Document jm1OpJKG68p1qMQRKGNrB63gZ

I THE GLIDDEN COMPANY CLEVELAND, OHIO ANNUAL REPORT Year Ended October 31, 1940 GLD000276 J t i THE GLIDDEN COMPANY CLEVELAND, OHIO To the Shareholders of The Glidden Company: The annual report of your Company for the year ended October 31, 1940, is submitted herewith. The net profit for the year, after all charges including special reserves, was $1,727,828.99. This compares with a final net profit for the previous year of $1,853,549.12. The sales for the year totaled $50,169,733.04 as compared with $47,824,047.45 for the previous year. While all the Divisions of the Company -- Paint, Chemical and Pigment, Metals Refining and Food Products -- showed a profit, the profits in the Chemical and Pig ment Division were considerably curtailed by reason of heavy expenses incurred in con nection with the research work in soya bean by-product manufacturing, and with the development of our new and exclusive process of manufacturing Iron Powder in the Metals Refining Division. Fortunately, the work in the Metals Refining Division has permitted us to go into commercial production of Iron Powder and our Company is now benefiting from this work. In the Soya Bean Division the production of hormones and sterols has resulted in constantly increasing sales which should add materially to our profits in the ensuing year. In the Food Division, the effect of the war on this industry made it necessary to change our processes in our plants at Berkeley, California, and at Elmhurst, Long Island, in order to efficiently handle a wider range of materials. These changes entailed large expenditures which will be non-recurring to a great extent. The Company is in a favorable position as to inventories and the total of the inven tories is in the proper relation to the volume of sales. It will be of interest to our shareholders to know that for the addition to plant facilities and the modernization of equipment, over the past five years the Company has expended $8,127,000. These changes and additions have kept us fully abreast of the times and have placed us in an unusually advantageous position to meet competition in the future and to maintain our position in the field. With the return of anything resembling normal conditions, our profits should show a marked increase over the results for the past two or three years. To illustrate the difficulty of making a profit under present tax laws, attention is called to the fact that taxes paid or accrued by your Company and its subsidiaries, to the various taxing authorities in the United States, including excise taxes on products sold and in turn passed on to the consumer, totaled $2,091,230.52. These tax expenses are divided as follows: Real, Personal, State Franchise and State Income Taxes . . $ 337,390.59 Federal Capital Stock Tax ...................................................... 40,899.10 Social Security Taxes.................................................................. 270,896.83 Provision for Federal Income Tax............................................... 292,000.00 Excise and Processing Taxes...................................................... 1,150,044.00 , To t al .......................................................................... $2,091,230.52 GL0000277 If the excise and processing taxes are left out of consideration, the total is $941,186.52, equivalent to $1.13 per share on our outstanding common stock compared to our net earnings of $1.55 per share. During the period under review the Company has succeeded in refinancing long term loans at lower interest rates, which will mean an approximate saving for the period of $160,000. Attention is called to the strong financial position of the Company, the relation of Current Assets to Current Liabilities being better than seven to one. The profits of the American Zirconium Corporation, in which the Company has a sub stantial interest, were affected adversely during the year owing to the high freight rates and war risk insurance in bringing raw material (ilmenite) from Travancore, India. How ever, improvements in production methods together with increased volume production, should overcome this handicap in the near future. In "Note A" appended to the Balance Sheet, reference is made to our investment in California mining companies. It should be explained that these companies were not operated for some years due to the low prices of zinc and other ores, and the mines were held as a reserve supply for the Company's Chemical and Pigment Division. During the last year there has been a very decided advance in the price of zinc, cadmium, and other metals and these properties could be operated profitably at the present time were it not for the fact that the United States Government, in building the Shasta Dam, is flooding the area in which the mines are located so that it will not be possible to operate them. Your Company has filed a claim with the United States Government for damages to these properties in the sum of $1,853,000. While business conditions at the present time are confusing, and while it is very diffi cult to predict the future, yet based on the diversified character of our business, and the fact that our manufacturing and distribution facilities are at the peak of efficiency, your Company should make a satisfactory profit in the new year. Your Directors are pleased with the mutually satisfactory labor conditions existing throughout the organization, and t ake pleasure in expressing their appreciation of the good work of all the executives and employees whose loyal efforts have contributed to our progress. By order of the Board of Directors. December 28, 1940. ADRIAN D. JOYCE, President. GLD000278 CONSOLIDATED ] The Glidden Company and October ASSETS CURRENT ASSETS Cash............................................... .......................................... 3 2,126,192.28 Trade notes and acceptances receivable............................... $ 72,141.11 Trade accounts receivable....................... ........................... 4,653,814.48 3 4,725,955.59 Less reserves.......................................................................... 135,083.21 4,590,872.38 Inventories -- at lower of cost or market: Raw materials, in process, finished goods and supplies . Other current accounts receivable and advances -- less reserve.................................................................................. 10,612,030.66 523,245.90 317,852,341.22 INVESTMENTS IN SUBSIDIARY AND AFFILIATED COMPANIES California mining companies -- at less than cost -- Note A: Capital stock (100% owned)........................................... $ Bonds -- principal amount 3500,000.00 ........................... Advances.............................................................................. Affiliated company -- at cost -- Note B: Capital stock...................................................................... 15,000.00 187,500.00 915,062.71 3 1,117,562.71 690,001.00 1,807,563.71 OTHER ASSETS AND INVESTMENTS Cash surrender value of life insurance............................... Sundry investments............................................................... Sundry notes and accounts, advances to salesmen and claims against closed banks, less reserves................................... 3 496,369.70 48,480.47 79,045.62 623,895.79 PROPERTY, PLANT AND EQUIPMENT Land -- at cost or less.......................................................... Buildings, machinery and equipment at cost or less. . . . Less reserves for depreciation and depletion....................... 3 2,151,397.84 20,794,708.46 322,946,106.30 7,902,685.57 15,043,420.73 INTANGIBLES Patents and rights to manufacture -- at cost, less amortiza tion ...................................................................................... DEFERRED CHARGES Inventories of advertising stock and stationery, prepaid in surance and expenses. ....................................................... Special new products development....................................... 86,859.33 3 386,652.02 109,916.91 496,568.93 335,910,649.71 GLD000279 BALANCE SHEET Consolidated Subsidiaries 31, 1940 LIABILITIES, CAPITAL STOCK AND SURPLUS CURRENT LIABILITIES Accounts payable........................................... ... Accrued taxes, royalties, interest, insurance, etc. .... Federal, state and dominion taxes on income -- estimated . 3 1,793,778.46 346,062.92 340,102.21 3 2,479,943.59 LONG TERM NOTES PAYABLE Bank loans -- principal amounts maturing 3500,000.00 an nually on July 1, 1942, July 1, 1943, and July 1, 1944 -- interest at 2}^%............................................................... Serial note -- maturing July 1, 1945 -- interest at 3% . . 3 1,500,000.00 2,000,000.00 3,500,000.00 RESERVES For adjustments of open contracts to market................... For contingencies.................................................................. 3 50,000.00 67,885.56 117,885.56 MINORITY INTEREST IN SUBSIDIARY COMPANY . 100,552.49 CAPITAL STOCK AND SURPLUS Capital stock: Convertible preferred, i'/% cumulative, par value 350.00 a share (redeemable at 352.50 per share, convertible through March 1, 1941, into eight-tenths share of com mon stock and thereafter into seven-tenths share of common stock): Authorized 200,000 shares Converted 60 shares Issued and outstanding 199,940 shares....................................... 3 9,997,000.00 Common, without par value: Authorized 1,200,000 shares Outstanding in cluding treasury shares 835,591 shares ; Reserved for conversion 159,952 shares Stated capital.................................................................. 4,180,655.00 314,177,655.00 Surplus -- Note C: Capital surplus....................................... 3 8,374,036.92 Earned surplus....................................... 7,452,735.86 315,826,772.78 Less capital stock in treasury at cost: Common -- 16,671 shares............................................... 292,159.71 15,534,613.07 29,712,268.07 335,910,649.71 CONTINGENT LIABILITIES Letters of credit outstanding............................................... 3 See notes on following page. 380,139.50 CLD000280 NOTES TO CONSOLIDATED BALANCE SHEET Note A -- Investments in California mining companies, whose assets consist almost entirely of properties not beingoperated,are stated herein at less than cost, which carrying amount on the basis of unaudited balance sheets, was {115,041.14 more than the aggregate net assets as shown by the books of those companies. Lo ises (segregating {333,441.32 in excess of provisions or other credits of The Glidden Company applicable thcreagainst) have been experienced by these companies from date of acquisition to October 31,1940, however, the losses for the past few years, since operations of properties were suspended, have represented principally expenses in maintaining the properties. Certain of the properties are located in areas that will be flooded as a result of the construction of Shasta Dam in the State of California by the United States Government, and the Company has filed a claim for damages in excess of the written-down amounts included herein. Note B -- Investment in affiliated company represents one hundred per cent interest in 7% preferred stock of the American Zirconium Corporation, having a par value of {(00,000.00, the dividends on which have been paid to July 1,1940, and a forty-five per cent interest in the common stock of the tame company. Note C -- The indenture, dated July 1, 1938, relating to serial notes of the Company contains an agreement that so long as any of the notes shall be outstanding the Company will not declare or pay any dividends, other than stock dividends, on any aharot of its common stock (subject to modification that the Company may use not exceeding {200,000.00 in the purchase or retirement of its common stock) or make any distribution in rwpect thereto, except out of consolidated net earnings, at defined in the indenture, subsequent to October 31, 1937. Note D -- Net assets located in Canada consist of net current assets of {455,674.74 which have been Included herein at the Cbntrol Board rate of exchange, and properly, plant and equipment and sundry deferred items of {141,706.70 which have been included at amounts shown on the books of the Canadian subsidiary. Consolidated earned surplus includes the amount of {1,165,611.52 for the Canadian subsidiary. CONSOLIDATED SURPLUS The Glidden Company and Consolidated Subsidiaries Year ended October 31, 1940 CAPITAL SURPLUS Balance November 1, 1939, and October 31, 1940 .................................................................. $ 8,374,036.92 EARNED SURPLUS Balance November 1, 1939 ......................................................................................................... $ 7,078,945.34 Add net profit for year ended October 31, 1940 ...................................................................... 1,727,828.99 Deduct dividends paid: Convertible preferred -- $1.25 a share...................................................... $ Common -- 1.10 a share.............................................................................. $ 8,806,774.33 449,886.47 904,152.00 1,354,038.47 Bal an c e Oc t o ber 31, 1940 ............................................................................................. S 7,452,735.86 Note -- In prior years certain items of discount and expense, provision for contingencies and losses on dismantlements have been charged to capital surplus. If such items together with additional depreciation claimed for federal income tax purposes for the years 1932 to 1939 inclusive, had been charged against earned surplus Instead of capital sorpluf, the respective amounts of such surplus ac counts would be {6,331,164.36 and {9,495,608.42 as at October 31, 1940. The Company's ftdtral income tax return for the year 1940 was not completed at the date of issuing this statement but depreciation to be claimed therein will exceed provisions charged to profit and loti for the year ended October 31,1940. GL 0000281 CONSOLIDATED PROFIT AND LOSS STATEMENT The Glidden Company and Consolidated Subsidiaries Year ended October 31, 1940 Net sales ........................................... ..................................................................... Cost of goods. sold, selling, administrative and general expenses (exclusive of depreciation) .................................................................................................. Pr o f it Be f o r e In t e r e s t , De p r ec ia t io n a n d Ot h e r In c o me . . Other income ........................................... ... Other deductions: Interest on bank loans and serial notes . . ................................................... $ Sundry................................................................................................................. Pr o f it Bef o r e De pr e c iat io n a n d Ta x e s o n In c o me .................. Provision for depreciation and depletion ........................................................... Pr o f it Bef o r e Ta x e s o n In c o me ................................................... Taxes on income -- estimated: Provision for federal income tax......................................................................$ Provision for dominion and state taxes on income....................................... Net Pr o f it .................................................................................... Minority interest in profit of subsidiary company........................................... Net Pr o f it t o Su r p l u s ................................................................. $50,169,733.04 47,322,882.32 $ 2,846,850.72 421,177.21 $ 3,268,027.93 111,352.43 245,231.35 356,583.78 $ 2,911,444.15 835,753.99 $ 2,075,690.16 292,000.00 55,308.68 347,308.68 $ 1,728,381.48 552.49 $ 1,727,828.99 Note A -- No provision has been made in the foregoing statement for losses of wholly owned, non-operating California mining com panies for the year, amounting to ^47,483.76 including provision for depreciation in the amount of 28,021.08. Note B -- The Company's federal income tax return for the year 1940 was not completed at the date of issuing this statement hut depreciation to be claimed therein will exceed the amount included in this statement due to depreciation claimed on costs written off or credited to revaluation reserve during 1932. Note C -- The net profit shown above includes $65,594.07 for the Canadian subsidiary, representing that subsidiary's net profit for the year after giving effect to adjustment of its net current assets to Control Board rate of exchange in effect at October 31,1940* ERNST 8c ERNST ACCOUNTANTS AND AUDITORS SYSTEM SERVICE CLEVELAND Board of Directors, The Glidden Company, Cleveland, Ohio. UNION COMMERCE BUILDING We have examined the consolidated balance sheet ofThe Glidden Company and consolidated subsidiaries (California mining companies excluded; as of October 31, 1940, and the consolidated statements of profit and loss and surplus for the fiscal year then ended, bate reviewed the system of internal control and the accounting procedurei of the companies and, without making a detailed audit of the transactions, have examined or tested accounting records of the companies and other supporting evidence, by methods and to the extent we deemed appropriate. We tested trade receivables by communication with debtors, and we observed procedures followed by the companies in aicertaining quantities at October 31, 1940, at locations selected by us. We also tested the basis of pricing the inventories and the computations. Property, plant and equipment are stated at cost or less, reduction having been made In 1932 to eliminate appreciation and to provide for further write-downs. In our opinion, the accompanying balance sheet and related statements of profit and loss and surplus, excluding the California mining companies, present fairly the consolidated position of The Glidden Company and consolidated subsidiaries at October 31, 1940, and the results of their operations for the fiscal year in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. ERNST fir ERNST, Cleveland, Ohio, Certified Public Accountants. December 23, 1940. GLD00028 2 BOARD OF DIRECTORS ADRIAN D. JOYCE ROBERT H. HORSBURGH RICHARD W. LEVENHAGEN WILLIAM J. O'BRIEN DWIGHT P. JOYCE PAUL E. SPRAGUE HOWARD BEATTY CLIFTON M. KOLB OFFICERS ADRIAN D. JOYCE, President ROBERT H. HORSBURGH, Senior Vice-President RICHARD W. LEVENHAGEN, Vice-President WILLIAM J. O'BRIEN, Vice-President DWIGHT P. JOYCE, Vice-President PAUL E. SPRAGUE, Vice-President HOWARD BEATTY, Vice-President JOHN A. PETERS, Treasurer CLIFTON M. KOLB, Secretary WILLIAM W. CONANT, Assistant Secretary Transfer Agent THE NEW YORK TRUST COMPANY New York City Registrar THE CHASE NATIONAL BANK New York City GLD000283