# Compass Minerals International Inc: Form 10-Q for the period ended Mar 31, 2023

- Company: [Compass Minerals International Inc](/companies/cmp.md) (CIK 1227654)
- Form: 10-Q
- Filed: 2023-05-09
- Accepted by EDGAR: May 9, 2023, 20:48 ET
- Period: 2023-03-31
- Accession: 0001227654-23-000114
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1227654/000122765423000114/cmp-20230331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1227654/000122765423000114/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $411.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2022-10-01 to 2023-03-31 | $763.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Gross profit | 3 months, 2023-01-01 to 2023-03-31 | $85.2m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2022-10-01 to 2023-03-31 | $155.2m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-01-01 to 2023-03-31 | $37.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2022-10-01 to 2023-03-31 | $79.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | $47.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2022-10-01 to 2023-03-31 | $75.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-01-01 to 2023-03-31 | $14.2m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2022-10-01 to 2023-03-31 | $28.1m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $55.1m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2022-10-01 to 2023-03-31 | $67.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | −$21.6m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2022-10-01 to 2023-03-31 | −$21.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.53 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2022-10-01 to 2023-03-31 | −$0.55 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.53 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2022-10-01 to 2023-03-31 | −$0.55 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 41,110,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2022-10-01 to 2023-03-31 | 40,423,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2022-10-01 to 2023-03-31 | $143.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2022-10-01 to 2023-03-31 | $43.7m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 6 months, 2022-10-01 to 2023-03-31 | $12.6m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2023-03-31 | $249.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-03-31 | $700.8m | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $1.78bn | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $276.0m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-03-31 | $825.7m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-03-31 | $0 | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-03-31 | $485.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 65,103 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; the inability to fund necessary capital expenditures or successfully complete capital projects; strikes, other forms of work stoppage or slowdown or other union activities; 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; our payment of any dividends; financial assurance requirements; the impact of competition on the sales of our products; inflation risks; increasing costs or a lack of availability of transportation services; the seasonal demand for our products; risks associated with our international operations and sales, including changes in currency exchange rates; the impact of anticipated changes in potash 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 environmental, health and safety laws and regulations; environmental liabilities; compliance with foreign and United States (“U.S.”) laws and regulations related to import and export requirements and anti-corruption laws; changes in laws, industry standards and regulatory requirements; product liability claims and product recalls; misappropriation or infringement claims relating to intellectual property; inability to obtain required product registrations or increased regulatory requirements; our ability to successfully implement our strategies; plans to develop our lithium resource, including market entry and market changes from potential competing technologies; 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 continued ability to access ambient lake brine in the Great Salt Lake; our ability to expand our business through acquisitions and investments, realize anticipated benefits from acquisitions and investments and integrate acquired businesses; outbreaks of contagious disease or similar public health threats; 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 Annual Report on Form 10-K for the annual period ended September 30, 2022.

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 costs; existing or potential capital expenditures; capital projects and investments; the industry and our competition; projected sources of cash flow; potential legal liability; proposed or recently enacted 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, tax refunds and valuation allowances; leverage ratios; realization of potential savings from our restructuring activities; outcomes of matters with taxing authorities; the effects of currency fluctuations and inflation, including our ability to recover inflation-based cost increases; the seasonality of our business; the effects of climate change; and the impact of the global economy, COVID-19 pandemic and the war in Ukraine 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 United

Kingdom (“U.K.”) include only England, Scotland and Wales. Except for lithium quantities which are stated in metric tons or 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 and one metric ton equals 2,204.6 pounds. Compass Minerals and Protassium+ and combinations thereof, are trademarks of CMI or its subsidiaries in the U.S. and other countries.

### Discontinued Operations

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 Eletroquímica Ltda. (“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 of our Consolidated Financial Statements, we sold our South America specialty plant nutrition business, a component of our North America micronutrient business, our Fermavi investment and our South America chemicals business, respectively.

We believe these dispositions were conducted through a single disposal plan representing a strategic shift that has had a material effect on our operations and financial results. Consequently, the Specialty Businesses qualify for presentation as discontinued operations in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The dispositions were completed during fiscal 2022; accordingly, the results of operations of the Specialty Businesses are presented as discontinued operations in the Consolidated Statements of Operations for the three and six months ended March 31, 2022.

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.

### 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 Annual Report on Form 10-K for the annual period ended September 30, 2022, 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 March 31, 2023, we operated 12 production and packaging facilities, 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.

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, industrial, chemical and agricultural 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+.

Additionally, we are pursuing development of a sustainable lithium brine resource near Ogden, UT to support the North American battery market and we are a minority owner of Fortress North America, LLC (“Fortress”), a next-generation fire retardant company. On May 5, 2023, we acquired the remaining 55% interest in Fortress as described in Item1, Note 7 of our

Consolidated Financial Statements. Prior to the acquisition, Fortress entered into an agreement with the U.S. Forest Service to supply product and provide associated services for the 2023 fire season.

### Consolidated Results of Continuing Operations

The following is a summary of our consolidated results of continuing operations for the three and six months ended March 31, 2023 and 2022, 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 AND SIX MONTHS ENDED MARCH 31

\* Refer to “—Reconciliation of Net Loss 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, 2023 Compared to Three Months Ended March 31, 2022

- Total sales decreased 8%, or $37.4 million, due to lower Salt and Plant Nutrition segment sales. The decrease in sales for both Salt and Plant Nutrition reflected lower sales volumes, partially offset by higher average sales prices.
- Operating earnings increased 140%, or $27.9 million, to $47.9 million, reflecting higher Salt operating earnings which were partially offset by lower Plant Nutrition operating earnings. Salt operating earnings increased due primarily to higher average sales prices, which were partially offset by higher SG&A costs, including restructuring costs. Plant Nutrition operating earnings decreased due primarily to lower sales volumes as the unusually wet weather in our California market reduced demand, higher per-unit product costs and higher per-unit distribution costs reflective of the higher proportion of sales to more distant markets, partially offset by higher average sales prices. Corporate and Other segment operating loss declined from the prior year quarter primarily reflecting the absence of legal and accrued settlement costs associated with the SEC investigation partially offset by severance costs related to the restructuring activities recorded in the second quarter of 2023.
- Earnings before interest, taxes, depreciation and amortization (“EBITDA”)\* adjusted for items management believes are not indicative of our ongoing operating performance (“Adjusted EBITDA”)\* increased 19%, or $12.6 million.
- Diluted net loss per share improved by $0.32 to $0.53 per share.

### Commentary: Six Months Ended March 31, 2023 Compared to Six Months Ended March 31, 2022

- Total sales decreased 2%, or $16.5 million, due to a decrease in our Plant Nutrition segment sales, which was partially offset by slightly higher Salt segment sales. The decline in Plant Nutrition sales was primarily driven by lower sales volumes, partially offset by higher average sales prices. The increase in Salt sales primarily reflects higher sales prices.
- Operating earnings increased 88%, or $35.4 million, due to an increase in the Salt segment driven primarily by higher average sales prices, which were partially offset by higher per-unit product and distribution costs. The Salt increase in operating earnings was partially offset by a decrease in our Plant Nutrition segment due to lower sales volumes, partially offset by higher average sales price. Corporate and Other segment SG&A expenses decreased primarily reflecting the absence of legal and accrued settlement costs associated with the SEC investigation and lower consulting costs, partially offset by costs related to current year restructuring activities.
- Adjusted EBITDA increased 13%, or $16.0 million.
- Diluted net loss per common share of $0.55 improved from diluted net loss of $0.62 per common share.

### THREE AND SIX MONTHS ENDED MARCH 31

### Commentary: Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

### Gross Profit: Increased 32%, or $20.6 million; Gross Margin increased 7 percentage points to 21%

- Salt segment gross profit increased $25.4 million primarily due to higher average sales prices and lower per-unit logistics costs, which were partially offset by lower sales volumes (see Salt operating results).
- The gross profit of the Plant Nutrition segment decreased $4.8 million due to higher per-unit product costs, lower sales volumes and higher per-unit logistics costs, which were partially offset by higher average sales prices (see Plant Nutrition operating results).

### Commentary: Six Months Ended March 31, 2023 Compared to Six Months Ended March 31, 2022

### Gross Profit: Increased 25%, or $30.7 million; Gross Margin increased 4 percentage points to 20%

- Salt segment gross profit increased $34.5 million primarily due to higher average sales prices, which were partially offset by higher per-unit product and distribution costs (see Salt operating results).
- The gross profit of the Plant Nutrition segment decreased $3.8 million due to higher per-unit product costs, lower sales volumes and higher per-unit distribution costs, which were partially offset by higher average sales prices (see Plant Nutrition operating results).

### OTHER EXPENSES AND INCOME

### Commentary: Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

### SG&A: Decreased $7.3 million; decreased 0.8 percentage points as a percentage of sales from 9.9% to 9.1%

- The decrease in SG&A expense was primarily due to corporate lower legal expenses due to higher costs in the prior period related to the recently completed SEC investigation, partially offset by costs related to our recently announced restructuring activities.

### Interest Income: Increased to $1.9 million

- The increase in interest income is primarily due to a higher cash balance during the current period resulting from proceeds received from the private placement of our common stock.

### Interest Expense: Increased $0.3 million to $14.2 million

- Interest expense increased $0.3 million as higher interest rates in the current period were mostly offset by lower debt levels.

### (Gain) Loss on Foreign Exchange: Changed $3.2 million from a loss of $3.0 million to a gain of $0.2 million

- We realized foreign exchange gains of $0.2 million in the second quarter of fiscal 2023 compared to losses of $3.0 million in the same quarter of the prior fiscal year, primarily reflecting changes in translating our intercompany loans from Canadian dollars to U.S. dollars.

### Net Loss in Equity Investees: Decreased $0.3 million to $1.4 million

- We realized a net loss in equity investees of $1.4 million for the three months ended March 31, 2023 compared to $1.7 million in the prior-year period reflecting our share of losses related to our equity investments as these development stage businesses position themselves for commercialization.

### Other Expense: Increased to an expense of $0.9 million

- The increase is due primarily to the mark to market of economic hedges that were de-designated from hedge accounting during the quarter ended March 31, 2023.

### Income Tax (Benefit) Expense: Increased $24.7 million from $30.4 million to $55.1 million

- Income tax expense increased primarily due to higher pretax book income in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 partially offset by lower valuation allowance expense recorded in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.
- Our effective tax rate of 164% for the three months ended March 31, 2023 is primarily driven by the income mix by country with income recognized in foreign jurisdictions partially offset by losses recognized in the U.S., for which a valuation allowance has been recorded against the U.S. tax benefit carryforward. Additionally, the interest related to Canadian provincial tax authority assessments has a greater impact on the effective tax rate when pretax book income decreases. See Item 1, Note 8 to the Consolidated Financial Statements.
- Our income tax provision for the three months ended March 31, 2023 and 2022 differs from the U.S. statutory rate primarily due to U.S. statutory depletion, state income taxes, base erosion and anti-abuse tax, nondeductible executive compensation, foreign income, mining and withholding taxes and valuation allowance expense. Additionally, the income tax provision for the three months ended March 31, 2022 included interest expense recognition differences for tax and financial reporting purposes and nondeductible contingent loss accrual.

### Net Earnings from Discontinued Operations: $16.9 million in the second quarter of fiscal 2022

- The net earnings from discontinued operations for the prior period includes the results from our chemicals business in South America net of an impairment loss recognized prior to the April 20, 2022 sale date.
- The prior period net earnings of the South America chemicals business included a $20.4 million foreign currency exchange gain and an impairment loss of $16.3 million to record the net assets of the South America chemical business at fair value less cost to sell which reflected the foreign currency translation adjustment. Refer to Item 1, Note 2 to the Consolidated Financial Statements for additional details.

### Commentary: Six Months Ended March 31, 2023 Compared to Six Months Ended March 31, 2022

### SG&A: Decreased $4.7 million; Decreased 0.4 percentage points as a percentage of sales from 10.8% to 10.4%

- The decrease in SG&A expense was primarily due to lower corporate legal expenses due to higher costs in the prior period related to the recently completed SEC investigation and executive transition costs, partially offset by higher stock-based compensation and costs related to restructuring activities in the current period.

### Interest Income: Increased $2.7 million from $0.3 million to $3.0 million

- The increase in interest income is primarily due to a higher cash balance during the current period resulting from proceeds received from the private placement of our common stock.

### Interest Expense: Increased $0.3 million to $28.1 million

- Interest expense increased as lower debt levels in the current period were offset by higher interest rates.

### Loss on Foreign Exchange: Decreased $0.3 million from a loss of $2.6 million to a loss of $2.3 million

- We realized foreign exchange losses of $2.3 million and $2.6 million in the first six months of 2023 and 2022, respectively, due primarily to changes in translating our intercompany loans from Canadian dollars to U.S. dollars.

### Net Loss in Equity Investees: Increased $0.2 million to $2.3 million

- We realized a net loss in equity investees of $2.3 million for the six months ended March 31, 2023 compared to $2.1 million in the prior-year period reflecting our share of losses related to our equity investments as these development stage businesses position themselves for commercialization.

### Other Expense: Increased $0.9 million from expense of $0.1 million to an expense of $1.0 million

- The increase is due primarily to the mark to market of economic hedges that were de-designated from hedge accounting during the quarter ended March 31, 2023.

### Income Tax Expense: Increased $37.8 million from $29.2 million to $67.0 million

- Income tax expense increased primarily due to higher pretax book income in the six months ended March 31, 2023 as compared to the six months ended March 31, 2022 partially offset by lower valuation allowance expense recorded in the six months ended March 31, 2023 as compared to the six months ended March 31, 2022.
- Our effective tax rate of 149% for the six months ended March 31, 2023 is primarily driven by the income mix by country with income recognized in foreign jurisdictions partially offset by losses recognized in the U.S., for which a valuation allowance has been recorded against the U.S. tax benefit carryforward. Additionally, the interest related to Canadian provincial tax authority assessments has a greater impact on the effective tax rate when pretax book income decreases. See Item 1, Note 8 to the Consolidated Financial Statements.
- Our income tax provision for the six months ended March 31, 2023 and 2022 differs from the U.S. statutory rate primarily due to U.S. statutory depletion, state income taxes, base erosion and anti-abuse tax, nondeductible executive compensation, foreign income, mining and withholding taxes and valuation allowance expense. Additionally, the income tax provision for the six months ended March 31, 2022 included interest expense recognition differences for tax and financial reporting purposes and nondeductible contingent loss accrual.

### Net Earnings from Discontinued Operations: $11.4 million in the first six months of fiscal 2022

- The net earnings from our discontinued operations for the six months ended March 31, 2022 includes the results of the South America Chemicals business prior to the April 20, 2022 sale date.
- The prior period results of the South America chemicals business includes a foreign currency exchange rate gain of $17.3 million offset by an impairment loss of $24.7 million to record the net assets of the South America business at its fair value less cost to sell. Refer to Item 1, Note 2 to the Consolidated Financial Statements 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 $2.9 million for the each of three months ended March 31, 2023 and 2022, and $5.6 million and $5.9 million for the six months ended March 31, 2023 and 2022, respectively. These revenues are not material to our consolidated financial results and are not included in the following operating segment financial data.

### Salt

### THREE AND SIX MONTHS ENDED MARCH 31

|  | QTD 2023 | QTD 2022 | YTD 2023 | YTD 2022 |
| --- | ---: | ---: | ---: | ---: |
| **Salt Sales (in millions)** | $360.5 | $391.3 | $668.6 | $665.2 |
| **Salt Operating Earnings (in millions)** | $73.1 | $49.3 | $120.2 | $88.7 |
| **Salt Sales Volumes (thousands of tons)** |  |  |  |  |
| Highway deicing | 3,915 | 4,815 | 6,816 | 7,622 |
| Consumer and industrial | 488 | 516 | 1,108 | 1,149 |
| Total tons sold | 4,403 | 5,331 | 7,924 | 8,771 |
| **Average Salt Sales Price (per ton)** |  |  |  |  |
| Highway deicing | $69.90 | $62.31 | $68.07 | $60.85 |
| Consumer and industrial | $177.77 | $176.86 | $184.63 | $175.28 |
| Combined | $81.87 | $73.39 | $84.37 | $75.84 |

### Commentary: Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

- Salt sales decreased 8%, or $30.8 million, primarily due to lower sales volumes, partially offset by higher average sales prices.
- Salt sales volumes decreased 17%, or 928,000 tons, reducing sales by approximately $61.0 million. Highway deicing sales volumes decreased 19%, reflecting the lower sales commitment volumes in North America which were partially offset by higher U.K. sales volumes in the second quarter of 2023. Consumer and industrial sales volumes decreased 5% due to lower deicing volumes.
- Average sales prices increased 12% partially offsetting the volume decline by approximately $30.2 million with increases in both highway and consumer and industrial average sales prices.
- Highway deicing average sales price increased 12% across all product categories as we have sought to improve our sales commitment portfolio to restore profitability and offset the impact of inflation on costs.
- Salt operating earnings increased 48%, or $23.8 million, primarily due to higher average sales prices and lower logistics costs in our C&I business, which were partially offset by higher SG&A costs. We incurred restructuring costs related to our cost savings initiatives of approximately $1.0 million during the period related to the Salt segment which contributed to the decline in Salt segment operating earnings.

### Commentary: Six Months Ended March 31, 2023 Compared to Six Months Ended March 31, 2022

- Salt sales increased 1%, or $3.4 million, primarily due to higher Salt average sales prices, which were mostly offset by lower sales volumes for both highway and consumer and industrial products.
- Average sales prices increased 11% and contributed $59.6 million to the increase in Salt sales due to increases in both highway and consumer and industrial average sales prices.
- Highway deicing average sales prices increased 12% due to higher North American highway deicing contract prices for the 2023 winter season. Consumer and industrial average sales prices increased 5% primarily due to higher sales prices primarily in response to the recent inflationary environment.
- Salt sales volumes decreased 10% reducing sales by approximately $56.2 million. Highway deicing sales volumes decreased 11% primarily as a result of a decrease in North American sales commitments. Consumer and industrial sales volumes decreased 4% due to a decrease in deicing sales volumes.
- Salt operating earnings increased 36%, or $31.5 million, due primarily to higher average sales prices for both highway and consumer and industrial products, which were partially offset by higher per-unit product and logistics costs and restructuring costs recognized in the current period. Lower sales volumes compared to the prior period partially offset the increase in operating earnings.

### Plant Nutrition

### THREE AND SIX MONTHS ENDED MARCH 31

|  | QTD 2023 | QTD 2022 | YTD 2023 | YTD 2022 |
| --- | ---: | ---: | ---: | ---: |
| **Plant Nutrition Sales (in millions)** | $47.7 | $54.3 | $89.3 | $108.9 |
| **Plant Nutrition Operating (Loss) Earnings (in millions)** | $(0.7) | $4.4 | $10.3 | $13.9 |
| **Plant Nutrition Sales Volumes (thousands of tons)** | 60 | 74 | 105 | 157 |
| **Plant Nutrition Average Sales Price (per ton)** | $796 | $736 | $851 | $696 |

### Commentary: Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

- Plant Nutrition sales decreased 12%, or $6.6 million due to lower sales volumes, which were partially offset by higher average sales prices.
- Plant Nutrition sales volumes were lower year over year due to lower demand due to a combination of flooding conditions in California and uncertainty about future fertilizer prices causing users to cancel or delay purchases. The decline in sales volumes decreased sales by approximately $10.3 million.
- Plant Nutrition average sales prices increased 8%, which contributed approximately $3.7 million to partially offset the volume decline. Average sales prices increased from the prior period due to global supply and demand dynamics for fertilizer products which resulted in steadily increasing prices throughout fiscal 2022, which have subsequently declined from the peak.
- Plant Nutrition operating earnings decreased $5.1 million to an operating loss of $0.7 million primarily due to higher per-unit product costs driven by lower production volumes at our Ogden facility as well as higher energy, other input costs and costs of approximately $1.6 million related to a small fire at the Ogden facility, and proportionately fewer sales to more profitable regions, which were partially offset by higher average sales prices.

### Commentary: Six Months Ended March 31, 2023 Compared to Six Months Ended March 31, 2022

- Plant Nutrition sales decreased 18%, or $19.6 million, from the prior year as lower sales volumes were partially offset by higher average sales prices.
- Plant Nutrition sales volumes decreased 33%, or 52,000 tons, which resulted in a $35.9 million decrease in sales due to a combination of weather conditions in select key markets, including California, and uncertainty about future fertilizer prices causing customers to cancel or delay purchases.
- Plant Nutrition average sales prices increased 22%, which partially offset the decrease in sales volume by $16.3 million. Average sales prices increased from the prior period due to the strong worldwide economic climate for fertilizer products which resulted in steadily increasing sales prices throughout fiscal 2022, although prices have recently declined from the peak.
- Plant Nutrition operating earnings decreased $3.6 million to $10.3 million primarily reflecting higher per-unit product costs primarily due to lower production volumes at our Ogden production facility and higher energy and other input costs and proportionately fewer sales to more profitable regions, which were partially offset by significantly higher average sales prices.

### Outlook

- With the bulk of the winter season over, Salt segment sales volumes for the fiscal year are expected to range from 11.35 million to 12.2 million tons, with EBITDA expected to range from $215 million to $255 million.
- Plant Nutrition segment product demand was adversely impacted during the first fiscal quarter by drought conditions in California, our largest market for SOP, followed by significant rainfall and flooding in California that impacted fertilizer application rates. Global pricing dynamics for SOP and similar products have shown signs of softening year to date. During the second fiscal quarter our Ogden facility experienced a temporary increase in natural gas costs due to temporary regional pipeline supply and demand dynamics. Plant Nutrition segment sales volumes and EBITDA are expected to range from 205,000 to 270,000 tons and $30 million to $60 million, respectively, in fiscal year 2023.
- Fiscal year 2023 capital expenditures are expected to range from a total of $150 million to $175 million. This amount includes $60 million to $75 million in connection with advancing phase-one of our lithium development.
- In April, we initiated a restructuring plan to reduce ongoing costs and further streamline the organization. The first phase of this initiative resulted in a charge of $3.3 million in the quarter ended March 31, 2023 with an additional $0.7 million anticipated in the quarter ended June 30, 2023. We continue to actively evaluate cost saving opportunities at our production and packaging facilities that could result in additional cost reductions. Accordingly, we may incur additional charges in fiscal 2023 as a result of these activities. For full-year fiscal 2024, we believe these actions, along with the elimination of certain consulting and other overhead costs after fiscal 2023, will benefit our operating expenses and adjusted EBITDA in the range of $17 to $18 million per year.
- On May 5, 2023, we completed the acquisition of the remaining 55% of Fortress for upfront consideration of approximately $26 million in cash, contingent consideration valued at approximately $28 million and an earn-out of $0.30 per gallon on Fortress product sold over a 10-year timeframe. Prior to the acquisition, Fortress entered into an agreement with the U.S. Forest Service to supply product and provide associated services for the 2023 fire season. Fortress is expected to generate between $20 million and $25 million of revenue and operating profit with EBITDA in the low double digit millions of dollars in fiscal 2023.

### 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, 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 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 and our $100 million revolving AR Securitization 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, 2023, we had $40.0 million of cash and cash equivalents that was either held directly or indirectly by foreign subsidiaries. As a result of U.S. tax reform, we revised our permanently reinvested assertion, expecting to repatriate approximately $150 million of unremitted foreign earnings from Canada. In fiscal 2022, we revised our permanently reinvested assertion, expecting to repatriate an additional approximately $10 million of unremitted foreign earnings from our U.K. operations and in the second quarter of fiscal 2023 we revised it again expecting to repatriate an additional approximately $6 million of unremitted foreign earnings from our U.K. operations. During the first quarter of fiscal 2023, $89.2 million was repatriated from Canada. Net income tax expense of $3.8 million has been recorded for foreign withholding tax, state income tax and foreign exchange losses on these changes in assertion as of March 31, 2023, consisting of a tax benefit of $0.7 million recorded in the first six months of fiscal year 2023, a $0.2 million tax benefit recorded in fiscal 2022 and tax expense of $4.7 million recorded in years prior to fiscal 2022. 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. 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 8 of our Consolidated Financial Statements for a discussion regarding our Canadian tax reassessments.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred in the U.S. over the three-year period ended March 31, 2023. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future income. On the basis of this evaluation, during the six months ended March 31, 2023, an additional valuation allowance of $15.8 million has been recorded to recognize only the portion of the U.S. deferred tax assets that are more likely than not to be realized. The amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are increased or reduced or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for income.

Cash and cash equivalents as of March 31, 2023 was $249.7 million. We generated $143.9 million of operating cash flows during the six months ended March 31, 2023, including a decrease in our working capital. During the six-month period ended March 31, 2023, we used cash on hand, cash flows from operations and cash proceeds from the private placement to fund capital expenditures of $43.7 million, pay down net debt of $123.1 million and pay dividends on our common stock of $12.6 million. Cash and cash equivalents of $249.7 million increased $203.6 million from September 30, 2022. Cash flows from operating activities totaled $143.9 million during the six months ended March 31, 2023, including net loss from continuing operations of $21.9 million, depreciation, depletion and amortization of $48.4 million, and a net working capital decrease of $99.4 million driven primarily by the seasonality of our Salt business and an increase in income tax payable due to the high effective tax rate driven by a U.S. valuation allowance. Our working capital decrease primarily reflects depleted inventory at the conclusion of the winter season which begins in the first quarter (ending December 31) of each fiscal year.

#### Indebtedness

As of March 31, 2023, we had $832.8 million 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, $16.9 million of borrowings outstanding under our senior secured credit facilities under the Credit Agreement, consisting entirely of term loans, and $65.9 million of outstanding loans under the accounts receivable financing facility (see Item 1, Note 9 of our Consolidated Financial Statements for more detail regarding our debt). Outstanding letters of credit totaling $13.6 million as of March 31, 2023 reduced available borrowing capacity under our revolving credit facility to $286.4 million. During the quarter ended December 31, 2022, we paid off the outstanding revolving credit facility balance utilizing proceeds from a private placement of common stock. Refer to Item 1, Note 12 of our Consolidated Financial Statements for additional details of the private placement transaction.

In November 2022, we entered into the third amendment to the Credit Agreement, principally to affect a transition from the London Inter-Bank Offered Rate to the Secured Overnight Financing Rate pricing benchmark provisions.

In January 2023, certain of our U.S. subsidiaries entered into the second amendment to the AR Securitization Facility with PNC Bank, which temporarily eases the restrictions of certain covenants contained in the agreement through March 2023. The amendment made certain adjustments to the financial tests including: (i) the default ratio and (ii) the delinquency ratio to make compliance with such tests more likely.

On May 5, 2023, we entered into an agreement to amend and restate our credit agreement entered into on November 26, 2019 (as in effect prior to such restatement, the “Existing Credit Agreement”) with a new $575 million senior secured credit agreement due May 5, 2028 (as amended, the “2023 Credit Agreement”), comprised of a $375 million revolving credit facility and $200 million term loan. The term loan is payable in quarterly installments of interest and principal beginning September 30, 2023. The 2023 Credit Agreement increases the Applicable Margins by 0.0025 basis points over those defined in the Existing Credit Agreement and adds an additional level at a consolidated total leverage ratio of greater than 4 to 1. Consolidated total net debt includes the aggregate principal amount of total debt, net of unrestricted cash which was increased from $50.0 million to $75 million in the 2023 Credit Agreement. Proceeds from the 2023 Credit Agreement will be used to redeem our $250 million 4.875% Senior Notes on May 10, 2023 and pay off the Existing Credit Agreement term loan balance of $16.9 million. Refer to Item 1, Note 9 of our Consolidated Financial Statements for additional details.

In the future, including during fiscal 2023, 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, climate-related, 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. Furthermore, we must remain in compliance with the terms of the Credit Agreement governing our credit facilities, including the consolidated total net 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.

Pursuant to the terms of the second amendment to our Credit Agreement, the maximum allowed consolidated total net leverage ratio (as defined and calculated under the terms of the Credit Agreement and discussed further below) was 5.0x for the quarter ended March 31, 2022, which steps down to 4.75x in the quarter ending March 31, 2024, and to 4.5x for the fiscal quarter ended June 30, 2024 and thereafter. The consolidated total net leverage ratio represents the ratio of (a) consolidated total net debt to (b) consolidated adjusted EBITDA. Consolidated total net debt includes the aggregate principal amount of total debt, net of unrestricted cash not to exceed $50.0 million. Under the 2023 Credit Agreement, finalized May 5, 2023, all existing debt covenants remain unchanged except the amount of unrestricted cash allowed to reduce the aggregate principal amount of total debt in the calculation of the consolidated total net leverage ratio was increased from $50.0 million to $75 million. As of March 31, 2023, our consolidated total net leverage ratio was approximately 3.52x.

Although we are in compliance with our debt covenants as of March 31, 2023, we can make no assurance that we will remain in compliance with these ratios. 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.

#### Capital Allocations

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 required spending to sustain our business. During the first quarter of fiscal 2021, we reduced our dividend by approximately 80% to provide additional liquidity and align our capital allocation policy with our corporate strategy. 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.

During fiscal 2023, we expect to spend between $90 million and $100 million of sustaining capital in our Salt and Plant Nutrition businesses. Additionally, we continue to develop our recently identified lithium resource at our Ogden facility and have spent approximately $8.0 million of capital thus far in fiscal 2023 towards the development phase of this sustainable lithium development project. For the full year of fiscal 2023, we have allocated between $60 million to $75 million for further development. 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 further engineering and design plans. For more information, refer to Part I, Item 1A, “Risk Factors” in our Form 10-K for the for the annual period ended September 30, 2022.

On October 18, 2022, we received aggregate net proceeds of approximately $240.7 million, net of transaction costs, from Koch Minerals & Trading, LLC (“KM&T”) as part of a strategic equity partnership. We expect to use approximately $200 million of the proceeds from the private placement to advance the first development phase of the lithium project. We used the remaining $40.7 million of proceeds to reduce debt.

In connection with our strategy to strengthen and grow our essential minerals businesses, during the first and second quarters of fiscal 2022, we made $45 million equity investments in Fortress, building upon a previous $5 million investment. As of March 31, 2023, we have invested $50 million in Fortress in exchange for an ownership interest of approximately 45%. Fortress is a development stage company that is expected to achieve commercialization of its magnesium chloride-based fire-retardant products to help combat wildfires during fiscal 2023.

On May 5, 2023, we acquired the remaining 55% interest in Fortress consisting of an initial cash payment of approximately $26 million, approximately $28 million to be paid in cash and/or Compass Minerals common stock upon the achievement of certain performance measures, and a cash earn-out based on volumes of Fortress fire retardant products sold over a 10-year period. Building upon the previous 45% minority ownership stake in Fortress, the transaction provides us full ownership of all Fortress assets, contracts, and intellectual property.

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

| SIX MONTHS ENDED MARCH 31, 2023 | SIX MONTHS ENDED MARCH 31, 2022 |
| --- | --- |
| **Operating Activities:** |  |
| Net cash provided by operating activities were $143.9 million | Net cash provided by operating activities were $145.9 million |
| » Net losses were $21.9 million. | » Net losses were $9.7 million. |
| » Non-cash depreciation and amortization expense was $48.4 million. | » Non-cash depreciation and amortization expense was $56.2 million. |
| » Non-cash stock-based compensation expense was $13.7 million. | » Non-cash stock-based compensation expense was $7.8 million. |
| » Working capital items were a source of operating cash flows of $99.4 million. | » Working capital items were a source of operating cash flows of $61.3 million. |
| » Non-cash net loss in equity investees was $2.3 million. | » Non-cash net loss in equity investees was $2.1 million. |
| **Investing Activities:** |  |
| Net cash flows used in investing activities were $44.0 million | Net cash flows used in investing activities were $88.4 million |
| » Net cash flows used in investing activities included $43.7 million of capital expenditures. | » Net cash flows used in investing activities included equity method investments of $46.3 million. |
|  | » Included $43.5 million of capital expenditures. |
| **Financing Activities:** |  |
| Net cash flows provided by financing activities were $102.9 million | Net cash flows used in financing activities were $25.9 million |
| » Included net payments on our debt of $123.1 million. | » Included net payments on our debt of $14.5 million. |
| » Included net proceeds from private placement of common stock of $240.7 million. | » Included the payment of dividends of $10.5 million. |
| » Included the payment of dividends of $12.6 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 prior to the start of the winter season and 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 six months ended March 31 of each year reflect the seasonal decrease in inventory due to the end of the winter season and a decrease in accounts receivable as winter season sales are collected.

### Other Matters

See Item 1, Notes 8 and 10 of our Consolidated Financial Statements for a discussion regarding labor, environmental and litigation matters.

### Reconciliation of Net Loss 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 to our Consolidated Financial Statements 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, interest income, (gain) loss on foreign exchange, other (income) expense, net and other infrequent items that management does not consider indicative of normal operations. Other infrequent items, such as executive transition costs and restructuring charges, involve distinct initiatives that are not reflective of future operations and affect the comparability of our operational results across reporting periods. 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, 2023 | 2022 | Six Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net loss from continuing operations | $(21.6) | $(29.0) | $(21.9) | $(21.1) |
| Interest expense | 14.2 | 13.9 | 28.1 | 27.8 |
| Income tax expense | 55.1 | 30.4 | 67.0 | 29.2 |
| Depreciation, depletion and amortization | 24.5 | 27.9 | 48.4 | 56.2 |
| EBITDA from continuing operations | 72.2 | 43.2 | 121.6 | 92.1 |
| Adjustments to EBITDA from continuing operations: |  |  |  |  |
| Stock-based compensation - non cash | 3.1 | 4.5 | 13.7 | 7.7 |
| Interest income | (1.9) | — | (3.0) | (0.3) |
| (Gain) loss on foreign exchange | (0.2) | 3.0 | 2.3 | 2.6 |
| Executive transition costs(a) | — | 0.5 | — | 4.3 |
| Restructuring charges(b) | 3.7 | — | 3.7 | — |
| Accrued loss and legal costs related to SEC investigation(c) | (0.4) | 13.6 | (0.1) | 16.7 |
| Other expense, net | 0.9 | — | 1.0 | 0.1 |
| Adjusted EBITDA from continuing operations | 77.4 | 64.8 | 139.2 | 123.2 |
| Adjusted EBITDA from discontinued operations | — | 7.3 | — | 15.9 |
| Adjusted EBITDA including discontinued operations | $77.4 | $72.1 | $139.2 | $139.1 |

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

(b) We incurred severance and related charges related to a reduction of its workforce.

(c) We recognized costs, net of reimbursements, related to the settled 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.

We are experiencing increases in logistics costs, prices for energy and other costs that have only been partially recovered through price increases for our products. We estimate that the impact of inflation increased logistics costs by approximately $2 million to $4 million for the three months ended March 31, 2023 and $9 million to $11 million for the six months ended March 31, 2023, and product costs by approximately $4 million to $6 million for the three months ended March 31, 2023 and $8 million to $10 million six months ended March 31, 2023). Our efforts to recover inflation-based cost increases from our customers may be hampered as a result of the structure of our contracts and the contract bidding process as well as the competitive industries, economic conditions and countries in which we operate. For more information, see Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the annual period ended September 30, 2022 and Part II, Item 1A, “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.

### 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 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 demand for our deicing products. Drought or excessive precipitation 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, mineral concentrations or other factors, 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 affect our operations and necessitate capital expenditures in the future, although capital expenditures for climate-related projects are not expected to be material in fiscal 2023. 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 Annual Report on Form 10-K for the annual period ended September 30, 2022.

### Global Economy

The 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 and six months ended March 31, 2023, and 2022, were not materially affected by COVID-19, although the recent supply chain shortages and cost increases may be linked to COVID-19. Also, while we have no operations in Russia or Ukraine, we are continuing to monitor any broader impact from the current war in Ukraine, particularly with respect to energy costs and implications on global fertilizer market supply and demand conditions. The ultimate impact that any infectious outbreak or the war in Ukraine will have on our future results is unknown at this time. For more information, see Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the annual period ended September 30, 2022.

## Market risk

As filed, 942 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 fuel consumed at our production locations or 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, 2022.

## Controls and procedures

As filed, 4,618 characters.

#### Disclosure Controls and Procedures

The Company maintains 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.

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 ineffective as of March 31, 2023, due to the material weaknesses described below.

1\. During the fourth quarter ended September 30, 2022, the Company identified a material weakness in the design and operating effectiveness of information technology general controls (“ITGCs”) related to certain systems that support the Company’s internal controls over financial reporting. Specifically, the Company did not maintain effective controls over privileged user access to certain systems. Automated and manual business process controls were therefore also deemed ineffective because they could have been adversely impacted by the ineffective ITGCs.

2\. During the fourth quarter ended September 30, 2022, the Company identified a material weakness in the design and operating effectiveness of controls related to the sales process. Specifically, the Company did not maintain effective controls over pricing and order entry.

3\. During the fourth quarter ended September 30, 2022, a material weakness was identified in the design and operating effectiveness of controls related to the existence of inventory held at certain locations.

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. Notwithstanding such material weaknesses in internal control over financial reporting, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q 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.

#### Remediation of Material Weaknesses

The Company has further defined and enhanced its management review attributes and increased the frequency of its privileged access reviews. Testing of these controls over privileged user access is currently underway.

The Company continues to assess and is in the process of enhancing and implementing certain internal controls over the sales and inventory processes in accordance with the remediation plans for those material weaknesses. Further enhancements related to inventory existence, sales pricing, and order entry are underway. These enhanced controls will be tested for effectiveness in future periods.

#### Changes in Internal Control Over Financial Reporting

Other than the matters noted above, there were no changes in the Company’s internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 2,285 characters.

For a discussion of the risk factors applicable to Compass Minerals, please refer to Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the annual period ended September 30, 2022, as updated and supplemented by the discussion below.

***Operations at our Ogden, Utah, facility are dependent on ambient brine from the Great Salt Lake, and changes in lake brine levels or any limitations on our continued ability to access ambient lake brine in the Great Salt Lake could adversely affect us.***

Our Ogden facility produces SOP, salt and magnesium chloride products from the high mineral concentrations within the ambient lake brine in the Great Salt Lake. In addition, we are developing our identified lithium resource at our Ogden facility and the Great Salt Lake. Our ability to produce SOP, salt and magnesium chloride, as well as any future production of lithium, at our Ogden facility, is dependent upon, among other matters, sufficient lake elevations in the Great Salt Lake and our continued ability to maintain, renew or acquire the permits, licenses and approvals required to access ambient lake brine in the Great Salt Lake.

In recent years, sustained drought (as a result of climate change or otherwise) has lowered lake levels and increased mineral concentrations in the Great Salt Lake. If this continues, lower lake levels could impact mineral composition and our mineral harvesting process, amount and timing. Lake level fluctuations and other factors, including recent legislative actions in Utah or other state or federal actions to manage the salinity of the Great Salt Lake, could alter north arm lake levels and may disrupt our evaporation production cycle, impact our access to ambient lake brine in the Great Salt Lake or increase our capital expenditures and production costs.

The expansion of existing operations or production capacity at our Ogden facility, or preservation of existing rights in some cases, is also predicated upon securing any necessary permits, licenses and approvals. For example, we may require additional permits, licenses and approvals to continue diverting water from the Great Salt Lake to further expand our production capacity at our Ogden facility and continue the development of our identified lithium resource.

Filed May 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001227654-23-000114. Last ingested by Listed: Oct 24, 2026, 15:10 ET. No prices; not investment advice.