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 April 4, 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 May 17, 1999, 1,015,010 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 May 17, 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)
Quarter Ended
-------------------
March 29, April 4,
1998 1999
--------- --------
(Thousands)
Net sales ................................. $212,429 $262,928
-------- --------
Costs and expenses:
Cost of products sold ................... 158,034 192,082
Selling, general and administrative...... 47,874 56,275
Goodwill amortization ................... 492 509
-------- --------
Total costs and expenses............... 206,400 248,866
-------- --------
Operating income .......................... 6,029 14,062
Interest expense .......................... (12,692) (11,834)
Other income (expense), net................ 10,267 (510)
-------- --------
Income before income taxes ................ 3,604 1,718
Income taxes .............................. (1,404) (636)
-------- --------
Net income ................................ $ 2,200 $ 1,082
======== ========
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
1
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
April 4,
December 31, 1999
1998 (Unaudited)
------------ -----------
(Thousands)
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 24,987 $ 18,570
Investments in trading securities................. 95,134 56,617
Investments in available-for-sale securities...... 56,461 94,168
Investments in held-to-maturity securities........ 6,358 2,129
Other short-term investments...................... 22,671 18,744
Accounts receivable, trade, net................... 24,249 29,712
Accounts receivable, other........................ 54,795 75,338
Receivable from related parties, net.............. - 22,056
Inventories....................................... 93,364 114,904
Other current assets.............................. 4,144 5,185
--------- ---------
Total Current Assets............................ 382,163 437,423
Property, plant and equipment, net.................. 314,400 322,551
Excess of cost over net assets of businesses
acquired, net .................................... 72,093 71,709
Deferred income tax benefits........................ 60,427 58,483
Other assets........................................ 18,410 18,861
--------- ---------
Total Assets........................................ $ 847,493 $ 909,027
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt................................... $ - $ 23,743
Current maturities of long-term debt.............. 4,273 4,579
Accounts payable.................................. 71,613 73,024
Payable to related parties, net................... 5,430 -
Accrued liabilities............................... 59,893 64,234
Reserve for product warranty claims............... 20,239 20,099
--------- ---------
Total Current Liabilities....................... 161,448 185,679
--------- ---------
Long-term debt less current maturities.............. 588,413 626,778
--------- ---------
Reserve for product warranty claims................. 28,393 26,002
--------- ---------
Other liabilities................................... 24,366 24,808
--------- ---------
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 shares
issued and outstanding ......................... 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........................ 89,400 89,400
Accumulated deficit............................... (24,644) (23,562)
Accumulated other comprehensive loss ............. (19,884) (20,079)
--------- ---------
Stockholders' Equity ........................... 44,873 45,760
--------- ---------
Total Liabilities and Stockholders' Equity ........ $ 847,493 $ 909,027
========= =========
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)
Quarter Ended
--------------------
March 29, April 4,
1998 1999
--------- ---------
(Thousands)
Cash and cash equivalents, beginning of period........... $ 12,921 $ 24,987
-------- --------
Cash provided by (used in) operating activities:
Net income ............................................ 2,200 1,082
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation ...................................... 5,998 7,106
Goodwill amortization.............................. 492 509
Deferred income taxes.............................. 1,357 511
Noncash interest charges........................... 7,448 1,141
Increase in working capital items...................... (36,827) (66,026)
Purchases of trading securities........................ (26,353) (82,046)
Proceeds from sales of trading securities.............. 30,368 125,542
Change in net receivable from/payable to related
parties.............................................. 10,251 (27,486)
Other, net............................................. 2,515 (8,577)
-------- --------
Net cash used in operating activities.................... (2,551) (48,244)
-------- --------
Cash provided by (used in) investing activities:
Capital expenditures................................... (11,731) (15,359)
Purchases of available-for-sale securities............. (16,031) (55,887)
Purchases of held-to-maturity securities............... - (1,401)
Proceeds from sales of available-for-sale securities... 51,439 19,419
Proceeds from held-to-maturity securities.............. 499 5,629
Proceeds from sales of other short-term investments.... - 5,000
-------- --------
Net cash provided by (used in) investing activities...... 24,176 (42,599)
-------- --------
Cash provided by (used in) financing activities:
Proceeds (repayments) from sale of accounts receivable. (2,944) 23,150
Increase (decrease) in short-term debt................. (10,466) 23,743
Increase (decrease) in borrowings under revolving
credit facility...................................... (14,000) 39,500
Repayments of long-term debt........................... (921) (1,733)
Decrease in loan receivable from related party......... 6,152 -
Financing fees and expenses............................ (131) (234)
-------- --------
Net cash provided by (used in) financing activities...... (22,310) 84,426
-------- --------
Net change in cash and cash equivalents.................. (685) (6,417)
-------- --------
Cash and cash equivalents, end of period................. $ 12,236 $ 18,570
======== ========
3
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - (Continued)
Quarter Ended
--------------------
March 29, April 4,
1998 1999
--------- ---------
(Thousands)
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized)............. $ 1,006 $ 7,235
Income taxes..................................... 598 270
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") is a 97%-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 April 4, 1999, and the results of operations and cash flows
for the periods ended March 29, 1998 and April 4, 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: Comprehensive Income
Quarter Ended
-------------------
March 29, April 4,
1998 1999
--------- --------
(Thousands)
Net income .................................... $ 2,200 $ 1,082
-------- --------
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 taxes of $1,849 and $806............ 2,894 209
Less: Reclassification adjustment
for gains included in net income, net of
income taxes of $3,581 and $237............ 6,730 404
-------- --------
Total other comprehensive loss................. (3,836) (195)
-------- --------
Comprehensive income (loss) ................... $ (1,636) $ 887
======== ========
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1. Comprehensive Income (Continued)
Changes in the components of "Accumulated other comprehensive loss" for the
quarter ended April 4, 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 ........ (195) - (195)
-------- -------- --------
Balance, April 4, 1999 ....... $(17,123) $ (2,956) $(20,079)
======== ======== ========
Note 2: Inventories:
Inventories consist of the following:
December 31, April 4,
1998 1999
------------ ---------
(Thousands)
Finished goods .................. $ 58,266 $ 77,032
Work in process ................. 8,488 10,566
Raw materials and supplies ...... 27,296 27,992
-------- --------
Total ........................... 94,050 115,590
Less LIFO reserve ............... (686) (686)
-------- --------
Inventories ..................... $ 93,364 $114,904
======== ========
Note 3: 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.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3: Contingencies (Continued)
GAF has advised the Company that, as of March 27, 1999, it is defending
approximately 121,700 pending alleged Asbestos Claims (having received notice of
approximately 12,800 new Asbestos Claims during the first three months of 1999)
and has resolved approximately 298,400 Asbestos Claims (including approximately
4,900 in the first three 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 $3,600 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-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 the Company, 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.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3. Contingencies (Continued)
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 ("GFC"), 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.
Note 4. 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, 1999, 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 5. Nonrecurring Charges
In July 1998, the Company recorded a pre-tax nonrecurring charge of $7.6
million related to a grant to its President and Chief Executive Officer of
30,000 shares of restricted common stock of the Company and related cash
payments to be made over a period of time (substantially all of which is 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
8
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 the President and Chief
Executive Officer is entitled (subject to certain future vesting requirements).
Should the President and Chief Executive Officer leave the Company, the Company
has the right to purchase the shares of restricted common stock and the
President and Chief Executive Officer has the right to sell such shares to the
Company at Book Value (as defined).
Note 6. Guarantor Financial Information
Effective January 1, 1999, Building Materials Corporation of America
("BMCA" 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 bank credit facility (the "Credit Agreement"), 11 3/4% Senior Deferred
Coupon Notes due 2004 (the "Deferred Coupon Notes"), and 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"). BMCA 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 Credit Agreement, the
Deferred Coupon Notes and the Other Senior Notes. 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 combining 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.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 6. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Combining Statement of Income
Quarter Ended March 29, 1998
(Thousands)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
Net sales............................. $182,348 $ - $ 30,081 $ - $ 212,429
Intercompany net sales................ 664 118,542 14,880 (134,086) -
--------- ----------- ------------ ------------ -----------
Total net sales....................... 183,012 118,542 44,961 (134,086) 212,429
--------- ----------- ------------ ------------ -----------
Costs and expenses:
Cost of products sold............... 144,479 111,656 35,985 (134,086) 158,034
Selling, general and administrative. 32,808 6,886 8,180 47,874
Goodwill amortization............... 160 332 492
--------- ----------- ------------ ------------ -----------
Total costs and expenses.............. 177,447 118,542 44,497 (134,086) 206,400
--------- ----------- ------------ ------------ -----------
Operating income...................... 5,565 - 464 - 6,029
Equity in earnings of subsidiaries.... 4,937 (4,937) -
Interest expense, net................. (8,150) (2,495) (2,047) (12,692)
Other income (expense), net........... (1,773) 12,040 10,267
--------- ----------- ------------ ------------ -----------
Income (loss) before income taxes..... 579 9,545 (1,583) (4,937) 3,604
Income tax (provision) benefit........ 1,621 (3,627) 602 (1,404)
--------- ----------- ------------ ------------ -----------
Net income (loss)..................... $ 2,200 $ 5,918 $ (981) $ (4,937) $ 2,200
========= =========== ============ ============ ===========
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 6. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Combining Statement of Cash Flows
Quarter Ended March 29, 1998
(Thousands)
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Consolidated
-------- ------------ ------------- ------------
Cash and cash equivalents, beginning of period....... $ 35 $ 12,061 $ 825 $ 12,921
-------- ------------ ------------- ------------
Cash provided by(used in)operating activities:
Net income(loss)..................................... (2,737) 5,918 (981) 2,200
Adjustments to reconcile net income(loss)to net
cash provided by(used in)operating activities:
Depreciation..................................... 807 3,733 1,458 5,998
Goodwill amortization............................ 160 332 492
Deferred income taxes............................ 1,357 1,357
Noncash interest charges......................... 7,448 7,448
(Increase)decrease in working capital items.......... (44,106) 19,998 (12,719) (36,827)
Purchases of trading securities...................... (26,353) (26,353)
Proceeds from sales of trading securities............ 30,368 30,368
Change in net receivable from/payable to
related parties.................................... 49,091 (55,900) 17,060 10,251
Other, net........................................... 9 2,659 (153) 2,515
--------- ----------- ---------- ------------
Net cash provided by(used in)operating activities.... 12,029 (19,577) 4,997 (2,551)
--------- ----------- ---------- ------------
Cash provided by(used in)investing activities:
Capital expenditures............................... (892) (6,193) (4,646) (11,731)
Purchases of available-for-sale securities......... (16,031) (16,031)
Proceeds from sales of available-for-sale
securities........................................ 51,439 51,439
Proceeds from held-to-maturity securities.......... 499 499
--------- ----------- ---------- -------------
Net cash provided by(used in)investing activities.... (892) 29,714 (4,646) 24,176
--------- ----------- ---------- -------------
Cash provided by(used in)financing activities:
Repayments related to sale of accounts receivable.. (2,944) (2,944)
Decrease in short-term debt........................ (10,466) (10,466)
Decrease in borrowings under revolving credit
facility........................................ (14,000) (14,000)
Repayments of long-term debt....................... (247) (653) (21) (921)
Decrease in loan receivable from related party..... 6,152 6,152
Financing fees and expenses........................ (131) (131)
--------- ----------- ---------- -------------
Net cash used in financing activities................ (11,170) (11,119) (21) (22,310)
--------- ----------- ---------- -------------
Net change in cash and cash equivalents.............. (33) (982) 330 (685)
--------- ----------- ---------- -------------
Cash and cash equivalents, end of period............. $ 2 $ 11,079 $ 1,155 $ 12,236
========= =========== ========= =============
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 6. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Combining Balance Sheet
December 31, 1998
(Thousands)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents............... $ 3 $ 21,746 $ 3,238 $ - $ 24,987
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.............. 52,806 323 1,666 54,795
Inventories............................. 44,886 18,825 29,653 93,364
Other current assets.................... 125 2,893 1,126 4,144
------- ---------- ---------- ---------- -----------
Total Current Assets.................. 97,820 224,411 59,932 - 382,163
Investment in subsidiaries................ 250,156 (250,156) -
Intercompany loans including accrued
interest................................ 140,298 (140,298) -
Due from(to)subsidiaries, net............. (27,369) 42,972 (15,603) -
Property, plant and equipment, net........ 34,620 167,587 112,193 314,400
Excess of cost over net assets of
businesses acquired, net................ 19,380 52,713 72,093
Deferred income tax benefits.............. 60,427 60,427
Other assets.............................. 14,844 3,229 337 18,410
-------- --------- ---------- ---------- ------------
Total Assets.............................. $590,176 $ 438,199 $ 69,274 $(250,156) $ 847,493
======== ========= ========== ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt.... $ 1,170 $ 3,016 $ 87 $ - $ 4,273
Accounts payable........................ 22,688 33,248 15,677 71,613
Payable to related parties, net......... 1,721 3,495 214 5,430
Accrued liabilities..................... 20,257 26,181 13,455 59,893
Reserve for product warranty claims..... 19,139 1,100 20,239
-------- --------- ---------- ---------- ------------
Total Current Liabilities............. 64,975 65,940 30,533 - 161,448
Long-term debt less current maturities.... 433,929 154,265 219 588,413
Reserve for product warranty claims....... 24,159 4,234 28,393
Other liabilities......................... 22,240 2,126 24,366
-------- --------- ---------- ---------- ------------
Total Liabilities......................... 545,303 220,205 37,112 - 802,620
-------- --------- ---------- ---------- ------------
Stockholders' equity, net................. 44,873 217,994 32,162 (250,156) 44,873
-------- --------- ---------- ---------- ------------
Total Liabilities and Stockholders' Equity $590,176 $ 438,199 $ 69,274 $(250,156) $ 847,493
======== ========= ========== ========== ============
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 6. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Combining Statement of Income
Quarter Ended April 4, 1999
(Thousands)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
Net sales................................. $210,955 $ - $ 51,973 $ - $ 262,928
Intercompany net sales.................... 1,001 146,268 16,044 (163,313) -
-------- ----------- ------------ ------------ -----------
Total net sales........................... 211,956 146,268 68,017 (163,313) 262,928
-------- ----------- ------------ ------------ -----------
Costs and expenses:
Cost of products sold................... 164,211 132,290 58,894 (163,313) 192,082
Selling, general and administrative..... 36,300 9,468 10,507 56,275
Goodwill amortization................... 160 349 509
Transition service agreement (income)
expense............................... (250) 250 -
-------- ----------- ------------ ------------ -----------
Total costs and expenses................ 200,421 142,008 69,750 (163,313) 248,866
-------- ----------- ------------ ------------ -----------
Operating income (loss).................... 11,535 4,260 (1,733) - 14,062
Equity in earnings of subsidiaries........ 3,569 (3,569) -
Intercompany licensing income (expense),
net..................................... (6,329) 6,329 -
Interest expense, net..................... (7,290) (1,927) (2,617) (11,834)
Other income (expense), net............... (1,866) 1,356 (510)
--------- ---------- ------------ ----------- ------------
Income (loss) before income taxes......... (381) 10,018 (4,350) (3,569) 1,718
Income tax (provision) benefit............ 1,463 (3,709) 1,610 (636)
-------- ---------- ------------ ----------- ------------
Net income (loss)..........................$ 1,082 $ 6,309 $ (2,740) $ (3,569) $ 1,082
======== ========== ============ =========== ============
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 6. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Combining Balance Sheet
April 4, 1999
(Thousands)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents............... $ 3 $ 13,747 $ 4,820 $ - $ 18,570
Investments in trading securities....... 56,617 56,617
Investments in available-for-sale
securities............................ 94,168 94,168
Investments in held-to-maturity
securities............................ 2,129 2,129
Other short-term investments............ 18,744 18,744
Accounts receivable, trade.............. 29,712 29,712
Accounts receivable, other.............. 72,331 720 2,287 75,338
Receivable from(payable to) related
parties, net.......................... 27,201 (4,922) (223) 22,056
Inventories............................. 56,166 20,335 38,403 114,904
Other current assets.................... 460 3,744 981 5,185
-------- ---------- ---------- ---------- -----------
Total Current Assets.................. 156,161 205,282 75,980 - 437,423
Investment in subsidiaries................ 253,725 (253,725) -
Intercompany loans including accrued
interest................................ 157,914 (157,914) -
Due from(to)subsidiaries, net............. (50,662) 70,245 (19,583) -
Property, plant and equipment, net........ 33,652 174,136 114,763 322,551
Excess of cost over net assets of
businesses acquired, net................ 19,220 52,489 71,709
Deferred income tax benefits.............. 58,483 58,483
Other assets.............................. 14,718 3,806 337 18,861
-------- --------- ---------- ---------- ------------
Total Assets.............................. $643,211 $ 453,469 $ 66,072 $(253,725) $ 909,027
======== ========= ========== ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt......................... $ 5,000 $ 18,743 $ - $ - $ 23,743
Current maturities of long-term debt.... 1,187 3,316 76 4,579
Accounts payable........................ 27,262 28,095 17,667 73,024
Accrued liabilities..................... 26,488 26,467 11,279 64,234
Reserve for product warranty claims..... 18,999 1,100 20,099
-------- --------- ---------- ---------- ------------
Total Current Liabilities............. 78,936 76,621 30,122 - 185,679
Long-term debt less current maturities.... 474,026 152,545 207 626,778
Reserve for product warranty claims....... 21,871 4,131 26,002
Other liabilities......................... 22,618 2,190 24,808
-------- --------- ---------- ---------- ------------
Total Liabilities......................... 597,451 229,166 36,650 - 863,267
-------- --------- ---------- ---------- ------------
Stockholders' equity, net................. 45,760 224,303 29,422 (253,725) 45,760
-------- --------- ---------- ---------- ------------
Total Liabilities and Stockholders' Equity $643,211 $ 453,469 $ 66,072 $(253,725) $ 909,027
======== ========= ========== ========== ============
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 6. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Combining Statement of Cash Flows
Quarter Ended April 4, 1999
(Thousands)
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Consolidated
-------- ------------ ------------- ------------
Cash and cash equivalents, beginning of period....... $ 3 $ 21,746 $ 3,238 $ 24,987
-------- ------------ ------------- ------------
Cash provided by(used in)operating activities:
Net income(loss)..................................... (2,487) 6,309 (2,740) 1,082
Adjustments to reconcile net income(loss)to net
cash provided by(used in)operating activities:
Depreciation..................................... 633 4,451 2,022 7,106
Goodwill amortization............................ 160 349 509
Deferred income taxes............................ 511 511
Noncash interest charges......................... 1,141 1,141
Increase in working capital items.................... (43,526) (7,625) (14,875) (66,026)
Purchases of trading securities...................... (82,046) (82,046)
Proceeds from sales of trading securities............ 125,542 125,542
Change in net receivable from/payable to
related parties.................................... (22,007) (27,084) 21,605 (27,486)
Other, net........................................... (1,842) (6,593) (142) (8,577)
--------- ----------- ---------- ------------
Net cash provided by(used in)operating activities.... (67,417) 12,954 6,219 (48,244)
--------- ----------- ---------- ------------
Cash provided by(used in)investing activities:
Capital expenditures............................... 291 (11,036) (4,614) (15,359)
Purchases of available-for-sale securities......... (55,887) (55,887)
Purchases of held-to-maturity securities........... (1,401) (1,401)
Proceeds from sales of available-for-sale
securities....................................... 19,419 19,419
Proceeds from held-to-maturity securities.......... 5,629 5,629
Proceeds from sales of other short-term
investments....................................... 5,000 5,000
--------- ----------- ---------- -------------
Net cash provided by(used in)investing activities.... 291 (38,276) (4,614) (42,599)
--------- ----------- ---------- -------------
Cash provided by(used in)financing activities:
Proceeds from sale of accounts receivable.......... 23,150 23,150
Increase in short-term debt........................ 5,000 18,743 23,743
Increase in borrowings under revolving credit
facility........................................ 39,500 39,500
Repayments of long-term debt....................... (290) (1,420) (23) (1,733)
Financing fees and expenses........................ (234) (234)
--------- ----------- ---------- -------------
Net cash provided by (used in) financing activities.. 67,126 17,323 (23) 84,426
--------- ----------- ---------- -------------
Net change in cash and cash equivalents.............. - (7,999) 1,582 (6,417)
--------- ----------- ---------- -------------
Cash and cash equivalents, end of period............. $ 3 $ 13,747 $ 4,820 $ 18,570
========= =========== ========= =============
15
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - First Quarter 1999 Compared With
First Quarter 1998
The Company recorded first quarter 1999 net income of $1.1 million compared
with $2.2 million in the first quarter of 1998. The decline in net income was
primarily the result of higher other expenses attributable to lower investment
income, partially offset by higher operating income and lower interest expense.
The Company's net sales for the first quarter of 1999 were $262.9 million,
a 23.8% increase over first quarter 1998 sales of $212.4 million. The sales
growth was due to net sales gains in both residential and commercial roofing
products together with the inclusion of the Leslie-Locke business, which was
acquired in June 1998. The increase in net sales of the Company's residential
roofing products reflected higher unit volumes and selling prices, while the
increase in net sales of commercial roofing products resulted from increased
unit volumes partially offset by lower selling prices.
Operating income for the first quarter of 1999 was $14.1 million, a 135.0%
increase, compared with $6.0 million in the first quarter of 1998. The increase
in operating results was attributable to higher gross profit margins, which
increased to 26.9% from 25.6% in the same period of last year due to improved
pricing administration and reduced manufacturing costs, together with the
inclusion of the Leslie-Locke business. Partially offsetting these improvements
were higher selling, general and administrative expenses due to the Leslie-Locke
acquisition, as well as higher selling, marketing and distribution costs to
achieve the increased sales reported in the quarter. Selling, general and
administrative expenses as a percentage of net sales declined to 21.4% in the
first quarter of 1999 as compared with 22.5% in the first quarter of 1998.
Interest expense for the first quarter of 1999 decreased by 7.1% to $11.8
million from $12.7 million recorded in the same period in 1998, due primarily to
lower average interest rates, partially offset by higher average borrowings. The
lower average interest rates resulted from the refinancing of $279.7 million in
aggregate principal amount at maturity of the Company's 11 3/4% Senior 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 and $155 million in aggregate principal amount of the
Company's 8% Senior Notes due 2008 in July and December 1998, respectively.
Other expense, net, for the first quarter of 1999 was $0.5 million compared
with other income, net, of $10.3 million in the first quarter of 1998, with the
decrease resulting from lower investment income.
Liquidity and Financial Condition
Net cash outflow during the first quarter of 1999 was $90.8 million before
financing activities, and included the use of $48.2 million of cash for
operations, the reinvestment of $15.4 million for capital programs, and cash
16
expenditures of $27.2 million for net purchases of available-for-sale and
held-to-maturity securities and other short-term investments.
Cash invested in additional working capital totaled $66.0 million during
the first quarter of 1999, primarily reflecting a seasonal increase in
inventories of $21.5 million and a $49.2 million increase in receivables,
including a $21.2 million increase in the receivable from the trust which
purchases certain of the Company's trade accounts receivable, partially offset
by a $5.7 million increase in accounts payable and accrued liabilities. The net
cash used for operating activities was net of a $43.5 million cash inflow from
net sales of trading securities and also included a $27.5 million cash outflow
for related party transactions, mainly reflecting $30.9 million of advances to
the Company's parent companies.
Net cash provided by financing activities totaled $84.4 million during the
first quarter of 1999, mainly reflecting a $39.5 million increase in borrowings
under the Company's bank revolving credit facility, a $23.7 million increase in
short-term borrowings and $23.2 million in proceeds from the sale of the
Company's trade receivables.
As a result of the foregoing factors, cash and cash equivalents decreased
by $6.4 million during the first quarter of 1999 to $18.6 million, excluding
$171.7 million of trading, available-for-sale and held-to-maturity securities
and other short-term investments.
See Note 3 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 by 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
substantially all of its core systems. The Company has also evaluated and
believes it has remediated substantially all of its personal computers,
mainframe computers and its 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.
In addition, the Company is working with outside consultants to certify the
compliance of the Company's core systems with externally developed and published
certification standards. The Company expects to complete this certification by
the third quarter of 1999. 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 and
numerically controlled production machinery and computer-based production
equipment, and the Company is in the process of remediating and testing this
equipment. The Company expects to complete these activities by the end of the
second quarter of 1999.
17
The Company has requested compliance information in the form of direct
questionnaries from vendors significant to the Company's business and is
soliciting compliance information from its significant customers. The Company
expects to complete this solicitation by June 1999. When appropriate, a lack of
a response to these questionnaires is being followed by direct contact. The
Company has received compliance information from substantially all of its key
vendors. Each of these vendors has advised the Company that they are or expect
to be ready for the year 2000 by the end of 1999. The Company is evaluating
these responses and is requesting more information where appropriate to help the
Company formulate contingency plans, including the identification of secondary
suppliers, to minimize the impact of any Year 2000 related issues that may
develop. The Company expects this phase of evaluation to be completed by the end
of July 1999.
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 $800,000 to date and anticipates that
additional outside costs should approximate no more than $1 million in the
aggregate. The Company will charge 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 reasonable 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 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.
18
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 April 4, 1999, the value of long contracts was $59.8
million and the value of short contracts was $42.0 million. All such short
contracts were terminated as of May 6, 1999. Since the Company marks-to-market
such instruments each month, there was no economic cost to the Company to
terminate these instruments.
19
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On or about April 29, 1996, an action was commenced in the Circuit Court of
Mobile County, Alabama against GAFBMC on behalf of a purported nationwide class
of purchasers of, or current owners of, buildings with certain asphalt shingles
manufactured by GAFBMC. The action alleges, among other things, that such
shingles were defective and seeks unspecified damages on behalf of the purported
class. On September 25, 1998, the Company agreed to settle this litigation on a
national, class-wide basis for asphalt shingles manufactured between January 1,
1973 and December 31, 1997. Following a fairness hearing, the court granted
final approval of the class-wide settlement in April 1999. Under the terms of
the settlement, the Company will provide property owners whose shingles were
manufactured during this period and which suffer certain damages during the term
of their original warranty period, and who file a qualifying claim, with an
opportunity to receive certain limited benefits beyond those already provided in
their existing warranty. In October and December 1998, the separate actions
commenced in 1997 in the Superior Court of New Jersey, Middlesex County, the
Superior Court of New Jersey, Passaic County and the Supreme Court of the State
of New York, County of Nassau, and in 1996 in Pointe Coupee Parish, Louisiana,
on behalf of purported classes were stayed pending the outcome of the fairness
hearing on the settlement agreement in the Mobile County, Alabama action. The
Company expects that these actions will be dismissed in light of the final
approval of the settlement agreement in the Mobile County, Alabama action.
For further information relating to these legal proceedings, see "Item 3.
Legal Proceedings - Other Litigation" contained in the Form 10-K.
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 April 4, 1999.
20
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: May 18, 1999 BY: /s/William C. Lang
------------ ------------------
William C. Lang
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
21