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Board of Directors Dwight P. Joyce B. W. Maxey John H. Weeks Robert D. Homer William G. Phillips George M. Halsey George S. Warner William P. Smith Paul W. Neidhardt Richard H. Turk, Sr. Raymond Q. Armington Robert E. Dorfmeyer Corporate Officers Dwight P. Joyce, Chairman of the Board and Chief Executive Officer B. W. Maxey, Vice Chairman of the Board and Vice President-Finance William G. Phillips, President George M. Halsey, Senior Vice President and Vice President- Chemicals Group Robert D. Homer, Vice President John H. Weeks, Vice President George S. Warner, Vice PreeidentDurkee Foods Group Paul W. Neidhardt, Vice President-Coatings and Resins Group Robert E. Dorfmeyer, Vice President-Corporate Development John H. Lathe, Jr., Vice President-Corporate Organization Robert L. Lozon, Vice President-Purchasing Richard K. Dutton, Secretary and General Counsel Donald E. Erskine, Controller Richard W. Patterson, Treasurer G. Williams Reid, Assistant Secretary John P. White, Assistant Secretary M. William Peters, Assistant Treasurer G. Keith Brewin, Assistant Treasurer Charles P. Fitzgerald, Assistant Controller Corporate Data Executive Offices 900 Union Commerce Building Cleveland, Ohio Trustee-Sinking Fund Debentures First National City Bank of New York New York City Transfer Agent -- Preferred Stock The Glidden Company 900 Union Commerce Building Cleveland, Ohio Auditors Ernst & Ernst Cleveland, Ohio Transfer Agents -- Common Stock Chemical Bank New York Trust Company New York City The Cleveland Trust Company Cleveland, Ohio Registrars--Common Stock 'Die Chase Manhattan Bank (National Association) New York City Central National Bank of Cleveland Cleveland, Ohio The debentures and common stock of the company are listed on the New York Stock Exchange and the common stock has trading privileges on other major stock exchanges. The annual meeting of stockholders will be held on Thursday, December 8,1966, at 10:00 a.m., in the Euclid Ballroom of the Hotel Statler Hilton, Cleveland, Ohio. GLD38540 Financial Highlights Year ending August 31, 1966 Net sales.......................................................................... Income before income taxes....................................... Net income .................................................. Per common share...................................................... Cash flow.......................................................................... Per common share...................................................... Dividends declared on common stock........................ Per share..................................................................... Dividends declared on preferred stock......................... Depreciation and depletion............................................ $351,888,467 $ 24,191,605 $ 12,410,605 $1.83 $ 20,200,316 $3.01 $ 6,011,716 $ .94 $ 433,610 $ 7,235,711 August 31, 1965 $303,991,184 $ 20,370,683 $ 10,490,683 $1.63 $ 18.127,823 $2.87 $ 5,073,315 $ .84 $ 617,421 $ 6,753,140 Change +16% + 19% + 18% +12% +11% + 5% Expenditures for plant and equipment......................... Working capital................................................................ Current ratio................................................. .... $ 11,685,824 $ 91,752,324 3.79 to 1 $ 9,866,067 $ 79,197,144 3.86 to 1 + 18% + 16% Shareholders' equity...................................................... Per common share...................................................... Number of shareholders Common..................................................................... Preferred................................................................ .... Number of employees...................................................... Number of plants........................................................... $122,787,308 $17.27 22,072 238 9,860 46 $116,155,122 $17.26 20,698 324 8,492 41 + 6% + 16% Contents Report from the Chairman and the President 2 Durkee Foods Group..............................................6 Coatings and Resins Group.................................. 10 Chemicals Group................................................. 14 Plants, Affiliates and Licensees........................ 19 Operating and Financial Review........................ 20 Ten Year Summary............................................22 Consolidated Balance Sheets.............................24 Consolidated Income Statements..................... 26 Source and Application of Funds..................... 27 Notes to Financial Statements........................ 28 Accountants' Report....................................... 28 Directors, Officers and Corporate Data............................... Inside Front Cover GLD38541 Report from the Chairman and the President Sales of The Glidden Company in fiscal 1966 secutive year dividends have been increased. were $351,888,467, compared with sales of All three of the company's major operating $303,991,184 in fiscal 1965. These results rep groups achieved sales and profit increases in resent the seventh consecutive year in which we fiscal 1966. have achieved sales increases and the fifth con The Durkee Foods Group achieved excellent secutive year in which new sales records have sales and profit increases over fiscal 1965, with been established. Since 1961, sales have in the Industrial Food Products and Food Service creased 70 per cent. Divisions attaining particularly good results. Net income for fiscal 1966 amounted to Durkee's gains were due to many factors, in $12,410,605, compared with net income of cluding the introduction of new products, more $10,490,683 for fiscal 1965. This is equal to aggressive marketing efforts, and contributions $1.83 per common share for fiscal 1966, com of acquisitions. pared with $1.63 per common share for the The Coatings and Resins Group also re previous fiscal year. Excluding the non-recur corded sales and profit gains for fiscal 1966. ring capital gain of 12 cents per share in 1961, Profits of the group were not as high as they net income per common share has increased would have been had we not had substantial 85 per cent in the past five years. On this basis, costs in connection with the opening of new fiscal 1966 represents the fifth consecutive year retail outlets, which at year's end had not in which net income per common share has reached the levels expected of them. We also increased 10 per cent or more compounded absorbed the normal start-up costs of the new annually. polymer processing plant at Huron, Ohio, which This improved earnings record has been went on stream in the spring of 1966. reflected in increased dividends for the com The Chemicals Group continues to make pany's shareowners. In May, 1966, the Board substantial sales and profit increases. Sales of of Directors voted an increase in the regular the group made excellent gains over the pre quarterly dividend on common stock, from 22 vious year, and profits, while materially higher 2 cents to 25 cents. This marks the second con than the previous year, were dampened by a GLD38542 number of factors, including start-up costs of the new iron powder plant at Hammond, Indi ana, and lower-than-expected profits from sales of certain organic chemicals products. Capital expenditures for 1966 amounted to $11,685,824, compared with $9,866,067, for fiscal 1965. Capital programs included the new polymer plant at Huron, Ohio; a new food proc essing plant at Maplewood, New Jersey; a re search laboratory addition and plant additions at Jacksonville, Florida; a major addition to the Chemicals Group research center at Balti more, Maryland, and other programs to enable the company to produce new products and op erate more efficiently. In line with the request from President Johnson and our business judg ment, we are following a policy of careful review of all capital expenditure projects, with the view of deferring those which are not absolutely necessary to the growth and welfare of the company and the safety and well-being of our employees. For many years, we have recognized that successful research and new product develop ment are vital to the company's success. Re search anddeveiopmentexpendituresamounted to $4.5 million in fiscal 1966, compared with $4.3 million in fiscal 1965. In addition, expenses for technical service and similar day-to-day servicing of our customers amounted to $3.3 million for 1966, compared with $2.8 million for the previous fiscal year. Thus, our total tech nical expenditures amounted to $7.8 million for fiscal 1966, compared with $7.1 million for fiscal 1965. For fiscal 1967, we expect total tech nical expenditures to be about $8.5 million. In August, 1966, the Board of Directors de cided on a course of action which will have a far-reaching impact on the company's research and new product development. It was an nounced that a new $4 million research center will be constructed in Strongsville, Ohio, a November 8,1966 suburb of Cleveland. This center will be named the Dwight P. Joyce Research Center, and will house the research activities of the Coatings and Resins Group and the Durkee Foods Group. Each group will have its own separate research, testing, and pilot plant facilities in a park-like setting, and will share common sup port facilities. The Board of Directors is con vinced that this new research facility is vital to attract and hold competent research person nel, and to provide them with an environment most conducive to successful scientific investi gation. Construction will begin in the summer of 1967, and completion is expected in the fall of 1968. Chemicals Group inorganic research will continue to be conducted in that group's new laboratory in Baltimore, and the group's organic research will continue in the new Jack sonville laboratory. In the Annual Report last year, we com mented on the steps we were taking to realign our international operations by assigning them to our major operating groups. We now have improved management organizations at our wholly owned plants in Milan, Italy, and Bruges, Belgium, and have made substantial progress but have not yet achieved the level of market penetration for either coatings prod ucts or porcelain enamel frits to enable us to operate profitably. In May, 1966, John H. Lathe, Jr.,was elected Vice President-Corporate Organization and is responsible for personnel and labor relations, personnel development, organizational plan ning, and public relations. He has 16 years of service with the company. In summarizing our activities for this year, we wish to express sincere thanks to the men and women of the Glidden organization for their hard work and dedication to Glidden's growth objectives. Any company is only as good as its people. Our people are among the best. Chairman of the Board and Chief Executive Officer President GLD385A3 introduction The Glidden Company is often thought of primarily as a "paint company." This impres sion is quite natural because Glidden began as a paint company and today manufactures and markets top quality coatings products. On the other hand, as we look at Glidden today, we see a large diversified company with a sub stantial position in 10 major marketing areas, supplying a wide range of products directly or indirectly to practically all major groups of manufacturers and to the public. Glidden is: a major supplier to the food service in dustry. one of the larger edible oil processors in the country. one of the three largest spice processors and a major supplier of specialty grocery items. one of the four largest paint manufac turers in the United States supplying both complex industrial products and quality consumer paints. a major producer of metal powders. a major producer of fine and bulk terpene chemicals. a significant manufacturer of adhesives and similar materials. a major factor in the titanium dioxide (white pigment) business. a major factor in the porcelain enamel and ceramic frit industry. In order to understand The Glidden Com pany's corporate structure and organization, ' it might be well to go back briefly to the., company's founding. Glidden's history rather logically falls into four major categories: 1. 1917-1930 -- This was the time of the GLD38544 founding and formation of the basic diversified corporate structure. 2. 1931-1950 -- The period of consolidation and further growth through a depression and war. ' 3. 1951-1960 -- Reassessment of the com pany's operations... the divestment of seg ments of the company which did not fit into the main stream of operations and considerable new investment in modernizing and expanding retained operations. 4. 1961 to present -- The current cycle of accelerated growth and expansion. As pointed out earlier in this report, sales of the company have increased 70 per cent in the last five years, while net income per common share, excluding the non-recurring gain in 1961, has increased 85 per cent. As encourag ing as this growth has been, we consider it only as a base on which to continue to build. The company's progress thus far has come through the development of long range growth plans and the timely and diligent execution of these plans. Through planning, we have effected many significant and fundamental changes in the company. These changes have involved new and improved manufacturing facilities, new research facilities, acquisitions, and every other aspect of the company's operations. However, the most fundamental and base changes have been and are being made in the personnel make-up of the company. Our larg est single measure of progress thus far has been in expanding and developing our human re sources. It has been Glidden people who have made the difference between where we were and where we are now, and these people will take us from where we are now to where we want to go. About five years ago, Glidden's present top management team began emerging from the company's ranks. Many of these men had joined the company in the late '40's and early '50's, and to this nucleus of high potential peo ple were added many from outside the com pany, particularly highly trained specialists. ; For example: In the past five years, we have substantially expanded our technical research and product development staff. We have twice as many peo- pie with advance degrees, and our people have better laboratories and improved equipment with which to work. The Dwight P. Joyce. . Research Center, mentioned earlier is ;the^|& latest exampleof our effort to provide fhebi^ possible climate in which our people oM work^j : We have also increased our sales force' and,1| through improved market planning, have redi-J^: *'*'*' ' ; rected our sales effort toward greater efficiency^' i Extensive training and development programs,' : -^/ costing in excess of one-half million dollars ;' annually, are being conducted. We have created an effective market research; ; organization at both the corporate and group' levels, and we also use outside assistance to help us in our efforts to define the best areas for potential growth. As the chart on this page indicates, the com pany's sales and earnings have been moving steadily upward, as the effect of these efforts / . makes itself felt in the organization. We will . continue to develop and supplement ourliuman resources and to attempt to provide our people v with a climate that is conducive to creative ' ' . work.' As We all know, good corporate performance'' 'St reflects good individual, departmental, smd di-_ visional performances. All 10 of the company's marketing divisions -- each serving a Specific, ' marketing area -- have been making sabs and Ift-vproifi^cqntributions, and the followinj^pages ^ briefly highlight these activities. < THE GUDDEN COMPANY ! SALES AND NET INCOME PER COMMON SHARE (1961-1966) 380 ISO 38) ` :V ISO 340 // 1.70 $ /r 320 300 moowc PER SHAKE s' / 'V-' 280 ;260 : t'S 7^240 220 /y * / ' ' u. \ 1 NET SALES ; I'd ISO ISO 140 ISO ISO 1.10 ^200 I... 180 - * iso; so ,1961 . 1962 ' 1963 1964 1968 ^'.Excluding $.12 Bar Stmt Non Roam** <Mn in 1961 ..! i.-iv. t CLD3B5A5 Durkee Foods Group Sales of the Durkee Foods Group were $154,500,000 -- 44 per cent of the company's sales -- compared with $126,700,000 for fiscal 1965. Income from operations of this group, after allocating corporate items on the basis of assets employed, was $7,844,410, or 30 per cent of the company total. This compares with $5,129,630 in the previous fiscal year. This group employs 32 per cent of the company's operating assets. As the chart on this page indicates, sales and profits of our Durkee Foods Group have in creased substantially in recent years. We have been making acquisitions and investments in new manufacturing facilities, new research fa cilities, introducing new products, and expand ing our technical and sales organizations. The group has three divisions to serve three separate marketing areas -- the individual con sumer or retail customer, the industrial food manufacturer, and the away-from-home food service establishment. This group has 15 plants and 2,598 employees. Underlying our entire food operation is the basic philosophy that we are committed to the development of a specialty and convenience food business. Directly or indirectly, Durkee supplies the kinds of food products which offer the greatest convenience to the consumer. It could be a new type of emulsifier to help a large food processor develop and successfully intro duce a new convenience product such as a cof fee whitener. It could be a portion-control main dish item to help the restaurant owner improve quality and reduce food handling costs. It could be a sauce mix to help the homemaker prepare more flavorful foods for her family. Durkee's many years of experience in the flavor field give us an advantage in providing more convenience with better flavor for major segments of the food industry. DURKEE FOODS GROUP SALES AND PROFITS (1961-1966) MlktlON* NET SALES 160r 140 1966 120 $164,600,000 44% of 100 Company tola! 80 1961 1962 SAILS 1963 1964 WUiOttt 8.0 INCOME FROM OPERATIONS AFTER 7 0 ALLOCATION // ft 6 0 1966 $ $7,844,410 t 50 30% Ol PROFIT Company total 4.0 Operating assets employed 3 0 32% of total 1966 1966 GLD38 Consumer Products Division Durkee's consumer products business ac counts for about 23 per cent of our total food sales. We sell under a number of different trade names such as Durkee Famous Foods, O & C, Dailey, Wilshire, B. M. Reeves, and others. Durkee is one of the three major spice proces sors in the United States, with about 10 per cent of the spice business, and Durkee also has a substantial position in the packaged coconut market. In line with the basic philosophy of provid ing convenience and flavor, we believe that Durkee's best growth possibilities for consumer products are in the development or acquisition of high quality convenience specialty foods. The sauce and gravy mix field, for example, continues to grow, and we estimate that the market now totals about $30 million annually. Our successful entry in this field is an example of products that have been created in our own laboratories--a direct outgrowth of our knowl edge in edible oil and flavoring chemistry. Within the past two years, in order to broaden our consumer product lines, we have acquired the Dailey Pickle Company of Sagi naw, Michigan; Allied Foods, a pickle proces sor in Los Angeles, California; and Chris & Pitts, a leading barbecue sauce line in Los An geles. Our most recent consumer product ac quisition, B. M. Reeves, is a leading packer of olives, cocktail onions, and maraschino cher ries, and also distributes a line of tinned and bottled specialty foods. Through successful marketing of internally developed new products, supplemented by se lected acquisitions, we will continue to develop our Consumer Products Division into a major factor in this marketing area. .-v- .............. GLD38547 yv-*; Industrial Food Products Division Durkee's Industrial Food Products Division contributes 58 per cent of our total food sales. In industrial food markets, primarily in the vegetable oil field, Durkee Famous Foods has long had the reputation of being an innovator and extremely capable from a technical stand point. Through our knowledge of oil chemistry, we are continuing to develop and upgrade our shortenings, emulsifiers, and other specialty products for prepared cake mixes; for indus trial and wholesale bakeries; for the biscuit and cracker industry, and for confectionery uses. As an example, we are a leading supplier of specialty oils and emulsifiers for coffee whiteners, whipped toppings, desserts, and confection ery coatings.There is excellent growth potential in the area of imitation dairy products, and we have a solid position in this growing market. The successful development of new improved oils and emulsifiers enables our industrial cus tomers to offer a tasty, more convenient food product. Shortenings Bakers' Margarine Hard Butters Food Emulsifiers Margarine Oils Refined Vegetable Oils Coconut Spices and Herbs i i&|i# fimt : 9 'll ' *;? fi {. ' ta` GLD38548 ii Shortenings Vegetable Oils Margarine Sauce and Gravy Bases Whipped Topping Base Icing Bases Coconut Potato. Tuna, and Macaroni Salads Extracts and Flavorings Spices and Herbs Pickles Olives Portion-control Meats Onion Products Frozen PuH Pastry Dough Barbecue Sauce Durkee's Famous Sauce Food Service Division Durkee's Food Service Division was created two years ago as a separate marketing organi zation and now serves a network of over 1,200 distributors who operate in all major U. S. markets. It has been making excellent sales and profit growth and now accounts for 19 per cent of our food sales. The fastest growing segment of the food in dustry is the food service business -- commer cial restaurants, drive-ins, vending machine operators, caterers, hospitals, in-plant cafe terias, in-transit feeders, schools, and govern ment installations. The amount of money being spent annually on away-from-home eating is estimated at $21 billion and is expected to reach $30 billion by 1970. This dramatic in crease is due to many factors: Greater population. Increased disposable income, which means more dining out Greater patronage of drive-ins, especially by teenagers. Larger school population. Longer vacations and more travel. Our Food Service Division is specifically geared to serve this rapidly growing market with a full line of Durkee products, including specialty shortenings for frying or baking; spices and extracts; sauce and gravy bases; pickles, olives, cocktail onions; whipped top pings; processed salads; frozen hors d'oeuvres, canapes, and frozen desserts. We are continu ally developing and adding new products. Dur ing the 1966 fiscal year, we acquired the Polar ized Meat Company of Moosic, Pennsylvania, a prominent processor of portion-control entree items. This puts us into the heart of the mass feeder meal -- the main course. Polarized buys meat products already trimmed, prepares and portions them into exact weights and servings, and then freezes them, giving, the mass feeder a minimum of handling in his own establish ment. In October 1966, Glidden announced its in tention to acquire Empire Chicken Industries, Inc., which processes and markets portion-con trol chicken piecesi'THis addition will broaden our entree product line. < GLD385A9 Coatings and Resins Group Sales of the Coatings and Resins Group were ly more than five per cent of the U. S. market. $137,300,000 in fiscal 1966, representing 39 per The largest company has less than 15 percent; cent of the company's total sales, compared The coatings industry today is a chemical with $121,800,000 in fiscal 1965. Income from business ^which requires top quality research operations of this group, after allocating cor people with the latest manufacturing tech porate items on the basis of assets employed, niques arid technically competent marketing was $9,311,976, or 36 per cent of the company specialists. Through increased technical ability total, compared with $8,658,848 in fiscal 1965. and manufacturing know-how, we have devel The Coatings and Resins Group employs 40 oped new resin-making capabilities with the per cent of the company's operating assets. construction of a new plant in Huron, Ohio, This group is composed of three divisions -- and additional processing units at five of war Trade Sales, Industrial Sales, and Macco -- coatings plants to manufacture resins. poty:. each responsible for specific marketing areas. mers, co-polymers, and specialty monomerii^s' The group has 4,915 employees and operates 22 plants in the United States, Canada, Central America and Europe. well as our own latices. These additional units . ; '.+XZ K. . give us in-house capability to provide , only ou^iijpic nuiteriitisu*d in jppaf The coatings industry has an annual sales productsjbutalso enables us to beat corn; volume in excess of $2 billion in the United tion to jpe,marketplace with new and be|torJ i- States. Glidden is one of the four largest coat productsin.the.futore. , 10 ings manufacturers in this country, with slight- The bitings\business is good, and ,we) . ' ............ '' ' GLD38550 tinue to improve through better technical ancl market research, development of companyoperated branches and leased departments^ ` reductions in manufacturing and distribution costs, and more aggressive marketing effort. COATINGS AND RESINS GROUP SALES AND PROFITS (1961-1966) 1966 37,300,01 39% ol 12.0 INOOME FROM ...OPERATIONS AFTER ,00 ALLOCATION r 1961 1962 . / $9,311,976 PROFIT ? SALES, t - ' 36% Of/ 7,0 tampanyloUl 6.0 Optritinc > aisrtt . tinpM 1,: J4.0 :4ptfcftouT 1963 1964 1965 1966 "v. ' v?*?'1 --:----- - t''.;5 - . 4 V. g l d s b 551 ll Trade Sales Division Two-thirds of our coatings business is trade sales -- that is, sales to individual homeowners through our own or independent retail outlets and; to professional painters and painting con tractors. The trade sales portion of our busi ness is growing at a rate nearly double that of the industry. This growth rate represents a re covery from several years ago when our trade sales business was very much affected by the rise of the mass retailer of the early 1960's. Acknowledging the impact of this "retailing revolution" on our business, we took several steps: 1. We increased our advertising and mer chandising. 2. We have become major distributors in the mass retailing market through leased depart ments and direct selling. 3. We introduced a limited second line to meet specific dealer needs. 4. We redirected the efforts of our sales or ganization toward larger accounts. 5. We introduced new quality products Buch as Spred House Paint and improved other prod ucts such as Spred Satin and Spred Lustre. Another major program in our efforts to im prove our position in the trade sales market is the opening of company-operated paint or home decorating centers in various parts of the coun try. We now have 316 such outlets. Another area of growth in the trade sales business is painter-maintenance sales. This market includes the professional painter and plant maintenance. Important in selling to this market are specialized high performance coat ings which resist corrosion, unusual wear, and adverse atmospheric conditions. Products are sold on the basis of performance, with price re latively a secondary factor. We recently introduced a new system of water reducible maintenance coatings called "LifeMaster," which have found excellent re ception in plant maintenance markets. This new coating system, which was developed at our Coatings and Resins research laboratories, has several advantages over the conventional solvent-thinned coatings. These include the ability to wash painting implements with water, and much greater ease of application. In addi tion, no fire hazard or air pollution results from use of this product because of the absence of solvent fumes. Other typical products for this market are Glid-Crete for application to con crete floors to make them acid and impact resistant and'Glid-Tile for wall applications. Aggressive solicitation of this painter-mainte nance market by trained specialists has re sulted in excellent growth. Interior House Paints Exterior House Paints Floor Paints Wood Stains Enamels Lacquers Varnishes Masonry Coatings Maintenance Coatings GLD38552 Industrial Sales Division The second major segment of our coatings business is industrial sales. These are sales to manufacturers who apply our coatings to their . products. One-third of our coatings business falls in this category. . We have taken a number of significant ac tions to accelerate growth of this division: First, we have intensified our research and development efforts. This has resulted in our undisputed leadership in the new field of elec trocoating, wherein an organic coating is dipapplied to metal electrically. We have also de veloped new thermoplastic and thermosetting acrylic enamels, and specialty resins. Second, we are identifying and concentrating in specific marketing areas such as metal deco rating, automotive, appliance, mill-applied wood finishing, coil and strip coatings, paper coatings, and polyester resins. Third, we have strengthened our manage ment organization and have realigned our sales people to better serve large national accounts. Further, we have broadened our product line and areas of marketing interest through the addition in 1964 of Gates Engineering Com pany, which serves coating markets we had not previously sold. Industrial Finishes Industrial Resins Aircraft Finishes Can Coatings Paper Coatings Coil Coatings Marine Finishes Elatitomeric Sheetings, Linings and Coatings Construction Adhesives Grouts and Mortars Mac's Household Glues Industrial Resins Macco Division The acquisition in 1964 of Macco Chemical Company was a logical extension of Glidden's interest in building products. Macco adhesives, sealants, caulks, mortars, (and grouts are well known and accepted in the construction in dustry. In addition, we have developed and added new adhesives for ipdusttial and home uses. The new polymer plant at'Huron, Ohio, has been assigned to the Macoo Division be cause of its close technical and marketing com patibility. GLD38553 Chemicals Group k . * j' Chemicals Group In fiscal 1966, the Chemicals Group contrib As the chart at the top of this page indicates, uted $60,100,000, or 17 per cent of the total the Chemicals Group is composed of four divi company sales. This compares with $55,500,000 sions, and each of these four represents a bal for fiscal 1965. Income from operations of this anced individual operation in a specific market group, after allocating corporate items on the segment Following is a brief discussion of these basis of assets employed, was $8,690,664, equal four marketing areas. to 34 per cent of the company total, compared with $7,189,458 for fiscal 1965. The Chemicals Group operates nine plants, employs 1,663 peo ple, and uses 28 per cent of the total company operating assets. In the past five years. Chemicals Group sales have increased from $27 million to $60 million in 1966, and operating profit has increased more than 3 times from $2.8 million to $8.7 million in 1966. We are optimistic about the future of the chemicals aspects of The Glidden Company's operations because of several factors: 1. We are in segments of the chemicals busi ness which offer growth opportunities. 2. We have technical and manufacturing competence. 3. We have good marketing organizations in 14 all of the group's divisions. GLD38554 ) r'm Pigments and Color Division The Pigments and Color Division is the larg est in the Chemicals Group and represents 34 per cent of the group's sales. The chief product is titanium dioxide, and Gliddcn sales approach 10 per cent of this market. We are one of the major U. S. producers of titanium dioxide arid have the technical ability to meet the require ments of the coatings, paper, rubber, and plas tics industries. DISTRIBUTION OF TITANIUM DIOXIDE INDUSTRY SALES PAINT................................................................. PAPER .................................................................. . . . 15* f l o o r c o v er in g s ............................................ RUBBER............................................................ OTHER................................................................. TOTAL 100% GL038555 \\ mm a nmW'M ' A, A V . y/*> Metals Division ` The Metals Division of the Chemicals Group accounts foraZ^'per,,cent of the group's sales, f and'la^|ufa^nes one of the ; most complete lines bQ^cJjtnuBtal powders in the industry. We brieve that the metal powder industry of fers outstanding growth potential and will ap proximately double in the next 10 years. Cur rently, our growth rate is double that of the industry. The biggest growth will come in the use of these products in the automotive, appliance, and business machine industries. For example, 1966 model cars used about 13 pounds of metal powder parts, and it is estimated that this con sumption will grow to 25-30 pounds per car over the next five years. The compacting in dustry, which fabricates gears and bearings, is expanding. Fabricated metal parts have been greatly improved because new powders are available and larger presses are coming into use. i [' Glidden has a good position in the metal powder market -- about 10 per cent We have manufactured copper, tin, lead, and other nonferrous metal powders for a good many years, and in .}961, we entered the specialty ferrous and ferrous alloy powders business. Since then, we have added stainless steel and other high duty alloy powders. We have just completed additions to our metal powder plants in Ham mond, Indiana, and Johnstown, Pennsylvania, to serve segments of the high volume iron powder business. 1 Metal Powders: ;r/ Copper, Lead, Tin, Iron, Nickel, Manganese, Silicon, Stainless Steel, Alloys. Copper Oxide Copper Pigment SIZE OF THE MARKET FOR METAL POWDERS >; .> 1965 1970 1975 - M&ubNS of DOOMS no 145 195 . .4 .: MILLIONS of POUNDS 345 525 765 -t* 16 Pemco Division Another division of the Chemicals Group is Pemco, which accounts for 20 per cent of the group's sales. Pemco is one of the largest pro ducers of porcelain enamel and ceramic frit material in this country, with about 25 per cent of the total market. Pemco's largest markets are major home ap pliances, the construction industry (sanitary ware and ceramic tiles), and the glass industry. New markets and applications such as fast fir ing ceramic frit glazes assure continued growth. ::':,XV4 ' `- * .V i*'V$ t* Porcelain Enamel Frits Ceramic Frits Ceramic Stains and Oxides Glass Enamels '1 <4fr'-;;','".'.v*T-*VO*r"i;!v.-y' " j. ^>44;V\'v fe T' T'\ 'PwA v m -V / . J <- r'_ r^f* _r '*4V.v`* v ' * V v 4 ..- .VVs*J***+*+ \i .V. ^U-wW. 1 1 V-A -SpSfSSV'!? .'Xj iSSff GLD38557 Organic Chemicals Division The Glidden Company's Organic Chemicals Division contributes 25 per cent of the Chemi cals Group's sales and has essentially three product lines: 1. Basic terpene chemicals such as lucine, camphene, dipentene, pine oil, and beta pinene. 2. Tall oil products such as rosin, fatty acid, and distilled tall oil. ' 3. Fine terpene chemicals. The Glidden Company has excellent market positions in both basic terpene and in tall oil products, and these two lines are both profit able and growing. However, we believe the most significant growth potential is in the fine chemi cals area. In the early 1960's, research work on the composition of turpentine began to bear fruit, and we developed a line of perfumery and fla- 1 vor chemicals.;Our products include'citronella oil, lemongr^B^oil andbois de rose, along with . numerous other! product* *which are'.derived - from these. Our products offer such advantages as consistent'quality, dmhestic source of sup-" ' ^ ply, and freedom from insecticide residues. Markets are in the soap, cosmetic, soft drink, . confectionery, and pharmaceutical industries., The fine chemicals area is one in which we are devoting a significant research effort be- | cause of its outstanding growth potential We are competing in a segment of the flavors and fragrances market which has been estimated at $300 million annually. t Giidden Plants: Coatings and Resins Group Atlanta, Ga. (2) Carrollton, Tex, Chicago, 111. (2) Cleveland, Ohio Huron, Ohio Los Angeles, Calif. Mexico City, Mexico Milan, Italy Minneapolis, Minn. Montreal, Que. New Orleans, La. Panama City, Panama Portland, Ore. Reading, Pa. St. Louis, Mo. San Francisco, Calif. Toronto, Ont. Vancouver, B. C. Wickliffe, Ohio Wilmington, Del. Durkee Foods Group Berkeley, Calif. Bethlehem, Pa. Brooklyn, N.Y. Brussels, Belgium Chicago, 111. (3) Jersey City, N. J. Los Angeles, Calif. (2) Louisville, Ky. Maplewood, N. J. Moosic, Pa. Saginaw, Mich. Wolcott. N.Y. Chemicals Group Baltimore, Md. (3) Bruges, Belgium Hammond, Ind. Jacksonville, Fla. Johnstown, Pa. Lakehurst, N. J. Port St. Joe, Fla. Affiliated Companies and Licensees: [filiated Companies Costa Rica Ecuador Guatemala Japan Philippines South Africa West Germany Spain Licensees Australia Colombia Finland France Iceland New Zealand Norway Peru Philippines Spain Sweden United Kingdom West Indies GLD38559 Operating and Financial Review Sales Consolidated sales of The Glidden Company were $351,888,467 in fiscal 1966, compared with $303,991,184 in 1965. Sales by operating groups were: come was equal to $1.83 per common share in fiscal 1966. This compared with $1.63 per com mon share for the previous fiscal year. On a comparative quarterly basis, net income per common share was: Durkee Foods Coatings & Resins Chemicals 1966 (000) $154,500 1965 (000) $126,700 Change +22% 137,300 60,100 $351,900 121,800 55,500 $304,000 + 13% + 8% Quarter Ended Nov. 30 Feb. 28 May 31 Aug. 31 1966__________ Amount (000) Per Common Share 1965 Amount (000) Per Common Share $2,660 $ .41 $2,178 $ .35 1,660 .25 1,478 .22 3,344 .51 3,113 .47 4,747 .66 3,722 .59 Gross Profit Gross profit in fiscal 1966 was $100,162,374, and gross profit margin to sales was 28 per cent. Comparable figures for the 1965 fiscal year were $85,722,462 and 28 per cent. Income from op erations was $25,847,050 in 1966, compared with $20,977,936 in the previous fiscal year. Sales and Profits Following is the amount and percentage of income from operations after allocating cor porate items on the basis of assets employed, along with the percentage of sales and total assets of each operating group in 1966. Dividends Dividends declared on common stock totaled $6,011,716. For the year, 50 per cent of net in come available for common was distributed to common shareholders as dividends. Dividends declared on the $2,125 preferred stock amount ed to $433,610 for the year. During the 1966 calendar year, the following quarterly dividend payments per share were made on common stock: Record Date Date Paid Amount Per Share Profit Profit % Durkee Foods $ 7,844,410 30 Coatings & Resins 9,311,976 36 Sales % 44 39 Awta % 32 40 Dec. 8,1965 Mar. 8,1966 June 8,1966 Sept. 8,1966 Jan. 3,1966 April 1,1966 July 1,1966 Oct. 1,1966 $ .22 .22 .25 .25 Chemicals 8,690,664 34 17 28 Income from Operations $25,847,050 100% 100% 100% Working capital at year-end was $91,752,- 324, and the ratio of current assets to current liabilities was 3.79 to 1. In August, 1966, we entered a $20 million credit agreement with a Consolidated net income after all taxes and group of our line banks. This can be utilized charges was $12,410,605 in 1966, compared as needed to replace seasonal short-term bor with $10,490,683 in the previous fiscal year. rowing and provides working capital for future 20 After preferred dividends, consolidated net in expansion. GL038560 Capital Expenditures Capital expenditures in fiscal 1966 amounted to $11,685,824, compared with $9,866,067 for the previous fiscal year. Here is how capital was invested in the operating groups during the year: Durkee Foods....................30% Coatings and Resins . . . 47% Chemicals............................. 23% Wages and Salaries Wages, salaries, and employee benefits amounted to $67,693,033 for fiscal 1966 which was 19 per cent of sales. For fiscal 1965, these figures were $61,532,357, or 20 per cent of sales. Advertising Advertising expenditures for the company amounted to $9,280,268 in fiscal 1966; com pany advertising expenditures the previous year were $7,595,897. Inventories At August 31, 1966, inventories were $73,359,673, compared with $55,214,815 at the end of the 1965 fiscal year. This significant increase is the result of inventories necessary to support substantially higher sales, as well as the inven tories of companies acquired during the year. Depreciation Charges against income for depreciation and depletion amounted to $7,235,711 for 1966, compared with $6,753,140 for 1965. Under the Internal Revenue Service guideline lives, addi tional depreciation of$1,153,966 will beclaimed for 1966 federal tax purposes. In 1965, this ad ditional depreciation amounted to $1,815,739. Litigation There is no major litigation at this time. The only current litigation is of a routine nature arising out of the ordinary course of business operations. In the opinion of counsel, any po tential liability in existing cases has been fully covered by established reserves. Cash Flow Cash flow was equal to $3.01 per common share in fiscal 1966, compared with cash flow of $2.87 per common share in the previous fiscal year. CASH FLOW PER COMMON SHARE Taxes Income taxes amounted to $11,781,000, or $1.80 per common share. This is an effective tax rate of 48.7 per cent on income. Of this amount, $11,227,000 represents taxes which are payable currently, and $554,000 represents taxes for which payment has been deferred to future years due to the use of guideline depre ciation rates. This deferment of taxes provides an additional cash flow amounting to eightcents per common share. The provision for income taxes was reduced by $594,000 for the seven per cent investment tax credit, which increased earnings per share by nine cents, compared with six cents per share in the previous fiscal year. Real estate, personal property, franchise, and other miscellaneous taxes amounted to $2,261,388 for fiscal 1966. 57 58 59 60 61 62 63 M 65 66 --MB DEPRECIATION :-} .i NET INCOME |H| DEPLETION i HH a mo r t iz a t io n MM PROVISION FOR DEFERRED Hi in c o me t a x e s GLD38561 nnual Repod 1966 FISCAL YEARS 1966 1965 INCOME Net sales............................................................................... Cost of products sold........................................................... Selling and administrative expenses................................... Income from operations...................................................... Income before taxes................................................................ Taxes on income..................................................................... Net income............................................................................... Dividends declared on preferred shares.............................. Dividends declared on common shares.............................. Earnings reinvested................................................................ Depreciation, depletion and amortization......................... Provision for deferred income taxes................................... $ 351,888 251,726 74,315 25,847 24,192 11,781 12,411 433 6,012 5,966 7,236 554 $ 303,991 218,269 64,744 20,978 20,371 9,880 10,491 518 5,073 4,900 6,753 884 FINANCIAL POSITION Working capital..................................................................... Property, plant and equipment -- net.............................. Total assets............................................................................... Long-term debt..................................................................... Shareholders' equity................................................................ $ 91,752 68,629 198,734 38,270 122,787 $ 79,197 63,164 174,844 26,784 116,155 PER COMMON SHARED Net income............................................................................... $ 1.83 Depreciation, depletion and amortization......................... 1.10 Provision for deferred income taxes.................................. .08 Total funds from operations................................................. 3.01 Dividends declared................................................................ .94 Shareholders' equity................................................................ 17.27 Price of Glidden common shares) -- High......................... 28.25 -- Low......................... 18.88 $ 1.63 1.10 .14 2.87 .84 17.26 25.05 19.60 OTHER STATISTICS Expenditures for property, plant and equipment.... % net income to shareholders' equity................................... % common dividends to net income available for common . Ratio of current assets to current liabilities......................... Preferred shares outstanding.................................................. Common shares outstanding'1 >............................................. Number of shareholders -- Preferred................................... -- Common................................... Number of employees............................................................ $ 11,686 10.1% 50.2% 3.79 195,593 6,559,458 238 22,072 9,860 $ 9,866 9.0% 50.9% 3.86 212,982 6,130,166 324 20,698 8,492 PRO FORMA (excluding operations of Chemurgy Dinition for tke fiscalytart 1957-1968) Net sales................................................................................... Income from operations...................................................... Income before taxes................................................................. Net income............................................................................... (1) Adjusted for 214-for-l stock split or July 22. 1965 (2) Calendar years, except 1966 which is to October 1,1966 (3) Includes 5.12 capital gain $ 351,888 25,847 24,192 12,411 3 303,991 20,978 20,371 10,491 (All dollar amounts are expressed in thousands, except figures given on a per share basis.) 1964 i $ 257,661 180,784 58,674 18,202 18,016 8,951 9,065 481 4,683 3,901 6,736 742 $ 78,551 59,326 169,295 28,500 111,102 , < $ 1.45 1.15 .13 2.73 .80 16.88 21.75 17.05 $ 6,904 8.2% 54.9% 3.98 254,083 5,868,930 492 20,417 7,805 $ 257,661 18,202 18,016 9,065 yO 1 ') t \i | ! <7 a ) [ r **1 GLD38562 ________ , __Jj t A Ten Year Summary 1963 .MO,955 171.260 54,959 14,736 14,467 6,973 7,494 420 4,663 2,411 6,750 1,396 73,359 59,658 158,891 30,000 105,390 1.21 1.16 .24 2.61 .80 16.50 17.85 14.45 4,024 7.1% 65.9% 4.51 197,270 331,213 135 20,809 7,505 140,955 14,736 14,467 7,494 1962 1961 1960 $ 237,882 172,819 50,877 14,187 14,025 7,335 6,690 318 4,650 1,722 6,099 1,217 $ 206,702 160,173 43,850 12,548 12,607 6,190 6,417 -- 4,622 1,795 7,441 -- $ 197,491 142,809 40,616 14,066 13,638 6,948 6,690 -- 4,621 2,069 6,960 -- $ 67,970 61,261 151,840 30,000 102,961 $ 68,061 54,691 140,039 30,000 94,666 $ 59,722 62,106 138,034 30,000 92,847 $ 1.09 1.05 .20 2.34 .80 16.12 18.20 13.10 $ 1.11> 1.29 ~2A0 .80 16.38 18.80 14.30 $ 1.16 1.20 _ 2i36 .80 16.07 18.25 13.80 $ 11,755 6.5% 73.4% 4.60 198,900 5,824,680 121 21,043 7,115 $ 7,823 6.8% 72.0% 5.43 -- 5,778,113 -- 20,873 6,372 $ 8,764 7.2% 69.1% 4.93 -- 5,776,475 -- 20,969 6,151 $ 237,882 14,187 14,025 6,690 $ 206,702 12,548 12,607 6,417 $ 197,491 14,066 13,638 6,690 1959 $ 195,764 142,535 36,803 16,426 15,926 8,292 7,634 -- 4,610 3,024 6,579 -- $ 58,248 60,907 137,552 30,000 90,679 $ 1.32 1.14 -- 2.46 .80 15.72 20.10 16.75 $ 7,607 8.4% 60.4% 4.45 -- 5,769,625 -- 20,993 6,023 $ 195,764 16,426 15,926 7,634 1958 1957 $ 217,353 168,979 34,149 14,225 12,350 6,287 6,063 -- 4,596 1,467 5,838 -- $ 225,537 176,874 32,995 15,668 15,387 8,123 7,264 -- 4,594 2,670 5,046 -- $ 52,572 59,992 133,240 26,000 87,304 $ 53,100 59,517 140,370 27,500 85,837 $ 1.06 1.01 -- 2.07 .80 15.20 18.80 11.20 $ 1.26 .88 -- 2.14 .80 14.94 15.00 11.80 $ 9,214 6.9% 75.8% 3.64 -- 5,745,425 -- 22,405 6,353 $ 12,465 8.5% 63.2% 2.96 -- 5,745,425 *-- 21,686 6,455 $ 185,380 11,923 10,294 5,076 $ 190,424 13,590 13,590 6,402 GLD38563 Consolidated Balance Sheets THE GLIDDEN COMPANY AND SUBSIDIARIES AUGUST 31, 1966, AND AUGUST 31, 1965 Assets 1966 CURRENT ASSETS Cash ............................................................ ..... Marketable securities -- at cost . ................................. Accounts receivable, less allowances of $729,630 (1965 -- $704,069)...................................... Inventories -- generally at the lower of average cost or replacement market: Raw materials and work in process........................... Finished products...................................................... Other current accounts and prepaid expenses .... To t a l Cu r r en t As s e t s $ 7,764,588 1,062,856 39,800,103 $ 35,905,577 37,454,096 $ 73,359,673 2,648,367 $124,635,587 1965 $ 10,240,490 5,399,219 33,816,169 $ 23,438,195 31,776,620 $ 55,214,815 2,192,643 $106,863,336 PROPERTY, PLANT, AND EQUIPMENT - at cost Land and mineral deposits................................................. Buildings................................................................................. Machinery and other equipment...................................... Less accumulated depreciation and depletion .... To t a l Pr o pe r t y , Pl a n t , a n d Eq u ipme n t -- Ne t $ 7,876,287 37,943,993 87,039,492 $132,859,772 64,230,911 $ 68,628,861 $ 7,517,528 33,630,273 79,562,155 $120,709,956 57,545,999 $ 63,163,957 OTHER ASSETS 24 5,469,248 $198,733,696 4,817,021 $174,844,314 GLD38564 Annual Report 1966 Liabilities and Shareholders' Equity 1966 CURRENT LIABILITIES Accounts payable................................................................. Accrued taxes, interest, and other expenses...................... Notes payable to banks...................................................... Dividend payable................................................................. Income taxes........................................... To t a l Cu r r e n t Lia b il it ie s $ 18,344,377 3,496,933 2,000,000 1,641,611 7,400,342 $ 32,883,263 LONG-TERM DEBT-- NoteB 4% % sinking fund debentures........................................... Notes payable to banks...................................................... Other....................................................................................... To t a l Lo n g Te r m De b t $ 25,500,000 12,000,000 770,125 $ 38,270,125 DEFERRED FEDERAL INCOME TAXES 4,793,000 SHAREHOLDERS' EQUITY -- Notes B,C, and D Capital Stock: Preferred -- cumulative, no par value. ..... Common -- $4 par value................................................. $ 4,889,825 26,237,832 Additional paid in capital...................................................... Retained earnings................................................................. 9,186,851 82,472,800 $122,787,308 Less Common Stock in treasury -- at cost...................... To t a l Sh a r e h o l d er s ' Eq u it y See notes to financial statements. --0-- $122,787,308 $198,733,696 - 1965 $ 15,953,682 2,916,888 1,200,000 1,350,046 6,245,576 $ 27,666,192 $ 26,784,000 $ 26,784,000 4,239,000 $ 5,324,550 24,938,864 13,508,197 74,821,217 $118,592,828 2,437,706 $116,155,122 $174,844,314 GLD38565 Consolidated Statements of Income and Shareholders' Equity THE GLIDDEN COMPANY AND SUBSIDIARIES - Years ended August 31, 1966, and August 31, 1965 INCOME Net sales.......................................................................... Operating costs: Cost of products sold................................................. Selling and administrative expenses......................... In c o me Fr o m Op e r a t io n s 1966 $351,888,467 $251,726,093 74,315,324 $326,041,417 $ 25,847,050 Other expenses (income): Interest expense ........................................................... Other -- net................................................................ In c o me Be f o r e In c o me Ta x e s $ 1,983,649 (328,204) $ 1,655,445 $ 24,191,605 Provision for income taxes: Current year................................................................ Deferred..................................................................... Provision for depreciation and depletion was $7,235,711 (1965 --$6,753,140) Ne t In c o me $ 11,227,000 554,000 $ 11,781,000 $ 12,410,605 1965 $303,991,184 $218,268,722 64,744,526 $283,013,248 $ 20,977,936 $ 1,649,128 (1,041,875) $ 607,253 $ 20,370,683 $ 8,996,000 884,000 $ 9,880,000 $ 10,490,683 Balance at September 1,1965 Net changes resulting from poolings of interest Net income Dividends Purchase of common shares for treasury Retirement of treasury shares Sale of common stock under option plans Conversion of preferred stock to common stock 26 Balance at August 31,1966 See notes to financial statements. SHAREHOLDERS' EQUITY Cumulative Preferred Stock Common Stock $ 5,324,550 $24,938,864 1,567,140 (434,725) $ 4,889,825 (622,544) 158,868 195,504 $26,237,832 GLD38566 i I ! Consolidated Statement of Source and Application of Funds THE GLIDDEN COMPANY AND SUBSIDIARIES -- Years ended August 31, 1966, and August 31, 1965 SOURCE OF FUNDS From operations: Net income................................................................ Charges which did not involve current expenditures: Provision for depreciation and depletion , . . Provision for deferred income taxes.................... To t a l Fr o m Op e r a t io n s Borrowing under credit agreement.............................. Net current assets of businesses acquired for Common Stock........................................................... Sale of Common Stock under option plans.................... 1966 $12,410,605 7,235,711 554,000 $20,200,316 12,000,000 736,515 625,930 $33,562,761 1965 $10,490,683 6,753,140 884,000 $18,127,823 1,429,517 750,570 $20,307,910 APPLICATION OF FUNDS Dividends declared........................................................... Expenditures for property, plant, and equipment . . . Purchase of Common Stock for treasury (used in 1966 for acquisitions)................................... Retirement of sinking fund debentures......................... Redemption of Cumulative Preferred Stock . . . . Other applications--net................................................. Increase in working capital............................................. $ 6,445,326 11,685,824 1,166,799 1,284,000 --0-- 425,632 12,555,180 $33,562,761 $ 5,590,736 9,866,067 2,437,706 1,716,000 166,245 (114,623) 645,779 $20,307,910 Additional Paid in Capital $13,508,197 (2,044,947) (2,981,961) 467,062 238,500 $ 9,186,851 Common Stock in Treasury $(2,437,706) (1,166,799) 3,604,505 -0- Retained Earnings $74,821,217 1,686,304 12,410,605 (6,445,326) $82,472,800 Total Shareholders' Equity $116,155,122 1,208,497 12,410,605 (6,445,326) (1,166,799) --0-- 625,930 (721) $122,787,308 27 6LD38567 Notes To Financial Statements Note A -- Consolidation -- The consolidated financial statements include the accounts of all whollyowned operating subsidiaries. The accounts of the consolidated for eign subsidiaries have been trans lated at rates of exchange prevail ing during the year, except for the property, plant, and equipment ac counts, which arc included on a historical cost basis. During the year, the Company acquired the net assets of four cor porations in exchange for 391,785 shares of Common Stock and pur chased two corporations. The busi nesses acquired with stock were ac counted for as poolings of interest and accordingly, the consolidated financial statements for the year ended August 31,1966, include the operations of these businesses for the entire year. The businesses pur chased have been included since the respective dates of purchase. The consolidated financial state ments for the year ended August 31,1965, are presented herewith as previously published and do not in clude the accounts of the businesses acquired and treated as poolings of interest, as their net sales and net income for that year were not sig nificant. Note B -- Long-Term Debt -- The indenture relating to the 4% % sinking fund debentures requires redemption of $1,500,000 on No vember 1 of each year to 1983 (the requirement of November 1, 1966, was met by the purchase and re tirement of debentures prior to Au gust 31, 1966). Under the terms of a credit agreement with several banks dated August 25, 1966, the Company may borrow up to $20,000,000 on Promissory Notes to August 25, 1969, at variable inter est rates (current rate 6%), pay able in ten substantially equal semi annual installments commencing in 1970. The indenture and credit agree ment, which include certain restric- 28 tive covenants, permit the declara tion of dividends of $35,300,000 at August 31, 1966, plus consolidated net income earned after that date. Note C -- Capital Stock -- At August 31, 1966, the authorized capital stockconsisted of10,000,000 shares of Common Stock and 500,000 shares of Cumulative Pre ferred Stock of which 258,340 shares were designated at $2,125 series, stated value $25 a share. There were 195,593 shares of Cumulative Preferred Stock and 6,559,458 shares of Common Stock outstanding and 1,035,042 common shares reserved for conversions and options. The Preferred Stock is convertible at any time into Com mon Stock at an exchange rate of 2.8125 shares of common for each share of preferred, and is redeem able at prices ranging from $55 a share in 1966 to $51 a share in 1981 and thereafter. At August 31,1966, there were 550,105 common shares reserved for conversion. Note D -- Stock Options -- At the beginning of the year, options were outstanding for277,154 shares of Common Stock pursuant to stock option plans for key person nel. During the year, options for 42,750 shares were granted, options for 39,717 shares were exercised, and options for 2,500 shares were cancelled. At August 31, 1966, op tions for 277,687 shares were out standing and 207,250 shares were reserved for future grants. Note E -- Pension Plans -- Non-contributory employee retire ment plans provide benefits to eligi ble employees in proportion to the employees' basic earnings during stipulated periods of service and subject to certain maximurns. At August 31,1966, the unfunded lia bility for past service cost under the plans was estimated to be $6,068,000 and the annual current service cost (which does not in clude funding of the past service cost) was estimated to be $1,954,- 000. Accountants' Report Shareholders and Board of Directors The Glidden Company We have examined the consoli dated financial statements of The Glidden Company and its subsidi aries for the year ended August 31, 1966. Our examination was made in accordance with generally ac cepted auditing standards, and ac cordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the cir cumstances. We made a similar ex amination of the financial state ments for the preceding year. In our opinion, the accompany ing balance sheet and statements of income, shareholders' equity, and source and application of funds present fairly the consolidated fi nancial position of The Glidden Company and its subsidiaries at August 31, 1966, and the consoli dated results of their operations and the source and application of funds 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 October 7, 1966 GL038568