Document 3JZpr4y7n0xwZyavqXKnQVqOx

NOTES FOR ANNUAL MEKTUO Deoember 8, 1966 <y*> # N 2291 TABU) OP CONTENTS NOTES FOR ANNUAL MEETING ~ " Deoemb'er 8, 1966 I. II. IH. IV. V. VI. VII. Balanoa Shaet Review A. Cash and Banking B. Short-Terai Seourities C. Aooounts and Notes Receivable - Trade D. Inventories E. Other Current Aooounts F. Prepaid Expenses G. Property H. Other Assets and Deferred Charges I. Short and Long Tern Pinanoing Jo Contingent Inability K. Stook and Stockholders Operating Statement A. Gross Profit Bo Selling and Administrative Expense Co Other Inoome - Published PAL D. Depreciation E. Fixed Charges F. Advertising Expense - By Group G. Researoh and Development Ho Average Assets and Profit Return I. Miscellaneous J. Outside Consultant Fees K. Taxes Lo Comparative Operating Profit Sohedules * Before Allocation of Corporate Items U. Summary of Extraneous Items Cash Dse and Projection A. Application of Funds B. Five-Year Forecast - Cash Basis Bnployee Benefits A. Pension Plan B. Bonus Plan C. Stook Options D. Hage and Salary Ratios E. Salaries F. Other Benefits Acquisitions, Dispositions and Capital Expenditures A. Acquisitions B. Dispositions and Shutdowns C. lUnlng Activity D. Major Expenditures Over $50,000 Other Major ffunotlons and Items A. Donations B. Audit C. Insurance D. Foreign Business E. Miscellaneous "Pooling of Interest11 Aoqulsitlons 1 1 2 4 6 7 7 7 8 11 IS IS 15 18 19 19 19 20 80 20 21 22 23 23 24 25 26 27 28 29 32 33 33 34 39 40 40 44 45 45 49 61 62 GL0004137 NOTES FOR ANNUAL MEETING DECEMBER 8, 1966 Balance Sheet Review A. Cash and Banking The Glidden Company maintains the following bank relationships: Glidden Ltd. Int'l Major Aooounts 4 Credit Line Banks Cther Bank Relationships Total Total Nunbsr of Bank Aooounts 22 197 21? 272 37 37 6 IaTm 11 26 Cash is collected looally throughout the United States and Canada and is deposited in local bonk accounts. We maintain 27 post office look boxes under arrangements with local banks for servicing and depositing of funds received. Funds are then moved by depository transfer check and bank wire to 17 regional collection oenters and are under the control of the Treasurer's offioe. Invoices are paid by Regional Aooounts Payable computer oenters and Divisional Aooounts Payable departments which maintain their own working fund aooounts. Funds are transferred periodically to working fund aooounts by Headquarters Cash Control Department, using bank wire and chock transfers. Aooounts Payable has been regionalized with computer oenters at Cleveland, Ohio; Chicago, Illinois; Uillbr&e, California; and Reading, Pennsylvania. Freight payment plans are presently used at four banks, and the fifth and sixth are presently under consideration. Night depository arrangements are in effeot where beneficial. B. Short-Term Securities At August 31, 1966 we reflected $1,062,856 of short-term securities at cost on the Balance Sheet. These securities represented investments of The Glidden Company, Ltd. The Glidden Company did not have any investments at fisoal year-end. All of these securities had maturities of less than one year. During the year the domestio Glidden Company's average short-term portfolio was $3,083,000 whioh was a decrease of $4,969,244 from fisoal 1965. The average after-tax interest yield was 2.54{ (4.88 equivalent before tax), as oompared to 2.85 and 4.33 for fisoal 1965. GLD004138 NOTES FOR ANNUAL MEETING - 2- I. Balance Sheet Review B. Short-Term Securities (Continued) Although not indicated as short-term securities on the B&lanoe Sheet, the following was interest-bearing and classified as oasht Cash in Foreign Banks $805,000 Our liquid position continued to enable us to be invested all of the 365 days of fiscal 1966. C. Acoounts and Notes Receivable - Trade (000 omitted) 8/31/66 8/31/65 8/31/64 8/31/63 Accounts Receivable Notes Reoeivable Total *39,731 799 *40,530 *33,945 575 *34,520 *27,893 507 *28,400 *24,835 406 *25,241 Reserve for Bad Debts and Allowanoes Net per Annual Report 730 *39,800 704 *33,816 614 *27,786 510 *24,731 * Bad Debt Reserve to Receivables 1.8* 2.0* 2.2* 2.1* Past Duo Receivables: Dollar Amounts * of Gross Reoeivables * 4,576 * 3,377 11.29* 9.8* * 3,059 10.8* * 2,465 9.8* Reoeivables Charged Off Recoveries Against Reoeivables Charged Off Net Bad Debt Loss * 725 138 * 587 * 499 179 * 320 * 377 127 * 250 * 527 161 * 366 Bad Debt Loss as * of Sales: 1966 1965 1964 1963 1962 1961 1960 1959 .17* .11* .10* .16* .10* ,15* .09* .06* GLD004139 NOTES FOR ANNUAL MEETING - 3- I. Balanoo Sheet Review C. Aooounts and Notes Receivable - Trade (Continued) Acoouats roo(livable outstanding for the Company was 41 days. This compares to 41 days in 1965 and 40 days in 1964* Domestio outstanding was 37 days compared to 39 days in fisoal year 1965. There were 8ignifioaat differences within the Groups. The CAR Group, primarily as a result of inoreased sales through Leased Departments, showed a two-day improvement over 1965, The Foods Group experienced a three-day deterioration and the proportion of total Oompany receivables invested increased from 23% to 27%. Expanding sales, particularly in the Pood Services segment, contributed to increased receivables. This segment also contributed to a slowing of turnover. Days outstanding in the Chemioals Group inoreased four days, primarily as the result of having consolidating International figures. Net.bad debt losses of $587,000, up $267,000 over 1965, represented .17% of sales. International units accounted for $240,000 of the increase with The American Roof and Paint loss at our Puerto Rico operation totaling $102,763, Domestic net losses increased just $17,000 and as a peroent of sales, compare favorably with prior years. Lossss involving painting oontraotors made up 60% of total CAR ohargeoffs; up from 46% in 1965 and 34% in 1964. This refleots our inoreasing sales aotivity in that market ooupled with the eoonomio problems faoed by the constmotion industry. The following is a percentage breakdown of total receivables by major division: 1966 1965 1964 1963 1962 Coating and Resins Durkee Foods Chemicals International Private Ledger 65% 27 18 - io5% 59% 23 18 Ioo% 57% 19 15 9 mm 100% 59% 60% 19 19 16 17 6 4Nominal Nominal 100% 100% "Reoeivables from International operations were 10% and adjusted to the appropriate operating groups as follows: CAR 6%, Durkee Foods 1%, and Chemioals 3%. International included in the totals for eaoh groups GLD004140 NOTES FOR ANNUAL MEETING - 4. I* Balance Sheet Review D. Inventories Published total inventory inoreasod $18,145,000 from fisoal-1965. Changss by Group were as follows (000 omitted): August 1966** 1965" Increase (Decrease) Coatings and Resins Durkee Foods Chemicals International LIFO Reserve Canadian Dollar Adjustment Foods Inventory Adjustment $26,189 31,594 15,231 - 73,014 - (210) 556 $73.360 $22,476 19,705 13,281 --* 55,462 (216) (188) 157 $55.215 $ 3,713 11,889 1,950 17,552 216 (22) 399 $18,145 "International units inventory of $2,592 at August 31, 1965, was reoast an follows: C&R $1,843, Durkee Foods $10, and Chemicals $739. "International units inventory as of 8/31/66 reflected in appropriate groups. Costings and Resins - The total increase of $3,713,000 oonsisted of increassa of $2,912,000 in finished stook and $801,000 in raw materials. The majority of the finished stook inorease was due to the opening of 30 new Leased Departments end 25 new Distribution Units throughout the fisoal year. The days turnover of finished stock in other than the nev Distribution Units and Leased Departments improved over last year. Uost of the nev units and Leased Departments on the average had not been open long enough for sales levels to be oomsensurate with initial inventory stocking. The remainder of the inorease in finished stook resulted from increased stocking for additional Industrial Sales and projeoted penetration into the Maintenance Sales area. The raw material increase in addition to accommodating increased levels, resulted from heavier buying in view of some projeoted price inoreases. GLD004141 NOTES FOR ANNUAL MEETING - 5- I. Balance Sheet Review D. Inventories (Continued) Durkee Poods - inventories in the Durkee Foods Group have inoreased $11,889,000 from last year. The total inorease consisted of $2,358,000 inorease In raw material and $2,532,000 Inorease in finished stook. Durkee Trading Inventory was up $1,690,000 in rav materials. The acquisitions of Allied Foods, Polarized Neat, B. U. Reeves, Chris ft Pitts, and Euro Products aooounted for $4,475,000 of the total inorease as follows: Allied Pickle Polarized Meat B. U. Reeves Chris ft Pitts Euro Products $1,532,000 315,000 2,077,000 201,000 350,000 The $834,000 remaining inorease is combination of new Grocery Products items, inoreased pickle inventories and miscellaneous items. Inventory oontrol in the Durkee Foods Group is established through tho Joint efforts of Headquarters and Division Uanagement. An important aspect is the daily oontrol exercised over rav materials based upon the market quotations of edible oils and condiment raw materials. The Durkee Trading Office projects market oonditions as they relate to raw material requirements and oommunioate with Headquarters and Division management. Market oonditions of sploes and other materials are reviewed on a daily basis and material requirements are projected into the future. Days supply of finished stoak-has improved over last year by 5 days. Raw material days supply has increased 12 days due to long inventory position on essential raw materials. In total, days supply of inventory has inoreased from 64 days supply in 1965 to 71 days supply in 1966. Chemicals - The Chemicals Group Inventory was $1,950,000 higher than a year ago. Finished stook inventory decreased $471,000 while rav material inventory inoreased $2,421,000. The finished stock inventory decrease resulted from inoreased sales and effective oontrol over the inventory investment by management. The inorease in raw material inventory resulted from increasing work-in-process and raw materials to carry our higher level of aotivity. Days supply of inventory has inoreased from 89 days in 1965 to 102 days in 1966. Control of inventories in the Chemicals Group is maintained jointly by Group and Division management. Inventory needs are determined on the basis of individual Market sources and operating requirements. GLDQ04142 NOTES FOR ANNUAL MEETING 6 I. Balanoo Shoot Review D. Inventories (Continued) LIFO Reaerve - Approval was obtained from Internal Revenue in fiscal year 1966 to go off of LIFO. There is no longer a LIFO Reserve. This ohange did not significantly affeot our inventories sinoe only a small portion was subject to the LIFO method. Turnover - Published Net Sales to year-end net inventory: 1966 4.80 to 1 1965 tai 5.51 to 1 1964 - 4.66 to 1 1963 - 4.59 to 1 1962 m 4.89 to 1 1961 - 4.97 to 1 International Unit3 - The individual managers of the various International operations overseas, subject to the review and coordination of the appropriate doaestio group management, determine necessary inventory levels through anticipation of planned sales levels with recognition of the problems oaused by their overseas supply situations. E. Other Current Acoounts Detail at August 31 was: 1966 1965 Margin Advances (Durkee Foods) Material Deposits (Chemicals) Claims Against Common Carriers (All) Employees' Acoounts (All) Salesmen's Advanoes (All) Installment Sales (Headquarters) Wood ft Seliok Coconut Co. (Bethlehem) Alcohol Refund on Eztraot Business (Beth.) Industrial Acceptance Corp. (Canada) Tank Car Rental (Berkeley) Southwest Forest Industries (Organic) Miscellaneous Notes and Acoounts 239,264 44,899 171,274 11,319 122,061 114,896 30,641 47,194 250,000 27,512 2,098 946.878 111,614 47,861 134,779 13,226 99,468 57,721 35,002 44,683 50,000 38,208 34,164 662.828 008.036 &.329.554 GLD004143 NOTES FOR ANNUAL MEETING -7- I. Balanoe Sheet Review F. Prepaid Expenses Detail at August 31 was: 1966 1965 Prepaid Insuranoe Prepaid Taxes Prepaid Postage Prepaid Rent Prepaid Advertising Other Prepaids $ 216)616 282,647 10,401 .38,088 92.579 f 640^331 $ 447,131 265,381 42,417 54,150 54.010 $ 863.089 Gi Property For schedule of major capital expenditures and 1966 foreoast, see page 40 . For Depreciation, see page 19 Insurable value of all buildings, machinery and equipment is $134,526,344, Lease obligations for buildings oooupied by company units are oovered on page 12 H. Other Assets and Deferred Charges Detail at August 31 was: 1966 1965 Prepaid Bond Dlsoount and Expense Investments - Chicago Board of Trade International Subsidiaries (Detail on page 65 for 1966 Grand Union (B. U.Reeves) Miscellaneous Deferred Development Employee Loans Patents and Patent Rights Uiso. Notes and Aoots. Receivable Reeves Intangibles Glidden Salobi Net Loss Euro Produots Intangibles $ 528,967 34,701 2,256,185 241,723 46,963 674,472 46,916 470,201 148,397 1,295,192 (350,926) 76.457 $ 559,783 34,701 2,804,253 12 720,665 58,703 511,646 127,258 - - - $5,469,248 $4.817.021 Gt-D004i44 NOTES FOR ANMl^Tr 1/TtKrpTKrt - 8- I. Balance Sheet Review I. Short and Long-Term Financing 1, Short-Term Borrowing and Bank Lines of Credit During fiscal 1965, Glidden did not have any short-term borrowings. During fisoal 1966, our maximum short-term was #15,000,000 from 5/31/66 to 6/28/66. Our minimum borrowing was -0- from 9/1/65 to 12/30/65. Interest on short-term borrowings was #427,000. At August 31, 1966, ve maintained lines of oredit of #14,000,000 for Glidden (Plus #1,000,000 for either Glidden or Glidden International). These were carried at major banks across the oountry as follows: Bank City and State Amount The Citizens ft Southern National Bank Union Trust Company of Maryland Continental Illinois National Bank ft Trust Company of Chioago The First National Bank of Chicago The Cleveland Trust Company The National City Bank of Cleveland Society National Bank of Cleveland Republlo National Bank of Dallas Bank of America, N.T. ft S.A. The Louisville Trust Company The Chase Manhattan Bank Chemical Bank New York Trust Company First National City Bank of New York The Boatmen's National Bank of St. Louis Mercantile Trust Company United California Bank Union Commerce Bank Atlanta, Georgia Baltimore, Maryland Chioago, Illinois Chioago, Illinois Cleveland, Ohio Cleveland, Ohio Cleveland, Ohio Dallas, Texas Los Angeles, Calif. Louisville, Kentuoky New York, New York New York, New York New York, New York St. Louis, Missouri St. Louis, Missouri San Franoisoo, Calif. Cleveland, Ohio # 500,000 500,000 1,000,000 2,000,000 500,000 1,000,000 500,000 500,000 500,000 500,000 2,500,000 1,000,000 1,500,000 500,000 500,000 500,000 1,000,000 * International. Beoause of our oredit agreement (see Section 1-2), we propose to renew oredit lines at only those banks not participating in the term oredit. On the basis of the preliminary Corporate long- range plan, it is not anticipated that we will exceed the term oredit plus the oredit lines, whioh are to be established as follows: GLD 00 4145 NOTES FOR ANNUAL MEETING 9 I. Balance Sheet Review I. Short and Lone-Term nnanoing (Continued) 1. Short-Term Borrowing and Bant Lines of Credit (Continued) City and State Amount The Cleveland Trust Company Society National Bank Republio National Bank Bank of Amerioa, N.T. ft S.A. The Louisville Trust Company Mercantile Trust Company United California Bank Cleveland, Ohio Cleveland, Ohio Dallas, Texas Los Angeles, Calif. Louisville, Kentuoky St. Louis, Missouri San Franoisoo, Calif $ 500,000 500,000 500,000 500,000 500,000 500.000 500.000 Total 2. Credit Agreement Financing (Long-Term Debt) On August 25, 1966, we entered into a revolving/term oredit with ten of our prime banks. The total amount of the agreement is $20,000,000, allocated as follows: Bank City and State Amount First National City Bank Chase Manhattan Bank Chemical Bank New York Trust Continental Bank First National Bank National City Bank Union Comneroe Bank Boatmen's National Bank Citizen*8 and Southern National Bank Union Trust Company New York, New York New York, New York New York, New York Chioago, Illinois Chioago, Illinois Cleveland, Ohio Cleveland, Ohio St. Louis, Missouri Atlanta, Georgia Baltimore, Uaryland Total $ 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1.000.000 $20,000.000 The First National City Bank of New York is noting as agent for the various banks. Terms of the agreement are as follows: a. Three-year revolving oredit agreement starting August 25, 1966. Take downs in multiples of $1,000,000. (8/31/66 outstanding amount - $12,000,000.) b. Interest on revolving portion of loan at prime rate (presently 6^). GLD0041A6 NOTES FOR ANNUAL UBPTIWO -10- I. Balanoe Sheet Review I. Short and Long-Term Financing (Continued) 2. Credit Agreement Finanolng (Long-Term Debt) (Continued) o. Commitment fee on unused portion at l/4l. d. Prepayment of notes can be made upon ten days written notioe to agent in multiples of #100,000. e. Reduotion of the total commitment oan be made upon thirty days written notioe to the agent in multiples of #5,000,000. f. The term portion of the loan will ooamenoe on August 25,1969, and will be for a period of five years. g. Interest on term loan portion will be at prime plus 1/41. h. Repayment of term loan will be in ten equal semi-annual payments commencing February 25, 1970, and terminating August 25, 1974. 3. Long-Term Financing - Debenture Issue Long-term indebtedness of The Olidden Company is represented by the #30,000,000 of 4-3/41 sinking fund debentures dated November 1, 1958, and due on November 1, 1983, and loans to subsidiaries from banks of #4,550,000. Guarantees for subsidiaries loans have been Issued by The Glidden Company in the amount of #5,335,000. At August 31, 1966, the total outstanding amount of 4-3/41 debentures was #25,500,000. No current portion was shown on the balanoe sheet as we purchased on the open market during fisoal 1966 our November 1, 1966, Binking fund requirement of #1,500,000. The following is a summary of our current position: Original Outstanding Amount Sinking Fund - November 1, 1964 November 1, 1965 November 1, 1966 #1,500,000 1,500,000 1.500.000 #30,000,000 4.500.000 #25,500,000 GLD 004147 NOTES FOR ANNUAL MEETING 11 - I. Bala.noe Sheet Review I. Short and Long-Term Financing (Continued) 3. Long-Term financing - Debenture Issue (Continued) The debentures were offered publicly on October 28, 1958, at 99 and the effective Interest cost is 4.981 based on the net proceeds after all expenses. Interest on Debentures - 1966 Amortisation of Disoount and 'Expense $ 1,235,306 30.816 t 1.266.122 Since January 1, 1966, market prioe of debentures has Varied from a high of 99-5/8 to a low of 87 (October 19, 1966). The-last debenture trading prior to August 31, 1966, was on August 22, 1966, at 90-1/2 and the last traded prior to Deoember 8, 1966, was on 4. Long-Term Financing - Polarized The long-term portion of the note at our Polarized Heat Division at 8/31/66 was $770,000. This is held by the Northeastern Pennsylvania National Bank - maturing July 15, 1979. Mortgage is at 5-l/2J( and is conventional. J. Contingent Liability The use of the new "Guideline" lives of fixed assets in computing our tax depreciation resulted in an exoeas of $1,153,966 over book depredation. Provision for the tax op this difference amounting to $553,904 was made in 1966. All matters pertaining to our Federal inoome tax liability for years through 1963 are dosed, with the exception of the tax applicable to the Chemurgy transaction with Central Soya Company. In October 1966, we reoeived a favorable Distriot Court deoision on our Claim for Refund for fiscal years 1960-1962 based on the Chemurgy transaction, but the appeal period for the Government is still open. The Company's Federal inoome tax returns for fisoal years 1964 and 1965 are presently under audit. It is fully expeoted that the amounts provided in the years involved will be suffioient to meet any tax defioienoy assessment. No problem in Government oontraots through renegotiation or otherwise. GLD 004148 floras FOR ANNUAL MEETING IS - j, Balance Sheet Review J. Contingent Liability (Continued) The detail of major real estate lease commitments at August 1965 is (CONFIDENTIAL - DO NOT RELEASE): Total Contraot Fl8oal 1967 Faint Branches Bethlehem Plant Cleveland Executive Offices Uisoellaneous Facilities Puerto Rico $ 7,250,126 736,875 3,819,693 1,214,262 802.080 tl3.823.036 $ 2,145,983 67,500 272,379 387,445 88.975 t 2.962.282 At 8/31/66 a reserve of t231,000 was available for oontingent liability for olaim8 and fees. K. Stock and Stockholders 1. At August 31, 1966, stock outstanding as as follows: Coercion Preferred 6,559,456 195,593 Preferred stock is convertible into 550,105 shares of ooexson. The Company's oonmon stook is listed on the New York Stook Exchange and has unlisted trading privileges on the llidwest, Paoifio, Philadelphia-Baltimore, and Boston Stook Exchanges, The preferred stook is not listed. From January 1, 1966, through October 1, 1966, the price of the Company's common stook ranged between a high of $28.25 and a low of $18.88 (See Annual Report, pages 22-23, for prior years). During the same period the average number of shares traded on the New York Stook Exohange was 3,526. The oloslng price of Glldden stook on Dooeober 7, 1966, was 2. Other comments on stook, > a. During flsoal 1966, we discontinued the program of purchasing stook for Treasury. GLD004149 NOTES FOR ANNUAL MECTINQ - 13 I. Balance Sheet Review K. Stock and Stockholders (Continued) b. The $2,125 cumulative preferred stock was issued inoident to the agreement of merger of Petsoo Corporation into The Olidden Company and subsequent merger of the Uaooo Chemical Company and Subsidiaries into The Olidden Company. (1) Holders of the shares are entitled to dividends of $2,125 per annum payable quarterly on the first days of February, May, August, and November. (2) Holders have no voting rights exoept under certain conditions. (See paragraph 8, page 7, Special Meeting Proxy Statement dated January 20, 1964.) (3) The stook is not redeemable prior to August 31, 1966, and is thereafter redeemable at the following prices: $55.00 per share prior to 9/1/71 $53.00 per share prior to 9/1/76 $52.00 per share prior to 9/1/81 $51.00 per share after 9/1/81 (4) Holders of the shares are entitled to $50.00 per share plus unpaid cumulative dividend in oase of an involuntary liquidation and to redemption price current at the time of the distribution or payment date in oase of voluntary . liquidation. (5) The Company is obligated to set aside on or before November 15 of eaoh year out of the earnings of the previous fiscal year a sum equal to the larger of $1.00 for eaoh share outstanding or $200,000, to be used to purchase the $2,125 preferred stook of and to the extent obtainable at a prioe not exceeding $50.00 per share. Any monies remaining at December 31 are released and repaid to the general fund of the Company. During the period of November 15 to Deoember 31, 1965, no preferred shares were tendered. (6) Prior to the split of the oommon stook, eaoh share of preferred stook was convertible into 1.125 shares of common. Since the stoek split the ratio is 2.8125 shares of oommon for eaoh preferred share. (7) Holders of cumulative preferred stook have no preemptive rights in any stock or securities convertible into stock. GLD004150 NOTES FOR ANNUAL MEETING - 14 - I. Balance Sheet Review K. Stools and Stookholdor3 (Continued) o. Stook dividends are always under consideration, but we have no plans for auota. It is felt that stook dividends only spread earnings and value over a larger number of shares with price adjusting accordingly. 3, Holdings of shares as follows: August 31. 1966 August 31. 1965 No. of Share- * Shares holders Held Avg. Shr. Held No. of Share- * Shares holders Hold Avg. Shr, Held Individuals Institutions Brokers Nominees 21,041 397 177 457 62.55i 5.31 5.03 27.11 195 877 1,865 3,896 19,721 371 187 419 61.17* 5.04 9.77 24.02 190 833 3,202 3.514 Total 22,072 loo.ooj 20,698 100.00* 296 GLDOO'ilSl NOTES TOR ANNUAL MBETINS - 15 - II. Operating Statement A. Gros3 Profit Published_______ 1966 _______________1965 Percent to Net Sales Dollars 28*461 $100,162,374 28.20% $85,722,462 Inorease 1966 over 1965 Due to Net Sales Inorease Due to Gross U&rgin Inorease Net 1966 Inorease $13,525,002 914.910 $14,439,912 B* Selling and Administrative Expense The 1966 Annual Report shows a Selling and Administrative Expense increase of $9,571,000, a 14.81 inorease over last year. Net sales increased 15.81 over the same period. The major inoreases (decrease) by caption in 1966 are as follows: Sales Compensation Salesman's Expense ft Other Terr. Charges Samples and Allowances Sales Administrative Salaries Travel Storage Advertising (local and national) Bad Debt Provision Produot Development, Technical Servioe Researoh Office Salaries Coumunications Occupancy Moving Retirement, Bonus Development Costs Data Processing Taxes (State and Local) Conferences Sales Market Researoh PFE Expense Office Supplies All Other $2,454,000 284.000 146.000 476.000 298.000 150.000 1.580.000 221.000 429.000 389.000 1.483.000 110.000 579.000 66,000 (536,000) 662.000 177.000 206.000 19.000 49.000 61.000 59,000 209.000 Total $9,571,000 GL0004152 NOTES FOR ANNUAL MEBTINQ 16 - II. Operating Statement B. Selling and Administrative Expense (Continued) The Group breakdown of Selling and Administrative Expehse increases over the prior year is: Inoreaso Over Prior Year 1966 Coatings and Resins Durkee Foods Chemicals Headquarters Development >5,639,000 3.807.000 1.340.000 (1,029,000) (186.000) Total >9.571.000 Increases in Selling and Administrative Expenses by Groups were as follows: CAR - Significant inoreases in CAR Group Selling and Administrative were: Salesmen's Expense Sales Compensation Sales Administrative Salaries Product Development Development Costs Offioe Salaries Conmunioations Data Processing Oooupanoy Division Group Administration Travel Corporate Administration > 77,000 1,371,000 206,000 326.000 207.000 704.000 51,000 54,000 531.000 242.000 133.000 303.000 CAR bad an inoreaso in Net Sales of 13.0 over fiscal 1965 and 15.0 inorease in Selling and Administrative Expenses. Durkee Foods - The acquisition of Allied Foods, Chris A Pitts, B. U. Reeves, Turo Produots, and the Polarized Ueat Company aooounted for >2,145,000 of Selling and Administrative Expenses consisting mainly of: OLD 00 NOTES FOR ANNUAL MEETING - 17 - II, Operating Statement B. Selling and Administrative Expense (Continued) Durkee Food3 - (Continued) Sales Compensation Sales Administrative Salaries Advertising Office Salaries State and Local Taxes Storage Administrative Division Group and Corporate Administration | 652,000 144,000 485,000 278,000 91,000 65,000 61,000 Other significant increases excluding Allied Foods, Chris A Pitts, B. U. Reeves, Polarized, and Euro Products were: Sales Compensation Sale3 Administrative Salaries Advertising Office Salaries Research Salesmen's Expense and Other Territorial Charges Corporate Administration $ 349,000 80,000 404,000 65,000 65,000 184,000 155,000 Excluding aoqui3itions, EXirkee Foods Group Net Sales were up 9.0 while Selling and Administrative Expenses inoreased 10.6%, Ohemiosls - Significant increases in Chemioals Group Selling and Administrative Expenses were: Salesmen*8 Expense Sales Administrative Salaries Samples and Allowances Product Development Research Development Costs Corporate Administration | 34,000 57,000 70,000 365,000 68,000 570,000 135,000 Chemioal Group Net Sales increased 8*0 over fiscal 1965, while the Selling and Administrative Expenses increased 13.8. GLD004154 NOTES FOR ANNUAL MEETING - 18 - lie Operating Statement Bo Selling and Administrative Expense (Continued) Headquarters - Total Headquarters Administrative Expenses were 112,244,000 in fiscal 1966 oompared to 4110,698,000 in fisoal 1965 and $9,730,000 in fisoal 1964. Pension Costs and Professional Services are detailed as follows: Pension Costs Professional Servioes Other Administrative Expenses Total 1966 $ 295,000 644,000 11.305.000 $12,244,000 1965 $ 782,000 551,000 9.365.000 $10,698,000 1964 $ 1,049,000 521,000 8.160.000 $ 9,730,000 1963 $ 999,000 521,000 7.340.000 $ 8,860,000 Inoreases in Other Administrative Expenses were $1,940,000 over 1965 and $3,145,000 over 1964. Other Administrative Expense by Groups is summarized as follows: CAR Group Administration Food Group Administration Chemioals Group Administration International Group Admin. Corporate Administration Total 1966 $ 2,208,000 1.529.000 917.000 303.000 6.348.000 $11,305,000 1965 $ 1,930,000 1.253.000 518.000 378.000 5.286.000 $ 9,365,000 1964 $ 1,683,000 796.000 425.000 331.000 4.925.000 $ 8,160,000 1963 $ 1,535,000 660,000 347.000 296.000 4.502.000 $ 7,340,000 Uajor inoreases were Offioe Salaries $456,000, Travel $70,000, Ooouponoy $65,000, Headquarters Offioes Administration $683,000, and other variable expenses up $554,000. C. Other Income - Published PAL The major items this year and last were: 1966 1965 Dividend Inoome $ 427,856 Interest Earned 290,918 Gain (Loss) - Disposal of Capital Assets: Disposal of Sharpies Refinery Equipment (97,546) Uisoellaneous (4.713) Other: Investment Writedown (1,000,000) Sorap and Residue Sales 135,622 Leased Truok Operations 228,961 Domestic and Foreign Teohnioal Servioe Fees 421,713 Rental Inoome 66,165 Prior Year Adjustments (148,096) Uisoellaneous 7.324 Total Other Items - Net 1 328.204 $ 138,378 434,735 - (61,229) (500,000) 228,330 177,362 417,150 49,956 176,761 (19.568) $1,041,875 6LD00415* yjDTttS FOR ANNUAL IlSMBB - 19 - XI, nperatinp; Statement D, Depreciation Book depreciation oharges for 1966 wore 17,235,711 ooopared to $6,753,140 in 19G6. Additional depreciation of approximately $1,153,966 will be olaimed for Federal tax purposes in 1966 as a result of the "Guideline" adjustment of asset lives, oompared with $1,815,739 in 1965. E. Fixed Charges The two major items of this nature vhioh may be of ooncern to shareholders are; Interest Expanse Estimated Real Estate Lease Liability (CONFIDENTIAL) See page 9 1966 $1,983,649 2.112.379 $4,096.028 1967 (Per LRP) $2,262,000 2.962.282 $5,224,282 Based on the 195,593 shares of preferred stock Issued and outstanding at August 31, 1966, preferred dividends of $415,635 will beoome payable in 1967, F. Advertising Expense - .By, Group CAR* Durkee Foods Chemicals Corporate Total % to Sales $4,429,814 $4,353,522 $ 207,588 $3,892,681 $3,427,654 $ 202,545 "Includes Canadian Dollar Adjustment. $ 289,344 $ 73,017 $9,280,268 $7,595,897 2.64% 2.50* GLD004156 NOTES FOR ANNUAL MEETING - 20 - 'I, Operating Statement G Research and Development 1965 Aotual 1966 Aotual 1966 Budget 1967 Budget Inoreasa 1967 Budget Over 1966 Aotual Resoaroh Administrative Teoh. Sarv, to Ufg. Sales Servloe 4,068,488 217,244 382,696 2.441.683 7,110,113 $4,354,323 160,758 416,134 2.830.357 $7,761,572 $4,574,000 191.000 405.000 2.599.000 $7,769,000 $5,092,000 147.000 513.000 3.014.000 $8,766,000 $ 737,677 (13,758) 96,866 183.643 $1,004,428 Control Lab Total 1.708,m 2.000.217 8,812,264 $9,761,789 1 to Net Sal3 2.90* 2.77* H* Average ABsete and profit Raturn Coatings and Resins Durkee Foods Chemioals Total Group 1966 Average Assets 72,070,004 51,732,552 49.955.389 $173,757,945 1966* Profit $ 9,670,211 8,031,414 8.903.823 $ 26,605.448 1966** Profit $ 9,311,976 7,844,410 8.690.664 $ 25.847.050 1966 1 Return 13.4* 15.5* 17.81 15.31 Total Company $185,791,184 $ 24,191,605 $ 24,191,605 13.0* Before allocation of Haadquartars items. After allocation of Headquarters items - Agrees with Annual Report. I, Ulsoellaneous It may be pointed out, on inquiry, that all Divisions of the Company ware operated profitably in 1966 with the exoeption of: Coatings and Resins Glidden Salohi - CAR, Italy Industries Division, Puerto Rioo GLD004157 NOTES FOR ANNUAL MEETING II. Operating Statement I. Miscellaneous (Continued) Chemicals Hammond Collinsville Pemoo Bruges (Belgium) Foods Berkeley Allied Foods Gretohen Grant Euro Products Division J* Outside Consultant Fees Lav Department Patent Dspartmont Executive Department: Provision for Legal and Audit Fees E. N. Hay A Associates UaoKay Shields Other Controller's Department Other Administrative Departments Development Cost: Princeton Chemical Research Yale Laitin Associates, Inc. Institute of Paper Chemistry A. D. Little Roger Williams Marshall A Stevens Driebe A Gerry Schvadaoher Company Philip Eving - 21 4190,000 46,634 50,077 25.319 4 33,574 4,785 . 7,308 46,925 6,000 4,575 20,000 6,000 4.000 4 80,967 40,528 312,030 104,840 147,624 133.167 4819,156 GLD00415 - 22 - IIOnerating Statpqppt K. Taxes 1. Revenu Prooedure 62-21 permits, for a limited period of time, the demotion of depreciation based on arbitrary useful lives vhich ioay ba substantially less than aotual. This has resulted in an excess of tax depreciation over book depreoiation in 1966 of $i(155,9S6 and in 1965 of $1,815,739. The higher tax doduotion thus obtained has brought about a deferment of taxes payable in 1965 of $883,693 and in 1966 of $553,904. The Glidden Company will oontinue to employ for finanoial reporting purposes the asset lives based on statistical studies of our own replaoement expert*nce. The advantage obtained by the application of Revenue Prooed`ire 62-21 Us e in the immediate availability of cash that would otherwise be payable for ourrent taxes. The 1966 deferment of $5fi3|90't provided an additional oash flow amounting to .08 per oommon shars. 2. Invest'^nt Credit The Revenue Act of 1962 allows a credit against the tax liability of up to 7% of investment in property other than buildings since January 1 1962, In 1966, this credit amounted to $594,000 or nine oents per share compared with $261,720 or six cents a share in 19fi6. For 1966 and subsequent years, the total amount of the investment oredit will flow through to earnings by a direct reduction of the current Federal tax provision. g l d o o **59 NOTES FOR ANNUAL MEETING - 23 - II. Operating Statement L. Comparative operating Profit Schedule Before Allocation of Corporate Items (OOO's omitted) 1966_______ Before After Taxes Taxes 1965 Before After Taxes Taxes Coatings and Resins Inventory Inorement 9.565 5,221 (363) (186) $9,202 5,035 9,553 4,987 (564) (291) 8,989 4,696 Foods Net Market Gain or Loss $ 8,031 4,323 -XluZfi?.) (907) $ 6,262 3,416 5,805 2,980 (l.ioo) (566) 4,705 2,414 Chemicals | 8,904 4,718 7,998 3,955 Development Corporate Development Costs Arohiteotural Produots 1 (559) (559) (309) mm (309) (960) (663) (31) (16) (991) (679) Other Inoome (Deductions) Pension Cut Baok Net Operating Loss (684) (1.100) (1.784) (351) (664) (915) (1.288) (496) (1.784) (642) (255) (897) To Adjust for Effective Tax Rate Net Operating Profit . (86) 22,025 11,859 393 18,917 9,882 Adjustments Itemized Above LIFO Provision Reversal Investment Write-Down Inventory Adjustments Provision for Claims and Fees Adjustments - Prior Years Speoial Bonus Provision Loss on Disposal of Assets Provision for Audit 3,232 216 (1.000) 326 4 (148) (250) (113) (100) 1,657 111 (1,000) 167 2 (148) (128) (58) (51) 2,160 1.U2 (31) (16) (500) (500) 157 81 (246) (127) 214 214 (300) (155) wa - -- Total Published Profit* 110.491 'Published profit as veil as all applicable extraneous items were oomputed at an effeotive tax rate of 48.7% in 1966 and 48.5% in 1965. GLD004160 'NOTES^pR ANNUAL MEETING `/tWjfS&r. ' mW pparating Statement *'`71 '. : ; v u Summary of Extraneous Items (000`8 omitted) 24 - Published Pinal Net Profit Food Uarket Reserved Pension Cut Back L1P0 Provision (Reversal) Provision for ClaiK18 and Pees CAR Inventory Inor*men't Special Bonus Provisin Investment Write-DO*0 Inventory Adjustment Adjustments - Prior Year Provision for Audit Loss on Disposal of Assets Number of Shares 1966 After Per Taxes Share $12,411 $1,830 1965 After Per Taxes JiteagL $10,491 $1,630 (907) (564) (111) (2) (186) 128 1,000 (167) 148 51 58 (.138) (.086) (.017) m (.028) .020 .152 (.025) .023 .008 .009 (566) (255) 16 127 (291) 155 500 (81) (214) - - (.093) (.042) .002 .021 (.048) .025 .082 (.014) (.035) m $11,859 $1.748 $ 9,882 $1.528 6,559,458 6,130,166 GL0004161 NOTES FOR ANNUAL MEETINGIII. Cash Use and Pro.leotlon A. Application of FMnds (in Thousands) - 25 - Souroe of Ftands Not Income Depreciation Provision for deferred income taxes Borrowing under Credit Agreement Net ourrent assets aoquired for Common Stock Sale of Cosxnon Stock under option plans (1966-39,717 shares; 1965-48,295 shares) Application of Funds Dividends declared Expenditures for property, plant, and equipment Acquisition of Common Stook for treasury (104,550 shares) Retirement of sinking fund debentures Redemption of $2,125 Cumulative Preferred Stock (2,950 shares) Increase in working capital Other Applications - Net 1966 $12,411 7,236 554 $20,201 12,000 736 626 $33,563 1965 $10,491 6,753 884 $18,128 1,429 751 $20,308 $ 6,445 11,686 1,167 1,284 12,556 425 $33,563 $ 5,591 9,866 2,438 1,716 166 646 (115) $20,308 GLD004162 NOTES FOR ANNUAL MEETING reO- CM roo n 00 rH otom CD CO cCmO co (O o> # |o k> i-q* iWn Oro CvOo CO vo c~ pf < O to p p- CM Ol rH pH to i-IOfil C0M I0O*1t0- I Cto-- CO Cin- pIDH ItOo ICOM q o0 <d 0- 0 Oto QO CM oaogico-> rH CD tCM Cft oCM <Q tO (OlOHH W H HI pH <0 |S| -1 tOtOot Ocn <T> 0cn0 om O t* CM rH CVJ pH Nt- HIO tIO-Qo m io p# io t>o a h H pH CM 00 Ol O IoQ oIQm tIOto O * IO 10 t* p H H pH C1O0 C0O1 'tt. Oft Hft pfit H H l* - 6 at (O N 0* tO IO ID CVI O 6- c5 io rH CM IQ to IQ petaf C- o UD m IO cn H r4 0. 3 P O << ID 01 Pi e<o t* * o H O in to m H pH IO p H c- m m IO to frto C- o to cu in E- 1 co c- CU ID to IO o CO rH to O CO to O to m to CO IQ in rH CM (0 & Xn. o0 Qo c o +* ItOH *H o 4* O *"a o 0cou o n TcJ 00 V. U. 3 CU o u TcJ o0 h >H n o > & J3 n 03 M M C*- K to Cl o%to rH rH rH C- o O *o O ID m O 1# IO * t>to pH "<f oto to rH H CU 0 CO 3 B) H cm Oo Hu > u o U pa Oh rH o ti C o CU U O o -H CO3 Trll p H T3 a ! M oi Eh A4 0to. g p> 0o. pH a M w a 0 u t* c VOl CD pcoH VSouv C pH tl (X. J3 0 0 o JnC 0 0 S *0 pH O tJ 0 ss SpH cc p*H u0 03 00 oIp. oO g t. Op H CD o] in io <4 t- o O* C~to rH* CM O rH IQ pH pH pH t- ^ i iIoQ cIOo CM 10 000 to CO IO rH H IOa> 00P <#P CU * ot c m in IO JO # e- IO CU c~ fc o CU C- CD to^^ o v CM IO Ot# to| tol fl p H# O * w mom CO Ot rH * * ft 000 1 IO f rH IQ IO pH 1 Ot CM pHfl rH rH CM C'B iq D `'J fl 0*1 pH| to to CM CM CM CO IO Oto Oto <f Vf 0 1 (0 o O Ot 01 ID 1 t- Ot ft 1 pH i pH CM ao rH oj 01 m| fl m|j HB Pi pH CM ** iw rH O 3 n -P o H* a t. a 0o apH 0 o to 0 H <0 4> ftH ? e o n 0 > 0 0 K a m a e 0o pH pH pH H pH pH <0 pH H 3 O 0r rH 0 0 P pH O n. 0A oa pH C0h c pH H AC 0 ip O TJ >0 H pH pH . pH t< VI O o 0 3 ip O 13 O pH r 0 u 0 3 o to 0 fl H to c pH > pH O 3 pH O s> a 9 3 01 m vO pH vf o o o -J (J> (4 ) Amended to In te g ra te w ith Canadian governmental plans. (3 ) Amended to In te g ra te w ith Canadian governmental plans. (2 ) Amended to provide fo r maximum pension o f 41.200 per year, lib e ra liz e d reduotlon fo r e a rly retirem ent ca -H * cH V< O6 u o s jSo ck *c2 a tJ a 3 C . 2: & CCO CO to o to 8 C"" t*0 HH Ok CD H H rH l- IO H iH n C- N CD CD t- 1 rH rt| 1 0 t- b- Ok H CD H rH ttoo oto HH fc0 0 to ib n +0 * oo rH c 0o 3 44 O c m. C3> <o u CO CD rH rH O in co 0 t-t IO Ok t* CO oW *0 10 o Ok c- oo -rl >1 T3 > +> t. <rl -0 rH C M -H 3 G H> C BH 30 n. V Ok rH0 E-0 o CrH0 1 rH Ok O rl CD O0 00 10 IO ## S Ok I v I 0 to 1 to to - 27 CO IO tn o Ok c- GLD004164 eo c d t5o W0 co a 4J IO o co ra Ok a rH < TJ r-f s.C 10 p m SSI S3 H rH Ok CD O 00 CD * Ok o IO IO a rH rH b 0 IO HOk O0) e' er tD to t o in to t in Ok Cl) CO rl SCI) CO 00 *0 co tn O) cu O .. H rt 03 Cco O CD C- IO C-m tf)m 2$ H0 d O CD O0 k> CO to a* rH to (D S3 3 CD 8Si CD m CM (1 ) Amended to provide f o r minimum pension o f $ l t 200 per year. NOTSS FOR ANNUAL MEETING a. 0 ac Aoo4 o. n 88 tn e- in CD 3S s*IO I CD H rH 85 0 te>~ t- rt 00 H m .vpccccH<o 5 33s1 *o 0 rt to tn 0 to to W Ok Ok co CD H> fc. S3O <lI IO <0 0k rH to Q TJ arH fc. a CO Ok 0k W rH rH 3 00a h rH X c 0 0k 0k rl r-l l~l n 0 0B *d *a3 3 Get Ok Ok rH rH rH 0 O 4e 1C rffHtt 3 1 <0 tO 15 10 10 O Ok 01 a HH SI Vi C +> a o *5 *3 0 8 O *rl Ok 3 p cr a Ok e K rl H o Ok Ok HH oo H t u o Eh DH floras FOR ANNUAL MEETING - 28 - {V. Bnoloyee Benefits B. Bonus Plan Original plan adopted February 8, 1951, and amended through September 28, 1965. Administered by a Bonus Committee eleoted by the Board of Directors. In 1955, Gilbert suggested provision preventing bonus to top offioers until a oertain dividend has been paid. Formula provides 12^ must be earned (pretax) on bonus net capital (oapital, term debt, etc.) before providing a bonus of 7t of Net Bonus Income. Consolidated net inoome after tax must exoeed 6% bonus net capital employed also. The 1966 computation vas: Consolidated Net Inoome (After Taxes) Less: 12f, Bonus Net Capital Employed Add: Interest and Amortization of Disoount on Debt Bonus provision Provision for Inoome Taxes Less: Dividends and Interest from Unoonsolidated Subsidiaries and Affiliated Companies Net Bonus Income Bonus Provision - Uaximum Amount 1% Consolidated Net Income (After Tax) Less: 6j. Bonus Net Capital Employed Uaximum Amount Aotual Provision 112,410,605 (19,331,463) $ 1,383,979 250,000 11.781.000 13.414.979 (422.930) 6.071.191 $ 424,983 $12,410,605 (9.665.731) $ 2.744.874 $ 250.000 Sinoe 1951 through fisoal 1966, the maximum allowable provision vas $3,575,173. We have returned to profit $1,219,433 leaving $2,355,740 for Bonus payout. In 1966, we provided, as indicated above, $250,000 for Bonuses. No awards have as yet been made for 1966. '`0<u 5 NOTES FOR ANNUAL MEETING - 29 - XV. Employee Benefits B. Bonus Plan (Continued) No Bonus provisions or awards were made for the years 1960, 1961, 1962, and 1963, A total of 1,317 awards have been made from 19S1 through 1965. Maximum in any one year was 212, lowest 48* The highest Individual amount awarded was $14,000 to Ur. P. 17. Neidhardt in 1966. The previous high award $12,000 was made to Dunoan, Sprague, Ruth and Ooldseth in 1951. Gilbert suggested resubmitting plan every five years to stockholders, ffe feel we need to do so only when there is a material ohange. The purpose of the Bonus Plan is to provide Reward and inoentive to those employees and offioers, exoept the Chairman of the Board of Direotors and the President, who, beyond the oall of duty, oontributs to the suooess of the Company. As provided in the Plan, each award of more than $2,500 is paid in annual installments of 25% of the amount awarded or $2,500, whiohever is greater, and the Bonus Committee determines what part of any award is to be paid in oash or stook. No bonus awarded to an employee for any fisoal year may exceed 50% of the basio annual salary of suoh employee at the end of suoh fisoal year. Approximately 178 employees who receive salaries of $1,500 or more per month (including eight offioers of the Company who serve as Directors) are currently eligible for consideration for Bonus awards. The Chairman of the Board of Direotors and the President may not be awarded a Bonus under the Plan. C, Stock Options Under the 1952 Plan, 250,000 shares of authorized and unissued ooonon stook were made available. The Plan provided that no option oould be granted to an employee after age 65, and no participant oould reoeive options ooverlng more than 12,500 shares. The Plan also provided that the option price oould not be less than 95% of the fair market value of the stook on the day the option was granted, and the option period oould not exoeed ten years from the date the option was granted nor more than three months after retirement of a participant. All rights to exeroise options terminate when an employee oeases to be an employee for any oause other than death or retirement. As of August 31, 1966, options to purohase 297,175 shares (120,000 to offioers and directors) had been granted under the 1952 Plan. (Options for 83,580 shares had expired by reason of termination of employment or lapse, of whioh options for 47,175 shares were reissued, as authorized by the Plan, to qualifying employees). GLD004166 NOTES FOR ANNUAL MEETING - 30 - IV. Employee Benefits C. Stock Options (Continued) Options representing 187,220 Bhares had been exercised (94,570 by officers and directors). There vere outstanding under the 1952 Plan as of August 31, 1966, options for 26,375 shares (18,225 for offloers and directors), exercisable over a period of ten years from the date granted but not more than three months after termination of a participant's employment. A total of 20 officers and directors and 19 other employees held options under the 1952 Plan. -Officers and directors held options as follows: Option Price of |14.80 Expiring 11/29/66 Option Prioe of $15.00 Expiring 9/29/67 Option Prioe of $16.60 Expiring 12/28/68 Dwight P. Joyce B. W. Uaxey W. G. Phillips G. If. Halsey R* D. Horner G. S. Warner P. N. Neidhardt R. E. Dorfmeyer 2,500 2,500 5,000 300 1,250 2,500 750 1,250 750 All Directors and Officers as a group (including those named above) 10,300 250 7,050 On September 29, 1959, the authority of the Company's Stock Option Committee to grant options under the 1952 Stook Option Incentive Plan was terminated by aotion of the Board of Directors. GLD004167 NOTES FOR ANNUAL MEETING - 31 - IV. Employee Benefits 0. Stook Options (Continued) 1959 Potion Plan Provides Committee may option 250,000 shares of authorized and unissued oonmon stock. 1. Option price not less than 100J of market (old plan 95). Both not less than book value. 2. No option to employee after age 60 (old plan 65). 3. May not be terminated and reissued at lover price. 4. Term of option set by Committee up to ten years and may not be exeroised for tvo years after grant (old plan all for ten years). Options issued in 1964 and subsequent years are for five-year term. Under the 1959 Plan, options to purohase a total of 255,750 shares have been granted to 131 employees (inoluding 121,500 shares to 31 offioers). Dlreotors and officers held options as follows: Dwight P. Joyce B. W. Maxey W, G. Phillips G, U. Halsey R D. Horner J. H. Weeks G. S. Warner P. W. Neidhardt R. E. Dorfmeyer Option Prioe of $20.70 Expiring ivy.??., Option Prioe of $16.00 Expiring 5/25/70 Option Prioe of $16.40 Expiring 7/23/71 Option Prioe of $17.00 Expiring 12/21/71 2,000 1,250 5,000 3,500 1,000 2,500 2,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 All Directors and Offioers as a group (inoluding those named above) 7,500 6,000 6,000 42,500 At August 31, 1966, options for 208,832 shares were outstanding and no further options may be granted in the future under the 1959 Plan, GLD004168 NOTES FOR ANNUAL MEETING 32 * IV, TftnploTea Benefits C. Stock Options (Continued) 1964 Option Plan Provides Committee may option 250,000 shares of authorised and unissued ooomon 8took. Prinoipal differences from 1952 and 1959 Plans: 1. Option pries not less than 100 of fair market value (1952 Plan 95%), All plans not less than book value* 2. A subsequent option may not be exercised while there is outstanding any prior option at a higher prioe. 3. No option to employee after age 60 (1952 Plan, 65). 4. May not be terminated and reissued at lower prioe. 5. Term of option may not exoeed five years. 6. Shares purohaaod under options must be held for three years to receive long-term capital gain tax treatment. Under the 1964 Plan, options to purohase a total of 42,750 shares have been granted to 54 employees (inoludlng 8,750 shares to five offioers -- no directors). At August 31, 1966, options for 42,480 shares were outstanding, D. Wage and Salary Ratios Manufacturing Wages to Cost of Produots Manufactured 1966 12% ms 12% Total Wages and Salaries % to Net Sales Total Wages, Salaries & Benefit Costs % to Net Sales 161,997,952 18% $67,693,033 19* $56,583,589 18* $61,532,357 20% GLD004169 NOTES FOR ANNUAL MEETING 33 - IV. BVnnlnvee Benefits E. Salaries Our salary rates, including those for offloors and other key employees, inoluding bonus, are fully in line with studies on this subjeot. Be must be competitive in salaries and other induoements suoh as stook options, to attraot and hold good men. Currently ve are engaged In a Compensation Study through R. N. Hay ft Associates. The proxy statement reports that total remuneration of all directors and offioers as a group Increased from $1,550,519 in 1965 to $1,681,213. Number of offioers is 40. F. Other Benefits In addition to tho Retirement Plan, employees are eligible to participate in a group life insuranoe, hospital and surgioal benefit plan, a major medioal plan, and an accidental death insuranoo plan. Tho Company has a formalized disability benefit plan ehereby employees reoeive a portion of their salary or wages during prolonged illness - the amount and duration of benefits depending upon the employee's length of servioe. In fiscal 1964 a long-term disability plan was made available to employees earning $750 or more per month. GLD004170 wryraa FOR ANNUAL MEETING V. Upoulsltlons. Dispositions. and Capital Expenditures A. Aooulsitions During fiscal 1966, the following acquisitions took plaoe: - 34 - Euro Products S.A. - Ootobor 1. 1965 The assets of Euro Products, Brussels, Belgium, ware purchased for oash in the amount of $75,000 on Ootobor 1, 1965. Euro Produots paokages and sells spioes, Instant ooffoe, and food servloes in the oommon market area of Europe. This is currently being oarried as an investment on the Canadian balanoe shoot. Aoquired through Cash Purchase as of Ootober 1, 1965: Cash Receivables Inventories Net Fixed Assets Prepaid Exponses Unamortized Organization Expense Intangibles Aooounts Payable Notes Payable Other Liabilities Accruals $ 1,410 39,172 19,250 27,848 4,173 3,636 76,457 (21,613) (28,441) (24,843) (16.401) Total Investment Canadian dollar value. GLD004171 - 55 - A. Acquisitions (Continued) Allied Foods and Zippy Incorporated - Qotober 11. 1968 The assets of Allied Foods and Zippy Incorporated, La Puente, California, sere acquired in exchange for 49,489 shares of Common Stock of The Glidden Company, Allied Foods and Zippy Incorporated processes and packs a full line of piokle products for sale in- the nest Coast area. Acquired through merger October 11, 1965 - (Handled as a Pooling of Interests): Cash Investments Aooounts Receivable Miso. Aooounts Receivable Inventory Fixed Assets Prepaid Expense Deposits Goodwill Notes Payable Aooounts Payable Res. - Federal Inootns Tax Accruals Miscellaneous Reserves $ 165,658 1,857 162,691 109,838 1,093,883 486,033 41,520 25,000 2,000 (944I757) (302,338) (50,890) (46,762) (11.510) Total Assets and Liabilities Total Net North I *62,417 GLD004172 NOTES FOR ANNUAL MEB7PTNQ V. or>3. and Capital Expenditures A. Acquisitions (Continued) 36 Bo M. Reeves Company - January 1. 1966 The assets of B. U. Reeves Coopany, Brooklyn, New York, and Uawer Annls Illinois, Ino., Chioago, Illinois, were purchased for oash in the amount of $6,809,575 on January 1, 1966. B. Uo Reeves Company and Uawer Annis Illinois, Ino. prooess and package imported and domestio specialty food items including olives, olive oil, fish, oherries, and sauoes. Acquired through cash purchase as of January 1, 1966: Cash Investments Accounts Receivable Miscellaneous Receivables Inventory Fixed Assets Prepaid Expense Surrender Value Life Insuranoe Intangibles Aeoounts Payable Aoorued Expenses $1,470,557 1,731,864 557,958 50,517 1,609,381 273,745 12,969 73,713 1,295,193 (158,982) (107.330) Total Investment GLD004173 NOTES FOR ANNUAL MEETING V. Acquisitions. Dispositions, and Capital Expenditures A. Acquisitions (Continued) 37 - Chris A Pitta Bar B-Q Sauce, Ino. - Uaroh 1. 1966 The assets of Chris A Pitts Bar B-Q Sauoe, Ino., South Gats, California, were acquired in exchange for 85,886 shares of Common Stock of The GUddon Company. Chris A Pitta Bar B-Q Sauoe, Ino, manufactures liquid barbeoue sauce items for distribution at the grooery store level In the western states marketing area. Acquired through merger as of Uaroh 1, 1966 - (Handled as a Pooling of Interests): Cash Accounts Receivable Inventory Investments Net Fixed Assets Prepaid Expense Accounts Payable Rea. - Federal Inoome Tax Miscellaneous Reoelvables $ 60,466 27,691 260,318 52,138 10.546 2.396 (9,492) (8,338) 3.798 Total Assets and Liabilities IJSMi&SjS Total Net Worth GLD004174 MOTES FOR ANNUAL MEETING V. Acquisitions. Dispositlono, and Capital Exoandltures A. Aoouinltions (Continued) - 38 - Polarized Meat Company - June 1. 196S The assets of Polarized Ueat Company, Uoosio, Pennsylvania, were aoquired in exohange for 256,470 common shares of The Glidden Company stook. Polarized Ueat Company processes specialty frozen portion oontral meat products for hotols, restaurants, and other mass feeding establishments. Aoquired through merger as of June 1, 1966 - (Handled as a Pooling of Interests): Cash Account8 Receivable Inventory Prepayments Not Fixed Assets Payables Accruals Res. - Federal Inoomo Tax $ 285,571 553,900 281,845 22,034 869,688 (935,850) (50,701) (224.622) Total Assets and Liabilities Total Net North GLD004175 ( SggT; fOTTBifl FOR ANNUAL MEETINQ vfs yn,,<sltlons. Dispopitlona. anA gaplta^ETpendlturea - 39 - ' n. Disoositions andShutdowns ----- ------------ ------ Annual Sales Last Full Year Hammond 7/16/51 Oakland 10/25/54 Feed Mill 8/10/54 Portland 9/18/52 $ 4,076,147 627,505 4,423,653 2,941,393 Cambridge 7/1/55 Yadkin JoJaba - Castella Barytes Uines Buena Park 8/31/56 1,308,738 - 4,033,465 Eastern Margo A Salad Prod. 2/1/57 9,996,668 Elmhurst Building A,8/31/57; S,8/1/58 Scranton 6/9/58 St. Helena 3/31/5B 1,100,590 - Buena Park Land 1/28/58 Chemurgy 9/1/58 Southern Pine 2/28/58 Valdosta 3/28/60 Berkeley U * SP 4/30/60 Tulsa-Gen. Paint 6/1/62 - 31,982,480 1,070,947 2,941,738 5,645,470 398,897 Architectural Products Division 6/23/64 2,757 Collinsville 8/24/64 - Frozen Food Aband. 4/8/64 to 8/31/64 1,110,209 Buena Park land 11/29/63 A 2/28/64 - Louisville 8/31/66 Aband. Sharpies Equip'I - Pre-Tax Profit or After Tax Profit Avg. Profit (Loss) on Cash A Asset or (Loss) or (Loss) Sales or Utilization Last Full Last 4 Yrs. Abandon- Last Full Year Onerated ment Year Basis l (234,346) $ (373,225) $ 142,235 $ 2,044,710 (226,221) 39,296 96,376 997,955 65,538 15,608 (290,471) 2,417,154 92,554 13,771 (19,369) 1,224,149 (60,579) (9,537) (6,642) 851.472 - - (8,149) 58,673 - 50,597 125,640 _ 11,679 (11,032) (67,338) (253,580) 1,095,247 (372,378) (414,580) (197,934) 2,383,320 52,028 - 1,477,859 103,448 320,127 98,726 (7,795) 66,056 - 1,503,501 68,240 156,671 66,787 (1,796) (252,240) 30,690 (1,215,239) 174,957 1,156,164 (76,237) 275,301 39,176 (7.813) 1,269,854 455,467 925,924 136,635 27,415,123 292,555 1,430,042 684,913 314,422 (16,255) - (12,900)(1) (58,732)(3) 154,851 - (160,499) 81,117 (243,575) (143,031)(2> (416,588)(4) 821,100 w - 568,768 445,399 (97.546) 57.603 Total $71,660,657 S 1,038.099 $ 907.523 iUj u /j -t .i t Aii II111 $45,695,004 After Tax Bxoess - Cash Boob Value Cash Floe Over Boot Value Fixed Assets - Sold - Abandoned $11,676,930 2.899.415 $19,522,768 1.502.426 $ 7,845,838 11,396,989) $14,576,345 6,448,849 (1) Two-Year Average 1962-1963. (2) Two-Year Average 1963-1964, (3) Loss on Disposition of fixed Assets only. Additional Inventory Loss of $23,524 resulted in Total Loss on Disposition of $82,256. (4) Loss on Disposition of fixed Assets only. In addition, Exoess Cost of $86,511 and Othor Expense (including Inventory Write-Down) of $47,294 was Incurred to arrive at the Total Lose on Disposition of $550,393. GLD004176 NOTES FOR ANNPAkiSSETING V. AoQuIsItlons. Dispositions, and Capital Expenditures - 40 - C. Mining Aotlvlty The mining of Ilmenite Oro at Likehurst, New Jersey, vhloh was begun in August, 1962, produced 71,160 tons of ore in fisoal 1966. 0. Uaior Expenditures Over A50.000 (Capital and Expense) 1966 (Thousands of Dollars) Expended Expended Prior To In 1966 1966 Appropria tions $100,000 Plus In 1967 Uaooo Resins Land, Plant Const, ft Equipment Southeastern Construct Vlhse, Additions Uaooo Construot Hhse. - Production Bldg. Paoifio High Speed Dispersion Equipment Paolfio Purchase and Renovate Heil Property A.P.D. Building Produots Appl. Lab. Faoilities Central Conveyor and Filling Line Equipment New Orleans Dispersion Equipment and Tankage Nubian High Speed Dispersion Equipment Other Total Coatings ft Rosins - North Amerioa 577 - 33 - - 16 - - 896 1,522 2,356 108 63 112 141 265 68 59 73 1.J43, 4,986 - - - - - Industries Glidden de Puerto Rioo Other 270 519 39 109 Total Coatings ft Resins - International Units TOTAL COATINGS AND RESINS GROUP GLD004177 NOTES FOR ANNUAL MEETING 41 V. Acquisitions. Dispositions, and Capital Expenditures D. Major Expenditures Over 450.000 (Capital and Expense) 1966 (Continued) (Thousands of Dollars) Durkee Foods: Expended Prior To 1966 Expended In 1966 Appropria tions 4100,000 Plus In 1967 Chioago - New EtoulBifier Equipment Louisville - Ball and Truck Scale Louisville ~ Tank Filters and Bleaohing Equipment Louisville - Filling and Paoklng Equipment Louisville - Hydrogen Gas Plant Louisville - Mel Fry Production Facility and Winter Oil Modification Woloott Construct Whse., Purohase Conveyor Equipment, and Fork Truck Wolcott - Frenoh Fried Onion Prod. Faoility Berkeley - Steam Boiler Berkeley - Cont. Ref. Bleaob ft Acldulatlon Fac. Berkeley - Raw Material Storage Bethlehem ~ Jacket Paok Equipment Bethlehem - Construct Whse. Addition - Purohase 2 Lift Trucks Dailey - Construct Bldg. Add. ft Puroh. Prooess Line Equipment Dailey - Steam Boiler Dailey - Building Addition Gretchen Grant - Plant Expansion ft Increase Prod. Facilities Allied - Plant Equipment Moving, Modifications ft Reinstallation B. U. Reeves - Acquire Assets Empire - Construct Warehouse (Acquisition) Other Total Durkee Foods - Domestic 8 - - 304 30 14 *w - 281 ` . 1.055 1,692 53 - - 60 73 76 104 122 377 99 54 157 207 74 795 58 279 - -1*0*8 3,636 500 m 110 125 - * 175 100 1,010 Euro Produots - Acquire Assets Other 52 - 105 Total Durkee Foods - International - 157 - TOTAL DURKEE FOODS GROUP 1,692 3.793 1,010 GLD004178 NOTES FOR ANNUAL UEKTlNfl 42 - V. Acquisitions. Dispositions, end Capital Expenditures D. Major Expenditures Over A50.000 (Capital and ByDense) 196$ (Continued) (Thousands of Dollars) Ghemioals: Expended Prior To 1966 Expended In 1966 Appropria tions $100,000 Plus In 1967 Hammond - Iron Powder Mfg. Plant 2,627 Johnstown - Land Purchase - Johnstown - Used Ball Mill Johnstown - Belt Furnace Modifications - Johnstown - Annealing Furnaoe m Baltimore - Inorganic Researoh Facilities 623 Baltimore - Secondary Milling Facilities 29 Baltimore - Secondary Milling Facilities (New Projeot) Baltimore - Inoreaso Treatment ft Prsss Feed Ifeo. t Baltimore - Mill Relocation ft Repair, Purohase Auxiliary Equipment - Baltimore - Electron Miorosoope with Aooessorlee - Baltimore - Plant Expansion - Baltimore - 70 Anatase Slip Facilities - Jacksonville - Additional Basio Terpene Storage Pao. 78 Jacksonville - R.D. Laboratory Expansion IS Jacksonville - Butler Bldg, ft Flavor Oil Processing Equipment - Jacksonville - Fractionating Column with Aoo. - Jacksonville - Carbon Equipment - Jacksonville - Camphor Equipment - Jacksonville - Control Measuring - Basio Terpene - Port St. Joe - Additional Storage Faoilities m Port St. Joe - Clay Treatment Port St. Joe - Paving and Drainage m Other 1.581 304 65 82 m 54 ew - 100 338 56 - 100 169 61 57 - 1,020 - 125 83 186 87 78 - 250 - 150 m 300 56 m 150 m 150 - Total Chemioals - Domestic 4,950 3,083 2,345 Major Projeots Over $50,000 Other 952 101 Total Chemioals - International 952 101 - TOTAL CHEMICALS GROUP 5,902 3,184 2,345 GLD004179 NOTES FOR ANNUAL MEETING - 43 - V. Acquisitions. Dispositions, end Capital Expenditures D. Major Expenditures Over $50.000 (Capital and Expense) 1966 (Continued) (Thousands of Dollars) Headquarters: Expended Prior To 1966 Expended In 1966 Appropria tions 1100,000 Plus In 1967 Major Projects Over $50,000 Other r" lOO 190 " - Total Headquarters 100 190 TOTAL COMPANY 9.525 12,781 3,355 Note: There is nothing In thl3 schedule for Dwight P. Joyce Research Center which will be a *Leasebaok" facility. GLD004180 NOTES FOR ANNUAL MEETING - 44 - VI. OTHER MAJOR FUNCTIONS AND ITEMS A. Donations The donations polioy of the Company provides for reasonable support to educational, health and welfare, and oharitable organizations. This polioy is administered by the Donations Committee, under the direction and guidance of the President and Board of Directors. Educational support has been given through the following: 1. Awarding of four scholarships under the auspioes of the National Merit Scholarship Corporation. 1966 winners were: Stephen U. Bowe11* Shelby A. Dodds Thomas W. McLeod* Janna Lee Page* Northwestern University Agnes Soott College Georgia Institute of Teohnology Wooster College * Children of employees. 2, Cooperative Contribution Plan, under whioh the Company makes unrestricted grants to degree-granting universities in an amount equal to the donations made by employees of the Company to publio oolleges and universities, and twice amounts donated to private ooll6ges and unversities. Contributed in flaoal 1966, $28,467 to 112 oolleges. 3- Chemistry lectureship grants provided to 3 U.S. unversities to provide for leotures by outstanding individuals and to help promote understanding and interest in solentifio achievement. 4. Outright grants to seleoted oolleges and universities in the state of Ohio suoh as Case and Western Reserve and the Ohio Foundation for Independent Colleges. In the health and welfare oategory, the Company has supported the United Appeal, Conmunity.Chest, Red Cross and United Health Fund programs in the communities where it has plants or branohes. In addition, seleotive support has been given to other servloe organi zations and foundations. Contributions are not given to sectarian groups, labor organizations, eto. Education Health and Welfare Other Total Donations 1966 "43* 43* 14* 1965 42* 151 1964 48* 10* 1963 "TO 36* . 23* 1962 "45? 36* 191 $214,437* $197,159* $220,3147 $171,690* $157,873 GLD004181 1 of Net Profit 1.7* 1.9* 2.43* 2.29* 2.361 Per Employee $21.74 $23.21 $28.24 $22.67 $22.19 Includes contributions of merchandise as follows: 1966-$5,019 1965-$U,884 1954-$4,150 1963~$17P672. NOTES FOR ANNUAL MEETING - 45 - VI. Other Major Funotlons and Items B. Audit Company internal audit staff oonduots unannounced audits of all operating units on a schedule oalling for examinations as required. Audit verifi cation is obtained on all acquisitions and investments* Ernst ft Ernst representatives present at the meeting will be Messrs. C. Insurance 1, Fire, Extended Coverage, Vandalism, Business Interruption, Inland Transit a. The "Employers Group" of Boston are underwriters for an all risk worldwide property paok&ge policy subject to definitions and special exclusions. (1) No co-insurance, blanket limit (15,000,000 any one loss. (2) Deductible of (10,000 combined property and business interruption applies to normally insured perils and inland transit. Deductible of (25,000 combined applies to other perils. (3) Applies to buildings and contents of all manufacturing plants except in difference of conditions, only at Glidden Salohi and General Paint de Mexico. Contents of all stores and warehouses. Property in course of inland transit, except barges. (4) In some foreign locations, underlying polioies will be Issued in locally entered companies to oomply with local law-3 and will be paid in local ourrenoy. These oompanies will be members of, or have financial relationship with, the SSnployers Group. 2. Boiler, Machinery, and Eleotrioal Apparatus a. In United States and Canada, this is with the Lumbermen's Mutal Casualty Company in a comprehensive form covering all accidents subjeot to definitions and special exclusions. (1) Coverage subjeot to over-all oombined limit of (5,500,000 any one loss. GLDOOA182 NOTES FOR ANNUAL MSETBKS - 46 - VI. Other Major Functions and Items C. Insurance (Continued) 2. Boiler, Machinery, and Bleotrioal Apparatus (Continued) (2) Deductibles from #5,000 to #20,000 ocmbined property and business interruption apply depending on what type of boiler, machinery, or eleotrioal apparatus is involved in the aooident. The more commonly insured oarry the lover deductible. (3) Covers direct damage, consequential damage, use and occupancy, and even service interruption, oaused by aooident to equipment of publio utility servioing Glidden plants. b. This insurance for foreign locations where required is written through the AIU (American International Underwriters) on more normal, restricted terms. 3. Ooean Marine and Barge Cargo a. The Marine Office of Amerioa through a member oompany (The Continental Insurance Company) has issued to us a worldwide ooean marine open oargo policy. (1) All oargo (import or export) moving at the risk of Glidden or any subsidiary is automatically oovered subjeot to issuing of oertifioates or declarations to report the shipments. (2) Barge cargo moving on the Mississippi and Ohio Rivers and in the Chesapeake Bay are epeoifioally insured in separate polioies^_______ _______________ _ _.___ 4. Fidelity a. All employees are bonded .in substantial amount under a blanket fidelity bond with the Seaboard Surety Company. b. Small deductible applies to exolude small claims. 5. Third Party Liability a. We carry comprehensive bodily injury and produot liability insurance and property damage liability. There are several policies in different underwriting groups. (1) Property damage liability is written with a #25,000 deduotible to give the salesforoe and Lav Department latitude in. settling customer complaints. GLD004163 NOTES FOR ANNUAL MEETING - 47 VI. Other Major Funotlon3 and Items C. Insurance (Continued) 5. Third Party Liability (Continued) ' (2) Special endorsements extend the ooverage to vendors of our produots under certain conditions, to oover most types of personal injury as veil as bodily injury, to proteot the company against malpraotioe in rendering first aid. and other speoial situations - even for giving improper information to employees about benefit plans. (3) Speoial policies proteot against liability vhere ve charter boats or airplanes for company purposes. (4) We insure against libel and slander notions arising out of advertising activity. (5) Directors and officers liability Insuranoe has been arranged in Lloyd's of Lcndon. b. Umbrella libility poliolea in Lloyd's of London broaden even further the basic policies and increases the total over-all limit of insuranoe ooverage. except for the dlreotors and offloers liability, up to $8,000,000. (1) This also applies as exoess over automobile liability, employers' liability seotion of vortaen's compensation insurance, and the fidelity bond. 6. Workmen's Compensation a. We self-insure workmen's compensation in thirteen (13) states vhere our principal manufacturing is looated. (1) The self-insured states are California, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Maryland, Minnesota, Missouri, Nov Jersey, Ohio, and Pennsylvania. (2) We have exoess insuranoe in oase of a oatastrophe to oover aooidents, exoess of $50,000 up to $2,000,000. (3) Self-insuranoe has saved us over $1,000,000 in the last thirty-four (34) years. b. In other states ve are either under a blanket workmen's compensa tion policy, protecting against liability to employees under the vorkmen's compensation lavs or otherwise, or ve are under a compulsory state fund. GLD004184 NOTES FOR ANNUAL MEETING - 48 - VI. Other Major Funotlons and Items C. Insuranoe (Continued) 7. Automobile a. We insure oompany-owned and leased oars and trucks for liability and physical damage under a company fleet polioy with Allstate Insurance Company. b. Small deduotibles apply to the comprehensive fire and theft and the oollision seotions of the polioy. 8. Losses a. There were no major fires, explosions, or windstorm losses in the fisoal year. (1) Damage to the New Orleans plant by Hurrloans Betsy $31,684 9/ 8/65 (2) Fire in pyrolysis unit at Jacksonville $ 5,204 10/12/65 (3) Hydrogen gas reformer ruptures at Louisville oil refinery Deduotibles $ 9.348 6,000 $17,348 10/30/65 and 11/ 6/65 (4) Smoke and water damage from fire in store adjaoent to Cleveland, Tennessee Br&noh $ 7,535 12/19/65 (5) Bucket elevator explosion from dust at Hammond metal plant $12,117 1/14/66 (6) Fire and water damage at Johnstown metal plant $ 4,975 4/23/66 (7) Windstorm loss at B ft 0 Warehouse, Cincinnati, pigment stook loss (Replaoeuent less salvage value) $ 4.719 7/13/66 Insuranoe Cost a. The total cost of insuranoe premiums for fire, extended coverage, vandalism, and business interruption, and inland transit, as well as boiler and machinery, was $421,426 for the past fisoal year. (This figure should not be given out.) GLD004185 NOTES FOR ANNUAL MEETING VI. Other Major Funotlons and Items 49 - D. Foreign Business The Glidden Company Inoluded in consolidated Glidden sales and net earnings in 1966 and 1965 were the following; 1966 1965 Net Sales Glidden International, C.A. (Including its subsidiaries) Export Division $ 5,491,228 5,221,264 $ 2,373,105 3,677,698 Industries Glidden de Puerto Rioo, Ino. TOTAL 5.369,285 $16,081,777 4.605,741 $10,656,544 Net Profit (After Foreign Inoane Taxes) Glidden International, O.A. (Including its subsidiaries) $ (13,398) $ (190,636) Export Division 406,363 221,055 Industries Glidden de Puerto Rico, Ino. (101,739) (63,420) Headquarters Allocations (304,162) (320,908) TOTAL * (12,936) $ (353.909) The Glidden Company had one aotive foreign lioenaee during 1966 and received a teohnioal servioe fee of $3,256 oaspared with foreign teohnioal servioe fees of $2,360 in 1965 and $2,906 in 1964. GU0004l&b NOTES FOR ANNUAL MEETING - 60 VI. Other Major Functions and Items D. Foreign Business (Continued) The Olidden Company A direot stools interest was held in the following oompanies at August 31, 1966: Name i Of Interest Net Book Cost Consolidated The Olidden Co., Ltd. ~ Canada Olidden International, C.A. Industries Olidden de Puerto Rioo 100.0% 100.0 100.0 $ 50,000 18,018 250,000 $318,018 Unoonsolidated Fabrioa Naoional de Pinturas, S.A. Cuba 15.1 TOTAL 1) The Olidden Company, Ltd. (Canada) * Olidden holds 100% (4,200) shares at a book oost of $50,000: Shareholder's equity at August 31, 1966 was $7,570,108 (including its subsidiary, Walker Brothers, Limited), whioh is inoluded in the consolidated balanoe sheet in the 1966 Annual Report. 2) Olidden International, C.A. - Olidden holds 99 shares (one held by The Olidden Company, Ltd. - Canada) whioh represents effective 100% oontrol. Consolidated shareholder equity at August 31, 1966 and 1965 is shown below: August 31 1966 1965 Glidden International, C.A. Pemoo-Bruges General Paint Co. of Uexioo S.A. Glidden Panama, S.A. Fabrics de Pinturas Olidden, S.A. (Panama) Olidden Salohi, S.p.A. Glidden Chemie, GmbH Eliminations on Consolidation $3,706,527 (1,200,999) 337,483 93,194 83,498 (350,926) 374,167 (539,914) $3,037,443 (772,330) 334,493 94,318 70,207 - 293,653 (541,356) $2,503.030 $2,516,428 GLD004187 NOTES FOR ANNUAL MEETING - 51 VI. Other Major Funot3.ons and Items D. Foreign Business (Continued) The Glldden Company 3) Industries Glidden de Puerto Rioo, Ino. - At August 31. 19660 Glldden held 25,000 shares representing all the shares issued and outstanding, at a value of $250,000. This company was organized in fiscal 1962 as a holding and/or operating ooopany for the various Glidden operations in Puerto Rioo. Operations at August 31, 1966 inoluded. the Puerto Rican paint branches. Trans-Caribe Supply Company (plumbing supply business), Reliable Water Heater Company, Incorporated, (vater heater manufacturer) and P. fu Obra, Incorporated (paint oontraoting). There has been no direot payment for equity in Trans-Caribe and Reliable as such payment is dependent on future profits. Glidden's original loan of $500,000 vas written down to $209,544 during 1963. A further write-off to $195,727 was made in 1964. Owing to Industries Glidden at August 31, 1966 was an additional $939,000 by Trans-Caribe Supply Company. As of August 31, 1966 both Reliable Water Heater Company and P. R. Obra Incorporated have oeased operations. 4) Fabrioa Naoion&l de Pintura3,, S.A. (Cuba) - Glidden holds 31,421 shares which represented a 15.li Interest. The Company expropriated by the Cuban Government in Ootober, I960. Both Glidden and Glidden International were adequately provided to cover the rather nominal aooounts receivable balanoes outstanding. Sinoe the shares were aoquired by Glidden at no direot oost, no investment loss was suffered. GLD0041B8 NOTES FOR ANNUAL MEETING - 52 VI. Other Major Funotions and Items D. Foreign Business (Continued) Glidden International, C.A, At August 31, 1966, Glidden International, C.A. aoted as holding company for the stock of Glidden^s foreign subsidiaries exoept for The Glidden Company, Limited (Canada); Industries Glidden do Puerto Rico, Ino.; and Fabrioa Uaoional de Pinturas, S.A, (Cuba). Details of the direot stook interest are shown on page . In addition to aoting as a holding company, the Belgian Branch of the Company oonanenoed frit manufacturing operations in 1964 in Bruges, Belgium. To extend frit operations into Spain, two new companies were incorporated in May 3.965: (a) Industries Glidden de Espana, $.A, an inactive manufacturing subsidiary and (b) Glidden Iberioa, S.A., a marketing subsidiary. Operations of Glidden Iberica were consolidated with the Bruges operation at August 31, 1966. The sheet galvanizing company in Guatemala, Qalvanlzadora CentroAmericana, S.A., which was established in 1964, completed the construction of its plant during fisoal 1965 and manufacturing began in fiscal 1966i GICA held 51^ of the issued and outstanding capital stock at August 31, 1966 at a value of $306,000. Glidden Intemational, C.A. had twenty-two aotive foreign lioensee3 and received $423,589 in fees from these sources in 1966, compared with $321,428 in. 1965 (tvemty-twolioenseaa)...... ---- ------------- --......... GL 0004189 NOTES FOR ANNUAL MEETING - 53 VI. Other Major Funotlons and Items D. Foreign Business (Continued) Qlldden International, C.A. In 1966, for the fifth year, Glidden International, C.A. was consolidated with The Glidden Company for reporting purposes. Sales and not profits after foreign inoome tax are shown below: Sales (In Thousands) 1966 1965 1964 Bruges Panama Mexioo Salohi (a) 1,349 800 265 996 776 550 812 797 754 2,334 - - 5,491 2,373 1,569 (a) - Operations Consolidated beginning January 1, 1966. it Profit (In Thousands) 1966 1965 1964 Bruges Panama Mexioo Salohi (a) Operating Total (424) 132 5 (361) (638) (540) 120 (8) -I-- (428) (237) 66 (9) (180) Chemie Licensee Inoome Other Sub-Total 106 25 73 424 321 336 240 30 J) 132 (52) 223 Intraoompany Dividend Elimination TOTAL OIGA (145) 3) (139) (11) J> 215 (a) - Operations Consolidated beginning January 1, 1966. GtOOOAl^0 NOTES FOR ANNUAL USETlNO 54 - VI. Other Major Funotlons and Items D. Foreign Business (Continued) Qlidden International, C.A. Glidden International* C.A. funds have been provided from aoouaulsted earnings, bank borrowings* and borrowings from related ooapanies. At August 31* 1966, the following were borrowings outstanding (Both short and long terms): The Glidden Company To: Glidden International, C.A. General Paint Co. de Uexioo, S.A. Fabrics de Pinturas, S.A. (Panama) Glidden Chemie* GmbH Industries Glidden, S.A. de C.V. (Uexioo) Banque de Bruxelles (Belgium) Banque Lamber (Belgium) First National City Bank (Belgium) $ 920,000 424,000 400,000 950,037 25,000 450,000 450,000 600,000 14.219.037 Glidden International,, C.A. had thirteen banking associations at August 31, 1966: Banca d1America e d*Italia Banque de Bruxelles Chase Manhattan Bank Chase Manhattan Bank Banco de Coomeroio Banco de Coomeroio Commerzbank First National City Bank Banque lamber Union Coomeroe Bank First National City Bank Banoo de Bilbao (Banoo de Coomeroio de ( Baja, California, S.A. Uilan, Italy Bruges, Belgium Frankfurt, Germany Panama City, Panama Uexioo City* Uexioo Caraoas, Venezuela Dusseldorf, Germany Panama City, Panama Brussels, Belgium Cleveland, Ohio Brussels, Belgium Barcelona, Spain (Tijuana, Baja, Calif. ( Uexioo GLD004191 NOTES FOR ANNUAL MEETING - 55 - VI. Other Major Funotlons and Items D. Foreign Business (Continued) Glidden International, C.A. At the end of the fiscal year, a direot stook interest was held in the following companies: i of itereet Net Book Cost Consolidated Glidden Panama. S.A. (Panama) Fabrics de Pinturas Glidden. S.A. (Panama) General Paint Co* de Uexioo, S.A. (Uexioo) Glidden Chemie GmbH (Germany) Industrial Glidden de Eapana. S.A. (Spain) Glidden Iberica S.A. (Spain) (Held by: GICA 50{. IGESA 50fl 1001 100 100 100 100 100 $ 20,000 25,000 246,356 250,000 2,250 2,250 Total Consolidated t545.856 Unoonsolldated Glidden Curaoao N.V. (Curaoao) Industries Glidden S.A. de C.V. (Uexioo) Ishihara Sangyo Kaisha, Ltd. (Japan) Pinturas Kouatorlanas S.A. and Distribuidora Americanos C.A. (Ecuador) Pinturas Centro-Aoerioanas (Costa Rioa) Pinturas Centro-Amerioanas (Guatemala) Red V Coconut Products Ltd. (Philippines) Seklsan Paint Ufg. Co. (Japan) Glidden Salehi S.p.A. (Italy) Shave Holdings Limited (South Afrloa) Galvanizadora Centro-Amerloana, S.A. (Guatemala) laokverke Wulflng GmbH A Co. (Germany) Plastikart. Ltd. (Costa Rioa) Compagnia Teonioa-Bnprese Vernloia Tura S.p.A. (Italy) Coopanla Centro-Americana de Conserves, S.A. 1001 100 2.24 | 200 32,000 70,064 33-1/3 60 64 4 25 100 10 62,837 161,268 309,542 47,000 69,500 1,204,776 19,050 51 33-1/3 5 306,000 1,237.500 2,117 51 71.428 245 226,586 GLD00A192 NOTES FOR ANNUAL VESTING 56 - VI. Other Major Functions and Items D. Foreign Business (Continued) Glidden International, C.A. 1. Glidden Panama, S.A. - Glidden International, C.A. held 1,000 shares representing 100^ oontrol. The Company was operating as a paint branch and vas carried at an investment oost of $20,000. ttie Company earned $73,194 in 1966, oompared with $74,318 in 1965. In addition to purohases from U.S. paint plants, the Company is also supplied by a sister, oompany, Fabrioa de Pinturas Glidden, S.A. 2. Fabrioa de Pinturas Glidden, S.A. first started operations in 1964 supplying part of the paint needs of Glidden Panama, S.A. Glidden International, C.A. holds 1,250 shares of etook, representing 100% oontrol. ISie retained profit of this oompany, after deduotion of certain expenses (principally interest on its indebtedness to The Glidden Company) amounted to $56,498 in 1966, oompared to $45,207 in 1965. 3. General Paint Company de liexioo, S.A. - Glidden International, C.A. held all 50,000 issued and outstanding shares of stook of this Company having a net book oost of $246,356. The Company incurred a net loss of $4,820 in 1966, oompared vith a net loss of $7,580 in Deteriorating prices in the Uexioan paint market, increased raw material prioes, interest on indebtedness, and a teohnioal service fee arrangement vith Industries Glidden de Puerto Rioo, Ino. contributed to the unfavorable results. 4. Glidden Chemle GmbH (Germany) - This German holding oompany was formed in fiscal 1961 to hold Glidden International's one-third interest in Laokwerke Wulfing GmbH A Co. Chemle's capitalization represented approximately one-fifth of its investment in Wulfing. The remainder of Chemle's investment in Wulfing originally vas finanoed through loans from Glidden International, C.A. but in April 1963, $444,037 of this financing vas transferred to Industries Glidden de Puerto Rioo, Ino. In fisoal 1964, the then-remaining financing of $356,000 vas transferred to Glidden Panama, S.A. and an additional $150,000 financing vas extended to Chemle by Glidden Panama. During fisoal year 1966, the total loans outstanding of $950,037 vere transferred to The Glidden Company. GLD004193 NOTES FOR ANNUAL MEETING - 57 - VI, Other Major Functions and Items D, Foreign Business (Continued) Glidden International, C.A. 5. Industries Glidden de Espana, S.A. (Spain) - This inactive manufacturing subsidiary was formed in May, 1965 for future expansion of frit operations into Spain and Portugal. All 20 shares of outstanding oonoon stook are held by Glidden International, C.A, at a value of $2,250. Hie extent of its operations at August 31, 1966 was to hold a 50% Interest in Glidden Iberioa, S.A, 6> Glidden Iberioa, S.A. (Spain) - This company vas formed in May, 1965 primarily to market frit in Spain and Portugal, Glidden International,. C.A. holds 10 shares (50{ of shares Issued and outstanding) at a value of $1,125. The remaining 10 shares are held by Industries Glidden de Espam, S,A. and also at a value of $1,125, Operations of this company vere consolidated vith Pemco-Bruges, 7.. Glidden Curaoao, N.V, - Glidden International, C.A, held all twenty shares of the outstanding stook of thi3 Company with a net book oost of $200. The Company vas used in 1962 to receive teohnioal service fees from Group Developments, Ltd. of England. It vas holding $25,000 from British Paints as deferred teohnioal service fees pending outcome of the Ford Development work which vas returned during fisoal 1966. 8. Industrial Glidden, S.A. de C. V, (Mexico) - Glidden International held all 20,000 outstanding shares and this investment vas oarried at its oost of $32,000. This corporate entity has never assumed an operating status. Shareholders' equity at August 31, 1966 totaled $33,146. 9. Ishihara Sangyo Kaisha, Ltd, (japan) - At August 31, 1966 Glidden International, C.A. held 1,345,222 shares of this company's stook, a 2.24X interest. These shares are carried at a net cost of $70,064, the oost of an allotment of 504,458 shares acquired on November 1, 1962. The shares now held had a market value at Iferoh 31, 1966 of $334,497, A dividend of $16,708 vas reoeived by Glidden International, C.A. in 1966, 10. Pinturas Eouatorianas, S.A. and Distribuidora Amerioanas, C.A. (Euoador) Glidden International, C.A. holds a combined 320 shares representing a one-thin! interest in both companies at a oost of $62,837. At August 31, 1966, Glidden International's share of stockholder equity vas approximately $114,079 and technical servioe fees of $6,128 were reoeived during 1966. GLD004194 NOTES FOR ANNUAL MEETING 59 VI. Other Major Functions and Items D. Foreign Business (Continued) Glidden International* C.A. 17. Galvanizadera Centro-Amerioana, S.A. (Guatemala) - In February 1966, Glidden International* C.A. purchased 360 additional shares for a total of 3,060 shares. This represents a 51% interest at a oost of $306,000. A hot-dip sheet steel galvanizing plant began operations in September 1965. Glidden International's share of equity at August 31, 1966 was $379,465. 18. Iaokwerke Wulfing GmbH 4 Co. (Germany) - Glidden International, through Glidden Chemie, holds a one-third interest in this oompany. In 1964, additional equity oapital of $150,000 was invested in Vulfing, bringing International's total investment to $1,237,500. Glidden Chemie share of partnership equity at May 31, 1966 was $1,122,248. The difference between equity and not investment oost was oooasioned by side payments to the Nulfing family for the ezoess of fair value over book value of assets, goodwill, and agreement not to oompete. Chemie'a share of the understatement of fixed assets was oaloulated to be $250,000. 19. Plastiknrt, Ltd. (Costa Rica) - On June 25, 1965, Glidden International purchased ten share for $2,117 which represnts 5 interest. Ninety per oent of the outstanding shares are held by Pinturas Centro-Amarloanas Costa Rioa, Ltda. vhioh gives Glidden International a controlling interest. The Company manufactures and sells fibre glass reinforced plastio produots. At August 31, 1966 Glidden International's share of equity was $2,520. I 20. Compagnia Teonioa-Impress Vemioiatura, S.p.A., (G.T.I.V.E.R.) (Italy) - This oompany was formed December 30, 1964 to perform industrial and maintenance painting servioes on a oontraot basis. Glidden International holds 51 shares of ooomon stock or a 51% interest. 21. Compania Centro-Amerioana de Conserves, C.A. (Costa Rioa) during fisoal 1966 this company was set up to aoquire the assets of The Costa Rloan Pineapple Company, Ltd. As of August 31, 1966 Glidden International, C.A. held at 42.9 interest at a oost of $226,586. GICA's interest is expeoted to reaoh 60-67. Products are basioolly in fruit juioe lines in Central America. At July 31, 1966, Glidden International's share of equity was $129,801. GL D004195 NOTES FOR ANNUAL MEETING - 60 YI Other Major Funotlons and Items D. Foreign Business - (Continued) Industries Glidden do Puerto Rloo, Ino. Sales of Industries for 1966 were $5,369,285 with a net loss of $101,739. Trans-Caribe Supply Company, Reliable Rater Heater Company and P. R. Obra were initially consolidated in fisoal 1965 and Reliable and Obra have ceased operations as of August 31, 1966. Other oorasents oonoeming Industrias Glidden de Puerto Rioo, Ino. may be found on Page 51 Net Sales (in Thousands) 1966 1965 Puerto Rioan Paint Distribution Units Trans-Caribe Supply Reliable Water Heater P. R. Obra $2,241 2,974 25 129 $1,779 (a) 2,203 195 429 00 Net of Intercompany Sales to P. R. Obra. Net Profit After Tai (In Thousands) Puerto Rioan Paint Distribution Units Trans-Caribe Supply Reliable Water Hbater P. R. Obra Industrias Headquarters 1966 1965 $ (57) (146)(a) 161 00 94 (a) (154)(a) $ 106 46 (129) (90) 2 $ (1Q2) * (63) (a) Reliable and Obra show a profit which is a write-off of their negative retained earnings to effeot the 0losing of these two units. The loss on closing Reliable has been absorbed by Trans-Caribe and Obra by Industrias Headquarters. GLD004196 NOTES FOR ANNUAL MEETING - 61 - VI. Other Uajor Functions and Items D. Foreign Business - (Continued) Industrlaa Glldden de Puerto Rioo, Ino. Industries Glidden funds have been provided from borrowings from related oompanies. At August 31, 1965, the following were borrowings outstanding; The Glidden Company To Industries Glidden de Puerto Rioo To Trans-Caribe Supply Company $ 1,594,963 800,000 * 2,394,965 Industries Glidden de Puerto Rioo, Ino. had three banking associations at August 31, 1965: First National City Bank Union Conxneroe Bank Royal Bank of Canada Bato Rey, Puerto Rioo Cleveland, Ohio Hato Rey, Puerto Rioo E. Miscellaneous Cost of the Annual Report this year was oonts each which was oents more than last year. However, our Annual Report costs remain lower than oompanies of comparable size. 9 " Not Available as of 11/18/66. GLDOOAl**7 NOTES FOR ANNUAL MEETUP * 62 VII "Pooling of Interest" Acquisitions Net Sales Net Profit Before Tax Net Profit After Tax Number Number of Shares Earnings Earnings of Shares of Common Per Share Per Share of Common Stook Including Excluding Outstanding Issued Aoq Aoq. at 8/31/66 Allied Foods ft Zippy, Ino. 3,152,760 (405,897) (405,697) 49,429 1.83 1.87 Chris 4 Pitts Bar B-Q Sauoe, Ino. 1,052,164 195,471 100,277 65,886 1.83 1.84 6,559,458 Polarized Meat Co. 5,990,041 656,463 336,766 56,470 1.83 1.85 TOTAL 10,194,965 446,037 228.817 391.785 1.63 1.90 8.559.458 The above the effect in Earnings per share of aoqulred companies handled as "poolings of interest" in fisoal year 1966. Computations were made by removing year end profit or loss (after Tax effeot) and reducing number of shares of ooonon stook outstanding and recomputing earnings per share. The net effeot shows that earnings per share was reduoed by .07^. Distribution: Mr. Dwight P. Joyce Ur. B. V. Uaxey Ur. William G. Phillips Ur. G. S. Warner Ur. P. If. Neidhardt Ur. J. H. Lathe Ur. R. If. Patterson Ur. R. K. Dutton Ur. G. V. Reid Ur. R. E. Dorfmeyer Ur. R. H. King Ur. C. P. Fitzgerald Ur. R. R. Seehausen D. E. ERSETNE GLD00A19fl