Document rBEpXGvL9MNwnXkgR7vz8eOX0

DEC 21965 \ HOSES FOR ANNUAL MEETISO December $, 1965 NOTE!: 1965 International Data Recast to Appropriate Groups N17258 TABIE Off CCWPEKTS ROTES FOR AHWUftL KEETIHG D8Ceaber^i$65 I. Balance Sheet Review A. Cash and Banking B. Short-Term Securities C. Accounts and Botes Receivable - Tradfe D. Inventories E. Other Current Accounts and Investments F. Prepaid Insurance end Other Expenses G. Property H. Other Assets and Deferred Charges I. Short and Long Term Financing J. Contingent Liability K. Stock and Stockholders II. Operating Statement A. Gross Profit B. Selling and AdministrativeExpense C. Other Income - Published P & L D. Depreciation E. Fixed Charges F. Advertising Expense G. Research and Development E. Average Assets and Profit Return I. Miscellaneous J. Outside Consultant Fees K. Taxes ; L. Comparative Operating ProfitSchedules M. Smanaxy of Extraneous Items / III. Cash Use and Projection A. Application of Funds B. Five-Year Forecast - Cash Basis IV- Employee Benefits A. Ifenaion Plan B. Bonus Plan C. Stock Options D. Wage and Salary Ratios E. Salaries F. Other Benefits V. Acquisitions, Dispositions and Capital Expenditures A. Acquisitions B. Dispositions and Shutdowns C. Mining Activity D. Major Expenditures Over $50,000 VI. other Functions and Items A. Donations B. Audit C. insurance D. . Foreign Business E. Miscellaneous * 12 12 l4 15 15 15 15 26 l6 36 17 18 19 20 21 22 23 2427 27 27 J.- \ : >3.!-.2fJu GLD0039Q8 NOTES FOR AFJU&L M3ETIKS -2- X. Balance Sheet Review B. Short-Term Securities (Cont'd) All of these securities had maturities of less than one year and were, in general, placed to mature coincidentally with Dividend, Interest end Tax payments. During the year, our average short*term portfolio was $8,052,244.00, which was an Increase of $47,521.00 over fiscal 1964. The average after-tax interest yield was 2.25$ (4.33$ equivalent Before tax) as compared to 1-93$ and 3*87$ for fiscal 1954. Our liquid position enabled us to be invested all of the 365 days of fiscal 196$. Although not indicated as short-term securities on the Balance Sheet, the following were interest-bearing and classified as cash. Certificates of Deposit Cash in Foreign Banks Total $ 4,000,000.00 1,286,894.59 C. Accounts and Notes Receivable - Trade (000 omitted) Accounts Receivable Dotes Receivable / Total 8/31/65 $33,945 - 57? $34,520 8/31/64 $27,893 __ 5P7 $26,400 a $24,835 4o6 $25i24'i 7 Reserve tor Bad Debts and Allowances Net per Annual Report 704 $33,816 614 $27,786 $24,731 $ Bad Debt Reserve to Receivables Fast Dus Receivables: Dollar Amounts $ of Gross Receivables 2.0$ * $ 3,377 9.8$ 2.2$ $ 3,059 10.6$ 2.1$ $ 2,465 9-S$ Receivables Charged Off Recoveries Against Re- ceivables Charged Off Net Bad Debt Loss $ 499 129 $ 320 $ 377 , 127 $ ~ 250 $ 527 160 $ 366 Bad Debt Loss as $ of Sales:t 1965 1964 1963 1962 1961 I960 1959 1958 .11$ .10$ .16$ .10$ .15$ .08$ .06$ .06$ e/3i/6a $23,884 685 $2575^ .....gog $24,066 2.1$ $ 2,492 10.1$ $ #7 124 $---53 GLD003999 HQTES FOR ANNUAL MB35TXBG X. Balance Sheet Raviev -3- C. Accounts and Notes Receivable - Trade (Cont'd) Accounts Receivable turnover for the entire Company was 41 days. This compares to 40 days in 1964 sad 38 days in 1963* Domestic turnover was 39 days compared to 36 days in 1964. Het bad debt losses of $320; 000 on trade receivables represent an increase of $?0,000 from the prior year on a sales increase of $46,300,000. Although losses increased in dollar amount, the net percentage to sales rdrained consistent with previous years, and in our opinion, represented good performance for fiscal 1969. Despite a distribution pattern in the C & R Group which adversely influenced turnover and bad debt losses, ve were able to improve accounts receivable turnover and maintain chargeoffs well within proper boundaries. leased Department operations contribute to a favorable turnover in the C & R Group. Continued expanding activities with paint contractors are reflected in this market segment representing 46$ of C 6 R losses in fiscal 1965 compared to 34$ the previous year. However, Trade Sales improved dealer volume despite heavy attrition of dealers and at the same time reduced their share of C & R losses from 34* in fiscal 1964 to 28 in fiscal 1965. The factors causing heavy sales activity In the Durkee Foods Group were responsible for the increase of receivables from 19 to 23$. A slightly slower turnover was due to a market program transferring consigned stock inventory to Jobber agreements placing the investment in accounts receivable. ( A percentage breakdown of total receivables by major division is as follows: Coatings & Resins Durkee Foods Chemicals International Private Ledger iss* 59$ 23 18 m 100$ 1964 57$ 19 15 9 m 100$ 1963 196a 59$ 60$ 19 19 16 17 64 Nominal Nominal 100* 100$ * Receivables from international operations were 10$ and adjusted to the appropriate operating groups as follows: .CAR 6$, Durkee Foods 1$, and Chemicals 3$. D. Inventories Published total inventory decreased $139,000 from fiscal 1964. Changes by Group were as follows in thousands: GLD004000 NOTES FOR AMUM MEETING -4 X. Balance Sheet Review D. inventories(Coat'd) August T955 Increase (Decrease) Coatings & Resins $22,476 $19,387 Durkee Foods 19,705 ao,3T3 Chemicals Development 13,261 13,370 * 42 International * 2,53? 55^52 55,705 HFO Reserve (216) (165) Canadian Dollar Adjustment (188) (170) Dailey Fickle Invent- cry Adjustment 157 - *55,815 *55,350 $ 3,oe9 (668) ( 89 ( 42) c 31). ( 18) 157 $ (135) * International Group inventory of $2,592 at August 31, 1965, was recast as follows: CAR $1,843, Durkee Foods $10 and Chemicals $739* * The principal factors contributing to these increases(decreases) by Group were: - 1 Coatings & Resins - The total increase of &1,246,000 (before adjustment of $i,w3,b00 'for international operations) consisted of Increases of $992,000 in raw materials axsd $254,000 in finished stock. In general, inventory levels Increased to meet the requirements of increased, sales activity. Although inventory dollar levels increased over the prior year, the days supply on hand at year-end decreased from inat year. Specifically, rav naterlal inventory balances were increase slightlyin order to adequately provide for some raw materials that were in short Bupply in addition to accommodating lnceeaaad sales levels.. The availability of these rav materials has improved and the inventories are being allowed to decline to a more suitable operating level. The finished stock inventory increase is at a higher level to accommodate the Increased sales and also to provide adequate and expanded product lines at additional leased department retail outlets. Durkee Foods - Inventories in the Durkee Foods Group have decreased f&78,000 (before adjustment of $10,000 for international operations) from last year. The total decrease consisted of $2,304,000 decrease in raw material and $1,626,000 increase in finished stock. Durkee trading Inventory was down $1,892,000 in rav materials. The acquisition of . Dailey Fickle accounted for $1,108,000 of the total increase in Finished Stock. Other increases vere due to addition to Grocery Product lines. GLDOO^OOI ROTES FOR AHfflftL K^TXKO ' -5- I. Balance Sheet Review D. Inventories (ContM) Chemicals - The Chemicals Group Inventory vns $888, COO lower than a year ago. (Before adjustment of $T39,CCO for international operations). Finished Stock inventory decreased $846,000 while raw material Inventory increased $18,000. The finished stock inventory decrease resulted from increased sales and effective control over the inventory investment by management. International - The increase over last year was nominal. The total inventory is 'reflected in the appropriate operating group. UPO Reserve - LIFO inventories reduced $4,440,000 from the 1954 level of $5,070,950. Ibis resulted in a decrease in the UFO Reserve applicable to edible oils of $54,214, but the $95,183 increase in the UFO Reserve applicable to Chemicals Group inventories caused the total iF0 Reserve to increase $30,969 with a corresponding decrease in consolidated net profit. The increase in the Chemicals Group portion of the UFO Reserve vac attributable to Hammond Copper inventories. Turnover - Published Ret Sales to year-end net inventory: 1965 1964 1963 1$62 1961 - * - 5*51 to 1 4.66 to 1 4.59 to 1 4.89 to 1 4.9T to 1 Control over the inventoxy investment is achieved through the joint efforts of management and operating personnel. The Coatings and Re3ins Group semi-annually establishes monthly monetary Inventory goal levels by Regions. These goals are reviewed monthly by a Headquarters * inventory Comoittee and necessary action is promptly initiated to correct any out-of-line occurrences. The goals for both raw materials and finished stock are established only after careful study and consultation with Regional management, and it IS the responsibility of Regional management to allocate by operating unit and by product within its goal. Each month, inventory performance is compared to goal with explanations of variances determined and any necessary corrective action taken. Inventory control in the Burkee Foods Group is established through the joint efforts of Headquarters and Division Management. An important aspect is the dally control exercised over raw materials baaed upon the market quotations of edible oils and condiment raw materials. The Durkee Trading Office projects market conditions as they relate to raw material requirements and communicate with Headquarters and Division management. Market conditions of spices and other materials ere reviewed on a daily basis ami caterial requirements Are projected into the future. Control of inventories in the Chemicals Group is maintained by the respective Division Managers who determine their inventory needs on the basis of individual market sources and operating requirements. GLD004002 NOTES FOR 'ABBtM. MBSTSRg I. Balance Sheet Review 6- D. Inventories (Coat'd.) The individual managers of the various International operations overseas, subject to the revlev and coordination of the appropriate domestic group management, determine necessary inventory levels through anticipation of planned sales levels vith recognition of the problems caused by their overseas supply situations. E. Other Current Accounts and Investments Detail at August 31 was: Margin Advances (Durkse Foods) Material Deposits (Chemicals) Olidden-Salchi Clalzs Against Common Carriers Employees* Accounts Salesmen' o Advances Installment Sales Wood & Selick Coconut Co. (Beth.) Alcohol refund on Extract Business Pincasa-Guatemala & Costa Rica Misc. Notes and Accounts Induetrial Acceptance Corp. (Canada) Tank Car Rental (Berkeley) Southwest Forest Industries (Organic) 196$ $ ill,614 47,861 e 134,779 13,226 99,468 5T,721 35,002 44,683 18,230 644,598 50,000 $ 38,208 34,164 fr>33>.5 F. Prepaid Insurance and Other Expenses 1964 $ 273,825 IS,934 112,914 , !88 21 , *24,592 76 66 80,9a 22,78* 428,455 4,l,y358 '/ Detail at August 31 was: Prepaid Insurance Prepaid Baxes Prepaid Royalties Prepaid Rent Prepaid Advertising Other Prepalds 1965 $ 447,131 265,381 42,417 54,150 54,010 m $ 597,229 196,443 7,500 m m T.<5B - - -- - Q. Property * &3,0B9 $ 848,T30 For schedule of major capital expenditures and 1966 forecast, see page 32. For Depreciation, sec page 15* Insurable value of all buildings, machinery and equipment Is $122,900,000 Lease obligations for buildings occupied by company units are covered on page 9. GLD004003 SOKES FOR JUBWftL M5STIBG - 7- Z. Balance Sheet Review Other Assets and Deferred Charges Detail at August 31 was: Prepaid Bond Discount & Expense Investments - Chicago Borad of Trade International Subsidiaries (Detail on Page 44 for 1965) Miscellaneous Deferred Research & Engineering Cost Employee Lems Patents and Patent Rights Hioc. Botes &Accts. Receivable 1965 $ 559,783 34,701 2,804,253 12 720,665 58,703 511,646 127,258 t 1964 $ 590,599 34,701 3,202,180 9 736,5*2 51,694 281,016 182,887 $4,817,021 $1,0604.^8 Short and Long-Term Financing 1. Sliort-Tarn Borrowing and Bank Lines of Credit: Luring fiscal 1965 and fiscal 1964, Olilden did not have any short-tom borrowings. At August 32.> 19^5, we maintained a line of credit of $12,000,000 for (Hidden (plus $1,000,000 for International). These were carried at majo/r banka ecroes the....................... .. country aa follows: Bank City and State Amount The Citizens & Southern national Bank Atlanta,. Georgia 500,000 Uhion Trust Company of Maryland Baltimore, Maryland 500,000 Continental Illinois Rational Bank & Trust Ccespany of Chicago Chicago, Illinois ,1 000,000 The First Bational Bank of Chicago Chicago,. Illinois 1,000,000 The Cleveland Trust Company Cleveland, Ohio 500,000 The National City Bank of Cleveland Cleveland, Ohio 1,000,000 Society national Bank of Cleveland Cleveland, Ohio 500,000 Republic Rational Bank of Balias Dallas, Texas 500,000 Bank of America., H.T. & 8.A. Los Angeles, California 500,000 ' The Louisville Trust Company Louisville, Kentucky 500,000 The Chase Kahhatten ]&nk Bev York, Sew York Chemical Sank Hew York Trust CM^pany Rev York, Sew York ,1,500,000 1 000,000 First Bational City Bank of Bev York Hew York, Bev York 1,500,000 The Boatmen's Bhtional Bank of St. Louis St. Louis, Missouri 500,000 Mercantile Trust Company . St. Louis, Missouri 500,000 Chited California Bonk Ublon Cccsnarce Bank San Francisco, Calif Cleveland, Ohio - , *500,000 1 000,000 # International Our present credit lines of $12,000,000 (plus $1,000,000 for Inter national) will be renewed in fiscal 1966 at $12,000,000 (plus $1,000,000 far International). It is anticipated that we nay have seme short-term borrowings during fiscal 196$. g l o o o aoo a ROTES FOR ANHt&L KE3TXK0 *" I. Balance Sheet Review 7. Short and Lone Tern Financing (Coat'd) 2. Debenture Issue - The indebtedness of The Glidden Company (exclud ing norml accounts payable, interest and taxes) is represented by the $30,000,000 of 4-3/4$ sinking fund debentures dated November 1, I958, and disc on November 1, 1983 and loans to subsidiaries from banks of $1,200,000. At August 31, 1965 the total outstanding amount of 4-3/4$ debentures vas $26,784,000. A oinking fund amount of $1,900,000 was provided on November 1, 1964, reducing the outstanding balance to $28,500,000. During the month of July, 1965, $1,500,000 bonds were purchased to meet the sinking fund requirements of November 1, 1965, ** additional $216,000 bonds vere purchased and retired to apply against the sinking fund requirements of November 1, 1966. The following is a suoacaiy of our current position: Original Outstanding Amount Sinking Fund - November 1, 1964 - November 1, 1$65 - November 1, 1966 $1,500,000 1,500,000 216,000 $30,000,000 3,216,000 Balance Outstanding - August 31, 1965 $56^^84,000 The debentures vere offered publicly on October 28, 1958, at 99 and the effective interest cost is 4.98$ based bn the net proceeds after all expenses. Interest on Debentures - Fiscal 1965 Amortisation of Discount & Expense $ 1,356,000 30,8l6 $ 1.386,816 Since January 1, 1965, market price of debentures has varied from a high of 1C2 to s low of 100. The last debenture trading prior to August 31, 1965 was on August 24th at XOOi and the last traded prior to December 9, 1965 vas onat . J. Contingent Liability All matters pertaining to our federal income tax liability for years through 1959 are now closed. fhecompeny vas. successful in its litigation tor refund for 1959 pertaining to the Cheaurgy transaction during 1965, the audit of federal income . tax returns for 1960-1963 vas completed. Kith the exception of the Chemurgy transaction, settlement vas reached on all domestic and inter national matters. The assessment for such years vbich vas paid in 1965 was fully provided for in the years`involved. Claim for refund for i960 1961 have been filed with respect to the Cheaurgy transaction. GLD004005 ROTES FOR ARSmL MBBTISG I. Balance Sheet Review J. Contingent Liability(Coat'd) The use of the nev "Guide Line" lives of fixed assets in computing our tax depreciation resulted in an excess of $1,815*739 over hook depreciation. Provision for the tax on this difference amounting to $883/693 was made in 1965. Ho problem, in government contracts through renegotiation or otherwise. The detail of major real estate lease commitments at August 1965 is , (COHFIDEMmL - BO NOT RELEASE); Paint Branches Bethlehem Plant Cleveland Executive Offices Miscellaneous Facilities Total Contract $ 5*387*276 804,375 3*634*900 857, 308 Fiscal 1966 $ 1,$63*256 67,500 2^4,304 247, 319 *10,683,39 At 8/31/65 a reserve of $373*039 was available for contingent liability for claims and fees. K. Stock and Stockholders Common Stock /s Less; Treasury Shares Post-Split B/31/65 6,234,716 104,550 > srawa Pre-Split 8/31/65 2,493,886 41,820 574S;555 Preferred Stock - Cum. $2,125 per Share 8/33/65 212,982 8/33/64 254,083 On July 15* 1965 the stockholders approved a 2 for 1 split of the ecomon stock. The split adjusted the par value of the common from $10.00 to $4.00 per share. The company's common stock is listed on the Bev York Stock Exchange and has unlisted trading privlledges on the Midwest, Pacific* Coast and Philadelphia - Baltimore Stock Exchange. The preferred stock is not listed. Prom January 1, 1965 through October 25* I965 the price of the company's common stock ranged between a high of $25.05 (j*e-split $62-5/8) and ' a low of $19.60 (Pro-split $49) (See Annual Report, pages 14 - 15 for prior years). During this same period the average number of shares traded on the Hew York Stock Exchange was 1,162 for the period January 1 through July 31 (approximate pre-split period) and 1,763 for the period August 1 through October 25 (approximate post-split period). The closing price of Glidden Common Stock on December 8, 1965 was GLD00A006 NOTES FOR ANNUAL NBES3H8 - 10 - I. Balance Sheet Review K. Stock and Stockholders (Cont'd) 2. Other comments on stock a. During fiscal 1965; we conducted a program of purchasing stack for Treasury. Through August 31, 19$5 we purchased 104,550 shares. Since August 31* 19^5 and through October 25, 19^5 ve have purchased an additional $6,200 shares. The average purchase price prior to August 31i 19^5 was $23.32 (Pre-split $58.30) per share. The average purchase price to October 25, 19$5 ifi $23.21 (Pre-split $58.02). b. The $2,125 cumulative preferred stock was issued incident to the agreement of merger of Pemco Corporation into $be GliddenCompany and subsequent merger of the M&eco Chemical Company and Subsidiaries into The Glidden Company. ' /" v (l) Holders of the shares are entitled to dividends of $2,125 per annua payable quarterly on the first days of February, May, August aad November. (2) Holders have no voting rights except under certain conditions (See Paragraph 8, Page 7* Special Meeting Proxy Statement dated January 20, 1964.) .. <3> The stock is cot redeemable prior to August 31, 19$$, and is thereafter redeemable at the following prices: _ $55PO per share prior to 9/1/71 $53*00 per shore prior to 9/177$ $52.00 per share prior to 9/1/&I $51.00 per share after 9/l/8l (4) Holders of the shares are entitled to $50.00 per store plus unpaid cumulative dividend in case of an involuntary liquidation and to redemption pried current at the time of the distribution or payment date in ease of voluntary liquid ation. (5) The Company is obligated to set aside on or before November 15 of each year out of the comings of the previous fiscal year a sum equal to the larger of $1.00,for each store outstanding or $200,000, to be used to purchase the $2,125 preferred stock if and to the extent obtainable at a price not exceed ing $50.00 per share. Any monies remaining at December 31 are released and repaid to the general funds of the Company. During the period of November 15 to December 31, 1964, no preferred stores were tendered.' GLDO0A007 NOTES FOR ANNUAL MEETING - 11 - I. Balance Sheet Review K. Stock and Stockholders (Cont'd) 2. (6) Prior to the split of the common stock, each share of preferred stock was convertible into 1.125 shares of common. Since the stock split the ratio is 2.8125 shares of common for each preferred share. (7) Holders of emulative preferred stock have no pre-emptive rights in any stock or securities convertible into stock. c. Stock dividends are always under consideration, but we have no piano for such. It is felt that stock dividends only spread earnings and value over a larger number of shares with price adjusting accordingly. 3* Holdings of shares as follows: August 31, 1965 (Adjusted for Split) August 31, 196k No. of Share * Shares Ave. Shsr. holders Held Held NO. of Share * Shares Ave. She holders Held Held Individuals Institutions Brokers Nominees ___ Total__ 19,721 371 187 419 a2a0si,ig6iS9B8f 61.17* 5.0k 9-77 24.02 100.00* 190 833 3,202 12* 296 19,498 380 162 -..an 20,417 59.86* 4.79 io.oo 25.35 100. CO* 180 740 3,632 3,9# 286 GLD004008 x o t e s f o r , a n n u m, h e b e b -e II. Operating Statement A. Gross Profit "" Published 1965 6>; ...... .................. , , t . . * * Percent to Bet Sales Dollars 28.2$ $85,722,1*62 29.$$ $7^,876,193 Increase 1$65 over 1964 Due to Net Sales Increase Due to Gross Margin Decrease Net 1565 Increase $13,834,776 (4,988,507-) $ 8,846,259 12 - B. Selling and Administrative Expense The Annual Report shows a Selling and Administrative Expense Increase of $6,070,000, a 10.3$ Increase over last year. Net sales increased 18.$ over the same period. The major increases (decrease) by caption in 1965 are as follows: Sales Compensation Salesmen's Expense & Other Terr. Charges Sales Administrative Salaries Travel Storage Advertising (local and national) Bad Debt Provision Product Development, Technical Service Research Office Salaries f> Cozaaunlcatlons Occupancy Moving Retirement, Bonus Development Costs Data Processing Taxes (State & local) Conferences Sales Market Research EFE Sepense Office Supplies All Other $1,007,000 404,000 294,000 135,000 (66,000) 815,000 43,000 72,000 376,000 1,261,000 139,000 315,000 , 73,000 (121,000) 351,000 176,000 131,000 66,000 35,000 64,ooo 234,000 266.000 Total $6,070,000 The Group breakdown of Selling and Administrative Expense increases over the prior year is: ' " .. Increase over Prior tear ' 1965* Coatings and Resins Durkee Pools Chanicals International Headquarters Development Total $3,062,000 2,089,000 1,295,000 44,000 (420,000) 4D004009 NOTES FOR. ANNUAL MEEgPO - 3$ - II. Operating Statement ..... (footnote .from-previous page) ^Increases due to recasting of international operations .to domestic groups vere: C & R $721,000, Durkee Poods $10,000, Chemicals $349,000 and Head quarters $101,000. Increases in Selling and Administrative Expenses other than due to recast of international operations were as follows: C & R -- Increases in C & R Group Selling ft Administrative Expenses vere Sales Compensation $4l8,O0O, Sales Administrative Salaries $119,000, Product Development $238,000, Development Costs, $264,000, Office Salaries $278,000, Office Supplies $141,000, Ccnmnmications, $31,000, Dita Processing $94,000, Occupancy, $230,000, Division Group Administration $231,000. C & R Group Net Sales before international recasting Increased 8.6$ over fiscal 1964 while the Selling and Ad ministrative expenses increased 7*1$ After adjustment of interna tional operations into the C & R Group for fiscal 1964 and 1965 C .& R shows an increase in Net Sedas of 12$ over fiscal 1964 end in Selling & Administrative expenses of 9.3$ Durkee Focd3 -- Tae Dailey Pickle acquisition in the Durkee Foods Group accounted for $607,000 of Selling & Administrative expenses con sisting mainly of Advertising, $193,000, Shies Compensation $173,000, Sales Administration Salaries $55,000 and Office Salaries, $46,000. Gretchen Grant Selling and Administrative Expenses for the twelve months ending 8/31/65 were $284,000. This operation was oily includ ed for the months of July and August of fiscal 1964 and the Selling & Administrative expenses for those two months amounted to $47,000. Other significant increases excluding Dailey Pickle and Gretchen Grant were Sales Compensation $79,000, Advertising $523,000, Division Group Administration $512,000. Excluding Dailey Fickle and Gretchen Grant, Durkee Foods Group Net Sales were up 21$ while their Selling and Ad ministrative expenses vere up 7-l$* Chemicals-- Increases In Chemicals Group Selling and Administrative expenses vere: Sales Compensation $174,000, Salesmen's expense $20,000, Sales Administrative Salaries $32,000. Said Debt Provision $58,000, Research $200,000, Development Costs $399,000. Chemical Group Net Soles increased 10.9$ over fiscal 1964, while the Selling and Administrative expenses increased 11.6$. After adjustment of international operations into the appropriate operating group for ' fiscal 1964 and 1965 Chemicals shows an increase in Net Soles of 13$ and Selling and Administrative expenses of 15.4$. International -- The inclusion of Trans-Oaribe Supply, Inc., Reliable Water Heater Co. and P. R. Ohm, 2hc. in International operations in fiscal 1965 accounted for $524,600 of Selling ft Administrative expen ses. Pemco-Bruges operated only part of fiscal 1964 aid contributed $145,000 in that year. Bruges* felling and Administrative expenses for fiscal 1965 were $45.6,000. Other significant increases excluding acquisitions and Pemco-Bruges were: 8ales Compensation up $28,000, Office Salaries up $160,000, and Office Supplies $29,000. Total Selling and Administrative expenses far all international operations are reflected in the appropriate operating group for 1964 and 1965 GLOOOAOlO i K0T3S FOR 'AgKUA-L MBflgQC - 14 - 12. Operating. Statement Hoadamrters -- Total Headquarters Administrative expenses were $10,698,000 ixTfiscal 1965 compared to $9*730,000 in fiscal 1964 sad $8,860,000 in fiscal 1963. Pension costs and Professional Services ore detailed as follows: - Pension Costs $ 1965 782,000 1964 $1,04|^000 J JS&. 999.000 $ 1962 246,000 Professional Services 551,000 521,000 521.000 443,000 Other Administrative SqsenBes 9,365,000 8,160,000 Total Ws s s Jk c Mb ,000 6,651,000 $7,34o,boo Increases in Other Administrative expenses were $1,205,000 over 1964 and $2,025,000 over 1963* Other Administrative Expense by Group is summarized as follows: C&R Group Administration Foods Group Administration Chemicals Group Admin. International Group Admin. Corporate Administration Total 1965 $1,930,000 1,253,000 518,000 378,000 5,286,000 $9,365,000 1964 $1,683,000 790.000 425.000 331.000 jxlitOOO $8,l60,000 .is s l . $1,535,000 660.000 347.000 296.000 4,502^000 $7,340,060 1962 U7 ,000 ,000 269.000 158.000 &402*000 ,651,000 Major increases were Office Salaries $660,000, Travel $82,000, Bonus $106,000, Occupancy $46,000, Office Supplies $45,000 accounting for the major increases, and other semi-variable expenses up $124,000. C. Other Income -- Published F & L '' " The major items this year and last were: Interest Earned Gain (loss) -- Disposal of Capital Assets: Sale of Buena Ihrk Land Provision for Frozen Foods Abandonment - Miscellaneous Other: *a&$4l4,720 (61,229) $423,565 568,768 (550,393) u,8o8 Board of Trade (Chicago) Gross Profit* Investment write-down Scrap and Residue Sales Provision for Collinsville Abandonment Good Will Amortization Stationery Write-Off UFO Adjustment*3, Insurance Reserve Adjustments and Dividends Miscellaneous Inventory Adjustment (Dailey Pickle) (500,000) 228,330 (15,998) 15,120 157.000 imm 234,314 (285,606) (37,018) 68,940 99,471 91,069 8659,335 Items reclassified to cost of sales in 1965 that were netted in other Income in 1964. GLD004011 NOTES FOR AHHUAL MBETRC ~ 15 II. Opsrating Statement D. Depreciation Book Depreciation charges for 1965 were $6,753,140 compared to $6,735/858 in 1964. Additional depreciation of approximately $1,815,739 will he claimed for Federal Tax purposes in 1965 as a result of the new "Guide Lines" adjustment of asset lives. E. Fixed Charges The two major items of this nature which may be of concern to shareholders are: Interest on long-term debt Estimated Real Estate Lease Liability (Confidential) See Ihge 9. 1965 1?66 $1,355,629 $1,264,000 2,052.859 fe-STS.379 Based on the 212,982 shares of preferred stock Issued and outstanding at Avgust 31, 1965, preferred dividends of $452,587 will become payable in 1966.** F. Advertising Expense C & R* 1965 $3,891,281 &r Group Durkee y Devel. Corpo Foods Chemical Int'l. Group rate Total 36 to Sales $3,427,654 $202*545 $ --fra- $ 1, Sod $73,017 $7,595,697 1964 3,741,360 2,739,143 236,191 73,356 14,728 26,704 6,831,482 2.65^ * Includes Canadian Dollar Adjustment. ** 1965 Advertising expense for International Group was $52,312; recast as follows: C&R $86,740; Durkee Foods $300; Chemicals $2,634 and Corporate $638. G. Research and Development 1964 Actual 1965 Actual 1965 gadget 1966 Budget Incr. 1966 Budget Over I965 Actual Research Administrative Tech. Service to Mfg. Sales Service $3,620,328 216,032 400,211 $6,523,698 $4,068,488 217,244 382,698 $7,110,113 $4,261,000 248,000 347,000 g434,ooo $7,290,000 $4,574,000 191,000 405,000 2,mooo $7,769,000 $505,512 (26,244) 22,302 Control lab. Total lu&SiJjfi 1^151 $8,149,445 $3,812,264 56 of Net Sales 3.1636 2.9036 6LD004012 NOTES FOR.ANNUAL K5EI3C xs - II. Operating Statement H. Average Assets and Profit Return Coatings and Resins Durkee Foods Chemicals International Total Groups Total Company 1965* Average Assets $65,867,463. 42,456,016 48,965,797 $157,289,276 . $170,950,613 1965** Profit $9,553,199 5,804,937 7,997,494 M' ^3,355,630 $20,370,683 195 * Return 14.5$ 23*7* 16*3$ li.8$ 11.9$ * 1965 Average Assets for International Group were $11,976,967; Recast as follows: C & R $8,694,675; Durkee Fbods $93,585; Chemicals $3,387,441 and Corporate Headquarters($198,734). ft* 1965 Lo bs for International Group was ($195,411); Recast as follows: C & R $544,871} Durkee Foods ($20,334); Chemicals ($339,235); Development Group ($347,015), Corporate Read- quarters ($33,698)* I. Miscellaneous It may be pointed out, on inquiry, that all Divisions of the Company were operated profitably in 1965 with the exception of: the Portland Division of the Pacific Region; Architectural Products, Reliable Water Heater Co.- Puerto Rico, P.R. Obra* Puerto Rico, the H. J. Mayer -- / Canada, General Print - Mexico, Feaco Division - Belgium, the Berkeley Food Division and the Collinsville Chemical plant. J. Outside Consultant Fees Legal Department $41,679 Patent Department 46,740 Executive Department: E&E Audit Provision MacKay Shields Other $87,300 44,381 30,161 161,84S Controller's Department 48,407 Other Administrative Departments 289,021 Development Cost: A. D. Little Institute of Paper Chemistry Roy G. Peers Skeist laboratories Electronics Associates, Inc. Rutgers University Stanford Research Institute Sale Iaitin Associates, Inc. 49,957 30,4i2 3,085 2,588 4,198 17,000 5,000 m GLD004013 NOTES FOR ANNUAL MBSTBG - IT - II. Operating Statement K. Taxes 1. guideline Tax Depreciation Revenue Procedure 62-21 permits, for a limited period of time, the deduction of depreciation based on arbitrary useful lives /which may be substantially less than actual. This has resulted in an excess of tax depreciation over book depreciation in 1965 of $1,815,739 and in 196k of $1,908,327* Tbe higher tax deduction thus obtained has brought about a deferment of- taxes payable in 1964 of $966,892 and in 1965 of $883,693. The Glidden Company will, continue to employ for financial reporting purposes the asset lives based on statisti cal studies of our own replacement experience. The advantage ob tained by the application of Revenue Procedure 62-21 lies in the im mediate availability of cash that would otherwise be payable for cur rent taxes. 2. Investment Credit Hie Revenue Act of 1962 allows a credit against the tax liability of up to 7$ of investment in property other than buildings since Janu ary 1, 1962. In 1965* this credit amounted to $361,720 or six cents per share. In 1964, the credit was $303,911, or five cents per Share, but in addition, earnings were increased by* $224,935 or four cents per ! share, due to a 1964 amendment to the tax law. Hie investment credit provision was amended by eliminating the re quirement that the depreciable basis of qualifying property be re duced by the amount of the investment credit. Such amendment also provided for the restoration of the basis reduction which recurred in prior years. It was no longer necessary, therefore, to provide for a deferred tax amount due to investment credit. The amount of such deferred tax reserve accumulated in prior years ($224,935) was, therefore, returned to income in 1964 by reducing the current tax provision by such amount. For 1965 and subsequent years, the total amount of the investment credit will flow through to earnings by a direct reduction of the current Federal tax provision. Defenoent of taxes in 1965 for future years amounted to $834,000. This deferment of taxes provided an additional cash flow amount ing to $.14 per common share. GLD004014 NOTES m MHMk II. Operating Statement. Profit Schedule (Thousands Omitted) 18 - Coatings and Resins Gain on Buena Park Land Inventory Increment Universal Color System Net Operating Profit 1965_______ Before After IftE.eg.*** * 9,553 . (564) * * 6,989 * 4,987 (291) * 4,696 1964 Before After SfcXSfi- XSSS.S.a * 8,173 (157) (108) . 16 * 6,073 * 4,032 (118) (53). -81 * 3,942 Poods Net Market (Gain) Loss Provision for Frozen Foods Net Operating Profit 5,605 (1*100) * * 4,705 2,980 (566) " * 2,414 5,091 {00) 850 * 5,361 2,512 (138) 334 * 2,708 Chemicals Collinsville Abandonment Net Operating Profit 7,998 $ 7,998 3,955 m * 3,955 7,756 3,825 -- JL.61 * 7,917 * 3,905 International m 488 182 Development Architectural Products Corporate Development Costs Partial A.P.O. Abandonment Net Operating Loss * (31) (960) * (991) * (16) (663) * (679) * (414) * (204) (843) (416) 83 41 *(1.174) * (579) Other Income (Deductions) Pension Cutback Net Operating Loss 1(1.288) * (642) --1496) (255) $(1,784) * (897) *(1.925) * (950) ... . JiOft) (49) *(2,025) * (999) , To Adjust for Effective Tax Rate Nat Operating Profit 393 *18,917 * 9,682 2.75 *18,640 $ 9,434 Adjustments Itemized Above LIFO (Provision) Reversal Investment Write-Down Inventory Adjustment Provision for Claims 8 Fees Adjustments - Prior Years Gain on Buena Park Goodwill and Intangibles Amortization Insurance Adjustments Special Bonus Provision Total Published, Profit 2,160 (31) (500) 157 (246) 214 m v (300) *20,371 1,112 (16) (500) 81 (127) 214 _ -jtisa) *10.491 (314) 69 40 (396) 412 (177) 34 - - (195) m 309** (286) 91 ______L2Q9.) (286) .45 (99) *18.016 * 9,065 * Computed at 49-l/3 in 1964 of before tax amount except those noted with a (**). double asterisk. ** Computed at actual tax rate of 48.6685^ for domestic groups and at actual rate at various percents for non-domestie income. GLD004015 flOKBS FOR ANNUAL II. Operating Statement y. Summary of Extraneous Items (Thousands Cfcalttedl 1965 After Per Taxes, Share* ........... am After Per Taxes, Sh&rfLm Published Final Net Profit 110,491 |1.650 9,065 1.450 Foods Market Reserves (566) Pension Cutback (255) UFO Provision (Reversal) 16 Provision for Claims and Fees 127 Provision for Frozen Foods Gain on Buena Park - Goodwill & Intangibles Amortisation Collinsville Abandonment Insuranoe Adjustments Partial A.P.D. Abandonment wr CAR Inventory lnorement (291) Speoial Bonus Provision 155 Universal Color System Additional Gain-Buena Park Sale - Investment Write-Down 500 Inventory Adjustment (Dailey Piokle) (81) Adjustments Prior Year ---.(314.) (.093) (.042) .002 .021 < m - - - (.048) .025 .082 (.014) -1.035) (138) (49) (34) 195 334 (309) 286 79 (45) 41 (53) 99 81 (118) M - m (.024) (.008) (.005) .033 .057 (.053) .049 .014 (.007) .007 (.009) .017 .014 (.020) t 9.882 1.528 9,434 1.515 Number of Shares (Post-Split) 6,,130,166 JS,868,930 * Reflects 2-1/2 to 1 Stools Split. GL000A016 aonta 2s MciBi fismia HI* Cash Ifeft Si Projection A Application of Funds (in thousands) SourflflJBf Flhda, Not Income Dopreelation provision for deferred income taxes * wot current assets acquired from The liaooo Chemical Co, and subsidiaries for Preferred Stock Not current assets acquired from Dailey Pickle Company for Consnon Stock Sole of Common Stock under option plans (1965-48d295 shares; 1964-33,150 shares After Stock Split) Other sources (applications): Prepaid bond discount and expense - Decrease Prepaid development costs - (increase) Other non-current reooivables All other - not A0rlipatibn1'1b Fundp. Dividends declared Expenditures for property, plant and equipment Acquisition of Common Stock for treasury (104,550 shares) Retirement of sinking fund debentures Redemption of $2,125 Cumulative Preferred Stock (2,950 shares) increase in working capital *10,491 6,753 -___ $18,126 . 1,429 751 31 16 m 68 $20,423 /' J '/ $ 5,591 9,866 2,438 1,716 166 646 $20,423 1964 $ 9,065 6,736 ____m $16,543 640 m 506 31 (166) 723 283 $18,760 $ 5,163 6,905 1,500 - ,,jLjaa $18,760 CLD004017 (0 cu c m rH to rH CO tO > nwn ^ Ni an C- cf tIoO CO eco Q 3 <0a'0) Ot W <~H co to o* ss e *to3 0> CO co cn Ot CO ot s 3 5 S to CO O Cl <4 fr- O CM <0 CM fcCD CO 38Sg co so ri to IO coe> CO 88 co m * . <0 H CM ri s to CO 3 CM rIOt fr- IA 10 H eg <0 to to rl m coOc mtttoo CM t- CM to i-C <ij ot tolco H 'j* Si m tof o> 41 in in o> c m if CO CO Ocn M<o aa cn ci CM i S cn o cn o c m O CM- H4 csme o to t cn to ccjl frrt to O tHo tcoo 6c"o '#1I b< <M H CO CM to C- ri aa to fr* CM 83 x#a CO 0 H s ot ino r-C ; in iH rl o Cft s4i 3 to c in CM in 33 *< a S>S to Ot I. b * rl CO t- rt lOOOMM CM CO 4 O m c m in o < if u in W c mt o H fr- ri tO 10 O to rJCMtO in rt fr rt] CO f4r1 01 m Ot fMtO _ _ co to m O to *a OeJb#b mb c mc rHi'WrlJjOH H t* - 21 CO rt a -1 at o C* O Tf rl al ctOm rCHM .rsHe O CM fflOOW 4 rtOt ft- ri CO rH JO IO 0" if OJ *"4 CO if CM IO CM CO in to 1? co m to b m cm t- a> fr- to fr co c 4! q H .rt IO rt 4i O 0 tO frO CM 5aw> LlOt-t-trt CM CM ri H 3qS rt CO Oil a si E2 r-4 d> w <0 OV H 10u Tf 0O <0 A eg H m CO C- o> 0 05<( s 3 CO eg to to in H co to H CM to 00 O fr- H o> O * to a IO SO to H tco fr-e s S Ocj n r*' <0 IO *-Jr r*4 %o ir? ^i> to 0 O O O H CO H H CO I to CM ri O to ri fr*u CMe to > V > CO d cn to H J s 01 to sCSO CO CM 4* CM' - gto r-4 1 10 0 01 4 eg 10 fr 4> CO 0> rt ifa ifo <Mo 4* fr rt n <a> o h ot to o> eg IfIr) He-J Oo ro) Oo n bdb b co HI to CM CM W tO O (001 rt CO *a fr 41 rt s Oa fr 3 CM rt 43 r to a 3 tn 3 to Ot ot CO to 0 eg. CO w a a CM -a 4 S c H O fr- HI m 0 f 3 8 CO m Ot in 3 H ri - CMt 1a 01a 41 CM co tt> H to rl H co co fr ot co m et t 41 co c m 41 rlJcO m H M W n <9 S 8 s 2uu no +Vc CU a 4* 4 C HHH *H 4 S oo u uuS cu o. v; 1 A5 a> *d I i |S o o O Q rt nsn to O JS rt XX 1U 5 6 ss3| SSSh O H(9* 8 3 38 22 2 3 a w 333 o s 4 a fc. H 4 * 5 t- co tft in to ip 46* IA r-i JJ O3j I>P* 11 f**t 4<>0 a i& P| Ja p.i 3 tvc o to CO to cr> tC** rl W Q to rl frlA to a HH 80 <* 4* m cm ri cot CO} cot 4 CO * o H C C5 Ogee} Uau Btoc <o 1o2ft sft a o L"** to c$ o 8 to 01 co I cO CO 0>ft HI at 5? g < H C- it* 05 _aCOa ropfic-*<r>r1ntl. 2 W " tttCoooO *0 Sr- I a <o o IO CD fr*ft icno too fecg* IP ri 6* m 40 a + n co co $ ft H * H S" 4 H M3 3K c-i CO co o t* CO CO Ho CO a 0>Cft CO e rH eg o coo CM CM eegg co r-t 4#ft o ft CO CM eg H CO to CO lO 2 o ca? to to< tos H CM CO co CM r* H CM a CO O to COo o> to H ft fCMt CO p a t* CM caf in ftl 8 co a IP in 3 co coa m fCtMfl + es * a& Tl > 0 1> 3W 1 M U o. J3 fest cc t- !?ft eS O o CMa s Oo oto CO t- iWn fta in CM H O 3 4> m to io a CO -c H T3 t g W r9i c<a3 tut 9 s c 5 H H rl iSw CO 5 O 4* 2 o O 4 aH ft 1 IH o 4O t. JO <rl Bg 2 ; o a P H 2 S s ? e no amendments to our Pension Plan la s t year. 22 - o <oo o -I o urrraS FOR ANNUAL t-BETING - 23 - jV. Employee Benefits B. Bonus Plan Original plan adopted February 8, 1951 and amended through September 28, 1965. Administered by a Bonus Committee elected by the Board of Directors. In 1955, Gilbert, suggested provision preventing bonus to top officers until a certain dividend has been paid. Formula provides 12$ must be earned (pretax) on bonus net capital (capital, term debt,' etc.) before providing a bonus of 7$ of profit. Net income must exceed 6$ bonus net capital employed also. The 1965 .computation ves: Consolidated Set Income (After Taxes) $3.0,^90,683 Less: 12$ Bonus Net Capital Employed (17,250,609) Add - Interest on Debt - Bruges Notes to Banks $ 36,000 Interest on Debt - Debentures 1,355,629 Bond Discount Amortization 12,000 Bonus Provision 300,0^0 Provision for Income Taxes 9,880,000. $11,183,669. Less- Dividends and Interest from Unconsolidated Subsidiaries and Affiliated Companies (lfrO,U8l)g Net Bonus Income $ M83,262. Bonus Provision - Maximum Amount 7$ Consolidated Net Income (After Tax) $10,1190,683 Less: 6$ Bonus Net Capital Employed 8,625,305 Maximum Amount Actual Provision $ 300,040 * Dividend Income Interest Fintica Interest Pincasa $138,378 777 1,326 $i5o,48i Since 1951, the maximum allowable provision was $3,085,958. We have returned to profit $980,2l8 leaving $2,105,7^0 for Bonus payout. In 1965, we provided, as indicated above, $300,0l0 for Bonuses. In fiscal 1966 $205,500 w ps awarded to seventy-three (73) individuals. She highest individual amount was $ll,000 to Mr. P. W. Nei&kardi. No Bonus provisions or awards were made for the years i960, 1961, 1962, or 1963. GLD004020 MOTES FOR AHNUAD M3Bffln*S - 2k - IV. Employee Benefits B. Bonus Plan (Cont*d) In 1959, 124 awards were made, totaling $209,750. The highest individual amount awarded was $8,000 (to Duncan and Halsey). A total of 1,31? awards have been made from 1951 throu^i 1965. Maximum in any one year was 212, lowest 48. The highest individual amount awarded was $14,000 to Mr. P. W, Neidhardt in 1966. The previous high award ($12,000) was made to Duncan, Sprague, Ruth and Goldseth in 1951* Gilbert suggested resubmitting plan every five years to stockholders. Ue feel we need to do so only when there is a material change. The purpose of the Bonus Plan is to provide reward and incentive to those employees and officers, except the Chairman of the Board of Directors and the Resident, who, beyond the call of duty, contribute to the success of the Company. As provided in the. Plan, each award of more 'than $2,500 is paid in annual installments of 25$ of the amount awarded or $2,500, whichever is greater, end the Bonus Committee determines what part of any award is to be paid in cash or stock. Ho bonus awarded to an employee for any fiscal year may exceed 50$ of the basic annual salary of such employee at the end of such fiscal year. Approximately 305 employees who receive salaries of $1,250 or acre per month (including eight officers of the Company who serve as Directors) ara currently eligible for consideration for bonus awards. The Chairman of the Board of Directors and Resident may not be awarded a bonus under the Plan. C. Stock Options (All figures adjusted for 2^ for 1 stock split, 7-22-65) Under the 1952 Plan 250,000 shares of authorized and unissued common stock were made available. The Plan provided that no option could be granted to an employee after age 65, and no participant could receive options covering more than 12,500 shares. The Plan also provided that the option price could not be less than- 95$ of the fair market value of the stock on the day the option was granted, and the option period could not exceed ten years from the date the option was granted nor more than three months after retirement of a participant. All rights to exercise options terminate when an employee ceases to be an employee for any cause other than death or retirement. As of August 31, 1965, options to purchase 297,175 shares (120,000 to officers and directors) had been granted under the 1952 Plan. (Options for 83,580 shares had expired by reason of termination of employment or lapse, of which options for 47,175 shares were reissued, as authorized by the Plan, to qualifying employees). Options representing 164,045 shares had been exercised (76,000 by officers and directors). There were outstanding under the 1952 Plan as of August 31 1965 options for 49,325 shares (40,650 for officers and directors). GL D004021 BOIES FOR AHHUAL MBETIKS IV. Employee Benefits - 25 < C. Stock Options exercisable over a period of ten years from the date granted but not jaore than three months after termination of a participant's employment. A total of 20 officers and directors ana 19 other employees held options under the 1952 Plan. Officers and directors held options as follows: Option Price of $14.80 Expiring 11/29/66 Option Price of $15.00 Expiring. 9/g>/6T Option Price of $16.60 Expiring 12/28/68 Dwight P. Joyce B. V. Maxey W. 0. Shillips C. M. Halsey R. D. Homer J. H. Weeks (J. S. Varner P,, W. Ueidhardt R. E, Dorfteyer 2,500 2,500 5,000 3,250 5,000 2,500 5,D0o 650 1,000 1,250 2,500 750 1,250 750 All directors and officers as a group (including those named above) 30,650 1,250 8,750 On September 29, 1959, the authority of -the company's Stock Option Committee to grant options under the 1952 Stock Option Incentive Plan was terminated by action of the Board of Directors. 1959 Option Plan Provides Committee may option 250,000 shares of authorized and unissued common stock. Principal differences from old plan: 1. Option price not less than 100$ of market (old plan 95$) Both not less than book value. 2. Bo option to employee after age 60 (old plan 65). 3. May not be terminated and reissued at lower price. 4. Term of option set by Committee up to ten years and may not be exercised for two years after grant (old plan all for ten years). Options issued in 1964 and subsequent years are for five-year term. CLD004022 NOTES FOR ANNUAL MEETING "^' IV. Employee Benefits ' C. Stock Options (Cont'd) Under the 1959 Plan, options to purchase a total of 255,750 shares have been granted to 131 employees (including 121,500 shares to 31 officers). Directors ana officers held options as follows: Option Option - Option ; Option ... Option Option Price Price Price Price Price Price of $18.05 of $21.20 of $20.70 of $16.00 of $16.40 of $17.00 Expiring Expiring Expiring Expiring Expiring Expiring 3/1/69 8/2/69* u/l/69 stehs. 7ij3k 12/21/71 Dwight Po Joyce B. W. Kaxey W. G. RHUips G. M. Halsey R. D. Horner J, H. Weeks G. S. Warner P. W. Neidhardt R. E. Dorfmeyer 2,000 1,250 5,000 3,500 1,000 2,500 2,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 All directors and officers as a group (including those names above) 7,500 5,000 16,500 17,000 10,500 * 59,750 At August 31, 1965, options for 227,829 shares were outstanding and no further options may be granted in the future under the 1959 Han. 1964 Option Plan Provides Committee nay option 250,000 shares of authorized and unissued consaon stock. Principal differences from 1952 and 1959 Plans: 1. Option price not less than 100# of fair market value (1952 Plan 95#). All plans not less than book value. 2. A subsequent option may not be exercised while there is outstanding any prior option at a higher price. 3. No option to employee after age 60 (1952 Plan 65). 4. May not be terminated and reissued at lower price. 5. Term of option may not exceed fiye years. 6. Shares purchased under options must be held for three years to receive long-term capital gain tax treatment. GLD004023 NOTES FOR ANNUAL MEETING IV. Employee Benefits - 27 D. Waaa ana Salary Ratios 196? 196k Manufacturing Wages to Cost of Products Manufactured 12.^ 13,1# Total Wages and Salaries 56 to Net Sales $56,583,589^ I8.656 $50,3^9,896 19.536 Total Wages, Salaries ana Benefit Costs 9$ to Netr Sales $61,532,357 $55,135,822 20.2 21.1# E. Salaries Cur salary rates, including those for officers and other key employees, including bonus, are fully in line with studies on this subject; such as by AHA. Vq must be competitive in salaries and other inducements....... such as stock options, to attract and hold gocd men. A,.- The proxy statement reports that total remuneration of ell directors and officers as a group increased from $1,390>7*A 1" 1$64 to $1,550,519. Number of officers remained l0. P. Other Benefits ^ V- , - In addition to the Retirement Plan, employees are eligible to participate in' a group life insurance, hospital and surgical benefit plan, a major radical plan, and an accidental death insurance plan. She Company has a formalized disability benefit plan whereby employees receive a portion of their salary or wages during prolonged illness - the amount and duration of benefits depending upon the employee's length of service. In fiscal 196^ a long-term disability plan was made available to employees earning $750 or sore per month. GLD004024 'KO&.S aUi AKiYJAL V. Acquisitions, Plspo3 itionsj and Capital Expenditures A. Acquisitions Curing fiscal 1965, the following acquisitions took place. - a> - Dailey Pickle Company - April 1, 1965 The assets of Dailey Pickle Company and Alcon Corporation, Saginaw, Michican, were acquired in exchange for 85,185 Common Shares of The Glidden Company stock. The Dailey Pickle Compeny produces pickles and pickle specialties, such as relishes, and the Alcon Corporation produces vinegar primarily for use in the Dailey Pickle products. Acquired through merger as of April 1, 19&5: Assets and Liabilities Cash $ t o ,000 Raceivables 255,^27 Inventory 1,42k,86k Prepayments 30,158 Ket fixed Assets 593,237 Oths-r Assets 22,072 Payables (159,897) Accruals (48,905) $2,li2,956 Ket Worth Common Stock " $ 8x8,too Earned Surplus 1,306,20k Ifcofit and .Loss 38,352 Arnetec. Wooster, Ohio, Division of Vasco Metals Corp. - July 30, 1965 Acquisition for cash of metal powder assets from Arsrateo, Wooster, Ohio, Division of Vasco Mstals Corp. Purchase amount of $389,000 consisted of $10$,C0 for michinery, equipment and fixtures, $254,800 for patents and $25,000 for inventory. Purchase date 7/30/65* Alan Wood Steel Co. Powdered Metals Division - October 7, 1964 Purchased for $500,000 cash on October 7, 1964 used iron powder plant equipment from the Powdered Metals Division of Alan Wood Steel Company. (This transaction has not been publicised as an acquisition of e going concern.) in 6 B. Dispositions and Shutdowns *$ ---n- -rrr 0_100J5 Annual Profit Sales or (loss) last Full Last Pull Year Year Hamnrnd 7/16/51 Oakland 10/25/54 Peer. Mill 8/10/54 Portland 9/18/52 Cambridge 7/1/55 Yadkin JrjjeLa - Caste11a Baryies Mines Xuera Park 8/31/56 $ 4,076,147 627,505 4,423,653 2,941,393 1,308,738 - 4,033,465 $ (234,346) (226,221) 65,538 92,554t (60,579) - - (11,032) Avg. Profit or (Loss) Last 4 Yrs. Operated Pre-Tax Profit or (loss) on Sales or Abandon ment After Tax Cash & Asset Utilisation Last Full Year Basis $ (373,225) $ 142,235 $ 2,044,710 39,296 , 96>376 997,955 15,608 (290,471) 2,417,154 13,771 (9,537) (19,369) 1,224,149 (6,542) 851,472 - (8,149) 58,673 - 50,597 125,640 - - 11,679 (67,338) (253,580) 1,095,247 KOISS FOR AHHUAL MBETIUG 7. Acquisitions, Dispositions, and Capital Expenditures 29 - B. Dispositions and Shutdowns (Cont'd) Annual Sales Last Full Year Profit or (Loss) Last Full Year Avg. Profit or (Loss) last 4 Yrs. Operated Pre-Tax Profit or (Lo s b) on Sales or Abandon ment After Tax Cash & Asset . Utilisation Last Full Year Basis Eastern Marg. & Salad Prod. 2/1/57 $ 9,996,668 Elmhurst Building A,8/31/575 S,8/1/53 Scranton 6/9/58 1,100,590 St. Helena 3/31/58 Buena Rirk Land 1/28/58 Gheaurgy 9/1/53 31,932,480 Southern Pine 2/28/58 1,070,94-7 Valdosta 3/28/60 2,941,738 Berkeley M & SP 4/30/60 5,645,470 Tulsa-Gen.Paint 6/1/62 398,897 Architectural R'oducts Division 6/23/64 2,757 Collinsville 8/24/64 Frosen Food Aland. 4/8/64 to 8/31/64 1,110,209 Buena Park Land 11/29/63 & 2/28/64 $ (372,378) m 52,028 1,477,859 103,448 320,127 98,726 (7,795) (36,255) (43,575) $ (414,580) $ (197,934) $ 2,383,320 66,056 - 1,503*501 68,240 156,671 66,787 (1,795) (252,240) 30,690^ (1,215,239) 174,957 1,156,164 (76,237) 275,301 39,176 (7,813) 1,269,854 455,467 925,994 136,635 27,415*123 292,555 1,430,042 684,913 314,422 (12,900) (143,031} (58,732^ (160,499 (436,588) 154,851 81,117 821,100 568,768 445,399 Total $1,038,099 $ SOT.g? $ (tag, 129) fe,637,tol Book Value After Tax Cash Flw Excess - Cash Oyer Book Value Fixed Assets - Sold - Abandoned $11,667,440 2803,925 $19*514,820 1*452,771 $7,847,380 '<h38*2) $1^471*^5 $20^967*^91 $6*496,226 (T) Two Year Average 1962-63 Two Year Average 1963-64 Lo s b on Disposition of Fixed Assets only. Additional Inventory Loss of $23*524 resulted in Total Loss on Disposition of $82,256. Loss on Disposition of Fixed Assets only. In addition. Excess Cost of $86,511 and Other Expense (including Inventory Write-Down) of $47,294 was incurred to arrive at the Total Loss on Disposition of $550,393. In Fiscal 1965 there were no major dispositions and shutdowns. GLD004026 b o t es f o r Ammfr jggTM* v. Acquisitions/ Dispositions/ and Capital Expenditures . - 30 ~ The mining of Ilmenite Ctre at Lakehurst, Bev Jersey, which was "begun in August, 1962, produced 70,556 tons of ore in fiscal 1965. There vas no Development Cost in 1965* Development Cost for the project to date totaled $2,241,878. Capital expenditures to date for the nine as of August 31, 1965 were $5,437,662. Capital expenditures in fiscal 1965 were $16,121. D. Major Expenditures Over $50,000 (Capital & Expense) 196? ^ousandsof Dollars) ~r Coatings & Resins; Expended Prior To 1965 Appropria. tions Expended $100,000 In And Over 1965_______1966 Eastern - Finished Goods tfhse. Eastern - ConBtruet 2nd Story Adda.-Bldg. 55 Bev Orleans - Factory Modernisation Ifcograa Southeast - Increase Production Facilities Southeast - Vinyl Can Coating Facilities Nubian - conversion of Reactor #9 to Radiant Fired ^ Toronto - lend Purchase, Survey & Soil Work Arch. Prods. - Construct Building Macco Resins - Lend, Plant Construction and Equipment Res. Catr. - Electrccoeting Pilot Plant Res. Cntr. - Continuous Reactor Pilot Plant Other $ 72 - * # - - 101 14 22 mi Total Coatings & Resins - North America $ 646 $ 6c 83 & 53 53 63 267 476 91 65 1,272 $ 2,5^2 $- m m *m m 250 a* a* . hm $2,342 Dad. Glidden de P.R. - lard Acq. and Const. Bldgs. 3hd. Glidden de P.R. - Acq. of Surplus Land Other 270 m 360 222 ___. m m 269 Total Coatings & Resins - International Chits $ 222 $ 715 $ 269 Total Coatings & Resins Group * 868 $ 3,257 $2,6ll etooo.o,7 KOTBS FOR ANNUAL MBETIKO -31- V* Acquisitions,' Dispositions, and Capital Expenditures D. Major Expenditures Ov^r $$0,000 (Capital & Expense) 1965 ^Thousands of Dollars) Durkee Foods: Chicago - Spray Beading Tower Chicago - Ifew Warehouse - Puff Pastries Chicago - Continuous Hydrogenation Wolcott - French Onion Line Louisville - Equip Refinery and Bleaching Plant Louisville - Equip Acldulation Facilities Louisville - Son* Coolers for Deodorisers Louisville - Hydrogen Gas Plant Louisville - Filling line and Automatic Palletizer Louisville - Continuous Bleaching Berkeley - Hydrogen Plant Bethlehem - Coconut Modernization Program Bailey Pickle - Processing line Gretcban Grant - Plant Expansion Other Expended Expended Prior To In 1955 1965 Appropria tloos $100,000 And Oyer 1966 $ 18 ~ m m 105 17 m - -' m 108 tm 8|>0 $ 113 - m - 85 71 59 30U - m 60 * a8i 840 $ 1,200 110 170 m m m 125 105 200 120 m 1,224 Total Burkee Foods Group $1,098 $ 1,813 $ 3,2^ Chemicals: Hammond - Iron Powder Manufacturing Plant $- Hammond - Ferrous Equip. m Beaco - Alterations and Additions to Bldg. 19 1 Johnstown - Ore Handling Equipment Johnstown - Annealing Furnace - Johnstown - Hydrogen Generator m AJW - Inorganic Research Facilities > AJW - Black Liquor Filters and Auxiliaries m AJW - Sodium Aluminate Treatment Facilities m AJW - Sand Milling Equipment m AJW - Increased Plant Manufacturing - AJW - Monohydrete Raclaiaation Facilities m lakehurst Mine - Zircon Plant m Lakehurst Mine - Field Screening * Jacksonville - Column Modifications, Well, Stge. Tanks 2lB Jacksonville - Road Paving, Drainage 6 Jacksonville - Waste Treatment Plant 1 Jacksonville - Addn'l. Basic Terpene Stge. Facilities m Jacksonville - West Coast Terpene Plant . Jacksonville - Beta lonones Plant m Jacksonville - Flavor Oils Equipment m Other Total Chemicals Group Domestic 1,517 $1,803 $ 2,627 79 109 I 623 92 88 98 ................ mi - - 180 77 62 78 - $ 5,270 550 Ml 140 200 mm 400 100 100 145 - m - eta 600 50 500 2,201 $ 5,436 GLD004028 . KOTOS FOR AKRUAL MSBTIKG V. Acquisitiono, Dispositions, and Capital Expenditures - 32 - D. Kajor Expenditures Oyer $50,000 (Capital & Expense) 19^5 (Cont'd.) t&ovffiands of Dollars) ", Chemicals: (Cont'd) Pfemco Bruges - Other Total Chemicals Group Expended Prior To ... $ 898 $2,701 Expended In 1965 *_jte $ 5,415 Appropria tions $100,000 And Over 2366 $ 172 $ 5,608 Headquarters: lEB - Reconstruct Eighth Floor Facilities Other - 26 $ 61 208 $ 210 Total Headquarters $ 26 $ 269 $ 210 Development GroupTotal Company Unassigned $_... 3ft $ $4,732 mm $ $ 11,683 (1,000) Total Company $4,732 $10,754 $ 10,683 Statement Re: Capital Expenditures 19^5 Annual Report . . . "We now expect that capital expenditureswill be in the range of $10 alllion annually through 1970." GLD004029 K%SS FCR ABMIAL MmffEiO - 33 - VI. Other Ifaf1or gfid Itma A. SSBS&fiai. The donations policy of the Cmpany provides for reasonable export to educational, health and welfare, and charitable organisations. This policy is administered by the Donations Coomlttee, under the direction and guidance of the President and Board of Directors. Educational support has been given through the following: 1. Awarding of four scholarships voder the auspices of the national Merit Scholarship Corporation. 1965 winners were: Gary T. Day (Dartmouth College), John Palazzo (Harvard College), Lawrence K. Robinson* (Yale University), Anne B. Thomas (Mount Holyoke College). ^Children of employees. 8. Cooperative Contribution Plan, under which the Company cakes unrestricted grants to degree-granting universities in an amount equal to the donatious made by employees of the Company to public collages and universities, and twice amounts donated to private colleges and universities. Contributed in fiscal 196$ - $26,341 to 123 colleges. 3. Chemistry lectureship greats provided to sis United States universities to provide for lectures by outstanding individuals and to help promote understanding and Interest In scientific achievement. k. Outright grants to selected colleges and universities in the state of Chio such as Case and Western Reserve and the Ohio Foundation for Independent Colleges. In the health and welfare category, the Company has supported the United Fund, Community Chest, Red Cross and United Health Fund programs in the cocEicnities where it has plants or branches. In addition, selective support has been given to other service organizations and foundations. Contributions are not given to sectarian groups, labor organization:;, etc. Education Health and Welfare Other ifjl k20 150 Total Donations 0 of Ret Profit $197*159* $220,3lt 1.# 2.k30 $171*690* 2.29$ $157,873 2-360 Per Employee $23-21 $28.2k $22.87 $22.19 * Includes in 1965-$11,884; in 196U$4,150, and in 1963-$17*672 in 1 contributions of merchandise not included in prior years. GLD004030 NOTES FOR ANNUAL MEETING . 3^ . VI. 0fcher Major Functions and Items B. Audit Ernst & Ernst representatives present at the meeting will he Messrs. E. J. Guia, Partnerj and E. L. Tabol, Partner. Company intcswal audit staff conducts surprise audits of all operating units on a schedule colling for examinations as required. Audit veri fication is obtained on all acquisitions end investments. C. Ipsygeace 1. Eire a. Factory Insurance Association, (FXA) covers for Fire, Lightning, Windstorm, Bail, Explosion, Aircraft Damage, Vehicle Damage, Smoke Damage, Blot, Civil Commotion, Vandalism, and Sprinkler Leakage. (1) Coverage is bn an agreed-amount basis vith no co-insurance requirement end with a small deductible. (2) Plants covered are all U.S. end Canadian manufacturing properties except Toronto, Montreal, Burnaby, H. J. Mayer at Windsor, St. Louis, San Francisco, Mev Orleans, the varnish department at Minneapolis, lion Street, Collinsville; APD Atlanta, Wolcott, Wilmington, Wickliffe, Jersey City, y Gretchen Grant in Maplewood, Dallqr Fickle in Saginaw and Allied Foods in Loe Angeles, (Allied acquired after 8/31/65)- b. Factory Mutuals covers for the same perils as described In Section 1-a above. (1) Coverage is on an agreed-amount basis with no fee-insurance requirement. (2) 2he one plant covered under this policy Is Wickliffe. c. Industrial Property Floater (IPF) covers for the same perils aa described in Section 1-a above. (1) Coverage Is oh an agreed-amount basis with no eo-insuraaee requirement and with a small deductible. (2) Plants covered are San Francisco, Sew Orleans, the varnish department at Minneapolis, Iron .Street, Collinsville, 8t. Louis, Wolcott, AFD Atlanta, Wilmington, Jersey City, Maplewood, Saginaw, Walker Bros., end Allied Foods. (Allied acquired after 8/31/65). d. Blanket Insurance covers for the same perils as described In Section 1-a, above in Canada.' GLD004031 KPTKS FOR -ASBKAL HBBEpa VI. gther Motor Functions and Items - 35 - C. Insurance (Coat'd.) (1) Coverage Is egreed-nootmt basis with no co-insuraace requirement. (2) Plants covered are Toronto, Montreal, H. J. foyer in Windsor. e. American International Underwriters (A1U) cowers for basically the sa&e perils as described in Section 1-a, either under a specific policy in the country involved or under a blanket policy. (1) Coverage generally is on a co-insurance basin cad written without a deductible. (2) Plants eenrered are Bruges, Panama, Kexleo, and Pmrto Rico. a. HA covers for the fame perils as in Section 1-a. (1) Coverage is on an egreed-eoount basis with no co-insurance requirement and with a small deductible. (2) Ibis covers at the same locations as is covered for fire in Section l-a-(2), and entire Minneapolis plant. /. - b. Factory Mutuals covers for the sane perils as described In Section 2-a. (1) Coverage is on an agreed-amount basis with co co-insurance requirement. (2) The cne plant covered under this policy is Wiekliffe. c. 2PT covers for the same perils as described in Section 2-a. (1) Coverage is on an agreed-amount basis with no co-insurance requirement and with a small deductible. (2) Plants covered for U * 0 are Wilmington, San Francisco, AFD Atlanta, Wolcott, Iron Street, Jersey City, fopievood, Saginaw, Walker Bros., and Allied Foods. (Allied acquired after 8/31/65). (3) Plants covered for extra expense are Sew Orleans and St. Louis. GLD0(M032 KOEBS TOR ABHOM, VI. Ofcher Major Functions aaft Bat J c* Igogansfe (c&ot'd.) a. AIU ccsrera fox* basically the same perils to described Is Section 2-a, either under a specific policy in the country involved or voder a blanket policy. (1) Coverage generally is on a co-insurance basin and written without a deductible. (2) Plants covered are Bruges, Banana, and Mexico. 3. J&iigr a. We carry boiler and pressure vessel insurance including UlO where necessary. (1} Coverage is subject to Halt only. (2} Has deductible provision to exclude snail claims. h - &'am$ss*l9& * a. We carry blanket policies for ocean and inland transportation cargo losses. b. Small deductible applies to Inland cargo losses. 5- memy a. All employees are bonded in substantial amount under a blanket fidelity bond. b. Saa.ll deductible applies to exclude, small claim. 6. MSk&ity a. We carry ccsnptrehensive bodily injury and product liability insurance and property damage liability. b. Property damage liability is written vitb a sizeable deductible to give cur sales force and legal department latitude in settling customer ccaplairtta. GLD004033 ROBES FCg, mg. M5ETIH0 - 37 - VI. Other fe,|or Functions and Items C. Insurance (Cont'd.) 7. Worknen'o Compensation a. We self-insure workmens compensation in thirteen (13) states. (1) Hie self-insured states are California, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Maryland, Minnesota, Missouri, Chio, Kev Jersey, and Pennsylvania. (2) We have excess insurance in case of a catastrophe to cover accidents excess of $25,000 up to $1,000,000. (3) Self-insurance has saved, us over $1,000,000 in the last thirty-three (33) years. b. Other states are insured for vorkmen's compensation except vhere there is a compulsory State Fund. 8 - AutctncMle a. We insure company-owned and leased cars and truclts for liability and physical damage in adequate amounts. J}. Losses . a. There -were no major fires in the last fiscal year. Jacksonville was? damaged in the amount of $17,659 by Hurricane Dora on September $, 1964. (New Orleans suffered less than $50,000 damage as a result of Hurricane Betsy in the early part of this (1966) fiscal year.) b. The total amount of loss from a tank collapse at Adrian Joyce Works was $77,037* Cf this, $(0,667 was direct property damage and $36,370 was business interruption. 10. Insurance Coat a. Total Cost of insurance premiums for fire and extended coverage and vandalism on buildings, machinery, equipment and inventory, plus use and occupancy (business interruption) and extra expense, as veil as boiler insurance, was $3(8,890 for the past fiscal year. (This figure should not be given out.) CLD004034 NOTES FOR ANNUAL flEETING VI Other Ma.1or Functions, and Items D. Foreign Business The Glidden Company Offshore sales of the Parent Canpany, excluding those transacted by the Export Division, aggregated $5,926,809 in 1965 capered with $3,323,556 in 1964. The increase vas attributed principally to increased export sales of the Louisville Division ($3,965,903 vs. $1,664,984). Clldden domestic divisions realised $514,596 (8.77 of net sales) gross profit on these sales in 1965 compared vith $377,447 (llS of net sales) in 1964. Included in consolidated (Hidden sales and net earnings in 1965 and 1964 were the following: Net Sa3.es iSf* Glidden International, C.A. (Including its subsidiaries) $ 2,373.* 105 Export Division 3,677/698 Industries Glidden de Puerto Rico, Inc. TOTAL j $10,6fe.jM Net Profit (after foreign income taxes) 12& $1/569,035 3/425,743 Msmm. Glidden International, C.A. $ (190,636) $ 215,378 (Including its subsidiaries) Export Division Industries Glidden de Puerto Rico, Inc. Headquarters Allocations 221/055 (63/420) --1320*208) 268,275 128,452 TOTAL $ (353,909) $338il73 The Glidden Company had one active foreign licensee during 1965 and received a technical service fee of $2,360 compared with foreign technical service fees of $2,906 in 1964 and $13,236 In 1963. GLD004035 NOSES FOR ANNUAL MEETING VI. Other Major Functions and Items D. Foreign. Business - continued The Glidden Canoany A direct stock Interest was held in the following companies at August 31* 1965s Name # of Net Book Interest Cost Consolidated - ". The Glidden Co. Ltd.-Canada Glidden International, C.A. Industries Glidden de Puerto Rico 100.0# 100.0 100.0 $ 50,000 18,018 250,000 Unconsolidated Fabrica Nacional de Pinturas, S.A. Cuba TOTAL 15.1 &3XB.018 1) The Glidden Company, Ltd. (Canada) - Glidden holds 100# (4,200) shares at a hook cost of $50,000. Shareholder equity at August 31, 1965 vas $7,161,444 (including its subsidiary. Walker Brothers Limited), which is included in the consolidated balance sheet in the 1965 Annual Report. 2) Glidden International, C.A. - Glidden holds 99 shares (one held by The Glidden Coogmny, Ltd. - Canada) which represents effective 100# control. Consolidated shareholder equity at August 31, 19o5 and 1964 is shown below: .ftjvrogSJft. Glidden International, C.A. General Faint Co. de Mexico, S.A. Glidden Panama, S.A. Febrica de Pinturas Glidden, S.A. Panama Glidden Chemie GmbH $2,265,113 88,13T T^318 45,207 , ... 43,653 $S#453,934 95,717 59,703 6,494 91.136 $2,707,064 GLD00*036 KCCT3S FOR AMBlffl, MBBCPP '/ - 40 - VI. Other Major Functions and Items D. foreign Business - continued The G-lidden Company 3) Industrias Glidden.de Puerto Rico, Inc. - At August 31, 1965, Glidden held 25,000 shares representing all the shares issued and outstanding, at a value of $250,000. Ibis company was organised in fiscal 1962 to be available as a holding end/or operating company for the various Glidden operations in Puerto Rico. Operations at August 31, 1965 included the Puerto Rican paint brandies and as holder of (Hidden's 100# interests in Trans-Caribe Supply Company (plumbing supply business). Reliable Water Heater Company, Incorporated, (water heater manufacturer) and F. R. Cbra, incorporated (paint contracting) -which are all located in Puerto Rico. There has been no direct payment for egulty in Trsns-Caribe and Reliable since such payment is dependent on future profits. Glidden1 s original, loan of $500,000 was -written down to $209,344 during 1963. A further write-off to $195,727 was made in 1964. Owing to Industries Glidden at August 31, 1965 was an additional $714,000 by Trans-Caribe Supply. With regard to P. R. Cbra, this paint contracting firm was acquired in January and February 1965 and 5 shares representing all the shares Issued and outstanding are held by Industries Glidden de Puerto Rico at a value of $47,000. All of these companies vere consolidated at August $1, 1965 with the operations of Trans-Caribe and Reliable being consolidated initially at August 31, 1964 and P. R. Cbra in August 1965. The water heater business (Reliable) is to be disposed of during fiscal 1966 due to unprofitable results experienced thus far. 4) Fabrics Hacional de Pinturas, S.A. (Cuba) - Glidden holds 31,421 shares which represented a 15.1# interest. The company was intervened by the Cuban Government in October, i960. Both Glidden and (Hidden International were adequately provided to cover the rather nominal accounts receivable balances out standing. Since the shares were acquired by Glidden at no direct cost, no investment loss was suffered through this intervention. Glidden International. C.A. At August 31, 1965, Glidden International, C.A. acted as a holding company for the stock of (Hidden* s foreign subsidiaries except for The Glidden Company, Limited (Canada); Industries (Hidden de Puerto Rico, Inc.; and Fabrics Hacional de Pinturas, S.A. (Cuba). Details of the direct stock Interest are shown 00 page 39. In addition to acting as a holding company, the Belgian branch of the Company commenced frit manufacturing operations in 1964 In Bruges, Belgium. To extend frit operations into Spain, two new companies were incorporated in May 1965: *. GLD004037 HCfEES FOR ANNUAL MEETZRG . . - Ul : VI. Other Major Functions and Items D. Foreign Business - continued Glidden International, C.A. (e) Industries Glidden de Esponti, S.A., an inactive manufacturing subsidiary and (b) Glidden Iberica, S.A., a marketing subsidiary. Operations of Glidden Zberica vere consolidated with the Bruges operation at August 31, 19^5. The sheet galvanizing cccrpany in Guatemala, Galvanizadcra CentroAmericana, S.A., which was established in 1964, completed the con struction of its plant during fiscal 19$> and manufacturing has begun in early fiscal 1966. dCA held 45$ of the issued and out standing capital stock at August 31, 1965 at & value of $270,000. Glidden International, C.A. had twenty-two active foreign licensees and received $321,428 in fees from these sources in 1965, compared with $336,155 in 1964 (twenty-three licensees). 2n 1965, for the fourth year, Glidden International, C. A. vas consolidated with The Gliddfen Company for reporting purposes. Sales and net profits after foreign income tax are shown below: Sales (Amounts in thousands) 1961 1264 126a Bruges Export Office Puerto Rican Branches Panama Mexico $ 800 (b) (c) 776 _m $ 265 !bl (c) 550 __2i $ (a) 3,273 1,460 458 642 TOTAL $2j 3Z3 $1*569 $5,833 (a) - First started operations in 1964 lb) - Sold to The Glidden Company (U.S.) on September 1, 1963 (c) - Sold to Industries Glidden de Puerto Rico, Inc. on September 1, 1963. GLD004038 Kcass f o r a h h u a l mb e t x k g - 42 - VI. Other Major Functions and Items D. Foreign Business - continued Sudden International, C.A. Ret Profit Bruges Export Office Puerto Rican Branches Panama Mexico CPERATIKG TOTALS 1965 (540) fa . (0 120 --IS) $(428) 12^4 (237) fa fa 66 _(2) $(ifio) 1963 (a) 213 106 4o ___11 $370 Glidden Chemie Xnt'l. Licensee Incctae Other SUBTOTAL Intracampany Dividend Elimination 25 321 ?t ) (439) TOTAL GXCA Mm) 73 336 f 223 (8) las 151 252 r<$ (201) ---- $ 6k6 (&) - First started operations in !$&* (b) - Sold to The Glidden Company (U.S,) on September 1, 1963 (c) - Sold to Industrlas glidden de Puerto Rico, Inc. on September 1, 1963 Glidden International, C.A. funds have been provided fran accumulated earnings, bank borrowings, and borrowings from related companies. At August 31, 1965, the following were borrowings outstanding: The Glidden Company To Glidden Panama S.A. $ To Fabrica de Pinturas, S.A. (Panama) To Glidden International, C.A. The Glidden Company, Ltd. (Canada) Industries Glidden S.A. de C.V. (Mexico) Banque de Bruxelles (Belgium) Bangue Lambert (Belgium) First Rational City Bank (Belgium) Industries Glidden de Puerto Rico, Inc. To General Paint Company de Mexico, S.A. To Glidden Chemie GnbH 456,000 400,000 250,000 730,500 25,000 4-50,000 450,000 300,000 448,500 444.037 $3.954,037 GLD004039 NOTES FOR ANNUAL MEETING VI. Other Major Fusetions and items D. Foreign Business (Cont'd) vr.'v ..'-V; .. Olidden Interactional, C. A. Olidden International, C. A. had thirteen hanking associations at August 31# 1965: Banca d'America e d'Italia Banque de Bruxelles Chase Manhattan Bank Chase Manhattan Bny Banco de Comercio Banco de Comercio Commerzbank First National City Bank Banque Lambert Utoi.on Cease ree Bank First National City Bank Banco de Bilbao (Banco de Coonerclo de ( Baja, California, S.A. Milan, Italy Bruges, :Belgium Frankfurt, Geraacy Panama City, Panama Mexico City, Mexico Caracas, Venezuela Dusseldorf, Germany Panama City, Panama Brussels , Belgium Cleveland, Ohio Brussels , Belgium Madrid, iSpain (Tijuana, Baja, Calil ( Mexico At the end of the fiscal year, a direct stock interest was held in the foliovieg companies: Name $ or Interest Net Book Cost Consolidated /) Glidden Panama, S.A. (Panama) Fabrlca de Plnturas Olidden, 100$ $ 20,000 S.A. (Panama) 100 25,000 General Paint Co. de Mexico, S.A. (Mexico) Olidden Cbeaie GmbH (Germany) 100 100 2*6,35* 250,000 Industries Glidden de Espaaa, S.A. (Spain) Glidden Xberica S.A. (Spain) 100 si,250 (Held hy: OXCA 50$, IGESA 5$) 100 '-&gg Total Consolidated I GLD004040 NOTES FOR a MBBm VTo Other Major Functions and liens D. Foref.gn Business (Cont'd) Chidden International, C A.- # of Same Interest Unconsolidated Glldden Curacao H.V. (Curacao) 100 i Industrial; Glldden S.A. de C.V. {Wj x Ic o ) ICO Ichihars Sangyo Kaisha Ltd.. (i?*i*in) 2.24 Picture* Eevistorianas S.A. and Distribaidora Americanos C.A. (Ecuador) 33-1/3 Pictures Cantro-Ansritanao (Costa Rica) 60 Pinturas Centro-Americanos (Guatemala) 64 Red V Coconut Product* Ltd. (Philippine*) 4 Sekisan Paint Kfg. Co. (Japan) 25 Olidden-Salchi S.p.A. (Italy) 51 Shave Holdings Limited (South Africa) 10 Galvanisedora Centro-Aaericana, S.A. (Guatemala) 45 , Laekverke Vfulfing OnbH & Co. (Germany) 33-1/3 Plaatikart, Ltd. (Coata Rica) 5 Conpagoi* Tecniea-Xmprese Vernlcia Tura S.p.A. (Italy) 51 - 44 RCt Book Cost $ 200 32,000 70,064 62,837 181,268 307,472 4T,000 69,500 1,005,000 19,050 270,000 1,237,500 2,117 245 $ 3,304,253 r (1) Glidden Panama, Si. - Glidden International, C.A. held 1,000 shares representing 100# control. The company was operating aa a paint / branch and van carried at an investment coat of $20,000. 55ie company earned $74,318 in 1965, compared vith $59,783 in 194. In addition to purchases from U.S. paint plants, the company is also supplied by a sister ecepany. Fabrics de Pinturns Glldden, 8.A. (2) Fabrics de Pinturas Glldden, S.A. first started operations in 1964 supplying part of the paint needs of Glldden Panama, S.A. Glldden International,. C .A. holds 1,250 shares of stock, representing ICO# control. The retained profit of this company, after deduction of certain expenses (principally interest on its indebtedness to The Glldden Company) amounted to $1*5,207 in 1965, coopered to $6,494 in 1964. : (3) General paint Company de Mexico, S.A. - Glldden International, C.A. held all. 50,000 issued and outstanding shares of stock of this company having a net book cost of $246,356. The company Incurred a net loss of $7,580 in 1965, compared vith a net loss of $8,963 in 1964. Deteriorating prices in the Mexican paint anrket, increased raw material prices, and a technical service fee arrangement vith Industries Glldden de Puerto Rico, Inc. contributed to the unfavorable results. GLD004041 l/ ROTES QR AKWU3.L MEB11KS 3T2. Oilier Major Functions and Items D. Foreign Business (Ccot'd) GH-ddon International? C. A. (4) Glidden chemie GmbH (Germany) - mis German holding company was formed in fiscal 1961 to hold Glidden International's one-third Interest In Iackverke Wulflng GefeH & Co. Chemle's capitalisation represented approximately one-fifth of its invest ment in Wulfing. The remainder of Chfcmie'e investment in Wulfing originally was financed through loahs .from Glidden International, C.A. but in April 1963, $444,037 of this financing was transferred to Xn&ustrias Glidden de Puerto Rico, Xnc. In fiscal 1964, the than-rsoaining financing of $356,000 was transferred to Glidden Panama, S.A. and an additional $150,000 financing was extended to Chemie by Glidden Banana. Industries Glidden de Espana, E.A. (Spain) - This inactive manu facturing subsidiary was formed in May, 1963 for future expansion of frit operations into Spain and Portugal. All SO sh&res of Out standing common stock are held by Glidden International, C-A. at & value of $2,250. The extent of its operations at August 31, 1965 was to bold a $0$ interest In Glidden Xberlca, S.A. (6) Glidden ibsrica, S.A. (Spain) - This company was formed in May, 1965 primarily to market frit in Spain end Portugal. Glidden International, C.A. holds 10 shares ($0$ of shares issued and outstanding) at a value of $1,125. The remaining 10 Shares are held by Industries Glidden de Espana, B.A. an& also at a value of $1,125. Operations of this company were consolidated with PemcoBruges branch of Glidden' International, C.A. J" (7) Glidden Curacao K.V. - Glidden International,0.A. held all twenty shares of the outstanding stock of this company with a net book cost of $200. The company vaS used in 1962 to recleve technical service fees from Group Developments, Ltd. of England. It currently is holding $25,000 from British Faints as deferred technical service fees pending outcome of the Ford Development work. In fiscal 1965 technical service fees of $182 vers also relieved from British Paints i (8) Industries Glidden 8.A. de C. T. (Mexico) - Glidden International held all 20,000 outstanding shares and this investment was married at its cost of $32,000. This corporate entity has never assumed .. ea operating status. Shareholders' equity at August 31i 1965 totaled $33,985. (9) Ishihara Songyo Kaieba, Ltd. (Japan) * At August 31, 1965 Glidden International, C.A. held 1,345,222 shares of this company's stock,' a 2.24# interest. These shares are carried at a net cost of $70,064, . the cost of an allotment of 504,458 shares acquired on November 1,: 1962. The shares now held had a market value at August 28, 1965>.4 . of $302,675. A dividend of $14,873 vat recieved by Glidden Inter- -' national, C-A. in 1965. GLDOOAOA2 KffES FOB (M51L MESTEB VI. Other Ma.lor Functions end Items D. Foreign Business (Coat'd) Glldden International, C. A. (10) Pinturua Bcvatorioms S.A. and Dietribuidora Aoericarae C.A. (Ecuador) - Glidden International, C.A. holds a combined 320 shares representing a one-third interest in both companies at a cost of 62,837. At August 31, 1965, Glldden Interaatiocal's ehare of stockholder equity was approximately $28,789, with no dividend being received during fiscal 1965* (11) Pinturos Centro-Aoerlcanas Costa Rica, ltda. - On Hovember 25, 1964 Glldden International, C.A. purchased an additional twenty shares of cosmos stock of the company, resulting in a sixty per cent ownership at a coat of $181,268. International's share of equity at August 31, 1965 aggregated $238,741. At August 31, 1965, Pintica had a loan of $17,500 from Glldden International, C.A. (12) Pinturns Centrc-Americaaas (Guatemala) - During 1965, an additional twenty shares of common stock were subscribed to by a third party which resulted in Glidden International's interest becoming 64.0$ at year end 1965 as follows: Number of Stores QIC* Others CICA Bet Book Cost August 31, 1964 Additional. Stock subscription by third parties 640 J '- m 340 20 350 $307,472 $gg72 Glidden International's share of shareholder equity at August 31, 1965 (on an August 31, 1965 ownership basis) was $574,502. (13) Red V Coconut Products ltd. (Philippines) - Glidden International, C.A. held 1,200 shares, a 4$ interest, at August 31, 1965. The investment was recorded at our cost of $47,000. International*s share of the stockholders' equity at December 31, 1964 was $46,966. (14) Sekisan Paint Kfg. Co. (japan) - Glidden International, C.A acquired 50,000 shares of common stock, a 25# Interest from Seklcan on November 29, 1962. The stock was received in exchange for technical service income end has been recorded at no coat. On February 8, 1965, Glidden International, C.A. purchased an addi tional 50,000 shares of coamon stock at a cost of $69,500 in order to maintain its 25# interest. At torch 31, 1965 Glidden Internation el's equity was $168,395. 010004043 BPBS5 FOR ftML MSBTXH& r l*S VI. Other M*,1or Functions nod Items J>. Foreign Business - (Coat'd) Indivstries Olldden de Puerto Rico, Xnc. Other ccmaents concerning Industrins Qlidden de Puerto Rico, Inc. any to found, on Pegs 4o. Sales of Industries in I9S5 amounted to $4,605,741 and net profits vrre 4(63,420). cpesavting results of years before 1964 were reported with these of (Hidden International, CJU Operations of Induatriao' three active aubs&diar;,es, Trana-Cgjribe Supply Cosgauny, Reliable Water Heater and p. R, f)hre., Inc. were consolidated initially during fiscal 1965. Consolidated net sales and net profit ware as follows: Ret Sales (Amounts in thousands) Puerto Rican Paint Branches Trans-Coribe Supply' Reliable Water Heater P. B< Obra * Bet of intercompany sales to P. R. Obra Hat Profit {after foreign incase taxes) > Puerto Mean Paint Branches Trans-Caribw Supply Reliable Water Heater P. R. Obra Industries Hesdquax*ters (b) - Rot consolidated at August 31, 19^4 isa 1.779 * 2,203 195 106 48 (129) ( 90) 2 XU) 120* 1,838 1/581 207 - tsM WCKWWmSBB 4 125 51 1 - C*> H TIBI Industries (Hidden fund* have been provided frca borrowings from related eon^anies. At August 3lf 1965, the following were borrowings outstanding: The (Hidden Company TO Industries (Hidden de Puerto Fdco To Trans-Caribe Supply Company To Reliable Water Heater Manufacturing Co. 2/487,500 7Cp,OCO 100.000 * 3,!&T,SQ0 Sndustriaa (Hidden de Puerto Rico, Inc. had three banking associations at August 31, 1965: First Rational City Bank Union Casneree Bank Royal Bank of Canada Hato Rey, Puerto Rico Cleveland, Ohio Eat Rey, Puerto Rico As mentioned earlier. Industries bad 100$ ownership of Trans-Caribe Supply Company, Reliable Hater Heater Manufacturing Company, and P. R. Obra, Inc. The stock of Trens-Carlbo Supply end Reliable Water; Heater was carried at no net book value, whereas P.R. Obra reprsents a $47,000 investment 00 Industries * books. 01D004044 t . < n o t es f o r AromL MEmsc - &7 - VI. Other Major Functions ana. Items D. Vorolga Business (Coat'd) glidden International, C.A. (15) Glidden-Salchi S.p.A. (Italy) - As of Hay 31, 1963, Glidden International, C.A. acquired 13,995 Blares of stock for 51^ interest in this Italian paint manufacturing plant. The investment vas recorded at its cost of $1,005,000. International's share of stockholders' equity at August 31, 19^5 van approximately $335,599, excluding audit adjustment* pending final report from Arthur Andersen In Milan. The financial statements of this company have not been consolidated with those of glidden International, C.A. l6j Shave Holdings Limited (South Africa) - In July 1963, glidden International, C.A. received 44,600 shores of this company (10$) ownership as down payment under terms of a technical service agreement. In fiscal 1964, International recognised as tost of these shares a 9$ withholding tax peymsnt amounting to $19,050 on a divider! paid in December, 1963. At June 30, 1964 Glidden International's equity was $186,043* 19^5 equity not available. (17) talvanizadora Centro-Americana S.A. (Guatemala) - Late in fiscal 1964, for cash and notes, Glidden International, C.A. purchased 2,700 shares of this company (45$). With Japanese technical know-how and machinery, a hot-dip sheet steel galvanising plant has bean erected and operations have begun in September, 1965 (18) Lackwerke tfulfing GmbH A Co. (Germany) - Glidden International, through Glidden Chernie, holds a one-third interest in this company. In 1964, additional equity capital of $150,000 was invested in Wulfing, bringing International's total investment to $1,237,500. Glidden Chernie share of partnership equity at August 31, 1965 was $1,155,756. The difference between equity and net investment cost was occasioned by side payments to the Wulfing family for the excess of fair value over hook value of assets, goodwill, and agree ment not to compete. Chernie's share of the understatement of fixed assets was calculated to be $250,000. (19) Plastikart, Ltd. (Costa Rica) - On June 25, 19^5, Glidden Inter national purchased ten shares for $2,117 which represents 5$ interest. Ninety percent of the outstanding shares are held by Pinturas Centrc-Anaricanos Coats Rica, Ltda. which gives Glidden International a controlling interest. The company manufactures and sells fibre glass reinforced plastic products. At August 31, 1965, Glidden International's share of equity vas $2,189. (20) Compagaia Tecnica-Ioprese Verniciatura, S.pA., (C.T.I.V.B.R.) (Italy) - This company was formed December 30, 1964 to perform industrial and maintenance painting services on a contract bdsis. Glidden International bolds $1. shares of common stock or a 5i$ interest. On March 12, 1965, $245 was. invested by Glidden Inter national, whose share of equity at March 31, I965 was $(l6,9C4). GI.D004045 JJ0IE3 FOR AR-JI3A.L MEBlgBO - 49 - VI. Other Major Functions and Xterns E. Histfflilsaooxis Cori < the Annual Report this year was 30 cents each which was 4 cents tars than last year. However, our Annual Report costs remain lower than eonpanies if ec27:?able site. Our 1964 Annual Report was Jiffiaefi firet in the Paint and Ocatings Industry by Financial World. Distribution: Mr. Dwight P. Joyce Mr. B. W. Haxey Mr. V. G. Phillips Mr. P. W. IJeidhardt Mr. R. W. Patterson Mr. R. K. Duttoxi Mr. G. W. Reid Mr. R. E. Dorftasysr Mr. 5. H. Xing Mr. E* D. Pittman Mr. G. P. Fitzgerald / D. B. ERGOTS GLD004046