Document O3mNZqzrrBDdy9j7X4kyVoJjX

1983 Annual Report to Shareholders PLAINTIFF'S EXHIBIT CertainTeed H CTD036727 31 Selected Financial Data ix l 1983 1982 1981 1980 1979 Net sales ... . ........................... . . $1,041,082 ^ Income (loss) from continuing operations ...................... 33,207 $827,036 $891,532 $868,227 $916,204 (7,141) (9,999) 4,496 V 23,537 1 j Income (loss) from continuing --: -r- . ........... 7 " operations per common share . . . ............ 1.73 . %86) " Xi:o7) 'Jli. ?# -Vt r--W " Total assets at year-end........................... 744.742, 616,903, 663,726 693,503 726,461 Long-term obligations and redeemable preferred stock at year-end . . . . 161,200 173,091 208,927 192,065 198,798 ; Cash dividends declared per common share -0- -0- .675 .90 .90 *7*vv3' A Corporate Profile CTD036729 Responsiveness... the concept of reacting quickly and sympathetically to the demands of the marketplace ... is a recurring theme throughout modem industry. But there's really nothing new about it. In actuality, it's little more than a series ofcomplex steps -- market research, research and development, manufacturing, marketing, selling, shipping -- undertaken in the hope of finding better ways to meet human needs. When the various steps succeed, both industry and its customers profit. Since our inception as a roofing manufacturer in 1904, we at CeitainTeed have grown and prospered by listening to our customers and responding to what they tell us. Today we're listening more closely than ever before. Our determination to respond with timely, quality products is given added impetus by our association with Group Saint-Gobain, one of the world's foremost industrial corporations and an acknowledged leader in glass and fiber glass technology. Consider the trio of basic needs we work to satisfy. Shelter. Energy. Water. Each is vital to our well-being. Each presents enormous opportunities. And each constitutes an everchanging marketplace. How we respond to the needs ofthose marketplaces will determine our future. Just as it has our past. Three ofour business entities -- the Shelter Materials Group, the Vinyl Building Products Division and the Building Materials Distribution Group -- serve the shelter market. Others -- the Insulation Group and the Fiber Glass Reinforcements Division -- provide ways to conserve energy. Still others -- the Pipe & Plastics Group and the Utility SupplyGroup--answer the needs ofthe water and wastewater markets. The following pages offer a brief overview of CertainTeed's contribution to today's world as pursued by our employees nationwide. Today, as in 1904, our commitment remains... Quality Made Certain... Satisfaction Guaranteed. jiudJ Michel L Besson President and Chief Executive Officer . CTD036730 CTD036731 Our Building Materials Distribution Group is comprised of two divisions:  The Shelter Materials Group, CertainTeed's original business activity, makes and markets felt- and fiber glassbased roofing shingles, along with Our Pipe & Plastics Group is anational ll-service provider of low maintenance CTD036737  yr ' >: ) > Ml ,,'lias's *-*7 Has M**'; ! v t{.*o5. ! lleV'rJQ<ahi UL"th f ' riPi 'dlml. ?: m '> x- vv ?&; < ' VI \ :!v V *Oo &3> 2 j= . C 3 ~I Is S' .S -C tn "S 00 . 4W--* 5>rt ctu-j < 3I ^ a cot oC ua- ^a3 = ^a; y waic c . jj J?' SUX '.-c313CTM ' las g E .2 ;: ^ ^-n S<u i?82 gs 3S o -o = si& o t^- 0C0 um- fl> .rOs . W ' r -J Cj 0) T3 tOn, J"wC C= ' ll Id / Tf'-M. 3 . 2OI .SO .i =SS. 52 g n M Sft=tuo !a|J"ni_=3>- s*UJ 5"Qsti^Egr5 lsc.e ". ifl*lH s Sets t; 55 S' o >, = S3 s-s . o o &> 8 !#sQ.5E i i3iK s2:' SlE=|5gs; 1--\ -11 sf i o > S ' 3! a* 3 t> s i CTD036738 The Utility Supply Group is the largest waterworks distribution network in the United States, and the only one operating wholesale outlets nationwide. USG's < ' ? = c 9 cSZ Q.& s. < a < jhO I => xc ca <? ->2^ 3aO<5.S* so ca S' J&O S I -0.0 JS'.Z22 2Cl o-g s >* o a Lu x 2 "51 CD ffi o' w- woo s5y 22 a. i 5S z ac : Q. Q I 51! *Si O <_ -.s IE :.Cc Oc ^ = |'e5 3 <3 .3 t CD CD O _u_l xy- ?5 gx H. r o >* o aS5rc* -- oo LUU.U. o z< <5 - 3^ o'< 01 8 8^ 1 =<o i.^ iguf^asiis'^tf < ; Oq.0iS- fi.&a^j^gu^"Sn.iS^2SrfSflissiaLTSrl^rd Ba> 13COO^Om5nif-r-cr280ff o2 iccS2: 5225-jOOaa<^/5w8c/55t08c/f)l<8oCc/)>H5552 ?-<o_. 3 s "" Sjjsg tltS 3sSaSoOc < <0 xo cO M 3 CDS Sg X *S2 PX ,K X , X -H oS g , ' C c * c ~ E : * O OIOC II u. i xoo 2 < i < 3 !_ CD Q. ( 1rft, -(-0 o- a> l> o> xO c= c x 033 i2 x x u. c TM H *" 2 cC? C Xo *>s5 < O co w i- - 5 $ *ic. <rn u O SJ ag s u.S< o TJ 38 Sl TOJ "C xtQ_iol_ o ,0 $c g-:IC'JS2OSO =o0->of 2 < a 5 cO < <2 jas XX?:xzvoJ-O"*.i;.a.g nO 0^ r " =o0#>. ^53O)=S-`x.2E^.1a>1q*coiooo1oi: c<OQOccocoj-> S=3OSC8. fC|i' g. 's.'S , S2? >aXS o CO Q_ CO CTD036739  ertainTeed will r. continue to guide its growth with a firm commitment to finding new and better ways of meeting basic human needs, as well as to satisfying changing mar ket requirements with innovative, quality products and services. t i CTD03674 CertainTeed Corporation PO Box 860 Valley Forge, PA 19482 215/687-5000 CertairileedlH Code No. 10-10-01 6-83 Printed in USA. CTD036741 Table of Contents Letter to Shareholders 2-3 Management's Discussion and Analysis of Financial Condition and Results of Operations ........................... 4-5 Consolidated Balance Sheet 6-7 Consolidated Statement of Income .................................................. 8 Consolidated Statement of Changes in Financial Position ............... 9 Notes to Consolidated Financial Statements 10-18 Reports on Financial Statements Directors and Executive Officers CTD036742 To Our Shareholders CertainTeed's prime objective for 1983 as communicated to you in last year's Annual Report was to improve profit performance. Sales for the year were $1.0 billion, up 26 percent from 1982. Net income, the highest achieved since 1978, was $33-2 million compared to a loss of $7.1 million the prior year. This can be attributed to the success of cost reduction programs, new and more efficient technology, lower fixed costs and improved customer demand. Internal efforts to reduce costs, manifest throughout the corporation, were especially evident in the fiber glass industry segment. This is of paramount importance since the focus of CertainTeed's expansion program, completed in 1980, was in this area. The fiber glass sector is the most capital intensive of CertainTeed's product lines. The higher level of demand enabled the Company to run the fiber glass plants at consistently favorable levels of utilization resulting in better absorption of overhead and improved profits. In 1983, fiber glass products achieved record sales and profits. Building materials sales were higher in 1983 than in 1982. Favorable progress in vinyl building products and building materials distribution was offset by unsatisfactory results in roofing. Roofing products were most seriously impaired by the recent recession. A continuation of intense competition resulted in average pricing last year that was below 1982. The short-term prospects for the restoration of more normal pricing levels this year are not positive. Because of programs being introduced to further reduce breakeven levels, the Company continues to view its roofing business as a sound venture for the long term. Piping products' 1983 results compare favor ably to the prior year. Profit margins increased because of an improved product mix in the PVC area. This segment also provides tangible evi- CTD036743 dence of productivity program enhancements. Productivity has increased almost 50 percent since 1978. CertainTeed has maintained a strong balance sheet despite the problems that have plagued the building materials industry for the past several years. While profitability has been restored, asset control programs remain in place. The 1983 Common Stock public offering and the private sale to Saint-Gobain added $70 million to equity and enabled CertainTeed to eliminate all short-term borrowings at mid year when seasonal demand for funds charac teristically is at its peak. CertainTeed is a more productive organization today than several years ago. Internal programs to improve efficiency are permanently in place with cost reductions identified for 1984,1985 and beyond. The Company is committed to maintaining a leadership role in supplying materials to the construction industries. While this implies the production of mature, commodity goods in a cyclical industry, the challenge of coping with fluctuating interest rates can be overcome successfully and adequate levels of profitability achieved by managing the Company as though the industry is always at the bottom of its cycle. CertainTeed responded positively to the eco nomic turnaround in 1983- The Company's prime objective for 1984 and 1985 is to improve profit performance through additional programs to lower costs and increase productivity. This goal becomes particularly important given the lack of consensus among forecasters regarding the strength and durability of economic growth for the next two years. Other company priorities include a special emphasis on development of new and improved products to meet customer needs, as well as quality assurance. John T. Gurash Chairman of the Board Michel L Besson President and Chief Executive Officer January 24, 1984 CTD036744 Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Summary 1983 Net sales and earnings for 1983 rose substantially above the depressed results of 1982. Full year 1983 net sales of 11,041 million increased 26% from 1982 due primarily to higher shipping volumes as the Company responded quickly to improving market conditions. Net income rose from a negative $7 million in 1982 to a positive $33 million in 1983- In addition to the higher activity level, the Company's 1983 earnings benefited from ongoing cost reduction programs, improved process technology, lower fixed costs and a sharp decrease in net interest expense. Shipping volumes increased in 1983 from 1982 in each of the Company's three business segments. Volumes for the fiber glass segment increased 25% while volumes for the building materials and piping products segments increased 26% and 17%, respectively. Pricing from 1982 generally improved with demand in 1983 for the fiberglass and piping products segments. While demand strength ened in the building materials segment, the industry continued to operate well below capacity, which forced 1983 selling prices below 1982 levels as producers aggressively competed for available business. The Company's improved 1983 sales performance from a year ago was aided by an improved economic environ ment which was particularly strong for the residential home construction and remodeling industries which the Company services. These interest-sensitive industries responded to the more favorable interest rates which prevailed during 1983- Increased demand in 1983 improved utilization of the Company's production capacity, particularly in the fiber glass segment where two mothballed production lines were reactivated. This led to better absorption of fixed costs in the Company's capital intensive fiber glass segment. A felt mill was also reactivated in 1983 due to the demand increase for roofing materials. Cost reduction and manu facturing efficiency programs coupled with decreasing fixed costs funher improved the Company's margins from 1982. Pension expense was reduced by 11.6 million as described in notes to the financial statements. Operating results in 1983 improved for all three of the Company's business segments although the building materials segment remained unprofitable due to depressed pricing for roofing products. Selling and administrative expenses for the Company decreased from 13% of 1982's sales to 11% of sales in 1983The change reflects substantially higher sales in 1983 and a lower provision for doubtful receivables due to the generally more favorable economic conditions. Interest expense, net of interest income was reduced from $19 million in 1982 to $11 million in 1983- Proceeds totaling $70.2 million from the second quarter 1983 sale of Common Stock transferred the Company from a net short-term borrowing position to a net short-term investing position for the second half of 1983- Prevailing short-term borrowing rates in the first halfof 1983 were also lower than the comparable period in 1982. Other income was substantially lower ii .< 1983 than 1982 due primarily to the 1982 gain on the sale of a West Coast property. o CTD036745 1982 Net sales of $827 million for 1982 fell 796 from 1981. Deteriorating market conditions caused shipping volumes to fell 6% from a year ago and generally forced lower pricing for the Company's products. The Company continued to adjust its cost structure to meet competitive market conditions. Cost reduction programs were intensified including the permanent closure of less efficient and underutilized manufacturing facilities, a reduction in employment levels, facility consolidations and organizational realignment. Plant efficiency improvements also were implemented during this period. Due to lower volume levels, the Company utilized approximately two-thirds ofits production capacity which represented a modest decrease from 1981. The liquidation of inventories carried at prior years' cost increased gross profit by $2.5 million. The tight control of working capital lowered borrowing requirements in 1982. This, combined with generally lower interest rates in 1982 from 1981, reduced interest expense by more than $6 million. 1981 Net sales rose 3% in 1981 from 1980. The increase reflects modest increases in both shipping volumes and pricing. The shipping volume increase occurred in a period of declining economic activity as evidenced by housing starts that fell nearly 16% from a year ago. While sales performance held up under deteriorating conditions, profits fell sharply. Profit margins were lowered substan tially by the Company's inability to fully pass through cost increases to price where demand remained soft. Costs associated with lower utilization of the Company's capacity also increased as manufacturing operations in the building materials and the piping products segments were scaled down due to declining demand. Liquidity and Capital Resources The Company manages cash centrally and pays fees to its banks in lieu of compensating balances for its con tractual revolving credit facilities and for some noncredit services. Credit facilities are in place to satisfy seasonal cash requirements and provide a variety of short-term bor rowing options. The public issuance of 1.43 million shares of Common Stock in June 1983 combined with the simul taneous private placement of an additional 1.87 million Common shares to Saint-Gobain eliminated the need for seasonal short-term borrowing during the course of the second half of 1983, and resulted in a short-term invest ment position of approximately $100 million at December 31, 1983- Capital Spending and Resources Capital expenditures in 1981 through 1983 were necessary replacements or quality and productivity improvement projects. Funds provided by operations financed the 1981 through 1983 capital expenditures as depreciation charges exceeded capital spending in all three years. Inflation The effects of inflation are discussed in Note 11 of the Notes to Consolidated Financial Statements in this report. 0 CTD036746 Consolidated Balance Sheet CertainTeed Corporation December 31. 1983 and 1982 Dollars in Thousands. Except for Per Share Amounts Assets 1983 1982 Current Assets: Cash (including interest-bearing deposits' of $99,955 in 1983) Accounts and notes receivable .............................................................................. Less: Allowances for doubtful receivables ($4,627 and $4,039) and discounts and allowances..................................... Inventories at lower of first-in, first-out cost or market: Raw materials and supplies.................................................................................. Work in process ................................................................................................... Finished goods....................................................................................................... Less: LIFO reserve ............................................................................................... Deferred Federal income taxes .............................................................................. Total current assets ................................................................................................... Prepaid Expenses and Other Assets ...................................................................... Investments in Affiliates ........................................................................................... Property, Plant and Equipment, at cost: Land ....................................................................................................................... Buildings ........................................................................................................................... Equipment........................................................................................................................... Construction in progress ....................................................................................... Less: Accumulated depreciation ................................................................................. Intangible Assets, principally patents, at amortized cost ..................................... $102,466 164,983 $ 2,538 130,842 (11,409) 153,574 (9,030) 121,812 31,206 14,970 111,953 158,129 (44,080) 114,049 7,993 26,651 12,534 104,356 143,541 (40,977) 102,564 11,094 378,082238,008 14,230 15,523 7,707 7,338 8,346 8,770 130,686127,441 506,242488,310 15,026 8,974 660,300 633,495 (318,765(2)81,989) 341,535 351,506 3,188 4,528 $744,742 $616,903 0 CTD036747 Liabilities and Stockholders' Equity Current Liabilities: Trade accounts payable .......................................................................................... Accrued Federal income taxes .............................................................................. Accrued liabilities...................................................................................................... Current installments of long-term debt .................................................................. Total current liabilities.................................................................................. Long-Term Debt, less current installments ............................................................. Deferred Federal Income Taxes and Other Liabilities............................................. Redeemable Preferred Stock: Series D, $1 par value, issued and outstanding 1,440,000 and 1,600,000 shares ($25 per share liquidation preference and mandatory redemption price) ............................. Nonredeemable Preferred Stock: Series C Convertible, $1 par value, issued and outstanding 1,000,000 shares in 1982 Common Stock: $1 par value, authorized 40,000,000 shares, issued and outstanding 18,968,587 and 14,317,703 shares ......................................... Capital in Excess of Par Value...................................................................................... Cumulative Translation Adjustments .......................................................................... Retained Earnings........................................................................................................... The accompanying notes are an integral part of this statement. 1983 1982 $ 92,258 1,344 50,616 7,899 152,117 $ 70,596 -0- 43,889 8,221 122,706 125,200 133,091 43,426 33,650 36,000 40,000 -0- . 1,000 18,969 14318 188,957 120,077 (8,676) (8,676) 188,749 $744,742 160,737 $616,903 o CTD036748 Consolidated Statement of Income CertainTeed Corporation Years ended December 31, 1983, 1982 and 1981 Dollars in Thousands, Except for Per Share Amounts Net sales......................................................... Cost of goods sold ..................................... Selling and administrative expenses . . . Operating profit (loss)............................. Interest expense ($14,460, $20,413 and $26,583), net of interest income . . . . Other income, net of deductions . . . . Profit (loss) before income taxes . . . Income tax provision (credit).................... Income (loss) from continuing operations Loss from discontinued operations, net of income taxes ................................. Net income (loss)..................................... Earnings (loss) per common share: Continuing operations ............................. Net income (loss)..................................... 1983 1982 1981 $1,041,082 860,637 114,575 65,870 $827,086 724,834 106,147 (3,895) $891,532 788,010 110,300 (6,778) (11,085) 1,540 56,325 23,118 33,207 (19,005) 5,615 (17,285) (10,144) (7,141) (25,530) 5,779 (26.529) (16.530) (9,999) -0 $ 33,207 -0- (917) $ (7,141) $(10,916) $1.73 $1.73 $(.86) $(.86) $(1.07) $0.14) The accompanying notes are an integral part of this statement. Q CTD036749 Consolidated Statement of Changes in Financial Position CertainTeed Corporation Years ended December 31. 1983, 1982 and 1981 Dollars in Thousands Income (loss) from continuing operations .......................................... Items not affecting cash: Depreciation ........................................................................................... Amortization of patents and other intangibles ................................. Deferred taxes ....................................................................................... Unremitted earnings of affiliates .......................................................... Cash provided by earnings ...................................................... Changes in: Federal income taxes ........................................................................... Inventories............................................................................................... Accounts and notes receivable .......................................................... Trade accounts payable and accrued liabilities................................. Other ....................................................................................................... Total cash provided by operations ......................................... Dividends ................................................................................................... Cash provided by operations and retained in business ..................... Investing activities: Purchases of property, plant and equipment ..................................... Disposals of property, plant and equipment at net book value .................................................................................. Cash available (required) before financing ......................... Financing activities: Proceeds from sale of Common Stock .............................................. Common Stock issued in payment of Series C Convertible Preferred Stock dividends.................................................................. Common Stock issued upon conversion of Series C Convertible Preferred Stock.............................................................. Conversion of Series C Convertible Preferred Stock ......................... Redemption of Series D Preferred Stock .......................................... Increase in long term debt .................................................................. Reduction of long-term debt including current installments ....................................................................................... Reduction of short-term debt .............................................................. (Increase) decrease in cash and short-term investments...................................................................... Net financing activities.............................................................. The accompanying notes are an integral part of this statement. 1983 1982 1981 $ 33,207 1 (7,141) $ (9,999) 45,057 973 18,225 (372) 97,090 49,663 1,077 (10,357) (940) 32,302 54,199 1,153 2,168 (3,162) 44,359 (1,680) (11,485) (31,762) 28,389 (636) 79,916 (5,195) 74,721 18,622 3,645 (12,945) 7,327 723 49,674 (3,050) 46,624 (3,936) (1,495) 10,083 (20,671) 2,351 30,691 (13,219) 17,472 (38,188) (24,043) (29,886) 3,102 $ 39,635 6,764 t 29,345 4,977 $ (7,437) $ 70,178 $ 15,000 $ - 0 - 2,328 1,250 (1,250) (4,000) , -0- 652 25,013 (8,213) -0 - (38,169) (6,500) (9,533) (8,610) (99,928) $(39,635) (328) 567 $(29,345) $ 7,437 o CTD036750 Notes to Consolidated Financial Statements Note 1: Significant Accounting Policies PRINCIPLES OF CONSOLIDATION. The accompanying financial statements include the accounts of CertainTeed Corporation and its subsidiaries. Investments in affiliates include 20%- to 50%-owned entities accounted for on the equity method. ACCOUNTING FOR FOREIGN CURRENCY TRANSLATION: Beginning January 1982, financial statements of the Company's 39%-owned Mexican affiliate are translated to U S. dollars in conformity with FAS No. 52. Since the Company's affiliate operates in a highly inflationary economy, translation adjustments are being charged to income. The aggregate exchange loss included in the results of operations for 1982 was $.9 million. The amounts for 1983 and 1981 were not material. INVENTORIES. Inventories are stated at the lower of cost, principally last-in, first-out (UFO), or market. DEPRECIATION. Depreciation on plant and equipment is computed by the double-declining balance method for fiber glass insulation assets and by the straight-line method for other fixed assets based on estimated useful lives of the assets. INCOME TAXES: Deferred income taxes are provided to reflect the results oftiming differences in computing income for financial and income tax reporting. The principal timing difference results from computing depreciation for financial reporting primarily by the straight-line method and for income tax reporting by accelerated methods. Investment tax credits are applied, as available, as a reduction of income tax expense. INTANGIBLE ASSETS: Costs of purchased patents are amortized by the straight-line method over the legal lives of the patents, iveoperating expenses related to new facilities are expensed in the year incurred. Good will is insignificant. EARNINGS PER COMMON SHARE: Earnings per common share are computed on the weighted average number of common shares and dilutive Common Stock equivalents outstanding each year, after adjustment for the dividend requirements on Series D Preferred Stock. Note 2: Pension Plans The Company has several pension plans covering substantially all employees. Total pension expense was $5 2 million in 1983, $6.8 million in 1982, and $8.0 million in 1981. During 1983, changes in actuarial assumptions reduced pension expense by $1.0 million. During 1982, group annuity contracts covering substantially all retirees as of December 31, 1981 were purchased at favorable terms resulting in an $8.1 million actuarial gain which is being amortized over ten years. The amounts below at January 1,1982 include retirees for which annuity contracts were purchased during 1982. The Company makes annual contributions to the plans equal to the amounts accrued for pension expense, including amortiza tion of past service cost over 30 years. A comparison of accumu fated plan benefit information, as estimated by consulting actuaries, and plan net assets is presented below. Dollars in Thousands Actuarial present value of accumulated plan benefits: Vested............................................. Nonvested ...................................... Net assets available for benefits .... January 1 1983 1982 $ 29,975 6,005 $ 35,980 $ 62,741 t 42,890 6,326 $ 49,216 $ 66,269 The interest rate used above to calculate the present value of accumulated plan benefits was 9 3% in 1983 and 10% in 1982, based upon rates issued by the Pension Benefit Guaranty Corporation. CTD036751 Note 3: Debt At December 31, 1983, the Company had separate unsecured revolving credit agreements with a number of banks totaling 190 million currently expiring December 31, 1985 with the expiration date automatically extended each quarter and an unsecured $50 million revolving credit agreement cancelable upon eleven months' notice. In lieu of compensating balances, the Company pays commitment fees on the unutilized portion ofthese lending commitments. Long term debt, excluding amounts due within one year, consists of: Dollars in Thousands Notes payable to insurance companies with average interest at 10.2% payable through 1995 ....................... Industrial revenue bonds with average interest at 6.9% payable through 2010 Other ..................................................... 1983 1982 $ 81,700 $ 88,250 37,190 6,310 $123,200 38,075 6,766 $133,091 Maturities of long-term debt at December 31,1983 for each ofthe five years through 1988 are (in thousands): 1984 -- $7,899,1985 -- $10,047, 1986 -- $9,483, 1987 -- $9,415, 1988 -- $9,572. Certain of the Company's loan agreements protide, among other matters, for prepayment options, the maintenance of a prescribed amount of consolidated working capital, and certain limitations on the declaration of cash dividends. Pursuant to the terms of these restrictions, there were $47.2 million of retained earnings available for payment of dividends on Common Stock at December 31, 1983 The net book value of property, plant and equipment pledged as collateral under mortgages and industrial revenue bonds approximated, $13 7 million as of December 31, 1983. Note 4: Income Taxes The provision for income taxes applicable to continuing operations consists of: Dollars in Thousands 1983 1982 1981 Current Federal income tax (credits) ................... Deferred Federal income taxes .............................. State income taxes .... $ 2,640 $ 163 $(18,398) 18,225 2,253 $23,118 (10,357) 50 2,168 (300) $(10,144) $(16,530) Deferred Federal income taxes are the tax effects related to timing differences between amounts allowed for tax purposes and those included in financial reporting, as follows: Dollars m Thousands Depreciation....................... Net operating losses . . . Investment tax credit . . . Reserves for doubtful receivables and allowances ................... Other, net........................... 1983 $ 1,929 8,312 5,683 1982 1981 $ 2,651 $ 4,278 (8,312) -0- (1.887) (2,251) 854 1,447 $18,225 (1,745) 0,064) 117 24 $00,357) $ 2,168 A reconciliation ofFederal income taxes at the statutory rate to the Company's income tax provision follows: Dollars in Thousands [ncome tax provision at statutory rate................... Investment tax credit . . . Income applicable to affiliates........................... Other, net........................... Income tax provision . . . 1983 1982 1981 $25,910 $ (7,951) $02,203) (1.976) 0.887) (2,251) (211) (605) $23,118 (519) 213 $(10,144) 0,513) (563) $06,530) The Federal income tax returns of the Company have been examined through December 31, 1981 and no adjustments are pending. CTD036752 Notes to Consolidated Financial Statements Continued Note 5: Discontinued Operations During 1981, the Company incurred a loss of 1.9 million (net of income tax benefit of $.8 million) under an indemnity agreement with a real estate investment, trust. Note 6: Other Income, Net of Deductions Dollars in Thousands Royalty income................... Income applicable to affiliates.......................... Gain (loss) on disposals of property, plant and equipment, net............... Provision for plant shutdown expenses ....................... Other, net.......................... 1983 $ 960 1,371 1982 $ 1,047 1,812 1981 t 1,640 4,743 (818) 4,275 2,241 (182) 209 $1,540 (3,957) 2,438 $ 5,615 (2,754) (91) $ 5,779 Note 7: Contingencies At a retrial in 1983 ofa suit brought by a former sales agent, the jury' returned a damage verdict on contract and fraud claims in the amount of $3-8 million which the Company has appealed. It is the opinion of the Company's outside counsel that the verdict is not supportable and will be vacated and that a new trial will be required. It is management's opinion, based in part upon the opinion of the Company's counsel, that the ultimate outcome of this suit will not materially affect the Company's operations or financial position. The Company is a patty to a number of other legal actions arising in the ordinary course of its business. In management's opinion, the Company has adequate legal defenses and/or insurance coverage respecting each of these actions and does not believe that they will materially affect the Company's operations or financial position. Note 8: Redeemable Preferred Stock A total of 4,000,000 shares is authorized collectively for all series of preferred stock. The Series D Preferred Stock is entitled to one vote per share. Dividends are cumulative at an annual rate of 7%% and payable quarterly. The mandatory redemption requirements are $4 million annually on each January 1 in the years 1984 through 1987, and the remaining $20 million on January 1,1988. The Company's parent, Compagnie de Saint Gobain ("SaintGobain"), owns 55% of these shares. CTD036753 Note 9: Changes in Other Stockholders' Equity Dollars in Thousands Balance at December 3i, 1980 .................... Net loss ........................................................ Dividends: Common Stock ($.675 per share) . . . Series C Convertible Preferred Stock ($1.05 per share) ........................ Series D Preferred Stock ($1.91 pier share) ................................ Balance at December 31, 1981 .................... Effect of adopting FAS No. 52 as ofJanuary 1, 1982 .................... Net loss ........................................................ Sale of Common Stock ................................ Dividends on Series D Preferred Stock ($1.91 per share) ............................ Translation adjustments................................ Stock options ................................................ Balance at December 31, 1982 .................... Net income . ................................................ Sale of Common Stock ................................ Dividends.- Series C Convertible Preferred Stock . . Series D Preferred Stock ($1.91 per share) ................................ Conversion of Series C Convertible Preferred Stock ........................................ Stock options ................................................ Balance at December 31, 1983 .................... Series C Convertible Preferred Stock $ 1,000 Common Stock $13,510 Capital in Excess of Par Value $105,877 Cumulative Translation Adjustments $ -0- 1,000 1,000 13,510 105,877 806 14,184 2 14,318 3,300 99 16 120,077 66,878 2,229 -0(1,391) (7,285) (8,676) (1,000) $ -0- 1,250 2 $18,969 (250) 23 $188,957 $ (8,076) Retained Earnings $195,063 (10,916) (9,119) (1,050) (3,050) 170,928 (7,141) (3,050) 160,737 33,207 (2,450) (2,745) $188,749 On June 1, 1983, the Company completed the sale of 3,300,000 shares of Common Stock. The Company's parent, Saint-Gobain, purchased 1,870,000 shares, and 1,430,000 shares were sold through a public offering. During the second quarter of 1983, the Company declared dividends of $2,450 on the Series C Convertible Preferred Stock which was comprised of $2,100 of dividend arrearages from October 1,1981 through March 31,1983, and the regular quarterly dividend of $350. These dividends were paid to Saint-Gobain in the form of 98,884 shares of Common Stock after deducting applicable withholding taxes. On June 30, 1983, Saint-Gobain converted the 1,000,000 shares of Series C Convertible Preferred Stock into 1,250,000 shares of Common Stock. At December 31,1983, retained earnings included $9.4 million of undistributed earnings of affiliates. 0 CTD036754 Notes to Consolidated Financial Statements Continued Note 10: Industry Segments The Company's industry segments are Fiber Glass Products, Building Materials and Piping Products. "Fiber Glass Products" is comprised of the manufacture and sale of residential, industrial and automotive insulations; and fiber glass reinforcements. "Building Materials" is comprised of the manufacture and sale of asphalt roofing, vinyl siding and millwork products; and the wholesale distribution of these and other materials. "Piping Products" is comprised of the manufacture and sale of PVC and A/C piping, and the jobber distribution of pipe and pipe system components. Dollars in Millions Net Sales: Fiber glass products Building materials Piping products Intersegment sales Operating Profit: Fiber glass products . . Building materials . . . Piping products .... General corporate expenses Interest expense, net of interest income Other income, net .................................... Profit (Loss) Before Income Taxes Depreciation and Amortization: Fiber glass products ............................ Building materials ................................ Piping products .................................... General corporate ................................ Capital Expenditures: Fiber glass products ............................ Building materials ................................ Piping products .................................... General corporate ................................ Identifiable Assets at End of Year: Fiber glass products ............................ Building materials ................................ Piping products .................................... General corporate ................................ 1983 $ 411.7 387.2 260.7 (18.5) $1,041.1 $ 70.6 (4.2) 11.5 77.9 (12.0) 65.9 (11.1) 1.5 $ 56.3 $ 27.5 11.0 6.2 1.3 $ 46.0 $ 18.1 10.9 6.1 3.1 $ 38.2 $ 288.1 186.7 127.1 142.8 $ 744.7 1982 $328,1 313.2 198.2 (12.4) $827.1 $ 17.8 (11.6) .2 6.4 (10.3) (3.9) (19.0) 5.6 $07.3) $ 32.3 10.8 6.4 1.2 $ 50.7 $ 12.2 7.5 3.8 .5 $ 24.0 $289.1 1691 118.2 40.5 $616.9 1981 $334.6 329.6 239.7 (12.4) $891.5 $ 14.1 (14.2) 4.6 4.5 (11.3) (6.8) (25.5) 5.8 $(26.5) $ 36.8 10.7 6.8 1.1 $ 55.4 $ 18.0 6.7 4.4 .8 $ 29 9 $301.2 177.5 128.7 56.3 $663.7 CTD036755 Classes of Products Representing More Than 10% ofConsolidated Company Sales: Thermal Insulation (Fiber Glass Products) ........................................ ............................ Roofing (Building Materials)............................................................... ............................ PVC Pipe (Piping Products) ............................................................... ............................ 1983 32.2% 19.8% 10.6% 1982 32.9% 20.6% 9.4% 1981 31.1% 21.1% 10.8% Note 11: Effects of Inflation (Unaudited) The primary financial statements contained in this report have been prepared on a historical cost basis, using the actual prices and costs of transactions when they occurred. The supplemental information contained in this footnote is intended to address two different aspects ofan inflationary environment: (1) the effect of general inflation on the purchasing power of the dollar (called "Constant Dollar"), and (2) the specific price changes in the resources used by the Company (called "Current Cost"). This information has been prepared in accordance with the require ments of FAS No. 33, "Financial Reporting and Changing Prices." The effects of general inflation were computed by using the Consumer Price Index for All Urban Consumers to adjust historical costs to 1983 equivalent val ues. The current cost ofproperties was primarily calculated by applying appropriate specific indices to historical book values Although the indices used to compute current costs appear to be compatible with the changing costs experienced by the Company, the actual current costs that will occur upon ultimate replacement of assets in the future could differ significantly. Depreciation was recomputed using the same methods and asset lives as used in the primary financial statements. The current cost of inventories is based principally on the use ofFIFO assumption of inventory usage. The adjustments made to historical cost of sales under inflation accounting methods are small because UFO, the principal accounting method used by the Company for valuing inventories, effectively results in current cost of sales. The additional amounts charged to cost of sales under these methods reflect the adjustment of non UFO valued inventories. No adjustments have been made in this presentation to the historical basis income tax provisions. Current tax laws do not allow deductions for current cost depreciation, so the taxes levied on the Company exceed the statutory rate, after the data is adjusted for the impact of inflation. CTD036756 Notes to Consolidated Financial Statements Continued Statement of Income from Continuing Operations Adjusted for Changing Prices Year Ended December 31, 1983 Dollars in Thousands Net sales ............................................................... Cost of goods sold, excluding depreciation . . Depreciation ....................................................... Other expenses, net ........................................... Income taxes ....................................................... Total costs and expenses .................................... Income from continuing operations ................ Income per common share -- continuing operations ....................................................... OTHER INFORMATION Purchasing power gain from holding net monetary liabilities during the year ................................ Increase in general price level of inventories and property, plant and equipment held during the year................................................................ Less effect of increase in specific prices* . . . Excess of increase in general price level over increase in specific prices................................ As Reported in the Primary Statements (Historical Cost) $1,041,082 818,534 45,057 121,166 23,118 1,007,875 $ 33,207 $1.73 Adjusted for Genera] Inflation (Constant Dollar) $1,041,082 820,850 66,577 121,166 23,118 1,031,711 $ 9,371 $38 $ 5,036 Adjusted for Changes in Specific Prices (Current Cost) $1,041,082 820,850 64,454 121,166 23,118 1,029,588 $ 11,494 $.50 $ 5,036 $ 25,234 16,463 $ 8,771 'At December 31. 1983, the current cost of inventory and net property, plant and equipment was $158,1 million and $502.8 million, respectively. CTD036757 Five-Year Comparison of Selected Supplementary Financial Data Adjusted for Effects of Changing Prices In Average 1983 Dollars Years Ended December 31. Dollars in Thousands. Except for Per Share Amounts 1983 Net sales ................................................................ HISTORICAL COST INFORMATION ADJUSTED FOR GENERAL INFLATION Income (loss) from continuing operations . . Income (loss) from continuing operations per common share........................................ Net assets at year-end .................................... CURRENT COST INFORMATION Income (loss) from continuing operations . . Income (loss) from continuing operations per common share........................................ Net assets at year-end .................................... OTHER INFORMATION Excess of increase in general price level of inventories and properties over increase in specific prices ........................................ Purchasing power gain from holding net monetary liabilities during the year .... Cash dividends per common share ................ Market price per common share at year-end Average consumer price index........................ $1,041,082 9,371 -38 604,640 11,494 .50 583,381 8,771 5,036 -019.90 298.4 1982 $853,692 (36,236) (3-01) 479,512 (36,108) (3-00) 506,192 28,153 9,541 0 18.74 289.1 1981 $976,627 1980 $1,049,753 1979 $1,257,568 (38,239) (3.19) 555,270 (44,757) (3-67) 584,299 (21,655) (2.00) 590,399 (29,777) (2.60) 635,273 10,372 -32 640,302 473 (-41) 683,347 6,677 20,964 .75 12.33 272.4 33,834 32,748 1.08 13-85 246.8 9,463 35,933 1.24 19.13 217.4 CTD036758 Notes to Consolidated Financial Statements Continued Note 12: Quarterly Data (Unaudited) Dollars in Thousands, Except for Per Share Amounts Three Months Ended Net sales......................................................... . Gross profit ................................................. . Net income ............................................ . Earnings per share ..................................... . Average common shares ........................ . Stock price range (c): High .................................................... . . Low........................................................ . . Three Months Ended Net sales............................................................ Gross profit .................................................... Net income (loss)............................................ Earnings (loss) per share................................ Average common shares ................................ Stock price range (c): High ............................................................ Low................................................................ March 3L 1983 $221,363 32,825 2,232 .08 14,319 227s 177/s June 30, 1983 $266,856 46,505 8,786 .48 16,723 September 30, 1983 $293,980 55,984 14,214 .71 18,969 December 31, 1983 $258,883 45,131 7,975 38 18,969 25 24j/8 23'A 20Vs 19% 19% March 31, 1982 $168,890 9,228 (9,468) (.78) 13,510 12 10% June 30, 1982 $207,940 16,678 (5,868) (.52) 13,510 September 30, 1982 $242,118 39,851 5,450 32 13,512 December 31, 1982 $208,138 36,495 2,745 .12 13,652 12% 14 20% 107b 11 13 (a) During 1982, certain inventory quantities were reduced which resulted in the liquidation of inventories carried at prior years' cost. The effect of the reductions increased gross profit by $.3, $1,9, and $.3 million in the second, third, and fourth quarters of 1982, respectively (b) Common stock dividends have been omilted since the third quarter of 1981. Additional information is in Note 3. (c) The New York Stock Exchange is the principal market and prices are based on the Composite Tape. The Company's Common Slock is also listed on the Pacific Stock Exchange. As of December 31. 1983, there were 6,939 holders of record of Common Stock, 0 CTD036759 Reports on Financial Statements TO THE SHAREHOLDERS The management of the Company has prepared the accompanying consolidated financial statements. Their consistency and objectivity are the responsibility of management These statements were prepared in accord ance with generally accepted accounting principles appropriate in the circumstances, based on our best estimates and judgments and giving due consideration to materiality. The Company maintains internal control systems designed to provide reasonable assurance that the books and records reflect the transactions of the Company and that its assets are protected from loss or unauthorized use. A staff of internal auditors reviews the Company's internal controls and accounting practices. The Audit Committee of the Board of Directors, composed solely of nonmanagement directors, meets periodically with the independent auditors, management and internal auditors to review the work of each. The independent auditors have free access to this Committee to discuss the results of their audit work, the adequacy of internal accounting controls and the quality of financial reporting. /jutiJ BOARD OF DIRECTORS CERTAINTEED CORPORATION VALLEY FORGE, PENNSYLVANIA We have examined the consolidated balance sheet of CertainTeed Corporation as of December 31, 1983 and 1982, and the related consolidated statements of income and of changes in financial position for each of the three years in the period ended December 31, 1983- Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of accounting records and such other auditing procedures as we considered necessary in the circum stances In our opinion, the financial statements referred to above present fairly the consolidated financial position of CertainTeed Corporation at December 31, 1983 and 1982, and the consolidated results of its operations and changes in its financial position for each of the three years in the period ended December 31,1983, in conformity with generally accepted accounting principles applied on a consistent basis except for the change, with which we concur, made as ofJanuary 1, 1982 in the method of accounting for foreign currency translations which is described in Note 1 to the consolidated financial state ments. Michel L Besson President and Chief Executive Officer Philadelphia, Pennsylvania January 20, 1984 J.E. Zimmerman Senior Vice President and Chief Financial Officer Valley Forge, Pennsylvania January 20, 1984 CTD036760 Directors and Executive Officers Directors JOHN T. GLIRASH Chairman of the Board CertainTeed Corporation MICHEL L. BESSON Vice Chairman of the Board President and Chief Executive Officer CertainTeed Corporation JEAN L. BEFFA President and Chief Operating Officer Compagnie de Saint-Gobain ROGER FAUROUX Chairman and Chief Executive Officer Compagnie de Saint-Gobain JOHN T. FEY Chairman of the Board National Westminster Bank USA MARYJ. HEAD PHILIPPE MALET ROGER MARTIN Chairman Emeritus Compagnie de Saint-Gobain robert e McDonald Vice Chairman and President, Retired Sperry Corporation MARTIN MEYERSON Chairman University of Pennsylvania Foundation President Emeritus and University Professor University of Pennsylvania ALAIN MINC Chief Financial Officer Compagnie de Saint-Gobain Executive Officers MICHEL L. BESSON President and Chief Executive Officer MYRON P. SIMMONS Senior Vice President Administration & Law JOHN E. ZIMMERMAN Senior Vice President Chief Financial Officer JOHN W. BELTJR. Vice President President, Vinyl Building Products Division PETER R. DACHOWSKI Vice President and Comptroller THOMAS A DECKER General Counsel and Secretary RICHARD A DeCOSTE Vice President President, Shelter Materials Group THOMAS A DOUGHERTY Vice President Industrial Relations JEAN M. FOGUZZO Treasurer RENE GOUTTE Vice President President, Insulation Group DONALD S. HUML Vice President President, Utility Supply Group LESTER F. KAAS Vice President Administration JOHN D. KEOHANE Vice President Internal Audit THEODORE F MERKEL Vice President Information Systems GUDDEND. O'CONNOR Vice President President, Building Materials Distribution Group DOUGLAS E POTTER Vice President President, Fiber Glass Reinforcements Division FRED TIMPE Vice President President, Pipe & Plastics Group CTD036761 TRANSFER AGENTAND REGISTRAR Manufacturers Hanover Trust Co. 450 West 33rd Street New York, N.Y. 10001 COMMON STOCK LISTED New York Stock Exchange Pacific Stock Exchange ANNUAL MEETING The Annual Meeting of Share holders will be held on Tuesday, May 22,1984. Information concerning the time and place of die meeting will be prcT' ....... vided in the notice of the Annual Meeting. 10-K AVAILABILITY Requests for the Company's Form 10-K filed with the Securities and Exchange Commission, and any other inquiries from individual and institutional investors, should be directed to: CertainTeed Corporation Investor Relations Department P.O. Box 860 Valley Forge, Pa. 15)482 (215) 687-5000 CertainTeed Corporation P.O. Box 860 Valley Forge, PA 19482 Certairifeedn CTD036763