Compass Minerals International, Inc. (“CMI”), through its subsidiaries (collectively, the “Company”), is a leading producer of essential minerals focused on safely delivering where and when it matters to help solve nature’s challenges for customers and communities. The Company’s salt products help keep roadways safe during winter weather and are used in numerous other consumer, industrial and agricultural applications. Its plant nutrition products improvebusiness is the qualityleading producer of sulfate of potash (“SOP”), which is used in the production of specialty fertilizers for high-value crops and yield of crops, while supporting sustainable agriculture.turf. The Company’s principal products are salt, consisting of sodium chloride and magnesium chloride, and plant nutrients, consisting of sulfate of potash (“SOP”).SOP. The Company’s production sites are located in the United States (“U.S.”), Canada and the United Kingdom (“U.K.”). The Company also provides records management services to businesses located in the U.K. 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. References to “Compass Minerals,” “our,” “us” and “we” refer to CMI and its consolidated subsidiaries.

 

CMI is a holding company with no significant operations other than those of its wholly-owned subsidiaries. The consolidated financial statements include the accounts of CMI and its wholly-owned domestic and foreign subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company uses the equity method of accounting for equity securities when it has significant influence or when it has more than a minor ownership interest or more than minor influence over an investee’s operations but does not have a controlling financial interest. Initial investments are recorded at cost (including certain transaction costs) and are adjusted by the Company’s share of the investees’ undistributed earnings and losses. Any difference in the Company’s cost in comparison to its underlying interest in the net assets of equity method companies that is attributable to intangible assets is amortized over the estimated useful lives of the related intangible assets.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete

consolidated financial statements. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the yeartransition period ended December 31, 2020,September 30, 2021, as filed with the Securities and Exchange Commission (“SEC”)SEC in its AnnualTransition Report on Form 10-K10-KT on February 26,November 30, 2021. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation, have been included.

 

The Company experiences a substantial amount of seasonality in its sales, including its deicing salt product sales. As a result, Salt segment sales and operating earningsincome are generally higher in the first and fourthsecond fiscal quarters (ending December 31 and March 31) and lower during the secondthird and thirdfourth fiscal quarters (ending June 30 and September 30) of each calendar year. In particular, sales of highway and consumer deicing salt and magnesium chloride products vary based on the severity of the winter conditions in areas where the products are used. Following industry practice in North America and the U.K., the Company seeks to stockpile sufficient quantities of deicing salt throughout the second,first, third and fourth fiscal quarters of the calendar year(ending December 31, June 30 and September 30) to meet the estimated requirements for the winter season. Production of deicing salt can also vary based on the severity or mildness of the preceding winter season. Due to the seasonal nature of the deicing product lines, operating results for the interim periods are not necessarily indicative of the results that may be expected for the full fiscal year. The Company’s plant nutrition business is also seasonal. As a result, the Company and its 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).

The Company has evaluated all of the recently issued, but not yet effective, accounting standards that have been issued or proposed by the Financial Accounting Standards Board (“FASB”) or other standards-setting bodies through the filing date of these unaudited consolidated financial statements and does not believe the future adoption of any such pronouncements will have a material impact on its consolidated financial statements.

RevisionsUnless otherwise indicated, amounts provided in these Notes pertain to Prior Period Consolidated Financial Statements

2.    Discontinued Operations:

On March 23, 2021, the Company entered into a definitive agreement to sell its 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 the Company received gross proceeds of approximately $432.3$421.1 million, including $12.7following a reduction in proceeds of $6.2 million in working capital adjustments (in each case, based on exchange rates at(finalized in the time of closing)quarter ended September 30, 2021), comprised of a cash paymentin the amount of approximately $325.5$318.4 million and an additional $106.8$102.7 million in net debt assumed by ICL Brasil Ltda. The Brazil debt was deducted from gross proceeds from the transaction. The terms of the definitive agreement provide for an additional earn-outearnout payment of up to R$88 million Brazilian reais, payable inreais. On April 7, 2022, and which will be calculatedthe Company received the maximum earnout possible under the terms of the sale, or $18.5 million based on a sliding scale ifexchange rates at the South America specialty plant nutrition business achieves certain full-year 2021 earnings before interest, taxes, depreciation and amortization (“EBITDA”) performance targets.time of receipt. At the closing of the transaction, the parties also entered into a Reverse Transition Services Agreement, which governs the parties’ respective rights and obligations with respect to the provision of certain transition services to the Company’s Brazil subsidiaries after closing. The Reverse Transition Services Agreement has a term of 18 months and allows the Company’s remaining Brazil subsidiaries to assign their rights and obligations with respect to the transition services to any buyer of a sufficient portion of their assets.

On April 7, 2021, the Company entered into a definitive agreement to sell a component of its North America micronutrient business (primarily consisting of intangible assets and certain inventory of the business) to Koch Agronomic Services, LLC, (“KAS”), a subsidiary of Koch Industries, through an asset purchase and sale agreement. On May 4, 2021, the Company completed the sale for approximately $56.7 million which resulted in the removal of the North America micronutrient business assets and liabilities from the unaudited consolidated financial statements, including $7.0 million in goodwill.paid fees totaling $0.5 million. The Company recognized a gain from the sale of $30.8$30.6 million, net of $2.8 million from the release of accumulated currency translation adjustment (“CTA”) upon substantial liquidation of the business.

On June 28, 2021, the Company entered into a definitive agreement to sell its investment in Fermavi for R$45 million Brazilian reais (including R$30 million Brazilian reais of deferred purchase price). The pending Fermavitransaction closed on August 20, 2021. Upon closing, the Company received gross proceeds of approximately $2.9 million and recorded a discounted deferred proceeds receivable of approximately $4.8 million (based on exchange rates at the time of closing).

On April 20, 2022, the Company completed the sale isof its South America chemicals business to a subsidiary of Cape Acquisitions LLC. Upon closing of the all-cash sale, the Company received gross proceeds of approximately $51.0 million based on exchange rates at the time of closing, subject to a post-closing adjustment. The sale includes all of the satisfaction of closing conditions, including receipt of necessary governmental approvals.Company’s remaining operations in Brazil, concluding its previously announced plan to exit the South American market.

In measuring the assets and liabilities held for sale at fair value less estimated costs to sell, the Company completed an impairment analysis when its Board of Directors committed to a plan to sell the Specialty Businesses and the Company will updateupdated the analysis each quarter untilprior to the businesses are sold. Managementsale of the Company’s South America chemicals business. Accordingly, management evaluated indicators of fair value of eachthe Company’s South America chemicals business as of the Specialty Businesses,March 31, 2022, including the net proceeds expected to be realized at closing of the transactions to sell its South America specialty plant nutrition business, a component of its North America micronutrient business, its investment in Fermavisale price and the earn-out component of theestimated net proceeds from the sale of the South America specialty plant nutrition business, in addition to indications of fair value received from third parties in connection with the marketing of the remaining South America chemicalschemical business.

The Company recognizedrecorded a net (gain) loss fromon the sale of its adjustment to fair value less estimated costs to sell of $(14.6)South American specialty plant nutrition business and its investment in Fermavi totaling approximately $209.8 million and $240.6a non-cash impairment loss for the remaining chemical business of approximately $114.9 million included in its earnings (loss) from discontinued operations in its Consolidated Statements of Operations(including $16.3 million and $24.7 million recorded for the three and six months ended June 30, 2021, respectively. The net gain from adjustment to fair value less estimated costs to sell recognized forMarch 31, 2022, respectively), which included the three months ended June 30, 2021 reflects changes in the Company's net proceeds, both realized and estimated, and updated exchange rates that have impacted the CTA. The adjustment to fair value less estimated costs to sell for the six months ended June 30, 2021 is due primarily to the translationeffect of the net assetssignificant weakening of the Company’s Brazil subsidiaries from Brazilian reais toreal against the U.S. dollars, which has been reported in CTA. As of June 30, 2021, the adjustment to fair value less costs to sell for the Company’s South America chemicals and specialty plant nutrition businesses was $81.8 million and $148.4 million, respectively, inclusive of CTA. The amount of CTA recorded in AOCL will be eliminated upon substantial liquidation of each foreign entity. The Company also recognized a loss for the adjustment to fair value less estimated costs to sell of $10.4 million on its investment in Fermavi as of June 30, 2021. The Company recognized adollar. These losses

losswere partially offset by a gain of $2.8approximately $30.6 million upon abandonmentfrom the sale of the remaining North America micronutrient product inventory not included in the purchase and sale agreement with KAS, which primarily consisted of product lines produced in South America.

The information below sets forth selected financial information related to the operating results of the Specialty Businesses classified as discontinued operations. While the reclassification of theThe Specialty Businesses’ revenue and expenses have been reclassified to net earnings (loss) from discontinued operations in prior periods has no impact upon previously reported results, theperiods. The Consolidated Balance Sheets present the assets and liabilities that were reclassified from the specified line items to assets and liabilities held for sale and the Consolidated Statements of Operations present the revenue and expenses that were reclassified from the specified line items to discontinued operations.

The following table represents summarized balance sheet information of assets and liabilities held for sale (in millions):

3.    Revenues:

The Company’s Salt segment products include salt and magnesium chloride for use in road deicing and dust control, food processing, water softeners, and agricultural and industrial applications and theapplications. The Company’s Plant Nutrition segment products includeproduces and markets SOP in various grades worldwide to distributors and retailers of SOP.crop inputs, as well as growers and for industrial uses. In the U.K., the Company operates a records management business utilizing excavated areas of theits Winsford salt mine with one other location in London, England.

The Company accounts for a customer contract when there is approval and commitment from both parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

At contract inception, the Company assesses the goods and services it has promised to its customers and identifies a performance obligation for each promise to transfer to the customer a distinct good or service (or bundle of goods or services). Determining whether products and services are considered distinct performance obligations that should be accounted for separately or aggregated together may require significant judgment.

The Company’s revenues are measured based on consideration specified in the customer contract, net of any sales incentives and amounts collected on behalf of third parties such as sales taxes. In certain cases, the Company’s customer contracts may include promises to transfer multiple products and services to a customer. For multiple-element arrangements, the Company generally allocates the transaction price to each performance obligation in proportion to its stand-alone selling price.

The vast majority of the Company’s revenues are recognized at a point in time when the performance obligations are satisfied based upon transfer of control of the product or service to a customer. To determine when the control of goods is transferred, the Company typically assesses, among other things, the shipping terms of the contract, as shipping is an indicator of transfer of control. Some of the Company’s products are sold when the control of the goods transfers to the customer at the time of shipment. There are also instances when the Company provides shipping services to deliver its products. Shipping and handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs. The Company recognizeshas made an accounting policy election to recognize any shipping and handling costs that are incurred after the customer obtains control of the goods as fulfillment costs which are accrued at the time of revenue recognition.

The customer contract states the final terms of the sale, including the description, quantity and price of each product or service purchased. Payment is typically due in full within 30 days of delivery. The Company does not adjust the consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the good or service is transferred to the customer and when the customer pays for that good or service will be one year or less.

The Company’s products are generally not sold with a right of return and the Company does not generally provide credits or incentives, which may be required to be accounted for as variable consideration when estimating the amount of revenue to be recognized. The Company uses historical experience to estimate accruals for refunds due to manufacturing or other defects.