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^Annual GL03647A Report of the Glidden Company 19S4 January 10, 1955 TO THE STOCKHOLDERS In fiscal 1954, net profit after taxes and all charges was $7,093,043 compared to $7,109,272 in 1953. This amounted to $3.09 per share on the 2,293,4 5 5 shares outstanding at October 31, 1954. In 1953 earnings were $3.10 per share on 2,290,794 shares outstanding at October 31, 1953. The first three quarters of the year were adversely affected by a small soybean crop which, coupled with certain government support programs, created an unsatisfactory relationship between the price of beans and their end products. We believe this condition will be much improved in 1955. Earnings before income taxes amounted to $14,235,043, and, in each of the last three months of the 1954 fiscal year, operadng profit exceeded the corresponding months of last year. Sales for the year were $209,083,579 compared to $211,758,522 in 1953. Regular cash dividends totaling $2.00 per share were paid during 1954--50c a share on January 2, April 1, July 1 and October 1. Dividends have been paid continuously since 1933. Stockholders equity increased in 1954 by $2,598,287 to $76,922,608. This continued the steady growth in earnings retained for use in the business. At the year-end current assets were $66,472,821, and current liabilities were $15,247,147, creating a net working capital of $51,225,674, an all time high. Inventories are exceptionally low but well balanced in relation to sales volume. Year-end inventories, after deduction of LIFO Reserve of $1,921,256, amounted to $32,454,157, a reduction of $852,901 from last year and a reduction of $11,002,997 from October 31, 1952. This decline is partially due to the crop season and buying policies in soy beans and vegetable oils, together with rigid inventory control in all of our lines. We continuously hedge major commodity inventories, which, with LIFO, provides protection against violent market fluctuation. Our federal income tax returns have been reviewed by the government through fiscal 1953. No major adjustments were made. Government review of renegotiable business has been completed through fiscal 1953 and clearance without liability received. Retirement funds for employees deposited with bank trustees now total $7,229,558. Our pension plans are non-contributory, the company pay ing the entire cost. GLD38475 Gross plant additions during fiscal 19)4 amounted to $4,020,936, and maintenance ex penditures were $2,501,057. We are drawing to a conclusion a complete inventory of all physical properties and have made any neces sary adjustments to our property records. It 14 Financing At October 31, 1954, there was still out standing $7,000,000 of our term bank loan ne gotiated in 1951. Effective September 1, 1954 your company negotiated an additional bank '*4* loan of $5,000,000, and created an arrangement whereby the entire $12,000,000 can be paid at the rate of $1,500,000 annually through 1962. This financing will allow your company to handle certain immediate expansion plans, although other financing steps may be required in the future. Growth Your management has accelerated a basic decision for the elimination of activities or products which are minor, fundamentally divergent even in our diversified organization, or under present circumstances incapable of producing a return commensurate with the financial or managerial investments required. Under this concept we have removed ourselves from certain activities over the past several years. In 1951 we sold our Hammond Type Metal business and since have profitably devoted our attention to the development of the Powdered Metal segment. In 1952 we disposed of our Portland, Oregon, Copra Crushing plant. Factors here were a decline in use of coconut oil and lack of a satisfactory hedging market. In 1954 we sold our Indianapolis live stock and poultry feed business, but not the plant. A major consideration was that with only one mill we were not in a good competitive position on formula feeds and with the development of other soybean chemical products we are in need of the site on which the Feed Mill is located. We also disposed of our interest in Growth Products Company, which manufactured fish solubles for formula feeds. Also in 1954 we disposed of our Oakland Lithopone operations as part of the basis of our move into expanded Titanium Dioxide operations. The foregoing steps have freed in excess of $6,000,000, more than half of it in 1954, making these funds available for use in more profitable ways. Management will continue this close scrutiny of activities and products in order to realize the maximum in profit from capital utilized. Your management expeas to accelerate the company's growth by the acquisition of profitable going enterprises or produas, the creation of manufaauring facilities to expand present major activities and by bring- GLD38476 ing into production items created by our own or outside research laboratories. In July, 1954 we announced the start of construction on the first unit of a new Titanium Dioxide plant, to be located in Baltimore near our present Titanium Dioxide plant. The first unit will be composed of production facilities, power plant, laboratory and office to cost about SI0,000,000 and will be completed in the Spring of 1956. One hundred fifteen acres of land were acquired, and longer range plans call for the construction of two additional Titanium Dioxide units comparable to the unit now under construction. These additional units will not be started until the first unit is in production, but from present indications this planned additional expansion will be essential to meet the constantly growing demand for titanium pigments. We are continuing our joint research with Bohn Aluminum and Brass Corporation on titanium metal. Developments to date while encouraging have not reached a pilot plant stage. Vour Directors have approved the immediate start of construction of a 6,500,000 bushel terminal grain storage elevator to be located on the Calumet River in Chicago. The new elevator will be the second largest in the Chicago switching area and will cost more than $5,000,000. This additional capacity will be of material aid to our Chemurgy Division in its soybean crushing and grain merchandising operations located in Chicago and Indianapolis. The elevator is also advantageously located in relation to handling grain for export when the St. Lawrence Seaway is completed. We will use a five-year writeoff of this facility on our books as well as on our tax returns. We are also using a five-year writeoff on our 1,500,000 bushel Indianapolis elevator which was completed early in the year. Last September we dedicated our new $600,000 Montreal paint manufacturing plant. This modern, highly efficient plant will serve Quebec and the Maritime Prov inces and permit us to grow with this rapidly developing territory. It will also aid us in serving our other Canadian customers from our present Toronto plant. A paint plant is planned in the Los Angeles area to meet increased demands for quality industrial coat ings on the West Coast. Early in the fiscal year we acquired the business and equipment of the Mound City Paint and Color Company of St. Louis. This acquisition added in excess of $1,000,000 annual sales, a staff of capable salesmen, and materially strengthened our distribution in the Mississippi and Texas markets. Paint Division After a decline in industrial paint sales early in the year caused by the general slackening in production of consumer durable goods, a good recovery started at mid-year and is continuing. We are having excellent success with Nubelite, our white metal finish line used on many major household appliances, and Glidpol, our polyester resin for the reinforced plastics industry. The latter is a comparatively new venture which is making excellent progress. Development work on C-Oil, a revolutionary new paint vehicle derived from petroleum, shows promise of considerable importance. Paint sales to consumers were excellent. Spred Satin continues its great popularity in the United States and Canada and in countries served by our overseas licensees. We are currendy introducing a new Spred Product --Spred Glide-On--an exterior vinyl latex paint for stucco, brick, concrete and asbestos siding. Introductory tests in the South and on the West Coast have proven the merit and acceptance of this new exterior product The new plant in Atlanta, Georgia, added last year, has exceeded ex pectations both in volume and efficiency of operation, and plans are being GLD38A78 made for expansion to take care of our growing business in the Southeast. We are adding essential equipment to increase our synthetic resin and polyester capacity at our Cleveland, Chicago and Toronto Paint plants. This will materially reduce costs and enable us to meet the increasing need for these materials and the products made from them. Our new Toronto Laboratory and Technical Service Center is under construction. Your company has operated forty-two company-controlled branch outlets heretofore, but has now embarked upon a program of greatly increasing the number of these units. Present plans call for adding one unit per month, with our immediate goal being the addition of sixty such units. These modern drive-in paint centers will be warehouse units to improve service to our dealers and the painter trade and to strengthen our distri bution in the markets selected. In addition, where conditions justify, retail paint stores will be operated in conjunction with these warehouses. There is a constantly growing market for quality paint products, and your company is exerting every possible effort to continually forge ahead in this field. Durkee Famous Foods Division Profit improved over the previous year and the division has continued to move forward, especially in sales of products to other manufacturers for further processing. Expanded effort in the institutional sales field is proving highly effective. Margarine is still a highly competitive product The market for our food products is constantly expanding and new products introduced during the year have been well received. Major steps in reducing our costs and improving our products and capacity were taken at all of our refineries. These consisted of the addition of a new hydrogen plant and expanded coconut and spice production facilities at Elmhurst, enlarged oil storage and increased hydrogen capacity at Louisville, increased ca pacity at Berkeley, and substantial plant additions with new process ing and refining equipment at the Elston Avenue, Chicago, plant. Chemurgy Division Our policy of con tinuing to develop chemically manufactured products from soy bean meal and oil was greatly ac celerated this past year, and the wisdom of this plan was well GLD38479 proved. These chemical operations continued to return satisfactory prof its. Had our production been confined to only the primary products, meal and oil. soybean processing would have been an unprofitable venture. During the year we were able to sell our full productive capacity of isolated protein, soya flour and lecithin products. We are now in the process of materially expanding this capacity and further major ex pansion is in the planning stage. We believe that by continuing to expand our chemical activities and by diversifying through additional grain storage and merchandising activities we can minimize the effects of the occasional margin squeeze between soybeans and the primary products, meal and oil. The result of this policy should be to increase and stabilize our earnings. We have adopted an aggressive marketing policy on Glidden "RG" Soya Lecithin, a dietary source of choline, inositol and phosphorus. Present sales of this product are sub stantial even though it has not previously been advertised. Chemicals--Pigments--Metals Division This division again produced an outstanding profit record and we have every reason to expea that demand for white opaque pigments will continue to improve. It is anticipated that we will again increase produc tion at our present titanium dioxide plant during 195$. During the coming year we expea to add at least one, and possibly two metals to our powdered metals line. Development of the company's zinc and copper property in California has not progressed as rapidly as was hoped because of many difficulties encountered in underground work. This work has now reached a point where determination of the values of exposed ore bodies is being made. Naval Stores Division The Naval Stores Division is showing a steady en largement in scope of operation and improvement in profits, which were greatly above last year. This improvement is largely due to successful re search activities on rosin-based specialty products and terpene derivatives. Produaive capacity for these items was considerably enlarged this year. This program is continuing and we anticipate steady improvement with the probability of further substantial expansion during the coming year. Foreign Dovelopments Your company has greatly accelerated its aaivities in the foreign field during the past three years. GLD38480 In 1952 we entered into a license agreement with Ishihara Sangyo Kaisha Ltd. of Japan for the manufacture of titanium dioxide in a plant to be constructed by them in Japan. During 1954 this plant was success fully brought into production. We have licensed major paint producers in Australia, France, Sweden, Norway, Denmark, Belgium, Holland, Italy, Great Britain, Finland, Ice land, Japan and Cuba to manufacture Spred Satin and a number of com panion lines. These license arrangements provide for a continuing royalty and as sales are developed this is proving to be an excellent source of income. In Cuba we have concluded arrangements with a licensee for the manu facture of our full line of products. We received a stock interest in this company. We are currently engaged in expanding these foreign arrangements and have negotiations in progress relating to other Latin American and foreign markets. Research Research and development expenditures this year were the largest in our history. Major improvements were brought about in many of our present products and forward steps of considerable magnitude were achieved in the development of new products. Without departing from our concept of decentralized divisional re search, we established the Central Organic Research Laboratory in Chicago. This laboratory is engaged with projects in the field of organic chemistry and nutrition for our Chemurgy, Food and Paint Divisions. We plan to emphasize and expand our research work sull further. General Comments Manufacturing costs and selling prices in our major lines have been relatively constant throughout the year, and we look for a con tinuation of this condition in 1955. Labor relations in all of our plants continue on a highly satisfactory level. Your management is confident of the future and feels we are entering a phase of substantial company growth. We have the technical base, the physical facilities and the trained manpower and management to bring this about - The loyal help and cooperation of all our employees, stockholders, suppliers and our many customers and friends is deeply appreciated. DWIGHT P. JOYCE President 1872 - IN MEMORIAM -- 1954 Adrian D. Joyce, founder of The Glidden Company, died on August 25, 1954, at the age of eighty-one. The company he created and guided to eminence is in part a measure of his own suture and is a living me morial to his accomplishments. The Glidden Company pays tribute to a man who achieved greatness in his career and as a human being. GLD3B481 -I ASSETS CURRENT ASSETS 1934 Cash......................................................................$ 16,061,436 $ Trade accounts receivable, less allowances for doubtful accounts, 1954--1441,789; 1953 -$459,010 ....................................................... 15,914,940 Inventories --raw materials, in process, and finished goods Principal raw materials are stated at cost (last-in, first-out method) which did not exceed replacement market; other items are stated at the lower of cost (accumulated average) or replacement market.............. 32,454,157 Other current notes and accounts receivable, advances and investments................................ 2,042,268 1933 8,230,343 17,511,525 33,307,058 8,380,845 TOTAL CURRENT ASSETS.............. $ 66,472,821 $ 67,429,973 OTHER ASSETS Prepaid insurance and expense............................ $ Miscellaneous notes and accounts receivable, advances, and investments............................... Cash surrender value of life insurance.............. 961,907 $ 741,881 --0-- 840,270 404,433 840,678 TOTAL OTHER ASSETS $ 1,703,788 $ 2,065,381 PROPERTY, PLANT, AN0 EQUIPMENT Land--at cost ................................ Buildings--at cost............................ Machinery and equipment--at cost . I 3,167,935 I 3,207,499 19,504,967 17,560,535 34,534,198 34,759,539 $ 57,207,100 $ 55,527,573 Less accumulated depreciation, depletion, and amortization.................................................... 22,713,954 22,293,330 TOTAL PROPERTY, PLANT, AND EQUIPMENT.NET............................ $ 34,493,146 $ 33,234,243 $102,669,755 $102,749,597 GID38482 Balance Sheets LIABILITIES AND STOCKHOLDERS' EQU IT Y CURRENT LIABILITIES Bank loans--short-term ................. ... $ Serial notes maturing within one year............... Accounts payable...................................................... Accrued taxes, insurance,royalties, and interest . Federal, state, and dominion taxes on income -estimated............................................................. 1954 --0-- $ 1,$00,000 5,480,190 1,134,542 7,132,415 1953 4,000,000 1,500,000 6,358,282 1,692,162 7,874,832 TOTAL CURRENT LIABILITIES ... $ 15,247,147 $ 21,425,276 LONO-TERM DEBT Serial notes, payable $1,500,000 annually, in terest 3% to 3............................................. 10,500,000 7,000,000 STOCKHOLDERS' EQUITY Capital: Common stock without par value: Authorized 3,000,000 shares (reserved for sale to key employees, 1954--97,875 shares; 1953-100,000 shares) Issued iocluding treasury shares, 1954-- 2,293,455 shares; 1953-2,291,330 shares Stated value.....................................................| Additional amount paid in................................ Earnings retained for use in the business (includes earnings retained of Canadian subsidiary, 1954 -$4,471,406; 1953-$4,056,570) ...... Less treasury shares--at cost-- 536 shares . . . . 5,733,638 $ 5,728,325 26,944,704 26,875,642 44,244,266 --0-- 41,733,083 12,729 TOTAL STOCKHOLDERS* EQUITY . $ 76,922,608 $ 74,324,321 $102,669,755 $102,749,597 GL03B483 Consolidated Income AND EARNINGS RETAINED FOR USE IN THE BUSINESS ] i INCOME Net Sales.................................................................. Other income........................................................ 1954 $209,083,579 1,078,858 1953 $211,758,522 664,985 $210,162,437 $212,423,507 Cost of goods sold................................................. $165,700,255 Selling, administrative, and general expenses . . . 27,513,536 Provision for depreciation, depletion, and amortiza tion .............. ............................................ . . , 2,332,685 Interest expense..................... .................................. 380,918 $168,307,272 26,739,007 2,185,184 357,772 $195,927,394 $197,589,235 INCOME BEFORE TAXES ON INCOME $ 14,235,043 $ 14,834,272 Taxes on income--estimated: Federal normal tax and surtax............................ $ Dominion and state taxes................................... $ NET INCOME.......................................... $ 6,734,000 $ 408,000 7,142,000 $ 7,093,043 $ 7,150,000 575,000 7,725,000 7,109,272 EARNINGS RETAINED FOR USE IN THE BUSINESS Balance at beginning of year................................... $ 41,733,083 $ 39,202,349 Net income for year................................................. 7,093,043 7,109,272 $ 48,826,126 $ 46,311,621 Deduct dividends paid--$2 per share..................... 4,581,860 4,578,538 BALANCE AT END OF YEAR.............. $ 44,244,266 $ 41,733,083 6LD3&*8* Accountants' Report ERNST & ERNST CLEVELAND Board of Directors, The Glidden Company, Cleveland, Ohio. We have examined the consolidated balance sheet of The Glidden Company and subsidiaries as of October 31, 1954, and the related statement of consolidated income and earnings retained for use in the business 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. In our opinion, the accompanying balance sheet and statement of income and earnings retained for use in the business present fairly the consolidated financial position of The Glidden Company and subsidiaries at October 31, 1954, and the consolidated results of their operations for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. Cleveland, Ohio December 15, 1954 ERNST & ERNST Certified Public Accountants GLD38485 PAINT FOOD CHEMICALS. PIGMENTS AND METALS I CHEMURGY I Manufacturing Plants Central Region Cleveland. Ohio Eastern Region Reading, Pa. Nubian Industrial Regioa Chicago, IlL Southern and Texas Region New Orleans. La. Miaiiasippi Region St. Louis, Mo . Northwestern Region Minneapolis, Mina. Southeastern Region Atlanta, Ga. Pacific Region San Francisco, Calif. Midwest Trade Sales Region Chicago, III. Canadian Region Toronto. Oot&rio, Canada Montreal, Quebec, Canada Consumer and Industrial Paints, Enamels, Lacquers aad Varnishes. Consumer and Industrial Paints, Enamels, Lacquers and Varnishes. Industrial Paints, Enamels, Lacquers and Varnishes. Consumer and Industrial Paints, Enamels and Varnishes. Consumer and Industrial Paints and Enamels. Consumer and Industrial Paints, Enamels and Varnishes. Consumer aod Industrial Paints and Enamels. Consumer and Industrial Paints, Enamels, Lacquers and Varnishes. Consumer Paints aod Enamels. Consumer aod Industrial Paints, Enamels, Lacquers and Varnishes. Elston Avenue Chicago. III. Louisville, ICy. Elmhurst Long Island. N. Y. Berkeley, Calif. Iron Street Chicago, III. Macon, Ga. Norwalk, Ohio Refines Vegetable Oils aod Manufactures Shortening, Hard Butters. Specialty and Confectionary Products. Refines Vegetable Oils and Manufactures Shortening and Specialty Products. Refines Vegetable Oils aod Manufactures Shortening and Specially Products. Produces Spices, Extracts, Coconut, Famous Sauce, Worcestershire Sauce. Refines Vegetable Oils and Manufactures Shortening, Specialty Products. Table Margarine, Mayonnaise, Salad Dressing and Other Salad Products. Bakers Margarine, Bakers Puff Pastry, Table Margarine, Mayonnaise, Salad Dressing and Other Salad Products. Table Margarine, Mayonnaise. Salad Dressing aad Ocher Salad Products. Table Margarine, Mayonnaise, Salad Dressing and Other Salad Products. St. Helena. (Baltimore) Md. Baltimore, Md. Collinsville, 111. Hammond, Ind. Scranton, Pa. Battle Mountain, Nev. Shasta Couoty, Calif. Titanium Dioxide and Cadmium Colors. Titanium Dioxide under Construction. Lichopone. Metal Powders and Copper Products. White Lead and Lead in Oil. Barytes Mine. Zinc and Copper Mines. Laramie Avenue Chicago, 111. Chicago. IlL (Calumet River) Indianapolis, lad. Buena Park, Calif. Crushes Soybeans for Meal aod Oil. Produces Soya Products and Fine Chemicals. Federal Licensed Elevator for Grain Storage and Merchandising. Elevator under Construction, Crushes Soybeans for Meal and Oil. Produces Soya Products. Federal Licensed Elevator for Grain Storage and Merchandising. Crushes Soybeans aad Flaxseed for Meal and OiL I \ NAVAL STORES Jacksonville, Fla, Valdosta, Ga. Jacksonville, FU. Destructively Distilled Turpentine, Pine Oils, Terpeoc Chnmfcili aod Other Naval Stores Products. Gum Rosin, Gum Turpentine and Special Resins. Affiliated Corporation: Jacksonville Processing Corporation--Gum Rosin, Gam Turpentine. RETAIL STORES AND WAREHOUSES IN PRINCIPAL CITIES LICENSED PAINT AND PI9MSNT* MANUFACTURER! IN Nerwey, Sweden* Denmark* Finland, Iceland, Selglam* Hellnnd, llely, France, Oreat Britain, Australia*, Japan*, Cuba i GLD38A86 Much of Tho Gliddon Company'! bvsmots comae from tho proi* ewef production of raw matoriolt for raft ft ofAar mduitriot ____i-I. GLD38487 GLD38488