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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, 2002

Commission File number 000-25651

OGLEBAY NORTON COMPANY
(Exact name of registrant as specified in its charter)

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

  1100 Superior Avenue Cleveland, Ohio
(Address of principal executive offices)
   44114-2598
(Zip Code)		  

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

None
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 o

Common shares outstanding at August 14, 2002: 4,978,051


Table of Contents
 

OGLEBAY NORTON COMPANY AND SUBSIDIARIES
INDEX

      Page Number
PART I. FINANCIAL INFORMATION  
     
Item 1 Condensed Consolidated Statement of Operations (Unaudited)
   - Three Months and Six Months Ended June 30, 2002 and 2001 		3
     
  Condensed Consolidated Balance Sheet (Unaudited) - June 30,
   2002 and December 31, 2001 		4
     
  Condensed Consolidated Statement of Cash Flows
   (Unaudited) - Six Months Ended June 30, 2002 and 2001 		5
     
  Notes to Condensed Consolidated Financial Statements 6 -14
     
Item 2 Management’s Discussion and Analysis of Financial
   Condition and Results of Operations 		15-25
     
Item 3 Quantitative and Qualitative Disclosures About Market Risk 26
     
     
     
PART II. OTHER INFORMATION  
     
Item 1 Legal Proceedings 27
     
Item 2 Changes in Securities and Use of Proceeds 27
     
Item 3 Defaults upon Senior Securities 27
     
Item 4 Submission of Matters to a Vote of Security Holders 27
     
Item 5 Other Information 27
     
Item 6 Exhibits and Reports on Form 8-K 27
     
 
   
SIGNATURE 28
   
   
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Part I. Item 1. FINANCIAL INFORMATION
OGLEBAY NORTON COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)

(UNAUDITED)

Three Months Ended
June 30 		Six Months Ended
June 30
2002 2001 2002 2001
NET SALES AND OPERATING REVENUES   $ 112,592   $ 119,544   $ 174,947   $ 185,280  
                         
COSTS AND EXPENSES                          
   Cost of goods sold and operating expenses     78,823     85,930     126,129     136,082  
   Depreciation, depletion and amortization     9,655     10,278     14,372     15,755  
   General, administrative and selling expenses     8,651     8,382     17,442     16,498  
   Provision for restructuring and early retirement programs     -0-     -0-     -0-     4,123  
    97,129     104,590     157,943     172,458  
                         
OPERATING INCOME     15,463     14,954     17,004     12,822  
                         
(Loss) gain on disposition of assets     (61 )   (20 )   72     114  
Interest expense     (10,419 )   (10,341 )   (20,491 )   (20,293 )
Other (expense) income – net     (273 )   163     (426 )   (5,889 )
                         
INCOME (LOSS) BEFORE INCOME TAXES     4,710     4,756     (3,841 )   (13,246 )
Income taxes (benefit)     1,178     1,372     (1,900 )   (5,167 )
                         
NET INCOME (LOSS)   $ 3,532   $ 3,384   $ (1,941 ) $ (8,079 )
                         
NET INCOME (LOSS) PER SHARE – BASIC   $ 0.70   $ 0.68   $ (0.39 ) $ (1.62 )
                         
NET INCOME (LOSS) PER SHARE – ASSUMING
   DILUTION 		  $ 0.70   $ 0.67   $ (0.39 ) $ (1.62 )
                         
DIVIDENDS PER SHARE OF COMMON STOCK   $ -0-   $ 0.20   $ -0-   $ 0.40  

See notes to condensed consolidated financial statements.

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

(UNAUDITED)
June 30
2002 		December 31
2001

    ASSETS 		     
CURRENT ASSETS      
   Cash and cash equivalents   $ -0-   $ 2,307  
   Accounts receivable, net of reserve for doubtful accounts (2002-$3,812; 2001-
      $3,600)		     65,301     46,477  
   Inventories            
      Raw materials and finished products     34,185     34,578  
      Operating Supplies     13,970     14,018  
     
   
 
      48,155     48,596  
               
   Deferred income taxes     4,948     5,236  
   Prepaid expenses     18,503     6,565  
    TOTAL CURRENT ASSETS     136,907     109,181  
             
   PROPERTY AND EQUIPMENT     725,536     716,301  
   Less allowances for depreciation, depletion and amortization     279,648     266,702  
          445,888     449,599  
             
   GOODWILL (net of accumulated amortization of $11,093 in 2002 and 2001)     73,044     73,044  
             
   PREPAID PENSION COSTS     36,716     36,451  
             
   OTHER ASSETS     12,476     11,874  
TOTAL ASSETS   $ 705,031   $ 680,149  

    LIABILITIES AND STOCKHOLDERS’ EQUITY 		             
CURRENT LIABILITIES              
   Current portion of long-term debt   $ 2,014   $ 2,353  
   Accounts payable     25,036     20,828  
   Payrolls and other accrued compensation     7,890     7,312  
   Accrued expenses     13,858     15,302  
   Accrued interest expense     10,341     10,353  
   Income taxes payable     6,064     6,055  
    TOTAL CURRENT LIABILITIES     65,203     62,203  
             
LONG-TERM DEBT, less current portion *     406,798     386,420  
POSTRETIREMENT BENEFITS OBLIGATIONS     47,194     45,746  
OTHER LONG-TERM LIABILITIES     32,041     34,587  
DEFERRED INCOME TAXES     32,963     29,195  
             
STOCKHOLDERS’ EQUITY              
   Common stock, par value $1 per share, authorized 30,000 shares; issued 7,253
      shares		     7,253     7,253  
   Additional capital     9,634     9,460  
   Retained earnings     143,934     145,875  
   Accumulated other comprehensive loss     (8,757 )   (9,321 )
          152,064     153,267  
   Treasury stock, at cost – 2,277 and 2,279 shares at respective dates     (31,232 )   (31,269 )
             
       120,832     121,998  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 705,031   $ 680,149  

* Includes amounts expected to be refinanced.

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
2002 2001
OPERATING ACTIVITIES      
   Net loss   $ (1,941 ) $ (8,079 )
   Adjustments to reconcile net loss to net cash used for operating activities:              
     Depreciation, depletion and amortization     14,372     15,755  
     Deferred vessel costs     (6,416 )   (6,633 )
     Deferred winter maintenance costs     (6,169 )   (6,626 )
     Income tax refund     6,342     -0-  
     Decrease in deferred income taxes     (2,094 )   (5,342 )
     Provision for restructuring and early retirement programs     (1,367 )   4,123  
     Provision for a note receivable     -0-     3,500  
     (Increase) decrease in prepaid pension costs     (265 )   3,536  
     Gain on disposition of assets     (72 )   (114 )
     Increase in accounts receivable     (18,824 )   (4,570 )
     Decrease in inventories     441     464  
     Increase in accounts payable     4,208     4,693  
     Increase (decrease) in payrolls and other accrued compensation     578     (3,185 )
     Decrease in accrued expenses     (172 )   (2,099 )
     Decrease in accrued interest     (12 )   (472 )
     Increase (decrease) in income taxes payable     9     (4,524 )
     Other operating activities     305     2,393  
             
        NET CASH USED FOR OPERATING ACTIVITIES     (11,077 )   (7,180 )
             
INVESTING ACTIVITIES              
     Capital expenditures     (11,231 )   (18,965 )
     Proceeds from the disposition of assets     45     269  
             
        NET CASH USED FOR INVESTING ACTIVITIES     (11,186 )   (18,696 )
             
FINANCING ACTIVITIES              
     Repayments on long-term debt     (67,910 )   (87,759 )
     Additional long-term debt     87,950     114,567  
     Financing costs     (84 )   (32 )
     Payments of dividends     -0-     (994 )
             
        NET CASH PROVIDED BY FINANCING ACTIVITIES     19,956     25,782  
             
     Effect of exchange rate changes on cash and cash equivalents     -0-     94  
             
     Decrease in cash and cash equivalents     (2,307 )   -0-  
             
CASH AND CASH EQUIVALENTS, JANUARY 1     2,307     -0-  
             
CASH AND CASH EQUIVALENTS, JUNE 30   $ -0-   $ -0-  

See notes to condensed consolidated financial statements.

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OGLEBAY NORTON COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   The accompanying 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. Additionally, certain amounts in the prior year have been reclassified to conform with the 2002 Condensed Consolidated Financial Statement presentation.
     
  The Condensed Consolidated Balance Sheet at December 31, 2001 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 2001 Annual Report on Form 10-K and the Condensed Consolidated Financial Statements and notes thereto included in the Company’s March 31, 2002 Form 10-Q.
     
2.   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.
     
3.   The Company's Senior Credit Facilities, consisting of an $118,000,000 term loan and a $207,000,000 revolving facility, are due in April 2003. The Company is in the process of refinancing its Senior Credit Facilities. When the refinancing is complete, details will be publicly announced.
     
4.   Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 133 requires companies to recognize all derivative instruments on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships. The Company’s Senior Credit Facility requires interest rate protection on fifty-percent of the Company’s senior secured debt. Accordingly, the Company has entered into interest rate swap agreements with notional amounts aggregating to $220,000,000 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. Upon adoption of SFAS No. 133, the Company recorded the effective portion of the hedging instruments to other comprehensive loss, a component of stockholders’ equity, totaling $3,825,000 (net of income taxes of $2,445,000).

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

  On January 1, 2001, interest rate swaps with a notional amount of $50,000,000 were designated in cash flow hedge relationships in accordance with SFAS No. 133. The remaining interest rate swaps with a notional amount of $170,000,000 did not qualify as hedging instruments. The amount of the transition adjustment recorded in other comprehensive loss related to the swaps that were not designated in a hedge relationship totaled $2,820,000 (net of income taxes of $1,803,000) and is being amortized to interest expense over the life of the derivative instruments, which is ten quarters. The charge to interest expense for the three and six month periods ended June 30, 2002 and 2001 that related to the amortization of these derivatives was $462,000 pretax (or $0.09 per share, assuming dilution) and $925,000 pretax (or $0.18 per share, assuming dilution), respectively.
     
  For the Company’s interest rate swap agreements with a notional amount of $170,000,000 that did not qualify as hedging instruments, the non-cash mark-to-market valuation change and related cash settlements resulted in a pretax charge of $2,948,000 (or $0.36 per share net loss, assuming dilution) in the first quarter of 2001. This amount is recorded in Other Expense in the Condensed Consolidated Statement of Operations. The Company amended all of the interest rate swap agreements that did not qualify as hedging instruments at the end of the first quarter 2001. The amended interest rate swaps were then designated in cash flow hedge relationships. Beginning in the second quarter of 2001, the amended interest rate swap agreements effective portion of the changes in fair value are recorded in other comprehensive loss.
     
  At June 30, 2002, the Company’s derivatives have maturities ranging from April 3, 2003 through June 30, 2004. The Company includes the liability for these derivative instruments in Other Long-Term Liabilities on the Company’s Condensed Consolidated Balance Sheet. The liability for these derivatives was $12,037,000 at June 30, 2002.
     
  When using interest rate swap agreements, the intermediaries to such agreements expose the Company to the risk of nonperformance, though such risk is not considered likely under the circumstances. The Company does not hold or issue financial instruments for trading purposes.
     
5.   The following summarizes the provision for restructuring and voluntary early retirement recorded in 2001 and the remaining reserve balance at June 30, 2002 (in thousands):

Employee
Retirement
& Severance
Benefits 		Asset
Impairment
Charges 		Other
Exit Costs 		Total
2001 charge   $ 7,261   $ 6,434   $ 2,373   $ 16,068  
Amounts utilized in 2001     (4,288 )   (6,434 )         (10,722 )
Cash paid in 2001     (410 )         (93 )   (503 )
Remaining reserve at December 31,
   2001		     2,563     -0-     2,280     4,843  
Cash paid in first half 2002     (900 )         (467 )   (1,367 )
Remaining reserve at June 30, 2002   $ 1,663   $ -0-   $ 1,813   $ 3,476  

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

  The Company recorded a $4,123,000 pretax charge (or $0.51 per share net loss, assuming dilution) in the first quarter of 2001 related to a voluntary early retirement program and the consolidation of its Performance Minerals’ Ohio-based operations. A total of 23 salaried employees and one hourly employee accepted the first quarter voluntary early retirement program. This represented 6% of the total salaried personnel in the Company. The consolidation of the Ohio-based Performance Minerals’ operations resulted in the termination of 19 employees. The total charge included a non-cash incremental charge of $3,726,000 related to pension and postretirement benefits of employees accepting the early retirement program.
     
  The Company recorded a $11,945,000 pretax charge (or $1.46 per share net loss, assuming dilution) in the fourth quarter of 2001 related to the closure of two subsidiary headquarter offices, the closure of three non-strategic mineral processing operations in the Performance Minerals segment, the write down of certain non-strategic mineral reserve assets and an implementation of an additional voluntary early retirement program.
     
  The closure of the two subsidiary headquarter offices re-organizes operational management to a flatter structure, enabling more integration across business units as well as reducing head count and related expenses. A total of 18 salaried employees were terminated in these offices, none of whom are still employed by the Company.
     
  The closure of three non-strategic mineral processing operations in the Performance Minerals segment resulted in asset impairment charges, exit costs and benefits accrued for the 33 employees who were terminated in these operation closures, none of whom are still employed by the Company.
     
  A total of 3 salaried employees accepted the fourth quarter voluntary early retirement program, less than 1% of the total salaried personnel in the Company.
     
  The Company recorded a $3,500,000 pretax charge (or $0.42 per share net loss, assuming dilution) in the first quarter of 2001 to establish a reserve against an unsecured note receivable arising from the 1998 sale of a discontinued, steel-related business. This non-cash charge was included in Other Expense in the Condensed Consolidated Statement of Operations and the reserve is netted with Other Assets in the Condensed Consolidated Balance Sheet.
     
  Statement of Financial Accounting Standards No. 141, “Business Combinations”, and No. 142, “Goodwill and Other Intangible Assets”, were approved by the Financial Accounting Standards Board in June 2001. SFAS No. 141, which was adopted by the Company in the second half of 2001, eliminates the pooling-of-interests method for business combinations and requires the use of the purchase method. SFAS No. 142 changes the accounting for goodwill from an amortization approach to a non-amortization approach, reviewed at least annually for impairment. A two-step impairment test is used to first identify potential goodwill impairment and then to measure the amount of goodwill impairment, if any. The Company adopted the provisions of SFAS No. 142 in the first half of 2002 and completed transitional goodwill impairment tests, finding that goodwill was not impaired at January 1, 2002.

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

  In accordance with SFAS No. 142, goodwill amortization was discontinued at January 1, 2002. The following table adjusts the reported loss from continuing operations for the three and six month periods ended June 30, 2002 and 2001 and the related diluted per share amounts to exclude goodwill amortization (in thousands, except per share amounts):

Three Months Ended
June 30 		Six Months Ended
June 30
2002 2001 2002 2001
Net income (loss), as reported   $ 3,532   $ 3,384   $ (1,941 ) $ (8,079 )
Goodwill amortization, net of taxes     -0-     475     -0-     933  
Net income (loss), as adjusted   $ 3,532   $ 3,859   $ (1,941 ) $ (7,146 )
Net income (loss) per share, as reported- assuming
   dilution		   $ 0.70   $ 0.67   $ (0.39 ) $ (1.62 )
Goodwill amortization, net of taxes     -0-     0.10     -0-     0.19  
Net income (loss) per share, as adjusted- assuming
   dilution		   $ 0.70   $ 0.77   $ (0.39 ) $ (1.43 )

  The Company has no other significant intangible assets.
     
  In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When a liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or recognizes a gain or loss upon settlement. The Company is required to adopt SFAS No. 143 at January 1, 2003 and has not yet determined the impact of adoption on its consolidated financial position or results of operations.
     
  In April 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 145, “Rescission of FASB Statements No. 4, 44 and 62, Amendment of FASB Statement No. 13 and Technical Corrections.” SFAS No. 145 eliminates the requirement to report gains and losses from extinguishments of debt as extraordinary items in the income statement. Accordingly, gains or losses from extinguishments of debt shall be reported in operations, unless the extinguishment qualifies as an extraordinary item under Accounting Practice Bulletin Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” SFAS No. 145 also requires that certain modifications to capital leases be treated as a sale-leaseback and modifies the accounting for sub-leases when the original lessee remains a secondary obligor or guarantor. The Company is required to adopt SFAS No. 145 at January 1, 2003 and has not yet determined the impact of adoption on its consolidated financial position or results of operations.

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

  In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and supercedes Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Issue No. 94-3).”The fundamental difference between SFAS No. 146 and Issue No. 94-3 relates to the requirements for recognition of a liability for exit or disposal costs. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue No. 94-3, a liability for an exit cost is recognized at the date of an entity’s commitment to an exit plan. SFAS No. 146 also establishes that fair value is the objective for initial measurement of the liability. The Company is required to adopt SFAS No. 146 at January 1, 2003 and has not yet determined the impact of adoption on its consolidated financial position or results of operation.
     
6.   The following table sets forth the reconciliation of the Company’s net income (loss) to its comprehensive income (loss)—in thousands:

Three Months Ended
June 30 		Six Months Ended
June 30
2002 2001 2002 2001
                         
Net income (loss)   $ 3,532   $ 3,384   $ (1,941 ) $ (8,079 )
                         
Other comprehensive (loss) income:                          
                         
   Derivative instruments:                          
     Cumulative effect of change in accounting for
        derivatives, net of tax		     -0-     -0-     -0-     (3,825 )
     Loss on derivatives, net of tax     (2,624 )   (26 )   (2,355 )   (1,071 )
     Reclassification adjustments to earnings, net of tax     1,554     830     2,919     1,174  
       Total derivative instruments     (1,070 )   804     564     (3,722 )
                         
   Foreign currency translation adjustments     -0-     -0-     -0-     94  
                         
Comprehensive income (loss)   $ 2,462   $ 4,188   $ (1,377 ) $ (11,707 )

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

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

Three Months Ended
June 30 		Six Months Ended
June 30
2002 2001 2002 2001
                         
Net income (loss) per share-basic:                          
Net income (loss)   $ 3,532   $ 3,384   $ (1,941 ) $ (8,079 )
Average number of shares outstanding     5,023     4,996     5,018     4,993