SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 29, 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 (973) 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 August 12, 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
Second Quarter Ended Six Months Ended
-------------------- ------------------
June 30, June 29, June 30, June 29,
1996 1997 1996 1997
-------- -------- -------- --------
(Thousands)
Net sales ........................ $230,140 $255,934 $396,834 $449,258
-------- -------- -------- --------
Costs and expenses:
Cost of products sold .......... 165,511 180,191 289,750 323,357
Selling, general and
administrative ............... 43,943 50,810 78,743 91,676
-------- -------- -------- --------
Total costs and expenses...... 209,454 231,001 368,493 415,033
-------- -------- -------- --------
Operating income ................. 20,686 24,933 28,341 34,225
Interest expense ................. (8,050) (10,253) (15,815) (20,099)
Other income (expense), net ...... (305) 1,934 (475) 5,360
-------- -------- -------- --------
Income before income taxes ....... 12,331 16,614 12,051 19,486
Income taxes ..................... (4,797) (6,481) (4,720) (7,600)
-------- -------- -------- --------
Net income ....................... $ 7,534 $ 10,133 $ 7,331 $ 11,886
======== ======== ======== =========
See Notes to Consolidated Financial Statements
1
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
December 31, June 29,
1996 1997
------------ ----------
ASSETS (Thousands)
Current Assets:
Cash and cash equivalents..................... $ 124,560 $ 11,528
Investments in trading securities............. 1,065 32,829
Investments in available-for-sale securities.. 82,016 74,891
Investments in held-to-maturity securities.... 7,169 3,843
Other short-term investments ................. 15,944 15,820
Accounts receivable, trade, net .............. 9,870 23,132
Accounts receivable, other.................... 23,235 54,273
Inventories................................... 77,196 104,894
Other current assets.......................... 3,751 3,970
--------- ---------
Total Current Assets........................ 344,806 325,180
Property, plant and equipment, net.............. 220,500 219,344
Goodwill, net................................... 60,469 70,193
Deferred income tax benefits.................... 59,053 50,707
Receivable from related parties ................ - 28,459
Other assets.................................... 16,755 16,381
--------- ---------
Total Assets.................................... $ 701,583 $ 710,264
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Short-term debt ............................. $ - $ 538
Current maturities of long-term debt.......... 3,412 3,551
Accounts payable.............................. 47,879 59,042
Payable to related parties, net............... 2,287 8,904
Accrued liabilities........................... 27,938 34,705
Reserve for asbestos claims................... 3,062 -
Reserve for product warranty claims........... 12,914 10,700
--------- ---------
Total Current Liabilities................... 97,492 117,440
--------- ---------
Long-term debt less current maturities.......... 405,690 409,096
--------- ---------
Reserve for product warranty claims............. 30,755 28,168
--------- ---------
Other liabilities............................... 24,409 21,902
--------- ---------
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.................... 182,700 159,911
Accumulated deficit........................... (40,174) (28,288)
Other......................................... 711 2,035
--------- ---------
Stockholder's Equity ....................... 143,237 133,658
--------- ---------
Total Liabilities and Stockholder's Equity ..... $ 701,583 $ 710,264
========= =========
See Notes to Consolidated Financial Statements
2
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
--------------------
June 30, June 29,
1996 1997
-------- ---------
(Thousands)
Cash and cash equivalents, beginning of period........... $ 45,989 $ 124,560
-------- ---------
Cash provided by (used in) operating activities:
Net income ............................................ 7,331 11,886
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation ...................................... 11,745 10,916
Goodwill amortization ............................. 795 920
Deferred income taxes.. ........................... 4,658 7,499
Noncash interest charges.. ........................ 11,560 13,116
(Increase) decrease in working capital items........... (66,847) (73,609)
Purchases of trading securities ...................... (25,518) (39,750)
Proceeds from sales of trading securities ............ 20,841 13,410
Change in net receivable from/payable to related
parties............................................ 3,635 (21,842)
Other, net............................................ (2,450) (3,772)
-------- --------
Net cash used in operating activities ............... (34,250) (81,226)
-------- --------
Cash provided by (used in) investing activities:
Capital expenditures and acquisition................... (9,420) (40,597)
Purchases of available-for-sale securities............. (43,170) (80,189)
Purchases of held-to-maturity securities .............. - (4,591)
Proceeds from sales of available-for-sale securities... 51,339 84,363
Proceeds from held-to-maturity securities.............. - 7,917
-------- --------
Net cash used in investing activities.................... (1,251) (33,097)
-------- --------
Cash provided by (used in) financing activities:
Proceeds from sale of accounts receivable.............. 16,378 23,694
Increase in short-term debt ........................... 4,582 538
Repayments of long-term debt........................... (5,511) (1,672)
Increase in loan payable to related party.............. 2,447 -
Capital contribution from (distribution to)
parent company....................................... 11,627 (18,000)
Payments of asbestos claims............................ (33,739) (3,062)
Other.................................................. (56) (207)
-------- --------
Net cash provided by (used in) financing activities.. (4,272) 1,291
-------- --------
Net change in cash and cash equivalents.................. (39,773) (113,032)
-------- --------
Cash and cash equivalents, end of period................. $ 6,216 $ 11,528
======== ========
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized)................. $ 3,205 $ 6,994
Income taxes......................................... 85 138
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
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 December 31, 1996 and June 29, 1997, and the results of
operations and cash flows for the periods ended June 30, 1996 and June 29,
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 second
quarter and the first six months of 1997 and have been restated for
the second quarter and the first six months of 1996 to include USI's
results of operations, including sales of $26.2 and $47.5 million,
respectively, and net income (loss) of $.3 and $(.4) million,
respectively.
NOTE B: Inventories consist of the following:
December 31, June 29,
1996 1997
------------ --------
(Thousands)
Finished goods..................... $ 41,201 $ 65,147
Work in process.................... 10,844 11,916
Raw materials and supplies......... 26,206 28,886
-------- --------
Total.............................. 78,251 105,949
Less LIFO reserve.................. (1,055) (1,055)
-------- --------
Inventories........................ $ 77,196 $104,894
======== ========
NOTE C: Contingencies
Asbestos Claims Filed Against GAF
In connection with its formation, the Company contractually
assumed and agreed to pay a portion of the 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,
the Company has paid all of its assumed asbestos-related liability.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE C: (Continued)
GAF and G-I Holdings have established reserves for Asbestos
Claims based on certain assumptions, one of which was the
effectiveness of a class action settlement of future Asbestos Claims
(the "Settlement"). On June 25, 1997, the United States Supreme
Court affirmed the ruling of the United States Court of Appeals for
the Third Circuit that the class in such action was not certifiable,
thus rendering the Settlement inoperable. GAF and G-I Holdings have
advised the Company that they are presently evaluating the effect of
this recent Supreme Court decision on the amount of their reserves
for asbestos-related liabilities, that such analysis could result in
GAF and G-I Holdings increasing their estimates of asbestos-related
liabilities, and that it is not currently possible to estimate the
range or amount, if any, of such possible additional reserves. GAF
and G-I Holdings have stated that they remain committed to
effectuating a comprehensive resolution of Asbestos Claims, that they
are presently exploring a number of options, both judicial and
legislative, to accomplish such resolution, but that there can be no
assurance that these efforts will be successful.
The Company believes that it will not sustain any additional
liability in connection with asbestos-related claims. 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.
For further information regarding the history of the foregoing
litigation and asbestos-related matters, see "Item 3. Legal
Proceedings" and Note 3 to Consolidated Financial Statements
contained in the Company's Form 10-K and Note C to Consolidated
Financial Statements contained in the Company's Quarterly Report on
Form 10-Q for the quarter ended March 30, 1997.
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 Environmental Claims
are in the early stages or have been dormant for protracted periods.
At most sites, the Company anticipates that liability will be
apportioned among the companies found to be responsible for the
presence of hazardous substances at the site. The Company believes
that the ultimate disposition of such matters will not, individually
or in the aggregate, have a material adverse effect on the business,
liquidity, results of operations, cash flows or financial position of
the Company.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE C: (Continued)
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 - Second Quarter 1997 Compared With
Second Quarter 1996
The Company recorded second quarter 1997 net income of $10.1 million
compared with $7.5 million in the second quarter of 1996. The increase in net
income resulted from higher operating and other income, partially offset by
increased interest expense.
The Company's net sales for the second quarter of 1997 were $255.9
million, an 11% increase over last year's sales of $230.1 million, principally
reflecting increased unit volumes of both residential and commercial roofing
products, including sales of the Company's Leatherback business, which was
acquired in March 1997, and, to a lesser extent, higher selling prices.
Gross profit margin increased to 29.6% in the second quarter of 1997 from
28.1% in the second quarter of 1996, resulting primarily from improved product
mix and higher average selling prices. Selling, general and administrative
expenses increased as a percentage of net sales from 19.1% in 1996 to 19.9% in
1997, mainly due to increased costs of distribution.
Operating income for the second quarter was $24.9 million, a 20% increase
over the $20.7 million recorded in the second quarter of 1996, principally
reflecting the increased sales and improved margins.
Interest expense increased to $10.3 million in the second quarter of 1997
from $8.1 million last year, due primarily to higher debt levels. Other
income, net, was $1.9 million compared with other expense, net, of $.3 million
last year, reflecting higher investment income (up $3.5 million), partially
offset by an increase in expenses related to the sale of the Company's trade
accounts receivable and certain litigation costs.
Results of Operations - Six Months 1997 Compared With
Six Months 1996
For the first six months of 1997, the Company recorded net income of $11.9
million compared with net income of $7.3 million for the first six months of
1996. The 63% increase in net income was attributable to higher operating and
other income, partially offset by increased interest expense.
Net sales for the first six months of 1997 were $449.3 million, a 13%
increase over last year's sales of $396.8 million. The increase in sales
principally reflected increased unit volumes of both residential and commercial
roofing products, including sales of the Company's Leatherback business, and,
to a lesser extent, higher selling prices.
7
Gross profit margin increased to 28% for the first six months of 1997
compared with 27% for the same period in 1996, resulting primarily from
improved product mix and higher average selling prices. Selling, general and
administrative expenses increased as a percentage of net sales from 19.8% to
20.4% in 1997, mainly reflecting increased costs of distribution.
Operating income for the first six months of 1997 was $34.2 million, a 21%
increase over the $28.3 million recorded last year. The increase in operating
income was attributable to the increased sales and improved margins.
Interest expense increased to $20.1 million in the first six months of
1997 from $15.8 million last year, due primarily to higher debt levels. Other
income, net, was $5.4 million compared with other expense, net, of $.5 million
last year. The improvement was primarily due to higher investment income (up
$7.1 million), partially offset by certain litigation costs.
Liquidity and Financial Condition
The Company used $81.2 million of cash for operations during the first six
months of 1997, reinvested $40.6 million in capital programs and an
acquisition, and generated $7.5 million from net sales of available-for-sale
and held-to-maturity securities, for a net cash outflow of $114.3 million
before financing activities.
Cash invested in additional working capital totaled $73.6 million during
the first six months of 1997. This amount primarily reflected a seasonal
increase in inventories of $25.2 million and a $65.3 million increase in
receivables, including a $30.4 million increase in the receivable from the
trust which purchases the Company's trade accounts receivable, partially offset
by a $17.6 million increase in accounts payable and accrued liabilities. Cash
used in operations also reflected a $21.8 million outflow for related party
transactions and a $26.3 million cash outlay for net purchases of trading
securities.
Cash provided by financing activities for the first six months of 1997
totaled $1.3 million, principally reflecting $23.7 million of proceeds from the
sale of the Company's trade receivables, offset by $3.1 million of asbestos
payments and an $18 million distribution to the Company's parent.
As a result of the foregoing factors, cash and cash equivalents decreased
by $113 million during the first six months of 1997 to $11.5 million (excluding
$127.4 million of trading, available-for-sale and held-to-maturity securities
and other short-term investments).
See Note C to Consolidated Financial Statements for information regarding
contingencies.
8
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The discussion relating to legal matters contained in Note C to
Consolidated Financial Statements of the Company contained in Part I of this
report on Form 10-Q 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 June 29, 1997.
9
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: August 12, 1997 BY: /s/William C. Lang
--------------- ------------------
William C. Lang
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
10