UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002

OR
|   | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______to______

Commission File Number 333-82700

Compass Minerals Group, Inc.
(Exact name of registrant as specified in its charter)

8300 College Blvd.
Overland Park, KS 66210
(913) 344-9200
(Address of principal executive offices and telephone number)

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: |_|

Common Stock, $0.01 Par Value – 1,000 shares outstanding as of August 1, 2002

COMPASS MINERALS GROUP, INC.

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COMPASS MINERALS GROUP, INC.

Table of Contents

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PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

COMPASS MINERALS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)

The accompanying notes are an integral part of the combined and consolidated financial statements.

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COMPASS MINERALS GROUP, INC.
COMBINED AND CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(in millions)

The accompanying notes are an integral part of the combined and consolidated financial statements.

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COMPASS MINERALS GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITY (DEFICIT) (unaudited)
For the six months ended June 30, 2002
(in millions)

The accompanying notes are an integral part of the combined and consolidated financial statements.

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COMPASS MINERALS GROUP, INC.
COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in millions)

The accompanying notes are an integral part of the combined and consolidated financial statements.

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COMPASS MINERALS GROUP, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.  Basis of Presentation:

     The accompanying unaudited combined and consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation, have been included. Operating results for the three-month and six-month periods ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002.

     The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the combined and consolidated financial statements and notes thereto for the year ended December 31, 2001 included in the Compass Minerals Group, Inc. (“CMG” or the “Company”) Registration Statement on Form S-4, as amended (file no. 333-82700), declared effective by the Securities and Exchange Commission on April 23, 2002.

     The Company’s financial statements have been combined through November 27, 2001, the Recapitalization date, and consolidated thereafter.

2.  Summary of Significant Accounting Policies:

     In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 143, “Accounting for Obligations Associated with the Retirement of Long-Lived Assets”. The objective of SFAS No. 143 is to establish an accounting standard for the recognition and measurement of an obligation related to the retirement of certain long-lived assets. The retirement obligation must be one that results from the acquisition, construction or normal operation of a long-lived asset. SFAS No. 143 requires the legal obligation associated with the retirement of a tangible long-lived asset to be recognized at fair value as a liability when incurred, and the cost to be capitalized by increasing the carrying amount of the related long-lived asset. SFAS No. 143 will be effective for the Company beginning January 1, 2003. The Company is currently evaluating the effect of implementing SFAS 143.

     In January of 2002, the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. This Statement supercedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of” and Accounting Principles Board Opinion (APB) No. 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions”. This Statement establishes an accounting model based on FAS No. 121 for long lived assets to be disposed of by sale, previously accounted for under APB No. 30. The Company adopted SFAS No. 144 as of January 1, 2002 without significant effect on its consolidated financial statements.

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     During the second quarter, the Company early adopted SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. SFAS No. 145 rescinds SFAS No. 4 and SFAS No. 64, which required gains and losses from extinguishment of debt to be classified as extraordinary items. The early adoption of SFAS No. 145 resulted in a $5.3 million charge to other (income) expense related to the debt refinancing that occurred in the quarter ended June 30, 2002 (See Note 4). Under previous guidance this charge would have been recorded as extraordinary loss, net of tax, on the consolidated statement of income.

     In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” This Statement requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002. The Company believes that SFAS 146 will not have a material impact on its financial position, results of operations or cash flows.

3.  Inventories:

     Inventories consist of the following (in millions):

4.  Long-term Debt:

     On April 10, 2002, the Company completed an offering of $75.0 million aggregate principal amount of 10% Senior Subordinated Notes due 2011 (the “New Notes”). The New Notes were issued to the bondholders at a premium of $3.4 million, plus accrued interest from February 15, 2002 and accordingly, the Company received gross proceeds of $79.5 million from the offering of the notes. The New Notes, together with the $250.0 million aggregate principal amount of notes which were originally issued on November 28, 2001 (the “Old Notes” and, together with the New Notes, (the “Notes”)), are treated as a single class of securities under the Company’s existing indenture. The proceeds from the offering of the New Notes, net of transaction costs, were used to repay borrowings under the Company’s $360.0 million credit facility (the “Credit Facility”). In connection with the offering, the Company amended and restated the Credit Facility with respect to a reduction in the Term Loan to $150.0 million and a 0.75% reduction in the interest rate margin charged to the Company on the Term Loan. The Company also recorded a charge to Other (income) expense in the accompanying Combined and Consolidated Statements of Income of approximately $5.3 million, related to the write-off of the deferred financing costs associated with the refinancing of the original Term Loan.

     During the six months ended June 30, 2002, cash flow from operations exceeded working capital and investment needs, and the Company used a portion of those cash flows to make a $20.0 million voluntary principal payment on its Term Loan, as permitted by the Credit Facility.         

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     Third-party long-term debt consists of the following (in millions):

5.  Operating Segments:

     Segment information for the three month and six month periods ended June 30, 2002 and 2001 is as follows (in millions):

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     Segment information as of June 30, 2002 and December 31, 2001 is as follows (in millions):

6.  Guarantor/Non-guarantor Condensed Combining and Consolidating Statements

     The following condensed combined and consolidated financial statements present the financial position, results of operations and cash flows of the Company, its domestic subsidiaries (guarantors) and its foreign subsidiaries (non-guarantors).

CONDENSED CONSOLIDATING BALANCE SHEETS (unaudited)
June 30, 2002
(in millions)

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CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2001
(in millions)

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CONDENSED CONSOLIDATING STATEMENTS OF INCOME (unaudited)
For the Three Months Ended June 30, 2002 (in millions)

CONDENSED COMBINING STATEMENTS OF INCOME (unaudited)
For the Three Months Ended June 30, 2001 (in millions)

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CONDENSED CONSOLIDATING STATEMENTS OF INCOME (unaudited)
For the Six Months Ended June 30, 2002 (in millions)

CONDENSED COMBINING STATEMENTS OF INCOME (unaudited)
For the Six Months Ended June 30, 2001 (in millions)

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CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (unaudited)
For the Six Months Ended June 30, 2002
(in millions)

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CONDENSED COMBINING STATEMENTS OF CASH FLOWS (unaudited)
For the Six Months Ended June 30, 2001
(in millions)

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Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     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; governmental policies affecting the agricultural industry or highway maintenance programs in localities where the Company or its customers operate; weather conditions; the impact of competitive products; pressure on prices realized by the Company for its products; constraints on supplies of raw materials used in manufacturing certain of the Company’s 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 changes 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 the Company; and other risk factors reported from time to time in the Company’s 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. In evaluating these statements, you should specifically consider various factors, including the risks outlined in “Business Risk Factors.” These factors may cause our actual results to differ materially from any forward-looking statement.

     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 hereof or to reflect the occurrence of unanticipated events.

     You should read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in conjunction with the corresponding sections included in the Company’s Registration Statement on Form S-4 (File No. 333-82700), as amended, which was declared effective by the Securities Exchange Commission on April 23, 2002. The Form S-4, as amended, also includes the Company’s audited combined and consolidated financial statements and the notes thereto as of December 31, 2001 and for each of the three years ended December 31, 2001, 2000 and 1999, as well as other financial and operating information about our business.

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Results of Operations

     The combined and consolidated financial statements have been prepared to present the historical financial condition and results of operations and cash flows for the Company. The following tables 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 quarterly report. However, our historical combined and consolidated results of operations set forth below and elsewhere in this quarterly report may not necessarily reflect what would have occurred if we had been a separate, stand-alone entity during the periods presented or what will occur in the future.

     The following table sets forth certain unaudited combined and consolidated historical financial information, in both dollars and percentages of net sales, for the three and six months ended June 30, 2002 and 2001.

     The table below shows shipments of products (thousands of tons):

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Management’s Discussion on Critical Accounting Policies

     In response to the Securities and Exchange Commission’s (SEC) Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” the Company has identified the critical accounting policies that are most important to the portrayal of the Company’s financial condition and results of operations. The policies set forth below require management’s most subjective or complex judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Inventory Reserves

     The Company records reserves for unusable or slow moving finished goods and maintenance supplies inventory. The Company adjusts 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

     The Company maintains $157.5 million of net mineral rights as part of fixed assets. Mineral rights are stated at cost with amortization being provided on the units of production method based on estimates of recoverable reserves and, in certain instances, the length 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 Reserve

     The Company has approximately $114.0 million of net operating loss carryforwards (NOLs) that expire between 2009 and 2020. The Company has previously experienced two ownership changes that have placed significant annual limitations on the amount of NOL utilization. Additionally, the realization of these assets is based upon estimates of future taxable income which has resulted in the Company recording a valuation allowance (“reserve”) for the entire amount of the NOLs. The reserve is periodically adjusted to the degree that it is determined that a portion of the NOLs can be utilized. In preparing estimates of future taxable income, the Company has used the same assumptions and projections utilized on its internal forecasts. However, should these assumptions prove significantly different, the amount of reserve required could be materially different than that which is recorded.

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

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Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001

Net Sales

     Net sales for the second quarter of 2002 of $62.1 million increased $2.0 million, or 3.3% compared to $60.1 million for the second quarter of 2001. Net sales of salt for the second quarter of 2002 of $51.7 million increased $4.6 million, or 9.8% compared to $47.1 million for the second quarter of 2001. This increase was primarily the result of improved pricing in the North American highway deicing and general trade business lines combined with improved volumes of highway deicing products as late winter conditions developed in April. Sulfate of potash (“SOP”) net sales for 2002 of $10.4 million decreased $2.6 million compared to $13.0 million for 2001. The decrease is primarily due to a shorter domestic planting season in 2002 resulting from wetter spring months.

Gross Margins

     Gross margins for 2002 of $16.4 million increased $1.6 million, or 10.8% compared to $14.8 million for 2001. The increase in gross margin primarily reflects the impact of improved pricing of our winter salt products partially offset by lower SOP sales volumes.

Selling, General and Administrative Expenses

     Selling, general and administrative expenses of $9.7 million for 2002 remained relatively constant with the $9.5 million for the 2001 period.

Transition and Other Charges

     During the second quarter of 2002, the Company incurred $2.2 million of transition costs related to the transition from an entity controlled by IMC Global and consisted primarily of costs to develop stand alone tax and inventory management strategies. Transition costs are non-recurring in nature and related to charges required to establish the Company as an independent entity.

Interest Expense

     Interest expense for 2002 of $10.3 million increased $7.1 million, or 221.9% compared to $3.2 million for 2001. This increase was the result of the Company’s new capitalization structure following the Recapitalization.

Other (Income) Expense

     Other expense for 2002 of $4.4 million increased $6.3 million compared to other income of $(1.9) million for 2001. Other income in 2001 was primarily interest income earned from IMC. The increase in other expense is primarily due to the $5.3 million loss related to refinancing of the Term Loan resulting from the issuance of $75 million in Senior Notes in April (See Note 4.).

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Income Tax Expense

     Income tax benefit for 2002 of $2.9 million increased $6.9 million, or 172.5% compared to income tax expense of $4.0 million for 2001. 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 and foreign mining taxes.

Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001

Net Sales

     Net sales for 2002 of $176.0 million decreased $22.0 million, or 11.1% compared to $198.0 million for 2001. Net sales of salt for 2002 of $154.3 million decreased $20.1 million, or 11.5% compared to $174.4 million for 2001. This decrease was primarily the result of lower volumes of both the North American and the U.K. highway deicing product lines as well as consumer deicing volumes in the general trade business line, all due to the mild winter experienced in the March 2002 quarter. These reductions were offset in part by improved pricing in the North American highway and consumer deicing products. In particular, highway deicing and consumer deicing net sales for the March 2002 quarter decreased $14.1 million and $9.2 million, respectively, from the prior year period. SOP net sales for 2002 of $21.7 million decreased $1.9 million compared to $23.6 million for 2001. The decrease is primarily due to a shorter domestic planting season in 2002 resulting from wetter spring months.

Gross Margins

     Gross margins for 2002 of $56.0 million decreased $8.6 million, or 13.3% compared to $64.6 million for 2001. The reduction in gross margin primarily reflects the impact of weaker sales of our winter deicing products during the first quarter of 2002.

Selling, General and Administrative Expenses

     Selling, general and administrative expenses of $19.3 million for 2002 remained relatively constant with the $19.1 million for the 2001 period.

Transition and Other Charges