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

- Company: [Compass Minerals International Inc](/companies/cmp.md) (CIK 1227654)
- Form: 10-Q
- Filed: 2022-02-08
- Accepted by EDGAR: Feb 8, 2022, 22:04 ET
- Period: 2021-12-31
- Accession: 0001227654-22-000037
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1227654/000122765422000037/cmp-20211231.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1227654/000122765422000037/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2021-10-01 to 2021-12-31 | $331.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Gross profit | 3 months, 2021-10-01 to 2021-12-31 | $59.9m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2021-10-01 to 2021-12-31 | $39.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2021-10-01 to 2021-12-31 | $20.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2021-10-01 to 2021-12-31 | $13.9m | us-gaap:InterestExpense |
| Income tax | 3 months, 2021-10-01 to 2021-12-31 | −$1.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-10-01 to 2021-12-31 | $2.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-10-01 to 2021-12-31 | $0.07 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2021-10-01 to 2021-12-31 | $0.07 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2021-10-01 to 2021-12-31 | 34,089,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2021-10-01 to 2021-12-31 | −$14.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2021-10-01 to 2021-12-31 | $14.5m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2021-10-01 to 2021-12-31 | $5.3m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2021-12-31 | $20.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2021-12-31 | $585.2m | us-gaap:AssetsCurrent |
| Total assets | at 2021-12-31 | $1.69bn | us-gaap:Assets |
| Current liabilities | at 2021-12-31 | $197.4m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2021-12-31 | $1.00bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2021-12-31 | $0 | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2021-12-31 | $288.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 49,644 characters.

All statements, other than statements of historical fact, contained in this Quarterly Report on Form 10-Q 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; uncertainties in estimating our economically recoverable reserves and resources; 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; 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; financial assurance requirements; risks related to the potential phasing out of LIBOR; 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; increasing costs or a lack of availability of transportation services, equipment, raw materials or other supplies; the seasonal demand for our products; 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; our rights and governmental authorizations to mine and operate our properties; risks related to unanticipated litigation or investigations or pending litigation or investigations or other contingencies; 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; product liability claims and product recalls; changes in laws, industry standards and regulatory requirements; misappropriation or infringement claims relating to intellectual property; inability to obtain required product registrations or increased regulatory requirements; the impact of the COVID-19 pandemic, or other outbreaks of infectious disease or similar public health threats; our ability to successfully implement our strategies including the timing and outcome of the potential sale of our Brazil chemical solutions business; plans to develop our lithium resource, including market entry; the useful life of our mine properties; our expectation of extending the Goderich mineral lease; conversion of mineral resources into mineral reserves; risks related to labor shortages and 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; climate change and related laws and regulations; our ability to expand our business through acquisitions, integrate acquired businesses and realize anticipated benefits from acquisitions; the impact of Brazil currency changes on the earn-out consideration we may be entitled to receive with respect to the sale of our South America specialty plant nutrition business; 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 Securities and Exchange Commission (the “SEC”), including Part I, Item 1A, “Risk Factors” of our Transition Report on Form 10-KT for the transition period ended September 30, 2021.

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 our outlook, including expected sales volumes and prices; 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.; payment of future dividends and ability to reinvest in our business; our ability to optimize cash accessibility, minimize tax expense and meet debt service requirements; future tax payments and tax refunds; funding obligations for our United Kingdom (“U.K.”) pension plan; outcomes of matters with taxing authorities; the effects of currency fluctuations and inflation; the seasonality of our business; the effects of climate change; and the impact of the COVID-19 pandemic on us. 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 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 to the Consolidated Financial Statements, 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 on July 1, 2021, the North America micronutrient sale closed on May 4, 2021, and the sale of our 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.

### Fiscal Year

During 2021, we transitioned to a September 30 fiscal year end. The nine-month period from January 1, 2021 to September 30, 2021, served as a transition period, and we filed one-time, nine-month transitional financial statements for the transition period in a Transition Report on Form 10-KT filed with the SEC on November 30, 2021. Prior to the transition period, our fiscal year was the calendar year ending on December 31. Our fiscal year 2022 (or “fiscal 2022”) commenced on October 1, 2021 and ends on September 30, 2022.

### 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 Transition Report on Form 10-KT for the transition period ended September 30, 2021, 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 Quarterly Report on Form 10-Q. 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 December 31, 2021, we operated 12 production and packaging facilities (excluding 3 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 near Ogden, Utah, which is both the largest sulfate of potash specialty fertilizer production site and the largest solar salt production site in the Western Hemisphere; and
- Several mechanical evaporation facilities producing consumer and industrial salt.

In March 2021, we concluded that certain of our assets met the criteria for classification as held for sale and discontinued operations. As a result, we are now presenting two reportable segments in continuing operations, Salt and Plant Nutrition (which was previously known as the Plant Nutrition North America segment) in this Form 10-Q. See Item 1, Note 10 to the Consolidated Financial Statements for more information. 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 location in London, England.

Our Plant Nutrition segment produces and markets SOP products in various grades worldwide to distributors and retailers of crop inputs, as well as growers and for industrial uses. We market our SOP 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 December 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 Quarterly Report on Form 10-Q.

### THREE MONTHS ENDED DECEMBER 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 DECEMBER 31, 2020 AND 2021

- Total sales increased 7%, or $22.3 million, due to an increase in our Salt segment, which was partially offset by a decrease in our Plant Nutrition segment.
- Operating earnings decreased 27%, or $7.7 million, partially due to an increase in corporate SG&A expenses which include executive transition costs, costs related to our lithium project and increased legal expenses related to the SEC investigation and a decrease in our Salt segment’s operating earnings. An increase in Plant Nutrition operating earnings partially offset the decrease in total operating earnings.
- Earnings before interest, taxes, depreciation and amortization (“EBITDA”)\* adjusted for items management believes are not indicative of our ongoing operating performance (“Adjusted EBITDA”)\* decreased 6%, or $3.6 million.
- Diluted net loss per share decreased $0.19 to $0.23.

### THREE MONTHS ENDED DECEMBER 31

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

### Gross Profit: Increased 2%, or $1.4 million; Gross Margin decreased 1 percentage point to 18%

- Salt segment gross profit decreased $4.2 million primarily due to higher per-unit logistics and consumer and industrial product costs, which were partially offset by higher sales volumes.
- The gross profit of the Plant Nutrition segment increased $5.3 million due to higher average sales prices, which were partially offset by lower sales volumes and higher per-unit logistics and product costs.

### OTHER EXPENSES AND INCOME

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

### SG&A: Increased $9.1 million; increased 2.1 percentage points as a percentage of sales from 9.8% to 11.9%

- The increase in SG&A expense was primarily due to executive transition costs, costs related to our lithium project and increased legal expenses related to the SEC investigation.

### Interest Expense: Decreased $1.6 million to $13.9 million

- The decrease was primarily due to a decrease in our borrowings outstanding under our credit agreement.

### (Gain) Loss on Foreign Exchange: Decreased $6.6 million from a loss of $6.2 million to a gain of $0.4 million

- We realized foreign exchange gains of $0.4 million in the first quarter of fiscal 2022 compared to losses of $6.2 million in the same quarter of the prior fiscal year 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.

### Other Expense: Increased $0.1 million from $0.1 million to $0.2 million

- The increase in other expense is primarily due to our share of losses in the current period related to our equity investments.

### Income Tax Benefit: Decreased $7.2 million from $8.4 million to $1.2 million

- Income tax benefit decreased in the first quarter of fiscal 2022 compared to the same quarter of the prior fiscal year due primarily to the release of domestic tax reserves in the prior fiscal year exceeding the tax reserves released in the first quarter of fiscal 2022.
- Our effective tax rate decreased from a benefit of 133% in the prior fiscal year to a benefit of 18% in the first quarter of fiscal 2022. Our effective tax rate in the prior fiscal year was impacted by the release of domestic tax reserves due to statute expirations. Our effective tax rate in the first quarter of fiscal 2022 was impacted by the release of domestic and foreign tax reserves due to statute expirations and a shift in the mix of income between the U.S. and Canada.
- Our income tax provision in both periods differs from the U.S. statutory rate primarily due to U.S. statutory depletion, state income taxes, nondeductible executive compensation, foreign income, mining and withholding taxes, executive compensation and interest expense recognition differences for tax and financial reporting purposes.

### Net (Loss) Earnings from Discontinued Operations: Decreased from income of $13.4 million to loss of $5.5 million

- The net loss from our discontinued operations includes only the results from our chemical business in South America for the three months ended December 31, 2021, but includes the results of all the South America businesses and the specialty plant nutrition businesses in the same period of the prior fiscal year. Refer to Item 1, Note 2 for additional details.

### Operating Segment Performance

The following financial results represent consolidated financial information with respect to the operations of our Salt and Plant Nutrition segments. The results of operations of the records management business and other incidental revenues, include sales of $3.0 million and $2.5 million for the three months ended December 31, 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 DECEMBER 31

|  | 2021 | 2020 |
| --- | ---: | ---: |
| **Salt Sales (in millions)** | $273.9 | $228.5 |
| **Salt Operating Earnings (in millions)** | $39.4 | $44.5 |
| **Salt Sales Volumes (thousands of tons)** |  |  |
| Highway deicing | 2,807 | 2,204 |
| Consumer and industrial | 633 | 579 |
| Total tons sold | 3,440 | 2,783 |
| **Average Salt Sales Price (per ton)** |  |  |
| Highway deicing | $58.34 | $59.20 |
| Consumer and industrial | $174.00 | $169.30 |
| Combined | $79.63 | $82.10 |

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

- Salt sales increased 20%, or $45.4 million, primarily due to higher Salt sales volumes.
- Average sales prices decreased 3% due to the higher proportion of highway deicing salt but contributed $0.5 million to the increase in Salt sales due to higher average sales prices for consumer and industrial products, which were offset by lower highway deicing average sales prices.
- Highway deicing average sales prices decreased 1% primarily due to lower North American highway deicing contract prices for the fiscal 2022 winter season. Consumer and industrial average sales prices increased 3% due to product sales mix and an increase in sales prices in the first quarter of 2022 taken to offset the impact of inflation.
- Salt sales volumes increased 24%, or 657,000 tons, which contributed $44.9 million to the sales increase. Highway deicing sales volumes increased 27%, primarily as a result of higher commitment volumes for the fiscal 2022 winter season and higher sales volumes in the U.K. in the first quarter of 2022. Consumer and industrial sales volumes

increased 9%, primarily due to higher deicing sales volumes as the impact of the COVID-19 pandemic negatively impacted sales volumes in the same period of the prior fiscal year.

- Salt operating earnings decreased 11%, or $5.1 million, primarily due to higher per-unit shipping and handling costs, consumer and industrial product costs and lower average sales prices, partially offset by higher sales volumes. We are experiencing higher freight costs and inflationary pressures for certain materials and supplies that were not recovered through increased sales prices during the period.

### Plant Nutrition

### THREE MONTHS ENDED DECEMBER 31

|  | 2021 | 2020 |
| --- | ---: | ---: |
| **Plant Nutrition Sales (in millions)** | $54.6 | $78.2 |
| **Plant Nutrition Operating Earnings (in millions)** | $9.5 | $3.3 |
| **Plant Nutrition Sales Volumes (thousands of tons)** | 83 | 143 |
| **Plant Nutrition Average Sales Price (per ton)** | $660 | $548 |

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

- Plant Nutrition sales decreased 30%, or $23.6 million due to lower sales volumes, which were partially offset by higher average sales prices.
- Plant Nutrition sales volumes were lower than the same period of the prior fiscal year as the prior period volumes were higher than average and feedstock inconsistencies over the past year have reduced available inventory levels. The decline in sales volume reduced sales by $32.9 million.
- Plant Nutrition average sales prices increased 20%, which offset the decrease in sales by $9.3 million.
- Plant Nutrition operating earnings increased $6.2 million to $9.5 million primarily due to higher average sales prices, which were partially offset by higher per-unit logistics costs and higher per-unit product costs resulting primarily from higher energy and other input costs.

### Fiscal 2022 Outlook as of December 31, 2021

- We expect Salt segment sales volumes for fiscal 2022 to range from 11.8 million tons to 12.8 million tons.
- Plant Nutrition segment sales volumes for fiscal 2022 are expected to range from 280,000 tons to 320,000 tons.
- Fiscal 2022 capital expenditures are expected to be in the $100 million to $110 million range.

### Liquidity and Capital Resources

Historically, our cash flows from operating activities have generally been adequate to fund our basic operating requirements, ongoing debt service and sustaining investment in our property, plant and equipment. 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 first fiscal quarter (ending December 31) and lowest in the third fiscal quarter (ending June 30). 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 December 31, 2021, we had $16.4 million of cash and cash equivalents (in our Consolidated Balance Sheets) that was 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 $4.7 million of income tax expense has been recorded for foreign withholding tax and state income taxes as of December 31, 2021. Additionally, we changed our permanently reinvested assertion and repatriated $42.5 million of unremitted foreign earnings from our U.K. operations in September 2021 on which $0.1 million of income tax expense was recorded during fiscal 2021. Due to our ability to generate adequate levels of U.S. cash flow on an annual basis, it is our current intention to continue to reinvest the 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 U.S. and foreign subsidiaries are impacted by the transfer price charged on the transfer of our products between them. During fiscal 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 our fiscal 2013-2021 tax years. 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 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.

Cash and cash equivalents as of December 31, 2021, of $28.9 million included cash held by our South America chemical business held for sale of $8.6 million. We used $14.3 million of operating cash flows during the three months ended December 31, 2021, reflecting increases in our working capital. During the period ended December 31, 2021, we used cash on hand and availability under our revolving credit facility and AR securitization to invest $28.2 million in an equity investment, to fund capital expenditures of $14.5 million and pay dividends on our common stock of $5.3 million. Cash and cash equivalents from continuing operations of $20.3 million increased $2.2 million from September 30, 2021. Cash flows used in continuing operations totaled $19.3 million during the three months ended December 31, 2021, including income from continuing operations of $7.9 million which included depreciation, depletion and amortization of $28.3 million, and a net working capital increase of $60.9 million driven by the seasonality of our Salt business. Our working capital increase primarily reflected the higher level of receivables as of December 31, 2021 compared to September 30, 2021 primarily due to the effect of seasonality on our Salt business as the higher level of sales during the winter season begins in the first quarter (ending December 31) of each fiscal year, which increases our December 31 receivables balance.

As of December 31, 2021, we had $1.01 billion of outstanding 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, $205.5 million of borrowings outstanding under our senior secured credit facilities, consisting of $77.5 million of term loans and $128.0 million borrowed against our revolving credit facility), and $59.3 million of outstanding loans under the accounts receivable financing facility (see Item 1, Note 8 of our Consolidated Financial Statements for more detail regarding our debt). Outstanding letters of credit totaling $13.4 million as of December 31, 2021, reduced available borrowing capacity under our revolving credit facility to $158.6 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 $421.1 million, following a reduction in proceeds of $6.2 million in working capital adjustments (finalized during the quarter ended September 30, 2021), comprised of cash in the amount of approximately $318.4 million and an additional $102.7 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 fiscal 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 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 and we paid fees totaling $0.5 million.

On June 28, 2021, we entered into a definitive agreement to sell our investment in Fermavi for R$45 million Brazilian reais (including R$30 million Brazilian reais of deferred purchase price due in annual installments through August 2025). The transaction closed on August 20, 2021, and we received cash proceeds of approximately $2.9 million.

We recorded a loss on the sales of the South American specialty plant nutrition business and investment in Fermavi totaling approximately $209.8 million and a non-cash impairment loss for the remaining chemical business of approximately $98.6 million which includes the effect of the significant weakening of the Brazilian real against the U.S. dollar. These losses were partially offset by approximately $30.6 million gain from the sale of a component of the North America micronutrient business.

In July 2021, we utilized cash proceeds from the sales noted above to repay amounts borrowed against our revolving credit facility of $35.0 million. An additional $265.0 million of proceeds was utilized to pay down our term loan balance.

In the quarter ended March 31, 2021, we also 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, along with the prepayment made in the last quarter of fiscal 2021 described above, will reduce the future required term loan payments. As such, we do not have a scheduled term loan payment until January 2025.

In the future, including in fiscal 2022, we may borrow amounts under the revolving credit facility or enter into additional financing to fund our working capital requirements, potential acquisitions and capital expenditures and for other general corporate purposes.

Our ability to make scheduled interest and principal payments on our indebtedness, to refinance our indebtedness, to fund planned capital expenditures and to fund acquisitions will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Based on our current level of operations, we believe that cash flow from operations and available cash, together with available borrowings under our revolving credit facility, will be adequate to meet our liquidity needs over the next 12 months.

Our debt service obligations could, under certain circumstances, materially affect our financial condition and prevent us from fulfilling our debt obligations. 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 credit facilities, including the total leverage ratio and interest coverage ratio, in order to pay dividends to our stockholders. We must also comply with the terms of our indenture governing our 4.875% Senior Notes due July 2024 and our 6.75% Senior Notes due December 2027, which limit the amount of dividends we can pay to our stockholders. Although we are in compliance with our debt covenants as of December 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 principal or 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.

Principally due to the nature of our deicing business, our cash flows from operations have historically been 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 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.

We manage our capital allocation considering our long term strategic objectives and spending required to sustain our business. We announced on November 15, 2021, that we reduced our dividend by approximately 80% to provide additional liquidity to support the business and invest in strategic expansion opportunities. We expect to reinvest the cash we anticipate retaining from this dividend reduction toward an expansion of our product portfolio, continued investment in our existing core assets and other uses. While our equipment and facilities are generally not impacted by rapid technology changes, our operations require refurbishments and replacements to maintain structural integrity and reliable production and shipping capabilities. When possible, we incorporate efficiency, environmental and safety improvement capabilities into our routine capital projects and we plan the timing of larger projects to balance with our liquidity and capital resources. Changes in our operating cash flows may affect our future capital allocation and spending. For fiscal 2022 we have allocated approximately $15 million of our planned capital spending to upgrade the barge dock at our Cote Blanche mine and have incorporated efficiency and safety features into the design. Additionally, we intend to continue to develop our recently identified lithium resource at our Ogden facility and have allocated approximately $15 million of capital in fiscal 2022 for the construction of a direct lithium extraction plant. These large projects are expected to be balanced with other sustaining and efficiency projects totaling approximately $100 to $110 million in fiscal 2022. We expect to achieve market entry with a lithium product by 2025 and expect significant capital and other expenditures would be required to achieve this market entry; however, the full amount of this expenditure is currently unknown and will depend on a number of factors, including the outcome of our strategic evaluation of development options for our lithium resource. For more information, refer to Part I, Item 1A, “Risk Factors” in our Form 10-KT for the for the transition period ended September 30, 2021.

On November 2, 2021, we announced a $45 million equity investment in Fortress North America, LLC (“Fortress”), building upon a previous $5 million investment. As of December 31, 2021, we had invested $32 million in Fortress and in January 2022, we invested the remaining $18 million of our planned $50 million investment bringing our Fortress ownership interest to 45%. Fortress is a development stage company that intends to achieve commercialization of its magnesium chloride-based fire-retardant products to help combat wildfires. We may make further investments in Fortress or make other acquisitions to grow our business.

The table below provides a summary of our cash flows by category, including cash flows from discontinued operations:

| THREE MONTHS ENDED DECEMBER 31, 2021 | THREE MONTHS ENDED DECEMBER 31, 2020 |
| --- | --- |
| **Operating Activities:** |  |
| Net cash used in operating activities were $14.3 million | Net cash used in operating activities were $13.3 million |
| » Net earnings were $2.4 million. | » Net earnings were $28.1 million. |
| » Non-cash depreciation and amortization expense was $28.3 million. | » Non-cash depreciation and amortization expense was $34.3 million. |
| » Working capital items were a use of operating cash flows of $58.7 million. | » Working capital items were a use of operating cash flows of $84.9 million. |
| **Investing Activities:** |  |
| Net cash flows used in investing activities were $41.2 million | Net cash flows used in investing activities were $23.0 million |
| » Net cash flows used in investing activities included equity method investments of $28.2 million. | » Net cash flows used by investing activities included $22.0 million of capital expenditures. |
| » Included $14.5 million of capital expenditures. |  |
| **Financing Activities:** |  |
| Net cash flows provided by financing activities were $63.3 million | Net cash flows provided by financing activities were $22.1 million |
| » Included net proceeds from the issuance of debt of $68.8 million. | » Included net proceeds from the issuance of debt of $47.3 million. |
| » Net cash flows provided by financing activities were partially offset by the payment of dividends of $5.3 million. | » Net cash flows provided by financing activities were partially offset by the payment of dividends of $24.9 million. |

As mentioned above, our Salt segment’s business is seasonal and our Salt segment results and working capital needs are heavily impacted by the severity and timing of the winter weather, which generally occurs from December through March of each year. Customers tend to replenish their inventory following snow events, consequently the number and timing of snow events during the winter season will impact the amount of our accounts receivable and inventory at the end of each quarter. Our cash flows during the three months ended December 31 of each year reflect the seasonal increase in accounts receivable due to the beginning of the winter season. However, due to the sale of certain of the Specialty Businesses as previously discussed, our accounts receivable growth was less than the prior fiscal year along with fewer payments against accounts payable and accrued liabilities. The divestitures also has similarly reduced our other working capital accounts.

### 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, 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, (gain) loss on foreign exchange and 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. 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 December 31, 2021 | 2020 |
| --- | ---: | ---: |
| Net earnings from continuing operations | $7.9 | $14.7 |
| Interest expense | 13.9 | 15.5 |
| Income tax benefit | (1.2) | (8.4) |
| Depreciation, depletion and amortization | 28.3 | 30.1 |
| EBITDA from continuing operations | 48.9 | 51.9 |
| Adjustments to EBITDA from continuing operations: |  |  |
| Stock-based compensation - non cash | 3.2 | 2.1 |
| (Gain) loss on foreign exchange | (0.4) | 6.2 |
| Executive transition costs(a) | 3.8 | — |
| Legal costs related to SEC investigation(b) | 3.1 | 1.6 |
| Other (income) expense, net | (0.2) | 0.2 |
| Adjusted EBITDA from continuing operations | 58.4 | 62.0 |
| Adjusted EBITDA from discontinued operations | 8.6 | 25.7 |
| Adjusted EBITDA including discontinued operations | $67.0 | $87.7 |

(a) We incurred severance and other costs related to executive transition.

(b) We incurred costs related to the ongoing SEC investigation.

### 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 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 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 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.

Historically, inflation has not had a significant impact on our operations. However, we are experiencing increases in freight rates, prices for energy and input items and other material costs that have not been entirely recovered through price increases for our products. Our efforts to recover inflation-based cost increases may be hampered as a result of the competitive industries, economic conditions and countries in which we operate and accordingly may result in a material impact on our financial results.

### Seasonality

We experience a substantial amount of seasonality in our sales, including our salt deicing product sales. Consequently, our Salt segment sales and operating income are generally higher in the first and second fiscal quarters (ending December 31 and March 31) and lower during the third and fourth fiscal quarters of each year (ending June 30 and September 30). 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., we seek to stockpile sufficient quantities of deicing salt throughout the first, third and fourth fiscal quarters (ending December 31, June 30 and September 30) to meet the estimated requirements for the winter season. Our plant nutrition business is also seasonal. As a result, we and our customers generally build inventories during the plant nutrition business’ low demand periods of the year (which are typically winter and summer, but can vary due to weather and other factors) to ensure timely product availability during the peak sales seasons (which are typically spring and autumn, but can also vary due to weather and other factors).

### Climate Change

The potential impact of climate change on our operations, product demand and the needs of our customers remains uncertain. Significant changes to weather patterns, a reduction in average snowfall or an increase in regional drought within our served markets or at our Ogden facility could negatively impact customer demand for our products and our costs, as well as our ability to produce our products. For example, prolonged periods of mild winter weather could reduce the market for our deicing products. Drought conditions could similarly impact demand for our SOP products, as well as continue to impact the amount and quality of feedstock used to produce SOP at our Ogden facility due to changes in brine levels and mineral concentrations, which could have a material impact on our Plant Nutrition results of operations. Climate change could also lead to disruptions in the production or distribution of our products due to major storm events or prolonged adverse conditions, changing temperature levels, lake level fluctuations or flooding from sea level changes. Climate change or governmental initiatives to address climate change may necessitate capital expenditures in the future, although capital expenditures for climate-related projects are not expected to be material in fiscal 2022. For more information, see Part I, Item 1A, “Risk Factors” and Part I, Item 1 “Business—Environmental, Health and Safety and Other Regulatory Matters” in our Transition Report on Form 10-KT for the transition period ended September 30, 2021.

### 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. We have continued producing and delivering essential 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 December 31, 2021, and 2020, were not materially affected by COVID-19, although the recent supply chain shortages and cost increases may be linked to the COVID-19 pandemic.

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 Transition Report on Form 10-KT for the transition period ended September 30, 2021.

## Market risk

As filed, 885 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 September 30, 2021.

## Controls and procedures

As filed, 3,137 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, Chief Financial Officer and Chief Accounting 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. 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. Management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

In connection with the preparation of this Quarterly Report on Form 10-Q, 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 were effective as of December 31, 2021.

#### Remediation of Material Weakness

The Company has implemented enhanced procedures over the design of certain internal controls over financial reporting related to accounting for inventory in interim periods under ASC Topic 330 – Inventory and ASC Topic 270 – Interim Reporting in accordance with a remediation plan for the previously reported material weakness in internal controls over financial reporting. The Company completed these remediation measures in the quarter ended December 31, 2021. Specifically, the Company’s remediation measures included updating the Company’s inventory valuation policy and subsequent application of the policy. These enhanced controls have operated for a sufficient period of time in order for management to conclude, through testing, that they are designed and operating effectively. Based on these procedures, the Company believes that the previously reported material weakness has been remediated.

#### 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, 207 characters.

For a discussion of the risk factors applicable to Compass Minerals, please refer to Part I, Item 1A, “Risk Factors” in our Transition Report on Form 10-KT for the transition period ended September 30, 2021.

Filed Feb 8, 2022.
Source: SEC EDGAR, the filing index for accession 0001227654-22-000037. Last ingested by Listed: Oct 24, 2026, 15:10 ET. No prices; not investment advice.