When your ship runs aground, you have two options: You can reverse the engines and try to back up before moving forward again, or, failing that, you can lighten your load and try to float the ship off the obstruction. Michael Lundin, president and CEO of Oglebay Norton, had to do a little of each.
At the end of 2003, the company had $422 million in debt on operating revenue of $404 million. Its stock, which once traded for more than $45 a share in 1998, had fallen to 71 cents by early 2004.
An acquisition strategy to diversify company, pursued by the previous CEO, John Lauer, failed after the economy slowed and the industries it sells to slowed with it, decreasing demand for Oglebay’s rock and mineral products. Lundin (pronounced Lun-deen) joined Oglebay Norton as vice president in 2000 when his company, Michigan Limestone Operations, was acquired by Oglebay. As the company’s slide continued, Lundin was named president in late 2001. By the next year, he was named as Lauer’s successor at year-end, with Lauer staying on as chairman of the board, but at the April 2003 meeting of shareholders, Lauer resigned.
Oglebay Norton had run aground and it was left to Lundin to put the company back on course. He was confident it could be done, but changes needed to be made so the company could survive and a plan needed to be put in place.
But the debt load he inherited was too much to bear ,and the company filed for Chapter 11 bankruptcy protection in February 2004. Even with the challenge of a restructuring hanging over him, Lundin knew Oglebay Norton still had potential.
“It was a balance sheet issue, it was not a business issue,” says Lundin.
A key part of his plan was having a clear vision as to what the company is and what its goals are, and communicating them to employees and customers alike. This plan was being formulated even before the bankruptcy filing.
“There was a transformation going on within the company, and the analysis was ongoing during the restructuring,” says Lundin. “If you look back at the 2002 report, we really laid out four platforms the company is founded on. We are a minerals company: We process, we purify, we package and we provide high-quality chemical stone and sand for our customers.
“At the same time, we reward our employees and create long-term value for our investors. We have not lost sight of that. That vision was put together in 2002, and it is still the vision that guides the company.”
Although the bankruptcy filing was unavoidable, Lundin credits the clear plan with keeping the company and its employees focused during the 11-month bankruptcy process. Changes were made at every level.
“We took steps to move out of businesses that we didn’t feel were sustainable,” he says. “We worked on creating long-term value for the company. We did an assessment of the business and what core businesses could be retained going forward.”
A new management team was brought in to help Lundin take the company in a new direction and all but one member of the board of directors resigned. It was like starting over. “With the vision in place and these four objectives, those were our guiding principles as we moved through bankruptcy,” says Lundin. “Now, having gone through the process, I think those foundations served us well. We were able to allocate work and use that as our guiding focus. People weren’t playing out of position, wondering who we are or where we were going.
“That has now put us in a position to really devote all our attentions for the first time in two-and-a-half to three years to pushing forward the vision and the growth opportunities that reside in Oglebay Norton and not be consumed with restructuring in one facet or another.”
With Chapter 11 behind the company (it officially emerged on Jan. 31), Lundin is able to look forward toward profitability and growth using the core strengths and goals identified and communicated during the bankruptcy process.<P>
The new course
To be successful in any business, you have to have a core understanding of what your business is, where the profits are and how you can get there.
“What we did was (we) took the company apart and looked at the core fundamentals,” says Lundin. “We looked at the finance side. We got a new CFO who looked at the capital structure, who was in it and how it was made out.”
Like a navigator needing maps, Lundin needed information about every aspect of Oglebay Norton to know which was the safe way to travel.
“I believe that having accurate, timely, strategic data made available to the company to make proper and effective decisions is critical,” he says. “We came in and took that area of our business and looked at it. We said, “What data does the company need?” A lot of companies generate data for third parties, but they don’t focus on what data do they need internally to run their business.
“Our (information management) group was set up to serve the internal customer. We weren’t doing it the other way around. We didn’t say, “Here’s the standard platforms and software.” The platforms and software will fit the business, and that has served us well.”
The customer base also received heavy scrutiny from Michael Minkel, who at the time was vice president of sales and marketing (he is now senior vice president of operations). “What he did was devote himself to fully understanding what customers we had, what products we sold, who we sold to, what it was used for – and that was really the first time since the acquisitions had been made, to my knowledge, that we had taken a holistic approach of analyzing the company,” Lundin says. “That really is the genesis of the vision of who we are and where the opportunities are.
“What we found out was that we had a tremendous amount of opportunities between all of our various operations.” Examining the data not only showed Lundin where the opportunities were but also how each area of the company interrelated to the other and how all of it tied back into profitability.
“At the core, we are a mineral company, then we have a logistics side,” says Lundin. “What we found is that we participate in four key markets: Environmental, industrial, building materials and energy. So we took all of our products and services and placed it into one of these four categories.”
The data showed that building materials accounted for 45 percent of volume and 41 percent of revenue. The industrial segment accounted for 38 percent of volume and 34 percent of revenue, while energy was 13 percent and 14 percent, and environmental was 4 and 11 percent respectively.
“We began to understand the relationship of volume to revenue to profitability,” says Lundin.
One of the challenges that has always faced Oglebay Norton is servicing customers in industries such as auto making, steel and construction that can have extremely volatile business cycles.
“What we did was we took our end markets of customers and categorized them into what we called stable end markets, moderate end markets and volatile end markets,” says Lundin. “We defined them based on the buying characteristics of the end markets. We looked at quality, service and price, and what differentiates us. We found historical data and also projected out going forward to determine which category it fits into.
“We found the company had an overweighting in the volatile side, had a good chunk in the moderate and very little in the stable. We looked at it like a portfolio manager.”
While rocks and sand are commodities for the most part, certain chemical compositions are important to certain industries. Not all limestone or sand is the same in the eyes of a corporate chemist. Oglebay Norton has reserves that have chemical attributes that make them more desirable to some industries than those from other suppliers, so the company isn’t stuck competing on price alone. “How do we shift and rebalance this portfolio with these reserves and these customers with these processing facilities and these logistical networks that we have in place?” says Lundin. “How do we begin the transformation or rebalancing of this portfolio?”
The answer was in the data.
The environmental segment that is 4 percent of volume but 11 percent of revenue contains the desulfurization market. When coal-burning power plants burn high-sulfur coal, they require high-grade limestone to remove the sulfur that otherwise would cause acid rain.
“The longest-term growth opportunities are in our limestone and limestone filler markets,” says Lundin. “The market we see the most growth in is desulfurization. We currently participate in the market supplying well in excess of a million tons (annually). I think over the next four to five years, there will be an opportunity for 10 million tons for that market.”
The company’s higher-grade limestone gives it an advantage in that market.
“It gets back to if your stone exhibits a better chemical constitution in terms of calcium carbonate, it is a better absorbent,” says Lundin. “Therefore, it allows the power company to be in a position to comply with clean air requirements. It also results in the byproduct produced, gypsum, to be better, and can more consistently be processed by the wallboard companies into wallboard. It also allows the power company to entertain the possibility of burning different coal sources that may be more economical.”
Eastern coal is typically cheaper but is also higher in sulfur content than coals originating in the Western United States. By using a higher-grade limestone, the power companies can still comply with clean air standards while using a cheaper coal source.
“We have multiple sources and are already supplying the market,” says Lundin. “We have the logistical network to get it to market. If the end market wants it purified or further processed, we have the grinding capabilities to do that. We think we bring a varied and broad offering to market.
“We can do that to a wide variety of customers in limestone and the filler markets that require a higher-end product in terms of chemical composition. That’s really our focus. We still compete in the construction aggregate market, as do a lot of others, but we’re focusing on markets that require the chemical components in our limestone.”
Lundin says the company is mining materials for chemical attributes, which gives the company a competitive advantage in specific markets and avoids it being strictly a commodity player.
“Once the material is processed and in the pile, there are a number of end markets it can go to,v says Lundin. “We can take that processed mineral and sell it into the construction aggregate market and get X price for it. We can take the same product and the same stone and sell it into a metallurgical or chemical end market and get enhanced value for the product. We can take the same exact product, take it to one of our grinding facilities, purify and reprocess it, and sell it into an end market and get further enhanced value.
“The volumes are going down but the value on the per-ton basis are continually increasing. Getting back to our core business, we’ve got the minerals in the ground, the ability to process them, and because of all the good work (the management team) has done, we have a database of what we can do with them. Not only do we know our existing customer base, but we have also identified other markets that we think would be in our economical reach. Now we look to begin rebalancing that portfolio and how we can expand out and end up with a stable, sustainable customer base.”
Lundin says the company also uses its sales and marketing people to reach out to customers to learn what their needs are to see if there are other Oglebay Norton products that they could use. It also changed its Michigan Limestone Operations and Global Stone locations to a single brand name of O-N Minerals.
“We believe this move to a single name for limestone and lime operations will help increase market awareness of our broader capabilities,” says Lundin. “We want customers to look beyond individual locations to see a network of strategically located high-quality, long-life limestone reserves supported by processing facilities, docks and terminals.”
Communicating the message
Bankruptcy can be a dangerous time for a company, not just for the obvious financial reasons but for what it can do to your reputation with your customers and your employees.
Oglebay Norton managed to pay its vendors every cent they were owed, giving it financial credibility, but Lundin says the communication of the company’s vision and goals was vital to keeping everyone’s support, both then and now.
“We put together a very comprehensive communication program (during the bankruptcy),” says Lundin. “We reached out to a large and varied audience after having made the decision (to file for Chapter 11) that included the financial community, suppliers, customers, employees and retirees. It was very concerning, but there was a tremendous amount of good work done and we had a very well-structured plan and program in place that reflected back to the company’s vision and objectives.”
Exiting Chapter 11 did not mean the communication stopped. In fact, it was just beginning.
“I think the message, the vision of the company, the goals of the company, have been clearly articulated,” says Lundin. “I’d like to believe we’ve been very consistent with all of those from 2002 to today. But we need to continue to communicate that. It’s all of our jobs and my job to continue to communicate that, and I actively need to demonstrate every day that we are resolved to meet the goals and objectives of the company. It’s our actions that will create and sustain the culture and generate the confidence and commitment from all of our employees.
“We have a monthly meeting of all employees in the Cleveland office. We have a conference call every month with every operation. We talk about results, the state of the business, and we reiterate our goals and objectives and values of the company. Now that we are through the throes of restructuring, I’m able to devote more time getting out to the facilities and spend time with the employees. We focus as much as we can in either face-to-face or telephone conversations. All other matters are covered in a companywide e-mail newsletter or mailing. We prefer to do it in person when the situation permits.”
Lundin is also bringing in 55 to 60 managers for a two-day training session that will revisit the values and the vision of the company to keep everyone working toward the same goals, regardless of what part of the company they are in.
“The focus here is to make it as personal and engaging as possible,” says Lundin. “We find that benefits our culture a lot.”
Lundin explains the broad vision of the company to any group of employees he meets with, then refines the message to explain how they are specifically contributing to the overall company goals and objectives.
“I want to afford them the opportunity to ask some questions,” says Lundin. “The various sites have different issues. It isn’t a one-size-fits-all approach. Their customers are different, the clients are different and their wants and desires are different depending on the operation.”
The vision has been established and the course laid out. Employees, customers and vendors all understand where the company is going, but it’s anything but smooth sailing. Company projections show a net loss of $4.8 million this year and a loss of $3.3 million next year before posting a modest $1.7 million profit in 2007, which rises to $6.8 million in 2008. The company also still has a debt burden of more than $266 million this year. It recently sold off one of its old Great Lakes freighters, and is looking at possibly selling the other 22 to raise cash and pay down debt.
But the company survived Chapter 11 and managed to keep delivering products and paying its vendors. Oglebay Norton has moved beyond survival and is looking at sustainability and eventual profitability if all goes as planned.
“One key objective was to keep the business intact and come out of bankruptcy with a sustainable capital structure,” says Lundin. “We kept it intact, we didn’t lose customers, and I believe the capital structure we have today is sustainable. With what I know today, when I look at the capital structure, the team we have in place, the commitment and support we have from the board and the opportunities we have, I believe we have all the key components necessary for us to execute our vision as we’ve laid it out.
“We’ve really stepped back and understood what constitutes the company and took the time to fully understand that and do the heavy lifting, put a plan in place, the right team in place and the infrastructure in place. Now we have a capital structure that is sustainable — and we look to further refine it. We have a clearly defined and executable vision. That’s what’s important to me. It’s something that’s achievable. Now we just need to do it.”
How to reach: Oglebay Norton, www.oglebaynorton.com or (216) 861-3300
