Document aV3wLmDYpRmZ1nQDxpm0dN7b

cover (above left) shows the completed rotary cement kiln and the 230 loot preheater tower at the Kosmosdale, Kentucky cement plant one year after the 1973 annual cover photo (above right) was taken during construction. For a detailed description of the preheater system and how it conserves energy, see page 11. TABLE OF CONTENTS The Company and the Markets We Serve ... Financial Highlights...................................... Report to the Shareholders....................... . Sales and Income by Product Group........... Building Products Group.............................. Stone Products Group.................................. Cement Products Group................................. Financial Review, 1974 Operations................ Financial Statements ..................................... Notes to Financial Statements........................ Five-year Operations Summary and Management Discussion...................... Consolidated Balance Sheet.......................... Officers and Directors..................................... 1 2 3 5 6 8 10 12 15 18 22 23 24 ANNUAL MEETING The annual meeting of stockholders will be held at 10:00 AM, April 9, 1975 at the corporate head quarters, White Plains, N.Y. THE COMPANY: THE FLINTKOTE COMPANY IS A MAJOR PRODUCER OF BASIC MATERIALS AND PRODUCTS FOR THE BUILDING AND CONSTRUCTION INDUSTRIES IN THE UNITED STATES AND CANADA. THE COMPANY IS ALSO ENGAGED IN PAVING CONTRACT CONSTRUCTION IN CERTAIN GEOGRAPHIC AREAS OF BOTH COUNTRIES. WITH SOME 100 PRODUCTION AND DISTRIBUTION LOCATIONS, FLINTKOTE IS AN IM PORTANT FACTOR IN THE CONSTRUCTION INDUSTRY WHICH IS SO VITAL TO BOTH NATIONAL ECONOMIES. THE MARKETS WE SERVE: The table below shows the estimated percentages of total Flintkote sales derived from the categories which make up the building and construction industry. The im portant point made by these percentages is that Flintkote's major product lines gain from construction activity in any of these categories, and the same production facilities which supply materials for one category can generally be utilized to supply materials for the others. NEW NON-RESIDENTIAL BUILDING CONSTRUCTION................ (Schools, hospitals, churches, shopping centers, motels, office buildings, industrial buildings, government buildings, etc.) NEW RESIDENTIAL BUILDING CONSTRUCTION........................... (One and multi-family units, apartments, etc.) NEW NON-BUILDING CONSTRUCTION ............................................ (Heavy construction such as highways, airports, dams, etc.) REPAIR AND MODERNIZATION........................................................ OTHER MARKETS.............................................................................. (Products suclras calcium carbonate and lime, sold to industry for use in processes such as metals, plastics, paint, glass and paper, or for agricultural uses, etc. which;do not fit the building and construction categories above.) 1974 35% 22% 18% 17% 8% 1973 31% 26% 20% 14% 9% FINANCIAL HIGHLIGHTS (In thousands of dollars except per share amounts) FOR THE YEAR 1974 1973 Net sales...................................................................................................... Income before income taxes ..................................................................... Federal, state and foreign taxes on income............................................... Net income.................................................................................................. as a percentage of sales .............................. Per common shared.................................................................................. Net income applicable to common stock................................................. as a percentage of common shareholders' equity beginning of year.. $480,148 18,022 3,297 14,725 3.1% $2.34 13,145 7.2% 5442,292 26,402 8,395 18,007 4.1% 52.91 16,427 9.3% Dividends paid: Preferred stock, all classes.................................................................... Common stock ........................................................................................ per common share.............................................................................. Depreciation and depletion........................................................................ per common share.............................................................................. Expenditures for property, plant and equipment....................................... Number of employees ................................................................................ 1,580 6,405 $1.14 20,573 $3.66 43,114 8,343 1,580 5,994 51.06 18,995 53.36 51,780 9,050 AT DECEMBER 31st Common shareholders'equity.................................................................... per share ............................................................................................ Working capital............................................................................................ per common share.............................................................................. current ratio ___ *............................................................................... Long-term debt............................................................................................ Common shareholders of record ................................................................ Common shares outstanding (in thousands) ...............................-........... $188,801 $33.60 107,893 $19.20 3.1:1 114,154 17,721 5,619 5182,033 532.40 81,504 514.51 2.6:1 88,724 17,535 5,619 (1) After preferred dividends and based on average shares outstanding. 2 TO OUR SHAREHOLDERS: The year 1974 was a year of important progress for The Flintkote Company as the results of the Company's heavy investments in new plants and equipment took shape and several major facilities began producing. It was also a frustrating year as the problems of our national economy, a severe slow down in certain segments of the construction industry and the un predictable construction delays and start-up costs of new facilities, proved a tough testing ground for the Company's management. Sales continued to grow in 1974, g S37,856,000 to S480,148,000 compared with S442,292,000 in 1973. Earnings declined to $14,725,000 or S2.34 per common share from $18,007,000 or $2.91 per common share last year. The Company changed-from the average cost method of costing inventories to the LIFO method for certain of its product line inventories which were particularly affected by inflation, to avoid an overstatement of profits resulting from use and replacement of inventories at substantially higher prices during the year. The effect of the change was to decrease earnings $.32 per common share to the aforementioned $2.34 per share. The decline in earnings was pri marily due to the leveling out in the physical volume of shipments caused by the slowdown in construction activity which made it difficult to pass through inflation-related cost increases, and start-up costs of r-.v plants and equipment which ire higher than expected. During most of 1974, Flintkote's diversification among the non building construction, non-residential building, repair and modernization segments of the industry helped counter some of the negative impact of depressed homebuilding activity. Capital expenditures in 1974 were $43 million compared with S52 million in 1973. A large part of these expen ditures represent investments in the capital intensive cement, lime, and stone products areas of the Company's operations. The largest of these projects, the $25 million modernization and expansion program at the Kosmosdale, Kentucky cement plant, began operating in December. Although it is not yet at full pro duction, it is expected to contribute significant sales and earnings in 1975. In addition to increased and more efficient production capability, the new plant is expected to reduce energy consumption more than 50% through the use of a preheater process, similar to the one in use at the Company's new Glens Falls, New York plant which began pro duction in 1973. The preheater is explained in the Cement Group Discussion on page 11 of this report. The Company's U.S. Lime Division completed construction on its S11 million lime plant at Nelson, Arizona and began initial operations in December. This plant is one of the largest lime plants in the country and also utilizes a preheater system which reduces energy consumption. The plant's production capacity is 800 tons of lime per day and has enough high grade raw material to Mr. James D. Moran, President and Chief Executive Officer. last many years beyond its expected production life. The Company's product distribu tion system was extended to three important market areas in the Southern United States with centers at San Antonio, Atlanta and Charlotte. A new center was also completed in Los Angeles which consolidated distribution facilities already located in that area. A total of 12 such centers are now in operation adding more strength to our building products marketing efforts. In 1974, construction was begun on a new roofing plant near Atlanta. This new plant, scheduled for completion early in 1976. was made possible by the felt and paperboard production flexibility provided by the Cornell, Wisconsin paper plant acquired in 1973 and adapted for roofing felt production. Environmental control has been a high priority in the Company's capital expenditures for several years. Although it is difficult to isolate pre cisely the costs of environmental control, because many new facilities have both operational and environ mental functions, we estimate the Company's expenditures for ciearly environmental purposes to exceed S24 million for the past five years. The policy of acquiring only such operations that complement the Company's present operations and management capabilities is being pursued. One such operation was y,'i u C' jwff.wwy UfMJ c'vw acquired in 1974: Limestone Quarries. Ltd. north of Toronto. While it is not a large one, it does add important stone reserves and production capacity to the King Paving Division which serves the important Toronto market. The acquisition was financed through long-range borrowing arranged in Canada. The Company continues to divest itself of properties and operations which do not meet growth and profit goals. The floor tile plant in Ohio was closed during the year on a perma nent basis due to shortages and costs of raw materials as well as market conditions. The other three floor tile plants have the production capabilities to efficiently serve customer needs. Early in 1975, the Company com pleted the sale of timberlands in Mississippi which were not needed in cur insulation board operations there. At the end of 1974, the Southern California concrete and aggregate operations were sold and in January of 1975 the Campanella Corporation subsidiary in New England was sold. Management concluded that the capital employed in these operations could be used more productively in other areas of the Company. The timing of capital improvement programs has been good and the Company's financial condition continues strong and flexible. Early in the year, the Company arranged S20 million in new financing which involves a 10-year bank loan at 8Vi % interest. Also, S5.3 million of bonds for pollution control facilities at its two northern California cement plants were sold in 1974. In June, the Company announced the call of the remaining SI,500,000 outstanding of the 43/s% Sinking Fund Debentures due April 1, 1977, to provide additional long-term borrowing flexibility. The Company's funded debt repayment schedule has been carefully planned to fit long-range goals, and the Company is positioned to take advantage of new growth opportunities which management is actively seeking. The effects of energy availability and costs have been reviewed at all the Company's operations. As al ready noted, the use of preheaters at the two new cement facilities, and the Arizona lime plant will reduce energy consumption significantly. The Kentucky cement plant and the Arizona lime plant are designed for coal as the primary fuel. At all plants, where feasible, alternate fuel burning equipment has either been planned or installed, which should keep the key plants operating under any reasonable government emergency allocation program. At all Company plants and offices energy con servation is being pushed on a continuing basis. Organizationally, several changes were made to strengthen the Company. Mr. A. Richard Perry was elected vice president and controller. The Diamond/Kosmos and Glens Falls cement operations were com bined to form the Eastern Region and Mr. Raymond T. Capp was appointed general manager of the new region. Mr. Robert A. Rabatsky returned to Flintkote as vice president and general manager of the Pipe Products Division. He previously headed the Hankins Container Division which the Company sold in 1972. At the Annual Stockholders Meeting held April 10, 1974, Mr. William C. Birdsey was elected to the Board of Directors. Mr. Birdsey's broad experience and talents as a line operator in the building and construction industry provide additional strength to the Board. Flintkote's Board of Directors, at its February 5,1975 meeting, elected me to the additional post of Chairman of the Board succeecfing George J. Pecaro who has chosen to give up the position of Chairman but who, I am pleased to report, will continue to serve as a Director. For the second consecutive year, Flintkote increased the quarterly dividend on its common stock. As we look ahead and attempt to assess the impact on Flintkote of the shifting variables in the building and construction industry as well as those in the nation's economy, planning becomes difficult indeed. Some relief for the construction industry should come from the anticipated govern ment stimulation of the economy through programs for new public works as well as residential con struction. The current inflow of funds to our savings institutions and the downward trend of interest rates portend a revitalization of the homebuilding business. These factors, with strength in repair and moderni zation, should help offset some of the decline, already in evidence, in non-residential building during 1975. On January 16, 1975, the Federal District Court at Pittsburgh, in a case involving a number of gypsum producers charged with violation of the Sherman Act in the pricing and establishment of terms and con ditions of sale for gypsum wallboard, accepted the nolo contendere pleas of the Company, George J. Pecaro and myself. The Court thereupon pronounced sentence, including a fine of S50.000 upon the Company, thus disposing of this litigation. The Flintkote Company is in good condition financially, operationally and organizationally as we enter 1975. We will get our share of the business available and with the major capital investments contributing to earnings, we feel confident that 1975 will be another good year for the Company. In times such as these, I am particularly appreciative of the support I have received from our customers, shareholders, directors and my fellow employees. Together we look forward to the challenge of 1975, and beyond. Chief Executive Officer February 20, 1975 4 NET SALES THE FLINTKOTE COMPANY and its CONSOLIDATED SUBSIDIARIES SALES & INCOME BY PRODUCT GROUP 1974 1973 1972 1971 (In Thousands ot Dollars) 1970 Building Products Group.................... $245,637 Stone Products Group......................... 183,011 Cement Products Group .................... 51,500 Total ......................................... $480,148 $218,791 175,990 47,511 $442,292 $199,043 163,278 41,238 $403,559 $173,748 147,652 41,637 $363,037 $135,541 124,620 34,824 $294,985 CONTRIBUTION TO OPERATING INCOME Building Products Group.................. .. $ 11,422 Stone Products Group........................ 14,476 Cement Products Group .................. . 5,924 Total ....................................... 31,822 S 13,499 18,154 4,846 36,499 $ 17,074 13,557 2,563 33,194 $ 13,319 12,777 4,299 30,395 S 2,640 12,776 3,569 18,985 Unallocated Corporate Interest.......... Unallocated Corporate Expenses .... Income Before Income Taxes.......... .. 8,670 5,130 S 18,022 6,285 3,812 S 26,402 4,609 4,304 S 24,281 3,637 5,117 S 21.641 2,406 3,174 S 13.405 NET SALES BY PRODUCTS AND SERVICES ' 1974 1973 1972 1971 (In Thousands of Dollars) 1970 Aggregates and Concrete Products .. . Contract and Construction Services . Roofing and Insulation Products .... Gypsum Products............................... Flooring Products............................... Cement Products............................... All Others........................................... Total ....................................... . $107,002 62,575 94,769 54,985 54,964 51,500 54,353 $480,148 $ 97,007 66,644 79,564 54,363 52,527 47,511 44,676 $442,292 $ 82,755 68,117 74,539 47,081 46,805 41,238 43,024 S403.559 $ 72,121 64,133 61,700 33,884 44,073 41,637 45,489 S363.037 $ 60,847 52,523 40.663 23,548 38,456 34,824 44,124 $294,985 BUILDING PRODUCTS GROUP Monte C. Carpenter. Executive Vice President, 400 Westchester Avenue, White Plains. New York 10604 'k Gypsum Products Plants Floor Tile Plants Pipe Products Plants Roofing Products Insulation Board Products Distribution Centers (ones indicated in Canada are flooring distribution centers) Paperboard Plants Liquid Products (coatings, adhesives, etc.) Note: Because of limited space, several plants and flooring store locations are not shown in Canada. This Group as a whole had an increase in sales dollar volume and earnings (before LIFO adjustment) in 1974 despite the housing crisis and several raw material shortage problems. The Group contributed 51% of total Company sales. Assuming a reasonable market, the growth trend in sales and earnings is expected to continue in 1975. The 1974 sales for this Group came from the following sources: non-residential building, 35%; residential building, 30%; nonbuilding construction, 6%; repair and modernization, 26%; and miscellaneous, 3%. centers now in operation provided strong support for marketing as com petition in all areas stiffened in 1974. Four new centers were opened in 1974--Los Angeles, San Antonio, Charlotte and Atlanta. Three more are scheduled for construction in 1975. Construction has begun on a new roofing plant near Atlanta. It is expected to be ready to produce early in 1976. This will strengthen Flintkote's competitive position in the Southeast.The Cornell, Wisconsin paper plant, acquired in 1973, is now producing dry roofing felt which has been in short supply. PIONEER DIVISION Wilson Harvey, Vice President and General Manager, 5500 S. Alameda Street. Los Angeles, California 90051 The Pioneer Division had another excellent year with both sales and earnings up considerably over the previous year. Asphalt roofing, the principal product of this Division, was in good demand throughout the year due mostly to the repair and modern- GYPSUM & BUILDING MATERIALS DIVISION Edward R. Stainback, Wee President and General Manager, 480 Central Avenue, E. Rutherford. New Jersey 07073 * This Division produced a substan tial increase in sales volume in 1974, but had a decrease in earnings, resulting primarily from the softening of demand for gypsum products. Roofing products held up well in most areas because of the strength in the re-roofing segment of the repair and modernization market. The twelve building product supply 6 7he hhntkote SIEHHA shingle pictured here was introduced during 1974 and has been well received in the marketplace. This long-lile asphalt shingle with its handsome blend ol nature colors and deep shadow lines is designed to add a look ot quality and drama to the home root. BUILDING PRODUCTS GROUP Monte C. Carpenter, Executive Vice President, 400 Westchester Avenue. White Plains, New York 10604 Gypsum Products Plants Floor Tile Plants Pipe Products Plants Roofing Products Insulation Board Products Distribution Centers (ones indicated in Canada are flooring distribution centers) Paperboard Plants Liquid Products (coatings, adhesives, etc.) Note: Because of limited space, several plants and flooring store locations are not shown in Canada. This Group as a whole had an increase in sales dollar volume and earnings (before UFO adjustment) in 1974 despite the housing crisis and several raw material shortage problems. The Group contributed 51% of total Company sales. Assuming a reasonable market, the growth trend in sales and earnings is expected to continue in 1975. The 1974 sales for this Group came from the following sources: non-residential building, 35%; residential building, 30%; non building construction, 6%; repair and modernization, 26%; and miscellaneous, 3%. centers now in operation provided strong support for marketing as com petition in all areas stiffened in 1974. Four new centers were opened in 1974--Los Angeles, San Antonio, Charlotte and Atlanta. Three more are scheduled for construction in 1975. Construction has begun on a new roofing plant near Atlanta. It is expected to be ready to produce early in 1976. This will strengthen Flintkote's competitive position iri the Southeast.The Cornell, Wisconsin paper plant, acquired in 1973, is now producing dry roofing felt which has been in short supply. PIONEER DIVISION Wilson Harvey, Vice President and General Manager, 5500 S. Alameda Street, Los Angeles, California 90051 The Pioneer Division had another excellent year with both sales and earnings up considerably over the previous year. Asphalt roofing, the principal product of this Division, was in good demand throughout the year due mostly to the repair and modern- GYPSUM & BUILDING MATERIALS DIVISION Edward R. Stainback, Vice President and General Manager, 480 Central Avenue, E, Rutherford, New Jersey 07073 * This Division produced a substan tial increase in sales volume in 1974, but had a decrease in earnings, resulting primarily from the softening of demand for gypsum products. Roofing products held up well in most areas because of the strength in the re-roofing segment of the repair and modernization market. The twelve building product supply 6 Ihe Fhnlkote SlEHHA shingle pictured here was introduced during 1974 and has been well received in the marketplace. This long-lile asphalt shingle with its handsome blend ol nature colors and deep shadow lines is designed to add a look ol quality and drama to the home root. ization market activity. The Division also produces paper for gypsum board and dry felt for roofing products. These operations also ran at maximum capacity all year. The operation recycles waste paper for its paper products and consumed over 120,000 tons in 1974. Oneofthe paper machines is being rebuilt to increase its capacity in 1975 to cover anticipated growth in demand. FLOORING AND INDUSTRIAL PRODUCTS DIVISION M. L. Johnson, Vice President and General Manager, 480 Central Avenue, E. Rutherford, New Jersey 07073 The year 1974 was not a satisfac tory year for this Division as flooring raw materials costs increased far more rapidly than could be recovered through product price increases. Shortages of resin also restricted' production throughout the year. The continued emphasis in flooring products is on VINYLCRAFT and PEEL and STICK where market opportunities are less affected by new construction. Tennis court construction and maintenance is proving an important market for the Industrial Products Division, and FLINTKOTE DECORALT surface coatings is a leading product line in the field. In 1974, DECOTURF resilient tennis court base was introduced and several trial installations produced extremely encouraging results. In 1975 this line is expected to improve in both sales and earnings. PIPE PRODUCTS DIVISION Robert A. Rabatsky, Vice President and General Manager, One Cascade Plaza, Akron, Ohio 44308 The year 1974 was a turn-around year for the Pipe Products Division as sales climbed and earnings improved. The tripled capacity of the PVC (polyvinyl chloride) pipe operations and increased production capacity of the SP (polyethylene) pipe along with improved prices for these and A/C (asbestos cement) pipe, con tributed to the improved results in 1974. A new plastic pipe product, poly butylene, is being developed and is expected to become an important .product in this Division. It has the same lightweight and strength advan tages as PVC plus greater resistance to the ultra-violet rays of the sun, making it attractive to the growing irrigation markets. THE FLINTKOTE COMPANY OF CANADA LIMITED Gerald C. Edwards. Executive Vice President and General Manager, 30th Street. Long Branch, Postal Box 160, Stn. N. Toronto, Ontario, Canada M8V3T4 The Flintkote Company of Canada Limited and Stradwick Industries both continued the strong upward trend in sales and earnings reported last year. All products and services contributed to the improved performance. An important part of this growth is due to an excellent product distribu tion system which has been devel oped by this Subsidiary over the past few years. These facilities enable Flintkote to be competitive in virtually all the important markets of Canada. The Montreal flooring distribution center recently moved to larger premises permitting increased growth in that important market area. The 19 Stradwick Retail Flooring Stores such as the one pictured above are located in Ontario. They represent a further refinement of Flintkote's Canadian distribution system which makes flooring products available to both small and large volume users. ... * - -J uLti Three new Flintkote Supply Comers are pictured above ... from the top. Atlanta. Charlotte and San Antonio. Another was opened in Los Angeles which consoli dated distribution lacilities already located in that area. Most product centers now in operation arc located in growth areas ot the southern Un.ted States and provide strength to Funtkote's marketing ellorts through more etheient customer service. 7 STONE PRODUCTS GROUP J. L. Gordon. Senior Vice President end General Manager, 400 Westchester Avenue. White Plains, New York 10604 Contract Construction Lime Products Ready Mix Concrete Locations (star represents more than one plant in these markets) u- Bituminous Concrete Locations (star represents more than one plant in these markets) k Sand and Gravel Locations Limestone and Limestone Products (includes dolomite and calcium carbonate plants) CAMPBELL- and SAKRETE* Products This Group as a whole did not perform as well in 1974 as antici pated. It produced an increased volume of sales dollars but con siderably less in earnings. The rnings decline, for the most part, .suited from problems in the start up of new facilities, increases in raw material costs and weakened markets in some areas. The Group's sales amounted to 38% of total Company sales. It is virtually impossible to project construction activity for 1975, but given reasonable markets for our products, it should be a year of con siderable improvement for the Group. As noted earlier in this report, the Campanella subsidiary was sold early in 1975. For the last several years this operation has not been an earnings contributor. The 1974 sales for this Group came from the following sources: non-residential building, 29%; residential building, 10%; nonbuilding construction, 38%; repair and modernization, 8%; and miscellaneous, 15%. WESTERN STONE PRODUCTS din Stephens, sidertt John C. MacDonald, Vice President and General Manager, U.S. LIME DIVISION This product grouping includes the U.S. Lime Division and the Western Concrete Materials Division. The U.S. Lime Division had a record year in sales and earnings and with the contributions of the new S11 million lime plant now in operation at Nelson, Arizona, the trend should continue in 1975. The Western Concrete Mate rials operations in the northern California area had a good year but those in the southern California area had a disappointing year with lower earnings on a higher dollar volume of sales, compared with 1973. As reported in the President's Letter, certain assets of the concrete materials operations in Southern California were sold. The transaction included only those concrete and stone operations located in Los Angeles, Riverside, San Bernardino and Orange counties. Similar operations in the Stanislaus and San Joaquin County areas of Northern California were not affected. M. J. GROVE LIME DIVISION Montagu Hankin, Jr.. Vice President and General Manager, Lime Kiln, Maryland 21763 This Division had an increase in sales volume but a moderate decline in earnings. Stone products for con struction lime and contract construc tion services did reasonably well in 1974 but the chemical limestone, ready mix concrete, bituminous con crete and masonry cement lines ended the year with decreases in volume and earnings. Due to pro jected decreases in construction activity for most of the areas served by this Division, 1975 will be a difficult year for growth. THE HARRY T. CAMPBELL SONS' DIVISION Robert B. Hamill, President, 100 W. Pennsylvania Avenue, Towson, Maryland 21204 The Campbell Division had an increase in sales in 1974 compared with 1973 but a decline in earnings. The earnings decline was due to a number of factors including the continuing start-up costs of the cal cium carbonate facilities, major repairs on stone crushers and tube mills at the Texas, Maryland quarry, and the inability to pass along increased energy and material costs through product price increases. Most of these costs and problems are non-recurring, the Division should have a considerably improved performance in 1975. The CAMPBELL products opera tions continued to grow in sales and earnings, reflecting the good level of activity in the repair and mod ernization segment of the industry B The newly acquired limestone cuarry operation located some 80 miles north ol Toronto is pictured above. Entire train loads of limestone are shipped to the Toronto markets during the evening periods. The photo at left shows a part ot the new lime plant at Nelson, Arizona. The octagonal-shaped structure at the center is the preheater which utilizes waste heat from the kiln (which can be seen at the lelt) to preheat the raw materials entering the kiln, thus reducing con siderably the consumption ot energy. The structures to the right are part ot the dust collection system. during 1974. At the largest of the 7 CAMPBELL products facilities located at White Marsh, Maryland, a special bagging installation and a warehouse expansion were com pleted in 1974 which provide room for growth in this important product line. In the market areas served by the Campbell Division, an improved level of total construction activity is anti cipated in 1975 despile a decline in the residential and non-residential building segments. There has also been a decline in demand for calcium carbonate as major users in the paint and plastics industries suffer from the curtailed automobile and housing production. Looking ahead to 1976 and beyond, however, the demand for calcium carbonate products looks excellent. KING PAVING AND MATERIALS Division of The Flinlkote Company of Canada Limited M. David Boyd, Executive Vice President and General Manager P.O. Box 550, Oakville, Ontario, Canada L6J5B7 This Division continued its excel lent uptrend in sales and earnings with significant increases over the 1973 results. The newly acquired Limestone Quarries. Ltd. (see photo) made very encouraging contributions to these results, considerably higher than projected. Sales in this Division come from three major product and service categories--ready mix concrete, stone and contract construction. Ready mix concrete is particularly sensitive to cycles in building con struction and was hurt by the down trend in residential building which began in 1974 and expected to con tinue to at least mid-1975. However, other marketing opportunities are expected to offset much of this nega tive impact to make 1975 another good year for these Canadian operations. 9 CEMENT PRODUCTS GROUP Harold F. Stcpanek; Senior Vice President and General Manager, 400 Westchester Avenue, White Plains, New York 10604 The Cement Products Group produced an increase in volume of sales dollars and earnings but the 7creases were not as great as pro. jcted at the beginning of the year. The Group accounted for 11% of total Company sales in 1974. Anticipated contributions from the new production facilities at Glens Falls, New York and Kosmosdale, Kentucky did not materialize as expected. The production prob lems and construction delays should be behind us in 1975, and both new facilities will contribute substantially to sales and earnings in 1975. Price increases in most areas have helped offset some of the in creases in fuel and other production costs. Shipments for the cement industry declined about 8% from 1973. This Group must get an in crease in volume by improving its share of market in 1975. Labor contracts at all cement operations expire in 1975 and nego tiations will begin early in the year. The 1974 sales for this Group came from the following sources: non-residential building, 51%; residential building, 29%; non building construction, 9%; repair and modernization, 5%; and miscellaneous, 6%. CALAVERAS CEMENT DIVISION N/lel J. London, President, 215 Market Street, San Francisco, Calif. 94105 Both plants of this Division in California operated at near capacity during 1974 and the Division showed a substantial increase in earnings on a modest increase in sales. Pollution control facilities at the Redding plant are completed and operating suc cessfully. As previously reported, the cost of pollution control projects at both California plants is about $6 million and S5.3 million of the amount is being financed with proceeds from pollution control bonds which were successfully marketed by the Cali fornia Pollution Control Financing Authority in 1974. No other such major expenditures are anticipated at either plant. The primary fuel at both California plants is gas. Both are equipped for oil as an alternate fuel, which pro vides the necessary flexibility to cope with fuel shortage problems. Studies continue toward the.use of other fuels as well as improved efficiency of kiln operations. EASTERN CEMENT REGION Raymond T. Capp, Vice President and General Manager Kosmosdaie, Kentucky 40272 During 1974, the Diamond/ Kosmos Division and the Glens Falls Cement Division were combined to form the Eastern Cement Region. The change was made to improve man agement efficiency as the new facilities at Kosmosdaie, Kentucky and Glens Falls, New York begin to produce. It is difficult to relate sales and earnings statistics for 1974 to those in 1973 because of the start-up costs at the New York and Kentucky plants, but it is important to note that the Region showed improved sales and earnings in 1974 compared to 1973. With the Glens Falls plant operating problems substantially corrected and the Kosmos plant in its start-up phase 10 and full production expected before the heavy shipping season, these two facilities are expected to add c^--iderably to Company sales and t ngs in 1975. The fuel burning efficiency of both plants thus far has been most encouraging. Fuel usage per production unit has been reduced by more than 50% at the two plants. These savings are primarily due to the new preheater process (see illustration). The third plant in this Region at Middlebranch, Ohio is faced with meeting local and state air pollution standards. Engineering studies on pollution control equipment and a new kiln are now underway. Meanwhile, we expect to shut down two old kilns but this will not have a material effect on the Division's operating results. THE PREHEATER SYSTEM Cement clinker from which Portland cement is ground is made by fusing finely ground raw material, which is primarily lime stone, at about 2800 Fahrenheit.This is accomplished in a rotary kiln which is shown at the bottom of this schematic diagram. Normally much of the heat used in this process is wasted, but the preheater systems used at Flintkote's Glens Falls, New York and Kosmosdale. Kentucky cement plants and the new lime piant at Nelson, Arizona, utilize waste heat to preheat raw material feed. This way, the raw material is well on its way to fusion when it enters the rotary kiln. HOT AIR ---- RAW MATERIAL ------------- The diagram at left shows the essential workings of a preheater system. Raw mix enters heated air stream through feed pipe. Mix is heated from the hot air rising from secondstage cyclones. It is car ried upward into first-stage cyclones and is separated from the heated air. Mix then enters heat ducts rising from third stage. Additional heat is recov ered in the ducts and mix is separated by secondstage cyclones. Mix enters upper section of fourth-stage conical shaft for further heating. Recycled mix from the fourth-stage conical shaft is separated from the air stream by the third-stage cyclones and returned to the shaft. This recircula tion results in an accumu lation of the mix and its gradual falling through the shaft until it finally enters the rotary kiln. FINANCIAL REVIEW Sales Up, Earnings Down Consolidated net sales increased $37,856,000 or 8.6% over the 1973 sales of $442,292,000, reaching a level of $480,148,000 in 1974. Consolidated net in come for 1974 was $14,725,000, down S3,282,000 or 18.2% from 1973 net income of SI 8,007,000. During this year of rapidly increasing material pur chase prices and considering that some prices will continue to escalate in some degree, the Company decided that a change in its method of costing cer tain product line inventories from average cost to the last-in, first-out (LIFO) method would more clearly re flect the results of operations. The effect of the change was to reduce inventories and net income by approxi mately $3,590,000 and SI ,792,000, respectively. Net income per share of common stock for 1974 was S2.34 compared with $2.91 for 1973. The change to LIFO had the effect of reducing net income per share by $.32. Lower Taxes Resulting from Increased Investment Tax Credit During 1974, Flintkote completed and placed on stream several new facilities which enabled the utili zation of significant investment tax credits to reduce the Company's tax expense. Investment tax credits for 1974 amounted to S3,831.000 of which $406,000 related to prior years tax credit amortization and $3,425,000 related to flow-through of investment tax credit eligible with the 1971 Revenue Act. This com pares with investment tax credit for 1973 of S3,109,000 of which $734,000 was prior years' tax credit amorti zation and $2,375,000 flow-through tax credit. The large investment tax credit coupled with continued use of percentage depletion from mining resulted in a 1974 effective tax rate of 18.3% on income before taxes. The effective tax rate in 1973 was 31.8%. Dividends Again Increased Common stock dividends were increased for the second year in a row by the Board of Directors in May of 1974 and quarterly dividends of $.29 per share were paid to holders of common stock for three quarters of the year 1974. This resulted in common stock dividends for the year 1974 of SI .14, an increase over 1973 of S.08 per share. Total dividends paid to all stockholders, including the holders of preferred stock, totaled S7,985,000 in 1974 and $7,574,000 in 1973. High Level of Investment in Properties and Facilities Continued During 1974, Flintkote spent $43,000,000 on prop erty, plant and equipment, including those of facilities acquired. In addition, new capital projects were au thorized in amounts approximating $29,000,000. At the close of 1974, authorized but uncompleted addi tions to property, plant and equipment indicated that approximately SI 9.000.000 remained to be spent. Company's Capital Structure Strengthened Several changes to long-term debt took place dur ing the year 1974. The 4%% sinking fund debentures due 1975-1977 were redeemed during 1974. The amount outstanding at the close of 1973 was $3,476,000. The 4%% notes due 1975-1977 were paid in 1974. The amount outstanding at the close of 1973 was S350.000. Additional reduction of long-term debt amounted to S2,438,000. Major new long-term debt was undertaken as follows: 55,300,000--5.9% California Pollution Control Rev enue Bonds $20,000,000--81/4 % Bank Notes Payable--19811984 $4,429,000--Prime + 3/*% Canadian Bank Notes Payable-1976-1983 At the close of 1974 long-term debt amounted to S114,154,000 compared with S88,724,000 at the end of 1973. During 1974,455 shares of the Company's S4 cumu lative preferred stock was purchased at market or approximate market prices and held in treasury at the close of 1974. The 294,500 shares of common stock held in the treasury at the close of 1973 remains as treasury stock. Effects of Change in inventory Costing Practices As noted earlier in the .financial review, the Com pany changed, in the fourth quarter, its method of in ventory costing. The effect of this change on the fourth quarter and year to date results of operations and comparative information for similar periods of 1973 is as follows: Three Months Ended December 31 1974 1973 Net income (note A)........ $ 2,747,000 $ 3,393,000 Net income per common share (note A).............. $.42 $.54 Year Ended December 31 1974 1973 Net income (note A)-........ $14,725,000 $18,007,000 Net income per common share (note A)............... $2.34 $2.91 Note A--Change to LIFO Method of Inventory Costing: In the fourth quarter of 1974, the Company changed its method of inventory costing of certain product lines from average cost used previously to the LIFO method because the LIFO method (which charges current earnings with current costs) minimizes the inflationinduced inventory profit in respect of those inven tories and thus, more clearly reflects the results of operations. There is no cumulative effect of the change on earnings reinvested in the business for prior years, since the December 31, 1973 inventory as previously stated is also the amount of the beginning inventory on a LIFO basis. The effect of the change on the three months and the year ended December 31, 1974 was to decrease net income S452.000 or S.08 per share and $1,792,000 or $.32 per share, respectively. The effect of the change in the first quarter was to increase net loss $373,000 or $.07 per share to a net loss of $1,401,000 or $.32 per share. The effect of the change on the second and third quarters of 1974 was to de crease net income S473.000 or $.08 per share to $6,182,000 or $1.03 per share and $494,000 or S.09 per share to $7,197,000 or $1.21 pershare, respec tively. Financial Condition Very Strong At year end, Flintkote's current ratio was at a strong 3.1 to 1.0 position. Cash and funds receivable amounted to $13,000,000, offset by $2,000,000 of short term notes payable. At the close of 1973, cash amounted to S5,000,000 with short term notes payable of $9,000,000. Inventories increased significantly to $66,000,000 during the year, but were at the low level of $46,000,000 at the close of 1973. Accounts pay able increased S7,000,000 reflecting amounts owed on several major construction projects. To meet its seasonal and short term needs, the Company has unused lines of credit with various banks aggregating S80,000,000. The lines, of credit are attractive in that no commitment fees are required, and unsecured financing is generally available for about 90 days at prevailing prime interest rates. Flintkote expects that it can meet its short term needs through its strong current position'and its lines of credit. For the past several years, Flintkote's investments in new capital and growth have been unusually heavy, and have required new sources of long-term debt and some finance leasing for heavy duty mobile equip ment. Investments for new capital and growth will re main strong in 1975, but will not be at the levels of 1974. The Company has placed special emphasis up on a program in which it expects to dispose of excess assets that are unproductive, but which assets can provide funds to finance its future growth. As a conse quence, the Company believes that it can meet its immediate capital investment needs through opera tions and other internally generated sources, and through the prudent use of equipment leasing at at tractive rates. The year 1975 will benefit from the very recently completed disposition of the operations of the Campanella Corporation and the sale of excess timberlands in Mississippi. Flintkote Stock Prices and Dividends 1973-1974 HIGH AND LOW STOCK PRICES, EACH QUARTER OF 1973 AND 1974 $4.50 Series A S2.25 Series B Convertible Second Convertible Second Preferred Stock Preferred Stock Common Stock 1973 HIGH LOW HIGH LOW HIGH LOW 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter $75% 68 62 63% $65% 58% 56 , 50Vi $37% 34 32 30 $31 28% 27% 23% $25% 20% 19% 21 $19 15% 16% 14 1974 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter $60% 60 52% 46 $52% 50% 39% 40% $29% 30 24 23 $26 Vi 23% 20 18 $19% 18% 14% 12% $14% 13% 10% 9% THE ABOVE STOCKS ARE LISTED ON THE NEW YORK STOCK EXCHANGE. THE STOCK SYMBOL IS FO. DIVIDENDS ($ per share) 1973-1974 $4.50 Series A Convertible Second Preferred-- , $1.12% per quarter $2.25 Series B Convertible Second Preferred-- $ ,56Vi per quarter Common Stock 1973 1974 1st Q ... ... $.25 $.27 2nd Q . ... $.27 $.29 3rd Q ... ... $.27 $.29 4th Q ....... $.27 $.29 13 uauittuiai AUDITORS' REPORT To the Board ot Directors and Shareholders, The Flintkote Company: We have examined the balance sheet of THE FLINTKOTE COMPANY and its CONSOLIDATED SUBSIDIARIES as of December 31. 1974 and the related statements of income and earnings rein vested in the business and changes in financial position for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such, tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We previously examined and reported upon the consolidated financial statements of the Company for 1973. In our opinion, the aforementioned financial statements present fairly the financial position of The Flintkote Company and its Consolidated Subsidiaries at December 31, 1974 and 1973, and the results of their operations and changes in financial position for the years then ended, in conformity with generally accepted accounting principles consistently applied during the periods except for the change, with which we concur, in the method of costing inventory as described in the notes to the financial statements. One North Broadway, White Plains, N.Y. January 31, 1975 Y1 "W- THE FLINTKOTE COMPANY and its CONSOLIDATED SUBSIDIARIES STATEMENTS of CHANGES in FINANCIAL POSITION for the years ended December 31, 1974 and 1973 1 Funds provided by: Net income.......................................................................... Charges (credits) not requiring working capital: Depreciation and depletion........................................... Deferred income taxes and investment tax credits Provided by operations........................................... Increase in long-term debt................................................ Disposal of property, plant and equipment...................... Funds used for: Additions to property, plant and equipment .................... Reduction in long-term debt............................................... Dividends paid.................................................................... Common stock purchased for treasury............................. Funds held by Trustees for construction........................... Other, net........................................................................... Net increase (decrease) in working capital.......... Changes in working capital: Cash and marketable securities......................................... Funds receivable.................................................................. Accounts receivable........................................................... Inventories .......................................................................... Prepaid expenses................................................................ Accounts payable and accrued liabilities......................... Notes payable and current installments on long-term debt Net increase (decrease) in working capital.......... The accompanying notes are an integral part of the financial statements. (,n Thousands f Dollars) 1974 1973 SI 4,725 20,573 2,650 37,948 31,694 11,565 81,207 43,114 6,264 7,985 (3,188) 643 54,818 $26,389 (S 958) 9,486 (330) 20,351 (1,686) (7,061) 6,587 S26,389 318,007 18,995 0,170) 35,832 24,479 6,986 67,297 51,780 3,253 7,574 4,259 6,184 1,581 74,631 (S 7,334) ($16,877) 6,815 576 3,025 7,410 (8,283) (S 7,334) THE FLINTKOTE COMPANY and its CONSOLIDATED SUBSIDIARIES STATEMENTS of INCOME and EARNINGS REINVESTED in the BUSINESS for the years ended December 31,1974 and 1973 Net sales...................................................................................................... Other income .............................................................................................. Cost of goods and services sold................................................. .............. Selling, administrative and general expense ........................................... Interest expense.......................................................................................... Other charges.............................................................................................. Income before income taxes ................................................. Federal, state and foreign income taxes: Currently payable....................................................................................1 Deferred taxes and investment tax credits............................................. Net income.................................................................................................. Deduct, Cash dividends on: Preferred stocks.................................................................................. Common stock (1974, SI.14 per share; 1973, SI.06 per share) . ... Net income reinvested............................................. .................................. Earnings reinvested, January 1, as previously reported ........................... Adjustment of prior years tax liability ........................................................ As restated.......................................................................................... Earnings reinvested, December 31 ............................................................ (In Thousands of Dollars Except Per Share Amounts) 1974 1973 $480,148 S442.292 .4,710 4,246 484,858 446,538 409,367 369,999 47,753 43,133 9,152 6,515 564 489 466,836 420,136 18,022 26,402 / 530 2,767 3,297 14,725 9,523 (1,128) 8,395 18.007 1,580 6,405 7,985 6,740 137,565 $144,305 1,580 5,994 7,574 10,433 128,374 1,242 127,132 3137,565 Net income per share of common stock after provision for preferred dividends............................................................ Net income per share of common stock assuming conversion of preferred stocks .............................................................. $2.34 $2.28 $2.91 $2.78 Average number of common shares outstanding..................................... 5,618,864 5,652,543 The accompanying notes are an integral part of the financial statements. fii jmaiSi yifliM li-Jiirt THE FUNTKOTE COMPANY and Its CONSOLIDATED SUBSIDIARIES BALANCE SHEETS, December 31,1974 and 1973 (In Thousands of Dollars) _____________________________________________________________ 1974________ 1973 ASSETS: Cash ............................................................................................................ Funds receivable ........................................................................................ Accounts receivable, less allowance for doubtful items and cash discounts: 1974, $4,356; 1973, $4,377 ......................... $ 3,986 9,486 73,394 S 4,944 73,724 Inventories: Finished goods and work in process.................................................. Raw materials and operating supplies.................................................. Prepaid expenses........................................................................................ Total current assets................................................................... 39,976 25,986 65,962 6,080 158,908 27,210 18,401 45,611 7,766 132,045 Property, plant and equipment: Land ........................................................................................................ Mine lands and rights.............................................................................. Buildings and land fixtures...................................................................... Machinery and equipment...................................................................... Furniture and fixtures.............................................................................. Construction in progress........................................................................ Less, Allowances for depreciation and depletion........................... * Funds held by Trustees for construction................................................... Other assets including intangibles.............................................................. 9,366 .19,515 91,121 304,548 5,495 9,220 439,265 189,810 249,455 2,996 11,516 $422,875 8,460 15,900 87,757 281,009 5,354 27,349 425,829 187,350 238,479 6,184 10,893 $387,601 The accompanying notes are an integral pari of the financial statements. (In Thousands ot Dollars) 19741973 LIABILITIES: Accounts payable and accrued expenses................................................. $ .44,363 Notes payable.............................................................................................................. 2,004 Current installments on long-term debt..................................................... 1,479 Accrued federal, state and other taxes..................................................... 3,169 Total current liabilities............................................................... Long-term debt............................................................................................ 51,015 114,154 Deferred income taxes and investment tax credits................................... 31,574 196,743 S 36,990 8,750 1,320 3,481 50,541 88,724 28,924 168,189 Contingencies and commitments SHAREHOLDERS' EQUITY: Preferred stocks (aggregate involuntary and voluntary liquidation (or re demption) amounts S35.528 and $37,379, respectively at December 31, 1974).................................................................................................. 18,759 18,759 Common stock, $5 par: Authorized 10,000,000 shares, issued 5,913,364 shares: 1974, at par value; 1973, at stated value.................................................................... Capital surplus (no change in 1973)......................................................... Earnings reinvested in the business............................................................ Less, Cost of stock held in treasury: 1974, 294,500 common and 455 preferred ($4 cumulative, no par) shares; 1973, 294,500 common shares.......... :...................................................................................... 29,567 40,137 144,305 232,768 6,636 226,132 $422,875 69,003 701 137,565 226,028 6,616 219,412 S387.601 NOTES to FINANCIAL STATEMENTS (all dollar amounts except per share amounts expressed in thousands of dollars) Summary of Significant Accounting Policies The Company's accounting policies conform to generally accepted accounting principles. Significant policies are described below: Consolidation: The consolidated financial statements include the accounts of the Company and all of its wholly-owned domestic and foreign (Canadian) subsidiaries after elimination of intercompany accounts and transac tions, and include the results of operations of pur chased businesses from the date of acquisition including, from May 15, 1970, the accounts of Campanella Corporation, all of the capital stock of which was acquired on that date. The option granted to the former owner of Campanella to repurchase the capital stock has been conditionally waived by him in con templation of the sale of the business in 1975 to a corporation of which he is a principal. Sales and net income of Campanella for 1974 and 1973 did not ex ceed 10% of the Company's sales and net income, respectively, for such years. The accounts of foreign subsidiaries are translated into U.S. dollars at appropriate rates of exchange. Current assets and current liabilities are translated at rates prevailing at the end of each year. Other balance sheet accounts are translated at rates prevailing when acquired or incurred. Income and expense accounts are translated at average exchange rates, except that depreciation is translated at historical rates. Gains or iosses resulting from translation are not material and are reflected in earnings. Inventories: Inventories are stated at the lower of cost (princi pally average and in 1974, last-in, first-out) or market. Approximately $13,750 of inventories at December 31, 1974 were stated on the last-in, first-out (LIFO) basis. These same LIFO'inventories at current aver age costs amounted to approximately $17,340 at December 31, 1974. Adequate provision is made for slow-moving and obsolete inventories. Property, Plant and Equipment and Depreciation: Property, plant and equipment are stated at cost. Annual depreciation is provided on the group com posite method using the straight-line method gener ally at the following rates: Land fixtures, 4 and 5%: Buildings, 2V2 to 5%: Machinery and equipment, 4 to 12'/2%: Furniture and fixtures, 8 and 10%. Depletion and depreciation of mining plant assets are based on units of production or on a straight-line basis over the estimated life of the deposits. When significant prop erties are retired or sold, the asset values and related reserves are eliminated from the accounts and any resultant gain or loss is included in earnings. Intangible Assets: Patents resulting from internal development and trademarks are valued at nominal amounts. Pur chased patents, processes, and goodwill and other intangibles are amortized over appropriate periods of time. Goodwill and intangibles acquired prior to 1970 are not being amortized because, in the opinion of the Company, there has been no diminution in the value of such assets. Recognition of Income and Expense: The Company records income and expense from major heavy and highway and nonresidential con struction contracts on the percentage-of-completion method. Advertising and promotion expenses are charged to income during the year in which they are incurred or during the period of the promotional campaign. Start-up and preoperating expenses are charged to income as incurred or amortized over a period not exceeding twelve months following commencement of operations. Income Taxes: Provisions for income taxes are based on the tax effects of transactions which are included in the de termination of pretax accounting income, and appro priate provision is made for deferred income taxes. This latter item consists principally of amounts result ing from the use of accelerated depreciation methods for tax purposes and the straight-line method for book purposes and from the use for construction contracts of percentage-of-completion for book purposes and completed contract for tax purposes. United States Investment Tax Credit applicable un der the Revenue Act of 1971 is accounted for using 18 the flow-through method. Investment Tax Credit applicable to previous regulations is being amortized ratably over ten-year periods. The Company has consistently reinvested the earn ings of its foreign subsidiaries in foreign facilities and businesses. In the foreseeable future, the Company expects that its foreign investment demands will re quire a continuation of this policy. Accordingly, the Company does not recognize the tax effects on the undistributed earnings of foreign subsidiaries. At De cember 31, 1974, there were approximately $28,269 of such undistributed earnings. Funds Receivable The Company sold, effective December 31, 1974, certain assets of the Concrete Materials division. The portion of the cash proceeds which were received on January 3, 1975 have been classified as `Funds Re ceivable'-in the accompanying financial statements. Change in Accounting Policy Effective with the year ended December 31, 1974, the Company changed its method of costing certain inventories from average cost to the last-in, first-out (LIFO) basis. This change was made because the LIFO method (which charges current earnings with current costs) minimizes the inflation-induced inven tory profit in respect to these inventories and thus more clearly reflects the results of operations. The effect of the change was to reduce inventories and net income by approximately $3,590 and SI ,792 (S.32 per share), respectively. There is no cumulative effect of the change on earnings reinvested in the business for prior years, since the December 31,1973 inventory as previously stated is also the amount of the beginning inventory on a LIFO basis. Short-Term Borrowing Arrangements At December 31, 1974, notes payable to banks ($2,000) under the Company's lines of credit con sisted of 90-day unsecured notes with an average interest rate of 10.4%. During 1974 the maximum amount of aggregate short-term bank borrowings out standing at any month end were $22,000, and the average aggregate short-term borrowings were $13,200 with a weighted average interest rate of 10.1 % (based on number of days each borrowing was outstanding during the year). At December 31.1074, the Company's unused lines of credits with various banks aggregated S80.000. The lines of credit are renewable annually with no com mitment fees and provide for unsecured financing for generally 90 days at the prevailing prime interest rate. Long-Term Debt Long-term debt at December 31, 1974 and 1973 comprised: 1974 1973 4%% debentures, due 1975-1977 Sinking fund debentures: 8'/4%, due 1977-1996 ........... 4%%. due 1975-1981 ............. 4%%, due 1975-1977 (Redeemed in 1974)........... 4Ve% notes, due 1975-1977 (Paid in 1974).......................... Other, due various dates through 1998 ....................................... S 178 40,000 17,484 3,813 S 325 40,000 19,040 3,476 350 2,583 Capitalized leases: Pollution control revenue bonds: 5V2%, due 1984-1998 ......... 5% %, due 1984-1998 ......... 5-9/10%, due 1985-1999 ... 6V* % Industrial development revenue bonds, due 1984-1998 .......................... Notes payable--banks: 8'/%, due 1981-1984 ............. 113/% (%% above the Canadian bank's prime), due 1976-1983 ..................... 15,250 5,000 5,300 2,700 20,000 4,429 $114,154 15,250 5,000 2,700 $88,724 Certain of the long-term debt instruments and the Company's Articles of Organization contain restrictive provisions including the payment of cash dividends and the purchase or redemption of Company stocks. Under the most restrictive of these provisions, the amount of earnings reinvested in the business avail able for cash dividends on common stock at Decem ber 31, 1974 was approximately $41,985. Repayment requirements of the sinking fund de bentures have been met. The Company has guaranteed the repayment of pollution control and industrial revenue bonds issued 19 THE FLINTKOTE COMPANY and its CONSOLIDATED SUBSIDIARIES FIVE-YEAR SUMMARY OF OPERATIONS (In tnousands ot dollars except per share amounts) Net sales....................................................... Other income ............................................... Costs and other operating expenses.......... Interest expense........................................... Income from continuing operations before income taxes................................. Federal, state and foreign taxes on income ............................................... Income from continuing operations before extraordinary items...................... Income from discontinued operations, net of income taxes ................................. Income before extraordinary items............ Extraordinary items, net of income taxes ... Net income................................................... Provision for cumulative preferred dividends ................................................. Net income applicable to common stock ......................................... Average number of shares outstanding .... Per share of common stock......................... Income from continuing operations........ Income from discontinued operations ... Extraordinary items ................................. Net income....................................... Net income per share of common stock assuming conversion of dilutive preferred stocks and exercise of dilutive stock options............ Cash dividends paid per share of common stock ......................................... 1974 1973 1972 1971 1970 $480,148 4,710 484,858 457,684 9,152 466,836 $442,292 4,246 446.538 413,621 6.515 420,136 $403,559 3.646 407.205 377,944 4,980 382,924 S363.037 1.965 365,002 339,157 4.204 343.361 S294.985 2,747 297,732 281,403 2,924 284,327 18,022 3,297 26,402 8,395 24,281 7,770 21,641 8,344 13,405 4,522 14,725 -- 14,725 -- 14,725 1,580 $ 13,145 5,618,864 18,007 -- 18,007 -- 18,007 1,580 S 16,427 5,652,543 16,511 217 16,728 3.255 19,983 1,783 S 18.200 5,749,552 13,297 507 13,804 -- 13,804 1,896 S 11,908 5,666,517 8,883 1,250 10,133 -- 10,133 1,897 S 8,236 5,654,242 $2.34 -- -- $2.34 $2.91 -- -- $2.91 $2.56 .04 .57 $3.17 ' $2.01 .09 -- 52.10 $1.24 .22 -- $1.46 S2.28 $2.78 $3.01 $2.05 $1.45 $1.14 $1.06 $1.00 $1.00 SI.00 MANAGEMENT DISCUSSION AND ANALYSIS OF THE SUMMARY OF OPERATIONS Sales growth has been steady during the recent peri od 1970-1974, increasing from $295,000,000 in 1970 to $480,000,000 in 1974. This has resulted from in creases in building products, stone products and cement. Increases in selling prices of products ac counts for a major part of the increased sales in 1974. Sales of businesses discontinued or sold in 1972 are not included. Other income increased in the five year period, except for-1971, generally .as a result of in creased interest income from investments of debt capital held during construction periods and gains on the sale of excess land and unproductive fixed assets. Costs have increased significantly in the five year period in spite of increased volume of business. This reflects the rapidly increasing costs of materials, serv ices and labor. Interest expense has increased from $2,900,000 in 1970 to $9,200,000, reflecting the increase in long- 22 term debt from S38,000.000 in 1970 to $114,000,000 in 1974. The long-term debt increase has been used principally to finance modernization and expansion of the Company's plants and equipment, and to install air and water pollution control facilities in cement, stone and building product plants. In addition, short term borrowing to meet seasonal working capital demands was required in all years but seasonal demands were higher in 1973 and 1974. Federal, state and foreign taxes on income have varied during the five year period, mostly because of the influence of investment tax credits applicable un der the Revenue Act of 1971. Investment tax credit applicable to previous regulations was amortized rat ably over ten year periods. Commencing with 1971, investment tax credits flow through income and re duce tax expense accordingly. In 1974, 1973, 1972, and 1971 flow through investment tax credits were $3,425,000, $2,375,000, SI ,223,000 and $312,000, re spectively. These credits to tax expense were the direct result of the heavy investments in new plant and equipment during the recent years.' Effective with the year ended December 31, 1974, the Company changed its method of costing certain in ventories from average cost to the last-in, first-out (LIFO) basis. This change was made to more clearly reflect the results of operations during periods of rapidly rising inventory costs. The effect of this change was to reduce 1974 inventories $3,590,000 and net income by $1,792,000. Net income for 1974 was down because of the level ing out of physical volume of shipments caused by the slowdown in construction activity and the inability to pass through inflation-related cost increases. In addi tion, net income was down also from higher-thanexpected start up costs of new plants. In 1972, extraordinary income, net of income taxes, was $3,255,000. This was the result of the sale of the packaging operations and the discontinuance of the fiber pipe and Insulrock businesses. In connection with this sale and discontinuance of these businesses, income from discontinued operations, net of taxes, was as shown in the Five Year Summary of Opera tions. Income per share of common stock, before income from discontinued operations and extraordinary items, has shown a steady growth from SI .24 per share in 1970 to $2.91 in 1973. The downturn in earnings per share of common stock in 1974 was the result of the construction activity slowdown and the high start up costs. The effect of the change in costing certain in ventories to the LIFO method was to decrease earn ings by $.32 per share of common stock. Cash dividends paid per snare of common stock were $1.00 per share for the years 1970-1S72, SI.06 per share in 1973 and $1.14 per share in 1974. CONDENSED BALANCE SHEET Working capital............................................. Property, plant and equipment--gross........ Allowance for depreciation and depletion............................................... Net property, plant and equipment.......... Other assets................................................. Long-term debt............................................. Deferred taxes ............................................. Shareholders' equity ................................... Per share of common stock.................... Common shares outstanding....................... Total dividends paid--cash ......................... Capital expenditures ................................... Depreciation and depletion......................... Operating cash flow..................................... 1974 1973 1972 1971 1970 $107,893 439,265 189,810 249,455 14,512 114,154 31,574 226,132 33.60 5,618,864 7,985 43,114 20,573 35,298 S 81,504 425,829 187,350 238,479 17,077 88,724 28,924 219,412 32.40 5,618,864 7,574 51,780 18,995 37,002 $ 88,838 405,712 193,032 212,680 9,312 67,498 30,094 213,238 30.19 5,825,664 7,535 39,066 19,234 39,217 S 74,485 415,434 206,408 209,026 8,773 60.836 28,658 202,790 27.86 5,674.332 7,563 29,644 20,570 34,374 S 52.120 393.681 192.691 200,990 8,522 38.328 27.158 196.146 26.77 5,655.117 7,552 43.579 17.657 27,790 rftfiJBTfTi T"-i1TiM>-Tfl iMi -engirt^ inlv-ftimifcitttorii DIRECTORS William C. Birdsey Assistant to the President Monte C. Carpenter Executive Vice President ot the Company Gene G. Curry Attorney-at-Law, Santa Barbara, California Former Vice President of the Company W. L. Davis Investor Former Vice President ot the Company Allen O. Eaton Partner, Ropes & Gray Attorneys -at-Law, Boston Jack L. Gordon Senior Vice President ot the Company Wm. Wallace Mein Director ot various corporations Former Vice President ot the Company James D. Moran President and Chief Executive Officer ot the Company Thomas F. O'Neil Chairman ot the Board ot The General Tire and Rubber Company and ot RKO General, Inc. George J. Pecaro Chairman of the Board of the Company Joseph A. Thomas Managing Director, Lehman Brothers, Inc., Investment Bankers: Panner and Member of the Executive Committee, Lehman Brothers, Investment Bankers Harry F. Vickers Investor Former Chairman ot the Board of Sperry Rand Corporation EXECUTIVE AND FINANCE COMMITTEE Joseph A. Thomas, Chairman James D. Moran Thomas F. O'Neil George J. Pecaro Harry F. Vickers AUDIT COMMITTEE Allen O. Eaton, Chairman Thomas F. O'Neil George J. Pecaro CORPORATE OFFICERS George J. Pecaro, Chairman ot the Board James D. Moran, President and Chief Executive Officer Monte C. Carpenter, Executive Vice President and General Manager, Building Products Group J, L. Gordon, Senior Vice President and General Manager, Stone, Products Group Harold F. Stepanek, Senior Vice President and General Manager, Cement Products Group George H. Cain, Vice President, Secretary and General Counsel J. 1. Tomaselli, Vice President, Administration A. Richard Perry, Vice President and Controller Donald E. Trimble, Treasurer Allen O. Eaton, Clerk Harry P. Heubner, Assistant Secretary and Assistant Treasurer Richard Cochrane, Assistant Controller W. T. George, Assistant Controller TRANSFER AGENTS Bankers Trust Company 16 Wall Street. New York. N.Y. 10005 Bank of America Nat'l Trust and Savings Assoc. 111 West 7th Street, Los Angeles. Calif. 90054 The First National Bank of Boston 1 Federal Street, Boston, Mass. 02102 REGISTRARS Manufacturers Hanover Trust Co. The National Shawmut Bank of Boston United California Bank AUDITORS Coopers & Lybrand OF COUNSEL Skadden, Arps, Slate, Meagher & Flom New York, N.Y. Ropes & Gray, Boston Mass. CORPORATE HEADQUARTERS 400 Westchester Avenue White Plains, New York 10604 Telephone (914) 761-7400 wp rjj wi)i j Piloted in U S A.