UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

OR

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

Commission File Number 001-31921

Compass Minerals International, Inc.

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

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

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

     The number of shares outstanding of the registrant’s common stock, $0.01 par value per share, at November 8, 2004 was 30,870,936 shares.

COMPASS MINERALS INTERNATIONAL, INC.

Introductory Note

     Compass Minerals International, Inc. (the “Company”) amended its Annual Report on Form 10-K filed on March 19, 2004 with the Securities and Exchange Commission (“SEC”), 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 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) had not been previously considered as a possible source of future taxable income (see the disclosure under the heading “Restatement” in Note 1 to the combined and consolidated financial statements in the Annual Report on Form 10-K/A filed with the SEC on November 12, 2004).

     As a result of restating the consolidated financial statements for the year ended December 31, 2003, the Company, determined that its financial statements for the three-month and nine-month periods ended September 30, 2003 also needed to be restated in order to reflect the correction discussed above (see the disclosure under the heading “Restatement” in Note 1 to the consolidated financial statements in this Quarterly Report on Form 10-Q). 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.

Table of Contents

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

COMPASS MINERALS INTERNATIONAL, INC.

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

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COMPASS MINERALS INTERNATIONAL, INC.

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

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COMPASS MINERALS INTERNATIONAL, INC.

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

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COMPASS MINERALS INTERNATIONAL, INC.

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

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COMPASS MINERALS INTERNATIONAL, INC.

1. Organization, Formation and Basis of Presentation:

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

     The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation, have been included. Operating results for the three-month and nine-month periods ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004.

     The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto for the year ended December 31, 2003 included in CMI’s Form 10-K/A filed with the Securities and Exchange Commission (the “SEC”) on November 12, 2004.

Restatement: Prior to the quarter ended September 30, 2004, the Company recorded full valuation allowances against certain U.S. deferred tax assets. The Company, after discussions with its independent registered public accounting firms, has subsequently determined that future reversals of existing taxable temporary differences (deferred tax liabilities) should have been considered as a possible source of taxable income when evaluating the need for a valuation allowance against deferred tax assets. Upon consideration of the reversal of these existing taxable temporary differences, the Company has now determined that it had overstated its deferred tax asset valuation allowance and, thereby, understated its deferred tax assets.

     As a result, the Company has recalculated its deferred income tax accounts and related valuation allowance at the end of each year ended from December 31, 1998 through December 31, 2003 and the six months ended June 30, 2004 and has restated consolidated financial statements and the accompanying notes to the consolidated financial statements, as applicable, for the three and nine-month periods ended September 30, 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.

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

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

2. Recent Accounting Pronouncements:

     In January 2003, the Financial Accounting Standards Board, or “FASB,” issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51 (“FIN 46”). FIN 46 establishes accounting guidance for consolidation of variable interest entities that function to support the activities of the primary beneficiary. FIN 46 applies to any business enterprise, public or private, that has a controlling interest, contractual relationship or other business relationship with a variable interest entity. In December 2003, the FASB issued Interpretation No. 46(R) (“FIN 46(R)”) which supercedes FIN 46. FIN 46(R) is effective for all Special Purpose Entities (“SPEs”) created prior to February 1, 2003 at the end of the first interim or annual reporting period ending after

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December 15, 2003. FIN 46(R) is applicable to all non-SPEs created prior to February 1, 2003 by public entities at the end of the first interim or annual reporting period ending after March 15, 2004. The Company has determined that it has no SPEs. The Company reviewed the applicability of FIN 46(R) to entities other than SPEs and has determined that the adoption of FIN 46(R) did not have a material effect on its consolidated financial statements.

     In April 2004, the FASB issued FASB staff position (“FSP”) FAS 141-1 and FAS 142-1, “Interaction of FASB Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, and Emerging Issues Task Force (“EITF”) Issue No. 04-2, “Whether Mineral Rights Are Tangible or Intangible Assets.” This FSP amends SFAS Nos. 141 and 142, and requires mineral rights to be accounted for as tangible assets based on the consensus reached in EITF 04-2. The Company adopted the guidance in the FSP on July 1, 2004, resulting in the balance sheet reclassification of approximately $147.2 million of net mineral rights from intangible assets to property, plant and equipment. At December 31, 2003, approximately $148.0 million of net mineral rights were similarly reclassified. This FSP had no impact on the Company’s consolidated statements of operations or cash flows.

3. Inventories:

     Inventories consist of the following (in millions):

4. Property, Plant and Equipment:

     As discussed in Note 2, Recent Accounting Pronouncements, the Company reclassified approximately $147.2 million of net mineral rights from intangible assets to property, plant and equipment on July 1, 2004. At December 31, 2003, approximately $148.0 million of net mineral rights were similarly reclassified. The Company leases probable mineral reserves at several of its extraction facilities. These leases have varying terms, and many provide for a royalty payment to the lessor based on a specific amount per ton of mineral extracted or as a percentage of revenue. The Company’s leased mineral interests are amortized on a units-of-production basis. The Company also owns other mineral properties. The Company’s owned mineral properties are amortized on a straight-line basis over their estimated useful lives.

     At September 30, 2004, mineral properties and rights include leased probable mineral reserves and owned mineral properties of approximately $158.6 million and $20.4 million, respectively, with accumulated depletion of $11.9 million and $12.6 million, respectively. At December 31, 2003, mineral properties and rights include leased probable mineral reserves and owned mineral properties of approximately $158.6 million and $20.3 million, respectively, with accumulated depletion of $10.6 million and $12.3 million, respectively.

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

5. Intangible Assets:

     The Company acquired intangible assets related to its SOP segment during 2003. These assets are being amortized on a straight-line basis over their estimated useful lives. The aggregate amortization of intangible assets for the three months ended September 30, 2004 and 2003 was $0.2 million and zero, respectively, and for the nine months ended September 30, 2004 and 2003 was $0.8 million and zero, respectively. Estimated amortization expense from fiscal 2004 to fiscal 2008 is approximately $1.1 million annually.

     Intangible assets consist of the following (in millions):

6. Income Taxes:

     Income tax benefit for the three months ended September 30, 2004 and 2003 was $12.2 million and $4.1 million, respectively. Income tax benefit for the nine months ended September 30, 2004 and 2003 was $3.1 million and $2.8 million, respectively. 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 income taxes, non-deductible interest expense and changes in the valuation allowance for deferred tax assets.

     At September 30, 2004, we had approximately $85.5 million of net operating loss carryforwards (“NOLs”) that expire between 2007 and 2022. The Company has recorded a valuation allowance for a portion of its deferred tax assets relating to NOLs that it does not believe will, more likely than not, be realized.

     For the three and nine-month periods ended September 30, 2004, a valuation allowance against deferred tax assets, in the amount of $11.1 million, was no longer necessary based on an assessment of potential sources of future taxable income other than future reversals of existing taxable temporary differences. As part of the restatement to the combined and consolidated financial statements in the

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Annual Report on Form 10-K/A filed with the SEC on November 12, 2004, the Company determined that a valuation allowance against deferred tax assets for the three and nine-month periods ended September 30, 2003, in the amount of $1.3 million and $3.8 million, respectively, was not necessary based on the timing of future reversals of existing taxable temporary differences. The Company reduced its valuation allowance against deferred tax assets by these amounts resulting in decreases in income tax expense, increases in net income and net income available for common stock for the three and nine-month periods ended September 30, 2004 and 2003. As of September 30, 2004 and December 31, 2003, the Company’s valuation allowance was $13.7 million and $24.8 million, respectively. If sufficient evidence exists in the future that more or less of the Company’s deferred tax assets should be realized, an adjustment to the valuation allowance will be made at that time.

7. Long-term Debt:

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

8. Pension Plans:

     The components of net periodic benefit cost for the three-month and nine-month periods ended September 30, are as follows (in millions):

     The Company’s funding policy is to make the minimum annual contributions required by applicable regulations. For the nine months ending September 30, 2004, $1.2 million of contributions have been made. The Company presently anticipates contributing an additional $0.4 million to fund its defined benefit pension plans for the remainder of 2004 for a total of $1.6 million.

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9. Commitments and Contingencies:

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

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

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

10. Operating Segments:

     Segment information is as follows (in millions):

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11. Stockholders’ Equity and Stock Options:

     On February 9, 2004, the board declared a quarterly cash dividend of $0.1875 per share, or approximately $5.7 million, on its outstanding common stock. The dividend was paid on March 15, 2004 to stockholders of record as of the close of business on March 1, 2004.

     On April 29, 2004, the board declared a quarterly cash dividend of $0.25 per share, or approximately $7.6 million, on its outstanding common stock. The dividend was paid on June 15, 2004 to stockholders of record as of the close of business on June 1, 2004.

     On August 12, 2004, the board declared a quarterly cash dividend of $0.25 per share, or approximately $7.7 million, on its outstanding common stock. The dividend was paid on September 15, 2004 to stockholders of record as of the close of business on September 1, 2004.

     During the nine months ended September 30, 2004, the Company reissued 673,483 shares of treasury stock, all of which were issued upon the exercise of stock options. The Company recorded a tax benefit of $3.6 million from the exercise of stock options that was recorded as additional paid in capital.

     In July 2004, the Company completed a secondary offering of 8,327,244 shares of common stock which were sold by Apollo Management V, L.P. and related subsidiaries (“Apollo”), IMC Global, Inc. (“IMC Global”) and certain members of management. The Company did not receive any of the proceeds from the sale. The sale reduced the ownership, on a fully-diluted basis, of Apollo, IMC Global and management to approximately 12%, 1% and 11%, respectively. The Company incurred approximately $0.7 million of related costs that were recorded as other charges in the consolidated statement of operations.

     On September 27, 2004, the Company filed with the SEC on Form S-1, to register 4,021,473 shares of common stock intended to be sold at a future date primarily by Apollo and IMC Global. The Company will not receive any of the proceeds from the planned sale. The sale, once completed, will reduce the ownership of Apollo and IMC Global to zero. Through September 30, 2004, the Company incurred $0.3 million of costs in connection with this transaction that were recorded as other charges in the consolidated statement of operations.

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12. Earnings per Share:

     The following table sets forth the computation of basic and diluted earnings (loss) per common share (in millions, except for share and per share data):

     Options to purchase 2,186,279 shares of our common stock were outstanding at September 30, 2003, but were not included in the computation of diluted earnings (loss) per share for the quarter ended September 30, 2003, because the options were anti-dilutive.

13. Other Comprehensive Income (Loss):

     The Company’s comprehensive income (loss) is comprised of net income (loss), the change in the unrealized gain (loss) on cash flow hedges related to the Company’s gas hedging activities and foreign currency translation adjustments. The components of comprehensive income (loss) for the three-month and nine-month periods ended September 30, are (in millions):

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     The following tables provide additional detail related to amounts recorded in the Company’s other comprehensive income (loss) during the nine-month period ended September 30, 2004 (in millions):

14. Subsequent Event:

     On November 4, 2004, the board declared a quarterly cash dividend of $0.25 per share, approximately $7.7 million, on its outstanding common stock. The dividend is payable on December 15, 2004 to stockholders of record as of the close of business on December 1, 2004.

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

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

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

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

     Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date hereof or to reflect the occurrence of unanticipated events.

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

Critical Accounting Estimates

     Preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management believes the most complex and sensitive judgements, because of their significance to our consolidated financial statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management’s Discussion and Analysis and Note 2 to the Consolidated Financial Statements in our Annual Report on Form 10-K/A filed with the SEC on November 12, 2004, describe the significant accounting estimates and policies used in preparation of our consolidated financial statements. Actual results in these areas could differ from management’s estimates. There have been no significant changes in our critical accounting estimates during the first nine months of 2004 other than those described in Note 6 to the consolidated financial statements in this Quarterly Report on Form 10-Q.

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Results of Operations

     The consolidated financial statements have been prepared to present the historical financial condition and results of operations and cash flows for the Company. The following tables and discussion should be read in conjunction with the information contained in our consolidated financial statements and the notes thereto included elsewhere in this quarterly report.

Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003

Sales

     Sales for the three months ended September 30, 2004 of $111.7 million increased $14.6 million, or 15% compared to $97.1 million for the same period in 2003. Sales include revenues from the sale of our products, or “Product Sales,” as well as pass-through shipping and handling fees charged to customers to reimburse us for shipping and handling costs incurred in delivering salt and sulfate of potash (“SOP”) product to the customer. Such shipping and handling fees were $27.8 million during the three months ended September 30, 2004, an increase of $3.7 million compared to $24.1 million for the same period in 2003. The increase in shipping and handling related fees for the three months ended September 30, 2004 is due to the increase in volume of products sold as compared to the same period in 2003.

     Product Sales for the three months ended September 30, 2004 of $83.9 million increased $10.9 million, or 15% compared to $73.0 million for the same period in 2003. Salt Product Sales for the three

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months ended September 30, 2004 of $69.2 million increased $6.2 million, or 10% compared to $63.0 million for the same period in 2003 primarily due to increased sales volumes in our highway deicing product lines ($2.2 million) and increased sales volumes in our general trade product line ($0.8 million). The increased sales volumes in our highway deicing product lines was due to increased industrial chemical sales volumes in North America and slightly higher early fills of highway deicing salt in the U.K. The increased sales volumes in our general trade product line was primarily due to higher sales of non-weather-dependent consumer salt products partially offset by lower consumer deicing product volumes. Additionally, salt Product Sales were favorably impacted by approximately $1.8 million from the effect of a weakened U.S. dollar against both the Canadian dollar and the British pound. Improved pricing in our highway deicing product lines and North American general trade product line improved product sales of approximately $1.0 million and $0.7 million, respectively.

     Specialty potash fertilizer Product Sales for the three months ended September 30, 2004 of $14.7 million increased $4.7 million, or 47% compared to $10.0 million for the same period in 2003 primarily due to increased sales volumes of approximately 17,000 tons ($3.6 million), reflecting increases in both domestic and international sales due to increased demand for potash fertilizers and the purchase and successful integration of IMC Global, Inc.’s (“IMC Global”) former SOP marketing business. Average sales prices were also higher by approximately $1.0 million.

Gross Profit

     Gross profit for the three months ended September 30, 2004 of $25.9 million increased $8.0 million, or 45% compared to $17.9 million for the same period in 2003. The increase in gross profit primarily reflects the impact of improved prices (approximately $2.7 million) and volumes (approximately $1.9 million) and changes in foreign exchange rates as described above ($0.7 million). Additionally, a reduction in costs to produce and distribute products increased our gross profit by approximately $2.7 million.

Selling, General and Administrative Expenses

     Selling, general and administrative expenses for the three months ended September 30, 2004 of $13.3 million increased $2.1 million, or 19%, compared to $11.2 million for the same period in 2003. The increase primarily reflects increased costs associated with being a new public company, higher general liability insurance costs of approximately $0.5 million and the impact of changes in foreign exchange rates of approximately $0.4 million.

Other charges

     Other charges are costs that are non-recurring in nature and include legal and accounting charges incurred for a secondary stock offering completed in July 2004 and a registration statement on Form S-1 filed with the SEC in September 2004.

Interest Expense

     Interest expense for the three months ended September 30, 2004 of $15.4 million remained relatively consistent as compared to the same period in 2003. Lower amounts of debt were offset by higher average interest rates on the Company’s outstanding debt.

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Other Expense / (Income)

     Other expense for the three months ended September 30, 2004 of $3.3 million increased $1.7 million compared to $1.6 million for the same period in 2003. The increase is due to increased foreign exchange losses in the three months ended September 30, 2004.

Income Tax Expense (Benefit)

     Income tax benefit for the three months ended September 30, 2004 of $12.2 million increased $8.1 million compared to income tax benefit of $4.1 million for the same period in 2003. Income tax benefit for the three months ended September 30, 2004 and 2003 were impacted by reductions to the valuation allowance against deferred tax assets of $11.1 million and $1.3 million, respectively. The increase of the reductions to the valuation allowance in 2004 was primarily due to the timing of future taxable income, exclusive of reversals of existing taxable temporary differences. Excluding the impact of the reductions to the valuation allowance, income tax benefit decreased due to lower loss before income taxes in 2004. Additionally, our income tax provision differs from the U.S. statutory federal income tax rate primarily due to U.S. statutory depletion, state income taxes (net of federal tax benefit), foreign income tax rate differentials, foreign mining income taxes, non-deductible interest expense and changes in the valuation allowance for deferred tax assets.

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

Sales

     Sales for the nine months ended September 30, 2004 of $459.1 million increased $60.6 million, or 15% compared to $398.5 million for the nine months ended September 30, 2003. 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 $124.9 million during the nine months ended September 30, 2004, an increase of $15.6 million compared to the nine months ended September 30, 2003 shipping and handling fees of $109.3 million. The increase in shipping and handling related fees for the nine months ended September 30, 2004 is due to the increase in volume of products sold as compared to the same period in 2003.

     Product Sales for the nine months ended September 30, 2004 of $334.2 million increased $45.0 million, or 16% compared to $289.2 million for the same period in 2003. Salt Product Sales for the nine months ended September 30, 2004 of $282.3 million increased $25.4 million, or 10% compared to $256.9 million for the same period in 2003 primarily due to increased sales volumes in our highway deicing product lines ($6.2 million) and increased sales volumes in our general trade product line ($5.3 million). The increased sales volumes in our highway deicing product line came mainly from the U.K. (approximately 262,000 tons) and was primarily due to more normal winter weather in the U.K. in the March quarter of 2004 compared to an extremely mild March quarter in 2003. The increased sales volumes in our North American general trade product line of approximately 61,000 tons was primarily due to above average winter weather on the East Coast, where our consumer deicing products are sold.

     Salt Product Sales were also favorably impacted by approximately $11.8 million from the effect of a weakened U.S. dollar against both the Canadian dollar and the British pound. Average sales prices, net of foreign exchange effects, remained relatively consistent.

     Specialty potash fertilizer Product Sales for the nine months ended September 30, 2004 of $51.9 million increased $19.6 million, or 61% compared to $32.3 million for the same period in 2003 primarily due to increased sales volumes of approximately 93,000 tons ($18.0 million), reflecting increases in both domestic and international market share primarily due to the purchase and successful integration of IMC

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Global’s former SOP marketing business. Average sales prices were also higher by approximately $2.5 million.

Gross Profit

     Gross profit for the nine months ended September 30, 2004 of $118.0 million increased $28.3 million, or 32% compared to $89.7 million for the same period in 2003. The increase in gross profit primarily reflects the impact of improved prices and volumes ($4.0 million and $8.7 million, respectively) and changes in foreign exchange rates as described above ($5.5 million). Additionally, a reduction in costs to produce and distribute products increased our gross profit by approximately $10.3 million.

Selling, General and Administrative Expenses

     Selling, general and administrative expenses for the nine months ended September 30, 2004 of $40.3 million increased $6.0 million, or 17% compared to $34.3 million for the same period in 2003. The increase primarily reflects increased costs associated with being a new public company, higher general liability insurance costs of approximately $0.5 million, higher selling and marketing costs associated with servicing SOP customers from the Carlsbad SOP marketing business acquired in 2003 of $0.5 million, additional variable compensation and benefit costs of approximately $1.4 million due to improved financial results, and the impact of changes in foreign exchange rates of approximately $1.5 million.

Other charges

     Other charges are costs that are non-recurring in nature and include legal and accounting charges incurred for a secondary stock offering completed in July 2004 and a registration statement on Form S-1 filed with the SEC in September 2004.

Interest Expense

     Interest expense for the nine months ended September 30, 2004 of $45.9 million increased $5.4 million compared to $40.5 million for the same period in 2003. This increase is primarily the result of interest from the senior subordinated discount notes issued in May 2003.

Other Expense / (Income)

     Other expense for the nine months ended September 30, 2004 of $4.0 million increased $1.4 million compared to other expense of $2.6 million for the same period in 2003. In the nine months ended September 30, 2003, we recorded $1.1 million of costs related to amending the Senior Credit Facility and $1.9 million gain related to the early extinguishment of debt. Additionally, as part of other expense, we recorded foreign exchange losses of $4.0 million and $3.3 million in the nine months ended September 30, 2004 and 2003, respectively.

Income Tax Expense (Benefit)

     Income tax benefit for the nine months ended September 30, 2004 of $3.1 million increased $0.3 million compared to income tax benefit of $2.8 million for the same period in 2003. Income tax expense for the nine months ended September 30, 2004 and 2003 was impacted by reductions to the valuation allowance against deferred tax assets of $11.1 million and $3.8 million, respectively. The increase of the reductions to the valuation allowance in 2004 was primarily due to the timing of future taxable income, exclusive of reversals of existing taxable temporary differences. Excluding the impact of the reductions to the valuation allowance, income tax expense increased due to higher income before income taxes in 2004. Additionally, our income tax provision differs from the U.S. statutory federal income tax rate primarily due to U.S. statutory depletion, state income taxes (net of federal tax benefit), foreign income

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tax rate differentials, foreign mining income taxes, non-deductible interest expense and changes in the valuation allowance for deferred tax assets.

Dividends on Preferred Stock

     We repurchased and redeemed all of our redeemable preferred stock in December 2003. As a result, there are no dividends on redeemable preferred stock for the nine months ended September 30, 2004.

Liquidity and Capital Resources

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

     As of September 30, 2004, we had $573.5 million of principal indebtedness, net of issuance premium, consisting of $325.0 million of senior subordinated notes at CMG, $83.3 million of senior discount notes with a face value of $123.5 million, $117.4 million of senior subordinated discount notes with a face value of $179.6 million and $47.8 million of our term loan. Our senior credit facility provides for a revolving credit facility in an aggregate amount of up to $135.0 million. As of September 30, 2004, no indebtedness was outstanding under our revolving credit facility and $8.2 million of letters of credit had been issued, leaving approximately $126.8 million available under our revolving credit facility. Future borrowings under our revolving credit facility will be available to fund our working capital requirements, capital expenditures and for other general corporate purposes. We maintained $8.3 million in cash on hand as of September 30, 2004.

     During the nine months ended September 30, 2004, cash flows from operations were $86.8 million. We used a portion of those cash flows to pay down $14.0 million of our revolving credit facility that was outstanding as of December 31, 2003, to make $30.0 million in voluntary principal payments on our term loan and to pay $21.0 million of dividends to the holders of our common stock.

     Our significant debt service obligations could, under certain circumstances, materially affect our financial condition and prevent us from fulfilling our obligations under the senior subordinated notes of Compass Minerals Group, Inc. (“CMG”), senior credit facility, senior discount notes and senior subordinated discount notes. As of September 30, 2004, we are in compliance with all conditions and covenants related to the senior credit facility, senior subordinated notes, senior discount notes and senior subordinated discount notes.

     Although our operations are conducted through our subsidiaries, none of our subsidiaries are obligated to make funds available to us for payment on our indebtedness or to pay dividends on our capital stock. Accordingly, our ability to make payments on our indebtedness and distribute dividends to our stockholders is dependent on the earnings and the distribution of funds from our subsidiaries. The terms of our senior credit facilities and the indenture governing the senior subordinated notes of CMG significantly restrict our subsidiaries from paying dividends and otherwise transferring assets to us. Furthermore, our subsidiaries will be permitted under the terms of our senior credit facilities and other indebtedness to incur additional indebtedness that may severely restrict or prohibit the making of distributions, the payment of dividends or the making of loans by our subsidiaries to us. The terms of our senior credit facilities also restrict our subsidiaries from paying dividends to us in order to fund cash interest on our senior discount notes and subordinated discount notes if we do not maintain an adjusted senior indebtedness leverage ratio of 5.00 or less (as of September 30, 2004) or if a default or event of default has occurred and is continuing under our senior credit facilities. As of September 30, 2004, our adjusted senior indebtedness leverage ratio was 2.23. We cannot assure you that we will maintain this

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ratio. This ratio is not necessarily comparable to other similarly titled ratios of other companies due to inconsistencies in the method of calculation and we encourage you to read our amended and restated credit agreement, as amended, contained in the exhibits to our Annual Report on Form 10-K/A filed with the SEC on November 12, 2004.

     We cannot assure you that the agreements governing the current and future indebtedness of our subsidiaries will permit our subsidiaries to provide us with sufficient dividends, distributions or loans to fund scheduled interest and principal payments on our indebtedness when due.

For the Nine months ended September 30, 2004 and 2003

     Net cash flow generated by operating activities for the nine months ended September 30, 2004 and 2003 was $86.8 million and $51.4 million, respectively. Of these amounts, $17.1 million and $8.7 million for 2004 and 2003, respectively, were generated by working capital reductions. The primary working capital reductions for 2004 and 2003 were decreases in receivables of $54.7 million and $42.0 million, respectively. These reductions were partially offset by increases in inventories of $15.5 million and $1.3 million, respectively, and decreases in accounts payable and accrued expenses of $22.1 million and $32.0 million, respectively. These reductions are indicative of the seasonal nature of highway deicing product line sales.

     Net cash flow used by investing activities for the nine months ended September 30, 2004 and 2003, was $16.1 million and $31.0 million, respectively. These cash flows consisted of capital expenditures primarily to maintain our facilities of $16.4 million and $9.7 million in 2004 and 2003, respectively, and $21.1 million in 2003 related to our purchase of certain intangible assets related to IMC Global’s SOP business.

     Net cash flow used by financing activities was $64.5 million for the nine months ended September 30, 2004, primarily due to a $14.0 million pay down of our revolving credit facility, $30.0 million in voluntary principal repayments that reduced the amount of long-term debt outstanding under our term loan credit facility and $21.0 million of dividends paid. No gain or loss was recorded upon repayment of debt. Net cash flow used by financing activities was $30.1 million for the nine months ended September 30, 2003, primarily due to $9.8 million repurchase of common stock (treasury stock), $30.0 million voluntary principal repayment that reduced the amount of long-term debt outstanding under our term loan credit facility, $6.6 million related to the redemption of preferred stock and $4.2 million of deferred financing costs. These outflows were partially offset by $17.5 million of borrowings under our revolving credit facility and the receipt of $8.8 million from IMC Global to pay income taxes for periods when we were owned by IMC Global for which we were indemnified by IMC Global. Additionally, in May 2003, we issued our senior subordinated discount notes and used the proceeds of approximately $100.0 million to pay a dividend on common stock.

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Contractual Obligations and Commitments

     The Company’s contractual obligations and commitments at September 30, 2004 are as follows (in millions):

Payments Due by Period

Amount of Commitment Expiration per Period

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

     Based on our current level of operations, we believe that cash flow from operations and available cash, together with available borrowings under our senior credit facilities, will be adequate to meet our liquidity needs over the next twelve months.

     There can be no assurance, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our senior credit facilities in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. If we consummate an acquisition, our debt service requirements could increase. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

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Effects of Currency Fluctuations and Inflation

     We conduct operations in Canada, the United Kingdom and the United States. Therefore, our results of operations are subject to both currency transaction risk and currency translation risk. We incur currency transaction risk whenever we or one of our subsidiaries enter into either a purchase or sales transaction using a currency other than the local currency of the transacting entity. With respect to currency translation risk, our financial condition and results of operations are measured and recorded in the relevant local currency and then translated into U.S. dollars for inclusion in our historical combined and consolidated financial statements. Exchange rates between these currencies and U.S. dollars in recent years have fluctuated significantly and may do so in the future. The majority of our revenues and costs are denominated in U.S. dollars, with pounds sterling and Canadian dollars also being significant. The weakened U.S. dollar against the pound sterling and Canadian dollar has had a positive impact on our reported consolidated sales. However, significant changes in the value of the Canadian dollar, the euro or pound sterling relative to the U.S. dollar could have a material adverse effect on our financial condition and our ability to meet interest and principal payments on U.S. dollar denominated debt, including borrowings under our senior credit facilities.

Seasonality

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

Recent Accounting Pronouncements

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

     In April 2004, the FASB issued FASB staff position (“FSP”) FAS 141-1 and FAS 142-1, “Interaction of FASB Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, and Emerging Issues Task Force (“EITF”) Issue No. 04-2, “Whether Mineral Rights Are Tangible or Intangible Assets.” This FSP amends SFAS Nos. 141 and 142, and requires mineral rights to be accounted for as tangible assets based on the consensus reached in EITF 04-2. We adopted the guidance in the FSP on July 1, 2004, resulting in the balance sheet reclassification of approximately $147.2 million of net mineral rights from intangible assets to property, plant and equipment. At December 31, 2003, approximately $148.0 million of net mineral rights were similarly reclassified. This FSP had no impact on our consolidated statements of operations or cash flows.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our business is subject to various types of market risks that include, but are not limited to, interest rate risk, foreign currency translation risk and commodity pricing risk. In the future, management may take actions that would mitigate our exposure to these types of risks including forward purchase contracts and financial instruments. However, there can be no assurance that our hedging operations will eliminate or substantially reduce risks associated with these risks. We will not enter into any financial instrument arrangements for speculative purposes.

Interest Rate Risk

     As of September 30, 2004, we had $47.8 million of debt outstanding under the term loan credit facility and nothing outstanding under our revolving credit facility. Both the term loan credit facility and revolving credit facility are subject to variable rates. Accordingly, our earnings and cash flows are affected by changes in interest rates. Assuming no change in the term loan credit facility borrowings at September 30, 2004, and an average level of borrowings from our revolving credit facility at variable rates, and assuming a one hundred basis point increase in the average interest rate under these borrowings, it is estimated that our interest expense for the nine months ended September 30, 2004 would have increased by approximately $0.4 million. Actual changes will vary from hypothetical changes.

Foreign Currency Risk

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

     A hypothetical 10% change in the exchange rates compared to the U.S. dollar would have an estimated $1.2 million impact on operating earnings for the nine months ended September 30, 2004. Actual changes in market prices or rates will differ from hypothetical changes.

Commodity Pricing Risk: Commodity Derivative Instruments and Hedging Activities

     We have reviewed various options to mitigate the impact of fluctuating natural gas prices. During 2003 and 2004, we instituted a hedging policy to mitigate the impact of fluctuations in the price of natural gas. The notional volumes hedged are based on a combination of factors, including estimated natural gas usage, current market prices and historical market prices. Pursuant to our policy, we enter into contractual gas price swaps or options related to the purchase price of our natural gas requirements up to 36 months in advance of the physical purchase of the natural gas and hedge up to approximately 80% of our expected natural gas usage. We have determined that these financial instruments qualify as cash flow hedges under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activity,” as amended. The notional amount of natural gas swap derivative contracts outstanding at September 30, 2004 that expire in one year or less and expire in greater than one year total $7.3 million and $4.4 million, respectively.

     Excluding gas hedged with derivative instruments, a hypothetical 10% adverse change in our natural gas prices during the nine months ended September 30, 2004 would have had an estimated $0.3 million impact on earnings. Actual results will vary based on actpual changes in market prices, rates and hedged quantities.

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Item 4. CONTROLS AND PROCEDURES

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

     The Company regularly evaluates the critical estimates and assumptions that it makes in the preparation of its financial statements. As a result of this evaluation process, the Company determined that its deferred income tax accounts and related valuation allowance should be adjusted for periods prior to 2004 to reflect the consideration of future reversals of existing taxable temporary differences as a possible source of taxable income. This non-cash adjustment was the basis for the restatement of the Company’s financial statements reflected in the Company’s Annual Report on Form 10-K/A filed with the SEC on November 12, 2004. In addition, as a result of this process, the Company determined it had not historically recorded the tax benefit associated with stock option exercises in the balance sheet. The Company has restated the consolidated financial statements included in the March 31, 2004 Form 10-Q/A and June 30, 2004 Form 10-Q/A to also reflect this adjustment.

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

     The non-cash adjustments to the Company’s deferred income tax accounts and related valuation allowance were the result of the consideration of future reversals of existing taxable temporary differences as a possible source of taxable income, which had not been done previously. In designing and evaluating their disclosure controls and procedures, the Company recognizes that any controls and procedures, regardless of how designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures. The Company believes that the errors which led to the restatement were the result of a material weakness in internal control over financial reporting related to the Company’s accounting for income taxes. The material weakness was the result of (a) internal control deficiencies relating to the analysis and reconciliation of income tax accounts, (b) resource constraints related to the income tax accounting function and (c) incorrect conclusions reached regarding the accounting for our deferred income tax accounts and related valuation allowance. As a result of the material weakness described above, we concluded that our internal controls and procedures were ineffective as of September 30, 2004. The conclusion of the Chief Executive Officer and Chief Financial Officer from this evaluation was communicated to the Audit Committee.

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

     There were no other significant changes in our disclosure controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation.

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PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

     The Company from time to time is involved in various routine legal proceedings. These primarily involve commercial claims, product liability claims, personal injury claims and workers’ compensation claims. We cannot predict the outcome of these lawsuits, legal proceedings and claims with certainty. Nevertheless, we believe that the outcome of these proceedings, even if determined adversely, would not have a material adverse effect on our business, financial condition and results of operations. In addition, IMC Global agreed to indemnify us against certain legal matters.

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

Item 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

     None

Item 3. DEFAULTS UPON SENIOR SECURITIES

     None

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

     None

Item 5. OTHER INFORMATION

     Not Applicable

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

EXHIBIT INDEX

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SIGNATURES

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

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