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To the Stockholders of Eastern Manufacturing C om pany: Y our Company did a very good volum e o f business in 1929 as a whole, although in com m on with business in general it diminished during the latter part o f the year. Pulp prices averaged som ewhat low er than in the previous year. Paper prices suffered no particular reduction, but costs w ere increased appreciably by further im provement in the quality of specific grades which w as forced by extrem ely com petitive 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 Incom e for the Y ear” was very satisfactory as you w ill note from Operating Statement included herewith. It is equivalent to approxim ately $8.75 per share of Common Stock after setting aside the dividend requirem ents of the Preferred Stock. During the year, the voluntary capital reorganization o f the M assachusetts Company was consummated, and on November 1, 1929, all of its assets and liabilities w ere transferred to a new Maine corporation of the same name. On Decem ber 31, 1929, the principal subsidiary— Lincoln Pulpw ood Company— was abandoned and its business merged with that of the parent company. Both o f these steps tend toward the simplification of the corporate structure and result in operating econom ies. During 1930 w e hope to com plete the program by the final elim ination o f the Liberty Paper Company and other subsidiaries. In line with policy set forth in my letter to Stockholders under date o f July 19, 1929, approxim ately $1,000,000 has been spent upon the plants in the accom plishm ent o f a much needed general im provement and rehabilitation as w ell as an increase of some 25% in the capacity for pulp production. The results o f these expenditures are very gratifying and place the Com pany in a position to maintain its place in the industry with an increased volum e o f business. Relatively little benefit of the increased pulp production capacity was realized in 1929, but it w ill be apparent in 1930. Due to above expenditures plus the cash consum ed in building up additional inventory o f raw materials— necessary to provide for increased production rate— and payment o f dividends on the Preferred Stock, cash on hand at the end of 1929 is som ewhat less than it w as a year ago, and bank loans have increased in the am ount of $150,000. For the same reason the ratio of curren t assets to current liabilities is less than it was a year ago. These changes are clearly set forth in au ditors’ Statement o f Conditions embodied in this report. No large expenditures are planned for 1930 and with reasonably good business conditions this situation w ill steadily im prove. G ratifying progress has been made in the final disposition of most of the serious and perplexing problem s w hich confronted the new management upon its institution in January, 1928. The suit filed by the Baskahegan Company has been settled out o f court by agreem ent and contract with them cancelled without any further cash payments being made. This settlement, however, necessitated heavy charge-offs o f items carried as assets on the Com pany’s books and these, together w ith other lesser items, Preferred Stock dividends, re­ organization expenses and other unusual and non-recu rrin g charges resulted in only about 30% of the next incom e being carried to surplus. Settlement o f Federal taxes on prior years has n ot yet been definitely agreed upon, but it is reasonably certain that such w ill materialize during 1930, and that the present reserve carried on the books w ill be more than sufficient to cover the amount o f final adjustment. After a careful study on the part of your officers and directors, this Company on January 1, 1930, acquired through m erger with the Orono Pulp & Paper Com pany the timberlands, mills and other assets o f the latter com pany and assumed all its outstanding liabilities. This merger involved the issue o f 19,840 shares of Common Stock o f the Eastern M anufacturing Company, which was distributed pro rata am ong the stockholders o f the Orono Company. This new property consists principally of 112,000 acres o f Maine timberland, a pulp m ill and a paper m ill located at Orono, Maine, on the P enobscot River about eight m iles above Bangor, and an hydro­ electric 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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