Document 3e8GjG5wZOVa3Kw33Ym5BdvQy

FE004167 OGLEBAY NORTON COMPANY-ANNUAL REPORT-1970 Oglebay Morton Company Annual Report 1970 CONTENTS Financial Highlights................................................. 1 Letter to Stockholders.............................................. 2 Review of Operations .............................................. 4 Consolidated Statements of Income........................ 11 Consolidated Balance Sheets................................... 12 Statements of Source and Disposition of Funds .... 14 Notes to Consolidated Financial Statements........... 14 Accountants' Report ............................................... 15 Ten Year Summary................................................. 16 Directors and Officers.............................................. 18 Executive Office--Branch Offices--Subsidiaries ... 19 Facilities--Services--Products ............................... 20 FE004168 FINANCIAL HIGHLIGHTS Gross operating income................................................................ Net income.................................................................................... Cash dividends paid...................................................................... Per common share(i) Net income ........................................................................... Cash dividends paid.............................................................. Book value per common share..................................................... Working capital ........................................................................... Total assets................................................................................... Long-term liabilities...................................................................... Stockholders' equity...................................................................... Depreciation, amortization and depletion charged to costs and expenses.............................................. Expenditures for properties and equipment, including investment in the Eveleth taconite project........... 1970 $68,172,362 4,401,795 2,468,164 3.97 2.00 58.57 23.594,510 83.491,567 66.265.121 3.885,355 7,647.569 (1) Per share figures, based on the average number of common shares outstanding during each year, have been computed after provision for annual preferred dividends. (2) Includes dividends paid by subsidiaries prior to acquisition by the company. 1969 $66,833,755 5,355,350 2,445,366 4.83 2.10(2) 56.06 27,212,954 84,072,272 427,000 65,177,215 3,471,337 4,150,812 FE004169 TO OUR STOCKHOLDERS At the beginning of 1970, we looked forward with con fidence to another excellent year. Instead, the year included many frustrating adverse elements that affecte'd the normal conduct of business, and, like most companies, we did not achieve levels of sales and earnings which we had expected. Unstable labor conditions, mostly outside of our opera tions, had a very significant impact. The lengthy strikes in the automobile and trucking industries, the unreliable labor conditions in coal mining and the inherent problems of a generally sluggish economy combined to reduce consolidated net income by 18%. Under the existing economic conditions, we consider the results relatively good. However, the per formance in certain segments of the business did not attain a satisfactory level, and appropriate steps have been taken through cost reduction programs and operational changes to effect improvement. A comparative summary of earnings and other financial data is included in the "Financial Highlights" on the preced ing page. During the year, we raised prices of several products and services to try to recover part of the increases in labor rates and other costs that have outstripped productivity and price increases in recent years. Already, most of the benefits from those price adjustments have been offset by a further bulge in costs of employment, supplies and services. This infla tionary impact on profit margins is a matter of great concern to us. Our Ferro Engineering Division, whose operations are almost wholly dependent on the steel industry, suffered the greatest reduction in profitability. Sales were down sharply, reflecting a decline in steel production generally and an even greater reduction in the output of higher quality steels which are the major market for our hot-top services. We anticipate an improvement in sales this year and expect higher profit margins as we receive the benefits of more efficient manu facturing processes and a better cost control program. The Columbia Transportation Division enjoyed another good year, aided by the newest member of the fleet -- the self-unloader S/S Frank Purnell -- acquired in January 1970. Like some of our other operations, Columbia was affected by reduced volume during the last half of the year. Also, inclem ent weather and unusual loading delays in the fourth quarter impeded the normal movement of cargoes. Our coal operations showed significant improvement last year, despite the loss of tonnage because of numerous wild cat strikes in the first half. We expect continued gains in 1971. However, the labor contract with the United Mine Workers of America expires this fall, and the industry is faced with negotiating a new agreement which is likely to be costly. The demand for coal is at record levels and reflects the tremendous growth in the use of electric energy and the in creasing shortage of quality fossil fuels. This situation will continue for the foreseeable future. Prices for coal in the open market have increased and we have also received price adjustments under the escalation provisions of our long-term contracts. However, the loss of productivity resulting from compliance with the Federal Coal Mine Health and Safety Act is a major cost that has not been adequately reflected in the price structure of coal. Although hampered by the slower pace of business in the glass, ceramic and steel foundry industries which it serves, Central Silica Company nevertheless had another good year in 1970, with results falling just short of the peak performance of 1969. This subsidiary, acquired in 1968, has a very promising future, with a management team capable of taking full advantage of the opportunities for growth which we are seeking. Central Silica would substantially benefit from any improvement in residential and commercial con struction this year. Eveleth Taconite Company, owned jointly with Ford Motor Company and managed by our Company, had its best year since operations began in 1965. Production amounted 2 FE004170 Expansion oi Eveieth's Fairlane Plant in 1971 will increase its annual capacity to over two million tons of taconite pellets. to 1,986,000 tons of high quality iron ore pellets, up 5% from 1969. An increase of 5.5% in the price of pellets, the first in eight years, was an important factor in Eveieth's fine per formance. It should also be noted that new technological developments, improved operating procedures and strict cost control programs have been a trademark of this operation. A further increase of about 5.3% in the price of taconite pellets has been announced and will be reflected in this year's results. The decline in steel production and a ninety-day strike against one of its major customers hurt the profitability of T & B Foundry Company, our most recent acquisition. The loss of revenue was tempered by the institution of an effec tive cost reduction program. With the completion of labor negotiations in the automobile industry and at T & B, earnings should improve in 1971. Although not a large contributor to earnings, dock opera tions of the Company suffered from reduced business in 1970. Increasing competition from Eastern Seaboard ports, which are aided by discriminatorily favorable treatment from the railroads, and a reduced rate of Seaway growth are not promising developments for Great Lakes terminal operations. Our financial position continues to be excellent, with net working capital of $23,595,000 at year end, including cash and marketable securities of approximately $15,000,000. In May, John J. Dwyer was elected President of the Com pany to succeed Edward W. Sloan, Jr., who elected to take early retirement. Mr. Dwyer, who joined Oglebay Norton in 1946, was formerly Executive Vice President. Mr. Sloan retired after thirty-five years of service with the Company. He will continue as a consultant and a director. The Board of Directors and management acknowledge with grateful appreciation his able and constructive leadership over the years. Renold D. Thompson was elected Vice President-Vessel and Mining Operations, and Walter R. Herron was elected to succeed Mr. Thompson as Vice President and General Man ager of the Ferro Engineering Division. D. Kelly Campbell, formerly General Manager of Eveleth Taconite Company, was elected Assistant Vice President-Iron Ore Operations. Other newly elected officers were John Limbocker, Jr., as Assistant to the President, and David A. Kuhn, as an Assist ant Secretary. The outlook for 1971 is uncertain at this time because of forthcoming labor negotiations in the iron ore, steel, lake vessel and coal industries. The outcome of these negotiations will play an important role in our results. Strikes in any one of those industries could have serious repercussions in all of them, and agreements without strikes could have adverse effects unless something is done to improve productivity. Up to now, labor costs have increased at a much faster rate than the gains in productivity. The Company has the financial resources and the dedi cated, capable people to take advantage of any improvement in the markets we serve and to expand both internally and externally. We expect our businesses generally to be strong during the first half of 1971 and we hope that the results for the second half will be relatively good. March 31, 1971 3 Chairman FE004171 OGLEBAY NORTON COMPANY - OPERATIONS Columbia transportation division A strong demand for domestic iron ore at the opening of the navigation season deteriorated during the last half of the year under the influence of a generally weaker steel market. Reduced ore requirements, the critical railroad car shortages, severe weather delays and greatly increased op erating costs combined to reduce bulk vessel earnings despite a 10^ per ton increase in the iron ore rate effective in August. Reflecting a strong market in coal and limestone and the addition of the S/S Frank Purnell to the fleet, the self-un loader vessels carried a record tonnage last season despite many disruptions in scheduling caused by a shortage of rail road equipment for coal deliveries to lake ports. The higher tonnage, coupled with rate increases, produced record gross revenues for this segment of the fleet, although escalating operating costs, especially labor and fuel, had a depressing effect on profits. The crane vessel fleet also performed well. Operating in come exceeded expectations. Efforts to improve vessel capabilities and modernize the fleet to better serve our customers are continuing. In this connection, the S/S Ashland's hull is being strengthened to permit deeper load lines and increase iron ore capacity about 400 tons per cargo. Fairport Machine Shop was closed at the end of last year. The phasing out of smaller vessels on the Great Lakes has eliminated the necessity for this type of small marine repair yard. Inventories of materials at our customers' plants are expected to be at low levels at the opening of navigation and we anticipate an early start with strong demand for all seg ments of our fleet during the first half ofthe season. The last half will be influenced by labor negotiations in the steel in dustry and its resulting effect on our fleet. The unlicensed seamen in our fleet are represented by the United Steel workers of America. Our labor contract with that Union expires August 1, 1971, as do the labor contracts in the steel industry. Steamer Reserve loading taconite pellets at Silver Bay, Minnesota. Self-unloader, Steamer Frank Purnell, dis charging limestone at a customer's dock. p004172 4 Ferro Engineering representatives inspecting use of C & D Hot Tops in a steel plant. ferro engineering division Two major strikes plus the lower level of steel produc tion contributed largely to the decline in shipments of Ferro Engineering products during 1970. Early in the year, the nationwide truck strike caused an abrupt decline in deliver ies and in many cases at significantly higher cost. Later in the fall, after a rather slow year in steel production, the strike in the automobile industry sharply reduced the demand for hot-topped steel. Raw material costs continue to rise and labor increases continue to exceed productivity. We are currently in the process of adjusting prices to cover these higher costs. Major improvements have been made in manufacturing 5 techniques and performance, particularly in the newer "Ferroboard" process. Other changes are being developed to bring this product line to its full potential and to eliminate un profitable products in this line. Our research and sales efforts are being directed toward substitute materials that we can produce and sell at a profit. Several shifts in management and supervision have been made and an intensive cost reduction program will be con tinued in an effort to minimize the effect of lower sales vol ume on profits. We look forward to improved operating results in 1971, with high activity in the first half followed by a slackening demand in the last six months. FE004173 Crude silica .sandstone being unloaded into primary crusher -- Glass Rock Plant. mining / quartzite and industrial quartz sands Demand for industrial silica sand remained strong in 1970. Central Silica Company, one of the major suppliers in this field, retained its share of the market and operated at levels comparable to the record high of 1969. Gross profit for the year was slightly below our expecta tions because of increased costs for labor, materials and supplies. Profits were further reduced during the last half of 1970 by the low level of operations in the steel foundry industry, a major user of Central Silica's products which also felt the effects of a prolonged strike in the automobile industry. A new three-year labor contract with the Glass Bottle Blowers Association of United States and Canada was successfully negotiated by Central and Millwood effective September 1, 1970. Modest price adjustments were made in our product line to partially offset higher labor and operating costs. New storage and shipping facilities at Millwood were completed last year. These improvements were designed to improve our service to customers and increase efficiency. Additional grinding capacity is planned at Millwood this year to accommodate the increased requirements of the fiberglass and other industries. We believe that operating results of Central Silica Company in 1971 will compare favorably with 1970 if hous ing and industrial construction starts equal the projected forecasts. FE004174 6 mining / iron ore and other minerals Eveleth Taconite Company, managed and partly owned by Oglebay Norton Company, produced a record 1,986,000 tons of iron ore pellets in 1970. This amount was achieved by maximum utilization of facilities, consistent with ample maintenance and product quality. Since the start of operations in 1965, no significant cap ital additions have been made to the original facilities. Con tinued research and investigation have developed improved machinery and technology beneficial to Eveleth operations. Accordingly, expenditures were authorized and modification of certain facilities began during the latter part of 1970 which, when completed in mid-1971, will increase production about 10%. In 1970, the price of taconite pellets was raised, the first adjustment since 1962. An additional increase was made applicable to 1971 sales. These will partly offset increased labor and supply costs. Efforts continued to interest new partners to join in a major expansion of Eveleth Taconite Company, as well as to attract investors for development of the Oglebay Nortoncontrolled taconite reserve south of the City of Eveleth. We are confident a partner will be secured when economic and market conditions are more favorable. Mineral exploration was conducted in Canada, Western United States and Mexico. Several encouraging prospects were drilled, but no economic mineralization was encoun tered. A number of attractive fluorspar outcrops were exam ined in Mexico; none warranted drilling. Construction of the Brownsville, Texas, plant to produce briquettes from Mexican fluorspar concentrates was com pleted. Due to production difficulties experienced by the principal Mexican supplier throughout most of the year, the plant did not operate at capacity. However, a sufficient tonnage of high-grade product was produced and shipped to prove that the plant design is correct and efficient. 7 FE004175 Our mines, located in Ohio, provide quality coals for the electric utility industry. coal mining and sales Although work stoppages resulting from wildcat strikes became less prevalent during the latter part of the year, their effects, together with the high rates of absenteeism and industry-wide shortages of skilled workers, continued to hamper coal production. Compliance with stringent Federal Coal Mine Health and Safety Laws also has been costly through the loss of productivity which is difficult to overcome. Under our long-term sales contracts, we have succeeded in making price adjustments to cover labor cost increases and the direct costs of health and safety, but the expenses of labor-related problems and many of the inefficiencies created by the new legislation had to be absorbed. In the current year, there will be further implementation of safety standards, and a new labor contract must be nego tiated with the United Mine Workers of America. Their impact on prices and productivity is unpredictable at the present time. The situation is aggravated somewhat this year by the Union's internal problems. It is difficult to determine what effect this will have on negotiations. Despite these problems, we expect that profits will im prove through increasing recognition, on the part of our customers, of the economic factors involved. In view of the acute shortages of quality fossil fuels and expanding electric energy demands, we anticipate that the demand for coal will continue unabated at current peak levels. During the year, market demand for brokerage coal remained exceptionally strong. Supply was restricted by labor unrest early in 1970 and by the effects of the new health and safety legislation, but we were able to develop additional coal sources which substantially increased our commissions. Quality coals will continue in strong demand. There will be some inventory buildup as a result of the increased avail ability of marginal coal prior to the expiration of the mine workers' contract. We are continuing our search for new sources of supply to replace tonnage from former sources that became captive and are no longer available in the market. FE004176 8 T & B castings are custom finished. Double pouring hot metal for a large casting -- T & B Foundry. ore and mineral sales Despite the decline in steel production during 1970, we were able to sell our share of the Eveleth taconite pellet production as well as tonnage for other producers for whom we act as agent. The slack in steel demand was offset by larger shipments to overseas markets where a shortage of iron ore was evident most of the year. Although we have already sold nearly all of our share of Eveleth's output for 1971, delivery of the total tonnage will depend largely on the outcome of labor negotiations with the United Steelworkers of America. Sale of taconite pellets for other producers is dependent on the demand for steel and the effect of foreign steel on the domestic market. The world market for iron ore pellets has softened and we do not antic ipate foreign deliveries in 1971. Sales of fluorspar were limited only by the available supply. Production of fluorspar briquettes in our new Browns ville plant was sharply curtailed by lack of raw material and minor start-up problems. However, late in the year, the supply of fluorspar concentrate was increased and the plant is cur rently operating at its rated capacity. We expect a stronger market for fluorspar in 1971. If our source of supply for this raw material continues at its present level, results will be favorable. foundry operations Sales of T & B Foundry Company in 1970 decreased from the record 1969 levels under the influence of the economic slowdown and the decreased demand for durable goods. Several labor strikes at customers' plants and the truckers' strike also restricted our volume. In spite of the present sluggish economy, T & B antici pates a much better year for sales and profits in 1971. This year the Company will become a producer of high quality ductile iron castings. This diversification,, as well as further penetration of the gray iron market, should help both sales 9 and profits. We continued our multiphase modernization and expan sion program and completed a new shipping facility and sand system early last year. A more economical process for mak ing molds was developed and is now used extensively to improve casting appearance and dimensional accuracy. The next phase of our modernization and expansion program will add more air pollution equipment and improve the raw material storage facility. FE004177 Loading overseas cargo at our Bay City Seaway Terminal. Other dock facilities at Toledo, Saginaw and South Chicago. dock operations Bay City Seaway Terminal enjoyed a very good year. Export tonnage of certain commodities increased substan tially, and dock efficiency improved as a result of a sizable amount of cargo being handled on pallets and in containers. While general cargo movement to overseas ports was down considerably at most Great Lakes ports in 1970, the Toledo dock experienced a sharp increase in the last two months of the season, enabling it to almost equal the ton nage handled in the previous year. It was not enough, how ever, to overcome operating losses incurred early in the season. The Saginaw dock sustained a decline in tonnage and revenue primarily because of a seven-week strike by the dock employees. The General Motors strike, which followed, eliminated the important inbound scrap iron and steel move ment. The railroads continue to discriminate against Great Lakes ports by granting preferential rail rates to and from the East and Gulf Coasts. We are hopeful that the recent decision by the Interstate Commerce Commission to review all railroad rate structures will eliminate or substantially reduce such preferential practices. We anticipate some improvement at our Saginaw and Toledo facilities in 1971 and expect Bay City to maintain the level of business attained in 1970. FE004178 10 Oglebay Norton Company and Subsidiary Companies CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31,1970 and 1969 1970 INCOME Net sales and operating revenues......................................................... Sales commissions, royalties and management fees............................ Dividends, interest and miscellaneous.................................................. $66,659,103 1,513,259 662,880 68,835,242 COSTS Cost of goods sold and operating expenses.......................................... General, administrative and selling expenses...................................... Interest expense .................................................................................... Federal income tax, including provision for deferred taxes: 1970 -- $414,176 and 1969 -- $433,656 .......................................... NET INCOME 56,028,066 5,690,381 2,715,000 64,433,447 $ 4,401,795 1969 $65,122,395 1,711,360 797,297 67,631,052 52,669,900 6,042,625 193,177 3,350,000 62,275,702 $ 5,355,350 INCOME PER COMMON SHARE On average number of shares outstanding during each year, after provision for preferred dividends......................................... Assuming conversion of preferred shares beginning of year................ $ $ 3.97 3.77 $ 4.83 $ 4.49 CONSOLIDATED STATEMENTS of RETAINED EARNINGS For the years ended December 31, 1970 and 1969 BALANCE, January 1 NET INCOME $56,281,645 4,401,795 60,683,440 CASH DIVIDENDS Common stock $2.00 per share ............................................................ Preferred stock Series A, $2.75 and $2.0625 per share, respectively...................... Series B, $2.50 and $.747 per share, respectively........................... Acquired companies prior to acquisition.............................................. 1,958,552 409,612 100,000 2,468,164 BALANCE, December 31 $58,215,276 $53,371,661 5,355,350 58,727,011 2,002,902 307,209 29,880 105,375 2,445,366 $56,281,645 The accompanying notes are an integral part of these financial statements. FE004179 CONSOLIDATED BALANCE SHEETS December 31,1970 and 1969 ASSETS 1970 1969 CURRENT ASSETS Cash .......................................................................................... S 3,968,720 Marketable securities, at cost plus accrued interest (approximates market).......................................... 11,034,592 Notes and accounts receivable, less $150,000 in 1970 and $174,000 in 1969 for doubtful accounts............................ Inventories (Note 2) ................................................................ 9,044,585 3,833,964 Prepaid vessel rent, insurance and other expenses................. 1,186,124 Total current assets................................................... 29,067,985 $ 3,160,760 14,374,750 11,870,438 3,616,769 1,319,499 34,342,216 INVESTMENTS, at cost, and noncurrent receivables (Note 3).................................................................. 7,076,971 6,601,203 PROPERTIES AND EQUIPMENT, at cost Vessels, docks and related equipment..................................... Mining properties and equipment .......................................... Manufacturing properties and equipment............................... 48,691,222 20,442,330 9,552,786 Accumulated depreciation, amortization and depletion................................. 78,686,338 32,965,960 45,720,378 44,039,120 19,200,432 8,805,626 72,045,178 30,330,332 41,714,846 DEFERRED CHARGES ................................................................ 1,626,233 $83,491,567 1.414,007 $84,072,272 FE004180 12 Oglebay Norton Company and Subsidiary Companies LIABILITIES CURRENT LIABILITIES 1970 --* 7 1969 Accounts payable, trade....................................................... Payrolls and other accrued compensation........................... Accrued taxes and other expenses...................................... Federal income tax....... ........................................................ Total current liabilities.......................................... $ 2,410,861 1,759,959 1,182,848 119,807 5,473,475 $ 3,552,096 2,486,984 1,090,182 7,129,262 LONG-TERM LIABILITIES in connection with closed mine . 427,000 DEFERRED FEDERAL INCOME TAX including investment tax credit (Note 6).............................................. 11,752,971 11,338,795 STOCKHOLDERS' EQUITY PREFERRED STOCK, without par value, redemption value $50 per share, authorized 400,000 shares; issued 188,950 shares at stated amount (Note 5) Series A, 5yj% cumulative convertible, 148,950 shares Series B, 5% cumulative convertible, 40,000 shares ... COMMON STOCK, par value $1 per share, authorized 3,000,000 shares; issued 1,019,951 shares........................... ADDITIONAL CAPITAL ......................................................... RETAINED EARNINGS ........................................................... Less common shares in treasury, 49,850 in 1970 and 25,900 in 1969, at cost............................... 1,353,750 407,350 1,019,951 7,034,569 58,215,276 68,030,896 1,765,775 66,265,121 $83,491,567 1,353,750 407,350 1,019,951 7,034,569 56,281,645 66,097,265 920,050 65,177,215 $84,072,272 The accompanying notes are an integral part of these financial statements. 13 FE004181 Qglebay Norton Company and Subsidiary Companies STATEMENTS OF SOURCE AND DISPOSITION OF FUNDS For the years ended December 31,1970 and 1969 1970 SOURCE OF FUNDS Operations Depreciation, amortization and depletion .............................................................. Deferred income tax.................................................................................................. Disposition of fixed assets......................................................................................... S 4,401,795 3,885,355 414,176 23,240 DISPOSITION OF FUNDS Expenditures for properties and equipment ................................................................... Purchase of treasury stock.............................................................................................. Advances to affiliated companies.................................................................................... Reduction in long-term liabilities ..................................................................................... Increase in deferred charges............................................................................................. 8,724,566 7,494,269 2,468,164 845,725 895.626 427,000 212,226 12,343,010 INCREASE OR (DECREASE) IN WORKING CAPITAL ............................................. 5(3,618,444) The accompanying notes are an integral part of these financial statements. 1969 $ 5,355,350 3,471,337 433,656 217,015 9,477,358 4,011,356 2,445,366 454,250 418,125 18,493 29,476 7,377,066 $. 2.100,292 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated financial statements include the ac counts of the Company and all of its subsidiary companies. Certain of the 1969 amounts have been reclassified for com parative purposes. 2. Inventories are stated at the lower of average cost or market and consist of: 1970 1969 Finished products and materials .. .$2,428,953 $2,244,771 Operating supplies and materials .. 1,405,011 1,371,998 $3,833,964 $3,616,769 3. Investments include $5,499,878 and $5,870,042 at Decem ber 31, 1970 and 1969, respectively, representing a 15% inter est in Eveleth Taconite Company which is 85% owned by another company. The investment is stated at cost which is the equity in underlying net assets. Eveleth has no income as the stockholders reimburse it for all costs incurred in propor tion to their stock ownership, and the production of the mine is taken by the stockholders in like proportion. 4. The Company and its subsidiaries have several non-con- tributory pension plans covering substantially all of their employees. The total pension expense for 1970 and 1969 amounted to $818,000 and $749,000, respectively, which in cludes, as to certain of the plans, amortization of prior service costs over periods not exceeding 25 years. Prepayments for past service on a plan for salaried employees in prior years resulted in payments in 1970 and 1969 being less than the amounts charged to expense. With respect to the other plans, current payments equal the amounts charged to expense. The actuarially computed values of vested benefits at December 31, 1970 exceeded the assets of the fund by approximately $244,000. The Company also pays into a union plan which provides pension and other benefits for hourly-rated employees at its coal mines. Payments are based upon a specified rate per ton of coal produced, and amounted to $671,600 in 1970 and $733,786 in 1969. 5. The preferred stock is issuable in series and the Board of Directors is authorized to fix the number of shares and desig nate the terms of each issue. 14 FE004182 Series A and B shares are entitled to one vote per share and the shares at the option of the holder, at any time, may be converted into common stock at the conversion price in effect at the conversion date (currently share for share). These shares are redeemable at the option of the Company subse quent to December 31, 1976 at $50 per share plus accrued dividends, and are entitled to a similar amount in the event of liquidation. Dividends are cumulative and payable quarterly at an annual rate of $2.75 per share for Series A and $2.50 for Series B. 6. For federal income tax purposes, the Company's deduc tions for depreciation, pension expense and certain other costs are computed differently than the amounts charged in the accounts for such costs. Amounts equal to the resulting tax reductions are charged to income (as federal income tax) and credited to the reserve for deferred federal income taxes. The deferred taxes are credited to income (as federal income tax) in periods when depreciation, pension expense and cer tain other costs charged in the accounts exceed the amounts deductible for tax purposes. The investment credit resulting from equipment acquisition was deferred and the balance at January 1, 1970 is being amortized over a five year period. Prior to 1970 the amortiza tion was over a fifteen year period. The change had no sig nificant effect on 1970 net income. 7. The Company has chartered a bulk cargo vessel at an annual charter rental of $570,000 under a charter expiring in 1983. Outstanding commitments for purchase of properties and equipment amounted to approximately $2,809,000. 8. Depreciation, amortization and depletion charged to costs and expenses for the year 1970 and 1969 amounted to $3,885,355 and $3,471,337, respectively. The Company pro vides depreciation using the unit of production method for mining properties and equipment and the straight-line method for all other properties and equipment. ACCOUNTANTS' REPORT To the Board of Directors of Oglebay Norton Company We have examined the consolidated balance sheet of Oglebay Norton Company and its subsidiary companies as of December 31, 1970 and the related consolidated statements of income, retained earnings and source and disposition of funds for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting Tecords and such other auditing procedures as we considered necessary in the circumstances. We previously examined and reported upon the financial statements of the company for the year 1969. In our opinion, the aforementioned financial statements present fairly the consolidated financial position of Oglebay Norton Company and its subsidiary companies at December 31, 1970 and 1969 and the consolidated results of their operations and the source and disposition of funds for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. Cleveland, Ohio February 12,1971 15 FE004183 TEN YEAR SUMMARY Gross operating income......................................................................... Income before federal income tax and extraordinary items................. Income before extraordinary items....................................................... Extraordinary items, less applicable taxes............................................ Net income............................................................................................... Cash dividends paid............................................................................... Net income invested in the business....................................................... Number of stockholders at year end....................................................... Preferred shares outstanding at year end............................................. Common shares outstanding at year end............................................. Per common share*.................................................................................. Income before extraordinary items............................................... Extraordinary items, less applicable taxes...................................... Net income........................................................................................ Cash dividends paid....................................................................... Book value per common share................................................................ Current ratio........................................................................................... Stockholders' equity to total liabilities ratio.......................................... Working capital...................................................................................... Total properties -- net........................................................................... Total assets............................................................................................. Long-term liabilities................................................................................ Stockholders' equity .............................................................................. Depreciation, amortization and depletion charged to costs and expenses....................................................... Expenditures for properties and equipment, including investment in the Eveleth taconite project.................... 1970 $68,172,362 7,116,795 4,401,795 -- 4,401,795 2,468,164 1,933,631 1,241 188,950 970,101 3.97 -- 3.97 2.00 58.57 5.31 12.11 23,594,510 45,720,378 83,491,567 66,265,121 3,885,355 7,647,569 1969 $66,833,755 8,705,350 5,355,350 -- 5,355,350 2,445,366 2,909,984 1,302 188,950 994,051 1968 $64,990,563 8,403,704 5,065,581 -- 5,065,581 2,309,553 2,756,028 1,342 188,950 1,006,251 4.83 -- 4.83 2.10(3) 56.06 4.82 8.63 27,212.954 41,714,846 84,072,272 427,000 65,177,215 4.53 -- 4.53 2.30(3 52.94 3.06 4.97 25,112,682 41,006,228 86,259,108 445,493 62,721,481 3,471,337 3,462,557 4,150,812 5,032,228 "Per share figures, based on the average number of common shares outstanding during each year, have been computed after provision for annual preferred dividends and adjusted for a 2% stock dividend paid in 1962. Acquisitions in 1968 and 1969 were treated as poolings of interest. In each case the year prior to the year of acquisition was restated. Figures for prior years are as reported in annua] reports for the respective years. FE004184 16 1967 $65,626,200 8,287,406 4,826,129 2,844,798 7,670,927 : 2,317,516 5,353,411 1,360. 148,950 1,006,251 1966 $68,496,126 8,739,346 4,814,346 -- 4,814,346 1,529,927 3,284,419 1,333 1,019,951 1965 1964 1963 $58,649,900 $55,625,853 $54,078,854 7,451,491 6,805,890 5,555,283 4,051,491 3,605,890 2,890,283 -- -- ------(1) 4,051,491 3,605,890 2,890,283 1,325,936(2) 1,223,941(2) 1,019,951 2,725,555 2,381,949 1,870,332 1,337 1,456 914 1,019,951 1,019,951 1,019,951 1962 $53,361,231 4,386,056 2,226,056 ------ (1) 2,226,056 1,019,951 1,206,105 906 1,019,951 1961 $54,978,681 5,580,675 3,055,675 -- 3,055,675 1,000,080 2,055,595 815 1,019,951 4.37 2.82 7.19 2.30(3) 51.20 3.67 6.81 21,887,784 39,541,675 77,887,617 477,518 58,970,817 4.72 -- 4.72 1.50 49.88 2.15 3.96 11,888,284 43,180,893 74,361,552 2,515,536 50,878,263 3.97 -- 3.97 1.30(2) 46.66 2.33 3.95 9,917,392 42,276,316 69,092,991 4,586,856 47,593,844 3.54 -- 3.54 1.20(2) 43.79 2.20 4.92 9,510,807 39,261,082 61,331,238 1,151,928 44,664,298 2.83 ------(1) 2.83 1.00 41.46 2.42 4.22 9,441,162 39,243,272 58,574,777 3,367,059 42,282,349 2.18 ------(1) 2.18 1.00 40.31 3.29 3.02 11,591,516 40,791,330 60,258,918 8,551,743 41,118,236 3.00 -- 3.00 1.00 41.09 2.24 4.06 10,410,252 38,271,411 59,068,923 1,928,597 41,911,209 3,580,864 3,670,312 2,440,106 2,702,402 2,693,262 2,967,614 2,813,038 3,450,002 4,547,849 10,324,015 5,329,993 2,324,436 8,736,193 3,082,230 (1) Excludes extraordinary deductions of $502229 in 1983 and $1,999,078 in 1962 equal to $.49 and $1.96 per share, respectively. These amounts were charged to retained earnings in those years. (2) Includes an extra dividend of $.20 per share declared in each of the years 1964 and 1963, paid in January of the following years. (3) includes dividends paid by subsidiaries prior to acquisition by the company. 17 FE004185 Central Silica Company operates several large tacilities for beneficiating quartzite. Shown is Ihe Millwood Plant. DIRECTORS Burton Courtney Charman. Walter M,, Jr. Correa Edgardo A. Dwyer ]ohn J. Gale. Robert I., Jr. Harrison. Arthur F. Hutchinson. J. Gordon Karch George F. Mitchell. Donald W. Nance fames J. Rankin. Alfred M. Richey. Herbert S. Sedgwick. Ellery, Jr. Sloan. Edward W., Jr. White Fred R.. Jr. Honorary Director -- Rankin, Henry P. OFFICERS Courtney Burton ....................Chairman of the Board Fred R. White, Jr............. Vice Chairman of the Board and Senior Vice President John J. Dwyer................................................. President Albert B. Cozzens....................Senior Vice PresidentTransportation and Docks Renold D. Thompson...............................................VicePresidentVessel and Mining Operations Walter R. Herron............. Vice President and General Manager, Ferro Engineering Division Walter M. Charman, Jr.............................................VicePresident Arthur B. Rathbone.............Vice President-Ore Sales Gordon C. Nichols .........................................Secretary Charles W. Ferris.......................................... Treasurer Alfred F. Savage ................ Assistant Vice PresidentMining D. Kelly Campbell ........Assistant Vice PresidentIron Ore Operations Robert A. Thomas ........................ Assistant Secretary and General Counsel John Limbocker, Jr............. Assistant to the President David A. Kuhn.................................................AssistantSecretary Leonard M. Bell ............................................ Controller Lytton S. Beman, Jr..........................................AssistantTreasurer Walter L. Gonska............................................ AssistantTreasurer Arthur W. Juergens........................................ AssistantTreasurer SUBSIDIARY MANAGEMENT Central Silica Company Arthur F. Harrison, President T & B Foundry Company Frank P. Gill, President Toledo Overseas Terminals Co. Fred R. White, Jr., President Canadian Ferro Hot Tops Limited (Canada) Renold D. Thompson, President Silloc Limited (Canada) Fred R. White, Jr., President Pochteca, S. A. de C. V. (Mexico) Benjamin P. Cooper, Administrator FE004186 O GLEBAY NORtON COMPANY EXECUTIVE OFFICE 1200 Hanna Building Cleveland, Ohio 44115 Telephone (216) 861-3300 Cable Address: ONCO-CLEVE BRANCH OFFICES Southfield, Michigan 48075 205 Clausen Building South 16000 West Nine Mile Road Telephone (313) 444-5233 St. Clairsville, Ohio 43950 P.O. Box 156 Telephone (614) 695-1134 Virginia, Minnesota 55792 P.O. Box 1064 Telephone (218) 741-5222 SUBSIDIARIES Canadian Ferro Hot Tops Limited 345 Arvin Avenue Stoney Creek, Ont., Canada Telephone (416) 662-8381 Central Silica Company 806 Market Street Zanesville, Ohio 43701 Telephone (614) 452-2775 Pochteca, S. A. de C. V. Apartado Postal 41-586 Mexico 10, D.F. Telephone 570-26-47 Cable Address: POCHSA -- Mexico, D. F. Silloc Limited 1200 Hanna Building Cleveland, Ohio 44115 Telephone (216) 861-3300 T & B Foundry Company 2469 East 71st Street Cleveland, Ohio 44104 Telephone (216) 391-4200 Toledo Overseas Terminals Co. Box 306, Presque Isle, Station "A" Toledo, Ohio 43605 Telephone (419) 726-2605 TRANSFER AGENT AND REGISTRAR The Cleveland Trust Company Cleveland, Ohio COUNSEL Thompson, Hine and Flory Cleveland, Ohio ACCOUNTANTS Lybrand, Ross Bros. & Montgomery Cleveland, Ohio 19 FE004188 r vj Cover illustration of mining operations -- Thunderbird Mine, Eveleth Taconite Company. OGLEBAY NORTON COMPANY FACILITIES - SERVICES - PRODUCTS VESSEL TRANSPORTATION Fleet Unit Facilities: 6 Bulk Freighters 7 Self-Unloaders 1 Crane Vessel 1 Crane-Conveyor CSlD HOT TOPS Manufacturing and Research Facilities: Plants 1 & 2 -- Cleveland, Ohio Research -- Cleveland, Ohio Plant 3 -- Chicago, Illinois Plant 4 -- Hamilton, Ontario INDUSTRIAL SILICA SANDS Operating Properties: Central Plant -- Glass Rock, Ohio Millwood Plant -- Howard, Ohio Ayers Plant -- Lexington, Tennessee COAL Operating Properties: Norton #3 Mine -- Belmont County, Ohio Saginaw Mine -- Belmont County, Ohio Ceredo Coal Transfer Dock -- Ceredo, W. Virginia Sales Agents: For Other Coal Producers \ IRON ORE Operating Property: Eveleth Taconite Company -- Eveleth, Minnesota (Part Owner & Managing Agent) Sales Agents: Silver Bay Pellets Tennessee Sinter MINERALS Manufacturing Facility: Fluorspar Briquette Plant -- Brownsville, Texas Sales Agents: Ceramic Fluorspar Metallurgical Fluorspar Celestite Rim-Blox Phosphate Rock CASTINGS Manufacturing Facility : Cleveland, Ohio DOCKS Dock Facilities : Bay City, Michigan Saginaw, Michigan Chicago, Illinois Toledo, Ohio FE004189 20 FE004190