Document VJN44XabKeyRnj2ywvD0LGm48

PLAINTIFFS EXHIBIT ON-81 Ogleebbayy^JNNoorton 1972 Annual Report FE004215 CONTENTS 1 FINANCIAL HIGHLIGHTS 2 LETTER TO STOCKHOLDERS 4 REVIEW OF OPERATIONS 12 CONSOLIDATED STATEMENTS OF INCOME 13 CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION 14 CONSOLIDATED BALANCE SHEETS 16 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17 ACCOUNTANTS' REPORT 18 TEN YEAR SUMMARY 20 DIRECTORS AND OFFICERS 21 EXECUTIVE AND BRANCH OFFICES-SUBSIDIARIES COVER PICTURE One of several large silica sand storage yards of Central Silica Company. FE004216 FINANCIAL HIGHLIGHTS .* -V- . - -.-r: -.V-V*-.r > : /r ,, :S--' >*?.V" ,`-l 1972 t 1971 Income before extraordinary item......................................................... Extraordinary item.................................... ........................................... Net income.................................................................. ............................ Cash dividends paid.............................................................................. Per common share (*) Income before extraordinary item.................................................. Extraordinary item.............................................................................. Net income.......................................................................................... Cash dividends paid.......................................................................... Equity per common share................................................................ Working capital .................................................................................... . Total assets............................................................................................ Stockholders' equity ............................................................................. Depreciation and amortization charged to costs and expenses Expenditures for properties and equipment, including investment in the Eveleth Taconite project................................... $66,314,840 4,728,689 (1,800,000) 2,928,689 2,365,324 4.54 (1.94) 2.60 2.00 62.09 23,431,073 89,404,397 66,974,392 4,004,466 213,804 $63,131,407 4,150,338 4,150,338 2,387,074 3.88 - 3.88 2.00 61.28 22,951,937 87,566,313 66,679,902 3,901,352 4,436,201 (*) Per share figures, except equity per common share, are based on the average number of common shares outstanding during each year and have been computed after provision for annual preferred dividends. Equity per common share is based on the actual number of common shares outstanding at year end. 'rC-vfc"' f FE004217 I- 3 l 1 i jr t TO OUR STOCKHOLDERS: We are pleased to report on our performance in 1972. After a rather sluggish start which saw both first and second quar ter operating income at the lowest levels for comparable periods in several years, the year as a whole was very good for our Company. We did not attain our objective for the year in all segments of our business, but we did have one of the best second half earnings reports in our history, increasing by more than 50% over the last half of 1971. Sales and operating revenues were $66,314,840, represent ing an increase of $3,183,433, or about 5% over 1971 sales and revenues of $63,131,407. Operating net income improved by 14% to $4,728,689, or $4.54 per common share, from $4,150,338, or $3.88 per common share last year. As you have already been advised, we sustained a substan tial extraordinary charge during the third quarter as a result of closing our Norton coal mine in Belmont County, Ohio. The extraordinary charge amounted to $1,800,000, or $1.94 per common share net of applicable Federal income taxes, and it reduced net income for the year to $2.60 per common share. The circumstances surrounding the closing are cov ered later in this report Our year began very slowly. The strong pickup in the level of general business activity and in the steel operating rate, which we expected to be in full swing in the first quarter, did not materialize quite so soon. In addition, the effects of the long coal strike in the Fall of 1971 carried over into our first quarter. The starting dates of our vessels were delayed be cause of ice conditions as severe as they have been in more than forty years. In June, shortly after we started to operate under normal sailing conditions, a shipwreck occurred at the head of the St. Clair River at Port Huron, Michigan. This casu alty made it necessary to impose restricted one-way traffic in the river for 112 days, until the wreckage was cleared away. By the third quarter, the effects of the pronounced upswing in the national economy were reflected in the operating levels of our customers and in our own results. Orders stepped up noticeably and we put an additional bulk cargo vessel into service. The last quarter was an exceptionally strong one. Most of our operating divisions showed improvement over last year's performance and bettered profit plan performance at volumes attained. The comparative results in our Columbia, Ferro and coal divisions were the most impressive. The Columbia Transportation Division enjoyed the best year in its history. Rate increases were effected early in the year for self-unloader and crane vessel operations, but none were possible in the bulk vessel fleet. Margins in the bulk vessel operations were lower because of contract wage in creases and higher fuel and insurance costs. Eveleth Taconite Company had another good year despite significant cost increases without any change in the price of iron ore pellets in 1972. Tonnage was up over 1971 and ex cellent cost performance avoided a material erosion of profit margins. At this writing, an increase In the price of taconite pellets of 1.1C per iron unit or about 3.9% has been an nounced for the 1973 season. This will be helpful in offsetting the cost of another round of contractual wage increases scheduled for August 1973 and supply cost increases already passed on to us. Central Silica performed very well again in 1972. This good performance was evidenced by the absorption of appreciable wage and supply cost increases with only a moderate reduc tion in profit margins. The sharp turnaround in the results of our coal activities was most gratifying. We must point out, however, that most of the improvement was attributable to river coat dock oper ations and sales activities. Profitability at our Ohio coal mines was slightly better, but it is still far below a satisfac tory level. It appears that the sharp drop in productivity which began in 1970 has bottomed out. Our decision to close the Norton Mine was a difficult one, made only after the most thorough consideration and evalu ation of the available alternatives. For many years, this mine produced annually several hundred thousand tons of Ohio No. 8 coal sold under long-term contracts and shipped via unit trains to utility customers. Our long-term contracts pro vided for a renegotiation of the price clause at a time when consideration had to be given to an expenditure of several million dollars to develop a new section of the mine. We were unable to negotiate new contract selling prices that would insure, in our opinion, reasonable profit margins. Negotia- FE004218 tions were further complicated because of the potential im pact of more stringent air pollution requirements on the use of Ohio No. 8 coal. We finally decided that, rather than risk large capital investment to further develop a coal property while we were faced with both cost and quality vulnerability, we should close the mine, sell the property, plant and equip ment and accept the extraordinary loss. Later, we subleased the reserves and we expect to realize future royalty income from the property. Despite the current problems of environmental restrictions and production costs, we believe the future for the coal in dustry is very promising. Coal is an important factor in our total picture and we intend to continue our involvement in it. Although our mining operations are not as large as they were, we are engaged in other related activities, including selling, river dock handling and vessel transportation of coal. Our Ferro Engineering Division recorded marked improve ment over results of the last two years, despite the delayed pickup in first-half steel production, which not only reduced sales volume but also affected our ability to recover built-in wage and supply cost increases effective in the last six months of the year. We are encouraged by the development of new types of products and the improvement of our manu facturing processes that have taken place in Ferro during the year. Results at T & B Foundry were below expectations because of the economy and the change in the traditional hot top casting market. Our plan and program to develop new mar kets are producing results. We expect 1973 to be consider ably better than 1972. Cash flow from operations in 1972 was $8,733,155. An ad ditional cash flow of $2,615,365 was realized from the tax benefits of payments into the Capital Construction Fund and from the investment credit. The construction fund has been very helpful in maintaining and improving the competitive position of the Great Lakes vessel fleet. Capital expenditures for the year amounted to $2,359,117. The most significant of these were vessel improvements, in cluding oil-fired burners with automated engine-room con trols for the Fitzgerald, Ashland and Purnell. In January 1973, we announced the purchase of the Steamer Hillman and its conversion to a self-unloader, which will be delivered to us in the latter part of 1973. The Hillman will fit very well into our operating pattern and improve the competitive posture of our self-unloader fleet. Merger discussions with Diamond Crystal Salt Company of St. Clair, Michigan, which were announced this past summer terminated on October 31 by mutual agreement of the parties. We are very definitely interested in expanding our Company by acquisition or merger transactions which will benefit our stockholders. While we have not been successful in consum mating any combination in the last three years, we continue to diligently pursue all reasonable possibilities. We are de sirous of external growth and a broader, more diversified base of activities, with a lesser dependence upon one major industry. We have under consideration, or in the preliminary plan ning stages, several projects which may develop within the coming year with a favorable impact on the future profitability of the Company. Each of these involves expansion or exten sion of lines of business in which we are presently engaged. The past year was, after all, a year virtually free ol a major industry-wide strike affecting the businesses in which we are engaged and which we serve -- a most unusual coincidence anymore -- and, hopefully, we can enjoy another year like it in 1973. In addition, after three difficult years in the steel industry, it is encouraging to see the improvement not only in the rate of production but also in that industry's competi tive position and the public awareness of its importance to our basic economy. These developments are good reasons for considerable optimism about the year ahead. Our Company is in an excel lent position to take maximum advantage of an increasingly stronger demand for our products and services. We have set our plans to equal or exceed 1972 performance in all segments of our business. If our commitments as of the end of 1972 and our 1973 results to date are accurate indicators, we should be able to record much improvement over 1972. We enjoyed the finest cooperation this year from our employees, customers and suppliers. Chairman FE004219 COLUMBIA TRANSPORTATION DIVISION Despite high inventories of raw materials at steel producers' plants and unusual op erating problems encountered in the first half of the season, Columbia Transportation Division experienced a very satisfactory year. Opening of navigation was delayed by adverse weather and severe ice condi tions throughout the Great Lakes. A ship wreck in the St. Clair River restricted inter lake traffic and caused vessel delays from early June through September. About mid year, however, customer requirements in creased as raw material inventories de clined and the pace of the economy quickened. This increased demand, coupled with early season delivery delays, kept most of the fleet operating into the last week of December and resulted in the strongest fin ish in Columbia's history. Short-haul coal shipments were below expectations, being adversely affected by competition from unit train deliveries, high customer inventories and the impact of sulphur emission regulations. These prob lems were offset by rate increases in the crane and self-unloader fleets to partially counterbalance rising costs, increased vessel operating efficiencies and emer gence of strong long-haul patterns for the self-unloader fleet. Continuing its long-established policy of dedicating substantial earnings to modern ization and expanding its fleet to serve customer requirements, automated engine room controls will be installed on the Middletown and an additional vessel will be added. The "Maritime Class'' vessel J. H. Hillman, Jr. has been acquired tor con version to a self-unloader. With an overall length of 620 feet, a 60-foot beam and carrying capacity of 15,500 tons, this new addition to the Columbia fleet should be available for service late in the 1973 navi gation season. Current forecasts project an early and strong start-up with demand sustained at a high rate throughout the 1973 navigation season. With a continued strong economy, we anticipate that earnings will remain at a near record level in 1973. 4 Taconite pellets being unloaded by Huletts in Toledo from our Steamer Middletown. FE004220 QUARTZITE AND INDUSTRIAL QUARTZ SANDS The Central Silica Company's three divi sions operated at near peak levels through out 1972. All three divisions -- Central, Millwood and Ayers -- again benefited from the high level of activities in the building industries which called for steady production of glass and steel throughout the year. Substantial progress was made at the Glass Rock facility in preparation for the scheduled move to an adjoining quarry site during the next eighteen months. Quartzite has been mined at the original facility since 1940. Haul roads to the new quarry were built and installation of a temporary crush er was three-quarters completed. Addition of a three-yard power shovel during the second quarter of 1973 will increase pro duction and improve maintenance efficien cies during this major quarry move. To comply with increasingly stringent Federal and State laws regulating water pollution, reclamation and safety, surface mining companies continue to add fixed costs which are largely unrecoverable due to Federal pricing restrictions. Anticipating an impending natural gas shortage, stand-by fuel systems were in stalled at Central and Millwood. These stand-by systems will insure uninterrupted operations. The competitive position of the glass container industry remains strong. Despite the uncertain factors of labor negotiations and the economy s ability to absorb the building starts necessary to keep the coun try growing, Centra Silica's projections for 1973 remain optim stic. 5 Quartzite and industrial quartz sands are mined and processed for the foundry, ceramic and glass industries. FE004221 FERRO ENGINEERING DIVISION During 1972. we carried out programs of streamlining our organization and mak ing it more effective, particularly in the marketing function. Despite a difficult marKet and increased lapor. service ana mate rial costs, tnese programs yielaed important gains in profit for the Division. Throughout the year, tne basic steel in dustry continued to make marked changes m its processing technology, particularly in tne ingot casting segment of its production which we serve with our hot top products. Having developed and successfully mar keted several new product lines meeting cnangea incustry requirements during the year, we are now supplying increasing pumpers of customers Tne Hamilton. Ontario, plant was ex panded proviaing additional capacity totne manufacture ana saie of our products in Canada - improvements in production tecn- maues continued to oe maae in ail plants We aiso negotiated satisfactory new labor contracts a; our manufacturing locations We iook for a continuation of these gains The programs adopted in 1972 will go for ward Tnese togetner with the forecasted mgn ieve; cf stee: production, should comome to produce another improved year for Ferre Engineering in 1973. 6 Wiper Strips being assembled at Ferro's Plant 1 in Cleveland for use with its C & D Hot Top. FE004222 IRON ORE AND OTHER MINERALS Eveleth Tacomte Company, managec and partly owned by Oglebay Norton Com pany, operated at a record level for the seventh consecutive year as production of iron ore pellets reached 2,140,000 tons. Oglebay Norton delivered its share of pellets at a price which has field stable for two years, rising only slightly to match in creased pellet quality. The Company has sold its snare of the 1973 production at s modest increase which will partly offset rising costs. Eveieth, through continuing metallurgical research and development, has designed a plant modification to correct the imbalance in Droductive capacity oetween tne concen trator ana tne pelletizing plant, wnicn wi:i increase production capacity by approxi mately 10%. Areas of concern wnicn will require increasing efforts of our personnel are the energy squeeze, governmental reg ulation relating to surface mining ana gov ernmental safety regulations. Oglebay Norton continues mmera; ex ploration in the United States. Canada ana Mexico. Many prospects have been examinea and evaluated. The Company is now in the process of forming a Mexicanized corporation which will permit expan sion of exploration activity in that country. Metallurgical fluorspar briauette saies were very encouraging in 1972. Fluorspar briquettes produceo by the Brownsville, Texas, plan: were ''avoraply receives ov customers, anc we anticipate mghe: vol ume in 1973 7 Magnetic concentrating section at the Fairlane Plant emphasizes the complex facilities necessary to produce tacomte pellets. FE004223 COAL Coal demand moved upward in the sec ond halt ot 1972, producing a better market balance by year's end. The improvement followed overproduction through the first half of the year as customers' stocKpiles rose to near-record levels. Our two Ohio mines showed modest gains in productivity during 1972, despite continued high absenteeism. The gams partly offset labor and fringe increases granted to the United Mine Workers of America. In August, it became necessary to ciose our Norton Mine because the immediate area was mined out and long-term con tracts could not be negotiated that would 8 justify the new capital investment needed for development or adjacent'reserves. At the same time, some utility customers an nounced oians to convert their plants to low sulphur fuel oil. Disposition of the mine's assets was begun and continues into 1973 The Ohio River Coal Loading Terminal at Cereoc. West Virginia, operated at near capacity and prospects remain good for next year With the increase in aemand for coal loacing facilities on the Ohio River, we are investigating the expansion of this operation. Government regulations regarding sul phur content of coal burned will continue to affect tne company's agency ana bro kerage tonnages for 1973. However, steady improvement in United States easiness ac tivity plus good recovery m, foreign steel proauction promises a rising demand todomestic coai. Our Saginaw coal mine is completely automated. Shown here is a continuous miner working a seam. FE004224 FOUNDRY OPERATIONS A surge in T & B Foundry Company sales in the final quarter provided a strong finish for the year Orders for machine tool cast ings, metal forming presses, oil drilling units and clutches and brakes for marine applications led the fourth quarter sales advance Market research during 1972 assisted m development of new marketing programs which better identify the nature of our diverse markets and our customers' spe cific requirements. Sales efforts, now fo cused with more intensity, are producing improved results. Programs were started during the year to achieve further refinements in produc tion control, performance standards and cost control. Additional mechanical equip ment was installed in the molding and duc tile iron bays for improved cost efficiency. A two-year contract with the Interna tional Molders & Allied Workers was ne gotiated in December. Programs initiated in 1972 to increase volume and profit potential, together with our customers' optimistic forecasts, point to a strengthened position for T & B Foundry in 1973. 9 Skilled employees produce gray ductile iron castings in our modern plant in Cleveland. FE004225 DOCK OPERATIONS Bay City Seaway Terminal again expe rienced a record year in tonnage handied, due primarily to the high volume of plastics moving to the Far East. An 11,400-squarefoot expansion of warehouse space was completed in October to accommodate the rising volume of business late in the season. Saginaw dock volume was below antici pated levels due to a decline in inbound scrap and lower export shipments. We an ticipate an increase in export shipments next year. Total tonnage cargo fell short of fore casts at the Toledo terminal. General cargo volume declined and jurisdictional disputes between two local unions adversely af- 10 fected operations for most of the season. Resolution of this dispute early in the year will allow the terminal to take advantage of anticipated increases in cargoes and return to normal operating efficiency. Docks at Toledo, Bay City, Saginaw and South Chicago serve import, export and Great Lakes shippers. FE004226 FINANCIAL STATEMENTS JNorton 1972 Annual Report Stockholders are cordially invited to attend the Annual Meeting of the Company, which will be held at 2:00 p.m. Wednesday, April 18,1973, in the General Offices of the Company located in r. the Hanna Building, Cleveland, Ohio. ' FE004227 CONSOLIDATED STATEMENTS OF INCOME OGLEBAY NORTON COMPANY AND SUBSIDIARY COMPANIES for the years ended December 31, 1972 and 1971 12 1972 1971 INCOME Net sales and operating revenues............................................................ Sales commissions, royalties and management fees............................ Dividends, interest and miscellaneous..................................................... $65,065,381 1,249,459 691,530 67,006,370 $61,695,213 1,436,194 570,910 63,702,317 COSTS Cost of goods sold and operating expenses.......................................... General, administrative and selling expenses........................................ Income taxes, including provision for deferred taxes, 1972 - $1,535,365 and 1971 - $268,422 .......................................... 52,416,028 6,696,653 3,165,000 62,277,681 50,388,769 6,394,210 2,769,000 59,551,979 INCOME BEFORE EXTRAORDINARY ITEM .............................................. Extraordinary item (Note 7)...................................................................... 4,728,689 (1,800,000) 4,150,338 NET INCOME ................................................................................................ $ 2,928,689 $ 4,150,338 INCOME PER COMMON SHARE On average number of shares outstanding during each year, after provision for preferred dividends Income before extraordinary item................................................. Extraordinary item.......................................................................... Net income........................................................ .......................... $ 4.54 (1.94) $ 2.60 $ 3.88 $ 3.88 Assuming conversion of preferred shares beginning of year Income before extraordinary item .................................................. Extraordinary item.............................................................................. Net income.................................................................................. The accompanying notes are an integral part of these financial statements. $ 4.23 (1.61) $ 2.62 $ 3.68 $ 3.68 FE004228 CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION OGLEBAY NORTON COMPANY AND SUBSIDIARY COMPANIES for the years ended December 31, 1972 and 1971 - 1972 1971 SOURCE OF FUNDS From operations Income before extraordinary item............ ..................................... ... Expenses not requiring an outlay of cash Depreciation and amortization .................................................. Deferred income taxes................................................................ Total from operations, exclusive of extraordinary item____ Extraordinary item........................................................................ Increase in prior year's deferred taxes.............................................. Disposition of fixed assets.................................................................. Decrease in deferred charges............................................................ $ 4,728,689 $ 4,150,338 4,004,466 1,535,365 10,268,520 (1,800,000) 8,468,520 1,080,000 1,231,432 204,548 10,984,500 3,901,352 268,422 8,320,112 -- 8,320,112 1,468,592 132,414 13,385 9,934,503 DISPOSITION OF FUNDS Expenditures for properties and equipment.................................... Payment of dividends.......................................................................... Purchase of treasury shares.............................................................. Investments .......................................................................................... INCREASE OR (DECREASE) IN WORKING CAPITAL...................... .. . 2,359,117 2,365,324 268,875 5,512,048 10,505,364 $ 479,136 3,937,511 2,387,074 1,147,750 2,904,008 10,376,343 $ (441,840) INCREASE OR (DECREASE) IN COMPONENTS OF WORKING CAPITAL Current assets Cash and securities .................................................. ...................... ... Notes and accounts receivable...................................................... Inventories ........................................................................................ Prepaid vessel rent, insurance and other expenses.................... Current liabilities Accounts payable and accrued items............................................ Income taxes .................................................................................... INCREASE OR (DECREASE) IN WORKING CAPITAL...................... ... $ 615,672 164,146 (375,944) (83,636) 320,238 213,702 (372,600) (158,898) $ 479,136 $ 512,634 615,954 (6,707) 158,497 1,280,378 1,250,371 471,847 1,722,218 $ (441,840) The accompanying notes are an integral part of these financial statements. FE004229 CONSOLIDATED BALANCE SHEETS OGLEBAY NORTON COMPANY AND SUBSIDIARY COMPANIES December 31,1972 and 1971 14 1972 1971 ASSETS CURRENT ASSETS Cash............................................................................................................. $ 951,499 $ 2,841,691 Marketable securities (Note 1) ..................................................................... Notes and accounts receivable, less allowance of $122,622 in 1972 and $146,122 in 1971 for doubtful accounts............................ Inventories (Note 1) Finished products and materials................................................................ Operating supplies and materials.............................................................. 15,180,119 12,674,255 9,824,685 9,660,539 2,404,572 1,046,741 3,451,313 2,524,021 1,303,236 3,827,257 Prepaid vessel rent, insurance and other expenses.................................... Total current assets ....................................................................... 1,260,985 1,344,621 30,668,601 30,348,363 INVESTMENTS, at cost, and other assets (Note 2)....................................... 14,703,218 9,589,264 PROPERTIES AND EQUIPMENT, at cost (Note 1) Vessels, docks and related equipment......................................................... Mining properties and equipment................................................................. Manufacturing properties and equipment................................................... 52,396,469 15,352,924 10,406,591 78,155,984 51,051,311 21,242,740 10,048,781 82,342,832 Accumulated depreciation, amortization and depletion....................... 35,531,706 36,326,994 42,624,278 46,015,838 DEFERRED CHARGES ............................................................ .................. 1,408,300 1,612,848 $89,404,397 $87,566,313 FE004230 1972 1971 LIABILITIES CURRENT LIABILITIES Accounts payable, trade............................................................................ Payrolls and other accrued compensation............................................ Accrued taxes and other expenses........ ............................................ Income taxes .............................................................................................. Total current liabilities.............................................................. $ 2,331,667 2,415,379 2,070,695 419,787 7,237,528 $ 2,521,555 2,610,499 1,471,985 792,387 7,396,426 DEFERRED INCOME TAXES (Note 1) ....................................................... 15,192,477 13,489,985 STOCKHOLDERS' EQUITY PREFERRED STOCK, without par value, redemption value $50 per share, authorized 400,000 shares; issued 188,950 shares at stated amount (Note 4) Series A, 5'/2% 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 (Note 5).......................................... 1,353,750 407,350 1,019,951 1,353,750 407,350 1,019,951 ADDITIONAL CAPITAL.................................................................................. 7,034,569 7,034,569 RETAINED EARNINGS (Note 8) .................................................................. Less common shares in treasury, 93,470 in 1972 and 85,970 in 1971, at cost.............................................................. 60,341,172 70,156,792 59,777,807 69,593,427 3,182,400 66,974,392 $89,404,397 2,913,525 66,679,902 $87,566,313 The accompanying notes are an integral part of these financial statements. FE004231 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS OGLEBAY NORTON COMPANY AND SUBSIDIARY COMPANIES for the years ended December 31,1972 and 1971 16 1972 1971 BALANCE,January 1, as previouslyreported............................................... Prior years'income tax adjustment (Note 8)............................................ BALANCE, January 1, as adjusted.................................................................. $58,215,276 (200,733) $59,777,807 58,014,543 NET INCOME ................................................. CASH DIVIDENDS Common stock $2.00 per share................................................................ Preferred Stock Series A, $2.75 per share...................................................................... Series B, $2.50 per share...................................................................... 2,928,689 62,706,496 4,150,338 62,164,881 1,855,712 409,612 100,000 2,365,324 1,877,462 409,612 100,000 2,387,074 BALANCE, December 31 ................................................................................. $60,341,172 $59,777,807 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Accounting Policies The following is a summary of cer tain significant accounting policies followed in the prepara tion of these financial statements. The policies conform to generally accepted accounting principles and have been con sistently applied in the preparation of the financial statements. Principles of Consolidation The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiary companies. No income tax has been provided for unremitted earnings of consolidated sub sidiaries ($3,600,000) since alternatives are available to the Company which would make it possible to eliminate tax on amounts which might be paid. Marketable Securities Marketable securities, consisting pri marily of government obligations, bonds and commercial notes, are stated at cost plus accrued interest which approximates market. Inventories Inventories are stated at the lower of average cost or market. Mine Exploration and Development Costs Mine exploration costs are charged to expense as incurred. Mine development costs are deferred and written off over the estimated useful life of the mine. Properties and Equipment Maintenance, repairs and minor renewals are charged to income in the year incurred. Better ments are capitalized. When individual items of mine equip ment are retired or otherwise disposed of in the normal course of business, no gain or loss is recognized in income and accumulated depreciation is charged with the cost of the asset and credited with any proceeds of sale. When other types of assets are retired, gain or loss is recognized in in come and accumulated depreciation is charged with the de preciation applicable to such retirements. Depreciation The Company provides depreciation using the straight-line method over the estimated useful life. Deferred Income Taxes For income tax purposes, the Com pany's deductions for depreciation and certain other costs FE004232 (including certain expenditures for purchases and recon struction of vessels) 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 income tax) and credited to deferred income taxes. The deferred taxes are credited to income (as income tax) in pe riods when depreciation and certain other costs charged in the accounts exceed the amounts deductible for tax purposes. Investment Tax Credits Investment tax credits are used to reduce the income tax provisions in the year in which they arise. 2. Investments Investments include S5,363,446 and $5,606,853 at December 31, 1972 and 1971, respectively, representing a 15% interest 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 proportion to their stock ownership, and the production of the mine is taken by the stockholders in like proportion. Further, the Company's investments and advances to af filiated companies include a 33% ownership of Western Navigation Company, a dock operation, and a 60% owner ship of Laxare, Inc., a coal mining operation. The 60% owned Company is not consolidated as management does not yet consider this investment to be permanent. The investment in these companies is carried at cost which is substantially equal to the equity in the underlying net assets. Marketable securities in the amount of $7,054,899 and $1,837,000 at December 31, 1972 and 1971, respectively, have been classified as investments since the company is committed to expend or segregate for future expenditure this amount in order to qualify for certain tax deferments under the provisions of the Merchant Marine Act, 1970. 3. Pension Plans The Company and its subsidiaries have several noncontributory pension plans covering substantially all of their employees. The total pension expense for 1972 and 1971 amounted to $1,003,000 and $1,033,000, respectively, which includes, as to certain of the plans, amortization of prior service costs over periods not exceeding 25 years. The actuarially computed values of vested benefits at December 31, 1972 exceeded the assets of the fund by approximately $1,729,000. 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 $682,599 in 1972 and $485,294 in 1971. 4. Preferred Stock 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. 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 subsequent to December 31, 1976 at $50 per share (aggre gating $9,447,500) plus accrued dividends, and are <4 entitled to a similar amount in the event of liquidation. Dividends are cumulative and payable quarterly at an an nual rate of $2.75 per share for Series A and S2.50 for Series B. 5. Stock Options The Board of Directors adopted, subject to the approval of the stockholders, an employees' stock option plan. Under the plan, options may be granted for a maximum of 100,000 shares of common stock at a price not to be less than 100% of the fair market value on the date of grant. Options will become exercisable in installments of one fourth of the shares subject thereto during the second through fifth years of continuous employment after the date of grant. 6. Commitments 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 $7,180,000. 7. Extraordinary Item The extraordinary item represents the estimated loss from permanently closing the Norton Mine in August, 1972 after giving effect to applicable federal in come tax reductions of $1,036,000, of which $913,000 is de ferred taxes. 8. Retained Earnings Consolidated retained earnings at January 1, 1971 have been restated to reflect a charge to prior periods of $200,733 for additional federal income taxes applicable to the years 1968 -1970. ACCOUNTANTS' REPORT To the Board of Directors, Oglebay Norton Company We have examined the consolidated balance sheet of Oglebay Norton Company and its subsidiary companies as of December 31, 1972 and the related consolidated statements of income, retained earnings and changes in financial position for the year then ended. Our examination was 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. We previously examined and reported upon the financial statements of the Company for the year 1971. In our opinion, the aforementioned financial statements present fairly the consolidated financial position of Oglebay Norton Company and its subsidiary companies at December 31, 1972 and 1971 and the consolidated results of their operations and the changes in their financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. Cleveland, Ohio February 12,1973 Lybrand, Ross Bros. & Montgomery FE004233 TEN YEAR SUMMARY 18 OPERATIONS Gross operating income ............................................................ ............ Income before income taxes and extraordinary items.......... ............ Income before extraordinary items.......................................... ............ Extraordinary items, less applicable taxes ............................ ............ Net income ........................................................ ......................... ............ Cash dividends paid ........................................ ...................... ............ Net income invested in the business...................................... ............ Depreciation, amortization and depletion charged to costs and expenses............................................ ............ Expenditures for properties and equipment, including investment in the Eveleth Taconite project........................ ............ FINANCIAL POSITION Current ratio................................................................................ ............ Working capital .......................................................................... ............ Total properties, net .................................................................. ............ Total assets.................................................................................. ............ Long-term liabilities.................................................................... ............ Total stockholders' equity ........................................................ ............ Common stockholders' equity .................................................. ............ DATA PER COMMON SHARE (*) Income before extraordinary items.......................................... ............ Extraordinary items, less applicable taxes.............................. ............ Net income .................................................................................. ............ Cash dividends paid .................................................................. ............ Equity per common share.......................................................... ............ OTHER STATISTICS Preferred shares outstanding at year end.............................. ............ Common shares outstanding at year end................................ ............ Number of stockholders at year end........................................ ............ 1972 $66,314,840 7,893,689 4,728,689 (1,800,000) 2,928,689 2,365,324 563,365 4,004,466 2,513,804 4.24 23,431,073 42,624,278 89,404,397 66,974,392 57,526,892 4.54 (1.94) 2.60 ZOO 6Z09 188,950 926,481 1,201 1971 $63,131,407 6,919,338 4,150,338 4,150,338 2,387,074 1,763,264 3,901,352 4,436,201 4.10 22,951,937 46,015,838 87,566,313 -- 66,679,902 57,232,402 3.88 -- 3.88 2.00 61.28 188,950 933,981 1,246 1970 $60,710,933 7,116,795 4,350,766 4,350,766 2,468,164 1,882,602 3,885,355 7,647,569 5.12 23,393,777 45,720,378 63,491,567 -- 66,064,388 56,616,888 3.92 -- 3.92 ZOO 58.36 188,950 970,101 1,241 (*) Per share figures, except equity per common share, are based on the average number of common shares out* standing during each year and have been computed after provision for annual preferred dividends. Equity per common share is based on the actual number of common shares outstanding at year end. Acquisitions in 1968 and 1969 were treated as poolings of interest In each case the year prior to the year of ac quisition was restated. Figures for prior years are as reported in annual reports for the respective years. FE004234 1969 562,894,005 8,705,350 5,261,735 5,261,735 2,445,366 2,816,369 3,471,337 4,150,812 1968 $61,804,168 8,403,704 5,009,492 5,009,492 2,309,553 2,699,939 3,462,557 5,032,228 1967 $62,169,252 8,287,406 4,826,129 2,844,798 7,670,927 2,317,516 5,353,411 3,580,864 3,450,002 1966 $64,513,933 8.739.346 4.814.346 4,814,346 .1,529,927 3,284,419 3,670,312 4,547,849 1965 $54,616,612 7.451.491 4.051.491 4,051,491 1,325,936 2,725,555 2,440,106 10,324,015 1964 $51,420,176 6.805.890 3.605.890 3,605,890 1,223,941 2,381,949 2,702,402 5,329,993 19 1963 $51,407,785 5.555.283 2.890.283 -0) 2,890,283 1,019,951 1,870,332 2,693,262 2,324,436 4.72 27,063,250 41,714,846 84,072,272 427,000 65,027,511 55.580,011 3.05 25,056,573 41,006,228 86,259,108 445,493 62,665,392 53,217,892 3.67 21,887,784 39,541,675 77,887,617 477,518 58,970,817 51,523,317 2.15 11,888,284 43,180,893 74,361,552 2,515,536 50,878,263 50,878,263 2.33 9,917,392 42,276,316 69,092,991 4,586,856 47,593,844 47,593,844 2.20 9,510,807 39,261,082 61,331,238 1,151,928 44,664,298 44,664,298 2.42 9,441,162 39,243,272 58,574,777 3,367,059 42,282,349 42,282,349 4.74 4.74 2.10(2) 55.91 4.47 4.47 2.30(2) 52.89 4.37 2.82 7.19 2.30(2) 51.20 4.72 4.72 1.50 49.88 3.97 3.97 1.30 46.66 3.54 3.54 1.20 43.79 2.83 -0) 2.83 1.00 41.46 188,950 994,051 1,302 188,950 1,006,251 1,342 148,950 1,006,251 1,360 1,019,951 1,333 1,019,951 1,337 1,019,951 1,456 1,019,951 914 Earnings per common share and other financial information for the years 1970, 1969 and 1968 have been adjusted to reflect prior periods adjustment explained in Note 8. (1) Excludes extraordinary deduction of $502,229 or $.49 per common share charged to retained earnings. (2) Includes dividends paid by subsidiaries prior to acquisition by the Company. FE004235 20 DIRECTORS Courtney Burton Chairman of the Board of Directors of the Company Edgardo A. Correa Retired, South Yarmouth, Massachusetts John J. Dwyer President ot the Company Robert I. Gale. Jr. President, Mid-West Forge Corporation, Cleveland, Ohio Arthur F. Harrison President and Treasurer, Central Silica Company, Zanesville, Ohio J. Gordon Hutchinson Vice President, Rossville Yarn Processing Company, Rossville, Georgia George F. Karch Honorary Chairman, The Cleveland Trust Company, Cleveland, Ohio Donald W. Mitchell Retired, Ashtabula, Ohio James J. Nance Chairman, First Union Real Estate Equity and Mortgage Investments, Cleveland, Ohio Alfred M. Rankin Partner, Thompson, Mine and Flory, Cleveland, Ohio Herbert S. Richey President and Chief Executive Officer, The Valley Camp Coal Company, Cleveland, Ohio Ellery Sedgwick. Jr. Chairman ot the Board, Medusa Corporation, Cleveland, Ohio Edward W. Sloan, Jr. Consultant and Retired President ot the Company, Gates Mills, Ohio Fred R. White, Jr. Vice Chairman ot the Board ot Directors and Senior Vice President ot the Company Honorary Director -- Henry P. Rankin Retired, Cleveland, Ohio OFFICERS Courtney Burton. Chairman ot the Board Fred R. White, Jr., Vice Chairman of the Board and Senior Vice President John J. Dwyer, President Renold D. Thompson, Senior Vice President Walter R. Herron, Vice President and General Manager -- Ferro Engineering Division Arthur B. Rathbone, Vice President -- Ore Sales Charles W. Ferris, Vice President -- Administrative Joseph B. Milgram, Jr,, Vice President -- Corporate Planning Walter M. Charman, Jr,, Vice President Robert A. Thomas, Secretary and General Counsel John K. Gill, Jr., Treasurer Alfred F. Savage, Assistant Vice President -- Mining D. Kelly Campbell, Assistant Vice President -- Iron Ore Operations John Limbocker, Jr., Assistant to the President David A. Kuhn. Assistant Secretary Leonard M. Bell, Controller Lytton S. Beman, Jr., Assistant Treasurer Walter L Gonska, Assistant Treasurer Richard J. Kessler, Assistant Treasurer Pouring hot metal at our T & B Foundry. FE004236 SUBSIDIARY MANAGEMENT Ceniral Silica Company -- Arthur F Harrison. President T i B Foundry Company -- Frank P. Gill. Presiden Canadian Ferro Hot Tops Limited (Canada) -- Walter R Herron. President transfer agent and registrar The Cleveland Trust Company Cleveland, Ohio COUNSEL Tnompson, Hine and Flory Cleveland, Ohio ACCOUNTANTS Lyprand, Ross Bros & Montgomery Cleveland, Ohio OGLEBAY NORTON COMPANY EXECUTIVE OFFICE 1200 Hanna Building Cleveland. Ohio 44115 Cable Address ONCO-CLEVE Telepnone (216) 861-3300 BRANCH OFFICE Virginia, Minnesota 55792 P. 0. Box 1064 Telephone (218) 741-5222 SUBSIDIARIES Canadian Ferro Hot Tops Limned 345 Arvin Avenue Stoney Creek, Ont , Canada Telephone (416) 662-8381 Central Silica Company 806 Market Street Zanesville. Ohio 43701 Telephone (614) 452-2775 T & B Foundry Company 2469 East 71st Street Cleveland, Ohio 44104 Telephone (2161 391-4200 FE004237 OglebavJNorton 1200 HANNA BUILDING W CLEVELAND, OHIO 44115 FE004238