---



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-K/A



(Amendment
No. 1)





FOR ANNUAL AND TRANSITION

REPORTS PURSUANT TO SECTIONS 13 OR 15(d)

OF THE SECURITIES ACT OF 1934



(Mark One)



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



For the fiscal year ended December 31, 2002



OR



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



For the transition period from 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 incorporation or organization) |  | (I.R.S. employer identification number)





Route 522 North, P.O. Box 187

Berkeley
Springs, West Virginia 25411

(Address of principal executive offices, including zip code)





Registrants telephone number, including area code: (304) 258-2500



Securities registered pursuant to Section 12(b) of the Act: None



Securities registered pursuant to Section 12(g) of the Act: None





Indicate by check mark whether
the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ̈No x



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



Indicate the number of shares outstanding of each of the registrants classes of common stock, as of the latest practicable date:



Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ̈No x





|Class        |  | Outstanding as of March 1, 2003
|------------ |  | -------------------------------
|Common Stock |  | 100 shares                     





---



---



EXPLANATORY
NOTE







This Form 10-K/A is being filed for the sole purpose of correcting typographical errors in Item 8. We have
included Item 8, as amended, in this Form 10-K/A in its entirety. No other modifications or changes have been made to the Form 10-K as originally filed or the exhibits filed therewith.



---



|Item 8. |  | Financial Statements and Supplementary Data
|------- |  | -------------------------------------------



Report of Independent Accountants



To the Board of Directors and Stockholder of Better Minerals & Aggregates Company:



In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) on page 69 present fairly,
in all material respects, the financial position of Better Minerals & Aggregates Company and subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) on page69 presents
fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Companys
management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.



As discussed in Note 2 to
the consolidated financial statements, effective January 1, 2002, the Company adopted Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets.



As discussed in Note 6, the lenders under the Companys Senior Secured Credit Facilities approved an
amendment on April 17, 2003 which revised certain financial covenants through January 1, 2004, however, the covenants for March 31, 2004 are substantially more restrictive than those provided for in the April 17, 2003 amendment. It is probable that
the Company will need to seek amendments or waivers to avoid violating these more restrictive covenants. In the event that the Company is unable to obtain amendments or waivers the lenders could declare all of the funds borrowed thereunder, together
with accrued interest, immediately due and payable. Similarly, if the lenders take this action the Company would be in default under the indenture related to its Senior Subordinated Notes. In the event the debt becomes due and payable it is unlikely
that the Company will be able to repay amounts due and it could be required to sell assets to generate cash or the lenders could foreclose on the pledged stock of the Companys subsidiaries and the assets in which they have been granted a
security interest. In addition, as discussed in Note 17, on April 10, 2003, the Company entered into an agreement to sell its aggregates business. The Companys plans with respect to these matters are discussed in Note 6.



PricewaterhouseCoopers LLP

New York, New York

April 17, 2003



28



---

Better Minerals & Aggregates Company

Consolidated Balance Sheets

(Dollars in thousands)

---



|                                                                         |  | 2002 |          |   | 2001 |  
|------------------------------------------------------------------------ |  | ---- | -------- | - | ---- | -
|Assets                                                                   |  |      |          |   |      |  
|Current:                                                                 |  |      |          |   |      |  
|Cash and cash equivalents                                                |  | $    | 1,330    |   |      | $
|Accounts receivable:                                                     |  |      |          |   |      |  
|Trade, less allowance for doubtful accounts of $1,629 and $1,824         |  |      | 43,398   |   |      |  
|Other                                                                    |  |      | 5,988    |   |      |  
|Inventories                                                              |  |      | 31,882   |   |      |  
|Prepaid expenses and other current assets                                |  |      | 5,061    |   |      |  
|Income tax deposit                                                       |  |      | 338      |   |      |  
|Deferred income taxes                                                    |  |      | 5,215    |   |      |  
|                                                                         |  |      |          |   |      |  
|Total current assets                                                     |  |      | 93,212   |   |      |  
|                                                                        
|Property, plant and equipment:                                           |  |      |          |   |      |  
|Mining property                                                          |  |      | 158,072  |   |      |  
|Mine development                                                         |  |      | 5,772    |   |      |  
|Land                                                                     |  |      | 27,011   |   |      |  
|Land improvements                                                        |  |      | 6,125    |   |      |  
|Buildings                                                                |  |      | 36,627   |   |      |  
|Machinery and equipment                                                  |  |      | 178,974  |   |      |  
|Furniture and fixtures                                                   |  |      | 1,722    |   |      |  
|Construction-in-progress                                                 |  |      | 8,667    |   |      |  
|                                                                         |  |      |          |   |      |  
|                                                                         |  |      | 422,970  |   |      |  
|Accumulated depletion, depreciation and amortization                     |  |      | (147,794 | ) |      |  
|                                                                         |  |      |          |   |      |  
|Property, plant and equipment, net                                       |  |      | 275,176  |   |      |  
|                                                                        
|Other noncurrent:                                                        |  |      |          |   |      |  
|Goodwill and non-compete agreements, net                                 |  |      | 21       |   |      |  
|Debt issuance costs                                                      |  |      | 9,518    |   |      |  
|Insurance for third-party products liability claims                      |  |      | 40,864   |   |      |  
|Other noncurrent assets                                                  |  |      | 7,083    |   |      |  
|                                                                         |  |      |          |   |      |  
|Total other noncurrent                                                   |  |      | 57,486   |   |      |  
|                                                                         |  |      |          |   |      |  
|Total assets                                                             |  | $    | 425,874  |   |      | $
|                                                                         |  |      |          |   |      |  
|                                                                        
|                                                                         |  | 2002 |          |   | 2001 |  
|Liabilities                                                              |  |      |          |   |      |  
|Current:                                                                 |  |      |          |   |      |  
|Book overdraft                                                           |  | $    | 4,632    |   |      | $
|Accounts payable                                                         |  |      | 12,985   |   |      |  
|Accrued liabilities                                                      |  |      | 12,455   |   |      |  
|Due to parent                                                            |  |      | 2,346    |   |      |  
|Accrued interest                                                         |  |      | 7,381    |   |      |  
|Income taxes payable                                                     |  |      |         |   |      |  
|Current portion of obligation under capital lease                        |  |      | 1,033    |   |      |  
|Current portion of long-term debt                                        |  |      | 11,085   |   |      |  
|                                                                         |  |      |          |   |      |  
|Total current liabilities                                                |  |      | 51,917   |   |      |  
|                                                                        
|Noncurrent liabilities:                                                  |  |      |          |   |      |  
|Deferred income taxes                                                    |  |      | 29,172   |   |      |  
|Obligations under capital lease                                          |  |      | 2,405    |   |      |  
|Long-term debt                                                           |  |      | 283,837  |   |      |  
|Third-party products liability claims                                    |  |      | 69,209   |   |      |  
|Other noncurrent liabilities                                             |  |      | 43,783   |   |      |  
|                                                                         |  |      |          |   |      |  
|Total noncurrent liabilities                                             |  |      | 428,406  |   |      |  
|                                                                        
|Commitments and contingencies                                            |  |      |          |   |      |  
|                                                                        
|Stockholders (Deficit) Equity                                           |  |      |          |   |      |  
|Common stock, par value $.01, authorized 5,000 shares, issued 100 shares |  |      |         |   |      |  
|Loans to related party                                                   |  |      | (1,360   | ) |      |  
|Additional paid-in capital                                               |  |      | 81,377   |   |      |  
|Retained deficit                                                         |  |      | (129,207 | ) |      |  
|Accumulated other comprehensive (loss)                                   |  |      | (5,259   | ) |      |  
|                                                                         |  |      |          |   |      |  
|Total stockholders (deficit) equity                                     |  |      | (54,449  | ) |      |  
|Total liabilities and stockholders equity                               |  | $    | 425,874  |   |      | $
|                                                                         |  |      |          |   |      |  



The
accompanying notes are an integral part of these financial statements.



29



---

Better Minerals & Aggregates Company

Consolidated Statements of Operations

(Dollars in thousands)

---





|                                                                                                                |  | Years Ended December 31, |         
|--------------------------------------------------------------------------------------------------------------- |  | ------------------------ | --------
|                                                                                                                |  | 2002                     |         
|                                                                                                               
|Sales                                                                                                           |  | $                        | 300,495 
|Cost of goods sold                                                                                              |  |                          | 232,591 
|Depreciation, depletion and amortization                                                                        |  |                          | 30,013  
|Selling, general and administrative (Notes 8 and 12)                                                            |  |                          | 46,419  
|Asset impairment (Note 16)                                                                                      |  |                          | 107,882 
|                                                                                                                |  |                          |         
|Operating income (loss)                                                                                         |  |                          | (116,410
|                                                                                                               
|Interest expense                                                                                                |  |                          | 32,089  
|Other income, net, including interest income                                                                    |  |                          | (1,673  
|                                                                                                                |  |                          |         
|Loss before income taxes                                                                                        |  |                          | (146,826
|                                                                                                               
|Benefit for income taxes                                                                                        |  |                          | (56,846 
|                                                                                                                |  |                          |         
|Net loss before cumulative effect of change in accounting for
goodwill                                          |  |                          | (89,980 
|Cumulative effect of change in accounting for goodwill (less applicable income tax
benefit of $6,115) (Note 2k) |  |                          | 8,623   
|                                                                                                                |  |                          |         
|Net loss                                                                                                        |  | $                        | (98,603 
|                                                                                                                |  |                          |         





30



---

Better Minerals & Aggregates Company

Consolidated Statements of Stockholders (Deficit) Equity

(Dollars in thousands)

---





|                                           |  |        |  |            |  |           |   |  |          |   |  | Accumulated Other Comprehensive Income (Loss) |   |  |             |  
|------------------------------------------ |  | ------ |  | ---------- |  | --------- | - |  | -------- | - |  | --------------------------------------------- | - |  | ----------- | -
|                                           |  |        |  | Additional |  |           |   |  | Loans to |   |  | Foreign                                       |   |  | Unrealized  |  
|                                           |  | Common |  | Paid-In    |  | Retained  |   |  | Related  |   |  | Currency                                      |   |  | Loss on     |  
|                                           |  | Stock  |  | Capital    |  | Deficit   |   |  | Party    |   |  | Translation                                   |   |  | Derivatives |  
|                                          
|Balance, December 31, 1999                 |  |        |  | $81,377    |  | $(17,012  | ) |  |          |   |  | $(30                                          | ) |  |             |  
|Comprehensive loss, net of income taxes:   |  |        |  |            |  |           |   |  |          |   |  |                                               |   |  |             |  
|Net loss                                   |  |        |  |            |  | (9,548    | ) |  |          |   |  |                                               |   |  |             |  
|Foreign currency translation               |  |        |  |            |  |           |   |  |          |   |  | 30                                            |   |  |             |  
|Minimum pension liability,net of tax       |  |        |  |            |  |           |   |  |          |   |  |                                               |   |  |             |  
|                                           |  |        |  |            |  |           |   |  |          |   |  |                                               |   |  |             |  
|Total comprehensive loss                   |  |        |  |            |  |           |   |  |          |   |  |                                               |   |  |             |  
|Loans to related party                     |  |        |  |            |  |           |   |  | (1,507   | ) |  |                                               |   |  |             |  
|                                           |  |        |  |            |  |           |   |  |          |   |  |                                               |   |  |             |  
|Balance, December 31, 2000                 |  |        |  | 81,377     |  | (26,560   | ) |  | (1,507   | ) |  |                                              |   |  |             |  
|Comprehensive loss, net of income taxes:   |  |        |  |            |  |           |   |  |          |   |  |                                               |   |  |             |  
|Net loss                                   |  |        |  |            |  | (4,044    | ) |  |          |   |  |                                               |   |  |             |  
|Unrealized loss on derivatives, net of tax |  |        |  |            |  |           |   |  |          |   |  |                                               |   |  | (499        | )
|Minimum pension liability, net of tax      |  |        |  |            |  |           |   |  |          |   |  |                                               |   |  |             |  
|                                           |  |        |  |            |  |           |   |  |          |   |  |                                               |   |  |             |  
|Total comprehensive loss                   |  |        |  |            |  |           |   |  |          |   |  |                                               |   |  |             |  
|Loans to related party                     |  |        |  |            |  |           |   |  | 73       |   |  |                                               |   |  |             |  
|                                           |  |        |  |            |  |           |   |  |          |   |  |                                               |   |  |             |  
|Balance, December 31, 2001                 |  |       |  | 81,377     |  | (30,604   | ) |  | (1,434   | ) |  |                                              |   |  | (499        | )
|Comprehensive loss, net of income taxes:   |  |        |  |            |  |           |   |  |          |   |  |                                               |   |  |             |  
|Net loss                                   |  |        |  |            |  | (98,603   | ) |  |          |   |  |                                               |   |  |             |  
|Unrealized loss on derivatives, net of tax |  |        |  |            |  |           |   |  |          |   |  |                                               |   |  | (596        | )
|Minimum pension liability, net of tax      |  |        |  |            |  |           |   |  |          |   |  |                                               |   |  |             |  
|                                           |  |        |  |            |  |           |   |  |          |   |  |                                               |   |  |             |  
|Total comprehensive loss                   |  |        |  |            |  |           |   |  |          |   |  |                                               |   |  |             |  
|Loans to related party                     |  |        |  |            |  |           |   |  | 74       |   |  |                                               |   |  |             |  
|                                           |  |        |  |            |  |           |   |  |          |   |  |                                               |   |  |             |  
|Balance, December 31, 2002                 |  | $     |  | $81,377    |  | $(129,207 | ) |  | $(1,360  | ) |  | $                                            |   |  | $(1,095     | )
|                                           |  |        |  |            |  |           |   |  |          |   |  |                                               |   |  |             |  





31



---

Better Minerals & Aggregates Company

Consolidated Statements of Cash Flows

(Dollars in thousands)

---





|                                                                                       |  | Years Ended December 31, |        
|-------------------------------------------------------------------------------------- |  | ------------------------ | -------
|                                                                                       |  | 2002                     |        
|                                                                                      
|Cash flows from operating activities:                                                  |  |                          |        
|Net loss                                                                               |  | $                        | (98,603
|Adjustments to reconcile net loss to cash flows from operations:                       |  |                          |        
|Depreciation, depletion and amortization                                               |  |                          | 29,809 
|Debt issuance amortization                                                             |  |                          | 1,898  
|Provision for third-party products liability claims                                    |  |                          | 23,691 
|Cumulative effect of change in accounting for goodwill                                 |  |                          | 14,738 
|Deferred income taxes                                                                  |  |                          | (64,730
|Gain on disposal of property, plant and equipment                                      |  |                          | (551   
|Asset impairment                                                                       |  |                          | 107,882
|Loss on sale of investment                                                             |  |                          |       
|Other                                                                                  |  |                          | 111    
|Changes in current assets and liabilities, net of the effects from acquired
companies: |  |                          |        
|Trade receivables                                                                      |  |                          | 1,843  
|Other receivables                                                                      |  |                          | (3,650 
|Receivable from parent                                                                 |  |                          | (59    
|Payable to related party                                                               |  |                          |       
|Inventories                                                                            |  |                          | (1,102 
|Prepaid expenses and other current assets                                              |  |                          | (2,082 
|Accounts payable and accrued liabilities                                               |  |                          | 556    
|Accrued interest                                                                       |  |                          | (10    
|Income taxes                                                                           |  |                          | (534   
|                                                                                       |  |                          |        
|Net cash provided by operating activities                                              |  |                          | 9,207  
|Cash flows from investing activities:                                                  |  |                          |        
|Capital expenditures                                                                   |  |                          | (14,003
|Proceeds from sale of property, plant and equipment                                    |  |                          | 996    
|Proceeds from sale of investment                                                       |  |                          |       
|Loans to related party                                                                 |  |                          | 74     
|Purchases of businesses, net of cash acquired                                          |  |                          |       
|                                                                                       |  |                          |        
|Net cash used for investing activities                                                 |  |                          | (12,933
|Cash flows from financing activities:                                                  |  |                          |        
|Change in book overdraft                                                               |  |                          | (2,510 
|Issuance of long-term debt                                                             |  |                          | 1,132  
|Repayment of long-term debt                                                            |  |                          | (10,747
|Change in Working Capital Facility                                                     |  |                          | 16,450 
|Principal payments on capital lease obligations                                        |  |                          | (913   
|Financing fees                                                                         |  |                          | (849   
|                                                                                       |  |                          |        
|Net cash (used for) provided by financing activities                                   |  |                          | 2,563  
|Effect of exchange rate on cash                                                        |  |                          |       
|                                                                                       |  |                          |        
|Net increase (decrease) in cash                                                        |  |                          | (1,163 
|Cash and cash equivalents, beginning of period                                         |  |                          | 2,493  
|                                                                                       |  |                          |        
|Cash and cash equivalents, end of period                                               |  | $                        | 1,330  
|                                                                                       |  |                          |        
|Schedule of noncash investing and financing activities:                                |  |                          |        
|Assets acquired by entering into capital lease obligations                             |  | $                        | 955    
|                                                                                       |  |                          |        
|Cash paid during the year for:                                                         |  |                          |        
|Interest                                                                               |  | $                        | 29,808 
|                                                                                       |  |                          |        
|Income taxes                                                                           |  | $                        | 1,442  
|                                                                                       |  |                          |        



The
accompanying notes are an integral part of these financial statements.



32



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Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





|1. |  | Organization
|-- |  | ------------



Better Minerals & Aggregates Company (the Company), an indirect wholly owned subsidiary of USS Holdings, Inc.
(Holdings), was organized in January 1996. BMAC Holdings, Inc. (BMAC Holdings), a wholly owned subsidiary of Holdings, is the direct parent of the Company.



The Company owns three operating subsidiaries: U.S. Silica Company (U.S. Silica), which produces
industrial minerals, Better Materials Corporation (Better Materials), which produces aggregates and BMAC Services Co., Inc., which provides management advisory services to the Company.



The Company and its subsidiaries are collectively referred to
as the Company in the accompanying financial statements and footnotes.



|2. |  | Summary of Significant Accounting Policies
|-- |  | ------------------------------------------



| | a. |  | Principles of Consolidation
| | -- |  | ---------------------------



The consolidated financial statements include the accounts of the Company and its direct and indirect wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in consolidation.



| | b. |  | Reclassifications
| | -- |  | -----------------



Certain prior years amounts have been reclassified to conform with the current years presentation.



| | c. |  | Use of Estimates and Assumptions
| | -- |  | --------------------------------



The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting
periods. Significant estimates include doubtful accounts, amortization and depreciation, income taxes, environmental and product liabilities, mine reclamation and employee benefit costs. Actual results could differ from those estimates.



| | d. |  | Cash and Cash Equivalents
| | -- |  | -------------------------



All highly liquid investments with a maturity of three months or less when purchased are considered cash equivalents.



| | e. |  | Inventories
| | -- |  | -----------



Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out and average cost methods.



33



---

Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





| | f. |  | Revenue Recognition
| | -- |  | -------------------



Revenue is recorded when legal title passes at the time of shipment to the customer. Shipping and handling costs billed to customers are
included in sales.



| | g. |  | Deferred Financing Costs
| | -- |  | ------------------------



Deferred financing costs consist of loan origination costs, which are being amortized over the term of the related debt principal.
Amortization included in interest expense for each of the three years in the period ended December 31, 2002 totaled approximately $1.9 million, $2.4 million and $2.1 million, respectively.



| | h. |  | Depreciable Properties
| | -- |  | ----------------------



Depreciable properties, mining properties and mineral deposits acquired in connection with business acquisitions are recorded at fair
market value as of the date of acquisition. Additions and improvements occurring through the normal course of business are capitalized at cost.



Upon retirement or disposal of assets, other than those of U.S. Silica acquired on February 9, 1996, the cost and accumulated depreciation
or amortization are eliminated from the accounts and any gain or loss is reflected in the statement of operations. Group asset accounting is utilized for the U.S. Silica assets acquired on February 9, 1996. Gains and losses on normal retirements or
dispositions of these assets are excluded from net income and proceeds from dispositions are recorded as a reduction of the acquired cost. Expenditures for normal repairs and maintenance are expensed as incurred. Construction-in-progress is
primarily comprised of machinery and equipment which has not yet been placed in service.



Depreciation is computed using the straight-line method over the estimated useful lives of the assets, ranging from 3 to 15 years.



Depletion and amortization of mineral deposits are provided as the minerals are extracted, based on units of
production and engineering estimates of mineable reserves. The impact of revisions to reserve estimates is recognized on a prospective basis.



| | i. |  | Mine Exploration and Development
| | -- |  | --------------------------------



Costs to develop new mining properties and expand existing properties are capitalized and amortized based on units of production.



| | j. |  | Mine Reclamation Costs
| | -- |  | ----------------------



The estimated net future costs of dismantling, restoring and reclaiming operating mines and related mine sites, in accordance with
federal, state and local regulatory requirements, are accrued during operations. The provision is made based upon units of production and estimated minable reserves as of the balance sheet date. The effect of changes in estimated costs, production,
and minable reserves is recognized on a prospective basis.



| | k. |  | Goodwill and Intangible Assets
| | -- |  | ------------------------------



The Companys intangible assets include goodwill and non-compete agreements. Until 2002, the cost of goodwill was being amortized on
a straight-line basis over a period of fifteen years. The costs of the non-compete agreements are being amortized on a straight-line basis over the terms of the agreements, which range from three to five years.



34



---

Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142 (FAS 142), Goodwill and Other Intangible Assets. FAS 142 eliminates goodwill amortization and requires an evaluation of potential goodwill impairment upon
adoption, as well as subsequent annual valuations, or more frequently if circumstances indicate a possible impairment. Adoption of FAS 142 eliminates annual goodwill amortization expense of approximately $1.2 million.



The Company completed its assessment of goodwill during its
second quarter, which resulted in goodwill impairment of $8.6 million, net of income taxes of $6.1 million, and represents the elimination of the entire amount of goodwill previously reported on the balance sheet. In accordance with FAS 142, this
amount has been recorded as a cumulative effect of accounting change as of the beginning of the current fiscal year. The Company has performed its assessment of goodwill and other intangible assets by comparing the fair value of the aggregates
segment, which has been determined to be the only reporting unit that had goodwill, to its net book value in accordance with the provisions of FAS 142. The Company has estimated the fair value of the reporting unit based upon a combination of
several valuation methods including residual income, replacement cost and market approaches, giving appropriate weighting to such methods in arriving at an estimate of fair value. The Companys equity is not subject to market quotations.



The following table reflects the gross carrying
value and accumulated amortization of the Companys goodwill and amortizable intangible assets (in thousands) for the periods presented:





|                       |  | December 31, 2002 Gross Carrying Value |  | December 31, 2002 Accumulated Amortization
|---------------------- |  | -------------------------------------- |  | ------------------------------------------
|                      
|Non-compete agreements |  | $    442                               |  | $    421                                  
|                       |  |                                        |  |                                           
|Total                  |  | $    442                               |  | $    421                                  
|                       |  |                                        |  |                                           
|                      
|                       |  | December 31, 2001 Gross Carrying Value |  | December 31, 2001 Accumulated Amortization
|                      
|Goodwill               |  | $17,321                                |  | $2,583                                    
|Non-compete agreements |  | 442                                    |  | 323                                       
|                       |  |                                        |  |                                           
|Total                  |  | $17,763                                |  | $2,906                                    
|                       |  |                                        |  |                                           



35



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Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





The
effect of goodwill amortization on net loss was as follows (in thousands):





|                                |  | For the twelve months ended December 31, |        
|------------------------------- |  | ---------------------------------------- | -------
|                                |  | 2002                                     |        
|                               
|Reported net income             |  | $                                        | (98,603
|Add back: Goodwill amortization |  |                                          |       
|                                |  |                                          |        
|Adjusted net income (loss)      |  | $                                        | (98,603
|                                |  |                                          |        



| | l. |  | Income Taxes
| | -- |  | ------------



The Company accounts for income taxes pursuant to the provisions under Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes, which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based upon the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the expenses are expected to reverse. The
Company is included in the consolidated federal tax return of Holdings. The tax benefit included in the accompanying financial statements has been computed on a separate return basis.



| | m. |  | Concentration of Credit Risk
| | -- |  | ----------------------------



The Companys five largest customers accounted for approximately 13%, 12% and 13% of sales for the three years ended December 31,
2002, 2001 and 2000. Management believes it maintains adequate reserves for potential credit losses; ongoing credit evaluations are performed and collateral is generally not required.



| | n. |  | Financial Instruments
| | -- |  | ---------------------



The Company uses interest rate swap and cap agreements to manage interest costs and the risk associated with changing interest rates.
Amounts to be paid or received under interest rate swap agreements are accrued as interest rates change and are recognized over the life of the swap agreements as an adjustment to interest expense. The Companys policy is to not hold or issue
derivative financial instruments for trading or speculative purposes. When entered into, these financial instruments are designated as hedges of underlying exposures, associated with the Companys long-term debt, and are monitored to determine
if they remain effective hedges. The Company also uses natural gas rate swap agreements in the normal course of business to manage the risk associated with fluctuations in the natural gas market. Natural gas rate swap agreements are used to secure a
fixed rate for natural gas prior to the actual delivery required by the operations of the business. Gains and losses on derivatives designated as cash flow hedges are recorded in other comprehensive income and reclassified to earnings in a manner
that matches the timing of the earnings impact of the hedged transactions. The ineffective portion of all hedges, if any, are recognized currently in income.







36



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Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





| | o. |  | Environmental Costs
| | -- |  | -------------------



Environmental costs, other than qualifying capital expenditures, are accrued at the time the exposure becomes known and costs can be
reasonably estimated. Costs are accrued based upon managements estimates of all direct costs, after taking into account expected reimbursement by third parties (primarily the sellers of acquired businesses), and are reviewed by outside
consultants. Environmental costs are charged to expense unless a settlement with an indemnifying party has been reached.



| | p. |  | Comprehensive Income
| | -- |  | --------------------



Comprehensive income is defined as the change in equity from transactions and other events from nonowner sources and consists of net
income and other comprehensive income. The Company includes foreign currency translation adjustments, changes in the fair value of cash flow hedge derivative instruments and minimum pension liability adjustments in other comprehensive income.



| | q. |  | Impact of Recent Accounting Standards/Pronouncements
| | -- |  | ----------------------------------------------------



Statement of Financial Accounting Standards No. 143 (FAS 143), Accounting for Asset Retirement Obligations, was issued in June 2001. FAS
143 establishes accounting and reporting standards for obligations associated with the retirement of tangible long-lived assets. The Company currently provides for this obligation as described in Note 2.j. and as of December 31, 2002 reported a
liability of $9.9 million in other noncurrent liabilities related to this obligation. Effective January 1, 2003, the Company will adopt FAS 143 which requires the liability to be determined based on legal obligations that will be incurred when an
asset is retired. The Company estimates that its obligations under the new Standard will result in a liability of $8.6 million and an asset of $4.3 million. The resulting $5.6 million pretax gain from adoption will be reported net of tax as a
cumulative effect of a change in accounting principle as of January 1, 2003.



In 2002 the Company adopted Statement of Financial Accounting Standard No. 144 Accounting for Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144 addresses
significant issues relating to the implementation of FASB Statement No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (SFAS No. 121), and the development of a single
accounting model, based on the framework established in SFAS No. 121, for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired.



In November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Interpretation No. 45 requires the disclosure of certain guarantees existing at December 31, 2002 (see
footnote 15). In addition, Interpretation No. 45 requires the recognition of a liability for the fair value of the obligation of qualifying guarantee activities that are initiated or modified after December 31, 2002. Accordingly, the Company will
apply the recognition provisions of Interpretation No. 45 prospectively to guarantee activities initiated after December 31, 2002.



|3. |  | Acquisitions
|-- |  | ------------



On March 14, 2002, Better Materials Corporation, a wholly owned subsidiary of the Company, entered into a Lease and option Agreement with
A&R Limited Partnership for a three-year period. Under this agreement, Better Materials Corporation obtained all rights, title and interest under property owned by A&R Limited Partnership to an aggregate operation in Latrobe, Pennsylvania.
The agreement requires Better Materials to pay a monthly amount for equipment rental and royalties plus a one-time option payment made at the time of closing. Furthermore, the agreement grants Better Materials the right to purchase all of the assets
of the operation at any time during the three-year period for a predetermined price less the option payment. The



37



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Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





Company
expenses all lease payments related to the operation of the facility. The option payment is recorded as an other noncurrent asset on the balance sheet. As of December 31, 2002 the amount included in other noncurrent assets for this option payment
totaled $1 million. If the Company decides not to exercise its option by the end of the three-year period, this amount will be expensed at that time.



On March 10, 2001, Better Materials entered into a Sublease and Option Agreement with Amerikohl Mining, Inc. for a three year period.
Under this agreement, Better Materials Corporation obtained all rights, title and interest under leases held, and property owned, by Amerikohl Mining, Inc. to an aggregates operation in Springfield Township, Pennsylvania, known as the Jim Mountain
Quarry. The agreement requires Better Materials to pay a monthly amount for equipment rental and royalties plus a purchase option payment. Furthermore, the agreement grants Better Materials the right to purchase all of the assets of the operation at
any time during the three-year period for a predetermined price less the total option payments paid up to the time the option is exercised. The Company expenses all payments related to the operation of the facility. Option payments are recorded as
other noncurrent assets on the balance sheet. As of December 31, 2002 the total amount included in other noncurrent assets for option payments totaled $1.1 million. If the Company decides not to exercise its option by the end of the three-year
period, this amount will be expensed at that time.



|4. |  | Inventories
|-- |  | -----------



At December 31, 2002 and 2001, inventory consisted of the following:





|                                                     |  | 2002           |        | 2001
|---------------------------------------------------- |  | -------------- | ------ | ----
|                                                     |  | (In thousands)
|                                                    
|Supplies (net of $183 and $266 obsolescence reserve) |  | $              | 11,998 |     
|Raw materials and work in process                    |  |                | 6,051  |     
|Finished goods                                       |  |                | 13,833 |     
|                                                     |  |                |        |     
|                                                     |  | $              | 31,882 |     
|                                                     |  |                |        |     







38



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Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





|5. |  | Lease Commitments
|-- |  | -----------------



The Company is obligated under certain capital and operating leases for railroad cars, mining property, mining/processing equipment,
office space and transportation and other equipment. Certain of the operating lease agreements include options to purchase the equipment for fair market value at the end of the original lease term. Future minimum annual commitments under such
operating leases at December 31, 2002 are as follows:





|Year Ending December 31, |  | (In thousands)
|------------------------ |  | --------------
|                        
|2003                     |  | $             
|2004                     |  |               
|2005                     |  |               
|2006                     |  |               
|2007                     |  |               
|Thereafter               |  |               
|                         |  |               
|                         |  | $             
|                         |  |               



Rental
expense for operating leases for each of the three years in the period ended December 31, 2002 totaled approximately $3.0 million, $2.6 million and $2.7 million, respectively.



In general, the above leases include renewal options and provide that the Company pays for all utilities,
insurance, taxes and maintenance.



Future minimum
annual commitments under the capital lease obligations as of December 31, 2002 are as follows:





|Year Ending December 31,                    |  | (In thousands)
|------------------------------------------- |  | --------------
|                                           
|2003                                        |  | $             
|2004                                        |  |               
|2005                                        |  |               
|2006                                        |  |               
|2007                                        |  |               
|                                            |  |               
|Total minimum lease payments                |  |               
|Less amount representing interest           |  |               
|                                            |  |               
|Present value of net minimum lease payments |  | $             
|                                            |  |               

|
|





39



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Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





|6. |  | Long-Term Debt
|-- |  | --------------



At December 31, 2002 and 2001, long-term debt consisted of the following:





|                                                                                                        |  | 2002           |         | 2001
|------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | ----
|                                                                                                        |  | (In thousands)
|                                                                                                       
|Senior Secured Credit Facilities                                                                        |  | $              | 23,650  |     
|Tranche A Term Loan Facility (final maturity September 30, 2005) (5.8125% at December
31, 2002)         |  |                |         |     
|Tranche B Term Loan Facility (final maturity September 30, 2007) (6.3125% at December
31, 2002)         |  |                | 89,500  |     
|Senior Subordinated Notes (final maturity September 15, 2009) (13%
at    December 31, 2002)             |  |                | 150,000 |     
|Working Capital Facility (final maturity September 30, 2005) (average of
5.97%    at December 31, 2002) |  |                | 29,800  |     
|Mortgage Notes                                                                                          |  |                |         |     
|0% Note, imputed at 10.0% (due January 16, 2008)                                                        |  |                | 918     |     
|4.75% Notes (due November 28, 2009)                                                                     |  |                | 834     |     
|0.0% Note (due March 5, 2004)                                                                           |  |                | 210     |     
|8.5% Note (due July 1, 2003)                                                                            |  |                | 10      |     
|                                                                                                        |  |                |         |     
|                                                                                                        |  |                | 294,922 |     
|Less, current portion                                                                                   |  |                | 11,085  |     
|                                                                                                        |  |                |         |     
|                                                                                                        |  | $              | 283,837 |     
|                                                                                                        |  |                |         |     



At
December 31, 2002, contractual maturities of long-term debt are as follows:



|Year Ending December 31, |  | (In thousands)
|------------------------ |  | --------------
|                        
|2003                     |  | $             
|2004                     |  |               
|2005                     |  |               
|2006                     |  |               
|2007                     |  |               
|Thereafter               |  |               
|                         |  |               
|                         |  | $             
|                         |  |               



40



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Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





Debt
Agreements



On September 30, 1999, the
Company entered into a new $230.0 million Credit Agreement (the Agreement), which consisted of a $50.0 million revolving credit facility (the Revolving Credit Facility), a $45.0 million Tranche A Term Loan Facility
(Term A Loan), a $95.0 million Tranche B Term Loan Facility (Term B Loan) and a $40.0 million term loan acquisition facility (the Acquisition Term Loan Facility). The Term A Loan included a tranche of loans
denominated in Canadian dollars (the Canadian Term Facility) equal to $2.0 million, which was borrowed by George F. Pettinos (Canada) Limited, an indirect wholly owned subsidiary of the Company. The Revolving Credit Facility, Term A
Loan, Term B Loan, Acquisition Term Loan Facility and the Canadian Term Facility are collectively referred to in the notes to the financial statements as the Senior Secured Credit Facilities. In addition, on October 1, 1999 the Company
issued $150.0 million of Senior Subordinated Notes. Pursuant to an Exchange and Registration Rights Agreement, in April 2000, the Company consummated an exchange offer pursuant to which it exchanged the Senior Subordinated Notes for registered notes
having substantially the same terms. The proceeds from the Senior Secured Credit Facilities and the Senior Subordinated Notes were primarily used to pay off the outstanding senior debt and to finance the acquisition of Commercial Stone. On February
29, 2000, the Company completed the sale of the stock of its Canadian operating subsidiary, George F. Pettinos (Canada) Limited for $3.2 million. The proceeds from the sale were used to retire the Canadian Term Facility and for general corporate
uses. The Acquisition Term Loan facility was canceled in February 2001 as described below.



Under the Agreement, the Company has available, until September 30, 2005, the Revolving Credit Facility, which provides for the borrowings of up to $50.0 million with a sublimit of $12.0 million for
letters of credit and a sublimit of $3.0 million for swingline loans. The borrowing capacity of the Revolving Credit Facility is reduced by outstanding letters of credit and swingline loans. At December 31, 2002, outstanding letters of credit
totaled $8.6 million.



Borrowings under the
Senior Secured Credit Facilities bear variable interest at the Companys option at either (1) the banks base rate (base rate at December 31, 2002 was 4.25%) plus a margin percentage, ranging from 1.5% to 3.0% or (2) the London Interbank
Offered Rate (LIBOR) (LIBOR at December 31, 2002 was 1.44%) plus a margin percentage, ranging from 2.5% to 4.0%. Commitment fees, ranging from 0.375% to 0.75%, on the average daily unused Revolving Credit Facility are payable quarterly.
Letter of credit fees are also payable quarterly based upon the average daily balance of all letters of credit outstanding. The Senior Subordinated Notes bear interest at a rate of 13% per annum, payable semi-annually.



The obligations of the Company under the Senior Secured Credit
Facilities are unconditionally and irrevocably guaranteed, jointly and severally, by BMAC Holdings and each of the Companys direct or indirect domestic subsidiaries. BMAC Holdings has no operations or assets other than its investment in its
subsidiaries. In addition, the Senior Secured Credit Facilities are secured by a first priority pledge of (i) all the capital stock of BMAC Holdings, the Company, each of the Companys direct or indirect domestic subsidiaries and 65% of the
capital stock of each direct foreign subsidiary of the Company or any of its domestic subsidiaries and (ii) substantially all of the tangible and intangible assets held by BMAC Holdings, the Company and each of the Companys direct or indirect
domestic subsidiaries.



The Agreement contains
various restrictive covenants that, among other things, limit the ability of the Company to engage in certain transactions with affiliates, incur additional indebtedness, repay other indebtedness or amend other debt instruments, create liens on
assets, make investments or acquisitions, engage in mergers or consolidations, dispose of assets, or pay dividends. In addition, the Agreement requires the Company to maintain certain financial covenants, annually and quarterly, including a leverage
ratio, an interest coverage ratio and a capital expenditures covenant. The Senior Subordinated Notes are also subject to certain restrictive covenants that are similar to those of the Senior Secured Credit Facilities.



41



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Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





The
obligation of the Company under the Senior Subordinated Notes is unconditionally and irrevocably guaranteed, jointly and severally, on an unsecured senior subordinated basis to the Companys Senior Secured Credit Facilities, by each of the
Companys domestic subsidiaries. The Senior Subordinated Notes are not guaranteed by the Companys inactive Canadian subsidiary.



On February 22, 2001 the lenders under the Senior Secured Credit Facilities approved an amendment effective December 31, 2000 that revised
the required leverage ratio and interest coverage ratio covenants under the Agreement for the period of December 31, 2000 through December 31, 2001. As a result of this amendment, the Company was in compliance with all of its financial covenants, as
revised, as of December 31, 2000. In connection with this amendment, the Company agreed to a 25 basis point increase in interest rates for any period in which the leverage ratio is greater than 5.0. In addition, the Company agreed to cancel the
undrawn $40.0 million Acquisition Term Loan Facility, which also resulted in a $300,000 reduction in the annual loan commitment fees, as of February 22, 2001. A one-time amendment fee of approximately $424,000 was paid to the lenders as part of the
amendment.



Effective January 31, 2002, the
lenders under the Senior Secured Credit Facilities approved an amendment that waived any default under the required leverage ratio and interest coverage covenants for the fiscal quarter ended December 31, 2001. The amendment also revised the
requirement for these covenants under the Agreement for the period from March 31, 2002 through December 31, 2002. In connection with this amendment, the Company agreed to another 25 basis point increase in interest rates for any period in which the
leverage ratio is greater than 5.0. A one-time amendment fee of approximately $424,000 was paid to the lenders as part of the amendment.



On November 8, 2002, the lenders under the Senior Secured Credit Facilities approved an amendment effective September 30, 2002 that waived
any default under the required leverage ratio and interest coverage ratio covenants as of September 30, 2002. In connection with this amendment, the Company agreed to a 50 basis point increase when the leverage ratio is greater than 5.0. When
combined with two earlier amendments, this results in a 100 basis point increase in interest rates over the original Credit Agreement for any quarter in which the leverage ratio is greater than 5.0. As of September 30, 2002 the leverage ratio was
6.1 compared to the applicable covenant of 5.5. The interest coverage ratio at September 30, 2002 was 1.68 compared to a 1.70 covenant. The interest rates at September 30, 2002 ranged from 5.3125% to 7.75% prior to the November 8, 2002 amendment. A
one-time amendment fee of approximately $415,000 was paid to the lenders as part of the amendment.



On March 12, 2003, the lenders under the Senior Secured Credit Facilities approved an amendment that provided for a Term C Facility of $15
million and waived the Agreements leverage ratio and interest coverage covenants through June 30, 2003. The new Term C bears a variable interest rate at the banks base rate plus a 7.75% margin percentage. The Agreement also provides that
2% of the applicable interest be paid in kind. A one-time amendment fee of approximately $203,000 was paid to the lenders as part of this amendment and a one-time commitment fee of $600,000 was paid to the Term C lender.



On April 17, 2003, the lenders under the Senior Secured Credit
Facilities approved an amendment effective on that date which revised the required leverage ratio and interest coverage ratio covenants through January 1, 2004. Under the agreement, the leverage ratio must be less than 7.98 for June 30, 2003, 7.51
for September 30, 2003 and 6.94 for December 31, 2003. The interest coverage ratio has been changed to greater than 1.26 for June 30, 2003, 1.31 for September 30, 2003 and 1.46 for December 31, 2003. In connection with this amendment, if the
proposed aggregates sale, as discussed in Note 17, is not completed by July 16, 2003, there will be a 100 basis point increase in the applicable margins under the Senior Secured Credit Agreement.



The Company believes, based on its calendar year 2003
forecast, that it will be in compliance with the amended leverage ratio and interest coverage ratio covenants contained in the Agreement throughout calendar



42



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Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





year
2003. In the event that the Company does not substantially achieve its 2003 forecast, it will be necessary to seek further amendments to the senior credit agreement covenants. While the Company obtained amendments and waivers under this 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 the Company.



In addition, the required leverage ratio and interest coverage ratio covenants are substantially more
restrictive as of March 31, 2004 than the amended 2003 covenants and it is probable that the Company will need to seek amendments or waivers to avoid violating these covenants. While the Company obtained amendments and waivers under this 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 the Company. In the event that the Company is not in compliance with the
leverage ratio and interest ratio covenants contained in the Senior Secured Credit Agreement and does not obtain a waiver or amendment under the Agreement, the Company would be in default under the Agreement and the lenders could declare all of the
funds borrowed under the Agreement, together with accrued interest, immediately due and payable. Similarly, if the lenders take this action under the senior secured credit agreement, the Company would be in default under the indenture relating to
its senior subordinated notes and, if the default is not cured within 10 days after notice thereof, the bondholders could declare the principal of and accrued interest on the notes immediately due and payable. In the event this debt becomes due and
payable it is unlikely that the Company will be able to repay the amounts due and payable and could be, therefore, required to sell assets to generate cash or the lenders under the senior secured credit agreement could foreclose on the pledged stock
of the Companys subsidiaries and on the assets in which they have been granted a security interest.



As discussed in Note 17, the Company signed an agreement for the sale of its aggregates business. The Company plans to use the net
proceeds from the sale to repay indebtedness outstanding under the Companys Senior Secured Credit Agreement. In addition, as a result of this planned repayment, the Company will need to obtain a new source of financing for the liquidity needs
of the remaining business. In addition to providing working capital for the remaining business, the Company may use this new source of financing to repay the remaining amounts outstanding under the Senior Secured Credit Agreement. The Company is
currently in discussions with a number of financial institutions to establish this new credit facility, which the Company would expect would be entered into at or around the time of the completion of the aggregates sale. While the Company believes
that it will be able to obtain this new credit facility, the Company cannot guarantee that it will be able to do so on terms satisfactory to the Company or at all.



At December 31, 2002 and 2001, the fair value of the Companys long-term debt approximated $198.9
million and $266 million, respectively.



|7. |  | Financial Instruments
|-- |  | ---------------------



Interest rate swap and cap agreements are utilized in the normal course of business to manage the Companys interest costs and the
risk associated with changing interest rates. Interest rate swap agreements are used to exchange the difference between fixed and variable-rate interest amounts calculated by reference to an agreed-upon notional principal amount. In addition, the
Company utilizes interest rate cap agreements to limit the impact of increases in interest rates on its floating rate debt. Interest rate cap agreements entitle the Company to receive from the counterparties the amounts, if any, by which the
selected market interest rates exceed the strike rates stated per the agreements. The Company also uses natural gas rate swap agreements in the normal course of business to manage the risk associated with fluctuations in the natural gas market.
Natural gas rate swap agreements are used to secure a fixed rate for natural gas prior to the actual delivery required by the operations of the business. The Company does not use derivative financial instruments for trading or speculative purposes.
By their nature, all such instruments involve risk, including the possibility that a loss may occur from the failure of another party to perform according to the terms of a contract (credit risk) or the possibility that future changes in market
price may make a financial instrument less valuable or



43



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Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





more
onerous (market risk). As is customary for these types of instruments, the Company does not require collateral or other security from other parties to these instruments. In managements opinion there is no significant risk of loss in the event
of nonperformance of the counterparties to these financial instruments.



The fair value of the interest rate agreements represents the estimated receipts or payments that would be required to settle the agreements at year-end. Quoted market prices were used to estimate the fair values of the
interest rate swap and cap agreements. The notional amount represents agreed upon amounts on which calculations of dollars to be exchanged are based. They do not represent amounts exchanged by the parties and, therefore, are not a measure of the
Companys exposure. The Companys credit exposure is limited to the fair value of the contracts with a positive fair value plus interest receivable, if any, at the reporting date.



|                                 |  | December 31, 2002 |  |                           | December 31, 2001 |    
|-------------------------------- |  | ----------------- |  | ------------------------- | ----------------- | ---
|                                 |  | Maturity Date     |  | Contract/ Notional Amount |                   |    
|                                 |  | (In thousands)    | 
|                                
|Derivatives Interest rate swap   |  | 2004              |  | $                         | 30,000            | (1)
|Interest rate cap                |  |                   |  |                           |                   |    
|                                 |  | 2004              |  | $                         | 25,000            | (2)
|                                 |  | 2005              |  | $                         | 16,000            | (2)
|Natural gas rate swap agreements |  | 2003              |  |                           | 120,000           |    



|(1) |  | Agreement effectively exchanges the LIBOR floating interest rate for a fixed interest rate of 5.74%.
|--- |  | ----------------------------------------------------------------------------------------------------

|(2) |  | Agreement limits the LIBOR floating interest rate to 6.5%.
|--- |  | ----------------------------------------------------------



The Company has designated these contracts as qualified cash flow hedges. Accordingly, the effective portion of the gain or loss on the
derivative instrument is reported as a component of other comprehensive income and recognized in earnings in the same period or periods during which the hedged transaction affects earnings. The Company had no ineffective interest rate contracts at
December 31, 2002.



|8. |  | Commitments and Contingencies
|-- |  | -----------------------------



One of the Companys subsidiaries U.S. Silica, has been named as a defendant in an estimated 5,100 product liability claims alleging
silica exposure filed in the period January 1, 2002 to December 31, 2002, with 3,500 of these claims filed since September 30, 2002. U.S. Silica was named as defendant in 154 similar claims filed in 1998, 497 filed in 1999, 610 filed in 2000, and
1,320 filed in 2001. U.S. Silica has been named as a defendant in similar suits since 1975. The plaintiffs, who allege that they are employees or former employees of our customers, claim that the Companys silica products were defective or that
the Company acted negligently in selling silica products without a warning, or with an inadequate warning. The plaintiffs further claim that these alleged defects or negligent actions caused them to suffer injuries and sustain damages as a result of
exposure to our products. In almost all cases, the injuries alleged by the plaintiffs are silicosis or mixed dust disease, a claim that allows the plaintiffs to pursue litigation against the sellers of both crystalline silica and other
minerals. There are no pending claims of this nature against any of the Companys subsidiaries.



As of December 31, 2002, there were an estimated 7,000 silica-related products liability claims pending in which U.S. Silica is a
defendant. Almost of all of the claims pending against U.S. Silica arose out of the



44



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Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





alleged
use of U.S. Silica products in foundries or as an abrasive blast media and have been filed in the states of Texas and Mississippi.



ITT Industries, Inc., successor to a former owner of U. S. Silica, has agreed to indemnify U. S. Silica for third party silicosis claims
(including litigation expenses) filed against it prior to September 12, 2005 alleging exposure to U. S. Silica products for the period prior to September 12, 1985, to the extent of the alleged exposure prior to that date. This indemnity is subject
to an annual deductible of $275,000, which is cumulative and subject to carry-forward adjustments. The Company fully accrued this deductible on a present value basis when it acquired U. S. Silica. As of December 31, 2002 and 2001, this accrual
amounted to $1.9 million and $1.8 million, respectively. Pennsylvania Glass Sand Corporation, predecessor to U. S. Silica, was a named insured on insurance policies issued to ITT Industries for the period April 1, 1974 to September 12, 1985 and to
U. S. Borax (another former owner) for the period September 12, 1985 to December 31, 1985. To date, we have not sought coverage under these policies. Ottawa Silica Company (a predecessor that merged into U. S. Silica in 1987) had insurance coverage
on an occurrence basis prior to July 1, 1985.



On
April 20, 2001, in an action pending in Beaumont, Texas (Donald Tompkins et al v. American Optical Corporation et al), a jury rendered a verdict against Ottawa Silica Company and Pennsylvania Glass Sand Corporation, predecessors to U. S. Silica, in
the amount of $7.5 million in actual damages. On June 1, 2001, the trial judge entered judgment on the verdict against U. S. Silica in the amount of $5.928 million in actual damages (the verdict of $7.5 million, less credits for other settlements),
$464,000 in prejudgment interest and $40,000 in court costs. 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 of the Tompkins action are covered by a combination of Ottawa Silica Companys insurance coverage and the current indemnity agreement of ITT Industries, in each case, discussed above. After the judgment was entered by the trial judge
and upon the posting of a bond, the Company filed an immediate appeal to the appropriate appellate court in Texas, which upheld the trial courts ruling. A petition for review has been filed with the Texas Supreme Court.



In the past, the Company recorded amounts for product
liability claims based on estimates of its portion of the cost to be incurred for all pending product liability claims and estimates based on the value of an incurred but not reported liability for unknown claims for exposures that occurred before
1976, when it began warning its customers and employees of the health effects of crystalline silica. Estimated amounts recorded were net of any expected recoveries from insurance policies or the ITT Industries indemnity. The amounts recorded for
product liability claims were estimates, which were reviewed periodically by management and legal counsel and adjusted to reflect additional information when available. As the rate of claims filed against the Company and others in the industry
increased in 2002, the Company determined it was no longer sufficient for management to solely estimate the product liability claims that might be filed against the Company, and the Company retained the services of an independent actuary to estimate
the number and costs of unresolved current and future silica related product liability claims that might be asserted against the Company.



The actuary relied on generally accepted actuarial methodologies and on information provided by the Company, including the history of
reported claims, insurance coverages and indemnity protections available to us from third parties, the quantity of sand sold by market and by year, recent court rulings addressing the liability of sellers of silica sand, and other reports, articles
and records publicly available that discuss silica related health risks, to estimate a range of the number and severity of claims that could be filed against the company over the next 50 years, the period found by the actuary to be reasonably
estimable. The variables used to determine the estimate were further analyzed and multiple iterations were modeled by the actuary.



45



---

Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





As
previously discussed, the Company has available several forms of potential recovery to offset a portion of these costs in the form of insurance coverage and the ITT Industries indemnity. As part of the overall study, the actuarial also estimated the
amount recoverable from these sources, assuming that all primary and excess insurance coverage and the ITT indemnity is valid and fully collectible and also based on the timing of current and new claims filed, the alleged exposure periods and the
portion of the exposure that would fall within an insured or indemnified exposure period.



Following the adverse developments during the year, especially in the fourth quarter, and based on the study performed by our actuary, the Company recorded a pre-tax charge related to silica claims of
$23.7 million in 2002 for estimated undiscounted gross costs, including defense costs after consideration of recoveries under the ITT indemnity and insurance. This resulted in a long term liability of $69.2 million related to third party product
liability claims and a non-current asset of $40.9 million for probable insurance recoveries at December 31, 2002. The pre-tax charge in 2001 for silica claims was $2.1 million and the net liability recorded at December 31, 2001 was $4.6 million.
Recognizing the inherent uncertainties and numerous factors and assumptions which are used to develop this estimate management has determined that the amount is a reasonable estimate when considering all relevant factors.



The process of estimating and recording amounts for product
liability claims is imprecise and based on a variety of assumptions, some of which, while reasonable at the time, may prove to be inaccurate. The actuarys report is based to a large extent on the assumption that the Companys past
experience is predictive of future experience. Unanticipated changes in factors such as judicial decisions, legislative actions, claims consciousness, claims management, claims settlement practices and economic conditions make these estimates
subject to a greater than normal degree of uncertainty that could cause the silica-related liabilities and insurance or indemnity recoveries to be greater than those projected and recorded.



Given the inherent uncertainty in making future projections,
the Company plans to have these projections periodically updated based on actual claims experience and other relevant factors such as changes in the judicial system and legislative actions.



It is likely that the Company will continue to have
silica-related product liability claims filed against it including claims that allege silica exposure. The Company has recorded estimated liabilities and recoveries under the current ITT indemnity agreement and an estimate of future recoveries under
insurance policies after evaluating the legal obligations and financial viability of the insurers and believes that such recoveries are probable. Increases in the number of claims filed or costs associated with the silica-related claims will result
in the Company further increasing its liabilities and could have a material adverse effect on the Companys financial position, results of operations and cash flows, if such developments occur.







46



---

Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





|9. |  | Income Taxes
|-- |  | ------------



The benefit for income taxes consisted of the following for each of the three years in the period ended December 31, 2002:





|                                                      |  | 2002           |         |   | 2001 |   |        | 2000 | 
|----------------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------ | ---- | 
|                                                      |  | (In thousands) |        
|                                                     
|Current:                                              |  |                |         |   |      |   |        |      | 
|Federal                                               |  | $              | 3       |   |      | $ | (139   | )    | 
|State                                                 |  |                | 619     |   |      |   | 1,324  |      | 
|Foreign                                               |  |                |        |   |      |   |       |      | 
|                                                      |  |                |         |   |      |   |        |      | 
|                                                      |  |                | 622     |   |      |   | 1,185  |      | 
|Deferred:                                             |  |                |         |   |      |   |        |      | 
|Federal                                               |  |                | (49,463 | ) |      |   | (7,692 | )    | 
|State                                                 |  |                | (14,120 | ) |      |   | (1,792 | )    | 
|Foreign                                               |  |                |        |   |      |   |        |      | 
|                                                      |  |                |         |   |      |   |        |      | 
|                                                      |  |                | (63,583 | ) |      |   | (9,484 | )    | 
|                                                     
|Tax benefit of cumulative effect of accounting change |  |                | 6,115   |   |      |   |       |      | 
|                                                      |  |                |         |   |      |   |        |      | 
|Benefit for income taxes                              |  | $              | (56,846 | ) |      | $ | (8,299 | )    | 
|                                                      |  |                |         |   |      |   |        |      | 



47



---



Under SFAS
No. 109, deferred tax assets and liabilities are recognized for the estimated future tax effects, based on enacted tax laws, of temporary differences between the values of assets and liabilities recorded for financial reporting and for tax purposes
and of net operating loss and other carryforwards. The tax effects of the types of temporary differences and carryforwards that gave rise to deferred tax assets and liabilities at December 31, 2002 and 2001 consisted of the following:





|                                            |  | 2002 |         |   | 2001 |  
|------------------------------------------- |  | ---- | ------- | - | ---- | -
|                                           
|Gross deferred tax liabilities              |  |      |         |   |      |  
|Land and mineral property basis difference  |  | $    | (60,496 | ) |      | $
|Fixed assets and depreciation               |  |      | (25,809 | ) |      |  
|Restricted stock vesting                    |  |      | (573    | ) |      |  
|Debt fee amortization                       |  |      | (98     | ) |      |  
|Other                                       |  |      | (5,035  | ) |      |  
|                                            |  |      |         |   |      |  
|Total deferred tax liabilities              |  |      | (92,011 | ) |      |  
|                                            |  |      |         |   |      |  
|Gross deferred tax assets                   |  |      |         |   |      |  
|                                           
|Third party products liability              |  |      | 11,621  |   |      |  
|Goodwill                                    |  |      | 6,111   |   |      |  
|Royalty                                     |  |      | 540     |   |      |  
|Post retirement benefit costs               |  |      | 7,306   |   |      |  
|Reserves for self-insurance                 |  |      | 988     |   |      |  
|Plant closure liability                     |  |      | 3,153   |   |      |  
|State deferred tax                          |  |      | 3,521   |   |      |  
|Covenants not to compete                    |  |      | 5,883   |   |      |  
|Alternative minimum tax credit carryforward |  |      | 2,953   |   |      |  
|Reserves for vacation                       |  |      | 763     |   |      |  
|Pensions                                    |  |      | 5,160   |   |      |  
|Inventories                                 |  |      | 1,548   |   |      |  
|Net operating loss carryforward             |  |      | 22,652  |   |      |  
|Bad debts                                   |  |      | 693     |   |      |  
|Reclamation                                 |  |      | 1,027   |   |      |  
|Other                                       |  |      | 1,635   |   |      |  
|                                            |  |      |         |   |      |  
|Total deferred tax assets                   |  |      | 75,554  |   |      |  
|                                            |  |      |         |   |      |  
|Less valuation allowance                    |  |      | 7,500   |   |      |  
|                                            |  |      |         |   |      |  
|Net deferred tax liabilities                |  |      | (23,957 | ) |      |  
|Less net current deferred tax assets        |  |      | (5,215  | ) |      |  
|                                            |  |      |         |   |      |  
|Net long-term deferred tax liabilities      |  | $    | (29,172 | ) |      | $
|                                            |  |      |         |   |      |  



At
December 31, 2002 and 2001, the Company had federal net operating loss carryforwards (NOL) of $56.0 million and $37.0 million, respectively, which begin to expire in 2011.



In addition, the Company has an alternative minimum tax credit carryforward at December 31, 2002 and 2001 of
approximately $3 million and $5 million, respectively. The credit carryforward may be carried forward indefinitely to offset any excess of regular tax liability over alternative minimum tax liability subject to certain limitations.



48



---

Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





SFAS No.
109 requires a valuation allowance against deferred tax assets if, based on the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company believes that some uncertainty exists with
respect to the future utilization of net operating loss carry forwards and alternative minimum tax credits; therefore, the Company carries a valuation allowance relating to such items of $7.5 million at December 31, 2002.



The effective income tax rate on pretax earnings before
cumulative effect of change in accounting principle differed from the U.S. federal statutory rate for each of the three years in the period ended December 31, 2002 for the following reasons:





|                                                            |  | 2002  |    |  | 2001  |    |  | 2000  |   
|----------------------------------------------------------- |  | ----- | -- |  | ----- | -- |  | ----- | --
|                                                           
|Provision (benefit) computed at U.S. federal statutory rate |  | (35.0 | %) |  | (35.0 | %) |  | (35.0 | %)
|Increase (decrease) resulting from:                         |  |       |    |  |       |    |  |       |   
|Percentage depletion                                        |  | (2.7  | )  |  | (29.6 | )  |  | (19.4 | ) 
|Prior year tax return reconciliation                        |  | (.3   | )  |  | .5    |    |  | (3.1  | ) 
|State income taxes, net of federal benefit                  |  | (5.9  | )  |  | (2.1  | )  |  | (3.0  | ) 
|Sale of Canadian operation                                  |  |      |    |  |      |    |  | 5.5   |   
|Valuation allowance                                         |  | 5.1   |    |  |      |    |  |      |   
|Other, net                                                  |  | 1.0   |    |  | (1.0  | )  |  | 1.3   |   
|                                                            |  |       |    |  |       |    |  |       |   
|Provision for income taxes                                  |  | (38.7 | %) |  | (67.2 | %) |  | (53.7 | %)
|                                                            |  |       |    |  |       |    |  |       |   



|10. |  | Pension and Postretirement Benefits
|--- |  | -----------------------------------



The Company maintains a number of single-employer noncontributory defined benefit pension plans covering substantially all employees. The
plans provide benefits based on each covered employees years of qualifying service. The Companys funding policy is to contribute amounts within the range of the minimum required and maximum deductible contributions for each plan
consistent with a goal of appropriate minimization of the unfunded projected benefit obligation. The majority of the Companys pension plans use a benefit level per year of service (hourly) with one plan using final average pay method
(salaried). All Company plans use the projected unit credit cost method to determine the actuarial valuation.



In addition, the Company provides defined benefit postretirement healthcare and life insurance benefits to substantially all employees.
Covered employees become eligible for these benefits at retirement after meeting minimum age and service requirements. The projected future cost of providing postretirement benefits, such as healthcare and life insurance, is recognized as an expense
as employees render services.



The Company
contributes to a Voluntary Employees Beneficiary Association trust that will be used to partially fund health care benefits for future retirees. Benefits are funded to the extent contributions are tax deductible, which under current
legislation is limited. In general, retiree health benefits are paid as covered expenses are incurred.



49



---

Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





Net
pension and postretirement cost consisted of the following for each of the three years in the period ended December 31, 2002:





|                                               |  | Pension Benefits |        |   | Postretirement Benefits |  
|---------------------------------------------- |  | ---------------- | ------ | - | ----------------------- | -
|                                               |  | 2002             |        |   | 2001                    |  
|                                               |  | (In thousands)   |       
|                                              
|Service costbenefits earned during the period |  | $                | 1,128  |   |                         | $
|Interest cost                                  |  |                  | 4,449  |   |                         |  
|Expected return on plan assets                 |  |                  | (4,876 | ) |                         |  
|Net amortization and deferral                  |  |                  | 172    |   |                         |  
|                                               |  |                  |        |   |                         |  
|Net pension and postretirement cost            |  | $                | 873    |   |                         | $
|                                               |  |                  |        |   |                         |  



The
changes in benefit obligations and plan assets, as well as the funded status of the Companys pension and postretirement plans at December 31, 2002 and 2001 were as follows:





|                                                                     |  | Pension Benefits |         |   | Postretirement Benefits |  
|-------------------------------------------------------------------- |  | ---------------- | ------- | - | ----------------------- | -
|                                                                     |  | 2002             |         |   | 2001                    |  
|                                                                     |  | (In thousands)   |        
|                                                                    
|Benefit obligation at January 1                                      |  | $                | 60,922  |   |                         | $
|Service cost                                                         |  |                  | 1,128   |   |                         |  
|Interest cost                                                        |  |                  | 4,449   |   |                         |  
|Actuarial (gain)/loss                                                |  |                  | 4,232   |   |                         |  
|Benefits paid                                                        |  |                  | (3,892  | ) |                         |  
|Other                                                                |  |                  | 478     |   |                         |  
|                                                                     |  |                  |         |   |                         |  
|Benefit obligation at December 31                                    |  |                  | 67,317  |   |                         |  
|                                                                     |  |                  |         |   |                         |  
|                                                                    
|Fair value of plan assets at January 1                               |  |                  | 58,824  |   |                         |  
|Actual return on plan assets                                         |  |                  | (3,500  | ) |                         |  
|Employer contributions                                               |  |                  |        |   |                         |  
|Benefits paid                                                        |  |                  | (3,892  | ) |                         |  
|Other                                                                |  |                  |        |   |                         |  
|                                                                     |  |                  |         |   |                         |  
|Fair value of plan assets at December 31                             |  |                  | 51,432  |   |                         |  
|                                                                     |  |                  |         |   |                         |  
|                                                                     |  |                  |         |   |                         |  
|Plan assets in excess (less than) benefit obligations at December 31 |  |                  | (15,885 | ) |                         |  
|Unrecognized net loss (gain)                                         |  |                  | 9,800   |   |                         |  
|Unrecognized prior service cost                                      |  |                  | 1,619   |   |                         |  
|                                                                     |  |                  |         |   |                         |  
|                                                                    
|Net accrued benefit cost recognized as other noncurrent
liabilities  |  | $                | (4,466  | ) |                         | $
|                                                                     |  |                  |         |   |                         |  





An adjustment to recognize an additional minimum pension liability on the Companys consolidated balance sheet of $8.7 million was
recorded at December 31, 2002. The pension liability adjustment has been recorded as a long-term liability offset by an intangible pension asset of $1.9 million and a reduction to stockholders equity and deferred taxes of $4.2 million and $2.6
million, respectively, at December 31, 2002.



50



---

Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





The
following weighted-average assumptions were used to determine the Companys obligations under the plans:





|                                        |  | Pension Benefits |   |  | Postretirement Benefits |  
|--------------------------------------- |  | ---------------- | - |  | ----------------------- | -
|                                        |  | 2002             |   |  | 2001                    |  
|                                       
|Discount rate                           |  | 6.75             | % |  | 7.25                    | %
|Long-term rate of compensation increase |  | 3.50             | % |  | 3.50                    | %
|Long-term rate of return on plan assets |  | 9.00             | % |  | 9.00                    | %
|Health care cost trend rate             |  |                 |   |  |                        |  



The
assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 9.0%, declining by 1% per year to an ultimate rate of 5%.



A one-percentage-point increase in the assumed health care cost trend rates for each year would increase the
accumulated postretirement benefit obligation at December 31, 2002 and net postretirement health care cost (service cost and interest cost) for the year then ended by approximately $1.8 million and $1.4 million, respectively. A one-percentage-point
decrease in the assumed health care cost trend rates for each year would decrease the accumulated postretirement benefit obligation at December 31, 2002 and net postretirement health care cost (service cost and interest cost) for the year then ended
by approximately $1.5 million and $1.2 million, respectively.



Certain hourly employees are covered under a multi-employer defined benefit pension plan. The pension cost recognized for these plans for each of the three years in the period ended December 31, 2002 totaled approximately $878,000,
$735,000, and $606,000, respectively.



The
Company also sponsors a defined contribution plan covering certain employees. The Company contributes to the plan in two ways. For certain employees not covered by the defined benefit plan, the Company makes a contribution equal to 4% of their
salary. The Company also contributes an employee match which can range from 25 to 100 cents, based on financial performance, for each dollar contributed by an employee, up to 8% of their earnings. Contributions for each of the three years in the
period ended December 31, 2002 totaled approximately $862,000, $744,000 and $680,000, respectively. The Company also sponsors a defined contribution thrift plan for hourly employees to which employees may contribute up to 15% of their earnings.
There is no contributing match for the thrift plan.



|11. |  | Related Party Transactions
|--- |  | --------------------------



Pursuant to an agreement between the Company and principals of D. George Harris & Associates, LLC (DGH&A), who are
also stockholders of the Companys ultimate parent, DGH&A provides certain management advisory services to the Company. The Company paid approximately $500,000, $795,000 and $923,000 to DGH&A for each of the three years in the period
ended December 31, 2002, respectively, associated with these management services. The agreement also provides that the Company will pay DGH&A an acquisition fee in the event of a business acquisition by the Company. The management advisory
services and acquisition fees have been charged to selling, general and administrative expense during each of the respective periods noted above.



The agreement also provides that, at DGH&As request, U.S. Silica provide DGH&A with an interest-free loan not to exceed $3.0
million in total or $500,000 in any given year. At December 31, 2002, a loan receivable from DGH&A of $1.4 million is currently outstanding. The loan is guaranteed by certain principals of DGH&A.



51



---

Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





On
occasion, the Company and its ultimate parent make non-interest bearing cash advances to each other. At December 31, 2002 and 2001, the Company had a payable to its parent of approximately $2.3 million and $2.4 million, respectively.



|12. |  | Incentive Stock Compensation
|--- |  | ----------------------------



On April 10, 2000, the Company entered into an employment agreement with an executive to manage its aggregates business segment. In the
second quarter of 2000, a one-time charge of approximately $2.3 million was recorded representing the cost to replace certain benefits forfeited by the executive officer in order to join the Company, of which $998,000 is the cost of non-cash stock
grants in the Companys ultimate parent company, Holdings, and is recorded in selling, general and administrative expense.



|13. |  | Segment Information
|--- |  | -------------------



The Company operates in the industrial minerals and aggregates business segments, principally in the United States, and conducts limited
operations in Canada. Industrial minerals includes the mining, processing and marketing of industrial minerals, principally industrial silica, to a wide variety of end use markets, including foundry, glass, chemicals, fillers and extenders
(primarily used in paints and coatings), building materials, ceramics, and oil and gas. Aggregates includes the mining, processing and marketing of high quality crushed stone, construction sand and gravel. The Companys customers use its
aggregates for road construction and maintenance, other infrastructure projects and residential and commercial construction and to produce hot mixed asphalt and concrete products. The Company also uses its aggregates to produce hot mixed asphalt at
production facilities the Company owns or operates. The industrial minerals and aggregates business segments constitute the reportable segments of the Company.



The Companys management reviews operating segment income to evaluate segment performance and allocate resources. Certain corporate
expenses (income) including unusual items, business development costs and fees paid to DGH&A, interest expense, the accretion of preferred stock warrants, other income (net of interest income) and the provision (benefit) for income taxes are not
included in segment operating income since they are excluded from the measure of segment profitability reviewed by the Companys management. The Companys assets are managed based on segment and accordingly, asset information is reported
for the aggregates and industrial minerals segments. Corporate assets consist primarily of cash and cash equivalents, debt issuance costs and equipment. The accounting policies of the segments are the same as those described in the Summary of
Significant Accounting Policies.



On October 1,
2002, as part of a change in management reporting responsibilities, certain New Jersey operating assets of the Companys aggregates business unit were transferred to the Companys industrial minerals business unit. Net sales from the
transferred assets are made both directly to customers and to the Companys aggregates subsidiary. Intersegment sales are recorded at amounts which approximate sales to third party distributors. Prior year segment reporting has been restated to
include the transferred assets as a part of the Companys industrial minerals business unit.



52



---

Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





Reportable segment information for each of the three years in the period ended December 31, 2002 was as follows:





|                                                       |  | 2002           |          |   | 2001 |   |         | 2000 | 
|------------------------------------------------------ |  | -------------- | -------- | - | ---- | - | ------- | ---- | 
|                                                       |  | (In thousands) |         
|                                                      
|Sales:                                                 |  |                |          |   |      |   |         |      | 
|Aggregates                                             |  | $              | 118,645  |   |      | $ | 120,833 |      | 
|Industrial Minerals                                    |  |                | 184,747  |   |      |   | 189,747 |      | 
|Eliminations                                           |  |                | (2,897   | ) |      |   | (2,633  | )    | 
|                                                       |  |                |          |   |      |   |         |      | 
|Total sales                                            |  | $              | 300,495  |   |      | $ | 307,947 |      | 
|                                                       |  |                |          |   |      |   |         |      | 
|                                                      
|Operating segment income (loss):                       |  |                |          |   |      |   |         |      | 
|Aggregates                                             |  | $              | (107,017 | ) |      | $ | 5,607   |      | 
|Industrial Minerals                                    |  |                | (8,790   | ) |      |   | 17,677  |      | 
|                                                       |  |                |          |   |      |   |         |      | 
|Total operating segment income (loss)                  |  |                | (115,807 | ) |      |   | 23,284  |      | 
|                                                      
|General corporate expense                              |  |                | (603     | ) |      |   | (1,105  | )    | 
|                                                       |  |                |          |   |      |   |         |      | 
|Total operating income (loss)                          |  | $              | (116,410 | ) |      | $ | 22,179  |      | 
|                                                       |  |                |          |   |      |   |         |      | 
|                                                      
|Depreciation, depletion and amortization expense:      |  |                |          |   |      |   |         |      | 
|Aggregates                                             |  | $              | 14,096   |   |      | $ | 15,551  |      | 
|Industrial Minerals                                    |  |                | 15,744   |   |      |   | 17,001  |      | 
|Corporate                                              |  |                | 173      |   |      |   | 118     |      | 
|                                                       |  |                |          |   |      |   |         |      | 
|Total depreciation, depletion and amortization expense |  | $              | 30,013   |   |      | $ | 32,670  |      | 
|                                                       |  |                |          |   |      |   |         |      | 
|Capital expenditures:                                  |  |                |          |   |      |   |         |      | 
|Aggregates                                             |  | $              | 10,746   |   |      | $ | 2,742   |      | 
|Industrial Minerals                                    |  |                | 3,257    |   |      |   | 10,996  |      | 
|Corporate                                              |  |                |         |   |      |   |        |      | 
|                                                       |  |                |          |   |      |   |         |      | 
|Total capital expenditures                             |  | $              | 14,003   |   |      | $ | 13,738  |      | 
|                                                       |  |                |          |   |      |   |         |      | 



Reportable segment information at December 31, 2002, 2001 and 2000 was as follows:





|                                        |  | 2002           |         |   | 2001 |   |         | 2000 | 
|--------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | ---- | 
|                                        |  | (In thousands) |        
|                                       
|Assets:                                 |  |                |         |   |      |   |         |      | 
|Aggregates                              |  | $              | 209,716 |   |      | $ | 330,134 |      | 
|Industrial Minerals                     |  |                | 237,176 |   |      |   | 195,686 |      | 
|Corporate                               |  |                | 15,807  |   |      |   | 21,823  |      | 
|Elimination of intersegment receivables |  |                | (36,825 | ) |      |   | (31,999 | )    | 
|                                        |  |                |         |   |      |   |         |      | 
|Total assets                            |  | $              | 425,874 |   |      | $ | 515,644 |      | 
|                                        |  |                |         |   |      |   |         |      | 



|14. |  | Guarantor Financial Data
|--- |  | ------------------------



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 independent 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



53



---

Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





minor
subsidiary) 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.



|15. |  | Obligations Under Guarantees
|--- |  | ----------------------------



The Company has indemnified St. Paul Fire and Marine Insurance Company (St. Paul) against any loss St. Paul may incur in the event that
holders of surety bonds, issued on behalf of the Company by St. Paul, execute the bonds. As of December 31, 2002 St. Paul had $12.7 million in bonds outstanding for the Company. The majority of these bonds ($8.2 million) relate to reclamation
requirements issued by various governmental authorities. Reclamation bonds remain outstanding until the mining area is reclaimed and the authority issues a formal release. Another large group ($3.7 million) arise from the bidding process with local
governments who require supply or performance bonds. These typically expire one year from the date the bid is issued. The remaining bonds relate to such indefinite purposes as licenses, permits, and tax collection.



U.S. Silica has indemnified Safeco Insurance Company of
America (Safeco) against any loss Safeco may incur in the event that holders of surety bonds, issued on behalf of U.S. Silica by Safeco, execute the bonds. As of December 31, 2002 Safeco had $555,000 in bonds outstanding for U.S. Silica. These are
all reclamation bonds.



U.S. Silica is the
contingent guarantor of Winifrede Railroad Companys (Winifrede) obligations as lessee of 200 covered hopper railroad cars which are used by U.S. Silica to ship sand to its customers. Winifredes performance is also guaranteed by its
parent, Carbon Industries, Inc. (Carbon), a subsidiary of ITT; and U.S. Silicas liability under the guaranty does not arise unless Winifrede or Carbon fail to cure any default within five business days after notice of default has been given to
Carbon and U.S. Silica. Winifredes obligation as lessee includes paying monthly rent of $53,000 until May 1, 2005, maintaining the cars, paying for any cars damaged or destroyed, and indemnifying all other parties to the lease transaction
against liabilities including any loss of certain tax benefits. By separate agreement between U.S. Silica and Winifrede, Winifrede may, upon the occurrence of certain events, assign the lease obligations to U.S. Silica, but none of these events have
occurred.



|16. |  | Asset Impairment
|--- |  | ----------------



In accordance with SFAS 144, the Company recorded a $107.9 million non-cash charge for the impairment of mining properties in the
aggregates segment as of December 31, 2002. The Company conducted an impairment review of the properties in the aggregates business, which resulted in the determination that the segments undiscounted future cash flows could no longer support
its carrying value. The loss on impairment represented the difference between the segments estimated fair value, as determined using the expected present value of cash flows, and its previous carrying amount.



|17. |  | Subsequent Event
|--- |  | ----------------



On April 10, 2003, the Company entered into an agreement to sell its aggregates segment to a subsidiary of Hanson Building Materials of
America, Inc. The consideration consists of $152 million in cash and the assumption of $3 million in capital lease obligations. Pursuant to the agreement, the Company would owe Hanson $2 million plus interest (beginning after the third year) on the
fifth anniversary of the closing if certain post-closing permit and rezoning objectives specified in the agreement are not achieved during this period. The agreement also contains customary representations, warranties and indemnities. Closing on the
sale is subject to customary closing conditions, including antitrust clearance under the Hart-Scott-Rodino



54



---

Better Minerals & Aggregates Company

Notes to Consolidated Financial Statements

---





Antitrust
Improvements Act of 1976, as amended, and completion of environmental and geological due diligence at the Companys operating sites and real estate surveys at certain of the Companys operating sites. The Company will also need to secure
the consent of its senior secured lenders in order to release any liens on the assets being sold.



The assets and liabilities of the aggregates operations, after recording an asset impairment charge in 2002 (see footnote 16), included in
the consolidated balance sheet are as follows:





|                                   |  | December 31,
|---------------------------------- |  | ------------
|                                   |  | 2002        
|                                   |  | In millions 
|                                  
|Assets                             |  |             
|Current assets                     |  | $           
|Property, plant and equipment, net |  |             
|Other noncurrent assets            |  |             
|                                   |  |             
|Total assets                       |  | $           
|                                  
|Liabilities                        |  |             
|Current liabilities                |  | $           
|Other liabilities                  |  |             
|                                   |  |             
|Total liabilities                  |  | $           
|                                  
|Net book value                     |  | $           





55



---

SIGNATURES



Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 21st day of April, 2003.



BETTER MINERALS & AGGREGATES COMPANYBy:

/S/    GARY E. BOCKRATHName:

Gary E. BockrathTitle:

Vice President and Chief Financial Officer




POWER OF ATTORNEY



Know
all persons by these presents, that each person whose signature appears below appoints Gary E. Bockrath and John A. Ulizio, jointly and severally, as his or her true and lawful attorney-in-fact, each with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, jointly and severally, full power and authority to do and perform each in connection therewith, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said attorneys-in-fact, jointly and severally, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.



Dated: April 17, 2003



Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:



|SIGNATURE                               |  | TITLE                                                                                                     |  | DATE          
|--------------------------------------- |  | --------------------------------------------------------------------------------------------------------- |  | --------------
|                                       
|/S/    ROY D. REEVES                    |  | President and Chief Executive Officer (Principal Executive Officer); Director                             |  | April 17, 2003
|Roy D. Reeves                           |  |                                                                                                           |  |               
|                                       
|/S/    GARY E.
BOCKRATHGary E. Bockrath |  | Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting
Officer) |  | April 17, 2003
|                                       
|/S/    D. GEORGE
HARRIS                 |  | Director                                                                                                  |  | April 17, 2003
|D. George Harris                        |  |                                                                                                           |  |               
|                                       
|/S/    ANTHONY J.
PETROCELLI            |  | Director                                                                                                  |  | April 17, 2003
|Anthony J. Petrocelli                   |  |                                                                                                           |  |               
|                                       
|/S/    RICHARD J.
DONAHUE               |  | Director                                                                                                  |  | April 17, 2003
|Richard J. Donahue                      |  |                                                                                                           |  |               
|                                       
|/S/    ARNOLD L.
CHAVKIN                |  | Director                                                                                                  |  | April 17, 2003
|Arnold L. Chavkin                       |  |                                                                                                           |  |               
|                                       
|/S/    RUTH
DREESSEN                    |  | Director                                                                                                  |  | April 17, 2003
|Ruth Dreessen                           |  |                                                                                                           |  |               
|                                       
|/S/    TIMOTHY J.
WALSH                 |  | Director                                                                                                  |  | April 17, 2003
|Timothy J. Walsh                        |  |                                                                                                           |  |               
|                                       
|/S/    RICHARD E.
GOODELL               |  | Director                                                                                                  |  | April 17, 2003
|Richard E. Goodell                      |  |                                                                                                           |  |               



71



---

CERTIFICATION



I, Roy
D. Reeves, certify that:



1.    I have reviewed this annual report on Form 10-K/A of Better Minerals & Aggregates Company;



2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;



3.    Based on my knowledge, the financial
statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual
report;



4.    The
registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report
(the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



5.    The
registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



6.    The
registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



Date: April 21, 2003



By:

/S/    ROY D.
REEVESName:

Roy D. ReevesTitle:

President and Chief Executive Officer




72



---

CERTIFICATION



I, Gary E. Bockrath, certify that:



1.    I have reviewed this annual report on Form 10-K/A of Better Minerals &
Aggregates Company;



2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this annual report;



3.    Based on my knowledge, the financial statements, and other financial information included in this annual report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4.    The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report
(the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



5.    The
registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



6.    The
registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



Date: April 21, 2003



By:

/S/    GARY E. BOCKRATHName:

Gary E. BockrathTitle:

Vice President and Chief Financial Officer




73