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(Jertain- teed PRODUCTS CORPORATION CTD035840 Certain-teed Products Corporation Board of Directors Rawson G. Lizars, Chairman Henry W. Breyer, Jr. Albert J. Hettinger, Jr. Thomas F. Brown Herbert W. Hirsh H. B. Campbell John Valentine Lizars Elmer G. Diefenbach Hamilton Pell Executive Committee Elmer G. Diefenbach, Chairman Rawson G. Lizars . Thomas F. Brown Henry W. Breyer, Jr. Officers Rawson G. Lizars - - - - - Chairman of the Board and President Paul E. Fischer - - - Vice President........................................................................................................................................... John Valentine Lizars Vice President.......................................................................................................................................... C. K H - - Vice President & Comptrollerenneth obson ........................................................ John J. Hartnett - - General Sales Manager................................................................................................. A R. C - - Assistant Vice Presidentndrew raven .................................................................................... Arthur O. Graves - - Secretary....................................................................................................................................................................... Mellor Hargreaves - - Treasurer......................................................................................................................................................... Transfer Agent Bankers Trust Company, New York Registrar The New York Trust Company, New York General Counsel Clausen, Hirsh & Miller, Chicago Auditors S. D. Leidesdorf & Co., Chicaco CTD035841 1 Ardmore, Pennsylvania, March 15, 1948. To the Stockholders of Certain-teed Products Corporation: There are submitted herewith consolidated balance sheet of Certainteed Products Corporation and wholly owned subsidiary companies at December 31, 1947, and related statements of consolidated profit and loss and consolidated surplus accounts for the year then ended, certified by Messrs. S. D. Leidesdorf & Co. Sales and Warnings The year 1947 witnessed many new records for your Company. Net sales were larger than for any year in its history, amounting to $48,707,089 compared with $34,959,302 in 1946. Net earnings, after an appropriation of $718,155 as a reserve for contingencies, were $6,149,720, equal to $3.75 per share of Common stock. Net earnings were also the largest in the Company's history. In 1946 comparable net earnings were $3,890,269, equal to $2.35 per share of Common stock. Working Capital and Funded Debt The working capital of the Company at December 31, 1947 was $10,089,193. This compares with working capital at December 31, 1946 of $8,825,796. The Company's funded debt has been reduced to $3,550,000 at December 31, 1947, the lowest since 1928. Earned Surplus It is to be noted that your Company's earned surplus at December 31, 1947, amounting to $8,727,631, was the largest in its history and compares with $3,860,598 at December 31, 1946. Taxes, Wages and Salaries Your Company has paid to the United States and Canadian Gov ernments or has accrued the largest amount of taxes in any one year in its history. With the exception of total compensation paid to management, wages and salaries for all classes of employees were substantially higher than have been paid heretofore. 2 CTD035842 New Properties, Additions and Betterments In 1947, the Company provided out of earnings the largest sums ever spent or set aside for expansion and betterments. The gypsum plaster mill and board plant at Sigurd, Utah, referred to in our report to stockholders of July 28, 1947, is nearing completion. This plant is the property of the Western Gypsum Company, in which your Company owns a majority stock interest. Your Company will, therefore, for the first time be able to make plaster and board products available to the Mountain States, Northern California and the Pacific Northwest. In due course, earnings from this investment will be reflected in those of your Company. There was completed and placed in operation an addition to the Company's gypsum board plant at Grand Rapids, Michigan, which will make available increased supplies of these vital products to our customers and further increase sales. Substantial capital expenditures have also been made at the Com pany's properties in York, Pennsylvania, East St. Louis, Illinois, Blue Rapids, Kansas, and Dallas, Texas, which it is expected will improve our ability to serve our customers and result in increased sales. Early in 1948 the Company completed and now occupies its own General Office building at Ardmore, Pennsylvania. The Management believes this move will result in substantial economies. Dividends During 1947, dividends amounting to $67,500 were paid or declared on the AVz% Prior Preference stock, and dividends amounting to $1,215,187.87 were paid or declared on the Common stock--a greater amount by $486,188.32 than was paid or declared in 1946.. The Board of Directors and the Management wish to express their thanks to the Company's many loyal and able employees whose coopera tion and efforts have contributed to the 1947 results. Respectfully submitted, Chairman of the Board. CTD035843 3 Certain-teed Prod and wholly owned CONSOLIDATED BALANCE SHE ASSETS Current Assets: Cash$ 3,728,732.36 U. S. Government securities, at cost, plus accrued interest (quoted market $1,074,341.44)________________________________________ Dominion of Canada Victory Loan Bonds, at cost, plus accrued interest (quoted market $222,851.25)___________________________ Other marketable securities, at cost, less reserve to reduce to quoted market________________________________________________ 1,070,522.60 215,774.69 320,743.75 Receivables-- Customers ______ $ 4,521,102.56 Other96,914.49 Less--Reserves for doubtful items, discounts, and allowances-- Merchandise inventories at the lower of cost or market-- Raw materials and supplies (Note 2)--------------------------------------Finished goods and goods in process 1,050,411.66 Total current assets___________________________________ 4,618,017.05 364,844.33 4,253,172.72 2,778,430.28 3,828,841.94 13,417,788.06 U. S. Government securities, at cost, plus accrued interest (quoted market $1,003,983.55; appropriation for construction pro gram) ------------------------------------------------------------------------ --------------- Investment in Capital stock and Mortgage Notes of subsidiary COMPANY, NOT CONSOLIDATED-------------------------------------------------------------------- Deferred charges and other assets---------------------------------------------- 1,000,000.00 1,300,000.00 575,087.52 Property, Plant, and Equipment (adjusted at December 31, 1939 to the lower of cost or appraised values plus subsequent additions, at cost, including $52,922.06 of non-operating properties after depreciation reserves): Land________________________________________________________ Buildings, machinery, and equipment (less depreciation reserves of $10,843,615.08) Gypsum and gypsite deposits (less depletion reserves of $110,49932) 560,28730 9,712,050.63 32933037 10,601,86830 Goodwill, Trademarks, Patents-----------------------------------------------------1.00 Funds restricted under war contracts: Cash in special bank accounts (subject to lien of United States) -- Advances received, less disbursements------------------------------------------- 7,44135 CTD035844 7,44135 -- $26,894,744.88 The notes to financial statements appended hereto are an integral 4 nets Corporation subsidiary companies ET AS AT DECEMBER 31, 1947 Current Liabilities : LIABILITIES Accounts payable and accrued expenses Dividends payable Fifteen-year 3%% Sinking Fund Debentures, current installment due February 1, 1948 Accrued interest on funded debt_ Accrued taxes other than taxes on income------------------------------------- Federal and Canadian taxes on income (after deduction of $3,876,000.00 of U. S. Treasury tax notes, at cost)--------------------- Total current liabilities $ 1,991,326.06 503,084.70 225,000.00 51,770.85 383.427.72 173.985.72 3,328,595.05 Fifteen-Year 3%% Sinkinc Fund Debentures, due February 1, 1960 ($225,000.00 Principal Amount to be retired annually) less installment due within one year, shown above------------------------------- 3,325,000.00 Reserves: For product guarantees--------------------------------------------------------------- $ 152,752.87 For contingencies_____ 1,551,155.27 1,703,908.14 Capital stock and Surplus: Capital stock-- 4%% cumulative Prior Preference stock, par value $100.00 per share (Note 3)-- Authorized, 50,000 shares. Issued and outstanding, 15,000 shares------------------------------------ 1,500,000.00 Common stock, par value $1.00 per share-- Authorized, 2,000,000 shares. Issued and outstanding, 1,620,699 shares (Notes 5 and 6)------ Capital surplus, per accompanying statement-------------$6,688,911.55 Earned surplus from October 1; 1944, per accompany ing statement --- 8,727,631.14 15,416,542.69 1,620,699.00 3,120,699.00 18,537,241.69 i f VS' part of this statement and should be read in conjunction herewith. 6 $26,894,744-88 CTD035845 Certain-teed Products Corporation and wholly owned subsidiary companies COMPARATIVE STATEMENT OF CONSOLIDATED PROFIT AND LOSS Year Ended December 31, 1947 1946 Net Sales $48,707,088.58 $34,959,301.50 Cost of goods sold, selling, administrative, and general expenses Operating Profit 37,882,627.11 10,824,461.47 28,314,967.87 6,644,333.63 Other Income Other Deductions 686,798.59 11,511,260.06 370,636.85 11,140,623.21 587,381.54 7,231,715.17 167,347.38 7,064367.79 Interest on 3%% Sinkinc Fund Debentures 124,906.27 11,015,716.94 132,781.25 6,931,586.54 Provision for Federal and Canadian Taxes on Income 4,147,841.19 2,608,318.00 Profit for the year, before appropriation to RESERVE FOR rnNTTNCF.Nrxv.q 6,867,875.75 4323368.54 Appropriation to reserve for contingencies (Note 7) Amount transferred to earned surplus (Note 2)-- 718,155.27 $ 6,149,720.48 433,000.00 $ 3,890,268.54 The notes to financial statements appended hereto are an integral part of this statement and should be read in conjunction herewith. r\f> I) O7 CTD035846 6 Certain-teed Products Corporation and wholly owned subsidiary companies STATEMENT OF CONSOLIDATED SURPLUS ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 1947 Capital Surplus Earned Surplus From October 1,1944 Combined Surplus Balance, December 31, 1946 $7,152,219.57 $ 3,860,598.53 $11,012,818.10 Amount transferred from statement of profit and loss (Note 2) -- 6,149,720.48 6,149,720.48 Excess of additional assessments for Federal Taxes ON INCOME FOR YEARS PRIOR TO OCTOBER 1, 1944 OVER RESERVES PROVIDED THEREFOR 472J33.02 *-- 472233.02 Excess of consideration received over par value of 700 shares Common stock issued under Incen tive Plan------------------------------ ---- ------------------------ 8,925.00 6,688,911.55 10,010,319.01 8,925.00 16,699,230.56 Deduct--Dividends paid or payable: 4%% cumulative Prior Preference stock, $4.50 per share -------------------------------------------------------------------- _ 67,500.00 67,500.00 Common stock, $.75 per share------------------------------------ -- 1,215,187.87 1,215,187.87 -- 1,282,687.87 1,282,687.87 Balance, December 31, 1947----------------------- $6,688,911.55 $ 8,727,631.14 $15,416,542.69 Italics denote red figures. The notes to financial statements appended hereto are an integral part of this statement and should be read in conjunction herewith. CTD035847 7 Certain-teed Products Corporation and wholly owned subsidiary companies NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1947 1. Net assets of Canadian subsidiary companies included in the accompanying consolidated balance sheet aggregate $1,877,737.57, of which $1,038,401.91 represents net current assets, including cash of $351,972.94. Under regulations promulgated by the Canadian Foreign Exchange Control Board, the amount which may legally be withdrawn from the Canadian subsidiaries is substantially less than the net current assets of $1,038,401.91 stated above. The consolidated net profit of $6,867,875.75, before appropriation to reserve for contingencies, includes net profit of $469,088.08 (stated in U. S. Dollars) of the Canadian subsidiary companies. All balance sheet and profit and loss accounts of the Canadian subsidiary companies are carried at par of exchange. 2. In prior years it has been the policy of the parent company to value its raw materials at the lower of cost or market. During the year under review, the parent company adopted the policy of valuing certain items in its raw materials inventory on the last-in, first-out method, resulting in a reduction of $160,910.83 in the valuation of its raw materials at December 31, 1947. The result of this change in policy is a reduction of $99,764.71 in net profit. 3. The 4%% cumulative prior preference stock is redeemable at call upon not less than 60 days' notice, or in event of voluntary liquidation at $105.00 per share and unpaid cumulative dividends. 4. The parent company is a defendant in the following litigation: An anti-trust suit now in process of appeal by the Government involving the company's activities in the gypsum industry. Other litigation to which the parent company is a party is not deemed to be of material significance. 5. The declaration of dividends on the common stock is subject to certain restrictions under the terms of the Trust Indenture covering the 3%% sinking fund debentures. As at December 31, 1947 the dividend restrictive terms of the indenture had been met and consequently at that date the restrictions were inoperative. 6. The company has adopted an Incentive Plan, approved by its stockholders, whereby it may from time to time, within five years from July 1, 1946, grant to its officers and key employees options to purchase not in excess of 50,000 shares in the aggregate of its authorized but unissued shares of common stock. Each officer or key employee to whom an option is granted shall have a period of sixty months within which to exercise the option. Pursuant to the plan, officers and key employees have been granted options to purchase at $13.75 per share 34,200 shares of common stock of the Company. During the year under review 700 shares of the common stock were issued under this plan. 7. Appropriation to reserve for contingencies during 1947 amounted to $1,000,000.00 against which charges amounting to $281,844.73 were applied for interest on prior years' Federal income taxes, etc., included in other deductions. CTD035848 8 NEW YORK CHICAGO ST. LOUIS S. D. LEIDESDORF & CO. CERTIFIED PUBLIC ACCOUNTANTS FIRST NATIONAL BANK BUILDING CHICAGO 3 TELEPHONE STATE 0282 HARRY L. OPPENHEIMER, C. P. A. RESIDENT PARTNER Board of Directors, Certain-teed Products Corporation, Chicago, Illinois. We have examined the consolidated balance sheet of Certain-teed Products Corporation and wholly owned subsidiary companies as at December 31, 1947 and the related statements of consolidated surplus and profit and loss for the year then ended; have reviewed the system of internal control and the accounting procedures of the companies, and, without making a detailed audit of the transactions, have examined or tested accounting records of the companies and other supporting evidence by methods and to the extent we deemed appro priate. Our examination was made in accordance with generally accepted audit ing standards applicable in the circumstances and included all procedures which we considered necessary. In prior years it has been the policy of the parent company to value its raw materials at the lower of cost or market. During the year under review, the parent company adopted the policy of valuing certain items in its raw materials inventory on the last-in, first-out method, resulting in a net reduction of $99,764.71 in current year's net profit. In our opinion, the accompanying consolidated balance sheet and related statements of surplus and profit and loss, together with the notes to financial statements, present fairly the consolidated position of Certain-teed Products Corporation and wholly owned subsidiary companies as at December 31, 1947 and the results of their operations for the year then ended, in conformity with generally accepted accounting principles which, except for the change in the parent company's policy described in the preceding paragraph, were applied on a basis consistent with that of the preceding year. S. D. Leidesdorf & Co. Chicago, Illinois, February 19, 1948. .1 9 CTD035849 Certain-teed Products Corporation and wholly owned subsidiary companies COMPARATIVE CONDENSED BALANCE SHEET Assets: 1947 1946 1945 1944 Current assets-------------------------------------------- $13,417,788 $11,886,300 $ 9,633,386 $ 9,663,452 U. S. Government Securities, at cost (Appro priation for Construction Program)--------- 1,000,000 -- -- -- Investment in Capital stock and Mortgage Notes of subsidiary company, not consol idated -- 1,300,000 -- -- -- Operating property, Plant and Equipment (less reserves) 10,548,946 8,876,934 6,757,326 6,686379 Non-operating Property and Equipment (less reserves) ----------------------------------------------- 52,922 160,467 230,358 101,923 Other investments, deferred charges and mis cellaneous assets 575,089 821,752 556,176 621300 Total----------------------------------------- $26,894,745 $21,745,453 $17,177,246 $17,073,054 Liabilities: Current liabilities-------------------------------------- $ 3,328395 $ 3,060,504 $ 2,151350 $ 1,733,808 Reserves----------------------------------------------------- 1,703,908 1,000,232 616,909 317362 Fifteen year 3%% Sinking Fund Debentures 3,325,000 3350,000 3,775,000 -- Twenty year Sinking Fund Gold De bentures -- -- -- -- 5,000,000 Capital stock --------------------------------------------- 3,120,699 3,121,899 3391399 4,505,260 Surplus 15,416,543 11,012,818 7342,688 5316,724 Total $26,894,745 $21,745,453 $17,177346 $17,073,054 Working capital Cash and Government securities $10,089,193 $ 8,825,796 $ 7,482,036 $ 7,929,644 $ 6,015,030 $ 5328,065 $ 5,407,590 $ 5,471,678 CTD035850 10 General Offices 120 E. Lancaster Avenue Ardmore, Pa. Atlanta, Georgia Baltimore, Maryland Chicaco, Illinois Cleveland, Ohio Dallas, Texas District Sales Offices East St. Louis, Illinois Grand Rapids, Michican Kansas City, Missouri New York, N. Y. (export sales) Niagara Falls, New York Philadelphia, Pennsylvania Richmond, California St. Paul, Minnesota Thorold, Ontario, Canada East St. Louis, Illinois Kansas City, Missouri York, Pennsylvania Roofing Plants Marseilles, Illinois Niagara Falls, New York Richmond, California Savannah, Georgia Dallas, Texas Gypsum Mines and Plants Fort Dodge, Iowa Grand Rapids, Michigan Blue Rapids, Kansas Acme, Texas Akron, New York Fibreboard Plant Buffalo, New York Fibreboard, Boxboard and Newsprint Plant Thorold, Ontario, Canada CTD035851 11 (Jertain TEED in ASPHALT ROLL ROOFING ASPHALT SHINGLES and SIDINGS GYPSUM PLASTERS GYPSUM WALLBOARD and LATH FIBRE WALLBOARD BUILDING INSULATION ACOUSTICAL TILE CTD035852