Document jNzJwgwgYo71Kpp7XGrK5DQGp

PLAINTIFF'S EXHIBIT <Annual Report C E R T A IN-TEED PRODUCTS CORPORATION For the Year ended December 31, 1939 CTD035706 BROR DAHLBERG, Chairman HENRY J. HARTLEY HOULDER HUDGINS GEORGE R. KENT . HARRY R. LEWIS A. H. MILLER FREDERICK H. PAYNE HORACE G. ROBERTS ' L. J. SHERIDAN ; - HENRY J. HARTLEY . HORACE G. ROBERTS A. H. MILLER ; . . C. E. STEDMAN , . ... H. J. DOWD . . . . OFFICERS President Vice President; t;. . 7.' 'VicePresident, . . . . . Vice President & Comptroller ,vr? CERTAIN-TEED PRODUCTS CORPORATION 100 EAST 42nd STREET, NEW YORK To the Stockholders of Certain-teed Products Corporation: l There is submitted herewith a consolidated balance sheet as of December 31, 1939 and related statements of income and surplus. Consolidated net profit for the year after all charges, including non-recurring charges and provision for Income Taxes', was $348,099.29. This compared with a net profit of $171,010.41 for the previous year. In arriving at the net profit of $348,099.29 there was deducted $182,357.11, representing charges of a non-recurring nature for an unrealized loss arising from Canadian exchange decline, losses from sales and demolition of capital assets and charges applicable to prior years. Before such deduction, the consolidated net profit was $530,456.40. Comparisons with previous years are as follows: 1937 ................ 1938 .................... 1939 .................... Net Sales $16,490,156 14,625,882 15,516,550 % Increase --11.3 6.1 Operating Profit $640,641 719,939 1,042,354 % Increase 12.4 44.8 Net Profit $102,654 171,010 348,099 % Increase 66.6 103.6 The improvement resulted from increased sales in more profitable items, more effective control of operations, and more favorable conditions in the building materials industry. Earnings available for the corporation's outstanding securities compare as follows: Available for Interest on funded debt........ Interest due and paid on funded debt........ Available Per Share 6% preference stock Common stock................................................. 1937 $626,773 524,119 1.40 none 1938 $702,659 513,547 2.34 none 1939 $859,997 497,675 4.76 none The year-end consolidated balance sheet gives effect to the decisions of the Boards of Directors of this corporation and of its wholly-owned subsidiaries to adjust the stated value of various assets, which adjustments, in the main, eliminate items of appre ciation added many years ago, and do not materially affect the corporation's earning power or fundamental worth. These adjustments, the details of which are given in the accompanying auditors' report (1) eliminate appreciation previously reflected in the book value of some assets, (2) reduce to nominal value Canadian timber concessions, and (3) reduce the book value of tangible non-current assets to the lower of cost or appraised value as determined by independent auditors and appraisers. Such 1 CTD035708 action has reduced the stated book value of assets of the Corporation by $4,882,537.70 and thereby created a deficiency in the surplus accounts of $2,252,946.45. The Certain-teed Products Corporation is a manufacturer primarily of asphalt roofing and gypsum products, two of the most important of the building materials industry. Through 20 years of advertising, the name Certain-teed has become synony mous with these two groups of products. Certain-teed is now the largest manufacturer of asphalt roofing materials in the United States, and the third largest manufacturer of gypsum products. In 1939 the company steadily improved its position in these fields. Oil drilling on land adjacent to the Grand Rapids, Michigan, plant indicated the corporation's land there to be oil bearing. During 1939 the corporation drilled on its own land 9 wells at amamortized cost of $80,671.72. These wells are all producing at a rate better than average for the field. A conservative drilling program has been approved for 1940. Also attached hereto is the Annual Report for the year 1939 of Sloane-Blabon Corporation of which corporation Certain-teed owns 24% of Class "A" 6% Cumulative Preferred Stock, 64% of Class "B" 5% Cumulative Preferred Stock and 57% of the Common Stock. The Sloane-Blabon report shows a net profit of $448,455.85 after all charges and provision for Federal Income Taxes, as compared with a loss of $209,986.76 in the previous year. No dividends were received on the corporation's investment in Sloane-Blabon and no part of its earnings is reflected in the Certain-teed income state ment for the year. 4 FOR THE BOARD OF DIRECTORS: PRESIDENT. CHAIRMAN March 20, 1940. 2 CTD035709 CERTAIN-TEED PRODUCTS CORPORATION Sales offices and warehouses are maintained in key distribution centers throughout the United States. Certain-teed products are made in plants located to serve their markets most economically. Sales Offices Atlanta, Georgia Baltimore, Maryland Chicago, Illinois Cleveland, Ohio East St. Louis, Illinois Dallas, Texas Kansas City, Missouri Los Angeles, California New York, N. Y. San Francisco, California Seattle, Washington Warehouses Baltimore, Maryland Charlestown, Massachusetts Chicago, Illinois Cincinnati, Ohio Cleveland, Ohio Detroit, Mich. Los Angeles, California Newark, New Jersey Philadelphia, Pennsylvania St. Paul, Minnesota Roofing Plants and Felt Mills East St. Louis, Illinois Kansas City, Missouri Marseilles, Illinois Niagara Falls, New York Port Wentworth, Georgia Richmond, California York, Pennsylvania Gypsum Mines and Plants Acme, Texas Fort Dodge, Iowa Akron, New York *Grand Rapids, Michigan Blue Rapids, Kansas *Oil is being produced from the Grand Rapids land. Box Board and Newsprint Plants Buffalo, New York Thorold, Ontario, Canada Subsidiaries: -- The corporation wholly owns the Beaver Company, Limited, Thorold, Ontario, Canada, which in turn wholly owns the Beaver Wood Fibre Com pany, Limited. The Southern Building Products Corporation, a wholly owned subsidiary owns the Port Wentworth, Georgia plants. The Sloane-Blabon Corporation, New York, N. Y., manufacturers of linoleum and floor coverings is a controlled subsidiary. CTD035710 CERTAIN-TEED PRODUCE WHOLLY-OWNE CONSOLIDATED BALANCE SHEI CURRENT ASSETS: ASSETS . Cash............................................................................................................................................ Notes and accounts receivable-- Notes receivable--trade...................................................................................................... Accounts receivable--trade................................................................................................ Miscellaneous accounts and notes receivable................................................................. 5 $ 198,865.86 2,094,714.08 164,190.12 818,694.14 Total...................................................................................................................... 52,457,770.06 Less: Reserves for bad debts, discounts and allowances.......................................... 202,715.98 2,255,054.08 Advances for merchandise received on consignment and for resale (secured by the merchandise).............................................................................................................. Inventories of raw materials, goods in process and finished goods--at lower of cost or market............................................................................................................ 105,859.06 2,072,153.24 TOTAL CURRENT ASSETS........................................................................ 5 5,251,760.52 INVESTMENT IN CAPITAL STOCK OF SLOANE-BLABON CORPORATION, at cost (equity based on balance sheet at December 31, 1939--53,330,378.31).......... OTHER INVESTMENTS, RECEIVABLES AND RESTRICTED BANK DEPOSITS (less reserve)...................................................................................................... DEPOSITS AND DEFERRED CHARGES....... ........................................................... PROPERTY, PLANT AND EQUIPMENT (at cost, or reduced to appraised values): Operating plants and facilities: Land........................................................................................................................................ Buildings, machinery and equipment (less reserve for depreciation of 58,108,207.79) Non-operating plants and departments: Land........................................................................................................................................ Buildings, machinery and equipment (less reserve for depreciation of 519,315.56) Gypsum and gypsitc deposits....................................... ................................................... Oil development (less reserve for amortization of 56,550.38)........................................ Timber concessions and water power rights at nominal values...................................... 5 496,478.05 5,987,269.39 205,827.43 73,773.60 443,540.91 80,671.72 2.00 3,031,925.39 29,199.34 238,510.53 7,287,563.10 GOODWILL, TRADEMARKS, ETC........................................................ .......................... 1.00 TOTAL ASSETS................................................................................................ 515,838,959.88 4 CTD035711 *. a...... feaaiT.^'i CORPORATION AND SUBSIDIARIES AS AT DECEMBER 31, 1939 LIABILITIES CURRENT LIABILITIES: Notes payable........................................... Accounts payable and accrued expenses Interest accrued on funded debt........... Accrued taxes........................................... Provision for income taxes..................... Debenture bonds redeemable within one year Less--Bonds held in Treasury..... ............... $ $ 400,000.00 139,000.00 47,500.00 767,802.09 164,285.00 136,447.38 14,222.84 261,000.00 TOTAL CURRENT LIABILITIES............................................................ $ 1,391,257.31 RESERVE FOR CONTINGENCIES (includes merchandise guarantees).................... 68,379.02 FUNDED DEBT: Twenty-Year 5}4% Sinking Fund Gold Debentures due March 1, 1948 ($200,000 principal amount to be retired semi-annually): Originally issued..............................................................................................................$13,500,000.00 Less--Debentures retired............................................................................................... 4,400,000.00 $ 9,100,000.00 Less--Debentures redeemable within one year--above........................................... 400,000.00 8,700,000.00 CAPITAL: 6% Cumulative Prior Preference Stock-- Authorized--186,996 shares of $100.00 par value--outstanding 73,069.3 shares.. .$ 7,306,930.00 Common stock-- Authorized--1,000,000 shares of $1.00 par value--outstanding 625,340 shares.... 625,340.00 7,932,270.00 Capital surplus................................................................................................................... $ 2,477,406.98 Deficiency in earned surplus (from June 30, 1936)............................................................. 4,730,353.43 2,252,946.45 TOTAL LIABILITIES AND CAPITAL $15,838,959.88 Contingekt LiXbiuties: Unused balance of letters of credit--$17,175.00; discounted customers* drafts and notes--$59,315.90. Dividends in arrears on the 6% Cumulative Prior Preference Stock aggregate $1,205,643.45, or $16.50 per share. Options have been given for the purchase of an aggregate of 25,000 shares of unissued common stock at $12.00 per share. The Consolidated Balance Sheet includes net current assets and deferred charges of Canadian subsidiaries aggregating $568,212.34, which have been converted into U. S. currency at the current rate of exchange at December 31, 1939, and exchange rates in effect at the lime of acquisition have been applied to the Canadian fixed assets aggregating $985,049.93. 5 CTD035712 CERTAIN-TEED PRODUCTS CORPORATION AND WHOLLY-OWNED SUBSIDIARIES CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1939 Sales (less discounts and allowances) 315,516,550.33 Cost of sales--exclusive of depreciation and depletion, as set forth below............................................................................................................... Depreciation and depletion............................................................................. Selling, general and administrative expenses.............................................. $11,104,515.33 487,997.68 2,881,682.81 14,474,195.82 Operating profit............................................................................................................................... $ 1,042,354.51 Interest on debenture bonds......................................................................................................... 497,675.27 Provision for income taxes $ 544,679.24 ` 14,222.84 Net income--before unrealized loss arising from foreign exchange decline, extraordinary items and charges applicable to prior years........................................................................... $ 530,456.40 Deduct: Unrealized loss arising from decline in conversion value of Canadian net current assets and deferred charges.............................................. Loss on sales or demolition of plants and other capital assets--net. . Adjustment of reserves for discounts and allowances as at January 1, 1939, to conform to the basis at December 31, 1939 ........................ Gypsum lease rentals capitalized in prior years, charged off.............. $ 52,540.66 76,668.80 46,949.48 6,198.17 182,357.11 Net Credit to Surplus............................................................................................................... $ 348,099.29 The consolidated net income of $530,456.40 (before deducting unrealized loss arising from declines in conversion value of net current assets, extraordinary items and charges applicable to prior years) includes net income of $25,196.23 of Canadian subsidiaries. The net income of these subsidiaries has been converted into U. S. currency at approximate average rates of exchange prevailing during the year, except that depreciation has been converted at exchange rates prevailing at the time of acquisition of the related assets. The portion of the net income of Sloane-Blabon Corporation for the year 1939, allocable to the securities of that corporation owned by Certain-teed Products Corporation (without giving effect to dividend arrearages aggregating $1,432,489.50 on the out standing preferred stocks of the Sloane-Blabon Corporation) is $262,284.65. No part of such income has been included in the above income statement. 6 CTD035713 CERTAIN-TEED PRODUCTS CORPORATION AND WHOLLY-OWNED SUBSIDIARIES CONSOLIDATED SURPLUS ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 1939 CAPITAL SURPLUS--DECEMBER 31, 1938 (no change during year 1939).......................................................................................................... $2,477,406.98 DEFICIENCY IN EARNED SURPLUS (from June 30, 1936) AT DECEMBER 31, 1938.......................................................................... $ 281,780.73 CREDITS: Net credit to surplus for the year, per consolidated income statement Excess of par value over cost of debenture bonds purchased during year Fixed assets reduced to nominal values in prior years, transferred to operating equipment and revalued........................................................... $ 348,099.29 36,388.75 49,476.96 433,965.00 $ 152,184.27 CHARGES: Elimination of appreciation previously reflected in book values of-- Land.......................................................................................$ 261,864.34 Plant and equipment.......................................................... 107,895.40 Gypsum and gypsite deposits........................................... 2,923,176.82 $3,292,936.56(1) To reflect the lower of cost or recent appraisal values of: Non-operating land............................................................. $ 265,919.07 Gypsum and gypsite deposits........................................... 109,510.40 375,429.47(2) To reduce investment in Sloane-Blabon Corporation to cost of assets transferred therefor...................................................................................... Reduction in book value of timber concessions to nominal value......... 334,877.37(3) 879,294.30(4) 4,882,537.70 DEFICIENCY IN EARNED SURPLUS (from June 30, 1936) AT DECEMBER 31, 1939.......................................................................... NOTES: (1) Appreciation recorded on books of-- Certain-teed Products Corporation in 1923-- Land.................................................................................. $ 106,680.00 Gypsum and gypsite deposits...................................... 2,923,176.82 $3,029,856.82 Southern Building Products Corp. in 1930............................................ The Beaver Wood Fibre Co. in 1919...................................................... The Beaver Co., Ltd., in 1919.................................................................. 140,836.78 98,326.07 23,916.89 TOTAL. $3,292,936.56 (2) Reductions to appraisals made in December, 1939, with respect to Land under the direction of L. J, Sheridan & Co. and with respect to gypsum and gypsite deposits by Ford, Bacon & Davis, Inc. (3) To reduce investment in Sloane-Blabon Corporation by the amount of appreciation in assets transferred therefor, recorded on books of Certain-teed Products Corpora tion in 1923. * (4) Reflects reduction to nominal value. 7 $4,730,353.43 CTD035714 EISNER & LUBIN CERTIFIED PUBLIC ACCOUNTANTS NEW YORK WASHINGTON To the Board of Directors, Certain-teed Products Corporation: We have examined the Consolidated Balance Sheet of CERTAIN-TEED PRODUCTS CORPORATION and its wholly-owned subsidiaries as at Decem ber 31, 1939, and the Consolidated Statements of Income and Surplus for the year then ended; we have reviewed the system of internal control and the Com panies' accounting procedures, and, without making a detailed audit of the transactions, have examined or tested accounting records and other supporting evidence, by methods and to the extent we deemed appropriate. The Board of Directors has authorized the elimination of the element of ap preciation previously reflected in the assets of the Corporation, and also the reduc tion of the timber concessions to a nominal value of $1.00. Certain fixed assets and gypsum deposits were appraised during the year. As a result thereof, these assets are now reflected at the lower of cost or appraised values. In our opinion, the accompanying Consolidated Balance Sheet and related Consolidated Statements of Income and Surplus fairly present the consolidated position of CERTAIN-TEED PRODUCTS CORPORATION and whollyowned subsidiaries as at December 31, 1939, and the consolidated operating results for the year then ended, in conformity with generally accepted accounting principles. Eisner & Lubin, Certified Public Accountants. New York, N. Y., March 8, 1940. 8 CTD035715 SLOANE-BLABON CORPORATION HOULDER HUDGINS PRESIDENT 295 FIFTH AVENUE New York March 15, 1940. To the Stockholders of Sloane-Blabon Corporation: We submit herewith the Balance Sheet and Statement of Income and Deficit for the year ended December 31, 1939, as certified to by our Auditors, Messrs. Eisner & Lubin. Gross Operating Income for the year, before maintenance, repairs and depre ciation, was $2,285,182.65. This compared with $1,199,955.74 for 1938, and represents an increase of 90.4%. Net profit for the year after provision for depreciation and Federal income taxes was $448,455.85. This compares with a net loss of $209,986.76 for 1938. Adjustments made applicable to prior years amounted to $87,261.40, resulting in a credit to surplus of $535,717.25. All Notes Payable to Banks and Trade Creditors, which on December 31, 1938, amounted to a total of $749,698.20, have been paid off. This is the first time in the history of the Company that there were no loans outstanding. As of December 31, 1939, the ratio of Current Assets to Current Liabilities was 5.8 to 1 as compared with 3.2 to 1 last year. In the opinion of the Management, the present prospects for 1940 are promising. Respectfully submitted, For the Board of Directors, President. Chairman. 9 CTD035716 SLOANE-BLABO BALANCE SHEET A.1 ASSETS CURRENT ASSETS: Cash............................................................................................................................................. Accounts receivable (trade)................................................................................. .................. $1,299,701.41 Less--Reserves for discounts and bad debts................................................................... 101,066.68 Miscellaneous notes, accounts and claims receivable........................................................ Raw materials, work in process, finished goods and factory and shipping supplies-- at the lower of cost or market........................................................................................... $ 185,088.49 1,198,634.73 26,204.26 2,111,244.86 TOTAL CURRENT ASSETS......................................................................... $3,521,172.34 Land, buildings, machinery and equipment (at cost in 1931 in common stock, plus net additions at cost and less reserves for depreciation)-- Land, including $156,311.00 for property not in current use.................................. Buildings, machinery and equipment........................................................................... $5,481,582.78 Less--Reserves for depreciation................................................................................ 1,873,425.78 722,046.02 3,608,157.00 Blocks and moulds........................................................................................................................ Factory stores, parts and supplies............................................................................................ Deferred charges--engravings, advertising supplies, unexpired insurance, etc............ Organization expense, goodwill, trademarks, etc.................................................................... TOTAL ASSETS............................. ................................................................... 107,404.75 66,873.53 133,873.12 L00 $8,159,527.76 To the Board or Directors, Sloane-Blabon Corporation, 295 Fifth Avenue, New York, N. Y. We have examined the balance sheet of Sloane-Blabon Corporation as at December 31, 1939, and the condensed statement of income and deficit for the year then ended; we have reviewed the system of internal control and the company's accounting procedures, and, without making a detailed audit of the transactions, have examined or tested accounting records and other supporting evidence, by methods and to the extent we deemed appropriate. In our opinion, the above balance sheet and related statement of income and deficit fairly present the position of Sloane-Blabon Corporation as at December 31, 1939, and its operating results for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. New York, February 23, 1940. Eisner & Lubin, Certified Puttie Accountants. 10 CTD035717 ORPORATION ' DECEMBER 31, 1939 LIABILITIES CURRENT LIABILITIES: Accounts payable...................................................................................................................... $ 244,751.28 Customers' credit balances..................................................................................................... 3,426.35 $ 248,177.63 Accrued taxes, payroll, fees and expenses Provision for sales allowances.................... TOTAL LIABILITIES......... 278,746.80 88,205.21 $ 615,129.64 Deferred income............................................................................................................................ 4,382.51 CAPITAL STOCK AND SURPLUS-- Class A, 6% preferred, cumulative from July 1, 1933, authorized 40,000 shares, par value $100.00 each, issued 24,208 shares.................................................................. $2,420,800.00* Class B, 5% preferred, cumulative from July 1, 1933, authorized 20,000 shares, par value $100.00 each, issued 15,027 shares.................................................................. 1,502,700.00* Common stock, authorized 120,000 shares, no par value, issued 75,633 shares .... 1,890,825.00 $5,814,325.00 Capital surplus.......................................................................................................................... 2,621,900.14 Deficiency in earned surplus from May 1, 1932--as annexed........................................... 896^09.53 7,540,015.61 TOTAL LIABILITIES AND CAPITAL..................................................... $8,159,527.76 * Unpaid cumulative dividends to December 31, 1939, total $944,112.00 or $39.00 per share on the Class A preferred stock, and $488,377.50 or $32.50 per share on the Class B preferred stock. 11 CTD035718 SLOANE-BLABON CORPORATION CONDENSED STATEMENT OF INCOME AND DEFICIT FOR THE YEAR ENDED DECEMBER 31, 1939 Gross operating income, before maintenance, repairs and depreciation... Maintenance and repairs.................................................................................... Provision for depreciation.................................................................................. Selling, general and administrative expenses................................................. $ 182,537.54 273,005.82 1,311,183.44 $2,285,182.65 1,766,726.80 Net profit, before Federal income tax and items applicable to prior years Less Provision for income fax........................................................................... Net profit, before items applicable to prior years....................................... $ 518,455.85 70,000.00 $ 448,455.85 Items applicable to prior years-- Credits-- Reserve for contingencies eliminated....................................................... $ 194,291.46 Net refund on Federal income tax of prior years.................................. 4,636.28 $ 198,927.74 Charges-- Professional fees applicable to prior years.............................................. $ Moulds charged off...................................................................................... Production development expenses charged off....................................... 35,000.00 56,840.34 19,826.00 $ 111,666.34 87,261.40 Net addition to surplus....................................................................................... Deficiency in earned surplus from May 1, 1932, to December 31, 1938... $ 535,717.25 1,431,926.73 DEFICIENCY in earned surplus from May 1, 1932, to December 31, 1939--per balance sheet............................................................................ $ 896,209.53 12 CTD035719 SLOANE * BLABON CORPORATION " % DIRECTORS BROR DAHLBERG WILLIAM D. GARDNER JOHN G. GETZ, Jr. W. E. S. GRISWOLD JOHN HENRY HAMMOND HENRY J. HARTLEY HOULDER HUDGINS JOHN SLOANE M. B. WIMBER OFFICERS BROR DAHLBERG . ................................ . . Chairman the Board HOULDER HUDGINS............................... President WILLIAM A. SALE....................................... , WILLIAM C. WEIGLE . i. . . . . . . . Vice President M. B. WIMBER . . ; . . / . . Secretary and Treasurer J. W. MAHONEY ,, : . .' 1 'j.. 4 s WILUAk Of DRAiPERf^JrT :v fycrttory . &v :r: U^ssitiant Treasurer.;fj%> ' . - x<;.ii XMnptrotter " 1' - wiixiAM A:rkiNG !" . . . . S'.'.J. Auditor X\ /. - ;*K~ r Sv . At 31 'Vl r'*i:c V>A1 , 'X*- ~' n V'tM- - -!ev?V&, > t;