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 October 3, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-81808
BUILDING MATERIALS CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
Delaware 22-3276290
(State of Incorporation) (I. R. S. Employer
Identification No.)
1361 Alps Road, Wayne, New Jersey 07470
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (973) 628-3000
See table of additional registrants.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES /X/ NO / /
As of November 12, 1999, 1,018,771 shares of Class A Common Stock, $.001 par
value, and 15,000 shares of Class B Common Stock, $.001 par value, of Building
Materials Corporation of America were outstanding. There is no trading market
for the common stock of Building Materials Corporation of America.
As of November 12, 1999, each of the additional registrants had the number of
shares outstanding which is shown on the table below. No shares were held by
non-affiliates.
ADDITIONAL REGISTRANTS
Registration Address, including zip
State or other No./I.R.S. code and telephone number,
jurisdiction of No. of Employer including area code, of
Exact name of registrant as incorporation Shares Identification registrant's principal
specified in its charter or organization Outstanding No. executive offices
- --------------------------- --------------- ----------- --------------- ----------------------------
Building Materials
Manufacturing Corporation.... Delaware 10 333-69749-01/ 1361 Alps Road
22-3626208 Wayne, NJ 07470
(973) 628-3000
Building Materials
Investment Corporation....... Delaware 10 333-69749-02/ 300 Delaware Avenue
22-3626206 Wilmington, DE 19801
(302) 427-5960
Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Third Quarter Ended Nine Months Ended
-------------------- -----------------
Sept. 27, Oct. 3, Sept. 27, Oct. 3,
1998 1999 1998 1999
-------- -------- -------- --------
(Thousands)
Net sales ............................. $313,617 $312,811 $812,273 $886,232
-------- -------- -------- --------
Costs and expenses:
Cost of products sold ............... 219,565 219,271 576,836 626,273
Selling, general and administrative.. 66,733 64,894 173,614 184,139
Goodwill amortization ............... 571 509 1,573 1,526
Nonrecurring charges ................ 27,563 2,650 27,563 2,650
-------- -------- -------- --------
Total costs and expenses........... 314,432 287,324 779,586 814,588
-------- -------- -------- --------
Operating income (loss)................ (815) 25,487 32,687 71,644
Interest expense ...................... (12,353) (12,308) (37,839) (37,144)
Other income, net...................... 6,564 556 20,917 7,113
-------- -------- -------- --------
Income (loss) before income taxes
and extraordinary losses ............ (6,604) 13,735 15,765 41,613
Income tax (provision)benefit.......... 2,653 (5,082) (6,070) (15,397)
-------- -------- -------- --------
Income (loss) before
extraordinary losses................. (3,951) 8,653 9,695 26,216
Extraordinary losses, net of
income tax benefits of $5,845
and $761, respectively............... (9,336) (1,296) (9,336) (1,296)
-------- ------- ------- -------
Net income (loss)...................... $(13,287) $ 7,357 $ 359 $ 24,920
======== ======== ======== ========
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
1
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
October 3,
December 31, 1999
1998 (Unaudited)
------------ -----------
(Thousands)
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 24,989 $ 63,250
Investments in trading securities................. 95,134 2,355
Investments in available-for-sale securities...... 56,461 40,892
Investments in held-to-maturity securities........ 6,358 -
Other short-term investments...................... 22,671 1,496
Accounts receivable, trade, net................... 24,249 29,438
Accounts receivable, other........................ 55,912 66,870
Receivable from related parties, net.............. - 82,265
Inventories....................................... 93,703 124,605
Other current assets.............................. 4,866 6,812
--------- ---------
Total Current Assets............................ 384,343 417,983
Property, plant and equipment, net.................. 332,348 349,859
Excess of cost over net assets of businesses
acquired, net .................................... 72,093 70,817
Deferred income tax benefits........................ 58,974 44,386
Other assets........................................ 18,410 21,596
--------- ---------
Total Assets........................................ $ 866,168 $ 904,641
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt................................... $ - $ 91
Current maturities of long-term debt.............. 4,273 5,290
Accounts payable.................................. 74,417 87,142
Payable to related parties, net................... 4,685 -
Accrued liabilities............................... 60,665 73,483
Reserve for product warranty claims............... 20,239 16,100
-------- ---------
Total Current Liabilities....................... 164,279 182,106
-------- ---------
Long-term debt less current maturities.............. 596,913 601,052
-------- ---------
Reserve for product warranty claims................. 28,393 20,191
--------- ---------
Other liabilities................................... 24,366 20,446
--------- ---------
Stockholders' Equity:
Series A Cumulative Redeemable Convertible
Preferred Stock, $.01 par value per share;
200,000 shares authorized; no shares issued..... - -
Class A Common Stock, $.001 par value per share;
1,300,000 shares authorized; 1,015,010 and
1,017,258 shares, issued and outstanding,
respectively ................................... 1 1
Class B Common Stock, $.001 par value per share;
100,000 shares authorized; 15,000 shares
issued and outstanding ......................... - -
Additional paid-in capital........................ 94,189 97,672
Retained earnings (deficit)....................... (22,089) 2,830
Accumulated other comprehensive loss ............. (19,884) (19,657)
--------- ---------
Total Stockholders' Equity ..................... 52,217 80,846
--------- ---------
Total Liabilities and Stockholders' Equity ........ $ 866,168 $ 904,641
========= =========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
2
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
-------------------
Sept. 27, Oct. 3,
1998 1999
-------- --------
(Thousands)
Cash and cash equivalents, beginning of period........... $ 12,924 $ 24,989
-------- --------
Cash provided by (used in) operating activities:
Net income............................................. 359 24,920
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Extraordinary losses............................... 9,336 1,296
Depreciation ...................................... 21,114 23,917
Goodwill amortization.............................. 1,573 1,526
Deferred income taxes.............................. 5,822 14,782
Noncash interest charges........................... 20,203 2,727
Increase in working capital items...................... (63,582) (60,585)
Purchases of trading securities........................ (117,914) (132,607)
Proceeds from sales of trading securities.............. 98,987 235,676
Change in net receivable from/payable to related
parties.............................................. 39,682 (86,950)
Other, net............................................. 22,366 (19,773)
-------- --------
Net cash provided by operating activities................ 37,946 4,929
-------- --------
Cash provided by (used in) investing activities:
Capital expenditures................................... (39,802) (41,508)
Acquisition............................................ (59,187) -
Purchases of available-for-sale securities............. (54,524) (75,864)
Purchases of held-to-maturity securities............... (6,344) (1,401)
Proceeds from sales of available-for-sale securities... 122,187 88,915
Proceeds from held-to-maturity securities.............. 499 7,758
Proceeds from sales of other short-term investments.... - 21,420
-------- --------
Net cash used in investing activities.................. (37,171) (680)
-------- --------
Cash provided by (used in) financing activities:
Proceeds from sale of accounts receivable.............. 78,953 33,199
Increase (decrease) in short-term debt................. (24,556) 91
Proceeds from issuance of long-term debt............... 149,361 37,138
Decrease in borrowings under revolving credit facility (34,000) -
Repayments of long-term debt........................... (135,443) (35,627)
Decrease in loan receivable from related party......... 6,152 -
Proceeds from issuance of common stock................. - 436
Financing fees and expenses............................ (3,050) (1,225)
-------- --------
Net cash provided by financing activities................ 37,417 34,012
-------- --------
Net change in cash and cash equivalents.................. 38,192 38,261
-------- --------
Cash and cash equivalents, end of period................. $ 51,116 $ 63,250
======== ========
Certain reclassifications have been made to 1998 presentations.
3
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - (Continued)
Nine Months Ended
-------------------
Sept. 27, Oct. 3,
1998 1999
--------- --------
(Thousands)
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized)............. $ 11,117 $29,692
Income taxes..................................... 1,041 922
Acquisition of Leslie-Locke business:
Fair market value of assets acquired............... $ 59,318
Purchase price of acquisition...................... 43,468
--------
Liabilities assumed................................ $ 15,850
========
Contribution of Nashville business:
Net assets acquired................................ $ 9,345
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Building Materials Corporation of America (the "Company") was formed on
January 31, 1994 and is a 99.8% owned subsidiary of BMCA Holdings Corporation
("BHC"), which is a 97% owned subsidiary of GAF Building Materials Corporation
("GAFBMC"), which is a wholly-owned subsidiary of GAF Fiberglass Corporation
("GFC"). GFC is a wholly-owned subsidiary of G Industries Corp., which is a
wholly-owned subsidiary of G-I Holdings Inc., which 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 October 3, 1999, and the results
of operations and cash flows for the periods ended September 27, 1998 and
October 3, 1999. 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, 1998 (the "Form 10-K").
Note 1. Capital Contribution
Effective August 18, 1999, GFC, in a series of transactions,
contributed the assets and certain liabilities relating to its Nashville glass
fiber manufacturing facility ("Nashville") to the Company. Accordingly, the
Company's historical consolidated financial statements have been restated to
include the results of operations of Nashville. For financial reporting
purposes, the contribution of Nashville was recorded by the Company at the
historical cost of $9.3 million. The increase in net income resulting from the
contribution of Nashville for the three and nine-month periods ended October 3,
1999 was $0.2 million and $1.8 million, respectively, and for the three and
nine-month periods ended September 27, 1998 was $0.2 million and $0.7 million,
respectively.
Note 2. Comprehensive Income
Third Quarter Ended Nine Months Ended
-------------------- -----------------
Sept. 27, Oct. 3, Sept. 27, Oct. 3,
1998 1999 1998 1999
--------- -------- -------- -------
(Thousands)
Net income (loss)....................... $(13,287) $ 7,357 $ 359 $24,920
------- ------- ------- -------
Other comprehensive income (loss), net of tax:
Change in unrealized gains (losses) on
available-for-sale securities:
Unrealized holding gains (losses)
arising during the period, net of
income tax (provision) benefit of $11,596,
$3,165, $10,125 and $(1,491)......... (18,482) (5,389) (16,177) 1,803
Less: Reclassification adjustment
for gains (losses) included in
net income, net of income tax
(provision) benefit of $2,630, $(118),
($4,585)and $(925)................... (4,203) 201 7,086 1,576
------- ------ ------- ------
Total other comprehensive income (loss).. (14,279) (5,590) (23,263) 227
------- ------ ------- ------
Comprehensive income (loss).............. $(27,566) $ 1,767 $(22,904) $25,147
======= ======= ======= =======
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2. Comprehensive Income (Continued)
Changes in the components of "Accumulated other comprehensive loss" for the
nine months ended October 3, 1999 are as follows:
Unrealized
Losses on Minimum Accumulated
Available- Pension Other
for-sale Liability Comprehensive
Securities Adjustment Loss
-------------- ---------- -------------
(Thousands)
Balance, December 31, 1998 ... $(16,928) $ (2,956) $(19,884)
Change for the period ........ 227 - 227
-------- -------- --------
Balance, October 3, 1999...... $(16,701) $ (2,956) $(19,657)
======== ======== ========
Note 3. Inventories:
Inventories consist of the following:
December 31, October 3,
1998 1999
------------ ---------
(Thousands)
Finished goods .................. $ 58,266 $ 85,348
Work in process ................. 8,488 9,654
Raw materials and supplies ...... 27,635 30,289
-------- --------
Total ........................... 94,389 125,291
Less LIFO reserve ............... (686) (686)
-------- --------
Inventories ..................... $ 93,703 $124,605
======== ========
Note 4. Nonrecurring Charges
In July 1998, the Company recorded a pre-tax nonrecurring charge of $7.6
million related to a grant to its former President and Chief Executive Officer
of 30,000 shares of restricted common stock of the Company (a portion of which
such officer transferred to trusts for the benefit of his children) and related
cash payments to be made over a period of time (substantially all of which was
earned) in connection with the termination by an affiliate of preferred stock
options and stock appreciation rights held by such officer. Of the $7.6 million
charge, $2.5 million represented the value as of the date of grant of the 30,000
shares of restricted common stock, and $5.1 million represented the aggregate
amount of the cash payments to which such officer was entitled (subject to
certain future vesting requirements). The shares of restricted stock were
subject to certain rights of the Company to purchase, and of such
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 4. Nonrecurring Charges (Continued)
officer and the trusts to sell to the Company, such shares at Book Value (as
defined).
Effective June 30, 1999, such officer terminated his employment with the
Company. In connection with this termination, the Company's obligation to such
officer to pay an aggregate of $3.0 million (representing the balance of the
cash payments described above) was cancelled and treated as a capital
contribution. Accordingly, such amount has been reflected as an increase in
additional paid-in-capital. Effective September 30, 1999, the agreement between
the Company and such former officer and the trusts relating to the restricted
common stock was terminated. Such officer and the trusts retained the restricted
common stock and contributed such stock to BHC in consideration for equity
interests in BHC.
In connection with the settlement of a legal matter, the Company
recorded a nonrecurring charge of $2.7 million in September 1999. Such amount
includes legal expenses incurred to defend such action.
Note 5. Contingencies
Asbestos Litigation 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
then-pending cases and previously settled, but not paid, cases as of January 31,
1994, and no other asbestos liabilities of GAFBMC. As of March 30, 1997, the
Company had paid all of its assumed asbestos-related liabilities.
GAF has advised the Company that, as of September 25, 1999, it is defending
approximately 114,400 pending alleged Asbestos Claims (having received notice of
approximately 42,200 new Asbestos Claims during the first nine months of 1999)
and has resolved approximately 335,100 Asbestos Claims (including approximately
41,600 in the first nine months of 1999). GAF's current estimated average cost
for Asbestos Claims resolved in 1998 (including Asbestos Claims disposed of at
no cost to GAF) is approximately $3,500 per claim. There can be no assurance
that the actual costs of resolving pending and future Asbestos Claims will
approximate GAF's estimated average costs for the Asbestos Claims resolved in
1998.
GAF has stated that it is committed to effecting a comprehensive resolution
of Asbestos Claims and that it is exploring a number of options to accomplish
such resolution, but there can be no assurance that this effort 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.
Should GAF or GAFBMC be unable to satisfy judgments against it in asbestos-
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 5. Contingencies (Continued)
related lawsuits, its judgment creditors might seek to enforce their judgments
against the assets of GAF or GAFBMC, including its holdings of common stock of
BHC, and such enforcement could result in a change of control with respect to
the Company.
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.
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, results of operations 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.
Tax Claim Against GAF
On September 15, 1997, GAF received a notice from the Internal Revenue
Service (the "Service") 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 a subsidiary of GAF, GAF Fiberglass
Corporation, held an interest. The claim of the Service for interest and
penalties, after taking into account the effect on the use of net operating
losses and foreign tax credits, could result in GAF incurring liabilities
significantly in excess of the deferred tax liability of $131.4 million that it
recorded in 1990 in connection with this matter. GAF has advised the Company
that it believes that it will prevail in this matter, although there can be no
assurance in this regard. However, if GAF is unsuccessful in challenging its tax
deficiency notice, the ability of GAF to satisfy its tax obligation would be
dependent on the cash flows of the Company and GFC. The Company believes that
the ultimate disposition of this matter will not have a material adverse effect
on its business, financial position or results of operations. GAF, G-I Holdings
and certain subsidiaries of GAF have agreed to jointly and severally indemnify
the Company against any tax liability associated with the surfactants
partnership, which the Company would be severally liable for, together with GAF
and several current and former subsidiaries of GAF, should GAF be unable to
satisfy such liability.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 6. New Accounting Standard
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement.
SFAS No. 133 is effective for fiscal years beginning after June 15, 2000, but
may be adopted earlier. If the Company had adopted SFAS No. 133 as of January 1,
1999, there would have been no significant impact on results of operations. The
Company has not yet determined the timing, method or effect on the Consolidated
Balance Sheets of adoption of SFAS No. 133.
Note 7. Long-Term Debt
On August 16, 1999, the Company entered into a $31.9 million bank term loan
maturing on July 1, 2004 (the "Term Loan"). The Term Loan bears interest at a
floating rate based on the bank's base rate, the federal funds rate, or LIBOR,
at the option of the Company. In addition, under the Term Loan, the principal
amount outstanding on March 1, 2000 will automatically convert to senior notes
with a maturity date of December 1, 2008. The senior notes will bear interest at
a rate that will be set at the time of conversion. The Company used all the net
proceeds of the Term Loan to purchase and subsequently cancel $29.9 million in
aggregate principal amount at maturity of the Company's outstanding 11 3/4%
Senior Deferred Coupon Notes due 2004 (the "Deferred Coupon Notes"). The
redemption price was 105.875% of the principal amount outstanding, and the
premium was recorded as an extraordinary loss, net of tax, of approximately $1.3
million.
On August 18, 1999,the Company entered into a new three-year bank
credit facility (the "Credit Agreement"). The terms of the Credit Agreement
provide for a $110 million revolving credit facility, the full amount of which
is available for letters of credit, provided that total borrowings and
outstanding letters of credit may not exceed $110 million in the aggregate. As
of October 3, 1999, $29.9 million of letters of credit and no borrowings were
outstanding under the Credit Agreement. Under the terms of the Credit Agreement,
the Company is subject to certain financial covenants, including interest
coverage and leverage ratios, and dividends and other restricted payments are
limited. Additionally, if a change of control (as defined in the Credit
Agreement) occurs, the Credit Agreement could be terminated and the loans
thereunder accelerated by the lenders party thereto, an event which could also
cause the Company's outstanding senior notes to be accelerated. As of October 3,
1999, the Company was in compliance with such covenants. The Credit Agreement
replaced a previous bank credit facility which provided up to $75 million in
total borrowings and outstanding letters of credit.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 8. Guarantor Financial Information
Effective January 1, 1999, Building Materials Corporation of America ("the
Company" or "Parent Company") transferred all of its investment assets and
intellectual property assets to Building Materials Investment Corporation
("BMIC"), a newly-formed, wholly-owned subsidiary. In connection with this
transfer, BMIC agreed to guarantee all of the Company's obligations under the
Company's then existing bank credit facility, the Company's 7 3/4% Senior Notes
due 2005, the 8 5/8% Senior Notes due 2006, the 8% Senior Notes due 2007 (the
"2007 Notes") and the 8% Senior Notes due 2008 (collectively, the "Other Senior
Notes"). The Company also transferred all of its manufacturing assets, other
than those located in Texas, to Building Materials Manufacturing Corporation
("BMMC"), another newly-formed, wholly-owned subsidiary. In connection with this
transfer, BMMC agreed to become a co-obligor on the 2007 Notes and to guarantee
the Company's obligations under the then existing credit facility, the Deferred
Coupon Notes and the Other Senior Notes. In addition, in August 1999, BMIC and
BMMC guaranteed the Company's obligations under the Credit Agreement and the
Term Loan. The guarantees of BMIC and BMMC are full, unconditional and joint and
several.
In addition, in connection with the above transactions, the Company and
BMMC entered into license agreements, effective January 1, 1999, for the right
to use intellectual property, including patents, trademarks, know-how, and
franchise rights owned by BMIC for a license fee stated as a percentage of net
sales. The license agreements are for a period of one year and can be terminated
with 60 days written notice. Also, effective January 1, 1999, BMMC will sell all
finished goods to the Company at a manufacturing profit.
Presented below is condensed consolidating financial information for BMIC
and BMMC, prepared on a basis which retroactively reflects the formation of such
companies, as discussed above, for all periods presented. This financial
information should be read in conjunction with the Consolidated Financial
Statements and other notes related thereto. Separate financial information for
BMIC and BMMC is not included herein because management has determined that such
information is not material to investors.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 8. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Third Quarter Ended September 27, 1998
(Thousands)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ -----------
Net sales............................. $ 247,927 $ - $ 65,690 $ - $ 313,617
Intercompany net sales................ 960 160,491 20,359 (181,810) -
--------- --------- --------- --------- ---------
Total net sales....................... 248,887 160,491 86,049 (181,810) 313,617
--------- --------- --------- --------- ---------
Costs and expenses:
Cost of products sold............... 179,927 151,558 69,890 (181,810) 219,565
Selling, general and administrative. 43,309 8,933 14,491 66,733
Goodwill amortization............... 160 411 571
Nonrecurring Charges................ 27,563 27,563
--------- --------- --------- --------- --------
Total costs and expenses.............. 250,959 160,491 84,792 (181,810) 314,432
--------- --------- --------- --------- --------
Operating income (loss)............... (2,072) - 1,257 - (815)
Equity in earnings of subsidiaries.... 2,239 (2,239) -
Interest expense, net................. (6,162) (2,515) (3,676) (12,353)
Other income (expense), net........... (1,981) 8,545 - 6,564
--------- --------- --------- --------- --------
Income (loss) before income taxes
and extraordinary loss.............. (7,976) 6,030 (2,419) (2,239) (6,604)
Income tax (provision) benefit........ 4,025 (2,291) 919 2,653
--------- --------- --------- ---------- -------
Income (loss) before
extraordinary loss.................. (3,951) 3,739 (1,500) (2,239) (3,951)
Extraordinary loss, net of income
tax benefit of $5,845 .............. (9,336) (9,336)
--------- --------- --------- ---------- --------
Net income (loss)..................... $(13,287) $ 3,739 $ (1,500) $ (2,239) $(13,287)
======== ======== ========= ========== ========
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 8. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Third Quarter Ended October 3, 1999
(Thousands)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ -----------
Net sales............................. $ 253,719 $ - $ 59,092 $ - $312,811
Intercompany net sales................ 1,793 196,876 21,409 (220,078) -
--------- --------- --------- --------- --------
Total net sales....................... 255,512 196,876 80,501 (220,078) 312,811
--------- --------- --------- --------- --------
Costs and expenses:
Cost of products sold............... 191,125 179,951 68,273 (220,078) 219,271
Selling, general and administrative. 43,086 11,191 10,617 64,894
Goodwill amortization............... 160 349 509
Nonrecurring charges ............... 2,650 2,650
--------- --------- --------- --------- --------
Total costs and expenses.............. 237,021 191,142 79,239 (220,078) 287,324
--------- --------- --------- --------- --------
Operating income...................... 18,491 5,734 1,262 - 25,487
Equity in earnings of subsidiaries.... 7,689 (7,689) -
Intercompany licensing income
(expense), net...................... (7,611) 7,611 -
Interest expense, net................. (7,408) (1,721) (3,179) (12,308)
Other income (expense), net........... (1,942) 2,497 1 556
--------- --------- --------- --------- ---------
Income (loss) before income taxes
and extraordinary loss............. 9,219 14,121 (1,916) (7,689) 13,735
Income tax (provision) benefit........ (566) (5,224) 708 (5,082)
Income (loss) before --------- --------- --------- --------- --------
extraordinary loss ................ 8,653 8,897 (1,208) (7,689) 8,653
Extraordinary loss, net of income
tax benefit of $761................ (1,296) (1,296)
--------- --------- --------- --------- ---------
Net income (loss)..................... $ 7,357 $ 8,897 $ (1,208) $ (7,689) $ 7,357
========= ========= ========= ========= =========
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 8. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Nine Months Ended September 27, 1998
(Thousands)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ -----------
Net sales............................. $ 663,244 $ - $ 149,029 $ - $ 812,273
Intercompany net sales................ 2,370 423,878 55,300 (481,548) -
--------- --------- --------- --------- ---------
Total net sales....................... 665,614 423,878 204,329 (481,548) 812,273
--------- --------- ---------- --------- ---------
Costs and expenses:
Cost of products sold............... 492,880 399,920 165,584 (481,548) 576,836
Selling, general and administrative. 115,854 23,958 33,802 173,614
Goodwill amortization............... 480 1,093 1,573
Nonrecurring charges................ 27,563 27,563
--------- --------- ---------- --------- --------
Total costs and expenses.............. 636,777 423,878 200,479 (481,548) 779,586
--------- --------- ---------- --------- --------
Operating income...................... 28,837 - 3,850 - 32,687
Equity in earnings of subsidiaries.... 8,454 (8,454) -
Interest expense, net................. (21,397) (7,849) (8,593) (37,839)
Other income (expense), net........... (5,311) 26,328 (100) 20,917
--------- --------- ---------- --------- ----------
Income (loss) before income taxes
and extraordinary loss.............. 10,583 18,479 (4,843) (8,454) 15,765
Income tax (provision) benefit........ (888) (7,022) 1,840 (6,070)
......... --------- --------- ---------- --------- ----------
Income (loss) before
extraordinary loss.................. 9,695 11,457 (3,003) (8,454) 9,695
Extraordinary loss, net of income
tax benefit of $5,845 .............. (9,336) (9,336)
--------- --------- ---------- --------- -----------
Net income (loss)..................... $ 359 $ 11,457 $ (3,003) $ (8,454) $ 359
========= ========= ========== ========= ===========
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 8. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 27, 1998
(Thousands)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Consolidated
------- ------------ ------------- ------------
Cash and cash equivalents, beginning of period....... $ 35 $ 12,064 $ 825 $ 12,924
--------- --------- --------- --------
Cash provided by operating activities:
Net income(loss)..................................... (8,095) 11,457 (3,003) 359
Adjustments to reconcile net income(loss)to net
cash provided by(used in)operating activities:
Extraordinary loss .............................. 9,336 9,336
Depreciation..................................... 2,473 13,449 5,192 21,114
Goodwill amortization............................ 480 1,093 1,573
Deferred income taxes............................ 5,822 5,822
Noncash interest charges......................... 20,203 20,203
(Increase)decrease in working capital items.......... (74,275) 32,288 (21,595) (63,582)
Purchases of trading securities...................... (117,914) (117,914)
Proceeds from sales of trading securities............ 98,987 98,987
Change in net receivable from/payable to
related parties.................................... 30,415 (24,191) 33,458 39,682
Other, net........................................... 11,785 9,809 772 22,366
------- -------- -------- --------
Net cash provided by(used in)operating activities.... (1,856) 23,885 15,917 37,946
--------- --------- --------- --------
Cash provided by(used in)investing activities:
Capital expenditures............................... (3,037) (24,268) (12,497) (39,802)
Acquisition........................................ (59,187) (59,187)
Purchases of available-for-sale securities......... (54,524) (54,524)
Purchases of held-to-maturity securities .......... (6,344) (6,344)
Proceeds from sales of available-for-sale
securities........................................ 122,187 122,187
Proceeds from held-to-maturity securities.......... 499 499
--------- --------- --------- -------
Net cash provided by(used in)investing activities.... (62,224) 37,550 (12,497) (37,171)
--------- --------- --------- -------
Cash provided by(used in)financing activities:
Proceeds from sale of accounts receivable.......... 78,953 78,953
Decrease in short-term debt........................ (24,556) (24,556)
Proceeds from issuance of long-term debt .......... 149,361 149,361
Decrease in borrowings under revolving credit
facility........................................ (34,000) (34,000)
Repayments of long-term debt....................... (133,369) (2,007) (67) (135,443)
Decrease in loan receivable from related party..... 6,152 6,152
Financing fees and expenses........................ (3,050) (3,050)
--------- --------- --------- -------
Net cash used in financing activities................ 64,047 (26,563) (67) 37,417
--------- --------- --------- -------
Net change in cash and cash equivalents.............. (33) 34,872 3,353 38,192
--------- --------- --------- -------
Cash and cash equivalents, end of period............. $ 2 $ 46,936 $ 4,178 $ 51,116
========= ========= ========= ========
Certain Reclassifications have been made to 1998 presentations.
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 8. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Balance Sheet
December 31, 1998
(Thousands)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents............. $ 3 $ 21,748 $ 3,238 $ - $ 24,989
Investments in trading securities..... 95,134 95,134
Investments in available-for-sale
securities.......................... 56,461 56,461
Investments in held-to-maturity
securities.......................... 6,358 6,358
Other short-term investments.......... 22,671 22,671
Accounts receivable, trade............ 24,249 24,249
Accounts receivable, other............ 52,806 1,440 1,666 55,912
Inventories........................... 44,886 19,164 29,653 93,703
Other current assets.................. 125 3,615 1,126 4,866
--------- -------- --------- --------- -------
Total Current Assets................ 97,820 226,591 59,932 - 384,343
Investment in subsidiaries.............. 249,825 (249,825) -
Intercompany loans including accrued
interest.............................. 140,298 (140,298) -
Due from(to)subsidiaries, net........... (19,694) 35,297 (15,603) -
Property, plant and equipment, net...... 34,620 185,535 112,193 332,348
Excess of cost over net assets of
businesses acquired, net.............. 19,380 52,713 72,093
Deferred income tax benefits............ 58,974 58,974
Other assets............................ 14,844 3,229 337 18,410
--------- ------- --------- --------- ---------
Total Assets............................ $ 596,067 $450,652 $ 69,274 $(249,825) $ 866,168
========= ======== ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt.. 1,170 $ 3,016 $ 87 $ - $ 4,273
Accounts payable...................... 22,688 36,052 15,677 74,417
Payable to related parties, net....... 268 4,203 214 4,685
Accrued liabilities................... 20,257 26,953 13,455 60,665
Reserve for product warranty claims... 19,139 1,100 20,239
-------- ------- --------- --------- ---------
Total Current Liabilities........... 63,522 70,224 30,533 - 164,279
Long-term debt less current maturities.. 433,929 162,765 219 596,913
Reserve for product warranty claims..... 24,159 4,234 28,393
Other liabilities....................... 22,240 2,126 24,366
Total Stockholders' equity, net......... 52,217 217,663 32,162 (249,825) 52,217
--------- ------- --------- --------- --------
Total Liabilities and Stockholders' Equity $ 596,067 $ 450,652 $ 69,274 $(249,825) $ 866,168
========= ======= ========= ========= =========
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 8. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Nine Months Ended October 3, 1999
(Thousands)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ -----------
Net sales................................. $ 713,405 $ - $ 172,827 $ - $886,232
Intercompany net sales.................... 5,585 506,455 55,597 (567,637) -
--------- --------- --------- ----------- ---------
Total net sales........................... 718,990 506,455 228,424 (567,637) 886,232
--------- --------- --------- ----------- ---------
Costs and expenses:
Cost of products sold................... 539,540 459,941 194,429 (567,637) 626,273
Selling, general and administrative..... 120,928 31,263 31,948 184,139
Goodwill amortization................... 480 1,046 1,526
Transition service agreement (income)
expense............................... (500) 500 -
Nonrecurring charges ................... 2,650 2,650
--------- --------- --------- ---------- ---------
Total costs and expenses................ 663,098 491,704 227,423 (567,637) 814,588
--------- --------- --------- ---------- ---------
Operating income .......................... 55,892 14,751 1,001 - 71,644
Equity in earnings of subsidiaries........ 21,481 (21,481) -
Intercompany licensing income (expense),
net..................................... (21,402) 21,402 -
Interest expense, net..................... (20,978) (7,346) (8,820) (37,144)
Other income (expense), net............... (5,996) 13,108 1 7,113
--------- --------- --------- --------- ---------
Income (loss) before income taxes
and extraordinary loss.................. 28,997 41,915 (7,818) (21,481) 41,613
Income tax (provision) benefit............ (2,781) (15,508) 2,892 (15,397)
--------- --------- --------- --------- ---------
Income (loss) before
extraordinary loss...................... 26,216 26,407 (4,926) (21,481) 26,216
Extraordinary loss, net of income
tax benefit of $761..................... (1,296) (1,296)
--------- --------- --------- --------- ---------
Net income (loss)......................... $ 24,920 $ 26,407 $ (4,926) $ (21,481) $ 24,920
========= ========= ========= ========= =========
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 8. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Balance Sheet
October 3, 1999
(Thousands)
Non-
Parent Guarantor Guarantor Elim-
Company Subsidiaries Subsidiaries inations Consolidated
--------- ------------- ------------ ----------- ------------
ASSETS
Current Assets:
Cash and cash equivalents............... $ 449 $ 60,545 $ 2,256 $ - $ 63,250
Investments in trading securities....... 2,355 2,355
Investments in available-for-sale
securities............................ 40,892 40,892
Other short-term investments............ 1,496 1,496
Accounts receivable, trade.............. 29,438 29,438
Accounts receivable, other.............. 62,243 1,457 3,170 66,870
Receivable from(payable to) related
parties, net.......................... 86,460 (4,109) (86) 82,265
Inventories............................. 64,318 22,176 38,111 124,605
Other current assets.................... 2,343 2,981 1,488 6,812
------- --------- --------- --------- --------
Total Current Assets.................. 215,813 127,793 74,377 - 417,983
Investment in subsidiaries................ 271,306 (271,306) -
Intercompany loans including accrued
interest................................ 160,793 (160,793) -
Due from(to)subsidiaries, net............. (114,005) 134,779 (20,774) -
Property, plant and equipment, net........ 32,461 200,627 116,771 349,859
Excess of cost over net assets of
businesses acquired, net................ 18,900 51,917 70,817
Deferred income tax benefits.............. 44,386 44,386
Other assets.............................. 15,422 5,838 336 21,596
--------- --------- --------- --------- ---------
Total Assets.............................. $ 645,076 $ 469,037 $ 61,834 $(271,306) $ 904,641
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt......................... $ - $ 91 $ - $ - $ 91
Current maturities of long-term debt.... 1,307 3,896 87 5,290
Accounts payable........................ 39,528 32,337 15,277 87,142
Accrued liabilities..................... 37,521 24,060 11,902 73,483
Reserve for product warranty claims..... 15,000 1,100 16,100
--------- --------- --------- --------- --------
Total Current Liabilities............. 93,356 60,384 28,366 - 182,106
Long-term debt less current maturities.... 436,305 164,583 164 601,052
Reserve for product warranty claims....... 16,291 3,900 20,191
Other liabilities......................... 18,278 2,168 20,446
--------- --------- --------- --------- --------
Total Liabilities ........................ 564,230 224,967 34,598 - 823,795
Total Stockholders' equity, net........... 80,846 244,070 27,236 (271,306) 80,846
--------- --------- --------- --------- --------
Total Liabilities and Stockholders' Equity $ 645,076 $ 469,037 $ 61,834 $(271,306) $ 904,641
========= ========== ========= ========= =========
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 8. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Cash Flows
Nine Months Ended October 3, 1999
(Thousands)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Consolidated
--------- ------------ ------------- ---------
Cash and cash equivalents, beginning of period....... $ 3 $ 21,748 $ 3,238 $ 24,989
--------- --------- --------- --------
Cash provided by(used in)operating activities:
Net income(loss)..................................... 3,439 26,407 (4,926) 24,920
Adjustments to reconcile net income(loss)to net
cash provided by(used in)operating activities:
Extraordinary losses............................. 1,296 1,296
Depreciation..................................... 1,953 14,103 7,861 23,917
Goodwill amortization............................ 480 1,046 1,526
Deferred income taxes............................ 14,782 14,782
Noncash interest charges......................... 2,727 2,727
Increase in working capital items.................... (34,116) (9,003) (17,466) (60,585)
Purchases of trading securities...................... (132,607) (132,607)
Proceeds from sales of trading securities............ 235,676 235,676
Change in net receivable from/payable to
related parties.................................... (12,118) (100,370) 25,538 (86,950)
Other, net........................................... (9,643) (10,014) (116) (19,773)
--------- --------- --------- --------
Net cash provided by(used in)operating activities.... (31,200) 24,192 11,937 4,929
--------- --------- --------- --------
Cash provided by(used in)investing activities:
Capital expenditures............................... 197 (28,841) (12,864) (41,508)
Purchases of available-for-sale securities......... (75,864) (75,864)
Purchases of held-to-maturity securities........... (1,401) (1,401)
Proceeds from sales of available-for-sale
securities....................................... 88,915 88,915
Proceeds from held-to-maturity securities.......... 7,758 7,758
Proceeds from sales of other short-term
investments...................................... 21,420 21,420
--------- --------- --------- --------
Net cash provided by(used in)investing activities.... 197 11,987 (12,864) (680)
--------- --------- --------- --------
Cash provided by(used in)financing activities:
Proceeds from sale of accounts receivable.......... 33,199 33,199
Increase in short-term debt........................ 91 91
Proceeds from issuance of long-term debt........... 31,850 5,288 37,138
Repayments of long-term debt....................... (32,982) (2,590) (55) (35,627)
Proceeds from issuance of common stock............. 436 436
Financing fees and expenses........................ (1,054) (171) (1,225)
--------- --------- --------- --------
Net cash provided by (used in) financing activities.. 31,449 2,618 (55) 34,012
--------- --------- --------- --------
Net change in cash and cash equivalents.............. 446 38,797 (982) 38,261
--------- --------- --------- --------
Cash and cash equivalents, end of period............. $ 449 $ 60,545 $ 2,256 $ 63,250
========= ========= ========= ========
18
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Third Quarter 1999 Compared With
Third Quarter 1998
The Company recorded third quarter 1999 net income of $7.4 million compared
with a net loss of $13.3 million in the third quarter of 1998. The net income
for the quarter included a $2.7 million pre-tax nonrecurring charge and an
extraordinary charge of $1.3 million, and the net loss for the same period last
year included $27.6 million of pre-tax nonrecurring charges and an after-tax
$9.3 million extraordinary charge. Excluding the extraordinary and nonrecurring
charges in both periods, net income would have been $10.3 million in 1999,
compared with $13.1 million in the third quarter of 1998, with the decrease
primarily attributable to lower investment income, partially offset by higher
operating income.
The Company's net sales for the third quarter of 1999 were $312.8 million,
compared to the third quarter 1998 sales of $313.6 million, with the decrease
primarily due to lower sales in commercial roofing products and LL Building
Products, Inc., partially offset by sales gains in residential roofing products.
The increase in sales of the Company's residential roofing products reflected
higher sales volumes and, to a lesser extent, higher average selling prices,
while the decline in sales of commercial roofing products resulted from lower
sales volumes, partially offset by higher average selling prices.
In the third quarter of 1999, the Company recorded a $2.7 million
nonrecurring charge ($1.7 million after tax) related to the settlement of a
legal matter. The Company recorded pre-tax nonrecurring charges in the third
quarter of 1998 aggregating $27.6 million ($17.1 million after tax), related to
the settlement of a national class action lawsuit involving asphalt shingles
manufactured between January 1, 1973 and December 31, 1997, and $7.6 million
related to a grant to the Company's former President and Chief Executive Officer
of restricted common stock of the Company and certain cash payments to be made
to such officer.
Operating income, before the impact of nonrecurring charges, for the third
quarter of 1999 was $28.1 million, compared with $26.7 million, before the
impact of the nonrecurring charges of $27.6 million, in the third quarter of
1998. The improved operating income was primarily due to higher operating
profits in commercial roofing products, due primarily to higher average selling
prices, together with the improved performance primarily due to lower
manufacturing costs of LL Building Products, Inc.
Interest expense for the third quarter of 1999 was $12.3 million compared
with $12.4 million in the same period in 1998, due to a lower average interest
rate partially offset by higher average borrowings. The lower average interest
rate resulted from the refinancing of $310 million in aggregate principal amount
at maturity of the Company's Deferred Coupon Notes with substantially all of the
net proceeds from the issuances of $150 million in aggregate principal amount of
the Company's 7 3/4% Senior Notes due 2005, $155 million in aggregate principal
amount of the Company's 8% Senior Notes due 2008 and the $31.9 million Term Loan
in July 1998, December 1998 and August 1999, respectively. In connection with
the above refinancing, the Company recorded extraordinary charges of $9.3
million and $1.3 million for the three month periods ended September 27, 1998
and October 3, 1999, respectively.
19
Other income, net, for the third quarter of 1999 was $0.6 million compared
with $6.6 million in the third quarter of 1998, with the decrease primarily
resulting from lower investment income.
Results of Operations - Nine Months 1999 Compared With
Nine Months 1998
For the first nine months of 1999, the Company recorded net income of $24.9
million compared with $0.4 million for the first nine months of 1998. The net
income for the first nine months of 1999 included a $2.7 million pre-tax
nonrecurring charge and an extraordinary charge of $1.3 million, and the net
income for the same period last year included $27.6 million of pre-tax
nonrecurring charges and an after-tax $9.3 million extraordinary charge.
Excluding the extraordinary and nonrecurring charges in both periods, net income
would have been $27.9 million in 1999 compared with $26.8 million for the same
period last year, with the increase primarily attributable to higher operating
income and lower interest expense, partially offset by lower other income, net.
The Company's net sales for the first nine months of 1999 were $886.2
million, a 9.1% increase over last year's sales of $812.3 million. The sales
growth was primarily due to net sales gains in residential roofing products
together with the inclusion of the LL Building Products, Inc. business, acquired
in June 1998, partially offset by lower net sales in commercial roofing
products. The increase in net sales of residential roofing products resulted
from higher sales volumes and average selling prices, while the decline in net
sales of commercial roofing products resulted from lower average selling prices.
Operating income, before the impact of a nonrecurring charge, for the first
nine months of 1999 was $74.3 million compared with $60.3 million, before the
impact of the nonrecurring charges, for the first nine months of 1998. The 23.2%
improvement in operating income was primarily attributable to higher gross
profit margins, together with higher operating profits in the Company's
residential roofing products and the inclusion of the LL Building Products, Inc.
business. Partially offsetting these improvements were lower profits in
commercial roofing products and increases in operating expenses related to the
higher sales volume.
Interest expense declined to $37.1 million for the first nine months of
1999 from $37.8 million for the same period in 1998, due primarily to a lower
average interest rate, partially offset by higher average borrowings. The lower
average interest rate resulted from the refinancing of $310 million in aggregate
principal amount at maturity of the Company's Deferred Coupon Notes due 2004
with substantially all of the net proceeds from the issuances of $150 million in
aggregate principal amount of the Company's 7 3/4% Senior Notes due 2005, $155
million in aggregate principal amount of the Company's 8% Senior Notes due 2008
and the $31.9 million Term Loan in July 1998, December 1998 and August 1999,
respectively. In connection with the above refinancing, the Company recorded
extraordinary charges of $9.3 million and $1.3 million for the nine month
periods ended September 27, 1998 and October 3, 1999, respectively.
Other income, net, for the first nine months of 1999 was $7.1 million
compared with $20.9 million in the same period in 1998. The decline was
principally due to lower investment income.
20
Liquidity and Financial Condition
Net cash inflow during the first nine months of 1999 was $4.2 million
before financing activities, and included the reinvestment of $41.5 million for
capital programs, the generation of $40.8 million from net sales of
available-for-sale and held-to-maturity securities and other short-term
investments.
Cash invested in additional working capital totaled $60.6 million during
the first nine months of 1999, primarily reflecting a seasonal increase in
inventories of $30.9 million and a $49.3 million increase in receivables,
including a $10.5 million increase in the receivable from the trust which
purchases certain of the Company's trade accounts receivable, partially offset
by a $19.4 million increase in accounts payable and accrued liabilities. The net
cash provided by operating activities of $4.9 million was net of a $103.1
million cash inflow from net sales of trading securities and also included a
$87.0 million net cash outflow for related party transactions, which included
$91.0 million of advances to the Company's parent companies.
Net cash provided by financing activities totaled $34.0 million during the
first nine months of 1999, primarily reflecting $33.2 million of proceeds from
the sale of the Company's trade receivables and $37.1 million of proceeds from
the issuance of long-term debt, including the $31.9 million Term Loan, $3.5
million from an industrial revenue bond and $1.8 million from a promissory note.
Offsetting such cash inflows was $35.6 million of repayments of long-term debt,
principally the repurchase of the remaining $29.9 million, in aggregate
principal amount at maturity, of the Deferred Coupon Notes.
As a result of the foregoing factors, cash and cash equivalents increased
by $38.3 million during the first nine months of 1999 to $63.3 million,
excluding $44.7 million of trading and available-for-sale securities and other
short-term investments.
See Note 5 to Consolidated Financial Statements for information regarding
contingencies.
Year 2000 Compliance
The Company has implemented a Year 2000 program (i) to address its year
2000 issues, i.e., the inability of some IT and non-IT equipment, including
embedded technology, to accurately read and process certain dates in the year
2000 and afterwards, (ii) to investigate the Year 2000 issues of third parties
significant to the Company's business, and (iii) to establish contingency plans
where appropriate.
The Company has completed an internal study and believes it has remediated
all of its core systems. The Company has also evaluated and believes it has
remediated all of its personal computers, mainframe computers and computer
network. The Company believes that the core IT systems remediation has corrected
Year 2000 programming issues in all critical areas of the Company's business.
21
The Company's independent third party consultants have inventoried and
evaluated substantially all of the Company's non-IT equipment, i.e., voice mail,
telephone, fire and security systems, numerically controlled production
machinery and computer-based production equipment, and the Company has
remediated this equipment.
The Company has requested compliance information in the form of
questionnaires sent to significant vendors and customers. When appropriate, a
lack of a response to these questionnaires was followed by direct contact. The
Company has received compliance information from substantially all of its
significant vendors and customers. Each of these significant vendors and
customers has advised the Company that they are or expect to be ready for the
Year 2000 by the end of 1999.
Notwithstanding the compliance information received from vendors, the
Company has completed contingency plans that include the identification of
secondary suppliers to minimize the impact of any Year 2000 related issues that
may develop. The Company has completed contacting the secondary suppliers in the
form of direct questionnaires to determine their readiness for Year 2000 issues.
The Company does not believe the costs of its Year 2000 program will be
material to its financial position or results of operations. The Company has
incurred outside costs of approximately $1.0 million to date and anticipates no
significant additional outside costs. The Company has charged these costs, as
incurred, against results of operations.
Management believes it has taken reasonable steps in developing its Year
2000 program. Notwithstanding these actions, there can be no assurance that all
of the Company's Year 2000 issues or those of its key suppliers, service
providers or customers will be resolved or addressed satisfactorily before the
year 2000 commences. Management believes that the most reasonably likely "worst
case scenario" resulting from Year 2000 issues could be the failure by the
Company's key suppliers, service providers, customers and other third parties to
address their Year 2000 issues. If this were to occur, then the Company's usual
channels of supply and distribution could be disrupted and the Company could
experience a material adverse impact on its business, results of operations or
financial position.
* * *
Forward-looking Statements
This Quarterly Report on Form 10-Q contains both historical and
forward-looking statements. All statements other than statements of historical
fact are, or may be deemed to be, forward-looking statements within the meaning
of section 27A of the Securities Act of 1933 and section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are only predictions and
generally can be identified by use of statements that include phrases such as
"believe," "expect," "anticipate," "intend," "plan," "foresee" or other words or
phrases of similar import. Similarly, statements that describe the Company's
objectives, plans or goals also are forward-looking statements. The Company's
operations are subject to certain risks and uncertainties that could cause
actual results to differ materially from those contemplated by the relevant
forward-looking statement. The forward-looking statements included
22
herein are made only as of the date of this Quarterly Report on Form 10-Q and
the Company undertakes no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances. No assurances can be
given that projected results or events will be achieved.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Form 10-K for a discussion of
"Market-Sensitive Instruments and Risk Management." As of December 31, 1998,
equity-related financial instruments employed by the Company to reduce market
risk included long contracts valued at $35.2 million and short contracts valued
at $143.2 million. At October 3, 1999, the Company had long contracts valued at
$1.3 million and short contracts valued at $1.8 million. Since the Company
marks-to-market such instruments each month, there was no economic cost to the
Company to terminate these instruments.
23
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Plaintiffs Joseph Rossi, Rossi Florence Corp. and Rossi Roofing Inc. filed
a complaint in the United States District Court for the District of New Jersey
on December 24, 1992 against several roofing and siding manufacturers, including
GAF Building Materials Corporation, several roofing and siding distributors and
one national purchasing cooperative, alleging that defendants participated in a
group boycott against plaintiffs to keep plaintiffs from competing in the
Northern New Jersey roofing and siding distribution market in violation of the
Sherman Act, 15 U.S.C. section 1, et seq., and state antitrust laws. Plaintiffs
also asserted a tortious interference claim against defendants under New Jersey
state law. Plaintiffs sought unspecified damages, including treble and punitive
damages, and attorney's fees. The District Court entered summary judgment in
favor of GAF Building Materials Corporation and four other defendants in March
1997. The United States Court of Appeals for the Third Circuit reversed the
District Court's judgment with respect to GAF Building Materials Corporation and
two other defendants. In October 1999, this matter was settled without admission
of liability by any party. In connection with its formation, the Company assumed
any liability that may arise from this action.
For information relating to certain other legal proceedings, see "Item 3.
Legal Proceedings - Other Litigation" contained in the Form 10-K and "Part II,
Item 1. - Legal Proceedings" contained in the Company's Quarterly Reports on
Form 10-Q for the quarters ended April 4, 1999 and July 4, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1- Financial Data Schedule for the nine months ended October 3, 1999,
which is submitted electronically to the Securities and Exchange
Commission for information only.
27.2- Restated Financial Data Schedules for the three months ended
April 4, 1999 and the six months ended July 4, 1999, which are
submitted electronically to the Securities and Exchange
Commission for information only.
27.3- Restated Financial Data Schedules for the three months ended
March 29, 1998, six months ended June 28, 1998, nine months
ended September 27, 1998, and the year ended December 31,
1998, which are submitted electronically to the Securities and
Exchange Commission for information only.
27.4- Restated Financial Data Schedule for the year ended December
31, 1997, 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 October 3,
1999.
24
SIGNATURES
-----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrants listed below have duly caused this report
to be signed on their behalf by the undersigned, thereunto duly authorized.
BUILDING MATERIALS CORPORATION OF AMERICA
BUILDING MATERIALS MANUFACTURING CORPORATION
BUILDING MATERIALS INVESTMENT CORPORATION
DATE: November 17, 1999 BY: /s/William C. Lang
----------------- ------------------
William C. Lang
Executive Vice President,
Chief Administrative Officer
and Chief Financial Officer
(Principal Financial Officer)
DATE: November 17, 1999 BY: /s/James T. Esposito
----------------- --------------------
James T. Esposito
Vice President and Controller
(Principal Accounting Officer)
25