SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

(Mark One)

x

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

Delaware

48-1135403

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification Number)

8300 College Boulevard
Overland Park, Kansas

66210

(Address of Principal Executive Offices)

(Zip Code)

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

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

None

(Title of Class)

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

None

(Title of Class)

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

Yes

x

No

¨

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

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

Yes

¨

No

x

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

 COMPASS MINERALS GROUP, INC.

FORM 10-K

TABLE OF CONTENTS

          PART I

Item 1.

Business

3

Item 2.

Properties

21

Item 3.

Legal Proceedings

21

Item 4.

Submission of Matters to a Vote of Security Holders

21

          PART II

Item 5.

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

21

Item 6.

Selected Financial Data

21

Item 7.

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

23

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

35

Item 8.

Financial Statements and Supplementary Data

37

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

70

          PART III

Item 10.

Directors and Executive Officers of the Registrant

70

Item 11.

Executive Compensation

72

Item 12.

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

76

Item 13.

Certain Relationships and Related Transactions

77

Item 14.

Controls and Procedures

80

          PART IV

Item 15.

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

80

Signatures

84

Certifications

86

COMPASS MINERALS GROUP, INC.

PART I

Cautionary Note Regarding Forward-Looking Statements

            All statements, other than statements of historical fact contained herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

            Forward-looking statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.  Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to, the following: general business and economic conditions and governmental policies affecting the agricultural industry in localities where we or our customers operate; weather conditions; the impact of competitive products; pressure on prices realized by us for our products; constraints on supplies of raw materials used in manufacturing certain of our products ; capacity constraints limiting the production of certain products; difficulties or delays in the development, production, testing and marketing of products; difficulties or delays in receiving required governmental and regulatory approvals; market acceptance issues, including the failure of products to generate anticipated sales levels; difficulties in integrating acquired businesses and in realizing related cost savings and other benefits; the effects of and change in trade, monetary, environmental and fiscal policies, laws and regulations; foreign exchange rates and fluctuations in those rates; the costs and effects of legal proceedings including environmental and administrative proceedings involving us; and other risk factors reported from time to time in the our Securities and Exchange Commission reports.

            In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology.  These statements are only predictions.  Actual events or results may differ materially.

            Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this annual report on Form 10-K.

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

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

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

ITEM 1.      BUSINESS

Company Overview

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

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

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

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

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

SALT SEGMENT

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

Salt Industry Overview

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

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

Processing Methods

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

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

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

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

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

Operations and Facilities

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

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

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

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

Rock

Solar

Evaporated

Evaporated

Evaporated

Evaporated

Rock

Evaporated

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

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

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

Highway Deicing Salt Products

Products and Sales

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

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

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

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

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

Competition

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

General Trade Salt Products

Products and Sales

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

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

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

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

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

Competition

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

SPECIALTY POTASH SEGMENT

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

Potash Industry Overview

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

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

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

Operations and Facilities

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

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

Products and Sales

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

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