Document 8RLYjZ4pLaO7DpR34QxLKJ1xy

THE GLIDDEN COMPANY CLEVELAND, OHIO WMU ANNUAL REPORT Year ended October 31, 1939 J GLD0028 89 THE GLIDDEN COMPANY CLEVELAND, OHIO To the Shareholders of The Glidden Company: The report of your Company for the year ended October 31, 1939, is submitted here with. The net profit for the year, after all charges but before special reserves, was 32,103,389.96. After special reserves of 3249,840.84, the final net profit was 31,853,549.12. This compares with a final net profit for the previous year of 3205,597.25. It will interest you to know that every division of the Company-- Paint, Chemical and Pigment, Metals Refining and Food Products -- showed a substantial profit. After preferred dividends, earnings applicable to the common capital stock of the company, less shares held in the treasury, amounted to 31.70 per share. The sales for the year showed an increase of 33,775,024.94 over the previous year, the most important increases being in the Paint, Chemical and Pigment and Metals Refining Divisions of the Company. The total sales of the Food Products Division showed a decline due to the lower per unit market prices on edible oils which prevailed throughout the year. At the end of the year the Company finds itself in a favorable position as to inventories. The total inventories show quite a liberal reduction over the previous year, largely due to closer control on purchases of commodities subject to market fluctuations. The Com pany follows the policy of minimizing the speculative risks by hedging its purchases of important basic commodities wherever possible, and follows a conservative policy in the purchase of other raw materials where hedging is not feasible. In referring to inventories, it may be of interest to know that in addition to the usual test checks of our inventory records, the Public Accountants had representatives check the methods and carefully observe the procedures followed in the taking of inventories at a number of our most important plants. They reported that in their opinion such methods and procedures are entirely adequate and were carefully carried out. Following its established policy, the Company continued to spend very considerable amounts on original research and in the development of new products, the cost of which was absorbed in the operations. The results obtained will contribute in a generous measure to the future profits of the company. During the year the Company's policy of modernization of all its plant and equipment has been followed, and this has resulted in bringing the plants up to date and putting GL00028 90 our manufacturing facilities in shape to meet competitive situations. Because of the Company's liberal depreciation policy, this modernization program has not adversely af fected the conservative values at which the plants are carried on the books. During the year the Company was successful in refinancing its long term loans at lower interest rates, resulting in a liberal annual saving. Aside from its successful and growing Paint and Varnish business in Canada, the Company has no investment in foreign countries. Following conservative accounting practices, a reserve of $49,840.84 has been set up out of the current year'* profits to provide for the disparity in exchange between the Canadian and American Dollar on the net current assets. An eventual actual loss due to the difference in exchange is not an ticipated. The returns on investment in affiliated companies, for whose management and opera tions the Company is responsible, were satisfactory, and prospects are good for increased returns for the ensuing year. Since the start of the new fiscal year, November 1, 1939, the sales and profits of the Company have shown gratifying improvement over the same period for last year. From orders in hand and from reports of our Sales Departments, it is apparent that we may look forward to a satisfactory business at least during the first six months of our year. In view of the earnings and the strong financial position of the Company as reflected in our report, the Directors felt warranted in declaring a dividend on the common shares of the Company payable December 23, 1939. While it is difficult to predict the future in these uncertain times, yet it is believed that operating results will justify the Directors in declaring further dividends as our new year goes on. Your Directors are gratified with the mutually satisfactory labor conditions existing throughout the whole organization, and again take pleasure in expressing their apprecia tion of the good work of the executives and employees whose loyal efforts have con tributed to our continued industrial progress. By order of the Board of Directors. December 30, 1939. ADRIAN D. JOYCE, President. Gt-0002891 CONSOLIDATED The Glldden Company and Go October ASSETS CURRENT ASSETS Cash........................................... ........................................... 3,721,585.00 Trade notes and acceptances receivable .................... . . 102,424.82 Trade accounts receivable....................................... .... . . 4,699,065.47 Less reserves.......................................................................... Inventories -- at lower of cost or market: Raw materials, in process, finished goods and supplies . Other current accounts receivable........................................ X 4,801,490.29 120,823.31 4,680,666.98 9,779,601.30 327,121.15 18,508,974.43 INVESTMENTS IN SUBSIDIARY AND AFFILIATED COMPANIES California mining companies -- at less than cost -- Note A: Capital stock (100% owned)....................... Bonds -- principal amount 500,000.00............................ Advances.............................................................................. Affiliated company -- at cost -- Note B: Capital stock...................................................................... 15,000.00 187,500.00 896,958.60 1,099,458.60 690,001.00 1,789,459.60 OTHER ASSETS AND INVESTMENTS Cash surrender value of life insurance................................ Sundry investments............................................................... Miscellaneous notes and accounts, advances to salesmen and claims against closed banks, less reserves................ 464,196.50 78,629.47 85,327.69 628,153.66 PROPERTY, PLANT AND EQUIPMENT Land -- at cost or less ........................................ ... , . . . Buildings, machinery and equipment -- at cost or less . . Less reserves for depreciation and depletion 2,143,261.84 19,674,749.56 21,818,011.40 7,203,788.31 14,614,223.09 INTANGIBLES Patents and rights to manufacture -- at cost, less amortiza tion ... ...................................................................... 85,217.33 DEFERRED CHARGES Inventories of advertising stock and stationery, prepaid in surance and expenses ....................................................... Special new products development....................................... 433,043.42 115,916.91 548,960.33 36,174,988.44 GLD002892 LANCE SHEET lldated Canadian Subsidiary ,1939 LIABILITIES, CAPITAL STOCK AND SURPLUS CURRENT l ia b il it ie s Notes payable -- through broker....................................... Accounts payable ................................................................... Accrued taxes, royalties, interest, insurance, etc.. . . . . Federal, state and dominion taxes on income -- estimated. $ 500,000.00 1,433,178.65 351,908.09 450,337.11 $ 2,735,423.85 LONG TERM NOTES PAYABLE Bank loans -- principal amounts maturing 5250,000.00 on luly 1, 1941, and 5500,000.00 annually on July 1, 1942, July 1, 1943, and July 1, 1944 -- interest at 2M% ... Serial note -- maturing July 1, 1945 -- interest at 3%. . . $ 1,750,000.00 2,000,000.00 3,750,000.00 RESERVES For adjustments of open contracts to market.................... For contingencies.................................................................. 5 200,000.00 ...........67,885.56 267,885.56 CAPITAL STOCK AND SURPLUS Capital stock: Convertible preferred, cumulative, par value 550.00 a share (redeemable at 553.75 per share through July 1, 1940, and 552.50 per share thereafter -- each share con vertible through March 1,1941, into eight-tenths share of common stock and thereafter into seven-tenths share of common stock): Authorized 200,000 shares Converted 60 shares Issued and outstanding 199,940 shares ................................... 5 9,997,000.00 Common, without par value: Authorized 1,200,000 shares Outstanding in cluding treasury shares 835,591 shares Reserved for conversion 159,952 shares Stated capital.................................................................. 4,180,655.00 514,177,655.00 Surplus -- Note C: Capital surplus................................................... ... 5 8,374,036.92 Earned surplus.................................................................. 7,078,945.34 15,452,982.26 Less capital stock in treasury -- at cost: Common --10,170 shares ............................................... 529,630,637.26 208,958.23 29,421,679.03 536,174,988.44 CONTINGENT LIABILITIES Letters of credit outstanding............................................... Endorser of uncollected drafts............................................... S/i note1 on folloteing page. 5 580,504.50 1,286.64 GLD002893 ,4 NOTES TO CONSOLIDATED BALANCE SHEET Note A -- Investment* in California mining companies, whose assets consist almost entirely of properties not being operated, are stated herein at less than cost, which carrying amount on the basis of unaudited balance sheets, was 67,557.38 more than the aggregate net assets as shown by the books of those companies. Losses (aggregating 2305,179.74 in excess of provisions or other credits of The Glidden Company applicable thereagainst) have been experienced by these companies from date of acquisition to October 31, 1939, however, the losses for the past few years, since operations of propciti ss went suspended, have represented principally expenses in main* taining the properties. The value of investments in these companies is indeterminable at this time. Note 6 -- Investment in affiliated companyreprtsents one hundred per cent interest in 7% preferred stock of the American Zirconium Corporation, having a par value of 600,000.00, the dividends on which have been paid to &tobcr 1, 1939, and a forty-five per cent in terest in the common stock of the same company; the unaudited statement of the company shows accumulated undistributed earningi of 74,982.54 at October 31, 1939, of which $32,167.25 is applicable to The Glidden Company's investment therein. Note C -- The indenture, dated July 1, 1938, relating to serial notes of the Company contains an agreement that to long at any of the notes shall be outstanding the Company will not declare or pay any dividends, other than stock dividends, on any shares of its common stock (subject to modification that the Company may use not exceeding 3200,000.00 in the purchase or retirement of its common stock) or make any distribution in respect thereto, except out of consolidated net earnings, as defined in the indenture, subsequent to October 31, 1937. Note D -- Net assets located in Canada consist of net current assets of 414,674.74 which have been included herein at the prevailing rate of exchange, and property, plant and equipment and sundry deferred items of 134,847.83 which have been Included at amounts shown on the books of the Canadian subsidiary. Consolidated earned surpl'is includes the amount of 1,090,270.57 for the Canadian subsidiary. CONSOLIDATED SURPLUS ACCOUNTS The Glidden Company and Consolidated Canadian Subsidiary Year ended October 31,1939 CAPITAL SURPLUS Balance November 1, 1938 ..........................................................................................................2 8,374,605.02 Adjustment of expenses in connection with common stock sold in 1938 ............................... ............ 10,000.00 g 8,384,605.02 Excess of cost of 1,844 shares of common treasury stock, exchanged for capital stock of Liberty Vegetable Oil Company, over the book amounts of net assets of that company. .10,568.10 Ba l a n c e Oc t o ber 31, 1939 ...................................................................................... g 8,374,036.92 EARNED SURPLUS Balance November 1, 1938 ..........................................................................................................g 5,675,282.64 Add net profit for year ended October 31, 1939 ...................................................................... 1,853,549.12 g 7,528,831.76 Less dividends paid: Convertible preferred -- g2.25 a share.................................................................................. 449,886.42 Ba l a n c e Oc t o ber 31, 1939...................................................................................... g 7,078,945.34 Note -- In prior years certain items of discount and expense, provision for contingencies and losses on dismantlements have been charged to capital surplus. If such items together with additional depreciation claimed tor federal income tax purposes for the years 1932 to 1939 inclusive, had been charged against earned surplus instead of capital surplus the respective amounts of such surplus accounts would be $5,957,373.84 and $9,495,608.41 as at October 31,1939. GLD002894  CONSOLIDATED PROFIT AND LOSS STATEMENT The Glidden Company and Consolidated Canadian Subsidiary Year ended October 31,1939 Net sales............................... ... ..................................................................: Cost of goods sold, selling, administrative and general expense (exclusive of depreciation) . .................................................................................................. Pr o f it Be f o r e In t e r e s t , De p r e c ia t io n a n d Ot h e r In c o me ............ Other income................ ... .......................................... ... Other deductions; Interest on bank loans and serial notes............................... ... ....................... $ Sundry.................................................................................................................. Pr o f it Be f o r e De p r e c ia t io n , Ta x e s o n In c o me a n d Sp e c ia l Ch a r g e s ............................................................................ Provision for depreciation and depletion.......................................................... Pr o f it Be f o r e Ta x e s o n In c o me a n d Sp e c ia l Ch a r c e s . . . Taxes on income -- estimated: Provision for federal income tax ... . ....................................................... Provision for dominion and state taxes on income....................................... $ Pr o f it Be f o r f . Sp e c ia l Ch a r g e s ................................ .... . , . . Special charges: Provision for adjustments of open contracts to market ................................ Reduction of net current assets in Canada to rate of exchange in effect at October 31, 1939 .......................................................................................... $ Ne t Pr o f it .................................................................................................... $47,824,047.45 44,522,244.97 $ 3,301,802.48 390,995.76 $ 3,692,798.24 147,863.39 203,286.03 351,149.42 $ 3,341,648.82 804,516.58 $ 2,537,132.24 400,000.00 33,742.28 433,742.28 $ 2,103,389.96 200,000.00 49,840.84 249,840.84 $ 1,853,549.12 Note A -- No provision has been made in the foregoing statement for loss on wholly owned, non-operating California mining com panies for the year, amounting to48,428.91 including provision for depreciation in the amount of $27,896.08. Note B -- Depreciation to be claimed in the Company's federal income tax return for the year 1939 will exceed the proviaion in thia statement by the amount of $97,890.20, due to depreciation claimed on costs written off or credited to revaluation reserve during 1932. Note C -- The net profit shown above includes $79,682 24 for the Canadian Subsidiaryt representing that subsidiary's net profit for the year, less charge resulting from reduction of its net current assets ~.o rate of exchange in effect at October 31, 1939. ERNST & ERNST ACCOUNTANTS AND AUDITORS SYSTEM SERVICE CLEVELAND UNION COMMERCE VUlLDINO The Glidden Company, Cleveland, Ohio. We have examined the consolidated balance sheet of THE GLIDDEN COMPANY and iti subsidiary, The Glidden Company, Ltd. (California mining companies excluded), as of October 31, 1939., and (he consolidated statements of profit and lots and surplus for the fiscal year then ended, have revised the system of internal control and the accounting procedures of the companies and, without making a detailed audit of the transactions, have examined or tested accounting records of the companies and other supporting evidence, by methods and to the extent we deemed appropriate. We made tests of trade receivables by communication with debtors, and we reviewed inventory records of the companies and made tests of the basis of pricing and of the computations. Our examination of inventories also included observation of procedures followed by the companies at certain of the principal locations in ascertaining quantities at October 31. 1939. Property, plant and equipment are stated at cost or less, reduction having been made in 1932 to eliminate appreciation and to provide for further write-downs. Officers of the companies have expressed the opinion that pending lawsuits are of minor importance and that no material losses will result therefrom. In our opinion, the accompanying balance sheet and related statements of profit and loss and surplus, excluding the California mining companies, present fairly the consolidated position of The Glidden Company and The Glidden Company, Ltd., at October 31,1939, ana the results of their operations for the fiscal year, in conformity with gererally accepted accounting principles applied on a basis consistent with that of the preceding year. ERNST fit ERNST, Cleveland, Ohio, Certified Public Accountants, December 19, 1939. GLD002895 j 4 BOARD OF DIRECTORS ADRIAN D. JOYCE ROBERT H. HORSBURGH RICHARD W. LEVENHAGEN WILLIAM J. O'BRIEN DWIGHT P. JOYCE PAUL E. SPRAGUE HOWARD BEATTY CLIFTON M. KOLB OFFICERS ADRIAN D. JOYCE, President ROBERT H. HORSBURGH, Senior Vice-President RICHARD W. LEVENHAGEN, Wee-President WILLIAM J. O'BRIEN, Vice-President DWIGHT P. JOYCE, Vice-President PAUL E. SPRAGUE, Vice-President HOWARD BEATTY, Vice-President JOHN A. PETERS, Treasurer CLIFTON M. KOLB, Secretary WILLIAM W. CONANT, Assistant Secretary Transfer Agent THE NEW YORK TRUST COMPANY New York City Registrar THE CHASE NATIONAL BANK New York City GtOO0296