Document zQMg0D8LoQBnN0q4a3q1rNQY6

The Bagle-Picher Lead Company BOARD OF DIRECTORS Vin c e n t H. Be c k ma n Jo s e p h Hu mme l , Jr . Ar t h u r E. Bk n d b l a r i A. Kie f e r Ma y e r Fr e d e r ic k He r t e n s t e in Ro b e r t E. Mu l l a n k Ca r l F, He r t e n s t e in Jo h n A. Ro b in s o n Jo h n J. Ro w e OFFICERS . Jo s eph Hu mmiil , Jr ., Pres, and Treas. Wil l ia m R. Dic e, Executive Vice-Pres. .Geo r o e W. Po t t e r , Vice-President Fr e d e r ic k He r t e n s t e in , Vice-President Car l A. Geis t , Vice-Pres. and Asst. Treas. Vin c e n t H. Be c k ma n , Secretary DIVISION MANAGERS White Lead-in-Oil Pigments W. H. Ha y t Mil e s M. Zo l l e r Insulation Th u r ma n C. Ca r t e r - Metal Goods Wil l ia m F. Mu r d o c k TRANSFER AGENT We s t e r n Ba n k & Tr u s t Co mp a n y , Cin c in n a t i, Oh io REGISTRAR Th e Fif t h -Th ir d Un io n Tr u s t Co mp a n y , Cin c in n a t i, Oh io The Eagle-Pieher Mining and Smelting Company BOARD OF DIRECTORS Vin c e n t H. Be c k ma n Jo s e p h Hu mme l , Jr . Ar t h u r E. Be n d e l a r i A. Kie f e r Ma y e r Fr e d e r ic k He r t e n s t e in Ro b e r t E. Mu l l a n k Ca r l F. He r t e n s t e in Ge o r g e W. Po t t e r Jo h n J. Ro w e OFFICERS Jo s eph Hu mme l , Jr ., President Geo r g e W. Po t t e r , Executive Vice-Pres. Ca r l A. Ge is t , Treasurer Fr e d e r ic k He r t e n s t e in , Vice-Pres. Wil l ia m R. Dic e, Comptroller Vin c e n t H. Be c k ma n , Secretary Pa&e Two ANNUAL REPORT The EagleTicher Lead Company and Subsidiaries , To t h e St o c k h o l d e r s o f THE EAGLE-PICHER LEAD COMPANY: Submitted herewith is the'anniiai report of your company for the year Hided December 31, 1939,accompanned by financial statements and the report ofyour auditors, Messrs? Barrow, Wade, Guthrie and Company, Earnings and Sales A-v y :The operations of the year resulted in a net profit of $2,780,931.02. before provision for depreciation, de- pletion and similar, charges. This is a significant figure, exceeding that reported for any year since 1926,; After deducting $1,612,168.71 in respect of depreciation, depletion, prospecting expenses, and losses from abandon-' men.r or sale of capital assets, the company showed a consolidated net profit of $1,16S,762.31 equivalent to ;j:o$1..3d pep share on common stock outstanding.in the.,hands,qf the public after providing for dividends of$6,00. ." per share on the preferred stock. Depreciation and depletion provision for 1939 is more than double that for 1938 due to increased production and additional depreciable properties acquired. The charge for abandonments, prospecting expenses, etc., Is also considerably larger this year, resulting in part from the deferment of certain projects, continued development of which does not seem warranted at this time in view of the acquisition in 1938 of additional ore reserves. For the. first time the operating results include the earnings of Northeast Oklahoma Railroad Company, the entire capital stock and funded obligations.of which represent an invest ment of $1,070,500.00. The net income, after all charges, including interest of approximately $45,000.00 received by your company on the foregoing obligations, was in excess of $81,000.00. . ; The results for the year vary so widely from those of the preceding year--when a net loss of $488,732.68 was sustained--that Comparison with 1938 is of little value; whereas, by reason of the similarity of sales volume, the results for the year 1937 are particularly comparable. Hence, in the following condensed statement are presented the operating results and average metal prices for the past three years: 1939 . Net Sales........................... ............................ ............... $25,914,411.30 Production and Manufacturing Costs......I.,....:. . . 21,104,655, S6 Gross Operating Profit................. ................. ... ........ 4,809,755.44Selling, Shipping, Administrative and General Expenses. 1,972,485.18 Net Operaring Income: A Mining and Manufacturing Divisions. ?.Y. PA . . ..... Pi? .Northeast Oklahoma Railroad.Company....a ?. . .;. 2,837,270.26 226,143.23 ms 1937 $17,124,772.65 .? $24,679,262.05 14,948,000.72 21,232,491.33 2,176,771.93 1,925,110.15 3,446,770.72 2,106,614.46 251,661.78 (Not Included) 1,340,156.26 (Not Owned) 3,063,413.49 ; > , 251,661.78? . Miscellaneous Income less Interest and Federal and State: Income Taxes................................................................ 282,482.47* 46,313.28 ; Net Profitw-Before Depletion arid.Depreciation : ? .. i . Vi 2,780,931.02 Depletion, Depreciation, Abandonments, etc. ? .. 1,612,168.71 297,975.06 A ? 786,707.74 Net Profitot'Loss'idr Year.?. ?. .. ??.. `Italics denote red figures .... ?...... $1,168,762.31 $488,732.68* 1,340,156.26 14,789.77 1,354,946.03 966,165.21 $388,780.82 Average Metal Prices: Lead....................... $505 $4.74 S6.00 Net sales for the year aggregated $25,914,411.30 in comparison with $17,124,772.65 in 1938 (an increase of approximately 51%) and $24,679,262.05 in 1937. Sales tonnage of fabricated products increased about 16% and . of zinc concentrates and metal approximately 100%. The reduction in tariff of 20% increased the importation of zinc, so that the price of that metal was only $4.50 from January through July. . Immediately after the outbreak of war, the price rose rapidly and fay the end of September stood at $6.50. The increase in price is largely attributable to low inventories of domestic consumers who became cortcemed and somewhat anticipated their requirements. . During the latter quarter : of the year the price declined to $5-75, the. average price for the year being $5.11 compared with $4.61 for 1938 and $6.52 for 1937. The price of lead fluctuated between $4.75 and $4.85 during the first eight months of the year. It wasi ad vanced to $5.50 in September and held at that level for the remainder of the year. The average price for 1939 was $5.05 compared with $4.74 for 1938 and $6.00 for 1937- It will he observed that, during the greater parr of the year, metal prices were comparatively stable, which, as mentioned in previous reports, has a favorable effect on operating results. Manufacturing operations were consistently ahead of the previous year, and the earnings from these divisions were the largest for any year in the last ten and represented the major portion of the net earnings for the year. . . Taxes Taxes paid and accrued in 1939 were in excess of $775,000.00, or approximately 85c per share. Of this total, $243,000.00 represented the provision for income taxes, Social Security taxes accounted for approximately $204,000.00, and "the. remainder consisted of real and personal property, sales and miscellaneous taxes. Dividends Dividends have been regularly paid on preferred stock during the year, and just prior to the year-end a dividend of 20c per share was declared and paid on the common stock. In view of the substantial improve ment in the financial condition of your company, it is hoped that net earnings during the forthcoming year will warrant payments of dividends on the common shares. Balance Sheet Net working capital at the year end amounted to $6,987,188.57 and the current ratio at December 31, 1939 was approximately 4.9 to 1. In reviewing the balance sheets, it is important to have in mind the indebtedness incurred just prior to the close of 193S in connection with the acquisition of Commerce Mining and Royalty Company and Northeast Oklahoma Railroad Company. All of the outstanding shares of these companies were purchased on December 28, 193S for a cash consideration of $5,127,000.00 and an agreement to pay an additional $4,750,000.00, without interest, when, as and if realized from 60% of the operating profits of certain specified properties acquired in the purchase. To finance this purchase, your company increased its bank loans by $4,100,000.00. During 1939 this indebtedness was entirely liquidated, and at the end of the year total bank Joans stood at $2,500,000.00, or the same amount as prior to the purchase of the foregoing properties. In addition, we paid approximately $484,000.00 on the contingent obligation assumed in connection with the acquisition, leaving a balance of - $4,266,176.57 payable |out of future earnings. : .v ; ; : : .. ; The foregoing payments were made possible, in part, by a reduction in inventories of $1,456,665.79, or approximately 21%. The reduction in quantities is substantially greater, the metal content having been re duced from 76,320 tons at die beginning of the year to 41,975 tons at the end of the year, or 34,345 tons, equiv alent to 45%. The aggregate values did not decline proportionately, largely because the larger percentage of the inventories was in the form of.finished products. This reduction in inventories is in conformity with a policy made possible by the acquisition of adequate ore reserves. Mining Operations , The increased demand for zinc products made possible the largest production, of lead and zinc concentrates . in the history of the company. Ore received at our mills in 1939 amounted to 2,910,000. tons, of which our Fa&t Ftur ,m . yi ,1 -I-***-- ................-t -- Ti-- * I II u p iiij i IIr '* > Central Mill received 1,881,000 tons. At the end of the year this mill was handling over 10,000 tons of ore* bearing rock per day. Production of lead and zinc concentrates at our mills in the Tri-State District of Okla homa, Kansas and Missouri totalled 193,697 cons in 1939 compared with 104,305 tons in 1938. General Your Directors and Officers feel that the results and accomplishments of the year fully justify their action in expanding the company's mining operations--not only from the standpoint of earnings, but in extending its life. We are constantly striving to effect operating efficiencies and to develop new products and improved methods of fabrication which will produce additional profits. Important improvements in our fabricated products were made in 1939, and we have under way some promising developments which should be con* eluded in 1940. It is hazardous to attempt to forecast the results for the coming year, although present indications are that this may be a successful year for your company. Current prices of zinc and lead are higher than they were a year ago, and the present rate of consumption indicates that there should be no immediate weakening in these prices. However, so long as the present low tariff on zinc obtains, any increase in domestic demand carries with it the threat of further importation of foreign metal, vhich would affect not only the earnings of the company but the wages of its employees. The results attained in 1939 were in large measure attributable to the excellent cooperation and fine spirit of loyalty shown by the entire personnel throughout the year. With the approval of the Board of Directors. Cin c in n a t i, Oh io . February 27, 1940. ; JOSEPH HUMMEL, Jr . President WILLIAM R. DICE Executive Vice President ; - Pgat Ftv* BARROW, WADE. GUTHRIE & CO. (ilSTAUUSHCO Mj) ACCOUNTANTS AND AUDITORS ONE NORTH LA SALLE STREET CHICAGO To Tin; Dir h c t o k s , THE EAGLE-PICHER LEAD COMPANY, \ Cincinnati, Ohio.: r f ' '' We have examined the Consolidated Balance Sheet of The Eagle-Picher Lead Company and Subsidiaries as at December 31, 1939, and the related Consolidated Profit and Loss and Surplus: Accountsfpr the year themended. In connection therewith, we have reviewed the system of internal control and the ac counting procedures of The Eagle-Picher Lead Company and The Eagle-Picher Sales Company; and, without making a detailed audit of the transactions, have examined or tested accounting records of those-companies arid -other supporting evidence, by methods and to- the extent we deemed appropriate. The accounts of The Eagle-Picher Mining and Smelting Company and Subsidiaries and Northeast Oklahoma Railroad Company, as-examined and reported upon by other independent: accountants, have, been included in the accompanying consolidated statements. Inventories on hand at December 31, 1939 were determined by the companies or their agents and confirmed by them as to quantities and condition. A substantial portion of the metal content of ores, metals and metal-bearing products represents estimates based on estab lished metallurgical formulae. Quantitative tests of other portions of the inventories were made by the independent accountants; insofar as was considered practicable but not to an extent-that could be considered substantial verification of the total inventories, In our opinion, the accompanying Balance Sheet and related Profit and Loss and Surplus Accounts present fairly the consolidated financial position of the Companies at December 31, 1939, and,the results of operations for the year then ended, in conformity with generally ac cepted accounting principles applied on a basis consistent with that of the preceding year. Chicago, Illinois February 26, 1940 Ac c o u n t a n t s a n d Au d it o r s The EagleTicher Lead Company and Subsidiaries CONSOLIDATED PROFIT AND LOSS ACCOUNTS For Years Ended December 31, 1939 and 1938 Net Sal k s ............................................................ Pr o d u c t io n a n d Ma mu f ac t u r i n o Co s t s .......... ; Geo s s 'Opek at in g PRont-'-bcfore Depletion and 'Depreciation.................. ...... . ..... Ex pen s es : -.Selling....... ......................................... . Traffic, Warehousing and Shipping...... . General and Administrative.;. , .......... 1 Bad Debt; Provisiei^dess Recoveries:..... ... Net Oper at in g In c o me--before Depletion and Depreciation: . . Mining and Manufacturing.. ....... ..... , Northeast Oklahoma.Railroad Company.... Ot iii-r In c o me : Royalties........... ............................ . Interest and Dividends................... . ... .Miscellaneous;........ . . i....................... In t er es t o n Ba n k In d e b t e d n e s s . ... ;. . .... . De p l e t io n , De p r e c ia t io n , Et c . : Provision for Depletion and Depreciation--: per books..................................................... Abandoned Projeers, ProspectingExpenses and Loss on Retirement or Sale of Capital.Assets Net Pr o f it o r Lo ss---before provision for Federal ; and State Taxes on Income...........;..... ; Pr o v is io n f o r Fe d e r a l a n d St a t e Ta x e s o n In c o me--estimated.......................................... Net Pr o f it o r Lo s s f o r Ye a r . ................ YEAR ENDED DECEMBER 31,1939 $25,914,411.30 21,104,655-86 4,809,755.44 $838,481,77 233,697.41 821,973.30 78,332.70 ; >1,972,485:1 8- 2,837,270.26 226,143.23 3,063,413.49 105,059.44 15,528.21 32,907.35 153,495.00 3,216,908.49 192,673.99 3,024,234.50 1,360,251.83 251,916.88 1,612,168.71 1,412,065.79 243,303 48 $1,168,762.31 YEAR ENDED DECEMBER 31,1938 $17,124,772.65 14,948,000.72 2.176,771.93 $795,306.38 234,530.34 832,347.14 62,926.29 1,925,110.15 , 251,661.78 35,423.26 10,695.39 89,999.47 136,118.12 387,779.90 48,536.66 339,249.24 650,358.27 136,349.47 786,707.74 447,458.30* 41,274.18 S48S,732.6S* . Italics denote red figures !. 5Vrrw THE EAGLE 'PICHER LEAD CONSOLIDATED BALANCE SHEETS ASSETS Cu r r e n t As s is t s : .Cash in Ranks and on Hand..................v. Accounts and Notes Receivable-^Trade . . . ......... Accounts and.N'oteS Receivable--Other; .. .. . . .. . . Less: Reserves for Doubtful Accounts......................... 1 Advances on Purcliasc Contracts............... ... ............ Inventories of Raw Materials, Work in Process and j Finished Products (including merchandise on con signment to customers): 1 ?. Ores, Metals ami Metal-bearing Products--val tied at cost pr market-price of metal content! which- : . ever, was:, lower at December 31, plusi manu facturing costs on Materials in Process and Finished Products................... . c Other .Merchandise for Resale--at cost. . Manufacturing Supplies and Stores--at cost... . . Ot h e r As s e t s : . Surplus Equipment, Repair Parts, Supplies, etc......... Emplovees' Loans and Expense Advances......... Miscellaneous Accounts, Advances, etc....... DECEMBER j i, 1939 DECEMBER 31, 1938 $ 1,152,400:79 $ 1,583,053.16 $2,49S,631.62 $ 2,672,876.58 1S9.684.87 2,688,316.49 111,575.37 2,784,451.95 w-L'/ -- || 310,939 51 2,377,376.98 322,414.63 2,462,037 32 5,331.71 6,048.09 4,252,758.74 490,108.83 4,742,867.57 502,168.02 5,245,035.59 8,780,145.07 5,778,043.75 362,882.83 6,140,926.58 560,774.80 6,701,701.38 10,752,840.55 193,644.49 20,322.48 16,145.84 230,112.81 147,183.92 27,293.44 35,859.84 210,337.20 Fix e d As s e t s : Mining Lands and Leases; Mills, Smelters and Fab ricating Plants and Equipment; Railroad Properties; Pipe Lines; Automotive and Haulage Equipment; Warehouses; Furniture and -Fixtures, etc. (including S509,S14.07 excess cost of acquisition over book value of net assets acquired)............ ..:...... c 32,431,046.67 Less: Reserves for Depletion, Depreciation, etc,. . .. ... 20,139,376.53 12,291,670.14 Construction Work in Progress. . ....... ...: . . . ; ..... 104,546.74 12,396,216.88 33,702,681.32 20,292,973.41 13,409,707.91 128,890.75 13,538,598.66 Se l f -In s u r a n c e Fu n d Se c u r it ie s : U. S. Government Obligations--at cost (Market value at December 31, 1939--$136,435.94). ....... 129,256.84 In v e s t me n t s : Stock of wholly owned Subsidiary not consolidated. Investment in and advances to Affiliated Company. . Sundry Securities--at cost or estimated recoverable values........................................ 1.00 52,354.88 21,367.61 73,723.49 Tr e as u r y St o c k --at cost: shar es c Preferred................................................................ 65 Common................................................................. 5,924 : Common---purchased by Subsidiary for resale . ,11,250 2,330.75 21,797.56 154,994.17 179,122.48 Pr e p a id a n d De f e r r e d Ch a r g e s : Prepaid Freight, Insurance, etc.. .. : . . ..... .. .'.... . 120,173.80 Royalty Advances. . ............................. ......... ..... . 49,174.70 Other Deferred Charges......................................... .... . . - 132,475.51 c- 301,824.01 Pa t e n t s , Go o d w il l , e t c , 1.00 $22,090,402.58 128,656.84 1.00 64,649.27 22,445.61 87,095.88 2,330.75 21,797.56 24,128.31 111,338.98 61,364.56 107,142.84 279,846.38 1.00 $25,021,504.82 ) COMPANY AND SUBSIDIARIES S AS AT DECEMBER 31, 1939 AND 1938 LIABILITIES Cu r r e n t Lia b il h rics: Current Bank `Indebtedness. . . ... ........ . .... . ... , Accounts Payable.. ...... . .. .*.................. .. j|||| Preferred Dividend Payable. .. .:. .,. ........... .. , , IBr Accrued Liabilities: Taxes--Other than Taxes on Income......................... Wages and Salaries........................................................... Compensation Awards, etc............................................ . : Provision foi^ Federal and State Taxes on Income-- : estimated..................................................................... Other Accrued Liabilities, Customers' Credit Balances, ...................... De f e r r e d Ba n k In d e b t e d n e s s : Balance at December 31, 1939 payable $400,000,00 in 1942 and $2,100,000.00 in 1943............................... Co n t in g e n t Pu r c h a s e Mo n e y Ob l ig a t io n : , Payable from income (as defined in purchase contract "And when, as and if realized) of certain specified properties formerly owned bv Commerce Mining and Royalty Company. ;..................... Re s e r v e s fOR Se l k -In s u r a n c e : Workmen's Compensation Liability. . . . . ........... Fire and Tornado Coverage. ............. .. .. ........... .. . .. Re s e r v e s f o r Co n t in g e n c ie s : Appropriated from Capital Surplus as at Jan. 1, 1935 Less Charges: To January 1.................... . $298,126.60 For year ended Dec. 31... 41,114.91 Min o r it y In t e r e s t in Ca p it a l a n d Su r p l u s o f Co m me r c e Min in g a n d Ro y a l t y Co mp a n y . ........... Ca p it a l St o c k : Preferred 6% Cumulative:' Par Value $100; redeemable at $105: Authorized and Outstanding--5,554 Shares........ Common--Par Value $10: Authorized....... . ,. . ..'. 1,000,000 Shares........ Issued and Outstanding... 900,000 Shares............... pbl^KlURPLUS: b 3gpr ...Capital Surplus,:'. !' a Ay-\x Balance at January 1......................... . . Transferred from Reserves for Normal Metal In ventory Price Fluctuation.., ..... ........ Balance at December 31.. .:.............. Earned Surplus since January 1, 1935: Balance- at January 1.,..............:.......... Add C-CM rivSC;,-V Transferred from Reserves for Normal Metal In ventory Price Fluctuation,............ ...... . Sundry adjustments................ Net Profit or Loss for year--;per Profit and Loss Account. . . ........... ................................................ Dividends paid and accrued: ; Preferred.....,......;...................;... Common...................................................... . Balance at December 31.................................... ...... Co n t in g e n t Lia b il it ie s --See Page Ten Italics denote red figures ; , DECEMBER ji, IQJQ DECEMBER j oj S SI,132,850.22S,233.50 Sl.SOO.ooo.in> 562.005.40 8.233.50 $ 190,259.93 58,707.49 ::30,56,8.90 $ 163,898.79 43,8-16.92 45,896.47 305,429.02 26,826.96 611,792.30 40,080.48 1,792,956.50 112,653.51 28,950.01 395,245.70 87,101.50 2,852,586.19 2,500,000.00 4,800,000.00 2.19,737.59 . 57.353.S7 600,000.00 339,241.51 4,266,176.57 VV' 277,091.46 260,758.49 234,223.14 48,279.16 4,750,000. 00 282,502.30 600,000.00 '256,150.22 41,976.38 298,126.60 301,873.40 636.48 555,400.00 555,400.00 9,000,000.00 9,555,400.00 9,000,000.00 9,555,400.00 1,898,760.96 1,898,760.96 579,745.49 1.377,693.67 521,067.29 1,898,760.96 421,673.72 768,932.71 213.34 1,168,762.31 1,748,507. SO 4SS,732.68* 702.OS7.09 32,934.00 - 176,315.20. 32,934.00 AC 89,407.60 209,249.20 122,341.60 1,539,258.60 3,43S,0I9.56 579,745.49 2,478,506.4.5 $22,090,402.58 $25,021.304-82 Pa< Niff* Contingent Liabilities 1. Notes receivable rediscounted, aggregate liability whereunder cannot exceed $18,500.00. 2. Federal and State income taxes for years not yet examined by the respective taxing authori ties. Federal taxes for all years to 1937, inclusive, have been closed except as to The :Eaglc-Pi'cheir.'.'lvIin!ng:.an4-:Smeltihg Company, for which the years 1936 and 1937 have been examined but not yet closed. 3. Pending persona] injury suits and minor litigation, liability whereunder is undetermin able but is'not considered significant. ' 4. Order promulgated by National Labor Relations Board, pending on appeal to the United States Circuit Court of Appeals, Highth Circuit, liability whereunder is difficult to estimate.y 5. Agreement to indemnify former shareholders of Commerce Mining and Royalty Company for acts performed on behalf of said company, liability whereunder is wholly contingent. 6. Suit pending in the United States District Court at Cincinnati whereunder claimants seek to recover some sixteen million dollars on two principal causes of action. One cause of action alleges failure to account for sulphur content of lead and zinc sulphide concentrates produced from Indian leases. The Company contends that it has fully ac counted therefor, strictly in accordance with the terms of the leases and on a basis that has been in general use in the District for seventy-five years. The other principal cause of action .alleges trespass on certain Indian lands prior to 1922. The Company contends that it was in possession of the lands under a valid lease and that it made full accounting : thereunder and complied vvith all requirements thereof. The United States Department of Interior on behalf of the Indians, upon expiration in 1922 of the lease now attacked, granted to the Company a new lease on the same property for a period of twenty-five ' years, whereunder the Company has since operated and accounted. It is significant that the validity of the new lease was upheld by the United States District Court for the Northern District of Oklahoma, which decision was affirmed by the United States Circuit Court of Appeals, Tench Circuit. Similar suits involving the same issues were instituted : in 1933 in the United States District Court at Kansas City (Mo.) in the name of .the. United States and at the request of the Department of Interior. The Attorney General, after investigation, dismissed these suits without prejudice. The present action was brought not by the Government but by an individual, as "next friend", who seeks to recover on behalf of the Indians. Company's counsel is of the opinion that the case can be successfully defended, although^ because of the amount involved, vigorous prosecu tion by the plaintiff is anticipated.