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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION

REPORTS PURSUANT TO SECTIONS 13 OR 15(d)

OF THE SECURITIES ACT OF 1934

(Mark One)

For the fiscal year ended December 31, 2003

OR

For the transition period from                  to                 

Commission file number 333-32518

BETTER MINERALS & AGGREGATES COMPANY

(Exact name of registrant as specified in its charter)

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 x No ¨

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

TABLE OF CONTENTS

Forward-Looking Information

This Annual Report on Form 10-K contains statements that constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. We have based these forward-looking statements on our current expectations and projections about future events. Although we believe that our plans, intentions and expectations reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that our plans, intentions or expectations will be achieved. We caution investors that all forward-looking statements involve risks and uncertainties, including those arising out of economic, climatic, political, regulatory, competitive and other factors. The forward-looking statements in this document are intended to be subject to the safe harbor protection provided by Section 21E. Important factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements we make in this Annual Report on Form 10-K are set forth in this Annual Report on Form 10-K. We believe that the following factors, among others, could affect our future performance and cause actual results to differ materially from those expressed or implied by forward-looking statements made in this Annual Report on Form 10-K:

Except for our obligations under the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, our future performance may differ materially from that expressed or implied by the forward-looking statements discussed in this Annual Report on Form 10-K.

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Industry Data

Information contained in this Annual Report on Form 10-K concerning the industrial minerals industry, our general expectations concerning that industry and our market position and market share and the end use markets we serve are based on estimates prepared by us using data from various sources (primarily the U. S. Geological Survey, including its web site at www.usgs.gov, the Committee on Environment and Public Works of the United States Senate and data from our internal research) and on assumptions made by us, based on that data and our knowledge of the industry, which we believe to be reasonable. We believe data regarding the industrial minerals industry and our market position and market share within the end use markets we serve are inherently imprecise, but are generally indicative of their size and our market position and market share within those end use markets. While we are not aware of any misstatements regarding any industry data presented in this Annual Report on Form 10-K, our estimates, particularly as they relate to our general expectations concerning the industrial minerals industry, involve risks and uncertainties and are subject to change based on various factors, including those discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Significant Factors Affecting Our Business” and elsewhere in this Annual Report on Form 10-K. The information contained in, or linked to, the web sites referenced in this paragraph does not constitute part of this Annual Report on Form 10-K.

Measurements

When used in this Annual Report on Form 10-K:

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PART I

Item 1.         Business

Overview of Better Minerals & Aggregates Company

We mine, process and market industrial minerals, principally industrial silica, in the eastern and midwestern United States. We are the second leading producer of industrial silica in the United States, accounting for approximately 22% of industry volume in 2003, and believe that we have leading positions in most of our key end use markets for our silica products, typically occupying the number one or two position by sales. These end use markets include container glass, fiberglass, specialty glass, flat glass, fillers and extenders, chemicals and ceramics. We also supply our silica products to the foundry, building materials and other end use markets. We operate a network of 14 production facilities in 13 states. Many of our production facilities are located near major modes of transportation and our significant customers, which reduces transportation costs and enhances customer service. Our principal industrial minerals properties each have deposits that we believe will support production in excess of 15 years.

Products

Our industrial minerals products are processed to meet a broad range of chemical purity, particle shape and sizing specifications. Our key industrial minerals products are known as unground silica, ground silica, fine ground silica, kaolin and aplite. Our unground silica products consist of silica of various size grades ranging from 120 to 20 mesh. For the year ended December 31, 2003, we sold 5.4 million tons of unground silica. Our ground silica products consist of unground silica that is further processed into sizes of 40 to 125 microns. For the year ended December 31, 2003, we sold 535,000 tons of ground silica. Our fine ground silica products consist of ground silica that we have further processed with highly engineered equipment into size grades of 5 to 40 microns. For the year ended December 31, 2003, we sold 53,000 tons of fine ground silica. In addition to our silica products we also produce a limited amount of kaolin and aplite. Kaolin is a mineral co-product in our production of silica in Kosse, Texas that we sell primarily as a filler and extender to the paints and coatings industry. For the year ended December 31, 2003, we sold 37,000 tons of kaolin. Aplite is an alumina source produced at our Montpelier, Virginia facility that we sell primarily to the glass industry. For the year ended December 31, 2003, we sold 230,000 tons of aplite.

End Use Markets and Customers

We generate sales from a diversified base of customers and end use markets. During the year ended December 31, 2003, we exceeded $10 million in sales in each of 7 distinct end use markets, and no single customer accounted for more than 8% of our sales. Our industrial mineral products are sold into a variety of end use markets, as described below.

Container Glass. We supply unground silica and aplite to the container glass end use market for use in the production of food, beverage and liquor bottles.

Fiberglass. We supply unground and ground silica and aplite to the textile and insulation fiberglass end use markets. Textile fiberglass is used in the production of roofing products and composites for automotive parts, sports equipment and boats. Insulation fiberglass is used to maximize energy efficiency in buildings by insulating heating and cooling ducts, attics, basements and exterior walls.

Specialty Glass. We supply unground and ground silica and aplite to the specialty glass end use market for use in the production of television tubes, lights and tableware. Because of the higher quality standards in this market, certain of our industrial minerals for specialty glass are shipped regionally, nationally and also are exported.

Flat Glass. We supply unground silica to the flat glass end use market for use in the production of automotive glass and windows. Windows are primarily used in commercial and residential construction and remodeling.

We estimate that in 2003 our shipments of industrial silica to the container glass, fiberglass, specialty glass and flat glass end use markets accounted for approximately 28% of the total volume of industrial silica shipped to the glass end use markets in the United States.

Foundry. We supply unground and ground silica to the foundry end use market for use in the production of automotive, heavy equipment and machine tool castings. We estimate that in 2003 we accounted for approximately 14% of the silica volume shipped to the foundry end use market in the United States.

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Fillers and Extenders. We supply unground, ground and fine ground silica and kaolin to the paints and coatings end use market as fillers and extenders in the production of architectural, industrial and traffic paints, and to the rubber and plastic end use market for use in the production of epoxy molded countertops and silicone rubber. We estimate that in 2003 we accounted for approximately 30% of the silica volume shipped to the fillers and extenders end use market in the United States. We are able to ship certain of these products, which are primarily marketed on a local basis, to customers nationally as well as regionally. In addition, we are also able to compete internationally with some of these products.

Building Materials. We supply unground, ground and fine ground silica and kaolin to the building materials end use market for use in the production of bricks, stucco, concrete and asphalt shingles. We estimate that in 2003 we accounted for approximately 25% of the silica volume shipped to the building materials end use market in the United States.

Chemicals. We supply unground and ground silica to the chemicals end use market where it is used in the manufacture of sodium silicate, which is used in products such as detergents, paper textile, finishing and dental products. We estimate that in 2003 we accounted for approximately 50% of the silica volume shipped to the chemicals end use market in the United States.

Ceramics. We supply unground, ground and fine ground silica and kaolin to the ceramics end use market for use in the production of ceramic whiteware, floor tiles and glaze formulations. We estimate that in 2003 we accounted for approximately 20% of the silica volume shipped to the ceramics end use market in the United States.

Other. We also supply our silica, kaolin and aplite to a variety of additional markets. For example, our silica is used as fracturing sand in the oil and gas end use market and in athletic fields, race tracks, sand boxes, playgrounds and golf courses.

Sales and Marketing

We market our industrial minerals products primarily on a local basis. Our local sales and marketing efforts are each managed by a regional sales person, and are directed to meet our local customers’ specific needs. Our technical and customer service personnel support our local sales and marketing personnel. Certain of our smaller local customers are primarily serviced by customer service representatives located at our facilities. We also sell to distributors for resale to customers who desire to purchase a combination of our industrial minerals and other products that the distributor supplies.

In the case of our customers that have facilities in multiple states, we also direct our sales and marketing efforts at the corporate headquarters level. While competition for these customers generally remains at the local level, the terms of certain of our agreements are negotiated with the customer at the corporate level. Our national account managers also coordinate multi- disciplinary teams that work with these customers and their technical and engineering departments to jointly develop specifications for industrial minerals to meet their local product and application needs. In addition, we provide technical and customer service to these customers’ individual facility locations at the local level.

Competition

We operate in the highly competitive industrial silica industry. Transportation costs are a significant portion of the total cost of industrial minerals to customers, typically representing up to 50% of that cost. As a result, the industrial minerals markets are typically local, and competition from beyond the local area is limited. Although we experience competition in all of our end use markets, we believe that we are a leading producer in the key end use markets and geographic areas that we serve.

The industrial silica industry is a competitive market that is characterized by a small number of large, national producers and a larger number of small, regional producers. We are the second leading producer of industrial silica in the United States, accounting for approximately 22% of industry volume in 2003. We compete with, among others, Unimin Corporation, Fairmount Minerals, Inc., Oglebay Norton Industrial Sands, Inc. and Badger Mining Corporation. Competition in the industrial minerals industry is based on price, consistency and quality of product, site location, distribution capability, customer service, reliability of supply, breadth of product offering and technical support. In addition, there is significant underutilized capacity in the industrial minerals industry that could adversely affect the pricing of our industrial minerals products.

Many of our competitors are large companies that have greater financial resources than we do, may develop technology superior to ours and have production facilities that are located closer to key customers. We cannot guarantee that we will be able to compete successfully against our competitors in the future or that competition will not have a material adverse effect on us.

Production and Distribution

Our production process for our industrial minerals generally consists of mining mineral ore followed by a number of

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processing steps. All of our industrial minerals mining operations involve surface mining. As is customary in our industry, some of our mining operations, particularly drilling and blasting, are outsourced to third parties. After the mineral ore is mined we crush it into various sizes, depending on the specific customer application. We then remove impurities from the materials in a washing process and remove oversized particles by screening. Moisture is removed through a drying process and the product is loaded into trucks or rail cars for shipment or is bagged before shipping.

We ship our industrial mineral products direct to our customers by either truck or rail. Bagged product is generally distributed by truck. We sometimes utilize rail-truck transfer stations to deliver our products if we can thereby achieve lower delivery costs to a given customer or region. Almost all our truck shipments of industrial minerals are carried out by third parties. Our rail shipments are generally made by railcar equipment owned by the railroad, although for some customers and regions we lease our own railcars. Given the value to weight ratio of most of our industrial mineral products, the cost-effective distribution range is approximately 200 miles. For some of our high margin fine ground silica and other specialty products such as kaolin, we can effectively distribute our products nationally and, in some cases, internationally.

Technical Support

We operate an industrial minerals laboratory to monitor the quality of our products, plants and services. The laboratory has four principal functions. The technical service function provides support to both current and prospective customers and performs controlled tests for a variety of applications. The lab also assists foundries in their quality control programs through periodic testing of their sand and equipment, a service that has enabled us to increase our business by acquiring several large foundries as customers. The application function evaluates the chemical, physical and performance characteristics of our products and those of our competitors. These evaluations assist us in developing new products and applications and enable us to provide our customers with technical support and recommendations. The analytical function both provides support for plants lacking the ability to provide certain technical information to customers, and analyzes drill core samples to provide data for short- and long-term mine planning. The mineral processing function is designed to simulate all plant processes, primarily preparing and analyzing drill core samples for mine planning purposes and providing expertise in plant problem troubleshooting. We are ISO 9001:2000 registered at eight plants.

Government Regulation

Environmental Matters. We are subject to a variety of governmental regulatory requirements relating to the environment, including those relating to our handling of hazardous materials and air and wastewater emissions. Some environmental laws impose substantial penalties for noncompliance, and others, such as the federal Comprehensive Environmental Response, Compensation, and Liability Act, impose strict, retroactive and joint and several liability upon persons responsible for releases of hazardous substances.

We believe that we have all material environmental permits, that our operations are in substantial compliance with applicable laws and that any noncompliance is not likely to have a material adverse effect on us. Through periodic self-audits, we continually evaluate whether we must take additional steps to ensure compliance with existing environmental laws. However, if we fail to comply with present and future environmental laws and regulations, we could be subject to liabilities or our operations could be interrupted. In addition, future environmental laws and regulations could restrict our ability to expand our facilities or extract our mineral deposits or could require us to acquire costly equipment or to incur other significant expenses in connection with our business. Although we believe we have made sufficient capital expenditures to achieve substantial compliance with existing environmental laws and regulations, future events, including changes in any environmental requirements and the costs associated with complying with such requirements, could have a material adverse effect on us.

We have taken a number of steps to address environmental activities in a proactive manner, including performing environmental audits and also Phase I environmental assessments (which generally include a site inspection, interviews and a records review, but do not include soil or groundwater sampling) on all of our properties in 1995 and again in July 2003. In addition, we have removed all known underground storage tanks, replaced PCB-containing transformers with non-PCB transformers and are developing and implementing an “environmental information management system” to allow us to better track permits and compliance matters.

Some of our facilities have a long history of industrial operations. As such, we may have liability for cleanup of contamination from historical discharges of hazardous materials. For example, we may be required to remediate groundwater contamination at our Rockwood, Michigan facility. Although the contamination has not moved off our site and has not affected drinking water supplies, further action may be required by state authorities. Our Ottawa, Illinois facility has trace levels of arsenic contamination in surface water and in the groundwater beneath the quarries. Studies by third-party consultants to date have shown that there is no health risk to workers and that our product is not contaminated. We believe that we may have claims against responsible third parties or have insurance coverage for these matters. We also believe that, even assuming third-party or

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insurance recoveries were not successful, all known remediation matters, individually or in the aggregate, would not have a material adverse effect on us. We have identified other areas of historic waste disposal on our properties. Historically, the waste, pallets, bags, scrap metal and other wastes from the plant sites were dumped on certain of our lands. The presence of the disposal areas has not materially impacted, and is not expected to materially impact, our operations or otherwise have a material adverse effect on us.

Regulation of Silica. The Occupational Safety and Health Administration (“OSHA”), regulates work place exposure to crystalline silica at our customer locations through “permissible exposure levels,” commonly referred to as PELs and through other regulations. In December 2003, OSHA stated that it was evaluating a rulemaking regarding crystalline silica. To date, OSHA has not yet proposed a rule, and the only specific action item with a date in the regulatory agenda was the completion of a report pursuant to the Small Business Regulatory Enforcement Fairness Act, in January 2004.

The Mining Safety and Health Administration (“MSHA”) regulates occupational health and safety matters for mining. Accordingly, MSHA regulates our quarries and industrial minerals processing facilities. The MSHA “threshold limit value” for crystalline silica (in the form of quartz) is the same as the current OSHA PEL. In the December 2003 Department of Labor regulatory agenda, MSHA stated that it is “considering several options to reduce miners’ exposure to crystalline silica,” and has scheduled the issuance of an advance notice of proposed rulemaking for May 2004.

The U.S. Consumer Product Safety Commission (“CPSC”) is studying the potential for crystalline silica exposure arising from the use of play sand. It is expected that the CPSC work will be completed in 2004.

The U.S. Environmental Protection Agency (“EPA”), had noted that crystalline silica would be a substance evaluated by the EPA pursuant to its Integrated Risk Information System (“IRIS”) program. However, in a February 9, 2004 Federal Register notice relating to the IRIS program, the EPA stated that it would remove crystalline silica from the program because of limited EPA resources and a “lower overall priority at this time.” In addition, several states have considered, and a few have promulgated, regulations regarding crystalline silica air emissions. For example, in Oklahoma and Texas, crystalline silica is considered a toxic air contaminant. As such, these states have established maximum allowable ambient concentrations, or MAACs, for crystalline silica (quartz). Generally, these MAACs establish limits for facility crystalline silica emissions, measured at the facility property line. The IRIS initiative and state MAAC standards could result in lower permit limits requiring costly equipment upgrades or operational restrictions.

In 2002, Massachusetts classified crystalline silica smaller than 10 micron in particle size and used for abrasive blasting or in foundry molding operations as a toxic substance for purposes of the state’s toxic use reduction act program. The toxic use reduction act program imposes fees on the use of toxic substances and requires certain users of toxic substances to develop plans to reduce the use of the toxic substance. California requires that a warning accompany any chemical that the state has published as being known to cause cancer. “Silica, crystalline (airborne particles of respirable size)” has been included as a carcinogen under these criteria since 1988. These state programs, or others similar to them or the Oklahoma or Texas regulatory programs, may have the effect of reducing our customers’ demand for silica products.

We believe that we materially comply with governmental requirements for crystalline silica exposure and emissions and other regulations relating to silica and plan to continue to comply with these regulations. However, we cannot guarantee that we will be able to comply with any new standards that are adopted or that these new standards will not have a material adverse effect on us by requiring us to modify our operations or equipment or shut down some of our plants. Additionally, we cannot guarantee that our customers will be able to comply with any new standards or that any such new standards will not have a material adverse effect on our customers by requiring them to shut down old plants and to relocate plants to locations with less stringent regulations that are further away from us. Accordingly, we cannot at this time reasonably estimate our costs of compliance or the timing of any costs associated with any new standards, or any material adverse effects that any new standards will have on our customers and, consequently, on us.

Mining and Processing of Minerals. In addition to the regulatory matters described above, the industrial minerals industries is subject to extensive governmental regulation on matters such as permitting and licensing requirements, plant and wildlife protection, wetlands protection, reclamation and restoration of mining properties after mining is completed, the discharge of materials into the environment, surface subsidence from underground mining and the effects that mining has on groundwater quality and availability. Our future success depends upon the quantity of our industrial minerals deposits and our ability to extract these deposits profitably. It is difficult for us to estimate quantities of recoverable deposits, in part due to future permitting and licensing requirements. We believe we have obtained all material permits and licenses required to conduct our present mining operations. However, we will need additional permits and renewals of permits in the future. We may be required to prepare and present to governmental authorities data pertaining to the impact that any proposed exploration or production activities may have upon the environment. New site approval procedures may require the preparation of archaeological surveys, endangered species studies and other studies to assess the environmental impact of new sites. Compliance with these regulatory requirements is

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expensive, requires an investment of funds well before the potential producer knows if its operation will be economically successful and significantly lengthens the time needed to develop a new site. Furthermore, obtaining or renewing required permits is sometimes delayed or prevented due to community opposition and other factors beyond our control. New legal requirements, including those related to the protection of the environment, could be adopted that could materially adversely affect our mining operations (including the ability to extract mineral deposits), our cost structure or our customers’ ability to use our industrial minerals products.

For most of our operations, state statutes and regulations or local ordinances require that mine property be restored in accordance with specific standards and an approved reclamation plan. We believe that we are making adequate provisions for all expected reclamation and other costs relating to expected mine closures in the reasonably foreseeable future. We believe that future costs associated with reclamation provisions and mine closures will not have a material adverse effect on us. Nevertheless, we could be adversely affected if these provisions were later determined to be insufficient, or if future costs associated with reclamation are significantly greater than our current estimates. Accordingly, there can be no assurance that current or future mining regulation will not have a material adverse effect on our business or that we will be able to obtain or renew permits in the future.

Employees

As of March 1, 2004, we had approximately 760 employees, of which approximately 440 were represented by 9 local unions under 10 union contracts. These union contracts have remaining durations ranging from one to four years. Over the last 10 years, we have been involved in numerous labor negotiations, only two of which have resulted in a work disruption at one of our 14 facilities. During these disruptions, the operations of the facilities and our ability to serve our customers were not materially affected. Although we consider our current relations with our employees to be good, if we do not maintain these good relations, or if a work disruption were to occur, we could suffer a material adverse effect.

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Item 2.         Properties

We own or lease a number of properties located in the eastern and midwestern United States. Our headquarters is in Berkeley Springs, West Virginia. Set forth below is the location, use, status and number of years of remaining reserves, owned and leased, as of December 31, 2003 for each of our principal properties:

With respect to each operation at which we mine industrial minerals, we obtain permits from various governmental authorities prior to the commencement of mining. The current deposits on our properties are sufficient to support production, based on historical rates of production ranging from approximately thirteen years to approximately 60 years. We obtain permits to mine deposits as needed in the normal course of business based on our mine plans and state and local regulatory provisions regarding mine permitting and licensing. Based on our historical permitting experience, we expect to be able to continue to obtain necessary mining permits to support historical rates of production. Industrial minerals properties which have deposits (which include both permitted and unpermitted deposits) that we believe are sufficient to support production for over 15 years accounted for approximately 97% of our sales for the year ended December 31, 2003. Additionally, to further assure sufficient deposits and adequate facilities to meet future demand, we plan to obtain new deposits through expansion of existing sites, where feasible, and acquisitions of industrial minerals property.

Some of our mining leases can be indefinitely renewed by us on an annual basis while others have terms ranging from two to 50 years (including unilateral renewal rights). These leases generally provide for royalty payments to the lessor based on a specific amount per ton or a percentage of revenue. In addition, we have a number of non-mining leases that relate to the above properties that permit us to perform activities that are ancillary to the mining of industrial minerals or aggregates such as surface use leases that allow haul trucks to transport material from the mine to the plant site.

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Item 3.         Legal Proceedings

We are a defendant in various lawsuits related to our business. These matters include lawsuits relating to the exposure of persons to silica. 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 $5,928,000 in actual damages (the verdict of $7.5 million, less credits for other settlements), approximately $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, we believe that the entire judgment and settlements 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 elsewhere in this Annual Report on Form 10-K. After the judgment was entered by the trial judge and upon the posting of a bond, we 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 August, the Texas Supreme Court requested the parties submit full briefs on the merits of the case. Our brief was filed on October 27, 2003, the plaintiffs filed a responsive brief, and we filed a reply brief to the plaintiff’s response in January 2004. The Texas Supreme Court has not set an argument date, and we have no indication when the Texas Supreme Court will rule on the case.

For a detailed discussion of the potential liability to us from silica-related product liability claims, please see “Managements Discussion and Analysis of Financial Condition and Results of Operations—Significant Factors Affecting Our Business—Silica Health Risks and Litigation May Have a Material Adverse Effect on Our Business.”

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Item 4.         Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 2003.

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PART II

Not applicable.

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Item 6.        Selected Financial Data

The following table sets forth our selected historical consolidated financial and other data as of the end of and for the periods presented. The selected historical consolidated financial data as of December 31, 2003 and December 31, 2002 and for the years ended December 31, 2003, 2002 and 2001 have been derived from our audited consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. The selected historical consolidated financial data as of December 31, 2001, December 31, 2000 and December 31, 1999 and for the years ended December 31, 2000 and 1999 are derived from our audited consolidated financial statements that are not included in this Annual Report on Form 10-K. This information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K.

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Item 7.        Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with our audited consolidated financial statements and the notes thereto included in Item 8 of this Annual Report on Form 10-K.

Overview

We mine, process and market industrial minerals, principally industrial silica, in the eastern and midwestern United States. We are a holding company that conducts substantially all our operations through our subsidiaries. We were incorporated in Delaware in January 1996 and purchased U.S. Silica Company, which was organized in 1927 as the Pennsylvania Glass Sand Corporation, from U.S. Borax in February 1996. After purchasing U.S. Silica, we subsequently completed the following acquisitions and dispositions:

Critical Accounting Policies

In our opinion, we do not have any individual accounting policy which is critical to the preparation of our financial statements. Also, in many instances, we must use an accounting policy or method because it is the only policy or method permitted under accounting principles generally accepted in the United States. However, certain accounting policies are more important to the reporting of the Company’s financial position and results of operations. These policies are discussed in the succeeding paragraphs. The notes to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K include a summary of the significant accounting policies used in the preparation of our financial statements.

Sales. We recognize sales at the time the product is shipped to our customers and title passes (generally when the product leaves our facility). Sales includes the costs of transportation borne by our customers when we pay the costs on their behalf and are reimbursed.

Cost of Goods Sold. Cost of goods sold includes the ongoing mining and processing costs of our operations (primarily labor costs, energy and power costs, repair and maintenance costs, transportation costs on customer shipments, costs of hiring third party subcontractors to drill and blast in our mining operations, as well as lease and royalty payments, at some locations).

Selling, General and Administrative. Selling, general and administrative expenses are the costs of operating our business, including corporate overhead and associated fees and expenses related to acquisitions and divestitures. Management fees to our

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financial and acquisition advisors, due diligence costs for any acquisitions that we are unable to complete and amounts recorded for product liability claims are also included in this category. See “Self-Insurance and Product Liability Claim Reserves” below.

Depreciable and Amortizable Assets. Acquired property and mineral deposits are recorded at cost. Costs to develop new mining properties are capitalized and amortized based on units of production. The purchase price of business acquisitions is allocated based on the fair values of assets acquired and liabilities assumed at that time. Depreciation is computed using the straight line method over the estimated useful lives of the assets, which ranges from 3 to 15 years. Depletion of mineral deposits is accounted for as the minerals are extracted, based on units of production and engineering estimates of total deposits. Accordingly, depletion expense will increase or decrease with changes in the volumes of minerals extracted or, prospectively, for changes in engineering estimates of total deposits. Amortization of various non-current assets such as non-competition agreements are made on a straight line basis over the life of the related agreement. Goodwill related to purchased acquisitions was amortized over 15 years. As described under “Recent Accounting Pronouncements,” the adoption of SFAS 142 eliminated goodwill amortization and required an evaluation of goodwill impairment upon adoption, as well as subsequent annual valuations. The Company reviews long-lived assets for impairment periodically in accordance with SFAS 144.

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 for 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.

Self-Insurance and Product Liability Claim Reserves. We are self-insured for healthcare costs and, in some states, worker’s compensation. U.S. Silica is currently self-insured for third party product liability claims alleging occupational disease. We provide for estimated future losses based on reported cases and past claim history. Accounting for these liabilities requires us to use our best judgment. While we believe that our accruals for these matters are adequate, if the actual loss is significantly different than the estimated loss for these liabilities, our results of operations could be materially affected. See “Significant Factors Affecting Our Business – Silica Health Risks and Litigation May Have a Material Adverse Effect on Our Business” for a further discussion of the manner in which we record amounts for product liability claims.

Employee Benefit Plans. We provide a range of benefits to our employees and retired employees, including pensions and postretirement healthcare and life insurance benefits. We record annual amounts relating to these plans based on calculations specified by generally accepted accounting principles, which include various actuarial assumptions, including discount rates, assumed rates of returns, compensation increases, turnover rates and healthcare cost trend rates. We review the actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when it is deemed appropriate to do so. As required by U.S. generally accepted accounting principles, the effect of the modifications is generally recorded or amortized over future periods. We believe that the assumptions utilized in recording our obligations under the plans, which are presented in note 10 to the audited consolidated financial statements, are reasonable based on advice from our actuaries and information as to assumptions used by other employers.

Taxes. We account for income taxes in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes” which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. SFAS No. 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

We evaluate quarterly the realizability of our deferred tax assets by assessing the need for a valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. Failure to achieve forecasted taxable income might affect the ultimate realization of the net deferred tax assets. Factors that may affect our ability to achieve sufficient forecasted taxable income include, but are not limited to, the following: a decline in sales or margins, increased competition or loss of market share. In addition, we operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended time to resolve. In management’s opinion, adequate provisions for income taxes have been made for all years.

Use of Estimates and Assumptions. The preparation of financial statements in conformity with U.S. 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

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depreciation, income taxes and related deferred tax valuation allowances, environmental and product liabilities, mine reclamation and employee benefit costs. Actual results could differ from those estimates.

Results of Operations

The following table sets forth our consolidated statement of operations data for the three years ended December 31, 2003, 2002, and 2001, and the percentage of sales of each line item for the periods presented. This statement of operations data is derived from our consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K.

Year Ended December 31, 2003 Compared with Year Ended December 31, 2002

Sales. Sales decreased $2.2 million, or 1.2%, to $182.5 million in the year ended December 31, 2003 from $184.7 million in the year ended December 31, 2002.

Sales of industrial minerals products decreased $2.4 million, or 1.5%, to $152.8 million in the year ended December 31, 2003 from $155.2 million in the year ended December 31, 2002. This decline in product sales was primarily due to decreases in sales to the fillers & extenders, foundry, ceramics and glass container market segments partially offset by an increase in product sales to customers in the oil & gas, flat glass, specialty glass and fiberglass market segments.

Transportation revenue, which is the cost of transportation borne by our customers when we pay the costs on their behalf and are subsequently reimbursed by them, increased $0.2 million to $29.7 million in the year ended December 31, 2003 from $29.5 million in the year ended December 31, 2002.

Cost of Goods Sold. Cost of goods sold, excluding the cost of transportation that is reimbursed by our customers, decreased $1.7 million, or 1.5%, to $110.9 million in the year ended December 31, 2003 from $112.6 million in the year ended

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December 31, 2002. The primary reason for the decrease was a 2.5% reduction in volume in our dried and processed products, and a $0.9 million reduction in multi-employer pension liabilities at several of our locations, partially offset by a $2.9 million increase in the price of drier fuel and increased costs of maintenance, wages and benefits, power and insurance.

Transportation expense, which is the cost of transportation for our customer shipments when we pay these costs on their behalf and are subsequently reimbursed by them, increased $0.2 million to $29.4 million in the year ended December 31, 2003 from $29.2 million in the year ended December 31, 2002.

Depreciation, Depletion and Amortization. Depreciation, depletion and amortization decreased $0.1 million $15.8 million for the year ended December 31, 2003 from $15.9 million for the year ended December 31, 2002.

Selling, General and Administrative. Selling, general and administrative expenses decreased $13.1 million, or 31.8%, to $28.0 million for the year ended December 31, 2003 from $41.1 million for the year ended December 31, 2002. Included in selling, general and administrative expense are our costs and accruals for third party product liability litigation relating to occupational health claims against our operating subsidiary. This subsidiary continued to incur a significant increase in new cases filed against it in the year ended December 31, 2003 and accordingly updated the comprehensive review of the estimated future costs of this litigation that was first undertaken in the year ended December 31, 2002. As a result, we recorded an additional expense of $5.8 million in the year ended December 31, 2003. See Significant Factors Affecting Our Business – Silica Health Risks and Litigation May Have a Material Adverse Effect on Our Business. Except for the decrease in charges for silica health litigation relating to occupational health claims, selling, general and administrative expense increased $6.0 million to $22.2 million for the year ended December 31, 2003 from $16.2 million for the year ended December 31, 2002, primarily due to $4.0 million in severance accruals and payments related to several executive officers, and $3.5 million in fees, expenses and incentive compensation related to the sale of our aggregates business and our debt restructuring, partially offset by reductions in compensation expense from workforce reductions related to the sale of our aggregates business.

Operating Loss. Operating loss incurred for the year ended December 31, 2003 was $1.6 million, as compared to operating loss of $14.1 million for the year ended December 31, 2002 as a result of the factors noted earlier, primarily the charges for occupational health claims from alleged silica exposure of $5.8 million in the year ended December 31, 2003 and $24.9 million in the year ended December 31, 2002.

Interest Expense. Interest expense decreased $3.2 million, or 10.0%, to $28.6 million for the year ended December 31, 2003 from $31.8 million for the year ended December 31, 2002 due primarily to reductions in our level of senior debt as a result of the sale of our aggregates business.

Early Extinguishment of Debt. In the year ended December 31, 2003, we incurred $7.0 million in charges related to the retirement of our senior secured credit facilities, including cash payments of $2.5 million in prepayment penalties on the Term C portion of the senior secured credit facility and $1.1 million in settlement charges for the cancellation of our interest rate hedges required under our senior secured credit facilities.

Provision for Income Taxes. The provision for income taxes of $15.5 million reflects the $19.5 million in regular tax benefits related to the current year loss, reduced by a $35.0 million valuation allowance to write-off all of our net deferred tax assets due to the uncertainty of the future utilization of our net operating loss and alternative minimum tax credit carry forwards.

Net Loss From Continuing Operations. Net loss from continuing operations increased $22.5 million to $51.2 million in the year ended December 31, 2003 from $28.7 million in the year ended December 31, 2002 as a result of the factors noted earlier.

Gain on Sale of Discontinued Operations. For the year ended December 31, 2003 we realized a $6.5 million gain on the sale of the aggregates business unit, based on the adjusted net asset value of the business sold. The net asset value of the aggregates business was reduced in the year ended December 31, 2002 by a pre-tax asset impairment charge of $107.9 million which was recorded as part of the loss from discontinued operations in the year ended December 31, 2002. The gain on sale may be adjusted once the outcome of a $3.2 million closing balance sheet working capital dispute with Hanson is resolved in 2004.

Loss From Discontinued Operations. The loss from discontinued operations, net of applicable income taxes, was $10.5 million in the year ended December 31, 2003 as compared to $61.4 million in the year ended December 31, 2002. As noted above, the loss from discontinued operations in the year ended December 31, 2002 included a $107.9 million pre-tax asset impairment charge ($63.1 million after consideration of the tax benefit on the asset impairment charge). The tax benefit from the loss on the sale of our aggregates business is offset by a corresponding $42.8 million valuation allowance due to the uncertainty of the future utilization of our capital loss carry forward.

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Net Loss. Net loss for the year ended December 31, 2003 was $54.9 million as a result of the factors noted earlier, including the tax valuation allowance, and silica litigation charges.

Year Ended December 31, 2002 Compared with Year Ended December 31, 2001

Sales. Sales decreased $5.0 million, or 2.6%, to $184.7 million in the year ended December 31, 2002 from $189.7 million in the year ended December 31, 2001.

Sales of industrial minerals products increased $1.9 million, or 1.2%, to $155.2 million in the year ended December 31, 2002 from $153.3 million in the year ended December 31, 2001. The primary reason for the increase in sales was from increased silica and aplite sales to our glass customers, partially offset by a decline in sales to the oil & gas extraction market.

Transportation revenue, which is the cost of transportation borne by our customers when we pay the costs on their behalf and are subsequently reimbursed by them, decreased $6.9 million, to $29.5 million in the year ended December 31, 2002, from $36.4 million in the year ended December 31, 2001 as several customers changed their terms with us and now pay these costs directly to the transportation companies.

Cost of Goods Sold. Cost of goods, excluding the cost of transportation that is reimbursed by our customers, increased $6.7 million, or 6.3%, to $112.6 million in the year ended December 31, 2002 from $105.9 million in the year ended December 31, 2001 primarily from increased costs of maintenance, wages, premiums and benefits, power and insurance, offset by a $2.4 million reduction in the cost of drier fuel.

Transportation expense, which is the cost of transportation for our customer shipments when we pay these costs on their behalf and are subsequently reimbursed by them, decreased $7.0 million to $29.2 million in the year ended December 31, 2002 from $36.2 million in the year ended December 31, 2001 as a result of the change in customer terms noted earlier.

Depreciation, Depletion and Amortization. Depreciation, depletion and amortization decreased $1.2 million, or 7.0%, to $15.9 million for the year ended December 31, 2002 from $17.1 million for the year ended December 31, 2001, primarily from a $0.5 million decrease in the amortization of a covenant not to compete that expired in 2001.

Selling, General and Administrative. Selling, general and administrative expenses increased $22.9 million, or 125.8%, to $41.1 million for the year ended December 31, 2002 from $18.2 million for the year ended December 31, 2001. Included in selling, general and administrative expense are our costs and accruals for third party product liability litigation relating to occupational health claims against our operating subsidiary. This subsidiary incurred a significant increase in new cases filed against it in the fourth quarter of 2002 and accordingly performed a comprehensive review of the estimated future costs of this litigation, and, as a result, recorded a non-cash expense of $23.7 million in the year ended December 31, 2002, an increase of $22.3 million, from the $1.4 million of non-cash charges recorded in the year ended December 31, 2001. See Significant Factors Affecting Our Business – Silica Health Risks and Litigation May Have a Material Adverse Effect on Our Business. Except for the non-cash charges for silica health litigation relating to occupational health claims, selling, general and administrative expense increased $0.6 million to $17.4 million for the year ended December 31, 2002 from $16.8 million for the year ended December 31, 2001.

Operating Loss. Operating loss incurred for the year ended December 31, 2002 was $14.1 million, as compared to operating income of $12.3 million for the year ended December 31, 2001 as a result of the factors noted earlier, primarily the non-cash charges for occupational health claims from alleged silica exposure of $23.7 million.

Interest Expense. Interest expense decreased $3.6 million, or 10.2%, to $31.8 million for the year ended December 31, 2002 from $35.4 million for the year ended December 31, 2001 due primarily to decreased interest rates.

Benefit for Income Taxes. The benefit for income taxes of $14.3 million reflects the tax benefits related to the current year loss reduced by a $7.5 million valuation allowance from the uncertainty of the future utilization of our net operating loss carry forwards and alternative minimum tax credit carry forward.

Net Loss From Continuing Operations. Net loss from continuing operations increased $18.4 million to $28.7 million in the year ended December 31, 2002 from $10.3 million in the year ended December 31, 2001 as a result of the factors noted earlier.

Loss From Discontinued Operations. We recorded in the fourth quarter of 2002 a pre-tax asset impairment charge of $107.9 million ($63.1 million net of income tax benefits) to record the current fair market value of our aggregates business unit according to Statement of Financial Accounting Standards No. 144 Accounting for Impairment or Disposal of Long-Lived Assets (SFAS 144). The impairment analysis was necessitated by the sale process for our aggregates business which began late in the fourth quarter of 2002. Following the asset impairment charge, the proceeds from the sale of the aggregates business in 2003 approximated the value of the business.

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Cumulative Effect of Change in Accounting for Goodwill. Under Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets (SFAS 142), we were required to perform an asset impairment test on all goodwill recorded on our books as of January 1, 2002. The result of the impairment test was a complete write-down of the $14.7 million of goodwill recorded as an asset as of January 1, 2002, which was recorded as a cumulative effect of change in accounting. The goodwill was the result of the acquisitions of the Morie Assets and Commercial Stone completed in 1999 by the aggregates segment. Adoption of this standard, which was effective January 1, 2002, eliminated annual goodwill amortization expense of approximately $1.2 million. The $8.6 million expense recorded in the year ended December 31, 2002 is net of applicable income taxes of $6.1 million.

Net Loss. Net loss for the year ended December 31, 2002 was $98.6 million as a result of the factors noted earlier, but primarily the asset impairment charge, silica litigation charge and cumulative effect of the change in accounting for goodwill.

Liquidity and Capital Resources

Our principal liquidity requirements have historically been to service our debt, meet our working capital, capital expenditure and mine development expenditure needs and finance acquisitions. We are a holding company and as such we conduct substantially all our operations through our subsidiaries. As a holding company, we are dependent upon dividends or other intercompany transfers of funds from our subsidiaries to meet our debt service and other obligations, and have historically met our liquidity and capital investment needs with internally generated funds supplemented from time to time by borrowings under various revolving credit facilities. Conversely, we have funded our acquisitions through borrowings and equity investments. Our total debt as of December 31, 2003 was $161.0 million and our total stockholder’s deficit as of that date was $106.7 million, giving us total debt representing approximately 299% of total capitalization. Our debt level makes us more vulnerable to economic downturns and adverse developments in our business.

Net cash used by operating activities including our discontinued aggregates business was $12.6 million for the year ended December 31, 2003 as compared to net cash provided by operating activities of $9.2 million for the year ended December 31, 2002. Cash used by operating activities increased $21.8 million in 2003 due primarily to decreased earnings at our discontinued aggregates operating segment. Timing of the sale of the aggregates business occurred early in their seasonal earnings period and were not sufficient to offset their operating costs from earlier in the year. Comparing the partial year results for the period ending July 18, 2003, the date of the completion of the divestiture, to the full year results of the aggregates business for the year ended December 31, 2002, there was a $24.6 million decrease in cash provided by operating activities. This decrease in cash provided by operating activities was partially offset by a $2.7 million reduction in working capital from our continuing operations.

Net cash used for investing activities decreased $165.4 million to $152.5 million in cash provided from investing activities in the year ended December 31, 2003 from $12.9 million in cash used in investing activities in the year ended December 31, 2002. This decrease resulted from the $154.8 million in proceeds from the sale of our aggregates business, a $2.4 million increase in the proceeds from the sale of property, plant and equipment and a $8.3 million decrease in capital spending.

Cash flow used for financing activities was $141.2 million for the year ended December 31, 2003 as compared to cash provided by financing activities of $2.6 million for the year ended December 31, 2002. There was a $133.5 million reduction in short and long-term debt in the year ended December 31, 2003 consisting of a $142.9 million reduction in senior secured debt on the retirement of that credit facility, partially offset by a $9.7 million increase in short term borrowings under our new revolving line of credit. Additionally, we paid $2.5 million in prepayment penalties for the Term C portion of the senior secured debt reduction and $1.1 million to cancel interest rate hedges previously required under our senior secured credit facility.

Interest payments on our 13% senior subordinated notes due 2009 ($150 million outstanding as of December 31, 2003), which are unconditionally and irrevocably guaranteed, jointly and severally, by each of our domestic subsidiaries, debt service under our revolving credit agreement described below, working capital, capital expenditures and mine development expenditures, incurred in the normal course of business as current deposits are depleted, represent our current significant liquidity requirements.

On July 18, 2003, we sold our aggregates business to Hanson, receiving total cash consideration of $158.3 million before fees and expenses including an estimated adjustment for changes in the closing balance sheet of our aggregates business. Final cash consideration is subject to Hanson’s review and acceptance of the closing balance sheet which has been disputed by Hanson in an amount totaling $3.2 million and final proceeds may decrease by up to this amount upon completion of that review. Proceeds have not been reduced for the effect of a $2.0 million contingent liability to Hanson that will be eliminated if certain post-closing zoning and permit objectives are achieved. We believe achievement of these objectives will be reached within the five-year term of the contingency. Proceeds from the sale were reduced by a $3.0 million purchase price reduction, reflecting an estimate of the damages and losses caused by an incident that occurred on June 25, 2003 at one of the operating sites included in the sale. While we believe that some portion of this loss will be recoverable under our insurance policies, there is no guarantee that we will receive any reimbursement for the claim.

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Net proceeds at the time of the sale, after deducting $4.9 million in fees, expenses and interest on our previously outstanding senior secured term loans, were $154.8 million, which were used to permanently reduce and eliminate our tranche A and tranche B term loans under our prior senior secured credit agreement, totalling $107.9 million in the aggregate, and $45.5 million of the $50.0 million available to us under the related revolving credit facility, including $5.5 million in cash collateral for outstanding letters of credit.

On September 12, 2003, through our operating subsidiary U.S. Silica, we completed a new $30.0 million, asset-based revolving line of credit agreement with Wachovia Bank, National Association (Wachovia), a copy of which was attached as Exhibit 10 to our Current Report on Form 8-K, filed September 12, 2003. Proceeds from the new revolving credit agreement were used to repay all remaining amounts due under, and terminate, our previously outstanding senior secured credit agreement with BNP Paribas, provide us with a $10.0 million line for letters of credit and to fund our general liquidity needs.

Under the terms of the new revolving credit agreement, which expires June 30, 2008, we have pledged as security all of our personal property, inventory, and accounts receivable, along with first mortgage liens on our Berkeley Springs, West Virginia, Montpelier, Virginia and Pacific, Missouri plant operations as collateral for the loan. The revolving credit agreement includes certain conditions to borrowings, representations and covenants, including required minimum fixed charge coverage and maximum leverage covenant ratios that are measured quarterly, other covenants that impose significant restrictions on us, and certain events of default, including an event of default upon the occurrence of a material adverse change. Advances under the new credit agreement bear interest at either LIBOR plus 250 basis points, or prime plus 125 basis points, at our option.

Monthly borrowing availability (the borrowing base) is determined by a formula, taking into consideration eligible accounts receivable and inventory, reduced by any outstanding letters of credit and a pro-rata reduction for future interest payments due with respect to our senior subordinated notes. Each day, all cash receipts are automatically applied as a reduction against any advances made by Wachovia to us, and, subject to the satisfaction or waiver of the conditions to borrowing set forth in the revolving credit agreement, Wachovia will advance at our request new borrowings to meet our daily cash requirements, up to the amount available under the borrowing base. If the monthly borrowing base is less than the $30.0 million total line of credit, then, at Wachovia’s sole discretion, advances in excess of the borrowing base may be made up to the full amount of the $30.0 million line of credit.

U.S. Silica’s obligations under the revolving credit agreement are unconditionally and irrevocably guaranteed, jointly and severally, by our parent company, us, and our domestic subsidiaries.

As of December 31, 2003, our available borrowing base was $29.8 million, with $9.7 million drawn as of that date, and $10.7 million allocated for letters of credit, including $2.6 million in duplicate letters of credit that are in the process of being returned to BNP Paribas, leaving $9.4 million available for our general corporate use under this revolving credit agreement. As of this date, our total debt outstanding was approximately $161.0 million, consisting of the $9.7 million drawn under the revolver, $150.0 million of 13% senior subordinated notes due 2009 and $1.3 million in miscellaneous other debt including capital leases. Projected cash interest expense on our debt is approximately $20.5 million over the next 12 months.

Capital expenditures decreased $8.3 million to $5.7 million in the year ended December 31, 2003 from $14.0 million in the year ended December 31, 2002. Our expected capital expenditure and mine development requirements for 2004 are $10.0 million.

As of December 31, 2003, the total of our future contractual cash commitments, including the repayment of our debt obligations under our revolving credit agreement and our senior subordinated notes, is summarized as follows:

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Our ability to satisfy our debt obligations and to pay principal and interest on our debt, fund working capital, mine development requirements and make anticipated capital expenditures will depend on the future performance of our subsidiaries, which is subject to general economic, financial and other factors, many of which are beyond our control. We cannot be certain that the cash earned by our subsidiaries will be sufficient to allow us to pay principal and interest on our debts and meet our other obligations. As a result of the completion of the sale of our aggregates business in 2003, our cash flow from operations is dependent on the results of our industrial minerals business. We believe that based on current levels of operations from our industrial minerals business and anticipated growth, the cash flow from these operations will be adequate for at least the next twelve months to make required interest payments on our debt and meet operating requirements. There can be no assurance, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available under the revolving credit agreement in an amount sufficient to enable us to service our debt or to fund our other liquidity needs. If we do not have enough cash, we may be required to refinance all or part of our existing debt, including the senior subordinated notes, sell assets, borrow more money or raise equity. We cannot guarantee that we will be able to refinance our debt, sell assets, borrow more money or raise equity on terms acceptable to us, or at all.

Significant Factors Affecting Our Business

Silica Health Risks and Litigation May Have a Material Adverse Effect on Our Business. The inhalation of respirable crystalline silica is associated with several adverse health effects. First, it has been known since at least the 1930s that prolonged inhalation of respirable crystalline silica can cause silicosis, an occupational disease characterized by fibrosis, or scarring, of the lungs. Second, since the mid-1980s, the carcinogenicity of crystalline silica has been at issue and the subject of much debate and research. In 1987, the International Agency for Research on Cancer, or IARC, an agency of the World Health Organization, classified crystalline silica as a probable human carcinogen. In 1996, a working group of IARC voted to reclassify crystalline silica as a known human carcinogen. On May 15, 2000, the National Toxicology Program, part of the Department of Health and Human Services, issued its ninth report on carcinogens, which reclassified crystalline silica (respirable size) from its previous classification as “a reasonably anticipated carcinogen” to “a known human carcinogen.” Third, the disease silicosis is associated with an increased risk of tuberculosis. Finally, there is recent evidence of a possible association between crystalline silica exposure or silicosis and other diseases such as immune system disorders, like scleroderma, end-stage renal disease and chronic obstructive pulmonary disease.

One of our subsidiaries, U.S. Silica, was named as a defendant in an estimated 19,200 product liability claims alleging silica exposure filed in the period January 1, 2003 to December 31, 2003. U.S. Silica was named as a defendant in 154 similar claims filed in 1998, 497 filed in 1999, 610 filed in 2000, 1,320 filed in 2001 and 5,225 filed in 2002. As of December 31, 2003, there were an estimated 25,000 silica-related products liability claims pending in which U.S. Silica is a defendant. Almost all of the claims pending against U.S. Silica arise out of the 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.

The plaintiffs, who allege that they are employees or former employees of our customers, claim that our silica products were defective or that we acted negligently in selling our 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 our other subsidiaries.

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, 2003 and 2002, this accrual amounted to $2.0 million and $1.9 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.

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Borax (another former owner) for the period September 12, 1985 to December 31, 1985. To date, we have not sought coverage under these policies. However, as a named insured, we believe that coverage under these policies will be available to us. 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.

It is likely that we will continue to have silica-related product liability claims filed against us, including claims that allege silica exposure for periods after January 1, 1986. We cannot guarantee that our current indemnity agreement with ITT Industries (which currently expires in 2005 and in any event only covers alleged exposure to certain U.S. Silica products for the period prior to September 12, 1985), or potential insurance coverage (which, in any event, only covers periods prior to January 1, 1986) will be adequate to cover any amount for which we may be found liable in such suits. Any such claims or inadequacies of the ITT Industries indemnity or insurance coverage could have a material adverse effect in future periods on our consolidated financial position, results of operations or cash flows, if such developments occur.

Prior to 2002, we recorded amounts for product liability claims based on estimates of our 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 we began warning our customers and their 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, we determined it was no longer sufficient for management to solely estimate the product liability claims that might be filed against the company, and we 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 us. In 2003, the rate of new claims filed against the Company and others in the industry continued to increase, and the independent actuary updated the estimate of the number and costs of unresolved current and future silica related product liability claims that might be asserted against us.

The actuary relied on generally accepted actuarial methodologies and on information provided by us, 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 through December 31, 2003, 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 our actuary to calculate a range of expected outcomes.

As previously discussed, we have available to us 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, our actuary 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 2002, and based on the original study performed by our actuary, we recorded a pre-tax charge related to silica claims of $23.7 million in 2002 for the estimated undiscounted gross costs, including defense costs, after consideration of recoveries under the ITT indemnity and insurance, that we expect to incur over the next 50 years through the end of 2052. 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 and indemnity recoveries at December 31, 2002.

As a result of the updated study performed for the year ending December 31, 2003, we recorded an additional pre-tax charge of $5.8 million in 2003 for the estimated undiscounted gross costs, including defense costs, after consideration of recoveries under the ITT Indemnity and insurance, that we expect to incur over the next 50 years through the end of 2053. This resulted in an increase in our long term liability to $108.1 million related to third party product liability claims and an increase in the non-current asset to $76.8 million for probable insurance and indemnity recoveries at December 31, 2003.

On an annual basis, our actuary has calculated that our cash portion of the retained losses (reflecting any insurance coverage and indemnity payments) over the next 10 years would average $2.1 million per year, ranging from $1.4 million to $2.3 million in any year. In 2003 and 2002, we incurred approximately $3.2 million and $1.2 million, respectively in retained cash losses.

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. Our actuary’s report is based to a large extent on the assumption that our past experience is predictive of future experience. Unanticipated changes in factors such as

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judicial decisions, future legal judgments against us, 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 or less than those projected and recorded.

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

The exposure of persons to silica and the accompanying health risks have been, and will continue to be, a significant issue confronting the industrial minerals industry and our industrial minerals segment. Concerns over silicosis and other potential adverse health effects, as well as concerns regarding potential liability arising from the use of silica, may have the effect of discouraging our customers’ use of our silica products. The actual or perceived health risks of mining, processing and handling silica could materially and adversely affect silica producers, including us, through reduced use of silica products, the threat of product liability or employee lawsuits, increased levels of scrutiny by federal and state regulatory authorities of us and our customers or reduced financing sources available to the silica industry.

Our Business Is Subject to Operating Risks, Including Fluctuations in Energy Prices. All of our revenue is and will be derived from our industrial minerals business. The mining, processing and related infrastructure facilities of this business are subject to risks normally encountered in the industrial minerals industry. These risks include environmental hazards, industrial accidents, technical difficulties or failures, late delivery of supplies, the price and availability of power, the price and availability of transportation, unusual or unexpected geological formations or pressures, cave-ins, pit wall failures, rock falls, unanticipated ground, grade or water conditions, flooding and periodic or extended interruptions due to the unavailability of materials and equipment, inclement or hazardous weather conditions, fires, explosions or other accidents or acts of force majeure. Any of these risks could result in damage to, or destruction of, our mining properties or production facilities, personal injury, environmental damage, delays in mining or processing, losses or possible legal liability. Any prolonged downtime or shutdowns at our mining properties or production facilities could have a material adverse effect on us. In addition, increased energy prices, particularly relating to natural gas, propane, diesel fuel and other petroleum-based products, could adversely affect operating costs and, therefore, operating results.

Demand for Our Products Is Affected by External Factors. Demand in the markets served by the industrial minerals industry is affected by many external factors, including the general and regional economic conditions in the states in which we produce and sell our products, demand for automobiles and other vehicles, the substitution of plastic or other materials for glass and demand for residential and commercial construction. General or localized economic downturns or other external factors adversely affecting demand in the areas where we sell our products could result in a decrease in sales and operating income and, therefore, could have a material adverse effect on us.

We Rely Heavily on Third Party Transportation. We rely heavily on railroads and trucking companies to ship our industrial minerals products to our customers. Because freight costs represent a significant portion of the total cost to the customer, fluctuations in freight rates can change the relative competitive position of our production facilities. Rail and trucking operations are subject to various hazards, including extreme weather conditions, work stoppages and operating hazards. If we are unable to ship our products as a result of the railroads or trucking companies failing to operate or if there are material changes in the cost or availability of railroad or trucking services, we may not be able to arrange alternative and timely means to ship our products, which could lead to interruptions or slowdowns in our businesses and, therefore, have a material adverse effect on us.

Inflation

We do not believe that inflation has had a material impact on our financial position or results of operations during the periods covered by the financial statements included in this Annual Report on Form 10-K.

Environmental and Related Matters

We discuss certain environmental matters relating to our various production and other facilities, certain regulatory requirements relating to human exposure to crystalline silica and our mining activity and how such matters may affect our business in the future under “Business—Government Regulation.”

Recent Accounting Pronouncements

Statement of Financial Accounting Standards No. 143 (SFAS 143), Accounting for Asset Retirement Obligations, was issued in June 2001. SFAS 143 establishes accounting and reporting standards for obligations associated with the retirement of

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tangible long-lived assets. We previously provided for this obligation based on units of production over the life of our mining property 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, we adopted SFAS 143 which requires the liability to be determined based on legal obligations that will be incurred when an asset is retired. As of December 31, 2003, we reported a liability of $7.1 million in other noncurrent liabilities related to this obligation. The resulting $0.5 million pre-tax gain from adoption was reported net of tax as a cumulative effect of a change in accounting principle as of January 1, 2003.

In 2002 we 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. 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, we applied the recognition provisions of Interpretation No. 45 prospectively to guarantee activities initiated after December 31, 2002, with no significant impact on our financial statements.

Financial Accounting Standards Board Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51 (FIN 46R), replaces FIN 46, Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51, which had been issued in January 2003. FIN 46R clarifies some of the provisions of FIN 46 relating to variable interest entities (VIEs) and exempts certain entities from its requirements. FIN 46R addresses consolidation of VIEs which have one or more of the following characteristics: the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by any parties, the equity investors lack some essential characteristics of a controlling financial interest, and the equity investors have voting rights that are not proportionate to their economic interests. Application of FIN 46R is required in financial statements of companies that have interests in structures that are commonly referred to as special-purpose entities for periods ending after December 15, 2003. Application by public entities for all other types of variable interest entities is required in financial statements for periods ending after March 15, 2004; however, early adoption is allowed. We have elected early adoption of the provisions of FIN 46R effective December 31, 2003. The adoption of this Statement did not have a material impact on our consolidated financial position or results of operations.

In January 2004, the Financial Accounting Standards Board issued Financial Accounting Standards Board Staff Position No. 106-a (FSP No. 106-a), “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (the “Act”). Among other things, the new law will expand Medicare to include an outpatient prescription drug benefit beginning in 2006. Under FSP No. 106-a, companies may choose to report the effects of the Act in financial statements for the period that covers the date of the enactment (December 8, 2003) or they may choose to defer recognizing the effects of the Act until guidance is issued by the FASB. We have elected to defer accounting for the effects of the Act. Accordingly, our accumulated postretirement obligation and net postretirement health care costs do not reflect the effects of the Act on the plans. We are currently assessing the implications of this Act on our consolidated financial statements.

Item 7A.         Quantitative and Qualitative Disclosures About Market Risk

We do not expect to enter into financial instruments for trading purposes. We anticipate periodically entering into interest rate swap agreements to effectively convert all or a portion of any floating-rate debt to fixed-rate debt in order to reduce our exposure to movements in interest rates. Such agreements would involve the exchange of fixed and floating interest rate payments over the life of the agreement without the exchange of the underlying principal amounts. The impact of fluctuations in interest rates on the interest rate swap agreements is expected to be offset by the opposite impact on the related debt. We record the payments or receipts on the agreements as adjustments to interest expense. Swap agreements will only be entered into with syndicate banks. In addition, we may enter into interest rate cap agreements, which limit our variable rate interest to a specified level. In the future, we may enter into natural gas and other energy related hedge arrangements in order to reduce our exposure to changes in commodity energy prices.

As of December 31, 2003 we have no energy hedge agreements and no interest rate swap or cap agreements outstanding.

We are exposed to various market risks, including changes in interest rates. Market risk related to interest rates is the potential loss arising from adverse changes in interest rates.

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The fair market value of our long-term fixed interest rate debt is subject to interest rate risk. Generally, the fair market value of the fixed interest rate debt will increase as the interest rates fall and decrease as interest rates rise. At December 31, 2003, the estimated fair value of our fixed interest rate long-term debt (including current portion) was approximately $40 million less than its carrying value of $150.0 million due to changes in market conditions for the senior subordinated notes, which were trading at 73% of their face value as of December 31, 2003.

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Item 8.         Financial Statements and Supplementary Data

Report of Independent Auditors

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) present fairly, in all material respects, the financial position of Better Minerals & Aggregates Company and its subsidiaries at December 31, 2003 and December 31, 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 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) 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.” Also, as discussed in Note 2 to the consolidated financial statements, effective January 1, 2003, the Company adopted Statement of Financial Accounting Standard No. 143, “Accounting for Asset Retirement Obligations.”

PricewaterhouseCoopers LLP

New York, New York

March 24, 2004

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Better Minerals & Aggregates Company

Consolidated Balance Sheets

December 31, 2003 and 2002

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

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Better Minerals & Aggregates Company

Consolidated Statements of Operations

Years Ended December 31, 2003, 2002 and 2001

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

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Better Minerals & Aggregates Company

Consolidated Statements of Stockholder’s (Deficit) Equity

Years Ended December 31, 2003, 2002 and 2001