Document vORo8aYbym8EEMwgbwojLO4Z

THE COMPANY 41st annual report fiscal year ended AUGUST 31, 1958 table of contents GU0002571 FINANCIAL HIGHLIGHTS Net sales............................................................... Income from operations.................................. Income before taxes on income.................... Taxes on income............................................... Net income........................................................... Per common share...................................... Cash dividends declared.................................. Per common share...................................... % of net income......................................... Earnings reinvested......................................... Depreciation and amortization..................... Per common share... .............................. Expenditures for plant and equipment ... Working capital.................................................. Current ratio................................................ Shareholders' equity......................................... Per common share...................................... Shares outstanding........................................... N umber of shareholders.................................. Number of employees.... ........................... Wages, salaries and employee benefits.... Per employee................................................ 1958 $217,352,681 14,224,874 12,350,062 6,287,000 6,063,062 2.64 4,596,340 2.00 75.8% $ 1,466,722 5,838,032 2.54 9,214,395 $ 52,572,371 3.64 87,303,838 37.99 2,298,170 22,405 6,353 $ 37,278,752 5,668 1957 $225,537,291 15,668,621 15,387,437 8,123,000 7,264,437 3.16 4,594,340 2.00 63.2% Percentage Increase Decrease 3.6 9.2 19.7 22.6 16 -- -- $ 2,670,097 5,046,378 2.20 12,465,415 45.1 15.7 26.1 $ 53,100,132 2.96 85,837,116 37.35 1.0 1.7 2,298,170 21,686 6,455 $ 37,008,568 5,733 -- 3.5 1.6 0.7 2.4 8 GLD002572 the PRESIDENT'S report November 11, 1958 To the Shareholders: During the fiscal year which ended August 31, further steps were taken to make The Glidden Company a sounder and stronger organization. Of these, a few stand out with particular significance -- the disposition of the Cherrurgy Division, the planning of new financing, the effect of major cost reduction programs, and the continual build-up of capable personnel through out all functions of our business. Both sales and net income for the 1958 fiscal year were lower than in the preceding year, re flecting the full impact of the genera] business recession which began last Fall. All of the de cline, however, occurred during the first six months, and a substantial and rapid recovery was made in the second half of the year. During the first half, sales were off 10% and income from operations 41% from the compar able period of the prior year. In sharp contrast, the second half resulted in a sales increase of I 3% and an increase of 23 % in income from opera| tions, when compared to the like 1957 period. | As this letter is being written, the favorable trend in operations continues. Nearly all operations contributed to this improved performance, with the most important gains being made by consumer paint products and titanium pigments. The stable earning power of our Durkee Famous Foods Division was very helpful throughout the year and contributed greatly to the total results. Much credit for the comeback in sales and income must go to our many sales and produc tion people who, when the going got rough, were able to produce results. A detailed review of divisional operations begins on page 7 of this report. SPECIAL CHARGES In the second half, we closed down and aban doned our original titanium pigment plant at St. Helena, Maryland. This abandonment loss reduced net income by an amount, equal to 25 cents per share. In addition, earnings absorbed another 33 cents a share because of non-recurring costs arising from the start-up of new plants and the relocation or discontinuance of certain other operations. In the previous year, all special charges of a similar nature were equal to 29 cents a share. Capital expenditures during 1958 totalled $9,214,395. Most of this was spent on projects started before 1958, particularly the titanium dioxide plant and the modernization of paint production facilities. Other programs of a less essential nature were temporarily deferred. Dur ing the past five years we have spent a total of over $50,000,000 for new plant and equipment. GLD002573 Our present estimates indicate capital expendi tures of around $10,000,000 for 1959. INTERNAL CHANGES CONTINUE As you know, the company's management is devoted to getting the most from the capital entrusted to it. We have consistently eliminated those operations and product lints which were producing an unsatisfactory return on invest ment or did not fit into our long-range plans. On September 1, 1958, we disposed of our soybean processing and grain merchandising business, operated as the Chemurgy Division, to the Central Soya Company, Inc. In recent years, we have not obtained an adequate return on our investment in this division. To achieve a satis factory return would have required large sums of money for expansion in soybean products, feed and grain merchandising. Such expansion would have had to come at the expense of the growth of our other divisions. Being closely tied to agricultural economics and processing, the Chemurgy operations were basically foreign to our other activities. Our strength lies in the paint, food and chemical fields, and it was our decision to concentrate on developing them. Under the terms of the Chemurgy agree ments, Central Soya has purchased inventories and supplies amounting to approximately $3,760,000 and has collected for us accounts receivable of about $2,900,000. The production and grain storage facilities are being operated under a three-year lease, which provides for an annual rental of $2,175,000, plus property taxes and insurance. Our continuing depreciation and amortization expenses on these properties will be about $2,100,000 annually during the term of the lease. Central also has an option to purchase these properties on August 31,1961 for S8,550,000, payable in cash. At that time, the properties will have an unamortized cost on our books of about $7,437,000. Sales of the Chemurgy Division in 1958 were $31,973,079, and it contributed approximately $987,000 to 1958 net income. On pages 18 and 19 of this report we have shown the results of our other four divisions without the benefit of Chemurgy operations. While our remaining busi ness must absorb this loss of income, we feel that this short-term sacrifice can soon be offset by the profitable reinvestment of the funds released. In January, we abandoned our destructive distillation operations at Jacksonville, Florida, and in March, we disposed of our Scranton, Penn sylvania, white lead operations. Both of these activities had become relatively minor in nature. With the completion of the above transac tions, the program of major dispositions has been concluded, and all divisions now are estab lished on a firm operating base from which we expect continued growth. FINANCING Earlier this month, the company issued $30,000,000 of Sinking Fund Debentures to re place our long-term bank borrowings and give us some additional funds. Bearing an interest coupon of 4X%, these debentures mature on November 1, 1983 with sinking fund payments beginning in November, 1964. This change in our debt structure, together with the funds re ceived from the Chemurgy disposition, put the company in the soundest financial condition it has enjoyed in years. RESEARCH As we move more strongly into the chemical industries, the results of research and develop ment activities become more vital to our future success. Research expenditures were increased in 1958, and several specialized, long-range proj ects were begun in our own laboratories and in those of outside research institutions. 4 GLD002574 M. The research facilities of our Organic Chem ical Division were expanded during the year, and we are now in the process of constructing a new laboratory for the Chemicals-Pigments-Metals Division. With the sale of our soybean business, it was necessary that we disband the central organic laboratory, which was located adjacent to the Chicago soybean plant. Because of this, we have accelerated our plans for the establish ment of a major new research facility to serve the entire company. Within the past five or six years the top management positions in the company have been filled by young but veteran executives hav ing an average age of 49. They have acted ag gressively to develop a sound, strong program designed to provide the future management, and the production and distribution facilities for accelerated growth. The major costs of making these changes are now behind us, and we are confident that you, as shareholders, will obtain increasing bene fits from this program. SUBSIDIARIES We have continued to expand the activities of Glidden International, our unconsolidated overseas subsidiary. At the time of its organiza tion several years ago, we were basically starting from scratch in the overseas field, and the full development of this business has been slow. Sales of The Glidden Company, Ltd., our wholly-owned Canadian subsidiary, were slightly behind those of last year, primarily due to lower industrial paint sales. Profits, however, showed improvement, as a result of higher profit mar gins. While we have not yet taken any major steps toward the expansion of our Canadian activities, several possibilities are currently being studied. I PERSONNEL Just as it is important to have a reserve of money available for expansion, it is important to have people who can step into newly-created responsibilities. Our goal is to build such a staff, both in quality and in depth. In 1953, two of our younger men were elevated to ofEcial posi tions -- R. K. Dutton was elected assistant ! secretary, and D. E. Erskine, assistant controller. A number of others, in divisional management, were given broader responsibilities to develop them for the future. GLD002575 PAINT DIVISION The Paint Division's 1958 sales of $77,453,500 represented an all-time high, bettering by 1.4% the $76,357,447 sales for 1957. Operating profits were slightly better than in the previous year aria also reached a new high. The entire sales and profit improvement | came from consumer products. Sparked by the introduction of our new Spred Satin latex-emulsion paint, together with the benefits of expanded distribution, consumer sales increased 6.1%. Improved gross margins, resulting from manufac turing efficiencies and marketing empha sis on more profitable products, offset higher selling expenses and produced a significant increase in profits. Modern Drive-In Paint Centers, such as the one recently opened at Miami, Florida, have been the key to expanded consumer paint distribution. Sales of industrial finishes and related items were 5.9% lower than in 1957. Since the major markets for these prod ucts are the durable goods industries, particularly household appliances and metal fabricating, sales are quickly af fected by any reduction in industrial activity. Through an aggressive selling program, aimed at developing new and more specialized markets for our prod ucts, we were able to hold our sales de cline to a rate less than that of industry in general. In June, we acquired the domestic paint business of the General Paint Corpora tion, whose marketing areas are primar1 ily on the West Coast and in the Rocky Mountain region. Involved in the acqui I sition were two small paint plants, at Tulsa, Oklahoma and Portland, Oregon, and 21 sales branches, as well as invenj tories. Costing about $835,000, the ad* dition of General's paint operation has already strengthened our production and distribution in these areas. During the last three months of fiscal 1958, we ob tained approximately $1,300,000 addi tional sales from this acquisition. Four years ago, when we had 43 wholesale-retail branches, we initiated a program calling for 57 additional branches by 1959. This goal was reached last year with the completion of 15 more branches. There are now 104 in opera tion, in addition to the 21 branches ob tained in the General Paint acquisition. The performance of new branches has further confirmed the merits of expanded distribution by this means. Through the customer service and market coverage offered by these operations, we have been able to expand our sales both to dealers and to painter-maintenance accounts. We have under way an intensified training program for salesmen and branch man agers to provide qualified personnel for further accelerated expansion. During the year we began more exten sive marketing of industrial emulsion fin ishes and progress has been quite satis factory. These finishes are being more widely used on automobile parts, and we now have cars, completely finished with emulsion coatings, on the road for testing purjxises. . In 1959 we plan to bring out a new line of marine finishes for pleasure boats un der the Ripolin label; Spred Tred latexemulsion floor paint; and a new multi purpose enamel for maintenance and in dustrial uses. We have recently introduced, for limited marketing, a polyester resin coating for new construction which simulates ce ramic tile at lower material and applica tion cost. Among the other new products scheduled for test marketing tnis year are an emulsion house paint, metal dec orating coatings and several new resins for industrial uses. A separate unit for large volume produc tion was completed at the Reading plant last year, and we expect to add capacity at Atlanta to meet the growing South eastern market. Plans are being made for additional capital expenditures to reduce production costs and produce new resins developed through our research laboratories. The continual development of new products, expanded distribution and spe cialized merchandising have been the key to the division's past successes. We plan to continue our aggressive expansion in the paint and coatings field and look for new records in sales and earnings to lie set in 1959. 7 GLD002577 VICE-PRESIDENT Ha r v e y L. Sl a u g h t e r PLANTS Berkeley, California Bethlehem, Pennsylvania Chicago, Illinois (2) Louisville, Kentucky PRODUCTS Bulk Shortenings Puff Pastry Shortenings Baker's Margarine Paramount Hard Butters Specialty Edible Oil Products Margarine Oils Refined Vegetable Oils Melvo Frying Shortening Margarine Slayfresh Coconut Dixie Cut Coconut Snowflake Coconut Pepper Cinnamon Other Spices Herbs Poultry Seasonings Pie Spice Blends Gourmet Seasonings Meat Tenderizer Monosodium Glutamate Seasoning Salts Garlic Powder Dehydrated Onion Products Vegetable Flakes Flavor Extracts Food Colors Gay-ette Cake Decorations Famous Sauce Mayonnaise and Salad Dressings Package Shortening Salad Oils USES Bread Cakes Candy Canned Foods Chocolate Coatings Cookies Crackers Danish Pastries Doughnuts French Pastries Fried Foods Frozen Desserts Ice Cream Margarine Meat Products Pickles Pies Popcorn Potato Chips Prepared Mixes Pretzels Salad Dressings Salad Oils Whipped Toppings 8 etax DIJHKEE FAMOUS FOODS DIVISION Divisional earnings, reflecting changes of recent years in the Durkee organization, surpassed the high levels of the previous ' year. edible oil products were introduced dur ing the year, and production volume will be expanded as soon as new markets can be created. i Sales for 1958 were $85,500,700 compared Shortly after the close of the fiscal year, to sales of $88,779,546 in 1957. Physical wo acquired R. C. Pauli & Sons, a small, \ volume for the year was considerably but prominent, bulk spice processor on the ahead of 1957, with the decline in dollar West Coast. This will enable our Berke sales being primarily the result of lower ley edible oil organization to distribute raw material prices. bulk spices more efficiently and in a simi The last major step in the two-year re organization of the division was com lar manner to that which has been so suc cessful in our Eastern operations. pleted with the opening of our new coco nut and condiment plant in Bethlehem, Pennsylvania. Earnings from this opera tion were reduced by non-recurring costs incidental to setting up this plant. We fully expect that 1959 earnings will re flect the efficiencies obtained from the new plant layout and high-speed process ing and packaging equipment. In order to broaden consumer appeal for our coconut and condiment products, we have continued to redesign packages for these items. Last Spring, we introduced a new "cookbook" package for our "whole spice" line, with each carton containing suggestions and recipes for the use of its contents. The consumer reception re ceived to date has been excellent. We S Durkee's position as a basic supplier of 1 ingredient materials to the food . and have also put out a new jar for Famous Sauce to permit more convenient use. | allied industries was strengthened further * during the year. We have been able to do this, despite highly competitive con During the year a number of new items were added to the popular gourmet sea ditions within the edible oil industry, soning line, and we have more fully de i through our emphasis on the develop- veloped our Gay-ette line of cake dec ' ment of specialized products and markets. orations. Among the new items scheduled | A new emulsifier, developed by Durkee, for this year is a 3 H-ounce carton of minced onion, which contains the equiv | is finding wide acceptance in the baking alent of two pounds of fresh onions. We fields. Representing the most important are constantly searching, through inter baking emulsifier development within the nal development or acquisition, for com- ! past twenty years, this product has per- n specialty items which can be mar- ; mitted many improvements to be made 1 in shortenings for prepared mixes and f bakery items. Patent licenses have been K by our distribution organization. Several of these are now being studied. offered and granted to other shortening manufacturers. A number of other new In the space of two years, the steps taken to strengthen and integrate the Durkee Division have created a sound and more Over 400 spice cartons are formed, filled, sealed and wrapped each minute by automatic packaging equipment at the new Bethlehem plant. efficient organization to provide a solid base for future expansion. The stability and moderate growth potential provided by the division are important assets of the company. 9 GLD002579 iSlIiSl T VICE-PRESIDENT 'i u s es G. M. Hs l s ey PLANTS Baltimore, Maryland Collinsville, Illinois Hammond, Indiana PRODUCTS Zopaque Titanium Dioxide Cadmolitk Red Colors Mercadmolith Red Colors Cadmolith Yellow Colors Sunolitk Lithopone Titanated Lithopone Cubond Brazing Compound Copper Powder Brass Powder Lead Powder Tin Powder Alloy Powders Cuprous Oxide Cupric Oxide Copper Pigment ' 5;'!; Appliances ' , 'Automobiles v ^-Bearings ; ' r 'Bronze Parts i ; ;( ^Bushings , ,.'Y Y i 'Carbon Brushes r.L Ceramics 5 '^Chemical ReagentsTM Coated Fabrics . v . i: Felt-Base Products K.Floor Tfle .:r vl'T Glass . .. ,r i- Lead Grosses ' -:- >:<' f Leather j; {r .?J V Ik^ntalliA PaAlrimrS . ^Plastics :\.i' '. Porcelain Enamel' . Printing Inks : . s i > Rubber; * - fY 15 sf"*" * : Synthetic'Fibers . ` . Wallboard 'iV ; . Wallpaper < ;V tj. S YK V-H' >' ' - CHEMICALS-PIGMENTS-METALS DIVISION Sales in fiscal 1958 were $14,068,2(34, compared to sales of $16,965,447 in 1957. The largest portion of this 17% sales de cline occurred in metal powders. Also, sales for the last five months do not in clude white lead and related products, which business was sold in March. Division earnings were substantially tjelow those for 1957, due both to the jower metal powder sales and to expenses con nected with the relocation and expansion of our titanium pigment ojierations. Both dollar and tonnage sales of titanium pigments were equal to those of the pre vious year, as a strong comeback in sales volume for the last six months offset a much lower sales level earlier in the year. During the period the Adrian Joyce Works was under construction, we began to ex pand our sales organization, and we have now doubled the total manpower in both sales and technical service. In 1958, we brought out an improved type of tita nium pigment for industrial finishes. Other new grades are now being pro duced as our new production facilities have provided access to markets which were not previously available. These fac tors, coupled with improved business con ditions, contributed to the sales increase during the latter part of the year. In July, we entered into a long-term con tract to manufacture titanium pigments, under private label, for the R. T. Vander bilt Co., a large, independent manufac turer and wholesaler of chemical prod ucts, which has had extensive experience in marketing pigments. This new arrange ment had little effect upon last year's business, but should be very beneficial in the future. The second and third units of the Adrian Joyce Works were completed in July and successfully put into production. The total productive capacity of this new Sprawling over a large part of a 170 acre tract, the company's $24 million titanium dioxide plant was brought into full production in July, 1958. lant is about double that of the old t. Helena Works which was abandoned last March. While it may take a year or more to develop full demand for the available capacity, we are now operat ing at a satisfactory production and sales rate. We have not yet obtained an adequate domestic source for titanium-bearing ores. Because of legal implications and cer tain economic conditions, we withdrew from our lease for ore deposits on Cum berland Island. Our mining department is actively engaged in evaluating other property on which we hold an option. In the meantime, we will continue to obtain ore requirements from overseas sources. The decline in metal powder sales was the result of lower production levels in the automotive and appliance industries, the two major markets for these products. We look for considerable improvement in these operations during 1959. We are now working on several new metal pow der products, and one or more of these may be marketed in 1959. Both sales and earnings on lithopone and color pigments were substantially lower, reflecting an over-all decline in indus trial buying. With the near completion of the Adrian Joyce Works, divisional capital expendi tures for 1959 will be the lowest in recent years. We are making certain additions to the new plant so that it can process different types of titanium ore. Because of the shut-down and abandonment of the St. Helena Works, it will be neces sary to relocate the divisional research laboratory and the production facilities for color pigments, both of which are located on the old plant site. Operations this past year absorbed un usually heavy expenses created by the start-up of the new plant and the shut down of the old. Very few of these ex penses will be repeated in the current year. Given favorable economic condi tions, we have every reason to expect a major improvement in divisional oper ating results. li GLD002581 *?** VICE-PRESIDENT .' W. D. St a l ic u p PLANTS Jacksonville, Florida Port St. Joe, Florida Valdosta, Georgia PRODUCTS Alloocimene Alpha Pinene Alpha Terpineol Anethole Beta Pinene Camphene Dipentene dl Limonene Geraniol Linalool Methyl Chavicol Myrcene Para Cymene Nelio Gum Turpentine Nelio Pine Oil (Synthetic) Nelio Sulfate Turpentine Nopol Penetrell Distilled Tall Oil Tall Oil Fatty Acids Tall Oil Rosin Tall Oil Pitch Anti-Skinning Agents Burgundy Pitch DD Pine OU Sunny South DD Turpentine . Gloes Oils Merez Metal Resinatea Nelio Gum Rosin Rosin-Modified Resins , Rosin Oils Alkyd Resins Pure Phenolic Resins ~ USES Adhesives Chemical Intermediates Cleansers Cordage Detergents Disinfectants . Flavors Floor Coverings Mining . Paint Paper Size Perfumes Petroleum Products Pharmaceuticals Plastics Printing Inks Rubber Soap Solvents Synthetic Resins: . . ,1 - > Textile Processing ' ' Varnish' - v-. ORGANIC CHEMICAL DIVISION Divisional sales for 1958 were $8,357,188, showing a slight increase over the $8,321,106 sales reported for the previous: year. Earnings, however, were substan tially lower as the result of heavy start up and experimental expenses in connec tion with new tall oil and terpene chemi cal production units. Sales volume was not noticeably affected by the 1957- 58 business recession. Vol ume losses on products discontinued dur ing the year were offset by the gradual introduction of tall oil and other new products during the latter part of fis cal 1958. The recent change in name from the Southern Chemical to the Organic Chem ical Division was made to describe its operations more accurately. This is in keeping with the division's continued growth and development in the field of synthetic organic chemicals. Important strides were made toward the expansion of our terpene aromatic lines, and we have increased our research and patent work in this field. During the year, we successfully introduced syn thetic geraniol and linalool to the essen tial oil trade. These products, along with other synthetic terpenes produced by the division, have relatively large volume markets as ingredient materials for soaps and detergents, cosmetics and toiletries, and industrial odorants. Through a tech nological assistance and cross-licensing agreement, we have become associated in the British Commonwealth with A. Boake Roberts & Co., a leading British manufacturer of aromatic and flavor materials. Last year we reported near completion of development work on a plant to pro duce synthetic laevo-menthol. While con struction of this plant was temporarily Fractionating columns of the new tall oil pla nt at Port St. Joe loom high against the Florida sky. postponed as part of an over-all cut-back m capital expenditures, we have now scheduled it tor 1959. These facilities, which will represent an investment of approximately $2,000,000, should be com pleted and in operation by early 1960. Used in proprietary drug, confection and tobacco products, laevo-menthol will broaden our position in the flavoring field. Our new $3,400,000 tall oil plant at Port St. Joe, Florida, was completed and put on stream during the middle of the year. Because several new processes were be ing employed for the first time on a largescale basis, we have experienced difficulty in getting this plant into operation. This, in turn, has adversely affected divisional earnings and temporarily delayed pros pects for increased earnings. We nave solved most of the operating problems, and with stepped-up development activi ties on the upgrading and application of fatty acids and rosin, we look for grad ual improvement during the year. Our work on synthetic resins has begun to assume a more important place in divisional operations. With the availa bility of our own tall oil rosin, we expect the improvement shown in 1958 to con tinue at a somewhat higher rate. Early in the year, we discontinued our wood distillation operations, one of the few remaining segments of our original naval stores operations. Government loan programs, together with competition from other products, have made our gum naval stores operations highly marginal, and there is no reason to expect any change in this situation in the foreseeable future. As was the case with wood distillation, gum naval stores have become a relatively minor part of the division's business. Within the past several years we have more than doubled the division's invest ment in both research and production facilities. While we have not yet obtained the benefits from this increased invest ment, the long-term future of the division is very promising. 13 CL 0002583 FINANCIAL REVIEW SALES Sales for fiscal 191)8 were $217,352,681, a decline of 3.6% from the previous year. Industrial paints, metal powders, edible oil and soybean products were the opera tions showing major sales declines. The source of 1958 sales by divisions was: Amount (000) Paint........................... $77,454 Durkee Famous Foods. 85,501 Chemicals - Pigment - Metals..................... 14,068 Organic Chemical....... 8,357 Chemurgy................... 31,973 Per Cent of Total 35.6% 39.3 6.5 3.9 14.7 GROSS PROFIT Gross profit in 1958 was $48,373,341, down only $289,931 or 0.6% from the $48,663,272 gross profit for 1957. As a per cent to sales, 1958 gross profit was 22.3%, compared to 21.6% in 1957. INCOME FROM OPERATIONS Income from operations in 1958 was $14,224,874, declining $1,443,747 or 9.2% 14 from fiscal 1957. While the slight decrease in gross profit dollars contributed to this decline, increases in selling and adminis trative salaries of $780,000, and research and technical service costs of $340,000 were the major factors. These increases were the result of intensified marketing efforts to provide a broad and more prof itable sales base for the future. Advertis ing expenses were $250,000 lower, due to the elimination of certain margarine and salad products operations during the pre ceding year. NET INCOME Net income after all taxes and charges was $6,063,062 equal to $2.64, compared to $7,264,437 or $3.16 for 1957. On a comparative quarterly basis net income was: Quarter Ended: 1958 1957 Amount Per Amount Per (000) Share (000) Share Nov. 30 Feb. 28 May 31 Aug. 31 $1,190 916 1,682 2,275 $.52 .40 .73 .99 $1,995 1,486 1,907 1,876 $.87 .65 .82 .82 GLD002584 V i Net income for the third and fourth quar' ters of 1958 includes charges of 12 cents and 13 cents per share, respectively, to cover the loss taken on abandonment of the St. Helena titanium dioxide plant. Each of the company's five divisions op erated profitably during 1958. DEPRECIATION .' Depreciation, depletion and amortization charges against income amounted to $5,838,032, an increase of 15.7% over 1957 charges of $5,046,378. Depreciation rates have been applied by the straight- I line method to properties acquired prior to January 1, 1954, and by the sum-of- the-years-digits method to other proper ties acquired on or after that date, ex cept for grain-storage facilities (pertain ing to the Chemurgy Division) which are being amortized equally over a period of five years. It is estimated that 1959 de preciation charges, including those on the Chemurgy Division properties being leased, will be approximately $6,800,000, CASH FLOW Cash flow generated from operations showed a 6.5% increase in spite of the decline in net income. This was due to higher depreciation and the abandon ment loss, both of which represent non cash charges against income. Total cash flow in 1958 was $13,116,333 equal to $5.71 per share compared to $12,310,815 or $5.36 a share in 1957. DIVIDENDS Dividend payments totalled $4,596,340 based upon the regular $2.00 annual rate. During the 1958 calendar year, the fol lowing quarterly dividend payments were made: Record Date December 6 March 7 June 6 September 8 Date Paid January 2 April 1 July 1 October 1 Amount Per Share $ .50 .50 .50 .50 In fiscal 1958, 75.8% of net income was distributed to shareholders as dividends. CAPITAL EXPENDITURES Capital expenditures amounted to $9,214,395, as compared with $12,465,415 IB Gl0002585 for 1958. The percentage of the 1958 total invested in each division follows: approximately $675,000 less than re placement market. Paint.......................................................... 24.1% Durkee Famous Foods........................ 10.9 Chemicals -- Pigments - Metals .... 49.8 Organic Chemical.................................. 7.4 Chemurgy................................................ 7.8 WORKING CAPITAL Working capital at the year-end was $52,572,371. The ratio of current assets to current liabilities was 3.64. INVENTORIES Inventories of the four continuing divi sions totalled $36,771,649 at August 31, 1958, down sharply from the comparable figure of $42,125,263at the 1957fiscal yearend. The major reduction was made in raw materials and work in process inven tories, primarily titanium ores and edible oils. Chemurgy Division inventories, which were sold on September 1, 1958, to the Central Soya Company, Inc., amounted to $3,756,249 at market value. Inventories are valued at the lower of cost or market, using the average cost method on the major portion and the last-in, first-out method on certain edible oils and other commodities. At August 31, 1958, inventories carried on a LIFO basis amounted to $1,608,940, which was 16 LONG-TERM DEBT Long-term debt, at the fiscal year-end, amounted to $26,000,000, consisting of $6,000,000 3)4 % and $20,000,000 4)4% notes payable to banks. Included in cur rent liabilities was $1,500,000 of 3)4% notes payable due September 1, 1958, and $4,000,000 of short-term indebted ness to banks. During September and October of 1958 the current notes pay able installment, the short-term indebt edness, and $5,000,000 of the 4)4% notes payable were repaid out of proceeds re ceived from the liquidation of Chemurgy Division working capital and out of other company funds. In November, 1958, the remaining long-term notes payable to banks were repaid from the net proceeds of the issu ance of $30,000,000 4)4% Sinking Fund Debentures, due November 1,1983. The Indenture, under which these debentures C10002 586 were issued, provides for minimum an nual sinking fund payments of $1,500,000 commencing November 1, 1964. The In denture also restricts the payment of dividends to consolidated net income earned subsequent to August 31, 1958, plus $10,000,000. COMMON STOCK Common stock outstanding at August 31, 1958, consisted of 2,298,170 shares, there being no change during the fiscal year. The company has in effect a Re stricted Stock Option Plan for key man agement employees, which was approved by shareholders in 1952. At the begin ning of the 1958 fiscal year there were outstanding options for 89,390 shares of stock. During the year options for 3,770 shares were granted and options for 5,650 shares terminated. At the close of the; year options were outstanding for 87,510 shares. Option prices in all cases are not less than 95% of the market value of the shares at the time such options were granted. Unoptioned shares available for granting of options totalled 3,770 shares at the beginning and 5,650 shares at the close of the year. WAGES AND SALARIES Wages, salaries and employee benefits totalled $37,278,752 for 1958 and were 17.2% of sales. These expenses were $37,008,568 in 1957. Retirement funds for employees deposited with bank trus tees now total $11,712,422. The retire ment plans are non-contributory, the company paying the entire cost. At August 31, 1958, the unfunded liability for past service costs under the plans was estimated to be $4,000,000 and the an nual current service cost (which does not include funding of the past service cost) was estimated to be $840,000. During the year, the company made its required contribution to the retirement funds. TAXES Taxes on income were $6,287,000, equal to $2.74 per share. Taxes other than on income totalled $1,944,432, compared with $1,843,283 in 1957. Federal income tax returns for the years 1954 through 1957 have recently been reviewed by the Internal Revenue Service. While a final agreement has not yet been reached, no major adjustments are anticipated. 17 GLD00258 INCOME Net sales............................................................................. Coat of products sold......................................................... Selling, administrative and general expenses.................. Income from operations.................................................... Income before taxes on income....................................... Taxes on income............................. ................................. Net income........................................................................ Dividends on common shires. . ..................................... Dividends on preferred 9b ares......................................... Earnings reinvested .......................................................... Depreciation, depletion and amortization...................... 12 Months -- August 31 1958 1957 1956 $217,353 168,979 34,149 14,225 12,350 6,287 6,063 4,596 -- 1,467 5,838 $225,537 176,874 32,995 15,668 15,387 8,123 , 7,264 4,594 -- 2,670 5,046 $226,290 177,538 31,974 16,778 16,451 8,304 8,147 4,592 -- 3,555 2,870 FINANCIAL POSITION Working capital................................................................ Property, plant and equipment -- at cost..................... Property, plant and equipment -- net........................... Total assets....................................................................... Long-term debt......................................................................... Shareholders' equity................................................................. $ 52,572 89,963 59,992 133,240 26,000 87,304 $ 53,100 89,177 59,517 140,370 27,500 85,837 $ 35,696 79,840 53,414 118,738 7,500 83,091 PER COMMON SHARE Net sales..................................................................................... Net income............................................................................... Depreciation, depletion and amortization......................... Dividends declared on common shares................................ Shareholders' equity... ........................................................ Price of Glidden common shares2 -- High...................... -- Low....................... $ 94.58 2.64 2.54 2.00 37.99 38.75 28.00 $ 98.14 3.16 2.20 2.00 37.35 37.50 29.50 $ 98.56 3.55 1.25 2.00 36.19 41.12 34.50 OTHER STATISTICS Expenditures for property, plant and equipment............ % net income to shareholders' equity ............................... % dividends to net income................................................... Ratio of current assets to current liabilities...................... Common shares outstanding.................................................. Preferred shares outstanding................................................ Number of shareholders.......................................................... Number of employees ... .................................................... $ 9,214 6.9% 75.8% 3.64 2,298,170 -- 22,405 6,353 $ 12,465 8.5% 63.2% 2.96 2,298,170 -- 21,686 6,455 $ 16,637 9.8% 56.4% 2.27 2,295,990 -- 20,758 6,387 PRO FORMA texcluding operations of Chemurgy Division) Net sales..................................................................................... Income before taxes on income............................................ Net income............................................................................... 1 Plus 2% stock div idend. 2 Calendar years, except 1958 which is to October 1, 1956. $185,380 10,294 6,076 $190,424 13,590 6,402 $190,483 14,252 7,091 i 3 10 Months August 31 3 1955 t i $180,525 i 142,047 24,047 14,431 , 14,325 7,212 7,113 4,589 i-- i 2,524 2,235 1954 $209,084 167,845 27,701 13,538 14,235 7,142 7,093 4,582 -- 2,511 2,333 1953 $211,758 170,492 26,739 14,527 14,834 7,725 7,109 4,57S r- 2,531 2,185 12 Months -- October 31 1952 1951 $205,113 164,890 26,238 13,985 14,204 ' 7,255 6,949 5,134 -- 1,815 1,965 $228,523 186,333 26,282 15,908 16,001 7,687 8,314 4,512 402 3,400 1,731 1950 $188,608 151,878 22,597 14,133 14,438 5,876 8,562 3,910 449 4,203 1,754 1949 $160,143 129,909 20,346 9,888 10,149 3,957 6,192 2,839' 449 2,062 1,618 $ 47,156 64,421 39,993 i 106,762 9,000 79,513 { $ 78.65 3.10 .97 2.00 34.64 44.50 36.12 $ 51,226 57,207 34,493 102,670 10,500 76,923 $ 91.16 3.09 1.02 2.00 33.54 42.50 28.75 $ 46,005 55,528 33,234 102,750 7,000 74,324 $ 92.44 3.10 .95 2.00 32.44 38.12 27.88 $ 46,475 52,924 31,394 101,958 8,500 71,644 $ 89.78 3.04 .86 2.25 31.36 42.62 32.88 $ 46,416 53,207 30,894 95,875 10,000 69,739 $ 100.22 3.65 .76 2.25 30.58 48.50 27.75 $ 38,420 48,708 26,922 84,311 -- 66,194 $ 95.66 4.11 .89 2.10 28.51 31.50 22.50 $ 30,316 46,085 25,448 76,777 -- 56,837 $ 89.94 3.23 .91 1.60' 26.32 25.75 17.62 $ 8,155 8.9% 64.5% 3.58 2,295,350 -- 20,019 6,397 $ 4,021 9.2% 64.6% 4.36 2,293,455 -- 19,174 6,198 $ 4,150 9.6% 64.4% 3.15 2,290,794 -- 18,726 6,120 $ 3,043 9.7% 73.9% 3.13 2,284,739 -- 18,310 6,127 $ 5,918 11.9% 57.0% 3.88 2,280,238 -- 17,989 6,130 $ 3,330 12.9% 48.2% 3.46 1,971,623 199,540 N.A. 6,277 $ 6,565 10.9% 49.4% 2.74 1,780,536 199,540 N.A. 5,931 $151,752 13,102 6,526 $169,823 12,271 6,150 $170,717 12,907 6,184 $164,283 12,249 6,010 $188,012 10,462 5,541 $155,497 11,948 7,077 $133,958 6,436 3,890 V'Hmm " ' . GLD002589 v ic/irjiiv?z* Zj**{2+il''-V.-S.-'J*'iv x Vt IAIv CONSOLIDATED BALANCE SHEETS THE GLIDDEN COMPANY AND CANADIAN SUBSIDIARY August 31, 1958, and August 31, 1957 ASSETS CURRENT ASSETS Cash................................................................ Trade accounts receivable, less allowances of $529,395 (1957 -- $505,621)................ Inventories of Chemurgy Division -- at amount realized from sale thereof on September 1, 1958 (1957 -- at lower of cost, or market)........................................... Inventories of continuing operations -- generally at the lower of accumulatedaverage cost or replacement market: Raw materials and work in process. . . Finished goods........................................ Other current accounts, advances and investments................................................. Prepaid insurance and other expenses........ Total Current Assets......................... 1958 $ 9,295,760 20,175,792 3,756,249 $ 18,152,557 18,619,092 $ 36,771,649 1,900,305 608,840 $ 72,508,595 1957 $ 9,581,466 18,343,022 5,262,342 $ 22,784,382 19,340,881 $ 42,125,263 4,022,319 798,459 $ 80,132,871 PROPERTY, PLANT AND EQUIPMENT Land - - at cost............................................... Buildings -- at cost....................................... Machinery and equipment and other facilities -- at cost..................................... Less accumulated depreciation, depletion and amortization........................................ Total Property, Plant and Equipment -- Net...................... OTHER ASSETS............................................. $ 4,062,042 32,638,636 53,262,491 $ 89,963,169 29,971,238 $ 59,991,931 739,536 $133,240,062 $ 4,084,821 31,460,224 53,631,577 $ 89,176,622 29,659,661 $ 59,516,961 720,023 $140,369,855 20 GL0002590 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable to banks: Short term................................................... Long-term notes maturing within one year Accounts payable........................................... Accrued taxes, insurance, royalties and interest........................................................ Dividend payable........................................... Taxes on income --- estimated...................... Total Current Liabilities................... 1958 $ 4,000,000 1,500,000 6,467,609 1,439,805 1,149,085 5,379,725 $ 19,936,224 LONG-TERM DEBT 314% notes payable to banks, due $1,500,000 annually 1959 -- 1962............ 4M % notes payable to banks, due October 1, 1960.......................................... Total Long-term Debt....................... $ 6,000,000 20,000,000 $ 26,000,000 SHAREHOLDERS' EQUITY Common Stock, par value $10 per share: Authorized - - 3,000,000 shares Reserved for sale under options to key management employees at not less than 95% of fair value at date options are granted -- 93,160 shares Outstanding -- 2,298,170 shares.............. Additional amount paid in........................... Earnings retained for use in the business, including retained earnings of Canadian subsidiary $4,673,967 (1957--$5,530,754) Total Shareholders' Equity.............. $ 22,981,700 9,861,772 54,460,366 $ 87,303,838 $133,240,062 1957 $ 9,000,000 --0-- 8,002,714 1,639,224 1,149,085 7,241,716 $ 27,032,739 $ 7,500,000 20,000,000 $ 27,500,000 $ 22,981,700 9,861,772 52,993,644 $ 85,837,116 $140,369,855 See earlier sections of this report for information regarding disposition of the Chemurgy Division, dividend restrictions and retirement plans. 21 GU0002591 CONSOLIDATED INCOME and earning's retained for use in the business THE GLIDDHN COMPANY AND CANADIAN SUBSIDIARY Years ended August 31, 1958, and August 31, 1957 INCOME Net sales.......................................................... Operating costs: Cost of products sold................................. Selling, administrative and general expenses................................................... Income from Operations............... 1958 $217,352,681 1957 $225,537,291 $168,979,340 $176,874,019 34,148,467 $203,127,807 $ 14,224,874 32,994,651 $209,868,670 $ 15,668,621 Other income and (deductions): Interest expense......................................... Abandonment of St. Helena plant.......... Royalties and other income -- net.......... Income Before Taxes on Income $ (1,562,025) (1,215,239) 902,452 $ (1,874,812) $ 12,350,062 $ (1,277,776) --0-- 996,592 $ (281,184) $ 15,387,437 Taxes on income - - estimated: Federal........................................................ Dominion and state..................... .......... Net Income..................................... $ 5,818,000 469,000 $ 6,287,000 $ 6,063,062 $ 7,620,000 503,000 $ 8,123,000 $ 7,264,437 Provision for depreciation, depletion and amortization included above: 1958 -- $5,838,032; 1957 -- $5,046,378 e a r n in g s ; r e t a in ed f o r u s e in t h e b u s in e s s Balance at treginning of year....................... Net income..................................................... Cash dividends declared -- $2.00 per share Balance at end of year.................................. $ 52,993,644 6,063,062 $ 59,056,706 4,596,340 $ 54,460,366 $ 50,323,547 7,264,437 $ 57,587,984 4,594,340 $ 52,993,644 22 GLD002592 SUMMARY OF SOURCE AND DISPOSITION OF FUNDS THE GLIDDEN COMPANY AND CANADIAN SUBSIDIARY Years ended August 31, 1958, and August 31, 1957 SOURCE OF FUNDS Net income.................................... ............... Charges to income which did not involve current expenditures: Depreciation, depletion and amortization.......... ............................ Abandonment of St. Helena plant. . . Total from Operations................. Long-term borrowings 'payment)............. Other sources................................................ DISPOSITION OF FUNDS Dividends declare*!...................................... Expenditures for property, plant and equipment.......................................... Increase (decrease) in working capital . . . 19B8 $ 6,063,062 1057 $ 7,264,437 5,838,032 1,215,239 $ 13,116,333 (1,500,000) 1,666,641 $ 13,282,974 5,046,378 --0-- $ 12,310,815 20,000,000 2,153,224 $ 34,464,039 $ 4,596,340 $ 4,594,340 9,214,395 (527,761) $ 13,282,974 12,465,415 17,404,284 $ 34,464,039 ACCOUNTANTS' REPORT Shareholders and Board of Directors The Glidden Company Cleveland, Ohio We have examined the consolidated financial statements of The Glidden Company and its Canadian subsidiary for the year ended August 31,1958. Our exami nation was made in a<x:ordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing pro cedures as we considered necessary in the circumstances. We made a similar examina tion of the financial statements of the preceding year. In our opinion, the accompanying balance sheet, statements of income and earnings retained for use in the business, and summary of source and disposition of funds present fairly the consolidated financial position of The Glidden Company and Canadian subsidiary at August 31, 1958, and the consolidated results of their opera tions for the year then ended, in conformity with generally accepted accounting prin ciples applied on a basis consistent with that of the preceding year. Cleveland, Ohio October 1, 1958 Certified Public Accountants 23 GLD002593 BOARD OP DIRECTORS Dw ig h t P. Jo y c e Al e x a n d e r D. Du n c a n B. W. Ma x e y Jo h n H. We e k s R. D. Ho r n e r W. G. Ph il l ip s Wil l a r d C. Lig h t e r Ha r v e y L. Sl a u g h t e r G. M. Ha l s e y W. D. St a l l c u p G. S. Wa r n e r Oli'FlCERS Dw ig h t P. Jo y c e, Chairman of the Board and President Wil l a r d C. Lig h t e r , Executive Vice-President B. W. Ma x e y , Vice-President -- Finance Al e x a n d e r D. Du n c an , Vice-President Ha r v e y L. Sl a u g h t e r , Vice-President Jo h n H. We e k s , Vice-President -- Personnel G. M. Hal s ey , Vice-President W. D. St a l l c u p , Vice-President R. D. Ho r n er , Secretary and General Counsel W. G. Ph il l ip s , Treasurer G. S. Wa r n e r , Controller R. K. Du t t o n , Assistant Secretary D. E. Er s k in e , Assistant Controller CORPORATE DATA Ex e c u t iv e Of f ic e s 900 Union Commerce Building Cleveland, Ohio Tr a n s f e r Ag e n t s The New York Trust Company New York City The Cleveland Trust Company Cleveland, Ohio Re g is t r a r s The Chase Manhattan Bank New York City Central National Bank of Cleveland Cleveland, Ohio Common stock of the Company is listed on the New York Stock Exchange and has trading privileges on other major stock exchanges. 24 GLD002594 MINTtD IN U.S.A