Document VOe8LKq25YNQ1dKBpev9YRk8

THE GLIDDEN COMPANY CLEVELAND, OHIO ANNUAL REPORT Year Ended October 31,1941 THE GLIDDEN COMPANY CLEVELAND, OHIO To the Shareholders of The Glidden Company: The annual report of your Company for the year ended October 31, 1941, is submitted herewith. The net profit for the year, after taxes and all charges, was $3,010,389.92, equal to $3.08 per share on the outstanding common stock. This compares with a net profit for 1940 of $1,727,828.99, equal to $1.55 per share. The net sales for the year amounted to $68,901,706.48 as compared with sales of $50,169,733.04 for the previous year. Only a comparatively small part of the largely increased business is represented by contracts between the Company and the Government. It is gratifying to note that the increases in volume are distributed throughout the various divisions of the Company. As in prior years, much of the increase in earnings was the result of a widening use of Glidden products by consumers and in major industries. This expansion was made possible by the continued efforts of the technical, production, and sales organizations to develop existing and additional uses for Glidden products now commercially known, and to find new products of value in established or developing industries. The fact that all divisions of the Company, Paint, Chemical and Pigments, Metals Refining and Food Products, showed a profit, indicates the wisdom of our diversification program. The Company controls many of the important raw materials entering into its manu facturing operations, and in pursuance of this policy, during the year has acquired the Yadkin Valley Ilmenite Company at Lenoir, North Carolina. This company has de veloped a source of ilmenite for use in the manufacture of titanium dioxide, and its ac quisition will permit the Company to maintain its production of this important pigment, and to increase the production as soon as increased manufacturing facilities can be pro vided. Ilmenite was formerly imported from India but supplies were entirely cut off by the world war. The shareholders are aware that our company has owned approximately forty-five per cent of the common stock of the American Zirconium Corporation, manufacturers of Titanium Dioxide, in addition to all the preferred stock of that corporation. During the year we have, through the exchange of our common stock held in the treasury, acquired sufficient stock to make our holdings approximately ninety per cent of the outstanding common capital. This will permit us to consolida te the operations of this company in our consolidated report, less the minority interest. GLD00?fl74 f Attention is directed to the fact that our Company is in an unusually advantageous position so far as priorities are concerned, and the continued operation of our various manufacturing units. The Food Division is essential in wartime economy, as is the Soya Bean Division for the processing of Soya Beans and the production of Soya Flour, Soya Bean Oil, and Soya Proteins; the Vegetable Oil Division for the production of linseed oil and edible vegetable oils. The production of the Chemical and Pigment Division, including the refining of basic metals are all essential. The products of our Naval Stores Division and our Paint and Varnish Division are necessary not only in supplying the Government directly but in supplying various industries manufacturing material for war and defense purposes. In handling the tremendous increase in sales, the Company is using every possible safeguard against inventory losses should there be an abrupt decline in market prices; this partly through hedging of all important commodities where it is possible to do so in the futures market. Since November 1,1940, your Company has applied the last in, first out method of inven tory pricing to certain raw materials and goods in process. This has had the effect of reducing the total value of consolidated invent ories on October 31,1941, approximately 31,115,000 below what it would have been had the previous method of pricing been followed. The net profit shown, therefore, is approximately $455,000 less than it would have been under the method previously used. During the closing months of our fiscal year, plans were worked out for the refunding of current indebtedness in the amount of $7,000,000. The transaction was completed in the first month of our new year and was carried out on a term basis. Mutually satisfactory labor conditions exist throughout the whole organization. Your Officers and Directors acknowledge with sincere appreciation the intelligent and co operative efforts of the entire staff. By order of the Board of Directors. December 30, 1941. ADRIAN D. JOYCE, President. CONSOLIDATED j The Glidden Company and October 1 ASSETS CURRENT ASSETS Cash.......................................................................................... Trade notes and acceptances receivable............................... 8 Trade accounts receivable................................................... 8 2,262,550.67 100,777.09 7,230,243.72 3 7,331,020.81 Less reserves.......................................................................... 151,505.60 Inventories -- Note A: Raw materials, in-process, finished goods, and supplies . Other current accounts receivable and advances, less re serve ........................................... .............................. ... 7,179,515.21 15,521,122.55 655,613.02 825,618,801.45 INVESTMENTS IN SUBSIDIARY COMPANIES California mining companies, at less than cost -- Note B: Capital stock (100% owned).......................................... Bonds -- principal amount 8500,000.00 ........................... Advances.............................................................................. 8 15,000.00 187,500.00 927,425.84 1,129,925.84 OTHER ASSETS AND INVESTMENTS Cash surrender value oflife insurance............................... Sundry investments.............................................................. Sundry notes and accounts, advances to salesmen, and claims against closed banks, less reserves....................... $ 527,496.50 69,349.99 118,154.87 715,001.36 PROPERTY, PLANT, AND EQUIPMENT -- Note C Land, at cost or less........................ ... .................................. Buildings, machinery, and equipment, at cost or less . . . Less reserves for depreciation and depletion....................... 8 2,255,587.46 23,580,357.37 825,835,944 83 8,913,404.83 16,922,540.00 INTANGIBLES Patents and rights to manufacture, at cost less amortization 127,713.78 DEFERRED CHARGES Inventories of advertising stock and stationery, prepaid in surance, and expenses...................................................... Special new products development....................................... 8 551,620.23 95,807.27 647.427.SO 845,161,409.93 GLD002876 .LANCE SHEET onsolidated Subsidiaries , 1941 LIABILITIES, CAPITAL' STOCK AND SURPLUS CURRENT LIABILITIES Notes payable to banks -- Note D...................................... Accounts payable.................................................................. Accrued taxes, royalties, interest, insurance, etc. ..... Federal, state, and dominion taxes on income -- estimated 3 6,000,000.00 3,570,703.24 506,377.45 1,239,588.10 311,316,668.79 LONG-TERM NOTES PAYABLE -- Note D Bank loans -- principal amounts maturing 3500,030.00 an nually July 1, 1943, to 1946, inclusive, interest at VA% tol H7o.......................................................... - . . 2,000,000.00 RESERVES For contingencies................................... For adjustment of purchase commitments 3 67,885.56 170,474.36 238,359.92 MINORITY INTEREST IN SUBSIDIARY COMPANIES 209,880.25 CAPITAL STOCK AND SURPLUS -- Note I) Capital stock: Convertible preferred, 4J4% cumulative, par value 35 0.00 a share (redeemable at 352.50 per share, convertible into seven-tenths share of common stock): Authorized -- 200,000 shares Converted -- 60 shares Issued and outstanding, including treasury shares, 199,940 shares.......................................................... 3 9,997,000.00 Common, without par value: Authorized -- 1,200,000 shares Outstanding, including treasury shares, 835,.591 shares Reserved for conversion, 139,958 shares Stated capital.................................................................. 4,180,655.00 314,177,655.00 Surplus: Capital surplus.................................................................. 3 8,374,036.92 Earned surplus.................................................................. 8,942,329.15 317,316,366 07 Less capital stock in treasury, at cost: Common 5,048 shares, convertible preferred 300 shares 97,520.10 17,218,845.97 31,396,500.97 345,161,409.93 CONTINGENT LIABILITIES Letters of credit outstanding See notes on following page. 3 1,027,117.20 g u d o o ^7 NOTES TO CONSOLIDATED BALANCE SHEET Note A -- Inventories of principal raw maceriilsare stated at cost (!nt-in,firit-out method) which did not exceed market; the change from the methods used in preceding years in determining coxt of such materials^to the last-in, first-out method had the effect of reducing the amounts seated for inventories by approximately $1,115,000.00. All other inventories are stated at the lower or cost (accumulated average) or market. Note B -- Investments in California mining companies, whose asiets 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 $154,827.53 more than the aggregate net assets as shown by the books of those companies. Losses 'aggregating $354,130.55 in excess of provisions or other credits of The Glidden Company applicable thereagainit) have been experienced by these companies from date of acquisition to October 31, 1941, however, the losses for the past few years, since operations of properties were suspended, have represented principally expenses in main taining the properties. Certain of the properties are located in areas that will be flooded as a result of the construction of Shasta Dam in the State of California by the United Mates Government, and the Company has filed a claim for damage in excess of written-down amouoti included herein. Note C -- 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-oowns. Note D -- On October 2,1941, The Board of Directors, subject to approval of holders of Convertible Preferred Stock, authorized the refunding of $2,000,000.00 long-term and $5,000,000.00 short-term notes payable by an issue of $3,000,000.00 of debentures bearing interest at the rate of 3% and maturing July 1, 1947, and $4,(300,003.00 of notes payable bearing interest at the rate of 2% maturing $1,000,000.00 annually July 1, 1943, to 1946, inclusive. Holders of (Convertible Preferred Stock approved the refunding in November, 1941, and the indebtedness was refunded as of November 24, 1941. Ait indenture relating to the issue of the aforementioned debenture) contains an agreement that so long as any of the debentures shall be outstanding the Company will not declare or pay any dividends (other than dividends payable in common stock) on any shares of its common stock excc pt out ofconsolidated net earnings derived from operations ofthe Company and its subsidiaries subsequent to October 31, 1940; nor will the Company expend in excess of an aggregate of $200,000.00 in the purchase, redemption, or other retirement of any shares of any class except out of such consolidated net earnings. Note E -- As of October 1, 1941, the Company acquired an additional interest in common stock of American Zirconium Corporation in exchange for 22,700 shares of treasury stock having a cost of $316,492.51, thereby increasing the Company's investment in that cor poration to approximately ninety per cent of the outstanding common stock, in addition to one hundred per cent of its preferred stock. The accounts of American Zirconium Corporation have been included in this balance sheet. Note F -- Net assets located in Canada consist of net current assets and sundry investments in the amount of $604,314.32 which have been included in this balance sheet at the Control Board rate of exchange, and property, plant, and equipment, and sundry other assets of $298,919.48 which have been included at amounts shown by the l*ooks of the Canadian subsidiary. Consolidated earned surplus In cludes the amount of $1,259,675.17 for tbe Canadian subsidiary. CONSOLIDATED SURPLUS The Glidden Company and Consolidated Subsidiaries Year ended October 31,1941 CAPITAL SURPLUS Balance November I, 1940, and October 31, 1941.................................................................. 3 8.374,036.92 EARNED SURPLUS Balance November 1, 1940 ......................................................................................................... 3 7,452,735.86 Add: Net profit for the year................_. _......................................................... 3 3,010,389.92 Adjustment of reserves for depreciation to reflect reduc tion in rates allowed by the Bureau of Internal Revenue in 1939 and 1940 income tax returns........................... 3 Less additional income tax assessments for the yeais 1939 and 1940 .......................................................................... 129,651.36 27,330.45 102,320.91 3,112,710.83 Deduct: Excess of cost over market value of 800 shares of common treasury stock given in the payment of land purchased Dividends paid: Convertible preferred -- 32.25 a share....................... $ Common -- 31.40 a share............................................... 310,565,446.69 3 29,949.45 449,380.09 1,143,788.00 1,593,168.09 1,623,117.54 Ba l an c e Oc t o be r 31,1941 Note -- In prior yean certain itema of discount and expense, provision for contingencies, and loaaei on dismantlement. have been charged to capital surplus. If such items together with additional depreciation claimed Tor federal income tax purposes for the years 1932 to 1W1 inclusive, had been charged against earned surplus in ittad i f capital surplus, the respective amounts of such surplus account* would be 7,684,320.19 and 9,632,OJ5.88 at October 31,1911. GL 0002 878 CONSOLIDATED PROFIT AND LOSS STATEMENT The Glidden Company and Consolidated Subsidiaries Year ended October 31,1941 Net sales..................................................................................................... . Cost of goods sold, selling, administrative, and general expenses (exclusive of depreciation) -- Note A.......................................................................... ... . . 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............................... 73,899.20 Sundry.................................................................................................. Pr o f it Be f o r e De p r e c ia t io n , De p l e t io n , a n d Ta x e s o n In c o me Provision for depreciation and depletion -- Note 6 ............................... Pr o f it Bef o r e Ta x e s o n In c o me.................................................. Taxes on income -- estimated: Federal normal income tax.............................................................................. $ Federal excess profits tax.................................................. ............................... Dominion and state taxes.................................................................................. Ne t Pr o f it Be f o r e Min o r it y In t e r e s t Minority interest in profits of subsidiary companies Net Pr o f it ................................... ... . . . $68,901,706.48 63,776,676.84 $ 5,123,029.64 312,780.73 $ 5,437,810.37 335,864.08 409,763.28 $ 5,028,047.09 846,861.53 % 4,181,185.56 990,000.00 15,000.00 150,000.00 1,155,000.00 $ 3,026,185.56 15,795.64 $ 3,010,389.92 Note A -- At October 31,1941, inventories of principal raw materia1* were priced on the basis of the last-in, first-out method instead of the methods previously used. This change in the method of pricing had the effect of increasing the cost of goods sold approximately $1,115,000.00 and reduced the net profit for the fiscal year approximately $455,000,00. Note B -- Depreciation claimed in the Company's federal income tux return for the rear 1941 exceeded the amount included in this statement by approximately $67,000.00 due to depreciation claimed on cost) written on or credited to revaluation reserve during 1932. Note C ---No provision has been made in the foregoing statement for losses of wholly owned, nonoperating California mining com panies for the year, amounting to $39,786.39 including provision for depreciation in the amount of $27,927.33. Note D -- The net profit shown above includes $94,063.65 for the Canadian subsidiary, representing that subsidiary's net profit for the year after giving effect to adjustment of its net current assets and iundr) investments to Control Board rate of exchange in effect at October 31,1941. ERNST & ERNST CLEVELAND UNION COMMOICi: .UIUJ1NO Board of Directors, The Glidden Company, Cleveland, Ohio. We have examined the consolidated balance sheet of The Glidden Company and consolidated subsidiaries (California mining com panies excluded) as of October 31,1941, and the consolidated statements of profit and loss and surplus for the fiscal year then ended, have reviewed 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. Our examination was made in accordance with generally accepted auditing standards applicable in the circumstances and included all procedures which we considered necessary. Si ch procedures included test confirmation of trade receiv ables and observation of procedures employed by the companies in ascertaining inventory quantities at October 31,1941, at locations selected by us. Inventories of principal raw materials have been priced in accordant with the last-in. first-out method of determining cost instead of the methods previously used. Such change (which we consider proper) had the effect of reducing the amounts stated for inventories at October 31. 1941, by approximately $1,115,000.00, and reduced the net profit (after income and excess profits taxes) shown for the fiscal year by approximately $455,000.00. In our opinion, the accompanying balance sheet and related statements of profit and lots and surplus, excluding the California mining companies, present fairly the consolidated position of The Gliddea Company and its consolidated subsidiaries at October 31,1941, ana the consolidated results of their operations for the fiscal year, in conformity with generally accepted accounting principles which, except as stated in the preceding paragraph, have been applied on a basis consistent with that of the preceding year. _ .. . Cleveland, Ohio, December 26, 1941. ERNST U ERNST, CrrtijUd Publit Accountant*. GLD002879 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, Vice-President WILLIAM J. O'BRIEN. Vice-President DWIGHT P. JOYCE, Vice-President PAUL E. SPRAGUE, Vice-President HOWARD BEA'ITY, 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 GL000Z6B0