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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
FORM 10-K/ A
(MARK ONE)
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
COMPASS MINERALS GROUP, INC.
Delaware (State or other jurisdiction of incorporation or organization) | 48-1135403 (I.R.S. Employer Identification Number) | |
8300 College Boulevard Overland Park, Kansas (Address of principal executive offices) | 66210 (Zip Code) |
Registrant’s telephone number, including area code:
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: None
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 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. o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No þ
The number of shares outstanding of the registrant’s $0.01 par value common stock at November 23, 2004 was 1,000 shares. All of such shares are owned by Compass Minerals International, Inc. (formerly known as Salt Holdings Corporation).
COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
INTRODUCTORY NOTE
Amendment No. 1 on Form 10-K/A to the Annual Report on Form 10-K for the year ended December 31, 2003.
Compass Minerals Group, Inc. (the “Company”), hereby amends its Annual Report on Form 10-K filed on March 19, 2004 for the years ended December 31, 2003, 2002 and 2001 to restate the combined and consolidated financial statements for each of those three years in order to correct an error in the calculation of the deferred income tax accounts and the related valuation allowance dating back to the year ended December 31, 1998. The effect of the timing of future reversals of existing taxable temporary differences (deferred tax liabilities) was not 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) for the years ended December 31, 2003 and 2002. See the disclosure under the heading“Restatement” in Note 1 to the combined and consolidated financial statements. This amendment reflects only the changes discussed above and has 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. All other information is unchanged and reflects the disclosures made at the time of the original filing on March 19, 2004.
This Amendment No. 1 on Form 10-K/A amends Parts II and IV of its Annual Report on Form 10-K filed on March 19, 2004 to include the following amendments: Part II, Item 6 “Selected Financial Data”; Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; Part II, Item 8 “Financial Statements and Supplementary Data”; Part II, Item 9A “Controls and Procedures”; and Part IV, Item 15 “Exhibits, Financial Statement Schedules and Reports on Form 8-K”.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
MARKET AND INDUSTRY DATA AND FORECASTS
ITEM 1. | BUSINESS |
COMPANY OVERVIEW
• | We believe that our cash flows are not materially impacted by economic cycles due to the stable end-use markets of salt and the absence of cost-effective alternatives. | |
• | We operate 11 facilities in North America and the United Kingdom, including the largest rock salt mine in the world in Goderich, Ontario and the largest salt mine in the United Kingdom 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 reserves, effective mining techniques and efficient production processes. In addition, 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. |
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For the year ended December 31, 2003, we sold approximately 12.8 million tons of salt and other minerals, generating sales of $600.6 million and net income of $43.5 million.
SALT SEGMENT
Salt Industry Overview
Processing Methods
Underground 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, we use a continuous miner process. Rock salt is primarily used in our highway and consumer deicing products. Based on annual production capacities, our underground rock salt mining represents approximately 78% of our salt production.
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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. Based on annual production capacities, our mechanical evaporation represents approximately 12% of our salt production.
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. Based on annual production capacities, our solar evaporation represents approximately 10% of our salt production.
Operations and Facilities
United States. Our Central and Midwestern United States general trade customer base is served by our mechanical evaporation plant in Lyons, Kansas. Additionally, we serve areas around the Great Lakes with evaporated salt purchased from IMC Global’s potash and salt facility in Michigan. The Cote Blanche, Louisiana rock salt mine serves chemical customers in the Southern and Western United States, highway deicing customers through a series of depots located along the Mississippi and Ohio Rivers, and agriculture customers in the Southern and Midwestern United States. Our solar evaporation facility located in Ogden, Utah is the largest solar salt production site in the United States. This facility principally serves the Western United States general trade markets and also provides salt for chemical applications and highway deicing, and provides magnesium chloride which is primarily used in deicing, dust control and soil stabilization applications. 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 United States.
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 United States. We also purchase salt and other products from IMC Global’s potash and salt facilities located in Saskatchewan, which serve both the general trade and the highway deicing markets.
United Kingdom. Our United Kingdom customer base is served by two facilities. Highway deicing customers throughout the United Kingdom are served by the Winsford rock salt mine in Northwest England. The Weston Point mechanical evaporation plant is located 12 miles north of the mine and serves our general trade and chemical customers in the United Kingdom as well as in continental Europe.
Annual Production | |||||||||
Capacity | |||||||||
Location | (tons) | Product Type | |||||||
North America | |||||||||
Goderich, Ontario Mine | 6,500,000 | Rock | |||||||
Cote Blanche, Louisiana Mine | 2,800,000 | Rock | |||||||
Ogden, Utah Plant | 1,500,000 | Solar | |||||||
Lyons, Kansas Plant | 425,000 | Evaporated | |||||||
Unity, Saskatchewan Plant | 175,000 | Evaporated | |||||||
Goderich, Ontario Plant | 170,000 | Evaporated | |||||||
Amherst, Nova Scotia Plant | 115,000 | Evaporated | |||||||
United Kingdom | |||||||||
Winsford, Cheshire Mine | 2,000,000 | Rock | |||||||
Weston Point, Cheshire Plant | 850,000 | Evaporated | |||||||
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ties and their operating equipment are maintained in good working condition.
Annual Packaging | ||||
Capacity | ||||
Location | (tons) | |||
Kenosha, Wisconsin | 100,000 | |||
Chicago, Illinois | 100,000 | |||
Annual Purchasing | ||||||||
Capacity | ||||||||
Location | (tons) | Product Type | ||||||
Esterhazy, Saskatchewan | 200,000 | Rock | ||||||
Hersey, Michigan | 250,000 | Evaporated | ||||||
Highway Deicing Salt Products
Products and Sales
Highway deicing constituted approximately 47% of our gross sales of salt in 2003. 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 72 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.
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Kingdom. In the United Kingdom approximately 59% of our highway deicing business is on multi-year contracts.
Year Ended December 31, | ||||||||||||||||||||||||
2003 | 2002 | 2001 | ||||||||||||||||||||||
Tons | % | Tons | % | Tons | % | |||||||||||||||||||
U.S. | 6,267 | 65 | 5,104 | 64 | 5,656 | 60 | ||||||||||||||||||
Canada | 2,560 | 26 | 2,162 | 27 | 2,301 | 25 | ||||||||||||||||||
Europe and Others | 836 | 9 | 699 | 9 | 1,445 | 15 | ||||||||||||||||||
Total | 9,663 | 100 | 7,965 | 100 | 9,402 | 100 | ||||||||||||||||||
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 United Kingdom, 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 United Kingdom.
General Trade Salt Products
Products and Sales
The general trade business accounted for approximately 46% of our 2003 gross sales of salt. We are the third largest producer of general trade salt in North America. This product 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.
Year Ended December 31, | ||||||||||||||||||||||||
2003 | 2002 | 2001 | ||||||||||||||||||||||
Tons | % | Tons | % | Tons | % | |||||||||||||||||||
U.S. | 1,758 | 60 | 1,629 | 59 | 1,725 | 61 | ||||||||||||||||||
Canada | 565 | 19 | 506 | 18 | 513 | 18 | ||||||||||||||||||
Europe and Others | 604 | 21 | 651 | 23 | 584 | 21 | ||||||||||||||||||
Total | 2,927 | 100 | 2,786 | 100 | 2,822 | 100 | ||||||||||||||||||
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 United States where we have a minimal position. In the United Kingdom, there is one other large domestic producer
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of general trade salt, several small local producers and some imports from continental Europe. We also export salt from the United Kingdom to Scandinavia and continental Europe and compete with many other European producers in these markets.
SPECIALTY POTASH SEGMENT
Potash Industry Overview
Operations and Facilities
Products and Sales
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The table below shows our shipments of SOP to the following regions (thousands of tons):
Year Ended December 31, | ||||||||||||||||||||||||
2003 | 2002 | 2001 | ||||||||||||||||||||||
Tons | % | Tons | % | Tons | % | |||||||||||||||||||
U.S. | 182 | 73 | 151 | 62 | 148 | 79 | ||||||||||||||||||
Export(a) | 69 | 27 | 91 | 38 | 40 | 21 | ||||||||||||||||||
Total | 251 | 100 | 242 | 100 | 188 | 100 | ||||||||||||||||||
(a) | Export sales include product sold to foreign customers at U.S. ports. |
We previously had a long-term contract with IMC Global following the Recapitalization, whereby we acted as a sales agent for IMC Global to customers serviced by IMC Global’s Carlsbad, New Mexico facility. The contract did not limit the amount of SOP we could purchase from IMC Global. As a result of our June 2003 purchase of IMC Global’s remaining SOP marketing business this long-term contract with IMC Global terminated on November 30, 2003.
Competition
INTELLECTUAL PROPERTY
EMPLOYEES
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PRINCIPAL PROPERTIES
The table below sets forth our principal properties:
Land and Related | ||||||||||||||||||
Surface Rights | Mineral Reserves | |||||||||||||||||
Owned/ | Expiration | Owned/ | Expiration | |||||||||||||||
Location | Use | Leased | of Lease | Leased | of Lease | |||||||||||||
Ogden, Utah | SOP and solar salt production facility | Owned | N/A | Leased | (1) | |||||||||||||
Lyons, Kansas | Evaporated salt production facility | Owned | N/A | Owned | N/A | |||||||||||||
Cote Blanche, Louisiana | Rock salt production facility | Leased | 2060 | Leased | 2060 | |||||||||||||
Weston Point, Cheshire, U.K. | Evaporated salt production facility | Owned | N/A | N/A | (2) | N/A | ||||||||||||
Winsford, Cheshire, U.K. | Rock salt production facility | Owned | N/A | Owned | N/A | |||||||||||||
Goderich, Ontario, Canada | Rock salt production facility | Owned | N/A | Leased | 2022 | (3) | ||||||||||||
Evaporated salt production facility | Owned | N/A | Owned | N/A | ||||||||||||||
Unity, Saskatchewan, Canada | Evaporated salt production facility | Owned | N/A | Leased | 2009/2016 | (4) | ||||||||||||
Amherst, Nova Scotia, Canada | Evaporated salt production facility | Owned | N/A | Leased | (5) | |||||||||||||
Overland Park, Kansas | Corporate headquarters | Leased | 2008 | N/A | N/A | |||||||||||||
(1) | The Ogden lease automatically renews on an annual basis. |
(2) | Weston Point purchases brine for production purposes from a third party pursuant to a supply agreement that will expire in 2017. |
(3) | Subject to the right of renewal through 2043. |
(4) | Consists of two leases expiring in 2009 and 2016 subject to the right of renewal through 2030 and 2037, respectively. |
(5) | Consists of two leases that are currently in the process of being renewed that will expire in 20 years with rights of renewal at 20-year increments. |
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
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(vi) disposal, storage and management of hazardous and solid wastes; (vii) remediation of contamination at our facilities and third-party sites; and (viii) post-mining land reclamation. For new regulatory programs, it is difficult for us to ascertain future compliance obligations or estimate future costs until implementing regulations have been finalized and definitive regulatory interpretations have been adopted. We intend to respond to these regulatory requirements at the appropriate time by implementing necessary modifications to our facilities and/or operating procedures.
Product Requirements and Impacts
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government as well as provinces and municipalities to better manage the use, storage and release of our road salts. As a result, we believe it has become less likely that road salts will be designated as a toxic substance. Although we cannot predict whether the proposal to list road salts will be finalized or the precise form of the proposed Code of Practice or other future regulation, if standardized guidelines are developed for the use and storage of road salt or any alternate deicing products, we could suffer reduced sales and incur substantial costs and expenses that could have a material adverse effect on our business, financial condition and results of operation. In addition, while we are not aware of any similar governmental proposals for such designation of road salt in either the United States or the United Kingdom, we cannot guarantee that such proposals will not arise.
Operating Requirements and Impacts
Remedial Activities
Remediation at Our Facilities
Many of our formerly-owned and current facilities have been in operation for a number of years. Operations have historically involved the use and handling of regulated chemical substances, salt and by-products or process tailings by us and predecessor operators which have resulted in soil, surface water and groundwater contamination. At some locations there are areas where salt-processing waste and ordinary trash may have been disposed or buried, and have since been closed and covered with soil and other materials. These past operating practices at several of our facilities have resulted in soil, surface water and groundwater contamination.
Remediation at Third-Party Facilities
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received statutory protection from future claims arising from those sites. In some cases, however, such settlements have included “reopeners,” which could result in additional liability at such sites in the event of newly discovered contamination or other circumstances.
RISK FACTORS
Risks Related to Our Business
The seasonal demand for our products and the variations in our cash flows from quarter to quarter as a result of weather conditions may have an adverse effect on our results of operations.
Our highway deicing product line is seasonal, with operating results varying from quarter to quarter as a result of weather conditions and other factors. Over the last four years, our North American highway deicing product line has generated over 61% of its annual sales, net of shipping and handling costs, during the months of December through March when the need for highway deicing is at its peak. We need to stockpile sufficient highway deicing salt in the first two fiscal quarters to meet estimated demand for the winter season. Weather conditions that impact our highway deicing product line include temperature, levels of precipitation, number of snow days and duration and timing of snow fall in our relevant geographic markets. Lower than expected sales by us during this period could have a material adverse effect on our results of operations.
Our substantial indebtedness could adversely affect our financial condition and impair our ability to operate our business.
As of December 31, 2003, we had $420.2 million of outstanding indebtedness, including approximately $78.3 million under our senior credit facilities, $14.0 million under our revolving credit facility and $327.9 million of Compass Minerals Group’s senior subordinated notes and stockholder’s equity of $55.2 million. At December 31, 2003, CMI had $75.7 million of senior discount notes and $107.4 million of subordinated discount notes outstanding.
• | it may limit our ability to borrow money or sell stock to fund our working capital, capital expenditures and debt service requirements; | |
• | it may limit our flexibility in planning for, or reacting to, changes in our business; | |
• | we may be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage; | |
• | it may make us more vulnerable to a downturn in our business or the economy; | |
• | it will require us to dedicate a substantial portion of our cash flow from operations to the repayment of our indebtedness, thereby reducing the availability of our cash flow for other purposes; and | |
• | it may materially and adversely affect our business and financial condition if we are unable to service our indebtedness or obtain additional financing, as needed. |
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Restrictive covenants in the agreements governing our indebtedness and certain indebtedness of CMI may restrict our ability to pursue our business strategies.
Our senior credit facilities and indebtedness and the indebtedness of CMI limit our ability and the ability of our restricted subsidiaries, among other things, to:
• | incur additional indebtedness or contingent obligations; | |
• | pay dividends or make distributions to our stockholders; | |
• | repurchase or redeem our stock; | |
• | make investments; | |
• | grant liens; | |
• | make capital expenditures; | |
• | enter into transactions with our stockholders and affiliates; | |
• | sell assets; and | |
• | acquire the assets of, or merge or consolidate with, other companies. |
Economic and other risks associated with international sales and operations could adversely affect our business, including economic loss and a negative impact on earnings.
Since we manufacture and sell our products primarily in the United States, Canada and the United Kingdom, our business is subject to risks associated with doing business internationally. Our sales outside the United States, as a percentage of our total sales, were 34% for the year ended December 31, 2003. Accordingly, our future results could be adversely affected by a variety of factors, including:
• | changes in foreign currency exchange rates; | |
• | exchange controls; | |
• | tariffs, other trade protection measures and import or export licensing requirements; | |
• | potentially negative consequences from changes in tax laws; | |
• | differing labor regulations; | |
• | requirements relating to withholding taxes on remittances and other payments by subsidiaries; | |
• | restrictions on our ability to own or operate subsidiaries, make investments or acquire new businesses in these jurisdictions; | |
• | restrictions on our ability to repatriate dividends from our subsidiaries; and | |
• | unexpected changes in regulatory requirements. |
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fluctuations. We expect that the amount of our revenues denominated in non-U.S. dollar currencies will continue to increase in future periods. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Effects of Currency Fluctuations and Inflation” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk.”
Our operations are dependent on natural gas and significant interruption in the supply or increase in the price of natural gas could have a material adverse effect on our financial condition or results of operations.
Energy costs, including primarily natural gas and electricity, represented approximately 12% of the costs of our North American salt production in 2003. Natural gas is a primary fuel source used in the evaporated salt production process. Our profitability is impacted by the price and availability of natural gas we purchase from third parties. In the fourth quarter of 2002, we adopted a policy of hedging natural gas prices through the use of swap agreements. We have not entered into any long-term contracts for the purchase of natural gas. Our contractual arrangements for the supply of natural gas do not specify quantities and are automatically renewed annually unless either party elects not to do so. We do not have arrangements in place with back-up suppliers. A significant increase in the price of natural gas that is not recovered through an increase in the price of our products or covered through our hedging arrangements, or an extended interruption in the supply of natural gas to our production facilities, could have a material adverse effect on our business, financial condition or results of operations.
Competition in our markets could limit our ability to attract and retain customers, force us to continuously make capital investments and put pressure on the prices we can charge for our products.
We encounter competition in all areas of our business. Competition in our product lines is based on a number of considerations, including product performance, transportation costs in salt distribution, brand reputation, quality of client service and support, and price. Additionally, customers for our products are attempting to reduce the number of vendors from which they purchase in order to increase their efficiency. Our customers increasingly demand a broad product range and we must continue to develop our expertise in order to manufacture and market these products successfully. To remain competitive, we will need to invest continuously in manufacturing, marketing, customer service and support and our distribution networks. We may have to adjust the prices of some of our products to stay competitive. We may not have sufficient resources to continue to make such investments or maintain our competitive position. Some of our competitors have greater financial and other resources than we do.
Environmental laws and regulation may subject us to significant liability and require us to incur additional costs in the future.
We are subject to numerous environmental, health and safety laws and regulations in the United States, Canada and Europe, including laws and regulations relating to land reclamation and remediation of hazardous substance releases, and discharges to air and water. For example CERCLA, imposes liability, without regard to fault or to the legality of a party’s conduct, on certain categories of persons (known as “potentially responsible parties”) who are considered to have contributed to the release of “hazardous substances” into the environment. Although we are not currently incurring material liabilities pursuant to CERCLA, we may in the future incur material liabilities under CERCLA and other environmental cleanup laws, with regard to our current or former facilities, adjacent or nearby third-party facilities, or off-site disposal locations. Under CERCLA, or its various state analogues, one party may, under some circumstances, be required to bear more than its proportional share of cleanup costs at a site where it has liability if payments cannot be obtained from other responsible parties. Liability under these laws involves inherent uncertainties. Violations of environmental, health and safety laws are subject to civil, and in some cases, criminal sanctions.
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tal liabilities and site conditions currently are not expected, individually or in the aggregate, to be material. However, material expenditures could be required in the future to remediate the contamination at these or at other current or former sites.
The Canadian government’s proposal to designate road salt as a toxic substance could have a material adverse effect on our business, including reduced sales and the incurrence of substantial costs and expenditures.
In December 2001, the Canadian government released a Priority Substances List Assessment Report for road salt. This report found that road salts are entering the environment under conditions that may have a harmful effect or constitute a danger to the environment. Based on this report, the Minister of Environment has proposed designating road salt as a “toxic” substance pursuant to the Canadian Environmental Protection Act. Canada’s federal cabinet, which has ultimate responsibility, has not yet taken final action with respect to this proposal and is not subject to any deadline to do so. At this point, Environment Canada has indicated that, whether or not road salts are declared toxic, their preferred course of action is the establishment of voluntary guidelines for users as opposed to any form of regulation. Environment Canada has been developing these guidelines based on consultation with a broad-based stakeholders group, which includes the salt industry. On September 20, 2003, Environment Canada released a proposed Code of Practice to serve as these guidelines. The proposed Code of Practice remained subject to public comment until November 19, 2003. Environment Canada has indicated that it expects to publish the final code in 2004. Although the proposed Code of Practice remains subject to change, the released draft requires large road-salt users to develop salt management plans. We do not believe that this would have a material direct effect on us, but the new salt management plans may lead our customers in Canada to require less road salt.
Our operations are dependent on our having received the required permits and approvals from governmental authorities.
We hold numerous governmental environmental, mining and other permits and approvals authorizing operations at each of our facilities. A decision by a governmental agency to deny or delay issuing a new or renewed permit or approval, or to revoke or substantially modify an existing permit or approval, could have a material adverse effect on our ability to continue operations at the affected facility. Expansion of our existing operations also is predicated upon securing the necessary environmental or other permits or approvals. We currently do not have any material pending permits or approvals.
Protection of proprietary technology — Our intellectual property may be misappropriated or subject to claims of infringement.
We attempt to protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret protection, as well as licensing agreements and third-party nondisclosure and assignment agreements. We cannot assure you that any of our applications for protection of our intellectual property rights will be approved or that others will not infringe or challenge our intellectual property rights. The patents we currently have in place expire between 2009 and 2018. We also rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar technology or otherwise obtain access to our
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unpatented technology. To protect our trade secrets and other proprietary information, we require employees, consultants, advisors and collaborators to enter into confidentiality agreements. Many of our important brand names are registered as trademarks in the United States and foreign countries. These registrations can be renewed if the trademark remains in use. These agreements may not provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure. If we are unable to maintain the proprietary nature of our technologies, we may lose the competitive advantage provided by our intellectual property. As a result, our results of operations may be adversely affected.
If we are unsuccessful in negotiating new collective bargaining agreements, we may experience significant increases in the cost of labor or a disruption in our operations.
As of December 31, 2003, we had 1,497 employees. Approximately 38% of our U.S. workforce (54% of our global workforce) is represented by labor unions. Of our nine material collective bargaining agreements, four will expire in 2004, one will expire in 2005 and four will expire in 2006. Additionally, approximately 13% of our workforce is employed in Europe where trade union membership is common. Although we believe that our relations with our employees are good, as a result of general economic, financial, competitive, legislative, political and other factors beyond our control, we cannot assure you that we will be successful in negotiating new collective bargaining agreements, that such negotiations will not result in significant increases in the cost of labor or that a breakdown in such negotiations will not result in the disruption of our operations.
We rely on independent distributors and the loss of a substantial number of these distributors may reduce our profits and sales.
In addition to our own direct sales force, we depend on the services of independent distributors to sell our products and provide service and aftermarket support to our customers. In 2003, 12% of our sales, net of shipping and handling costs, were generated through these independent distributors. Many of these independent distributors are not bound to us by exclusive distribution contracts and may offer products of, and services to, businesses that compete with ours. In addition, the majority of the distribution contracts we have with these independent distributors are cancelable by the distributor after providing us with notice, which on average is six months prior to termination. The loss of a substantial number of these distributors or the decision by many of these distributors to offer competitors’ products to our customers could materially reduce our sales and profits.
If we cannot successfully complete acquisitions or integrate acquired businesses, our growth may be limited and our financial condition adversely affected.
Our business strategy includes supplementing internal growth by pursuing acquisitions of small complementary businesses. We may be unable to complete acquisitions on acceptable terms, identify suitable businesses to acquire or successfully integrate acquired businesses in the future. We compete with other potential buyers for the acquisition of other small complementary businesses. This competition and regulatory considerations may result in fewer acquisition opportunities. If we cannot complete acquisitions, our growth may be limited and our financial condition may be adversely affected.
Our business is dependent upon highly skilled personnel, and the loss of key personnel may have a material adverse effect on our development and results of operations.
The success of our business is dependent on our ability to attract and retain highly skilled managers and other personnel. We cannot assure you that we will be able to attract and retain the personnel necessary for the development of our business. The loss of the services of key personnel or the failure to attract additional personnel as required could have a material adverse effect on our development and results of operations. We do not currently maintain “key person” life insurance on any of our key employees.
Our principal stockholder’s interest may conflict with or differ from the interests of other holders of our securities.
Apollo and its affiliates own 35% of the fully diluted equity of CMI. Consequently, Apollo has the ability to influence the election of our directors, the appointment of new management and the potential outcome of all matters submitted to a vote of our stockholders, including entering into mergers, the sale of substantially all of our assets and other extraordinary transactions. The interests of Apollo and its affiliates could conflict with or differ from the interests of our securities holders.
ITEM 2. | PROPERTIES |
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ITEM 3. | LEGAL PROCEEDINGS |
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS |
ITEM 6. | SELECTED FINANCIAL DATA |
For the Year Ended December 31, | ||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
(Dollars in millions, except share data) | (restated) | (restated) | (restated) | (restated) | (restated) | |||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||
Sales | $ | 600.6 | $ | 502.6 | $ | 523.2 | $ | 509.2 | $ | 494.4 | ||||||||||
Cost of sales — shipping and handling | 165.3 | 137.5 | 143.2 | 140.0 | 126.9 | |||||||||||||||
Cost of sales — products(1) | 246.2 | 202.1 | 224.4 | 227.7 | 213.1 | |||||||||||||||
Depreciation and amortization(2) | 42.1 | 37.1 | 32.6 | 44.3 | 55.1 | |||||||||||||||
Selling, general and administrative expenses | 48.6 | 40.5 | 38.9 | 35.5 | 37.2 | |||||||||||||||
Goodwill write-down(3) | — | — | — | 191.0 | 87.5 | |||||||||||||||
Restructuring and other charges(3)(4) | — | 7.7 | 27.0 | 425.9 | 13.7 | |||||||||||||||
Operating earnings (loss) | 98.4 | 77.7 | 57.1 | (555.2 | ) | (39.1 | ) | |||||||||||||
Interest expense(5) | 39.1 | 41.3 | 14.3 | 16.4 | 19.0 | |||||||||||||||
Net income (loss) | 43.5 | 30.9 | 28.6 | (443.5 | )(7) | (74.2 | )(7) | |||||||||||||
Balance Sheet Data (at period end): | ||||||||||||||||||||
Total cash and cash equivalents | $ | 2.6 | $ | 11.9 | $ | 15.9 | $ | 0.3 | $ | 4.3 | ||||||||||
Total assets | 679.6 | 641.8 | 655.6 | 636.0 | 1,261.0 | (7) | ||||||||||||||
Total debt | 420.2 | 437.6 | 515.1 | 152.3 | 196.0 | |||||||||||||||
Other Financial Data: | ||||||||||||||||||||
Cash flows provided by operating activities | $ | 70.8 | $ | 80.0 | $ | 112.5 | $ | 72.1 | $ | 78.4 | ||||||||||
Cash flows used for investing activities | (45.6 | ) | (19.1 | ) | (43.6 | ) | (34.0 | ) | (48.1 | ) | ||||||||||
Cash flows used for financing activities | (38.0 | ) | (67.4 | ) | (53.8 | ) | (43.3 | ) | (33.6 | ) | ||||||||||
Ratio of earnings to fixed charges(6) | 2.28 | x | 1.72 | x | 3.69 | x | — | — | ||||||||||||
Capital expenditures | $ | 20.6 | $ | 19.5 | $ | 43.0 | $ | 33.7 | $ | 45.6 | ||||||||||
(1) | “Cost of sales — products” is presented net of depreciation and amortization. |
(2) | “Depreciation and amortization” for purposes of this table excludes amortization of deferred financing costs. |
(3) | Based on anticipated proceeds from the sale of the Company by IMC Global, we recorded an asset impairment charge of $616.6 million, $482.1 million after tax, in the fourth quarter of 2000. In connection with this non-cash charge, goodwill was reduced $191.0 million and intangible assets — mineral interests was reduced $425.6 million. The goodwill write-down in 1999 was the result of lowering goodwill to its recoverable value based on estimated future discounted cash flows of the business. |
(4) | “Restructuring and other charges” include primarily those charges related to the impairment of idled assets in December of 1998, the restructuring of our business in the fourth quarter of 1999 designed to reduce employee headcount and an asset impairment in the fourth quarter of 2000 related to the planned disposition of the Company by IMC Global as described in (3) above. During 2001, we incurred $27.0 million of transaction and transition costs in connection with the Recapitalization. During 2002, we incurred $7.7 million of transition costs required to establish us as a self-sustaining entity. |
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(5) | As we have incurred substantial indebtedness in connection with the Recapitalization, we believe it is helpful to provide a measure describing the cash requirements necessary to satisfy our debt service in terms of “cash interest expense,” which is interest expense excluding the amortization of debt issuance costs, plus amortization of the original issuance premium. For a discussion of our indebtedness, see Note 8 to our audited combined and consolidated financial statements. Cash interest expense was $37.6 million and $39.5 million for the years ended December 31, 2003 and 2002, respectively. Cash interest expense is not calculated under generally accepted accounting principles, or “GAAP.” While cash interest expense and similar variations thereof are commonly used as measures of the ability to meet debt service requirements, they are not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation. The following table reconciles the differences between cash interest expense and interest expense, calculated in accordance with GAAP. |
For the Year Ended December 31, | |||||||||
(Dollars in millions) | 2003 | 2002 | |||||||
Interest expense | $ | 39.1 | $ | 41.3 | |||||
Less (plus) amortization: | |||||||||
Deferred financing costs | 1.8 | 1.9 | |||||||
Amortization of premium on senior subordinated notes | (0.3 | ) | (0.1 | ) | |||||
Cash interest expense | $ | 37.6 | $ | 39.5 | |||||
(6) | For the purposes of computing the ratio of earnings to fixed charges, earnings consist of earnings before income taxes and fixed charges. Fixed charges consist of net interest expense including the amortization of deferred debt issuance costs and the interest component of our operating rents. The ratio of earnings to fixed charges prior to November 28, 2001 is not meaningful because we participated in a credit facility with IMC Global and its affiliates and the level of third-party debt was not comparable to the level of third-party debt in place upon consummation of the Recapitalization, the offering by Compass Minerals Group of an additional $75.0 million in aggregate principal amount of senior subordinated notes, or the “April 2002 senior subordinated notes.” Earnings were insufficient to cover fixed charges by approximately $572.5 million and $55.6 million, respectively, for the years ended December 31, 2000 and 1999. |
(7) | The restatement for 2000 and 1999 includes adjustments to deferred income tax accounts and related valuation allowance, an adjustment in 1999 to properly account for deferred tax assets of $29.5 million previously written off in 2000, and other adjustments to income tax liabilities. For the year ended December 31, 2000, the adjustments decreased net loss by approximately $24.2 million. For the year ended December 31, 1999, the adjustments increased net loss by approximately ($6.7) million. |
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ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Company Overview
• | We believe that our cash flows are not materially impacted by economic cycles due to the stable end-use markets of salt and the absence of cost-effective alternatives. Short-term cash flows are affected by the seasonality of our business and are dependent on weather conditions. See Item 1, “Business — Risk Factors — The seasonal demand for our products and the variations in our cash flows from quarter to quarter as a result of weather conditions may have an adverse effect on our results of operations.” | |
• | We operate eleven facilities in North America and the United Kingdom, including the largest rock salt mine in the world in Goderich, Ontario and the largest salt mine in the United Kingdom 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 reserves, effective mining techniques and efficient production processes. In addition, 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 13 to our audited combined and consolidated financial statements provides additional information regarding geographical data. |
Stand-Alone Company
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focus on growing our SOP business and regaining our lost market share.
Management’s Discussion on Critical Accounting Policies
Inventory Allowances
We record allowances for unusable or slow moving finished goods and raw materials and supplies inventory. We adjust the value of certain inventory to the estimated market value to the extent that management’s assumptions of future demand, market or functional conditions indicate the cost basis is either in excess of market or the inventory will not be utilized or sold in future operations. If actual demand or conditions are less favorable than those projected by management, additional inventory write-downs may be required.
Mineral Interests
As of December 31, 2003, we maintained $148.0 million of net mineral interests as a part of mineral interests and other intangible assets and $7.9 million of net mineral properties as a part of property, plant and equipment.
Income Taxes
In determining income for financial statement purposes, we must make certain estimates and judgments. These estimates and judgments occur in the calculation of certain tax liabilities and in the determination of the recoverability of certain of the deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expense. We are required to assess the likelihood that we will ultimately be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a reserve, in the form of a valuation allowance, for the deferred tax assets that we estimate will not ultimately be recoverable.
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We intend to maintain this valuation allowance to the extent that we determine that some ($12.7 million at December 31, 2003) of the deferred tax assets will not be recovered due to the annual limitations from prior ownership changes.
Pension Plans
We make actuarial assumptions in conjunction with our actuaries as our advisors that we believe are reasonable. These assumptions include discount rates, expected long-term rates of return on plan assets and rate of compensation increases, and are used in the calculation of the actuarial valuation of our defined benefit pension plans. If actual conditions or results vary from those projected by management, adjustments may be required in future periods to meet minimum pension funding, thereby increasing pension expense and our pension liability. Note 9 to our audited combined and consolidated financial statements provides additional information regarding pension assumptions used by us.
Other Significant Accounting Policies
Other significant accounting policies not involving the same level of measurement uncertainties as those discussed above are nevertheless important to an understanding of our financial statements. Policies related to revenue recognition, environmental accruals, financial instruments and consolidation require difficult judgments on complex matters that are often subject to multiple sources of authoritative guidance.
Results of Operations
For the Year Ended December 31, | |||||||||||||
2003 | 2002 | 2001 | |||||||||||
(Dollars in millions) | (restated) | (restated) | (restated) | ||||||||||
Sales | $ | 600.6 | $ | 502.6 | $ | 523.2 | |||||||
Cost of sales — shipping and handling | 165.3 | 137.5 | 143.2 | ||||||||||
Cost of sales — products | 288.3 | 239.2 | 257.0 | ||||||||||
Gross profit | 147.0 | 125.9 | 123.0 | ||||||||||
Selling, general and administrative expenses | 48.6 | 40.5 | 38.9 | ||||||||||
Restructuring and other charges | — | 7.7 | 27.0 | ||||||||||
Operating earnings | 98.4 | 77.7 | 57.1 | ||||||||||
Interest expense | 39.1 | 41.3 | 14.3 | ||||||||||
Other (income) expense | 5.6 | 4.9 | (3.1 | ) | |||||||||
Income before taxes | 53.7 | 31.5 | 45.9 | ||||||||||
Income tax expense | 10.2 | 0.6 | 17.3 | ||||||||||
Net income | $ | 43.5 | $ | 30.9 | $ | 28.6 | |||||||
Sales by Segment: | |||||||||||||
Salt | $ | 546.6 | $ | 452.5 | $ | 485.0 | |||||||
Specialty potash fertilizers | 54.0 | 50.1 | 38.2 | ||||||||||
Total | $ | 600.6 | $ | 502.6 | $ | 523.2 | |||||||
Sales Volumes (in thousands of tons): | |||||||||||||
Highway Deicing | 9,663 | 7,965 | 9,402 | ||||||||||
General Trade | 2,927 | 2,786 | 2,822 | ||||||||||
Specialty potash fertilizers | 251 | 242 | 188 | ||||||||||
Average Sales Price (per ton): | |||||||||||||
Highway Deicing | $ | 29.25 | $ | 27.96 | $ | 26.87 | |||||||
General Trade | 89.50 | 82.48 | 82.35 | ||||||||||
Specialty potash fertilizers | 215.21 | 207.02 | 203.19 | ||||||||||
Year Ended December 31, 2003 Compared to the Year Ended December 31, 2002
Sales
Sales for the year ended December 31, 2003 of $600.6 million increased $98.0 million, or 19% compared to $502.6 million for the year ended December 31, 2002. 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 SOP product to the customer. Such shipping and handling fees were $165.3 million during the year ended December 31, 2003, an increase of $27.8 mil-
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lion compared to shipping and handling fees of $137.5 million for the year ended December 31, 2002. The increase in shipping and handling-related fees for the year ended December 31, 2003 was primarily due to more tons of deicing salt and general trade salt sold in North America as compared to the same period in 2002.
Gross Profit
Gross profit for the year ended December 31, 2003 of $147.0 million increased $21.1 million, or 17% compared to $125.9 million for the same period in 2002. The increase in gross profit primarily reflects the impact of improved highway and consumer deicing sales volumes and improved pricing as described in the preceding paragraph.
Selling, General and Administrative Expenses
Selling, general and administrative expenses of $48.6 million for the year ended December 31, 2003 increased $8.1 million, or 20% compared to $40.5 million for the same period in 2002. This increase primarily reflects additional compensation and variable benefit costs and higher spending on discretionary promotional and marketing costs. Additionally, changing foreign exchange rates increased selling, general and administrative expenses by $2.0 million.
Restructuring and Other Charges
During 2002, restructuring and other charges represented transition costs that are non-recurring in nature and relate to charges required to establish us as a self-sustaining entity. We incurred $7.7 million of transition costs in the year ended December 31, 2002, consisting primarily of one-time compensation costs, costs to develop stand-alone tax and inventory strategies and costs associated with determining the post-closing purchase price adjustment. No such costs were incurred in 2003.
Interest Expense
Interest expense for the year ended December 31, 2003 of $39.1 million decrease $2.2 million compared to $41.3 million for the same period in 2002. This decrease is primarily the result of lower outstanding debt balances during 2003.
Other (Income) Expense
Other expense for the year ended December 31, 2003 of $5.6 million increased $0.7 million compared to $4.9 million for the same period in 2002. In April 2002, we recorded a $5.3 million charge related to the write-off of the deferred financing costs associated with the refinancing of our term loan credit facility. In the second quarter of 2003, we recorded $1.4 million of costs related to amending our senior credit facilities. We also recorded non-cash foreign exchange losses and (gains) of $3.9 million and $(0.6) million in the year ended December 31, 2003 and 2002, respectively.
Income Tax Expense
Income tax expense for the year ended December 31, 2003 of $10.2 million increased $9.6 million compared to $0.6 million for the same period in 2002. This increase was primarily due to consideration of future taxable income exclusive of taxable temporary differences in 2002 resulting in a reduction of the valuation allowance against deferred tax assets for NOLs. Also in 2003, there was an increase in income before income taxes. Our income tax provision differs from the U.S. statutory federal income tax rate primarily due to U.S. statutory depletion, state income taxes (net of federal tax benefit), foreign income tax rate differentials, foreign mining taxes and changes in the expected utilization of previously reserved NOLs.
Year Ended December 31, 2002 Compared to the Year Ended December 31, 2001
Sales
Sales for 2002 of $502.6 million decreased $20.6 million, or 3.9% compared to $523.2 million in 2001. Sales include Product Sales as well as pass-through shipping and handling fees charged to customers to reimburse us for shipping and handling costs incurred in delivering salt and SOP product to the customer. Such shipping and handling fees were $137.5 million during 2002, a decrease of $5.7 million compared to 2001 shipping and handling fees of $143.2 million. The decline in shipping and handling related fees during 2002 was due to fewer tons of products sold compared to 2001. Product Sales for 2002 of $365.1 million decreased $14.9 million, or 3.9% compared to $380.0 million for 2001. Salt Product Sales for 2002 of $322.3 million decreased $19.5 million, or 5.7% compared to $341.8 million for 2001. This decrease was primarily the result of a 1,437,000 ton decline in sales volumes in our combined North American and U.K. highway deicing product lines due to the mild winter
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weather in the March 2002 quarter. The decline in volumes negatively impacted sales by approximately $27 million. Additionally, the general trade product lines had a 36,000 ton reduction in sales volumes which was also primarily the result of the mild March 2002 quarter winter weather. This reduction in volumes unfavorably impacted sales by approximately $7 million. Overall, the reduction in sales volumes were offset in part by an improvement in the pricing for our North American salt product lines of $15 million. SOP Product Sales for 2002 of $42.8 million increased $4.6 million compared to $38.2 million for 2001 primarily due to a 54,000 ton increase in sales volumes partially offset by lower average prices.
Gross Profit
Gross profit for 2002 of $125.9 million increased $2.9 million, or 2.4% compared to $123.0 million for 2001. The increase in gross profit primarily reflects the $15 million resulting from the improvement in the pricing of our North American salt product lines offset by an approximate $17 million decline due to lower highway deicing sales volumes. Gross margins also increased by approximately $2 million due to the increase in SOP sales volumes partially offset by lower average prices. Lower operating costs also improved our gross margin by $4 million.
Selling, General and Administrative Expenses
Selling, general and administrative expenses of $40.5 million for 2002 increased $1.6 million, or 4.1% compared to $38.9 million for 2001. The increase primarily reflects additional costs related to our transition to a stand-alone entity for services previously provided by IMC prior to the Recapitalization.
Restructuring and Other Charges
Transition costs are non-recurring in nature and relate to charges required to establish us as an independent entity. During 2002, we incurred $7.7 million of transition costs that were directly related to our transition from an entity controlled by IMC Global and consisted primarily of one-time compensation costs, costs to develop stand-alone tax and inventory strategies and costs associated with determining the post-closing purchase price adjustment. During 2001, we incurred $27.0 million in expenses in connection with the Recapitalization which consisted of transaction and transition costs. The transaction costs were directly related to the acquisition and consisted primarily of outside professional services.
Interest Expense
Interest expense for 2002 of $41.3 million increased $27.0 million compared to $14.3 million for 2001. This increase is the result of our new capital structure following the Recapitalization on November 28, 2001.
Other (Income) Expense
Other expense for 2002 of $4.9 million increased $8.0 million compared to other income of $3.1 million for 2001. Other income in 2001 was primarily interest income earned from IMC. We earned no interest income from IMC in 2002. Additionally, we recorded a $5.3 million loss related to refinancing our term loan in 2002.
Income Tax Expense
Income tax expense for 2002 of $0.6 million decreased $16.7 million compared to $17.3 million of income tax expense for 2001 due to consideration of future taxable income exclusive of taxable temporary differences in 2002 resulting in a reduction of the valuation allowance against deferred tax assets for NOLs. Also, in 2002, there was a decline in pre-tax income partially resulting from higher interest expense following the Recapitalization. Our income tax provision differs from the U.S. statutory federal income tax rate primarily due to U.S. statutory depletion, state income taxes (net of federal tax benefit), foreign income tax rate differentials, changes in the expected utilization of previously reserved NOLs and foreign mining taxes.
Liquidity and Capital Resources
Historical Cash Flow
We have used cash generated from operations to meet our working capital needs and to fund capital expenditures and voluntary repayment of debt. We have historically generated stable cash flows. Our primary sources of liquidity will continue to be cash from operations and borrowings under our revolving credit facility. Due to the seasonality of our business, we expect that ongoing requirements for debt service and capital expenditures will be funded from these sources. When we cannot meet our liquidity or capital needs with cash from operations, we meet those needs with borrowings under our revolving credit facility.
For the year ended December 31, 2003
Net cash flow generated by operating activities for the year ended December 31, 2003 was $71.0 million. Cash generated from operating activities includes $15.0 million used for an increase in working capital. The primary increase in working capital was an increase in receivables of $18.5 million, offset in part by decreases in inventories of $4.3 million and decreases in accounts payable and accrued expenses of $0.8 million. These changes are indicative of the seasonal nature of highway deicing product line sales with differences primarily related to changes in late December quarter sales versus the prior year.
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nity projects. We also spent $24.8 million related to our purchase of certain intangible assets related to IMC Global’s former SOP business.
For the year ended December 31, 2002
Net cash flow generated by operating activities was $82.2 million for the year ended December 31, 2002. Of this amount, $12.4 million was generated by working capital reductions. The primary working capital reductions were increases in accounts payable and accrued expenses of $14.5 million and decreases in inventories of $3.8 million offset in part by an increase in receivables of $5.9 million. The improvement in working capital is partially due to faster collections of our receivables and the timing of interest payments. These improvements were partially offset by more severe winter weather in December 2002 than in December 2001. Additionally, during 2002, we amended an agreement with a supplier related to the purchase of salt from the supplier’s chemical production facility. We received a one-time cash payment of $8.0 million related to the amendment which terminates in December 2010. In the future we may elect to resume purchasing salt from the supplier’s facility. In that event, we would repay a ratable portion of the cash received.
For the year ended December 31, 2001
Net cash flow generated by operating activities was $112.5 million for the year ended December 31, 2001. Of this amount, $51.3 million was generated by working capital reductions. The largest working capital reduction, reflective of our exposure to weather conditions, was a $36.3 million decrease in our receivables. This reduction was primarily related to more severe winter weather in December 2000 than in December 2001.
Post-Recapitalization
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.
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premium. Our significant debt service obligations could, under certain circumstances, materially affect our financial condition and prevent us from fulfilling our debt obligations. See Item 1, “Business — Risk Factors — Our substantial indebtedness could adversely affect our financial condition and impair our ability to operate our business.”
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Parent Company Obligations
In December 2002, certain holders of CMI’s series A redeemable preferred stock converted their preferred stock into subordinated discount debentures. CMI then issued $123.5 million in aggregate principal amount of senior discount notes in exchange for CMI subordinated discount debentures. No cash interest will accrue on the senior discount notes prior to December 15, 2007. The accreted value of each senior discount note will increase from the date of issuance until December 15, 2007 at a rate of 12 % per annum, reflecting the accrual of non-cash interest, such that the accreted value will equal the principal amount at maturity on December 15, 2007. Cash interest will accrue on the senior discount notes at a rate of 12 % per annum, beginning December 15, 2007. The first cash interest payment will be made on June 15, 2008.
Payments Due by Period
Less | ||||||||||||||||||||
than | 2-3 | 4-5 | After | |||||||||||||||||
Contractual Cash Obligations | Total | 1 Year | Years | Years | 5 Years | |||||||||||||||
Long-term Debt | $ | 417.3 | $ | 0.8 | $ | 1.6 | $ | 15.6 | $ | 399.3 | ||||||||||
Operating Leases(a) | 26.7 | 6.2 | 7.9 | 4.8 | 7.8 | |||||||||||||||
Unconditional Purchase Obligations(b) | 64.2 | 8.7 | 17.4 | 17.4 | 20.7 | |||||||||||||||
Management Agreement(c) | 8.0 | 1.0 | 2.0 | 2.0 | 3.0 | |||||||||||||||
Total Contractual Cash Obligations | $ | 516.2 | $ | 16.7 | $ | 28.9 | $ | 39.8 | $ | 430.8 | ||||||||||
Amount of Commitment Expiration per Period
Less | ||||||||||||||||||||
than | 2-3 | After | ||||||||||||||||||
Other Commitments | Total | 1 Year | Years | 4-5 Years | 5 Years | |||||||||||||||
Revolver | $ | 111.6 | $ | — | $ | — | $ | 111.6 | $ | — | ||||||||||
Letters of Credit | 9.4 | 9.4 | — | — | — | |||||||||||||||
Performance Bonds(d) | 15.3 | 15.3 | — | — | — | |||||||||||||||
Total Other Commitments | $ | 136.3 | $ | 24.7 | $ | — | $ | 111.6 | $ | — | ||||||||||
(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) | Note 11 to our audited combined and consolidated financial statements provides additional information. |
(d) | Note 10 to our audited combined and consolidated financial statements provides additional information under Sales Contracts. |
Sensitivity Analysis Related to EBITDA
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flows are not indicative of what they would have been had we not incurred these non-recurring charges. We believe it would be helpful to provide a sensitivity analysis that describes our ability to satisfy our debt service, capital expenditures and working capital requirements and make dividend payments in terms of EBITDA, and EBITDA adjusted for the restructuring and other charges described below, or “Adjusted EBITDA.” We believe that these non-GAAP measures can assist investors in understanding our cost structure, cash flows and financial position. In addition, the financial covenants and ratios in our senior credit facilities and our indentures, such as restrictions on payments and indebtedness and ratios relating to leverage, interest coverage and fixed charge coverage, are also tied to measures that are calculated by adjusting EBITDA as described below. We believe it is necessary to adjust EBITDA to enable investors to see how we view our business given the significant non-recurring restructuring and other charges that have historically affected our results of operations.
For the year ended December 31, 2003
No non-recurring costs were incurred or expensed in 2003.
For the year ended December 31, 2002
Following the Recapitalization, we incurred and expensed certain non-recurring costs totaling $7.7 million that consisted of transition costs required to establish us as an self-sustaining entity. The costs were directly related to the transition from an entity controlled by IMC Global and consisted primarily of one-time compensation costs, costs to develop stand-alone tax and inventory strategies and costs associated with determining the post-closing purchase price adjustment.
For the year ended December 31, 2001
In connection with the Recapitalization, we expensed certain transaction and transition costs. We incurred $20.1 million of transaction costs related to activities associated with the Recapitalization (which consisted primarily of costs related to outside professional services). We also expensed $6.9 million of transition costs related to activities and other charges incurred in connection with separating us from IMC Global.
For the Year Ended December 31, | |||||||||||||
2003 | 2002 | 2001 | |||||||||||
(restated) | (restated) | (restated) | |||||||||||
Net income (loss) | $ | 43.5 | $ | 30.9 | $ | 28.6 | |||||||
Income tax expense (benefit) | 10.2 | 0.6 | 17.3 | ||||||||||
Interest expense | 39.1 | 41.3 | 14.3 | ||||||||||
Depreciation and amortization | 42.1 | 37.1 | 32.6 | ||||||||||
EBITDA | 134.9 | 109.9 | 92.8 | ||||||||||
Adjustments to income (loss) from operations: | |||||||||||||
Restructuring and other charges | — | 7.7 | 27.0 | ||||||||||
Other (income) expense(1) | 5.6 | 4.9 | (3.1 | ) | |||||||||
Adjusted EBITDA | $ | 140.5 | $ | 122.5 | $ | 116.7 | |||||||
(1) | “Other (income) expense” primarily includes losses on early retirements of debt ($5.3 million in 2002), costs related to amending our senior credit facilities ($1.4 million in 2003), interest income, and non-cash foreign exchange gains and losses. |
Effects of Currency Fluctuations and Inflation
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
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
Recent Accounting Pronouncements
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest Rate Risk
Foreign Currency Risk
Commodity Pricing Risk: Commodity Derivative Instruments and Hedging Activities
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Description | Page | |||
Report of Independent Registered Public Accounting Firm | 33 | |||
Report of Independent Registered Public Accounting Firm | 34 | |||
Consolidated Balance Sheets as of December 31, 2003 and 2002, restated | 35 | |||
Combined and Consolidated Statements of Operations for the three years ended December 31, 2003, restated | 36 | |||
Combined and Consolidated Statements of Stockholder’s Equity (Deficit) for the three years ended December 31, 2003, restated | 37 | |||
Combined and Consolidated Statements of Cash Flows for the three years ended December 31, 2003, restated | 38 | |||
Notes to Combined and Consolidated Financial Statements, restated | 39 |
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
Report of Independent Registered Public Accounting Firm
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Compass Minerals Group Inc. and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein for each of the two years in the period ended December 31, 2003 when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As described under the heading “Restatement” in Note 1, the Company has restated its consolidated financial statements for the years ended December 31, 2003 and 2002.
PricewaterhouseCoopers LLP
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
Report of Independent Registered Public Accounting Firm
We have audited the accompanying combined and consolidated statements of operations, stockholder’s equity (deficit), and cash flows of Compass Minerals Group, Inc. for the year ended December 31, 2001. Our audit also included the financial statement schedule for the year ended December 31, 2001 listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.
/s/ Ernst & Young LLP
Kansas City, Missouri
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
Consolidated Balance Sheets
December 31, | |||||||||
2003 | 2002 | ||||||||
(In millions, except share data) | (restated) | (restated) | |||||||
Assets | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 2.6 | $ | 11.9 | |||||
Receivables, less allowance for doubtful accounts of $2.1 million in 2003 and $1.6 million in 2002 | 117.4 | 94.5 | |||||||
Inventories | 96.7 | 96.5 | |||||||
Other | 3.7 | 0.7 | |||||||
Total current assets | 220.4 | 203.6 | |||||||
Property, plant and equipment, net | 262.0 | 263.4 | |||||||
Intangible assets — mineral interests and other, net | 172.7 | 149.8 | |||||||
Other | 24.5 | 25.0 | |||||||
Total assets | $ | 679.6 | $ | 641.8 | |||||
Liabilities and Stockholder’s Equity (Deficit) | |||||||||
Current liabilities: | |||||||||
Current portion of long-term debt | $ | 0.8 | $ | 1.2 | |||||
Accounts payable | 72.6 | 62.3 | |||||||
Accrued expenses | 13.3 | 8.9 | |||||||
Accrued interest | 12.5 | 12.6 | |||||||
Accrued salaries and wages | 13.5 | 12.6 | |||||||
Income taxes payable | — | 4.8 | |||||||
Total current liabilities | 112.7 | 102.4 | |||||||
Long-term debt, net of current portion | 419.4 | 436.4 | |||||||
Deferred income taxes | 55.9 | 59.5 | |||||||
Other noncurrent liabilities | 36.4 | 41.4 | |||||||
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 | 362.3 | |||||||
Accumulated deficit | (314.6 | ) | (358.1 | ) | |||||
Advances to parent | (10.4 | ) | (2.2 | ) | |||||
Accumulated other comprehensive income | 25.5 | 0.1 | |||||||
Total stockholder’s equity (deficit) | 55.2 | 2.1 | |||||||
Total liabilities and stockholder’s equity (deficit) | $ | 679.6 | $ | 641.8 | |||||
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
Combined and Consolidated Statements of Operations
For the years ended December 31, | |||||||||||||
2003 | 2002 | 2001 | |||||||||||
(In millions) | (restated) | (restated) | (restated) | ||||||||||
Sales | $600.6 | $ | 502.6 | $ | 523.2 | ||||||||
Cost of sales — shipping and handling | 165.3 | 137.5 | 143.2 | ||||||||||
Cost of sales — products | 288.3 | 239.2 | 257.0 | ||||||||||
Gross profit | 147.0 | 125.9 | 123.0 | ||||||||||
Selling, general and administrative expenses | 48.6 | 40.5 | 38.9 | ||||||||||
Restructuring and other charges | — | 7.7 | 27.0 | ||||||||||
Operating earnings | 98.4 | 77.7 | 57.1 | ||||||||||
Other (income) expense: | |||||||||||||
Interest expense | 39.1 | 41.3 | 14.3 | ||||||||||
Other, net | 5.6 | 4.9 | (3.1 | ) | |||||||||
Income before income taxes | 53.7 | 31.5 | 45.9 | ||||||||||
Income tax expense | 10.2 | 0.6 | 17.3 | ||||||||||
Net income | $ 43.5 | $ | 30.9 | $ | 28.6 | ||||||||
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
Combined and Consolidated Statements of Stockholder’s Equity (Deficit)
For the years ended December 31, 2003, 2002 and 2001 | |||||||||||||||||||||||||
(restated) | |||||||||||||||||||||||||
Additional | Accumulated | Advances | Accumulated Other | ||||||||||||||||||||||
Common | Paid In | Excess | to | Comprehensive | |||||||||||||||||||||
(In millions) | Stock | Capital | (Deficit) | Parent | Income (Loss) | Total | |||||||||||||||||||
Balance, December 31, 2000 | $ | — | $ | 915.2 | $ | (624.5 | ) | $ | — | $ | 1.1 | $ | 291.8 | ||||||||||||
Comprehensive income: | |||||||||||||||||||||||||
Net income | 45.5 | 45.5 | |||||||||||||||||||||||
Cumulative translation adjustments | (3.2 | ) | (3.2 | ) | |||||||||||||||||||||
Comprehensive income | 42.3 | ||||||||||||||||||||||||
Capital contribution from IMC | 82.0 | 82.0 | |||||||||||||||||||||||
Dividend to IMC and affiliates | (71.1 | ) | (71.1 | ) | |||||||||||||||||||||
Balance, November 27, 2001 | $ | — | $ | 997.2 | $ | (650.1 | ) | $ | — | $ | (2.1 | ) | $ | 345.0 | |||||||||||
Balance, November 28, 2001 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
Contribution of IMCI net assets to CMG | 345.0 | 345.0 | |||||||||||||||||||||||
Dividend to IMC | (372.1 | ) | (372.1 | ) | |||||||||||||||||||||
Comprehensive loss: | |||||||||||||||||||||||||
Net loss | (16.9 | ) | (16.9 | ) | |||||||||||||||||||||
Unfunded pension losses, net of tax | (5.4 | ) | (5.4 | ) | |||||||||||||||||||||
Cumulative translation adjustments | 3.0 | 3.0 | |||||||||||||||||||||||
Comprehensive loss | (19.3 | ) | |||||||||||||||||||||||
Capital contribution | 1.4 | 1.4 | |||||||||||||||||||||||
Balance, December 31, 2001 | — | 346.4 | (389.0 | ) | — | (2.4 | ) | (45.0 | ) | ||||||||||||||||
Advances to parent | (2.2 | ) | (2.2 | ) | |||||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||
Net income | 30.9 | 30.9 | |||||||||||||||||||||||
Unfunded pension losses, net of tax | (6.5 | ) | (6.5 | ) | |||||||||||||||||||||
Unrealized gain on cash flow hedges, net of tax | 0.1 | 0.1 | |||||||||||||||||||||||
Cumulative translation adjustments | 8.9 | 8.9 | |||||||||||||||||||||||
Comprehensive income | 33.4 | ||||||||||||||||||||||||
Capital contributions | 15.9 | 15.9 | |||||||||||||||||||||||
Balance, December 31, 2002 | — | 362.3 | (358.1 | ) | (2.2 | ) | 0.1 | 2.1 | |||||||||||||||||
Dividends declared to CMI | (21.7 | ) | (21.7 | ) | |||||||||||||||||||||
Advances to parent | (8.2 | ) | (8.2 | ) | |||||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||
Net income | 43.5 | 43.5 | |||||||||||||||||||||||
Unfunded pension adjustment, net of tax | 4.9 | 4.9 | |||||||||||||||||||||||
Unrealized gain on cash flow hedges, net of tax | 0.7 | 0.7 | |||||||||||||||||||||||
Cumulative translation adjustments | 19.8 | 19.8 | |||||||||||||||||||||||
Comprehensive income | 68.9 | ||||||||||||||||||||||||
Capital contributions | 14.1 | 14.1 | |||||||||||||||||||||||
Balance, December 31, 2003 | $ | — | $ | 354.7 | $ | (314.6 | ) | $ | (10.4 | ) | $ | 25.5 | $ | 55.2 | |||||||||||
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
Combined and Consolidated Statements of Cash Flows
For the years ended December 31, | ||||||||||||||
2003 | 2002 | 2001 | ||||||||||||
(In millions) | (restated) | (restated) | (restated) | |||||||||||
Cash flows from operating activities: | ||||||||||||||
Net income | $ | 43.5 | $ | 30.9 | $ | 28.6 | ||||||||
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities: | ||||||||||||||
Depreciation, depletion and amortization | 42.1 | 37.1 | 32.6 | |||||||||||
Finance fee amortization | 1.6 | 1.9 | 0.2 | |||||||||||
Loss/(gain) on early extinguishment of long-term debt | — | 5.3 | — | |||||||||||
Restructuring charge and other charges, net of cash | — | 1.1 | 1.4 | |||||||||||
Deferred income taxes | 2.2 | (12.7 | ) | (1.3 | ) | |||||||||
Loss on disposal of property, plant and equipment | 0.3 | 0.2 | 0.2 | |||||||||||
Changes in operating assets and liabilities: | ||||||||||||||
Receivables | (18.5 | ) | (5.9 | ) | 36.3 | |||||||||
Inventories | 4.3 | 3.8 | (20.9 | ) | ||||||||||
Other assets | (4.0 | ) | 0.6 | 1.8 | ||||||||||
Accounts payable and accrued expenses | (0.8 | ) | 14.5 | 3.8 | ||||||||||
Due to IMC and affiliates | — | — | 32.1 | |||||||||||
Other noncurrent liabilities | 0.3 | 5.4 | (2.3 | ) | ||||||||||
Net cash provided by operating activities | 71.0 | 82.2 | 112.5 | |||||||||||
Cash flows from investing activities: | ||||||||||||||
Capital expenditures | (20.6 | ) | (19.5 | ) | (43.0 | ) | ||||||||
Proceeds from sales of property, plant and equipment | 0.1 | 0.6 | 0.2 | |||||||||||
Acquisition of intangible assets | (24.8 | ) | — | — | ||||||||||
Other | (0.3 | ) | (0.2 | ) | (0.8 | ) | ||||||||
Net cash used in investing activities | (45.6 | ) | (19.1 | ) | (43.6 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||
Proceeds from issuance of long-term debt | — | 78.4 | 475.0 | |||||||||||
Principal payments on long-term debt, including capital leases | (31.1 | ) | (115.9 | ) | (66.3 | ) | ||||||||
Revolver activity | 14.0 | (39.8 | ) | 35.4 | ||||||||||
Advances to CMI, net | (8.2 | ) | (2.2 | ) | — | |||||||||
Payments from (to) IMC and affiliates, net | — | — | (81.1 | ) | ||||||||||
Dividend to IMC and affiliates | — | — | (398.8 | ) | ||||||||||
Dividends paid | (21.7 | ) | — | — | ||||||||||
Deferred financing costs | — | (3.9 | ) | (18.0 | ) | |||||||||
Capital contributions | 8.8 | 12.8 | — | |||||||||||
Other | — | 1.0 | — | |||||||||||
Net cash used in financing activities | (38.2 | ) | (69.6 | ) | (53.8 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents | 3.5 | 2.5 | 0.5 | |||||||||||
Net increase (decrease) in cash and cash equivalents | (9.3 | ) | (4.0 | ) | 15.6 | |||||||||
Cash and cash equivalents, beginning of year | 11.9 | 15.9 | 0.3 | |||||||||||
Cash and cash equivalents, end of year | $ | 2.6 | $ | 11.9 | $ | 15.9 | ||||||||
Supplemental cash flow information: | ||||||||||||||
Interest paid excluding capitalized interest | $ | 36.9 | $ | 29.4 | $ | 15.4 | ||||||||
Income taxes paid, net of refunds and indemnification | 8.4 | 10.4 | 14.8 | |||||||||||
Supplemental disclosure of noncash activities: | ||||||||||||||
Dividends to IMC and affiliates | $ | — | $ | — | $ | 44.5 | ||||||||
Capital contributions from IMC and affiliates | — | — | 82.0 | |||||||||||
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
Notes to Combined and Consolidated Financial Statements
1. Organization, Formation and Basis of Presentation:
• | NAMSCO Inc. (“NAMSCO”) and subsidiaries | |
• | North American Salt Company (“NASC”) | |
• | Carey Salt Company | |
• | Sifto Canada Inc. (“Sifto”) | |
• | GSL Corporation and subsidiary (“GSL”) | |
• | Great Salt Lake Minerals Corporation | |
• | Compass Minerals (Europe) Limited (“CMGE”) and subsidiaries | |
• | Compass Minerals (UK) Limited | |
• | Salt Union Limited U.K. (“SUL”) and subsidiaries |
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
end of each year from December 31, 1998 through December 31, 2003 and has restated the combined and consolidated financial statements and the accompanying notes to the combined and consolidated financial statements, as applicable, for each of the three years in the period ended December 31, 2003 to reflect the adjustments in the deferred income tax accounts and related valuation allowance. 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.
Cumulative increase to deferred income tax assets and increase to stockholder’s equity at January 1, 2001 | $ | 3.3 | ||
Decrease in income tax expense and increase in net income for the year ended December 31, 2001 | 9.5 | |||
Decrease in income tax expense and increase in net income for the year ended December 31, 2002 | 11.2 | |||
Increase in income tax expense and decrease in net income for the year ended December 31, 2003 | (2.2 | ) |
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 $10.4 million and $2.2 million at December 31, 2003 and 2002, respectively.
For the year ended | For the year ended | For the year ended | |||||||||||||||||||||||
December 31, 2003 | December 31, 2002 | December 31, 2001 | |||||||||||||||||||||||
Amounts | Amounts | Amounts | |||||||||||||||||||||||
previously | As | previously | As | previously | As | ||||||||||||||||||||
reported | restated | reported | restated | reported | restated | ||||||||||||||||||||
Combined and consolidated statements of operations: | |||||||||||||||||||||||||
Income before income taxes | $ | 53.7 | $ | 53.7 | $ | 31.5 | $ | 31.5 | $ | 45.9 | $ | 45.9 | |||||||||||||
Income tax expense | 8.0 | 10.2 | 11.8 | 0.6 | 26.8 | 17.3 | |||||||||||||||||||
Net income | 45.7 | 43.5 | 19.7 | 30.9 | 19.1 | 28.6 | |||||||||||||||||||
December 31, 2003 | December 31, 2002 | ||||||||||||||||
Amounts | Amounts | ||||||||||||||||
previously | As | previously | As | ||||||||||||||
reported | restated | reported | restated | ||||||||||||||
Consolidated balance sheets: | |||||||||||||||||
Other noncurrent assets | $ | 34.9 | $ | 24.5 | $ | 27.2 | $ | 25.0 | |||||||||
Total assets | 690.0 | 679.6 | 644.0 | 641.8 | |||||||||||||
Deferred income taxes | 77.7 | 55.9 | 83.5 | 59.5 | |||||||||||||
Additional paid in capital | 341.9 | 354.7 | 349.5 | 362.3 | |||||||||||||
Accumulated deficit | (323.6 | ) | (314.6 | ) | (369.3 | ) | (358.1 | ) | |||||||||
Advances to parent | — | (10.4 | ) | — | (2.2 | ) | |||||||||||
Total stockholders’ equity (deficit) | 43.8 | 55.2 | (19.7 | ) | 2.1 |
For the year ended | For the year ended | For the year ended | |||||||||||||||||||||||
December 31, 2003 | December 31, 2002 | December 31, 2001 | |||||||||||||||||||||||
Amounts | Amounts | Amounts | |||||||||||||||||||||||
previously | As | previously | As | previously | As | ||||||||||||||||||||
reported | restated | reported | restated | reported | restated | ||||||||||||||||||||
Combined and consolidated statements of cash flows: | |||||||||||||||||||||||||
Net income | $ | 45.7 | $ | 43.5 | $ | 19.7 | $ | 30.9 | $ | 19.1 | $ | 28.6 | |||||||||||||
Deferred income taxes | — | 2.2 | (1.5 | ) | (12.7 | ) | 8.2 | (1.3 | ) | ||||||||||||||||
Net cash provided by operating activities | 71.0 | 71.0 | 82.2 | 82.2 | 112.5 | 112.5 | |||||||||||||||||||
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
2. Summary of Significant Accounting Policies:
a. Management Estimates: The preparation of financial statements in conformity with generally accepted accounting principles, or “GAAP,” requires management to make estimates and assumptions that affect the amounts reported in the combined and consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
b. Basis of Combination/ Consolidation: The Company’s combined and consolidated financial statements include the accounts of the Company, which include the domestic and foreign subsidiaries discussed in Note 1. The Company’s financial statements have been combined through the Recapitalization date and consolidated thereafter. All significant intercompany balances and transactions have been eliminated.
c. Foreign Currency Translation: Assets and liabilities are translated into U.S. dollars at end of period exchange rates. Revenues and expenses are translated using the average rates of exchange for the year. Adjustments resulting from the translation of foreign-currency financial statements into the reporting currency, U.S. dollars, are included in accumulated other comprehensive income (loss). Exchange gains and losses from transactions denominated in a currency other than a company’s functional currency are included in income.
d. Revenue Recognition: The Company sells mineral products, primarily salt and SOP. Revenue is recognized by the Company at the time of shipment to the customer, which coincides with the transfer of title and risk of ownership to the customer. Sales represent billings to customers net of sales taxes charged for the sale of the product. Sales include shipping and handling costs which are expensed when the related product is sold.
e. Cash and Cash Equivalents: The Company considers all investments with original maturities of three months or less to be cash equivalents. The Company maintains the majority of its cash in bank deposit accounts with several commercial banks with high credit ratings in the U.S., Canada and Europe. The Company does not believe it is exposed to any significant credit risk on cash and cash equivalents.
f. Inventories: Inventories are stated at the lower of cost or market. Finished goods costs are determined by the average cost method. Raw materials and supply costs are determined by either the first-in, first-out (“FIFO”) or the average cost method. Raw materials and supplies primarily consist of raw materials purchased to aid in the production of our mineral products, maintenance materials and packaging materials. Finished goods are comprised of salt and SOP products readily available for sale. All costs associated with the production of salt and SOP at our producing locations are captured as inventory costs. Additionally, since our products are often stored at third-party warehousing locations, we include in the cost of inventory the freight and handling costs necessary to move the product to storage until the product is sold to a customer.
g. Property, Plant and Equipment: Tangible property, plant and equipment, including assets under capital leases, are stated at cost and include interest on funds borrowed to finance construction. The costs of replacements or renewals which improve or extend the life of existing property are capitalized. Maintenance and repairs are expensed as incurred. Upon retirement or disposition of an asset, any resulting gain or loss is included in results from operations.
Land improvements | 5 to 25 years | |||
Buildings and improvements | 10 to 40 years | |||
Machinery and equipment | 3 to 25 years | |||
Furniture and fixtures | 3 to 10 years | |||
Mineral properties | 20 to 30 years | |||
h. Mineral Interests: 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. Pursuant to SFAS No. 141, “Business Combinations” (“SFAS No. 141”), and SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), mineral interests associated with other than owned properties are classified as intangible assets. Probable mineral reserves are amortized on a units-of-production basis over the respective
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
estimated mine lives not to exceed 99 years. The weighted average amortization period for probable mineral reserves is 93 years as of December 31, 2003. The Company’s rights to extract minerals are contractually limited by time. However, the Company believes it will be able to continue to extend lease agreements, as it has in the past, at commercially reasonable terms, without incurring substantial costs or incurring material modifications to the existing lease terms and conditions, and therefore, believes that the assigned lives are appropriate.
i. Other Intangible Assets: The Company follows the rules on accounting for intangible assets as set forth in SFAS No. 142. Under these rules, intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests in accordance with the Statements. Other intangible assets are amortized over their estimated useful lives that range from 5 to 25 years.
j. Other Noncurrent Assets: Other noncurrent assets include deferred financing costs of $16.3 million and $14.5 million net of accumulated amortization of $3.6 million and $1.9 million as of December 31, 2003 and 2002, respectively. Deferred financing costs are being amortized on a straight-line basis over the terms of the debt to which the costs relate and the related amortization is recorded as interest expense.
k. Income Taxes: The Company determines its current and deferred income taxes on a separate company basis. The Company’s U.S. subsidiaries participated in the consolidated federal income tax return of IMC for periods owned by IMC. The foreign subsidiaries file separate-company returns in their respective jurisdictions. For financial reporting purposes, while owned by IMC, the Company computed a provision for income taxes on a stand alone basis. The Company accounts for income taxes using the liability method in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes. Under the liability method, deferred taxes are determined based on the differences between the financial statement and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.
l. Environmental Costs: Environmental costs, other than those of a capital nature, are accrued at the time the exposure becomes known and costs can reasonably be estimated. Costs are accrued based upon management’s estimates of all direct costs, after taking into account reimbursement by third parties. The Company does not accrue liabilities for unasserted claims that are not probable of assertion and the Company does not provide for environmental clean-up costs, if any, at the end of the useful lives of its facilities, since it is not practical to estimate such costs due to the long lives of the Company’s mineral deposits. The Company’s environmental accrual was $2.3 million and $2.0 million as of December 31, 2003 and 2002, respectively.
m. Asset Retirement Obligations: The Company adopted SFAS No. 143, “Accounting for Obligations Associated with the Retirement of Long-Lived Assets” on January 1, 2003. The Company recognizes and measures obligations related to the retirement of tangible long-lived assets. The retirement obligation must be one that results from the acquisition, construction or normal operation of the long-lived asset. The legal obligation associated with the retirement of a tangible long-lived asset is recognized at fair value as a liability when incurred and the cost is capitalized by increasing the carrying amount of the related long-lived asset. The adoption of SFAS No. 143 did not have a material impact on the Company’s financial position, results of operations or cash flows.
n. Stock Options: The following relates to the Company’s parent, CMI, and is provided for informational purposes only. CMI has a stock option plan that was adopted on November 28, 2001 for employees and officers of CMG and directors of CMG and CMI (see Note 14,Stock Options). Prior to the fourth quarter of 2003, CMI accounted for its stock-based employee compensation plan under the recognition and measurement provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,“and related interpretations. No stock-based employee compensation expense for stock options was reflected in net income for the years ended December 31, 2002 and 2001, as all stock options granted under the plan had an exercise price equal to the fair market value of the underlying common stock on the date of grant. During the fourth quarter of 2003, CMI adopted the preferable fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.” CMI selected the prospective method of adoption described in SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” Under the prospective method, all options granted or modified after January 1, 2003 are accounted for under the fair value method retroactively effective as of January 1, 2003.
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
The following table sets forth information about the fair value of each option grant on the date of grant using the Black-Scholes option-pricing model and the weighted-average assumptions used for such grants for the years ended December 31:
2003 | 2002 | 2001 | ||||||||||
Fair value of options granted | $ | 10.98 | $ | 2.11 | $ | 2.01 | ||||||
Expected lives (years) | 7.8 | 7.8 | 8.0 | |||||||||
Expected volatility* | — | — | — | |||||||||
Dividend yield | — | — | — | |||||||||
Risk-free interest rates | 3.4 | % | 4.9 | % | 4.3 | % | ||||||
* | Under the minimum value method, volatility was excluded. |
o. Derivatives: The Company accounts for derivative financial instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, which requires companies to record derivative financial instruments as assets or liabilities measured at fair value. SFAS No. 133 further requires that changes in the derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Accounting for qualifying hedges allows a derivative’s gains and losses to offset related results from the hedged item on the income statement. Companies must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting.
p. Concentration of Credit Risk: The Company sells its salt products to various governmental agencies, manufacturers, distributors and retailers primarily in the Midwestern United States, and throughout Canada and the United Kingdom. The Company’s potash products are sold across North America and internationally. No single customer or group of affiliated customers accounted for more than 10% of the Company’s sales in any year during the three year period ended December 31, 2003, or for more than 10% of accounts receivable at December 31, 2003 or 2002.
q. Recent Accounting Pronouncements: In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” This Statement requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. The Company adopted SFAS No. 146 in the first quarter of 2003 as the provisions of this Statement are effective for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS No. 146 did not have a material impact on the Company’s financial position, results of operations or cash flows.
r. Reclassifications: Certain reclassifications were made to prior-year amounts in order to conform with the current year’s presentation.
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
3. Asset Impairment, Restructuring and Other Charges:
2002
Following the Recapitalization, the Company incurred and expensed certain non-recurring costs totaling $7.7 million that consist of transition costs required to establish the Company as an independent entity. The costs were directly related to the transition from an entity controlled by IMC and consisted primarily of one-time compensation costs, costs to develop stand-alone tax and inventory strategies, and costs associated with determining the post-closing purchase price adjustment.
2001
In connection with the Recapitalization, the Company expensed certain costs totaling $27.0 million which consist of transaction and transition costs. The transaction costs were directly related to the acquisition and consisted primarily of outside professional services. Below is a more detailed description of such costs:
(1) | $20.1 million of transaction costs related to activities associated with the sale and Recapitalization, including approximately $6.4 million in legal fees and other fees, and $13.7 million in financial services and advice. | |
(2) | $6.9 million of transition costs, the majority of which related to retention, recruiting, systems design and migration and other activities and charges related to separating CMG from IMC, as well as charges for legal costs and other asset write-offs associated with CMG’s new strategic direction. |
4. Inventories:
2003 | 2002 | |||||||
Finished goods | $ | 84.1 | $ | 83.5 | ||||
Raw materials and supplies | 12.6 | 13.0 | ||||||
$ | 96.7 | $ | 96.5 | |||||
5. Property, Plant and Equipment:
2003 | 2002 | |||||||
Land and buildings | $ | 135.9 | $ | 128.4 | ||||
Machinery and equipment | 408.3 | 375.7 | ||||||
Furniture and fixtures | 9.6 | 9.9 | ||||||
Mineral properties and rights | 20.3 | 18.2 | ||||||
Construction in progress | 6.5 | 13.5 | ||||||
580.6 | 545.7 | |||||||
Less accumulated depreciation and depletion | 318.6 | 282.3 | ||||||
$ | 262.0 | $ | 263.4 | |||||
6. Mineral Interests and Other Intangible Assets:
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
Mineral interests and other intangible assets consist of the following at December 31 (in millions):
2003 | 2002 | |||||||||||||||||||||||
Gross | Gross | |||||||||||||||||||||||
Carrying | Accumulated | Net Book | Carrying | Accumulated | Net Book | |||||||||||||||||||
Value | Amortization | Value | Value | Amortization | Value | |||||||||||||||||||
Probable mineral reserves | $158.6 | $ | 10.6 | $148.0 | $158.6 | $ | 8.8 | $149.8 | ||||||||||||||||
SOP long-term customer contract | 0.5 | — | 0.5 | — | — | — | ||||||||||||||||||
Other SOP intangible asset | 24.3 | 0.1 | 24.2 | — | — | — | ||||||||||||||||||
183.4 | 10.7 | 172.7 | 158.6 | 8.8 | 149.8 | |||||||||||||||||||
7. Income Taxes:
2003 | 2002 | 2001 | ||||||||||||
(restated) | (restated) | (restated) | ||||||||||||
Current: | ||||||||||||||
Federal | $ | 0.6 | $ | — | $ | 5.9 | ||||||||
State | 0.2 | 1.3 | 0.8 | |||||||||||
Foreign | 7.2 | 12.0 | 11.9 | |||||||||||
Total current | 8.0 | 13.3 | 18.6 | |||||||||||
Deferred: | ||||||||||||||
Federal | 2.1 | (14.0 | ) | (2.3 | ) | |||||||||
State | (3.2 | ) | (0.4 | ) | 0.4 | |||||||||
Foreign | 3.3 | 1.7 | 0.6 | |||||||||||
Total deferred | 2.2 | (12.7 | ) | (1.3 | ) | |||||||||
Total provision for income taxes | $ | 10.2 | $ | 0.6 | $ | 17.3 | ||||||||
2003 | 2002 | 2001 | ||||||||||
(restated) | (restated) | (restated) | ||||||||||
Domestic income | $ | 33.4 | $ | 9.6 | $ | 22.2 | ||||||
Foreign income | 20.3 | 21.9 | 23.7 | |||||||||
Income before income taxes | $ | 53.7 | $ | 31.5 | $ | 45.9 | ||||||
Computed tax at the federal statutory rate of 35% | $ | 18.8 | $ | 11.0 | $ | 16.1 | ||||||
Foreign income, mining, and withholding taxes | 3.5 | 6.0 | 3.0 | |||||||||
Foreign exchange gain | — | — | 2.6 | |||||||||
Percentage depletion in excess of basis | (5.1 | ) | (1.9 | ) | (2.9 | ) | ||||||
State income taxes, net of federal income tax benefit | (3.2 | ) | 0.6 | 1.1 | ||||||||
Restructuring and other charges | — | — | 6.8 | |||||||||
Change in valuation allowance on deferred tax assets | (4.2 | ) | (14.6 | ) | (7.7 | ) | ||||||
Other | 0.4 | (0.5 | ) | (1.7 | ) | |||||||
Income tax expense (benefit) | $ | 10.2 | $ | 0.6 | $ | 17.3 | ||||||
Effective tax rate | 19 | % | 2 | % | 38 | % | ||||||
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
assets and liabilities were as follows at December 31 (in millions):
2003 | 2002 | ||||||||
(restated) | (restated) | ||||||||
Deferred tax liabilities: | |||||||||
Property, plant and equipment | $ | 90.5 | $ | 99.2 | |||||
Total deferred tax liabilities | 90.5 | 99.2 | |||||||
Deferred tax assets: | |||||||||
Net operating loss carryforwards | 31.5 | 38.5 | |||||||
Alternative minimum tax credit carryforwards | 3.0 | 2.4 | |||||||
Other assets | 12.8 | 15.7 | |||||||
Subtotal | 47.3 | 56.6 | |||||||
Valuation allowance | (12.7 | ) | (16.9 | ) | |||||
Total deferred tax assets | 34.6 | 39.7 | |||||||
Net deferred tax liabilities | $ | 55.9 | $ | 59.5 | |||||
8. Long-term Debt:
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
On April 10, 2002, the Company completed an offering of $75.0 million aggregate principal amount of 10% Senior Subordinated Notes due 2011 (the “New Notes”). The New Notes were issued to the bondholders at a premium of $3.4 million, plus accrued interest of $1.1 million from February 15, 2002 and accordingly, the Company received gross proceeds of $79.5 million from the offering of the notes. The New Notes, together with the $250.0 million aggregate principal amount of Notes, are treated as a single class of securities under the Company’s existing indenture. The proceeds from the offering of the New Notes, net of transaction costs, were used to repay borrowings under the Company’s Credit Facility. In connection with the offering, the Company amended and restated the Credit Facility with respect to a reduction in the Term Loan to $150.0 million and a 0.75% reduction in the interest rate margin charged to the Company on the Term Loan. The Company also incurred a charge of approximately $5.3 million in April 2002, related to the write-off of the deferred financing costs associated with the refinancing of the original Term Loan.
2003 | 2002 | |||||||
Senior Subordinated Notes | $ | 325.0 | $ | 325.0 | ||||
Term Loan | 78.3 | 109.3 | ||||||
Revolving Credit Facility | 14.0 | — | ||||||
Other, including capital lease obligations | — | 0.1 | ||||||
417.3 | 434.4 | |||||||
Plus premium on Senior Subordinated Notes, net | 2.9 | 3.2 | ||||||
Less current portion | (0.8 | ) | (1.2 | ) | ||||
$ | 419.4 | $ | 436.4 | |||||
Future minimum maturities of long-term debt for the years ending December 31, are as follows (in millions):
2004 | $ | 0.8 | ||
2005 | 0.8 | |||
2006 | 0.8 | |||
2007 | 0.8 | |||
2008 | 14.8 | |||
Thereafter | 399.3 | |||
$ | 417.3 | |||
9. Pension Plans and Other Benefits:
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
asset allocations at December 31, 2003 and 2002, by asset category are as follows:
Plan Assets at | ||||||||
December 31, | ||||||||
Asset Category | 2003 | 2002 | ||||||
Cash and cash equivalents | 1 | % | 1 | % | ||||
Equity Securities | 76 | 78 | ||||||
Debt Securities | 23 | 21 | ||||||
Total | 100 | % | 100 | % | ||||
Future Expected | ||||
Calendar Year | Benefit Payments | |||
2004 | $ | 1.6 | ||
2005 | 1.5 | |||
2006 | 1.3 | |||
2007 | 1.4 | |||
2008 | 1.4 | |||
2009 — 2013 | 8.5 | |||
2003 | 2002 | |||||||
Change in benefit obligation: | ||||||||
Benefit obligation as of January 1 | $ | 56.2 | $ | 44.4 | ||||
Service cost | 1.4 | 1.2 | ||||||
Interest cost | 2.9 | 2.6 | ||||||
Transfer in from IMC | — | 2.2 | ||||||
Actuarial (gain) loss | (3.3 | ) | 1.6 | |||||
Benefits paid | (1.4 | ) | (1.1 | ) | ||||
Currency fluctuation adjustment | 5.9 | 5.2 | ||||||
Other | 0.1 | 0.1 | ||||||
Benefit obligation as of December 31 | $ | 61.8 | $ | 56.2 | ||||
Change in plan assets: | ||||||||
Fair value as of January 1 | $ | 35.0 | $ | 34.2 | ||||
Actual return | 6.4 | (4.7 | ) | |||||
Company contributions | 1.5 | 1.1 | ||||||
Transfer in from IMC | — | 2.3 | ||||||
Currency fluctuation adjustment | 4.4 | 3.1 | ||||||
Benefits paid | (1.4 | ) | (1.1 | ) | ||||
Other | 0.1 | 0.1 | ||||||
Fair value as of December 31 | $ | 46.0 | $ | 35.0 | ||||
Funded status of the plans | $ | (15.8 | ) | $ | (21.2 | ) | ||
Unrecognized net (gain) loss | 13.6 | 20.5 | ||||||
Unrecognized transition liability | 0.4 | 0.4 | ||||||
Net amount recognized | $ | (1.8 | ) | $ | (0.3 | ) | ||
Amounts recognized in the balance sheet: | ||||||||
Prepaid (accrued) benefit cost | $ | (0.2 | ) | $ | (0.3 | ) | ||
Accrued benefit liability | (12.0 | ) | (17.4 | ) | ||||
Other noncurrent assets | 0.4 | 0.4 | ||||||
Accumulated other comprehensive loss | 10.0 | 17.0 | ||||||
Net amount recognized | $ | (1.8 | ) | $ | (0.3 | ) | ||
2003 | 2002 | 2001 | ||||||||||
Service cost for benefits earned during the year | $ | 1.4 | $ | 1.2 | $ | 1.1 | ||||||
Interest cost on projected benefit obligation | 2.9 | 2.6 | 2.3 | |||||||||
Return on plan assets | (2.2 | ) | (2.4 | ) | (3.0 | ) | ||||||
Net amortization and deferral | 1.1 | 0.5 | 0.1 | |||||||||
Net pension expense | $ | 3.2 | $ | 1.9 | $ | 0.5 | ||||||
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
Plans have a profit sharing feature for salaried and non-union hourly employees. The Company contribution to the profit-sharing feature is based on the employee’s age and pay and the Company’s financial performance. Expense attributable to these Savings Plans was $4.1 million, $3.3 million and $2.9 million for the years ended December 31, 2003, 2002 and 2001, respectively.
10. Commitments and Contingencies:
Leases: The Company leases certain property and equipment under non-cancelable operating leases for varying periods. The aggregate future minimum annual rentals under lease arrangements as of December 31, 2003, are as follows (in millions):
Operating | ||||
Calendar Year | Leases | |||
2004 | $ 6.2 | |||
2005 | 4.5 | |||
2006 | 3.4 | |||
2007 | 3.0 | |||
2008 | 1.8 | |||
Thereafter | 7.8 | |||
$26.7 | ||||
Royalties: The Company has various private, state and Canadian provincial leases associated with the salt and specialty potash businesses. Royalty expense related to these leases was $5.8 million, $4.5 million and $5.3 million for the years ended December 31, 2003, 2002 and 2001, respectively.
Sales Contracts: The Company has various salt and other deicing-product sales contracts that include performance provisions governing delivery and product quality. These sales contracts either require the Company to maintain performance bonds for stipulated amounts or contain contractual penalty provisions in the event of non-performance. For the three years ended December 31, 2003, the Company has had no material penalties related to these sales contracts. At December 31, 2003, the Company had approximately $15.3 million of outstanding performance bonds.
Purchase Commitments: In connection with the operations of the Company’s facilities, the Company purchases electricity, steam, other raw materials and services from third parties under existing contracts, extending, in some cases, for multiple years. Purchases under these contracts are generally based on prevailing market prices. The Company’s future minimum long-term purchase commitments are approximately $8.7 million annually from 2004 to 2008 and approximately $20.7 million in total, thereafter.
Environmental Matters: At December 31, 2003 and 2002, the Company has recorded accruals of $2.3 million and $2.0 million, respectively, for estimated future costs associated with existing environmental exposures at certain of its facilities. The Company estimates that a significant portion of these accruals will be used over the next five years.
Purchase Agreement: During 2002, the Company amended an agreement with a supplier related to the purchase of salt from the supplier’s chemical production facility in Tennessee. The Company has received a one-time cash payment of $8.0 million related to the amendment. In 2002, the Company recognized $0.6 million as a net reduction to cost of sales in the Consolidated Statement of Operations resulting from recognition of a ratable portion of the cash received and the sale of certain assets. In 2003, the Company recognized another ratable portion, $0.9 million, as a net reduction to cost of sales. Approximately $5.4 million of the original one-time cash payment remains to be recognized over the remaining life of the amended agreement, terminating December 2010, as certain conditions are met by the Company and the supplier. Alternatively, the Company may elect to resume purchasing salt from the supplier’s facility. In that event, the Company would repay a ratable portion of the cash received.
Parent Company Obligations: In December 2002, certain holders of CMI’s series A redeemable preferred stock converted their preferred stock into subordinated discount debentures. CMI then issued $123.5 million in aggregate principal amount of senior discount notes in exchange for CMI subordinated discount debentures. No cash interest will accrue on the senior discount notes prior to December 15, 2007. The accreted value of each senior discount note will increase from the date of issuance until December 15, 2007 at a rate of 12 3/4% per annum, reflecting the accrual of non-cash interest, such that the accreted value will equal the principal amount at maturity on December 15, 2007. Cash interest will accrue on the senior discount notes at a rate of 12 3/4% per annum, beginning December 15, 2007. The first cash interest payment will be made on June 15, 2008. The accreted value of the senior discount notes was $75.7 million and $66.9 million at December 31, 2003 and 2002, respectively.
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
On May 22, 2003, CMI issued $179.6 million in aggregate principal amount at maturity of subordinated discount notes in a private placement under Rule 144A and Regulation S of the Securities Act. No cash interest will accrue on the subordinated discount notes prior to June 1, 2008. The accreted value of each subordinated discount note will increase from the date of issuance until June 1, 2008 at a rate of 12% per annum, reflected in the accrual of non-cash interest, such that the accreted value will equal the principal amount at maturity on June 1, 2008. Cash interest will accrue on the subordinated discount notes at a rate of 12% per annum, beginning June 1, 2008 through maturity. The proceeds from the sale of the subordinated discount notes were distributed to CMI stockholders. The accreted value of the subordinated discount notes at December 31, 2003 was $107.4 million.
11. Related Party Transactions:
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
advice through 2011. During the years ended December 31, 2003, 2002 and 2001, the Company recorded management fee charges of $1.0 million, $0.9 million and $0.1 million, respectively, from Apollo. Additionally, during the year ended December 31, 2001, the Company recorded a $7.5 million charge to Apollo for transaction fees related to the Recapitalization.
12. Commodity Derivative Instruments and Hedging Activities:
13. Operating Segments:
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
2003 | Salt | Potash | Other(c) | Total | ||||||||||||
Sales from external customers | $ | 546.6 | $ | 54.0 | $ | — | $ | 600.6 | ||||||||
Intersegment sales | — | 9.4 | (9.4 | ) | — | |||||||||||
Cost of sales – shipping and handling | 156.6 | 8.7 | — | 165.3 | ||||||||||||
Operating earnings (loss) | 108.8 | 7.5 | (17.9 | ) | 98.4 | |||||||||||
Depreciation, depletion and amortization | 34.2 | 7.9 | — | 42.1 | ||||||||||||
Total assets, restated | 522.6 | 141.5 | 15.5 | 679.6 | ||||||||||||
Capital expenditures | 17.7 | 2.9 | — | 20.6 | ||||||||||||
2002 | Salt | Potash | Other(d) | Total | ||||||||||||
Sales from external customers | $ | 452.5 | $ | 50.1 | $ | — | $ | 502.6 | ||||||||
Intersegment sales | — | 8.9 | (8.9 | ) | — | |||||||||||
Cost of sales — shipping and handling | 130.2 | 7.3 | — | 137.5 | ||||||||||||
Operating earnings (loss)(a) | 95.1 | 4.8 | (22.2 | ) | 77.7 | |||||||||||
Depreciation, depletion and amortization | 29.2 | 7.9 | — | 37.1 | ||||||||||||
Total assets, restated | 509.8 | 116.0 | 16.0 | 641.8 | ||||||||||||
Capital expenditures | 15.3 | 4.2 | — | 19.5 | ||||||||||||
2001 | Salt | Potash | Other(d) | Total | ||||||||||||
Sales from external customers | $ | 485.0 | $ | 38.2 | $ | — | $ | 523.2 | ||||||||
Intersegment sales | — | 8.8 | (8.8 | ) | — | |||||||||||
Cost of sales — shipping and handling | 143.2 | — | — | 143.2 | ||||||||||||
Operating earnings (loss)(b) | 94.3 | 0.7 | (37.9 | ) | 57.1 | |||||||||||
Depreciation, depletion and amortization | 24.5 | 8.1 | — | 32.6 | ||||||||||||
Total assets | 514.2 | 120.9 | 20.5 | 655.6 | ||||||||||||
Capital expenditures | 38.5 | 4.5 | — | 43.0 | ||||||||||||
(a) | Includes $7.7 million related to transition costs. |
(b) | $27.0 million related to transaction and transition costs. |
(c) | Other includes corporate entities and eliminations. |
Financial information relating to the Company’s operations by geographic area for the years ended December 31, is as follows (in millions):
Sales | 2003 | 2002 | 2001 | |||||||||
United States | $ | 394.5 | $ | 345.2 | $ | 339.1 | ||||||
Canada | 128.7 | 90.8 | 99.4 | |||||||||
United Kingdom | 68.2 | 60.0 | 79.4 | |||||||||
Other | 9.2 | 6.6 | 5.3 | |||||||||
$ | 600.6 | $ | 502.6 | $ | 523.2 | |||||||
Long-Lived Assets | 2003 | 2002 | ||||||
United States | $ | 262.7 | $ | 246.2 | ||||
Canada | 122.4 | 128.2 | ||||||
United Kingdom | 74.1 | 63.8 | ||||||
$ | 459.2 | $ | 438.2 | |||||
14. Stock Options:
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
The weighted-average exercise price approximates the weighted-average grant-date fair value of options granted during 2002 and 2001. As a result of CMI’s initial public offering, the Company determined that certain stock option issuances made during 2003 were issued with exercise prices below the fair value. The weighted average fair value for options granted during 2003 was $10.98.
Number of | Weighted-average | |||||||
options | Exercise price | |||||||
Outstanding at December 31, 2001 | 617,043 | $ | 2.01 | |||||
Granted | 1,122,433 | 2.11 | ||||||
Exercised | — | — | ||||||
Cancelled / Expired | — | — | ||||||
Outstanding at December 31, 2002 | 1,739,476 | 2.08 | ||||||
Exercised | (23,053 | ) | 2.01 | |||||
Cancelled / Expired | (6,592 | ) | 2.01 | |||||
Outstanding at May 22, 2003 | 1,709,831 | 2.08 | ||||||
Outstanding at May 23, 2003 after the amendment to the option plan(a) | 2,455,943 | 1.45 | ||||||
Granted | 50,311 | 7.04 | ||||||
Exercised(b) | (246,458 | ) | 1.41 | |||||
Cancelled / Expired | (42,832 | ) | 1.40 | |||||
Outstanding at December 31, 2003 | 2,216,964 | $ | 1.58 | |||||
(a) | In connection with CMI’s $100.0 million dividend payment on its common stock in May 2003, the number of CMI stock options and their exercise prices were adjusted to preserve the intrinsic value of the stock options that existed prior to the dividend. This was accomplished by decreasing the exercise price of outstanding options and increasing the number of outstanding options by a factor of 1.436 to one. |
(b) | Exercised options include 6,077 shares of common stock that were issued from CMI treasury stock. |
Options outstanding | Options exercisable | ||||||||||||||||||
Weighted- | |||||||||||||||||||
average | |||||||||||||||||||
remaining | |||||||||||||||||||
contractual | Weighted- | Weighted- | |||||||||||||||||
Number | life | average | Number | average | |||||||||||||||
Range of exercise prices | outstanding | (years) | exercise price | outstanding | exercise price | ||||||||||||||
$1.40 | 2,100,298 | 6.15 | $ | 1.40 | 1,618,787 | $ | 1.40 | ||||||||||||
$1.41 — $2.60 | 6,377 | 6.58 | $ | 2.60 | 3,642 | $ | 2.60 | ||||||||||||
$2.61 — $3.23 | 59,980 | 6.83 | $ | 3.23 | 57,273 | $ | 3.23 | ||||||||||||
$3.24 — $5.17 | 12,942 | 7.58 | $ | 5.17 | 6,471 | $ | 5.17 | ||||||||||||
$5.18 — $7.70 | 37,367 | 7.93 | $ | 7.70 | 37,367 | $ | 7.70 | ||||||||||||
Totals | 2,216,964 | 6.19 | $ | 1.58 | 1,723,540 | $ | 1.61 | ||||||||||||
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
15. Other Comprehensive Income:
Accumulated | |||||||||||||||||
Unfunded | Unrealized | Foreign | Other | ||||||||||||||
Pension | gains on cash | currency | comprehensive | ||||||||||||||
Losses | flow hedges | Adjustments | income | ||||||||||||||
Balance at December 31, 2000 | $ | — | $ | — | $ | 1.1 | $ | 1.1 | |||||||||
January 1, 2001 — November 27, 2001 changes | — | — | (3.2 | ) | (3.2 | ) | |||||||||||
Balance at November 27, 2001 | $ | — | $ | — | $ | (2.1 | ) | $ | (2.1 | ) | |||||||
Balance at November 28, 2001 | $ | — | $ | — | $ | — | $ | — | |||||||||
November 28, 2001 — December 31, 2001 changes | (5.4 | ) | — | 3.0 | (2.4 | ) | |||||||||||
Balance at December 31, 2001 | (5.4 | ) | — | 3.0 | (2.4 | ) | |||||||||||
2002 changes | (6.5 | ) | 0.1 | 8.9 | 2.5 | ||||||||||||
Balance at December 31, 2002 | (11.9 | ) | 0.1 | 11.9 | 0.1 | ||||||||||||
2003 changes | 4.9 | 0.7 | 19.8 | 25.4 | |||||||||||||
Balance at December 31, 2003 | $ | (7.0 | ) | $ | 0.8 | $ | 31.7 | $ | 25.5 | ||||||||
Before tax | Tax (expense) | Net-of-tax | |||||||||||
For the year ended December 31, 2003: | amount | benefit | amount | ||||||||||
Minimum pension liability adjustment | $ | 7.0 | $ | (2.1 | ) | $ | 4.9 | ||||||
Gas hedging adjustment | 1.1 | (0.4 | ) | 0.7 | |||||||||
Foreign currency translation adjustment | 19.8 | — | 19.8 | ||||||||||
Other comprehensive income | $ | 27.9 | $ | (2.5 | ) | $ | 25.4 | ||||||
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
16. | Quarterly Results (Unaudited)(a) (in millions): |
First | Second | Third | Fourth | Year | ||||||||||||||||
Quarter | (restated) | (restated) | (restated) | (restated) | (restated) | |||||||||||||||
2003 | ||||||||||||||||||||
Sales | $ | 212.7 | $ | 88.7 | $ | 97.1 | $ | 202.1 | $ | 600.6 | ||||||||||
Cost of sales — shipping and handling | 64.1 | 21.1 | 24.1 | 56.0 | 165.3 | |||||||||||||||
Cost of sales — products | 95.5 | 48.9 | 55.1 | 88.8 | 288.3 | |||||||||||||||
Gross profit | 53.1 | 18.7 | 17.9 | 57.3 | 147.0 | |||||||||||||||
Operating earnings (loss) | 41.5 | 7.2 | 6.7 | 43.0 | 98.4 | |||||||||||||||
Net income | 21.0 | (3.0 | ) | (2.7 | ) | 28.2 | 43.5 | |||||||||||||
Amounts | Amounts | Amounts | Amounts | Amounts | ||||||||||||||||
previously | previously | previously | previously | previously | ||||||||||||||||
reported | reported | reported | reported | reported | ||||||||||||||||
Net income | $ | 26.9 | $ | (5.7 | ) | $ | (3.8 | ) | $ | 28.3 | $ | 45.7 | ||||||||
Quarter | First | Second | Third | Fourth | Year | |||||||||||||||
2002 | ||||||||||||||||||||
Sales | $ | 162.4 | $ | 82.3 | $ | 92.2 | $ | 165.7 | $ | 502.6 | ||||||||||
Cost of sales — shipping and handling | 48.5 | 20.2 | 22.5 | 46.3 | 137.5 | |||||||||||||||
Cost of sales — products | 74.3 | 45.7 | 53.3 | 65.9 | 239.2 | |||||||||||||||
Gross profit | 39.6 | 16.4 | 16.4 | 53.5 | 125.9 | |||||||||||||||
Operating earnings (loss)(b) | 27.5 | 4.5 | 3.5 | 42.2 | 77.7 | |||||||||||||||
Net income | 10.7 | (8.3 | ) | (2.3 | ) | 30.8 | 30.9 | |||||||||||||
Amounts | Amounts | Amounts | Amounts | Amounts | ||||||||||||||||
previously | previously | previously | previously | previously | ||||||||||||||||
reported | reported | reported | reported | reported | ||||||||||||||||
Net income | $ | 11.7 | $ | (7.3 | ) | $ | (3.5 | ) | $ | 18.8 | $ | 19.7 | ||||||||
(a) | See Notes to Combined and Consolidated Financial Statements for detail related to special charges. |
(b) | Annual quarterly operating results include special charges of $7.7 million ($7.6 million after tax) related to transition costs associated with the Recapitalization. |
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
17. | Guarantor/Non-guarantor Condensed Combining and Consolidating Statements |
Condensed Consolidating Balance Sheets (unaudited)
December 31, 2003, restated | |||||||||||||||||||||
Non- | |||||||||||||||||||||
(In millions) | Guarantors | guarantors | CMG | Eliminations | Consolidated | ||||||||||||||||
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 | 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
December 31, 2003, as previously reported | |||||||||||||||||||||
Non- | |||||||||||||||||||||
(In millions) | Guarantors | guarantors | CMG | Eliminations | Consolidated | ||||||||||||||||
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 | ||||||||||
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
Condensed Consolidating Balance Sheets
December 31, 2002, as restated | |||||||||||||||||||||
Non- | |||||||||||||||||||||
(In millions) | Guarantors | guarantors | CMG | Eliminations | Consolidated | ||||||||||||||||
Cash and cash equivalent | $ | 6.5 | $ | 5.4 | $ | — | $ | — | $ | 11.9 | |||||||||||
Receivables, net | 59.1 | 35.4 | — | — | 94.5 | ||||||||||||||||
Inventories | 65.7 | 30.8 | — | — | 96.5 | ||||||||||||||||
Other current assets | 0.2 | 0.5 | — | — | 0.7 | ||||||||||||||||
Property, plant and equipment, net | 66.7 | 196.7 | — | — | 263.4 | ||||||||||||||||
Intangible assets — mineral interests and other, net | 149.8 | — | — | — | 149.8 | ||||||||||||||||
Investment in subsidiaries | — | — | 399.4 | (399.4 | ) | — | |||||||||||||||
Other | 7.6 | 2.7 | 14.7 | — | 25.0 | ||||||||||||||||
Total assets | $ | 355.6 | $ | 271.5 | $ | 414.1 | $ | (399.4 | ) | $ | 641.8 | ||||||||||
Current portion of long-term debt | $ | — | $ | 0.1 | $ | 1.1 | $ | — | $ | 1.2 | |||||||||||
Other current liabilities | 59.0 | 27.3 | 14.9 | — | 101.2 | ||||||||||||||||
Total current liabilities | 59.0 | 27.4 | 16.0 | — | 102.4 | ||||||||||||||||
Long-term debt, net of current portion | — | — | 436.4 | — | 436.4 | ||||||||||||||||
Due to (from) affiliates | (70.8 | ) | 92.8 | (22.0 | ) | — | — | ||||||||||||||
Other noncurrent liabilities | 113.0 | 6.3 | (18.4 | ) | — | 100.9 | |||||||||||||||
Total stockholder’s equity | 254.4 | 145.0 | 2.1 | (399.4 | ) | 2.1 | |||||||||||||||
Total liabilities and common stockholder’s equity | $ | 355.6 | $ | 271.5 | $ | 414.1 | $ | (399.4 | ) | $ | 641.8 | ||||||||||
Condensed Consolidating Balance Sheets
December 31, 2002, as previously reported | |||||||||||||||||||||
Non- | |||||||||||||||||||||
(In millions) | Guarantors | guarantors | CMG | Eliminations | Consolidated | ||||||||||||||||
Cash and cash equivalent | $ | 6.5 | $ | 5.4 | $ | — | $ | — | $ | 11.9 | |||||||||||
Receivables, net | 59.1 | 35.4 | — | — | 94.5 | ||||||||||||||||
Inventories | 65.7 | 30.8 | — | — | 96.5 | ||||||||||||||||
Other current assets | 0.2 | 0.5 | — | — | 0.7 | ||||||||||||||||
Property, plant and equipment, net | 66.7 | 196.7 | — | — | 263.4 | ||||||||||||||||
Intangible assets — mineral interests and other, net | 149.8 | — | — | — | 149.8 | ||||||||||||||||
Investment in subsidiaries | — | — | 375.4 | (375.4 | ) | — | |||||||||||||||
Other | 7.6 | 2.7 | 16.9 | — | 27.2 | ||||||||||||||||
Total assets | $ | 355.6 | $ | 271.5 | $ | 392.3 | $ | (375.4 | ) | $ | 644.0 | ||||||||||
Current portion of long-term debt | $ | — | $ | 0.1 | $ | 1.1 | $ | — | $ | 1.2 | |||||||||||
Other current liabilities | 59.0 | 27.3 | 14.9 | — | 101.2 | ||||||||||||||||
Total current liabilities | 59.0 | 27.4 | 16.0 | — | 102.4 | ||||||||||||||||
Long-term debt, net of current portion | — | — | 436.4 | — | 436.4 | ||||||||||||||||
Due to (from) affiliates | (70.8 | ) | 92.8 | (22.0 | — | — | |||||||||||||||
Other noncurrent liabilities | 137.0 | 6.3 | (18.4 | ) | — | 124.9 | |||||||||||||||
Total stockholder’s equity | 230.4 | 145.0 | (19.7 | ) | (375.4 | ) | (19.7 | ) | |||||||||||||
Total liabilities and common stockholder’s equity | $ | 355.6 | $ | 271.5 | $ | 392.3 | $ | (375.4 | ) | $ | 644.0 | ||||||||||
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
Condensed Consolidating Statements of Operations
For the Year Ended December 31, 2003, restated | |||||||||||||||||||||
Non- | |||||||||||||||||||||
(In millions) | Guarantors | guarantors | CMG | Eliminations | Consolidated | ||||||||||||||||
Sales | $ | 383.7 | $ | 216.9 | $ | — | $ | — | $ | 600.6 | |||||||||||
Cost of sales — shipping and handling | 118.7 | 46.6 | — | — | 165.3 | ||||||||||||||||
Cost of sales — products | 173.8 | 114.5 | — | — | 288.3 | ||||||||||||||||
Gross profit | 91.2 | 55.8 | — | — | 147.0 | ||||||||||||||||
Selling, general and administrative expenses | 26.7 | 21.9 | — | — | 48.6 | ||||||||||||||||
Operating income | 64.5 | 33.9 | — | — | 98.4 | ||||||||||||||||
Interest expense | 0.5 | 9.1 | 29.5 | — | 39.1 | ||||||||||||||||
Other (income) expense | (1.2 | ) | 4.6 | 2.2 | — | 5.6 | |||||||||||||||
Earnings in equity of subsidiary | — | — | (53.7 | ) | 53.7 | — | |||||||||||||||
Income (loss) before income taxes | 65.2 | 20.2 | 22.0 | (53.7 | ) | 53.7 | |||||||||||||||
Income tax expense (benefit) | 21.2 | 10.5 | (21.5 | ) | — | 10.2 | |||||||||||||||
Net income (loss) | $ | 44.0 | $ | 9.7 | $ | 43.5 | $ | (53.7 | ) | $ | 43.5 | ||||||||||
Condensed Consolidating Statements of Operations
For the Year Ended December 31, 2002, restated | |||||||||||||||||||||
Non- | |||||||||||||||||||||
(In millions) | Guarantors | guarantors | CMG | Eliminations | Consolidated | ||||||||||||||||
Sales | $ | 334.1 | $ | 168.5 | $ | — | $ | — | $ | 502.6 | |||||||||||
Cost of sales — shipping and handling | 99.6 | 37.9 | — | — | 137.5 | ||||||||||||||||
Cost of sales — products | 157.2 | 82.0 | — | — | 239.2 | ||||||||||||||||
Gross profit | 77.3 | 48.6 | — | — | 125.9 | ||||||||||||||||
Selling, general and administrative expenses | 24.1 | 16.5 | (0.1 | ) | — | 40.5 | |||||||||||||||
Restructuring and other charges | 4.6 | 1.4 | 1.7 | — | 7.7 | ||||||||||||||||
Operating income (loss) | 48.6 | 30.7 | (1.6 | ) | — | 77.7 | |||||||||||||||
Interest expense | 0.4 | 9.4 | 31.5 | — | 41.3 | ||||||||||||||||
Other (income) expense | (0.3 | ) | (0.1 | ) | 5.3 | — | 4.9 | ||||||||||||||
Earnings in equity of subsidiary | — | — | (50.8 | ) | 50.8 | — | |||||||||||||||
Income (loss) before income taxes | 48.5 | 21.4 | 12.4 | (50.8 | ) | 31.5 | |||||||||||||||
Income tax expense (benefit) | 8.1 | 11.0 | (18.5 | ) | — | 0.6 | |||||||||||||||
Net income (loss) | $ | 40.4 | $ | 10.4 | $ | 30.9 | $ | (50.8 | ) | $ | 30.9 | ||||||||||
Condensed Combining and Consolidating Statements of Operations
For the Year Ended December 31, 2001, restated | |||||||||||||||||||||
Non- | Combined and | ||||||||||||||||||||
(In millions) | Guarantors | guarantors | CMG | Eliminations | Consolidated | ||||||||||||||||
Sales | $ | 342.8 | $ | 180.4 | $ | — | $ | — | $ | 523.2 | |||||||||||
Cost of sales — shipping and handling | 100.9 | 42.3 | — | — | 143.2 | ||||||||||||||||
Cost of sales — products | 166.5 | 90.5 | — | — | 257.0 | ||||||||||||||||
Gross profit | 75.4 | 47.6 | — | — | 123.0 | ||||||||||||||||
Selling, general and administrative expenses | 22.0 | 16.8 | 0.1 | — | 38.9 | ||||||||||||||||
Restructuring and other charges | 3.7 | 0.1 | 23.2 | — | 27.0 | ||||||||||||||||
Operating income (loss) | 49.7 | 30.7 | (23.3 | ) | — | 57.1 | |||||||||||||||
Interest expense | 1.0 | 10.2 | 3.1 | — | 14.3 | ||||||||||||||||
Other (income) expense | (2.5 | ) | (0.9 | ) | 0.3 | — | (3.1 | ) | |||||||||||||
Earnings in equity of subsidiary | — | — | (51.2 | ) | 51.2 | — | |||||||||||||||
Income (loss) before income taxes | 51.2 | 21.4 | 24.5 | (51.2 | ) | 45.9 | |||||||||||||||
Income tax expense (benefit) | 8.4 | 13.0 | (4.1 | ) | — | 17.3 | |||||||||||||||
Net income (loss) | $ | 42.8 | $ | 8.4 | $ | 28.6 | $ | (51.2 | ) | $ | 28.6 | ||||||||||
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
Condensed Consolidating Statements of Operations
For the Year Ended December 31, 2003, as previously reported | |||||||||||||||||||||
Non- | |||||||||||||||||||||
(In millions) | Guarantors | guarantors | CMG | Eliminations | Consolidated | ||||||||||||||||
Sales | $ | 383.7 | $ | 216.9 | $ | — | $ | — | $ | 600.6 | |||||||||||
Cost of sales — shipping and handling | 118.7 | 46.6 | — | — | 165.3 | ||||||||||||||||
Cost of sales — products | 173.8 | 114.5 | — | — | 288.3 | ||||||||||||||||
Gross profit | 91.2 | 55.8 | — | — | 147.0 | ||||||||||||||||
Selling, general and administrative expenses | 26.7 | 21.9 | — | — | 48.6 | ||||||||||||||||
Operating income | 64.5 | 33.9 | — | — | 98.4 | ||||||||||||||||
Interest expense | 0.5 | 9.1 | 29.5 | — | 39.1 | ||||||||||||||||
Other (income) expense | (1.2 | ) | 4.6 | 2.2 | — | 5.6 | |||||||||||||||
Earnings in equity of subsidiary | — | — | (55.9 | ) | 55.9 | — | |||||||||||||||
Income (loss) before income taxes | 65.2 | 20.2 | 24.2 | (55.9 | ) | 53.7 | |||||||||||||||
Income tax expense (benefit) | 19.0 | 10.5 | (21.5 | ) | — | 8.0 | |||||||||||||||
Net income (loss) | $ | 46.2 | $ | 9.7 | $ | 45.7 | $ | (55.9 | ) | $ | 45.7 | ||||||||||
Condensed Consolidating Statements of Operations
For the Year Ended December 31, 2002, as previously reported | |||||||||||||||||||||
Non- | |||||||||||||||||||||
(In millions) | Guarantors | guarantors | CMG | Eliminations | Consolidated | ||||||||||||||||
Sales | $ | 334.1 | $ | 168.5 | $ | — | $ | — | $ | 502.6 | |||||||||||
Cost of sales — shipping and handling | 99.6 | 37.9 | — | — | 137.5 | ||||||||||||||||
Cost of sales — products | 157.2 | 82.0 | — | — | 239.2 | ||||||||||||||||
Gross profit | 77.3 | 48.6 | — | — | 125.9 | ||||||||||||||||
Selling, general and administrative expenses | 24.1 | 16.5 | (0.1 | ) | — | 40.5 | |||||||||||||||
Restructuring and other charges | 4.6 | 1.4 | 1.7 | — | 7.7 | ||||||||||||||||
Operating income (loss) | 48.6 | 30.7 | (1.6 | ) | — | 77.7 | |||||||||||||||
Interest expense | 0.4 | 9.4 | 31.5 | — | 41.3 | ||||||||||||||||
Other (income) expense | (0.3 | ) | (0.1 | ) | 5.3 | — | 4.9 | ||||||||||||||
Earnings in equity of subsidiary | — | — | (39.6 | ) | 39.6 | — | |||||||||||||||
Income (loss) before income taxes | 48.5 | 21.4 | 1.2 | (39.6 | ) | 31.5 | |||||||||||||||
Income tax expense (benefit) | 19.3 | 11.0 | (18.5 | ) | — | 11.8 | |||||||||||||||
Net income (loss) | $ | 29.2 | $ | 10.4 | $ | 19.7 | $ | (39.6 | ) | $ | 19.7 | ||||||||||
Condensed Combining and Consolidating Statements of Operations
For the Year Ended December 31, 2001, as previously reported | |||||||||||||||||||||
Non- | Combined and | ||||||||||||||||||||
(In millions) | Guarantors | guarantors | CMG | Eliminations | Consolidated | ||||||||||||||||
Sales | $ | 342.8 | $ | 180.4 | $ | — | $ | — | $ | 523.2 | |||||||||||
Cost of sales — shipping and handling | 100.9 | 42.3 | — | — | 143.2 | ||||||||||||||||
Cost of sales — products | 166.5 | 90.5 | — | — | 257.0 | ||||||||||||||||
Gross profit | 75.4 | 47.6 | — | — | 123.0 | ||||||||||||||||
Selling, general and administrative expenses | 22.0 | 16.8 | 0.1 | — | 38.9 | ||||||||||||||||
Restructuring and other charges | 3.7 | 0.1 | 23.2 | — | 27.0 | ||||||||||||||||
Operating income (loss) | 49.7 | 30.7 | (23.3 | ) | — | 57.1 | |||||||||||||||
Interest expense | 1.0 | 10.2 | 3.1 | — | 14.3 | ||||||||||||||||
Other (income) expense | (2.5 | ) | (0.9 | ) | 0.3 | — | (3.1 | ) | |||||||||||||
Earnings in equity of subsidiary | — | — | (41.7 | ) | 41.7 | — | |||||||||||||||
Income (loss) before income taxes | 51.2 | 21.4 | 15.0 | (41.7 | ) | 45.9 | |||||||||||||||
Income tax expense (benefit) | 17.9 | 13.0 | (4.1 | ) | — | 26.8 | |||||||||||||||
Net income (loss) | $ | 33.3 | $ | 8.4 | $ | 19.1 | $ | (41.7 | ) | $ | 19.1 | ||||||||||
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
Condensed Consolidating Statements of Cash Flows
For the Year Ended December 31, 2003 | ||||||||||||||||||||||
Non- | ||||||||||||||||||||||
(In millions) | Guarantors | guarantors | CMG | Eliminations | Consolidated | |||||||||||||||||
Net cash provided by (used in) operating activities | $ | 79.4 | $ | 23.8 | $ | (32.2 | ) | $ | — | $ | 71.0 | |||||||||||
Cash flows from investing: | ||||||||||||||||||||||
Capital expenditure | (10.0 | ) | (10.6 | ) | — | — | (20.6 | ) | ||||||||||||||
Proceeds from sales of property, plant and equipment | — | 0.1 | — | — | 0.1 | |||||||||||||||||
Acquisition of intangible assets | (24.8 | ) | — | — | — | (24.8 | ) | |||||||||||||||
Other | — | (0.3 | ) | — | — | (0.3 | ) | |||||||||||||||
Net cash used in investing activities | (34.8 | ) | (10.8 | ) | — | — | (45.6 | ) | ||||||||||||||
Cash flows from financing: | ||||||||||||||||||||||
Principal payments on other long-term debt, including capital leases | — | — | (31.1 | ) | — | (31.1 | ) | |||||||||||||||
Revolver activity | — | — | 14.0 | — | 14.0 | |||||||||||||||||
Dividends paid | — | — | (21.7 | ) | — | (21.7 | ) | |||||||||||||||
Advances to CMI, net | — | — | (8.2 | ) | — | (8.2 | ) | |||||||||||||||
Payments (to) from Affiliates, net | (50.8 | ) | (20.0 | ) | 70.8 | — | — | |||||||||||||||
Capital contribution from CMI | — | 8.8 | — | — | 8.8 | |||||||||||||||||
Net cash provided by (used in) Financing activities | (50.8 | ) | (11.2 | ) | 23.8 | — | (38.2 | ) | ||||||||||||||
Effect of exchange rate changes on cash | — | (4.9 | ) | 8.4 | — | 3.5 | ||||||||||||||||
Net increase (decrease) in cash and cash equivalents | (6.2 | ) | (3.1 | ) | — | — | (9.3 | ) | ||||||||||||||
Cash and cash equivalents: | ||||||||||||||||||||||
Beginning of year | 6.5 | 5.4 | — | — | 11.9 | |||||||||||||||||
End of year | $ | 0.3 | $ | 2.3 | $ | — | $ | — | $ | 2.6 | ||||||||||||
Condensed Consolidating Statements of Flows
For the Year Ended December 31, 2002 | ||||||||||||||||||||||
Non- | ||||||||||||||||||||||
(In millions) | Guarantors | guarantors | CMG | Eliminations | Consolidated | |||||||||||||||||
Net cash provided by (used in) operating activities | $ | 78.8 | $ | 26.5 | $ | (23.1 | ) | $ | — | $ | 82.2 | |||||||||||
Cash flows from investing: | ||||||||||||||||||||||
Capital expenditure | (10.4 | ) | (9.1 | ) | — | — | (19.5 | ) | ||||||||||||||
Other | 0.4 | — | — | — | 0.4 | |||||||||||||||||
Net cash used in investing activities | (10.0 | ) | (9.1 | ) | — | — | (19.1 | ) | ||||||||||||||
Cash flows from financing: | ||||||||||||||||||||||
Revolver activity | — | (10.8 | ) | (29.0 | ) | — | (39.8 | ) | ||||||||||||||
Issuance of long-term debt | — | — | 78.4 | — | 78.4 | |||||||||||||||||
Principal payments on other long-term debt, including capital leases | (0.1 | ) | (0.1 | ) | (115.7 | ) | — | (115.9 | ) | |||||||||||||
Advances to CMI, net | — | — | (2.2 | ) | — | (2.2 | ) | |||||||||||||||
Payments (to) from Affiliates, net | (70.4 | ) | (3.3 | ) | 73.7 | — | — | |||||||||||||||
Deferred financing costs | — | — | (3.9 | ) | (3.9 | ) | ||||||||||||||||
Capital contribution from CMI | — | — | 12.8 | — | 12.8 | |||||||||||||||||
Other | — | — | 1.0 | — | 1.0 | |||||||||||||||||
Net cash provided by (used in) Financing activities | (70.5 | ) | (14.2 | ) | 15.1 | — | (69.6 | ) | ||||||||||||||
Effect of exchange rate changes on cash | — | (5.5 | ) | 8.0 | — | 2.5 | ||||||||||||||||
Net increase (decrease) in cash and cash equivalents | (1.7 | ) | (2.3 | ) | — | — | (4.0 | ) | ||||||||||||||
Cash and cash equivalents: | ||||||||||||||||||||||
Beginning of year | 8.2 | 7.7 | — | — | 15.9 | |||||||||||||||||
End of year | $ | 6.5 | $ | 5.4 | $ | — | $ | — | $ | 11.9 | ||||||||||||
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Condensed Combining and Consolidating Statements of Cash Flows
For the Year Ended December 31, 2001 | |||||||||||||||||||||||
Non- | Combined and | ||||||||||||||||||||||
(In millions) | Guarantors | guarantors | CMG | Eliminations | Consolidated | ||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 65.0 | $ | 66.2 | $ | (18.7 | ) | $ | — | $ | 112.5 | ||||||||||||
Cash flows from investing: | |||||||||||||||||||||||
Capital expenditure | (22.8 | ) | (20.2 | ) | — | — | (43.0 | ) | |||||||||||||||
Proceeds from sales | — | 0.2 | — | — | 0.2 | ||||||||||||||||||
Other | (0.8 | ) | — | — | — | (0.8 | ) | ||||||||||||||||
Net cash used in investing activities | (23.6 | ) | (20.0 | ) | — | — | (43.6 | ) | |||||||||||||||
Cash flows from financing: | |||||||||||||||||||||||
Revolver activity | 6.4 | — | 29.0 | — | 35.4 | ||||||||||||||||||
Issuance of long-term debt | — | — | 475.0 | — | 475.0 | ||||||||||||||||||
Principal payments on other long-term debt, including capital leases | (0.8 | ) | (65.5 | ) | — | — | (66.3 | ) | |||||||||||||||
Borrowings from IMC Global and affiliates, net | (12.9 | ) | 27.0 | (95.2 | ) | — | (81.1 | ) | |||||||||||||||
Dividends paid | (26.7 | ) | — | (372.1 | ) | — | (398.8 | ) | |||||||||||||||
Deferred financing costs | — | — | (18.0 | ) | — | (18.0 | ) | ||||||||||||||||
Net cash provided by (used in) Financing activities | (34.0 | ) | (38.5 | ) | 18.7 | — | (53.8 | ) | |||||||||||||||
Effect of exchange rate changes on cash | (1.6 | ) | 2.1 | — | — | 0.5 | |||||||||||||||||
Net increase (decrease) in cash and cash equivalents | 5.8 | 9.8 | — | — | 15.6 | ||||||||||||||||||
Cash and cash equivalents: | |||||||||||||||||||||||
Beginning of year | 2.3 | (2.0 | ) | — | — | 0.3 | |||||||||||||||||
End of year | $ | 8.1 | $ | 7.8 | $ | — | $ | — | $ | 15.9 | |||||||||||||
18. Subsequent Event
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND |
ITEM 9A. | CONTROLS AND PROCEDURES |
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
Directors and Executive Officers
________________________________________________________________
Name | Age | Position | |||
Michael E. Ducey | 55 | President, Chief Executive Officer and Director of CMG | |||
Keith E. Clark | 48 | Vice President and General Manager, General Trade of CMG | |||
David J. Goadby | 49 | Vice President of CMG and Managing Director, Salt Union | |||
Rodney L. Underdown | 37 | Chief Financial Officer and Vice President of CMG | |||
Steven Wolf | 58 | Vice President and General Manager, Highway Deicing and SOP of CMG | |||
Joel A. Asen | 53 | Director of CMG | |||
Bradley J. Bell | 51 | Director of CMG | |||
Robert F. Clark | 61 | Director of CMG | |||
Peter P. Copses | 45 | Director of CMG | |||
Robert H. Falk | 65 | Director of CMG | |||
Joshua J. Harris | 39 | Director of CMG | |||
Scott M. Kleinman | 31 | Director of CMG | |||
Douglas A. Pertz | 49 | Director of CMG | |||
Heinn F. Tomfohrde, III | 70 | Director of CMG | |||
Michael E. Ducey was appointed the President and Chief Executive Officer of CMI in December 2002. Mr. Ducey joined CMG as the President and Chief Executive Officer on April 1, 2002. Prior to joining CMG, Mr. Ducey worked approximately 30 years for Borden Chemical, a diversified chemical company, in various positions including President and Chief Executive Officer (December 1999 to March 2002) and Executive Vice President and Chief Operation Officer (October 1997 to December 1999).
Keith E. Clark has served as the Vice President and General Manager of CMG’s General trade business unit since August 1997, when North American Salt Company was still under the management of Harris Chemical Group. Prior to this position, Mr. Clark served as Vice President, Operations for North American Salt for two years, beginning in April 1995. Prior to his career at Harris Chemical Group, Mr. Clark held various operations positions at US Steel Corporation and General Chemical Inc., where he most recently served as the Operations Manager at General Chemical.
David J. Goadby has served as the Vice President of CMG since November 2001 and as the Managing Director of Salt Union Ltd., our U.K. subsidiary, since April 1994, when IMC Inorganic Chemicals, Inc. was still under the management of Harris Chemical Group. Prior to that position, Mr. Goadby served as the Commercial Manager of Salt Union Ltd. for two years. From 1984 until 1992, Mr. Goadby was employed with Imperial Chemical Industries plc in various production and distribution positions, where he most recently served as Business Manager Sulphur Chemicals.
Rodney L. Underdown was appointed Chief Financial Officer of CMI in December 2002 and has served as a Vice President of CMI since November 2001. Mr. Underdown has served as the Chief Financial Officer and Vice President of CMG since November 2001. Prior to that he served as the Vice President, Finance of CMG’s salt division since June 1998 when the company was purchased by IMC Global. Mr. Underdown joined the Harris Chemical Group in September 1997, where he served as the Director of Corporate Reporting. Prior to his career at Harris Chemical Group, Mr. Underdown was employed with Arthur Andersen for nine years, where he most recently served as an Audit Manager.
Steven Wolf has served as the Vice President and General Manager, Highway Deicing of CMG since 1994, when CMG, formerly known as IMC Inorganic Chemicals, Inc., was still under the management of Harris Chemical Group. Mr. Wolf joined Harris Chemical Group in 1991, assuming various management responsibilities. Prior to his career at Harris Chemical Group, Mr. Wolf was employed by Kerr McGee, where he served as a Senior Vice President. Mr. Wolf also became the General Manager, SOP of CMG in August 2003.
Joel A. Asen has been a director of CMI since December 2003 and a director of CMG since November 2001. Mr. Asen has been the Managing Director of PLASE Capital Group LP, an affiliate of Apollo, since June 2003 and has served as the President of Asen Advisory since April 1992, which provides strategic and financial advisory services. He was Managing Director at Whitehead Sterling from 1991 to 1992, at Paine Webber, Inc. from 1990 to 1991 and at Drexel Burnham Lambert Incorporated from 1988 to 1990. From 1985 to 1988, he was a Senior Vice President at GAF Corporation. Prior to that time, Mr. Asen was a Manager of Business Development
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
at GE and Manager of Marketing and Business Development at GECC. Mr. Asen is also a Director of Resolution Performance Products Inc. and Anchor Glass Container Corp.
Bradley J. Bell has been a director of CMI since December 2003 and a director of CMG since November 2003. Mr. Bell has been Executive Vice President and Chief Financial Officer of Nalco Company since November 2003. From 1997 to 2003, Mr. Bell served as Senior Vice President and Chief Financial Officer of Rohm and Haas Company. Prior to that time, Mr. Bell served from 1987 to 1997 as Vice President and Treasurer of the Whirlpool Corporation, and from 1980 to 1987 as Vice President and Treasurer of the Bundy Corporation. Mr. Bell is also a Director and Chairman of the Audit Committee of IDEX Corporation.
Robert F. Clark has been a director of CMI since December 2003 and a director of CMG since November 2001. Mr. Clark served as the President and Chief Executive Officer of CMG from November 2001 to April 2002. From April 1999 to November 2001, Mr. Clark served as Senior Vice President of IMC Global and President of IMC Salt, Inc. since joining IMC Global in April 1998 as a result of the acquisition of Harris Chemical Group. From 1993 to 1998, Mr. Clark served as President of Great Salt Lake Minerals, a division of Harris Chemical Group.
Peter P. Copses has been a director of CMI since December 2003 and a director of CMG since November 2001. Mr. Copses is a founding Senior Partner at Apollo where he has worked since September 1990. From 1986 to 1990, Mr. Copses was initially an investment banker at Drexel Burnham Lambert Incorporated, and subsequently at Donaldson, Lufkin & Jenrette Securities Corporation, concentrating on the structuring, financing and negotiation of mergers and acquisitions. Mr. Copses is also a Director of Rent-A-Center, Inc., Zale Corporation and Resolution Performance Products Inc.
Robert H. Falk has been a director of CMI and CMG since November 2001. Mr. Falk is a Partner at Apollo and has served as an officer of certain affiliates of Apollo since 1992. Prior to 1992, Mr. Falk was a Partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP. Mr. Falk is a Director of Newiesy Gmbh.
Joshua J. Harris has been a director of CMI and CMG since November 2001. Mr. Harris is a founding Senior Partner at Apollo and has served as an officer of certain affiliates of Apollo since 1990. Prior to that time, Mr. Harris was a member of the Mergers and Acquisitions Department of Drexel Burnham Lambert Incorporated. Mr. Harris is also a Director of Breuners Home Furnishings Corporation, Pacer International, Inc., Quality Distribution Inc., Resolution Performance Products Inc. and Nalco Company.
Scott M. Kleinman has been a director of CMI and CMG since November 2001. Mr. Kleinman is a Partner at Apollo, where he has worked since February 1996. Prior to that time, Mr. Kleinman was employed by Smith Barney Inc. in its Investment Banking division. Mr. Kleinman is also a Director of Resolution Performance Products Inc.
Douglas A. Pertz has been a director of CMI since December 2003 and a director of CMG since November 2001. Mr. Pertz has been Chairman and Chief Executive Officer of IMC Global since March 2002. From October 2000 to March 2002, Mr. Pertz served as Chairman, President and Chief Executive Officer of IMC Global, and from October 1999 to October 2000, Mr. Pertz served as President and Chief Executive Officer of IMC Global. Mr. Pertz served as President and Chief Operating Officer of IMC Global from October 1998 to October 1999. Prior to joining IMC Global, Mr. Pertz served from 1995 to 1998 as President and Chief Executive Officer and as a director of Culligan Water Technologies, Inc., a leading manufacturer and distributor of water purification and treatment products.
Heinn F. Tomfohrde, III has been a director of CMI since December 2003 and a director of CMG since November 2001. Mr. Tomfohrde has served the chemicals industry in a variety of leadership positions for 44 years. Currently, Mr. Tomfohrde serves in directorship positions only. Mr. Tomfohrde served as President and Chief Operating Officer of International Specialty Products, Inc. and its predecessor company, GAF Chemicals Corp., from 1987 to 1993. Prior to that time, Mr. Tomfohrde spent 31 years with Union Carbide Corp., rising from positions in research and development and marketing to senior management, serving as President of Union Carbides’s Consumer and Industrial Products Group from 1983 to 1986. Mr. Tomfohrde is also a Director of Resolution Performance Products Inc.
Board of Committees
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
Board Compensation
Code of Ethics
ITEM 11. | EXECUTIVE COMPENSATION |
Summary Compensation Table
Long Term Compensation | |||||||||||||||||||||
Annual Compensation | Awards | Pay outs | |||||||||||||||||||
Securities | |||||||||||||||||||||
Underlying | Long Term | All Other | |||||||||||||||||||
Bonus | Options/SARs | Incentive | Compensation | ||||||||||||||||||
Name and Principal Position | Salary ($) | ($)(1) | (#)(2) | Pay outs($)(5) | ($)(3) | ||||||||||||||||
Michael E. Ducey | |||||||||||||||||||||
President and Chief Executive Officer of CMG | |||||||||||||||||||||
2003 | 356,563 | 413,368 | — | — | 167,514 | ||||||||||||||||
April (date of hire) to December 2002 | 262,500 | 251,328 | 540,774 | — | 130,761 | ||||||||||||||||
Steven Wolf | |||||||||||||||||||||
Vice President and General Manager, Highway Deicing and SOP of CMG | |||||||||||||||||||||
2003 | 282,042 | 236,283 | — | 852,920 | 113,985 | ||||||||||||||||
2002 | 258,803 | 143,465 | — | 63,408 | 412,430 | ||||||||||||||||
2001 | 247,108 | 91,998 | 220,961 | — | 50,348 | ||||||||||||||||
Keith E. Clark | |||||||||||||||||||||
Vice President and General Manager, General Trade of CMG | |||||||||||||||||||||
2003 | 207,763 | 111,054 | — | 824,733 | 88,995 | ||||||||||||||||
2002 | 199,190 | 93,234 | — | 8,150 | 325,054 | ||||||||||||||||
2001 | 193,804 | 75,323 | 213,411 | — | 34,405 | ||||||||||||||||
David J. Goadby(4) | |||||||||||||||||||||
Vice President of CMG and Managing Director, Salt Union Ltd. | |||||||||||||||||||||
2003 | 192,492 | 69,859 | — | — | 46,199 | ||||||||||||||||
2002 | 168,774 | 47,095 | — | — | 219,886 | ||||||||||||||||
2001 | 150,932 | 27,860 | 140,494 | — | 45,801 | ||||||||||||||||
Rodney L. Underdown | |||||||||||||||||||||
Vice President and Chief Financial Officer of CMG | |||||||||||||||||||||
2003 | 165,129 | 76,751 | — | 380,004 | 48,144 | ||||||||||||||||
2002 | 150,000 | 48,960 | — | — | 211,294 | ||||||||||||||||
2001 | 128,105 | 31,832 | 98,214 | — | 13,864 | ||||||||||||||||
(1) | Bonuses were paid pursuant to the Compass Minerals Group Incentive Compensation Program. Under this program, bonus amounts were calculated on an annual basis according to business and individual performance. |
(2) | Represents the number of shares of CMI’s common stock underlying options (as adjusted to reflect changes in our capital structure following the date of grant). |
(3) | Consists of sale and retention bonuses related to the change in ownership subsequent to the Recapitalization, certain moving expenses incurred by Mr. Ducey considered by the U.S. Internal Revenue Service to be compensation and other employer contributions to our tax-qualified and non-tax- qualified defined contribution and defined benefit retirement plans. |
(4) | Mr. Goadby’s compensation is paid in British pounds sterling, which has been converted to U.S. dollars at a rate of £0.5814 per $1.00. |
(5) | In September of 2003, the deferred compensation plan was terminated resulting in distribution of all of its holdings to its participants. See Item 11, “Executive Compensation–Deferred Compensation Plan.” |
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
Option Grants in 2003
Aggregate Option Exercises in 2003 and Fiscal Year-end Option Values
Number of Securities | ||||||||||||||||||||||||
Underlying Unexercised | ||||||||||||||||||||||||
Options/SARs at | Value of Unexercised | |||||||||||||||||||||||
December 31, 2003 | In-the-Money Options/SARs at | |||||||||||||||||||||||
Number of | December 31, 2003 ($)(1) | |||||||||||||||||||||||
Shares | Value | |||||||||||||||||||||||
Acquired on | Realized | |||||||||||||||||||||||
Name | Exercise | ($) | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||||||||
Michael E. Ducey | 67,595 | 77,740 | 337,980 | 135,193 | 4,353,182 | 1,741,286 | ||||||||||||||||||
Steven Wolf | 27,617 | 52,769 | 138,101 | 55,242 | 1,778,741 | 711,517 | ||||||||||||||||||
Keith E. Clark | 26,675 | 50,970 | 133,379 | 53,352 | 1,717,922 | 687,174 | ||||||||||||||||||
David J. Goadby | 12,227 | 5,365 | 87,802 | 35,125 | 1,130,890 | 452,410 | ||||||||||||||||||
Rodney L. Underdown | 12,276 | 23,457 | 61,381 | 24,553 | 790,587 | 316,243 | ||||||||||||||||||
(1) | Calculated by multiplying the difference between the fair market value of the shares of CMI’s common stock underlying the options as of December 31, 2003 ($14.28 per share) and the exercise price of the options by the number of shares of CMI’s common stock underlying the options. |
2001 Option Plan
• | one-half of the options are time vesting options that will become vested and exercisable in equal annual installments on each of the first four anniversaries of the date of grant, so long as the optionee continues to provide services to us or one of our subsidiaries as of such anniversary. | |
• | one-half of the options are performance vesting options that will become vested and exercisable on the eighth anniversary of the date of grant, so long as the optionee continues to provide services to us or one of our subsidiaries as of such date. However, all or a portion of such performance vesting options will become vested and exercisable prior to such eighth anniversary upon a sale of our assets or capital stock pursuant to which Apollo achieves a specified internal rate of return. In addition, this offering or future offerings of CMI common stock may cause these performance vesting options to become immediately vested. |
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ment on Form S-8 under the Securities Act to register the issuance of those shares issuable or reserved for issuance under the CMI 2001 Stock Option Plan.
Deferred Compensation Plan
Employment Agreements
David J. Goadby. Salt Union Limited entered into a service agreement, dated September 1, 1997, with Mr. Goadby pursuant to which he was appointed as Managing Director of Salt Union until his employment is terminated by either Salt Union, giving Mr. Goadby not less than 12 months prior written notice, or Mr. Goadby, giving Salt Union not less than three months prior written notice. The agreement provides that Mr. Goadby be paid a base salary, as well as bonuses or additional remuneration, if any, as the board of directors of Salt Union may determine. For a period of six months following his termination, Mr. Goadby will be subject to non-compete, non-solicitation and non-dealing covenants with regard to customers and non-solicitation of suppliers and managerial, supervisory, technical, sales, financial and administrative employees. In the event of a change of control of Salt Union, Mr. Goadby will be entitled to terminate the agreement immediately and Salt Union will be obligated to pay him an amount equal to his annual base salary and the value of his company car and medical insurance calculated over a 12 month period.
Other Named Executive Officers. We have not entered into employment agreements with any of our executive officers, except for the agreements entered into by our subsidiaries with Mr. Ducey and Mr. Goadby. Accordingly, each of our executive officers is currently an “at will” employee.
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
ITEM 12. | SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Number of | ||||||||
Shares of CMI | ||||||||
Common Stock | Percent | |||||||
Name and Address of Beneficial Owner | Beneficially Owned(1) | of Class | ||||||
Apollo(2) | 11,462,064 | 35.93% | ||||||
Neuberger Berman, Inc.(3) | 1,754,000 | 5.50% | ||||||
Michael E. Ducey(4) | 617,190 | 1.93% | ||||||
Keith E. Clark(4) | 255,883 | * | ||||||
David J. Goadby(4) | 155,578 | * | ||||||
Rodney L. Underdown(4) | 117,810 | * | ||||||
Steven Wolf(4) | 264,825 | * | ||||||
Joel A. Asen(5) | 53,669 | * | ||||||
Robert F. Clark(6) | 177,832 | * | ||||||
Peter P. Copses(5) | 53,669 | * | ||||||
Robert H. Falk(5) | 53,669 | * | ||||||
Joshua J. Harris(5) | 53,669 | * | ||||||
Scott M. Kleinman(5) | 53,669 | * | ||||||
Douglas A. Pertz(5) | 53,669 | * | ||||||
Heinn F. Tomfohrde, III(5) | 53,669 | * | ||||||
Bradley J. Bell(5) | 37,367 | * | ||||||
All directors and officers as a group | 2,002,168 | 6.28% | ||||||
* | Represents less than 1% of the outstanding shares of CMI common stock (excluding any shares held by YBR Holdings that could be attributed to any of these individuals). |
(1) | For purposes of this table, information as to the percentage of shares beneficially owned is calculated based on 31,899,567 shares of CMI common stock outstanding. The amounts and percentages of CMI common stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares voting power, which includes the power to vote or direct the voting of such security, or investment power, which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Securities that can be so acquired are deemed to be outstanding for purposes of computing such person’s ownership percentage, but not for purposes of computing any other person’s percentage. Under these rules, more than one person may be deemed beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest. Except as otherwise indicated in these footnotes, each of the beneficial owners has, to our knowledge, sole voting and investment power with respect to the indicated shares of CMI common stock. |
(2) | Represents all shares held of record by YBR Holdings. YBR Holdings is an affiliate of, and is controlled by, Apollo through Apollo’s majority ownership of YBR Holdings’ membership interests. The address of each of YBR Holdings, Apollo and of Messrs. P. Copses, R. Falk, J. Harris and S. Kleinman is c/o Apollo Management, L.P., 1301 Avenue of the Americas, New York, New York 10019. |
(3 | The address of Neuberger Berman, Inc. is 605 Third Ave., New York, New York 10158-3698. |
(4) | Includes options that are currently exercisable or will become exercisable in the next 60 days. Does not include options to purchase 135,192, 53,352, 35,125, 24,553 and 55,242 shares of CMI common stock that we have granted to Messrs. M. Ducey, K. Clark, D. Goadby, R. Underdown and S. Wolf, respectively. These options are subject to time and performance vesting conditions and are not currently exercisable (and will not become exercisable within the next 60 days). See Item 11, “Executive Compensation—2001 Option Plan.” The address of each of Messrs. M. Ducey, K. Clark, D. Goadby, R. Underdown and S. Wolf is c/o Compass Minerals International, Inc., 8300 College Boulevard, Overland Park, Kansas 66210. |
(5) | Represents options to purchase 37,367 shares of CMI common stock that we have granted to Mr. B. Bell and 53,669 shares of CMI common stock that we have granted to each of Messrs. J. Asen, P. Copses, R. Falk, J. Harris, S. Kleinman, D. Pertz and H. Tomfohrde III. These options are exercisable immediately. |
(6) | The address of Mr. R. Clark is c/o Compass Minerals International, Inc., 8300 College Boulevard, Overland Park, Kansas 66210. |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
Ongoing Relationship with IMC Global
Supply Agreements
We have contracted with IMC Global or its affiliates to supply some of our facilities with raw materials used in the production of our products and to supply to other facilities finished products that we distribute to our customers or other distributors. IMC Global supplies us with the following products:
• | coarse and mixed highway deicing salt, as a finished product, from IMC Global’s Esterhazy, Saskatchewan facility; | |
• | bulk white granular ice melt muriate of potash from IMC Global’s Belle Plaine, Saskatchewan facility; | |
• | packaged water softener muriate of potash, as a finished product, from IMC Global’s Belle Plaine, Saskatchewan facility; | |
• | muriate of potash, as a raw material, from IMC Global’s Esterhazy, Saskatchewan facility to our Ogden facility; and | |
• | a variety of general trade salt products, as finished products, from IMC Global’s Hersey, Michigan facility. |
The initial terms of these supply contracts range from five to 12 years and are automatically extended by one-year intervals unless termination notice is given by either party six
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
months prior to the end of the term. The prices we pay for these products vary depending on the product. However, we believe that the prices IMC Global charges us are generally as favorable as the prices that we can obtain from third parties. Some contracts require the purchase of all of our requirements for a particular product from IMC Global. Others require the purchase of no less than 90% of our requirements from IMC Global, while others have no purchase requirement at all. Certain of those contracts permit us to obtain a lower price elsewhere and, if IMC Global does not match the lower price, we can purchase at the lower price from the third party. We cannot exercise our matching rights under these provisions more than twice in a year. Under the Hersey salt supply contract, we are required to purchase no less than 200,000 tons of salt products each year under most circumstances and we can purchase from third parties if a force majeure event prevents IMC Global from delivering products to us. Pricing for the Esterhazy highway deicing salt contract is adjusted each year based on a Canadian product price index. Pricing under the other supply contracts is generally adjusted each year based on the movement in the sales prices of the products to our own or IMC Global’s customers. Under the Hersey salt supply contract, the price is adjusted each year based on a salt producer price index, although we have the right to change the pricing adjustment formula to a quarterly adjustment based on the prices at which we sell the products to our customers.
Railcars
We sublease railcars from affiliates of IMC Global that are used by us to transport products used in our business. At December 31, 2003, we leased approximately 46 railcars with terms that expire on various dates throughout 2005 and with renewal options available on some railcars until 2014.
Management Consulting Agreement
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
2003 | 2002 | |||||||
Audit fees(a) | $ | 0.6 | $ | 1.0 | ||||
Tax fees(b) | 1.0 | 0.9 | ||||||
All other fees(c) | 0.1 | — | ||||||
$ | 1.7 | $ | 1.9 | |||||
(a) | Relates to services for the annual financial statement audits included in our Form 10-K for CMI and CMG, quarterly reviews for the financial statements included in our Form 10-Q, other financial statement audits that were required by SEC rules, reviews of registration statements and other SEC filings, and procedures performed for comfort letters issued to underwriters in connection with capital market transactions. |
(b) | Relates to services for reviews of certain tax filings, as well as research and advice on tax planning matters. |
(c) | Relates to audits of pension and retirement plans. |
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K |
Consolidated Balance Sheets as of December 31, 2003 and 2002, restated | 35 | |||
Combined and Consolidated Statements of Operations for the three years ended December 31, 2003, restated | 36 | |||
Combined and Consolidated Statements of Stockholder’s Equity (Deficit) for the three years ended December 31, 2003, restated | 37 | |||
Combined and Consolidated Statements of Cash Flows for the three years ended December 31, 2003, restated | 38 | |||
Notes to Combined and Consolidated Financial Statements, restated | 39 |
(a)(2) Financial Statement Schedule:
Schedule II — Valuation Reserves
Compass Minerals Group, Inc.
December 31, 2003, 2002 and 2001 (in millions)
Balance | |||||||||||||||||||||
at the | Additions | Balance | |||||||||||||||||||
Beginning of | Charged to | at the End of | |||||||||||||||||||
Description | the Year | Expense | Deductions(1) | Other | the Year | ||||||||||||||||
Deducted from Receivables — Allowance for Doubtful Accounts | |||||||||||||||||||||
2003 | $ | 1.6 | $ | 1.1 | $ | (0.6 | ) | $ | — | $ | 2.1 | ||||||||||
2002 | 2.0 | 0.0 | (0.4 | ) | — | 1.6 | |||||||||||||||
2001 | 1.8 | 1.6 | (1.4 | ) | — | 2.0 | |||||||||||||||
Deducted from Deferred Income Taxes — Valuation Allowance (restated)(3) | |||||||||||||||||||||
2003 | $ | 16.9 | $ | — | $ | (4.2 | ) | $ | — | $ | 12.7 | ||||||||||
2002 | 31.5 | — | (14.6 | ) | — | 16.9 | |||||||||||||||
2001(2) | 43.2 | — | (7.7 | ) | (4.0 | ) | 31.5 | ||||||||||||||
(1) | Deduction for purposes for which reserve was created. |
(2) | Other includes a corresponding tax asset that diminished upon Recapitalization. |
(3) | As discussed under the heading“Restatement”in Note 1 to the combined and consolidated financial statements, amounts here have been restated. |
(b) Exhibits
EXHIBIT INDEX
Exhibit | ||||
No. | Description of Exhibit | |||
2.1 | Agreement and Plan of Merger, dated October 13, 2001, among IMC Global Inc., Salt Holdings Corporation, YBR Holdings LLC and YBR Acquisition Corp (incorporated herein by reference to Exhibit 2.1 to Compass Minerals’ Registration Statement on Form S-4, File No. 33-82700). | |||
2.2 | Amendment No. 1 to Agreement and Plan of Merger, dated November 28, 2001, among IMC Global Inc., Salt Holdings Corporation, YBR Holdings LLC and YBR Acquisition Corp (incorporated herein by reference to Exhibit 2.2 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.1 | Restated Certificate of Incorporation of IMC Inorganic Chemicals Inc., filed as Exhibit A to the Certificate of Merger of IMC Merger Sub Inc. with and into Harris Chemical Group, Inc., filed on April 1, 1998 (incorporated herein by reference to Exhibit 3.1 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.2 | Certificate of Amendment of Certificate of Incorporation of IMC Inorganic Chemicals Inc., changing its name from IMC Inorganic Chemicals Inc. to Compass Minerals Group, Inc., filed on November 28, 2001 (incorporated herein by reference to Exhibit 3.2 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.3 | By-laws of Compass Minerals Group, Inc. (incorporated herein by reference to Exhibit 3.3 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.4 | Certificate of Incorporation of GSL Corporation, filed as Exhibit A to the Certificate of Merger of GSL Acquisition Corp. into GSL Corporation, filed on September 24, 1993 (incorporated herein by reference to Exhibit 3.4 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). |
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Exhibit | ||||
No. | Description of Exhibit | |||
3.5 | Certificate of Ownership and Merger merging GSL Holdings Inc. into GSL Corporation filed on May 17, 1994 (incorporated herein by reference to Exhibit 3.5 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.6 | Certificate of Amendment to Certificate of Incorporation of GSL Corporation filed on January 12, 2001 (incorporated herein by reference to Exhibit 3.6 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.7 | By-laws of GSL Corporation (incorporated herein by reference to Exhibit 3.7 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.8 | Certificate of Incorporation of Sifto Louisiana Inc. filed on March 22, 1990 (incorporated herein by reference to Exhibit 3.8 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.9 | Certificate of Amendment to the Certificate of Incorporation of Sifto Louisiana Inc., changing its name from Sifto Louisiana Inc. to Carey Louisiana Inc., filed on August 22, 1990 (incorporated herein by reference to Exhibit 3.9 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.10 | Certificate of Amendment to the Certificate of Incorporation of Carey Louisiana Inc., changing its name from Carey Louisiana Inc. to Carey Salt Company, filed on November 8, 1990 (incorporated herein by reference to Exhibit 3.10 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.11 | By-laws of Carey Salt Company (incorporated herein by reference to Exhibit 3.11 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.12 | Restated Certificate of Incorporation of American Salt Company, filed as Exhibit A to Certificate of Merger of Carey Salt, Inc. into American Salt Company, filed on March 30, 1990 (incorporated herein by reference to Exhibit 3.12 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.13 | Certificate of Merger of Sifto Acquisition, Inc. into American Salt Company filed on March 30, 1990 (incorporated herein by reference to Exhibit 3.13 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.14 | Certificate of Amendment to Restated Certificate of Incorporation of American Salt Company, changing its name from American Salt Company to North American Salt Company, filed on August 20, 1990 (incorporated herein by reference to Exhibit 3.14 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.15 | Certificate of Amendment to Restated Certificate of Incorporation of North American Salt Company, changing its name from North American Salt Company to IMC Salt Inc., filed on May 1, 1998 (incorporated herein by reference to Exhibit 3.15 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.16 | Certificate of Amendment of Certificate of Incorporation of IMC Salt Inc., changing its name from IMC Salt Inc. to North American Salt Company, filed on November 28, 2001 (incorporated herein by reference to Exhibit 3.16 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.17 | By-laws of North American Salt Company (incorporated herein by reference to Exhibit 3.17 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.18 | Restated Certificate of Incorporation of Great Salt Lake Minerals and Chemicals Corporation filed on March 29, 1990 (incorporated herein by reference to Exhibit 3.18 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.19 | Certificate of Amendment to Restated Certificate of Incorporation of Great Salt Lake Minerals and Chemicals Corporation, changing its name from Great Salt Lake Minerals and Chemicals Corporation to Great Salt Lake Minerals Corporation, filed on October 9, 1991 (incorporated herein by reference to Exhibit 3.19 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.20 | Certificate of Amendment to Restated Certificate of Incorporation of Great Salt Lake Minerals Corporation, changing its name from Great Salt Lake Minerals Corporation to IMC Kalium Ogden Corp., filed on June 18, 1998 (incorporated herein by reference to Exhibit 3.20 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.21 | Certificate of Amendment to Restated Certificate of Incorporation of IMC Kalium Ogden Corp., changing its name from IMC Kalium Ogden Corp. to Great Salt Lake Minerals Corporation, dated November 28, 2001 (incorporated herein by reference to Exhibit 3.21 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.22 | By-laws of Great Salt Lake Minerals Corporation (incorporated herein by reference to Exhibit 3.22 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.23 | Restated Certificate of Incorporation of NAMSCO Inc., filed as Exhibit A to the Certificate of Merger of NAMSCO Acquisition Corp. with and into NAMSCO Inc., filed on September 24, 1993 (incorporated herein by reference to Exhibit 3.23 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.24 | Certificate of Amendment to Certificate of Incorporation of NAMSCO Inc. filed on January 16, 2001 (incorporated herein by reference to Exhibit 3.24 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
3.25 | By-laws of NAMSCO Inc. (incorporated herein by reference to Exhibit 3.25 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
10.1 | Indenture, dated November 28, 2001, among Compass Minerals Group, Inc., as issuer, Carey Salt Company, Great Salt Lake Minerals Corporation, GSL Corporation, NAMSCO Inc., North American Salt Company, as guarantors, and The Bank of New York, as trustee (incorporated herein by reference to Exhibit 4.1 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
10.2 | Form of Initial Note (included as Exhibit A to Exhibit 10.1). | |||
10.3 | Form of Exchange Note (included as Exhibit B to Exhibit 10.1). | |||
10.4 | Salt mining lease, dated November 9, 2001, between the Province of Ontario, as lessor, and Sifto Canada Inc. as lessee (incorporated herein by reference to Exhibit 10.1 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). |
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Exhibit | ||||
No. | Description of Exhibit | |||
10.5 | Salt and Surface Agreement, dated June 21, 1961, by and between John Taylor Caffery, as agent for Marcie Caffery Gillis, Marcel A. Gillis, Bethia Caffery McCay, Percey McCay, Mary Louise Caffery Ellis, Emma Caffery Jackson, Edward Jackson, Liddell Caffery, Marion Caffery Campbell, Martha Gillis Restarick, Katherine Baker Senter, Caroline Baker, Bethia McCay Brown, Donelson Caffery McCay, Lucius Howard McCurdy Jr., John Andersen McCurdy, Edward Rader Jackson III, individually and as trustee for Donelson Caffery Jackson, and the J.M. Burguieres Company, LTD., and Carey Salt Company as amended by Act of Amendment to Salt Lease, dated May 30, 1973, as further amended by Agreement, dated November 21, 1990, and as further amended by Amendment to Salt and Surface lease, dated July 1, 1997 (incorporated herein by reference to Exhibit 10.2 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
10.6 | Royalty Agreement, dated September 1, 1962, between IMC Kalium Ogden Corp. and the Utah State Land Board (incorporated herein by reference to Exhibit 10.3 to Compass Minerals Registration Statement on Form S-4, File No. 333-82700). | |||
10.7 | Amended and Restated Credit Agreement, dated April 10, 2002, among Salt Holdings Corporation, Compass Minerals Group, Inc., as U.S. borrower, Sifto Canada Inc., as Canadian borrower, Salt Union Limited, as U.K. borrower, JPMorgan Chase Bank, as administrative agent, J.P. Morgan Bank Canada, as Canadian agent, Chase Manhattan International Limited, as U.K. agent, J.P. Morgan Securities Inc., as joint advisor, co-lead arranger and joint bookrunner, Deutsche Banc Alex. Brown Inc., as syndication agent, joint advisor, co-lead arranger and joint-bookrunner, Credit Suisse First Boston Corporation, as co-documentation agent, and Credit Lyonnais, as co-documentation agent (incorporated herein by reference to Exhibit 10.4 to Salt Holdings Corporation’s Registration Statement on Form S-4, File No. 333-104603). | |||
10.8 | Amendment No. 1 to the Amended and Restated Credit Agreement, dated December 19, 2002, among Salt Holdings Corporation, Compass Minerals Group, Inc., as U.S. borrower, Sifto Canada Inc., as Canadian borrower, Salt Union Limited, as U.K. borrower, JPMorgan Chase Bank, as administrative agent, J.P. Morgan Bank Canada, as Canadian agent, Chase Manhattan International Limited, as U.K. agent, J.P. Morgan Securities Inc., as joint advisor, co-lead arranger and joint bookrunner, Deutsche Banc Alex. Brown Inc., as syndication agent, joint advisor, co-lead arranger and joint bookrunner, Credit Suisse First Boston Corporation, as co-documentation agent, and Credit Lyonnais, as co-documentation agent (incorporated herein by reference to Exhibit 10.5 to Salt Holdings Corporation’s Registration Statement on Form S-4, File No. 333-104603). | |||
10.9 | Amendment No. 2 to the Amended and Restated Credit Agreement, dated May 5, 2003, among Salt Holdings Corporation, Compass Minerals Group, Inc., as U.S. borrower, Sifto Canada Inc., as Canadian borrower, Salt Union Limited, as U.K. borrower, JPMorgan Chase Bank, as administrative agent, J.P. Morgan Bank Canada, as Canadian agent, and J.P. Morgan Europe Limited, as U.K. agent (incorporated herein by reference to Exhibit 10.6 to Salt Holdings Corporation’s Registration Statement on Form S-4, File No. 333-104603). | |||
10.10 | Amendment No. 3 to the Amended and Restated Credit Agreement, dated May 21, 2003, among Salt Holdings Corporation, Compass Minerals Group, Inc., as U.S. borrower, Sifto Canada Inc., as Canadian borrower, Salt Union Limited, as U.K. borrower, JPMorgan Chase Bank, as administrative agent, J.P. Morgan Bank Canada, as Canadian agent, and J.P. Morgan Europe Limited, as U.K. agent (incorporated herein by reference to Exhibit 10.7 to Salt Holdings Corporation’s Registration Statement on Form S-4, File No. 333-104603). | |||
10.11 | Amendment No. 4 to the Amended and Restated Credit Agreement and Waiver, dated November 17, 2003, among Compass Minerals International, Inc., Compass Minerals Group, Inc., as U.S. borrower, Sifto Canada Inc., as Canadian borrower, Salt Union Limited, as U.K. borrower, JPMorgan Chase Bank, as administrative agent, J.P. Morgan Bank Canada, as Canadian agent, and J.P. Morgan Europe Limited, as U.K. agent (incorporated herein by reference to Exhibit 10.8 to Compass Minerals International’s Registration Statement on Form S-1, File No. 333-110250). | |||
10.12 | U.S. Collateral and Guaranty Agreement, dated November 28, 2001, among Salt Holdings Corporation, Compass Minerals Group, Inc., Carey Salt Company, Great Salt Lake Minerals Corporation, GSL Corporation, NAMSCO Inc., North American Salt Company and JPMorgan Chase Bank, as collateral agent (incorporated herein by reference to Exhibit 10.5 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
10.13 | U.S. Collateral Assignment, dated November 28, 2001, among Salt Holdings Corporation, Compass Minerals Group, Inc. and JPMorgan Chase Bank (incorporated herein by reference to Exhibit 10.6 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
10.14 | Foreign Guaranty, dated November 28, 2001, among Sifto Canada Inc., Salt Union Limited, IMC Global (Europe) Limited, IMC Global (UK) Limited, London Salt Limited, Direct Salt Supplies Limited, J.T. Lunt & Co. (Nantwich) Limited, and JPMorgan Chase Bank, as collateral agent (incorporated herein by reference to Exhibit 10.7 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
10.15 | Amended and Restated 2001 Stock Option Plan of Compass Minerals International, Inc., as adopted by the Board of Directors of Compass Minerals International, Inc. on December 11, 2003 (incorporated herein by reference to Exhibit 10.12 to Compass Minerals International’s Registration Statement on Form S-4, File No. 333-111953). | |||
10.16 | Service Agreement, dated September 1, 1997, between Salt Union Limited and David J. Goadby (incorporated herein by reference to Exhibit 10.10 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). | |||
10.17 | Investor Rights Agreement, dated November 28, 2001, between Salt Holdings Corporation and the holders of securities of Salt Holdings Corporation party thereto (incorporated herein by reference to Exhibit 10.11 to Compass Minerals’ Registration Statement on Form S-4, File No. 333-82700). |
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Exhibit | ||||
No. | Description of Exhibit | |||
10.18 | Amended and Restated Stock Rights Agreement, dated as of June 23, 2003, by and among Salt Holdings Corporation, Apollo Management V, L.P., each of the stockholders listed on Schedule A attached thereto and IMC Global Inc. (incorporated herein by reference to Exhibit 10.15 to Salt Holdings Corporation’s Registration Statement on Form S-4, File No. 333-104603). | |||
10.19 | Amended and Restated Management Consulting Agreement, dated December 10, 2003, between Compass Minerals International, Inc. and Apollo Management V, L.P. (incorporated herein by reference to Exhibit 10.16 to Compass Minerals International’s Registration Statement on Form S-4, File No. 333-111953). | |||
10.20 | Master Assignment Agreement, dated April 10, 2002, among Compass Minerals Group, Inc., a Delaware corporation, the lenders party thereto and JPMorgan Chase Bank, as administrative agent for the Existing Lenders (as defined in the Master Assignment Agreement) (incorporated herein by reference to Exhibit 10.17 to Salt Holdings Corporation’s Registration Statement on Form S-4, File No. 333-104603). | |||
10.21 | Employment Agreement, dated March 12, 2002, between Compass Minerals Group, Inc. and Michael E. Ducey (incorporated herein by reference to Exhibit 10.18 to Salt Holdings Corporation’s Registration Statement on Form S-4, File No. 333-104603). | |||
12.1** | Statement of Computation of Ratio of Earnings to Fixed Charges. | |||
21.1** | Subsidiaries of the Registrant. | |||
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. |
** | Previously filed with Form 10-K |
(c) | Reports on Form 8-K: |
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COMPASS MINERALS GROUP, INC. | 2003 FORM 10-K |
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
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Compass Minerals Group, Inc. and in the capacities indicated on November 23, 2004.
Signature | Capacity | |||
/s/ MICHAEL E. DUCEY Michael E. Ducey | President, Chief Executive Officer and Director (Principal Executive Officer) | |||
/s/ RODNEY L. UNDERDOWN Rodney L. Underdown | Chief Financial Officer and Vice President (Principal Financial and Accounting Officer) | |||
/s/ JOSHUA J. HARRIS Joshua J. Harris | Director | |||
/s/ SCOTT M. KLEINMAN Scott M. Kleinman | Director |
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