Document oey3MVGGLNy4KG8xGm703y7wo

FILE NAME: CertainTeed (CERT) DATE: 1963 May 9 DOC#: CERT058 DOCUMENT DESCRIPTION: Letter - CertainTeed Products Corporation h c / na 9 th Ma t 1 9 6 3 . Mr. Qatoaiui, Ccrtaln-tecd Products Corporation In aoeordaaoe with your request, Z have now t s u l n . d tiia a w y fll.i oonn.ot.d with tho sale of th. pip. plants of 1.4 M.Co. to Cortsln-tood Produots Corporation in ordor to ascertain whsthor thors was at any t1m m any nlsroprssontatlon on tho part of Certain-teed In figures submitted to u s . Thors la no writ ton swldsnoo on our files of any supplementary information supplied by Mr. Malcolm Mayor and as yon know tho transaction was completed as a rasult of several discussions with him. Z was present at one of those discussions and 1 think I an right in saying that Mr. Moyer provided a draft ef the ' report of Csrtain-tced for 1961 which shewed very satisfactory results, and there was in ffeasral an air of optimism with amrksd emphasis on tho high market value ef tho Certain-teed shares. The final audited aooounts for 1961 disolosed not Income ef 3,910,623 compared with 12,346,046 for the year i960. The net earnings wore stated to bo equivalent to (2.40 per share for 1961 compared with (O.98 per share for the previous year. According to notes dated 29th Kerch 1962 prepared by Mr. J. A. Smith, Certain-teed expected to earn 3 per share with their own business (excluding the pipe plants) in the 1962 financial year sad before long to be earning 4 per share, and presumably this information must have been provided by Mr. Meyer. To this ws estimated that Certala-teed weald odd approximately (2 ,000,000 per snwun from the operation ef tho X.* M.Co. pipe plants, and sn tho issue ef 580,000 shares this would give a return ef approxiMMtely /J.J psr share which would thus help to maintain the total profits of Certain-teed at their anticipated level. Z think it was on the basis o f tho 1961 accounts that ws originally endeavoured te obtain 800,000 shares for the pipe plants. Thors is a note ef Mr. Smith's dated 22nd January 1962 that on earnings ef 12.35 per there our pr opor tion would amount te (1,880,000 whloh compared with K.A M.Co'a aatislpated future earnings on tho pipe plants ef 2,000,000 psr annum, and ef course there would be no management problems, Zt was about this time that X was present at ono of the meetings with Mr. Moyer and it was obvious that there was no hops of receiving 800,000 shares and that he had in mind something in the region ef 600,000 shares. Prom cur point ef view this would have been equal te a price of 3 0 ,000,000 at the them existing market price cf the shares. In the event we settled for 80,000 shares and we then estimated that sn earnings ef 3 per share >ur proportion ef net profits would equal 1,740,000 on whloh we would receive an actual dividend of 348,000 at the existing dividend rate ef 60 per share, and we were evidently given te understand that there was net much likelihood ef an increase in the rate of ilvidend in the near future. As Z have indicated earlier, X think wo relied te a Largo extent on the 1961 accounts ef Certain-teed and in addition *e had a copy ef the Argus Research Corporation report on Certainteed dated 10th January 1962. Beth these deouments expressed / - 2 h i ? - 0! > confidence la the future. The annual report vaa dated 27th March 1962 and Mr. Meyer, ns President, stated that he faoed the eeslnt year vlth confidence and enthusiasm, that the ooupany was p 'eying a leading roll In the ohanging building materials construct.on eoonoery and that 1962 should add significantly to Its further growth. On the Institute for Essential Mousing (i.E.H.) It was stated that considerable progress was nade In the year 1961 and that they were confident of Increased sales and profits In 1962. The Argus report stated that la 1961 the comp any sold about 10,000 units and oonpleted and Included in profits 7,000 or so units. They projected the sale of 15,000 homes In 1962 domestically and 10,000 abroad. Neither of these expectations came to fruition and according to the 1962 aocounts of Certain-teed only 5,972 houses were completed In that year as com pared with 7,010 ecaipleted la 1961. The question adgfat be asked, "Was Mr. Meyer aware of this reduoed level of activity at the tine w e were la negotiation with hist?" Zn addition, we new knew that the c nnp aay adopted a change in accounting la 1962 relating to easterner Instalment notes received In connection with sales ef houses by I.E.H. and the further question night be a eked, "Was Mr. Meyer aware ef this possible change In accounting whilst we were In negotiation with him?* Certainly the brief quarterly reports Issued by Certala-teed for. the periods ended 51st March and 30th September 1962 (X saanet trace the June report) did net mention this natter or the reduced level ef activities ef X.B.B. The March report shewed earnings at the rate ef 0 .3 5 for the quarter compared with 0 .1 3 for the previous year, but by September 1962 the net 1mesne had fallen considerably sad net earnings were only ^1 .0 1 for the nine months compared with 1 .7 8 far the same period ef the previous year. The adjustment for the ohaaged accounting procedure appears te bave been dealt vlth la th Docceiber quarter e f 1 9 6 2 and lt waa thaa dlselosed that lf th nev beala bad been applled te th year 1961 . th figure ef preflt veuld bave been reduoed b y 1 ,3 8 7,8 3 6 and ths adJusted preflt far 1961 veuld thaa bave been equal te 1.8% per share ae eenpared vlth 0,5% earaed sa th new bacia far 1962. X thlnk there la ae deubt that had ve been baslag eur ealeulatlens en a yield la 1961 ef 1.8% ve veuld bave endeaveured te obtala aere Certsla-teed sbarca for eur K.A M.Ce. pipe pianta, but vhether v e sheuld bave been sueeessful ls amether mattar. Presumably Mr. Meyer would tell us that both the recession In the I.E.H. activities and the change in the basis ef accounting arose after the completion ef eur agreement for the sale ef the pipe plants, and under such clr siasetanaca I cannot see that we have any possibility ef re-opealag the tranaaetiea. As mentioned earlier, we have ae written evidence en our files ef any supplementary Informa tion supplied by Mr. Meyer but X obviously cannot comment on what he may have disclosed verbally at ths various meetingai la any ease Z would expect Mr. Meyer to honestly believe at that time any statements he may have made regarding the Immediate future. X trust that the above observations are sufficient for your Imet diate requirements. An additional copy is enclosed in ease you require it for submission to Mr. Seothill. . C r t j nj-ctjlJ