & Industrial Salt | | 344.0 | | | 0 | | | 0 | | | 0 | | | 344.0 | |
| | | | | | | | | | |
| | | | | | | | | | |
SOP and Specialty Plant Nutrients | | 0 | | | 212.6 | | | 298.6 | | | 0 | | | 511.2 | |
Industrial Chemicals | | 0 | | | 0 | | | 89.2 | | | 0 | | | 89.2 | |
Eliminations & Other | | 0 | | | (6.4) | | | (2.7) | | | 9.7 | | | 0.6 | |
Sales to external customers | | $ | 889.5 | | | $ | 206.2 | | | $ | 385.1 | | | $ | 9.7 | | | $ | 1,490.5 | |
|
| | | | | | | | | | | | | | | | | | | | |
Twelve Months Ended December 31, 2017 | | Salt | | Plant Nutrition North America | | Plant Nutrition South America | | Corporate & Other(a) | | Total |
Highway Deicing Salt | | $ | 455.1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 455.1 |
|
Consumer & Industrial Salt | | 314.1 |
| | — |
| | — |
| | — |
| | 314.1 |
|
SOP and Specialty Plant Nutrients | | — |
| | 216.5 |
| | 273.6 |
| | — |
| | 490.1 |
|
Industrial Chemicals | | — |
| | — |
| | 101.4 |
| | — |
| | 101.4 |
|
Eliminations & Other | | — |
| | (6.5 | ) | | — |
| | 10.2 |
| | 3.7 |
|
Sales to external customers | | $ | 769.2 |
| | $ | 210.0 |
| | $ | 375.0 |
| | $ | 10.2 |
| | $ | 1,364.4 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Twelve Months Ended December 31, 2016 | | Salt | | Plant Nutrition North America | | Plant Nutrition South America(c) | | Corporate & Other(a) | | Total |
Highway Deicing Salt | | $ | 490.7 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 490.7 |
|
Consumer & Industrial Salt | | 321.2 |
| | — |
| | — |
| | — |
| | 321.2 |
|
SOP and Specialty Plant Nutrients | | — |
| | 208.2 |
| | 86.8 |
| | — |
| | 295.0 |
|
Industrial Chemicals | | — |
| | — |
| | 26.7 |
| | — |
| | 26.7 |
|
Eliminations & Other | | — |
| | (5.2 | ) | | — |
| | 9.6 |
| | 4.4 |
|
Sales to external customers | | $ | 811.9 |
| | $ | 203.0 |
| | $ | 113.5 |
| | $ | 9.6 |
| | $ | 1,138.0 |
|
| |
(a) | Corporate and Other includes corporate entities, records management operations and other incidental operations and eliminations. Operating earnings (loss) for corporate and other includes indirect corporate overhead including costs for general corporate governance and oversight, as well as costs for the human resources, information technology and finance functions. |
| |
(b) | In 2018, corporate and other operating results included $5.1 million for Chief Executive Officer (“CEO”) transition costs. In 2017, operating results include $4.3 million of restructuring charges. |
| |
(c) | Plant Nutrition South America’s operating results only include results since October 3, 2016, the date of acquisition. |
|
| | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2018 | | Salt | | Plant Nutrition North America | | Plant Nutrition South America | | Corporate & Other(a) | | Total |
Highway Deicing Salt | | $ | 532.0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 532.0 | |
Consumer & Industrial Salt | | 326.1 | | | 0 | | | 0 | | | 0 | | | 326.1 | |
| | | | | | | | | | |
| | | | | | | | | | |
SOP and Specialty Plant Nutrients | | 0 | | | 238.8 | | | 300.2 | | | 0 | | | 539.0 | |
Industrial Chemicals | | 0 | | | 0 | | | 95.0 | | | 0 | | | 95.0 | |
Eliminations & Other | | 0 | | | (5.6) | | | (3.4) | | | 10.5 | | | 1.5 | |
Sales to external customers | | $ | 858.1 | | | $ | 233.2 | | | $ | 391.8 | | | $ | 10.5 | | | $ | 1,493.6 | |
(a)Corporate and Other includes corporate entities, records management operations and other incidental operations and eliminations. Operating earnings (loss) for corporate and other includes indirect corporate overhead including costs for general corporate governance and oversight, as well as costs for the human resources, information technology and finance functions.
(b)In 2019, operating results included $2.8 million of additional logistics costs related to Mississippi River flooding and $2.3 million of severance and other costs related to executive transition. In 2018, corporate and other operating results included $5.1 million for executive transition costs.
Financial information relating to the Company’s operations by geographic area for the years ended December 31 is as follows (in millions):
| | Sales | | 2018 | | 2017 | | 2016 | Sales | | 2020 | | 2019 | | 2018 |
United States(a) | | $ | 769.9 |
| | $ | 718.0 |
| | $ | 762.6 |
| United States(a) | | $ | 766.6 | | | $ | 821.9 | | | $ | 769.9 | |
Canada | | 238.6 |
| | 217.7 |
| | 212.5 |
| Canada | | 207.6 | | | 228.8 | | | 238.6 | |
Brazil | | 381.8 |
| | 362.1 |
| | 111.7 |
| Brazil | | 336.6 | | | 375.2 | | | 381.8 | |
United Kingdom | | 83.1 |
| | 43.3 |
| | 40.6 |
| United Kingdom | | 41.6 | | | 45.2 | | | 83.1 | |
Other | | 20.2 |
| | 23.3 |
| | 10.6 |
| Other | | 21.1 | | | 19.4 | | | 20.2 | |
Total sales | | $ | 1,493.6 |
| | $ | 1,364.4 |
| | $ | 1,138.0 |
| Total sales | | $ | 1,373.5 | | | $ | 1,490.5 | | | $ | 1,493.6 | |
| |
(a) | United States sales exclude product sold to foreign customers at U.S. ports. |
(a)United States sales exclude product sold to foreign customers at U.S. ports.
Financial information relating to the Company’s long-lived assets, excluding the investments related to the nonqualified retirement plan and pension plan assets, by geographic area as of December 31 (in millions):
| | Long-Lived Assets | | 2018 | | 2017 | | 2016 | Long-Lived Assets | | 2020 | | 2019 | | 2018 |
United States | | $ | 551.6 |
| | $ | 618.5 |
| | $ | 568.5 |
| United States | | $ | 532.9 | | | $ | 561.5 | | | $ | 551.6 | |
Canada | | 497.4 |
| | 515.9 |
| | 461.5 |
| Canada | | 514.0 | | | 522.8 | | | 497.4 | |
United Kingdom | | 62.5 |
| | 69.9 |
| | 66.8 |
| United Kingdom | | 73.9 | | | 71.4 | | | 62.5 | |
Brazil | | 524.8 |
| | 618.4 |
| | 645.8 |
| Brazil | | 376.0 | | | 493.1 | | | 524.8 | |
Other | | 6.5 |
| | 6.5 |
| | 6.5 |
| Other | | 6.5 | | | 6.5 | | | 6.5 | |
Total long-lived assets | | $ | 1,642.8 |
| | $ | 1,829.2 |
| | $ | 1,749.1 |
| Total long-lived assets | | $ | 1,503.3 | | | $ | 1,655.3 | | | $ | 1,642.8 | |
| | | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
16. EARNINGS PER SHARE
The two-class method requires allocating the Company’s net earnings to both common shares and participating securities. The following table sets forth the computation of basic and diluted earnings per common share (in millions, except for share and per share data):
| | | | | | | | | | | | | | | | | | | | |
Year ended December 31, | | 2020 | | 2019 | | 2018 |
Numerator: | | | | | | |
Net earnings | | $ | 59.5 | | | $ | 62.5 | | | $ | 68.8 | |
Less: Net earnings allocated to participating securities(a) | | (1.3) | | | (1.1) | | | (0.5) | |
Net earnings available to common stockholders | | $ | 58.2 | | | $ | 61.4 | | | $ | 68.3 | |
Denominator (in thousands): | | | | | | |
Weighted average common shares outstanding, shares for basic earnings per share(b) | | 33,928 | | | 33,882 | | | 33,848 | |
Weighted average equity awards outstanding | | 0 | | | 0 | | | 0 | |
Shares for diluted earnings per share | | 33,928 | | | 33,882 | | | 33,848 | |
Net earnings per common share, basic | | $ | 1.72 | | | $ | 1.82 | | | $ | 2.02 | |
Net earnings per common share, diluted | | $ | 1.72 | | | $ | 1.81 | | | $ | 2.02 | |
|
| | | | | | | | | | | | |
Year ended December 31, | | 2018 | | 2017 | | 2016 |
Numerator: | | | | | | |
Net earnings | | $ | 68.8 |
| | $ | 42.7 |
| | $ | 162.7 |
|
Less: Net earnings allocated to participating securities(a) | | (0.5 | ) | | (0.5 | ) | | (0.8 | ) |
Net earnings available to common shareholders | | $ | 68.3 |
| | $ | 42.2 |
| | $ | 161.9 |
|
Denominator (in thousands): | | |
| | |
| | |
|
Weighted average common shares outstanding, shares for basic earnings per share(b) | | 33,848 |
| | 33,819 |
| | 33,776 |
|
Weighted average equity awards outstanding | | — |
| | 1 |
| | 4 |
|
Shares for diluted earnings per share | | 33,848 |
| | 33,820 |
| | 33,780 |
|
Net earnings per common share, basic | | $ | 2.02 |
| | $ | 1.25 |
| | $ | 4.79 |
|
Net earnings per common share, diluted | | $ | 2.02 |
| | $ | 1.25 |
| | $ | 4.79 |
|
(a)Participating securities include PSUs and RSUs that receive non-forfeitable dividends. Net earnings were allocated to participating securities of 397,000, 307,000 and 186,000 for 2020, 2019 and 2018, respectively.
| |
(a) | Participating securities include PSUs and RSUs that receive non-forfeitable dividends. Net earnings were allocated to participating securities of 186,000, 166,000 and 164,000 for 2018, 2017 and 2016, respectively. |
| |
(b) | For the calculation of diluted earnings per share, the Company uses the more dilutive of either the treasury stock method or the two-class method to determine the weighted average number of outstanding common shares. In addition, the Company had 788,000, 640,000 and 509,000 weighted options outstanding for 2018, 2017 and 2016, respectively, which were anti-dilutive and therefore not included in the diluted earnings per share calculation.
|
(b)For the calculation of diluted earnings per share, the Company uses the more dilutive of either the treasury stock method or the two-class method to determine the weighted average number of outstanding common shares. In addition, the Company had 1,188,000, 1,067,000 and 788,000 weighted options outstanding for 2020, 2019 and 2018, respectively, which were anti-dilutive and therefore not included in the diluted earnings per share calculation.
|
| | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
17. QUARTERLY RESULTS (Unaudited) (in millions, except share and per share data)
|
| | | | | | | | | | | | | | | | |
Quarter | | First | | Second | | Third | | Fourth |
2018 | | | | | | | | |
Sales | | $ | 437.9 |
| | $ | 246.7 |
| | $ | 322.5 |
| | $ | 486.5 |
|
Gross profit | | 65.4 |
| | 42.5 |
| | 71.4 |
| | 114.6 |
|
Net earnings (loss)(a) | | 12.6 |
| | (7.6 | ) | | 12.8 |
| | 51.0 |
|
Net earnings (loss) per share, basic(a) | | 0.37 |
| | (0.23 | ) | | 0.37 |
| | 1.50 |
|
Net earnings (loss) per share, diluted(a) | | 0.37 |
| | (0.23 | ) | | 0.37 |
| | 1.50 |
|
Basic weighted-average shares outstanding (in thousands) | | 33,836 |
| | 33,850 |
| | 33,851 |
| | 33,853 |
|
Diluted weighted-average shares outstanding (in thousands) | | 33,836 |
| | 33,850 |
| | 33,851 |
| | 33,853 |
|
2017 | | | | | | | | |
Sales | | $ | 387.8 |
| | $ | 228.0 |
| | $ | 290.7 |
| | $ | 457.9 |
|
Gross profit | | 81.6 |
| | 44.9 |
| | 76.1 |
| | 124.0 |
|
Net earnings (loss)(a) | | 21.5 |
| | (6.4 | ) | | 32.0 |
| | (4.4 | ) |
Net earnings (loss) per share, basic(a) | | 0.63 |
| | (0.19 | ) | | 0.94 |
| | (0.13 | ) |
Net earnings (loss) per share, diluted (a) | | 0.63 |
| | (0.19 | ) | | 0.94 |
| | (0.13 | ) |
Basic weighted-average shares outstanding (in thousands) | | 33,802 |
| | 33,823 |
| | 33,825 |
| | 33,828 |
|
Diluted weighted-average shares outstanding (in thousands) | | 33,803 |
| | 33,823 |
| | 33,825 |
| | 33,828 |
|
| | |
(a) | In the fourth quarter of 2018, the Company recorded $5.1 million ($3.8 million, net of tax) for CEO transition costs. Also, the Company had miscellaneous tax items that reduced income tax expense by $6.8 million in the fourth quarter of 2018. In connection with U.S. tax reform, the Company recorded a net charge of $46.8 million during the fourth quarter of 2017. The Company released $18 million and $7 million in the third and fourth quarters of 2017, respectively, related to Brazilian valuation allowances that were acquired in the acquisition of Produquímica. See Note 8 for a discussion of tax-related items that impacted 2017 and 2018 results. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Quarter | | First | | Second | | Third | | Fourth |
2020 | | | | | | | | |
Sales | | $ | 413.9 | | | $ | 256.1 | | | $ | 282.4 | | | $ | 421.1 | |
Gross profit | | 87.3 | | | 66.3 | | | 58.7 | | | 100.0 | |
Net earnings (loss)(a) | | 27.6 | | | 1.7 | | | (2.1) | | | 32.3 | |
Net earnings (loss) per share, basic(a) | | 0.80 | | | 0.04 | | | (0.07) | | | 0.94 | |
Net earnings (loss) per share, diluted(a) | | 0.80 | | | 0.04 | | | (0.07) | | | 0.94 | |
Basic weighted-average shares outstanding (in thousands) | | 33,892 | | | 33,915 | | | 33,947 | | | 33,958 | |
Diluted weighted-average shares outstanding (in thousands) | | 33,892 | | | 33,915 | | | 33,947 | | | 33,977 | |
2019 | | | | | | | | |
Sales | | $ | 403.7 | | | $ | 245.2 | | | $ | 341.3 | | | $ | 500.3 | |
Gross profit | | 72.6 | | | 45.8 | | | 76.4 | | | 142.0 | |
Net earnings (loss)(a) | | 7.6 | | | (11.8) | | | 10.6 | | | 56.1 | |
Net earnings (loss) per share, basic(a) | | 0.22 | | | (0.36) | | | 0.31 | | | 1.64 | |
Net earnings (loss) per share, diluted (a) | | 0.22 | | | (0.36) | | | 0.31 | | | 1.63 | |
Basic weighted-average shares outstanding (in thousands) | | 33,874 | | | 33,883 | | | 33,884 | | | 33,886 | |
Diluted weighted-average shares outstanding (in thousands) | | 33,874 | | | 33,883 | | | 33,884 | | | 33,886 | |
(a)In the fourth quarter of 2020, the Company released a domestic tax reserve of $11.0 million. In the second quarter of 2019, the Company incurred $2.8 million ($2.1 million, net of tax) of additional logistics costs related to Mississippi River flooding. In the third quarter of 2019, the Company incurred $2.3 million ($1.7 million, net of tax) of severance and other costs related to executive transition.
| | | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
18. SUBSEQUENT EVENT
Dividend Declared:
On February 13, 2019,25, 2021, the boardBoard of directorsDirectors declared a quarterly cash dividend of $0.72 per share on the Company’s outstanding common stock, unchanged from the quarterly cash dividends paid in 2018.2020. The dividend will be paid on March 15, 2019,19, 2021, to stockholders of record as of the close of business on March 1, 2019.10, 2021.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
| | |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM 9A. CONTROLS AND PROCEDURES
| | |
ITEM 9A. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Interim President and Chief Executive Officer (“Interim CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Management necessarily was required to applyapplies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
In connection with the preparation of this Annual Report on Form 10-K, an evaluation is performed under the supervision and with the participation of the Company’s management, including the Interim CEO and CFO, 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) as of December 31, 2018.2020. Based on that evaluation, the Interim CEO and CFO conclude whether the Company’s disclosure controls and procedures are effective as of December 31, 2018,2020, at the reasonable assurance level.
|
| | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
In connection with this Annual Report on Form 10-K for the year ended December 31, 2018,2020, an evaluation was performed of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of December 31, 2018.2020. Based on that evaluation, the Interim CEO and CFO concluded that the disclosure controls and procedures were effective as of December 31, 2018,2020, at the reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducts an evaluation and assesses the effectiveness of the Company’s internal control over financial reporting as of the reporting date. In making its assessment of internal control over financial reporting, management uses the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013).
A material weakness is a control deficiency, or combination of control deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of December 31, 2018,2020, management conducted an evaluation and assessed the effectiveness of the Company’s internal control over financial reporting. Based on its evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2018.2020. Ernst & Young LLP, the Company’s independent registered public accounting firm, has audited the Company’s Consolidated Financial Statementsconsolidated financial statements for the year ended December 31, 2018,2020, and has also issued an audit report dated February 28, 2019,26, 2021, on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018,2020, which is included in this Annual Report on Form 10-K.
| | | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
| | |
ITEM 9B. | OTHER INFORMATION |
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
| | |
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Information regarding the Company’s executive officers is included in Part I to this Form 10-K under the caption “Executive Officers of Registrant”“Information about our Executive Officers” and is incorporated herein by reference.
The information required by this item will be included under the captions “Proposal 1—Election of Directors,” “Corporate Governance,” and “Board of Directors and Board Committees” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s proxy statement for its 20192021 annual meeting of stockholders (the “2019“2021 Proxy Statement”) and is incorporated herein by reference.
Code of Ethics and Business Conduct
The Company has adopted a Code of Ethics and Business Conduct that applies to all employees, including the Company’s principal executive officer, principal financial officer and principal accounting officer, as well as members of the Board of Directors of the Company. The Code of Ethics and Business Conduct is available on the Company’s website at www.compassminerals.com. The Company intends to disclose any changes in, or waivers from, this Code of Ethics and Business Conduct by posting such information on the same website or by filing a Current Report on Form 8-K, in each case to the extent such disclosure is required by SEC or New York Stock Exchange rules.
ITEM 11. EXECUTIVE COMPENSATION
| | |
ITEM 11. | EXECUTIVE COMPENSATION |
The information required by this item will be included under the captions “2018“2020 Non-Employee Director Compensation,” “Corporate Governance—Compensation Committee Interlocks and Insider Participation,” “Compensation Discussion and
|
| | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
Analysis,” “Compensation Committee Report” and “Executive Compensation Tables” in the 20192021 Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
| | |
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required by this item will be included under the caption “Stock Ownership of Certain Beneficial Owners and Management” in the 20192021 Proxy Statement and is incorporated herein by reference. Information regarding the Company’s equity compensation plans is included in this report under the caption “Equity Compensation Plan Information”Tables” and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND OTHER TRANSACTIONS AND DIRECTOR INDEPENDENCE
| | |
ITEM 13. | CERTAIN RELATIONSHIPS AND OTHER TRANSACTIONS AND DIRECTOR INDEPENDENCE |
The information required by this item will be included under the captions “Corporate Governance—Review and Approval of Transactions with Related Persons” and “Board of Directors and Board Committees—Director Independence” in the 20192021 Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
| | |
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information required by this item will be included under the caption “Proposal 3—Ratification of Appointment of Independent Registered Accounting Firm”Auditors” in the 20192021 Proxy Statement and is incorporated herein by reference.
|
| | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
| | |
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
(a)(1) Financial statements and supplementary data required by this Item 15 are set forth below:
(a)(2) Financial Statement Schedule:
Schedule II — Valuation Reserves
Compass Minerals International, Inc.
December 31, 2020, 2019 and 2018
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Description (in millions) | | Balance at the Beginning of the Year | | Additions (Deductions) Charged to Expense | | Deductions(1) | | Balance at the End of the Year |
Deducted from Receivables — Allowance for Doubtful Accounts | | | | | | | | |
2020 | | $ | 10.7 | | | $ | 9.3 | | | $ | (8.9) | | | $ | 11.1 | |
2019 | | 9.9 | | | 4.7 | | | (3.9) | | | 10.7 | |
2018 | | 10.9 | | | 1.0 | | | (2.0) | | | 9.9 | |
Deducted from Deferred Income Taxes — Valuation Allowance | | | | | | | | |
2020 | | $ | 41.2 | | | $ | 2.5 | | | $ | (0.3) | | | $ | 43.4 | |
2019 | | 40.9 | | | 0.3 | | | 0 | | | 41.2 | |
2018(2) | | 10.2 | | | 39.2 | | | (8.5) | | | 40.9 | |
(1)Deduction for purposes for which reserve was created.
(2)The 2018 2017 and 2016additions primarily relate to foreign tax credits which offset a deferred tax asset. This amount was not charged to expense.
|
| | | | | | | | | | | | | | | | |
Description (in millions) | | Balance at the Beginning of the Year | | Additions (Deductions) Charged to Expense | | Deductions(1) | | Balance at the End of the Year |
Deducted from Receivables — Allowance for Doubtful Accounts | | | | | | | | |
2018 | | $ | 10.9 |
| | $ | 1.0 |
| | $ | (2.0 | ) | | $ | 9.9 |
|
2017 | | 9.0 |
| | 3.2 |
| | (1.3 | ) | | 10.9 |
|
2016(2) | | 1.3 |
| | 8.0 |
| | (0.3 | ) | | 9.0 |
|
Deducted from Deferred Income Taxes — Valuation Allowance | | |
| | |
| | |
| | |
|
2018 | | $ | 10.2 |
| | $ | 1.8 |
| | $ | (8.5 | ) | | $ | 3.5 |
|
2017 | | 33.6 |
| | 1.1 |
| | (24.5 | ) | | 10.2 |
|
2016(3) | | 0.9 |
| | 34.3 |
| | (1.6 | ) | | 33.6 |
|
| |
(1) | Deduction for purposes for which reserve was created. |
| |
(2) | The 2016 additions include $7.4 million related to the acquisition of Produquímica. This amount was not charged to expense. |
| |
(3) | The 2016 additions relate to the acquisition of Produquímica. This amount was not charged to expense. |
|
| | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
(a)(3) List of Exhibits:
No.
| | | | | |
Exhibit No. | Description of Exhibit |
2.1 | |
2.2 | |
2.3 | |
2.4 | |
2.5 | |
3.1 | |
3.2 | |
3.3 | |
4.1 | Indenture, dated as of June 23, 2014, by and among Compass Minerals International, Inc., the Guarantors named therein, and U.S. National Bank Association, as trustee, relating to the 4.875% Senior Notes due 2024 (incorporated herein by reference to Exhibit 4.1 to Compass Minerals International, Inc.’s Current Report on Form 8-K filed on June 26, 2014). |
4.2 | |
10.14.3 | Indenture, dated November 26, 2019, among Compass Minerals International, Inc., the guarantors named therein and Wells Fargo Bank, National Association, as trustee, relating to the 6.750% Senior Notes due 2027 (incorporated herein by reference to Exhibit 4.1 to Compass Minerals International, Inc.’s Current Report on Form 8-K filed on November 26, 2019). |
4.4 | |
4.5* | |
10.1 | |
10.2 | |
10.3 | |
10.4 | |
10.5 | CreditAmendment and Restatement Agreement, dated April 20, 2016,November 26, 2019, among Compass Minerals International, Inc., Compass Minerals Canada Corp., Compass Minerals UK Limited, the other loan parties party thereto, the lenders and issuing banks party thereto from time to time and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to Compass Minerals International, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016). |
10.6 | Incremental Amendment, dated September 28, 2016, to the Credit Agreement, dated April 20, 2016, among Compass Minerals International, Inc., Compass Minerals Canada Corp., Compass Minerals UK Limited, the lenders party thereto from time to time and JPMorgan Chase Bank, N.A., as administrative agent (incorporatedherein by reference to Exhibit 10.1 to Compass Minerals International, Inc.’s Current Report on Form 8-K dated September 28, 2016)filed on November 26, 2019). |
| | | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
| | | | | |
10.6 | Amendment No. 2, dated September 15, 2017, to the CreditReceivables Financing Agreement, dated April 20, 2016,June 30, 2020, among Compass Minerals International,Receivables LLC, Compass Minerals America Inc., Compass Minerals Canada Corp., Compass Minerals UK Limited,PNC Bank, National Association, the lenders party thereto from time to time and JPMorgan Chase Bank, N.A., as administrative agentPNC Capital Markets, LLC (incorporated herein by reference to Exhibit 10.1 to Compass Minerals International, Inc.’s Current Report on Form 8-K dated September 18, 2017)filed on July 1, 2020). |
|
| | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
|
| |
10.810.7 | Amendment No. 3, dated December 5, 2018, to the CreditPurchase and Sale Agreement, dated April 20, 2016,June 30, 2020, among Compass Minerals International, Inc.,Receivables LLC, Compass Minerals Canada Corp.,America Inc. and Compass Minerals UK Limited, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to Compass Minerals International,USA Inc.’s Current Report on Form 8-K dated December 6, 2018). |
10.9 | |
10.10+10.8 | |
10.9+ | |
10.11+10.10+ | |
10.12+10.11+ | |
10.13+10.12+ | |
10.14+10.13+ | |
10.15+10.14+ | |
10.16+10.15+ | |
10.17+10.16+ | |
10.18+10.17+ | |
10.19+10.18+ | |
10.19+ | |
10.20+ | |
10.20+10.21+ | |
10.21*+10.22+ | |
10.22+10.23+* | |
10.24+ | |
10.23+10.25+ | |
10.24+10.26+ | |
10.25+10.27+ | |
| | | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
| | | | | |
10.28+ | |
10.27+10.29+ | |
10.28+10.30+ | |
10.29+10.31+ | |
10.30+10.32+ | |
|
| | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
|
| |
10.31+10.33+ | |
10.32+10.34+ | |
10.33+10.35+ | |
10.34+10.36+ | |
10.35+10.37+ | |
10.36+10.38+ | |
10.37+10.39+ | |
10.38+10.40+ | |
10.39+10.41+ | |
10.42+ | |
10.40+10.43+ | |
10.41+ | |
10.42+10.44+ | |
10.43+10.45+ | |
10.46+ | |
10.47+ | |
10.44+10.48+ | |
10.45*+10.49+ | |
10.46+10.50+ | |
10.51+ | |
| | | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
| | | | | |
10.52+ | |
10.48+10.53+ | |
10.49+ | |
10.50+ | |
10.51+10.54+ | |
10.52+10.55+ | |
10.53+10.56+ | |
10.54+ | |
10.55+10.57+ | |
|
| | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
|
| |
10.56+ | |
21.1*10.58+ | |
10.59+ | |
10.60+ | |
10.61+ | |
10.62+ | |
10.63+ | |
10.64+ | |
10.65+ | |
21.1* | |
23.1* | |
24.1* | |
31.1* | |
31.2* | |
32** | |
95* | |
101** | The following financial statements from the Compass Minerals International, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2018,2020, formatted in Extensive Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive (Loss) Income (iv) Consolidated StatementStatements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) the Notes to the Consolidated Financial Statements. |
104** | Cover Page Interactive Data File (contained in Exhibit 101). |
* Filed herewith.
** Furnished herewith.
+ Management contracts and compensatory plans or arrangements.
| | | | | | | | |
* | Filed herewith. 101 | 2020 FORM 10-K |
| | | | | | | | |
** | Furnished herewith. | COMPASS MINERALS INTERNATIONAL, INC. |
| |
+ | Management contracts and compensatory plans or arrangements. |
| |
ITEM 16. | ITEM 16. FORM 10-K SUMMARY |
None.
None.
| | | | | | | | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
SIGNATURES
| | |
| | COMPASS MINERALS INTERNATIONAL, INC. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | | | | | | | | | |
| COMPASS MINERALS INTERNATIONAL, INC. | |
| | | |
Date: February 28, 201926, 2021 | By: | /s/ James D. Standen | |
| | James D. Standen | |
| | Chief Financial Officer | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 28, 2019.
| | | | | | | | | | | |
| Signature | | Capacity |
| | | |
| /s/ Kevin S. Crutchfield | | President and CEO and Director |
| Kevin S. Crutchfield | | (Principal Executive Officer) |
| | | |
| /s/ James D. Standen | | Chief Financial Officer |
| James D. Standen | | (Principal Financial and Accounting Officer) |
| | | |
| * | | Director |
| Valdemar L. Fischer | | |
| | | |
| * | | Director |
| Eric Ford | | |
| | | |
| * | | Director |
| Richard S. Grant | | |
| | | |
| Signature* | | CapacityDirector |
| Joseph E. Reece | | |
| /s/ Richard S. Grant | | Director, Chairman of the Board, Interim President and |
| Richard S. Grant | | Chief Executive Officer
|
| | | (Principal Executive Officer)
|
| | | |
| /s/ James D. Standen | | Chief Financial Officer |
| James D. Standen | | (Principal Financial and Accounting Officer) |
| | | |
| * | | Director |
| David J. D’Antoni | | |
| | | |
| * | | Director |
| Valdemar L. Fischer | | |
| | | |
| * | | Director |
| Eric Ford | | |
| | | |
| * | | Director |
| Allan R. Rothwell | | |
| | | |
| * | | Director |
| Lori A. Walker | | |
| | | |
| * | | Director |
| Paul S. Williams | | |
| | | |
| * | | Director |
| Amy J. Yoder | | |
| | | |
* By: | /s/ Diana C. Toman | | |
| Diana C. Toman | | |
| Attorney-in Fact
| | |
|
| | | |
| * | | Director |
| Allan R. Rothwell | | |
| | | |
| * | | Director |
| Lori A. Walker | | |
| | | |
| * | | Director |
| Paul S. Williams | | |
| | | |
| * | | Director |
| Amy J. Yoder | | |
| | | |
* By: | /s/ Mary L. Frontczak | | |
| Mary L. Frontczak | | |
| Attorney-in Fact | | |