RAYBESTOS-MANHATTAN, INC.

Office of the President                                                             Bridgeport, Connecticut

March 10, 1938

To THE STOCKHOLDERS OF RAYBESTOS-MANHATTAN,  INC.:

The Net Income of your Company during the year ended December 31, 1937 was
$1,924,879-60, equivalent to $3-03 per share, as compared with Net Income of $1,691,-
496-40, or $2-66 per share, in the year preceding. Net Income, as usual, was arrived at
after absorbing all costs and expenses, including depreciation, and valuing inventories at
the lower of cost or market. The adjustment of inventories to market was over $315,-
000.00, and taxes were nearly $1,100,000.00, as compared with about $850,000.00 in the
year prior. The total taxes were equivalent to $1.73 per share of the Company's stock, or
nearly the amount of dividends paid in the entire year.

No specific provision was made in the Company's accounts for an excess of approx¬
imately $75,000-00 in the cost of commitments for the purchase of raw materials over
the market or replacement values- The Reserve for Contingencies was more than sufficient
to cover the amount, and the purchases, as received, will be absorbed in operations at
cost-

Your Company, together with others, suffered the effect of the drastic recession in
business which occurred during the last months of the year, and ro which I referred in
my letter of December 15, 1937 to you- Net Income to September 30, 1937, before pro¬
viding for adjustments in inventories, etc., was $3.25 per share, and $3-57 per share for
rhe eleven months ended November 30, 1937, but, in December the effect of the recession
was such that an operating loss was incurred for the month.

It was necessary at the year end to provide for surtaxes on undistribured profits, for
the inventory adjustments already mentioned, and a distribution to employees at Christ¬
mas- The latter amounted to nearly $60,000.00, in addition to which vacations, at a cost
of approximately $120,000.00, had been allowed factory employees in the Summer-
Each of the Manufacturing Divisions operated profitably in 1937 and contributed
to the Company's Net Income for the year.

The increase in volume of business was developed along sound and diversified lines-
Extensions to existing units were operated satisfactorily and, with the new units estab¬
lished, added to the Company's earnings. During the year an additional building was
erected upon the Company's property at North Charleston, and equipped for the manu¬
facture of hose and rubber covered rolls- Similar units, already established at Peter¬
borough, Canada, and Neenah, Wisconsin, are among rhose ro which I have referred as
adding to earnings.

The Company's organization and personnel were maintained during the year 1937
ar the high standards of efficiency that have always been demanded by your Officers and
Directors-

Three addirions were made to the Direcrors: Messrs- John H- Merrell, Vice-Presi¬
dent and General Western Manager; Robert Abbott, Secretary and Treasurer and Gen¬
eral Manager of The Canadian Raybestos Company, Limited; and Robert B- Davis,
General Sales Manager of The Raybestos Division, each individual being an operating
Head in the Company's organizarion.