Document dYR6116EZVv46mrZk887x5B05

! NOTES FOR ANNUAL MEETING December 10, l$Sk. GLD003716 A TABLE OF CONTENTS NOTES FOR ANNUAL MEETING December 10, 1964 I. Balance Sheet Review A. Cash and Banking B. Short-Term Securities C. Accounts and Notes Receivable - Trade D. Inventories E. Other Current Accounts and Investments F. Prepaid Insurance and Other Expenses G. Property H. Other Assets and Deferred Charges I. Short and Long Term Financing J. Contingent Liability K. Stock and Stockholders 1 1 2 3 5 6 6 6 7 8 9 Operating Statement A. Gross Profit B. Selling and Administrative Expense C. Other Income - Published P & L D. Depreciation E. Fixed Charges F. Advertising Expense G. Research and Development H. Average Assets and Profit Return I. Miscellaneous J. Outside Consultant Fees K. Taxes L. Comparative Operating Profit Schedules M. Summary of Extraneous Items 11 11 13 13 13 14 14 14 14 15 15 17 18 III. Cash Use and Projection A. Application of Funds B. Five-Year Forecast - Cash Basis 19 20 Qnployee Benefits A. Pension Plans B. Bonus Plan C. Stock Options D. Wage and Salary Ratios E. Salaries F. Other Benefits 21 21 23 25 25 26 V. Acquisitions, Dispositions and Capital Expenditures A. Acquisitions B. Dispositions and Shutdowns C. Mining Activity D. Major Capital Expenditures 27 30 32 32 Other Major Functions and Items A. Donations B. Audit C. Insurance D. Foreign Business E. Miscellaneous 3^ 35 35 38 48 GLD003717 BOTES FOR ANNUAL MEETING December 10, 19^4 I. Balance Sheet Review A. Cash and Banking The Glidden Company maintains the following bank relationships: Glidden Ltd. Inti. Major Accounts & Credit Line Banks Other Bank Relationships Total Total Number of Bank Accounts 21 m167 245 37 1 3 To 8 24 Cash is collected at 214 collection points in the U.S. and Canada, and is deposited in local hank accounts. In addition, 25 post office lock boxes are operated under arrangements with hanks for servicing and de positing of funds received. Funds are then moved by depository transfer check and bank wire to 21 regional collection centers and are under the control of the Headquarters Cash Control Department. Invoices are paid by Regional Accounts Payable Computer Centers and Division Accounts Payable Departments which maintain working fund ac counts. Funds are transferred to working fund accounts periodically by the Headquarters' Cash Control Department, using bank wire and check transfers. Accounts Payable has been regionalized with computer centers at Cleveland, Chicago, Mlllbrae, California and Reading, Fenna. It is anticipated that such regionalization will reduce the number and size of various Division Working Funds required. Freight Payment Plans are used at three banks. Night depository arrange ments are in effect where beneficial. B. Short-Term Securities At August 31, 1964, we reflected $8,411,170.00 of short-term securities at cost on the Balance Sheet. These consisted of the following: C.S. Treasury Bills $2,000,000.00 Commercial Paper 6,408,010.00 Telephone Company of Mexico Stock (GICA) 3>l6000 $8.411.170.00 All of these securities had maturities of less than one year and were. In general, placed to mature coincidentally with Dividend, Interest and Tax payments. The Telephone Company of Mexico was required to be pur chased in order to secure telephones for General Paint Company de Mexico. G-D0037ie NOTES FOR ANNUAL MEETING -2- I. Balance Sheet Review B. Short-Term Securities (Cont'd) During the year, our average short-term portfolio was $8,004,723.00, which was an increase of $4,853,064.00 over fiscal 1963. The average after-tax interest income was 1.93$ (3.87$ equivalent before tax) as compared to 1.52$ and 3.17$ for fiscal 1963. Our liquid position enabled us to be invested all of the 366 days of fiscal 1964. It appears that this condition will prevail throughout fiscal 1965. Although not Indicated as short-term securities on the Balance Sheet, the following were interest-bearipg and classified as cash. Certificates cf Deposit Cash In Foreign Banks Total $3,000,000.00 794,134.00 $3.794.134-, 65* C. Accounts and Notes Receivable - Trade (000 omitted) Accounts Receivable Notes Receivable Total 8/31/64 $27,893 507 $28,400 8/31/63 $24,835 4o6 $25,241 8/31/62 $23,884 685 $24,569 8/31/61 $21,933 323 $2,256 Reserve for Bad Debts and Allowances Net per Annual Report 6i4 $27,786 510 $24,731 502 $24,066 419 $21,836 $ Bad Debt Reserve to Receivables 2.2$ 2.1$^ 2.1$ 1.9$ Past Due Receivables; Dollar Amount $ 3,059 $ of Gross Receivables 10.8$ $ 2,465 9.8$ $ 2,492 10.1$ $ 2,114 9.5$ ^Receivables Charged Off $ 377 Recoveries Against Re ceivables Charged Off 127 Net Bad Debt Lo s b $ 250 $ 527 160 $ 355 $ 367 124 $ 253 $ 407 91 T~316 Bad Debt Loss as $ of Sales: 1964 1963 1962 1961 i960 1959 1958 .10$ .16$ .10$ .15$ .08$ .06$ .06$ * Excludes $13,617 of TranB-Carlbe Supply Co. and Reliable Veter Heater Co. charge-off which was not a Trade Receivable. GLD003719 NOTES FOR ANNUAL MEETING I. Balance Sheet Review -3- C. Accounts and Notes Receivable - Trade (Cont'd) Accounts Receivable turnover for the entire Company was 40 days. This compares to 33 days in J.963 and 37 days in 1962. The increase is attri butable to expansion of our International operations as our investment in these receivables increase. Domestic turnover was e^ual to 1963 at 36 days. Net bad debt losses of $230,000 on trade receivables represent a decrease of $114,000 from the prior year on a sales increase of $16,700,000. National industry surveys report fewer business failures but record levelB of dollar losses, and ve, therefore, consider our 1964 bad debt performance good. Our program of continued sales through branches in fluences both bad debt losses and turnover of accounts receivable. Instead of dealing with a smaller number of larger firms performing a distribution function, we nov deal directly with a wide range of accounts formerly serviced by distributors, and thiB tends to increase losses and slow turnover. Additionally, we are aggressively expanding our saleB activities in the painter maintenance field where the marginal risk is characteristic of the industry. Painters represented 34$ of our C & R Group dollar losses in fiscal 1963-64. Another 34$ of C & R losses came from our dealer accounts. A percentage breakdown of total receivables by major division is as follows: 1964 163 1962 lg6l Coatings & Resins Foods Chemicals International Private Ledger 57$ 19$ 15$ 9$ - Ioo$ 59$ 60$ 19$ 19$ 16$ 17$ 6$ 4$ Nominal Nominal 1W$ Ioo$ 63$ 24$ 13$ Nominal To5$ D. Inventories Published total inventory increased $2,901,000 over Fiscal I963. Changes by Group were as follows In thousands: August 1964 I9&3 Increase (Decrease) Coatings & Resins Foods Chemicals Development International LIFO Reserve Canadian Devaluation $19,387 20,373 13,370 42 2*523 $55,705 (185) (170) $55,350 $18,767 20,305 12,941 87 762 $52,862 (254) (159) $52.449 $ 620 68 429 (45) 1,771 $2,843 69 (ID $2.901 GLOoo3 720 NOTES FOR ANNUAL MEETING -4- I. Balance Sheet Review D. Inventories--(Cont'd) The principal factors contributing to these increases (decreases) by Group vere: Coatings & Resins - The total increase of $620.000 consisted of decreases of $341,000 in raw materials and increases of $961,000 in finished stock. The raw materials decrease reflects an improvement in our purchasing and control techniques. The increase of finished stocks was attributed to the acquisitions of Macco, Gates and Walker Bros, as well as a 9.8$ increase in sales which resulted in a more rapid turnover or dayB supply of four days less than last year. Foods - Inventories in the Foods Group have increased $68,000 over last year. The acquisition of H. J. Mayer and Gretchen Grant have Increased inventories by $417,000. The difference is due to a reduced finished stock inventory at Wolcott. This reduction represents an abandonment of frozen food lines. Hie over-all change in inventories also represents a change in buying policy with regard to potatoes and onions. Chemicals - The Chemicals Group inventory was $429,000 higher then a year ago. Raw material stocks at Adrian Joyce have increased $1,593,000. This basically represents Lakehurst ore which stockpiled during the shutdown at Adrian Joyce. However, this increase was partially offset by a $697,000 decrease in finished stocks resulting from increased sales and decreased production due to a somewhat longer plant shutdown than last year. This decrease is also the result of an extremely high level of finished stock at the previous year end. Other decreases vere reflected in lover levels of finished stock at most of the divisions. International - The increase over last year was $1,771,000. The consoli dation of Trans-Caribe Supply and Reliable Water Heater Co. accounts for $980,000 of this increase. The start-up of operations at Perttco - Bruges added $650,000. The remainder of the increase vas primarily the result of increased operating requirements at all of the remaining overseas units. LIFO Reserve - Lower price levels In various Foods Group oil stocks re sulted in a decrease of $69,000 in the LIFO Reserve. Turnover - Published Net Sales to year-end 1964 1963 1962 1961 i960 - 4.66 to 1 - 4.59 to 1 - 4.89 to 1 - 4.97 to 1 - 4.86 to 1 Control over the inventory investment is achieved through the joint efforts of management and operating personnel. GLD003721 NOTES FOR ANNUAL MEETING -5- I. Balance Sheet Review D. Inventories (Cont'd) The Coatings and Resins Group semi-annually establishes monthly monetary inventory goal levels by Regions. These goals are reviewed monthly by a Headquarters' Inventory Committee and necessary action is promptly initiated to correct any out-of-line occurrences. The goals for both raw materials and finished stock are established only after careful study and consultation with Regional management, and it is the responsibility of Regional management to allocate by operating unit and by product within its goal. Each month, inventory performance is compared to goal with explanations of variances determined and any necessary correction action taken. Inventory control in the Foods Group is established through the joint efforts of Headquarters and Division Management. An important aspect is the dally control exercised over raw materials based upon the market quotations of edible oils and condiment raw materials. The Durkee Trading Office projects market conditions as they relate to raw material require ments and communicates with Headquarters and Division management. Market conditions of spices and other materials are reviewed on a daily basis and material requirements are projected into the future. Control of inventories in the Chemicals Group is maintained by the respective Division Managers who determine their inventory needs on the baslB of individual market sources and operating requirements. The individual managers of the various International operations overseas, subject to the review and coordination of International Group management, determine necessary inventory levels through anticipation of planned saleB levels with recognition of the problems caused by their overseas supply siuations. E. Other Current Accounts and Investments Detail at August 31 was: 1964 Margin Advances (Durkee) $ Material Deposits (Chemicals) Glidden-Salchi Claims Against Comon Carriers Employees' Accounts Salesmen's Advances Installment Sales Wood & Selick Coconut Co. (Beth.) Alcohol refund on Extract Business Pincasa-Guatemala & Costa Rica Misc. Notes and Accounts 273,225 - 18,934 112,914 11,700 88,215 24,592 76,665 80,900 22,784 428,429 1963 $ 344,635 3,865 - 99,75^ 11,299 74,147 11,071 36,402 31,753 100,676 306,863 $1.020.465 GLD003722 NOTES FOR ANNUAL MEETING -6- I. Balance Sheet Review F. Prepaid Insurance and Other Expenses Detail at August 31 was: 1964 1963 Prepaid Insurance Prepaid Taxes Prepaid Royalties Other Prepaida $597,129 196,443 7,500 47,658 $848.730 $294,119 146,838 15,000 51,02g issLss * The increase in Prepaid Insurance results from a renewal of major fire, and use and occupancy policies in March of 1964 for a three year period. G. Property For schedule of major capital expenditures and 1965 forecast, see page 32. For Depreciation, see page 13. Insurable value of all buildings, machinery and equipment is $114,062,000. Lease obligations for buildings occupied by company units are covered on page 8. H. Other Assets and Deferred Charges Detail at August 31 vas: 1964 1963 Prepaid Bond Discount & Expense $ 590,599 Investments - Chicago Board of Trade 34,701 International Subsidiaries 3,202,180 (detail on page 43) Miscellaneous 9 Deferred Research & Engineering Cost 736,942 Employee Loans 51,694 Loan to Plncasa - Guatemala Trans-Caribe Supply Co., Reliable Water Heater Company Patents and Patent Rights 281,016 Misc. Notes & Accts. Receivable 182,887 t5.080.0S8 $ 621,415 34,701 2,520,508 9 570,960 115,385 65,000 661,422 303,504 92,956 ^885.880 * Tran8-Caribe Supply Co. and Reliable Water Heater Company were consolidated as of August 31, 1964. Outstanding notes of $495,727 on that date were eliminated in the consolidation. GL0003 723 NOTES FOR ANNUAL MEETING -7- I. Balance Sheet Review I. Short and Long-Term Financing 1.Short-Terra Borrowing and Bank Lines of Credit: Fiscal 1964 Fiscal 1963 Average Short-Term Borrowing Maximum Short-Term Borrowing Amount Date Minimum Short-Term Borrowing Amount Date Year-End Balance Average Interest Rate Paid Date of Pay-Off of Last Short- Term Borrowing -0-0- -0- -0-0- $ 765,753 3,000,000 3/4-4/24 9/1-2/18; 6/20-8/31 -04.5$ 6/20/63 At August 31 1964, we maintained a line of credit of $12,000,000 for Glidden (plus $1,000,000 for International). These were carried at major banks across the country as follows: Bank City and State Amount The Citizens & Southern National Bank Union Trust Company of Maryland Continental Illinois National Bank & Trust Company of Chicago The First National Bank of Chicago The Cleveland Trust Company The National City Bank of Cleveland Society National Bank of Cleveland Republic National Bank of Dallas Bank of America, N. T. & S. A. The Louisville Trust Company The Chase Manhattan Bank Chemical Bank New York Trust Company First National City Bank of New York The Boatmen's National Bank of St. Louis Mercantile Trust Company United California Bank Union Commerce Bank * International Atlanta, Georgia Baltimore, Maryland Chicago, Illinois Chicago, Illinois Cleveland, Ohio Cleveland, Ohio Cleveland, Ohio Dallas, Texas Los Angeles, Calif. Louisville, Kentucky New York, New York New York, New York New York, New York St. Louis, Missouri St. Louis, Missouri San Francisco, Calif. Cleveland, Ohio $ 500,000 500,000 1,000,000 1,000,000 500,000 1,000,000 500,000 500,000 500,000 500,000 1,500,000 1,000,000 1,500,000 500,000 500,000 500,000 1,000,000* Our present credit lines of $12,000,000 (plus $1,000,000 for Inter national) will be renewed in fiscal 1965 at $12,000,000 (plus $1,000,000 for International). However, it is not now anticipated that any short-term borrowing will be required in this fiscal year. GLD003724 NOTES FOR ANNUAL MEETING -8- I. Balance Sheet Review I. Short and Long-Term Financing (Cont'd) 2. Debenture Issue The indebtedness of The Glidden Company (excluding normal accounts payable, interest and taxes) is represented by the $30,000,000 of ^-3/4$ sinking fund debentures dated November 1, 1958, and due on November 1, 1983 and loans to subsidiaries from banks of $1,422,726. The indenture? provides for a sinking fund commencing November 1, 1964, to retire $1,500,000 of debentures annually and 100$ by maturity. The debentures were offered publicly on October 28, 1958, at 99# and the effective interest cost is 4.98$ based on the net proceeds after all expenses. Annual Interest Cost Year Month Interest at 4-3/4$ Amortisation of Discount and Expense $1,425,000 30,816 $1.455,816 $118,750 2,568 $121.318 Since January 1, 1964, market price of debentures has varied from a high of 102 to a low of 100. Market price was 101-1/4 on 8/31/64 Federal income tax returns have been examined through 1958 and final settlement made. All.issues except the Chemurgy transaction with Central Soya have been resolved for 1959# which item is. now in litigation on our claim for refund. We are nearing the end of IRS examination of 196O-I963 on both domestic and International Group activities on which adequate and proper provisions for tax liability have been made. The use of the new "Guide Line" lives of fixed assets in computing our tax depreciation resulted in an excess of $1#908,327 over book depreciation. Provision for the tax on this difference amounting to $966,892 was made in 1964. No problem in government contracts through renegotiation or otherwise. The detail of major real estate lease commitments at August 31# 1964 is (CONFIDENTIAL - DO NOT RELEASE): Total Fiscal Paint Branches Bethlehem Plant Cleveland Executive Offices Miscellaneous Facilities Contract $5,712,541 871,877 3,513,222 894,941 1965 $1,532,656 67,500 233.351 219.352 $2,052,859 At 8/31/64 a reserve of $169,795 was available for conti*---+ liability for claims and fees. GLD003725 NOTES FOR ANNUAL MEETING I. Balance Sheet Review -9- K. Stock and Stockholders 1. Common Stock (2,347,572 shares o/s at 8/31/64) Preferred stock (254,083 shares, cumulative $2,125 per share) The Company's common stock is listed on the Nev York Stock Exchange and has unlisted trading privileges on the Midvest, Pacific Coast and Philadelphia-Baltimore Stock Exchange. The Preferred Stock is not listed. From January 1, 1964 through October 31, 1964, the price of the Company's stock ranged between a high of 54-3/8 and a low of 42-5/8 (See Annual Report, Pages 14-15, for prior years). During this same period, an average of 1,544 shares were traded each day on the New York Stock Exchange. The closing price of Glidden Common Stock on December 9, 1964 was 3~p Vy 2. Other Comments on Stock: a. We have no treasury stock. b. The $2,125 cumulative preferred stock was issued incident to the agreement of merger of Pemco Corporation into The Glidden Company and subsequent merger of the Macco Chemical Company and subsidiaries into Hie Glidden Company. (1) Holders of the shares are entitled to dividends of $2,125 per annum payable quarterly on the first days of February, May, August and November. (2) Holders have no voting rights, except under certain conditions. (See Paragraph 8, Page 7, Special Meeting Proxy Statement.) (3) The stock is not redeemable prior to August 31, 1966, and is thereafter redeemable at the following prices: $55.00 per share prior to 9/l/71 53.00 per share prior to 9/1/76 52.00 per share prior to 9/1/81 51.00 after 9/l/8l (4) Holders of the shares are entitled to $50.00 per share plus unpaid cumulative dividend in case of an involuntary liquidation and to redemption price current at the time of the distribution or payment date in case of voluntary liquidation. eLD03?t 6 NOTES FOR ANNUAL MEETING -10- I. Balance Sheet Review K. Stock and Stockholders (Cont'd) (5) The Company is obligated to set aside on or before November 15 of each year out of the earnings of the previous fiscal year a sum equal to the larger of $1.00 for each share outstanding or $200,000, to be used to purchase the $2,125 preferred stock if and to the extent obtainable at a price not exceeding $50.00 per share. Any monies remaining at December 31 are released and re paid to the general funds of the Company. During the period of November 15 to December 31, 1963, no preferred shares were tendered. (6) Each share is convertible into common stock of the Company at the conversion ratio of 1.125 shares of common for each share of preferred. (7) Holders of cumulative preferred stock have no pre-emptive rights in any Btock or securities convertible into stock. c. Stock dividends are always under consideration, but we have no plans now for such. It is felt that stock dividends only spread earnings and value over a larger number of Bhares with price ad justing accordingly. d. The Company has converted Stockholder Records to Electronic Data Processing on Glidden's IBM 1401 computer. The conversion enabled the printing of the April, 1964 common dividend checks and all subsequent dividend payments to be on the computer. The final step of the conversion was proxy solicitation and this was com pleted to facilitate the preparation for the Annual Meeting and represented additional savings to the Company. 3. Holdings of shares as follows: August 31, 1964 No. of Share # Shares Avg. Shs. holders Held Held August 31, 1963 No. of Share # Shares Avg.Shs holders Held Held Individuals Institutions Brokers Nominees Total 19,498 380 162 377 20.417 59.86# 4.79 10.00 25.35 100.00# 72 296 1,449 1,579 115 19,942 362 172 333 20.809 60.27# 5.68 9.74 24.31 100.00# 71 366 1,320 1,703 ___113 G|-00037 27 NOTES FOR ANNUAL MEETING -11- II. Operating Statement A. Gross Profit Percent to Net Sales Dollars Published 1964 19&3 29-84# $76,876,193 28.92# $69,694,797 Increase 1964 over 1963 Due to Net Sales Increase Due to Gross Margin Net 1964 Increase $4,984,370 2,197,026 $7:181,^96' B. Selling and Administrative Expense The Annual Report shows a Selling and Administrative Expense increase of $3,715,000 or 6.8# on a net sales increase of 6.9# In 1964. The major increases (decrease) by caption in 1964 are as follows: Sales Compensation Salesmen's Expense & Other Terr. Charges Sales Administrative Salaries Travel Storage Advertising (local and national) Bad Debt Provision Product Development, Technical Service Research Office Salaries Communications Occupancy Moving Retirement, Bonus Development Costs Data Processing All Other $ 856,000 137,000 304,000 289,000 (108,000) 135,000 (61,000) 141,000 532,000 1,244,000 140,000 236,000 (24,000) 202,000 (522,000) 279,000 (65,000) Total $3,715,000 The Group breakdown of Selling and Administrative Expense inerea the prior year is: Increase over Prior Year 1964 ...... 196*3 Coatings and Resins Foods Chemicals International Headquarters Development $2,826,000 677,000 (332,000) 284,000 19,000 241,000 $ (298,000) 1,958,000 1,680,000 390,000 201,000 151,000 Total $3,715,000 $4,082,000 GLD003728 NOTES FOR ANNUAL MEETING -12- II. Operating Statement Increases and decreases in Selling and Administrative Expenses on a published basis by Group are as follows: C & R - Walker Brothers together with Macco and Gates acquired by the C 8s R Group during fiscal 1964 accounted for $832,000 of the increase. Other significant expense increases over 1963 for the C & R Group exclusive of Walker Brothers and Macco and Gates were Advertising up $155,000 Conference up $75,000, Office Salaries up $263,000, Data Processing up $252,000, Research up $229,000, Group Administration up $149,000 and Corporate Admin istration up $133,000. Excluding Walker Brothers, Macco and Gates, the C 8c R Group Net Sales increased 6.4$ over fiscal 1963, while the Selling and Admin istrative expenses increased 6.6$. Foods - The Mayer and Gretchen Grant acquisitions in the Foods Group accounted for $199,000 of Selling said Administrative expenses. Other significant in creases excluding Mayer and Gretchen Grant were Sales Compensation up $444,000 Salesmen's expenses up $116,000 and Development CostB up $413,000. Excluding Mayer and Gretchen Grant, Foods Group Net Sales were up 3.2$ while their Selling and Administrative expenses were up 3-7$. Chemicals - In the Chemicals Group, Development Costs decreased $1,208,000 while Research increased by $288,000, Group Administration increased by $125,000, Corporate Administration increased by $188,000, Sales Administrative Salaries increased by $99,000, Allowances increased by $91,000 and Donations increased by $45,000. Chemicals Group Net Sales increased 6.4$ over fiscal 1963 while the Selling and Administrative expenses decreased 3*9$ International - Increases in International Group Selling and Administrative expenses were Stiles Administrative Salaries up $63,000, Travel up $29,000, Bad Debt Provision up $16,000, Advertising up $10,000, Technical Service up $42,000, Office Salaries up $55,000 and Development Costs up $68,000. Net Sales for the International Group increased 13-7$ over 1963 while the Selling and Administrative expenses increased 21.9$* Headquarters - Total Headquarters Administrative expenses were $9,730,000 in fiscal 1964 compared to $8,860,000 in fiscal 1963 and $7,340,000 in fiscal 1962. Pension costs and Professional Services are detailed as follows: Pension Costs Professional Services Other Administrative Expenses Total 1964 $1,049,000 521,000 8,160,000 $9,730,006 1963 $" 521,000 7,340,000 1962 $ 246,635 443,000 6,651,000 $7,360,066 1961 145,000 5,928,000 $0,345,666 Increases in Other Administrative expenses were $820,000 over 1963 and $1,509,000 over 1962. Other Administrative Expense by Group is summarized as follows:----------------------------- C8cR Group Administration Foods Group Administration Chemicals Group Admin. International Group Admin. Corporate Administration Total 1964 $1,683,000' 796,000 425.000 331.000 4,925,000 $8,160,000 1963 $1,535,000 660,000 347.000 296.000 4,502,000 $7,340,006 1962 $1,953,000 466.000 269.000 158.000 3,805,000 $6,651,006" 1961 $1,868,060 441.000 255.000 51,000 3,373,000 $5,92B,o0o GLD003729 NOTES FOR ANNUAL MEETING II. Operating Statement -13- Office Salaries were up $498,000, Travel up $107,000, Bonus up $192,000 and Want Ads & Agency Fees up $22,000 accounting for the major increases. C. Other Income - Published P & L The major items this year and last were: Interest Earned Gain (loss) - Disposal of Capital Assets: Fjord-Plast Common Stock & Surplus Minneapolis Land Baltimore Abandonment Loss Other Sale of Buena Park Land Provision for Frozen Foods Abandonment Other: Board of Trade (Chicago) Gross Profit Board of Trade (Chicago) Net Profit Scrap and Residue Sales Provision for Collinsville Abandonment Good Will Amortization Stationery Write-Off LIFO Adjustment Insurance Reserve Adjustments and Dividends Miscellaneous 1964 $423,565 - 11,808 568,768 (550,393) 234,314 - 194,916 (160,499) (285,606) (37,018) 68,940 99,471 91,069 $659,335 1963 $236,601 (47,315) 9,887 (19,021) 364 - - - 127,293 119,849 - - (21,770) 76,393 101,859 (22,118) $562,022 D. Depreciation Book Depreciation charges for 1964 were $6,735*858 compared to $6,750,383 1 1963. Additional depreciation of approximately $1,908,327 will be claimed for Federal Tax purposes in 1964 as a result of the new "Guide Lines" adjustment of asset lives. E. Fixed Charges The two major items of this nature which may be of concern to shareholders are: Interest on long-term debt Estimated Real Estate Lease Liability (Confidential) See Page 8 1964 1965 $1,425,000 $1,366,000 1,852,916 2,052,859 $3,277,916 $3,418,859 Based on the 254,083 shares of preferred stock issued and outstanding at August 31, 1964, preferred dividends of $539,926 will become payable in 1965* GLD003730 NOTES FOR ANNUAL MEETING -14- II. Operating Statement F. Advertising Expense 1964 C & R* $3,741,360 Foods $2,739,143 By Group Chemical Int'l. $236,191 $73,356 Devel. Group $14,728 Corpo rate $26,704' Total $6,831,482 $ to Sales 235$ 1963 3,518,797 2,417,437 191,393 62,930 16,600 10,627 6,217,784 2.48$ * Includes Canadian Devaluation G. Research and Development 1963 Actual 1964 Actual 1964 Budget Proposed 1965 Budget Incr. 1965 Budget Over 1964 Actual Research Administrative Tech. Service to Mfg. Sales Service $3,129,573 187,800 341,200 2,232,526 $5,891,099 $3,620,328 216,032 400,211 2,287,127 $6,523,698 $3,928,000 231.000 464.000 2,363,000 $6,986,006 $4,300,000 248,000 347,000 2,433,000 $7,328,006 Control Lob. Total 1,536,559 1,625,747 $t,427,658 $8,149,445 $ -$ - $ to Net Sales 3.08$ 3.16$ $679,672 31,968 (53,211) 145,873 $864,362 $- Average Assets and Profit Return Coatings and Resins Foods Chemicals International Total Groups 1964 Average Assets $ 54,133,780 39,943,901 45,503,290 8,593,169 $148,174,140 1964 Profit $8,172,548 5,090,665 7,756,253 488,009 $21,507,47$ 1964 Return ~I5J$ 12.7$ 17.0$ 1^3$ Total Company $163,511,767 $18,015,735 11.0$ I. Miscellaneous It may he pointed out, on inquiry, that all Divisions of the Company were operated profitably in 1964 with the exception of: The Carrollton Division of the Southwest Region, the Rutland Division of the Pacific Region, the Midwest Trade Sales Division, the H. J. Mayer - U.S. Food Division, the Gretchen Grant. Food Division, General Paint - Mexico, Femco Division - Belgium, the Berkeley Food Division and the Collinsville Chemical plant. GL DO 03 731 KOTOS FOR ANNUAL MEETING II. Operating Statement J. Outside Consultant Fees Legal Department: Overton, Layman & Prince - U.S. vs Armour 8s Co. and Com Products Jones, Day, Cockley 8s Reavis - Zdanok & Alexander vs Glidden Squire, Sanders & Dempsey - Macco v b Syracuse Adhesives Co. Other Patent Department Executive Department: E8eE Audit Provision MacKay Shields Other Controller's Department Other Administrative Departments Development Cost: A. D. Little Standard Research Institute Roy G. Peers Research Consultants Fee -15- $84,605 22,754 19,766 $72,000 44,763 54,200 $77,898 7,891 15,978 15,808 66,802$193,927 28,599 170,963 48,240 116,088 117,575 K. Taxes 1. Guideline Tax Depreciation Revenue Procedure 62-21 permits, for a limited period of time, the deduction of depreciation based on arbitrary useful lives which may be substantially less than actual. This has resulted in an excess of tax depreciation over book depreciation in 1964 of $1,908,327 and in 1963 of $2,193,373* The higher tax deduction thus obtained has brought about a deferment of taxes payable in 1963 of $1,140,554 and in 1964 of $966,892. TOe Glidden Company will continue to employ for financial reporting purposes the asset lives based on statistical studies of our own replacement experience. The advantage obtained by the application of Revenue Procedure 62-21 lies in the immediate availability of cash that would otherwise be payable for current taxes. 2. Investment Credit The Revenue Act of 1962 allows a credit against the tax liability of up to 7% of investment in property other than buildings since January 1, 1962. In 1963 this credit amounted to $194,427 and in 1964 the credit was $303,911- GLD003732 BOXES FOB ANNUAL MEETING ll. Operating Statement -Ki The Revenue Act of 1964 emended the investment credit provision hy eliminat ing the requirement that the depreciable basis of qualifying property be reduced by the amount of the investment credit. Such amendment also provided for the restoration of the basis reduction which recurred in prior years. It is no longer necessary, therefore, to provide for a deferred tax amount due to investment credit. The amount of such deferred tax reserve accumulated in prior years ($224,935) has, therefore, been returned to income in 1964 by reducing the current tax provision by such amount. For 1964 and subsequent years, the total amount of the investment credit will flow through to earnings by a direct reduction of the current Federal tax provision. Deferment of taxes in 1964 for future years amounted to $742,000. This deferment of taxes provided an additional cash flow amounting to $.32 per common share and is made up as follows: Deferment of Taxes (applicable to 1964 Guideline Depreciation) Reversal of Investment Credit Deferment To round to even thousands Total Deferment of 1964 Taxes $966,892 (224,935) 43 $742,000 GLD003733 NOTES FOR ANNUAL MEETING -17- II. Operating Statement L. Comparative Operating Profit Schedule (Thousands Quitted) 1964 Before After Taxes Taxes* 1963 Before After Taxes Taxes* Coatings and Resins Gain on Buena Park Land Inventory Increment Universal Color System Net Operating Profit $ 8,173 (157) (108) 165 $17573 $4,032 $ 6,350 (118)** - (53) 81 (193) - $37545 $17157 $3,048 - (93) - $27555 Foods Net Market (Gain) Loss Safflower Market Loss Provision for Frozen Food6 Net Operating Profit 5,091 (280) - 550 2,512 (138) m 334** $27758 4,181 (216) 245 - $ 47216 2,007 (104) 118 - $272l Chemicals Collinsville Abandonment Net Operating Profit 7,756 161 $17517 3,826 6,206 T9** - $37505 $17266 2,979 - $2,979 International 488 182** 652 346**- Development Architectural Products Corporate Development Costs Partial A.P.D. Abandonment Net Operating Loss (414) (843) 83 $71714) (204) (4l6) 4l $1575) (384) (641) $(1,025) (184) (308) $1*52) Other Income (Deductions) Pension Cutback Net Operating Loss (1,925) (100) $127525) (950) <ni> (1,585) (150) $TI7755) (763.) 172) $18fc) To Adjust for Effective Tax Rate Net Operating Profit $18,646 275 $5734 $14,465 518 $77454 Adjustments Itemized Above LIFO (Provision) Reversal Loss on Loan Loss on Fjord Plast Assets Provision for Claims and Fees Gain on Buena Park Goodwill and In-tangibles Amortization Insurance Adjustments Special Bonus Rc-ovision (314) 69 m (396) 412 (286) 91 (200) (177) 34 - (195) 309 (286) 45 (99) 314 76 (341) (47) - - - - - 151 36 (164) (23) - - - - - Total Published Profit $18,016 $9,065 $14,467 $7,494 * Computed at 49 1/3$ (48$ in 1963) of before tax amount except those noted with a (**) double asterisk. GLD003734 NOTES FOR ANNUAL MEETING -18- II. Operating Statement M. Summary of Extraneous Items (Thousands Omitted) 1964 After Per Taxes Share _______ 1963 After Per Taxes Share Published Final Net Profit $9,065 Foods Market Reserves Safflower Market Loss Pension Cutback LIFO Provision (Reversal) Loss on Loan Loss on Fjord KLa3t Assets Provision for Claims & Fees Provision for Frozen Foods Gain on Buena Bark Goodwill Ss Intangibles Amortization Collinsville Abandonment Insurance Adjustments Partial A.P.D. Abandonment C&R Inventory Increment Special Bonus Provision Universal Color System Additions! Gain-Buena Park Sale (138) - (49) (34) - - 195 334 (309) 286 79 (45) 4l (53) 99 81 (118) $9,434 Nunber of Shares 2,347,572 $3-630 $7,494 (-059) - (021) (-014) - .083 .142 (.132) .122 .034 (.019) .017 (023) .042 .035 (.050) $3.787 (104) 118 (72) (36) 164 23 - - - (93) - - $7,494 2,332,485 $3-03 (.04) .05 (-03) (.02) 07 .01 - - - - (.04) - --- $3-03 SS3SSS GLD00373 5 MOTES FOR ANNUAL MEETING III. Cash Uae and Projection A. Application of Funds (in thousands) Source of Funds Net Income Depreciation Provision for deferred income taxes Total from operations Sale of Common Stock under option plans (l96k-13,26o shares; 1963-2,613 shares) Net current assets acquired from Macco Chemical Co. for Preferred Stock Other Sources (applications): Disposition of fixed assets Prepaid bond discount and expense-Decrease Prepaid development costs-(increase) Other non-current receivables (increase) Decrease All other - net Application of Funds Dividends declared Expenditures for property, plant and equipment Additional investments in and advances to associated cornnanies Redemption of $2,125 Cumulative Preferred Stock (1,630 shares) Increase (decrease) in working capital -19- 196^ 1963 $ 9,065 6,736 742 $l6,5k3 $ 7,494 6,751 1,396 $15,641 506 630 1,550 31 (166) 723 (1,876) $17,941 100 - 73 30 (75) 116 21 $13,906 $ 5,163 6,904 682 - $17,94.1 $ 5,083 4,024 1,328 82 5,389 $15,906 GLD003736 20. rH -3" $ CVOO CoO OcvNi ON JHON <n Q CM-d VO ajSSi invo H gv & OrHn l-- UN vr h-1- in NO CO Hf m o t-- cvj co -d CM mco #--< CVJ CM in af m o fOuSh' C^rH % ^ *N 30 rH VO g O |H 0 a CO Q 00 UN UN CM NO ON O rH UN i. *. . H VO VO CO rH-& .> CM t~CM H m t~VO rH * < ' Si8 +> o v a 6a s On t--Iroon vno % *v vo rn in CVJ m o28 On eg u n rH CO -d rn CM ro co*% <-t t~ *. CM -d ON rH H o rH Q NO COCO CM S Q O t-- UN c-vO vo CO ro *. CO O rH o S8^S^ UN rH Pi h o H UN-d ^A CMi H HO- vv to HdHf CM COCO S- OH On HVO H H CO rH w H8 >d n aa a js in o\ St-CO ro On mCVJv -4 CVJ H w s p >8 Wn vo CO NO CM t- UN A \ 8}^ vo t-% rH rH s It- O H o Qfete Ovyn P UNO On Hj J- 40 UN 30 % 10 BCOO t/\ II &8S8 lNO 1ON c-1- co HO fH -d VO 3 d 4 UNO OoHvNtpt--- CO ChMV VHO HON imn 4 rl MH H0 cog t0o r& M30 H v > 0 *V**N \0 in H VO fO H iO OVO VtQn CoVJ IYdn-CdM uQS t-CM UN t--.d co H CM vq5cnoo 3eHFg ON in m CCCMM5 UOONVuOQNn-UO4NN-O4s HHCM 00 o\ co * . * VO H UN ^ t/N a"4(9* hH- irHn VO H UN H UN cHo |aH S n d O sO On .4 uVO lR 3*8 On CO UN c-co co t- <H .D CVJ H -O- ON-d UN m NO ON oVO On on ^ *i -d- c- CO Sc-v.c!3~ VO H (OOUONnV. cHCOMo*. COOoM^n co H coco gj 78. V *N t--d cvi LTV O CVJ On CM VO OVO t" S' -d VO CM VO r-t -V* (VN UN 8R C*-v I cn in vom CM O CO t~- UN rH t-VO ON . ro-d CVI -d t- fi\.S. CrHO orH ON rcon oo J L? .' iCt es po h a n n u a l meet mo a u o H H a +Cj9 O m t) 0fH 0 0 fS a 3 o 40) 8 X l V > to to vm X0 -Eh Eah Ju3> uO 0u cn Cmun <<p4h ua<j H44O!hH1 H<rO*>H&H H44r0!-h3_1, 3 0 4n0h1) < >ocd to cP a 14 Cl bCD 0 06 4S013 40O1! O & rH S-j 3 *H 0dO 0-vP5 1t ocH <UcHp0y 0C 4 oah0tHH1 4a> o0}hdH C r-l 401 O C H0 Q Dj g4""1 rl ar-t Q s <U 4> oc a<u w t< <ou a0, oPj< Jh u o as c-i :-l 6 OoO0a u4O0HU00IhHh r* > fa ia d ti M0 v xt *t a *h to > o -H to i--I CO 41 O0 "H J HH0M0dS 0O0 QH> HnO 401 Au O S3! 00535 40H051 1l 4a0oH1 -4H0MOr1l 0v409100H51 H00a00t0l H00a0nhU H0W00I0uh 4EOH1 H0 <tHa0>oH 41 o4HaP1, f0v. w0P1 MPc0 14031 *0ri JT. t* NOTES TOR ANNUAL MEETING -21- IV. Employee Benefits A. Pension Plans Expense Per Books 7/31/64 Trust Funds on Deposit Number of Etifloyees Funded Retired Employees Receiving Benefits U.S. Salaried U.S. Hourly Pemco Hourly Canadian Salaried Canadian Hourly $ 860,000 337,800 -072,000 30,000 $17,882,848 4,072,048 262,475 977,699 300,497 1,638 1,182 80 270 l4o 331 351 7 14 14 Total Funded $1,299,800 $23,495,567 3,310 717 Supplemental Total 124,719 $1,424,519 Total Assets @ 7/31/64 $23,495,567 (does not include $317,300 to be deposited to complete 1964 requirements.) Unfunded Past-Service Liability in Annual Report $ 5,636,851 Annual Current Service Cost per Annual Report $ 1,580,946 There vere no amendments to our retirement plans during the past year. B. Bonus Plan Original plan adopted February 8, 1951 and amended through August 31, 1956. Administered by a Bonus Committee elected by the Board of Directors. In 1955, Gilbert suggested provision preventing bonus to top officers until a certain dividend has been paid. Formula provides 12$ must be earned (pretax) on bonus net capital (capital, term debt, etc.) before providing a bonus of 7$ of profit. Net income mu3t exceed 6$ bonus net capital employed also. The i960 confutation was: eLDo 3?3e NOTES FOR ANNUAL MEETING -22- IV. Einployee Benefits B. Bonus Plan (Cont'd) Consolidated Net Income (After Taxes) $ 9,064,735 Less: 12$ Bonus Net Capital Employed 16,545,248 Add: - Interest on Debt Bond Discount Paid Bonus Provision Provision for Income Taxes $1,425,000 12,000 200,000 8,951,000 $10,588,000 Less: -Dividends and Interest from Unconsolidated Subsidiaries and Affiliated Companies 246,521 Net Bonus Income $ 2.860.966 Bonus Provision - Maximum Amount 7$ 1- 200.268 Consolidated Net Income (After Tax) $ 9,064,735 Less: 6$ Bonus Net Capital Employed 8,272,624 Bonus Provision - 6$ Bonus Net Capital Employed Maximum Amount $ 792,111 Actual Provision 4 200.000 Since 1951, the maximum allowable provision was $2,757,863. We have returned to profit $952,163 leaving $1,805,700 for Bonus payout. In 1961i-, we provided, as indicated above, $200,000 for Bonuses. In fiscal 1965 $115,500 was awarded to forty-nine (49) individuals. The highest individual amount was $8,000 to Mr. P. W. Neldhardt. No Bonus provisions or awards were made for the years i960, 1961, 1962 or 1963. In 1959, 124 awards were made, totaling $209,750. The highest individual amount awarded was $8,000 (to Duncan and Halsey). A total of 1,196 awards have been made from 1951 through 1959* Maximum in any one year was 212, lowest 48. The highest individual amount avarded was $12,000 (to Duncan, Sprague, Ruth and Goldseth in 195l)* Gilbert suggested resubmitting plan every five years to stockholders. We feel we need to do so only when there is a material change. The purpose of the Bonus Plan is to provide reward and incentive to those employees and officers, except the Chairman of the Board of GLD003739 NOTES FOR ANNUAL MEETING -23- IV. Bapioyee Benefits B. Bonus Plan (Cont'd) Directors and the President, who, beyond the call of duty, contribute to the success of the Company. As provided in the Plan, each award of more than $1,000 is paid in annual installments of 25$ of the amount awarded or $1,000, whichever iB greater, and the Bonus Committee deter mines what part of any award is to be paid in cash or stock. No bonus swarded to an employee for any fiscal year may exceed 50$ of the basic annual salary of such employee at the end of such fiscal year. Eight officers of the Company vho serve as directors, and approximately 900 other employees (including eight officers) who receive salaries of $750 or more per month, are currently eligible for consideration for bonus awards. The Chairman of the Board of Directors and President may not be awarded a bonus under the Plan. C. Stock Options Under the 1952 Plan 100,000 shares of authorized and unissued Common Stock were made available. The Plan provided that no option could be granted to an employee after age 65, and no participant could receive options covering more than 5*000 shares. The Plan also provided that the option price could not he less than 95$ of the fair market value of the stock on the day the option was granted, and the option period could not exceed ten years from the date the option was granted nor more than three months after retirement of a participant. All rights to exercise options terminate when an employee ceases to be an employee for any cause other than death or retirement. As of August 31, 1964, options to purchase 118,870 shares (48,000 to officers and directors) had been granted under the 1952 Plan. (Options for 33,117 shares had expired by reason of termination of employment or lapse, of which options for 18,870 shares were reissued, as authorized by the Plan, to qualifying employees). Options representing 51*438 shares had been exercised (19,400 by officers and directors). There were outstanding under the 1952 Plan as of August 31* 1964 options for 34,315 shares, (27,100 for officers and directors) exer cisable over a period of ten years from the date granted but not more than three months after termination of a participant's employment. A total of 22 officers and directors and 42 other eng>loyees held options under the 1952 Plan. Officers and directors held options as follows: GLD003740 NOTES FOR ANNUAL MEETING -24- IV. Employee Benefits C. Stock Options (Cont'd) Option Price of $38 Expiring 12/26/64 Option Price of $37 Expiring 11/29/66 Dwight P. Joyce 2,000 1,000 B. W. Maxey 2,000 1,000 W. G. Phillips 2,000 G. M. Halsey 200 2,000 R. D. Horner ' 2,000 J. H. Weeks 2,000 1,000 G. S. Warner 2,000 2,000 P. W. Neidhardt 100 300 All Directors & Officers as a group (including those named alxwe) 10,000 13,100 Option Price of $37.50 Expiring 9/29/67 500 Option Price of $41,50 Expiring 12/28/68 500 1,000 300 500 3,500 On September 29, 1959# the authority of the Company's Stock Option Committee to grant options under the 1952 Stock Option Incentive Plan was terminated by action of the Board of Directors. 1959 Option Plan Provides Committee may option 100,000 shares of authorized and unissued Common Stock. Principal differences from old plan: 1. Option price not less than 100$ of Market (old plan 95$). Both not less than book value. 2. No option to employee after age 60 (old plan 65). 3. May not be terminated and reissued at lover price 4. Term of option set by Committee up to 10 years and may not be exercised for two years after grant (old plan all for ten years). Options issued in 1964 and subsequent years are for 5 year term. Under the 1959 Plan, options to purchase a total of 84,700 shares have been granted to 90 employees (including 42,200 shares to 32 officers). Directors and officers held options as follows: GLD003741 NOTES FOR ANNUAL MEETING -25- P/. Employee BenefitB C. Stock Options (Cont'd) Option Price of $45,125 Expiring 3/1/69 Option Price of $53 Expiring 8/g/& Dwight P. Joyce B. W. Maxey W. G. Phillips G. M. Halsey R. D. Horner J. H. Weeks G. S. Warner P. W. Neidhardt W. A. Bittenbender All Directors & Officers as a group (including those named above) 3,000 2,000 Option Price of $40 Expiring 5/25/70 2,000 1,400 400 7,000 Option Price of $4l Expiring 7/23/71 1,000 1,000 5,200 Option Price of $42.50 Expiring 12/21/71 2,000 2,000 2,000 2,000 2,000 2,000 2,000 1,000 25,000 At August 31, 1964, options for 78,580 shares were outstanding and there were 19,500 shares of unissued Common Stock reserved for options which may be granted in the future under the 1959 Plan. D. Wage and Salary Ratios 1964 1963 Manufacturing Wages to Cost of Products Manufactured 14.7$ 13.7$ Total Wages and Salaries $ to Net Sales $49,786,213 19-3$ $46,902,954 19*5$ Total Wages, Salaries and Benefit Costs $ to Net Sales $55,091,973 21.4$ $51,579/482 21.4$ E. Salaries Our salary rates, including those for officers and other key employees, including bonus, are fully in line with studies on this subject, such as by AMA. We must be competitive in salaries and other inducements such as stock options, to attract and hold good men. The proxy statement reports that total remuneration of all directors and officers as a group increased from $1,219,539 1" 1963 to $1,390,744. This increase is the result of the addition of officers from 34 to 40. GL0003742 NOTES FOR ANNUAL MEETING IV. Employee Benefits -26- F. Other Benefits In addition to the Retirement Plan, employees are eligible to participate in a group life insurance, hospital and surgical benefit plan, a major medical plan, and an accidental death insurance plan. The Company has a formalized disability benefit plan whereby employees receive a portion of their salary or wages during prolonged illness the amount and duration of benefits depending upon the employee's length of service. NOTES FOR ANNUAL MEETING V. Acquisitions, Dispositions, and Capital Expenditures -27- A. Acquisitions During fiscal 1964, the following acquisitions took place. H. J. Mayer and Sons Company (Canada) - September 1, 1963 Acquired from H. J. Mayer and Sons Company, all the inventory and equipment of their specialty spice and seasoning operation. Mayer maintained a plant at Chicago which was transferred to Bethlehem about April 1, 1964. The transfer was prompted due to the production similarities at Bethlehem. A warehouse is also maintained at Toronto, Ontario, Canada. The Canadian operation produces the seasonings and spices on an as needed basis thus accounting for the relatively high ratio of Net Profit to Net Sales. Two of the principal developers of Mayer were retained to provide the nec essary technological know-how during the period of transition. Acquired as of September 1, 1963: Inventory Equipment $54,601 12,000 Total Expended for Assets $66,601 H. J. Mayer and Sons Company (U.S.) - September 1, 1963 Acquired free: H. J. Mayer and Sons Company, all the inventory and equipment of their specialty spice and seasoning operation. Mayer maintained a plant at Chicago as well as a warehouse at Toronto, Canada. Their specialty is in seasonings and spices for meat products. The Chicago plant inventory and equipment was transferred to Durkee's Bethlehem plant about April 1, 1964 This ms due primarily to the opera tions being quite similar. Two of the principal developers of Mayer are being retained to provide the necessary technological know-how during the period of transition. Acquired as of September 1, 1963: Inventory Equipment $68,219 52,865 Tot*il Expended for Assets $121,084 g l 000374 NOTES FOR ANNUM. MEETING V. Acquisitions, Dispositions, and Capital Expenditures A. Acquisitions (Cont'd) -28- Macco Chemical Company - March 1, 1964 At a special meeting held February 19, 1964, the Glidden shareholders approved a plan to merge the Macco Chemical Company into The Glidden Company. The merger was accomplished through an exchange of Glidden $2,125 Cumulative Preferred Stock for Macco Common Stock. Glidden ex changed 58,Mt-5 of its preferred shares for all outstanding Macco common shares. The Glidden stock was of the same series as that of the Pemco Corporation merger of November 5, 1961. Macco is composed of two Divisions: 1. Macco Adhesives Division - manufactures adhesives, grouts and asso ciated items for the ceramic and plastic tile industry. Through the former, Keller Products, Inc. - produces an extruded vinyl strip, of patented design, which is used with a special adhesive for sealing Joints around tubs, sinks, and shower stalls. 2. Gates Engineering Company - manufactures, sells, and applies highly specialized protective linings and coatings based largely on neoprene and Hypalon. Acquired through merger as of March 1, 1964; Assets and Liabilities Cash Certificates of Deposit U.S. Treasury Bills Receivables Inventory Prepayments Net Fixed Assets Deferred Charges Payables Accruals $ 59,350 250,000 168,985 339A53 393,381 24,862 464,200 fcjl33 (86,441) (212,005) $1,405,618 Net Worth Common Stock Paid in Surplus Earned Surplus Profit and Loss $ 195,000 582,380 593,749 34,489 $1,405,618 GL003 745 NOTES FOR ANNUM, MEETING V. Acquisitions) Dispositions) and Capital Expenditures A. Acquisitions (Cont'd) -29- Walker Brothers, Limited - May 1, 1964 Acquired all the capital stock of Walker Brothers, Limited, Vancouver, British Columbia for $500>000. Walker Brothers was a leading Canadian manufacturer of wood coatings and maintenance-trade sales paints. The success of the wood finishes is attributed to Walker's concentration on a small segment of this market. Finishes for plywood, sealers, shingle and shake now account for approxi mately 67$ of sales while the maintenance-trade sales paints account for the other 33$- A one acre site adjacent to the existing factory building is to be pur chased to provide the needed space for anticipated future expansion. There are three year employment contracts with each of the four principals of the company. These salaries will amount to $53,000 per year. Also, two of the piincipals will be paid $5>000 per year from the time employment terminates to age 65 or death, whichever occurs first. Uhder this provision, Glidden's maximum obligation is $80,000. Acquired as of May 1, 1964: Assets and Liabilities Net Worth Cash Bank Deposits Receivables Inventory Prepayments Goodwill Other Assets Net Fixed Assets Payables Accruals $ 7,270 (33,904) 107,340 102,032 2,477 20,039 2,011 136,375 (28,725) (21,055) Common Stock Paid in Surplus Earned Surplus Profit and Loss Federal Income Tax Provision $ 25,000 4,290 266,768 (3,198) 1,000 $293,860 $293,860 Gretchen Grant Kitchens, Inc. - July 1, 1964 Acquired from Gretchen Grant Kitchens, Inc., the assets (with the exception of receivables) and business of their specialized frozen pastry operation. Gretchen Grant is a major producer of frozen French pastry hors d'oeuvres. They are being operated as a part of the Foods Group. GLD003746 NOTES FOR ANNUAL MEETING V. Acquisitions, Dispositions, and Capital Expenditures A. Acquisitions (Cont'd) -30- Gretchen Grant Kitchens, Inc. (Cont'd) Gretchen Grant products are marketed to the institutional trade and to quality grocery and. department stores throughout the country. The product line consists of 18 separate items. Louis and Michael Midler, founders and developers of Gretchen Grant, will he retained as independent contractors in a consulting capacity. They will help to facilitate the changeover to Glidden and the development of new French hors d'oeuvres. Acquired as of July 1, 196k: Inventory Intangibles Other Assets Net Fixed Assets Total Expended for Assets $219 ,890 61,425 44,140 380,696 $706,151 * * Includes $33,625 of Brokerage Commissions which were prorated to the above asset purchases. B. Dispositions and Shutdowns Annual Sales Last Full Year Hammond 7/16/51 Oakland 10/25/54 Feed Mill 8/10/54 Portland 9/18/52 Cambridge 7/l/55 Yadkin $ 4,076,147 627,505 4,423,653 2,941,393 1,308,738 Jojaba - Caste11a Barytes Mines Buena Park 8/31/56 4,033,465 Eastern Marg. & Salad Prod. 2/1/57 9,996,668 Elmhurst Building A,8/31/57; S,8/1/58 Scranton 6/9/58 1,100,590 Profit or (Loss) Last Full Year $ (234,346) (226,221) 65,538 92,554 (60,579) (11,032) (372,378) 52,028 Avg. Profit or (Loss) Last 4 Yrs. Operated $ (373,225) 39,296 15,608 13,771 (9,537) (67,338) (414,580) 66,056 Pre-Tax Profit or (Loss) on Sales or Abandon ment After Tax Cash & Asset Utilization Last Full Year Basis $ 142,235 96,376 (290,471) (19,369) (6,542) (8,149) 50,597 (253,580) $ 2,044,710 997,955 2,417,154 1,224,149 851,472 58,673 125,640 11,679 1,095,247 (197,934) 2,383,320 (252,240) 30,690 1,269,854 455,467 GL DO 03 747 K0TE5 FOR AMUAL MEETIHCr V. Acquisitions, Dispositions, and Capital Expenditures -31- B. Dispositions and Shutdowns (Cont'd) Annual Soles Last Full Year St. Helena 3/31/58 $ Buena Park Land 1/20/58 Chemurgy 9/l/58 31,982,480 Southern Pine 2/28/58 1,070,947 Valdosta 3/28/60 2,941,738 Berkeley M & SP 4/30/60 5,645,470 Tulsa-Gen.Paint 6/1/62 398,897 Architectural Products Division 6/23/64 2,757 Collinsville 8/24/64 Frozen Food Aband. 4/8/64 to 8/31/64 1,110,209 Buena Park Lend 11/29/63 & 2/28/64 Profit or (Loss) Last Full Year * - 1,477,859 103,448 320,127 98,726 (7,795) (16,255) - (243,575) - Avg. Profit or (Loss) Last 4 Yrs. Operated Pre-Tax Profit or (Loss) on Sales or Abandon- ment After Tax Cash & Asset Utilization Last Full Year Basis $- 1,503,501 68,240 156,671 66,787 (1,796) $(1,215,239) 174,957 1,156,164 (76,237) 275,301 39,176 (7,813) $ 925,924 136,635 27,415,123 292,555 1,430,042 684,913 314,422 (12,900) (58,732) 154,851 (160,499) 81,117 (143,031) (416,538) 821,100 568,768 445,399 Total $71,660,657 $ 1,038,099 $ 907,523 $ (429,129) $45,637,401 Fixed Assets - Sold - Abandoned Book Value $11,667,440 2,803,925 $14,471,365 After Tax Cash Flow $19,514,820 1,452,771 $20,967,591 Excess - Cash Over Book Value $7,847,380 (1,351,154) $6,496,226 Two Year Average Two Year Average 1962-63 1963-6U Loss on Disposition of Fixed Assets only. Additional Inventory Loss of $23,524 resulted in Total Loss on Disposition of $82,256. Loss on Disposition of Fixed Assets only. In addition. Excess Cost of $86,511 and Other Expense (including Inventory Write-Down) of $47,294 was incurred to arrive at the Total Loss on Disposition of $550,393- Architectural Products 6/23/64 The flat sheet operation of Architectural Products Division was both abandoned and sold. The abandoned assets had a net book value of $57,490 and the assets sold had a book value of $2,600. Proceeds of this sale were $1,358. GL0003748 IICTES FOR ANNUAL MEETING -32- V. Acquisitions, Dispositions, and Capital Expenditures B. Dispositions and Shutdowns. (Cont'd) Collinsville 8/24/64 The Collinsville chemical operation -was also abandoned vith only adminis trative buildings and a warehouse being retained. The net book value of these assets abandoned was $160,499* Frozen Food Abandonment 4/8/64 to 8/31/64 The frozen food operation at Eden and Wolcott was abandoned and sold. Assets of $162,099 were abandoned while assets of $370,628 were sold to the Growers and Packers Cooperative of New York for $116,139* Buena Park U/29/63 & 2/28/61- Buena Park land costing $18,490 was sold to the City of Buena Park and the Movieland Wax Museum for a total of $587,258. C. Mining Activity The mining of Ilmenite Ore at Lakehurst, Nev Jersey, which was begun in August, 1962, produced 77,662 tons of ore in fiscal 1964. There was no Development Cost in 1964. Development Cost for the project to date totaled $2,241,878. Capital expenditures to date for the mine as of August 31, 1964 were $5,421,541. Capital expenditures in fiscal 1964 for the mine were $360,8l4. D. Major Expenditures Over $50,000 (Capital & Expense) 1964 (Thousands of Dollars) Coatings & Resins: Expended Prior To 1964 Expended In 1964 Appropria tions $100,000 And Over 1965 Eastern - Phase I Modernization Eastern - Data Processing Center Eastern - Finished Goods Whse. Nubian - Metal Decorating Lab Nubian - Cowles Attritor Mill Toronto - Construct Plant Polymer Plant - Land & Minor Development Polymer Plant - Construct Plant Walker Bros. - Acquisition Research Center - Parking Lot Pilot Plant - Addition & Equipment Other $ 33 - - - m - 22 350 $ 74 93 72 77 98 - 101 - 143 68 105 1,006 $- - m 275 2,000 B war 1,639 Total Coatings & Resins $ 405 $1,837 $ 3,91^ GLD0037A9 lions f o r MiimvL me s e d ig -33- V. Acquisitions, Dispositions, and Capital Expenditures D. Major Expenditures Over A50,OOP (Capital & Expense) 1964 (Cont'd) (Thousands of Dollars) Expended Appropria tions Expended $100,000 Prior To In Ana Over Foods: Logan - Acidulation Facilities Logan - Purchase & Equip. Bldg. Logan - Crude Storage Tanks, Fractionation - Storage and Tank Unloading Area Logan - Hydrogen Gas Plant Louisville - New Refining Equipment Louisville - Equip. Refining & Blenching Plant - Louisville - Esterfication Plant Wolcott - Boiled Onion Line & Plant Improve, Berkeley - Replace Boiler Bethlehem - Sauce Filling Cartoning Line Chicago - Continuous Hydration Gretchen Grant Kitchens - Acquisition Purchase H. J. Moyer Equipment Other m _ - _i22 Total Foods $ 499 Chemicals: Hammond - Iron Powder Plant Hammond - Oxide Production Pemco - Hardinge Mill & Bldg. lakehurst Mine - New Mining Area Lalcehurst Mine - Field Screening Organic - Power House Organic - Research Offices Organic - Fine Chemical Blending Facilities Organic - Column Modifications, Well & Storage Emits m 121 _ . 9 77 Organic -No. 7 Column - Major Production of Beta Pinene from Alpha Pinene - Organic - Pilot Plant Equipment Organic - 0 Column Additional Capacity - Port St. Joe - Convert 25# of Plant Capacity to VQF Feed - AJU - Increase Whse. Facilities - AJW - Reduce Lakehurst Ore - Other Total Chemicals International Group: Industries, P.R. Mexico Bruges Fabrica $6,078 $676 * Other _23i Total International Development Group $ 910 40 Headquarters 26 Total Company $7,958 $ 2k0 3tU 81 - 136 105 60 - 104 * 413 65 603 $2,148 $55 84 168 131* 81 218 - l.WJl $2,221 $* 312 538 72 321 $1,243 23 --22 $7,564 $- 350 - no - 131 no - $ 1,673 $ 2,280 - 160 - 120 500 100 300 250 200 350 2,037 $ 6,297 $ 819 143 636 $ 1,598 189 $13,671 Published 1965 Expenditure Forecast -- "Over $9 Million". GLD003750 NOTES FOR ANNUAL MEETING -3k- VI. Other Major Functions and Items A. Donations The donations policy of the Company provides for reasonable support to educational; health and velfare; and charitable organizations. This policy is administered by the Donations Committee, under the direction and guidance of the President and Board of Directors. Educational support haB been given through the following: 1. Awarding of four scholarships under the auspices of the National Merit Scholarship Corporation. 1964 winners were: Wm. D. Kraus (Missouri School of Mines), Fred E. Brickman (Washington University), Wm. B. Stallcup (Stanford),' Richard G. Corey (Yale). None are children of employees. 2. Cooperative Contribution Plan, under which the Company makes unre stricted grants to degree-granting universities in an amount equal to the donations made by employees of the Company to public colleges and universities, and twice amounts donated to private colleges and universities. Contributed in fiscal 196k - $20,342 to 111 colleges. 3. Chemistry lectureship grants provided to six United States universities to provide for lectures by outstanding individuals and to help promote understanding and interest in scientific achievement. 4. Outright grants to selected colleges and universities in the state of Ohio such as Case and Western Reserve and to the Ohio Foundation for Independent Colleges. In the Health and Welfare Category, the Company has supported the United Fund, Community Chest, Red Cross and United Health Fund programs in the communities where it has plants or branches. In addition, selective support has been given to other service organi zations and foundations. Contributions are not given to sectarian groups, labor organizations, etc. Education Health and Welfare Other 196k k2 48? 10? 1963 --51? 36? 23? 1062 "&3T 36? 19? 1061 "W 45? 7? Total Donations $220,31k* $171,690* $157,873 $120,571 ? of Net Profit 2.43* 2.29? 2.36? 1.88? Per Employee $28.2k $22.87 $22.19 $18.92 * Includes in l964-$k,150 and in 1963-417,672 in contributions of merchandise (C & R) not included in prior years. GLDOO3751 MOTES FOR ANNUAL MEETING VI. Other Major Functions and. Items -35- B. Audit Ernst Se Ernst representatives present at the meeting vill be Messrs, N. T. Halvorsen, Partner and George M. Walters, Partner. It is anticipated that Mr. Gilbert will ask Mr. Halvorsen to comment on the adequacy of Glidden's reporting system's sufficiency to inform management properly for the conduct of the business {re: Mr. Gilbert's letter of 2-28-64 to Mr. Joyce referring to Cudahy). Ernst & Ernst has and does review manual and EDP systems in course of audit tracking and will respond to such a question in strong affirmative. Company internal audit Btaff conducts surprise audits of all operating units on a schedule calling for examinations as required. Audit verification is obtained on all acquisitions and investments. C. Insurance 1. Fire a. Factory Insurance Association (FIA) covers Fire, Lightning, Windstorm, Hail, Explosion, Aircraft Damage, Vehicle Damage, Smoke Damage, Vandalism and Sprinkler Leakage. (1) Coverage is agreed amount basis, with no co-insurance requirement, and with a small deductible. (2) Plants covered are all manufacturing properties except Toronto, Montreal, Burnaby, H. J. Mayer at Windsor, San Francisco, New Orleans, St. Louis, Varnish Dept. at Minneapolis, Iron Street, Collinsville, APD Atlanta, Wolcott, Wilmington, Wickliffe and Jersey City. b. Factory Mutuals covers for the same perils as described in "a" above. (1) Coverage is agreed amount basis, with no co-insurance requirement. (2) The one plant covered under this policy is Wickliffe. c. Industrial Property Floater (EPF) covers for the same perils as described in "a" above. (1) Coverage is agreed amount basis, with no co-insurance requirement, and with a small deductible. (2) Plants covered are Ban Francisco, Hew Orleans, Varnish Dept, at Minneapolis, Iron Street, Collinsville, St. Louis, Wolcott, APD at Atlanta, Wilmington and Jersey City. g LD0Q3 752 NOTES FOR ANNUAL MEETING -36- VI. Other Major Functions and Items C. Insurance (Cont'd) d. Blanket Insurance covers for the same perils as described in "a" above in Canada. (1) Coverage is agreed amount basis, vlth no co-inBurance requirement. (2) Plants covered are Toronto, Montreal, H. J. Mayer in Windsor, Walker Brothers, Ltd., and Burnaby, B.C. 2. Use & Occupancy (u & 0) or Business Interruption a. FIA covers for the same perils for all the manufacturing locations that cover for the Property Damage Perils. (l) Coverage is agreed amount basis, with no co-insurance re quirement, and with a small deductible. b. Factory Mutuals covers for the same perils as described in Section 2 "a" above. (1) Coverage is agreed amount basis, with no co-insurance requirement. (2) The one plant covered under this policy is Wickliffe. c. IPF covers for the same perils as described in Section 2 "a". (1) Coverage is agreed amount basis with no co-insurance requirement, and with a small deductibb. (2) Plants covered for U & 0 are Wilmington, San Francisco, APD Atlanta, Wolcott, Iron Street and Jersey City. (3) Plants covered for Extra Expense are New Orleans and St. Louis. 3. Boiler a. We carry boiler and pressure vessel insurance including U & 0 where necessary. (l) Coverage subject to limit only - has deductible provision to exclude small claims. 4. Transportation - We carry blanket policies for Ocean and Inland Trans portation Cargo losses. Small deductible applies to inland cargo losses. 5. Fidelity - All employees are bonded in substantial amount under a blanket fidelity bond. Small deductible applies to exclude small claims. 6. Liability a. We carry Comprehensive Bodily Injury and Product Liability In surance and Property Damage Liability. GL0003753 MOTES FOR ANNUAL MEETING VI. Other Major Functions and Items -37- C. Insurance (Cont'd) (l) Property Damage Liability is written with a sizeable deductible to give our sales force and legal depart ment latitude in settling customer complaints. 7. Workmen*s Compensation a. We self-insure Workmen's Compensation in twelve (12) states. (1) The self-insured states are California, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Maryland, Minnesota, Missouri, Ohio and Pennsylvania. (2) We have excess insurance in case of a catastrophe to cover accidents excess of $25,000 up to $1,000,000. (3) Self-insurance has saved us over $1,000,000 in the last thirty-two (32) years. b. Other states are insured for Workmen's Compensation except where there is a Compulsory State Fund. 8. Automobile - We insure company-owned and leased cars and trucks for liability and physical damage in adequate amounts, 9. Losses a. Ihere were no major fires in the last fiscal year. A fire at Port St. Joe in Resin treating amounted to $20,302 for property loss and $32,988 for business interruption. We had two (2) small losses in warehouse fires - one for $12,535 to a Durkee warehouse stock at Waterbury, Conn, and one for $2,072 to a C & R stock at Blair, Nebraska. These significant Fire Losses amounted to $67,897 in claims. b. We bad a windstorm loss to roofs at Cleveland amounting to $1,767. We had a windstorm loss at St. Louis when wind blew over a metal smokestack. This loss was $700. We also lost some Branch identification signs in windstorms and the hurricanes. These losses were self-insured. c. The most serious loss occurred when there was an unusual occurrence in the large refining column at Port St. Joe Tall Oil Plant. This loss amounted to $11,511 for property damage, but due to the tower being inoperable the business interruption amounted to $107,500. The fire insurance and boiler Insurance shared this loss. d. We have a pending boiler explosion loss claim for the No. 4 Boiler at the Adrian Joyce Works. The anticipated claim is about $50,000 Property and $15,000 Business Interruption. 10. Insurance Cost - Total cost of Insurance premiums for fire and extended coverage and vandalism on buildings, machinery, equipment and inventory, plus use and occupancy (business Interruption) and extra expense, as well as boiler insurance, was $320,191. for the T'st fiscal year. (This figure should not be given out.) GLd o MOTH'S FOR ANNUAL MEETING VI. Other Major Functions and Items D. Foreign Businsss -38- The Glidden Company On September 1, 1963 the Export Division operations of Glidden International, C.A. were sold to The Glidden Company at net book value. Offshore sales of the parent Company, excluding those transacted by the Export Division, aggregated $3*323*556 in 1?6!!- compared with $1,965,780 in 1963. The increase was attributed principally to increased export sales of the Louis ville Division ($1,664,984 Vs. $613,658). Glidden domestic divisions realized $377,44? (11$ of net sales) gross profit on these sales in 1964 compared with $233*142 (12$ of sales in 1963) Included in consolidated Glidden sales and net earnings in 1964 and 1963 were the following: Met Sales 1964 i2! Glidden International. C.A. (including its subsidiaries) $1,569,035 $5,832,739 Export Division 3,425,743 (a) Industrias Glidden de Puerto Rico, Inc. 1,638,143 TOTAL $6,632,921 $5,832,789 Net Profit (after foreign incom;2 taxes) Glidden International, C.A. (including its subsidiaries) 215,378 646,261 Export Division 268,275 (a) Industrias Glidden de Puerto Rico, Inc. Headquarters Allocations 128,452 (273.932) 11,333 t194,626) TOTAL i336.ua (a) - For 1963 results see page 41. (b) - For 1963 results see page 41. $462.968 The Glidden Company had one active foreign licensee during 1964 and received a technical service fee of $2,906 compered with foreign technical service fees of $13,236 in 1963 and $9*035 in 1962. GLD003 755 NOTES FOR ANNUAL MEETING -39- VI. Other Major Functions and Items D. Foreign Business - continued The Glidden Company A direct stock interest was held in the following companies at August 31, 1964: Hszne $ of Interest Net Book Cost Consolidated The C-lidden Company, Ltd.- - Canada Glidden International, C. A. Industrias Glidden de Puerto Rico 100.0$ 100.0 100.0 $ 50,000 18,018 250,000 $3l6!0l8 Unconsolidated Fabric a Nacional de Pinturas, S.A. Cuba TOTAL 15.1 $^l8^018 l) She Glidden Company, Ltd. (Canada) - Glidden holds 100$ (11,200 shades) at a book cost of $50,000. Shareholder equity at August 31, 1964 was $6,744,858 (including its nevly-acquired subsidiary. Walker Brothers Limited), which is included in the consolidated balance Sheet in the 1964 Annual Report. 2) Glidden International, C. A. - Glidden holds 99 shares (one held by The Glidden Company, Ltd. - Canada) which represents effective 100$ control. Consolidated shareholder equity at August 31, 1S63 and 1$64 is shown below: August 31 HE ss Glidden International, C. A. General Paint Co. de Mexico, S.A Glidden Panama, S.A. Fabrics de Pinturas Glidden, S.A Panama Glidden Chemie GmbH $2,453,934 $2,360,070 95,717 104,680 59,763 -0- 6,494 91.136 26,936 $2>707,0&4 $2,j9]U686 0L0003 756 ROTES FOR AffllUAL MESTH.'G -4o- VI. Other Major Functions and Items D. Foreign Easiness - continued The G-lidden Company 3) Industries Gliddea de Puerto Rico, Inc. - At August 31* 15^* Glidden held 25*000 shares representing all tbs shares issued and outstanding* at a value of $250,000. This com pany va3 organized in fiscal 1962 to he availabte as a holding end/or operating company for the various Gliddea operations in Puerto Rico. The extent of it3 operations at August 31, 1963 was as holder of Glidden1 s 100# interests in Trans-Caribe Supply Company and Reliable Water Heater Company, Incorporated, a plumbing supply business and a '.rater heater manufacturer, respectively, both located in Puerto Rico. There has been no direct payment for equity in either of these companies since such payment is dependent on future profits. Glidden's original loan of $500,000 was written down to $209*3^4 during 1$63. A further write-off to $195,727 was made in 196k. Owing to Industrias Glidden at August 31, 1964 -was an additional $6l4,000 by Trans-Caribe Supply. Balance sheets for these companies were consolidated for the first time with Glidden at August 31* 1964. Operations were not consolidated, but will be consolidated starting with fiscal. 1965. On September 1, 1963 Industrias Glidden purchased at book value the assets of the Puerto Rican paint branches from Glidden International, C. A. 4) Pabrica Naeional de Piaturas, S.A. (Cuba) - Glidden holds 31*42.1 3hares which represented a 15.1# interest. The company was intervened by the Cuban Government in October* I960- Both Glidden end Glidden International were adequately provided to cover the rather nominal accounts receivable balances outstanding. Since the shares were acquired by Glidden at no direct cost, no investment loss was suffered through this intervention. Glidden International, C. A. At August 31, 1964, Glidden International, C.A. acted as a holding company for the stock of Glidden's foreign subsidiaries except for The Glidden Company, limited (Canada); Industrias Glidden de Puerto Rico, Inc.; and Fabrics Kacional de Piaturas, S. A. (Cuba). Details of the direct stock interest are shown on page In addition to acting as a holding company, the Belgian branch of the company conmenced frit manufacturing operations in 196k in Bruges, Belgium. In fiscal 1964, International Increased its direct stock interest in Pinturas Centro-Americanas, S.A. (Guatemala) from 33-1/3# to 65-3# by purchasing an additional 250 shares for cash amounting to $177*500. GLD003757 NOTES EOS ANNUAL MEETING -4l- VI. Other Major Functions and Items D> Forei/m Business - continued Glidden International, C. A. In July 1S64, by contribution of cash and notes in the amount of $270,000, Glidden International participated in the establishment of a sheet steel galvanizing company in Guatemala, Galvaaizadora Centro-Americana, S. A. GICA held 45$ of the issued and outstanding capital stock at August 31, 1$64. Gliddea International, C.A. had twenty-three active foreign licensees and received $336,155 in fees from these sources in 1964, compared with $252,021 in 1963 (nineteen licensees). In 1964, for the third year, Glidden International, C. A. van consolidated tilth The Glidden Company for reporting purposes. Sales and net profits after foreign income tax are shen-ra below: Sales (Amounts in thousands) 1264 1963 m. Bruges Export Office Puerto Rican Branches Panama Mexico $ 265 (b) (c) 550 754 $ (a) 3,273 1,460 458 642 $ (a) 2,015 1,082 353 539 TOTAL $1,569 $3,989 (a) - First started operations in 1564. (b) * Sold to The Glidden Company (U.S.) on September 1, 1963. (e) - Sold to Industries Glidden de Puerto Rico, Inc. on September 1, 1963 Net Profits Bruges Export Office Puerto Rican Branches Panama Mexico $ (237) (b) (c) 66 ____ & $ (a) 213 106 40 11 $ (a) 93 78 33 26 OPERATING TOTAIS $ (180) $ 370 $ 235 Glidden Chemie 73 International Licensee Income 336 Other .... (6) SUBTOTAL 223 Intracoapany Dividend Elimination (8) 151 252 ,74 547 (201) 102 646 46 1,029 -(> TOTAL GICA $ 215 $ 646 $. .930 (a) - First started operations in 1964(b) - Sold -to The Glidden Company (U.S.) on September 1, 1963. (c) - Sold to Industries Glidden da Puerto Rico, Inc. on September 1, 1963 GLD003758 iiOTSS FOR ANNUAL MEETING -42- VI. Other Major Functions and Items D- Foreign Business - continued Glidden. International, C. A. Glidden International, C. A. funds have been provided from accumu lated earnings} bank borrowings, and borrowings from related com panies. At August 31, 1S64, the following were borrowings out standing; : The Glidden Company To Glidden Panama S. A. To Fabrics de Pinturas, S.A. (Panama) The Glidden Company, Ltd. (Canada) Industries Glidden S. A..de C.V. (Mexico) Galvenizadora Centro-Americana , S.A. (for stocks) (Guatemala) Eanque de Bruxelles (Eelgium) Banq.ua Lambert (Belgium) First National City Bank (Belgium) Banco de Ccmercio, S.A. (Mexico) Industrias Glidden de Puerto Rico, Inc. To General Paint Company de Mexico, S. A. To Glidden Chemie GmbH $ 606,000 150,000 730,500 25,000 125,000 468,743 511,517 334,790 107,676 388,500 444,037 $3,891,763 Glidden International, C. A. had twelve banking associations at August 31, 1964: Banca d*America e d'Italia Banque de Bruxelles Chase Manhattan Bank Chase .Manhattan Bank Banco de Ccmercio Banco de Comercio Ccmmerzbank Den Danske Londmandsbank First National City Eank First National. City Bank Banque Lambert Union Commerce Bank Milan, Italy Brussels, Belgium Frankfurt, Germany Panama City, Panama Mexico City, Mexico Caracas, Venezuela Diisseldorf, Germany Rungsted Afdeling, Denmark Osaka, Japan Panama City, Panama Brussels, Belgium Cleveland, Ohio At the end of the fiscal year, a direct stock interest was held in the following companies: j> of Net Book Name Interest Cost Consolidated Glidden Panama, S.A. (Panama) Fabrica de Pinturas Glidden, S A. (Panama) General Paint Co. de Mexico, S.A. (Mexico) Glidden Chemie GmbH (Germany) Total Consolidated 100 100 100 100 $ 20,000 25,000 246,356 250,000 GLDO03759 NOTES FOR ANNUAL MEETING -43- VI. Other Major Functions and Items D. Foreign Business continued Gladden International. C.A. Nsme # of Interest Net Eoolt Cost Unconsolidated Glidden Curacao N.V. (Curacao) Industries Glidden S.A. de C.V. (Mexico) Ishihara Sangyo Kaisha Ltd. (Japan) Pinturas Ecuatorianas S.A. and Distrlbuidora Americanas C.A. (Ecuador) Pinturas Ceatro-Americanas (Costa Rica) Pinturas Centro-Mericanas (Guatemala) Red V Coconut Products Ltd. (Philippines) Seliisen Paint Mfg. Co. (Japan) Glidden-Salehi S.p.A. (Italy) Shave Holdings Limited (South Africa) Galvanizadora Centro~Americana S.A. (Gnats; Lackverke Vulfing GmbH & Co. (Germany) Totrl Unconsolidated 100# $ 200 100 32,000 2.24 70,064 33-1/3 50 65.3 4 25 51 10 ) 45 33-1/3 62,837 151*057 307,472 47,000 1,005,000 19*050 270,000 Ja&USSS. 1) Glidden Panama, S.A. - Glidden International, C.A. held 1,000 shares representing ICO# control. The company was operated as a paint branch end was carried at an investment cost of $20,000. The company earned $59*783 la 1964 compared with $39*730 in 1963. In addition to purchases from U. S. paint plants, the company is also supplied by a sister company. Fabrics de Pinturas Glidden, S. A. 2) Fabrics de Pinturas Glidden, S.A. first started operations in 1964 supplying part of the paint needs of Glidden Panama, S.A. Glidden International, C.A. holds 1,250 shares of stock, representing 100# control. The retained profit of this com pany, after deduction of certain expenses (principally interest on its indebtedness to The Glidden Company) amounted to $6,494 in l$64. 3) General Paint Company de Mexico, S.A. - Glidden International, C.A held all 50,000 issued and outstanding shares of stock of this company having a net book cost of $246,356. The company in curred a net loss of $8,963 in 1964 compared with a profit of $11,315 in 1963. Deteriorating prices in the Mexican paint market, increased raw material prices, and a technical service fee arrangement with Industries Glidden de Puerto Rico, Inc. contributed to the unfavorable results. g<-0003760 NOTES FOR ANNUAL MEETING -44- VI. Other Major Functions and Items D. Foreign. Business - continued Glldden International, C.A. 1:) Glldden Cliemie GmbH (Germany) - This German holding company was formed in fiscal 1961 to hold Glldden International's one-third interest in Lackwerke Wulfing GmbH & Co. Chemie's capitalization represented approximately one-fifth of its investment in Wulfing. The remainder of Cheaie's investment, in Wulfing originally was financed through loans from Glldden International, C.A. hut in April 1$63 $444,037 of this financing was transferred to Industrias Glidden de Puerto Rico, Inc. In fiscal 1964, the then remaining financing of $356,000 was transferred to Glidden Panama, S.A. end an additional $150,000 financing was extended to Chemie hy Glidden Panama. 5) Glidden Curacao N.V. - Glidden International, C.A. held all 20 shares of the outstanding stock of this company with a net book cost of $200. The company was vised in 1962 to receive technical service fees frca Group Developments, Ltd. of England. It currently is holding $25,000 from British Paints as deferred technical service fees pending outcome of the Ford Development work. 6) Industrias Glidden S.A. de C.V. (Mexico) - Glidden International held all 20,000 outstanding shares and this investment was carried at its cost of $32,000. This corporate entity has never assumed an operating status. Shareholders' equity at August 3l> 1964 totaled $34,150. 7) Ishihara Sangyo Kaisha, Ltd. (japan) - At Avgust 31, 1964, Glidden International. C.A. held 1,375>222 shares of this company's stock,a 2.24^ interest. These shares are carried at a net cost of $70,064, the cost of an allotment, of 504,458 shares acquired on November 1, 1962. The shares now held had a market value at August 29, 1$64 of $343*779* A dividend of $14,823 was received by Glidden International, C.A. in 1964. 8) Pinturas Ecuatorianss S.A. and Distribuidora Americanas C.A. (Ecuador) - Glidden International, C.A. holds a combined 320 shares representing a one-third interest in both companies at a cost of $62,837* A dividend of $20,963 was received by Glidden International, C.A. in 1964. At August 31> 1964, Glidden International's share of stockholder equity was approxi mately $86,376. GLD003761 NOTES FOR ANNUAL MEBriKO VI. Other Major Functions end Items -45- D. Foreign Business - continued Glidden International, C.A. 9) Pinturas Centro-Americanas Costa Rica, Ltda. - On May 27, 1$63, Glidden International, C.A. purchased 100 shares of the common stock of the company, resulting in a fifty per cent ownership at a cost of $151,057- International's share of equity at August 3?., I<j64 aggregated $175,525- At August 31, 1964, Pintica had a loan of $22,784 from Glidden International, C.A. It is anticipated that during fiscal 1965 we will obtain an additional 10# of equity from Mr. J. L. Prera, increasing our participation to 60#. 10) Pinturas Centro-Americanas (Guatemala) - During 1964, Glidden International, C. A. increased its equity in Pincasa from 154 shares of 462 Issued and outstanding (33-3#) at August 31, 1963 to 65.3# at year end 1964 as follows: Number of Shares GICA Net GIGA Others Book Cost August 31, 1963 January 1964 stock dividend February 1964 loan conversion Additional stock subscription by third parties August 1964 purchase of shares of R. A. Camacho 154 121 115 250mLmi 640 308 241 4l sm 340 $ 64,850 167 64,955 -171,500 $307,472 Glidden International's share of shareholder equity at Judy 31, 1964 (on an August 31, 1964 ownership basis) was $397,941- 11) Red V Coconut Products Ltd. (Philippines) - Glidden Inter national, C.A. held 1,200 shares, a 4# interest, at August 31, 1964. The investment was recorded at our cost of $47,000. International's share of the stockholders' equity at December 31, 1963 "was $38,596. 12) Sekisan Paint VsSg. Co. (Japan) - Glidden International, C.A. acquired 50,000 shares of common stock, a 25# interest, from Sekisan on November 29, 1962. The stock was received in exchange for technical service income end has been recorded at no cost. At March 31, 1964, Glidden International's equity ms $$8,417 GL 0003762 NOTES FOR ANNUAL MEETING -46- VI. Other Major Functions and Items D. Foreign Business - continued Glifllen International, C. A. 13) Glidden-Salchi S.p.A. (Italy) - As of May 31, 1963, Gladden International, C.A. acquired 13,995 shares of stock for a 51$ interest in this Italian paint manufacturing plant. The invest ment was recorded at its cost of $1,005,000. In accordance with the contract, International Trill pay, as part of the purchase price, an additional $250,000 during 1965. International will also make an additional payment to the previous owners based, on three times the annual Increase of net earnings for each of the calendar years 1$64 through 1967 over the previous highest net earnings. International's share of stockholders' equity at August 31, 19&1* was approximately $805,000. The financial statements of this company have not been consolidated with those of Glidden International, C. A. 14) Shave Holdings Limited (South Africa) - In July 1963, Glidden International, C.A. received 44,600 shares of this company (10$ ownership) as dorm payment under terms of a technical service agreement. In fiscal 1964, International recognised as cost of these shares a 9$ withholding tax payment amounting to $19,050 on a dividend paid in December 1963. 15) Galvanizadora Centro-Americana S.A. (Guatemala) - Late in fiscal 1964, for cash and notes, Glidden International, C. A. purchased 2,700 shares of this company (45$). With Japanese technical know-how and machinery, a hot-dip sheet steel galvanizing plant will be erected and it is anticipated that operations will begin in the spring of 1965. 16) Lackwerke Wulfing GmbH & Co. (Germany) - Glidden International, through Glidden Chemie, holds a one-third interest in this company. In 1964, additional equity capital of $150,000 was invested in Wulfing, bringing International's total investment to $1,237,500. Glidden Chemie share of partnership equity at August 31, 1964 was $1,173,939* The difference between equity and net investment cost was occasioned by side payments to the Wulfing family for the excess of fair value over book value of assets, goodwill, and agreement not to compete. Chemie's share of the understatement of fixed assets was calculated to be $250,000. NOTES FOR ANNUAL MEETING -47- Other Major Functions and Items D. Foreign Business - continued Industries Glidden de Puerto Rico, Inc. Other comments concerning Industries Glidden de Puerto Rico, Inc. may be found on page Sales of Industries in 1964 amounted to $1,638,143 and net profits were $124,672. Operating results of years before 1964 were reported with those of Glidden International, C. A. In future years, opera tions of Industries' two active subsidiaries, Trans-Caribe Supply Company and Reliable Water Heater Manufacturing Company will be consolidated with Industrias . Balance sheet accounts of the three companies were consolidated as of August 31, 1964. Industries Glidden funds have been provided from borrowings from related companies and a supplier. At August 31, 19^4, the following were borrowings outstanding: The Glidden Company To Industrias Glidden de Puerto Rico To Trans-Caribe Supply Company To Reliable Water Heater Manufacturing Co. Eljer Company (Trans-Caribe) $1,822,500 700,000 100,000 27,776 $2,650,276 Industrias Glidden de Puerto Rico, Inc. had two banking associations at August 31, 1964: First National City Bank Union Commerce Bank San Juan, Puerto Rico Cleveland, Ohio As mentioned earlier, Industrias had 100$ ownership of Trans-Caribe Supply Company and Reliable Water Heater Manufacturing Company. The stock of these subsidiaries was carried at no net book value to Industrias. g LD003764 NOTES FOR ANNUAL MEETING -48- VI. Other Major Functions and Items E. Miscellaneous Cost of the Annual Report this year va6 26 cents each which was 6 cents more than last year. However, our Annual Report costs remain lower than companies of comparable size. Our 1963 Annual Report was Judged first in the Paint and Coatings Industry by Financial World. DEE:des Distribution: Mr. Dwight P. Joyce Mr. B. W. Maxey Mr. W. G.Phillips Mr. P. W. Neidhardt Mr. R. W. Patterson Mr. R. K. Dutton Mr. M. D. Higbee Mr. E. D. Pittman D. E. ERSKINE GLD0037<>5