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 29, 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 November 8, 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 November 8, 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
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
------------------- ------------------
Sept.30, Sept.29, Sept.30, Sept.29,
2001 2002 2001 2002
-------- --------- -------- ----------
(Thousands)
Net sales..........................$376,315 $357,100 $996,201 $1,045,751
-------- -------- -------- ----------
Costs and expenses:
Cost of products sold ........... 256,778 242,400 709,914 723,637
Selling, general and
administrative................. 75,399 74,607 199,369 218,064
Goodwill amortization ........... 507 - 1,517 -
-------- -------- -------- ----------
Total costs and expenses....... 332,684 317,007 910,800 941,701
-------- -------- -------- ----------
Operating income................... 43,631 40,093 85,401 104,050
Interest expense................... (15,067) (13,787) (45,670) (41,536)
Other expense, net................. (1,799) (1,753) (5,266) (6,147)
-------- -------- -------- ----------
Income before income taxes......... 26,765 24,553 34,465 56,367
Income taxes....................... (9,903) (8,839) (12,752) (20,293)
-------- -------- -------- ----------
Net income.........................$ 16,862 $ 15,714 $ 21,713 $ 36,074
======== ======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
3
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
Sept. 29,
December 31, 2002
2001 (Unaudited)
------------ -----------
ASSETS (Thousands)
Current Assets:
Cash and cash equivalents...................................$ 46,387 $ 56,599
Accounts receivable, trade, net............................. 23,490 28,235
Accounts receivable, other.................................. 39,769 91,002
Inventories................................................. 102,245 127,975
Other current assets........................................ 3,890 3,636
-------- --------
Total Current Assets...................................... 215,781 307,447
Property, plant and equipment, net............................ 352,067 338,938
Excess of cost over net assets of businesses
acquired, net............................................... 63,294 63,294
Deferred income tax benefits.................................. 32,924 13,420
Tax receivable from parent corporations....................... 9,000 10,250
Other noncurrent assets....................................... 33,259 28,576
-------- --------
Total Assets..................................................$706,325 $761,925
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt......................$ 5,556 $ 55,238
Accounts payable............................................ 58,235 72,176
Payable to related parties.................................. 8,910 14,364
Accrued liabilities......................................... 43,548 53,093
Reserve for product warranty claims......................... 14,900 14,900
-------- --------
Total Current Liabilities................................. 131,149 209,771
-------- --------
Long-term debt less current maturities........................ 599,896 546,541
-------- --------
Reserve for product warranty claims........................... 22,741 19,609
-------- --------
Other liabilities............................................. 14,178 13,599
-------- --------
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) (2,621)
Accumulated deficit......................................... (59,104) (24,975)
-------- --------
Total Stockholders' Equity (Deficit)...................... (61,639) (27,595)
-------- --------
Total Liabilities and Stockholders'
Equity (Deficit)...........................................$706,325 $761,925
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
4
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
-------------------
Sept. 30, Sept. 29,
2001 2002
-------- --------
(Thousands)
Cash and cash equivalents, beginning of period........$ 82,747 $ 46,387
------- -------
Cash provided by (used in) operating activities:
Net income ......................................... 21,713 36,074
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation ................................... 26,869 28,755
Goodwill and other amortization................. 2,801 1,542
Deferred income taxes........................... 11,927 19,504
Noncash interest charges........................ 3,337 3,726
Increase in working capital items...................(123,740) (73,242)
Decrease in reserve for product warranty claims..... (5,800) (3,132)
Proceeds from sale of accounts receivable........... 49,999 15,274
Change in net receivable from/payable to related
parties/parent corporations....................... 5,725 4,204
Other, net.......................................... (2,404) (95)
------- -------
Net cash provided by (used in) operating activities... (9,573) 32,610
------- -------
Cash provided by (used in) investing activities:
Capital expenditures................................ (11,506) (15,829)
------- -------
Net cash used in investing activities................. (11,506) (15,829)
------- -------
Cash provided by (used in) financing activities:
Decrease in borrowings under revolving
credit facilities................................. (2,000) -
Repayments of long-term debt........................ (4,745) (4,317)
Distributions to parent corporations................ (1,899) (1,945)
Loan to parent corporation.......................... - (85)
Financing fees and expenses......................... (1,372) (222)
------- -------
Net cash used in financing activities................. (10,016) (6,569)
------- -------
Net change in cash and cash equivalents............... (31,095) 10,212
------- -------
Cash and cash equivalents, end of period..............$ 51,652 $ 56,599
======= =======
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized)..............$ 45,319 $ 38,007
Income taxes...................................... 855 1,525
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 (Unaudited)
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 September 29, 2002, and the results of operations and cash
flows for the periods ended September 30, 2001 and September 29, 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, Sept. 29,
2001 2002
------------ --------
(Thousands)
Finished goods ................. $ 66,417 $ 88,058
Work-in-process ................ 8,800 10,665
Raw materials and supplies ..... 29,573 33,147
-------- --------
Total .......................... 104,790 131,870
Less LIFO reserve .............. (2,545) (3,895)
-------- --------
Inventories .................... $102,245 $127,975
======== ========
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 September 29, 2002). The
Company believes that it will not sustain any liability in connection with
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (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 October 18, 2002, the Bankruptcy Court granted the motions filed
by G-I Holdings and the Company to file an amended complaint to add as a
defendant the legal representative of future demands in the G-I Holdings
bankruptcy 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 (Unaudited) - (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 (Unaudited) - (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:
Third Quarter Ended Nine Months Ended
-------------------- ----------------------
Sept. 30, Sept. 29, Sept. 30, Sept. 29,
2001 2002 2001 2002
-------- -------- -------- ---------
(Thousands)
Reported net income.... $16,862 $15,714 $21,713 $36,074
Add back: Goodwill
Amortization .......... 507 - 1,517 -
------- ------- ------- -------
Adjusted net income.... $17,369 $15,714 $23,230 $36,074
======= ======= ======= =======
Note 4. Subsequent Event
On October 4, 2002, the Company exercised an Early Buyout Option amounting
to $9.4 million in connection with its sale-leaseback of certain equipment
located at its Baltimore, Maryland roofing facility which had been accounted for
as a capital lease.
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
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note 5. 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. 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 (Unaudited) - (Continued)
Note 5. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Third Quarter Ended September 30, 2001
(Thousands)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------
Net sales............................. $ 343,771 $ 32,544 $ - $ 376,315
Intercompany net sales................ 22,533 242,948 (265,481) -
--------- --------- --------- ---------
Total net sales....................... 366,304 275,492 (265,481) 376,315
--------- --------- --------- ---------
Costs and expenses:
Cost of products sold............... 274,010 248,249 (265,481) 256,778
Selling, general and administrative. 56,984 18,415 75,399
Goodwill amortization............... 326 181 507
Transition service agreement
(income) expense.................. 25 (25) -
--------- --------- --------- ---------
Total costs and expenses.............. 331,345 266,820 (265,481) 332,684
--------- --------- --------- ---------
Operating income...................... 34,959 8,672 - 43,631
Equity in earnings of subsidiaries.... 9,331 - (9,331) -
Intercompany licensing income
(expense), net...................... (10,313) 10,313 -
Interest expense...................... (10,636) (4,431) (15,067)
Other income (expense), net........... (2,055) 256 (1,799)
--------- --------- --------- ---------
Income before income taxes............ 21,286 14,810 (9,331) 26,765
Income taxes ......................... (4,424) (5,479) (9,903)
--------- --------- --------- ---------
Net income............................ $ 16,862 $ 9,331 $ (9,331) $ 16,862
========= ========= ========= =========
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note 5. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Third Quarter Ended September 29, 2002
(Thousands)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------
Net sales............................. $ 326,837 $ 30,263 $ - $ 357,100
Intercompany net sales................ 15,347 233,793 (249,140) -
--------- --------- -------- ---------
Total net sales....................... 342,184 264,056 (249,140) 357,100
--------- --------- -------- ---------
Costs and expenses:
Cost of products sold............... 255,201 236,339 (249,140) 242,400
Selling, general and administrative. 56,288 18,319 74,607
Transition service agreement
(income) expense.................. 25 (25) -
--------- --------- -------- ---------
Total costs and expenses.............. 311,514 254,633 (249,140) 317,007
--------- --------- -------- ---------
Operating income...................... 30,670 9,423 - 40,093
Equity in earnings
of subsidiaries..................... 9,787 - (9,787) -
Intercompany licensing income
(expense), net...................... (9,805) 9,805 -
Interest expense...................... (9,744) (4,043) (13,787)
Other income (expense), net........... (1,860) 107 (1,753)
--------- --------- -------- ---------
Income before income taxes............ 19,048 15,292 (9,787) 24,553
Income taxes.......................... (3,334) (5,505) (8,839)
--------- --------- -------- ---------
Net income............................ $ 15,714 $ 9,787 $ (9,787) $ 15,714
========= ========= ======== =========
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note 5. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Nine Months Ended September 30, 2001
(Thousands)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------
Net sales............................. $ 909,113 $ 87,088 $ - $ 996,201
Intercompany net sales................ 75,831 686,740 (762,571) -
--------- --------- --------- ---------
Total net sales....................... 984,944 773,828 (762,571) 996,201
--------- --------- --------- ---------
Costs and expenses:
Cost of products sold............... 772,820 699,665 (762,571) 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.............. 921,138 752,233 (762,571) 910,800
--------- --------- --------- ---------
Operating income...................... 63,806 21,595 - 85,401
Equity in earnings of subsidiaries.... 23,041 - (23,041) -
Intercompany licensing income
(expense), net...................... (27,273) 27,273 -
Interest expense...................... (32,228) (13,442) (45,670)
Other income (expense), net........... (6,413) 1,147 (5,266)
--------- --------- --------- ---------
Income before income taxes............ 20,933 36,573 (23,041) 34,465
Income tax (provision) benefit........ 780 (13,532) (12,752)
--------- --------- --------- ---------
Net income............................ $ 21,713 $ 23,041 $ (23,041) $ 21,713
========= ========= ========= =========
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note 5. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Nine Months Ended September 29, 2002
(Thousands)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------
Net sales............................. $ 956,768 $ 88,983 $ - $1,045,751
Intercompany net sales................ 48,654 677,695 (726,349) -
---------- --------- --------- ----------
Total net sales....................... 1,005,422 766,678 (726,349) 1,045,751
---------- --------- --------- ----------
Costs and expenses:
Cost of products sold............... 765,430 684,556 (726,349) 723,637
Selling, general and administrative. 163,759 54,305 218,064
Transition service agreement
(income) expense ................. 75 (75) -
---------- --------- --------- ----------
Total costs and expenses.............. 929,264 738,786 (726,349) 941,701
---------- --------- --------- ----------
Operating income...................... 76,158 27,892 - 104,050
Equity in earnings of subsidiaries.... 28,624 - (28,624) -
Intercompany licensing income
(expense), net...................... (28,703) 28,703 -
Interest expense...................... (29,263) (12,273) (41,536)
Other income (expense), net........... (6,551) 404 (6,147)
---------- --------- --------- ----------
Income before income taxes............ 40,265 44,726 (28,624) 56,367
Income taxes.......................... (4,191) (16,102) (20,293)
---------- --------- --------- ----------
Net income............................ $ 36,074 $ 28,624 $ (28,624) $ 36,074
========== ========= ========= ==========
14
(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)- (Continued)
Note 5. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Balance Sheet
December 31, 2001
(Thousands)
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 (Unaudited)- (Continued)
Note 5. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Balance Sheet
September 29, 2002
(Thousands)
Non-
Parent Guarantor Guarantor Elim-
Company Subsidiaries Subsidiary inations Consolidated
--------- ------------- ------------ ----------- ------------
ASSETS
Current Assets:
Cash and cash equivalents............ $ 8 $56,591 $ - $ - $56,599
Accounts receivable, trade, net......... 8,796 19,439 - 28,235
Accounts receivable, other.............. 1,709 1,389 87,904 91,002
Inventories............................. 83,985 43,990 - 127,975
Other current assets.................... 658 2,978 - 3,636
--------- -------- -------- --------- --------
Total Current Assets.................. 95,156 124,387 87,904 - 307,447
Investment in subsidiaries................ 462,042 - - (462,042) -
Intercompany loans including accrued
interest................................ 72,071 (72,071) - -
Due from(to)subsidiaries, net............. (229,432) 226,499 2,933 -
Property, plant and equipment, net........ 35,459 303,479 - 338,938
Excess of cost over net assets of
businesses acquired, net................ 40,080 23,214 - 63,294
Deferred income tax benefits.............. 13,420 - - 13,420
Tax receivable from parent corporations... 10,250 - - 10,250
Other noncurrent assets................... 13,377 15,199 - 28,576
--------- --------- -------- --------- --------
Total Assets.............................. $ 512,423 $ 620,707 $ 90,837 $(462,042) $761,925
========= ========= ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt.... $ 34,747 $ 20,491 $ - $ - $ 55,238
Accounts payable........................ 30,303 41,873 - 72,176
Payable to related parties.............. 1,433 12,931 - 14,364
Accrued liabilities..................... 22,236 30,857 - 53,093
Reserve for product warranty claims..... 14,900 - - 14,900
--------- --------- -------- --------- --------
Total Current Liabilities............. 103,619 106,152 - - 209,771
Long-term debt less current maturities.... 404,015 142,526 - 546,541
Reserve for product warranty claims....... 18,985 624 - 19,609
Other liabilities......................... 13,399 200 - 13,599
--------- --------- -------- --------- --------
Total Liabilities......................... 540,018 249,502 - - 789,520
Total Stockholders' Equity (Deficit)...... (27,595) 371,205 90,837 (462,042) (27,595)
--------- --------- -------- --------- --------
Total Liabilities and Stockholders'
Equity (Deficit) ..................... $ 512,423 $ 620,707 $ 90,837 $(462,042) $761,925
========= ========= ======== ========= ========
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (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)
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).................................... (1,328) 23,041 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......... (60,211) 9,194 (72,723) (123,740)
Decrease in product warranty claims.................. (5,196) (604) (5,800)
Proceeds from sale of accounts receivable............ 49,999 - 49,999
Change in net receivable from/payable to
related parties/parent corporations................ (5,840) (61,158) 72,723 5,725
Other, net........................................... (575) (1,829) (2,404)
-------- -------- --------- --------
Net cash used in operating activities................ (4,491) (5,082) - (9,573)
-------- -------- --------- --------
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:
Decrease in borrowings under revolving
credit facility.................................. (2,000) - (2,000)
Repayments of long-term debt....................... (147) (4,598) (4,745)
Distributions to parent corporations............... (1,899) - (1,899)
Financing fees and expenses........................ (865) (507) (1,372)
-------- -------- --------- --------
Net cash used in financing activities................ (4,911) (5,105) - (10,016)
-------- -------- --------- --------
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
======== ========= ========= ========
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note 5. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 29, 2002
(Thousands)
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........................................... 7,450 28,624 36,074
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation..................................... 1,860 26,895 28,755
Goodwill and other amortization.................. - 1,542 1,542
Deferred income taxes............................ 19,504 - 19,504
Noncash interest charges......................... 2,715 1,011 3,726
(Increase) decrease in working capital items......... (20,314) 2,039 (54,967) (73,242)
Increase (decrease) in product warranty claims....... (3,373) 241 (3,132)
Proceeds from sale of accounts receivable............ 15,274 - 15,274
Change in net receivable from/payable to
related parties/parent corporations................ (20,734) (30,029) 54,967 4,204
Other, net........................................... 577 (672) (95)
--------- --------- --------- --------
Net cash provided by (used in) operating activities.. 2,959 29,651 - 32,610
--------- --------- --------- --------
Cash provided by (used in) investing activities:
Capital expenditures............................... (832) (14,997) (15,829)
--------- --------- --------- --------
Net cash used in investing activities................ (832) (14,997) - (15,829)
--------- --------- --------- --------
Cash provided by (used in) financing activities:
Repayments of long-term debt....................... - (4,317) (4,317)
Distributions to parent corporations............... (1,945) - (1,945)
Loan to parent corporation......................... (85) - (85)
Financing fees and expenses........................ (222) - (222)
--------- --------- --------- --------
Net cash used in financing activities................ (2,252) (4,317) - (6,569)
--------- --------- --------- --------
Net change in cash and cash equivalents.............. (125) 10,337 - 10,212
--------- --------- --------- --------
Cash and cash equivalents, end of period............. $ 8 $ 56,591 $ - $ 56,599
========= ========= ========= ========
18
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Third Quarter 2002 Compared With
Third Quarter 2001
We recorded net income in the third quarter of 2002 of $15.7 million
compared with net income of $16.9 million in the third quarter of 2001. The
decline in net earnings in the third quarter of 2002 was primarily due to lower
operating income partially offset by lower interest expense.
Net sales for the third quarter of 2002 were $357.1 million, a decrease
from last year's net sales of $376.3 million, with the decline primarily due to
lower net sales of residential roofing products. The decrease in net sales of
residential roofing products in the third quarter of 2002 reflected lower unit
volumes as the harsh winter in 2001 caused a delay in demand in colder climates
resulting in unusually strong sales in the third quarter of 2001, partially
offset by slightly higher average selling prices. Net sales of commercial
roofing products for the third quarter of 2002 were relatively flat compared to
2001.
Operating income in the third quarter of 2002 was $40.1 million compared
with $43.6 million in the third quarter of 2001. The decrease in operating
income was primarily attributable to lower net sales of residential roofing
products, as discussed above. The third quarter of 2002 also reflected lower
manufacturing costs and lower selling, general and administrative expenses that
essentially offset the impact of higher asphalt costs due to higher oil prices.
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 third quarter of 2001, no
longer is being amortized in 2002.
Interest expense for the third quarter of 2002 decreased to $13.8 million
from $15.1 million for the same period in 2001, primarily due to lower average
borrowings and a lower average interest rate. Other expense, net was $1.8
million for the third quarter of 2002 compared with $1.8 million for the same
period in 2001.
Results of Operations - Nine Months 2002 Compared With
Nine Months 2001
For the first nine months of 2002, we recorded net income of $36.1 million
compared with net income of $21.7 million in the first nine months of 2001,
representing an increase of 66.4%. The increased net earnings in 2002 was
primarily the result of higher operating income on higher net sales and lower
manufacturing costs together with lower interest expense.
Net sales for the first nine months of 2002 were $1,045.8 million, compared
with $996.2 million in the same period of 2001, representing an increase of
5.0%. Net sales gains of residential roofing products were partially offset by
lower net sales of 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 nine months of 2002 was $104.1 million
compared with $85.4 million in 2001, representing an increase of 21.9%. The
increase in operating income was primarily attributable to higher net sales of
residential roofing products together with 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 adoption of SFAS No.
142, goodwill amortization, which amounted to $1.5 million in the first nine
months of 2001, no longer is being amortized in 2002.
Interest expense for the first nine months of 2002 decreased to $41.5
million from $45.7 million for the same period in 2001, primarily due to lower
average borrowings and a lower average interest rate. Other expense, net was
$6.1 million for the first nine months of 2002 compared with $5.3 million for
the same period in 2001.
Liquidity and Financial Condition
Net cash inflow during the first nine months of 2002 was $16.8 million,
before financing activities, and included $32.6 million of cash generated from
operations and the reinvestment of $15.8 million for capital programs.
Cash invested in additional working capital totaled $73.2 million during
the first nine months of 2002, primarily reflecting seasonal increases in
accounts receivable of $71.3 million and $25.7 million in inventories, partially
offset by a $23.5 million increase in accounts payable and accrued liabilities.
Cash from 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 $4.2 million net increase in the net
payable to related parties/parent corporations.
Net cash used in financing activities totaled $6.6 million during the first
nine months of 2002, reflecting $4.3 million in repayments of long-term
debt,$2.0 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 increased
by $10.2 million during the first nine months of 2002 to $56.6 million.
On October 4, 2002, the Company exercised an Early Buyout Option amounting
to $9.4 million in connection with its sale-leaseback of certain equipment
located at its Baltimore, Maryland roofing facility which had been accounted for
as a capital lease. See Note 4 to Consolidated Financial Statements.
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 September 29, 2002 and there was no hedging
activity in the nine months ended September 29, 2002.
Item 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer are
responsible for the design, maintenance and effectiveness of disclosure controls
and procedures (as defined in the Rules 13a-14(c) and 15d-14(c) of the
Securities Exchange Act of 1934).
The effectiveness of the disclosure controls and procedures have been
evaluated by the Chief Executive Officer and Chief Financial Officer within 90
days of the filing date of this report. Based on this evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that the disclosure
controls and procedures are adequate and effective.
There have been no significant changes in internal controls or in other
factors that could significantly affect these internal controls subsequent to
the date of the evaluation in connection with the preparation of this quarterly
report on Form 10-Q.
21
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
As of September 29, 2002, approximately 1,900 alleged asbestos-related
bodily injury claims relating to the inhalation of asbestos fiber are pending
against Building Materials Corporation of America ("BMCA"). See Note 2 to
Consolidated Financial Statements above. By order dated June 22, 2001, the
bankruptcy court overseeing the G-I Holdings bankruptcy ordered a preliminary
injunction barring the prosecution of any existing or future asbestos claims
against BMCA.
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) No Reports on Form 8-K were filed during the quarter ended September 29,
2002.
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 13, 2002 BY: /s/ John F. Rebele
----------------- --------------------------------------------
John F. Rebele
Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
DATE: November 13, 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: November 13, 2002 BY: /s/John F. Rebele
----------------- -----------------------------------------
John F. Rebele
Senior Vice President
and Chief Financial Officer
(Principal Financial and
and Accounting Officer)
24
CERTIFICATION
I, William W. Collins, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Building Materials
Corporation of America;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4.The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a)designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated theeffectiveness of theregistrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
25
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ William W. Collins
- --------------------------------------------
Name: William W. Collins
Title: Chief Executive Officer and President
26
CERTIFICATION
I, John F. Rebele, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Building Materials
Corporation of America;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4.The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed suchdisclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
27
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ John F. Rebele
- --------------------------------------
Name: John F. Rebele
Title: Senior Vice President and
Chief Financial Officer
28