Document MgJpQw1DZZB2YDXM487Gb4bM

Table of Contents 2* `'ssage to our reno'de's Chemical J Photo & Repro 2 Building Materials Internationa: t Corporate i Directors and Officers 22 Review cf Consolidated Financial mformat on 25 Summary of Significant Accounting Policies 26 Consolidated Statements of Income 27 Consolidated Statements of Changesm Financial Position 28 Consolidated Balance Sheets 30 Notes :c Consoi oatea Finance Statements 35 Aud'tors Opinion 36 GAF Products and Services 37 GAF Locations About tho cower; Tne pi'iion dollars in sales GAP achieved n 1978 covered a spectrum of high quality prod ucts The company goes to consioeraoie >engths to maintain quaiitv tor all its product lines A GAF scientist at the Wayne N J . reseamh laooratory uses a nuclear magnetic resonance spectrometer to look for impurities which could affect performance This report shows some of the other quality tests, some sopnis ucated some simple used to cneqk sales oroduc's to make sure that wnen customers Ouy from GAP whether tsa toy or a tank car of chemicals they get the oest the company can make-consistentiy 0G1A0P0-C0O12RPORATION '979 OfinieC ;r USA GAF12106 Financial Highlights Net Sales Income from Continuing Operations Incomo (Loss) from Discontinued Segments Net Income (Loss) Earnings par Common Share 1978 SI ,063,291,000 S 30,399,000 3,765.000 S 34,164,000 39* a - s 2c -?3::: $ -e Cc'v/'ur.g D scc^'^oec \e` ,#~corne:Less' S 2.01 .28 S 2.29 ; j: -viv 3"-.res D-seex^uee Ne1 income: _css i S 1.76 .21 S 1.97 S 5. 5 2 62 Cash Dividends per $hare Snare S 1.20 S .64 ^ r' ^estate; to extrude amounts aooncaaie to discern need segments-- See Note i o* Noies tc Ccmso'iaatec -marc.a S:a:ewe'" Shareholders Information The 1979 Annuel Meeting of Shareholders will be held at 10:00 a.m., Tuesday, April 24, at the Colonnade Hotel, 120 Huntington Avenue, Boston, Mass. Stock Transfer Agents and Registrars CitiDank, N A 111 Wall Street New York NY 100'5 First Jersey National Ban* One Exchange P;ace Jersey City NJC7302 GAF offers noiders o' ns common and preferred stock the opportunity to Duy additional shares trough an automatic dividend re investment servce admmstereobvCitibank na Fo'm io-< as fiiec wr re Securities anp Exchange Commission may oe obtained free o`c-arge ov/.r-img-o GAF CORPORATION i4C West 51 Street Nev.' York Nv 10020 investor Peiat'oos c-1 - n y - - . - GAF 12107 Message to our Shareholders attention in 1978 was oesigned to e'lmmate several businesses whon were eitner not p-ofitaDie lacxec profit potential or oid not mtegrate we1' with GAFs remain ing ousinesses --out not to orange tne mneren: structure of me company. m St Lou-s nao ccm.pietea some tnai 'uns by vea'-eno anc verv limited shipments were boss.c-ie Tne JO'ietiacmt, ;or autemo'-ve sound-aeadenmg paddings anc advanced mastics is aisc s:a~uo ano very nmiteo snio^ents nave begun President Philip S. Dalton and Chairman Dr. Jassa Werner In 1973. GAFsales ;rom continu ing businesses were S1 063 3 mil lion withaftertaxprofitsofS30 4 ill,or. comoarec witn 1977 sales rem continuing businesses of S919 5 million, with profits ofS26.2 m;inon (These fgures exclude act vibes o` me business forms operation wn.chisoemgsoia ) Th s 16% me'ease m earnings is particularly encojragmg in that 1977 earnings were heioeo by non-'ec-jrnng ireome totaling S3 "miio" are-taxes m '976 earnings were ceo'essed by start-ups ana reia;ea exoenses of four major "ac.i'ties eacn involving sign,hcant costs with limited offsett-"c sales Tnese had a negative moactcn 1978 earnings of apprcx-maieiy S5 million after taxes Tms impact is expected to oe muen lower in 1979 uAc 'S sun m ns tnree oasic busi'esses-chemica^ ohotc&reorc and ouiding materials Tnereoecloyment and streamlining program oegun in 1977 wmch occupied muon o` management s 2 In 1978 Chemicaiwonaw.de sales were 5248 8 million, with direct operating profits of S50 6 million These compare with S200 9 million m saies m 1977 and direct operating profits of S45 5 million The 1977 Chemical profits included receipt o` a non recurring payment of S3 7 mincn before taxes, related to a contract termination Without mat one-time payment, earnings f-om opera tions increased 21 % m 1978 Photo & Repro profits imeroved oramatically m 1978--Si 1 7 mi Ion on sales of S280 8 million compared witn S3 4 million on sales of 5244 4 million m 1977 These d'rect operating profits are the highest acnieveo for GAF s present pnotographic ana repro graphic product lines m 10years In Buiidmg Materials i978saies stood at$533 7 miilio1' an aimost 13% increase from 1977 saies of S474 2 million ^refits ncwever were S39 5 million a s.ignt aecime from l977operating orcf-!SO`S41 million ~here were tnree major new bji;dmg mater ais manufac turing operations in stan-up dur ing 1978--`nMuilingar ireiana. jonet. lit ana St Lous Me-with adoea costs wnipn nad not yet Peen offset Dy acoec proouct.on anc saies Tnese compmea to depress earnings Mowever tne new Sheet voy f'OCrm.g oiant n Ireland naa oegun ;p p-oouce -n suostantiai auantnes oy year-end ana shipments are mcreasmg Tne urethane msuiat.cn operatic'' Tnejomt-venture cnemica oia~: m Marl. West Germany wem through a smooth stan-uc anc was ooerationa- Dy mio-yea' Start-up of tne Oiant did oepress 1978 eammgs but sales anc production dunng me ast qualeof 1978 snowed sucstant.a improvement The new THF solvent manufactur ing unit at Linaen l\i j . isooe'ating very effectively Proouctcn was increased dunng the year to meet growing saies success Modifications maae a: me Texas City acetylene derivatives oiant ~ave enabled GAF to nanu'acture suDeror auanty outaneoio TneexcandedPBTfacii.iv nCa ved Cuy Ky -s n-nefma stages of stan-uc anc 'S produc -~c a^c snipping Quality c'ccuc: <r ncreasmgau3"' ty Saesa'e-smg as moi-e customers oar;cu ar-v mmea^tc -c.r. `no use (cr Gar 'e * m 'ec ac ng meta s "a-. acc -cat :rs New Belgian facility Ooe'at ens at '-e new c a*: ' Smt-N'x aas Be g ,\~-e " large measu-e resccrs 0 e v 3 r.se c`mo-etna-- 3C% ' '"e"'aticna. saies c -ra. arc zrac'~_ ans f ims pace's a-'c onctcc'ac^c cnem ca s arc a ' se c' "C'e man '5% m. V ew-Waste'" a"c Pana-vue* Dice' a c'oc-crs sses 7ns pian- nac uruse3 scare for oat o' tne vea' ''a' sc-ace nas new oeen out tce^ce- e- -se as a Eurooean c sr out c1" ce"'c iOrG9Fo.J,iC.''C"5:e'3 5 GAF 12108 Tie Bmgnamtcn N V photo graphic plant increased product-cn of continuing product lines at non auantv stancaras. througn consc-iiaation. streamlining and prccuctcnangeovers Tne com pany s grapnic arts and x-ray products oroduced mere are carving significant nicies for them selves m tnese markets, witnsaies and profits snowing rising trends. Capital investment high GAF s investment m the future continues Caoital investment was h;gn in 1977 and 1978-more tnan S50 million each year-and `979 pians can for a similar amount to be spent on such pro jects as a glass mat manufacturng facmty in Coester. S C . a roofing plant m Fontana. Calif. an over-an expansion of the com pany s mnerai granules prodjd or caoacity a THF manufac- ng operation at me |omt.emure cnenicai plant m West Germany aformaidenydepiant a: Texas C ty Tex . and a new aoetyiene derivatives piant m Seaor.f: Tex - me cegmnmg of 1978. GAF .-.as ntrans'tion Thecomoany ao earner emparkeo on a major asse' 'eaeo'oynent program. ugn wmch several Dus.-esses wojid be so-c ana ctne's C_ C oe Strengthened ' s c'ogram nas been proceed 'd o an oroehy fashion The Dart '~e program dealing with set' ? 0 sconiruea ousmesses is '-5 . comp ete The final f ^-se'ing GA= s Pusmess - oc-e^aiion 11 Sneioy -': - s m an advanced stage as ..'-G"r 3oes to Dress in all. 'i".". to m ;asn nas Peer ger; me sa.es and iiquoa- us a'plus approximately ' aeter'ea oayments As tne prices realized were some what greate' than had been ini tially estimatec. m tne third cjarter oM978.St million after taxes were taken from the reserves which had oeen established to cove' the costs of disposing of discon tinued businesses ana restored to earnings Following a review of tax benefits associated witn tne dis continued ousmesses. an addi tional benefit of S2 million was recoroed Including that Denefit and the operating income of Shelby discontinued businesses snowed after tax income of S2.5 million m tne fourth quarter, com pared with a loss of $ 13 9 million in fourtn Quarter 1977 For the year, after tax income was S3 8 million, vs a loss of S73 2 million in 1977 (See Note 1 on page 30) Lawsuit against Kodak Another signi'rcan: facte cn GAF s horizon is the company 5 antitrust suit agams: Eastman Kodak As we 'eoorted to vou tast year we are encouraged cyme federal district court 'inoing m a smiiarcase Drought agams: East man Dy Berkey Pncto me .n whicn theiuage and jury deter mined that Eastman haa voiateo antitrust laws m several ways As expected the case s De ng appealed Pretr-aiproceeamgsm GAF s case are substar- my complete ana we expect our case to be neara shortly after the federal apoeiiate coui rues on fhataDpeai m the meantime GAF is concentrating its energies on continuing improvement m its continuing ousmesses Good cash flow Tne cash realized tnroug.n the sales was used to reauce debt m fact, in thethira quarter of 1978 GAF was abie to eliminate short term domestic debt entirely Furthermore GAF s cash position was such mat the comoany was aoie to go into the shon-terni money market as a lender with tne cash surplus generating more tnan a ha'f-million dollars <n interest income The year recently endec was a gooaone wit" saes and earn ings imorovements and ooe'atio.na1 improvements But "cone at GAF ever saio at the com pany s prooiems are benmc it "There is st"t much to oe cone n product aevepoment narkei-ng and man jfacturina improvement oetcre me company acnieves its full ootentia. We oo fee icwever mat me acn-evements o' 1978 snow' mat GAF is on tie igm rad But tne ourocse of the asset rede ployment program was not merely to se'i oft discontinued ousmesses ana gene'ate casn it was to strengthen tne company's remaining oDerations and improve over-all perfo'mance Tms aspect of the prog'am pro ceeded we'i m 1978 anODy!he t.niro quarter of the year nad Peer successful enough `or the company tc increase .ts auarteny dividend on common stock from. 15c tot 7c As our 1978 earrings demonstrate this improved oer`o'manpe is continuing By Oaer r' me Boam m DrectO'S ~/ ""Jesse Wer"e' Cnairman ana Cne'Exec-t.veO'f-ce' c PnihpB Daito" Presioent aid Ch;e` Ooe'atig 0`Tcer Feor^ary 15 "9~9 3 GAF 12109 Chemical Top: Rocont modification* at Taxa* City chamicai plant enable GAF to make superior quality butanedioi. tove: Laboratory technician uses phisticated spectrometer to analyze purity of CAF acetylene derivatives. Opposite: On-the-spot visual checks are performed on a regular basis during the manufacturing process. Results (continuing) Dei-: -V"-: ig7B Ne-Sae; *248.0 D 'a:-2oe'a--2 S 50.6 5:::; S -6f When completed ms new opera tion and me fcrmaiaenyae o a^atCaivenCify Ky wmsuccv. a" fne comparv s anticipated domestic needs Wor dwide Chemical saies were S248 8 million, jc 24cc from 1977 levels of S200 9 mill.on Ooe'atmg profits for 1978 were S50.6 million compared with S45.5 million r 1977, an increase of 110 in the U S . results were encouraging, with sales jd sig nificantly anc profits almost the same as m 1977 That year s results, however, included a one time payment to GAF of S3.7 mil lion before taxes from a contract termination International chemi cal sales ano profits were sig nificantly ahead of 1977 European plant on line The company s |omt-venture acetyiene-based cnemtcais plant m West Germany completed its start-up pnase ana'S now fully operational Saiesof outanedici being manufactured mere are increasing Butanedioi is a basic cuidmg block for GAF s entire family o' acetylene dervat ves it is sola to cmer companies as wen who use it to maxe n:gn Qua ity ocuvuremanes and polyesters Already a ieao rg producer o` Dutaneaic. GAF is taking several steps to remforce 'ts position Modifications made Cu'ing `978 at me Texas Cty o.an; nave enabled GAF to make a superior Qua ty cf Dutanecoi' A-scat Texas C ty ccnsi'uctic" Dega^ on a new- fcrmaiaenyde manJactu'mg faemty GAF now curcnases the `ormaicehyae neeaea to make butanedioi at Texas C tv Tne company announcec m ear y 1979 mat it would cuhc a new acetyiene dervatwes msnufacturmg plant m Sead'if: "ex ~c Supply this facility aiong-ter^contract has been signed wir a vendor to fumisn acetyiene at favorable prices ensuring rawmaterials needed `or future growth Manufacturing capacity to' 'H^ (tet'anydrofuran) solvent maoe at Linden N.J increased approx imately 750 dunng 1978 Saies o( this recently added Droduct a butanedioi aenvat ve nave been very strong Although GAF nas been making THF in commercial tuantties `or only two years stan za costs have been offset ana tne p'Oduct was selling at a prom oy mia-year weiiah.eacof r-naiiy estimateo scheauies Toncrease manufac: jr.ng capacity fO' 7HF Stn f^me' a new THF manufac turing oDe'aticn -s being aoaec to me loint-ventjre fac-itv ,n West German., THF soivent -s used n makncvr'-, oroducts magne-: taoe ana ;s a oase mg'seem n PVC cemem Engineering plastic Gave ` 3BT :cc vOutviene te'eontraiatei GAF s f 'st engi neering rnermop.astic saisc butaned'O oasec Amore`iex.C'e 3'=ae was .-t'oaucea anc usee as: yea' for automocne eiecmca. ccnnecto's New lawwarp graaes are oemc o`ferea as we ~ne company is rei3!-/e.y new in fh's market, win cs Ca venCi'y /-< P3~ mar.ufactur-ng ooe'BiV' r oroaucticn`o'one year ana me p'oauct s stu m `ne es'iy stages c Customer evaluation Sa.es .n I  9?5 were encouragmg anc the comoanv foresees a sound futu-e `ortrvs ime Modifications a: tne Cawen C ty plant Begun m ` 978 wii when conpietec substan tia ly improve GAF s proouCtion capacity forthis plastic Other butanedioi-based GAF cnemicais continued to sell well Sales of 5L01 (butyroiactonej solvent rose substant ally m 1978 Used as an inte-mediate and as a solvent in agricultural ana otner cnemicais. BLO solvent is particuiariy attractive in agricultural formulations asanas a US Envi ronmental Protection Agency exemption M*Pyrol - solvent sales up M-Pyrol* (methylpyrroiidone) sol vent is another important GAF chemical based on butanedioi in addition to uses witn vinyls, acry lics anc uretnanes. M-Pyroi sol vent is used r petroleum refining during lube oil extraction The ris ing sales trend experienced m 1977 continued in 1978 The company's PVP (polyvmypyrroiidone) copolymers sola wei; ml978 matcnmg 1977results. PVP has many applications m tne cosmetics ana pnarmaceutica'S ndustnes One of tne copoly mers Poiyc*ar! adsorbent, is used by wine, beer and fru:t juice manufacturers as a cianfier ano stabilizer GantrezT copolymers have a oroad range of applications from nairspray resins to anti-spottmg ingredients m disnwasher detergents Saies wem above 1977's record leve's. largely due to increased hairspray utilization Gantrez resins adapted we'i m tne transition from fluorocarbonpasec sprays to manua1 pumps and cther aerosols now used cy the cosmetics mdusty In other areas promising new 6 produc:s were aaoea to GAF s soecia.ty cnem ca:s anc suhactants GAP specialty cnemicais are used as antoxidants seauestrants icaopno's fiame retaraants and textile auxiliaries Surfactants are used m detergents, paints ana other applications Sales were up significantly m these areas, although profits were restrained by raw material price increases These markets are highly com petitive and tne company was not aoietopassa increased costs along to its customers Chemical* ~ce,,'e_'S Ze- .5' P; .--e-s S Cr-cr.';Mo~c~e-s C^.;r-or; Sc .e^:s Soec a\ C^e-- ca s S_,ia::ar:s 'eii-e ca s Engineering mastic* p5~ T"er~>OD as: ;Vcc-:Coc ..- c; Mineral Product* Gase' -- c Vaia- a s M*a.r-gs-a:-eG'\-cas^ees-cc""r Styrene-outadiene latex also finds its major uses m very competitive price sensTve markets. With a new latex for non-woven prod ucts. introduced m late 1978, GAF hopes to compete effectively against expensive acrylic latices in a number of applications Initial market reaction has been good GAP s penetration of the paper industry, where lances are used as coatings improved ir 1978 GAF's agricultural chemicals enjoyed solid sales growth r 1978 Recovering ;rom low sales m I977ana 1976. chemicals which GAF manufactures for others unaer private laoe1 arrangements soid well in 1978 Sales ofCeoha* piantgrowtn reguiator. a product GAF markets which is used to ripen crops sue1' as tomatoes remained at 1977 leve'S GAF cct njes to synthe size new Drocucts ano exoerment with various agricultural applications and management sees good potent,a ~ ;ns mar*e- Mineral granules rising Tne company r.as emoarkeo on a program to increase mirera1 granule manutacturmg capacity to keep pace witn rising saies volume Tnese granules are used Above: Precise color blending of mineral granules for roofing is first performed in lab, then transferred to manufacturing to enauro prod uct uniformity. Dy tne r00fing industry' to ma.nu- tacture singles GAFnascmnu'e oroouction facilities in New Jersey. Pennsylvania. Missou'' a no W'isconsir Opposite: Now agricultural chemi cal formulations undergo rigorous testing by independent researchers prior to becoming products. Here, light and heat levels are measured in controlled greenhouse riments. GAF 12112 I Photo & Repro Top: Film manufacturing procasa it carafully monitored by complan instrumentation on a second bysecond, foot-by-foot basis to assure duality and uniformity of the flint's sensitised surface. Above: Randomly selected sam ples of diaio microfilm from ovary batch made receive visual Inspec tion in addition to Instrument cheeks conducted throughout manufacturing. Opposite: Densitometer is used in duality check of x-ray film. Numerous precise criteria must be met before film is fudged acceptable. 8 0 J " j tt u 7 C i 9 FUsott* {contimjtog) CC"3'S r M crs 1978 Set Saie; $280.8 j.reei Ose'ai r-~ P-om 8 11.7 '9" SZ-u S 34 in 1978. GAFs worldwide Photo & ReDro operations attained sales of $280.8 million, up 15% from 1977 sales of S244.4 million, and recorded the highest direct ooeratmg profit in lOyears$ 11.7 million These earnings were almost 250% higner than 1977 profits of S3.4 million The figures for both years exclude GAF's business forms operation, wnichis being sold. The Photo & Repro segment was the GAF area most heavily affected by the asset redeploy ment program Progressing from low direct operating profits m 1976 and slightly better earn rgs m 1977, Photo & Repro made an appreciable contribution to tre company s profits in 1978 Strong growth potential These earnings result from GAF s concentration on product lines with strength and sod potential g rowth The company s Gafmeo! line of x-ray film, processing cnemica's. cassettes intensifying sc reens and other hardware is a case m point. Tne line now in cludes state-of-tne-art products sucnasSR land SR 2 x-ray films SR 1 film is designed for wioe latitude medical radiography This film has unusual contrast characteristics, whicn enable it to snow greater detail in low density areas bemg stuaied. such as soft t'ssue SR 2 is a general purpose x-ray fnm Because of consiae'abie manufacturing and design refinements, both films are less expensive to produce than tne GAF fiirns tney replace The Gafmed-' x-ray products .-e increased m sa'es m 1976 ano snowed significantly nigner Drr ; tnan nad been reacned oefore During the year hardware mar_factur.ng was moved from Brooklyn.NY andconso'catec in Binghamton. N Y N*w x-ray customers On the marketing side new accounts were secured, mciuc -g some of the country s iarger mec" ical centers and hospitals Seve-a new customers, including maior hospitals and cimics navebeen gained internationally as wef m the summer. GAF launched a major medical x-ray advertising campaign, which has Deen effec tive in the radiological marketcace Quality imorovements and new product offerings m GAF s Gafnate* and Gaftype'' grapmc ans products led to significantly higner sales volumes anc improved profits These turns papers and chemicals serve tne printing industry Gaftype prod ucts are used n phototypesetting Gafmate products are used m preparatory stages of various printing processes. Botr :mes a'e gaming me'eased acceDta-ce ov newsoaoe's comnerca1 crime's ancotrer Duoi'sners Domestc aemarc -as cee- strong, as nave saies m Europe Gaftype'" S Dnototybesetting paper was intro duced ,n SeptemDer and ras aireaav made a piace 'or itseif n the ma_Ket Diazo eauicment. usea oy engineers and archtects to recroduce plans aisodid wen m 19*8 wit- sales ud substantially m oc:" tne LJ S ana Internationa markets in paTcuiar, the Prmt v'acr t90d.,azoor,nter asmai unit designee for satehte aiazo ccerstions m oecenranzed oh'ces nas GAF 12114 I i Building fUlutti iDoi'afS m Vigors) Nei Saies D'-eci CDe'a!"-g 'cf' : -dss oe'6'3 1976 9533.7 9 39.S 9" S-mj 2 S ! 0 are snowing strong growth oa-HCulahy Ih warm cm-ates 'A"ere tne increased d mens ona stac tty of giass-oaseo shmg,es soa-ticulany desirapie Building Materials sales, world wide. rose to S533 7 million in 1978. an increase of almost 13% from 1977 sales of S474.2 million Operating profits were $39.5 mil lion, compared withS4l 0 million in 1977. GAF is the largest manufacturer of asphalt roofing in tne United States. The company's roofing products business benefits from high housing starts--more than two million starts were reported in 1978 But it also benefits from remodeling and renovation pro tects. which generally rise when housing starts decline GAF esti mates that roughly 70% of its mofing goes into renovations wim the remainder to new construction Industry analysts predict that Americans will spend almost S38 billion on home repairs ana renovations in 1979 Top: To oom Underwriter* rating for thinglot, wood it tot on ftro on sample roof. Results are inspected for damage. Middle: Vanguard' vinyl siding is inspected for grain, warp, interlock. Above: In wear tost, shingles are rubbed with steel brushes to make sure mineral granules are bonded securely to surface. Opposite: Roofing shingles are lab tasted for reslstanca to sun, heat, to tee how shingles stand up In tropics. Lamps will heat surface to 200F. Thermometer tolls taster when temperature Is reached. Testing continues for weeks. 12 Roofing strong Led by excellent sa'es of Timberline1 shingles, an attrac tive premi jm quality oroduct line roofing sales and profits ,n 1978 rose almost 20% above the strong performance achieved in 1977 Higher sales volumes and price increases completely offset increased manufacturing costs when were largely attributable to increased costs of asphalt, a petroieum product GAF is increasing its capacity to manufacture giass-mat-based roofing These sningies and rot roofing use substantially less asohait tnan more tradmona organic-felt-based products and The company anno^rcec n :a:a 1978 it wouia ouiic ts own oem manufacture fiberglass me- Chester. S C Grouno was c'c^eforthisnewtaci.ity mea' v "979 and construction has cegun G-7 already manufactures giass-mat shingles using purchased mat = its Mobile Ala anaTamoa Fa facilities, and is bunding a new plant in Fontana Canf when w: make glass-basea roofing `or re West Coast market This wm be tne company s first roofing pian: west of the Rockies. Funner cians call for glass-mat roofing to oe made at other GAF plants as we Built-up roofing rising Built-up roofing for the commer cial industrial market also did we I in 1978 From tne colorjms m the mid-70s th.s type of const-jction began gaming m 1977 with tne trena continuing through 1978 GAF s systems approach to ma'ketmg its proejet line tnrouen which the company offers v-rtua iy everything required `or tne co^oietec built-up roof nasceneHted the sales effon GAF is the secona-iarges; manu facturer of floor me m tne Untea States, and is amorg tne ieaoers Ih sheet v hyl flooring Floor i`ie saies 'oseaimos; tOcc m 1978as a resuit of product ime excans.cns and proe mcreases GAFs Brite-Bondfiocr tile sroweo par ticular sates strength auetca large selection of coiors patterns and its 'no-wax 'u'ethane-su'face wear layer Worldwide sheet viny' fioor,ng sales were up signtiy to' me yeS' GAF 12118 I w.rh profits off Oue to toe aosorptior of trie costs of bringing the new plant in Mutimgar Ireland, into production This factory man ufactures vinyl flooring in metric wicths for European consump tion The plant became opera tional in the latter part of the year U.S. sheet vinyl up In the United States, sheet vinyl profits were sharply higher than in 1977 A new product line. Gafstar* 6700 series sheet vinyl tioonng with super vinyl surface" (SVS). was introduced during the summer, and was well received SVSis a new wear layer which gives maximum durability with a minimum of maintenance On the production side. GAF is investing approximately $2.5 million in a new. highly efficient materials handling system tor the Whitehall. Pa., sheet vinyl manu facturing plant. Siding sales and earnings were off for tne year as a result of GAF's announcement that it would no longer offer Strataiite* siding, which contains mineral fiber The company s mineral fiber, cement products, used primarily as filler for cooimg towers, are being dis continued as well Sales of Vanguard vinyl siding were approximately the same as those achievedm 1977 Ineariyl979 GAF began manufacturing vinyl tnm ana accessories used with th's proauct ime Recent industry pncmg shifts have made Vanguard vinyl siding much more competitive witn aluminum siding, enhancing the 1979 sales outlook. The building materials industry has grown increasingly technol ogy oriented. and GAF's Gaftemp polyurethane insulation is a case in point Designed for use on roof decks and similar applications, one of the products in the line features a composite unit of polyurethane and perlite chemi 14 cally Ponoed to prevent aeiamination Tms combination of materials gives the roof insulation the excellent insulating properties of polyurethane and the fire resis tance of perlite Manufactured m 3' x 4' sheets Gaftemp polyure thane insulation is easily installed as well Other products m the Gaftemp insulation line include ail-urethane insulation sheets and all-perlite sheets. GAF introduced a new line of fasteners in 1978 to facilitate installation of these sheets. Insulation plant The company s new manufactur ing operation for Gaftemp insula tion at the St. Louis facility went into start-up production in the fourth quarter of 1978. Sales of automotive productssound-deadening paddings and advanced mastics-were approximately even with 1977 levels. Older lines are being phased out to make way for more advanced products from tne company's new manufacturing operations in Joliet. Ill. and start up delays at that facility impaired sales and seriously affected earn ings. Sales rose m the second half of the year as GAF products were incorporated m 1979 model cars 0 l-0P07dd5 GAF 12120 Floor Product* Adhesive-oacvec - oc- ' 'e Aanes.ves S n. e's Ftoof ng Fe1* installation TcC'S Res-neni F`oof t *e Seam Fusing SvS'e-- Sheet Vinyi Foots unoenaymem Vmyi Cove Base Insulation Products Buiomg tnsu anon Fastener System floof msuiaticRoofing Products Asonatt Sningies Butt-jo Rooimg Matenais Coatings & Piast-c Ceme-iis Roll Rooting SWing Products Decorative Shutters Vinyl Siding Vinyl Soft! & Fascia Sysiems Automotive Products Automonve Souno-deaaenmg & Insulation Prooucts Top: Tonsil* strength of shoot vinyl flooring sample is measured to ansure that OAF hoof will stand up to years of household wear and tear. Above: Floor tlio is chocked against standard sample for color, pattern uniformity. Opposite: Quality of products can not bo maintained by sophis ticated Instrumentation alono. With oid-worM skill, engravor Inspects rotogravure printing cylinder which will bo used in making flooring. i International International sales of GAF prod ucts to customers worldwide were $216 7 million m 1978, an increase Of 23% from $176 3 mil lion m 1977 (these figures are included m the results of the three worldwide sales groupings) Tnese saies include goods pro duced in the United States and exponed. as well as products manufactured in otner countries Some of the sales increase resulted from translating foreign sales into U S. dollars Foreign exchange results GAF was exposed to substantial foreign exchange losses arising from the weakness of tne U. S. dollar in 1978. but was able to off set most of these through its pro gram of investing in foreign currencies The company 's after tax foreign exchange loss m 1978 was approximately $800,000. compared with gams of approx imately $100,000 in 1977 While exports of GAF products made m the U S. A exceeded 1977 levels, the upward trend in exports to Europe experienced m recent years may begin to dimm ish as GAF's new European man ufacturing facilities fill an increasing pan of overseas demand The new acetylene-based chemi cals facility in Marl, West Germany, a joint venture with Chemische Werke Huls. went through an orderly stan-up phase and is pro ducing butanedioi of excellent Quality The plant is now opera tional. and sales of its products are rising In early 1979. the jomiventure company announced tnat it would add to the Mari plant, building a THF (tetrahydrofuran) production facility there. GAF exported THF from tne United States in 1978 With demand increasing steadily in tne U S European production is needed to fill locai needs The new facility in Smt-Niklaas. Belgium. >s now fully occupied The plant s primary functions are manufacturing View-Master1 viewers and reels. Pana-Vue! slides and viewers and other hardware, converting and pack aging x-ray and graphic arts films, formulating photographic chemi cals for x-ray ano graphic arts processing, and other manufac turing operations. In early 1979. Smt-Niklaas also became a central distribution and ware housing point for GAF building materials in Europe Specifically, some of the sheet vinyl flooring manufactured at the new plant m Mullingar. Ireland, is being c stributed on the Continent through Smt-Niklaas. New plant-new business When GAF entered the start-up phase of the Mullingar plant, more was involved than getting a fac tory up ano running Not only were there a significant number of tech nological changes, but the com pany was. in fact, entering a new business--metric width sheet vinyl flooring This required a number of tnmgs to be done on the marketing side, such as creat ing new sample books and in store display racks, new prochures and other promotional materials m several languages, and hiring and training sales per sonnel Also, considerable design effort went into creating products for the new market, where style ana coior preferences are dif ferent from those m the United States Significant expenses were incurred in accomplishing tnese goals as well as the costs of bringing the new facto'y on stream The plant is now prcc.; mg hign-quality products however and customer orae's are rising Sates increases Significant sales increases we-e achieved m 1978 m severa' pxc uct areas International sales of View-Master1 viewers ana ree s and Pana-VueJ pictorial procuc; were up more than 15% for tne year, with particular strength i.the United Kingdom X-ray ano graphic arts products sa'es increased more than 30% with significant sales gams in Belgium and West Germany Sales of reprographic equipment ana supplies rose more than 20% Significant gams were made <n international sales of diazo equ.pment in Australia. New Zeaiana and m the United Kingdom Tne company manufactures diazo products m the United States and in the Netherlands. Great Britan Australia ana Greece. Chemical sales internationally were up more than 30% Budding materials sales were off approximately 10% for the year larger/ as a result of the Mullingar stan-up In the closing months of 1978. however building matena's saies were almost 30% higher than 1977 monthly levels GAF 12122 16 Corporate Research and Development The company s research and development efforts <n 1978 were aivided between developing new products and improving manu facturing processes Anumoerof noteworthy successes we'e achieved in both areas p In flooring. GAF introduced a high performance, vinyl wear layer with significantly increased durability anc stain resistance This has been incorporated m the com pany's new GafstarJ 6700 series sheet vinyl Also in the flooring area. GAF mtroduceo a vinyl floor tile con taining no mmera1' fiber This prod uct wmch is competitive with conventional tile, helps the com pany compete m areas where mmerai fiber usage is restricted. = Tne company's roofing lines were expanoed witn giass-basec cap sneet and plying membranes for not-mopped built-up roofing sys tems Work continued on ooiyuretnane roof insulation some of wnich is now being marketed. a orocess to manufacture a pre mium asphalt roofing shingle with jnpue styling was developed in '976as wet o Supporting Cnemicai operations a new. computer-oased produc tion control system was devised and is m use at the Texas Oty piant. assuring higher yields of superiorauaiity butanedioi The researcn and development aepartment also neiped expand THF manufacturing capacity at the Linden. N J . plant Process improvements were also maoe m surfactant manufacturing 3 Low warp and fire retardant grades of Gafite1 PBT were created and introduced m 1978 and early 1979 Certain Gafite PBT resms were demonstrated to comply with FDA requirements for food packaging o New specialty chemica's were developed, with possible appli cations m agricultural chemica neavy-duty liquid detergents detergent pars ano luor.cants o A new family of latces for use as non-woven binders and oressuresensitive adhesives is oemg introduced c A new x-ray film for wide latitude medicai radiography Gafmed* SR 1 was mtroduceo and has gamed market acceptance The film nas supenor r aoiograpnc qualities yet is less expensive '0 manufacture tnar tne omduct it replaces New films for meaentai and podiatr.c x-ray markets were aiso introauceo m 1978 Improve ments .vere maoe m GAF s Gafmeo" <-ray orocessmg enemies s as wet' - in the reprographics area GAF has deve'ooed new pcivmer sro aiazocnemismes wnipr `cro" me basis of a new line of coiveste' intermediates with exceptional resistance to ye'iowmg A'sc a new. imaging oie'ect'ic film ,$ under development dGafline^^diazomicofum a new product designeo soecifcally for duplicating compute' output microfilm was introduced m 1978 The film offers intense Diackimagecoior nighdensTy and contras: nigrsoeedana wide development temperature latitude Commercial Development Tne commercial development department is responsible for new venture analysis. marKet research, economic evaluation, acquisitions, negotiating the sales of GAF s discontinued ousinesses and market development of new products from the com pany's research labs In 1978. the department nego tiated and implemented the saies of many of the businesses wmch were discontinued through GAF s asset redeployment program, announced m 1977 Five sig nificant sales were concluded successfully during the year, pin ing one which closed in 1977 involved were dyestuffs, felts and filters, photofinishing, a regional industrial chemical distribution operation (1977). mineral board siding and photoresists. Engineering Services As governmental regulation grows increasingly complex and all-inclusive, the engineering ser vices department must spend more and more of its time and effort gathering information for federal, state and local agencies Data on more than 1100 GAFmanufactured chemicals were collected, filed and transmitted to the Environmental Protection Agency aione in 1978. to satisfy requirements of the Toxic Sub stances Control Act. All GAF trademarked chemicals were also reported to EPA for listing in the inventory the agency is creating Also to comply with the Toxic Sub stances Control Act, a corporate policy was developed and imple mented covering the reporting of any perceived substantial risks. In addition, in compliance with the Federal Occupational Safety and Health Act. surveys and monitor ing operations were earned out at ail domestic GAF facilities, cover ing air contaminants, asbestos, silica, nuisance dusts, noise, heat stress, vinyl chloride monomer, gasses, mists and fumes. Oil spill prevention control and counter measure plans, also federally required, are now m operation at 33 GAF manufacturing facilities The net result of all these studies is the finding that GAF is either already in compliance, or has acceptable programs under way to bring the company into com pliance in the near future, with all applicable environmental and/or safety reduirements It is signifi cant that GAF s on-the-job injury rate is lower than the national manufacturing average, as well On the industrial engineering side, energy conservation pro grams nave been implemented throughout the corporation which have resulted in significant sa. mgs According to a recent es-mate, compared with a feoe-a suggested 1972 base GAF saved enough energy last yea- . light nearly ail the nouses m America for two weeks During the year, a maintenance engineering department was established to improve main tenance operations wherevepossible Preliminary audits of several plants have been maae and a maintenance manageme'manual applicable to aii plants .s being prepared Since GAF began an acce:eraiec pollution control program in 1965 more than $57 million has been invested m environmentally oriented programs Purchasing Raw material costs crept upwarc slowly during the first eight months of 1978, but sharper increases occurred m the final tour months. Several multi-year contracts were negotiated during the year which will ease the impact of the inflationary spiral to some extent m 1979 Asphalt, used in the manufacture of roofing, and silver, used m man ufacturing liim. are two critical raw materials subject to consioeraDie price escalations Asphalt costs i# GAF 12124 I increased gradually during rne year wmie silver prices ciimoed sharDiy in late 1978 ana early 1979 GAF is endeavoring to controi inese exDenses by monitoring requirements and by careful planning of purchases Marketing Services Consumer advertising in 1978 involved a coordinated print and television campaign, while indus trial products advertising was concentrated in business and trade publications GAF s advertising and collateral materials won several design and readership awards during the year. WNCN's Keynote Magazine was cited by tne American Insti tute of Graphic Arts. The New York Ar; Directors' Club and Art Direc tion Magazine Four readership awards were earned by print advertisements for GAF s chemi cals and reprographic equip ment. In addition, the GAF logo was featured m tne book,' Inter national Trademark Design. and the company s tank truck fleet identity program was honored by tne Private Carrier Conference of the American Trucking Association in December. GAF announced that it had selected a new adver tising agency. Scaii. McCabe and Stoves, for the company s consumer advertising. WNCN GaF's FM classical music broad casting station WNCN, continued to draw favorable attention to the company with arvcies m major Publications and recognition by the Arts and Business Council wnich granted WNCN its Encore award Advertising revenues 'creased on a substantial upward trend A mapr advertising rate increase was instituted during the year without any negative effect on advertising volume As the station wins greater recognition as a means of access to the New York metropolitan area s upper income population, further revenue gams are anticipated. Several advertisers including retailers, international airlines automobile companies and cos metics manufacturers are adding WNCN to the media they use as a way of targeting their messages to an audience with a hign levei of influence and disposable income These companies had typically been advertising in more genera, media, and now perceive a way through WNCN to reach a seiect audience in the nation s larges; market Personnel At year-end 1978 GAF employed 16.179 people, of whom 12 982 work m the Unitea States Mcre than 7,000 of these em ployees are represented by 66 un.cn locals, with which stable relations were maintained, with no time lost due to GAF labo- disputes Twenty-four labor contracts were negotiated ar out s * m- yearpenoos Terms 'eac'-ec compared favoraciv wm semements reached ov ctnercom. panies Four NLRB e'ect cos were held, with a union gaining reemsentationm one case unio representation voted cow" - me orner three Total employment of mmorty group members ai GAF increased slightly our ng 1978 re 16% of the company s worxforce Women m saies ana professions, positions rose more than 6o m addition more than 600 Vietnam veterans were nired The GAF Salariea Employees Retirement Rian was improved m 1978. including making it nencontnbutory Approximately 3.000 employees received refund Checks representing prior con tributions. totaling more than S6 million Also, m an effort to reduce hiring costs ana ennance recruit ing efforts a orogram was begun to reward employees who refer successful candidates for salaried jobs at GAF GAF 12125 19 I Review of Consolidated Financial Information Schedule of Business Segment* end Summery of Operation* Dollars if. M. !0"C vea' Enaeo Decemce' 31 1978 197-r 1976 *975 1974 '9'n Sc>6S C^err\icaLess iniergro,,D Saies ' \e: Cnemcai Pnoio & Recro Building Materials Consolidated Saies CcstoiP'cducisScic D rec: Operating Expenses Direct Operating Profit" ' Cnemica1 P'-oto & Reprc Bu'icmg Matenais Total Coroorate Exoenses interest Other"" ncome `romConnnuingOperations Before income Taxes income Taxes income fromCcnnrumg Operations ncome fLosst from Discontinued Segments Net of income Taxes Net income iLcss) icentif.apie Assets Cnemica Rholo a Repro Bunding Materials Corporate 4 ssets ol Discontinued Segments Total Assets $ 281.0 32.2 248.8 280.8 533.7 1 ,063.3 768.9 195.6 50.6 11.7 39.5 101.8 18.7 27.4 55.7 25.3 30.4 3.8 5 34.2 $ 163.4 241.6 298.3 61.8 22.4 $ 785.3 S226 A 25 5 200 9 244 4 474 2 9"9 5 665 3 164 3 45 5 34 41 C 89 9 20 4 21 3 48 2 22 0 26 2 (73 2) S (47 0) $1432 243 6 242 6 61 3 7: 7 $762 4 S2-3 0 22 i 190 9 2182 421 7 830.8 592 2 1520 Si98 ' 20 9 '7' 2 202 i 372 3 751 6 5179 136 7 S187 i 20 0 167 ' i96 5 360 6 724 2 498 7 131 4 S'50; 3 2 *2~ 1 04 3C3 4 60S 7 4'0r `12- 41 0 14 44 2 86 6 42 3 67 46 0 97 0 45 6. 59 Y , 42 6 94 1 `* 5 36 2 S' S 17 1 21 3 48 2 20 0 28 2 i8 5) 5 '97 5'92 5 - 326 9 ' 205 6 52 4 -- S777 J 176 178 172 ' . 21 3 13 1 57 62 2 23 9 38 3 54 5 23 8 30 7 (7 4) . (2 2) S 3C9 . S 28 5 60 0 26 8 33 2 (M) S 3i 8 S181 ' -297 7 - 187 8 66 2 -- S732 8 .Si 75 2 3-9? 181 4 45 9 -- S722 2 S'79 4 ` 262 7 1575 4C4 -- S64C 0 Aacit'ons to Propeay. Plant and Equipment Cnem cai Dnoto& Repro Bunding Mater:ais Corporate $ 8.5 9.0 32.4 1.2 S 129 'i 0 278 6 S 12 7 168 *77' 14 Cl -- '5 0 i a S 90 ip 7 16 ' 25 S 38 B0 2 2i Total Depreciation Chemical Photo & Rep'o Bunding Materials Corporate Total $ 51.1 S 6.4 7.6 9.6 1.4 s 27.0 S 52 3 S 80 7g 64 i2 S 25 6 S 48 6 S 79 64 85 13 S 24 0 5 3o0 S 57 66 85 S 21 _9_ S 39 3 s 54 67 6' S 21 3 5 259 S 5J 70 74 _8 c 20 6 Siaiemeni ol income information is presented SO as 10 segregate continuing Irom discontinued ocerat'Ons tor at oe'icos Balance sneet amounts oenam-nc to yea's oetce '977 nave no: oeen restated to separate^ x~' !> amounts appi.cab.e to a scontmuea segments SeeNo'e i ofNotestoConsoi'datee-inanc.a Statements nte'grouD saies are recoraeo at tne same prices cnarged io unafi.tiatedCwStome'S inre'grouc sares to' me Or'0io& Reproano Bu-iamg Materials g'ouos ve'e negligible Roreign ecnange previously mcijoeo m o:'eci operat.ng profits has Deen rec.assitieo to Corporate E*oe"sesOme' for an penocs GAF12126 22 Management's Discussion and Analysis of Summary of Operations T~e Summary ot Operat-ons 'S presented so as to segregate continuing `'om discontinued operations (or an oeroas tne results of tne discontinued businesses a'e shown separate-/ (See Note ' on page 30: 1S78 Compared with 1977-Continuing Businesses Consolidates sales increased Si43 8m.won t 16%ion gams n eacn of tne worldwide product saies groups Cnemica' saes increased $47.9 million (24o) pnmarly on .ne'easea volume in acetylene specialty and agricultural cnemicats The ncrease m Photo & ReDro sales was S36 4 muiion 115%) as a result ot volume increases n the industrial proto anc tre reprog'aphic product lines and to a lesser extent because c` price increases and translation of foreign sa.es into United States dollars For Bunding Materials improved sates of tne rooting product line .due mostly to once out a.so to voiume increases more man offset a decline m mineral f-oer products to provide a $59 5 million (13%) gam M>nera fioer activities ate being terminated Direct operating profit imptovedS11 9million t l3o) wim gams m Chemical and Photo & Repro sugntiy offset Cy Bunding Materials Chemical profits were S5 f million 111 %t anead ot 1977 tne 1977 profit mciuded a gam of $3 7 mllion on a con tract termination Higher profits were reported m most cnemi. cai oroduct imes but especially in the agr.cuiturai specialty ana acetylene areas The improvement reflects increased unit volume wnich was partially offset by cost increases whicn because of comoet.tive pressures, were not tut'y oassed tnrougn to selling prices The direct ooe'atmg prof-t of Photo & Reoro increased $8.3 million (244% ion increased volume anc improved manufacturing eff.c.ences Buitamg Materials esults were down SI .5 million 14%) due to stan -up expenses of new operations a sheet vny1 Diant m Ireland an automotive oaoding ano advanced masnc faculty and a polyurethane insulation plant Phase-out expenses incurred n terminal ng mineral fiber activities a:so curtailed Bui.dmg Materials orof/ts interest expense decreased S i 7 miiion (8 % i primarily as a result of reduced snon-term dect Otne'general corporate exoenses increased $6 1 mi'lior ;29%) Tne increase'ef|ectsmfiationary pressures tne non recurrence of $2 2 million of 1977 income from settlement ot a lawsuit concerning a cnionne caustic plant fernery owned ov me company the aosenceof any executive incentive com pensation m 19T7 and Dte-tax gams du'mg 1977 or. the sale of seve'ai properties and an investment -offset ov increased pre-tax foreign exchange gams (See Note 3 on Page 32) increased income taxes are proportionate :c the change m pre-tax eammgs 1977 Compared with 1976--Continuing Business** Consolidated sales increased $88 7 mnion i ii%)witn nigr,er saies m an worldwide product saies grouos caused mostly Cy volume and. to a iesser extent, higher semng prices Cnemica: saies growth of $10 0 million (5%: -effected 'morovemem n most mapr produc: imes. offset Dy a sharp aecnne t the saies o1 agr cuifurai cnemicais Tnemapr contnoutors to tre growtn -n Proto A Peo'Q b`S26 2m-i ion ' 12%) were 'ecco'sc".; ard moust',a1 proto products mcreasea saes r-oc"; products was tneor,mary cause for "'-e S52 5 ~ < or' - :2;; gam m Building Materials Direct ooerating prc'it improved S3 3 "ni.iion :J=; ' Chemical ano PhotoS Reoro Djuihiowe'eanm' c mg MatenaiS Chemical profits (inciud'nc a S3 7 m rc;- trac: termination payment) were S4 5 n. on: i '% a-eac c 1976 Hignerearnmgs m most of GAP s cnemica cmC-CU we'e mooe'ated oy tne decline -n me ag'icutura c~em>ca area and by higne' manufacturing costs wr c~ were za~ . caused by weatne'-reatec production p-oDems n--e- =' Quarte' Tne direct operating pro'it of Photo S Rec'c ^ceased S2 0 million (143%1 argey due tc nigner volume jt -ec-c- graphic products offset Dy decreases m View-Maste-' p-ocoCts Bunding Materials profits were off S3 2 mi tor : 7c i == a result o'me severewmtet anc higne' manufactur ng and -aw material costs for roofing anc ftoc'ing products Also s:a--'-p expenses at the Irish sneet vinv oiant namce'ed col ts interest increased $3 3 million (1901 due toa nigne- ieve cr debt and ngner nte'est rates Otne' gerem corporate expenses we-e constant inceasec regal tees -e s'eo to me Eastman Kodax 'awsuit and "O'ma cost increases were offset ov a ravoraoie settlement c1 a awsu t(S2 2- cm and by a tavoraoiesw ng m c'e-ia< toreig'1 exchange results Tne annuale`:ec'.-ve ncone tax 'ate of 45 6% was nig-'e' - ar tne 1976rate pr.ncicai\ due loan mcease m, me iceg" tacomponent Prior Y*ars in '975 54 0 mnio"' non-'axaote ga-n was reai'zec on re sa-e ot technology to me c-em-cai ion' ventu-e 3e"-.an m 1974 a pre-tax pro! t o' S5 5mu.on .-.as 'eai-cecor me reDu'cnase ot 5% comenc'e succrc'atec nces Sae c th'ee properties -esu tec m p-e-tax ga nsamo_,o! -ig 'cS' 4 million AS5 Om.'liO'' D'Ov s en 'nr '?OC3'ion CCStS was recorded m connecor w m me "a-ste' or ceiam. aom n.s'.'stive act'vmes to Wayne \ ,, A. c' '-ese were ciass-nec as other general corporate expenses in 1973 aS6 4mi' ion pre-tax profit was reaped on -ecu'cnase of 5% coh/eribie subc'dinatea notes wmen earn ofset ome' genera1 corncafe excesses GAF 12127 23 Data par Common Shara Year Enoeo Decemoer 31 F-iman,'Earnings Continuing Discontinued Net income (Loss; 1978 S 2.01 .28 8 2.29 Fuiiy Dilutee Earnmgs Continuing Discontinued Net income (Loss) S 1.76 .21 8 1.97 Weighted Average Number of Snares of ' Common Slock Outstanding (in tnousands) 13,306 Dividends on Common Shares 8 .84 Shareholders Eauity 820.33 '977 S 1 70 (5 52) S (3 82) Doiacs 1976 1975 S 1 85 ! 64) S 1 2i S 2 62 ( 56l $ 2 06 ^Q7J S * 99 i "5) S 1 84 S2 S 1 52 (4 20) $ (2.68) S i 63 ( 49) S 1 14 S 2.21 ( 42) S 1 79 S 74 1 12) S i 62 ^ ' c* s 13.252 S 60 $1864 13,303 $ .58 $23 01 13.237 S 52 $22 35 13.518 S 46 S20 37 - ... C 4; S * 5 5" Financial Condition * Decemoer 31 Current Assets Current Liabilities Working Capital 1978 8472.2 179.8 292.4 1977 $464 1 186 3 277.8 Dollars m Millions 1976 '975 S45' 3 143 5 S426 6 158 8 305 8 267 8 1974 S435 2 '309 304 3 prODerty Plant ana Equipment-Net Tota: Assets 280.6 788.3 262.9 762 4 275 1 777 4 255 9 732 2 244 4 722 2 Long-term Debt (Inciuoing Current Portion) Snareno'Oers Equity 196.8 381.7 198 4 329 7 202 4 38 7 9 180 5 379 C 200 ' 35" 5 ' includes amounts appncaD'e to discontinued segments-See Note i of Notes toConso'idatea Financial Statements ' 5364 ; .. - . 25 4 21c z 64;: ' 4^ * 1~2 ? Quartariy Stock Data_________________________________________________________________________________ Divioenos Der Share Common Pre'erreo i978ByQuaner F-rst Second Third Fojrth 15 15 17 w 30 30 30 30 .Donat's l977ByOu3'-e Pfsr Second Tr 15 15 3G 30 =nce ^ange of Securities Common (Low-Higrj ___ Preferrec (Low-Hign) 24 8-12'rj 11-14'^ I2*a-15H 93'e-14:'2 15-1 7v4 i 6V* -19 1 7'/2-i 9?/b 14Vj-19'/ 21 ' >2-1 35'8 1 O/rg-1 ' J 17''4-I94ii i6:'8-t3'j GAF12128 3;-os 3 Financing Activities a oec o> xncs rece-vec tc~ :ne sas o' O'sccriinuec c^s "esses asse's me company generateo a strong casr c.v n -973 /e" a :" GArs r,.gh caO'ta'excerC'iu'e czc'3~ me company s tmanc a, resets oxaucea yeareno case . -coo^g snon-te'm investments! o' S37 0 - -on .'S S'9 ~ -T-m.'O" a: me erg o` tne pno' ,ear m acc '0 S'O 6 ~i: o'- o` css' ` c.-. ss teta oec: "c~ S23' 2 ~ c'3220 5 ~ -c uoes np-es ca,ac e ="3 c'c-'e-" oe' c.-r'en; cc'to' GAP 'so -c 'eeo 'c coe1 ' r3"c "os 0.' "c -'e .-ea' OAF Corporation and Consolidated Subsidiaries Summary of Significant Accounting Policies ; Tne following acccunmg ootoies aDDiy tc tne continuing operations o' :re company ) Principles of Consolidation Tne accounts of an significant suDsicanes o' tne company a-e inciudea m ;ne conso> aatea financial statements a w-ony cwneo captive nsurance suosidiary ana tne 50o ownership Of a cnenvcai manufacturing company a'e cameo on tne eauity metnoa Short-term Investments Soon-term investments are vaiueo at COS! which approximates marke' Inventories 1- -entories are vatuec at the tower of cost tor.ncipatty 5. e-age: C' market Investment Tax Credit The company accounts to' investment tax oec. is a'sr; since January ' I97f as a reouct on o* me provis.or 'O' united States ncome tax tme ficw-m'ougn metnoa 1 tr-.estmen: tax creoits when a-ose pno' to mat aate nave oee" defe'tea ana are oemg amort.zec o.er tne est matec service iwes of me reiatea assets Retirement Plans Tne comps" ana ts supsiaianes nave 'eti'emem c ax coveting Sue amiai.y ar- emcovees The company s pci.c. s to `una ar: .ms eaua- tc Denson cos's accxea a"a pians w me:' sex.ce costs tc 3~o'~ce s.cn costs c.eperioas no; tc exceec 'only yeas Property, Plent and Equipment, end Related Depreciation 3'oeooifures for ma nterarce ano repays are cna'geo : 'eci, to expense maity replacements ana Deferments iri caotanzea ana aeprec atea ove' ne 'emaimrg est~a:eo ecc'omic .-ves ct tne reiatea assets Tne cost ana e ,ea accumulated aepreciat'on of property sod ret reo f - . oepreciateo are removec `xm. ;r,e accounts anc 5` 'SSutant ga n ct css is nodded in current income -scec at on >s computea p'lncipai.y on tne stra.gn'-ime ~ jc casea on me estimated econom c 1 ves o* tne mese lives are suciec: to oe'icac review ana rex c assure ("a' the cost of tne re atec assets .s written 0" v' "e-r economic wes Oelerred Income Taxes "" '6~ ncome taxes arise f'om repon.ng ceiam <nco~e ^ r-ce'se .terns in me tinanc.ai statements " penccs C'f' :r,0S " wn.icn suen amounts are 'eoortec x' ' Cu'ooses Earnings Per Share P-imary earrings ce' ccmmc- 3,-3l.e are pc^Duied c. civiomg mcome ess prefe-ec steer 0 >cer: 'eou'-ements ov the we gmec a/e'=ge xnM- c s"3res e co~ mon stoex outstanc ng a.- -g -re .ea- ~~e :e~ cua' cassumes ;ne ee'C'Se e c.'sta~c ng stcc- cc: on; x --e extent me, are o< ,e Pun, d.iuteo earnings pe- co~~cn ;-a-e are ce~c_'ec 0' me assumptc" t /.ne'e ~e enec* 'ne'ec' wcu c oe c ,-e mat convetic e secc ves Ou'Stanc "c ~ac ceen ccn. e"ec mto snares c' ccmmp" stoc- -cczc ate aoi.stme-'s a viaenos on C'ere"o s'OC =rc n'res' c" co" -e" 0 e notes met o' income 'a- e"e::, a-e "ace ;ea'-mgs acc cacie tc commc" stcc- 'c 3ss."ec cc'.e'S'C"; ~~e cpmputa; on 3,sc ass-~.es m e e-ex sec'a c c.esxcOC':Q"S GAF12129 I Consolidated Statements of Income (Note 1) vea-Enoea Oecemoe'31 t Sates 1978 81,063,291,000 Costs and Expenses Ccsto'oroo^ctssoid D SfOutiOn and Selling Aover Sing Researcn ana aeveiocmeni General ana aamimstrative irte'esuNoie T) Total Costs ana xpenses Othsr Income Income *rom contract termination (Note 4) Otner-ret(Note3) Total Otner income Income from Continuing Operations Before Income Taxes Income Taxes (Note6) Income from Continuing Operations Discontinued Segments Operating income (loss) net of income taxes Estimated I ncome (loss) from disposition, net of income taxes Income (Loss) from Discontinued Segments iet Income (Loss) Less R'ete'rec stock dividend requirements Nst Income (Loss) Applicable to Common Stock 765,917,000 146,717,000 16,608,000 14,632,000 48,79S,000 18,677,000 1,012,436,000 60,665,000 4,886,000 4,865,000 55,740,000 26,341,000 30,399,000 790,000 3,016,000 3,766,000 34,164,000 3,636,000 S 30,528,000 13,306,000 Earnings per Common Share Primai'/ Continuing Discontinued Net income i Loss; Fully Diluted Ccntinuing Discontinued Net income (Loss) $ 2.01 .28 S 2.29 S 1.76 .21 S 1.97 Consolidated Statements of Retained Earnings Year Ended December 31 1978 Baiance. January i Nel Income (LOSS) 8263,542,000 34,164,000 Less casn dividends Preferred stock (Si 20 per share) Common stock (`978--S 64 per snare 1977-S 60 oer snare) Balance Decemoer3i 3,638,000 8,487,000 5285,613,000 See Summary olSignificani Accounting Policies and Notes to Consolidated Fmanc ai Statements 57S9t9 541 ooc 665 337,OOC 124 3'4 ooc ' 5 502 DCC t ` 959 co: 43 039 OOC 20 4-6 000 880 617 000 39 924 OCC 3 700 OOC 5 627 000 9.327 000 46.251 OOC 22 058 000 26 193 OOC (63M OCC) (66.839 000' (73 150 OOC' (46 957 OOC' 3 636 OOC S(50 593 000i 13252 OCC 5 -C 5 z2 5 3 52' 5 ' 5^ 5.2 66 532- 935 OOC ,46 95 - 000 5 63c OOC -3CCMC S263 542 OOC 2e GAF 12130 I Consolidated Statements of Changes in Financial Position vear Enpea Decease? 3i ig78 Working Capital Provided Continuing Operators income i'om Continuing Ope-anons Charges no: affecting wonting capita1 Deofecaton Deierrec 'ncome taxes Trans.a!:on losses-noncurrent portion Otrer Working Capital D'OvideC Discontinued Segments mcomeiioss: from Discontinued Segments Gorges (creditsj not affect.ng wowing caeca1 Deferred .ncome tax benefits Provision re employee Deneiits-noncur-ent ponion Provs'on `or oss on disposition of fixed assets Wnte-oif of mtangoie assets-noncurrent Donon 0:ne' Working Capital provided (used) '013' working capital oroviaed from operations me-eases m long-te-m oeo: Pxea assets of a sconnnuea segments neia for saie "-crease n noncur-enruaoiiitvfor phase-out costs Total S 30,399,000 26,970,000 3,147,000 3,273,000 6,625,000 70,414,000 3,765,000 (2,000,000) -- -- -- 394,000 2,159,000 72,573,000 4,060,000 3,991,000 7,631,000 88,255,000 5 2c *92 23 2 2c 6-6 2C 2 - CC 222 ' 6 *' 222 j 3=5 :oc 62 226 222 u c_ JPU 12J DC oc: 2C 22C 202 ' 9 625 CQC " gCl 2 778 OOC 33 J9' COC28 5AJ OCC ; ' 9A5 OCO ' * 556 OCO -- Working Capital Appiiad -C3'V'Cns to property piant and equipment Casnc-viaenos Pecactions m long-term deDI Tola' 51,148,000 12,093,000 8,278,000 2,137,000 73,656,000 52.2bc :JGv 1 -36 000 '90" GOO 2 6A7 OCO i 80 066 ZCC Incroas# (Decrease) in Working Capital .Vo* no Capital. January i Pc--gCaD ta. Decemoer3i 14,599,000 277,806,000 5292,405,000 '23 0".' 202 305 6* ~ COC 52" 906 OCO Analysis of Changaa in Working Capital ~:*ease'Decrease) in current assets Casn ano snort-term investments -:cc-"ts -eceivabie r-ver!ories ''eoaq expenses 'come tax Dene'its -ssets ot Discontinued segments To;ar '-`ease) Decrease in current iiaDiimes "roies cayaoie --'rer: pocion ot iOng-term peot '-cou-tsoayaDie -cc-^eoiiaomiies "-:me iaxes payable :c'a !^5S!*(poero**jin Working Capital 5 17,290,000 35,770,000 16,069,000 2,385,000 (14,133,000) (49,296,000) 8,085,000 9,244,000 (1,543,000) (7,492,000) 6,229,000 (1,924,000) 6,514,000 S 14,599,000 5 cc: 15 "6- 200 6- 1 * - COC A?-- OCC S"' 000 'JA XO 2 829 OCC 9 '6c oc: 2 -*2 202 U CC1 U.'v i2~ T' 002 2 29' COC _ AC SAC ooc c 28 Z `' 30C; `>o Sgniticant Accounting Policies and Notes to Coso'ioa:ed Pmancia: S:a:eme-is GAF 12131 Z>\-02 -`r 1 . D Consolidated Balance Sheets Oece^ce'S'_____________________________________ UMtl Currant Assats Case Scon-term investments Accounts receivaoie-trade, less allowance fcrdouDtfui accounts-1978. S5 318.00C 1977.$4 949.000 ^cc"jnTs receivaD<e-otner inventories Fm.sneo goods Work in orocess Raw materials and supplies Tota' inventories Preoad expenses income ta* Benefits (Note 11 Assets of discontinued segments at estimated reaiizaDie value (Note 1) Totai Current Assets ______________ _ 1978 S 14,384,000 22,625,000 166,142,000 18,679,000 105,290,000 29,602,000 75,363.000 210,445,000 11.070,000 4,436,000 22,448,000 472.231,000 Property, Plant and Equipment, a; cost (Note 11: Lana ana land improvements Buidings and ouiidina eauipment Macnme'v and equipment Construction in P'ogress Total Property Plant and Equipment Less accumuiatea depreciation Property Plant and Eauipment-Net 17.591.000 119.235.000 268.720.000 27.731.000 433.280.000 152.710.000 280.570.000 Cost in Exeoss of Not Assots Acquired 24,351,000 Othor Assots 8,112,000 Total Assots 5785,264,000 See Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements -.Q* S 19 129 OOC 590 OOC 142 203 000 8 848 000 100,851 000 26 952 OOC 66 573 000 194.376 OOC 8 685 OOC 18.571 OOC 71 744 OOC 464.146 000 16.287 000 113 399 OOC 259 464 000 25 285 000 414 435 OOC 151 498 000 262 937 OOC 25 806 OOC 9.525 OCC 5762 414 OOC' GAF 12132 D,'Occ. * I X Decemcer3i Liabilities and Shareholders' Equity Current Liabilities Notes oayaDie f Note 7 > Cu'rent portico of long-te'm oeot t Note 7) Accounts oayaDie Accrued iiaDitities (Note t) `-come taxes cayaoie Total Current L aOH'ties Long-term Debt Lass Current Portion (Note 7) Deterred Credits income taxes investment tax creat Total Deterred Credits Other Liebllltles (Note 11 Commitments and Contingent Liabilities (Note 11) Shareholders' Equity (Notes 7,8 S 9) P'e`e"ea stock St oar value authorized 6 000 000 shares. $t 20convedidiesenes issued-1978 3 105 767 snares 1977 3.105.95 7 snares at assignee value of $1 25oer snare i liquidation value 1978 S83 308.0001 Common stock Si qarvaiue autnonzec25.000.000snares issued-1978.13 770 247 snares 1977 13.770 010shares Aoditona' oaio-m capita Aetamed earnings 'otat -ess stock nect in treasury a: cos: Common-'978 567 207 snares -g77 550 207 snares =,e'erreo-76 400snares m "978and 1977 Tota' Sna'enoiders Eauny 1978 $ 23,608,000 8,124,000 79,133,000 85,080,000 3,911,000 179,828,000 188,721,000 22,023,000 2,008,000 24,031,000 40,948,000 Ut CD RO 5 32 852 XC 6 5c ' XC 6-* 003 x ax co: * 96~0CC * 55 3-G XC ?' 365 ZOC 20 845 'XC 23 J26 OX 3( 112 OOC 3,882,000 13,770,000 53,936,000 285,613,000 357,201,000 4,531,000 932,000 351,738,000 3 883 OOC 13 "OCX 53 34c CCC 262 542 OOC 235 04- OX 4 438 OCO 932 000 329 671 XC Total Liabilities and Shareholders' Equity $785,284,000 Gee Summary of Significant Accojniing ponC'esand Nctes :o ConsolidatedF.nanoa' S:a:eme~!s S 762 4 4 GOO gAF 12133 oi-o;3 or:- Notas to Consolidated Financial Statements 1 Discontinued Segments n 1977 tne company decided to discontinue operations m onsumer pnoto pnoto processing, dyestuffs and pigments. iei:s ana filters ana several small businesses These businesses nave been reported as discontinued segments smee tne end ot the second quarter of 1977 except for pnoto processing which was reported as discontmueo at the end of 1977 Effective at December 31 1978 the company decided to discontinue its business forms operation at Shelby. Oho Net sales of tne business forms segment were approximately $26 million m 1978 ana S23 million in 1977 Arrangements to sen this segment are in an advanced stage The Consolidated Statement of income for 1977 has been restated (and the Statement tor 1978 is presented) to exciuoe tne sales, costs and expenses of all discontinued segments from tne captions applicable to the continuing operations The Operating Income (loss) and the Estimated income (ioss) from disposition of discontinued segments nave been repened separately Operating income (loss) of the discontinued segments shows tne results prior to the effective dates of the discontinuances Anticipated operating losses subsequent to the effective dates of the discontinuances have oeen provided m thecaption-Estimated income(ioss) from disposition in 1977. operating losses (related to an segments now discontinued) were $6 3 million ($12 1 mil lion before tax benefits of $5.8 million) In 1978 operating income of me discontinued segments was $0 8 million ($1 6 million before taxes of $0 8 million) The 1978 amounts pertain only to tne business forms operation Activity m the reserve and liability accounts originally established in 1977 is summarized in tne table below and is discussed m the narrative which follows Reserve For LOSS On Disdosh'ct of Assets UaD'HtV For ^hase-Out Costs Dollars ir, Millions To-ai ^'Cvsort 'eco'oea m 197? Act vity Curing ig?7 $ 6' 5 125 61 5 59 6 ;'6i $12' i i 33 2` Saiance DecemtjerSt 1977 Ac'vty curing i970regarong 1977 d'SConrnuances Ac,jsf~ient o* excess rese've oaiance fOviSrOn tor discontinu ance oi easiness forms oration Saiance Oecemoe'3' 1978 35 9 (21 0) /6 1) 9 I 89 52 0 M3 5> _ 87Q ,35 3i 16 i > 32 C 4'* S 50 6 In 1977 the company recorded a provision of Si 21 'mil lion (S66 8 million after tax oenef ts of S54 3 million) tc me disposal of segments discontinued during mat year tne pre-tax provision was established as a reserve for oss on disposition of asse's f$6i 5 million) and as a liability for anticipated phase-out costs (S59 6 million.) Based on information available during 1978 it was determined that the reserve balance estaoiisned to- '97' discontinuances exceeded expected reau rements by $3 5 million ($6 1 million Defore taxes Of $2 6 million) Also during 1978. an additional provision was required n connection with the company s decision to a scontmue is business forms segment. $2 5 million ($4 1 million before tax benefits of $1.6 million) On tne Consolidated Stateme-t of Income for 1978 the return to Estimated income floss 1 Irom disposition ot discontinued segments includes tne net recovery, after tax. of S1.0 million Previously reported tax benefits associated with the 1977 discontinuances were evaluated when mformat on regarding 1978 taxable income became available An additional tax benefit of $2 0 million was recorded following this evaluation and such amount has been added to the ne: recovery of $1 0 million to arrive at the total o` $3 0 million shown as Estimated Income (loss) from disposition of discontinued segments for 1978 At December 31 1978. tne current portion of tne liability for pnase-out costs s $5 6 million and is included m Accrued Liabilities the noncurrent portion of $36 1 million is .nclucec m Other Liabilities The assets of the discontinued segments nave been reclassified, after the dates of tneir discontinuances to remove them from tneir histone classifications ana to separately identify tnem at thev net reanzacie vaije Tne 1977 Consolidated Balance Sheet nas not been restatec to reflect discontinuance ot the business forms operator Tne amount of assets appi cade to a scontmuec segments ter Doth years is presented beiow Oo- a'S r vuc-s Oece-noe'S' Accounts receivaD>e inventories pfODeOy Qian! ano ecjuiomenf-ngi Cine' Tot3' Assets Less reserve for oss or aisoosn-on o- assets Tcia* Asseis at esn^atea ne' 'eauzaoe *aiue 1971 S 6.1 13.0 10.4 1.0 31.3 s. S 22.4 $ r* j' ] 30 ? ___ 1'C'c 5 *' Sales apDiicaoie 10 businesses discontinued ou'mg i3oror to tne dales at wnich they nave oeen reported as discontinued were $121 million for 1977 GAF 12134 30 I 2 Qographic Information information with respect to operations Dy geographic area is as follows For the year 1978 Sales Less intercompany sales Sales to Unatfiliaied Customers Direct Operating Profit Corporate Office Expenses Income from Continuing Operations Before income Taxes United States S922 3 44 8 877 5 88 6 Dollars m Millions Western Eurooe Other Eliminations and Totai Other Consolidated $162 7 91 153 6 11 6 S32 4 .2 32 2 16 $(54 ij(54 :t -- -- $1 063 3 -- l 063 3 101 8 (46 1] 55 7 Assets and Liabilities Inventories Other Current Assets Noncurrent Assets Total Assets 158 0 185 5 252 3 595 8 431 45.2 54 1 142 4 93 87 67 24 7 _ 22 4" -- 22 4 210.4 261 8 313 1 785 3 Current Liabilities Other Liabilities Total LiaDmties Net Assets 126 5 237 2 46 3 14 7 70 19 -- 179 8 253 8 363 7 61 0 89 -- 433 6 232 1 81 4 15 8 22 4 35' 7 1977 Sales Less intercompany sales Saies to Unaffiitared Customers Direct Operating Profit Corporate Office Expenses Income from Continuing Operations Before Income Taxes $812 8 42 0 770 8 82 8 $122 0 10 121 0 54 $27 7 -- 27 7 17 $(43 or 143 0) -- -- $ 9195 -- 9i9 5 89 9 7i 48 2 Assets and Liabilities inventories Other Current Assets Noncurrent Assets Tota1 Assets 152 7 155 8 246 8 555 3 33 5 35 8 45 8 115 i 82 64 57 20 3 _ 7. 7* -- 7' 7 194 4 269 7 29e3 762 4 Current Liabilities Otner Liabilities Total Liabilities Net Assets 1346 231 7 46 5 14 3 52 4 -- 186 3 246 4 366 3 60 8 56 -- 432 7 189 0 54 3 14 7 71 7 329 7 "intercompany sales are recorded at the same prices charged to unaftiiated customers "Assets of discontinued segments at estimated realizable value (See Note 1 on page 30! Dj - - - 31 G A F 12135 I Notes to Consolidated Financial Statements (continued! 3 Foreign Exchange To'a. pre-tax gams are recorded m Otner income on me "onsonoaied Siatements of income related taxes are ~c:uoed m income Taxes Generally. Balance sheet transla tes are not tax effected, whereas the results of forward exenange contracts are suDiect to tax Foreign exchange gams (losses! are as follows -O',m* ^ea- Doi.ars r Thousanas 197$ 1977 ~ a-s at cAa'3 eic^a^ce :ontacts O"*' '0'3' "ansat on arc ecnar.ge contacts O'ne' Tra- 9(5,595) St 2 2001 10.013 231 S 4.639 4 3?3 182 $2 347 5(5.595) Si 2 206) 4.906 (113) 9 (902) 2 229 70 S 9i 4 Incomo from Contract Tsrmination income of S3 7 million (Si 9 million after taxes) was realized m 1977 in connection with a customer s termination of an agr.cuJtura cnemcai contract 5 Supplementary Financial Information ine to lowmg expenses of continuing operations are it iciudec m me Consoiidatea Statements of income -C' -ne vs` Wa-rrenance ano repairs 7aes ome* man taxes on'ncome Soc a. Secunt, ana anerno'ov^en: Otne* or soerai ng leases Do"ars n Thousanas 1978 1977 $52,564 S44 324 21.429 7,434 11874 17 IQS 6 4; 14 364 6 Income Taxes Provision nas not Deen made fcr me unnec States income taxes on unremitted earnings of foreign suds oianes o` S32 956.000 since any wimnoiomg raxes ana Unitea States income taxes payaoie on dividends oasea on unaismoutec eammgs would oe suDstantiaiiy onset oy foreign tax credits or Decause the remittance of suen earnings nas oeen indefinitely postponed United States income taxes rave not Deen provided on me unremitteo eammgs o' me Domestic international Safes Corporation sucs.diary aggregating Si 1 809 000 tnrougn Decemoer 3t 1976 snee me company mtenas :o postpone maefmiteiy me remittance of such earnings Tne provision for income taxes on continuing ooe'aticns consists of the following For the year Uniteo States-curreni Uniteo Siates-oeterreo Uniteo States investment tax z'eo<' A-nonizaron ci aefer,ea uniteo States ."vestmer*' ta* creoi! ar'Sing prior to '97: Poregr State Totai income Taxes Dollars n "rCusa^c 1979 922.997 798 (2.932) 3" c* - 3 00C 23'2 (572) 2892 2.429 929341 5'3 3 60 ` ' 23C S22C56 The effective tax rates on continuing operators were 45 S1-. and 45 8'o m 1973 anc 1977 respectively Tne reasors -c the differences "om tne statutory rate of 48 0o are as follows Per tne /ear Stauiorv rate ne'eases toecreasesj r ta* 'aies resufi rg tea States investment -a* c'eo * Stare ana soca income :ae$ ''etc* ur-iec States neeme 'a* oene` co'egnooerat'ors Otrer-r^e' EHectfve ;a* rate 1978 46.0% (6.1) 2.3 3.7 (2.4) 45.5% 5" -cl. c9 :: Tne principa' sources of Uniteo States deleted taxes we'e 3C'.3". - ror tne year 1978 ?" Excess of tax aeo'ec 3tcr eve* 3^cun* ir Ccnsofoatec Statements c* mcome Ctne'-nei rcra $2,400 (1.632) $ 766 53 -XC GAF 12136 Ol-OCO-'T-^l 32 I 7 Debt and Dividend Restriction* Snc'He'rn pect a; December 31 1978 was S23 608 00C as compared witr. an average o! $42 384 000 tor me yea' 1978 me maximum amount o< such Dor-owings wh-cri were oursta.nCi.ng at any month-end aunng 1978 was S73 532 000 Tne average interest rate on me year-eno oa-ance was iG 70 as compared with ar average c' 7 9% (O' the tji: yea' 4; December 3i 1978. GAF naa unusea tines of crea-i aggregating approximately S162.00G 000 Tnese nnes o' creoit are maintained with various banns on one-year renewaD'e terms expiring on various dates Borrowings generally bear interest at or near the prime com mercial lending rate or its foreign equivalent A variable fee. usually based on a percentage ot the current prime rate, is paid on the domestic lines of credit Compensating oalances a: December 3\ 1978 are negligible Long-termdeot atDecemoer 3i igzsand^/? was as totlows Debars m 7nojSancs 1979 1977 9'rjS s^ntcxnoiesCue Ma'C 3i i99i wtneoua' arnuai Df'Xioa' feoaynerus Beginning Marcr 3' 1982 995.000 S65 000 9V sento'notes aue January'5 '99' *.tneaua: anruai 0,,r^00a< repayments oegmning January 15 1983 40.000 4000C 5V* sin^ng tync oeoentures cue Dece^oef i '99" *iin a^f-jai S-rong 'unc oavmerrs of 52 50C 000 cr sac** OtcemoeM 'ess $696 000 ar<o S'249 000 ^cint'easur, ar Decen-oeOf i978arci 1977 'esoeci veiv 31.902 33 75' Ta/-e*emci 'naustra1 Avenue oonos wnic* oea* 'vet- es- at 'ates c1 3V* to 6V anc mature ai vatious sates to 2002 15.990 16309 5ec ccnveoioie suDorcK-atea notes pue Apm i 1994 *>',n annual repayments oeg'nnirxg Aprn 1 1990 9.200 8 200 5 ?3c con^enio'e suOorQ'naieo notes cue Aom 1 >983 wtn annua' repayments o4 $200 COO on eacn A^it* mrcugn 1982 ana me oatance of S1 800 000 oavao-e "OTf 1 *983 2.600 2 800 D-*' notes ^n<cn Dear interest at 5Vb tc ' 2' t\ arc -atu'e a; vanous oaies ro '997 13.441 14 932 3 c <ga: ens ^r.oer capita' eases t See Note 11 - 19.903 '7 554 *o:a 196.S45 '96 446 .es- oo' or ajt wirnir-orte year 9.124 6 8' -:r;-ie'~ 3eo: ess current Dorticr (1H.721 S'9' 865 Cash requirements to meet maturing ,'ong-term deoi obligations over the next live years are 579 $8,124 000 1982 360 $7 309.000 1983 961 $8 053.000 $14 767 000 $16 307 000 7ne 5= conveTDie succ'dmateG notes a'e zz-.e- c e shares cf common stoc- a: an.-me s'a zcr .e's-c Z'zs of S27 50 oer share tscotec' to antro ut-cn ac.ustmems soecifieo oxumstances > Tne 5' 28c convertible St-DOrainatec notes are o<eser't. convertible nto snares of common stcc* a: a coove-sto" once of $28 72 oer snare isjbject tc an-anuiion c,,,siments in soecitieo circums'ancest oniv n connect-on w m cenam preoavments a,- otner conversion rents -acseo .n 1976 D'vioencs are restricted unoer crovisior.s o* cenam -csagreements under the most restrictive of these ex.-sems retained earnings cannot oe reduced Deicw- S26` 356.000 Retamea earnings at Decembe1 31 1976 ive-e $285 613 000 8 Capital Stock The$i 20convertible preferred siock a-vioencsonwr.cn are cumulative, is convertible at any i-me into ccm~c-n sloe* ai the rale of i v. shares o` common stoc* `or eacn share of preferred The company may reaeem me pre ferred stock at $27 50 oer snare Transactions in common stock neio m treasury were as follows Oc-a-s ~ "-c-sa-rt 1979 Baiance uar.ua "umnasec`m.a-es - rS'Sam '9 000 n 197' .-ia sic;- c-'cnase c-ar issuance o' 392 s^a-es <u^e^cf'angec snakes <n Dteoecessor :c~c3r>es' $4,439 93 -- 54 338 *3 3 da<ance 0ece^oe1!' $4,531 4 -3c As a result o' tne aoove -ssuance o` veasu'y s^a^es 1977 additional oa.c-m caorai was decreased by S3.000 The shares of common stoc* reser-.ec 'O' ss'ja^ce 5! December 31 1978 ano 1977 wefe as tcows Reserves tc 1979 '9" Cpnve'S'on c* S' 20 ve-* z-e orete,rec s:oc- 3.862.209 3 862 4-r Conve'scn o<convex oe ^zz-z^^z notes 368.711 395 6~ *erc se unoer six* cC'Cr a~c z^z'an Dans Toia 1.453.790 564 54C S. 724.710 5 64? 6c ` GAF 12137 Ol-OGO-hGAO 33 Notes to Consolidated Financial Statements 'continued: 9 Stock Option and Stock Purchase Plans ~ne company s stock option pians crovioe for the grariirg o! colons :o key employees io ou'cnase common stock of 'e company a: not less man : 0C% of me fair market value a; me aate of grant Unoer me terms of me 1975 nonauaiif-ea o an oot'Ons for 800 000 snares of common slock n-a, oe g-anteo ajnng a :en-vear oenoo ending FeDruary f i 1965 Options granted to date were exercisaoie one vear a'ter grant and exp-re after to years Autnonty to grant oci.ons jnaer tne 1965 qualified o;an expired on Marcn 31 i975 Oot'ons granted unaer this o-ar, expire five years from me cate o' grant 7ransact.ons aHec:mg options unoer ;nese D-ans are as toiows o' S^a'es Average Ooi-or P'iee 1978 9"" 1978 197** O-.'sra'-c n; ja^a-. * 3'3~ec 507.940 -- 292 69C 264 00C S10.01 Si * 68 -- 9 63 E-erc sec (24.290) -- 9.60 - ma:ec (79.750) 49 "sc 12.04 ir-79 0-!s:a^c r,g Dece^oer 3` 403.900 50' 940 9.64 DO* Options tor 548 000 ana 536 000 snares were available for g-an: a: Decemcer 3i. 1978 and 1977 resDectiveiy, shares for cct.ons exe'cisec m 1978 were deiivereo in 1979 Unaer me provisions of me comoany s 1969 restricted and unrestricted stock purchase oian 650 000 sha'es of com mon stocK were authorized lor sale to key employees The car currerhy p'ovioes mat resinc:ed and unrestricted snares may oe see at onces which, are not less man 50% anc 80% resDectivev of tne ciosmg ma^et once precedmg me aate on which an emcioyee s oesignatea as one to wnom snares mav oe offered Unoer cenam conditions, tne com-oany nas me ngnt to reDurcnase restncteo snares of commo" siocx at the original selling price Tne excess o' ouotec market value at me aate of gram over me aggregate sa'es orce for resmcrec snares sold is amort.cec by cnarges io income over me restriction oenoc As a resu-t o* mese charges aacitonai paid-in capital nas been mceasea ov S90 000 and S220 000 m 1978 and 1977 escect-ve y ~ne ba-ance to oe amortized through 1984 a~o-"'ea to S22' 000 and S393 000 at DecemDer 3' S'S =nq i977 lescectiveiv 10 Retirement Plane 'ne ccs: oi employee retirement penefits lor continuing operaf.on.s was SI4 067 000 m 1978 anc S9 437 000 m 1977 At OecemDer3r 1978 me ac'uanaiiy computed vaiue o` vesieo oenems exceeded me iota o* oension tunas and accrued ao n: es 'or oens.cn cos; oy S44 500 000 T^e estimateo _m_naec pr:o' servee cost at Decempe- 3i 19?8 was 55S 7C0 0C0i i ne 5aiaried employees Rei.rement Plan was amenaea on January i '978 to -mprove oenetits and to ei-mmate the employee contr-bution prov-sion ot me oar, Tne effect of this revision was io increase the 1978 cost by S3 000 000 and me unfunoed vestec oenefts ana unfunded prior service cost cyS9 700 000 ana S*9 000 000 respectively 34 11 Commitments and Contingent Liabilities CaoitaiizeO leases of $18 287 000 anc S15 639 0C0 are nc-udec m Prooeny Plant arc Hsoipment-Ne- a: December 31. 1978 anc 1977 respect ve . Tneprese" value of future net minimum lease oavmenis .s rei eciec as iong-term ceot (see Note7 i Tne maionty of the caoitai leases perta r to Duiiamgs -e most significant of whicn is tne aammisrat ve head quarters located in Wayne. N J Tne amortization asso ciated with assets recorded under capital eases e included m depreciation expense Tne company also has operating 'eases 'or transporta tion data processing equioment anc fo' other bu-id-ngs A schedule of future minimum lease payments uncer capital leases and future minimum renta- payments required under long-term noncancenaDie ooeratmg leases, as of DecemDer 3i. 1978 is as `oiiows Minimjm Payments Dv p&oc 1979 " " 1990 '98' 1982 1983 i_a'e' Years Tora' rnirimum Dd. Less n:eresi me aoove present va'ue o' ~' -'inirrx"" ease Daymen's Dciars - '-C-S3nC5 Capisai Leases 0DeraJ'r5 Leases S 2 996 S10 9 * 6 2 953 6 993 2 959 5 925 2 908 4 116 1 96T 2 544 '8 333 c ~E ` S32 09' S3" 25' 12 288 S ' 9 8C3 Tne company nao commitments c-f aooroxinate'y S25.671 000 at Decemoer 31 1978 ter me acquisition c` property, plant anc equipment At December 3' 1978 there were certain taws jus anc claims pending agams; tne company In tne opinion c` management the ultimate Disposition of these mane's win have no materia adverse eftect on me company s consoiiaated financ-ai position 12 Schedule of Business Segments information witn regarc to me company s ousmess seg ments is presented on page 22 information 'egarong `97S ana 1977 s encompassea 0y tne Aucitors Oomion 13 Impectof Inflation (Unaudited) Reference is made ic me company s Annual Repon For" 10-K (a copy of wricn is avaiiapie cr recuest) for infor mation witn respect :c me estimated re&acemen: cosi o' inventor-es ana pian: ana equipment at Decemoer 3' "978 ana 1977 ana me reiatea estimaiea eheci oi succosts or- cost o; proaucts so'o ana aepreoat-on. exce-se io' tne years tnen enoeo GAF 12138 Oi-023-'o:. 14 Qinmrly Flmnelil Dito (Uimwllttd) _______________________ Donats m m u,os 19788yOu*r1r First Sscond Third Net Saies 8229.8 Cos; of P'oouctsSoic 165.3 G'OSS Profit 64.5 income from Continuing Operations Before income Taxes 7.0 income Taxes 3.0 ncome frem Continuing Operations 4.0 income!Loss) from Discontinued Segments Net of income Taxes .1 $279.4 202.3 77.1 14.7 6.0 8.7 .2 $278.4 201.5 76.9 17.5 8.8 8.8 1.0 Net income (Loss) Less Preferred Stock Divioeno Reouirements Net income (Loss) Appiicaoie to Common Stock 4.1 5.9 9.8 .6 .9 .9 $ 3.2 $ 8.0 $ 8.9 Fourth $275.7 198.6 78.9 16.4 7.5 8.9 2.8 11.4 .9 $ 10.5 tvs; $203 i 146 7 56 a '977 By Quaker Secone Tr.rm S242 6 77 6 65 0 S239 4 172 67 3 Cm 5234 4 '6S 9 65 5 n 5" 55 60 -25 51 74 14 0" 56 84 0 3 59 ~ -i (2 4) 36 (56 91 (49 5) _ 13_984 9 5l 9999 S 27 $ (50 4) $ 7 5 SC-C4I Earnings oer Common Snare Prrmary Continuing Discontinued Net income (Loss) Dollars 8 .23 6 .69 $ .89 8 .60 .01 .01 .08 .18 $ .24 S .80 $ .67 $ .78 S 39 ( 18) $ 21 $ 46 14 28) $(3 80) S 57 ; Oi) s 56 S 26 ; 05; S i 791 Pully Diluteo Continuing Discontinued Net income (Loss) 8 .23 f .50 8 .51 S .82 .01 .01 .08 .13 S .24 S .51 $ .87 $ .68 $ 35 $ 43 s 48 ( 14) (3 26) - s 2i S (2 83) 5 48 S 26 i 80' S : 54. "reviousiy reporteo amounts nave Deen restated tor discontinued segments- See Note 1 ot Notes to Consolidated c'nanoai Statements includes a $3 7 million ($1 9 million aftertax) payment to the company inconnecion with a customer s termination of an agncuturai cnemicai contract incudes $2-2 million ($1 1 million after lax) income from settlement pi a lawsuit m regard to a cnior.ne causnc lacmtvsoio m 1973 mm-l m Haskins-SeHs Cer tied PuDtic Accountants 'vc srcaaway Nev.Yo'k N Y 10004 Tne Shareholders and The Board of Director ot GAF Corooration We nave examined me consolidated oa'arce sheets o' GACorooration anp its consolidated sues dia' esas o` Decemoer3t t978anc t977anotne'e.aieoconsoi'oa'ec statements of income reta.neaea'nmgs ana changes financial oosition `or the years then enoeo Our examinations were made in accordance with gere'afiy acceotea auCitmg standards and accordingly mouaecsuch tests o' me accounting records and suen omer auditing procedures as we considered necessary m me o -cumstances In our opinion Sucn financial statements oresent `ainiy me financial position ot the comoanies a' Decemoer 3f 1978 ana 1977 ana me results of their ooerations ana tie cnanges in their financial oosition fcr me years then enoeo m con`ormity with gene'any acceDtec accounting or ncipies apo"eo on a consistent bas.s ikJ^r^-SQo February 5 1979 GAF 12139 39 i GAF Products and Services IEMICAL PRODUCTS _aF* Chemicals High-pressure Aeatylana Derivatives Monomers, polymers copolymers, sol vents organic mte'rnediaies and spe cialty cnemicais sucn as Gantrez nairspray resins Piasoone phar maceutical tamer cinder. Poiyciar* staDmzer to' Deer and wine, also other products derived from acetylene tor plastic, petroleum textile adhesive, ano a variety of other industries Industrial Organic Chemicals Complex cyclic and aiipnatic com pounds tor use as active ingredients ano as intermediates in the dye. phar maceutical. agricultural and cnemical processing industries Iron Powders Microscopic-size spheres of iron used in VHF and UHF circuitry transmitters receivers, radar and m powder metallurgy Latex Polymers and Compounds A variety of SBR and other latices. nciudmg Gatcote compounds, for use Dmoers and coatings on floor cover ings. upnoistery. textue fabrics, paper and paperboard nonwovens. ano adhesives Specialty Chemicals Processing and formulating agents including Gattex textile auxiliaries. Biopai biocides, Gafstat* antistats, flame-retardants for plastics coating and finishing agents, adhesive additives Cneeiox* seauestrants Antara metal lubricants corrosion mnimtors Nocculants ano solvents tor use m various industries ano in recycling operations and pollution control Cepha* plant growth regulator tor use on various agri cultural crops Surfactants Noniontc. anionic, cationic and ampho teric surface-active agents for use as detergents, emulsifiers, dispersants and wetting agents QAP* Engineering Plastics Gafite* PBT thermoplastic molding compounds for automobile mechani cal ano electrical parts eiectncat/eiectromc components, appliance housings, ano business machines OAF Mineral Products Mineral granules for roofing and other uses, inert fillers Dry and saturated felts ano mastics for noise absorption and sound barrier applications Appliance and automotive gasketing materials PHOTO A RE PRO PRODUCTS OAF Photo Products QrapMc Arts Gafmate films and chemicals for offset printing, photolithography, photo engraving. rotogravure and silk-screen printing GaffypeTM phototypesetting papers and chemicals Pictoriel Products View-Master talking and silent stereo viewers and picture reels toy slide prolectors. Double-Vue" toy movie viewer and cartridges Pana-Vue* slide viewers ano color slides for educa tional. entertainment, anc commercia1 uses Special Photo Products Aerial film and photographic materials for seismic recording, instrumentation surveillance and osciHograpny X-ray Gafmed* medical x-ray films chemi cals intensifying screens and cas settes film for dental radiog'aohv industrial x-ray films and cnemica s radiologic teaching aics OAF* Reprographic Products Audio-visual Overhead projecton transparency senes for presc.nooi tnrougn college instruction and materials and supplies Diazc films for preparing overhead pro tection transparencies ano overlays m a variety ol colors Micrographic Diazo duplicating microfilms and diazo roiifum duplicator Reproduction Diazoprmters accessories, ano sensi tized materials tor engineering and business systems drafting materials and supplies BUILDING MATERIALS OAF* Building Products Insulation Products Gaftemp uretnane urethane-perlite and perlite insulation Poaros for buiU-uo rootmg applications. Gaffite'" 'oof ,nsulation fasteners, building insulation Roofing Products Timberiine shingles and other aspnan shingles root rooting: built-up roofing felts and asphalts, protective coatings and cements Minerai-Shieid coioappiied built-up roofing materials Siding Products Vanguard solid vinyl siding for re-siding ano new construction vinyl soffit and fascia systems, decorative shutters OAF* Floor Products Gafstai sneet vinyl flooring and resilient floor dies tor residential and commercial uses Sure-Stik* adhesive-oacked lues for do-n-yourseif market Flooring ten accessories installation toois. aonesives. ano floor care products OAF Automotive Products Automotive sound-oeadenng ano insu lation products SERVICES Chemicals Custom manufacture of pnarmaceutica. agr cultural and other SDec.ally cnemicais m developmental ano com mercial auanMies Contract Manufacturing Precis on pans ano equipment corn-act manufacturing service Diazo Equipment Service Preventive maintenance ano repair prog'ams lor diazo reproduction eauipmem Transparencies Cusiom ovemead transparency service GAF 12140 i -Q 3S GAF Locations Domestic Operations GAF Correa' c s pants resea'cn laccrato'es saes tAces anc s'l'c-i'r ce'ie's are ocaieo rvcjcnout me u S a Alabama Bi'mirgram FU"S. e MoO' e Arizona PnO?'"'* CalMomia Cc`Co'^r"S,ce L3 naO'a Lone Beac' Pac'Atr San D^egc SojI" S3" F-3"; see Colorado Den.e1 District of Columbia Florida 0'ia'oc Tampa Georgia A[.ar;a Sa-a""a" Illinois 3e"ser .'-e Cr-cago PgfK -D-'e' L nett "`'. OCG Indiana '"a a-aoc. s Voo"' /e'^c" Kentucky Ca .e-rCi. Maryland 3a ' mc-e G e" Sam e Ha gs's'.owr- Massachusetts L'. 5 Newio" Michigan Ge:-o t T'Cv Minnesota Virnea00"S Missouri Anracors Kansas C ty S: Louis New Jersey Bojrc Brco* G oucesie' Ci'y ngn Mo"'StOwr So-:n Boura B'oo* Ws*. oe Naw York 0,,-gn2nnrC z `'`-S'O'C Jo^s N<?\\ VO'K Va( s Gaie vasts North Carolina C~S'oie Ohio Cmonna! Co'umpus t fa Oregon P'ccress po" ano Pennsylvania 3`oe Ft,age Su-nnv t'e F-aaewmtena South Carolina G<eenv ;e Tennessee Crattanocga Memc^'S Texas Arlington Oa"as Houston Teas C.:;/ Utah San l3k Ci\ Virginia CnesaDea*e Wisconsin t-q op Domestic Subsidiaries GAF Broaccasv^c Co^oa^. rz New Ycr N v GA= E*oo'' Cof'COfS!iOr New Yc-- N > Ca'o- "& Pue'*c R cc Gap Hc\',a ho.'-c'j ^ -'awa- GAF inie^a'-or.a. CC'OOra'-O^ New vO'* N i' Corporate Offices '-10 Wes: 5' Sree: A.e.\ vCr. \Y -002: 2"2 562 7600 Major International Manufacturing and Marketing Locations Australia Aoe a oe B-sca-e Weooo-'c PerS.one. Austria V'e^na Belgium S'n;-\,.aas Brazil Sso Pau c Canada Miss.ssa-.ga Mont'ea Toronto vanccj.-e' Denmark Bane'-p Finland rte S n. France LC 5 Great Britain Cz `20* O' ; Vs -? = = Greece A'ne"-; Ireland O-o - -Zi- Israel The Netherlands New Zealand We "gtr' Norway Os; Singapore S "0 South Africa Spain Ba'ceca Sweden S!00"0 Switzerland 2jq West Germany F-ec-e- Affiliates: GAFHuls Chemie G.m.b.H. Va- Ae~'3e-~a-'. Sawyer's Asia Pty. Ltd. Italy M- a-; Mexico We:' 2 GAF 12141 o: 37