10-Q/A

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q/A

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2004
or
o	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	48-1135403
(State or other jurisdiction of incorporation or organization)	(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 þ          No o

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes o          No þ

          The number of shares outstanding of the registrant’s common stock, $0.01 par value per share, at November 22, 2004 was 1,000 shares.

COMPASS MINERALS GROUP, INC.

Introductory Note

      Compass Minerals Group, Inc. (the “Company”) is restating its combined and consolidated financial statements to correct an error in the calculation of the deferred income tax accounts and related valuation allowance dating back to the year ended December 31, 1998. The effect of the timing of future reversals of existing temporary differences had not been previously considered as a possible source of future taxable income. In addition, the effect of taxable income expected to be generated in the future from sources other than the reversals of existing taxable temporary differences had not been properly considered at December 31, 2002 as a possible source of future taxable income. The Company is also restating the historical balance sheet presentation of advances to its parent company and sole shareholder, Compass Minerals International, Inc., from other non-current assets to a deduction from stockholder’s equity (deficit). The disclosure under the heading “Restatement” in Note 1 to the consolidated financial statements in the Quarterly Report on Form 10-Q/A describes the effect of the restatement on the consolidated financial statements appearing in this Form 10-Q/A. The restatement discussed above had no impact on cash flows, operating earnings, income before income taxes or the Company’s ability to realize the benefits from its deferred tax assets.

      As a result of restating the consolidated financial statements for the year ended December 31, 2003, the Company determined that its financial statements for the three-month periods ended March 31, 2004 and 2003 also needed to be restated in order to reflect the corrections discussed above (see the disclosure under the heading “Restatement” in Note 1 to the consolidated financial statements in this Quarterly Report on Form 10-Q/A)

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003, restated (unaudited)		2
	Consolidated Statements of Operations for the three month periods ended March 31, 2004 and 2003, restated (unaudited)		3
	Consolidated Statement of Stockholder’s Equity (Deficit) for the three month period ended March 31, 2004, restated (unaudited)		4
	Consolidated Statements of Cash Flows for the three month periods ended March 31, 2004 and 2003, restated (unaudited)		5
	Notes to Consolidated Financial Statements, restated (unaudited)		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3.	Quantitative and Qualitative Disclosure About Market Risk		24
Item 4.	Controls and Procedures		25
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		26
Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities		27
Item 3.	Defaults upon Senior Securities		27
Item 4.	Submission of Matters to a Vote of Security Holders		27
Item 5.	Other Information		27
Item 6.	Exhibits and Reports on Form 8-K		27
Signatures			28
Certification
Certification
Certifications

1

PART I.     FINANCIAL INFORMATION

Item 1. Financial Statements

COMPASS MINERALS GROUP, INC.

CONSOLIDATED BALANCE SHEETS

				March 31,			December 31,
				2004			2003
				(restated)			(restated)
				(Unaudited)
				(In millions,
				except share data)
ASSETS
Current assets:
	Cash and cash equivalents			$	71.3		$	2.6
	Receivables, less allowance for doubtful accounts of $2.1 million in 2004 and in 2003				86.0			117.4
	Inventories				56.8			96.7
	Other				2.5			3.7
		Total current assets			216.6			220.4
	Property, plant and equipment, net				257.2			262.0
	Intangible assets — mineral interests and other, net				172.0			172.7
	Other				24.2			24.5
		Total assets		$	670.0		$	679.6
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
	Current portion of long-term debt			$	0.7		$	0.8
	Accounts payable				53.3			72.6
	Accrued expenses				15.3			13.3
	Accrued interest				4.4			12.5
	Accrued salaries and wages				14.0			13.5
	Income taxes payable				8.4			—
			Total current liabilities		96.1			112.7
Long-term debt, net of current portion					395.3			419.4
Deferred income taxes					54.8			55.9
Other noncurrent liabilities					39.8			36.4
Commitments and contingencies (Note 9)
Stockholder’s equity (deficit):
	Common Stock:
		$0.01 par value, authorized shares — 1,000 shares authorized, issued and outstanding			—			—
		Additional paid in capital			354.7			354.7
		Accumulated deficit			(280.9	)		(314.6	)
		Advances to parent			(17.1	)		(10.4	)
		Accumulated other comprehensive income			27.3			25.5
		Total stockholder’s equity			84.0			55.2
		Total liabilities and stockholder’s equity		$	670.0		$	679.6

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

2

COMPASS MINERALS GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

		Three Months Ended
		March 31,
		2004		2003
		(restated)		(restated)
		(Unaudited)
		(In millions)
Sales		$	250.5	$	212.7
Cost of sales — shipping and handling			74.4		64.1
Cost of sales — products			104.1		95.5
	Gross profit		72.0		53.1
Selling, general and administrative expenses			14.0		11.6
	Operating earnings		58.0		41.5
Other (income) expense:
	Interest expense		9.5		9.7
	Other, net		0.5		(0.3	)
Income before income taxes			48.0		32.1
Income tax expense			14.3		11.1
Net income		$	33.7	$	21.0

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

3

COMPASS MINERALS GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITY (DEFICIT)

For the Three Months Ended March 31, 2004, restated

												Accumulated
				Additional					Advances			Other
		Common		Paid In		Accumulated			to			Comprehensive
		Stock		Capital		Deficit			Parent			Income		Total
		(Unaudited)
		(In millions)
Balance, December 31, 2003		$	—	$	354.7	$	(314.6	)	$	(10.4	)	$	25.5	$	55.2
Advances to parent										(6.7	)				(6.7	)
Comprehensive income:
	Net income						33.7								33.7
	Unrealized gain on cash flow hedges, net of tax												0.3		0.3
	Cumulative translation adjustments												1.5		1.5
	Comprehensive income														35.5
Balance, March 31, 2004		$	—	$	354.7	$	(280.9	)	$	(17.1	)	$	27.3	$	84.0

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

4

COMPASS MINERALS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

				Three Months Ended
				March 31,
				2004			2003
				(restated)			(restated)
				(Unaudited)
				(In millions)
Cash flows from operating activities:
	Net income			$	33.7		$	21.0
	Adjustments to reconcile net income to net cash flows provided by operating activities:
			Depreciation, depletion and amortization		10.5			9.8
			Finance fee amortization		0.4			0.5
			Deferred income taxes		(0.3	)		7.6
			Changes in operating assets and liabilities:
			Receivables		31.6			12.3
			Inventories		39.6			43.7
			Other assets		0.6			(1.9	)
			Accounts payable and accrued expenses		(16.5	)		(20.0	)
			Other noncurrent liabilities		3.2			(0.1	)
	Net cash provided by operating activities				102.8			72.9
Cash flows from investing activities:
	Capital expenditures				(3.9	)		(2.7	)
	Other				0.1			—
		Net cash used in investing activities			(3.8	)		(2.7	)
Cash flows from financing activities:
	Principal payments on long-term debt, including capital leases				(10.2	)		(30.5	)
	Revolver activity				(14.0	)		—
	Advances to parent				(6.7	)		(0.3	)
		Net cash used in financing activities			(30.9	)		(30.8	)
Effect of exchange rate changes on cash and cash equivalents					0.6			(1.2	)
		Net increase in cash and cash equivalents			68.7			38.2
Cash and cash equivalents, beginning of period					2.6			11.9
Cash and cash equivalents, end of period				$	71.3		$	50.1
Supplemental cash flow information:
	Interest paid			$	17.3		$	17.4
	Income taxes paid, net of refunds				2.7			2.1

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

5

COMPASS MINERALS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization, Formation and Basis of Presentation:

      Compass Minerals Group, Inc. (“CMG” or the “Company”), is a producer and marketer of inorganic mineral products with manufacturing sites in North America and Europe. Its principal products are salt and sulfate of potash (“SOP”). CMG serves a variety of markets, including agriculture, food processing, chemical processing, water conditioning and highway deicing and is a wholly owned subsidiary of Compass Minerals International, Inc. (“CMI”).

      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, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004.

      The balance sheet at December 31, 2003 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, 2003 included in CMG’s Form 10-K/A filed with the Securities and Exchange Commission (the “SEC”) on November 23, 2004.

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

      Restatement: The Company determines its current and deferred income taxes on a separate company basis. Prior to the quarter ended September 30, 2004, the Company recorded full valuation allowances against certain U.S. deferred tax assets. The Company, after discussions with its independent registered public accounting firms, has subsequently determined that future reversals of existing taxable temporary differences (deferred tax liabilities) should have been considered as a possible source of taxable income when evaluating the need for a valuation allowance against deferred tax assets. In addition, the Company determined that at December 31, 2002 a valuation allowance against certain U.S. deferred tax assets in the amount of $13.1 million was no longer necessary based on an assessment of potential sources of future taxable income other than reversals of existing taxable temporary differences. Upon consideration of these sources of future taxable income, the Company has now determined that it had overstated its deferred tax asset valuation allowance and, thereby, understated its deferred tax assets.

      As a result, the Company has recalculated its deferred income tax accounts, related valuation allowance and other income tax liability accounts in other noncurrent liabilities at the end of each year from December 31, 1998 through December 31, 2003 and at March 31, 2004 and June 30, 2004 and has restated its consolidated financial statements and the accompanying notes to the consolidated financial statements, as applicable, for the three-month periods ended March 31, 2004 and 2003 to reflect the adjustments in the deferred income tax accounts and related valuation allowance and other income tax liability accounts in other noncurrent liabilities on the consolidated balance sheets. These adjustments during the previous reporting periods had no impact on cash flows, operating earnings, income before income taxes or the Company’s ability to realize the benefits from its deferred tax assets.

6

COMPASS MINERALS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following is a summary of the effects of these non-cash adjustments (in millions):

Cumulative decrease to deferred income tax liability and increase to stockholder’s equity (deficit) at January 1, 2003	$	24.0
Increase in income tax expense and decrease in net income for the three-months ended March 31, 2003		(5.9	)
Cumulative decrease to deferred income tax liability and increase to stockholder’s equity (deficit) at January 1, 2004		21.8
Increase in income tax expense and decrease in net income for the three-month period ended March 31, 2004		(2.7	)

      Prior to September 30, 2004, the Company presented advances to its parent company and sole shareholder, Compass Minerals International, Inc., as a component of other non-current assets. The Company has subsequently determined that these advances should have been presented as a deduction from stockholder’s equity (deficit) in the consolidated balance sheets and statements of stockholder’s equity (deficit). CMI has the intent, but does not currently have the ability to repay these advances except through the declaration of a dividend from CMG. The effect of this restatement is a reduction in total assets and stockholder’s equity (deficit) of $17.1 million and $10.4 million at March 31, 2004 and December 31, 2003, respectively.

      The following tables present (in millions, except share data) the impact of the restatement on the consolidated statements of operations, the consolidated balance sheets, and consolidated statements of cash flows. The amounts previously reported are derived from the Company’s historical filings with the SEC.

		For the three months				For the three months
		ended March 31,				ended March 31,
		2004				2003
		Amounts				Amounts
		previously		As		previously		As
		reported		restated		reported		restated
Consolidated statement of operations:
	Income before income taxes	$	48.0	$	48.0	$	32.1	$	32.1
	Income tax expense		11.6		14.3		5.2		11.1
	Net income	$	36.4	$	33.7	$	26.9	$	21.0

		March 31, 2004						December 31, 2003
		Amounts						Amounts
		previously			As			previously			As
		reported			restated			reported			restated
Consolidated balance sheet:
	Other noncurrent assets	$	41.3		$	24.2		$	34.9		$	24.5
	Total assets		687.1			670.0			690.0			679.6
	Deferred income taxes		77.1			54.8			77.7			55.9
	Other noncurrent liabilities		36.6			39.8			36.4			36.4
	Additional paid in capital		341.9			354.7			341.9			354.7
	Accumulated deficit		(287.2	)		(280.9	)		(323.6	)		(314.6	)
	Advances to parent		—			(17.1	)		—			(10.4	)
	Total stockholder’s equity (deficit)		82.0			84.0			(43.8	)		55.2

7

COMPASS MINERALS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		For the three months					For the three months
		ended March 31, 2004					ended March 31, 2003
		Amounts					Amounts
		previously		As			previously			As
		reported		restated			reported			restated
Consolidated statement of cash flows:
	Net income	$	36.4	$	33.7		$	26.9		$	21.0
	Deferred income taxes		0.2		(0.3	)		1.7			7.6
	Other noncurrent liabilities		—		3.2			(0.1	)		(0.1	)
	Net cash provided by operating activities		102.8		102.8			72.9			72.9

2. Recent Accounting Pronouncements:

      In January 2003, the Financial Accounting Standards Board, or “FASB,” issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51 (“FIN 46”). FIN 46 establishes accounting guidance for consolidation of variable interest entities that function to support the activities of the primary beneficiary. FIN 46 applies to any business enterprise, public or private, that has a controlling interest, contractual relationship or other business relationship with a variable interest entity. In December 2003, the FASB issued Interpretation No. 46(R) (“FIN 46(R)”) which supercedes FIN 46. FIN 46(R) is effective for all Special Purpose Entities (“SPEs”) created prior to February 1, 2003 at the end of the first interim or annual reporting period ending after December 15, 2003. FIN 46(R) is applicable to all non-SPEs created prior to February 1, 2003 by public entities at the end of the first interim or annual reporting period ending after March 15, 2004. The Company has determined that it has no SPEs. The Company reviewed the applicability of FIN 46(R) to entities other than SPEs and has determined that the adoption of FIN 46(R) did not have a material effect on its consolidated financial statements.

3.     Inventories:

      Inventories consist of the following (in millions):

	March 31,		December 31,
	2004		2003
Finished goods	$	45.6	$	84.1
Raw materials and supplies		11.2		12.6
	$	56.8	$	96.7

4. Property, Plant and Equipment:

      Property, plant and equipment consists of the following (in millions):

	March 31,		December 31,
	2004		2003
Land and buildings	$	138.0	$	135.9
Machinery and equipment		407.7		408.3
Furniture and fixtures		9.6		9.6
Mineral properties and rights		20.8		20.3
Construction in progress		9.8		6.5
		585.9		580.6
Less accumulated depreciation and depletion		328.7		318.6
	$	257.2	$	262.0

8

COMPASS MINERALS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. Intangible Assets — Mineral Interests and Other:

      Mineral interests include probable mineral reserves. The Company leases mineral reserves at several of its extraction facilities. These leases have varying terms, and many provide for a royalty payment to the lessor based on a specific amount per ton of mineral extracted or as a percentage of revenue. The Company’s mineral interests are amortized on a units-of-production basis. The Company acquired other intangible assets related to its SOP segment during 2003. These assets are being amortized on a straight-line basis over their estimated useful lives.

      The aggregate amortization of mineral interests and other intangible assets for the three months ended March 31, 2004 and 2003 was $0.7 million and $0.3 million, respectively. The estimated amortization expense from fiscal 2004 to fiscal 2008 is approximately $1.7 million annually.

      Mineral interests and other intangible assets consist of the following (in millions):

	March 31, 2004						December 31, 2003
	Gross						Gross
	Carrying		Accumulated		Net Book		Carrying		Accumulated		Net Book
	Value		Amortization		Value		Value		Amortization		Value
Probable mineral reserves	$	158.6	$	11.0	$	147.6	$	158.6	$	10.6	$	148.0
SOP long-term customer contract		0.5		—		0.5		0.5		—		0.5
Other SOP intangible asset		24.3		0.4		23.9		24.3		0.1		24.2
	$	183.4	$	11.4	$	172.0	$	183.4	$	10.7	$	172.7

6. Income Taxes:

      The Company determines its current and deferred income taxes on a separate company basis. For the three-month periods ended March 31, 2004 and 2003, the Company originally reported income tax expense of $11.6 million and $5.2 million, respectively. The Company originally recorded a full valuation allowance against certain U.S. deferred tax assets. As part of the restatement to the combined and consolidated financial statements further described under the heading “Restatement” in Note 1 to this report, the Company decreased the valuation allowance against certain U.S. deferred tax assets by $24.0 million as of January 1, 2003. As a result of this restatement, income tax expense for the three-month periods ended March 31, 2004 and 2003 was $14.3 million and $11.1 million, respectively. Income tax expense for these periods, as originally reported, reflected an income tax benefit for the decrease in valuation allowance that resulted from the utilization of NOLs that were fully offset by a valuation allowance. Due to the restatement of the valuation allowance as of January 1, 2003, the utilization of NOLs in the three-month periods ended March 31, 2004 and 2003 did not result in an income tax benefit as the NOLs utilized are no longer fully offset by a valuation allowance. This resulted in an increase in the Company’s effective tax rate, and related expense, for this period.

      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 income taxes.

      At March 31, 2004, we had approximately $70.0 million of NOLs that expire between 2007 and 2022. The Company has recorded a valuation allowance for a portion of its deferred tax assets relating to NOLs that it does not believe will, more likely than not, be realized given the annual limitations from prior ownership changes. As of March 31, 2004 and December 31, 2003, the Company’s valuation allowance was $9.5 million and $12.7 million, respectively. If sufficient evidence exists in the future that more or less of the Company’s deferred tax assets should be realized, an adjustment to the valuation allowance will be made at that time.

9

COMPASS MINERALS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7. Long-term Debt:

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

	March 31,			December 31,
	2004			2003
Senior Subordinated Notes	$	325.0		$	325.0
Term Loan		68.1			78.3
Revolving Credit Facility		—			14.0
		393.1			417.3
Premium on Senior Subordinated Notes, net		2.9			2.9
Less: current portion		(0.7	)		(0.8	)
	$	395.3		$	419.4

8. Pension Plans:

      The components of pension expense were as follows for the three-month periods ended March 31, (in millions):

	2004			2003
Service cost for benefits earned during the year	$	0.3		$	0.4
Interest cost on projected benefit obligation		0.8			0.7
Return on plan assets		(0.7	)		(0.6	)
Net amortization and deferral		0.2			0.3
Net pension expense	$	0.6		$	0.8

      Employer contributions were approximately $0.4 million during the three-month periods ended March 31, 2004 and 2003.

9. Commitments and Contingencies:

      The Company is involved in legal and administrative proceedings and claims of various types from normal Company activities.

      The Company has become aware of an aboriginal land claim filed by The Chippewas of Nawash and The Chippewas of Saugeen (the “Chippewas”) in the Ontario Superior Court against The Attorney General of Canada and Her Majesty The Queen In Right of Ontario. The Chippewas claim that a large part of the land under Lake Huron was never conveyed by treaty and therefore belong to the Chippewas. The land claimed includes land in which the Company’s Goderich mine operates and has mining rights granted to it by the government of Ontario. The Company is not a party to this court action. Similar claims are pending with respect to other parts of the Great Lakes by other aboriginal claimants. The Company has been informed by the Ministry of the Attorney General of Ontario that “Canada takes the position that the common law does not recognize aboriginal title to the Great Lakes and its connecting waterways.”

      The Company does not believe that this action will result in a material adverse financial effect on the Company. Furthermore, while any litigation contains an element of uncertainty, management presently believes that the outcome of each such proceeding or claim which is pending or known to be threatened, or all of them combined, will not have a material adverse effect on the Company’s results of operations or financial position.

10

COMPASS MINERALS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     Parent Company Obligations

      Advances to CMG’s parent company and sole shareholder, CMI, in the amount of $17.1 million and $10.4 million at March 31, 2004 and December 31, 2003, respectively, are presented as a deduction from stockholder’s equity. CMI has the intent, but does not currently have the ability to repay these advances except through the declaration of a dividend from CMG. The advances to parent are non-interest bearing.

      As of March 31, 2004, CMI had recorded approximately $78.3 million and $110.7 million for its senior discount notes and subordinated discount notes, respectively. The senior discount notes and subordinated discount notes are not a part of CMG’s consolidated financial statements. However, CMG’s operations are currently the main source of cash that is expected to service the senior discount notes, subordinated discount notes and any future dividends on CMI common stock.

10. Operating Segments:

      Segment information is as follows (in millions):

	Three Months Ended March 31, 2004
	Salt		Potash		Other(a)			Total
Sales to external customers	$	228.7	$	21.8	$	—		$	250.5
Intersegment sales		—		2.3		(2.3	)		—
Cost of sales — shipping and handling costs		70.7		3.7		—			74.4
Operating earnings (loss)		60.2		3.0		(5.2	)		58.0
Depreciation, depletion and amortization		8.5		2.0		—			10.5
Total assets, restated		511.6		143.5		14.9			670.0

	Three Months Ended March 31, 2003
	Salt		Potash		Other(a)			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
Depreciation, depletion and amortization		7.8		2.0		—			9.8
Total assets, restated		488.0		119.5		15.5			623.0

(a) “Other” includes corporate entities and eliminations.

11

COMPASS MINERALS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11. Other Comprehensive Income:

      The Company’s comprehensive income is comprised of net income, the change in the unrealized gain (loss) on cash flow hedges related to the Company’s gas hedging activities and foreign currency translation adjustments. The components of comprehensive income for the three-month periods ended March 31, are (in millions):

	2004		2003
	(restated)		(restated)
Net income	$	33.7	$	21.0
Unrealized gain (loss) on cash flow hedges, net of tax		0.3		(0.6	)
Cumulative translation adjustments		1.5		2.2
Comprehensive income	$	35.5	$	22.6

      The following tables provide additional detail related to amounts recorded in Other Comprehensive Income during the three-month period ended March 31, 2004:

								Accumulated
	Unfunded			Unrealized		Foreign		Other
	Pension			Gains on Cash		Currency		Comprehensive
	Losses			Flow Hedges		Adjustments		Income
Balance at December 31, 2003	$	(7.0	)	$	0.8	$	31.7	$	25.5
2004 changes		—			0.3		1.5		1.8
Balance at March 31, 2004	$	(7.0	)	$	1.1	$	33.2	$	27.3

		Before Tax		Tax			Net-of-Tax
For the three-months ended March 31, 2004:		Amount		Expense			Amount
Unrealized gain on cash flow hedges		$	0.4	$	(0.1	)	$	0.3
Foreign currency translation adjustment			1.5		—			1.5
	Other comprehensive income	$	1.9	$	(0.1	)	$	1.8

12. Guarantor/ Non-guarantor Condensed Consolidated Statements:

      As discussed in Note 8 to the consolidated financial statements included in the Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on November 23, 2004, the Company issued a total of $325.0 million of 10% Senior Subordinated Notes due 2011. These notes were unsecured obligations of CMG, however, they were guaranteed on an unsecured basis by its domestic subsidiaries. The guarantee is full and unconditional. As discussed in Note 1, the following condensed consolidating financial statements have been restated.

      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).

12

COMPASS MINERALS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING BALANCE SHEETS

March 31, 2004, restated

		Guarantors			Non-guarantors		CMG		Eliminations			Consolidated
		(Unaudited)
		(In millions)
Cash and cash equivalents		$	51.0		$	20.3	$	—	$	—		$	71.3
Receivables, net			50.3			35.7		—		—			86.0
Inventories			36.6			20.2		—		—			56.8
Other current assets			2.1			0.4		—		—			2.5
Property, plant and equipment, net			66.3			190.9		—		—			257.2
Intangible assets — mineral interests and other, net			172.0			—		—		—			172.0
Investment in subsidiaries			—			—		569.3		(569.3	)		—
Other			7.9			4.0		12.3		—			24.2
	Total assets	$	386.2		$	271.5	$	581.6	$	(569.3	)	$	670.0
Current portion of long-term debt		$	—		$	—	$	0.7	$	—		$	0.7
Other current liabilities			40.4			48.5		6.5		—			95.4
Total current liabilities			40.4			48.5		7.2		—			96.1
Long-term debt, net of current portion			—			—		395.3		—			395.3
Due to (from) affiliates			(148.0	)		71.9		76.1		—			—
Other noncurrent liabilities			63.9			11.7		19.0		—			94.6
Total stockholder’s equity			429.9			139.4		84.0		(569.3	)		84.0
	Total liabilities and common stockholder’s equity	$	386.2		$	271.5	$	581.6	$	(569.3	)	$	670.0

CONDENSED CONSOLIDATING BALANCE SHEETS

March 31, 2004, as previously reported

		Guarantors			Non-guarantors		CMG		Eliminations			Consolidated
		(Unaudited)
		(In millions)
Cash and cash equivalents		$	51.0		$	20.3	$	—	$	—		$	71.3
Receivables, net			50.3			35.7		—		—			86.0
Inventories			36.6			20.2		—		—			56.8
Other current assets			2.1			0.4		—		—			2.5
Property, plant and equipment, net			66.3			190.9		—		—			257.2
Intangible assets — mineral interests and other, net			172.0			—		—		—			172.0
Investment in subsidiaries			—			—		550.2		(550.2	)		—
Other			7.9			4.0		29.4		—			41.3
	Total assets	$	386.2		$	271.5	$	579.6	$	(550.2	)	$	687.1
Current portion of long-term debt		$	—		$	—	$	0.7	$	—		$	0.7
Other current liabilities			40.4			48.5		6.5		—			95.4
Total current liabilities			40.4			48.5		7.2		—			96.1
Long-term debt, net of current portion			—			—		395.3		—			395.3
Due to (from) affiliates			(148.0	)		71.9		76.1		—			—
Other noncurrent liabilities			83.0			11.7		19.0		—			113.7
Total stockholder’s equity			410.8			139.4		82.0		(550.2	)		82.0
	Total liabilities and common stockholder’s equity	$	386.2		$	271.5	$	579.6	$	(550.2	)	$	687.1

13

COMPASS MINERALS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING BALANCE SHEETS (unaudited)

December 31, 2003, restated

		Guarantors			Non-guarantors		CMG			Eliminations			Consolidated
		(In millions)
Cash and cash equivalents		$	0.3		$	2.3	$	—		$	—		$	2.6
Receivables, net			68.6			48.8		—			—			117.4
Inventories			66.5			30.2		—			—			96.7
Other current assets			2.8			1.7		(0.8	)		—			3.7
Property, plant and equipment, net			55.9			206.1		—			—			262.0
Intangible assets — mineral interests and other, net			172.7			—		—			—			172.7
Investment in subsidiaries			—			—		524.8			(524.8	)		—
Other			7.9			3.9		12.7			—			24.5
	Total assets	$	374.7		$	293.0	$	536.7		$	(524.8	)	$	679.6
Current portion of long-term debt		$	—		$	—	$	0.8		$	—		$	0.8
Other current liabilities			55.2			45.6		11.1			—			111.9
Total current liabilities			55.2			45.6		11.9			—			112.7
Long-term debt, net of current portion			—			—		419.4			—			419.4
Due to (from) affiliates			(122.4	)		83.1		39.3			—			—
Other noncurrent liabilities			79.0			2.4		10.9			—			92.3
Total stockholder’s equity			362.9			161.9		55.2			(524.8	)		55.2
	Total liabilities and common stockholder’s equity	$	374.7		$	293.0	$	536.7		$	(524.8	)	$	679.6

CONDENSED CONSOLIDATING BALANCE SHEETS (unaudited)

December 31, 2003, as previously reported

		Guarantors			Non-guarantors		CMG			Eliminations			Consolidated
		(In millions)
Cash and cash equivalents		$	0.3		$	2.3	$	—		$	—		$	2.6
Receivables, net			68.6			48.8		—			—			117.4
Inventories			66.5			30.2		—			—			96.7
Other current assets			2.8			1.7		(0.8	)		—			3.7
Property, plant and equipment, net			55.9			206.1		—			—			262.0
Intangible assets — mineral interests and other, net			172.7			—		—			—			172.7
Investment in subsidiaries			—			—		512.7			(512.7	)		—
Other			7.9			14.3		12.7			—			34.9
	Total assets	$	374.7		$	303.4	$	524.6		$	(512.7	)	$	690.0
Current portion of long-term debt		$	—		$	—	$	0.8		$	—		$	0.8
Other current liabilities			55.2			46.3		10.4			—			111.9
Total current liabilities			55.2			46.3		11.2			—			112.7
Long-term debt, net of current portion			—			—		419.4			—			419.4
Due to (from) affiliates			(122.4	)		83.1		39.3			—			—
Other noncurrent liabilities			100.8			2.4		10.9			—			114.1
Total stockholder’s equity			341.1			171.6		43.8			(512.7	)		43.8
	Total liabilities and common stockholder’s equity	$	374.7		$	303.4	$	524.6		$	(512.7	)	$	690.0

14

COMPASS MINERALS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, 2004, restated

		Guarantors		Non-guarantors		CMG			Eliminations			Consolidated
		(Unaudited)
		(In millions)
Sales		$	156.9	$	93.6	$	—		$	—		$	250.5
Cost of sales — shipping and handling			50.5		23.9		—			—			74.4
Cost of sales — products			65.1		39.0		—			—			104.1
	Gross profit		41.3		30.7		—			—			72.0
Selling, general and administrative expenses			8.2		5.8		—			—			14.0
	Operating income		33.1		24.9		—			—			58.0
Interest expense			0.1		2.2		7.2			—			9.5
Other (income) expense			0.1		0.4		—			—			0.5
(Earnings) in equity of subsidiary			—		—		(34.2	)		34.2			—
	Income (loss) before income taxes		32.9		22.3		27.0			(34.2	)		48.0
Income tax expense (benefit)			13.5		7.5		(6.7	)		—			14.3
	Net income (loss)	$	19.4	$	14.8	$	33.7		$	(34.2	)	$	33.7

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, 2004, as previously reported

		Guarantors		Non-guarantors		CMG			Eliminations			Consolidated
		(Unaudited)
		(In millions)
Sales		$	156.9	$	93.6	$	—		$	—		$	250.5
Cost of sales — shipping and handling			50.5		23.9		—			—			74.4
Cost of sales — products			65.1		39.0		—			—			104.1
	Gross profit		41.3		30.7		—			—			72.0
Selling, general and administrative expenses			8.2		5.8		—			—			14.0
	Operating income		33.1		24.9		—			—			58.0
Interest expense			0.1		2.2		7.2			—			9.5
Other (income) expense			0.1		0.4		—			—			0.5
(Earnings) in equity of subsidiary			—		—		(36.9	)		36.9			—
	Income (loss) before income taxes		32.9		22.3		29.7			(36.9	)		48.0
Income tax expense (benefit)			10.8		7.5		(6.7	)		—			11.6
	Net income	$	22.1	$	14.8	$	36.4		$	(36.9	)	$	36.4

15

COMPASS MINERALS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, 2003, restated

		Guarantors			Non-guarantors			CMG			Eliminations			Consolidated
		(Unaudited)
		(In millions)
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			—			—			(19.1	)		19.1			—
	Income (loss) before income taxes		27.0			12.4			11.8			(19.1	)		32.1
Income tax expense (benefit)			15.3			5.0			(9.2	)		—			11.1
	Net income (loss)	$	11.7		$	7.4		$	21.0		$	(19.1	)	$	21.0

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, 2003, as previously reported

		Guarantors			Non-guarantors			CMG			Eliminations			Consolidated
		(Unaudited)
		(In millions)
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	$	17.6		$	7.4		$	26.9		$	(25.0	)	$	26.9

16

COMPASS MINERALS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2004

			Guarantors			Non-guarantors			CMG			Eliminations		Consolidated
			(Unaudited)
			(In millions)
Net cash provided by operating activities			$	77.7		$	40.0		$	(14.9	)	$	—	$	102.8
Cash flows from investing activities:
		Capital expenditures		(1.5	)		(2.4	)		—			—		(3.9	)
		Other		—			0.1			—			—		0.1
Net cash used in investing activities				(1.5	)		(2.3	)		—			—		(3.8	)
Cash flows from financing activities:
	Revolver activity			—			—			(14.0	)		—		(14.0	)
	Principal payments on other long-term debt, including capital leases			—			—			(10.2	)		—		(10.2	)
	Payments (to) from Affiliates, net			(25.5	)		(18.0	)		36.8			—		(6.7	)
		Net cash provided by (used in) financing activities		(25.5	)		(18.0	)		12.6			—		(30.9	)
Effect of exchange rate changes on cash and cash equivalents				—			(1.7	)		2.3			—		0.6
Net increase in cash and cash equivalents				50.7			18.0			—			—		68.7
Cash and cash equivalents, beginning of period				0.3			2.3			—			—		2.6
Cash and cash equivalents, end of period			$	51.0		$	20.3		$	—		$	—	$	71.3

17

COMPASS MINERALS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2003

			Guarantors			Non-guarantors			CMG			Eliminations		Consolidated
			(Unaudited)
			(In millions)
Net cash provided by operating activities			$	63.4		$	26.1		$	(16.6	)	$	—	$	72.9
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			(34.3	)		(15.2	)		49.2			—		(0.3	)
		Net cash provided by (used in) financing activities		(34.3	)		(15.2	)		18.7			—		(30.8	)
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. Subsequent Event:

      In May 2004, CMI’s board of directors declared a quarterly cash dividend of $0.25 per share, approximately $7.6 million, on its outstanding common stock. The dividend is payable on June 15, 2004 to stockholders of record as of the close of business on June 1, 2004. CMG’s operations are currently the main source of cash that is expected to service dividends declared on CMI’s common stock.

18

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.

      Unless the context requires otherwise, references in this quarterly report to the “Company,” “Compass,” “Compass Minerals,” “CMG,” “we,” “us” and “our” refer to Compass Minerals Group, Inc. and its consolidated subsidiaries.

Critical Accounting Estimates

      Preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management believes the most complex and sensitive judgements, because of their significance to our consolidated financial statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management’s Discussion and Analysis and Note 2 to the Consolidated Financial Statements in our Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on November 23, 2004, describe the significant accounting estimates and policies used in preparation of our consolidated financial statements. Actual results in these areas could differ from management’s estimates. There have been no significant changes in our critical accounting estimates during the first three months of 2004 other than those described in Note 6 to the consolidated financial statements in this Quarterly Report on Form 10-Q/A.

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

19

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,
	2004		2003
	(restated)		(restated)
	(Dollars in millions,
	except per ton data)
Sales	$	250.5	$	212.7
Cost of sales — shipping and handling		74.4		64.1
Cost of sales — products		104.1		95.5
Gross profit		72.0		53.1
Selling, general and administrative expenses		14.0		11.6
Restructuring and other charges		—		—
Operating income		58.0		41.5
Interest expense		9.5		9.7
Other expense/ (income)		0.5		(0.3	)
Income before income taxes		48.0		32.1
Income tax expense		14.3		11.1
Net income	$	33.7	$	21.0
Sales by Segment:
Salt	$	228.7	$	200.4
Specialty potash fertilizers		21.8		12.3
Total	$	250.5	$	212.7
Sales Volumes (in thousands of tons):
Highway deicing		4,679		4,378
General trade		785		732
Specialty potash		101		58
Average Sales Price (per ton):
Highway deicing	$	32.45	$	30.61
General trade		97.35		90.15
Specialty potash		215.42		212.74

Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003

Sales

      Sales for the first quarter of 2004 of $250.5 million increased $37.8 million, or 18% compared to $212.7 million for the first quarter of 2003. Sales include revenues from the sale of our products, or “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 sulfate of potash (“SOP”) product to the customer. Such shipping and handling fees were $74.4 million during the first quarter of 2004, an increase of $10.3 million compared to the first quarter of 2003 shipping and handling fees of $64.1 million. The increase in shipping and handling related fees for the first quarter of 2004 is due to the increased volume of products sold as compared to 2003.

      Product Sales for the first quarter of 2004 of $176.1 million increased $27.5 million, or 18% compared to $148.6 million for the same period in 2003. Salt Product Sales for the first quarter of 2004 of $158.0 million increased $19.6 million, or 14% compared to $138.4 million for the same period in 2003 due to increased sales

20

volumes in our United Kingdom (“U.K.”) highway deicing product line ($4.9 million), increased sales volumes in our North American highway deicing product line ($2.0 million) and increased sales volumes in our general trade product line ($4.0 million). The increased sales volumes in our U.K. highway deicing product line of approximately 200,000 tons was primarily due to more normal winter weather in the March quarter of 2004 compared to an extremely mild March quarter in 2003. The increased sales volumes in our North American highway deicing product line of approximately 100,000 tons was primarily due to an increase in North American market share. The increased sales volumes in our general trade product line of approximately 53,000 tons was primarily due to above average winter weather on the East Coast, where our retail deicing products are sold.

      Salt Product Sales were also favorably impacted by approximately $8.8 million from the effect of a weakened U.S. dollar against both the Canadian dollar and the British pound. Average prices, net of foreign exchange effects, were slightly lower, by approximately $0.9 million, due to customer mix.

      Specialty potash fertilizer Product Sales for the first quarter of 2004 of $18.1 million increased $7.9 million, or 77% compared to $10.2 million for the same period in 2003 reflecting increases in both domestic and international market share primarily due to the purchase of IMC Global, Inc.’s former sulfate of potash marketing business in December 2003.

Gross Profit

      Gross profit for the first quarter of 2004 of $72.0 million increased $18.9 million, or 36% compared to $53.1 million for the same period in 2003. The increase in gross profit primarily reflects the impact of improved volumes ($6.9 million) and changes in foreign exchange rates as described above ($2.5 million). Additionally, a reduction in costs to produce and distribute products increased our gross profit by $8.4 million.

Selling, General and Administrative Expenses

      Selling, general and administrative expenses for the first quarter of 2004 of $14.0 million increased $2.4 million, or 21% compared to $11.6 million for the same period in 2003. The increase primarily reflects additional variable compensation and benefit costs of approximately $1.1 million due to improved quarterly financial results and higher costs related to changes in foreign exchange rates of approximately $0.7 million.

Interest Expense

      Interest expense for the first quarter of 2004 of $9.5 million decreased $0.2 million compared to $9.7 million for the same period in 2003. This decrease is primarily the result of lower average debt outstanding under the senior credit facility during the first quarter of 2004.

Other Expense/ (Income)

      Other expense for the first quarter of 2004 of $0.5 million increased $0.8 million compared to other income of $0.3 million for the same period in 2003. As part of other expense, we recorded non-cash foreign exchange losses and (gains) of $0.4 million and $(0.3) million in the first quarter of 2004 and 2003, respectively.

Income Tax Expense (Benefit)

      Income tax expense for the first quarter of 2004 of $14.3 million increased $3.2 million compared to income tax expense of $11.1 million for the same period of 2003. This increase between periods is primarily due to the overall increase in pre-tax income. Additionally, 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 income taxes.

21

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.

      On November 28, 2001, Apollo Management V, L.P., through its subsidiary, YBR Holdings LLC, acquired control of CMG’s parent, Compass Minerals International, Inc. (“CMI”), from IMC Global, Inc. pursuant to a recapitalization transaction (“Recapitalization”) with assets and liabilities of CMG retaining their historical value. We have incurred substantial indebtedness in connection with the Recapitalization and subsequent financings. As of March 31, 2004, we had $393.1 million of principal indebtedness, net of issuance premium, consisting of $325.0 million of senior subordinated notes and $68.1 million of our term loan. Our senior credit facility provides for a revolving credit facility in an aggregate amount of up to $135.0 million. As of March 31, 2004, no indebtedness was outstanding under our revolving credit facility and $8.2 million of letters of credit were outstanding, leaving approximately $126.8 million available under our revolving credit facility. Future borrowings under our revolving credit facility will be available to fund our working capital requirements, capital expenditures and for other general corporate purposes. We maintained $71.3 million in cash on hand as of March 31, 2004.

      As of March 31, 2004, our parent corporation, CMI, also maintained $78.3 million of senior discount notes with a face value of $123.5 million and $110.7 million of senior subordinated discount notes with a face value of $179.6 million. The senior discount notes and senior subordinated discount 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 the senior discount notes, senior subordinated discount notes and any future dividends on CMI common stock.

      During the three months ended March 31, 2004, cash flows from operations were $102.8 million. We used a portion of those cash flows to pay down $14.0 million of our revolving credit facility that was outstanding as of December 31, 2003 and to make a $10.0 million voluntary principal payment on our term loan.

      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 the senior subordinated notes, senior credit facility and our parent’s senior discount notes and senior subordinated discount notes. As of March 31, 2004, we are in compliance with all conditions and covenants related to the senior credit facility and senior subordinated notes and our parent, CMI, is in compliance with all conditions and covenants related to its senior discount notes and senior subordinated discount notes.

For the Three Months Ended March 31, 2004 and 2003

      Net cash flow generated by operating activities for the three months ended March 31, 2004 and 2003 was $102.8 million and $72.9 million, respectively. Of these amounts, $54.7 million and $36.0 million for 2004 and 2003, respectively, were generated by working capital reductions. The primary working capital reductions for 2004 and 2003 were decreases in receivables of $31.6 million and $12.3 million, respectively, and decreases in inventories of $39.6 million and $43.7 million, respectively. These reductions were partially offset by decreases in accounts payable and accrued expenses of $16.5 million and $20.0 million, respectively. These reductions are indicative of the seasonal nature of highway deicing product line sales.

      Net cash flow used by investing activities for the three months ended March 31, 2004 and 2003, were $3.8 million and $2.7 million, respectively. These cash flows consisted of capital expenditures primarily to maintain our facilities of $3.9 million and $2.7 million in 2004 and 2003, respectively.

      Net cash flow used by financing activities was $30.9 million for the three months ended March 31, 2004, due to a $14.0 million pay down of our revolving credit facility, a $10.0 million voluntary principal repayment that reduced the amount of long-term debt outstanding under our term loan credit facility and $6.7 million of advances to CMI. No gain or loss was recorded upon repayment of debt. Net cash flow used by financing

22

activities was $30.8 million for the three months ended March 31, 2003, primarily due to the $30.0 million voluntary principal repayment that reduced the amount of long-term debt outstanding under our term loan credit facility.

Contractual Obligations and Commitments

      The Company’s contractual obligations and commitments at March 31, 2004 are as follows (in millions):

	Payments Due by Period
			Less than		2-3		4-5		After 5
Contractual Cash Obligations	Total		1 Year		Years		Years		Years
Long-term debt	$	393.1	$	0.7	$	1.4	$	1.4	$	389.6
Operating leases(a)		29.4		6.6		7.9		4.3		10.6
Unconditional purchase obligations(b)		63.8		8.9		17.9		17.9		19.1
Management agreement(c)		7.7		1.0		2.0		2.0		2.7
Total contractual cash obligations	$	494.0	$	17.2	$	29.2	$	25.6	$	422.0

	Amount of Commitment Expiration per Period
			Less than		2-3		4-5		After 5
Other Commitments	Total		1 Year		Years		Years		Years
Amount available under the revolving credit facility	$	126.8	$	—	$	—	$	126.8	$	—
Outstanding letters of credit		8.2		8.2		—		—		—
Outstanding performance bonds(d)		15.3		15.3		—		—		—
Total other commitments	$	150.3	$	23.5	$	—	$	126.8	$	—

(a)	We lease property and equipment under non-cancelable operating leases for varying periods.
(b)	We have long-term contracts to purchase certain amounts of electricity and steam.
(c)	Refer to Note 11 to the consolidated financial statements and notes thereto for the year ended December 31, 2003 included in CMG’s Form 10-K/A filed with the SEC on November 23, 2004, for additional information.
(d)	Refer to Note 10 to the consolidated financial statements and notes thereto for the year ended December 31, 2003 included in CMG’s Form 10-K/A filed with the SEC on November 23, 2004, for additional information related to Sales Contracts.

      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 liquidity needs over the next twelve months.

      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.

23

Effects of Currency Fluctuations and Inflation

      We conduct operations in Canada, the United Kingdom and the United States. Therefore, our results of operations are subject to both currency transaction risk and currency translation risk. We incur currency transaction risk whenever we or one of our subsidiaries enter into either a purchase or sales transaction using a currency other than the local currency of the transacting entity. With respect to currency translation risk, our financial condition and results of operations are measured and recorded in the relevant local currency and then translated 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 pounds sterling and Canadian dollars also being significant. The weakened U.S. dollar against the pound sterling and Canadian dollar has had a positive impact on our reported consolidated sales. However, significant changes in the value of the Canadian dollar, the euro or 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 borrowings under our senior credit facilities.

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 stockpile sufficient quantities of deicing salt in the second, third and fourth quarters to meet the estimated requirements for the winter season.

Recent Accounting Pronouncements

      In January 2003, the Financial Accounting Standards Board, or “FASB,” issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51 (“FIN 46”). FIN 46 establishes accounting guidance for consolidation of variable interest entities that function to support the activities of the primary beneficiary. FIN 46 applies to any business enterprise, public or private, that has a controlling interest, contractual relationship or other business relationship with a variable interest entity. In December 2003, the FASB issued Interpretation No. 46(R) (“FIN 46(R)”) which supercedes FIN 46. FIN 46(R) is effective for all Special Purpose Entities (“SPEs”) created prior to February 1, 2003 at the end of the first interim or annual reporting period ending after December 15, 2003. FIN 46(R) is applicable to all non-SPEs created prior to February 1, 2003 by public entities at the end of the first interim or annual reporting period ending after March 15, 2004. The Company has determined that it has no SPEs. The Company reviewed the applicability of FIN 46(R) to entities other than SPEs and has determined that the adoption of FIN 46(R) did not have a material effect on its consolidated financial statements.

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. However, there can be no assurance that our hedging operations will eliminate or substantially reduce risks associated with these risks. We will not enter into any financial instrument arrangements for speculative purposes.

Interest Rate Risk

      As of March 31, 2004, we had $68.1 million of debt outstanding under the term loan credit facility and nothing outstanding under our revolving credit facility. Both the term loan credit facility and revolving credit facility are subject to variable rates. Accordingly, our earnings and cash flows are affected by changes in

24

interest rates. Assuming no change in the term loan credit facility borrowings at March 31, 2004, 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, 2004 would have increased by approximately $0.2 million. Actual changes will vary from hypothetical changes.

Foreign Currency Risk

      We conduct our business primarily in the United Kingdom and North America and export some products to Europe, Southeast Asia and Latin America. Our operations may, therefore, be subject to volatility because of currency fluctuations, inflation changes and changes in political and economic conditions in these countries. Sales and expenses are frequently denominated in local currencies and results of operations may be affected adversely as currency fluctuations affect our product prices and operating costs or those of our competitors. We may engage in hedging operations, including forward foreign exchange contracts, to reduce the exposure of our cash flows to fluctuations in foreign currency rates. We will not engage in hedging for speculative investment reasons. Our historical results do not reflect any foreign exchange hedging activity. There can be no assurance that our hedging operations will eliminate or substantially reduce risks associated with fluctuating currencies.

      A hypothetical 10% change in the exchange rates compared to the U.S. dollar would have an estimated $0.4 million impact on earnings for the three months ended March 31, 2004. Actual changes in market prices or rates will differ from hypothetical changes.

Commodity Pricing Risk: Commodity Derivative Instruments and Hedging Activities

      We have reviewed various options to mitigate the impact of fluctuating natural gas prices. During 2003 and 2004, we instituted a hedging policy to mitigate the impact of fluctuations in the price of natural gas. The notional volumes hedged are based on a combination of factors, including estimated natural gas usage, current market prices and historical market prices. Pursuant to our policy, we enter into contractual gas price swaps related to the purchase price of our natural gas requirements up to 36 months in advance of the physical purchase of the natural gas and hedge up to approximately 80% of our expected natural gas usage. We have determined that these financial instruments qualify as cash flow hedges under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activity,” as amended. The notional amount of natural gas swap derivative contracts outstanding at March 31, 2004 that expire in one year or less and expire greater than one year total $7.0 million and $3.5 million, respectively.

      Excluding gas hedged with derivative instruments, a hypothetical 10% adverse change in our natural gas prices during the three months ended March 31, 2004 would have had an estimated $0.2 million impact on earnings. Actual results will vary based on actual changes in market prices and rates.

Item 4. Controls and Procedures

      Within the 90 days prior to the date of this interim report, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures of the Company pursuant to Exchange Act Rule 13a-14.

      The Company regularly evaluates the critical estimates and assumptions that it makes in the preparation of its financial statements. As a result of this evaluation process, the Company determined that its deferred income tax accounts and related valuation allowance should be adjusted for periods prior to September 30, 2004 to reflect the consideration of (1) future reversals of existing taxable temporary differences and (2) taxable income expected to be generated in the future from sources other than reversals of existing taxable temporary differences, as possible sources of taxable income. These non-cash adjustments were the basis for the restatement of the Company’s financial statements reflected in the Company’s Annual Report on Form 10-K/ A filed with the SEC on November 23, 2004.

25

      The non-cash adjustments to the deferred income tax accounts, related valuation allowance and other income tax liability accounts in other noncurrent liabilities, were reflected as non-cash adjustments to income tax expense on the combined and consolidated financial statements. The adjustments has no impact on cash flows, operating earnings, income before taxes or the Company’s ability to realize benefits from its deferred tax assets.

      The non-cash adjustments to the Company’s deferred income tax accounts and related valuation allowance were the result of the consideration of (1) future reversals of existing taxable temporary differences and (2) taxable income expected to be generated in the future from sources other than reversals of existing taxable temporary differences, as possible sources of taxable income, which had not been done previously. In designing and evaluating their disclosure controls and procedures, the Company recognizes that any controls and procedures, regardless of how designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures. The Company believes that the errors which led to the restatement were the result of a material weakness in internal control over financial reporting related to the Company’s accounting for income taxes. The material weakness was the result of (a) internal control deficiencies relating to the analysis and reconciliation of income tax accounts, (b) resource constraints related to the income tax accounting function and (c) incorrect conclusions reached regarding the accounting for our deferred income tax accounts, related valuation allowance and other income tax liability accounts in other noncurrent liabilities. As a result of the material weakness described above, we concluded that our internal controls and procedures were ineffective as of March 31, 2004. The conclusion of the Chief Executive Officer and Chief Financial Officer from this evaluation was communicated to the Audit Committee of the Company’s parent, CMI.

      In order to remediate this matter, the Company has been identifying and implementing actions to improve the effectiveness of its disclosure controls and procedures and internal controls over its income tax accounting. In connection with this effort the Company has (a) added additional resources to the income tax accounting function and (b) adopted more rigorous policies and procedures with respect to the income tax account balance sheet review process. In addition, the Company plans to implement additional procedures effective immediately with respect to its income tax accounting process: (i) greater senior level financial officer review of the income tax balance sheet accounts and the related journal entries; and (ii) engaging an independent consultant to assist the Company’s personnel to conduct a comprehensive and detailed review of the Company’s tax reporting and accounting, in particular with respect to developing more effective processes for establishing and monitoring deferred income taxes, valuation allowances, other income tax liability accounts in other noncurrent liabilities and the Company’s annual effective tax rate. The Company believes that implementation of these steps will remediate this matter by the end of 2004 or beginning of 2005.

      There were no other 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.

      We have become aware of an aboriginal land claim filed by The Chippewas of Nawash and The Chippewas of Saugeen (the “Chippewas”) in the Ontario Superior Court against The Attorney General of Canada and Her Majesty The Queen In Right of Ontario. The Chippewas claim that a large part of the land under Lake Huron was never conveyed by treaty and therefore belong to the Chippewas. The land claimed

26

includes land in which our Goderich mine operates and has mining rights granted to it by the government of Ontario. We are not a party to this court action. Similar claims are pending with respect to other parts of the Great Lakes by other aboriginal claimants. We have been informed by the Ministry of the Attorney General of Ontario that “Canada takes the position that the common law does not recognize aboriginal title to the Great Lakes and its connecting waterways.” We do not believe that this action will result in a material adverse financial effect on the Company.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

      None

Item 3. Defaults Upon Senior Securities

      None

Item 4. Submission of Matters to a Vote of Security Holders

      None

Item 5. Other Information

      Not Applicable

Item 6. Exhibits and Reports on Form 8-K

      (a) Exhibits

EXHIBIT INDEX

Exhibit
No.			Description of Exhibit
	31	.1*	Section 302 Certifications of Michael E. Ducey, President and Chief Executive Officer.
	31	.2*	Section 302 Certifications of Rodney L. Underdown, Chief Financial Officer and Vice President.
	32*		Certification Pursuant to 18 U.S.C. §1350 of Michael E. Ducey, President and Chief Executive Officer and Rodney L. Underdown, Chief Financial Officer and Vice President.

*  Filed herewith

      (b) Reports on Form 8-K

      None

27

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

COMPASS MINERALS GROUP, INC.

/s/ MICHAEL E. DUCEY

Michael E. Ducey

President and Chief Executive Officer

Date: November 23, 2004

/s/ RODNEY L. UNDERDOWN

Rodney L. Underdown

Chief Financial Officer and Vice President

Date: November 23, 2004

28 EX-31.1 2 c89185a1exv31w1.htm CERTIFICATION

Exhibit 31.1

I, Michael E. Ducey, certify that:

      1. I have reviewed this quarterly report on Form 10-Q/A 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

      (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

      (b) (omitted pursuant to SEC Release No. 33-8238);

      (c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      (d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

      (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

      (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

COMPASS MINERALS GROUP, INC.

/s/ MICHAEL E. DUCEY

Michael E. Ducey

President and Chief Executive Officer

Date: November 23, 2004

29 EX-31.2 3 c89185a1exv31w2.htm CERTIFICATION

Exhibit 31.2

I, Rodney L. Underdown, certify that:

      1. I have reviewed this quarterly report on Form 10-Q/A 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

      (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

      (b) (omitted pursuant to SEC Release No. 33-8238);

      (c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      (d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

      (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

      (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

COMPASS MINERALS GROUP, INC.

/s/ RODNEY L. UNDERDOWN

Rodney L. Underdown

Chief Financial Officer and Vice President

Date: November 23, 2004

30 EX-32 4 c89185a1exv32.htm CERTIFICATIONS

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. §1350

      We hereby certify that this quarterly report on Form 10-Q/A for the three-month period ended March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof, to the best of my knowledge, fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934 and that the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of Compass Minerals Group, Inc.

COMPASS MINERALS GROUP, INC.

/s/ MICHAEL E. DUCEY

Michael E. Ducey

President and Chief Executive Officer

Date: November 23, 2004

/s/ RODNEY L. UNDERDOWN

Rodney Underdown

Chief Financial Officer and Vice President

Date: November 23, 2004

31 -----END PRIVACY-ENHANCED MESSAGE-----

EX-31.1

exv31w1

EX-31.2

exv31w2

EX-32

exv32