NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
1.
|
Accounting Policies and Basis of Presentation:
|
Compass Minerals International, Inc., through its subsidiaries, is a producer and marketer of essential mineral products with manufacturing sites in North America and the United Kingdom (“U.K.”). Except where otherwise noted, references to North America include only the continental United States and Canada, and references to the United Kingdom include only England, Scotland and Wales. References to the “Company,” “Compass,” “Compass Minerals,” “we,” “us” and “our” refer to Compass Minerals International, Inc. (“CMI,” the parent holding company) and its consolidated subsidiaries. The Company’s principal products are salt, consisting of sodium chloride and magnesium chloride, and sulfate of potash (“SOP”), a specialty fertilizer the Company markets under the trade name Protassium+™. Additionally, the Company sells various premium micronutrient products under its Wolf Trax® brand. The Company provides highway deicing products to customers in North America and the U.K. and plant nutrients to growers and fertilizer distributors worldwide. The Company also produces and markets consumer deicing and water conditioning products, ingredients used in consumer and commercial food preparation, and other mineral-based products for consumer, agricultural and industrial applications. Compass Minerals 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 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 a minor influence over the investee’s operations, but does not have a controlling financial interest. The Company recognizes its share of the investee’s earnings on a
three
-month lag as the investee’s financial information is not available on a timely basis.
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 CMI for the year ended
December 31, 2015
, 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 salt segment sales, primarily with respect to its deicing 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 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.
Reclassifications
Certain prior year amounts have been reclassified from other noncurrent assets to long-term debt, net of current portion, to conform to the current year presentation as required by the new accounting standard on debt issuance costs (see Note 7).
Recent Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (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 guidance is effective for fiscal years ending after December 15, 2016, with early adoption permitted. The Company is currently evaluating the impact of the adoption on its consolidated financial statements.
In February 2016, the FASB issued guidance which requires lessees to recognize on the balance sheet a right-of-use asset which represents a lessee’s right to use the underlying asset. Under the guidance, an entity will 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 disclosures that are both qualitative and quantitative in nature. 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 on its consolidated financial statements.
In November 2015, the FASB issued guidance which simplifies the presentation of deferred income taxes by eliminating the requirement that an entity separate deferred income tax assets and liabilities into current and noncurrent in a classified statement of financial position. Under this guidance, deferred tax assets and liabilities are required to be classified as noncurrent. The amendments are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for all entities as of the beginning of an interim or annual reporting period. The Company prospectively adopted the accounting standard as of the beginning of the Company’s fourth quarter of 2015.
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 guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted. The Company does not plan to early adopt, and the Company does not expect that this guidance will have a material impact on its consolidated financial statements.
In April 2015, the FASB issued guidance clarifying that customers should determine whether a cloud computing arrangement includes the license of software by applying the same guidance cloud service providers used to make this determination. The new guidance also eliminates the prior requirement for customers to account for software licenses they acquire by analogizing to the guidance on leases. The guidance is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The Company prospectively adopted the accounting standard in the first quarter of 2016. The adoption of this guidance had no material impact on the Company’s consolidated financial statements.
In August 2014, the FASB issued guidance which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide disclosure in the footnotes under certain circumstances. This guidance is effective for fiscal years ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016, with early adoption permitted. The Company does not plan to early adopt, and the Company does not expect that this guidance will 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 and interim periods with those years beginning after December 15, 2017, and early adoption is permitted. The guidance permits the use of either a full or modified retrospective or cumulative effect transition method. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In December 2015, the Company entered into a subscription agreement with Produquímica Indústria e Comércio S.A., a Brazilian corporation (“Produquímica”), and a sale and purchase agreement with certain shareholders of Produquímica. Pursuant to these agreements, the Company acquired, in the aggregate,
35%
of the issued and outstanding capital stock of Produquímica for an aggregate purchase price of
$452.4 million
Brazilian reals, or
$114.1 million
U.S. dollars at closing. Of the 35% capital stock,
6%
consists of common shares at closing, and the remaining
29%
consists of preferred shares that will be converted to common shares upon the settlement of certain post-closing adjustments, including additional consideration to be paid by the Company based upon Produquímica’s 2015 financial performance. The additional consideration of
$4.7 million
U.S. dollars at current exchange rates will be paid in the second quarter of 2016 and has been recorded as an increase in investment in equity investee in the Company’s first quarter 2016 consolidated balance sheets.
The subscription agreement also contains a put option, allowing the majority shareholders to notify the Company of their intent to sell the remaining equity interests in Produquímica to the Company during October 2016, 2017 and 2018, and a call option, allowing the Company to purchase the remaining equity interests in Produquímica in October 2018, in each case at the price and on other terms and conditions set forth in the subscription agreement. The exercise price of either the put or call option will be based on the adjusted EBITDA of Produquímica for the fiscal year in which the option is exercised, and the transaction is expected to close after the applicable fiscal year end, subject to regulatory approval.
In connection with this transaction, the Company entered into a new U.S. dollar-denominated
$100.0 million
term loan in the fourth quarter of 2015 with certain existing lenders to fund the acquisition of the
35%
equity stake in Produquímica.
The Company recognizes its share of earnings or losses from Produquímica on a three-month lag. The Company has recognized earnings of
$0.4 million
related to its share of earnings from the acquisition date through December 31, 2015, in its first quarter 2016 consolidated statements of operations.
Inventories consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
Finished goods
|
$
|
154.5
|
|
|
$
|
223.1
|
|
Raw materials and supplies
|
56.6
|
|
|
52.2
|
|
Total inventories
|
$
|
211.1
|
|
|
$
|
275.3
|
|
|
|
4.
|
Property, Plant and Equipment, Net:
|
Property, plant and equipment, net consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
Land, buildings and structures and leasehold improvements
|
$
|
362.1
|
|
|
$
|
347.3
|
|
Machinery and equipment
|
730.3
|
|
|
701.5
|
|
Office furniture and equipment
|
26.2
|
|
|
25.4
|
|
Mineral interests
|
172.5
|
|
|
169.6
|
|
Construction in progress
|
234.1
|
|
|
191.5
|
|
|
1,525.2
|
|
|
1,435.3
|
|
Less accumulated depreciation and depletion
|
(660.1
|
)
|
|
(634.6
|
)
|
Property, plant and equipment, net
|
$
|
865.1
|
|
|
$
|
800.7
|
|
|
|
5.
|
Goodwill and Intangible Assets, Net:
|
The estimated lives of the Company’s intangible assets are as follows:
|
|
|
Intangible asset
|
Estimated
Lives
|
Supply agreement
|
50 years
|
SOP production rights
|
25 years
|
Patents
|
10-20 years
|
Developed technology
|
5 years
|
Lease rights
|
25 years
|
Customer and distributor relationships
|
10 years
|
Trademarks
|
10 years
|
Noncompete agreements
|
5 years
|
Trade names
|
Indefinite
|
Water rights
|
Indefinite
|
None of the finite-lived intangible assets have a residual value. Aggregate amortization expense was
$1.0 million
and
$1.1 million
in the first quarters of
2016
and
2015
, respectively.
The Company has goodwill of
$61.8 million
and
$58.1 million
as of
March 31, 2016
, and
December 31, 2015
, respectively, in its consolidated balance sheets.
$55.6 million
and
$51.7 million
of the amounts recorded for goodwill as of
March 31, 2016
, and
December 31, 2015
, respectively, were recorded in the Company’s plant nutrition segment, and the remaining amounts in both periods were immaterial and recorded in its salt segment and corporate and other. The change in goodwill between
December 31, 2015
, and March 31, 2016, was due to the impact from translating foreign-denominated amounts to U.S. dollars.
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
$4.6 million
and
$3.6 million
as of
March 31, 2016
, and
December 31, 2015
, respectively, of gross foreign federal net operating loss (“NOL”) carryforwards that have no expiration date. In addition, the Company had
$8.9 million
and
$6.4 million
as of
March 31, 2016
, and
December 31, 2015
, respectively, of gross foreign federal NOL carryforwards which expire beginning in
2033
and
$1.1 million
and
$0.8 million
as of
March 31, 2016
, and
December 31, 2015
, 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
-
2010
. The reassessments are a result of ongoing audits and total
$84.8 million
, including interest through
March 31, 2016
. 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
$52.8 million
performance bond. The Company has paid
$29.3 million
(most of which is recorded in other assets in the consolidated balance sheets) with the remaining balance to be paid after
2016
.
In addition, Canadian federal and provincial taxing authorities have reassessed the Company for years
2004
-
2006
which have been previously settled by agreement among the Company, the Canadian federal taxing authority and the U.S. federal taxing authority. The Company has fully complied with the agreement since entering into it, and it believes this action is highly unusual. The Company is seeking to enforce the agreement which provided the basis upon which the returns were previously filed and settled. The total amount of the reassessments, including penalties and interest through
March 31, 2016
, related to this matter is
$94.8 million
. The Company has posted collateral in the form of a
$20.7 million
performance bond and
$37.3 million
in the form of a bank letter guarantee which is necessary to proceed with future appeals or litigation. A trial has been scheduled with the Tax Court of Canada for July 2016 related to this matter.
The Company received Canadian income tax reassessments for years
2007
-
2008
. The total amount of the reassessments, including penalties and interest through
March 31, 2016
, related to this matter is
$33.5 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 agreed to post collateral of a
$9.3 million
performance bond and
$10.1 million
in the form of a 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 the same local regulations to provide security for additional interest on the above 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, 2016
, 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.
Long-term debt consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
Term Loan due May 2017
|
$
|
470.8
|
|
|
$
|
471.9
|
|
Revolving Credit Facility due August 2017
|
—
|
|
|
4.5
|
|
4.875% Senior Notes due July 2024
|
246.6
|
|
|
246.5
|
|
|
717.4
|
|
|
722.9
|
|
Less current portion
|
(4.9
|
)
|
|
(4.9
|
)
|
Long-term debt
|
$
|
712.5
|
|
|
$
|
718.0
|
|
In the first quarter of 2016, the Company adopted guidance which requires debt issuance costs to be presented as a reduction to the carrying value of the related debt rather than as a deferred charge. In connection with this adoption, the Company reclassified
$3.4 million
and
$3.5 million
of debt issuance costs related to the 4.875% senior notes due July 2024 and
$0.5 million
and
$0.6 million
of debt costs related to the term loan due May 2017 in its consolidated balance sheets as of March 31, 2016, and December 31, 2015, respectively.
As of March 31, 2016, the term loan due May 2017 and revolving credit facility were secured by substantially all existing and future assets of the Company’s subsidiaries.
In April 2016, the Company entered into a new
$700 million
secured credit agreement that consists of a
$400 million
term loan and a
$300 million
revolving credit facility, which replaced the Company’s previously existing term loan and revolving credit facility. The new credit agreement has a final maturity of July 1, 2021.
|
|
8.
|
Commitments and Contingencies:
|
The Company is involved in proceedings alleging unfair labor practices at its Cote Blanche, Louisiana, mine. This matter arises out of a labor dispute between the Company and the United Steelworkers Union over the terms of a new 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 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. Any requirement for the Company to pay back wages will be offset by any wages earned at other places of employment during this period. In the fourth quarter of 2013, this ruling was upheld by an appeals court, and the Company recorded a reserve of approximately
$5.0 million
in its consolidated financial statements related to expected payments required to resolve the dispute.
In the first quarter of 2015, additional information became available, and the Company recorded an additional
$2.0 million
reserve for this matter in its consolidated financial statements. Both parties are currently negotiating in an effort to reach a settlement. If the Company is unable to come to terms with the union, the parties may agree to arbitration, and any decisions reached in arbitration would be binding. The Company may need to record additional losses in its financial statements as a result of future developments.
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 Compass Minerals’ 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 such investigations of the soils and ground water and has provided the findings to DATCP. The Company is presently proceeding with select remediation activities to mitigate agricultural chemical impact to soils and ground water at the site. All investigations and mitigation activities to date, and any potential future remediation work, are being conducted under the Wisconsin Agricultural Chemical Cleanup Program (“ACCP”), which would provide for reimbursement of some of the costs. The Company may seek participation by, or cost reimbursement from, the 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 does not believe that these actions will have a material adverse financial effect on the Company. Furthermore, while any litigation contains an element of uncertainty, management presently believes that the outcome of each such proceeding or claim, which is pending or known to be threatened, or all of them combined, will not have a material adverse effect on the Company’s results of operations, cash flows or financial position.
Segment information is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
Salt
|
|
Plant
Nutrition
(a)
|
|
Corporate
and Other
(b)
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
Salt
|
|
Plant
Nutrition
|
|
Corporate
and Other
(b)
|
|
Total
|
Sales to external customers
|
$
|
316.7
|
|
|
$
|
73.6
|
|
|
$
|
2.7
|
|
|
$
|
393.0
|
|
Intersegment sales
|
—
|
|
|
0.7
|
|
|
(0.7
|
)
|
|
—
|
|
Shipping and handling cost
|
94.5
|
|
|
7.4
|
|
|
—
|
|
|
101.9
|
|
Operating earnings (loss)
|
77.0
|
|
|
20.8
|
|
|
(13.1
|
)
|
|
84.7
|
|
Depreciation, depletion and amortization
|
10.9
|
|
|
7.0
|
|
|
1.2
|
|
|
19.1
|
|
Total assets (as of end of period)
|
949.6
|
|
|
543.3
|
|
|
53.8
|
|
|
1,546.7
|
|
|
|
(a)
|
Plant nutrition segment assets include the investment in Produquímica.
|
|
|
(b)
|
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.
|
|
|
10.
|
Stockholders’ Equity and Equity Instruments:
|
In May 2015, the Company’s shareholders approved the 2015 Incentive Award Plan, which authorizes the issuance of
3,000,000
shares. Since the date the 2015 Incentive Award Plan was approved, the Company ceased issuing equity awards under the 2005 Incentive Award Plan. In 2016, the Company elected to move its grant date for annual grants of equity awards from March to April. For outstanding awards, the Company’s closing stock price on the grant date was used to set the exercise price for options and the fair value of the restricted stock units (“RSUs”). Outstanding options vest ratably on each anniversary date over a
four
-year service period. Unexercised options expire after
seven years
. Substantially all of the RSUs vest on the third anniversary following the grant date. The RSUs granted entitle the holders to receive non-forfeitable dividends or other distributions equal to those declared on the Company’s common stock for RSUs that are earned after a performance hurdle has been satisfied in the year of the grant.
The outstanding performance stock units (“PSUs”) have a
three
-year performance period. The PSUs each represent a target number of shares that may be issued before adjustment based upon the attainment of certain performance conditions. The Company has
two
types of PSUs. The actual number of shares that may be earned with respect to the total shareholder return PSUs (“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 during the
three
-year performance period. The actual number of shares received with respect to the TSR PSUs may range between
0%
and
150%
of the target number of shares based upon the attainment of the performance conditions. The actual number of shares that may be earned with respect to the return on invested capital PSUs (“ROIC PSUs”) is calculated by averaging the Company’s annual return on invested capital for each year in the
three
-year performance period. The actual number of shares received with respect to the ROIC PSUs may range between
0%
and
200%
based upon the attainment of the performance conditions. Substantially all of the PSUs vest
three
years after the grant date. The PSUs entitle the holders to receive
non-forfeitable dividends or other distributions equal to those declared on the Company’s common stock from the grant date through the vest date for PSUs that are earned. None of the Company’s equity awards have voting rights.
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.
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 set 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
three
-year vesting period.
During the
three
months ended
March 31, 2016
, the Company reissued the following number of shares from treasury stock:
9,382
shares related to the exercise of stock options,
51,140
shares related to the release of RSUs which vested,
9,922
shares related to the release of PSUs which vested, and
10,403
shares related to stock payments. The Company recognized a tax deficiency of
$0.1 million
from its equity compensation awards as a decrease to additional paid-in capital during the first
three
months of
2016
. During the first
three
months of
2016
and
2015
, the Company recorded
$1.1 million
and
$1.6 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, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
RSUs
|
|
PSUs
(a)
|
|
|
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
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercised
(b)
|
|
(9,382
|
)
|
|
60.31
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Released from restriction
(b)
|
|
—
|
|
|
—
|
|
|
(51,140
|
)
|
|
75.12
|
|
|
(9,922
|
)
|
|
77.75
|
|
Cancelled/Expired
|
|
(9,204
|
)
|
|
87.40
|
|
|
(2,110
|
)
|
|
89.71
|
|
|
(8,949
|
)
|
|
88.03
|
|
Outstanding at March 31, 2016
|
|
334,501
|
|
|
$
|
84.50
|
|
|
37,758
|
|
|
$
|
87.64
|
|
|
58,494
|
|
|
$
|
101.15
|
|
|
|
(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 per unit. The final performance period for the 2013 PSU grant was completed in 2015. The Company issued
9,922
shares and cancelled
5,263
PSUs in the first quarter of 2016 related to the 2013 PSU grant.
|
|
|
(b)
|
Common stock issued for exercised options and RSUs and PSUs released from restriction 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, 2016
, and
2015
are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
(a)
|
Gains and
(Losses) on
Cash Flow
Hedges
|
|
Defined
Benefit
Pension
|
|
Foreign
Currency
|
|
Total
|
Beginning balance
|
$
|
(2.0
|
)
|
|
$
|
(9.0
|
)
|
|
$
|
(4.5
|
)
|
|
$
|
(15.5
|
)
|
Other comprehensive income (loss) before reclassifications
(b)
|
(0.7
|
)
|
|
—
|
|
|
(49.8
|
)
|
|
(50.5
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
0.7
|
|
|
0.3
|
|
|
—
|
|
|
1.0
|
|
Net current period other comprehensive income (loss)
|
—
|
|
|
0.3
|
|
|
(49.8
|
)
|
|
(49.5
|
)
|
Ending balance
|
$
|
(2.0
|
)
|
|
$
|
(8.7
|
)
|
|
$
|
(54.3
|
)
|
|
$
|
(65.0
|
)
|
|
|
(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 above are reflected net of applicable income taxes.
|
|
|
(b)
|
The Company recorded foreign exchange (gains) losses of
$(21.8) million
and
$17.3 million
in the three months ended
March 31, 2016
, and March 31, 2015, respectively, in accumulated other comprehensive income (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, 2016
, and
2015
are shown below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Amount Reclassified from AOCI
|
|
|
|
Three Months Ended
March 31, 2016
|
|
Three Months Ended March 31, 2015
|
|
Line Item Impacted in the
Consolidated Statement of Operations
|
Gains and (losses) on cash flow hedges:
|
|
|
|
|
|
Natural gas instruments
|
$
|
1.1
|
|
|
$
|
1.1
|
|
|
Product cost
|
|
(0.4
|
)
|
|
(0.4
|
)
|
|
Income tax expense (benefit)
|
Reclassifications, net of income taxes
|
0.7
|
|
|
0.7
|
|
|
|
Amortization of defined benefit pension:
|
|
|
|
|
|
|
Amortization of loss
|
$
|
0.1
|
|
|
$
|
0.4
|
|
|
Product cost
|
|
—
|
|
|
(0.1
|
)
|
|
Income tax expense (benefit)
|
Reclassifications, net of income taxes
|
0.1
|
|
|
0.3
|
|
|
|
Total reclassifications, net of income taxes
|
$
|
0.8
|
|
|
$
|
1.0
|
|
|
|
|
|
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 arrangements. The Company has entered into natural gas derivative instruments with counterparties it views as creditworthy. However, management does attempt to mitigate its counterparty credit risk exposures by, among other things, entering into master netting agreements with these counterparties.
Cash Flow Hedges
As of
March 31, 2016
, the Company has entered into natural gas derivative instruments. The Company records derivative financial instruments as either assets or liabilities at fair value in the consolidated statements of financial position. 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 derivative instruments held by the Company as of
March 31, 2016
, and
December 31, 2015
, 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 (see Note 10). 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. 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, 2016
, the Company had entered into natural gas derivative instruments to hedge a portion of
its natural gas purchase requirements through
December 2017
. 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, 2016
, and
December 31, 2015
, the Company had agreements in place to hedge forecasted natural gas purchases of
2.2 million
and
2.8 million
MMBtus, respectively.
As of
March 31, 2016
, the Company expects to reclassify from accumulated other comprehensive loss to earnings during the next twelve months
$2.2 million
of net losses on derivative instruments related to its natural gas hedges.
The following tables present the fair value of the Company’s hedged items as of
March 31, 2016
, and
December 31, 2015
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
Derivatives designated as hedging instruments
(a)
|
Balance Sheet
Location
|
|
March 31,
2016
|
|
Balance Sheet
Location
|
|
March 31,
2016
|
Commodity contracts
|
Other current assets
|
|
$
|
0.1
|
|
|
Accrued expenses
|
|
$
|
2.2
|
|
Commodity contracts
|
Other assets
|
|
—
|
|
|
Other noncurrent liabilities
|
|
0.2
|
|
Total derivatives designated as hedging instruments
|
|
|
$
|
0.1
|
|
|
|
|
$
|
2.4
|
|
|
|
(a)
|
As of
March 31, 2016
, the Company had commodity hedge agreements with
two
counterparties. Amounts recorded as liabilities for the Company’s commodity contracts were payable to both counterparties. The Company has master netting agreements with its counterparties and accordingly has netted in its consolidated balance sheets
$0.1 million
that were in receivable positions against its contracts in payable positions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
Derivatives designated as hedging instruments
(a)
|
Balance Sheet
Location
|
|
December 31,
2015
|
|
Balance Sheet
Location
|
|
December 31,
2015
|
Commodity contracts
|
Other current assets
|
|
$
|
0.1
|
|
|
Accrued expenses
|
|
$
|
2.6
|
|
Commodity contracts
|
Other assets
|
|
—
|
|
|
Other noncurrent liabilities
|
|
0.1
|
|
Total derivatives designated as hedging instruments
|
|
|
$
|
0.1
|
|
|
|
|
$
|
2.7
|
|
|
|
(a)
|
As of December 31, 2015, the Company had commodity hedge agreements with
two
counterparties. Amounts recorded as liabilities for the Company’s commodity contracts were payable to both counterparties. The Company has master netting agreements with its counterparties and accordingly has netted in its consolidated balance sheets
$0.1 million
that were in receivable position against its contracts in payable positions.
|
|
|
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 one inputs) or, absent quoted market prices, observable market-corroborated inputs over the term of the financial instruments (level two inputs). The Company does not have any unobservable inputs that are not corroborated by market inputs (level three inputs).
The Company holds marketable securities associated with its non-qualified retirement plan, which are valued based on readily available quoted market prices. The Company utilizes derivative instruments to manage its risk of changes in natural gas prices. The fair value of the natural gas derivative instruments 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,
2016
|
|
Level One
|
|
Level Two
|
|
Level Three
|
Asset Class:
|
|
|
|
|
|
|
|
Mutual fund investments in a non-qualified retirement plan
(a)
|
$
|
1.6
|
|
|
$
|
1.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total Assets
|
$
|
1.6
|
|
|
$
|
1.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liability Class:
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities related to non-qualified retirement plan
|
$
|
(1.6
|
)
|
|
$
|
(1.6
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivatives – natural gas instruments, net
|
(2.3
|
)
|
|
—
|
|
|
(2.3
|
)
|
|
—
|
|
Total Liabilities
|
$
|
(3.9
|
)
|
|
$
|
(1.6
|
)
|
|
$
|
(2.3
|
)
|
|
$
|
—
|
|
|
|
(a)
|
Includes mutual fund investments of approximately
20%
in the common stock of large-cap U.S. companies, approximately
10%
in the common stock of small to mid-cap U.S. companies, approximately
5%
in international companies, approximately
10%
in bond funds, approximately
20%
in short-term investments and approximately
35%
in blended funds.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2015
|
|
Level One
|
|
Level Two
|
|
Level Three
|
Asset Class:
|
|
|
|
|
|
|
|
Mutual fund investments in a non-qualified retirement plan
(a)
|
$
|
1.6
|
|
|
$
|
1.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total Assets
|
$
|
1.6
|
|
|
$
|
1.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liability Class:
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities related to non-qualified retirement plan
|
$
|
(1.6
|
)
|
|
$
|
(1.6
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivatives – natural gas instruments, net
|
(2.6
|
)
|
|
—
|
|
|
(2.6
|
)
|
|
—
|
|
Total Liabilities
|
$
|
(4.2
|
)
|
|
$
|
(1.6
|
)
|
|
$
|
(2.6
|
)
|
|
$
|
—
|
|
|
|
(a)
|
Includes mutual fund investments of approximately
20%
in the common stock of large-cap U.S. companies, approximately
5%
in the common stock of small to mid-cap U.S. companies, approximately
5%
in the common stock of international companies, approximately
5%
in bond funds, approximately
35%
in short-term investments and approximately
30%
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
$1.6 million
at both
March 31, 2016
, and
December 31, 2015
, are stated at fair value based on quoted market prices. As of
March 31, 2016
, the estimated amount a third-party would pay for the fixed-rate
4.875%
senior notes due July 2024, based on available trading information, totaled
$242.5 million
(level two) compared with the aggregate principal amount at maturity of
$250.0 million
. The estimated amount a third-party would pay at
March 31, 2016
, for the amounts outstanding under the credit agreement, based upon available bid information received from the Company’s lender, totaled
$466.6 million
(level two) compared with the aggregate principal balance of
$471.3 million
.
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,
|
|
2016
|
|
2015
|
Numerator:
|
|
|
|
Net earnings
|
$
|
49.7
|
|
|
$
|
60.6
|
|
Less: net earnings allocated to participating securities
(a)
|
(0.2
|
)
|
|
(0.3
|
)
|
Net earnings available to common shareholders
|
$
|
49.5
|
|
|
$
|
60.3
|
|
|
|
|
|
Denominator (in thousands):
|
|
|
|
|
|
Weighted-average common shares outstanding, shares for basic earnings per share
|
33,746
|
|
|
33,626
|
|
Weighted-average awards outstanding
(b)
|
2
|
|
|
23
|
|
Shares for diluted earnings per share
|
33,748
|
|
|
33,649
|
|
Net earnings per common share, basic
|
$
|
1.47
|
|
|
$
|
1.79
|
|
Net earnings per common share, diluted
|
$
|
1.46
|
|
|
$
|
1.79
|
|
|
|
(a)
|
Participating securities include options, PSUs and RSUs that receive non-forfeitable dividends. Weighted participating securities included
143,000
and
216,000
for the
three
months ended
March 31, 2016
, and
March 31, 2015
, 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
400,000
and
343,000
weighted-awards outstanding for the
three
months ended
March 31, 2016
, and
March 31, 2015
, respectively, which were anti-dilutive and therefore not included in the diluted earnings per-share calculation.
|