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HOUSTON HOME JOURNAL THURS., JULY 1, IWL
Pension Fund Faces $33 Million Crisis
Penn Dixie Cement’s Future Could
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(Editor's note: The
Home Journal Is reprinting
the following article
from the June Issue of
Forbes Magazine because
of the Impact the contents
of the article hold for many
Perryans and their
families who worked for
years for the old Penn
Dixie Cement Co. and to
those who are still working
tor Medusa Cement but
who will draw their
retirement benefits from
Penn Dixie. Penn Dixie,
which opened the plant
here In 1926 has employed
thousands of Perryans
down through the years
and many draw
retirements at this time.
Medusa bought the plant
here 5 years ago ahd has
spent several million
dollars in improvements
and has built It into one of
the leading cement plants
In the South. Medusa is
recognized as one of the
leading cement companies
in the world. However,
Penn Dixie's future, ac
cording to the Forbes
article, is not so bright
The Home Journal feels it
is Important to reprint the
Forbes article at this time
and Is doing so.)
In 1967 when Jerome
Castle, 32, took over the
venerable Penn Dixie
Cement Corp., he made no
pretense that he was
planning to turn the
cement industry on its ear.
Oh no. His target was the
world.
"Any company that
remains purely a cement
company will go
bankrupt," he said
solemnly. "We're out to
equal Xerox and Polaroid,
not Lone Star Cement." A
decade ago, that sounded
plausible, even exciting.
People believed in cor
porate miracles then.
Jerry didn't have any
Industry experience. But he
had charm, was clever
with words. He was, as
they say, an aggressive
young man.
Jerome Castle is now 41,
and Penn Dixie is in steel,
construction, aggregates,
chemicals and leasing. The
1975 annual report begins:
"Dear shareholder, 1975
was a gratifying period
as virtually all our ob
jectives were met. A
deficit was reached solely
because of the closing of
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PAGE 6-B
our obsolete Howes Cave
cement facility."
Gratifying? The loss was
$2.2 million. It would have
been $5.5 million but for an
inventory liquidation.
What the report doesn't
say is that three of Penn
Dixie's remaining plants
are as ancient as the
Howes Cave facility near
Albany, N Y.; two are in
equally bad markets. No
major modifications have
been done since Castle took
over. To be sure, Penn
Dixie has spent con
siderable sums on
maintenance cement is an
abrasive business but still
its plants are considered
slums, and its capital
expenditures have been
pretty much limited to the
pollution gear necessary to
keep going The level of
reinvestment is so low that
the company is actually
paying its deferred income
♦axes, a virtually unheard
of event in a capital in
tensive industry. "It's like
running a car without
changing the oil," says a
disgusted analyst. Penn
Dixie says it is merely
running "Bulcks, not
Cadillacs," and that it
spends enough to keep
them going
After ten years of Jerry
Castle, Penn Dixie's sales
of around S3OO million are
about four times what they
were when he took over,
but there's not much more
than that to be said for his
stewardship. Earnings for
the decade have averaged
$2.7 million less than they
were the year Castle took
over and promised to
create another Xerox. And
these are scarcely high
quality earnings at that;
the footnotes are marbled
with gains from the pur
chase of debt, insurance
payoffs and lagging
pension fund contributions.
Penn Dixie sold for a
little over $lO a share when
Castle started his bid;
today It goes for a little
over $5. The dividend last
year was less than half of
what it was in 1967. This
year's is imperiled by
agreements with banks
No. One Priority
Is this just another
wonder boy who failed to
make good? Not exactly.
Jerry Castle has done very
well It's the shareholders
who suffered
For in one respect,
Castle has not only equaled
Xerox and Polaroid- and
General Motors, Texaco
and International Business
Machines but outpaced
them. Penn-Dixie paid him
more than those com
panies paid their chief
executives last year.
The $280,632 in salary
and fees was the least of it
There were 70,000 shares of
common stock, worth
about $446,250 on the day of
issue, simply given to him.
They were to keep him
from looking for a better
job, the company said
There was a little cash
bonus of $34,600 to
celebrate the new year,
too, which this year's
proxy failed to mention.
Eight years ago, Castle
told FORBES he was
planning to outdistance
International Telephone &
Telegraph's Harold
Geneen; he just missed.
His $761,000 in cash and
stock came in just behind
the- ITT chairman's
$782,000 tor fifth place in
compensation among
American executives, by
FORBES'. reckoning But
that' wasn't all, not by a
long shot. Last year, the
board of directors casually
doubled Castle's
retirement benefits to
$140,000 a year. Then they
promptly voted to loan him
$500,000 at 4 percent in
terest, bringing his total
debt to the company to
$700,000. He certainly
didn't need rent money: he
stayed at the company's
suite at Manhattan's posh
Hampshire House when in
the city. Now throw in a
couple of bodyguards, the
company's Lockheed Jet
Star and the inestimable
expense accounts Castle
enjoys.
When you add it all up,
Jerry Castle got a good
deal more out of the
company last year than did
the shareholders. Not bad
for turning in the com
pany's worst year in
modern times. You might
say Jerry wasn't so much
working for the share
holders as he was their
senior partner. Castle's
No. Two man, Executive
Vice President Harvey
Kushner, says that all the
money was simply fair pay
for Mr. Castle's
"achievements."
(Kushner didn't do badly
himself: $375,000 or so last
year when you count his
stock) Another view: "I'm
amazed that you can do
things like that and not get
in trouble," says a friend.
He adds: "Still, it's a
public company. The
shareholders can read."
Read and, most likely,
weep. Penn Dixie is indeed
a public company, subject
to the rules of the New
York Stock Exchange, the
laws of the state of
Delaware and the U S. It
has accountants. It is, in
theory, at the mercy of its
banks. Yet Jerry Castle, at
least where his com
pensation is concerned,
operates as though he was
a law unto himself. How?
First, consider his board
of directors. Chairman,
Jerome Castle. Then there
Is Jerry Castle's first wife,
JuneM. Castle, the mother
of Jerry's children. What's
she doing on the board?
"There had been talk
about bringing a woman
onto the board," explains
Kushner. "Number
one who came to
mind was June."
Also on the board are two
Castle subordinates,
Kushner and Alfonso
(Doc) Marcelle, president
of Penn-Dixie's main
construction subsidiary.
There is also a former
Jerome Castle employee,
James C. Jacobsen, who
was Penn-Dixie's financial
vice president until taking
a similar job with
Kellwood Co. last year. To
round it out, there is Daniel
H. Eschen, one of the
group that helped Castle
take over the company.
That's it. June Castle,
Jacobsen and Eschen are
referred to as the "out
side" directors; they make
up the audit committee.
None of Castle's race
horses has yet been elected
director.
Genuine outside
directors have in the past
come and usually quickly
gone. For example,
Howard Stein, chairman of
Dreyfus Corp., was elected
last fall. ("The banks had
questioned it when June
Castle went on the board
because they didn't know
who June Castle was,"
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explains Kushner.) Stein
has resigned, though, after
his request to join June
Castle on the audit com
mittee was denied
What about the
shareholders, then? In
tact, they have little to say.
Penn Dixie stock is held by
12,400 shareholders, but
Castle appears to own
more than any others.
Last year's outright gift
of 70,000 shares brought
Castle's personal holdings
to 226,000 shares of Penn
Dixie voting stock, or
about 4.3 percent of the 5.2
million shares out
standing. There is another
57,000 shares in the Jerome
Castle Foundation; Jerry
and June are trustees.
Harvey Kushner owns
86,000 shares (30,000 of
them a gift last year, like
Castle's).
And how's this for long
range planning? Castle
and directors Kushner and
Marcelle own more than 60
percent of Penn
Dixie's senior preferred
stock, with its first dibs on
the carcass of a
bankruptcy. They issued
it, then bought it for $3.50 a
share (5 percent down!)
immediately after their
last big credit crunch.
There is something of a
mystery about the amount
of stock controlled by June
Castle. According to the
proxy, she owns only 1,040
shares. But if you listen to
Kushner, there is more to
it than that: "Her children
and her family own a good
block of stock" Oughtn't
the proxy to reflect at least
the kids' stock? we asked.
After all, they are Jerry's
children too. "I assure you
that the proxy is correct to
the best of our
knowledge," he said.
Then there is the in
teresting matter of the
pension funds. Last year's
proxy mentioned that
pension funds, of which
Jerome Castle was trustee,
owned 214,552 shares of
Penn Dixie common. This
year's proxy makes no
mention of either. What
happened? Who votes the
shares? Who owns them?
r
(th
Wil
What are they worth? fro
(Penn-Dixie's cement sip
pension funds are valued an
at cost; if half those shares trc
were bought in 1969 at up to Fif
$25 a share, the value of the aft
fund's assets could be the
vastly overstated today.) ger
Kushner's standard no
response to pK
about the pension funds for
was, "I really don't know.'*, a n<
He added: "The pension Ca:
fund is no longer under Mr Di)
Castle's control," claiming (he
that two unnamed banks per
are now trustees. Hd
At any rate, add up all tak
the stock that Jerry Castle cer
conceivably votes, and it the
comes to about 500,000 sou
shares, or close to 10 out
percent of the voting stock Hoi