Document NGOedZX04oV1r1q5pgmBKgBrR

J IREHZE DU POST, PRESI DEBT November 4, 1931 In accordance with your request of October 36th, I hare asked Ur, KaoGregor to review hie several reports on the paint Industry made in the last five years and present herewith that Information. In 1915 it warn apparent that the duPont Company would be left with, large exoess plants on its hards should the war end in 1917, as was considered a possibility at that time. In order to utilize to moot advantage these exoess plants as well as suoh mployees as it would be desirable to continue after tbs war was over, the Development Department was authorized to make a general study of possible new indue-- tries. In which tbs duPont Company could advantageously and profitably engage* Ooneideration was given to many varied lines but it was felt that a polloy of becoming interested only in lines which, were allied to the activities of the duPont Company would he the beet* Accordingly the ohemioal induetry wae given firet ooneideration, as the Company already wae a large manufacturer of ohemioale and particularly of acids. . The paint and varnish industry was also given care ful ooneideration at tbs saas time for two reasons. It was k consumer of pigments and oolors whioh were in turn consumers of acids and lakes. The lakes would be received from a possible entry into the dye business. Linseed oil, a ohief ingredient of paint and varnleh, would be received from a possible vegetable . 1i oil industry. The other reason for considering the paint and varnish business ie the fact that in 1916 the condition of the Q/t-*. /Vj / -1 - DUP 000001 . * *.. .} paint and varnish business wae Tory similar to tha dynamite bualnaaa previous to 1903. It was made \$> of nany aaall manu facturers and aoma large but ell on a vary keen competitive basis, ualng a multiplicity of brands, lab el a, ahadea and oon- tainers. The average earnlnga of tha induatry over a period of |U. years while not large had at leaat been consistent and aost of .. the large paint oonoerna had built up large aaaeta from )g earnings. It was apparent then there waa opportunity for oonaolidation and eoonony in auoh an industry, as there were no O IH partioulor aeoret prooessee, patents or other oauses which would interfere with a new oonoern engaging in that business, but that , the advantages of careful business management on a large scale ie would be fully realized. There was only one large paint oonoern; namely, -b .c Sherwin-Tllllasa which worked from the raw material clear through to the finished product and they were the moat suooessful of all the oompanies. They oombined also a chemioal and color business ^ and one of the policies of the duPont Company has always been a j satisfactory oontrol of its raw materials and an effort to market^ its products direct to the consumers. ^ Consideration wae given to the embarking on our new lines by the formation of new departments and the acquiring the neoeseary talent versus the purchase of going concerns. It was decided that the purohase of going concerns on a reasonable asset basia: gave us the best foundation for future development '* as well as an immediate position in the business, which could not be obtained under several years* intensive development from a new start* Examination of various possible companies indioated ^hat ^ the best opportunity seemed to be in Philadelphia through the purchase of Harrison Bros. 4 Co., Inc. 7 * '-C*' / VJ l/ -3- DUP 000002 J ' That eoncera formerly hod a very large and euooessful paint buelneea but bad neglected it sinoe 1914 for the more prof itable war oheoioal buelneea* It had, however, the nuoleue for ua to atart In three linea; namely, heavy ohemioala, lithopone and palnte 4 varpieh,-and plante in Philadelphia, Pa., Sewark, I. J., Pauleboro, S. J., Caaden, M. J. and Chloago, Illinole. It waa not contemplated that we would immediately take hold of a dry color bualneaa but owing to the a to ok ownership of the Beokton Chemical Co*, manufaoturera of lithopone, being equally divided with Gawley^-Clark 4 Co., Vewark, S.J., it wae felt advlaable to immedi ately purchase the other half of the Beckton Chemioal Company* atoek* This resulted in the acquisition of the whole of the Caxley-Clark Coop any. ' It waa erpeoted that further development of theae companies would take plaoe at one or more of our war plante and that we would gradually transfer the business, but the entry of the United States into the war and lte further oontinuanoe pre vented any utilization of our war plants in the meaner above described. It was neoeseary to make our development on the properties purchased, . Further development of the ohemical end was deferred, as immediately the acid oapacity of the Harrison Conpany was plaoed at the disposal of our military requirements, and we therefore did not attempt to develop an outside business. The development of the dry color end was logical along the lines of lakes, ae this country did not have much of an industry for the manufacture of lakes, and it wae expected that our dye plante would include a line of dyes suitable for lake manufacture. 1 j However, as the development of the dye business proceeded, other dyes were developed and further expansion of the color business was not possible. 3- DUP 000003 The remaining line of development i u the paint and varnish business and steps vere taken to increase this business* It happened that the entry of the duPont Company into the paint business through the acquisition of Barrison Bros, oreated some furor in the paint trade and we had the opportunity to examine some twenty or thirty paint oonpaniss, whloh offered themselves for sale* The Bridgeport Tood-Finishlng Oo* was one of the early ones and was favorably recommended, because it did not involve the purohase of additional plant facilities but gave us additional agenoles and distributors, which at that time Harrison Bros. A Co., Xno. needed. It also offered a new plan of merchandising, whloh in view of the disadvantages of the methods' in force by all the paint cospanies indicated an opportunity for considerable improvement. About the end of 1917 and the early part of 1918, our own figures on our oonduot of the paint business began to show suoh losses that we were hesitant to taking on additional com panies, particularly as the business of many of these companies was entirely a trade sales proposition, whloh was exaotly the olass of business which Harrison had. Examination of many of the conoerns offered to us showed that some of the concerns which had * large amount of industrial business were very much more profit able and in the purohase of the Flint Tarnish & Color Works, Flint, Uloh., we obtained a company which was 100J& Industrial u Bales and a very satisfactory earner. Based on this olass of business we purchased the plant and business of the Hew England Oil Paint t Tarnish Co. of Everett, Hass., which had both classes of trade," but the majority was industrial sales. This industrial business was immediately allowed to slip from our hands and <Jur 1 sales efforts concentrated on trade sales. -4V' DUP 000004 Ou t losses in the paint and varnish business ooatfmsd to be large in 1918 and with the acquisition of thia laat oo^>aay we were praotioally forced to diaoontlnue any efforte toward* further expansion of our paint and warnieh buaineea by the purohaae of going oono erne, it the beginning of and during 1918 a very large expensive advertieing oaspaign *ae launched but we did not reep the benefits beoauae our diatributing faoilltiea were not in keeping with the aise of thia campaign. The plan of expansion which we were foroed to abandon con templated the acquisition of various plants throughout the country at etrategio points as the question of freight rates and semoe is an Important factor in the paint and tarnish business. It was evident by the end of 1918 that there was nothing further to be done about our plan of consolidation of many of the paint and varnish companies and that we should turn our attention to siaking the large paint business whioh we then possessed a satisfactory contributor to earnings, as mere addition of new business did not help matters,* The showing for 1919 was not suoh as to cause auoh optimism for our paint business and while our volume in 1930 was the largest in our history, it also was the year of largest losses which would seem to indioate that the mors paint and varnish we sold the more money we lost. In the beginning of 1920, it wae felt that the multiplicity of brands which we were using; that is, keeping alive purchased brands from the oonpaaies whioh we absorbed, was interfering with our business and it sas- decided to put everything under a duPont label. At the end of 1930 a steering oosaittee was appointed, whioh h^d the following for two of its main polloiest 1, To abandon our efforte to become one of the largest paint manufacturers in the oountry until we oould make ofer own business pay its way, and to work on a volume of business that could be reasonably obtained. j 3, The budgeting of our expenditures so that if this volume of business was obtained there was a sure profit. Vj V- 5- DUP 000005 ) ; * J The year to date, 1931, does not tee the paint business show a profit but thie hae been due to the fact that the steering oommittee was not pezmitted to reaoh lte budget and therefore the eipeneee were greater than our receipts* The abore description hae applied only to the duPont paint and varnieh sales* During 1918 and 1919 when our trade ealea bueineee was stowing auoh a loss, our subsidiary; namely,*, the flint Varnish & Color Works, was shoving continued good earnings* It bad been for sons years a considerable question with the duPont Company whether trade salee were profitable or not, as apparently our industrial business was Tory profitable and our trade sales were not* At the sane tine, however, we were faced with the faots that there were many large trade sales con cerns that made a satisfactory profit* Early in 1930 the business ' of the flint Tarnish A Color Works was so large that it was turning away business for look of manufacturing facilities and at their request the duPont Company undertook to obtain additional facilitiee Examination of a limited number of firms vhloh would furnish these additional requirements resulted in the purchase of the Chioago Varnish Works* Thie purchase was not particularly approved by the duPont Company on analysis of business conditions but on the guarantee of the Flint Company that they could make this investment show a satisfactory, return, the business and plant were purchased fox the account of the Flint Cougjany. 8hortly after, the automobile bueineee, which was the main source of revenue to the Flint Company, entered a period of depression and the Flint Company was faced immediately with exoess facilities at its own plant in Flint as well as the facilities of its newly acquired plant in Chicago. The trade sales which the Chioago Varnish Company had were dlscalded by both Flint and duPont, From 1930 to date we* also find that the other portion of our paint business; namely, that handled by Flint was also in bad shape, due to shrinkage of /V-- 6 -- DUP 000006 4 i M. ) ales, At the tins of purchase of the Chloago Tarnish forks our Chicago paint plant acquired with Earriaons was dismantled and our Chicago distriot trade handled by a warehouse* Turning now to our ohemioal business, we find it has been more or less sacrificed to the demands of our other plants; particularly, the Dye Works, after our military needs had disap peared and no effort had been made to enlarge our ohemioal business through adding other plants, as the years 1919 and 1920 were the period of great prosperity to other ohemioal manufacturers, and there was no opportunity to purohase any aonoern at a reasonable pnoe* . The pigment end, which includes our llthopone and dry oolors, had ridden along without any particular effort to develop new lines. There was an opportunity in 1919 to obtain a western llthopone plant but our entire ohemioal and pigment business was not even then showing earnings in keeping with the prosperous times and it was not felt advisable to make any addition to our llthopone facilities. Our lead business was very unprofitable and by the middle of 1921 we were practically out of the business* A careful study of the lead industry by the Development Department indicated that if properly handled with^reepect to purchase of pig lead we had a satisfactory margin between that price and the average eelling price of white lead'. Accordingly, this industry has been revived anl a plant at Philadelphia started up on the Carter prooeee only. This is the Bbort process and does not tie up our o^oital as long as is the oase of the Dutch prooess. The following table shows the figures available for the . 4j last few years. It will be noted that the total of the gross sales of the four divisions in 1920 and 1921 is greater than the totals shown in the first table. The difference of $638,494 in the case of 1920 is due to transfer of products between the four 7- DUP 000007 *) divisions of the Paint Department and ~hile they ore properly ehown ae Included In giota sales with respoot to each division it ie not proper to ehow ae gross total of the Paint Department as a whole. The figures for 1921 are an annual basis based on ` the actual to September 20. 1921. Total Investment Gross Salce Het Reoelpta 1917 1918 1919 1930 1921 111, 604, 757 13,781,714 15,794,193 18,147,145 13,171,803 18,867,830 10,939,345 9,981,745 14,731,435 5,823,143 1143,680 531,338 1,816,744 1,030,709 1,636,493 PAICT St VARHISH Working Capital Plants Total Investment 1917 1918 1919 1930 1921 $4,156,754 4,509,714 3,593,546 . $4,901,382 1,495,044 1,463,849 $6,058,136 6,004,758 3,856,395 Cross Sales $1,265,338 3,958,999 4,015,769 5,098,705 3,698,793 Het Reooipt $108,730 331,493 489,337 959,383 457,616 1917 1918 1919 1920 1921 - 1,834,605 2,250,285 1,292,332 PIGME3TS & C0L0H3 - 1,843,935 3,073,131 2|lo3 - 3,667,540 4,333,406 3,537,365 1,977,430 3,526,935 2,340,189 4,754,301 1,561,371 350,884 380,761 183,871 197.384 326,955 1917 1918 1919 1930 1931 - 1,250,444 1,399,930 493,700 LEAD PRODUCTS - 550,462 636,882 580,854 - I,e00,906 1,936,802 1,073,554 1,022,664 1,383,674 1,566,933 1,855,113 555,554 539,353 7G.793 159,506 136,649 272,094 1917 1918 1919 1930 1931 - 1,423,494 1,959,598 1,158,119 CHEMICALS - 3,912,333 3,953,583 3,576,368 - 4,335,826 5,893,150 4,714,437 4,603,400 4,170,537 2,058,854 3,651,810 1,161,444 710,868 495,271 383,954 143,080 469,837 A casual inspection r:ould ceeo to indicate a ratiyr hopeless situation tut the paot events have teen revier/ei in order that our apparent Inability to sho- a satisfactory return on our investment in the paint varnish, pijeent, lead anri chemical tusinen has not been due to any inherent defect in the industries themselves. i/r rs /*/ // -9- DUP 000008 *.) With the exception of chemicals, the other lines have shown moderate earnings in the peace years preceding our ownership. The chemical business of Harrison Bros. & Co. hod just about broken even and the trar business made the profit in 1917 and 1918. Taking the situation ae of October 5, 1931, which is the turning point, we find that our investment (excluding Flint) ia approximately! Working Capital Permanent Investment Total $4*273,758 $7,807,769 #13,081,537 Zf Flint is included aa ia proper for the purposes of this report since we have sold to them our western business formerly, handled by a Chicago Branoh Office and Warehouse and oonsider in the future the earnings of the Paint Department to be the sum of Flint plus duPont we have these figures! Working Capital Permanent Investment Total Paint & Varnish head Pigments A Colors Chemicals #3,573,973 333,694 1,233,138 780,601 $3,405,143 600,303 3,307,336 3,543,538 $6,979,115 933,996 3,440,364 4,334,139 Total duPont A Flint #5,931,396 $3,756,308 #15,677,604 Taking the point & varnish business - at the present time we have four plante strategically located; Chicago, 111., Flint, Hich. Philadelphia, Pa. and Boston (Everett), Macs. The grief of consoli dating our lines ia over and the trade satisfied with our goods and container from a merchandising point of view. Our eastern industrial goods have not a very strong following as yet but conditione sue improving. Our western industrial goods under the Flint name ore well known and favorably received and with the addition of the duPont trade sales line to Flint to mioport the Chice-go plant, they are in excellent position to reach for all kinds of business! 1 Philadelphia A Boston each have good surrounding markets. Irrespective of the devious manner in which euch a position in reached w feel that our paint and varnish facilities '</*/ 9- DUP 000009 .\ % 9"' are ready as fast aa business eta be obtained. We are one of the leading paint conpanies and "!>31" in r~ poeltJcn tc dominate the industry we are sot outclassed on cither eouroe of raw material or condition cf plants by any coupetltor. Talcing the lead buaineaa - at the present time re find ourselves only a small factor as compared with the Rational Lead Cong?any but our plant and prooeas ia aa good or better than any other, W3 are not well established aa a white lead manufacturer as no attempt has been made to feature the fact* With our excess atooka, both finished and raw, now gone, our lead bueineae haa a good ohanoo. Taking our pigaent business - at present we find that our former leadership in lithopone manufacture has been lost but we are still one of the strong factors. With the development and marketing of our new light stable lithopone, we are now in position to re-establish ourselves. Our two plants, Philadelphia, Pa. and Newark, R.J., are well located for eastern territory and the necessity for a western location will be decided by barytes supply. Our dry odors are well and favorably known and our one plant at Newark is in good shape and well looated. The addition of a line of lake colors now in process of development will materially strengthen our position. . Taking our chemiool business - we are not in a very, satisfactory position in some respects. The Philadelphia plant is not in good physical shape which handicaps us on costs and production. The Pauleboro plant is a war plant as far as markets go and we are very email producers of acid as compared with eoae of our competitors. Freight linit3 our market range and it wiif take a little tine to find the beet solution of the problem of this division of the Paint Department, In all our divielona it is obvious that our turnoTsr /vj// - 10 - DUP 000010 *) per year is too email and this is one of the most important factors affecting our profits, to would like to see a turnover of at least onoe a year, thereby giving us a 10J* return on our investment, as at this writing we do not see where our investment can be lowered under (14,000,000 and therefore our present rate of annual sales of (7,400,000 must be doubled as one cannot expect to average more than 10Jt on our sales as profit. 8ome of our store important polioies have been determined at this time* The fundamental and most important is a control of expense before the faot ootg>led with a striot adherenoo to our budget. Our budgets are in process of preparation and will be . refleoted in the lo. 1 Forecast for 1933. Certain economies are posnible; for exanple, in our sales end, the consolidation of our western business with Flint Varnish Works enables us to use an excellent offioe building at our Chicago Varnish Works and puts our western sales effort direotly in touch with that plant. Separate offices and warehouses have been eliminated. This removes some business from our eastern plants but oux policy of concentrated effort in a concen trated territory will bring in the necessary additional bueineee. Our Chicago Branch Office and Warehouse for plgmentw'-' and colors have aleo moved to the Chicago Varnish Works where inexpensive epaoe has been rented. A small office in Hew York City has been obtained for chemical and pigments sales only and paint and varnish are sold from the Philadelphia plant office and a warehouse only maintained at Jersey City. As a guide to what we opp "?ct to do in 1923, the following table is given, which includes du"ont plus total Flint. The figures for 1920 are given for cospurieon, but these firures are quite .approx n- DUP 000011 imate and are used to illustrate the relative poeltlcn cf the 1830 business with respect to our nen basis. Faint A Varnish Lead Produote Gross Receipts $7,000,000 Freight A Delivery 350,000 Selling Expense 1.077,300 Mill Cost 4,661,700 Administrative 246,000 Bet Receipts 665,000 $750,000 23.500 37.500 600,000 15.000 75.000 o o 1920 (Approx.) Gross Reaelpts $18,788,000 Freight A Delivery 819,000 Selling Expense 1,863,000 Mill Dost 16,184,000 Administrative 546.600 Bet Receipts 633.600 Total Investment $30,147,145 Jt on Investment 3*J Figments A Colors $3,500,000 75,000 136.000 3,000,000 75,000 335.000 Chemicals $3,000,000 130,000 130.000 3,530,000 90,000 150.000 Rev Easis $13,350,000 567,500 1,359,800 9,781,700 436,000 1,115,000 $14,000,000 8* If business conditions continue as they ore, however, we will feel that we have accomplished a satisfactory position if we break even hut thereafter with any sort of normal business con ditions, we should increase our per cent on investment to 8^. Coupled with our budget idea, which of itself indicates what many of our policies will be, we are not losing sight of the future and our plans for sales expansion, plant development and improvement of products and processes ore being worked out on not only a basis of giving the most immediate return on.pur investment but assuring us of a definite sequence of movee that will ultimate ly make our position in our several lndustrlf-p within the Paint Department 100 correct; namely, ?ivin_ lOfi return on our invectment plus a reasonable addition to surplus fer investment in the business itself. - 13 - DUp 000012