-----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, UbSc/aZCnA40A7A+Mz8zci2X3JKrICVo+prbbMHMBt5MfYDoPQMAAB5VvLL1dHLB HlS9IgARZe2jZcEiVuJKYw== 0000909518-08-000659.txt : 20080813 0000909518-08-000659.hdr.sgml : 20080813 20080813170946 ACCESSION NUMBER: 0000909518-08-000659 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20080629 FILED AS OF DATE: 20080813 DATE AS OF CHANGE: 20080813 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: 081014267 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: 081014268 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 mv8-13_10qv2.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 June 29, 2008 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, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |X| Smaller reporting company |_| (Do not check if a smaller reporting company) 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 August 13, 2008, 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 August 13, 2008, 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 August 13, 2008, no shares of the registrant or the additional registrant were held by non-affiliates. ADDITIONAL REGISTRANTS
Address, including zip Exact name of State or other Commission File code and telephone number, registrant as jurisdiction of No. of No./I.R.S. including area code, of specified in its incorporation or Shares Employer registrant's principal charter organization Outstanding Identification No. executive offices - ------- ------------ ----------- ------------------ ----------------- Building Materials Delaware 10 333-69749-01/ 1361 Alps Road Manufacturing Corporation 22-3626208 Wayne, NJ 07470 (973) 628-3000
2 Part I - FINANCIAL INFORMATION Item 1 - FINANCIAL STATEMENTS BUILDING MATERIALS CORPORATION OF AMERICA CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in Thousands)
Second Quarter Ended Six Months Ended ------------------------ --------------------------- June 29, July 1, June 29, July 1, 2008 2007 2008 2007 --------- --------- ----------- ----------- Net sales........................... $ 737,078 $ 663,270 $ 1,307,354 $ 1,193,261 --------- --------- ----------- ----------- Costs and expenses: Cost of products sold............. 515,877 485,945 940,792 878,883 Selling, general and administrative................... 125,689 137,830 231,498 248,990 Amortization of intangible assets. 2,847 - 5,693 - Restructuring and other expenses.. 6,364 54,993 27,189 54,993 Other (income) expense, net....... 400 (797) 1,408 (378) --------- --------- ----------- ----------- Total costs and expenses, net.. 651,177 677,971 1,206,580 1,182,488 --------- --------- ----------- ----------- Income (loss) before interest expense and income taxes........... 85,901 (14,701) 100,774 10,773 Interest expense.................... (39,997) (45,670) (79,862) (94,948) --------- --------- ----------- ----------- Income (loss) before income taxes... 45,904 (60,371) 20,912 (84,175) Income tax (expense) benefit........ (18,103) 15,889 (8,156) 24,410 --------- --------- ----------- ----------- Net income (loss)................... $ 27,801 $ (44,482) $ 12,756 $ (59,765) ========= ========= =========== =========== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
3
BUILDING MATERIALS CORPORATION OF AMERICA CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) June 29, 2008 December 31, ASSETS (Unaudited) 2007 Current Assets: ------------ ------------ Cash and cash equivalents................................................. $ 116,989 $ 6,324 Accounts receivable, trade, net........................................... 516,142 210,857 Accounts receivable, other................................................ 9,258 10,792 Income tax receivable..................................................... - 11,968 Inventories, net.......................................................... 278,241 316,912 Deferred income tax assets................................................ 37,494 38,017 Other current assets...................................................... 22,215 13,698 ------------ ------------ Total Current Assets.................................................... 980,339 608,568 Property, plant and equipment, net.......................................... 660,287 672,813 Goodwill.................................................................... 654,087 655,200 Intangible assets, net...................................................... 201,942 207,635 Income tax receivable from parent corporation............................... 10,016 10,016 Other noncurrent assets..................................................... 125,327 120,159 ------------ ------------ Total Assets................................................................ $ 2,631,998 $ 2,274,391 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities: Current maturities of long-term debt...................................... $ 25,186 $ 24,630 Accounts payable.......................................................... 205,141 142,250 Payable to related parties................................................ 40,235 16,133 Loans payable to parent corporation....................................... 52,840 52,840 Accrued liabilities....................................................... 145,272 135,976 Product warranty claims................................................... 16,200 13,500 Discontinued operations - current liabilities............................. 560 560 ------------ ------------ Total Current Liabilities................................................. 485,434 385,889 ------------ ------------ Long-term debt.............................................................. 1,965,454 1,729,395 ------------ ------------ Product warranty claims..................................................... 30,828 31,224 ------------ ------------ Deferred income tax liabilities............................................. 69,295 60,869 ------------ ------------ Other liabilities........................................................... 162,128 163,332 ------------ ------------ Commitments and Contingencies - Note 13 Stockholders' Deficit: Series A Cumulative Redeemable Convertible Preferred Stock, $.01 par value per share; 400,000 shares authorized; no shares issued............................................ - - Class A Common Stock, $.001 par value per share; 1,300,000 shares authorized; 1,015,010 shares issued and outstanding.................................................. 1 1 Class B Common Stock, $.001 par value per share; 100,000 shares authorized; no shares issued............................. - - Loans receivable from parent corporation.................................. (56,293) (56,224) Accumulated deficit....................................................... (3,740) (16,496) Accumulated other comprehensive loss...................................... (21,109) (23,599) ------------ ------------ Total Stockholders' Deficit............................................. (81,141) (96,318) ------------ ------------ Total Liabilities and Stockholders' Deficit................................. $ 2,631,998 $ 2,274,391 ============ ============ 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)
Six Months Ended ------------------------------- June 29, July 1, 2008 2007 ------------ ------------- Cash and cash equivalents, beginning of period.................................. $ 6,324 $ 7,777 ------------ ------------- Cash used in operating activities: Net income (loss)............................................................. 12,756 (59,765) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation.............................................................. 35,690 33,632 Amortization of intangible and other assets............................... 7,616 2,057 Restructuring and other expenses.......................................... 44,119 65,793 Deferred income taxes..................................................... 7,423 (33,163) Noncash interest charges.................................................. 4,505 6,093 Increase in working capital items............................................. (237,736) (116,110) Increase in product warranty claims........................................... 2,304 526 Increase in other assets...................................................... (10,352) (1,650) Increase in other liabilities................................................. 3,252 2,136 Increase in net payable to related parties/parent corporations................ 24,102 8,102 Other, net.................................................................... (6,728) 867 ------------ ------------- Net cash used in operating activities........................................... (113,049) (91,482) ------------ ------------- Cash used in investing activities: Acquisition of ElkCorp........................................................ - (945,643) Capital expenditures and 2007 acquisitions.................................... (18,790) (55,520) Proceeds from sale of assets.................................................. 6,651 - ------------ ------------- Net cash used in investing activities........................................... (12,139) (1,001,163) ------------ ------------- Cash provided by financing activities: Proceeds from issuance of long-term debt...................................... 531,000 2,188,749 Purchase of industrial development revenue bond certificates issued by the Company...................................................... (4,800) - Principal repayments of capital leases........................................ (4,194) - Repayments of long-term debt.................................................. (285,508) (1,018,013) Distribution to parent corporation............................................ - (171) Loan to parent corporation.................................................... (69) (98) Financing fees and expenses................................................... (576) (33,822) ------------ ------------- Net cash provided by financing activities....................................... 235,853 1,136,645 ------------ ------------- Net change in cash and cash equivalents......................................... 110,665 44,000 ------------ ------------- Cash and cash equivalents, end of period........................................ $ 116,989 $ 51,777 ============ ============= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. (continued on the following page) 5 BUILDING MATERIALS CORPORATION OF AMERICA CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - (Continued) (Dollars in Thousands) Six Months Ended ------------------------------- June 29, July 1, 2008 2007 ------------ ------------- Supplemental Cash Flow Information: Effect on cash from changes in working capital items: Increase in accounts receivable trade and accounts receivable other............................................................ $ (303,996) $ (177,813) Decrease in income tax receivable............................................. 11,837 - Decrease in inventories, net.................................................. 33,395 45,559 Increase in other current assets.............................................. (8,517) (4,095) Increase in accounts payable.................................................. 64,478 5,582 Increase in accrued liabilities............................................... 13,375 20,041 Payments for restructuring and other expenses................................. (48,308) (5,384) ------------ ------------- Net effect on cash from increase in working capital items..................... $ (237,736) $ (116,110) ============ ============= Cash paid during the period for: Interest (net of amount capitalized of $313 and $1,727 in 2008 and 2007, respectively)............................................ $ 71,001 $ 58,050 Income taxes ................................................................ $ 660 $ 1,542 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
6 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Formation of the Company 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. On February 22, 2007 ("date of acquisition"), a subsidiary of BMCA acquired approximately 90% of the outstanding common shares of ElkCorp ("Elk"), a Dallas, Texas-based manufacturer of roofing products and building materials. The remaining common shares of Elk were acquired on March 26, 2007, resulting in Elk becoming an indirect wholly-owned subsidiary of BMCA. See Note 3 for a description of the acquisition. 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 June 29, 2008, and the results of its operations for the second quarter and six-month periods ended and its cash flows for the six-month periods ended June 29, 2008 and July 1, 2007, respectively. All adjustments are of a normal recurring nature, except for the restructuring and other expenses and debt restructuring costs recorded in the Company's statement of operations for the six-month periods ended June 29, 2008 and July 1, 2007, respectively. Net sales of roofing products and specialty building products and accessories are generally seasonal in nature. Accordingly, the results of operations and cash flows in the respective quarterly ended periods will vary depending on the time of the year. These financial statements should be read in conjunction with the annual audited financial statements and notes thereto, included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007, which was filed with the Securities and Exchange Commission (the "SEC") on March 28, 2008 (the "2007 Form 10-K"). Reclassifications Certain reclassifications have been made to conform to current year presentation. Note 2. New Accounting Pronouncements In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements" ("SFAS No. 157"), which clarifies the definition of fair value, establishes a framework for measuring fair value and expands the disclosures on fair value measurements, which is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position ("FSP") No. 157-2 "Partial Deferral to the Effective Date of Statement 157" ("FSP No. 157-2"), which is effective for fiscal years beginning after November 15, 2008 and excludes SFAS No. 13, "Accounting for Leases," defers certain non-financial assets and non-financial liabilities and further clarifies the principles in SFAS No. 157 on the fair value measurement of liabilities. The Company's adoption of the provisions of SFAS No. 157 for all other items not deferred by FSP No. 157-2 in its first quarter of 2008 did not have a material effect on its 7 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 2. New Accounting Pronouncements - (Continued) consolidated financial statements. The Company is currently evaluating the provisions of FSP No. 157-2 and does not expect that the adoption will have a material effect on its consolidated financial statements. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115" ("SFAS No. 159"), which permits entities to elect to measure specified financial instruments and warranty and insurance contracts at fair value on a contract-by-contract basis, with changes in fair value recognized in earnings each reporting period. The election, called the "fair value option," will enable some companies to reduce the volatility in reported earnings caused by measuring related assets and liabilities differently, and it is simpler than using the complex hedge-accounting provisions of SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133") to achieve similar results. SFAS No. 159 applies to all entities and contains financial statement presentation and disclosure requirements for assets and liabilities reported at fair value as a consequence of the election. SFAS No. 159 is expected to expand the use of fair value measurements for financial instruments and was effective for fiscal years beginning after November 15, 2007. In the first quarter of 2008, the Company exercised its option to decline its adoption of SFAS No. 159. In December 2007, the FASB issued SFAS No. 141 (revised in 2007) "Business Combinations" ("SFAS No. 141R"), which provides revised guidance on how an acquiring company should recognize and measure the identifiable assets acquired, liabilities assumed, noncontrolling interests, and goodwill acquired in a business combination. SFAS No. 141R also expands the required disclosures related to the nature and financial statement impact of business combinations and is effective, on a prospective basis, for business combinations completed in fiscal years beginning after December 15, 2008. The Company will adopt SFAS No. 141R during its fiscal year ending December 31, 2009 and therefore has not determined the effect, if any, the adoption of SFAS No. 141R will have on its results of operations or financial position. In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements" ("SFAS No. 160"), which establishes requirements for ownership interests in subsidiaries held by parties other than the Company (minority interests) to be clearly identified and disclosed in the consolidated statement of financial position within equity, but separate from the parent's equity. Any changes in the parent's ownership interests are required to be accounted for in a consistent manner as equity transactions and any noncontrolling equity investments in deconsolidated subsidiaries must be measured initially at fair value. SFAS No. 160 is 8 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 2. New Accounting Pronouncements - (Continued) effective, on a prospective basis, for fiscal years beginning after December 15, 2008; however, the presentation and disclosure requirements must be retrospectively applied to comparative financial statements. The Company will adopt the provisions of SFAS No. 160 during its fiscal year ending December 31, 2009 and does not expect the adoption to have any impact on its results of operations or financial position as the Company does not have any noncontrolling interests. In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS No. 161"), which amends SFAS No. 133 and is intended to improve financial reporting related to derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. The provisions of SFAS No. 161 are effective on a prospective basis for fiscal years beginning on or after November 15, 2008. The Company will adopt the disclosure provisions of SFAS No. 161 during its fiscal year ending December 31, 2009. In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS No. 162"), which identifies the sources of accounting principles and the framework for selecting principles to be used in the preparation and presentation of financial statements in accordance with United States generally accepted accounting principles. SFAS No. 162 will be effective 60 days after the SEC approves the Public Company Accounting Oversight Board's amendments to Interim Audit Standards Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." The Company does not expect the adoption of SFAS No. 162 to have an impact on its results of operations or financial position. Note 3. Acquisition On February 22, 2007, a subsidiary of BMCA acquired approximately 90% of ElkCorp common shares at a purchase price of $43.50 per common share. On March 26, 2007, the remaining Elk common shares were acquired in a second step merger in exchange for the right to receive $43.50 per share in cash, which resulted in Elk becoming an indirect wholly-owned subsidiary of BMCA. The acquisition of the Elk common shares was completed at a purchase price of approximately $945.5 million, net of the repayment of $195.0 million of the then outstanding Elk senior notes, which were assumed in connection with the acquisition and repaid in March 2007. The Company financed the purchase of Elk, refinanced certain of BMCA's then outstanding debt and repaid all of Elk's then outstanding senior notes of $195.0 million with the proceeds from its new senior secured credit facilities. The Company's new senior secured credit facilities consist of a $600.0 million Senior Secured Revolving Credit Facility (the "Senior Secured Revolving Credit 9 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 3. Acquisition - (Continued) Facility"), a $975.0 million Term Loan Facility (the "Term Loan") and a $325.0 million Junior Lien Term Loan Facility (the "Junior Lien Term Loan", and collectively with the Senior Secured Revolving Credit Facility and the Term Loan, the "Senior Secured Credit Facilities"). See Note 7 for a description of the Senior Secured Credit Facilities. The Elk acquisition was accounted for under the purchase method of accounting as prescribed by SFAS No. 141 "Business Combinations" ("SFAS No. 141"), which requires the total purchase price to be allocated to the fair value of assets acquired and liabilities assumed based on their fair values at the date of acquisition, with amounts exceeding their fair value being recorded as goodwill. During its first quarter ended March 30, 2008, the Company completed its purchase price allocation of the assets acquired and liabilities assumed from Elk (see table below). The operating results of Elk are included in the Company's results of operations from the date of acquisition. The following table represents the final fair values of assets acquired and liabilities assumed related to the acquisition of Elk as of the date of acquisition with amounts paid in excess of their fair values being recorded as goodwill. Goodwill................................... $ 589,293 =========== Total assets acquired...................... $ 1,412,033 Total liabilities assumed.................. (466,514) ----------- Net assets acquired........................ $ 945,519 =========== During the second quarter of 2007, the Company initiated a restructuring plan (the "2007 Restructuring Plan") (see Note 4), which was formulated in connection with the acquisition of Elk. Also, in connection with the Elk acquisition and pursuant to SFAS No. 141 and Emerging Issues Task Force ("EITF") No. 95-3 "Recognition of Liabilities in Connection with a Purchase Business Combination," the Company identified $8.7 million in purchase accounting adjustments, which related to employee severance payments to former Elk employees and lease termination expenses. As of June 29, 2008, the Company had paid $2.9 million for severance costs and $1.1 million for lease termination expenses. The Company expects to make approximately $4.7 million of lease termination payments through 2019. The Company's employee severance payments included the termination of approximately 130 Elk employees, including certain management positions, in the manufacturing and selling and administrative areas. 10 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 4. Restructuring and Other Expenses The 2007 Restructuring Plan was created to eliminate cost redundancies recognized due to the acquisition of Elk and to reduce the Company's current cost structure. The 2007 Restructuring Plan is expected to be fully implemented by the end of the Company's fiscal year ending December 31, 2008. The Company accounts for its restructuring activities in accordance with SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" and EITF No. 96-9 "Classification of Inventory Markdowns and Other Costs Associated with Restructuring." 2007 Restructuring Charges In connection with the acquisition of Elk, the Company identified $191.9 million in restructuring and other expenses in its fiscal year ended December 31, 2007, of which $97.0 million related to property, plant and equipment write-downs at certain of its existing manufacturing facilities and $25.1 million related to plant closing expenses. Restructuring and other expenses also included $2.0 million in employee severance payments and $67.8 million in integration-related expenses, which primarily consisted of $24.3 million of inventory-related write-downs, $15.1 million of restructuring-related sales discounts, $1.4 million of lease termination expenses and $27.0 million of other integration expenses. The Company recorded $181.0 million of the aforementioned restructuring and other expenses in its statement of operations as of December 31, 2007, of which $15.1 million was reflected as a reduction in net sales due to restructuring-related sales discounts, $24.3 million was charged to cost of products sold and $141.6 million was charged to restructuring and other expenses. Six-Months Ended June 29, 2008 Restructuring Charges The Company identified an additional $42.0 million of restructuring and other expenses in its six-months ended June 29, 2008, which included $8.7 million of plant closing expenses, $2.2 million in employee severance payments and $31.1 million in integration-related expenses. Integration-related expenses primarily consisted of $14.1 million of inventory write-downs, $2.8 million of restructuring-related sales discounts and $14.2 million of other integration expenses. 11
BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 4. Restructuring and Other Expenses - (Continued) The Company recorded $44.1 million of the aforementioned identified restructuring and other expenses in its statement of operations in the six-month period ended June 29, 2008, of which $2.8 million was reflected as a reduction in net sales due to restructuring-related sales discounts, $14.1 million was charged to cost of products sold and $27.2 million was charged to restructuring and other expenses. The Company expects to incur the remaining $8.8 million of identified restructuring and other expenses and make the remaining cash payments related to its accrual by the end of its fiscal year ending December 31, 2008. The table below details the Company's restructuring and other expense accruals and charges made against the accrual during its six months ended June 29, 2008: Plant Employee Restructuring and Closing Severance Integration Other Expenses Expenses Payments Expenses Total - ------------------ --------- --------- --------- --------- (Thousands) Beginning balance, as of December 31, 2007....................................... $ 2,905 $ - $ 10,945 $ 13,850 Current period costs, net................................ 10,353 2,171 31,595 44,119 Cash payments............................................ (16,219) (2,171) (29,918) (48,308) Amount related to property, plant and equipment for asset adjustments....................................... 6,234 - (274) 5,960 Amount charged to write-off inventory.................... (63) - (1,713) (1,776) Non-cash items........................................... - - (205) (205) --------- --------- --------- --------- Ending balance, as of June 29, 2008...................... $ 3,210 $ - $ 10,430 $ 13,640 ========= ========= ========= =========
The Company's aggregate employee severance payments included the termination of approximately 100 BMCA employees, including certain management positions, in the manufacturing and selling and administrative areas. 12
BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 5. Comprehensive Income (Loss) The table below reconciles the Company's net income (loss) to comprehensive income (loss) for the second quarter and six-month periods ended June 29, 2008 and July 1, 2007, respectively: Second Quarter Ended Six Months Ended --------------------------- --------------------------- June 29, July 1, June 29, July 1, 2008 2007 2008 2007 ---------- ---------- ---------- ---------- (Thousands) Net income (loss).................................... $ 27,801 $ (44,482) $ 12,756 $ (59,765) ---------- ---------- ---------- ---------- Other comprehensive income (loss), net of tax: Derivative fair value adjustment - interest rate swaps, net of tax of ($13,277) and ($4,982) for the three-month periods ended June 29, 2008 and July 1, 2007, respectively, and ($1,382) and ($5,048) for the six-month periods ended June 29, 2008 and July 1, 2007, respectively...................... 21,661 8,130 2,255 8,236 Derivative fair value adjustment- treasury locks, net of tax of ($72) and $0 for the three-month periods ended June 29, 2008 and July 1, 2007, respectively, and ($144) and $0 for the six-month periods ended June 29, 2008 and July 1, 2007, respectively...................... 118 - 235 - ---------- ---------- ---------- ---------- Comprehensive income (loss).......................... $ 49,580 $ (36,352) $ 15,246 $ (51,529) ========== ========== ========== ==========
Note 6. Inventories Inventories consisted of the following as of June 29, 2008 and December 31, 2007, respectively.
June 29, December 31, 2008 2007 ------------ ------------ (Thousands) Finished goods........................................ $ 183,859 $ 241,511 Work-in process....................................... 38,551 26,291 Raw materials and supplies............................ 82,821 72,950 --------- --------- Total................................................. 305,231 340,752 Less LIFO reserve..................................... (26,990) (23,840) --------- --------- Inventories........................................... $ 278,241 $ 316,912 ========= =========
13 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 7. Long-Term Debt Long-term debt consists of the following at June 29, 2008 and December 31, 2007:
June 29, December 31, 2008 2007 ----------- ----------- (Thousands) 8% Senior Notes due 2008.................................. $ 4,875 $ 4,874 7 3/4% Senior Notes due 2014.............................. 250,545 250,590 Borrowings under the Senior Secured Revolving Credit Facility................................ 372,000 122,000 Term Loan................................................. 962,874 965,362 Junior Lien Term Loan..................................... 325,000 325,000 Obligations under capital leases.......................... 57,804 61,997 Industrial development revenue bonds...................... 2,820 7,710 Chester Loan.............................................. 6,712 8,241 Other notes payable....................................... 8,010 8,251 ----------- ----------- Total................................................. 1,990,640 1,754,025 Less current maturities................................... (25,186) (24,630) ----------- ----------- Long-term debt less current maturities.................... $ 1,965,454 $ 1,729,395 =========== ===========
On February 22, 2007, BMCA entered into Senior Secured Credit Facilities consisting of a $975.0 million Term Loan, a $600.0 million Senior Secured Revolving Credit Facility and a $325.0 million bridge loan facility, which was subsequently replaced by a $325.0 million Junior Lien Term Loan, which collectively financed the purchase of Elk and repaid certain existing BMCA debt facilities and Elk senior note debt. On April 10, 2008, the Company repurchased and retired $4.8 million of industrial development revenue bond certificates issued by the Company with respect to the Mount Vernon, Indiana Industrial Development Revenue Bond issued in 1985. As of June 29, 2008, the Company had total outstanding consolidated indebtedness of $2,043.5 million, which included $52.8 million of demand loans to its parent corporation and $25.2 million that matures prior to the end of the second quarter of 2009. The Company anticipates funding these obligations principally from its cash and cash equivalents on hand, cash flow from operations and/or borrowings under its Senior Secured Revolving Credit Facility. 14 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 7. Long-Term Debt - (Continued) As of June 29, 2008, the Company was in compliance with all covenants under the Senior Secured Credit Facilities and the indentures governing its 8% Senior Notes due 2008 (the "2008 Notes") and its 7 3/4% Senior Notes due 2014 (the "2014 Notes" and, together with the 2008 Notes, the "Senior Notes"). As of June 29, 2008, the net book value of the collateral securing the Senior Secured Revolving Credit Facility Collateral (as defined in the Senior Secured Revolving Credit Facility) and the Term Loan Collateral (as defined in the Term Loan) was $1,011.5 and $1,676.8 million, respectively. At June 29, 2008, the Company had outstanding letters of credit of approximately $49.7 million, which included approximately $10.7 million of standby letters of credit related to certain obligations of G-I Holdings. Note 8. Hedging Activity In March 2007, the Company entered into forward-starting Eurodollar rate, or LIBOR, based pay fixed income interest rate swaps related to its Term Loan, with an effective date of April 23, 2007 and a maturity date of April 23, 2012. In October 2007, the Company entered into additional interest rate swaps related to its Term Loan with an effective date of October 23, 2007 and a maturity date of October 23, 2012 under terms similar to those of the Company's swaps entered into in March 2007. In accordance with SFAS No. 133, the Company's swaps are treated as cash flow hedges. As of June 29, 2008, based on changes in the fair value of the interest rate swaps, the Company recognized a cumulative fair value loss on its interest rate swaps of $26.3 million to other liabilities, while the offset was recognized as an other comprehensive loss, net of tax of $10.0 million. Amounts may be reclassified from other comprehensive loss to interest expense if any portion of the Company's swaps become ineffective. The Company does not anticipate that any amount recorded in other comprehensive loss related to its swaps will be reclassified during its fiscal year ending December 31, 2008. In July 2007, the Company began entering into treasury locks as additional hedging instruments related to its Term Loan. On October 30, 2007, the Company settled its open treasury lock hedging positions, which resulted in a fair value loss and cash settlement. Pursuant to SFAS No. 133, the Company is amortizing the loss into its statement of operations over the life of the Term Loan, of which $0.2 and $0.4 million was amortized into interest expense in its second quarter and six-month period ended June 29, 2008, respectively. 15 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 9. Warranty Claims The Company provides certain limited warranties covering most of its residential roofing products for periods generally ranging from 20 to 50 years, although certain product lines provide for a lifetime limited warranty. 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 20 years, with lifetime limited warranties on certain products. The accrual for product warranty claims consisted of the following for the second quarter and six-month periods ended June 29, 2008 and July 1, 2007, respectively:
Second Quarter Ended Six Months Ended --------------------- --------------------- June 29, July 1, June 29, July 1, 2008 2007 2008 2007 -------- -------- -------- -------- (Thousands) Beginning balance................... $ 46,315 $ 41,609 $ 44,724 $ 26,971 Charged to cost of products sold..................... 5,134 4,541 9,899 8,311 Payments/deductions................. (4,421) (4,977) (7,595) (7,784) Acquisition of Elk.................. - - - 13,675 -------- -------- -------- -------- Ending balance...................... $ 47,028 $ 41,173 $ 47,028 $ 41,173 ======== ======== ======== ========
The Company offers extended warranty contracts on sales of its commercial roofing products. The lives of these extended commercial warranties range from 10 to 20 years. In addition, the Company offers enhanced warranties on certain of its residential roofing products. These enhanced warranties are the "Golden Pledge Warranty(TM)", "Peace of Mind(TM)" and "Peak Performance(R)" warranty programs. All revenue for the sale of these warranty programs is deferred and amortized on a straight-line basis over the average life of such warranty programs, which is in accordance with the accounting prescribed by FASB Technical Bulletin No. 90-1 "Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts." Incremental direct costs associated with the acquisition of the extended warranty contracts are capitalized and amortized on a straight-line basis over the average life of these warranty programs. Current costs of services performed related to claims paid under these warranty programs are expensed as incurred. 16 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 9. Warranty Claims - (Continued) At June 29, 2008 and July 1, 2007, the Company had deferred revenue related to these agreements of $73.0 and $65.7 million, of which $8.6 and $8.3 million is included in other current liabilities and $64.4 and $57.4 million is included in other liabilities, respectively. At June 29, 2008 and July 1, 2007, the Company had related deferred costs of $51.5 and $42.8 million, of which $5.5 and $4.9 million is included in other current assets and $46.0 and $37.9 million is included in other assets, respectively. Note 10. 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. The Company's net periodic pension cost for the Retirement Plan included the following components for the second quarter and six-month periods ended June 29, 2008 and July 1, 2007, respectively: Second Quarter Ended Six Months Ended -------------------- -------------------- June 29, July 1, June 29, July 1, 2008 2007 2008 2007 -------- --------- -------- --------- (Thousands) Service cost....................... $ 430 $ 381 $ 860 $ 762 Interest cost...................... 610 567 1,221 1,134 Expected return on plan assets..... (792) (826) (1,584) (1,652) Amortization of unrecognized prior service cost..................... 4 10 7 20 Amortization of net losses from earlier periods.................. 105 41 210 83 ------ ------ ------ ------ Net periodic pension cost.......... $ 357 $ 173 $ 714 $ 347 ====== ====== ====== ====== As of June 29, 2008, the Company expected to make pension contributions of $1.3 million to the Retirement Plan in 2008, which is consistent with its expectations as of December 31, 2007. The Company made Retirement Plan contributions of $0.5 million during its first six months of 2008. 17 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 10. Benefit Plans - (Continued) 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 to eliminate postretirement medical benefits for all current and future retirees. Net periodic postretirement benefit included the following components for the second quarter and six-month periods ended June 29, 2008 and July 1, 2007, respectively:
Second Quarter Ended Six Months Ended ---------------------- --------------------- June 29, July 1, June 29, July 1, 2008 2007 2008 2007 --------- --------- --------- --------- (Thousands) Service cost....................... $ 4 $ 3 $ 7 $ 6 Interest cost...................... 29 30 58 60 Amortization of unrecognized prior service cost..................... (142) (143) (285) (285) Amortization of net gains from earlier periods.................. (57) (56) (113) (113) --------- --------- --------- --------- Net periodic postretirement benefit.......................... $ (166) $ (166) $ (333) $ (332) ========= ========= ========= =========
As of the second quarter ended June 29, 2008, the Company expected to make aggregate benefit claim payments of approximately $0.2 million during 2008, which are related to postretirement life insurance expenses. This is consistent with the Company's expectations as of December 31, 2007. Note 11. 2001 Long-Term Incentive Plan Incentive units granted under the 2001 Long-Term Incentive Plan are valued at Book Value (as defined in the Plan) or the value of such incentive units specified at the date of grant. Increases or decreases in the Book Value of those incentive units result in a change in the measure of compensation for the award. Compensation expense for the Company's incentive units was $0.8 and $0.8 million for the second quarter ended June 29, 2008 and July 1, 2007, respectively, and $1.2 and $1.0 million for the six-month periods ended June 29, 2008 and July 1, 2007, respectively. 18 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 11. 2001 Long-Term Incentive Plan - (Continued) The following is a summary of activity for incentive units related to the 2001 Long-Term Incentive Plan: Six Months Ended Year-to-Date June 29, December 31, 2008 2007 ---------- ---------- Incentive Units outstanding, beginning of period................................. 99,120 98,633 Granted..................................... 17,000 45,589 Exercised................................... (8,230) (38,387) Forfeited................................... (5,635) (6,715) -------- -------- Incentive Units outstanding, end of period................................. 102,255 99,120 ======== ======== Vested Units outstanding, end of period..... 41,886 38,750 ======== ======== The initial value of each of the 17,000 incentive units granted on January 1, 2008 was $592.01. The initial value of each of the 8,000 incentive units granted on July 2, 2007 and the 37,589 incentive units granted on January 1, 2007 was $589.43 and $583.08, respectively. Note 12. Related Party Transactions The Company makes loans to, and borrows from, its parent corporations from time to time at prevailing market rates. As of June 29, 2008 and July 1, 2007, BMCA Holdings Corporation owed the Company $56.3 and $56.1 million, including interest of $1.0 and $0.8 million, respectively, and the Company owed BMCA Holdings Corporation $52.8 and $52.8 million, with no unpaid interest, respectively. Interest income on the Company's loans to BMCA Holdings Corporation amounted to $0.8 and $1.2 million during the second quarter ended June 29, 2008 and July 1, 2007, respectively, and $1.8 and $2.5 million during the six-month periods ended June 29, 2008 and July 1, 2007, respectively. Interest expense on the Company's loans from BMCA Holdings Corporation amounted to $0.8 and $1.2 million during the second quarter ended June 29, 2008 and July 1, 2007, respectively, and $1.8 and $2.4 million during the six-month periods ended June 29, 2008 and July 1, 2007, respectively. Loans payable to/receivable from its parent corporations 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, the Term Loan, the Junior Lien Term Loan and the Senior Notes. Under the terms of the Senior Secured Revolving Credit Facility and the indentures governing the 19 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 12. Related Party Transactions - (Continued) Company's Senior Notes at June 29, 2008, 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 June 29, 2008 and July 1, 2007. In addition, as of June 29, 2008 and July 1, 2007, the Company did not owe any loans or enter into any lending activities with other affiliates. The Company has a management agreement with ISP Management Company, Inc., a subsidiary of International Specialty Products Inc. (which, together with its subsidiaries, is referred to as "ISP"), an affiliate, to provide the Company with certain management services (the "Management Agreement"). Based on services provided to the Company in 2008 under the Management Agreement, the aggregate amount payable to ISP Management Company, Inc. under the Management Agreement for 2008, inclusive of the services provided to G-I Holdings, is not yet available; however, after adjusting for inflationary factors, it is currently estimated to be similar to the $6.7 million paid in 2007. The Company does not expect any changes to the Management Agreement to have a material impact on the Company's results of operations. The Company and its subsidiaries purchase a substantial portion of their headlap roofing granules, colored roofing granules and algae-resistant granules, on a purchase order basis, from ISP Minerals Inc. ("ISP Minerals"), an affiliate of BMCA and ISP. The amount of mineral products purchased each year on this basis is based on current demand and is not subject to minimum purchase requirements. For the second quarter ended June 29, 2008, the Company purchased $12.3 million of roofing granules, and for the six-month period ended June 29, 2008, the Company purchased $19.5 million of roofing granules under this arrangement. In addition to the granules products purchased by BMCA under the above mentioned purchase order basis, the balance of BMCA's granules requirements are purchased under a contract expiring in 2013. The amount of mineral products purchased each year under the contract is based on current demand and is not subject to minimum purchase requirements. Under the contract, for the second quarter ended June 29, 2008, the Company purchased $22.8 million of roofing granules, and for the six-month period ended June 29, 2008, the Company purchased $41.9 million of roofing granules. Included in noncurrent assets as a tax receivable from parent corporation on the Company's consolidated balance sheets is $10.0 and $10.0 million at June 29, 2008 and December 31, 2007, respectively, representing amounts paid in excess of amounts due to G-I Holdings with respect to 2006 under the Tax Sharing Agreement (as defined). These amounts are included in the increase in net payable to related parties/parent corporations in the consolidated statements of cash flows. 20 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 13. Contingencies 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 liabilities for Asbestos Claims. G-I Holdings has agreed to indemnify the Company against any other existing or future claims related to asbestos-related liabilities if asserted against the Company. 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, and the value of the Asbestos Claims asserted against G-I Holdings is a contested issue in that bankruptcy which 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 Bankruptcy Court converted the temporary restraints into a preliminary injunction, prohibiting the bringing or prosecution of any such Asbestos Claims 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 the Company seeking a declaration that BMCA has successor liability for Asbestos Claims against G-I Holdings and that it 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. By order dated May 30, 2008, the District Court dismissed the BMCA Action without ruling on the merits of BMCA's position that it has no successor liability for Asbestos Claims. The District Court ruled that a federal court declaratory judgment action was not the proper vehicle for resolving this issue. The District Court's ruling did not affect the preliminary injunction enjoining the prosecution of Asbestos Claims against BMCA, and the Company believes that it does not have asbestos-related liability. Nevertheless, 21 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 13. Contingencies - (Continued) it is not possible to predict the outcome of any subsequent litigation regarding the continuation of the preliminary injunction and/or prosecution of Asbestos Claims against the Company. On or about February 8, 2001, the creditors' committee filed a complaint in the United States Bankruptcy Court, District of New Jersey against G-I Holdings and the Company. The complaint requests substantive consolidation of BMCA with G-I Holdings or an order directing G-I Holdings to cause BMCA to file for bankruptcy protection. 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 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 of Appeals on October 26, 2004. On July 7, 2004, the Bankruptcy Court entered an order authorizing the creditors' committee to commence an adversary proceeding against the Company and others challenging, as a fraudulent conveyance, certain 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"). The Bankruptcy Court also permitted the creditors' committee to pursue a claim against holders of the Company's bank and bond debt outstanding in 2000, seeking recovery from them, based on the creditors' committee's theory that the 1994 transaction was a fraudulent conveyance. On July 20, 2004, the creditors' committee appealed certain aspects of the Bankruptcy Court's order (and a June 8, 2004 decision upon which the order was based). G-I Holdings, the holders of the Company's bank and bond debt and BMCA cross-appealed. The District Court entered an order on June 21, 2006 affirming in part and vacating in part the Bankruptcy Court's July 7, 2004 order. Among other things, the District Court vacated that aspect of the Bankruptcy Court's order authorizing the creditors' committee to pursue avoidance claims against the Company and the holders of the Company's bank and bond debt as of 2000. This issue has been remanded to the Bankruptcy Court for further proceedings consistent with the District Court's opinion. The Company believes the creditors' committee's avoidance claims are without merit and that the Bankruptcy Court should not permit the committee to pursue such claims against the Company and the holders of its bank and bond debt as of 2000. 22 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 13. Contingencies - (Continued) In March 2007, after participating in a mediation which resulted in the parties agreeing to an outline of the principal terms of a settlement of the G-I Holdings bankruptcy and all related litigations, the parties agreed to a stay of proceedings pending the completion of their negotiations. The judges presiding over the G-I Holdings bankruptcy proceeding and the related litigations, including the BMCA action and the fraudulent conveyance action, each entered stipulated orders dated March 22, 2007, March 23, 2007 and April 4, 2007, respectively, implementing the stay. By notices dated February 1, 2008, the creditors' committee and legal representative of present and future holders of asbestos-related demands elected to terminate the stay of proceedings in the G-I Holdings bankruptcy and related litigation. The Company has been advised by G-I Holdings that on August 12, 2008, G-I Holdings reached an agreement with the creditors' committee and the legal representative of present and future holders of asbestos related claims to jointly file a plan of reorganization with the Bankruptcy Court that will provide for settlement of Asbestos Claims and all related litigation. The agreement is subject to a number of contingencies, but if the reorganization plan is filed and confirmed, all of the actions described above will be resolved. If the reorganization plan is not confirmed and the Company is not successful in defending against one or more of the claims outlined above, 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. Tax Claims Against G-I Holdings 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. 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 could be severally liable for those taxes and interest. G-I Holdings has filed an objection to the proof of claim, which is the subject of an adversary proceeding pending in the United States District Court for the District of New Jersey. By opinion and order dated September 8, 2006, the District Court ruled on the parties' respective motions for Partial Summary Judgment, granting the government summary judgment on the issue of "adequate disclosure" for statute of limitation purposes and denying G-I Holdings summary judgment on its other statute of limitations defense (finding material issues of fact that must be tried). If the IRS were to prevail for the years in which the Company and/or certain of its subsidiaries were not part of 23 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 13. Contingencies - (Continued) the G-I Holdings Group, the Company nevertheless could be 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. In an opinion dated June 8, 2007, the District Court decided that G-I Holdings cannot avail itself of the "binding contract" transitional relief with respect to the 1999 distribution of U.S. Treasury Bonds to G-I Holdings. The Company believes that it will not be required to pay any incremental income tax to the Federal government with respect to this matter and that its ultimate disposition will not have a material adverse effect on its business, financial position or results of operations. For a further discussion with respect to the history of the foregoing litigation, and asbestos-related matters, see Notes 8, 10, 13 and 20 to the consolidated financial statements contained in the Company's 2007 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 U.S. 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. Most of these 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. While the Company cannot predict whether adverse decisions or events can occur in the future, the Company believes that the ultimate disposition of such matters will not have a material adverse effect on the liquidity, results of operations, cash flows or financial position of the Company. 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. There have been no material changes to these contracts in the second quarter of 2008. Note 14. Guarantor Financial Information At June 29, 2008, all of the Company's subsidiaries, including Elk, each of which is wholly-owned by the Company, are guarantors under the Company's Senior Secured Revolving Credit Facility, the Term Loan, the Junior Lien Term Loan and the indentures governing the Senior Notes. These guarantees are 24 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 14. Guarantor Financial Information - (Continued) full, unconditional and joint and several. In addition, Building Materials Manufacturing Corporation, a wholly-owned subsidiary of the Company, was a co-obligor on the 8% Senior Notes due 2007, which were redeemed during 2007. In 2007, BMCA Acquisition Inc., the direct parent of Elk, and Elk, as a result of its merger with BMCA Acquisition Sub, became co-obligors on the Senior Secured Revolving Credit Facility, the Term Loan and the Junior Lien Term Loan. Presented below is condensed consolidating financial information for the Company, the co-obligor subsidiaries 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. 25
BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 14. Guarantor Financial Information - (Continued) Condensed Consolidating Statement of Operations Second Quarter Ended June 29, 2008 (Thousands) (Unaudited) Parent Co-Obligor Guarantor Company Subsidiary Subsidiaries Eliminations Consolidated --------- ---------- ------------ ------------ ------------ Net sales................................. $ 702,430 $ 11,297 $ 23,351 $ - $ 737,078 Intercompany net sales.................... - 186,126 1,078,865 (1,264,991) - --------- ---------- ---------- ----------- ----------- Total net sales....................... 702,430 197,423 1,102,216 (1,264,991) 737,078 --------- ---------- ---------- ----------- ----------- Costs and expenses: Cost of products sold................... 610,324 196,432 974,112 (1,264,991) 515,877 Selling, general and administrative........................ 74,096 9,224 42,369 - 125,689 Amortization of intangible assets................................ - 2,847 - - 2,847 Restructuring and other expenses.............................. - 842 5,522 - 6,364 Other (income) expense, net............. 64 (1) 337 - 400 --------- ---------- ---------- ----------- ----------- Total costs and expenses, net......... 684,484 209,344 1,022,340 (1,264,991) 651,177 --------- ---------- ---------- ----------- ----------- Income (loss) before equity in earnings of subsidiaries, interest expense and income taxes................................... 17,946 (11,921) 79,876 - 85,901 Equity in earnings of subsidiaries............................ 31,957 - - (31,957) - Interest expense.......................... (24,599) (5,143) (10,255) - (39,997) --------- ---------- ---------- ----------- ----------- Income (loss) before income taxes......... 25,304 (17,064) 69,621 (31,957) 45,904 Income tax (expense) benefit.............. 2,497 6,545 (27,145) - (18,103) --------- ---------- ---------- ----------- ----------- Net income (loss)......................... $ 27,801 $ (10,519) $ 42,476 $ (31,957) $ 27,801 ========= ========== =========== =========== ===========
26
BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 14. Guarantor Financial Information - (Continued) Condensed Consolidating Statement of Operations Second Quarter Ended July 1, 2007 (Thousands) (Unaudited) Parent Co-Obligor Guarantor Company Subsidiaries Subsidiaries Eliminations Consolidated --------- ------------ ------------ ------------ ------------ Net sales................................. $ 440,350 $ 194,821 $ 28,099 $ - $ 663,270 Intercompany net sales.................... - 345,762 389,925 (735,687) - --------- ---------- ---------- ---------- --------- Total net sales....................... 440,350 540,583 418,024 (735,687) 663,270 --------- ---------- ---------- ---------- --------- Costs and expenses: Cost of products sold................... 382,730 425,871 413,031 (735,687) 485,945 Selling, general and administrative........................ 46,611 82,410 8,809 - 137,830 Restructuring and other expenses.............................. 54,993 - - - 54,993 Other (income) expense, net............. (977) 188 (8) - (797) --------- ---------- ---------- ---------- --------- Total costs and expenses, net......... 483,357 508,469 421,832 (735,687) 677,971 --------- ---------- ---------- ---------- --------- Income (loss) before equity in earnings of subsidiaries, interest expense and income taxes................................... (43,007) 32,114 (3,808) - (14,701) Equity in earnings of subsidiaries............................. 10,383 - - (10,383) - Interest expense.......................... (32,778) (4,938) (7,954) - (45,670) --------- ---------- ---------- ---------- --------- Income (loss) before income taxes......... (65,402) 27,176 (11,762) (10,383) (60,371) Income tax (expense) benefit.............. 20,920 (7,915) 2,884 - 15,889 --------- ---------- ---------- ---------- --------- Net income (loss)......................... $ (44,482) $ 19,261 $ (8,878) $ (10,383) $ (44,482) ========= ========== ========== ========== =========
27
BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 14. Guarantor Financial Information - (Continued) Condensed Consolidating Statement of Operations Six Months Ended June 29, 2008 (Thousands) (Unaudited) Parent Co-Obligor Guarantor Company Subsidiary Subsidiaries Eliminations Consolidated ----------- ---------- ------------ ------------ ------------ Net sales............................ $ 1,248,382 $ 21,437 $ 37,535 $ - $ 1,307,354 Intercompany net sales............... - 337,293 1,945,659 (2,282,952) - ----------- ----------- ----------- ------------ ----------- Total net sales.................. 1,248,382 358,730 1,983,194 (2,282,952) 1,307,354 ----------- ----------- ----------- ------------ ----------- Costs and expenses: Cost of products sold.............. 1,084,174 355,259 1,784,311 (2,282,952) 940,792 Selling, general and administrative................... 132,819 16,900 81,779 - 231,498 Amortization of intangible assets.. - 5,693 - - 5,693 Restructuring and other expenses... - 2,424 24,765 - 27,189 Other expense, net................. 683 59 666 - 1,408 ----------- ----------- ----------- ------------ ----------- Total costs and expenses, net.... 1,217,676 380,335 1,891,521 (2,282,952) 1,206,580 ----------- ----------- ----------- ------------ ----------- Income (loss) before equity in earnings of subsidiaries, interest expense and income taxes............ 30,706 (21,605) 91,673 - 100,774 Equity in earnings of subsidiaries... 24,248 - - (24,248) - Interest expense..................... (49,545) (9,199) (21,118) - (79,862) ----------- ----------- ----------- ------------ ----------- Income (loss) before income taxes.... 5,409 (30,804) 70,555 (24,248) 20,912 Income tax (expense) benefit......... 7,347 12,014 (27,517) - (8,156) ----------- ----------- ----------- ------------ ----------- Net income (loss).................... $ 12,756 $ (18,790) $ 43,038 $ (24,248) $ 12,756 =========== =========== =========== ============ ===========
28
BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 14. Guarantor Financial Information - (Continued) Condensed Consolidating Statement of Operations Six Months Ended July 1, 2007 (Thousands) (Unaudited) Parent Co-Obligor Guarantor Company Subsidiaries Subsidiaries Eliminations Consolidated --------- ------------ ------------ ------------ ------------ Net sales............................. $ 854,282 $ 287,903 $ 51,076 $ - $ 1,193,261 Intercompany net sales................ - 662,402 749,253 (1,411,655) - --------- --------- ---------- ------------ ----------- Total net sales..................... 854,282 950,305 800,329 (1,411,655) 1,193,261 --------- --------- ---------- ------------ ----------- Costs and expenses: Costs of products sold.............. 729,236 773,143 788,159 (1,411,655) 878,883 Selling, general and administrative.................... 103,689 128,782 16,519 - 248,990 Restructuring and other expenses.... 54,993 - - - 54,993 Other (income) expense, net......... (611) 246 (13) - (378) --------- --------- ---------- ------------ ----------- Total costs and expenses, net....... 887,307 902,171 804,665 (1,411,655) 1,182,488 --------- --------- ---------- ------------ ----------- Income (loss) before equity in earnings of subsidiaries, interest expense and income taxes............ (33,025) 48,134 (4,336) - 10,773 Equity in earnings of subsidiaries.... 5,098 - - (5,098) - Interest expense...................... (58,331) (21,453) (15,164) - (94,948) --------- --------- ---------- ------------ ----------- Income (loss) before income taxes..... (86,258) 26,681 (19,500) (5,098) (84,175) Income tax (expense) benefit.......... 26,493 (7,737) 5,654 - 24,410 --------- --------- ---------- ------------ ----------- Net income (loss)..................... $ (59,765) $ 18,944 $ (13,846) $ (5,098) $ (59,765) ========= ========= ========== ============ ===========
29
BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 14. Guarantor Financial Information - (Continued) Condensed Consolidating Balance Sheet June 29, 2008 (Thousands) (Unaudited) Parent Co-Obligor Guarantor Company Subsidiary Subsidiaries Eliminations Consolidated ------- --------- ------------ ------------ ------------ ASSETS Current Assets: Cash and cash equivalents...................... $ 116,648 $ 102 $ 239 $ - $ 116,989 Accounts receivable, trade, net................ 489,409 9,223 17,510 - 516,142 Accounts receivable, other..................... 1,777 1,498 5,983 - 9,258 Inventories, net............................... - 64,482 213,759 - 278,241 Deferred income tax assets..................... 37,494 - - - 37,494 Other current assets........................... 6,254 1,163 14,798 - 22,215 ----------- ----------- ----------- ------------ ----------- Total Current Assets......................... 651,582 76,468 252,289 - 980,339 Investment in subsidiaries....................... 1,581,272 - - (1,581,272) - Intercompany loans including accrued interest....................................... 1,117,129 (473,267) (643,862) - - Due from/(to) subsidiaries, net.................. (1,310,356) 334,263 976,093 - - Property, plant and equipment, net............... - 288,559 371,728 - 660,287 Goodwill......................................... 59,323 589,293 5,471 - 654,087 Intangible assets, net........................... - 201,942 - - 201,942 Income tax receivable from parent corporation.................................... 10,016 - - - 10,016 Other noncurrent assets.......................... 88,577 11,353 25,397 - 125,327 ----------- ----------- ----------- ------------ ----------- Total Assets..................................... $ 2,197,543 $ 1,028,611 $ 987,116 $ (1,581,272) $ 2,631,998 =========== =========== =========== ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Current maturities of long-term debt........... $ 14,504 $ 669 $ 10,013 $ - $ 25,186 Accounts payable............................... - 40,953 164,188 - 205,141 Payable to related parties..................... 827 - 39,408 - 40,235 Loans payable to parent corporation............ 52,840 - - - 52,840 Accrued liabilities............................ 71,689 14,728 58,855 - 145,272 Product warranty claims........................ 12,600 3,600 - - 16,200 Discontinued operations - current liabilities................................... - 560 - - 560 ----------- ----------- ----------- ------------ ----------- Total Current Liabilities.................... 152,460 60,510 272,464 - 485,434 Long-term debt less current maturities........... 1,900,790 4,000 60,664 - 1,965,454 Product warranty claims.......................... 28,761 1,967 100 - 30,828 Deferred income tax liabilities.................. 69,295 - - - 69,295 Other liabilities................................ 127,378 12,032 22,718 - 162,128 ----------- ----------- ----------- ------------ ----------- Total Liabilities................................ 2,278,684 78,509 355,946 - 2,713,139 Total Stockholders' Equity (Deficit)............. (81,141) 950,102 631,170 (1,581,272) (81,141) ----------- ----------- ----------- ------------ ----------- Total Liabilities and Stockholders' Equity (Deficit)............................ $ 2,197,543 $ 1,028,611 $ 987,116 $ (1,581,272) $ 2,631,998 =========== =========== =========== ============ ===========
30
BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 14. Guarantor Financial Information - (Continued) Condensed Consolidating Balance Sheet December 31, 2007 (Thousands) Parent Co-Obligor Guarantor Company Subsidiary Subsidiaries Eliminations Consolidated ------- ---------- ------------ ------------ ------------ ASSETS Current Assets: Cash and cash equivalents.................... $ - $ 1,936 $ 4,388 $ - $ 6,324 Accounts receivable, trade, net.............. 198,781 3,753 8,323 - 210,857 Accounts receivable, other................... 2,229 4,651 3,912 - 10,792 Income tax receivable........................ - 11,968 - - 11,968 Inventories, net............................. - 89,735 227,177 - 316,912 Deferred income tax assets................... 38,017 - - - 38,017 Other current assets......................... 5,644 1,985 6,069 - 13,698 ----------- ----------- ---------- ----------- ----------- Total Current Assets....................... 244,671 114,028 249,869 - 608,568 Investment in subsidiaries..................... 1,557,024 - - (1,557,024) - Intercompany loans including accrued interest..................................... 767,084 (194,715) (572,369) - - Due from/(to) subsidiaries, net................ (787,818) 13,469 774,349 - - Property, plant and equipment, net............. - 297,942 374,871 - 672,813 Goodwill....................................... 40,080 590,405 24,715 - 655,200 Intangible assets, net......................... - 207,635 - - 207,635 Income tax receivable from parent corporation.................................. 10,016 - - - 10,016 Other noncurrent assets........................ 86,604 11,963 21,592 - 120,159 ----------- ----------- ---------- ------------ ----------- Total Assets................................... $ 1,917,661 $ 1,040,727 $ 873,027 $(1,557,024) $ 2,274,391 =========== =========== ========== ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Current maturities of long-term debt......... $ 14,530 $ 670 $ 9,430 $ - $ 24,630 Accounts payable............................. 21 32,026 110,203 - 142,250 Payable to related parties................... 992 - 15,141 - 16,133 Loans payable to parent corporation.......... 52,840 - - - 52,840 Accrued liabilities.......................... 63,402 18,412 54,162 - 135,976 Product warranty claims...................... 13,500 - - - 13,500 Discontinued operations - current liabilities................................. - 560 - - 560 ----------- ----------- ---------- ----------- ----------- Total Current Liabilities.................. 145,285 51,668 188,936 - 385,889 Long-term debt................................. 1,653,298 4,400 71,697 - 1,729,395 Product warranty claims........................ 25,755 5,369 100 - 31,224 Deferred income tax liabilities................ 60,869 - - - 60,869 Other liabilities.............................. 128,772 10,397 24,163 - 163,332 ----------- ----------- ---------- ----------- ----------- Total Liabilities.............................. 2,013,979 71,834 284,896 - 2,370,709 Total Stockholders' Equity (Deficit)........... (96,318) 968,893 588,131 (1,557,024) (96,318) ----------- ----------- ---------- ----------- ----------- Total Liabilities and Stockholders' Equity (Deficit)...................................... $ 1,917,661 $ 1,040,727 $ 873,027 $(1,557,024) $ 2,274,391 =========== =========== ========== =========== ===========
31
BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 14. Guarantor Financial Information - (Continued) Condensed Consolidating Statement of Cash Flows Six Months Ended June 29, 2008 (Thousands) (Unaudited) Parent Co-Obligor Guarantor Company Subsidiary Subsidiaries Consolidated --------- ---------- ------------ ------------ Cash and cash equivalents, beginning of period....... $ - $ 1,936 $ 4,388 $ 6,324 --------- -------- --------- --------- Cash provided by (used in) operating activities: Net income (loss).................................. (11,492) (18,790) 43,038 12,756 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation..................................... - 13,836 21,854 35,690 Amortization of intangible and other assets...... - 5,693 1,923 7,616 Restructuring and other expenses................. 2,813 9,587 31,719 44,119 Deferred income taxes............................ 7,423 - - 7,423 Noncash interest charges......................... 3,595 599 311 4,505 (Increase) decrease in working capital items....... (285,333) 33,312 14,285 (237,736) Increase in product warranty claims................ 2,106 198 - 2,304 (Increase) decrease in other assets................ (4,658) 85 (5,779) (10,352) Increase in other liabilities...................... 2,244 913 95 3,252 Increase (decrease) in net payable to related parties/parent corporations..................... 153,083 (42,239) (86,742) 24,102 Other, net......................................... - (124) (6,604) (6,728) --------- -------- --------- --------- Net cash provided by (used in) operating activities.. (130,219) 3,070 14,100 (113,049) --------- -------- --------- --------- Cash used in investing activities: Capital expenditures............................... - (4,501) (14,289) (18,790) Proceeds from sale of assets....................... - - 6,651 6,651 --------- -------- --------- --------- Net cash used in investing activities................ - (4,501) (7,638) (12,139) --------- -------- --------- --------- Cash provided by (used in) financing activities: Proceeds from issuance of long-term debt........... 531,000 - - 531,000 Purchase of industrial development revenue bond certificates issued by the Company............... - - (4,800) (4,800) Principal repayments of capital leases............. - - (4,194) (4,194) Repayments of long-term debt....................... (283,488) (403) (1,617) (285,508) Loan to parent corporation......................... (69) - - (69) Financing fees and expenses........................ (576) - - (576) --------- -------- --------- --------- Net cash provided by (used in) financing activities.. 246,867 (403) (10,611) 235,853 --------- -------- --------- --------- Net change in cash and cash equivalents.............. 116,648 (1,834) (4,149) 110,665 --------- -------- --------- --------- Cash and cash equivalents, end of period............. $ 116,648 $ 102 $ 239 $ 116,989 ========= ======== ========= =========
32
BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 14. Guarantor Financial Information - (Continued) Condensed Consolidating Statement of Cash Flows Six Months Ended July 1, 2007 (Thousands) (Unaudited) Parent Co-Obligor Guarantor Company Subsidiaries Subsidiaries Consolidated ------------ ------------ ------------ ------------ Cash and cash equivalents, beginning of period............... $ 18 $ 1,870 $ 5,889 $ 7,777 ------------ ----------- --------- ------------ Cash provided by (used in) operating activities: Net income (loss).......................................... (64,863) 18,944 (13,846) (59,765) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation............................................. - 28,955 4,677 33,632 Amortization............................................. - 2,057 - 2,057 Restructuring and other expenses......................... 65,793 - - 65,793 Deferred income taxes.................................... (33,163) - - (33,163) Noncash interest charges................................. 5,368 212 513 6,093 (Increase) decrease in working capital items............... (157,530) (20,392) 61,812 (116,110) Increase (decrease) in product warranty claims............. 1,215 (389) (300) 526 (Increase) decrease in other assets........................ (2,286) 1,158 (522) (1,650) Increase (decrease) in other liabilities................... 1,506 632 (2) 2,136 Increase (decrease) in net payable to related parties/parent corporations...................... (1,250,975) 1,291,744 (32,667) 8,102 Other, net................................................. 1 606 260 867 ------------ ----------- --------- ------------ Net cash provided by (used in) operating activities................................................. (1,434,934) 1,323,527 19,925 (91,482) ------------ ----------- --------- ------------ Cash used in investing activities: Acquisition of ElkCorp..................................... - (945,643) - (945,643) Capital expenditures and acquisitions...................... - (32,284) (23,236) (55,520) ------------ ----------- --------- ------------ Net cash used in investing activities........................ - (977,927) (23,236) (1,001,163) ------------ ----------- --------- ------------ Cash provided by (used in) financing activities: Proceeds from issuance of long-term debt................... 2,162,849 25,900 - 2,188,749 Repayments of long-term debt............................... (693,842) (324,171) - (1,018,013) Distribution to parent corporation......................... (171) - - (171) Loan to parent corporation................................. (98) - - (98) Financing fees and expenses................................ (33,822) - - (33,822) ------------ ----------- --------- ------------ Net cash provided by (used in) financing activities.......... 1,434,916 (298,271) - 1,136,645 ------------ ----------- --------- ------------ Net change in cash and cash equivalents...................... (18) 47,329 (3,311) 44,000 ------------ ----------- --------- ------------ Cash and cash equivalents, end of period..................... $ - $ 49,199 $ 2,578 $ 51,777 ============ =========== ========= ============
33 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We are a leading national manufacturer and marketer of a broad line of asphalt and polymer-based roofing products and accessories for the residential and commercial roofing markets. On February 22, 2007, which we refer to as the date of acquisition, a subsidiary of Building Materials Corporation of America, which we refer to as BMCA, acquired approximately 90% of ElkCorp, which we refer to as Elk, a Dallas, Texas-based manufacturer of roofing products and building materials, and the remaining common shares of Elk were acquired on March 26, 2007, resulting in Elk becoming an indirect wholly-owned subsidiary of BMCA. We believe the Elk acquisition has strategically positioned us for future growth in the roofing industry and building products market. We also believe the acquisition of Elk has allowed us to build on our market leadership position and create comprehensive market-leading product offerings. Our principal lines of residential roofing shingles are the Timberline(R) series, the Sovereign(R) series, Premium Designer Shingles and Specialty Shingles. The Timberline(R) series includes the Timberline(R) Prestique(R) 30 High-Definition(R), Timberline(R) Natural Shadow(TM), Timberline(R) Prestique(R) 40 High-Definition(R), Timberline(R) Prestique(R) Lifetime High-Definition(R) and Timberline(R) Prestique(R) Grande shingles. Our premium designer shingles include the Slateline(R), Grand Slate(TM), Grand Sequoia(R), Grand Canyon(TM), Country Mansion(R), Capstone(R), and Camelot(TM) shingles. We sell specialty shingles under the TruSlate(TM) product line, which offers a slate shingle system. We supply the major components necessary to install a complete roofing system from underlayments to attic ventilation products and accessories, under the Weather Stopper(R) 3-Part Roof Protection System. In recent years, we have improved our sales mix of residential roofing products by increasing our emphasis on laminated shingles and accessory products (the Timberline(R) series, premium designer shingles and specialty shingles), which are generally sold at higher prices and more attractive profit margins than our standard asphalt strip shingle products (the Sovereign(R) series). See Acquisition. 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 six-month period ended June 29, 2008. 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, 2007, which was filed with the Securities and Exchange Commission, which we refer to as the SEC, on March 28, 2008, which we refer to as the 2007 Form 10-K. 34 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Results of Operations Roofing products sales is 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; home ownership rates; and extreme 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. Second Quarter 2008 Compared With Second Quarter 2007 Our improved second quarter performance resulted principally from, in addition to the realization of acquisition-related synergies, higher roofing demand as a consequence of severe weather conditions in many parts of the country during the first six months of 2008, which in turn led to substantially higher average selling prices and increased unit volumes. We recorded net income of $27.8 million in the second quarter of 2008 compared to a net loss of $44.5 million in the second quarter of 2007. Our reported net income in the second quarter of 2008 included $9.8 million of after-tax ($16.1 million pre-tax) restructuring and other expenses, of which $1.0 million after-tax ($1.7 million pre-tax) was included as a reduction in net sales and $4.9 million after-tax ($8.0 million pre-tax) was included in cost of products sold related to the integration of Elk operations. Our reported net loss in the second quarter of 2007 included $46.7 million of after-tax ($65.8 million pre-tax) restructuring and other expenses, of which $7.7 million after-tax ($10.8 million pre-tax) was included in cost of products sold. Included in restructuring and other expenses are plant closing expenses related to the closure of several manufacturing facilities along with the write-down of certain plant assets related to the closed facilities in 2007, integration-related costs and the write-down of selected inventories. Excluding restructuring and other expenses, second quarter of 2008 net income was $37.6 million compared to the second quarter of 2007 net income of $2.2 million. The increase in net income for the second quarter of 2008 was primarily attributable to higher income before interest expense and income taxes and lower interest expense. Net sales for the second quarter of 2008 were $737.1 million compared to second quarter of 2007 net sales of $663.3 million. The increase in second quarter of 2008 net sales was primarily due to higher net sales of residential roofing products largely due to higher average selling prices and higher unit volumes, which were driven by severe weather-related storm demand in many parts of the country that offset the impact of softer new construction and remodeling demand. In addition, the higher average selling prices realized in the second quarter of 2008 were implemented to mitigate significant increases in raw material costs, including asphalt, and higher transportation costs. For the second quarter of 2008, commercial roofing products unit volumes also increased. 35 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Income before interest expense and income taxes in the second quarter of 2008, as reported, was $85.9 million compared to a reported loss before interest expense and income taxes of $14.7 million in the second quarter of 2007. Our income before interest expense and income taxes in the second quarter of 2008, as reported, included $16.1 million of restructuring and other expenses, of which $1.7 million was included as a reduction in net sales and $8.0 million was included in cost of products sold. Our reported loss before interest expense and income taxes in the second quarter of 2007 included $65.8 million of restructuring and other expenses, of which $10.8 million was included in cost of products sold. Excluding restructuring and other expenses, second quarter of 2008 income before interest expense and income taxes was $102.0 million compared to the second quarter of 2007 income before interest expense and income taxes of $51.1 million. The increase was primarily due to the realization of acquisition-related synergies and lower manufacturing costs, as well as higher average selling prices and higher unit volumes, which were offset by higher raw material costs, including asphalt, and higher transportation costs. Interest expense in the second quarter of 2008 decreased to $40.0 million compared to $45.7 million in the second quarter of 2007. The decrease in second quarter of 2008 interest expense was primarily due to a slightly lower average interest rate. Business Segment Information Net Sales. Net sales of roofing products increased to $692.7 million for the second quarter of 2008 compared to $617.7 million for the second quarter of 2007. The increase in second quarter of 2008 net sales was primarily due to higher net sales of residential roofing products largely due to higher average selling prices and higher unit volumes, which were driven by severe weather-related storm demand in many parts of the country that offset the impact of softer new construction and remodeling demand. In addition, the higher average selling prices realized in the second quarter of 2008 were implemented to mitigate significant increases in raw material costs, including asphalt, and higher transportation costs. For the second quarter of 2008, commercial roofing products unit volumes also increased. Net sales of specialty building products and accessories decreased to $44.4 million for the second quarter of 2008 compared with $45.6 million for the second quarter of 2007. Gross Margin. Our overall gross margin was $216.1 million or 29.3% of net sales for the second quarter of 2008 compared with $177.3 million or 26.7% of net sales for the second quarter of 2007. Included in our overall gross margin for the second quarter of 2008 were $9.7 million of restructuring and other expenses, of which $1.7 million was included as a reduction in net sales and $8.0 million was included in cost of products sold. Included in our overall gross margin for the second quarter of 2007 were $10.8 million of restructuring and other expenses, which were included in cost of products sold. The increase in our overall gross margin is primarily attributable to the realization of acquisition-related synergies and lower manufacturing costs, as well as higher average selling prices and higher unit volumes, which were offset by higher raw material costs, including asphalt. 36 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Six Months 2008 Compared With Six Months 2007 We recorded net income of $12.8 million in the first six months of 2008 compared to a net loss of $59.8 million in the first six months of 2007. Our reported net income in the first six months of 2008 included $26.9 million of after-tax ($44.1 million pre-tax) restructuring and other expenses, of which $1.7 million after-tax ($2.8 million pre-tax) was included as a reduction in net sales and $8.6 million after-tax ($14.1 million pre-tax) was included in cost of products sold related to the integration of Elk operations. Our reported net loss in the first six months of 2007 included $46.7 million of after-tax ($65.8 million pre-tax) restructuring and other expenses, of which $7.7 million after-tax ($10.8 million pre-tax) was included in cost of products sold, and $16.5 million of after-tax ($23.2 million pre-tax) debt restructuring costs also related to the acquisition. Included in restructuring and other expenses are plant closing expenses related to the closure of several manufacturing facilities along with the write-down of certain plant assets related to the closed facilities in 2007, integration-related costs and the write-down of selected inventories. Excluding restructuring and other expenses, the first six months of 2008 net income was $39.7 million compared to the first six months of 2007 net income of $3.4 million after also adjusting for debt restructuring costs included in interest expense. The increase in net income for the first six months of 2008 was primarily attributable to higher income before interest expense and income taxes. Net sales for the first six months of 2008 were $1,307.4 million compared to the first six months of 2007 net sales of $1,193.3 million. The increase in net sales was primarily due to the first six months of 2008 residential roofing products net sales including a full six months of Elk net sales, as compared to the first six months of 2007 residential roofing products net sales, which only included Elk net sales since the date of acquisition. In addition, the increase in net sales was due to higher average selling prices and higher unit volumes, which were driven by severe weather-related storm demand in many parts of the country that offset the impact of softer new construction and remodeling demand. The higher average selling prices were implemented to mitigate significant increases in raw material costs, including asphalt, and higher transportation costs. For the six months of 2008, commercial roofing products unit volumes also increased. Income before interest expense and income taxes in the first six months of 2008, as reported, was $100.8 million compared to reported income before interest expense and income taxes of $10.8 million in the first six months of 2007. Our reported income before interest expense and income taxes for the first six months of 2008 included $44.1 million of restructuring and other expenses, of which $2.8 million was included as a reduction in net sales and $14.1 million was included in cost of products sold. Our reported income before interest expense and income taxes for the first six months of 2007 included $65.8 million of restructuring and other expenses, of which $10.8 million was included in cost of products sold. Excluding restructuring and other expenses, the first six months of 2008 income before interest expense and income taxes was $144.9 million compared to the first six months of 2007 income before interest expense and income taxes of $76.6 million. The increase in the first six months of 2008 income before interest expense and income taxes was primarily due to the realization of acquisition-related synergies and lower manufacturing costs, as well as higher average selling prices and higher unit volumes, which were offset by higher raw material costs, including asphalt, and higher transportation costs. 37 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Interest expense in the first six months of 2008 decreased to $79.9 million compared to $95.0 million in the first six months of 2007, which included $23.2 million of debt restructuring costs related to the acquisition of Elk. The debt restructuring costs in 2007 were comprised of tender premiums and the write-off of the remaining deferred financing fees and discounts associated with certain of the then outstanding 8% Senior Notes due 2007, which we refer to as the 2007 Notes, and the 8% Senior Notes due 2008, which we refer to as the 2008 Notes, of BMCA and all of the then outstanding senior notes of Elk. Excluding the impact of these debt restructuring costs, interest expense for the first six months of 2007 was $71.8 million. After excluding the debt restructuring costs in 2007, the first six months of 2008 increase in interest expense was primarily due to higher average borrowings, partially offset by a lower average interest rate. The higher average borrowings are primarily due to the 2008 interest expense including a full six months of interest associated with borrowings related to the acquisition of Elk, while 2007 interest expense included a partial six months of interest expense associated with these borrowings since the date of acquisition. Business Segment Information Net Sales. Net sales of roofing products increased to $1,230.3 million for the first six months of 2008 compared with $1,121.7 million for the first six months of 2007. The increase in net sales of roofing products was primarily attributable to the first six months of 2008 net sales of residential roofing products including a full six months of Elk net sales as compared to the first six months of 2007 net sales of residential roofing products, which only included Elk net sales since the date of acquisition. In addition, the increase in net sales was due to higher average selling prices and higher unit volumes, which were driven by severe weather-related storm demand in many parts of the country that offset the impact of softer new construction and remodeling demand. The higher average selling prices were implemented to mitigate significant increases in raw material costs, including asphalt, and higher transportation costs. For the six months of 2008, commercial roofing products unit volumes also increased. Net sales of specialty building products and accessories increased to $77.1 million for the first six months of 2008 compared with $71.6 million for the first six months of 2007. The increase in net sales of specialty building products and accessories was primarily attributable to the inclusion of a full six months of Elk net sales of specialty building products and accessories in 2008, as compared to 2007, which included net sales of specialty building products of Elk since the date of acquisition. Gross Margin. Our overall gross margin was $361.5 million or 27.7% of net sales for the first six months of 2008 compared with $314.4 million or 26.3% of net sales for the first six months of 2007. Included in our overall gross margin for the first six months of 2008 were $16.9 million of restructuring and other expenses, of which $2.8 million was included as a reduction in net sales and $14.1 million was included in cost of products sold. Included in our overall gross margin for the first six months of 2007 were $10.8 million of restructuring and other expenses, which were included in cost of products sold. The increase in our overall gross margin is primarily attributable to the realization of acquisition-related synergies and lower manufacturing costs, as well as higher average selling prices and higher unit volumes, which were offset by higher raw material costs, including asphalt. 38 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) 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, extreme weather conditions can result in higher customer demand during our peak operating season depending on the extent and severity of the damage from these extreme 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, in the third and fourth quarters of our fiscal year, our cash flows from operations become positive for 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 $600.0 million Senior Secured Revolving Credit Facility due February 2012, which we refer to as our Senior Secured Revolving Credit Facility (see Long-Term Debt), 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 from operating and investing activities was $125.2 million during the first six months of 2008, including $113.1 million of cash used in operations, the reinvestment of $18.8 million for capital programs, partially offset by $6.7 million of proceeds from the sale of assets. Cash invested in additional working capital totaled $237.7 million during the first six months of 2008, reflecting an increase in total accounts receivable of $304.0 million, due to the seasonality of our business, an $11.8 million decrease due to the collection of an income tax receivable, a $33.4 million decrease in inventories primarily due to aggressive inventory management and weather-related demand, an $8.5 million increase in other current assets, a $77.9 million increase in accounts payable and accrued liabilities and an increase of $48.3 million in payments for restructuring and other expenses. The net cash used in operating activities also included a $24.1 million net increase in the payable to related parties/parent corporations, primarily due to a seasonal increase in amounts due under our long-term granule supply agreement with an affiliated company. In addition, net cash used in operating activities included a $10.4 million increase in other non-current assets primarily reflecting a $4.4 million increase in deferred warranty-related program costs, 39 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) net of amortization; and $44.1 million in restructuring and other expenses (see Restructuring and Other Expenses below). Net cash provided by financing activities totaled $235.9 million during the first six months of 2008, including $531.0 million of aggregate proceeds from the issuance of long-term debt, related to the first six months of 2008 cumulative borrowings under our Senior Secured Revolving Credit Facility. Financing activities also included $285.5 million in aggregate repayments of long-term debt, of which $281.0 million related to the first six months of 2008 cumulative repayments under our Senior Secured Revolving Credit Facility and $2.5 million related to our $975.0 million Term Loan Facility, which we refer to as the Term Loan. In addition, financing activities included a $4.8 million repurchase of industrial development revenue bond certificates, aggregate principal repayments of $4.2 million on our capital leases and $0.6 million in financing fees and expenses primarily related to debt restructuring costs. Acquisition On February 22, 2007, a subsidiary of BMCA acquired approximately 90% of ElkCorp common shares at a purchase price of $43.50 per common share. On March 26, 2007, the remaining Elk common shares were acquired in a second step merger in exchange for the right to receive $43.50 per share in cash, which resulted in Elk becoming an indirect wholly-owned subsidiary of BMCA. The acquisition of the Elk common shares was completed at a purchase price of approximately $945.5 million, net of the repayment of $195.0 million of the then outstanding Elk senior notes, which were assumed in connection with the acquisition and repaid in March 2007. We financed the purchase of Elk, refinanced certain of BMCA's then outstanding debt and repaid all of Elk's then outstanding senior notes of $195.0 million with the proceeds from our new senior secured credit facilities. Our new senior secured credit facilities consist of a $600.0 million Senior Secured Revolving Credit Facility, a $975.0 million Term Loan and a $325.0 million Junior Lien Term Loan Facility, which we refer to as the Junior Lien Term Loan, and collectively with the Senior Secured Revolving Credit Facility and the Term Loan, we refer to as the Senior Secured Credit Facilities. See Note 7 to the Consolidated Financial Statements for a description of the Senior Secured Credit Facilities. The Elk acquisition was accounted for under the purchase method of accounting as prescribed by Statement of Financial Accounting Standards, which we refer to as SFAS, No. 141 "Business Combinations", which we refer to as SFAS No. 141, which requires the total purchase price to be allocated to the fair value of assets acquired and liabilities assumed based on their fair values at the date of acquisition, with amounts exceeding their fair value being recorded 40 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) as goodwill. During the first quarter ended March 30, 2008, we completed our purchase price allocation of the assets acquired and liabilities assumed from Elk (see table below). The operating results of Elk are included in our results of operations from the date of acquisition. The following table represents the final fair values of assets acquired and liabilities assumed related to the acquisition of Elk as of the date of acquisition with amounts paid in excess of their fair values being recorded as goodwill. Goodwill.................................... $ 589,293 =========== Total assets acquired....................... $ 1,412,033 Total liabilities assumed................... (466,514) ----------- Net assets acquired......................... $ 945,519 =========== During the second quarter of 2007, we initiated a restructuring plan, which we refer to as the 2007 Restructuring Plan, (see Restructuring and Other Expenses), which was formulated in connection with the acquisition of Elk. Also, in connection with the Elk acquisition and pursuant to SFAS No. 141 and Emerging Issues Task Force, which we refer to as EITF, No. 95-3 "Recognition of Liabilities in Connection with a Purchase Business Combination," we identified $8.7 million in purchase accounting adjustments, which related to employee severance payments to former Elk employees and lease termination expenses. As of June 29, 2008, we had paid $2.9 million for severance costs and $1.1 million for lease termination expenses. We expect to make approximately $4.7 million of lease termination payments through 2019. Our employee severance payments included the termination of approximately 130 Elk employees, including certain management positions, in the manufacturing and selling and administrative areas. Restructuring and Other Expenses The 2007 Restructuring Plan was created to eliminate cost redundancies recognized due to the acquisition of Elk and to reduce our current cost structure. The 2007 Restructuring Plan is expected to be fully implemented by the end of our fiscal year ending December 31, 2008. We account for our restructuring activities in accordance with SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" and EITF No. 96-9 "Classification of Inventory Markdowns and Other Costs Associated with Restructuring." 41 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) 2007 Restructuring Charges In connection with the acquisition of Elk, we identified $191.9 million in restructuring and other expenses in our fiscal year ended December 31, 2007, of which $97.0 million related to property, plant and equipment write-downs at certain of our existing manufacturing facilities and $25.1 million related to plant closing expenses. Restructuring and other expenses also included $2.0 million in employee severance payments and $67.8 million in integration-related expenses, which primarily consisted of $24.3 million of inventory-related write-downs, $15.1 million of restructuring-related sales discounts, $1.4 million of lease termination expenses and $27.0 million of other integration expenses. We recorded $181.0 million of the aforementioned restructuring and other expenses in our statement of operations as of December 31, 2007, of which $15.1 million was reflected as a reduction in net sales due to restructuring-related sales discounts, $24.3 million was charged to cost of products sold and $141.6 million was charged to restructuring and other expenses. Six-Months Ended June 29, 2008 Restructuring Charges We identified an additional $42.0 million of restructuring and other expenses during our six-months ended June 29, 2008, which included $8.7 million of plant closing expenses, $2.2 million in employee severance payments and $31.1 million in integration-related expenses. Integration-related expenses primarily consisted of $14.1 million of inventory write-downs, $2.8 million of restructuring-related sales discounts and $14.2 million of other integration expenses. We recorded $44.1 million of the aforementioned identified restructuring and other expenses in our statement of operations in the six-month period ended June 29, 2008, of which $2.8 million was reflected as a reduction in net sales due to restructuring-related sales discounts, $14.1 million was charged to cost of products sold and $27.2 million was charged to restructuring and other expenses. We expect to incur the remaining $8.8 million of identified restructuring and other expenses and make the remaining cash payments related to our accrual by the end of our fiscal year ending December 31, 2008. 42
BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) The table below details our restructuring and other expense accruals and charges made against the accrual during our six months ended June 29, 2008: Plant Employee Restructuring and Closing Severance Integration Other Expenses Expenses Payments Expenses Total - ------------------ -------- --------- ----------- ------- (Thousands) Beginning balance, as of December 31, 2007....................................... $ 2,905 $ - $ 10,945 $ 13,850 Current period costs, net................................ 10,353 2,171 31,595 44,119 Cash payments............................................ (16,219) (2,171) (29,918) (48,308) Amount related to property, plant and equipment for asset adjustments....................................... 6,234 - (274) 5,960 Amount charged to write-off inventory.................... (63) - (1,713) (1,776) Non-cash items........................................... - - (205) (205) --------- -------- --------- --------- Ending balance, as of June 29, 2008...................... $ 3,210 $ - $ 10,430 $ 13,640 ========= ======== ========= =========
Our aggregate employee severance payments included the termination of approximately 100 BMCA employees, including certain management positions, in the manufacturing and selling and administrative areas. 43 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Long-Term Debt Long-term debt consists of the following at June 29, 2008 and December 31, 2007: June 29, December 31, 2008 2007 ----------- ----------- (Thousands) 8% Senior Notes due 2008.......................... $ 4,875 $ 4,874 7 3/4% Senior Notes due 2014...................... 250,545 250,590 Borrowings under the Senior Secured Revolving Credit Facility........................ 372,000 122,000 Term Loan......................................... 962,874 965,362 Junior Lien Term Loan............................. 325,000 325,000 Obligations under capital leases.................. 57,804 61,997 Industrial development revenue bonds.............. 2,820 7,710 Chester Loan...................................... 6,712 8,241 Other notes payable............................... 8,010 8,251 ----------- ----------- Total......................................... 1,990,640 1,754,025 Less current maturities........................... (25,186) (24,630) ----------- ----------- Long-term debt less current maturities............ $ 1,965,454 $ 1,729,395 =========== =========== On February 22, 2007, BMCA entered into Senior Secured Credit Facilities consisting of a $975.0 million Term Loan Facility, a $600.0 million Senior Secured Revolving Credit Facility and a $325.0 million bridge loan facility, which was subsequently replaced by a $325.0 million Junior Lien Term Loan, which collectively financed the purchase of Elk and repaid certain existing BMCA debt facilities and Elk senior note debt. On April 10, 2008, we repurchased and retired $4.8 million of industrial development revenue bond certificates issued by us with respect to the Mount Vernon, Indiana Industrial Development Revenue Bond issued in 1985. As of June 29, 2008, we had total outstanding consolidated indebtedness of $2,043.5 million, which included $52.8 million of demand loans to our parent corporation and $25.2 million that matures prior to the end of the second quarter of 2009. 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. 44 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) As of June 29, 2008, we were in compliance with all covenants under the Senior Secured Credit Facilities, and the indentures governing our 2008 Notes and our 7 3/4% Senior Notes due 2014, which we refer to as the 2014 Notes and, together with the 2008 Notes, the Senior Notes. As of June 29, 2008, the net book value of the collateral securing the Senior Secured Revolving Credit Facility Collateral (as defined in the Senior Secured Revolving Credit Facility) and the Term Loan Collateral (as defined in the Term Loan) was $1,011.5 and $1,676.8 million, respectively. At June 29, 2008, we had outstanding letters of credit of approximately $49.7 million, which included approximately $10.7 million of standby letters of credit related to certain obligations of G-I Holdings. Hedging Activity In March 2007, we entered into forward-starting Eurodollar rate, or LIBOR, based pay fixed income interest rate swaps related to our Term Loan, with an effective date of April 23, 2007 and a maturity date of April 23, 2012. In October 2007, we entered into additional interest rate swaps related to our Term Loan with an effective date of October 23, 2007 and a maturity date of October 23, 2012 under terms similar to those of our swaps entered into in March 2007. In accordance with SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities", our swaps are treated as cash flow hedges. As of June 29, 2008, based on changes in the fair value of the interest rate swaps, we recognized a cumulative fair value loss on our interest rate swaps of $26.3 million to other liabilities, while the offset was recognized as an other comprehensive loss, net of tax of $10.0 million. Amounts may be reclassified from other comprehensive loss to interest expense if any portion of our swaps become ineffective. We do not anticipate that any amount recorded in other comprehensive loss related to our swaps will be reclassified during our fiscal year ending December 31, 2008. In July 2007, we began entering into treasury locks as additional hedging instruments related to our Term Loan. On October 30, 2007, we settled our open treasury lock hedging positions, which resulted in a fair value loss and cash settlement. Pursuant to SFAS No. 133, we are amortizing the loss into our statement of operations over the life of the Term Loan, of which $0.2 and $0.4 million was amortized into interest expense in our second quarter and six-month period ended June 29, 2008, respectively. 45 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Intercompany Transactions We make loans to, and borrow from, our parent corporations from time to time at prevailing market rates. As of June 29, 2008 and July 1, 2007, BMCA Holdings Corporation owed us $56.3 and $56.1 million, including interest of $1.0 and $0.8 million, respectively, and we owed BMCA Holdings Corporation $52.8 and $52.8 million, with no unpaid interest, respectively. Interest income on our loans to BMCA Holdings Corporation amounted to $0.8 and $1.2 million during the second quarter ended June 29, 2008 and July 1, 2007, respectively, and $1.8 and $2.5 million during the six-month periods ended June 29, 2008 and July 1, 2007, respectively. Interest expense on our loans from BMCA Holdings Corporation amounted to $0.8 and $1.2 million during the second quarter ended June 29, 2008 and July 1, 2007, respectively, and $1.8 and $2.4 million during the six-month periods ended June 29, 2008 and July 1, 2007, respectively. Loans payable to/receivable from our parent corporations 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, the Term Loan, the Junior Lien Term Loan and the Senior Notes. Under the terms of the Senior Secured Revolving Credit Facility and the indentures governing our Senior Notes at June 29, 2008, 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 June 29, 2008 and July 1, 2007. In addition, as of June 29, 2008 and July 1, 2007, we did not owe any loans or enter into any lending activities with other affiliates. We have a management agreement, which we refer to as the Management Agreement, with ISP Management Company, Inc., a subsidiary of International Specialty Products Inc., which, together with its subsidiaries, is referred to as ISP, an affiliate, to provide us with certain management services. Based on services provided to us in 2008 under the Management Agreement, the aggregate amount payable to ISP Management Company, Inc. under the Management Agreement for 2008, inclusive of the services provided to G-I Holdings, is not yet available; however, after adjusting for inflationary factors, it is currently estimated to be similar to the $6.7 million paid in 2007. We do not expect any changes to the Management Agreement to have a material impact on our results of operations. We and our subsidiaries purchase a substantial portion of our headlap roofing granules, colored roofing granules and algae-resistant granules, on a purchase order basis, from ISP Minerals Inc., which we refer to as ISP Minerals, an affiliate of BMCA and ISP. The amount of mineral products purchased each year on this basis is based on current demand and is not subject to minimum purchase requirements. For the second quarter ended June 29, 2008, we purchased $12.3 million of roofing granules, and for the six-month period ended June 29, 2008, we purchased $19.5 million of roofing granules under this arrangement. In addition to the granules products purchased by BMCA under the above mentioned purchase order basis, the balance of BMCA's granules requirements are purchased under a contract expiring in 2013. The amount of mineral products purchased each year under the contract is based on current demand and is not subject to minimum purchase requirements. Under the contract, for the second quarter ended June 29, 2008, we purchased $22.8 million of roofing granules, and for the six-month period ended June 29, 2008, we purchased $41.9 million of roofing granules. 46 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Included in noncurrent assets as a tax receivable from parent corporation on our consolidated balance sheets is $10.0 and $10.0 million at June 29, 2008 and December 31, 2007, respectively, representing amounts paid in excess of amounts due to G-I Holdings with respect to 2006 under the Tax Sharing Agreement (as defined). These amounts are included in the increase in net payable to related parties/parent corporations in the consolidated statements of cash flows. Contingencies See Note 13 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 six months of 2008. 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. The prices of energy and crude oil continued to rise during the second quarter of 2008 reaching record high levels. In addition, the cost of asphalt increased during the second quarter of 2008, also reaching record high levels, which reflects higher crude oil prices and higher asphalt demand largely driven by the seasonal paving market. Due to the strength of our 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. We will attempt to pass on future cost increases from suppliers as needed; however, no assurances can be provided that these price increases will be accepted in the marketplace. Contractual Obligations There have been no significant changes to our contractual obligations during the second quarter ended June 29, 2008. For a further discussion on our contractual obligations related to minimum purchase obligations reference is made to Management's Discussion and Analysis of Financial Condition and Results of Operations "Contractual Obligations" in our 2007 Form 10-K. 47 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) New Accounting Pronouncements In September 2006, the Financial Accounting Standards Board, which we refer to as FASB, issued SFAS No. 157, "Fair Value Measurements", which we refer to as SFAS No. 157, which clarifies the definition of fair value, establishes a framework for measuring fair value and expands the disclosures on fair value measurements, which is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position, which we refer to as FSP, No. 157-2 "Partial Deferral to the Effective Date of Statement 157", which we refer to as FSP No. 157-2, which is effective for fiscal years beginning after November 15, 2008 and excludes SFAS No. 13, "Accounting for Leases," defers certain non-financial assets and non-financial liabilities and further clarifies the principles in SFAS No. 157 on the fair value measurement of liabilities. Our adoption of the provisions of SFAS No. 157 for all other items not deferred by FSP No. 157-2 in our first quarter of 2008 did not have a material effect on our consolidated financial statements. We are currently evaluating the provisions of FSP No. 157-2 and do not expect that the adoption will have a material effect on our consolidated financial statements. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115", which we refer to as SFAS No. 159, which permits entities to elect to measure specified financial instruments and warranty and insurance contracts at fair value on a contract-by-contract basis, with changes in fair value recognized in earnings each reporting period. The election, called the "fair value option," will enable some companies to reduce the volatility in reported earnings caused by measuring related assets and liabilities differently, and it is simpler than using the complex hedge-accounting provisions of SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" to achieve similar results. SFAS No. 159 applies to all entities and contains financial statement presentation and disclosure requirements for assets and liabilities reported at fair value as a consequence of the election. SFAS No. 159 is expected to expand the use of fair value measurements for financial instruments and was effective for fiscal years beginning after November 15, 2007. In the first quarter of 2008, we exercised our option to decline the adoption of SFAS No. 159. In December 2007, the FASB issued SFAS No. 141 (revised in 2007) "Business Combinations", which we refer to as SFAS No. 141R, which provides revised guidance on how an acquiring company should recognize and measure the identifiable assets acquired, liabilities assumed, noncontrolling interests, and goodwill acquired in a business combination. SFAS No. 141R also expands the required disclosures related to the nature and financial statement impact of business combinations and is effective, on a prospective basis, for business combinations completed in fiscal years beginning after December 15, 2008. We will adopt SFAS No. 141R during our fiscal year ending December 31, 2009 and therefore we have not determined the effect, if any, the adoption of SFAS No. 141R will have on our results of operations or financial position. 48 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements", which we refer to as SFAS No. 160. SFAS No. 160 establishes requirements for ownership interests in subsidiaries held by parties other than us (minority interests) to be clearly identified and disclosed in the consolidated statement of financial position within equity, but separate from the parent's equity. Any changes in the parent's ownership interests are required to be accounted for in a consistent manner as equity transactions and any noncontrolling equity investments in deconsolidated subsidiaries must be measured initially at fair value. SFAS No. 160 is effective, on a prospective basis, for fiscal years beginning after December 15, 2008; however, the presentation and disclosure requirements must be retrospectively applied to comparative financial statements. We will adopt SFAS No. 160 during our fiscal year ending December 31, 2009 and we do not expect the adoption to have any impact on our results of operations or financial position as we do not have any noncontrolling interests. In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities", which we refer to as SFAS No. 161. SFAS No. 161 amends SFAS No. 133 and is intended to improve financial reporting related to derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. The provisions of SFAS No. 161 are effective on a prospective basis for fiscal years beginning on or after November 15, 2008. We will adopt the provisions of SFAS No. 161 during our fiscal year ending December 31, 2009. In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles", which we refer to as SFAS No. 162, which identifies the sources of accounting principles and the framework for selecting principles to be used in the preparation and presentation of financial statements in accordance with United States generally accepted accounting principles. SFAS No. 162 will be effective 60 days after the SEC approves the Public Company Accounting Oversight Board's amendments to Interim Audit Standards Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." We do not expect the adoption of SFAS No. 162 to have an impact on our results of operations or financial position. 49 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 of 1933, as amended 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. 50 BUILDING MATERIALS CORPORATION OF AMERICA 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 2007 Form 10-K for a discussion of "Market-Sensitive Instruments and Risk Management." There were no material changes in such information as of June 29, 2008. See Note 8 to the Consolidated Financial Statements. Item 4T. CONTROLS AND PROCEDURES Disclosure Controls and Procedures: Our management, under the supervision and 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 accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Changes in Internal Control over Financial Reporting: There were no significant changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in management's evaluation during the second quarter of fiscal year 2008 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. 51 BUILDING MATERIALS CORPORATION OF AMERICA PART II OTHER INFORMATION Item 1. Legal Proceedings As of June 29, 2008, approximately 1,900 alleged asbestos-related bodily injury claims relating to the inhalation of asbestos fiber were pending against Building Materials Corporation of America. See Note 13 to Consolidated Financial Statements in Part I. Item 6. Exhibits Exhibit Number Description - ------ ----------- 31.1 Rule 13a-14(a)/Rule 15d-14(a) Certification of 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. 52 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: August 13, 2008 BY: /s/John F. Rebele --------------- ------------------------------------------ John F. Rebele Senior Vice President, Chief Financial Officer and Chief Administrative Officer (Principal Financial Officer) DATE: August 13, 2008 BY: /s/James T. Esposito --------------- ------------------------------------------ James T. Esposito Vice President and Controller (Principal Accounting Officer) 53 EX-31 2 mv8-13ex31_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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-(f))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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) 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 d) 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: August 13, 2008 /s/ ROBERT B. TAFARO - -------------------------------------------- Name: Robert B. Tafaro Title: Chief Executive Officer and President EX-31 3 mv8-13ex31_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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-(f))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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) 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 d) 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: August 13, 2008 /s/ JOHN F. REBELE - --------------------------------------- Name: John F. Rebele Title: Senior Vice President, Chief Financial Officer and Chief Administrative Officer EX-32 4 mv8-13ex32_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 June 29, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Robert B. Tafaro, as Chief Executive Officer and President 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: Chief Executive Officer and President Date: August 13, 2008 /s/ John F. Rebele - ---------------------------------------------- Name: John F. Rebele Title: Senior Vice President, Chief Financial Officer and Chief Administrative Officer Date: August 13, 2008 -----END PRIVACY-ENHANCED MESSAGE-----