Document 0ZG3a0RKyd5bjkrOORQ9LMGO

N13455 GL D019070 % The young man pictured at the right and in other sections of this annual report is one of the 21,000 people who own The Glidden Company. He is John Gngstrom, whose father, Andrew G. Engstrom, is a member of the company's research staff in Cleveland. John became a joint owner of the company in 1957 when, on his own initiative, he invested some of his newspaper-route savings in a share of Glidden stock. Since then, he has taken a deep interest in the workings of our free competitive economy. Two shares of United Air Lines have been added to his budding portfolio, and he is now saving money to buy additional Glidden stock. Besides being a capitalist, John is a normal, active boy of 14 with a liking for athletics and science. A sophomore at Chagrin Falls High School, near Cleveland, he is a member of the wrestling team (100-pound class), a better-thanaverage tennis player, an accomplished musician, and an excellent student. Last year, he con structed a "mechanical ear" for which he received state-wide honors in a high school science contest. John is intensely interested in "his" company, and spent a part of his summer vacation learning more about it. Those of us who had an opportunity to meet him found it a personally rewarding experience. His penetrating questions made us take another look at ourselves and our jobs. Of a research worker he asked, "Where do you get your ideas for new products?" And of a data processing man, "How much money does this equipment save each month?" After listening to a long explanation about the future of the paper in dustry, he inquired as to the number of pounds of titanium dioxide in a ton of paperboard. Dwight Joyce was asked, "Exactly what does the president do?" John, like other shareholders, seemed to be most interested in "What's new with Glidden?" We hope you, along with John, will enjoy learn ing what's new. o 0 Gl0019071 (S' I The Glidden Company 42nd AnnualjMeport fiscal year ended Auyust 31. o Financial Highlights....................................... 2 Hie President's Report ....................... 3 Paint............................................................................... 3 Durkee Famous Foods........................... 7 Chemicals--Pigments--Metals........................................... 8 Organic Chemical ............................................................... 10 Financial Review................................................................... II Consolidated Balance Sheets.................................................... 14 Consolidated Income Statements................................... 16 Source and Disposition of Funds................... 17 Accountants' Report........................................................... 17 A Ten-Year Comparison .................................................... 18 Management and Corporate Data............................................ 20 GLD019072 Financial Highlights 1959 1958 Net sales................................................... $195,764,389 $217,352,681 Income before taxes............................... $ 15,925,531 $ 12,350,062 Net income....................................... . Per share....................... .................... $ 7,633,531 $3.31 $ 6,063,062 $2.64 Dividends............................................... Per share............................................... Depreciation and amortization .... Per share............................................... $ 4,609,795 $2.00 $ 6,579,313 $2.85 $ 4,596,340 $2.00 $ 5,838,032 $2.54 Expenditures for plant and equipment . $ 7,607,001 $ 9,214,395 Working capital....................................... Current ratio ........................................ $ 58,248,341 4.45 to 1 $ 52,572,371 3.64 to 1 Shareholders' equity ................................ Per share............................... ... $ 90,678,607 $39.29 $ 87,303,838 $37.99 Number of shareholders........................ 20,993 22,405 Number of employees. . . o GL0019073 6,023 1 6,353 Change -10% +29% +26% -- +13% -17% +11% + 4% - 6% & - 6% Good business conditions and hard work on the part of all our people produced an excellent profit increase for the fiscal year which ended August 31. This performance reflects the progress made in our program to improve the company's profitmaking ability. The full extent of the improve ment, however, is somewhat obscured because totals for 1958 and prior years include sales and earnings of the former Chemurgy Division, which was disposed of at the beginning of the 1959 fiscal year. Divisional Operations Set Record If you will look at the figures shown across the bottom of pages 18 and 19, you will find that the total operations of our remaining divisions reached an all-time high. Comparing their results with those of 1958, sales were up 6% and net income, 50%. Record operating levels in the Paint and Chemicals-Pigments-Metals Divisions were responsible for the sales gain, and these same two divisions contributed the lion's share of the profit improve ment. Both sales and profits of the Durkee Famous Foods Division were lower, largely due to unstable pricing conditions within the edible oil industry. Organic Chemical showed modest sales and profit increases. A detailed review of divisional operations begins on page 5 of this report. In disposing of a profit-producing property such as the Chemurgy Division, we recognize the responsibility to recover this loss of earnings through profitable reinvestment of the money released. The management time previously spent on these operations is now being devoted to building up our present divisions and preparing the groundwork for further growth. Financial Resources Strong With the proceeds of our $30 million debenture financing last fall and the funds made available through the Chemurgy disposition, the company has attained a very strong financial position. For the first time in many years, we have the financial resources to take advantage Of major growth opportunities, GL0019074! 3 9 We expect these opportunities to come from internal development and also from the acquisi tion of other products or businesses. In either event, having just spent five years eliminating low-profit investments, we do not intend to move into major new commitments unless they measure up to our profit standards. a new Guatemalan paint company, which eventu ally plans to serve the entire Central American area. Since most of our experience in the over seas field has revolved around paint exports and licensing, Mr. A. D. Duncan has been given the additional responsibility of further developing our international activities. Capital Outlays Continue High During 1959, some $7.6 million was spent on new property and plant facilities. The principal expenditures were for projects designed to in crease capacity, improve operations and reduce production costs at our existing plants. On the basis of current plans, we estimate that capital outlays in 1960 will run between riine and ten million dollars. Research Activities Productive As you can see from the divisional reports, our product research efforts have been quite pro ductive. Research is keyed to building new mar kets and to meeting the needs of our customers through new products and product improvement. Research and development expenditures for the year were up about 8%. A 12% increase has been budgeted for the current year. In June, we acquired a 38-acre parcel of proper ty located south of Cleveland, on which we plan ultimately to build a central research laboratory. Outlook Promising The steel strike has had some effect on sales and also on certain raw material supplies. This will probably be reflected in lower earnings for our first quarter. Looking over the entire year, though, I believe the outlook is promising. Last year we began to receive the benefits from the many changes which have been made during recent years, and the company is in a strong, sound position. Barring any unforeseen change in the national economy, operations in 1960 should show furtiugk improvement in both sales and profits. TM November 10,1959 Operations Outside United States Broadened Sales and profits of The Glidden Company, Ltd., showed improvement for the year. In order to broaden our position in Canada, we are start ing a branch expansion program, similar to that which has been so successful here in the United States. As part of this, we have recently acquired several distributing organizations in the provinces of British Columbia and Ontario. We are con tinuing to explore other methods by which we can expand and diversify our activities in the growing Canadian economy. The development of Glidden International, our unconsolidated overseas subsidiary, is continuing. Paint branches have been opened in Panama and Puerto Rico, and we have a minority interest in GL0019075 4 Paint division Vic e Pr e s id e n t : Alexander D. Duncan Pl a n t s : Atlanta, Georgia; Chicago, Illinois (2); Cleveland, Ohio; law Angeles, California; Minneapolis, Minnesota; New Orleans, Louisiana; Portland, Oregon; Heading, Pennsyl vania; St. Louis, Missouri; San Francisco, California; Tulsa, Oklahoma; Montreal, Quebec, Canada; Toronto, Ontario, Canada Pr o d u c t s : Interior Paints and Enamels; House Paints; Floor Paints and Enamels; Stains; Varnishes; Lacquers; Tinting Bases; Product Finishes for Metal, Wood and Other Surfaces; Maintenance and Anti-Corrosive Finishes: Marine and Yachting Finishes; Polyester Resins and Coatings; Butoxy Resins For the fifth year in a row, sales of the Paint Division established a new record high. Increas ing 14%, they were $88,664,828 compared to sales of $77,453,500 in 1958. Divisional earnings also reached an all-time high. Sales gains were made in both the consumer and industrial categories. As the result of an expanded marketing program, sales of consumer products) were up 12%. Improved business con ditions within the durable goods industries set the stage for a 19% increase in sales of industrial finishes and related items. Earnings Hit New High Earnings increased 30% over the previous year to set a new record for the Paint Division. Most of this increase came from the industrial product group, reflecting the benefits of greater sales volume and operating efficiencies placed in effect during 1958. While the profit improvement in the consumer product group was relatively small, progress was made toward building a stronger organization for the future. Heavy expenses connected with opening new branches, more extensive advertis ing and new product development combined to temporarily slow down the earnings growth. Branch Expansion Accelerated In the lasti 12 months, 24 new branches were opened, representing an increase of about 20% in the branch distribution network. A similar GLD019076 5 I 4 \ increase is planned for 1960. Experience has j proved that new branches materially improve 1 the profit potential as soon as they have had an opportunity to develop their local markets. The domestic paint business of the former General Paint Corporation, acquired in June, 1958, has been successfully integrated into the division's West Coast operations. Some $3 H million of the year's sales increase was made possible through this acquisition, which has been converted to a profitable operation in the first year. Many New Products Marketed The fact that the company's paint sales have consistently increased at a greater rate than those of the total paint industry can be directly traced to a highly successful product development and marketing program. 1959 was no exception. Spred House Paint, a new latex-emulsion paint for exterior wood siding and other surfaces, was introduced with strong advertising support in about 50 test markets, and received an excellent consumer reception. Full-scale national market ing is planned for the coming year. Consumers familiar with the many advantages of Spred Satin, the interior latex-emulsion paint, have found that this new house paint has all of these same advantages. In addition, it can be applied over damp surfaces, and its blister resistance offers a solution to the peeling problem on many exterior wood surfaces. Both Spred House Paint and its companion emulsion primer are products of Glidden research. A new water-reducible coating is being used to prime hard-to get-at places on the Thunderbird and Lincoln bodies. Over 7,000 gallons of paint are cir culated through this huge dipping tank. The growing market for polyester resins is provid ing an important new source Of income for the Paint Division. Here, a new resin, reinforced with glass fibers, is being tested on laboratory produc tion equipment. An important breakthrough in anti-corrosive finishes for industrial maintenance was made with the development of Rustmaster primer, which will be marketed nationally in I960. Using a Glidden-developed Wetting oil, this new primer penetrates through rust, and provides the metal surface with longer-lasting protection. Excellent reception was given to the introduc tion of Ripolin Yachting Finishes last year, and other new items will be added to this line during the coming year. Glid-Tile, a liquid polyester coating which looks like ceramic tile when applied over concrete block construction, is gaining in acceptance after a broad product education and introduction, program. A' Work on water-reducible industrial coatin* continues, and a number of new uses have been GLD019Q77 ie th c- )sive with hich ig a imer letal ducand ring jster jlied g in and oeen developed--the most notable being their use as a primer on the unitized bodies of the Lincoln and Thunderbird automobiles. Other new in dustrial products brought out in 1959 included the Glidfoam series of polyester resins for manu facturing rigid and flexible foams, and a group of improved can coatings. Durhee Famous Foods division Vic e Pr e s id e n t : Harvey L. Slaughter Pl a n t s : Resin Capacity Added Additional resin capacity is now being installed at the Chicago, Cleveland, San Francisco and Torontoplants, and will be placed in operation dur ing early spring. Involving a capital investment of about $1,200,000, the new reactors will enable the division to meet the growing demand for polyester products and also to manufacture many Berkeley, California: Bethlehem, Pennsylvania; Chicago, Illinois (2); Louisville. Kentucky Pr o d u c t s : Bulk Shortenings; Baker's Margarine; Hard Butters; Specialty Edible Oil Products; Pood Emulsifiers; Marga rine Oils; Refined Vegetable Oils; Coconut; Spices. Sea sonings and Herbs; Dehydrated Onion Products: Flavor Extracts; Pood Colors; Cake Decorations; Meat Sauce: Margarine; Mayonnaise; Salad Dressings; Salad Oils; Package Shortening of the latices and other resins developed for use in its paint products. Sales were $78,305,989, declining from $85,500- Over the last ten years, sales of the Paint 700 in 1958. In part, this sales decline reflects Division have increased at an average annual lower costs for the crude oils used as raw materi Gte of 6.4%. The ever-expanding market for als, since the selling prices of shortening and oil me, commercial and industrial maintenance products fluctuate with changes in these costs. coatings combined with increasing demand for It also reflects a reduction in export business. product finishes and plastic materials offer many Otherwise, physical volume of products shipped opportunities for continuation or even betterment remained about the same as in the previous year. of this favorable rate of growth. Since last February, edible oil prices have been extremely competitive, resulting in a slight re Blister tests, made under extreme moisture condi tions, indicate the superiority of Spred House Paint over conventional paints for exterior wood siding. This new latex-emulsion paint will be marketed throughout the country next spring. duction of profit margins and lower divisional earnings for the year. These competitive condi tions have been created by an excess in the industry's capacity to produce commodity-type products, such as salad and margarine oils. The results of Durkee's long-standing research and technical service programs have held the effects of this competition to a minimum. The division will continue to emphasize the develop ment of specialized products and services as a means of commanding satisfactory profit margins. New Products Introduced Typical of these product development activi ties is Fluid Flex, a pourable cake shortening now being introduced to the baking industry. This new and completely different product offers the baker many cost-saving advantages in handling and1 batch preparation; it also permits longer shelf life and greatly improves cake texture--all of Whichl are important to the bakery trade. CL0PI9078 7 costs. This equipment will also provide an in crease in productive capacity for specialty items. Further modernization and cost reduction proj ects are planned for the current year. Developed in tile Durkee laboratories. Fluid Flex is being introduced to commercial bakers. Its liquid properties offer many cost-saving advantages over regular solid shortenings. The development of Flex was made possible, in part, by the division^ work on food emulsifiers, an entire series of which has been developed in the Durkee laboratories. Consisting of edible fatty materials, these emulsifiers were introduced last year and already have become an important part of the product line. They are being used in creasingly in prepared mixes, candy, bread and frozen desserts--having permitted many improve ments in the quality of these products. Durkee's Instant Minced Onion is now being placed in national distribution following success ful market introduction in key cities. Packaged in both consumer and institutional sizes, this dehydrated onion product offers convenient use at only a slight premium in cost. Marketing of the entire line of Durkee products to the institutional trade--restaurants, hotels, cafeterias, etc.--will be intensified thisyear. Addi tional personnel have been trained and assigned to cover this growing market, and a broad adver tising program is planned. Production Facilities Improved In its first full year of operation, the new coco nut and condiment plant at Bethlehem, Pennsyl vania, showed a good gain in profits over the previous year. While there is still room for im provement, the operating efficiencies for which this change was made have begun to produce results. Additional semi-continuous deodorizers have been installed at each of the three edible oil re fineries to improve quality and lower production Heart Disease and Diet Considerable publicity is currently being given to the possible connection between heart disease and human consumption of certain types of fat. A recent government survey of research studies on this subject indicates that there is still no con clusive evidence of any such relationship. What ever the outcome of this medical research, it should have little effect upon the Durkee edible oil business. For a number of years, the division has conducted research on both saturated and unsaturated fats, and is prepared to produce the type of fat products that will best satisfy the requirements of the human body. On the basis of current plans and industry conditions, the outlook for the Durkee division during the coming year is favorable, and there is every reason to look for improved profits from this division. C Chemicals Pigments Metals division Vic k Pr k s ip k .v t : G. M. Halsey Pl a n t s : Baltimore, Maryland; Hammond. Indiana; Collinsville, Illinois Pr o d u c t s : Titanium Dioxide Pigments; Ked and Yellow Pigments: Lithopone; Copjwr, l.ead, Tin and Alloy Powders; Cop per Oxides; Copper Pigment: Brazing Compound Improvement in the general economy, together with stepped-up marketing activities, produced a new all-time high in divisional sales. Recovering from a low point created by the recent recession, sales were $19,402,410 compared to $14,068,264 in the previous year. Both titanium dioxide pig ments and the metal powder group of products contributed to this 38% sales increase. d|` With higher sales volume and new producti. efficiencies plus the elimination of major start-up 0 GL0019079 will be set up to provide a major portion of the division's ore requirements. Present plans call for completion of the necessary plant by the end of 1961. In addition to obtaining this long-term source for ore, further domestic deposits are being explored. Current requirements are adequately covered by contracts with overseas sources. Projects completed during the year included a new divisional laboratory and titanium ore proc- essing facilities. located adjacent to the Adrian Construction of additional productive capacity at the Adrian Joyce Works is now under way to meet the increasing demand for titanium dioxide pigments; Joyce Works in Baltimore, the new laboratory will serve es a focal point for all divisional product development and technical service activities. The ore facilities were placed in operation in April and relocation expenses, divisional earnings were more than 2A times greater than a year ago. and give the plant more flexibility in the types of ore it can process. They approached the record level set in 1956, when the division profited from an acute shortage Other Products Show Improvement of titanium dioxide, a rising copper market, and With the comeback in automotive and appli considerably lower depreciation charges. ance production, sales of metal powders used by | Titanium Dioxide Growth Resumes these industries were substantially higher. The increased earnings from these operations made After a three-year interruption created by the an important contribution to the division's im recession and inventory adjustments, sales of proved performance. j. (Tvgnium dioxide appear to have resumed the Lithopone and color pigment sales increased ! ''growth trend established during the past 15 years. slightly. These products, however, are minor in ` It is expected that industry-wide production in 1959 will compare favorably with the peak levels of 1956. There is now a healthy amount of excess relation to titanium dioxide and metal powders. During 1957 and 1958, the Chemicals-Pig- ments-Metals Division incurred exceptionally capacity in the industry, which is providing an heavy expenses in overhauling virtually its entire incentive for product development and should stimulate further growth. The division's produc production facilities. In 1959, it began to obtain the benefits from these moves, and further im tion and sales of titanium dioxide increased at a provement is anticipated for the coming year. greater rate during the year than that of the industry--the result of more aggressive market ing efforts and improvement in quality made possible by the new plant. New uses for titanium dioxide in the paper industry are slated Jor greater attention at the recently completed laboratory of the Chemicals-PigmentsMetals Division in Baltimore. Expansion Continues In order to adequately meet the needs of tita nium dioxide users, further expansion of the Adrian Joyce Works was started last February. Costing several million dollars, this expansion program is designed to eliminate critical bottle necks between various stages of production and will provide progressive increases in plant capaci ty over the next few years. Options have recently been exercised to purchase several large tracts of property in utral New Jersey which contain substantial v.jposits of high-grade ilmenite--the ore used in producing titanium dioxide. Mining operations Gt 001908 0 Organic Chemical division Vu :: ,: V. i; Sutikitp i'l-ANT.-*: J.iik.'onvlik- :.mi )'<`r Ji% Florida: !r.r- I'rU.'.'UTTS: Tor; flu-mi:-:'.!.-: t.-.k.-r Tai! Oil diii-;.*: i'-n*.- iSi!*: -:-'l\vn:s: T;::-;--m -- : Sales were $9,391,162, having increased 12% from the $8,357,138 sales for the prior fiscal year. Virtually all of this sales gain occurred in tall oil products and synthetic resins. Divisional earnings were almost double the abnormally low point reached in the previous year. In spite of improvement, profit results were disappointing and fell short of the forecasted amount. This was due to continued difficulties in getting a satisfactory production level out of the new tall oil plant, and to development ex penses on the terpene chemical program. Terpene Growth Continues Further progress was made in the development of new synthetic terpene chemicals for the aro matic and perfumery trade. Pilot quantities of Many familiar consumer brands of proprietary drugs, tobacco products and toiletry items provide potential end uses for Glidden's synthetic laevomenthol, Which will be marketed next year. citronellol, alpha-citronellol, linalool and linalylacetate were introduced last year and are receiv ing increasing consumer acceptance. Production facilities for these items will be completed in 1960. The new plant for the production of synthetic laevo-menthol is under construction, with final completion now scheduled for early 1961. During" the construction period, the division will be able to produce small, but increasing quantities of' menthol, utilizing parts of the new plant as they! become available. This approach is designed to! permit gradual market introduction of this new Glidden product. Broad patent coverage has been obtained on the processes used in producing syn-'. thetic laevo-menthol. Further patents are pend-; ing to cover more recent developments in the" menthol and related terpene chemical fields. Tall Oil Improved As mentioned earlier, the new tall oil opera tions continued to be unprofitable; Start-up and mechanical difficulties encountered during first year of operation have only recently bJL-/* solved. In addition, since the products produced vary with the manufacturing; procedure used, it was not possible to begin market development work until satisfactory and regular production quantities became available. Two new tall oil products were brought out during the year: Sylvaros 100, a polymerized rosin, and Sylfat 496, an extremely pale fatty acid for plastics and protective coatings. Both of these products appear to be superior to others already on the market, and increasing sales are expected for the'coming year. With improvement in the production and,marketing aspects, tall oil operations should produce a small profit in fiscal Both the gum naval stores and the synthetic resins business were more profitable this past year. Although sales volume of gum turpentine and rosin declined, profits were higher as a result of the elimination ofilow-profit volume. However, gum naval stores remains a marginal business, and there is no reason to predict any significant change. Broader terpene chemical activities together with the anticipated improvement in tall / ** should result in more favorable divisional opeK.^ tions in fiscal 1960. Gt 001*081 Sales Sales for fiscal 1959 were $195,764,389. Sales of $217,352,681 for the previous year included $31,973,079 contributed by the Chemurgy Divi sion, which was sold on September 1,1958. Elimi nating Chemurgy sales from the 1958 total, sales of the remaining divisions show an increase of 5.6%. The source of 1959 sales by divisions was: Paint........................ Durkee Famous Foods Chemicals-Pigments- Metals ................ Organic Chemical . . Amount (000) $88,665 78,306 19,402 9,391 Per Cent of Total 45.3% 40.0 9.9 4.8 Gross Profit Gross profit in 1959 was $53,229,592. In 1958, gross profit totalled $48,373,341. Excluding the results of the Chemurgy Division, gross profit in 1958 was $44,442,605. As a per cent to sales, the gross profit margin in 1959 was 27.2%, compared to 22.3% (including Chemurgy) and 24.0% (ex cluding Chemurgy) for the previous year. Income from, Operations Incomefrom operationsin 1959 was$16,425,704, increasing 15.5% over the 1958 total including Chemurgy and 37,8% when Chemurgy results are excluded. Greater emphasis was placed on advertising consumer paint and food products, resulting in a $1,100,000 increase in advertising expenses. Sales and administrative salaries also increased $1,100,000, due largely to the opening of new branches in the Paint Division. GLD019082 ** Net Income Net income after all taxes and charges was $7,633,531 equal to $3.31 per share, compared to $6,063,062 or $2.64 in 1958. On a comparative quarterly basis, net income was: of net income was distributed to shareholders as dividends. During the 1959 calendar year, the following quarterly dividend payments were made: 1959 1958 Quarter Ended: Amount Per Amount Per (000) Share (000) Share November 30 February 28 May 31 August 31 $1,754 1,278 2,137 2,465 $ .76 .56 .92 1.07 $1,190 916 1,682 2,275 $ .52 .40 .73 .99 Record Date December 8 March 6 June 8 September 8 Date Paid January 2 April 1 July 1 October 1 Amount Per Share $ .50 .50 .50 .50 Net income in 1958 absorbed a non-recurring charge of 25. cents per share to cover the loss taken on abandonment of the St. Helena titanium dioxide plant. It also included net income of $987,461 equal to 43 cents a share contributed by the Chemurgy Division. Depreciation Depreciation and amortization charges against income totalled $6,579,313, increasing 12.7% over 1958 charges of $5,838,032. These charges included $4,479,257 taken against properties operated by the company and $2,100,056 taken against the former Chemurgy Division properties now leased to Central Soya Company. It is esti mated that total depreciation charges in fiscal 1960 will be about $6,800,000. Cash Flow Cash flow generated from operations increased 8.4%. Total cash flow in 1959 was $14,212,844 equal to $6.16 a share, compared to $13,116,333 or $5.71 in 1958. Dividends Dividends totalled $4,609,795, based upon the regular $2,00 annual rate. In fiscal 1959, 60.4% The indenture, under which the company., 4 *A% Sinking Fund Debentures are issued, stricts the payment of dividends after August 31, 1958, to consolidated net income earned subse quent to that date plus $10,000,000. At August 31,1959, $13,023,736 was free of such restriction. ,Property Plant and Equipment Capital expenditures for new property, plant and equipment totalled $7,607,001 in 1959, com pared with $9,214,395 for 1958. The percentage of the 1959 total invested in each division was: Paint................................................... 15.0% Durkee Famous Foods . . . . . 13.7 Chemicals-Pigments-Metals .... 57.1 Organic Chemical................................14.2 The production and grain storage facilities of the former Chemurgy Division are being leased to the Central Soya Company under an agree ment which provides that Central pay an annual rental of $2,175,000, plus property taxes and insurance, during the three-year term which be gan September 1,1958. Central also has an option to purchase these properties on August 31,1961, for $8,550,000, payable in cash. At that tin*" the properties will have an unamortized cost thecompany's books ofapproximately $7,437,000. 12 GLD019083 Inventories Inventories at August 31, totalled $39,588,415 compared to $36,771,649 at the end of the 1958 fiscal year. The principal increase occurred in the Paint Division as a result of higher sales levels and the addition of new branches. Inventories are valued at the lower of cost or market, using the average cost method on the major portion, and the last-in, first-out method on certain edible oils and other commodities. At August 31; 1959, inventories carried on a LIFO basis amounted to $1,943,535, which was approxi mately $689,000 less than replacement market. Working Capital Working capital of $58,248,341 at the year end represented a new high. The ratio of current assets to current liabilities was 4.45 to 1. 0 Long-Term Debt On November 1, 1958, the company issued $30,000,000 of 4H% Sinking Fund Debentures, payable $1,500,000 annually from 1964 to 1983. The proceeds were used to pay all other Out standing borrowings. Company funds were suffi cient to finance seasonal requirements, and it was not necessary to do any short-term borrow ing during the year. shares at the close of the year. Subsequent to August 31, 1959, the Board of Directors termi nated authority to grant options under the 1952 plan. At the annual meeting to be held December 10,1959; shareholders will be asked to approve a proposed stock option incentive plan for 100,000 shares of common stock. Wages and Salaries Wages, salaries and employee benefits totalled $36,436,403 in 1959 and were 18.6% of sales. Employee retirement funds deposited with bank trustees now total $12,934,346. The retirement plans are non-contributory, the company paying the entire cost. At August 31,1959, the unfunded liability for past service costs under the plans was estimated to be $4,700,000, and the annual current service cost (which does not include fund ing of the past service cost) was estimated to be $890,000. Taxes Taxes on income were $8,292,000, equal to $3.59 per share. Taxes other than on income amounted to $1,757,647. Common Stock Common stock outstanding at August 31,1959, consisted of 2,307,850 shares. At the beginning of the 1959 fiscal year, options were outstanding for 87,510 shares of stock pursuant to a restricted stock option plan for key management employees, approved by shareholders in 1952. During the year, optionsfor 7,050shares weregranted, options for 9,680 shares were exercised, and options for 2,240 shares were cancelled. At the close of the year, options were outstanding for 82,640 shares. Option prices in all cases were not less than 95% of the market value of the shares at the time *,, |-h options were granted. Unoptioned shares available fdr the granting of options totalled 5,650 shares' at the beginning of the year and 840 Medium-sized computers, installed at key regional points, are being used to speed up the flow of infor mation and to permit better management controls. GL0019084 Consolidated Balance Sheets THE GLIDDEN COMPANY AND CANADIAN SUBSIDIARY August 31,1959, and August 31,1958 assets CURRENT ASSETS Cash. . . ....................................................... Short-term securities--at cost.................... Trade accounts receivable, less allowances of $511,868 (1958--$519,108)....................... Inventories and trade receivables of Chemurgy Division . ................................ Inventories--generally at the lower of ac- cumulated-average cost or replacement market: Raw materials and work in process . . . Finished goods . .................................... Other current accounts and investments . . Prepaid insurance and other expenses . . . To t a l Cu r r e n t As s e t s 1030 i $ 8,868,172 7,957,140 16,904,805 -0- : $ 19,212,522 20,375,893 $ 39,588,415 1,094,742 708,912 $ 75,122,186 1030 $ 9,295,760 -0- 17,277,354 6,654,687 $ 18,152,557 18,619,092 $ 36,771,649 1,900,305 608,840 $ 72,508,595 PROPERTY, PLANT AND EQUIPMENT Land--at cost....................... ....................... Buildings--at cost....................................... Machinery and other equipment--at cost. . Less accumulated depreciation, depletion and amortization............................................... Chemurgy properties leased to Central Soya Company--net . ....................................... To t a l Pr o p e r t y , Pl a n t a n d Eq u ip me n t --Ne t $ 4,189,075 23,163,987 46,941,888 $ 74,294,950 25,018,408 $ 49,276,542 11,630,175 $ 60,906,717 $ 3,484,284 22,839,453 41,085,010 $ 67,408,747 21,154,185 $ 46,254,562 13,737,369 $ 59,991,931 OTHER ASSETS........................................... 1,523,549 $137,552/452 739,536 $133,240,062 14 CLD019085 #r. ft i? ' ft liabilities ami shareholders9 equity CURRENT LIABILITIES Notes payable to banks................................ Accounts payable........................................... Accrued taxes, insurance, royaltiesand interest Dividend payable ............ Taxes on income--estimated ....... To t a l Cu r r e n t Lia b il it ie s 1959 $ -07,676,924 1,549,489 1,153,925 6,493,507 $ 16,873,845 1950 $ 5,500,000 6,467,609 1,439,805 1,149,085 5,379,725 $ 19,936,224 LONG-TERM DEBT 4%% Sinking Fund Debentures (payable $1,500,000 annually 1964--1983) Notes payable to banks . ............................ To t a l Lo n g -Te r m De b t SHAREHOLDERS' EQUITY Common Stock, par value $10 per share: Authorized--3,000,000 shares Reserved for options--83,480 shares (1958-93,160) Outstanding--2,307,850 shares (1958-2,298,170)................................... Additional amount paid in............................ Earnings retained for use in the business, in- eluding retained earnings of Canadian sub sidiary $5,072,840 (1958-$4,673,967) . . To t a l Sh a r e h o l d e r s ' Eq u it y $ 30,000,000 -0- $ 30,000,000 $ 23,078,500 10,116,005 57,484,102 $ 90,678,607 $137,552,452 $ -026,000,000 $ 26,000,000 $ 22,981,700 9,861,772 54,460,366 $ 87,303,838 $133,240,062 - See earlier sections o[ this report for information regarding Chemurgy properties, dividend restrictions, stock options and retirement plans. GLD019086 IS Consolidated Income and earnings retained foruse in the business THE GLIDDEN COMPANY AND CANADIAN SUBSIDIARY Years ended August 31,1959, and August 31,1958 income Net sales ....................................... Operating costs: Cost of products sold................................ Selling and administrative expenses . . In c o me Fr o m Op e r a t io n s 1959 $195,764,389 $142,534,797 36^803,888 $179,338;685 $'16,425,704 1950 $217,352,681 $168,979,340 34,148,467 $203,127,807 $ 14,224;874 Other income and (deductions): Interest expense. ................ Rental income--Chemurgy properties . . Depreciation--Chemurgy properties . . . Royalties and other items--net Abandonment of St. Helena plant . . . . In c o me Be f o r e Ta x e s o n In c o me $ (1,339,918) 2,175,000 (2,100,056) 764,801 0- -_ $ (500,173) $ 15,'925,531 $ (1,562,025) 0- 0- 902,452 _ (1,215,239) $ (1.874,812) $ 12,350,062 Taxes on income--estimated: Federal ........ Dominion and state . . . Ne t In c o me $ 7,696,000 596,000 $ "87292,000 $" 7,633,531 $ 5,818,000 469,000 '$'6,'287,060 $ "6,063,062 Provision for depreciation and amortization, including Chemurgyproperties, was $6,579,313 (1958--$5,838,032) earnings retained for use in the business Balance at beginning of year ....... Net income................................................... Cash dividends declared--$2.00 per share. . Balance at end of year................................... ie $ 54,460,366 7,633,531 $ 62,093,897 4,609,795 $ 57,484,102 $ 52,993,644 6,063,062 $ 59,056,706 4,596,340 $ 54,460,366 GLD01908? M10 Summary of Source and Disposition of Funds THE GLIDDEN COMPANY AND CANADIAN SUBSIDIARY Years ended August 31,1959, and August 31,1958 source of funds loss 1950 Net income.............. ........................ ... . Charges to income which did not involve current expenditures: Depreciation and amortization .... Abandonment ofSt. Helena plant. To t al Fr o m Op e r at io n s Sale of debentures .................................... Less payments of bank loans.............. ... . Sale of 9,680 shares of Common Stock under option plan .............. ..................... $ 7,633,531 6,579,313 -0- $ 14,212,844 $ 30,000,000 26,000,000 $ 4,000,000 351,033 $ 18,563,877 $ 6,063,062 5,838,032 1,215,239 $ 13,116,333 -01,500,000 $ (1,500,000) -0$ 11,616,333 ($ disposition of funds Dividends declared.................................... Expenditures for property, plant and equipment ............................................... Other changes. ........................................... Increase (decrease) in working capital . . . $ 4,609,795 7,607,001 671,111 5,675,970 $ 18,563,877 $ 4,596,340 9,214,395 (1,666,641) (527,761) $ 11,616,333 Accountants9 Report Shareholders and Board-of Directors The Glidden Company Cleveland, Ohio We have examined the consolidated financial statements of The Glidden Company and its Canadian subsidiary for the year ended August 31,1959. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We made a similar examination of the financial statements of the preceding year. In our opinion, the accompanying balance sheet, statements of income and earnings retained for use in the business, arid summary of source and disposition of funds present fairly the consolidated financial position of The Glidden Company and Canadian subsidiary at August 31, 1959, and the consolidated results of their operations for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent With that of the preceding year. ^ Cleveland, Ohio October 14, 1959 Certified Public Accountants CLD019088 17 A Ten-Year Comparison (All dollar amounts are expressed in thousands, except figures given On a per share basis) INCOME Net sales.............................................................................................. Cost of products sold............................. ..................................... Selling, administrative and general expenses . . . , ................. Income from operations................................................. .................... Income before taxes .......................................................................... Taxes on income .................................................................................. Net income.......................................................................................... Dividends on common shares . . . .............................................. Dividends on preferred shares..................................... .................... Earnings reinvested............................................. ..................... Depreciation, depletion and amortization......................... 1959 $ 195,764 142,535 36,803 16,426 15,926 8,292 7,634 4,610 -- 3,024 6,579 12 Months--August 31 J950 ' 1957 $ 217,353 168,979 34,149 14,225 12,350 6,287 6,063 4,596 ---- 1,467 5,838 $ 225,537 176,874 32,995 15,668 15,387 8,123 7,264 4,594 -- 2,670 5,046 FINANCIAL POSITION Working capital.................................................................................. Property, plant and equipment--net............................................. Total assets ...................................................................... Long-term debt.................................................................................. Shareholders' equity............................................................................. $ 58,248 60,907 137,552 30,000 90,679 $ 52,572 59,992 133,240 26,000 87,304 $ 53,100 517 W370 27,500 85,837 PER COMMON SHARE Netsales.............................................................................................. $ 84.82 Net income .......................................................................................... 3.31 Depreciation, depletion and amortization..................................... 2.85 Dividends .............................................................................................. Shareholders' equity................................................. ............................ Price of Glidden common shares1--High......................................... --Low......................................... 2.00 39.29 50.25 42.00 8 94.58 2.64 2.54 2.00 37.99 47.00 28.00 8 98.14 3.16 2.20 2.00 37.35 37.50 29.50 OTHER STATISTICS Expenditures for property, plant and equipment......................... % net income to shareholders' equity............................................. % dividends to net income.............................................................. Ratio of current assets to current liabilities..................................... Common shares outstanding.............................................................. Preferred shares outstanding .......................................................... Number of shareholders...................................................................... Number of employees .......................................................................... $ 7.607 8.4% 60.4% 4.45 2,307,850 -- 20,993 6,023 $ 9,214 6.9% 75,8% 3.64 2,298,170 -- 22,405 6,353 PRO FORMA {excluding operation* of Chemurgy Division far the fiscal years 1950--1958) Net sales.............................................................................................. Income from operations......................................... ............................ Income before taxes.......................................................................... Net income.......................................................................................... $ 195,764 16,426 15,926 7,634 $ 185,380 11,923 10,294 5,076 'Calendar years, except 1959 which mi to October 15,1959 GLD019089 3 12,465 8.5% 63.2% 2.96 2,298,170 _ 21,686 6,455 8 190,424 13,590 13,590 ifjt'.402 IB 1J1 i ' lose ' 9 226,290 177,538 31,974 16,778 16,451 8,304 8,147 4,592 -- 3,555 2,870 10 Months August 31 JOSS $ 180,525 142,047 24,047 14,431 14,325 7,212 7,113 4,589 -- 2,524 2,235 10S1 $ 209,084 167,845 27,701 13.538 14,235 7,142 7;093 4,582 -- 2,511 2^333 12 Months--October 31 10S3 1032 1031 $ 211,758 170,492 26,739 14,627 14,834 7,725 7,109 4,578 -- 2,531 2,185 $ 205,113 164,890 26,238 13,985 14,204 7,255 6,949 6,134 -- 1,815 1,965 $ 228,523 186,333 26,282 15,908 16,001 7,687 8,314 4,512 402 3.400 1,731 1030 $ 188,608 151,878 22,597 14,133 14,438 5.876 8,562 3,910 449 4,203 1,754 $ 35,696 (^J738 7,500 83,091 $ 47,156 39,993 106,762 9,000 79,513 $ 51,226 34,493 102,670 10,500 76,923 $ 46,005 33,234 102,750 7,000 74,324 $ 46,475 31,394 101,958 8,500 71,644 $ 46,416 30,894 95,875 10,000 69,739 $ 38,420 26,922 84,311 -- 66,194 $ 98.56 3.55 1.25 2.00 36.19 41.12 34.50 $ 78.65 3.10 .97 2.00 34.64 44.50 36.12 $ 91.16 3.09 1.02 9 92.44 3.10 .95 2.00 33.64 42.50 28.75 2.00 32.44 38.12 27.88 $ 89.78 3.04 .86 2.25 31.36 42.62 32.88 $ 100.22 3.65 .76 2.25 30.58 48.50 27.75 $ 95.66 4.11 .89 2.10 28.51 31.50 22.50 $ 16,637 9.8% 56.4% 2.27 2,295,990 -- 20,758 6.387 $ 8,155 8.9% 64.5% 3.58 2,295,350 '-- 20,019 6,397 9 4,021 9.2% 64.6% 4.36 2,293,455 -- 19,174 6,198 9 4,150 9.6% 64.4% 3.15 2,290,794 -- 18,726 6,120 $ 3,043 9.7% 73.9% 3.13 2,284,739 -- 18,3.10 6,127 $ 5,918 11.9% 57.0% 3.88 2,280,238 -- 17,989 6,130 9 3,330 12.9% 48.2% 3.46 1,971,623 199,540 14,904 6,277 $ 190,483 13,956 ,<r14,252 9 151,752 12,706 13,102 6,526 $ 169,823 11,362 12,271 6,150 $ 170,717 12,414 12,907 6,184 $ 164,283 11,779 12,249 6,010 9 188,012 10,203 10,462 5,541 $ 155,497 11,692 11,948 7,077 CLD019090 19