NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
1.
|
Accounting Policies and Basis of Presentation:
|
Compass Minerals International, Inc. (“CMI”), through its subsidiaries (collectively, the “Company”), is a leading producer of essential minerals that solve nature’s challenges, including salt for winter roadway safety and other consumer, industrial and agricultural uses, and specialty plant nutrition minerals that improve the quality and yield of crops, and specialty chemicals for water treatment and other industrial processes. The Company’s principal products are salt, consisting of sodium chloride and magnesium chloride, sulfate of potash (“SOP”), various other micronutrient products and specialty chemicals for water treatment and other industrial processes. The Company’s production sites are located in the United States (“U.S.”), Canada, Brazil and the United Kingdom (the “U.K.”). Except where otherwise noted, references to North America include only the continental U.S. and Canada, and references to the U.K. include only England, Scotland and Wales. References to “CMP,” the “Company,” “Compass Minerals,” “we,” “us” and “our” refer to CMI and its consolidated subsidiaries. The Company also provides records management services to businesses located in the U.K. In October 2016, the Company acquired Produquímica Indústria e Comércio S.A. (“Produquímica”), which operates
two
primary businesses in Brazil – agricultural productivity and chemical solutions.
CMI is a holding company with no significant operations other than those of its wholly-owned subsidiaries. The consolidated financial statements include the accounts of CMI and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
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 accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended
December 31, 2016
, as filed with the Securities and Exchange Commission in its Annual Report on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included.
The Company experiences a substantial amount of seasonality in its sales with respect to its deicing salt products. As a result, 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 and the U.K., the Company seeks to stockpile sufficient quantities of deicing salt throughout the second, third and fourth quarters to meet the estimated requirements for the upcoming winter season. Production of deicing salt can also vary based on the severity or mildness of the preceding winter season. Due to the seasonal nature of the deicing product lines, operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year.
The Company’s plant nutrition business is also seasonal. For example, the strongest demand for the Company’s plant nutrition products in Brazil typically occurs during the spring planting season. As a result, the Company and its 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 the 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
In January 2017, the Financial Accounting Standards Board (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 remain largely unchanged. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company plans to adopt the guidance for its 2017 impairment testing.
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 is currently evaluating the timing of adoption of this guidance and the impact of the adoption of this guidance on its consolidated 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 March 2016, the FASB issued guidance to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The Company adopted this guidance in the first quarter of 2017 on a prospective basis, and prior periods have not been adjusted. The Company elected the option available under the new guidance to continue to estimate the effect of forfeitures in the calculation of share-based payment expense. The guidance did not have a material impact 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. Under this guidance, an entity must also recognize a lease liability which represents a lessee’s obligation to make lease payments for the right to use the asset. 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 requires a modified retrospective transition method. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements.
In July 2015, the FASB issued guidance that requires entities to measure inventory within the scope of the standard at the lower of cost or net realizable value. “Net realizable value” is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The Company adopted this guidance in the first quarter of 2017. The guidance did not have a material impact on its consolidated financial statements.
In May 2014, the FASB issued guidance to provide a single, comprehensive revenue recognition model for all contracts with customers. The new revenue recognition model supersedes existing revenue recognition guidance and requires revenue recognition to depict 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. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, and early adoption is permitted. The guidance permits the use of either a full or modified retrospective transition method. The Company expects to use the modified retrospective transition method. While the Company has not identified any material differences in the amount and timing of revenue recognition for the revenue streams management has reviewed thus far, the Company is still evaluating the impact of this guidance and it has not concluded on the overall impacts of adopting the standard.
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 shareholders of Produquímica and Produquímica and (ii) a share purchase and sale agreement and other covenants (the “Purchase Agreement”) with certain shareholders of Produquímica 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 7 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, primarily used 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 acquisition as a business combination in accordance with U.S. GAAP. The 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 March 31, 2017, the preliminary purchase price allocation was not finalized. The preliminary purchase price allocation may be adjusted during the measurement period, which is up to one year after the acquisition date. The Company is currently awaiting additional information to finalize the fair values of intangible assets, intangible and tangible asset useful lives, additional assumed liabilities and labor and tax contingencies.
A summary of the acquisition-date fair value of the consideration transferred is presented in the table below:
|
|
|
|
|
|
|
|
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 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. 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
which was included as a component of operating earnings in the Company’s Plant Nutrition South America segment.
Prior to the acquisition 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-date fair value of the equity interest the Company utilized a market-based approach which relied on Level 3 inputs (see Note 12 for a discussion of the levels in the fair value hierarchy). The Company recognized a
$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 is allocated on a preliminary basis to Produquímica’s assets and liabilities based upon their estimated fair value as of the date of completion of the acquisition. During the first quarter 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. This adjustment resulted in a decrease of
$3.1 million
to goodwill, a decrease of
$4.1 million
to other noncurrent liabilities and an increase of
$1.0 million
to net deferred income taxes. Based upon the final
purchase price and the updated preliminary valuation, the purchase price allocation, which is still subject to change based on the Company’s final analysis, is presented in the table below:
|
|
|
|
|
|
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed:
|
Purchase Price Allocation
|
|
Cash and cash equivalents
|
$
|
73.8
|
|
|
Accounts receivable
|
89.4
|
|
|
Inventory
|
77.1
|
|
|
Other current assets
|
13.7
|
|
|
Property, plant and equipment
|
189.4
|
|
|
Identified 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
|
(66.2
|
)
|
|
Other noncurrent liabilities
|
(22.2
|
)
|
|
Total identifiable net assets
|
194.6
|
|
|
Goodwill
|
353.2
|
|
|
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
$353.2 million
and has been assigned to the Company’s new 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 receivables included in the purchase price allocation approximates their fair value due to their short-term nature. The gross contractual amounts of the receivables exceeds their fair value, because the receivables balance has been reduced by an allowance for doubtful accounts.
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 12 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:
|
|
|
|
|
|
|
|
|
|
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 three months ended March 31, 2017, Produquímica contributed revenues of
$61.3 million
and net losses of
$2.6 million
.
The following table presents combined unaudited pro forma results for the three months ended March 31, 2016. 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.
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Unaudited Combined Pro Forma Results of Operations (in millions)
|
March 31, 2016
|
|
Revenues
|
$
|
407.0
|
|
|
Net income
|
$
|
44.0
|
|
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 earnings related to the previously held
35%
equity interest in Produquímica
|
Inventories consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
|
Finished goods
|
$
|
162.9
|
|
|
$
|
206.1
|
|
|
Raw materials and supplies
|
74.8
|
|
|
74.5
|
|
|
Total inventories
|
$
|
237.7
|
|
|
$
|
280.6
|
|
|
|
|
|
4.
|
Property, Plant and Equipment, Net:
|
Property, plant and equipment, net, consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
|
Land, buildings and structures, and leasehold improvements
|
$
|
485.1
|
|
|
$
|
480.1
|
|
|
Machinery and equipment
|
860.9
|
|
|
848.2
|
|
|
Office furniture and equipment
|
29.2
|
|
|
28.3
|
|
|
Mineral interests
|
168.9
|
|
|
168.5
|
|
|
Construction in progress
|
266.9
|
|
|
243.6
|
|
|
|
1,811.0
|
|
|
1,768.7
|
|
|
Less accumulated depreciation and depletion
|
(701.6
|
)
|
|
(676.4
|
)
|
|
Property, plant and equipment, net
|
$
|
1,109.4
|
|
|
$
|
1,092.3
|
|
|
|
|
|
5.
|
Goodwill and Intangible Assets, Net:
|
Aggregate amortization expense for the Company’s finite-lived intangible assets was
$4.1 million
and
$1.0 million
in the
first
quarters of
2017
and
2016
, respectively. The increase in amortization expense was due to additional intangible assets which were recognized as a result of the preliminary purchase price allocation for the Produquímica acquisition (see Note 2 for more information).
The Company had goodwill of
$417.2 million
and
$412.2 million
as of
March 31, 2017
, and
December 31, 2016
, respectively, in its consolidated balance sheets. Of these amounts,
$53.9 million
and
$53.6 million
of the amounts recorded for goodwill as of
March 31, 2017
, and
December 31, 2016
, respectively, were recorded in the Company’s Plant Nutrition North America segment, and
$357.5 million
and
$352.8 million
of the amounts recorded for goodwill as of
March 31, 2017
and
December 31, 2016
,
respectively, were recorded in the Company’s Plant Nutrition South America segment. The remaining amounts in both periods were immaterial and recorded in the Company’s Salt segment and corporate and other. The change in goodwill between
December 31, 2016
, and
March 31, 2017
, was primarily due to the impact from translating foreign-denominated amounts to U.S. dollars and purchase price adjustments made related to the Produquímica acquisition (see Note 2).
The Company’s effective income tax rate differs from the U.S. statutory federal income tax rate primarily due to U.S. statutory depletion, state income taxes (net of federal tax benefit), foreign income tax rate differentials, foreign mining taxes, domestic manufacturing deductions and interest expense recognition differences for book and tax purposes. The Company’s effective rate is impacted by permanent tax deductions which have a less favorable impact as pretax income increases.
The Company had
$61.7 million
and
$53.6 million
as of
March 31, 2017
, and
December 31, 2016
, respectively, of gross foreign federal net operating loss (“NOL”) carryforwards that have no expiration date. In addition, the Company had
$9.4 million
and
$7.5 million
as of
March 31, 2017
, and
December 31, 2016
, respectively, of gross foreign federal NOL carryforwards which expire beginning in
2033
and
$1.1 million
and
$0.9 million
as of
March 31, 2017
, and
December 31, 2016
, respectively, of tax-effected state NOL carryforwards which expire beginning in
2033
.
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
-
2011
. The reassessments are a result of ongoing audits and total
$93.2 million
, including interest through
March 31, 2017
. The Company disputes these reassessments and will continue to work with the appropriate authorities in Canada to resolve the dispute. Although the Company believes it has recorded an adequate reserve for this matter, 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
$59.6 million
performance bond, has paid
$33.0 million
(most of which is recorded in other assets in its consolidated balance sheets) and the remaining balance of
$0.6 million
will be addressed later this year, which is necessary to proceed with future appeals or litigation.
In addition, Canadian federal and provincial taxing authorities have reassessed the Company for years
2004
-
2006
, which had been previously settled by agreement among the Company, the Canada Revenue Agency and the Internal Revenue Service of the United States. 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 Canada Revenue Agency. As a result, the Company believes that 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.
The Company received Canadian income tax reassessments for years
2007
-
2008
. The total amount of the reassessments, including penalties and interest through
March 31, 2017
, related to this matter is
$34.3 million
. The Company does not agree with these adjustments and is receiving assistance from the tax jurisdictions for relief from the impact of double taxation as available in the tax treaty between the U.S. and Canada. The Company has filed protective Notices of Objection and has posted collateral in the form of a
$9.5 million
performance bond and a
$9.8 million
bank letter guarantee, which is necessary to proceed with future appeals or litigation. Although the outcome of examinations by taxing authorities is uncertain, the Company believes it has adequately reserved for this matter.
The Company 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 dispute is resolved.
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
March 31, 2017
, the amount reserved related to these reassessments was immaterial to the Company’s consolidated financial statements.
Additionally, the Company has other uncertain tax positions as well as assessments and disputed positions with taxing authorities in its various jurisdictions, which are consistent with those matters disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
Long-term debt consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
|
Term Loans due July 2021
|
$
|
843.7
|
|
|
$
|
845.9
|
|
|
Revolving Credit Facility due July 2021
|
22.0
|
|
|
105.4
|
|
|
4.875% Senior Notes due July 2024
|
250.0
|
|
|
250.0
|
|
|
Banco Bradesco Loan due February 2017
|
—
|
|
|
13.2
|
|
|
Banco Votorantim Loan due April 2017
|
12.6
|
|
|
12.4
|
|
|
Banco Bradesco Loan due July 2017
|
—
|
|
|
4.8
|
|
|
Scotiabank Loan due August 2017
|
19.9
|
|
|
20.2
|
|
|
Banco Itaú Loan due September 2017
|
15.0
|
|
|
15.1
|
|
|
Scotiabank Loan due September 2017
|
15.0
|
|
|
15.1
|
|
|
Banco Votorantim Loan due September 2017
|
—
|
|
|
0.8
|
|
|
Banco Bradesco Loan due October 2017
|
17.0
|
|
|
16.8
|
|
|
Rabobank Loan due November 2017
|
22.3
|
|
|
22.6
|
|
|
Banco Itaú Loans due May 2019 to April 2020
|
2.8
|
|
|
3.1
|
|
|
Banco Safra Loan due September 2017
|
3.3
|
|
|
—
|
|
|
Financiadora de Estudos e Projetos Loan due November 2023
|
14.1
|
|
|
7.4
|
|
|
Banco Itaú Loan due September 2017
|
0.8
|
|
|
—
|
|
|
Banco do Brasil Loan due September 2017
|
0.1
|
|
|
—
|
|
|
Banco do Brasil Loan due October 2017
|
0.3
|
|
|
—
|
|
|
|
1,238.9
|
|
|
1,332.8
|
|
|
Less unamortized debt issuance costs
|
(7.5
|
)
|
|
(7.8
|
)
|
|
Total Debt
|
1,231.4
|
|
|
1,325.0
|
|
|
Less current portion
|
(116.5
|
)
|
|
(130.2
|
)
|
|
Long-term debt
|
$
|
1,114.9
|
|
|
$
|
1,194.8
|
|
In September 2016, the Company entered into a new
$450 million
term loan tranche under its existing credit agreement to fund the acquisition of the remaining
65%
of Produquímica’s equity in October 2016 (see Note 2). This additional tranche will mature July 1, 2021, and bears interest at LIBOR plus
2.0%
. In connection with this transaction, the Company incurred
$2.2 million
of financing fees in 2016 (
$0.7 million
was recorded as an expense and
$1.5 million
was capitalized as deferred financing costs).
In April 2016, the Company refinanced its existing
$471 million
term loans and
$125 million
revolving credit facility with a new
$400 million
senior secured term loan and a
$300 million
senior secured revolving credit facility, which both mature July 1, 2021. The new term loan and revolving credit facility bear interest at LIBOR plus
1.75%
based on the Company’s current leverage ratio and credit rating. In connection with the refinancing, the Company incurred
$5.8 million
of refinancing fees (
$1.4 million
was recorded as an expense and
$4.4 million
was capitalized as deferred financing costs) and wrote-off
$0.1 million
of existing deferred financing costs related to the previous term loans and revolving credit facility.
As of
March 31, 2017
, the term loans and revolving credit facility were secured by substantially all existing and future U.S. assets, the Goderich mine in Ontario, Canada, and capital stock of certain subsidiaries.
|
|
|
|
8.
|
Commitments and Contingencies:
|
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 will pay
$7.3 million
to the affected employees by May 2017. As a result of the settlement, the Company recognized an immaterial gain in its consolidated financial statements in the first quarter of 2017.
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. The agricultural chemicals were used by previous owners and operators of the site. None of the identified chemicals have been used in association 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. The Company has completed initial on-property investigations and has provided the findings to DATCP. A second series of sampling and analysis is underway. 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 would provide 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 it 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 6, the Company’s Brazilian subsidiaries are party to administrative tax proceedings and claims which totaled
$26.2 million
as of March 31, 2017, 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 reserved for these matters. The Company also has assumed liabilities for labor-related matters in connection with the acquisition of Produquímica, which are primarily related to compensation, labor benefits and consequential tax claims totaled
$12.4 million
as of March 31, 2017. The Company believes the maximum exposure for these other labor matters totaled approximately
$49 million
as of March 31, 2017. As discussed in Note 2, the contingencies are still preliminary as of March 31, 2017.
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.
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
three
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, micronutrients and magnesium chloride for agricultural purposes are produced and marketed through the Plant Nutrition North America segment. The Plant Nutrition South America segment represents the results of Produquímica, which was acquired in October 2016. This segment operates
two
primary businesses in Brazil – agricultural productivity and chemical solutions. See Note 2 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. Produquímica also manufactures and markets specialty chemicals for the industrial chemical industry. The Company’s new Plant Nutrition South America segment represents the results of the acquired business.
Segment information is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
Salt
|
|
Plant
Nutrition North America
|
|
Plant
Nutrition South America
|
|
Corporate
& Other
(a)
|
|
Total
|
|
Sales to external customers
|
|
$
|
274.8
|
|
|
$
|
49.2
|
|
|
$
|
61.3
|
|
|
$
|
2.5
|
|
|
$
|
387.8
|
|
|
Intersegment sales
|
|
—
|
|
|
0.9
|
|
|
—
|
|
|
(0.9
|
)
|
|
—
|
|
|
Shipping and handling cost
|
|
83.0
|
|
|
6.7
|
|
|
4.0
|
|
|
—
|
|
|
93.7
|
|
|
Operating earnings (loss)
|
|
45.4
|
|
|
7.6
|
|
|
1.8
|
|
|
(13.4
|
)
|
|
41.4
|
|
|
Depreciation, depletion and amortization
|
|
12.9
|
|
|
8.9
|
|
|
5.3
|
|
|
1.3
|
|
|
28.4
|
|
|
Total assets (as of end of period)
|
|
854.4
|
|
|
583.4
|
|
|
834.7
|
|
|
50.8
|
|
|
2,323.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
Salt
|
|
Plant
Nutrition North America
(b)
|
|
Plant
Nutrition South America
|
|
Corporate
& Other
(a)
|
|
Total
|
|
Sales to external customers
|
|
$
|
292.1
|
|
|
$
|
51.1
|
|
|
$
|
—
|
|
|
$
|
2.5
|
|
|
$
|
345.7
|
|
|
Intersegment sales
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
(0.2
|
)
|
|
—
|
|
|
Shipping and handling cost
|
|
83.0
|
|
|
6.4
|
|
|
—
|
|
|
—
|
|
|
89.4
|
|
|
Operating earnings (loss)
|
|
82.7
|
|
|
5.3
|
|
|
—
|
|
|
(13.7
|
)
|
|
74.3
|
|
|
Depreciation, depletion and amortization
|
|
10.7
|
|
|
7.9
|
|
|
—
|
|
|
1.3
|
|
|
19.9
|
|
|
Total assets (as of end of period)
|
|
893.1
|
|
|
704.8
|
|
|
—
|
|
|
54.0
|
|
|
1,651.9
|
|
|
|
|
|
(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, legal and finance functions.
|
|
|
|
|
(b)
|
In 2016, total assets for Plant Nutrition North America include the equity investment in Produquímica.
|
|
|
|
|
10.
|
Stockholders’ Equity and Equity Instruments:
|
In May 2015, the Company’s shareholders approved the 2015 Incentive Award Plan (the “2015 Plan”), which authorizes the issuance of
3,000,000
shares of Company common stock. Since the date the 2015 Plan was approved, the Company ceased issuing equity awards under the 2005 Incentive Award Plan (the “2005 Plan”). The 2005 Plan and 2015 Plan allow for grants of equity awards to executive officers, other employees and directors, including 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 stock options granted under the 2005 Plan and 2015 Plan vest ratably, in tranches, over a
four
-year service period. Unexercised options expire after
seven
years. Options do not have dividend or voting rights. Upon vesting, each option can be exercised to purchase
one
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.
RSUs
Substantially all of the RSUs granted under the 2005 Plan and 2015 Plan vest after
three
years of service entitling the holders to
one
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 equal to those declared on the Company’s common stock for RSUs that are earned. 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 2005 Plan and 2015 Plan are either total shareholder return PSUs (“TSR PSUs”) or return on invested capital PSUs (“ROIC PSUs”). The actual number of shares of common stock that may be earned with respect to TSR PSUs is calculated by comparing the Company’s total shareholder return to the total shareholder return for each company comprising the Russell 3000 Index over the
three
-year performance period and may range from
0%
to
150%
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.
TSR PSUs and ROIC PSUs generally have a
three
-year performance period. 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 do not have voting rights but 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 paid.
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. This model uses historical stock prices to estimate expected volatility and the Company’s correlation to the Russell 3000 Index. 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. The Company will adjust the expense of the ROIC PSUs based upon its estimate of the number of shares that will ultimately vest at each interim date during the vesting period.
During the
three
months ended
March 31, 2017
, the Company reissued the following number of shares from treasury stock:
3,366
shares related to the exercise of stock options,
13,018
shares related to the release of RSUs which vested,
12,946
shares related to the release of PSUs which vested and
4,147
shares related to stock payments. The Company recognized a tax deficiency of
$0.6 million
from its equity compensation awards as an increase to income tax expense during the first
three
months of
2017
. During the first
three
months of
2017
and
2016
, the Company recorded
$1.3 million
and
$1.1 million
, respectively, of compensation expense pursuant to its stock-based compensation plans. No amounts have been capitalized. The following table summarizes stock-based compensation activity during the
three
months ended
March 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
RSUs
|
|
PSUs
(a)
|
|
|
|
Number
|
|
Weighted-average
exercise price
|
|
Number
|
|
Weighted-average
fair value
|
|
Number
|
|
Weighted-average
fair value
|
|
Outstanding at December 31, 2016
|
|
442,755
|
|
|
$
|
80.07
|
|
|
63,780
|
|
|
$
|
80.25
|
|
|
89,011
|
|
|
$
|
89.43
|
|
|
Granted
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Exercised
(b)
|
|
(3,366
|
)
|
|
76.03
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Released from restriction
(b)
|
|
—
|
|
|
—
|
|
|
(13,018
|
)
|
|
87.18
|
|
|
(12,946
|
)
|
|
105.77
|
|
|
Cancelled/expired
|
|
(22,000
|
)
|
|
80.64
|
|
|
(17
|
)
|
|
91.75
|
|
|
(6,931
|
)
|
|
105.75
|
|
|
Outstanding at March 31, 2017
|
|
417,389
|
|
|
$
|
80.08
|
|
|
50,745
|
|
|
$
|
78.46
|
|
|
69,134
|
|
|
$
|
84.73
|
|
|
|
|
|
(a)
|
Until they vest, PSUs are included in the table at the target level at their grant date and at that level represent
one
share of common stock per PSU. The final performance period for the 2014 PSU grant was completed in 2016. The Company cancelled
6,900
PSUs in 2017 related to the 2014 PSU grant.
|
|
|
|
|
(b)
|
Common stock issued for exercised options and for vested and earned RSUs and PSUs was issued from treasury stock.
|
Other Comprehensive Income (Loss)
The Company’s comprehensive 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 cash flow hedges and foreign currency translation adjustments. The components of and changes in accumulated other comprehensive income (loss) (“AOCI”) as of and for the
three
months ended
March 31, 2017
, and
2016
, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 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
(b)
|
(0.5
|
)
|
|
—
|
|
|
14.8
|
|
|
14.3
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
Net current period other comprehensive income (loss)
|
(0.5
|
)
|
|
0.1
|
|
|
14.8
|
|
|
14.4
|
|
|
Ending balance
|
$
|
0.1
|
|
|
$
|
(3.6
|
)
|
|
$
|
(87.0
|
)
|
|
$
|
(90.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
(a)
|
Gains and
(Losses) on
Cash Flow
Hedges
|
|
Defined
Benefit
Pension
|
|
Foreign
Currency
|
|
Total
|
|
Beginning balance
|
$
|
(1.6
|
)
|
|
$
|
(3.8
|
)
|
|
$
|
(102.9
|
)
|
|
$
|
(108.3
|
)
|
|
Other comprehensive income (loss) before reclassifications
(b)
|
(0.5
|
)
|
|
—
|
|
|
34.4
|
|
|
33.9
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
0.7
|
|
|
0.1
|
|
|
—
|
|
|
0.8
|
|
|
Net current period other comprehensive income (loss)
|
0.2
|
|
|
0.1
|
|
|
34.4
|
|
|
34.7
|
|
|
Ending balance
|
$
|
(1.4
|
)
|
|
$
|
(3.7
|
)
|
|
$
|
(68.5
|
)
|
|
$
|
(73.6
|
)
|
|
|
|
|
(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 tables above are reflected net of applicable income taxes.
|
|
|
|
|
(b)
|
The Company recorded foreign exchange gains of
$7.2 million
and
$21.8 million
in the
three
months ended March 31, 2017, and
March 31, 2016
, respectively, in accumulated other comprehensive loss related to intercompany notes which were deemed to be of long-term investment nature.
|
The amounts reclassified from AOCI to (income) expense for the
three
months ended
March 31, 2017
, and
2016
, are shown below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Reclassified from AOCI
|
|
|
|
|
Three Months Ended
March 31, 2017
|
|
Three Months Ended
March 31, 2016
|
|
Line Item Impacted in the
Consolidated Statement of Operations
|
|
Gains and (losses) on cash flow hedges:
|
|
|
|
|
|
|
Natural gas instruments
|
$
|
—
|
|
|
$
|
1.1
|
|
|
Product cost
|
|
|
—
|
|
|
(0.4
|
)
|
|
Income tax expense (benefit)
|
|
Reclassifications, net of income taxes
|
—
|
|
|
0.7
|
|
|
|
|
Amortization of defined benefit pension:
|
|
|
|
|
|
|
|
Amortization of loss
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
Product cost
|
|
|
—
|
|
|
—
|
|
|
Income tax expense (benefit)
|
|
Reclassifications, net of income taxes
|
0.1
|
|
|
0.1
|
|
|
|
|
Total reclassifications, net of income taxes
|
$
|
0.1
|
|
|
$
|
0.8
|
|
|
|
|
|
|
|
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 risk by using derivative instruments. 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 swaps 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 these counterparties.The Company records derivative financial instruments as either assets or liabilities at fair value in the consolidated balance sheets.
Derivatives Designated as Hedging Instruments
As of
March 31, 2017
, the Company has entered into natural gas derivative instruments. 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. All natural gas derivative instruments held by the Company as of
March 31, 2017
, and
December 31, 2016
, qualified as cash flow hedges. For these 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 statements of operations. Any ineffectiveness related to these hedges was not material for any of the periods presented.
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. As of
March 31, 2017
, the Company had entered into natural gas derivative instruments to hedge a portion of its natural gas purchase requirements through
December 2018
. 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
March 31, 2017
, and
December 31, 2016
, the Company had agreements in place to hedge forecasted natural gas purchases of
1.6 million
and
2.3 million
MMBtus, respectively.
As of
March 31, 2017
, the Company expects to reclassify from accumulated other comprehensive loss to earnings during the next twelve months
$0.1 million
of net gains on derivative instruments related to its natural gas hedges.
Derivatives Not Designated as Hedging Instruments
In conjunction with the acquisition of Produquímica, the Company assumed U.S. dollar-denominated debt which was previously held by Produquímica. Prior to the acquisition, Produquímica entered into foreign currency swap agreements whereby Produquímica 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. 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’s functional currency. The Company may either continue to economically hedge this exposure or borrow in Brazilian Reais to meet the capital needs of the Company’s Brazilian operations.
As of
March 31, 2017
, the Company had swap contracts in place to hedge
$99.0 million
of loans denominated in foreign currencies. The foreign currency swaps derivative instruments are not designated as hedges. For derivative instruments that are not accounted for as hedges, the change in fair value is recorded through earnings in the period of change. During the three months ended March 31, 2017, the Company recognized a loss of
$1.7 million
in other expense in its consolidated statement of operations for the change in fair value of the swap contracts.
The following tables present the fair value of the Company’s hedged items as of
March 31, 2017
, and
December 31, 2016
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
Derivatives designated as hedging instruments:
|
|
Balance Sheet Location
|
|
March 31, 2017
|
|
Balance Sheet Location
|
|
March 31, 2017
|
|
Commodity contracts
|
|
Other current assets
|
|
$
|
0.4
|
|
|
Accrued expenses
|
|
$
|
0.3
|
|
|
Commodity contracts
|
|
Other assets
|
|
0.1
|
|
|
Other noncurrent liabilities
|
|
0.2
|
|
|
Total derivatives designated as hedging instruments
(a)
|
|
|
|
0.5
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Swap contracts
|
|
Other current assets
|
|
$
|
—
|
|
|
Accrued expenses
|
|
$
|
24.5
|
|
|
Swap contracts
|
|
Other assets
|
|
—
|
|
|
Other noncurrent liabilities
|
|
—
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
—
|
|
|
|
|
24.5
|
|
|
Total Derivatives
(b)
|
|
|
|
$
|
0.5
|
|
|
|
|
$
|
25.0
|
|
|
|
|
|
(a)
|
The Company has master netting agreements with its commodity hedge counterparties and accordingly has netted in its consolidated balance sheets approximately
$0.3 million
of its commodity contracts that are in receivable positions against its contracts in payable positions.
|
|
|
|
|
(b)
|
The Company has commodity hedge and foreign currency swap agreements with
two
and
five
counterparties, respectively. Amounts recorded as assets for the Company’s commodity contracts are receivable from both counterparties, and the amounts recorded as liabilities for the Company’s commodity contracts are payable to
one
counterparty. The amounts recorded as liabilities for the Company’s swap contracts are payable to all
five
counterparties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
Derivatives designated as hedging instruments:
|
|
Balance Sheet Location
|
|
December 31, 2016
|
|
Balance Sheet Location
|
|
December 31, 2016
|
|
Commodity contracts
|
|
Other current assets
|
|
$
|
1.2
|
|
|
Accrued expenses
|
|
$
|
0.3
|
|
|
Commodity contracts
|
|
Other assets
|
|
0.1
|
|
|
Other noncurrent liabilities
|
|
0.1
|
|
|
Total derivatives designated as hedging instruments
(a)
|
|
|
|
1.3
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Swap contracts
|
|
Other current assets
|
|
$
|
—
|
|
|
Accrued expenses
|
|
$
|
25.8
|
|
|
Swap contracts
|
|
Other assets
|
|
—
|
|
|
Other noncurrent liabilities
|
|
—
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
—
|
|
|
|
|
25.8
|
|
|
Total Derivatives
(b)
|
|
|
|
$
|
1.3
|
|
|
|
|
$
|
26.2
|
|
|
|
|
|
(a)
|
The Company has master netting agreements with its commodity hedge counterparties and accordingly has netted in its consolidated balance sheets approximately
0.4 million
of its commodity contracts that are in a payable position against its contracts in receivable positions.
|
|
|
|
|
(b)
|
The Company has commodity hedge and foreign currency swap agreements with
two
and
five
counterparties, respectively. Amounts recorded as assets for the Company’s commodity contracts are receivable from both counterparties, and amounts recorded as liabilities for the Company’s swap contracts are payable to all
five
counterparties.
|
|
|
|
|
12.
|
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) other than those described in Note 2.
The Company holds marketable securities associated with its defined contribution and pre-tax savings plans, which are valued based on readily available quoted market prices. The Company also held short-term investments which were classified as trading securities with any gains or losses recognized through earnings. The Company sold these investments during the first quarter of 2017. 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). 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).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
Level One
|
|
Level Two
|
|
Level Three
|
|
Asset Class:
|
|
|
|
|
|
|
|
|
Mutual fund investments in a non-qualified retirement plan
(a)
|
$
|
1.8
|
|
|
$
|
1.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Derivatives – natural gas instruments, net
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
Total Assets
|
$
|
2.0
|
|
|
$
|
1.8
|
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
Liability Class:
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities related to non-qualified retirement plan
|
$
|
(1.8
|
)
|
|
$
|
(1.8
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Derivatives – natural gas instruments, net
|
(0.2
|
)
|
|
—
|
|
|
(0.2
|
)
|
|
—
|
|
|
Derivatives – foreign currency swaps
|
(24.5
|
)
|
|
—
|
|
|
(24.5
|
)
|
|
—
|
|
|
Total Liabilities
|
$
|
(26.5
|
)
|
|
$
|
(1.8
|
)
|
|
$
|
(24.7
|
)
|
|
$
|
—
|
|
|
|
|
|
(a)
|
Includes mutual fund investments of approximately
25%
in common stock of large-cap U.S. companies,
15%
in common stock of small to mid-cap U.S. companies,
5%
in international companies,
10%
in bond funds,
25%
in short-term investments and
20%
in blended funds.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Level One
|
|
Level Two
|
|
Level Three
|
|
Asset Class:
|
|
|
|
|
|
|
|
|
|
Mutual fund investments in a non-qualified savings plan
(a)
|
|
$
|
1.8
|
|
|
$
|
1.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Derivatives – natural gas instruments
|
|
0.9
|
|
|
—
|
|
|
0.9
|
|
|
—
|
|
|
Trading securities
|
|
1.8
|
|
|
—
|
|
|
1.8
|
|
|
—
|
|
|
Total Assets
|
|
$
|
4.5
|
|
|
$
|
1.8
|
|
|
$
|
2.7
|
|
|
$
|
—
|
|
|
Liability Class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities related to non-qualified savings plan
|
|
$
|
(1.8
|
)
|
|
$
|
(1.8
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Derivatives – foreign currency swaps
|
|
(25.8
|
)
|
|
—
|
|
|
(25.8
|
)
|
|
—
|
|
|
Total Liabilities
|
|
$
|
(27.6
|
)
|
|
$
|
(1.8
|
)
|
|
$
|
(25.8
|
)
|
|
$
|
—
|
|
|
|
|
|
(a)
|
Includes mutual fund investments of approximately
25%
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,
5%
in bond funds,
40%
in short-term investments and
15%
in blended funds.
|
Cash and cash equivalents, accounts receivable (net of allowance for bad debts) and payables 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 million
at both
March 31, 2017
, and
December 31, 2016
, respectively, are stated at fair value based on quoted market prices. As of
March 31, 2017
, the estimated amount a third-party would pay for the Company’s fixed-rate
4.875%
senior notes due July 2024, based on available trading information, totaled
$244.7 million
(Level 2) compared with the aggregate principal amount at maturity of
$250.0 million
. The estimated amount a third-party would pay at
March 31, 2017
, for the amounts outstanding under the Company’s term loans and revolving credit facility, based upon available bid information received from the Company’s lender, totaled
$856.2 million
(Level 2) compared with the aggregate principal balance of
$865.7 million
. The loans assumed in the Produquímica acquisition had floating rates and their fair value approximates their carrying value.
The Company calculates earnings per share using the two-class method. 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
2017
|
|
2016
|
|
Numerator:
|
|
|
|
|
Net earnings
|
$
|
21.5
|
|
|
$
|
49.7
|
|
|
Less: net earnings allocated to participating securities
(a)
|
(0.1
|
)
|
|
(0.2
|
)
|
|
Net earnings available to common shareholders
|
$
|
21.4
|
|
|
$
|
49.5
|
|
|
|
|
|
|
|
Denominator (in thousands):
|
|
|
|
|
|
|
Weighted-average common shares outstanding, shares for basic earnings per share
|
33,802
|
|
|
33,746
|
|
|
Weighted-average awards outstanding
(b)
|
1
|
|
|
2
|
|
|
Shares for diluted earnings per share
|
33,803
|
|
|
33,748
|
|
|
Net earnings per common share, basic
|
$
|
0.63
|
|
|
$
|
1.47
|
|
|
Net earnings per common share, diluted
|
$
|
0.63
|
|
|
$
|
1.46
|
|
|
|
|
|
(a)
|
Weighted participating securities include RSUs and PSUs that receive non-forfeitable dividends and consist of
157,000
and
143,000
weighted participating securities for the
three
months ended
March 31, 2017
, and
March 31, 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
487,000
and
400,000
weighted-average equity awards for the
three
months ended
March 31, 2017
, and
March 31, 2016
, respectively, which were anti-dilutive and therefore not included in the diluted earnings per share calculation.
|