SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

(Mark One)

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Delaware

48-1135403

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification Number)

8300 College Boulevard
Overland Park, Kansas

66210

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s telephone number, including area code:  (913) 344-9300

Securities registered pursuant to Section 12(b) of the Act:

None

(Title of Class)

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

                Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

x

No

¨

                Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

                Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes

¨

No

x

                The number of shares outstanding of the registrant’s $0.01 par value common stock at December 31, 2002 was 1,000 shares.  All of such shares are owned by Salt Holdings Corporation.

 COMPASS MINERALS GROUP, INC.

FORM 10-K

TABLE OF CONTENTS

          PART I

Item 1.

Business

3

Item 2.

Properties

21

Item 3.

Legal Proceedings

21

Item 4.

Submission of Matters to a Vote of Security Holders

21

          PART II

Item 5.

Market for the Registrant’s Common Equity and Related Stockholder Matters

21

Item 6.

Selected Financial Data

21

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

35

Item 8.

Financial Statements and Supplementary Data

37

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

70

          PART III

Item 10.

Directors and Executive Officers of the Registrant

70

Item 11.

Executive Compensation

72

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

76

Item 13.

Certain Relationships and Related Transactions

77

Item 14.

Controls and Procedures

80

          PART IV

Item 15.

Exhibits, Financial Statement Schedules and Reports on Form 8-K

80

Signatures

84

Certifications

86

COMPASS MINERALS GROUP, INC.

PART I

Cautionary Note Regarding Forward-Looking Statements

            All statements, other than statements of historical fact contained herein 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 any 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: general business and economic conditions and governmental policies affecting the agricultural industry in localities where we or our customers operate; weather conditions; the impact of competitive products; pressure on prices realized by us for our products; constraints on supplies of raw materials used in manufacturing certain of our products ; capacity constraints limiting the production of certain products; difficulties or delays in the development, production, testing and marketing of products; difficulties or delays in receiving required governmental and regulatory approvals; market acceptance issues, including the failure of products to generate anticipated sales levels; difficulties in integrating acquired businesses and in realizing related cost savings and other benefits; the effects of and change in trade, monetary, environmental and fiscal policies, laws and regulations; foreign exchange rates and fluctuations in those rates; the costs and effects of legal proceedings including environmental and administrative proceedings involving us; and other risk factors reported from time to time in the our Securities and Exchange Commission reports.

            In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology.  These 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 are under no duty to update any of the forward-looking statements after the date of this annual report on Form 10-K.

            Information regarding market and industry statistics contained in Item 1, “Business,” is included based on information available to us that we believe is accurate. It is generally based on industry, academic and other publications that are not produced for purposes of securities offerings or economic analysis. We have not reviewed or included data from all sources and cannot assure you of the accuracy of the data we have included.

            This report includes market share and industry data and forecasts that we obtained from internal company surveys, market research, consultant surveys, publicly available information and industry publications and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy and completeness of such information. We have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, internal company surveys, industry forecasts and market research, which we believe to be reliable based upon management’s knowledge of the industry, have not been verified by any independent sources. Forecasts are particularly likely to be inaccurate, especially over l ong periods of time. In addition, we do not know what assumptions regarding general economic growth were used in preparing the forecasts we cite. Except where otherwise noted, references to North America include only the continental United States and Canada, and statements as to our position relative to our competitors or as to market share refer to the most recent available data. Statements concerning (a) North America general trade salt are generally based on historical sales volumes, (b) North America highway deicing salt are generally based on historical production capacity, (c) SOP are generally based on historical sales volumes, and (d) United Kingdom salt sales (general trade and highway deicing) are generally based on sales volumes. Except where otherwise noted, all references to tons refer to “short tons.” One short ton equals 2,000 pounds.

            Unless the context requires otherwise, reference in this Form 10-K to “Compass,” the “Company,” “we,” “us” and “our” refer to Compass Minerals Group, Inc. and its consolidated subsidiaries.

ITEM 1.      BUSINESS

Company Overview

            We are the second largest producer of salt in North America, the largest producer of salt in the United Kingdom (“U.K.”), and overall, the world’s third largest producer of salt.  In addition, in North America we are the largest producer of sulfate of potash (“SOP”) which is used in the production of specialty fertilizers.  Salt is one of the most widely used minerals in the world and has a wide variety of end-use applications, including highway deicing, food grade applications, water conditioning and various industrial uses.

            We operate eleven facilities in North America and the U.K., including the largest rock salt mine in the world in Goderich, Ontario and the largest salt mine in the U.K. in Winsford, Cheshire.  We believe that we are among the lowest cost rock salt producers in our markets.  Our cost advantage is due to the size and quality of our mineral reserves, the strategic location of our facilities and our continuous focus on improving production efficiency.  Our salt mines in North America are located near either rail or water transport systems, thereby minimizing shipping and handling costs which constitute a significant portion of the overall delivered cost of salt.  Note 11 in the “Notes to Combined and Consolidated Financial Statements” included in this report on Form 10-K provides additional information regarding geographical data.

            For the year ended December 31, 2002, we sold approximately 11.0 million tons of salt and other minerals, generating sales of $502.6 million and operating income of $77.7 million.

            On November 28, 2001, Apollo Management V, L.P. (“Apollo”), through its subsidiary YBR Holdings LLC, acquired control of Salt Holdings Corporation (“SHC”) from IMC Global (“IMC”) pursuant to a recapitalization of SHC.  This transaction has been accounted for as a leveraged-recapitalization (the “Recapitalization”) with the assets and liabilities of Compass retaining their historical value.  Immediately following the Recapitalization, on a fully-diluted basis for management options and stock issuable under SHC’s stock option plan, Apollo, co-investors and management owned approximately 81% of the outstanding common stock of SHC and IMC owned approximately 19% of the outstanding common stock of SHC.

            General information about us can be found at www.compassminerals.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments to those reports, are available free of charge through our website as soon as reasonably practicable after we file them with, or furnish them to, the Securities and Exchange Commission.

SALT SEGMENT

            Our salt segment mines, produces, processes and distributes salt in North America and Europe including rock, evaporated and solar salt. The products are marketed primarily in the United States (“U.S.”), Canada and the U.K. Salt is used in a wide variety of applications, including as a deicer for both highway and consumer use (rock salt), an ingredient in the production of chemicals for paper bleaching, water treatment and a variety of other industrial uses, a flavor enhancer and preservative in food, a nutrient and trace mineral delivery vehicle in animal feeds and an essential component in both industrial and residential water softeners. The demand for salt has historically remained relatively stable during economic cycles due to its relative low cost and high value in a diverse number of end uses. However, demand in the highway deicing market is affected by changes in winter weather. Approximately 65% of our highway deicing annual revenues are generated from December through March when the need for highway deicing salt is at its peak.

Salt Industry Overview

            The salt industry is characterized by stable demand which is resistant to economic downturns and steady price increases across various grades.  Salt is one of the most common and widely consumed minerals in the world due to its low relative cost and its utility in a variety of applications including food processing, water conditioning, industrial chemical processing, nutritional supplements for animal stock and highway deicing.  We estimate that the consumption of highway deicing salt for North America is 23 million tons per annum (17 million tons per annum in our served markets) while the general trade market totals 11 million tons per annum. In the U.K., we estimate the size of the highway deicing market is 1.9 million tons per annum while the general trade market is approximately 1.0 million tons per annum. Production of salt used in highway deicing in the U.S. increased at an approximate 1% compound annual growth rate over the last 30 years (1970-2000) while production of general trade salt products increased at an approximate 2% compound annual growth rate over the same period.

            Salt prices vary according to purity from the lowest grade (highway deicing salt) at around $18 per ton to the highest grade salt (food grade salt) at more than $400 per ton. The price difference between highway and food grade salt reflects, among other things, the more elaborate refining and packaging processes for higher grade salt. Due to its low production cost, transportation and handling tends to be a significant component of total delivered cost making logistics management and customer service key competitive factors in the industry. The higher relative cost associated with transportation also acts as a barrier to entry in favor of salt manufacturers located within close proximity to their customers. Prices for salt used in highway deicing in the U.S. increased at an approximate 4% compound annual growth rate over the last 30 years (1970–2000) while prices for general trade salt products increased at an approximate 5% compound annual growth rate over the same period.

Processing Methods

            We have production capacity, including salt purchased under long-term contracts, of approximately 14.5 million tons of salt per annum. Mining, other production activities and packaging are currently conducted at eleven of our facilities and at two facilities where finished product is purchased from IMC under long-term contracts.

Summarized below are the three processing methods we use to produce salt.

            Rock Salt Mining.    We employ a drill and blast mining technique at our underground rock salt mines. Mining machinery moves salt from the salt face to conveyor belts where it is then crushed and screened. Salt is then hoisted to the surface where it is loaded onto shipping vessels, railcars or trucks. The primary power sources for each of our rock salt mines are electricity and diesel fuel. At our Winsford, U.K. facility, this mining method is supplemented by a continuous miner process. Rock salt is primarily used in our highway and consumer deicing products.

            Mechanical Evaporation.    The mechanical evaporation method involves subjecting salt-saturated brine to vacuum pressure and heat, generated by natural gas or oil, to precipitate salt. The salt brine is obtained from underground salt deposits through a series of brine wells. The resulting product has both a high purity and uniform physical shape. Evaporated salt is primarily used in our general trade salt  product lines.

            Solar Evaporation.    The solar evaporation method is used in areas of the world where high salinity brine is available and where weather conditions provide for a high natural evaporation rate. The brine is pumped into a series of large open ponds where sun and wind evaporate the water and crystallize the salt, which is then mechanically harvested and processed through washing, drying and screening. Solar salt is primarily used in our general trade salt product lines.

Operations and Facilities

            United States.    Our central and midwestern U.S. general trade customer base is served by our mechanical evaporation plant in Kansas. Additionally, we serve areas around the Great Lakes with evaporated salt purchased from IMC’s potash and salt facility in Michigan. The Cote Blanche, Louisiana rock salt mine serves chemical customers in the southern and western U.S., highway deicing customers through a series of depots located along the Mississippi and Ohio Rivers, and agriculture customers in the southern and midwestern U.S.  Our solar evaporation facility located in Ogden, Utah is the largest solar salt production site in the U.S. This facility principally serves the western U.S. general trade markets, and also provides salt for chemical applications, and highway deicing and magnesium chloride which is primarily used in deicing, dust control and soil stabilization applicatio ns. Production capacity of salt at our Ogden facility is currently only limited by demand. We also own and operate two salt packaging facilities in Illinois and Wisconsin which also serve consumer deicing and water conditioning customers in the central, midwestern and parts of the northeastern U.S.

            Canada.    Our salt is produced at five different locations in Canada. Mechanically evaporated salt is produced at three facilities strategically located throughout Canada: Amherst, Nova Scotia in eastern Canada; Goderich, Ontario in central Canada; and Unity, Saskatchewan in western Canada. From the Goderich, Ontario rock salt mine, we serve the consumer and highway deicing markets in Canada and the Great Lakes region of the U.S.  We also purchase salt and other products from IMC’s potash and salt facilities located in Saskatchewan, which serve both the general trade and the highway deicing markets.

            United Kingdom.    The U.K. customer base is served by two facilities. Highway deicing customers throughout the U.K. are served by the Winsford rock salt mine in northwest England. The Weston Point mechanical evaporation plant is located twelve miles north of the mine and serves the general trade and chemical customers in the U.K. as well as in continental Europe.

            The table below shows the capacity and type of salt produced at each of our owned or leased production locations:

Rock

Solar

Evaporated

Evaporated

Evaporated

Evaporated

Rock

Evaporated

            In addition to production, we package salt product produced by us or others off-site at two additional facilities. The table below shows the packaging capacity at each of these facilities:

            We also purchase finished salt from IMC, which is produced as a co-product of their potash operations, under a long term contract. The table below shows the amount and type of salt purchased from each of these production facilities:

            We divide our salt products into two separate product lines: highway deicing salt (including chemical salt) and general trade salt.

Highway Deicing Salt Products

Products and Sales

            Highway deicing constitutes our second largest salt business line based on revenue, representing approximately 39% of our sales of salt in 2002. Principal customers are states, provinces, counties, municipalities and road maintenance contractors that purchase bulk salt for ice control on public roadways. Highway deicing salt is sold primarily through an annual tendered bid contract system as well as through some longer-term contracts, with price, product quality and delivery being the primary competitive market factors. Annual supply contracts generally are awarded on the basis of tendered bids once the purchaser is assured that the minimum requirements for purity, service and delivery can be met. The bidding process eliminates the need to invest significant time and effort in marketing and advertising. Location of the source of salt and distribution outlets also play a significant role in determining a supplier. We have an extensive network of approximately 80 depots for storage and distribution of highway deicing salt in North America. The majority of these depots are located on the Great Lakes and the Mississippi and Ohio River systems where our Goderich, Ontario and Cote Blanche, Louisiana mines are located to serve those markets. Salt from our Ogden, Utah facility is also partially used for highway deicing.

            We produce highway deicing salt in the U.K. for the highway deicing business line through our facility at Winsford, Cheshire, the largest rock salt mine in the U.K.  Our superior production capacity, productivity and favorable logistics, allows us to be the only supplier of highway deicing salt capable of meeting peak winter demands. This strong position has resulted in us being viewed as a strategic operation by the U.K.’s Highway Agency. In the U.K. approximately 70% of our highway deicing business is on multi-year contracts.

            Winter weather variability is the most significant factor affecting salt sales for deicing applications because mild winters reduce the need for salt used in ice and snow control. Over the last four years, our North American highway deicing business line has generated over 65% of its annual sales from December through March when the need for highway deicing is at its peak. Lower than expected sales during this period could have a material adverse effect on our results of operations. The vast majority of North American deicing sales are made in Canada and the midwestern U.S. where winter weather is generally harsher than in other parts of North America. In keeping with industry practice, we, along with our customers, stockpile sufficient quantities of salt to meet estimated requirements for the next winter season. See Risk Factors—“The demand for our products changes seasonally and is dependent upon weat her conditions” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Seasonality.”

            Chemical customers accounted for approximately 8% of 2002 sales of salt. Principal customers are producers of intermediate chemical products used in pulp bleaching, water treatment and a variety of other industrial uses that do not have a captive source of brine. Distribution into the chemical market is made primarily through multi-year supply agreements, which are negotiated privately. Price, service and product quality are the major competitive market factors.

            The table below shows our shipments of highway deicing and chemical salt products (thousands of tons):

Competition

            We face strong competition in each of the markets in which we operate. In North America, other large, nationally recognized companies compete against our highway deicing and chemical salt products. In addition, there are several smaller regional producers of highway deicing salt. There are several importers of salt into North America but these mostly impact the eastern seaboard where we have a minimal position. In the U.K., there are two other companies that produce highway deicing salt, one in northern England and the other in Northern Ireland. There are no significant imports of highway deicing salt into the U.K.

General Trade Salt Products

Products and Sales

            The general trade business is our largest salt business line based on revenue, and accounted for approximately 53% of our 2002 sales of salt. We are the third largest producer of general trade salt in North America. This business line includes commercial and consumer applications such as table salt, water conditioning, consumer ice control, food processing, agricultural applications, as well as a variety of industrial applications. We believe that we are the largest private label producer of water conditioning and salt-based agricultural products in North America and sell more than 70 private labels of table salt to major retailers. Our Sifto^® brand is well recognized in the Canadian market.

            In the U.K. we operate the largest evaporated salt plant in the U.K. at Weston Point. We are one of the U.K. brand market leaders in evaporated salt for water conditioning. We also produce salt for the food, chemical, animal feeds and textile markets.  We will continue to pursue further cost reduction investments  to help drive future growth and profitability.

            We have maintained a significant presence in the general trade business over recent years due to our strong focus on: (i) the midwestern region of the U.S.; (ii) all of Canada and the U.K.; (iii) our distribution network to the grocery trade; and (iv) our relationships with large distributors of water conditioning salt.

            The general trade market is driven by strong customer relationships. Sales in the general trade salt business line occur through retail channels such as grocery stores, building supply, hardware and automotive stores, and feed suppliers. Distribution in the general trade salt business line is channeled through a direct sales force located in various parts of our service territories who sell products to distributors, dealers and end-users. We also maintain a network of brokers who sell table salt, consumer deicing and water conditioning products. These brokers service wholesalers, grocery chains and retailers, as well as the food service industry.

            The table below shows our shipments of general trade salt products (thousands of tons):

Competition

            In North America, other large nationally recognized companies compete against our salt business in production and marketing of general trade salt products. In addition, there are several smaller regional producers of general trade salt. There are several importers of salt into North America but they mostly impact the east coast and west coast of the U.S. where we have a minimal position. In the U.K., there is one other large domestic producer of general trade salt, several small local producers and some imports from continental Europe. We also export salt from the U.K. to Scandinavia and continental Europe and compete with many other European producers in these markets.

SPECIALTY POTASH SEGMENT

            SOP is primarily used as a specialty fertilizer, providing essential potassium to high-value, chloride-sensitive crops such as vegetables, fruits, tea, tobacco and turf grass. We are the market leader in North America for SOP and markets SOP products both domestically and overseas.  We offer several grades of SOP which are designed to differentiate us from our competitors, as well as better serve the needs of our customers.

Potash Industry Overview

            The annual worldwide consumption of all potash fertilizers approaches 50 million tons. Muriate of potash (“MOP”), or potassium chloride, is the most common source of potassium and accounts for over 90% of all potash consumed in fertilizer production. SOP represents about 5% of potash consumption. The remainder is supplied in the forms of potassium magnesium sulfate, nitrate of potassium (“NOP”), and, to a lesser extent, potassium thiosulfate and monopotassium phosphate. All of these products contain varying concentrations of potassium expressed as potassium oxide (K₂0) and different combinations of co-nutrients.

            MOP is the least expensive form of potash fertilizer based on the concentration of K₂0. It is the preferred potassium source for most crops. However, SOP (containing approximately 50% K₂0) is utilized by growers for many high-value crops, especially where the requirements are for fertilizers with low chloride content. The use of SOP has been scientifically proven to improve the yield and quality of certain crops.

            Examples of crops where SOP is utilized to increase yield and quality include tobacco, tea, potatoes, citrus fruits, grapes, almonds, some vegetables and on turfgrass for golf courses. Approximately 62% of our annual SOP sales volumes in 2002 were made to domestic customers, which include retail fertilizer dealers and distributors of professional turf care products. These dealers and distributors combine or blend SOP with other fertilizers and minerals to produce fertilizer blends tailored to individual requirements.

Operations and Facilities

            All of our SOP production is located on the Great Salt Lake near Ogden, Utah. It is the largest SOP production facility in North America. The solar evaporation facility, located west of Ogden, utilizes solar energy and over 40,000 acres of evaporation ponds to manufacture SOP and magnesium chloride from the brines of the Great Salt Lake. This facility has the capacity to annually produce approximately 450,000 tons of SOP, approximately 400,000 tons of magnesium chloride and over 1.5 million tons of salt. The potassium bearing salts are mechanically harvested and refined to high purity SOP in an integrated production facility.

            Ogden was unable to produce SOP from 1984 through the beginning of 1989 due to flooding. Following the flood, dikes were raised to a height three feet over the historic peak flood level. Also, the State of Utah constructed and implemented the West Desert Pumping Project which could be utilized to lower the level of the Great Salt Lake by up to twelve inches per year thus reducing the risk of flooding. Although we believe that the subsequent dike improvements and the West Desert Pumping Project have reduced the likelihood of future pond flooding, we maintain both property damage and business interruption insurance policies for this risk.

Products and Sales

            Our domestic sales of SOP are concentrated in the western states of California, Oregon, Washington, Idaho and the central tobacco belt area where the crops and soil conditions favor SOP. We generally export SOP through major trading companies.  International SOP sales volumes in 2002 were 38% of our annual SOP sales. Prior to the acquisition by IMC in 1998, our SOP was marketed and sold by a sales group consisting of trained agronomists and professional fertilizer agents. These representatives directly contacted dealers and growers in the U.S. Following the IMC acquisition, this SOP sales group was dissolved and the IMC sales force handled SOP sales. The IMC sales group was responsible for selling all potash and phosphate fertilizer products for IMC. Because the bulk of these fertilizers are sold as commodities, the focus on specialty products such as SOP diminished under IMC. Upon the purchase of the SOP bu siness from IMC, we have organized and employed an experienced global sales group similar to the one that was in place prior to 1998.

            The table below shows our shipments of SOP (thousands of tons):

(a) Export sales include product sold to foreign customers at U.S. ports.

            In addition, under a long term contract with IMC, we have the exclusive right in North America (with certain limited exceptions) to purchase the SOP produced at IMC’s Carlsbad, New Mexico facility to meet a portion of our North American SOP requirements. In addition to the customers previously serviced by our Ogden facility, we began to act as sales agent for IMC to certain customers serviced by the Carlsbad facility following the Recapitalization.

Competition

            Approximately 56% of the world SOP production is located in Europe, 14% in the U.S. and the remaining 30% in various other countries. The world consumption of SOP totals about 2.9 million tons. Our major competition for SOP sales in North America include imports from Germany, Chile and Canada. In addition, there is also some functional competition between SOP, MOP and NOP. For exports into Asia, the Pacific Rim countries and Latin America, we compete with various local and European producers.

INTELLECTUAL PROPERTY

            We rely on a combination of patents, trademarks, copyright and trade secret protection, employee and third-party non-disclosure agreements, license arrangements and domain name registrations to protect our intellectual property. We sell many of our products under a number of registered trademarks which we believe are widely recognized in the industry. No single patent, trademark or trade name is material to our business as a whole.

            Any issued patents that cover our proprietary technology and any of our other intellectual property rights may not provide us with substantial protection or be commercially beneficial to us. The issuance of a patent is not conclusive as to its validity or its enforceability. Competitors may also be able to design around our patents. If we are unable to protect our patented technologies, our competitors could commercialize our technologies.

            With respect to proprietary know-how, we rely on trade secret protection and confidentiality agreements. Monitoring the unauthorized use of our technology is difficult, and the steps we have taken may not prevent unauthorized use of our technology. The disclosure or misappropriation of our intellectual property could harm our ability to protect our rights and competitive position.

EMPLOYEES

            As of December 31, 2002, we had 1,560 employees, of which 756 are employed in the U.S., 603 in Canada and 201 in the U.K. Approximately 39% of the U.S. workforce (54% of our global workforce) is represented by labor unions. Of our nine material collective bargaining agreements, five will expire in 2003 and four will expire in 2004. Additionally, approximately 13% of our workforce is employed in Europe where trade union membership is common. We consider our labor relations to be good.

PRINCIPAL PROPERTIES

            The table below sets forth our principal properties:

Location

Use

Owned/Leased

Expiration of Lease

Ogden, Utah

SOP and solar salt production facility

Owned

N/A

Lyons, Kansas

Evaporated salt production facility

Owned

N/A

Cote Blanche, Louisiana

Rock salt production facility

Leased

2060

Weston Point, Cheshire, U.K.

Evaporated salt production facility

Owned

N/A

Winsford, Cheshire, U.K.

Rock salt production facility

Owned

N/A

Goderich, Ontario, Canada

Evaporated salt and rock salt production facility

Owned

N/A

Unity, Saskatchewan, Canada

Evaporated salt production facility

Owned

N/A

Amherst, Nova Scotia, Canada

Evaporated salt production facility

Owned

N/A

Overland Park, Kansas

Corporate headquarters

Leased

2008

            With respect to each facility at which we extract salt, brine or SOP, we obtain any required or necessary permits prior to the commencement of mining. Permits or licenses are obtained as needed in the normal course of business based on our mine plans and state, provincial and local regulatory provisions regarding mine permitting and licensing. Based on our historical permitting experience, we expect to be able to continue to obtain necessary mining permits to support historical rates of production.

            Our mining leases have varying terms. Some will expire after a set term of years, while others continue indefinitely. Many of these leases provide for a royalty payment to the lessor based on a specific amount per ton of mineral extracted or as a percentage of revenue. In addition, we own a number of properties and are party to certain non-mining leases that permit us to perform activities that are ancillary to our mining operations, such as surface use leases, and storage, depot and warehouse leases. We also believe that all of our leases were entered into on market terms.

ENVIRONMENTAL, HEALTH AND SAFETY MATTERS

            We produce and distribute crop and animal nutrients, salt and deicing products. These activities subject us to an evolving set of international, federal, state, provincial and local environmental, health and safety (‘‘EHS’’) laws which regulate, or propose to regulate: (i) product content; (ii) use of products by both us and our customers; (iii) conduct of mining and production operations, including safety procedures followed by employees; (iv) management and handling of raw materials; (v) air and water quality impacts from our facilities; (vi) disposal of hazardous and solid wastes; (vii) remediation of contamination at our facilities and third-party sites; and (viii) post-mining land reclamation. For new regulatory programs, it is difficult to ascertain future compliance obligations or estimate future costs until implementing regulations have been finalized and definitive regulatory interpre tations have been adopted. We intend to respond to these regulatory requirements at the appropriate time by implementing necessary modifications to facilities or operating procedures.

            We have expended, and anticipate that we will continue to expend, substantial financial and managerial resources to comply with EHS standards. We estimate that our 2003 environmental capital expenditures will total approximately $1.2 million, primarily related to air quality devices and highway deicing salt storage pads. We expect that our estimated expenditures in 2003 for reclamation activities will be approximately $0.2 million. No assurance can be given that greater than anticipated EHS capital expenditures or reclamation expenditures will not be required in 2003 or in the future.

            We maintain accounting accruals for certain contingent environmental liabilities and believe such accruals comport with generally accepted accounting principles. We record accruals for environmental investigatory and non-capital remediation costs when litigation has commenced or a claim or assessment has been asserted or is imminent, the likelihood of an unfavorable outcome is probable and the financial impact of such outcome is reasonably estimable. Based on current information, it is the opinion of management that our contingent liability arising from EHS matters, taking into account established accruals, will not have a material adverse effect on our business, financial condition or results of operations.  As of December 31, 2002, we have recorded environmental accruals of $2.0 million.

Product Requirements and Impacts

            International, federal, state and provincial standards: (i) require registration of many of our products before such products can be sold; (ii) impose labeling requirements on those products; and (iii) require producers to manufacture the products to formulations set forth on the labels. Various environmental, natural resource and public health agencies at all regulatory levels continue to evaluate alleged health and environmental impacts that might arise from the handling and use of products such as those we manufacture. The U.S. Environmental Protection Agency (“EPA”), the State of California and The Fertilizer Institute have each completed independent assessments of potential risks posed by crop nutrient materials. These assessments concluded that, based on the available data, crop nutrient materials generally do not pose harm to human health. It is unclear whether any further evaluations may result in additional standards or regulatory requirements for the producing industries, including us, or for our customers. At this stage, it is the opinion of management that the potential impact of these standards on the market for our products or on the expenditures that may be necessary to meet new requirements will not have a material adverse effect on our business or financial condition.

            In December 2001, the Canadian government released a Priority Substances List Assessment Report for road salt. This report found that road salts are entering the environment under conditions that may have a harmful effect or constitute a danger to the environment. Based on this report, the Minister of Environment has proposed designating road salt as a ‘‘toxic’’ substance pursuant to the Canadian Environmental Protection Act. Canada’s federal cabinet, which has ultimate responsibility, has not yet taken final action with respect to this proposal and is not subject to any deadline to do so.  This proposal was subject to a public comment, during which individuals and the municipalities which comprise most of our customers expressed a variety of views, including noting the utility and cost-efficiency of salt as compared to other potential measures to reduce ice-related road hazards. At this point, Environment Canada has indicated that, whether or not road salts are declared toxic, their preferred course of action is the establishment of voluntary guidelines for users as opposed to any form of regulation. Environment Canada is currently developing these guidelines based on consultation with a broad-based stakeholders group, which includes the salt industry. Given the importance of road salt for traffic safety and the lack of any practical substitute, we deem it unlikely that any guidance or regulation would result in a ban on the use of road salt. As noted in the December 2001 report, the use of road salt and other deicing agents ‘‘is an important component of strategies to keep roadways open and safe during the winter and minimize traffic crashes, injuries and mortality under icy and snowy conditions.’’ The report further stated that mitigation measures ‘‘must be based on optimization of winter road maintenance practices so as not to jeopardize road safety, wh ile minimizing the potential for harm to the environment.’’ Since the dissemination of this report, we have endeavored to work more closely with the national government as well as provinces and municipalities to better manage the storage and release of our road salts. As a result, we believe it has become less likely that road salts will be designated as a toxic substance. Although we cannot predict whether the proposal to list road salts will be finalized or the precise form of future regulation, if any, if standardized guidelines are developed for the usage of road salt, we could suffer reduced sales and incur substantial costs and expenses that could have a material adverse effect on our business, financial condition and results of operations. We are not aware of any similar proposals for such designation of road salt in either the U.S. or the U.K.

Operating Requirements and Impacts

Permitting

            We hold numerous environmental, mining and other permits or approvals authorizing operations at each of our facilities. Our operations are subject to permits for extraction of salt and brine, discharges of process materials to air and surface water, and injection of brine and wastewater to subsurface wells. A decision by a government agency to deny or delay issuing a new or renewed permit or approval, or to revoke or substantially modify an existing permit or approval, could have a material adverse effect on our ability to continue operations at the affected facility. In addition, changes to environmental and mining regulations or permit requirements could have a material adverse effect on our ability to continue operations at the affected facility. Expansion of our operations also is predicated upon securing the necessary environmental or other permits or approvals.

            Pursuant to the Mine Safety and Health Act, new interim regulatory standards for diesel particulate matter became effective in 2002 and final standards are expected by 2006, although the final standards are currently subject to litigation. We believe that we are currently in compliance with the interim standards that are in effect between 2002 and 2006. However, material expenditures may be required to achieve compliance with the final standards at the Cote Blanche facility in Louisiana.

Remedial Activities

Remediation at Our Facilities

            Many of our formerly-owned and current facilities have been in operation for a number of years. Operations have involved the historical use and handling of regulated chemical substances, salt and by-products or process tailings by us and predecessor operators which have resulted in soil, surface water and groundwater contamination. At some locations there are areas where salt-processing waste and ordinary trash may have been disposed or buried, and have since been closed and covered with soil and other materials. These past operating practices have at certain locations resulted in soil, surface water and groundwater contamination.

            At many of these facilities, spills or other releases of regulated substances have occurred previously and potentially could occur in the future, possibly requiring us to undertake or fund cleanup efforts under the U.S. Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) or state and provincial or United Kingdom laws governing cleanup of hazardous substances. In some instances, we have agreed, pursuant to consent orders or agreements with the appropriate governmental agencies, to undertake certain investigations, which currently are in progress, to determine whether remedial action may be required to address such contamination. At other locations, we have entered into consent orders or agreements with appropriate governmental agencies to perform required remedial activities that will address identified site conditions. At still other locations, we have undertaken voluntary re mediation, and have removed formerly used underground storage tanks. Taking into account established reserves, expenditures for these known conditions currently are not expected, individually or in the aggregate, to be material. However, material expenditures could be required in the future to remediate the contamination at these or at other current or former sites. In addition, in connection with the Recapitalization, IMC has agreed to indemnify us against liabilities for certain known and unknown conditions at existing and former sites.

Remediation at Third-Party Facilities

            Along with impacting the sites at which we have operated, various third-parties have alleged that our historic operations have resulted in contamination to neighboring off-site areas or nearby third-party facilities. CERCLA imposes liability, without regard to fault or to the legality of a party’s conduct, on certain categories of persons who are considered to have contributed to the release of “hazardous substances” into the environment. Under CERCLA, or its various state analogues, one party may, under certain circumstances, be required to bear more than its proportional share of cleanup costs at a site where it has liability if payments cannot be obtained from other responsible parties.

            We have entered into “de minimis” settlement agreements with the EPA with respect to certain CERCLA sites, pursuant to which we have made a one-time cash payment and received statutory protection from future claims arising from those sites. In some cases, however, such settlements have included “reopeners,” which could result in additional liability at such sites in the event of newly discovered contamination or other circumstances.

            At other sites for which we have received notice of potential CERCLA liability, we have provided information to the EPA that we believe demonstrates that we are not liable, and the EPA has not asserted claims against us with respect to such sites. In some instances, we have agreed, pursuant to orders from or agreements with appropriate governmental agencies or agreements with private parties, to undertake or fund investigations, some of which currently are in progress, to determine whether remedial action, under CERCLA or otherwise, may be required to address contamination. At other locations, we have entered into consent orders or agreements with appropriate governmental agencies to perform required remedial activities that will address identified site conditions. At the present time, we are not aware of any additional sites for which we expect to receive a notice from the EPA or any other party of potential CER CLA liability.  However, based on past operations, there is a potential that we may receive such notices in the future for sites of which we are currently unaware or that our liability at certain currently known sites may expand. Taking into account established accruals, expenditures for our known environmental liabilities and site conditions currently are not expected, individually or in the aggregate, to be material.

RISK FACTORS

            You should carefully consider the risks described below. The risks described below are not the only ones facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. Any of the following risks could materially adversely affect our business, financial condition or results of operations.

Risks Related to Our Business

The demand for our products changes seasonally and is dependent upon weather conditions.

            Our highway deicing business line is seasonal, with operating results varying from quarter to quarter. Over the last four years, our North American highway deicing business line has generated over 65% of its annual sales during the months of December through March when the need for highway deicing is at its peak. We need to stockpile sufficient highway deicing salt after March to meet estimated demand for the winter season. Weather conditions which impact our highway deicing product line include levels of temperature, precipitation, snow days and duration and timing of snow fall in our relevant geographic markets. Lower than expected sales by us during this period could have a material adverse effect on the timing of our cash flows and therefore our ability to service our obligations with respect to our indebtedness.

            Our SOP operating results are dependent in part upon conditions in the agriculture markets. The agricultural products business can be affected by a number of factors, the most important of which for U.S. markets are weather patterns and field conditions (particularly during periods of traditionally high crop nutrients consumption) and quantities of crop nutrients imported to and exported from North America.

Economic and other risks associated with international sales and operations could adversely affect our business.

            Since we manufacture and sell our products primarily in the U.S., Canada and the U.K., our business is subject to certain risks associated with doing business internationally. Our sales outside the U.S., as a percentage of our total sales, was 34% for the years ended December 31, 2002 and 2001. Accordingly, our future results could be harmed by a variety of factors, including:

• changes in foreign currency exchange rates;

• tariffs, other trade protection measures and import or export licensing requirements;

• differing labor regulations;

• requirements relating to withholding taxes on remittances and other payments by subsidiaries;

• unexpected changes in regulatory requirements.

            Fluctuations in the value of the U.S. dollar may adversely affect our results of operations. Because our consolidated financial results are reported in dollars, if we generate sales or earnings in other currencies the translation of those results into dollars can result in a significant increase or decrease in the amount of those sales or earnings. In addition, our debt service requirements are primarily in U.S. dollars even though a significant percentage of our cash flow is generated in Canadian dollars and pound sterling. Significant changes in the value of Canadian dollars and 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 the senior subordinated notes and borrowings under our senior credit facilities.

            In addition to currency translation risks, we incur currency transaction risk whenever we or one of our subsidiaries enter into either a purchase or a sales transaction using a currency other than the local currency of the transacting entity. Given the volatility of exchange rates, we cannot assure you that we will be able to effectively manage our currency transaction and/or translation risks. It is possible that volatility in currency exchange rates will have a material adverse effect on our financial condition or results of operations. We have in the past experienced and expect to continue to experience economic loss and a negative impact on earnings as a result of foreign currency exchange rate fluctuations. We expect that the portion of our revenues denominated in non-dollar currencies will continue to increase in future periods. See Item 7, “Management’s Discussion and Analysis of Financial Condit ion and Results of Operations—Effects of Currency Fluctuations and Inflation.”

            Our overall success as a global business depends, in part, upon our ability to succeed in differing economic and political conditions. We cannot assure you that we will continue to succeed in developing and implementing policies and strategies that are effective in each location where we do business.

We are a newly formed company with no operating history as a stand-alone company, which may lead to risks or unanticipated expenses similar to those of a start-up company.

            We were not operated as a stand-alone company for the three years prior to the closing of the Recapitalization. Prior to the Recapitalization, IMC provided us with a number of support services, including corporate services such as certain accounting functions, internal audit, treasury, taxation, company secretarial, legal and intellectual property, property management, insurance administration, certain human resources functions, credit management and certain information technology functions. While we believe we will be able to complete the arrangement of replacement services appropriate for operation as a stand-alone company, there is a risk that continuity in the performance of these functions will be affected as a result of our transition.

Our operating earnings are affected by the supply and price levels of natural gas.

            Energy costs represent approximately 11% of the costs of our North American salt production. Natural gas is a primary fuel source used in the salt production process. Our profitability is impacted by the price and availability of the natural gas we purchase from third parties. A significant increase in the price of natural gas that is not recovered through an increase in the price of our products or an extended interruption in the supply of natural gas to our production facilities could have a material adverse effect on our business, financial condition or results of operations.

We face competition in our markets.

            We encounter competition in all areas of our business. Competition in our business lines is based on a number of considerations including product performance, cost of transportation in the distribution of salt, brand reputation, quality of client service and support and price. Additionally, customers for our products are attempting to reduce the number of vendors from which they purchase in order to increase their efficiency. Our customers increasingly demand a broad product range and we must continue to develop our expertise in order to manufacture and market these products successfully. To remain competitive, we will need to invest continuously in manufacturing, marketing, customer service and support and our distribution networks. We may have to adjust the prices of some of our products to stay competitive. We cannot assure you that we will have sufficient resources to continue to make such investments or that we will maintain our competitive position. Some of our competitors have greater financial and other resources than we do.

We may be adversely affected by the environmental regulations to which we are subject.

            We are subject to numerous environmental, health and safety laws and regulations in the U.S., Canada and Europe, including laws and regulations relating to land reclamation and remediation of hazardous substance releases, and discharges to air and water. For example, CERCLA imposes liability, without regard to fault or to the legality of a party’s conduct, on certain categories of persons (known as “potentially responsible parties”) who are considered to have contributed to the release of “hazardous substances” into the environment. Although we are not currently incurring material liabilities pursuant to CERCLA, we may in the future incur material liabilities, under CERCLA and other environmental cleanup laws, with regard to our current or former facilities, adjacent or nearby third party facilities or off-site disposal locations. Under CERCLA, or its various state analogues, one party ma y, under certain circumstances, be required to bear more than its proportional share of cleanup costs at a site where it has liability if payments cannot be obtained from other responsible parties. Liability under these laws involves inherent uncertainties. Violations of environmental, health and safety laws are subject to civil, and in some cases criminal, sanctions.

            We have received notices from governmental agencies that we may be a potentially responsible party at certain sites under CERCLA or other environmental cleanup laws. We have entered into “de minimis” settlement agreements with U.S. with respect to certain CERCLA sites, pursuant to which we have made a one-time cash payment and received statutory protection from future claims arising from those sites. At other sites for which we have received notice of potential CERCLA liability, we have provided information to the EPA that we believe demonstrates that we are not liable, and the EPA has not asserted claims against us with respect to such sites. In some instances, we have agreed, pursuant to consent orders or agreements with the appropriate governmental agencies, to undertake certain investigations, which currently are in progress, to determine whether remedial action may be required to address such conta mination. At other locations, we have entered into consent orders or agreements with appropriate governmental agencies to perform remedial activities that will address identified site conditions. At the present time, we are not aware of any additional sites for which we expect to receive a notice from the EPA of potential CERCLA liability. However, based on past operations there is a potential that we may receive such notices in the future for sites of which we are currently unaware. Taking into account established reserves, expenditures for our known environmental liabilities and site conditions currently are not expected, individually or in the aggregate, to be material. However, material expenditures could be required in the future to remediate the contamination at these or at other current or former sites.

            Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controls at ongoing operations, which will be charged against income from future operations. Present and future environmental laws and regulations applicable to our operations may require substantial capital expenditures and may have a material adverse effect on our business, financial condition and results of operations. For more information, see Item 1, “Business—Environmental, Health and Safety Matters.”

Our business could be adversely affected by the Canadian government’s proposal to designate road salt as a toxic substance.

            In December 2001, the Canadian government released a Priority Substances List Assessment Report for road salt. This report found that road salts are entering the environment under conditions that may have a harmful effect or constitute a danger to the environment. Based on this report, the Minister of Environment has proposed designating road salt as a “toxic” substance pursuant to the Canadian Environmental Protection Act. Canada’s federal cabinet, which has ultimate responsibility, has not yet taken final action with respect to this proposal and is not subject to any deadline to do so. At this point, Environment Canada has indicated that, whether or not road salts are declared toxic, their preferred course of action is the establishment of voluntary guidelines for users as opposed to any form of regulation. Environment Canada is currently developing these guidelines based on consultation wit h a broad-based stakeholders group, which includes the salt industry. Given the importance of road salt for traffic safety and the lack of any practical substitute, we deem it unlikely that any guideline or regulation would result in a ban on the use of road salt. As noted in the December 2001 report, the use of road salt and other deicing agents “is an important component of strategies to keep roadways open and safe during the winter and minimize traffic crashes, injuries and mortality under icy and snowy conditions.” The report further stated that mitigation measures “must be based on optimization of winter road maintenance practices so as not to jeopardize road safety, while minimizing the potential for harm to the environment.” Although we cannot predict whether the proposal to list road salts will be finalized or the precise form of future regulation, if any, if standardized guidelines are developed for the usage of road salt, we could suffer reduced sales and incur substantial costs and expenses that could have a material adverse effect on our business, financial condition and results of operation. We are not aware of any similar proposals for such designation of road salt in either the U.S. or the U.K.

Our operations are dependent on our having received the required permits and approvals from governmental authorities.

            We hold numerous governmental environmental, mining and other permits and approvals authorizing operations at each of our facilities. A decision by a governmental agency to deny or delay issuing a new or renewed permit or approval, or to revoke or substantially modify an existing permit or approval, could have a material adverse effect on our ability to continue operations at the affected facility. Expansion of our existing operations also is predicated upon securing the necessary environmental or other permits or approvals.

Protection of Proprietary Technology—Our intellectual property may be misappropriated or subject to claims of infringement.

            We attempt to protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret protection, as well as licensing agreements and third-party nondisclosure and assignment agreements. We cannot assure you that any of our applications for protection of our intellectual property rights will be approved or that others will not infringe or challenge our intellectual property rights. We also rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology. To protect our trade secrets and other proprietary information, we require employees, consultants, advisors and collaborators to enter into confidentiality agreements. We cannot assure you that these agreements will provide meaningful protection for our trade secrets, know-how or other proprietary informati on in the event of any unauthorized use, misappropriation or disclosure. If we are unable to maintain the proprietary nature of our technologies, we could be materially adversely affected.

Our business could suffer if we are unsuccessful in negotiating new collective bargaining agreements.

            As of December 31, 2002, we had 1,560 employees. Approximately 39% of our U.S. workforce (54% of our global workforce) is represented by labor unions. Of our nine material collective bargaining agreements, five will expire in 2003 and four will expire in 2004.  Additionally, approximately 13% of our workforce is employed in Europe where trade union membership is common. Although we believe that our relations with our employees are good, we cannot assure you that we will be successful in negotiating new collective bargaining agreements, that such negotiations will not result in significant increases in the cost of labor, or that a breakdown in such negotiations will not result in the disruption of our operations.

We rely on independent distributors.

            In addition to our own direct sales force, we depend on the services of independent general trade salt distributors to sell our products and provide service and aftermarket support to our customers. In 2002, 12% of our revenues were generated through these independent distributors. Many of these independent distributors are not bound to us by exclusive distribution contracts and may offer products and services that compete with ours to our customers. In addition, the majority of the distribution contracts we have with these independent distributors are cancelable by the distributor after a short notice period. The loss of a substantial number of these distributors or the decision by many of these distributors to offer competitors’ products to our customers could materially reduce our sales and profits.

We are controlled by Apollo.

            A holding company controlled by Apollo and its affiliates owns approximately 73% of the fully diluted equity of our parent SHC and, therefore, has the power, subject to certain exceptions, to control our affairs and policies. They also control the election of directors, the appointment of management, the entering into of mergers, sales of substantially all of our assets and other extraordinary transactions. The directors so elected have authority, subject to the terms of our debt, to issue additional stock, implement stock repurchase programs, declare dividends and make other decisions about our capital stock.  See Item 13, “Certain Relationships and Related Transactions.”

            The interests of Apollo and its affiliates could conflict with the interests of holders of our debt securities. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of Apollo as equity holder might conflict with the interests of a holder of our senior subordinated notes. Affiliates of Apollo may also have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investments, even though such transactions might involve risks to holders of our senior subordinated notes. In addition, our sponsors or their affiliates currently own, and may in the future own, businesses that directly compete with ours.

Our business strategy includes acquisitions to supplement internal growth.

            Our business strategy is based in part on our ability to supplement internal growth by pursuing opportunistic acquisitions of small complementary businesses. We do not know whether in the future we will be able to complete acquisitions on acceptable terms, identify suitable businesses to acquire or successfully integrate acquired businesses. We compete with other potential buyers for the acquisition of other small complementary businesses. This competition and, due to our position in certain markets, regulatory considerations may result in fewer acquisition opportunities. If we cannot complete acquisitions, our financial condition or results of operations may be adversely affected.

If we lose our senior management, our business may be adversely affected.

            The success of our business is dependent on our senior managers, as well as on our ability to attract and retain other qualified personnel. We cannot assure you that we will be able to attract and retain the personnel necessary for the development of our business. The loss of the services of key personnel or the failure to attract additional personnel as required could have a material adverse effect on our business, financial condition and results of operations. We do not currently maintain “key person” life insurance on any of our key employees.

Risks Related to our Indebtedness

Our substantial indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under the  notes.

            As of December 31, 2002, we had $437.6 million of outstanding indebtedness and a stockholders’ deficit of $19.7 million. As a result, we are a highly leveraged company. This level of leverage could have important consequences for you, including the following:

• we will be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;

• a substantial portion of our cash flow from operations could be dedicated to the repayment of our indebtedness and would not be available for other purposes; and

• there would be a material adverse effect on our business and financial condition if we were unable to service our indebtedness or obtain additional financing, as needed.

            In addition, the indenture governing our senior subordinated notes and our senior credit facilities contain financial and other restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debts.

Despite our substantial indebtedness we may still incur significantly more debt. This could exacerbate the risks described above.

            The terms of the indenture governing our senior subordinated notes and our senior credit facilities permit us and our subsidiaries to incur significant additional indebtedness in the future. As of December 31, 2002, we had $126.4 million available for additional borrowing under the revolving credit facility, subject to certain conditions.

Restrictive covenants in our senior credit facilities and the indenture governing the senior subordinated notes may restrict our ability to pursue our business strategies.

            The indenture governing the senior subordinated notes and the senior credit facilities limit our ability, among other things, to:

• incur additional indebtedness or contingent obligations;

• make capital expenditures;

• acquire the assets of, or merge or consolidate with, other companies.

            In addition, our senior credit facilities require us to maintain financial ratios. We may not be able to maintain these ratios. Covenants in our senior credit facilities may also impair our ability to finance future operations or capital needs or to enter into acquisitions or joint ventures or engage in other favorable business activities.

To service our indebtedness we will require a significant amount of cash. The ability to generate cash depends on many factors beyond our control.

            Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures and research and development efforts 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.

            We cannot assure you, however, that our business will generate sufficient cash flow from operations, that currently anticipated cost savings and operating improvements will be realized on schedule or that future borrowings will be available to us under our senior credit facilities in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. If we consummate an acquisition, our debt service requirements could increase. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness, including our senior credit facilities and our notes, on commercially reasonable terms or at all.

Item 2.      PROPERTIES

            Information regarding our plant and properties is included in Item 1, “Business,” of this report.

Item 3.      LEGAL PROCEEDINGS

            Other than as described in Item 1, “Business—Environmental, Health and Safety Matters,” we are a party from time to time to various routine legal proceedings. These primarily involve commercial claims, products liability claims, personal injury claims and workers’ compensation claims. We cannot predict the outcome of these lawsuits, legal proceedings and claims with certainty. Nevertheless, we believe that the outcome of these proceedings, even if determined adversely, would not have a material adverse effect on our business, financial condition and results of operations. In addition, in connection with the Recapitalization, IMC agreed to indemnify us against certain legal matters.

Item 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

            Not applicable.

PART II

Item 5.      MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

            Not applicable.

Item 6.      SELECTED FINANCIAL DATA

            The following table presents selected combined and consolidated financial information. The statement of operations data for the years ended December 31, 2002, 2001 and 2000 and the balance sheet data as of December 31, 2002 and 2001 are derived from our audited combined and consolidated financial statements included elsewhere in this report.  The statement of operations data for the year ended December 31, 1999 and the balance sheet data as of December 31, 2000 and 1999 are derived from our audited combined financial statements that are not included herein.  The historical statement of operations data for the year ended December 31, 1998 and the historical balance sheet data as of December 31, 1998 are derived from unaudited financial statements that, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the data for such peri ods.

            The information included in this table should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited combined and consolidated financial statements and accompanying notes thereto included elsewhere in this annual report.

____________

Item 7.        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

            The statements in this discussion regarding the industry outlook, our expectations regarding 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 1, “Business—Risk Factors.” The following discussion should be read together with the combined and consolidated financial statements and notes thereto included elsewhere in this annual report.

Company Overview

            We are the second largest producer of salt in North America, the largest producer of salt in the U.K., and overall, the world’s third largest producer of salt. In addition, in North America we are the largest producer of SOP which is used in the production of specialty fertilizers. Salt is one of the most widely used minerals in the world and has a wide variety of end-use applications, including highway deicing, food grade applications, water conditioning and various industrial uses.

            For the year ended December 31, 2002, we sold approximately 11.0 million tons of salt and other minerals, generating sales of $502.6 million and operating income of $77.7 million.

            The combined and consolidated financial information related to periods ending 2001 and prior included in this annual report has been derived from the consolidated financial statements of IMC. The preparation of this information was based on certain assumptions and estimates including allocations of costs from IMC which we believe are reasonable. This financial information may not, however, necessarily reflect the results of operations, financial positions and cash flows that would have occurred if we had been a separate, stand-alone entity during the periods presented or our future results of operations, financial position and cash flows.

            In connection with the Recapitalization, we have incurred substantial indebtedness, interest expense and repayment obligations. The interest expense relating to this debt has adversely affected our net income.

Management’s Discussion on Critical Accounting Policies

            We have identified the critical accounting policies that are most important to the portrayal of our financial condition and results of operations.  The policies set forth below require management’s most subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Inventory Allowances

            We record allowances for unusable or slow moving finished goods and raw materials and supplies inventory.  We adjust the value of certain inventory to the estimated market value to the extent that management’s assumptions of future demand, market or functional conditions indicate the cost basis is either in excess of market or the inventory will not be utilized or sold in future operations.  If actual demand or conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Mineral Rights

            We maintain $157.6 million of net mineral rights as part of fixed assets.  Mineral rights are stated at cost with amortization based on the units of production method, taking into account estimates of recoverable reserves and, in certain instances, the duration of the mining rights.  If the actual size, quality or recoverability of the minerals is less than that projected by management or if the length of time of the right to mine the minerals is less than that projected by management, then the rate of amortization could be increased or the value of the rights could be reduced by a material amount.

Deferred Tax Asset Valuation Allowance

            We have approximately $104.8 million of net operating loss carryforwards (“NOLs”) at December 31, 2002 that expire between 2009 and 2020. We have previously experienced two ownership changes that have placed significant limitations on our ability to use these NOLs.  Since we do not consider utilization of these credits to be more likely than not under our proposed operating structure and current tax law, a valuation allowance has been recorded for the entire amount of the NOLs.  In making this determination, management considers a multitude of factors including its internal forecasts.  Many of the assumptions in these forecasts are inherently difficult to predict and in some cases are outside of our direct control, and therefore, may prove to be significantly different than the actual outcomes.  As a result, the amount of required valuation allowance could be materially different.

Pension Plans

            Certain assumptions are used in the calculation of the actuarial valuation of our defined benefit pension plans.  These assumptions include discount rates, expected long-term rates of return on plan assets and rates of increase in compensation levels.  If actual results vary from those projected by management, adjustments may be required in future periods to meet minimum pension funding, thereby increasing pension expense and our pension liability.  Note 7 in our combined and consolidated financial statements included in this annual report provides additional information regarding pension assumptions used by us.

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 financial statements.   Policies related to revenue recognition, financial instruments and consolidation policy require difficult judgments on complex matters that are often subject to multiple sources of authoritative guidance.  Certain of these matters are among topics currently under re-examination by accounting standards setters and regulators.  Although no specific conclusions reached to date by these standard setters appear likely to cause a material change in our accounting policies, future outcomes cannot be predicted with confidence.

Results of Operations

            The following table sets forth certain combined and consolidated historical financial information for the years ended December 31, 2002, 2001 and 2000.  We record sales to customers based upon total billings, including pass-through shipping and handling costs necessary to transport our products from the production site to the delivery point.  We manage the profitability and attractiveness of existing and prospective customers, product lines and plants by, among other factors, analyzing the customer billings net of related shipping and handling costs.  This allows for a more comparable look at the relative profitability of our business as well as providing a more accurate analysis upon which to analyze trends in the business.

            The following table and discussion should be read in conjunction with the information contained in our combined and consolidated financial statements and the notes thereto included elsewhere in this annual report.

Year Ended December 31, 2002 Compared to the Year Ended December 31, 2001

Sales

            Sales for 2002 of $502.6 million decreased $20.6 million, or 3.9% compared to $523.2 million in 2001.  Sales include revenues from the sale of our products (“Product Sales”) as well as pass-through shipping and handling fees charged to customers to reimburse us for shipping and handling costs incurred in delivering salt and SOP product to the customer.  Such shipping and handling fees were $137.5 million during 2002, a decrease of $5.7 million compared to 2001 shipping and handling fees of $143.2 million.  The decline in shipping and handling related fees during 2002 is due to fewer tons of products sold compared to 2001.

            Product Sales for 2002 of $365.1 million decreased $14.9 million, or 3.9% compared to $380.0 million for 2001. Salt Product Sales for 2002 of $322.3 million decreased $19.5 million, or 5.7% compared to $341.8 million for 2001. This decrease was primarily the result of lower sales volumes in both of our North American and U.K. highway deicing product lines and as well as consumer deicing volumes in the general trade product line, all due to the mild winter experienced in the March 2002 quarter.  In particular, highway deicing and consumer deicing Product Sales for the March 2002 quarter decreased $14.1 million and $9.2 million, respectively, from the prior year period.  Even though the lower sales volumes continued in the U.K. through the December 2002 quarter, North American sales for the December 2002 quarter were approximately at average historical levels.  Overall, the reductions in sales volume s were offset in part by improved pricing in our North American and U.K. highway deicing product lines and general trade products.  SOP Product Sales for 2002 of $42.8 million increased $4.6 million compared to $38.2 million for 2001 due to increased sales volumes partially offset by lower average prices. 

Gross Profit

            Gross profit for 2002 of $125.9 million increased $2.9 million, or 2.4% compared to $123.0 million for 2001. The increase in gross profit primarily reflects the impact of improved salt pricing, the successful implementation of a cost reduction program, and increased SOP sales volumes, offset in part by lower volumes of highway and consumer deicing products.  

Selling, General and Administrative Expenses

            Selling, general and administrative expenses of $40.5 million for 2002 increased $1.6 million, or 4.1% compared to $38.9 million for 2001.  The increase primarily reflects additional costs related to our transition to a stand-alone entity for services previously provided by IMC prior to the Recapitalization.

Restructuring and Other Charges

            Transition costs are non-recurring in nature and relate to charges required to establish us as an independent entity.  During 2002, we incurred $7.7 million of transition costs that were directly related to our transition from an entity controlled by IMC and consisted primarily of one-time compensation costs, costs to develop stand-alone tax and inventory strategies and costs associated with determining the post-closing purchase price adjustment.

Interest Expense

            Interest expense for 2002 of $41.3 million increased $27.0 million compared to $14.3 million for 2001. This increase is the result of our new capital structure following the Recapitalization on November 28, 2001.

Other (Income) Expense

            Other expense for 2002 of $4.9 million increased $8.0 million compared to other income of $3.1 million for 2001.  Other income in 2001 was primarily interest income earned from IMC.  We earned no interest income from IMC in 2002.  Additionally, we recorded a $5.3 million loss related to refinancing our term loan in 2002.

Income Tax Expense

            Income tax expense for 2002 of $11.8 million decreased $15.0 million compared to $26.8 million of income tax expense for 2001 due to a decline in pre-tax income partially resulting from higher interest expense following the Recapitalization.  Our income tax provision differs from the U.S. statutory federal income tax rate primarily due to U.S. statutory depletion, state income taxes (net of federal tax benefit), foreign income tax rate differentials, changes in the expected utilization of previously reserved NOLs, non-deductible transaction costs and foreign mining taxes.

Year Ended December 31, 2001 Compared to the Year Ended December 31, 2000

Sales

            Sales for 2001 of $523.2 million increased $14.0 million, or 2.7% compared to $509.2 million in 2000.  Sales include Product Sales as well as pass-through shipping and handling fees charged to customers to reimburse the Company for shipping and handling costs incurred in delivering salt and SOP product to the customer.  Such shipping and handling fees were $143.2 million during 2001, an increase of $3.2 million compared to 2000 shipping and handling fees of $140.0 million.  The increase in shipping and handling related fees during 2001 is due to more tons of products sold compared to 2000. 

            Product Sales for 2001 of $380.0 million increased $10.8 million, or 2.9% compared to $369.2 million for 2000. Salt Product Sales for 2001 of $341.8 million increased $16.7 million, or 5.1% compared to $325.1 million for 2000. This increase was primarily the result of higher highway deicing sales volumes in the U.K., higher general trade sales volumes and improved pricing in the North American highway deicing product line for the last half of 2001. In particular, highway deicing Product Sales for 2001 increased 8.4%, contributing approximately $12 million of additional Product Sales.  There was also an increase in consumer deicing Product Sales of approximately $3 million as compared to the prior year period.

            SOP Product Sales for 2001 of $38.2 million decreased $5.9 million, or 13.4% compared to $44.1 million for 2000. SOP sales volumes for 2001 declined approximately 23.6% as compared to 2000 as a result of lower demand for fertilizers and reduced marketing of SOP as part of IMC’s broader potash marketing strategy. This decline was partially offset by a 10.2% increase in the average price of SOP.

Gross Profit

            Gross profit for 2001 of $123.0 million increased $25.8 million, or 26.5% compared to $97.2 million for 2000. This improvement in gross profit primarily reflects the impact of stronger sales of our winter deicing products during the first quarter of 2001. In addition, reduced SOP sales were more than offset by cost reductions, primarily in the form of lower consumption of purchased raw materials at our Ogden solar evaporation facility. Purchased raw materials are used to supplement SOP production when SOP sales volumes exceed the SOP volumes that can be achieved from the annual potash harvest. Furthermore, as a result of asset impairment charges recorded in the fourth quarter of 2000, gross profit during 2001 was favorably impacted by reduced depreciation and amortization expenses of $10.9 million.

Selling, General and Administrative Expenses

            Selling, general and administrative expenses for 2001 of $38.9 million increased $3.4 million, or 9.6% compared to $35.5 million for 2000 primarily reflecting higher sales related charges.

Goodwill Write-down, Restructuring and Other Charges

            During 2001, we incurred $27.0 million in expenses in connection with the Recapitalization which consisted of transaction and transition costs.  The transaction costs were directly related to the acquisition and consisted primarily of outside professional services.  Transition costs are non-recurring in nature and related to charges required to establish Compass as an independent entity.  During 2000, we recorded goodwill write-down and restructuring and other charges of $616.9 million.  The 2000 charges were comprised of a $191.0 million write-down of goodwill and $425.9 million of restructuring and other charges, which were recorded in the fourth quarter.  Substantially all these charges were non-cash charges and reflected the amount by which our net book value exceeded IMC’s anticipated proceeds from the disposition of Compass.

Other Income/Expense

            Other income for 2001 of $3.1 million increased $2.9 million compared to $0.2 million for 2000. This increase was largely the result of Canadian non-cash foreign currency exchange gains.

Interest Expense

            Interest expense for 2001 of $14.3 million decreased $2.1 million, or 12.8% compared to $16.4 million for 2000. This decrease was primarily the result of lower average borrowings from IMC and its affiliates during 2001 as compared to the prior year period, partially offset by interest expense related to our new debt borrowings at the end of 2001 related to the Recapitalization.

Income Tax Expense

            Income tax expense for 2001 of $26.8 million increased $130.5 million compared to an income tax benefit of $103.7 million for 2000. This was due to the effect in 2000 of the $616.9 million asset impairment recorded by us which resulted in an income tax benefit for the year. Our income tax provision differs from the U.S. statutory federal income tax rate primarily due to U.S. statutory depletion, state income taxes (net of federal tax benefit), foreign income tax rate differentials, foreign mining taxes, non-deductible transaction costs and amortization of goodwill not deductible for tax purposes.

Liquidity and Capital Resources