-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FS2UeC+0L0VrTXqDU51uFGL047QqZNxeRrksNEY7X1FuJczlZe5UZzqfLbixi+bc EmXOqhfL8cvi6ZNrvc/N7w== 0000909518-06-000486.txt : 20060512 0000909518-06-000486.hdr.sgml : 20060512 20060512133451 ACCESSION NUMBER: 0000909518-06-000486 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20060402 FILED AS OF DATE: 20060512 DATE AS OF CHANGE: 20060512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BUILDING MATERIALS CORP OF AMERICA CENTRAL INDEX KEY: 0000927314 STANDARD INDUSTRIAL CLASSIFICATION: ASPHALT PAVING & ROOFING MATERIALS [2950] IRS NUMBER: 223276290 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-81808 FILM NUMBER: 06833644 BUSINESS ADDRESS: STREET 1: 1361 ALPS RD CITY: WAYNE STATE: NJ ZIP: 07470 BUSINESS PHONE: 2016283000 MAIL ADDRESS: STREET 1: 1361 ALPS ROAD CITY: WAYNE STATE: NJ ZIP: 07470 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BUILDING MATERIALS MANUFACTURING CORP CENTRAL INDEX KEY: 0001078706 STANDARD INDUSTRIAL CLASSIFICATION: ASPHALT PAVING & ROOFING MATERIALS [2950] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-69749-01 FILM NUMBER: 06833645 BUSINESS ADDRESS: STREET 1: 1361 ALPS ROAD CITY: WAYNE STATE: NJ ZIP: 07470 BUSINESS PHONE: 9736283000 MAIL ADDRESS: STREET 1: 1361 ALPS ROAD CITY: WAYNE STATE: NJ ZIP: 07470 10-Q 1 mv5-12_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 APRIL 2, 2006 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 a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |X| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| As of May 12, 2006, 1,015,010 shares of Class A Common Stock, $.001 par value of the registrant were outstanding. There is no trading market for the common stock of the registrant. As of May 12, 2006, the additional registrant 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 registrant. As of May 12, 2006, no shares of the registrant or the additional registrant were held by non-affiliates. ADDITIONAL REGISTRANTS
Address, including zip code and telephone State or other number, including area jurisdiction of No. of code, of registrant's Exact name of registrant incorporation or Shares Registration No./I.R.S. principal as specified in its charter organization Outstanding Employer Identification No. executive offices - --------------------------- ------------ ----------- --------------------------- ----------------- Building Materials Delaware 10 333-69749-01/ 1361 Alps Road Manufacturing Corporation 22-3626208 Wayne, NJ 07470 (973) 628-3000
2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS BUILDING MATERIALS CORPORATION OF AMERICA CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (DOLLARS IN THOUSANDS)
FIRST QUARTER ENDED -------------------------------- APRIL 2, APRIL 3, 2006 2005 -------- -------- Net sales...................................... $504,975 $478,798 -------- -------- Costs and expenses, net: Cost of products sold........................ 359,480 335,717 Selling, general and administrative.......... 114,598 105,284 Other (income) expense, net.................. (326) 999 -------- -------- Total costs and expenses, net.............. 473,752 442,000 -------- -------- Income before interest expense and income taxes........................................ 31,223 36,798 Interest expense............................... (14,526) (16,104) -------- -------- Income before income taxes..................... 16,697 20,694 Income tax expense............................. (6,345) (7,864) -------- -------- Net income..................................... $ 10,352 $ 12,830 ======== ========
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)
APRIL 2, DECEMBER 31, ASSETS 2006 2005 Current Assets: ---------- ---------- Cash and cash equivalents........................ $ 8,109 $ 6,882 Accounts receivable, trade, less allowance of $1,965 and $2,310 in 2006 and 2005, respectively................................ 367,820 269,964 Accounts receivable, other....................... 4,765 6,480 Tax receivable from parent corporation........... - 804 Inventories, net................................. 226,821 202,698 Deferred income tax assets, net.................. 33,916 31,842 Other current assets............................. 13,668 13,575 ---------- ---------- Total Current Assets........................... 655,099 532,245 Property, plant and equipment, net................. 373,574 374,397 Goodwill, net of accumulated amortization of $16,370 in 2006 and 2005, respectively........ 67,145 67,134 Other noncurrent assets............................ 34,315 30,549 ---------- ---------- Total Assets....................................... $1,130,133 $1,004,325 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term debt............. $ 154,822 $ 19,768 Accounts payable................................. 99,457 124,921 Payable to related parties....................... 18,701 12,087 Loans payable to parent corporation.............. 52,840 52,840 Accrued liabilities.............................. 113,095 115,985 Reserve for product warranty claims.............. 14,900 14,900 ---------- ---------- Total Current Liabilities........................ 453,815 340,501 ---------- ---------- Long-term debt less current maturities............. 532,732 533,467 ---------- ---------- Reserve for product warranty claims................ 18,114 16,302 ---------- ---------- Deferred income tax liabilities.................... 50,594 49,416 ---------- ---------- Other liabilities.................................. 21,545 21,613 ---------- ---------- Stockholders' Equity: 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; 0 shares issued and outstanding in 2006 and 2005................... - - Loans receivable from parent corporation......... (55,884) (55,840) Retained earnings................................ 114,626 104,275 Accumulated other comprehensive loss............. (5,410) (5,410) ---------- ---------- Total Stockholders' Equity..................... 53,333 43,026 ---------- ---------- Total Liabilities and Stockholders' Equity......... $1,130,133 $1,004,325 ========== ==========
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) (DOLLARS IN THOUSANDS)
FIRST QUARTER ENDED ----------------------------- APRIL 2, APRIL 3, 2006 2005 --------- --------- Cash and cash equivalents, beginning of period......... $ 6,882 $ 129,482 --------- --------- Cash provided by (used in) operating activities: Net income........................................... 10,352 12,830 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation..................................... 11,787 10,890 Amortization..................................... 684 574 Deferred income taxes............................ (896) 1,177 Noncash interest charges, net.................... 1,310 1,422 Increase in working capital items.................... (148,711) (113,038) Increase (decrease) in long-term reserve for product warranty claims..................................... 1,812 (262) (Increase) decrease in other assets.................. 644 (5,158) Increase (decrease) in other liabilities............. (58) 119 Change in net receivable from/payable to related parties/parent corporations........................ 7,418 1,851 Other, net........................................... 309 100 --------- --------- Net cash used in operating activities.................. (115,349) (89,495) --------- --------- Cash provided by (used in) investing activities: Capital expenditures................................. (11,285) (9,725) --------- --------- Net cash used in investing activities.................. (11,285) (9,725) --------- --------- Cash provided by (used in) financing activities: Proceeds from Senior Secured Revolving Credit Facility........................................... 290,000 11,000 Purchase of industrial development revenue bond certificates....................................... (6,325) - Repayments of long-term debt......................... (155,770) (11,607) Distribution to parent corporation................... - (10) Loan to parent corporation........................... (44) (32) Financing fees and expenses.......................... - (106) --------- --------- Net cash provided by (used in) financing activities.... 127,861 (755) --------- --------- Net change in cash and cash equivalents................ 1,227 (99,975) --------- --------- Cash and cash equivalents, end of period............... $ 8,109 $ 29,507 ========= ========= Supplemental Cash Flow Information: Cash paid during the period for: Interest (net of amount capitalized of $510 and $131 in 2006 and 2005, respectively).......... $ 16,684 $ 18,961 Income taxes (including federal income taxes paid pursuant to a tax sharing agreement of $0 and $3,826 in 2006 and 2005, respectively)........ 136 3,897
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 April 2, 2006, and the results of operations and cash flows for the first quarter ended April 2, 2006 and April 3, 2005, respectively. 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, 2005, which was filed with the Securities and Exchange Commission on March 30, 2006, (the "2005 Form 10-K"). Certain reclassifications have been made to conform to current year presentation. NOTE 1. NEW ACCOUNTING PRONOUNCEMENTS In November 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 151 "Inventory Costs" ("SFAS No. 151") which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS No. 151 amends Accounting Research Bulletin ("ARB") No. 43, Chapter 4 "Inventory Pricing" ("ARB No. 43") and requires abnormal inventory costs to be recognized as current period charges regardless of whether they meet the "so abnormal" criterion outlined in ARB No. 43. SFAS No. 151 also introduces the concept of "normal capacity" and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. Furthermore, SFAS No. 151 requires unallocated overheads to be recognized as an expense in the period in which they are incurred. SFAS No. 151 became effective for costs beginning January 1, 2006. As of the quarter ended April 2, 2006, the Company adopted the provisions of SFAS No. 151 and noted no material effect on its consolidated financial statements as a result of the adoption of SFAS No. 151. In December 2004, the FASB issued a revised SFAS No. 123 "Accounting for Stock-Based Compensation," SFAS No. 123(R) "Share-Based Payments," ("SFAS No. 123(R)") which requires compensation costs related to share-based payment transactions to be recognized in the financial statements. SFAS No. 123(R) establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement method in accounting for share-based payment 6 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE 1. NEW ACCOUNTING PRONOUNCEMENTS - (CONTINUED) transactions with employees. SFAS No. 123(R) requires that stock awards be classified as either an equity award or a liability award. SFAS No. 123(R) replaces the original SFAS No. 123 and supersedes Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123(R) was effective January 1, 2006. The Company's adoption of SFAS No. 123(R) did not have an impact on its consolidated financial statements. In December 2004, the FASB issued SFAS No. 153 "Exchanges of Nonmonetary Assets" ("SFAS No. 153") which replaces the exception from fair value measurement in APB Opinion No. 29 "Accounting for Nonmonetary Transactions," for nonmonetary exchanges of similar productive assets. SFAS No. 153 replaces this exception with a general exception from fair value measurement for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 became effective for nonmonetary asset exchanges beginning January 1, 2006. As of the quarter ended April 2, 2006, the Company adopted the provisions of SFAS No. 153 and noted no nonmonetary asset exchanges existed as a result of the adoption of SFAS No. 153. In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections" ("SFAS No. 154"), which eliminates the requirement of APB Opinion No. 20, "Accounting Changes," to include the cumulative effect adjustment resulting from a change in an accounting principle in the income statement in the period of change. SFAS No. 154 requires that a change in an accounting principle or reporting entity be retrospectively applied. Under retrospective application, SFAS No. 154 is applied as of the beginning of the first accounting period presented in the financial statements, and the cumulative effect of the change is reflected in the carrying value of assets and liabilities as of the first period presented, and the offsetting adjustments are recorded to opening retained earnings. Each period presented is adjusted to reflect the period-specific effects of applying the change. Changes in accounting estimates and corrections of errors continue to be accounted for in the same manner as prior to the issuance of SFAS No. 154. SFAS No. 154 became effective for accounting changes and corrections of errors made beginning January 1, 2006. As of the quarter ended April 2, 2006, the Company adopted the provisions of SFAS No. 154 and, as a result, noted no accounting changes or correction of errors. 7 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE 2. INVENTORIES Inventories consisted of the following as of April 2, 2006 and December 31, 2005, respectively:
APRIL 2, DECEMBER 31, 2006 2005 ------------ ----------- (THOUSANDS) Finished goods........................ $ 165,310 $ 149,049 Work-in process....................... 15,439 12,904 Raw materials and supplies............ 64,240 56,413 --------- --------- Total................................. 244,989 218,366 Less LIFO reserve..................... (18,168) (15,668) --------- --------- Inventories........................... $ 226,821 $ 202,698 ========= =========
NOTE 3. LONG-TERM DEBT As of April 2, 2006, the Company had total outstanding consolidated indebtedness of $740.4 million, which amount includes $52.8 million of demand loans to our parent corporation, of which $154.8 million matures prior to the end of the first quarter of 2007 including $152.0 million of borrowings outstanding under its $350.0 million Senior Secured Revolving Credit Facility ("the Senior Secured Revolving Credit Facility"). The Company anticipates funding these obligations principally from our cash and cash equivalents on hand, cash flow from operations and/or borrowings under our Senior Secured Revolving Credit Facility, which matures in November 2006. Although no assurances can be provided, the Company intends to refinance the Senior Secured Revolving Credit Facility before its maturity date. As of April 2, 2006, the Company was in compliance with all covenants under the Senior Secured Revolving Credit Facility and the indentures governing the 8% Senior Notes due 2007, the 8% Senior Notes due 2008 and the 7 3/4% Senior Notes due 2014 (collectively, the "Senior Notes"). As of April 2, 2006, the book value of the collateral securing the Senior Notes and the Senior Secured Revolving Credit Facility was approximately $1,117.0 million. At April 2, 2006, the Company had outstanding letters of credit of approximately $49.9 million under the Senior Secured Revolving Credit Facility, which includes approximately $11.7 million of standby letters of credit related to certain obligations of G-I Holdings. 8 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE 4. WARRANTY CLAIMS The Company provides certain limited warranties covering most of its residential roofing products for periods generally ranging from 20 to 40 years, with lifetime limited warranties on certain premium designer shingle products. The Company also offers certain limited warranties of varying duration covering most of its commercial roofing products. Most of the Company's specialty building products and accessories carry limited warranties for periods generally ranging from 5 to 10 years, with lifetime limited warranties on certain products. The reserve for product warranty claims consisted of the following for the first quarter ended April 2, 2006 and April 3, 2005, respectively:
APRIL 2, APRIL 3, 2006 2005 -------- ------- (THOUSANDS) Beginning balance................... $ 31,202 $ 32,113 Charged to cost of products sold.... 6,741 5,889 Payments/deductions................. (4,929) (6,151) -------- -------- Ending balance...................... $ 33,014 $ 31,851 ======== ========
NOTE 5. BENEFIT PLANS Defined Benefit Plans The Company provides a non-contributory defined benefit retirement plan for certain hourly and salaried employees (the "Retirement Plan"). Benefits under this plan are based on stated amounts for each year of service. The Company's funding policy is consistent with the minimum funding requirements of the Employee Retirement Income Security Act of 1974. 9 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE 5. BENEFIT PLANS - (CONTINUED) The Company's net periodic pension cost for the Retirement Plan included the following components for the first quarter ended April 2, 2006 and April 3, 2005, respectively:
APRIL 2, APRIL 3, 2006 2005 ---------- ---------- (THOUSANDS) Service cost.............................. $ 370 $ 361 Interest cost............................. 523 519 Expected return on plan assets............ (748) (708) Amortization of unrecognized prior service cost.............................. 10 9 Amortization of net losses from earlier periods........................... 86 77 ----- ----- Net periodic pension cost................. $ 241 $ 258 ===== =====
As of the quarter ended April 2, 2006 the Company does not expect to make any pension contribution to the Retirement Plan in 2006, which is consistent with its expectations as of December 31, 2005. Postretirement Medical and Life Insurance The Company generally does not provide postretirement medical and life insurance benefits, although it subsidizes such benefits for certain employees and certain retirees. Such subsidies were reduced or ended as of January 1, 1997. Effective March 1, 2005, the Company amended the plan eliminating postretirement medical benefits affecting all current and future retirees. Net periodic postretirement (benefit) cost included the following components for the first quarter ended April 2, 2006 and April 3, 2005, respectively:
APRIL 2, APRIL 3, 2006 2005 ---------- ---------- (THOUSANDS) Service cost.............................. $ 3 $ 35 Interest cost............................. 30 72 Amortization of unrecognized prior service cost.............................. (155) (24) Amortization of net gains from earlier periods........................... (61) (62) ----- ----- Net periodic postretirement (benefit) cost...................................... $(183) $ 21 ===== =====
10 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE 5. BENEFIT PLANS - (CONTINUED) As of the quarter ended April 2, 2006 the Company expects to make aggregate benefit claim payments of approximately $0.2 million in 2006, which are related to postretirement life insurance expenses. This is consistent with the Company's expectations as of December 31, 2005. NOTE 6. 2001 LONG-TERM INCENTIVE PLAN The incentive units under the 2001 Long-Term Incentive Plan are valued at Book Value (as defined in the Plan) or the 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 award. Compensation expense for the Company's incentive units was $3.0 and $3.0 million for the first quarter ended April 2, 2006 and April 3, 2005, respectively. At April 2, 2006 and April 3, 2005, the 2001 Long-Term Incentive Plan liability amounted to $28.2 and $21.5 million, respectively, and was included in accrued liabilities. The following is a summary of activity for incentive units related to the 2001 Long-Term Incentive Plan:
APRIL 2, DECEMBER 31, 2006 2005 --------- ---------- Incentive Units outstanding, beginning of period........................................ 146,814 124,455 Granted............................................ 5,000 35,205 Exercised.......................................... (3,598) (9,464) Forfeited.......................................... (1,460) (3,382) ------- ------- Incentive Units outstanding, end of period......... 146,756 146,814 ======= =======
11 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE 7. RELATED PARTY TRANSACTIONS The Company makes loans to, and borrows from, its parent corporations from time to time at prevailing market rates. As of April 2, 2006 and April 3, 2005, BMCA Holdings Corporation owed the Company $55.9 and $55.7 million, including interest of $0.6 and $0.4 million, respectively, and the Company owed BMCA Holdings Corporation $52.8 and $52.8 million, with no unpaid interest payable to BMCA Holdings Corporation, respectively. Interest income on the Company's loans to BMCA Holdings Corporation amounted to $1.2 and $0.9 million during the first quarter ended April 2, 2006 and April 3, 2005, respectively. Interest expense on the Company's loans from BMCA Holdings Corporation amounted to $1.1 and $0.9 million during the first quarter ended April 2, 2006 and April 3, 2005, respectively. Loans payable to/receivable from any parent corporation are due on demand and provide each party with the right of offset of its related obligation to the other party and are subject to limitations as outlined in the Senior Secured Revolving Credit Facility and its Senior Notes. Under the terms of the Senior Secured Revolving Credit Facility and the indentures governing the Company's Senior Notes at April 2, 2006, the Company could repay demand loans to its parent corporation amounting to $52.8 million, subject to certain conditions. The Company also makes non-interest bearing advances to affiliates, of which no balance was outstanding as of April 2, 2006 and April 3, 2005. In addition, no loans were owed or other lending activities were entered into by the Company to other affiliates. The Company also has a management agreement with International Specialty Products Inc. and its subsidiaries ("ISP"), an affiliate, (the "ISP Management Agreement") to provide the Company with certain management services. Based on services provided to the Company in 2006 under the ISP Management Agreement, the aggregate amount payable to ISP under the ISP Management Agreement for 2006, inclusive of the services provided to G-I Holdings, is not yet available and is estimated to be approximately the same as the $5.8 million paid in 2005. The Company purchases all of its colored roofing granules and algae-resistant granules under a long-term requirements contract with ISP. The amount of mineral products purchased each year under the ISP contract is based on current demand and is not subject to minimum purchase requirements. For the first quarter ended April 2, 2006 and the year ended December 31, 2005, the Company purchased $28.8 and $108.3 million, respectively, of mineral products from ISP under this contract. 12 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE 7. RELATED PARTY TRANSACTIONS - (CONTINUED) During the three month period ended April 2, 2006 and April 3, 2005, the Company paid $0 and $3.8 million, respectively, in federal income tax payments to its parent corporation pursuant to a tax sharing agreement. These amounts are included in the change in net receivable from/payable to related parties/parent corporations in the consolidated statement of cash flows. NOTE 8. 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 indirect parent, G-I Holdings. As of March 30, 1997, the Company 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. Most asbestos claims do not specify the amount of damages sought. This Chapter 11 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 attempt to assert Asbestos Claims against the Company. Approximately 1,900 Asbestos Claims were filed against the Company prior to February 2, 2001. The Company believes that it will not sustain any liability in connection with these or any other Asbestos Claims. On February 2, 2001, the United States Bankruptcy Court for the 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 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"). One of the parties to this matter, the Official Committee of Asbestos Claimants (the "creditors' committee"), subsequently filed a counterclaim against BMCA seeking a declaration that BMCA has successor liability for Asbestos Claims against G-I 13 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE 8. CONTINGENCIES - (CONTINUED) Holdings and that BMCA is the alter ego of G-I Holdings. 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 therefore be heard by the District Court. On July 26, 2005, one party in the BMCA Action, the legal representative of future demand holders in the G-I bankruptcy, was dismissed from the case. The court has recently advised the parties that they should expect to proceed to trial during February 2007. The BMCA Action continues against the creditors' committee in the G-I Holdings bankruptcy. It is not possible to predict the outcome of this litigation, although the Company believes its claims are meritorious. While the Company cannot predict whether any additional Asbestos Claims will be asserted against it or its assets, 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, the 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 the Company with G-I Holdings or an order directing G-I Holdings to cause the Company to file for bankruptcy protection. The Company 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 the ruling to the United States District Court, which denied the appeal on June 27, 2003. The creditors' committee has appealed the denial to the Third Circuit Court of Appeals, which denied the appeal on September 24, 2004. The creditors' committee filed a petition with the Third Circuit Court of Appeals for a rehearing of its denial of the creditors' committee's appeal, which was denied by the court on October 26, 2004. On February 27, 2004, the creditors' committee, joined in by the legal representative, filed a motion to modify the preliminary injunction and to seek authority by the bankruptcy court to avoid, on various grounds, certain liens granted in connection with the financing obtained by the Company in December 2000. G-I Holdings and the Company have opposed the motion, and a hearing on the motion was held by the bankruptcy court on March 29, 2004. By opinion dated June 8, 2004, the court granted the motion in part and denied it in part. On July 7, 2004, the creditors' committee filed a claim challenging, as a fraudulent 14 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE 8. CONTINGENCIES - (CONTINUED) conveyance, the transactions entered into in connection with the Company's formation in 1994, in which G-I Holdings caused to be transferred to the Company all of its roofing business and assets and in which the Company assumed certain liabilities relating to those assets, including a specified amount of asbestos liabilities (the "1994 transaction"). In addition, on July 7, 2004, the creditors' committee filed a claim against holders of the Company's bank and bond debt outstanding in 2000, seeking to avoid the liens granted to them, based on the committee's theory that the 1994 transaction was a fraudulent conveyance. On August 3, 2004, the creditors' committee filed an amended complaint adding the names of additional alleged bondholders. On July 20, 2004, the creditors' committee appealed the court's decision, issued on June 8, 2004, seeking the authority to file a lawsuit against the banks and bondholders discussed above, challenging the liens granted to them in 2000 as a fraudulent conveyance and are appealing, among other things, certain adverse rulings relating to statute of limitation issues. G-I Holdings, the holders of the Company's bank and bond debt and the Company have filed cross appeals. This appeal remains pending before the District Court. The Company believes that the claims of the creditors' committee are without merit. However, if the Company is not successful defending against one or more of these claims, the Company may be forced to file for bankruptcy protection and/or contribute all or a substantial portion of its assets to satisfy the claims of G-I Holdings' creditors. Either of these events, or the substantive consolidation of G-I Holdings and the Company, would weaken its operations and cause it to divert a material amount of its cash flow to satisfy the asbestos claims of G-I Holdings, and may render it unable to pay interest or principal on its credit obligations. For a further discussion with respect to the history of the foregoing litigation, and asbestos-related matters, see Notes 5, 13 and 18 to consolidated financial statements contained in the Company's 2005 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 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." Most of the Environmental Claims do not seek to recover an amount of specific damages. 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. 15 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE 8. CONTINGENCIES - (CONTINUED) Other Litigation On or about February 17, 2004, litigation was commenced against the Company in the United States District Court for the Eastern District of Pennsylvania by CertainTeed Corporation, alleging patent infringement in connection with certain of the Company's products representing less than 5% of the Company's net sales. No specific amount of damages have been sought in the litigation. The parties reached a mutual settlement agreement on January 12, 2006 with respect to this matter, and the case was dismissed by the court. For a further discussion with respect to the history of environmental matters and other litigation, reference is made to Notes 2 and 18 to consolidated financial statements contained in the Company's 2005 Form 10-K. 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. 16 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE 8. CONTINGENCIES - (CONTINUED) Other Contingencies In the ordinary course of business, the Company has several supply agreements that include minimum annual purchase requirements. In the event these purchase requirements are not met, the Company may be required to make payments under these supply agreements. NOTE 9. SUBSEQUENT EVENT On April 7, 2006 the Company amended its Senior Secured Revolving Credit Facility to permit the expiration date of certain of its letters of credit outstanding to occur after the November 2006 termination date of the Senior Secured Revolving Credit Facility. In connection therewith, the Company is required to deposit into a collateral account fourteen days prior to the termination date of the Senior Secured Revolving Credit Facility an amount equal to 103% of the Available Amount of all Letters of Credit then outstanding. NOTE 10. GUARANTOR FINANCIAL INFORMATION At April 2, 2006, all of the Company's subsidiaries, each of which is wholly owned by the Company, are guarantors under the Company's Senior Secured Revolving Credit Facility and the indentures governing 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 and the guarantor subsidiaries. This financial information should be read in conjunction with the consolidated financial statements and other notes related thereto. Separate financial statements for the Company and the guarantor subsidiaries are not included herein because the guarantees are full, unconditional and joint and several. 17 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE 10. GUARANTOR FINANCIAL INFORMATION - (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF INCOME FIRST QUARTER ENDED APRIL 2, 2006 (THOUSANDS) (UNAUDITED)
Parent Guarantor Company Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ Net Sales............................... $481,612 $ 23,363 $ - $ 504,975 Intercompany net sales.................. 51 311,673 (311,724) - -------- -------- --------- --------- Total net sales..................... 481,663 335,036 (311,724) 504,975 -------- -------- --------- --------- Costs and expenses, net: Cost of products sold................. 372,807 298,397 (311,724) 359,480 Selling, general and administrative... 86,713 27,885 - 114,598 Intercompany licensing (income) expense, net........................ 19,267 (19,267) - - Other (income) expense, net........... (342) 16 - (326) Transition service agreement (income) expense.................... 25 (25) - - -------- -------- --------- --------- Total costs and expenses, net....... 478,470 307,006 (311,724) 473,752 -------- -------- --------- --------- Income before equity in earnings of subsidiaries, interest expense and income taxes.......................... 3,193 28,030 - 31,223 Equity in earnings of subsidiaries...... 14,041 - (14,041) - Interest expense........................ (9,143) (5,383) - (14,526) -------- -------- --------- --------- Income before income taxes.............. 8,091 22,647 (14,041) 16,697 Income tax (expense) benefit............ 2,261 (8,606) - (6,345) -------- -------- --------- --------- Net income.............................. $ 10,352 $ 14,041 $ (14,041) $ 10,352 ======== ======== ========= =========
18 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE 10. GUARANTOR FINANCIAL INFORMATION - (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF INCOME FIRST QUARTER ENDED APRIL 3, 2005 (THOUSANDS) (UNAUDITED)
Parent Guarantor Company Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ Net Sales................................ $453,294 $ 25,504 $ - $478,798 Intercompany net sales................... 861 325,332 (326,193) - -------- -------- --------- -------- Total net sales...................... 454,155 350,836 (326,193) 478,798 -------- -------- --------- -------- Costs and expenses, net: Cost of products sold.................. 351,478 310,432 (326,193) 335,717 Selling, general and administrative.... 79,549 25,735 - 105,284 Intercompany licensing (income) expense, net......................... 18,166 (18,166) - - Other (income) expense, net............ 1,242 (243) - 999 Transition service agreement (income) expense..................... 25 (25) - - -------- -------- --------- -------- Total costs and expenses, net........ 450,460 317,733 (326,193) 442,000 -------- -------- --------- -------- Income before equity in earnings of subsidiaries, interest expense and income taxes........................... 3,695 33,103 - 36,798 Equity in earnings of subsidiaries....... 18,353 - (18,353) - Interest expense......................... (12,603) (3,501) - (16,104) -------- -------- --------- -------- Income before income taxes............... 9,445 29,602 (18,353) 20,694 Income tax (expense) benefit............. 3,385 (11,249) - (7,864) -------- -------- --------- -------- Net income............................... $ 12,830 $ 18,353 $ (18,353) $ 12,830 ======== ======== ========= ========
19 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE 10. GUARANTOR FINANCIAL INFORMATION - (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET APRIL 2, 2006 (THOUSANDS) (UNAUDITED)
Parent Guarantor Elim- Company Subsidiaries inations Consolidated ------- ------------ -------- ------------ ASSETS Current Assets: Cash and cash equivalents.............. $ 11 $ 8,098 $ - $ 8,109 Accounts receivable, trade, net........ 350,661 17,159 - 367,820 Accounts receivable, other............. 3,382 1,383 - 4,765 Inventories, net....................... 155,695 71,126 - 226,821 Deferred income tax assets, net........ 33,916 - - 33,916 Other current assets................... 7,396 6,272 - 13,668 -------- -------- --------- ---------- Total Current Assets................. 551,061 104,038 - 655,099 Investment in subsidiaries............... 589,999 - (589,999) - Intercompany loans including accrued interest............................... 230,614 (230,614) - - Due from (to) subsidiaries, net.......... (613,330) 613,330 - - Property, plant and equipment, net....... 35,149 338,425 - 373,574 Goodwill, net............................ 40,080 27,065 - 67,145 Other noncurrent assets.................. 8,792 25,523 - 34,315 -------- -------- --------- ---------- Total Assets............................. $842,365 $877,767 $(589,999) $1,130,133 ======== ======== ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term debt... $152,000 $ 2,822 $ - $ 154,822 Accounts payable....................... 36,569 62,888 - 99,457 Payable to related parties............. 7,256 11,445 - 18,701 Loans payable to parent corporation.... 52,840 - - 52,840 Accrued liabilities.................... 30,657 82,438 - 113,095 Reserve for product warranty claims.... 14,900 - - 14,900 -------- -------- --------- ---------- Total Current Liabilities............ 294,222 159,593 - 453,815 Long-term debt less current maturities... 405,522 127,210 - 532,732 Reserve for product warranty claims...... 17,329 785 - 18,114 Deferred income tax liabilities.......... 50,594 - - 50,594 Other liabilities........................ 21,365 180 - 21,545 -------- -------- --------- ---------- Total Liabilities........................ 789,032 287,768 - 1,076,800 Total Stockholders' Equity............... 53,333 589,999 (589,999) 53,333 -------- -------- --------- ---------- Total Liabilities and Stockholders' Equity.............................. $842,365 $877,767 $(589,999) $1,130,133 ======== ======== ========= ==========
20 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE 10. GUARANTOR FINANCIAL INFORMATION - (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 2005 (THOUSANDS) (UNAUDITED)
Parent Guarantor Elim- Company Subsidiaries inations Consolidated ------- ------------ -------- ------------ ASSETS Current Assets: Cash and cash equivalents............... $ 9 $ 6,873 $ - $ 6,882 Accounts receivable, trade, net......... 250,519 19,445 - 269,964 Accounts receivable, other.............. 5,054 1,426 - 6,480 Tax receivable from parent corporation.. 804 - - 804 Inventories, net........................ 140,136 62,562 - 202,698 Deferred income tax assets, net......... 31,842 - - 31,842 Other current assets.................... 7,015 6,560 - 13,575 -------- --------- --------- ---------- Total Current Assets.................. 435,379 96,866 - 532,245 Investment in subsidiaries................ 575,958 - (575,958) - Intercompany loans including accrued interest................................ 185,148 (185,148) - - Due from (to) subsidiaries, net........... (569,763) 569,763 - - Property, plant and equipment, net........ 35,690 338,707 - 374,397 Goodwill, net............................. 40,080 27,054 - 67,134 Other noncurrent assets................... 9,798 20,751 - 30,549 -------- --------- --------- ---------- Total Assets.............................. $712,290 $ 867,993 $(575,958) $1,004,325 ======== ========= ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term debt.... $ 17,000 $ 2,768 $ - $ 19,768 Accounts payable........................ 49,996 74,925 - 124,921 Payable to related parties.............. 6,885 5,202 - 12,087 Loans payable to parent corporation..... 52,840 - - 52,840 Accrued liabilities..................... 35,631 80,354 - 115,985 Reserve for product warranty claims..... 14,900 - - 14,900 -------- --------- --------- ---------- Total Current Liabilities............. 177,252 163,249 - 340,501 Long-term debt less current maturities.... 405,524 127,943 - 533,467 Reserve for product warranty claims....... 15,642 660 - 16,302 Deferred income tax liabilities........... 49,416 - - 49,416 Other liabilities......................... 21,430 183 - 21,613 -------- --------- --------- ---------- Total Liabilities......................... 669,264 292,035 - 961,299 Total Stockholders' Equity................ 43,026 575,958 (575,958) 43,026 -------- --------- --------- ---------- Total Liabilities and Stockholders' Equity............................... $712,290 $ 867,993 $(575,958) $1,004,325 ======== ========= ========= ==========
21 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)- (CONTINUED) NOTE 10. GUARANTOR FINANCIAL INFORMATION - (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FIRST QUARTER ENDED APRIL 2, 2006 (THOUSANDS) (UNAUDITED)
Parent Guarantor Company Subsidiaries Consolidated -------- ------------ ------------ Cash and cash equivalents, beginning of period...................... $ 9 $ 6,873 $ 6,882 -------- -------- -------- Cash provided by (used in) operating activities: Net income (loss)................................................. (3,689) 14,041 10,352 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation.................................................... 891 10,896 11,787 Amortization.................................................... - 684 684 Deferred income taxes........................................... (896) - (896) Noncash interest charges, net................................... 978 332 1,310 Increase in working capital items................................. (132,810) (15,901) (148,711) Increase in long-term reserve for product warranty claims................................................. 1,687 125 1,812 Decrease in other assets.......................................... 16 628 644 Decrease in other liabilities..................................... (55) (3) (58) Change in net receivable from/payable to related parties/parent corporations............................. (724) 8,142 7,418 Other, net........................................................ (3) 312 309 -------- -------- -------- Net cash provided by (used in) operating activities........................................................ (134,605) 19,256 (115,349) -------- -------- -------- Cash provided by (used in) investing activities: Capital expenditures.............................................. (349) (10,936) (11,285) -------- -------- -------- Net cash used in investing activities............................... (349) (10,936) (11,285) -------- -------- -------- Cash provided by (used in) financing activities: Proceeds from Senior Secured Revolving Credit Facility................................................. 290,000 - 290,000 Purchase of industrial development revenue bond certificates............................................... - (6,325) (6,325) Repayments of long-term debt...................................... (155,000) (770) (155,770) Loan to parent corporation........................................ (44) - (44) -------- -------- -------- Net cash provided by (used in) financing activities................. 134,956 (7,095) 127,861 -------- -------- -------- Net change in cash and cash equivalents............................. 2 1,225 1,227 -------- -------- -------- Cash and cash equivalents, end of period............................ $ 11 $ 8,098 $ 8,109 ======== ======== ========
22 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)- (CONTINUED) NOTE 10. GUARANTOR FINANCIAL INFORMATION - (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FIRST QUARTER ENDED APRIL 3, 2005 (THOUSANDS) (UNAUDITED)
Parent Guarantor Company Subsidiaries Consolidated -------- ------------ ------------ Cash and cash equivalents, beginning of period....................... $ 12 $ 129,470 $ 129,482 ------- --------- --------- Cash provided by (used in) operating activities: Net income (loss).................................................. (5,523) 18,353 12,830 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation..................................................... 889 10,001 10,890 Amortization..................................................... - 574 574 Deferred income taxes............................................ 1,177 - 1,177 Noncash interest charges, net.................................... 1,094 328 1,422 Increase in working capital items.................................. (104,299) (8,739) (113,038) Increase (decrease) in long-term reserve for product warranty claims.......................................... (371) 109 (262) Increase in other assets........................................... (4,622) (536) (5,158) Increase (decrease) in other liabilities........................... 120 (1) 119 Change in net receivable from/payable to related parties/parent corporations.............................. 112,387 (110,536) 1,851 Other, net......................................................... (4) 104 100 ------- --------- --------- Net cash provided by (used in) operating activities....................................................... 848 (90,343) (89,495) ------- --------- --------- Cash provided by (used in) investing activities: Capital expenditures............................................... (700) (9,025) (9,725) ------- --------- --------- Net cash used in investing activities................................ (700) (9,025) (9,725) ------- --------- --------- Cash provided by (used in) financing activities: Proceeds from Senior Secured Revolving Credit Facility............. 11,000 - 11,000 Repayments of long-term debt....................................... (11,000) (607) (11,607) Distribution to parent corporation................................. (10) - (10) Loan to parent corporation......................................... (32) - (32) Financing fees and expenses........................................ (106) - (106) ------- --------- --------- Net cash used in financing activities................................ (148) (607) (755) ------- --------- --------- Net change in cash and cash equivalents.............................. - (99,975) (99,975) ------- --------- --------- Cash and cash equivalents, end of period............................. $ 12 $ 29,495 $ 29,507 ======= ========= =========
23 BUILDING MATERIALS CORPORATION OF AMERICA ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Unless otherwise indicated by the context, "we," "us," and "our" refer to Building Materials Corporation of America and its consolidated subsidiaries. CRITICAL ACCOUNTING POLICIES There have been no significant changes to our Critical Accounting Policies during the first quarter ended April 2, 2006. For a further discussion on our Critical Accounting Policies, reference is made to Management's Discussion and Analysis of Financial Condition and Results of Operations, "Critical Accounting Policies" in our annual report on Form 10-K for the fiscal year ended December 31, 2005, which was filed with the Securities and Exchange Commission on March 30, 2006, which we refer to as the 2005 Form 10-K. RESULTS OF OPERATIONS Sales of roofing products are our dominant business, typically accounting for approximately 95% of our consolidated net sales. The main drivers of our roofing business include: the nation's aging housing stock; existing home sales; new home construction; larger new homes; increased home ownership rates; and severe weather and energy concerns. Our roofing business is also affected by raw material costs, including asphalt and other petroleum-based raw materials, as well as energy, and transportation and distribution costs. First Quarter 2006 Compared With First Quarter 2005 We recorded net income in the first quarter of 2006 of $10.4 million compared with net income of $12.8 million in the first quarter of 2005. The decrease in first quarter 2006 net income was primarily attributable to lower income before interest expense and income taxes, partially offset by lower interest expense. Net sales for the first quarter of 2006 were $505.0 million, a 5.5% increase over first quarter of 2005 net sales of $478.8 million, with the increase due to higher net sales of both residential and commercial roofing products primarily resulting from higher average selling prices. Income before interest expense and income taxes in the first quarter of 2006 was $31.2 million compared with $36.8 million in the first quarter of 2005. Income before interest expense and income taxes in the first quarter of 2006 was positively affected by increased net sales of both residential and commercial roofing products primarily resulting from higher average selling prices, which was more than offset by higher raw material costs, including asphalt, higher energy costs and higher selling, general and administrative expenses mostly due to higher distribution costs, primarily resulting from a rise in fuel prices. 24 BUILDING MATERIALS CORPORATION OF AMERICA ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) Interest expense for the first quarter of 2006 decreased to $14.5 million from $16.1 million for the first quarter of 2005, primarily due to lower average borrowings. BUSINESS SEGMENT INFORMATION Net Sales. Net sales of roofing products for the first quarter of 2006 increased to $489.6 million from $462.2 million for the first quarter of 2005, representing an increase of $27.4 million or 5.9%. The increase in net sales of roofing products was primarily attributable to higher average selling prices. Roofing product net sales were favorably impacted by an increase in net sales of premium laminate shingles primarily due to higher average selling prices. Net sales of specialty building products and accessories decreased to $15.4 million for the first quarter of 2006 as compared with $16.6 million for the first quarter of 2005. Gross Margin. Our overall gross margin increased to $145.5 million or 28.8% of net sales for the first quarter of 2006 from $143.1 million or 29.9% of net sales for the first quarter of 2005. The increase in our overall gross margin is primarily attributable to an increase in net sales due to an improved sales mix and higher average selling prices, partially offset by higher raw material costs. Income before Interest Expense and Income Taxes. Income before interest expense and income taxes for the first quarter of 2006 decreased to $31.2 million or 6.2% of net sales, compared to $36.8 million or 7.7% of net sales for the first quarter of 2005. Income before interest expense and income taxes in the first quarter of 2006 was positively affected by increased net sales of roofing products primarily resulting from higher average selling prices, which was more than offset by higher raw material costs, including asphalt, higher energy costs and higher selling, general and administrative expenses mostly due to higher distribution costs, primarily resulting from a rise in fuel prices. LIQUIDITY AND FINANCIAL CONDITION Cash Flows and Cash Position Sales of roofing products and specialty building products and accessories in the northern regions of the United States generally decline in the late fall and winter months due to cold weather. In addition, adverse weather conditions can result in higher customer demand during our peak operating season depending on the extent and severity of the damage from these severe weather conditions. Due to the seasonal demands of our business together with extreme weather conditions, we generally have negative cash flows from operations during the first six months of our fiscal year. Our negative cash flows from operations are primarily driven by our cash invested in both accounts receivable and inventories to meet these seasonal operating demands. Generally, 25 BUILDING MATERIALS CORPORATION OF AMERICA ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) in the third and fourth quarters of our fiscal year, our cash flows from operations become positive each quarter, as our investment in inventories and accounts receivable no longer continues to increase, as is customary in the first six months of our fiscal year. Our seasonal working capital needs, together with our debt service obligations, capital expenditure requirements and other contracted arrangements, adversely impact our liquidity during this period. We rely on our cash and cash equivalents on hand and our $350.0 million Senior Secured Revolving Credit Facility due November 2006, which we refer to as our Senior Secured Revolving Credit Facility, to support our overall cash flow requirements during these periods. We expect to continue to rely on our cash and cash equivalents on hand and external financings to maintain operations over the short and long-term and to continue to have access to the financing markets, subject to the then prevailing market terms and conditions. Net cash outflow during the first quarter of 2006 from operating and investing activities was $126.6 million, including the use of $115.3 million of cash from operations and the reinvestment of $11.3 million for capital programs. Cash invested in additional working capital totaled $148.7 million during the first quarter of 2006, reflecting an increase in total accounts receivable of $96.1 million, due to our increased operating performance and the seasonality of our business, a $24.1 million increase in inventories to meet our seasonal operating demands and a $28.4 million net decrease in accounts payable and accrued liabilities. The net cash used for operating activities also included a $7.4 million net increase in the payable to related parties/parent corporations, primarily attributable to a $6.4 million net increase in federal income taxes payable pursuant to our tax sharing agreement with our parent corporation and a $1.0 million increase in amounts due under our long-term granule supply agreement with an affiliated company. Net cash provided by financing activities totaled $127.9 million during the first quarter of 2006, including $290.0 million of proceeds from the issuance of current maturities of long-term debt related to 2006 year to date cumulative borrowings under our Senior Secured Revolving Credit Facility. Financing activities also included $155.8 million in aggregate repayments of long-term debt, of which $155.0 million related to 2006 year to date cumulative repayments under our Senior Secured Revolving Credit Facility and $0.7 million related to our Chester, South Carolina loan obligation. In addition, financing activities included the purchase of industrial development revenue bond certificates issued in 1990 with respect to the Fontana, California Industrial Development Revenue Bond, resulting in BMCA becoming the primary holder of such bond. 26 BUILDING MATERIALS CORPORATION OF AMERICA ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) Long-Term Debt As of April 2, 2006 we had total outstanding consolidated indebtedness of $740.4 million, which amount includes $52.8 million of demand loans to our parent corporation, of which $154.8 million matures prior to the end of the first quarter of 2007 including $152.0 million of borrowings outstanding under the Senior Secured Revolving Credit Facility. We anticipate funding these obligations principally from our cash and cash equivalents on hand, cash flow from operations and/or borrowings under our Senior Secured Revolving Credit Facility, which matures in November 2006. Although no assurances can be provided, we intend to refinance the Senior Secured Revolving Credit Facility before its maturity date. As of April 2, 2006 the Company was in compliance with all covenants under the Senior Secured Revolving Credit Facility and the indentures governing the 8% Senior Notes due 2007, the 8% Senior Notes due 2008 and the 7 3/4% Senior Notes due 2014, which we refer to collectively as the Senior Notes. As of April 2, 2006, the book value of the collateral securing the Senior Notes and the Senior Secured Revolving Credit Facility was approximately $1,117.0 million. At April 2, 2006, we had outstanding letters of credit of approximately $49.9 million under the Senior Secured Revolving Credit Facility, which includes approximately $11.7 million of standby letters of credit related to certain obligations of G-I Holdings. Intercompany Transactions We make loans to, and borrow from, our parent corporations from time to time at prevailing market rates. As of April 2, 2006 and April 3, 2005, BMCA Holdings Corporation owed us $55.9 and $55.7 million, including interest of $0.6 and $0.4 million, respectively, and we owed BMCA Holdings Corporation $52.8 and $52.8 million, with no unpaid interest payable to BMCA Holdings Corporation, respectively. Interest income on our loans to BMCA Holdings Corporation amounted to $1.2 and $0.9 million during the first quarter ended April 2, 2006 and April 3, 2005, respectively. Interest expense on our loans from BMCA Holdings Corporation amounted to $1.1 and $0.9 million during the first quarter ended April 2, 2006 and April 3, 2005, respectively. Loans payable to/receivable from any parent corporation are due on demand and provide each party with the right of offset of its related obligation to the other party and are subject to limitations as outlined in our Senior Secured Revolving Credit Facility and our Senior Notes. Under the terms of the Senior Secured Revolving Credit Facility 27 BUILDING MATERIALS CORPORATION OF AMERICA ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) and the indentures governing our Senior Notes, at April 2, 2006, we could repay demand loans to our parent corporation amounting to $52.8 million, subject to certain conditions. We also make non-interest bearing advances to affiliates, of which no balance was outstanding as of April 2, 2006 and April 3, 2005. In addition, no loans were owed or other lending activities entered into by us to other affiliates. During the three month period ended April 2, 2006 and April 3, 2005, we paid $0 and $3.8 million, respectively, in federal income tax payments to our parent corporation pursuant to a tax sharing agreement. These amounts are included in the change in net receivable from/payable to related parties/parent corporations in the consolidated statement of cash flows. As a result of the foregoing factors, cash and cash equivalents increased by $1.2 million during the first quarter of 2006 to $8.1 million. Contingencies See Note 8 to Consolidated Financial Statements for information regarding contingencies. Economic Outlook We do not believe that inflation has had a material effect on our results of operations during the first quarter of 2006. However, we cannot assure you that our business will not be affected by inflation in the future, or by increases in the cost of energy and asphalt purchases used in our manufacturing process principally due to fluctuating oil prices. During the first quarter of 2006, the cost of asphalt continued to be high relative to historical levels, which reflects in large part record high crude oil prices. Due to the strength of the Company's manufacturing operations, which allows us to use many types of asphalt, together with our ability to secure alternative sources of supply, we do not anticipate that any future disruption in the supply of asphalt will have a material impact on future net sales, although no assurances can be provided in that regard. To mitigate these and other petroleum-based cost increases, we announced and implemented multiple price increases during the first quarter of 2006. We will attempt to pass on future additional unexpected cost increases from suppliers as needed; however, no assurances can be provided that these price increases will be accepted in the marketplace. Contractual Obligations In January 2006, we amended one of our contractual obligations with a certain supplier, which reduced our minimum purchase obligation requirement with that supplier by approximately $10.1 million. 28 BUILDING MATERIALS CORPORATION OF AMERICA ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) We also have a management agreement with International Specialty Products Inc. and its subsidiaries, which we refer to as ISP, an affiliate, which we refer to as the ISP Management Agreement to provide us with certain management services. Based on services provided to us in 2006 under the ISP Management Agreement, the aggregate amount payable to ISP under the ISP Management Agreement for 2006, inclusive of the services provided to G-I Holdings, is not yet available and is estimated to be approximately the same as the $5.8 million paid in 2005. For a further discussion on the ISP Management Agreement reference is made to Management's Discussion and Analysis of Financial Condition and Results of Operations, "Intercompany Transactions" in our 2005 Form 10-K. We purchase all of our colored roofing granules and algae-resistant granules under a long-term requirements contract with ISP. The amount of mineral products purchased each year under the ISP contract is based on current demand and is not subject to minimum purchase requirements. For the first quarter ended April 2, 2006 and the year ended December 31, 2005, we purchased $28.8 and $108.3 million, respectively, of mineral products from ISP under this contract. Other Matters On April 7, 2006 we amended our Senior Secured Revolving Credit Facility to permit the expiration date of certain of our letters of credit outstanding to occur after the November 2006 termination date of the Senior Secured Revolving Credit Facility. In connection therewith, we are required to deposit into a collateral account fourteen days prior to the termination date of the Senior Secured Revolving Credit Facility an amount equal to 103% of the Available Amount of all Letters of Credit then outstanding. New Accounting Pronouncements In November 2004, the Financial Accounting Standards Board, which we refer to as FASB issued Statement of Financial Accounting Standards, which we refer to as SFAS No. 151 "Inventory Costs," which we refer to as SFAS No. 151, which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). SFAS No. 151 amends Accounting Research Bulletin, which we refer to as ARB No. 43, Chapter 4 "Inventory Pricing," which we refer to as ARB No. 43, and requires abnormal inventory costs to be recognized as current period charges regardless of whether they meet the "so abnormal" criterion outlined in ARB No. 43. SFAS No. 151 also introduces the concept of "normal capacity" and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. Furthermore, SFAS No. 151 requires unallocated overheads to be recognized as an expense in the period in which they are incurred. SFAS No. 151 became effective for costs beginning January 1, 2006. As of the quarter ended April 2, 2006 we adopted the provisions of SFAS No. 151 and noted no material effect on our consolidated financial statements as a result of the adoption of SFAS No. 151. 29 BUILDING MATERIALS CORPORATION OF AMERICA ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) In December 2004, the FASB issued a revised SFAS No. 123 "Accounting for Stock-Based Compensation," SFAS No. 123(R) "Share-Based Payments," which we refer to as SFAS No. 123(R), which requires compensation costs related to share-based payment transactions to be recognized in the financial statements. SFAS No. 123(R) establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees. SFAS No. 123(R) requires that stock awards be classified as either an equity award or a liability award. SFAS No. 123(R) replaces the original SFAS No. 123 and supersedes Accounting Principles Board, which we refer to as APB, Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123(R) was effective January 1, 2006. Our adoption of SFAS No. 123(R) did not have an impact on our consolidated financial statements. In December 2004, the FASB issued SFAS No. 153 "Exchanges of Nonmonetary Assets," which we refer to as SFAS No. 153, which replaces the exception from fair value measurement in APB Opinion No. 29 "Accounting for Nonmonetary Transactions," for nonmonetary exchanges of similar productive assets. SFAS No. 153 replaces this exception with a general exception from fair value measurement for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 became effective for nonmonetary asset exchanges beginning January 1, 2006. As of the quarter ended April 2, 2006, we adopted the provisions of SFAS No. 153 and noted no nonmonetary asset exchanges as a result of the adoption of SFAS No. 153. In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections," which we refer to as SFAS No. 154, which eliminates the requirement of APB Opinion No. 20, "Accounting Changes," to include the cumulative effect adjustment resulting from a change in an accounting principle in the income statement in the period of change. SFAS No. 154 requires that a change in an accounting principle or reporting entity be retrospectively applied. Under retrospective application, SFAS No. 154 is applied as of the beginning of the first accounting period presented in the financial statements, and the cumulative effect of the change is reflected in the carrying value of assets and liabilities as of the first period presented, and the offsetting adjustments are recorded to opening retained earnings. Each period presented is adjusted to reflect the period-specific effects of applying the change. Changes in accounting estimates and corrections of errors continue to be accounted for in the same manner as prior to the issuance of SFAS No. 154. SFAS No. 154 became effective for accounting changes and corrections of errors made beginning January 1, 2006. As of the quarter ended April 2, 2006, we adopted the provisions of SFAS No. 154 and, as a result, noted no accounting changes or correction of errors. * * * 30 BUILDING MATERIALS CORPORATION OF AMERICA ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) 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 similar words or phrases. Similarly, statements that describe our objectives, plans or goals also are forward-looking statements. Our operations are subject to certain risks and uncertainties that could cause actual results to 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 we undertake no obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances. We cannot assure you 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 2005 Form 10-K for a discussion of "Market-Sensitive Instruments and Risk Management." There were no material changes in such information as of April 2, 2006 and we have no hedging arrangements as of April 2, 2006. ITEM 4. CONTROLS AND PROCEDURES Disclosure 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. Our Chief Executive Officer and Chief Financial Officer also concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accummulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. 31 BUILDING MATERIALS CORPORATION OF AMERICA ITEM 4. CONTROLS AND PROCEDURES - (CONTINUED) Internal Control Over Financial Reporting: There were no significant changes in our internal control over financial reporting identified in management's evaluation during the first quarter of fiscal year 2006 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As of April 2, 2006, 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 8 to consolidated financial statements in Part I. ITEM 6. EXHIBITS Exhibit Number 10.1 Fifth Admendment, dated as of April 7, 2006, to the Credit Agreement, dated as of July 9, 2003, among BMCA, the Grantors party thereto, the banks, financial institutions and other institutional lenders party thereto and Citicorp USA, Inc., as administrative agent for the Lenders. 31.1 Rule 13a-14(a)/Rule 15d-14(a) Certification of the Chief Executive Officer. 31.2 Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer. 32.1 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer 32 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: May 12, 2006 BY: /s/ John F. Rebele ----------------- ----------------------------------------- John F. Rebele Senior Vice President, Chief Financial Officer and Chief Administrative Officer (Principal Financial Officer) DATE: May 12, 2006 BY: /s/ James T. Esposito ----------------- ----------------------------------------- James T. Esposito Vice President and Controller (Principal Accounting Officer) 33 EX-10 2 mv5-12ex10_1.txt 10.1 Exhibit 10.1 EXECUTION COPY FIFTH AMENDMENT TO THE CREDIT AGREEMENT Dated as of April 7, 2006 FIFTH AMENDMENT TO THE CREDIT AGREEMENT (this "AMENDMENT") among BUILDING MATERIALS CORPORATION OF AMERICA, a Delaware corporation (the "BORROWER"), each guarantor party to the Subsidiary Guaranty referred to below (the "GUARANTORS"), the undersigned banks, financial institutions and other institutional lenders party hereto (collectively, the "LENDERS" and each a "LENDER"), and CITICORP USA, INC., as collateral monitoring agent and administrative agent for the Lenders (the "ADMINISTRATIVE AGENT"). PRELIMINARY STATEMENTS: (1) Reference is made to the Credit Agreement, dated as of July 9, 2003 (as amended by the First Amendment to the Credit Agreement, dated as of May 7, 2004; the Second Amendment to the Credit Agreement, dated as of July 12, 2004; the Third Amendment to the Credit Agreement, dated as of July 19, 2004; and the Fourth Amendment to the Credit Agreement, dated as of November 5, 2004, and as otherwise amended, supplemented or otherwise modified through the date hereof, the "CREDIT AGREEMENT"), among the Borrower, the lenders from time to time party thereto, the Administrative Agent and Citigroup Global Markets Inc., as lead arranger. Terms defined in the Credit Agreement and not otherwise defined herein are used in this Amendment as defined in the Credit Agreement. (2) The Borrower has requested that the Required Lenders agree to amend Section 2.01(c) of the Credit Agreement to permit the expiration date of Letters of Credit to occur after the Termination Date. (3) The Required Lenders are, on the terms and condtions stated below, willing to grant the request of the Borrower, and the Borrower, the Issuing Bank and the Required Lenders have agreed to amend the Credit Agreement as hereinafter set forth. SECTION 1. Amendments to Credit Agreement. Section 2.01(c) of the Credit Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 2, hereby amended by (a) deleting the phrase "later than the earlier of 30 days before the Termination Date" in the second sentence thereof and substituting for such phrase the phrase "later than the date agreed to by the Issuing Bank and the Borrower in respect of such Letter of Credit". (b) inserting at the end thereof the following new sentence: "The Borrower agrees that, on or prior to the fourteenth day before the Termination Date, the Borrower shall deposit (on terms and conditions reasonably satisfactory to the Issuing Bank) in a collateral account designated by the Issuing Bank an amount equal to 103% of the aggregate Available Amount of all Letters of Credit then outstanding which have an expiration date later than the Termination Date." SECTION 2. Conditions of Effectiveness. This Amendment shall become effective as of the date first above written when, and only when the Administrative Agent shall have received counterparts of (a) this Amendment executed by the Borrower, the Issuing Bank and the Required Lenders or, as to the Issuing Bank or any of the Required Lenders, advice satisfactory to the Administrative Agent that such Required Lender has executed this Amendment and (b) the consent attached hereto (the "CONSENT") executed by each Guarantor. The effectiveness of this Amendment is conditional upon the accuracy of the factual matters described herein. This amendment is subject to the provisions of Section 8.01 of the Credit Agreement. SECTION 3. Representations and Warranties of the Borrower. The Borrower represents and warrants that: (a) The representations and warranties contained in each Loan Document are correct in all material respects on and as of the date of this Amendment, as though made on and as of such date, other than any such representations or warranties that, by their terms, refer to a specific date, in which case, as of such specific date. (b) No Default has occurred and is continuing on the date hereof. SECTION 4. Reference to and Effect on the Loan Documents. (a) On and after the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Credit Agreement, and each reference in the Notes and each of the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended by this Amendment. (b) The Credit Agreement, the Notes and each of the other Loan Documents, as specifically amended by this Amendment, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Without limiting the generality of the foregoing, the Collateral Documents and all of the Collateral described therin do and shall continue to secure the payment of all Obligations of the Loan Parties under the Loan Documents. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. SECTION 5. Costs and Expenses. The Borrower agrees to pay on demand all reasonable out-of-pocket costs and expenses of the Administrative Agent in connection with the preparation, execution, delivery and administration, modification and amendment of this Amendment and the other instruments and documents to be delivered hereunder (including, without limitation, the reasonable fees and expenses of counsel for the Administrative Agent) in accordance with the terms of Section 8.04 of the Credit Agreement. SECTION 6. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment. SECTION 7. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. [SIGNATURE PAGES TO FOLLOW] 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. BUILDING MATERIALS CORPORATION OF AMERICA By /s/ John M. Maitner ---------------------------------------- Name: John M. Maitner Title: Vice President and Treasurer 3 CITICORP USA, INC., as Administrative Agent, Issuing Bank and Lender By /s/ Michael M. Schadt ---------------------------------------- Name: Michael M. Schadt Title: Director Asset Based Finance 4 DEUTSCHE BANK TRUST COMPANY AMERICAS By /s/ Marguerite Sutton ---------------------------------------- Name: Marguerite Sutton Title: Director By /s/ Evelyn Thierry ---------------------------------------- Name: Evelyn Thierry Title: Vice President 5 WACHOVIA BANK, NATIONAL ASSOCIATION (successor by merger to Congress Financial Corporation) By /s/ Thomas Grabosky ---------------------------------------- Name: Thomas Grabosky Title: Director 6 THE CIT GROUP/BUSINESS CREDIT, INC. By /s/ Evelyn Kusold ---------------------------------------- Name: Evelyn Kusold Title: Vice President 7 JPMORGAN CHASE BANK, N.A. By /s/ John M. Hariaczyi ---------------------------------------- Name: John M. Hariaczyi Title: Vice President 8 GMAC COMMERCIAL FINANCE LLC By /s/ Daniel J. Murray ---------------------------------------- Name: Daniel J. Murray Title: 1st Vice President 9 NATIONAL CITY BUSINESS CREDIT, INC. (formerly National City Commercial Finance, Inc.) By /s/ Jason Hanes ---------------------------------------- Name: Jason Hanes Title: Senior Associate 10 WELLS FARGO FOOTHILL, INC. By /s/ Juan Barrera ---------------------------------------- Name: Juan Barrera Title: Vice President 11 GENERAL ELECTRIC CAPITAL CORPORATION By /s/ Robert M. Kadlick ---------------------------------------- Name: Robert M. Kadlick Title: Duly Authorized Signatory 12 CONSENT Dated as of April 7, 2006 Each of the undersigned, as Guarantors under the Subsidiary Guaranty dated as of July 9, 2003 (the "GUARANTY") in favor of the Secured Parties (as defined in the Credit Agreement referred to in the foregoing Amendment), hereby consents to such Amendment and hereby confirms and agrees that (a) notwithstanding the effectiveness of such Amendment, the Guaranty is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except that, on and after the effectiveness of such Amendment, each reference in the Guaranty to the "Credit Agreement", "thereunder", "thereof" or words of like import shall mean and be a reference to the Credit Agreement, as amended by such Amendment, and (b) the Collateral Documents to which such Guarantor is a party and all of the Collateral described therein do, and shall continue to, secure the payment of all of the Secured Obligations (in each case, as defined therein). BMCA INSULATION PRODUCTS INC. BUILDING MATERIALS INVESTMENT CORPORATION BUILDING MATERIALS MANUFACTURING CORPORATION DUCTWORK MANUFACTURING CORPORATION GAF LEATHERBACK CORP. GAF MATERIALS CORPORATION (CANADA) GAF PREMIUM PRODUCTS INC. GAF REAL PROPERTIES, INC. GAFTECH CORPORATION HBP ACQUISITION LLC LL BUILDING PRODUCTS INC. PEQUANNOCK VALLEY CLAIM SERVICE COMPANY, INC. SOUTH PONCA REALTY CORP. WIND GAP REAL PROPERTY ACQUISITION CORP. BMCA QUAKERTOWN INC. By /s/ John M. Maitner ------------------------------------------- Name: John M. Maitner Title: Vice President and Treasurer 13 EX-31 3 mv5-12ex31_1.txt 31.1 Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, Robert B. Tafaro, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Building Materials Corporation of America; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 12, 2006 /s/ ROBERT B. TAFARO - --------------------------------------------- Name: Robert B. Tafaro Title: President and Chief Executive Officer EX-31 4 mv5-12ex31_2.txt 31.2 Exhibit 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER I, John F. Rebele, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Building Materials Corporation of America; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 12, 2006 /s/ JOHN F. REBELE - ---------------------------------------- Name: John F. Rebele Title: Senior Vice President, Chief Financial Officer and Chief Administrative Officer EX-32 5 mv5-12ex32_1.txt 32.1 Exhibit 32.1 CERTIFICATION OF CEO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of Building Materials Corporation of America (the "Company") for the quarterly period ended April 2, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Robert B. Tafaro, as President and Chief Executive Officer of the Company, and John F. Rebele, as Senior Vice President, Chief Financial Officer and Chief Administrative Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge and belief: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Robert B. Tafaro - --------------------------------------------- Name: Robert B. Tafaro Title: President and Chief Executive Officer Date: May 12, 2006 /s/ John F. Rebele - --------------------------------------------- Name: John F. Rebele Title: Senior Vice President, Chief Financial Officer and Chief Administrative Officer Date: May 12, 2006 This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----