Document oDqj4zDV4oM9De0OKbVVG5rLX

ANNUAL REPORT of , V.';'-v THE EAGLE PICHER LEAD COMPANY AND SUBSIDIARIES MHER December 31, 1938 N11795 ANNUAL R.EPQR.T The Eagle-Picher Lead Company and Subsidiaries To t u b St o c k h o l d e r s o f . THE EAGLE-inCHER LEAD COMPANY: ., Submitted herewith is the annual report of .the Directors and Officers of your Company for the year ended December 31, 1938, accompanied by financial statements and report of your auditors, Messrs. Barrow, Wade, Guthrie and Company. Earnings and SalesV .. . . ' The profit-for the wear was $416,740,36 before inventory writedowns and provision for depreciation, depletion and similar charges. After deducting inventory writedowns of $118,765-30, and $786,707-74 in respect of provision for. depreciation and depletion, prospecting expenses and losses from abandonment or sale of capital assets, the Company showed a consolidated net loss of $488,732.68. At June 30 the loss reported Was $590,776.94, which was reduced by aprofit of $102,044.26. during the last half of the year. This was made possible, in part, by a reduction of $181,504.31 in expenses for the year. ; '. Net. sales for 1938 were $17,124,772.00 which compares with. $24,679,262.00 in 1937, a decrease of $7,554,490.00, or 30.6%. The corresponding decline in'sales tonnage of our principal products was approxi mately 15%. The reduced volume together .with lower prices for lead and zinc and tjheir products were the principal factors contributing to the loss for the year. Fluctuations in, metal prices in 1938,..while frequent, were not. as wide as they were during 1937. Lead opened 1938 at a price of $4.75 per cwr. New York, declined during the first half of the year and was quoted at $4.00 in May but recovered to $4.75 as of June 30. During the last half of the year the price fluctuated but was never lower than $4.75, reaching a peak of $5.05, and closing the year at $4,85. Zinc closely followed the course of lead, opening at $5.00, declining during the first half to a low of $4.00 and again recovering to a high of $5-05 in October. Following the announcement of the signing of a reciprocal trade agreement between the United States, Great Britain and Canada, providing for a reduction in the tariff on slab zinc from $1.75 per cwt, to $1.40 per cwt., or 20%, the price dropped to $4.50 and has remained at that level ever since. In addition to depressing domestic prices, the tariff reduction has made them more sensitive to foreign prices than heretofore; and we cannot but feel that it will have an adverse effect upon the industry. Dividends Dividends of $6.00 per share have been regularly paid on the preferred stock during the year. A dividend of 10 cents per share was paid on the common stock for the first quarter, bur, thereafter, your Directors deemed further payments inadvisable. - Balance Sheet Cash resources of the Company continue satisfactory and net working capita! amounted to $7,900,254.36 at che end of the year. The approximate lead and zinc content of inventories at December 31, 1938, was 76,320 tons compared with 52,805 tons at December 31, 1937. Pjt Tlrtt The extension and modernization of milling and fabricating facilities, referred to in our report for 1937, was completed during die year and our plants are capable of handling a much larger volume of business than we are now enjoying. No further capital expenditures of importance are presently contemplated. The attached Balance Sheet includes the assets and liabilities of two new subsidiaries acquired just before ";\.the end of the year, as noted in the next paragraph, and reflects the obligations incurred in connection with these acquisitions.:' Mining Operations In previous reports, we have endeavored to impress upon you the necessity of the acquisition of additional lead and zinc projrernes when favorable opportunities offered. The Smelters and fabricating plants of votir companies are generally located in or contiguous to the Tri-State District. -Economicoperation of these plants requires a continuous flow of raw materials. The lead production of the district has been gradually declining during recent years. Since a substantial portion of smelting facilities and a major portion of fabricating facili ties are employed in the production of lead or its products, your Company has of necessity become a large purchaser of lead concentrates in the Tri-State District. Commerce Mining and Royalty Company has been a large producer of these concentrates and, for some time, we have purchased substantially all of the lead output of this company for further processing in our fabricating plants. Recognizing the necessity of pre serving the availability of this invaluable source of raw material supply, your management has carried on negotiations from time to time during the past ten years in an effort to acquire this company.' These efforts were finally successful and, on December 28, 1938, we acquired all but four shares of a total of 50,000 out standing shares of the company. In the opinion of our geologists and engineers, the ore reserves thus acquired will insure for many years an adequate source of supply of the basic raw materials so vital to the continued operation of our smelters and fabricating plants and, therefore, to the very existence of your Company. In con nection with this transaction we also acquired all of the capital stock of Northeast Oklahoma Railroad Company. Our production of lead and zinc concentrates in the Tri-State District (not including Commerce Mining and Royalty Company properties) in 1938 amounted to 104,305 tons compared with 146,707 tons in 1937, a reduction of 28%. This tonnage of concentrates produced includes production from our own mints as well as from properties in which we have various equities ind from ores purchased from contract miners. Production during the.last eight years follows: Zinc Concentrates (tons).. . Lead Concentrates (tons).. . ms 92,401 11,904 1937 : 1936 1933 1934- 128,330 102,412 69,086, 53,647 18,377 , 14.734 11,446 10,802 1)33 51,651 7,423 1932 1931 28,85.8. 19,626 3,140 3,487 104,305 146,707 117,146 80,532 64,449 59,074 31,998 23,113 Lead and zinc concentrates produced at our Montana Mine, Ruby, Arizona, during the last five years follow: Zinc Concentrates (tons)............................. ....................... V Lead Concentrates (tons). , . ........,... ....................... 1938 6,519 9,011 1937 1936 1935 5,384 6,388 6,668 9,224 10,203 11,075 1934 2,035 3,560 15,530 14,608 16,591 17,743 5,595 .. . The concentrates produced from this" property in 1938 contained 6,055 ounces of gold and 5.50,859 ounces . of silver. Page Four General It will be recognized from the foregoing report that the facilities of your Company have been vastly im proved during the past year. A consistent research program has also similarly improved the quality and char acter of its products. Under the present condition of world uncertainty, it seems unwise to attempt to forecast business conditions or the trend of activity. However, your Company was never in better position'to profit from an advance in metal prices or a revival of purchasing power. The entire personnel of the Company has continued to show a (me spirit of cooperation and loyalty throughout the year. -' - JOSEPH HUMMEL, Jr . President With the approval of the Board of Directors. WILLIAM R. DICE Executive Vice President Cin c in n a t i, Oh io . : 'THE: EAGLE>PICHBR LEAD (Including Commerce Mining and Royalty Company, and : CONSOLIDATED BALANCE SHEE' ASSETS DECEMBER >/, 1))S DECEMBER 31, 19)7 Cu r r en t . As s et s : , Cash in Banks and on Hand................... . Accounts and Notes Receivable--Trade......... Accounts iantl Notes Receivable"--Other.. Lets: Reserve for Doubtful Accounts............. Advances on Purchase Contracts. :v.. . $ 1,533,053-16 S 1,155,866.56 $ 2,672,876. 58 . $ 2,651,727.26 , Ill ,575.. 37 42,443- 87. 2,784,451.95 322,414.63 1 2,462,037.32 2,694,171.13 265,823.68 2,428,347.45 6,048.69 . 39,973.41 ^ Inventories Raw Materials;: Work in Process . and Finished-Products (including merchandise on consignment to customers): Ores,' Metals.,and Metal-hearing Products-- valued at cost or market price of metal con tent, whichever was lower at December 31, . plus manufacturing costs on ,Materials in Process and Finished Products,. 5,77.8,043 75 5,165,246,27 . Other Merchandise for.'Resale--at cost;........ ''(362,882.83 , " Manufacturing Supplies and Stores-...at cost . : 6,140,926758 560,774. 80 6,701,701.38. V- '............................. 10,752,840.55 Ot h e r As s et s : Surplus Equipment, Repair Parts, Supplies, etc... 147,183.92 /; *384,967.37' 5,550,213.64 591,733.68 216,444.04 ~T.; 6,141,947-32 "9,766,134.74 Less: Reserve for Obsolescence appropriated from Capital Surplus as at January 1, 1935 (Note B) 7'. Employees' Loans and Expense Advances.. Miscellaneous Accounts, Advances, etc, ......... .. 147,183.92 27,293-44 __ 35,859.84 : 210,337.20 85,000.00 131,444.04 .20,678.52 22,774.78 .. 174,897.34.: .'Fix e d As s et s : ; ' Mining Lands and Leases; Mills, Smelting and . . Fabricating Plants and Equipment; Railroad Properties; Pipe Lines; Automotive and Haulage Equipment;' Warehouses;. Furniture and Fix tures, etc. (including $510,450.55 excess cost of common stocks of subsidiaries consolidated over net assets represented: thereby---Note A)........ 3.3,702,6S1.32- , Less: Reserves for-Deplerion, Depreciation, etc,.. 20,292,973.41 13,409,707.91 Construction' Work in Progress ................; 128,890.75 . 1.3,538,598.66 19,670,699.43 3.3,726,876.89 ' 5,943,822.54 468,528,836,412,351. Se l f -In s u r an c e Fu n d Se c u r it ie s : U. S. Treasury Obligations-- at cost (Market value at December 31, 1938--$134,320.85). .... 128,656.84 128,156.84 In v e s t me n t s : Stock of wholly owned Subsidiary not consolidated Stock of other Subsidiary not consolidated, ; Investment in and advances to Affiliated Company Sundry Securities*--at estimated recoverable values 1.00 10,200.00 yg;54,449.27 22,445- 61 87,095,88 1.00 10,200.00 57,357.51 6,943.95 74,502.46 Tr eas u r y St o c k --at cost: . Preferred-- 65 shares....... ............. .......... ,......... 2,330.75 Common--5,924 shares........... ................. ............... ............21,797.56 24,128.31 2,330.75 21,797.56 24,128.31 Pr e p aid a n d Db p e r r ed Ch a r g es : Prepaid Freight,'Insurance, Interest, etc. ...A...: Royalty Advances,.......................... . Other Deferred Charges.. . ................ 111,338.98 61,364.56 . 107,142.84 . 279,846.38 132,056.22 70,986.05 203,042.27 Pa t en t s , Go o d w il l , Et c . ............................. . 1.00 \ $25,021,504.82': 1-00 $16,783,214.33 agKsa1 COMPANY AND SUBSIDIARIES Northeast Oklahoma Railroad Company as at December 31, 1938) TS AS AT DECEMBER 31, 1938 AND 1937 LIABILITIES DECEMBER 31, 1958 DECEMBER 3/, 1937 Cu r r e n t Lia b il it ie s : CurrentBanklndebtedness--payable in 1939 (Note A) Accounts Payable.. ,........................................ ... /... L Preferred. Dividend; Payable.. . , . . .......,... ..... ' ' Advance on `Future: Delivery Contract.....i. . i : S 1,800,000.00 562,005.49 8,233-50 S 2,500,000:00 580,432.30 8,233 50 94,999.75 `'^Accrued Liabilities: . Taxes--Other than Taxes on Income............ Wages, Salaries and Bonus....................................... Interest on Notes Payable. .......... ... ........ v(Compensation Awards, etc.'.. ;.................. Provision for Federal and State Taxes on Income-- estimated........................... .. . ..... /. Other Accrued Liabilities............. ...... ............. $ 163,898.79 ' 43,846.92 1,929.17 45,896.47 112,653.51 ; 27,020.84 : $ 116,303.11 124,455.92 20,923.61 395,245.70 97,012.20 7,938.17 366,633.01 Customers' Credit Balances.................... 87,101-50 46,881.96 De f e r r e d Ba n k In d e b t e d n e s s (Note A): Payable$900,000.00 tier year 1940 to 1942, inclusive; : and $2,100,000.00 in 1943............ .............. 2,852,586.19 4,800,000.00 3,597,ISO.52 Co n t in g e n t Pu r c h a s e Mo n e y Ob l ig a t io n (Note A): Payable from income (as defined in purchase con tract and when, as and if realized) of certain specified properties of Commerce Mining & Roy alty Company. .................. ............... .............. 4,750,000.00 Re s e r v e s f o r Se l f -In s u r a n c e : : Workmen's Compensation Liability....."......... Fire and Tornado Coverage.................................. . 234,223.14 48,279.16 282,502,30 155,551.42 . 41,865 -22 197,416.64 # Re s e r v e s f o r Co n t in g e n c ie s : Appropriated from Capital Surplus as at January 1, 1935-......... .................................................. Less Charges: To January 1.. .......... .. .256,150.22 For year ended Dec. 31..... 41,976.38 '.Res er v es f o r No r ma l Me t a l In v e n t o r y Pr ic e Fl u c t u a t io n (Note B): Balance at January 1. . ................................ . ........ Transferred to or from Earned Surplus,................. .. ;>'Transferred to Capital Surplus.. . . f ..... .7,..... , 600,000i 00 298,126.60 1,290,000.00 768,932.71* 521,067.29 521,067.29* , 301,873.40 : 600,000.00 : 213,910.04 42,240.18 256,150.22 343,849.78 1,279,080.71 10,919.29 1,290,000.00 1,290,000.00 ; Min o r it y In t e r es t (Note A), /, i :, In Capital and Surplus of Commerce Mining and ;Royalty Company (4 shares or .008%)........ 636.48 Ca p it a l St o c k : Preferred 6% Cumulative-- Par Value $100; redeem able at $105: Authorized and Outstanding--5,554 Shares...... 555,400.00 555,400.00 : Common--Par Value $10: Authorized..........:.1,000,000 Shares...... Issued and Outstanding. 900,000 Shares.. .. . . 9,000,000.00 9,555,400.00 9,000,000.00 9,555,400.00 Su r p l u s Ac c o u n t s --per detail attached: / Capital Surplus............. .... .. Earned Surplus since January 1, 1935. .. 1,898,760.96 .1,377,693.67 579,745.49. 2,478,506.45 421,673.72 1,799,367.39. Co n t in g e n t Lia b il it ie s --See Note C $25,021,504 82 $16,783,214.33 "Italics denote red figures The Eagle-Picher Lead Company and Subsidiaries (Kxclusivcvof Commerce Mining and Royalty Company and Northeast Oklahoma Railroad CompamO CONSOLIDATED PROFIT AND LOSS AND SURPLUS ACCOUNTS For Years Ended December 31, 1938 and 1937 PROFIT AND LOSS ACCOUNTS Ye a r e n d e d De c emb er 3L 193$ Ye a r ENDED DjEieVBER 31, 1937 Ni;t Sa l k s . . . . :......... . ... ...................... Pr o d u c t io n a n d Ma n u f a c t u r in g Co s t s ............... 517,124,772.65 , 14,948,000.72 S24.679.262.05 21,232,491 33 G itoss Oper at in g ' PROiTT^BefoiTL Depiction: and. 7'V;:: Qepreciatidn.'.V. AT EXPENSES: ' Selling...................................................................... 5795,306.38 ''''.'..Traffic,. Warehousing and Shipping,..... ..... . 234,530.34 General and Administrative,............... ..:. ... 832,347.14 , Bad, Dehr Provision--less Recoveries ;-.h . . . ,, 62,926.29 2,176,771.93 5971,333.63 278,217.66 810,642.98 1,925,110.15 46,420.19. 3,446,770.72 2,106,614.46 Nu t OpRitATiNb , PRpiTT--befo're , Depletion ' and . Depreciation....... . . . ... .;... ........ . . . .. Ot h e r In c o me: Royalties....... ..................... ..;..................... : Interest and Dividends.,......... . .. . . .. Miscellaneous...,.... ... ...... .... 35,423-26 10,695 39 89,999.47. 251,661.78 136,118.12 46,098.44 10,589.17 51,891.89 1,340,156.26 108,579.50 .387,779.90 1,448,735.76 'iNTisIR'Sf'SSrN'cvris Pa Ya m'.k 48,530.66 28,751-10 De p l e t io n , De p r e c ia t io n , Et c .: Provision for Depletion and Depreciation-- jX'r books................. .Loss on Abandonment of Projects and Prospect ing Expenses...... .................................................. Loss or Profit on Retirement or Sale of Capital Assets............. ............................................ ~ '339,249.24 : 650,358.27 835,615.74 : 69,328.38 139,412.08 67,021,07986,707.74 _ 8,862.61* 1,419,984:66 966,165:21 Nu t Pr o f it o r ; Lo s s --before Provision, for Federal and State. Taxes on Income. ... . ....... Pr o v is io n f o r Fe d b r a iv a n d St a t u - Ta s k s o n In c o me--estimated. .., ................ . . . . . , ... , 447,458.50* 41,274.18 453,819.45 65,038.63 Ne t Pr o f it o r Lo s s f o r Year ........ .. . .... ...... 488,732:68* $ ' 388,780.82 SURPLUS ACCOUNTS . , . Ca p it a l Su r p l u s : : Balance at January 1.7 ................... i ... . Add adjustments applicable to period prior to January 1, 1935: Transferred from Reserves for Normal Metal Inventory Price Fluctuation (Note B)........ Fixed Assets......................... ............. ................. Balance at December 31........... . ..... :............. . Ea r n ed Su r pl u s since January 1, 1935 : : ' 777 Balance at January 1......,. 7:.... . 7..." $421,673.72 Add or Deduct: -77-'- ,v A'A'y , - Unrealized profit in inventories at December ' 31,1936......................................................... Adjustments in respect of Federal Taxes and : Depreciation--prior years............... ............. 213.34 yfe7;;;(Tninsferred from or to. Reserves for Normal : Metal Inventory Price Fluctuation (Note B) 7 768,932,717 Net: Income or Loss for Year--per Profit and v ' . Account.................. ........ . .......... : 488,732.68* 702,087.09 Dividends paid and accrued: 7 Preferred .7.7,..... ................................$32,934.00 V: Common................. . 89,407.60 122,341.60 Balance at December 31. To t a l Su r p l u s ........ .. $i, 377,693.67 521,067.29 1,898,760.96 $732,137.56 299,982.66* 2,221 69 10,919.29* 388,780. S2 812,238.12 32,934.00 357,630.40 ' 390,564.40 579,745.49 $2,478,506.45 $1,375,522.88 r,377,693.67 421,673.72 $1,799,367.39 Page Eight . : . ' *Ira!ics denote red figures. Explanatory Notes NOTE "A" Under date of December 28, 1938, The Eagle-Picher Mining and Smelting Company acquired all but four shares of a total of 50,000 outstanding shares of beneficial interest in Commerce Mining and Royalty Company, an Oklahoma business trust. ,In connection therewith, all of the outstanding capital stock of Northeast Okla homa Railroad Company was also acquired. The cash cost of the above acquisitions and the retirement of theretofore existing current bank indebtedness was financed, in parr, through the medium of an intermediate bank loan, tfie maruritieswhereof are set forth in the accompanying balance sheet. The bank indebtedness is . the primary obligation of The Eagle-Picher Mining and Smel ting Company, is guaranteed by The Eagle-Picher .Lead Company, and is secured by the pledge of the shares so acquired, -and '$900,000.00- principal amount of. obligations "off Northeast, Oklahoma; Railroad Company, acquired by The Eagle-Picher Mining and Smelting. Company from Commerce Mining and Royalty Company. The assets and liabilities of these newly acquired companies have been included in the accompanying balance sheet. The aggregate consideration (including deferred paynicnts) was $510,450.55 in excess of the book value of the net assets represented by the shares acquired and this amount has been added to the theretofore recorded value of mining plants and properties. Inasmuch as all or substantially all of the net income of the acquired companies accrued prior to acquisition, the operating results for 1938 have not been consolidated in the accompanying Profit and. Loss Account.. NOTE "B" .(. During the year the reserve for obsolescence was applied to .the write-ofT of certain .specific items having no further operating value; and reserves for normal metal inventory price fluctuation were closed our by credits to the respective surplus accounts from which they originated. NOTE "C" The Companies are Contingently liable in respect of: (1) Insulation installment notes receivable rediscounted under provisions of Federal Housing Act, maximum liability whereunder cannot exceed $30,000.00; (2) Federal and State income taxes for years not yet examined by the respective- taxing authorities; (3) Pending personal injury suits and minor litigation, liability whereunder is undeterminable but. ..' . is not considered significant; (4) Charges instituted by National Labor Relations Board, which has nor yet handed down a decision on the findings of its Trial Examiner; (5) Agreement to indemnify former shareholders of Commerce Mining and Royalty Company for. . acts performed on. behalf of said company, liability whereunder is wholly contingent;.. (6) Suit pending- in the. United States District Court at Cincinnati whereunder claimants seek, to recover some sixteen million dollars on two principal causes of action. One cause of action al leges failure to account for sulphur content of lead and zinc sulphide concentrates produced from . Indian leases. .The Company concends that it has fully accounted therefor,.strictly in accordance , ; --"with the terms of the leases.and on a basis that, has been in general use in the. District for seventyfive years. The other principal cause, of action alleges ,trespass on certain Indian lands prior to 1922. . The Company contends that it was in possession bf the lands under a valid lease, and that; it. made full accounting thereunder and complied with all requirements thereof. . The United States Department of Interior on behalf of the Indians, upon expiration in 1922 of. the lease now attacked, granted to the Company a new lease on the same property for a period of twenty-five years, whereunder the Company has since operated arid accounted. It is significant that the validity of the new lease was upheld by the United States District Court for the Northern Dis trict of Oklahoma,which decision was affirmed by the United States Circuit Court of Appeals, Tenth Circuit. Similar suits involving the same issues were instituted in 1933 in, the United States District Court at Kansas City (Mo.) in the name of the United States and at the request of : the Department of Interior. The Attorney General, after investigation, dismissed these suits without prejudice. The present action was brought not by the Government but by an individual, as "next friend", who seeks to recover, on behalf of the- Indians.Company's counsel is of the. opinion that the case can be successfully defended, although, because of the amount involved, vigorous prosecution by the plaintiff is anticipated. " Pjt Niw BARROW, WADE, GUTHRIE & CO. (ESTABMSMGD *8) ACCOUNTANTS a n d a u d it o r s ONE NORTH LA SALLE STREET CHICAGO To Tin: Dir ix t o r s , THE EAGLE-PICHER LEAD COMPANY, Cincinnati, Ohio. We have made an examination of the foregoing Consolidated Balance Sheer of The Eagle-Picher Lead Company and Subsidiaries as of December 31, 1938, and of t!ie related Consolidated Profit and Loss and Surplus Accounts for the year then ended. ... Tn connection therewith, we examined or tested accounting records of The Eagle-Picher Lead Company and The Eagle-Picher Sales Company, and other sup porting evidence, and obtained information and explanations from officers and employees of the Companies. We also made a general review of the accounting . methods and of the operating and income accounts for the period, but did not make a detailed audit of the transactions. The accounts of The Eagle-Picher Mining and Smelting Company and Subsidiaries, as examined and reported upon by other inde pendent accountants, have been included in the accompanying consolidated state- merits. For the year under review, the basis of provision for uncollectible notes and accounts of The Eagle-Picher Lead Company was increased by approximately 70%, thereby correspondingly increasing, by nearly $25,000.00, the charge to current operations which would have otherwise resulted from continuance of| the basis employed during the preceding year. Based upon the examination made by us, in our opinion, the accompanying Balance Sheet and related Profit and Loss and Surplus Accounts, together with the explanatory notes pertaining thereto, fairly present, in accordance with accepted principles of accounting consistently maintained during the period under review (except as to the change in the basis of provision for uncollectible accounts), the consolidated financial position of the Companies at December 31, 1938, and the results of operations for the year then ended. Chicago, Illinois March 2, 1939 Ac c o u n t a n t s a n d Au d it o r s