Document 71Kogo1zrDj1KZYoqgg03GmLo

CERTAIN-TEED PRODUCTS CORPORATION ANNUAL REPORT 1970 "This world is but canvas to our imaginations." --Henry David Thorcau CTD036396 To Our Shareholders Certain-teed Products Corporation has gradually evolved from a company manufacturing and distributing a limited line of building products to a company with unusual capabilities to fulfill the housing and construction needs of our country. Certain-teed is a housing-oriented company, and our direction has been to provide maximum capability in this important sector of our economy. This capability is best illustrated by plans that are currently underway to acquire substantial acreage near one of our major metropolitan areas for the development of a new community. Location of this acreage, planning for efficient land usage, creation of the development plan, evaluation of the profit potential and financial requirements, and programming the construction of this complete urban community rests with our newly-formed Urban Development Group. Playing an important part in the function of this Group is Realtec, Incorporated, a land development firm acquired in the latter part of 1970. As the project gets underway, Realtec and another Certain-teed subsidiary, Modular Sciences, Incorporated, will develop the property. Both Realtec and Modular Sciences have extensive experience in land development. One of the first steps will be to install water and sewer systems as well as underground power and telephone lines. This will be accomplished by laying pipe using Certain-teed's Badger System. The pipe itself, asbestos cement, PVC and underground conduit, will be supplied by Certain-teed's Pipe & Plastics Group. Even the sewage disposal system will be supplied by Nayadic Sciences, Incorporated, a company also associated with Certain-teed. The plan calls for single-family homes, apartments, town houses, recreational facilities, commercial shopping areas, motels, office buildings and light industrial plants. All of this construction can be performed by Modular Sciences, using its extensive experience in both conventional and modular building techniques. The variety of structures will require roofing, siding, sheathing, doors, windows, masonry products, carpeting and a host of other products from Certain-teed's Shelter Materials Group. They will also require insulation, acoustical ceilings, bathroom fixtures and air ducts from our subsidiary, Certain-teed Saint Gobain Insulation Corporation (CSG). A planned development of this magnitude will require substantial financing. Here again, our Urban Development Group is equipped to provide this through a variety of sources, including arrangement for federally-subsidized housing commitments, syndication of real estate interests for the investing public, and a variety of other financing methods needed to bring the project to completion. This type of total corporate involvement, made possible by Certain-teed's unusual combination of manufacturing, marketing and service capabilities, will enable the Company to capitalize fully in a unique and profitable way on an extended period of intense building activity begun late in 1970 and projected to continue well into the future. The operations of the Company in 1970 can best be understood by certain clear-cut trends which developed during the year. At mid-year, the consolidated results of operations were essentially at the break-even level. By the end of the third quarter, net income had risen to approximately $1.5 million, and by the end of the fourth quarter net income before extraordinary items had risen to approximately $4 million. This CTD036398 dramatic change during the year reflected a turnaround in the housing industry. Effective January 1, 1970, CSG became a 65 percent-owned subsidiary of Certain-teed as a result of a recapitalization of CSG. Effective with the close of business on December31,1970, CSG became an 82 percent-owned subsidiary of Certain-teed by reason of a transfer to CSG of the net assets of Certain-feed's Gustm-ESacon Division. This latest move is a most constructive one in that CSG's capacity to produce a broad line of insulation products has been enhanced and many economies are expected to result from the combination of these two operations. CSG operations during the fast half of 1970 were profitable, giving support to management's optimism for this part of our business in the future. Considerable progress was made by Modular Sciences, our subsidiary, through the acquisition of four companies which are involved in land development, modular and component housing production, and construction of both residential and commercial structures. Modular Sciences moves into 1971 with a considerable backlog of business. The improvement in the mortgage market, both in terms of money supply and interest rates, caused us to reevaluate our program for expansion. Expenditures for 1971 will rise as the Company provides additional facilities to meet growing demands for our products and services. Additional financing has been arranged to provide the necessary capital for our expanding operations. In addition to a $10 million loan arranged with an insurance company and a $10 million term loan arranged with two banks, the Company has available extensive credit lines from numerous banking institutions throughout the country. The cooperation of our banking friends during the past year has been most gratifying. There were also some changes in key management personnel during 1970. In November, Mr. James A. Parker, who was elected to our board of directors earlier in the year, was named president of Modular Sciences, Incorporated and of our newly formed Urban Development Group. Mr. Byron C Radakerwas named president of the Shelter Materials Group and a member of the board of directors, and Mr. Harold McNabb was named president of the Pipe & Plastics Group. Mr. Lee Melton was named president, and Mr. Franklin R. Winnert executive vice president, of CSG. During 1970 the Company continued to pay its regular quarterly dividends, continuing the many years of consistent dividend payments made to our shareholders. This action was taken by the board of directors during an especially difficult period primarily because of confidence in the ability of our Company to reach new profit levels in the years ahead. We are especially pleased to note that the latest developments in the housing market made it possible for us to reflect in the latter part of 1970 the increased earning power of our Company. In conclusion, I wish to express my sincere appreciation to our shareholders, customers and friends for their cooperation throughout the year, and to commend the efforts of our employees, all of whom have contributed so much in 1970 and whose continued cooperation is essential to our success in the future. Respectfully submitted, President and Chairman of the Board Valley Forge, Pennsylvania March 15,1971 An artist's rendering of one of the many imaginative multi family dwellings designed by Realtec, Incorporated, Fort Lauderdale, Florida land development firm that forms the nucleus ol Certain-teed's Urban Development Group. CTD036399 "This world is but canvas to our imaginations." --Henry David Thoreau Toward a better environment `Certain-teed is a housing-oriented company." When early European colonists succeeded in founding this country's firshpermanent settlement at Jamestown, Virginia, their chief concern was one of survival. They set out to control and shape their environment in order to live amidst hostile surroundings: clearing the land, tilling the soil and building their shelters. In doing so, they changed for all time the face of the New World. In the 350 years that have passed since our forefathers struggled to launch today's dynamic industrial machine, change has been rapid. Our nation has become rich and affluent, long past the needs of basic survival. We have built facilities to meet our spiraling needs at an astounding rate, often with little or no thought to the long range problems these facilities might produce. Today, our environment is far from a natural one. It is an environment of declining natural resources, growing pollution, overcrowding and congestion. These problems, however, can be solved--in fact they must be solved--in a time span much less than it took to create them. The solution lies in planned growth and optimum utilization of our available land and resources coupled with a dedicated attack on pollution in all of its many forms. Certain-teed Products Corporation today is taking important steps in the search for ways to meet the threat to our environment. By doing this, we expect to profit as a company and hope to contribute to the betterment of our society. The first of three modules is lifted into place during a recent St. Louis demonstration ot modular building techniques conducted by Modular Sciences, Incorporated. The complete three-bedroom home was erected in less than six hours, ready tor occupancy. CTD036401 Total Company Involvement A major step toward our total involvement in environmental planning and improvement was taken during 1970 by acquiring controlling interest in Realtec, Incorporated, Fort Lauderdale, Florida. This land development firm now serves as the nucleus of Certain-teed's newly formed Urban Development Group. Realtec's imaginative staff brings to the Company an outstanding record of accomplishment in the planning, financing, design, construction and marketing of integral, self-sustaining new communities located on undeveloped land near major cities. These new communities harmoniously combine single family and multi-family homesites. with carefully selected industrial, commercial and municipal facilities, including schools, motels, shops, offices and light industrial plants. Careful preservation of the existing natural beauty and ecological balance is essential in all projects. Because of this, homesites enjoy access to lakes and streams (where available), parks and recreational areas. Planned communities of this type offer homes for thousands of families, many of whom may enjoy employment created in the planned development. Our resources for the manufacture and supply of building materials also were enlarged and strengthened during 1970. The activities of our Shelter Materials Group, representing approximately half of the Company's sales volume, were directed toward developing a more diverse product line and additional distribution facilities. Concentration was placed on creating a product mix for both the new construction and home improvement markets. Toward this goal, The B. F. Nelson Manufacturing Company of Minneapolis was acquired, bringing both production of asphalt roofing and sales strength to the "Plans are underway to acquire substantial acreage near one of our major metropolitan areas for the development of a new community ...Realtec and Modular Sciences will develop the property." A tentative plan, developed by Certain-teed's Urban Development Group, lor a new community to be located near one ol our major cities. The plan calls lor both single and multi-family dwellings, extensive recreational areas, municipal facilities and carefully selected commercial and light industrial areas. CTDO36404 "One of the first steps will be to install water and sewer systems, underground power and telephone lines...supplied by Certain-teed's Pipe & Plastics Group." where the Company has not previously been a significant factor. The Shelter Materials Group today is a major supplier of a broad line of building materials to many of the nation's largest, most prestigious retail firms, including Wickes. Wolohan. Moore's, Lowe's, Montgomery Ward. Kresge, K-Mart and J C. Penney. The coming year will witness the continued building of manufacturing and marketing capability of this Group, with plans to introduce familiar products into new markets and new products into existing markets Significant gains for our subsidiary, Certain-teed Saint Gobain (CSG), during the latter half of 1970 were attributable not only to termination of a prolonged work stoppage at the Berlin, New Jersey plant, but also to substantially improved production and marketing efficiencies and a general upturn in the construction industry. CSG set production records for its plants during the last quarter, proving the company's capability in meeting and surpassing production goals. A furnace rebuild at the Mountaintop, Pennsylvania plant will increase its capacity by 35 percent, just in time for the prime 1971 building season. This year, CSG will also have completed development of centralized control for its service operation, thereby permitting continued improvement in our ability to deliver materials to our customers when and where they want them. Another subsidiary, Modular Sciences, equips Certain-teed with both modular and conven tional construction capability to assist in the monumental job of Above: Certain-teed's Badger trenchless pipelaying system set a world's record in 1970 by laying 42 miles of rural water pipe in five days. Below: Production ol PVC (polyvinyl chloride) pipe by Certain-teed's Pipe & Plastics Group is growing at an annual rate of approximately 50 percent to meet the soaring demands tor this product in water and sewer systems, underground telephone, power and gas lines and in irrigation and pollution control. CTD036405 CTD036406 CTD036407 meeting the housing needs of our nation. Further expansion of Modular Sciences was accom plished this year with the acquisition of four building companies: Concord Homes, Incorporated, Fischer & Frichtel Development Company and Fischer & Frichtel, Incorporated, established St. Louis builders, land developers and modular and component home producers, as well as the W. H. Miller Company, a commercial builder in Atlanta. With this acquisition, Modular Sciences now operates three building profit centers: in Puerto Rico, in Atlanta and in St. Louis. Improving our environment, however, is in no way limited to an above-ground task. Moving utilities such as gas, electric and telephone service, sewage and water underground is an area in which Certain-teed is also deeply involved with the products and services of our Pipe & Plastics Group. In the years ahead, more and more communities increas ingly will demand underground utilities in the interest of main taining the natural beauty of their surroundings. Currently Certain-teed produces a wide line of asbestos cement and PVC (polyvinyl chloride) pipe. These products, coupled with our Badger trenchless pipelaying equipment, which set a world's record in 1970 by laying 42 miles of rural water pipe in five days, places Certain-teed in an unchallenged position as the leader in the supply of materials and equipment for installing underground utilities. Early in 1971, Certain-teed arranged to acquire Nordix Corporation, Houston, Texas, a leader in the manufacture and supply of precast concrete multi duct conduit. Nordix currently accounts for a substantial portion of the rapidly expanding under- "The variety of structures will require roofing, siding, sheathing, doors, windows, masonry products carpeting and a host of other products from Certain-teed's Shelter Materials Group." Above: Certain-teed's Hallmark roofing shingles are finding wide architectural use in many types of buildings because of their unusual capability tor combining the beauty of wood' shakes with the long-wearing, fire-retardant qualities of asphalt shingles. Left: Hollybook carpeting is a natural addition to the Shelter Materials Group's growing array of building products. It offers quality, durability, a rainbow of colors and a variety of styles, from plush shags to multi-level scroll patterns. Right: "Xylite," an experimental material from Certain-teed research, may be used as a decorative ceiling board or accent wall. Ecologists should welcome the Xylite process since it utilizes practically any scrap wood material, including bushes, branches as well as difficult-to-use wood species such as ash, elm, basswood and maple. CTDO36408 CTD036409 ground telephone conduit market. Nordix conduit is produced at ten manufacturing plants across the country, with coast-to-coast distribution. The company also has a licensee operating in Israel. This acquisition not only adds another product to our pipe and conduit line, but also broadens our distribution network. One of the fastest growing products in this segment of our business is PVC pipe. Certainteed's production is growing at a rate of approximately 50 percent annually in order to meet the soaring demands for this versatile material. Plans call for the construction of two additional production facilities in 1971. The first already is underway in Hagerstown, Maryland to serve the Northeast market. New Products for a New Environment New products introduced by Certain-teed in 1970 to help us better serve the underground utilities market included: YELOGAS PVC pipe for the gas industry; double-walled PVC sewer pipe, installed for the first time last year in Monmouth County, New Jersey; corrugated, perforated drainage pipe; and an improved, patented, integral gasket joint. New and exciting materials introduced in 1970 to make our shelters more attractive, com fortable and functional than ever before included: vertical exterior vinyl siding, offering beauty, a 40-year guarantee and natural insulation against extremes in heat and cold; a new selection of colors in asphalt roofing shingles; vinyl-faced residential ceiling board; wide width mobile home insulation; an expanded insulation "They will also require insulation, acoustical ceilings, bathroom fixtures and air ducts from our subsidiary, Certain-teed Saint Gobain Insulation Corporation (CSG)." Above: CSG put it all together in its recent introduction of the Cameo line of one-piece fiber glass reinforced polyester bathroom fixtures. They are one smooth flow of sculptured beauty from top to bottom-- the greatest innovation in bathrooms since indoor plumbing, and the greatest value too, lor the builder, the plumbing contractor and the user. Below: Now anyone can decorate as they insulate with CSG HouseComfort Decorator Insulation that replaces conventional repetitive logotypes on the insulation facing with a handsome, twotone basket weave design. The attractive fiber glass insulation not only brightens up new construction, but allows the do-it-yourselfer to spruce up an attic, basement or garage and make it more comfortable at a cost no greater than the insulation Itsetl. CTDO36410 15 CTD036411 board line; Cameo bathroom fixtures--tub and shower units of strong, long-wearing fiberglass reinforced polyester; and a line of fire retardant cushion for carpets that is now required in many hospitals and nursing homes. During the past year we also introduced a number of unusual insulation packaging improve ments that have been received enthusiastically by our customers. Certain-teed is now better prepared than ever to contribute significantly to environmental planning, financing, design and construction, and 1971 promises unparalleled profit opportunities for a company with these capabilities. 1971--Best Housing Year in Two Decades 1970 began with residential housing construction at its lowest level since 1966-67. However, the year ended with an important upturn in residential housing. The major factor effecting this change, one which is critical to Certainteed, was the easing of credit and the resulting increase of mortgage money at lower interest rates. Gains should be realized this year in both residential (see chart) and non-residential building. Total housing starts for 1971 are projected to be the best in two decades. Most important, 1971 is only the beginning in total upturn of the industry. All projections into the 1980's show steady gains. No Need to Waste Our Waste Control and disposal of solid wastes is a matter of major concern in improving our environment. This area has been a problem for many years and continues to outflank its solutions. Do we dump it, bury it, burn it, or recycle it--and how can we avoid further pollution in answering the need? T-A Materials, Incorporated, "A planned development of this magnitude will require substantial financing...our Urban Development Group is equipped to provide this through a variety of sources..." CTD036412 Early in 1971, Certain-teed acquired controlling interest in a patented process for transforming inorganic waste materials into building blocks, bricks and tiles. Clockwise: these bricks are produced from "frit"--the material left over alter garbage is burned In a high temperature incinerator; scrap asbestos; gold mine tailings; coal mine tailings; scrap glass; waste ferrous oxide; and ocean bottom dredgings. Using the Tech Process, it is possible to build whole buildings--even entire cities--from waste materials. ``This total corporate involvement...will enable the Company to capitalize fully... on an extended period of intense building activity... projected to continue well into the future." Palisades Park, New Jersey, a majority interest in which was acquired by Certain-teed early in 1971, offers a realistic solution to solid waste management that parallels our corporate concern for the environment. T-A has perfected a method of manu facturing high-quality building blocks, bricks and tiles from waste materials--sand, industrial waste, even "frit''--the residue remaining after garbage has been burned in a high temperature incinerator. This beneficial use of problem wastes holds high potential for Certain-teed and brings our involvement in the improvement of our environment full circle-- producing better products, planning our use of land and resources, to an effective method of solving our solid waste problems. Meeting the Challenge The approach to the problems of our environment represented by T-A Materials is indicative of the approach of our entire Company. We are dedicated to helping in the creation of a better environment --inside, outside, above ground, underground; with conventional or modular housing, with time-proven or excitingly new products. We firmly expect 1971 will show that our plans, our concern and our organization are equal to the task, and that this is the way to build a strong profit performance for our Company. CTD036413 POLLUTION: A realistic appraisal At Certain-teed, \ we share the : *7 public's growing concern over contamination of our environment and we support the commendable v<. v efforts of the many individuals and organizations who are dedicated to calling attention to this urgent 5 national problem. But even moreimportant, as a corporation we are committed to doing our part in the campaign to halt the damaging effects of pollution in all of its many forms. Our efforts in this regard are not merely a response to public pressure, although our corporate policy calls for full cooperation with all regulatory agencies. Nor is our pollution control program merely a public relations campaign. At Certain-teed we are deeply concerned about environmental contamination. We are equally concerned about maintaining the friendly, cooperative relationships we have enjoyed over the years in those communities where we operate production facilities that may be contributing to the pollution problem. But we also believe that the needs of modern industry can be met without seriously affecting the b^Jance of nature, and that the interests of technology and ecology need not conflict. In its simplest form, our corporate policy calls for a realistic appraisal of our social and economic responsibilities and for doing everything feasible to eliminate pollution where it can be eliminated, and to control it where its prevention is not possible But pollution control is not a simple matter. The diversity of our organization is such that we must deal with nearly every type of pollutant under varying operational conditions. We must cope with gases, waste water, dust, asbestos, asphalt and glass fiber particles, sediment, trash and chemical fumes, to mention just a few. All of these wastes are generated in enormous quantities, and preventing them from escaping into the air and water requires specialized equipment that, in some cases, has yet to be developed. To further complicate the picture, pollution problems often require different solutions even though the pollutants may be similar. The age and design of our production equipment, its location relative to other facilities, the geography and topography of the location with respect to prevailing winds and natural drainage--all of these and many others are factors which affect, and sometimes limit, our efforts. .These factors mean that our solutions must be developed on a case-by-case basis. We cannot always buy off-the-shelf pollution control equipment with any assurance that it will solve every problem. Each situation must be developed and engineered independently. And even then, we cannot be certain the control devices will function as planned. On a Company-wide basis, Certain-teed and its subsidiaries to date have spent more than $2.5 million in capital investments for the installation of facilities to control air and water pollution at our manufacturing facilities. Our current program of corrective action calls for additional capital expenditures of nearly $2 million. Our expenditures for pollution control have increased substantially during a period when Certain-teed and the building materials industry have been subjected to the keenest competition in their'history-- during a time when we are searching for additional markets, modernizing and expanding our facilities and conducting an extensive research program to develop new and improved products: Unfortunately, pollution control equipment, unlike production equipment, does not increase earnings, improve competitive 'position, expand production or cut expenses. And, it is costly to operate and maintain. But we are spending these funds because we firmly believe environmental quality is a matter deserving of the highest national priority, and that it requires the resources and mutual cooperation of both the public and private sectors of our society. At Certain-teed, we have been working for many years to eliminate pollution, and we believe we have made great progress. The problem has been licked at many of our plants. At others, much time-consuming research and engineering V remain to be done, VT and many more dollars will be spent. But more progress will also be made as we build on occccccc what we have learned. CTD036414 Certain-teed Products Corporation and Consolidated Subsidiaries Consolidated statement of income and retained earnings Years ended December 31,1970 and 1969--Note 1 NET SALES .............................................................................................. COSTS AND EXPENSES: Cost of goods sold .......................................................................... Selling and administrative ................................................................ OTHER DEDUCTIONS--net (includes interest'expense of $3,025,675 and $979,497).................................................................................... FEDERAL INCOME TAXES .................................................................. INCOME BEFORE EXTRAORDINARY ITEMS .................................... EXTRAORDINARY ITEMS: Write-off of subsidiary's prior year's preoperating costs .............. Provision for loss on disposal of plant and equipment, net of applicable Federal income taxes of $376,000 ................................ NET INCOME............................................................................................ RETAINED EARNINGS AT BEGINNING OF YEAR: As previously reported...................................................................... Company's share of CSG's accumulated losses............................ Retained earnings of pooled companies--Note 2............................ As restated ........................................................................................ DIVIDENDS: Preferred Stock.................................................................................. Common Stock.................................................................................. RETAINED EARNINGS AT END OF YEAR.......................................... INCOME PER COMMON SHARE (based on weighted average number of shares outstanding): Income before extraordinary items.......................................... Extraordinary items.................................................................... Net income................................................................................ 1970 $253,644,455 211,943,751 32,007,555 243,951,306 9,693,149 1,194,744' 8,498,405 4,497,000 4,001,405 2.456.114 600,000 3.056.114 945,291 60,455,480 (3,266,643) 607,313 57,796,150 58,741,441 747,439 3,593,983 4,341,422 $ 54,400,019 $ .72 (.68) $ .04 1969 $223,452,797 182,547,624 26,066,052 208,613,676 147839,121 658,382 14,180,739 7,475,000 6,705,739 6,705.739 57,066,761 (2,326,136) 540,678 55,281,303 61,987,042 799,034 3,391,858 4,190,892 $ 57,796,150 $1.35 $1.35 Net income per common share assuming full dilution is not presented for 1970 since the items entering into the computations would increase earnings per share. In 1969, fully diluted earnings per share amounted to $1.28. Depreciation of plant and equipment and amortization of intangible assets, respectively, amounted to $8,006,463 and $728,141 in 1970 and $5,085,044 and $339,663 in 1969. The accompanying notes are an integral part of this statement. CTD036415 Certain-teed Products Corporation and Consolidated Subsidiaries Consolidated statement of funds Years ended December31 ,1970 and 1969 SOURCE OF FUNDS: Income before extraordinary items.................................... Depreciation and amortization .......................................... Increase in long-term debt.................................................. Stock issued under stock options and compensation plans 1970 1969 $ 4,001,405 8,734,604 14,334,154 38,592 $27,108,755 S 6,705,739 5,424,707 32,823 1,596,870 $13,760,139 APPLICATION OF FUNDS: Increase in property, plant and equipment, net................................ Dividends .......................................................................................... Investments in and receivables from unconsolidated subsidiaries and, in 1969, an associated company.................................... Purchase of treasury stock................................................................ Other, net .......................................................................................... Working capital change resulting fromacquired companies............ Increase/(Decrease) in working capital.......................................... $ 9,260,237 4,341,422 2,482,703 260,977 131,749 973,979 9,657,688 $27,108,775 $11,842,084 4,190,892 2,214,007 423,026 (1,818,513) (3,091,357) $13,760,139 The accompanying notes are an integral part of this statement. CTD036416 Certain-teed Products Corporation and Consolidated Subsidiaries Consolidated balance sheet at December 31, 1970 and 1969--Note 1 ASSETS CURRENT ASSETS: Cash .................................................................................................. 1970 $ 3,159,965 1969 $ 2.352,513 Short-term investments, at cost..............!....................................... 9,000,000 5,471,587 Accounts and notes receivable, less allowance for uncollectibles of $2,144,306 and $1,738,116 ........................................................ 34,529,817 29,902,563 Inventories, including raw materials and supplies amounting to $10,792,757 and $8,785,000--at lower of cost or market........ Total current assets.......................................................... 43,057,965 89,747,747 __ 37,709,703 75,436,366 INVESTMENTS IN AND RECEIVABLES FROM UNCONSOLIDATED SUBSIDIARIES AND, IN 1969, AN ASSOCIATED COMPANY-- Notes 1 and 2 ................................................................................. 6,539,093 PROPERTY, PLANT AND EQUIPMENT, at cost, less depreciation of $51,749,776 and $40,156,203--Note 3 ............................................ 80,286,192 16,960,772 56,554,301 OTHER ASSETS AND DEFERRED CHARGES.................................... 3,855,704 4,182,651 INTANGIBLE ASSETS, at amortized cost.............................................. 8,705,312 $189,134,048 2,004,327 $155,138,417 The accompanying notes are an integral part of this statement. CTD036417 LIABILITIES 1970 1969 CURRENT LIABILITIES: Accounts payable and accrued expenses...................................... Notes payable and current installments on long-term debt--Note 4 Federal income taxes ......................................................................... $ 25,442,021 4,585,463 2,494,528 $ 20,690,130 3,927,967 3,250,222 Total current liabilities . ................................................................ 32,522,012 27,868,319 LONG-TERM DEBT--Note 4 ........................................................................ 40,685,086 12,198,050 OTHER NONCURRENT AND DEFERRED ITEMS--Note 5 ................ 5,249,833 5,124,083 MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY--Note 1 . . . 4,039,931 STOCKHOLDERS' EQUITY--Notes 1, 2, 4, 6, 7, 9 and 10: Preferred Stock, $1 par value, authorized 2,000,000 shares; 821,569 shares designated as Series A Convertible, issued 821,569 and 845,949 shares (liquidation preference $20,539,225 and $21,148,725).............................................................................. 821,569 Common Stock, $1 par value, authorized 7,500,000 shares, issued 4,519,960 and 4,493,480 shares.............................................. 4,519,960 Capital in Excess of Par Value.......................................................... 47,157,568 Retained Earnings ............................................................................ 54,400,019 Less: Common Stock held in treasury, at cost--14,902 and 21,486 shares ........................................................................................ Total stockholders' equity.................................................. .......... (261,930) 106,637,186 $189,134,048 845,949 4,493,480 47,035,664 57,796,150 (223,278) 109,947,965 $155,138,417 \ CTD036418 23 Notes to financial statements at December 31, 1970 1. Effective as of January 1, 1970, the stockholders of Certainteed Saint Gobain Insulation Corporation ("CSG"), a then 50%owned company, agreed to exchange its outstanding stock of all classes for common stock of a new class. This resulted in the Company owning approximately 65% of CSG's outstanding common stock. Commencing as of January 1, 1970, the results of operations of CSG were included in the consolidated state ment of income and retained earnings of the Company, after adjustment for the minority interest in CSG. Based on ils 50% common stock ownership in prior years, the Company has recorded 50% of the net losses of CSG for 1969 and prior, less the reversal of certain reserves applicable to such losses. As at December 31, 1970, the Company further increased its common stock ownership in CSG to 82% through the transfer fo CSG of certain assets and liabilities of the Company's GustinBacon Division. The minority stockholder of CSG has an option to acquire for cash additional shares of CSG common slock after December 31. 1971 but prior to December 31, 1973. If such right is not exercised, the Company has the right to ac quire the minority stockholder's common stock in CSG. Prior to CSG becoming a majority owned subsidiary and con solidation of its accounts with those of the Company, it was CSG's policy to defer preoperating costs associated with the construction of new facilities and to amortize these costs over a five-year period. In order to conform with the Company's policy of writing off preoperating costs as incurred, CSG's preoperating costs deferred in prior years have been written off as an extraordinary charge to income. Had the prior years' preoperating costs not been written off as an extraordinary charge to income, income before extraordinary items would have been reduced by approximately $508,000. In the previously issued financial statements for 1969 and prior years, the Company carried its 50% investment in CSG at cost, less certain reserves mentioned above, under the caption "In vestments in and Receivables from Associated Company aryd Unconsolidated Subsidiaries." As a result of the acquisition in 1970 of a majority interest in CSG and the consolidation of CSG for the first time, the accompanying consolidated financial statements for 1970 are not comparable with those for 1969. For comparative purposes with the 1970 financial statements, certain combined pro forma financial data for 1969 of Certainteed Products Corporation and consolidated subsidiaries and CSG follow (after giving effect to the exchange of stock in 1970 referred to above): 1969 Pro Forma Balance Sheet Data Current Assets ...................................... $ 80,814,987 Current Liabilities ................................ 34,294,112 Working Capital ............................ 46,520,875 Investments in and Receivables from Unconsolidated Subsidiaries ....... 4,056,390 Property, Plant and Equipment, net ... 79,905,616 Other Assets and Deferred Charges .. . 8,049,307 Intangible Assets..................... 9,326,186 147,858,374 Long-term Debt .................................... Other Noncurrent and Deferred Items . . Minority Interest in CSG ...................... 26,142,711 5,723,859 6,043,839 37,910,409 Stockholders' Equity......... $109,947,965 1969 Pro Forma Operating Data Net Sales .............................................. $245,965,970 Costs and Expenses................. 232,042,320 Other Deductions--net ........................ (257,089) Federal Income Taxes.............. 7,475,000 239,260,231 Net Income............................................ $ 6,705,739 CSG has available net operating loss carryovers of approx imately $11,450,000 at December 31, 1970. These carryovers may be used to reduce taxable income of such company for subsequent years, $2,350,000 expiring December 31, 1972, $4,550,000 expiring December 31, 1973, $3,400,000 expiring December 31. 1974 and $1,150,000 expiring December 31, 1975. Investment tax credit carryovers aggregating approx imately $795,000 at December 31, 1970 can also be applied against future Federal income tax liabilities. The unused in vestment tax credit carryovers can be utilized, $25,000 through 1974. $420,000 through 1975 and $350,000 through 1976, and under certain conditions these investment tax credit carry overs may be extended for three years. The utilization of the aforementioned net operating loss and investment tax credit carryovers is dependent upon the sub sidiary earning sufficient future taxable income. 2. During the year, the Company acquired, in a pooling of interests, the outstanding stock of another company in ex change for 150,000 shares of Common Stock. The financial statements at December 31, 1969, and for the year then ended, have been restated to include the accounts of the acquired company. In addition, the Company acquired by purchase, the outstanding capital stock of five companies and a minority interest in a partnership in exchange for 20,584 shares of Com mon Stock. In December 1970, the Company acquired by purchase ap proximately 58% of the common stock of a land development company for $3,126,000 in cash and notes payable due in 1976. At December 31, 1970, the Company's investment ex ceeded the underlying book amount of such unconsolidated company by approximately $1,000,000. The investment ($2,328,966) in Modular Sciences, Inc. (Mod ular), a 56% owned company, is carried at cost, adjusted for the Company's share of Modular's operating results since the date of acquisition of majority ownership. The accounts of Modular have not been consolidated since management be lieves that the majority ownership may be temporary, based upon the conversion rights of Modular's convertible preferred stockholders. The revenues and net income of Modular for the year ended December 31, 1970, amounted to approximately $14,700,000 and $251,000, respectively. The investment in Modular common stock was approximately $657,000 less than the Company's equity in the net assets of Modular. The Com pany also had accounts receivable due from Modular aggregat ing $1,084,127. The 1970 financial statements of Modular will be included in the Company's Annual Report on Form 10-K to be filed with the Securities and Exchange Commission. 3. Property, Plant and Equipment consists of: Land ...................................................... Buildings .............................................. Equipment.............................................. Construction in progress..................... $ 2,648,490 33,296,096 89,514,076 6,577,306 $132,035,968 Depreciation on plant and equipment is computed by the straight-line method on the basis of annual rates ranging generally from 2% to 12% in the case of buildings, and 5% to 20% in the case of equipment. Property, plant and equipment with a net book amount of approximately $6,000,000 has been pledged as collateral for certain mortgages payable. 4. Long-term debt, exclusive of current installments, consists of: 5.55% to 9.75% notes payable to insurance companies, payable in annual installments through 1987 ........ $20,120,000 5% to 8% notes payable to banks, payable in annual installments through 1982 ... 14,967,505 Other .......................................................... 5,597,581 $40,685,086 CTD036419 Required installment principal payments on the above in debtedness through 1975 are summarized as follows: During the Year: 1971.......................................... 1972 .......................................... 1973 .......................................... 1974 .......................................... 1975 .......................................... $ 4,585,463 5,386,568 5,114,898 4,276,373 4,306,887 The loan agreements to insurance companies and banks pro vide. among other matters, for prepayment options, the main tenance of a prescribed amount of working capital and certain limitations on the declaration of dividends, other than stock dividends. At December 31, 1970, consolidated Retained Earn ings of approximately $13,800,000 were not restricted as to the payment of Common Stock dividends, 5. Other Noncurrent and Deferred Items consist of: Deferred Federal income taxes................ Accrued pension costs.............................. Reserve for product guarantees................ Other.......................................................... $2,260,044 1,086,651 596,720 1,306,418 $5,249,833 6. Dividends on the Series A Convertible Preferred Stock are cumulative at the annual rate of $.90 per share. Each share is entitled to one vote, has a liquidating value of $25 per share plus accrued unpaid dividends, is convertible into one share of Common Stock and may be called by the Company after June 30, 1971 (subject to the conversion rights of the holders) at a price of $25 per share plus accrued unpaid dividends. At Oecember 31, 1970, there was outstanding a transferable Stock Purchase Warrant for 20,000 shares of Common Stock exercisable prior to June 22. 1972, at a per share price of $23.05. The Company has reserved a sufficient number of unissued shares for issuance against the warrant. Changes in shares of capital stock and in capital in excess of par value during the year are summarized as follows: Preferred -------------C--o--m---m---o--n---S--t-o--c-k---------------S--t-o--c--k-- Cap~ital .m. . issued Treasury Warrants Issued Excess of Shares Shares Shares Shares Par Value Balance at December 31, 1969, as previously reported .................. 4,343.480 21.486 20,000 845,949 $47,085,664 Restatement tor pooling of interests--Note 2 . 150,000 (50,000) Balance at December 31. 1969, as restated............. 4,493.480 21,486 20,000 845,949 a *7 ec a Exercise ot stock options-- Note 7 .................... 2,100 36,492 Conversion of Preferred Stock 24,380 (24,380) Resulting from companies purchased-- Note 2 .................... (20.584) 85.412 Common Stock purchased ............. 14,000 Balance at December 31. 1970 4.519,960 14,902 20,000 821,569 $47,157,568 7. During the year, the Company granted non-qualified stock options to officers and key employees at a price ($19.55) equal to 85% of market value on the date of grant. Options are exercisable not earlier than March 1, 1976 or later than ten years from date granted and the number of shares which may be exercised is dependent on the growth in earnings of the Company's divisions and consolidated subsidiaries during the five-year period ended December 31, 1975. The maximum amount of Common Stock which may be purchased pursuant to these options amounts to 133,000 shares. Pursuant to other stock option plans for officers and key em ployees, options for the purchase of 68,300 shares of Common Stock were outstanding at December 31, 1970, at per share prices ranging from $13.75 to $38.38 and options for 2,300 shares are subject to future grant. During 1970, options for 39,600 shares were granted, options for 2,100 shares were exercised, and options for 5,400 shares lapsed, of which options for 2,400 shares are not subject to future grant. .8 Charges to income for the current year for costs incurred under existing pension plans maintained by the Company amount to approximately $700,000. The net overfunded amount of the pension plans amounting to $1,800,000 as at Decem ber 31, 1970 is being amortized over a twenty-year period. The. Company intends to accrue but presently does not plan to fund current service costs. The actuarially computed value of vested benefits is less than the pension plan assets at De cember 31, 1970. 9. The Company is contingently obligated to reimburse a finance company or an affiliate thereof for losses incurred prior to January 1, 1975, on certain installment receivables acquired by them, up to a maximum of $3,000,000, and for losses arising from risks against which the Company is carrying insurance or has a reserve. No payments are expected to be required under this contingent liability. The Company will become contingently liable in 1971, to an insurance company, on a $5,000,000 loan arranged for an unconsolidated subsidiary. 10. The Internal Revenue Service in 1969 proposed tax as sessments against the Company and several of its sub sidiaries (including one subsidiary which previously had been liquidated) amounting to approximately $13,400,000, exclusive of interest, for the years 1961 through 1965, inclusive. Over 80% of this amount relates to operations since discontinued and, therefore, is nonrecurring in nature. The Company has pro tested the proposed assessments and, with respect to the significant issues involved, believes that it has meritorious de fenses which it is vigorously asserting in conference with Internal Revenue Service officials; consequently, no provision has been made therefor in the accompanying financial state ments. ACCOUNTANTS' REPORT To the Board of Directors Certain-teed Products Corporation Valley Forge, Pennsylvania We have examined the consolidated balance sheet of Certain-teed Products Corporation and consolidated subsidi aries as at December 31, 1970 and Ihe related consolidated statements of income and retained earnings and of funds for the year then ended. Our examination was made in accord ance with generally accepted auditing standards, and accord ingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We did not examine the consolidated finan cial statements of a majority owned subsidiary (not presented separately herein), but we were furnished with a report thereon by other certified public accountants. In our opinion, based upon our examination and the report of other certified public accountants refe;red to above and subject to the effect, if any, of the matter discussed in Note 10, the accompanying consolidated balance sheet and consoli dated statements of income and retained earnings and of funds present fairly the consolidated financial position of Certain-teed Products Corporation and consolidated subsidi aries at December 31, 1970, and the consolidated results of their operations and consolidated source and application of funds for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year, except as set forth in Note 1. New York, N. yN January 29, 1971 (J CTD036420 Board of Directors Malcolm Meyer, Chairman Ralph M. Bateman M. Stanley Davis, Jr. Edward A. Diefenbach* Ike S. Kampmann, Jr. Harold McNabb James A. Parker Nathan W. Pearson* Byron C. Radaker Geoffrey S. Sutcliffe `Executive Committee Officers Malcolm Meyer President and Chairman of the Board Edward A. Diefenbach Vice President, Finance James L. Strickland Treasurer Theodore F. Merkel Comptroller William D. BoylL Assistant Comptroller Barry C. Burkholder Assistant Comptroller John F. Mencer Assistant Secretary and Assistant Treasurer James R. Langdon Assistant Vice President Charles E. DeLong Secretary and Resident Counsel Bruce J. Phillips Assistant Secretary and Associate Counsel M. Stanley Davis, Jr. Vice President Lester F. Kaas Assistant Vice President Harold Barnard Assistant Secretary Harold McNabb Vice President President, Pipe & Plastics Group Edgar L. Melton Vice President President, Certain-teed Saint Gobain James A. Parker Vice President President, Urban Development Group, Modular Sciences, Incorporated Byron C. Radaker Vice President President, Shelter Materials Group Franklin R. Winnert Vice President Executive Vice President, Certain-teed Saint Gobain Transfer Agent Bankers Trust Company, New York Registrar The Chase Manhattan Bank, New York Common Stock Listed New York Stock Exchange and Pacific Coast Stock Exchange CTD036421 CERTAINi EED EXECUTIVE OFFICES Valley Forge, Pennsylvania RESEARCH LABORATORIES Blue Island, Illinois Elverson, Pennsylvania Kansas City, Kansas McPherson, Kansas North Wales, Pennsylvania Savannah, Georgia Waco, Texas SALES OFFICES Anaheim, California Arlington, Virginia Atlanta, Georgia Avery, Ohio Baltimore, Maryland '- Baton Rouge, Louisiana Cartersville, Georgia Chicago, Illinois Chicago Heights, Illinois Cleveland, Ohio Dallas, Texas Detroit, Michigan Edison, New Jersey Ft. Lauderdale, Florida Houston, Texas Kansas City, Kansas King of Prussia, Pennsylvania LaMirada, California Marlton, New Jersey Orinda, California Phoenix, Arizona Richmond, California Roanoke, Virginia San Francisco, California San Mateo, California Savannah, Georgia St. Louis, Missouri Social Circle, Georgia Tacoma, Washington Wilmington, Delaware PLANTS Ambler, Pennsylvania Avery, Ohio Berlin, New Jersey Buffalo, New York Cartersville, Georgia Chicago Heights, Illinois Dallas, Texas East St. Louis, Illinois Hagerstown, Maryland* Hartford, Alabama Hillsboro, Texas Kansas City, Kansas (3) Kansas City, Missouri McPherson, Kansas Minneapolis, Minnesota Mountaintop, Pennsylvania Richmond, California Riverside, California Santa Clara, California Savannah, Georgia Social Circle, Georgia St. Louis, Missouri (3) Tacoma, Washington Tyler, Texas Vega Alta, Puerto Rico Waco, Texas (3) York, Pennsylvania "Under construction DISTRIBUTION FACILITIES Abilene, Texas Albuquerque, New Mexico Amarillo, Texas Atlanta, Georgia Austin, Texas Baltimore, Maryland Beaumont, Texas Carlisle, Pennsylvania Chicago, Illinois Corpus Christi, Texas Dallas, Texas (3) Dawsonville, Georgia Edison, New Jersey Fort Worth, Texas Harlingen, Texas Houston, Texas LaMirada, California Little Rock, Arkansas Los Angeles, California Longview, Texas Lubbock, Texas Lufkin, Texas Midland, Texas Mount Laurel, New Jersey Odessa, Texas Portland, Oregon San Angelo, Texas San Antonio, Texas (2) San Francisco, California Shreveport, Louisiana Springfield, Massachusetts Tampa, Florida Texarkana, Texas Tyler, Texas Waco, Texas (2) Wichita Falls, Texas Woodbury Heights, New Jersey CERTAIN-TEED PRODUCTS CORPORATION H Valley Forge, Pennsylvania 19481 CERHUNTEED C7D036423