Document GzKNxwyaB7GDNo2pmrQbY442x

J PRATT & LAMBERT f Paints/Chemical Coatings/Adhesives * Pratt & Lambert is a consolidation of twelve manufacturing plants and more than 1,300 people committed to serving consumer and industrial users of paints, chemical coatings and adhesives throughout the United States and Canada. COVER STORY Paint is color and protection...it is also the most versatile, dramatic and economical method to enhance the surroundings in which we live, work and play. Appropriately, our cover is representational of the "tools" that assist homeowners, architects, builders and painting ______________________ __________ ____________ contractors in their wo r epo r t t o s h ar eh o l o er s selection from more than one thousand shades yl'PRPARTATTT&&tALAMMBBEERRTT :________ ________ available through the P&L Calibrated Color System. Also depicted is our role in the field of chemical specialties... industrial ________ ________ ________ ________ _ ------------ ------------ ------------ coatings and adhesives... where the same techno- (j (// / yM ------------ ------- L ^ logical superiority provides an additional dimension to pratt & Lambert's (ST.j ~1 I | I I Pi product reservoir. ANNUAL MEETING The Annual Meeting of Shareholders of Pratt & Lambert, Inc. will be held on Thursday, April 8,1971, at 10:00 a.m. E.S.T. in the offices of the Corporation, 75 Tonawanda Street, Buffalo, New York. 0007-PTU000002 B. F. WILKINSON Chairman of the Board 0007-PTL-000003 FINANCIAL HIGHLIGHTS December 31,1970 and 1969 1970 1969 Net Sales .......... . .............. $47,078,041 $47,448,538 Income Before Taxes on Income. . . 3,396,374 4,253,690 Income Taxes --U.S. and Canada . . . 1,590,577 2,107,667 Net Income ................. 1,805,797 2,146,023 Per Common Share* . . . . ....... f ' 1.28 1.56 Dividend per Common Share*. .... . 1.00 1.00 Net Worth ........................ .. . . . . 22,371,542 22,048,408 Common Shareholders' Equity ..... 17,129,822 16,803,448 Cash Flow ...... . . ________ . . _______ 2,342,780 2,689,424 Working Capital.... . . :. . . . . . : . 13,116,519 13,897,739 Current Ratio . . .. . ........ .... 3.5 to 1 4.2 to 1 Average Common Shares . Outstanding*............... 1,182,024 1,183,196 Adjusted to give effect to the two-for-one stock split in April 1969. 0007-PTL-000004 To P&L Shareholders: For Pratt & Lambert--as for other sectors of American business --1970 was a period of sales adjustment and intensified cost pressures. It was also a year of change. New directions, emphasis and structure enabled your company to strengthen its position in some areas and minimize economic adversity in others. Paint and other architectural finishes continued to account for approximately 60% of our volume. Although many of our markets felt the impact of lower housing starts and reduced consumer spending, regional declines were partially offset by gains in the far West and through company-owned retail outlets. Sales and earnings were also affected by an industry-wide work stoppage among Kansas City paint manufacturers, including our Waggener Paint Co. With production inter rupted for three-and-one-half months early in the year, regional volume and profitability suffered. Although industrial business remained about 40% of sales, there were changes in its composition. Demand for chemical coatings reflected curtailed production rates in such markets as office equipment, transportation, metal decorating and defense-related activities However, specialty applications for coatings and adhesives more than compensated for the decline. Our sales of finishes to the bowling industry improved sharply in both the United States and overseas. Unabated acceptance of adhesives as functional replacements for mechanical methods of attachment continued to expand their importance to Pratt & Lambert Significantly, your company's diversification into industrial chemical specialties was a forceful influence in lessening the effect of economic conditions on other segments of our line. While more effective utilization of P&L's human and physical resources is a constant aim, it assumed particular importance in 1970. Organizational concepts formerly prevailing in our paint operations were modified to the extent that strict accountability for results in 0007-PTL-000005 3 marketing, production, research and finance are now centralized at Buffalo headquarters. Although decision-making is encouraged at all levels, this transfer of functional authority eliminates many cost duplications that previously existed throughout our system of independent plants, divisions and branches. The benefits of a more uniform, controlled and economical approach to our growth objectives in the paint industry should soon become visible. In addition to organizational efficiencies, it's interesting to note that with completion of our new 60,000-square-foot plant in Carol Stream, III., approximately one-third of your company's manufacturing capacity will be housed in facilities less than 10 years old. Concurrent with revisions in structure, several management changes were announced. In April, R. D. Stevens, Jr. was elected President, succeeding W. H. Lutz, who retired after a distinguished career with Pratt & Lambert, beginning in 1927. In September, Mr. Stevens was also designated Chief Executive Officer, a position formerly held by B. F. Wilkinson, Chairman, since 1964. Fittingly, Mr. Wilkinson was the 1970 recipient of the George Baugh HeckeLAward, presented annually by the National Paint, Varnish & Lacquer Association for outstanding contribu tion to the protective coatings industry. C. W. Brown, Vice President, retired on December 31, 1970, after serving your company with distinction for forty-nine years. H. E. Jones was named Senior Vice President with overall responsibility for Production and Research. J. E. Fischer vyas elevated to Vice President/ Marketing and W. G. Ringle to Vice President/ Research. Cost reduction was an ever-present goal and, while considerable progress was made, the .fruits of this program should be more fully apparent in the months ahead. Direct and indirect savings in the purchase of raw materials --resins, pigments, elastomers and solvents--will result from centralized buying. 4 0007 -PTL-000006 From left to right... W. C. Ringle, Vice President/Research H. E. lones, Senior Vice President /. E. Fischer, Vice President/Marketing F. M. jeffe, Vice President; President of Pierce & Stevens Chemical Corp. R. F. Brewster, Vice President/Production ]. I- Castiglia, Vice President/Treasurer Controlled placement of raw material needs on a company-wide basis not only insures quantity prices, but also lower inventory levels, simplified storage and improved service. Elsewhere, expanded computer usage has permitted consolidation of many branch accounting functions with attendant cost relief. Warehousing and transportation studies disclosed sources of economies in the distribution of our products which will be aggressively pursued in 1971. While additional comments on the year's operations appear elsewhere in this report, it is appropriate, here, to consider the events of 1970 in terms of the future. Our program to restructure Pratt & Lambert on the basis of accountability centers has been largely accomplished. We view this step as a necessary prelude to our fuller participation in an expanding economy. Secondly, cost control measures --more than ever before --have become an integral phase of our business life. These disciplines, too, will have a sustaining influence. Finally, a contemporized attitude towards our marketing role will add new vitality to product development and the needs of our customers. We enter 1971 fully prepared to meet its challenges. In anticipation of improved housing starts, easing monetary conditions and indications of renewed consumer spending, we are confident of maintaining a position at the forward edge of our industry. For the Board of Directors, . C"7" B. F. Wilkinson Chairman --* R. D. Stevens, Jr. President March 5, 1971 5 0007-PTL-000007 Operating Highlights 1970 6 MARKETING Pratt & Lambert serves two markets of approximately equal importance... professional and non-professional painters industrial users of coatings and adhesives While compatible from a manufacturing standpoint, products comprising each area are subject to differing sales considerations. Understanding of, and response to, buyer needs was a continuing mandate in 1970. PAINT PRODUCTS A depressed rate of new construction for most of the year, coupled with consumer reluctance to engage in major remodeling projects, were significant factors in the demand for paint. While low-cost, single-unit housing does not represent a major P&L market, a portion of our decline can be attributed to fewer starts and the lack of repainting activities that usually accompany shelter turnover. According to Commerce Department estimates, new construction rose to a 20-year high in December 1970. This strong upward trend is encouraging and the degree to which larger units--apartments, schools, hospitals and commercial buildings--figure in the index will have a distinct influence on our volume. Organizationally, the Marketing Department underwent substantial change. In keeping with centralization plans, the post of Vice President/ Marketing was created to assume line responsibility for all paint trade sales activities. Our former Eastern apd Central Sales Divisions were combined into a single entity with head quarters in Buffalo. Concurrently, a Southern Sales Division, based in Atlanta, Georgia, was formed to add proximity to important yearround painting markets. To insure more effective deployment and supervision of field personnel, a system of districting was introduced in our denser territories. In the West, where the Pacific Sales Division 0007-PTL-000008 enjoyed a record year, a pilot P&L Color Center was erected adjacent to our Orange, California, plant. While our primary stress has been, and will continue to be, towards independent distribution, local conditions necessitated this step. A new tinting version of P&L Solid Hide Rustic Stain was introduced and enthusiasti cally received. Offering a wide range of contemporary colors from a single base vehicle of "dripless" consistency, the product is especially attractive and functional on either rough sawn or smooth wood siding. During 1970, our paint line was thoroughly analyzed from the standpoint of duplicating items and special ready-mixed colors. Despite broad acceptance of the P&L Calibrated Color System, where base vehicles are tinted at point of sale, certain lines are still produced in a wide range of shades. In the interest of line simplification, the slower moving of these items will gradually be converted to the Color System, thereby easing our customers' inventory requirements, accelerating turnover and reducing the risk of obsolescence. Demand for products comprising our Vapex and Aqua-Satin lines once again demonstrated growing consumer preference for water-base paints. Their ease of application, rapid-drying and simple cleanup are strong appeals-- especially in the do-it-yourself market. After thorough evaluation of past adver tising programs, the decision was reached to adopt a more intensive approach to the paint consumer. A new "dollar-for-dollar" coopera tive advertising plan announced to our distributors has successfully increased P&L exposure through local television, radio and newspaper media. Elsewhere, assistance to the architectural profession --a most influential / decision-maker in the selection of paintcontinued to stress a variety of color and performance specification aids. INDUSTRIAL PRODUCTS Our acquisition of Pierce & Stevens Chemical Corp., in 1967, had among its objectives the concentration of industrial marketing responsibility under a single corporate identi fication. P&S has assumed that role and now serves as your company's industrial and specialty products arm. Packaging and graphic arts represent our largest industrial market. Here, 1970 witnessed intensified activity --particularly in hot melt compositions for use on liner stock in the packaging of moisture-sensitive foods. Sales efforts in support of pressure-applied labeling adhesives were also expanded. To capitalize further on our coatings and adhesive capa bilities in this field, the previously-announced collaboration between P&S and Sinclair and Valentine, an international ink producer, became operational as Sinval-Stevens de Mexico, a joint venture to produce and market packaging items in Latin America. Despite a serious influx of imported footwear, sales of sole-attaching adhesives to the shoe industry gained over 1969. A larger share of the existing market, together with our acquisition of Inmont Corporation's shoe adhesive division in late 1969, were instru mental in exceeding our goals for the. year. Sales to the bowling industry improved materially in 1970. Volume of original and maintenance finishes for pins and lanes now surpasses the levels attained during the expansion period of the early 1960's. Although domestic business improved at an acceptable rate, overseas shipments--especially to japan --contributed significantly. Our advertising message to industrial buyers 0007-PTL-000009 recognizes differing audiences, media and content. A variety of technically-oriented trade journals --ranging in emphasis from paper converting to electronics--represented a major portion of our 1970 budget. Participation in trade conventions, sponsorship of seminars and dissemination of authoritative product data were also important elements in our communications with the industrial market. PRODUCTION Economic conditions in 1970 placed special priority on the operating efficiency of our twelve plants in the United States and Canada. Production schedules were adjusted to changes in demand and new procedures were intro duced to combat the effects of higher costs. As indicated previously, a large segment of our manufacturing capacity will, by mid-1971, have been built within the last decade. Its most recent phase involves construction of a 60,000-square-foot plant in Carol Stream, Illinois. Initially, manufacturing will accommo date the complete Pierce & Stevens' line of industrial coatings and adhesives; it will, however, be readily adaptable to paint and intermediate chemical production. Tariff considerations play an important part in the allocation of production responsibilities among our plants. Optimizing freight costs with manufacturing capacity, capability and market location pose complex problems, but considerable progress has been made. In 8 recognition of this essential service, transportation was elevated to departmental status in 1970. Following settlement of the Waggener Paint Co. stoppage in April, four other union contracts were negotiated without interrupting production. Terms were generally consistent with national averages and, as of January 1, 1971, agreements covering approximately ail unionized personnel range in duration from 24 to 39 months. Studies preceding our decision to centralize raw material purchasing were jointly conducted by the Production Department and Technical Departments. It was determined that company wide standardization on materials and sources will directly entail substantial economies through larger purchases and, indirectly, through simplification and overall reduction of inventory levels. The feasibility of various bulk shipment techniques is also being explored as a means to lower in-plant handling costs. We have long been alert to the conditions of environment--especially as related to our industry. During the past year, we have made progress in translating this concern into tangible results. Social and legal compliance with control measures received careful attention. Rigid selection of ingredients used in our products; how they are compounded and the circumstances surrounding their end uses, represent a three-fold commitment to our communities and customers. While for the most part, our manufacturing processes are free of contaminating discharges, all plants are under strict mandate to suspend or correct any activities that may conflict with local ordinances. 0007-PTL-000010 2 RESEARCH As a chemical formulator, Pratt & Lambert relies heavily on the innovative capacity of its technical departments. Nearly $1.5 million was earmarked for this purpose and the figure continues to grow. In the category of architectural finishes, many research hours were devoted to enhancing the product quality for which your offering high-hiding, versatility, durability and decorator appeals was our principal guideline. A new, full-bodied, waterbased ceiling paint represented an important supplement to our line. Its one-coat capability to cover badly discolored surfaces has found particular acceptance in the restoration of blighted dwellings. Industrial applications for coatings and adhesives, due to constantly improving production techniques, provided a fertile outlet for research activity. Successful evalua tions were conducted on a unique interior can coating. This product physically alters the interfacial tension between film and metal, thereby eliminating the need for various pre-finishing steps. Our line of Vitralon SuedeTextured coatings continued to be an extremely popular decorative system for metal requiring a non-glare finish or where fabricating imperfections must be obscured. Longer range objectives center on the replacement of solvent with water as the expendable vehicle in coatings and adhesives. 9 Aqueous systems are generally non-restrictiye from the standpoint of air pollution and are free of the hazards associated with volatile solvents. One aspect of this effort was recent commercialization of an emulsion-type lami nating adhesive for paper/particle board combinations. Providing an effective moisture barrier and "hold-out" for subsequent finishing, the composite's major end-use is in the fabrication of modular and mobile housing. The same adhesive system, adapted to vinyl/metallic and non-metallic laminations, offers even greater potential and is now in development. Environmental considerations also influenced research activities in several ways. For some products, it became necessary to reformulate around raw materials whose manufacture was discontinued due to local ordinances. In anticipation of legislation expanding the restrictions on uses of lead bearing paints, the few affected formulas were altered. , Our color computer capability was sub stantially upgraded in 1970. Now an integral part of our laboratory routines, the system not only serves color-matching requirements, but provides comparative data, enabling the chemist to choose the most favorable balance between formula costs and product functionality. It possesses the additional capability of performing these services with speed, precision and economy for branch locations. This expansion is now in its preliminary stages. Although separate research facilities are maintained for Pratt & Lambert and its industrial products division, Pierce & Stevens, organizational steps, including appointment of a Corporate Research Director, currently insure collaboration on a variety of projects. Progress in this joint effort is already apparent with 0007-PTL-000011 the aqueous vehicle program, where P&L experience in water-base paints augments P&S technology in industrial solvent systems. As an outgrowth of this desirable combination of talents, patent positions are being sought on several developments. FINANCE Effective and alert financial planning assured your company of a strong fiscal position throughout 1970. As indicated in statements accompanying this report, working capital continued at a level fully commensurate with our needs. Although long-term debt has not yet been required for expansion purposes, interim borrowings increased somewhat, due to funding of the Carol Stream construction. When completed later in the year, we shall consider several alternatives to an orderly financing of its $2.3 million cost. The earlier decision to postpone debt incurrence has proven timely in light of the downward trend of interest rates. We anticipate that startup costs will be borne in the second and third quarters; however, substantial charges against earnings are not presently expected. Capital spending, exclusive of new con struction, totaled $551,270, down sharply from 1969. Budget requests were carefully scrutinized and only those offering the highest return or maintenance urgency were under taken. By so limiting expenditures, the Carol Stream project was funded without undue pressure on our short-term borrowing capacity. While there are no major items presently on our 1971 budget, we are studying the possibility of expanding warehouse space to aid and economize in the distribution of our products. Should this take the form of a capital expenditure, its funding may be combined with that of Carol Stream. In 1970, P&L concluded its sixty-sixth year of consecutive dividends...a distinction shared by fewer than fifteen firms listed on the American Stock Exchange. Despite the decline in earnings, common shareholders' equity rose to $17,129,822 or $14.50 per share, the highest level on record. Geographical distribution of our common stockholders broadened and, in total number, their ranks increased to an all-time high. Centralized computer services were expanded to several branch locations. 10 Currently, five sales division offices are linked with Buffalo and another, the last, will be absorbed later in 1971, as will all of our principal manufacturing locations. Although the economic goals of our electronic data processing system have required several years to achieve, the approach has insured an orderly transition, avoiding the serious dis ruptions that often accompany such a project. Internal savings and more timely availability of information are now being realized. Among its many implications, the centraliza tion program entailed redefinition of subsidiary structures. Previously operated as a separate entity, the Waggener Paint Co. has become a manufacturing division of the parent company, with its marketing responsi bilities under supervision of the Central Sales Division. Similarly, Dibble Color Co. in Detroit is now a producing division for the Eastern Sales group. Company-owned distribut ing outlets--Salt Lake Glass & Paint Co., Hatfield Paint Co., Cleveland Paint & Color Co., and Atlanta Paint Co.-- also abandoned corporate status and have adopted Pratt & Lambert identification. While the day-to-day operation of these companies is largely unaffected, expanded P&L recognition, coupled with improved cash management and administrative simplification, necessitated the change. 0007-PTL-000012 .ft & LAMBERT, INC. AND SUBSIDIARY COMPANIES JfC - tatement of Consolidated Income and Retained Earnings 6r the years ended December 31,1970 and 1969 '"St; Sales .sts and Expenses: Cost of sales (excluding depreciation). . . . ^Selling, administrative, and general ^ expenses (excluding depreciation)......... Depreciation................................................ Total ................................................ income from Operations. ................. Other Income Net of Other Expense............. ncome Before United States and Canadian Income Taxes............. .................................... United States and Canadian Income Taxes . . e,Net Income.......................................................... ^Retained Earnings, January 1.... .............. .. Total Deduct: Cash dividends: -- Common stock -- per share: - 1970 and 1969-51.00 . . . . ~jljr Series A preferred stock -- $2.25 per share Total ............ .......... ^Retained Earnings, December 31 1970 $47,078,041 1969 $47,448,538 28,822,876 14,448,394 536,983 43,808,253 3,269,788 126,586 3,396,374 1,590,577 1,805,797 15,698,784 17,504,581 29,059,866 13,610,764 543,401 43,214,031 4,234,507 19,183 4,253,690 2,107,667 2,146,023 15,031,674 17,177,697 1,181,971 294,961 1,476,932 J 1,183,417 295,496 1,478,913 $16,027,649 " $15,698,784 Earnings per common share and common equivalent share ............ Earnings per common share -- assuming full dilution ...... . ................. accompanying Notes to Financial Statements. $1.28 $1.25 $1.56 $1.48 Consolidated Balance Shet December 31, 1970 and 1969 Assets Current Assets: Cash ............................................ Certificates of deposit -- plus accrued interest.......... Marketable securities--at cos approximates market.......... Receivables (less allowances: 1970 --$295,747; 1969--$28. Inventories-- at lower of cost, first-out basis, or market: Finished products........... Materials and supplies .. Total inventories . . Prepaid expenses..................... Total current assets ' Property, Plant, and Equipment Land......... . . . . . ..................... Buildings .,.... 7.. . .............. Machinery and equipment... Construction in progress........ Total ... .;............. Less accumulated depreciatioi Property, plant and equipment --net Other Assets and Deferred Char; Total .. See accompanying Notes to Financial S; 0007-PTL-000013 1970 $ 1,199,318 212,829 114,031 6,302,799 6,560,740 3,663,855 10,224,595 370,402 18,423,974 1,272,509 6,753,517 6,145,834 1,408,313 15,580,173 6,962,499 8,617,674 637,349 $27,678,997 1969 $ 1,496,491 183,241 108,176 6,113,569 Liabilities ,, Current Liabilities: Notes payable to bank .................................. Accounts payable ........................ .................. United States and Canadian income taxes . Accrued taxes, compensation, and expenses ............................................... Total current liabilities............... 1970 $ 1,600,000 2,118,544 159,927 1,428,984 5,307,455 >s 6,663,167 3,375,578 10,038,745 330,768 18,270,990 1,260,907 6,652,466 5,856,016 122,683 . 13,892,072 6,485,048 . 7,407,024 743,645 Shareholders' Equity: Capital Stock: Preferred stock; authorized 600,000 shares at $10 par value; Series A $2.25 cumulative convertible preferred shares (authorized 200,000 ^hares; issued, 1970--131,043 shares;. 1969 -- 131,124 shares; entitled to $40 per share or $5,241,720 in liquidation).... Common stock; authorized 5,000,000 shares at $5 par value; issued, 1970-- 1,246,121 shares; 1969 --1,245,959 shares.............. . . .............. .................... ....... - .... . .. .... 1,310,430 ; 6,230,605 Capital Surplus ....... . . . . .-. . . . . . . ... Retained Earnings ................................. .. . ..... 16,027,649 Total.............................................. 23,645,366 Less treasury common stock at cost--1970, 64,312 shares; 1969, 63,812 shares ..... . 1,273,824 Shareholders'equity . 22,371,542 $26,421,659 Total............................ .. $27,678,997 0007-PTL-000014 i isSfc-- 1969 $ 400,000 \ 2,125,728 450,580 1,396,943 4,373,251 Statement of Consolidated Capital Surplus For the years ended December 31,1970 and 1969 '. Balance, January 1 ........................ ....;. Add excess of proceeds over par value of stock issued in connection with exercise of - stock options . ...... Balance, December 31 .... .............. See accompanying Notes to Financial Statements. 1970 $ 76,682 $ 76,682 1969 $ 50,419 26,263 $ 76,682 Source and Application of Consolidated Working Capital For the years ended December.3lj 1970 and 1969 1,311,240 . - - 6,229,795 76,682. '>^15,698,784 .1X23,316,501 >1,268,093 --ig-22,048,408 - -- ----- * X $26,421,659 Working Capital, January 1 ................. Add: From operations: Net income for the year.... ...... ... Provision for depreciation : ..................... Proceeds fronvexercise of stock options . . Other transactionsr.-. ,r... .1..................... Total addition's?.*; . ^.............. Totaf. ............ ..... Deduct: r " _ Additions to property*,-.plant,- and equip ment, net of retirements-...,........... Cash dividends___ .. 7 Purchase of treasury stocky. 7v .%:X Total deducSo?|?-. X-Working Capital, December^;............ .. * See accompanying Notes to Financial Statements. 1970 $13,897,739 1969 $13,635,325 _ 1,805,797 . 536,983 0- 106,296 2,449,076 16,346,815 2,146,023. 543,401 39,268 46,719 2,775,411 $16,410,736 1,747,633 1,476,932 5,731 3,230,296 $13,116,519 984,579 1,478,913 49,505 2,512,997 $13,897,739 X- tiWV^!jL>&.*s'..JV*C... 0007-PTL-000015 Notes to Financial Statements A. PRINCIPLES OF CONSOLIDATION-Ail subsidiary companies are wholly owned and are included in the consolidated financial statements. Appropriate rates of exchange have been used to convert Canadian dollar amounts into United States currency. B. NOTES PAYABLE-BANK-During 1970, the Company borrowed $1,600,000 in short-term funds for working capita! purposes and construction of a new manufacturing unit at Carol Stream, Illinois. To date approximately $1,400,000 of this amount has been expended for the new facility. It is the Company's intention to replace these notes with long-term financing upon completion of the project in 1971. ................... C. RETIREMENT INCOME PLANS-The Company and its subsidiaries have various plans to provide retirement benefits for its United States and Canadian employees. Charges to operations for costs incurred for these plans amounted to $239,920 for the year ended December 31, 1970, which includes where applicable, amortization of prior service costs over a period of ten years. The Company's policy is to fund currently the normal costs of the plans. The unfunded prior service liability is approximately $300,000 at December 31, 1970, a major portion of which is expected to be paid over a period of approximately three years. During 1970, the Company discontinued the hourly pension plans at two locations replacing them with union-sponsored'plans. Future contributions will be based upon a fixed rate per hour. D. CAPITAL STOCK-During 1970, 81 Series A preferred shares were converted into 162 common shares. The Company may redeem the Series A preferred stock commencing in 1973 at $45 a share. At December 31, 1970, 262,086 common shares were reserved for conversion privileges of the Series A preferred shares. E. STOCK OPTION PLAN-As of December 31, 1970, 27,420 common shares and 188 Series A Accountants' Opinion To the Shareholders and the Board of Directors of Pratt & Lambert, Inc.: We have examined the consolidated balance sheet of Pratt & Lambert, Inc. and its subsidiary companies as of December 31, 1970 and the related statements of consolidated income and retained earnings, consolidated capital surplus, and source and application of consolidated working capital for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. preferred shares (convertible into 376 common r' shares) were reserved for issuance to officers and key employees under the Company's qualified stock*^' option plan and other option commitments assumed in connection with the Pierce & Stevens merger. Under the plan, options for the purchase of common shares may be granted at a price not - less than 100% of the fair market value at the date *4^7 of grant. The options become exercisable in cumulative annual installments of '25% each year ..IUpTr and must be exercised within five years. During 1970, options were granted for 800 shares at $13.06r^<V a share, options for 8,572 common shares and r 3,248 preferred shares expired and no options were exercised. At December 31, 1970, options for .Ctl.-..: 32,960 shares were available for future grants SOpi under the plan. F. EARNINGS PER SHARE--Earnings per common' . , share and common equivalent share are based on the weighted average number of shares of commonJ)ilfc stock and common stock equivalents outstanding "TEiJ' in each year. Earnings per common share, assuming 5%^" full dilution, give effect to the reduction in.earnings per share which would result from conversion of the Company's Series A preferred shares. In computing the per share effect of assumed conversion, dividends on convertible securities have been added to earnings applicable to common shares, and the related issuable common shares were added to the average common shares outstanding. -*'4-- " ?'__- The stock options outstanding under the Company's stock option plans have been considered common stock equivalents. Assuming these options had been exercised as of January 1, 1970, earnings 7 f' per share would not have been reduced based -- upon the "purchase of treasury stock" method of computation. * G. DEPRECIATION--Depreciation is provided for financial accounting and tax purposes generally on the straight-line method applied to individual property items. ............. ......... In our opinion, the accompanying consolidated ' balance sheet and related statements of consoli- . dated income and retained earnings, consolidated capital surplus, and source and application of - - consolidated working capital present fairly the , financial position of the companies at December 31, 1970 and the results of their operations and ______ the source and application of their working capital. for the year then ended, in conformity with generally accepted accounting principles applied '''1 on a basis consistent with that of the preceding year;J| One M&T Plaza .....'V;.. - HASKINS & SELL^ Buffalo, New York February 18, 1971 14 0007-PTL-000016 PRATT & LAMBERT, INC. AND SUBSIDIARY COMPANIES COMPARATIVE SUMMARY OF FINANCIAL DATA Operating Data: Net sales " 7. 1970 1969 $47,078,041 $47,448,538 Income before taxes on income 3,396,374 4,253,690 Income taxes -- United States and Canada 1,590,577 2,107,667 Net income Preferred dividends (pro-forma for 1967 and prior) Net income available to common shares 1,805,797 294,961 1,510,836 2,146,023 295,496 1,850,527 Net income as a % of sales 3.8% 4,5% Capital expenditures 1,747,633 984,579 Depreciation Balance Sheet Data: Working capital 536,983 ......543,401 13,116,519 13,897,739 Current ratio Common and preferred shareholders' equity (net worth) Common shareholders' equity f 3.5 to 1 22,371,542 17,129,822 4.2 to 1 22,048,408 16,803,448 Return on common shareholders' equity Dividends on Common Shares: Pratt & Lambert, Inc. 8.9% 1,181,971 1i:2% 1,183,417 Pooled companies prior to acquisition Per Common Share Data*: Net income --0-- 1.28 0- -....... 1.56 Cash dividends 1.00 \ 100 Book value 14.50 14.21 Average shares outstanding 1,182,024 'Adjusted to give effect to the two-for-one stock split in April 1969. 1,183,196 15 0007-PTL-000017 -- i_ h- ,, 1968 1967 1966 1965 1964 .. 1963 1962 $45,886,391 $42,043,310 $40,067,609 ; $37,720,191 $36,336,491 $35,394,143 $35,685,289 4,733,115 4,472,527 4,584,782 4,368,852 4,156,831 3,771,729 3,692,705 2,400,080 2,067,147 2,131,336 2,038,753 2,010,173 1,905,991 1,912,731 2,333,035 2,405,380 2,453,446 2,330,099 2,146,658 1,865,738 1,779,974 296,146 295,175 295,175 295,175 295,175 295,175 295,175 2,036,889 2,110,205 2,158,271 2,034,924 1,851,483 1,570,563 -. : 1,484,799 5.1% 5.7% 6.1% 6.2% 5.9% 5.3% V 5.0% 819,264 788,714 903,627 412,672 321,022 656,041 .359,042 497,969 456,935 406,968 390,326 391,148 381,927 376,138 13,635,325 3.7 to 1 21,391,535 16,118,215 13.1% 12,873,635 4.4 to 1 20,188,943 14,941,383 13.8% 13,764,473 . 13,570,799 4.4 to 1 4.4 to 1 20,806,827 19,519,739 15,559,267 14,272,179 14.5% 14.8% 12,517,851 4.1 to 1 18,407,226 13,159,666 14.6% 11,457,810 3.8 to 1 17,471,066 12,223,506 13.2% 11,027,903 #3.9 to 1 16,767,604 11,520,044 13.6% 1,085,484 -0- 830,060 475,562' 757,867 538,108 707,327 530,091 697,494 513,004 657,060 505,216 657,060 489,624 1.73 .9272 13.65 1,174,028 1.80 .927; 12.78 1,172,954 1.79 -92/2 12.87 1,208,658 1.70 .8772 11.90 1,200,152 1.54 .8672 10.96 1,200,444 1.31 .8172 10.18 1,200,444 1.24 .8172 : 9.60 1,200,444 . 0007-PTL-000018 Board of Directors Burton F. Wilkinson* Chairman Raymond D. Stevens, Jr* President, Chief Executive Officer Cornelius W. Brown Vice President Wilfred J. Huettel President, United Paint Co. , Francis M. Jeffe President, Pierce & Stevens Chemical Corp. Seymour H. Knox III Vice President, Dominick & Dominick, Inc. William H. Lutz* Consultant; Former President William E. Lytle* Partner; Phillips, Lytle, Hitchcock, Blaine & Huber, Attorneys J. Farwell Maycock Retired; Former President, Dibble Color Co. Gilbert J. Pedersen Partner; Smith, Pedersen & Smith, Attorneys James A. Saunders Retired; Former President, Atlantic Varnish & Paint Co. Robert S. Scheu Executive Vice President, Marine Midland Banks, Inc. T. Emerson Murphy 'Members of Executive Committee Director Emeritus Corporate Officers Raymond D. Stevens, Jr. President, Chief Executive Officer Burton F. Wilkinson* Chairman of the Board Henry E. Jones Senior Vice President Joseph J. Castiglia Vice President and Treasurer Richard F. Brewster Vice President Cornelius W. Brown** Vice President John E. Fischer Vice President Francis M. Jeffe Vice President William G. Ringle Vice President William E. Lytle Secretary 'Retired as Chief Executive Officer -- September 2, 1970 Retired December 51, 1970 PRATT & LAMBERT Paints Chemical Coatings Adhesives EXECUTIVE OFFICES . 75 Tonawanda St., Buffalo, N.Y. MAIL ADDRESS Box Twenty-Two, Buffalo, N.Y. 14240 Plants Buffalo (2) Chicago Detroit Kansas City, Mo. Kimberton, Pa. Memphis Milpitas, Ca. Orange, Ca. Richmond Fort Erie, Ont. (2) Warehouses Atlanta Chicago Cincinnati Cleveland Dallas Denver Indianapolis Milwaukee Minneapolis New York Pittsburgh Salt Lake City San Francisco Seattle St. Louis Calgary Ffalifax Montreal Winnipeg Transfer Agent Bankers Trust Company 485 Lexington Avenue New York, New York 10017 Registrar Marine Midland Bank New York 140 Broadway New York, New York 10013 0007-PTL-000019 A PRATT & LAMBERT | Paints/Chemical Coatings/Adhesives Y EXECUTIVE OFFICES 75 Tonawanda St., Buffalo, N. V. MAIL ADDRESS Box Twenty-Two, Buffalo, N.Y. 14240 Subsidiary Companies Atlantic Varnish & Paint Co. 3000 North Blvd., Richmond, Va. Pierce & Stevens Chemical Corp. 710 Ohio St,, Buffalo, N.Y. United Paint Co. 404 E. Mallory St., Memphis, Tn. f 0007-PTL-000020