10-Q 1 mv11-11_10q.txt 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 September 28, 2003 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 or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 1361 Alps Road, Wayne, New Jersey 07470 (Address of Principal Executive Offices) (Zip Code) (973) 628-3000 (Registrant's telephone number, including area code) None (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) See Table of Additional Registrants Below. 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 / / Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES / / NO /X/ As of November 11, 2003, 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 the registrant were outstanding. There is no trading market for the common stock of the registrant. As of November 11, 2003, each of the additional registrants had the number of shares outstanding which is shown on the table below. There is no trading market for the common stock of the additional registrants. As of November 11, 2003, no shares of the registrant or the additional registrants were held by non-affiliates. ADDITIONAL REGISTRANTS
State or other Address, including zip code and jurisdiction of Commission File No./ telephone number, including area Exact name of registrant as incorporation or No. of Shares I.R.S. Employer code, of registrant's principal specified in its charter organization Outstanding Identification No. executive offices ------------------------ ------------ ----------- ------------------ ----------------- Building Materials Delaware 10 333-69749-01/ 1361 Alps Road Manufacturing Corporation 22-3626208 Wayne, NJ 07470 (973) 628-3000 Building Materials Delaware 10 333-69749-02/ 300 Delaware Avenue Investment Corporation 22-3626206 Suite 303 Wilmington, DE 19801 (302) 427-5960
2 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.29, Sept. 28, Sept. 29, Sept. 28, 2002 2003 2002 2003 --------- --------- ----------- ----------- (Thousands) Net sales.............................. $ 357,100 $ 459,887 $ 1,045,751 $ 1,209,142 --------- --------- ----------- ----------- Costs and expenses, net: Cost of products sold................ 242,400 318,900 723,637 849,630 Selling, general and administrative.. 74,607 91,315 218,064 246,855 Gain on sale of assets............... - - - (5,739) --------- --------- ----------- ----------- Total costs and expenses, net...... 317,007 410,215 941,701 1,090,746 --------- --------- ----------- ----------- Operating income....................... 40,093 49,672 104,050 118,396 Interest expense....................... (13,787) (14,730) (41,536) (42,029) Other expense, net..................... (1,753) (1,248) (6,147) (5,525) --------- --------- ----------- ----------- Income before income taxes............. 24,553 33,694 56,367 70,842 Income tax provision................... (8,839) (12,130) (20,293) (25,503) --------- --------- ----------- ----------- Net income............................. $ 15,714 $ 21,564 $ 36,074 $ 45,339 ========= ========= =========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 3 BUILDING MATERIALS CORPORATION OF AMERICA CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands, except per share amounts)
December 31, Sept. 28, ASSETS 2002 2003 Current Assets: --------- --------- Cash and cash equivalents............................................. $ 96,173 $ 22,257 Accounts receivable, trade, less allowance of $1,484 and $1,758 in 2002 and 2003, respectively............. 21,901 297,068 Accounts receivable, other............................................ 41,924 5,893 Inventories........................................................... 119,482 140,819 Other current assets.................................................. 3,543 4,612 --------- --------- Total Current Assets................................................ 283,023 470,649 Property, plant and equipment, net...................................... 346,116 336,250 Goodwill, net of accumulated amortization of $16,370 in 2002 and 2003, respectively............................. 63,294 63,294 Deferred income tax benefits............................................ 15,330 - Tax receivable from parent corporations................................. 10,250 10,250 Other noncurrent assets................................................. 25,386 30,404 --------- --------- Total Assets............................................................ $ 743,399 $ 910,847 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Current maturities of long-term debt.................................. $ 45,326 $ 2,283 Accounts payable...................................................... 73,220 88,228 Payable to related parties............................................ 12,621 12,681 Loan payable to related party......................................... - 37,840 Accrued liabilities................................................... 50,917 67,269 Reserve for product warranty claims................................... 14,900 14,900 --------- --------- Total Current Liabilities............................................. 196,984 223,201 --------- --------- Long-term debt less current maturities.................................. 545,802 670,150 --------- --------- Reserve for product warranty claims..................................... 18,387 17,136 --------- --------- Deferred income tax liabilities......................................... - 9,627 --------- --------- Other liabilities....................................................... 13,347 14,444 --------- --------- Stockholders' Equity (Deficit): Series A Cumulative Redeemable Convertible Preferred Stock, $.01 par value per share; - - 400,000 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.............................................. - - Loans receivable from parent corporation.............................. (2,648) (40,563) Retained earnings (accumulated deficit)............................... (28,474) 16,851 --------- --------- Total Stockholders' Equity (Deficit)................................ (31,121) (23,711) --------- --------- Total Liabilities and Stockholders' Equity (Deficit)..................................................... $ 743,399 $ 910,847 ========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 4 BUILDING MATERIALS CORPORATION OF AMERICA CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended ------------------- Sept. 29, Sept. 28, 2002 2003 -------- -------- (Thousands) Cash and cash equivalents, beginning of period........... $ 46,387 $ 96,173 -------- -------- Cash provided by (used in) operating activities: Net income ............................................ 36,074 45,339 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Gain on sale of assets............................. - (5,739) Depreciation ...................................... 28,755 29,180 Amortization....................................... 1,542 1,534 Deferred income taxes.............................. 19,504 24,957 Noncash interest charges........................... 3,726 4,006 Increase in working capital items...................... (73,242) (124,792) Decrease in reserve for product warranty claims........ (3,132) (1,251) Proceeds (repayments) from sale/repurchase of accounts receivable................................ 15,274 (105,388) Change in net receivable from/payable to related parties/parent corporations.......................... 4,204 60 Other, net............................................. (95) 667 -------- -------- Net cash provided by (used in) operating activities...... 32,610 (131,427) -------- -------- Cash provided by (used in) investing activities: Capital expenditures................................... (15,829) (23,307) Proceeds from sale of assets........................... - 9,315 -------- -------- Net cash used in investing activities.................... (15,829) (13,992) -------- -------- Cash provided by (used in) financing activities: Proceeds from loan payable to parent corporation....... - 38,351 Proceeds from issuance of long-term debt............... - 327,407 Repayments of long-term debt........................... (4,317) (246,699) Distributions to parent corporations................... (1,945) (15) Loans to parent corporation............................ (85) (38,426) Financing fees and expenses............................ (222) (9,115) -------- -------- Net cash provided by (used in) financing activities...... (6,569) 71,503 -------- -------- Net change in cash and cash equivalents.................. 10,212 (73,916) -------- -------- Cash and cash equivalents, end of period................. $ 56,599 $ 22,257 ======== ======== Supplemental Cash Flow Information: Cash paid during the period for: Interest (net of amount capitalized)................. $ 38,007 $ 39,511 Income taxes......................................... 1,525 451 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 5 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Building Materials Corporation of America ("BMCA" or the "Company") was formed on January 31, 1994 and is a wholly-owned subsidiary of BMCA Holdings Corporation ("BHC"), which is a wholly-owned subsidiary of G-I Holdings Inc. ("G-I Holdings"). G-I Holdings is a wholly-owned subsidiary of G Holdings Inc. 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 September 28, 2003, and the results of operations and cash flows for the periods ended September 29, 2002 and September 28, 2003. All adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the "2002 Form 10-K"). Note 1. Inventories Inventories consist of the following: December 31, Sept. 28, 2002 2003 -------- -------- (Thousands) Finished goods .................... $ 80,911 $ 90,356 Work-in-process ................... 11,850 11,798 Raw materials and supplies ........ 30,068 42,438 -------- -------- Total ............................. 122,829 144,592 Less LIFO reserve ................. (3,347) (3,773) -------- -------- Inventories ....................... $119,482 $140,819 ======== ======== Note 2. Contingencies Asbestos Litigation Against G-I Holdings 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") of its parent, G-I Holdings. As of March 30, 1997, the Company had paid all of its assumed asbestos-related liabilities. In January 2001, G-I Holdings filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code due to Asbestos Claims. This proceeding remains pending. Claimants in the G-I Holdings bankruptcy, including judgment creditors, might seek to satisfy their claims by asking the bankruptcy court to require the sale of G-I Holdings' assets, including its holdings of BMCA Holdings Corporation's common stock and its indirect holdings of the Company's common stock. Such action could result in a change of control of the Company. In addition, those creditors may seek to file Asbestos Claims against the Company (with approximately 1,900 alleged Asbestos Claims having been filed against the Company as of September 28, 2003). The Company believes that it will not sustain any liability in connection with these or any other asbestos-related claims. On February 2, 2001, the United States Bankruptcy Court for the 6 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 2. Contingencies (Continued) District of New Jersey issued a temporary restraining order enjoining any existing or future claimant from bringing or prosecuting an Asbestos Claim against the Company. By oral opinion, on June 22, 2001, and written order entered February 22, 2002, the court converted the temporary restraints into a preliminary injunction, prohibiting the bringing or prosecution of any such Asbestos Claim against the Company. On February 7, 2001, G-I Holdings and BMCA filed an action in the United States Bankruptcy Court for the District of New Jersey seeking a declaratory judgment that BMCA has no successor liability for Asbestos Claims against G-I Holdings and that it is not the alter ego of G-I Holdings (the "BMCA Action"). On May 13, 2003, the United States District Court for the District of New Jersey overseeing the G-I Holdings' Bankruptcy Court withdrew the reference of the BMCA Action from the Bankruptcy Court, and this matter will be heard by the District Court directly. The BMCA Action is in the pretrial discovery stage, and as a result, it is not possible to predict its outcome, although the Company believes its claims are meritorious. While the Company cannot predict whether any additional Asbestos Claims will be asserted against it, or the outcome of any litigation relating to those claims, the Company believes that it has meritorious defenses to any claim that it has asbestos-related liability, although there can be no assurances in this regard. On or about February 8, 2001, a creditors' committee established in G-I Holdings' bankruptcy case filed a complaint in the United States Bankruptcy Court, District of New Jersey against G-I Holdings and the Company. The complaint requests substantive consolidation of BMCA with G-I Holdings or an order directing G-I Holdings to cause BMCA to file for bankruptcy protection. BMCA and G-I Holdings intend to vigorously defend the lawsuit. The plaintiffs also filed for interim relief absent the granting of their requested relief described above. On March 21, 2001, the bankruptcy court denied plaintiffs' application for interim relief. In November 2002, the creditors' committee, joined in by the legal representative of future demand holders, filed a motion for appointment of a trustee in the G-I Holdings' bankruptcy. In December 2002, the bankruptcy court denied the motion. The creditors' committee appealed such ruling to the United States District Court which denied such appeal on June 27, 2003. On July 25, 2003, the creditors' committee filed an appeal of the District Court's ruling to the Third Circuit Court of Appeals, which matter remains pending. For a further discussion with respect to the history of the foregoing litigation and asbestos-related matters, see Notes 5, 12 and 17 to Consolidated Financial Statements contained in the Company's 2002 Form 10-K. Environmental Litigation The Company, together with other companies, is a party to a variety of proceedings and lawsuits involving environmental matters under the Comprehensive Environmental Response Compensation and Liability Act, and similar state laws, in which recovery is sought for the cost of cleanup of 7 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 2. Contingencies (Continued) contaminated sites or remedial obligations are imposed, a number of which are in the early stages or have been dormant for protracted periods. The Company refers to these proceedings and lawsuits as "Environmental Claims". 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 liquidity, financial position or results of operations of the Company. Tax Claim Against G-I Holdings The Company and certain of its subsidiaries were members of the consolidated group (the "G-I Holdings Group") for Federal income tax purposes that included G-I Holdings in certain prior years and, accordingly, would be severally liable for any tax liability of the G-I Holdings Group in respect of those prior years. On September 15, 1997, G-I Holdings received a notice from the Internal Revenue Service (the "IRS") 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 G-I Holdings held an interest. G-I Holdings has advised the Company that it believes that it will prevail in this tax matter arising out of the surfactants partnership, although there can be no assurance in this regard. 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. On September 21, 2001, the IRS filed a proof of claim with respect to such deficiency against G-I Holdings in the G-I Holdings' bankruptcy. If such proof of claim is sustained, the Company and/or certain of the Company's subsidiaries together with G-I Holdings and several current and former subsidiaries of G-I Holdings would be severally liable for a portion of those taxes and interest. G-I Holdings has filed an objection to the proof of claim. If the IRS were to prevail for the years in which the Company and/or certain of its subsidiaries were part of the G-I Holdings Group, the Company would be severally liable for approximately $40.0 million in taxes plus interest, although this calculation is subject to uncertainty depending upon various factors including G-I Holdings' ability to satisfy its tax liabilities and the application of tax credits and deductions. 8 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 3. New Accounting Pronouncements In November 2002, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 clarifies the requirements for a guarantor's accounting for and disclosures of certain guarantees issued and outstanding. The provisions of FIN 45 apply to guarantee contracts that contingently require the guarantor to make payments (in cash, financial instruments, other assets, shares of stock or provision of services) to the guaranteed party for guarantees such as: a financial standby letter of credit; a market value guarantee on either a financial or nonfinancial asset owned by the guaranteed party; and a guarantee of the collection of the scheduled contractual cash flows from financial assets held by a special-purpose entity. FIN 45 also applies to indemnification contracts and indirect guarantees of indebtedness of others. The requirements of FIN 45 for the initial recognition and measurement of the liability for a guarantor's obligations are to be applied only on a prospective basis to guarantees issued or modified after December 31, 2002; however, the Company provides product warranties, which are only subject to the disclosure requirements under FIN 45. (See table below.) A subsidiary's guarantee of the debt of its parent is not subject to the initial recognition and measurement provisions of FIN 45 but are subject to its disclosure requirements. The Company has adopted the disclosure requirements of FIN 45 and applied the recognition and measurement provisions for all guarantees entered into or modified after December 31, 2002, and noted no material effect on the financial condition or results of operations of the Company. The reserve for product warranty claims consists of the following for the third quarter and nine months ended September 29, 2002 and September 28, 2003, respectively:
Third Quarter Ended Nine Months Ended -------------------- ----------------- Sept. 29, Sept. 28, Sept. 29, Sept. 28, 2002 2003 2002 2003 -------- --------- -------- --------- (Thousands) Beginning balance................... $ 35,765 $ 32,266 $ 37,641 $ 33,287 Charged to cost of products sold.... 4,848 5,968 15,347 15,519 Deductions.......................... (6,433) (6,198) (18,808) (16,770) Other............................... 329 - 329 - -------- -------- -------- -------- Ending balance...................... $ 34,509 $ 32,036 $ 34,509 $ 32,036 ======== ======== ======== ========
9 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 3. New Accounting Pronouncements (Continued) In December 2002, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS No. 148"), an amendment of FASB Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 148 provides alternative methods of transition for any entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS No. 123 to require prominent disclosures about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation. SFAS No. 148 also amends Accounting Principles Board Opinion No. 28 "Interim Financial Reporting" ("APB No. 28"), to require disclosures about those effects in interim financial information beginning with the Company's first quarter ended March 30, 2003. The Company currently accounts for its long-term incentive units granted to certain employees under the accounting prescribed by applying FASB Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other Variable Stock Option and Award Plans" ("FIN 28"), which requires an entity to measure compensation as the amount by which the Book Value (as defined in the Plan) of the incentive units covered by the grant exceeds the option price or value specified of such incentive units at the date of grant. Changes, either increases or decreases, in the Book Value of those incentive units between the date of grant and the measurement date result in a change in the measure of compensation for the right or award. The Company expects to continue to account for its long-term incentive units under the accounting prescribed by FIN 28 and has adopted the additional disclosure provisions of SFAS No. 148. Compensation expense for such incentive units was $0.4 and $0.7 million for the third quarter ended September 29, 2002 and September 28, 2003, respectively, and $1.8 and $2.2 million for the nine months ended September 29, 2002 and September 28, 2003, respectively. The Company's pro forma net income under SFAS No. 123 would have been the same as actual net income. Note 4. Termination of Accounts Receivable Securitization Agreement In July 2003, the Company terminated its Accounts Receivable Securitization Agreement ("the Securitization Agreement"), at which time it repurchased its undivided interest in receivables previously sold to a special purpose subsidiary, BMCA Receivables Corporation, without recourse, which in turn sold them to a third party, without recourse. In connection with the termination of the Securitization Agreement in July 2003, the Company repaid $115.0 million of amounts outstanding under such agreement and increased accounts receivable and long-term debt by $115.0 million. In addition, the Company liquidated BMCA Receivables Corporation effective August 2003. Note 5. Long-Term Debt In July 2003, the Company entered into a new $350.0 million Senior Secured Credit facility (the "New Credit Facility"). The initial borrowings under the New Credit Facility were primarily used to repay amounts outstanding under the Company's existing $210.0 million Secured Revolving Credit Facility due August 2003, to repay the $115.0 million outstanding under the Accounts 10 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 5. Long-Term Debt (Continued) Receivable Securitization Agreement due December 2004 and to repay the $7.0 million Precious Metal Note due August 2003. The New Credit Facility has a final maturity date of November 15, 2006, subject to certain conditions, is secured by a first priority lien on substantially all of the Company's assets and the assets of its subsidiaries and is guaranteed by all of its current and future subsidiaries. Availability under the New Credit Facility is based upon eligible Accounts Receivable, Inventory, and Property, Plant and Equipment (collectively the "Collateral"), as defined in the New Credit Facility, and includes a sub-limit for letters of credit of $100.0 million. The New Credit Facility bears interest at a floating rate based on the lenders' Base Rate, the federal funds rate or the Eurodollar rate, each as defined in the New Credit Facility. The New Credit Facility requires mandatory repayments of excess cash, as defined, on the tenth day of each month. The Company is also required to pay unused commitment fees associated with the New Credit Facility. Borrowings outstanding under the New Credit Facility which are included in long-term debt amounted to $124.0 million at September 28, 2003. Under the terms of the New Credit Facility and the indentures governing the Company's 7 3/4% Senior Notes due 2005, the 8 5/8% Senior Notes due 2006, the 8% Senior Notes due 2007, and the 8% Senior Notes due 2008 (collectively the "Senior Notes"), the Company is subject to certain financial covenants. These financial covenants include, among others, interest coverage, minimum EBITDA (earnings before income taxes and extraordinary items increased by interest expense, depreciation, goodwill and other amortization), as defined, limitations on the amount of annual capital expenditures and indebtedness, restrictions on restricted payments, including dividends and distributions to the Company's parent corporations and on incurring liens, and restrictions on investments and other payments. In addition, if a change of control as defined in the New Credit Facility occurs, the New Credit Facility could be terminated and the loans under the New Credit Facility accelerated by the holders of that indebtedness. If that event occurred, it would cause the Company's outstanding Senior Notes to be accelerated. As of September 28, 2003, the Company was in compliance with all covenants under the New Credit Facility and the indentures governing the Senior Notes. The Senior Notes are secured by a second-priority lien on the assets securing the New Credit Facility for so long as the first-priority lien remains in effect, subject to certain limited exceptions and have been guaranteed by the subsidiaries that guaranteed the New Credit Facility. In connection with entering into the New Credit Facility, the Company entered into an Amended and Restated Security Agreement, which grants a security interest in the Collateral in favor of the collateral agent on behalf of the lenders under the New Credit Facility and the holders of the Company's outstanding Senior Notes. The Company also entered into an Amended and Restated Collateral Agent Agreement, which provides, among other things, the Company maintain a lockbox and depository control agreement for the benefit of the secured parties and the sharing of proceeds with respect to any foreclosure or other remedy in respect of the Collateral. 11 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 5. Long-Term Debt (Continued) In July 2003, the Company exercised an Early Buyout Option on certain machinery and equipment located at its Chester, South Carolina glass mat manufacturing facility for $19.7 million. In addition, in July 2003, the Company entered into a new $19.7 million Secured Loan (the "Chester Loan"), with the proceeds being used to repay the $19.7 million obligation associated with the Early Buyout Option discussed above. The Chester Loan is secured by a sole security interest in the machinery and equipment, matures in July 2010, requires monthly payments of principal and interest commencing in August 2003 and bears a fixed annual interest rate of 7.41%. The Company makes loans to, and borrows from, our parent corporations from time to time at prevailing market rates. On July 1, 2003 the Company loaned BMCA Holdings Corporation $37.8 million and on July 9, 2003, BMCA Holdings Corporation loaned the Company $37.8 million. As of September 28, 2003, BMCA Holdings Corporation owed the Company $38.3 million, including interest of $0.5 million and the Company owed BMCA Holdings Corporation $38.3 million, including interest of $0.5 million. In September 2003, the Company used proceeds from the New Credit Facility to repay its outstanding 10 1/2% Senior Notes at maturity, aggregating $35.0 million plus accrued interest. Note 6. Guarantor Financial Information All of the Company's subsidiaries are guarantors under the Company's $350.0 million Senior Secured Credit Facility and the Senior Notes. These guarantees are full, unconditional and joint and several. In addition, Building Materials Manufacturing Corporation ("BMMC"), a wholly-owned subsidiary of the Company, is a co-obligor on the 8% Senior Notes due 2007. 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 Building Materials Investment Corporation, a wholly-owned subsidiary of the Company, for a license fee stated as a percentage of net sales. The license agreements are for a period of one year and are subject to automatic renewal unless either party terminates with 60 days written notice. Also, effective January 1, 1999, BMMC sells all finished goods to the Company at a manufacturing profit. Presented below is condensed consolidating financial information for the Company, the guarantor subsidiaries and the non-guarantor subsidiary. This financial information should be read in conjunction with the Consolidated Financial Statements and other notes related thereto. Separate financial information for the Company, the guarantor subsidiaries and the non-guarantor subsidiary is not included herein, because management has determined that such information is not material to investors. 12 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 6. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Statement of Income Third Quarter Ended September 29, 2002 (Thousands) (Unaudited)
Parent Guarantor Company Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ Net sales............................................ $ 326,837 $ 30,263 $ - $ 357,100 Intercompany net sales............................... 15,347 233,793 (249,140) - --------- --------- --------- --------- Total net sales.................................... 342,184 264,056 (249,140) 357,100 --------- --------- --------- --------- Costs and expenses, net: Cost of products sold.............................. 255,201 236,339 (249,140) 242,400 Selling, general and administrative................ 56,288 18,319 74,607 Transition service agreement (income) expense...... 25 (25) - --------- --------- --------- --------- Total costs and expenses, net...................... 311,514 254,633 (249,140) 317,007 --------- --------- --------- --------- Operating income..................................... 30,670 9,423 - 40,093 Equity in earnings of subsidiaries................... 9,787 - (9,787) - Intercompany licensing income (expense), net......... (9,805) 9,805 - Interest expense..................................... (9,744) (4,043) (13,787) Other income (expense), net.......................... (1,860) 107 (1,753) --------- --------- --------- --------- Income before income taxes........................... 19,048 15,292 (9,787) 24,553 Income tax provision................................. (3,334) (5,505) (8,839) --------- --------- --------- --------- Net income........................................... $ 15,714 $ 9,787 $ (9,787) $ 15,714 ========= ========= ========= =========
13 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 6. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Statement of Income Third Quarter Ended September 28, 2003 (Thousands) (Unaudited)
Parent Guarantor Company Subsidiaries Eliminations Consolidated ------- ------------ ------------ ------------ Net sales............................................... $ 430,085 $ 29,802 $ - $ 459,887 Intercompany net sales.................................. 22,197 306,580 (328,777) - --------- --------- --------- --------- Total net sales....................................... 452,282 336,382 (328,777) 459,887 --------- --------- --------- --------- Costs and expenses, net: Cost of products sold................................. 348,161 299,516 (328,777) 318,900 Selling, general and administrative................... 72,365 18,950 91,315 Transition service agreement (income) expense......... 25 (25) - --------- --------- --------- --------- Total costs and expenses, net......................... 420,551 318,441 (328,777) 410,215 --------- --------- --------- --------- Operating income........................................ 31,731 17,941 - 49,672 Equity in earnings of subsidiaries...................... 21,122 - (21,122) - Intercompany licensing income (expense), net............ (18,092) 18,092 - Interest expense........................................ (11,661) (3,069) (14,730) Other income (expense), net............................. (1,287) 39 (1,248) --------- --------- --------- --------- Income before income taxes.............................. 21,813 33,003 (21,122) 33,694 Income tax provision.................................... (249) (11,881) (12,130) --------- --------- --------- --------- Net income.............................................. $ 21,564 $ 21,122 $ (21,122) $ 21,564 ========= ========= ========= =========
14 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 6. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Statement of Income Nine Months Ended September 29, 2002 (Thousands) (Unaudited)
Parent Guarantor Company Subsidiaries Eliminations Consolidated ------- ------------ ------------ ------------ Net sales.............................................. $ 956,768 $ 88,983 $ - $1,045,751 Intercompany net sales................................. 48,654 677,695 (726,349) - --------- --------- --------- --------- Total net sales...................................... 1,005,422 766,678 (726,349) 1,045,751 --------- --------- --------- --------- Costs and expenses, net: Cost of products sold................................ 765,430 684,556 (726,349) 723,637 Selling, general and administrative.................. 163,759 54,305 218,064 Transition service agreement (income) expense........ 75 (75) - --------- --------- --------- --------- Total costs and expenses, net........................ 929,264 738,786 (726,349) 941,701 --------- --------- --------- --------- Operating income....................................... 76,158 27,892 - 104,050 Equity in earnings of subsidiaries..................... 28,624 - (28,624) - Intercompany licensing income (expense), net........... (28,703) 28,703 - Interest expense....................................... (29,263) (12,273) (41,536) Other income (expense), net............................ (6,551) 404 (6,147) --------- --------- --------- --------- Income before income taxes............................. 40,265 44,726 (28,624) 56,367 Income tax provision................................... (4,191) (16,102) (20,293) --------- --------- --------- --------- Net income............................................. $ 36,074 $ 28,624 $ (28,624) $ 36,074 ========= ========= ========= =========
15 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 6. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Statement of Income Nine Months Ended September 28, 2003 (Thousands) (Unaudited)
Parent Guarantor Company Subsidiaries Eliminations Consolidated ------- ------------ ------------ ------------ Net sales............................................. $1,122,975 $ 86,167 $ - $1,209,142 Intercompany net sales................................ 62,140 818,487 (880,627) - --------- --------- --------- --------- Total net sales..................................... 1,185,115 904,654 (880,627) 1,209,142 --------- --------- --------- --------- Costs and expenses, net: Cost of products sold............................... 929,183 801,074 (880,627) 849,630 Selling, general and administrative................. 192,167 54,688 246,855 Gain on sale of assets.............................. - (5,739) (5,739) Transition service agreement (income) expense....... 75 (75) - --------- --------- --------- --------- Total costs and expenses, net....................... 1,121,425 849,948 (880,627) 1,090,746 --------- --------- --------- --------- Operating income...................................... 63,690 54,706 - 118,396 Equity in earnings of subsidiaries.................... 59,089 - (59,089) - Intercompany licensing income (expense), net.......... (47,405) 47,405 - Interest expense...................................... (31,994) (10,035) (42,029) Other income (expense), net........................... (5,775) 250 (5,525) --------- --------- --------- --------- Income before income taxes............................ 37,605 92,326 (59,089) 70,842 Income tax (provision) benefit........................ 7,734 (33,237) (25,503) --------- --------- --------- --------- Net income............................................ $ 45,339 $ 59,089 $ (59,089) $ 45,339 ========= ========= ========= =========
16 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 6. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Balance Sheet December 31, 2002 (Thousands) (Unaudited)
Non- Parent Guarantor Guarantor Elim- Company Subsidiaries Subsidiary inations Consolidated ------- ------------ ---------- -------- ------------ ASSETS Current Assets: Cash and cash equivalents.............. $ 60 $ 96,113 $ - $ - $ 96,173 Accounts receivable, trade, net........ 8,216 13,685 - 21,901 Accounts receivable, other............. 6,294 845 34,785 41,924 Inventories............................ 78,066 41,416 - 119,482 Other current assets................... 1,575 1,968 - 3,543 ------- -------- ------- -------- -------- Total Current Assets................. 94,211 154,027 34,785 283,023 Investment in subsidiaries............... 437,856 - - (437,856) - Intercompany loans including accrued interest............................... 59,903 (59,903) - - Due from (to) subsidiaries, net.......... (195,599) 192,889 2,710 - Property, plant and equipment, net....... 36,075 310,041 - 346,116 Goodwill, net............................ 40,080 23,214 - 63,294 Deferred income tax benefits............. 15,330 - - 15,330 Tax receivable from parent corporations.. 10,250 - - 10,250 Other noncurrent assets.................. 6,486 18,900 - 25,386 -------- -------- ------- -------- -------- Total Assets............................. $504,592 $639,168 $37,495 $(437,856) $743,399 ======== ======== ======= ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Current maturities of long-term debt... $ 34,820 $ 10,506 $ - $ - $ 45,326 Accounts payable....................... 29,249 43,971 - 73,220 Payable to related parties, net........ 2,788 9,833 - 12,621 Accrued liabilities.................... 18,802 32,115 - 50,917 Reserve for product warranty claims.... 14,900 - - 14,900 -------- -------- ------- --------- -------- Total Current Liabilities............ 100,559 96,425 - 196,984 Long-term debt less current maturities... 404,071 141,731 - 545,802 Reserve for product warranty claims...... 17,935 452 - 18,387 Other liabilities........................ 13,148 199 - 13,347 -------- -------- ------- --------- -------- Total Liabilities........................ 535,713 238,807 - 774,520 Total Stockholders' Equity (Deficit)..... (31,121) 400,361 37,495 (437,856) (31,121) -------- -------- ------- --------- -------- Total Liabilities and Stockholders' Equity (Deficit) ................... $504,592 $639,168 $37,495 $(437,856) $743,399 ======== ======== ======= ========= ========
17 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 6. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Balance Sheet September 28, 2003 (Thousands) (Unaudited)
Parent Guarantor Company Subsidiaries Eliminations Consolidated ------- ------------ ------------ ------------ ASSETS Current Assets: Cash and cash equivalents.............. $ 13 $ 22,244 $ - $ 22,257 Accounts receivable, trade, net........ 279,324 17,744 297,068 Accounts receivable, other............. 5,209 684 5,893 Inventories............................ 89,456 51,363 140,819 Other current assets................... 2,348 2,264 4,612 ------- -------- --------- -------- Total Current Assets................. 376,350 94,299 470,649 Investment in subsidiaries............... 459,450 - (459,450) - Intercompany loans including accrued interest............................... 43,013 (43,013) - Due from (to) subsidiaries, net.......... (314,866) 314,866 - Property, plant and equipment, net....... 38,547 297,703 336,250 Goodwill, net............................ 40,080 23,214 63,294 Tax receivable from parent corporations.. 10,250 - 10,250 Other noncurrent assets.................. 13,332 17,072 30,404 -------- -------- --------- -------- Total Assets............................. $666,156 $704,141 $(459,450) $910,847 ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Current maturities of long-term debt... $ - $ 2,283 $ - $ 2,283 Accounts payable....................... 36,721 51,507 88,228 Payable to related parties, net........ 2,514 10,167 12,681 Loan payable to related party.......... 37,840 - 37,840 Accrued liabilities.................... 29,186 38,083 67,269 Reserve for product warranty claims.... 14,900 - 14,900 -------- -------- --------- -------- Total Current Liabilities............ 121,161 102,040 223,201 Long-term debt less current maturities... 528,240 141,910 670,150 Reserve for product warranty claims...... 16,589 547 17,136 Deferred income tax liabilities.......... 9,627 - 9,627 Other liabilities........................ 14,250 194 14,444 -------- -------- --------- -------- Total Liabilities........................ 689,867 244,691 934,558 Total Stockholders' Equity (Deficit)..... (23,711) 459,450 (459,450) (23,711) -------- -------- --------- -------- Total Liabilities and Stockholders' Equity (Deficit) ................... $666,156 $704,141 $(459,450) $910,847 ======== ======== ========= ========
18 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 6. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Statement of Cash Flows Nine Months Ended September 29, 2002 (Thousands) (Unaudited)
Non- Parent Guarantor Guarantor Company Subsidiaries Subsidiary Consolidated --------- ------------ ---------- ------------ Cash and cash equivalents, beginning of period....... $ 133 $ 46,254 $ - $ 46,387 --------- --------- --------- -------- Cash provided by (used in) operating activities: Net income......................................... 7,450 28,624 36,074 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation................................... 1,860 26,895 28,755 Amortization................................... - 1,542 1,542 Deferred income taxes.......................... 19,504 - 19,504 Noncash interest charges....................... 2,715 1,011 3,726 (Increase) decrease in working capital items....... (20,314) 2,039 (54,967) (73,242) Increase (decrease) in reserve for product warranty claims........................... (3,373) 241 (3,132) Proceeds from sale of accounts receivable.......... 15,274 - 15,274 Change in net receivable from/payable to related parties/parent corporations............... (20,734) (30,029) 54,967 4,204 Other, net......................................... 577 (672) (95) --------- --------- --------- -------- Net cash provided by operating activities............ 2,959 29,651 - 32,610 --------- --------- --------- -------- Cash provided by (used in) investing activities: Capital expenditures............................... (832) (14,997) (15,829) --------- --------- --------- -------- Net cash used in investing activities................ (832) (14,997) - (15,829) --------- --------- --------- -------- Cash provided by (used in) financing activities: Repayments of long-term debt....................... - (4,317) (4,317) Distributions to parent corporations............... (1,945) - (1,945) Loans to parent corporation........................ (85) - (85) Financing fees and expenses........................ (222) - (222) . --------- --------- --------- -------- Net cash used in financing activities................ (2,252) (4,317) - (6,569) --------- --------- --------- -------- Net change in cash and cash equivalents.............. (125) 10,337 - 10,212 --------- --------- --------- -------- Cash and cash equivalents, end of period............. $ 8 $ 56,591 $ - $ 56,599 ========= ========= ========= ========
19 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 6. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Statement of Cash Flows Nine Months Ended September 28, 2003 (Thousands) (Unaudited)
Non- Parent Guarantor Guarantor Company Subsidiaries Subsidiary Consolidated ------- ------------ ---------- ------------ Cash and cash equivalents, beginning of period....... $ 60 $ 96,113 $ - $ 96,173 -------- --------- --------- -------- Cash provided by (used in) operating activities: Net income (loss).................................. (13,750) 59,089 45,339 Adjustments to reconcile net income(loss)to net cash provided by (used in) operating activities: Gain on sale of assets......................... - (5,739) (5,739) Depreciation................................... 2,003 27,177 29,180 Amortization................................... - 1,534 1,534 Deferred income taxes.......................... 24,957 - 24,957 Noncash interest charges....................... 2,939 1,067 4,006 (Increase) decrease in working capital items....... (158,941) (636) 34,785 (124,792) Increase (decrease) in reserve for product warranty claims................................... (1,346) 95 (1,251) Repayments from repurchase of accounts receivable.. (105,388) - (105,388) Change in net receivable from/payable to related parties/parent corporations............... 173,378 (138,533) (34,785) 60 Other, net......................................... 540 127 667 -------- -------- --------- -------- Net cash used in operating activities................ (75,608) (55,819) - (131,427) -------- -------- --------- -------- Cash provided by (used in) investing activities: Capital expenditures............................... (4,438) (18,869) (23,307) Proceeds from sale of assets....................... - 9,315 9,315 -------- -------- --------- -------- Net cash used in investing activities................ (4,438) (9,554) - (13,992) -------- -------- --------- -------- Cash provided by (used in) financing activities: Proceeds from loan payable to parent corporation... 38,351 - 38,351 Proceeds from issuance of long-term debt........... 307,676 19,731 327,407 Repayments of long-term debt....................... (218,677) (28,022) (246,699) Distributions to parent corporations............... (15) - (15) Loans to parent corporation........................ (38,426) - (38,426) Financing fees and expenses........................ (8,910) (205) (9,115) -------- --------- --------- --------- Net cash provided by (used in) financing activities.. 79,999 (8,496) - 71,503 -------- --------- --------- --------- Net decrease in cash and cash equivalents............ (47) (73,869) - (73,916) -------- --------- --------- --------- Cash and cash equivalents, end of period............. $ 13 $ 22,244 $ - $ 22,257 ======== ========= ========= =========
20 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - Third Quarter 2003 Compared With Third Quarter 2002 We recorded net income in the third quarter of 2003 of $21.6 million compared with net income of $15.7 million in the third quarter of 2002, representing an increase of $5.9 million or 37.6%. The increase in net income for the third quarter of 2003 was primarily attributable to higher operating income. Net sales for the third quarter of 2003 were $459.9 million, representing an increase of $102.8 million or 28.8% over third quarter of 2002 net sales of $357.1 million. Higher net sales were primarily due to higher unit volumes and higher average selling prices of both residential and commercial roofing products. Operating income in the third quarter of 2003 was $49.7 million compared with $40.1 million in the third quarter of 2002, representing an increase of $9.6 million or 23.9%. Operating results were positively affected by higher net sales partially offset by higher raw material costs, principally asphalt, due to higher crude oil prices, together with an increase in selling, general and administrative expenses due to higher volume related distribution and selling costs. Selling, general and administrative expenses as a percentage of net sales in the third quarter of 2003, declined to 19.9% compared with 20.9% in the third quarter of 2002. Interest expense for the third quarter of 2003 increased to $14.7 million from $13.8 million for the same period in 2002, primarily due to higher average borrowings partially offset by a lower average interest rate. Other expense, net was $1.3 million for the third quarter of 2003 compared with $1.8 million for the same period in 2002. Results of Operations - Nine Months 2003 Compared With Nine Months 2002 We recorded net income of $45.3 million for the first nine months of 2003 compared with net income of $36.1 million for the first nine months of 2002, representing an increase of $9.2 million or 25.5%. The increase in net income for the first nine months of 2003 was attributable to a $3.7 million after-tax gain on sale of property together with higher operating income. Net sales for the first nine months of 2003 were $1,209.1 million, representing an increase of $163.3 million or 15.6% over the first nine months of 2002 net sales of $1,045.8 million. Higher net sales were primarily due to higher unit volumes and higher average selling prices of both residential and commercial roofing products. Operating income for the first nine months of 2003 was $118.4 million compared with $104.1 million for the first nine months of 2002, representing an increase of $14.3 million or 13.7%. The increase in operating results for the 21 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) first nine months of 2003 was primarily attributable to higher net sales together with the $5.7 million pre-tax gain on sale of property, partially offset by higher raw material costs, principally asphalt, and higher selling, general and administrative expenses due to higher volume related distribution and selling costs. Selling, general and administrative expenses as a percentage of net sales for the first nine months of 2003, declined to 20.4% compared with 20.9% for the first nine months of 2002. Interest expense for the first nine months of 2003 increased to $42.0 million from $41.5 million for the same period in 2002, primarily due to higher average borrowings partially offset by a lower average interest rate. Other expense, net was $5.6 million for the first nine months of 2003 compared with $6.2 million for the same period in 2002. Liquidity and Financial Condition Net cash outflow during the first nine months of 2003 was $145.4 million, before financing activities, and included the use of $131.4 million of cash for operations and the reinvestment of $23.3 million for capital programs, which was offset in part by $9.3 million of proceeds from the sale of assets. Cash invested in additional working capital totaled $124.8 million during the first nine months of 2003, primarily reflecting an increase in trade accounts receivable of $275.2 million, which included $169.8 million due to the seasonality of our business and $105.4 million due to net repayments from the repurchase of accounts receivable from the termination of our Accounts Receivable Securitization Agreement (see below), and an increase of $21.3 million in inventories. Working capital also reflects a decrease in accounts receivable, other of $36.0 million, of which $34.8 million represents the receivable from the third party, which previously purchased certain of our trade accounts receivable, and a $31.4 million increase in accounts payable and accrued liabilities. Net cash provided by financing activities totaled $71.5 million during the first nine months of 2003, reflecting $38.4 million in proceeds from a loan payable to parent corporation, $327.4 million of proceeds from the issuance of long-term debt, of which $307.7 million relates to borrowings under the new $350.0 million Senior Secured Credit Facility (see below), together with $19.7 million of proceeds related to the Chester, South Carolina facility Secured Loan (see below). Financing activities also included $246.8 million in repayments of long-term debt, of which $183.7 million related to the new $350.0 million Senior Secured Credit Facility, $35.0 million related to the repayment of our 10 1/2% Senior Notes, $19.7 million related to the repayment of the Chester, South Carolina lease obligation and the repayment of our $7.0 million Precious Metal Note. In addition, financing activities included $38.4 million of distributions and loans to our parent corporations and $9.1 million in financing fees and expenses. 22 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) In May 2003, we sold property in Ontario, California for net cash proceeds of approximately $9.3 million, which resulted in a pre-tax gain of approximately $5.7 million. In July 2003, we entered into a new $350.0 million Senior Secured Credit Facility, which we refer to as the New Credit Facility. The initial borrowings under the New Credit Facility were primarily used to repay amounts outstanding under our existing $210.0 million Secured Revolving Credit Facility due August 2003, to repay our $115.0 million Accounts Receivable Securitization Agreement due December 2004 and to repay our $7.0 million Precious Metal Note due August 2003. The New Credit Facility has a final maturity date of November 15, 2006, subject to certain conditions, is secured by a first priority lien on substantially all of our assets and the assets of our subsidiaries and is guaranteed by all of our current and future subsidiaries. Availability under the New Credit Facility is based upon eligible Accounts Receivable, Inventory, and Property, Plant and Equipment (collectively the "Collateral"), as defined, in the New Credit Facility and includes a sub-limit for letters of credit of $100.0 million. The New Credit Facility bears interest at a floating rate based on the lenders' Base Rate, the federal funds rate or the Eurodollar rate, each as defined in the New Credit Facility. The New Credit Facility requires mandatory repayments of excess cash, as defined, on the tenth day of each month. We are also required to pay unused commitment fees associated with the New Credit Facility. Borrowings outstanding under the New Credit Facility which are included in long-term debt amounted to $124.0 million at September 28, 2003. Under the terms of the New Credit Facility and the indentures governing our 7 3/4% Senior Notes due 2005, our 8 5/8% Senior Notes due 2006, our 8% Senior Notes due 2007, and our 8% Senior Notes due 2008, which we refer to as our Senior Notes, we are subject to certain financial covenants. These financial covenants include, among others, o interest coverage, as defined, o minimum consolidated EBITDA (earnings before income taxes and extraordinary items increased by interest expense, depreciation, goodwill and other amortization), as defined, o limitations on the amount of annual capital expenditures and indebtedness, o restrictions on restricted payments, including dividends and distributions to our parent corporations and on incurring liens, and o restrictions on investments and other payments. In addition, if a change of control as defined in the New Credit Facility occurs, the New Credit Facility could be terminated and the loans under the New Credit Facility accelerated by the holders of that indebtedness. If that event occurred, it would cause our outstanding Senior Notes to be accelerated. 23 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) As of September 28, 2003, we were in compliance with all covenants under the New Credit Facility and the indentures governing our Senior Notes. Our Senior Notes are secured by a second-priority lien on the assets securing the New Credit Facility for so long as the first-priority lien remains in effect, subject to certain limited exceptions and have been guaranteed by our subsidiaries that guaranteed the New Credit Facility. In connection with entering into the New Credit Facility, we entered into an Amended and Restated Security Agreement, which grants a security interest in the Collateral in favor of the collateral agent on behalf of the lenders under the New Credit Facility and the holders of our outstanding Senior Notes. We also entered into an Amended and Restated Collateral Agent Agreement, which provides, among other things, that we maintain a lockbox and depository control agreement for the benefit of the secured parties and the sharing of proceeds with respect to any foreclosure or other remedy in respect of the Collateral. In July 2003, we exercised an Early Buyout Option on certain machinery and equipment located at our Chester, South Carolina glass mat manufacturing facility for $19.7 million. In addition, in July 2003, we entered into a new $19.7 million Secured Loan, which we refer to as the Chester Loan, with the proceeds being used to repay the $19.7 million obligation associated with the Early Buyout Option discussed above. The Chester Loan is secured by a sole security interest in the machinery and equipment, matures in July 2010, requires monthly payments of principal and interest commencing in August 2003 and bears a fixed annual interest rate of 7.41%. In July 2003, we terminated our Accounts Receivable Securitization Agreement, which we refer to as the Securitization Agreement, at which time we repurchased our undivided interest in receivables previously sold to a special purpose subsidiary of ours, BMCA Receivables Corporation, without recourse, which in turn sold them to a third party, without recourse. In connection with the termination of the Securitization Agreement in July 2003, we repaid $115.0 million of amounts outstanding under such agreement. At September 28, 2003, the effect of the above transaction increased accounts receivable and long-term debt by $105.4 million. We also liquidated BMCA Receivables Corporation effective August 2003. We make loans to, and borrow from, our parent corporations from time to time at prevailing market rates. On July 1, 2003 we loaned BMCA Holdings Corporation $37.8 million and on July 9, 2003, BMCA Holdings Corporation loaned us $37.8 million. As of September 28, 2003 BMCA Holdings Corporation owed us $38.3 million, including interest of $0.5 million and we owed BMCA Holdings Corporation $38.3 million, including interest of $0.5 million. 24 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) In September 2003, we used proceeds from the New Credit Facility to repay our outstanding 10 1/2% Senior Notes at maturity, aggregating $35.0 million plus accrued interest. As a result of the foregoing factors, cash and cash equivalents decreased by $73.9 million during the first nine months of 2003 to $22.2 million. See Note 2 to Consolidated Financial Statements for information regarding contingencies. In May 2003, we entered into a long-term contract with a subsidiary of International Specialty Products Inc. ("ISP"), an affiliate, to purchase substantially all of our colored roofing granules and algae-resistant granules requirements, except for the requirements of certain of our roofing plants that are supplied by third parties. We have contracts with two different asphalt terminal suppliers where asphalt imported from Venezuela or other suppliers is stored prior to its use at our plants. These asphalt terminals are located at the Ports of Tampa, Florida and Savannah, Georgia and are used to service our plants at those sites. We are obligated to pay these suppliers for use of these terminals under these contracts through 2008 and 2005, respectively. Monthly pricing is fixed and includes capital improvements made at each asphalt terminal by its owner. During the first six months of 2003, the petroleum industry strike in Venezuela continued to adversely impact the asphalt supply and pricing for the U.S. roofing industry; however, during the third quarter of 2003, these pressures have eased, although the cost of asphalt continues to be high relative to historical levels. We do not anticipate any future disruption in the supply of asphalt, although no assurances can be provided in that regard. * * * 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 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. 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 25 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) differ materially from those contemplated by the relevant forward-looking statements. 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 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 2002 Form 10-K for a discussion of "Market-Sensitive Instruments and Risk Management". There were no material changes in such information as of September 28, 2003 and there was no hedging activity in the quarter ended September 28, 2003. Item 4. CONTROLS AND PROCEDURES Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports filed, furnished or submitted under the Exchange Act. There have not been any changes in our internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 26 BUILDING MATERIALS CORPORATION OF AMERICA PART II OTHER INFORMATION Item 1. Legal Proceedings As of September 28, 2003, approximately 1,900 alleged asbestos-related bodily injury claims relating to the inhalation of asbestos fiber are pending against Building Materials Corporation of America. See Note 2 to Unaudited Consolidated Financial Statements above. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) The registrants filed a news release on Form 8-K dated July 17, 2003 regarding the announcement of the new $350 million Senior Secured Credit Facility. (c) The registrants filed a news release on Form 8-K dated July 31, 2003 regarding results of operations for the quarterly period ended June 29, 2003. The information set forth in Item 12 of this Form 8-K was furnished to the Securities and Exchange Commission and not "filed" pursuant to Section 18 of the Securities Exchange Act of 1934, as amended. 27 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BUILDING MATERIALS CORPORATION OF AMERICA BUILDING MATERIALS MANUFACTURING CORPORATION DATE: November 11, 2003 BY: /s/John F. Rebele ----------------- ---------------------------------- John F. Rebele Senior Vice President and Chief Financial Officer (Principal Financial Officer) DATE: November 11, 2003 BY: /s/James T. Esposito ----------------- ---------------------------------- James T. Esposito Vice President and Controller (Principal Accounting Officer) 28 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant listed below has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BUILDING MATERIALS INVESTMENT CORPORATION DATE: November 11, 2003 BY: /s/John F. Rebele ----------------- ---------------------------------- John F. Rebele Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 29