Document V3bx6Lb5zj4eM3Nzpn62qqE1j

Oglebay Norton Company Annual Report 1983 PLAINTIFFS EXHIBIT ON-92 Ready 0 Mineral extraction is light years beyond pick and shovel C Mining and transport of raw materials in America is state-of-the-art. C Ready for the future. Ready - TVX Oglebay Norton Company 1983 Annual Report Contents Company Profile Financial Highlights Letter to Stockholders Review of Operations Financial Information Financial Statements Supplemental Data Corporate Data Inside Front Cove1 2-3 4-13 14-17 18-27 28-32 Inside Back Cover Oglebay Norton is a Cleveland-based raw materials and Great Lakes marine transportation company serv ing the steel, ceramic, chemical, electric utility and oil and gas well service industries with iron ore, coal and other minerals and supplying manufactured products used in hot metal processing. Industrial Minerals Company subsidiaries engaged in natural resource operations include Central Silica Company head quartered in Zanesville, Ohio, which produces quartzite sand for the glass, paint, ceramic and foundry industries; Texas Mining Company which produces sand products at Brady, Texas and Riverside, Cali fornia for the oil well service and construction industries; and ON Coast Petroleum Company which owns leasehold interests in oil and gas production in Texas and Loui siana. The Company also operates a plant at Brownsville, Texas pro ducing fluorspar for the fiberglass, glass, ceramics and steel industries. Iron Ore The Company owns interests in and manages the taconite mining and pelletizing operations of Eveleth Mines owned by Eveleth Taconite Company and Eveleth Expansion Company located near Eveleth, Minnesota on the Mesabi Range. Coal The Company owns and operates the Saginaw Mining Company at St. Clairsville, Ohio, which produces bituminous steam coal for a major utility and receives royalties from other leased coal properties. The Company also acts as sales agent for other coal producers. Transportation and Transfer Facilities Through its Columbia Transportation Division and Pringle Transit Company subsidiary, the Company operates a fleet of vessels engaged in the trans portation of iron ore, coal, limestone and other dry bulk cargoes on the Great Lakes. The Company also operates rail-to-barge coal-loading terminals on the Ohio River at Ceredo. West Virginia and on the Licking River at Wilder, Kentucky. Manufacturing The Ferro Engineering Division of the Company, with plants in Ohio and Illinois, and the Company's Canadian and Texas subsidiaries, Canadian Ferro Hot Metal Specialties Limited and Travis Manufacturing Company, manufacture a wide variety of hottop, refractory, insulating, exother mic and other products used in iron and steelmaking and casting. T & B Foundry Company, a subsidiary, operates a gray and ductile iron foundry in Cleveland, Ohio. The Cleveland Metal Stamping Company is engaged in the production of ferrous and nonferrous stampings sold to a broad industrial market. FE004559 P ,-h Security Markets and Dividends The Common Stock, par value $1 per share, is traded in the national over-the-counter market The following is a summary of the market range of bid and ask quotations and dividends declared for each quarterly period in 1983 and 1982 for the Common Stock. Quarterly High Low Dividend Period BidfAsk Bid/Ask Declared 1983 4th $27 'A -28 $26 V. -27'/! $.54 3rd 26 Vi-27'/s 24'/i-25'/2 .54 2nd 29 -30 25Vi-26 Vi 54 1st 29 -30'/! 24 -24'/: 54 4th $24 -25 Vi $21 -22 $ 54 3rd 23 -24'/? 18 -19 54 2nd 26 -27 23 -24'/i 54 1st 28 Vi -30 26 -27 54 As of December 31,1983, there were 1,266 stockholders of record. Additional Information COPIES OF THE SEC FORM 10-K FOR 1983 WILL BE PROVIDED WITHOUT CHARGE TO STOCKHOLDERS UPON WRITTEN REQUEST TO: David A. Kuhn Secretary Oglebay Norton Company 1100 Superior Avenue Cleveland, OH 44114 Annual Meeting Stockholders are cordially invited to attend the Annual Meeting of the Company which will be held at 2:00 P.M., Wednesday. April 18 '984 in the General Offices of the Comcanv located at 1100 Superior Avenue, Cleveland. Ohio Financial Highlights Oglebay Norton 1983 1982 1981 Gross operating income......... $163,395,398 $171,589,980 $210,979,669 Net income................................. 10,668,448 9,773,329 23,919,370 Dividends................................... 7,485,291 7,577,874 6,722,793 Per share of Common Stock Net income........................ Dividends.......................... Equity................................. 3.07 2.16 42.23 2.78 2.16 40.85 6.77 1.92 40.24 Common stockholders' equity 143,287,762 143,347,474 141,118.958 Depreciation and amortization charged to costs and expenses.................... 12,290,708 12,120,768 12,498,862 Expenditures for properties and equipment.................. 8,930,716 20,278,534 40,999,132 ...... - FE004560 *A- Renold D. Thompson, President and Chief Executive Officer To the Stockholders of Oglebay Norton Company Each of the four quarters of 1983 witnessed steadily improved financial performance as Oglebay Norton Company advanced from a loss in March to more nor mal earnings in December. Net income for 1983 was $10.7 million or S3.07 per share, compared with $9.8 million or $2.78 per share in 1982. Income before taxes increased about S6 million over 1982, but the persistent low level of operations of the steel and energy-related industries we serve kept our results well below the earn ings of 1981. Much of the improvement in 1983 can be credited to the consistent good performance of our nonsteel-related businesses, operation of our most efficient facilities, and the constructive and determined efforts of our employees to reduce costs and improve the quality of the products and services we supply. The increase in earnings over 1982 also results from our diversification efforts of the past. Cash flow from operations increased to $26.0 million from $19.1 million in 1982. Continuity of our stockholders' regular dividends has been maintained, despite our customers' sluggish recovery. In September 1983, the Company issued the remaining Title XI bonds amounting to $17.1 2 million, which completed the permanent financing of the M/V Columbia Star. During the year, the Company purchased 121,025 shares of its stock for $3.3 million. This represented 3.34 percent of the common shares issued and has been added to treasury stock. The purchase at fair market value was considerably below the net book value. Oglebay Norton remains in a favorable cash posi tion. We do not anticipate borrowing funds for normal working capital needs in 1984. Segment Performance and Outlook Texas Mining Company experienced intense compe tition in the sale of oil and gas well fracture sands in a year when demand remained low. Sales volumes declined only 12 percent, but industry price reductions severely affected profit. There are indications, however, that overcapacity is being squeezed out of the market place and that oil producers anticipate modest growth in the average number of rigs operating and wells to be drilled in 1984. Silica product sales at the Riverside, California plant gradually increased during the latter half of 1983. Performance at the California plant in 1984 will parallel the growth of the construction and geothermal well cementing industries. Central Silica Company produced increases in both sales and income in 1983. The company was able to accommodate changes in market mix demand. A new rotary dryer added at the Millwood plant early in 1983 has improved productivity and reduced energy costs. Silica product demand should rise in 1984, insuring traditional sales volumes to glass container, fiberglass, ceramic and foundry customers. Fluorspar shipments at Oglebay Norton's Brownsville, Texas plant increased as the result of a two-year effort to enter new markets. Originally serving only the steel industry, Brownsville today supplies the largest share of its production to fiberglass, glass and ceramic customers, offering custom drying and delivery in bulk or bags. The plant will continue to face pressure from South African and Chinese suppliers, but continued price flexibility on the part of Brownsville's Mexican sources should keep our products competitive in 1984. Eveleth Mines operated at about 55 percent of capacity. Low demand for iron ore pellets required a shutdown of the facility for eight weeks in 1983. Despite the layoffs and some permanent reductions in force, Eveleth Mines employees made good progress in reducing costs and quickly adapted to a new computer base maintenance program. Utilization of the new system has resulted in decreased maintenance manhours and new records in equipment availability. Product quality continues to be of prime importance, and the recently introduced FE004561 Oglebay Norton statistical process control program is expected to materially assist our quality improvement efforts. Operating levels planned for 1984 offer the potential for efficient operation. Saginaw Mining Company coal sales to an electric utility customer and Oglebay Norton's agency coal sales declined slightly, but good progress was made in reducing mining costs. There is continued optimism about the future of coal in the 1980s, but concern about acid rain clouds that future. Action by the Congress to provide a political solution for a natural phenomenon not scientifically understood could place the Saginaw Mine and all of Ohio's coal in jeopardy. Total tonnage carried by the Columbia Transporta tion Division and Pringle Transit Company vessels in 1983 increased over the previous sailing season, but re mained substantially below total capacity. Progress by sonnel in efficient and safe operation of vessels was especially notable and helped to offset some continqing cost increases. Negotiation of new labor agreements during the year brought an end to the severe escalation of labor costs we have experienced over the past seven years. The conversion of the S/S Reserve to a self-unloader completes the current fleet-improvement program. The continuing well-maintained condition of our vessels and significant increases in productivity will assist fleet performance in 1984. However, capacity operations continue to appear unlikely this year. Rail-to-barge coal loadings at our Ceredo Dock in creased substantially over 1982 and the Licking River Terminal remained at a good level throughout the year. The addition of a computerized railroad car scale at the Terminal confirms Oglebay Norton's leadership in coal transfer terminals on the river system. Tonnage volumes for both facilities appear favorable through the first three quarters of 1984 as customers build coal in ventories in advance of United Mine Workers of America negotiations for a new labor agreement. Ferro Engineering Division virtually reached the break-even point at the end of 1983. More progress is indicated in 1984 as steel output increases and steel customers opt for refractory and insulating products of greater value. T & B Foundry Company may experience a slower return to profitability as demand for castings by the steel and machine tool industries remains depressed. Increases in capital goods expenditures are forecast for 1984, however, and that growth portends marked improvement for T & B Foundry over the next several years. Oglebay Norton's major goals for 1983 were to reduce our costs and improve the quality of our prod ucts and services companywide. To those ends, we ap plied tighter management and new tools, such as added computerization at Eveleth Mines and corporate head quarters at Cleveland and statistical process control at Eveleth Mines and Ferro Engineering Division. We reduced our employment base and decreased admin istrative and labor costs. Our 1982 letter to stockholders noted that the nego tiation of noninflationary new labor agreements was essential to our progress. We are pleased to report that these agreements were achieved and that they provided employment cost relief in 1983 and will substantially reduce escalation of labor costs in the succeeding years of each contract. Three valued officers retired at year-end: D. Kelly Campbell, Vice President-Iron Ore Operations, after 20 years' service; Walter C. Mayo, Assistant Vice President-Traffic, after 26 years; and Captain Edgar M. Jacobsen, Assistant Vice President-Columbia Transpor tation Division, after 21 years. R. Thomas Green, Jr., formerly President, Central Silica Company, was elected Vice President-Iron Ore Operations. General Outlook Labor costs will remain a vital concern in 1984. New agreements must be reached for certain Oglebay Norton vessel, coal mining and river dock personnel. Equally, our customers have a stake in major industry' nego tiations that will occur this year. The question to be resolved ultimately is whether the United States can become competitive with offshore producers, many of which are heavily supported or owned by their governments. As already noted, all of our businesses anticipate gradual improvement in 1984 resulting from their past progress in remaining competitive, their determination to persist in that effort and gradual improvement in the industries they serve. Oglebay Norton's major fouryear capital improvement program has been completed. During 1984, Oglebay Norton will continue its drive to increase its competitiveness and continue to seek fur ther opportunities to expand the diversification that has served it well, so that in the first quarter of 1985 we again may report that we remain optimistic about the future of your Company. Chairman of the Board March 28,1984 President and Chief Executive Officer FE004562 Operations 1983 Smokestack industry? Hardly. Oglebay Norton's applications of mechanization, automation and computer control systems typify the eagerness of the mining industry to adopt relevant technology. Mining is modem and necessary. The ruby laser comes from the earth. Plastic circuit boards begin as petroleum. Computer wiring is bom from minerals which must be mined. The ubiquitous cathode ray tube contains silica products from our Central Silica Company. High tech industries need raw materials from the earth, and the companies that mine and get them to market need high-tech products. Glib phrases should be tagged with a federal warning. Labels such as smokestack industry and add rain not only communicate, they manipulate. 4 Industrial Minerals Oil and Gas Well Fracture Sand Total product sales at Texas Mining Company declined about 12 percent in 1983, but profit declined considerably below 1982 levels as oil and gas well production remained flat and fracture sand producers sharply cut prices. Texas Mining quarries and processes special quality fracture sands used by oil and gas well service companies to stimulate well production. Previous strong demand for domestic petroleum, which peaked n 1981, attracted new competition into the fracture sand industry. Steep reduction in demand for crude oil worldwide, however, caused the United States oil well drilling-rig count to decline sharply. Collapsing demand is driving some of that competition out of the mar ket, but Texas Mining continues to maintain its market commitment and strong industry position due to its long history of quality, customer service, competitive access to well over half of the total market, recently expanded production facilities and loyal customers. Pulverized sand sales at the Riverside California plant increased each month through the last three quarters of 1983 as construction increased in the Southwest. Quartzite Sand Central Silica Company, produc ing silica products in central Ohio for the metals, ceramic and glass industries, achieved gams in sales and income in 1983 despite uneven demand in its traditional markets. Sales to the glass container industry were slightly below the previous year, but sales to fiber glass producers improved. Foundry sand sales remained depressed throughout 1983, while silica flour shipments to steel-related customers rose in the last half of the year. Tf\e addition of new customers during the year compen sated for slower activity in the ceramics and pottery industries. A capital improvement program over the last several years has resulted in lower operating costs and has provided a product mix for entry into new markets in 1983. A new rotary dryer installed at the Millwood, Ohio plant early in the year materially has improved effi ciency and decreased natural gas consumption. The exploration pro gram at the Glass Rock facility resulted in land acquisitions in 1983 which increased sandstone reserves there for an additional 20 years at the present rate of production. FE004563 A fully completed capital expansion program lias posi tioned Oglebay Norton's industrial minerals companies to increase pro ductivity, lower their operating and energy costs and carry their products into new markets. Fluorspar Modifications to the Brownsville, Texas plant, under way for the past two years, have resulted in expanded output re quired as a result of sales efforts focusec on nonferrous industries. Although steel operating rates remained low for most of 1983, Brownsville plant shipments increased significantly as new nonsteelrelated customers were added. Liquidation of old inventories has been accomplished and substantial raw material price reduc tions which occurred during the year have enabled the plant to remain com petitive despite pricing pressures from South Africa and China. Mexico remains our prime source of supply. 6 Iron Ore Production of iron ore pellets at Eveleth Mines in 1983 declined to a level of about 55 percent of the plant's six miilion-ton-capacity. Most of the steel making partners and customers con tinued to experience low demand for our product throughout the year, necessi tating an eight-week shutdown of our mining and processing facilities begin ning in August. Following the resumption of operations, manpower levels were aligned to the lower production rate. The efforts to achieve cost reduction through improved utilization of personnel, equip ment and ore reserves continued tnroughout-1983. FE004565 FE004566 7 The recently introduced computer base maintenance program has con tinued to generate increased benefits, with a record equipment availability of over 91 percent in the pelletizing area couoled with a 10 percent reduction in maintenance manhours. Product quality also has continued to improve, with a significant reduction in pellet silica and substantially decreased silica variation. The Company has initiated statistical process control methods to monitor quality of product. At the end of the year, a change of ownership positions in Eveleth Mines was made, with Armco Inc. increasing its position with the assumption of Dofasco Incis 16 percent interest in Eveleth Exoansion Company. 8 FE004567 Coal Saginaw Mining Company Coal production a; Sayrr.aw Mining Company's Saginaw M-rie near St Clairsville. Ohio has s'ubried at about half its potential production rate tor the past three years. The mere work force was reduced during tne year as a result of reduced coal demand. Saginaw Mining Company is a sub sidiary of Oglebay Norton Company, sell ing its coal production under long-term contract to a major electric utility That customer's coal demand has remained level cecause of a generally low coal bann and extensive downtime on its generating urn's The acid rain deba'e continues to generate more heat than light, but Con gressional action does not appear likely in this election year. The President is calling for federally funded suopoM of a full study ot the source and long-range transport ol sulphur dioxide, believed to be damaging lakes in the Northeast and Canada. Precipitate action by the Con gress could produce major coal ma'ket shifts if Ohio's high-sulphur coal is barred outright or made uncompetitive by 'we mandating of scrubbers on electric generating units Oglebay Norton also acts as sales agent for coal mined by other producers in West Virginia and Kentucky for sale to industrial and steel customers anc to purchasers for export Agency coal sales advanced in 1983 as new electric utility customers were acquired and stockp-iing of coal increased m advance of forth coming labor negotiations At the Saginaw Mine, quality of product is as important as the number of Ions mined per day. FE004568 9 Transportation and Transfer Facilities Great Lakes The Columbia Transportation Division and Pringle Transit Company fleets began the 1983 sailing season at a low level, operating a total of six of thirteen self unloading vessels. Steadily increasing demand for raw materials, however, re quired fitout and operation of a seventh vessel, the S/S Reserve, in the fourth quarter. While the increased business activity was most welcome, total tonnage carried was, with the exception of 1982, the smallest annual tonnage in twenty years. Fleet personnel operated vessels very efficiently. Their efforts to control costs, increase productivity and work safely once again showed significant progress. Despite their progress, however, some increased operating costs could not be recovered by general rate increases. The conversion to self-unloader of the S/S Reserve, the last step in our current fleet-improvement program, was com pleted and the vessel's operation during the last quarter of 1983 fully met our expectation. The S/S Sylvania, idled since 1980, was sold and is being scrapped at Ashtabula, Ohio. New labor agreements were concluded with the unions representing all fleet officers and Columbia's unlicensed fleet 10 FE004569 State-of-the-art technology guides vessels through the Soo Locks while the main engine room console watches over the machinery complex. In port, this vessel unloads itself -10,000 tons per hour - and the ballast board, below, helps keep the 1,000-foot M/V Columbia Star in perfect trim. FE004570 personnel. These agreements halted the rapid wage escalation which began in 1977 and provided a positive response to our industry needs. Coal Loading Transfer Facilities Raii-to-barge coal loadings at Oglebay Norton Company's Ceredo Dock at Ceredo. West Virginia on the Ohio River experienced significant increases in 1983 The largest tonnage increases came from metallurgical coal customers. The dock also experienced a modest rise in volume resulting from increased stockpiling by steam coal customers. Contract coal and spot coal volumes at Licking River Terminal Company located at Wilder, Kentucky, near Cin cinnati. declined moderately, although the coal industry generally suffered through one of its worst recessions. As one of the largest and most auto mated coal transfer terminals, Licking River Terminal continues to be an industry leader in automation and cus tomer services with the recent installa tion of a new, fully computerized static gross weight and in-motion tare weight railroad car scale. The new system offers computerized billing, fully certified weight results accurate to .2 of one per cent and, most importantly, significant economies in transportation costs for our customers to the river. 12 FE004571 Manufacturing Ferro Engineering Ferro sales improved in close proportion to the increase in steel production after allowance for sales lost to an eight-week strike at Cana dian Ferro Hot Metal Specialties Limited. Agreement on a new con tract was reached, resulting in smaller employment cost increases than in previous negotiations. In Cleveland, a new labor agree ment was reached which will, because of its duration to the sec ond quarter of 1987, provide the best opportunity in many years to stabilize production facilities. The rapidly changing require ments of the steel industry call for corresponding changes and varieties in Ferro's product com position, geometry and perform ance. Quality of product is playing an increasingly greater role in the industry. There are many challenges presented by the industry in im proved product quality through sta tistical process control. Ferro is working to meet these challenges, with the further expectation of cost reduction through reduced rejects and other improvements in effi ciency resulting from processquality awareness by production employees. T & BFoundry T & B Foundry Company con tinued to attempt to increase its share of the ductile iron and large iron castings market. While some success was achieved, the capital goods market remained at a very low level. Although internal costs were pared and every effort made to stay competitive, demand in the steel and machine tool industries remained in a very depressed state. The foundry continued to operate at a 40-50 percent level with a large number of workers remaining on layoff. Since it was impossible to operate at a profitable rate, capital expenditures were held to bare essentials. The foundry is well equipped and operates with normal maintenance. Although imported castings are taking a larger share of domestic needs each year, we are hopeful that 1984 will show marked improvement for T & B. FE004572 13 Financial Information Industry Data1 Oglebay Norton Company and Subsidiaries 1983 Identifiable assets............................................................................... Depreciation and amortization expense ....................................... Expenditures for properties and equipment................................... Net sales, operating revenues, sales commissions, royalties and management fees.................................................. Operating profit: Segment profit contribution......................................................... Company's proportionate share in interest expense of Eveleth Mines and interest expense on vessel financing... 1982 Identifiable assets............................................................................... Depreciation and amortization expense ....................................... Expenditures for properties and equipment................................... Net sales, operating revenues, sales commissions, royalties and management fees.................................................. Operating profit: Segment profit contribution......................................................... Company's proportionate share in interest expense of Eveleth Mines and interest expense on vessel financing... 1 N D U ST RY Industrial Minerals Iron Ore $24,154,988 1,918,970 1,188,114 21,583,207 3,453,611 $ 3,453,611 $31,308,073 2,127,075 234,979 34,051,122 5,072,682 (3,318,808) $ 1,753,874 $25,634,035 1,773,318 3,494,284 23,753,886 4,271,591 $ 4,271,591 $25,451,757 3,024,828 504,325 47,518,462 6,880,730 (3,577,323) $ 3,303,407 1981 Identifiable assets............................................................................... Depreciation and amortization expense ....................................... Expenditures for properties and equipment................................... Net sales, operating revenues, sales commissions, royalties and management fees.................................................. Operating Profit: Segment profit contribution......................................................... Company's proportionate share in interest expense of Eveleth Mines and interest expense on vessel financing... $24,975,897 2,016,147 7,187,397 26,812,021 6,663,486 $ 6,663,486 $25,786,610 3,844,743 741,666 50,995,482 8,662,768 (3,841,299) $ 4,821,469 'Should be read as an Integral part of the consolidated financial statements and notes thereto. 'Corporate expenses net of dividends, interest and miscellaneous income. 14 FE004573 SEGMENTS Coal Transportation and Transfer Facilities Manufacturing Total Segments Corporate Consolidated $ 7,862,982 626,189 157,742 31,842,264 5,711,736 $ 5,711,736 $166,514,236 6,936,974 5,529,900 60,943,160 17,657,323 (5,298,223) $ 12,359,100 $13,065,456 681,500 2,043,133 14,975,645 (876,941) $ (876,941) $242,905,735 12,290,708 9,153,868 163,395,398 31,018,411 (8,617,031) $ 22,401,380 $38,590,162 (8,026,932)' $(8,026,932) $281,495,897 12,290,708 9,153,868 163,395,398 22,991,479 (8,617,031) $ 14,374,448 $ 9,805,336 705,940 552,002 35,107,832 7,298,737 $ 7,298,737 $164,069,223 5,955,542 15,682,901 50,958,402 8,261,590 (6,104,925) $ 2,156,665 $11,751,977 661,140 549,347 14,251,398 (2,197,316) $(2,197,316) $236,712,328 12,120,768 20,782,859 171,589,980 24,515,332 (9,682,248) $ 14,833,084 $43,958,308 (6,659,755)' $(6,659,755) $280,670,636 12,120,768 20,782,859 171,589,980 17,855,577 (9,682,248) $ 8,173,329 $10,647,697 666,633 144,657 33,654,044 6,824,482 $ 6,824,482 $156,775,186 5,322,418 33,265,381 75,016,505 20,207,421 (3,670,073) $ 16,537,348 $14,032,607 648,921 401,697 24,501,617 1,861,557 $ 1,861,557 $232,217,997 12,498,862 41,740,798 210;979,669 44,219,714 (7,511,372) $ 36,708,342 $51,582,637 (7,177,972)' $(7,177,972) $283,800,634 12,498,862 41,740,798 210,979,669 37,041,742 (7,511,372) $ 29,530,370 FE004574 15 Financial Information Consolidated Summary of Operations and Other Financial Data Oglebay Norton Company and Subsidiaries OPERATIONS 1983 1982 Year Ended December 31 1981 1980 1979 Net sales and operating revenues . $155,652,627 $164,124,530 $202,293,099 $172,526,381 $186,847,935 Sales commissions, royalties and management fees.......................... 7,742,771 7,465,450 8,686,570 7,686,061 6,841,599 Gross operating income.................. . Cost of goods sold and operating expenses.................... . Income before taxes........................ . Income taxes Current........................................... Deferred ....................................... 163,395,398 130,043,731 14,374,448 651,000 3,055,000 171,589,980 210,979,669 180,212,442 144,846,087 164,403,118 146,801,891 8,173,329 29,530,370 21,567,218 1,150,000 (2,750,000) (1,250,000) 6,861,000 661,000 3,623,000 193,689,534 157,089,497 25,279,826 1,598,000 6,570,000 Net income........................................ . Depreciation and amortization . Expenditures for properties and equipment............................. 3,706,000 10,668,448 12,290,708 8,930,716 (1,600,000) 9,773,329 12,120,768 5,611,000 23,919,370 12,498,862 20,278,534 40,999,132 4,284,000 17,283,218 11,074,024 37,617,288 8,168,000 17,111,826 10,592,886 29,019,376 PER SHARE DATA Net income........................................ Dividends.......................................... Equity................................................ $ 3.07 2.16 42.23 $ 2.78 2.16 40.85 $ 6.77 1.92 40.24 $ 4.92 1.63 35.41 $ 4.83 1.50 32.17 OTHER STATISTICS Total assets........................................ .$281,495,897 Long-term debt................................. . 40,100,000 Common stockholders'equity ... . 143,287,762 Total dividends declared................ 7,485,291 Average shares of Common Stock outstanding ................................. 3,473,505 Shares of Common Stock outstanding at year-end............. 3,393,075 $280,670,636 45,600,000 143,347,474 7,577,874 3,517,918 3,509,025 $283,800,634 47,600,000 141,118,958 6,722,793 3,532,757 3,507,025 $230,048,877 29,600,000 123,554,484 5,682,660 3,515,742 3,489,650 $200,435,040 11,300,000 111,502,393 5,194,032 3,544,908 3,465,612 FE004575 Oglebay Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition The Company's current financial position remains strong with net current assets amounting to $30,100,000 in 1983 as compared to $33,400,000 in 1982 and $43,700,000 in 1981. The Company was able to maintain its strong finan cial position in spite of the very slow recovery in the markets which we serve and particularly the North American steel industry. Also, net current assets were affected by expenditures for properties and equipment of $70,200,000 for the three-year period ended December 31,1983 primarily related to the construction of the M/V Columbia Star and the planned upgrading of the vessel fleet. The Company has now completed its planned ^upgrading of operating assets and stands ready to serve its customers in all segments with efficient facilities. The Company has in place with several banks credit arrangements of $60,000,000, none of which was used during 1983 except to support the commercial paper issued during the year for the bridge financing of the M/V Columbia Star. In September, the Company issued $17,100,000 of Title XI serial bonds guaranteed by the U.S. Government under the Federal Ship Financing Pro gram, the proceeds of which were used to retire the commercial paper. Current financial resources and funds from operations are expected to be adequate to meet the Company's needs during 1984. Results of Operations Net sales, operating revenues, sales commissions, royalties and management fees declined 5% from 1982 levels. The principal reason for the decline was reduced taconite pellet sales of approximately $13,500,000. The demand for taconite pellets continued at low levels in 1983 and the Company's taconite operations suspended production for approximately two months during the year. The decline in taconite pellet sales was partially offset by an increase in operating revenues of $8,400,000 generated by the Company's vessel fleet. The vessel fleet continued to operate well below capacity in 1983 but did experience an increase in customer demand as total tons carried increased approximately 29% over the 1982 level i but remained 16% below the 1981 level. In 1983, cost reduction efforts, utilization of our most efficient equipment and our companywide effort to in crease productivity combined to improve income before taxes by 76%, or $6,200,000 over the 1982 levels. However, income before taxes remains 51 % below the 1981 results. Income taxes as a percentage of income before taxes were 26% in 1983 as compared to a credit of 20% in 1982 and a rate of 19% in 1981. The years 1982 and 1981 recognized more investment tax credits due to greater expenditures for capital additions. Impact of Inflation Refer to pages 28 through 32 for financial information on the effects of inflation using measurements developed by the Financial Accounting Standards Board. Explanatory comments are included in these disclosures on the ef fects of changing prices on the Company's operations. FE004576 17 Financial Statements Consolidated Balance Sheet Oglebay Norton Company and Subsidiaries December 31 1983 1982 ASSETS CURRENT ASSETS Cash..................................................................................................... Short-term money market investments ....................................... Accounts receivable......................................................................... Inventories: Finished products and materials .............................................. Operating supplies and materials.............................................. Prep> i'i insurance and other expenses ....................................... TOTAL CURRENT ASSETS............. $ 728,536 26,298,580 32,626,119 $ 1,414,693 29,530,228 26,013,018 3,703,875 5,918,432 2,638,8472,798,502 6,342,722 8,716,934 - 1,589,9671,915,717 67,585,924 67,590,590 INVESTMENTS ...................................................................................... 25,313,379 23,215,879 PROPERTIES AND "QUIPMENT Transportation................................................................................... Mining................................................................................................... Manufacturing................................................................................... 209,725,514 205,439,181 44,298,345 42,964,953 17,717,72815,726,840 271,741,587 264,130,974 Less allowances for depreciation and amortization........................................................................... 87,093,777 184,647,810 78,087,718 186,043,256 DEFERRED CHARGES........................................................................ 3,948,784 $281,495,897 3,820,911 $280,670,636 18 FE004577 Ogfetay Norton December 31 1983 1982 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt.................................................. Accounts payable............................................................................. Payrolls and other accrued compensation................................... Accrued pension contribution ....................................................... Accrued taxes and other expenses................................................ Accrued workers' compensation insurance................................. Income taxes...................................................................................... TOTAL CURRENT LIABILITIES............. $ 3,000,000 8,892,918 7,079,038 4,637,446 9,512,856 2,257,348 2,142,052 37,521,658 $ --0-- 6,880,873 8,233,531 6,238,171 8,016,950 2,516,690 2,305,470 34,191,685 LONG-TERM DEBT, less current portion .............................................. 40,100,000 45,600,000 DEFERRED INCOMETAXES..................................................................... 60,586,477 57,531,477 STOCKHOLDERS' EQUITY Preferred Stock, without par value -- authorized 400,000 shares; none issued....................................................... Common Stock, par value $1.00 per share -- authorized 6,000,000 shares; issued 3,626,666 shares............................... Additional capital ............................................................................. Retained earnings................................................................ Less shares of Common Stock in treasury, at cost, 1983 -- 233,591; 1982 --117,641................................... --0-- 3,626,666 7,129,933 137,207,447 147,964,046 4,676,284 143,287,762 --0-- 3,626,666 7,103,099 134,024,290 144,754,055 , 1,406,581 143,347,474 See notes to consolidated financial statements. $281,495,897 $280,670,636 FE004578 19 Financial Statements Consolidated Statement of Income Oglebay Norton Company and Subsidiaries Year Ended December 31 1983 1982 1981 INCOME Net sales and operating revenues...................................... . Sales commissions, royalties, and management fees .. Interest and other income..................................................... $155,652,627 7,742,771 1,734,462 165,129,860 $164,124,530 7,465,450 3,187,250 174,777,230 $202,293,099 8,686,570 2,605,979 213,585,648 COSTS AND EXPENSES Cost of goods sold and operating expenses.................... General, administrative and selling expenses ............... Interest expense.................................................................... INCOME BEFORE TAXES........... INCOME TAXES Current...................................................................................... Deferred.................................................................................... NET INCOME........... . / NET INCOME PER SHARE....................................................... 130,043,731 15,233,481 5,478,200 150,755,412 14,374,448 651,000 3,055,000 3,706,000 $ 10,668,448 $3.07 144,846,087 15,476,253 6,281,561 166,603,901 8,173,329 164,403,118 15,629,943 4,022,217 184,055,278 29,530,370 1,150,000 (2,750,000) (1,600,000) $ 9,773,329 (1,250,000) 6,861,000 5,611,000 $ 23,919,370 $2.78 $6.77 See notes to consolidated financial statements. 20 FE004579 Ogteba/ Norton Consolidated Statement of Changes In Financial Position Oglebay Norton Company and Subsidiaries SOURCE OF FUNDS From operations Net income ........................................................................... Items not affecting working capital: Depreciation and amortization..................................... Deferred income taxes................................................... TOTAL FROM OPERATIONS........... Increase in long-term debt ..................................................... Proceeds from sale of tax benefits, net of investment tax credits of $4,900,000 ............................... Decrease in Capital Construction Fund............................... Other .......................................................................................... USE OF FUNDS Expenditures for properties and equipment...................... Dividends declared.................................................................. Increase in investments......................................................... Purchase of Common Stock for treasury............................. Current installments and payment of long-term debt___ Payments on bridge financing of M/V Columbia Star____ Other .......................................................................................... INCREASE (DECREASE) IN WORKING CAPITAL......... CHANGES IN COMPONENTS OF WORKING CAPITAL Increases (decreases) in current assets Cash and short-term i nvestments ................................... Accounts receivable........................................................... Inventories............................................................................. Prepaid insurance and other expenses.......................... Increases (decreases) in current liabilities Current portion of long-term debt..................................... Accounts payable................................................................ Payrolls and other accrued compensation.................... Accrued pension contribution.......................................... Accrued taxes and other expenses................................. Accrued workers' compensation insurance................. Income taxes......................................................................... INCREASE (DECREASE) IN WORKING CAPITAL......... Year Ended December 31 1983 1982 1981 $10,668,448 12,290,708 3,055,000 26,014,156 --0-- -0-0-- 116,552 26,130,708 $ 9,773,329 12,120,768 (2,750,000) 19,144,097 -0-- -02,974,905 --0-- 22,119,002 $23,919,370 12,498,862 6,861,000 43,279,232 18,000,000 10,094,000 1,717,258 963,912 74,054,402 8,930,716 7,485,291 4,210,640 3,338,700 4,500,000 1,000,000 --0-- 29,465,347 $ (3,334,639) 20,278,534 7,577,874 2,367,110 --0-- --0-- 2,000,000 201,770 32,425,288 $(10,306,286) 40,999,132 6,722,793 3,924,871 --0-- --0-- --0-- --0-- 51,646,796 $22,407,606 $ (3,917,805) 6,613,101 (2,374,212) (325,750) (4,666) $ (7,326,087) (1,402,234) (1,314,559) (293,695) (10,336,575) 3,000,000 2,012,045 (1,154,493) (1,600,725) 1,495,906 (259,342) (163,418) 3,329,973 $ (3,334,639) -01,575,792 (1,546,726) 550,037 644,505 (482,544) (771,353) (30,289) $(10,306,286) $20,601,274 3,847,762 2,266,458 550,910 27,266,404 -0-- (869,902) 827,551 672,632 1,690,422 322,359 2,215,736 4,858,798 $22,407,606 See notes to consolidated financial statements. FE004580 21 Financial Statements Consolidated Statement of Stockholders' Equity Oglebay Norton Company and Subsidiaries Balance December31,1980 ......... .. . Net income..................................... Cash dividends declared $1.92 per share.................... Stock options exercised ............. Balance December31,1981......... . . . Net income..................................... Cash dividends declared $2.16 per share............................ Stock options exercised............... Balance December 31,1982 ......... ... Net income..................................... Cash dividends declared $2.16 per share............................ Stock options exercised............... Treasury stock purchased........... Balance December 31,1983 ......... .. . Common Stock $3,626,666 3,626,666 3,626,666 $3,626,666 Additional Capital $6,851,026 Retained Earnings $114,632,258 23,919,370 Common Total Stock Stockholders' In Treasury Equity $(1,555,466) $123,554,484 23,919,370 242,925 7,093,951 (6,722,793) 131,828,835 9,773,329 124,972 (1,430,494) (6,722,793) 367,897 141,118,958 9,773,329 9,148 7,103,099 (7,577,874) 134,024,290 10,668,448 23,913 (1,406,581) (7,577,874) 33,061 143,347,474 10,668,448 26,834 $7,129,933 (7,485,291) 68,997 (3,338,700) $137,207,447 $(4,676,284) (7,485,291) 95,831 (3,338,700) $143,287,762 See notes to consolidated financial statements. FE004581 Notes to Consolidated Financial Statements Oglebay Norton Company and Subsidiaries December 31,1983,1982 and 1981 NOTE A -- ACCOUNTING POLICIES Principles of Consolidation: The consolidated finan cial statements include the accounts of the Company and its majority owned subsidiaries. Intercompany transactions and accounts have been eliminated upon consolidation. Inventories: Inventories are stated at the lower of average cost or market. Properties and Equipment: Properties and equipment are carried on the basis of cost. Interest capitalized dur ing 1981 amounted to approximately $2,014,000. No in terest was capitalized during 1983 or 1982. Depreciation and Amortization: The Company provides depreciation on the straight-line method over the estimated useful lives of the assets. The amortiza tion of capital advances to Eveleth Mines equivalent to the Company's share of depreciation of the underlying plant is computed on the units-of-production method. Exploration and Development Costs: Exploration and quarry development costs are charged to expense as incurred. Income Taxes: Deferred income taxes arise from depreciation, deposits to the Capital Construction Fund and certain other costs. Investment tax credits are used to reduce income taxes in the year in which they arise. Net Income Per Share: Net income per share of Common Stock is based on the average number of shares outstanding. NOTE B -- EQUITY IN NET ASSETS OF EVELETH MINES Investments, receivables and current liabilities include $17,487,387 and $16,170,123 at December 31,1983 and 1982, respectively, representing a 15 percent interest in Eveleth Taconite Company (ETC) and a 20.5 percent interest in Eveleth Expansion Company (EEC). The following is a summary of the components of the Com pany's equity in the net assets of these companies at December 31: Current assets Properties -- net Other assets . 1983 $ 5 527.661 51 817.619 1 401 756 TOTAL ASSETS 58.747 036 Current liabilities . Current portion ot long-term debt Long-term debt Series A First Mortgage Bonds 9 %% 10% 6.603.508 2.8-2.600 24 805.000 6.133.600 Other liabilities 30.938.600 904 341 TOTAL LIABILITIES 41 259 549 EQUITY IN NET ASSETS $17,487 387 1982 $ 6,067,755 53,607,113 1,513,705 61,188,573 7.877,750 2.812.600 27,060,000 6.691,200 33,751.200 576,900 45.018.450 316,170.123 The Bonds mature serially to 1995 with payments of $1,406,300 required each February i and August 1. Purchases by the Company under a take-or-pay contract associated with the long-term obligations amounted to $22,568,000, $28,211,000 and $35,333,000 for the years ended December 31, 1983, 1982 and 1981, respectively. The Company and its partners in Eveleth Mines are required to reimburse ETC and EEC for all costs incurred in production, including EEC's debt service in proportion to their ownership. The Company's share of production of ETC and EEC is sold at prevailing market rates under long-term contracts which exceed the term of the debt. NOTE C -- CAPITAL CONSTRUCTION FUND The Fund was created under provisions of the Merchant Marine Act, 1936, as amended. Deposits to the Fund are derived from income from vessel operations, Fund earn ings and from other sources. Fund assets are invested in short-term money market investments. FE004582 23 Notes (Continued) Amounts in the Fund may be withdrawn for investment in qualified vessels without incurring income tax liability; however, the depreciable tax basis of the vessels is reduced by the amount of such investment. Activity with respect to the Fund follows: Balance January i Deposits Withdrawals 1983 1982 1981 $ --0--$ 2.974.9C5 S 4,692,163 1,509,212 6,542.095 12.160,587 (1,509,212) (9,517,000) (13,877,845) Balance December 31 $ --0-- $ --0-- $ 2,974,905 NOTE D -- STOCKHOLDERS' EQUITY The Preferred Stock is issuable in series and the Board of Directors is authorized to fix the number of shares and designate the terms of each issue. NOTE E -- STOCK OPTIONS Under an employees' stock option plan, terminated in 1982, options were granted at a price not less than the fair market value on the date of grant. Options become exer cisable in installments of one-fourth of the sharessubject to option during the second through fifth years after date of grant. Common Stock in treasury or authorized but unissued shares may be used in the plan. Activity with respect to stock options follows; 1983 1932 1981 Outstanding January 1 Granted . Exercised Expired Canceled or surrendered 45,150 --0-- (5.075) (450) (19.375) 99 550 --. *1-- . (2.000) --0 -- (52 300) 121.162 8.200 (21.424) (8.288) --0-- Outstanding December 31 20,250 45.-50 99,650 Option prices range from $10.16 to $28.75 per share. At December 31,1983, options for 16,150 shares were exer cisable. Termination of the plan did not affect options granted prior thereto. The Company has stock equivalent plans for certain key employees who are holders of stock options. The plans allow the employee, upon surrender of the related stock option, to receive an allotment of a number of stock equivalent units equal to the excess of the market price of the Company's Common Stock over the option price. Charges to income for these plans amounted to $506,000 and $795,000 for 1983 and 1982. respectively. NOTE F- INCOME TAXES Total income taxes are less than the tax computed using the U.S. Federal rcome tax statutory rate for the follow ing reasons: (Thousanasi 1983 1982 1981 Income taxes at stat.tory rate-46% Tax differences due t: Benefits of percentage depletion Investment tax erects Benefits of income 'axed at capital gams -s'es Minimum tax Other Total income taxes S6.612 $ 3.76G $13,584 (752) (1,367t (1,233) (1.303) (2.390i (6.998) (747) 242 (346) S3.706 (1.699) i 343 T(249' S(1,600) (851) --0-- 1,109 $ 5.611 At December 31 1983, the Company has investment tax credit carryforwards amounting to $9,984,000 which have been *ully utilized for financial accounting purposes. The investment tax credit carryforwards will be available to recuce tax liabilities in future years and are due to expire n varying amounts from 1992 through 1998. The U.S. Court o; Claims entered judgments in 1980 and in 1982 allowing the Company's claims to invest ment tax credits with respect to 1972 and 1974 capital expenditures or vessels financed with qualified withdrawals from its Capital Construction Fund (See Note C). The Internal Revenue Service has not revoked its published Revenue Ruling regarding such tax credits and further litigation may become necessary concerning app'oximately $3,600,000 of similar credits earned tmough 1983. The Company believes that the prior favorable decisions will continue to con trol the allowance of these credits. Deferred income taxes consist of the following: (Thousands) 1983 1982 1981 Difference between t-e Capital Construction Func ceposits and related charges $(1,467) $ 1,700 $4,132 Deductions in excess of related depreciation expense 2,784 1,816 1.167 Net investment tax crecits 449 (4,814) 1.696' Other 1.289 (1.452) (134) Tolal deterred income 'axes $ 3,055 $(2,750) $6,861 24 FE004583 Ogtebay Norton In November 1981, the Company sold for $14,994,000 certain tax benefits related to the vessel, M/V Columbia Star, under the provisions of the Economic Recovery Tax Act of 1981. The benefits sold included $4,900,000 of in vestment tax credits which the Company recognized as a reduction of income taxes for 1981 The remaining pro ceeds increased deferred income taxes by $6,897,000 and reduced net properties and equipment by $3,197,000. The deferred income taxes are being amortized to tax expense in years when the financial statement depreciation expense differs from the related amount allowable for tax purposes. The reduction in net properties and equipment is being amortized to income over five years. NOTE G -- PENSIONS The Company and its subsidiaries have several Company-administered noncontributory pension plans covering certain employees. The total pension expense for these plans for 1983,1982 and 1981 was $2,680,000, $3,849,000 and $3,682,000, respectively. This expense includes, as to certain of the plans, amortization of prior service costs over periods not exceeding 40 years. The Company's policy is to fund pension costs accrued. Pension expense declined in 1983 because the Com pany experienced a decrease in the number of covered employees as well as the average compensation per employee and changed certain actuarial assumptions used in calculating pension expense. These changes were to increase the assumed rate of return on in vestments and to increase the composite average of salary increases. A comparison of accumulated plan benefits and plan net assets for the Company-administered defined benefit plans as of January 1 is presented below: (Thousands) ' ?33 1982 1981 Actuarial present value of accumulated plan benefits: Vested Nonvested S3- 040 $36,862 $33,536 5 013 5,731 5.424 $39 053 $42,593 $38,960 Assumed rate of return . Net assets available for plan benefits 7% 6% 6% $42,361 $33,594 $30,356 The increase in the rate of return on i n vestments to 7 % in 1983 decreased the actuarial present value of accumulated plan benefits approximately $4,292,000. The Company also pays into certain multi-employer plans under various union agreements which provide pension and other benefits for various classes of employees. Payments are based upon negotiated con tract rates and the expense amounted to $2,473,000, $2,888,000 and $2,797,000 for 1983, 1982 and 1981, respectively. Benefit and asset information comparable to that shown above for the Company-administered plans is not determinable. Under the Employee Retire ment Income Security Act (ERISA), a contributor to a multi-employer pension plan may be liable in the event of complete or partial withdrawal for the pension benefits* guaranteed by ERISA. The Company does not anticipate! withdrawing from any of the plans. NOTE H -- RENTALS AND COMMITMENTS Future minimum payments, by year and in the ag gregate, under noncancellable operating leases con sisted of the following at December 31, 1983: 1984 1985 1986 1987 1988 Thereafter Total minimum lease payments Vessel Charters $ 2.921,116 3,110,694 3,110,694 3,110.694 3,166,095 33.879.258 $49,298,551 Total Including Vessel Charters $ 3.911,910 4,000,417 3,931,696 3.874,155 3,824,341 36,523.050 $56,065,569 Rental expense was $4,919,952, $4,967,502 and $5,099,563 in 1983, 1982 and 1981, respectively. In general, the leases are renewable or contain purchase options at the end of the lease term. The purchase price or renewal lease payment is based on the fair market value of the asset at the date of purchase or renewal. In connection with vessel charters, the Company has assumed rights and obligations under agreements with substantial companies to transport bulk commodities which provide revenues based on defined rates for periods which coincide with those of the vessel charters and assure payment of charter rentals. FE004584 Notes (Continued) NOTE I -- CREDIT ARRANGEMENTS The Company has credit agreements with several banks amounting to $60,000,000. Certain of the agree ments provide that up to $30,000,000 may be con verted to term notes due in twenty-four equal auarterly installments beginning August 31, 1985, or sooner, at the option of the Company. Interest is chargeable at various rates approximating prime. There were no bor rowings under these agreements during 1983 The Company has obtained the highest commercial paper rating and may issue up to $30,000,000 of commercial paper. The credit agreements are used to support the commercial paper. NOTE J - LONGTERM DEBT Long-term debt relates to the financing of the M/V Columbia Star and is as follows at December 3i 1983 -.982 Title XI Ship Financing Sinking Fund Bonds at 13%. secured by a first preferred ship mortgage Title XI Ship Financing Serial Bonos at 11 250% to 12.125% secured by a first preferred ship mortgage, less current portion Bridge Financing: Commercial paper. $27,500,000 327.500.000 12,600,000 --0-- --0-- -3.100,000 $40,100,000 345 600,000 The Sinking Fund Bonds mature in 2001 and require semi-annual sinking fund redemptions of $1,250,000 commencing on December 15, 1990. The Serial Bonds were issued on September 29, 1983 and the proceeds were used to refinance the commercial paper. The Serial Bonds mature $3,000,000 in 1985, $2,600,000 in 1986, $2,000,000 in 1987 through 1989 and $1,000,000 in 1990. In connection with the Title XI Bonds and a vessel charter agreement, the Company may be required, under certain conditions, to make deposits to a Title XI reserve fund, or maintain specified levels of stockholders' equity or obtain prior written consent from the Maritime Administrator, U.S. Department of Transportation for certain designated financial trans actions. No approval was required through 1983 and the Company does not anticipate any such consent will be required in the future. NOTE K -- INDUSTRY SEGMENTS AND MAJOR CUSTOMERS The Company's major industry segments are Industrial Minerals, Iron Ore, Coal, Transportation and Transfer Facilities and Manufacturing. An explanation of the Company's business can be found under "About the Company" on the inside front cover and under ` 'Industry Data" on pages 14 and 15. Sales to three major steel producers in 1983, two in 1982 and 1981, and a major public utility exceeded 10 % of con solidated sales and revenues and are summarized as follows^ 1983 Iron Ore Cbal Transportation Manufacturing Total Customer A $ 8,167,490 19,947,905 515,278 $28,630,673 Customer B $13,176,798 3,785,643 1,836,194 $18,798,635 Customer C $17,209,917 324.385 $17,534,302 Customer D $28.0-4.557 $28.0-4.557 1982 IronOre Coal Transportation Manufacturing Total . . Customer A Customer B $11,878,138 $19,396,760 17,486,718 451,512 2.761,043 1.218,427 $29,816,368 $23,376,230 Customer D $31 629.692 $31,629,692 1981 Industrial Minerals IronOre Coal Transportation Manufacturing Total Customer A Customer B $ 3,784 $ 177,324 11,378,497 22.177,293 32,428,575 1,094,440 5,225,735 1,963,601 $44,905,296 $29,543,953 Customer D $29,844 257 $29,844,257 FE004585 NOTE L - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a tabulation of the unaudited quarterly results of operations for the years ended December 31, 1983 and 1982. Three Months Ended 1983 December 31 September 30 June 30 March 31 Net Sales and Operating Revenues Gross Profit $51,824,964 45,375,950 40,539,957 17,911,756 $10,909,026 8.187,149 5,066,223 1,446,498 Net Income (Loss) $ 5,721,236 3,951,141 2,036,784 (1,040,713) 1982 December 31 September 30 June 30 March 31 $42,433,365 57.713,757 41.323,207 22.654.201 $ 4.583,850 8.119.599 3,093.363 3,481,631 $ 1,688,992 6,565,698 541,150 977,489 Net Income (Loss) Per Share $1.67 1 15 58 (30) $ .48 1 87 15 28 Oglebay Norton Report of Ernst & Whinney Independent Auditors Board of Directors Oglebay Norton Company Cleveland, Ohio We have examined the consolidated balance sheet of Oglebay Norton Company and subsidiaries as of December 31, 1983 and 1982, and the related con solidated statements of income, stockholders' equity and changes in financial position for each of the three years in the period ended December 31, 1983. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the financial statements referred to above present fairly the consolidated financial position of Oglebay Norton Company and subsidiaries at December 31, 1983 and 1982, and the consolidated results of their operations and changes in their financial position for each of the three years in the period ended December 31, 1983, in conformity with generally accepted accounting principles applied on a consistent basis. Cleveland, Ohio February 15, 1984 Responsibility for Financial Statements Management is responsible for the financial and operat ing information contained in the Annual Report, including the financial statements covered by the independent auditors' report. These statements were prepared in con formity with generally accepted accounting principles and include amounts based on estimates and judgments of management. The Company seeks to assure the integrity and objectivity of the data in financial statements through a system of in ternal controls. These controls are designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with manage ment's authorization and recorded properly to permit the preparation of financial statements. The system of controls and compliance therewith is reviewed by a program of internal audits. Independent auditors, Ernst & Whinney, are engaged to render an independent opinion on our financial statements. This opinion, which appears herein, is based on an examina tion of our financial statements in accordance with generally accepted auditing standards which includes a review of internal controls to the extent they deem necessary. The Company's Board of Directors, through its Audit Committee which is composed of five outside directors, reviews the Company's financial reports and accounting and auditing practices. It meets periodically with the independent auditors, management and internal auditors in this connection. FE004586 S^oplemental Data Supplemental Information on Changing Prices Oglebay Norton Company and Subsidiaries General As required by Financial Accounting Standards Board Statement No. 33, "Financial Reporting and Changing Prices;' the Company is providing supplementa infor mation concerning the effects of changing prices on its financial statements. To help investors, credito's and other readers of financial statements better unde'stand the effects of inflation on the Company, two aspects of inflation are calculated and presented. The first method provides data adjusted for "general inflation" us ng the Consumer Price Index for All Urban Consumers as the measure of the general inflation rate. This method restates historical cost financial data in terms of .-its of 4 constant purchasing power (constant dollar metnod). The second method adjusts for "changes in scecific prices" of individual resources of the Company (current cost method). The information is calculated on an ex perimental basis. It should be viewed with cau: on, as must any other analytical and experimental data, and be considered as an estimate of the effects of in" ation, rather than as a precise measure. Management of the Company believes it is important for financial statement users to develop an understanding of the more significant impacts of inflation. Manage ment is fully aware of the effects of inflation on the business of the Company. The supplementa data presented is not intended to indicate the need 'or any management actions different than those already taken. Review of Information Presented Statement of Net Income Adjusted for Changing Prices for the Year Ended December 31,1983 In calculating net income adjusted for general rflation and changes in specific prices, the amounts reported in the primary financial statements have been adjusted for 28 FE004587 Oglebay Norton cost of sales and depreciation expense on both a con stant dollar and current cost basis. In management's opinion, the differences between current cost of inven tories and amounts included in the primary financial statements are immaterial. Revenues and all other operating expenses are considered to reflect the average price levels for the year and, accordingly, have not been adjusted. The provision for income taxes included in adjusted net income is the same as reported in the primary financial statements. The disclosure rules do not allow for adjustm* its to the historical cost provision for income taxes. V Purchasing Power Gain From Holding Net Monetary Liabilities During The Year 1983 Monetary amounts are claims or obligations to receive or pay fixed or determinable amounts of cash. The net gain in purchasing power on net monetary liabilities held by the Company in 1983 was based on calculations using the Company's average net monetary liabilities for the year multiplied by the change in the CPI for the year. Such an amount does not represent funds available for distribu tion to shareholders. We will be paying the net monetary liabilities with inflated dollars in the future, which are cheaper in terms of purchasing power. Increases in Current Cost of Inventories and Properties and Equipment During the Year 1983 Under current cost accounting, increases in specific prices (current cost) of inventories and properties held during the year are not included in net income but are presented separately. The current cost increase is reduced by the effect of general inflation measured by applying the annual rate of change in the CPI to the average current cost balances of inventories and proper ties. The difference between the two amounts is at tributable to properties and equipment, since the current cost of inventories is the same as that disclosed in the primary financial statements. Current Cost Measurements Invoice prices and insurance appraisals adjusted by ap plying Producer Price Indexes to those valuations were used to determine the current cost of certain major items of machinery and equipment. The current costs of most other properties were determined by applying Producer Price Indexes to the historical costs of appropriate classes of assets. The current cost of properties relates to the assets presently owned by the Company, rather than to technologically superior assets which may be available. Current cost depreciation is based on the average cur rent cost of properties during the year. The depreciation methods, salvage values and useful lives are the same as those used in preparing the primary financial statements. The current cost information represents reasonable approximations of the price changes which have oc curred in the business environment in which the Company operates. It does not purport to represent the amount at which the assets could be sold. Mineral Reserve Information As required by FASB Statement No. 39, "Financial Reporting and Changing Prices: Specialized Assets Mining and Oil and Gas:' the Company is providing quan tity andprice information relating to mineral reserves for the years ended December 31, 1983, 1982, 1981 and 1980. The amount of proven and probable reserves disclosed includes leased reserves as well as those reserves owned in fee. The iron ore reserves disclosed represent the Company's proportionate interest in the reserves and not the total reserves in place. There were no mineral reserves sold in place during the years reported. FE004588 Supplemental Data Statement of Net Income Adjusted for Changing Prices For the Year Ended December 31,1983 (ooo's omitted) Oglebay Norton Company and Subsidiaries Net income as reported......................................................................................................... $10,668 Adjustments to restate costs for the effect of general inflation (constant dollar) Cost of goods sold......................................................................................................... $ (260) Depreciation expense ....,..................................................................................................... (5,925)(6,185) Net income adjusted for general inflation ........................................................................ 4,483 Adjustments to reflect the difference between general inflation and changes In specific prices (current cosVj) Deprecic y..*h expense............................... ........................................................................................................(2,794) Net income adjusted for changes in specific prices...................................................... $ 1,689 OTHER INFORMATION Purchasing power gain from holding net monetary liabilities during the year................................................................................. ..................................$ 2,935 Increase in specific prices (current costs) of inventories and properties and equipment held during the year*......................................................................................................... $ 7,892 Less effect of increase in general price level..........................................................................................................9,579 Excess of increase in the general price level over increase in specific prices................................................................................................. $ 1,687 * At December 31,1983, the historical cost of inventories was $6,342,722, which approximates current cost. Current cost of properties and equipment, net of accumulated depreciation, was $287,203,000 (Historical amount -- $184,647,810) at December 31,1983. FE004589 30 Qgfetey Five-Year Comparison of Norton r Selected Supplemental Financial Data Adjusted for Effects of Changing Prices In Average 1983 Dollars (except as to reported amounts) (000's omitted, except per share data) Oglebay Norton Company and Subsidiaries Net sales and operating revenues: As reported...................................... Adjusted for general inflation ... Net income: As reported...................................... Adjusted for general inflation ... Adjusted for specific price changes ...................................... Net income per share: dt As reported....................fr -........... Adjusted for general infla^bn ... Adjusted for specific price changes ...................................... Excess of increase in specific prices of inventories and properties over increase in general price level ......................... Purchasing power gain from holding net monetary liabilities during the year............................... Net assets at year end: As reported...................................... Adjusted for general inflation ... Adjusted for specific price increases .................................. Cash dividends declared per common share: As reported............................... Adjusted for general inflation . Market price per common share at year end: Historical amount..................... Adjusted for general inflation . Average consumer price index___ 1983 $155,653 155,653 $ 10,668 4,483 1,689 y $ 3.07 1.29 "5" .49 $ (1,687) $ 2,935 $143,288 223,819 247,050 $ 2.16 2.16 $ 27.50 27.04 298.4 Year Ended December 31 1982 1981 1980 $164,125 169,405 $ 9,773 3,824 1,472 $ '2.78 1.09 .42 $202,293 221,601 $ 23,919 19,486 16,966 $ 6.77 5.52 4.80 $172,526 208,597 $ 17,283 14,640 10,847 $ 4.92 4.16 3.09 $ (1,601) $ (2,373) $ (2,815) $ 2,943 $143,347 227,443 254,846 $ 6,000 $141,119 229,442 259,812 $ 6,735 $123,554 218,304 255,811 $ 2.16 2.22 $ 1.92 2.09 $ 1.63 1.95 $ 24.25 24.75 289.1 $ 29.25 31.00 272.4 $ 27.33 31.56 246.8 1979 $186,848 256,465 $ 17,112 17,951 13,753 $ 4.83 5.06 3.88 $ (847) $ 5,433 $111,502 203,632 247,998 $ 1.50 2.04 $ 31.67 41.18 217.4 FE004590 Supplemental Data Supplemental Mineral Reserve Information For Years Ended December 31,1983,1982,1981 and 1980 Oglebay Norton Company and Subsidiaries 1983 1982 1981 1980 Proven and probable crude reserves at the end of the year (thousands of tons) Iron Ore Sand .. Coal... 197,073 158,317 54,886 198,717 115,509 55,419 191,477 92,119 55,967 203,740 94,430 56,546 Commercially recoverable reserves at the end of the year (percent) Iron Ore............................................................ Sand................................................................ Coal.................................................................. I -Q--u--a-n--t-i-t-ie--s--p--r-o--d-u--c-e--d---d-u--r-i-n-g---t-h--e--y- fi;' (thousands of tons) 0 Iron Ore............................... :............. Sand....................................................... ......... Coal.......................................................... ......... 32% 46 83 901 442 30% 35 83 30% 37 83 30% 37 83 825 1,085 943 ' 1,028 488 517 1,067 993 479 Average Market Price (dollars per ton) Iron Ore................................................... ......... Sand....................................................... ......... Coal.......................................................... ......... $47.90 17.99 43.24 $47.75 17.62 40.69 $44.73 18.73 37.12 $41.27 16.48 35.72 FE004591 Directors Malvin E. Bank Partner, Thompson, Htne anti Flory. Cleveland, Ohio, attorneys William G. Bares President, The Lubrizol Corporation. Cleveland, Ohio, supplier of chemical additives to the petroleum industry Keith S. Benson Retired, formerly Executive Vice President -- Administration and Finance of the Company Courtney Burton Chairman of the Board John J. Dwyer Vice Chairman of the Board and Past President of the Company; Partner, Thompson, Hine and Flory. Cleveland. Ohio, attorneys Robert I. Gale, III PresidehtTand Chief Executive Officer. Mid-West Forge Corporation. Cleveland. Ohio, manufacturer of rough steel forgings Arthur F. Harrison Chairman of the Board, Central Silica Company, Zanesville, Ohio Alfred M. Rankin Partner, Thompson, Hine and Flory. Cleveland, Ohio, attorneys Herbert S. Richey President, Richey Coal Company; formerly President and Chief Executive Officer, The Valley Camp Coal Company, Cleveland, Ohio C. Wesley Rowles Retired, formerly Senior Vice President -- Finance and a Director of Armco lnc,, Middletown, Ohio Renold D. Thompson President and Chief Executive Officer Fred R. White, Jr. Vice Chairman of the Board Officers Courtney Burton Chairman of the Board Fred R. White, Jr. Vice Chairman of the Board John J. Dwyer Vice Chairman of the Board Renold D. Thompson President and Chief Executive Officer Frank A. Castle Vice President -- General Manager of Columbia Transportation Division R. Thomas Green, Jr. Vice President -- Iron Ore Operations Walter R. Herron Wee President, General Manager of Ferro Engineering Division Marcus A. Hyre Wee President -gfc re Sales ' Richard J. Kesst *' Vice President inance and Treasurer sA I- John Limbocker'Jr. Wee President -- Corporate Affairs H. William Ruf Wee President -- Personnel and Industrial Relations Alfred E Savage Vice President -- Coal and Nonferrous Mining Operations John L Sells Vice President -- Administration and Corporate Planning August F. Bradfish Assistant Vice President -- Coal and Nonferrous Mining Operations Richard C. Harmon Assistant Vice President -- Iron Ore Operations Robert A. Thomas Assistant Vice President -- Administration and General Counsel David A. Kuhn Secretary John J. Kirn, Jr. Assistant Secretary Arthur E. Miller Assistant Secretary James W. Sanders Assistant Secretary Subsidiaries James P. Snider Vice President -- General Manager, Central Silica Company James J. Rivers Wee President -- General Manager, Texas Mining Company Emmett E Benedum President, T&B Foundry Company Corporate Data Executive Office 1100 Superior Avenue Cleveland, Ohio 44114 Cable Address: ONCO-CLEVE Telephone (216) 861-3300 Branch Offices 300 Fayal Road Eveleth, Minnesota 55734 Telephone (218) 744-5222 1532 Charleston National Plaza Charleston, West Virginia 25301 Telephone (304) 345-3100 | Subsidiaries Canadian Ferro Hot Metal j Specialties Limited I 345 Arvin Avenue Stoney Creek. Ontario Canada L8E 2M6 Telephone (416) 662-8381 Cenffdl Silica Company 806 Market Street Zanesville. Ohio 43701 Telephone (614) 452-2775 The Cleveland Metal Stamping Company 3110 Payne Avenue Cleveland. Ohio 44114 Telephone (216) 771-5100 Licking River Terminal Company Route 9 Wilder, Kentucky 41072 Telephone (606) 431-5545 Saginaw Mining Company 48557 Reservoir Road St. Clairsville. Ohio 43950 Telephone (614) 695-1312 T&B Foundry Company 2469 East 71st Street Cleveland, Ohio 44104 Telephone (216) 391-4200 Texas Mining Company 2104 East Randol Mill Road Suite 101 Arlington, Texas 76011 Telephone(817) 277-6471 Travis Manufacturing Company 4720 Winnebago Lane Austin, Texas 78744 Telephone (512)441-1754 Transfer Agent AmeriTrust Company National Association Cleveland, Ohio Counsel Thompson, Hine and Flory Cleveland, Ohio Independent Auditors Ernst & Whinney Cleveland, Ohio. FE004592 Oglebay Norton Company ;^PE004593