FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(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 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-81808
BUILDING MATERIALS CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
Delaware 22-3276290
(State of Incorporation) (I. R. S. Employer
Identification No.)
1361 Alps Road, Wayne, New Jersey 07470
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 628-3000
(Not Applicable)
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES /X/ NO / /
As of May 13, 1996, the Registrant had 10 shares of common stock, $.001 par
value, outstanding.
Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
Quarter Ended
-------------------------
April 2, March 31,
1995 1996
---------- -----------
(Thousands)
Net sales.............................. $ 138,590 $ 146,265
---------- ----------
Costs and expenses:
Cost of products sold................ 102,907 107,589
Selling, general and administrative.. 28,724 30,597
---------- ----------
Total costs and expenses............. 131,631 138,186
---------- ----------
Operating income....................... 6,959 8,079
Interest expense....................... (5,979) (7,133)
Other expense, net..................... (334) (170)
---------- ----------
Income before income taxes............. 646 776
Income taxes........................... (258) (303)
---------- ----------
Net income............................. $ 388 $ 473
========== ==========
See Notes to Consolidated Financial Statements
1
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
1995 1996
------------ ---------
ASSETS (Thousands)
Current Assets:
Cash...................................... $ 45,767 $ 12,481
Investments in trading securities......... 6,095 2,630
Investments in available-for-sale
securities.............................. 34,020 36,176
Accounts receivable, net.................. 24,247 53,285
Inventories............................... 55,643 74,699
Deferred income tax benefits.............. 3,845 3,845
Other current assets...................... 3,083 2,804
--------- ---------
Total Current Assets.................... 172,700 185,920
Property, plant and equipment, net.......... 180,059 178,590
Goodwill, net............................... 38,123 37,868
Deferred income tax benefits................ 62,318 61,146
Other assets................................ 11,066 11,432
--------- ---------
Total Assets................................ $ 464,266 $ 474,956
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt...... $ 8,823 $ 2,834
Loan payable to related party............. - 21,881
Accounts payable.......................... 39,532 39,269
Payable to related parties, net........... 1,713 2,856
Accrued liabilities....................... 27,019 31,401
Reserve for asbestos claims............... 48,176 30,006
--------- ---------
Total Current Liabilities............... 125,263 128,247
--------- ---------
Long-term debt less current maturities...... 284,394 289,615
--------- ---------
Reserve for asbestos claims................. 21,110 22,333
--------- ---------
Reserve for product warranty claims......... 28,700 28,293
--------- ---------
Other liabilities........................... 22,865 22,615
--------- ---------
Stockholder's Equity (Deficit):
Common stock, $.001 par value per share;
1,000 shares authorized; 10 shares
issued and outstanding.................. - -
Additional paid-in-capital................ 46,936 46,936
Excess of purchase price over the adjusted
historical cost of the predecessor company
shares owned by GAF's stockholders...... (7,874) (7,874)
Accumulated deficit....................... (56,765) (56,292)
Unfunded pension liability and other...... (363) 1,083
--------- ---------
Stockholder's Equity (Deficit).......... (18,066) (16,147)
--------- ---------
Total Liabilities and Stockholder's Equity
(Deficit)................................. $ 464,266 $ 474,956
========= =========
See Notes to Consolidated Financial Statements
2
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended
----------------------
April 2, March 31,
1995 1996
-------- ---------
(Thousands)
Cash and cash equivalents, beginning of period... $ 29,015 $ 51,862
-------- --------
Cash provided by (used in) operating activities:
Net income..................................... 388 473
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and goodwill amortization..... 4,989 5,264
Deferred income taxes...................... 203 247
Non-cash interest charges.................. 5,334 5,752
(Increase) decrease in working capital items... (33,487) (31,639)
Increase in payable to related parties......... 4,755 1,143
Other, net..................................... (2,841) (571)
-------- --------
Net cash used in operating activities........ (20,659) (19,331)
-------- --------
Cash used in investing activities:
Capital expenditures........................... (5,601) (3,585)
Purchases of available-for-sale securities..... - (12,404)
Proceeds from sales of available-for-sale
securities................................... - 12,619
-------- --------
Net cash used in investing activities........ (5,601) (3,370)
-------- --------
Cash provided by (used in) financing activities:
Proceeds (repayments) from sale of accounts
receivable................................... 1,181 (12,055)
Repayments of long-term debt................... (218) (6,873)
Increase (decrease) in loans payable to/
receivable from related party................ (852) 21,881
Decrease in restricted cash.................... 16,503 -
Payments of asbestos claims.................... (16,747) (16,947)
Other.......................................... (100) (56)
-------- --------
Net cash used in financing activities......... (233) (14,050)
-------- --------
Net change in cash and cash equivalents.......... (26,493) (36,751)
-------- --------
Cash and cash equivalents, end of period......... $ 2,522 $ 15,111
======== ========
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized)......... $ 287 $ 37
Income taxes paid (refunded)................. - (18)
See Notes to Consolidated Financial Statements
3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Building Materials Corporation of America (the "Company") is a wholly
owned subsidiary of GAF Building Materials Corporation ("BMC"), which is an
indirect, wholly owned subsidiary of G-I Holdings Inc. ("G-I Holdings"), which
in turn is a wholly owned subsidiary of GAF Corporation ("GAF"). The
financial statements of the Company reflect, in the opinion of management, all
adjustments necessary to present fairly the financial position of the Company
at December 31, 1995 and March 31, 1996, and the results of operations and
cash flows for the periods ended April 2, 1995 and March 31, 1996. All
adjustments are of a normal recurring nature. These financial statements
should be read in conjunction with the annual financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995 (the "Form 10-K").
NOTE A: Inventories consist of the following:
December 31, March 31,
1995 1996
------------ ---------
(Thousands)
Finished goods $ 30,663 $ 49,266
Work in process 7,594 8,622
Raw materials and supplies 17,891 17,316
-------- --------
Total 56,148 75,204
Less LIFO reserve (505) (505)
-------- --------
Inventories $ 55,643 $ 74,699
======== ========
NOTE B: Contingencies
Asbestos Claims Filed Against GAF
In connection with its formation, the Company contractually
assumed and agreed to pay the first $204.4 million of BMC's asbestos-
related bodily injury liabilities (whether for indemnity or
defense), relating to pending cases and previously settled, but not
paid, cases as of January 31, 1994, and no other asbestos
liabilities of BMC. Substantially all of the Company's asbestos
liability is expected to be paid by the end of 1997; $152.1 million
had been paid through March 31, 1996. G-I Holdings and BMC have
jointly and severally agreed to indemnify the Company against any
claims related to asbestos-related liabilities, other than those
assumed by the Company, in the event that claims in connection with
liabilities not assumed by the Company are asserted against it.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B: (Continued)
As of March 31, 1996, GAF had been named as a defendant in
approximately 48,400 pending lawsuits involving alleged health
claims relating to the inhalation of asbestos fiber ("Asbestos
Claims"), having previously resolved approximately 205,000 Asbestos
Claims. Plaintiffs in approximately 12,900 of the pending lawsuits
were preliminarily enjoined from proceeding with their claims other
than in accordance with the pending class-action settlement of
future asbestos bodily injury claims (the "Settlement"). Since
December 31, 1995, GAF has settled approximately 3,900 Asbestos
Claims and received notice of approximately 3,200 new Asbestos
Claims (of which approximately 2,300 are subject to the preliminary
injunction). On May 10, 1996, the United States Court of Appeals
for the Third Circuit (the "Third Circuit") issued an opinion,
concluding that the class action was not certifiable as a class
action, thus reversing the decision of the lower court which (i)
found the Settlement fair and reasonable and (ii) issued the
preliminary injunction. GAF has advised the Company that it intends
to pursue vigorously a continuation of the preliminary injunction
and a rehearing before the Third Circuit en banc and ultimately, if
necessary, an appeal of the Third Circuit's decision to the United
States Supreme Court. GAF also has advised the Company that it
continues to believe the Settlement will ultimately be upheld on
appeal.
The reserves of GAF and G-I Holdings for asbestos bodily injury
claims, as of March 31, 1996, were approximately $359.6 million
(before estimated present value of recoveries from products
liability insurance policies of approximately $185.6 million and
related deferred tax benefits of approximately $66.8 million). GAF
and G-I Holdings have advised the Company that certain components of
the asbestos-related liability and related insurance recoveries have
been reflected on a discounted basis in their financial statements,
and that the aggregate undiscounted liability, as of March 31, 1996,
before estimated recoveries from products liability insurance
policies, was $401.9 million. The estimate of liability for
Asbestos Claims is based on the Settlement becoming effective and on
assumptions which relate, among other things, to the number of new
cases filed, the cost of resolving (either by settlement or
litigation or through the mechanism established by the Settlement)
pending and future claims, the realization of related tax benefits,
the favorable resolution of pending litigation against certain
insurance companies and the amount of GAF's recoveries from various
insurance companies.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B: (Continued)
GAF believes that the reserves established on its books (which
reflect the discounting of a portion of the liabilities), together
with anticipated available insurance proceeds, will be sufficient to
satisfy all pending Asbestos Claims and all claims anticipated to be
resolved during the ten-year period of the Settlement. There can be
no assurance, however, that the assumptions referred to above are
correct.
Although any opinion is necessarily judgmental and must be
based on information currently known, it is the opinion of GAF and G-
I Holdings, based on the assumptions referred to above and their
analysis of their future business, financial prospects and cash
flows, that asbestos-related bodily injury claims will not,
individually or in the aggregate, have a materially adverse effect
on the respective financial positions, results of operations or
liquidity of GAF and G-I Holdings, after giving effect to the
aforementioned reserves. Although management believes that the
Settlement will ultimately be upheld on appeal, in the event that
the Third Circuit's decision is not reversed and the Settlement is
not upheld, or the conditions to the effectiveness of the Settlement
are not satisfied, GAF and G-I Holdings could be required to
increase their estimates of the discounted asbestos-related
liabilities, and it is not currently possible to estimate the range
or amount of such possible additional liability.
The Company believes that it will not sustain any liability in
connection with asbestos-related claims in excess of the $204.4
million that it has contractually assumed. While the Company cannot
predict whether any asbestos-related claims above the $204.4 million
will be asserted against it or its assets, or the outcome of any
litigation relative to such claims, it believes that it has
meritorious defenses to such claims. Moreover, it has been jointly
and severally indemnified by G-I Holdings and BMC with respect to
such claims, and GAF and G-I Holdings have advised the Company that,
based on the assumptions referred to above, they believe they have
and will have sufficient resources to enable them to satisfy their
asbestos-related liabilities. Should GAF or BMC be unable to
satisfy judgments against it in asbestos-related lawsuits, its
judgment creditors might seek to enforce their judgments against the
assets of GAF or BMC, including its holdings of common stock of the
Company, and such enforcement could result in a change of control
with respect to the Company.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B: (Continued)
GAF has also been named as a co-defendant in asbestos-in-
buildings cases for economic and property damage or other injuries
based upon an alleged present or future need to remove asbestos-
containing materials from public and private buildings. Since these
actions were first initiated 13 years ago, GAF has not only
successfully disposed of approximately 138 such cases at an average
cost (including cases disposed of at no cost to GAF) of
approximately $13,500 per case (all of which have been paid by
insurance under reservation of rights), but is a co-defendant in
only 10 remaining lawsuits.
Environmental Litigation
The Company, together with other companies, is a party to a
variety of proceedings and lawsuits involving environmental matters
("Environmental Claims"), in which recovery is sought for the cost
of cleanup of contaminated sites, a number of which are in the early
stages or have been dormant for protracted periods.
At most sites, the Company anticipates that liability will be
apportioned among the companies found to be responsible for the
presence of hazardous substances at the site. Although it is
difficult to predict the ultimate resolution of these claims, based
on the Company's evaluation of the financial responsibility of the
parties involved and their insurers, relevant legal issues and cost
sharing arrangements now in place, the Company estimates that its
liability in respect of all Environmental Claims, including certain
environmental compliance expenses, as of March 31, 1996, will be
approximately $1.4 million, before insurance recoveries reflected on
its balance sheet of $.6 million ("estimated recoveries"). The
Company believes that the ultimate disposition of such matters will
not, individually or in the aggregate, have a material adverse
effect on the results of operations, liquidity or financial position
of the Company.
After considering the relevant legal issues and other pertinent
factors, the Company believes that it will receive the estimated
recoveries and it may receive amounts substantially in excess
thereof. The Company believes it is entitled to substantially full
defense and indemnity under its insurance policies for most
Environmental Claims, although the Company's insurers have not
affirmed a legal obligation under the policies to provide indemnity
for such claims.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B: (Continued)
The estimated recoveries are based in part upon interim
agreements with certain insurers. The Company terminated these
agreements in 1995, and GAF commenced litigation on behalf of itself
and its subsidiaries seeking amounts substantially in excess of the
estimated recoveries. While the Company believes that its claims
are meritorious, there can be no assurance that the Company will
prevail in its efforts to obtain amounts equal to, or in excess of,
the estimated recoveries.
For further information regarding asbestos-related and
environmental matters, reference is made to "Item 3. Legal
Proceedings" and Note 3 to Consolidated Financial Statements
contained in the Company's Form 10-K.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - First Quarter 1996 Compared With
First Quarter 1995
The Company recorded first quarter 1996 net income of $.5 million
compared with first quarter 1995 net income of $.4 million. The increase in
net income resulted from higher operating income, mostly offset by increased
interest expense.
The Company's net sales for the first quarter of 1996 were $146.3
million, a 5.5% increase over last year's sales of $138.6 million, primarily
reflecting higher average selling prices and increased unit volumes of
commercial roofing products.
Gross profit margin increased to 26.4% in the first quarter of 1996 from
25.7% in the first quarter of 1995, resulting primarily from higher average
selling prices. Selling, general and administrative expenses increased
slightly as a percentage of net sales from 20.7% in 1995 to 20.9% in 1996.
Operating income for the quarter was $8.1 million compared with the $7
million recorded in the first quarter of 1995, principally reflecting the
increased sales and improved margins.
Interest expense increased to $7.1 million in the first quarter of 1996
from $6 million last year, reflecting higher debt levels. Other expense, net
decreased to $.2 million from $.3 million, primarily as a result of higher
investment and interest income (up $.9 million), partially offset by an
increase in expenses related to the sale of the Company's trade accounts
receivable and certain litigation costs.
Liquidity and Financial Condition
The Company used $19.3 million of cash in operations during the first
quarter of 1996, invested $3.6 million in capital programs, and generated $.2
million from net sales of available-for-sale securities, for a net cash
outflow of $22.8 million before financing activities.
9
Cash invested in additional working capital totaled $31.6 million during
the first quarter of 1996. This amount principally reflected a seasonal
increase in inventories of $19.1 million and a $17 million increase in the
receivable from the trust which purchases the Company's trade accounts
receivable.
Cash used in financing activities for the first quarter of 1996 totaled
$14.1 million, reflecting $16.9 million in payments of asbestos claims, $12.1
million of repayments related to the sale of receivables to the trust and $6.9
million in repayments of long-term debt, partially offset by a $21.9 million
loan from an affiliate.
As a result of the foregoing factors, cash and cash equivalents decreased
by $36.8 million during the first quarter of 1996 to $15.1 million (excluding
$36.2 million of available-for-sale securities).
As of March 31, 1996, $30.4 million of letters of credit were outstanding
under the Company's revolving lines of credit and no amounts had been borrowed
thereunder.
As of March 31, 1996 the current portion of the reserve for asbestos
claims was $30 million. Substantially all of the asbestos-related liabilities
assumed by the Company are expected to be paid by the end of 1997. The
Company anticipates funding such obligations from operations, existing cash
and equivalents and/or borrowings (which may include borrowings from
affiliates).
See Note B to Consolidated Financial Statements for information regarding
contingencies.
10
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The discussion relating to legal proceedings contained in Note B to
Consolidated Financial Statements in Part I is incorporated herein by
reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information only.
(b) No Reports on Form 8-K were filed during the quarter ended March 31,
1996.
11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Building Materials Corporation of America
DATE: May 14, 1996 BY:/s/Leonard S. Goodman
------------ ---------------------------
Leonard S. Goodman
Vice President - Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
12