COMPASS MINERALS INTERNATIONAL, INC. The statements in this discussion regarding the industry outlook, our expectations for the future performance of our business, and the other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in Item 1A, "Risk Factors." You should read the following discussion together with Item 1A, "Risk Factors" and the Consolidated Financial Statements and Notes thereto included elsewhere in this report.
COMPANY OVERVIEW
Compass Minerals is a leading provider of essential minerals focused on safely delivering where and when it matters to help solve nature's challenges for customers and communities. Our Salt segment products help keep roadways safe during winter weather and are used in numerous other consumer, industrial and agricultural applications. OurPlant Nutrition segment is the leading producer of sulfate of potash, which is used in the production of specialty fertilizers for high-value crops and turf. As ofSeptember 30, 2021 , we operate 12 production and packaging facilities (excluding 3 production facilities inSouth America that are part of our discontinued operations) with more than 1,900 personnel throughout theU.S. ,Canada and theU.K (excluding personnel inSouth America that are part of our discontinued operations), including: •The largest rock salt mine in the world inGoderich, Ontario, Canada ; •The largest dedicated rock salt mine in theU.K. inWinsford , Cheshire; •A solar evaporation facility located nearOgden, Utah , which is both the largest SOP 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. We concluded that certain of our assets met the criteria for classification as held for sale and discontinued operations in the first quarter of 2021, as discussed further in the "Discontinued Operations" section below. As a result, we are presenting two reportable segments, Salt andPlant Nutrition (which was previously known as thePlant Nutrition North America segment) in this "Management's Discussion and Analysis of Financial Condition and Results of Operations." See Item 8, Note 13 to the Consolidated Financial Statements for more information. Unless otherwise indicated, the information and amounts provided in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" pertain to continuing operations. Our Salt segment provides highway deicing salt to customers inNorth America and theU.K. as well as consumer deicing and water conditioning products, ingredients used in consumer and commercial food preparation, and other salt-based products for consumer, agricultural and industrial applications inNorth America . In theU.K. , we operate a records management business utilizing excavated areas of ourWinsford salt mine with one other surface location inLondon, 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+. We focus on building intrinsic value by growing our earnings before interest, taxes, depreciation and amortization ("EBITDA") and by improving our asset quality. We can employ our operating cash flow and other sources of liquidity to pay dividends, re-invest in our business, pay down debt and make acquisitions. Discontinued Operations During fiscal 2020, we initiated an evaluation of the strategic fit of certain of our businesses. OnFebruary 16, 2021 , we announced our plan to restructure our former Plant Nutrition South America segment to enable targeted and separate sales processes for each portion of the former segment, including our chemicals and specialty plant nutrition businesses along with our equity method investment in Fermavi. Concurrently, to optimize our asset base inNorth America , we evaluated the strategic fit of ourNorth America micronutrient product business. OnMarch 16, 2021 , our Board of Directors approved a plan to sell ourSouth America chemicals and specialty plant nutrition businesses, our investment in Fermavi and ourNorth 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 8, Note 1 and Note 3 to the Consolidated Financial Statements, onMarch 23, 2021 ,April 7, 2021 andJune 28, 2021 , we entered into definitive agreements to sell ourSouth America specialty plant nutrition business, a component of ourNorth America micronutrient business and our Fermavi investment, respectively. TheSouth America specialty plant nutrition business sale closed onJuly 1, 2021 , theNorth America micronutrient sale closed onMay 4, 2021 , and the sale of our Fermavi investment closed onAugust 20, 2021 . We continue to actively pursue the sale of theSouth America chemicals business, and we believe this sale is probable to occur within the next twelve months. We believe there is a single disposal plan representing a strategic shift that will have a material effect on our operations and financial results. Consequently, the Specialty Businesses qualify for presentation as assets and liabilities held for sale and discontinued operations in accordance withU.S. GAAP. Accordingly, current and noncurrent assets and liabilities of the 57 2021 FORM 10-KT --------------------------------------------------------------------------------
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Specialty Businesses are presented in the Consolidated Balance Sheets as assets
and liabilities held for sale for both periods presented and their results of
operations are presented as discontinued operations in the Consolidated
Statements of Operations for each period presented.
Change in Fiscal Year
On June 23, 2021 , our Board of Directors approved a change in our fiscal year
end from December 31 to September 30 . As a result, our results of operations,
cash flows and all transactions impacting shareholders equity presented in this
Transition Report on Form 10-KT are for the nine months ended September 30, 2021
and our fiscal years 2020 and 2019 are for the twelve months ended December 31,
2020 and December 31, 2019 , unless otherwise noted. As such, our fiscal year
2021, or fiscal 2021, refers to the period from January 1, 2021 to September 30,
2021 . This Transition Report on Form 10-KT also includes an unaudited
consolidated statement of operations for the comparable stub period of January
1, 2020 to September 30, 2020; see Item 8, Note 18 to the Consolidated
Financial Statements for additional information. The discussion below provides a
comparison for (1) the nine-month transition period ended September 30, 2021 to
the nine-month stub period ended September 30, 2020 and (2) our fiscal year
ended December 31, 2020 to our fiscal year ended December 31, 2019 . All
information for the nine-month period ended September 30, 2020 is unaudited.
Consolidated Results of Operations
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* Refer to "-Reconciliation of Net Earnings 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-U.S. GAAP measure.
CONSOLIDATED RESULTS COMMENTARY: Nine Months Ended
•Total sales increased$140.9 million , due to increases in both the Salt and Plant Nutrition segments. •Operating earnings increased 5%, or$4.1 million , due to higher operating earnings in our Salt segment, which was partially offset by lower Plant Nutrition segment earnings and higher corporate expenses. •Diluted earnings per share decreased 27%, or$0.21 . •EBITDA* adjusted for items management believes are not indicative of our ongoing operating performance ("Adjusted EBITDA")* increased 4%, or$6.0 million . 58 2021 FORM 10-KT
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CONSOLIDATED RESULTS COMMENTARY: Fiscal Year Ended
•Total sales decreased$80.2 million , due to a decrease in the Salt segment, partially offset by an increase in the Plant Nutrition segment. •Operating earnings decreased 14%, or$16.6 million , due to lower operating earnings in our Salt and Plant Nutrition segments and higher corporate expense. •Diluted earnings per share increased 5%, or$0.06 . •Adjusted EBITDA* decreased 5%, or$13.1 million . [[Image Removed: cmp-20210930_g21.jpg]] [[Image Removed: cmp-20210930_g22.jpg]] GROSS PROFIT & GROSS MARGIN COMMENTARY: Nine Months EndedSeptember 30, 2020 - Nine Months EndedSeptember 30, 2021 Gross Profit: Increased 6%, or$10.4 million ; Gross Margin decreased 2 percentage points from 23% to 21% •Salt segment gross profit increased$17.5 million primarily due to higher sales volumes, which were partially offset by lower average sales prices (see "-Operating Segment Performance-Salt" for additional information). •Gross profit for the Plant Nutrition segment decreased$7.6 million due to higher per-unit product costs, which was partially offset by higher sales volumes and average sales prices (see "-Operating Segment Performance-Plant Nutrition" for additional information). 59 2021 FORM 10-KT --------------------------------------------------------------------------------
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GROSS PROFIT & GROSS MARGIN COMMENTARY: Fiscal Year Ended
Gross Profit: Decreased 5%, or$12.7 million ; Gross Margin increased 1 percentage point to 22% from 21% •Salt segment gross profit decreased$8.7 million primarily due to lower sales volumes, which were partially offset by higher average sales prices and lower logistics costs (see "-Operating Segment Performance-Salt" for additional information). •Plant Nutrition segment gross profit decreased$4.7 million due to lower average sales prices and higher product costs primarily due to feedstock inconsistency and unplanned downtime at ourOgden facility (see "-Operating Segment Performance-Plant Nutrition" for additional information).
OTHER EXPENSES AND INCOME COMMENTARY: Nine Months Ended
SG&A: Increased$6.3 million ; Decreased 1.3 percentage points as a percentage of sales to 11.1% from 12.4% •The increase in SG&A expense was primarily due to higher corporate professional services expense and costs incurred related to our lithium resource assessment.
Interest Expense: Decreased
Gain on Foreign Exchange: Decreased$10.2 million from a gain of$10.8 million to a gain of$0.6 million in fiscal 2021 •The decrease of$10.2 million was due primarily to changes in foreign currency exchange rates on our nonU.S. dollar denominated intercompany loans between ourU.S. and foreign subsidiaries. Other Expense, Net: Decreased$0.1 million from expense of$0.3 million to expense of$0.2 million •The decrease in other expense, net is primarily due to our loss on our equity investment in 2021, which was partially offset by fees related to ourU.S. securitization facility in 2020 and higher interest income in fiscal 2021. Income Tax Expense from Continuing Operations: Increased$3.9 million to$14.2 million •Income tax expense increased by$3.9 million and our effective tax rate increased from 27% in fiscal 2020 to 40% in fiscal 2021 due primarily to valuation allowances on state income tax credits and state excess interest expense deferred tax assets and remeasurement of deferred taxes due to the tax rate increase in theUK . •Our income tax provision in both periods differs from theU.S. statutory rate primarily due toU.S. statutory depletion, state income taxes, foreign income, mining and withholding taxes, global intangible low-taxed income ("GILTI") and interest expense recognition differences for tax and financial reporting purposes. Our fiscal 2021 income tax provision also included base erosion anti-abuse tax ("BEAT"). Net (Loss) Earnings from Discontinued Operations: Decreased$241.3 million to$(234.2) million •The net loss from discontinued operations includes losses of$189.0 million and$20.8 million recognized from the sale of theSouth America specialty nutrition business and our investment in Fermavi, respectively, including the realization of the currency translation adjustment ("CTA") which had accumulated due to the significant weakening of the Brazilian real. An impairment loss, as required byU.S. GAAP, of approximately$90.2 million also negatively 60 2021 FORM 10-KT --------------------------------------------------------------------------------
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impacted earnings from discontinued operations due to a change in fair value
less estimated costs to sell our South America chemicals business, which also
considers the CTA related to this business. These losses were partially offset
by a gain recognized for the sale of a component of the North America product
micronutrient business in May 2021 of $30.6 million .
•Our operating earnings for our South America chemicals and specialty plant
nutrition businesses decreased by $3.1 million and the North America
micronutrient product business improved by $0.7 million . The improvements in our
South America businesses were due to lower sales volumes, which were partially
offset by higher average sales prices. The North America micronutrient product
business increased primarily due to higher sales volumes, which were partially
offset by lower average sales prices and the write off of the remaining
inventory that was not included in the sale of the business.
OTHER EXPENSES AND INCOME COMMENTARY: Fiscal Year Ended
SG&A: Increased$3.9 million ; Increased 1.2 percentage points as a percentage of sales to 11.6% from 10.4% •The increase in SG&A expense was primarily due to higher corporate incentive compensation and higher corporate depreciation expense, partially offset by lower travel expenses due to COVID-19. Interest Expense: Increased$4.4 million to$62.7 million •The increase was primarily due to an increase in interest rates due to the refinancing of our debt in the fourth quarter of fiscal 2019, which was partially offset by lower debt levels. (Gain) loss on Foreign Exchange: Improved$16.4 million from a loss of$11.8 million in fiscal 2019 to a gain of ($4.6 ) in fiscal 2020 •The improvement of$16.4 million was due primarily to changes in foreign currency exchange rates on our nonU.S. dollar denominated intercompany loans between ourU.S. and foreign subsidiaries. Other, Net: Increased$0.3 million from expense of$0.1 million to expense of$0.4 million •The increase in other, net is primarily due to fees related to ourU.S. securitization facility and lower interest income in fiscal 2020. Income Tax Expense from Continuing Operations: Decreased$7.2 million to$1.9 million •Income tax expense and our income tax rate decreased in fiscal 2020 due to the release of domestic tax reserves in fiscal 2020. •Our effective tax rate decreased from 18% in fiscal 2019 to 4% in fiscal 2020. Our effective tax rate in fiscal 2020 was impacted by the release of domestic tax reserves due to statute expirations. •Our income tax provision in both periods differs from theU.S. statutory rate primarily due toU.S. statutory depletion, state income taxes, foreign income, mining and withholding taxes, GILTI and interest expense recognition differences for tax and financial reporting purposes. Net Earnings from Discontinued Operations: Unchanged at$20.5 million •Operating earnings for theBrazil businesses increased$0.3 million from fiscal 2019 due to higher sales volumes and improved chemical margins due to production efficiencies, which were mostly offset by the weaker Brazilian reais and higher SG&A costs in local currency due to incentive compensation and professional services. •Operating earnings for ourNorth America micronutrient product business increased by$4.1 million due to higher sales volumes and lower SG&A expenses in the current period. •These increases were offset by other non-operating expenses in fiscal 2020 inBrazil .
OPERATING SEGMENT PERFORMANCE
The following financial results represent consolidated financial information with respect to sales from our Salt and Plant Nutrition segments for the nine months endedSeptember 30, 2021 andSeptember 30, 2020 and the fiscal years endedDecember 31, 2020 and 2019. Sales primarily include revenue from the sales of our products, or "product sales," and the impact of shipping and handling costs incurred to deliver our salt and plant nutrition products to our customers. The results of operations of the consolidated records management business and other incidental revenues include sales of$8.7 million ,$10.1 million and$9.7 million for the nine months endedSeptember 30, 2021 and the fiscal years endedDecember 31, 2020 and 2019, respectively. These sales are not material to our consolidated financial results and are not included in the following operating segment financial data. 61 2021 FORM 10-KT
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SALT SEGMENT RESULTS
Nine Months Ended Fiscal Year Ended
September 30, September 30, December 31, December 31,
2021 2020 2020 2019
Salt Sales (in millions) $ 671.1 $
550.9
7,091 5,330 7,534 8,748
Consumer and industrial 1,419 1,327 1,906 2,175
Total tons sold 8,510 6,657 9,440 10,923
Average Salt Sales Price (per ton)
Highway deicing $ 62.08 $
64.41
$ 162.78 $ 156.42 $ 160.33 $ 158.09 Combined$ 78.87 $ 82.75 $ 82.56 $ 81.43
SALT SEGMENT RESULTS COMMENTARY: Nine Months Ended
•Salt sales increased 22%, or$120.2 million , due to higher Salt sales volumes, which was partially offset by lower average sales prices. •Salt sales volumes increased 28%, or 1,853,000 tons, and contributed approximately$128 million to the increase in sales. Highway deicing sales volumes increased 33% primarily as a result of an increase in winter weather activity inFebruary 2021 in theU.S. and the first quarter of 2021 in theU.K. Consumer and industrial sales volumes increased 7% due to an increase in both deicing sales volumes and non-deicing volumes primarily due to an increase in winter weather events and the impact of the COVID-19 pandemic in the prior period. •Salt average sales price decreased 5% and partially offset the increase in sales by approximately$8 million due to lower highway average sales prices. •Highway deicing average sales prices decreased 4%, due to lower North American highway deicing contract prices for the 2020-2021 winter season. Consumer and industrial average sales prices increased 4% due to product sales mix and price increases. •Salt operating earnings increased 14%, or$16.7 million , due to higher highway deicing sales volumes. The increase in operating earnings was partially offset by lower average sales prices and higher per-unit product costs at our consumer and industrial facilities primarily due to lower production volumes and inflationary pressure on certain raw materials and packaging.
SALT SEGMENT RESULTS COMMENTARY: Fiscal Year Ended
•Salt sales decreased 12%, or$110.0 million , due to lower Salt sales volumes, which was partially offset by higher average sales prices. •Salt sales volumes decreased 14%, or 1,483,000 tons, and contributed approximately$118 million to the decrease in sales. Highway deicing sales volumes decreased 14% as a result of mild weather inNorth America and theU.K. when compared to fiscal 2019, which was partially offset by higher sales volumes to our chemical customers. Consumer and industrial sales volumes decreased 12% due to lower sales of deicing products due to the mild weather in fiscal 2020 and lower non-deicing sales volumes primarily due to COVID-19. •Salt average sales price increased 1% and partially offset the decrease in sales by approximately$8 million due to slightly higher average sales prices. •Highway deicing average sales prices increased 1%, reflecting higher prices realized in the first half of the year from higher North American highway deicing contract prices for the 2019-2020 winter season, and higher chemical customer prices, partially offset by lower North American highway deicing contract prices for the 2020-2021 winter season. Consumer and industrial average sales prices increased 1% due to non-deicing price increases in fiscal 2020. •Salt operating earnings decreased 4%, or$6.2 million , due to lower sales volumes and higher per-unit product costs in fiscal 2020, which was partially offset by lower per-unit logistics costs. Per-unit product costs were higher in fiscal 62 2021 FORM 10-KT
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PLANT NUTRITION (FORMERLY PLANT NUTRITION NORTH AMERICA) RESULTS
Nine Months Ended Fiscal Year Ended
September 30, September 30, December 31, December 31,
2021 2020 2020 2019
$ 5.8 $
12.0
261 238 380 315
Plant Nutrition Average Sales Price
(per ton) $ 602 $ 577 $ 566 $ 591
PLANT NUTRITION RESULTS COMMENTARY: Nine Months Ended
•Plant Nutrition sales increased 14%, or$19.6 million , due to higher sales volumes and average sales prices. •Plant Nutrition sales volumes increased 10%, or 23,000 tons, and increased sales by approximately$13 million . The volume increase primarily reflects the prior year delayed and weaker fall application of SOP and solid demand in the current year in anticipation of increasing sales prices. •Plant Nutrition average sales prices increased 4% and increased sales by approximately$7 million . •Plant Nutrition operating earnings decreased 52%, or$6.2 million primarily due to higher per-unit product costs due to lower production yields and volumes, which primarily resulted from a lower quality pond harvest at ourOgden facility. The higher per-unit product costs were partially offset by higher average sales prices, higher sales volumes, lower per-unit shipping and handling costs due to a higher mix of direct shipments to customers compared to the prior year and lower SG&A expenses.
PLANT NUTRITION RESULTS COMMENTARY: Fiscal Year Ended
•Plant Nutrition sales increased 16%, or$29.4 million , primarily due to higher sales volumes, which was partially offset by lower sales prices. •Plant Nutrition sales volumes increased 21%, or 65,000 tons, and increased sales by approximately$39 million . The volume increase was primarily the result of suppressed demand in the first half of fiscal 2019 due to the cold and wet weather conditions in key North American markets and an upturn in the agriculture market during fiscal 2020. •Plant Nutrition average sales prices decreased 4% which partially offset the increase in sales by approximately$10 million . •Plant Nutrition operating earnings decreased 18%, or$3.4 million , driven by lower average sales prices and higher per-unit product costs partially offset by higher sales volumes and lower SG&A expenses. The higher per-unit product cost in fiscal 2020 was due to unplanned downtime and feedstock inconsistency at ourOgden facility. OUTLOOK •We expect Salt segment sales volumes to range from 12.5 million to 13.2 million tons in fiscal year 2022. We expect flat sales prices and elevated shipping and handling costs to result in lower year-over-year first-half fiscal 2022 Salt segment EBITDA. •Plant Nutrition segment sales volumes are expected to range from 280,000 to 320,000 tons in fiscal year 2022. Product sales pricing strength in the first half of the year is expected to more than offset higher production costs and lower sales volumes, resulting in improved Plant Nutrition margins and profitability in fiscal 2022. •Fiscal year 2022 capital expenditures are expected to be in the$125 million to$135 million range. Investments, Liquidity and Capital Resources Overview As a holding company, CMI's investments in its operating subsidiaries constitute substantially all of its assets. Consequently, our subsidiaries conduct all of our consolidated operations and own substantially all of our operating assets. The principal source of cash needed to pay our obligations is the cash generated from our subsidiaries' operations and their borrowings. Our subsidiaries are not obligated to make funds available to CMI. Furthermore, we must remain in compliance 63 2021 FORM 10-KT
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with the terms of the credit agreement governing our credit facilities,
including the total leverage ratio and interest coverage ratio, in order to pay
dividends to our stockholders. We must also comply with the terms of our
indentures governing our 4.875% Senior Notes due July 2024 (the "4.875% Notes")
and our 6.75% Senior Notes due December 2027 (the "6.75% Notes), which limit the
amount of dividends we can pay to our stockholders. We are in compliance with
our debt covenants as of September 30, 2021. See Item 8, Note 11 to our
Consolidated Financial Statements for a discussion of our outstanding debt.
Historically, our cash flows from operating activities have generally been
adequate to fund our basic operating requirements, ongoing debt service and
sustaining investment in our property, plant and equipment. We have also used
cash generated from operations to fund capital expenditures which strengthen our
operational position, to pay dividends, to fund smaller acquisitions and to
repay our debt. 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
September 30, 2021 , we had $9.6 million of cash and cash equivalents (in our
Consolidated Balance Sheets) that was either held directly or indirectly by
foreign subsidiaries. Due in large part to the seasonality of our deicing salt
business, we have experienced large changes in our working capital requirements
from quarter to quarter. Historically, our working capital requirements have
been the highest in the first fiscal quarter and lowest in the third fiscal
quarter. When needed, we fund short-term working capital requirements by
accessing our $300 million revolving credit facility.
Notwithstanding our strategic decision to exit our South America chemicals and
specialty plant nutrition businesses, as discussed in Item 8, Note 1 and
Note 3 to our Consolidated Financial statements, we have historically
considered the undistributed earnings of our foreign subsidiaries to be
permanently reinvested. In December 2017 , however, U.S. tax reform legislation
was enacted, which included a one-time mandatory tax on previously deferred
foreign earnings. As such, we revised our permanently reinvested assertion and
we now expect to repatriate approximately $150 million of unremitted foreign
earnings on which $4.7 million of income tax expense has been recorded for
foreign withholding tax and state income taxes. Additionally, we changed our
permanently reinvested assertion and repatriated $42.5 million of unremitted
foreign earnings from our U.K. operations in September 2021 on which
$0.1 million of income tax expense was recorded during fiscal 2021. Due to our
ability to generate adequate levels of U.S. cash flow on an annual basis, it is
our current intention to continue to reinvest the remaining undistributed
earnings of our foreign subsidiaries indefinitely. We review our tax
circumstances on a regular basis with the intent of optimizing cash
accessibility and minimizing tax expense. As of September 30, 2021 , we have
$113.7 million of outside basis differences for which no deferred taxes have
been recorded. See Item 8, Note 9 to our Consolidated Financial Statements
for additional information.
In addition, the amount of permanently reinvested foreign 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. As discussed in Item 8, Note 9 to
our Consolidated Financial Statements, our calculated transfer price on certain products between one of our foreign subsidiaries and a domestic subsidiary has been challenged by Canadian federal and provincial governments. In fiscal 2017, the Company, the CRA and theIRS reached a settlement agreement on transfer pricing for its fiscal 2007-2012 tax years. During fiscal 2018, in accordance with the settlement agreement, ourU.S. subsidiary made intercompany cash payments of$85.7 million to our Canadian subsidiary and tax payments were made to Canadian taxing authorities of$17.5 million . Additional tax payments of$5.3 million were made during fiscal 2019 with the remaining liability of$1.5 million expected to be paid in fiscal 2022. Corresponding tax refunds of$22.4 million have been received as ofSeptember 30, 2021 , fromU.S. taxing authorities with the remaining refund of approximately$0.7 million expected in fiscal 2022. Additionally during fiscal 2018, we reached a settlement agreement on transfer pricing and management fees as part of an advanced pricing agreement with federal Canadian andU.S. tax authorities covering our fiscal 2013-2021 tax years. During fiscal 2019, in accordance with the settlement agreement, ourU.S. subsidiary made an intercompany cash payment of$106.1 million to our Canadian subsidiary and tax payments were made to Canadian taxing authorities of$29.9 million with the remaining$1.4 million balance paid during fiscal 2020. Corresponding tax refunds of$60.0 million have been received as ofSeptember 30, 2021 , fromU.S. taxing authorities, with the remaining refund of$1.7 million expected in fiscal 2022. 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 8, Note 9
to
our Consolidated Financial Statements for a discussion regarding our Canadian
tax reassessments and settlements.
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 (see
"-Seasonality" for more information). 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.
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As discussed in Item 8, Note 3 to our Consolidated Financial Statements and
Item 7, we have disposed of our South America specialty plant nutrition business
and equity method investment in Fermavi, and our North America micronutrient
business for cash proceeds totaling approximately $348.6 million , net of debt
assumed by ICL Brasil Ltda. and associated selling costs, with a potential
additional R$88 million of proceeds due in fiscal 2022 if the South America
specialty plant nutrition business achieves target EBITDA levels, and an
additional R$30 million of deferred purchase price for Fermavi due over the next
four years.
We manage our capital allocation considering our long term strategic objectives
and its required spending to sustain the business. We announced on November 15,
2021 , that we are reducing our dividend by approximately 80% to provide
additional liquidity to support the business and invest in strategic expansion
opportunities. We expect to reinvest the cash we anticipate retaining from this
dividend reduction toward an expansion of our product portfolio, continued
investment in our existing core assets and other uses. While our equipment and
facilities are generally not impacted by rapid technology changes, our
operations require refurbishments and replacements to maintain structural
integrity and reliable production and shipping capabilities. When possible, we
incorporate efficiency, environmental and safety improvement capabilities into
our routine capital projects and we plan the timing of larger projects to
balance with our liquidity and capital resources. For instance, for fiscal 2022
we have allocated approximately $15 million of our planned capital spending to
upgrade the barge dock at our Cote Blanche mine and have incorporated efficiency
and safety features into the design. Additionally, we intend to continue to
develop our recently identified lithium resource at our Ogden facility and has
allocated approximately $15 million of capital in fiscal 2022 for the
construction of a direct lithium extraction plant. These large projects are
expected to be balanced with other sustaining and efficiency projects totaling
approximately $125 to $135 million in fiscal 2022. We expect to achieve market
entry with a lithium product by 2025 and expects significant capital and other
expenditures would be required to achieve this market entry; however, the full
amount of this expenditure is currently unknown and will depend on a number of
factors, including the outcome of our strategic evaluation of development
options for our lithium resource. For more information, see Item 1 A, "Risk
Factors . "
In connection with our strategy to strengthen and grow its essential minerals
businesses, as of September 30, 2021 , we had invested $4 million in Fortress
North America ("Fortress"), a development stage company that intends to achieve
commercialization of its magnesium chloride-based fire retardant products to
help combat wild fires. As discussed in Item 8, Note 2 to our Consolidated
Financial Statements, in October 2021 , we invested an additional $28 million
with an additional $18 million expected in January 2022 to increase our
ownership interest to 45%. We may make further investments in Fortress or make
other acquisitions to grow our business.
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The table below provides a summary our cash flows by category and period ended.
Nine Months Ended Fiscal Year Ended
September 30, 2021 December 31, 2020 December 31, 2019
Operating Activities:
Net cash flows provided by operating Net cash flows provided by operating Net cash flows provided by operating
activities were $162.7 million . activities were $175.2 million . activities were $159.6 million .
»Net loss was
»Net earnings were
»Non-cash depreciation and »Non-cash depreciation and »Non-cash depreciation and amortization expense was$94.6 amortization expense was$137.9 amortization expense was$137.9 million . million.
million.
»Non-cash impairment loss of$300.0 million . »Working capital items were a use of »Working capital items were a use of »Non-cash gain on disposition of operating cash flows of$46.3 operating cash flows of$56.3 assets of$27.3 million , including million.
million.
$30.6 million from the sale of a component of ourNorth America micronutrient business. »Working capital items were a source of operating cash flows of$46.7 million . Investing Activities: »Net cash flows provided by investing Net cash flows used by investing Net cash flows used by investing activities included proceeds of activities were$88.2 million . activities were$100.4 million .$348.6 million from the sale of our South America specialty plant »Included$84.9 million of capital »Included$98.1 million of capital nutrition business ($289.5 million ), expenditures.
expenditures.
a component of ourNorth America micronutrient business ($56.2 million ) and our Fermavi investment ($2.9 million ). »Investing proceeds were offset by$71.8 million of capital expenditures. Financing Activities: Net cash flows used by financing Net cash flows used by financing Net cash flows used by financing activities were$439.6 million . activities were$96.2 million . activities were$50.5 million .
»Included payments of dividends of »Included net proceeds from the
»Included net proceeds from issuance$73.1 million . issuance of debt of$6.9 million , of debt of$62.0 million , payments »Net payments on our debt of payments of dividends of$99.1 of dividends of$98.1 million and$365.8 million . million and payments of$1.0 million
payments of
related to deferred financing costs. deferred financing costs.
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
each year. Customers tend to replenish their inventory following snow events,
consequently the number and timing of snow events during the winter season will
impact the amount of our accounts receivable and inventory at the end of each
quarter. Our cash flows during the nine months ended September 30, 2021 , reflect
the collection of the prior winter season accounts receivable and subsequent
rebuilding of inventory in advance of the upcoming winter season. The lower
accounts receivable balance as of September 30, 2021 , as compared to December
31, 2020 , reflects the collection of the previous winter season receivables
before the start of the new winter season. During the quarter ended December 31,
2020 , winter weather events began relatively late which did not prompt as much
replenishment demand as compared to the earlier start of winter weather events
in the fourth quarter of 2019, resulting in lower accounts receivable and higher
inventory balances. Our inventory has also grown over the past three years due
to the improved production capabilities at our Goderich mine along with the last
two winter seasons not being severe enough to consume our inventory stockpiles.
As previously discussed, our working capital also reflects reductions in other
assets during 2020 and 2019 primarily due to income tax refunds. The refunds
were partially offset by income tax and professional services prepayments in
2019 and 2020.
Capital Resources
We believe our ongoing primary sources of liquidity will continue to be cash
flow from operations and borrowings under our revolving credit facility. We
believe that our current banking syndicate is secure and believe we will have
access to our entire revolving credit facility. We expect that ongoing
requirements for debt service and committed or sustaining capital expenditures
will primarily be funded from these sources.
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Our debt service obligations could, under certain circumstances, materially
affect our financial condition and prevent us from fulfilling our debt
obligations. See Item 1A, "Risk Factors-Our indebtedness and any inability to
pay our indebtedness could adversely affect our business and financial
condition." Furthermore, CMI is a holding company with no operations of its own
and is dependent on its subsidiaries for cash flow. As discussed in Item 8,
Note 11 to our Consolidated Financial Statements, at September 30, 2021, we
had $946.0 million of outstanding indebtedness consisting of $250.0 million
under our 4.875% Notes, $500.0 million under our 6.75% Notes, $169.2 million of
borrowings outstanding under our senior secured credit facilities (consisting of
term loans and a revolving credit facility), including $88.4 million borrowed
against our revolving credit facility. Letters of credit totaling $13.4 million
as of September 30, 2021 , reduced available borrowing capacity under the
revolving credit facility to $198.2 million .
On March 23, 2021 , we entered into a definitive agreement to sell our South
America specialty plant nutrition business to ICL Brasil Ltda., a subsidiary of
ICL Group Ltd. The transaction closed on July 1, 2021 . Upon closing we recorded
gross proceeds of approximately $421.1 million , including a reduction in
proceeds of $6.2 million in working capital adjustments which were finalized
during the third quarter of fiscal 2021 and associated selling costs of
$8.4 million , comprised of a cash payment of approximately $318.4 million and an
additional $102.7 million in net debt assumed by ICL Brasil Ltd. The terms of
the definitive agreement provide for an additional earn-out payment of up to
R$88 million Brazilian reais, payable in 2022 and calculated on a sliding scale,
if the South America specialty plant nutrition business achieves certain
full-year 2021 EBITDA performance targets. The Brazilian debt was deducted from
gross proceeds from the transaction.
On April 7, 2021 , we entered into a definitive agreement to sell a component of
our North America micronutrient business to Koch Agronomic Services, LLC , a
subsidiary of Koch Industries . On May 4, 2021 , we completed the sale for
approximately $56.7 million and we paid fees totaling $0.5 million .
On June 28, 2021 , we entered into a definitive agreement to sell our investment
in Fermavi for R$45 million Brazilian reais (including R$30 million Brazilian
reais of deferred purchase price). The transaction closed on August 20, 2021 ,
and we received gross proceeds of approximately $2.9 million (based on exchange
rates at the time of closing).
We recorded a loss on the sales of the South American specialty plant nutrition
business and investment in Fermavi totaling approximately $209.8 million and a
non-cash impairment loss for the remaining chemical business of approximately
$90.2 million which was primarily driven by the significant weakening of the
Brazilian real against the U.S. dollar. These losses were partially offset by
approximately $30.6 million gain from the sale of a component of the North
America micronutrient business.
In July 2021 , we utilized cash proceeds from the sales noted above to repay
amounts borrowed against our revolving credit facility of $35.0 million . An
additional $265.0 million of proceeds was utilized to pay down our term loan
balance leaving $80.8 million outstanding, due in January 2025 .
In the first quarter of 2021, we made a $41.7 million required prepayment of our
term loan for 2020 Excess Cash Flow (as such term is defined in the credit
agreement). This prepayment, along with the prepayment made in the third quarter
of 2021 described above, will reduce the future required term loan payments. As
such, we will not have a scheduled term loan payment until January 2025 .
On June 30, 2020 , certain of our U.S. subsidiaries entered into a three-year
committed revolving accounts receivable financing facility for up to
$100.0 million of borrowing with PNC Bank, National Association , as
administrative agent and lender, and PNC Capital Markets, LLC , as structuring
agent. At September 30, 2021 , we had $26.8 million of outstanding loans under
this accounts receivable financing facility. See Item 8, Note 11 to our
Consolidated Financial Statements for more information.
In the future, including in 2022, we may borrow amounts under the revolving
credit facility or enter into additional financing to fund our working capital
requirements, potential acquisitions and capital expenditures and for other
general corporate purposes.
Our ability to make scheduled interest and principal payments on our
indebtedness, to refinance our indebtedness, to fund planned capital
expenditures and to fund acquisitions will depend on our ability to generate
cash in the future. This, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control. Based on our current level of operations, we believe that
cash flow from operations and available cash, together with available borrowings
under our revolving credit facility, will be adequate to meet our liquidity
needs over the next 12 months.
We have various foreign and state net operating loss ("NOL") carryforwards that
may be used to offset a portion of future taxable income to reduce our cash
income taxes that would otherwise be payable. However, we may not be able to use
any or all of our NOL carryforwards to offset future taxable income and our NOL
carryforwards may become subject to additional limitations due to future
ownership changes or otherwise. At September 30, 2021 , we had $3.3 million of
gross foreign federal NOL carryforwards and $0.3 million of net operating
tax-effected state NOL carryforwards that expire beginning in 2027.
We have a defined benefit pension plan for certain of our current and former
U.K. employees. Beginning December 1, 2008 , future benefits ceased to accrue for
the remaining active employee participants in the plan concurrent with the
establishment of a defined contribution plan for these employees. Generally, our
cash funding policy is to make the minimum annual contributions required by
applicable regulations. As of September 30, 2021 , the fair value of the plan's
assets are in excess of
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Table of Contents COMPASS MINERALS INTERNATIONAL, INC. the accumulated benefit obligations and we expect to be required to use cash from operations above our historical levels to fund the plan in the future.
Off-Balance Sheet Arrangements AtSeptember 30, 2021 , we had no off-balance sheet arrangements that have or are likely to have a material current or future effect on our consolidated financial statements. Contractual Obligations We believe we have sufficient liquidity to fund our operations and meet both short-term and long-term obligations. Our material future obligations include the contractual obligations and other commitments as described below. We are party to contractual obligations involving commitments to make payments to third parties. These obligations impact our liquidity and capital resource needs. As ofSeptember 30, 2021 , we had total future contractual obligations of approximately$1.4 billion , with approximately$84.3 million due during fiscal 2022. We have a contractual commitment to repay our long-term debt of$946.0 million based on the terms of our debt agreements, of which none is payable within the next twelve months. Our interest commitment based on the current debt balances atSeptember 30, 2021 is$258.6 million , with$50.0 million expected within the next twelve months. The remainder of our contractual commitments consist of lease payments, purchase obligations and commitments, income taxes and employer pension plan obligations. See Item 8, Note 5 and Item 8, Note 1 1 for amounts outstanding as ofSeptember 30, 2021 related to leases and debt, respectively. Our contractual obligations related to income taxes represent the net unrecognized tax benefits related to uncertain tax positions. Refer to Item 8, Note 12 for amounts related to purchase obligations and performance bonds. See Item 8, Note 9 for information related to income taxes. Our contractual obligations related to employer pension plan obligations represent the funded status recognized as of September 30, 2021. See Item 8, Note 10 for information related to these plans. In addition, we have other future contingent commitments of approximately$208.7 million , consisting of letters of credit and performance bonds, due during fiscal 2022. AtSeptember 30, 2021 , we had$195.3 million of outstanding performance bonds, which includes bonds related toOntario mining tax reassessments. Refer to Item 8, Note 12 for additional details. Reconciliation of Net Earnings from Continuing Operations to EBITDA and Adjusted EBITDA Management uses a variety of measures to evaluate our performance. While our consolidated financial statements, taken as a whole, provide an understanding of our overall results of operations, financial condition and cash flows, we analyze components of the consolidated financial statements to identify certain trends and evaluate specific performance areas. In addition to usingU.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 comparative purposes (see Item 8, Note 3 for a discussion of discontinued operations). Both EBITDA and Adjusted EBITDA are non-U.S. GAAP financial measures used to evaluate the operating performance of our core business operations because our resource allocation, financing methods and cost of capital, and income tax positions are managed at a corporate level, apart from the activities of the operating segments, and the operating facilities are located in different taxing jurisdictions, which can cause considerable variation in net earnings. We also use EBITDA and Adjusted EBITDA to assess our operating performance and return on capital against other companies, and to evaluate potential acquisitions or other capital projects. EBITDA and Adjusted EBITDA are not calculated underU.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 withU.S. GAAP or as a measure of our overall profitability or liquidity. EBITDA and Adjusted EBITDA exclude interest expense, income taxes and depreciation, depletion and amortization, each of which are an essential element of our cost structure and cannot be eliminated. Furthermore, Adjusted EBITDA excludes other cash and non-cash items, including stock-based compensation, (gain) loss on foreign exchange and other (income) expense. Our borrowings are a significant component of our capital structure and interest expense is a continuing cost of debt. We are also required to pay income taxes, a required and ongoing consequence of our operations. We have a significant investment in capital assets and depreciation and amortization reflect the utilization of those assets in order to generate revenues. Our employees are vital to our operations and we utilize various stock-based awards to compensate and incentivize our employees. Consequently, any measure that excludes these elements has material limitations. While EBITDA and Adjusted EBITDA are frequently used as measures of operating performance, these terms are not necessarily comparable to similarly titled measures of other companies due to the potential inconsistencies in the method of calculation. 68 2021 FORM 10-KT --------------------------------------------------------------------------------
Table of Contents COMPASS MINERALS INTERNATIONAL, INC. The calculation of EBITDA and Adjusted EBITDA as used by management is set forth in the table below (in millions).
Nine Months Ended Fiscal Year Ended
September 30, September 30, December 31, December 31,
2021 2020 2020 2019
Net earnings from continuing operations $ 20.9 $ 27.9 $ 42.6 $ 40.3
Interest expense 44.3 47.2 62.7 58.3
Income tax expense 14.2 10.3 1.9 9.1
Depreciation, depletion and amortization 89.8 87.7 117.8 112.6
EBITDA from continuing operations 169.2 173.1 225.0 220.3
Adjustments to EBITDA:
Stock-based compensation - non cash 7.1 6.9 9.0 5.6 (Gain) loss on foreign exchange (0.6) (10.8) (4.6) 11.8 Executive transition costs - - - 2.3 Logistics impact from flooding - - - 2.8 Other (income) expense, net (0.3) 0.2 0.4 0.1 Adjusted EBITDA from continuing operations 175.4 169.4 229.8 242.9 Adjusted EBITDA from discontinued operations 26.2 38.5 59.5 64.4 Adjusted EBITDA$ 201.6 $ 207.9 $ 289.3 $ 307.3 In fiscal 2019, operating results included$2.8 million of additional logistics costs related to Mississippi river flooding and$2.3 million of severance and other costs related to executive transition. Adjusted EBITDA also includes other non-operating income, primarily non-cash stock-based compensation expense, foreign exchange gains (losses) resulting from the translation of intercompany obligations, interest income and investment income (loss) relating to our nonqualified retirement plan. Our net earnings, EBITDA and Adjusted EBITDA are impacted by other events or transactions that we believe to be important in understanding our earnings trends such as the variability of weather. The impact of weather has not been adjusted in the amounts presented above. Our fiscal 2021 results were favorably impacted by February winter weather activity in the markets we serve and fiscal 2020 results were unfavorably impacted by mild winter weather in the markets we serve. In fiscal 2019, our results were favorably impacted by above average winter weather. Management's Discussion of Critical Accounting Policies and Estimates The preparation of the consolidated financial statements in conformity withU.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the reporting date and the reported amounts of revenue and expenses during the reporting period. Actual results could vary from these estimates. We have identified the critical accounting policies and estimates that are most important to the portrayal of our financial condition and results of operations. The policies set forth below require significant subjective or complex judgments by management, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.Goodwill - During the three months endedSeptember 30, 2021 , we voluntarily changed the date of our annual goodwill impairment test from the first day of the fourth quarter of our prior fiscal year endingDecember 31 to the first day of the fourth quarter of our new fiscal year ending onSeptember 30 . We test goodwill more frequently if an impairment indicator is present. The quantitative impairment test requires judgment, including the identification of reporting units and the determination of fair value of each reporting unit. We determine the estimated fair value for each reporting unit based on discounted cash flow projections (income approach) and market values for comparable businesses (market approach). Under the income approach, we are required to make judgments about appropriate discount rates, long-term revenue growth rates and the amount and timing of expected future cash flows. The cash flows used in our estimates are based on the reporting unit's forecast, long-term business plan, and recent operating performance. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting unit and market conditions. Our estimates may differ from actual future cash flows. The risk adjusted discount rate used is consistent with the weighted average cost of capital of our peer companies and is intended to represent a rate of return that would be expected by a market participant. Under the market approach, market multiples are derived from market prices of stocks of companies in our peer group. The appropriate multiple is applied to the forecasted revenue and earnings before interest, taxes, depreciation and amortization of the reporting unit to obtain an estimated fair value. 69 2021 FORM 10-KT --------------------------------------------------------------------------------
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As of September 30, 2021 , we have recorded goodwill of $57.8 million , primarily
consisting of $51.8 million in our Plant Nutrition segment. As of our July 1,
2021 annual measurement date, the estimated fair value exceeded carrying value.
The most critical assumptions used in the calculation of the fair value are the
projected revenue growth rates, long-term operating margin, working capital
requirements, terminal growth rates, discount rate, and the selection of market
multiples. The projected long term operating margin utilized in our fair value
estimates is consistent with our operating plan and is dependent on the
successful execution of our long-term business plan, overall industry growth
rates and the competitive environment. The discount rate could be adversely
impacted by changes in the macroeconomic environment and volatility in the
equity and debt markets. Although management believes its estimate of fair value
is reasonable, if the future financial performance falls below our expectations
or there are unfavorable revisions to significant assumptions, or if our market
capitalization declines, we may need to record a non-cash goodwill impairment
charge in a future period.
Mineral Interests - As of September 30, 2021 , we maintained $122.1 million of
net mineral properties as a part of property, plant and equipment. Mineral
interests include probable mineral reserves. We lease mineral reserves at
several of our extraction facilities. These leases have varying terms, and many
provide for a royalty payment to the lessor based on a specific amount per ton
of mineral extracted or as a percentage of sales.
Mineral interests are primarily depleted on a units-of-production method based
on a combination of third-party and internal qualified geologists' estimates of
recoverable reserves. Our rights to extract minerals are generally contractually
limited by time or lease boundaries. If we are not able to continue to extend
lease agreements, as we have in the past, at commercially reasonable terms,
without incurring substantial costs or incurring material modifications to the
existing lease terms and conditions, if the assigned lives realized are less
than those projected by management, or if the actual size, quality or
recoverability of the minerals is less than the estimated probable reserves,
then the rate of amortization could be increased or the value of the reserves
could be reduced by a material amount.
Income Taxes - Developing our provision for income taxes and analyzing our
potential tax exposure items requires significant judgment and assumptions as
well as a thorough knowledge of the tax laws in various jurisdictions. These
estimates and judgments occur in the calculation of certain tax liabilities and
in the assessment of the likelihood that we will be able to realize our deferred
tax assets, which arise from temporary differences between the tax and financial
statement recognition of revenue and expense, carryforwards and other
items. Based on all available evidence, both positive and negative, the
reliability of that evidence and the extent such evidence can be objectively
verified, we determine whether it is more likely than not that all, or a portion
of, the deferred tax assets will be realized.
In evaluating our ability to realize our deferred tax assets, we consider the
sources and timing of taxable income, our ability to carry back tax attributes
to prior periods, qualifying tax planning and estimates of future taxable income
exclusive of reversing temporary differences. In determining future taxable
income, our assumptions include the amount of pre-tax operating income according
to multiple federal, international and state taxing jurisdictions, the
origination of future temporary differences and the implementation of feasible
and prudent tax planning. These assumptions require significant judgment about
material estimates, assumptions and uncertainties in connection with the
forecasts of future taxable income, the merits in tax law and assessments
regarding previous taxing authorities' proceedings or written rulings. While
these assumptions are consistent with the plans and estimates we use to manage
the underlying businesses, differences in our actual operating results or
changes in our tax planning, tax credits, tax laws or our assessment of the tax
merits of our positions could affect our future assessments.
In addition, the calculation of our tax liabilities involves uncertainties in
the application of complex tax regulations in multiple jurisdictions. We
recognize potential liabilities in accordance with applicable U.S. GAAP for
anticipated tax issues in the U.S. and other tax jurisdictions based on our
estimate of whether, and the extent to which, additional taxes will be due. If
payment of these amounts ultimately proves to be unnecessary, the reversal of
the liabilities would result in tax benefits being recognized in the period when
we determine the liabilities are no longer necessary. If our estimate of tax
liabilities proves to be less than the ultimate assessment, a further charge to
expense would result. See Item 8, Note 9 to our Consolidated Financial
Statements for further discussion of our income taxes.
We have elected to account for GILTI in the year the tax is incurred, rather
than recognize deferred taxes for temporary basis differences expected to
reverse as GILTI in future years.
Taxes on Foreign Earnings - Under U.S tax reform, we revised our permanently
reinvested assertion and expect to repatriate approximately $150 million of
unremitted foreign earnings on which $4.7 million of income tax expense has been
recorded for foreign withholding tax and state income taxes. Additionally, we
changed our permanently reinvested assertion and repatriated $42.5 million of
unremitted foreign earnings from our U.K. operations in September 2021 on which
$0.1 million of income tax expense was recorded during fiscal 2021. We consider
all remaining non-U.S. earnings to be permanently reinvested outside the U.S. to
the extent these earnings are not subject to U.S. income tax under an
anti-deferral tax regime. As of September 30, 2021 , we have approximately $113.7
million of outside basis differences on which no deferred taxes have been
recorded.
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U.K. Pension Plan - We have a defined benefit pension plan covering some of our
current and former employees in the U.K. The U.K. pension plan was closed to new
participants in 1992. As we elected to freeze our pension plan, our remaining
active employees ceased to accrue future benefits under the plan beginning
December 1, 2008 . We select the actuarial assumptions for our pension plan after
consultation with our actuaries and consideration of market conditions. These
assumptions include the discount rate and the expected long-term rates of return
on plan assets, which are used in the calculation of the actuarial valuation of
our defined benefit pension plans. If actual conditions or results vary from
those projected by management, adjustments may be required in future periods to
meet minimum pension funding or to increase pension expense or our pension
liability. A decrease of 25 basis points in our discount rate would have
increased our projected benefit obligation as of September 30, 2021 , by
approximately $2.2 million and would increase our net periodic pension expense
for 2021 by approximately $0.3 million . A decrease of 25 basis points in our
expected return on assets assumption as of September 30, 2021 , would increase
our net periodic expense for 2021 by approximately $0.2 million .
We set our discount rate for our U.K. pension plan based on a forward yield
curve for a portfolio of high credit quality bonds with expected cash flows and
an average duration closely matching the expected benefit payments under the
plan. The assumption for the return on plan assets is determined based on
expected returns applicable to each type of investment within the portfolio
expected to be maintained over the next 15 to 20 years. Our funding policy has
been to make the minimum annual contributions required by applicable
regulations. However, we have made special payments during some years when
changes in the business could reasonably impact the pension plan's available
assets and when special early retirement payments or other inducements are made
to pensioners. Contributions totaled $0 , $0.4 million and $1.7 million during
the nine months ended September 30, 2021 and the fiscal years ended December 31,
2020 and 2019, respectively. If supplemental benefits were approved and granted
under the provisions of the plan, or if periodic statutory valuations cause a
change in funding requirements, our contributions could increase to fund all or
a portion of those benefits. See Item 8, Note 10 to our Consolidated
Financial Statements for additional discussion of our U.K. pension plan.
Other Significant Accounting Policies - Other significant accounting policies
not involving the same level of measurement uncertainties as those discussed
above are nevertheless important to an understanding of our consolidated
financial statements. Policies related to revenue recognition, allowance for
doubtful accounts, valuation of inventory reserves, equity compensation
instruments, intangible assets, legal reserves, derivative instruments,
post-employment benefit obligations and environmental accruals require judgments
on complex matters.
Effects of Currency Fluctuations and Inflation
Our operations outside of theU.S. are conducted primarily inCanada and theU.K. Therefore, our results of operations are subject to both currency transaction risk and currency translation risk. We incur currency transaction risk whenever we or one of our subsidiaries enter into either a purchase or sales transaction using a currency other than the local currency of the transacting entity. With respect to currency translation risk, our financial condition and results of operations are measured and recorded in the relevant local currency and then translated intoU.S. dollars for inclusion in our historical consolidated financial statements. Exchange rates between these currencies and theU.S. dollar have fluctuated significantly from time to time and may do so in the future. The majority of revenues and costs are denominated inU.S. dollars, with Canadian dollars and British pounds sterling also being significant. We generated 23% of our fiscal 2021 sales in foreign currencies, and we incurred 22% of our fiscal 2021 total operating expenses in foreign currencies. Additionally, we have approximately$500 million of net assets denominated in foreign currencies. In fiscal 2019, the average rate for theU.S. dollar strengthened against the Canadian dollar and the British pound sterling. In fiscal 2020, the average rate for theU.S. dollar weakened against the Canadian dollar and the British pound sterling. In fiscal 2021, the average rate for theU.S. dollar weakened against the Canadian dollar and the British pound sterling. Significant changes in the value of the Canadian dollar or the British pound sterling relative to theU.S. dollar could have a material adverse effect on our financial condition and our ability to meet interest and principal payments onU.S. dollar-denominated debt, including borrowings under our senior secured credit facilities. Although inflation has not had a significant impact on our operations, our efforts to recover cost increases due to inflation may be hampered as a result of the competitive industries and countries in which we operate.
Seasonality
We experience a substantial amount of seasonality in our sales, including our salt deicing product sales. Consequently, our Salt segment sales and operating income are generally higher in the first and second fiscal quarters and lower during the third and fourth fiscal quarters of each year. In particular, sales of highway and consumer deicing salt and magnesium chloride products vary based on the severity of the winter conditions in areas where the product is used. Following industry practice inNorth America and theU.K. , we seek to stockpile sufficient quantities of deicing salt throughout the first, third and fourth fiscal quarters 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 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). 71 2021 FORM 10-KT
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Climate Change
The potential impact of climate change on our operations, product demand and the
needs of our customers remains uncertain. Significant changes to weather
patterns, a reduction in average snowfall or an increase in regional drought
within our served markets could negatively impact customer demand for our
products and our costs, as well as our ability to produce our products. For
example, prolonged periods of mild winter weather could reduce the market for
deicing products. Drought conditions could similarly impact demand for our plant
nutrition products. Climate change could also lead to disruptions in the
production or distribution of our products due to major storm events or
prolonged adverse conditions, changing temperature levels, lake level
fluctuations or flooding from sea level changes. Climate change or governmental
initiatives to address climate change may necessitate capital expenditures in
the future, although capital expenditures for climate-related projects were not
material in fiscal 2021 and are not expected to be material in fiscal 2022. For
more information, see Part I, Item 1A, "Risk Factors" and Part I, Item1
"Business-Environmental, Health and Safety and Other Regulatory Matters."
COVID-19 Pandemic
The ongoing COVID-19 pandemic has negatively impacted the global economy,
disrupted global supply chains and created significant volatility and disruption
of financial markets. As an essential business, we have continued producing and
delivering products that support critical industries such as transportation,
agriculture, chemical, food, pharmaceutical and animal nutrition. We have
instituted several measures in response to the ongoing COVID-19 pandemic and
have experienced negative impacts to our business to our business from COVID-19,
but our results of operations for the three months ended September 30, 2021 and
2020, and fiscal years 2021 and 2020 were not materially affected by COVID-19.
The ultimate impact that COVID-19 will have on our future results is unknown at
this time. For more information, see "Part I, Item 1A, Risk Factors."
Critical Accounting Estimates and Recent Accounting Pronouncements See Item 8, Note 2 to our Consolidated Financial Statements for a discussion of critical accounting estimates and recent accounting pronouncements.
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