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To the Stockholders of Eastern Manufacturing Company: Your Company did a very good volume of business in 1929 as a whole, although in common with business in general it diminished during the latter part of the year. Pulp prices averaged somewhat lower than in the previous year. Paper prices suffered no particular reduction, but costs were increased appreciably by further improvement in the quality of specific grades which was forced by extremely competitive market conditions encountered. These conditions are due quite largely to a tremendous increase in the low cost production on the Pacific coast. In spite of these unfavorable factors the “Net Income for the Year” was very satisfactory as you will note from Operating Statement included herewith. It is equivalent to approximately $8.75 per share of Common Stock after setting aside the dividend requirements of the Preferred Stock. During the year, the voluntary capital reorganization of the Massachusetts Company was consummated, and on November 1, 1929, all of its assets and liabilities were transferred to a new Maine corporation of the same name. On December 31, 1929, the principal subsidiary—Lincoln Pulpwood Company—was abandoned and its business merged with that of the parent company. Both of these steps tend toward the simplification of the corporate structure and result in operating economies. During 1930 we hope to complete the program by the final elimination of the Liberty Paper Company and other subsidiaries. In line with policy set forth in my letter to Stockholders under date of July 19, 1929, approximately $1,000,000 has been spent upon the plants in the accomplishment of a much needed general improvement and rehabilitation as well as an increase of some 25% in the capacity for pulp production. The results of these expenditures are very gratifying and place the Company in a position to maintain its place in the industry with an increased volume of business. Relatively little benefit of the increased pulp production capacity was realized in 1929, but it will be apparent in 1930. Due to above expenditures plus the cash consumed in building up additional inventory of raw materials—necessary to provide for increased production rate—and payment of dividends on the Preferred Stock, cash on hand at the end of 1929 is somewhat less than it was a year ago, and bank loans have increased in the amount of $150,000. For the same reason the ratio of current assets to current liabilities is less than it was a year ago. These changes are clearly set forth in auditors’ Statement of Conditions embodied in this report. No large expenditures are planned for 1930 and with reasonably good business conditions this situation will steadily improve. Gratifying progress has been made in the final disposition of most of the serious and perplexing problems which confronted the new management upon its institution in January, 1928. The suit filed by the Baskahegan Company has been settled out of court by agreement and contract with them cancelled without any further cash payments being made. This settlement, however, necessitated heavy charge-offs of items carried as assets on the Company's books and these, together with other lesser items, Preferred Stock dividends, reorganization expenses and other unusual and non-recurring charges resulted in only about 30% of the next income being carried to surplus. Settlement of Federal taxes on prior years has not yet been definitely agreed upon, but it is reasonably certain that such will materialize during 1930, and that the present reserve carried on the books will be more than sufficient to cover the amount of final adjustment. After a careful study on the part of your officers and directors, this Company on January 1, 1930, acquired through merger with the Orono Pulp & Paper Company the timberlands, mills and other assets of the latter company and assumed all its outstanding liabilities. This merger involved the issue of 19,840 shares of Common Stock of the Eastern Manufacturing Company, which was distributed pro rata among the stockholders of the Orono Company. This new property consists principally of 112,000 acres of Maine timberland, a pulp mill and a paper mill located at Orono, Maine, on the Penobscot River about eight miles above Bangor, and an hydroelectric station which developes electric power for the mills. The m erger w ill considerably im prove the asset position of the Eastern, and was possible only because o f the apparent inability of the Orono to show profits operating as an independent unit under present com petitive market conditions. Its reorganization as a branch m ill under the Eastern management is now under w ay, and it is believed that profitable operation w ill grad­ ually build up as this reorganization progresses. The new m ills manufacture unbleached sulphite pulp and high grade coarse paper specialties, which are favorably known in the market. These grades o f paper are not com petitive with our EASTCO grades and w ill round out the E astern’s line, and increase our gross volum e o f business by about one fourth. The year 1928 was prim arily one of reorganization after the institution o f the new management in January of that year. The year 1929 has witnessed the com pletion of that w ork and the accom plishm ent o f much con ­ structive w ork in laying the foundation for a continuation of the profitable basis of operation upon which the Company has ben established. Y ours very truly, EDW ARD M. GRAHAM, President. Bangor, Maine. February 10, 1930.

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