-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MzbgEuPv1RTtaxqqfP/4YowAzrm/vl2f5X10UG3JFBV9iLci/ujESauTEqhXpR4v okBjr+McuLBh3VYY3Gb1+A== 0001108673-01-500005.txt : 20010516 0001108673-01-500005.hdr.sgml : 20010516 ACCESSION NUMBER: 0001108673-01-500005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BETTER MINERALS & AGGREGATES CO CENTRAL INDEX KEY: 0001108673 STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400] IRS NUMBER: 550749125 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-32518 FILM NUMBER: 1634864 BUSINESS ADDRESS: STREET 1: ROUTE 522 NORTH STREET 2: P O BOX 187 CITY: BERKELEY SPRINGS STATE: WV ZIP: 25411 BUSINESS PHONE: 3042582500 MAIL ADDRESS: STREET 1: ROUTE 522 NORTH STREET 2: P O BOX 187 CITY: BERKELEY SPRINGS STATE: WV ZIP: 25411 10-Q 1 f10q-1qtr_2001.txt FORM 10-Q FOR FIRST QUARTER 2001 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------ FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2001 or [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period ______ to ______ Commission File Number 333-32518 Better Minerals & Aggregates Company (Exact Name of Registrant As Specified in its Charter) Delaware . 55-0749125 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) Route 522 North, P.O. Box 187 Berkeley Springs, West Virginia 25411 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (304) 258-2500 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 reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class Outstanding as of April 30, 2001 ----- -------------------------------- Common Stock 100 shares Better Minerals & Aggregates Company Form 10-Q Index Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of March 31, 2001 (unaudited) and December 31, 2000...................... 1 Condensed Consolidated Statements of Operations for the three months ended March 31, 2001 and March 31, 2000 (unaudited)............ 3 Condensed Consolidated Statements of Stockholder's Equity for the three months ended March 31, 2001 and March 31, 2000 (unaudited).. 4 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and March 31, 2000 (unaudited)................... 5 Notes to Condensed Consolidated Financial Statements.................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................. 14 Item 5. Other Information............................................. 14 Item 6. Exhibits and Reports on Form 8-K.............................. 14 Signatures............................................................ 15 PART I. FINANCIAL INFORMATION Item 1. Financial Statements BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
March 31, December 31, 2001 2000 --------- --------- (Unaudited) Assets Current: Cash and cash equivalents ......................................... $ 437 $ 860 Accounts receivable: Trade, less allowance for doubtful accounts .................... 41,721 44,817 Other .......................................................... 964 1,173 Inventories ....................................................... 28,363 27,890 Prepaid expenses and other current assets ......................... 3,052 3,221 Income tax deposit ................................................ 986 2,070 Deferred income taxes ............................................. 12,809 12,809 --------- --------- Total current assets ........................................ 88,332 92,840 Property, plant and equipment: Mining property ................................................... 264,175 264,175 Mine development .................................................. 8,258 8,156 Land .............................................................. 28,296 28,249 Land improvements ................................................. 5,184 5,043 Buildings ......................................................... 36,556 36,556 Machinery and equipment ........................................... 156,900 156,297 Furniture and fixtures ............................................ 1,554 1,395 Construction-in-progress .......................................... 7,983 5,317 --------- --------- 508,906 505,188 Accumulated depletion, depreciation and amortization .............. (97,006) (89,502) --------- --------- Property, plant and equipment, net ............................. 411,900 415,686 Other noncurrent: Goodwill and non compete agreements, net .......................... 15,791 16,649 Debt issuance costs ............................................... 11,938 12,958 Other noncurrent assets ........................................... 118 153 --------- --------- Total other noncurrent ...................................... 27,847 29,760 --------- --------- Total assets ................................................ $ 528,079 $ 538,286 ========= =========
1 BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
March 31, December 31, 2001 2000 --------- ---------- (Unaudited) Liabilities Current: Book overdraft .................................................... $ 6,381 $ 7,264 Accounts payable .................................................. 14,324 15,908 Accrued liabilities ............................................... 12,038 11,490 Due to parent ..................................................... 2,415 2,362 Accrued interest .................................................. 3,450 8,654 Current portion of long-term debt ................................. 9,657 9,076 --------- --------- Total current liabilities ................................... 48,265 54,754 Noncurrent liabilities: Deferred income taxes ............................................. 103,891 110,676 Long-term debt, net of current portion ............................ 291,121 280,329 Other noncurrent liabilities ...................................... 39,584 39,311 --------- --------- Total noncurrent liabilities ................................ 434,596 430,316 Commitments and contingencies Stockholder's Equity Common stock, par value $.01, authorized 5,000 shares, issued 100 shares ... -- -- Additional paid-in capital ................................................. 81,377 81,377 Loan to related party ...................................................... (1,433) (1,507) Retained deficit ........................................................... (34,516) (26,560) Accumulated other comprehensive (loss) ..................................... (210) (94) --------- --------- Total stockholder's equity .................................. 45,218 53,216 --------- --------- Total liabilities and stockholder's equity .................. $ 528,079 $ 538,286 ========= ========= The accompanying notes are an integral part of these statements.
2 BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands) (Unaudited)
For the Three Months Ended March 31, 2001 2000 Net sales ................................................................... $ 58,958 $ 61,974 Cost of goods sold .......................................................... 50,497 50,015 Depreciation, depletion and amortization .................................... 8,238 8,456 Selling, general and administrative ......................................... 5,239 6,056 -------- -------- Operating loss ..................................................... (5,016) (2,553) Interest expense ............................................................ 9,971 8,860 Other income net, including interest income ................................. (346) (507) -------- -------- Loss before income taxes ........................................... (14,641) (10,906) Benefit for income taxes .................................................... (6,685) (1,799) -------- -------- Net loss ........................................................... $ (7,956) $ (9,107) ======== ======== The accompanying notes are an integral part of these statements.
3 BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (Dollars in Thousands) (Unaudited)
Accumulated Other Comprehensive Loss ------------------------------------------- Additional Loans to Unrealized Foreign Minimum Total Common Paid-In Retained Related Loss on Currency Pension Stockholder's Stock Capital Deficit Party Derivatives Translation Liability Total Equity ------ -------- -------- -------- ----------- ----------- ---------- ------ -------- Balance December 31, 1999 $ $ 81,377 $(17,012) $ $ $ (30) $ $ (30)$ 64,335 Comprehensive income, net of income taxes: Net loss (9,107) (9,107) Foreign currency translation 30 30 30 -------- Total comprehensive loss (9,077 -------- -------- -------- ----------- --------- --------- ------- -------- Balance March 31, 2000 $ $ 81,377 $(26,119) $ $ $ $ $ 55,258 ======== ======== ======== =========== ========= ========= ======= ======== Balance December 31, 2000 $ $ 81,377 $(26,560) $ (1,507) $ (94) $ (94) 53,216 Comprehensive income, net of income taxes: Net loss (7,956) (7,956) Unrealized holding loss on derivatives (116) (116) (116) -------- Total comprehensive loss (8,072) Loans to related party 74 74 -------- -------- -------- ----------- --------- --------- ------- -------- Balance March 31, 2001 $ $ 81,377 $(34,516) $ (1,433) $ (116) $ $ (94) $ (210)$ 45,218 ======== ======== ======== =========== ========= ========= ======= ======== The accompanying notes are an integral part of these statements.
4 BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
For the Three Months Ended March 31, 2001 2000 ---- ---- Cash flows from operating activities: Net loss ................................................................................ $ (7,956) $ (9,107) Adjustments to reconcile net (loss) to cash flows from operations: Depreciation ...................................................................... 6,050 5,515 Depletion ......................................................................... 1,244 1,229 Non compete agreements amortization ............................................... 569 1,381 Debt issuance amortization ........................................................ 1,020 490 Deferred income taxes ............................................................. (6,785) (5,881) Disposal of property, plant and equipment (gain) loss ............................. (197) 2 Loss on sale of investment ........................................................ -- 83 Other ............................................................................. 688 (252) Changes in assets and liabilities, net of the effects from disposed company: Trade receivables ..................................................... 3,096 1,716 Non-trade receivables ................................................. 209 140 Receivable from/payable to parent ..................................... 53 (46) Payable to related party .............................................. -- (179) Inventories ........................................................... (473) (988) Prepaid expenses and other current assets ............................. 169 (517) Accounts payable and accrued liabilities .............................. (1,038) (1,239) Accrued interest ...................................................... (5,204) (4,261) Income taxes .......................................................... 1,085 3,976 -------- -------- Net cash used for operating activities .................... (7,470) (7,938) Cash flows from investing activities: Capital expenditures ............................................................. (4,007) (4,947) Proceeds from sale of property, plant and equipment .............................. 500 -- Loans to related party ........................................................... 74 -- Proceeds from sale of investment ................................................. -- 3,136 -------- -------- Net cash used for investing activities ................... (3,433) (1,811) Cash flows from financing activities: Decrease in book overdraft ....................................................... (883) (800) Repayment of long-term debt ...................................................... (2,177) (2,290) Net revolver credit agreement facility ........................................... 13,550 -- Principal payments on capital lease obligations .................................. (10) (12) -------- -------- Net cash (used for) provided by financing activities ..... 10,480 (3,102) Effect of exchange rate on cash ............................................................... -- 30 -------- -------- Net decrease in cash ..................................... (423) (12,821) Cash and cash equivalents, beginning of period ................................................ 860 13,573 Cash and cash equivalents, ending of period ................................................... $ 437 $ 752 The accompanying notes are an integral part of these statements.
5 BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Accounting Policies The unaudited interim condensed consolidated financial statements of Better Minerals & Aggregates Company (the "Company") have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. As a result, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. In the opinion of management, the statements reflect all adjustments necessary for a fair presentation of the results of the reported interim periods. The statements should be read in conjunction with the summary accounting policies and notes to the audited financial statements of the Company included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as amended (the "Form 10-K"). Operating results are not necessarily indicative of the results to be expected for the full year or any other interim period due to the seasonal, weather-related conditions in certain aspects of the Company's business. 2. Inventories At March 31, 2001 and December 31, 2000, inventory consisted of the following: March 31, December 31, (In thousands) 2001 2000 ---- ---- Supplies (net of $75 and $66 obsolescence reserve) $12,085 $ 11,820 Raw materials and work in process 4,894 4,563 Finished goods 11,384 11,507 ------ ------ $28,363 $ 27,890 ======= ======== 3. Comprehensive Income Comprehensive income, net of tax for the three months ended March 31, 2001 and 2000 was as follows: Three Months Ended March 31, (In thousands) 2001 2000 ---- ---- Net income (loss) $(7,956) $(9,107) Unrealized holding loss on derivatives (116) - Foreign currency translation - 30 -------- -------- Total comprehensive income $(8,072) $(9,077) ======== ======== 6 4. Segment Information The Company operates in the industrial minerals and aggregates business segments which are more fully described in the Form 10-K. On January 1, 2001, aspart of a change in management reporting responsibilities, all of the New Jerseyoperating assets of the Company's industrial minerals business unit were transferred to the Company's aggregates business unit. Net sales from the transferred assets are made both directly to customers and to the Company's industrial minerals subsidiary. Prior year segment reporting has been restated to include the New Jersey operations as a part of the Company's aggregates business unit. Reportable segment information for the three months ended March 31, 2001 and 2000 was as follows: Three Months Ended March 31, (In thousands) 2001 2000 ---- ---- Net sales: Aggregates ................................. $ 17,096 $ 17,267 Industrial Minerals ........................ 46,011 49,080 Eliminations ............................... (4,149) (4,373) -------- -------- Total net sales ...................... $ 58,958 $ 61,974 ======== ======== Operating company income (loss): Aggregates ................................. $ (7,111) $ (6,310) Industrial Minerals ........................ 2,356 3,832 -------- -------- Total operating company income (loss) ......... $ (4,755) $ (2,478) General corporate expense .................. (261) (75) -------- -------- Total operating income (loss) ........ $ (5,016) $ (2,553) ======== ========= Depreciation, depletion and amortization expense: Aggregates ................................. $ 4,196 $ 3,548 Industrial Minerals ........................ 4,026 4,893 Corporate .................................. 16 15 -------- -------- Total depreciation, depletion, and amortization expense .. $ 8,238 $ 8,456 ======== ======== Capital expenditures: Aggregates ................................. $ 3,012 $ 2,967 Industrial Minerals ........................ 995 1,945 Corporate .................................. -- 35 -------- -------- Total capital expenditures ........... $ 4,007 $ 4,947 ======== ======== Asset segment information at March 31, 2001 and December 31, 2000 was as follows: March 31, December 31, (In thousands) 2001 2000 ---- ---- Assets: Aggregates .................................. $ 345,921 $ 351,969 Industrial Minerals ......................... 164,887 203,676 Corporate ................................... 19,389 20,533 Elimination of intersegment receivables ..... (2,118) (37,892) --------- --------- Total assets ...................... $ 528,079 $ 538,286 ========= ========= 7 5. Impact of Recent Accounting Standards The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," on January 1, 2001. Initial adoption of this new accounting standard did not have a material impact on the Company's financial statements. In accordance with SFAS No. 133, all derivatives are recognized on the balance sheet at their fair value. Changes in the fair value of a derivative instrument designated as a "fair value" hedge, along with the corresponding change in fair value of the hedged asset or liability, are recorded in current-period earnings. Changes in the fair value of a derivative instrument designated as a "cash flow" hedge, to the extent the hedge is highly effective, are recorded temporarily in other comprehensive income then recognized in earnings along with the related effects of the hedged items. Any ineffective portion of the cash flow hedge is recognized in current-period earnings. At March 31, 2001, the Company's derivative contracts consisted of an interest rate swap used to convert a portion of its variable-rate debt to fixed-rate debt and interest rate cap agreements to limit a portion of its variable-rate debt to a fixed rate. These instruments are designated as, and are considered, effective cash flow hedges of the Company's forecasted variable rate interest payments. At March 31, 2001, the Company recorded a liability for derivatives and a corresponding loss in accumulated other comprehensive income, net of income tax effects. This activity was not material to the Company's financial position. During 2000, the Emerging Issues Task Force ("EITF") issued EITF No. 00-10, "Accounting for Shipping and Handling Fees and Costs." EITF No. 00-10 addresses the statement of earnings classification of shipping and handling costs billed to customers and was effective for the fourth quarter of 2000. The Company adopted the provisions of EITF No. 00-10 at that time and has restated the first quarter 2000 results to include $13.3 million in revenue and in cost of sales. 6. Sale of Canadian Facility On February 29, 2000 the Company completed the sale of stock of its Canadian subsidiary, George F. Pettinos (Canada) Limited, for $3.1 million. The proceeds were used to retire the Company's tranche A term loan facility and for general corporate uses. As a result of the sale, the Company recognized a pretax loss of $0.1 million, which is included in other income. 7. Income Taxes In accordance with generally accepted accounting principles, it is the Company's practice at the end of each interim reporting period to make a best estimate of the effective tax rate expected to be applicable for the full fiscal year. Estimates are revised as additional information becomes available. In addition, in the first quarter of 2000, the sale of George F. Pettinos (Canada) Limited created a one-time $1.1 million charge to the tax provision. 8. Contingencies The Company and its subsidiaries are involved in legal proceedings, claims and litigation arising in the ordinary course of business. Management believes, through discussions with counsel, that its liability arising from or the resolution of these legal proceedings, claims and litigation, in the aggregate, will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. The Company's subsidiary U.S. Silica Company is self-insured for product liability insurance as it relates to occupational disease. In addition, U.S. Silica Company is self-insured for health care costs and, in some states, workers' compensation. The Company provides for estimated future losses based on reported cases and past claim history. Management believes that the provision for estimated losses is adequate. Certain product liability claims related to occupational disease are indemnified by ITT Industries, successor to a former owner of U.S. Silica Company, under an agreement whereby claims filed against U.S. Silica Company prior to September 12, 2005 alleging exposure prior to September 12, 1985 are shared ratably based on the claimant's total exposure period. The indemnity is subject to a cumulative annual deductible and carry-forward adjustments and expires September 12, 2005. 8 9. Senior Subordinated Notes Subsidiary Guarantees Except for the Company's Canadian subsidiary, which is an inactive company with an immaterial amount of assets and liabilities, each of the Company's subsidiaries has fully and unconditionally guaranteed the Company's 13% Senior Subordinated Notes due 2009 on a joint and several basis. The separate financial statements of the subsidiary guarantors are not included in this report because (a) the Company is a holding company with no assets or operations other than its investments in its subsidiaries, (b) the subsidiary guarantors each are wholly owned by the Company, comprise all of the direct and indirect subsidiaries of the Company (other than a minor subsidiary) and have jointly and severally guaranteed the Company's obligations under such Senior Subordinated Notes on a full and unconditional basis, (c) the aggregate assets, liabilities, earnings and equity of the subsidiary guarantors are substantially equivalent to the assets, liabilities, earnings and equity of the Company on a consolidated basis and (d) management has determined that separate financial statements and other disclosures concerning the subsidiary guarantors are not material to investors. 10. Subsequent Event On April 20, 2001, in an action pending in Beaumont, Texas (Donald Tompkins et al vs. American Optical Corporation et al, the "Tompkins Case"), a jury rendered a verdict against Ottawa Silica Company and Pennsylvania Glass Sand Corporation, predecessors to U.S. Silica Company, in the amount of $7.5 million in actual damages. The judgment, after it is entered by the trial judge, may include an award for costs and pre-judgment interest. The amount of liability will be reduced by approximately $1.6 million to reflect prior settlements with other defendants no longer party to the action. In addition, punitive damages were settled for $600,000. In light of the facts entered into evidence relating to the timing of the exposure, the Company believes that the entire judgment and settlement in this action is covered by a combination of the historical insurance coverage of Ottawa Silica Company and the current indemnity agreement of ITT Industries, as described in Note 8. However, subject to the posting of a bond, after the judgment is entered by the trial judge, the Company plans on filing an immediate appeal to the appropriate appellate court in Texas. Based on advice of counsel, the Company believes that there are meritorious grounds to file an appeal and that a reversal and remand of the Tompkins Case is probable. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following information should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto included in Item 1 of this quarterly report, and the audited consolidated financial statements and the notes thereto and management's discussion and analysis of financial condition and results of operations contained in our Annual Report on Form 10-K for the year ended December 31, 2000, as amended. Unless otherwise indicated or the context otherwise requires, all references in this quarterly report to "we," "us," "our" or similar terms refer to Better Minerals & Aggregates Company and its direct and indirect subsidiaries. Overview We mine, process and market industrial minerals, principally industrial silica, in the eastern and midwestern United States. We also mine, process and market aggregates and produce and market asphalt in certain parts of Pennsylvania and New Jersey. Our end use markets for our silica products include container glass, fiberglass, specialty glass, flat glass, fillers and extenders, chemicals and ceramics. We also supply our silica products to the foundry, building materials and other end use markets. Our customers use our aggregates, which consist of high quality crushed stone, construction sand and gravel, for road construction and maintenance, other infrastructure projects and residential and commercial construction and to produce hot mixed asphalt. We also use our aggregates to produce hot mixed asphalt. We operate a network of 26 production facilities in 14 states. Our industrial minerals business (substantially all the net sales of which consist of silica products) and our aggregates business accounted for 78% and 22% of our net sales, respectively, for the three months ended March 31, 2001. Our aggregates business is seasonal, due primarily to the effect of weather conditions in winter months on construction activity in our Pennsylvania and New Jersey markets. As a result, peak sales of aggregates occur primarily in the months of April through November. Accordingly, our results of operations in any individual quarter may not be indicative of our results of operations for the full year. On January 1, 2001, as part of a change in management reporting responsibilities, all of the New Jersey operating assets of our industrial minerals business unit were transferred to our aggregates business unit. Net sales from the transferred assets are made both directly to customers and to our industrial minerals subsidiary. Prior year segment reporting has been restated to include the New Jersey operations as a part of our aggregates business unit. Three Months Ended March 31, 2001 Compared with Three Months Ended March 31, 2000 Net Sales. Net sales decreased $3.0 million, or 4.8%, to $59.0 million in the three months ended March 31, 2001 from $62.0 million in the three months ended March 31, 2000. Net sales for our industrial minerals business decreased $3.1 million, or 6.3%, to $46.0 million in the three months ended March 31, 2001 from $49.1 million in the three months ended March 31, 2000. This decrease was primarily due to the $1.9 million reduction in sales as a result of the divestiture of one of our two Canadian subsidiaries, George F. Pettinos (Canada) Limited ("PECAL") in February 2000. Excluding the divestiture, net sales for our industrial minerals business decreased $1.2 million, or 2.5%, to $46.0 million in the three months ended March 31, 2001 from $47.2 million in the three months ended March 31, 2000, primarily from decreased silica sales to the glass, foundry and filler and extender end use markets, partially offset by increased silica sales to the building materials and oil and gas extraction end use markets. Net sales for our aggregates business decreased $0.2 million, or 1.2%, to $17.1 million in the three months ended March 31, 2001 from $17.3 million in the three months ended March 31, 2000, including intercompany sales to our industrial minerals subsidiary totaling $4.1 million in the three months ended March 31, 2001 as compared to $4.4 million for the three months ended March 31, 2000. Excluding these intercompany sales, net sales for our aggregates were $12.9 million in the three months ended March 31, 2001 and $13.0 million in the three months ended March 31, 2000. Cost of Goods Sold. Cost of goods sold increased $0.5 million, or 1.0%, to $50.5 million in the three months ended March 31, 2001 from $50.0 million in the three months ended March 31, 2000. Cost of goods sold for our industrial minerals business decreased $0.4 million, or 1.1%, to $36.2 million in the three months ended March 31, 2001 from $36.6 million in the three months ended March 31, 2000. This decrease was primarily due to the reduction of $1.5 million in cost of goods sold as a result of the PECAL divestiture in February 2000. Excluding the divestiture, cost of goods sold increased $1.1 million, or 3.1%, to $36.2 million in the three months 10 ended March 31, 2001 from $35.1 million in the three months ended March 31, 2000, primarily due to a $1.8 million increase in the price of dryer fuel, partially offset by a reduction in volume. Cost of goods sold for our aggregates business increased $0.3 million, or 1.7%, to $17.9 million in the three months ended March 31, 2001 from $17.6 million in the three months ended March 31, 2000. This increase is primarily due to increased stone volume and normal inflationary factors. Depreciation, Depletion and Amortization. Depreciation, depletion and amortization decreased $0.3 million, or 3.5%, to $8.2 million in the three months ended March 31, 2001 from $8.5 million in the three months ended March 31, 2000. This decrease was primarily due to a $0.8 million reduction in amortization from the completion of the amortization period of a five year non-compete agreement with our former parent, partially offset by increased depreciation from our capital program. Selling, General and Administrative. Selling, general and administrative expenses decreased $0.9 million, or 14.8%, to $5.2 million in the three months ended March 31, 2001 from $6.1 million in the three months ended March 31, 2000. This decrease was primarily a result of the PECAL divestiture in February 2000 which decreased costs $0.4 million. Excluding the divestiture, selling, general and administrative expenses decreased $0.5 million, to $5.2 million in the three months ended March 31, 2001 from $5.7 million in the three months ended March 31, 2000 due to a reduction in management bonus accruals partially offset by normal inflationary factors. Operating Loss. Operating loss was $5.0 million in the three months ended March 31, 2001 as compared to $2.6 million in the three months ended March 31, 2000. Operating income for our industrial minerals business decreased $1.4 million, or 37%, to $2.4 million in the three months ended March 31, 2001 from $3.8 million in the three months ended March 31, 2000 primarily due to the factors noted earlier. Operating loss for our aggregates business increased $0.8 million to $7.1 million in the three months ended March 31, 2001 from an operating loss of $6.3 million in the three months ended March 31, 2000 as a result of the factors noted earlier. Due to the seasonality of our aggregates business, operating losses incurred in the first quarter of 2001 may not be indicative of operating results for the full year. Corporate expenses not allocated to business segments were $0.3 million and $0.1 million in the three months ended March 31, 2001 and 2000, respectively. Interest (Income) Expense. Interest expense increased $1.1 million, or 12.4%, to $10.0 million in the three months ended March 31, 2001 from $8.9 million in the three months ended March 31, 2000 due primarily to increased borrowings and the $0.4 million payment of an amendment fee under our senior secured credit agreement. Benefit for Income Taxes. The benefit for income taxes for the three months ended March 31, 2001 was based on an estimated rate of 46%. The benefit for income taxes for the three months ended March 31, 2000 was limited to the tax benefits expected realizable for the year, which resulted in an effective tax rate of 27%. This benefit was reduced by taxes required on the sale of PECAL that occurred during the first quarter of 2000. Net Loss. Net loss decreased $1.1 million to $8.0 million in the three months ended March 31, 2001 from $9.1 million in the three months ended March 31, 2000 primarily as a result of the factors noted earlier. Liquidity and Capital Resources Our principal liquidity requirements have historically been to service our debt, meet our working capital, capital expenditures and mine development expenditure needs and finance acquisitions. We are a holding company and as such we conduct substantially all our operations through our subsidiaries. As a holding company, we are dependent upon dividends or other intercompany transfers of funds from our subsidiaries to meet our debt service obligations, and have historically met our liquidity and capital investment needs with internally generated funds. Conversely, we have funded our acquisitions through borrowings and equity investments. Our total debt as of March 31, 2001 was $300.8 million and our total stockholder's equity as of that date was $45.2 million, giving us total debt representing approximately 87% of total capitalization. Our debt level makes us more vulnerable to economic downturns and adverse developments in our business. Net cash used in operating activities was $7.5 million for the three months ended March 31, 2001 compared to $7.9 million for the three months ended March 31, 2000. Cash used in operating activities decreased $0.4 million in the first 11 quarter of 2001 due primarily to a $1.4 million increase in accounts receivable collections and a $1.0 million income tax refund, offset by reduced earnings from our industrial minerals business and increased interest expense. Cash interest paid in the three months ended March 31, 2001 was $14.1 million, an increase of $1.6 million from the $12.5 million paid in the three months ended March 31, 2000, primarily as a result of increased borrowings in 2000, and a $0.4 million amendment fee under our senior secured credit agreement. Net cash used for investing activities increased $1.6 million to $3.4 million for the period ended March 31, 2001 from $1.8 million for the period ended March 31, 2000. This increase primarily resulted from the $3.1 million received from the PECAL sale in February 2000, partially offset by a $0.9 million decrease in capital expenditures, and $0.5 million received for excess land and property sales. Cash flow provided by financing activities was $10.5 million for the three months ended March 31, 2001 as compared to $3.1 million cash flow used in financing activities for the three months ended March 31, 2000. There was a $11.4 million increase in long term debt in the three months ended March 31, 2001 and a $2.3 million reduction in long term debt in the same period in 2000. Interest payments on our 13% senior subordinated notes due 2009 ($150 million outstanding as of March 31, 2001) which are unconditionally and irrevocably guaranteed, jointly and severally, by each of our domestic subsidiaries, debt service under our senior secured credit agreement, working capital, capital expenditures and mine development expenditures, incurred in the normal course of business as current deposits are depleted, represent our significant liquidity requirements. Under our senior secured credit agreement, as of March 31, 2001, we had $37.5 million outstanding under the tranche A term loan facility and $93.0 million outstanding under the tranche B term loan facility. In addition, this credit agreement provides us with a $50 million revolving credit facility. The revolving credit facility was partially drawn for $19.1 million as of March 31, 2001, and $8.0 million was allocated for letters of credit, leaving $22.9 million available for our use. The revolving credit facility is available for general corporate purposes, including working capital and capital expenditures, but excluding acquisitions, and includes sublimits of $12.0 million and $3.0 million, respectively, for letters of credit and swingline loans. Debt under the senior secured credit agreement is secured by substantially all of our assets, including our real and personal property, inventory, accounts receivable and other intangibles. For a further description of our senior secured credit agreement, including certain restrictions that it imposes upon us and certain financial covenants that it requires us to maintain, please see note 6 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December, 31, 2000, as amended. On February 22, 2001, the lenders under our senior secured credit agreement approved an amendment effective December 31, 2000 that revised the required leverage ratio and interest coverage ratio covenants under the credit agreement for the period of December 31, 2000 through December 31, 2001. As a result of this amendment, we were in compliance with these financial ratio covenants, as revised, as of December 31, 2000. In connection with this amendment, we agreed to a 25 basis point increase in interest rates for any period in which our leverage ratio is greater than 5.0. In addition, we agreed to cancel the undrawn $40.0 million acquisition term loan facility, which also resulted in a $300,000 reduction in our annual loan commitment fees, as of February 22, 2001. A one-time amendment fee of approximately $400,000 was paid to the lenders as part of the amendment. This amendment to our credit agreement was filed as an exhibit to our Current Report on Form 8-K dated February 22, 2001. We believe, based on our calendar year 2001 forecast, that we will be in compliance with the amended leverage ratio and interest coverage ratio covenants contained in the senior secured credit agreement throughout the calendar year 2001. In the event that we do not substantially achieve our forecast, it will be necessary to seek further amendments to the senior secured credit agreement covenants. While we obtained amendments and waivers under the secured credit agreement in the past, there can be no assurance that future amendments or waivers will be granted or that such amendments or waivers, if granted, would be on terms satisfactory to us. Capital expenditures totaled $4.0 million in the three months ended March 31, 2001 compared with $4.9 million in the three months ended March 31, 2000. Our expected capital expenditure requirements for the remainder of 2001 and 2002 are $14.5 million and $21.2 million, respectively. Our ability to satisfy our debt obligations and to pay principal and interest on our debt, fund working capital, mine development and acquisition requirements and make anticipated capital expenditures will depend on the future performance of our subsidiaries, which is subject to general economic, financial and other factors, some of which are beyond our control. We cannot be certain that the cash earned by our subsidiaries will be sufficient to allow us to pay 12 principal and interest on our debt and meet our other obligations. We believe, however, that based on current levels of operations and anticipated growth, cash flow from operations, together with borrowings under the revolving credit facility, will be adequate for at least the next twelve months to make required payments of principal and interest on our debt and fund working capital, mine development and capital expenditure requirements. There can be no assurance, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available under the revolving credit facility in an amount sufficient to enable us to service our debt or to fund our other liquidity needs. If we do not have enough cash, we may be required to refinance all or part of our existing debt, sell assets, borrow more money or raise equity. We cannot guarantee that we will be able to refinance our debt, sell assets, borrow more money or raise equity on terms acceptable to us, if at all. Forward-Looking Statements This quarterly report, including this management's discussion and analysis of financial condition and results of operations section, includes "forward- looking statements." We have based these forward-looking statements on our current expectations and projections about future events. Although we believe that our plans, intentions and expectations reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that our plans, intentions or expectations will be achieved. We believe that the following factors, among others, could affect our future performance and cause actual results to differ materially from those expressed or implied by these forward-looking statements: (1) general and regional economic conditions, including the economy in the states in which we have production facilities and in which we sell our products; (2) demand for residential and commercial construction; (3) demand for automobiles and other vehicles; (4) levels of government spending on road and other infrastructure construction; (5) the competitive nature of the industrial minerals and aggregates industries; (6) operating risks typical of the industrial minerals and aggregates industries, including the price and availability of oil; (7) difficulties in, and unanticipated expense of, assimilating newly-acquired businesses; (8) fluctuations in prices for, and availability of, transportation and power; (9) unfavorable weather conditions; (10) regulatory compliance, including compliance with environmental and silica exposure regulations, by us and our customers; (11) litigation affecting us and our customers; (12) changes in the demand for our products due to the availability of substitutes for products of our customers; (13) labor unrest; and (14) interest rate changes and changes in financial markets generally. Item 3. Quantitative and Qualitative Disclosures About Market Risk Information regarding the Company's financial instruments that are sensitive to changes in interest rates is contained in our Annual Report on Form 10-K for the year ended December 31, 2000, as amended, filed with the Securities and Exchange Commission. This information has not changed materially in the interim period since December 31, 2000. 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings We are a defendant in various lawsuits related to our businesses. These matters include lawsuits relating to the exposure of persons to crystalline silica as discussed in detail in our Annual Report on Form 10-K for the year ended December, 31, 2000, as amended, filed with the Securities and Exchange Commission. Although we do not believe that these lawsuits are likely to have a material adverse effect upon our business, we cannot predict what the full effect of these or other lawsuits will be. We currently believe, however, that these claims and proceedings in the aggregate are unlikely to have a material adverse effect on us. On April 20, 2001, in an action pending in Beaumont, Texas (Donald Tompkins et al vs. American Optical Corporation et al, the "Tompkins Case"), a jury rendered a verdict against Ottawa Silica Company and Pennsylvania Glass Sand Corporation, predecessors to our subsidiary, U. S. Silica Company, in the amount of $7.5 million in actual damages. The judgment, after it is entered by the trial judge, may include an award for costs and pre-judgment interest. The amount of liability will be reduced by approximately $1.6 million to reflect prior settlements with other defendants no longer party to the action. In addition, punitive damages were settled for $600,000. In light of the facts entered into evidence relating to the timing of the exposure, we believe that the entire judgment and settlement in this action is covered by a combination of the historical insurance coverage of Ottawa Silica Company and the current indemnity agreement of ITT Industries, as described in such Annual Report on Form 10-K. However, subject to the posting of a bond, after the judgment is entered by the trial judge, we plan on filing an immediate appeal to the appropriate appellate court in Texas. Based on advice of counsel, we believe that there are meritorious grounds to file an appeal and that a reversal and remand of the Tompkins Case is probable. Item 5. Other Information In April 2001, Commercial Stone Co., Inc., one of our subsidiaries, merged with Better Materials Corporation, another of our subsidiaries, with Better Materials Corporation surviving. As a result of this merger, Commercial Aggregates Transportation and Sales, LLC became a wholly-owned subsidiary of Better Materials Corporation. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits None. (b) Reports on Form 8-K. On March 6, 2001, we filed a Current Report on Form 8-K dated February 22, 2001 under Item 5 (Other Events). 14 Pursuant to the requirements 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. May 14, 2001 Better Minerals & Aggregates Company By: /s/ Gary E. Bockrath ----------------------------- Name: Gary E. Bockrath Title: Vice President and Chief Financial Officer (Principal Financial and Principal Accounting Officer) 15 -----END PRIVACY-ENHANCED MESSAGE-----