Document 3p50N411VKE83gQwLnQ2xyXO

ANNUAL REPORT ' OF THE EAGLE PICKER LEAD COMPANY AND SUBSIDIARIES December 31, 1935 N11819 1*7 The Eagle'Picher Lead Company BOARD OF DIRECTORS Aa E. An d er s o n Fr e d e r ic k He r t e n s t e in Vin c e n t H. Be c k ma n Ar t h u r E. Be n d e l a r i Ca r l F. He r t e n s t e in Jo s e p h Hu mme l , Jr . Ch ar l e s L, Ha r r is o n A. Kie f e r Ma y e r Ro b e r t E. Mu l l a n k OFFICERS Ar t h u r E. Be n d e l a r i, President Fr e d e r ic k He r t e n s t e in , Vice-President Fr a n k W. Po t t s , Vice-Pres. and Gen. Mtr. Jo h n R. Mac Gr e g o r , Vice-President Wil l a r d E. Ma s t o n , Vice-President Jo s eph Hu mmel , Jr ., Secy-.Treas. Ca r l A. Geis t , Asst, Treat. Wil l ia m R. Dic e, Comptroller TRANSFER AGENT We s t er n Ba n k & Tr u s t Co mp a n y , Cin c in n a t i, Oh io REGISTRAR Ce n t r a l Tr u s t Co mp a n y , Cin c in n a t i, Oh io The Eagle'Picher Sales Company BOARD OF DIRECTORS A. E. An d er s o n Ca r l F. He r t e n s t e in Vin c e n t H. Bb c k ma n Ar t h u r E. Be n d e l a r i Ch a r l es L. Ha r r is o n Jo s ep h Hu mme l , Jr . A. Kie f e r Ma y e r Ro b e r t E, Mu l l a n e Fr e d e r ic k He r t e n s t e in Fr a n k W. Po t t s OFFICERS Ar t h u r E. Be n d e l ar i, President Th u r man C. Ca r t e r , Vice-President Fr a n k W. Po t t s , Vice-President Jo s eph Hu mme l , Jr ., Secy.-Treat. Wil l a r d E, Ma s t o n , Vice-President Ca r l A. Gr is t , Asst. Treas. Wil l ia m R. Dic k , Comptroller The Eagle - Picher Mining and Smelting Company BOARD OF DIRECTORS A. E. An d e r s o n Vin c e n t H. Be c k ma n Ar t h u r E. Be n d e l a r i Ch a r l e s L. Ha r r is o n Ca r l F. He r t e n s t e in Jo s ep h Hu mme l , Jr . A. Kie f e r Ma y e r : Ro b e r t E. Mu l l a n e Fr e d e r ic k He r t e n s t e in Ge o r g e W. Po t t e r . OFFICERS Ar t h u r E. Be n d e l a r i, President Fr a n k W. Po t t s , Vice-President Ge o r g e W. Po t t e r , Vice-President Jo s eph Hu mme l , Jr ., Secy.-Treas. Fr ed er ic k He r t e n s t e in , Vice-President Ca r l A. Ge is t , Asst. Treas. Wil l ia m R. Dic e, Comptroller m . : jf. ANNUAL REPORT The Eagle -Picher Lead Company and Subsidiaries . To ort h e St o c k h o l d e r s THE EAGLE-PICHER LEAD COMPANY: Submitted herewith is a Consolidated Balance Sheet of The Eagle-Picher- Lead Company and Subsidiaries as of December 31, 1935, together with Consolidated Profit and Loss Account and Consolidated Surplus Account for the year then ended. The Consolidated Balance Sheet and the Consolidated Profit and Loss Account are presented on a comparative basis with corresponding statements for the preceding year, and were prepared by Barrow, Wade, Guthrie and Company, whose report in connection therewith is attached hereto. Consolidated Net Income for the year after all charges, including provision for depletion, depreciatioiiand income taxes, was $583,620.27. This compares with a net joss of $153,191.63 for the year ended December 31, 1934. In studying the comparisons with last year consideration must be given to changes in accounting procedure which became effective in 1935. At the stockholders' meeting on November 26, 1935, a reduction of the par value of the common stock from $20.00 to $10.00 per share was authorized. Reserves were subsequently provided from the surplus thus created against which certain items have been charged, and due to the adjustment of fixed asset values depreciation and depletion charges for the year were reduced. Another change in accounting procedure which affected profits was the adoption of the normal inventory system of valuing metal inventories. The profits for the year would have been $399,095-37 greater had we computed profits under rhe method of valuing inventories in effect prior to 1935, instead of under the new svstem of valuing normal inventories adopted as of January 1,.. 1935. However, profits were increased by reduced depreciation and depletion charges to the extent of approxi mately $220,000.00, and charges to reserves for certain losses and expenditures amounting to approximately $135,000.00 further in creased profits as compared with the former method of handling such items. The net result after giving effect to these changes is that profits were approximately $44,000.00 less than they would have been if the changes had not been made. The reduction in profits due to the adop tion of the normal inventory system should be considered as an appro priation to protect us against possible future declines in the market values of metals. You have been repeatedly told of the effect of market declines on our profits, and we believe that no one will dispute the wisdom of adopting a system which wilT level out profits over a period of years rather than showing wide variations in profits-due to fluctuations in the prices of metals. This method of valuing normal inventories has been adopted by many leading companies. Net sales in 1935 amounted to $16,032,815-71 as compared with $11,802,257.27 in 1934. This is an increase of $4,230,558.44, or ap proximately 36%. Sales tonnage of manufactured products was 10% greater than in 1934- i In 1935 the prices of metals advanced arid at the close of the year were substantially higher than at the beginning of the year. The benefit of increases in prices of metals is reflected in the profits of the Company, and if present prices are maintained, such benefits should continue to be realized. A table of the prices of metals as of the be ginning of the last seven years is presented below: 1930 1931 1932 1933 1934 1935 1936 Zinc Concentrates, per ton................. $35-00 $25-50 $18.00 $18.00 $28.50 $26.00 $32.00 Lead Concentrates, per ton................. 75-00 57-50 35.00 32.00 46.00 36.00 47.00 Slab Zinc, per cwt.. 5.45 4.125 3-125 3.125 4,35 3-725 4,85 Pig Lead, per cwt.... 6.25 5-10 3-75 3.00 4.15 3-70 4-50 Piiff Two Mining and Milling operations were conducted on a larger scale during 1935 than during any year since 1929. Our production of lead and zinc concentrates in the Tri-State District during the last five years was as follows: 1935 1934 1933 1932 1931 Zinc Concentrates (tons)......... 69,086 53,647 51,651 28,858 19,626 Lead Concentrates (tons)........ 11,446 10,802 7,423 3,140 3,487 80,532 64,449 59,074 31,998 23,113 - Productioncof lead and zinc concentrates at our Montana Mine, Ruby, Arizona, during the last two years was as follows: . Zinc Concentrates (tons).................. . . .... Lead ^Concentrates (tons)...................... . 1935 6,668 11,075 1934 2,035 .3,560- 17,743 5,595 The Montana Mine was reopened in the fall of 1934 which accounts for the limited production in that year. The concentrates produced in 1935 contained 7,953 ounces of gold and 671,447 ounces of silver. Substantial profits were made from operating this mine in 1935- In 1935 our available ore reserves in the Tri-State District of Missouri, Kansas, and Oklahoma, were considerably, augmented by acquiring mining rights and leases covering 6,000 acres in the Webb City, Qronogo District of Missouri. The north end of this field was dewatered and placed in production- during the latter part of the year. In excess of 1,000 tons of crude ore from this district are now being milled over our Central Mill daily. A campaign is now under way to dewater the rest of the field. The ratio of current assets to current liabilities at the end of the year was 7-7 to 1, as compared with 5 to 1 at the end of the preceding year. Net working capital at December 31, 1935, was $6,860,115-43, or $1,145,478.64 greater than at the end of the previous year. Following our long standing policy we have maintained large inventories in order to benefit from increased prices which should Pdg? Threti result from any improvement in general business conditions. At the end of the year inventories amounted to 71% of our total current assets. The combined lead and zinc content of inventories at Decem ber 31, 1935, was 54,891 tons, and this compares with a total of 54,401 tons at December 31, 1934. The deficit in Earned Surplus of $3,821,768.78 at the beginning of the year was eliminated by charging it against Capital Surplus arising from reducing the par value of the common stock. Other charges to Capital Surplus, as shown in the Consolidated Surplus Account at tached, reduced the balance at the end of the year to $1,324,430.00. Consolidated Earned Surplus at the end of the year was $573,321 07. The total of both classes of surplus was $1,897,751-07. In my letter to the shareholders it was stated that the Capital Surplus after giving effect to proposed adjustments would be slightly in excess of $1,200,000.00. Due to not requiring the total amount proposed for normal metal inventory reserves and to minor changes in other adjustments, Capital Surplus is greater than originally an ticipated. In 1935 dividends representing the accrual for one-quarter on preferred stock, or $8,233-50, were paid. In addition to this payment there has been accrued and charged against surplus, dividends for the last quarter of 1935 in the same amount. This dividend was paid on February 1, 1936. The reduction in the par value of the common stock from $20.00 to $10.00 per share, which the stockholders approved on November 26, 1935, together with adjustment of accounts, has been given effect to in the attached statements. The statements are submitted in com parative form so that changes may be readily seen. The consummation of the changes in capital stock and adjustment of accounts was the important accomplishment of the year, and the Directors express their appreciation to the shareholders for their co operation in bringing it about. The sound position of your Company is Page Four evidenced in the attached Consolidated Balance Sheet, and we believe that your Company is in a position to take advantage of improve ments in business conditions and reflect the results of such improve ments in the Profit, and Loss Statement. v In closing, the Management again expresses its appreciation for the spirit of cooperation shown throughout the year by the entire staff. A. E. BENDELARI President With the approval of the Board of Directors. Cin c in n a t i, Ohio. February 29, 1936. - m flS?:wWIlfflgii] ilililillii'HI -j ! I'-': HIHBBIIHlS'BIlSlifIflllliifStliilf!i IBHIilliillll : HllliH t*1' " I'llllj K MMiBlI III ii- ^ fll'lllllilllllill :! c. I: -M The - Eagle'Pieter; - CoAtp CONSOLIDATED WMKCE SHEETS' >4$.AT ASSISTS Cu r r e n t As s e t s : OtcMtua 31, 1935 Dmc w **w * 31..954 1 Cash: in Banks and on Hand.-.-.. . 5 .464.250:75. ' $ . 627,^63-25 Accounts- and. Notes 'Receivable*--Trade. $ 2,023,566-54 S 1.74S.710.50 Accounts and - Notes- Receivable.--'Other.... . _ 67.164.S8 _ 97.710.46 2,090,731-42 "i "846.^20 9;" Less - Reserve for Bail and Doubtful Accounts 240,82^.65 1,849,907.77 226392.07"' 1,619,528.89 Inventories of Raw Materials, WorJc in Process and Finished Products (including merchan dise on consignment to customers): Ores, Metals and Metal-bearing Products --valued at cost or market of metal content, whichever svas lower at De cember 51, plus'manufacturing costs on Work in Process and Finished Products Other,Merchandise for Resale. .:........ 4,950,013-23 227,619.31 4,331.2SS.73 191,822.51 5,177,632.54 4,523,111.24 Manufacturing Supplies and Stores.. .. .. 382,303.97 5,559,936.51 375,603.54 4,89S,714.7S Ot h er 1As s et s : . . . ..i:.- .. Surplus: Equipment, .Repair P.-irrs, Supplies,. etc.--less Reserve...... . .. .......... . Employees' Loans and Expense Advances., V. Miscellaneous Accounts, Advances, etc.. .-. .. 164,924.00 26,990.01 72,357.08 7,874,095-03 < O'5 ! 264,271,09 7,146,106.92 '1 ;- ' 277.599.81 32,029.90 34,167.36 343,797.07 Fix e d As s et s --at cost: Operating Plants and Property..... .". ....... 15,150,111.48 19,949,443-86 Z.c.rj --Reserves for Depletion, Depreciation, etc... . . . . .................................................. 9,861,709.22 10,905,132.57 Appreciation--less Amortization.... ........ Non-Operating Plants and Property.`... ,V. . . . . ..... $3,398,768.07 5,288,402.26 9,044,311.29 1,131,232.96 Less--Reserves for Depletion, Depreciation, etc........ . . 3,168,725.8.5. -.Se l f -In s u r an c e 'Fu n d .Se c u r it ie s : 230,042.22 5,518,444.43 "X'y 10,175,544.25 / :U. S. Treasurv Obligations--at cost (Market . Value at Dec, 31, 1935..$119,951.46)........ 118,630.84 86,931-69 In v es t men t s : Stock of Wholly Owned Subsidiary nor con solidated. .. . . .... . . ............................ Stock of Other Subsidiary not consolidated. . y Sundry Securities--at estimated recoverable value.. . . ............................. ........................ 1.00 10,200.00 24,784.08 34,985.08 1.00 10,200.00 35,639.82 45,840.82 Tr eas u r y St o c k --at cost: : Purchased for resale to Employees: ` Preferred-- 65 shares..........,. . Common--5,924 shares.......... ....... 2,330.75 21,797.56 24.12S.31 2,330.75 21,797.56 24,128.31 Pr e p a id , a n d Def er r ed Ch a r g e s : ; : Prepaid Freight, Insurance, etc....:, :; Construction Work in Progress..7..... . ,y ; Manufacturing Supplies. .:........ ..., i: Compensation Claims and Insurance,Advances / Other Deferred Charges................:.... Pat en t s , Go o d w il l , et c . ..................... .......... . SS,324.91 71,440.22 12,449.51 13,205.34 195,419.98 1.00 97,196.21 8,526.95 108,837.18 13,502.07 17,571.27 245,633.63 1.00 $14,030,025.81 $18,067,983-74 Pap Six ' - 1 - -r ~ '' ` / * ,, . r -.'.V " ' ' 7?; tampany and Subsidiaries \S' AT DECEMBER 31, 1935 AND 1934 LIABILITIES De c emb e r 31, 1935 Cu r r e n t Lia b il it ie s : . Notes Payable--Banks and Brokers.......... Accounts Payable................. .................... . . . 722,368.13 W Accrued Liabilities: Taxes--other, than Federal Income-Tax-.---;-: $ 87,324.12 'Wages..,....:..:............ 39.83S.65 Compensation Awards, etc...... ..... . 33,840.82 Provision for Federal Income Taxes--esti mated..... . ; . .... ... . ............... ... .... . . . 97,568.67 Dividend on Preferred Stock............. . 8,233-50 Other Accrued Liabilities......... . . ............ 7,867.76 274,673-52 Customers'Credit Balances.,. 16,937.95 De c e mbe r 31, 1934 $ 800,000.00 422,664.90 61,548.30 39,937.50 26,526.32 3,243.30 25,746.66 157,002.08 51,803.15 Re s e r v e s io r Se l p -In s u r a n c e: Workmen's Compensation Liability..... ., Fire and Tornado Coverage. ,,.... ........ 1,013,979.60 110,635-33 28,101.84 138,737.17 , 1,431,470.13 82,591.94 21,142.18 Re s e r v e s i'o r No r ma l Me t a l In v e n t o r y Pr ic k Fl u c t u a t io n ............................. 953,162.66 RESERVES VOR CONTINGENCIES............................ 470,995.31 Ca p it a l s t o c k : Preferred 6% 'Cumulative---par- value S100; redeemable at $105: Authorized and Outstanding..-5,554 shares Common--par value $10: Authorized --1,000,000 shares . Issued and Outstanding-- 900,000 shares . Su r pl u s Ac c o u n t s --per detail Attached: Capital Surplus._____ . .. ............................ . Earned Surplus: Operating; Surplus or Deficit at December 31, 1934. ............ . $ 6,167.80 Operating Surplus Since Janu ary 1, 1935..:.................... 567,153.27 .555,400.00 555,400.00 9,000,000.00 9,555,400.00 18,000,000.00 18,555,400.00 -----------------------... . ----- .:--------------------------------- . 1,324,430.00 1,799,148.27 573,321.07 1,897,751.07 3,821,768.78* 2,022,620.51* Co n t in g e n t Lia b il it y --In respect of liabilities presently undeterminable, including pending .:. SUitS. ' $14,030,025-81 $18,067,983-74 The Eagle "Picher Lead Company and Subsidiaries CONSOLIDATED PROFIT AND LOSS ACCOUNTS For the years ended December 31, 1935 and 1934 Ne t Sa l e s . ....................................... Ye a r En d e d Dec ember 31, 1935 . $16,032,815.71 Ye a r En d e d Dec ember 31, 1934 $11,802,257.27 Pr o d u c t io n a n d Ma n u f a c t u r in g Co s t s . . ; 12,990,380.21 9,752,758.56 Gr o s s Op e r a t in g Pr o f it --before Depre ciation and Depletion..... ................. 3,042,435.50 2,049,498.71 Ex p e n s e s : Selling........ . $875,558.81 "Traffic, Warehousing and Shipping........ 226,679.77 General and Administrative....................... 566,264.24 Bad Debt Provision--less Recoveries 89,192.09 $724,959.81. 176,165.42 575,346.21 1,757,694.91 87,069.62 1,563,541.06 Nu t Op e r a t in g Pr o f it --before Depre ciation and Depletion........... ......... Ot h e r In c o me : Royalties............ ................................ . Interest and Dividends................................ Miscellaneous.. ............. ............ 29,623.33 8,429.54 34,882.53 1,284,740.59 Hi'l !1 tr 72,935.40 36,223.07 9,415.56 46,848.63 485,957.65 'S'* 92,487.26 In t e r e s t o n :No t e s Pa y a b l e . ..... ....... 1,357,675.99 16,867.01 578,444.91 30,862.82 Pr o v is io n f o r De p r e c ia t io n a n d De p l e t io n (of Operating Plants and Property only in 1935)........ ................... .........................V 1,340,808.98 640,438.71 547,582.09 697,282.00 Ne t Pr o f it o r Less--before Provision for Income Taxes........................................ . 700,370.27 149,699.91* Pr o v is io n f o r Fe d e r a l a n d St a t e In c o me Tax es --estimated ................................. Ne t Pr o f it o r Less f o r Ye a r ....................... r 116,750.00 <5 583,620.27 3,491.72 $ 153,191.6)* Red litters and figures in italics. Page Eight ' Tlie Eagle'Piciier Lead Company and Subsidiaries CONSOLIDATED CAPITAL SURPLUS ACCOUNT For the year ended December 51, 1935 Su r pl u s a t Dec ember 31, 1934........................ ............... . S 1,799,145.27 Su r pl u s Cr eat ed by reduction in Stated Capital of The Eagle-Picher Lead; Company................................ ....................................................... .... 9,000,000.00 Ad j u s t men t s a n d Res er v es authorized by Boards of Directors: Operating Deficits as at January 1, 1935, transferred;.............. ....... .... $4,256,086.54 Appreciation written off.________ _________ _______ 1,131,232.96 10,799,148.27 Reserves Provided: For Obsolescence, Abandonment and Loss on Fixed Assets......., For Normal Inventory Price Fluctuation........ ........ ........................... For Obsolescence of Manufacturing Supplies.. For Contingencies.................. ............ ......................................... ..... 2,849,814.78 554,067-29 85,000.00 600,000,00 9,476,201.57 Ad j u s t ed Su r pl u s a t Ja n u ar y 1, 1935......-............ .............. 1,322,946.70 Ad j u s t men t s applicable to period prior to January 1, 1935, in respec t of Fixed Assets..................... . ............ ........................ ....................... ......... 1,483-30 Su r pl u s a t Dec ember 31, 1935-.......................... .., .... ......... $ 1,324,430.00 CONSOLIDATED EARNED SURPLUS ACCOUNT For the year ended December 31, 1935 De f ic it a t Dec ember 31, 1934, arising from Operations.. $ 3,21,768.78 Ad j u s t me n t s as of January 1, 1935 : Adjustment of Fixed Assets and Depreciation Reserves of The EaglePicher Lead Company to reflect inventory as of January 1,1935. Manufacturing Supplies written ofF-Hammar Plant. ..... ............ .. $319,568.51 108,581.45 428,149.96 Def ic it s of The Eagle-Picher Lead Company and The Eagle-Picher Mining and Smelting Company as at January 1, 1935, transferred to Capital Surplus by authority of the respective Boards of Directors 4,249,918.74 4,256,086.54 Ad j u s t e d Su r pl u s a t Ja n u ar y 1, 1935-................... 6,167-80 Net In c o me for year ended December 31, 1935-....... 583,620.27 Pr ef er r ed Div id e n d s paid and accrued for the period from July 1 to December 31, 1935................................ ........... ........................... 589,788.07 16,467.00 Su r pl u s a t Dec ember 31, 1935........... ............... ......................... ......... $ 573,321.07 Page Nine BARROW, WADE .GUTHRIE & CO. (KStUL'tMCB icaii ACCOUNTANTS AND AUDITORS ONt KOUTH LASAIIX STNCtr CHICAGO To t h is Dir e c t o r s THE EAGLE-PICHER. LEAD COMPANY Cin c in n a t i, Oh io We' have made an- examination .of the attached Consolidated Balance Sheet of The Eagle-Picher Lead Company and Subsidiaries as at December 31, 1935, and of the related Consolidated Profit and Loss and Surplus Accounts for the year then ended. In connection therewith, we examined or tested accounting records of The EaglePicher Lead Company and The Eagle-Picher Sales Company and other supporting evidence and obtained information and explanations from officers and employees of the Companies; confirmed cash and securities by inspection or certificates from depositaries; reviewed the status of accounts and notes receivable and the.-related reserves; and reviewed accounting methods and theoperating and income accounts for the year, but did not make a detailed audit of the transactions. The accounts of The Eagle-Picher. Mining and Smelting Com pany and Subsidiaries, as examined and reported upon by other independent accountants, itave been included in the accompanying consolidated statements. Consistent with previous practice, all unsold ore, metals and metaLbearing products on hand at December 31, 1935, as determined by physical Inventories taken bv cite Com panies or their agents, have been valued at cost or market price of metal content, whichever was lower at the close of the accounting period, plus manufacturing costs (exclusive of provision for depletion and depreciation') on materials in process and finished products. Effective as at January 11.935j/however. The Eagle-Picher Lead Company and its principal subsidiary, The Eagle-Picher Mining and Smelting Company,. adopted the method of carrying normal stocks at fixed prices, a policy followed by marly'leading companies whose inventories consist largely of basic raw materials. The Boards of Directors of the respective Companies established the following normal stocks, priced as to lead at $3.70 per hundred pounds New York base and as to zinc at $3,725 per hundred pounds East St. Louis base; for The Eagle-Picher Lead Company, 21,000 tons of lead and 7,500 tons of zinc; and, for The Eagle-Picher Mining and Smelting Company, 5,000 tons each of lead and zinc. Initial reserves of $554,067.29, to reduce the valuation of such normal stocks at January 1, 1935, to or below' the fixed prices, were established by the Boards of Directors by appropriations from Capital Surplus; arid subsequent increases in these reserves, as computed by the Companies, to reduce the current valuation of such normal stocks to approximately the respective fixed prices, have resulted in net charges to current operations of $399,095.37, to. which.effect- has been given in the attached statements. As at Decem ber 31, 1935, the Boards of Directors further reduced the fixed prices on normal stocks of lead and zinc to $3.00 per hundred pounds, New York base and East St. Louis base, re spectively; the initial reserves provided from Capital Surplus having been adequate to cover this reduction. In'connection with our examination we made comprehensive tests of the method of computation'and pricing of inventories. While inter-company profits and losses are not practicable of determination and have, therefore, not been eliminated from inventories or current operating results, the effect of profits of this nature, if any, upon the consolidated current position is much more than offset, at current metal prices, by the above reserves for price fluctuation, if these reserves be deducted from the asset value; and, in the opinion of The management, the effect upon the results of operations is rendered unimportant by the relative stability of the Companies' metal stocks. - .