United States Rubber Company and Subsidiary Companies
Financial Notes
Principles of Consolidation – Foreign Activities
All subsidiary companies which are more than 50 per cent owned are included in the consolidated statements. Restricted earnings of foreign operations are excluded from net income and credited to the Reserve for Foreign Activities.
Fixed assets and long term liabilities of foreign subsidiaries are stated in United States dollars on the basis of rates of exchange prevailing at December 31, 1957 or at dates of acquisition for subsequent additions. All other foreign assets and liabilities are stated on the basis of rates of exchange prevailing at the close of the year. Cumulative gains resulting from the conversion of net current assets are carried in the Reserve for Foreign Activities; current losses are charged to such reserve, or, if no reserve is available, to consolidated income. Sales and earnings are stated at monthly average rates of exchange.
Net assets located outside the United States were $96,533,807 at the end of 1963.
The Reserve for Foreign Activities at December 31, 1963 consisted of $6,721,174 restricted earnings of foreign operations and $8,887,013 representing principally the excess of certain foreign subsidiaries’ net assets over cost thereof at dates of acquisition.
Deferred charges include $2,125,399 representing the excess of cost over net assets at dates of acquisition for certain subsidiaries.
Liberalized Depreciation and Investment Credit
For financial accounting purposes, depreciation of property, plant and equipment is provided on a straight line basis at rates presently considered adequate to amortize the total cost over the life of the assets.
For Federal income tax purposes, the Company uses the accelerated depreciation method and the liberalized depreciation “guideline” rates. The resultant reduction in current taxes payable, $5,248,000 in 1963 and $3,052,000 at the close of 1962, is included in Deferred Federal Income Taxes and Investment Credit on the balance sheet.
Similar to 1962, the Investment Credit made available under the Revenue Act of 1962, representing about 7 per cent of the cost of new machinery and equipment purchased for domestic operations, will reduce our 1963 Federal income tax payments by $1,062,000. The reduction in 1962 was $1,123,000. These credits will benefit income in future years through amortization over the expected useful life of the machinery and equipment. The unamortized balance of the Investment Credit is included in the amount of $10,207,482 in Deferred Federal Income Taxes and Investment Credit.
Warranties
Expenses and adjustments resulting from warranties on products manufactured and sold are charged to income as incurred.
Long Term Debt
The indentures relating to the 2⅝% debentures provide for redemption of $2,500,000 annually through 1966 and $3,000,000 annually for the issue due April 1, 1967, and for redemption of $2,000,000 each year until maturity for the issue due March 1, 1976.
The loan agreements relating to the 3⅜% promissory notes due January 1, 1982 require payments annually beginning July 1, 1968 equal to 5 per cent of the notes outstanding at that date; effective July 1, 1977, the rate is increased to 9 per cent. The 3⅜% notes due July 15, 1995 require payments annually beginning July 15, 1983 equal to 7⅞ per cent of the notes outstanding at that date.
The indentures and the loan agreements contain certain provisions prohibiting dividends (except stock dividends) and other distributions to stockholders unless stipulated requirements are met. Under the most restrictive covenants, the amount of consolidated retained earnings not restricted at December 31, 1963 was $102,952,358.
Long term debt of foreign subsidiaries includes $9,248,000 borrowed by U.S. Rubber Overseas, S.A., Geneva, Switzerland, providing for interest at 4½ per cent from October 31, 1963, and with annual maturities of $1,850,000 on October 31, 1974 to 1978; and $5,055,050 borrowed by U.S. Royal Lastik Turk, A.S. (Turkey), with interest at 7 per cent and repayment in 19 semi-annual installments in varying amounts beginning December 1, 1963.