UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q

þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2013

or

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________________ to ___________________

Commission File Number 001-31921


Compass Minerals International, Inc.

(Exact name of registrant as specified in its charter)

Delaware
 
36-3972986
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)

9900 West 109th Street
Suite 100
Overland Park, KS 66210
(913) 344-9200
(Address of principal executive offices, zip code and telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes: þ      No:   o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes: þ      No:  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer R
Accelerated filer o
Non-accelerated filer o
Smaller reporting company  o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes: o      No:  þ
 
The number of shares outstanding of the registrant’s common stock, $0.01 par value per share, at April 25, 2013 was 33,306,229 shares.
 


 
 

 
 
COMPASS MINERALS INTERNATIONAL, INC.
 
TABLE OF CONTENTS
 
   
Page
 
PART I.  FINANCIAL INFORMATION
 
     
Item 1.
 
     
 
2
     
 
3
     
 
4
     
 
5
     
 
6
     
 
7
     
Item 2.
17
     
Item 3.
25
     
Item 4.
25
     
 
PART II.  OTHER INFORMATION
 
     
Item 1.
25
     
Item 1A.
25
     
Item 2.
25
     
Item 3.
25
     
Item 4.
25
     
Item 5.
25
     
Item 6.
26
     
27

 
PART I.  FINANCIAL INFORMATION
Item 1.    Financial Statements

COMPASS MINERALS INTERNATIONAL, INC.
(in millions, except share data)

   
(Unaudited)
March 31,
   
December 31,
 
   
2013
   
2012
 
ASSETS
 
Current assets:
           
Cash and cash equivalents
  $ 175.5     $ 100.1  
Receivables, less allowance for doubtful accounts of $1.5 in 2013 and $2.4 in 2012
    149.3       143.7  
Inventories
    135.0       229.7  
Deferred income taxes, net
    7.5       7.4  
Other
    16.8       26.0  
Total current assets
    484.1       506.9  
Property, plant and equipment, net
    656.0       645.2  
Intangible assets, net
    73.5       74.7  
Other
    76.3       73.8  
Total assets
  $ 1,289.9     $ 1,300.6  
   
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
               
Current portion of long-term debt
  $ 3.9     $ 3.9  
Accounts payable
    55.3       85.4  
Accrued expenses
    89.2       87.8  
Accrued salaries and wages
    17.0       20.1  
Income taxes payable
    3.1       1.0  
Accrued interest
    3.1       1.1  
Total current liabilities
    171.6       199.3  
Long-term debt, net of current portion
    477.4       478.4  
Deferred income taxes, net
    78.3       77.9  
Other noncurrent liabilities
    41.5       41.5  
Commitments and contingencies (Note 9)
               
Stockholders' equity:
               
Common stock:  $0.01 par value, 200,000,000 authorized shares; 35,367,264 issued shares
    0.4       0.4  
Additional paid-in capital
    56.3       54.5  
Treasury stock, at cost — 2,061,035 shares at March 31, 2013 and 2,094,774 shares at December 31, 2012
    (3.9 )     (4.0 )
Retained earnings
    423.1       395.0  
Accumulated other comprehensive income
    45.2       57.6  
Total stockholders' equity
    521.1       503.5  
Total liabilities and stockholders' equity
  $ 1,289.9     $ 1,300.6  

The accompanying notes are an integral part of the consolidated financial statements.
 
 
COMPASS MINERALS INTERNATIONAL, INC.
(Unaudited, in millions, except share and per share data)
 
   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
             
Sales
  $ 383.7     $ 315.3  
Shipping and handling cost
    115.3       93.5  
Product cost
    177.1       139.0  
Gross profit
    91.3       82.8  
Selling, general and administrative expenses
    23.8       21.4  
Operating earnings
    67.5       61.4  
                 
Other (income) expense:
               
Interest expense
    4.4       5.0  
Other, net
    (0.4 )     1.6  
Earnings before income taxes
    63.5       54.8  
Income tax expense
    17.1       14.9  
Net earnings
  $ 46.4     $ 39.9  
                 
Basic net earnings per common share
  $ 1.38     $ 1.19  
Diluted net earnings per common share
  $ 1.38     $ 1.19  
                 
Weighted-average common shares outstanding (in thousands):
               
Basic
    33,282       33,035  
Diluted
    33,309       33,058  
                 
Cash dividends per share
  $ 0.545     $ 0.495  

The accompanying notes are an integral part of the consolidated financial statements.
 
 
COMPASS MINERALS INTERNATIONAL, INC.
(Unaudited, in millions)

   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
Net earnings
  $ 46.4     $ 39.9  
Other comprehensive income:
               
Unrealized gain (loss) from change in pension obligation, net of tax of $(0.1) and $(0.0) in 2013 and 2012
    0.3       0.2  
Unrealized gain (loss) on cash flow hedges, net of tax of $(0.4) and $0.1 in 2013 and 2012
    0.7       (0.1 )
Cumulative translation adjustment
    (13.4 )     17.5  
Comprehensive income
  $ 34.0     $ 57.5  
 
The accompanying notes are an integral part of the consolidated financial statements.
 
 
COMPASS MINERALS INTERNATIONAL, INC.
For the three months ended March 31, 2013
(Unaudited, in millions)

                           
Accumulated
       
         
Additional
               
Other
       
   
Common
   
Paid-In
   
Treasury
   
Retained
   
Comprehensive
       
   
Stock
   
Capital
   
Stock
   
Earnings
   
Income
   
Total
 
Balance, December 31, 2012
  $ 0.4     $ 54.5     $ (4.0 )   $ 395.0     $ 57.6     $ 503.5  
Dividends on common stock
                            (18.3 )             (18.3 )
Shares issued for stock units
            (0.1 )     0.1                       -  
Stock options exercised
            0.3                               0.3  
Income tax benefits from equity awards
            0.1                               0.1  
Stock-based compensation
            1.5                               1.5  
Comprehensive income (loss)
                            46.4       (12.4 )     34.0  
Balance, March 31, 2013
  $ 0.4     $ 56.3     $ (3.9 )   $ 423.1     $ 45.2     $ 521.1  

The accompanying notes are an integral part of the consolidated financial statements.
 

COMPASS MINERALS INTERNATIONAL, INC.
(Unaudited, in millions)

   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
Cash flows from operating activities:
           
Net earnings
  $ 46.4     $ 39.9  
Adjustments to reconcile net earnings to net cash flows provided by operating activities:
               
Depreciation, depletion and amortization
    17.3       15.7  
Finance fee amortization
    0.3       0.4  
Stock-based compensation
    1.5       1.7  
Deferred income taxes
    0.6       0.3  
Other, net
    0.5       0.4  
Insurance advances for operating purposes, Goderich tornado
    2.4       19.1  
Changes in operating assets and liabilities:
               
Receivables
    (8.2 )     43.1  
Inventories
    93.0       22.1  
Other assets
    5.8       (3.3 )
Accounts payable and accrued expenses
    (31.3 )     (42.8 )
Other liabilities
    0.5       0.3  
Net cash provided by operating activities
    128.8       96.9  
Cash flows from investing activities:
               
Capital expenditures
    (36.5 )     (30.0 )
Insurance advances for investment purposes, Goderich tornado
    4.3       -  
Other, net
    0.8       (0.3 )
Net cash used in investing activities
    (31.4 )     (30.3 )
Cash flows from financing activities:
               
Principal payments on long-term debt
    (1.0 )     (1.0 )
Dividends paid
    (18.3 )     (16.6 )
Proceeds received from stock option exercises
    0.3       0.1  
Excess tax benefits from equity compensation awards
    0.1       0.3  
Net cash used in financing activities
    (18.9 )     (17.2 )
Effect of exchange rate changes on cash and cash equivalents
    (3.1 )     3.9  
Net change in cash and cash equivalents
    75.4       53.3  
Cash and cash equivalents, beginning of the year
    100.1       130.3  
Cash and cash equivalents, end of period
  $ 175.5     $ 183.6  
                 
Supplemental cash flow information:
               
Interest paid, net of amounts capitalized
  $ 2.3     $ 2.8  
Income taxes paid, net of refunds
  $ 6.7     $ 15.9  

The accompanying notes are an integral part of the consolidated financial statements.
 

COMPASS MINERALS INTERNATIONAL, INC.

(Unaudited)
 
1.  Accounting Policies and Basis of Presentation:
 
Compass Minerals International, Inc. (“CMP”, “Compass Minerals”, or the “Company”), through its subsidiaries, is a producer and marketer of inorganic mineral products with manufacturing sites in North America and the U.K.  Its principal products are salt, consisting of sodium chloride and magnesium chloride, and sulfate of potash (“SOP”), a specialty fertilizer.  The Company provides highway deicing products to customers in North America and the U.K., and specialty fertilizer to growers 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.
 
Compass Minerals International, Inc. is a holding company with no operations other than those of its wholly owned subsidiaries.  The consolidated financial statements include the accounts of Compass Minerals International, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
 
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles 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 generally accepted accounting principles (“GAAP”) for complete financial statements. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements of CMP for the year ended December 31, 2012 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 stockpiles 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 interim prior year amounts have been reclassified from receivables to other current assets to conform to the current year presentation.  This reclassification impacted the presentation of prior year amounts in the Company’s consolidated statements of cash flows.
 
Recent Accounting Pronouncements – In February 2013, the Financial Accounting Standards Board issued guidance, which requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income.  The new guidance is effective for annual and interim periods beginning after December 15, 2012.  The Company adopted the new guidance in the first quarter of 2013 and the required disclosures are presented in Note 11.  The adoption of this guidance did not have an impact on the Company’s financial position or results of operations.
 
2. Goderich Tornado:
 
In August 2011, a tornado struck the Company’s salt mine and its salt mechanical evaporation plant, both located in Goderich, Ontario.  There was no damage to the underground operations at the mine.  However, some of the mine’s surface structures and the evaporation plant incurred significant damage which temporarily ceased production at both facilities.  The Company resumed production and shipping activities, on a reduced basis, at the Goderich mine in early September 2011 and regained full hoisting capability in April 2012.  However, the mine still requires some repairs and reconstruction to fully restore the damaged surface structures and operating assets. The evaporation plant resumed limited activities in late September 2011 and reached full capability by the end of the first quarter of 2012.
 
 
The Company maintains comprehensive property and casualty insurance, including business interruption, which is expected to provide substantial coverage for the losses that have and will occur at these facilities and to the Company’s business losses related to the tornado. The Company made an estimate of the impairment of its property, plant and equipment pertaining to the impacted areas at both of the Goderich facilities.  The Company may need to record additional impairment charges as more information becomes available.  In addition, the Company incurred clean-up costs related to the storm. The Company expects to be fully reimbursed by its insurers for the replacement and repair costs for its property, plant and equipment and associated clean-up costs incurred, net of the Company’s deductible. The impairment and clean-up and restoration costs incurred and insurance recoveries recognized in the consolidated statements of operations for the first three months of 2013 and 2012 are as follows (in millions):
 
   
For the Three Months Ended
 
   
March 31, 2013
   
March 31, 2012
 
Product cost:
           
Property, plant and equipment impairment charges
  $ 0.2     $ -  
Site clean-up and restoration costs
    0.6       5.9  
Estimated insurance recoveries recognized
    (0.8 )     (5.9 )
                 
Net impact on product cost excluding business interruption
  $ -     $ -  
 
The Company received $7.5 million and $25.0 million of insurance advances in the first quarter of 2013 and 2012, respectively.  The Company recorded $0.8 million and $5.9 million of insurance advances as a reduction to salt product cost in the consolidated statements of operations for the three months ended March 31, 2013 and 2012, respectively, to offset recognized impairment charges and site clean-up and restoration costs.  The Company has also recorded approximately $6.7 million and $19.1 million of the insurance advances as deferred revenue in the first quarter of 2013 and 2012, respectively, in accrued expenses in the consolidated balance sheets and has presented these amounts in its operating and/or investing sections of the consolidated statements of cash flows for their respective periods.  In total, the Company has received $70 million of insurance advances since the tornado occurred and recorded approximately $42.9 million and $36.7 million of deferred revenue in accrued expenses in its consolidated balance sheets as of March 31, 2013 and December 31, 2012, respectively.  The actual insurance recoveries related to the replacement cost of property, plant and equipment will exceed the net book value of the damaged property, plant and equipment and the related impairment charges.  However, U.S. GAAP limits the recognition of insurance recoveries in the consolidated financial statements to the amount of recognized losses, provided the Company believes the recoveries are probable. Any gains related to the replacement of property, plant and equipment from insurance recoveries will be recorded in product cost in the consolidated statements of operations when all contingencies relating to the insurance claim have been resolved.
 
The Company also expects to have a substantial business interruption claim to offset lost profits and to offset certain additional expenses incurred related to the ongoing operations.  The Company estimates that the effects from the tornado were immaterial in the first quarter of 2013 and were approximately $14 million in the first quarter of 2012.  To date, the Company has estimated total losses of $38 million resulting from the effects of the tornado. The Company believes its losses, including the impact of estimated lost sales, lost production and additional expenses that have been incurred related to the tornado will be substantially covered by the Company’s insurance policies as business interruption losses.  The amount of actual business interruption recoveries may differ materially from the Company’s current and future estimates.  Any insurance recoveries related to business interruption will be recognized as a reduction to product cost in the consolidated statements of operations when the insurance claim has been settled.  The Company has not recognized any reduction to product cost from insurance recoveries related to estimated business interruption losses.
 
3.  Inventories:
 
Inventories consist of the following (in millions):
 
   
March 31,
   
December 31,
 
   
2013
   
2012
 
Finished goods
  $ 91.9     $ 185.6  
Raw materials and supplies
    43.1       44.1  
Total inventories
  $ 135.0     $ 229.7  

 
4.  Property, Plant and Equipment, Net:
 
Property, plant and equipment, net consists of the following (in millions):

   
March 31,
   
December 31,
 
   
2013
   
2012
 
Land, buildings and structures and leasehold improvements
  $ 308.1     $ 309.0  
Machinery and equipment
    588.2       596.5  
Office furniture and equipment
    20.7       20.8  
Mineral interests
    182.0       184.4  
Construction in progress
    131.4       103.0  
      1,230.4       1,213.7  
Less accumulated depreciation and depletion
    (574.4 )     (568.5 )
Property, plant and equipment, net
  $ 656.0     $ 645.2  

5.  Goodwill and Intangible Assets, Net:
 
Intangible assets consist primarily of a KCl supply agreement, purchased rights to produce SOP, lease rights, water rights, a tradename and customer relationships.  The supply agreement, SOP production rights, lease rights and customer relationships are being amortized over 50 years, 25 years, 25 years and 7-10 years, respectively.  In the fourth quarter of 2012, the Company acquired intangible assets for $15.5 million, which included lease and water rights.  In addition, the Company has water rights and a tradename, which have indefinite lives and have a value of $5.2 million and $0.7 million, respectively, for both periods ending March 31, 2013 and December 31, 2012.  None of the finite-lived intangible assets have a residual value.  Aggregate amortization expense was $0.5 million for both the three-month periods ended March 31, 2013 and 2012.
 
6.  Income Taxes:
 
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.
 
At March 31, 2013 and December 31, 2012, the Company had approximately $4.1 million of gross foreign federal net operating loss (“NOL”) carryforwards that have no expiration date and $0.1 million of tax-effected state NOL carryforwards which expire in 2022. In the future, if the Company determines, based on the existence of sufficient evidence, that it should realize more or less of its deferred tax assets, an adjustment to any existing valuation allowance will be made in the period such determination is made.
 
Canadian provincial tax authorities have issued tax reassessments for years 2002-2007, which are under audit, totaling approximately $66 million, including interest through March 2013, challenging tax positions claimed by one of the Company’s Canadian subsidiaries. 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 reserved for such disputes by the Company.  In connection with this dispute, local regulations require the Company to post security with the tax authority until the dispute is resolved.  The Company and the tax authority have agreed that the Company will post collateral in the form of a $34 million performance bond (including approximately $8 million of the performance bond which will be cancelled pro rata as the outstanding assessment balance falls below the outstanding amount of the performance bond) and make cash payments of approximately $40 million (including the $8 million of cash to be paid when a portion of the performance bond is cancelled).  Of these cash payments, the Company has paid $23 million and it has agreed to pay an additional approximately $3 million during 2013 with the remaining balance to be paid after 2013.  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 the 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.
 
In addition, the Canadian federal taxing authority has 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 the Company believes this action is highly unusual.  The Company is seeking to enforce the agreement which provided the basis upon which the Company’s returns were previously filed and settled.  The total amount of the reassessments, including penalties and interest through
 
 
March 31, 2013, related to this matter totals approximately $102 million.  The Company has agreed to post collateral in the form of approximately a $23 million performance bond and make cash payments of approximately $3 million during 2013.  The Company is currently in discussions with the Canadian tax authorities regarding the remaining required collateral of approximately $36 million necessary to proceed with future appeals or litigation.
 
The Company also has other uncertain tax positions as well as assessments and disputed positions with taxing authorities in its various jurisdictions.
 
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.  As of March 31, 2013, the Company has reserved a modest amount for these matters.
 
7.  Long-term Debt:
 
Long-term debt consists of the following (in millions):

   
March 31,
   
December 31,
 
   
2013
   
2012
 
Term Loan due May 2017
  $ 383.1     $ 384.1  
Revolving Credit Facility due October 2015
    -       -  
8% Senior Notes due June 2019
    98.2       98.2  
      481.3       482.3  
Less current portion
    (3.9 )     (3.9 )
Long-term debt
  $ 477.4     $ 478.4  

The Term Loan and Revolving Credit Facility are secured by substantially all existing and future assets of the Company’s subsidiaries.
 
8.  U.K. Pension Plan:
 
The components of net periodic benefit cost related to its U.K. defined benefit pension plan for the three months ended March 31, 2013 and 2012 are as follows (in millions):
 
   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
Interest cost on projected benefit obligation
  $ 0.8     $ 0.7  
Expected return on plan assets
    (0.7 )     (0.7 )
Net amortization
    0.4       0.2  
Net pension expense
  $ 0.5     $ 0.2  
 
During the first quarter of 2013 and 2012, the Company made $0.4 million and $0.8 million of contributions, respectively, to its U.K. defined benefit pension plan.
 
9.  Commitments and Contingencies:
 
The Company is involved in legal and administrative proceedings and claims of various types from normal Company activities.
 
The Company is aware of an aboriginal land claim filed in 2003 by The Chippewas of Nawash and The Chippewas of Saugeen (the “Chippewas”) in the Ontario Superior Court against The Attorney General of Canada and Her Majesty The Queen In Right of Ontario. The Chippewas claim that a large part of the land under Lake Huron was never conveyed by treaty and therefore belongs to the Chippewas. The land claimed includes land under which the Company’s Goderich mine operates and has mining rights granted to it by the government of Ontario. The Company is not a party to this court action.
 
 
Similar claims are pending with respect to other parts of the Great Lakes by other aboriginal claimants. The Company has been informed by the Ministry of the Attorney General of Ontario that “Canada takes the position that the common law does not recognize aboriginal title to the Great Lakes and its connecting waterways.”
 
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.  The Company disagrees with the decision and has appealed that decision to the United States Court of Appeals for the Fifth Circuit.  If it loses after exhausting all of its appeals, the Company would be 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 would be offset by any wages earned at other places of employment during this period.  The Company does not believe a loss is probable and accordingly, has not recorded a liability related to this proceeding.
 
The Company is also involved in legal and administrative proceedings and claims of various types from normal Company activities.
 
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.
 
10.  Operating Segments:
 
Segment information is as follows (in millions):
 
   
Three Months Ended March 31, 2013
 
         
Specialty
   
Corporate
       
   
Salt
   
Fertilizer
   
and Other (a)
   
Total
 
Sales to external customers
  $ 327.5     $ 54.0     $ 2.2     $ 383.7  
Intersegment sales
    0.2       0.2       (0.4 )     -  
Shipping and handling cost
    109.1       6.2       -       115.3  
Operating earnings (loss)
    65.4       15.4       (13.3 )     67.5  
Depreciation, depletion and amortization
    10.4       5.9       1.0       17.3  
Total assets
    823.9       394.7       71.3       1,289.9  
 
   
Three Months Ended March 31, 2012
 
         
Specialty
   
Corporate
       
   
Salt
   
Fertilizer
   
and Other (a)
   
Total
 
Sales to external customers
  $ 254.3     $ 58.5     $ 2.5     $ 315.3  
Intersegment sales
    0.2       0.4       (0.6 )     -  
Shipping and handling cost
    86.0       7.5       -       93.5  
Operating earnings (loss)
    52.4       20.7       (11.7 )     61.4  
Depreciation, depletion and amortization
    9.6       5.2       0.9       15.7  
Total assets
    754.6       399.6       76.1       1,230.3  
 
(a) “Corporate and Other” includes corporate entities, the records management business, other incidental business operations and eliminations.  Corporate assets include deferred tax assets, deferred financing fees, investments related to the non-qualified retirement plan, and other assets not allocated to the operating segments.
 
11.  Stockholders’ Equity and Equity Instruments:
 
In the first quarter of 2013, the Company granted 113,814 stock options, 60,867 restricted stock units (“RSUs”) and 25,373 performance stock units (“PSUs”) to certain employees under its 2005 Incentive Award Plan.  The Company’s closing stock price on the grant date was used to set the exercise price for the options and the fair value of the RSUs.  The options vest ratably on each anniversary date over a four-year service period. Unexercised options expire after seven years. The RSUs
 
 
vest on the third anniversary following the grant date. None of the awards granted have voting rights.  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 earned.
 
The PSUs are divided into three approximately equal tranches.  Each tranche must satisfy an annual performance criterion based upon total shareholder return for the PSUs to be earned.  Each tranche for the 2013 grant is calculated based upon a one-year performance period beginning in 2013 and ending in 2015, with each annual tranche earning between 0% and 150% based upon the Company’s total shareholder return, compared to the total shareholder return for each company comprising the Russell 3000 Index.  The performance units will vest three years after the grant date.  The PSUs granted entitle the holders to receive non-forfeitable dividends or other distributions equal to those declared on the Company’s common stock for PSUs earned.
 
To estimate the fair value of options on the grant date, the Company uses the Black-Scholes option valuation model.  Award recipients are grouped according to expected exercise behavior. Unless better information is available to estimate the expected term of the options, the estimate is based on historical exercise experience. The risk-free rate, using U.S. Treasury yield curves in effect at the time of grant, is selected based on the expected term of each group. The Company’s historical stock price is used to estimate expected volatility.  The range of estimates and calculated fair values for options granted during the first quarter of 2013 is included in the table below. The weighted-average grant date fair value of these options was $19.51.
 
   
Range
 
Fair value of options granted
  $ 13.10 - $23.25  
Exercise price
  $ 76.99  
Expected term (years)
    4-6  
Expected volatility
    28.8% - 44.0 %
Dividend yield
    3.0 %
Risk-free rate of return
    0.7% - 1.0 %
 
To estimate the fair value of the 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 estimated fair value of the PSUs granted in 2013 is $77.75 per unit.
 
During the three months ended March 31, 2013, the Company reissued 4,946 shares of treasury stock related to the exercise of stock options, 22,452 shares related to the release of RSUs which vested and 6,341 shares related to the release of PSUs which vested.  The Company recorded additional tax benefits of $0.1 million from its equity compensation awards as additional paid-in capital during the first quarter of 2013. During the three months ended March 31, 2013 and 2012, the Company recorded $1.5 million and $1.7 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, 2013.
 
   
Stock Options
   
RSUs
   
PSUs (a)
 
         
Weighted-average
         
Weighted-average
         
Weighted-average
 
   
Number
   
exercise price
   
Number
   
fair value
   
Number
   
fair value
 
Outstanding at December 31, 2012
    435,721     $ 67.46       77,749     $ 78.46       49,932     $ 83.58  
Granted
    113,814       76.99       60,867       74.97       25,373       77.75  
Exercised (b)
    (4,946 )     54.74       -       -       -       -  
Released from restriction (b)
    -       -       (22,452 )     78.51       (6,341 )     86.51  
Cancelled/Expired
    (3,926 )     70.18       (1,765 )     77.95       (506 )     83.22  
Outstanding at March 31, 2013
    540,663     $ 69.56       114,399     $ 76.60       68,458     $ 81.15  
 
(a)
PSUs are initially included in the table at the 100% attainment level at their grant date and at that level represent one share per unit.  The final performance period for the 2010 PSU grant was completed in 2012.  The Company issued 6,341 shares and cancelled 25 PSUs in March 2013 related to the 2010 PSU grant.
(b)
Common stock issued for exercised options and RSUs and PSUs released from restriction were issued from treasury stock.
 
 
Other Comprehensive Income
 
The Company’s comprehensive income 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 (“AOCI”) as of and for the three months ended March 31, 2013 are as follows (in millions):
 
   
Gains and
                   
   
(Losses) on
   
Defined
             
   
Cash Flow
   
Benefit
   
Foreign
       
   
Hedges
   
Pension
   
Currency
   
Total
 
Beginning balance
  $ (0.7 )   $ (9.6 )   $ 67.9     $ 57.6  
                                 
Other comprehensive income (loss) before reclassifications (a)
    0.4       -       (13.4 )     (13.0 )
Amounts reclassified from accumulated other comprehensive income
    0.3       0.3       -       0.6  
Net current period other comprehensive income
    0.7       0.3       (13.4 )     (12.4 )
                                 
Ending balance
  $ -     $ (9.3 )   $ 54.5     $ 45.2  

(a)
The Company recorded foreign exchange losses of approximately $(4.9) million in the first quarter of 2013 in accumulated other comprehensive income related to intercompany notes which were deemed to be of long-term investment nature.
 
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.
 
   
Amount
     
   
Reclassified
  Line Item Impacted in the
   
from AOCI
  Consolidated Statement of Operations
Gains and (losses) on cash flow hedges:
         
Natural gas instruments
  $ 0.5    
Product cost
      (0.2 )  
Income tax expense (benefit)
      0.3      
             
Amortization of defined benefit pension:
           
Amortization of loss
  $ 0.4    
Product cost
      (0.1 )  
Income tax expense (benefit)
      0.3      
             
Total reclassifications, net of income taxes
  $ 0.6      
 
12.  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, 2013, 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, 2013 and December 31, 2012 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. 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, 2013, the Company had entered into natural gas derivative instruments to hedge a portion of its natural gas purchase requirements through March 2015.  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, 2013 and December 31, 2012, the Company had agreements in place to hedge forecasted natural gas purchases of 2.5 and 2.1 million MMBtus, respectively.
 
As of March 31, 2013, the Company expects to reclassify from accumulated other comprehensive income to earnings during the next twelve months approximately $0.1 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, 2013 and December 31, 2012, (in millions):
 
 
Asset Derivatives
 
Liability Derivatives
 
Derivatives designated as
hedging instruments (a) :
Balance Sheet
Location
 
March 31, 
2013
 
Balance Sheet
Location
 
March 31, 
2013
 
                 
Commodity contracts (b)
Other current assets
  $ 0.6  
Accrued expenses
  $ 0.6  
Commodity contracts
Other assets
    -  
Other noncurrent liabilities
    0.1  
Total derivatives designated as hedging instruments
    $ 0.6       $ 0.7  
 
(a)
As of March 31, 2013, the Company has commodity hedge agreements with three counterparties.  The amounts recorded as liabilities are due primarily to one counterparty.  The amount recorded as an asset is due primarily from one counterparty.
(b)
The Company has master netting agreements with its counterparties and accordingly has netted in its consolidated balance sheets approximately $0.2 million of its commodity contracts that are in a receivable position against its contracts in payable positions.
 
 
Asset Derivatives
 
Liability Derivatives
 
Derivatives designated as
hedging instruments (a) :
Balance Sheet
Location
 
December 31,
2012
 
Balance Sheet
Location
 
December 31,
2012
 
                 
Commodity contracts (b)
Other current assets
  $ 0.2  
Accrued expenses
  $ 1.2  
Commodity contracts
Other assets
    -  
Other noncurrent liabilities
    0.2  
Total derivatives designated as hedging instruments
    $ 0.2       $ 1.4  
 
(a)
The Company has commodity hedge agreements with three counterparties.  Amounts recorded as liabilities for the Company’s commodity contracts are primarily payable to one counterparty.  The amount recorded as an asset is due from two counterparties.
(b)
The Company has master netting agreements with its counterparties and accordingly has netted in its consolidated balance sheets approximately $0.2 million of its commodity contracts that are in a receivable position against its contracts in payable positions.
 
 
The following table presents activity related to the Company’s other comprehensive income (“OCI”) for the three months ended March 31, 2013 and 2012 (in millions):
 
     
Three Months Ended March 31, 2013
 
Derivatives in Cash Flow Hedging Relationships
Location of Gain
(Loss) Reclassified
from Accumulated
OCI Into Income
(Effective Portion)
 
Amount of (Gain)
Loss Recognized
in OCI on
Derivative
(Effective Portion)
   
Amount of Gain
(Loss) Reclassified
from Accumulated
OCI Into Income
(Effective Portion)
 
               
Commodity contracts
Product cost
  $ (0.4 )   $ (0.3 )
Total
    $ (0.4 )   $ (0.3 )
 
     
Three Months Ended March 31, 2012
 
Derivatives in Cash Flow Hedging Relationships
Location of Gain
(Loss) Reclassified
from Accumulated
OCI Into Income
(Effective Portion)
 
Amount of (Gain)
Loss Recognized
in OCI on
Derivative (
Effective Portion)
   
Amount of Gain
(Loss) Reclassified
from Accumulated
OCI Into Income
 (Effective Portion)
 
               
Commodity contracts
Product cost
  $ 2.1     $ (2.0 )
Total
    $ 2.1     $ (2.0 )

13.  Fair Value Measurements:

As required, 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 savings 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,
2013
   
Level One
   
Level Two
   
Level Three
 
Asset Class:
                       
Mutual fund investments in a non-qualified savings plan (a)
  $ 6.5     $ 6.5     $ -     $ -  
Derivatives – natural gas instruments
    0.4       -       0.4       -  
Total Assets
  $ 6.9     $ 6.5     $ 0.4     $ -  
Liability Class:
                               
Liabilities related to non-qualified savings plan
  $ (6.5 )   $ (6.5 )   $ -     $ -  
Derivatives – natural gas instruments
    (0.5 )     -       (0.5 )     -  
Total Liabilities
  $ (7.0 )   $ (6.5 )   $ (0.5 )   $ -  

(a)
Includes mutual fund investments of approximately 15% in the common stock of large-cap U.S. companies, approximately 5% in the common stock of small-cap U.S. companies, approximately 5% in the common stock of international companies, approximately 15% in debt securities of U.S. companies, approximately 20% in short-term investments and approximately 40% in blended funds.
 
 
   
December 31,
2012
   
Level One
   
Level Two
   
Level Three
 
Asset Class:
                       
Mutual fund investments in a non-qualified savings plan (a)
  $ 6.0     $ 6.0     $ -     $ -  
Total Assets
  $ 6.0     $ 6.0     $ -     $ -  
Liability Class:
                               
Liabilities related to non-qualified savings plan
  $ (6.0 )   $ (6.0 )   $ -     $ -  
Derivatives – natural gas instruments
    (1.2 )     -       (1.2 )     -  
Total Liabilities
  $ (7.2 )   $ (6.0 )   $ (1.2 )   $ -  

(a)
Includes mutual fund investments of approximately 15% in the common stock of large-cap U.S. companies, approximately 5% in the common stock of small-cap U.S. companies, approximately 5% in the common stock of international companies, approximately 20% in debt securities of U.S. companies, approximately 20% in short-term investments and approximately 35% 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 $6.5 million and $6.0 million as of March 31, 2013 and December 31, 2012, respectively, are stated at fair value based on quoted market prices.  As of March 31 2013, the estimated fair value of the fixed-rate 8% Senior Notes, based on available trading information, totaled $107.0 million (level 2) compared with the aggregate principal amount at maturity of $100 million. The fair value at March 31, 2013 of amounts outstanding under the Credit Agreement, based upon available bid information received from the Company’s lender, approximates its carrying value of $383.1 million (level 2).
 
14.  Earnings per Share:
 
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,
 
   
2013
   
2012
 
Numerator:
           
Net earnings
  $ 46.4     $ 39.9  
Less: net earnings allocated to participating securities (a)
    (0.5 )     (0.5 )
Net earnings available to common shareholders
  $ 45.9     $ 39.4  
                 
Denominator (in thousands):
               
Weighted-average common shares outstanding, shares for basic earnings per share
    33,282       33,035  
Weighted-average awards outstanding (b)
    27       23  
Shares for diluted earnings per share
    33,309       33,058  
                 
Net earnings per common share, basic
  $ 1.38     $ 1.19  
Net earnings per common share, diluted
  $ 1.38     $ 1.19  

(a)
Participating securities include options, PSUs and RSUs that receive non-forfeitable dividends. Net earnings were allocated to participating securities of 322,000 and 430,000 for the three months ended 2013 and 2012, 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 597,000 and 743,000 weighted-awards outstanding for the three months ended 2013 and 2012, respectively, which were anti-dilutive and therefore not included in the diluted earnings per-share calculation.
 
 
 
All statements, other than statements of historical fact, contained herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.
 
Forward-looking statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to, the following: domestic and international general business and economic conditions; uninsured risks and hazards associated with underground mining operations; losses for acts of nature which may not  be fully reimbursable through our insurance carriers; the timing of any insurance reimbursements may not correspond to the period in which the loss was incurred; governmental policies affecting the agricultural industry, consumer and industrial industry or highway maintenance programs in localities where the Company or its customers operate; weather conditions; the impact of competitive products; pressure on prices realized by the Company for its products; constraints on supplies of raw materials used in manufacturing certain of the Company’s products and the price or availability of transportation services; capacity constraints limiting the production of certain products; the ability to attract and retain skilled personnel as well as labor relations including without limitation, the impact of work rules, strikes or other disruptions, wage and benefit requirements; difficulties or delays in the development, production, testing and marketing of products; difficulties or delays in receiving and renewing required governmental and regulatory approvals; the impact of new technology on the demand for our products; market acceptance issues, including the failure of products to generate anticipated sales levels; the effects of and changes in trade, monetary, environmental and fiscal policies, laws and regulations; the impact of the Company’s indebtedness and interest rates changes; foreign exchange rates and fluctuations in those rates; the costs and effects of legal proceedings including environmental and administrative proceedings involving the Company; customer expectations about future potash market prices and availability and agricultural economics; the impact of credit and capital markets, including the risks of customer and counterparty defaults and declining credit availability; changes in tax laws or estimates; cyber security issues; and other risk factors reported in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) as updated quarterly on Form 10-Q.
 
In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “should,” “could,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.
 
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We undertake no duty to update any of the forward-looking statements after the date hereof or to reflect the occurrence of unanticipated events.
 
Unless the context requires otherwise, references in this quarterly report to the “Company,” “Compass,” “Compass Minerals,” “CMP,” “we,” “us” and “our” refer to Compass Minerals International, Inc. (“CMI”, the parent holding company) and its consolidated subsidiaries.
 
Critical Accounting Estimates
 
Preparation of our consolidated financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management believes the most complex and sensitive judgments result primarily from the need to make estimates about matters that are inherently uncertain. Management’s Discussion and Analysis and Note 2 to the Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the SEC on February 21, 2013, describe the significant accounting estimates and policies used in preparation of our consolidated financial statements. Actual results in these areas could differ from management’s estimates.
 
Results of Operations
 
Salt Segment
 
Salt is indispensable and enormously versatile with thousands of reported uses. In addition, there are no known cost-effective alternatives for most high-volume uses. As a result, our cash flows from salt have not been materially impacted through a variety of economic cycles. We are among the lowest-cost salt producers in our markets because our salt deposits are high-grade quality and among the most extensive in the world, and because we use effective mining techniques and efficient production processes.  Since the highway deicing business typically accounts for nearly half of our annual sales, our business is seasonal; therefore results and cash flows will vary depending on the severity of the winter weather in our markets.
 
Deicing products, consisting of deicing salt and magnesium chloride used by highway deicing and consumer and industrial customers, constitute a significant portion of the Company’s salt segment sales.  Our deicing sales are seasonal and can fluctuate from year to year depending on the severity of the winter season weather in the markets we serve.  Inventory management practices are employed to respond to the varying level of sales demand which impacts our production volumes, the resulting per ton cost of inventory and ultimately profit margins, particularly during the second and third quarters when we
 
 
build our inventory levels for the upcoming winter and earnings are typically lower than the first and fourth quarters.  We assess the severity of winter weather compared to recent averages, using official government snow data and comparisons of our sales volumes to historical trends and other relevant data. In the first quarter of 2013, the frequency of winter weather events was near average in our served markets and favorably impacted our sales and operating earnings especially in relation to the very mild winter weather experienced in the first quarter of 2012.  In the first quarter of 2012, winter weather was significantly milder than average and unfavorably impacted our sales and operating earnings.  Not only does the weather affect our highway and consumer and industrial deicing salt sales volumes and resulting gross profit, but it also impacts our inventory levels, which influence production volume in periods following the winter, the resulting cost per ton, and ultimately our profit margins.  During 2012, a mild winter weather season in our markets resulted in lower production needs in 2012.  Lower production volumes in the latter half of 2012 were also a result of a strike by miners at our Goderich, Ontario mine during the third quarter of 2012.  The lower production needs resulted in higher per-unit production costs for the inventory produced in 2012 which significantly impacted our margins in the first quarter of 2013 when the majority of this inventory was sold.  In addition, we incurred additional costs and other losses associated with the Goderich tornado primarily through 2012 when the remaining tornado-impacted finished goods inventories were sold and other losses and costs associated with the tornado ceased to be incurred.
 
In August 2011, a tornado in Goderich, Ontario struck our salt mine and our salt mechanical evaporation plant.  There was no damage to the underground operations at the mine.  However, some of the mine’s surface structures and the evaporation plant incurred significant damage which temporarily ceased production at both facilities.  We resumed production and shipping activities, on a reduced basis, at the Goderich mine in early September 2011 and regained full hoisting capability in April 2012.  However, the mine still requires some repairs and reconstruction to fully restore the damaged surface structures and long-lived operating assets. The evaporation plant resumed limited activities in late September 2011 and reached full capability by the end of the first quarter of 2012.  We expect to be fully reimbursed by our insurers for the replacement and repair costs for our property, plant and equipment and associated clean-up costs incurred. We received $7.5 million and $25.0 million of insurance advances in the first quarter of 2013 and 2012, respectively.  Since the tornado occurred, we have received insurance advances totaling $70 million.  We recorded approximately $0.8 million and $5.9 million of insurance advances received as a reduction to salt product costs in the consolidated statements of operations in the first quarter of 2013 and 2012, respectively, to offset recognized impairment charges and site clean-up and restoration costs.  The actual insurance recoveries related to the replacement cost of property, plant and equipment are expected to exceed the net book value of the damaged property, plant and equipment and the related impairment charges.
 
We also will have a substantial business interruption claim to offset lost profits and to offset certain additional expenses incurred related to the ongoing operations.  We estimate that the effects from the tornado were immaterial in the first quarter of 2013 and were approximately $14 million in the first quarter of 2012.  To date, the Company has estimated total losses of $38 million resulting from the effects of the tornado. We believe our losses, including the impact of estimated lost sales, lost production and additional expenses that have been incurred related to the tornado will be substantially covered by the Company’s insurance policies as business interruption losses.  However, the amount of actual business interruption recoveries may differ materially from our current and future estimates.  We do not expect to incur any significant business interruption costs after the first quarter of 2013. Any insurance recoveries related to business interruption will be recognized as a reduction to product cost in the consolidated statements of operations when the insurance claim has been settled.  The Company has not recognized any reduction to product cost from insurance recoveries related to estimated business interruption losses.  We incurred approximately $4 million and $9 million of capital expenditures during the first quarter of 2013 and 2012, respectively, to replace and, in some instances, improve property, plant and equipment damaged or destroyed by the tornado and estimate we will spend an insignificant amount during the next two quarters of 2013 to complete the replacement of all property, plant and equipment damaged or destroyed by the tornado.  Capital expenditures to replace damaged property, plant and equipment will result in an increase in depreciation expense in future periods.
 
Specialty Fertilizer Segment
 
Our sulfate of potash (“SOP”) product is used in the production of specialty fertilizers for high-value crops and turf. Our domestic sales of SOP are concentrated in the Western and Southeastern U.S. where the crops and soil conditions favor the use of low-chloride potassium nutrients, such as SOP.  Consequently, weather patterns and field conditions in these locations can impact the amount of specialty fertilizer sales volumes.  Additionally, the demand for and market price of SOP is affected by the broader potash market.  The potash market is influenced by many factors such as world grain and food supply, changes in consumer diets, general levels of economic activity, governmental food programs, and governmental agriculture and energy policies around the world.  Economic factors may impact the amount or type of crop grown in certain locations, or the type of fertilizer product used.  High-value or chloride-sensitive crop yields and/or quality are generally lower when potassium chloride (“MOP” or “KCl”) is used as a potassium nutrient, rather than SOP. Market prices for MOP are well above historical levels though below the historic-high prices seen at the end of 2008.  These same factors have similarly influenced SOP market pricing, which has historically been sold at prices above MOP market pricing.  We expect SOP pricing to retain a premium to MOP although as MOP pricing increases, the size of the premium tends to decrease.
 
Our SOP production facility in Ogden, Utah, the largest in North America and one of only three SOP solar brine evaporation operations in the world, utilizes naturally occurring brines in its production process.  Since our production process relies on
 
 
solar evaporation during the summer to produce SOP at our Ogden facility, the intensity of heat and relative dryness of the weather conditions during that time impacts the amount of solar evaporation which occurs and correspondingly, the amount of raw SOP mineral feedstock available to convert to finished product.  During the summer of 2011, unusual localized rains and cooler weather, especially early in the summer, slowed the summer solar evaporation process at this operation, when compared to more-typical weather, reducing the amount of precipitated minerals over the solar season, which are the raw materials utilized to produce SOP.  The reduced minerals deposited decreased SOP finished goods production volumes from our solar ponds primarily in 2012, and increased per-unit production costs accordingly.  Due to this lower raw material solar pond harvest, we purchased and consumed higher-cost potassium mineral feedstock for SOP production in 2012. The higher per-unit production costs for the inventory produced in 2012 significantly impacted our margins in the first quarter of 2013 when the remaining inventory produced in 2012 was sold.  In the 2012 solar evaporation season, the weather was more typical than during the 2011 season.  Therefore, we expect a better-than-historical deposit of raw materials from which we produce our finished SOP, and significantly more than the same period of 2011’s solar season.  These raw materials will be utilized to produce SOP primarily in 2013.
 
General
 
Our North American salt mines and SOP production facilities are near either water or rail transport systems, which reduces our shipping and handling costs when compared to alternative methods of distribution, although shipping and handling costs still account for a relatively large portion of the total delivered cost of our products.  Future period per-unit costs will continue to be influenced by oil-based fuel costs, a significant component of shipping and handling costs.  Shipping and handling costs on a per ton basis in the first quarter of 2013 were lower in both our salt and specialty fertilizer segments when compared to those experienced in the first quarter of 2012.
 
Manpower costs, energy costs, packaging, and certain raw material costs, particularly KCl, which can be used to make a portion of our deicing and water conditioning products, are also significant.  Our production workforce is typically represented by labor unions with multi-year collective bargaining agreements.  Our energy costs result from the consumption of electricity with relatively stable, rate-regulated pricing, and natural gas, which can have significant pricing volatility. We manage the pricing volatility of our natural gas purchases with natural gas forward swap contracts up to 36 months in advance of purchases, helping to reduce the impact of short-term spot market price volatility.  We have historically purchased KCl under long-term supply agreements to supplement our SOP production from solar ponds, but ceased these purchases in 2010.  The market price for KCl increased significantly in recent years, causing continued price increases under our supply contracts.  We have continued to purchase KCl for certain water conditioning and consumer deicing applications at higher prices, which increased input costs.  Our SOP production facility in Saskatchewan, Canada purchases KCl under a long-term supply agreement, which is not based upon the market price of KCl.  One of the production methods uses the brine of Big Quill Lake, which is rich in sodium sulfate, and adds the purchased KCl to create high-purity SOP.
 
The consolidated financial statements have been prepared to present the historical financial condition and results of operations and cash flows for the Company which include our salt segment, specialty fertilizer segment, our records management business and unallocated corporate activities.  The results of operations of the records management business and other incidental revenues include sales of $2.2 million and $2.5 million for the first quarter of 2013 and 2012, respectively, and are not material to our consolidated financial statements and consequently, are not included in the table below.  The following tables and discussion should be read in conjunction with the information contained in our consolidated financial statements and the accompanying notes included elsewhere in this quarterly report.
 
 
   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
Salt Sales (in millions)
           
Salt sales
  $ 327.5     $ 254.3  
Less: salt shipping and handling
    109.1       86.0  
Salt product sales
  $ 218.4     $ 168.3  
Salt Sales Volumes (thousands of tons)
               
Highway deicing
    4,358       3,104  
Consumer and industrial
    535       506  
Total tons sold
    4,893       3,610  
                 
Average Salt Sales Price (per ton)
               
Highway deicing
  $ 57.31     $ 58.32  
Consumer and industrial
    145.37       144.82  
Combined
    66.93       70.44  
                 
Specialty Fertilizer ("SOP") Sales (in millions)
               
SOP sales
  $ 54.0     $ 58.5  
Less: SOP shipping and handling
    6.2       7.5  
SOP product sales
  $ 47.8     $ 51.0  
                 
SOP Sales Volumes (thousands of tons)
    88       96  
SOP Average Price (per ton)
  $ 615     $ 613  
 
 
Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012
 
Sales
 
Sales for the first quarter of 2013 of $383.7 million increased $68.4 million, or 22% compared to $315.3 million for the same quarter of 2012. Sales primarily include revenues from the sale of our salt and specialty fertilizer products, or “product sales,” revenues from our records management business, and shipping and handling costs incurred to deliver salt and specialty fertilizer products to our customers.  Shipping and handling costs were $115.3 million during the first quarter of 2013, an increase of $21.8 million or 23% compared to $93.5 million for the same quarter of 2012.  The increase in shipping and handling costs is primarily due to higher salt sales volumes in the first quarter of 2013 when compared to the same period of 2012.
 
Product sales for the first quarter of 2013 of $266.2 million increased $46.9 million, or 21% compared to $219.3 million for the same period in 2012 principally reflecting higher product sales in the salt segment and lower product sales for our specialty fertilizer segment.
 
Salt product sales for the first quarter of 2013 of $218.4 million increased $50.1 million, or 30% compared to $168.3 million for the same period in 2012.  The increase in the first quarter of 2013 was due primarily to higher salt segment sales volumes, which contributed approximately $55 million to the increase in salt product sales.  Salt sales volumes in 2013 increased by approximately 1.3 million tons from 2012 levels consisting of higher highway sales volumes principally due to higher sales of rock salt and specialty deicing products and higher consumer and industrial volumes from consumer deicing products.  The increase in volumes was due to the near average winter weather experienced in the first quarter of 2013 when compared to the significantly milder than average winter weather experienced in the first quarter of 2012 in the markets we serve.  The increase in salt product sales was partially offset by a decline in average salt sales prices due primarily to product mix as a larger portion of our sales in the first quarter of 2013 resulted from sales of deicing products.  In addition, the weakening of the U.S. dollar in the first quarter of 2013 when compared to the prior year exchange rates for the Canadian dollar and the British pound sterling favorably impacted product sales by approximately $1 million.
 
SOP product sales during the first quarter of 2013 of $47.8 million decreased $3.2 million, or 6% compared to $51.0 million for the same period in 2012.  This decrease was due to lower sales volumes which were partially offset by a modest increase in our average market price to $615 per ton in the first quarter of 2013 compared to $613 per ton in the first quarter of 2012.
 
 
Gross Profit
 
Gross profit for the first quarter of 2013 of $91.3 million increased $8.5 million or 10% compared to $82.8 million in 2012.  As a percent of sales, gross margin decreased by two percentage points, from 26% in the first quarter of 2012 to 24% in the first quarter of 2013.  The gross profit for the salt segment contributed approximately $14 million to the increase in gross profit due to higher salt deicing volumes which were partially offset by the impact of higher average per-unit salt product costs in the first quarter of 2013.  The higher per-unit costs were due to sales of salt inventory produced in 2012 resulting from lower production volumes in 2012 relating to the significantly milder than normal 2012 winter season and the strike by miners at our Goderich, Ontario mine in the third quarter of 2012.  We estimate that the effects from the tornado were immaterial in the first quarter of 2013 and were approximately $14 million in the first quarter of 2012.  Any insurance recoveries related to business interruption and any gains related to the replacement of property, plant and equipment will be recognized as a reduction to product cost in the consolidated statements of operations when the insurance claim has been settled.  We recorded $0.8 million and $5.9 million of asset impairment charges and clean-up and restoration costs in the first quarter of 2013 and 2012, respectively, which were offset by $0.8 million and $5.9 million of expected insurance recoveries in the same respective periods.  The decline in specialty fertilizer segment gross profit of approximately $5 million in the first quarter of 2013 was principally due to higher per-unit production costs and partially offset the overall increase in gross profit.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses for the first quarter of 2013 of $23.8 million increased $2.4 million, or 11% compared to $21.4 million for the same period in 2012. The change in expense is primarily due to reduced variable compensation expense in the first quarter of 2012.
 
Interest Expense
 
Interest expense for the first quarter of 2013 of $4.4 million decreased $0.6 million compared to $5.0 million for the same period in 2012. This decrease is primarily due to lower average interest rates on our outstanding debt, resulting from the refinancing of our term loans in May 2012.
 
Other (income) expense, net
 
Other income was $0.4 million for the first quarter of 2013 compared to expense of $1.6 million in the first quarter of 2012.  Net foreign exchange losses decreased by $2.3 million in the first quarter of 2013 when compared to the same period in 2012.
 
Income Tax Expense
 
Income tax expense for the three months ended March 31, 2013 was $17.1 million, an increase of $2.2 million compared to $14.9 million for the same quarter of 2012 primarily due to higher pre-tax income in 2013 when compared to 2012.  Our 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.
 
Liquidity and Capital Resources
 
Historically, we have used cash generated from operations to meet our working capital needs, to fund capital expenditures, to pay dividends and to repay our debt. Principally due to the nature of our deicing business, our cash flows from operations are seasonal, with the majority of our cash flows from operations generated during the first half of the calendar year.  When we have not been able to meet our short-term liquidity or capital needs with cash from operations, whether as a result of the seasonality of our business or other causes, we have met those needs with borrowings under our $125 million Revolving Credit Facility.  We expect to meet the ongoing requirements for debt service, any declared dividends and capital expenditures from these sources. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
 
Cash and cash equivalents of $175.5 million as of March 31, 2013 increased $75.4 million over December 31, 2012 resulting principally from operating cash flows of $128.8 million generated in the first quarter of 2013.  We used a portion of those cash flows to fund capital expenditures of $36.5 million and to pay dividends on our common stock of $18.3 million.
 
As of March 31, 2013, we had $481.3 million of principal indebtedness consisting of $98.2 million 8% Senior Notes ($100 million at maturity) due 2019 and $383.1 million of borrowings outstanding under our Credit Agreement.  No amounts were outstanding under our Revolving Credit Facility as of March 31, 2013. We had $7.9 million of outstanding letters of credit as of March 31, 2013 which reduced our Revolving Credit Facility borrowing availability to $117.1 million.
 
Our debt service obligations could, under certain circumstances, materially affect our financial condition and impair our ability to operate our business or pursue our business strategies.  As a holding company, CMI’s investments in its operating subsidiaries constitute substantially all of its assets. Consequently, our subsidiaries conduct all of our consolidated operating activities and own substantially all of our operating assets. The principal source of the cash needed to pay our obligations is the cash generated from our subsidiaries’ operations and their borrowings. Our subsidiaries are not obligated to make funds
 
 
available to CMI.  Furthermore, we must remain in compliance with the terms of our Credit Agreement, including the total leverage ratio and interest coverage ratio, in order to make payments on our 8% Senior Notes or pay dividends to our stockholders.  We must also comply with the terms of our indenture, which limits the amount of dividends we can pay to our stockholders.  Although we are in compliance with our debt covenants as of March 31, 2013, we cannot assure you that we will remain in compliance with these ratios nor can we assure you that the agreements governing the current and future indebtedness of our subsidiaries will permit our subsidiaries to provide us with sufficient dividends, distributions or loans to fund scheduled interest payments on the 8% Senior Notes, when due. If we consummate an additional acquisition, our debt service requirements could increase. Furthermore, we may need to refinance all or a portion of our indebtedness on or before maturity, however we cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.
 
We have been able to manage our cash flows generated and used across the Company to permanently reinvest earnings in our foreign jurisdictions or efficiently repatriate those funds to the U.S.  As of March 31, 2013, most of our cash and cash equivalents (in the consolidated balance sheets) was either held directly or indirectly by foreign subsidiaries.  Due in part to the seasonality of our domestic business, we experience large changes in our working capital requirements from quarter to quarter.  Typically, our working capital requirements are the highest in the fourth quarter and lowest in the second quarter.  When needed, we fund short term working capital requirements by accessing our $125 million revolving line of credit.  Due to our ability to generate adequate levels of domestic cash flow on an annual basis, it is our current intention to permanently reinvest our foreign earnings outside of the U.S.  However, if we were to repatriate our foreign earnings to the U.S., we may be required to accrue and pay U.S. taxes in accordance with the applicable U.S. tax rules and regulations as a result of the repatriation.  We review our tax circumstances on a regular basis with the intent of optimizing cash accessibility and minimizing tax expense.
 
The amount of permanently reinvested earnings is influenced by, among other things, the profits generated by our foreign subsidiaries and the amount of investment in those same subsidiaries.  The profits generated by our domestic and foreign subsidiaries are, to some extent, impacted by the values charged on the transfer of our products between them.  We calculate values charged on transfers based on guidelines established by the multi-national organization which publishes accepted tax guidelines recognized in all of the jurisdictions in which we operate, and those calculated values are the basis upon which our subsidiary income taxes, profits and cash flows are realized.  Some of our calculated values have been approved by taxing authorities for certain periods while the values for those same periods or different periods have been challenged by the same or other taxing authorities.  While we believe our calculations are proper and consistent with the accepted guidelines, we can make no assurance that the final resolution of these matters with all of the relevant taxing authorities will be consistent with our existing calculations and resulting financial statements.  Additionally, the timing for settling these challenges may not occur for many years.  We currently expect the outcome of these matters will not have a material impact on our results of operations.  However, it is possible the resolution could impact the amount of earnings attributable to our domestic and foreign subsidiaries, which could impact the amount of permanently reinvested earnings and the tax-efficient access to consolidated cash on hand in all jurisdictions and future cash flows from operations.
 
Canadian provincial tax authorities have issued tax reassessments for years 2002-2007, which are under audit, totaling approximately $66 million, including interest through March 2013, challenging tax positions claimed by one of the Company’s Canadian subsidiaries. We dispute these reassessments and plan 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 we have reserved for such disputes.  In connection with this dispute, local regulations require that we post security with the tax authority until the dispute is resolved.  We have agreed with the tax authority to post collateral in the form of a $34 million performance bond (including approximately $8 million of the performance bond which will be cancelled pro rata as the outstanding assessment balance falls below the outstanding amount of the performance bond) and make cash payments of approximately $40 million (including the $8 million of cash to be paid when a portion of the performance bond is cancelled).  Of these cash payments, we have paid $23 million and we have agreed to pay an additional approximately $3 million during 2013 with the remaining balance to be paid after 2013.  We 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 the 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.
 
In addition, the Canadian federal taxing authority has reassessed us 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.  We have fully complied with the agreement since entering into it and we believe this action is highly unusual.  We are seeking to enforce the agreement which provided the basis upon which our returns were previously filed and settled.  The total amount of the reassessments, including penalties and interest through March 31, 2013, related to this matter, totals approximately $102 million.  We have agreed to post collateral in the form of approximately a $23 million performance bond and make cash payments of approximately $3 million during 2013.  We are currently in discussions with the Canadian tax authorities regarding the remaining required collateral of approximately $36 million necessary to proceed with future appeals or litigation.  We expect that the ultimate outcome of this matter will not have a material impact on our results of operations or financial condition; however we can provide no assurance as to the ultimate outcome.
 
 
In August 2011, a tornado struck our salt mine and salt mechanical evaporation plant in Goderich, causing extensive damage to our property, plant and equipment; significant clean up costs; and interference with our operations.  Losses caused by the tornado primarily affected our 2011 and 2012 consolidated financial statements and liquidity.  While we expect to be reimbursed for these losses by our insurance carriers, there can be no assurance that all losses will be fully or even substantially reimbursed.  In addition, we may not have been able to estimate the full amount of losses caused by the tornado.  We recognized $0.8 million and $5.9 million of clean-up and restoration costs and asset impairment charges in our consolidated statements of operations in the first quarter of 2013 and 2012, respectively.  These costs were offset by $0.8 million and $5.9 million in the first quarter of 2013 and 2012, respectively, recognized for expected insurance recoveries.  In addition, we estimate that the effects from the tornado were immaterial in the first quarter of 2013 and were approximately $14 million in the first quarter of 2012.  We had approximately $4 million and $9 million of capital expenditures in the first quarter of 2013 and 2012, respectively, due to the tornado.  Business interruption losses and capital expenditures to replace or repair assets reduce cash flows available for other operating needs of our business.  The amount of actual business interruption recoveries may differ materially from the Company’s current and future estimates and the ultimate collection and timing of any insurance recoveries could materially impact our short-term or long-term financial position and liquidity. We received $7.5 million and $25.0 million of insurance advances in the first quarter of 2013 and 2012, respectively.  The Company recorded approximately $0.8 million and $5.9 million of insurance advances as a reduction to salt product cost in the consolidated statements of operations in the first quarter of 2013 and 2012, respectively.  The remaining balance of approximately $6.7 million and $19.1 million was recorded as deferred revenue in accrued expenses in the consolidated balance sheets as of March 31, 2013 and 2012, respectively.  In total, the Company has received $70 million of insurance advances since the tornado and recorded approximately $42.9 million of deferred revenue in accrued expenses in its consolidated balance sheets as of March 31, 2013. The remaining $27.1 million of total insurance advances received has been recorded as a reduction to salt product costs in the consolidated statements of operations in 2011, 2012 and 2013 to offset recognized impairment charges and site clean-up and restoration costs.
 
For the Three Months Ended March 31, 2013 and 2012
 
Net cash flows provided by operating activities for the three months ended March 31, 2013 were $128.8 million, an increase of $31.9 million compared to $96.9 million for the first quarter of 2012. We had a reduction in working capital items of $59.3 million in the first quarter of 2013 compared to a reduction of $19.1 million in the first quarter 2012. These reductions provided a portion of our cash flows from operations, and reflects the seasonal nature of our deicing products and will vary largely due to the severity and timing of the winter weather in our regions.
 
Net cash flows used by investing activities of $31.4 million and $30.3 million for the three months ended March 31, 2013 and 2012, respectively, resulted from capital expenditures of $36.5 million and $30.0 million, respectively.  Our capital expenditures in 2013 include expenditures of approximately $4 million (including expenditures for improvements to our existing property, plant and equipment which are not fully reimbursable) for the replacement of property, plant and equipment damaged or destroyed by the tornado. The remaining capital expenditures were primarily for routine replacements. In addition, we received $4.3 million of insurance advances for investment purposes during the first quarter of 2013.
 
Financing activities during the first quarter of 2013 used $18.9 million of cash flows, primarily to make $18.3 million of dividend payments and $1.0 million of debt payments.  During the first quarter of 2012, we used $17.2 million of cash flows, primarily to make $16.6 million of dividend payments and $1.0 million of debt payment.  Both periods were partially offset by proceeds received from stock option exercises.
 
Sensitivity Analysis Related to EBITDA and Adjusted EBITDA
 
Management uses a variety of measures to evaluate the performance of CMP.  While the consolidated financial statements, taken as a whole, provide an understanding of our overall results of operations, financial condition and cash flows, we analyze components of the consolidated financial statements to identify certain trends and evaluate specific performance areas.  In addition to using U.S. generally accepted accounting principles (“GAAP”) financial measures, such as gross profit, net earnings and cash flows generated by operating activities, management uses EBITDA and EBITDA adjusted for items which management believes are not indicative of our ongoing operating performance (“Adjusted EBITDA”).  Both EBITDA and Adjusted EBITDA are non-GAAP financial measures used to evaluate the operating performance of our core business operations due to our resource allocation, financing methods and cost of capital, and income tax positions which are managed at a corporate level, apart from the activities of the operating segments, and the operating facilities are located in different taxing jurisdictions, which can cause considerable variation in net earnings.  We also use EBITDA and Adjusted EBITDA to assess our operating performance and return on capital, and to evaluate potential acquisitions or other capital projects.  EBITDA and Adjusted EBITDA are not calculated under GAAP and should not be considered in isolation or as a substitute for net earnings, cash flows or other financial data prepared in accordance with GAAP or as a measure of our overall profitability or liquidity.  EBITDA and Adjusted EBITDA exclude interest expense, income taxes and depreciation and amortization, each of which are an essential element of our cost structure and cannot be eliminated.  Furthermore, Adjusted EBITDA excludes other cash and non-cash items in other (income) expense.  Our borrowings are a significant component of our capital structure and
 
 
interest expense is a continuing cost of debt.  We are also required to pay income taxes, a required and ongoing consequence of our operations.  We have a significant investment in capital assets and depreciation and amortization reflect the utilization of those assets in order to generate revenues.  Consequently, any measure that excludes these elements has material limitations.  While EBITDA and Adjusted EBITDA are frequently used as measures of operating performance, these terms are not necessarily comparable to similarly titled measures of other companies due to the potential inconsistencies in the method of calculation.  The calculation of EBITDA and Adjusted EBITDA as used by management is set forth in the table below (in millions).
 
             
   
Three Months Ended March 31,
 
   
2013
   
2012
 
Net earnings
  $ 46.4     $ 39.9  
Interest expense
    4.4       5.0  
Income tax expense
    17.1       14.9  
Depreciation, depletion and amortization
    17.3       15.7  
EBITDA
    85.2       75.5  
Other non-operating expenses:
               
Other (income) expense, net
    (0.4 )     1.6  
Adjusted EBITDA
  $ 84.8     $ 77.1  
 
We estimate that the effects from the tornado included in the consolidated statements of operations were immaterial in the first quarter of 2013 and were approximately $14 million in the first quarter of 2012.  Also, our operating earnings were unfavorably impacted in the first quarter of 2012 by significantly milder than average winter weather in the markets we serve.  In the first quarter of 2013, we estimate that our operating earnings were favorably impacted by the winter weather in the markets we serve.
 
Recent Accounting Pronouncements
 
In February 2013, the Financial Accounting Standards Board issued guidance, which requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income.  The new guidance is effective for annual and interim periods beginning after December 15, 2012.  The Company adopted the new guidance in the first quarter of 2013 and the required disclosures are presented in Note 11.  The adoption of this guidance did not have an impact on the Company’s financial position or results of operations.
 
Effects of Currency Fluctuations
 
We conduct operations in Canada and the U.K. Therefore, our results of operations are subject to both currency transaction risk and currency translation risk. We incur currency transaction risk whenever we or one of our subsidiaries enter into either a purchase or sales transaction using a currency other than the local currency of the transacting entity. With respect to currency translation risk, our financial condition and results of operations are measured and recorded in the relevant local currency and then translated into U.S. dollars for inclusion in our historical consolidated financial statements. Exchange rates between these currencies and the U.S. dollar have fluctuated significantly from time to time and may do so in the future. The majority of our revenues and costs are denominated in U.S. dollars, with British pounds sterling and Canadian dollars also being significant. Significant changes in the value of the Canadian dollar or British pound sterling relative to the U.S. dollar could have a material adverse effect on our financial condition and our ability to meet interest and principal payments on U.S. dollar denominated debt, including borrowings under our senior secured credit facilities.
 
Although inflation has not had a significant impact on the Company’s operations, our efforts to recover cost increases due to inflation may be hampered as a result of the competitive industries in which we operate.
 
Seasonality
 
We experience a substantial amount of seasonality in our sales, primarily with respect to our deicing products.  Consequently, sales and operating income are generally higher in the first and fourth quarters and lower during the second and third quarters of each year. In particular, sales of highway and consumer deicing salt and magnesium chloride products vary based on the severity of the winter conditions in areas where the product is used. Following industry practice in North America, we stockpile sufficient quantities of deicing salt in the second, third and fourth quarters to meet the estimated requirements for the winter season.
 
 
Item 3.
 
Our business is subject to various types of market risks that include, but are not limited to, interest rate risk, foreign currency exchange rate risk and commodity pricing risk. Management has taken actions to mitigate our exposure to commodity pricing by entering into forward derivative instruments, and may take further actions to mitigate our exposure to interest rates and to changes in the cost of transporting our products due to variations in our contracted carriers’ cost of fuel, which is typically diesel fuel .  However, there can be no assurance that our hedging activities will eliminate or substantially reduce these risks.  We do not enter into any financial instrument arrangements for speculative purposes. The Company’s market risk exposure related to these items has not changed materially since December 31, 2012.
 
Item 4.
 
Evaluation of Disclosure Controls and Procedures – As of the end of the period covered by this report, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) was performed under the supervision and with the participation of the Company’s management, including the CEO and CFO. Based on that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2013 to ensure that information required to be disclosed in the reports it files and submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

For this purpose, disclosure controls and procedures include controls and procedures designed to ensure that information that is required to be disclosed under the Exchange Act is accumulated and communicated to the Company's management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting - There has been no change in the Company’s internal control over financial reporting during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
PART II.  OTHER INFORMATION
 
Item 1.
 
The Company from time to time is involved in various routine legal proceedings. These primarily involve commercial claims, product liability claims, personal injury claims and workers’ compensation claims. We cannot predict the outcome of these lawsuits, legal proceedings and claims with certainty. Nevertheless, we believe that the outcome of these proceedings, even if determined adversely, would not have a material adverse effect on our business, financial condition and results of operations. There have been no material developments during 2013 with respect to legal proceedings.
 
Item 1A.
 
There have been no material changes to the risk factors previously discussed in Item 1A of the Company’s Form 10-K for the year ended December 31, 2012.
 
Item 2.
 
None.
 
Item 3.
 
None.
 
Item 4. 
 
Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this quarterly report.
 
Item 5. 
 
There have been no material changes to the procedures by which security holders may recommend nominees to the Company's board of directors since the filing of the Company's most recent proxy statement.
 
 
Item 6.
 
EXHIBIT INDEX
 
Exhibit
   No.
Description of Exhibit
   
10.1
Employment Agreement between Francis J. Malecha and Compass Minerals International, Inc. dated January 17, 2013 (incorporated herein by reference to Exhibit 10.1 to the Compass Minerals International, Inc. Current Report on Form 8-K dated January 5, 2013)
   
2013 Summary of Executive Cash Compensation and Award Targets Under the Annual Incentive Plan
   
Annual Incentive Compensation Plan Summary
   
10.4*  Current Form of Three-Year Performance Stock Unit Award Agreement
   
10.5*  Current Form of Non-Qualified Stock Option Award Agreement
   
Section 302 Certifications of Francis J. Malecha, President and Chief Executive Officer
   
Section 302 Certifications of Rodney L. Underdown, Vice President and Chief Financial Officer
   
Certification Pursuant to 18 U.S.C. §1350 of Francis J. Malecha, President and Chief Executive Officer and Rodney L. Underdown, Vice President and Chief Financial Officer
   
Mine Safety Disclosures
   
101**
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, formatted in Extensive Business Reporting Language (XBRL): (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of comprehensive income, (iv) consolidated statement of stockholders’ equity, (v) consolidated statements of cash flows, and (vi) the notes to the consolidated financial statements
 
*   Filed herewith
** Furnished herewith
 
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
COMPASS MINERALS INTERNATIONAL, INC.
 
     
Date: April 29, 2013
/s/ FRANCIS J. MALECHA
 
 
Francis J. Malecha
 
 
President and Chief Executive Officer
 
 
(Principal Executive Officer)
 
     
Date: April 29, 2013
/s/ RODNEY L. UNDERDOWN
 
 
Rodney L. Underdown
 
 
Vice President and Chief Financial Officer
 
 
(Principal Financial and Accounting Officer)
 
 
 
27

Exhibit 10.2
 
2013 Summary of Executive Cash Compensation
 and Award Targets Under the Annual Incentive Plan

The following table sets forth the current base salaries provided for the Company’s CEO, CFO and three most highly compensated executive officers.  Salary increases are determined annually in March and effective April 1, 2013:

Executive Officers
Current Salary
 
 
Francis Malecha
$725,000
Rodney Underdown
$412,000
Gerald Bucan
$318,711
Keith Clark
$364,827
David Goadby
 £211,932*
 
* Salary is denominated in pounds, so U.S. dollar equivalent may vary.

Executive officers are also eligible to receive a bonus each year under the Company’s Annual Incentive Plan.  The target percentages (based on percentage of salary) under this plan for the Company’s CEO, CFO and three most highly compensated executive officers are as shown in the following table.

Executive Officers
Target Percentage
 
 
Francis Malecha
100%
Rodney Underdown
55%
Gerald Bucan
55%
Keith Clark
55%
David Goadby
50%
 
 


Exhibit 10.3

COMPASS MINERALS (CMP)
ANNUAL INCENTIVE COMPENSATION PLAN (AIP)

(Fiscal Year 2013)

OVERVIEW

This is a discretionary incentive compensation plan adopted and established by the CMP Board of Directors pursuant to the Compass Minerals International, Inc. 2005 Incentive Award Plan.  This plan is designed and authorized for execution on an annual basis.  The policies, objectives, purposes and guidelines of this plan are defined by the Compensation Committee, as designated by the Board.  All awards and bonus payments described herein are entirely variable and at the sole discretion of the Compensation Committee may be evaluated, modified or revoked at any time.

All awards and bonus payments are based upon specific performance related criterion and as such, are not considered standard payment for services and are not guaranteed.

OBJECTIVES AND PURPOSE

The objective of the Annual Incentive Plan (AIP) is to establish a clear linkage between annual business results and alignment of compensation for executives and key management contributors.

The purpose of this discretionary incentive plan is to:
 
·
Reward employees for achieving and exceeding individual and CMP objectives.
 
·
Promote teamwork across Business Units and Functions.
 
·
Reinforce and motivate participants to fully utilize CMP resources and continual efforts to maximize earnings, cash flow and growth.
 
·
Establish Safety results as a common, primary multiplier for all AIP awards.

ELIGIBILITY

Employee participation is based on recommendations of the CEO and the Executive Staff.  The CEO, in keeping with established policies, determines and recommends the individual awards for the executive and key management group.  These participants are approved by the Compensation Committee.  A participant may be removed from the Plan at any time at the discretion of the Company.

AWARD CRITERIA

 
·
AIP awards are dependent upon accomplishment of CMP Corporate and Business Unit goals and objectives.  Payments will be based on performance targets established for an incentive period beginning January 1 through December 31 of a particular year.
 
 
 

 
 
 
·
The CEO and Vice President of Human Resources will develop recommendations for the Compensation Committee for the Target Percentage assigned to executive and key participants in the AIP Plan.  Each participant's overall incentive award is capped and shall not exceed 200% of base salary.

 
·
Participants in the AIP are assigned an overall Target Percentage; this is a percent of base salary and the corresponding dollar amount is the participant’s Target Award.

 
o
Example :  A participant with a base salary of $50,000 and Target Percentage of 10% would have a Target Award of $5,000 (= 100% of Target) .

 
·
Participant’s base salary reported as of December 31 of the performance year, excluding bonuses, special pay and other forms of compensation, will be used to calculate AIP Awards.

 
·
Overall AIP payments (aggregate) made under this plan require approval of the Compensation Committee.

In the event of an accounting restatement which reduces the corporate or divisional financials on which this incentive award was based, the Company may, at its sole discretion, require repayment from participants of all or any portion of any incentive awards which were incorrectly stated or reduce any compensation or other payments the participant would otherwise receive from the Company by the amount of such repayment obligation.  All participants who receive an AIP incentive award shall be required to repay the amount specified upon written notification.

PLAN DESIGN

Specific AIP targets are established each year for each participant based on goals relating to overall Company performance, business-unit performance and personal performance. Goals are specified as follows:

 
·
Business-unit Adjusted EBITDA (Adjusted EBITDA is Operating Income plus depreciation and amortization each as applicable to the Business-unit and on a combined basis.)
 
·
Business-unit Operating Cash Flow (Operating Cash Flow is Adjusted EBITDA less capital spending, with the addition or subtraction of changes in receivables, inventory, accounts payable, accrued expenses and accrued salaries and wages, each as applicable to the Business-unit and on a combined basis.)
 
·
Business-unit Net Sales Revenue (Net Sales Revenue is sales less shipping and handling cost, each as applicable to the Business-unit and on a combined basis.)
 
·
Personal Performance Objectives
 
·
Environmental, Health and Safety (“EHS”) Performance (Incidence rates)
 
 
 

 
 
The weighting of these components is based on the responsibilities of the participant. Targets for participants responsible for a business-unit differ from those for participants with overall “corporate” responsibility (e.g., Chief Financial Officer), as shown below:
 
CORPORATE PARTICIPANT
 
BUSINESS-UNIT PARTICIPANT
50%
Combined Weighted Average Adjusted EBITDA
 
25%
25%
Combined Weighted Average Adjusted EBITDA
Business-Unit Adjusted EBITDA
20%
Combined Weighted Average Net Operating Cash Flow
 
10%
10%
Combined Weighted Average Operating Cash Flow
Business-Unit Operating Cash Flow
10%
Combined Weighted Average Net Sales Revenue
 
5%
5%
Combined Weighted Average Net Sales Revenue
Business-Unit Net Sales Revenue
20%
Personal Performance Objectives
 
20%
Personal Performance Objectives
100%
   
100%
 
+/-10%
EHS Multiplier
 
+/-10%
EHS Multiplier (Average of Business-unit and Consolidated)
 
Award levels with respect to Adjusted EBITDA, Operating Cash Flow and Net Sales Revenue (both Combined and Business-unit) are based on performance as follows:
 
PERCENT OF GOAL ACHIEVED
 
PERCENT OF AIP TARGET PAID
≤  75%
 
0%
   100%
 
100%
≥ 125%
 
           200% (maximum)
 
Annual incentive target achievement is determined on a linear sliding scale based on the achievement of greater than 75% of the goals.
 
Participants are evaluated on individual personal performance objectives, and the maximum potential award for the personal performance portion of the potential award equals 200% of the personal performance target.  Overall payments for AIP awards may range from 0% to 200% of the AIP award target.
 
BUSINESS-UNIT WEIGHTING
 
Attainment of measures for combined weighted average computations will be determined based on a sum of the weighted average payouts for each individual business-unit with weighting based on each business-unit’s percent of the combined business-unit total for each component of the AIP.
 
 
 

 
 
For example,
 
   
Target
Adjusted
EBITDA
   
Target Adjusted
EBITDA /
Combined Business-
Unit Total
(Weighting)
   
Actual
Adjusted
EBITDA
   
Actual/Target*
(Payout %)
   
(Payout % x
Weighting)
 
Business Unit  A
  $ 100.0       40 %   $ 91.4       65.6 %     26.2 %
Business Unit B
  $ 50.0       20 %   $ 46.8       74.4 %     14.9 %
Business Unit C
  $ 50.0       20 %   $ 58.0       164.0 %     32.8 %
Business Unit D
  $ 50.0       20 %   $ 77.0       200.0 %     40.0 %
CMP Total
  $ 250.0             $ 273.2               113.9 %
* The percentages in this column are based on Actual v. Target AIP payout based on a 0 – 200% sliding scale from 75% of Target EBITDA to 125% of Target EBITDA as described in the preceding section.  The percentages in this column are not based on Actual EBITDA/Target EBITDA.  For example, Actual NA Hwy EBITDA of $170 shown above would yield a 65.8% payout (based on $185.9 Target EBITDA.)
 
Finally, an EHS multiplier will be applied to the combined AIP award for all components calculated above as follows:
 
EHS RATING ACHIEVED
 
MULTIPLER APPLIED
125% of goal
 
0.9
100% of goal
 
1.0
75% of goal
 
1.1

This EHS multiplier is also applied on a sliding scale in the ranges shown above.

ALLOCATION OF PAYMENTS

 
Ø
AIP bonus payments are made in the year following the year with respect to which the bonus relates.  The actual payment will be made as soon as practical after annual financial statements are available and upon final approval of the Compensation Committee.

 
Ø
To be eligible to receive an AIP bonus payment, a participant must have been actively employed at the time of any approved pay-out or, if earlier, February 28 of the year following the year with respect to which the payment relates.

 
Ø
Any participant who terminates employment, voluntarily or involuntarily, prior to the approved pay-out date (or February 28, if earlier) will not receive an AIP bonus payment, except as stipulated below:

 
o
In the event of normal retirement, disability or death prior to the end of an incentive period, an otherwise eligible participant may receive a pro-rated AIP payment amount, provided an AIP award was approved for the applicable incentive period.
 
 
 

 
 
 
o
In the event of a change in ownership or control resulting in termination of employment prior to end of the incentive period, an otherwise eligible participant may receive a pro-rated AIP payment amount, provided an AIP award was approved for the applicable incentive period.

 
Ø
An employee hired into a position approved for participation after the beginning of an incentive period may be considered for a pro-rated participation in this plan upon recommendation of the Vice President, Human Resources and CEO.

 
Ø
AIP bonus payments are paid-out on a one-time basis as a lump-sum, in cash, as such are considered compensation and reportable income for all tax reporting purposes.

 
Ø
AIP bonus payments are included in total annual earnings and must be counted for the purpose of calculating 401k contributions, profit sharing contributions and other applicable deductions.

 
Ø
A participant, who is not meeting business objectives or job performance expectations during an incentive period, may be removed from eligibility in the AIP Plan upon approval of the Vice President of Human Resources and the CEO.

 
Ø
A participant on a Performance Improvement Plan for job performance is not eligible to receive an AIP bonus payment.
 
This document supersedes all other documents that may establish or describe any criteria for participation in this plan or any other Compass Minerals compensation plan.  This plan can be modified or terminated at any time by the President and CEO of the Company.  This document does not provide nor is it intended to infer any instance of guarantee regarding participation or bonus pay-out.  Furthermore, this document does not establish any contract of employment between the Company and any employee, nor does it establish any guarantee of employment for any specific period of time.
 
 


Exhibit 10.4
 
THREE-YEAR PERFORMANCE STOCK UNIT AWARD AGREEMENT
 
Name of Grantee:     
Grant Date:     
Number of Shares of Performance Stock Units:     
                                                                            
This Agreement evidences the grant by Compass Minerals International, Inc., a Delaware corporation (the “Company”) of performance stock units to the above-referenced “Grantee” as of the “Grant Date” hereof pursuant to the Compass Minerals International, Inc. 2005 Incentive Award Plan, as amended from time to time (the “Plan”). By accepting the Award, Grantee agrees to be bound in accordance with the provisions of the Plan, the terms and conditions of which are hereby incorporated in this Agreement by reference. Capitalized terms not defined herein shall have the same meaning as used in the Plan, as amended from time to time, unless otherwise superseded by any other agreement between the Company and Grantee.
 
1.             Performance Stock Units Awarded .  Grantee is hereby awarded the number of common stock units (the “Performance Stock Units”) first set forth above, subject to the other terms and conditions of this Agreement and the Plan.  Each unit represents the right to receive one share of the Company’s Stock.  The Performance Stock Units shall be divided into three approximately equal tranches (rounded to the near whole unit) and shall be subject to the Performance Criteria set forth in Exhibit A attached hereto.
 
2.             Vesting Period .  The Performance Stock Units shall be subject to a three-year  vesting period beginning on the Grant Date and ending on the third anniversary of such Grant Date (the "Vesting Period").
 
3.             Payment .  Except as provided in paragraph 5, within 30 days following the conclusion of the Vesting Period, Grantee shall receive a number of shares of Stock equal to the number of Performance Stock Units with respect to which the Performance Criteria have been satisfied.  Any non-vested Performance Stock Units will be forfeited by Grantee and no benefits will be payable under this Agreement with respect to such non-vested Performance Stock Units.
 
4.             Termination Prior to the End of the Vesting Period .
 
(a)           Except as provided below, if Grantee terminates employment with the Company and its Subsidiaries prior to the last day of the Vesting Period, then the Performance Stock Units subject to this Agreement shall be forfeited as of such termination of employment and no benefits will be payable under this Agreement.  Notwithstanding the foregoing, if Grantee terminates employment with the Company and its Subsidiaries prior to the last day of the Vesting Period due to death or Disability, then the Performance Stock Units subject to this Agreement shall not be forfeited due to Grantee's termination of employment prior to the last day of the Vesting Period.
 
(b)           The term “Disability” means Grantee is unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment which can be expected to last for a continuous period of not less than twelve (12) months; or is, by reason of a medically determinable physical or mental impairment which can be expected to last for a
 
 
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continuous period of not less than twelve (12) months, receiving replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company.
 
5.             Payment Following Change of Control .  Notwithstanding any provision in this Agreement to the contrary, if following a Change of Control:  (a) the Performance Stock Units are not assumed or an economically equivalent right is not substituted by the surviving or successor entity, or (b) Grantee’s employment is involuntarily terminated without Cause (as defined in Exhibit B) or voluntarily terminated for Good Reason (as defined in Exhibit B) within 18 months of such Change of Control, then:
 
(i)           With respect to each Performance Period ending on or before the date of such Change of Control or termination of employment (as applicable), the number of Performance Stock Units earned with respect to each such Performance Period shall be determined based on the Company’s actual performance for such Performance Period, and Grantee shall receive within 30 days following such Change in Control or termination of employment (as applicable) a number of shares of Stock of the Company (or stock of the surviving or successor entity) equal to the number of Performance Stock Units earned for the Performance Period; provided, however, payment shall be made in cash if the Stock of the Company or the stock of the surviving or successor entity with respect to which such Stock is converted is not traded on a national securities exchange or automated dealer quotation system.
 
(ii)           With respect to a partially completed Performance Period (or any Performance Period which has not commenced at the time of a Change of Control or termination of employment, as applicable), the number of Performance Stock Units earned with respect to each such Performance Period shall be determined based on the Company’s actual performance through the effective date of such Change of Control or termination of employment as applicable), or the most recent practicable measurement date if TSR data is not available through such date, and imputed to obtain a full year result, which will be applied for all such partially completed or not yet commenced Performance Periods.  Grantee shall then receive, within 30 days following such Change in Control or termination of employment (as applicable), a number of shares of Stock of the Company (or stock of the surviving or successor entity) equal to the number of Performance Stock Units determined to have been earned, which will be applied for all such partially completed or not yet commenced Performance Periods; provided, however, payment shall be made in cash if the Stock of the Company or the stock of the surviving or successor entity with respect to which such Stock is converted is not traded on a national securities exchange or automated dealer quotation system.
 
6.             Voting and Dividend Rights . Grantee shall have no voting rights with respect to the Performance Stock Units awarded hereunder. Pursuant to Section 8.4 of the Plan and subject to Exhibit A, Grantee shall be entitled to receive Dividend Equivalents based upon the number of Performance Stock Units earned by Grantee.  Such Dividend Equivalents shall be paid no later than March 15 of the year following the year with respect to which such Dividend Equivalents relate and shall be equal to one hundred percent (100%) of the value of the cash dividend (or other property being distributed) per share being paid on the Company’s Stock times the number of Performance Stock Units earned by Grantee as of the most recent record date preceding the payment date of such Dividend Equivalents. Dividend Equivalents shall be paid in cash, shares of the Company’s Stock, or such other property as may be distributed to the Company’s stockholders. Notwithstanding the foregoing, if Grantee terminates employment with the
 
 
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Company and its Subsidiaries prior to the last day of the Vesting Period (other than due to death or Disability), then Grantee shall not be entitled to Dividend Equivalents unless Grantee is employed on the payment date for such Dividend Equivalents.  Notwithstanding the foregoing, in the event of a Change of Control, any Dividend Equivalents shall be paid at the same time payment is made with respect to Grantee’s Performance Stock Units pursuant to paragraph 5
 
7.             Permitted Transfers .  The rights under this Agreement may not be assigned, transferred or otherwise disposed of except by will or the laws of descent and distribution and may be exercised during the lifetime of Grantee only by Grantee.  Upon any attempt to assign, transfer or otherwise dispose of this Agreement, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this Agreement and the rights and privileges conferred hereby immediately will become null and void.
 
8.             Unfunded Obligation .  This Agreement is designed and shall be administered at all times as an unfunded arrangement and Grantee shall be treated as an unsecured general creditor and shall have no beneficial ownership of any assets of the Company.
 
9.             Taxes .  Grantee will be solely responsible for any federal, state or other taxes imposed in connection with the granting of the Performance Stock Units or the delivery of shares of Stock pursuant thereto, and Grantee authorizes the Company or any Subsidiary to make any withholding for taxes which the Company or any Subsidiary deems necessary or proper in connection therewith.  Upon recognition of income by Grantee with respect to the Award hereunder, the Company shall withhold taxes pursuant to the terms of the Plan.
 
10.             Changes in Circumstances .  It is expressly understood and agreed that Grantee assumes all risks incident to any change hereafter in the applicable laws or regulations or incident to any change in the value of the Performance Stock Units or the shares of Stock issued pursuant thereto after the date hereof.
 
11.             Conflict With Plan .  In the event of a conflict between this Agreement and the Plan, the provisions of the Plan shall govern.  In the event of any inconsistencies between the definitions and other terms and conditions under Grantee’s employment agreement, if any, and this Agreement or the Plan, Grantee’s employment agreement shall control.
 
12.             Notices .  All notices, claims, certificates, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given and delivered if personally delivered or if sent by nationally-recognized overnight courier, by telecopy, or by registered or certified mail, return receipt requested and postage prepaid, addressed as follows:
 
If to the Company, to it at:
 
Compass Minerals International, Inc.
9900 West 109th Street, Suite 100
Overland Park KS 66210
Attn: Vice President Human Resources
 
If to Grantee, to him or her at the address set forth on the signature page hereto or to such other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith.  Any such notice or communications shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery (or if such date is
 
 
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not a business day, on the next business day after the date of delivery), (b) in the case of nationally-recognized overnight courier, on the next business day after the date sent, (c) the case of telecopy transmission, when received (or if not sent on a business day, on the next business day after the date sent), and (d) in the case of mailing, on the third business day following that on which the piece of mail containing such communication is posted.
 
13.             No Guarantee of Employment .  Nothing in this Agreement shall confer upon Grantee any right to continue in the employ of the Company or any Subsidiary or interfere in any way with the right of the Company or Subsidiary, as the case may be, to sever Grantee’s employment or to increase or decrease Grantee’s compensation at any time.
 
14.             Governing Law .  This Agreement shall be governed under the laws of the State of Delaware without regard to the principles of conflicts of laws.  Each party hereto submits to the exclusive jurisdiction of the United States District Court for the District of Kansas (Kansas City, Kansas).  Each party hereto irrevocably waives, to the fullest extent permitted by law, any objections that either party may now or hereafter have to the aforesaid venue, including without limitation any claim that any such proceeding brought in either such court has been brought in an inconvenient forum, provided however, this provision shall not limit the ability of either party to enforce the other provisions of this paragraph.
 
15.             Severability . It is the desire and intent of the parties hereto that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought.  Accordingly, if any particular provision of this Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.  Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.
 
16.             Enforcement .  In the event the Company or Grantee institutes litigation to enforce or protect its rights under this Agreement or the Plan, the party prevailing in any such litigation shall be paid by the non-prevailing party, in addition to all other relief, all reasonable attorneys’ fees, out-of-pocket costs and disbursements of such party relating to such litigation.
 
17.             Waiver of Jury Trial .  Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, trial by jury in any suit, action or proceeding arising hereunder
 
18.             Committee Authority .  The Committee will have the power and discretion to interpret this Agreement and to adopt such rules for the administration, interpretation and application of this Agreement as are consistent with the Plan and this Agreement and to interpret or revoke any such rules, including, but not limited to, the determination of whether or not the Performance Criteria with respect to the Performance Stock Units have been satisfied.  All actions taken and all interpretations and determinations made by the Committee in good faith will be final and binding upon Grantee, the Company and all other interested persons.  No member of the Committee will be personally liable for any action, determination or interpretation made in good faith with respect to this Agreement.
 
 
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19.             Counterparts .  This Agreement may be executed in one or more counterparts, and each such counterpart shall be deemed to be an original, but all such counterparts together shall constitute but one agreement.
 
20.             Restrictive Covenant .  Notwithstanding any provision in this Agreement to the contrary, the award hereunder is expressly conditioned upon Grantee’s execution of a Restricted Covenant Agreement in the form designated by the Company.  If Grantee fails or refuses to execute such Restricted Covenant Agreement, this Agreement shall be null and void ab initio.
 
21.             Compliance with Section 409A .  To the extent applicable and notwithstanding any provision in this Agreement to the contrary, this Agreement shall be interpreted and administered in accordance with  Section 409A of the Internal Revenue Code and regulations and other guidance issued thereunder.  For purposes of determining whether any payment made pursuant to the Plan results in a "deferral of compensation" within the meaning of Treasury Regulation §1.409A-1(b), the Company shall maximize the exemptions described in such section, as applicable.  Any reference to a “termination of employment” or similar term or phrase shall be interpreted as a “separation from service” within the meaning of Section 409A and the regulations issued thereunder.  If any deferred compensation payment is payable upon separation from service and is required to be delayed pursuant to Section 409A(a)(2)(B) because Grantee is a “specified employee”, then payment of such amount shall be delayed for a period of six months and paid in a lump sum on the first payroll payment date following expiration of such six month period.
 
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Grant Date.
 
 
COMPASS MINERALS INTERNATIONAL, INC.
   
  By:    
  Name:    
  Title:    
       
 
GRANTEE
 
   
       
       
 
 
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EXHIBIT A
PERFORMANCE CRITERIA FOR PERFORMANCE STOCK UNIT AWARD

All or a portion of the Performance Stock Units attributable to each tranche will be forfeited at the end of the applicable Performance Period unless the following Performance Criteria are satisfied:

Tranche
Number of
Performance
Stock Units
Performance
Period
Performance Criteria
1
[_______]
 
 
FY 20__
The Performance Stock Units earned for each Performance Period are based on CMP's Total Shareholder Return (TSR) compared to the TSR of the companies comprising the Russell 3000 Index.
 
2
[_______]
 
FY 20__
Benchmark
Ranking
Percentage of Performance
Stock Units Earned
3
[_______]
FY 20__
 
< 30th Percentile
30th Percentile (Threshold)
50th Percentile (Target)
70th Percentile (Maximum)
 
0%
50%
100%
150%
 
     
Benchmark and earned percentages will be interpolated on a straight line basis
 
 
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EXHIBIT B
DEFINITIONS OF CAUSE AND GOOD REASON

Definition of Cause

“Cause” means (i) the conviction of Grantee of, or plea of guilty or nolo contendere by Grantee to, a felony or misdemeanor involving moral turpitude, (ii) the indictment of Grantee for a felony or misdemeanor under the federal securities laws, (iii) the willful misconduct or gross negligence by Grantee resulting in material harm to the Company or any Subsidiary, (iv) fraud, embezzlement, theft, or dishonesty by Grantee against the Company or any Subsidiary, or willful violation by Grantee of a policy or procedure of the Company, resulting in any case in material harm to the Company, or (v) breach of any confidentiality agreement or obligation and/or breach of any Restrictive Covenant Agreement or similar agreement by and between Grantee and Company.  For purpose of this paragraph, no act or failure to act by Grantee shall be considered “willful” unless done or omitted to be done by Grantee in bad faith and without reasonable belief that Grantee’s action or omission was in the best interests of the Company or its Subsidiaries.  Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board shall be conclusively presumed to be done, or omitted to be done, by Grantee in good faith and in the best interests of the Company. The Company must notify Grantee of any event constituting Cause within ninety (90) days following the Company’s knowledge of its existence or such event shall not constitute Cause under this Agreement.
 
Definition of Good Reason

“Good Reason” means, without Grantee’s express written consent, the occurrence of any of the following events within 18 months after a Change of Control:

(i)           a material adverse change in Grantee’s duties or responsibilities as of the Change of Control (or as the same may be increased from time to time thereafter); provided, however, that Good Reason shall not be deemed to occur upon a change in Grantee’s reporting structure, upon a change in Grantee’s duties or responsibilities that is a result of the Company no longer being a publicly traded entity and does not involve any other event set forth in this paragraph, or upon a change in Grantee’s duties or responsibilities that is part of an across the board change in duties or responsibilities of employees at Grantee’s level;

(ii)           any material reduction in Grantee’s annual base salary or annual target or maximum bonus opportunity in effect as of the Change of Control (or as the same may be increased from time to time thereafter); provided, however, that Good Reason shall not include such a reduction of less than 10% that is part of an across the board reduction applicable to employees at Grantee’s level;

(iii)           Company’s (A) relocation of Grantee more than 50 miles from Grantee’s primary office location and more than 50 miles from Grantee’s principal residence as of the Change of Control or (B) requirement that Grantee travel on Company business to an extent substantially greater than Grantee’s travel obligations immediately before such Change of Control; or

(iv)           any material breach of this Agreement.
 
 
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Notwithstanding the foregoing, Grantee must provide notice of termination of employment to the Company within 90 days of Grantee’s knowledge of an event constituting Good Reason or such event shall not constitute Good Reason under this Agreement.  The Company shall have a period of 30 days to cure any such event without triggering the obligations under this Agreement.
 
 
8


Exhibit 10.5
 
NON QUALIFIED STOCK OPTION AWARD AGREEMENT
 
Name of Optionee:     
Grant Date:     
Number of Option Shares:    
Option Price Per Share: $    
 
        This Agreement evidences the grant by Compass Minerals International, Inc., a Delaware corporation (the “Company”) of a non-qualified stock option to the above-referenced “Optionee” as of the “Grant Date” hereof pursuant to the Compass Minerals International, Inc. 2005 Incentive Award Plan, as amended (the “Plan”).
 
1.   The Plan .  The terms and provisions of the Plan are hereby incorporated into this Agreement as if set forth herein in their entirety.  In the event of a conflict between any provision of this Agreement and the Plan, the provisions of the Plan shall control.  A copy of the Plan may be obtained from the Company by Optionee upon request.  Capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Plan, unless otherwise superseded by any other agreement between the Company and Grantee.
 
2.   Option Price .  On the terms and subject to the conditions of the Plan and this Agreement, Optionee shall have the option (the “Option”) to purchase shares of Stock at the price per share (the “Option Price”) and in the amounts set forth above.  Payment of the Option Price may be made in any manner specified under Section 5.1(c) of the Plan.  The Option is not intended to qualify for federal income tax purposes as an “incentive stock option” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).  Upon Optionee’s termination of employment or service with the Company for any reason, the unvested portion of the Option shall terminate.
 
3.   Term .  The term of the Option shall commence on the Grant Date and expire on the seventh (7 th ) anniversary of the Grant Date, unless the Option shall have sooner been terminated in accordance with the terms of the Plan or this Agreement.
 
4.   Vesting .  The Option shall become non-forfeitable and shall become exercisable according to the following provisions:
 
(a)           Twenty-five percent (25%) of the Option shall become vested and exercisable on each of the first four anniversaries of the Grant Date; provided , however , if a Change of Control shall occur prior thereto, then one hundred percent (100%) of the Option shall become immediately vested and exercisable if:  (i) the Option is not assumed or an economically equivalent option or right is not substituted by the surviving entity following such Change in Control, or (ii) Optionee’s employment is involuntarily terminated without Cause (as defined in paragraph 8 below) or voluntarily terminated for Good Reason (as defined in Section 4(d) below) within 18 months following such Change of Control.
 
(b)           To the extent vested, the Option may be exercised in whole or in part by delivery of notice of exercise and the Option Price to the Company no later than the earliest of the dates set forth in paragraph 5.
 
(c)           Notwithstanding anything contained herein to the contrary, the Option shall cease vesting upon Optionee’s termination of employment or service with the Company and/or its Subsidiaries for any reason other than retirement or disability, and no portion of the Option which
 
 
1

 
 
is not vested as of such time shall become vested thereafter.  All decisions by the Committee with respect to any calculations pursuant to this paragraph shall be final and binding on Optionee.
 
(d)           For purposes of this Agreement, “Good Reason” means, without Optionee’s express written consent, the occurrence of any of the following events within 18 months after a Change of Control:
 
(i)           a material adverse change in Optionee’s duties or responsibilities as of the Change of Control (or as the same may be increased from time to time thereafter); provided, however, that Good Reason shall not be deemed to occur upon a change in Optionee’s reporting structure, upon a change in Optionee’s duties or responsibilities that is a result of the Company no longer being a publicly traded entity and does not involve any other event set forth in this paragraph, or upon a change in Optionee’s duties or responsibilities that is part of an across-the-board change in duties or responsibilities of employees at Optionee’s level;
 
(ii)           any reduction in Optionee’s annual base salary or annual target or maximum bonus opportunity in effect as of the Change of Control (or as the same may be increased from time to time thereafter); provided, however, that Good Reason shall not include such a reduction of less than 10% that is part of an across-the-board reduction applicable to employees at Optionee’s level;
 
(iii)           Company’s (A) relocation of Optionee more than 50 miles from Optionee’s primary office location and more than 50 miles from Optionee’s principal residence as of the Change of Control or (B) requirement that Optionee travel on Company business to an extent substantially greater than Optionee’s travel obligations immediately before such Change of Control; or
 
(iv)           a reduction of more than 10% in the aggregate benefits provided to Optionee under the Company’s employee benefit plans, including but not limited to any “top hat” plans designated for key employees, in which Optionee is participating as of the Change of Control.
 
Notwithstanding the foregoing, Optionee must provide notice of termination of employment to the Company within 90 days of Optionee’s knowledge of an event constituting Good Reason or such event shall not constitute Good Reason under this Agreement.  Additionally, an isolated, insubstantial, and inadvertent action taken in good faith and that is remedied by the Company within 10 days after receipt of notice thereof given by Optionee shall not constitute Good Reason.
 
5.   Exercise of Option .  The Option shall automatically terminate and shall be null and void and be of no further force and effect upon the earliest of:
 
(a)           The third (3 rd ) anniversary of Optionee’s termination of employment or service with the Company or Subsidiary due to retirement or disability; or
 
(b)           The first (1 st ) anniversary of Optionee’s death; or
 
(c)           The first (1 st ) anniversary of Optionee’s termination of employment or service without Cause or for Good Reason within 18 months following a Change of Control; or
 
 
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(d)           The date Optionee's employment or service with the Company or Subsidiary is involuntarily terminated for Cause (either before or after a Change of Control); or
 
(e)           The ninetieth (90 th ) day following Optionee’s termination of employment or service with the Company and/or its Subsidiaries for any reason not described in (a), (b), (c) or (d) above; or
 
(f)           The seventh (7 th ) anniversary of the Grant Date.
 
Notwithstanding the foregoing, if Optionee’s right to exercise the Option expires during a blackout trading period and Optionee is prohibited from exercising the Option during such period due to trading restrictions, Optionee shall have an additional thirty (30) days following the expiration of such blackout period to exercise the Option.
 
For purposes of this Agreement, “retirement” means a voluntary termination of employment or service on or after age sixty-two (62) and with a combined age and years of service of at least sixty-seven (67).  The term “disability” means Optionee is unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment which can be expected to last for a continuous period of not less than twelve (12) months; or is, by reason of a medically determinable physical or mental impairment which can be expected to last for a continuous period of not less than twelve (12) months, receiving replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company.
 
6.   Restriction on Transfer .  The Option may not be transferred, pledged, assigned, hypothecated or otherwise disposed of in any way by Optionee and may be exercised during the lifetime of Optionee only by Optionee.  If Optionee dies, the Option shall thereafter be exercisable, during the period specified in paragraph 5 of this Agreement, by his or her executors or administrators to the full extent to which the Option was exercisable by Optionee at the time of his or her death.  The Option shall not be subject to execution, attachment or similar process.  Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions hereof, and the levy of any execution, attachment or similar process upon the Option shall be null and void and without effect.
 
7.   Optionee’s Employment .  Nothing in the Option shall confer upon Optionee any right to continue in the employ or service of the Company or any of its Subsidiaries or interfere in any way with the right of the Company or its Subsidiaries, as the case may be, to terminate Optionee’s employment or service or to increase or decrease Optionee’s compensation at any time.
 
8.   Definition of Cause .  For purposes of this Agreement, “Cause” means (i) the conviction of Optionee of, or plea of guilty or nolo contendere by Optionee to, a felony or misdemeanor involving moral turpitude, (ii) the indictment of Optionee for a felony or misdemeanor under the federal securities laws, (iii) the willful misconduct or gross negligence by Optionee resulting in material harm to the Company or any Subsidiary, (iv) fraud, embezzlement, theft, or dishonesty by Optionee against the Company or any Subsidiary, or willful violation by Optionee of a policy or procedure of the Company, resulting in any case in material harm to the Company, or (v) breach of any confidentiality / invention assignment agreement or obligation and/or breach of any Restrictive Covenant Agreement or similar agreement by and between Optionee and the Company.  For purpose of this paragraph, no act or failure to act by Optionee shall be considered “willful” unless done or omitted to be done by Optionee in bad faith and without reasonable belief that Optionee’s action or omission was in the best interests of the Company or its Subsidiaries.  Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board shall be conclusively presumed to be done, or omitted to be done, by Optionee in good faith and in the best interests of the Company.  The Company must notify Optionee of any event
 
 
3

 
 
constituting Cause within ninety (90) days following the Company’s knowledge of its existence or such event shall not constitute Cause under this Agreement.
 
Notwithstanding any provision in this Agreement to the contrary, it is a condition precedent to the exercise of the Option that no event constituting Cause shall have occurred at any time coincident with or preceding Optionee’s delivery of notice of exercise to the Company or its designee.  Upon the occurrence of any such event constituting Cause, the Option may not be exercised with respect to any remaining shares subject to the Option.
 
9.   Notices .  All notices, claims, certificates, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given and delivered if personally delivered or if sent by nationally-recognized overnight courier, by telecopy, or by registered or certified mail, return receipt requested and postage prepaid, addressed as follows:
 
If to the Company, to it at:
 
Compass Minerals International, Inc.
9900 West 109th Street
Overland Park KS 66210
Attn: Vice President Human Resources
 
If to Optionee, to him or her at the address set forth on the signature page hereto or to such other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith.  Any such notice or communications shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery (or if such date is not a business day, on the next business day after the date of delivery), (b) in the case of nationally-recognized overnight courier, on the next business day after the date sent, (c) the case of telecopy transmission, when received (or if not sent on a business day, on the next business day after the date sent), and (d) in the case of mailing, on the third business day following that on which the piece of mail containing such communication is posted.
 
10.   Waiver of Breach .  The waiver by either party of a breach of any provision of this Agreement must be in writing and shall not operate or be construed as a waiver of any other or subsequent breach.
 
11.   Optionee’s Undertaking .  Optionee hereby agrees to take whatever additional actions and execute whatever additional documents the Company may in its reasonable judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on Optionee pursuant to the express provisions of this Agreement and the Plan.
 
12.   Modification of Rights .  The rights of Optionee are subject to modification and termination in certain events as provided in this Agreement and the Plan (with respect to the Option granted hereby).
 
13.   Governing Law .  This Agreement shall be governed under the laws of the State of Delaware without regard to the principles of conflicts of laws.  Each party hereto submits to the exclusive jurisdiction of the United States District Court for the District of Kansas (Kansas City, Kansas). Each party hereto irrevocably waives, to the fullest extent permitted by law, any objections that either party may now or hereafter have to the aforesaid venue, including without limitation any claim that any such proceeding brought in either such court has been brought in an inconvenient forum, provided however, this provision shall not limit the ability of either party to enforce the other provisions of this paragraph.
 
 
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14.   Counterparts .  This Agreement may be executed in one or more counterparts, and each such counterpart shall be deemed to be an original, but all such counterparts together shall constitute but one agreement.
 
15.   Entire Agreement .  This Agreement and the Plan (and the other writings referred to herein) constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede all prior written or oral negotiations, commitments, representations and agreements with respect thereto.
 
16.   Severability .  It is the desire and intent of the parties hereto that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought.  Accordingly, if any particular provision of this Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.  Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.
 
17.   Enforcement .  In the event the Company or any Optionee institutes litigation to enforce or protect its rights under this Agreement or the Plan, the party prevailing in any such litigation shall be paid by the non-prevailing party, in addition to all other relief, all reasonable attorneys’ fees, out-of-pocket costs and disbursements relating to such litigation.
 
18.   Waiver of Jury Trial .  Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, trial by jury in any suit, action or proceeding arising hereunder.
 
19.   Restrictive Covenant .  Notwithstanding any provision in this Agreement to the contrary, the award hereunder is expressly conditioned upon Optionee’s execution of a confidentiality agreement/ invention assignment agreement and a Restricted Covenant Agreement in the form designated by the Company.  If Optionee fails or refuses to execute such confidentiality agreement/ invention assignment agreement and Restricted Covenant Agreement, this Agreement shall be null and void ab initio.
 
IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the Grant Date.
 
 
COMPASS MINERALS INTERNATIONAL, INC.
   
  By:    
  Name:    
  Title:    
       
 
OPTIONEE
 
   
       
     
 
Residence Address
 
 
     
 
 
  5


Exhibit 31.1

I, Francis J. Malecha, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Compass Minerals International, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 
(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
(c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
(d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 
(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 
(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
Date: April 29, 2013
/s/ FRANCIS J. MALECHA
 
 
Francis J. Malecha
 
 
President and Chief Executive Officer
 
 
 


Exhibit 31.2

I, Rodney L. Underdown, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Compass Minerals International, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 
(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
(c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
(d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 
(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 
(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
Date: April 29, 2013
/s/ RODNEY L. UNDERDOWN
 
 
Rodney L. Underdown
 
 
Vice President and Chief Financial Officer
 
 
 


Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. §1350

Each of the undersigned hereby certify that this quarterly report on Form 10-Q for the three-month period ended March 31, 2013, as filed with the Securities and Exchange Commission on the date hereof, to the best of my knowledge, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of Compass Minerals International, Inc.

 
COMPASS MINERALS INTERNATIONAL, INC.
 
     
April 29, 2013
/s/ FRANCIS J. MALECHA
 
 
Francis J. Malecha
 
 
President and Chief Executive Officer
 
     
 
/s/ RODNEY L. UNDERDOWN
 
 
Rodney L. Underdown
 
 
Vice President and Chief Financial Officer
 
 
 


Exhibit 95
 
Dodd-Frank Act Disclosure of Mine Safety and Health Administration Safety Data
 
Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) requires mining companies to disclose in their periodic reports information about their mines subject to regulation by the Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”).  The operation of our mine in Cote Blanche, Louisiana is inspected by MSHA on an ongoing basis and MSHA issues citations and/or orders when it believes a violation under the Mine Act has occurred.  The following table provides the information required under §1503 of the Act for the three months ended March 31, 2013:
 
For the Three Months Ended March 31, 2013
 
Mine or Operating
Name (MSHA
Identification
Number)
 
Section 104
S&S
Citations
   
Section
104(b)
Orders
   
Section 104(d) Citations and
Orders
   
Section
 110(b)(2)
Violations
   
Section
107(a)
Orders
   
Total Dollar
Value of
MSHA Assessments Proposed
   
Total
Number of
Mining
Related
Fatalities
 
Received
Notice of
Pattern of
Violations
Under
Section
104(e)
 
Received
Notice of
Potential
to Have
Pattern
Under
Section
104(e)
 
Legal
Actions
Pending
as of Last
Day of
Period
   
Legal
Actions
Initiated
During
Period
   
Legal
Actions
Resolved
During
Period
 
                                                                   
Cote Blanche, LA (16-00358)
    2       0       0       0       0     $ 2,168       0  
No
 
No
    10       2       7