OGLEBAY NORTON CO /OHIO/ - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended June 30, 2004

Commission File number 000-32665

OGLEBAY NORTON COMPANY

(Exact name of registrant as specified in its charter)


Ohio		34-1888342
(State or other jurisdiction of incorporation or organization)		(I.R.S.employer identification no.)

North Point Tower, 1001 Lakeside Ave., 15^th Floor, Cleveland, Ohio		44114-1151
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code 216 861-3300

N/A

Former name, former address and former fiscal year,

if changed since last report

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

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


Common shares outstanding at August 6, 2004:		5,064,149

OGLEBAY NORTON COMPANY AND SUBSIDIARIES

I NDEX


				Page Number
PART I. FINANCIAL INFORMATION

Item 1
Condensed Consolidated Statement of Operations (Unaudited) - Three and Six Months Ended June 30, 2004 and 2003				3

Condensed Consolidated Balance Sheet (Unaudited) - June 30, 2004 and December 31, 2003				4

Condensed Consolidated Statement of Cash Flows (Unaudited) - Six Months Ended June 30, 2004 and 2003				5

Notes to Condensed Consolidated Financial Statements				6-18
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations				19-35
Item 3
Quantitative and Qualitative Disclosures About Market Risk				36
Item 4
Controls and Procedures				37

PART II. OTHER INFORMATION

Item 1
Legal Proceedings				38-41
Item 2
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities				41
Item 3
Defaults upon Senior Securities				42
Item 4
Submission of Matters to a Vote of Security Holders				42
Item 5
Other Information				42
Item 6
Exhibits and Reports on Form 8-K				42-43

SIGNATURES AND CERTIFICATIONS				44-47

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P art I. Item 1. FINANCIAL INFORMATION

O GLEBAY NORTON COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(In thousands, except per share amounts)

(UNAUDITED)


	Three Months Ended June 30						Six Months Ended June 30
	2004			2003			2004			2003
NET SALES AND OPERATING REVENUES	$	122,572		$	116,506		$	192,006		$	179,390

COSTS AND EXPENSES
Cost of goods sold and operating expenses		91,327			88,884			145,861			138,428
Depreciation, depletion, amortization and accretion		10,762			10,903			16,253			16,376
General, administrative and selling expenses		9,077			9,827			18,418			19,902
Provision for restructuring, asset impairments and early retirement programs		500			13,114			1,815			13,114

		111,666			122,728			182,347			187,820

OPERATING INCOME (LOSS)		10,906			(6,222	)		9,659			(8,430	)

Reorganization items, net		(5,107	)		—			(9,672	)		—
Gain (loss) on disposition of assets		2			(6	)		(13	)		57
Interest expense		(12,405	)		(13,102	)		(24,960	)		(26,383	)
Other income (expense), net		4,916			(531	)		5,009			(2,122	)

LOSS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE		(1,688	)		(19,861	)		(19,977	)		(36,878	)
INCOME TAX BENEFIT		(275	)		(7,280	)		(827	)		(14,638	)

LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE		(1,413	)		(12,581	)		(19,150	)		(22,240	)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR ASSET RETIREMENT OBLIGATIONS (net of tax benefit of $889)		—			—			—			(1,391	)

NET LOSS	$	(1,413	)	$	(12,581	)	$	(19,150	)	$	(23,631	)

PER SHARE AMOUNTS—BASIC AND ASSUMING DILUTION:
Loss before cumulative effect of accounting change	$	(0.26	)	$	(2.47	)	$	(3.66	)	$	(4.37	)
Cumulative effect of accounting change for asset retirement obligations (net of tax benefit of $0.18)		—			—			—			(0.27	)

Net loss per share—basic and assuming dilution	$	(0.26	)	$	(2.47	)	$	(3.66	)	$	(4.64	)

See notes to condensed consolidated financial statements.

-3-

OGLEBAY NORTON COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(In thousands, except share amounts)

ASSETS


	(UNAUDITED)
	June 30 2004		December 31 2003
CURRENT ASSETS
Cash and cash equivalents	$	1,303	$	—
Accounts receivable, net of reserve for doubtful accounts (2004 - $5,615; 2003 - $5,842)		64,625		50,422
Inventories
Raw materials and finished products		33,388		35,236
Operating supplies		12,620		12,795

		46,008		48,031

Deferred income taxes		3,901		3,901
Prepaid expenses and other current assets		30,859		10,915

TOTAL CURRENT ASSETS		146,696		113,269

PROPERTY AND EQUIPMENT		751,166		746,640
Less allowances for depreciation, depletion and amortization		344,604		332,447

		406,562		414,193

GOODWILL, net of accumulated amortization of $11,093		73,877		73,877

PREPAID PENSION COSTS		34,175		35,319

OTHER ASSETS		17,971		12,036

TOTAL ASSETS	$	679,281	$	648,694

LIABILITIES AND STOCKHOLDERS’ EQUITY


	(UNAUDITED)
	June 30 2004			December 31 2003
LIABILITIES NOT SUBJECT TO COMPROMISE
CURRENT LIABILITIES
Current portion of long-term debt	$	245,358		$	420,350
Accounts payable		24,966			26,070
Payrolls and other accrued compensation		4,983			4,857
Accrued expenses		8,958			14,906
Accrued interest expense		6,075			8,392
Income taxes payable		—			480

TOTAL CURRENT LIABILITIES		290,340			475,055

LONG-TERM DEBT, less current portion		—			1,490
POSTRETIREMENT BENEFITS OBLIGATIONS		828			50,049
OTHER LONG-TERM LIABILITIES		2,000			29,500
DEFERRED INCOME TAXES		4,247			4,596

LIABILITIES SUBJECT TO COMPROMISE		312,204			—

STOCKHOLDERS’ EQUITY
Preferred stock, authorized 5,000 shares		—			—
Common stock, par value $1 per share, authorized 30,000 shares; issued 7,253 shares		7,253			7,253
Additional capital		9,290			9,312
Retained earnings		86,924			106,075
Accumulated other comprehensive loss		(3,773	)		(4,542	)

		99,694			118,098
Treasury stock, at cost – 2,250 and 2,275 shares at respective dates		(30,032	)		(30,094	)

TOTAL STOCKHOLDERS’ EQUITY		69,662			88,004

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	679,281		$	648,694

See notes to condensed consolidated financial statements.

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OGLEBAY NORTON COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

(UNAUDITED)


	Six Months Ended June 30
	2004			2003
OPERATING ACTIVITIES
Net loss	$	(19,150	)	$	(23,631	)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Cumulative effect of accounting change for asset retirement obligations, net of taxes		—			1,391
Depreciation, depletion, amortization and accretion		16,253			16,376
Deferred vessel costs		(5,068	)		(5,602	)
Deferred winter maintenance costs		(5,581	)		(6,649	)
Deferred income taxes		(827	)		(12,978	)
Restructuring, asset impairments and early retirement programs		1,765			12,336
Reorganization items, net		9,672			—
Loss (gain) on disposition of assets		13			(57	)
Increase in prepaid insurance		(4,034	)		(1,407	)
Increase in cash collateral		(1,178	)		—
Decrease in prepaid pension costs		1,144			1,080
Increase in accounts receivable		(14,203	)		(4,113	)
Decrease in inventories		1,980			5,323
Insurance Escrow		(4,668	)		—
Increase in accounts payable		14,300			160
Increase (decrease) in payrolls and other accrued compensation		2,681			(1,840	)
Increase (decrease) in accrued expenses		1,632			(3,229	)
Increase in accrued interest		5,226			685
Increase (decrease) in income taxes payable		13			(20	)
Increase in postretirement benefits		1,252			1,522
Other operating activities		729			3,890

NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES		1,951			(16,763	)

NET CASH USED FOR REORGANIZATION ITEMS		(4,130	)		—

INVESTING ACTIVITIES
Capital expenditures		(11,752	)		(12,445	)
Acquisition of Businesses		—			(6,831	)
Proceeds from the sale of Redi-Mix		1,225			—
Proceeds from the sale of Richard Reiss		1,800			—
Proceeds from the disposition of assets		2			149

NET CASH USED FOR INVESTING ACTIVITIES		(8,725	)		(19,127	)

FINANCING ACTIVITIES
Repayments on debt		(373,502	)		(66,235	)
Additional debt		393,566			101,879
Financing costs		(7,857	)		(510	)

NET CASH PROVIDED BY FINANCING ACTIVITIES		12,207			35,134

Increase (decrease) in cash and cash equivalents		1,303			(756	)

CASH AND CASH EQUIVALENTS, JANUARY 1		—			756

CASH AND CASH EQUIVALENTS, JUNE 30	$	1,303		$	—

See notes to condensed consolidated financial statements.

-5-

OGLEBAY NORTON COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On February 23, 2004, the Company and all of its wholly owned subsidiaries filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The Company intends to continue operations without interruption. The Company intends to seek emergence from Chapter 11 as rapidly as possible with a new, de-levered capital structure that will enable the Company to move forward on its strategic operating plan.

In furtherance of the Company’s goal of emerging from Chapter 11 as expeditiously as possible, prior to the filing, the Company reached an agreement in principle, subject to certain conditions, with a majority of the holders of its $100,000,000 Senior Subordinated Notes to exchange their notes for equity. The agreement also contemplates having certain of them make a new equity investment in the Reorganized Company. Additionally, prior to filing Chapter 11, the Company accepted a commitment for a new credit facility that, among other things, would retire its existing bank debt. On April 30, 2004, the Bankruptcy Court entered an order authorizing the Company to enter into this facility which was completed in July 2004.

On February 24, 2004, the Bankruptcy Court also entered a variety of orders designed to afford the Company a smooth transition into Chapter 11 and permit the Company to continue operating on a normal basis post-petition. Among others, the Court entered orders authorizing the Company to continue its consolidated cash management system, pay employees their accrued pre-petition wages and salaries, honor the Company’s obligations to its customers and pay some or all of the pre-petition claims of certain vendors that are critical to the continued operations of the Company, subject to certain restrictions. The relief granted in these orders has facilitated the Company’s transition into Chapter 11 and has allowed the Company to continue its operations uninterrupted.

On February 25, 2004, the Honorable Judge Joel B. Rosenthal of the United States Bankruptcy Court for the District of Delaware in Wilmington entered an order granting interim approval for the Company to utilize cash collateral and to borrow up to $40,000,000 from an initial debtor-in-possession (DIP) credit facility. The Company obtained the first DIP credit facility from a syndicate that includes various members of its pre-petition bank group. The Bankruptcy Court’s order provided the Company access to the liquidity necessary to continue operations without disruption and meet its obligations to its suppliers, customers and employees during the Chapter 11 reorganization process.

On April 8, 2004, the Bankruptcy Court granted final approval for the Company to borrow up to $70 million under the first DIP credit facility. During the first half of 2004, the Company incurred $2,841,000 in deferred financing costs, which were commitment fees and professional fees related to the first DIP credit facility.

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OGLEBAY NORTON COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

On April 27, 2004, the Company filed a joint plan of reorganization (Plan) with the United States Bankruptcy Court. The Company filed a disclosure statement on May 14, 2004. The Plan and Disclosure Statement have since been amended and modified to update and include the most current and accurate information. The latest Plan and Disclosure Statement were filed with the Bankruptcy Court on July 30, 2004. The Bankruptcy Court entered an order approving the Disclosure Statement on August 4, 2004. The Plan has not yet been confirmed by the Bankruptcy Court and remains subject to Bankruptcy Court approval. A hearing for confirmation of the Plan has been set by the Bankruptcy Court for September 29, 2004. This 10-Q document has been prepared on a historic basis and does not describe the potential ramifications of the Plan.

On April 28, 2004, the Bankruptcy Court denied a motion to compel the United States Trustee to appoint an equity security holders committee.

On April 30, 2004, the Bankruptcy Court entered an order authorizing the Debtors to enter into a $305 million second DIP credit facility providing the Company with post-petition and exit financing. The Bankruptcy Court also authorized the Company to pay certain commitment fees and other expenses related to this loan. The second DIP credit facility was consummated on July 15, 2004. The second DIP credit facility was used to repay borrowings under the first DIP credit facility and the existing pre-petition bank credit facility and provided a revolving credit facility for working capital while the Company is in Chapter 11. During the first half of 2004, the Company incurred $5,016,000 in deferred financing costs which included the commitment fees and professional fees related to the second DIP credit facility. The Company anticipates that upon confirmation of the Company’s Plan and emergence from Chapter 11, the $305 million second DIP credit facility will be replaced with a five-year $310 million credit facility (plus a $10 million additional amount from March through September of 2005) to provide financing for the Reorganized Company.

In conjunction with the Chapter 11 proceedings, the Company has received an expression of interest in its assets from a consortium of potential buyers. The Company has provided this consortium with certain financial information but does not believe that the pursuit of the transaction, as it is currently proposed by the consortium, is in the best interests of its estate or creditors. Additional due diligence has been requested by the consortium, which may revise its offer. The Company will consider such revised offer, if and when submitted.

While the Company is in Chapter 11, investments in its securities continue to be highly speculative. Shares of the Company’s common stock have little or no value and, if the Plan is confirmed, will be canceled. Additionally, the Company’s shares were delisted from trading on the NASDAQ National Market effective at the opening of business on March 3, 2004. The Company’s shares continue to trade as an Other OTC issue under the symbol OGLEQ. PK. As part of the reorganization plan, the Senior Subordinated Notes will likely be canceled and replaced with the Reorganized Company’s common stock. The reorganized common stock will have a value less than the face value of the Senior Subordinated Notes.

Notwithstanding the progress made to date by the Company towards achieving its restructuring goals, at this time, the ability of the Company to complete a financial restructuring is uncertain and subject to substantial risk. Furthermore, the form and timing of any financial restructuring is uncertain. There can be no assurance that the Company will be successful in achieving its goals, or that any measures that are achievable will result in sufficient improvement to the Company’s financial position. Accordingly, until the time that the Company emerges from bankruptcy and adequate financial restructuring is completed, there will be substantial doubt about the Company’s ability to continue as a going concern. In the event that a financial restructuring is not completed, the Company could be forced to sell a significant portion of its assets to retire debt outstanding or, under certain circumstances, to cease operations. Management remains in active discussions to sell the Company’s mica operations.

-7-

OGLEBAY NORTON COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

These interim unaudited Condensed Consolidated Financial Statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and satisfaction of liabilities in the ordinary course of business, and in accordance with Statement of Position 90-7 (“SOP 90-7”), “Financial Reporting by Entities in Reorganization under the Bankruptcy Code.” Accordingly, all pre-petition liabilities subject to compromise have been segregated in the unaudited Condensed Consolidated Balance Sheet and classified as Liabilities Subject to Compromise, at the estimated amount of allowable claims.

Being classified as a Liability Subject to Compromise neither affirms nor denies the future payment of any of the liabilities so categorized. The payment of all these items is subject to the confirmation of the Plan by the Bankruptcy Court. The following table details the Liabilities Subject to Compromise (in thousands):


Liabilities Subject to Compromise

Current portion of long-term debt	$	196,092
Accounts payable		19,717
Payroll and other accrued compensation		2,556
Accrued expenses		9,565
Accrued interest expense		7,543
Income taxes payable		492
Other long-term liabilities		25,312
Long-term debt		453
Postretirement benefits obligation		50,474

Total Liabilities Subject to Compromise	$	312,204

Liabilities Not Subject to Compromise are separately classified as current and non-current in their respective account classification. Revenues, expenses, realized gains and losses, and provisions for losses resulting from the reorganization are reported separately as Reorganization items, net in the unaudited Condensed Consolidated Statements of Operations. Cash used for reorganization items is disclosed separately in the unaudited Condensed Consolidated Statements of Cash Flows. Amounts related to the Senior Credit Facility, Syndicated Term Loan and first DIP credit facility have been reclassified from a liability subject to compromise to a liability not subject to compromise due to the payment of $235,794,000 on July 15, 2004.

-8-

OGLEBAY NORTON COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and notes to the Condensed Consolidated Financial Statements necessary for a fair presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States. Management of the Company, however, believes that all adjustments considered necessary for a fair presentation of the results of operations for such periods have been made and that all adjustments are of a normal, recurring nature.

The Condensed Consolidated Balance Sheet at December 31, 2003 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s 2003 Annual Report on Form 10-K and first quarter 2004 Form 10-Q.

Operating results are not necessarily indicative of the results to be expected for the year, due to the seasonal nature of certain aspects of the Company’s business. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the Company’s Condensed Consolidated Financial Statements. Actual results could differ from those estimates and assumptions.

The Company utilizes certain tax preference deductions afforded by law to mining companies. Although the amount of these deductions is materially consistent from year to year, these permanent book/tax differences can cause significant fluctuations in the Company’s effective tax rate based upon the level of pre-tax book income or loss. The Company continues to incur tax operating losses and there is an uncertainty regarding the future realization of any portion of these losses as a tax benefit. Accordingly, the Company has recorded a tax valuation allowance for the deferred tax asset and will maintain such an allowance until sufficient positive evidence (i.e., cumulative positive earnings and future taxable income) exists to support the reversal.

In separate transactions during January 2004, the Company sold two assets of its Erie Sand and Gravel operations (the Redi-Mix business unit and the vessel M/V Richard Reiss) to E.E. Austin & Son, Inc. and Grand River Navigation Company, Inc., respectively. The Redi-Mix business unit was comprised of Serv-All Concrete, Inc. and S&J Trucking, Inc. These assets were not considered integral to the long-term strategic direction of the Company. Proceeds from the sales were $1,225,000 for Redi-Mix and $1,800,000 for the vessel. No gain or loss on the sale was recognized by the Company.

-9-

OGLEBAY NORTON COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

In conjunction with the sale of the Redi-Mix business unit, the Company entered into a long-term supply agreement with E. E. Austin & Son, Inc. dated January 21, 2004, pursuant to which the Company will provide certain aggregates to E. E. Austin & Son, Inc. for an initial term of fifteen years beginning on the closing date of the agreement. Additionally, the Company and E. E. Austin & Son, Inc. entered into a sublease agreement dated January 21, 2004, whereby E. E. Austin & Son, Inc. is subleasing property from the Company previously dedicated to the operation of the Redi-Mix business unit. The initial term of the sublease agreement commences on the closing date of the agreement and extends to December 31, 2019. The agreement is renewable in five-year increments thereafter, upon agreement by both parties.

On October 27, 2003, as part of its ongoing business restructuring, the Company sold the Lawn and Garden business of its Global Stone operating segment to Oldcastle Retail, Inc. (Oldcastle). The sales price was $10,000,000 of value subject to working capital adjustments. Based upon those working capital adjustments, the Company received $6,871,000 in cash at closing. The net book value of the Lawn and Garden business at the closing date, including an allocation of the Global Stone segment’s goodwill of $3,316,000, was $10,057,000. The Company recognized a loss on sale of assets of $3,692,000 during the fourth quarter of 2003.

In conjunction with the sale of the Lawn and Garden business, the Company entered into a long-term supply agreement with Oldcastle dated October 27, 2003, pursuant to which the Company will provide certain raw materials at market price to Oldcastle for an initial term of ten years beginning on the closing date of the agreement, with a renewal option for an additional ten-year period. The Company and Oldcastle also entered into a lease and operation of equipment agreement dated October 27, 2003, whereby certain areas of the Company’s York, Pennsylvania, operations previously dedicated to Lawn and Garden operations are being leased at market rates to Oldcastle through December 31, 2005.

In early January 2003, the Company acquired all of the outstanding common shares and other ownership interests in a group of companies together known as Erie Sand and Gravel Company (Erie Sand and Gravel) for $6,831,000 in cash and $4,069,000 in assumed debt, which was refinanced at closing. The acquisition included fixed assets of $5,446,000 and goodwill of $4,149,000. At the time of the acquisition, Erie Sand and Gravel operated a dock, a bulk products terminal, a Great Lakes self-unloading vessel, a ready-mix concrete mixing facility and a trucking company that distributes construction sand and aggregates in the northwest Pennsylvania/western New York region. See Note 4 regarding the disposition of some of these assets. The acquisition of Erie Sand and Gravel is an integral part of the Company’s strategic plan. The net assets and results of operations of Erie Sand and Gravel are included within the Company’s Great Lakes Minerals segment. The Erie Sand and Gravel acquisition was accounted for under the purchase method of accounting.

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OGLEBAY NORTON COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company’s asset retirement obligation balance as of June 30, 2004 and June 30, 2003 was $6,998,000 and $6,015,000, respectively. The accretion expense for the six-month period ended June 30, 2004 and June 30, 2003 was $250,000 and $205,000, respectively.

The Company recognizes all derivative instruments on the balance sheet at fair value. The Company’s pre-petition syndicated banking group had required interest rate protection on 50% of the Company’s Senior Credit Facility and Syndicated Term Loan. Accordingly, the Company entered into interest rate swap agreements that effectively convert a portion of its floating-rate debt to a fixed-rate basis, thus reducing the impact of interest-rate changes on future interest expense. The effect of these agreements was to fix the Company’s interest rate exposure, including the applicable margin charged the Company on its LIBOR-based interest rate. The Company is no longer hedged as all swaps have matured as of June 30, 2004 and will not be replaced.

There was no charge to interest expense relative to hedging activities for the six-month period ended June 30, 2004. The six-month period ended June 30, 2003 was charged $925,000 (or $0.11 per share, assuming dilution). The liability for derivative instruments as of June 30, 2004 was zero due to the expiration of the final swap instrument. At June 30, 2003 the liability for derivative instruments was $4,890,000 and was included in Other Long-Term Liabilities on the Condensed Consolidated Balance Sheet.

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OGLEBAY NORTON COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

9.	The following represents a movement of the reserve for restructuring, asset impairments and early retirement programs recorded by the Company (in thousands):


	Employee Retirement & Severance Benefits			Asset Impairment Charges			Other Exit Costs			Total
Reserve at January 1, 2003	$	765		$	-0-		$	1,269		$	2,034

2003 charge					13,272						13,272
Amounts utilized in 2003					(13,272	)					(13,272	)
Actual expenditures in 2003		(759	)					(428	)		(1,187	)
Provisions and adjustments to prior reserves, net		36						(87	)		(51	)

Remaining reserve at December 31, 2003		42			-0-			754			796

2004 charge					145			1,170			1,315
Amounts utilized in 2004					(95	)		(1,170	)		(1,265	)
Actual expenditures in first half of 2004		(13	)					(87	)		(100	)
Provisions and adjustments to prior reserves, net					(50	)		550			500

Remaining reserve at June 30, 2004	$	29		$	-0-		$	1,217		$	1,246

In the first quarter of 2004, the Company recorded a $1,315,000 asset impairment charge related to the exit and sublease of the Cleveland Marine Services office. Of this charge, $1,170,000 was primarily related to the difference between base rent due until December 2009 and sublease income that will be received into March 2008. An additional $145,000 pretax charge was recorded to write-off leasehold improvements made at the office facility.

In the second quarter of 2004, in response to updated information, the Company made an adjustment to increase the Provision for Restructuring, Asset Impairments and Early Retirement Programs by $500,000 for exit costs related to previously shutdown abrasives facilities.

During the second quarter of 2003, the Company recorded a $13,114,000 pretax asset impairment charge (or $1.57 per share, assuming dilution) to reduce the net book value of the Performance Minerals segment’s Specialty Minerals operation to its estimated fair value, as determined by management based on an independent third-party appraisal. The charge reduced the carrying value of the operation’s land, depreciable fixed assets and mineral reserves by $2,610,000, $2,334,000 and $8,170,000, respectively. Fair values were estimated using a discounted cash flow valuation technique incorporating a discount rate commensurate with the risks involved for each group of assets.

10.

On May 1, 2003, Eveleth Mines LLC (d.b.a. EVTAC Mining) filed for protection under Chapter 11 of the U.S. Bankruptcy Code. EVTAC Mining is a non-trade debtor to the Company for obligations arising out of a prior relationship. The Company recognized a charge of $888,000 (or $0.17 per share, assuming dilution) in the first quarter of 2003 to establish a reserve for this matter. The charge was included in Other Expense on the Condensed Consolidated Statement of Operations. Additionally, during the third quarter of 2003, due to a change in circumstances, the Company recognized another $784,000 (or $0.09 per share, assuming dilution) charge to fully reserve for this matter.

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OGLEBAY NORTON COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

11.

During the third quarter of 2003, the Company agreed with one of its several insurers to fund a settlement insurance trust (the Trust) to cover a portion of settlement and defense costs arising out of asbestos litigation. The Company will have access to Trust funds to cover settlements and defense costs and will not have the obligation to cover such costs from its own funds. Additionally, the agreement provides that the Company may use up to $4,000,000 of the Trust’s assets to cover the cost of any insurable or insurance related expenses. A total of $3,576,000 has been received in reimbursement of insurance expenditures incurred through June 30, 2004. An amount of $424,000 remains in the Trust as of June 30, 2004.

During the second quarter of 2004, the Company completed a settlement with an insolvent insurance group for $4,668,000 in respect of past and future claims. The $4,668,000 was recorded as Other Income in the second quarter of 2004, and the restricted cash is recorded as an Other Current Asset on the Condensed Consolidated Balance Sheet as of June 30, 2004.

12.	The Company has contributed $2,747,000 to its pension plans in the first half of 2004. The Company expects to contribute approximately $3,219,000 to its pension plans for the full year 2004. The components of net periodic benefit cost is as follows (in thousands):


	Three Months Ended June 30						Six Months Ended June 30
	2004			2003			2004			2003
Components of net periodic benefit cost:

Service Cost	$	681		$	757		$	1,170		$	1,203
Interest Cost		1,515			1,578			2,713			2,703
Expected return on plan assets		(2,236	)		(1,758	)		(3,710	)		(3,132	)
Amortization of prior service cost		105			103			131			128
Amortization of initial net asset		0			(4	)		0			(7	)
Recognized net actuarial loss		343			636			887			1,140

Net periodic benefit cost	$	408		$	1,312		$	1,191		$	2,035

Consistent with other operating expenses, the first quarter and a portion of the second quarter Great Lakes Minerals’ pension expenses are deferred and expensed over the production and sailing seasons, the effect of which was a net deferral of expense of $246,000 in the first half of 2004 and $260,000 in the first half of 2003.

-13-

OGLEBAY NORTON COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

13.

The Company accounts for stock-based compensation using the intrinsic value method of accounting in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The table below summarizes stock compensation cost included in the determination of net loss using the intrinsic value method and the impact on net loss and net loss per share, basic and assuming dilution, had the Company accounted for stock-based compensation using the alternative fair value method of accounting (in thousands, except per share amounts):


	Three Months Ended June 30						Six Months Ended June 30
	2004			2003			2004			2003
Stock compensation cost included in the determination of net loss, as reported—net of taxes	$	11		$	89		$	19		$	155

Net loss, as reported	$	(1,413	)	$	(12,581	)	$	(19,150	)	$	(23,631	)
Estimated fair value of stock compensation cost, net of taxes		(61	)		(203	)		(122	)		(405	)

Net loss, as adjusted	$	(1,474	)	$	(12,784	)	$	(19,272	)	$	(24,036	)

Net loss per share, as reported—basic and assuming dilution	$	(0.26	)	$	(2.47	)	$	(3.66	)	$	(4.64	)

Net loss per share, as adjusted—basic and assuming dilution	$	(0.28	)	$	(2.51	)	$	(3.68	)	$	(4.73	)

-14-

OGLEBAY NORTON COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

14.	The following table sets forth the reconciliation of the Company’s net (loss) to its comprehensive (loss)—in thousands:


	Three Months Ended June 30						Six Months Ended June 30
	2004			2003			2004			2003
Net loss	$	(1,413	)	$	(12,581	)	$	(19,150	)	$	(23,631	)

Other comprehensive loss:
Derivative instruments:
Gain (loss) on derivatives, net of taxes		105			48			198			(103	)
Reclassification adjustments to earnings, net of taxes		289			1,172			570			2,758

Total derivative instruments		394			1,220			768			2,655

Comprehensive loss	$	(1,019	)	$	(11,361	)	$	(18,382	)	$	(20,976	)

15.	The calculation of net loss per share follows (in thousands, except per share amounts):


	Three Months Ended June 30						Six Months Ended June 30
	2004			2003			2004			2003
Average numbers of shares outstanding:

Average number of shares outstanding—basic		5,240			5,097			5,228			5,085
Dilutive effect of stock plans		—			—			—			—

Average number of shares outstanding—assuming dilution		5,240			5,097			5,228			5,085

Net loss per share—basic and assuming dilution:

Loss before cumulative effect of accounting change	$	(1,413	)	$	(12,581	)	$	(19,150	)	$	(22,240	)
Cumulative effect of accounting change for asset retirement obligations, net of taxes		—			—			—			(1,391	)

Net loss	$	(1,413	)	$	(12,581	)	$	(19,150	)	$	(23,631	)

Loss before cumulative effect of accounting change	$	(0.26	)	$	(2.47	)	$	(3.66	)	$	(4.37	)
Cumulative effect of accounting change for asset retirement obligations, net of taxes		—			—			—			(0.27	)

Net loss per share—basic and assuming dilution	$	(0.26	)	$	(2.47	)	$	(3.66	)	$	(4.64	)

-15-

OGLEBAY NORTON COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

16.

The Company, headquartered in Cleveland, Ohio, supplies essential natural resources to industrial and commercial customers. The Company has aligned its businesses into three reporting segments focused on its key markets served. This segment reporting structure aligns operations which share business strategies, are related by geography and product mix, and reflect the way management evaluates the operating performance of its businesses. The operations are reported as: Great Lakes Minerals, which is the largest and only fully integrated producer and bulk transporter of limestone on the Great Lakes and combines the Company’s Michigan Limestone, Marine Services and Erie Sand and Gravel operations; Global Stone, whose lime, limestone fillers, chemical limestone, and construction aggregate operate primarily in the Southeast and Mid-Atlantic regions; and Performance Minerals, which mines and processes specialized industrial minerals, primarily high-purity silica sands and muscovite mica, and combines the Company’s Industrial Sands and Specialty Minerals operations.

Primarily through a direct sales force, the Company serves customers in a wide range of industries, including building products, energy, environmental and industrial. The composition of the segments and measure of segment profitability is consistent with the segment reporting structure used by the Company’s management to evaluate the operating performance of the Company’s businesses.

-16-

OGLEBAY NORTON COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table sets forth the operating segment information as of and for the six months ended June 30, 2004 and 2003 (in thousands):


	Great Lakes Minerals			Global Stone			Performance Minerals			Total Operating Segments			Corporate And Other			Consolidated
2004
Identifiable assets	$	279,961		$	252,746		$	77,251		$	609,958		$	69,323		$	679,281
Depreciation, depletion, amortization and accretion		5,584			6,865			3,662			16,111			142			16,253
Capital expenditures		7,079			3,859			676			11,614			138			11,752
Net sales and operating revenues	$	60,553		$	83,035		$	49,517		$	193,105			(1,099	)	$	192,006

Operating income (loss), before impairment charge	$	4,613		$	7,644		$	7,062		$	19,319		$	(7,845	)	$	11,474
Provision for restructuring, asset impairments and early retirement programs		(1,315	)								(1,315	)		(500	)		(1,815	)

Operating income (loss)		3,298			7,644			7,062			18,004			(8,345	)		9,659
Reorganization items, net														(9,672	)		(9,672	)
Loss on disposition of assets		(9	)					(4	)		(13	)					(13	)
Interest expense														(24,960	)		(24,960	)
Other income, net														5,009			5,009

Income (loss) before income taxes and cumulative effect of accounting change	$	3,289		$	7,644		$	7,058		$	17,991		$	(37,968	)	$	(19,977	)

2003
Identifiable assets	$	287,938		$	271,407		$	79,081		$	638,426		$	57,530		$	695,956
Depreciation, depletion, amortization and accretion		5,576			7,072			3,578			16,226			150			16,376
Capital expenditures		6,527			3,838			1,557			11,922			523			12,445
Net sales and operating revenues	$	51,436		$	87,641		$	41,318		$	180,395			(1,005	)	$	179,390

Operating income (loss), before impairment charge	$	781		$	7,707		$	5,251		$	13,739			(9,055	)	$	4,684
Provision for restructuring, asset impairments and early retirement programs								(13,114	)		(13,114	)					(13,114	)

Operating income (loss)		781			7,707			(7,863	)		625			(9,055	)		(8,430	)

Gain (loss) on disposition of assets		24			(10	)		(20	)		(6	)		63			57
Interest expense														(26,383	)		(26,383	)
Other expense, net														(2,122	)		(2,122	)

Income (loss) before income taxes and cumulative effect of accounting change	$	805		$	7,697		$	(7,883	)	$	619		$	(37,497	)	$	(36,878	)

-17-

OGLEBAY NORTON COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table sets forth the operating segment information as of and for the three months ended June 30, 2004 and 2003 (in thousands):


	Great Lakes Minerals			Global Stone		Performance Minerals			Total Operating Segments			Corporate And Other			Consolidated
2004
Identifiable assets	$	279,961		$	252,746	$	77,251		$	609,958		$	69,323		$	679,281
Depreciation, depletion, amortization and accretion		5,394			3,505		1,789			10,688			74			10,762
Capital expenditures		4,109			2,259		210			6,578			54			6,632
Net sales and operating revenues	$	53,843		$	42,848	$	26,980		$	123,671		$	(1,099	)	$	122,572

Operating income (loss), before impairment charge	$	5,252		$	4,875	$	4,813		$	14,940		$	(3,534	)	$	11,406
Provision for restructuring, asset impairments and early retirement programs													(500	)		(500	)

Operating income (loss)		5,252			4,875		4,813			14,940			(4,034	)		10,906
Reorganization items, net													(5,107	)		(5,107	)
Gain on disposition of assets							2			2						2
Interest expense													(12,405	)		(12,405	)
Other income, net													4,916			4,916

Income (loss) before income taxes and cumulative effect of accounting change	$	5,252		$	4,875	$	4,815		$	14,942		$	(16,630	)	$	(1,688	)

2003
Identifiable assets	$	287,938		$	271,407	$	79,081		$	638,426		$	57,530		$	695,956
Depreciation, depletion, amortization and accretion		5,348			3,722		1,792			10,862			41			10,903
Capital expenditures		3,519			1,626		796			5,941			169			6,110
Net sales and operating revenues	$	47,233		$	47,334	$	22,944		$	117,511		$	(1,005	)	$	116,506

Operating income (loss), before impairment charge	$	2,844		$	4,893	$	3,648		$	11,385		$	(4,493	)	$	6,892
Provision for restructuring, asset impairments and early retirement programs							(13,114	)		(13,114	)					(13,114	)

Operating income (loss)		2,844			4,893		(9,466	)		(1,729	)		(4,493	)		(6,222	)
(Loss) gain on disposition of assets		(2	)		16		(20	)		(6	)					(6	)
Interest expense													(13,102	)		(13,102	)
Other expense, net													(531	)		(531	)

Income (loss) before income taxes and cumulative effect of accounting change	$	2,842		$	4,909	$	(9,486	)	$	(1,735	)	$	(18,126	)	$	(19,861	)

-18-

ITEM 2. MA NAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FINANCIAL CONDITION

-19-

FINANCIAL CONDITION – (Continued)

On April 28, 2004, the Bankruptcy Court denied a motion to compel the United States Trustee to appoint an equity security holders committee.

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

-20-

FINANCIAL CONDITION – (Continued)

The Company’s cash used for operating activities, net of cash used for reorganization expenses, was $2,179,000 in the first half of 2004 compared with a use of cash of $16,763,000 in the first half of 2003. Net loss before taxes was significantly lower for the six-month period ended June 30, 2004 compared with the same period in the prior year. The cash used in the first six months of 2004 was primarily the result of the increase in accounts receivable and prepaid expenses, specifically prepaid insurance, deferred winter work and deferred vessel maintenance. The net cash used was partially offset by the increase in the accounts payable, accrued expenses, accrued interest and payroll and other accrued compensation. These increases are due to the Bankruptcy Court stay issued on pre-petition liabilities prohibiting payment and result in their reclassification to Liabilities Subject to Compromise pending final approval of the Company’s Plan.

Capital expenditures were $11,752,000 for the first six months of 2004 compared with $12,445,000 for the same period in 2003. During the six-month period ended June 30, 2004, expenditures for replacement of existing equipment totaled $9,156,000 while expansion projects received funding of $1,242,000, with the balance of $1,354,000 allocated to quarry development. During the six-month period ended June 30, 2003, capital expenditures for replacement of existing equipment, expansion projects and quarry development totaled $8,883,000, $2,037,000 and $1,525,000, respectively. Full-year capital expenditures for 2004 are expected to approximate $24,500,000.

During the first six months of 2004, the Company’s additional borrowings exceeded debt repayments by $20,064,000 compared with the first six months of 2003 when additional borrowings exceeded debt repayments by $35,644,000. Due to the seasonal nature of many of the Company’s operations, the Company is customarily a net borrower during the first quarter and the beginning of the second quarter each year. Availability under the Company’s Senior Credit facility is used to fund working capital requirements, winter work for the Great Lakes Minerals segment and capital expenditures during this period. The operations of the Great Lakes Minerals segment are substantially dormant during the first quarter and the beginning of the second quarter. Borrowings normally tend to peak during the middle of the second quarter, with pay-downs beginning in the middle of the third quarter. The seasonal borrowings in the first six months of 2004 were lower than in the prior year due to the benefit of better operating results, $3,025,000 in proceeds from the sale of Company assets and the Bankruptcy Court stay prohibiting payment of pre-petition liabilities. Additional decreases in financing activities from the six months ended June 30, 2003 resulted from lower interest costs for the first half of 2004. The borrowings in the first half of 2003 were also higher than the same period in 2004 due to the Erie Sand and Gravel acquisition. This was partially offset by the cash outlays for reorganization items related to the Bankruptcy and an increase in financing costs related to the first and second DIP facilities. The Company anticipates being a net borrower for the year.

The Company did not declare a dividend in the first half of 2004 or 2003. The Company’s 2001 amendments to its financial covenants on its Syndicated Term Loan and Senior Credit Facility prohibit the payment of cash dividends. The payment of dividends is also prohibited by the first and second DIP facilities.

-21-

FINANCIAL CONDITION – (Continued)

The Company continues to incur tax operating losses and there is an uncertainty regarding the future realization of any portion of these losses as a tax benefit. Accordingly, the Company has recorded a tax valuation allowance for net deferred tax assets and will maintain such an allowance until sufficient positive evidence (i.e., cumulative positive earnings and future taxable income) exists to support the reversal of the valuation allowance.

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

The suits filed pursuant to the Jones Act are filed in Federal Court and have been assigned to the Multidistrict Litigation Panel (MDL). All such cases are currently dormant and have been so for many years.

The Company believes that both the asbestos and silica product liability claims are covered by multiple layers of insurance policies and an insurance trust from multiple sources. In the third quarter 2003, the Company agreed with one of its several insurers to fund a settlement insurance trust (the Trust) to cover a portion of settlement and defense costs arising out of asbestos litigation. The Company will have access to Trust funds to cover settlements and defense costs and will not have the obligation to cover such costs from its own funds. Additionally, the Trust provides that the Company may use up to a maximum of $4,000,000 to cover the cost of any other insurable or insurance related expense. A total of $3,576,000 has been received in reimbursement of insurance expenditures incurred through June 30, 2004. At June 30, 2004, the Company was a co-defendant in cases alleging asbestos-induced illness involving claims of approximately 72,000 claimants. With respect to silica claims, the Company at June 30, 2004 was co-defendant in cases involving approximately 22,000 claimants. The Company has been and will continue to be responsible for funding a small percentage of all silica settlements and defense costs. Management believes that its share of settlements on an annual basis is not significant, although the Company continues to maintain a reserve on its balance sheet to address this contingency.

During the second quarter of 2004, the Company completed a settlement with an insolvent insurance group for $4,668,000 in respect of past and future claims. The $4,668,000 was recorded as Other Income in the second quarter 2004, and the restricted cash is recorded as an Other Current Asset on the Condensed Consolidated Balance Sheet as of June 30, 2004.

-22-

FINANCIAL CONDITION – (Continued)

The exposure of persons to silica and the accompanying health risks have been and continue to be significant issues confronting the industrial minerals industry in general, and specifically our Performance Minerals segment. Proposed changes to standards for exposure to silica are under review by the United States Occupational Safety and Health Administration. This review could result in more stringent worker safety standards or, in the alternative, requirements for additional action on the part of silica users regarding lower permissible exposure limits for silica.

More stringent worker safety standards or additional action requirements, including the costs associated with these revised standards or additional action requirements, and actual or perceived concerns regarding the threat of liability, or health risks, including silicosis, associated with silica use, may affect the buying decisions of the users of our silica products. If worker safety standards are made more stringent, if the Company is required to take additional action regarding lower permissible exposure limits for silica, or if the Company’s customers decide to reduce their use of silica products based on actual or perceived health risks or liability concerns, the Company’s operating results, liquidity and capital resources could be materially adversely affected. The extent of any material adverse effect would depend on the nature and extent of the changes to the exposure standards, the cost of meeting and our ability to meet more stringent standards, the extent of any reduction in our customer’s use of our silica products and other factors that cannot be estimated at this time.

-23-

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO

SIX MONTHS ENDED JUNE 30, 2003

The Company’s net sales and operating revenues increased 7% to $192,006,000 in the first half of 2004. This is a $12,616,000 increase over the $179,390,000 in net sales and operating revenues generated in the first half of 2003. The Great Lakes Minerals and Performance Minerals segments accounted for the net sales and operating revenue increase in the first half with gains of $9,117,000 and $8,199,000, respectively. Demand for limestone and iron ore on the Great Lakes has increased sales for the Michigan quarries and for the vessel operations. In addition, the increase in tons shipped resulted in increased freight revenue. The Company has improved its market share with its gas and oil well fracturing sand and has seen strong pricing power with lime sales. This has been partially offset because of the revenue loss from disposed businesses, mainly the Lawn and Garden business. In 2003, severe weather in the Great Lakes, Mid-Atlantic and Southeast regions had hampered the sales of each segment.

The operating income for the first half of 2004 was $9,659,000, compared with the $8,430,000 operating loss reported in the first half of 2003. The operating loss in the first half of 2003 includes a pretax asset impairment charge of $13,114,000 (or $1.57 per share net loss, assuming dilution) related to the write-down of the Performance Minerals segment’s Specialty Minerals operation to fair value. In the first quarter of 2004, the Company recorded a $1,315,000 impairment charge related to the exit and sublease of the Cleveland Marine Services office. In the second quarter of 2004, the Company recorded $500,000 for exit costs related to previously shutdown abrasives facilities. Management believes excluding the impairment and restructuring charges provides a better comparison between operating results. Excluding the impairment and restructuring charges, the Company had operating income of $11,474,000 and $4,684,000 in the first half of 2004 and 2003, respectively, a $6,790,000 or 145% increase over the same period a year ago. The Company continues to realize benefits because of increasing demand for its products and cost- cutting activities over the past year. Operating income for the three segments in the first half of 2004 was $19,319,000 compared to $13,739,000, excluding the impairment charges. This is an increase of 41% over the segment operating income in the first half of 2003.

The net loss for the first half of 2004 was $19,150,000, which represents a loss of $3.66 per share on a fully diluted basis. This compares to the net loss of $23,631,000, or a loss of $4.64 per share, assuming full dilution, in the six months ended June 30, 2003. The 2003 net loss was increased by the $13,114,000 impairment, discussed above. The current year net loss includes $9,672,000 of reorganization expenses in the first half of 2004 related to the Bankruptcy filing. Additionally, the Company recorded a non-cash expense of $13,811,000 related to the reduction in the tax benefit as of June 30, 2004. Due to the Company’s continuing tax operating losses, it cannot justify creating a net deferred tax asset on its balance sheet and therefore, is limited in its income tax benefit for 2004. In addition, during the second quarter of 2004, the Company completed a settlement with an insolvent insurance group for $4,668,000 in respect of past and future claims. The $4,668,000 was recorded as Other Income in the second quarter 2004. The current period gains generated by the operating segments were more than offset by the aforementioned expenses related to the reorganization and the reduction in the tax benefit.

-24-

RESULTS OF OPERATIONS – (Continued)

SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO

SIX MONTHS ENDED JUNE 30, 2003

Great Lakes Minerals

The Great Lakes Minerals segment net sales and operating revenue increased $9,117,000, or 18%, to $60,553,000 for the first six months of 2004 from $51,436,000 for the first half of 2003. The increase in net sales and operating revenues was attributable to two factors: 1) higher demand for metallurgical and aggregate limestone due to general economic improvement and the recovery of the U.S. integrated steel industry, and 2) increased vessel revenues, which were the result of higher market demand, better weather conditions than a year ago and higher water levels. The higher water levels permit heavier lading of the vessels. The Company also generated additional revenue through its ship repair business at its Erie location.

Cost of goods sold and operating expenses for the Great Lakes Minerals segment were $46,525,000 for the six months ended June 30, 2004 compared with $41,045,000 for the same period in 2003, an increase of $5,480,000 or 13%. Costs of goods sold and operating expenses, as a percentage of net sales and operating revenues, were 77% in the first half of 2004 and 80% in the same period in 2003. The improved operating margin as a percentage of net sales and operating revenues is primarily a result of the higher production levels, which generate cost efficiencies by absorbing fixed costs and higher water levels which increase revenues with little impact on costs. This has been partially offset by the higher fuel costs.

Operating income for the six months ended June 30, 2004 was $3,298,000 as compared with operating income of $781,000 for the same period in 2003. In the first quarter, the Company recorded a $1,315,000 impairment charge related to the exit and sublease of the former headquarters office of the Marine Services business. Excluding the impairment charge, the operating income for the first half of 2004 is $4,613,000. The increase in the operating income is due to increased demand and volume efficiencies. These gains were partially offset by increases in energy costs.

Global Stone

Net sales for the Company’s Global Stone segment decreased $4,606,000 to $83,035,000 for the six months ended June 30, 2004 from $87,641,000 in the same period of 2003. The decrease was a result of the sale of the Lawn and Garden bagging business, which was sold in the third quarter of the prior year. Lawn and Garden net sales for the six months ended June 30, 2003 were $14,515,000. After adjusting for the sale of the Lawn and Garden bagging business, the segment shows an increase in sales of $9,909,000 over the prior year. This segment is benefiting from increased demand for aggregate, roofing fillers and lime, and renewed demand for fillers in the carpet and flooring markets. Additionally, this segment is experiencing pricing power in certain lime markets due to the fact that the lime group is running at full capacity and there has been a significant increase in demand from the Asian steel markets.

-25-

RESULTS OF OPERATIONS – (Continued)

SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO

SIX MONTHS ENDED JUNE 30, 2003

Global Stone (Continued)

Cost of goods sold for the Global Stone segment totaled $64,155,000 in the six months ended June 30, 2004 compared with $68,468,000 in the six months ended June 30, 2003, a decrease of $4,313,000. Cost of goods sold, as a percentage of net sales, was 77% and 78% in the first half of 2004 and 2003, respectively. The slight increase in operating margins is attributable to incremental demand for aggregate stone and improved pricing in lime sales offset by higher energy and maintenance costs. Additionally, the Lawn and Garden business was a lower margin business.

The segment contributed $7,644,000 to operating income for the six months ended June 30, 2004, compared with $7,707,000 in the same period of 2003. Operating income increased compared to the same period in the prior year after excluding the contribution of the Lawn and Garden business in 2003. This increase is due to the stronger demand for aggregate, roofing fillers, lime, and a renewed demand for fillers in the carpet and flooring markets. The incremental operating income from these higher sales was partially offset by increases in energy and maintenance costs.

Performance Minerals

The Performance Minerals segment had net sales of $49,517,000 for the first half of 2004, an increase of $8,199,000 or 20%, over the net sales of $41,318,000 for the same period in 2003. The increase in net sales was substantially attributable to the strong industry demand for sands used in gas and oil well fracturing and improved market share. Demand is higher than the same period in 2003 due to increased oil and gas market prices, which have resulted in more drilling activity. Additional market development for gas and oil well fracturing sands was experienced in Canada and the Rocky Mountain region.

Cost of goods sold for the Performance Minerals segment was $36,186,000 for the first half of 2004, which was 20% higher than the $30,047,000 in the same period of 2003 primarily due to the increase in net sales discussed above. Cost of goods sold as a percentage of net sales remained unchanged at 73% for the first half of 2004 and 2003. Production efficiencies were offset by increases in maintenance and energy costs.

Operating income for the Performance Minerals segment was $7,062,000 for the first six months of 2004 compared with an operating loss of $7,863,000 for the same period of 2003. For comparison purposes, excluding the prior year $13,114,000 pretax impairment charge related to the segment’s Specialty Minerals operation, the segment had operating income of $5,251,000 for the first half of 2003. The $1,811,000 increase in operating income from 2003 directly reflects the higher sales volumes and a consistent margin rate.

-26-

RESULTS OF OPERATIONS – (Continued)

SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO

SIX MONTHS ENDED JUNE 30, 2003

Depreciation, Depletion, Amortization and Accretion

Depreciation, depletion, amortization and accretion expense was $16,253,000 for the six months ended June 30, 2004 compared with $16,376,000 for the same period of 2003. Depreciation, depletion, amortization and accretion expense were 8% and 9% of total net sales and operating revenues in 2004 and 2003, respectively. The reduction in the percent to net sales demonstrates the Company’s ability to leverage increases in net sales and operating revenue on its asset base.

General, Administrative and Selling Expenses

Total general, administrative and selling expenses were $18,418,000 for the first half of 2004 compared with $19,902,000 for the comparable period in 2003. The total general, administrative and selling expense decreased $1,484,000 in the first half of 2004 versus the first half of 2003. General, administrative and selling expenses as a percentage of net sales and operating revenue was 10% in 2004 compared with 11% in 2003. Headcount reductions, particularly at the corporate office and the Great Lakes Mineral segment, which were implemented throughout 2003, were the major contributors to the improved leverage in the general, administrative and selling expense. Some further benefits were seen in reduced pension expense. These gains were partially offset by higher expense on Corporate insurance and higher management bonus accruals. Additionally, the 2003 expense includes some items that are similar to expenses being grouped as reorganization items, net in 2004.

Provision for Restructuring, Asset Impairments and Early Retirement Programs

During the second quarter of 2003, the Company recorded a $13,114,000 pretax asset impairment charge (or $1.57 per share net loss, assuming dilution) to reduce the net book value of the Performance Minerals segment’s Specialty Minerals operation to its estimated fair value, as determined by management based on a third-party appraisal. The charge reduced the carrying value of the operation’s land, depreciable fixed assets and mineral reserves by $2,610,000, $2,334,000 and $8,170,000, respectively. Fair values were estimated using a discounted cash flow valuation technique incorporating a discount rate commensurate with the risks involved for each group of assets. Cash flow and operating income shortfalls from expectations indicated that an impairment review was necessary.

Other

Interest expense was $24,960,000 in the first half of 2004, a $1,423,000 decrease compared with $26,383,000 for the first half of 2003. Several factors contributed to the net decrease in the interest expense. A cessation of accrued interest expense on certain debt instruments and a reduction in hedge interest expense were offset by higher interest rate spreads on the secured debt. The Company’s interest on hedges was $1,274,000 in the first half of 2004 compared with $4,800,000 in the same period of 2003. The company is no longer required to hedge at least 50% of its senior debt; as a result, the Company’s remaining $50,000,000 notional value hedge, which expired as of June 30, 2004, was not replaced. This is compared with $220,000,000 in notional value throughout the first quarter and $170,000,000 in notional value throughout the second quarter of 2003. Interest on bank debt was $19,273,000 in 2004 compared with $19,477,000 in 2003. In 2003, the Company amended its bank agreements with its lenders on its Senior Credit Facility, Term Loan and Senior Secured Notes. These amendments were needed because of anticipated defaults under the Company’s existing agreements. The result of these amendments increased the margin over LIBOR from 4% at June 30, 2003 to 6% for the first half of 2004. Additionally, amendments to the Company’s Senior Secured Notes increased the payment-in-kind rate from 5% as of June 30, 2003 to 6% for the six months ended June 30, 2004. These increases were offset by the cessation of interest accrued on the Company’s 10% Senior Subordinated Notes as of the bankruptcy filing. The Senior Subordinated Notes are deemed unsecured by the Company and interest is no longer being accrued.

-27-

RESULTS OF OPERATIONS – (Continued)

SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO

SIX MONTHS ENDED JUNE 30, 2003

The Company’s amortization of deferred financing fees was $4,365,000 in the first half of 2004 compared with $1,993,000 in 2003. The increase in financing fee amortization stems from the significant capitalized amendment fees paid to senior lenders throughout 2003 affecting all of 2004, as well as the capitalization of the DIP financing fees at the end of the first quarter and throughout the second quarter of 2004. The remainder of interest expense was related to capital leases and notes payable.

The reorganization items represent legal and professional fees associated with the bankruptcy petition filing and its related activities. These expenses totaled $9,672,000 for the six months ended June 30, 2004.

During the second quarter of 2004, the Company completed a settlement with an insolvent insurance group for $4,668,000 in respect of past and future claims. The $4,668,000 was recorded as Other Income in the second quarter of 2004 and the restricted cash is recorded as an Other Current Asset on the Condensed Consolidated Balance Sheet as of June 30, 2004.

On May 1, 2003, Eveleth Mines LLC (d.b.a. EVTAC Mining) filed for protection under Chapter 11 of the U.S. Bankruptcy Code. EVTAC Mining is a non-trade debtor to the Company for obligations arising out of a prior relationship. The Company recognized an after-tax charge of $888,000 (or $0.17 per share, assuming dilution) in the first quarter of 2003 to establish a reserve for this matter. The charge was included in Other Expense on the Condensed Consolidated Statement of Operations. Additionally, during the third quarter of 2003, due to a change in circumstances, the Company recognized another $784,000 (or $0.09 per share, assuming dilution) charge to fully reserve for this matter.

-28-

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO

THREE MONTHS ENDED JUNE 30, 2003

The Company’s net sales and operating revenues of $122,572,000 in the second quarter of 2004 were 5% higher than net sales and operating revenues of $116,506,000 in the second quarter of 2003. The increase in net sales and operating revenues for the second quarter of 2004 was primarily due to the improved demand for aggregate and metallurgical stone in the Great Lakes segment; increased volume demand for bulk transportation services and higher water levels on the Great Lakes; a stronger demand for oil and gas fracturing sands at the Company’s Performance Minerals segment; increased volume demand for lime, crushed stone and roofing fillers in the Global Stone segment, and stronger pricing power for lime. These increases to net sales and operating revenues were partially offset by decreased volume related to the sale of the Lawn and Garden bagging business.

Operating income in the second quarter of 2004 was $10,906,000 compared to an operating loss of $6,222,000 in the same period of 2003. The operating loss in the second quarter of 2003 includes a pretax asset impairment charge of $13,114,000 related to the write-down of the Performance Minerals segment’s Specialty Minerals operation to fair value. In the second quarter of 2004, the Company recorded $500,000 for exit costs related to previously shutdown abrasives facilities. Management believes excluding the impairment and restructuring charges provides a better comparison between operating results. When adjusting for the impairment and restructuring charges, the operating income in the second quarter of 2004 was $4,514,000 higher than the same quarter of 2003. The major factors contributing to this operating income increase are increases in sales and production volumes at all three operating segments, higher water levels, which enabled the vessels to carry more tons per trip, and pricing power for the lime operations.

The net loss for the second quarter of 2004 was $1,413,000, an improvement of $11,168,000 from the net loss of $12,581,000 in the second quarter of 2003. The net loss in the prior year period included an asset impairment charge of $13,114,000, noted earlier. The net loss in the current quarter includes a $7,005,000 reduction in the income tax benefit. Due to the Company’s continuing tax operating losses, it cannot justify creating a net deferred tax asset on its balance sheet and therefore, is limited in its income tax benefit for 2004. In addition, reorganization expenses of $5,107,000 were incurred in the second quarter of 2004 related to the Bankruptcy proceedings. Finally, during the second quarter of 2004, the Company completed a settlement with an insolvent insurance group for $4,668,000 in respect of past and future claims. The $4,668,000 was recorded as Other Income in the 2nd quarter of 2004.

Operating results of the Company’s business segments for the three months ended June 30, 2004 and 2003 are discussed below.

-29-

RESULTS OF OPERATIONS - (Continued)

THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO

THREE MONTHS ENDED JUNE 30, 2003

Great Lakes Minerals

Net sales and operating revenues for the Company’s Great Lakes Minerals segment increased $6,610,000, or 14% in the second quarter of 2004 to $53,843,000 as compared with $47,233,000 in the same period in 2003. The increase in net sales and operating revenues was attributable to additional tons shipped and higher water levels. Revenues from the quarries in Michigan improved with increased demand in both the aggregate and metallurgical markets.

Cost of goods sold and operating expenses for the Great Lakes Minerals segment were $41,118,000 for the three months ended June 30, 2004 compared with $37,039,000 for the same period in 2003. Cost of goods sold and operating expenses as a percentage of net sales and operating revenues were 76% in the second quarter of 2004 and 78% in the second quarter of 2003. The improved operating margin is primarily a result of improved weather conditions and efficiencies gained from increased demand resulting in higher production volume. In addition, operating margin in the second quarter of the prior year was negatively affected by a successful Company program that curtailed production in order to reduce inventory levels. These factors contributing to improvement in operating margin over the prior year were partially offset by higher fuel costs, increased retiree expense and higher employee healthcare costs.

Operating income for the second quarter of 2004 was $5,252,000 as compared with operating income of $2,844,000 for the second quarter of 2003. The increase in operating income of $2,408,000 is primarily the result of production efficiencies gained by the higher sales volume and other factors discussed above.

Global Stone

Net sales for the Company’s Global Stone segment decreased $4,486,000 to $42,848,000 for the three months ended June 30, 2004. This was a 9% reduction in net sales from the $47,334,000 generated in the three months ended June 30, 2003. The net sales decrease is due to the approximately $7,931,000 in net sales lost due to the sale of the Lawn and Garden bagging business. After adjusting the second quarter 2003 net sales for the Lawn and Garden bagging business, the segment shows an increase in net sales for the second quarter 2004 of $3,445,000. The segment is benefiting from improved volume demand for crushed stone, lime, roofing fillers and a renewed demand for fillers in the carpet and flooring markets. Due to the high demand, certain of the segment’s lime operations are currently producing at full capacity and, as a result, the Company is experiencing additional pricing power.

-30-

RESULTS OF OPERATIONS - (Continued)

THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO

THREE MONTHS ENDED JUNE 30, 2003

Global Stone (Continued)

Cost of goods sold for the Global Stone segment totaled $32,124,000 for the three-month period ended June 30, 2004 compared with $36,506,000 for the three-month period ended June 30, 2003. Cost of goods sold as a percentage of net sales was 75% and 77% in the second quarter of 2004 and 2003, respectively. The slight decrease in cost of goods sold as a percentage of net sales between the two quarters is primarily due to higher production volumes and the related cost efficiency. Additionally, the former Lawn and Garden operation was a lower-margin business.

The segment contributed $4,875,000 to operating income for the three months ended June 30, 2004 compared with $4,893,000 in the same period of 2003. The net decrease in the Global Stone segment’s operating income quarter to quarter is due to the sale of the Lawn and Garden business and higher maintenance costs, partially offset by income gains due to the increase in demand.

Performance Minerals

Net sales for the Company’s Performance Minerals segment were $26,980,000 for the second quarter of 2004, up 18% from $22,944,000 for the second quarter of 2003. The increase in net sales during the second quarter of 2004 was attributed to increased sales volumes and higher freight revenues. Sand volume increased during the quarter as compared to 2003 primarily due to increased demand for oil and gas fracturing sands. The increased demand for these sands is due to higher market prices for oil and gas, which have resulted in more drilling activity.

Cost of goods sold for the Performance Minerals segment was $18,972,000 for the second quarter of 2004, which was 16% higher than the $16,362,000 for the second quarter of 2003 due to the increase in net sales discussed above. Cost of goods sold as a percentage of net sales was 70% and 71% for the second quarter of 2004 and 2003, respectively. The margin improvements due to cost efficiencies resulting from higher volume production partially offset by higher maintenance and energy costs.

Operating income for the Performance Minerals segment was $4,813,000 for the second quarter of 2004 compared with an operating loss of $9,466,000 for the same period of 2003. For comparison purposes, excluding the $13,114,000 pretax impairment charge related to the segment’s Specialty Minerals operation, the segment had operating income of $3,648,000 for the second quarter of 2003. After adjusting the second quarter of 2003, operating income increased $1,165,000 in 2004 compared with 2003. This increase was primarily due to the increased sales with the incremental margin partially offset by higher maintenance and energy costs.

-31-

RESULTS OF OPERATIONS - (Continued)

THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO

THREE MONTHS ENDED JUNE 30, 2003

Depreciation, Depletion, Amortization and Accretion

Depreciation, depletion, amortization and accretion expense remained relatively unchanged between the quarters ended June 30, 2004 and June 30, 2003 at $10,762,000 and $10,903,000, respectively. The percentage of depreciation, depletion, amortization and accretion expense to net sales and operating revenues was 9% during the second quarters of both 2004 and 2003.

General, Administrative and Selling Expenses

Total general, administrative and selling expenses were $9,077,000 for the second quarter of 2004 compared with $9,827,000 for the second quarter of 2003. The percentage of general, administrative and selling expenses to net sales and operating revenues was 7% versus 8% during the second quarters of 2004 and 2003, respectively. Headcount reductions, particularly at the corporate office and the Great Lakes Mineral segment, which were implemented throughout 2003, were the major contributors to the improved leverage in the general, administrative and selling expense. Some further benefits were seen in reduced pension expense. These gains were partially offset by higher expense on Corporate insurance and higher management bonus accruals. Additionally, the 2003 expense includes some items that are similar to expenses being grouped as reorganization items, net in 2004.

Provision for Restructuring, Asset Impairments and Early Retirement Programs

-32-

RESULTS OF OPERATIONS - (Continued)

THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO

THREE MONTHS ENDED JUNE 30, 2003

Other

Interest expense decreased $697,000 to $12,405,000 in the second quarter of 2004 compared with $13,102,000 in the second quarter of 2003. The primary factor contributing to this decrease is the maturity of the hedging instruments. Interest expense on hedges was $629,000 in the second quarter of 2004 compared with $2,138,000 in the second quarter of 2003. Interest in the second quarter of 2004 was calculated on a $50,000,000 notional value hedge that expired as of June 30, 2004. This is compared with $170,000,000 in notional value throughout the second quarter of 2003. The Company is no longer required to hedge at least 50% of its senior debt; as a result the hedge was not replaced. Interest expense on bank debt was $9,348,000 and $9,884,000 in the second quarter of 2004 and 2003, respectively. This decrease was due to the cessation of interest accrued on the Company’s 10% Senior Subordinated Notes as of the bankruptcy filing. In 2003, the Company amended its bank agreements with its lenders on its Senior Credit Facility, Term Loan and Senior Secured Notes. These amendments were needed because of anticipated defaults under the Company’s existing agreements. The result of these amendments increased the margin over LIBOR from 4% at June 30, 2003 to 6% for the first half of 2004. Additionally, amendments to the Company’s Senior Secured Notes increased the payment-in-kind rate from 5% as of June 30, 2003 to 6% for the six months ended June 30, 2004. The Senior Subordinated Notes are deemed unsecured by the Company and interest is no longer being accrued. Amortization of fees associated with the Company’s bank amendments increased to $2,406,000 in the second quarter of 2004 from $1,028,000 in the second quarter of 2003. The increase resulted from significant capitalized amendment fees paid to the senior lenders throughout 2003, as well as the capitalization and amortization of the DIP financing fees for the entire second quarter of 2004. The remainder of interest expense was related to capital leases and notes payable.

During the second quarter of 2004, the Company completed a settlement with our insolvent insurance group for $4,668,000 in respect of past and future claims. The $4,668,000 was recorded as Other Income in the second quarter of 2004 and the restricted cash is recorded as an Other Current Asset on the Condensed Consolidated Balance Sheet as of June 30, 2004.

-33-

Cumulative Effect of Accounting Change for Asset Retirement Obligations

The Company adopted Statement of Financial Accounting Standards (SFAS) No. 143, “Accounting for Asset Retirement Obligations,” at January 1, 2003. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred and capitalized as part of the carrying amount of the long-lived asset. The Company’s asset retirement obligation balance as of June 30, 2004 and June 30, 2003 was $6,998,000 and $6,015,000, respectively. The accretion expense for the six-month period ended June 30, 2004 and June 30, 2003 was $250,000 and $205,000, respectively.

Critical Accounting Policies

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

Deferred Tax Valuation Allowance

-34-

Cautionary Statement Regarding Forward-Looking Information

Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements concerning certain trends and other forward-looking information within the meaning of the federal securities laws. Such forward-looking statements are subject to uncertainties and factors relating to the Company’s operations and business environment, all of which are difficult to predict and many of which are beyond the control of the Company. The Company believes that the following factors, among others, could affect its future performance and cause actual results to differ materially from those expressed or implied by forward-looking statements made by or on behalf of the Company: (1) business and financial risks associated with the Company’s decision to file for protection under Chapter 11 of the U.S. Bankruptcy Code; (2) the Company’s ability to restructure its debt, and the ability of such activities to provide adequate liquidity to sufficiently improve the Company’s financial position; (3) the Company’s ability to maintain its cost reduction initiatives; (4) weather conditions, particularly in the Great Lakes region, flooding, and/or water levels; (5) fluctuations in energy, fuel and oil prices; (6) fluctuations in integrated steel production in the Great Lakes region; (7) fluctuations in Great Lakes and Mid-Atlantic construction activity; (8) economic conditions in California or population growth rates in the Southwestern United States; (9) the outcome of periodic negotiations of labor agreements; (10) changes in the demand for the Company’s products due to changes in technology; (11) the loss, insolvency or bankruptcy of major customers, insurers or debtors; (12) changes in environmental laws or changes in law adverse to the Company; and (13) an increase in the number and cost of asbestos and silica product liability claims filed against the Company and its subsidiaries and determinations by a court or jury against the Company’s interest; and (14) difficulty in hiring sufficient staff that is appropriately skilled and licensed, particularly for the Company’s vessel operations. While the Company is in Chapter 11 bankruptcy, investments in its securities will be highly speculative. Shares of the Company’s common stock have little or no value and, if the Plan is confirmed, will be canceled. As part of the reorganization plan, the Senior Subordinated Notes will likely be canceled and replaced with the Reorganized Company’s common stock. The reorganized common stock will have a value less than the face value of the Senior Subordinated Notes.

New Accounting Pronouncements

The Company’s postretirement health care plan provides prescription drug benefits that may be affected by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the Act), signed into law in December 2003. In accordance with Federal Accounting Standards Board (FASB) Staff Position FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003,” the effects of the Act on the Company’s postretirement plan have not been included in the measurement of the Company’s accumulated postretirement benefit obligation or net periodic postretirement benefit cost for 2003. In February 2004, the FASB determined that the federal subsidy available under the Act to plan sponsors that provide retiree health benefits that are “actuarially equivalent” to Medicare benefits should be accounted for within the scope of SFAS No. 106, “Employers Accounting for Postretirement Benefits Other than Pensions.” The effect of the federal subsidy on benefits attributable to past services and future changes in the estimated amount of the subsidy should be accounted for as an actuarial gain under SFAS No. 106, while the effects of the subsidy attributable to future service should be accounted for as a reduction to future service costs. Plan amendments made in contemplation of the subsidy should be accounted for as either an actuarial gain (if the net result of the amendment and the subsidy is a reduction to the accumulated postretirement benefit obligation) or a plan amendment (if the net result of the amendment and subsidy increases the accumulated postretirement benefit obligation). Furthermore, the FASB decided that the tax exempt nature of the subsidy should be reflected when the subsidy is recognized as a reduction to the accrued postretirement benefit obligation. The FASB has not yet finalized how “actuarial equivalency” should be determined. The final guidance, when issued, may require the Company to re-measure its postretirement benefit obligation and may require the Company to amend its plan to benefit from the Act.

-35-

ITEM 3. Q UANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information regarding the Company’s financial instruments that are sensitive to changes in interest rates was disclosed in the 2003 Annual Report on Form 10-K filed by the Company on March 29, 2004.

The following table provides information about the Company’s derivative and other financial instruments that are sensitive to changes in interest rates, which include interest rate swaps and debt obligations. For debt obligations, the table presents cash flows and related weighted average interest rates by the original contracted maturity dates. Based upon the Company’s default under the current debt agreements and the bankruptcy filing, $196,545,000 is classified as Subject to Compromise on the Condensed Consolidated Balance Sheet. An amount of $245,358,000 is included in Current Liabilities, not subject to compromise, due to the Bankruptcy Court’s permission to pay this bank debt subsequent to June 30, 2004. For interest rate swaps at December 31, 2003, the table presents notional amounts and weighted average LIBOR interest rates by contractual maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on implied forward LIBOR rates in the yield curve, plus a 6% margin at June 30, 2004 and December 31, 2003 for variable rate long-term debt. The Company does not hold or issue financial instruments for trading purposes.

June 30, 2004

2004

2005

2006

2007

2008

Thereafter

Total

Fair

Value

(In thousands)

Liabilities:

Long-term debt:

Fixed rate

2,127

2,101

2,111

49,036

41,170

100,000

196,545

134,652

Average interest rate

11.43

11.47

11.50

11.53

10.30

10.00

Variable rate

245,358

Average interest rate

7.60


	December 31, 2003
	2004			2005			2006			2007			2008			Thereafter			Total		Fair Value
	(In thousands)
Liabilities:
Long-term debt:
Fixed rate	$	2,226		$	2,093		$	2,125		$	51,076		$	37,510		$	100,000		$	195,030	$	134,889
Average interest rate		13.43	%		13.51	%		13.58	%		13.66	%		12.45	%		10.00	%
Variable rate	$	225,808		$	334		$	334		$	334								$	226,810	$	226,810
Average interest rate		7.46	%		2.99	%		4.18	%		4.96	%
Interest rate derivatives:
Interest rate swaps:
Variable to fixed	$	50,000																	$	50,000	$	1,457
Average LIBOR pay rate		6.97	%
Average LIBOR receive rate		1.46	%

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ITEM 4. C ONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. The Company’s management, with the participation of the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), has evaluated the effectiveness of the Company’s disclosure controls and procedures. Based on the evaluation, the CEO and CFO have concluded the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report.

Changes in Internal Controls

In connection with management’s evaluation, no changes during the quarter ended June 30, 2004 were identified that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. L EGAL PROCEEDINGS

-38-

LEGAL PROCEEDINGS - (Continued)

On April 28, 2004, the Bankruptcy Court denied a motion to compel the United States Trustee to appoint an equity security holders committee.

-39-

LEGAL PROCEEDINGS - (Continued)

The Company and certain of its subsidiaries are involved in a limited number of claims and routine litigation incidental to operating its current business. In each case, the Company is actively defending or prosecuting the claims. Many of the claims are covered by insurance and none are expected to have a material adverse effect on the financial condition of the Company. While the Company is under Chapter 11 bankruptcy protection, all legal proceedings against the Company and/or its subsidiaries are stayed by operation of federal law. The following describes pending legal proceedings against the Company prior to its bankruptcy filing.

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

The suits filed pursuant to the Jones Act are filed in Federal Court and have been assigned to the Multidistrict Litigation Panel (MDL); there are approximately 700 claims, all of which are currently dormant and have been so for many years.

The Company believes that both the asbestos and silica product liability claims are covered by multiple layers of insurance policies and an insurance trust from multiple sources. In the third quarter 2003, the Company agreed with one of its several insurers to fund a settlement insurance trust (the Trust) to cover a portion of settlement and defense costs arising out of asbestos litigation. The Company will have access to Trust funds to cover settlements and defense costs and will not have the obligation to cover such costs from its own funds. Additionally, the Trust provides that the Company may use up to a maximum of $4,000,000 to cover the cost of any other insurable or insurance related expense. A total of $3,576,000 has been received in reimbursement of insurance expenditures incurred through June 30, 2004. The Company has also reached settlements with certain insolvent London market insurers in respect of claims previously paid and in anticipation of claims to be paid in the future on behalf of the Company. In the second quarter 2004, the Company received approximately $4,668,000, which amount has been placed in a segregated account during the pendancy of the bankruptcy. Additional amounts may be received from similar insurers in the future. At June 30, 2004, the Company was a co-defendant in cases alleging asbestos-induced illness involving claims of approximately 72,000 claimants. With respect to silica claims, the Company at June 30, 2004 was co-defendant in cases involving approximately 22,000 claimants. The Company has been and will continue to be responsible for funding a small percentage of all settlements and defense costs. Management believes that its share of settlements on an annual basis is not significant, although the Company continues to maintain a reserve on its balance sheet to address this contingency.

-40-

LEGAL PROCEEDINGS - (Continued)

The extent of any material adverse effect would depend on the nature and extent of the changes to the exposure standards, the cost of meeting and our ability to meet more stringent standards, the extent of any reduction in our customer’s use of our silica products and other factors that cannot be estimated at this time.

Litigation is inherently unpredictable and subject to many uncertainties. Adverse court rulings, determinations of liability or retroactive or prospective changes in the law could affect claims made against the Company and encourage or increase the number and nature of future claims and proceedings. Together with reserves recorded and available insurance, pending litigation is not expected to have a material adverse effect on the Company’s operations, liquidity or financial condition.

ITEM 2. CHA NGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

Not Applicable

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ITEM 3. DEF AULTS UPON SENIOR SECURITIES

On January 30, 2004, the Company announced it had decided not to make the interest payment due February 2, 2004, on its 10% Senior Subordinated Notes, due February 1, 2009. Such announcement caused an event of default under the Company’s Senior Securities and such default has not been cured as of the date of this filing. The Senior Subordinated Notes are deemed unsecured by the Company and interest is no longer being accrued.

On February 23, 2004, the Company and its wholly owned subsidiaries filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware in Wilmington to complete the financial restructuring of its long-term debt. Such filings were also an event of default under the Company’s Senior Securities and the Company continues to be in default.

The Company caused another event of default under its Senior Securities by failing to reduce outstanding pre-petition bank debt under the Senior Securities by $100 million prior to February 25, 2004. The Company continues to be in default under its Senior Securities.

ITEM 4. SUBMIS SION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable

ITEM 5. OT HER INFORMATION

Not Applicable

ITEM 6. E XHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits

31(a)

Certification of the Chief Executive Officer, Michael D. Lundin, pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.

31(b)

Certification of the Chief Financial Officer, Julie A. Boland, pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.

Certification of the Chief Executive Officer, Michael D. Lundin, and the Chief Financial Officer, Julie A. Boland, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.

(b)

Reports on Form 8-K filed during the second quarter 2004

On April 14, 2004, the Company filed an 8-K under Items 5 and 7 with regard to an April 8, 2004 press release announcing that the United States Bankruptcy Court for the District of Delaware in Wilmington granted final approval for the Company to borrow up to $70 million from a $75 million debtor-in-possession (DIP) credit facility.

-42-

EXHIBITS AND REPORTS ON FORM 8-K – (Continued)

On May 4, 2004, the Company filed an 8-K under Items 5 and 7 with regard to an April 28, 2004 press release announcing that the United States Bankruptcy Court for the District of Delaware in Wilmington approved a $305 million second debtor-in-possession (DIP) credit facility that will provide the Company post-petition and exit financing.

On May 12, 2004, the Company filed an 8-K under Items 5 and 7 with regard to a May 12, 2004 press release announcing that the Company and its subsidiaries filed a joint plan of reorganization on April 27, 2004 in the United States Bankruptcy Court for the District of Delaware.

On June 2, 2004, the Company filed an 8-K under Items 5 and 7 with regard to a May 24, 2004 press release announcing that the Company and its subsidiaries had filed a disclosure statement on May 21, 2004 in the United States Bankruptcy Court for the District of Delaware

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S IGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	OGLEBAY NORTON COMPANY

DATE: August 10, 2004	By:	/s/ Michael D. Lundin
		Michael D. Lundin President and Chief Executive Officer, on behalf of the Registrant and as Principal Executive Officer

	By:	/s/ Julie A. Boland
		Julie A. Boland Vice President and Chief Financial Officer, on behalf of the Registrant and as Principal Financial and Accounting Officer

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