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 June 30, 2002 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 Below. 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 August 9, 2002, 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 August 9, 2002, 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 Address, including zip code and telephone number, State or other jurisdiction Commission File including area code, of Exact name of registrant as of incorporation or No. of Shares No./I.R.S. Employer registrant's principal specified in its charter organization Outstanding 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) Second Quarter Ended Six Months Ended --------------------- ---------------------- July 1, June 30, July 1, June 30, 2001 2002 2001 2002 --------- --------- --------- --------- (Thousands) Net sales ............................. $ 354,925 $ 369,398 $ 619,886 $ 688,651 --------- --------- --------- --------- Costs and expenses: Cost of products sold ............... 254,185 251,305 453,135 481,237 Selling, general and administrative.. 67,989 74,729 123,971 143,457 Goodwill amortization ............... 516 - 1,010 - --------- --------- --------- --------- Total costs and expenses .......... 322,690 326,034 578,116 624,694 --------- --------- --------- --------- Operating income ...................... 32,235 43,364 41,770 63,957 Interest expense ...................... (15,399) (14,004) (30,603) (27,750) Other expense, net .................... (1,985) (2,111) (3,468) (4,395) --------- --------- --------- --------- Income before income taxes ............ 14,851 27,249 7,699 31,812 Income taxes .......................... (5,495) (9,809) (2,849) (11,452) --------- --------- --------- --------- Net income ............................ $ 9,356 $ 17,440 $ 4,850 $ 20,360 ========= ========= ========= ========= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 3 BUILDING MATERIALS CORPORATION OF AMERICA CONSOLIDATED BALANCE SHEETS June 30, December 31, 2002 2001 (Unaudited) --------- --------- ASSETS (Thousands) Current Assets: Cash and cash equivalents .......................... $ 46,387 $ 23,336 Accounts receivable, trade, net .................... 23,490 32,812 Accounts receivable, other ......................... 39,769 101,931 Inventories ........................................ 102,245 114,788 Other current assets ............................... 3,890 5,938 --------- --------- Total Current Assets ............................. 215,781 278,805 Property, plant and equipment, net ................... 352,067 342,855 Excess of cost over net assets of businesses acquired, net ...................................... 63,294 63,294 Deferred income tax benefits ......................... 32,924 21,997 Tax receivable from parent corporations .............. 9,000 10,250 Other noncurrent assets .............................. 33,259 30,090 --------- --------- Total Assets ......................................... $ 706,325 $ 747,291 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Current maturities of long-term debt ............... $ 5,556 $ 5,774 Accounts payable ................................... 58,235 69,086 Payable to related parties ......................... 8,910 15,409 Accrued liabilities ................................ 43,548 51,750 Reserve for product warranty claims ................ 14,900 14,900 --------- --------- Total Current Liabilities ........................ 131,149 156,919 --------- --------- Long-term debt less current maturities ............... 599,896 597,328 --------- --------- Reserve for product warranty claims .................. 22,741 20,866 --------- --------- Other liabilities .................................... 14,178 13,659 --------- --------- 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; 1,015,010 shares issued and outstanding ........................... 1 1 Class B Common Stock, $.001 par value per share; 100,000 shares authorized; 15,000 shares issued and outstanding ........................... - - Loan receivable from parent corporation ............ (2,536) (2,592) Accumulated deficit ................................ (59,104) (38,890) --------- --------- Total Stockholders' Equity (Deficit) ............. (61,639) (41,481) --------- --------- Total Liabilities and Stockholders' Equity (Deficit) .................................. $ 706,325 $ 747,291 ========= ========= 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) Six Months Ended ------------------- July 1 June 30, 2001 2002 -------- -------- (Thousands) Cash and cash equivalents, beginning of period ....... $ 82,747 $ 46,387 -------- -------- Cash provided by (used in) operating activities: Net income ......................................... 4,850 20,360 Adjustments to reconcile net income to net cash used in operating activities: Depreciation ................................... 17,520 18,971 Goodwill and other amortization ................ 1,819 952 Deferred income taxes .......................... 2,294 10,927 Noncash interest charges ....................... 2,187 2,494 Increase in working capital items .................. (94,041) (82,322) Decrease in reserve for product warranty claims .... (5,131) (1,875) Proceeds from sale of accounts receivable .......... 49,999 15,300 Change in net receivable from/payable to related parties/parent corporations ...................... 6,362 5,249 Other, net ......................................... (508) 353 -------- -------- Net cash used in operating activities ................ (14,649) (9,591) -------- -------- Cash provided by (used in) investing activities: Capital expenditures ............................... (7,277) (10,236) -------- -------- Net cash used in investing activities ................ (7,277) (10,236) -------- -------- Cash provided by (used in) financing activities: Decrease in borrowings under revolving credit facilities ................................ (1,000) - Repayments of long-term debt ....................... (3,339) (2,801) Distributions to parent corporations ............... (1,249) (145) Loan to parent corporation ......................... - (57) Financing fees and expenses ........................ (1,299) (221) -------- -------- Net cash used in financing activities ................ (6,887) (3,224) -------- -------- Net change in cash and cash equivalents .............. (28,813) (23,051) -------- -------- Cash and cash equivalents, end of period ............. $ 53,934 $ 23,336 ======== ======== Supplemental Cash Flow Information: Cash paid during the period for: Interest (net of amount capitalized) ............. $ 31,345 $ 25,256 Income taxes ..................................... 603 1,450 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") 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"). G-I Holdings is a wholly-owned subsidiary of G Holdings Inc. 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 June 30, 2002, and the results of operations and cash flows for the periods ended July 1, 2001 and June 30, 2002. All adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (the "Form 10-K"). Certain reclassifications have been made to conform to current year presentation. Note 1. Inventories Inventories consist of the following: December 31, June 30, 2001 2002 --------- --------- (Thousands) Finished goods ........... $ 66,417 $ 80,810 Work-in-process .......... 8,800 6,504 Raw materials and supplies 29,573 31,369 --------- --------- Total .................... 104,790 118,683 Less LIFO reserve ........ (2,545) (3,895) --------- --------- Inventories .............. $ 102,245 $ 114,788 ========= ========= Note 2. 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 remains pending. 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. That 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 approximately 1,900 alleged Asbestos Claims pending against the Company as of June 30, 2002). The Company believes that it will not sustain any liability in connection with 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 2. Contingencies (Continued) 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 restraining order 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 and the Company 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. No trial date has been set by the court. As a result, it is not possible to predict the outcome of this litigation. On May 3, 2002, G-I Holdings and the Company filed a summary judgment motion seeking entry of judgment against the Named Defendants in the action declaring that BMCA is not liable to them under any theory of successor liability or alter ego. On July 1, 2002, the statutory creditors' committee (the "Committee") appointed by the G-I Holdings bankruptcy court filed a motion with the U.S. District Court to withdraw the reference of the declaratory judgment motion to the bankruptcy court. There has been no court ruling on either the motion for summary judgment or the motion to withdraw the reference. On August 1, 2002, G-I Holdings and the Company filed motions for leave to file an amended complaint to add parties and to remove the class action allegations, on which motions the court has not ruled. 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, the 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. 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. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 2. Contingencies (Continued) 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 or remedial obligations are imposed, 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., 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 this tax matter, 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 Internal Revenue Service filed a proof of claim with respect to such deficiency against G-I Holdings in the G-I Holdings bankruptcy. On May 7, 2002, G-I Holdings filed an objection to that proof of claim. On July 13, 2002, the IRS filed a motion with the U.S. District Court for a withdrawal of the reference of G-I Holdings' objection to the proof of claim to the bankruptcy court. If the IRS's 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 those taxes and interest. If the IRS were to prevail for the years in which the Company and/or certain of its subsidiaries were part of the G-I Holdings Group, the Company would be severally liable for approximately $40.0 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. 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 3. New Accounting Standards On June 30, 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets". With the adoption of SFAS No. 142, effective January 1, 2002, goodwill is no longer 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. The Company performed an initial fair-value-based goodwill impairment test in the second quarter of 2002. This test resulted in an evaluation that there was no impairment as of January 1, 2002. Net income exclusive of amortization expense for goodwill no longer being amortized is as follows: Second Quarter Ended Six Months Ended -------------------- ---------------- July 1, June 30, July 1, June 30, 2001 2002 2001 2002 ------- ------- ------- ------- (Thousands) Reported net income...... $ 9,356 $17,440 $4,850 $20,360 Add back: Goodwill Amortization ........... 516 - 1,010 - ------- ------- ------- ------- Adjusted net income...... $ 9,872 $17,440 $5,860 $20,360 ======= ======= ======= ======= Note 4. 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 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 4. Guarantor Financial Information (Continued) fee stated as a percentage of net sales. The license agreements are for a period of one year and are subject to automatic renewal unless either party terminates with 60 days written notice. Also, effective January 1, 1999, BMMC sells all finished goods to the Company at a manufacturing profit. Such transactions have been eliminated in consolidation. 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, the guarantor subsidiaries and the 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 4. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Statement of Income Second Quarter Ended July 1, 2001 (Thousands) (Unaudited) Parent Guarantor Company Subsidiaries Eliminations Consolidated --------- ------------ ------------ ------------ Net sales............................. $ 323,947 $ 30,978 $ - $ 354,925 Intercompany net sales................ 29,067 247,253 (276,320) - --------- --------- --------- --------- Total net sales....................... 353,014 278,231 (276,320) 354,925 --------- --------- --------- --------- Costs and expenses: Cost of products sold............... 278,562 251,943 (276,320) 254,185 Selling, general and administrative. 49,744 18,245 67,989 Goodwill amortization............... 337 179 516 Transition service agreement (income) expense.................. 25 (25) - --------- --------- --------- --------- Total costs and expenses.............. 328,668 270,342 (276,320) 322,690 --------- --------- --------- --------- Operating income...................... 24,346 7,889 - 32,235 Equity in earnings of subsidiaries.... 8,484 - (8,484) - Intercompany licensing income (expense), net...................... (9,719) 9,719 - Interest expense...................... (10,370) (5,029) (15,399) Other income (expense), net........... (2,873) 888 (1,985) --------- --------- --------- --------- Income before income taxes............ 9,868 13,467 (8,484) 14,851 Income taxes ......................... (512) (4,983) (5,495) --------- --------- --------- --------- Net income............................ $ 9,356 $ 8,484 $ (8,484) $ 9,356 ========= ========= ========== ========= 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Note 4. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Statement of Income Second Quarter Ended June 30, 2002 (Thousands) (Unaudited) Parent Guarantor Company Subsidiaries Eliminations Consolidated --------- ------------ ------------ ------------ Net sales............................. $ 335,629 $ 33,769 $ - $ 369,398 Intercompany net sales................ 16,901 232,748 (249,649) - --------- --------- -------- --------- Total net sales....................... 352,530 266,517 (249,649) 369,398 --------- --------- -------- --------- Costs and expenses: Cost of products sold............... 264,010 236,944 (249,649) 251,305 Selling, general and administrative. 56,034 18,695 74,729 Transition service agreement (income) expense.................. 25 (25) - --------- --------- -------- --------- Total costs and expenses.............. 320,069 255,614 (249,649) 326,034 --------- --------- -------- --------- Operating income...................... 32,461 10,903 - 43,364 Equity in earnings of subsidiaries..................... 10,949 - (10,949) - Intercompany licensing income (expense), net...................... (10,069) 10,069 - Interest expense...................... (9,937) (4,067) (14,004) Other income (expense), net........... (2,314) 203 (2,111) --------- --------- -------- --------- Income before income taxes............ 21,090 17,108 (10,949) 27,249 Income taxes.......................... (3,650) (6,159) (9,809) --------- --------- -------- --------- Net income............................ $ 17,440 $ 10,949 $(10,949) $ 17,440 ========= ========= ======== ========= 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Note 4. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Statement of Income Six Months Ended July 1, 2001 (Thousands) (Unaudited) Parent Guarantor Company Subsidiaries Eliminations Consolidated --------- ------------ ------------ ------------ Net sales............................. $ 565,342 $ 54,544 $ - $ 619,886 Intercompany net sales................ 53,297 443,793 (497,090) - --------- --------- --------- --------- Total net sales....................... 618,639 498,337 (497,090) 619,886 --------- --------- --------- --------- Costs and expenses: Cost of products sold............... 498,810 451,415 (497,090) 453,135 Selling, general and administrative. 90,281 33,690 123,971 Goodwill amortization............... 651 359 1,010 Transition service agreement (income) expense ................. 50 (50) - --------- --------- --------- --------- Total costs and expenses.............. 589,792 485,414 (497,090) 578,116 --------- --------- --------- --------- Operating income...................... 28,847 12,923 - 41,770 Equity in earnings of subsidiaries.... 13,711 - (13,711) - Intercompany licensing income (expense), net...................... (16,960) 16,960 - Interest expense...................... (21,592) (9,011) (30,603) Other income (expense), net........... (4,358) 890 (3,468) --------- --------- --------- --------- Income (loss) before income taxes..... (352) 21,762 (13,711) 7,699 Income taxes.......................... 5,202 (8,051) (2,849) --------- --------- --------- --------- Net income............................ $ 4,850 $ 13,711 $ (13,711) $ 4,850 ========= ========= ========== ========= 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Note 4. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Statement of Income Six Months Ended June 30, 2002 (Thousands) (Unaudited) Parent Guarantor Company Subsidiaries Eliminations Consolidated --------- ------------ ------------ ------------ Net sales............................. $ 629,931 $ 58,720 $ - $ 688,651 Intercompany net sales................ 33,308 443,901 (477,209) - --------- --------- --------- --------- Total net sales....................... 663,239 502,621 (477,209) 688,651 --------- --------- --------- --------- Costs and expenses: Cost of products sold............... 510,229 448,217 (477,209) 481,237 Selling, general and administrative. 107,472 35,985 143,457 Transition service agreement (income) expense ................. 50 (50) - --------- --------- --------- --------- Total costs and expenses.............. 617,751 484,152 (477,209) 624,694 --------- --------- --------- --------- Operating income...................... 45,488 18,469 - 63,957 Equity in earnings of subsidiaries.... 18,837 - (18,837) - Intercompany licensing income (expense), net...................... (18,898) 18,898 - Interest expense...................... (19,520) (8,230) (27,750) Other income (expense), net........... (4,691) 296 (4,395) --------- --------- --------- --------- Income (loss) before income taxes..... 21,216 29,433 (18,837) 31,812 Income taxes.......................... (856) (10,596) (11,452) --------- --------- --------- --------- Net income............................ $ 20,360 $ 18,837 $ (18,837) $ 20,360 ========= ========= ========== ========= 14 (NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Note 4. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Balance Sheet Deceember 31, 2001 (Thousands) (Unaudited) Non- Parent Guarantor Guarantor Elim- Company Subsidiaries Subsidiary inations Consolidated --------- ------------- ------------ ----------- ------------ ASSETS Current Assets: Cash and cash equivalents............... $ 133 $ 46,254 $ - $ - $ 46,387 Accounts receivable, trade, net......... 10,726 12,764 - 23,490 Accounts receivable, other.............. 5,005 1,827 32,937 39,769 Inventories............................. 63,077 39,168 - 102,245 Other current assets.................... 1,487 2,403 - 3,890 --------- -------- -------- --------- -------- Total Current Assets.................. 80,428 102,416 32,937 - 215,781 Investment in subsidiaries................ 379,589 - - (379,589) - Intercompany loans including accrued interest................................ 81,781 (81,781) - - Due from(to)subsidiaries, net............. (204,934) 200,863 4,071 - Property, plant and equipment, net........ 36,466 315,601 - 352,067 Excess of cost over net assets of businesses acquired, net................ 40,080 23,214 - 63,294 Deferred income tax benefits.............. 32,924 - - 32,924 Tax receivable from parent corporations... 9,000 - - 9,000 Other noncurrent assets................... 16,654 16,605 - 33,259 --------- --------- -------- --------- -------- Total Assets.............................. $ 471,988 $ 576,918 $ 37,008 $(379,589) $706,325 ========= ========= ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Current maturities of long-term debt.... $ - $ 5,556 $ - $ - $ 5,556 Accounts payable........................ 19,393 38,842 - 58,235 Payable to related parties.............. 1,296 7,614 - 8,910 Accrued liabilities..................... 23,333 20,215 - 43,548 Reserve for product warranty claims..... 14,900 - - 14,900 --------- --------- -------- --------- -------- Total Current Liabilities............. 58,922 72,227 - - 131,149 Long-term debt less current maturities.... 438,374 161,522 - 599,896 Reserve for product warranty claims....... 22,358 383 - 22,741 Other liabilities......................... 13,973 205 - 14,178 --------- --------- -------- --------- -------- Total Liabilities......................... 533,627 234,337 - - 767,964 Total Stockholders' Equity (Deficit)...... (61,639) 342,581 37,008 (379,589) (61,639) --------- --------- -------- --------- -------- Total Liabilities and Stockholders' Equity (Deficit) ..................... $ 471,988 $ 576,918 $ 37,008 $(379,589) $706,325 ========= ========= ======== ========= ======== 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Note 4. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Balance Sheet June 30, 2002 (Thousands) (Unaudited) Non- Parent Guarantor Guarantor Elim- Company Subsidiaries Subsidiary inations Consolidated --------- ------------- ------------ ----------- ------------ ASSETS Current Assets: Cash and cash equivalents............... $ 5 $ 23,331 $ - $ - $ 23,336 Accounts receivable, trade, net......... 10,882 21,930 - 32,812 Accounts receivable, other.............. 660 1,575 99,696 101,931 Inventories............................. 78,370 36,418 - 114,788 Other current assets.................... 513 5,425 - 5,938 --------- -------- -------- --------- -------- Total Current Assets.................. 90,430 88,679 99,696 - 278,805 Investment in subsidiaries................ 464,545 - - (464,545) - Intercompany loans including accrued interest................................ 77,146 (77,146) - - Due from(to)subsidiaries, net............. (255,798) 252,367 3,431 - Property, plant and equipment, net........ 35,913 306,942 - 342,855 Excess of cost over net assets of businesses acquired, net................ 40,080 23,214 - 63,294 Deferred income tax benefits.............. 21,997 - - 21,997 Tax receivable from parent corporations... 10,250 - - 10,250 Other noncurrent assets................... 14,165 15,925 - 30,090 --------- --------- -------- --------- -------- Total Assets.............................. $ 498,728 $ 609,981 $103,127 $(464,545) $747,291 ========= ========= ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Current maturities of long-term debt.... $ - $ 5,774 $ - $ - $ 5,774 Accounts payable........................ 28,846 40,240 - 69,086 Payable to related parties.............. 1,420 13,989 - 15,409 Accrued liabilities..................... 22,705 29,045 - 51,750 Reserve for product warranty claims..... 14,900 - - 14,900 --------- --------- -------- --------- -------- Total Current Liabilities............. 67,871 89,048 - - 156,919 Long-term debt less current maturities.... 438,633 158,695 - 597,328 Reserve for product warranty claims....... 20,243 623 - 20,866 Other liabilities......................... 13,462 197 - 13,659 --------- --------- -------- --------- -------- Total Liabilities......................... 540,209 248,563 - - 788,772 Total Stockholders' Equity (Deficit)...... (41,481) 361,418 103,127 (464,545) (41,481) --------- --------- -------- --------- -------- Total Liabilities and Stockholders' Equity (Deficit) ..................... $ 498,728 $ 609,981 $103,127 $(464,545) $747,291 ========= ========= ======== ========= ======== 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Note 4. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Statement of Cash Flows Six Months Ended July 1, 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) ................................... (8,861) 13,711 4,850 Adjustments to reconcile net income(loss)to net cash provided by(used in)operating activities: Depreciation..................................... 1,367 16,153 17,520 Goodwill and other amortization.................. 1,460 359 1,819 Deferred income taxes............................ 2,294 - 2,294 Noncash interest charges......................... 1,578 609 2,187 Increase in working capital items.................... (39,176) (16,613) (38,252) (94,041) Decrease in product warranty claims.................. (4,026) (1,105) (5,131) Proceeds from sale of accounts receivable............ 49,999 - 49,999 Change in net receivable from/payable to related parties/parent corporations................ (11,015) (20,875) 38,252 6,362 Other, net........................................... (4) (504) (508) -------- -------- --------- -------- Net cash used in operating activities................ (6,384) (8,265) - (14,649) -------- -------- --------- -------- Cash provided by(used in)investing activities: Capital expenditures............................... (173) (7,104) (7,277) -------- -------- --------- -------- Net cash used in investing activities................ (173) (7,104) - (7,277) -------- -------- --------- -------- Cash provided by (used in) financing activities: Decrease in borrowings under revolving credit facility.................................. (1,000) - (1,000) Repayments of long-term debt....................... (97) (3,242) (3,339) Distributions to parent corporations............... (1,249) - (1,249) Financing fees and expenses........................ (825) (474) (1,299) -------- --------- --------- --------- Net cash used in financing activities................ (3,171) (3,716) - (6,887) -------- --------- --------- --------- Net change in cash and cash equivalents.............. (9,728) (19,085) - (28,813) -------- --------- --------- --------- Cash and cash equivalents, end of period............. $ 13 $ 53,921 $ - $ 53,934 ======== ========= ========= ========= 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Note 4. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Statement of Cash Flows Six Months Ended June 30, 2002 (Thousands) (Unaudited) Non- Parent Guarantor Guarantor Company Subsidiaries Subsidiary Consolidated --------- ------------ ---------- ------------ Cash and cash equivalents, beginning of period....... $ 133 $ 46,254 $ - $ 46,387 --------- --------- --------- -------- Cash provided by (used in) operating activities: Net income........................................... 1,523 18,837 20,360 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation..................................... 1,220 17,751 18,971 Goodwill and other amortization.................. - 952 952 Deferred income taxes............................ 10,927 - 10,927 Noncash interest charges......................... 1,797 697 2,494 (Increase) decrease in working capital items......... (16,605) 1,042 (66,759) (82,322) Decrease in product warranty claims.................. (2,115) 240 (1,875) Proceeds from sale of accounts receivable............ 15,300 - 15,300 Change in net receivable from/payable to related parties/parent corporations................ (11,746) (49,764) 66,759 5,249 Other, net........................................... 645 (292) 353 --------- --------- --------- -------- Net cash provided by (used in) operating activities.. 946 (10,537) - (9,591) --------- --------- --------- -------- Cash provided by (used in) investing activities: Capital expenditures............................... (651) (9,585) (10,236) --------- --------- --------- -------- Net cash used in investing activities................ (651) (9,585) - (10,236) --------- --------- --------- -------- Cash provided by (used in) financing activities: Repayments of long-term debt....................... - (2,801) (2,801) Distributions to parent corporations............... (145) - (145) Loan to parent corporation......................... (57) - (57) Financing fees and expenses........................ (221) - (221) --------- --------- --------- -------- Net cash used in financing activities................ (423) (2,801) - (3,224) --------- --------- --------- -------- Net change in cash and cash equivalents.............. (128) (22,923) - (23,051) --------- --------- --------- -------- Cash and cash equivalents, end of period............. $ 5 $ 23,331 $ - $ 23,336 ========= ========= ========= ======== 18 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - Second Quarter 2002 Compared With Second Quarter 2001 We recorded net income in the second quarter of 2002 of $17.4 million compared with net income of $9.4 million in the second quarter of 2001. The significant improvement in operating results in the second quarter of 2002 were primarily due to higher net sales and lower manufacturing costs together with lower interest expense. Net sales for the second quarter of 2002 were $369.4 million, a 4.1% increase over last year's net sales of $354.9 million, with the increase primarily due to net sales gains in residential roofing products, partially offset by decreased net sales in commercial roofing products. The increase in net sales of residential roofing products reflected higher average selling prices and higher unit volumes, while the decline in net sales of commercial roofing products were attributable to lower average selling prices and slightly lower unit volumes. Operating income in the second quarter of 2002 was $43.4 million compared with $32.2 million in the second quarter of 2001, representing an increase of 34.8%. The increase in operating income was primarily attributable to higher net sales of residential roofing products and lower manufacturing costs, partially offset by higher selling, general and administrative expenses and lower net sales of commercial roofing products. As a result of the initial adoption of Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", goodwill amortization, which amounted to $0.5 million in the second quarter of 2001, no longer is being amortized in 2002. Interest expense for the second quarter of 2002 decreased to $14.0 million from $15.4 million for the same period in 2001, primarily due to lower average borrowings and a lower average interest rate. Other expense, net was $2.1 million for the second quarter of 2002 compared with $2.0 million for the same period in 2001. Results of Operations - Six Months 2002 Compared With Six Months 2001 For the first six months of 2002, we recorded net income of $20.4 million compared with $4.9 million in the first six months of 2001. The increased net earnings in 2002 were primarily the result of higher operating income on higher net sales and lower manufacturing and raw material costs together with lower interest expense. Net sales for the first six months of 2002 were $688.7 million, compared with $619.9 million in the same period of 2001, representing an increase of 11.1%. Net sales gains in residential roofing products were partially offset by lower net sales in commercial roofing products. The increase in net sales of residential roofing products reflected higher average selling prices and higher unit volumes, while the decline in net sales of commercial roofing products was attributable to lower average selling prices and slightly lower unit volumes. 19 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Operating income for the first six months of 2002 was $64.0 million compared with $41.8 million in 2001. The increase in operating income was primarily attributable to higher net sales of residential roofing products and lower manufacturing and raw material costs, partially offset by higher selling, general and administrative expenses and lower net sales of commercial roofing products. As a result of the adoption of SFAS No. 142, goodwill amortization, which amounted to $1.0 million in the first six months of 2001, no longer is being amortized in 2002. Interest expense for the first six months of 2002 decreased to $27.8 million from $30.6 million for the same period in 2001, primarily due to lower average borrowings and a lower average interest rate. Other expense, net was $4.4 million for the first six months of 2002 compared with $3.5 million for the same period in 2001. Liquidity and Financial Condition Net cash outflow during the first six months of 2002 was $19.8 million, before financing activities, and included the use of $9.6 million of cash for operations and the reinvestment of $10.2 million for capital programs. Cash invested in additional working capital totaled $82.3 million during the first six months of 2002, primarily reflecting seasonal increases in accounts receivable of $86.8 million, including a $82.1 million increase in the receivable from the third party which purchases certain of our trade accounts receivable, and $12.5 million in inventories, partially offset by a $19.1 million increase in accounts payable and accrued liabilities. The net cash used for operating activities also included $15.3 million of net proceeds from the sale of accounts receivable to a third party in connection with our Accounts Receivable Securitization Agreement and a $5.2 million net increase in the net payable to related parties/parent corporations. Net cash used in financing activities totaled $3.2 million during the first six months of 2002, reflecting $2.8 million in repayments of long-term debt,$0.2 million of distributions and loans to our parent corporations, and $0.2 million in financing fees and expenses. As a result of the foregoing factors, cash and cash equivalents decreased by $23.1 million during the first six months of 2002 to $23.3 million. See Note 2 to Consolidated Financial Statements for information regarding contingencies. 20 * * * 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 June 30, 2002 and there was no hedging activity in the six months ended June 30, 2002. 21 PART II OTHER INFORMATION Item 1. Legal Proceedings As of June 30, 2002, 1,900 alleged asbestos-related bodily injury claims relating to the inhalation of asbestos fiber are pending against Building Materials Corporation of America. See Note 2 to Consolidated Financial Statements above. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 99.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) The registrants filed a report on Form 8-K dated June 21, 2002 reporting events under Item 4 thereof. 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: August 14, 2002 BY: /s/John F. Rebele ----------------- ---------------------- John F. Rebele Senior Vice President and Chief Financial Officer (Principal Financial Officer) DATE: August 14, 2002 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: August 14, 2002 BY: /s/John F. Rebele ----------------- ---------------------- John F. Rebele Senior Vice President and Chief Financial Officer (Principal Financial and and Accounting Officer) 24