Document 0LJbXQ9eZ02GbZ5QvGw7D6rbO

ANNUAL REPORT OF THE EAGLE RICHER LEAD COMPANY AND SUBSIDIARIES EAGLE PICKER December 31, 1940 N11799 ANNUAL REPORT The Eagle-Picher Lead Company and Subsidiaries ' To t iii: SmcKiiouMiits or v 1 ' 3 3i3 THE FAGLF.-PICHFR LEAD COMPANY. : .3 '% ' , 373'y3"' ' .33yy?yyyy :;y;''33<7.3y:; -;I lie annual report of your coin puny for the year ended December 31, 1940, accompanied by financial sraiemcnrs. Is submiired herewith. 3 .3-3.'. ; Earnings and Sales Consolidated net profit for the year,- after all charges, was $1,290,160.18, or $1.44 per share on the common stock after providing, for preferred dividends, as compared to $1,163,762.31 or $1.30 per share for 1939. In the ft>1Ji*\yifi^i.dyti3w.ljpnsed sxateiiicnr arc presented the -.operating results for. the two years: Net- Sales..: .3.: ,.- 3. . 3. . . .. . Production and Manufacturing Costs ., . . Gross Operating Profit .. Scllingf-Shipping, Administrative arid Genera) Expenses . ... 3. . . im ; y. $27,994,173.79 I 22,397,367.04 5,046,808.75 . 2,159,423.44 J<)VJ 1 $25,914,411 .30 21.104,655.86 4,809,755.44 1,972,483.18 Net Operating Income: |- Mining and Manufacturing Divisions . . . . ., Northeast Oklahoma.Railroad Companv. .. . , .. ... 2,937.383.3! 2,837,270 26 .11. 1.1 .3 281,873.16 . . 226,143.23 Miscellaneous Income. b 3,219,258.47 1. . b; : 3 136,254.46 3 3,063,413.49 153,495 00 Interest Paid....;. 3,3 ,r. .3:'.'-. V>:1 ... '. r'.Cvd'.3...'. 3,355,512.93 78,943.76 ' 3,216,90,8.49 192,673.99 Net Profit--Before Depiction and Depreciation... 3l 331,:, : . : 33 3,276,569.17 Pepleciorij3Deprcciation,3Ahapdonmcnt5,lc.tc.';v.A''';;..'3:;y': /7,. .3 . . . . 1,571,908.99 by'Ty y/y-Y bb ` byrS; /y i'; b;:.y'b\b.L.y.V y' ybyiyb.; Vyb by % Provision for Federal and State Taxes on Income : ......... 1,704,660.18 414,500.00 3,024,234.30 1,612,168.71 1,412,065.79 . 243,303.48 Net Income for Year $1,290,160.18 $1,168,762.31 Average Metal Prices: ; Lead--New York..................................................................... 33 Zinc---St. Louis.....................................3.. .1.. ,.. ,.. l.Vl lv..y'7' '6334 7' y i 1 $5.05 5.11 Vaff Thrtt Net sales showed an increase of approximately 8% over 1939. Sales tonnage of zinc metal was about 24% greater than in the previous year. The greater portion of the profits of the current year resulted from the production and sale of products normally classified as "raw materials" rather than from those which arc more completely processed. Sales realization on manufactured products was only slightly greater than in 1939 and did not offset increased material and fabricating costs. Such increase in dollar volume as was experienced resulted from higher realizations rather than from increased'tonnage* which in the aggregate was approxi mately the same as in 1939. However, tonnages of the various products fluctuated considerably from the pre ceding year. Sales to manufacturers-of storage batteries increased, while sales to paint manufacturers and dealers declined as a result of adverse weather conditions in the first half of the year. Sales of insulation, plumbers' supplies, solders, etc. showed a,satisfactory increase. V a The Northeast Oklahoma Railroad Company, a wholly owned subsidiary, had a net income, after -a!! charges, including interest of approximately $24,000.00 on obligations owned by other, companies in the consolidated group, in cxc.ess/qf $108,000,00 in comparison with $81,000.00 for the preceding year. , Interest Charges / During the year the company effected a rearrangement of its bank indebtedness whcrctindcr the aggregate; amount of $2,500,000-00 was extended and made payable in five annual installments of $500,000.00 each, and the interest rare wnsrcduccd froin 4% to 2j/4% per annum from March 30, 1940,-.As a result of this rearrange-, merit and decreased borrowings, consolidated interest charges showed a material reduction. , Taxes Total taxes paid and accrued in 1940 were in excess of $985,000.00 or approximately $1.10 per share, in comparison with,$775,000.00 or 85cper share in the preceding year. The increase is largely attributable to the required provision for Federal and State taxes on income which in 1940 amounted to $414,500.00, or approximutely $171,000.00 more than' in 1939. On the basis of consolidated invested capital, it appears that the com pany will not he liable for excess profits taxes on 1940 income. , Dividends / Dividends have been regularly paid during the veur on the compunv's 6% cumulative preferred sroek, and 40c per share was declared and paid on the common stock. Balance Sheet , / /Net "working capital at/ the/ year-end, as reflected by the excess of current,, assets over current /liabilities, amounted to $6,935,707.01, and the current ratio at December 31, 1940 was approximately V/'> to 1, Net income for the year, before provision for depletion and depreciation of $1,343,507.06 (which did not involve a cash outlay), amounted to $2,633,667.24, Cash realized from minor other sources aggregated $111,054.35, so that the total funds available from the year's operations amounted to $2,744,721.59. Of this amount, $860,612.33 was .paid to. the former" owners of Commerce Mining .and Royalty Company, thereby reducing thecontingent; purchase money obligation assumed in connection with the acquisition of those; properties; $695,151-29 was expended for plant extensions, improvements and replacements and $48,799.93, for mining exploration and development; and $386,564.40 was disbursed in dividends to shareholders. These disbursements aggregated $1,991,127.97, leaving a balance retained in the business of $753,593-62 which is reflected in working assets required in the conduct of the company's operations. Mining and Smelting Operations The demand for zinc metal has been steadily increasing throughout 1940 and is presently in excess of na tional productive capacity and available smelting facilities. Your company, as one cr the large zinc producers, has increased its mining and milling production and smelter capacity to assist i: meeting this demand. In 1940 ore received at your mills totalled 3,296,000 tons, or approximately 139c in excess of the amount of 2,910,000 tons received in chc previous year. Of the total tonnage received, 2,799,000 tons, or approximately 85%, were handled over the Central Mill, the remainder being divided amongst four smali mills. All mills arc operating to capacity at tile present time, and an additional mill has been placed in operation since the first of the year. On an average, lower grade ores were mined in 1940 than in the previous year and if production is to be increased further to any considerable extent, it muse come from still lower grades of ores. Production of lead and zinc concentrates totalled 207,150 tons in 1940, compared with 193,697 tons in 1939 and 104,305 tons m 1938. Conversion of zinc metal from zinc concentrates at the company's two smelters was approxi mately 40% greater than in 1939, and 1941 production should exceed 1940 by some 20%. General Notwithstanding that our greatest clfort is being concentrated on the production of zinc metal, for which the need is so acute at the present time, your Management is not neglecting the normal functions of the com pany. A new process for the manufacture of zinc oxide was developed to the point of justifying construction of a commercial plant. Operation: of this plant was commenced in 1941 and the Management is. confident .that it will serve nor only to increase the sale of fabricated products, but will also place vour Company in a 'sponger''competitive position. Other products were, improved in 1940 and certain new. products arc being tested before being placed on the market. Additional .-developments are under way and some of them look promising for successful conclusion in 1941. . ' Defense demands and increased domestic consumption seem to insure that production will he at capacity throughout the coming year. . However, these conditions arc abnormal and cannot be expected to continue indefinitely. Hence, your Management is keeping constantly in mind the highly competitive situation with which industry will doubtless be confronted during the period of readjustment; and is endeavoring to main tain your company in strong financial position and otherwise equip it to meet these anticipated problems. The Directors and Officers wish to take this opportunity to acknowledge the continued cooperation and loyalty of employees and their contribution to the results attained. With the approval of the Board of Directors. Cin c in n a t i, Oh io . February 28, 1941. JOSEPH HUMMEL, Jr . President WILLIAM R. DICE Executive Vice-President THE EAGLE'PIGHElt("LEAD) CONSOLIDATED BALANCE SHEET Cu r r e n t Assets: ASSETS y Ca'sh:'in Banks and 6ii 'Hand:y:;y... 7.y;v Accounts, and Notes- Receivable--'I radc.' Accounts and Notes Rcceivahie--CkthcT: "j'jjss: Reserves for1 Doubtful Accounts :v.. , . . . :; Aih mus on Pinch ist C onti lets ' I'ijveintirfcsrPivf ^Rja\vvc-MjiaTt.;ilsi.4;:W(jrk;;:. in Process arid Finished Products (including nierchandise tin con signment to customers): )V" y-yy 'Ores', Metals -and Meral-bcarint* products--;Valued at* cost Or ftiKirker price of metal content, whichever was lower at D ccmber 31, plus manufacturing Costs on M iterials in Process and Finished Ptjoducfs, .... . Other Merchandise for Res le--at cost. Manufacturing Supplies, and A Stores--at cost. DECEMBER 51, 1941) S 1,622,833 24 $2,884,394.41 0 146,540.88 3,030,935 29 3S0.476.58 2,650,458.71 20,530 98 4,569,905.56 422,950.47 4,992,856'03 336,208.93 5,329,064.96 "9,622,887.89 Ot h e r Assms: .2. Repair Parts, Maintenance Supplies, etc.. . . . . ... .... A . y Employees' Loans ;ind Expense Advances. .. ... .. . .: . ... Miscellaneous Accounts, Advances, etc..:.... ... .. . . . .... . 440,841.32 21,708.64 20,849.79 483,399.75 DECEMBER 51, 1939 $ 1,152,400 79 $2,498,631 02 1S9.6S4 87 2,688,316 49 310,939 51 2,377,376 98 5.331 71 4,252,758)74 _490,_108.83 4,742,867.57 502,168.02 5,245,035_. 59 8,780,145.07 ; 193,644.49 20,322.48 16,145.84 230,112.81 Irixtit) As s et s : )y Mining Lands. and 'Leases;/ Mills, Smelters and Fab ricating Plants and Equipment; Railroad. Properties; Pipe Lines; Automotive and Haulage Equipment; Warehouses;/Furniture and Fixtures, etc. (including $64,777,33 excess .cost of acquisition- over. book value of net. assets acquired): . ..... . ..... . .. . :..... . Las: Reserves for Depletion, Depreciation, etc...................... ... ; Construction Work in Progress.......................... . ........... 31,707,469.53 20,404,371.12. 11,303,098.41 444,762.70 11,747,861.11 32,431,046.67 20,139,376.53 12,291,670.14 104,546.74 12,396,216. S8 Se l f -In s u r a n c e Fu n d Se c u r it ie s : ; U. S. Government Obligations--at cost (Market value at December 31, 1940--$115,278.87)........ . ' Su n d r y .Se c u r it ie s --at cost of estimated recoverable values y . ' Tr e a s u r y St o c k --accost: - SHARES ' Dec. 31, *40 Preferred........................................................................................................ Common........................................................................................................ Common--purchased by Subsidiary for resale.. 65 5,924 S.750 2,330.75 21,797.56 120,554.17 105,668.44 16,697.48 144,682.48 2,330.75 21,797.56 154,994.17 129,256.S4 73,723.49 179,122.48 Pr e p a id a n d De f e r r e d Ch a r g e s : Prepaid Freight, Insurance, etc. A .V: y... . 7.; Rovaltv Advances................ .......................................... ........................... .. Other Deferred Charges.... .......... ............. .. ................................... ,, .... Pa t e n t s , Go o d w il l , e t c . .............. ........................ ............. 161,564.76 42,898.05 223,698.56 428,161.36 1.00 $22,549,359.51 : 120,173.80 49,174.70 132,475.51 301.S24.01 1.00 $22,090,402.58 D- COMPANY AND SUBSIDIARIES ITS AS AT DECEMBER 31, 1940 AND 1939 LIABILITIES Cu r r e n t Lia b il it ie s : DECEMBER. 31, 1040 DECEMBER 31, DC 'Current Bank Indebtedness.1 .AT-..-.'. a!a . . . , . : ; 'Accounts .Payable',.:. ..y. A...)..... .. r r A,/.' ' D.EL . . . : . . ;...r C;r A / A S 500,000,00 1,361,480 42 $, 1,132,850 22 I Preferred Dividend Payable . . . . , . A A.'A" i 8,233 30 8,233 50 Accrued I.iabilities: .;A;-;ArA!A:/ b'-V" Ay. a a ' v;.7V-A '. !- , '['axes Other than Taxes on Income.. .!A.A.,, .AA. . ., S 1S5.571.31 /A S 190,259.93 Wages and: Salaries A-Compensation Awards, ere . 63,206 31 aa;-:'---: ...-;--.'2&i40,j.84 ' 5S.707.49 30.56S 90 Provision for Federal ,: and State,A^TilicsA3Jn;l;: InC^)me f '': '.' ! estimated................................................................ ............. " Other Accrued Liabilities... i-A-i-. .A 478,040.84 28,262.20 A 783,486 50 305,429.02 26,826.96 611,792.30 Customers' Credit Balances............ ..... A. . . . . .: i A . . ; A. 33,980.46 40,080 48 Dm e r r e d Ba n k In d e b t e d n e s s : 2,687,180.88 1,792,956" 50 : Balance at' December 33 , 1940 .payable $500,000 annually 1942 to 1945, inclusivc........................................... ................ ., 2,000,000.00 1,500,000.00 Co n t in g e Nt Pu r c h a s e Mo n e y Ob l ig a t io n : . Payable, without interest, from: income (its delined in purchase contract and when, ntsaaodjjf realized), of certain-specified properties formerly owned by Commerce Mining and Royalty Company..................................... ........ 3,405,564.22 .4,266,176.57 Re s e r v es f o r Se l f -In s u r a n c e: . Workmen's Compensation Liability. . . .. Fire and.Tornado Coverage.r .. . . .... , . . A. .. ..... ....... 215,326.03 63,926.21 279,252.24 219,737.59 57,353.87 277,091.46 Re s e r v e s f o r Co n t i n o u n c i us: . Appropriated. from Capital Surplus as at Jan. 1, 1935 . Less Charges: To January 1......... ! ... A. . .$339,241.51 For vear ended Dec. 3.1 ..... J i 5,370.13 Ca p it a l St o c k : .. A Preferred 6ri Cumulative: A Par Value $100; redeemable at $105: A :a : Authorized, and Outstanding--5,554 Shares-.!. # Common--Par Value $10: Authorized .....;.. . . .. . . . 1,000,000 Shares!. . Issued and,Outstanding .:. . 900,000 Shares.. .600,000.00 344,611.64 555,400.00 9,000,000.00 255,388.36 9,555,400.00 Su r pl u s :'".." Capital Surplus.:..:... r ........................................................... -- . r . ... Earned Surplus since January 1, 1935: . Balance at January 1.... . ... . ... . ...... .. ... .,. . ...... ; Excess provision Federal Taxes on Income---Prior years Net Profit for year--per Profit and Loss Account...... Dividends paid and accrued: ' ' 1 ,- a r Preferred............................................................................ Common....,... ... .. . ............:. ... ..:......... . To t a l Su r p l u s . . . ... . . . ............... . .. . Co n t in g e n t Lia b il it ie s ---See Page Nine 1,898,760.96 1,539,258.60 24,958.471 1,290,160.18 2,854,377.25 32,934.00 353.630.40 386.564.40 2,467,812.85 4,366,573-SI $22,549,359-51 600,000.00 298,126.60 41,114.91 339,241.51 260,758.49 555,400.00 9,000,000.00 9,555,-100.00 1,898,760.96 579,745-49 1,168,762.31 1,748,507.80 32,934.00 176,315.20 209,249.20 1,539,25S.60 3.43S,019.56 $22,090,402.58 Sertn The Eagle^Piclier Lead Company andv^iifisidiaties CONSOLIDATED PROFIT AND LOSS ACCOUNTS For the Years Ended December 31, 1940 and 1939 Ne t Sa l e s , ;..... . ,. , .. . :. , v. .. ,... Pr o d u c t io n a n d Ma n u f a c t u r in g Co s t s . .. Gr o s s Op e r at in g Pr o f it before Depletion ami Depreciation___i l v .l j .. .: YEAR ENDED DECEMBER 31,1940 $27,994,175-79 22,897,367.04 5,096,808.75 YEAR ENDED DECEMBER 31, 1939 $25,914,411.30 21,104,655-86 4,809,755-44 Ex p e n s e s : Selling. ... .... . . 1. . . . ........... Traffic, Warehousing amt Shipping........... f. General and Administrative....... .. ............ Bad Debt Provision-..less Recoveries. ;$947,775.78 ; 244,862.25 883,496.05 83,289.36 . 2,159,423.44 / $838,481.77 233,697.41 821,973.30 78,332.70 1,972,485.18 Ne t Op e r at in g In c o me--before Depiction and Depreciation: Mining and Manufacturing. . ... .. . .. . ..... Northeast Oklahoma Railroad Company. . , . 2,937,385.31 281,873.16 Ot h Er In c o me : Royalties............. ......... ...................... .. .............. .Interest and Dividends............. if.. .... . . Miscellaneous.,.;.... . ... ... :.. ... 3,219,258.47 98,284.85 .11,384.64 26,584.97 136,254.46 In t e r es t on Ba n k In d e b t e d n e s s . ............... 3,355,512.93 78,943.76 De p l e t io n , De p r e c ia t io n , Et c . : Provision for Depletion and Depreciation-- per books.. . .... ..................................... ' Abandoned Projects, Prospecting Expenses and : Loss on Retirement or Sale of Capital Assets 1,343,507.06 - 228,401.93 3,276,569.17 1,571,908.99 Net Pr o f it -- before provision for Federal and , State. Taxes on Income.............. Pr o v is io n f o r Fe d e r a l a n d St a t e Ta x e s o n In c o me ..................................................................... 1,704,660.18 414,500.00 Ne t Pr o f it f o r Ye a r . ...... ... . . .. ....... $1,290,160.18 2,837,270.26 226,143.23 3,063,413 49 105,059.44 15,528.21 32.907.35 153,495.00 3,216,908.49 192,673.99 3,024,234.50 1,360,251.83 251,916.88 1,612,168 71 1,412,065.79 243,303.48 $1,168,762.31 Pag* Eight Contingent Liabilities 1, Notes receivable rediscounted, aggrcgarc liability whereundcr cannot exceed SI 1,384.00. 2. Federal and State income taxes-for years not yet examined by the respective taxing authorities. Federal tax liability of The Eagle-Picher Lead Company has been determined for all years to L939tiocJqsive;.,iThe Eagle-Picher Mining and Smelting Company has been examined by the Bureau of Internal Revenue to 1938, inclusive, but liability for the years 1936, 1937 and 1938 lias not yet been conclusively determined. Potential liability of-the lattcrxornpany' and df other minor subsidiaries in excess of tile provision therefor is not considered to be significant. 3- Pending personal injury suits arid ininor litigation, liability whereundcr is undeterminable' but is not considered significant, 4. Proceeding under the National Labor Relations Act-to review a Board order, now await ing decision on appeal, to the United States Circuit Court of Appeals, Eighth Circuit. Should the Board order be sustained, ah exhaustive investigation will be required to L3: ^determine the liability thereunder; .Le..u ;% . : . 5. Agreement to indemnify- former shareholders of Commerce Mining and Royalty Company for acts performed on hclralf of said company, liability whereunder is wholly contingent, 6. Suit pending in the United Stares District Court at Cincinnati whereundcr claimants seek to recover some sixteen million dollars on two principal causes of action. One cause, of action alleges failure to .ucount for sulphur content of.lead and zinc sulphide concen trates produced from Indian leases. The Company contends that it. has fully accounted -therefor,.-srric.tly in accordance with the terms of the leases and on a basis.that has been in general use in the District for seventy-five years. The other principal cause of action alleges trespass on certain Indian lands prior !to 1922. '-The Company contends that it was in possession of the lands under a valid lease and that it made full accounting there under and complied with all requirements thereof. The United States Department of Interior on behalf of the Indians, upon expiration in 1922 of the lease now attacked, granted to the Company a new lease on the same property for a period of twenty-five years, whereunder the Company has since operated and accounted. It is significant that the validity of the new lease was-upheld-by the United States District Court for the Northern District of Oklahoma, which decision was affirmed by the United States Circuit Court of Appeals, Tenth Circuit. Similar suits involving the same issues were instituted in 1933 in the United States District Court at Kansas City (Mo.) in the name of the United. States and at the request of the Department of Interior. The Attorney General, after investigation, dismissed these suits without, prejudice. The present action was brought., hot by the Government but by an individual, as "next friend", who seeks to recoveron behalf of the Indians. The original complaint was filed in August, 1937; an amended complaint .was filed in April, 1938; and a second amended complaint was filed in January, 1939, to which the Company has filed its answer. Company's counsel is of the opinion that the case can be successfully defended, although, because of the amount involved, vigorous prosecution by the plaintiffs is anticipated. BARROW. WADE. GUTHRIE & CO. : (EWT*!LISMED 1*3j) ACCOUNTANTS AND AUDITORS ONE NORTH LA SALLE STREET CHICAGO To Tin; Dir h c t o k s , THE EAGLE-PICHER LEAD COMPANY, C.incinnaii, Ohio. O'Y- ..V-- - Wc ha vc^examined the Consol id ated Ba la nee Sheet of The Eaglc-Pichcr Lead Company and Subsidiaries asar December 31, 1940 and the related Consolidated Profit and Loss Account lor the year then ended. In connection therewith, wc reviewed the systems of ihtcrnal con trol ami die accountmgr.procedures of the companies; and, without making a detailed audit of t he transactions, examined or tested their accounting records atid other supporting evidence, by methods and to the extent wc deemed appropriate. -' Inventories.on hand at December 31, 1940, were determined by the companies or their agctits and confirmed by them, as-to quantities ami condition. A substantial portion of the -mettt!; content uf tt^s, metals and metai-bearingY products-represents estimates based on established:, metallurgical formulae! 'Wc made quantitative tests, of other portions of the inventories insofar aswas Considered .practicable and satisfied ourselves generally as to 'the effectiveness'of the methods of inventory taking and credibility of the representations :re garding quantities and. condition..' . . lit our opinion, the accompanying Balance. Sheet and related Profit and Loss Account present fairly the consolidated financial position of The Eagle-Pieher Lead Company and Subsidiaries at December. 31, 1940, and the results of operations for the year then ended, in conformity with -generally accepted accounting, principles applied on a basis consistent with rhat of the preceding t ear. ' !.:y Chicago, Illinois, February 27, 1941. Ac c o u n t a n t s a n d Au d it o r s j : -I'/iSIfLlr [ITS PiptMils and (hides : Ziov Qxilics;. W' :i.' hire Lend Carbonarc Sublimed White Lend Stiper Sublimed Wiiire Lead Sublimed Blue Lend Lend Oxides Red Lend Orange Mineral Li! barge Sub!iincd Litharge '' Lithupone ' "T " Lead Silicate Metallic Products Alloys, Tin--Lead Atuimouial Lead Anodes, Tin Bearing Metals Caulking Lead Lead Pipe and Tubing Tin Pipe and Tubing Roof Flanges Plumbers Lead Fittings Solders Lead Wool I'ninima Materials While Lead in Oil Sublimed Blue Lead in Oil Red Lend in Oil l-laitingO.il Lead Reducing Oil U For Homes and Buildings M i ncra l Wpo 1 --Granulated Mineral WrooL--Loose . Mineral Wool--Barrs Mineral Wool--Blankets For Industrial Use Plastic Insulation Mineral Wool--Loose Mineral Wool--Blankets Mineral Wool--Blocks Mineral Wool--Felts Caulking Compounds -- Iwft i-i! A l.. i Hill >! u