Back to GetFilings.com




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 March 31, 2003

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)


Delaware
(State or other jurisdiction of
incorporation or organization)
     48-1135403
(I.R.S. Employer
Identification Number)

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:      

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

Yes:         No:  X 

Common Stock, $0.01 Par Value - 1,000 shares outstanding as of May 1, 2003



COMPASS MINERALS GROUP, INC.

Table of Contents

Part I. FINANCIAL INFORMATION Page
     
          Item 1.     Financial Statements
     
                           Consolidated Balance Sheets as of March 31, 2003
                           (unaudited) and December 31, 2002 2
     
                           Consolidated Statements of Operations for the three month
                           period ended March 31, 2003 and 2002 (unaudited) 3
        
                           Consolidated Statement of Stockholder’s Equity (Deficit) for the three
                           month period ended March 31, 2003 (unaudited) 4
     
                           Consolidated Statements of Cash Flows for the three
                           month period ended March 31, 2003 and 2002 (unaudited) 5
     
                           Notes to Consolidated Financial Statements (unaudited) 6
     
           Item 2.    Management’s Discussion and Analysis of Financial Condition and
                           Results of Operations 15
     
           Item 3.    Quantitative and Qualitative Disclosure of Market Risk 20
     
           Item 4.    Controls and Procedures 21
     
Part II. OTHER INFORMATION
     
           Item 1.    Legal Proceedings 21
     
           Item 2.    Changes in Securities and Use of Proceeds 22
     
           Item 3.    Defaults upon Senior Securities 22
     
           Item 4.    Submission of Matters to a Vote of Security Holders 22
     
           Item 5.    Other Information 22
     
           Item 6.    Exhibits & Reports on Form 8-K 22
     
SIGNATURES 22
     
CERTIFICATIONS 23

1



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

March 31,
2003
December 31,
2002
(Unaudited)
ASSETS        
Current assets:        
  Cash and cash equivalents $ 50.1             $ 11.9  
  Receivables, less allowance for doubtful accounts of        
       $1.6 million in 2003 and 2002   83.7     94.5  
  Inventories   53.5     96.5  
  Other   2.5     0.7  
       Total current assets   189.8     203.6  
    
  Property, plant and equipment, net   408.9     413.2  
  Other   26.9     27.2  
      Total assets $ 625.6   $ 644.0  
    
LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)        
Current liabilities:        
  Current portion of long-term debt $ 0.8   $ 1.2  
  Accounts payable   48.7     62.3  
  Accrued expenses   10.5     8.9  
  Accrued interest   4.3     12.6  
  Accrued salaries and wages   14.4     12.6  
  Income taxes payable   7.0     4.8  
       Total current liabilities   85.7     102.4  
    
Long-term debt, net of current portion   406.2     436.4  
Deferred income taxes   101.3     99.6  
Other noncurrent liabilities   23.6     25.3  
    
Commitments and contingencies        
    
Stockholder’s equity (deficit):        
  Common stock, $.01 par value, 1,000 shares authorized, issued and        
      outstanding   —     —  
  Additional paid in capital   349.5     349.5  
  Accumulated deficit   (342.4 )   (369.3 )
  Accumulated other comprehensive income   1.7     0.1  
      Total stockholder’s equity (deficit)   8.8     (19.7 )
    
      Total liabilities and stockholder’s equity (deficit) $ 625.6   $ 644.0  

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

2



COMPASS MINERALS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in millions)

Three months ended
March 31,
   2003    2002
          Sales $ 212.7                      $ 162.4
          Cost of sales – shipping and handling costs   64.1     48.5
          Cost of sales – products   95.5     74.3
  
            Gross profit   53.1     39.6
  
          Selling, general and administrative expenses   11.6     9.6
          Restructuring and other charges   —     2.5
  
            Operating earnings   41.5     27.5
  
          Other (income) expense:      
            Interest expense   9.7     10.2
            Other, net   (0.3 )   —
  
          Income before income taxes   32.1     17.3
  
          Income tax expense   5.2     5.6
  
          Net income $ 26.9   $ 11.7

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

3



COMPASS MINERALS GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITY (DEFICIT) (unaudited)
For the three months ended March 31, 2003
(in millions)

Common
Stock
 Additional
Paid In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
 Total
Balance, December 31, 2002 $ —         $ 349.5         $ (369.3 )       $ 0.1         $ (19.7 )
  
Comprehensive income:                    
     Net income           26.9         26.9  
     Unrealized loss on cash flow                    
        hedges, net of tax               (0.6 )   (0.6 )
     Cumulative translation adjustments               2.2     2.2  
     Comprehensive income                   28.5  
Balance, March 31, 2003 $ —   $ 349.5   $ (342.4 ) $ 1.7   $ 8.8  

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

4



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

  Three months ended
March 31,		  
 
 
   2003    2002  
Cash flows from operating activities:        
   Net income $ 26.9                $ 11.7  
   Adjustments to reconcile net income to net cash flows provided        
        by operating activities:        
        Depreciation and depletion   9.8     9.1  
        Amortization   0.5     0.5  
        Restructuring and other charges, net of cash   —     1.1  
        Deferred income taxes   1.7     3.1  
        Changes in operating assets and liabilities:        
              Receivables   12.3     19.6  
              Due to affiliates   (0.3 )   —  
              Inventories   43.7     22.4  
              Other assets   (1.9 )   (0.1 )
              Accounts payable and accrued expenses   (20.0 )   (4.7 )
              Other noncurrent liabilities   (0.1 )   (0.8 )
   Net cash provided by operating activities   72.6     61.9  
  
Cash flows from investing activities:        
   Capital expenditures   (2.7 )   (3.3 )
  
        Net cash used in investing activities   (2.7 )   (3.3 )
  
Cash flows from financing activities:        
   Revolver activity   —     (39.8 )
   Principal payments on other long-term debt, including capital leases   (30.5 )   (0.1 )
   Deferred financing costs   —     (0.5 )
  
        Net cash used in financing activities   (30.5 )   (40.4 )
  
Effect of exchange rate changes on cash and cash equivalents   (1.2 )   (0.8 )
  
        Net increase in cash and cash equivalents   38.2     17.4  
  
Cash and cash equivalents, beginning of the period   11.9     15.9  
  
Cash and cash equivalents, end of the period $ 50.1   $ 33.3  
  
Supplemental cash flow information:        
   Interest paid excluding capitalized interest $ 17.4   $ 8.7  
   Income taxes paid   2.1     3.8  

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

5



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

1. Organization, Formation and Basis of Presentation:

              On November 28, 2001, IMC Inc. (“IMC”) completed the sale of Compass Minerals Group, Inc. (“CMG” or the “Company”) to Salt Holdings Corporation (“SHC”), an affiliate of Apollo Management V, L.P. (“Apollo”), whereby SHC acquired control of CMG in a recapitalization transaction (“Recapitalization”). The acquisition has been accounted for as a leveraged recapitalization. The excess of the purchase price over the net assets acquired was recorded in Stockholder’s Equity of SHC.

              The accompanying unaudited 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 period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003.

              The balance sheet at December 31, 2002 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 consolidated financial statements and notes thereto for the year ended December 31, 2002 included in the CMG Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2003.

              Certain reclassifications were made to prior year amounts in order to conform with the current year’s presentation.

2. Recent Accounting Pronouncements:

              In June 2001, the Financial Accounting Standards Board (the “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. The Company adopted SFAS No. 143 on January 1, 2003. The adoption of SFAS No. 143 did not have a material impact on the Company’s financial position, results of operations or cash flows.

              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 Company adopted SFAS No. 146 in the first quarter of 2003 as the provisions of this Statement are effective for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS No. 146 did not have a material impact on the Company’s financial position, results of operations or cash flows.

               In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." SFAS 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation" and requires certain disclosures in the Company's quarterly and annual financial statements. SHC has a stock option plan that was adopted on November 28, 2001. The Company elected to continue to follow the accounting method under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its employee stock options and has adopted the pro forma disclosure requirements under SFAS No. 123, as amended by SFAS 148. Under APB No. 25, because the exercise price of the Company's employee stock options is equal to or greater than the market price of the underlying stock on the date of grant, no compensation expense is recognized. The effect of applying the fair value method under SFAS No. 123, as amended by SFAS 148, to the Company's stock-based awards resulted in pro forma net income that is not materially different from amounts reported in the accompanying consolidated statement of operations for the three month periods ending March 31, 2003 and 2002.

6



3. Inventories:

              Inventories consist of the following (in millions):


March 31,
2003		 December 31,
2002
              Finished goods $ 41.3                  $ 83.5  
Raw materials and supplies   12.2     13.0  
  $ 53.5   $ 96.5  

4. Long-term Debt:

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


March 31,
2003		 December 31,
2002
              Senior Subordinated Notes $ 325.0                  $ 325.0  
Term Loan   78.9     109.3  
Revolving Credit Facility   —     —  
Other, including capital lease obligations   —     0.1  
    403.9     434.4  
Premium on senior subordinated notes, net   3.1     3.2  
Current portion of long-term debt   (0.8 )   (1.2 )
  $ 406.2   $ 436.4  

              See Note 7 for discussion of modifications to debt subsequent to March 31, 2003.

5. Operating Segments:

              Beginning in 2003, the Company no longer allocates corporate general and administrative costs incurred by CMG to its operating segments. For purposes of segment disclosure information, these costs are now classified in “Other.” The Company believes that this action will improve its ability to analyze its segment operating results. Certain reclassifications have been made to the 2002, 2001 and 2000 segment information in order to conform with the current year’s presentation.

7



              Segment information as of and for the three months periods ended March 31, 2003 and 2002, is as follows (in millions):


2003 Salt Potash Other (e) Total
 
 
 
 
 
 
              Sales to external customers          $ 200.4           $ 12.3          $ —           $ 212.7  
Intersegment sales   —     1.8     (1.8 )   —  
Cost of sales – shipping and handling costs   62.0     2.1     —     64.1  
Operating earnings (loss)   45.4     0.3     (4.2 )   41.5  
Total assets $ 488.0   $ 119.5   $ 18.1   $  625.6  
                     
2002 Salt Potash Other (e) Total
 
 
 
 
 
 
              Sales to external customers          $ 149.4          $ 13.0          $ —          $ 162.4  
Intersegment sales   —     1.5     (1.5 )   —  
Cost of sales – shipping and handling costs   46.8     1.7     —     48.5  
Operating earnings (loss) (a)   32.6     (0.1 )   (5.0 )   27.5  
Total assets $   477.2   $     124.9             $ 21.0   $   623.1  
                     
   Segment information as of and for the years ended December 31, is as follows (in millions):
                     
2002 Salt Potash Other (e) Total
 
 
 
 
 
 
                             
              Sales to external customers          $ 452.5          $ 50.1          $ —          $ 502.6  
Intersegment sales   —     8.9     (8.9 )   —  
Cost of sales – shipping and handling costs   130.2     7.3     —     137.5  
Operating earnings (loss) (b)   95.1     4.8     (22.2 )   77.7  
Total assets $ 509.8   $ 116.0   $ 18.2   $   644.0  
                             
2001 Salt Potash Other (e) Total
 
 
 
 
 
 
              Sales to external customers          $ 485.0          $ 38.2          $ —          $ 523.2  
Intersegment sales   —     8.8     (8.8 )   —  
Cost of sales – shipping and handling costs   143.2     —     —     143.2  
Operating earnings (loss) (c)   94.3     0.7     (37.9 )   57.1  
Total assets $ 514.2   $ 120.9   $ 20.5   $   655.6  
                             
2000 Salt Potash Other (e) Total  
 
 
 
 
 
 
              Sales to external customers   $ 465.1 $ 44.1 $ — $ 509.2  
Intersegment sales   —     6.3     (6.3 )   —  
Cost of sales – shipping and handling costs     140.0   —   —   140.0  
Operating earnings (loss) (d)   (400.0 ) (141.9 ) (13.3 ) (555.2 )
Total assets   $ 512.8 $ 121.9 $ 1.3   $ 636.0  
                             

(a) Includes $2.5 million related to restructuring costs.

(b) Includes $7.7 million related to restructuring costs.

(c) Includes $27.0 million related to transaction and restructuring costs.

(d) Includes $616.6 million related to asset impairments, goodwill write-downs and severance.

(e) Other includes corporate entities and eliminations.

8



6. Other Comprehensive Income:

              The following tables provide additional detail related to amounts recorded in Other Comprehensive Income during the three month period ended March 31, 2003:


Unfunded
Pension
Losses		 Unrealized gains
on cash flow
hedges		 Foreign
currency
adjustments		 Accumulated
Other
Comprehensive
Income
              Balance at December 31, 2002 $ (11.9 )          $ 0.1           $ 11.9           $ 0.1
   2003 changes   —     (0.6 )   2.2     1.6
Balance at March 31, 2003 $ (11.9 ) $ (0.5 ) $ 14.1   $ 1.7

  For the quarter ended March 31, 2003: Before tax
amount
Tax
(expense)
benefit
Net-of-tax
amount
              Gas hedging adjustment $ (0.8 )         $ 0.2           $ (0.6 )
Foreign currency translation adjustment   2.2     —     2.2  
   Other comprehensive income $ 1.4   $ 0.2   $ 1.6  

7. Subsequent Events:

              On May 5, 2003, the Company amended the senior credit facility (“Senior Credit Facility”) to allow the Company to pay a dividend to be funded with either cash on hand or with borrowings under the amended and restated senior revolving credit facility (“Revolving Credit Facility”). Additionally, the amendment permits the Company to repurchase certain SHC securities, other than the senior subordinated notes (“Senior Subordinated Notes”) and senior discount notes (“Discount Notes”), not held by Apollo or management.

9



8. Guarantor/Non-guarantor Condensed Consolidating Statements

              The following condensed consolidating 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)
March 31, 2003
(in millions)


Guarantors Non-
guarantors		 CMG Eliminations Consolidated
Cash and cash equivalents $ 33.9         $ 16.2        $ —        $ —        $ 50.1
Receivables, net   52.0     31.7     —     —     83.7
Inventories   33.8     19.7     —     —     53.5
Other current assets   2.5     —     —     —     2.5
Property, plant and equipment, net   213.2     195.7     —     —     408.9
Investment in subsidiaries   —     —     404.4     (404.4 )   —
Other   7.7     5.1     14.1     —     26.9
     
     Total assets $ 343.1   $ 268.4   $ 418.5   $ (404.4 ) $ 625.6
     
Current portion of long-term debt $ —   $ —   $ 0.8   $ —   $ 0.8
Other current liabilities   72.1     3.5     9.3     —     84.9
Total current liabilities   72.1     3.5     10.1     —     85.7
     
Due to (from) affiliates   (104.9 )   80.0     24.9     —     —
Long-term debt, net of current portion   —     —     406.2     —     406.2
Other noncurrent liabilities   123.7     32.7     (31.5 )   —     124.9
     
Total stockholder’s equity (deficit)   252.2     152.2     8.8     (404.4 )   8.8
     
     Total liabilities and stockholder’s equity
        (deficit)		 $ 343.1   $ 268.4   $ 418.5   $ (404.4 ) $ 625.6

10



CONDENSED CONSOLIDATING BALANCE SHEETS (unaudited)
December 31, 2002
(in millions)


Guarantors Non-
guarantors		 CMG Eliminations Consolidated
Cash and cash equivalents $ 6.5   $       5.4       $       —     $       —     $  11.9
Receivables, net   59.1     35.4     —     —     94.5  
Inventories   65.7     30.8     —     —     96.5  
Other current assets   0.2     0.5     —     —     0.7  
Property, plant and equipment, net   216.5     196.7     —     —     413.2  
Investment in subsidiaries   —     —     375.4     (375.4 )   —  
Other   7.6     2.7     16.9     —     27.2  
  
     Total assets $ 355.6   $ 271.5   $ 392.3   $ (375.4 ) $ 644.0  
  
Current portion of long-term debt $ —   $ 0.1   $ 1.1   $ —   $ 1.2  
Other current liabilities   59.0     27.3     14.9     —     101.2  
Total current liabilities   59.0     27.4     16.0     —     102.4  
Long-term debt, net of current portion   —     —     436.4     —     436.4  
Due to (from) affiliates   (70.8 )   92.8     (22.0 )   —     —  
Other noncurrent liabilities   137.0     6.3     (18.4 )   —     124.9  
Total stockholder’s equity (deficit)   230.4     145.0     (19.7 )   (375.4 )   (19.7 )
  
     Total liabilities and stockholder’s equity
         (deficit)		 $ 355.6   $ 271.5   $ 392.3   $ (375.4 ) $ 644.0  

11



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (unaudited)
For the Three Months Ended March 31, 2003 (in millions)


Guarantors Non-
guarantors		 CMG Eliminations Consolidated
Sales $ 140.0         $ 72.7         $ —         $ —         $ 212.7  
Cost of sales – shipping and handling   46.4     17.7     —     —     64.1  
Cost of sales – products   60.0     35.5     —     —     95.5  
     Gross profit   33.6     19.5     —     —     53.1  
Selling, general and administrative      expenses   6.7     4.9     —     —     11.6  
     Operating income   26.9     14.6     —     —     41.5  
Interest expense   0.1     2.3     7.3     —     9.7  
Other (income) expense   (0.2 )   (0.1 )   —     —     (0.3 )
(Earnings) in equity of subsidiary   —     —     (25.0 )   25.0     —  
     Income (loss) before income taxes   27.0     12.4     17.7     (25.0 )   32.1  
Income tax expense (benefit)   9.4     5.0     (9.2 )   —     5.2  
     Net income (loss) $ 17.6   $ 7.4   $ 26.9   $ (25.0 ) $ 26.9  

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (unaudited)
For the Three Months Ended March 31, 2002 (in millions)


Guarantors Non-
guarantors		 CMG Eliminations Consolidated
Sales $ 107.7         $ 54.7         $ —         $ —         $ 162.4
Cost of sales – shipping and handling   34.5     14.0     —     —     48.5
Cost of sales – products   46.5     27.8     —     —     74.3
     Gross profit   26.7     12.9     —     —     39.6
Selling, general and administrative      expenses   5.1     4.5     —     —     9.6
Restructuring and other charges   1.7     0.4     0.4     —     2.5
     Operating income (loss)   19.9     8.0     (0.4 )   —     27.5
Interest expense   —     2.6     7.6     —     10.2
(Earnings) in equity of subsidiary   —     —     (17.1 )   17.1     —
     Income (loss) before income taxes   19.9     5.4     9.1     (17.1 )   17.3
Income tax expense (benefit)   6.0     2.2     (2.6 )   —     5.6
     Net income (loss) $ 13.9   $ 3.2   $ 11.7   $ (17.1 ) $ 11.7

12



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (unaudited)
For the Three Months Ended March 31, 2003
(in millions)


Guarantors Non-
guarantors		 CMG Eliminations Consolidated
Net cash provided by operating activities $ 26.6       $ 23.1       $ 32.9      $ —      $ 72.6  
     
Cash flows from investing activities:                    
     
     Capital expenditures   (1.7 )   (1.0 )   —     —     (2.7 )
     
Net cash used in investing activities   (1.7 )   (1.0 )   —         (2.7 )
     
Cash flows from financing activities:                    
     
     Principal payments on other long-term                    
       debt, including capital leases   —     —     (30.5 )   —     (30.5 )
     Payments (to) from Affiliates, net   12.5     (12.2 )   (0.3 )   —     —  
       Net cash provided by (used in)                    
         financing activities   12.5     (12.2 )   (30.8 )   —     (30.5 )
Effect of exchange rate changes on cash                    
  and cash equivalents   —     0.9     (2.1 )   —     (1.2 )
Net increase in cash and cash                    
  equivalents   27.4     10.8     —     —     38.2  
Cash and cash equivalents, beginning of
    period		   6.5     5.4     —     —     11.9  
  Cash and cash equivalents, end of period $ 33.9   $ 16.2   $ —   $ —   $ 50.1  

13



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (unaudited)
For the Three Months Ended March 31, 2002
(in millions)


Guarantors Non-
guarantors		 CMG Eliminations Consolidated
Net cash provided by operating activities $ 52.2       $ 7.7       $ 2.0       $ —       $ 61.9  
  
Cash flows from investing activities:                    
  
   Capital expenditures   (2.1 )   (1.2 )   —     —     (3.3 )
  
Net cash used in investing activities   (2.1 )   (1.2 )   —     —     (3.3 )
  
Cash flows from financing activities:                    
  
    Revolver activity   —     (10.8 )   (29.0 )   —     (39.8 )
  
    Principal payments on other long-term                    
      debt, including capital leases   —     —     (0.1 )   —     (0.1 )
  
    Payments (to) / from affiliates   (39.8 )   10.8     29.0     —     —  
  
    Deferred financing costs   —     —     (0.5 )   —     (0.5 )
      Net cash used in financing activities   (39.8 )   —     (0.6 )   —     (40.4 )
Effect of exchange rate changes on cash                    
  and cash equivalents   —     0.6     (1.4 )   —     (0.8 )
Net increase in cash and cash equivalents   10.3     7.1     —     —     17.4  
  
Cash and cash equivalents, beginning of
  period		   8.2     7.7     —     —     15.9  
Cash and cash equivalents, end of period $ 18.5   $ 14.8   $ —   $ —   $ 33.3  

14



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.

              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.

15



Results of Operations

              The 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 consolidated financial statements and the notes thereto included elsewhere in this quarterly report.


Three Months Ended
March 31,
2003 2002
(in millions)
             
                           Sales $ 212.7            $ 162.4
Cost of sales – shipping and handling   64.1     48.5
Cost of sales – products   95.5     74.3
Gross profit   53.1     39.6
Selling, general and administrative expenses   11.6     9.6
Restructuring and other charges   —     2.5
Operating income   41.5     27.5
Interest expense   9.7     10.2
Other income   (0.3 )   —
Income before income taxes   32.1     17.3
Income tax expense   5.2     5.6
Net income $ 26.9   $ 11.7
  
Sales by Segment:      
Salt $ 200.4   $ 149.4
Specialty potash fertilizers   12.3     13.0
  
Total $ 212.7   $ 162.4

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


Three Months Ended
March 31,
2003 2002
                           Highway deicing salt    4,378               3,297
General trade salt   732     634
Specialty potash   58     61

Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

              Sales for the first quarter of 2003 of $212.7 million increased $50.3 million, or 31% compared to $162.4 million for the first quarter 2002. 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 $64.1 million during the first quarter of 2003, an increase of $15.6 million compared to the first quarter of 2002 shipping and handling fees of $48.5 million. The increase in shipping and handling related fees for the first quarter of 2003 is due to more tons of products sold as compared to 2002.

              Product Sales for the first quarter of 2003 of $148.6 million increased $34.7 million, or 30% compared to $113.9 million for the first quarter of 2002. Salt Product Sales for the first quarter of 2003 of $138.4 million increased $35.8 million, or 35% compared to $102.6 million for the first quarter of 2002. This increase was primarily the result of higher sales volumes in our North American deicing product line and significantly higher consumer deicing volumes in the general trade product line as compared to the lower sales volumes experienced in the first quarter of 2002 resulting from the mild winter experienced in that quarter. SOP Product Sales for the first quarter of 2003 of $10.2 million remained relatively consistent as compared to the first quarter of 2002.

16



Gross Profit

              Gross profit for the first quarter of 2003 of $53.1 million increased $13.5 million, or 34% compared to $39.6 million for the first quarter of 2002. The increase in gross profit primarily reflects the impact of improved highway and consumer deicing sales volumes combined with the continued successful implementation of a cost reduction program that began in 2002.

Selling, General and Administrative Expenses

              Selling, general and administrative expenses of $11.6 million for the first quarter of 2003 increased $2.0 million, or 21% compared to $9.6 million for the first quarter of 2002. The increase primarily reflects additional benefit costs and higher spending on discretionary promotional and marketing costs.

Restructuring and Other Charges

              Restructuring and other charges are transition costs that are non-recurring in nature and relate to charges required to establish us as an independent entity. We incurred $2.5 million of restructuring costs in the first quarter of 2002 that were directly related to our transition from an entity controlled by IMC and consisted primarily of one-time compensation costs.

Interest Expense

              Interest expense for the first quarter of 2003 of $9.7 million decreased $0.5 million compared to $10.2 million for the first quarter of 2002. This decrease is primarily the result of lower outstanding debt balances.

Income Tax Expense

              Income tax expense for the first quarter of 2003 remained relatively unchanged from income tax expense for the first quarter of 2002. However, the income tax effective rate decreased compared to the first quarter of 2002. A greater portion of pre-tax income was generated in the U.S. in the first quarter of 2003 than in the first quarter of 2002 causing a decrease in the effective income tax due to utilization of previously reserved NOL’s offsetting U.S. taxable income. 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 incurred in 2002 and foreign mining taxes.

              We have approximately $86.7 million of net operating loss carryforwards (“NOLs”) at March 31, 2003 that expire between 2009 and 2020.

Liquidity and Capital Resources

              Historically, we have used cash generated from operations to meet our working capital needs and to fund capital expenditures. Our primary sources of liquidity will continue to be cash flow from operations and borrowings under our revolving credit facility. We expect that ongoing requirements for debt service and capital expenditures will be funded from these sources.

17



              We have incurred substantial indebtedness in connection with the Recapitalization. As of March 31, 2003, we had $403.9 million of principal indebtedness, net of issuance premium, consisting of $325.0 million of Senior Subordinated Notes and a $78.9 million term loan (“Term Loan”) under our Senior Credit Facility. The Senior Credit Facility also provided for a Revolving Credit Facility in an aggregate amount of up to $135.0 million. No borrowings were outstanding under the Revolving Credit Facility and the Company maintained $50.1 million in cash on hand as of March 31, 2003. Future borrowings under the Revolving Credit Facility will be available to fund our working capital requirements, capital expenditures and for other general corporate purposes. As of March 31, 2003, approximately $126.0 million was available under the Revolving Credit Facility.

              As of March 31, 2003, our parent corporation, SHC, also maintains $69.0 million and $3.4 million of Discount Notes and seller notes, respectively. The discount notes and seller notes are not part of our consolidated financial statements. These notes have neither current cash interest nor maturity obligations until 2008. Our operations are currently the main source of cash that is expected to service this debt.

              On May 5, 2003, we amended our Senior Credit Facility to allow us to pay a dividend to be funded with either cash on hand or with borrowings under the amended and restated Revolving Credit Facility. Additionally, the amendment permits us to repurchase certain of our securities (other than the Senior Subordinated Notes and Discount Notes) not held by Apollo or management.

              During the three months ended March 31, 2003, cash flow from operations exceeded working capital needs by $72.6 million, and we used a portion of those cash flows to make a $30.0 million voluntary principal payment on our Term Loan, as permitted by the credit agreement under the Senior Credit Facility.

              Our significant debt service obligations following the Recapitalization could, under certain circumstances, materially affect our financial condition and prevent us from fulfilling our obligations under our Senior Subordinated Notes, Senior Credit Facility and our parent’s Discount Notes.

For the Three Months Ended March 31, 2003 and 2002

              Net cash flows generated by operating activities for the three months ended March 31, 2003 and 2002 were $72.6 million and $61.9 million, respectively. Of these amounts, $36.0 million and $37.3 million for 2003 and 2002, respectively, were generated by working capital reductions. The primary working capital reductions for 2003 and 2002, were decreases in receivables of $12.3 million and $19.6 million, respectively, decreases in inventories of $43.7 million and $22.4 million, respectively, and decreases in accounts payable and accrued expenses of $20.0 million and $4.7 million, respectively, all primarily due to the seasonal nature of highway deicing product line sales.

              Net cash flows used by investing activities for the three months ended March 31, 2003 and 2002, were $2.7 million and $3.3 million, respectively, and were primarily related to normal capital expenditures to maintain our facilities.

              Net cash flow used by financing activities was $30.5 million for the three months ended March 31, 2003, primarily due to the $30.0 million voluntary principal repayments that reduced the amount of long-term debt outstanding under the Term Loan. Net cash flow used by financing activities was $40.4 million for the three months ending March 31, 2002, primarily due to the $39.8 million repayment of our revolver borrowings.

18



Contractual Obligations and Commitments

              The Company’s contractual obligations and commitments at March 31, 2003 are as follows (in millions):


Payments Due by Period
                 Contractual Obligations Total Less than
1 Year		 2 – 3
Years		 4 – 5
Years		 After 5
Years
     Long-term Debt $ 403.9           $ 0.8           $ 1.6           $ 1.6           $ 399.9
     Operating Leases (a)   27.1     5.7     7.6     5.2     8.6
     Unconditional purchase obligations (b)   62.8     7.8     15.7     15.7     23.6
  
Total Contractual Cash Obligations $ 493.8   $ 14.3   $ 24.9   $ 22.5   $ 432.1

(a) The Company leases property and equipment under non-cancelable operating leases for varying periods.

(b) The Company has long-term contracts to purchase certain amounts of electricity and steam.

Amount of Commitment Expiration per Period
                 Other Commitments Total Less than
1 Year		 2 – 3
Years		 4 – 5
Years		 After 5
Years
     Revolver $ 126.0           $ —           $ —           $ —           $ 126.0
     Letters of Credit   9.0     9.0     —     —     —
  
Total Other Commitments $ 135.0   $ 9.0   $ —   $ —   $ 126.0

              Our ability to make scheduled payments of principal, to pay the interest on, or to refinance our indebtedness or to fund planned capital expenditures will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

              Based on our current level of operations, we believe that cash flow from operations and available cash, together with available borrowings under our senior credit facilities, will be adequate to meet our short-term liquidity needs.

              There can be no assurance, however, that our business will generate sufficient cash flow from operations 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 on commercially reasonable terms or at all.

Seasonality

              We experience a substantial amount of seasonality in salt sales. The result of this seasonality is that sales and operating income are generally higher in the first and fourth quarters and lower during the second and third quarters of each year. In particular, sales of highway and consumer deicing salt products are seasonal as they vary based on the severity of the winter conditions in areas where the product is used. Following industry practice in North America, we and our customers stockpile sufficient quantities of deicing salt in the second, third and fourth quarters to meet the estimated requirements for the winter season.

19



Recent Accounting Pronouncements

              In June 2001, the Financial Accounting Standards Board (the “FASB”) issued 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. The Company adopted SFAS No. 143 on January 1, 2003. The adoption of SFAS No. 143 did not have a material impact on the Company’s financial position, results of operations or cash flows.

              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 Company adopted SFAS No. 146 in the first quarter of 2003 as the provisions of this Statement are effective for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS No. 146 did not have a material impact on the Company’s financial position, results of operations or cash flows.

             In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." SFAS 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation" and requires certain disclosures in the Company's quarterly and annual financial statements. SHC has a stock option plan that was adopted on November 28, 2001. The Company elected to continue to follow the accounting method under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its employee stock options and has adopted the pro forma disclosure requirements under SFAS No. 123, as amended by SFAS 148. Under APB No. 25, because the exercise price of the Company's employee stock options is equal to or greater than the market price of the underlying stock on the date of grant, no compensation expense is recognized. The effect of applying the fair value method under SFAS No. 123, as amended by SFAS 148, to the Company's stock-based awards resulted in pro forma net income that is not materially different from amounts reported in the accompanying consolidated statement of operations for the three month periods ending March 31, 2003 and 2002.


Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

              Our business is subject to various types of market risks that include, but are not limited to, interest rate risk, foreign currency translation risk, and commodity pricing risk. In the future, management may take actions that would mitigate our exposure to these types of risks including forward purchase contracts and financial instruments. The Company will not enter into any financial instrument arrangements for speculative purposes.

Interest Rate Risk

              As of March 31, 2003, we had $78.9 million of debt outstanding under the term loan facility and zero outstanding under our revolving credit facility. Both the term loan facility and revolving credit facility are subject to variable rates. Accordingly, our earnings and cash flows are affected by changes in interest rates. Assuming no change in the term loan facility borrowings at March 31, 2003, and an average level of borrowings from our revolving credit facility at variable rates and assuming a one hundred basis point increase in the average interest rate under these borrowings, it is estimated that our interest expense for the three months ended March 31, 2003 would have increased by approximately $0.2 million.

20



Effects of Currency Fluctuations

              Our operations are subject to both currency transaction risk and currency translation risk. We incur currency transaction risk whenever we or one of our subsidiaries enter into either a purchase or sales transaction using a currency other than the local currency of the transacting entity. With respect to currency translation risk, our financial condition and results of operations are measured and recorded in the relevant local currency and then translated into U.S. dollars for inclusion in our historical combined and consolidated financial statements. Exchange rates between these currencies and U.S. dollars in recent years have fluctuated significantly and may do so in the future. The majority of our revenues and costs are denominated in U.S. dollars, with British pound sterling and Canadian dollars also being significant. Our historical results do not reflect any foreign exchange hedging activity.

Commodity Pricing Risk: Commodity Derivative Instruments and Hedging Activities

              We have reviewed various options available to mitigate the impact of fluctuating natural gas prices. During 2002 and 2003, we have entered into certain financial instruments related to the purchase of natural gas. We have determined that these financial instruments qualify as hedges under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activity.”

Item 4. CONTROLS AND PROCEDURES

              Within the 90 days prior to the filing date of this quarterly report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures of Compass Minerals Group, Inc. pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that these disclosure controls and procedures are effective in timely alerting them to material information relating to us required to be included in our periodic SEC filings. There were no significant changes in our disclosure controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

              The Company from time to time is involved in various routine legal proceedings. These primarily involve commercial claims, product 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 Global has agreed to indemnify us against certain legal matters.

21

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

              None

Item 3. DEFAULTS UPON SENIOR SECURITIES

              None

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

              Not Applicable

Item 5. OTHER INFORMATION

              Not Applicable

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

              None

SIGNATURES

              Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





Date: May 9, 2003		 COMPASS MINERALS GROUP, INC.


/s/ Michael E. Ducey
——————————————

Michael E. Ducey
President and Chief Executive Officer
Date: May 9, 2003 /s/ Rodney L. Underdown
——————————————

Rodney L. Underdown
Chief Financial Officer

22



CERTIFICATIONS

Certification requirements set forth in Section 302 (a) of the Sarbanes-Oxley Act.

I, Michael E. Ducey, certify that:


1. I have reviewed this quarterly report on Form 10-Q of Compass Minerals Group, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weakness in internal controls; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date: May 9, 2003 /s/ Michael E. Ducey
——————————————

Michael E. Ducey
President and Chief Executive Officer

23



I, Rodney L. Underdown, certify that:


1. I have reviewed this quarterly report on Form 10-Q of Compass Minerals Group, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weakness in internal controls; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date: May 9, 2003 /s/ Rodney L. Underdown
——————————————

Rodney L. Underdown
Chief Financial Officer

24