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 MARCH 30, 2008
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 or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1361 ALPS ROAD, WAYNE, NEW JERSEY 07470
(Address of Principal Executive Offices) (Zip Code)
(973) 628-3000
(Registrant's telephone number, including area code)
NONE
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 / /
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definition of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |X| Smaller reporting |_|
(Do not check if a smaller company
reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
As of May 14, 2008, 1,015,010 shares of Class A Common Stock, $.001 par value of
the registrant were outstanding. There is no trading market for the common stock
of the registrant. As of May 14, 2008, the additional registrant had the number
of shares outstanding which is shown on the table below. There is no trading
market for the common stock of the additional registrant. As of May 14, 2008, no
shares of the registrant or the additional registrant were held by
non-affiliates.
ADDITIONAL REGISTRANTS
Address, including zip
Exact name of State or other Commission File code and telephone number,
registrant as jurisdiction of No. of No./I.R.S. including area code, of
specified in its incorporation or Shares Employer registrant's principal
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
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)
FIRST QUARTER ENDED
------------------------
MARCH 30, APRIL 1,
2008 2007
--------- ---------
Net sales ........................................... $ 570,276 $ 529,990
--------- ---------
Costs and expenses:
Cost of products sold ............................. 424,915 392,937
Selling, general and administrative ............... 105,809 111,160
Amortization of intangible assets ................. 2,846 --
Restructuring and other expenses .................. 20,825 --
Other expense, net ................................ 1,008 419
--------- ---------
Total costs and expenses, net ....... 555,403 504,516
--------- ---------
Income before interest expense and income
taxes ............................................. 14,873 25,474
Interest expense .................................... (39,865) (49,278)
--------- ---------
Loss before income taxes ............................ (24,992) (23,804)
Income tax benefit .................................. 9,947 8,522
--------- ---------
Net loss ............................................ $ (15,045) $ (15,282)
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
3
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MARCH 30,
2008 DECEMBER 31,
ASSETS (UNAUDITED) 2007
Current Assets: ----------- -----------
Cash and cash equivalents ................................ $ 20,744 $ 6,324
Accounts receivable, trade, net .......................... 395,304 210,857
Accounts receivable, other ............................... 8,075 10,792
Income tax receivable .................................... 11,837 11,968
Inventories, net ......................................... 286,487 316,912
Deferred income tax assets ............................... 37,754 38,017
Other current assets ..................................... 19,445 13,698
----------- -----------
Total Current Assets ................................... 779,646 608,568
Property, plant and equipment, net ......................... 664,136 672,813
Goodwill ................................................... 653,964 655,200
Intangible assets, net ..................................... 204,789 207,635
Income tax receivable from parent corporation .............. 10,016 10,016
Other noncurrent assets .................................... 121,800 120,159
----------- -----------
Total Assets ............................................... $ 2,434,351 $ 2,274,391
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current maturities of long-term debt ..................... $ 26,594 $ 24,630
Accounts payable ......................................... 172,268 142,250
Payable to related parties ............................... 21,301 16,133
Loans payable to parent corporation ...................... 52,840 52,840
Accrued liabilities ...................................... 131,681 135,976
Product warranty claims .................................. 16,200 13,500
Discontinued operations - current liabilities ............ 560 560
----------- -----------
Total Current Liabilities ................................ 421,444 385,889
----------- -----------
Long-term debt ............................................. 1,881,928 1,729,395
----------- -----------
Product warranty claims .................................... 30,115 31,224
----------- -----------
Deferred income tax liabilities ............................ 37,530 60,869
----------- -----------
Other liabilities .......................................... 194,024 163,332
----------- -----------
Commitments and Contingencies - Note 13
Stockholders' 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; no shares issued ............ -- --
Loans receivable from parent corporation ................. (56,262) (56,224)
Accumulated deficit ...................................... (31,541) (16,496)
Accumulated other comprehensive loss ..................... (42,888) (23,599)
----------- -----------
Total Stockholders' Deficit ............................ (130,690) (96,318)
----------- -----------
Total Liabilities and Stockholders' Deficit ................ $ 2,434,351 $ 2,274,391
=========== ===========
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)
(DOLLARS IN THOUSANDS)
FIRST QUARTER ENDED
----------------------------
MARCH 30, APRIL 1,
2008 2007
----------- -----------
Cash and cash equivalents, beginning of period .. $ 6,324 $ 7,777
----------- -----------
Cash used in operating activities:
Net loss ...................................... (15,045) (15,282)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation .............................. 17,841 15,039
Amortization of intangible and other assets 3,763 949
Restructuring and other expenses .......... 28,024 --
Deferred income taxes ..................... (11,253) 3,079
Noncash interest charges .................. 2,252 4,380
Increase in working capital items ............. (158,227) (175,908)
Increase in product warranty claims ........... 1,591 962
Increase in other assets ...................... (4,138) (482)
Increase in other liabilities ................. 584 1,494
Increase (decrease) in net payable to related
parties/parent corporations ................. 5,168 (1,636)
Other, net .................................... (746) 265
----------- -----------
Net cash used in operating activities ........... (130,186) (167,140)
----------- -----------
Cash used in investing activities:
Acquisition of ElkCorp, net of cash acquired
of $0.1 million ............................. -- (974,309)
Capital expenditures and acquisitions ......... (9,234) (29,867)
----------- -----------
Net cash used in investing activities ........... (9,234) (1,004,176)
----------- -----------
Cash provided by financing activities:
Proceeds from issuance of long-term debt ...... 266,000 1,975,749
Principal repayments of capital leases ........ (1,551) --
Repayments of long-term debt .................. (110,009) (772,246)
Distribution to parent corporation ............ -- (171)
Loan to parent corporation .................... (38) (49)
Financing fees and expenses ................... (562) (33,688)
----------- -----------
Net cash provided by financing activities ....... 153,840 1,169,595
----------- -----------
Net change in cash and cash equivalents ......... 14,420 (1,721)
----------- -----------
Cash and cash equivalents, end of period ........ $ 20,744 $ 6,056
=========== ===========
(CONTINUED ON THE FOLLOWING PAGE)
5
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - (CONTINUED)
(DOLLARS IN THOUSANDS)
FIRST QUARTER ENDED
------------------------
MARCH 30, APRIL 1,
2008 2007
--------- ---------
Supplemental Cash Flow Information:
Effect on cash from changes in working capital items:
Increase in accounts receivable trade and accounts
receivable other ................................. $(181,730) $(168,974)
Decrease in inventories, net ...................... 27,917 15,184
Increase in other current assets .................. (5,747) (2,670)
Increase (decrease) in accounts payable ........... 31,605 (13,858)
Decrease in accrued liabilities ................... (4,945) (5,590)
Payments for restructuring and other expenses ..... (25,327) --
--------- ---------
Net effect on cash from increase in working capital
items ............................................ $(158,227) $(175,908)
========= =========
Cash paid during the period for:
Interest (net of amount capitalized of $68 and
$911 in 2008 and 2007, respectively) ........... $ 40,662 $ 33,570
Income taxes .................................... $ 45 $ 219
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
6
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. FORMATION OF THE COMPANY
Building Materials Corporation of America ("BMCA" or 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.
On February 22, 2007, ("date of acquisition") a subsidiary of BMCA acquired
approximately 90% of the outstanding common shares of ElkCorp ("Elk"), a Dallas,
Texas-based manufacturer of roofing products and building materials. The
remaining common shares of Elk were acquired on March 26, 2007, resulting in Elk
becoming an indirect wholly-owned subsidiary of BMCA. See Note 3 for a
description of the acquisition. 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 March 30, 2008, and the
results of its operations and its cash flows for the first quarter ended March
30, 2008 and April 1, 2007, respectively. All adjustments are of a normal
recurring nature, except for restructuring and other expenses and debt
restructuring costs recorded in the Company's statement of operations for the
first quarter ended March 30, 2008 and April 1, 2007, respectively. Net sales of
roofing products and specialty building products and accessories are generally
seasonal in nature. Accordingly, the results of operations and cash flows in the
respective quarterly ended periods will vary depending on the time of the year.
These financial statements should be read in conjunction with the annual audited
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2007, which was filed with
the Securities and Exchange Commission (the "SEC") on March 28, 2008 (the "2007
Form 10-K").
Reclassifications
Certain reclassifications have been made to conform to current year
presentation.
NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurements" ("SFAS No. 157"), which clarifies the definition of fair value,
establishes a framework for measuring fair value and expands the disclosures on
fair value measurements, which is effective for fiscal years beginning after
November 15, 2007. In February 2008, the FASB issued FASB Staff Position ("FSP")
No. 157-2 "Partial Deferral to the Effective Date of Statement 157" ("FSP No.
157-2"), which is effective for fiscal years beginning after November 15, 2008
and excludes SFAS No. 13, "Accounting for Leases," defers certain non-financial
assets and non-financial liabilities and further clarifies the principles in
SFAS No. 157 on the fair value measurement of liabilities. The Company's
adoption of the provisions of SFAS No. 157 for all other items not deferred by
FSP No. 157-2 in its first quarter of 2008 did not have a material effect on its
consolidated financial
7
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS - (CONTINUED)
statements. The Company is currently evaluating the provisions of FSP No. 157-2
and does not expect that the adoption will have a material effect on its
consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115" ("SFAS No. 159"), which permits entities to elect to measure
specified financial instruments and warranty and insurance contracts at fair
value on a contract-by-contract basis, with changes in fair value recognized in
earnings each reporting period. The election, called the "fair value option,"
will enable some companies to reduce the volatility in reported earnings caused
by measuring related assets and liabilities differently, and it is simpler than
using the complex hedge-accounting provisions of SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133") to achieve
similar results. SFAS No. 159 applies to all entities and contains financial
statement presentation and disclosure requirements for assets and liabilities
reported at fair value as a consequence of the election. SFAS No. 159 is
expected to expand the use of fair value measurements for financial instruments.
SFAS No. 159 is effective as of the beginning of a company's first fiscal year
that begins after November 15, 2007. Retrospective application is not permitted.
In the first quarter of 2008, the Company exercised its option to decline its
adoption of SFAS No. 159.
In December 2007, the FASB issued SFAS No. 141 (revised in 2007) "Business
Combinations" ("SFAS No. 141R"), which provides revised guidance on how an
acquiring company should recognize and measure the identifiable assets acquired,
liabilities assumed, any noncontrolling interests, and goodwill acquired in a
business combination. SFAS No. 141R also expands the required disclosures
related to the nature and financial statement effects of business combinations.
SFAS No. 141R is effective, on a prospective basis, for business combinations
completed in fiscal years beginning after December 15, 2008. The Company will
adopt SFAS No. 141R during its fiscal year ending December 31, 2009 and,
therefore, has not determined the effect, if any, the adoption of SFAS No. 141R
will have on its results of operations or financial position.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests
in Consolidated Financial Statements" ("SFAS No. 160"), which establishes
requirements for ownership interests in subsidiaries held by parties other than
the Company (minority interests) to be clearly identified and disclosed in the
consolidated statement of financial position within equity, but separate from
the parent's equity. Any changes in the parent's ownership interests are
required to be accounted for in a consistent manner as equity transactions and
any noncontrolling equity investments in deconsolidated subsidiaries must be
measured initially at fair value. SFAS No. 160 is effective, on a prospective
basis, for fiscal years beginning
8
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS - (CONTINUED)
after December 15, 2008; however, the presentation and disclosure requirements
must be retrospectively applied to comparative financial statements. The Company
will adopt the provisions of SFAS No. 160 in its fiscal year ending December 31,
2009. The Company does not expect the adoption to have any impact on its results
of operations or financial position because it does not have any noncontrolling
interests.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities" ("SFAS No. 161"), which amends SFAS No. 133
and is intended to improve financial reporting related to derivative instruments
and hedging activities by requiring enhanced disclosures to enable investors to
better understand their effects on an entity's financial position, financial
performance, and cash flows. The provisions of SFAS No. 161 are effective on a
prospective basis for fiscal years beginning on or after November 15, 2008. The
Company will adopt the disclosure provisions of SFAS No. 161 during its first
quarter of fiscal year ending December 31, 2009.
NOTE 3. ACQUISITION
On February 22, 2007, a subsidiary of BMCA acquired approximately 90% of
ElkCorp common shares at a purchase price of $43.50 per common share. On March
26, 2007, the remaining Elk common shares were acquired in a second step merger
in exchange for the right to receive $43.50 per share in cash, which resulted in
Elk becoming an indirect wholly-owned subsidiary of BMCA. The acquisition of the
Elk common shares was completed at a purchase price of approximately $945.3
million, net of $0.1 million of cash acquired and net of the repayment of $195.0
million of the then outstanding Elk senior notes, which were assumed in
connection with the acquisition and repaid in March 2007.
The Company financed the purchase of Elk, refinanced certain of BMCA's
then outstanding debt and repaid all of Elk's then outstanding senior notes of
$195.0 million with the proceeds from its new senior secured credit facilities.
The Company's new senior secured credit facilities consist of a $600.0 million
Senior Secured Revolving Credit Facility (the "Senior Secured Revolving Credit
Facility"), a $975.0 million Term Loan (the "Term Loan") and a $325.0 million
Junior Lien Term Loan Facility (the "Junior Lien Term Loan", and collectively
with the Senior Secured Revolving Credit Facility and the Term Loan, the "Senior
Secured Credit Facilities"). See Note 7 for a description of the Senior Secured
Credit Facilities.
The Elk acquisition was accounted for under the purchase method of
accounting as prescribed by SFAS No. 141 "Business Combinations" ("SFAS No.
141"), which requires the total purchase price to be allocated to the fair value
of assets acquired and liabilities assumed based on their fair values at the
date of acquisition, with amounts exceeding their fair value being recorded as
goodwill. During the first quarter ended March 30, 2008,
9
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 3. ACQUISITION - (CONTINUED)
the Company completed its purchase price allocation of the assets and
liabilities acquired from Elk (see table below). The operating results of Elk
are included in the Company's results of operations from the date of
acquisition.
The following table represents the final fair values of assets acquired
and liabilities assumed related to the acquisition of Elk as of the date of
acquisition with amounts paid in excess of their fair values being recorded as
goodwill.
Goodwill ................... $ 589,170
==========
Total assets acquired ...... $1,411,910
Total liabilities assumed... 466,514
----------
Net assets acquired ........ $ 945,396
==========
During the second quarter of 2007, the Company initiated a restructuring
plan (the "2007 Restructuring Plan"), which was formulated in connection with
the acquisition of Elk (see Note 4). In connection with the Elk acquisition and
pursuant to SFAS No. 141 and Emerging Issues Task Force ("EITF") No. 95-3
"Recognition of Liabilities in Connection with a Purchase Business Combination"
("EITF No. 95-3"), the Company identified $8.7 million in purchase accounting
adjustments, which related to employee severance payments to former Elk
employees and lease termination expenses. As of March 30, 2008, the Company had
paid $2.9 million for severance costs and $0.8 million for lease termination
expenses. The Company expects to make approximately $5.0 million of lease
termination payments through 2019. The Company's employee severance payments
included the termination of approximately 130 Elk employees, including certain
management positions, in the manufacturing and selling and administrative areas.
NOTE 4. RESTRUCTURING AND OTHER EXPENSES
The 2007 Restructuring Plan was created to eliminate cost redundancies
recognized due to the Elk acquisition and to reduce the Company's current
cost structure. The 2007 Restructuring Plan is expected to be fully
implemented during the Company's fiscal year ending December 31, 2008. The
Company accounts for its restructuring activities in accordance with SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS No. 146"), SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS No. 144") and EITF No. 96-9 "Classification of
Inventory Markdowns and Other Costs Associated with Restructuring" ("EITF No.
96-9").
10
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 4. RESTRUCTURING AND OTHER EXPENSES - (CONTINUED)
2007 Restructuring Charges
In connection with the acquisition of Elk, the Company identified $191.9
million in restructuring and other expenses in its fiscal year ended December
31, 2007, of which $97.0 million related to property, plant and equipment
write-downs at certain of its existing manufacturing facilities and $25.1
million related to plant closing expenses. Restructuring and other expenses also
included $2.0 million in employee severance payments and $67.8 million in
integration-related expenses, which primarily consisted of $24.3 million of
inventory-related write-downs, $15.1 million of restructuring-related sales
discounts, $1.4 million of lease termination expenses and $27.0 million of other
integration expenses.
The Company recorded $181.0 million of the aforementioned restructuring
and other expenses in its statement of operations as of December 31, 2007, of
which $15.1 million was reflected as a reduction in net sales due to
restructuring-related sales discounts, $24.3 million was charged to cost of
products sold and $141.6 million was charged to restructuring and other
expenses.
Three-Months Ended March 30, 2008 Restructuring Charges
The Company identified an additional $26.2 million of restructuring and
other expenses in its first quarter ended March 30, 2008, which included $9.3
million of plant closing expenses, $1.2 million in employee severance payments
and $15.7 million in integration-related expenses. Integration-related expenses
primarily consisted of $6.1 million of inventory write-downs, $1.1 million of
restructuring-related sales discounts and $8.5 million of other integration
expenses.
The Company recorded an additional $28.0 million of restructuring and
other expenses in its statement of operations in the three-month period ended
March 30, 2008, of which $1.1 million was reflected as a reduction in net sales
due to restructuring-related sales discounts, $6.1 million was charged to cost
of products sold and $20.8 million was charged to restructuring and other
expenses. The Company expects to incur the remaining $9.1 million of identified
restructuring and other expenses and make the remaining cash payments related to
its accrual during its fiscal year ending December 31, 2008.
11
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 4. RESTRUCTURING AND OTHER EXPENSES - (CONTINUED)
The table below details the Company's restructuring and other expense
accruals and charges made against the accrual during its first quarter of fiscal
year ending December 31, 2008:
PLANT EMPLOYEE
RESTRUCTURING AND CLOSING SEVERANCE INTEGRATION
OTHER EXPENSES EXPENSES PAYMENTS EXPENSES TOTAL
- ----------------- -------- -------- -------- --------
(THOUSANDS)
Beginning balance, as of
December 31, 2007 ........ $ 2,905 $ -- $ 10,945 $ 13,850
Current period costs
recognized due to the
acquisition of Elk ....... 10,783 1,165 16,076 28,024
Cash payments ............. (10,371) (1,165) (13,791) (25,327)
Amount charged to property,
plant and equipment for
asset write-down ......... (46) -- -- (46)
Amount charged to write-off
inventory ................ (63) -- (846) (909)
Non-cash items ............ -- -- (133) (133)
-------- -------- -------- --------
Ending balance, as of
March 30, 2008 ........... $ 3,208 $ -- $ 12,251 $ 15,459
======== ======== ======== ========
The Company's aggregate employee severance payments included the
termination of approximately 100 BMCA employees, including certain management
positions, in the manufacturing and selling and administrative areas.
12
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 5. COMPREHENSIVE LOSS
The table below reconciles the Company's net loss to comprehensive loss
for the first quarter ended March 30, 2008 and April 1, 2007, respectively:
MARCH 30, APRIL 1,
2008 2007
--------- --------
(THOUSANDS)
Net loss ....................................... $(15,045) $(15,282)
-------- --------
Other comprehensive loss, net of tax:
Derivative fair value adjustment-interest
rate swaps, net of tax of $11,895 and
($66)at March 30, 2008 and April 1, 2007,
respectively................................... (19,406) 106
Derivative fair value adjustment-treasury
locks, net of tax of ($72) at
March 30, 2008 ................................ 117 --
-------- --------
Comprehensive loss ............................. $(34,334) $(15,176)
======== ========
NOTE 6. INVENTORIES
Inventories consisted of the following as of March 30, 2008 and December
31, 2007, respectively.
MARCH 30, DECEMBER 31,
2008 2007
--------- ---------
(THOUSANDS)
Finished goods ................................. $ 202,898 $ 241,511
Work-in process ................................ 33,788 26,291
Raw materials and supplies ..................... 73,791 72,950
--------- ---------
Total .......................................... 310,477 340,752
Less LIFO reserve .............................. (23,990) (23,840)
--------- ---------
Inventories .................................... $ 286,487 $ 316,912
========= =========
13
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 7. LONG-TERM DEBT
Long-term debt consists of the following at March 30, 2008 and December
31, 2007:
MARCH 30, DECEMBER 31,
2008 2007
----------- -----------
(THOUSANDS)
8% Senior Notes due 2008 ................... $ 4,874 $ 4,874
7 3/4% Senior Notes due 2014 ............... 250,568 250,590
Borrowings under the Senior Secured
Revolving Credit Facility ................. 279,000 122,000
Term Loan .................................. 965,287 965,362
Junior Lien Term Loan ...................... 325,000 325,000
Obligations under capital leases ........... 60,446 61,997
Industrial development revenue bonds
with various interest rates and
maturity dates to 2029 .................... 7,710 7,710
Chester Loan ............................... 7,483 8,241
Other notes payable ........................ 8,154 8,251
----------- -----------
Total .................................. 1,908,522 1,754,025
Less current maturities .................... (26,594) (24,630)
----------- -----------
Long-term debt less current maturities ..... $ 1,881,928 $ 1,729,395
=========== ===========
On February 22, 2007, BMCA entered into Senior Secured Credit Facilities
consisting of a $975.0 million Term Loan, a $600.0 million Senior Secured
Revolving Credit Facility and a $325.0 million bridge loan facility, which was
subsequently replaced by a $325.0 million Junior Lien Term Loan, which
collectively financed the purchase of Elk and repaid certain existing BMCA debt
facilities and Elk senior note debt.
As of March 30, 2008, the Company had total outstanding consolidated
indebtedness of $1,961.4 million, which included $52.8 million of demand loans
to its parent corporation and $26.6 million that matures prior to the end of the
first quarter of 2009. The Company anticipates funding these obligations
principally from its cash and cash equivalents on hand, cash flow from
operations and/or borrowings under its Senior Secured Revolving Credit Facility.
As of March 30, 2008, the Company was in compliance with all covenants
under the Senior Secured Revolving Credit Facility, the Term Loan, the Junior
Lien Term Loan and the indentures governing its 8% Senior Notes due 2008 (the
"2008 Notes") and its 7 3/4% Senior Notes due 2014 (the "2014 Notes" and
together with the 2008 Notes, the "Senior Notes"). As of March 30, 2008, the net
book value of the collateral securing the Senior Secured Revolving Credit
Facility Collateral (as defined in the Senior Secured Revolving Credit Facility)
and the Term Loan Collateral (as defined in the Term Loan) was $810.8 and
$1,677.9 million, respectively.
14
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 7. LONG-TERM DEBT - (CONTINUED)
At March 30, 2008, the Company had outstanding letters of credit of
approximately $56.0 million, which included approximately $10.7 million of
standby letters of credit related to certain obligations of G-I Holdings.
NOTE 8. HEDGING ACTIVITY
In March 2007, the Company entered into forward-starting Eurodollar rate,
or LIBOR, based pay fixed income interest rate swaps related to its Term Loan,
with an effective date of April 23, 2007 and a maturity date of April 23, 2012.
In October 2007, the Company entered into additional interest rate swaps related
to its Term Loan with an effective date of October 23, 2007 and a maturity date
of October 23, 2012 under terms similar to those of the Company's swaps entered
into in March 2007.
In accordance with SFAS No. 133, the Company's swaps are treated as cash
flow hedges. As of March 30, 2008, based on changes in the fair value of the
interest rate swaps, the Company recognized a cumulative fair value loss on its
interest rate swaps of $61.3 million to other liabilities, while the offset was
recognized as an other comprehensive loss, net of tax of $23.3 million. Amounts
may be reclassified from other comprehensive loss to interest expense if any
portion of the Company's swaps become ineffective. The Company does not
anticipate that any amount of swap-related interest expense will be reclassified
during its fiscal year ending December 31, 2008.
In July 2007, the Company began entering into treasury locks as additional
hedging instruments related to its Term Loan. On October 30, 2007, the Company
settled its open treasury lock hedging positions, which resulted in a fair value
loss and cash settlement. Pursuant to SFAS No. 133, the Company is amortizing
the loss into its statement of operations over the life of the Term Loan, of
which $0.2 million was amortized into interest expense in its first quarter
ended March 30, 2008.
NOTE 9. WARRANTY CLAIMS
The Company provides certain limited warranties covering most of its
residential roofing products for periods generally ranging from 20 to 50 years,
although certain product lines provide for a lifetime limited warranty. The
Company also offers certain limited warranties of varying duration covering most
of its commercial roofing products. Most of the Company's specialty building
products and accessories carry limited warranties for periods generally ranging
from 5 to 20 years, with lifetime limited warranties on certain products.
15
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 9. WARRANTY CLAIMS - (CONTINUED)
The accrual for product warranty claims consists of the following for the
first quarter ended March 30, 2008 and April 1, 2007, respectively:
MARCH 30, APRIL 1,
2008 2007
-------- --------
(THOUSANDS)
Beginning Balance .......................... $ 44,724 $ 26,971
Charged to cost of products sold ........... 4,765 3,770
Payments/deductions ........................ (3,174) (2,807)
Acquisition of Elk ......................... -- 13,675
-------- --------
Ending Balance ............................. $ 46,315 $ 41,609
======== ========
The Company offers extended warranty contracts on sales of its commercial
roofing products. The life of these commercial warranties range from 10 to 20
years. In addition, the Company offers enhanced warranties on certain of its
residential roofing products. These enhanced warranties are the "Golden Pledge
Warranty(TM)", "Peace of Mind(TM)" and "Peak Performance(R)" warranty programs.
All revenue for the sale of these warranty programs is deferred and amortized on
a straight-line basis over the average life of such warranty programs, which is
in accordance with the accounting prescribed by FASB Technical Bulletin ("FTB")
No. 90-1 "Accounting for Separately Priced Extended Warranty and Product
Maintenance Contracts" ("FTB No. 90-1"). Incremental direct costs associated
with the acquisition of the warranties are capitalized and amortized on a
straight-line basis over the average life of these warranty programs. Current
costs of services performed related to claims paid under these warranty programs
are expensed as incurred.
At March 30, 2008 and April 1, 2007, the Company had deferred revenue of
$71.5 and $64.9 million, of which $8.6 and $8.8 million is included in other
current liabilities and $62.9 and $56.1 million is included in other
liabilities, respectively. At March 30, 2008 and April 1, 2007, the Company also
had deferred costs of $49.1 and $41.5 million, of which $5.5 and $4.9 million is
included in other current assets and $43.6 and $36.6 million is included in
other assets, respectively.
NOTE 10. BENEFIT PLANS
Defined Benefit Plans
The Company provides a non-contributory defined benefit retirement plan
for certain hourly and salaried employees (the "Retirement Plan"). Benefits
under this plan are based on stated amounts for each year of service. The
Company's funding policy is consistent with the minimum funding requirements of
the Employee Retirement Income Security Act of 1974.
16
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 10. BENEFIT PLANS - (CONTINUED)
The Company's net periodic pension cost for the Retirement Plan included
the following components for the first quarter ended March 30, 2008 and April 1,
2007, respectively:
MARCH 30, APRIL 1,
2008 2007
--------- ---------
(THOUSANDS)
Service cost ............................... $ 430 $ 381
Interest cost .............................. 611 567
Expected return on plan assets ............. (792) (826)
Amortization of unrecognized prior
service cost .............................. 3 10
Amortization of net losses from
earlier periods ........................... 105 42
--------- ---------
Net periodic pension cost .................. $ 357 $ 174
========= =========
As of March 30, 2008, the Company expected to make pension contributions
of $1.3 million to the Retirement Plan in 2008, which is consistent with its
expectations as of December 31, 2007. The Company made a Retirement Plan
contribution of $0.2 million during the first quarter ended March 30, 2008.
Postretirement Medical and Life Insurance
The Company generally does not provide postretirement medical and life
insurance benefits, although it subsidizes such benefits for certain of its
employees and retirees. Such subsidies were reduced or ended as of January 1,
1997. Effective March 1, 2005, the Company amended the plan eliminating
postretirement medical benefits affecting all current and future retirees.
17
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 10. BENEFIT PLANS - (CONTINUED)
Net periodic postretirement benefit included the following components for
the first quarter ended March 30, 2008 and April 1, 2007, respectively:
MARCH 30, APRIL 1,
2008 2007
-------- --------
(THOUSANDS)
Service cost ................................. $ 3 $ 3
Interest cost ................................ 29 30
Amortization of unrecognized prior
service cost ................................ (143) (142)
Amortization of net gains from
earlier periods ............................. (56) (57)
-------- --------
Net periodic postretirement benefit .......... $ (167) $ (166)
======== ========
As of March 30, 2008, the Company expected to make aggregate benefit claim
payments of approximately $0.2 million during 2008, which are related to
postretirement life insurance expenses. This is consistent with the Company's
expectations as of December 31, 2007.
NOTE 11. 2001 LONG-TERM INCENTIVE PLAN
Incentive units granted under the 2001 Long-Term Incentive Plan are valued
at Book Value (as defined in the Plan) or the value of such incentive units
specified at the date of grant. Increases or decreases in the Book Value of
those incentive units result in a change in the measure of compensation for the
award. Compensation expense for the Company's incentive units was $0.4 and $0.2
million for the first quarter ended March 30, 2008 and April 1, 2007,
respectively.
The following is a summary of activity for incentive units related to the
2001 Long-Term Incentive Plan:
FIRST QUARTER YEAR-TO-DATE
MARCH 30, DECEMBER 31,
2008 2007
---------- ----------
Incentive Units outstanding, beginning
of period .................................... 99,120 98,633
Granted ........................................ 17,000 45,589
Exercised ...................................... (6,740) (38,387)
Forfeited ...................................... (5,555) (6,715)
---------- ----------
Incentive Units outstanding, end
of period .................................... 103,825 99,120
========== ==========
Vested Units outstanding, end of period ........ 41,251 38,750
========== ==========
18
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 11. 2001 LONG-TERM INCENTIVE PLAN - (CONTINUED)
The initial value of each of the 17,000 incentive units granted on January
1, 2008 was $592.01. The initial value of each of the 8,000 incentive units
granted on July 2, 2007 and the 37,589 incentive units granted on January 1,
2007 was $589.43 and $583.08, respectively.
NOTE 12. RELATED PARTY TRANSACTIONS
The Company makes loans to, and borrows from, its parent corporations from
time to time at prevailing market rates. As of March 30, 2008 and April 1, 2007,
BMCA Holdings Corporation owed the Company $56.3 and $56.1 million, including
interest of $1.0 and $0.8 million, respectively, and the Company owed BMCA
Holdings Corporation $52.8 and $52.8 million, with no unpaid interest,
respectively. Interest income on the Company's loans to BMCA Holdings
Corporation amounted to $1.0 and $1.3 million during the first quarter ended
March 30, 2008 and April 1, 2007, respectively. Interest expense on the
Company's loans from BMCA Holdings Corporation amounted to $1.0 and $1.2 million
during the first quarter ended March 30, 2008 and April 1, 2007, respectively.
Loans payable to/receivable from its parent corporations are due on demand and
provide each party with the right of offset of its related obligation to the
other party and are subject to limitations as outlined in the Senior Secured
Revolving Credit Facility, the Term Loan, the Junior Lien Term Loan and the
Senior Notes. Under the terms of the Senior Secured Revolving Credit Facility
and the indentures governing the Company's Senior Notes at March 30, 2008, the
Company could repay demand loans to its parent corporation amounting to $52.8
million, subject to certain conditions. The Company also makes non-interest
bearing advances to affiliates, of which no balance was outstanding as of March
30, 2008 and April 1, 2007. In addition, the Company did not owe any loans or
enter into any lending activities with other affiliates.
The Company has a management agreement with ISP Management Company, Inc.,
a subsidiary of International Specialty Products Inc. (which, together with its
subsidiaries, is referred to as "ISP"), an affiliate, (the "ISP Management
Agreement") to provide the Company with certain management services. Based on
services provided to the Company in 2008 under the ISP Management Agreement, the
aggregate amount payable to ISP Management Company, Inc. under the ISP
Management Agreement for 2008, inclusive of the services provided to G-I
Holdings, is not yet available; however, after adjusting for inflationary
factors, it is currently estimated to be similar to the $6.7 million paid in
2007. The Company does not expect any changes to the ISP Management Agreement to
have a material impact on the Company's results of operations.
The Company and its subsidiaries purchase a substantial portion of their
headlap roofing granules, colored roofing granules and algae-resistant granules
under a long-term requirements contract with ISP Minerals Inc. ("ISP Minerals"),
an affiliate of BMCA and also of ISP. The amount of mineral
19
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 12. RELATED PARTY TRANSACTIONS - (CONTINUED)
products purchased each year under the Minerals contract is based on current
demand and is not subject to minimum purchase requirements. For the first
quarter ended March 30, 2008 and April 1, 2007, the Company purchased $26.3 and
$26.5 million, respectively, of roofing granules from ISP Minerals.
Included in noncurrent assets as a tax receivable from parent corporation
on the Company's consolidated balance sheets is $10.0 and $10.0 million at March
30, 2008 and December 31, 2007, respectively, representing amounts paid in
excess of amounts due to G-I Holdings with respect to 2006 under the Tax Sharing
Agreement (as defined). These amounts are included in the increase (decrease) in
net payable to related parties/parent corporations in the consolidated statement
of cash flows.
NOTE 13. CONTINGENCIES
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 indirect parent, G-I Holdings. As of March 30, 1997, the Company
paid all of its assumed liabilities for Asbestos Claims. G-I Holdings has agreed
to indemnify the Company against any other existing or future claims related to
asbestos-related liabilities if asserted against the Company. In January 2001,
G-I Holdings filed a voluntary petition for reorganization under Chapter 11 of
the U.S. Bankruptcy Code due to Asbestos Claims. Most Asbestos Claims do not
specify the amount of damages sought, and the value of the Asbestos Claims
asserted against G-I Holdings is a contested issue in that bankruptcy which
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 BMCA Holdings
Corporation's common stock and its indirect holdings of the Company's common
stock. Such action could result in a change of control of the Company. In
addition, those creditors may attempt to assert Asbestos Claims against the
Company. (Approximately 1,900 Asbestos Claims were filed against the Company
prior to February 2, 2001.) The Company believes that it will not sustain any
liability in connection with these or any other Asbestos Claims. 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 or prosecuting an Asbestos Claim against the Company. By oral opinion
on June 22, 2001, and written order entered February 22, 2002, the Bankruptcy
Court converted the temporary restraints into a preliminary injunction,
prohibiting the bringing or prosecution of any such Asbestos Claims against the
Company.
20
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 13. CONTINGENCIES - (CONTINUED)
On February 7, 2001, G-I Holdings filed an action in the United States
Bankruptcy Court for the District of New Jersey seeking a declaratory judgment
that BMCA has no successor liability for Asbestos Claims against G-I Holdings
and that it is not the alter ego of G-I Holdings (the "BMCA Action"). One of the
parties to this matter, the Official Committee of Asbestos Claimants (the
"creditors' committee"), subsequently filed a counterclaim against the Company
seeking a declaration that BMCA has successor liability for Asbestos Claims
against G-I Holdings and that it is the alter ego of G-I Holdings. On May 13,
2003, the United States District Court for the District of New Jersey overseeing
the G-I Holdings' Bankruptcy Court withdrew the reference of the BMCA Action
from the Bankruptcy Court, and this matter will therefore be heard by the
District Court. The Company believes it will prevail on its claim for a
declaratory judgment. Although the Company believes its claims are meritorious
and that it does not have asbestos-related liability, it is not possible to
predict the outcome of this litigation, or, if it does not prevail, the outcome
of any subsequent litigation regarding the continuation of the preliminary
injunction and/or prosecution of Asbestos Claims against the Company.
On or about February 8, 2001, the creditors' committee filed a complaint
in the United States Bankruptcy Court, District of New Jersey against G-I
Holdings and the Company. The complaint requests substantive consolidation of
BMCA with G-I Holdings or an order directing G-I Holdings to cause BMCA to file
for bankruptcy protection. The Company and G-I Holdings intend to vigorously
defend the lawsuit. The plaintiffs also filed for interim relief absent the
granting of their requested relief described above. On March 21, 2001, the
Bankruptcy Court denied plaintiffs' application for interim relief. In November
2002, the creditors' committee, joined in by the legal representative of future
demand holders, filed a motion for appointment of a trustee in the G-I Holdings'
bankruptcy. In December 2002, the Bankruptcy Court denied the motion. The
creditors' committee appealed the ruling to the United States District Court,
which denied the appeal on June 27, 2003. The creditors' committee appealed the
denial to the Third Circuit Court of Appeals, which denied the appeal on
September 24, 2004. The creditors' committee filed a petition with the Third
Circuit Court of Appeals for a rehearing of its denial of the creditors'
committee's appeal, which was denied by the Court of Appeals on October 26,
2004.
On July 7, 2004, the Bankruptcy Court entered an order authorizing the
creditors' committee to commence an adversary proceeding against the Company and
others challenging, as a fraudulent conveyance, certain transactions entered
into in connection with the Company's formation in 1994, in which G-I Holdings
caused to be transferred to the Company all of its roofing business and assets
and in which the Company assumed certain liabilities relating to those assets,
including a specified amount of asbestos liabilities (the "1994 transaction").
The Bankruptcy Court also permitted the creditors' committee to pursue a claim
against holders of the Company's bank and bond debt outstanding in 2000, seeking
recovery from them, based on the creditors'
21
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 13. CONTINGENCIES - (CONTINUED)
committee's theory that the 1994 transaction was a fraudulent conveyance. On
July 20, 2004, the creditors' committee appealed certain aspects of the
Bankruptcy Court's order (and a June 8, 2004 decision upon which the order was
based). G-I Holdings, the holders of the Company's bank and bond debt and BMCA
cross-appealed. The District Court entered an order on June 21, 2006 affirming
in part and vacating in part the Bankruptcy Court's July 7, 2004 order. Among
other things, the District Court vacated that aspect of the Bankruptcy Court's
order authorizing the creditors' committee to pursue avoidance claims against
the Company and the holders of the Company's bank and bond debt as of 2000. This
issue has been remanded to the Bankruptcy Court for further proceedings
consistent with the District Court's opinion. The Company believes the
creditors' committee's avoidance claims are without merit and that the
Bankruptcy Court should not permit the committee to pursue such claims against
the Company and the holders of its bank and bond debt as of 2000.
In March 2007, after participating in a mediation which resulted in the
parties agreeing to an outline of the principal terms of a settlement of the G-I
Holdings bankruptcy and all related litigations, the parties agreed to a stay of
proceedings pending the completion of their negotiations. The judges presiding
over the G-I Holdings bankruptcy proceeding and the related litigations,
including the BMCA Action and the fraudulent conveyance action, each entered
stipulated orders dated March 22, 2007, March 23, 2007 and April 4, 2007,
respectively, implementing the stay. By notices dated February 1, 2008, the
creditors' committee and legal representative of present and future holders of
asbestos-related demands elected to terminate the stay of proceedings in the G-I
Holdings bankruptcy and related litigation. While the parties nevertheless
continue to engage in settlement discussions, there can be no assurance of a
settlement of any claims.
If the Company is not successful in defending against one or more of these
claims, the Company may be forced to file for bankruptcy protection and/or
contribute all or a substantial portion of its assets to satisfy the claims of
G-I Holdings' creditors. Either of these events, or the substantive
consolidation of G-I Holdings and the Company, would weaken its operations and
cause it to divert a material amount of its cash flow to satisfy the asbestos
claims of G-I Holdings and may render it unable to pay interest or principal on
its credit obligations.
Tax Claims Against G-I Holdings
On September 15, 1997, G-I Holdings received a notice from the Internal
Revenue Service (the "IRS") of a deficiency in the amount of $84.4 million
(after taking into account the use of net operating losses and foreign tax
credits otherwise available for use in later years) in connection with the
formation in 1990 of Rhone-Poulenc Surfactants and Specialties, L.P. (the
"surfactants partnership"), a partnership in which G-I Holdings held an
22
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 13. CONTINGENCIES - (CONTINUED)
interest. On September 21, 2001, the IRS filed a proof of claim with respect to
such deficiency against G-I Holdings in the G-I Holdings' bankruptcy. If such
proof of claim is sustained, the Company and/or certain of the Company's
subsidiaries together with G-I Holdings and several current and former
subsidiaries of G-I Holdings could be severally liable for those taxes and
interest. G-I Holdings has filed an objection to the proof of claim, which is
the subject of an adversary proceeding pending in the United States District
Court for the District of New Jersey. By opinion and order dated September 8,
2006, the District Court ruled on the parties' respective motions for Partial
Summary Judgment, granting the government summary judgment on the issue of
"adequate disclosure" for statute of limitation purposes and denying G-I
Holdings summary judgment on its other statute of limitations defense (finding
material issues of fact that must be tried). If the IRS were to prevail for the
years in which the Company and/or certain of its subsidiaries were not part of
the G-I Holdings Group, the Company nevertheless could be 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. In an opinion dated June 8, 2007, the District Court decided that
G-I Holdings cannot avail itself of the "binding contract" transitional relief
with respect to the 1999 distribution of U.S. Treasury Bonds to G-I Holdings.
The Company believes that it will not be required to pay any incremental income
tax to the Federal government with respect to this matter and that its ultimate
disposition will not have a material adverse effect on its business, financial
position or results of operations.
For a further discussion with respect to the history of the foregoing
litigation, and asbestos-related matters, see Notes 8, 10, 13, and 20 to the
consolidated financial statements contained in the Company's 2007 Form 10-K.
Environmental Litigation
The Company, together with other companies, is a party to a variety of
proceedings and lawsuits involving environmental matters under the U.S.
Comprehensive Environmental Response Compensation and Liability Act, and similar
state laws, in which recovery is sought for the cost of cleanup of contaminated
sites or remedial obligations are imposed, a number of which are in the early
stages or have been dormant for protracted periods. Most of these environmental
claims do not seek to recover an amount of specific damages. 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. While
the Company cannot predict whether adverse decisions or events can occur in the
future, the Company believes that the ultimate disposition of such matters will
not have a material adverse effect on the liquidity, results of operations, cash
flows or financial position of the Company.
23
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 13. CONTINGENCIES - (CONTINUED)
Other Contingencies
In the ordinary course of business, the Company has several supply
agreements that include minimum annual purchase requirements. In the event these
purchase requirements are not met, the Company may be required to make payments
under these supply agreements.
NOTE 14. GUARANTOR FINANCIAL INFORMATION
At March 30, 2008, all of the Company's subsidiaries, including Elk, each
of which is wholly-owned by the Company, are guarantors under the Company's
Senior Secured Revolving Credit Facility, the Term Loan, the Junior Lien Term
Loan and the indentures governing the Senior Notes. These guarantees are full,
unconditional and joint and several. In addition, Building Materials
Manufacturing Corporation, a wholly-owned subsidiary of the Company, was a
co-obligor on the 8% Senior Notes due 2007, which were redeemed during 2007. In
2007, BMCA Acquisition Inc., the direct parent of Elk, and Elk, as a result of
its merger with BMCA Acquisition Sub, became co-obligors on the Senior Secured
Revolving Credit Facility, the Term Loan and the Junior Lien Term Loan.
Presented below is condensed consolidating financial information for the
Company, the co-obligor subsidiaries and the guarantor subsidiaries. This
financial information should be read in conjunction with the consolidated
financial statements and other notes related thereto. Separate financial
statements for the Company and the guarantor subsidiaries are not included
herein, because the guarantees are full, unconditional and joint and several.
24
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 14. GUARANTOR FINANCIAL INFORMATION - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FIRST QUARTER ENDED MARCH 30, 2008
(THOUSANDS)
(UNAUDITED)
Parent Co-Obligor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
----------- ----------- ----------- ----------- -----------
Net sales ................................. $ 545,952 $ 10,140 $ 14,184 $ -- $ 570,276
Intercompany net sales .................... -- 151,167 866,794 (1,017,961) --
----------- ----------- ----------- ----------- -----------
Total net sales ....................... 545,952 161,307 880,978 (1,017,961) 570,276
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Cost of products sold ................... 473,850 158,827 810,199 (1,017,961) 424,915
Selling, general and
administrative ........................ 58,723 7,676 39,410 -- 105,809
Amortization of intangible
assets ................................ -- 2,846 -- -- 2,846
Restructuring and other
expenses .............................. -- 1,582 19,243 -- 20,825
Other expense, net ...................... 619 60 329 -- 1,008
----------- ----------- ----------- ----------- -----------
Total costs and expenses, net ......... 533,192 170,991 869,181 (1,017,961) 555,403
----------- ----------- ----------- ----------- -----------
Income (loss) before equity in
earnings of subsidiaries,
interest expense and income
taxes ................................... 12,760 (9,684) 11,797 -- 14,873
Equity in earnings of
subsidiaries ............................ (7,709) -- -- 7,709 --
Interest expense .......................... (24,946) (4,056) (10,863) -- (39,865)
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes.......... (19,895) (13,740) 934 7,709 (24,992)
Income tax (expense)
benefit ................................. 4,850 5,469 (372) -- 9,947
----------- ----------- ----------- ----------- -----------
Net income (loss) ......................... $ (15,045) $ (8,271) $ 562 $ 7,709 $ (15,045)
=========== =========== =========== =========== ===========
25
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 14. GUARANTOR FINANCIAL INFORMATION - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FIRST QUARTER ENDED APRIL 1, 2007
(THOUSANDS)
(UNAUDITED)
Parent Co-Obligor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- --------- --------- --------- ---------
Net sales ................................. $ 413,932 $ 93,082 $ 22,976 $ -- $ 529,990
Intercompany net sales .................... -- 316,640 359,328 (675,968) --
--------- --------- --------- --------- ---------
Total net sales ....................... 413,932 409,722 382,304 (675,968) 529,990
--------- --------- --------- --------- ---------
Costs and expenses:
Cost of products sold ................... 346,506 347,272 375,127 (675,968) 392,937
Selling, general and
administrative ......................... 57,078 46,372 7,710 -- 111,160
Other (income) expense, net ............. 366 58 (5) -- 419
--------- --------- --------- --------- ---------
Total costs and expenses, net ......... 403,950 393,702 382,832 (675,968) 504,516
--------- --------- --------- --------- ---------
Income (loss) before equity in
earnings of subsidiaries,
interest expense and income
taxes .................................... 9,982 16,020 (528) -- 25,474
Equity in earnings of
subsidiaries ............................. (5,285) -- -- 5,285 --
Interest expense .......................... (25,553) (16,515) (7,210) -- (49,278)
--------- --------- --------- --------- ---------
Income (loss) before income taxes.......... (20,856) (495) (7,738) 5,285 (23,804)
Income tax benefit ........................ 5,574 178 2,770 -- 8,522
--------- --------- --------- --------- ---------
Net income (loss) ......................... $ (15,282) $ (317) $ (4,968) $ 5,285 $ (15,282)
========= ========= ========= ========= =========
26
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 14. GUARANTOR FINANCIAL INFORMATION - (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 30, 2008
(THOUSANDS)
(UNAUDITED)
Parent Co-Obligor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
----------- ----------- ----------- ----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents .................... $ 20,364 $ 151 $ 229 $ -- $ 20,744
Accounts receivable, trade, net .............. 376,131 9,174 9,999 -- 395,304
Accounts receivable, other ................... 2,023 1,087 4,965 -- 8,075
Income tax receivable ........................ -- 11,837 -- -- 11,837
Inventories, net ............................. -- 70,808 215,679 -- 286,487
Deferred income tax assets ................... 37,754 -- -- -- 37,754
Other current assets ......................... 5,922 826 12,697 -- 19,445
----------- ----------- ----------- ----------- -----------
Total Current Assets ....................... 442,194 93,883 243,569 -- 779,646
Investment in subsidiaries ..................... 1,549,315 -- -- (1,549,315) --
Intercompany loans including accrued
interest ..................................... 911,776 (302,386) (609,390) -- --
Due from/(to) subsidiaries, net ................ (997,064) 148,006 849,058 -- --
Property, plant and equipment, net.. ........... -- 293,883 370,253 -- 664,136
Goodwill ....................................... 40,080 589,170 24,714 -- 653,964
Intangible assets, net ......................... -- 204,789 -- -- 204,789
Income tax receivable from parent
corporation .................................. 10,016 -- -- -- 10,016
Other noncurrent assets ........................ 87,546 11,435 22,819 -- 121,800
----------- ----------- ----------- ----------- -----------
Total Assets ................................... $ 2,043,863 $ 1,038,780 $ 901,023 $(1,549,315) $ 2,434,351
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt ......... $ 14,527 $ 672 $ 11,395 $ -- $ 26,594
Accounts payable ............................. -- 41,695 130,573 -- 172,268
Payable to related parties ................... 550 -- 20,751 -- 21,301
Loans payable to parent corporation .......... 52,840 -- -- -- 52,840
Accrued liabilities .......................... 57,944 15,174 58,563 -- 131,681
Product warranty claims ...................... 12,600 3,600 -- -- 16,200
Discontinued operations - current
liabilities ................................. -- 560 -- -- 560
----------- ----------- ----------- ----------- -----------
Total Current Liabilities .................. 138,461 61,701 221,282 -- 421,444
Long-term debt less current maturities ......... 1,810,201 4,220 67,507 -- 1,881,928
Product warranty claims ........................ 27,766 2,249 100 -- 30,115
Deferred income tax liabilities ................ 37,530 -- -- -- 37,530
Other liabilities .............................. 160,595 9,989 23,440 -- 194,024
----------- ----------- ----------- ----------- -----------
Total Liabilities .............................. 2,174,553 78,159 312,329 -- 2,565,041
Total Stockholders' Equity (Deficit) ........... (130,690) 960,621 588,694 (1,549,315) (130,690)
----------- ----------- ----------- ----------- -----------
Total Liabilities and Stockholders'
Equity (Deficit) .......................... $ 2,043,863 $ 1,038,780 $ 901,023 $(1,549,315) $ 2,434,351
=========== =========== =========== =========== ===========
27
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 14. GUARANTOR FINANCIAL INFORMATION - (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2007
(THOUSANDS)
Parent Co-Obligor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
----------- ----------- ----------- ----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents .................... $ -- $ 1,936 $ 4,388 $ -- $ 6,324
Accounts receivable, trade, net .............. 198,781 3,753 8,323 -- 210,857
Accounts receivable, other ................... 2,229 4,651 3,912 -- 10,792
Income tax receivable ........................ -- 11,968 -- -- 11,968
Inventories, net ............................. -- 89,735 227,177 -- 316,912
Deferred income tax assets ................... 38,017 -- -- -- 38,017
Other current assets ......................... 5,644 1,985 6,069 -- 13,698
----------- ----------- ----------- ----------- -----------
Total Current Assets ....................... 244,671 114,028 249,869 -- 608,568
Investment in subsidiaries ..................... 1,557,024 -- -- (1,557,024) --
Intercompany loans including accrued
interest ..................................... 767,084 (194,715) (572,369) -- --
Due from/(to) subsidiaries, net ................ (787,818) 13,469 774,349 -- --
Property, plant and equipment, net ............. -- 297,942 374,871 -- 672,813
Goodwill ....................................... 40,080 590,405 24,715 -- 655,200
Intangible assets, net ......................... -- 207,635 -- -- 207,635
Income tax receivable from parent
corporation .................................. 10,016 -- -- -- 10,016
Other noncurrent assets ........................ 86,604 11,963 21,592 -- 120,159
----------- ----------- ----------- ----------- -----------
Total Assets ................................... $ 1,917,661 $ 1,040,727 $ 873,027 $(1,557,024) $ 2,274,391
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt ......... $ 14,530 $ 670 $ 9,430 $ -- $ 24,630
Accounts payable ............................. 21 32,026 110,203 -- 142,250
Payable to related parties ................... 992 -- 15,141 -- 16,133
Loans payable to parent corporation .......... 52,840 -- -- -- 52,840
Accrued liabilities .......................... 63,402 18,412 54,162 -- 135,976
Product warranty claims ...................... 13,500 -- -- -- 13,500
Discontinued operations - current
liabilities ................................. -- 560 -- -- 560
----------- ----------- ----------- ----------- -----------
Total Current Liabilities .................. 145,285 51,668 188,936 -- 385,889
Long-term debt ................................. 1,653,298 4,400 71,697 -- 1,729,395
Product warranty claims ........................ 25,755 5,369 100 -- 31,224
Deferred income tax liabilities................. 60,869 -- -- -- 60,869
Other liabilities .............................. 128,772 10,397 24,163 -- 163,332
----------- ----------- ----------- ----------- -----------
Total Liabilities .............................. 2,013,979 71,834 284,896 -- 2,370,709
Total Stockholders' Equity (Deficit) ........... (96,318) 968,893 588,131 (1,557,024) (96,318)
----------- ----------- ----------- ----------- -----------
Total Liabilities and Stockholders'
Equity (Deficit) ............................. $ 1,917,661 $ 1,040,727 $ 873,027 $(1,557,024) $ 2,274,391
=========== =========== =========== =========== ===========
28
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 14. GUARANTOR FINANCIAL INFORMATION - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FIRST QUARTER ENDED MARCH 30, 2008
(THOUSANDS)
(UNAUDITED)
Parent Co-Obligor Guarantor
Company Subsidiary Subsidiaries Consolidated
--------- --------- --------- ---------
Cash and cash equivalents, beginning of period ......... $ -- $ 1,936 $ 4,388 $ 6,324
--------- --------- --------- ---------
Cash provided by (used in) operating activities:
Net income (loss) .................................... (7,336) (8,271) 562 (15,045)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation ....................................... -- 6,973 10,868 17,841
Amortization of intangible and other assets ........ -- 2,846 917 3,763
Restructuring and other expenses ................... 1,088 1,582 25,354 28,024
Deferred income taxes .............................. (11,253) -- -- (11,253)
Noncash interest charges ........................... 1,794 353 105 2,252
(Increase) decrease in working capital items ......... (182,901) 24,157 517 (158,227)
Increase in product warranty claims .................. 1,111 480 -- 1,591
(Increase) decrease in other assets .................. (2,007) 38 (2,169) (4,138)
Increase in other liabilities ........................ 522 15 47 584
Increase (decrease) in net payable to
related parties/parent corporations ................ 63,021 (26,864) (30,989) 5,168
Other, net ........................................... -- (2) (744) (746)
--------- --------- --------- ---------
Net cash provided by (used in) operating activities .... (135,961) 1,307 4,468 (130,186)
--------- --------- --------- ---------
Cash used in investing activities:
Capital expenditures ................................. -- (2,914) (6,320) (9,234)
--------- --------- --------- ---------
Net cash used in investing activities .................. -- (2,914) (6,320) (9,234)
--------- --------- --------- ---------
Cash provided by (used in) financing activities:
Proceeds from issuance of long-term debt ............. 266,000 -- -- 266,000
Principal repayments of capital leases ............... -- -- (1,551) (1,551)
Repayments of long-term debt ......................... (109,075) (178) (756) (110,009)
Loan to parent corporation ........................... (38) -- -- (38)
Financing fees and expenses .......................... (562) -- -- (562)
--------- --------- --------- ---------
Net cash provided by (used in) financing activities .... 156,325 (178) (2,307) 153,840
--------- --------- --------- ---------
Net change in cash and cash equivalents ................ 20,364 (1,785) (4,159) 14,420
--------- --------- --------- ---------
Cash and cash equivalents, end of period ............... $ 20,364 $ 151 $ 229 $ 20,744
========= ========= ========= =========
29
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 14. GUARANTOR FINANCIAL INFORMATION - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FIRST QUARTER ENDED APRIL 1, 2007
(THOUSANDS)
(UNAUDITED)
Parent Co-Obligor Guarantor
Company Subsidiaries Subsidiaries Consolidated
----------- ----------- ----------- -----------
Cash and cash equivalents, beginning of period ...... $ 18 $ 1,870 $ 5,889 $ 7,777
----------- ----------- ----------- -----------
Cash provided by (used in) operating activities:
Net loss .......................................... (9,997) (317) (4,968) (15,282)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation .................................... -- 12,452 2,587 15,039
Amortization .................................... -- 949 -- 949
Deferred income taxes ........................... 3,079 -- -- 3,079
Noncash interest charges ........................ 3,920 136 324 4,380
(Increase) decrease in working capital
items ........................................... (138,342) (57,800) 20,234 (175,908)
Increase (decrease)in product warranty
claims .......................................... 739 249 (26) 962
(Increase) decrease in other assets ............... (1,055) 925 (352) (482)
Increase (decrease) in other liabilities. ......... 684 812 (2) 1,494
Increase (decrease) in net payable to
related parties/parent corporations ............. (1,324,864) 1,332,590 (9,362) (1,636)
Other, net ........................................ 1 95 169 265
----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities ........................................ (1,465,835) 1,290,091 8,604 (167,140)
----------- ----------- ----------- -----------
Cash used in investing activities:
Acquisition of ElkCorp, net of cash
acquired of $0.1 million ......................... -- (974,309) -- (974,309)
Capital expenditures and acquisitions ............. -- (21,202) (8,665) (29,867)
----------- ----------- ----------- -----------
Net cash used in investing activities ............... -- (995,511) (8,665) (1,004,176)
----------- ----------- ----------- -----------
Cash provided by (used in) financing activities:
Proceeds from issuance of long-term debt........... 1,949,849 25,900 -- 1,975,749
Repayments of long-term debt ...................... (450,124) (322,122) -- (772,246)
Distribution to parent corporation ................ (171) -- -- (171)
Loan to parent corporation ........................ (49) -- -- (49)
Financing fees and expenses ....................... (33,688) -- -- (33,688)
----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities ........................................ 1,465,817 (296,222) -- 1,169,595
----------- ----------- ----------- -----------
Net change in cash and cash equivalents ............. (18) (1,642) (61) (1,721)
----------- ----------- ----------- -----------
Cash and cash equivalents, end of period ............ $ -- $ 228 $ 5,828 $ 6,056
=========== =========== =========== ===========
30
BUILDING MATERIALS CORPORATION OF AMERICA
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
We are a leading national manufacturer of a complete line of residential
roofing products. On February 22, 2007, which we refer to as the date of
acquisition, a subsidiary of Building Materials Corporation of America, which we
refer to as BMCA, acquired approximately 90% of ElkCorp, which we refer to as
Elk, a Dallas, Texas-based manufacturer of roofing products and building
materials, and the remaining common shares of Elk were acquired on March 26,
2007, resulting in Elk becoming an indirect wholly-owned subsidiary of BMCA.
We believe the Elk acquisition has strategically positioned us for future
growth in the roofing industry and building products market. We also believe the
acquisition of Elk has allowed us to build on our market leadership position and
create comprehensive market leading product offerings. Our principal lines of
residential roofing shingles are the Timberline(R) series, the Sovereign(R)
series, Premium Designer Shingles and Specialty Shingles. The Timberline(R)
series includes the Timberline(R) Prestique(R) 30 High-Definition(R),
Timberline(R) Natural Shadow(TM), Timberline(R) Prestique(R) 40
High-Definition(R), Timberline(R) Prestique(R) Lifetime High-Definition(R) and
Timberline(R) Prestique(R) Grande shingles. Our premium designer shingles
include the Slateline(R), Grand Slate(TM), Grand Sequoia(R), Grand Canyon(TM),
Country Mansion(R), Capstone(R), and Camelot(TM) shingles. We sell specialty
shingles under the TruSlate(TM) product line, which offers a slate shingle
system. We supply the major components necessary to install a complete roofing
system from underlayments to attic ventilation products and accessories, under
the Weather Stopper(R) 3-Part Roof Protection System. In recent years, we have
improved our sales mix of residential roofing products by increasing our
emphasis on laminated shingles and accessory products (the Timberline(R) series,
premium designer shingles and specialty shingles), which are generally sold at
higher prices and more attractive profit margins than our standard asphalt strip
shingle products (the Sovereign(R) series). See Acquisition. Unless otherwise
indicated by the context, "we," "us," and "our" refer to Building Materials
Corporation of America and its consolidated subsidiaries, including Elk.
CRITICAL ACCOUNTING POLICIES
There have been no significant changes to our Critical Accounting Policies
during the first quarter ended March 30, 2008. For a further discussion on our
Critical Accounting Policies, reference is made to Management's Discussion and
Analysis of Financial Condition and Results of Operations, "Critical Accounting
Policies" in our annual report on Form 10-K for the fiscal year ended December
31, 2007, which was filed with the Securities and Exchange Commission on March
28, 2008, which we refer to as the 2007 Form 10-K.
31
BUILDING MATERIALS CORPORATION OF AMERICA
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
RESULTS OF OPERATIONS
Roofing products sales is our dominant business, typically accounting for
approximately 95% of our consolidated net sales. The main drivers of our roofing
business include: the nation's aging housing stock; existing home sales; new
home construction; larger new homes; increased home ownership rates; and extreme
weather and energy concerns. Our roofing business is also affected by raw
material costs, including asphalt and other petroleum-based raw materials, as
well as energy, and transportation and distribution costs.
First Quarter 2008 Compared With
First Quarter 2007
We recorded a net loss of $15.0 million in the first quarter of 2008
compared to a net loss of $15.3 million in the first quarter of 2007. Our
reported net loss of $15.0 million in the first quarter of 2008 included $16.9
million of after-tax ($28.0 million pre-tax) restructuring and other expenses,
of which $0.7 million after-tax ($1.1 million pre-tax) was included as a
reduction of net sales and $3.7 million after-tax ($6.1 million pre-tax) was
included in cost of products sold related to the integration of Elk. Included in
restructuring and other expenses are plant closing expenses related to the
closure of several manufacturing facilities, integration-related costs and the
write-down of selected inventories. Excluding restructuring and other expenses,
first quarter of 2008 net income was $1.9 million as compared to the first
quarter of 2007 net loss of $0.4 million after adjusting 2007 net loss for debt
restructuring costs included in interest expense of $14.9 million after-tax
($23.2 million pre-tax).
Net sales for the first quarter of 2008 were $570.3 million compared to
first quarter of 2007 net sales of $530.0 million. The increase in net sales was
primarily attributable to the 2008 net sales including a full quarter of Elk net
sales as compared to 2007 net sales, which only included Elk net sales since the
date of acquisition.
Income before interest expense and income taxes in the first quarter of
2008 was $14.9 million compared to $25.5 million in the first quarter of 2007.
Income before interest expense and income taxes for the first quarter of 2008
included $28.0 million of restructuring and other expenses, of which $1.1
million was included as a reduction of net sales and $6.1 million was included
in cost of products sold. Excluding these items, first quarter of 2008 income
before interest and income taxes increased to $42.9 million, which was primarily
due to lower manufacturing costs and lower selling, general and administrative
expenses partially offset by higher raw material costs, including asphalt.
Interest expense in the first quarter of 2008 decreased to $39.9 million
as compared to $49.3 million in the first quarter of 2007, which included $23.2
million of debt restructuring costs related to the acquisition of Elk. The debt
restructuring costs in 2007 were comprised of tender premiums and the write-off
of the remaining deferred financing fees and discounts
32
BUILDING MATERIALS CORPORATION OF AMERICA
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
associated with certain of the then outstanding 8% Senior Notes due 2007, which
we refer to as the 2007 Notes, and the 8% Senior Notes due 2008, which we refer
to as the 2008 Notes, of BMCA and all of the then outstanding senior notes of
Elk. Excluding the impact of these debt restructuring costs, interest expense
for the first quarter of 2007 was $26.1 million. After excluding the debt
restructuring costs in 2007, the first quarter of 2008 increase in interest
expense was primarily due to higher average borrowings, partially offset by a
lower average interest rate. The higher average borrowings are primarily due to
the 2008 interest expense including a full quarter of interest associated with
borrowings related to the acquisition of Elk, while 2007 interest expense
included a partial quarter of interest expense associated with these borrowings.
Business Segment Information
Net Sales. Net sales of roofing products increased to $536.3 million for the
first quarter of 2008, as compared with $502.8 million for the first quarter of
2007. The increase in net sales of roofing products was primarily attributable
to the 2008 net sales of roofing products including a full quarter of Elk net
sales as compared to 2007 net sales of roofing products, which only included Elk
net sales since the date of acquisition. Net sales of specialty building
products and accessories increased to $34.0 million for the first quarter of
2008 as compared with $27.2 million for the first quarter of 2007. The increase
in net sales of specialty building products and accessories was primarily
attributable to 2008 net sales of specialty building products and accessories
including a full quarter of Elk net sales as compared to 2007, which included
net sales of specialty building products since the date of acquisition.
Gross Margin. Our overall gross margin was $145.4 million or 25.5% of net sales
for the first quarter of 2008 as compared with $137.1 million or 25.9% of net
sales for the first quarter of 2007. The increase in our overall gross margin is
primarily attributable to 2008 including a full quarter of Elk net sales as
compared to the 2007 results, which only included Elk net sales since the date
of acquisition and lower manufacturing costs partially offset by higher raw
material costs, including asphalt.
LIQUIDITY AND FINANCIAL CONDITION
Cash Flows and Cash Position
Sales of roofing products and specialty building products and accessories
in the northern regions of the United States generally decline in the late fall
and winter months due to cold weather. In addition, extreme weather conditions
can result in higher customer demand during our peak operating season depending
on the extent and severity of the damage from these extreme weather conditions.
Due to the seasonal demands of our business, together with extreme weather
conditions, we generally have
33
BUILDING MATERIALS CORPORATION OF AMERICA
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
negative cash flows from operations during the first six months of our fiscal
year. Our negative cash flows from operations are primarily driven by our cash
invested in both accounts receivable and inventories to meet these seasonal
operating demands. Generally, in the third and fourth quarters of our fiscal
year, our cash flows from operations become positive for each quarter, as our
investment in inventories and accounts receivable no longer continues to
increase, as is customary in the first six months of our fiscal year. Our
seasonal working capital needs, together with our debt service obligations,
capital expenditure requirements and other contracted arrangements, adversely
impact our liquidity during this period. We rely on our cash and cash
equivalents on hand and our $600.0 million Senior Secured Revolving Credit
Facility due February 2012, which we refer to as our Senior Secured Revolving
Credit Facility (see Long-Term Debt), to support our overall cash flow
requirements during these periods. We expect to continue to rely on our cash and
cash equivalents on hand and external financings to maintain operations over the
short and long-term and to continue to have access to the financing markets,
subject to the then prevailing market terms and conditions.
Net cash outflow from operating and investing activities was $139.4
million during the first quarter of 2008, including $130.2 million of cash used
in operations and the reinvestment of $9.2 million for capital programs.
Cash invested in additional working capital totaled $158.2 million during
the first quarter of 2008, reflecting an increase in total accounts receivable
of $181.7 million, due to the seasonality of our business, a $27.9 million
decrease in inventories primarily due to us reducing our capacity due to the
declining housing market, a $5.8 million increase in other current assets, a
$26.7 million increase in accounts payable and accrued liabilities and an
increase of $25.3 million in payments for restructuring and other expenses. The
net cash used in operating activities also included a $5.2 million net increase
in the payable to related parties/parent corporations, primarily attributable to
an increase in amounts due under our long-term granules supply agreement with an
affiliated company. In addition, net cash used in operating activities included
$28.0 million in restructuring and other expenses (see Restructuring and Other
Expenses below).
Net cash provided by financing activities totaled $153.8 million during
the first quarter of 2008, including $266.0 million of aggregate proceeds from
the issuance of long-term debt, related to first quarter of 2008 cumulative
borrowings under our Senior Secured Revolving Credit Facility. Financing
activities also included $110.0 million in aggregate repayments of long-term
debt, of which $109.0 million related to first quarter of 2008 cumulative
repayments under our Senior Secured Revolving Credit Facility. In addition,
financing activities included repayments of $1.5 million on our capital leases
and $0.6 million in financing fees and expenses primarily related to debt
restructuring costs.
34
BUILDING MATERIALS CORPORATION OF AMERICA
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
Acquisition
On February 22, 2007, a subsidiary of BMCA acquired approximately 90% of
ElkCorp common shares at a purchase price of $43.50 per share. On March 26,
2007, the remaining Elk common shares were acquired in a second step merger in
exchange for the right to receive $43.50 per share in cash, which resulted in
Elk becoming an indirect wholly-owned subsidiary of BMCA. The acquisition of the
Elk common shares was completed at a purchase price of approximately $945.3
million, net of $0.1 million of cash acquired and net of the repayment of $195.0
million of the then outstanding Elk senior notes, which were assumed in
connection with the acquisition and repaid in March 2007.
We financed the purchase of Elk, refinanced certain of BMCA's then
outstanding debt and repaid all of Elk's then outstanding senior notes of $195.0
million with the proceeds from our new senior secured credit facilities. Our new
senior secured credit facilities consist of a $600.0 million Senior Secured
Revolving Credit Facility, a $975.0 million Term Loan, which we refer to as the
Term Loan and a $325.0 million Junior Lien Term Loan Facility, which we refer to
as the Junior Lien Term Loan, and collectively with the Senior Secured Revolving
Credit Facility and the Term Loan, we refer to as the Senior Secured Credit
Facilities. See Note 7 to the Consolidated Financial Statements for a
description of the Senior Secured Credit Facilities.
The Elk acquisition was accounted for under the purchase method of
accounting as prescribed by Statement of Financial Accounting Standards, which
we refer to as SFAS, No. 141 "Business Combinations", which we refer to as SFAS
No. 141, which requires the total purchase price to be allocated to the fair
value of assets acquired and liabilities assumed based on their fair values at
the date of acquisition, with amounts exceeding their fair value being recorded
as goodwill. During the first quarter ended March 30, 2008, we completed our
purchase price allocation of the assets and liabilities acquired from Elk (see
table below). The operating results of Elk are included in our results of
operations from the date of acquisition.
The following table represents the final fair values of assets acquired
and liabilities assumed related to the acquisition of Elk as of the date of
acquisition with amounts paid in excess of their fair values being recorded as
goodwill.
Goodwill.................................. $ 589,170
==========
Total assets acquired..................... $1,411,910
Total liabilities assumed................. 466,514
----------
Net assets acquired....................... $ 945,396
==========
35
BUILDING MATERIALS CORPORATION OF AMERICA
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
During the second quarter of 2007, we initiated a restructuring plan,
which we refer to as the 2007 Restructuring Plan, which was formulated in
connection with the acquisition of Elk (see Restructuring and Other Expenses).
In connection with the Elk acquisition and pursuant to SFAS No. 141 and Emerging
Issues Task Force, which we refer to as EITF, No. 95-3 "Recognition of
Liabilities in Connection with a Purchase Business Combination", which we refer
to as EITF, No. 95-3, we identified $8.7 million in purchase accounting
adjustments, which related to employee severance payments to former Elk
employees and lease termination expenses. As of March 30, 2008, we had paid $2.9
million for severance costs and $0.8 million for lease termination expenses. We
expect to make approximately $5.0 million of lease termination payments through
2019. Our employee severance payments included the termination of approximately
130 Elk employees, including certain management positions, in the manufacturing
and selling and administrative areas.
Restructuring and Other Expenses
The 2007 Restructuring Plan was created to eliminate cost redundancies
recognized due to the acquisition of Elk and to reduce our current cost
structure. The 2007 Restructuring Plan is expected to be fully implemented by
the end of our fiscal year ending December 31, 2008. We account for our
restructuring activities in accordance with SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which we refer to as SFAS No. 146,
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets",
which we refer to as SFAS No. 144 and EITF No. 96-9 "Classification of Inventory
Markdowns and Other Costs Associated with Restructuring", which we refer to as
EITF No. 96-9.
2007 Restructuring Charges
In connection with the Elk acquisition, we identified $191.9 million in
restructuring and other expenses in our fiscal year ended December 31, 2007, of
which $97.0 million related to property, plant and equipment write-downs at
certain of our existing manufacturing facilities and $25.1 million related to
plant closing expenses. Restructuring and other expenses also included $2.0
million in employee severance payments and $67.8 million in integration-related
expenses, which primarily consisted of $24.3 million of inventory-related
write-downs, $15.1 million of restructuring-related sales discounts, $1.4
million of lease termination expenses and $27.0 million of other integration
expenses.
We recorded $181.0 million of the aforementioned restructuring and other
expenses in our statement of operations as of December 31, 2007, of which $15.1
million was reflected as a reduction in net sales due to restructuring-related
sales discounts, $24.3 million was charged to cost of products sold and $141.6
million was charged to restructuring and other expenses.
36
BUILDING MATERIALS CORPORATION OF AMERICA
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
Three-Months Ended March 30, 2008 Restructuring Charges
We identified an additional $26.2 million of restructuring and other
expenses in our first quarter ended March 30, 2008, which included $9.3 million
of plant closing expenses, $1.2 million in employee severance payments and $15.7
million in integration-related expenses. Integration-related expenses primarily
consisted of $6.1 million of inventory write-downs, $1.1 million of
restructuring-related sales discounts and $8.5 million of other integration
expenses.
We recorded an additional $28.0 million of restructuring and other
expenses in our statement of operations in the three-month period ended March
30, 2008, of which $1.1 million was reflected as a reduction in net sales due to
restructuring-related sales discounts, $6.1 million was charged to cost of
products sold and $20.8 million was charged to restructuring and other expenses.
We expect to incur the remaining $9.1 million of identified restructuring and
other expenses and make the remaining cash payments related to our accrual
during our fiscal year ending December 31, 2008.
The table below details our restructuring and other expense accruals and
charges made against the accrual during our first quarter of fiscal year ending
December 31, 2008:
PLANT EMPLOYEE
RESTRUCTURING AND CLOSING SEVERANCE INTEGRATION
OTHER EXPENSES EXPENSES PAYMENTS EXPENSES TOTAL
- ----------------- -------- -------- -------- --------
(THOUSANDS)
Beginning balance, as of
December 31, 2007 ............. $ 2,905 $ -- $ 10,945 $ 13,850
Current period costs
recognized due to the
acquisition of Elk ............ 10,783 1,165 16,076 28,024
Cash payments .................. (10,371) (1,165) (13,791) (25,327)
Amount charged to property,
plant and equipment for
asset write-down .............. (46) -- -- (46)
Amount charged to write-off
inventory ..................... (63) -- (846) (909)
Non-cash items ................. -- -- (133) (133)
-------- -------- -------- --------
Ending balance, as of
March 30, 2008 ................ $ 3,208 $ -- $ 12,251 $ 15,459
======== ======== ======== ========
The Company's aggregate employee severance payments included the
termination of approximately 100 BMCA employees, including certain management
positions, in the manufacturing and selling and administrative areas.
37
BUILDING MATERIALS CORPORATION OF AMERICA
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
Long-Term Debt
Long-term debt consists of the following at March 30, 2008 and December
31, 2007:
MARCH 30, DECEMBER 31,
2008 2007
----------- -----------
(THOUSANDS)
8% Senior Notes due 2008 ..................... $ 4,874 $ 4,874
7 3/4% Senior Notes due 2014 ................. 250,568 250,590
Borrowings under the Senior Secured
Revolving Credit Facility .................. 279,000 122,000
Term Loan .................................... 965,287 965,362
Junior Lien Term Loan ........................ 325,000 325,000
Obligations under capital leases ............. 60,446 61,997
Industrial development revenue bonds
with various interest rates and
maturity dates to 2029 ...................... 7,710 7,710
Chester Loan ................................. 7,483 8,241
Other notes payable .......................... 8,154 8,251
----------- -----------
Total .................................... 1,908,522 1,754,025
Less current maturities ...................... (26,594) (24,630)
----------- -----------
Long-term debt less current maturities ....... $ 1,881,928 $ 1,729,395
=========== ===========
On February 22, 2007, BMCA entered into Senior Secured Credit Facilities
consisting of a $975.0 million Term Loan, a $600.0 million Senior Secured
Revolving Credit Facility and a $325.0 million bridge loan facility, which was
subsequently replaced by a $325.0 million Junior Lien Term Loan, which
collectively financed the purchase of Elk and repaid certain existing BMCA debt
facilities and Elk senior note debt.
As of March 30, 2008, we had total outstanding consolidated indebtedness
of $1,961.4 million, which included $52.8 million of demand loans to our parent
corporation and $26.6 million that matures prior to the end of the first quarter
of 2009. We anticipate funding these obligations principally from our cash and
cash equivalents on hand, cash flow from operations and/or borrowings under our
Senior Secured Revolving Credit Facility.
As of March 30, 2008, we were in compliance with all covenants under the
Senior Secured Revolving Credit Facility, the Term Loan, the Junior Lien Term
Loan and the indentures governing our 2008 Notes and our 7 3/4% Senior Notes due
2014, which we refer to as the 2014 Notes and together with the 2008 Notes, the
Senior Notes. As of March 30, 2008, the net book value of the
38
BUILDING MATERIALS CORPORATION OF AMERICA
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
collateral securing the Senior Secured Revolving Credit Facility Collateral (as
defined in the Senior Secured Revolving Credit Facility) and the Term Loan
Collateral (as defined in the Term Loan) was $810.8 and $1,677.9 million,
respectively.
At March 30, 2008, we had outstanding letters of credit of approximately
$56.0 million, which included approximately $10.7 million of standby letters of
credit related to certain obligations of G-I Holdings.
Hedging Activity
In March 2007, we entered into forward-starting Eurodollar rate, or LIBOR,
based pay fixed income interest rate swaps related to our Term Loan, with an
effective date of April 23, 2007 and a maturity date of April 23, 2012. In
October 2007, we entered into additional interest rate swaps related to our Term
Loan with an effective date of October 23, 2007 and a maturity date of October
23, 2012 under terms similar to those of our swaps entered into in March 2007.
In accordance with SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities", our swaps are treated as cash flow hedges. As of March 30,
2008, based on changes in the fair value of the interest rate swaps, we
recognized a cumulative fair value loss on our interest rate swaps of $61.3
million to other liabilities, while the offset was recognized as an other
comprehensive loss, net of tax of $23.3 million. Amounts may be reclassified
from other comprehensive loss to interest expense if any portion of our swaps
become ineffective. We do not anticipate that any amount of swap-related
interest expense will be reclassified during our fiscal year ending December 31,
2008.
In July 2007, we began entering into treasury locks as additional hedging
instruments related to our Term Loan. On October 30, 2007, we settled our open
treasury lock hedging positions, which resulted in a fair value loss and cash
settlement. Pursuant to SFAS No. 133, we are amortizing the loss into our
statement of operations over the life of the Term Loan, of which $0.2 million
was amortized into interest expense in our first quarter ended March 30, 2008.
Intercompany Transactions
We make loans to, and borrow from, our parent corporations from time to
time at prevailing market rates. As of March 30, 2008 and April 1, 2007, BMCA
Holdings Corporation owed us $56.3 and $56.1 million, including interest of $1.0
and $0.8 million, respectively, and we owed BMCA Holdings Corporation $52.8 and
$52.8 million, with no unpaid interest, respectively. Interest income on our
loans to BMCA Holdings Corporation amounted to $1.0 and $1.3 million during the
first quarter ended March 30, 2008 and April 1, 2007, respectively. Interest
expense on our loans from BMCA Holdings Corporation
39
BUILDING MATERIALS CORPORATION OF AMERICA
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
amounted to $1.0 and $1.2 million during the first quarter ended March 30, 2008
and April 1, 2007, respectively. Loans payable to/receivable from parent
corporations are due on demand and provide each party with the right of offset
of its related obligation to the other party and are subject to limitations as
outlined in the Senior Secured Revolving Credit Facility, the Term Loan, the
Junior Lien Term Loan and the Senior Notes. Under the terms of the Senior
Secured Revolving Credit Facility and the indentures governing our Senior Notes
at March 30, 2008, we could repay demand loans to our parent corporation
amounting to $52.8 million, subject to certain conditions. We also make
non-interest bearing advances to affiliates, of which no balance was outstanding
as of March 30, 2008 and April 1, 2007. In addition, we did not owe any loans or
enter into any lending activities with other affiliates.
We have a management agreement, which we refer to as the ISP Management
Agreement, with ISP Management Company, Inc., a subsidiary of International
Specialty Products Inc., which, together with its subsidiaries, is referred to
as ISP, an affiliate, to provide us with certain management services. Based on
services provided to us in 2008 under the ISP Management Agreement, the
aggregate amount payable to ISP Management Company, Inc. under the ISP
Management Agreement for 2008, inclusive of the services provided to G-I
Holdings, is not yet available; however, after adjusting for inflationary
factors, it is currently estimated to be similar to the $6.7 million paid in
2007. We do not expect any changes to the ISP Management Agreement to have a
material impact on our results of operations.
We and our subsidiaries purchase a substantial portion of our headlap
roofing granules, colored roofing granules and algae-resistant granules under a
long-term requirements contract with ISP Minerals Inc., which we refer to as ISP
Minerals, an affiliate of BMCA and also of ISP. The amount of mineral products
purchased each year under the Minerals contract is based on current demand and
is not subject to minimum purchase requirements. For the first quarter ended
March 30, 2008 and April 1, 2007, we purchased $26.3 and $26.5 million,
respectively, of roofing granules from ISP Minerals.
Included in noncurrent assets as a tax receivable from parent corporation
on our consolidated balance sheets is $10.0 and $10.0 million at March 30, 2008
and December 31, 2007, respectively, representing amounts paid in excess of
amounts due to G-I Holdings with respect to 2006 under the Tax Sharing Agreement
(as defined). These amounts are included in the increase (decrease) in net
receivable from/payable to related parties/parent corporations in the
consolidated statement of cash flows.
Contingencies
See Note 13 to Consolidated Financial Statements for information regarding
contingencies.
40
BUILDING MATERIALS CORPORATION OF AMERICA
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
Economic Outlook
We do not believe that inflation has had a material effect on our results
of operations during the first quarter of 2008. However, we cannot assure you
that our business will not be affected by inflation in the future, or by
increases in the cost of energy and asphalt purchases used in our manufacturing
process principally due to fluctuating oil prices.
The prices of energy and crude oil continued to rise during the first
quarter of 2008 reaching record high levels. The cost of asphalt also increased
during the first quarter of 2008 remaining at relatively high historical levels,
which reflects in large part high crude oil prices. Due to the strength of our
manufacturing operations, which allows us to use many types of asphalt, together
with our ability to secure alternative sources of supply, we do not anticipate
that any future disruption in the supply of asphalt will have a material impact
on future net sales, although no assurances can be provided in that regard. We
will attempt to pass on future cost increases from suppliers as needed; however,
no assurances can be provided that these price increases will be accepted in the
marketplace.
Contractual Obligations
There have been no significant changes to our contractual obligations
during the first quarter ended March 30, 2008. For a further discussion on our
contractual obligations related to minimum purchase obligations reference is
made to Management's Discussion and Analysis of Financial Condition and Results
of Operations "Contractual Obligations" in our 2007 Form 10-K.
New Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board, which we
refer to as FASB, issued SFAS No. 157, "Fair Value Measurements", which we refer
to as SFAS No. 157, which clarifies the definition of fair value, establishes a
framework for measuring fair value and expands the disclosures on fair value
measurements, which is effective for fiscal years beginning after November 15,
2007. In February 2008, the FASB issued FASB Staff Position, which we refer to
as FSP, No. 157-2 "Partial Deferral to the Effective Date of Statement 157",
which we refer to as FSP No. 157-2, which is effective for fiscal years
beginning after November 15, 2008 and excludes SFAS No. 13, "Accounting for
Leases," defers certain non-financial assets and non-financial liabilities and
further clarifies the principles in SFAS No. 157 on the fair value measurement
of liabilities. Our adoption of the provisions of SFAS No. 157 for all other
items not deferred by FSP No. 157-2 in our first quarter of 2008 did not have a
material effect on our consolidated financial statements. We are currently
evaluating the provisions of FSP No. 157-2 and do not expect that the adoption
will have a material effect on our consolidated financial statements.
41
BUILDING MATERIALS CORPORATION OF AMERICA
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115", which we refer to as SFAS No. 159, which permits entities to
elect to measure specified financial instruments and warranty and insurance
contracts at fair value on a contract-by-contract basis, with changes in fair
value recognized in earnings each reporting period. The election, called the
"fair value option," will enable some companies to reduce the volatility in
reported earnings caused by measuring related assets and liabilities
differently, and it is simpler than using the complex hedge-accounting
provisions of SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" to achieve similar results. SFAS No. 159 applies to all entities and
contains financial statement presentation and disclosure requirements for assets
and liabilities reported at fair value as a consequence of the election. SFAS
No. 159 is expected to expand the use of fair value measurements for financial
instruments. SFAS No. 159 is effective as of the beginning of a company's first
fiscal year that begins after November 15, 2007. Retrospective application is
not permitted. In the first quarter of 2008, we exercised our option to decline
the adoption of SFAS No. 159.
In December 2007, the FASB issued SFAS No. 141 (revised in 2007) "Business
Combinations", which we refer to as SFAS No. 141R, which provides revised
guidance on how an acquiring company should recognize and measure the
identifiable assets acquired, liabilities assumed, any noncontrolling interests,
and goodwill acquired in a business combination. SFAS No. 141R also expands the
required disclosures related to the nature and financial statement effects of
business combinations. SFAS No. 141R is effective, on a prospective basis, for
business combinations completed in fiscal years beginning after December 15,
2008. We will adopt SFAS No. 141R during our fiscal year ending December 31,
2009 and, therefore, we have not determined the effect, if any, the adoption of
SFAS No. 141R will have on our results of operations or financial position.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests
in Consolidated Financial Statements", which we refer to as SFAS No. 160. SFAS
No. 160 establishes requirements for ownership interests in subsidiaries held by
parties other than us (minority interests) to be clearly identified and
disclosed in the consolidated statement of financial position within equity, but
separate from the parent's equity. Any changes in the parent's ownership
interests are required to be accounted for in a consistent manner as equity
transactions and any noncontrolling equity investments in deconsolidated
subsidiaries must be measured initially at fair value. SFAS No. 160 is
effective, on a prospective basis, for fiscal years beginning after December 15,
2008; however, the presentation and disclosure requirements must be
retrospectively applied to comparative financial statements. We will adopt SFAS
No. 160 in our fiscal year ending December 31, 2009. We do not expect the
adoption to have any impact on our results of operations or financial position
because we do not have any noncontrolling interests.
42
BUILDING MATERIALS CORPORATION OF AMERICA
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities", which we refer to as SFAS No. 161. SFAS No.
161 amends SFAS No. 133 and is intended to improve financial reporting related
to derivative instruments and hedging activities by requiring enhanced
disclosures to enable investors to better understand their effects on an
entity's financial position, financial performance, and cash flows. The
provisions of SFAS No. 161 are effective on a prospective basis for fiscal years
beginning on or after November 15, 2008. We will adopt the provisions of SFAS
No. 161 during our first quarter of fiscal year ending December 31, 2009.
* * *
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, as amended 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 similar words or phrases. Similarly, statements that describe our
objectives, plans or goals also are forward-looking statements. Our operations
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those contemplated by the relevant forward-looking
statements. The forward-looking statements included herein are made only as of
the date of this quarterly report on Form 10-Q and we undertake no obligation to
publicly update any forward-looking statements to reflect subsequent events or
circumstances. We cannot assure you that projected results or events will be
achieved.
43
BUILDING MATERIALS CORPORATION OF AMERICA
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 2007 Form 10-K for a discussion of
"Market-Sensitive Instruments and Risk Management." There were no material
changes in such information as of March 30, 2008. See Note 8 to the Consolidated
Financial Statements.
ITEM 4T. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures: Our management, under the supervision
and with the participation of the Chief Executive Officer and Chief Financial
Officer, conducted an evaluation of the effectiveness of our disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the
end of the period covered by this report. Based on this evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that, as of the end
of such period, our disclosure controls and procedures are effective in
recording, processing, summarizing and reporting, on a timely basis, information
required to be disclosed by us in the reports filed, furnished or submitted
under the Exchange Act. Our Chief Executive Officer and Chief Financial Officer
also concluded that our disclosure controls and procedures are effective to
ensure that information required to be disclosed in the reports that we file or
submit under the Exchange Act is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, to allow
timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting: There were no
significant changes in our internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
identified in management's evaluation during the first quarter of fiscal year
2008 that have materially affected or are reasonably likely to materially affect
our internal control over financial reporting.
44
BUILDING MATERIALS CORPORATION OF AMERICA
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of March 30, 2008, approximately 1,900 alleged asbestos-related bodily
injury claims relating to the inhalation of asbestos fiber were pending against
Building Materials Corporation of America. See Note 13 to the consolidated
financial statements in Part I.
ITEM 6. EXHIBITS
Exhibit
Number Description
31.1 Rule 13a-14(a)/Rule 15d-14(a) Certification of the Chief
Executive Officer.
31.2 Rule 13a-14(a)/Rule 15d-14(a) Certification of the Chief
Financial Officer.
32.1 Section 1350 Certification of Chief Executive Officer and
Chief Financial Officer.
45
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: May 14, 2008 BY: /s/John F. Rebele
----------------- ----------------------
John F. Rebele
Senior Vice President,
Chief Financial Officer and
Chief Administrative Officer
(Principal Financial Officer)
DATE: May 14, 2008 BY: /s/James T. Esposito
----------------- ----------------------
James T. Esposito
Vice President and Controller
(Principal Accounting Officer)