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We are successfully transforming Oglebay Norton into a more diversified company capable of consistent profitable growth.
To Our Stakeholders:
I am pleased to report that Oglebay Norton Company was able to deliver solid financial results last year and continue our trend of profitable growth. For the fourth consecutive year Oglebay Norton achieved record revenues and record earnings before interest, taxes, depreciation and amortization (EBITDA).
I am particularly proud that we achieved net earnings of $3.00 per share in an environment in which many of our peers reported earnings shortfalls or encountered financial difficulties. Our geographic and product diversity combined with strong operating performances from several of our businesses enabled us to partially offset rising energy costs, adverse weather conditions and a slowing economy.
The newly acquired Michigan Limestone Operations proved a strong contributor to the top and bottom lines. Our Bakersfield, California, facility, which continues to operate at full capacity supplying fracturing sands to the oil and gas industry, had a record year that also helped us to achieve improved results in 2000.
The net result was a fourth consecutive year of record revenues and EBITDA and another gain in net income. Revenues increased 20% and EBITDA increased 15% over 1999, while net income reached $15.0 million, a 10% improvement from the prior year, and diluted earnings per share of $3.00 represented a 7% increase from the $2.80 reported for 1999. We maintained a solid balance sheet that kept us in compliance with all the covenants of our bank group credit facility. We also paid down our borrowings by $13 million in the fourth quarter and retain substantial availability on our credit reserves.
Transforming the Business
Oglebay Norton has changed significantly since we began to implement our growth strategy three years ago. We have successfully transformed the company from a mature shipping business with limited growth potential into a larger and more diversified industrial minerals and aggregates company that is capable of delivering consistent profitable growth.
When we evaluated the company’s strategic direction and growth potential in 1998, it became evident that we had to overhaul the business. We needed to enter faster-growing markets and find new options for our Great Lakes fleet beyond iron ore. And we had to greatly reduce our overall dependence on the integrated steel industry.
The Global Stone acquisition set the stage for our transformation into an industrial minerals company. Last year’s purchase of Michigan Limestone Operations did more than add to our limestone business. It enabled us to leverage our assets in the Great Lakes region to create a new growth platform.
Since 1998, we have successfully completed nine acquisitions and two divestitures. These transactions have broadened our product portfolio, diversified our operations geographically, and reduced our exposure to the steel industry. We have more than doubled revenues and EBITDA, and nearly doubled the number of employees. In all, we have built a solid new base for Oglebay Norton.
Gaining a Fair Market Valuation
While we can be proud of our many accomplishments, we are as disappointed as you that they are not reflected in our current share price. We have demonstrated our ability to deliver profitable growth and transform the company, and we have actively communicated with the investment community. These efforts have attracted new institutional investors and led new sell-side analysts to initiate coverage. Yet our stock price remains undervalued compared to our peer group and the broader market. We intend to continue our focus on improving operating performance to drive our net earnings and to bring our price-to-earnings ratio into line with that of our peers.
We are asking our shareholders to approve several changes intended to make our corporate governance structure more shareholder friendly. Specifically, we are seeking shareholder approval to change the company’s state of incorporation from Delaware to Ohio. If shareholders approve this measure, the company will declassify its board of directors, eliminate its “poison pill” and opt out of certain Ohio anti-takeover provisions.
These measures, if approved, will provide greater flexibility in future transactions and open up a broader spectrum of strategic alternatives to enable us to maximize shareholder value. To provide the company with more equity options as our share price improves, we are also recommending an increase in the number of authorized shares. Although we do not currently have any plans to raise new equity capital or to sell or merge the company, we are recommending approval of these actions to place us in a better position to be able to act in the best interests of shareholders should such opportunities arise.
Reaching Our Goals
At the beginning of our five-year plan, this management team set a goal of achieving earnings of $5.00 per share by the end of 2002. This was and remains an aggressive goal, but one that is intended to drive our business units to perform at peak levels.
With less than two years remaining on this timetable, we are slightly off the pace to reach our target. This is due in part to conditions beyond our control. Significantly higher energy costs, harsh weather in the fourth quarter of 2000, and a weakening economy compressed profit margins in some of our businesses, particularly our Great Lakes fleet. Our current operating plan is designed to achieve our targeted $5.00 earnings per share in 2002, assuming the U.S. economy continues to expand and interest rates and energy prices return to more moderate levels.
An Internal Focus in 2001
As I write this letter, I want stakeholders to know that as responsible financial stewards we have concluded that it is not prudent to make further major, growth oriented acquisitions requiring additional debt unless and until we are convinced that the current economic environment is substantially improved. We will continue to use our free cash flow to invest in our existing operations and pay down borrowings as we did in the fourth quarter of 2000.
In 2001, our focus will be on internal growth, cost control and productivity improvements, as well as on capturing operational and logistical synergies within our newly realigned segments. We have identified several profitable and immediately accretive investments and have prioritized capital spending accordingly. For example, we are expanding effective capacity and recovery in our mica operations in response to customer demand while we improve quality and recovery efficiencies. We are constructing a new full-service logistics center for our central California energy customers. We are also adding capacity at Global Stone Portage to meet customer demand for industrial fillers.
We appointed an internal task force to identify opportunities to conserve energy use on an enterprise-wide basis. We are currently implementing a number of recommendations to contain fuel and energy costs, shift production, convert to alternative energy sources and make cost-saving logistics changes.
A New Reporting Structure
Another important action we are taking is to realign our businesses into three reporting segments focused on our key served markets. Our operations will report in 2001 as Great Lakes Minerals, combining Michigan Limestone Operations and Marine Services; Global Stone, whose lime and limestone businesses operate primarily in the Southeast and Mid-Atlantic regions; and Performance Minerals, combining Oglebay Norton Industrial Sands with Specialty Minerals, our mica business.
This new financial reporting structure aligns operations that are related by geography and product mix. It more closely reflects the way we manage our businesses, and it should enable us to take fuller advantage of even more operational and logistical synergies. We believe this new reporting structure should make the company easier for stakeholders to understand and easier for analysts to financially model. We anticipate it will reinforce our positioning as a pure-play industrial minerals and aggregates company which, if accomplished, should move our valuation closer to that afforded our industry peer group. The new segment reporting structure also should enable us to better utilize our management talent and cross-train key senior managers to build bench strength for key positions.
Capturing the Value Created
In closing, let me reassure you that this management team and this Board of Directors are committed to capturing for all shareholders the value we have created. We are significant shareholders along with you, and our interests are exactly in line.
Finally, thanks to all of our associates for their dedicated efforts and hard work during the past year. You are among Oglebay Norton’s most valued assets. I also want to extend thanks to all of our customers and vendors. May we continue to benefit from our mutually valued relationships for many years to come. Finally, thanks to you, our shareholders, for your continued support. May your future be as bright as the future of Oglebay Norton Company.
Sincerely,
John N. Lauer
February 16, 2001