# Compass Minerals International Inc: Form 10-Q/A for the period ended Mar 31, 2021

- Company: [Compass Minerals International Inc](/companies/cmp.md) (CIK 1227654)
- Form: 10-Q/A
- Filed: 2021-09-03
- Accepted by EDGAR: Sep 3, 2021, 01:29 ET
- Period: 2021-03-31
- Accession: 0001227654-21-000220
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1227654/000122765421000220/cmp-20210331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1227654/000122765421000220/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2021-01-01 to 2021-03-31 | $425.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Gross profit | 3 months, 2021-01-01 to 2021-03-31 | $108.4m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2021-01-01 to 2021-03-31 | $32.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2021-01-01 to 2021-03-31 | $76.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2021-01-01 to 2021-03-31 | $15.7m | us-gaap:InterestExpense |
| Income tax | 3 months, 2021-01-01 to 2021-03-31 | $16.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-01-01 to 2021-03-31 | −$214.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-01-01 to 2021-03-31 | −$6.32 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2021-01-01 to 2021-03-31 | −$6.32 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2021-01-01 to 2021-03-31 | 34,012,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2021-01-01 to 2021-03-31 | $200.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2021-01-01 to 2021-03-31 | $18.2m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2021-01-01 to 2021-03-31 | $24.1m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2021-03-31 | $42.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2021-03-31 | $817.6m | us-gaap:AssetsCurrent |
| Total assets | at 2021-03-31 | $1.91bn | us-gaap:Assets |
| Current liabilities | at 2021-03-31 | $393.9m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2021-03-31 | $1.18bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2021-03-31 | $0 | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2021-03-31 | $123.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 38,831 characters.

All statements, other than statements of historical fact, contained in this Form 10-Q/A 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 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: our mining and industrial operations; geological conditions; dependency on a limited number of key production and distribution facilities and critical equipment; weather conditions; strikes, other forms of work stoppage or slowdown or other union activities; the inability to fund necessary capital expenditures or successfully complete capital projects; supply constraints or price increases for energy and raw materials used in our production processes; our indebtedness and inability to pay our indebtedness; restrictions in our debt agreements that may limit our ability to operate our business or require accelerated debt payments; tax liabilities; financial assurance requirements; the inability of our customers to access credit or a default by our customers of trade credit extended by us or financing we have guaranteed; our payment of any dividends; the impact of competition on the sales of our products; risks associated with our international operations and sales, including changes in currency exchange rates and inflation risks; the impact of anticipated changes in plant nutrition product prices and customer application rates; conditions in the sectors where we sell products and supply and demand imbalances for competing products; increasing costs or a lack of availability of transportation services; the seasonal demand for our products; our rights and governmental authorizations to mine and operate our properties; compliance with foreign and United States (“U.S.”) laws and regulations related to import and export requirements and anti-corruption laws; compliance with environmental, health and safety laws and regulations; environmental liabilities; misappropriation or infringement claims relating to intellectual property; product liability claims and product recalls; inability to obtain required product registrations or increased regulatory requirements; changes in industry standards and regulatory requirements; disruptions caused by the COVID-19 pandemic, or other outbreaks of infectious disease or similar public health threats; our ability to successfully implement our strategies; the timing and outcome of the sale processes for our South America business and our ability to complete the sales of our South America businesses; the loss of key personnel; a compromise of our computer systems, information technology or operations technology or the inability to protect confidential or proprietary data; our ability to expand our business through acquisitions, integrate acquired businesses and realize anticipated benefits from acquisitions; climate change and related laws and regulations; domestic and international general business and economic conditions; and other risks referenced from time to time in this report and our other filings with the SEC, including Part I, Item 1A, “Risk Factors” of our Form 10-K/A for the year ended December 31, 2020.

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,” the negative of these terms or other comparable terminology. Forward-looking statements include without limitation statements about the impact of the COVID-19 pandemic on us; our outlook, including expected sales volumes; existing or potential capital expenditures; capital projects and investments; the industry and our competition; projected sources of cash flow; potential legal liability; proposed legislation and regulatory action; the seasonal distribution of working capital requirements; our reinvestment of foreign earnings outside the U.S.; our ability to optimize cash accessibility, minimize tax expense and meet debt service requirements; future tax payments and tax refunds; outcomes of matters with taxing authorities; the effects of currency fluctuations and inflation; and the seasonality of our business. These forward-looking 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 to the “Company,” “Compass Minerals,” “our,” “us” and “we” refer to Compass Minerals International, Inc. (“CMI,” the parent holding company) and its consolidated subsidiaries. Except where otherwise noted, references to North America include only the continental U.S. and Canada, and references to the United Kingdom (the “U.K.”) include only England, Scotland and Wales. Except where otherwise noted, all references to tons refer to “short tons” and all amounts are in U.S. dollars. One short ton equals 2,000 pounds. Compass Minerals and Protassium+ and combinations thereof, are trademarks of CMI or its subsidiaries in the U.S. and other countries.

### Discontinued Operations

During 2020, we initiated an evaluation of the strategic fit of certain of our businesses. On February 16, 2021, we announced our plan to restructure our former Plant Nutrition South America segment to enable targeted and separate sales processes for each portion of the former segment, including our chemicals and specialty plant nutrition businesses along with our equity method investment in Fermavi Eletroquímica Ltda. (“Fermavi”). Concurrently, to optimize our asset base in North America, we evaluated the strategic fit of our North America micronutrient product business. On March 16, 2021, the Board of the Directors approved a plan to sell our South America chemicals and specialty plant nutrition businesses, our investment in Fermavi and our North America micronutrient product business (collectively, the “Specialty Businesses”) with the goal of reducing our leverage and enabling increased focus on optimizing our core businesses.

As described further in Item 1, Note 2, on March 23, 2021, April 7, 2021, and June 28, 2021, we entered into definitive agreements to sell our South America specialty plant nutrition business, a component of our North America micronutrient business and our Fermavi investment, respectively. The South America specialty plant nutrition business sale closed in July 1, 2021, the North America micronutrient sale closed on May 4, 2021 and the sale of the Fermavi investment closed on August 20, 2021. We continue to actively pursue the sale of the South America chemicals business, and we believe this sale is probable to occur within the next twelve months.

We believe there is a single disposal plan representing a strategic shift that will have a material effect on our operations and financial results. Consequently, the Specialty Businesses qualify for presentation as assets and liabilities held for sale and discontinued operations in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Accordingly, current and noncurrent assets and liabilities of the Specialty Businesses are presented in the Consolidated Balance Sheets as assets and liabilities held for sale for both periods presented and their results of operations are presented as discontinued operations in the Consolidated Statements of Operations for each period presented.

### COVID-19 Pandemic

The ongoing COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. As an essential business, we have continued producing and delivering products that support critical industries such as transportation, agriculture, chemical, food, pharmaceutical and animal nutrition. We have instituted several measures in response to the COVID-19 pandemic and have experienced negative impacts to our business from COVID-19, but our results of operations for the three months ended March 31, 2021 and 2020, were not materially affected by COVID-19.

The ultimate impact that COVID-19 will have on our future results is unknown at this time. For more information, see Part I, Item 1A, “Risk Factors” in our Form 10-K/A for the year ended December 31, 2020.

### Critical Accounting Estimates

Preparation of our consolidated financial statements in accordance with U.S. GAAP 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. Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 8, Note 2 to the Consolidated Financial Statements included in our Form 10-K/A for the year ended December 31, 2020, describe the significant accounting estimates and policies used in preparation of our consolidated financial statements. For a further description of our critical accounting policies, see Item 1, Note 1 of our Consolidated Financial Statements included in this Form 10-Q/A. Actual results in these areas could differ from management’s estimates.

### Company Overview

Compass Minerals is a leading producer of essential minerals, including salt, sulfate of potash (“SOP”) specialty fertilizer and magnesium chloride. As of March 31, 2021, we operated 12 production and packaging facilities (excluding 9 production facilities in South America that are part of our discontinued operations), including:

- The largest rock salt mine in the world in Goderich, Ontario, Canada;
- The largest dedicated rock salt mine in the U.K. in Winsford, Cheshire;
- A solar evaporation facility located in Ogden, Utah, which is both the largest SOP production site and the largest solar salt production site in the Western Hemisphere; and
- Several mechanical evaporation facilities producing consumer and industrial salt.

We now have two reportable segments, Salt and Plant Nutrition (which was previously known as the Plant Nutrition North America segment), as discussed in Item 1, Note 10 to the Consolidated Financial Statements. Unless otherwise indicated, the information and amounts provided in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” pertain to continuing operations.

Our Salt segment provides highway deicing salt to customers in North America and the U.K. as well as consumer deicing and water conditioning products, ingredients used in consumer and commercial food preparation, and other salt-based products for consumer, agricultural and industrial applications in North America. In the U.K., we operate a records management business utilizing excavated areas of our Winsford salt mine with one other surface location in London, England.

Our Plant Nutrition segment produces and markets specialty plant nutrition products worldwide to distributors and retailers of crop inputs, as well as growers. Our principal plant nutrition product in our Plant Nutrition segment is SOP, which we market under the trade name Protassium+.

### Consolidated Results of Continuing Operations

The following is a summary of our consolidated results of continuing operations for the three months ended March 31, 2020 and 2021, respectively. The following discussion should be read in conjunction with the information contained in our consolidated financial statements and the notes thereto included in this Form 10-Q/A.

### THREE MONTHS ENDED MARCH 31

\* Refer to “—Reconciliation of Net Earnings from Continuing Operations to EBITDA and Adjusted EBITDA” for a reconciliation to the most directly comparable U.S. GAAP financial measure and the reasons we use this non-GAAP measure.

### COMMENTARY: THREE MONTHS ENDED MARCH 31, 2020 AND 2021

- Total sales increased 23%, or $79.6 million, due to an increase in our Salt segment, which was partially offset by a decrease in our Plant Nutrition segment.
- Operating earnings increased 40%, or $21.7 million, due to an increase in our Salt and Plant Nutrition segments.
- Earnings before interest, taxes, depreciation and amortization (“EBITDA”)\* adjusted for items management believes are not indicative of our ongoing operating performance (“Adjusted EBITDA”)\* increased 31%, or $25.7 million.
- Diluted net earnings per share increased $0.05 to $1.21.

### THREE MONTHS ENDED MARCH 31

### COMMENTARY: THREE MONTHS ENDED MARCH 31, 2020 AND 2021

### Gross Profit: Increased 29%, or $24.3 million; Gross Margin increased 1.0 percentage point to 25%

- Salt segment gross profit increased $23.1 million primarily due to higher sales volumes and lower per-unit highway deicing product and logistics costs, which was partially offset by lower averages sales prices.
- The gross profit of the Plant Nutrition segment increased $1.2 million due to lower per-unit logistics costs, which was partially offset by lower average sales prices.

### OTHER EXPENSES AND INCOME

### COMMENTARY: THREE MONTHS ENDED MARCH 31, 2020 AND 2021

### SG&A: Increased $2.6 million; Decreased 1.0 percentage point as a percentage of sales from 8.6% to 7.6%

- The increase in SG&A expense was primarily due to higher corporate professional services fees and higher corporate incentive compensation.

### Interest Expense: Decreased $0.9 million to $15.7 million

- The decrease was primarily due to a decrease in our weighted average interest rates during the period due to lower interest rates on our term loan and the use of our revolving accounts receivable financing facility in 2021 which has a lower interest rate when compared to our revolving credit facility.

### Loss (Gain) on Foreign Exchange: Decreased $20.1 million from income of $18.0 million to an expense of $2.1 million

- We realized foreign exchange losses of $2.1 million in the first quarter of 2021 compared to gains of $18.0 million in the first quarter of 2020 primarily due to changes in foreign currency exchange rates on our non U.S. dollar denominated intercompany loans between our U.S. and foreign subsidiaries.

### Income Tax Expense: Tax expense increased $0.6 million from $15.4 million to $16.0 million

- The increase in income tax expense was primarily due to an increase in pretax book income in the first quarter of 2021 compared to the first quarter of 2020. The effective tax rate was 28% in both periods.
- Our income tax provision in both periods differs from the U.S. statutory rate primarily due to U.S. statutory depletion, state income taxes, global intangible low-taxed income, foreign income, mining and withholding taxes and interest expense recognition differences for tax and financial reporting purposes.

### Net Loss from Discontinued Operations: Increased from a loss of $6.0 million to a loss of $256.3 million

- The loss from discontinued operations resulted primarily from the impairment of our South America chemicals and specialty plant nutrition businesses of $255.2 million reflecting the accumulated currency translation adjustment due to the significant weakening of the Brazilian real since the acquisition of these businesses. This loss was partially offset by improved operating earnings of our South America businesses and North America micronutrient product businesses.
- Our operating earnings for our South America chemicals and specialty nutrition businesses and North America micronutrient product businesses improved by $4.7 million and $1.7 million, respectively. The improvements in our South America businesses were due to higher sales volumes in our specialty plant nutrition business, which was partially offset by lower chemical sales volumes and a 34% weaker Brazilian real. The North America micronutrient product business improved primarily due to lower SG&A expenses and improved average sales prices. The improvements in operating earnings for both businesses was partially offset by costs incurred during the current period related to the sale of the businesses.

### Operating Segment Performance

The following financial results represent consolidated financial information with respect to sales from our Salt and Plant Nutrition segments. The results of operations of the consolidated records management business, and other incidental revenues, include sales of $2.8 million and $2.7 million for the first quarter of 2021 and 2020, respectively. These revenues are not material to our consolidated financial results and are not included in the following operating segment financial data.

### Salt

### THREE MONTHS ENDED MARCH 31

|  | 1Q 2021 | 1Q 2020 |
| --- | ---: | ---: |
| **Salt Sales (in millions)** | $369.0 | $287.8 |
| **Salt Operating Earnings (in millions)** | $91.6 | $67.8 |
| **Salt Sales Volumes (thousands of tons)** |  |  |
| Highway deicing | 4,550 | 3,104 |
| Consumer and industrial | 478 | 469 |
| Total tons sold | 5,028 | 3,573 |
| **Average Salt Sales Price (per ton)** |  |  |
| Highway deicing | $64.00 | $69.30 |
| Consumer and industrial | $162.70 | $154.84 |
| Combined | $73.38 | $80.53 |

### COMMENTARY: THREE MONTHS ENDED MARCH 31, 2020 AND 2021

- Salt sales increased 28%, or $81.2 million, primarily due to higher Salt sales volumes, which were partially offset by lower average sales prices.
- Average sales prices decreased 9%, partially offsetting the Salt sales increase by $20.4 million, due to lower highway deicing average sales prices.
- Highway deicing average sales prices decreased 8% due to lower North American highway deicing contract prices for the 2020-2021 winter season. Consumer and industrial average sales prices increased 5% due to product sales mix.
- Salt sales volumes increased 41%, or 1,455,000 tons, and contributed $101.6 million to the sales increase. Highway deicing sales volumes increased 47% primarily as a result of an increase in winter weather activity in February 2021 in the U.S. and the first quarter of 2021 the U.K. Consumer and industrial sales volumes increased 2% due to an increase in deicing sales volumes.
- Salt operating earnings increased 35%, or $23.8 million, due to higher deicing sales volumes, lower highway deicing per-unit product cost and lower highway deicing per-unit logistics costs. The improved per unit product cost is primarily due to higher operating rates at our U.K. and Goderich mines as well as higher first quarter 2020 costs of purchased salt and expenses stemming from the upgrades to our mining equipment at our Goderich mine. The increase in operating earnings was partially offset by higher per-unit product cost at our consumer and industrial facilities primarily due to lower production volumes.

### Plant Nutrition (Formerly Plant Nutrition North America)

### THREE MONTHS ENDED MARCH 31

|  | 1Q 2021 | 1Q 2020 |
| --- | ---: | ---: |
| **Plant Nutrition Sales (in millions)** | $53.7 | $55.4 |
| **Plant Nutrition Operating Earnings (in millions)** | $5.3 | $4.6 |
| **Plant Nutrition Sales Volumes (thousands of tons)** | 94 | 95 |
| **Plant Nutrition Average Sales Price (per ton)** | $573 | $581 |

### COMMENTARY: THREE MONTHS ENDED MARCH 31, 2020 AND 2021

- Plant Nutrition sales decreased 3%, or $1.7 million due to lower sales volumes and lower average sales prices.
- Plant Nutrition sales volumes decreased 1%, or 1,000 tons, which resulted in a $0.6 million decrease in sales.
- Plant Nutrition average sales prices decreased 1%, resulting in a $0.8 million decrease in sales.
- Plant Nutrition operating earnings increased $0.7 million to $5.3 million due to lower per-unit logistics costs due to a higher mix of direct shipments to customers compared to the prior period, which was partially offset by lower average sales prices.

### 2021 Full-Year Outlook as of March 31, 2021

- Given higher Salt sales volumes in the first quarter of 2021, we expect Salt sales volumes for 2021 to range from 11.5 million tons to 12.3 million tons.
- Plant Nutrition sales volumes for 2021 are expected to range from 350,000 tons to 380,000 tons.
- Full year 2021 capital expenditures are expected to be in the $95 million to $100 million range.
- For information about the impact of the COVID-19 pandemic on the Company, see “COVID-19 Pandemic" and Part I, Item 1A, “Risk Factors” in our Form 10-K/A for the year ended December 31, 2020.

### Liquidity and Capital Resources

Historically, our cash flows from operating activities have generally been adequate to fund our basic operating requirements and ongoing debt service. We have also used cash generated from operations to fund capital expenditures, which strengthen our operational position, pay dividends, fund smaller acquisitions and repay our debt. To a certain extent, our ability to meet our short- and long-term liquidity and capital needs is subject to general economic, financial, competitive, legislative, regulatory and weather conditions, effects of climate change, geological variations in our mine deposits and other factors that are beyond our control. Historically, our working capital requirements have been the highest in the fourth quarter and lowest in the second quarter. When needed, we may fund short-term working capital requirements by accessing our $300 million revolving credit facility.

We have been able to manage our cash flows generated and used across Compass Minerals to permanently reinvest earnings in our foreign jurisdictions or efficiently repatriate those funds to the U.S. As of March 31, 2021, we had $19.6 million of cash and cash equivalents (in our Consolidated Balance Sheets) that were either held directly or indirectly by foreign subsidiaries. As a result of U.S. tax reform, we revised our permanently reinvested assertion and we now expect to repatriate approximately $150 million of unremitted foreign earnings on which we have recorded $4.3 million of income tax expense as of March 31, 2021 for foreign withholding tax and state income taxes. Due to our ability to generate adequate levels of domestic cash flow on an annual basis, it is our current intention to continue to reinvest all remaining undistributed earnings of our foreign subsidiaries indefinitely. We review our tax circumstances on a regular basis with the intent of optimizing cash accessibility and minimizing tax expense.

In addition, 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 impacted by the transfer price charged on the transfer of our products between them. As discussed in Item 1, Note 7 of our Consolidated Financial Statements, our calculated transfer price on certain products between one of our foreign subsidiaries and a domestic subsidiary has been challenged by Canadian federal and provincial governments. In 2017, we reached a settlement agreement with the Canadian Revenue Authority and the U.S. Internal Revenue Service on transfer pricing issues for our 2007-2012 tax years. During 2018, in accordance with the settlement agreement, our U.S. subsidiary made intercompany cash payments of $85.7 million to our Canadian subsidiary and tax payments to Canadian taxing authorities of $17.5 million. Additional tax payments of $5.3 million were made during 2019 with the remaining liability of $1.4 million expected to be paid in 2021. Corresponding tax refunds of $22.3 million have been received through March 31, 2021 from U.S. taxing authorities, with the remaining refund of approximately $0.7 million expected in 2021. Additionally during 2018, we reached a settlement agreement with federal Canadian and U.S. tax authorities on transfer pricing and management fees as part of an advanced pricing agreement covering tax years 2013-2021. During 2019, in accordance with the settlement agreement, our U.S. subsidiary made intercompany cash payments of $106.1 million to our Canadian subsidiary and tax payments were made to Canadian taxing authorities of $29.9 million with the remaining $1.4 million balance paid during 2020. Corresponding tax refunds of $60.0 million have been received through March 31, 2021, from U.S. taxing authorities, of which $55 million was received during the first quarter of 2020, with the remaining refund of $1.7 million expected in 2021. Canadian provincial taxing authorities continue to challenge our transfer prices of certain items. The final resolution of these challenges may not occur for several years. We currently expect the outcome of these matters will not have a material impact on our results of operations. However, it is possible the resolution could materially impact the amount of earnings attributable to our domestic and foreign subsidiaries, which could impact the amount of permanently reinvested foreign earnings. See Item 1, Note 7 of our Consolidated Financial Statements for a discussion regarding our Canadian tax reassessments and settlement.

Cash and cash equivalents of $63.6 million as of March 31, 2021, included cash held for sale of $20.8 million. We generated $200.2 million of operating cash flows in the first three months of 2021. In the first three months of 2021, we used cash on hand and cash flows from operations to pay $115.6 million of net long-term debt, to fund capital expenditures of $18.2 million, primarily for routine refurbishments and replacements, and pay dividends on our common stock of $24.1 million. Cash and cash equivalents from continuing operations of $42.8 million increased $32.2 million from December 31, 2020. Cash flows from continuing operations totaled $196.8 million during the three months ended March 31, 2021, including income from continuing operations of $41.9 million, net working capital reductions of $122.4 million driven by the seasonality of our Salt business, as the winter weather in the fourth quarter each year typically increases our December 31 receivables balance, and depreciation, depletion and amortization of $29.9 million.

As of March 31, 2021, we had $1.20 billion of indebtedness, consisting of $250.0 million outstanding under our 4.875% Senior Notes due 2024, $500.0 million outstanding under our 6.75% Senior Notes due 2027, $345.8 million of borrowings outstanding under our senior secured credit facilities (consisting of term loans and a revolving credit facility), with no borrowings against our revolving credit facility (see Item 1, Note 8 of our Consolidated Financial Statements for more detail regarding our debt). We had $13.0 million of outstanding letters of credit as of March 31, 2021, which reduced our revolving credit facility borrowing availability to $287.0 million.

On March 23, 2021, we entered into a definitive agreement to sell our South America specialty plant nutrition business to ICL Brasil Ltda., a subsidiary of ICL Group Ltd. The transaction closed on July 1, 2021. Upon closing we received gross proceeds of approximately $432.3 million, including $12.7 million in working capital adjustments (in each case, based on exchange rates at the time of closing), comprised of a cash payment of approximately $325.5 million and an additional $106.8 million in net debt assumed by ICL Brasil Ltd. The terms of the definitive agreement provide for an additional earn-out payment of up to R$88 million Brazilian reais, payable in 2022 and calculated on a sliding scale, if the South America specialty plant nutrition business achieves certain full-year 2021 EBITDA performance targets. The Brazilian debt, presented in liabilities held for sale (see Item 1, Note 2), was deducted from gross proceeds from the transaction.

On April 7, 2021, we entered into a definitive agreement to sell a component of our North America micronutrient business to Koch Agronomic Services, LLC, a subsidiary of Koch Industries. On May 4, 2021, we completed the sale for approximately $56.7 million.

In the first quarter of 2021, we made a $41.7 million required prepayment of our term loan for 2020 Excess Cash Flow (as such term is defined in the credit agreement). This prepayment will reduce the future required term loan payments. As such, we will not have a scheduled term loan payment until June 2023.

On June 30, 2020, certain of our U.S. subsidiaries entered into a three-year committed revolving accounts receivable financing facility of up to $100 million of borrowings with PNC Bank, National Association, as administrative agent and lender, and PNC Capital Markets, LLC, as structuring agent. As of March 31, 2021 we had $100.0 million of outstanding loans under this accounts receivable financing facility. See Item 1, Note 8 of our Consolidated Financial Statements for more information.

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 substantially 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 governing our term loans and revolving credit facility, including the total leverage ratio and interest coverage ratio, in order to make payments on our debt or pay dividends to our stockholders. We must also comply with the terms of our indenture governing our senior notes. Although we are in compliance with our debt covenants as of March 31, 2021, we can make no assurance that we will remain in compliance with these ratios nor can we make any assurance 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 our debt 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 provide assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

The table below provides a summary of our cash flows by category:

| THREE MONTHS ENDED MARCH 31, 2021 | THREE MONTHS ENDED MARCH 31, 2020 |
| --- | --- |
| **Operating Activities:** |  |
| » Net loss was $214.4 million. | » Net earnings were $34.0 million. |
| » Non-cash depreciation and amortization expense was $34.6 million. | » Non-cash depreciation and amortization expense was $33.1 million. |
| » Working capital items were a source of operating cash flows of $117.2 million. | » Working capital items were a source of operating cash flows of $165.3 million. |
| » Non-cash impairment loss of $253.1 million. |  |
| **Investing Activities:** |  |
| » Net cash flows used by investing activities included $18.2 million of capital expenditures. | » Net cash flows used by investing activities included $25.3 million of capital expenditures. |
| **Financing Activities:** |  |
| » Net cash flows used by financing activities included the payment of dividends of $24.1 million. | » Net cash flows used by financing activities included the payment of dividends of $24.8 million. |
| » In addition, we had net payments on our debt of $115.6 million. | » In addition, we had net payments on our debt of $97.7 million. |

### Other Matters

See Item 1, Notes 7 and 9 of our Consolidated Financial Statements for a discussion regarding labor, environmental and litigation matters.

### Reconciliation of Net Earnings from Continuing Operations to EBITDA and Adjusted EBITDA

Management uses a variety of measures to evaluate our performance. While our consolidated financial statements, taken as a whole, provide an understanding of our overall results of operations, financial condition and cash flows, we analyze components of the consolidated financial statements to identify certain trends and evaluate specific performance areas. In addition to using U.S. GAAP financial measures, such as gross profit, net earnings and cash flows generated by operating activities, management uses EBITDA and Adjusted EBITDA. We have presented Adjusted EBITDA for both continuing operations and consolidated including discontinued operations for comparability purposes (see Item 1, Note 2 for a discussion of discontinued operations). Both EBITDA and Adjusted EBITDA are non-GAAP financial measures used to evaluate the operating performance of our core business operations because our resource allocation, financing methods, cost of capital and income tax positions are managed at a corporate level, apart from the activities of the operating segments, and our operating facilities are located in different taxing jurisdictions, which can cause considerable variation in net earnings. We also use EBITDA and Adjusted EBITDA to assess our operating performance and return on capital against other companies, and to evaluate potential acquisitions or other capital projects. EBITDA and Adjusted EBITDA are not calculated under U.S. GAAP and should not be considered in isolation or as a substitute for net earnings, operating earnings, cash flows or other financial data prepared in accordance with U.S. GAAP or as a measure of our overall profitability or liquidity. EBITDA and Adjusted EBITDA exclude interest expense, income taxes and depreciation and amortization, each of which are an essential element of our cost structure and cannot be eliminated. Furthermore, Adjusted EBITDA excludes other cash and non-cash items, including stock-based compensation, loss (gain) on foreign exchange and other expense (income). Our borrowings are a significant component of our capital structure and interest expense is a continuing cost of debt. We are also required to pay income taxes, a required and ongoing consequence of our operations. We have a significant investment in capital assets and depreciation and amortization reflect the utilization of those assets in order to generate revenues. Our employees are vital to our operations and we utilize various stock-based awards to compensate and incentivize our employees. Consequently, any measure that excludes these elements has material limitations. While EBITDA and Adjusted EBITDA are frequently used as measures of operating performance, these terms are not necessarily comparable to similarly titled measures of other companies due to the potential inconsistencies in the method of calculation.

The calculation of EBITDA and Adjusted EBITDA as used by management is set forth in the table below (in millions):

|  | Three Months Ended March 31, 2021 | 2020 |
| --- | ---: | ---: |
| Net earnings from continuing operations | $41.9 | $40.0 |
| Interest expense | 15.7 | 16.6 |
| Income tax expense | 16.0 | 15.4 |
| Depreciation, depletion and amortization | 29.9 | 27.4 |
| EBITDA from continuing operations | 103.5 | 99.4 |
| Adjustments to EBITDA from continuing operations: |  |  |
| Stock-based compensation - non cash | 3.8 | 2.3 |
| Loss (gain) on foreign exchange | 2.1 | (18.0) |
| Other expense, net | 0.3 | 0.3 |
| Adjusted EBITDA from continuing operations | 109.7 | 84.0 |
| Adjusted EBITDA from discontinued operations | 10.7 | 5.0 |
| Adjusted EBITDA | $120.4 | $89.0 |

### Recent Accounting Pronouncements

See Part 1, Note 1 of our Consolidated Financial Statements for a discussion of recent accounting pronouncements.

### Effects of Currency Fluctuations and Inflation

Our operations outside of the U.S. are conducted primarily 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 enters 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 consolidated financial statements. Exchange rates between these currencies and the U.S. dollar have fluctuated significantly from time to time and may do so in the future. The majority of revenues and costs are denominated in U.S. dollars, with Canadian dollars and British pounds sterling 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 effect on our financial condition and our ability to meet interest and principal payments on U.S. dollar-denominated debt, including borrowings under our senior secured credit facilities.

Although inflation has not had a significant impact on our operations, our efforts to recover cost increases due to inflation may be hampered as a result of the competitive industries and countries in which we operate.

### Seasonality

We experience a substantial amount of seasonality in our sales. Our sales of our salt deicing products are seasonal. Consequently, our Salt segment sales and operating income are generally higher in the first and fourth quarters and lower during the second and third quarters of each calendar year. In particular, sales of highway and consumer deicing salt and magnesium chloride products vary based on the severity of the winter conditions in areas where the product is used. Following industry practice in North America, we seek to stockpile sufficient quantities of deicing salt in the second, third and fourth quarters of the calendar year to meet the estimated requirements for the winter season.

## Market risk

As filed, 884 characters.

Our business is subject to various types of market risks that include interest rate risk, foreign currency exchange rate risk and commodity pricing risk. Management has taken actions to mitigate our exposure to commodity pricing and foreign currency exchange rate risk by entering into natural gas derivative instruments and foreign currency contracts. We may take further actions to mitigate our exposure to interest rates, exchange rates and 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. Our market risk exposure related to these items has not changed materially since December 31, 2020.

## Controls and procedures

As filed, 5,677 characters.

#### Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our President and Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

In connection with the preparation of this Amended Quarterly Report Form 10-Q/A, an evaluation of the effectiveness of the design and operation of our 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 Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are ineffective as of March 31, 2021, due to the material weakness described below and this evaluation has been revised from our evaluation included in the previously filed 2021 Form 10-Q for the quarter ended March 31, 2021 (which had reported disclosures controls and procedures as effective).

The Company identified a material weakness in internal control over financial reporting during the preparation of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021. The Company did not have properly designed controls and policies to analyze inventory variances at interim reporting dates that required capitalization for their salt inventory. Refer to Item 1, Note 15 to the unaudited Consolidated Financial Statements for further information. The Company determined that the material weakness existed at December 31, 2020 and has reassessed its conclusion on management’s report on internal controls over financial reporting included in the Company’s 2020 Form 10-K. Management will re-issue its report by amending the Company’s previously filed 2020 Form 10-K and will conclude that the Company did not maintain effective controls over financial reporting at December 31, 2020. The Company’s independent registered public accounting firm will also be re-issuing their report in amended 2020 Form 10-K and will express an adverse opinion on internal controls over financial reporting as of December 31, 2020.

A material weakness, as defined in Rule 12b-2 under the Exchange Act, is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. This material weakness resulted in material misstatements in the unaudited quarterly information presented in Note 17 of our previously filed Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”) and the unaudited consolidated financial statements included in our Original Report.

Notwithstanding such material weaknesses in internal control over financial reporting, our Chief Executive Officer and Chief Financial Officer have concluded that our unaudited Consolidated Financial Statements included in this Amended Quarterly Report on Form 10-Q/A present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.

In designing and evaluating our disclosure controls and procedures, management recognizes that any control, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

#### Remediation Efforts and Status of Material Weakness

The Company is in the process of enhancing the design of certain internal controls over financial reporting related to accounting for inventory under ASC Topic 330 – Inventory and ASC Topic 270 - Interim Reporting in accordance with a remediation plan for the material weakness, which includes updating the Company’s inventory valuation policy and subsequent application of the policy. These enhanced controls will be tested for effectiveness in future periods. In addition, the Company is amending its previously-filed 2020 Form 10-K and Original Report by filing an amended Annual Report on Form 10-K/A for the year ended December 31, 2020 and this amended Quarterly Report on Form 10-Q/A.

#### Changes in Internal Control Over Financial Reporting

Other than as discussed above, there were no changes 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.

## Risk factors

As filed, 5,120 characters.

For a discussion of the risk factors applicable to Compass Minerals, please refer to Part I, Item 1A, “Risk Factors” in our Form 10-K/A for the year ended December 31, 2020, as updated and supplemented by the discussion below.

***The sale of our South America specialty plant nutrition business may not be completed on the terms or timeline currently contemplated, or at all, as the parties involved may be unable to satisfy the conditions or obtain the approvals required to complete these transactions or such approvals may contain material restrictions or conditions.***

The consummation of sale of our South America specialty plant nutrition business is subject to numerous conditions, including the occurrence of certain events contemplated by the definitive agreement to sell our South America specialty plant nutrition business (the “South America Sale Agreement”), such as consummation of the Pre-Closing Restructuring (as defined in the South America Sale Agreement), obtaining approval from Brazil’s Administrative Council for Economic Defense, including its General Superintendence and Administrative Tribunal (“CADE”) and other customary closing conditions.

CADE may not approve the transactions contemplated by the South America Sale Agreement, may impose conditions to the approval of such transactions or require changes to the terms of these transactions. Any such conditions or changes could have the effect of delaying completion of these transactions or reducing the anticipated benefits of these transactions.

We cannot assure you that the sale of our South America specialty plant nutrition business will be consummated on the terms or timeline currently contemplated, or at all. For example, the COVID-19 pandemic could impact the ability to satisfy, or the timing of satisfying, the conditions contemplated by the South America Sale Agreement.

***Failure to complete the sale of our South America specialty plant nutrition business could adversely affect our business, financial condition and results of operations.***

If the proposed sale of our South America specialty plant nutrition business is not consummated, we will be subject to several risks, including the following:

- We have expended and will continue to expend time and resources and incur expenses (such as with respect to legal, advisory and financial services) related to the proposed sale, which must be paid regardless of whether the proposed sale is consummated; and
- The price of our common stock may decline, or our business, financial condition and results of operations may be impacted to the extent that the market price of our common stock reflects positive market assumptions that the proposed sale will be completed and the related benefits will be realized.

If the proposed sale of our South America specialty plant nutrition business is not completed for any reason, we cannot assure you that these or other risks will not materialize and will not materially affect our business, financial condition or results of operations.

***The announcement of the planned sales of our South America businesses could have an adverse effect on our business, financial condition or results of operations.***

The announcement of the potential sales of our South America businesses and pendency of our proposed sale of our South America specialty plant nutrition business could disrupt our business in negative ways. For example, the proposed sales of our South America businesses could disrupt our operations in South America, which could have an adverse impact on our relationships with our customers and other third-party business partners, and could distract our workforce and management team. Any such event could adversely affect our business, financial condition or results of operations. In addition, under the South America Sale Agreement, we are subject to certain restrictions on the conduct of our business, which may adversely affect our ability to execute certain business strategies while the proposed sale of our South America specialty plant nutrition business is pending.

***The impact of currency fluctuation or devaluation in Brazil may negatively affect the earn-out consideration we may be entitled to receive pursuant to the South America Sale Agreement.***

The South America Sale Agreement provides that, if the transactions contemplated by the agreement are consummated, we may be entitled to a maximum earn-out payment of R$88 billion Brazilian reais, payable in 2022, if the South America specialty plant nutrition business meets certain performance metrics. The exchange rate between the Brazilian real and the U.S. dollar has fluctuated and will continue to do so in the future. The volatility in this exchange rate may adversely impact our expected payment once converted to U.S. dollars at the time of payment. Although we expect to employ a variety of techniques to mitigate the impact of fluctuations of the applicable exchange rate, we cannot guarantee that such hedging and risk management strategies will be effective, and any such earn-out payment amount could be adversely affected.

Filed Sep 3, 2021.
Source: SEC EDGAR, the filing index for accession 0001227654-21-000220. Last ingested by Listed: Oct 24, 2026, 15:10 ET. No prices; not investment advice.