10-Q 1 bmca10qq12003.txt BUILDING MATERIALS CORPORATION 1ST QTR 2003 10-Q 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 March 30, 2003 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 33-81808 BUILDING MATERIALS CORPORATION OF AMERICA (Exact name of registrant as specified in its charter) Delaware 22-3276290 (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 1361 Alps Road, Wayne, New Jersey 07470 (Address of Principal Executive Offices) (Zip Code) (973) 628-3000 (Registrant's telephone number, including area code) None (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) See Table of Additional Registrants Below. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES /X/ NO / / Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES / / NO /X / As of May 12, 2003, 1,015,010 shares of Class A Common Stock, $.001 par value, and 15,000 shares of Class B Common Stock, $.001 par value, of the registrant were outstanding. There is no trading market for the common stock of the registrant. As of May 12, 2003, each of the additional registrants had the number of shares outstanding which is shown on the table below. There is no trading market for the common stock of the additional registrants. As of May 12, 2003, no shares of the registrant or the additional registrants were held by non-affiliates. ADDITIONAL REGISTRANTS
Address, including zip code and telephone number, Exact name of registrant as State or other No. of Commission File No./I.R.S. including area code, of specified in its charter jurisdiction of Shares Employer Identification No. registrant's principal incorporation or Outstanding executive offices organization --------------------------- ---------------- ----------- -------------------------- --------------------------- Building Materials Delaware 10 333-69749-01/ 1361 Alps Road Manufacturing Corporation 22-3626208 Wayne, NJ 07470 (973) 628-3000 Building Materials Delaware 10 333-69749-02/ 300 Delaware Avenue Investment Corporation 22-3626206 Suite 303 Wilmington, DE 19801 (302) 427-5960
2 Part I - FINANCIAL INFORMATION Item 1 - FINANCIAL STATEMENTS BUILDING MATERIALS CORPORATION OF AMERICA CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Quarter Ended --------------------------- March 31, March 30, 2002 2003 ---------- --------- (Thousands) Net sales................................... $319,253 $338,938 -------- -------- Costs and expenses: Cost of products sold..................... 229,932 245,944 Selling, general and administrative....... 68,728 72,342 -------- -------- Total costs and expenses................ 298,660 318,286 -------- -------- Operating income............................ 20,593 20,652 Interest expense............................ (13,746) (13,456) Other expense, net.......................... (2,284) (1,622) -------- -------- Income before income taxes.................. 4,563 5,574 Income tax provision........................ (1,643) (2,007) -------- -------- Net income.................................. $ 2,920 $ 3,567 ======== ======== 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) March 30, December 31, 2003 2002 (Unaudited) Current Assets: ------------ ---------- Cash and cash equivalents........................ $ 96,173 $ 43,523 Accounts receivable, trade, less allowance of $1,484 and $1,506 in 2002 and 2003, respectively................................... 21,901 25,354 Accounts receivable, other....................... 41,924 86,942 Inventories...................................... 119,482 151,244 Other current assets............................. 3,543 7,923 -------- -------- Total Current Assets........................... 283,023 314,986 Property, plant and equipment, net................. 346,116 343,523 Excess of cost over net assets of businesses acquired, net of accumulated amortization of $16,370 in 2002 and 2003, respectively........ 63,294 63,294 Deferred income tax benefits....................... 15,330 13,505 Tax receivable from parent corporations............ 10,250 10,250 Other noncurrent assets............................ 25,386 24,501 -------- -------- Total Assets....................................... $ 743,399 $ 770,059 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Current maturities of long-term debt............. $ 45,326 $ 45,433 Accounts payable................................. 73,220 92,283 Payable to related parties....................... 12,621 16,874 Accrued liabilities.............................. 50,917 50,285 Reserve for product warranty claims.............. 14,900 14,900 -------- -------- Total Current Liabilities........................ 196,984 219,775 -------- -------- Long-term debt less current maturities............. 545,802 544,964 -------- -------- Reserve for product warranty claims................ 18,387 18,284 -------- -------- Other liabilities.................................. 13,347 14,629 -------- -------- Stockholders' Equity (Deficit): Series A Cumulative Redeemable Convertible Preferred Stock, $.01 par value per share; 400,000 shares authorized; no shares issued.... - - Class A Common Stock, $.001 par value per share, 1,300,000 shares authorized; 1,015,010 shares issued and outstanding......................... 1 1 Class B Common Stock, $.001 par value per share; 100,000 shares authorized; 15,000 shares issued and outstanding......................... - - Loan receivable from parent corporation.......... (2,648) (2,673) Accumulated deficit.............................. (28,474) (24,921) -------- -------- Total Stockholders' Equity (Deficit) .......... (31,121) (27,593) -------- -------- Total Liabilities and Stockholders' Equity (Deficit)................................ $ 743,399 $ 770,059 ======== ======== 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) Quarter Ended ---------------------- March 31, March 30, 2002 2003 -------- -------- (Thousands) Cash and cash equivalents, beginning of period......... $ 46,387 $ 96,173 -------- -------- Cash used in operating activities: Net income........................................... 2,920 3,567 Adjustments to reconcile net income to net cash used in operating activities: Depreciation..................................... 9,380 9,462 Amortization..................................... 472 506 Deferred income taxes............................ 1,380 1,825 Noncash interest charges......................... 1,210 1,299 Increase in working capital items.................... (62,092) (75,749) Decrease in reserve for product warranty claims...... (997) (103) Proceeds from sale of accounts receivable............ 15,217 9,569 Change in net receivable from/payable to related parties/parent corporations........................ 8,405 4,253 Other, net........................................... 360 911 -------- -------- Net cash used in operating activities.................. (23,745) (44,460) -------- -------- Cash used in investing activities: Capital expenditures................................. (5,549) (7,056) -------- -------- Net cash used in investing activities.................. (5,549) (7,056) -------- -------- Cash used in financing activities: Repayments of long-term debt......................... (1,353) (944) Distributions to parent corporations................. - (15) Loan to parent corporation........................... (28) (25) Financing fees and expenses.......................... (213) (150) -------- -------- Net cash used in financing activities.................. (1,594) (1,134) -------- -------- Net change in cash and cash equivalents................ (30,888) (52,650) -------- -------- Cash and cash equivalents, end of period............... $ 15,499 $ 43,523 ======== ======== Supplemental Cash Flow Information: Cash paid during the period for: Interest (net of amount capitalized)................ $ 12,496 $ 12,289 Income taxes........................................ - 79 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 5 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Building Materials Corporation of America ("BMCA" or the "Company") was formed on January 31, 1994 and is a wholly-owned subsidiary of BMCA Holdings Corporation ("BHC"), which is a wholly-owned subsidiary of G-I Holdings Inc. ("G-I Holdings"). G-I Holdings is a wholly-owned subsidiary of G Holdings Inc. The consolidated financial statements of the Company reflect, in the opinion of management, all adjustments necessary to present fairly the financial position of the Company at March 30, 2003, and the results of operations and cash flows for the periods ended March 31, 2002 and March 30, 2003. All adjustments are of a normal recurring nature. These financial statements should be read in conjunction with the annual financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the "2002 Form 10-K"). Note 1. Inventories Inventories consist of the following: December 31, March 30, 2002 2003 ------------ --------- (Thousands) Finished goods $ 80,911 $ 110,404 Work-in process 11,850 10,722 Raw materials and supplies 30,068 33,954 -------- -------- Total 122,829 155,080 Less LIFO reserve (3,347) (3,836) -------- -------- Inventories $ 119,482 $ 151,244 ======== ======== Note 2. Contingencies Asbestos Litigation Against G-I Holdings In connection with its formation, the Company contractually assumed and agreed to pay the first $204.4 million of liabilities for asbestos-related bodily injury claims relating to the inhalation of asbestos fiber ("Asbestos Claims") of its parent, G-I Holdings. As of March 30, 1997, the Company had paid all of its assumed asbestos-related liabilities. In January 2001, G-I Holdings filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code due to Asbestos Claims. This proceeding remains pending. Claimants in the G-I Holdings bankruptcy, including judgment creditors, might seek to satisfy their claims by asking the bankruptcy court to require the sale of G-I Holdings' assets, including its holdings of BMCA Holdings Corporation's common stock and its indirect holdings of the Company's common stock. Such action could result in a change of control of the Company. In addition, those creditors may seek to file Asbestos Claims against the Company (with approximately 1,900 alleged Asbestos Claims having been filed against the Company as of March 30, 2003). The Company believes that it will 6 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -(Continued) Note 2. Contingencies (Continued) not sustain any liability in connection with these or any other asbestos-related claims. On February 2, 2001, the United States Bankruptcy Court for the District of New Jersey issued a temporary restraining order enjoining any existing or future claimant from bringing or prosecuting an Asbestos Claim against the Company. By oral opinion, on June 22, 2001, and written order entered February 22, 2002, the court converted the temporary restraints into a preliminary injunction, prohibiting the bringing or prosecution of any such Asbestos Claim against the Company. On February 7, 2001, G-I Holdings and BMCA filed a defendant class 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. As a result, it is not possible to predict the outcome of this litigation. While the Company cannot predict whether any additional Asbestos Claims will be asserted against it, or the outcome of any litigation relating to those claims, the Company believes that it has meritorious defenses to any claim that it has asbestos-related liability, although there can be no assurances in this regard. On or about February 8, 2001, a creditors' committee established in G-I Holdings' bankruptcy case filed a complaint in the United States Bankruptcy Court, District of New Jersey against G-I Holdings and the Company. The complaint requests substantive consolidation of BMCA with G-I Holdings or an order directing G-I Holdings to cause BMCA to file for bankruptcy protection. BMCA and G-I Holdings intend to vigorously defend the lawsuit. The plaintiffs also filed for interim relief absent the granting of their requested relief described above. On March 21, 2001, the bankruptcy court denied plaintiffs' application for interim relief. In November 2002, the creditors' committee, joined in by the legal representative of future demand holders, filed a motion for appointment of a trustee in the G-I Holdings' bankruptcy. In December 2002, the bankruptcy court denied the motion and the creditors' committee has appealed such ruling to the United States District Court. For a further discussion with respect to the history of the foregoing litigation and asbestos-related matters, see Item 3,"Legal Proceedings," and Notes 5, 12 and 17 to Consolidated Financial Statements contained in the Company's 2002 Form 10-K. Environmental Litigation The Company, together with other companies, is a party to a variety of proceedings and lawsuits involving environmental matters under the Comprehensive Environmental Response Compensation and Liability Act, and similar state laws, in which recovery is sought for the cost of cleanup of contaminated sites or remedial obligations are imposed, a number of which are 7 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 2. Contingencies (Continued) in the early stages or have been dormant for protracted periods. The Company refers to these proceedings and lawsuits as "Environmental Claims". At most sites, the Company anticipates that liability will be apportioned among the companies found to be responsible for the presence of hazardous substances at the site. The Company believes that the ultimate disposition of such matters will not, individually or in the aggregate, have a material adverse effect on the liquidity, financial position or results of operations of the Company. For further information regarding environmental matters and other litigation, reference is made to Item 3, "Legal Proceedings" contained in the Company's 2002 Form 10-K. Tax Claim Against G-I Holdings The Company and certain of its subsidiaries were members of the consolidated group (the "G-I Holdings Group") for Federal income tax purposes that included G-I Holdings in certain prior years and, accordingly, would be severally liable for any tax liability of the G-I Holdings Group in respect of those prior years. On September 15, 1997, G-I Holdings received a notice from the Internal Revenue Service (the "IRS") of a deficiency in the amount of $84.4 million (after taking into account the use of net operating losses and foreign tax credits otherwise available for use in later years) in connection with the formation in 1990 of Rhone-Poulenc Surfactants and Specialties, L.P. (the "surfactants partnership"), a partnership in which G-I Holdings held an interest. G-I Holdings has advised the Company that it believes that it will prevail in this tax matter arising out of the surfactants partnership, although there can be no assurance in this regard. The Company believes that the ultimate disposition of this matter will not have a material adverse effect on its business, financial position or results of operations. On September 21, 2001, the IRS filed a proof of claim with respect to such deficiency against G-I Holdings in the G-I Holdings' bankruptcy. If such proof of claim is sustained, the Company and/or certain of the Company's subsidiaries together with G-I Holdings and several current and former subsidiaries of G-I Holdings would be severally liable for a portion of those taxes and interest. G-I Holdings has filed an objection to the proof of claim. If the IRS were to prevail for the years in which the Company and/or certain of its subsidiaries were part of the G-I Holdings Group, the Company would be severally liable for approximately $40.0 million in taxes plus interest, although this calculation is subject to uncertainty depending upon various factors including G-I Holdings' ability to satisfy its tax liabilities and the application of tax credits and deductions. 8 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 3. New Accounting Pronouncements In November 2002, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 clarifies the requirements for a guarantor's accounting for and disclosures of certain guarantees issued and outstanding. The provisions of FIN 45 apply to guarantee contracts that contingently require the guarantor to make payments (in cash, financial instruments, other assets, shares of stock or provision of services) to the guaranteed party for guarantees such as: a financial standby letter of credit; a market value guarantee on either a financial or nonfinancial asset owned by the guaranteed party; and a guarantee of the collection of the scheduled contractual cash flows from financial assets held by a special-purpose entity. FIN 45 also applies to indemnification contracts and indirect guarantees of indebtedness of others. The requirements of FIN 45 for the initial recognition and measurement of the liability for a guarantor's obligations are to be applied only on a prospective basis to guarantees issued or modified after December 31, 2002; however, the Company provides product warranties, which are only subject to the disclosure requirements under FIN 45. (See table below.) A subsidiary's guarantee of the debt of its parent is not subject to the initial recognition and measurement provisions of FIN 45 but are subject to its disclosure requirements. The Company has adopted the disclosure requirements of FIN 45 and applied the recognition and measurement provisions for all guarantees entered into or modified after December 31, 2002, and noted no material effect on the financial condition or results of operations of the Company. The reserve for product warranty claims consists of the following for the periods ended March 31, 2002 and March 30, 2003: March 31, March 30, 2002 2003 -------- --------- (Thousands) Beginning balance................... $ 37,641 $ 33,287 Charged to cost of products sold.... 5,311 4,336 Deductions.......................... (6,223) (4,439) Other............................... (85) - -------- -------- Ending balance...................... $ 36,644 $ 33,184 ======== ======== In December 2002, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS No. 148"), an amendment of FASB Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 148 provides alternative methods of transition for any entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of 9 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 3. New Accounting Pronouncements (Continued) SFAS No. 123 to require prominent disclosures about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation. SFAS No. 148 also amends Accounting Principles Board Opinion No. 28, "Interim Financial Reporting" ("APB No. 28"), to require disclosures about those effects in interim financial information beginning with the Company's first quarter ended March 30, 2003. The Company currently accounts for its long-term incentive units granted to certain employees under the accounting prescribed by applying FASB Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other Variable Stock Option and Award Plans" ("FIN 28"), which requires an entity to measure compensation as the amount by which the Book Value of the incentive units covered by the grant exceeds the option price or value specified of such incentive units at the date of grant. Changes, either increases or decreases, in the Book Value of those incentive units between the date of grant and the measurement date result in a change in the measure of compensation for the right or award. The Company expects to continue to account for its long-term incentive units under the accounting prescribed by FIN 28 and has adopted the additional disclosure provisions of SFAS No. 148. Compensation expense for such incentive units was $0.7 and $0.7 million for the periods ended March 31, 2002 and March 30, 2003, respectively. The Company's pro forma net income under SFAS No. 123 would have been the same as actual net income. Note 4. Guarantor Financial Information All of the Company's subsidiaries, other than BMCA Receivables Corporation, are guarantors under the Company's consolidated and restated $210 million Credit Agreement, the 10 1/2% Senior Notes due 2003, the 7 3/4% Senior Notes due 2005, the 8 5/8% Senior Notes due 2006, the 8% Senior Notes due 2007 (the "2007 Notes"), and the 8% Senior Notes due 2008. These guarantees are full, unconditional and joint and several. In addition, Building Materials Manufacturing Corporation ("BMMC"), a wholly-owned subsidiary of the Company, is a co-obligor on the 2007 Notes. The Company and BMMC entered into license agreements, effective January 1, 1999, for the right to use intellectual property, including patents, trademarks, know-how, and franchise rights owned by Building Materials Investment Corporation, a wholly-owned subsidiary of the Company, for a license fee stated as a percentage of net sales. The license agreements are for a period of one year and are subject to automatic renewal unless either party terminates with 60 days written notice. Also, effective January 1, 1999, BMMC sells all finished goods to the Company at a manufacturing profit. Presented below is condensed consolidating financial information for the Company, the guarantor subsidiaries and the non-guarantor subsidiary. This financial information should be read in conjunction with the Consolidated Financial Statements and other notes related thereto. Separate financial information for the Company, the guarantor subsidiaries and the non-guarantor subsidiary is not included herein, because management has determined that such information is not material to investors. 10 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 4. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Statement of Income First Quarter Ended March 31, 2002 (Thousands) (Unaudited)
Parent Guarantor Company Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ Net Sales................................ $294,302 $ 24,951 $ - $319,253 Intercompany net sales................... 16,407 211,153 (227,560) - -------- -------- -------- -------- Total net sales...................... 310,709 236,104 (227,560) 319,253 -------- -------- -------- -------- Costs and expenses: Cost of products sold.................. 246,219 211,273 (227,560) 229,932 Selling, general and administrative.... 51,438 17,290 68,728 Transition service agreement (income) expense..................... 25 (25) - -------- -------- -------- -------- Total costs and expenses............. 297,682 228,538 (227,560) 298,660 -------- -------- -------- -------- Operating income......................... 13,027 7,566 - 20,593 Equity in earnings of subsidiaries....... 7,888 - (7,888) - Intercompany licensing income (expense), net......................... (8,829) 8,829 - Interest expense......................... (9,582) (4,164) (13,746) Other income (expense), net.............. (2,378) 94 (2,284) -------- -------- -------- -------- Income before income taxes............... 126 12,325 (7,888) 4,563 Income tax (provision) benefit........... 2,794 (4,437) (1,643) -------- -------- -------- -------- Net income............................... $ 2,920 $ 7,888 $ (7,888) $ 2,920 ======== ======== ======== ========
11 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) Note 4. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Statement of Income First Quarter Ended March 30, 2003 (Thousands) (Unaudited)
Parent Guarantor Company Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ Net Sales................................. $313,036 $ 25,902 $ - $338,938 Intercompany net sales.................... 18,173 239,876 (258,049) - -------- -------- -------- -------- Total net sales....................... 331,209 265,778 (258,049) 338,938 -------- -------- -------- -------- Costs and expenses: Cost of products sold................... 268,819 235,174 (258,049) 245,944 Selling, general and administrative..... 54,907 17,435 72,342 Transition service agreement (income) expense...................... 25 (25) - -------- -------- -------- -------- Total costs and expenses.............. 323,751 252,584 (258,049) 318,286 -------- -------- -------- -------- Operating income.......................... 7,458 13,194 - 20,652 Equity in earnings of subsidiaries........ 14,711 - (14,711) - Intercompany licensing income (expense), net.......................... (13,248) 13,248 - Interest expense.......................... (9,860) (3,596) (13,456) Other income (expense), net............... (1,762) 140 (1,622) -------- -------- -------- -------- Income (loss) before income taxes......... (2,701) 22,986 (14,711) 5,574 Income tax (provision) benefit............ 6,268 (8,275) (2,007) -------- -------- -------- -------- Net income................................ $ 3,567 $ 14,711 $ (14,711) $ 3,567 ======== ======== ========= ========
12 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)- (Continued) Note 4. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Balance Sheet December 31, 2002 (Thousands)
Non- Parent Guarantor Guarantor Elim- Company Subsidiaries Subsidiary inations Consolidated ------- ------------ ---------- -------- ------------ ASSETS Current Assets: Cash and cash equivalents.............. $ 60 $ 96,113 $ - $ - $ 96,173 Accounts receivable, trade, net ....... 8,216 13,685 - 21,901 Accounts receivable, other ............ 6,294 845 34,785 41,924 Inventories............................ 78,066 41,416 - 119,482 Other current assets................... 1,575 1,968 - 3,543 ------- -------- ------- -------- -------- Total Current Assets................. 94,211 154,027 34,785 - 283,023 Investment in subsidiaries............... 437,856 - - (437,856) - Intercompany loans including accrued interest............................... 59,903 (59,903) - - Due from (to) subsidiaries, net.......... (195,599) 192,889 2,710 - Property, plant and equipment, net....... 36,075 310,041 - 346,116 Excess of cost over net assets of business acquired, net................. 40,080 23,214 - 63,294 Deferred income tax benefits............. 15,330 - - 15,330 Tax receivable from parent corporations.. 10,250 - - 10,250 Other assets............................. 6,486 18,900 - 25,386 ------- -------- ------- -------- -------- Total Assets............................. $504,592 $639,168 $37,495 $(437,856) $743,399 ======= ======== ======= ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Current maturities of long-term debt... $34,820 $ 10,506 $ - $ - $ 45,326 Accounts payable....................... 29,249 43,971 - 73,220 Payable to related parties, net........ 2,788 9,833 - 12,621 Accrued liabilities.................... 18,802 32,115 - 50,917 Reserve for product warranty claims.... 14,900 - - 14,900 ------- -------- ------- -------- -------- Total Current Liabilities............ 100,559 96,425 - - 196,984 Long-term debt less current maturities... 404,071 141,731 - 545,802 Reserve for product warranty claims...... 17,935 452 - 18,387 Other liabilities........................ 13,148 199 - 13,347 ------- -------- ------- -------- -------- Total Liabilities........................ 535,713 238,807 - - 774,520 Total Stockholders' Equity (Deficit) .... (31,121) 400,361 37,495 (437,856) (31,121) ------- -------- ------- -------- -------- Total Liabilities and Stockholders' Equity (Deficit) ................... $504,592 $639,168 $37,495 $(437,856) $743,399 ======= ======== ======= ======== ========
13 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)- (Continued) Note 4. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Balance Sheet March 30, 2003 (Thousands) (Unaudited)
Non- Parent Guarantor Guarantor Elim- Company Subsidiaries Subsidiary inations Consolidated ------- ------------ ---------- -------- ------------ ASSETS Current Assets: Cash and cash equivalents.............. $ 35 $ 43,488 $ - $ - $ 43,523 Accounts receivable, trade, net ....... 8,611 16,743 - 25,354 Accounts receivable, other ............ 5,351 753 80,838 86,942 Inventories............................ 107,897 43,347 - 151,244 Other current assets................... 3,289 4,634 - 7,923 ------- -------- ------- -------- -------- Total Current Assets................. 125,183 108,965 80,838 - 314,986 Investment in subsidiaries............... 498,883 - (498,883) - Intercompany loans including accrued interest............................... 57,371 (57,371) - - Due from (to) subsidiaries, net.......... (272,581) 269,607 2,974 - Property, plant and equipment, net....... 36,315 307,208 - 343,523 Excess of cost over net assets of business acquired, net................. 40,080 23,214 - 63,294 Deferred income tax benefits............. 13,505 - - 13,505 Tax receivable from parent corporations.. 10,250 - - 10,250 Other assets............................. 6,418 18,083 - 24,501 -------- -------- ------- -------- -------- Total Assets............................. $515,424 $669,706 $83,812 $(498,883) $770,059 ======== ======== ======= ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Current maturities of long-term debt... $ 34,893 $ 10,540 $ - $ - $ 45,433 Accounts payable....................... 36,637 55,646 - 92,283 Payable to related parties, net........ 2,832 14,042 - 16,874 Accrued liabilities.................... 17,507 32,778 - 50,285 Reserve for product warranty claims.... 14,900 - - 14,900 -------- -------- ------- -------- -------- Total Current Liabilities............ 106,769 113,006 - - 219,775 Long-term debt less current maturities... 404,128 140,836 - 544,964 Reserve for product warranty claims...... 17,687 597 - 18,284 Other liabilities........................ 14,433 196 - 14,629 -------- -------- ------- -------- -------- Total Liabilities........................ 543,017 254,635 - - 797,652 Total Stockholders' Equity (Deficit) .... (27,593) 415,071 83,812 (498,883) (27,593) -------- -------- ------- -------- -------- Total Liabilities and Stockholders' Equity (Deficit) ................... $515,424 $669,706 $ 83,812 $(498,883) $ 770,059 ======== ======== ======= ======== ========
14 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)- (Continued) Note 4. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Statement of Cash Flows First Quarter Ended March 31, 2002 (Thousands) (Unaudited)
Non- Parent Guarantor Guarantor Company Subsidiaries Subsidiary Consolidated -------- ------------ ---------- ------------ Cash and cash equivalents, beginning of period...... $ 133 $ 46,254 $ - $ 46,387 ------ -------- ------- -------- Cash provided by (used in) operating activities: Net income (loss) ................................ (4,968) 7,888 2,920 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation.................................... 593 8,787 9,380 Amortization.................................... 472 - 472 Deferred income taxes........................... 1,380 - 1,380 Noncash interest charges........................ 879 331 1,210 (Increase) decrease in working capital items...... (16,598) 2,835 (48,329) (62,092) Decrease in product warranty claims............... (781) (216) (997) Proceeds from sale of accounts receivable......... 15,217 - 15,217 Change in net receivable from/payable to related parties/parent corporations............. 3,876 (43,800) 48,329 8,405 Other, net........................................ 525 (165) 360 ------ -------- ------- -------- Net cash provided by (used in) operating activities...................................... 595 (24,340) - (23,745) ------ -------- ------- -------- Cash used in investing activities: Capital expenditures.............................. (473) (5,076) (5,549) ------ -------- ------- -------- Net cash used in investing activities............... (473) (5,076) - (5,549) ------ -------- ------- -------- Cash used in financing activities: Repayments of long-term debt...................... - (1,353) (1,353) Financing fees and expenses....................... (213) - (213) Loan to parent corporation........................ (28) - (28) ------ -------- ------- -------- Net cash used in financing activities............... (241) (1,353) - (1,594) ------ -------- ------- -------- Net change in cash and cash equivalents............. (119) (30,769) - (30,888) ------ -------- ------- -------- Cash and cash equivalents, end of period............ $ 14 $ 15,485 $ - $ 15,499 ====== ======== ======= ========
15 BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)- (Continued) Note 4. Guarantor Financial Information - (Continued) Building Materials Corporation of America Condensed Consolidating Statement of Cash Flows First Quarter Ended March 30, 2003 (Thousands) (Unaudited)
Non- Parent Guarantor Guarantor Company Subsidiaries Subsidiary Consolidated -------- ------------ ---------- ------------ Cash and cash equivalents, beginning of period...... $ 60 $ 96,113 $ - $ 96,173 ------ -------- ------- -------- Cash provided by (used in) operating activities: Net income (loss) ................................ (11,144) 14,711 3,567 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation.................................... 660 8,802 9,462 Amortization.................................... - 506 506 Deferred income taxes........................... 1,825 - 1,825 Noncash interest charges........................ 941 358 1,299 (Increase) decrease in working capital items...... (34,472) 4,776 (46,053) (75,749) Increase (decrease) in product warranty claims.... (248) 145 (103) Proceeds from sale of accounts receivable......... 9,569 - 9,569 Change in net receivable from/payable to related parties/parent corporations............. 33,241 (75,041) 46,053 4,253 Other, net........................................ 703 208 911 ------ -------- ------- -------- Net cash provided by (used in) operating activities....................................... 1,075 (45,535) - (44,460) ------ -------- ------- -------- Cash used in investing activities: Capital expenditures.............................. (910) (6,146) (7,056) ------ -------- ------- -------- Net cash used in investing activities............... (910) (6,146) - (7,056) ------ -------- ------- -------- Cash used in financing activities: Repayments of long-term debt...................... - (944) (944) Financing fees and expenses....................... (150) - (150) Distribution to parent corporations............... (15) - (15) Loan to parent corporation........................ (25) - (25) ------ -------- ------- -------- Net cash used in financing activities............... (190) 944) - (1,134) ------ -------- ------- -------- Net change in cash and cash equivalents............. (25) (52,625) - (52,650) ------ -------- ------- -------- Cash and cash equivalents, end of period............ $ 35 $ 43,488 $ - $ 43,523 ====== ======== ======= ========
16 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - First Quarter 2003 Compared With First Quarter 2002 We recorded net income in the first quarter of 2003 of $3.6 million compared to net income of $2.9 million in the first quarter of 2002, representing an increase of 24.1%. The increase in net earnings in the first quarter of 2003 was primarily attributable to lower other expenses. Net sales for the first quarter of 2003 were $338.9 million, a 6.1% increase over first quarter of 2002 net sales of $319.3 million. Higher net sales were primarily due to higher unit volumes and higher average selling prices of both residential and commercial roofing products. Operating income in the first quarter of 2003 was $20.7 million compared to $20.6 million in the first quarter of 2002. Operating results were positively affected by higher net sales of both residential and commercial roofing products together with lower manufacturing costs, offset by higher raw material costs, principally asphalt due to higher crude oil prices and limited asphalt availability, higher energy costs and increased selling, general and administrative expenses. Interest expense for the first quarter of 2003 decreased to $13.5 million from $13.7 million for the same period in 2002, primarily due to lower average borrowings and a lower average interest rate. Other expense net, was $1.6 million for the first quarter of 2003 compared with $2.3 million for the same period in 2002. Liquidity and Financial Condition Net cash outflow during the first quarter of 2003 was $51.5 million, before financing activities, and included the use of $44.5 million of cash for operations and the reinvestment of $7.0 million for capital programs. Cash invested in additional working capital totaled $75.7 million during the first quarter of 2003, primarily reflecting seasonal increases in accounts receivable of $58.0 million, including a $55.6 million increase in the receivable from the third party which purchases certain of our trade accounts receivable, and $31.8 million in inventories, partially offset by a $18.4 million increase in accounts payable and accrued liabilities. The net cash used for operating activities also included $9.6 million of net proceeds from the sale of accounts receivable to a third party in connection with our Accounts Receivable Securitization Agreement and a $4.3 million net increase in the payable to related parties/parent corporations. Net cash used in financing activities totaled $1.1 million during the first quarter of 2003, including $0.9 million in repayments of long-term debt and $0.2 million in financing fees and expenses. 17 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) As a result of the foregoing factors, cash and cash equivalents decreased by $52.7 million during the first quarter of 2003 to $43.5 million. See Note 2 to Consolidated Financial Statements for information regarding contingencies. During the first quarter of 2003, the petroleum industry strike in Venezuela continued to impact the asphalt supply for the U.S. roofing industry. The tightness in supply of asphalt has resulted in significant asphalt cost increases. We believe that the seasonal increases in demand for paving asphalt may further impact asphalt supplies and pricing in the short-term. With the strength of our manufacturing operations which allows us to use many types of asphalt, we have been able to secure alternative sources of supply of asphalt and, as a result, believe the asphalt market conditions will not have a significant impact on our future sales, although no assurances can be provided in that regard. To offset these and other petroleum based cost increases, we announced and implemented multiple price increases during the first and second quarters of 2003. We will attempt to pass on future additional unexpected cost increases from our suppliers as needed; however, no assurances can be provided that these price increases will be accepted in the marketplace. New Accounting Pronouncements In November 2002, the Financial Accounting Standards Board, which we refer to as FASB, issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", which we refer to as FIN 45. FIN 45 clarifies the requirements for a guarantor's accounting for and disclosures of certain guarantees issued and outstanding. The provisions of FIN 45 apply to guarantee contracts that contingently require the guarantor to make payments (in cash, financial instruments, other assets, shares of stock or provision of services) to the guaranteed party for guarantees such as: a financial standby letter of credit; a market value guarantee on either a financial or nonfinancial asset owned by the guaranteed party; and a guarantee of the collection of the scheduled contractual cash flows from financial assets held by a special-purpose entity. FIN 45 also applies to indemnification contracts and indirect guarantees of indebtedness of others. The requirements of FIN 45 for the initial recognition and measurement of the liability for a guarantor's obligations are to be applied only on a prospective basis to guarantees issued or modified after December 31, 2002; however, we have product warranties, which are only subject to the disclosure requirements under FIN 45. A subsidiary's guarantee of the debt of its parent is not subject to the initial recognition and measurement provisions of FIN 45 but are subject to its disclosure requirements. We have adopted the disclosure requirements of FIN 45 and applied the recognition and measurement provisions for all guarantees entered into or modified after December 31, 2002, and noted no material effect on our financial condition or results of operations. 18 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure", which we refer to as SFAS No. 148, an amendment of FASB Statement No. 123, "Accounting for Stock-Based Compensation", which we refer to as SFAS No. 123. SFAS No. 148 provides alternative methods of transition for any entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS No. 123 to require prominent disclosures about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation. SFAS No. 148 also amends Accounting Principles Board Opinion No. 28, "Interim Financial Reporting", which we refer to as APB No. 28, to require disclosures about those effects in interim financial information beginning with our first quarter ended March 30, 2003. We currently account for our long-term incentive units granted to certain employees under the accounting prescribed by applying FASB Interpretation No. 128, "Accounting for Stock Appreciation Rights and Other Variable Stock Option and Award Plans", which we refer to as FIN 28, which requires an entity to measure compensation as the amount by which the Book Value of the incentive units covered by the grant exceeds the option price or value specified of such incentive units at the date of grant. Changes, either increases or decreases, in the Book Value of those incentive units between the date of grant and the measurement date result in a change in the measure of compensation for the right or award. We expect to continue to account for our long-term incentive units under the accounting prescribed by FIN 28 and have adopted the additional disclosure provisions of SFAS No. 148. Compensation expense for such incentive units was $0.7 and $0.7 million for the periods ended March 31, 2002 and March 30, 2003, respectively. Our pro forma net income under SFAS No. 123 would have been the same as actual net income. * * * Forward-looking Statements This Quarterly Report on Form 10-Q contains both historical and forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of section 27A of the Securities Act and section 21E of the Securities Exchange Act of 1934. These forward-looking statements are only predictions and generally can be identified by use of statements that include phrases such as "believe," "expect," "anticipate," "intend," "plan," "foresee" or other words or phrases. Similarly, statements that describe the Company's objectives, plans or goals also are forward-looking statements. The Company's operations are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statements. The forward-looking statements included herein are made 19 BUILDING MATERIALS CORPORATION OF AMERICA Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) only as of the date of this Quarterly Report on Form 10-Q and the Company undertakes no obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances. No assurances can be given that projected results or events will be achieved. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2002 Form 10-K for a discussion of "Market-Sensitive Instruments and Risk Management". There were no material changes in such information as of March 30, 2003 and there was no hedging activity in the quarter ended March 30, 2003. Item 4. CONTROLS AND PROCEDURES The Company's Chief Executive Officer and Chief Financial Officer are responsible for the design, maintenance and effectiveness of disclosure controls and procedures (as defined in the Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934). The effectiveness of the disclosure controls and procedures have been evaluated by the Chief Executive Officer and Chief Financial Officer within 90 days of the filing date of this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures are adequate and effective. There have been no significant changes in internal controls or in other factors that could significantly affect these internal controls subsequent to the date of the evaluation in connection with the preparation of this Quarterly Report on Form 10-Q. 20 BUILDING MATERIALS CORPORATION OF AMERICA PART II OTHER INFORMATION Item 1. Legal Proceedings As of March 30, 2003, 1,900 alleged asbestos-related bodily injury claims relating to the inhalation of asbestos fiber are pending against Building Materials Corporation of America. See Note 2 to Consolidated Financial Statements above. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Amendment No. 5 to the Amended and Restated Management Agreement, dated as of January 1, 2003, by and among G-I Holdings Inc., Merick Inc., International Specialty Products Inc., ISP Investco LLC, GAF Broadcasting Company, Inc., Building Materials Corporation of America and ISP Management Company, Inc. as assignee of ISP Chemco, Inc. 99.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) No Reports on Form 8-K were filed during the quarter ended March 30, 2003. 21 SIGNATURES ----------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BUILDING MATERIALS CORPORATION OF AMERICA BUILDING MATERIALS MANUFACTURING CORPORATION DATE: May 12, 2003 BY: /s/John F. Rebele ----------------- ---------------------- John F. Rebele Senior Vice President and Chief Financial Officer (Principal Financial Officer) DATE: May 12, 2003 BY: /s/James T. Esposito ----------------- -------------------- James T. Esposito Vice President and Controller (Principal Accounting Officer) 22 SIGNATURES ----------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant listed below has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BUILDING MATERIALS INVESTMENT CORPORATION DATE: May 12, 2003 BY: /s/John F. Rebele ----------------- ---------------------- John F. Rebele Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 23 CERTIFICATION I, William W. Collins, 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 quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures 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 quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 24 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 12, 2003 /s/ William W. Collins ----------------------------- Name: William W. Collins Title: Chief Executive Officer and President 25 CERTIFICATION 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 quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures 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 quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 26 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 12, 2003 /s/ John F. Rebele ------------------------------- Name: John F. Rebele Title: Senior Vice President and Chief Financial Officer 27