Document VJq7Mykm1RY2nZdQ85d3dJ7V8

Oglebay Norton Company/1982 Annual Report PLAINTIFF'S exhibit Oglebay Norton Company/1982 Annual Report 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, Califor nia for the oil well service and con struction industries; and ON Coast Petroleum Company which owns leasehold interests in oil and gas production in Texas and Louisiana. The Company also operates a plant at Brownsville, Texas producing fluorspar briquettes for the steel industry. Iron Ora 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 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. Contents Company Profile Financial Highlights Letter to Stockholders Review of Operations Financial Information Financial Statements Supplemental Data Corporate Data Inside Front Cover 1 2-3 4-13 14-17 18-27 28-32 Inside Back Cover FE004523 OglebayJNorton Security Markets and Dividends The Common Stock, oar value $1 per share, is traded in the national over-the-counter market The following is a summary of the market range of Did ana ask quotations and dividends declared tor each quarterly period in 1982 and 1981 for the Common Stock. Quarterly High Low Dividend Period Bid/Ask Bld/Ask Declared 4th $24 -25'/r $21 -22 $.54 3rd 23 -24'/! 18 -19 54 2nd 26 -27 23 24'/! 54 1st 28'/!-30 26 -27 54 4th $29 -30'/! $26 -27 $.54 3rd 28'/!-30 25 '/i -26 '/! 46 2nd 28'/!-31 27'/!-28'/ 46 1st 28 -30 23 -25 46 As of December 31 1982. there were 1.369 Common Stock stockholders of record. Additional Information COPIES OF THE SEC FORM 10-K FOR 1982 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 PM.. Wednesday. April 20.1983. in the General Offices of the Company located at 1100 Superior Avenue. Cleveland. Ohio. Financial Highlights 1982 1981 1980 Gross operating income........$171,589,980 $210,979,669 $180,212,442 Net income.............................. 9,773,329 23,919,370 17,283,218 Dividends................................ 7,577,874 6,722,793 5,682,660 Per share of Common Stock Net income...................... Dividends........................ Equity.............................. 2.78 2.16 40.85 6.77 1.92 40.24 4.92 1.63 35.41 Common stockholders' equity 143,347,474 141,118,958 123,554,484 Depreciation, amortization and depletion charged to costs and expenses........ 12,120,768 12,498,862 11,074,024 Expenditures for properties andequipment................ 20,278,534 40,999,132 37,617,288 Gross Operating Income (In Millions of Dollars) $220 200 180 160 140 Net Income (In Millions of Dollars) $24 22 20 18 16 0 ______________________ 1978 -79 00 si 82 8-- -- -- -- -- 6 4 2 01 1978 79 80 81 82 FE004524 1 Renold D. Thompson was elected President and Chief Executive Officer on May 19,1982. He succeeds John J. Dwyer, President since 1970, who was elected Vice Chairman. Mr. Thompson, formerly Executive Vice President, joined the Company in 1952. He advanced through various executive positions, including Vice President of Vessel and Mining Opera tions, Senior Vice President and Executive Vice President-Operations. He also is a Director. 2 To the Stockholders of Oglebay Norton Company Early in 1982, as the prospects of a serious reces sion became apparent, your Company took prompt action to reduce its operations and control its costs. Iron ore, lake transportation and manufacturing segments first were affected by the downturn in the steel industry which hopefully reached bottom during the latter part of 1982. By that time, the impact of the now worldwide economic decline was felt by all of our businesses. Prompt reaction coupled with good performance by our nonsteel related businesses, the completion of important capital improvement programs and the dedicated efforts of our employees resulted in reasonable profit performance and continuity of regular dividends for our stockholders. Net income for 1982 was $9,773,000 or $2.78 per share compared with $23,919,000 or $6.77 in 1981. Return on equity decreased to 6.9 percent compared with 18.1 percent in 1981. Cash flow from operations decreased to $19,144,000 from $43,279,000 in 1981 Financing of the M/V Columbia Star increased interest expense $2,260,000 in 1982, reducing net income approximately 77 cents per share. Interest expense related to the vessel prior to her delivery was capitalized and charged to the asset. The provision for income taxes reflects, for financial reporting pur poses, utilization of current investment tax credits and favorable adjustments based upon beneficial lax decisions. Operating Performance in 1982 Texas Mining Company sales in 1982 closely ap proached the previous year's record results in a period which witnessed depressed demand in the oil fields. A $7,300,000 facility improvement program was completed at midyear. The Company has effec tively controlled its costs and strengthened its ability to compete in the future. Central Silica Company sales nearly equalled the 1981 record, despite slack demand from metal working customers. Glass container and home insula tion markets remained firm throughout the year. The Company has expanded its Millwood, Ohio plant for entrance into the fracture sand market during 1983. Fluorspar briquette sales to the steel industry declined markedly in 1982, but the Brownsville, Texas operation has expanded its product line to enter non steel related markets in 1983. Production of iron ore pellets at Eveleth Mines fell FE004525 Ogleba^Norton to about 75 percent of capacity. The decline in demand caused a significant tightening of operations that resulted in improved productivity, quality control and cost reduction. Except for short downtimes for maintenance and repairs, Eveleth Mines was fortu nate to be able to continue operation although at a reduced level. Saginaw Mining Company sales and shipments of coal for an electric utility customer equalled the 1981 performance. Blending of low-sulphur coal with the Saginaw product again was required in 1982 in order to meet our customer's mandated combustion emission standards. Our agency sales of coal mined by others decreased. Operating at about half of its fleet capacity, the Company's Great Lakes fleet saw its total operating income fall by about half after a very strong perfor mance in 1981. It was a difficult year for oersonnel afloat and ashore, but 1982 produced new highs in efficiency, cost reduction and safety. The Steamers Armco and Middletown operated their first season as self-unloading vessels, and conversion of the S/S Reserve began during the second half of 1982. Rail-to-barge coal transport declined sharply at Ceredo Dock in 1982, but contract tonnage at the Licking River Terminal helped the newer facility achieve record coal transshipment. Ferro Engineering and T & B Foundry both felt the full impact of the steel decline, but they are poised to return to profitable operation when steel production reaches more normal levels. Outlook for 1983 Heading into the recession, our properties were well maintained and our current capital improvement programs virtually complete. No consequential capital outlays will be required in the near term. Over the past four years, the Company has committed nearly $128,000,000 in capital expenditures. Our physical facilities are in good shape. Our goals remain unchanged. The philosophies of our leadership endure. John J. Dwyer was elected Vice Chairman of the Board in May, 1982. He left the active direction of Company affairs after a term as President that began in 1970. His leadership has assured Oglebay Norton the strength to prevail in difficult times and to grow in the 1980's. We were pleased to announce in May the election of two new Directors: William G. Bares, President, The Lubrizol Corporation, and C. Wesley Rowles, retired Senior Vice President -- Finance, Armco Inc., but mark with sadness the passing of George F. Karch, a valued Director of the Company from 1957 to April, 1982. Prospects for our silica operations in 1983 appear equal to the near-record 1982 performance. Oil and gas well fracture sand sales should remain at high levels, but there will be new pressure resulting from overcapacity as new producers enter the market. Little expansion is forecast for iron ore sales since our customers' iron ore inventories remain high and the anticipated steel industry recovery probably will trail the general economic upswing. Our manufacturing operations will move with the steel market, but coal sales should equal the 1982 performance. The negotiation of labor contracts that do not impede our ability to sell our products and services will be essential to our progress in 1983. Labor agree ments covering hourly employees of Oglebay Norton Taconite Company and the officers and certain vessel personnel expire August 1,1983, and October 15, 1983 for Ferro Engineering Division's Cleveland, Ohio and Chicago, Illinois employees. It is of vital impor tance that these new agreements halt the rapid esca lation of employment costs that have occurred in the past decade. New labor accords, the pace of economic recovery and possible hasty action by the Congress on acid rain remain matters of concern. There are encour aging signs, however, that noninflationary labor contracts will be achieved, that the nation's economy is rising from the fourth quarter low of 1982, and that emotional public debate on acid rain will give way to the kind of cooperative scientific research necessary to guide new environmental legislation. The much desired return to a growing national economy appears difficult but certainly possible. While strictly a matter of judgment, our best indi cators provide evidence that the recession did. in fact, bottom out by the end of 1982 and that gradual improvement will continue through 1983. Recogniz ing the performance and favorable morale of our employees and the loyalty of our customers, we remain optimistic about the future of your Company. Chairman of the Board March 25,1983 President and Chief Executive Officer FE004526 3 4 FE004527 Operations 1982 A 4 <** Left: Texas Mining Com pany commenced opera tion of a new sand washing plant at Voca, Texas early in 1983. The new facility increases plant capacity, and addi tional washing stages provide improved quality control. The new wash ing plant is part of a S7.3 million improvement pro gram completed in 1982. Central Silica Company Glass Rock Division (right) and Millwood, Ohio operations nearly equalled the record results of 1981 as demand by glass con tainer and insulation customers remained firm throughout 1982. New sand scrubbing facilities at Millwood will come on line during 1983. INDUSTRIAL MINERALS Oil and Gas Well Fracture Sand Texas Mining Company total tonnage sales declined a small percentage from the 1981 record despite a severe reduction in general demand for proppant sands, the Company's principal product. Proppant sands (or fracture sands) are used by oil well service companies to increase oil and gas production. The world oversupply of crude oil caused the United States oil drilling rig count to fall 40 percent during 1982, but Texas Mining fracture sand tonnage sales held near the previous year's record level. The Company's location permits competitive access to 65 percent of the total market, and its favorable rail rates and quick reaction to market price com petition re'sulted in sustained high levels of fracture sand sales. Tonnage sales of sandblast sand and pulverized sand produced in Texas and California for con struction and geothermal use declined substantially. The Company's $7.3 million expansion program was completed when a new washing plant at Voca, Texas came on stream during the year. Labor and energy costs have been reduced, and annual overall operating cost increases held to about one-third of the 1981 level. Quartzite Sand Central Silica Company experienced the second best year in its history despite declining demand in several of its markets. The company mines and processes silica products for the metals, ceramic and glass industries. Foundry sand and silica flour shipments to the steel and automotive industries were depressed throughout 1982. Table ware and other ceramic customers also operated at significantly reduced levels, but persistent strong demand from highvolume glass container and fiber glass customers largely offset declining sales to others. A new sand screening circuit placed in operation at the Millwood, Ohio facility to increase capacity and improve quality also has positioned Central Silica to enter a new market for the company. Fracture sand produced there will serve oil and gas well drilling customers in Southeastern Ohio. New sand scrubbing facilities should be completed in the second quarter of 1983. A three-year labor contract was negotiated in August 1982. Fluorspar Very low operating rates at steel customers' mills resulted in a correspond ing low demand for briquetted fluorspar produced at Brownsville, Texas. The addition of a dryer in 1981 and bagging facilities in 1982 has enabled penetration into new nonsteel markets. Much of the year was devoted to sales efforts and sample and production tests for these new customers, and the fourth quarter of the year witnessed improving sales. FE004528 J 6 FE004529 A new truck mainte nance building (upper right ot photo) com pleted in 1982 at the Thunderbird South Mine near Eveleth, Minnesota speeds care and repair ot vehicles at the mine site. Coarse iron ore moves from crushing building (upper left) to loadout surge beneath domed protective cover. Grinding line at Fairlane Plant includes rod mills, ball mills and cyclones. Grinding stages result in finely ground particles which are thickened to become wet concentrate. Iron-bearing particles are magnetically sepa rated. rolled into pellets and heat hardened to withstand shipment. IRQIU ORE j impact of the^ecession on Eveleth KQV steelmakinePprtners and custom- erwihded a 19-yeareffort to continuously ingrfease production^ iron ore pellets. In 196:2, the central ot^pves becarfi'e sus tained high quality acffreved at lower pro duction rates with greater efficiency in order to contain rising costs and to reduce cash outlays. Operations were maintained at near capacity levels until early June when mining and processing were reduced by approximately one-third. Hourly employees were scheduled on a 32-hour workweek and 16 percent were placed on layoff status. Operations were opti mized by utilizing the most efficient equipment. Total production for 1982 declined to about 75 percent of rated capacity. Major repairs and improvements in the pelletizing plant early in the year resulted in improved pellet physical characteris tics, increased plant availability and heat energy reduction of 17 percent in the large pelletizing unit. A new preventive maintenance system was implemented throughout the operations employing a new state-of-the-art computer. All expenses were reviewed critically and steps taken to achieve greater produc tivity and reduce costs. Capital items of $2,300,000, a 60 per cent reduction from 1981, included additional land for stockpiling, new mine maintenance facilities and process con trol equipment. FE004530 FE004531 Coal sales In 1982 com pared with the previous year levels. Oglebay Norton operates the Saginaw Mine, an under ground bituminous coal mine in Belmont County in Ohio. The mine is served by unit trains which deliver coal to an electric power genera tion customer in North east Ohio. JCOAL Saginaw Mining Company Coal sales remained stable at the Saginaw Mining Company, a subsidiary of Oglebay Norton Company located near St. Clairsville, Ohio. The Company mines coal sold under long-term contract to a major Ohio electric utility. Shipments in 1982 compared with 1981 levels despite extensive downtime of our customer's electric power generating units throughout the year. Sporadic reduced demand for coal caused the mine to remain idle several times during the year, necessitating a reduction in the work force in the fourth quarter. In order to reduce production costs, efforts were redoubled to improve safety performance, increase mine productivity, reduce employee absenteeism and downtime on mining equipment. Saginaw Mining customer's sulphur dioxide emission standards appear to have stabilized for the present, but the blending of a low-sulphur coal with the Saginaw product is still required to meet present sulphur dioxide limitations. The possibility of hasty action by the Con gress on so-called acid rain, however, poses a new threat to the future of Ohio coal. The Midwest has been charged as the origin of acid rain, thought by some to be responsible for acidification of lakes and forests in the northeastern states and Canada. While there is no fact or documentation for the source and long range transport of sulphur dioxide and oxides of nitrogen, legislation now before Congress would penalize midwestern generating plants, greatly increase elec tricity costs and threaten the future of coal as an energy source. 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 and to purchasers for export. Agency coal sales decreased substantially over the very strong performance of 1981. F004532 Three fleet vessels have been converted to self unloaders since the winter of 1981-1982. The S/S Middletown and S/S Armco were converted and ready for service in 1982. The S/S Reserve will be delivered in the second quarter of 1983. Self-unloading vessels increase productivity and flexibility of operations. Conversion of the S/S Reserve (left) early in 1983 completes the current fleet improve ment program. Oglebay Norton Company's ac tive Great Lakes fleet now includes 13 selfunloaders and three straight deck vessels. TRANSPORTATION Great Lakes The tonnage volume carried by the Oglebay Norton fleet during the 1982 sail ing season was the lowest since 1949. As sales of automobiles, appliances and machinery plummeted, steel customers shuttered older facilities and operated at depression levels. The resulting decline in demand for taconite pellets, limestone, coal and other raw materials caused the Oglebay Norton fleet to operate at 52 percent of season capacity. This very low demand resulted in the operation of the most efficient equipment by the most experienced personnel, but precluded increases in rates to recover operating cost increases. The combination of optimum equip ment and seasoned crews coupled with the effort to operate efficiently and con trol costs resulted in significant gains in productivity. Safety performance was excellent, and the effort to maintain that momentum will continue in 1983. The S/S Armco and the S/S Middle town were converted to self-unloading vessels at Sturgeon Bay, Wisconsin dur ing the winter of 1981-82, rejoining the fleet during the past season.Vessel con versions require extensive alterations to the cargo deck, addition of a conveyor system and a 250-foot conveyor boom, but they add great flexibility and unload ing speeds of 6000 tons an hour or more. The S/S Reserve arrived at the Stur geon Bay shipyard in late summer for a similar conversion. This work will be com pleted during the second quarter of 1983. TRANSPORTATION Continued Coal Loading Ceredo Dock experienced severe reductions in rail-to-barge coal tonnage transport in 1982. The dock at Ceredo, West Virginia serves two railroads and Ohio River barge companies, trans loading metallurgical and steam coal for domestic use and the export market. The Dock recorded its first reduction in work ! force since 1963. Metallurgical coal ship! ments declined sharply with the general economy. Steam coal customers, although affected by the recession and mild weather, did not reduce barge loadings drastically and, in fact, hold the best promise for increased volumes through Ceredo Dock in 1983. Rail-to-barge coal loading at the Lick ing River Terminal near Cincinnati, Ohio achieved a record tonnage volume in 1982. The highly automated terminal serves both spot and contract cus tomers. Contract tonnage primarily was responsible for the record volume. Rotary car dump (above) at Licking River Terminal near Cincinnati unloads rail cars at the rate ot one every two minutes. Coal is sprayed with a wetting agent to control dust. Loaded barges are rafted awaiting their tow at Ceredo Dock. Ceredo. West Virginia. Harbor boat in foreground was designed for rapid, precise movement of river barges. 12 FE004535 MANUFACTURING : Ferro Engineering | Ferro Engineering Division sales I reduced in direct proportion to the con; tinuous decline ot steel production which : reached record low levels at year-end. Vir' tually all of Ferro's customers closed their : plants for at least part of the year due to I the lack of orders. Several of Ferro's manufacturing j facilities were shut down for varying i periods for the same reason. Unfortu- i nately, raw material and labor costs ! continued to increase during the year | while selling prices were under extreme i pressure, resulting in reduced margins, j Supervisory and staff forces were reduced j to the lowest practical level. I Progress was made in reducing or ! eliminating certain products with in- j adequate profit margins or which had not j reached satisfactory levels of production. ! I n some cases these products were j replaced by new manufactured products I with improved margin and better field i performance. The Division is in position to ! record much improved efficiency given | a return to moderate levels of industry j activity. Ferro Engineering Divi sion insulating products (above) are readied for steelmaking customers at the Cleveland, Ohio plant. T 8. B Foundry (right) operates a gray and ductile iron foundry in Cleveland. T & B Foundry ! The steel industry and machine tool ! manufacturers, traditionally strong j customers for iron castings, suffered i serious cutbacks in production and operated at a depressed level for most of | the year. These negative pressures on foundry production made it necessary to ! curtail production to about 50 percent of i normal operations. A sizable layoff | became imperative for both hourly and : salaried employees. Capital expenditures ) were trimmed to essentials, and raw materials were purchased selectively in order to obtain the lowest prices possible ' without any loss in quality. T & B Foundry continued its program to develop new customers during 1982 and capture a larger share of the casting market best suited to its operation. Some I success was achieved in this effort but i not enough to overcome the worsening ! conditions in the iron casting market. I Programs to lower costs and increase the j Company's competitiveness in the national market will go forward in 1983. FE004536 Financial Information Industry Data1 Oglebay Norton Company and Subsidiaries 1982 Identifiable assets........................................................................ Depreciation and amortization expense ................................... Capital expenditures.................................................................... 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 .... 1981 1980 Identifiable assets........................................................................ Depreciation and amortization expense .................................... Capital expenditures.................................................................... 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___ Identifiable assets...................................................... Depreciation and amortization expense.................. Capital expenditures.................................................. 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...................................... INDUSTRY Industrial Minerals Iron Ore $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 $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 $18,648,831 1,450,555 3,532,147 23,517,271 5,349,893 $ 5,349,893 $20,854,094 4,017,531 1,678,471 49,546,294 8,945,305 (4,108,135) $ 4,837,170 '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 FE004537 Ogfeba^Norton SEGMENTS Coal________ Transportation Manufacturing Total Segments $ 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 Corporate Consolidated $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 $10,475,675 576,667 260,588 23,423,762 3,584,696 $135,883,511 4,345,355 32,823,537 62,340,744 13,400,142 $ 3,584,696 $ 13,400,142 $13,269,394 683,916 1,000,895 21,384,371 898,931 $ 898,931 $199,131,505 11,074,024 39,295,638 180,212,442 32,178,967 (4,108,135) $ 28,070,832 $30,917,372 (6,503,614)* $(6,503,614) $230,048,877 11,074,024 39,295,638 180,212,442 25,675,353 (4,108,135) $ 21,567,218 FE004538 15 Financial Information Consolidated Summary of Operations and Other Financial Data Oglebay Norton Company and Subsidiaries OPERATIONS Net sales and operating revenues .. Sales commissions, royalties and management fees........................ Gross operating income.................. Cost of goods sold and operating expenses.................... Income before taxes........................ Income taxes Current........................................ Deferred ...................................... Net income...................................... Depreciation, amortization and depletion.............................. Expenditures for properties and equipment............................ 1982 Year Ended December 31 1981 1980 1979 1978 $164,124,530 $202,293,099 $172,526,381 $186,847,935 $157,890,032 7,465,450 8,686,570 7,686,061 6,841,599 6,523,137 171,589,980 210,979,669 180,212,442 193,689,534 164,413,169 144,846,087 164,403,118 146,801,891 157,089,497 131,422,403 8,173,329 29,530,370 21,567,218 25,279,826 20,010,059 1,150,000 (2,750,000) (1,600,000) 9,773,329 (1,250,000) 6,861,000 5,611,000 23,919,370 661,000 3,623,000 4,284,000 17,283,218 1,598,000 6,570,000 8,168,000 17,111,826 1,631,000 4,019,000 5,650,000 14,360,059 12,120,768 12,498,862 11,074,024 10,592,886 9,317,484 20,278,534 40,999,132 37,617,288 29,019,376 15,363,858 PER SHARE DATA Net income...................................... Dividends........................................ Equity.............................................. $ 2.78 2.16 40.85 $ 6.77 1.92 40.24 $ 4.92 1.63 35.41 $ 4.83 1.50 32.17 $ 4.08 1.30 28.82 OTHER STATISTICS Total assets...................................... Long-term debt................................ Common stockholders' equity___ Total dividends declared................ Average shares of Common Stock outstanding ................................ Shares of Common Stock outstanding at year-end.............. $280,670,636 45,600,000 143,347,474 7,577,874 $283,800,634 47,600,000 141,118,958 6,722,793 $230,048,877 29,600,000 123,554,484 5,682,660 $200,435,040 11,300,000 111,502,393 5,194,032 $168,426,398 --0-- 99,078,781 4,466,498 3,517,918 3,532,757 3,515,742 3,544,908 3,515,490 3,509,025 3,507,025 3,489,650 3,465,612 3,437,934 FE004539 16 Ogleba^Norton Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition The Company's current financial position remains strong, despite reduced business due to general economic con ditions, with net current assets amounting to $33,400,000 in 1982, as compared to $43,700,000 in 1981, and $21,300,000 in 1980. The Company has in place with several banks credit arrangements of $60,000,000 of which $18,100,000 is used at year end to support com mercial paper issued for the bridge financing of the Columbia Star. Current financial resources and funds from operations are expected to be adequate to meet the Company's needs during 1983. Capital expenditures amounted to $20,300,000, $41,000,000, and $37,600,000 for the years 1982, 1981, and 1980, respectively. By the end of 1982, the Company completed the conversion of three bulk vessels to self unloaders. The fourth conversion will be completed in 1983 and will complete the planned upgrading of the Company's vessel fleet. The conversions have been financed through the use of the Company's Capital Con struction Fund. The remaining payments on the fourth conversion, approximately $5,000,000 as of December 31, 1982, will be paid from the general funds of the Company. The Columbia Star, which entered service in 1981, is being financed through the use of Title XI Bonds guaran teed by the U.S. Government under the Federal Ship Financing Program. As of December 31,1982,$27,500,000 of Title XI Bonds were issued and outstanding. The Com pany will issue the remaining bonds, approximately $18,100,000, when it is deemed appropriate. Results of Operations The Company's financial results reflect the decline in de mand for its products and services in all areas of our business, principally in the steel-related areas such as iron ore, transportation, and manufacturing. Net income for 1982 was $9,773,000 or 41% of 1981 net income. Net income for 1981, a record year, amounted to $23,919,000, as compared to 1980 net in come of $17,283,000. Net sales and operating revenues, sales commissions, royalties, and management fees for 1982 were $171,590,000, which was $39,390,000 less than the 1981 comparable amounts. The reduction results from the decreased demand for our products and services in iron ore mining, transportation, and manufacturing due princi pally to the decline in North American steel production. Net sales and operating revenues for 1981 amounted to $210,980,000, or an increase of $30,768,000 over 1980, which principally occurred in transportation and coal. The demand for transportation of iron ore and other bulk com modities in 1981 recovered from an unusually low level in 1980. Coal revenues increased in 1981 due to greater shipments of coal from Saginaw Mining Company. Cost of goods sold and operating expenses for 1982 amounting to $144,846,000 decreased by $19,557,000 from 1981 levels due to the Company's curtailment of certain operations on a timely basis to match the demand for our products and services. The major reductions occurred in iron ore mining, which operated at near capacity levels until June, when mining and processing were reduced by one-third, reducing total production to about 75% of rated capacity for 1982, and Great Lakes shipping which operated at about 52 % of capacity for the year. Cost of goods sold for 1981 was $164,403,000 or approximately $17,600,000 greater than in 1980. The 1981 increase resulted from the greater number of sailing days and increased production and shipment of coal to an electric utility customer. Interest expense for 1982 was $6,282,000, an increase of $2,260,000 over 1981, due to the financing of the Columbia Star, which was placed in service in 1981. The interest prior thereto was capitalized and charged to the asset. Income taxes in 1982 resulted in a credit, which reflects the use of investment tax credits for financial reporting purposes. 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. FE004540 17 Financial Statements Consolidated Balance Sheet Oglebay Norton Company and Subsidiaries ASSETS December 31 1982 1981 CURRENT ASSETS Cash............................................................................................ Marketable securities................................................................ Accounts receivable .. ............................................................ Inventories Finished products and materials .......................................... Operating supplies and materials.......................................... Prepaid insurance and other expenses ................................... TOTAL CURRENT ASSETS............ $ 1,414,693 29,530,228 26,013,018 5,918,432 2,798,502 8,716,934 1^915,717 67,590,590 $ 1,688,892 36,582,116 27,415,252 7,101,500 2,929,993 10,031,493 2,209,412 77*927,165 INVESTMENTS .............................................................................. 23,215,879 23,862,144 CAPITAL CONSTRUCTION FUND................................................ --0-- 2,974,905 PROPERTIES AND EQUIPMENT Transportation equipment.......................................................... Mining properties and equipment.............................................. Manufacturing properties and equipment...... ...................... 205,439,181 42,964,953 15,726,840 264,130,974 189,841,330 39,087,484 15,381,383 244,310,197 Less allowances for depreciation, amortization and depletion.................................................... 78,087,718 186,043,256 69,308,784 175,001,413 DEFERRED CHARGES.................................................................. 3,820,911 4,035,007 $280,670,636 $283,800,634 FE004541 Oglebdyj/Norton LIABILITIES AND STOCKHOLDERS' EQUITY December 31 1982 1981 CURRENT LIABILITIES Accounts payable...................................................................... Payrolls and other accrued compensation................................ Accrued pension contribution .................................................. Accrued taxes and other expenses............................................ Accrued workers'compensation insurance.............................. Income taxes.............................................................................. TOTAL CURRENT LIABILITIES............ CAPITAL LEASE OBLIGATIONS, less current portion................ $ 6,880,873 $ 5,305,081 8,233,531 9,780,257 6,238,171 5,688,134 8,016,950 7,372,445 2,516,690 2,999,234 2,305,4703,076,823 34,191,685 34,221,974 --0-- 578,225 LONGTERM DEBT........................................................................ 45,600,000 47,600,000 DEFERRED INCOMETAXES.......................................................... 57,531,477 60,281,477 STOCKHOLDERS' EQUITY Preferred Stock, without par value -- authorized 400,000shares; 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 1982-- 117,641; 1981 -- 119,641 .............................. 3,626,666 7,103,099 134,024,290 144,754,055 1,406,581 143,347,474 3,626,666 7,093,951 131,828,835 142,549,452 1,430,494 141,118,958 $280,670,636 $283,800,634 See notes to consolidated financial statements. FE004542 Financial Statements Consolidated Statement of Income Oglebay Norton Company and Subsidiaries INCOME Net sales and operating revenues.................................. . Sales commissions, royalties and management fees .. Interest and other income................................................ Year Ended December 31 1982 1981 1980 $164,124,530 7,465,450 3,187,250 174,777,230 $202,293,099 8,686,570 2,605,979 213,585,648 $172,526,381 7,686,061 2,884,847 183,097,289 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.......... . 144,846,087 15,476,253 6,281,561 166,603,901 8,173,329 1,150,000 (2,750,000) (1,600,000) $ 9,773,329 164,403,118 15,629,943 4,022,217 184,055,278 29,530,370 (1,250,000) 6,861,000 5,611,000 $ 23,919,370 146,801,891 14,416,510 311,670 161,530,071 21,567,218 661,000 3,623,000 4,284,000 $ 17,283,218 NET INCOME PER SHARE.................................................. See notes to consolidated financial statements. $2.78 $6.77 $4.92 FE004543 Ogleba^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.................................................... Payments on bridge financing of Columbia Star.............. Other .................................................................................. INCREASE (DECREASE) IN WORKING CAPITAL........ CHANGES IN COMPONENTS OF WORKING CAPITAL Increases (decreases) in current assets Cash and marketable securities.................................... Accounts receivable...................................................... Inventories...................................................................... Prepaid insurance and other expenses........................ Increases (decreases) in current liabilities 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 1982 1981 1980 $ 9,773,329 12,120,768 (2,750,000) 19,144,097 --0-- --0-- 2,974,905 --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 20,278,534 7,577,874 2,367,110 2,000,000 201,770 32,425,288 $(10,306,286) 40,999,132 6,722,793 3,924,871 --0-- --0-- 51,646,796 $22,407,606 $17,283,218 11,074,024 3,623,000 31,980,242 27,500,000 --0-- 3,214,141 591,467 63,285,850 37,617,288 5,682,660 4,817,790 9,200,000 --0-- 57,317,738 $ 5,968,112 $ (7,326,087) (1,402,234) (1,314,559) (293,695) (10,336,575) 1,575,792 (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 (869,902) 827,551 672,632 1,690,422 322,359 2,215,736 4,858,798 $22,407,606 $ 6,824,150 (4,235,859) (296,475) (289,031) 2,002,785 (3,491,812) (394,987) 466,018 53,874 296,514 (894,934) (3,965,327) $ 5,968,112 See notes to consolidated financial statements. 21 Financial Statements Consolidated Statement of Stockholders' Equity Oglebay Norton Company and Subsidiaries Balance January 1,1980 .................. . Net income...................................... Cash dividends declared $1.63 per share.............................. Stock options and appreciation rights exercised.......................... Three-for-two stock split declared February 25,1981 .......... Balance December 31,1980 ............ . Net income...................................... Cash dividends declared $1.92 per share.............................. Stock options exercised ................ Balance December 31,1981............ . Net income...................................... Cash dividends declared $2.16 per share.............................. Stock options exercised.................. Balance December 31,1982 ............ . Common Stock $2,417,802 1,208,864 3,626,666 3,626,666 $3,626,666 Additional Capital $7,881,166 Retained Earnings $103,031,700 17,283,218 Common Total Stock Stockholders' In Treasury Equity $(1,828,275) $111,502,393 17,283,218 (5,682,660) (5,682,660) 178,724 272,809 451,533 (1,208,864) 6,851,026 114,632,258 23,919,370 (1,555,466) -0-- 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) 23,913 $134,024,290 $(1,406,581) (7,577,874) 33,061 $143,347,474 See notes to consolidated financial statements. FE004545 OglebayJNorton Notes to Consolidated Financial Statements Oglebay Norton Company and Subsidiaries December 31,1982,1981 and 1980 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. Marketable Securities: Marketable securities are stated at cost plus accrued interest which approximates market. 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 and 1980amounted to approximately $2,014,000 and $3,109,000, respectively. No interest was capitalized during 1982. Depreciation and Amortization: The Company provides depreciation on the straight-line method over the esti mated useful lives of the assets. The amortization 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 $16,170,123 and $18,644,798 at December 31,1982 and 1981, 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: 1. 962. 1981 Current assets Properties -- net Other assets $ 6,067755 53,607.113 1,513.705 $ 9,328.727 55,790,870 1,656.638 TOTAL ASSETS 61,188.573 66.776.235 Current liabilities Current portion of long-term debt Long-term debt Series A First Mortgage Bonds 9Vi% 10% 7,877.750 2,812.600 27,060.000 6,691.200 Other liabilities 33,751.200 576.900 TOTAL LIABILITIES 45,018.450 EQUITY IN NET ASSETS $16,170,123 8.276,067 2,812.600 29,315.000 7,248.800 36,563.800 478,970 48,131.437 $18,644,798 The Bonds mature serially to 1995 with payments of $1,406,300 required each February 1 and August 1. Purchases by the Company under a take-or-pay contract associated with the long-term obligations amounted to $28,211,000 and $35,333,000 for the years ended December 31,1982 and 1981, respectively. The Company and its partners in Eveleth Mines are required to reimburse ETC and EEC for ail costs incurred in production, including EEC's debt service, in proportion to their ownership, and production is taken by the participants in like proportion. 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. NOTEC -- 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 marketable securities. FE004546 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 1 Deposits Withdrawals 1982 1981 1980 $ 2.974,905 $ 4.692.163 $ 7,906.304 6,542.095 12.160.587 9.589,494 (9.517.000) (13,877,845) (12,803.635) Balance December 31 $ --0-- $ 2,974,905 $ 4,692,163 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 AND APPRECIATION RIGHTS Under an employees' stock option plan, which was termi nated November 28, 1982, options were granted at a price not less than the fair market value on the date of g rant. Options become exercisable in instal Iments of one fourth of the shares subject to option during the second through fifth years after date of grant. Shares of Common Stock in treasury or authorized but unissued shares may be used in the plan. Activity with respect to stock options follows: 1982 1981 1980 Outstanding January 1 Granted Exercised Expired . Canceled Surrendered under SAR plan 99,650 --0-- (2,000) --0-- (52.500) --0-- 121,162 8,200 (21.424) (8.288) --0-- --0-- 174,600 --0-- (24,038) --0-- --0-- (29,400) Outstanding December 31 45,150 99.650 121,162 Option prices range from $10.16 to $28.75 per share. At December 31,1982, options for 39,000 shares were exer cisable. Termination of the Plan did not affect options granted prior thereto. The Company's stock appreciation rights plan (the SAR Plan) authorizes the granting of stock appreciation rights in respect to any stock option granted or to be granted. Such rights permit an optionee, in lieu of exercising all or a portion of an option, to receive in cash or shares of the Company 's Common Stock or a combination of cash and shares an amount not to exceed the excess of the market price of the Company's Common Stock on the date the right is exercised over the option price of the related op tion. Stock appreciation rights may not be exercised until six months after grant and only at a time when the related stock option is exercisable. There were no stock appre ciation rights outstanding at December 31,1982 or 1981. NOTE F-INCOME TAXES Total income taxes are less than the tax computed using the U.S. Federal income tax statutory rate for the follow ing reasons: (Thousands) 1982 1981 1980 Income taxes at statutory rate-46% Tax differences due to Benefits of percentage depletion Investment tax credits Benefits of income taxed at capital gains rates Minimum tax Other Total income taxes $ 3.760 $13,584 $9,921 (1,367) (1.233) (2,390) (6,998) (1.699) 345 (249) $(1,600) (851) --0-- 1,109 $ 5.611 (1,144) (3.496) (936) --0-- (61) $4,284 At December 31,1982, the Company has investment tax credit carryforwards amounting to $10,440,000 which have been fully utilized for financial accounting pur poses. The investment tax credit carryforwards will be available to reduce tax liabilities in future years and are due to expire in varying amounts from 1991 through 1997. The U.S. Court of Claims entered judgments in 1980 and in 1982 allowing the Company's claims to investment tax credits with respect to 1972 and 1974 capital expendi tures on 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 approxi mately $3,000,000 of similar credits earned through 1982. The Company believes that the prior favorable decision will continue to control the allowance of these credits. FE004547 24 Ogleba^Norton Deferred income taxes consist of tne following: (Thousands) '982 1981 1980 Deposits to the Capital Construction Fund in excess ot related charges S ' 700 $4,132 $3,176 Deductions in excess ot related depreciation expense ' 816 1.167 1.534 Net investment tax credits - 814) 1,696 (1.911) Other ' 452) (134) 824 Total deterred income taxes 5:2.750) $6,861 $3,623 In November 1981, the Company sold for $14,994,000 certain tax benefits related to the vessel, Columbia Star, under the provisions of the Econom i c Recovery Tax Act of 1981. The benefits sold included 54,900,000 of invest ment tax credits which the Company had been recogniz ing as a reduction of income taxes for 1981. The remaining proceeds 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 commencing in 1982. 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 1982,1981 and 1980 was $3,849,000, $3,682,000 and $3,175,000, 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. A comparison of accumulated plan benefits and plan net assets for the Company-administered defined benefit plans as of January 1 is presented below: Actuarial present value of accumulated plan benefits Vested Nonvested (Thousands) 982 1981 1980 $36,862 $33,536 $30,079 5.731 5,424 4,323 $42,593 $38,960 $34,402 Assumed rate of return Net assets available tor plan benefits 6% 6% 6% $33,594 $30,356 $26,635 The Company's consulting actuaries have estimated the present value of accumulated plan benefits would be equal to the net assets available for plan benefits at January 1,1982 if the assumed rate of return were 8.9 percent. 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 $2,888,000, $2,797,000 and $2,472,000 for 1982, 1981 and 1980, 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 CAPITAL ASSET COMMITMENTS Future minimum payments, by year and in theaggregate, under the capital lease and noncancelable operating leases consisted of the following at December 31,1982: 1983 1984 1985 1986 1987 Thereafter Total minimum lease payments Capital Leases $706,828 --0-- --0-- --0-- --0-- --0-- Operating Leases Vessel Charters Total Including Vessel Charters $ 2.921.116 2.921.116 3.110.694 3.110.694 3.110.694 37.045.353 $ 3,956.192 3,875,850 3,976,013 3,936,213 3,884.534 40.500.266 706,828 $52,219,667 $60,129,068 Amounts representing interest Present value of net minimum lease payments 39,121 $667,707 Rental expense for all leases was $4,967,502, $5,099,563 and $4,848,066 in 1982, 1981 and 1980, respectively. In general, the leases are renewable or contain purchase options at the end of the lease term. FE004548 25 Notes (Continued) The purchase price or renewal lease payment is based on the fair market value of the asset at the date of pur chase 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 thoseof the vessel charters and assure payment of charter rentals. Commitments at December 31, 1982 for captial expenditures amounted to approximately $5,708,000. 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 converted to term notes due in twenty-four equal quarterly in stallments beginning August 31,1985, or sooner, at the option of the Company. Interest is chargeable at various rates approximating prime. There were no borrowings under these agreements during 1982. 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 - LONG-TERM DEBT Long-term debt relates to the financing of the Columbia Star and is as follows at December 31: Title XI Ship Financing Bonds at 13%. secured by a first preferred ship mortgage Bridge Financing: Commercial paper 1982 1981 $27,500,000 18,100,000 $45,600,000 $27,500,000 ,20 100,000 $47,600,000 The Company has authorization from the Secretary of Transportation to issue approximately $45,600,000 of Title XI Bonds guaranteed by the U.S. Government under the Federal Ship Financing Program. The proceeds from the obligations will be used to refinance all short-term obligations entered into by the Company for the purpose of bridge financing the Columbia Star, a 1000-foot self unloading vessel commissioned in 1981. The Bonds mature in 2001 and require semi-annual sinking fund redemptions of $1,250,000 commencing on December 15,1990. The Company may issue the remaining bonds up to May 29,1983. 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 Adminis trator, U.S. Department of Transportation for certain designated financial transactions. No approval was re quired through 1982 and the Company does not antici pate 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 Man ufacturing. 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 two major steel producers and a major public utility exceeded 10 % of consolidated sales and revenues and are summarized as follows: 1982 Customer A Customer B Customer C Iron Ore Coal Transportation Manufacturing $11,878,138 17.486,718 451.512 $19,396,760 2.761,043 1,218,427 $3- 629,692 Total $29,816,368 $23,376,230 S3' 629,692 Industrial Minerals Iron Ore Coal Transportation Manufacturing Total Customer A $ 3,784 11.378,497 32.428.575 1,094,440 $44,905,296 1981 Customer B $ 177,324 22.177,293 5,225,735 1.963,601 $29,543,953 Customer C $29 344,257 $29 344,257 Industrial Minerals Iron Ore Coal Transportation Manufacturing Total Customer A $ 968,236 10,847,501 17,384.236 1,001,562 $30,201,535 1980 Customer B $ 160,763 $23,163,946 6.149,639 1,467,391 $30,941,739 Customer C $2C 325.208 $20 325.208 FE004549 Oglebay/Norton 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, 1982 and 1981. Three Months Ended 1982 December 31 September 30 June 30 . March 31 Net Sales and Operating Revenues Gross Profit $42,433,365 57.713,757 41.323,207 22,654.201 $ 4,583.850 8.119,599 3,093,363 3,481,631 Net Income $ 1,688,992 6,565,698 541,150 977,489 1981 December 31 September 30 June 30 March 31 $51,010,441 75.557,081 52,363,811 23.361,766 $ 7,979,704 17,411,539 8,055.086 4,443,652 $ 5,566,864 11.439,598 4,423,031 2,489.877 Net Income Per Share $ .48 1.87 .15 .28 $1.57 3.24 1.25 .71 Report of Ernst & Whlnney Independent Auditors Responsibility for Financial Statements Management is responsible for the financial and 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, 1982 and 1981, and the related con operating information contained in the Annual Report, including the financial statements covered by the independent auditors' report. These statements were prepared in conformity with generally accepted account ing principles and include amounts based on estimates and judgments of management. solidated statements of income, stockholders' equity The Company seeks to assure the integrity and objectivity and changes in financial position for each of the three ! of the data in financial statements through a system of years in the period ended December 31, 1982. Our internal controls. These controls are designed to provide examinations were made in accordance with generally reasonable assurance that assets are safeguarded and accepted auditing standards and, accordingly, included transactions are executed in accordance with manage such tests of the accounting records and such other ment's authorization and recorded properly to permit the auditing procedures as we considered necessary in the preparation of financial statements. circumstances. The system of controls and compliance therewith is In our opinion, the financial statements referred to reviewed by a program of internal audits. Independent above present fairly the consolidated financial position auditors, Ernst & Whinney, are engaged to render an of Oglebay Norton Company and subsidiaries at independent opinion on our financial statements. This December 31, 1982 and 1981, and the consolidated opinion, which appears herein, is based on an exami results of their operations and changes in their financial nation of our financial statements in accordance with position for each of the three years in the period ended generally accepted auditing standards which includes December 31, 1982, in conformity with generally a review of internal controls to the extent they deem accepted accounting principles applied on a consistent ; necessary. basis. The Company's Board of Directors through its Audit Committee, which is composed of five directors, reviews the Company's financial reports and accounting and auditing practices. It meets periodically with the inde Cleveland, Ohio pendent auditors, management and internal auditors in February 16,1983 this connection. FE004550 Supplemental Data Supplemental Information on Changing Prices Oglebay Norton Company and Subsidiaries Background Information The relevance of reporting an enterprise's financial position and results of operations based upon historical costs during periods of high inflation has been a topic of discussion among users of financial statements. The Financial Accounting Standards Board (FASB) man dated that certain companies disclose information about inflation's effects on the business of the enter prise. The supplemental information presented herein is supplied in accordance with the requirements of FASB Statement No. 33, "Financial Reporting and Changing /Prices!' for the purpose of providing certain information about the effects of changing prices. The FASB has 'ruled that two aspects of inflation will be computed in accordance with certain prescribed techniques and reported on an experimental basis. The information should be viewed as an estimate of the effects of inflation, rather than as a precise measure. Management of the Company is fully aware of the effects of inflation on the business of the Company. Management believes it is important for financial state ment users to develop an understanding of the more significant impacts of inflation. However, the dominant focus should continue to be upon financial statements based upon transaction-oriented historical prices. The supplemental data must be viewed with caution as must any other analytical and experimental data. The infor mation cannot objectively portray all the financial and economic indicators. Therefore, the information is not intended to indicate the need for any management actions different than those already taken. Methods of Measuring Effects of Changing Prices The two methods prescribed by the FASB for measuring the effects of changing prices were used in calculating the information which follows. The first method provides data adjusted for "general in flation" using the Consumer Price Index for All Urban Consumers as the measure of the general inflation rate. This method is frequently referred to as the "constant dollar" method, since it restates historical cost financial data in terms of units of constant purchasing power. The second method adjusts for "changes in specific prices!' The objective of this method is to reflect the effects of changes in the specific prices of inventories and properties and equipment. This method is frequently referred to as the "current cost" method. Review of Information Presented Statement of Net Income In calculating net income adjusted for general inflation and changes in specific prices, the amounts reported in the primary financial statements have been adjusted for 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 aver age price levels for the year and, accordingly, have not been adjusted. The Statement of Net Income Adjusted for Effects of Changing Prices is presented for the year ended December 31, 1982. Although the adjustments described above affect pretax income for constant dollar and current cost reporting, the disclosure rules do not allow for adjustments to the historical cost provision for income taxes. Purchasing Power Gain From Holding Net Monetary Liabilities During The Year When prices are increasing, the holding of monetary assets (e.g., cash and receivables) results in a loss of general purchasing power. Similarly, liabilities are associated with a gain of general purchasing power because the amount required to settle the liabilities represents dollars of diminished purchasing power. The net gain in purchasing power is shown separately in the accompanying supplemental data. The amount has been calculated based on the Company's average net mone tary liabilities for the year multiplied by the change in the CPI for the year. Such an amount does not represent funds available for distribution to shareholders. FE004551 3 OglebavJNorton Increases in Current Cost of Inventories and Properties and Equipment 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 Consumer Price Index to the average current cost balances of inventories and properties. The difference between the two amounts is attributable to properties and equip ment, since the current cost of inventories is the same as that disclosed in the primary financial statements. Five-Year Comparison This five-year comparison of certain financial informa tion restates all cellar information in average 1982 dollar values. The adjusted net assets at year-end reflect a partial application of the inflation accounting methods. Nonmonetary items have not been adjusted for general inflation, nor for specific price cnanges. Current Cost Measurements Recent invoice prices and insurance appraisals 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. Current cost calculations involve a substantial number, of judgments as well as the use of various estimating techniques which have been employed to limit the cost of accumulating the data. The data reported should not be thought of as precise measurements of the assets and expenses involved but instead represent reasonable approximations of the price changes which have occurred in the business environment in which the Company operates. Current cost does not purport to represent the amount at which the assets could be sold. Mineral Reserve Information In October 1980, the FASB issued Statement No. 39 "Financial Reporting and Changing Prices: Specialized Assets -- Mining and Oil and Gas!' This statement was a supplement to FASB Statement No. 33 and required the disclosure of certain information pertaining to mineral reserves, in addition to measuring the current cost of mineral resource assets and related depreciation, depletion and amortization expense. Quantity and price information relating to mineral reserves is disclosed for the years ended December 31, 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 propor tionate interest in the reserves and not the total reserves in place. There were no mineral reserves sold in place during, the years ended December 31. 1982, 1981 and 1980. The current costs of mineral resource assets have been calculated in the same manner as was done for other items of properties and equipment. Since the majority of the reserves are leased, the Company records an insig nificant amount of book depletion. The effect of current cost depletion on net income is immaterial. FE004552 29 Supplemental Data Statement of Net Income Adjusted for Changing Prices For the Year Ended December 31,1982 (ooo's omitted) Oglebay Norton Company and Subsidiaries Net income as reported in the income statement........................................................... Adjustments to restate costs for the effect of general inflation (constant dollar) Cost of goods sold................................................................................................... Depreciation expense............................................................................................. $ (387) (5,682) Net income adjusted for general inflation....................................................................... Adjustments to reflect the difference between general inflation and changes in specific prices (current costs) Depreciation expensed..................................................................................................... Net incomeadjusted for changes in specific prices ..................................................... $ 9,773 (6,069) 3,704 (2,278) $ 1,426 OTHER INFORMATION Purchasing power gain from holding net monetary liabilities during the year............................................................................. Increase in specific prices (current costs) of inventories and properties and equipment held during the year* ................................................................................................... Less effect of increase in general price level ................................................................. Excess of increase in the general price level over increase in specific prices........................................................................................... $ 2,852 $15,480 17,031 $ (1,551) * At December 31, 1982, the historical cost of inventories was $8,716,934, which approximates current cost. Current cost of properties and equipment, net of accumulated depreciation, was $289,687,000 (Historical amount -- $186,043,000) at December 31,1982. FE004553 OglebayjNorton Five-Year Comparison of Jr Selected Supplemental Financial Data Adjusted for Effects of Changing Prices In Average 1982 Dollars (except as to reported amounts) (ooo's omitted, except per share data) Oglebay Norton Company and Subsidiaries Net sales: As reported.................................. Adjusted for general inflation ... Net Income: As reported.................................. Adjusted for general inflation ... Adjusted for specific price changes .................................. Net Income per share: As reported.................................. Adjusted for generalisation ... 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 .... 1982 $164,125 164,125 $ 9,773 3,705 1,426 2.78 1.05 .41 Year Ended December 31 1981 1980 1979 $202,293 214,695 $172,526 202,096 $186,848 248,472 $ 23,919 18,879 16,437 $ 17,283 14,184 10,509 $ 17,112 17,391 13,324 $ 6.77 5.34 4.65 $ 4.92 4.03 2.99 $ 4.83 4.91 3.76 1978 $157,890 233,603 $ 14,360 16,766 12,413 $ 4.08 4.77 3.53 $ (1,551) $ (2,299) $ (2,728) $ (821) $ 1,248 $ 2,852 $143,347 221,220 247,770 $ 5,813 $141,119 223,1.79 252,603 $ 6,525 $123,554 212,372 248,710 $ 5,264 $111,502 198,149 241,132 $ 3,393 $ 99,079 184,876 229,946 $ 2.16 2.16 $ 1.92 2.02 $ 1.63 1.89 $ 1.50 1.98 $ 1.30 1.91 $ 24.25 23.98 289.1 $ 29.25 30.03 272.4 $ 27.33 30.57 246.8 $ 31.67 39.89 217.4 $ 24.67 35.15 195.4 FE004554 Supplemental Data Supplemental Mineral Reserve Information For the Years Ended December 31,1982,1981 and 1980 Oglebay Norton Company and Subsidiaries Proven and probable crude reserves at the end of the year (thousands of tons) Iron Ore.............................................. Sand .................................................. Coal.................................................... Commercially recoverable reserves at the end of the year (percent) Iron Ore.............................................. Sand .................................................. Coal................................v................ Quantities produced during the^ear \(thousands of tons) Iron Ore......................... ................. Sand .................................................. Coal.................................................... Average Market Price (dollars per ton) Iron Ore.............................................. Sand .................................................. Coal.................................................... 1982 1981 1980 198,717 115,509 55,419 191,477 92,119 55,967 203,740 94,430 56,546 30% 35 83 1' 825 943 488 $47.75 17.62 40.69 30% 37 83 1,085 1,028 517 $44.73 18.73 37.12 30% 37 83 1,067 993 479 $41.27 16.48 35.72 FE004555 Ogleba^Norton Directors Melvin E. Bank Partner, Thompson, Hme and Flory. Cleveland. Ohio, attorneys William G. Bares President, The Lubnzol Corporation Cleveland, Ohio, supplier ol 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 Robert I. Gale, III President and Chief Executive Officer, Mid-West Forge Corporation. Cleveland. Ohio, manufacturer ol rough steel forgings Arthur F. Harrison Chairman of the Board Central Silica Company. Zanesville. Ohio Alfred M. Rankin Partner, Thompson. Hme 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 Inc., 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 D. Kelly Campbell Vice President -- Iron Ore Operations Frank A. Castle Vice President -- General Manager of Columbia Transportation Division Walter R. Herron Vice President, General Manager of Ferro Engineering Division Marcus A. Hyre Vice President -- Ore Sales Richard J. Kessler Vice PresideriDt-- Finance and Treasurer ., r John LimbocTv, Jr. Vice PresiCg.-/)-- Corporate AlfaiK' H. William Rvl Vice President -- Personnel and industrial Relations jj***' Alfred F. Savage Vice President -- Coal and Nonterrous Mining Operations John L Sells Vice President -- Administration and Corporate Planning August F. Bradfish Assistant Vice President -- Coal and Nonterrous Mining Operations Richard C. Harmon Assistant Vice President -- Iron Ore Operations ar M. Jacobsen ssistant Vice President -- Columbia Transportation Division Walter C. Mayo Assistant Vice President -- Traffic 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 Subsidiaries R. Thomas Green, Jr. President. Central Silica Company Emmett F. 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 Specialties Limited 345 Arvin Avenue Stoney Creek, Ontario Canada L8E 2M6 Telephone (416) 662-8381 Central Silica Company 806 Market Street Zanesville. Ohio 43701 elephone (614) 452-2775 t 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. Clarnsville, 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 Amen Trust Company Cleveland. Ohio Counsel Thompson. Mine and Flory Cleveland. Ohio Independent Auditors Ernst & Whmney Cleveland. Ohio FE004556 OglebayJNorton Oglebay Norton Company 1100 Superior Avenue, Cleveland, Ohio 44114 Telephone (216) 861-3300 o FE0045S7 'V<