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, 1997
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 9, 1997, 1,000,010 shares of the Registrant's common stock were
outstanding. All of the voting stock of the Registrant is held by GAF Building
Materials Corporation.
Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
Quarter Ended
-------------------
March 31, March 30,
1996 1997
-------- ---------
(Thousands)
Net sales................................ $166,694 $193,324
-------- --------
Costs and expenses:
Cost of products sold.................. 124,239 143,166
Selling, general and administrative ... 34,800 40,866
-------- -------
Total costs and expenses............ 159,039 184,032
-------- -------
Operating income......................... 7,655 9,292
Interest expense......................... (7,765) (9,846)
Other income (expense), net.............. (170) 3,426
-------- -------
Income (loss) before income taxes........ (280) 2,872
Income tax (provision) benefit .......... 77 (1,119)
-------- -------
Net income (loss)........................ $ (203) $ 1,753
======== =======
See Notes to Consolidated Financial Statements
1
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
December 31, March 30,
1996 1997
------------ -------------
ASSETS (Thousands)
Current Assets:
Cash and cash equivalents..................... $ 124,560 $ 3,814
Investments in trading securities............. 1,065 25,928
Investments in available-for-sale securities.. 82,016 128,830
Investments in held-to-maturity securities.... 7,169 5,812
Other short-term investments ................. 15,944 15,566
Accounts receivable, trade, net .............. 9,870 16,540
Accounts receivable, other.................... 23,235 60,859
Inventories................................... 77,196 99,636
Other current assets.......................... 3,751 4,481
--------- ---------
Total Current Assets........................ 344,806 361,466
Property, plant and equipment, net.............. 220,500 216,396
Goodwill, net................................... 60,469 70,693
Deferred income tax benefits.................... 59,053 56,861
Receivable from related parties ................ - 28,524
Other assets.................................... 16,755 17,260
--------- ---------
Total Assets.................................... $ 701,583 $ 751,200
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Short-term debt .............................. $ - $ 42,178
Current maturities of long-term debt.......... 3,412 3,267
Accounts payable.............................. 47,879 54,174
Payable to related parties, net............... 2,287 7,932
Accrued liabilities........................... 27,938 32,930
Reserve for asbestos claims................... 3,062 -
Reserve for product warranty claims........... 12,914 10,856
--------- ---------
Total Current Liabilities................... 97,492 151,337
--------- ---------
Long-term debt less current maturities.......... 405,690 403,790
--------- ---------
Reserve for product warranty claims............. 30,755 30,190
--------- ---------
Other liabilities............................... 24,409 23,927
--------- ---------
Stockholder's Equity
Series A Cumulative Redeemable Convertible
Preferred Stock, $.01 par value per share;
50,000 shares authorized; 0 shares issued .. - -
Common stock, $.001 par value per share;
1,050,000 shares authorized;1,000,010 shares
issued and outstanding...................... - -
Additional paid-in capital.................... 182,700 177,911
Accumulated deficit........................... (40,174) (38,421)
Other......................................... 711 2,466
--------- ---------
Stockholder's Equity ....................... 143,237 141,956
--------- ---------
Total Liabilities and Stockholder's Equity ... $ 701,583 $ 751,200
========= =========
See Notes to Consolidated Financial Statements
2
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended
--------------------
March 31, March 30,
1996 1997
-------- ---------
(Thousands)
Cash and cash equivalents, beginning of period......... $ 45,989 $124,560
-------- --------
Cash provided by (used in)operating activities:
Net income (loss).................................... (203) 1,753
Adjustments to reconcile net income (loss)to net cash
used in operating activities:
Depreciation .................................... 5,781 5,263
Goodwill amortization ........................... 390 428
Deferred income taxes.. ......................... (133) 1,069
Noncash interest charges......................... 5,752 6,486
(Increase) decrease in working capital items......... (41,951) (49,638)
Purchases of trading securities .................... (8,019) (24,095)
Proceeds from sales of trading securities .......... 11,023 2,807
Change in net receivable from/payable to related
parties.......................................... 2,170 (22,879)
Other, net.......................................... (521) (2,073)
-------- --------
Net cash used in operating activities.............. (25,711) (80,879)
-------- --------
Cash used in investing activities:
Capital expenditures and acquisition................. (4,885) (31,899)
Purchases of available-for-sale securities........... (12,404) (64,182)
Purchases of held-to-maturity securities ............ - (4,598)
Proceeds from sales of available-for-sale securities. 12,619 18,058
Proceeds from held-to-maturity securities ........... - 5,955
-------- -------
Net cash used in investing activities.................. (4,670) (76,666)
-------- --------
Cash provided by (used in) financing activities:
Proceeds (repayments)from sale of accounts receivable (12,055) (1,858)
Increase in short-term debt ......................... - 42,178
Repayments of long-term debt......................... (1,705) (402)
Increase in loan payable to related party............ 21,881 -
Capital contribution from parent company ............ 6,001 -
Payments of asbestos claims.......................... (16,947) (3,062)
Other................................................ (56) (57)
-------- --------
Net cash provided by (used in) financing activities (2,881) 36,799
-------- --------
Net change in cash and cash equivalents................ (33,262) (120,746)
-------- --------
Cash and cash equivalents, end of period............... $ 12,727 $ 3,814
======== ========
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized)............... $ 669 $ 1,058
Income taxes....................................... (18) 101
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 ("GAFBMC"), which is an
indirect, wholly owned subsidiary of G-I Holdings Inc. ("G-I Holdings"). G-I
Holdings 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, 1996 and March 30, 1997, and the results of operations and cash
flows for the periods ended March 31, 1996 and March 30, 1997. 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,
1996 (the "Form 10-K").
NOTE A: In October 1995, G-I Holdings acquired all of the outstanding
shares of U.S. Intec, Inc. ("USI"), which manufactures commercial
roofing products. As of January 1, 1997, USI became a wholly owned
subsidiary of the Company through a capital contribution to the
Company by G-I Holdings. Accordingly, the Company's Consolidated
Financial Statements include the results of USI for the first quarter
of 1997 and have been restated for the first quarter of 1996 to
include USI's results of operations, including sales of $21.3 million
and a net loss of $.7 million.
NOTE B: Inventories consist of the following:
December 31, March 30,
1996 1997
------------ ---------
(Thousands)
Finished goods..................... $ 41,201 $ 61,858
Work in process.................... 10,844 9,796
Raw materials and supplies......... 26,206 29,037
---------- ---------
Total.............................. 78,251 100,691
Less LIFO reserve.................. (1,055) (1,055)
---------- ---------
Inventories........................ $ 77,196 $ 99,636
========== =========
NOTE C: 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 liabilities for
asbestos-related bodily injury claims relating to the inhalation of
asbestos fiber ("Asbestos Claims")(whether for indemnity or defense)
of its parent, GAFBMC, relating to pending cases and previously
settled, but not paid, cases as of January 31, 1994, and no other
asbestos liabilities of GAFBMC. As of the end of the first quarter of
1997, all of the Company's assumed asbestos-related liability had
been paid.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE C: (Continued)
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 contractually assumed. While the Company cannot
predict whether any asbestos-related claims will be asserted against
it or its assets, or the outcome of any litigation relating 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 GAFBMC 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, principally through their ownership of the common stock of
the Company, to enable them to satisfy their asbestos-related
liabilities.
The reserves of GAF and G-I Holdings for asbestos bodily injury
claims, as of March 30, 1997, were $312.5 million (before estimated
present value of recoveries from products liability insurance
policies of $187.8 million and related deferred tax benefits of $44.9
million). GAF and G-I Holdings have advised the Company that certain
components of the asbestos-related liability and the related
insurance recoveries have been reflected on a discounted basis in
their financial statements, and that the aggregate undiscounted
consolidated liability, as of March 30, 1997, before estimated
recoveries from products liability insurance policies, was $346.9
million. The estimate of liability for Asbestos Claims is based on
the pending class-action settlement of future asbestos bodily injury
claims becoming effective and on certain other assumptions. For more
information regarding such assumptions and GAF's asbestos-related
liabilities, reference is made to "Item 3. Legal Proceedings" and
Note 3 to Consolidated Financial Statements contained in the
Company's Form 10-K.
Environmental Litigation
The Company, together with other companies, is a party to a
variety of proceedings and lawsuits involving environmental matters
in which recovery is sought for the cost of cleanup of contaminated
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE C: (Continued)
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.
The Company believes that the ultimate disposition of such matters
will not, individually or in the aggregate, have a material adverse
effect on the business, liquidity, results of operations, cash flows
or financial position of the Company.
For further information regarding environmental matters and
other litigation, reference is made to "Item 3. Legal Proceedings"
contained in the Company's Form 10-K.
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - First Quarter 1997 Compared With
First Quarter 1996
The Company recorded first quarter 1997 net income of $1.8 million
compared with a net loss of $.2 million in the first quarter of 1996. The
increase in net income resulted from higher operating income and higher other
income (expense), net, partially offset by increased interest expense.
The Company's net sales for the first quarter of 1997 were $193.3 million,
a 16% increase over last year's sales of $166.7 million, primarily reflecting
increased unit volumes of both residential and commercial roofing products and
higher average selling prices for the residential business.
Gross profit margin increased to 25.9% in the first quarter of 1997 from
25.5% in the first quarter of 1996, resulting primarily from higher average
selling prices. Selling, general and administrative expenses increased
slightly as a percentage of net sales from 20.9% in 1996 to 21.1% in 1997.
Operating income for the first quarter was $9.3 million, a 21% increase
over the $7.7 million recorded in the first quarter of 1996, principally
reflecting the increased sales and improved margins.
Interest expense increased to $9.8 million in the first quarter of 1997
from $7.8 million last year, due primarily to higher debt levels. Other
income, net was $3.4 million compared with other expense, net, of $.2 million
last year, primarily reflecting higher investment income (up $3.7 million).
Liquidity and Financial Condition
The Company used $80.9 million of cash for operations during the first
quarter of 1997, reinvested $31.9 million in capital programs and an
acquisition, and invested $44.8 million for net purchases of available-for-sale
and held-to-maturity securities, for a net cash outflow of $157.5 million
before financing activities.
Cash invested in additional working capital totaled $49.6 million during
the first quarter of 1997. This amount primarily reflected a seasonal increase
in inventories of $19.9 million and a $31.5 million increase in the receivable
from the trust which purchases the Company's trade accounts receivable. Cash
used in operations also reflected a $22.9 million outflow for related party
transactions and a $21.3 million cash outlay for net purchases of trading
securities.
Cash provided by financing activities for the first quarter of 1997
totaled $36.8 million, principally reflecting $42.2 million of short-term
borrowings, partially offset by $3.1 million of asbestos payments.
7
As a result of the foregoing factors, cash and cash equivalents decreased
by $120.7 million during the first quarter of 1997 to $3.8 million (excluding
$176.1 million of trading, available-for-sale and held-to-maturity securities
and other short-term investments).
On March 14, 1997, the Company acquired the assets of the Leatherback
Industries division of Hollinee Corporation, which is engaged in the
manufacture and sale of asphalt-saturated felts and other felt and construction
paper products.
See Note C to Consolidated Financial Statements for information regarding
contingencies.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
8
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The discussion relating to legal matters contained in Item 3. "Legal
Proceedings - Other Litigation" of the Company's Form 10-K 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 30, 1997.
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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 12, 1997 BY: /s/William C. Lang
------------- -----------------------------
William C. Lang
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
10