Compass Minerals(CMP) - 2019 Q4 - Annual Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents Compass Minerals International's unaudited consolidated financial statements, including balance sheets, income, and cash flow statements Consolidated Balance Sheets Total assets decreased slightly to $2,329.8 million as of September 30, 2019, while total liabilities increased and stockholders' equity declined Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $695.4 | $721.2 | | Total Assets | $2,329.8 | $2,367.9 | | Total Current Liabilities | $277.9 | $283.3 | | Long-Term Debt | $1,358.2 | $1,321.2 | | Total Liabilities | $1,870.3 | $1,827.7 | | Total Stockholders' Equity | $459.5 | $540.2 | | Total Liabilities & Equity | $2,329.8 | $2,367.9 | Consolidated Statements of Operations Net earnings for Q3 2019 were $10.6 million on $341.3 million sales, while nine-month net earnings significantly decreased to $6.4 million Q3 and Nine-Month Performance (in millions, except per share data) | Metric | Q3 2019 | Q3 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Sales | $341.3 | $322.5 | $990.2 | $1,007.1 | | Gross Profit | $76.4 | $71.4 | $194.8 | $179.3 | | Operating Earnings | $30.1 | $32.6 | $67.4 | $62.0 | | Net Earnings | $10.6 | $12.8 | $6.4 | $17.8 | | Diluted EPS | $0.31 | $0.37 | $0.17 | $0.51 | Consolidated Statements of Cash Flows Net cash from operating activities decreased to $91.4 million for the nine months ended September 30, 2019, primarily due to lower net earnings Nine-Month Cash Flow Summary (in millions) | Activity | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $91.4 | $165.4 | | Net Cash used in Investing Activities | ($73.2) | ($74.5) | | Net Cash used in Financing Activities | ($25.8) | ($85.7) | | Net Change in Cash | ($3.1) | ($0.5) | | Cash at End of Period | $23.9 | $36.1 | Notes to Consolidated Financial Statements Detailed notes cover accounting policies, revenue recognition, segment reporting, debt, income tax, and commitments, highlighting seasonal business and tax disputes - The company's business is highly seasonal, with deicing salt sales peaking in Q1 and Q4, and Plant Nutrition South America sales in Q3 and Q4 [29][30] - Adoption of the new lease accounting standard (Topic 842) in Q1 2019 led to recognition of $45.7 million in leased assets and $47.5 million in lease liabilities [45][51] - Canadian tax authorities issued $126.2 million in reassessments for 2002-2014, which the company is disputing, having posted $90.2 million in bonds and paid $37.4 million collateral [61][63] - Transfer pricing issues with CRA and IRS for 2013-2021 were settled, resulting in $106.1 million intercompany payments, $29.9 million tax payments, and an expected $57.4 million U.S. tax refund [68] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, highlighting Q3 2019 sales growth and operating earnings decline, alongside nine-month sales decrease and operating earnings increase Consolidated Results of Operations Q3 2019 sales increased 6% while operating earnings fell 8%, whereas nine-month sales dipped 2% but operating earnings grew 9% - For Q3 2019, total sales increased 6% ($18.8 million) while operating earnings decreased 8% ($2.5 million), and diluted EPS fell 16% to $0.31 [133] - Year-to-date 2019, total sales decreased 2% ($16.9 million), operating earnings increased 9% ($5.4 million), and diluted EPS decreased 67% to $0.17 [134] - SG&A expenses for Q3 2019 increased by $7.5 million, primarily driven by CEO and executive transition costs [139] Operating Segment Performance Segment performance varied, with Salt sales up 16% in Q3 2019 due to higher prices, while Plant Nutrition segments showed mixed results Salt Segment Performance (Q3 2019 vs Q3 2018) | Metric | Q3 2019 | Q3 2018 | Change | | :--- | :--- | :--- | :--- | | Sales (millions) | $159.6 | $137.0 | +16% | | Operating Earnings (millions) | $20.6 | $12.1 | +70% | | Highway Deicing Avg. Price/ton | $60.01 | $49.15 | +22% | | Total Tons Sold (thousands) | 1,903 | 1,776 | +7% | Plant Nutrition North America Performance (Q3 2019 vs Q3 2018) | Metric | Q3 2019 | Q3 2018 | Change | | :--- | :--- | :--- | :--- | | Sales (millions) | $44.4 | $41.7 | +6% | | Operating Earnings (millions) | $4.7 | $2.3 | +104% | | Sales Volumes (thousands of tons) | 69 | 64 | +8% | Plant Nutrition South America Performance (Q3 2019 vs Q3 2018) | Metric | Q3 2019 | Q3 2018 | Change | | :--- | :--- | :--- | :--- | | Sales (millions) | $135.0 | $141.2 | -4% | | Operating Earnings (millions) | $22.4 | $31.2 | -28% | | Total Tons Sold (thousands) | 250 | 254 | -2% | 2019 Full-Year Outlook The company updated its full-year 2019 guidance, with Salt sales volumes projected between 10.8 and 11.2 million tons, and reduced outlooks for Plant Nutrition segments - Full-year 2019 sales volume outlook for Salt is 10.8 million to 11.2 million tons, Plant Nutrition North America is 310,000 to 340,000 tons, and Plant Nutrition South America is 775,000 to 825,000 tons [165] Liquidity and Capital Resources As of September 30, 2019, the company held $23.9 million in cash, with total debt at $1.41 billion, and plans to repatriate $150 million in foreign earnings - Cash and cash equivalents decreased by $3.1 million during the first nine months of 2019, reaching $23.9 million [171] - Total debt was $1.41 billion as of September 30, 2019, with $39.1 million available under the revolving credit facility [172] - The company expects to repatriate approximately $150 million of unremitted foreign earnings, incurring a $4.8 million deferred tax liability [167] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rates, foreign currency, and commodity pricing, using derivatives to mitigate these exposures, with no material changes since year-end 2018 - Key market risks include interest rates, foreign currency exchange rates, and commodity pricing [187] - Derivative instruments are utilized to hedge a portion of commodity pricing and foreign currency exchange rate risks [187] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2019, with new internal controls implemented for lease accounting - Disclosure controls and procedures were deemed effective by the CEO and CFO as of September 30, 2019 [188] - New internal controls were implemented to address the lease accounting guidance (Topic 842) adopted on January 1, 2019 [190] PART II. OTHER INFORMATION Legal Proceedings The company is involved in routine legal proceedings, with no material adverse effects expected, except for ongoing Canadian tax disputes and an SEC investigation - The company is involved in routine legal proceedings and tax assessments, with no material adverse impact expected by management [192] - Material legal matters, including Canadian tax disputes and an SEC investigation, are detailed in Notes 7 and 9 to the Consolidated Financial Statements [77][192] Risk Factors No material changes to the company's risk factors have occurred since the Annual Report on Form 10-K for the year ended December 31, 2018 - No material changes to risk factors have occurred since the 2018 Annual Report on Form 10-K [193] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities, noting that 9,263 shares were withheld for employee tax obligations on vested RSUs - During the first nine months of 2019, 9,263 shares were withheld to cover employee taxes on vested RSUs, not considered stock repurchases [196] Mine Safety Disclosures Mine safety violations and regulatory matters, as required by the Dodd-Frank Act, are disclosed in Exhibit 95 of this quarterly report - Mine safety disclosures are included in Exhibit 95 of the Form 10-Q [198]