-----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, IqcytVCXIOZd5+Pe5T0k8mRt3ThZOwdLqxqoBU8x60zlCsniUQaWnhQ6n4erDFUd yCAKSh1s6C54UsfLjVzBXA== 0001108673-01-500010.txt : 20020410 0001108673-01-500010.hdr.sgml : 20020410 ACCESSION NUMBER: 0001108673-01-500010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011113 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: 1934 Act SEC FILE NUMBER: 333-32518 FILM NUMBER: 1781578 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-3qtr_2001.txt FORM 10-Q FOR THIRD 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 September 30, 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 November 1, 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 September 30, 2001 (unaudited) and December 31, 2000.................... 1 Condensed Consolidated Statements of Operations for the quarter and the nine months ended September 30, 2001 and September 30, 2000 (unaudited).......................................... 2 Condensed Consolidated Statements of Stockholder's Equity for the nine months ended September 30, 2001 and September 30, 2000 (unaudited).......................................... 3 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and September 30, 2000 (unaudited)............. 4 Notes to Condensed Consolidated Financial Statements.................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk.. 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................... 14 Signatures 7 PART I. FINANCIAL INFORMATION Item 1. Financial Statements BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) (Unaudited)
September 30, December 31, 2001 2000 ---- ---- ASSETS CURRENT: Cash and cash equivalents ........................................... $ 994 $ 860 Accounts receivable Trade, less allowance for doubtful accounts ........................ 61,712 44,817 Other .............................................................. 2,521 1,173 Inventories ......................................................... 27,046 27,890 Prepaid expenses and other current assets ........................... 3,516 3,221 Income tax deposit .................................................. -- 2,070 Deferred income taxes ............................................... 3,543 12,809 ------- ------- Total current assets ........................................... 99,332 92,840 PROPERTY, PLANT AND EQUIPMENT: Mining property ..................................................... 264,611 264,175 Mine Development .................................................... 8,427 8,156 Land ................................................................ 27,699 28,249 Land improvements ................................................... 5,252 5,043 Buildings ........................................................... 36,556 36,556 Machinery and equipment ............................................. 163,718 156,297 Furniture and fixtures .............................................. 2,011 1,395 Construction-in-progress ............................................ 10,523 5,317 ------- ------- 518,797 505,188 Accumulated depletion, depreciation and amortization ................ (103,231) (89,502) ------- ------- Property, plant, and equipment, net ............................. 405,566 415,686 OTHER NONCURRENT: Goodwill and noncompete agreements, net ............................ 15,169 16,649 Debt issuance costs ................................................ 11,021 12,958 Other noncurrent assets ............................................ 367 153 Total other noncurrent ......................................... 26,557 29,760 ------- ------- Total assets ................................................... $ 531,455 $ 538,286 ======= ======= LIABILITIES CURRENT: Book overdraft ..................................................... $ 10,356 $ 7,264 Accounts payable ................................................... 18,011 15,908 Accrued liabilities ................................................ 12,172 11,490 Due to parent ...................................................... 2,411 2,362 Accrued interest ................................................... 2,895 8,654 Current portion of long-term debt .................................. 10,743 9,076 Income taxes payable 84 -- ------- ------- Total current liabilities ...................................... 56,672 54,754 NONCURRENT LIABILITIES: Long-term debt, net of current portion ............................. 288,660 280,329 Deferred income taxes .............................................. 92,502 110,676 Other noncurrent liabilities ....................................... 42,538 39,311 ------- ------- Total noncurrent liabilities ................................... 423,700 430,316 STOCKHOLDER'S EQUITY Common stock, par value $.01, authorized 5,000 shares, issued 100 shares -- -- Additional paid-in capital ............................................. 81,377 81,377 Loans to related party ................................................. (1,278) (1.507) Retained deficit ....................................................... (28,357) (26,560) Accumulated other comprehensive (loss) income .......................... (659) (94) ------- ------- Total stockholder's equity ..................................... 51,083 53,216 ------- ------- Total liabilities and stockholder's equity .................... $ 531,455 $ 538,286 ======= ======= The accompanying notes are an integral part of these statements.
1 BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands) (Unaudited)
For the Quarter Ended For the Nine Months Ended September 30, September 30, ------------- ------------- 2001 2000 2001 2000 ---- ---- ---- ---- Net sales .................................... $ 90,957 $ 83,741 $ 234,683 $ 226,250 Cost of goods sold ........................... 64,794 60,455 176,267 166,342 Depreciation, depletion and amortization ..... 8,358 9,427 24,713 27,052 Selling, general & administrative ............ 5,755 5,494 16,850 18,764 Incentive stock compensation ................. -- -- -- 998 --------- --------- --------- --------- Operating income.................... 12,050 8,365 16,853 13,094 Interest expense ............................. 8,628 9,230 27,544 27,027 Other (income) expense, net of interest income (215) (483) (809) (1,448 --------- --------- --------- --------- (Loss) income before income taxes.... 3,637 (382) (9,882) (12,485) Provision (benefit) for income taxes ......... (1,394) (3,832) (8,085) (8,601) --------- --------- --------- --------- Net (loss) income.................... $ 5,031 $ 3,450 $ (1,797) $ (3,884) ========= ========= ========= ========= The accompanying notes are an integral part of these statements.
2 BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (Dollars in Thousands) (Unaudited)
Accumulated Other Comprehensive loss -------------------------------- Additional Loans Unrealized Minimum Total Common Paid-In Retained to Related Loss on Pension Stockholder's Stock Capital Deficit Party Derivatives Liability Total Equity ------ ---------- -------- ---------- ----------- --------- ------ ------------- Balance December 31, 2000 .. $ - $ 81,377 $ (25,560) $ (1,507) $ - $ (94) $ (94) $ 53,216 Comprehensive income, net of income taxes: Net (loss) ............. (1,797) (1,797) Unrealized holding loss On derivatives ....... (565) (565) (565) Total comprehensive -------- loss ............. (2,362) Repayment of loans to related party ................... 229 229 -------- -------- -------- -------- -------- -------- ------ -------- Balance September 30, 2001 $ - $ 81,377 $(28,357) $(1,278) $ (565) $ (94) $(659) $ 51,083 ======== ======== ======== ======== ======== ======== ====== ========
Accumulated Other Comprehensive loss ---------------------------------- Additional Loans Foreign Minimum Total Common Paid-In Retained to Related Currency Pension Stockholder's Stock Capital Deficit Party Translation Liability Total Equity ------ ---------- -------- ---------- ----------- --------- ----- ------------- Balance December 31, 1999 $ - $ 81,377 $(17,012) $ - $ (30) $ - $ (30) $ 64,335 Comprehensive income, net of income taxes: Net (loss) .......... (3,884) (3,884) Foreign currency translation ...... 30 30 30 Total comprehensive ------ loss ............ (3,854) Loans to related party .. (1,001) (1,001) ------- -------- -------- -------- ------- ------ ------ -------- Balance September 30, 2000 $ - $ 81,377 $(24,346) $(1,001) $ - $ - $ - $ 59,480 ======= ======== ======== ======== ======= ====== ====== ======== The accompanying notes are an integral part of these statements.
3 BETTER MINERALS & AGGREGATES COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Nine Months Ended September 30, 2001 2000 ---- ---- Net loss ........................................................................ $ (1,797) $ (3,884) Adjustments to reconcile net loss to cash flows from operations: Depreciation ................................................................. 16,864 17,184 Depletion .................................................................... 6,176 4,807 Non compete agreement amortization ........................................... 614 4,126 Debt issuance amortization ................................................... 1,937 1,581 Deferred income taxes ........................................................ (8,908) (9,920) Disposal of property, plant and equipment gain ............................... (150) (109) Loss on sale of investment ................................................... -- 83 Other ........................................................................ 1,758 (1,742) Changes in assets and liabilities, net of the effects from acquired companies: Trade receivables ........................................................ (16,895) (13,862) Non-trade receivables .................................................... (1,348) (898) Receivable from/Payable to parent ........................................ 49 2,934 Payable to related party ................................................. -- (908) Inventories .............................................................. 844 (4,061) Prepaid expenses and other current assets ................................ (296) (1,127) Accounts payable and accrued liabilities ................................. 2,111 616 Accrued interest ......................................................... (5,759) (4,027) Income taxes ............................................................. 2,155 234 -------- -------- Net cash used in operating activities ................................. (2,645) (8,973) Cash flows from investing activities: Capital expenditures ......................................................... (10,911) (18,506) Proceeds from sale of property, plant and equipment .......................... 589 281 Proceeds from sale of investment ............................................. -- 3,136 (Loans to) repayments from related party ..................................... 229 (1,001) -------- -------- Net cash used for investing activities ..................................... (10,093) (16,090) Cash flows from financing activities: Increase in book overdraft ................................................... 3,092 2,164 Principal payments on capital lease obligations .............................. (218) (63) Net revolver credit agreement facility ....................................... 16,350 13,700 Repayment of long-term debt .................................................. (6,352) (3,102) Financing fees ............................................................... -- (435) -------- -------- Net cash provided by financing activities .................................. 12,872 12,264 Effect of cash exchange rates on cash ........................................... -- 30 Net increase (decrease) in cash ....................................... 134 (12,769) Cash and cash equivalents, beginning ............................................ 860 13,573 -------- -------- Cash and cash equivalents, ending ............................................... $ 994 $ 804 ======== ======== Schedule of non-cash investing and financing activities: Assets acquired by assuming capital lease obligations ....................... $ 3,136 $ -- ======== ======== The accompanying notes are an integral part of these statements.
4 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 2000 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 September 30, 2001 and December 31, 2000, inventory consisted of the following: September 30, December 31, (In thousands) 2001 2000 ---- ---- Supplies (net of $189 and $66 obsolescence reserve) $11,968 $11,820 Raw materials and work in process 3,891 4,563 Finished goods 11,187 11,507 ------- ------- $27,046 $27,890 ======= ======= 3. Comprehensive Income Comprehensive income, net of tax for the three and nine months ended September 30, 2001 and 2000 was as follows: Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2001 2000 2001 2000 ---- ---- ---- ---- Net income (loss) $5,031 $3,450 $(1,797) $(3,884) Unrealized holding loss on derivatives (451) - (565) - Foreign currency translation - - - 30 ------ ------ ------- ------- Total comprehensive income $4,580 $3,450 $(2,362) $(3,854) ====== ====== ======= ======= 5 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, as part of a change in management reporting responsibilities, all of the New Jersey operating 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 part of the Company's aggregates business unit. Reportable segment information for the three and nine months ended September 30, 2001 and 2000 was as follows:
Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2001 2000 2001 2000 ---- ---- ---- ---- Net sales: Aggregates $ 46,700 $ 39,966 $ 103,328 $ 92,327 Industrial Minerals 48,580 48,343 145,077 147,855 Eliminations (4,323) (4,568) (13,722) (13,932) --------- --------- --------- --------- Total net sales $ 90,957 $ 83,741 $ 234,683 $ 226,250 ========= ========= ========= ========= Operating company income (loss): Aggregates $ 5,760 $ 3,825 $ 2,425 $ 1,615 Industrial Minerals 6,530 4,466 15,370 13,092 --------- --------- --------- --------- Total operating company income (loss) $ 12,290 $ 8,291 $ 17,795 $ 14,707 General corporate (expense) income (240) 74 (942) (1,613) --------- --------- --------- --------- Total operating income (loss) $ 12,050 $ 8,365 $ 16,853 $ 13,094 ========= ========= ========= ========= Depreciation, depletion and amortization expense: Aggregates $ 4,848 $ 4,353 $ 13,687 $ 12,133 Industrial Minerals 3,468 5,058 10,952 14,873 Corporate 42 16 74 46 --------- --------- --------- --------- Total depreciation, depletion, and amortization expense $ 8,358 $ 9,427 $ 24,713 $ 27,052 ========= ========= ========= ========= Capital expenditures: Aggregates $ 1,678 $ 2,791 $ 7,492 $ 13,957 Industrial Minerals 797 (606) 3,417 4,368 Corporate 2 (11) 2 181 --------- --------- --------- --------- Total capital expenditures $ 2,477 $ 2,174 $ 10,911 $ 18,506 ========= ========= ========= =========
Asset segment information at September 30, 2001 and December 31, 2000 was as follows: September 30, December 31, (In thousands) 2001 2000 Assets: Aggregates $361,200 $351,969 Industrial Minerals 173,562 203,676 Corporate 40,070 20,533 Elimination of intersegment receivables (43,377) (37,892) -------- -------- Total assets $531,455 $538,286 ======== ======== 6 5. Impact of Recent Accounting Standards In June 2001, the Financial Accounting Standard Board ("FASB") issued FAS No. 141, "Business Combinations", which addresses the accounting and reporting for business combinations, FAS No. 142, "Goodwill and Other Intangible Assets", which addresses the accounting and reporting for acquired goodwill and other intangible assets and FAS No. 143, "Accounting for Asset Retirement Obligations", which addresses the accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. In August 2001, the FASB issued FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which addresses accounting and reporting for the impairment or disposal of long-lived assets. FAS 141, 142 and 144 are effective January 1, 2002 for the Company. FAS 143 is effective January 1, 2003 for the Company. The Company is in the process of reviewing the new pronouncements and does not anticipate that adoption will have a material impact. 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 September 30, 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. 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 third quarter and year-to-date 2000 results to include $16.6 million and $46.2 million, respectively, 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. Debt Covenants Based on our most recent forecast for the remainder of 2001, the Company expects to be in compliance with the amended leverage ratio and interest coverage ratio covenants contained in the senior secured credit agreement on December 31, 2001. However, for calendar year 2002, the Company believes it will be necessary to seek further amendments to revise the required leverage ratio and interest coverage ratio covenants that were included in the original senior secured credit agreement. While the Company obtained amendments and waivers under the secured credit agreement earlier in 2001, there can be no assurance that these or other future amendments or waivers will be granted or that such amendments or waivers, if granted, would be on terms satisfactory to the Company. 7 9. Contingencies 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, predecessor to U.S. Silica Company, in the amount of $7.5 million in actual damages. On June 1, 2001, the trial judge entered judgment on the verdict; the amount of the judgment was approximately $6.4 million, the sum of the verdict (reduced by settlements from other parties) and prejudgment interest. 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 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 below. The company posted a bond, which is required to be filed as part of the appeal process. The notice of appeal to the appropriate intermediate appellate court in Texas will be timely filed. Based on advice of counsel, the Company believes that there are meritorious grounds to file this appeal and that a reversal and remand of the Tompkins case is probable. The Company and its subsidiaries are involved in other 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. 10. 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 Senior Subordinated Notes 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 inconsequential subsidiaries) and have jointly and severally guaranteed the Company's obligations under the 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. 8 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 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 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 53% and 47% of our net sales, respectively, for the three months ended September 30, 2001 and 62% and 38% of our net sales, respectively, for the nine months ended September 30, 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, which are then eliminated in the consolidated financial statements. Prior year segment reporting has been restated as if the asset transfer had occurred at the beginning of 2000. Three Months Ended September 30, 2001 Compared with Three Months Ended September 30, 2000 Net Sales. Net sales increased $7.3 million, or 8.7 % to $91.0 million in the three months ended September 30, 2001 from $83.7 million in the three months ended September 30, 2000. Net sales for our industrial minerals business increased $0.3 million to $48.6 million in the three months ended September 30, 2001 from $48.3 million in the three months ended September 30, 2000. This increase was from increased silica sales to the oil and gas extraction, building products and recreational end use markets, which was almost completely offset by decreased silica sales to the glass, foundry and fillers & extenders end use markets. Net sales for our aggregates business increased $6.7 million or 16.7% to $46.7 million in the three months ended September 30, 2001 from $40.0 million in the three months ended September 30, 2000. Included in net sales are intercompany sales to our industrial minerals subsidiary totaling $4.3 million for the three months ended September 30, 2001 as compared to $4.6 million for the three months ended September 30, 2000. Excluding these intercompany sales, net sales for our aggregates business increased $7.0 million, or 19.8%, to $42.4 million in the three months ended September 30, 2001 from $35.4 million in the three months ended September 30, 2000, primarily from a 21% increase in asphalt volume and a 34% increase in stone volume sold in the period. Cost of Goods Sold. Cost of goods sold increased $4.3 million, or 7.1% to $64.8 million in the three months ended September 30, 2001 from $60.5 million in the three months ended September 30, 2000. Cost of goods sold for our industrial minerals business increased $0.6 million or 1.7% to $34.7 million in the three months ended September 30, 2001 from $35.3 million in the three months ended September 30, 2000, primarily due to normal cost inflation. 9 Cost of goods sold for our aggregates business increased $4.1 million or 13.8% to $33.7 million in the three months ended September 30, 2001 from $29.6 million in the three months ended September 30, 2000, primarily due to the increased stone and asphalt volume noted earlier, partially offset by a $1.7 million reduction in the price of asphalt cement used in the production of hot mixed asphalt. Depreciation, Depletion and Amortization. Depreciation, depletion and amortization decreased $1.0 million or 10.6% to $8.4 million in the three months ended September 30, 2001 from $9.4 million in the three months ended September 30, 2000. The decrease was primarily due to a $1.3 million decrease in amortization from the completion of the amortization of a non-compete agreement with the former parent company of our industrial minerals subsidiary, and a $0.8 million decrease in depreciation, offset by a $1.1 million increase in depletion due to increased aggregates sales volume. Selling, General and Administrative. Selling, general and administrative expenses increased $0.3 million or 5.5% to $5.8 million in the three months ended September 30, 2001 from $5.5 million in the three months ended September 30, 2000. This increase was due to normal inflationary factors. Operating Income. Operating income was $12.0 million in the three months ended September 30, 2001 compared to $8.4 million in the three months ended September 30, 2000, as a result of the factors noted earlier. Operating income for our industrial minerals business increased $2.0 million or 44.4% to $6.5 million in the three months ended September 30, 2001 from $4.5 million in the three months ended September 30, 2000 primarily due to the factors noted earlier. Operating income for our aggregates business increased $2.0 million to $5.8 million in the three months ended September 30, 2001 from $3.8 million in the three months ended September 30, 2000 as a result of the factors noted earlier. Due to the seasonality of our aggregates business, operating income incurred in the third quarter of our fiscal year may not be indicative of operating results for the full year. Corporate expenses not allocated to business segments decreased $0.3 million to $0.2 million in the three months ended September 30, 2001, from income of $0.1 million in the three months ended September 30, 2000. Interest Expense. Interest expense decreased $0.6 million or 6.5% to $8.6 million in the three months ended September 30, 2001 compared with $9.2 million in the three months ended September 30, 2000 as a result of decreased interest rates. Benefit for Income Taxes. The benefit for income taxes for the three months ended September 30, 2001 has been adjusted to reflect the estimated benefit for the first nine months of the year using an annual effective tax rate of 71% which resulted in an adjusted effective tax rate of 82% for the full nine month period ended September 30, 2001. Net Income. Net income increased $1.5 million to $5.0 million in the three months ended September 30, 2001 from $3.5 million in the three months ended September 30, 2000, primarily due to the factors noted earlier. Nine Months Ended September 30, 2001 Compared With Nine Months Ended September 30, 2000 Net Sales. Net sales increased $8.4 million or 3.7% to $234.7 million in the nine months ended September 30, 2001 from $226.3 million in the nine months ended September 30, 2000. Net sales for our industrial minerals business decreased $2.8 million or 1.9% to $145.1 million in the nine months ended September 30, 2001 from $147.9 million in the nine months ended September 30, 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 $0.9 million or 0.6% to $145.1 million in the nine months ended September 30, 2001 from $146.0 million in the nine months ended September 30, 2000, due primarily to decreased silica sales to the glass, foundry and filler and extender end use markets partially offset by an increase in sales to the oil and gas extraction, matrix and building products end use markets. 10 Net sales for our aggregates business increased $11.0 million or 11.9% to $103.3 million for the nine months ended September 30, 2001 from $92.3 million for the nine months ended September 30, 2000, including intercompany sales to our industrial minerals business totaling $13.7 million in the nine months ended September 30, 2001 and $13.9 million in the nine months ended September 30, 2000. Excluding these intercompany sales, net sales of aggregates increased $11.2 million or 14.3% to $89.6 million in the nine months ended September 30, 2001 from $78.4 million for the nine months ended September 30, 2000 due to a 16% increase in asphalt volume and a 26% increase in stone volume sold during the period, partially offset by a 5.0% decrease in the average selling price for stone products due to product mix. Cost of Goods Sold. Cost of goods sold increased $10.0 million or 6.0% to $176.3 million for the nine months ended September 30, 2001 from $166.3 million for the nine month period ended September 30, 2000. Cost of goods sold for our industrial minerals business decreased $1.3 million to $108.0 million for the nine months ended September 30, 2001 from $109.3 million for the nine months ended September 30, 2000. The divestiture of PECAL in February, 2000 resulted in a $1.5 million decrease in cost of goods sold in 2001. Excluding the divestiture, cost of goods sold increased $0.2 million or 0.2% to $108.0 million in the nine months ended September 30, 2001 from $107.8 million for the nine months ended September 30, 2000 due primarily to a $2.3 million increase in the price of dryer fuel, offset by a 2.6% reduction in volume. Cost of goods sold for our aggregates business increased $8.6 million or 12.0% to $80.1 million for the nine months ended September 30, 2001 from $71.5 million for the nine months ended September 30, 2000, primarily due to the increased stone and asphalt volume noted earlier, partially offset by a $2.7 million reduction in the price of asphalt cement used in the production of hot mixed asphalt. Depreciation, Depletion and Amortization. Depreciation, depletion and amortization decreased $2.4 million, or 8.9% to $24.7 million in the nine months ended September 30, 2001 from $27.1 million in the nine months ended September 30, 2000. This decrease is primarily due to a $3.5 million decrease in amortization expense on the completion of the amortization of a non-compete agreement with the former parent company of our industrial minerals subsidiary, partially offset by a $1.4 million increase in depletion expense due to an increase in aggregates sales volume. Selling, General and Administrative. Selling, general and administrative expenses decreased $2.9 million or 14.6% to $16.9 million in the nine months ended September 30, 2001 from $19.8 million for the nine months ended September 30, 2000. This decrease resulted primarily from a $2.3 million non-recurring charge in 2000, $1.0 million of which was non-cash incentive stock compensation, for the issuance of stock to the newly hired President of our aggregates business and the elimination of $0.4 million in costs as a result of the divestiture of PECAL. Operating Income. Operating income was $16.9 million in the nine months ended September 30, 2001 compared to $13.1 million in the nine months ended September 30, 2000, as a result of the factors noted earlier. Operating income for our industrial minerals business increased $2.3 million or 17.6% to $15.4 million in the nine months ended September 30, 2001 from $13.1 million in the nine months ended September 30, 2000 primarily due to the factors noted earlier. Operating income for our aggregates business increased $0.8 million to $2.4 million in the nine months ended September 30, 2001 from $1.6 million in the nine months ended September 30, 2000 as a result of the factors noted earlier. Due to the seasonality of our aggregates business, operating income incurred in the first nine months of our fiscal year may not be indicative of operating results for the full year. Corporate expenses not allocated to business segments decreased $0.7 million to $0.9 million in the nine months ended September 30, 2001 from $1.6 million in the nine months ended September 30, 2000, as a result of the non-recurring compensation expense incurred in 2000 noted earlier. Interest Expense. Interest expense increased $0.5 million to $27.5 million in the nine months ended September 30, 2001 from $27.0 million in the nine months ended September 30, 2000 due primarily to increased borrowings partially offset by decreased interest rates. Benefit for Income Taxes. The benefit for income taxes for the nine months ended September 30, 2001 is based on the effective tax rate expected to be realizable for the year of approximately 71%. The benefit for income taxes for the nine month period ended September 30, 2000 was based on an effective tax rate of 78%, reduced by taxes required on the sale of PECAL, resulting in a net effective tax rate of 69%. Net Loss. Net loss decreased $2.1 million to $1.8 million in the nine months ended September 30, 2001 from $3.9 million in the nine months ended September 30, 2000 primarily as a result of the factors noted earlier. 11 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 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 long term debt as of September 30, 2001 was $299.4 million, and our total stockholder's equity as of that date was $51.5 million, giving us total debt representing approximately 85% 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 $2.7 million for the nine months ended September 30, 2001 compared to $9.0 million for the nine months ended September 30, 2000. Cash used in operating activities decreased $6.3 million in the first nine months of 2001 due primarily to a $0.8 million reduction in seasonal inventory in 2001 as compared to a $4.1 million increase in inventory in the first nine months of 2000, and a $4.0 million decrease in investment in other intangible assets from the one-time purchase in 2000 of a hot mixed asphalt plant, partially offset by a $3.0 million increase in accounts receivable due to increased sales. Interest paid in the nine months ended September 30, 2001 was $31.1 million, an increase of $1.8 million from the $29.3 million paid in the nine months ended September 30, 2000, primarily as a result of increased borrowings, and a $0.4 million amendment fee under our senior secured credit agreement, partially offset by reduced interest rates. Net cash used for investing activities decreased $6.0 million to $10.1 million for the nine month period ended September 30, 2001 from $16.1 million for the nine month period ended September 30, 2000. This decrease primarily resulted from a $7.6 million decrease in capital expenditures due in a part to the one-time $2.1 million purchase in 2000 of a hot mixed asphalt plant, and $0.6 million received in 2001 for excess land and property sales, partially offset by the $3.1 million received from the PECAL sale in February 2000. In addition, we acquired $3.1 million in mining and mobile equipment through new capital lease obligations in 2001. Cash flow provided by financing activities was $12.9 million for the nine months ended September 30, 2001 as compared to $12.3 million for the nine months ended September 30, 2000. There was a $10.0 million increase in long term debt in the nine months ended September 30, 2001 as compared to a $10.6 million increase 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 September 30, 2001), which are unconditionally and irrevocably guaranteed, jointly and severally, by each of our domestic subsidiaries, senior 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 September 30, 2001, we had $34.4 million outstanding under the tranche A term loan facility and $92.0 million outstanding under the tranche B term loan facility. In addition, this credit agreement provides us with a $50.0 million revolving credit facility of which $21.9 million was drawn as of September 30, 2001, with an additional $20.2 million available for borrowing, after taking into consideration $7.9 million allocated for letters of credit. 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 the 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. We were in compliance with these financial ratio covenants, as revised, as of September 30, 2001. This amendment to our credit agreement was filed as an exhibit to our Current Report on Form 8-K dated February 22, 2001. Based on our most recent forecast for the remainder of 2001, we expect to be in compliance with the amended leverage ratio and interest coverage ratio covenants contained in the senior secured credit agreement on December 31, 2001. However, for calendar year 2002, we believe it will be necessary to seek further 12 amendments to revise the required leverage ratio and interest coverage ratio covenants that were included in the original senior secured credit agreement. While we obtained amendments and waivers under the secured credit agreement earlier in 2001, there can be no assurance that these or other 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 $10.9 million in the nine months ended September 30, 2001 compared with $18.5 million in the nine months ended September 30, 2000. Our expected capital expenditure requirements for the remainder of 2001 and 2002 are $4.0 million and $15.0 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 our future performance, 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 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. 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, and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, each 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. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K None. 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. November 12, 2001 Better Minerals & Aggregates Company By: /s/ Gary E. Bockrath Name: Gary E. Bockrath Title: Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----