UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-81808
BUILDING MATERIALS CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
Delaware 22-3276290
(State of Incorporation) (I. R. S. Employer
Identification No.)
1361 Alps Road, Wayne, New Jersey 07470
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (973) 628-3000
See table of additional registrants.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES /X/ NO / /
As of November 10, 2001, 1,015,010 shares of Class A Common Stock, $.001 par
value, and 15,000 shares of Class B Common Stock, $.001 par value, of Building
Materials Corporation of America were outstanding. There is no trading market
for the common stock of Building Materials Corporation of America.
As of November 10, 2001, each of the additional registrants had the number of
shares outstanding which is shown on the table below. No shares were held by
non-affiliates.
ADDITIONAL REGISTRANTS
State or other Address, including zip code and
jurisdiction of telephone number, including area
Exact name of registrant as incorporation or No. of Shares Commission File No./I.R.S. code, of registrant's principal
specified in its charter organization Outstanding Employer Identification No. executive offices
- ------------------------ ---------------- ------------- --------------------------- --------------------------------
Building Materials Delaware 10 333-69749-01/ 1361 Alps Road
Manufacturing Corporation 22-3626208 Wayne, NJ 07470
(973) 628-3000
Building Materials Delaware 10 333-69749-02/ 300 Delaware Avenue
Investment Corporation 22-3626206 Suite 303
Wilmington, DE 19801
(302) 427-5960
2
Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Third Quarter Ended Nine Months Ended
------------------- -----------------
Oct. 1, Sept. 30, Oct. 1, Sept. 30,
2000 2001 2000 2001
-------- -------- ------- --------
(Thousands)
Net sales ............................. $330,882 $376,315 $946,471 $996,201
-------- -------- -------- --------
Costs and expenses:
Cost of products sold ............... 242,460 256,778 687,117 709,914
Selling, general and administrative.. 65,843 75,399 192,313 199,369
Goodwill amortization ............... 506 507 1,530 1,517
Gain on sale of assets............... (17,505) - (17,505) -
-------- -------- -------- --------
Total costs and expenses........... 291,304 332,684 863,455 910,800
-------- -------- -------- --------
Operating income ...................... 39,578 43,631 83,016 85,401
Interest expense ...................... (13,369) (15,067) (38,348) (45,670)
Other expense, net..................... (2,673) (1,799) (6,086) (5,266)
-------- -------- -------- --------
Income before income taxes
and extraordinary losses ............ 23,536 26,765 38,582 34,465
Income taxes......... ................. (8,708) (9,903) (14,275) (12,752)
-------- -------- -------- --------
Income before extraordinary losses .... 14,828 16,862 24,307 21,713
Extraordinary losses, net of income
tax benefits of $194................. (330) - (330) -
-------- -------- -------- --------
Net income............................. $ 14,498 $ 16,862 $ 23,977 $ 21,713
======== ======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
3
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
September 30,
December 31, 2001
2000 (Unaudited)
------------ ---------
ASSETS (Thousands)
Current Assets:
Cash and cash equivalents......................... $ 82,747 $ 51,652
Accounts receivable, trade, net................... 19,474 28,566
Accounts receivable, other........................ 51,843 121,341
Tax receivable from parent corporations........... 1,500 -
Inventories....................................... 101,702 113,927
Other current assets.............................. 3,925 4,474
--------- ---------
Total Current Assets............................ 261,191 319,960
Property, plant and equipment, net.................. 362,464 347,209
Excess of cost over net assets of businesses
acquired, net .................................... 65,317 63,800
Deferred income tax benefits........................ 42,897 30,970
Tax receivable from parent corporations............. 7,500 9,000
Other noncurrent assets............................. 31,800 31,865
--------- ---------
Total Assets........................................ $ 771,169 $ 802,804
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt............ $ 5,908 $ 5,356
Accounts payable.................................. 57,520 68,874
Payable to related parties........................ 10,052 15,777
Accrued liabilities............................... 42,888 49,157
Reserve for product warranty claims............... 14,900 14,900
-------- ---------
Total Current Liabilities....................... 131,268 154,064
--------- ---------
Long-term debt less current maturities.............. 674,698 669,094
--------- ---------
Reserve for product warranty claims................. 28,756 22,956
--------- ---------
Other liabilities................................... 14,312 14,741
--------- ---------
Stockholders' Equity (Deficit):
Series A Cumulative Redeemable Convertible
Preferred Stock, $.01 par value per share;
400,000 shares authorized; no shares issued..... - -
Class A Common Stock, $.001 par value per share;
1,300,000 shares authorized; 1,015,514 and
1,015,010 shares, issued and outstanding,
respectively ................................... 1 1
Class B Common Stock, $.001 par value per share;
100,000 shares authorized; 15,000 shares
issued and outstanding ......................... - -
Accumulated deficit............................... (77,866) (58,052)
--------- ---------
Total Stockholders' Equity (Deficit)............ (77,865) (58,051)
--------- ---------
Total Liabilities and Stockholders'
Equity (Deficit)................................. $ 771,169 $ 802,804
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
4
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
-------------------
Oct. 1, Sept.30,
2000 2001
-------- --------
(Thousands)
Cash and cash equivalents, beginning of period........... $ 55,952 $ 82,747
-------- --------
Cash provided by (used in) operating activities:
Net income ............................................ 23,977 21,713
Adjustments to reconcile net income to
net cash used in operating activities:
Extraordinary losses ............................. 330 -
Gain on sale of assets ............................ (17,505) -
Depreciation ...................................... 27,076 26,869
Goodwill and other amortization.................... 2,164 2,801
Deferred income taxes.............................. 4,713 11,927
Noncash interest charges........................... 1,901 3,337
Increase in working capital items...................... (51,837) (123,740)
Decrease in reserve for product warranty claims........ (4,851) (5,800)
Purchases of trading securities........................ (794) -
Proceeds from sales of trading securities.............. 1,860 -
Change in net receivable from/payable to related
parties/parent corporations.......................... 493 5,725
Other, net............................................. 4,276 (2,404)
-------- --------
Net cash used in operating activities.................... (8,197) (59,572)
-------- --------
Cash provided by (used in) investing activities:
Capital expenditures................................... (41,648) (11,506)
Proceeds from sale of assets........................... 31,702 -
Purchases of available-for-sale securities............. (850) -
Proceeds from sales of available-for-sale securities... 4,506 -
Proceeds from sales of other short-term investments.... 1,590 -
-------- --------
Net cash used in investing activities.................... (4,700) (11,506)
-------- --------
Cash provided by (used in) financing activities:
Proceeds from sale of accounts receivable.............. 35,995 49,999
Proceeds from issuance of long-term debt............... 34,044 -
Increase (decrease)in borrowings under revolving
credit facilities.................................... 70,000 (2,000)
Repayments of long-term debt........................... (35,564) (4,745)
Distributions to parent corporations................... (47,029) (1,899)
Net repurchase of common stock......................... (1,180) -
Financing fees and expenses............................ (6,701) (1,372)
-------- --------
Net cash provided by financing activities................ 49,565 39,983
-------- --------
Net change in cash and cash equivalents.................. 36,668 (31,095)
-------- --------
Cash and cash equivalents, end of period................. $ 92,620 $ 51,652
======== ========
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized)................. $ 34,279 $ 45,319
Income taxes......................................... 9,527 855
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
5
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Building Materials Corporation of America (the "Company" or the "Parent
Company") was formed on January 31, 1994 and is a wholly-owned subsidiary of
BMCA Holdings Corporation ("BHC"), which is a wholly-owned subsidiary of G-I
Holdings Inc. ("G-I Holdings"). The consolidated financial statements of the
Company reflect, in the opinion of management, all adjustments necessary to
present fairly the financial position of the Company at September 30, 2001, and
the results of operations and cash flows for the periods ended October 1, 2000
and September 30, 2001. All adjustments are of a normal recurring nature. These
financial statements should be read in conjunction with the annual financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2000 (the "Form 10-K").
Certain reclassifications have been made to conform to current year
presentation.
Note 1. Comprehensive Income
Third Quarter Ended Nine Months Ended
------------------- -----------------
Oct. 1, Sept. 30, Oct. 1, Sept. 30,
2000 2001 2000 2001
------- -------- ------- --------
(Thousands)
Net income................................ $14,498 $16,862 $23,977 $21,713
------- ------- ------- -------
Other comprehensive income net of tax:
Change in unrealized gains (losses) on
available-for-sale securities:
Unrealized holding gains (losses)
arising during the period, net of
income tax (provision) benefit of
$170, $0, $(3,325) and $0,
respectively........................... (289) - 5,663 -
Less: Reclassification adjustment
for gains included in net
income, net of income taxes
of $11, $0, $212
and $0, respectively................... 19 - 361 -
------- ------- ------- -------
Total other comprehensive income (loss).... (308) - 5,302 -
------- ------- ------- -------
Comprehensive income....................... $14,190 $16,862 $29,279 $21,713
======= ======= ======= =======
Note 2. Inventories
Inventories consist of the following:
December 31, Sept. 30,
2000 2001
-------- --------
(Thousands)
Finished goods .................... $ 61,606 $ 79,133
Work-in-process ................... 16,938 7,411
Raw materials and supplies ........ 27,743 31,968
-------- --------
Total ............................. 106,287 118,512
Less LIFO reserve ................. (4,585) (4,585)
-------- --------
Inventories ....................... $101,702 $113,927
======== ========
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3. Contingencies
Asbestos Litigation Against G-I Holdings
In connection with its formation, the Company contractually assumed
and agreed to pay the first $204.4 million of liabilities for asbestos-related
bodily injury claims relating to the inhalation of asbestos fiber ("Asbestos
Claims") of its parent, G-I Holdings. As of March 30, 1997, the Company had paid
all of its assumed asbestos-related liabilities. In January 2001, G-I Holdings
filed a voluntary petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code due to its Asbestos Claims. This proceeding is in a preliminary
stage.
Claimants in the G-I Holdings bankruptcy, including judgment
creditors, might seek to satisfy their claims by asking the bankruptcy court to
require the sale of G-I Holdings' assets, including its holdings of BHC's common
stock and its indirect holdings of the Company's common stock. Such action could
result in a change of control of the Company. In addition, those claimants may
seek to file Asbestos Claims against the Company (with 1,935 alleged Asbestos
Claims pending against the Company as of September 30, 2001). The Company
believes that it will not sustain any liability in connection with these or any
other asbestos-related claims. Furthermore, on February 2, 2001, the United
States Bankruptcy Court for the District of New Jersey issued a temporary
restraining order enjoining any existing or future claimant from bringing
Asbestos Claims against the Company. On June 22, 2001, following a hearing, the
Bankruptcy Court converted the temporary restraints into a preliminary
injunction, which is expected to remain in effect pending confirmation of a
Chapter 11 plan of reorganization for the G-I Holdings estate. On February 7,
2001, G-I Holdings filed a defendant class action in the United States
Bankruptcy Court for the District of New Jersey seeking a declaratory judgment
that the Company has no successor liability for Asbestos Claims against G-I
Holdings and that it is not the alter ego of G-I Holdings. This action is in a
preliminary stage and no trial date has been set by the court. As a result, it
is not possible to predict the outcome of this litigation. While the Company
cannot predict whether any additional Asbestos Claims will be asserted against
it, or the outcome of any litigation relating to those claims, the Company
believes that it has meritorious defenses to any claim that it has
asbestos-related liability, although there can be no assurances in this regard.
On February 8, 2001, a creditors committee established in G-I
Holdings' bankruptcy case filed a complaint in the United States Bankruptcy
Court for the District of New Jersey against G-I Holdings and the Company. The
complaint requests substantive consolidation of the Company with G-I Holdings or
an order directing G-I Holdings to cause the Company to file for bankruptcy
protection. The Company and G-I Holdings intend to vigorously defend the
lawsuit. The Company believes that no basis exists for the court to grant the
relief requested. The plaintiffs also filed for interim relief absent the
granting of their requested relief described above. On March 21, 2001, the
Bankruptcy Court refused to grant the requested interim relief.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3. Contingencies (Continued)
For a further discussion with respect to the history of the foregoing
litigation and asbestos-related matters, see Item 3,"Legal Proceedings," and
Notes 3, 11 and 16 to Consolidated Financial Statements contained in the
Company's Form 10-K.
Environmental Litigation
The Company, together with other companies, is a party to a variety of
proceedings and lawsuits involving environmental matters ("Environmental
Claims"), in which recovery is sought for the cost of cleanup of contaminated
sites, a number of which Environmental Claims are in the early stages or have
been dormant for protracted periods. At most sites, the Company anticipates that
liability will be apportioned among the companies found to be responsible for
the presence of hazardous substances at the site. The Company believes that the
ultimate disposition of such matters will not, individually or in the aggregate,
have a material adverse effect on the liquidity, financial position or results
of operations of the Company.
For further information regarding environmental matters and other
litigation, reference is made to Item 3, "Legal Proceedings" contained in the
Company's Form 10-K.
Tax Claim Against G-I Holdings
The Company and certain of its subsidiaries were members of the
consolidated group ("the G-I Holdings Group") for Federal income tax purposes
that included G-I Holdings in certain prior years and, accordingly, would be
severally liable for any tax liability of the G-I Holdings Group in respect of
those prior years.
On September 15, 1997, G-I Holdings received a notice from the Internal
Revenue Service (the "IRS") of a deficiency in the amount of $84.4 million
(after taking into account the use of net operating losses and foreign tax
credits otherwise available for use in later years) in connection with the
formation in 1990 of Rhone-Poulenc Surfactants and Specialties, L.P.
(the"surfactants partnership"), a partnership in which G-I Holdings held an
interest. G-I Holdings has advised the Company that it believes that it will
prevail in the tax matter arising out of the surfactants partnership, although
there can be no assurance in this regard. The Company believes that the ultimate
disposition of this matter will not have a material adverse effect on its
business, financial position or results of operations. On September 21, 2001,
the IRS filed a proof of claim with respect to such deficiency against G-I
Holdings in the G-I Holdings bankruptcy. If such proof of claim is sustained,
the Company and/or certain of the Company's subsidiaries together with G-I
Holdings and several current and former subsidiaries of G-I Holdings, would be
severally liable for a portion of such taxes and interest. If the IRS were to
prevail for the years in which the Company and/or certain of its
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3. Contingencies (Continued)
subsidiaries were part of the G-I Holdings Group, the Company would be
severally liable for approximately $40 million in taxes plus interest, although
this calculation is subject to uncertainty depending upon various factors
including G-I Holdings' ability to satisfy its tax liabilities and the
application of tax credits and deductions. For the possible consequences to the
Company of the failure of G-I Holdings to satisfy this liability and other
information relating to G-I Holdings, see "Asbestos Litigation Against G-I
Holdings" above.
Note 4. New Accounting Standards
On June 30, 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No.
141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method of accounting and eliminates the pooling
method of accounting. SFAS No. 141 will not have an impact on the Company's
business since the Company has historically accounted for all business
combinations using the purchase method of accounting. With the adoption of SFAS
No. 142, effective January 1, 2002, goodwill will no longer be subject to
amortization over its estimated useful life. However, goodwill will be subject
to at least an annual assessment for impairment and more frequently if
circumstances indicate a possible impairment. Companies must perform a
fair-value-based goodwill impairment test. In addition, under SFAS No. 142, an
acquired intangible asset should be separately recognized if the benefit of the
intangible is obtained through contractual or other legal rights, or if the
intangible asset can be sold, transferred, licensed, rented, or exchanged.
Intangible assets will be amortized over their useful lives. Early adoption of
SFAS No. 142 is not permitted. On an annualized basis, effective January 1,
2002, the Company's net income will increase by approximately $1.3 million,
unless any impairment charges are necessary.
Note 5. Guarantor Financial Information
All of the Company's subsidiaries, other than BMCA Receivables
Corporation, are guarantors under the Company's $100 million secured bank credit
facility, the amended and restated $110 million secured bank credit facility,
the 10 1/2% Senior Notes due 2003, the 7 3/4% Senior Notes due 2005, the 8 5/8%
Senior Notes due 2006, the 8% Senior Notes due 2007 (the "2007 Notes"), and the
8% Senior Notes due 2008. These guarantees are full, unconditional and joint and
several. In addition, Building Materials Manufacturing Corporation ("BMMC") a
wholly-owned subsidiary of the Company, is a co-obligor on the 2007 Notes.
The Company and BMMC entered into license agreements, effective
January 1, 1999, for the right to use intellectual property, including patents,
trademarks, know-how, and franchise rights owned by Building Materials
Investment Corporation, a wholly-owned subsidiary of the Company, for a license
fee stated as a percentage of net sales. These license agreements are for a
period of one year and are subject to automatic renewal unless either party
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 5. Guarantor Financial Information (Continued)
terminates with 60 days written notice. Also, effective January 1, 1999, BMMC
sells all finished goods to the Company at a manufacturing profit.
In January 2001, certain subsidiaries of the Company were merged into
BMMC, and accordingly, certain reclassifications were made to the guarantor
financial statements to conform with current period presentations.
Presented below is condensed consolidating financial information for
the Company, the guarantor subsidiaries and the non-guarantor subsidiary
prepared on a basis which retroactively reflects the formation of such companies
for all periods presented. This financial information should be read in
conjunction with the Consolidated Financial Statements and other notes related
thereto. Separate financial information for the Company's guarantor subsidiaries
and non-guarantor subsidiary is not included herein because management has
determined that such information is not material to investors.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Third Quarter Ended October 1, 2000
(Thousands)
(Unaudited)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------
Net sales............................. $ 298,014 $ 32,868 $ - $330,882
Intercompany net sales................ 16,538 258,044 (274,582) -
--------- --------- -------- --------
Total net sales....................... 314,552 290,912 (274,582) 330,882
--------- --------- -------- --------
Costs and expenses:
Cost of products sold............... 286,322 230,720 (274,582) 242,460
Selling, general and administrative. 47,000 18,843 65,843
Goodwill amortization............... 326 180 506
Gain on sale of assets.............. (17,505) (17,505)
--------- --------- -------- --------
Total costs and expenses.............. 333,648 232,238 (274,582) 291,304
--------- --------- -------- --------
Operating income (loss)............... (19,096) 58,674 - 39,578
Equity in earnings
of subsidiaries..................... 39,940 (39,940) -
Intercompany licensing income
(expense), net...................... (10,260) 10,260 -
Interest expense, net................. (7,478) (5,891) (13,369)
Other income (expense), net........... (3,027) 354 (2,673)
--------- --------- -------- --------
Income before income
taxes and extraordinary losses...... 79 63,397 (39,940) 23,536
Income tax (provision) benefit........ 14,749 (23,457) (8,708)
--------- --------- -------- --------
Income before
extraordinary losses............... 14,828 39,940 (39,940) 14,828
Extraordinary losses.................. (330) (330)
--------- --------- -------- --------
Net income............................ $ 14,498 $ 39,940 $(39,940) $ 14,498
========= ========= ======== ========
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Third Quarter Ended September 30, 2001
(Thousands)
(Unaudited)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------
Net sales............................. $ 343,771 $ 32,544 $ - $376,315
Intercompany net sales................ 22,533 263,588 (286,121) -
--------- --------- --------- --------
Total net sales....................... 366,304 296,132 (286,121) 376,315
--------- --------- --------- --------
Costs and expenses:
Cost of products sold............... 294,650 248,249 (286,121) 256,778
Selling, general and administrative. 56,984 18,415 75,399
Goodwill amortization............... 326 181 507
Transition service agreement
(income) expense.................. (75) 75 -
--------- --------- --------- --------
Total costs and expenses.............. 351,885 266,920 (286,121) 332,684
--------- --------- --------- --------
Operating income...................... 14,419 29,212 - 43,631
Equity in earnings of subsidiaries.... 22,380 (22,380) -
Intercompany licensing income
(expense), net...................... (10,313) 10,313 -
Interest expense, net................. (10,809) (4,258) (15,067)
Other income (expense), net........... (2,055) 256 (1,799)
--------- --------- --------- --------
Income before income taxes............ 13,622 35,523 (22,380) 26,765
Income tax (provision) benefit........ 3,240 (13,143) (9,903)
--------- --------- --------- --------
Net income............................ $ 16,862 $ 22,380 $ (22,380) $ 16,862
========= ========= ========= ========
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Nine Months Ended October 1, 2000
(Thousands)
(Unaudited)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------
Net sales............................. $ 841,600 $ 104,871 $ - $946,471
Intercompany net sales................ 47,823 632,945 (680,768) -
--------- --------- --------- --------
Total net sales....................... 889,423 737,816 (680,768) 946,471
--------- --------- --------- --------
Costs and expenses:
Cost of products sold............... 709,599 658,286 (680,768) 687,117
Selling, general and administrative. 133,522 58,791 192,313
Goodwill amortization............... 979 551 1,530
Gain on sale of assets.............. (17,505) (17,505)
--------- --------- --------- --------
Total costs and expenses.............. 844,100 700,123 (680,768) 863,455
--------- --------- --------- --------
Operating income ..................... 45,323 37,693 - 83,016
Equity in earnings
of subsidiaries..................... 29,006 (29,006) -
Intercompany licensing income
(expense), net...................... (25,248) 25,248 -
Interest expense, net................. (19,995) (18,353) (38,348)
Other income (expense), net........... (7,538) 1,452 (6,086)
-------- --------- --------- --------
Income before income taxes
and extraordinary losses............ 21,548 46,040 (29,006) 38,582
Income tax (provision) benefit........ 2,759 (17,034) (14,275)
--------- --------- --------- --------
Income before
extraordinary losses................ 24,307 29,006 (29,006) 24,307
Extraordinary losses.................. (330) (330)
--------- --------- --------- --------
Net income............................ $ 23,977 $ 29,006 $ (29,006) $ 23,977
========= ========= ========= ========
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Nine Months Ended September 30, 2001
(Thousands)
(Unaudited)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------
Net sales............................. $ 909,113 $ 87,088 $ - $ 996,201
Intercompany net sales................ 75,831 686,895 (762,726) -
--------- --------- --------- ---------
Total net sales....................... 984,944 773,983 (762,726) 996,201
--------- --------- --------- ---------
Costs and expenses:
Cost of products sold............... 772,975 699,665 (762,726) 709,914
Selling, general and administrative. 147,266 52,103 199,369
Goodwill amortization............... 977 540 1,517
Transition service agreement
(income) expense.................. (75) 75 -
--------- --------- --------- --------
Total costs and expenses.............. 921,143 752,383 (762,726) 910,800
--------- --------- --------- --------
Operating income...................... 63,801 21,600 - 85,401
Equity in earnings of subsidiaries.... 23,412 (23,412) -
Intercompany licensing income
(expense), net...................... (27,273) 27,273 -
Interest expense, net................. (32,811) (12,859) (45,670)
Other income (expense), net........... (6,413) 1,147 (5,266)
--------- --------- --------- --------
Income before income taxes............ 20,716 37,161 (23,412) 34,465
Income tax (provision) benefit........ 997 (13,749) (12,752)
-------- --------- --------- --------
Net income............................ $ 21,713 $ 23,412 $ (23,412) $ 21,713
========= ========= ========= ========
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Balance Sheet
December 31, 2000
(Thousands)
Non-
Parent Guarantor Guarantor Elim-
Company Subsidiaries Subsidiary inations Consolidated
--------- ------------- ------------ ----------- ------------
ASSETS
Current Assets:
Cash and cash equivalents............... $ 9,741 $ 73,006 $ - $ - $ 82,747
Accounts receivable, trade, net......... 19,474 19,474
Accounts receivable, other.............. 5,027 2,947 43,869 51,843
Tax receivable from parent corporations. 1,500 1,500
Inventories............................. 55,891 45,811 101,702
Other noncurrent current assets......... 1,105 2,820 3,925
--------- --------- --------- --------- ---------
Total Current Assets.................. 73,264 144,058 43,869 - 261,191
Investment in subsidiaries................ 356,726 (356,726) -
Intercompany loans including accrued
interest................................ 188,945 (184,531) (4,414) -
Due from(to)subsidiaries, net............. (233,236) 229,273 3,963 -
Property, plant and equipment, net........ 46,928 315,536 362,464
Excess of cost over net assets of
businesses acquired, net................ 41,562 23,755 65,317
Deferred income tax benefits.............. 42,897 42,897
Tax receivable from parent corporations... 7,500 7,500
Other noncurrent assets................... 16,026 15,774 31,800
--------- --------- --------- --------- ---------
Total Assets.............................. $ 540,612 $ 543,865 $ 43,418 $(356,726) $ 771,169
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt.... $ 153 $ 5,755 $ - $ - $ 5,908
Accounts payable........................ 19,871 37,649 57,520
Payable to related parties.............. 7,522 2,530 10,052
Accrued liabilities..................... 18,865 24,023 42,888
Reserve for product warranty claims..... 14,900 14,900
--------- --------- --------- --------- ---------
Total Current Liabilities............. 61,311 69,957 - - 131,268
Long-term debt less current maturities.... 514,880 159,818 674,698
Reserve for product warranty claims....... 28,187 569 28,756
Other liabilities......................... 14,099 213 14,312
--------- --------- --------- --------- ---------
Total Liabilities......................... 618,477 230,557 - - 849,034
Total Stockholders' Equity (Deficit)...... (77,865) 313,308 43,418 (356,726) (77,865)
Total Liabilities and --------- --------- --------- --------- ---------
Stockholders' Equity (Deficit) ......... $ 540,612 $ 543,865 $ 43,418 $(356,726) $ 771,169
========= ========= ========= ========= =========
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Balance Sheet
September 30, 2001
(Thousands)
(Unaudited)
Non-
Parent Guarantor Guarantor Elim-
Company Subsidiaries Subsidiary inations Consolidated
--------- ------------- ------------ ----------- ------------
ASSETS
Current Assets:
Cash and cash equivalents...............$ 1 $ 51,651 $ - $ - $ 51,652
Accounts receivable, trade, net......... 12,924 15,642 28,566
Accounts receivable, other.............. 3,020 1,729 116,592 121,341
Inventories............................. 78,293 35,634 113,927
Other current assets.................... 1,414 3,060 4,474
--------- -------- -------- --------- --------
Total Current Assets.................. 95,652 107,716 116,592 - 319,960
Investment in subsidiaries................ 463,052 (463,052) -
Intercompany loans including accrued
interest................................ 88,765 (84,351) (4,414) -
Due from(to)subsidiaries, net............. (227,065) 212,909 14,156 -
Property, plant and equipment, net........ 45,262 301,947 347,209
Excess of cost over net assets of
businesses acquired, net................ 40,405 23,395 63,800
Deferred income tax benefits.............. 30,970 30,970
Tax receivable from parent corporations... 9,000 9,000
Other noncurrent assets................... 14,721 17,144 31,865
--------- --------- -------- --------- --------
Total Assets.............................. $ 560,762 $ 578,760 $126,334 $(463,052) $802,804
========= ========= ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt.... $ 28 $ 5,328 $ - $ - $ 5,356
Accounts payable........................ 24,234 44,640 68,874
Payable to related parties.............. 688 15,089 15,777
Accrued liabilities..................... 28,187 20,970 49,157
Reserve for product warranty claims..... 14,900 14,900
--------- --------- -------- --------- --------
Total Current Liabilities............. 68,037 86,027 - - 154,064
Long-term debt less current maturities.... 513,247 155,847 669,094
Reserve for product warranty claims....... 22,991 (35) 22,956
Other liabilities......................... 14,538 203 14,741
--------- --------- -------- --------- --------
Total Liabilities......................... 618,813 242,042 - - 860,855
Total Stockholders' Equity (Deficit)...... (58,051) 336,718 126,334 (463,052) (58,051)
--------- --------- -------- --------- --------
Total Liabilities and Stockholders'
Equity (Deficit) ..................... $ 560,762 $ 578,760 $126,334 $(463,052) $802,804
========= ========= ======== ========= ========
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Cash Flows
Nine Months Ended October 1, 2000
(Thousands)
(Unaudited)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Consolidated
--------- ------------ ---------- ------------
Cash and cash equivalents, beginning of period....... $ 203 $ 55,749 $ - $ 55,952
--------- --------- --------- --------
Cash provided by(used in)operating activities:
Net income(loss)..................................... (5,029) 29,006 23,977
Adjustments to reconcile net income (loss) to net
cash provided by(used in)operating activities:
Extraordinary losses............................. 330 330
Gain on sale of assets........................... (17,505) (17,505)
Depreciation..................................... 2,611 24,465 27,076
Goodwill and other amortization.................. 1,115 1,049 2,164
Deferred income taxes............................ 4,713 4,713
Noncash interest charges......................... 1,901 1,901
Increase in working capital items.................... (39,353) (1,655) (10,829) (51,837)
Decrease in product warranty claims.................. (4,840) (11) (4,851)
Purchases of trading securities...................... (19) (775) (794)
Proceeds from sales of trading securities............ 1,860 1,860
Change in net receivable from/payable to
related parties/parent corporations................ (28,134) 17,798 10,829 493
Other, net........................................... 11,726 (7,450) 4,276
--------- --------- --------- --------
Net cash provided by (used in)operating activities... (54,979) 46,782 - (8,197)
--------- --------- --------- --------
Cash provided by(used in)investing activities:
Capital expenditures............................... (495) (41,153) (41,648)
Proceeds from sale of assets....................... 31,702 31,702
Purchases of available-for-sale securities......... (850) (850)
Proceeds from sales of available-for-sale
securities....................................... 4,506 4,506
Proceeds from sales of other short-term
investments...................................... 1,590 1,590
--------- --------- --------- --------
Net cash used in investing activities................ (495) (4,205) - (4,700)
--------- --------- --------- --------
Cash provided by(used in)financing activities:
Proceeds from sale of accounts receivable.......... 35,995 35,995
Proceeds from issuance of long-term debt.......... 34,044 34,044
Increase in borrowings under revolving
credit facility.................................. 70,000 70,000
Repayments of long-term debt....................... (32,780) (2,784) (35,564)
Distributions to parent corporations............... (47,029) (47,029)
Stock Repurchase................................... (1,180) (1,180)
Financing fees and expenses........................ (3,766) (2,935) (6,701)
--------- --------- --------- --------
Net cash provided by (used in) financing activities.. 55,284 (5,719) - 49,565
--------- --------- --------- --------
Net change in cash and cash equivalents.............. (190) 36,858 - 36,668
--------- --------- --------- --------
Cash and cash equivalents, end of period............. $ 13 $ 92,607 $ - $ 92,620
========= ========= ========= ========
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2001
(Thousands)
(Unaudited)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Consolidated
-------- ------------ ----------- ------------
Cash and cash equivalents, beginning of period....... $ 9,741 $ 73,006 $ - $ 82,747
-------- --------- --------- --------
Cash provided by (used in) operating activities:
Net income (loss).................................... (1,699) 23,412 21,713
Adjustments to reconcile net income(loss)to net
cash provided by(used in)operating activities:
Depreciation..................................... 2,057 24,812 26,869
Goodwill and other amortization.................. 2,261 540 2,801
Deferred income taxes............................ 11,927 11,927
Noncash interest charges......................... 2,415 922 3,337
(Increase) decrease in working capital items......... (69,942) 18,925 (72,723) (123,740)
Decrease in product warranty claims.................. (5,196) (604) (5,800)
Change in net receivable from/payable to
related parties/parent corporations................ 4,260 (71,258) 72,723 5,725
Other, net........................................... (574) (1,830) (2,404)
-------- --------- --------- --------
Net cash used in operating activities................ (54,491) (5,081) - (59,572)
-------- --------- --------- --------
Cash provided by(used in)investing activities:
Capital expenditures............................... (338) (11,168) (11,506)
-------- --------- --------- --------
Net cash used in investing activities................ (338) (11,168) - (11,506)
-------- --------- --------- --------
Cash provided by (used in) financing activities:
Proceeds from sale of accounts receivable.......... 49,999 49,999
Decrease in borrowings under revolving
credit facility.................................. (2,000) (2,000)
Repayments of long-term debt....................... (146) (4,599) (4,745)
Distributions to parent corporations............... (1,899) (1,899)
Financing fees and expenses........................ (865) (507) (1,372)
-------- --------- --------- ---------
Net cash provided by (used in) financing activities.. 45,089 (5,106) - 39,983
-------- --------- --------- ---------
Net change in cash and cash equivalents.............. (9,740) (21,355) - (31,095)
-------- --------- --------- ---------
Cash and cash equivalents, end of period............. $ 1 $ 51,651 $ - $ 51,652
======== ========= ========= =========
18
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Third Quarter 2001 Compared With
Third Quarter 2000
The Company recorded third quarter net income of $16.9 million
compared with net income of $14.5 million in the third quarter of 2000. Net
income for the third quarter of 2000 included a one-time after tax gain of $11.0
million ($17.5 million pre-tax) from the sale of certain assets of the Security
Products business of LL Building Products Inc. and an after-tax extraordinary
loss of $0.3 million. Excluding the one-time gain from the sale of assets and
the extraordinary loss, net income would have been $3.8 million in 2000. The
increase in net earnings was primarily the result of higher operating income and
lower other expenses, partially offset by higher interest expense.
The Company's net sales for the third quarter of 2001 were $376.3
million, representing an increase of $45.4 million or 13.7% from last year's
third quarter net sales of $330.9 million, with the increase primarily due to
net sales gains in steep slope roofing products, partially offset by decreased
sales in low slope roofing products and by the sale of the Security Products
business of LL Building Products Inc., which was sold in September 2000.
Excluding the net sales of the Security Products business in the third quarter
of 2000, net sales in the third quarter of 2001, on a comparable basis, were
higher by 15.9%. The increase in net sales of steep slope roofing products
reflected higher unit volumes and average selling prices, while the decline in
net sales of low slope roofing products were primarily attributable to lower
volumes.
Operating income in the third quarter of 2001 was $43.6 million
compared with $39.6 million in the third quarter of 2000, an increase of 10.1%.
Excluding the operating income of the Security Products business of LL Building
Products Inc., and the gain on sale of these assets of $17.5 million in the
third quarter of 2000, operating income in the third quarter of 2001 was more
than double the third quarter of 2000. The increase in operating income was
primarily attributable to an increase in steep slope roofing products sales
volumes, and higher average selling prices, along with lower manufacturing
costs.
Interest expense for the quarter increased to $15.1 million from
$13.4 million for the same period in 2000, primarily due to higher average
borrowings and lower capitalized interest in 2001. The lower capitalized
interest in 2001 is the result of the completion of construction of three new
manufacturing facilities in the second half of 2000. Other expense, net was $1.8
million for the third quarter of 2001 compared with $2.7 million in 2000.
Results of Operations - Nine Months 2001 Compared With
Nine Months 2000
For the first nine months of 2001, the Company recorded net income of
$21.7 million compared with $24.0 million in 2000. Excluding the impact of the
after-tax gain of $11.0 million from the sale of the Security Products business
of LL Building Products Inc. and the after-tax extraordinary loss of $0.3
million in 2000, net income would have been $13.3 million in 2000. The increase
in net earnings was primarily the result of higher operating income and lower
other expenses, partially offset by higher interest expense.
19
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company's net sales for the first nine months of 2001 were $996.2
million compared to $946.5 million in the same period of 2000. Excluding the net
sales of the Security Products business of LL Building Products Inc. for the
nine months ended October 1, 2000, net sales for the nine months ended September
30, 2001, on a comparable basis, were higher by 7.9%. Net sales gains in steep
slope roofing products were partially offset by lower net sales in low slope
roofing products and the sale of the Security Products business of LL Building
Products Inc. The increase in net sales of steep slope roofing products resulted
from higher unit volumes and average selling prices, while the decline in net
sales of low slope roofing products resulted from lower unit volumes and average
selling prices.
Operating income for the first nine months of 2001 was $85.4 million
compared with $83.0 million reported in the same period of 2000. Excluding the
operating income of the Security Products business of LL Building Products Inc.
and the gain on sale of these assets for the nine months ended October 1, 2000,
operating income for the nine months ended September 30, 2001, on a comparable
basis, would have been higher by 38.2%. Higher operating results were primarily
attributable to an increase in steep slope roofing products sales volumes and
average selling prices along with lower manufacturing costs, partially offset by
a decrease in low slope roofing products sales volumes and average selling
prices, and the sale of the Security Products business of LL Building Products
Inc.
Interest expense for the first nine months increased to $45.7 million
from $38.3 million for the same period in 2000, primarily due to higher average
borrowings and lower capitalized interest in 2001. Other expense, net was $5.2
million for the first nine months of 2001 compared to $6.1 million for the same
period in 2000.
Liquidity and Financial Condition
Net cash outflow during the first nine months of 2001 was $71.1
million, before financing activities, and included the use of $59.6 million of
cash for operations and the reinvestment of $11.5 million for capital programs.
Cash invested in additional working capital totaled $123.7 million
during the first nine months of 2001, primarily reflecting seasonal increases in
inventories of $12.2 million and $128.6 million in accounts receivable,
including a $122.7 million increase in the receivable from the trust which
purchases certain of the Company's trade accounts receivable, partially offset
by a $17.6 million increase in accounts payable and accrued liabilities. The
increase in the receivable from the trust results from seasonal increases and
the amortization of the accounts receivable facility in accordance with its
terms. The net cash used for operating activities also included a $5.7 million
net increase in the payable to related parties/parent corporations.
Net cash provided by financing activities totaled $40.0 million
during the first nine months of 2001, mainly reflecting $50.0 million in
proceeds from the sale of the Company's trade receivables, partially offset by
$6.7 million in repayments of long-term debt and borrowings under the Company's
bank revolving credit facilities.
20
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
As a result of the foregoing factors, cash and cash equivalents decreased by
$31.1 million during the first nine months of 2001 to $51.7 million.
See Note 3 to Consolidated Financial Statements for information
regarding contingencies.
* * *
Forward-looking Statements
This Quarterly Report on Form 10-Q contains both historical and
forward-looking statements. All statements other than statements of historical
fact are, or may be deemed to be, forward-looking statements within the meaning
of section 27A of the Securities Act of 1933 and section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are only predictions and
generally can be identified by use of statements that include phrases such as
"believe," "expect," "anticipate," "intend," "plan," "foresee" or other words or
phrases. Similarly, statements that describe the Company's objectives, plans or
goals also are forward-looking statements. The Company's operations are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those contemplated by the relevant forward-looking statement.
The forward-looking statements included herein are made only as of the date of
this Quarterly Report on Form 10-Q and the Company undertakes no obligation to
publicly update forward-looking statements to reflect subsequent events or
circumstances. No assurances can be given that projected results or events will
be achieved.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Reference is made to Management's Discussion and Analysis of
Financial Condition and Results of Operations in the Form 10-K for a discussion
of "Market-Sensitive Instruments and Risk Management." There were no material
changes in such information as of September 30, 2001.
21
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
As of September 30, 2001, 1,935 alleged asbestos-related bodily
injury claims relating to the inhalation of asbestos fiber are pending against
Building Materials Corporation of America. See Note 3 to Consolidated Financial
Statements above.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Second Amendment to the Registration Rights Agreement, dated
as of October 5, 2001, among Building Materials Corporation of
America, as issuer, Building Materials Manufacturing
Corporation and Building Materials Investment Corporation, as
guarantors, and AG Capital Recovery Partners II, LP, as
purchaser.
(b) No Reports on Form 8-K were filed during the quarter ended September
30, 2001.
22
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, each Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
BUILDING MATERIALS CORPORATION OF AMERICA
BUILDING MATERIALS MANUFACTURING CORPORATION
DATE: November 14, 2001 BY: /s/John F. Rebele
----------------- ---------------------------------------
John F. Rebele
Vice President
and Chief Financial Officer
(Principal Financial Officer)
DATE: November 14, 2001 BY: /s/James T. Esposito
----------------- ---------------------------------------
James T. Esposito
Vice President and Controller
(Principal Accounting Officer)
23
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant listed below has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
BUILDING MATERIALS INVESTMENT CORPORATION
DATE: November 14, 2001 BY: /s/John F. Rebele
----------------- ---------------------------------------
John F. Rebele
Vice President and Chief Financial Officer
(Principal Financial and
Accounting Officer)
24