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OGLEBAY NORTON CO /NEW/
10-Q, 2000-11-14
MINING & QUARRYING OF NONMETALLIC MINERALS (NO FUELS)

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

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

Shares of Common Stock outstanding at October 31, 2000:		4,967,855

	PART I. FINANCIAL INFORMATION		Page Number
Item 1
	Condensed Consolidated Statement of Operations (Unaudited) - Three Months Ended September 30, 2000 and 1999 and Nine Months Ended September 30, 2000 and 1999		3
	Condensed Consolidated Balance Sheet (Unaudited) - September 30, 2000 and December 31, 1999		4
	Condensed Consolidated Statement of Cash Flows (Unaudited) - Nine Months Ended September 30, 2000 and 1999		5
	Notes to Condensed Consolidated Financial Statements		6 -11
Item 2
	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12-21
Item 3
	Quantitative and Qualitative Disclosures About Market Risk		21-22
PART II. OTHER INFORMATION
Item 1
	Legal Proceedings		23
Item 2
	Changes in Securities and Use of Proceeds		23
Item 3
	Defaults upon Senior Securities		23
Item 4
	Submission of Matters to a Vote of Security Holders		23
Item 5
	Other Information		23
Item 6
	Exhibits and Reports on Form 8-K		23
SIGNATURES			24

		Three Months Ended September 30								Nine Months Ended September 30
		2000				1999				2000				1999
NET SALES AND OPERATING REVENUES		$	103,288			$	85,377			$	250,120			$	217,122
COSTS AND EXPENSES
Cost of goods sold and operating expenses			66,774				56,535				163,404				144,125
Depreciation, depletion and amortization			9,163				7,391				23,407				20,376
General, administrative and selling expenses			7,306				6,060				22,662				17,989
			83,243				69,986				209,473				182,490
OPERATING INCOME			20,045				15,391				40,647				34,632
Gain on disposition of assets			338				1,544				510				1,541
Interest expense			(9,365	)			(7,804	)			(24,496	)			(23,125	)
Other expense – net			(56	)			(139	)			(284	)			(52	)
INCOME BEFORE INCOME TAXES			10,962				8,992				16,377				12,996
Income taxes			3,343				2,562				5,077				3,704
NET INCOME		$	7,619			$	6,430			$	11,300			$	9,292
NET INCOME PER SHARE – BASIC		$	1.53			$	1.32			$	2.27			$	1.92
NET INCOME PER SHARE – ASSUMING DILUTION		$	1.52			$	1.32			$	2.26			$	1.92
DIVIDENDS PER SHARE OF COMMON STOCK		$	0.20			$	0.20			$	0.60			$	0.60

		(UNAUDITED) September 30 2000			December 31 1999
CURRENT ASSETS
Cash and cash equivalents		$	-0-		$	-0-
Accounts receivable, less reserve for doubtful   (2000-$1,485; 1999-$1,200)			63,193			46,088
Income tax receivable			1,197			1,197
Inventories			38,076			32,704
Deferred income taxes			2,385			2,384
Prepaid insurance and other expenses			9,569			5,523
TOTAL CURRENT ASSETS			114,420			87,896
PROPERTY AND  EQUIPMENT			709,776			565,052
Less allowances for depreciation, depletion and amortization			255,893			211,656
			453,883			353,396
GOODWILL (net of accumulated amortization of $7,498 in 2000     and $3,711 in 1999)			67,128			75,138
PREPAID PENSION COSTS			37,813			34,895
OTHER ASSETS			18,237			16,774
TOTAL ASSETS		$	691,481		$	568,099

		(UNAUDITED) September 30 2000				December 31 1999
CURRENT LIABILITIES
Current portion of long-term debt		$	4,450			$	4,991
Accounts payable			17,236				13,208
Payrolls and other accrued compensation			8,900				10,878
Accrued expenses			12,225				10,461
Accrued interest expense			6,770				5,853
Income taxes payable			6,237				3,774
TOTAL CURRENT LIABILITIES			55,818				49,165
LONG-TERM DEBT, less current portion			387,215				296,715
POSTRETIREMENT BENEFITS OBLIGATIONS			38,599				25,856
OTHER LONG-TERM LIABILITIES			19,192				17,550
DEFERRED INCOME TAXES			40,455				37,804
STOCKHOLDERS’ EQUITY
Common stock, par value $1 per share,  authorized 10,000 shares;             issued 7,253 shares			7,253				7,253
Additional capital			9,468				9,112
Retained earnings			164,938				156,617
Accumulated other comprehensive loss			(104	)			(111	)
			181,555				172,871
Treasury stock, at cost — 2,285 and 2,434 shares at respective dates			(31,353	)			(31,862	)
			150,202				141,009
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	691,481			$	568,099

	Nine Months Ended September 30
		2000					1999
OPERATING ACTIVITIES
Net income	$	11,300				$	9,292
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization		23,407					20,376
Deferred income taxes		2,651					1,313
Gain on disposition of assets		(510	)				(1,540	)
Increase in prepaid pension costs		(2,919	)				(3,606	)
Deferred vessel maintenance costs		(2,336	)				(1,954	)
Increase in accounts receivable		(11,361	)				(14,673	)
Increase in inventories		(3,870	)				(5,144	)
Increase in accounts payable		2,276					4,397
Decrease in payrolls and other accrued compensation		(4,181	)				(2,335	)
Increase (decrease) in accrued expenses		2,015					(3,166	)
Increase (decrease) in accrued interest		852					(2,132	)
Increase in income taxes payable		2,462					5,586
Other operating activities		(523	)				(1,207	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		19,263					5,207
INVESTING ACTIVITIES
Capital expenditures		(28,022	)				(19,415	)
Acquisition of businesses		(75,050	)				(13,367	)
Proceeds from the disposition of assets		192					62,953
NET CASH (USED FOR) PROVIDED BY INVESTING                    ACTIVITIES		(102,880	)				30,171
FINANCING ACTIVITIES
Repayments on long-term debt		(349,850	)				(196,010	)
Additional long-term debt		437,725					162,759
Financing costs		(1,152	)				(1,172	)
Payments of dividends		(2,979	)				(2,896	)
Purchases of treasury stock		(134	)				(319	)
NET CASH PROVIDED BY (USED FOR) FINANCING                    ACTIVITIES		83,610					(37,638	)
Effect of exchange rate changes on cash and cash equivalents		7					320
Decrease in cash and cash equivalents		0					(1,940	)
CASH AND CASH EQUIVALENTS, JANUARY 1		0					1,940
CASH AND CASH EQUIVALENTS, SEPTEMBER 30	$	0				$	0

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 generally accepted accounting principles. 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 2000 condensed consolidated financial statement presentation. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s 1999 Annual Report on Form 10-K.

The condensed consolidated balance sheet at December 31, 1999 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

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 generally accepted accounting principles 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.

3.

Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," is required to be adopted effective January 1, 2001 for Oglebay Norton Company. The Company will be ready to adopt SFAS 133 as required, but because of the uncertainty of year-end market conditions, the Company can not accurately estimate the anticipated magnitude of the impact of adoption.

Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" is required to be adopted effective October 1, 2000 for Oglebay Norton Company. The company will adopt SAB 101 as required and it is not expected to have a material impact on the consolidated financial statements.

4.

In the third quarter of 2000, the Company acquired certain assets from J.M. Huber Corporation (“Global Stone Portage”) for $12,512,000 in cash. The acquired facility processes fine-ground limestone for use in environmental applications at coal-fired power plants. The assets and results of operations of Global Stone Portage are included within the Company’s Lime and Limestone segment.

In the second quarter of 2000, the Company acquired all of the partnership interests in Michigan Limestone Operations Limited Partnership (“Michigan Limestone”) for: $53,000,000 in cash; $8,247,000 in assumed debt; and contingent payments subject to achieving certain operating performance parameters over the next decade. Of the assumed debt, $6,314,000 was refinanced at closing. The business has two facilities in Michigan that supply high calcium and dolomitic limestone to a wide variety of users including the construction, energy and steel industries. Both facilities have access to the Great Lakes and ship essentially all their output by vessel. The assets and results of operations of Michigan Limestone are included within the Company’s Lime and Limestone segment.

In conjunction with the Michigan Limestone acquisition, the Company entered into a new three-year $118,000,000 Term Loan with its banking group and extended its existing $232,000,000 Senior Credit Facility by two years. Both facilities expire on April 3, 2003 and do not require any amortization of principal. The pricing features and covenants of the new Term Loan are the same as the existing Senior Credit Facility. Both credit facilities are senior to the Company’s $100,000,000 Senior Subordinated Notes issued in 1999.

In the first quarter of 1999, the Company’s Lime and Limestone segment acquired the assets of the W.S. Frey Company (“ Global Stone Winchester”) for $12,008,000 in cash and shares of the Company’s common stock, issued from treasury, having a guaranteed value of $1,500,000. Consideration for the acquisition also included non-competition and royalty payments of $3,500,000 of which $510,000 was paid at the date of acquisition. Global Stone Winchester operates a high purity limestone quarry and lime works and is located near two other of the Company’s operations. In the fourth quarter of 1999, the Company acquired the assets of Franklin Industries’ Mica business (renamed Oglebay Norton Specialty Minerals, Inc. (“Specialty Minerals”)) for $31,600,000 in cash. The business has two operations in the United States (North Carolina and New Mexico) and consists of mining reserves, production facilities, equipment and other assets used in the mining, processing, and distribution of mica.

All acquisitions were accounted for under the purchase method. The results of operations for these acquired businesses are included in the consolidated financial statements from the respective dates of acquisition. The purchase prices have been or will be allocated based on estimated fair values at the dates of acquisition. Assuming the above acquisitions had taken place at the beginning of 1999, proforma results for 2000 and 1999 would not differ materially from the Company’s actual results in 2000.

In the third quarter of 1999, the Company sold in separate transactions the stock of its (i) Global Stone Detroit Lime Company (“Detroit Lime”) and (ii) Global Stone Ingersoll Ltd. (“Ingersoll”) subsidiaries. The sale of Detroit Lime was completed in August 1999 with net proceeds of $15,250,000. The sale of Ingersoll was completed in September 1999 with net proceeds of $45,700,000. The combined net proceeds of $60,950,000 were used to reduce amounts outstanding on the Company’s Senior Credit Facility. The sales of Detroit Lime and Ingersoll were agreed to in principle within one year of their respective acquisition dates thus allowing the Company to record the transaction as an adjustment to the purchase price of Global Stone and reduce goodwill by $23,300,000 for the difference between the sale proceeds and the net book values of Detroit Lime and Ingersoll.

In the third quarter of 1999, the Company sold a dock located in Detroit, Michigan for $1,985,000 in cash. The sale resulted in a pretax gain of $1,642,000 (net gain of $1,067,000 or $0.22 per share, assuming dilution). In the fourth quarter of 1999, the Company sold an inactive coal property for $1,520,000 in cash. The sale resulted in a pretax and net gain of $1,836,000 (or $0.37 per share, assuming dilution).

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

		Three Months Ended September 30						Nine Months Ended September 30
		2000			1999			2000			1999
	Net income	$	7,619		$	6,430		$	11,300		$	9,292
	Other comprehensive income (loss):
	Foreign currency           translation adjustments		2			(241	)		7			709
	Comprehensive income	$	7,621		$	6,189		$	11,307		$	10,001

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

		Three Months Ended September 30						Nine Months Ended September 30
		2000				1999		2000			1999
Net income per share-basic:
Net income		$	7,619		$	6,430		$	11,300		$	9,292
Average number of shares outstanding			4,981			4,882			4,972			4,837
Net income per share-basic		$	1.53		$	1.32		$	2.27		$	1.92

		Three Months Ended September 30						Nine Months Ended September 30
		2000			1999			2000			1999
Net income per share-assuming dilution:
Net income		$	7,619		$	6,430		$	11,300		$	9,292
Average number of shares outstanding			4,981			4,882			4,972			4,837
Dilutive effect of stock plans			31			7			32			14
Adjusted average number of shares outstanding			5,012			4,889			5,004			4,851
Net income per share-assuming dilution		$	1.52		$	1.32		$	2.26		$	1.92

7.

The Company supplies essential natural resources to industrial and commercial customers. Through its three operating segments — Lime and Limestone, Industrial Sands and Marine Services - the Company serves customers, through a direct sales force, in a wide range of industries, including building materials, energy, environmental and industrial.

The following table sets forth the operating segment information as of and for the three months ended September 30, 2000 and 1999 (in thousands):

		Lime and Limestone				Industrial Sands				Marine Services				Total Segments				Corporate and Other				Consolidated
2000
Identifiable assets		$	391,528			$	65,883			$	141,644			$	599,055			$	92,426			$	691,481
Depreciation, depletion and   amortization expense			5,220				1,370				2,287				8,877				286				9,163
Capital expenditures			8,003				2,900				20				10,923				212				11,135
Net sales and operating revenues		$	51,823			$	16,247			$	31,003			$	99,073			$	4,215			$	103,288
Intersegment sales											1,811				1,811				(1,811	)
Total net sales and operating revenues		$	51,823			$	16,247			$	32,814			$	100,884			$	2,404			$	103,288
Operating income (loss)		$	11,448			$	3,480			$	5,365			$	20,293			$	(248	)		$	20,045
Gain on disposition of assets							6								6				332				338
Interest expense																			(9,365	)			(9,365	)
Other expense– net																			(56	)			(56	)
Income (loss) before income taxes		$	11,448			$	3,486			$	5,365			$	20,299			$	(9,337	)		$	10,962
1999
Identifiable assets		$	284,101			$	57,581			$	142,580			$	484,262			$	53,319			$	537,581
Depreciation, depletion and   amortization expense			3,884				1,199				2,263				7,346				45				7,391
Capital expenditures			2,032				772								2,804				59				2,863
Net sales and operating revenues		$	40,468			$	13,659			$	31,250			$	85,377			$				$	85,377
Operating income (loss)		$	6,513			$	3,139			$	6,874			$	16,526			$	(1,135	)		$	15,391
(Loss) gain on disposition of assets			(98	)											(98	)			1,642				1,544
Interest expense																			(7,804	)			(7,804	)
Other expense– net																			(139	)			(139	)
Income (loss) before income taxes		$	6,415			$	3,139			$	6,874			$	16,428			$	(7,436	)		$	8,992

 

     The following table sets forth the operating segment information as of and for the nine months ended September 30, 2000 and 1999 (in thousands):

		Lime and Limestone				Industrial Sands				Marine Services				Total Segments				Corporate and Other				Consolidated
2000
Identifiable assets		$	391,528			$	65,883			$	141,644			$	599,055			$	92,426			$	691,481
Depreciation, depletion and
amortization expense			13,748				3,905				4,579				22,232				1,175				23,407
Capital expenditures			17,306				5,827				4,265				27,398				624				28,022
Net sales and operating revenues		$	130,322			$	45,049			$	62,562			$	237,933			$	12,187			$	250,120
Intersegment sales											3,421				3,421				(3,421	)
Total net sales and operating   revenues		$	130,322			$	45,049			$	65,983			$	241,354			$	8,766			$	250,120
Operating income (loss)		$	25,010			$	8,937			$	9,025			$	42,972			$	(2,325	)		$	40,647
(Loss) gain on disposition of assets			(4	)			19								15				495				510
Interest expense																			(24,496	)			(24,496	)
Other expense— net																			(284	)			(284	)
Income (loss) before income taxes		$	25,006			$	8,956			$	9,025			$	42,987			$	(26,610	)		$	16,377
1999
Identifiable assets		$	284,101			$	57,581			$	142,580			$	484,262			$	53,319			$	537,581
Depreciation, depletion and  amortization expense			12,237				3,509				4,507				20,253				123				20,376
Capital expenditures			12,842				2,504				3,855				19,201				214				19,415
Net sales and operating revenues		$	116,507			$	36,919			$	63,696			$	217,122							$	217,122
Operating income (loss)		$	16,862			$	7,042				14,024			$	37,928			$	(3,296	)		$	34,632
(Loss) gain on disposition of assets			(98	)			22								(76	)			1,617				1,541
Interest expense																			(23,125	)			(23,125	)
Other expense— net																			(52	)			(52	)
Income (loss) before income taxes		$	16,764			$	7,064			$	14,024			$	37,852			$	(24,856	)		$	12,996

		September 30, 2000
		2000			2001			2002			2003			2004			Thereafter			Total		Fair Value
		(In thousands)
Liabilities:
Long-term debt:
Fixed rate		$  1,526			$    3,899			$1,472			$  2,303			$2,072			$112,639			$123,911		$110,253
Average interest rate		9.64	%		9.54	%		9.59	%		9.73	%		9.79	%		10.16	%
Variable rate		333			334			334			265,419			334			1,000			267,754		267,754
Average interest rate		8.99	%		8.81	%		8.78	%		8.89	%		4.54	%		4.69	%
Interest rate derivatives:
Interest rate swaps:
Variable to  fixed								20,000			200,000									220,000		2,593
Average                LIBOR pay rate		6.92	%		6.92	%		6.94	%		6.90	%
Average                LIBOR  receive rate		6.74	%		6.56	%		6.53	%		6.64	%
		December 31, 1999
		2000			2001			2002			2003			2004			Thereafter			Total		Fair Value
		(In thousands)
Liabilities:
Long-term debt:
Fixed rate		$  4,791			$    2,534			$1,269			$  1,954			$2,016			$112,962			$125,526		$117,822
Average interest rate		9.65	%		9.70	%		9.70	%		9.70	%		9.76	%		9.79	%
Variable rate		200			175,980															176,180		176,180
Average interest rate		7.60	%		7.97	%
Interest rate derivatives:
Interest rate swaps:
Variable to fixed		50,000			40,000															90,000		(889	)
Average                LIBOR pay rate		5.44	%		5.65	%
Average                LIBOR receive rate		6.47	%		7.13	%

 

PART II.	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS
	Not Applicable
ITEM 2.	CHANGES IN SECURITIES AND USE OF PROCEEDS
	Not Applicable
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES
	Not Applicable
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	Not Applicable
ITEM 5.	OTHER INFORMATION
	Not Applicable
ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K
	Not Applicable