Document jBgQL8qppdvXB56K7Bb5VOOny

J n .V j'f GAF 13129 Message to our Shareholders Chemical Building Materials Other Businesses Corporate Directors and Officers Review of Consolidated Financial Information Summary of Significant Accounting Policies Consolidated Statements of income Consolidated Statements of Changes m Financial Position Consolidated Balance Sheets Notes to Consolidated Financial Statements Auditors Opinion GAF Products and Services GAF Locations 2 6 10 14 16 18 21 23 24 25 26 28 35 36 38 &GAF CORPORATION 1981 0100-026 Pnntea m USA GAF 13130 Financial Highlights Nat Salas Income from Continuing Operations Income (Loss) from Discontinued Segments Net Income (Loss) 1979 $683.749.000' $ 25,828.000 2.355.000 $ i8.183.000" 1978 $608,968,000' $ 28.056.000 6.108.000 $ 34.164.000 Earnings per Common Share Primary Continuing Discontinued Net Income (Loss) $ 1.66 $ 1.83 .17 46 $ 1.83 T729 Fully Diluted Continuing Discontinued Net Income . $ 1.49 .13 $ 1.62 $ 1 62 35 $ 1.97 Cash Dividends per Preferred Share Common Share -~ $ 1.20 $ .68 $ 1.20 $ 64 `Restated to exclude amounts applicable to discontinued segments--See Note 1 ot Notes to Consolidated Financial Statements. .-.i. - Figure omitted--not dMutwe:SeeNote 5cf Notesto Consolidated Financial Statements. Tha 1981 Annual Maeting of Sharahaldars will ba haM at IfeOO aun., Tuesday, April 28, at tha Beverly WilsMre Hotel, 9500 Wilshira Boulevard, Beverly Hills, Califomia Stock Transfer Agent and Registrar: Citibank, N.A. ill Wall Street New York NY 10043 GAF offers holders of its common and preferred stock the opportunity to buy additional shares through an automatic dividend reinvestment service, administrated by Citibank, N.A. Form 10-K as filed with the Securities and Exchange Commission may bo obtained, free of charge, by writing to: OAF CORPORATION 140 West 51 Street New York NY 10020 Investor Relations 1 GAF 13131 In 1980, GAF sales from continuing chemicals and building materials busi nesses were $677.2 million, compared with sales of $683.7 million in 1979. A loss of $233.5 million, or $17.57 per share primary, was experienced in 1980. compared with earnings of $28.2 mil lion. or $1.83 per share primary the prior year. 1980 results include a provision of $244.2 million after taxes, to cover the estimated costs of discontinuing several businesses. Recession, interest costs The economic recession and high inter est rates in 1980 depressed demand for building materials and held chemical sales to an eight percent increase over 1979 levels. Profits in both of GAF's con tinuing businesses were off significantly-17 percent in chemicals, from $62.4 million to $52 million and 54 per cent in building materials, from $29.7 million to $13.7 million. Total 1980 direct operating profits from the two groups were $65.7 million, compared with 1979 direct operating profits of $92.1 million. It is the firm belief of GAF management that when the economy recovers, as it must, construction activity will be restored to more normal levels and the company s sales and profit picture will improve substantially. The year recently ended was difficult for American business and GAF was typi cal of many companies in feeling the pressures. As with other companies. GAF's debt service became increas ingly burdensome, rising some 50 percent from 1979 The interest rates affected GAF's cus tomers as well, reducing demand for many products. Residential building contractors, for example, found it pro hibitively expensive to borrow money to assemble land parcels for subdivisions or to build houses on speculation Remodeling jods, usually a stabilizing influence m periods of low housing starts, also suffered as customers chose to wait for interest rates to aecime rather than taxe loans at nigh rates Lower demand for building materials and increased costs of debt service put severe strains on GAFs resources and restricted our ability to invest in projects critical to future competitive capaDility The problem in 1980 became one of how best to position GAF for future growth in this new reality. The program arrived at by company management was outlined on Decem ber 30,1980. when GAF announced it was classifying as discontinued, for ac counting purposes, several businesses, including: worldwide reprographics, with plants in the U.S.A.. Europe and Australasia: a worldwide sheet vinyl and tile floor ing, with three plants in the U S A. and one in Ireland; graphic arts products for the printing industry, with facilities in Binghamton, New York; pictorial products, including View-Master* stereo products, with major plants in Oregon and Belgium. paper and millboard, a small but profitable business with a plant in Erie. Pennsylvania; c vinyl siding, with operations in Gloucester City, New Jersey. automotive felts and mastics, with a plant in Joliet, Illinois (This plant was Closed during 1980 due to a failoff in demand as car sales slumped ) 2 GAF 13132 GAF 13133 - WNCN-FM. GAF's classical music radio station in New York City, latex operations in Chattanooga. Tennessee, which were sold in early Decemoer Businesses operating All but one of these businesses are still operating; some are profitable, some are marginal or unprofitable. In all cases, however, profit potential exists. Changes were made in GAF's long-term debt instruments and a credit line of up to $225 million is being arranged. These are described in the Management's Discussion section on page 19. The specifics of the discontinued businesses are detailed in the "Other Businesses" section of this report; at this point we will only comment that dis cussions are under way with potential purchasers for most of the businesses. By selling the businesses it is offering, GAF can reduce debt and continue its program of investing in roofing and chemicals lines, which have traditionally had the greatest returns on assets. Despite the setbacks of 1980. the company made significant progress in preparing its building materials and chemical operations for future growth. The new chemical plant in Seadrift. Texas, was completed during the year. It went through a smooth start-up and is now producing butynediol in commer cial quantities. The protect was on schedule and under budget. An efficient, closed loop transportation system ensures a steady llow of mate rials between plants at the most eco nomical cost. Butynediol is shipped from Seadrift to the comoany s chemical plants in Texas City, Texas, and Calvert City, Kentucky, where it is used to make many other chemicals. Using the same tank cars, these plants ship formalde hyde they make back to Seaarift. where it is used to make butynediol Improvements in procurement and distribution were made throughout the company in 1980. with the imDlementation of newly introduced materials management techniques This |0b has not yet been completed, but significant progress was made during the year, GAF's roofing strategy of building for the future also progressed in 1980 The company can satisfy customer require ments for both glass-based and organic felt-based products (still the far greater part of the market). With its broad range of products for both built-up roofing and asphalt shingle roofs, GAF is in a good position for growth. West Coast expansion A major step in expanding sales of GAF building materials in the West Coast market was made in 1980. with the start up of the new roofing plant in Fontana. California. In January. 1981, the plant began shipping glass-mat-based Timberline shingles in commercial quantities, and as this report goes to press, work is under way to run a second shift at the plant Also of great significance in 1980 was the successful operation of the new glass-mat manufacturing facility in Chester. South Carolina. The company is now able to make virtually all the glass mat it requires Glass-mat-based shingles offer many advantages over wood shakes and are selling well in the Sun Belt where severa; communities have enacted building codes restricting tne use of wood roof ing due to fire hazard Saies of GAF GAF 13134 4 TimDerline shingles were strong in some of tnese marKets. despite building slumps All TimDerline shingles and Sentinelshingles being made at the plants m Tampa. Florida, and Fontana. California, are now made with glass mat and work is progressing on converting plants in Savannah. Georgia, Mobile. Alabama, and Dallas. Texas, to 100 per cent glass-mat shingle and roll roofing production These conversions are ex pected to be completed in 1981 Glass*mat roll roofing All 14 GAF roofing plants can now make roll roofing, used primarily in commer cial. industrial and multi-family residen tial construction, with glass mat. Also strengthening the company's position in built-up roofing, new efficiencies were achieved when the company began producing its own facings for its insula tion sheets. GAF's isotherm rigid urethane insulation was granted a Factory Mutual "Class One" fire rating in 1980. further enhancing the company's ability to serve the built-up roofing market. GAF sees room for significant growth in this market segment and is striving to increase its share of the market. Pretrial proceedings in GAFs antitrust case against Eastman Kodak in the U S District Court for the Southern District of New York have been essentially com pleted. Motions to resolve major issues m the cases are presently pending be fore the Court. The company continues to be confident of the successful out come of its case and looks forward to a trial this year. This has been a trying year for GAF and for business in general. The economies of the United States and Europe saw demand shrink, interest rates rise and inflation drive up costs. We must assume these harmful forces will be brought under control. In the meantime, through GAF's program of redeploying its assets to support its best busi nesses, the company has improved its ability to cope with the vagaries of the economy. When the economy recovers, the expansions and operating improve ments the company has made and is making in its chemical and building materials businesses will put us in an excellent position to take advantage of the new opportunities which lie ahead. To meet the future growth which GAF foresees in building materials, the com pany is expanding its production of mineral granules. Used to give asphalt shingle roofing greater resistance to sunlight and heat, the granules are produced at four GAF facilities located strategically in different parts of the United States. In 1980. however, it was necessary to cut back granules produc tion oecause of reduced demand for, and production of. roofing shingles As for the businesses GAF is offering for saie. it would be premature to reoort on discussions and negotiations now in progress. Put as businesses are sold, announcements will oe made By Order of the Board of Directors Jesse Werner Chairman of the Board c_ Jay R Olson President February 19, 1981 GAF 13135 *?84 (Millions) 1979 ( i i i i _Nei Direct Sales gperaurg 'u*oC'okjcOxr*#GcxWq>tim Sales and profits Worldwide sales of continuing GAF chemicals were $284 4 million m 1980. an increase of eight percent from 1979 sales of $264.3 million. Both years fig ures have been adiusted to exclude a latex business, which has been sold, and a paper and millboard business which has been offered for sale Direct operating profits in 1980 were $52.0 million, compared with $62 4 mil lion in 1979. The decline was caused largely by lower sales of roofing granules and some specialty chemicals. Sales of sev eral GAF chemicals used by the auto industry decreased as that industry slumped; sales of Gafite* PBT for auto motive applications, although still small, bucked the trend and increased. GAF's position in the chemical industry is as a leading developer, manufacturer and marketer of specialized products. These include surfactants, sequestrants. antioxidants, corrosion inhibitors, dispersants, stabilizers, textile auxiliary chemicals, polymers, monomers, engi neering plastics, intermediates, sol vents. specialty iron powders, roofing granules and others. GAF sells most of these chemicals to other companies which use them to make their own prod ucts. With few exceptions, GAF's chemi cals are not end products themselves They are often, however, critical compo nents of a wide variety of consumer and industrial products and processes It is upon this base of strength and ex pertise that GAF is building its future in the chemical business. With increased emphasis on high technology oroducts GAF intends to expand its leadership role 2_ .... . In 1980 the company restructured .ts technical service capability witnm ;r,e chemical marketing function so that GAF scientists and tecnnoiogists teamed with marketing people, worn directly witn customers on develoorng new applications or new chemicals and are better able to meet customers orecise needs. Using this aoproach new or expanded markets are being ;ouno for GAF products in areas such as cosmetics, agricultural chemicais metalworking lubricants, plastics ana synthetic detergents. Butanediol, an acetylene-based chemi cal. is one of GAF's most important chemical products, forming the basis of many other GAF chemicals as well as being a product which GAF sells in significant quantity. A basic ingredient in the manufacture of specialty poly urethanes, butanediol found interesting new applications in 1980 m the manu facture of a new type of bicycle tire and new structural adhesives It aiso saw expanded use in the manufacture of castable parts. Acetylene-based chemicals GAF increased its ability to manufacture butynediol. a preliminary step in the manufacture of butanediol. wnen the new plant in Seadrift. Texas, became operational at the end of 1980 As prices of possible alternative chemi cals to butanediol m casting applications are considerably higher than the Qrice of butanediol, the GAF chemical has become increasingly attractive. Also, butanediol's lack of toxicity gives it a distinct marketing advantage GAF 13136 6 Product List Chemicals Ace-, Zf .a- .e< See: 3- e^ rte'm*c a:es or ^Cwce'S c ,-r.rs So Soec a-, :-e- ca s S^'acia--s 'e*: e C^e^-ea s BnfifiaaHnt Plaatiea OB' ''e'--co as-: WO'Ong Co^CCj^:: MNwral ^retfweu Mne'a> 3'a<~u es 13137 OAF ehamieaJa Mm many loduatefoa and ara found fn a wida varloty of product*. GAF supplies many surfactants and vinyl pyrroirdone copolymers for cosmatics and nair oraoarstions A wide range of GAF textile auxiliary cnamcAU ara usad to traat fafincs. PVP-lodme. a widaiy usao surgical scrub, is ona of many GAF oroduets lor me medlcal/pnermacautical industry Bike tires and soon snoa solas can ba mada with butanedrol-oasee polyurethane elastomers $284 4 (Millions) toao 1979 GAF surfactants play Important rplaa m making detergents and cleaning preparations Capna* plant gnpwtfi regulator is usad to npan crops uniformly. Dairy tamers use antiseptics containing GAF cnemicals as udder washes to prevent mastitis: msny animal feeo sup plements contain GAF methylamine. Petioieum refmers use M-Pyrol solvent for lube oil extraction GAF 13138 A potentially major application for M-Pyrol (methyl pyrrolidone) solvent, a Outanediol derivative, is as a replace ment for trichlorethylene and other chlorinated solvents m industrial proc esses. Several companies which have traditionally used chlorinated solvents are switching to M-Pyrol solvent for rea sons of cost effectiveness and safety. This GAF chemical is already widely used in lube oil extraction m the petroleum refining process, a market which continues to grow. Specialty surfactants Sales of a number of other GAF chemi cal products grew in 1980. as well. The company is increasing its activity in the development of specialty surfactants for the emulsion polymerization market. Sales of Anpal surfactants, used in coatings, paints, polishes and adhe sives, rose during the year. Meeting consumer demand for mild, low pH shampoos, GAF's synthetic detergent products also enjoyed in creased sales. GAF is well positioned in this growing market. Igepal* surfactants sold well last year, as some manufac turers of powdered detergents switched to alky! phenol ethoxylates from more expensive ethoxylated alcohols. GAF expanded its capacity to produce alkyl phenol ethoxyiates at its Linden, New Jersey, and its Calvert City. Kentucky, chemical plants in 1979 and 1980. Gafac* surfactants enjoyed significant sales increases in 1980 due to in creased use in deresmation of wood oulp m the manufacture of rayon and mgh-grade papers GAF's antiseptics include PVP-lodine, a widely used 'stingless" medical prep aration and Biopal * odophors, which are useful in industrial sanitizing appli cations In 1980. a Biooal lodophor received U S. Department of Agriculture approval for use as a hand wash sani tizer in meat and poultry processing plants, opening a new market for this chemical. New applications for the company's Gafiteand Gaftuf" PBT thermo plastics helped increase sales of these relatively new products last year. Of par ticular interest, a major auto maker is now using Gafite PBT to make opera window housings and a manufacturer of paint brushes is using the versatile plas tic for paint bristles. Gaftuf PBT is being used by a telephone manufacturer for bell ringer housings. Roofing granules In the roofing granules area, capacity expansions begun in 1979 started to come on stream last year. GAF is a major manufacturer of these granules and supplies its own needs and sells to other manufacturers. Production was cut back in 1980, due to the economyrelated decline in roofing demand. This had a significant impact on earnings. The company is continuing its program of expanding granules production ca pability m order to be ready for the housing industry's expected return to higher levels of demand Product List Acetv Zt- vat *es Ag' Scec a es mte'^es ates |'DP ^swot's MOPOme'S Po'vmie's Sevens Soec a*. Chie- ca s S-r*actan'S Text e C^e^ca s lPi3>'|lTihwarrTi>n0t3,aMsta,' atica MO'OT.g CcnoG-~CS Mlwtfal Product* Mmeta. GrdPu*es 9 GAF 13139 Salas and profits In 1980, worldwide sales of GAF's con tinuing building materials were $392.8 million, down six percent from $419 4 million in 1979 The decline resulted from a recessionary decrease in hous ing starts ana new commercial and industrial construction, coupled with high interest rates which effectively cur tailed home improvement projects. In most previous recessions, increased replacement roofing activity more than offset the lack of new housing con struction. but the high cost of borrowing also constricted this portion of the market in 1980. Direct operating profits declined as well, from $29.7 million in 1979 to $13.7 mil lion in 1980. (Sales and earnings figures for both years have been restated to exclude worldwide flooring, vinyl siding and automotive paddings and mastics, which are being offered for sale These and other discontinued businesses are discussed in more detail in the "Other Businesses'" section of this report.) It is the view of GAF management that the combination of recession and high interest cannot continue to affect the pent up demand for new housing and replacement roofing forever. When economic depressants ease, saies and profits are expected to increase. In the meantime, the company's strat egy for these economically troubled times is to increase market share wher ever possible, to control costs through manufacturing efficiencies, and to prepare for the future in every practical way Despite diminished demand for roofing in general. GAF Timberline4 shingles, the companys "top of the line" residen tial roofing product, soio reasonably we in 1980. Sales were down from 1979 e.eis but the decline was far less tnan tre corresponding drop m housmg-reiatec activities sucn as new residential Hous ing starts In general, the Sun Belt states are net experiencing as great a ounamg siump as the rest of the United States in some areas, housing starts were actually up slightly in 1980 GAF's activity in warmclimate markets was well-timed, witn the new roofing plant m Fontana. California coming on stream in late 1980 the con version of the roofing plant in Tampa. Florida, to glass-mat asphalt shingie manufacture in early 1981. and the new glass-mat manufacturing plant in Ches ter. South Carolina, in full production during the year. A new manufacturing line was approved in 1980 for added production of glass-mat roofing at tne Dallas, Texas, plant Sun Belt strength A number of major Sun Belt local gov ernments have changed their building codes to prohibit new construction with wood shake roofs because of fire haz ard GAF Timoerline glass-mat shingles have tne beauty of wood, a wide range of colors and an Underwriters Labor atories Class A fire resistance rating making them attractive alternatives to wood. To meet this demand, the com pany is increasing glass-mat shingie production at all Sun Belt roofing plants in 1981 GAF Sentinel'' glass-mat .'W GAF 13140 to Product List NMflnf Product* iccessc es isD^a Sn **? es ' jC 3OC CoVd'an'eg- ai s- 3S' : 3c -cc* "15 ve^' S.s e^s Rooters install GAP Timoenine * snmgtes maoe wrtn giass mat a: new job srte m Texas Sun Se roofing activity continues to snovs strencvi despte ouiKJmg siumcs eisewnere I *? 111 1 _j ;; j t (Millions) 1979 Ir9=>r i $392 r Net Direct Saies UIWIIlGLlMjmrMi 3 Manufacturing line m St. Louis maxes Gaftemp* ngio insulation forcommerciai/mdustrtai roots GAF 13142 asphalt shingles lighter in weight than Timperlme shingles, also achieved a U L Class A fire resistance rating in 1980 The company's over all roofing strategy vis-a-vis glass-mat and organic feltbased prepared roofing is to maintain the flexibility to meet the needs of cus tomers. Organic felt-based products still represent the bulk of the marKet and GAF intends to continue to supply these as well as glass-mat-based products. Built-up roofing In the area of roll roofing for industrial and commercial structures, the com pany made significant progress m 1980. Although GAF is a smaller factor in this portion of the roofing market than it is in the market for shingles, the company's built-up roofing products are gaming in market share. During 1980, all 14 GAF roofing plants were adapted to be able to make roll roofing with glass mat. The mat itself was improved during the year with the introduction of GafglasTM Ply Sheet 4, a highly successful product now in national distribution. Also, for GAF's built-up roofing system, GAF Isotherm polyurethane insulation was added in i960. Designed for use in roof decks, this GAF-developed rigid insulation has earned a Factory Mutual "class one" fire resistance rating. Here, as with several other roofing products. GAF's market share is increasing. The company began manufacturing facers for its polyurethane insulation last year, improving manufacturing effi ciency and heioing control costs These are being made at the Joliet. Illinois, plant and shipped to St. Louis. Missouri, where GAF makes its roofing insulation Building supply centers Also aimed at increasing sales of GAF roofing products, in 1980 the company opened building materials supply cen ters in Baltimore. Maryland. Norfolk and Springfield, Virginia and Memphis. Tennessee. A supply center in King of Prussia, Pennsylvania, was opened in 1979. These centers offer one-stop shopping for roofing contractors by selling a full range of GAF roofing and insulation products as well as associ ated products made by others. The company has located centers in areas in which it feels its market share can be increased. Further locations are under consideration for 1981. On the environmental side, GAF in stalled second-generation fume control systems at four roofing plants last year. The new systems greatly reduce the amount of energy required to get rid of the fumes. This equates to significant savings in energy costs. Modifications are under way at the other roofing plants to achieve similar results. Product List Aooftnf Products A;cesscr es Asera S* -5 e$ 3u Va e- a s Cca- i 3 as c Pc aoo--~ en- S-.S'e-'S InovJottofi Products 5w 0 ~g "s-a B- t-wD Per -g ;nsu-a: co Pastene* S>ste-- 13 GAF13143 Sales and profits In 1980. sales from businesses GAF is discontinuing totaled $553 4 million, compared with sales of $529.5 million in 1979. Direct operating profits were approximately break-even m 1980. com pared with losses of $2.9 million in 1979. A discussion of the accounting for these businesses can be found in the Notes to the Consolidated Financial Statements on page 28. while the earnings from these businesses appear in the Consolidated Statements of Income on page 24. The Gaflogdiazopnnter for oil drn'rg logs, introduced in 1979. also soiq well m 1980. as did diazo micrographic films, designed to replace more ex pensive silver halide films in certain applications. Several manufacturing improvements were made in 1980. enhancing effi ciency and product quality In early 1981, approval was given to install a nev\ folding machine at the sensitized Daoer plant in Arlington, Texas, which will help meet increasing demand As was indicated when GAF an nounced its intent to discontinue these businesses, most of the product lines involved in the restructuring program are well-positioned in their markets and many have histones of growing sales, market shares and profitability. Were it not for the present state of the economy, GAF might well be investing substantially in their futures. Under present circumstances, however, this is not practical. Worldwide reprographic sales rose in 1980 and the product line enjoyed increased profitability GAF is a world leader in this business and its diazo reproduction machines, papers and associated products have earned excellent reputations for their quality and reliability. GAF's family of large, medium-sized and small diazoprinters for reproducing engineering and archi tectural drawings is one of the most extensive lines in the industry A new, large repro machine, the Series 2000 mercury vapor diazopnnter, was introduced very successfully in 1980. with major sales to on companies and other users reauiring high quantities.of high quality diazo copies: c In 1980, sales of GAF flooring, world wide, were slightly ahead of 1979 levels Domestic flooring operations were marginally profitable in 1979 and 1980. On the international side, the plant in Mullingar. Ireland, was not profitable causing an overall loss for GAF's floor ing operations in 1980 GAF is one of the major manufacturers and developers of both sheet vinyl and tile, and its products continue to enjoy good customer acceptance. In 1980 the company introduced the Gafstar* 4800 series of sheet vinyl, a mediumpriced line with many of the features of higher-priced products The line received strongly favorable reactions in the marketplace In February. 1981, GAF introduced a new system of retail flooring disolays. perhaps the most attractive displays m the industry, at a meeting of the nation wide networx of distributors of GAF flooring. This new marKeting approach was received enthusiastically 14 GAF 13144 2 Sales of GAF graphic arts materials, largely for the printing industry, in creased significantly in 1980. continuing the trend begun in 1977 when the com pany streamlined its photographic oper ations These operations were profitable in 1980, showing solid improvement from 1979 earnings levels. GAF is not a dominant factor in this market, but has enjoyed steadily increasing market share and attracted several large customers m 1980. New products, including Gafrnaticm rapid-access films, introduced during the year were well received in the marketplace. a GAF closed its automotive paddings and mastics operations in Joliet. Illinois, in the summer of 1980, because of the lack of demand for these products from the slumping auto industry. It was ex pected at that time that the plant could be reopened when demand returned. GAF continues to believe that when car sales increase, there will be a market for these products. This is the only business being dis continued that is not operating. Inventories on hand when the plant was shut down have been sold a GAF's worldwide pictorial products business consists of View-Master* stereo products, Pana-Vue slides and viewers, toys such as the new Melody Madness TM electronic game and some smaller lines. Sales in 1980 were even with 1979 levels. This business was not profitable in 1980 The company's paper and millboard operations are a small but profitable business which manufactures these specialized products used by the build ing industry and the auto industry. Sales and profits slipped last year from 1979 levels, because of the general business declines in both major markets, but the business was still solidly profitable. GAF has restored and preserved WNCN-FM, the company's classical music radio station in New York. Although not yet profitable, GAF's broadcasting operations are now in a positive cash flow position. Listenership continued to nse in 1980, as did adver tising revenues. The company 's latex operations were sold in December for a price of approx imately $12.5 million, slightly less than book value. ci Vinyi siding is another relatively small business which GAF is offering for sale Again, due largely to the decline in the housing market and high interest rates, last year's sales were off somewhat from 1979 levels. Although the line is not yet profitable, vinyl sidings results improved substantially in 1980 A number of manufacturing improvements were made in 1980 which reduced costs and ennanced product quality is GAF 13145 Research and Development Several research and development pro grams begun in the 70s came to fruition in 1980 In particular, improvements were made to technologies in the three 3 plants which GAF opened recently. At the butynedioi plant m Seadnft. Texas, for example, microprocessor control was introduced, an improved filtration process was implemented and a superior catalyst was developed. At the new Fontana. California, roofing plant, the company is using improved heating and mixing systems for asphalt and filler, as well as new instrumentation, d A number of patents have been issued covering GAF developments in glassmat technology, used at the plant in Chester, South Carolina, New products, including GafglasTM Ply Sheet 4 and Gafglas Cap Sheet, were created by GAF research and development and brought to market in 1980. Another GAF-developed product introduced in 1980, Isotherm polyurethane insulation, now being made at the St. Louis plant, has excellent fire resistance. In the area of mineral granules, the company is conducting a series of geological surveys and core drilling investigations aimed at increasing pro duction An energy conservation program instituted at one demonstration granules kiln in 1980 showed significant fuel savings and increased output Further studies are under way, GAF is involved in a number of joint programs which are partly funded by various government agencies In one. the company is working with the Department of Energy to reduce the asphalt needed to produce roofing shingles without aflectmgthe quality of the shingles Aspnalt is a petroleum derivative and has had steady price increases over the past years. A pilot line was installed in 1980 to make lowasphalt shingles for further evaluation Several chemicals were developed and/or introduced by GAF during the year Among these are Two new non-polluting radiation-curao:e coatings based on GAF's fast-curing vinyl pyrrolidone diluent monomer tech nology. These require less energy and generate less pollution than traditional solvent coatings and provide wear re sistance, low curl, high gloss and stain resistance. A new denture adhesive derived from Gantrez copolymers, with excellent holding power, greater wearer-comfon higher tack and more consistent per formance than resins now in use. A thermoplastic polyester elastomer with great strength, flexibility and resis tance to heat and cold. Four new grades of Gafite PBT resin A tailor-made sodium teloacrylate which has resulted in a patented, phosphatefree machine dishwashing formulation In-house evaluation of this potential product is under way A new, patented, synthetic detergent composition, using Igepon AC-78 sur factant, with superior cleansing charac teristics at skin-safe pH levels and compatability with a wide range of per fumes. making it a desirable basis for beauty bars. New ether sulfate surfactants for use m emulsion polymerization systems A variety of rr search and development projects wer ir.y conducted in 1980 m support of businesses being offered for sale. Many of the improvements which resulted are now being implemented 16 GAF13146 Personnel In 1980. 20 labor contracts were nego tiated all for multi-year terms. Contract settlements compared favorably with those reported oy the U.S. Department of Labor and others. There were no strikes during the year One NLRB election was held, with the union reiected GAF's continuing businesses employ approximately 6500 people, with a like number working in businesses being discontinued. The company is making every effort to encourage prospective buyers to retain as many employees as possible. Board of Directors The Board regrets the passing, in November, of Sam Harris, a director of GAF and member of the executive and audit committees since 1977. His exem plary service to GAF will long be re membered by all with whom he served. He was replaced on the Board in De cember by Dr Herman Sokol, president of Bristol-Myers Company. A pioneer in antibiotics production, Dr. Sokol and his associates discovered tetracycline in the early 1950s and developed the basic process for its manufacture. In February, two new directors were nominated to the slate to be presented to the shareholders at the Annual Meet ing m April Augustine R Marusi retired in 1979 as chairman and chief executive officer of Borden. Inc. He remains a Borden director and chairman of that company's executive committee Robert Spitzer is president and chair man of the board of Treadwell Corpora tion. a privately held engineering firm engaged in construction of chemical, metallurgical and power plants They have been nominated to suc ceed Carter L Burgess and James J. O'Leary, who have resigned from the Board Management In June. Abraham Lindenauer was elec ted vice president in cnarge of technical services. He has served GAF in a num ber of technical capacities since 1972 Juliette M Moran, a GAF employee since 1943. was elected vice chair man of the Board in July Formerly executive vice president, she has been a Board member since 1974. Jay R. Olson was elected president and chief operating officer and a member of the Board of Directors in January, 1981 Mr. Olson joined GAF as corporate treasurer in 1970 and became a vice president in 1972. He was later named senior vice president and in 1978 he became executive vice president and a member of the management committee with responsibility for financial services, distribution and purchasing operations Robert E. Miller, vice president-finance, has assumed the responsibilities of chief financial officer, formerly held by Mr Olson. In November, 1980, Jonathan Berger was elected a vice president. A mem ber of the company's legal staff since 1969, he was named deputy general counsel in 1979 In January. 1981, Raymond J. Lacroix was elected controller. He has been with GAF since 1971. serving in a variety of financial positions Dr. Donald W LaPaime was elected a vice president in February, 1981. A GAF employee since 1967, he was most recently general manager at the com pany's Binghamton, New York, facility Management expresses its sorrow at the death of Alfred P Rimlinger in December Mr Rimlinger retired in April, 1980, after 44 years of service to GAF. At that time, he was vice president -international services GAF 13147 Jesse Werner Cnairman Juliette M. Moran Vice Chairman T. Noland Berner Cnairman of the Boaro Curtiss-Wrignt Corporation Polar Boeshard Executive Vice President Creait Suisse William S. Ogdon Executive Vice President Chase Manhattan Bank, N A Jay R. Olson President GAF Corporation Jamas T. Shorwin Executive Vice President GAF Corporation Hannan Sokol President Bristol-Myers Company Nolan B. Sommer Formerly Senior Vice President American Cyanamid Company The Board of Directors Audit Committee, consisting of outside directors, moots separately with the Independent certified public accountants and company management at leaat twice e year to discwsa the scope and results of the annual examination, internal accounting controls and significant accounting matters. Jesse Wemer Chairman of the Boara Jay R. Olson Presioent Juliette M. Moran Vice Chairman James T. Shorwin Executive Vice President Richard F. Smith Executive Vice President John A. Brennan Senior Vice President Richard F. Bucher Senior Vice President James M. Clonoy Senior Vice President R. Power Fraser, Jr. Senior Vice President Jack F. Qow Senior Vice President Joseph O. Hall Senior Vice President Jack Scheckowltz Senior Vice President Louis Q- Zachary Senior Vice President Jonathan Berger Vice President Randolph C. Bramwell Vice President John J. Butler Vice President Mason B. Cooke Vice President Carl R. Eckardt Vice President Lao J. Faneuf Vice P'esident H. Philip Farnham Vice President Jerome K. Full Vice President Philip S. Gillcrist Vice President Simon W. Kantor Vice Presioent Bernard L. Kapell Vice President Donald W. LaPalme Vice President Abraham Lindenauer Vice President Robert F. McCarthy Vice President Frederick W. McNabb, Jr. Vice President General Counsel and Secretary Robert E. Miller Vice President Wayne H. Page Vice President Raymond W. Smith Vice President Raymond J. Lacroix Controller Adels S. Weisman Treasurer 18 GAF 13148 Management's discussion is intenaed to aid the reader in evaluating the company s overall financial condition as well as to provide some insight into the company s future pros pects The accompanying financial statements should 0e viewed in the light of Managements recent decision to redeploy the company s capital and human resources towards strengthening the continuing businesses. Financial Condition On December 29.1980. the Board of Directors, after a great deal of study, approved a maior restructuring of the com pany The company has determined to discontinue several of its mapr businesses ano will concentrate its efforts ana capital on its largest businesses--building materials and specialty chemicals In announcing the discontinuance program, Management stated its belief that m the present economic climate, the company would have difficulty achieving the cash flow necessary in the next few years to support the concurrent growth of its businesses. Contributing to the decision was the fact that the high cost of money made short-term debt inordinately expensive. As shown on the Consolidated Statements of Income, interest expense increased over 50% in 1980 to $21 6 million, consuming a large part of operating profit and denying funds required for other corporate purposes. Businesses other than building mate rials and specialty chemicals are to be converted to cash ana that cash will be used, first of all. to reduce debt The plan envisages. A reduction in the company's debt as a percentage of total capital, which was 35.9% lor years 1979 and 1978. A similar calculation for 1980 is not representative because of the impact of the discontinuance program upon the company's balance sheet An increase in the company s return on assets and return on equity A substantial positive cash flow. To meet any interim financing needs worldwide, a tnree year. $225 million credit agreement, with declining avan- aDility over the period, is being arranged with a cor,some" of banks. Interest on these funds will be at tne prime rate Under the terms of the proposed credit agreement, the company will be required to maintain certain levels of work ing capital and net worth in addition, the agreement will place limitations, among other things, upon dtvioencs capital expenditures, funded debt and other borrowings The company has also renegotiated its debt instruments with long-term lenders. As a result, scheduled principal re payments on certain loan agreements have been acceler ated. Dividends, working capital, funded debt, snort-term bank borrowings and operating leases are restricted uncer provisions of these loan agreements Additions to property, plant and equipment and applicable depreciation charges for the previous three years were as follows: (Millions) 1979 1978 Total ExpendituresS58 8 Depreciation Crtargest29 2 SS i 1 S27 a During the year, the company completed the following major capital projects: a specialty chemicals plant at Seadrift. Texas, to produce butynedioi. an acetylene derivative. a West Coast roofing plant at Fontana. California, to produce roofing materials for the western market In addition, during the year, to meet increased market de mands. work was started on the following major expansions roofing shingle capacity at the Dallas. Texas, roofing plant. granule capacity at the Annapolis, Missouri, granules plant At the end of the year the company had commitments of $9 0 million for approved capital expenditures Lease obli gations are discussed in detail in Note 14 of Notes to Consolidated Financial Statements The company, at this time, does not foresee eitner a redefini tion of its capital structure or an issuance of new securities or funded debt (except for the proposed credit agreement mentioned earlier) GAF13149 19 Management's Discussion and Analysis of Financial Position and Results of Operations (continued) Results of Operations The company s overall sales and profit performance in 1980 was down due to adverse economic factors which signifi cantly affected both the building materials and the specialty cnemicals businesses For the years 1978 to 1980, consolidated sales were higher (12%) in 1979 than in 1978 but lower (1%) in 1980 than 1979 Despite a sales increase of 12% in 1979 over 1978. income from continuing operations was down 8% In 1980 income from continuing operations was down substantially from the previous year (60%) While price increases were effected m the domestic mar ketplace and international chemical sales exceeded last year's level, the additional revenues were not enough to off set higher costs for major raw materials and lower product demands The favorable trend for chemical sales as indicated by the five-year data in the Summary of Selected Financial Data is expected to continue and improve The housing related im pact on tne granules revenues is expected to reverse as the economy strengthens The company's continued develop ment of specialty surfactants, and the recent completion of the Seadrift plant for the production of butynediol. an acetylene derivative, are expected to strengthen this business segment While building materials' 1980 sales decreased 6% from 1979 levels ana were about even with 1978 results. Manage ment believes tnat this segment will return to its past record of increased sales as soon as economic depressants ease. AisoexDected to contribute to increased sales in 1981 is the development of the company's built-up roofing and insula tion products coupled with the planned expansion of the company's supply centers Consolidated gross margins were 22.5%. 25 1% and 25 9% for i960 1979 and 1978 respectively The declining profit ability in 1980 reflects the continued increased costs of petroleum related products, higher fixed cost absorption rates due to reduced volume at the plants, and the effect of product mix due to reduced demand for building materials prooucts Added costs were incurred in 1980 for start-up expenses associated with the plant openings at Fontana. California, ana Seadrift, Texas Management has initiated numerous cost reduction and production efficiency programs in recent years to offset the impact of adverse external influences on its cost of produc tion in conjunction with the government, a program is under way to reduce the asphalt content of roofing shingles with out decreasing product quality: the Seadrift cnemical ciant is on stream to manufacture butynedioi a preliminary step tne manufacture of butaneoioi: ana numerous roofing plants nave or will be convened to utilize the latest teenno1ogy in glass-mat for shingles Increases in other operating expenses of $13 6 million (12.3%) in 1980 over 1979 and $13.1 million (13.3%) m 1979 over 1978 were due primarily to the effects of inflation The increase in interest expense from 1979 to 1980 of 57 3 million was directly attributable to the high interest rate on additional short-term borrowings The average snon-term borrowings for 1980.1979 and 1978 were S95 4 million. $51.4 million and $42.4 million, respectively, bearing a re lated average interest rate of 12 7%. n 5% ana 7 9% The major components of Other income (Charges) are Foreign Exchange Pre-tax Equity Results Silver Future Transactions All Other Total Dollars m Thousanos 1979 *976 $(4,089) S 8 438 234 (i 8481 (5 966) -- 3 040 2 363 5(5.9811 $ 8 953 Results for foreign exchange, equity method, ana silver fu ture transactions are more fully discussed in Notes 3 ano 4 of the Notes to Consolidated Financial Statements on page 28. All Other includes interest earned on securities, certain royalty income, and discounts earned on certain purchases. All Other income ana charges have been consistent in prior years except for the sale of some properties and a gain on a debenture repurchase in 1979 The change from a tax rate of 36.4% in 1979 to a tax benefit of 13 7% in 1980 arose primarily from the increased impact of United States investment tax credits, depletion allow ances. and the benefits of the Domestic international Sales Corporation.on reduceo earnings See Note 15 of Notes to Consolidated Financial Statements for a discussion concerning the effects of inflation 20 GAF 13150 Statement of Income information is presented for continuing operations only Dollars in Millions except per Share Amounts Year Ended December 31 1979 1978 1977 1976 Net Customer Sales Chemical Building Materials Consolidated Sales $264.3 419.4 --683 7 $217 7 391 3 609.0 $168.0 338 8 506.8 Si 60 5 291 4 451 9 Direct Operating Profit Chemical Building Materials Total 62 4 29.7 92.1 48 4 41 3 89.7 43 7 37.3 81.0 40 7 31 1 71 8 Income from Continuing Operations 25.8 28 1 25.0 22 5 Primary Earnings per Common Share--Continuing Operations Dividends per Common Share 1.66 1.83 1 61 1 42 .68 .64 60 .56 The following Balance Sheet amounts pertaining to years before i960 have not been restated to separately identify amounts applicable to discontinued segments See Note i of Notes to Consolidated Financial Statements Dollars in Millions December 31 1979 1978 1977 1976 Current Assets Current Liabilities Working Capital $492.1 201 5 $472.2 179.8 292.4 $464 1 186.3 277.8 $451 3 145 5 305 8 Property. Plant and Equipment--Net 308.4 280.6 262 9 275 1 Total Assets _^ 835.6 785.3 762 4 777 4 Long-term Debt (Including Current Portion) Shareholders' Equity 206 4 369 0 196 8 351.7 198 4 329 7 202 4 387 9 As of March 2.1981, there were 51,649 holders on record of GAFs outstanding common stock The following information pertains to the company's common stock, which is traded on the New York Stock Exchange First Quarter Second Quarter Tnira Quarter Fourth Quarter 1979 $ 17 $ 17 $ 17 $ 17 First Quarter Second Quarter Third Quarter Fourth Quarter 1979 High Low 1374 1 17a 127a 1O'/e 11 7a 10 11V. 9/i GAF has paid cash dividends on its common stock for 62 consecutive quarters Under the most restrictive orovisions of tne company s loan agreements, $18,000,000 of retainea earnings are available at December 31,1980 for future dividenos The company expects to be able to continue regular future dividend payments, under agreements reached with its lenders in connection with the discontinuance program See also Notes i ana 13 of Notes to Consolidated Financial Statements 21 GAF 13151 Dollars in Millions First 1979 Dy Quarter Second Third Fourrn Net Sales Cost of Products Sold Gross Profit $143.8 107 3 $ 36.5 $166 9 123.3 $ 43 6 $188 2 141 7 $ 46 5 S184 8 139 5 $ 45 3 income (Loss) before Other Income (Charges) ana income Taxes Other Income (Charges) income (Loss) from Continuing Operations before Income Taxes Income Taxes (Benefits) Income (Loss) from Continuing Operations Income (Loss) from Discontinued Segments Net of Income Taxes (Benefits) Net Income (Loss) $ 90 $ 129 $ 13 8 $ 109 (3.0) (3 1) (1 5) 16 6.0 98 12 3 12 5 2.2 3.8 37 5 ' 3.8 60 86 7 4 1.5 (1 0) 1 7 2 $ 5.3 $ 50 $ 10.3 $ 7.6 Earnings per Common Share- * * * Primary Continuing Discontinued Net Income (Loss) Dollars $ .22 .11 $ .33 $ .38 (08) $ .30 .57 .13 $ .70 $ 49 01 $ .50 Fully Diluted Continuing $ .22 $ .34 $ 49 $ .43 Discontinued .09 (06) .10 .01 Net Income $ .31 $ .28 $ 59 $ 44 'Previously reported amounts have been restated for discontinued segments--See Note 1 of Notes to Consolidated Financial Statements. 'Figure omitted--not dilutive. See Note 5 of Notes to Consolidated Financial Statements * In accordance with the provisions of APB Opinion No. 15. earnings per share are calculated separately for each quarter and the annual period Accordingly, annual earnings per share will not necessarily equal the total of the interim periods GAF 13152 22 u * (The following accounting policies apply to the continuing operations of the company.) Principles of Consolidation The accounts of all significant subsidiaries of the com pany are included in the consolidated financial state ments A wholly owned captive insurance subsidiary and the 50% ownership of a chemical manufacturing com pany are carried on the equity method Short*tonn Investments Short-term investments are valued at cost, which approxi mates market. Inventories Inventories are valued at the lower of cost (principally average) or market Property, Plant and Equipment, and Related Depreciation Depreciation is computed principally on the straight-line method based on the estimated economic lives of the assets. These lives are subject to periodic review and revision to assure that the cost of the related assets is written off over their economic lives Beginning in 1979, certain interest charges are capi talized as part of the cost of property, plant and equip ment additions. See Note 2 of Notes to Consolidated Financial Statements. Deferred Income Taxee Deferred income taxes arise from reporting certain income and expense items m the financial statements in periods different from those in which such amounts are reported for income tax purposes. Investment Tex Credit The company accounts for investment tax credits arising since January 1.1971, as a reduction of the provision for United States income tax (tne flow-through method) Investment tax credits which arose prior to that date have been deferred and are being amortized over the esti mated service lives of the related assets Retirement Plane The company and its subsidiaries have retirement plans covering substantially all employees The company s policy is to fund amounts equal to pension costs accrued and, for plans with prior service costs, to amortize suen costs over periods not to exceed forty years Earnings Par Shara Primary earnings per common share are computed by dividing income, less preferred stock dividend require ments, by the weighted average number of shares of common stock outstanding during the year. The com putation assumes the exercise of outstanding stock options to the extent they are dilutive. Fully diluted earnings per common share are computed on the assumption (where the effect thereof would be dilutive) that convertible securities outstanding had been converted into shares of common stock. Appropriate adjustments for dividends on preferred stock and interest on convertible notes (net of income tax effect) are made to earnings applicable to common stock for assumed conversions. The computation also assumes the exercise of all dilutive stock options. GAF13153 23 Year Enaed December 31 Net Safa* Costs and Exponsas Cost of products sold Distribution, sellinq and advertising Research and development General and administrative Interest (Note 2) Total Costs ana Expenses Incom* bofor* Other Incom* (Charges) and Incom* Tax** (Benefits) Other Incom* (Charges) (Notes 3 A 4) Incom* from Continuing Operations before Incom* Taxes (Benefits) Income Taxes (Benefits) (Note 9) Incom* from Continuing Operations Discontinued Segments (Wot-- 149) Operating income, net of income taxes (benefits) of $(466,000) in 1980, $(5,287,000) in 1979. and $750,000 in 1978 Estimated loss from disposition, net of income tax benefit of $10,460,000 Income (Loss) from Discontinued Segments Net Income (Loss) Weighted Average Number of Common and Common Equivalent Shares Outstanding Earning* per Common Share Primary Continuing Discontinued Net income (Loss) Fully Diluted (Note 5) Continuing Discontinued Net Income 1979 $683,749,000 511.805.000 67 128.000 7.324.000 36.618.000 14,307.000 637,182.000 46.567.000 (5.981.000) 40.586.000 14.758.000 25.828.000 1978 $608.968.000 451.485.000 59.364 000 5.91 7 000 32.693.000 15.045 000 564 524.Olio 44.444,000 8,953.000 53.397 000 25.341 000 28.056.000 2.355.000 _ 2.355.000 $ 28.183.000 13.386.000 6.108.000 _ 6.108.000 $ 34.164.000 13.306.000 ------ $1 66 .17 i ej $1 49 13 $1 62 $1.83 46 52.29 $1 62 35 "579? Year Ended December 31 1979 Balance January 1 Net income (Loss) Less cash dividends $285,613,000 28.183.000 Preferred stock ($1.20 per share) 3.635.000 Common stock (1980-$.77 per share. 1979-$ 68 per share. 1978-$ 64 per. share) 9.069 000 Balance. December 31 $301.092.000 See Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements 1978 $263,542 000 34 164,000 3.636 000 8 457,000 S285.613 000 GAF 13154 24 Year Ended December 31 1979 Working Capital Provided Continuing Operations Income from Continuing Operations $ 25.828,000 Charges (Credits) not affecting working capital Depreciation Deferred income taxes Foreign excnange (gains) losses--noncurrent portion Other Working Capital provided Discontinued Segments' Income (Loss) from Discontinued Segments Charges (credits) not affecting working capital Depreciation Deferred income tax benefits Provision for employee benefits--noncurrent portion Provision for loss on disposition of fixed assets Write-off of intangible assets--noncurrent portion Other Working Capital used Total working capital provided (used) from operations Increases in long-term debt Fixed assets of discontinued segments held for sale Increase (decrease) in noncurrent liability for phase-out costs Other Total 15.725,000 2.617,000 2,226.000 884.000 47.280.000 2.355.000 13.465.000 (919.000) -- -- -- 968.000 15 8^ .000 63 149.000 27.274,000 -- (1.752.000) -- 88.671,000 Working Capital Applied Additions to property, plant and equipment Cash dividends Reductions in long-term debt Other Total 58,804,000 12.704,000 14,336.000 4.672.000 90.516,000 Incraaaa (Daeraaaa) in Working Capital Working Capital, January 1 Working Capital, December 31 (1.845.000) 292.405.000 $ 290,560,000 Analyst* of Changos in Working Capital increase (decrease) in current assets Cash S 3.519.000 Short-term investments (21,450.000) Accounts receivable 11.772.000 Inventories Prepaid expenses 53,765.000 (1.084,000) income tax benefits (4.182.000) Assets of discontinued segments Total (increase) decrease in current liabilities (22.448.000) 19.892.000 Notes payable Current portion ol long-term debt 5,958.000 3,662.000 Accounts payable (30.717.000) Accrued liabilities income taxes payable Total 451.000 (1.091.000) (21,737 000) Increase (Decrease) in Working Capital $ (1,845.000) See Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements. 1978 $ 28.056 000 15.001 000 229.000 3 273 000 4 455 000 51014 000 6.108 000 12.363.000 (5.824.000) -- -- -- 2.170.000 14.817.000 65.831.000 4.060.000 3.991.000 7.631.000 4.605.000 86.118.000 51.148.000 12.093.000 8,278.000 -- 71.519,000 14,599.000 277.806 000 $ 292 405.000 $ (4.745 000) 22.035.000 35.770.000 16.069.000 2.385.000 (14.133.000) (49.296.000) 8.065 000 9.244.000 (1 543 000) (7 492 0001 8 229 000 fi 924,000) 6 514 000 $ 14,599.000 25 GAF13155 December 31 AimU Current Assets Cash Short-term investments Accounts receivable--trade, less allowance for doubtful accounts--1960. $1.842,000; 1979. $5,779,000 Accounts receivable--other Inventories: Finished goods Work in process Raw materials and supplies Total Inventories Prepaid expenses Income tax benefits Assets of discontinued segments, at estimated realizable value (Note i) Total Current Assets 1979 ---------- $ 17 903.000 1.175.000 188.586.000 10.007.000 126.071.000 37.552.000 100.587,000 264,210.000 9.986.000 256.000 _ 492.123,000 Property, Plant and Equipment, at cost (Note 14) Land and land improvements Buildings and building equipment Machinery and equipment Construction in progress Total Property, Plant and Equipment Less accumulated depreciation Property, Plant and Equipment--Net Coat In Excoaa of Not Assots Aequlrod 19.463.000 130.451.000 299.758.000 25.062.000 474.734.000 166.327.000 308.407,000 24.321.000 Othor Assota 10.784.000 Total Aaaota $835,635,000 Balance Sheet amounts for 1979 have not been restated to separately identify amounts applicable to discontinued segments See Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements GAF 13156 26 December 31 1979 Liabilities and SharohoMors' Equity Currant Liabilities Notes payable (Note 13) Current portion of Iona-term debt (Notes 1 & 13) Accounts payable Trade Other $ 17,650.000 4,462.000 102.801.000 7.049,000 Accrued liabilities: Payroll Retirement Plan Other taxes Interest Other (Note 1) Income taxes payable Total Current Liabilities 5.886.000 11.582.000 5.624.000 4,610.000 36.897.000 5.002.000 ' 201.56i.000 Long-term Debt Less Current Portion (Note 13) 201,930.000 Deferred Credits ' " t Income taxes (Note 9) Investment tax credit - - Total Deferred Credits ;____ . , ^ OtlMr Liabilities (Nota iF.Vl^lZT"I' 1.! 19.520.000 1,436.000 42.156.000 Commitments and Contingent Liabilities (Mato 14) Total Liabilities ~ \S:zz7~: 7~. . ;^ JiT' 466.605,000 tvhfWfhVevfklVtleQrVeiV'tqMlty ((INsVeSVtee i1i1t9lii1a4AisIlSw)| " Preferred stock, $1 par value; authorized 6.000,000 shares; $1.20 convertible series issued--1980,3.068,201 shares; 1979,3,105,677 shares; at assigned value oi $1.25 per share (liquidation value 1980. $82,274,528) Common stock. $1 par value: authorized 25,000,000 shares; issued--1960,13.817.202 shares; 1979.13.770.359 shares Additional paid-in capital Retained earnings Total Less stock held in treasury, at cost: _______________________________ 3.B82.000 13.770.000 53.900,000 301,092,000 3^.644.000 Common--1980.236,887 shares; 1979, 323,787 shares Preferred--76.400 shares in 1980 and 1979 Total Shareholders Equity 2.682.000 932.000 369.030,000 Total Liabilities and Shareholders' Equity $835,635,000 Balance Sheet amounts for 1979 have not been restated to separately identify amounts applicable to discontinued segments See Summary of Significant Accounting Policies ana Notes to Consolidated Financial Statements. GAF 13157 27 The company announced on December 30.1980 its aecision to classify as discontinued a number of busi nesses including its reprographics, photographic graphic arts prooucts. pictorial products, resilient flooring and certain other smaller businesses Also included in the discontinuance program is a latex plant, solo in Decem ber. 1980. and the companys x-ray film and related chemical businesses that were terminated on March 21. 1980 To provide for its working capital needs during the period of this program, the company is negotiating a three-year. $225 million revolving line of credit with a group of banks. See Note 13 tor further discussion. Operating income of the discontinued segments reflects income earned prior to the effective date of the discon tinuance. All anticipated losses subsequent to the effec tive date of discontinuance have been provided in the Estimated loss from disposition As of December 31, i960, a provision of $254.7 million ($244.2 million after tax benefits of $10.5 million) was recorded and consists of a reserve for the loss on disposition of assets and a liability for anticipated phase out costs. An analysis of these accounts follows: Total Provision Activity during I960 X-ray pftasft-out costs SaJe of latex business Balance. Decemoer 31, 1980 Reserve For less On Disposition of Assets liability For Phase-Out Costs Dollars irr Millions *127 0 *127 7 Total *254.7 (1-01 *126.0 (6.0) *121.7 (60) (1 01 *247 7 Future adjustments to this provision may occur for tax benefits of up to $65.0 million, which will not be reflected in the financial statements until realization is assured. The current portion of the liability tor phase-out costs is estimated at $68 i million and is included m accrued liabilities; the non current portion of $53.6 million is included in other liabilities. In addition, $29.9 million of long-term debt has been reclassified to the current portion of long-term debt. For 1980 the assets of discontinued segments have been reclassified to remove them from their histone classifications and to separately identify them at their estimated net realizable value. The 1979 Consolidated Balance Sheet has not been similarly reclassified; however, amounts tor both years are presented below. December 31 Dollars in Millions 1979 Accounts Receivable--Net $ 55 6 inventories--Net 171 5 P'ODerty Plant and Eaj'Dment--Net 135 5 Owe- 22 9 Total Assets $415 5 Less reserve tor loss on aisoosition of assets Total Assets at Estimatea Net Realizable Value The Consolidated Statements of Income for the years ended December 31.1979 and 1978 have been restated to exclude the sales, costs and expenses of the dis continued segments from the captions applicable to the continuing operations, ana the net income from, me discontinued segments has been reported separately Sales applicable to the discontinued segments prior :c the dates at which tney have been accountec for as discontinued, were $553 4 million for `980 $529 5 million for 1979. and $454 3 million for 1978 Total interest cost incurred for continuing operations during the years 1980 and 1979 was $24 7 million ana $17.0 million, respectively. Of the total m the years 1980 and 1979. $3 1 million and $2 7 million, respectively, were capitalized in connection with financing additions to property, plant and equipment, resulting in reported interest expense for continuing operations of $21.6 million and $14.3 million in those years Capitalization of a por tion of interest costs was adopted in 1979 m accordance with a Statement issued by the Financial Accounting Standards Board Foreign exchange gains (losses) on continuing opera tions are comprised as follows: For the year Pre-tax Translation Forward exchange contracts Other Total After tax Translation Forward exchange contracts Other Total Dollars m Thousands 1979 1976 * (765) (3.284) (40) Si 4 089: * (i 973 10 002 409 * 8 438 S (765) (1 675) 18 S(2 422) * (1 973 4 9C104 S 3 032 Taxes related to foreign exchange are included in income Taxes(Benefits). Generally, balance sneer translations are not tax effected, whereas the results of forward exchange contracts are subject to tax The net results of a wholly owned, captive insurance subsidiary and the companys share of the net results of its 50% ownership m a chemical manufacturing company are recorded in Other income (Charges) on the Consoli dated Statements of Income For the years 1980.1979, and 1978, respectively, equity method results showee a loss of $966,000, income of $234,000 and a loss of $1,848,000. Foreign exchange gains and losses related to these investments are included within amounts reooned m Note 3 Included in Other Income (Charges) for the year 1979 is a loss of $5,966,000 on silver future transactions Fully diluted earnings per snare assume conversion of tne 5% and 5Vi% convertible subordinated notes and the common stock equivalents which would arise from the exercise of stock options Assumed conversions for the 1980 net loss per share would have been anti-dilutive anc have therefore been excluded 28 GAF 13158 Dollars in Millions 1979 1978 Sales Chemical Less intersegment Sales" Net Chemical Building Materials Consolidated Sales " $290 5 26 2 264 3 419 4 $683.7 $241 6 23 9 217 7 391 3 $609 0 Direct Operating Profit Chemical Building Materials Total __ __ $ 62 4 29 7 92.1 $ 48.4 41 3 89.7 Corporate Expenses (515) (36.3) income from Continuing Operations before Income Taxes _ _________ ... $ 40.6 $ 53.4 Identifiable Assets Chemical Building Matenals Photo & Repro ....... Corporate Assets of Discontinued Segments ~.` $182.6 348.5 239.0 65.5 --- $163.4 296.3 241 6 61.6 22 4' Total Assets . -- $835.6 $785.3 Additions to Property, Plant and Equipment **' ' - Chemical ' --'..................... _ $15.3 $ 8.5 Building Materials Photo & Repro /" 34.6 6.3 32.4 90 Corporate 26 1 2 Assets of Discontinued Segments -- -- TIal ... - - -i-*. r _______ ._____,______ S 58.8 I5TT Depreciation --- Chemical Building Materials $ 82 6.1 $ 78 58 Corporate 14 14 Total $ iS 7 $ 150 'Statement of Income information is presented so as to segregate continuing from discontinued operations tor all periods. Balance Sheet amounts for years prior to 1980 have not been restated. See Note i. intersegment sales are recorded at the same pnces charged to unaffiiiated customers Intersegment sales by the Building Materials group were negligible. 'Assets of discontinued segments at estimated realizable value related to the 1977 discontinuance program. gaf 13159 29 information with respect to operations by geographic area is as follows United States Western Europe Dollars m Millions Eliminations Other and Other Total Consoncatea Sales Less mtergeographic sales" Sales to Unaffiliated Customers Direct Operating Profit Corporate Office Expenses Income from Continuing Operations before Income Taxes Identifiable Assets $636 7 29 6 607.1 51.0 - 396.0 $ 67.5 124 55.1 12.5 ' 28 8 $ 150 -- 15.0 2.2 78 $ (42 0) (42 0) -- -- 265 7"' $677 2 -- 677 2 65.7 (56 6) 9.1 698.3 1979 Sales Less intergeographic sales'" Sales to Unaffiliated Customers Direct Operating Profit Corporate Office Expenses Income from Continuing Operations before Income Taxes Identifiable Assets $648.8 27.7 ; 62 VI 75.4 $ 63 8 10.9 `523 ' 15.7 . - . ' 640.8 ~ ; 168.6 ' $ 9.7 -- .9.7 1.0 ' 26.2 $ (38.6) (38.6) -- -- -- $683.7 -- 683 7 92.1 (51.5) 40 6 835 6 1978 Sales Less mtergeographic sales" $584.0 19.4 $ 46.1 7.6 '"$ 5.9 -- $ (27 0) (27.0) $609 0 -- Sales to Unaffiliated Customers Direct Operating Profit Corporate Office Expenses Income from Continuing Operations before Income Taxes 564.6 ' 78.2 - 38.5 10.7 5.9 -- 8_ 609.0 89 7 (36 3) 53.4 Identifiable Assets 595.8 142 4 24.7 22 4'"' 785 3 'Geographic Information is presented so as to segregate continuing from discontinued operations for all periods tor information pertaining to the Statements of Income. Balance Sheet amounts for years prior to 1980 have not been restatec See Note 1 'mtergeographic transfers are recorded at pnces, above cost, as negotiated between the operating units 'Assets of discontinued segments at estimated realizable value See Note i 'Assets of discontinued segments at estimated realizable value related to the 1977 discontinuance program GAF13160 30 The cost of employee retirement benefits for continuing operations was $9,806,000 in i960. $8,613,000 in 1979. and $8,659,000 in 1978. At December 31,1980, the esti mated unfunded prior service cost was $29,958,000. A comparison of the accumulated Plan benefits and Plan net assets for the company's domestic defined benefit plans is presented below Oecemoer 31 Actuarial present value of accumulated Plan oenetns Vestea Non-Vested Totai Dollars m Thousands 1979 1978 S214.759 10.553 *225.312 5204,226 12.419 *216.645 Plan assets available tor benefits *151 743 *145.631 The weighted average assumed rate of return used in de termining the actuarial present value of accumulated Plan benefits was 6% in each year. The benefit information was determined as of January 1,1980,1979, and 1978. Provision has not been made for United States income taxes on unremitted earnings of foreign subsidiaries of $43,012,000, since any withholding taxes and United States income taxes payable on dividends based bn undistributed earnings would be substantially offset by foreign tax credits. United States income taxes have not been provided on the unremitted earnings of the Domestic international Sales Corporation subsidiary aggregating $14,266,000 through December 31,1980, since the com pany intends to postpone indefinitely the remittance of such earnings. Income from continuing operations before income taxes consists of domestic and foreign income as follows: For me year Domestic Foreign Total income from Continuing Operations betone Income Taxes Dollar* in Thousands 1979 1978 *23 986 *41.601 16 600 11.796 *40.586 *53 397 The provision for income taxes on continuing operations consists of the following: For the year Dollars in Thousanas 1979 1978 United States--Current United States--deterred united States investment tax credit Amortization of deferred united States nvestment tax credit ansmg D'lOrfC^' foreign--current S 6.657 2.874 13 022) *20 123 43i (i 992) 1572) 7 534 (572) 5 514 Foreign--oeterreo Siaie (257) 1 $44 1202) 2 039 Total rcome Taxes (Benefit) S ' 4 758 $25 34' Total tax expenses (benefits) for the years i960.1979 ana 1978 were less than the amounts computed by applying the U.S Federal statutory income tax rare to income before taxes The reasons tor these Differences are as follows For the year Tax at statutory rate increases (deceases) resulting tur United States investment tax cec ts Domestic international Sales Corporation ano aeDietion allowances Do iars n >9l.sa^cs '979 9-5 S'8 673 S25 63* (3 594i '2 564 ;942' :??& Foreign operations, including foreign exchange gams ano fosses Capital transactions ano other--net Total Income Taxes (Benefit) 306 * ' * 3*9 $14 758 ' 44* S25 34' The principal sources of United States deferred taxes applicable to continuing operations were. For the year Dollars m Thousancs 1979 978 Excess of tax depreciation over amount reported m Consolidated Statements ot income interest expense capitalized (see Note 2) Fotwgn exchange translation Pension expense Other-net *(1.960) (1 187) 955 1966) 284 SC 227i _ 275 (30: 55' Total *(2.874) $ (43`l As of December 31.1980. unused investment tax credits of approximately $4.7 million are available for offset against future tax liabilities through 1987. For 1979, the income tax benefit on discontinued opera tions includes $3.2 million resulting from a 1979 change m United Kingdom tax laws related to inventories The following expenses of continuing operations are in cluded in the Consolidated Statements of Income For the Year Dollars in Thousands '979 '979 Maintenance ano repairsS4Q154 Rent on operating leases12 6*8 S37 '92 "875 GAF13161 31 The $1 20 convertible preferred stock, dividends on which are cumulative, is convertible at any time into common stock at the rate of i Vi shares of common stock for each share of preferred The company may redeem the pre ferred siock at $27.50 per share. In the opinion of counsel tor the company, retained earnings are not restricted as to payment of dividends on common stock by reason of the liquidation preferences of the $1.20convertible preferred stock Transactions in common stock held in treasury were as follows Dollars in Thousands 1979 1978 Balance January t Re-purchase of 10.600 shares in i960 3.500 snares m 1979 and 17.000 snares .n 1978 pursuant to tne stoc* purchase plan S 4.531 $4 438 19 93 Issuance from ireasury of 97.500 snares m 1980 and 246.920 snares in 1979 (in connection with sales unoer tne stock option plan and the restncted stock purchase plan) (1.868) Balance, Decemoer3i * 2.682 *4.531 As a result of the above issuance of treasury shares during 1980 and 1979. additional paid-in capital has been de creased by $123,000 and $174,000, respectively. The shares of common stock reserved for issuance at December 31,1980 and 1979 were as follows Reserved tor 1979 Conversion of $1 20 convertible preferred stock Conversion of convertible subordinated notes 3.882.096 381.747 Exe-ose under stock option ano Purchase plans 1 321.270 Torai 5 585.113 During 1980. 37.476 shares of preferred stock, assigned value of $46,845, were convened into 46.843 shares of common stock: during 1979, 90 shares of preferred stock were convened into 112 shares of common stock: during 1978.190 shares of preferred stock, assigned value of $1,000. were converted into 237 shares of common stock The company's stock option plans provide for the granting of options to key employees to purchase common stock of the company at not less than 100% of the fair market value at the date of grant Under the terms of the 1975 non qualified plan, options for 800.000 shares of common stock may be granted during a ten-year period ending February ii. 1985 Options granted to date are exercisable one year after grant ana expire after 10 years. The plan provioes tor stocx appreciation rignts. wnerem an option noioer may request "surrender' of the option in exchange tor payment (in cash or stock) by the company of tne difference between the option and market prices on the date of surrender The requested surrender of an option may be granted or denied at the discretion of the com pany s Stock Option Committee Authority to grant options under the 1965 quaiifiec plan expired on March 31.1975 Options granted unoer tr.s plan expired five years from the date of grant Transactions affecting options under these plans are as follows Number of snares Avenge Cctcr'ce Oulsianding January 1 1978 507 940 sico- Granted ---- Exercised Terminated (24 290) -'79 750! 9 60 2 04 Outstanding Decemoer 31 1978 Granted Exercised & Surrendered 403 900 3)7 000 (89 130! 96J 32 9 6C Terminated f'3 100) 0 29 Outstanding Decemoer 31 1979 618 670 :04e Granted Exercised 132 000 (22 5001 50 *0 28 Terminated (115 500) 9 8' Outstanding Decemoer 31.1980 612.670 10 82 Of the total options outstanding at December 31.1980. 1979 and 1978, respectively. 480.670: 305.670. and 403,900 were exercisable. Options for 119.500:238.000. and 548.000 shares were available for grant at December 31,1980,1979 and 1978. respectively Under the provisions of the company's 1969 restricted ana unrestricted stock purchase plan. 650.000 shares of com mon stock were authorized for sale to key employees. The plan currently provides that restricted and unrestricted shares may be sold at prices which are not less than 50% and 80%. respectively, of the closing market price preced ing the date on which an employee is designated as one tc whom shares may be offered. Under certain conditions, the company has the nght to repurchase restricted snares of common stock at the original selling price. The excess of quoted market value at the date of grant over the aggregate sales price for restricted shares solo is amortized by cnarges to income over the restricted period. As a result of these charges, additional oaio-m capital has been increased by $199,000, $138,000 ano $90,000 in 1980,1979 and 1978, respectively The balance to be amortized through 1989 amounted to $i.183.000 $1,012,000 and $221,000 at Oecembef 31.1980.1979 ano 1978. respectively information regarding short-term debt for the years 1978-1980 is Dollars r> Thousands 1979 '37f As of December 3i Balance outstanding Average interest rate Forme year Average short-term debt outstanding Maximum snort-term debt outstanding ai any month-ena Average interest rate St7 650 S23 60; *2 7*, *0 S51 446 $42 36 576 683 S73 53 1 ' 5% GAF13162 32 The average amount outstanding during the period was computed Oy dividing the total of the monthly outstanding principal balances by 12. The average interest rate for the year was computed using the weighted average interest rate on outstanding balances at each month-end At December 31.1990. GAF had unused lines of credit aggregating $132,000,000 These lines of credit are main tained with various banks on terms, generally renewable, expiring on various dates. Borrowings generally bear interest at or near the prime commercial lending rate or its foreign equivalent. A vari able fee, usually based on a percentage of the current prime rate, is paid on the domestic lines of credit. Com pensating balances at December 31.1980, are not significant. Long-term debt at December 31.1980 and 1979 was as follows. Dollars in Thousands 1979 9W% senior notes due March 31.1967 with scnedutod principal repayments commencing December 31, i960 T 'T " ~ * 65.000 871% senior notes due January 15.1992 witn scheduled pnncipal repayments commencing Oecember 31.1980 ... -- " ' 40,000 5'4% sinking fund debentures due December 1, 1987. with annual sinking fund payments of S2.500.000 flue on each December 1, At December 31.1980. S11.598.000 was beta in treasury and may be used to accommodate tuture sinking tunc reaunements. 20.902 Financings with a group of Insh banks, payable in Insh or British pounds. German marks orb.S. dollars. Financings aie repayable Iron 1982 to 1987. with variable interest rates at 55% of the applicable interbank rates, plus a piemium. --" T7.243 Tax-exempt industrial revenue bonds which bear interest at rates of 3H% to 7H% and mature at various dates to 2004 20 896 5% convertible subordinated notes due Aonl 1. 1994. with optional annual repayments begin ning Aonl 1.1990 " 8.200 5Vi% convertible subordinated notes due Apnl 1. 1983. witn optional annual repayments ot either 5200.000 or each Apnl 1 through 1982 ana the Dalance of Si 800 000 payable April i. 1983. or $733,000 oh Apnl 1 1981 and 1982 and the balance of $734 000 oayaple on Aonl 1.1983 2.400 Omer notes wmcn pear interest st 5H% to 12% anc mature at various sates to 1993 13.506 Obligations under capital leases (See Note `4) 18.245 Totai 206 392 Less current portion 4 462 Long-ierm dent, less current portion $201 930 Scheduled principal repayments have been accelerated unoer agreements with certain of the company's long-term lenders in conjunction with the discontinuance program. This had the effect of increasing the current portion of long term debt at December 31.1980 by $10.0 million. Casn requirements to meet maturing debt obligations over tne next five years are 1981 $45,463,000 1982 $16,926,000 1983 $23,920,000 1984 $20,548,000 1985 $11,178,000 The 5% convertible subordinated notes are convertible into shares of common stock, at any time, at a conversion price of $22.50 per share {subject to antidilution adjust ments in specified circumstances) The 5Vi% convertible suboramated notes are presently convertible into shares of common stock at a conversion price of $28 72 per share (subject to antidilution aoiustment in specifiea circumstances) only in connection with certain prepayments. All other rights lapsea in 1976 Dividends are restricted under provisions of certain loan agreements Under the most restrictive ot these provisions $18,000,000 of retained earnings were available at Decem ber 31,1980, for future dividends. To provide for its working capital neeos during tne discon tinuance program OescribeO in Note 1, the company is negotiating a three-year $225 million revolving tme of credit with a group of banks. This line of credit will replace tne company's short-term lines of credit in effect at December 31.1980, and will have declining availability over its term Interest on the funds will be at the prime rate. A commit ment tee of VS% per annum will be charged on the daily average unused portion, as will a facility fee of 72% per annum on the commitment. This agreement will contain provisions which require the maintenance of minimum working capital and net worth and limit the amount of divi dends, capital expenditures, funded debt, short-term bank borrowings and other debt. Capitalized leases for continuing operations of $9,769,000 and $17,253,000 are included in Property, Plant and Equipment--Net at December 31,1980 and 1979, respec tively. The present value of future net minimum lease payments is reflected as long-term debt (See Note 13) The most significant capital lease is for the administrative headquarters located in Wayne, N.J. The amortization ex pense associated with assets recorded under capital leases is included in depreciation expense. The company also has operating leases for transportation and data processing equipment and for other buildings In connection with the company's decision to discontinue a number of businesses as described in Note i. net capital leases of $6,662,000 and the related obligation of $2,7B3,000 have been reclassified in 1980 to Assets of discontinued segments and Current portion of long-term debt, respectively. Obligations under long-term ooeratmg leases relating to discontinued operations have been recorded in the estimated liability for phase-out costs Future minimum lease payments for continuing properties held under long-term leases as of December 3i. 1980 are as follows: Minimum Paymenis by Penoa Dollars m Thousands Capital Leases Operaung Leases 1981___________________ 1982 1983 1984 1985 Later Tears __________I 1 070 1,864 1.805 1 739 1.677 14 884 S 6 008 4 669 3 038 779 606 853 Total minimum payments 23.039 S*6 955 Less interest mciuoed above 9 764 Present value of net minimum lease payments--continuing $3,275 33 GAF 13163 The company had commitments for its continuing opera tions of approximately $7,420,000 at December 31.1980. for the acauisition of property, plant ana equipment At December 31,1980, there were certain lawsuits and claims pending against the company In the opinion of management, the ultimate disposition of these matters will have no material adverse effect on the company's consoli dated financial position In accordance with the Financial Accounting Standards Board Statement No. 33. "Financial Reporting and Chang ing Prices!' the following supplementary information is presented to report the estimated impact of inflation on the company's earnings from continuing operations. The com pany's historical cost financial data have been adjusted for the effects of general inflation on inventories and property, plant and equipment (constant dollar basis) and for the effects of changes in specific prices on tnose assets (cur rent cost basis). As a result, the impact on net income only reflects adjustments to depreciation expense and cost of products sold. Sales and other costs and expenses, in cluding income taxes, are not adjusted. The company supports the accounting professions at tempts to experiment with methods of reporting the impact of inflation, but cautions the reader in interpreting the fol lowing disclosures. Both the constant dollar and current cost methods involve the use of numerous assumptions and estimates. Also, as previously mentioned, the financial data are adjusted only to a limited extent, rather than on a comprehensive basis. While the required adjustments rep resent an attempt to estimate what it would cost in terms of today's dollars to obtain existing assets, they do not reflect the economic benefits and cost savings of replacing the company s existing assets with new facilities. The restated information also makes no allowance tor the customary relationship between cost increases and changes in sell ing prices. The resulting measurements should therefore be viewed only as indicators of the effects of inflation. The adjusted earnings under both the constant dollar and current cost methods are lower than the income from continuing operations reported in the pnmary financial statements. However, it should be noted that the guide lines established by Statement No. 33 specify that holding gams due to the increased value of inventories and prop erty. plant and equipment held dunng the year ($46 7 million) and the gain from the decline in purchasing power of net monetary liabilities held during the year ($27.5 mil lion) may not be aggregated with the adjusted earnings. Also, the Statement requires that the provision for income taxes included in the pnmary financial statements be the same amount included in constant dollar and current cost presentations even though expenses shown are higher. This treatment highlights a hidden tax being borne by the company because existing tax laws have not been revised to reflect the effects of inflation on businesses Constant Dollar Information Constant dollar accounting is a method of reporting financial statement elements by utilizing as a means of measurement dollars having an equal (i e constant) gen eral purchasing power. The information has been com piled. using the Consumer Price inoex-Urban. to restate certain historic costs to a constant value, equivalent to average i960 dollars. Depreciation nas been increased tc reflect the expense which would have been recorded if the assets had been acquired with average 1980 dollars ratner than with dollars actually expended m onor years The same procedures as those used in the primary ` nancia statements have been applied m these constant donar cal culations with regard to useful lives, salvage values ar.o depreciation. Cost of products sold nas been increased to reflect a restatement of historic inventory costs at the be ginning and end of the year in average 1980 dollars Oner items of revenue and expense appearing in the primary financial statements are assumed to have occurred pro portionately throughout the year in relation to the changing CPI-U and, as such, are considered to be already stated m average 1980 dollars. Current Cost Information The current cost method adjusts historical costs of the company's inventories and property, plant and equipment to reflect changes in specific prices (current cost) of pro ducing those same inventories or replacing the assets at the balance sheet date. Plant and equipment current costs were estimated by adjusting historical costs by externally generated industrial price indices. The current cost of ianc was developed by the use of the Consumer Price Inoex Inventory costs were developed using current manufactur ing costs. Inventory costs included in the Cost of Products Sold were determined on average current actual costs during the year. Current cost depreciation expense was determined using the estimated current costs of plant ana equipment and the estimated useful lives ana deprecia tion rates used for historical costs. The estimated current cost of property, plant and equip ment--net and inventories was $313 7 million and $104 9 million, respectively, at December 31,1980 Other Information The gain from holding net monetary liabilities arises be cause, during 1980, the company held more liabilities which were fixed m amount of dollars to be repaid than it held assets similarly fixed in amount of dollars to be re ceived. Accordingly, an important hedge against inflation is provided as this net monetary liability position will be paid in dollars which have a lower purchasing power tnan the dollars originally received in return for the obligations Similarly, the higher net assets at year end unaer the con stant dollar and current cost methods, as compared to historical cost net assets of $122.3 million, reflects the fact that the company's inventories and properties, when stated in average i960 dollars or in current cost dollars have substantially greater value than is recoraec using generally accepted accounting principles as is reouirec in the primary financial statements GAF 13164 34 Consolidated Statement of Income from Continuing Operations Adjusted for Changing Prices (Unaudited) For the year ended December 31.1980 ($ in thousands) As Reported in the Primary Statements (Histoncal Cost) Adiusted for General Inflation (Constant Dottars) Net Sates ~ S 677.216 Cost of Products Sold {i) Depreciation ` 521.880 29.024 Other Operating Expenses 118.328 interest 21.634 income Tax Benefit (1.246) 689.620 income (boss) from Cononuino Operations -pr-J-rrs' nz404> PurchasingPooer Gam Vi-,.-. on net monetary ImPrliQer- -* held during th-------- ' : Increase m specific pncac^ - (current cost) ~ ~ inventones and property*^ plant and aquipmantnakLu during the year. Adjusted tor Changes in Specific Pnces (Current Cost) S 677.216 521.751 31.338 118.328 21 634 (1 246) 691.805 $ (14.589) * 27.544 Excess of increase w-_ specific prices pyaL increase in the general pnce ' -963 (t) Excludes rx.617 0CQc1spariat)oo<p<panseTAjOcdin Cost of Prod- uctSoldin,theprimary'8nani3e<aB>Pitrt-^un`-'Fi'y.-^V-. - - Moftte Haskins-SeBs Certified Public Accountants One Worla Traae Center New York. New York 10048 To Shareholders and Board of Directors of GAF Corporation We have examined the consolidated balance sheets of GAF Corporation and its consolidated subsidiaries as of December 31.1980 and 1979 and the related consolidated statements of income, retained earnings and changes in financial position tor each of the three years in the period ended December 31. 1980 Our examinations were made m accordance with gener ally accepted auditing standards and. accordingly, included such tests of the accounting records ano sucn other auditing procedures as we considered necessary in the circumstances As more fully descnped in Note 1 to the financial statements, the Company provided in 1980 tor estimated losses and re lated costs which are expected to be incurred in connection with its plan to dispose of certain of its operations We have reviewed the procedures applied by the Company in its deter mination of such provision and have inspected the underlying documentation; while the procedures were reasonable and the -documentation appropriate, the actual loss and related costs presently cannot be determined with certainty as they are dependent on future events. In our opinion, subject to the effects on the 1980 financial statements of any adjustments which may result upon con summation of the plan of disposal referred to in the preceding paragraph, the above mentioned financial statements present fairly the financial position of the companies at DecemOer 31. 1900 and 1979 and the results of their operations and the changes in their financial position for each of the three years in the penod ended December31.1980. m conformity with gen erally accepted accounting principles consistently applied during the period except tot the change, with which we con cur, In 1979 in the method ot accounting lor interest costs as described in Note 2 to the financial statements February 12,1981 Five-Year (Jomparisonot'&et^cteiicJ Supplementary Financial Data Adjusted for Effects of Changing Prices (In Average 198013ollafsV^-r-^ms>ii^-^<rr7.-*- 7^7 (Dollars in Thousands except per Share Data) 1979 . 1978 1977 1976 Net Sales if-dtiTMltej Historical cost infaTmation'adfijstedfCr-general inflation: income (Loss) fromconttnuingoperations $776.192._ $769,187 . $689,156 $654,099 $ 8.261 income (Loss) per coromdh siiare -.~T. _ ,! $ .62 Net assets atveafend / $567,037 Current cost informatiorir Income (Loss) from continuing operations , _ $ 4,170 Income (Less) per cornmo?rshare_................. _ $ .31 Excess of increase in specific prices over increase in the general price level $ 15.435 Net assets at year-end . $612,471 Other data, adjusted for general inflation- Purchasing power gain on net monetary liabilities held during the year $ 25.212 Dividends per common share $ .77 $ .81 $ 82 $ 84 Year-end market pnce per common share $10.87 $14.44 $14 42 $18.94 Average Consumer Price Index ___________________________________ 217 4 1954 181.5 170.5 35 GAF 13165 CHEMICAL PRODUCTS OAF1 Chemicals High-prsssur* Acatylana Derivatives Monomers, polymers, copolymers, solvents and organic intermediates denved from acetylene for use in cosmetic, petroleum, pharmaceutical, plastic, textile, adhesive, and other industries. Monomers 2-Pyroi* monomer for nylon-like linear polymer, soiveni and intermediate, solubilizer for drug-actives. V-Pyrol1 comono mer and modifier for adhesives, coatings, fibers, etc. Intermeoiate. Alkyl vinyl etners monomers for copolymers, intermediates Vinylpyrrolidone Polymers Polyvinylpyrrolidone (PVP) for cosmetics, adhesives, de tergents, coatings, paper, textile, specialty uses. Plasdone* pharmaceutical tablet binder and coating agent, Plasoone1 C excipient for iniectabies, blood plasma expander. Roiyciar* AT stabilizer for beer, wine, vinegar, juice. Polyplasdone XLTM tablet disintegrant for pharmaceuticals, Ganex* polymers for pigment dispersion, as protective colloids, cosmetic additives. PVP/VA copolymers, film formers for adhesives, cosmetics, etc.. Polectron* emulsion copolymer, a binder, stabilizer, opacifier for vanous uses. Gafquat* copolymers for skin- ano hair-care products Vinyl Ether Polymers Gantrez* AN copolymers for adhesive, detergent, photograpnic, textile applications; Thickener L and LN for paints and other latex systems, Gantrez* S resins for rapid coldwater solubility, used m detergents. Gantrez ES resins for cosmetics, coatings, pharmaceuticals. Gantrez* M resins for adhesives and coatings, a latex heat sensitizer, and nonmigrating plasticizer Intermadlates and Solvents BLO solvent for agricultural and lithographic applications, Butaneaiol. intermediate for thermoplastics, chain extender for urethanes. Buteneoiol intermediate for pharmaceutical and agricultural chemical synthesis. Butynedioi agricultural intermediate, corrosion inhibitor, M-Pyrol* solvent for aroma tic extraction of lube oils, high temperature plastics synthesis Methytamines reactive chemicals for pesticides, pharma ceuticals. detergents; N-Substituted pyrrolioones for for mulating, punfying. or processing of coatings, drugs, dyes, piastics etc , Propargyl alcohol intermediate for agricultural ana pharmaceutical chemical synthesis, corrosion inhibitor. Tetranydrofuran for magnetic tape coatings, reaction syn thesis. PVC pipe cements, vinyl coatings Industrial Organic and Inorganic Chemicals Complex cyclic and aliphatic compounds for use as active ingredients and as intermediates in the dye, pharmaceutical, agricultural, and chemical processing industries; cartionyt iron powders; iron pentacarbonyl. Surfactant Intermediates Nonyipnenol. Dooecyiphenol. Sodium isethionate, Sarcosme. N-Methyitaurine Carbonyl Iron Powders Microscopc-size spheres, containing as high as 99 5% metallic iron, used in VHF and UHF circuitry, transmitters receivers, radar, and in powder metallurgy. Iron Pentacarbonyl A tecnmcai grade, Detter than 99 5% pure, for use as start rg material for chemically pure iron, reagent in preparation of oxiaes. light-sensitive photochemical antiknock agent for gasoline and aiesei fuel, catalyst m nyarocarpon synthesis intermeoiate m manufacture of chemically useful reagent complexes Specialty Chemicals Processing and formulating agents, including bactericides, finishing agents, adhesive additives, sequestrants. antistatic agents, lubricants, and solvents, for use in vanous industries, agricultural chemicals; textile chemicals. Antioxidant Uvi-Nox * primary antioxiaant for polyolefins monomer inhibitor Antlatata for Plastics Gafac* pnosphate esters for PVC. polyolefins, polystyrene Biocides Biopal* iodophors for detergent-sanitizers. Corrosion Inhibitors Butoxyne* 497 for acio pickling, electroplating, specialty applications. Katapone W-328 corrosion inhibitor for steel, copper, aluminum Also for petroleum processing, drilling acidizing. Lubricants Antara extreme-pressure additives for metalworking fluids Sequestrants Cheelox sequestrants. chelate trace metal impurities in tex tile processing, leather dyeing, paper processing, clarify liquid soaps and shampoos, stabilize rubber latices ana ag ricultural chemical emulsions, sequester calcium iron, cop per, magnesium, tin, etc., m hara water and wet processing Taxtila Auxiliaries Dyeing assistant. Gafsoft* softeners for textile yarns and fab rics: Gaftex* detergents, foam suppressants, emulsifiers, leveling agents: Katanol1 dye earner for pressure dyeing of aisperse-dyeabie polyester, Katapol VP-532 retaroer for cationic dyes, Peregai1 dyeing, leveling, stripping assistants. Soiidogen aye fixing agent for direct ana developed ayes Othar Specialty Chemicals Blanco!1 dispersant ana peptizing agent for pigments, clays ana other sonas m paper agricultural cnemicais. latices Cepna plant growth regulator for use on various agricultural crops. Gafamidei'CDD-5tBfoam stapmzer for liquid osnwashing products, drycleaning, neavy-outy detergents Surfactants Noniomc. anionic, and cationic surface-active agents for use as detergents, emulsifiers, dispersants, and wetting agents Nonionics Antarox1 surfactants lew-toaming household ano ncustr al oetergents. Emuiphogene-1 emulsifiers, foaming nghtor heavy-duty detergents, latex stabilizers. Emuipnor! dispersants emulsifiers, antistats textile ubneants igecai* GAF 13166 36 surfactants :or cnemicai anc tnerma' stability m textile ana caoer processing r.yarocarDon ana agricultural cnemicai emulsification aetergent compounaing, emulsion polymer ization etc Anionics Anpar mgn-foammg aetergents tor nousehoid prooucts state control primary emulsification Antara' lubricants ana corrosion inribitors in oil- or water-based systems Gafac' oetergenrs ana emulsifiers witn antistatic lubricating, aedusting. anticorrosion properties Igepon* aetergents wet ting agents ana dispersants, both high- and low-foaming and compatible witn soaps, usea in textile ana hard surface detergency and m formulating cosmetics and agricultural chemicals Nexal' wetting agents for paper, textile, paint, ink applications Cationic Katapoi5 water-solubie emulsifiers for mineral ons ana agricultural cnermcais. antipnecipitants ana textile leveling agents, antistat and lubricant for wool ana synthetic fiber processing OAF1 Engineering Plastics Poiybutylene tensphthalate (PBT) thermoplastic molding compounds for automobile, mecnanicaJ and electrical parts, electnca!/electronic components, appliance housings, and business machines. Thermoplastic Polyesters Gafite1 unnemtorcea ana glass-remtorced PBT compounds, Gafite1 LW low-warp PBT compounds, from impact-modified mica-reinforcea materials to glassfiber/mica combinations, Gaftufhigh-impact PBT compounds in glass-reinforced ana unreinforced grades. GAF-1 Mineral Products Natural and ceramic-colored mineral granules in a variety of screen gradings and calibrated colors for roofing and other uses; inert fillers. BUILDING MATERIALS GAF ' Building Products Prepared Roofing Complete line of premium organic and glass fiber self-sealing asphalt shingles. Asphalt Roofing Shingles Timoenme1 premium asphalt shingles, random butt design earth-tone colors. Timberlme1 Class A glass fiber shingles, tor extra safety and long life. Sentinel'* Class A glass fiber shingles fins ana wind resistant. Standard self-sealing shin gles rjgged with classic square-tab design. Fire Guara Class A heavyweight twin-tab sningies. Sovereign1 shingies. heavyweight, twin-tab design Tite-On1 locking shingies. dis tinctive basxetweave pattern. Nor'easter4 strip shingles, no cut-outs total doupie coverage Suburpan* Twm-Tabs! shin gles m classic square-butt style, sweeping appearance Roll Roofing Smooth-surfaced rail roofing; mineral-surfaced roll roofing, combines utility and economy with fire resisting qualities and attractive colors: Dubl-Coveragemineralized roll roofing provides double-thick protection. Built-up Roofing Systems Products for hot-applied application including organic- and glass-mat-based roofing felts and asphalts, roofing mem branes. cements and coattngs: Mineral-Shield coid-apDed built-up rooting system; accessories Roofing Membranes Air-Vent! perforated asbestos anc ascnait fe'ts Asbestos Dase felt Asbestos combination tiasnmg. giass-remtorcec Universal base sheet, organic, coated both sees for use or asphali roofs and over poured gypsum wooc fioer oeexs roof insulation Vapor retaraer for above-aecx msu-ianor Strata-Ply4 roofing felts for three-ply roofs GLass-Mat-Based Products Gafgtas " 3 & 4 ply. lightweight ply sheets Gafgias '* aspnaitcoatea base and ply sheet. Gafgiasmmerai-surfacea cao sheet, Gafgias1* Stratavenr4 perforated vent piy vented glass-base felt. Gafgias'* Stratavent' vent ply fornailapie decKs. venting glass-base fett Cements and Coatings Jetblak'* Flasntite* cement, an asphalt plastic cement tor built-up roofing flashing Fibered aluminum coating, reflec tive. for smooth-surface asbestos roofs, metal ana masonry surfaces. Mica Weatherguard '* coating and Weather Coat ` asohalt emulsion for smooth-surface asbestos roofs. Mineral-Shield' Built-up Roofing A time-proven, cold-applied built-up roofing system combin ing modem application techniques ana specially formulated roofing products Prooucts include Mineral-Shieldroofing membrane, mastic, granules, fibered aluminum mastic, ana Gafgias'" giass membrane Accessories Gaflex'* expansion pint cowers. Vent stacks to release moisture trapped in built-up roofs insulation Products Urethane, periite. urethane-perlite, and Isotherm insulation boards (or built-up roofing applications; roof insulation fasteners: building insulation. Roof Insulation Gaftemp1 urethane insulation board, for use where nigh ther mal value is paramount; Gaftemp urethane-periue insulation provides high insulating efficiency compmec witn rateo fire resistance. Gaftemp1 perlite insulation ooard combines ther mal insulation with dimensional stability, Gaftemp f isotnerm msuiation is Factory Mutual Class 1 fire rated for rsuiatec steel deck assemblies. Gaftite'" roof insulation fastened provide maximum wind uplift resistance SERVICES Chemicals Custom manufacture of pharmaceutical, agricultural, arc other specialty cnemicais in developmental anc commerc.ai quantities Building Supply Centers Distrioution outlets for GAF bunding materials and allied oroaucts 37 GAF 13167 -**r-v '*-*$-'* ' :- - - ---.-- - ^ Corporate Offices. , ^,- -MftVlfesf SJ Sfieeti'v< ja Domestic Operations.- GAF Corporation's plants, research laboratories, sales offices, and distribution centers are located throughout the U.S A. Major lwtematioiote#^'-?7^^ Locations. :M?Z Alabama Birmingham Massachusetts Millis Soulth Carolina Chessifer Australia Adelaute Huntsville Mobile Arizona Phoenix California City of Commerce Newton Michigan Detroit Troy Minnesota Minneapolis Teernmnessee Memiphis Teaxsas Anrltinggton Dallais Housiton Brisbane Melbourne Flerth Sydney Austria Vienna Fontana Missouri Secadritt Belgium La Habra Long Beach Annapolis Joplin Texas City Virginia Sint Nikiaas Brazil Palo Alto San Diego South San Francisco1 Wes: Sacramento Colorado Denver Kansas City St Louis New Jersey Bound Brook Fairfield Gloucester City Chhoess.apeake Norfolk Spprriimngfield WWiisseconsin Pemmbt ine Sao Paulo Canada Calgary Edmonton Mississauga Montreal District of Linden Doommestic Toronto Columbia South Bound Brook SSuubbssidiaries Vancouver Florida Orlando Tampa Wayne West Deptford West Windsor GGAAFFBI roadcasting Compr any, Inc. NMeewwY- ork. N Y. Winnipeg Denmark Ballerup Georgia Atlanta Savannah Illinois Chicago Franklin Park Joliet Lincolnwood New York Binghamton Johnson City New York Vails Gate Vestat North Carolina Charlotte GGAArrEI xport Corpioration NNeewwY' ork. N Y. Carolina. Puerto Rico GGAAFFHI awaii Inc. - Honolulu. Hawaii . QGA^pF Finland Helsinki France Louvres Great Britain Colnbrook Hounslow Manchester . Indiana Ohio Inntteerrnnational. * Greece: v:;- Indianapolis Columbus Corpioration: Athens -T-' Mount Vernon Elyna New'York, N.Yc ' Ireland .*- Kentucky Oregon Dublin . ' j'.- `j- Calvert City Pragress/Porttand Mullingar.v'iv Louisiana: Pennsylvania. New Orleans' Blue Ridge Summit- CV'.. Maryland:^. > . Baltimore^ Tl ". Ene ., . ; . . ;< King of FYussiasR-i-^T-.-- ' ' Glen Bumieji'--. . t.Whitehall^'.- Israel-.' Tef Aviv t*.- - " . 1 > .S .Sty- v.-t f w: Hagerstown^ v ; Lanhamr , ... _ : Mexico Mexico City ' ' The Netherlands'. Delft New Zealand Auckland Wellington Norway Oslo Singapore Singapore South Africa Johannesburg ' Spain Barcelona Sweden Stockholm- Swrtzerfand Zug West Germany ' Frechen -= Affiliates;;' GAF/Huts dwmiej,^ GmbJI - : -v - v-L Mart, West Germany-- 4. Sawyer'sAsiatic ^:ePty. Ud^--r. -^-~^ Bombay Indafc^t'y-^y* cV---vir .? ?- c-- V i&-Jr * J '& "*&.*> Vs