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  • Screencapture Maxolson Gitbooks Io Blue Chip Stamps Content Letters 1981 HTML 2019 03 20 16 - 57 - 51

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    7 views14 pages

    Screencapture Maxolson Gitbooks Io Blue Chip Stamps Content Letters 1981 HTML 2019 03 20 16 - 57 - 51

    Uploaded by

    Chad
    blue chip 2

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 14
    To Our Stockholders Consolidated operating income. before al net gains tom sles of secures, mortgages and Important fined assets fr the caldr year 1951 inereased to $20,895,000 (4.08 per shar) fom $16,564,000 (3.20 per snare) the previous yo Consolidated net income. after net gains rom sae of secures, morigages and important xed asses) increased to $27,626,000 ($5.33 per shar) from $20,389,000 (3.98 per share} nthe previous We nave four majrsubsiiares, See's Candy Shops. Incorporated (100%-owned, Mutual Savings (80%-owned), Precision Stoo (80%-owned}, and Buffalo Evening News, Inc (100%-owned} in adtion tothe basic business (oral racing stamps} operated by the parent company. Our consolidated Income fr our two reporting year ust ended breaks down as fllos (m0 excep or per-share maura: "Net operating Income (oss of Net gains onsales Year mutual steey_ Buttle Allthor Blue chip ended soot pusnecs Evening net ‘consolidated about savings © Business News"? Income’? nat income December sioge7 $3383 «$1.860S5S1) 5808 SB,731 s27.628 21,1983 Per tue cone 208 5 ao} dq] 12 130 520 shave December g7a7o $4181 «$1,208 Sit472) $5080 S85 $20,380 2, 1980 Per ive chp 140 5 2) (m| 108 1 aa + 1) Aterreducing income by amortization of intangibles arising fom purchase of See's at anne premium ovr its book vale. + 2) Aterincreasing income by amonzaton ofthe decount from Mutual Savings book val at which the intrest was acquired an oiminating gains and lesses frm saleby Mutual Savings of secures, mortgagee and important ed asset, + 9) Aterreducing income by amortization of relatively minor intangibles arising at acqustion of the newspaper. + 4 Ater deduction of ntorest and other corporate expenses. n each year thore was an operating east promotional services activites befce residual consoldted net income was erected with (dividends and intrest resuting primal trom investment of he funds avaiable tough “teat” caused by racing stamps issued but not yet deemed pls i income tax benefit caused by 85% ‘exclusion of vidends in computing ede! income taxes, plu i) Blue C's shar a dividends, interest anc rent rom secures and el este hel by the Wesco Financial Corporation group ‘outside its savings an loan and soo sie activities, plus) n 1860 a net adstment of Blue (chip's stamp lity account in the amount of $3,747 o° $34 per Blue Chip share, net of taxes, as ‘xpd below under ‘Promotional Sences Business and Miscolaneous Sources of Operating Income: +5) The 1980 igures comprise $2,882 o $45 par Blue Ohip share atrbutabe to Mutual Savings! sale of 1Sbranch ofces, axplanes below under ‘Mutual Savings anc Loan Associaton and $1,499, $20 per Bue Chip a gains realized by the various entities including Mutual Savings, net of taxes and minor intrest. The 1981 fquea eat solely o such net sacurtien ins. of net aac ‘The foragoing breakdown ofthe same aggregate eaming) fers somewhat fom that usd in ow 1 the pan to prepare our unconventional breakdown of eemings and to fuish tin this eter because we Belov it better expan what rslly happening than does ou accompanying consolcate income statement in conventional form. General, we ate ying to improve ‘our annual tor to sharoholders each year so as beter to ciclose the things wo would want to be told ifthe role were reversed and we were passive investors, However, we make no efor to provide fresh or novel descriptions. Repetition seems appropriate tous whore facts remain both tre and aalycally important ovr mary years and where certain ideas are part of cur xed busines catchism. Accordingly, where previously used words, sentences or paragraphs appear adequate wo simply repeat ‘ham, inserting up-to-date numbers, ‘SEE'S CANDY SHOPS, INCORPORATED “The earings of eur 100%-owned subsiclay See's Candy Shops, Incorporated, increased 43.7% last year a phenomenal performance considering the genera tte of realing inthe current recasion We have now owned See's for exactly ten years. Comparative gues for See's fr the entre ten-year pavod cf cur ownership ae set forth blow: werent | gaya | Ont] Nimbwratpomch | __ Namba tne ee series tenors “em atyeered pees! '$112,578,000 $11,130,000 (24,082,000 198, sure owcenbe mim December 87,914,000 6,473,000 23,985,000 188 pote owen owen asso zm.08 ayer 1 ouenb —— caeno 8.00 anaes m= December 56,393,000 5,618,000 20,553,000 173, eae 50,492,000 908,000 19,134,000 172 pa 41,248,000 3,229,000 17,889,000 170 December 31,837,000 2,832,000 16,954,000 167 + These earings figures ar lit higher than Blue Chip Stamps’ share of See's earings shown in the table on page 1 because Blue Cip's share retects() amortization of ntangibes arising from purchase of See's stock ata lrg premium over book value andi state income taxes on Seo's vidends receive by Blue Chip. See's aggregate sales in pounds hed up wellast year, being essentially unchanged from the previous year eventhough prices ware increased at arate which tumed out o be somewhat highr than the Inflation rate. Shop sales increased, but ery bacause ofthe impact of addtional teres. Shops operating ‘trougheut both years registered an aggregate decrease in poundage of 1.6%. Chrismas season quantty order sales to businesses dacined forthe feat ime since the 1974 recession Ingredient cost a 1981 increased only modetely and, with revenues up about 15%, See's pros ose sharply to an a- ‘See's iby far the rest business we have ever purchased, exceeding our expectations, which Wore {ute conservative. Our record as fostlers ofthe future is often poor, even with respect to busnessos wo have ownod for many yoars, and we so great underestimated Seo's future that we wero lucky to acquit tal Howover, we havo at east had tho good sense all these last ton years to want S chet executive, ‘chuck Hugg. wne nas spent is working it nis business, to run the company in is ants tracitional way. Chuck Huggins ea ep man and a spends manger itis no min pllege tobe associted wth him and the kindof quay enterprise he and his predecessors and co-workers have crated ‘Boxed chocolate consumption per captain the United States continues to be essential state, an the candy-store business remains subject o extraorenary cost pressures, ote! o some extent in 1961 by subormal increases in ingredient costs. Whon See's increases prices each yar to reflect cost pressures it aver knows whether consumer resistance wil cause net profs to fl instead of ise. Thus far, consumers have boon wing to keop buying inthe amounts required to keep See's profits rising requ at an average rate which, aided by larg recent gains, has turned out tobe quite satsactoy. ‘Thi tate of ata logialy cant continue forever, on average, S's costs keep increasing faster ‘han the general ate ot nfiation. Moreover, in some future years commodity and ingrsdent pies wil "ie sharply and unexpectedly, causing unaticipted decreases in pots Prhaps because price Increases deter purchases for personal consumption more than purchases for te, S's seasonal ales peak becomas mora extreme each yer, causing many operating roblms and a growing concentration of See's nat income inthe single month of December ‘See's success to date becomes even more remarkable when is industry backaround is examined in ‘more detail So far a8 we know the candy-store business continues tobe tebe to medire fra ‘ther companies, which tend to sufer rom a combination of (i) lw sals per square fet of retailing space plus (2) ho great seascrlty ofthe businoss which require stating and maintsnance of stor at ‘minimum levels grossly unjstiied by sles during about 90% of each yer. We baiove that See's exceptional profits occur, despite al the problems, mainly because both new and ld customers proer tho taste and texture of So's candy, as wala tho extomely high lve of retaling service which cnaractaes its lstrution, This customer enthusiasm f cause by a vitualy fanatic Insstence on expensive natura candy Ingredients pus expensive manufacturing and cstbuting ‘methods that ensure igorous quality conte and cheerful etl arvce. These qualities are rewarded by entaorinary sales per square foot inthe stores, requenty two to thee tines thse of competitors, and by strong preterence by ait recipients for See's chocolates, even when messured agains! much more expensive brands [Ate end of 1981, the potion of Blue Chips consolidated net worth represented byt inteest in See's amounted to $388 milion and included qu asets adequate to finance See's substantial annual buld- up of pre-Chrisimas inventories, Obviously, based on See's 1981 earrings of $1.1 milion, this investment in See's is worth considerably more than ts cayng value in Blue Chip's consolidated balance sheet, Last year we made “a guarded forecast that See's eamings would increas at lest moderatly in 1981.~ ln 1982 Seo wil try again to increase earings and a modest increas is quite conceivable, MUTUAL SAVINGS AND LOAN ASSOCIATION (Our aquty in Mutual Saving! oparating Income desines sharply in 198% 10 $2,309,000 fom $4,181,000, Inthe previous yea amring these reduced profs was an achievement of some note, because in 1981 almost al ther ‘savings and loan associations eure large operting losses and game falad and were absorbed by stronger companies under pressure from governmental regulatory auhortes. The hancial pressure Nes continued int 1982. The troubles are caused by a borowed-shet,ln-ong poston, combined with high current interes ates associated wth past anc anticipated ifaion and removal of much former regulation initing rate competion fr savings accounts, Associations have been fered to pay interest rates to hod savings accounts which are higher than can be covered by locked-in yea om long-term, ‘inodate mortgages acquis years ago in what now saems ke a cferent word ‘The sory state ofthe savings and ean industry is one more exemple ofthe operation of Garett Hardin's Pincple fo soft scences (ike business, poltics, economics andl that ba ideas are born good. A ‘well-intentioned ie of some kind works fn for a wile, than stops working and goes into revere, = id the basic savings and ian dea of bortowing shart an lending long te an exteme degree whe epending on governmental regulation to force savers to ake an inadequate return in an natonary erode seme ikl, Harn’ principe is part ofan nevtable human legacy, tragedy ean be verted, patil, nly by reversing course when the danger lags start fying asthe cherished ideas of ‘he past are faithfully flowed. Unfortunatly, another perverse phonomanon intafores here ~ the tendency ofthe mind to reject the message from a danger signal whichis inconsistent wth a cherished ica, ‘At Mutual Savings we were too bind for too long, exactly as Hardin would have predicted but ke the resto the savings an loan industry we started coping better with realty when it stopped waving the {éangor fags at us and started using ther to poke usin the head and stomach, “Te ovental rebut of cur efrts to cope with realty hasbeen that Mutual Savings has continued to make modest profs despite having a substantial borowed-shot,len-long postin, incucing a fixed- rate mortgage porto boarng what is prabably the very lowest average intrest rate among all US. associatons (76% per annum atthe end of 1981), The 1981 profits cccured, notwithstanding his handicap, because Mutual Savings has had 1.80 far as we know high ratio of shareholder’ equ to total interest-bearing Habis than ary other mature US. association; 2. highershan-nemal proportion of asset in short-term, interest-bearing cash equivatents: and 3.8 fartighershan-normal proportion of sees in ntrmacate-trm, tax-exempt bonds and tity prefered stocks producing 8 taxcequivalent yield of about double that prevaling on the morgage Potfolo of the typical association. ‘Mutual Savings balance sheet a the end of 1981 i set forth in surmay form in Note 9 04" accomparying Francia stators ‘Mutual Savings" unusual asset-oblty structure was caused in par by the salen 1980 ofa cofce, one incident of which was tention of en the lowest ylang mortgages, albelt hase with the shortest remaining terms, n seting ll branch ofices in 1980 the stitution shortened sal toa for huereane corltions, not because a huricane was eal foreseen, but because of he tlt thal being Poked with danger fags had on our generally cautious nature. A huricane came in 198, the end of \ahich is yet tobe seen, Ther i, ofcourse, a price to be paid when caution purchases fey itorost rates docine sharply and more or les permanonty, Mutual Savings wil ave greatly penalized fturo ‘eamings through sao ofits branch ofces. branch “Morsover, what Mutual Savings asl i no jowel of a business. Ast kops its books it had $48.5, milion in shareolders’ equty tthe end of 1980, en which its operating income was only $35 millon a 1981, or tthe inadequate rato of 7.2% por annum. However, as Blue Chip raports earings rom ts ‘equity nti as-than-medoore business, the rests ara somewhat beter because Blue Chip'secuty ‘was cxginally purchased at lrge discount fom ts book value on the backs of Mutu Savings. At the end of 1980 Blue Chip'sequty in Mutual Savings was cated i Blue Chip's consolidated balance sheet net of minoty interes. a $1.4 milion, and this equty cortbuted $3.4 millon to Biue Cip's consolidated earings in 198 ra he rte of 175% per annum, including $.8 millon of amortzation inte income, a the rate of 1/800 per year. of the dscount em book value at which the equity eral was purchased, ‘Some sdestonsl perspective onthe curent station may be obtained by examining the following table: Blue Chip's average equity Blue Chip's share of Annual percentage Calendar in Mutual Savings 9 carried the cash dividend paid return on Blue Ci year In Blue Chip’ consolidated by Mutual Savings equ fom the Mutual balance sheet during the year Savings lvidond 175 $11,975,000, $1,982,000 18.36 1976 20,570,000 3.206.000 187 977 23,028,000 3.545,000 161 1078 25,285,000 267,000 208 wn 25,630,000 6,728.00 293 1980 22,381,000 9,882,000 440 in 1982 fr sue, and perhaps in 1983, Mutual Savings wil ealze reportable, tax-deductible losses by ‘making sales and reinvestment involving mortgages wich wll have the effects of bringing the market ‘le ofits assets closer tothe ook value and eausing recognition for accounting and income-tax purposes of portion of he reel economic deterioration already in lace, caused by interest ats curent evel, Such salas and reiwestments wil almost surly cause suspension of vend rom ‘Mutual Savings tits parent corporation, Wesco, in 1982, ending for at leat year oro the important cash low shown in the immediatly preceding table, However. he income and cash-flow eects of 3 Pottfolo restructuring at Mutual Savings, ater partially osating favorable income-tax ofc, could ute conceivably increase na very matral way the dividends Mutual Savings wil beable to pay ata latr ime, porhape as eaty ab 1984. Allectructuring decisions wil bo mad with a view to long-term benefit, gnring considerations of mage. ‘But, no mater whats doe, it looks 1 us 38 operating a savings and loan association nthe future is going to presenta chatenge which, 2 a, we have fly ued out how to meet We do have alot of cotons, eluding expansion by acquiion, with or witout alton investment in Mutual Savings, and ‘wo trying to keep al options open a we de ou the storm, We do not have any intention tos Mutual Savings We hope that it wil ultimately na away to ern higher pros, sullen atleast to permit payment of dividends easing realization ofa eatitactory rate ‘of ratum on the carrying value of Blue Ghi's eau. "No savings an loan executive has hac an easy tein he ls ow years, Louis Vincent, chi executive ‘ofboth Mutual Savings and Wesco, ¢ no exception. In ur view the record he has created beter than ‘hose of his poor, refectng both unusual alent anc avery high senaeofstwardehip for savers and shareholder, PRECISION STEEL WAREHOUSE, INC. (Our 8056-ouned Precision St 1 subsidy cca nthe outst of Cheago at Frankin Park, ‘was acquired or approximately 815 milion on February 28,1979. owns a long-established stool sowie contr business anda subsidiary engaged inthe manufacture and istibution of tol room supolae and oer product ela unde ts own brand names. Precision Stes operating businesse ‘contruted 1,560,000 to our consolated netincame in 1981 compares with $1,205,000 in 1980:The Increase in earings was more than proporinatalyatvrbutabe to operations inthe fst tree quatrs of 1981 nthe at quarter of 1981 and he fest quatro 1982, earrings have daclned substantia, ratecting severe recessionary condos inthe steady. von under recessionary conltons operations rama proftabe, and we anticipate no great change in earings forthe il year 1982. ‘Te minimum shareholders’ equity, at Blue Chip’ carrying valve, required to operate Proison St business at ts 1961 lve! is about $14 milion, en which te business earned $1.9 milion in 198% or at = rate of 13.6% por annum, We knew whan we purchased Praciion Stel tat eaming aretun,satiactory under natonary condtions, onthe unleveraged equity capital requted to operat is business would be afte nd we supolea some leverage by borowing the purchase pic, retinancng ata aed rate 36 Soon 26 practiable, We onary Nave reservation conceening fears leverage but ae wing, an thie e286, to bortow monay to purehase as art of our mix of businesses a clean and moderately potable company tke Precision Ste! where inventories cared on the IFO bass representa substantial part of total assots and whore report earings ave expected usual totum up in cash, absent optional ‘Both Mutual Savings and Pocision Stel ae owned by Blue Chip Stamps through 80% contr of Wesco Financia Corporation a pubic company th shares rade on the American Stock Exchange. For more complete information, we encourage Bl Chip sharshoder obtain a copy of Wosce's 1981 annual report ‘Simply make your raquest to Wesco Financial Corporation 15 East Colorado Boulvars Pasadena, Calfomia 91109 [Aterton: Mea. Jeanne Leach, Treasurer BUFFALO EVENING NEWS, INC. (Our 100%-owned subsidiary, Butlo Evening News, Inc. was acquled in Api 1977 for approximately $24 milion. now constutes only approximately $28.5 millon of ou consolidated net worth, as ars, of about $55 milion of aggregate after-tax operating losses after acquiston, Ths tana oughly into 11 milion of aggregate operating losses before taxes. Howover, the operating loss, befor taxes ofthe News in 1981 was lower than that of 1980, having

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