Document GKnygobY4wnLbZ6Jp8k1MJYym

Dupp. Axdersox & Clark, Ixc INDUSTRIAL INVESTMENT and financial analysts 208 south la SALLE STREET CHICAGO,ILLINOIS 60604 BmONE I3 i 21 2 6 3 * 2 S i O PLAINTIFF'S EXHIBIT; TPI-123 November 13, 1968 Board of Directors Saturn Industries, Ir.c. Southland Center Dallas, Texas 75201 Gentlemen: In accordance with your request, we are submitting herewith our Valuation Report on Tyler Pipe Industries, Inc. This Report sets forth in detail our.conclusions as to the strengths and weaknesses of the Company and ou appraisal as to its fair value. These conclusions are presented^at the end of the Report. . ; * . Based on all of the factors which we regard as relevant to an evaluation of this type, we conclude that the fair value of your 98-6$ equity interest in Tyler Pipe Industries at this time is $52 million which is equal to about 20 times recent earnings. We feel this value is fully justified by the Company's excellent record of profitability and future growth potential which, in our opinion, reflect the demonstrated ability of Tyler's management to generate earnings on the assets employed in the business as opposed to any particular underlying values of these assets. In this .connection, we further conclude that Tyler's asset values are generally conservatively stated but are comprised of basically single purpose buildings and equipment. Moreover, any additional values which might be ascribed to such assets would net, in our opinion, be material relative to the real value of the business. 1 If you have ar.y questions or if we may be of further service, please let us know. Respectfully submitted, CONFIDENTIAL T-55750 Dupi*. Axqerson & Clark, Ixc. industrial investment and financial analysts 206 south la sallc street CHICAGO. ILLINOIS 60604 PHONE iaizi 263-2610 Copy j" VALUATION REPORT TYLER PIPE INDUSTRIES, INC. November, 1966 i The information contained herein is of a confidential nature and is intended for the exclusive use of the persons or firm to Yjhom it is furnished by us. Reproduction, publi cation, or dissemination of portions hereof may not be made without prior approval of Duff, Anderson !: Clark, Inc. CONFIDENTIAL T* 55751 TABLE OF CONTENTS INTRODUCTION Purpose of Report Scope of Work Organization of Report CORPORATE HISTORY AND STRUCTURE Corporate Structure MARKETS, PRODUCTS AND COMPETITION Soil Pipe and Fittings Pressure Pipe Fittings (Utilities) Specification Drains (Wade) Summary FACILITIES MANUFACTURING AND LABOR RELATIONS Raw Materials Production Processes Inventory and Production Control Labor Relations TRANSPORTATION MARKETING ORGANIZATION AND MANAGEMENT Comments on Management Board of Directors SALES AND EARNINGS Historical Results Fiscal 1969 Earnings Long Term Earnings Cut loo 1: FINANCIAL CONDITION BUSINESS CONCLUSIONS VALUATION Valuation Procedure Comparative Data Relative Market Data Conclusion Page 1-1 1-1 1-1 1-2 1 2 3 3 12 16 \17 19 19 19 20 21 22 29 26 30 30 32 32 36 37 3S 95 ?0 50 51 59 57 CONFIDENTIAL T- 55752 TABLE OF CONTENTS (Continued) APPENDIX A APPENDIX B Financial Tables Comparative Consolidated Statement of Income and Retained Earnings, 1958-1963 Consolidated Hargin Analysis, 1958-1960 Comparative Consolidated Balance Sheet, 1958-1963 Consolidated Statement of Source and Application of Funds, 1950-1968 Comparative Common Stock Data Page 33 34 40 l 41 55 CONnDEMTIAL T* 55753 INTRODUCTION Tyler Pipe Industries, Inc., with sales exceeding $40 million, is a leading producer of cast iron soil pipe and fictings, cast iron pressure pipe fittings, and specification drains. The Company was formed in 1935 and full control of the Company was acquired by Michael J. Harvey, r.ow chairman of the board, in 1937. Prior to the recent acquisition by Saturn Industries, Inc. the common stock of Tyler F.ipe was held 420 by the Harvey family and 280 by members of management and a few major shareholders. A limited market was maintained for the stock with the major trading confined to the Balias area. Purpose of Report During August and September of 1968, Saturn Industries, _Inc. of Dallas, Texas purchased for cash under a tender offer 98.60 of the common stock of Tyler Pipe Industries, Inc. for a total consideration of $42.4 million, at $4o per share. The purchase was financed principally through bank borrowings, and Saturn is now in registration for sale of $15 million of a new issue of convertible subordinated debentures to refund a portion of such borrowings. 1 j The total consideration of $42.4 million was $29-9 million in excess of the net assets of Tyler with such amount now classified as "cost in excess of net assets of businesses acquired" pending completion of studies now in progress, including this Report. Duff, Anderson & Clark, Inc. has been retained by the board of directors of Saturn to determine the fair value of Tyler Pipe Industries on a going concern basis. Scope of the Work In the preparation of this Report, we reviewed the Company's background, present status and outlook with principal members of corporate management and heads of various staff functions. We visited the two manufacturing or foundry facilities in Swan, Texas and Macungie, Pennsylvania. We did net deem it necessary for purposes of our study to visit the Wade, Inc. (a wholly owned subsidiary of Tyler Pipe) warehouse facilities in Franklin Park, Illinois or its smaller warehouses in Atlanta and San Francisco. These facilities are all leased and Wade represents only 100 of volume and a smaller percentage of earnings. Cur financial analysis of the operation is based principally on audit reports prepared by Arthur Young 4 Company, supplemented by review of internally prepared statements and other information as required. The comparative financial information on other publicly owned companies used herein was obtained from regularly published financial and investment sources. CONFIDENTIAL T- 55754 1-2. Organization of Report In this Report we first review the history and background of the business and then discuss Tyler Pipe's product line and competitive position* manufacturing operations, transportation and marketing activities. This is followed by our appraisal of the organization and management, and an analysis of consolidated earnings and financial condition. Our business conclusions and valuation are set forth at the end of the Report. CONFIDENTIAL T - 55755 CORPORATE HISTORY AND STRUCTURE Tyler Pipe Industries, Inc., incorporated under the laws of Texas, dates from a small foundry company formed as Tyler Iron & Foundry Company in Tyler, Texas in 1935- The name was changed to Tyler Pipe & Foundry Company in 1946 and to the present name in 1967. Michael J. Harvey (70), now chairman of the board of directors (who was then in the clothing manufacturing business), purchased an interest in the Company and eventually bought full ownership in 1937 with his total investment being on the order of $3,000. With the purchase of a number of old patterns, the foundry entered the soil pipe business on a limited basis. During its formative years, Tyler Pipe experienced considerable operating difficulties as a small regional soil pipe producer. During World War II the Company was involved in some government workl iHowever, the period of major growth developed in the early postwar years spurred by the shortages and purchasing backlog built up during the war. Tyler outgrew its small plant located in downtown Tyler and moved to the present location in Swan, Texas (immediately north of Tyler) in 1948. The plant facilities have been expanded periodically since the original construction. Also, increasing mechanization has been introduced in the manufacturing process in contrast to the Company's early years when the bulk of the output was done by hand. Most of the growth of Tyler Pipe developed internally. The Company has expanded from a limited line regional soil pipe producer (marketing largely in a 5-state area of the south and southwest) to a national organization with perhaps the most complete line in the industry. The only external growth has come from two small cash acquisitions. In May, 1963 Tyler acquired Wade, Inc., a Chicago based producer of an extensive line of specification drains and other related products used in the plumbing industry. Tyler had a small line of these products but needed additional patterns to develop a viable market position. The common stock of Wade was purchased for $272,250. At the time of acquisition, Wade's sales of around $3-5 million were generating minimal earnings and some losses in prior years. Wade had no manufacturing facilities; while it owned patterns, production was jobbed out to other foundries. Wade's property consisted of a warehouse and office facilities in Franklin Park, Illinois. The property is now owned by Tyler Pipe's Employees Trust and leased to the Company. Wade's manufacturing requirements have been absorbed by Tyler, and the headquarter staff and sales activities have also been moved to the parent company location. CONFIDENTIAL T- 55756 2. The June 1964 acquisition of East Penn Foundry Company of Macungie, Pennsylvania was prompted by the need to have foundry facilities in the east in order to compete effectively in the important eastern market. Tyler had formerly served this area by rail shipments but this was becoming increasingly uneconomical. East Penn was purchased for cash including $375>000 for the common stock and $135jOOO for a. preferred stock issue. East Penn's soil pipe products are generally the same as the parent company's but its line is less extensive (confined more to standard items) and is supplemented through shipments from Tyler. Sales volume of East Penn was around $3 million but the company was showing losses. Tyler today ranks as probably the nation's second largest producer of cast iron soil pipe and fittings. In addition, it is an important factor in the production of cast iron pressure pipe fittings (utilities or water mains) and specification drains (Wade). As will be discussed later in this report, Tyler Pipe has a history, of innovativeness within its industry in product development, 1 manufacturing techniques, transportation, and sales which has contributed greatly to its progress over the years. The common stock of Tyler Pipe was closely held until a public offering of 150,000 shares at 12| (adjusted) in September I9c4. Of this, 100,000 shares were offered by stockholders and 50,000 shares represented new money to the Company. Until the cash acquisition by Saturn Industries, the Harvey family owned about 42# of the total stock outstanding with approximately another 28# held by members of management, employees, and a few major stockholders (including former members of management). As of yearend 1967, Tyler Pipe had a total of 1,540 shareholders. Corporate Structure Major operations of Tyler Pipe Industries, Inc. are conducted through the parent company. Ir. addition, Tyler has several smaller wholly owned subsidiaries, namely East Penn Foundry Company of Macungie, Pennsylvania; Wade, Inc. (formerly headquartered in Franklin Park, Illinois but now in Tyler, Texas); Tyler Brokerage Company (which owns all of the highway tractors and trailers leased to the parent); and Swan Development Company which furnishes water to the parent as well as an insignifi cant amount to residents of Swan, Texas. CONFIDENTIAL T- 55757 MARKETS, PRODUCTS AND'COMPETITION 3 Tyler Pipe Industries'products are broken down into three broad groups -- cast iron soil pipe and fittings, cast iron pressure pipe fittings (Utilities), and specification drains (Wade). A sales and pretax income breakdown for the past two years by the three major product group divisions -- Soil Pipe Division, Utilities Division and Wade Division -- is set forth below: Division Soil Pipe (2) Utilities Wade Total Sales and Pretax Income (In 000's) Year Ended February 3, 1968 (1) Sales Pretax % Income Sales Year October Ended 29, 1 966 1 Pretax % Sales Income Sales $31,667 5,155 4,187 $3,561 773 402 11.3# 15 .`0 9.6 $41,009 $4,736 11.5# $30,674 4,731 4,309 $2,213 568 293 7 2% 12.C 6.8 $39,714 $3,07^ 7.7% (1) Fiscal year changed from Saturday nearest October 31 to Saturday nearest January 31- (2) Includes operations of East Penn Foundry Soil Pipe and Fittings Soil pipe and fittings are by far the most important group of the three, accounting fcr 77.2% of sales and 75.2% of pretax income for Tyler in the fiscal year ended February 3, 1968. These products are used primarily in buildings for drainage, waste and vent piping. Non-building uses include swimming pool drains and recirculating lines to pool filters, and drainage on bridges where corrosion is a problem. Total annual industrywide sales of cast iron soil pipe and fit tings are estimated to approximate $200 million (near 1 million tons at about $200 per ton). According to the "Cast Iron Soil Pipe and Fittings Handbook" published by the Cast Iron Soil Pipe Institute, from 70-80% of the product is installed in plumbing systems in residential construction; most of the remainder is used in commercial and industrial construction including public buildings CONFIDENTIAL T-55758 I such as hospitals and schools. Consequently, cast iron soil pipe sales are related closely to building activity in general and more particularly to residential housing starts. In the following cable we show total cast iron soil pipe and fittings shipments compared with housing starts and value of new construction (in constant dollars) for the period I957-I9S7: Comparison of Housing Starts, Value of New Construction,and Soil Pipe and Fittings Shipments 1957-1967 ' 1967 1966 1965 1964 1963 1962 1961 i960 1959 1958 1957 Total Public Value of New and Private Private Housing Starts (Excluding Farm) and Public Construction in Constant 1957-59 Prices Cast Iron Soil Pipe and Fittings Shipments Ratio of , Soil Pipe Indei to to Index Index Index Index Index of of New Total 1957-59> 1957-59 1957-59 Housing Construc- Units = 100 Total = 100 Tonnage = 100 Starts tion (000's) (ilillions) (000's) 1,299 94 $59,257 115 1,173 85 61,692 120 1,488 108 62,213 121 1,535 111 59,172 115 1,615 117 1,469 107 58,101 113 55,948 109 1,337 97 53,087 103 1,274 93 52,171 102 1,531 111 54,222 105 1,362 ICO 50,270 98 1,224 89 49,635 97 939 986 5S 940 913 8G9 834 7C2 862 784 758 117 1.25 123 1.45 120 1.11 117 1.05 114 96 111 1.04 104 1.07 97 1.04 107 .97 96 .98 95 1.07 1.02 1.02 99 1.02 1.01 1.02 1.01 95 1.02 1.00 Source : U. S.. Department of Commerce "Construction Review". As indicated, shipments of cast iron soil pipe and fittings (broken down in tonnage around three-fourths pipe and one-fcurth fittings) have shown little growth over the period, increasing only 17# from 1957-1959 through 1967. In the ast ten years the rate of growth in shipments has been only about 2{S compounded annually and in the past five years IjS. With few exceptions the relationship of soil pipe shipments to housing starts and (even more significantly) to value of new construction (in constant dollars) show a fairly close correlation. The major deviation of soil pipe shipments from housing starts CONFIDENTIAL T - 55759 . occurred in the period 1963-1966 when housing units declined precipitously. However, total value of new construction held up well during this period as non-resjdential building (including public, industrial and commercial) showed good increases. Paradoxically, soil pipe shipments declined nearly 5% in 1967 from 1966 despite a more than 10% increase in housing starts. Thus it appears that total housing starts have become a less reliable barometer for the cast iron soil pipe industry than in the past. On the other hand, value of total construction, which includes commercial and industrial building, has shown an almost perfect correlation over the entire period. There are many factors which help to explain the divergence of cast iron soil pipe shipments from residential housing starts. First has been an emergence of substitute materials for making soil pipe such as copper and plastics. In recent years, copper in particular has made substantial inroads in residential housing, and, in some areas, plastics have also become an increasingly important 1 factor. These substitutes have been able to compete effectively onl a cost basis and, in addition, have certain advantages (such as less weight) in the small sizes of pipe and fittings used in single family residences. The more recent shortages and resulting higher cost of copper, however, have apparently stemmed, at least temporarily, this trend to some extent. It should be pointed out that even with increasing use of copper and plastics, cast iron retains a substantial part of the market in single family residences and continues as the preferred material for underground installation. A favorable development for the industry in single family residences, as well as in housing in general, has been the increasing trend toward multi-bathroom units requiring additional quantities of soil pipe and fittings. For example, the number of units having two bathrooms or more has increased from 46% in 1963 to 59% in 1967. Units having two-and-a-half bathrooms or more have increased even faster from 13% to 23% over the same period (source is the National Association of Home Builders economics department). This trend is expected to continue for the foreseeable future. At the same time that housing starts have been declining and substitute materials increasing in market penetration, another development which has had important implications for the cast iron soil pipe industry has been the changing composition of the housing market. During the past ten years (particularly through 1965), an increasing percentage of total starts have been represented by multi family and apartment buildings. In these markets larger size diameter pipe and fittings are required, and cast iron continues to represent the preferred material. In fact, we understand from Tyler Pipe management that copper and plastic have been unable to compete on a cost or quality basis in the larger diameter (5 inches and above) sizes. Thus the housing market has trended toward areas requiring larger size soil pipe. This has proven a benefit to the cast iron industry in terms of tonnage shipments offsetting to some CONFIDENTIAL T-55760 6. extent the total decline in starts and substitution of other materials. In our opinion, however, it appears likely that total cast iron soil pipe sales to the residential market have shewn little growth and quite probably have declined in recent years. This is borne out by Tyler Pipe's experience whereby its sales mix has trend-ed increasingly to larger diameter sizes as against the smaller sizes used in single family residences. We believe this trend also holds true for the soil pipe industry as a whole. A more important reason for cast iron soil pipe and fittings shipments rising in recent years in the face of declining housing starts is revealed to some extent in the excellent correlation with value of private and public construction (in constant 1957-1959 prices). Construction of public and private non-residential buildings, (including commercial, industrial and public buildings such as schools and hospitals) has shown excellent growth -- the single exception being a decline in 1967 from 1966 -- over the entire period. Value of public and private non-residential building (in constant dollars) has increased from an average of $13-5 million in 1957-1959 to slightly over $21 million in 1967, or an increase of 5&%' In the meantime, value of residential construction in constant dollars has declined from $21.6 million average for 19571959 to just under $19 million in 1967 or 12% during the period. (In the table on page k, total figures on the value of private and public construction also include private farm and public utilities construction, and public construction such as highways and streets, military facilities, conservation and development, sewer systems, water supply facilities and other miscellaneous construction. These combined made up around one-third of the total figure in 1967.) As in the case of apartment house buildings, non-residential buildings require larger sizes of pipe and fittings where cast iron apparently has no peer from a quality and cost standpoint. Thus cast iron soil pipe shipments have likely benefited greatly from growth in nonresidential building markets. Further evidence of the importance of this segment of the market as far as soil pipe shipments are concerned is borne out by the decline in value of private and public construction in 1967 from 1966 when residential housing starts increased. As can be noted, soil pipe shipments also declined in an approximately equal percentage during 1967 from the previous year. Against this industry background, the table on the following page shows Tyler Pipe's cast iron soil pipe and fittings shipments for the period 19Sl through 1967 and also the Company's percentage of total industry shipments. Also shown are East Penn's shipments since its acquisition by Tyler four years ago. CONFIDENTIAL T-55761 Soil Pipe and Fittings Shipments Tyler Pipe (1) # Tonnage Industry East Penn # Tonnage Industry Combined # Tonnage Industry 1967 1966 196s 1964 1963 1962 1961 149,600 149,686 141,772 131,420 122,027 106,774 93,816 15-9# 15.2 14.C l4.o 13.4 12.0 11.2 23,246 25,900 19,700 11,606 2.5# 2.6 2.1 1.2 172,846 175,586 161,472 143,026 18.4# 17.8 16. S 15.2 (1) Excludes intercompany shipments included in East Penn' s figures of 4,,184 tons in 1- ,,9f 65, 6,t05*5 t-ons in --196- 6~ and 4,j2--0-1-- t-ons in 1967. East Penn also purchases products from other producers. In contrast to the relatively static trends shown by the industry as a whole, Tyler Pipe's sales of soil pipe and fittings have increased sharply. Since 1961, Tyler Pipe's tonnage has increased at a compound rate of 10.7# annually (8.1# excluding East Penn) compared with only 2# for the industry over this period. Thus its share of total cast iron soil pipe shipments has grown from 11# in 1961 to more than 18# in 1967 with increased penetration in each year. The decline in shipments in 1967 from i960 (1.6# versus 5# for the industry) is attributed to a deliberate program of reducing sales in marginal areas rather than actual inability to sell the product. This permitted a reduction in labor overtime and has lead to substantial improvement in profit contribution, particularly from East Penn. Tyler feels its product line is one of the broadest (if not the broadest) in the industry. Products are available in two weights -- service and extra heavy -- and in sizes ranging from 2 inches to 15 inches in diameter. A broad line of products (or patterns) is necessary for any company wishing to compete on a national scale. There are apparently more than 3,000 different plumbing codes -city, state, regional and national. -- in the United States with limited standardization in fittings between municipalities. Thus a fitting which is sold in Detroit, for example, is unlikely to meet specifications in any other municipality. Moreover, attempts to effect changes in building codes in order to increase standardiza tion have proven extremely difficult and time-consuming. Tyler estimates that about 75# of its fittings are produced from 160-180 patterns but several thousands of additional patterns are required to complete the product line. Obviously, this requires considerable confidential T'55762 numbers of short manufacturing runs at marginal profitabilii;y. It should be noted, however, that elimination of these short run lines would probably result in reduced sales of more profitable long run lines (for example pipe) as customers would likely order from companies able to meet all specifications. Thus, the broad line of products represents a necessary evil but also carries with it certain blessings making it extremely difficult for new companies to enter the industry. Tyler Pipe's phenomenal growth within a static industry results from a number of factors, foremost of which we feel is highly capable management. From all indications, Tyler has been the industry leader in new product development, sales, manufacturing, and transportation innovations (which will be discussed later in this Report). In product development, the Company was first to introduce 10 foot pipe (in 1957) with only 5 foot lengths available in prior years. This pipe with a plain end was adapted from a Swedish process modified co suit Tyler's needs. The pipe is manufactured by a centrifugal casting process using permanent metal molds rather than sand molds; adoption of this method has led to considerable increases in production as well as savings to the plumbing industry in installation costs. Despite opposition from others in the industry and the need to effect changes In building codes, the 10 foot single hub pipe (as well as 5 foot single hub lengths) has become a standard. Tyler showed substantial growth after its introduction, and single hub pipe (5 and 10 foot lengths) now represents over 48# of total Company soil pipe and fittings sales (based on tonnage sales in the first quarter of 1968) and around two-thirds of total soil pipe sales. In terms of actual production of soil pipe, however, the percentage is slightly larger since Tyler does not manufacture its own 10 foot double hub pipe which is purchased from competitors. Tyler later developed permanent mold methods (in i960) for making fittings, adapted from processes used in making castings in the automobile industry. It was the first in the industry to use permanent mold wheel type casting machines, resulting in substan tial increases in production. Most of Tyler's soil pipe fittings are presently made by this method although the old sand mold method is still used in shorter run patterns. The permanent mold method permitted castings to be made to much closer tolerances than before, thus making it possible to develop new and improved types of joints. The soil pipe joint (connection between two pieces of soil pipe or a pipe and a fitting) has long been made from oakum fiber and molten lead. This joint, while perfectly satisfactory, is somewhat difficult and time consuming to make. Tyler in a joint effort with Murray Rubber Company Inc. (which recently was acquired by Woodward Corporation) developed a neoprene rubber gasket compression joint sold under the trade name TY-SEAL. This joint has proven to be a CONFIDENTIAL T-55763 much more efficient, lower cost method and is gaining increasing acceptance in the plumbing trade. Since its introduction in 19ol, Tyler sales of TY-SEAL gaskets have increased substantially, approximating $3*7 million (9% of total sales) in the fiscal year ended February 3, 1968, and importantly, contributing measurably to profits (probably over 20$ of total net income last year). Despite the fact that a joint patent is held with Murray, Tyler has offered the gasket free of charge to the soil pipe industry. It is felt that greater and more rapid acceptance by the plumbing industry will result from an industrywide effort to the benefit of all participants rather than a solo effort by Tyler. Moreover, the economies provided to the plumbing industry in installation costs compared with former methods of making joints has probably been a factor in keeping cast iron soil pipe competitive against alterna tive materials. Tyler supplies about 50$ of all joints of this type (made for Tyler to its specifications by several rubber companies -- but no longer by Murray) with its brand TY-SEAL being almost a generic name and commanding a premium price. Other companies, however, are developing more competitive products. Thus, Tyler's advantage may be diminishing. At the same time growth should continue strong with only about 50$ of cities as yet having approved the gaskets. A more recent development -- not by Tyler -- has been hubless pipe and fittings using a sleeve joint consisting of a rubber gasket and a steel shield tightened by a steel retaining clamp (much like the clamp used to attach radiator hose in an automobile). Tyler sales of no hub pipe and fittings are as yet small but are increas ing rapidly. The table on the following page dramatically illustrates the importance to Tyler Pipe's product and profit breakdown of the developments discussed above. Specifically, 10 foot plain end pipe plus TY-SEAL gaskets accounted for over three-fifths of pretax profit in the soil pipe and fittings division in the first 12 weeks of this year. confidential T-55764 10. Soli Pipe and Fittings Percentage Sales and Profit Breakdown First 12 Weeks 1968 5 Foot Single Hub 5 Foot Double Hub 10 Foot Single Hub 10 Foot Double Hub No Hub Pipe Total Soil Pipe 55 Tonnage 17.255 IS-9 30.7 .8 2.5 71.1 Sales Dollars 11.455 14.0 22.2 .6 2.2 50.4 Pretax Margin 5.2fS ( 5.3) 22.0 (18.7) 14.2 9-8 fo Pretax Profit 3-9^ (4.8) 31.9 ( -8) 2.0 32.2 Soil Fittings TY-SEAL Gaskets and Accessories Staple Specials No Hub Accessories Total Soil Division 24.3 1.3 3-2 .1 100.055 27.5 13.8 6.0 2.3 10C.05S 15.4 34.1 16.0 20.0 15.3* 27.7 30.6 6.3 3-2 100.055 In assessing the above tables, several factors should be borne in mind. First, the figures are for Tyler, Texas operations only, excluding East Penn. Moreover, the figures represent only the first 12 weeks of this year and reflect an unusually profitable period in Tyler Pipe's operations. Thus pretax profit margins are not indicative of what should be expected for the full year or in the future (the pretax profit margin for the soil pipe and fittings division in fiscal 1968 was 11.3# and in the previous year 7.2#). Also, Tyler management has indicated that the Company has not developed sophisticated measurements of cost allocation and product profit breakdovm. Within these limitations, however, we feel the figures are representative of product sales breakdowns both by tonnage and dollars and, although not in absolute terms, give some indication of differences and relative contribution to profitability of various products. As indicated, profit margins are very good in 10 foot single hub pipe, TY-SEAL gaskets, fittings and other specialties. The Company has had considerable difficulty in developing a profitable double hub business (and indeed purchases all of its 10 foot double hub pipe from other manufacturers) but hopes to make some improve ment with better manufacturing techniques. CONFIDENTIAL T-55765 11. We next show a summary of sales and pretax income for the soil pipe and fittings division for the past five 2/ears. The figures are broken down to show sales from Tyler, Texas of soil pipe and fittings, TY-SEAL gaskets and accessories, and East Penn operations. Soil Pipe and Fittings Division . Summary of Sales and Pretax Income Year (1) 1968 1966 1965 1964 1963 Tyler $23,723 23,161 21,130 19,527 18,697 Sales (000's) TY-SEAL East Penn $ 3,662 3,099 2,005 1,114 587 $ 4,283 4,4l4 3,235 783 Total $31,66? 30,674 26,370 21,424 19,284 1 Tyler $ 3 3.,X06 S Pretax Income (000's) TY-SEAL East Penn X$ % Sales $ Sales Total .# $ Sales 1968 1966 1965 1964 1963 $1,967 1,204 1,907 1,793 1,581 8.3# 5.2 9.0 9.2 8.5 $1,099 930 602 334 176 30.o 30.0 30.0 30.0 30.0 $ 495 79 (312) (155) 11.695 1.8 ( 9.6) (IS-8) $3,5ol 2,213 2,197 1,972 1,757 11.395 7.2 8.3 9.2 9.1 (1) Fiscal years ended around October 31 in 1963-1966 and February 3, 1968. In viewing these figures, some of the limitations mentioned previously in regard to profitability of product groups should be kept in mind. For example, the fact that pretax margins on TY-SEAL gaskets have been unchanged for the entire five-year period suggests that profit figures may have been forced to some extent. Given these limitations, the table shows a strong growth trend in TY-SEAL sales as well as a turnaround in profitability of East Fenn operations. This latter recovery has been accomplished with the elimination of unprofitable sales and stress on a limited line of long-run products augmented by shipments of products frcm Tyler. The 1966 decline in Tyler profit margins reflects to some extent heavy charge-offs relating to unsuccessful attempts to develop a machine to make double hub pipe. CONFIDENTIAL T55766 12. For the entire Tour-year period, sales of the soil pipe and fittings division have increased at a more than 13# annual rate compounded while pretax income has grown at a mors than 19# annual rate. This has been accomplished entirely from development of new products such as TY-SEAL gaskets and superior volume growth both relative' to the industry and in absolute terms. We understand that little if any benefit has come from increases in product prices with prices of cast iron soil pipe and fittings possibly down for the five-year period. As to competition in the soil pipe industry, Tyler Pipe is probably the number two factor behind Woodward Corporation. United States Pipe and Foundry Company and Central Foundry Company rank third and fourth. In addition to these four major factors, there are a number of regionally based companies. In all there are now about 19 companies in the industry wich 31 plants in 14 states. The number of foundries producing soil pipe has declined over the years 1 ifrom 56 plants in 1953 to 47 in 1956 and 38 in 1959- Thus although shipments have increased slowly, the business has been divided by fewer companies,permitting somewhat faster growth individually than indicated by total industry figures. Manufacturing capacity is heavily concentrated in Alabama which accounts for around threefifths of total industry shipments. Along with competition from other cast iron soil pipe producers, inroads have been made by substitute materials. We have already mentioned competition from copper and plastics. In addition, soil pipe is made of fiber (basically slurred paper), concrete and clay tile. Fiber was used more extensively during the war and interme diate postwar periods when other materials were in short supply. Concrete and clay are used primarily in sewer mains and in under ground connections outside buildings. Thus Tyler's competition from substitute materials is primarily from copper and plastic. As we have mentioned, this competition has intensified in the lower diameter sizes, but these sizes generally are less profitable. It is in the lower diameter lines that plastics appear to be making the most headway currently. Tyler has estimated plastic soil pipe sales at $30 million annually, compared with $200 million for cast iron. In the larger sizes, cast iron continues by far the preferred material both from a quality and economic standpoint, and competitive inroads are less likely to develop rapidly in the fore seeable future. It should again be emphasized that these larger sizes represent the most profitable segment of the soil pipe business and constitute the bulk of Tyler's sales volume. Pressure Pipe Fittings (Utilities) Tyler Pipe's second most important product line is cast iron pressure pipe fittings with these items accounting for about 12.6# of sales and 16.3# of pretax income in the fiscal year ended February 3, 1968. These products are used in municipal and private CONFIDENTIAL T-55767 13- water supply and other systems for transporting liquids under pres sure. The Company also distributes (but does not produce) a modest amount of pressure pipe. The product line also includes municipal castings -- valve boxes used in water systems and for metering controls, and manhole rings and covers used in sanitary systems. Tyler's pressure pipe fittings line encompasses thousands of different patterns in various shapes and sizes ranging in diameter from 2 through 16 inches. Below we sec forth a comparison of Tyler Pipe's production of pressure pipe fittings with industry shipments of these items. Comparison of Industry Shipments of Pressure Pipe and Fittings with Tyler Pipe Production 1961 - 1967 1967 1966 2.965 1964 1963 1962 1961 Cast Iron Pressure Pipe and Fittings Tonnage Shipments (1) (000's) 1,781 1,806 1,876 1,859 1,677 1,351 1,384 Tyler Pressure Pipe and Fittings Tonnage Shipments 16,287 13,392 14,291 15,443 11,797 9,847 7,437 Tyler # Total Shipments .91# .74 .76 .33 .70 7? 54 (1) Source: U. S. Department of Commerce "Construction Review". Tyler Pipe is a relatively small factor in the total industry which includes pipe used for gas mains etc., as well as water mains. Management, however, has estimated that it accounts for around 12# cf total industry sales of cast iron pressure pipe fittings for water mains alone. Since 1961, Tyler's production has more than doubled, increasing at a 14# compound rate annually compared with just over 4# for industry shipments. Pressure pipe fittings carry higher average sales prices per ton than soil pipe and fittings (around $3^0 versus $200) and have proven to be a highly profitable line for Tyler Pipe. This is revealed in the following summary of sales and pretax profits for the past five years. CONFIDENTIAL T-55768 Sales and Pretax Income Pressure Pipe Fittings 1963-1968 Year (1) 1963 1966 1965 1964 1963 Net Sales (000's) $5,155 4,731 4,272 4,621 3,554 Pretax Income % $ Sales (000's) $773 563 641 693 533 15.0# 12.0 15.0 15.0 15.0 (1) Fiscal years ended around October 31 for 1963-1966 and February 3, i960 1 Again, these figures should be viewed within the limitation of produce profit breakdown as discussed earlier in relation to profitability of soil pipe products. Sales and profits have increased nearly 10?S annually during the past four years or slightly faster then Tyler's tonnage production for the same period. The prospects for further growth in this area are considered quite attractive. Limitations on sales in recent years have largely resulted from lack of facilities, but Tyler is now in the process of increasing its capacity for producing cast iron pressure pipe fittings. Tyler's competition in cast iron pressure pipe fittings comes from a number of the same companies with which it competes in soil pipe. The larger companies in the industry include Clow Corporation, Ucodward Corporation, United States Pipe and Foundry, American Cast Iron Pipe, McUane Cast Iron Pipe and the Griffin Pipe Division of Amsted Industries. In addition, competition is also developing from other materials such as plastics, asbestos cement, and concrete. Cast iron continues to hold the major part of total sales, but asbestos cement has made inroads in the past 15 years, and plastics have beceme more important in recent years, particularly in the smaller diameter sizes. CONFIDENTIAL T* 55769 Specification Drains (Wade) Tyler's third broad product group is specification drains -- the line acquired in the purchase of Wade, Inc. in 1963. These products accounted for slightly over 10J? of total sales and 5.5# ox' prst?.x income for the year ended February 3, 1968. The WADE line encompasses a wide range of different iron and brass items specified by mechanical engineers by name, purpose and use number. At the time of acquisition, Wade had its own patterns but all the manufac turing was jobbed out to other foundries. The line has subsequently been broadened and manufacturing is novj centered in Tyler's Texas plant. However, seme difficulties have been experienced in bringing Wade's profitability up to desired levels despite the fact that average sales prices (around $1,000 per ton) are much higher than for other products. Part of the problem lies in the large number of specialized short run products, but we also sense that the major warehousing facility in Franklin Park, Illinois is less than, of optimum efficiency. Tonnage figures on specification drains and related items used by the plumbing industry are not available but are less meaningful than in the soil pipe and pressure pipe fittings area due to the wide range of products and materials. The table following summarizes Wade's sales, pretax and net income for the past five years: Wade, Inc. Sales and Earnings 1963-1968 Year (1) 1965 19661965 1964 1963 (2) Net Sales (000s) $4,137 4,309 3,538 3,191 1,532 Pretax Income # $ Sales (000's) $ 402 293 73 111 - 9.65S 6.8 2.1 3*5 Net Income # $ Sales (000's) $ 217 197 73 111 - 5-2# 4.6 2.1 3.5 - (1) Fcr years ended around October 31 from 1963 through 1966 a February 3, 1963. (2) Figures cover six month period from May 1 acquisition date end of fiscal year. CONFIDENTIAL T-55770 Wade's sales and pretax income since 1964 (the first full year of operations under Tyler) have increased at annual rates of about 9.5# and 53.5#, respectively. The lacter figure is of little significance, however, when viewed in the context of the marginal i profitability of Wade^three to four years ago. The net income figures for fiscal 1964 through 1966 reflect prior years' tax loss carry forwards totaling $222,400 [approximating $C6,76o in 1964, $68,560 in 1965 and $67,090 in 1966). Tyler Pipe indicates that Wade ranks a strong fourth nationally in sales of specification drains and related products. According to figures compiled for Plumbing and Drainage Institute covering six companies, Wade accounts for from 11-12# of the total. The three largest companies in the industry are Josam Manufacturing Co. of Michigan City, Indiana, Zurn Industries of Erie, Pennsylvania and J. R. Smith Manufacturing Co. domiciled in New Jersey. Competition from alternate materials such as plastic is not of consequence. Summary To summarize Tyler Pipe's product lines, the Company is a particularly strong factor in soil pipe and fittings which provide by far the bulk of its sales and earnings. Tyler has one of the broadest product lines in the industry and has a history of innovation in terms of new product development. We are impressed with the Company's tonnage growth over a period of years despite a basically static trend in industrywide sales. Management has exhibited an ability to emphasize products which carry above average profitability and has effectively exploited developments within the building industry such as the trends to larger size pipes and fittings. With a larger than industry proportion of its sales going to commercial and industrial markets, we feel Tyler Pipe is less vulnerable to developing competition from alternative materials such as plastics and copper. In pressure pipe fittings (utilities), Tyler has developed a good market position in a product area carrying above average profitability. Sales growth, while good has apparently been limited to some extent by lack of facilities but capacity for these items is now being increased. Thus, we feel Tyler's potential in this area continues very good over the next few years. The Wade line (specification drains and related items) is a mere specialized product group with large numbers of different items. Profitability in this area continues below desired levels. We sense, however, that Tyler is in the process of making improvements in manufacturing and product quality as well as in distribution, and these programs should improve profit contribution from Wade over the next several years. CONFIDENTIAL T* 55771 FACILITIES 17. Tyler Pipe has three foundries -- tv/o at Swan, Texas and the third at Macungie, Pennsylvania (near Allentown). In the process of preparing-.this Report, we visited and inspected thoroughly all of these facilities and found them to be in good condition for plants of this type. Tyler Pipe's initial foundry was located in Tyler, Texas. However, with the expansion of business following World War;II, additional space was required. In 1940 a tract of land was purchased in Swan, Texas eight miles north of Tyler and initial construction begun on what is now referred to as the South Plant or foundry. The second foundry was begun in 1951. Both facilities have been' expanded periodically since the initial construction, and Tyler has also added to its land holdings from time to time. As presently constituted, the main office and two foundries at Swan are situated on a 307 acre tract of land (all owned in fee) with approximately 71 acres utilized and the remaining acreage available for expansion purposes. The Swan complex encompasses several buildings of corrugated iron and steel frame construction having approximately 575,000 square feet of floor space of which around 400,000 square feet are devoted to foundry operations and the remainder to machine shops, garages and warehousing. A considerable amount of outdoor space is paved and utilized as storage for soil pipe and fittings and pressure pipe fittings. Warehouses under roof are devoted to storage for patterns, supplies, Wade products, some pressure pipe fittings and TY-SEAL gaskets. The main office is located in a building of masonry construction having approximately 17,500 square feet of space. The land, buildings and all machinery and equipment at Swan are subject to a lien securing Tyler's out standing $2.2 million 5-3# first mcrtsa2e bonds (original amount $3*5 million) held by American National Insurance Company. The East Penn Foundry at Macungie, Pennsylvania (acquired in 1964) is located on a 73 acre tract of land. The buildings, which we understand were built seme 40 years ago, are of masonry construction with about 105,000 square feet utilized for foundry, garage and warehouse operations and an additional 3,500 square feet of office space. Wade, Inc., originally located in Franklin Park, Illinois (oucside of Chicago), is now headquartered in the main office. Manufac turing facilities are also included in Tyler's foundry complex. Wade continues to operate a 4o,000 square foot office and warehouse at Franklin Park and in addition has major warehouses at Swan (includ ed in the previous discussion and consisting of 35,000 square feet) and Macungie and two smaller warehouses in Atlanta and San Francisco. The Franklin Park warehouse is owned by Tyler Pipe's employees profit sharing trust and leased to the Company under a long term CONFIDENTIAL T-55772 lease having about five to six years to run for $50,000 annually. The warehouses in Atlanca and San Francisco are also leased under short term arrangements of less than three years. Tyler management now feels the Franklin Park warehouse is too large for its needs (as well as being inefficient) and is considering leasing a smaller location in the Chicago area (little difficulty is expected in sub leasing this facility to other parties). CONFIDENTIAL T-55773 : IANUFACTURIHG AND LABOR RELATIONS 19. Financial comparisons with competitors (which will be detailed lacer in this Report) indicate that Tyler is a very efficient producer, notwithstanding some clearly defined problem areas -- specifically the Wade line (due to the high degree of specialization of its products) and double hub pipe. Additional production difficulties result from the need to provide two weights of pipe and fittings (service and extra heavy) plus the wide variety of fittings and other products required to meet the many plumbing codes in different municipalities. As a result, there is little if any opportunity for standardization. If, however, the industry is at least partially successful in its efforts to bring about more standardization in both patterns and weights, substantial break throughs in production efficiency could well result. I Raw Materials Basic raw materials include scrap metal, coke, lime stone, fluorspar, resin, bentonite, silicon, sand ar.d core oils. Such materials are acquired from a great number of sources but there are no significant contractual arrangements with suppliers. Most of the scrap metal is purchased from dealers in many parts of the United States where Company trucks make delivery of finished goods and then back haul scrap to Tyler. In its earlier years, Tyler's major raw material was pig iron (which is still used by its major competitors). However, its source of supply (Lone Star Steel's Daingerfield, Texas plant) was lost in 195^> and with no alternative source for purchasing pig iron within a reasonable distance of its plant Tyler found itself at a consider able disadvantage relative to Alabama based soil pipe producers. At that time Tyler turned to scrap iron which has proven to be a very economical raw material. Production Processes The scrap metal is melted in three cupola furnaces (the tv:o at Tyler are water cooled and that at Macungie is a conventional furnace). Present cupola capacity at the Tyler plant is 300,000 tons a year which compares with actual plant production of around 175*000 tons. Thus, the Company has substantial excess furnace capacity with actual produc tion of soil pipe and fittings limited to some extent by a tight labor supply. In its manufacture of soil pipe fittings and other products, Tyler uses all of the standard casting methods. Production of soil pipe fittings and other fittings and specialties incorporate both the static sand mold and permanent metal mold methods although the latter process accounts for the bulk of Tyler's output. Both methods involve pouring molten metal into a mold and around a sand core to form the inside of the fitting. All single hub pipe, CONFIDENTIAL T-55774 20. representing by far the greater proportion of total Company pipe output, is made by the centrifugal casting method (which does not require a core to form the center); as mentioned previously, this ^process was pioneered by Tyler. In double hub pipe, both centrif ugal and conventional static casting are used. Tyler has had difficulty in developing a satisfactory machine for the centrifugal process for making double hub pipe; in fact, problems in this area resulted in large charge-offs against earnings in I9S3, 1964 and 1966. We understand the Company has now developed a better machine but is still not fully satisfied with performance to date. The Company at present is in the process of increasing its facilities for producing pressure pipe fittings and is increasing its total capacity to produce fittings by 17%. It is estimated that present pipe machinery already provides a reserve capacity of 25$ except for double hub pipe. Thus, with the present expansion, Tyler will have adequate reserve capacity to permit continued good growth i in production over the next several years. | Tyler management has given careful consideration to entering the plastic pipe and fittings business. It is felt that such a move is not yet warranted but that entry could be accomplished with a relatively low investment, probably on the order of $2.5 million total. This would involve several regional plants plus development cf seme 500 patterns to produce small diameter sizes (2 to 4 inches) of pipe and fittings where plastics have proven more competitive. Inventory and Production Control Tyler has developed a fairly sophisticated computerized inventory and production control system and believes it Is the first company in the industry to do so. It is significant that consider ably more emphasis has been given to utilizing computers in this function than in the more standard but less profitable areas such as financial accounting. Inventory planning is tied to a sales forecast (based on past sales history) which is revised continuously. The computer reviews inventory levels and automatically delineates those areas which are in short supply. From this information pro duction schedules are also developed by the computer. Although the peak seasonal sales period for Tyler's products falls in the spring and summer months, production at peak levels during the cooler winter months has proven to be more efficient from a labor standpoint. Thus the major inventory building is done in this period and, accordingly, shipments are made out of inventory during the peak sales months. As will be detailed in the Transportation section that follows, the ability to deliver products withir. a very short period of time is crucial in this industry and thus good inventory and production control is essential; Tyler's method has proven very successful in scheduling its many different products. In this connection, coordination between Tyler's production staff and the financial and accounting department is very close. CONFIDENTIAL T- 55775 21 . The above discussion relates to the soil pipe and pressure pipe fittings divisions where the computer program has produced excellent results. Tyler is presently in the process of putting the Wade line of products on the computer but this is proving more difficult due to the myriad number of products in this area. Labor Relations Tyler Pipe's labor relations have on the whole been quite good, and over the years, the Company has never had a crippling strike. Three different work stoppages have been called but these received only minimal support from Tyler's employees. Until 1965, the Texas plant was not unionized. In that year The International Molders Union (which has been the bargaining unit at the East Penn Foundry for several years) was able to win an election to organize Tyler Pipe's foundry workers at Swan. This election is still being contested and is scheduled to be reviewed in the Court of Appeals this month. It is felt that if the Court rules1 for a new election, the Union will have little chance of winning. , The Teamsters Union recently held an election to organize Tyler's ' transportation workers but lost by a substantial margin. A shortage of labor has been a limiting factor for Tyler Pipe both at Swan and Macungie. Operations at Swan are on a two-shift basis. North Plant operations are on a two ten hour shift, four day a week basis with the South Plant operating on a five day basis with two shifts of eight hours each. Tyler has tried three eight hour shifts per day but this has proven to be less efficient than on a' two a day basis. The East Penn plant is presently on only one shift a day, presumably due to difficulty in getting additional labor. Swan has some 2,300 employees including 1,900 on an hourly basis and East Penn has 150 employees of which 125 are on an hourly basis. Many of the hourly labor force is on an incentive-piece work basis. Other incentives for the workers include a profit sharing plan and pension fund. These two funds are tied together so that pension benefits begin after profit sharing proceeds are used up. confidential T55776 22. TRANSPORTATION As another example of management's innovativeness, Tyler Pipe was the first company in the soil pipe industry to offer truck delivery to its customers; previously, all shipments had been by rail. In effect, it could be argued that Tyler Pipe's growth and major industry position has been built on transportation. In addition to providing better service to its customers, good trans portation was later necessitated due to its location. Texas was relatively remote from the traditional basic sources of raw material supply compared with principal competitors based in Alabama, particularly after losing its source of pig iron from Lone Star Steel. Thus its raw materials had to be trucked or brought in by railcar. With the initiation of truck transportation, Tyler began ^ providing a considerable amount of warehousing for its customers } with product delivery promised on a very short notice. Thus it has become the practice in the industry for users to order soil pipe and fittings at the time needed rather than some period in advance. This, of course, puts considerable pressure on Tyler's transporta tion system as well as its inventory and production control activities (discussed earlier). Inability to deliver would likely cause a loss of product sales to a competitor. In Tyler's case, approximately 50# of truck deliveries are direct to the job with the balance to customers warehouses. Tyler's wholly owned subsidiary, Tyler Brokerage Company, operates some 75 large highway tractors and about 125 trailers which are leased to the parent. All of its equipment is serviced in Tyler's own garages by its own maintenance force. In addition to operating the highway equipment, other functions under the Transportation Department include all the inplant equipment (such as fork trucks, yard tractors, etc.), warehousing and purchasing -- excluding bulk commodities, and the Wade warehouses (where special attention is now being given to improving operations at the Franklin Park location). C0NTI-^5H5777!TIAI' Transportation operations are carefully coordinated to insure optimum use of Tyler's own equipment. In order to assure full loads ;rips are scheduled on a multi stop basis but with a maximum of chree stops per trip. Delivery is rarely scheduled in Tyler's own crucks unless a "back haul" of rav; material to the plant can be arranged. In fact Tyler's trucks are loaded both going and return ing about 95# of the time. About 50# of all raw materials including much of its scrap iron, is brought in by Tyler's own trucks with eke remaining materials (primarily sand, limestone, and coke) shipped in by rail. When a shipment cannot be economically justified via its own truck fleet, Tyler uses commercial carriers -- generally C & H Transportation of Dallas in the north and northeast and Eagle Motor in the southeast. Tyler also uses railcars in some cases (e.g., the Northwest). Inability to compete effectively in trans portation to the northeast was the major factor prompting the acquisition of East Penn. 23. Since a substantial amount of its competition is centered in Alabama, Tyler must absorb freight charges when shipping into the southeast area. Prices to customers are generally based on the nearest shipping point. Conversely, the Company obviously has a freight advantage over its Alabama competitors in the five-state area of Texas, Louisiana, Arkansas, Oklahoma, and New Mexico as well as in some parts of the midwest and west. However, Tyler frequently must absorb freight in some of the latter areas where smaller regional producers provide strong competition. Management estimates that it operates its fleet of trucks around 10 million miles a year with approximately 200 truck loads a week. During the peak summer months the Company has about 140 drivers (two per truck) but this is reduced to around 120 drivers in the seasonally slack winter months. Mileage for each team is care fully scheduled to assure fair treatment for all 140 drivers. Trucks are generally driven some 1 million miles each before j being sold. Even so, with the excellent maintenance, Tyler has had little difficulty in selling the used vehicles at good prices. Trucks to be sold are disposed of in the winter months with delivery of new vehicles taken in the spring. CONFIDENTIAL T-55778 MARKETING 24. Another of Tyler Pipe's real competitive strengths, in our opinion,-is its marketing organization. Sales are through some 200 manufacturers representatives who handle Tyler's products on an exclusive basis but may also carry other non-competing plumbing lines. Tyler has only ten salesmen on its own payroll. The Company sells to about 1,200 accounts of which around 300 represent meaningful sales volume. The two largest national accounts are American Standard, Inc. (with Tyler's sales to 70 of its branches) and Crane Company (71 branches in the midwest). At one time these companies accounted for 6# each of Tyler's soil pipe and fittings sales but neither accounts for over 4# presently. Tyler's own small sales force spends considerable time on so called "missionary" work, and thus these salesmen are not order takers as such. Missionary work in this case involves calling on contractors, municipalities, etc. with the primary objective being the specification of Tyler Pipe products by these ultimate users. In addition, through its contacts with contractors and municipal ities, this group is continually involved in working on improving and increasing standardization of building and plumbing codes to permit greater utilization of such products as TY-SEAL gaskets. This program has proven quite successful over the years, particu larly in connection v:ith newer products such as 10 foot plain end pipe and TY-SEAL gaskets (both of which were initially opposed by others in the industry). The great bulk of Tyler's sales are to plumbing supply houses, with the remainder direct to utility contractors or municipalities; some of the latter sales are on a competitive bid basis. Because most of its sales are indirect, Tyler has no accurate measurement of the type of buildings (residential, commercial, etc.) in which its products are used. However, based on weight and diameters of soil pipe and fittings, Tyler feels that from 50-60# of its sales go to the commercial and industrial market (presumably also including larger apartment dwellings); this is in contrast to the total soil pipe industry where 70-80# of sales are in the residential sector. Thus Tyler's sales mix is more heavily weighted toward the larger and heavier products which carry better profit margins. We have indicated previously that Tyler has a definite freight advantage over most of its competitors in the five-state area of Texas, Louisiana, Oklahoma, Arkansas and New Mexico. The only direct competition in this region is from a smaller Woodward Corporation plant (also located in Tyler, Texas). Of Tyler's total shipments from Swan, Texas (as measured in the year from October 31, 1966 through November 4, 1967), approximately 37# were to this five-state area with Texas alone accounting for one-fourth CONFIDENTIAL T- 55779 25. of total sales. Other important sales regions include the eightstate midwesc area (Michigan. Ohio, Indiana, Illinois, Wisconsin, Minnesota, Iowa and Missouri) accounting for about one-third of sales. About half of these sales are in the two states of Illinois and Michigan. Less than 10# of sales are to the southeast, not surprising in view of the heavy concentration of competitors in the area. In the far west, Tyler has good sales totals in California but has elected to curtail its efforts in the northwest and northern California due to heavy absorption of freight. All shipments into this area are by rail. East Penn has increased Tyler's ability to compete in the northeast where previously its sales were minimal. This area consumes some 35-^0# of all soil pipe in the industry. East Penn's sales are generally limited to a 350 mile radius of the foundry. However, this takes in most of the major cities of the east.includ ing Pittsburgh on the west, Washington D. C. and upper New York State to Buffalo. At present, however, very little business is being done in New York City or Philadelphia, both of which are characterized as "price" markets. A very minimal percentage of Tyler Pipe's sales are normally to overseas accounts. Wade sales operations are somewhat more specialized due to the nature of its products. Orders are smaller and call for a larger variety of items. As indicated earlier, Wade has five company operated regional warehouses and apparently few customers inventory the Wade lines. In order to compete, sales representatives must work closely with architects in order to have Wade products specified in buildings. CONFIDENTIAL T-55780 ORGANIZATION AND MANAGEMENT 26. Tyler Pipe's or3anizational structure can be characterized as a simple line-staff type of framework. There are three line functions -- operations, sales, and transportation -- and two staff departments -- treasury and industrial relations. The men in charge of these five areas report directly to president John A. Warner (44). In addition, the vice president for advertising and public relations (who is also assistant to the president) plus the man in charge of bulk commodity purchases also report directly to Mr. Warner. A description of the major activities included in the above five functions plus advertising and public relations follows. Biographies of Company officers are shown beginning on page 29. Operations William J. Speas (51), vice president Manufacturing, engineering, and construction. Sales James B- Horan (45), vice president Marketing of all three Company lines -- soil pipe, Wade, and utility areas. Transportation and Distribution W. B. Duckett (53), vice president Shipping and receiving, warehousing, purchasing (except for bulk commodities), vehicle maintenance, mobile equipment, and Wade operations (basically a warehousing function). Treasury Glen Uzzel (46), vice president and treasurer Normal treasury functions (including credit), con troller's office (data processing), and also inventory and production planning. CONFIDENTIAL T-5SZW Industrial Relations David McKie (48), director of industrial relations Labor relations and personnel. Advertising and Public Relations Richard S. Harvey (3-4), vice president and assistant to the president 27 In -addition to the preceding organizational structure. East Penn Foundry is a separate company operating on an autonomous basis with assistance provided by Tyler when required. This operation is run by a general manager with the other key men being the plant manager and the treasurer. The general manager and plant manager moved to East Penn from Tyler shortly after the acquisition was consummated in 1964. 1 I Excluding Mr. Michael Harvey (70), chairman and chief executive officer, and Mr. Duckett, all of the officers are relatively young with Mr. Speas the oldest at 51- In addition, all of the members of top management have been with the Company for all or most of their business careers with the shortest tenure Mr. Horan's 14 years. We should cite Mr. Duckett's health as a possible problem as he is currently recuperating from a heart attack. In our opinion Tyler's management philosophy is best character ized by a great deal of autonomy by the vice presidents; yec we feel that communication is excellent between these men and president Warner and also with each other. Coordination among the production, sales, and treasurer's (which includes the important inventory control responsibility) functions is close although informal. In this connection, we are much impressed by the fact that all of the members of top and middle management appear to have an excellent working familiarity with manufacturing operations as well as demonstrated expertise in their specific areas of responsibility. Committees play a relatively minor role. A management staff consisting of all officers plus Mr. McKie meets weekly, but this is primarily a reporting session. An executive committee is made up of Messrs. Warner, Uzzel, Michael Harvey Sr., and Richard Harvey; however, we get the impression that this is not a regularly working committee. CONFIDENTIAL As to the evolvement of the present management group, T-55782 Hr. Warner succeeded Michael Harvey Sr. as president in 1965* Mr. Harvey continues as chairman and chief executive officer and Is still very active in general policy decisions; however, for all practical purposes, Mr. Warner is running Tyler on a day-to-day basis. Mr. Harvey's ultimate successor at one time was felt to be Mr. Malcolm Henley who served as vice president - operations from 23. 1952-1962. For personal reasons, however, Mr. Henley left the Company in 1962. Also during this period, there was speculation that Mr. Harvey's oldest son, Michael Jr., would eventually become chief executive, but he left the Company as a vice president in Icel and went off the board in May of this year. Against this background, John Warner was named executive vice president in 1964 (prior to which he was not a Company officer) and a director and president the following year. Although Mr. Warner had previously been junior to Messrs. Uzzel, Speas, Horan, and Duckett, all of whom held their present positions prior to 1964 (actually Mr. Uzzel was secretary - controller and a director in 1964 and was not made a vice president until 1966), we feel his selection was, and continues to be, a generally popular choice. Middle management presently consists of about 35 men ranked for compensation purposes in grades #1 through #4. There are seven men in grade #1 including: David licKie (43), director of industrial; relations; Dwair. Kline (36), controller; J. P. Johnson (47), ' foundries superintendent John A. Lasater (53), chief engineer; and three sales managers -- Carl Schilter (52), soil pipe; Gray Ellis (40), Wade; and Dale Meador (4o), utilities. As in top management, most of this group has been with Tyler for all of their careers and average about 15 years of service (exceptions are Messrs. Kline, LasAter, and Ellis who came to the Company from outside). Groups 2-4 are primarily made up of various production supervisory people and generally have long tenure with the Company. The table below shows compensation for the top officers plus grade *rl. In our opinion, pay levels are certainly reasonable for this size company and particularly so in light of Tyler's excellent record. Salary Bonus Totala Compensation M. J. Harvey John A. Warner W. B. Duckett Richard Harvey James B. Horan W. J. Speas Glen Uzzel Group 1 Average (seven men) $47, 500 33,000 27,000 27,000 27,000 27,000 27,000 15,000 $1",500 15,000 10,000 10,000 10,000 10,000 10,000 4,000 $65,000 43,000 37,000 37,000 37,000 37,000 37,000 22,000 a In addition, Company provides each officer plus Group 1 personnel with an automobile. CONFIDENTIAL T-55783 Brief biographical summaries of Company officers follow: Michael J. Harvey (70), chairman and chief executive officer, founded Tyler in 1935 (and bought out his original partner two years later) following previous sales management experience with Sledge Manufacturing, a work clothes producer also located in Tyler. He served as chairman and president until 1965 when Mr. John A. Warner was named president. Mr. Harvey, who attended Texas A & M and the University of Wisconsin, is a director of Tyler Bank & Trust Company and East Texas Savings & Loan Association. John A. Warner (44), president, attended Notre Dame, Purdue, and the University of Oklahoma. Following a few years in a family oil distribution business, he joined the Company in 1950. From 1950-1964, he was in the operations area and was named North Plant superintendent in 1962. Mr. Warner was elected executive vice president in 1964 and president and a director the following year. He is very active in industry affairs and currently serves as president of the Cast Iron Soil Pipe Institute. ] | W. B. Duckett (53), vice president, transportation, joined Tyler in 1950 following 21 years with Southwest Transportation, a subsidiary of the Cotton Belt Railroad. His 18 years with che Company have been devoted to the transportation area, and he was named to his present position in 1963. Mr. Duckett has many years of service with several trucking industry groups including a tern as president of the Texas Motor Carriers Transportation Association. Richard Harvey (34), vice president and assistant to the president, is the youngest son of Chairman Michael Harvey. He attended Southern Methodist University and the University of Alabama and joined the Company on a full time basis in 1956. Following experience in several areas of the business, Mr. Harvey was named a vice president in 1961 and currently is responsible for advertising and public relations. Janes B. Horan (45) , vice president, sales, came to Tyler in 1954 following sales experience with Arnco Steel. His career with the Company has been devoted to sales, and he was made sales manager in 1961 and assumed his present position in 1963* Mr. Horan attended Texas HM University. William J. Speas, Jr. (51), vice president, operations, has been with Tyler Pipe Industries for 25 years. Mr. Speas has come up through the manufacturing side of the business holding such positions as foundry superintendent and plant manager prior to becoming vice president, operations in 1964. He attended the University of Michigan. CONFIDENTIAL T-55784 3C. Glen Uzzel (46), vice president and treasurer, has been connected with Tyler Pipe for 21 years although his early years were primarily spent in working on Mr. Michael Harvey's personal affairs. He was named assistant secretary in 1956 and has held the secretary, controller, and treasurer's positions and was named vice president, treasurer in 1966. Mr. Uzzel has been a director since 1964. He attended Tyler Junior College. Dwain C. Kline (36), secretary and controller, came to the Company in i960 following experience in public accounting with Arthur Young & Company. Mr. Kline was named assistant secretary in 1963, controller in 1965, and secretary in 1967. He is a graduate of Southern Methodist University and a certified public accountant. Comments on Management We are generally much impressed with the present management group at Tyler Pipe. Ir. our opinion, the Company's excellent record in a relatively undynamic industry is primarily the result of management strengths in such key areas as transportation, inventory and production control, product quality and trade relationships and customer service. Of a more intangible quality is the dedication and high morale that appears to pervade the whole Company. The members of top management have worked together effectively for many years and probably know each other better than top managements in most United States industrial companies. We are also impressed with the knowledge of manufacturing operations that all members of this group seem to possess. It is also our opinion that the general quality of the 35 members of the middle management group is above average. Beard of Directors As shown in the following table, the board of directors is presently made up of four Company officers, one former officer, and five Tyler businessmen. Outside of the Company representatives, we do not consider the board a particularly strong one. CONFIDENTIAL T-55785 TYLER PIPE IHPUSTRI3S, INC. Board of Directors Company Officers M. J. Ha'rvey, chairman John A. Warner, president Richard S. Harvey, vice president Glen Uzzel, vice president - treasurer Former Officer Louis Squyres, former treasurer 31. Director Since 1935 1965 l$6l 1964 1 1964 Outside Directors J. S. Hudnall, Hudnall Sc Pirtle, consulting geologists, Tyler, Texas T. W. Joyner, Joyner-Fry, retail clothing, Tyler, Texas W. Abe Pounds, chairman, Tyler Bank & Trust Company, Tyler, Texas J. C. Wynne, independent oil operator, Tyler, Texas W. Dewey Lawrence, Lawrence & Lawrence, attorneys, Tyler, Texas I960 i960 i960 i960 1962 CONFIDENTIAL T-55786 SALESANDEARNINGS 32- A comparative consolidated statement of earnings for the years ended around October 31> 1958 through 1966, and February 3, 1968 appears on the following page. As noted thereon, the figures are obtained from audit reports of Arthur Young & Company. We under stand that Tyler's tax returns have been cleared by the Internal Revenue Service through 1964. A review of these figures is contained in the following section. Historical Results As we have developed in previous sections of . this Report, Tyler Pipe Industries has shown phenomenal growth within its industry. Dollar sales have almost quadrupled in the last nine years, increasing at a 16# compound annual rate. Combined sales of Wade and East Penn have increased from about $6.4 million at the time of acquisition (in 1963 and 1964, respectively) to $8.5 million in the fiscal year ended February 3, 1968. Even if these sales are eliminated the Company still has about tripled sales with the rate of gain approximately 13# annually. Growth is slightly distorted in that Tyler Brokerage and Swan Development were not included in the early figures. However, sales growth has continued unabated in recent years, increasing 15# annually in the past five years (10# if acquisitions are excluded). "j | The primary factor leading to the strong growth in sales has been well above-average expansion of physical volumes. Tyler's soil pipe and fittings sales tonnage has increased at a rate four tc five times faster than total industry volume in recent years (8-10# annual gains versus 2# for the industry). This area, of course, continues to provide the bulk of Company sales and earnings. In addition, such new developments as 1 fort plain end pipe and TY-SEAL gaskets have added importantly to sales and have helped to keep the Company ahead competitively within the industry. Pressure pipe fittings sales tonnage has also grown at a rate three times better than total industry sales (14# versus 4# since 1961). It is our understanding that the increase in Tyler's dollar sales results entirely from higher tonnage plus changing sales mix (including such products as TY-SEAL). Unit product prices have apparently shown no improvement over the period and in all probability are below levels of the late 1950's. It should also be underscored that Tyler's excellent gains have come despite the very slow basic growth of the industry in which it competes. Net income and earnings per share have shown even more rapid growth. Net income has increased 33# annually since 1958 and 20# annually in the past five years. Year-to-year advances in net income have been uninterrupted with the exception of i960 and 1962. CONFIDENTIAL T-55787 CO Years Net sales Cost of sales Gross margin Selling, general and administrate expenses Operating margin Other income, net Interest expense Income before income taxes Provision for Federal income taxes Net Income Depreciation included above Retained Earnings Balance, beginning of year Add: Tyler Brokerage Company acquired 10/27/61 as a pooling of interests Swan Development Company acquired 1/2/62 as a pooli of interests The Cal-Tex Company of Tyle loss since purchase 6/30/5 not previously provided fo Net Income ($254,000) less quarterly dividend paid ($213,000) during period f 10/29/66 to 1/28/6? Adjusted balance, beginning of y Add: Net income IRS adjustments, net Deduct: Cash dividends - prefers Cash dividends - common Stock dividends - common Redemption of preferred stock Balance, end of year a In January, 1967 the Company's : January 31- Operations for thi sales of $7,540,000 and net inc Source: Audit reports of Arthur Yc US 20 rVei S moovovo tu-ojvo mt^cc vo .re- .re- .re- re- mvo on m ri rXe "cH US &c fV0ai srVei in r-- m inre- mco ih .re- in rr--It f~co ov cvHo Hoj on to CO O 0 W I--reI oo US US O0 3Z 4-1 T3 0 oQ US c O o tD ua 004 tH C us -rH r4e4 tvo, oo VO CO 0 re as o\ < o rH I CO in ON CO 0 a <u GO H4-4 mcvj on i h cvj vT\C0CJN CS Hrl Hrl COC*'- rH c--co avovo on iv t'-m m reon on onhoincoon O O OJ O O CV3--3- CM.re c CcOo *U-() uO rVei os CO OJCMCO-sf OOrHVO1a-t o CHVCJOrHrCHVOJOOJVrHOrHVOfJ-CrHVOJOCJrOH us c0o 0 rH o z re GO oo ovre o t-- o cm cmvo mm 0o>rH-CmMmCo\-Jv(o00oHoivnvioAo0 rreH mOVmreToOJVCS-MONCOHvioHiHn HrH -w- re a Oco Vrei rl 0 fa > xs 0 covo mure- mcvi h o ovco vovovovovovovovo inm OVOVOVOVCVCVOVOVCVOV u0s ViOn 33 roHv rCe CQ tOsV. r0H OrHV rCeO uos 4-i co vo1 o US c(r*l} CO 4u m>i Oo O rse CO 4VB0s, uos uOs ru0ec0u3sr?l *t*rcHOe4 e w *4Ctro-l re s re w to re 4to-o c tuhs uos CQ U0S rQS0eH, C0O 33 o C a0 r0CeO u0s >>UJ CO 4u O re co !h X0 0 4, O O 0tR. 3 0 to C 0 CO Ov 4u CO co ia re -Q 0 C5 0VD 0 0 W 0 4u fa a us >OO X 0 0 3 s re o us O -H 0 0 4u 33 < CQ 3 re Vu 33 0 *rl rH > to 0 C 0 3 3 ffl V GO V, v. O 0 o re -2 005 o 0 a <M h >a >> u 4-i 0 Tr3e 3o3 > a VO 4-i 33 CO 0 3 O CO re rH 4J rues O 2 C 0 a 10 33 0 Vi 0 44 us re VoOv tcoH rH 3 rHi rCeO O 2 CO rH 33 0 Vi cOo 'ctRvj rce 20 O OW. in o 33 OV 0 0 CQ oo i-H-re- rH 44 US re 0 > o m C0 m-U> rH 40U c in rH 44 CQ 4IM0 o m 0 0 Qrlft- 0 -us 2 V, X CO Vi 0 wo* OV c_ 0 c iH O 0 M>S. us a to o us co O m x v. to0 0 re o 0 O rH -H C0 E o ao I-H 0 C < X - U 0 cC x us 0 f- O 4-1 0,0 re 3 m-P X GO us O C0 0 -ri-tfr ta -H 0 44 re re 0 H a us 4-4 CO us VO -US 'D Vi O C 44 OV 0 0 0 V lliH'OC a a co a o c u-> c 0x re OVO CQ 0 OJ U VO C vo co ov 0 <5 ov 0 ovf- 4u a0 rH c Qo X0 Oto H rl re mm CQ OJ rH >-1 M 34l re is CONFIDENTIAL T* 55789 35- Earnings per share growth has been slightly less than net income progress (28# annually in the past nine years and 19# in the past five) due to increases in shares outstanding -- primarily reflecting the common stock offering in 1964. Tyler has generally followed fairly conservative accounting practices with depreciation identical for both tax and shareholder books. In addition, the 7# investment tax credit has been spread over the life. of the assets rather than included in current earnings. This accounts' for the $269,000 deferred tax credit carried on the balance sheet as of February 3* 1963. While this practice may have penalized earnings modestly in the past (in 1964 the tax credit approximated $.10 per share) relative to the more general practice, we do not believe this is of major earnings consequence currently. As shown on page 3^> pretax profit margins showed good improve ment in the early years from 1958 through 1961, declined through 1966 but recovered sharply in the year ended February 3, 1963. 1 Gross profit margins were at peak levels in the early 1960's. As * detailed in the footnote, part of the decline in 1962 reflected changes in accounting procedures which occurred again in 1966 when Wade Division warehouse expenses were moved to cost of goods sold. The Wade and East Penn acquisitions also hurt profit margins in the 1963-1965 period when both of these companies were losing money or showing only marginal profits. Other factors which have affected profit margins in recent years, particularly in 1963, 1964 and 1966, include heavy charge-offs and research and development expenses relating to double hub pipe production machinery. We understand research and development expenses penalized earnings on the order of $300,000 annually during the 1963-1964 period and that charge-offs in 1966 were on the order of $400,000. This reduced margins around 1# in each of these years. In the year ended February 3> 1568, Tyler's earnings per share increased sharply (53#) on only a 3# increase in sales. The modest sales rise resulted from Tyler electing to curtail soil pipe and fittings sales in certain marginal areas such as the northwest and northern California and in New York where price competition was quite severe. The Company also imposed somewhat more stringent credit policies on marginal sales accounts which may have restrained sales volume to a modest extent. Although these factors held the sales increase to modest proportions, the sales mix improved with good increases in such areas as pressure pipe fittings, single and no hub pipe, and TY-SEAL gaskets, all of which carry above-average profit margins. The more favorable product mix was a factor in the improvement in profit margins in 1968 relative to fiscal 1966. In addition, the restraint in sales permitted the Company to utilize its productive facilities more efficiently with improved inventory and production scheduling. Overtime was held to a minimum and labor productivity rose as the Company moved from a three-shift to a two-shift , CONFIDENTIAL T- 55790 36- operation. Other factors which helped to improve profit margins were lower scrap metal costs (around $150,000) and the absence of che aforementioned $400,000 charge-off in double hub pipe machinery. A strong recovery in earnings was realized at both East Penn and Wade despite small sales declines reflecting the impact of the aforementioned program of curtailing sales in marginal areas. Finally,- depreciation charges were off from the previous year. As a result of all of these factors pretax profit margins registered a good increase from 7.7# in 1966 to 11.5# in the year ended February 3* 1968. Net margins were up about 50# from 4.2# to 6.3# of sales in 1968. Fiscal 1969 Earnings In the 36 weeks ended October 12, 1968, Tyler's net sales totaled $34.1 million, an increase of almost 16# over the $29*5 million for the corresponding 1967 period. Tonnage was some 10# or more ahead of a year ago; additional benefits this year included a modest firming in product prices plus continued strong gains in sales of newer products such as TY-SEAL gaskets and no hub pipe. Pretax profits were up 30# (from $3.7 to $4.8 million) with profit margins increasing from 12.4# to 13.9#. Raw material costs were higher but these increases were more than offset by lower selling, general and administrative expenses. While Wade's sales and pretax earnings declined slightly from the 1967 period. East Penn showed strong improvement. The effective income tax rate increased significantly to just over 52# compared with 46# in 1967. The increase primarily reflected the 10# surtax but also resulted in small part from absence of tax-loss carry forwards at East Penn (its effective tax rate increased from 31# to 47# in 1968). Even with the moderating effect of higher income taxes, the gain in net income was still an excellent 15# from the comparable 3& weeks in 1967 and earnings during this period equaled $2.13 per share, compared with $1.36 in 1967. For the balance of the fiscal year ending around January 31* 1969, we look for somewhat more modest gains. With tonnage sales having exceeded expectations to date, Tyler's inventories are in a relatively tight position currently. Thus, it will be difficult to continue the sales pace of the first 36 weeks of the year. Also, with the excellent sales and operating conditions, profit margins have been at historical peak levels this year and will be difficult to maintain. We note, however, that if Tyler only equals the earnings for the final 16 weeks of fiscal 1968 ($.57 per share), full year results would reach the $2.70 level, an increase of 11# from the $2.43 reported last year. Barring unusual yearend charges, we feel earnings could reach the $2.75 per share level (after about $.30 per share for the 10# surtax) or 13# above fiscal 1968. CONFIDENTIAL T-55791 37- Long Term Earnings Outlook The outlook for Tyler Pipe's markets for the next several years appears reason ably good. The high and expanding potential demand for new housing has been well documented in terms of factors such as the outlook for rising marriage and family formation rates, evidence of under building in recent years (following some earlier excesses), and the need to rebuild the relatively significant proportion of existing housing regarded as dilapidated. The National Association of Home Builders has made projections based essentially on demand which are useful in gauging probable levels of housing starts. In any single year, significant underbuilding or overbuilding can develop, depend ing on availability of capital and other economic considerations. Based on the projections of the NAHB, total private and public housing demand could expand by as much as 60# over the five years IS5? through 1972. Apparently single family housing is expected to grow somewhat faster than multi-family units. The trend towards houses having two or more baths is expected to continue unabated. ] Based on these projections, demand for Tyler Pipe's products for the! residential housing market should show somewhat faster growth than has been true in the past five years. As we have pointed out previously, this has not been the most profitable area of business for Tyler Pipe (or the industry) and is also the most vulnerable to competitive inroads from other materials. However, the development of no hub cast iron pipe is expected to-stem this to some extent. Thus, we would look for good growth in Tyler Pipe's sales to the residential market over the next several years. As far as non-residential building is concerned, v;e would look for at least moderate growth but perhaps not quite as fast as in recent years. This, of course, is the most attractive market for Tyler's products with larger sized pipe and fittings required. As in the past, we feel Tyler Pipe will continue to outpace its competitors. Management has a demonstrated ability to develop and sell products at a rate far superior to the basic growth trends of the industry in which it participates. With the expansion of facilities for fittings, capacity should be sufficient co permit good growth in sales volumes. Profit margins are presently at peak levels. However, we feel the Company is improving its efficiency with sophisticated inventory and production control techniques. Also, development of higher margin products (such as TY-SEAL gaskets) and improving production machinery to make double hub pipe should be a benefit. Moreover, increasing attention is being given to markets to assure that sales are not stressed in areas of marginal profitability. Finally, the Wade line of products offers good potential for sales growth and margin improvement, especially from better inventory and production controls. CONHDO^nAL T-55792 38. On balance vie feel Tyler Pipe will continue to show good growth in earnings on the order of 8-10# annually from estimated fiscal 1969 levels. Thus our projection of earning power by fiscal 1973 (year ended January 31, 1973) is in the range of from $3.75-^.00 per share. The principal negative in the Tyler picture is the possibility of inroads from competitive materials such as plastics. We note, however, that Tyler is more heavily oriented towards larger sizes of pipe and fittings where the threat appears less serious. Thus we do not feel that this will represent a material negative to earning power during the next five years. We are impressed that Tyler management is veil aware of developments in this area, and we feel they will take steps to develop products manufactured from competitive materials if these become a major factor in the market. i CONFIDENTIAl' T-55793 FINANCIAL CONDITION 39. On the following page is a comparative consolidated balance sheet as of February 3, 1968 and the years October 31, 1958 through 196'6. As indicated, the figures are from audit reports of Arthur Young &Company. On page 4l is a statement of source and applica tion of funds for the same period. At fiscal yearend 1968, long term debt totaled $2,217,000 -- 16% of ;total capital -- and consisted of a 530# first mortgage bond held by American National Insurance Company. This obligation is payable in annual installments of $233>000 with a final payment of $121,000 due November 1, 1978. In addition, annual obligations on leases of three years or more total about $50,000, and if these are capitalized ten times, the debt ratio is increased to 19$. Working capital on February 3, 1968 of $6.9 million compared I with $6.1 million a year earlier. Total current assets of $10.4 million were close to twice total debt (current and long-term) of the Company. Inventories accounted for about three-fifths of current assets with accounts receivable roughly one-third. As mentioned earlier, the peak selling season is during the summer months but the major inventory building period actually occurs from December through April. Bank credit is generally used during this latter period with the total reaching as high as $1 million last year. Based on balance sheet figures, receivables turnover averages 33 days. Credit terms are y' ten days, 2f> - 15 days, and net 30 days. Tyler has a very good credit department(with bad debt losses a minimal $20,000 in 1968 and no write-offs the previous two years). New accounts are generally not taken on unless the potential customer has a minimum $100,000 net worth. Capital expenditures in recent years have averaged close to $2 million with this level considered a good working projection for the future net of any major new projects. Among more important projects of recent years are the current expansion of pressure pipe fittings capacity at Tyler and a major plant renovacior. program at East Penn in the first few years following acquisition in 1964. As a general rule this $2 million capital expenditure figure breaks down about $500,000 transportation equipment, $300,000 buildings and $1.2 million machinery and equipment. Over the entire ten-year period, internally generated funds have been more than sufficient to cover capital spending and sinking fund payments, and thus working capital has been built up without interruption except for fiscal 1962. CONFIDENTIAL T- 55794 ASSETS Current Assets Cash Accounts receivable Inventories Total current assets Property, Plant and Equipment, at C Land Buildings Machinery and equipment Less: Accumulated depreciation Total net property, plant and equipment Investment in and advances to unconsolidated subsidiary Prepayments, deferred charges and other assets Total Assets LIABILITIES Current Liabilities Notes payable Current portion of long-term deb Accounts payable Accrued liabilities Provision for Federal, income tax Total current liabilities Long-term debt . Deferred investment tax credit0 Stockholders 1 Equity 6# preferred stock Common stock Capital surplus Retained earnings Total stockholders' equity Total Liabilities Working Capital Current Ratio a In January, 1967 the Company's f January 31. b The accumulated investment tax c ($174,000 was restated as"a def Source: Audit reports of Arthur Yo Source of Funds -959 1958 Net income Depreciation Deferred investment tax : 569 $ 202 480 396 credit Long-term debt Sale of preferred stock Common stock offering 50 157 65 Common stock options Common stock issued to employees and profit sharing trust Other sales of common stock Tyler Brokerage Company and 252 - Swan Development Company poolings of interests Total source of funds -i.,351 820 Application of Funds Cash dividends - preferred Cash dividends - copnon Net additions to property, plant and equipment Retirement of long-term debt Redemption of preferred stock Other, net Total application of funds 2 703 332 _ 111 .1,148 380 107 1 488 Net Increase (Decrease) in Working Capital 203 $ 332 a $174,000 total for fiscal ye; CONFIDENTIAL T-55796 42. As to fixed assets, book values of property, plant and equip ment on February 3, i960 were as follows: Tyjer Pipe Industries Consolidated Property, Plant and Equipment February 3, 1968 Land: Tyler East Penn Cost Allowance Depreciated For Book Depreciation Value $ 441,520 $ 9,750 $ 441,520 9,750 Total Land Buildings: Tyler East Penn Total Buildings Machinery and Equipment: Tyler East Penn Total Machinery and Equipment Transportation Equipment: Tyler East Penn Total Transportation Equipment 451,270 3,116,346 440,019 3,556,365 3,964,315 1,021,379 9,935,694 -- 1,260,648 340,757 1,601,405 5,636,692 537,630 6,174,322 451,270 1,8551698 991262 1,954,960 3,327,623 483,749 3,811,372 2,338,3-72 90,940 2,929,312 2,069,314 51,948 2,121,262 769,058 38,992 808,050 Total Property $16,922,641 $9,896,989 $7,025,652 NOTE: Tyler includes all facilities, etc. at Swan, Texas (including those of Swan Development) plus modest amounts of machinery and equipment and transportation equipment of Wade presumably located at its regional warehouses. Transportation equipment is primarily that of subsidiary Tyler Brokerage Company which owns all highway equipment leased to the Company. CONFIDENTIAL T-55797 J 43. The land on which the plant and main office are located at Swan, Texas is carried at $1,260 per acre (excluding $54,137 in land held by Swan Development, a subsidiary). Although we do not purport to be real estate experts in any sense, we understand that the above value approximates current market levels 'rased cr. recent purchases by Tyler of land adjacent to the plant. East Penn's land was acquired many years ago and is carried at a relatively low $135 per acre. In all likelihood, current market value would be well in excess of this figure; even if it were valued at $1,500 per acre, $ , .however, Tyler's consolidated book value would be increased by only 100 000 The plants at Tyler, Swan and Macungie are essentially single purpose foundry layouts, designed specifically to accommodate machinery and equipment to produce pipe and fittings. Nearly all of the facilities at Swan have been designed and constructed by Company personnel. In addition, a large share of the machinery and equipment at both Swan and Macungie was designed and built by Tyler employees. Other than some machine tools, all of the equipment is single ^ purpose -- namely to manufacture cast iron soil pipe and fittings, pressure pipe fittings and specification drains. Also included in the machinery and equipment account are thousands of individual patterns. Other foundry machinery and equipment is generally of massive proportions, and thus capital asset values include substantial installation costs. Me feel that since most of the machinery and equipment could only be used by another company in the same industry, it would likely prove uneconomical to dismantle and move to another site. As to accounting policies, Tyler Pipe has generally used accelerated and guideline depreciation schedules for machinery and equipment, both for tax and shareholder reporting purposes. Although this is a fully accepted procedure, it Is generally considered more conservative accounting with many companies using accelerated depreciation for tax purposes only and straight line for shareholder reporting. This ordinarily results in higher reported earnings after provision for deferred taxes than if tax and share holder earnings books were identical -- which is Tyler's procedure. This would, of course, be true only as long as depreciation under accelerated methods exceeded straight line (generally the pattern in the early years of a machine or building's life). In the case of Tyler, however, we note that its depreciation charges in fiscal 1968 were lower than the previous year's ($1.5 million versus $1.6 million); this indicates that charges under accelerated methods may now actually be lower than if the Company used all straight line schedules. We understand that this recent pattern at least partially reflects the fact that Tyler did not replace any of its highway equipment in 1963 (all depreciated on a double declining balance method over a five year period) in addition to being partially caused by the use of accelerated depreciation. CONFIDENTIAL T- 55798 44. In conclusion, given the nature or the plant and equipment and after examining the asset and depreciation schedules on significant buildings and machinery, it is our opinion that the asset values as carried on Tyler's books are fairly represented. The Company has employed what we generally consider to be conservative but fully acceptable accounting procedures. We understand that land values at Swan are generally representative of actual fair market value as measured by recent purchases. The land at Macungie could well have additional market value over the present book value. In our opinion, however, any additional worth which could be ascribed here or at Tyler would not be material relative to the real value of the business as developed subsequently in this Report. The real value of these or any other single purpose properties to a prospective purchaser lies in the profit which can be generated from them. We feel that Tyler's growth and profitability, however, does not reflect any particular value which can be ascribed to. its physical assets;*instead, it is our opinion that the Company's success can be traced entirely to the ingenuity of its organization (management and staff) in developing and selling products in quantity and of a quality permitting it to far exceed the rate of gain turned in by others in the industry. \ CONFIDENTIAL T-55799 BUSINESS CONCLUSIONS 45 Presented below are our principal conclusions in regard to the operations of and outlook for Tyler Pipe Industries. 1. Tyler Pipe Industries, Inc., with sales exceeding $4o million, is a leading producer of cast iron soil pipe and fittings and is also a leading manufacturer of cast iron pressure pipe fittings and specification drains. Operations are well estab lished dating back to the mid-1930's. 2.. '' Cast iron soil pipe and fittings, accounting for around threefourths of Company sales and pretax earnings, are used in buildings for drainage, waste and vent piping. Approximately 70-30# of total Industry output goes to residential buildings with virtually all of the balance in larger public, commercial and industrial buildings. Total industry shipments have shown only modest increases (around 2# annually) over the past ten years, reflecting slow basic growth in end markets plus inroads made by competitive materials such as copper and plastics J. We expect these basic industry trends to continue and look for further substitution of materials such as plastics, specifically in smaller sizes of soil pipe and fittings used primarily in residential construction. 3. Tyler Pipe's cast iron soil pipe and fittings shipments have increased around 11# annually, far surpassing industry progress. Its share of the market has risen from around 11# in 1961 to over 18# in 1967 (IS# if the 1964 acquisition of East Penn Foundry were excluded). The Company ranks as a strong number two in the industry and believes it has the broadest product line in the industry. This broad product line is necessary in order to satisfy the large number of different building and plumbing codes throughout the United States. Indications are that, relative to the industry, a much larger proportion of Tyler's shipments (50-60#) go to commercial and industrial markets where larger diameter sizes of cast iron pipe and fittings are required. In addition to being more profitable, these larger sizes have also proven less vulnerable to replace ment by competitive materials. 4. Tyler's strong growth -- both relative to its industry, and in absolute terms -- reflects, in our opinion, a highly capable management group. Tyler has been an innovator in all areas of its business, and in soil pipe product development pioneered 10 foot plain end cast iron pipe (flanged at only one end) and TY-SEAL rubber compression joints. Prior to these innovations, only 5 foot pipe was available, and joints were made by the time consuming lead and oakum process. Both of these develop ments have resulted in substantial savings to the plumbing CONFIDENTIAL T-S5800 1 46. industry and have helped ::o maintain the competitive position of cast iron soil pipe and fittings against substitute materials. In addition, these products carry excellent profit margins and have contributed importantly to Tyler's strong sales and earnings growth in its soil pipe division. 5- Tyler Pipe has developed an important position in cast iron pressure pipe fittings used in municipal and private water supply and other systems for transporting liquids under pressure. Its shipments have expanded more than three times the growth rate turned in by the total industry since ig6l. These products now^account for about one-eighth of Tyler's sales and around lc# of pretax income. Pressure pipe fittings capacity is presently being increased. As in the"case of cast iron soil pipe, inroads are being made in this market by competitive materials such as plastics, particularly in smaller sizes. 6. Tyler's line of specification drains resulted from the acquisi tion of Wade, Inc. in 1964. These products now account for slightly over 10% of sales and 8.5^ of pretax income. The^Wade product line encompasses a wide range of items (made of ircti and brass) and are specified as to name, purpose and use number by mechanical engineers, etc, Tyler ranks number four in the industry but to date has had difficulty in bringing this line up to desired profitability, reflecting inventory and manu facturing problems as well as inefficiency of warehouse opera tions. The Wade operation, however, offers good growth potential, and efforts are being made to improve profit contribu tion. 7. Manufacturing operations are conducted in two locations -- Swan, Texas (north of Tyler, Texas) and Macungie, Pennsylvania (near Allentown). The plants are basically single purpose foundry and supporting facilities (designed to produce cast iron soil pipe and fittings, pressure pipe fittings and specification drains), and generally are in good condition. Attesting to the specialized character of these facilities, most of the buildings and machinery were designed and built by Tyler's own staff, largely due to frequent difficulties encountered in attempting to have this work done by outside contractors. With the planned expansion now underway, Tyler will have sufficient capacity to permit reasonable growth over the next three to five years. 8. In its manufacturing operations, Tyler has been an innovator. It was the first company to use scrap iron as a basic raw material due to loss of its source of pig iron. The Company also pioneered the centrifugal process using a permanent metal mold for making soil pipe and permanent metal molds for making 'fittings. These developments have led to important economies and substantial increases in productivity and product quality. Tyler, based on its relative profitability compared with com petitors, is a very efficient manufacturer. CONFIDENTIAL T-55801 47. 9. Tyler has experienced sane difficulty in developing a satis factory machine for making double hub pipe (with resulting substantial charge-offs against earnings in recent years). A recently developed machine, however, is producing better results, but further improvement is looked for. Other manu facturing difficulties are the aforementioned problems in the Wade line (due primarily to the myriad number of products and resulting short manufacturing runs). 10. Another example of the innovativeness of Tyler's management is the development of sophisticated computerized controls of inventories and production. This is particularly important in this industry where the ability to deliver products on short lead time is of paramount importance. This computerized inventory system is presently being adopted for Wade but is proving considerably more difficult due to the diversity of product line. 11. Labor relations are good with the Company never having suffered a crippling work stoppage. Tyler's Texas operations are nonunionized but a successful union election several years ago is now being contested in the courts (the Macungie plant has seen unionized for several years). One of the major limitations in increasing production is a shortage of available labor. How ever, this is a problem plaguing industry in general and foundries in particular. 12. Tyler was the first in the soil pipe industry to offer truck delivery, and the Company has developed a reputation for fast and reliable service to its customers. Tyler's truck fleet is utilized efficiently with delivery only in areas in which it can assure a back haul of raw material or other equipment to its plants. In other cases, commercial or rail delivery is utilized. 13. Another source of competitive strength is Tyler's marketing organization. Sales are through some 200 manufacturers repre sentatives covering 1,200 accounts. No single account contrib utes as much as 4# of sales. Tyler's own sales force (only ten in number) spends considerable time on missionary work calling on contractors, municipalities, etc. to persuade these people to specify Tyler's products. In addition, major emphasis is given to improving and increasing standardization of building and plumbing codes to permit greater utilization of newer products. 14. The prime element of Tyler's strength, in our opinion, is its capable management. With the exception of the founder and chairman of the board, Michael J. Harvey (70), and W. Beltcn Duckett (58), vice president-transportation, all are relatively young. We are nevertheless impressed with the depth of exper ience and dedication to performance. Management exhibits a healthy awareness of industry problems and is fully cognizant CONFIDENTIAL T-55802 48 of competitive developments such as potential inroads of plastics and other substitute materials. We are satisfied that steps will be taken to fully exploit market developments and, if necessary, to enter into manufacturing of products made from competitive materials. 15. Tyler's financial position is strong. Its accounting procedures can generally be considered on the conservative side with accelerated depreciation taken for both tax and shareholder reporting (tax returns have been cleared by the Internal Revenue Service through 1964), We note that depreciation charges in fiscal i960 were lower than in the previous year, indicating that use of accelerated depreciation may no longer penalize reported earnings compared with use of straight line depreciation. 16. We feel that asset values as carried on Tyler's books are generally conservative but still representative. 'While the land at Macungie, Pennsylvania (acquired many years ago) undoubtedly has value in excess of that stated, any additional worth that might be ascribed to such land would not be material relative to the real value of the business as developed subse quently in this Report. Buildings and equipment, while conservatively valued on Tyler's balance sheet, are basically single purpose assets (specialized foundry and equipment) and, therefore, derive value from the ability of management to generate earnings on such assets. In this regard, Tyler management unquestionably has done an outstanding job as evidenced by the substantial consideration received on the sale of the total business to Saturn. Furthermore, as discussed in the following section of this Report, we feel that even this value is very conservative. 17. Since fiscal 1958, Tyler's sales (including two small acquisitions) have increased at a 16# compound annual rate. Net per share has increased at an even faster 28# annual rate from $.26 in 1958 to $2.43 in fiscal 1968. Despite the lack of basic growth in the industry, Tyler has demonstrated a high quality of earning power with only two year-to-year declines In net per share (19b0 and 1962) in the past decade. Profit margins declined following the early 1960's, reflecting in part unusual factors as vjell as low profitability of acquisitions, but recovered sharply In fiscal 1968. This recovery reflected better sales mix, curtailment of sales in marginal areas, improving manufacturing efficiency and absence of unusual expenses relating to charge-offs on double hub pipe machinery. Earnings per share as a result increased sharply to $2.43 from $1.59 in the previous year. A further strong gain is in prospect this year with our estimate being $2.75 per share (after about $.30 Tor the 10# surtax). CONFIDENTIAL T-558Q3 49 18, Despite the slow growth of its markets, we regard Tyler's future potential as being excellent. We feel its management will continue to outperform competition. Thus we look for growth in earning power on the order of 8-1095 annually from estimated 1969 to a level of $3*75-4.00 per share by fiscal 1973 (year ended around January 31). Our investment conclusions are set forth in the following section. 1 VALUATION 50 As set forth in the Introduction to this Report, we have been retained by Saturn Industries, Inc. to determine the fair value of Tyler Pipe Industries, Inc. on a going concern basis and, therefore, the fair value of Saturn's interest in Tyler. For its 98.6# interest. Saturn paid $40 per share or $42.4 million; of this amount, $29,916,000 represents an excess over applicable net asset value as carried on Tyler's balance sheet. Saturn's management and directors have classified this amount as "cost in excess of net assets of businesses acquired" and plan to continue doing so pending completion of studies presently in progress including this Report. Valuation Procedure There are many considerations in determining the fair value of a business on a going concern basis. Some of the more important factors include: (1) competitive industry position and management's ability to maintain or improve this position; (2) product line and new product development * capabilities applicable to its business; (3) strength of marketing and distribution organization; (4) breadth and growth potential of the markets served by the company; (5) adequacy of plant facilities and manufacturing processes; (6) labor relations, (7) depth of management, (3) financial condition and the ability of the company to handle additional capital requirements; (9) dividend paying ability, and (10) general regard with which investors hold the company's industry as an investment medium at the present time. In the final analysis, of course, all of these factors are related to earning power of the business and the value of such earn ing power. Accordingly, determination of fair value on a going concern basis is a matter of judgment giving consideration to all relevant qualitative and quantitative factors. The major qualitative considerations applicable to such an evaluation of Tyler's business have been reviewed in detail in this Report with appropriate con clusions. Basically, we feel that management has done an excellent job with Tyler's growth far exceeding the modest progress turned in by the industry. At the same time, it is our opinion that Tyler's relative competitive position is being strengthened on a continuing basis, and thus a strong base has been formed for -the future. As a result of our analysis, we do not feel that there are any serious problems facing the Company today that would adversely affect future fundamental earning power. We recognize that poten tial substitute materials (primarily plastics) could well make inroads in the soil pipe market on a long-term basis. However, vie are impressed with the thorough manner in which Tyler management continually keeps abreast of these developments; furthermore, we are convinced that, should a major breakthrough be made in plastics or other substitute materials, Tyler would enter this new area and CONFIDENTIAL T-55805 51 be able to participate in such a development on the strength of its excellent industry reputation and strong distribution and marketing organization. In this connection, the Company has pioneered the major postwar developments in the soil pipe industry, and we would expect these forward-looking policies to be continued. Comparative Data As background material to assist in the determina tion of fair value on a going concern basis, we set. forth in this section of the Report a number of quantitative comparisons using ten building materials companies. The companies selected for this purpose are listed below in order of 1967 sales volume: Johns-Manvilie Corporation Armstrong Cork Company Carrier Corporation United States Gypsum Company The Flir.tknce Company United States Pipe and Foundry Company V/oodward Corporation Kaiser Cement & Gypsum Corporation Clow Corporation Central Foundry Company 1967 Sales $510,000,000 460.000.000 439.000.000 373.000.000 292.000.000 162,000,000 ,000,000 ,^,000,000 66,000,000 30,000,000 l Among the ten companies. United States Pipe and Foundry, Woodward, Clow, and Central Foundry are closely comparable with Tyler, and, as mentioned earlier, are Tyler's major competitors in many markets. The remaining six, of course, are broadly based building materials producers, but, to the extent that their opera tions are generally affected by the same general economic and industry factors as Tyler's, relative earnings performance and market valuation tend to make such comparisons relevant. Johns-Manvllle is the world's largest producer of asbestos fiber and similar products. Major sales classifications include industrial insulation, pipe packings and friction materials, and a variety of building products including roofing and flooring materials, insulation, and asbestos-cement pipe. It has very valuable asbestos reserves. Armstrong Cork has the leading position in resilient flooring and acoustical ceiling materials. The company also produces other building products, industrial specialties, glass and plastic pack aging and certain consumer products. The recent acquisition of Thomasville represented initial entry into wooden furniture manu facturing. CONFIDENTIAL T-55806 52 Carrier is a major manufacturer of a broad line of airconditioning, refrigerating, and heating equipment. A minor portion of the total company business is in the area of boiler and furnace production in addition to some manufacturing of parts for military and commercial aircraft. United States Gypsum is the largest factor in the gypsum industry, accounting for close to half of domestic volume. Other products include lime, metal lath, paints, asphalt shingles and roofing, and refractory brick. FIintkote is engaged in the manufacturing, mining, and sale of a variety of building products including gypsum, roofing, flooring, cement, and stone and pipe. The company also has a small participa tion in packaging products. United States Pipe and Foundry is a manufacturer of cast iron pipe and special castings, principally for water and gas mains. The company also produces cast iron soil valves and hydrants as well as some machinery used in chemical industries. United States Pipe produces its own pig iron in the Birmingham, Alabama region. | Woodward produces cast iron pipe, fittings, iron castings, and cement and service boxes. Subsidiaries are engaged in the produc tion of lime, other mason products, and cement asbestos pipe. Woodward also produces a portion of its own pig iron. Kaiser Cement & Gypsum manufactures Portland cement, gypsum products, wood fiber insulating materials, and is also in the sand, gravel, and ready-mix concrete business. Clow is a manufacturer of cast iron pressure pipe and valves plus materials for waterworks, gas plants, and railroads. The company also makes plastic and clay pipe and fire hydrants. Central Foundry is a producer of cast iron soil pipe and fittings, a line of plumbers specialties, and pressure pipe, fiber pipe, and other fiber products. Data and supporting figures used for this comparative analysis are included in the Appendix to this Report. The following signifi cant observations can be made from a review of these figures: (1) In terms of sales growth, Tyler at 209# ranks number one among the eleven companies. Furthermore, we feel that its perform ance is particularly meaningful relative to such direct com petitors as Woodward (203#) and United States Pipe (45#), both of whom have been much more active in the acquisition area than has Tyler. CONFIDENTIAL T-55807 53. (2) As to growth In net earnings per share -- which is a 'Key- investment test and would properly adjust for the effect of acquisitions to the extent of gains or losses to the share holders -- Tyler's performance is outstanding with 1967 net per share close to times the 1958-1959 level. Thus its growth rate over the nine-year period is more than twice that of the second ranking company. Carrier Corporation, and naturally exceeds by an even greater degree the gains turned in by the more comparable companies -- Clow, Woodward, Central Foundry, and United States Pipe. With regard to quality of earning power, Tyler shows a more stable pattern with only two year-to-year declines in net per share since 1958,(1960 and 1962) compared with four declines for Clow and Central Foundry and five for Woodward and United States Pipe and Foundry. (3) Return on total invested capital is also a key investment test inasmuch as the common stocks of those companies in a given industry with higher returns on capital will normally show better earnings growth and higher price earnings multiples in the market -- all other things being equal. Returns for the eleven companies in 1967 ranged frcm 19.4# for Tyler to 4.]$ for Flintkote, with Tyler's return almost twice that of th4 second ranking company. While last year's performance by the Company was well above its levels of previous years, Tyler nevertheless has consistently been the leading performer in this important measure. (4) Approximately the same relative pattern exists in return on common equity with a 1967 range of 23.6# for Tyler to 5.2?$ for Flintkote. Based on Tyler's relatively conservative capitali zation, its increase in this measure over return on invested capital (23.6# versus 19.4#) is naturally less than that shown by more highly leveraged Kaiser (12.6# versus 6.6#). (5) Pretax margins last year ranged from 15.2# for United States Gypsum to 3.9# for Central Foundry. Tyler's 11.5# ranked third, representing an improvement over its historical standing within this group. Over the years, the Company's performance here has been exceeded by Clow and Woodward (whose operations are diversified beyond the soil pipe business) but has been better than those of more closely comparable United States Pipe and Central Foundry. We would suspect that the Company's margins over the years are somewhat understated relative to the others due to conservative accounting policies. (6) As to balance sheets, Tyler's current ratio of 3 times approxi mates the median for the group. Its liquidity (represented by cash and equivalent as a percent of current liabilities) is somewhat below average, and thus, as might be expected, Tyler's working capital to sales ratio is the lowest in the group. Capital structures range from 100# common equity for JohnsManville to a highly leveraged 37# for Kaiser Cement & Gypsum. Tyler at 84# common is slightly above average. CONFIDENTIAL T-55808 Summarizing all of the above, Tyler's performance ranks at the top among this broad-based group with the exception of pretax margin. As to this latter measure, Tyler's accounting policies are conserva tive; moreover, the soil pipe industry has traditionally been less profitable than other building fields represented in our group. Finally, it is significant that Tyler currently has the highest pretax margin among the other foundry companies in our comparative analysis. On the basis of these measures of performance and even recog nizing Tyler's smaller size relative to some of the major companies used in the comparison, we would conclude that a fair value on a going concern basis for Tyler common stock would be based on a price earnings multiple certainly above average for the entire group and particularly well above the multiples awarded the four other more closely comparable companies. Relative Market Data Comparative common stock data (based on prices on the August 26, 1963 acquisition date) for Tyler Pipe Industries and the ten companies included in the compara tive analysis appears in the table on the following page. As indi cated, nine of the companies have common stocks listed on the New York Ctock Exchange with Clow (and Tyler before acquisition) trading over the counter. The number of shares outstanding varies widely from 730,000 for Central Foundry to 10,700,000 for Armstrong Cork. Trading in the nine listed stocks appears to be fairly active with the possible exception of Central Foundry, Trading in United States Pipe and Foundry and Woodward common has, of course, accelerated in the past six months due to attempts made to acquire these two companies, Based on market prices for August 26, 1968 (the effective date of the Tyler acquisition by Saturn Industries) and using the actual purchase price of 40 for Tyler, the Company's stock ranks seventh in the group on a P/E comparison although justifiably ahead of the other pipe foundry companies. Price earnings ratios for the eleven common stocks cover a wide range -- 31.1 times for Armstrong Cork to 11,3 tines for Clow, At the same time, the range for the soil pipe producers is much narrower at 15.7-11,8 times earnings. Among the six larger companies, the relative ranking seems reasonable with Armstrong Cork having the best record over all and Johns-Manville the most lackluster performer. As to the five smaller companies, Tyler has by far the best record but is still valued only slightly higher than the others; at the same time Clow has the lowest multiple and yet has a reasonably good historical operating performance. CONFIDENTIAL T-55S09 TYLER PIPE INDUSTRIES, INC. COMPARATIVE COMMON STOCK DATA PRICE/EARNINGS RATIOS AND YIELDS Earnings Per Share Market Latest P/E Ind. Current 3-26-68412 Months0Ratio Dividend Yield Payout Armstrong Cork Kaiser Cement Carrier U. S. Gypsum Plintkote Johns-Manville TYLER PIPE Central Foundry Woodward U. S. Pipe & Foundry Clow 78 h 3 if 79i 08 3H 714 4o OC 43 26 J 35c $2.52 1.12 2.85 3.88 1.64 4.09 2.54 1.6l 3.16 1.97 2.96 31.1 28.3 28.0 22.7 21.2 17.5 $1.50E .30 1.00 3.20E 1.00 2.20 l.QEjS 2.5 1.3 3.6E 2.9 3.1 15.7 .80 2.0 15.7 13.6 13.5 11.3 .40 1.60 1.20 1.25 ' 1.6 3.7 4.5 3.6 60E$ 71 35 82E 61 54 31 |5 61 42 MARKET VALUE VERSUS BOOK VALUE Book Market Primary Shares , Market . Value , As 0 Market Outstanding*3 3-26-63a Per Share*3 Book (000's) Kaiser Cement TYLER PIPE NYSE 0-C 5,743 1,066 31$ $ 7.65 40 11.10 415$ 360 Carrier Armstrong Cork U. S. Gypsum NYSE NYSE 7,557 10,729 77&9ii 25.05 25.15 318 311 NYSE 3,108 38 43.20 204 Johns-Manville NYSE 8,341 714 42.15 170 Central Foundry Flintkote Woodward Clow U. S. Pipe St Foundry NYSE NYSE NYSE 0-C NYSE 731 5,574 3,219 1,370 3,538 25i 34? 43 35c 264 18.05 25.70 32.40 29.40 30.80 l4o 135 133 119 36 a DJIA = 896.13. b Twelve months ended June 30, 1968 except Carrier (July 31, 1968) and Tyler Pipe (July 20, 1968). c Bid price. d As of latest fiscal yearend (adjusted). CONFIDENTIAL T-55810 We conclude that Tyler's earnings multiple, based on Saturn's purchase price of $40 per share, is very conservative giving recog nition to its leading performance among the total eleven company Group, Granted, the six broader based building products companies are larger and better known. At the same time, the differential between Tyler's P/E of 15.7 and the median multiple for the six larger companies (25.4 times) is too broad, in our opinion. An equally strong case can be made relative to the four pipe foundry companies with lower price-earnings ratios (13.6 median) where Tyler at 15.7 is only slightly above average despite its far superior operating record. Yields on the eleven companies range from a low of 1.6# for Central Foundry to a high of 4.5# for United States Pipe and Foundry. Tyler's yield at 2# is somewhat below average, largely due to its 31# payout ratio which is the second lowest on the list. In terms of market to book value, all of the stocks but United States Pipe and Foundry (at 36# of book) sell at premiums ranging from a low 13# for Clow to a high of 315# for highly leveraged Kaiser Cement cc Gypsum. As a result of its very high return on book value, Tyler ranks second in this measure as opposed to its seventh place show ing in price earnings ratio. We regard the book value measure to be of secondary importance; the more important test is management's ability to generate profit on the assets employed. As mentioned earlier, Tyler Pipe common stock was first offered to the public in September, 1964 at an adjusted price of 12-J. As shewn in the table following, __the common traded in a relatively narrow range of 10-14 from 164 through 196c; during this period, the^price-earnings ratio (based on yearend prices) varied from 6.3 to 3.6 times. The stock rose dramatically in 1967 to a high of 18 but the multiple was still a modest 7.3 times due to the excellent earnings gain (over 50#) in the fiscal year ended February 3, 1968. We feel that Tyler common's generally poor market performance through last year was largely due to two factors -- lack of market ability and what investors then regarded as a generally unattractive industry. With 42# of the stock in the hands of the Harvey family and another 29# held closely (Company officers, employees, etc.), the remaining 300,000 shares represented an extremely thin floating supply. Also we understand that trading was largely confined to the Dallas area. As to the general attractiveness of the soil pipe business to the investment community at that time, we have already detailed the very modest growth pattern registered in this industry. However, since then building stocks have registered substantial market gains reflecting renewed investor expectations of Improvement in construction activity. CONFIDENTIAL T-55811 57 Tyler common showed a dramatic upward trend in 1968 -- from 17t at yearend 1967 to 39 following the August 25 announcement of the tender by Saturn Industries. (More specifically, the stock climbed from 13 to 24 in April, to 29 in June, and to 30 in July.) While a portion of this upgrading was undoubtedly due to earnings improvement, we would strongly suspect that the rise also reflected the possibility of sale of Tyler, particularly in light of acquisi tion negotiations then in process involving both United States Pipe and Foundry and Woodward. , Market Price Earnings Dividends Per Closing Per # Closin High Low Close Share P/E Share Payout Yield 1964 19651966 1967 1968 12* l4 %18* 39 io 10* 10 10 17* 10 $1.27 8.1 13 1.43 8.8 10 1.59 6.3 17* 39b 2.43 7.3 2.75E 14.21 $.3^ 27# 3.3# .54 36 4.2 .30 50 8.0 .80 33 4.f .80E 293 2,13 a Fiscal year ending: October 31 through 1966, following February 3 in 1967 and i960, b To August 2o. Conclusion Considering all factors, it is our opinion that the fair market value of a share of Tyler common if actively traded would-be around $45, equal to about 18 times most recent 12 months earnings. This multiple is well above those of the four other pipe foundry companies but, in our opinion, is fully justified giving recognition to Tyler's outstanding profitability record. On the other hand, it is well below the median price-earnings ratio of 25 for the six large and better recognized broad-based building materials companies used in our analysis for background information purposes. For the purpose of our Valuation Report, however, we are not concerned with a value of a share of stock as actively traded in the market but rather with the value of Tyler Pipe Industries, Inc. as a cotal entity as acquired by Saturn. Premiums above fair market value are invariably required when effective control results from the acquisition and, in our judgement, a premium of not less than 1C# for Tyler is fully justified. This would provide a total value for the Company of around $53 million, with Saturn's 98.6# equity interest therefore worth $52 million. Such a valuation works out to around 20 times earnings. CONFIDENTIAL T-55812 58 Further verification of the fairness of such a valuation is found in a review of two other recent acquisition developments involving Woodward and United States Pipe and Foundry. The acquisi tion of Woodward by Mead Corporation, a paper company, has been approved by stockholders and involves the exchange of .9 shares of a newly issued Mead $2.80 convertible preferred for each Woodward share of common stock Issued and outstanding. The published value of the acquisition was set at $l60 million, equivalent to about l6 times most recent Woodward earnings. Jim Walter Corporation is now proposing acquisition of United States Pipe and Foundry through an exchange of one share of $1.60 convertible preferred for each U. S. Pipe common share. The total consideration based on published information works out to over $140 million or around 19 times U. S. Pipe's latest twelve months earnings. While these indicated acquisition P/E ratios are below those we ascribe to Tyler, we note Tyler's far superior earnings record and profitability. Therefore, considering all factors we deem relevant to an evaluation of this type and purpose, we determine the fair value! of Saturn's 98.6$ equity In Tyler Pipe Industries, Inc. to be million. RCLG/ATHAJHB :cm November 13, 1963 CONFIDENTIAL T-55813 APPENDIX Table of Contents TYLER PIPE INDUSTRIES, INC. - COMPARATIVE DATA Sales Indexes - 1956-1967 Net Earnings Per Share Indexes - 1958-1967 Return on Average Invested Capital - 1958-1967 Return on Average Common Equity - 1958-1967 Pretax Margins - 1958-1967 Current Position - December 31, 1967 Capitalization at Book - December 31, 1967 COMPARATIVE FINANCIAL DATA Armstrong Cork Company Carrier Corporation Central Foundry Company Clow Corporation The Flintkote Company Johns-Manville Corporation Kaiser Cement & Gypsum Corporation Tyler Pipe Industries, Inc. United States Gypsum Company United States Pipe and Foundry Company Uoodward Corporation Page A-l A-2 A-3 A-4 A-5 A-6 -fi-7 B-l B-2 B-3 B-4 B-5 B-6 3-7 B-6 B-9 B-10 B-ll CONFIDENTIAL T- 55814 TYLER PIPE INDUSTRIES, INC COMPARATIVE DATA n- VO ON CioOnv. o o rH :i Id oin> XH i co m o> ^i--ri cn a <M 4 CinO pwm^^*i cm O co cm onon-3-.a- on cm movovovco cvONOvc'cn rcH\ A-l c\ tn as CO O CM CO N- t--VQ vO C^CO rH rH OrHOOrHOOOOO HHHHHHiHHHH rH O o m cm rOHH OHHOHOcHooHncam rooHnuvoioroH ompH iH rH VO cv VO opHn rt- in on cm cm vo C"-vo on in CrH -rOH OrH rrHH 0r-n. CSi--O. 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Q. a(0m a Vi 3 W aE >> a ~ s O O o. o -H O Qu 0) Oa> o8 u >V> 0) COiH CO 4-> <0 V) <UH <u c c O -v>H P <U 3 a as> <0 S o bC-u -uC P 0) 6. c c coa5 co o O i-l s H Vi r-t TJ I Vi (0 U Ce, 0)CO 0) O Vi CONFIDENTIAL CO -Pc P M -P S fl) *HJC H *H C. <scVoCbO3C<d;u<u T-55815 tvCOV oz cmo cv co K Cc3EoC-* CWO Xa oo Ed cc cn M in W MCL, Or CO oOaS- ciCnoV os co a g H CZC <w 0in0 rC--4v CinO icnncconoocvmMcvoocooncoo.aovrcinncco'- A-2. iOn' Cr-Tln -rCaHMf mt'-oco-at-f-ovomm OrlrlCHrlCIIOOrt HHHHHrlHHrlH vronHo rroHHn <mncOc',-oraHt corHm icnn forHj oco-ccoo vc--o ccon VrorOHHv VcCOMv cOoVrrHnCcOncCoVvCoO oOVcOmC-aOtCoOcCo- VCOM CrHV COCMMV covo t-covo-ar cm mvo tgvcmco oco co incovoco cn Vr<HOn rH CmM -oat- icom com rotncnnevmovoo CnMn.af.ant- -vnraHot- 3CCMM -oar in-i-at-f min cHm vno mnocno com co- I vioronHv oOCMnV ^oCMHCoMoHinwiHnmcrHm c--ar cmco n>-vcooaccn vVOo CrHV moinn VOVOmOC'-rHcrvc--CMin -a- co cm inon-arccvo t-cc OJ H rl rl rl VCrOOHV^ oianf c.aor tcnvaaar-natHcnNonco--cvoovvoovoo OJ H H rl H >hr "CO >C oMz r wwCO Eh CO rcoHj d) hr o acao>ae5 m hr -wcOH CiooaHalWnrowohaccOh<HOaurr OTc>occs>(43au,,0eafvO3Occa4rdnlroaUcOsoOe3>mar,r Owjecs3njocOs>coaa)r ao a ch c hi <D C W w OHr Cl, OS 3 u hU Oo SO hO oa, o rl >C 3 foa Ld wco DcawVsoDxo C (4 hOO h0H) Whar O; hca h4 rOH thdr T<3Ja Oo 2ca wCi SoS I--I Wchar C <U CO -JaaJ) -H c o<o3nuo CO o c a h rl w<U CwD ft, r-l -h o 3cXc6a-j1c CONFIDENTIAL T-55816 CuOv CU N--3- CT\ OJ i--1 (H OWO OC CV vo co av o\-=f 2 vo cu f- c~vo av la vo-=r cuiA-a-coco invo mav ** lA O CU OJ.=fCOVO CU r-t O GV *M voaov b .st- CV C*- C-LOOcPiVO O LTV c(Ho avavcvaj ?-fi--o4aovo i<---ti c- vaov cu cos*mo4- av<-4 irvvoav oj c-oco-=r c-ihco laco la CVJ lO rH OJ >ofc LAincomovoco lao o VO iC--74v VO av vo C'-r-tcc j-co i-ivo-a- c--vo I CO lA CV co vCoV cu irvvo^t lacooint-f-t co -=c co oox=rco cuco crvcovo az CO wM -at" VO av lo cocuco oo mcoavcoo av CU rMd-O CAO CUCO iTilAC- CO V. O lA CU ^e^t-CO IACU CACOO O CV VaOv * CO i-Ufr OCO O CVCO C-CU IA Cad. w a, VO VaO\ la OlAlACUlAOrH-d-OVLO CrHO CVCU H O CVCO t"-VO CU IA 3 tfc. Cvo CV r-c OVVO lAH CUVOVO OVC^H #* arHv avosavovco c--vo^-^ir A-S. 1 oz oc H r4 &S 01 H P ><a c<a uo O S3TcJ >c_U__5 C H ID H) ftC Qeo. Ouo. hcOwo-u cian aa>iia) oOs fetj CO z co oo P aj St >1 fi Vs O <8 CU o >)0 rlii# Li 0 Vi P Vs H O (10HJ 0113 U) (C Orl O* Vi 41 C <U C -P IhOtI V O -P -P 3 O AW* H As ao Vs a) c >c cfl OO St S St o o-pnoa>w-p OX (x, -pc o os V O Vs I oj Vid* is v< *oi--a)I -i-H1 p oj rl J flt 4)3) L Cl. CONFIDENTIAL a a e5 W C Vi -O -P 0J -P -P js VI O rl -H tS C T-55817 rl L O a} O C al C 0) jC O < 1-5 O 3 rotSroue-' cIToi C-- mVOCO H Hi}- H OVCV < Ov HVO CvO OVO ! CV C^-QO CM r(HH A-4. Ov in. Cv m cvininmr-ivocMit-tn OLHJ HVO moo CM C-CO CM H CM CM i--l rt rH i~( H rt H >R. VoO o HCO f-VOCC H OVifVO CCv CO .- POrt O CvCnt-CUVO O V?. VO vo o (Tv mit- inovoit-vr\ (Tv Cv ov . novnco cm c-ovnco CM H HH TYLER PIPE INDUSTRIES, INC COMPARATIVE DATA CM in o hvo cm.- c-- cm vo in in C-- VO ov o HVO 00 CM 00 HCO c^it OV CM H r-l H vo Ov i--if m pH h.- in in inn invo c--cv CO VO in OV OV mvo cvif cv cm coco nov cv JH 'A ME-( a3 if on cm.- inc^mii- oocvov vo CV oo noo cm in o cm r-tvo in o i--l rl rl H rl ri rl a 2 O OO vicnov "A r--{ c-co coiHcovoir^of~ CO COHiHinOCVOCM t--CO ao VO voov VO vo m*moin cm r-vovo cN- it- movenhco cvmvo N- H H H t--l r--i 1 c*- vo vo co cn cm in in cn cmo cm vo Ov cn cmhoo ovoo co n in in CM aE-i >Si o3H CO ft C3O Ca(HUU a301 a>Co CJ H P <M <U -C_au oauOo o v, uo w ui-i c O Pu oa>ooi ? Hoc >Cagi >c Psi oo caSS uOan3_ oo oo a aU,, r-1 OH O H -P > <0 -ostcpaiO sCi m cPo -a m c -p >C> -ac3Oa TCJ > -o_uoap -oaoa>u>Haan Ooaa oSOi -a aC3o c--ppo aPO pc PH H s <v0, TJ aH p p rlhO ClJ <0 r-t aoo <Sp>-ao5 hc 3 OooC Her 303 H CONFIDENTIAL T-55818  o Ma 00 < M E-* w< gQ t-1 03 P HE-* t-l s<c Ed < CL CL M CL so os o w >- p- X ON rH1 X un ON pH CsO H o 0tf5 2 X C Ei W DC CL X UN ONp- UN O it CM XXNO.=t ON ON CM J0H2O XX X rH CM rH pH CM rH rH ON UN ON X X it UNrHP-UNP- CViP.it CNd- p^- COX GNNO hHO CM rH rH CM <H pH pH pH pH o NcO~- CM P rH P- O' XCM XXXX p-x rnmn cv=t ou 0's rH (H CM rH rH rH rH rH rH rH pH MO c\=r cc CVJ CN OOit O CC VO o CN pH UN rH CM rH CrHVJ CM it CM XX CNX C pH rH pH pH CM NO ON Vp X CM rH m% NH\lt~HXt^X o PJ X X XX C^X p- pH CM pH rH pH rH pH pH X NO WP~. >- it JOHXP*-XCUN ON UN CM ON CM UNX CM UN p- CNX iH CM rH pH pH pH rH it NO P- LPi CM Xit UN CTViP X P- NO * ON UN CM ON UN UN p>-X P- CN-=T rH CM rH pH pH pH pH ^CM UN NO UN XONOX CMXX CM ON rH X CO it XP-- CM ONCCNO CM rH CM rH pH pH pH pH VL NO NO NO rH c*- O rH CM XUNCMX X ON X-=t c-- rH CM UNrH OXX CM rH rH rH pH pH H pH pH P- CMX UN it O P-rH C-- CM ON ON NO ON ifNrH rH rH rH O O ON lT>if CO pH rH pH rH rH rH rH rH 1 >> c C(0L oc SO i-HH O aJ H eo oa to a uo >>o (3 CD OJ pH 0) rH +J rH L<>0 CO -a >CCS si <D w HH> c O C0 P O o z H CO Ed H EH CpO Q 25 H u CL M CL as cd 3 >Eh* > U ca f3Oe > S3 >C mac SOp gOpHO C3 O H C HO -Ca co O11- C >ct Gl (SpB. QpOO C O SHH O HOrH D8 Jhl gOL,OfhlflMpOMU>]1 acohasHc oLOe C0a0oLaDjOco3 O, CD DO OHHfe Lo O C'O au CO u C -h H OLLcS<DT3rHa} 3 0D) OD-OS tLH HCD CL -UH nOaHcEiOOCipdHcUrCii OSrfCSOPHO CONFIDENTIAL T-55819 tfliH V C <HH h yt u --aHu caot O tfl O 3E O V. 4J >H Ca) Mo 3 Li-H O' Li a 3 -n y O i--wt r O j Ottj ctn_o>j ^.aa r-t mar CMn mmmmcM vCOM COMCCOMVCOM frr-t- "va5oRr.anoom\caMvoo iC--Mi VoOnCcOwrc-t mcm cm- A- TYLER PIPE INDUSTRIES, INC October 31, 3967 3`e b ru a ry 3> 19*5R u c0) 1o-t L, -u m ovo mcM o ov co co m N vtCo-T\ OL3< CO arat comm m CM CM CM CM I-I w <D ttm C co 0) *H -- ^4 fH O mfr-cvc-o rH vo m ovmar rimrtfr-O in fr- m mvo m*m*vo* cn*cv* aT r-t CM r-tar A A AAA a S-* H O ar rHCO fr- CM m O ovovo H 3 J3 O r-tar in cm m t-aT I-t cm O -69- H Qaoa oHZ w OJ 03 ooo c-vovovo m voarcoarvo CO^CO^ fr^-O^aTN rH mavcMar vovo o CTvO m mc- fr-CTirH OOD mo amr comoocih'- ^ A *V ar mo'iar fr om cm r-t m CQ -W- i--t CM rH CM rH E-t c H OoCOh Ei aZ K -U 4-> 0c) <4 s rH a3 S(w0Z ><H0 O3 oo o mco io i--i av cm mar t-m m*aT*aT*C*--C*O voarar vo ov mm rH cv oc- ar ar r-t lo m cmo Co- lconcmnaor AAAA A CO Ov 1--t 1-iCO ar iH O wa* l S>i >> TJ CC ctJ 3 a0 sa 0 0 -a c > C S3 cd C O 3 C cd rl 01 O It Qi -O a-H Cl s 3 >,4J -h 0 hO dhU O >1 a CO 0 CO 0) L l) ftJJ-P 0 u U +j 0 0303a 4J O *> 3 CO CO C Li Si -H 3 TJ Q) "O r-l ? (U -H tub 3D L*> 0 1-1 Li ft 3 o c a cr SDOCft .O 0z I-t A co a H 6-1 CO d H a a H a os a a >-< E-t CONFI CT 0` H -L> >> 3 > C H LC 33 03 a w aa e a Si E 0 > OO OO 00 c 0 >>< 3 a -H Li H LD3D HO3CC i-t O Li 3 3 > OOE c a aa 3 3 C Li O S 0 OH 1 LtO 3 Li n -l> l, 3 C 3 co CEO C-H O Li H Q 3 1-3 < 0 0 a a .o o z CO a 0CMEO5H D s M a g w a i o a e vfo- cn no 05 Cd id O a Q a o o 03 Eh < z o H Eh < N M a g M a < o at to EOh O O O ONVO iH OJ CVOOCHO -Cd^'O-dN' m1-1 VoOj-rHcCoO OtiH OJ -69- on c--ao cnco m<-t oa- ao c-- voh cmnjcmo do-vecn- \ ^ ^ ^ -d- POO VO-3-00CO H COCOi-H ITiCM iH rH-=f CM CM rH A -7. >. u 3 O* a c o CO o o a Vo/--V O C*-f-no -aO OnCnOn CO av-d- tom C0 1-1 O-d VO CM COCO ^ ^n rH-d- C a>1 mo-d-vo COrH CM -fc9- VO OJ CO pH rH OJ h M-3- mc^ C0C0CC >-VO O', mtc'C'H f-d- o co inco cm C* rH^ rH* rH* CMACC* CNO oncNonm O UN rH CO dT -d rH CO rH rH 5. 1 CM rH -d "O CJ u u <D * H cfl OJ " uO OU O o i in rH m cm CN-=r O COrH r *\ 0J 0J rH t i 1 -sf i oncTNC^rH H m 1 c-d VO * co in i o on cm CM C-d VO df OJ *l s *% cod m dd l ta*t <D >h CJ c o u CJ cn > oO 4J o o JO OJ a XXi Hwm vo i <>-inva c*-d in in o on rH VO -69- C-- rH CM * 0J co H -U at tH Oa- Co UO fHHJ >i C aat oE o aj i-t aoaut-^uco omtn H ti at 0 >H oO oti O C a. tap X0t Mi T3 U a5j oOu oc -fwH C TJ S M -COOS bO3OoHalt oz H n CO a H Eh W 5 M a a M a a a & 00 in ON COCO VO iH iH CM rH CM v-0doJ-.3=cJjr- Oin o C>N-CcToNCoM o <H m *t A ^ n A A -d- h on f- -t rH cj cm in-d- cn >> u 5 C CONFIDENTIAL ao as T-55821 ca oo at S >c oar s >13 CM aaiHj a ji am3 ooE >, ca3 n>uj> Co h +J auot aoaet oa>> o <& Hi u aj <u c a-w c 4JM 3 V O V at at 0 O a E *j u a o +j oj aw co H hH O T3 Ot (!) rl J, HcJj -aU) -uO in fc, a Mo HH C t< H C C O to -C (8 ODOOEd CC C^ VO VO CvO rH rH *N *N COrH on >> JC3mO -oQO jJ --> V & oo c-- ARMSTRONG CORK COMPANY COMPARATIVE FINANCIAL DATA Adjusted fo r 2 - fo r - l stock s p lit in 1964. c >> u, -p 3 C -rl PO3 03 cr PS w a Orur-mcM-a-iorni-H PO UN lTi.3- (MHOtOQ rH c cd u P 3 C -A -P 0 c. C3 CO PS a VO LTi-a- CO VOinN ONJ- -=? CNWJ-^-nHocvciov Oo <D X -P CO co fr1 PS W un c-- c-- cn h h o h oj h .a- .a- .=r .=r mto.in uninin 43 OU o CD rH ;i CO an in u i <33 co cu un on -p rH 43 z w (13 X cn <33 o v rH C cd M CO ONVO HHpJVOriaNm UNCO O CTVVO CM H ON rH CO <HcHCMr-l--InHrH rH Vc--af >o- n*1'mI Wc-- jViH WiS-I Vt-WoVoAJcVv'J xc CO -rl p to a> j-4 &)U sCO c- ,,--, vo ON cn -- rH O O 1O CO icnn C M rH -- o E PO 03 U zc X 03 cd E -P o 03 CJ Si c CU H ca p a) <D rH Z c<o0 43 CO Sfl C >> CO O P Sh S tH 43 g 3 > o cr <ow xjcd 4) 4) rH bflp cd cd cn -p U| 03 -rH 43 > Q. > c co <Mo SChO T4S3 t3 roHn XO KCHCM C'-CMOJ-rHCMCOPOt-CM O in c-- t--vo co cm rH on i-h CM CM cn C-- CM rH VO UN [-- C-- CM rH C7V onvo CM O CM o o mmvo o o rH m cm cmvo o-rHoncMf-rHcovocvon CMOnOnmCMCMrHrHrHrH HO- (h c<>du> CMCUOnC-CMrHrHinc--C-- CM rH ON onvo CM on CM o O on onvo vo h s onco c-- o cnco on cm in cm c- cm onco -a- invovo on on on cm HO- corHcococvcnoovocv uncm c-vo cva-at on cm in CM CO vo c--co :--c--inioco OCO-SfOcHCMCMi-HOCV vo co e--vo-a- cm o on ova-a-ononononoooncucucu HO- OCOCMinCMonCMCMVOCM O CM CM C-iT mco OMTP3onc-m o me--c--j- c-co -s- C- OV O rH C-vo C- C-CO vo mrH ocovo mud- on CM CVJCMCUCJiHr-JpHrHrHrH O-? mrHco cvcoco cm co -d- o cm c- on cm c-co in on cmj- mvo mmcno on^r a; p (Oh 05 0o) c cd rH CO J3 00 c o c (33 o C <3 d0 c t4 c c A 60 43 ono-=rvoco-3- onj-ja- in co in on h onco c-vo m^r CMCMCMCMrHrHrHHrHrH H9- r-vo in-a- on cm rH o onco vovovovovovovovoinm Ho. HonHonHcnrofnrcHncHnoHnHgnHgn <M O <33 6cUd0 4>3 < 0o) -H CSUh no c rl <au coa -wP 3 *i-- TJ < cd p -p CD' a oa*>i Ou) u. 4 ca C/3 Sh a; 0H 3 *> O cd cu 1 0} H *0 >c h a) P -o 43 B PO 43 O ZC H TO rH 5h <U on Cd TJ I 03 C CM 5h Cd <-1 3* in on on o onco -a- <h c-vo CMCMCMCMrHCMCMOnonon O on cm C--vo o onvo vo co CMVOONOrHC--OVOr-HaT CMHHCMCMHWHHH rMjr\|jr;j- ria-rCU-'rVi-l'Ha- tnc--ocuinooininrHCN m-a-vovo mononcM cm rH -Hnj ----`jnr|j- r;cjr(jri(\t vo o cn on on on in cn c-- rH l3--3-ininonCMCMrHrHrH OHonov mo c-vo ar cn vo vo c--vo un on on cm cm rH NR VOCOafCMrHCOONCU OOaT inat- -a- ar af ar it mar in 4o-od-Mmnwioniorauoncoococ oc-- HO- o onvo >h L\c\m=r mo un on h o un on c- unco m CMCMOnonCMrHrHrHrHrH HO- c-vo uva- on cm h o onco io vo vo vo vo vo vo vo un in cnonanoNonOncnonmcN HHHfHHiHrlrHfHrH CONFIDENTIAL T-55822 B-l. l J3 c >> U 43 3 Cn jJ O 3 a> c PS ca "eft. co mco -3- -a- rn cnco envo rt m rn co vo vo un mvo vo H H Fi rH J* O 43 . 23 C 'H _> 0 c. O 03 cs a V*. n cvi unco un m 0 c-- un c\J Cn O CO Un.=f afer CM -3- -3- r-t 0a V X -u> CC to e-> os CJ Xt. cv on <T> <-( cvi m.3- -3- m cm 3 3-3- ununununununca f\> 0u 0d rH JC !l an un 0) co cu un an 43 rH O 2 W cX tt <u OJ rH ca M co C0VO-3-O-3-C0mOnUnun o j o oc\ino o CU CM CM rH rH rH Osmlt>vfoovowvortinomoooocu cco' HHHrlrlHHHH B-2 CARRIER CORPORATION COMPARATIVE FIN AN C IAL DATA 195^ - 1967 ( In OOO's) A djusted fo r slo ck s p lits o f 3 -fo r-2 in 1965 and 2 - fo r - l in 1967* Xc d *H -U> to 0 ** Sr d cu X X5. t'-uncucnC'-rH 0 msm On O envo unvo vo ud- vo vo rH <u e -> 0 CJ CJ 2c M X0 (d E -u O a; a uc CU M CO 4J a> O rH 2 ra CO 0 ca M C >> CO O H-> h Sri 0sa >0c < 0 ca 0(0 0) H)H ta*> aj CO so -u Ui a) th O > Q. > C CO CMO O rH u a) on 30 1 OJ c 0 jHtJrH c-vo it. 0 cn c- mco vo co C anco unco on m 0 vo u.r on un^r co rH ^-3- 0 cu un ^ r\ ^ J", *\ \ *\ * HHOOCO>-MPQ3t' CJ CM rH rH -69- c-.sf un 0 -3- cm m mvo co O h3- ur mvo cm mco on m r--rH.3- mmuno on unco aa *v *, * *1 ^ CM CM CM CM C-VO VO O Nun -d" dT CO CJ rH rH rH rH rH fH -69- un t-enco irmo3t>rH m 0 m mvo co 0 m m unvoco cnovo CMcc^r un co CnO-=r cnovovo mcM manuncu ont~vo unvo un -sr mmmcM cm cm cm cm cm -e9" C-- UnCUCUCMCMC'-mrHCM CO co vovo On 0 an f-vo CM VOCO CM OVO rH CM i-HJ3-^r rH co mo'-=t3r cm 0 C"~ >h OlTunHrlrlHHOO HHHHHHriHHH .0 rH rHCO mCM H Unvo-3VONONCMOOCJCnW U3- m>-UT VO unt^- rH^t vo 0 cm mvo cm cm m.=r mco -3- >-h ones co co co co co tnCU CU HHHHHrHHrl -69- v >-vo itvjs- m cm rH 0 anco vovovovovovovovounun c.cnancncnancncncna-. HHHHriHHHiHrl ^ 3 0) >1 CD C -u u Q <U> W 0) a 3 rH co tsD c >h a c <u H3 C tO C -H cc H &U 0) 0 0 <u 60 3 U V > 0J 03 T1 O H 0) *H cu >H cd once an an mf-co r-> ic\ rH cvi ft cvi m-3- m.3- -3- ur tic c H CQ ca co t"--3- cu unco vo cu c-- cm 1to 0 iH \ C^cmr\rH h o mvo o m m 0 cu HHHHHHrlHHH W 3 m 0) *o w r->(* < 0 vocovoco meudr h m^r* w >H rH lP\ ro rn h h h <h rH ih h O 3 (jJ rH d Q O2 0 C^VO CCTOO OC'HH 0) ud rOCMHHHHH HH U cd 43 co yj -C 1 S-4 tjl sh d 2 x1 CN-d-CC C-d`-=rv0-d*'O ir> VOdfnCvHHHHHH a. 43 3 xt.2, 03 cu uncuco m.=r c^oco.3- m money rn.3-.3- unt'-.s-vo 1 ca H T3 >c H <v Q <3 OOiivonnionmN o evo un unuMfwrunvo rH - (V s 43 0 <u 2 0r- H m m vr .-1 o m c-co h cn co co mvo cu rH o vo cu o CM CU CM rH rH rH rH 1--I r--I -69- TJ H u oj m 3 T3 1 0 c0 S W rH o-vo un.=r mevj rH o enco vaonvConvGonvConvOonvConvConvConGunnGunn o CONFIDENTIAL T-55823 c p>> 43J C -H O3 0} O' w OVVOat C3VOVO at-3- CU rH mooojvococ--avcijc\jav rH c u P3 43-> C -H 0a (U 3 OS 0 C'-cnc ooi-h ovo omvo ar OJ OJ moo C--CO rION a a; <6ahu) cXo Ph -cPa QS w inooj.a-ojojmnnmc\j onatar roir.imrMninin 43 O Ih *O--H 11 OJDT Cv m 3h 1 43 CO Oh m raHv P CJ Z UJ <D X ca 0 43 TO rH c cO HW B-3 prtN OWO 30N6-P3 0-aT CUVO CvCO O OJ rH CO aaiamHnncvmao oj ojmcvovoooooav 00 vo av CENTRAL FOUNDRY COMPANY COMPARATIVE F IN A N C IA L DATA 1950 - 1967 ( I n O O O 's) xc (0 rH P 03 4) Sh u a) a. s as; -P o <u o zc X<0 4) S -P O 43 o uc a* m ca P 0) OJ rH a ca ca a) a) mc >> ca o -p ^ G rl 43 E 3 > O O' cow -0 3 a> a> 1--t cjC-p a ca to -p 1* iiiH aj > a > c aj <mo X3 1-1 3h oj m J -O I 0J C OJ >H y r4. avonoj Mnmo moj cvjarco nonhoco o o-ar mo mo mvovovo mmcc oj ooccovo t^o c-ar oj c- o co o oooj crv U -a <u p a ca -69- 0) 3 > 0 TJ cj C 1-100 r-t inco 0-mvovovo spz C-- OJ OvCO CO OJ Ov C- CM f- rH C-aT O O CO 0J CO O-CO u ca p I ^^ ^^ o ca rH 69- H CJ H N C\1 W rl 4h a ca <u o 3h ITiNU) CNOJ CVI VO at at m mco >-vOC0 iTusf ojvo c- a c n H -23 CO oonh^ Oatar r-icn a) (4 J3 43 oonccnjccuviomJOaJtOmJOiJnOmJOvoJCoJj -69- 63 C Oh rl O C 43 o h c-ar at cvcviar oa OvVO C mcOrH O H OOOJ T3 c-h avavc-vo mo mt- C OJ C\J rH r--ir-1r9(-HrHO OV ca 63 -W- c H c c rl e-- CU t"-at -3" OV OJaTVO in 63 in 0-3- cnmnoHON a> o oj m ire mvo ar oj on a vo ina mcv) oj oj oj co i-t HHririHHrlHHri -69- N-vo mar mcvi h o co vo vovovo vovovo vo mm ON CV OV Ov CV Cv CV Ov Cv CV HHHrlrHHrlHHrl <M o V 63 cua >43 c ca O O rHa H 43 rl a* > sat c H W 0 rH \ O a. 03 w r0H O P 0i>) 3 i wO 1 1 Ov c- Ovvo vo co Cvm oV4. marvo mvoa marar OJ o avvo insmroHvo o OJrHarmrHrHarOVCVO >--I rH m rH H r*i rl '--I a c CO co -vo Is -h|<m --K>ia -ln>-lft>-lcv( io|j cvi o- on mvo on o vo vo m iH rtHHrIClIHHH n c o Vll/ -l<\h|c\H'nj -U m|j o- 6- O 01 m mvo m <-1 c-- 60 Hiy-KMH.'.lpi'M -,'J nljnU H 33S6-1-H0010H H H H rl rS OJ CO OJ 1--t H P 3 V. O >> a PH 1 vo -a- vooj mavvmo act^vaovaml- ahr aor- 13 rl X) > rH c 43 Q -a 1 o-cOi-c ov ovxj co co m oj vo cvco co on avvo m -*9- 43 s p0 4) CJ Sc H ar avavco o-o coi-t t*-co O monovooojarcovo r-i rH H rl H H H rl O rH 4; -a o|n C CVI W rH o-vo mat row 1-1 o avco vovovovovovovovo mm avovaicvavovcvcvaia. HrlHrlHrJrlrlrlH 'O < X3 CONFIDENTIAL T-55824 CLOW CORPORATION COMPARATIVE FINANCIAL DATA 1958 - 1967 ( In OOO's) A d ju s te d f o r 2 - f o r - l s to c k s p l i t in 19^4 and 1% s to c k d iv id e n d s in i9 6 0 and 1961. O ffe re d on 5 /2 1 /6 4 & 23^. Uc >U> 3 C H *j 0 3 a wa mmeoununvo mN-iTroo OrH OM rrHH Cp--M* O\Q0 OnrrHHrCHO <J\ rH CU3 C 4-CHJO -0p) 0 a3 as 0 U3R.Ca unununaoavo c-- O'- On rrUH rrHH co >- c- on 0rH co 0 u <nu Xto -aPs H OS Cd VaUOR.ao-aco OunHunUunJHunHuHnuCnSa 0 Sh r0H uo11n1n cuon orHn cjCCnD u CaU HJ za; w H*aXa1c3 CO raH CD CO a m o o- cm c-ona o o a oj una ooocc o i-t on r-i a onvo c\hit\ooo Una fOHOOHHO\ B-4 4XCJO fcfHcO aU a. s?Sh3 0) 4J s0 a0 a Mc X(0P0) <SOD 0 CsUh Mc ZOP rwC0nHOs) <taUO C e>o XCO. Oe --hp ago <>000w* x3 a6A-0P) artHo <SOh0J 0a3 --HP >& >ca <ha *. *3 oj >mH a -o 1 >aH Ccd cr-m1 aUR. 0onev*a>-cuc*-uno HrH rnH arH irHn rcHm cHm cHm oHnrHaarH co vo on cumn a cm co 0 vo co vo 0 unvo cm cm 0s- vo 0 a h 0 co ona co 0 a a69 ona a cm cm cm cm on cm a a > voa c--acovo rH o-oncj -paC xOfOHpnmoNOt^ unvo OnOC-OnOCOCMOO Sh c-vo o~co una un unvo a <h CO ma^cno cc oavo mcnr-i t'-co c- 0 ocoa mcM moa spoiHo omjico a 0 C a jhQa vo 0 uncuvo ono cm cua vo vo un vna ona a a on no -69- crH coonaoncuonhc^oun-acuoancooncco-uan h 0 c---co Haco 0 O N on c-a h on f- una cm a -o69n- on on on cm cm cm cm cm cm vo a onvo vo on on cm on CM co on h co h onvo f- un on O uncnco O Ona cm una c0) tj gcj Cto rH c c rH to a" 0 -aH69oonoovnooanoonnonnHonOocnocmccom c--vo una on cm h 0 onco vovovovovovovovq unun CHnHoniHo'.HonHornHonroHnHonerHnorHn <h 0 a b<0o Sh <>a ctf aOXrH, Or >oHHa 0-muna I tI mvo una b crH 0*-*. rs a co Cd r0H 0 \ Oh unco a a H O-O-CO rH w 3 -o <0 ac/a r0H a m|jn|3tHj on cm un (OH CM CM -aP O-P 0 a 0 (uV a Sh CD s 21 rQd | Hrj -IOJh|j cnco rH 0 rH H CM CM JC cn (sJhJ JO !7rtaHHO -*!. Hn a on cNm (nnoiwn pu T3 H sa >> rH -ap so > H Sh Ph HD 3 UR 0 PCuD oiohno una ctpopo a- una on on on on cm on m Hr >n Q CO TC7 a T3 unun unununHcucucur-iarH CM CM CM rHVOVOVOVO C--VO HHHH -69- HJ za as 0 0 c H uOnMcuOccOiOh HocCo--Co0raH- mCoM aCO cm cm on on cm <h r-i cm cm -69- -o rH sChB a -C o1n 5ah Ccd rcHm c-vo una on cm h o onao voonvoonvoonvoonvconvoonvconvconcunncunn HHHrlrlHHHrlH CONFIDENTIAL T-55825 Q O THE F LIN T K O T E COMPANY C O M PAR ATIVE F IN A N C IA L DATA 1958 ~ 1967 ( I n O O O 's ) c > uP 3 C -H P O 3 a O' cc, Cd f--s-ONONinoNN-moN mc-co o on onco o cm 00 H ca up 43a C t-t 0a aa 0 Hi"\aotnocN mvo co at- m in n-vo vo m n- onvo aa a XP 4h a a HH W at on mat mvo mvo moo m m mar at at at ar -a- -a- a Ou 0a Hc II CO ON mu 1a 00 cu m ON p Ha 2 a a Xn aa a H ca H co O inCNN-a- N-CO NOS VOCOOO O ONCO C^ONHCO N- iH CM C- N-at (Mat f-m mvo mar aaornno B-5. stock dividend in i960. A d ju s te d fo r 3 -P o r-2 sto ck s p l i t in 1999 and Xc CO 40->) i* o3 ^S Pa> 2 usOc0) xa e po ao s- c CU H p <Wu 2(U cHan vso c a>> la. EO H+-> aS3 > o a* <oH a a DH y)P CO a ap u ah a >a >ca < HU T3 H u am a -a 1 a ccm > W H on cococo os-vovoatvo -a- VO VO CN ON00 CO ON H CO in in mm on cm ovatvovo m mat at1-- o r-vo co on mmco on mvo at on cm in ONCMCMatmCMHCMatC^ HHHHHriHH -69- u a a >> ar m cm m mco cvi 10 -a- in iflojo mar at m o s-co h oj r-i n- in cvj o onco h at O ONVO ar m H OTat m hcmhcmcmcmcmcmcmh -69- c-atvo oioOHoiino NaraO'JNHNNNO no ci mco 10 ino o cvj h gncm mms-inonqoat ON ONCO f- C-VO at at f-J in CMCMCMCMCMCMCMCMCUH -69- aCCOtvjvOOCVJNaOt iCCn-V-omOiVmHOvaOoNcOr--o1-CNaV-tCIaCOOt Hat rnco-t hvo minn aONHrtHOOOS rlrlHHHHHrlrl -69- atCMOONCMCOONONCMNvo in on s- mat onco s- m cooowaHaoao a 2 P Si IOh a a ac a rH a n so c H TJ c a ca a tco *H ctcHo aat co at co at cm h mmco h NNHHHHON C^at H CM CM CM CJ CM CM H rH H H H9- N-VO mat m CM 1-1 O CNO0 vovovovovovovovomm ONONCNCNONOnONCNONGN HHrlHHHHHHH <M o a60 a u a > 5 a a H u cu t| C H m O T3 a P a 3 h a s a p a Q a U a 2 co u a cu p 3 CO 0* H1 T03) >C H 0) Q T3 0) ^8 aa 2c H TJ rH u am a -o 1 a c cm N< CdrH rH rH co N-minmmo h at voar mfotj'j mar VO ONVO CO CO CM rH mar m COCO O ON rH CMS--a- m ON -<|<\Mrn]a HarMa--'[airl atvo o mat c-atco mio CMrHCMCMCMrHCMCMmm ir|a *-'(lrH'\r,\|ar'f.j vo moo h c^ar cm m o m rHrHrHCMHrHCMCMmCM' N-arvocoarvoarvo cm on cm cm cm cm cm cj m mar m "Vi. VO-a- HVO ON CM at at s-o e--mmmmat vovovoco OOOmOOOONN-CM ooocococoHCMvom H HH -69- rH iH rH r-1 CMVO VO at VO CM CM H ONO mcc CNmO ONN-Oat ON I CM CM 1 CM CM H N-vo mat mcM h o onco vovo vo vo vo vo vo vo mm ONON CN CN ON ON ON ON ON ON A CONFIDENTIAL T-55826 JOHNS-MANVILLK CORPORATION COMPARATIVE FINANCIAL DATA 1958 - 1967 ( In OOO's) c >, U 4J 3 C -H *->0 3 CU O' OS Cd Vn naoon vrvso nco onrn OVHrl HO HO CVCOCC CTVCHM rOl C r--C3f U 3 C -H *0J 0 cca. OS CJ 0 JJ X a; +> Cm (0 CO < 6* ac Cd n nco cm -=r on n c-- cm c\ OHrH Oc--|Oi--l cnco ao cv cm rH cs vo o-vovo Nnnsmn .af.3-.S-.S-.a-.sr.S-JS-.srsf Xc CO H -U Oi) a) u U CO Cu 2 >R. CO H CM 0-- f-- CM-sT C"00 0- rH sf on CM CM rH iH COST CM HHHHrHHHHHH 0) *-> 0 zO CcJ M X <a <eu *> 0 0H 0c Oh M 03 *P zO 1H<0d) CO D 60 C a) >, to 0 -P fr* S rH a> g 3 <>000W* Oaj <tf <D rH 6COJ*cJo ffl Sh CU -H a> >C cCOl <M0 u O <u 1--1 on >CO*O TO C Cd 1 CM <H HCO^nrHC^CMCOVOiO 0 ononcoco cmvo ohovo 0 h rH vo ovco nvo on cm co -3- h Is- on onvo <--1 on on on on on cm cm cm cm on cm -69- rH CO -S," nrH f- CM CVVO-d- COCO OVO CO C-HsT-sf CM oncvi ncM nr-o ovc-cu v0o cc-m-voc3ncno nC-Msto- n.so-nsorvnncuMt -69- a0vavc-0ndco-oHocc-iochow-mcs-nacco- -ncr*i-ivAcomC-osn-- O CM O00"=f CM t-nt-iH rH r-i co n iH ov o--vo p-- on inn-st-st-st on on onon on -69- to-ovo r-i c-o^r ovcm 0 oronac--rHaot-cnoaornvvoo onncvMov-ao* afoonvHom0 cnMconaioO- nNHon on on on on cm cm cm cm cm cm -69- MfiHvocMinovo-t-n onvo cm avvo n onvo cnat ononnod-no rH h ov -st h f-nur f-cm ono-=t on h 0 ctvco ao c--vo on ononononcMCMCMCMCMCM -69- c--vo tnar on cm rH 0 ovoo vovovovovovovovonn 0^0^C^C3^0^C3^0^CJ^0^C^ hhhhhhhhhh nJ cu >1 .<cU *> u n-i CO <U O iceHoo oo c -M TC3 a) tcs 63 c -H c 60 0 0 <h 0 a) 6C(<>1Ou0 c aj 0) Ou O H JC CO CT\ n J- 1 00 aa.? LP\j 0 2 w (U X 03 <u <u c <0 H CO 3-6 CTV n- on CM OVVO VO in-3- VO H on CM H CVCOCO CV<--ICO ijT'tlfnminWoHt-HHONCmOvoC-=ri <u T7 a 0H) cu 6cf H CQ Cd 0\ 0 CL, OVO NNrt MAUVCCO -d- -a- on on nj on o\>-ao1vo o on on on cm v'to on o onuo n n o co oncr> co *-> cu (0 O w 0 rH H-iann-Hcjao-HCnn\nHr-|tn=\icnt|-o.-=orn nt--n-I-j=Hctrn\-nc'mm 0O fc< co co 21 r".|-r ir|jn|j>o|j-|r>-: ^ Vh 0 U CO *4 1 m 1--1 co cj co n-=r vo -=tn-=r-=o onn.s-.s- on O2 0-r ta) rr|- Ht\J-!f\ri|j>ri|j--iJKi|j--|(\i X VvoO vroH-vSo- vCoM ii--nl cOn-snf-vCoJ OnVCnM U 3 0 voovna-WHri^mH nut- n nvo c- t>-vo n c- crt cu 1 03 H T3 >c <u a'a oa iownooooooooooooooo CMCMCMCMCMCMCMCMCMCM -69- 0) 4^ E O zcu HOG HOcnMnHHWjrn osnovocvicocof-t c^co onst ja-onmcMCvionmcM -69- O rH Jehfl >c*u TaC3> Cd o1n CM r-l o-vo mx- on cm h o cvco vconvoovovvoovvocvnoovvocvnocnvcoMnnn iHrHrHrHiHfHrHrHr-lr-l CONFIDENTIAL T-55827 KAISER CEMENT fc GYPSUM CORPORATION COMPARATIVE FIN AN C IAL DATA 1950 - 1967 ( In OOO's) c >> U 3 C -H P 0 3 <0 O* Ed VOVONNHOOHfOlO a euctac minrHctct h r-t HHHHHHHHCVICVJ H C (3 la -P 3 C --t p0a <U (3 cc 0 vo.^mao .maohincoah vo t-cc co co vo co co evj cm (--1 r-t CJ 0) a> x -p H (8 13 nca Ei inn h c\J cvivo 0 c^ct m evi m m m m met met cr Xc 3 tJ p CD a> p U (3 a. 2 OHOvmOHC>OVH4- r-t evi m in in met moo HrtHHr-fHHHCUClJ 0 E 4J O a> 0 zc M X a> 3 e pO 0) 0 HC a, m ca p a) Oi H 2 at CO at 60 C <3 >> 3 0-1-1 la g H <tf S 3 > 0 cr <0w -a <a a> a> h sop <3 cB ca p j* a> i-i <u > 0. > C 13 <c m a 3 rH u a) on (3 Tt 1 3 COl >1 Ed H ct OVct NHOVO OVOH vo ctco ct r-tcoct c--rH cvj c-ciimmc'-cviiocu c^co aaaaaaaaaa c^co ovovcovovoioco c-- -*9- Ca at <0 >> etVOct C rH vO O CV C--VO CVICO OicTNOHC-OH moao,#ivrvcvoncosc'os*hvc\vmvt%0 r-t mmcvj ovh ovmm Hr-1 r-l H r-t H HH -69- ct OV C~- cvet H VO VO ct (TV c--C'-cvicococt r- ovo in t- 0 mvo ov c-- m 0 h m <U s: P ta Q h W 0) Oj-- 18 h <3 mco C--- 0 in^- ct cm c- c- -6o9v-ctv av cveo c-- c-- c-- c--vo hvo mco t--ct t- h met coctct cvoh t~-co'i 0 mavavinvo 0 cvet ave- &co *H TJ C O -a c mo t-inn ovvo ct ovo c-69t-ct mm meter ctet m mco mao r-cu 0 evi avm coetco-a-mavovmc'-cv O cvivo mmao mmcvco aaaaaaaaan co vo mvo evi cvj cvj m c--ct H H H 0 O OvCO c-vo vo rH rH rH rH rH -69- c--vo met m cvj h 0 avao vovovovovovovovomm OVOVOVOVOVOVOVOVCVCTs HHHHHHHHHH eco HC c H 60 <u 0 6* 0 0) 60 18 U 0) > < 13 a> O (a O (3 H JC II CO CV m la i 1) Cl, uS c\ p rH Nm. 0) z CO 0) X ca <u at c H at H C0 3-7. vo cvjvo evict-vo ovo min VO C--CO O CTvvOCO NO CV movonlmtvvowOHvmooonoo oc--mov <U -a aH H 0J uH a* >a c H CO Ed O rH \ a a, aCet OJ evict- CVJVO C--H CV ervo meter mm mm ca VOOfOHiDWOnON t'-evievieur-ict-^c^mt^ 1 HrlrlHdrlHrlHH cB p to 18 Q oCO vo eu in c^vo m o\ av evi ct oH H H H r--Ir-trlr-tr--iCVJCJ 0> U d jjj 0) oco 2 1 --IflMiHC Ho-IIVJ ir|J--icr\l.j evjOctvomeucomHm la v4 | HrHrlHHHriHCiH <U z 0- 2 60 H ovvo avinavavn moct X HHHCVJHHCVICVjmCVJ p 3 0 4-smHHctH4-vo evi co c^vo in in e--vo vo cr in Pa 1n H 73 >C H 0) Q -o ooomoooooHin aococoC'-c-r-C'-C'-c>-t- -69- V P s(U So c H irua- ct n-vo in in o evi cavocvjctmavHHinm -w- 'O H ^ a) on cc3 -a 1 a) cvj >-< W H t-vo m^t m evi h o cvac vovovovovovovovo in in ovcvcvovavGvcvcticvcv HHHHHHHrtHH CONFIDENTIAL T-55828 c ua 3 C -H O3 0) <T 05 W VOVDHfOH mVO OHN < m[--cocci mo mco inn CVJrHrHrHrHOJOJrHOJrH pH C CtJ u 4J 43-) C -H 0a 0) cd K0 -=rinc\ja\c\joojoufNcvj cumtnvo HHHHHHOJHH CJ 0) 0) X 4-> Ui CO (0 <-* E" 05 W m mvo iHoococ-ihc-co c e e m in me m me vo CT\ d 0 Si 0 od rH II VI m m Si 1 co ad. m mu rH d Z 03 d X ca dd T3 rH C CO Mm omovojHovovHojeo emmmmojoojoojmOeJuOvJorHmrHe m m mco o m rH vo msm ommoJcommojrHoo CO OJ OJ OJ rH rH rH rH rH XC CO iH u 00 d Si S. ca CU Z m m o- m. me mco rH e m > H c--co m m o cu c- o- m u aj 3 Si d a CJ rH rH d Si H Ch 6 C m o oj m eaoe m d -8 evovococvjoi-immoj aoccvoe me oevo o mvo mrorHOCvimmoj O <v a wiH ca \O a rH a O Cu mmeo rH O-vOCOCO a) o 0) Si u 2 C CVI rH rH rH i--I H H T3 C0 co , -69- c <u 3 Cl} a, co --* VO cn m-- rH 0 1 0 0 CO in c ON rH M xd ca e i-> 0 d0 uc cu w aj >> <-> d U l) O < . 03 Si 0 nU -U f^o mo voerHvooeHvoem 3 Si dA cnc~f-te-m>-CJco moo > X rH O cd C-OOVC'-CJOmrHrHCn uU a o CO emajcviajcvjcvjrHrH -e9- C Sm Q c0 Si H<v>Hi oooo a> W| 0) B d 4J cO > iH Si CU M vo si TJ Cu vo efl U ca 4-5 0) 4) rH Z <0 w me o o-o cvj cvjvo mm m o rH m m c-va o cwo o ONWwmoHmmo 00I rH <0 JO CO Si d J*S Si CO ma d Z ehmmmecvmjce\J0oJcroHvoHHm.Hn m rH 00 cu oee oj rH f--I rH rH -69- c *rH (0 J3 cue >) ca o +-> U<0 E6 r3l C>O0W3' Hm Tc3 d oj rH mseeevoaj m Si eao me NOHmmw oj n 3m1m1vo1m1m1o1o1m1e1vj 1o- A 0 C o moo o-mme oj cvj <h a rH 0 hfl -49- 0 c +> iHc 3 >*0 CO a. m ovo o-e m h i i i mmmoj oj oj h 1 03 H TJ >C tH d o oee o-vo m i coco mmcvi cvj h 'C d d rH 0<d0-sU itcOi U flj *H d > Q. > C CO C MO 3C O **H eoo mcovo c^oj mmeo J3 00 mmvoe hooj mse CO d m1e1co1e1h1m1e1o1jv1o 1oj a a moi rH ocovo me mm d Cm co 0 dd a T3 -w- ds AO zd Oc M m mco c- m m rH ove vo e me cvj rn o oj mvo oj CVJ rH rH rH rH rH rH 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CO" OU CO CO 1-1 <0 Gc, >* d> co vo me mojH o mco >* < vovovovovovovovomm mmmmmmmmmm rHHrHHrtrHHHHrH cO A cU01 O Si CD CO iH O Pu X co vo me m oj rH o mco vovovovovovovovo mm mmmmmmmmmm HHHrHrHHpHHHH CONFIDENTIAL T-55829 A d ju s te d fo r 2 0 - f o r - l s to c k s p l i t in f is c a l ye a r lQ 6 and 3$ s to c k d iv id e n d s in f is c a l yearsl 39 6 3 -1 9 6 6 . O ffe re d 9 /2 1 /6 4 @ 131 (12$ a d ju s te d ). TJ Sci *>3 *33 cOcS CO iH3 COd' ir> OJVO HNOHH41 cc coc^ojc\jrHc\jm r-4 r*i rH r-4 Sci rH iCaO u3 OS C -H 0 0atO ^oinmo^ocNOcOH C^CO C\J CVJ tHr-i mvovo CJ as Cm0) ^C1d xco &1 -cu0 cc muovo c^od co co co cc co "0 aSsi 0rHII 0j<C13 mm1 cmrmHo Si aa,s *3 2as US M"OaXacss ] paHs CCOO 00 0- <7\CO OJ mat ccvoar VOVO C-ONmcccoco O C> ojmo-HC'-ojvovDvoar I'lOOHOOOG'OO' B-g. UNITED STATES GYPSUM COMPANY COMPARATIVE FINANCIAL DATA 1958 - 1967 ( In OOO's) Xc CWO taHo Vu u to a. z to*i.vo ovo t-co mojeo m mao rH m mat in o- m m rHrHOJOJOJOJOJOJOJOJ 0) e u o 2OS HCcJ X OJ SU3 OS as cs PSUi MC -U 0ra> HI rH 2 CcOo OS CO t3oeO ->>->i Si i <rl <(>uuOseaO' ObS j"uO0S(0r<H0 CSOi taos -*w3 as > 0. <> HCt oCO a rH Si as ro to o 1 as e os >1 W rH c-mvovo mat ojat mvo co mat rH^r oj o ova- c\j ^ mvo OHHsmmci HOmrJt- oCj\amt aPtOaOt mC--mvOmCO-VaO-aot Si <>cOu> mm mvo mcoatvo oj VcOocrHo Co--n mcvCiaOr amt ti-nvOoJcVoO aint VOcffriONHOcTC\CT\ -<inA- mvo co o- o- >- o-co c-- mHOJatVOVOCOOVOm nOi-nrHinrHininHOJoOvVoOvoatoOjvCo- oj rnat mmeo oj mrH in C-mOHOCOC-f^OVO -m6 ojmmmcviojojmoj fONH CT\0-C~-rHrH O-VO O-OJ OJ CO at at O <M mat rH f-VO OJ rH OJ O rH H m c~-o-in cn i> m rH oo 00 vo amt mmmmamtmOJmHmOoCjOoVjOcavti -60- VarOHtaartHat aotrntH<r-HHOVVmOOVmOCmOOJmOatVmrOHaVHcO jaCs *3 Si o Cw ta oa) ccO rH co jo 50 c H TC3 (U T3 ccd 50 c rH c c H 5<D0 Q r-co m ,-h at rH co mvo at haooti-mvomvommmmmoimomojco'j-omj c--vo mat m oj rH o mco vovovovovovovovomm mmmmmmmmmm <H O as 65cO10 as- > < cO as cs mt-00 Ot-HOVO\WC\ rH Si &1 at mat at mat OJ OJ moj 54 cr fl aos ovocoriHHfoo mar co m in in o-vo cnnio n HrlrHHrlrlOJOJrHH cuO ml^HOMfOiicu -i|aiA|j -13 QC0 invo VO O at mat ma.- CO vo invo ooco o-c o mm aSsi SIC-cCOO OH as, 7i Si 0asi C0 S vo mojvo m mm invo m. mar vo c- c-vo mc_ co vo c mlaHcvHrvnlr.Ht -!m 50 oj t'-at mo mmvo o oj covoco mmo hhno rH rH rH rH pH 1 u 3 cocovo rH mvo t-at mvo co00 C-Aovovovovo mm acO, hI -uas >c h as Q T3 000000000 m OJOJOJOJrHOOOOCO cnmmmmmmmmoj as 4J Os as cs 2C vmo voojoojjvooj cmvmimmoorH- to-mo -m69- mat mar ar ar at m m 'O H <S0i Ta)s mI XasWc Hoj o-vo mat moj rH o mco vovovovovovovovomm mmmmmmmmmm rlHHrlHHHHHrl CONFIDENTIAL T-55830 UNITED STATES P IP E AND FOUNDRY COMPANY COMPARATIVE F IN A N C IA L DATA 1958 - 1967 ( I n O O O 1 )s c 4S3Ji OC ->U> *3H c3c W* r9 cu3u C3C 43J 0C 0-a3H as. omvo-a- on LAV3 fs- lTN l^vo H c*- rH (Sit O ON C- in invo it on rfvo sinm-a- invo <- c-- O0) a EX3-> 4V3J COrH-a-ititCOC^aNaNi-l cm co-a- -a- .=r -a- -a- it at in 3 OU O3 1--1 x: II CO ON in (4 t3 cc cu mi ON 4-4 1--1 3 Z 3 3 X 33 TJ r--1 C3 M CO B-10 O mat CNVO CM CM co O O c-cocovovo invo C'-cmco in >-co it i-h mvo cm c*- co at it m m CM O ON CN O ON Xc H 130 a> Jh u <0 Cu S CMCMCOitaOlOCOlO CNOO invo roC'-c-t-CNCMC-co 3 T3 o rH H 3 $4 H CU bC c ovo O UNOit CM C-at c-mvovoao uNin-a-ar H 3 -P s 0 <D 0 C--VO VO CO LO QNVO LOit CO CM UNO VO at UN CN (TVVO -3" O rHVO CM CNVO UNUNCC H 0 ca w 0 rp \ O cu in UNar co in on c- cnco on C-CO C H H H41 CM CO CO 1 2= c HH vo t-- c-vo m-a- mvo o r*- 3 3 3 X3 ca s p0 Q0 Pc eu m > 4J 3 3 m|J--IjHcj r|e\l --la n|i 3Q 0 rH CCNUCr--HCrHUCoUcroHirn--tCcJuCmUCmUC>U- OVC^rHVO r-tlH iHUOOCO 4-4 3 O cf-ocOmVldP"uChOCinOCVONaC--t COM aCr-ai't- Sh (4 3 4J COOPOrHOCOOPOrHat i--ir^e-4r^ H H C\] H O < O W <D * --li n|j----la-li--liirl.! U 0 t- C- ONCO lnit HOiTCb -5i9- W 3 14 a 3 2| HHHHHHCJOJCJH O Hi 3 40 <D 3 rH Z3 CO atinr-HacocMovovovo VO of O C^COVO >-HVO UN it -=c -a- mar on co o cc vo vcHmomvHoaHimt oHpiiHcnofr--HlHtO-- OcroiHroHn-ro3l- -69- C 3 rH 3 J3 bO c H JO bj ""I-* -In -rH O mar cu o m c-vo onqo z COCMCMCJCMCMCJCMCMCM 4-4 a) eg bCOO CO P> incuat m in c-on in cu cm inoataovocumrH m-aHOHd-VOCOH4-OCV -a c 3 TC c 3 3 0 1-1 onco h in in on c^- ih cm >> c-m un c-c-cnc-vo at vo 3 04 > o cc < 0 <a O CN ONVO it CM H ON UN ON OOOOOOO ONO'CO r-t ("( r-t r-l f--C rH (H -69- M C H c 13 H 'O >C 3 0000000000 CM CM CO CM CM CM CM CM CJ CJ 1--I H r-1 rl rl H rI rIrlr1 c Q -a -69- 33 o 3 rH 0*J CO CO CO 4-4 l< D-4 3>a > c Cd <5 M O onmat m in >- on in cu cu it C^-it CO VO CM CO r-t mat vo H<-i43-voco>H-=cocr\ CM i-l ONVO it CM r-C CMS' CN CMrHOOOOOCN CNC0 rH rH rH r-C rH rH rH -69- H bo 3 JC V4 O 3 0) P 0 a; 0 c H O CM VO CNHlO i-l CO it it t-OOVOlOCUUNC-CNCN HCMOJHHHrlrlOJH -69- &0 3 (4 3 O 1-H U 3 CO co -a 1 3 C CM >1 W rH c-vo mar co cm i-t 0 cnco vovovovovovovovo inm CO ON ON ON On ON ON ON ON ON H 1--IHHrlrlHHHH > < 3 T3 H JU 3 m 3 T3 3 C CM >4 W rH VcO~-vlOo lOinViOtVcOnVcOulHOlOO icfNncLoO HONHONrClNHCNHONHCNHCNHONHCNiO--NI confidential T-55831 WOODWARD CORPORATION COMPARATIVE FINANCIAL DATA 1958 - 1967 ( In OOO's) c >> Vl P 3 C -H P O 3 OJ O' or. a ont-it oincmvoovoI1 CO OO rH CO CO C-C-CO c rH up C -H P 0) 0 aflj OC a cm Lncm co mo itmo-aI-1 CO c\o OCOCO t-f-CO 0 a> X -4u>) Cd Cd CO intiitt intitf-icf--i>f-ictoicr-icto Qz o' a> u O ed rH C II 00 O 0 Vi 1 cj CO cu in 0p rH zCJ 93 <U X 03 0) 4J a rH c ed M CO B-ll mit Onncmnmrmncoocoovcomcocucvm co m m m c it it i-h co cm OOVO^ HfflSOOCN m m CM CM CM rH rH 1--I 1--1 0) Tt v> XC cd -h P fcj a> ix v, cd a, s rH mvo mvo c--it cm in Q OrHCJitCMmmooz HHHHHrlHHrl CJ H 0J Vi -r4 >H 6 f~i>-rHit On C-OVO rH nvo in in nvo n c~- in m C tH 0e) p0 VoiOn hmC-- rimHn cmi--t cOcom mit-vovo 0C- it rH rcH~-icto cvcoo- wa 0 \ a VO rH it CO CMVO VO m IT . CM OCOOOCMrHifrHmC- z coj 0 M co 000 n-vo vo ininit u cd (U cd l >> P cd 0J w OJ Q 0 CO it rH Ot-itCO CM CO H x cd eoj p 0 0) 0 Vi C ict^c-cicn min mm0Hiv-toto-ict vo cm co omc-C'-c-inQ inc-vo c-mcj h 00 P Vi 0 Ih 0J Vi .ccd CO CU M Hr-HrHrHrHrHrH rH ca Vi 0 CMCVimCMCJCMCMCMCMm CJ ux 3 I Vi 0 cd a 1 ro'|4n--olni-ova it mlHWVir.'o- jon cj cm c_ rH CM CM CM CM CM CM CM CJ CM CJ 0J OJ P a) O rH Z cd c0 CMit inminmocM inrH omvoitvvoo vcomvt'o-cvoo ict-0it 0 cm iinn cCJ cd rH cd CU nncnMmcncmm 0ncoMcot-nOintviot H H rH rH H JQ tcO fcj VmOmHmmrmHOcOj crjHmOVmOmCmM w- iH P a> to c cd > cd 0 -p ^ E *H Q>J < s 0 0 3 aa* c~- c-oo h 0 t-it 0 0 oh nit c-c-c--vo c-- co mo mit cm rH om#*o}2j C0M OOCOO CiOf CrHC C0O Co^mvocvvoj H -M- (U TdcHd tgp cd C0 03 P VCJ O> HO. C> MC Oed 0h cj iotcom tc-m mnCMvvcoo^cctoo-rm0in0omint Q n 0 r0H h t-it oco co m mco co co vo n vo rH rH ->9- ca a> Tc3 cd tco iHcc H to 4) O Cm 0 OJ to 3 &voJ0it min. imn cn- icn-cmo ?o- ut-nccoo cd a 1 tn c>*H T3 x- 0 Q T3 voovoovoovoovoovoovcovoovoovoo rH rH rH W rH rH rH rH rH rH -fr> 0a z<u 0 ac M VinOvoOOoOmCiMtrmHOmOcrmHmCCcm -CwM- CMmmCMCMiHCMCJrH cd Vi TJ H Vi O m ed T3 l OJ C CM >H W rH vtoVvOovnoviotvmovCoMvroHv0o oco nn 0.000000000 HHrlHHrHrHrHHH a> > < cd u 'O0 mrH ed oj tc: 1 cm >H H H vto--vvoo vno=vot vmo vcoj vho voo ouncion 00000000. cno rHrHrHrHrHrHrHi--I rH H CONFIDENTIAL T* 55832