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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

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, and (2) has been subject to such filing requirements for the past 90 days.

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

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OGLEBAY NORTON COMPANY AND SUBSIDIARIES
INDEX

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Part I.  Item 1.  FINANCIAL INFORMATION
OGLEBAY NORTON COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)

(UNAUDITED)

See notes to condensed consolidated financial statements.

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OGLEBAY NORTON COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except per share amounts)

ASSETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

See notes to condensed consolidated financial statements.

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OGLEBAY NORTON COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)

(UNAUDITED)

See notes to condensed consolidated financial statements.

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OGLEBAY NORTON COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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OGLEBAY NORTON COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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OGLEBAY NORTON COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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OGLEBAY NORTON COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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OGLEBAY NORTON COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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OGLEBAY NORTON COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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OGLEBAY NORTON COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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OGLEBAY NORTON COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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OGLEBAY NORTON COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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     Management’s Discussion and Analysis of Financial Condition and Results of Operations contain statements concerning certain trends and other forward-looking information within the meaning of the federal securities laws. Such forward-looking statements are subject to uncertainties and factors relating to the Company’s operations and business environment, all of which are difficult to predict and many of which are beyond the control of the Company. The Company believes that the following factors, among others, could affect its future performance and cause actual results to differ materially from those expressed or implied by forward-looking statements made by or on behalf of the Company: (1) weather conditions, particularly in the Great Lakes region, flooding, and/or water levels; (2) fluctuations in energy, fuel and oil prices; (3) fluctuations in integrated steel production in the Great Lakes region; (4) fluctuations in Great Lakes and Mid-Atlantic construction activity; (5) a change in economic conditions or population growth rates in southern California; (6) the outcome of periodic negotiations of labor agreements; (7) the loss, insolvency or bankruptcy of major customers, insurers or debtors; (8) changes in environmental laws and (9) an increase in the number and cost of asbestos and silica product liability claims filed against the Company and its subsidiaries and determinations by a court or jury against the Company’s interest.  Some of the Company’s customers and other debtors have filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Management does not expect the aggregate effect of these reorganizations to have a material impact on the Company’s financial condition.

     Management’s discussion and analysis of its financial condition and results of operation are based upon the Company’s Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent liabilities. On a continual basis, the Company evaluates its estimates, including those related to accounts receivable reserves, inventories, intangible assets, impairment and useful lives of long-lived assets, pensions and other postretirement benefits, asset retirement obligations and commitments and contingencies.  The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.

     Due to the seasonal nature of certain aspects of the Company’s business, the operating results and cash flows for the first three months of the year are not necessarily indicative of the results to be expected for the full year.

     The Company utilizes certain tax preference deductions afforded by law to mining companies.  Although the amount of these deductions is materially consistent from year to year, these permanent book/tax differences can cause significant fluctuations in the Company’s effective tax rate based upon the level of pre-tax book income or loss.

     On April 30, 2003, John N. Lauer resigned from the Company’s Board of Directors.  Until that time, he served as the Chairman of the Board of Directors.

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FINANCIAL CONDITION

Acquisition

     In early January 2003, the Company acquired all of the outstanding common shares and other ownership interests in a group of companies together known as Erie Sand and Gravel Company (Erie Sand and Gravel) for $6,831,000 in cash and $4,069,000 in assumed debt, which was refinanced at closing.  The purchase price in excess of net assets (i.e., goodwill) amounted to $3,995,000.  Erie Sand and Gravel operates a dock, bulk products terminal, Great Lakes self un-loading vessel, ready-mix concrete mixing facility and trucking company that distributes construction sand and aggregates in the northwest Pennsylvania/ western New York region.  The acquisition of Erie Sand and Gravel is another strategic step in further driving the Company’s Great Lakes strategy and strengthens the Company’s leadership position on the Great Lakes. The net assets and results of operations of Erie Sand and Gravel are included within the Company’s Great Lakes Minerals segment.

     The Erie Sand and Gravel acquisition was accounted for under the purchase method of accounting.  The purchase price has been allocated based on estimated fair values at the date of acquisition.  The Company expects to finalize its estimation of the fair value of the assets acquired within the twelve month allocation period.  Since the acquisition took place at the beginning of 2003, pro forma effects were not material to reported net loss and net loss per share, assuming dilution.

Liquidity and Capital Resources

     Due to the seasonal nature of many of the Company’s operations, the Company is customarily a net borrower during the first quarter.  Availability under the Company’s Senior Credit facility is used to fund working capital requirements, winter work for the Great Lakes Minerals segment and replacement capital expenditures during this period, while the operations of the Great Lakes Minerals segment are substantially dormant and many of the Global Stone segment’s operations are operating at a reduced capacity.  Borrowings normally tend to peak during the middle of the second quarter; with pay-downs beginning in the middle of the third quarter.

     The Company’s operating activities used cash of $15,057,000 in the first three months of 2003 compared with $15,658,000 in the first three months of 2002.  The decreased use of cash between the two quarters is primarily the result of increased cash generation from collections on accounts receivable, partially offset by increased winter maintenance and vessel costs, increased cash payments on accounts payable and an increase in the net loss for the quarter.

     Capital expenditures were $6,335,000 for the first three months of 2003 compared with $5,851,000 for the same period in 2002.  Expenditures for replacement of existing equipment totaled approximately $4,427,000.  Expansion projects received funding of $1,056,000, with the balance of $852,000 allocated to the quarries.  Capital expenditures during the first three months of 2003 increased $484,000, or 8%, as compared to the same time period in 2002 as a result of scheduled five-year inspections on three of the Company’s vessels.  There were no vessel inspections in 2002.  Without these inspections, first quarter 2003 capital expenditures would have decreased approximately $1,000,000.  Full-year capital expenditures for 2003 are expected to approximate $20,000,000, which is consistent with 2002.

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FINANCIAL CONDITION (CONTINUED)

     In the first three months of 2003, the Company’s additional borrowings exceeded debt repayments by $27,516,000 compared with the first three months of 2002 in which additional borrowings exceeded debt repayments by $19,230,000. Additional borrowings exceeded debt repayments in both years primarily because of the seasonal nature of many of the Company’s businesses discussed above.  The increase in net borrowings in 2003 as compared with 2002 was attributable to the Erie Sand and Gravel acquisition and higher capital expenditures as discussed above.  The Company anticipates being a net borrower for the year.

     Under the provisions of the Company’s Syndicated Term Loan, Senior Credit Facility and Vessel Term Loan agreements (the Agreements), the Company is required to comply with various financial-based covenants.  In anticipation of violating covenants during the first quarter of 2003, the Company obtained a waiver from its syndicated banking group through June 15, 2003.  Without the waiver, the Company would have been in violation of covenants requiring the Company to maintain a minimum level of earnings before interest, taxes, depreciation and amortization (EBITDA) and a maximum level of total debt and senior debt to EBITDA at their March 31, 2003 measurement dates.  The Company is in compliance with its remaining covenants, the most restrictive of which includes a minimum cash flow coverage ratio and a minimum interest coverage ratio.  The waiver includes an increase in the margin over LIBOR paid the syndicated banking group from 4.0% to 4.5% through August 15, 2003 and gives the Company access to $4,000,000 of committed but previously restricted funds.

     Under the current Agreements, the Company does not anticipate satisfying covenants in the second quarter of 2003 after the waiver expires; accordingly, the Company reclassified the $118,000,000, $114,785,000 and $15,026,000 outstanding on its Syndicated Term Loan, Senior Credit Facility and Vessel Term Loan, respectively, to current liabilities on the Condensed Consolidated Balance Sheet.  The Company will work to amend the Agreements to modify the covenants to levels that are attainable under current economic conditions.  The maturity of the Syndicated Term Loan and Senior Credit Facility is October 31, 2004, while the Vessel Term Loan carries semi-annual principal payments (ranging from $787,000 to $1,055,000) through January 15, 2007 and a final principal payment of $7,650,000 due on July 15, 2007.

     At March 31, 2003, the Company has $19,541,000 (including $4,000,000 unrestricted by the recent waiver as discussed above) available for use on its Senior Credit Facility.  The related interest rate at March 31, 2003 approximates 5.44%.

     Although management believes that the Company’s liquidity is sufficient to meet its immediate needs, we continue to be concerned about our liquidity, particularly for the next 15 months.  Accordingly, the Company is working with outside experts and advisors to improve cash flows by reducing inventories and actively managing the Company’s accounts receivable and accounts payable cycles.  Furthermore, the Company is targeting opportunities to reduce costs by a goal of at least $5,000,000 by the end of 2003.  In order to accomplish this goal, several projects are being implemented, including, but not limited to, a review of current staffing needs, a hiring freeze and cost savings from the back-office consolidation of its pooled fleet operations.

     The Company did not declare a dividend in the first three months of 2003 or 2002.  The Company’s 2001 amendments to its financial covenants on its Syndicated Term Loan and Senior Credit Facility prohibit the payment of cash dividends.

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FINANCIAL CONDITION (CONTINUED)

     Several of the Company’s subsidiaries have been and continue to be named as defendants in an increasing number of cases relating to the exposure of people to asbestos and silica. The plaintiffs in the cases generally seek compensatory and punitive damages of unspecified sums based upon common law or statutory product liability claims. Some of these cases have been brought by plaintiffs against the Company (or its subsidiaries) and other marine services companies or product manufacturer co-defendants. Considering our past and present operations relating to the use of asbestos and silica, it is possible that additional claims may be made against the Company and its subsidiaries based upon similar or different legal theories seeking similar or different types of damages and relief.

     The Company believes that both the asbestos and silica product liability claims are covered by multiple layers of insurance from multiple providers. In the fourth quarter of 2002, the Company agreed with its insurers to  fund settlement and defense costs arising out of asbestos litigation, effective April 1, 2003, to the extent an insurer is insolvent.  During the first quarter of 2003, the Company received the remaining funds on certain insurance policies covering certain of such liabilities, which the Company will use to fund its share of settlements in 2003.  Management believes its share of such 2003 liabilities will not exceed the amount of insurance proceeds it received; however, the Company continues to maintain a reserve for such liabilities based upon historic settlement levels.  With respect to silica claims, the Company has been and will continue to be responsible for funding a small percentage of all settlements and defense costs.  Management believes that its share of settlements on an annual basis is not significant to the operations or cash flows of the Company, although the Company continues to maintain a reserve to address this contingency.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO
THREE MONTHS ENDED MARCH 31, 2002

     The Company’s net sales and operating revenues of $62,884,000 in the first quarter of 2003 were 1% higher than net sales and operating revenues of $62,355,000 for the same quarter in 2002. The Company reported an operating loss of $2,208,000 for the first quarter of 2003 compared with operating income of $1,541,000 for the same period in 2002.  Net loss for the first quarter of 2003 was $11,050,000 ($2.17 per share, assuming dilution) compared with $5,473,000 ($1.09 per share, assuming dilution) for the same period in 2002. The increase in net sales and operating revenues for the quarter was primarily attributable to the acquisition of Erie Sand and Gravel, which contributed $983,000 to first quarter 2003 operating revenues; the return of iron ore pellet shuttle business to the Company’s Great Lakes Minerals segment, which was absent in the first quarter of 2002; and increased demand from the lime and roofing fillers markets, benefiting the Company’s Global Stone segment.  Additionally, severe winter weather in the Midwest increased demand from electric utilities for flue gas desulfurization products provided by the Global Stone segment’s Portage, Indiana facility.  These increases to the quarter’s net sales and operating revenues were partially offset by continued softness in industry demand for sands used in oil well fracturing and building materials and fillers used in carpet and flooring manufacturing, negatively impacting the Company’s Performance Minerals and Global Stone segments, respectively.  Additionally, heavy rains in the Mid-Atlantic and Southeast late in the first quarter of 2003 slowed the start of the lawn and garden season.

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RESULTS OF OPERATIONS (CONTINUED)

     Though the Company continues to benefit from its restructuring activities of 2001, pooling agreement with American Steamship Company and overall Great Lakes strategy, operating income in the first quarter of 2003 was $3,749,000 lower than operating income in the first quarter of 2002, primarily because of severe weather conditions during late February and into March 2003.  Heavy snow in the Great Lakes region coupled with heavy rains in the Mid-Atlantic and Southeast (which led to flooding at the Company’s Luttrell, Tennessee and around the Buchanan, Virginia operating locations) resulted in increased energy consumption, higher fuel and energy prices, lost work days, production inefficiencies and increased purchases of inventory from third-parties.  These factors, coupled with increasing costs to fund retirement benefits, had a negative impact on segment margins for the quarter and contributed to the widening loss as compared to the first quarter of 2002.   The Company believes that the majority of the costs and inefficiencies associated with this severe weather are behind it and intends to focus on improving operating margins going forward.

     The $5,577,000 increase in net loss in the first quarter of 2003 as compared with the first quarter of 2002 was the result of decreased operating income as discussed above, increased interest expense, a non-cash charge of $1,391,000 (net of tax benefit of $889,000) related to the adoption of Statement of Financial Accounting Standards (SFAS) No. 143, “Accounting for Asset Retirement Obligations,” and a first quarter charge of $888,000 (net of tax benefit of $567,000) to establish a reserve for a non-trade debtor of the Company who filed for Chapter 11 bankruptcy protection.

     The Company utilizes certain tax preference deductions afforded by law to mining companies.  Although the amount of these deductions is materially consistent from year to year, these permanent book/tax differences can cause significant fluctuations in the Company’s effective tax rate based upon the level of pre-tax book income or loss.

     Operating results of the Company’s business segments for the three months ended March 31, 2003 and 2002 are discussed below.

Great Lakes Minerals

     Net sales and operating revenues for the Company’s Great Lakes Minerals segment increased $1,860,000, or 79%, to $4,203,000 for the first quarter of 2003 from $2,343,000 for the first quarter of 2002. The increase in net sales and operating revenues was primarily the result of the Erie Sand and Gravel acquisition, which contributed $983,000 to first quarter 2003 operating revenues, and the return of iron ore pellet shuttle business to the segment, which was absent in the first quarter of 2002.  First quarter net sales and operating revenues for the Great Lakes Minerals segment historically are not material to the total year because of curtailed winter operations.  For example, in 2002, first quarter revenues represented less than 2% of the segment's total year results.

     Cost of goods sold and operating expenses for the Great Lakes Minerals segment were $4,006,000 for the three months ended March 31, 2003 compared with $2,134,000 for the same period in 2002, an increase of 88%.  As with net sales and operating revenues, first quarter cost of goods sold and operating expenses are historically not material to the total year.  Cost of goods sold and operating expenses as a percentage of net sales and operating revenues were 95% in the first quarter of 2003 and 91% in the same quarter of 2002. The increase in cost of goods sold and operating expenses as a percentage of net sales and operating revenues primarily resulted from the acquisition of Erie Sand and Gravel, whose operations are significantly impeded by the weather during the first quarter.

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RESULTS OF OPERATIONS (CONTINUED)

Great Lakes Minerals (Continued)

     Operating loss for the first quarter of 2003 was $2,063,000 as compared with an operating loss of $1,653,000 for the first quarter of 2002. The $410,000 increase in operating loss was primarily due to the seasonal nature of Erie Sand and Gravel.

Global Stone

     Net sales for the Company’s Global Stone segment increased $1,198,000, or 3%, to $40,307,000 for the three months ended March 31, 2003 from $39,109,000 in the same period of 2002.  The segment is benefiting from increased industry demand for roofing fillers and lime, while there has been continued softness in demand from the carpet and flooring markets for fillers.  Severe winter weather in the Midwest benefited the segment’s Portage, Indiana facility, which provides flue gas desulfurization products to electric utility companies.  However, heavy rains late in the quarter in the Mid-Atlantic and Southeast slowed the start of the lawn and garden season.

     Cost of goods sold for the Global Stone segment totaled $31,962,000 in the three months ended March 31, 2003 compared with $29,896,000 in the three months ended March 31, 2002, an increase of 7%. Cost of goods sold as a percentage of net sales was 79% and 76% in the first quarter of 2003 and 2002, respectively.  The increase in cost of goods sold as a percentage of net sales between the quarters was primarily due to severe weather conditions during late February and into March 2003.  Severe cold early in the quarter coupled with heavy rains in the Mid-Atlantic and Southeast late in the quarter (which led to flooding at the Company’s Luttrell, Tennessee and around the Buchanan, Virginia operating locations) resulted in increased energy consumption, higher fuel and energy prices, lost work days, increased production inefficiencies and increased purchases of inventory from third-parties.  These factors all contributed to a reduction in operating margins.

     The segment contributed $2,814,000 to operating income for the three months ended March 31, 2003 compared with $3,492,000 in the same period of 2002. The $678,000 decrease in operating income in the first quarter of 2003 was primarily attributable to the increase in cost of goods sold as a percentage of net sales discussed above and an increase in the amortization of capitalized stripping at the Company’s Luttrell, Tennessee operating location.

Performance Minerals

     Net sales for the Company’s Performance Minerals segment were $18,374,000 for the first quarter of 2003, down 12% from $20,903,000 for the same quarter of 2002. The decrease in net sales was primarily attributable to decreased industry demand for sands used in oil well fracturing and building materials.  Additionally, net sales for the first three months of 2002 included $551,000 in sales related to three operating locations closed as part of the Company’s 2001 restructuring activities.  There were no such sales in 2003.

     Cost of goods sold for the Performance Minerals segment was $13,685,000 for the first quarter of 2003, which was 11% lower than the $15,376,000 in the same quarter of 2002.  The $1,691,000 decrease in cost of goods sold was due to the decrease in net sales discussed above.  Cost of goods sold as a percentage of net sales was 74% for the first quarter of 2003 and 2002. 

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RESULTS OF OPERATIONS (CONTINUED)

Performance Minerals (Continued)

     Operating income for the Performance Minerals segment was $1,603,000 for the first quarter of 2003 compared with $2,649,000 for the same period of 2002. The operating income decrease of $1,046,000 was primarily related to the decrease in net sales discussed above.

Depreciation, Depletion, Amortization and Accretion

     Depreciation, depletion, amortization and accretion expense was $5,473,000 for the three months ended March 31, 2003 compared with $4,717,000 for the same period of 2002.  Depreciation, depletion and amortization was 9% and 8% of total net sales and operating revenues in 2003 and 2002, respectively. The percentage of depreciation, depletion, amortization and accretion expense to net sales and operating revenues increased between the two quarters because of depreciation on recent capital expenditures, increased amortization of capitalized stripping costs at the Company’s Luttrell, Tennessee location and the addition of $150,000 in accretion and depreciation expense as the result of adopting SFAS No. 143.

General, Administrative and Selling Expenses

     Total general, administrative and selling expenses were $10,075,000 for the first quarter of 2003 compared with $8,791,000 for 2002. The percentage of general, administrative and selling expenses to total net sales and operating revenues was 16% in the first quarter of 2003 and 14% in the first quarter of 2002.  Although the Company continues to benefit at the operating level from the closure of two subsidiary offices during the 2001 restructuring, general, administrative and selling expenses increased between the two quarters, primarily as a result of continued increases in the cost to fund retirement benefits.  Additionally, throughout 2002, the Company centralized certain operations and added management expertise which increased compensation expense in the first quarter 2003 versus the first quarter of 2002. Management expects to continue to benefit from its restructuring activities, while at the same time the cost of retirement benefits is expected to continue to rise throughout 2003.

Other

     Interest expense increased $3,209,000 to $13,281,000 in the first quarter of 2003 compared with $10,072,000 for the same period of 2002.  The primary factors contributing to this increase are a higher weighted-average cost of debt and higher levels of debt.  The weighted-average cost of debt increased because of the higher fixed rate of interest associated with the Company’s Senior Secured Notes executed in conjunction with the Company’s refinancing activities in the fourth quarter of 2002.  Interest expense on bank debt was $9,593,000 and $6,957,000 in the first quarter of 2003 and 2002, respectively.  The Company is benefiting from lower interest rates on its variable rate debt, however, these benefits are limited because the Company hedges its exposure to interest rate fluctuations on a majority of its Senior Credit Facility and Syndicated Term Loan debt, 95% and 76% at March 31, 2003 and 2002, respectively.  Interest expense on hedges was $2,662,000 in the first quarter of 2003 compared with $2,317,000 in the first quarter of 2002.  Amortization of fees associated with the Company’s 2001 and 2002 bank amendments increased to $965,000 in 2003 from $737,000 in 2002.  The remainder of interest expense was related to capital leases and notes payable.

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RESULTS OF OPERATIONS (CONTINUED)

Other (Continued)

     On May 1, 2003, Eveleth Mines LLC (d.b.a. EVTAC Mining) filed for protection under Chapter 11 of the U.S. Bankruptcy Code.  EVTAC Mining is a non-trade debtor to the Company for obligations arising out of a prior relationship.  The Company recognized an after-tax charge of $888,000 (or $0.17 per share, assuming dilution) in the first quarter of 2003 to establish a reserve for this matter.  The charge was included in Other Expense on the Condensed Consolidated Statement of Operations.  Because the bankruptcy filing occurred after the Company released its operating results for the first quarter of 2003 on April 30, 2003, this charge was not included in that preliminary earnings release.

Cumulative Effect of Accounting Change for Asset Retirement Obligations

     The Company adopted SFAS No. 143 at January 1, 2003.  SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred and capitalized as part of the carrying amount of the long-lived asset. Over time, the liability is recorded at its present value each period through accretion expense, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, a company either settles the obligation for its recorded amount or recognizes a gain or loss. 

     The Company is legally required by various state and local regulations and/or contractual agreements to reclaim land disturbed by its quarrying activities and to remove buildings, land improvements and fixed equipment from certain properties.  Upon adoption of SFAS No. 143 at January 1, 2003, the Company recorded asset retirement obligations totaling $5,854,000, increased net property and equipment by $3,574,000 and recognized a non-cash cumulative effect charge of $1,391,000 (net of a deferred tax benefit of $889,000).  Asset retirement obligations are included in Other Long-Term Liabilities on the Condensed Consolidated Balance Sheet.

     Asset retirement obligations were estimated for each of the Company’s operating locations, where applicable, based on the Company’s current and historical experience, adjusted for factors that an outside third-party would consider, such as inflation, overhead and profit.  Estimated obligations were escalated to the expected closure dates of the operating locations using an assumed inflation rate and then were discounted using a credit-adjusted risk-free interest rate.  The expected closure date of each location represents the estimated exhaustion date of remaining mineral reserves or, for leased locations, the lesser of the mineral reserve exhaustion date or lease termination date.  Because the Company’s mineral reserves and lease agreements have expected lives many years into the future, an appropriate market risk premium was unable to be estimated and considered when escalating the estimated obligations.

     The accretion of the asset retirement obligations and depreciation of the capitalized costs, which are included in Depreciation, Depletion, Amortization and Accretion on the Condensed Consolidated Statement of Operations, are being recognized over the estimated useful lives of the operating locations (i.e., to their expected closure dates).  A movement of the Company’s asset retirement obligations during the three month period ended March 31, 2003 follows (in thousands):

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RESULTS OF OPERATIONS (CONTINUED)

Cumulative Effect of Accounting Change for Asset Retirement Obligations (Continued)