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 30, 2002
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-81808
BUILDING MATERIALS CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
Delaware 22-3276290
(State of Incorporation) (I. R. S. Employer
Identification No.)
1361 Alps Road, Wayne, New Jersey 07470
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (973) 628-3000
See Table of Additional Registrants 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 / /
As of August 9, 2002, 1,015,010 shares of Class A Common Stock, $.001 par value,
and 15,000 shares of Class B Common Stock, $.001 par value, of Building
Materials Corporation of America were outstanding. There is no trading market
for the common stock of Building Materials Corporation of America.
As of August 9, 2002, each of the additional registrants had the number of
shares outstanding which is shown on the table below. No shares were held by
non-affiliates.
ADDITIONAL REGISTRANTS
Address, including zip code
and telephone number,
State or other jurisdiction Commission File including area code, of
Exact name of registrant as of incorporation or No. of Shares No./I.R.S. Employer registrant's principal
specified in its charter organization Outstanding Identification No. executive offices
- --------------------------- --------------------------- ------------- ------------------- ---------------------------
Building Materials Delaware 10 333-69749-01/ 1361 Alps Road
Manufacturing Corporation 22-3626208 Wayne, NJ 07470
(973) 628-3000
Building Materials Delaware 10 333-69749-02/ 300 Delaware Avenue
Investment Corporation 22-3626206 Suite 303
Wilmington, DE 19801
(302) 427-5960
2
Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Second Quarter Ended Six Months Ended
--------------------- ----------------------
July 1, June 30, July 1, June 30,
2001 2002 2001 2002
--------- --------- --------- ---------
(Thousands)
Net sales ............................. $ 354,925 $ 369,398 $ 619,886 $ 688,651
--------- --------- --------- ---------
Costs and expenses:
Cost of products sold ............... 254,185 251,305 453,135 481,237
Selling, general and administrative.. 67,989 74,729 123,971 143,457
Goodwill amortization ............... 516 - 1,010 -
--------- --------- --------- ---------
Total costs and expenses .......... 322,690 326,034 578,116 624,694
--------- --------- --------- ---------
Operating income ...................... 32,235 43,364 41,770 63,957
Interest expense ...................... (15,399) (14,004) (30,603) (27,750)
Other expense, net .................... (1,985) (2,111) (3,468) (4,395)
--------- --------- --------- ---------
Income before income taxes ............ 14,851 27,249 7,699 31,812
Income taxes .......................... (5,495) (9,809) (2,849) (11,452)
--------- --------- --------- ---------
Net income ............................ $ 9,356 $ 17,440 $ 4,850 $ 20,360
========= ========= ========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
3
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
June 30,
December 31, 2002
2001 (Unaudited)
--------- ---------
ASSETS (Thousands)
Current Assets:
Cash and cash equivalents .......................... $ 46,387 $ 23,336
Accounts receivable, trade, net .................... 23,490 32,812
Accounts receivable, other ......................... 39,769 101,931
Inventories ........................................ 102,245 114,788
Other current assets ............................... 3,890 5,938
--------- ---------
Total Current Assets ............................. 215,781 278,805
Property, plant and equipment, net ................... 352,067 342,855
Excess of cost over net assets of businesses
acquired, net ...................................... 63,294 63,294
Deferred income tax benefits ......................... 32,924 21,997
Tax receivable from parent corporations .............. 9,000 10,250
Other noncurrent assets .............................. 33,259 30,090
--------- ---------
Total Assets ......................................... $ 706,325 $ 747,291
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt ............... $ 5,556 $ 5,774
Accounts payable ................................... 58,235 69,086
Payable to related parties ......................... 8,910 15,409
Accrued liabilities ................................ 43,548 51,750
Reserve for product warranty claims ................ 14,900 14,900
--------- ---------
Total Current Liabilities ........................ 131,149 156,919
--------- ---------
Long-term debt less current maturities ............... 599,896 597,328
--------- ---------
Reserve for product warranty claims .................. 22,741 20,866
--------- ---------
Other liabilities .................................... 14,178 13,659
--------- ---------
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 ............ (2,536) (2,592)
Accumulated deficit ................................ (59,104) (38,890)
--------- ---------
Total Stockholders' Equity (Deficit) ............. (61,639) (41,481)
--------- ---------
Total Liabilities and Stockholders'
Equity (Deficit) .................................. $ 706,325 $ 747,291
========= =========
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)
Six Months Ended
-------------------
July 1 June 30,
2001 2002
-------- --------
(Thousands)
Cash and cash equivalents, beginning of period ....... $ 82,747 $ 46,387
-------- --------
Cash provided by (used in) operating activities:
Net income ......................................... 4,850 20,360
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation ................................... 17,520 18,971
Goodwill and other amortization ................ 1,819 952
Deferred income taxes .......................... 2,294 10,927
Noncash interest charges ....................... 2,187 2,494
Increase in working capital items .................. (94,041) (82,322)
Decrease in reserve for product warranty claims .... (5,131) (1,875)
Proceeds from sale of accounts receivable .......... 49,999 15,300
Change in net receivable from/payable to related
parties/parent corporations ...................... 6,362 5,249
Other, net ......................................... (508) 353
-------- --------
Net cash used in operating activities ................ (14,649) (9,591)
-------- --------
Cash provided by (used in) investing activities:
Capital expenditures ............................... (7,277) (10,236)
-------- --------
Net cash used in investing activities ................ (7,277) (10,236)
-------- --------
Cash provided by (used in) financing activities:
Decrease in borrowings under revolving
credit facilities ................................ (1,000) -
Repayments of long-term debt ....................... (3,339) (2,801)
Distributions to parent corporations ............... (1,249) (145)
Loan to parent corporation ......................... - (57)
Financing fees and expenses ........................ (1,299) (221)
-------- --------
Net cash used in financing activities ................ (6,887) (3,224)
-------- --------
Net change in cash and cash equivalents .............. (28,813) (23,051)
-------- --------
Cash and cash equivalents, end of period ............. $ 53,934 $ 23,336
======== ========
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized) ............. $ 31,345 $ 25,256
Income taxes ..................................... 603 1,450
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
Building Materials Corporation of America (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 June 30, 2002, and the results of operations and cash flows
for the periods ended July 1, 2001 and June 30, 2002. All adjustments are of a
normal recurring nature. These consolidated financial statements should be read
in conjunction with the annual consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2001 (the "Form 10-K").
Certain reclassifications have been made to conform to current year
presentation.
Note 1. Inventories
Inventories consist of the following:
December 31, June 30,
2001 2002
--------- ---------
(Thousands)
Finished goods ........... $ 66,417 $ 80,810
Work-in-process .......... 8,800 6,504
Raw materials and supplies 29,573 31,369
--------- ---------
Total .................... 104,790 118,683
Less LIFO reserve ........ (2,545) (3,895)
--------- ---------
Inventories .............. $ 102,245 $ 114,788
========= =========
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 its 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 BHC's common stock and
its indirect holdings of the Company's common stock. That action could result in
a change of control of the Company. In addition, those claimants may seek to
file Asbestos Claims against the Company (with approximately 1,900 alleged
Asbestos Claims pending against the Company as of June 30, 2002). The Company
believes that it will not sustain any liability in connection with
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2. Contingencies (Continued)
these or any other asbestos-related claims. Furthermore, 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 Asbestos Claims against the Company. On June 22, 2001, following a
hearing, the Bankruptcy Court converted the temporary restraining order into a
preliminary injunction, which is expected to remain in effect pending
confirmation of a Chapter 11 plan of reorganization for the G-I Holdings estate.
On February 7, 2001, G-I Holdings and the Company filed a defendant class action
in the United States Bankruptcy Court for the District of New Jersey seeking a
declaratory judgment that the Company has no successor liability for Asbestos
Claims against G-I Holdings and that it is not the alter ego of G-I Holdings. No
trial date has been set by the court. As a result, it is not possible to predict
the outcome of this litigation. On May 3, 2002, G-I Holdings and the Company
filed a summary judgment motion seeking entry of judgment against the Named
Defendants in the action declaring that BMCA is not liable to them under any
theory of successor liability or alter ego. On July 1, 2002, the statutory
creditors' committee (the "Committee") appointed by the G-I Holdings bankruptcy
court filed a motion with the U.S. District Court to withdraw the reference of
the declaratory judgment motion to the bankruptcy court. There has been no court
ruling on either the motion for summary judgment or the motion to withdraw the
reference. On August 1, 2002, G-I Holdings and the Company filed motions for
leave to file an amended complaint to add parties and to remove the class action
allegations, on which motions the court has not ruled. 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 February 8, 2001, the Committee established in G-I Holdings'
bankruptcy case filed a complaint in the United States Bankruptcy Court for the
District of New Jersey against G-I Holdings and the Company. The complaint
requests substantive consolidation of the Company with G-I Holdings or an order
directing G-I Holdings to cause the Company to file for bankruptcy protection.
The Company and G-I Holdings intend to vigorously defend the lawsuit. The
Company believes that no basis exists for the court to grant the relief
requested. The plaintiffs also filed for interim relief absent the granting of
their requested relief described above. On March 21, 2001, the Bankruptcy Court
refused to grant the requested interim relief.
For a further discussion with respect to the history of the foregoing
litigation and asbestos-related matters, see Item 3,"Legal Proceedings," and
Notes 3, 11 and 16 to Consolidated Financial Statements contained in the
Company's Form 10-K.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2. Contingencies (Continued)
Environmental Litigation
The Company, together with other companies, is a party to a variety of
proceedings and lawsuits involving environmental matters ("Environmental
Claims"), in which recovery is sought for the cost of cleanup of contaminated
Sites or remedial obligations are imposed, a number of which Environmental
Claims are in the early stages or have been dormant for protracted periods. At
most sites, the Company anticipates that liability will be apportioned among the
companies found to be responsible for the presence of hazardous substances at
the site. The Company believes that the ultimate disposition of such matters
will not, individually or in the aggregate, have a material adverse effect on
the 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 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., 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, 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 Internal Revenue Service filed a proof of claim with respect to such
deficiency against G-I Holdings in the G-I Holdings bankruptcy. On May 7, 2002,
G-I Holdings filed an objection to that proof of claim. On July 13, 2002, the
IRS filed a motion with the U.S. District Court for a withdrawal of the
reference of G-I Holdings' objection to the proof of claim to the bankruptcy
court. If the IRS's 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. 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3. New Accounting Standards
On June 30, 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets". With the adoption of SFAS No. 142, effective January
1, 2002, goodwill is no longer subject to amortization over its estimated useful
life. However, goodwill will be subject to at least an annual assessment for
impairment and more frequently if circumstances indicate a possible impairment.
The Company performed an initial fair-value-based goodwill impairment test in
the second quarter of 2002. This test resulted in an evaluation that there was
no impairment as of January 1, 2002.
Net income exclusive of amortization expense for goodwill no longer
being amortized is as follows:
Second Quarter Ended Six Months Ended
-------------------- ----------------
July 1, June 30, July 1, June 30,
2001 2002 2001 2002
------- ------- ------- -------
(Thousands)
Reported net income...... $ 9,356 $17,440 $4,850 $20,360
Add back: Goodwill
Amortization ........... 516 - 1,010 -
------- ------- ------- -------
Adjusted net income...... $ 9,872 $17,440 $5,860 $20,360
======= ======= ======= =======
Note 4. Guarantor Financial Information
All of the Company's subsidiaries, other than BMCA Receivables
Corporation, are guarantors under the Company's $100 million secured bank credit
facility, the amended and restated $110 million secured bank credit facility,
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
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 4. Guarantor Financial Information (Continued)
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. Such transactions have
been eliminated in consolidation.
Presented below is condensed consolidating financial information for
the Company, the guarantor subsidiaries and the non-guarantor subsidiary
prepared on a basis which retroactively reflects the formation of such companies
for all periods presented. 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 4. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Second Quarter Ended July 1, 2001
(Thousands)
(Unaudited)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------
Net sales............................. $ 323,947 $ 30,978 $ - $ 354,925
Intercompany net sales................ 29,067 247,253 (276,320) -
--------- --------- --------- ---------
Total net sales....................... 353,014 278,231 (276,320) 354,925
--------- --------- --------- ---------
Costs and expenses:
Cost of products sold............... 278,562 251,943 (276,320) 254,185
Selling, general and administrative. 49,744 18,245 67,989
Goodwill amortization............... 337 179 516
Transition service agreement
(income) expense.................. 25 (25) -
--------- --------- --------- ---------
Total costs and expenses.............. 328,668 270,342 (276,320) 322,690
--------- --------- --------- ---------
Operating income...................... 24,346 7,889 - 32,235
Equity in earnings of subsidiaries.... 8,484 - (8,484) -
Intercompany licensing income
(expense), net...................... (9,719) 9,719 -
Interest expense...................... (10,370) (5,029) (15,399)
Other income (expense), net........... (2,873) 888 (1,985)
--------- --------- --------- ---------
Income before income taxes............ 9,868 13,467 (8,484) 14,851
Income taxes ......................... (512) (4,983) (5,495)
--------- --------- --------- ---------
Net income............................ $ 9,356 $ 8,484 $ (8,484) $ 9,356
========= ========= ========== =========
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 4. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Second Quarter Ended June 30, 2002
(Thousands)
(Unaudited)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------
Net sales............................. $ 335,629 $ 33,769 $ - $ 369,398
Intercompany net sales................ 16,901 232,748 (249,649) -
--------- --------- -------- ---------
Total net sales....................... 352,530 266,517 (249,649) 369,398
--------- --------- -------- ---------
Costs and expenses:
Cost of products sold............... 264,010 236,944 (249,649) 251,305
Selling, general and administrative. 56,034 18,695 74,729
Transition service agreement
(income) expense.................. 25 (25) -
--------- --------- -------- ---------
Total costs and expenses.............. 320,069 255,614 (249,649) 326,034
--------- --------- -------- ---------
Operating income...................... 32,461 10,903 - 43,364
Equity in earnings
of subsidiaries..................... 10,949 - (10,949) -
Intercompany licensing income
(expense), net...................... (10,069) 10,069 -
Interest expense...................... (9,937) (4,067) (14,004)
Other income (expense), net........... (2,314) 203 (2,111)
--------- --------- -------- ---------
Income before income taxes............ 21,090 17,108 (10,949) 27,249
Income taxes.......................... (3,650) (6,159) (9,809)
--------- --------- -------- ---------
Net income............................ $ 17,440 $ 10,949 $(10,949) $ 17,440
========= ========= ======== =========
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 4. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Six Months Ended July 1, 2001
(Thousands)
(Unaudited)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------
Net sales............................. $ 565,342 $ 54,544 $ - $ 619,886
Intercompany net sales................ 53,297 443,793 (497,090) -
--------- --------- --------- ---------
Total net sales....................... 618,639 498,337 (497,090) 619,886
--------- --------- --------- ---------
Costs and expenses:
Cost of products sold............... 498,810 451,415 (497,090) 453,135
Selling, general and administrative. 90,281 33,690 123,971
Goodwill amortization............... 651 359 1,010
Transition service agreement
(income) expense ................. 50 (50) -
--------- --------- --------- ---------
Total costs and expenses.............. 589,792 485,414 (497,090) 578,116
--------- --------- --------- ---------
Operating income...................... 28,847 12,923 - 41,770
Equity in earnings of subsidiaries.... 13,711 - (13,711) -
Intercompany licensing income
(expense), net...................... (16,960) 16,960 -
Interest expense...................... (21,592) (9,011) (30,603)
Other income (expense), net........... (4,358) 890 (3,468)
--------- --------- --------- ---------
Income (loss) before income taxes..... (352) 21,762 (13,711) 7,699
Income taxes.......................... 5,202 (8,051) (2,849)
--------- --------- --------- ---------
Net income............................ $ 4,850 $ 13,711 $ (13,711) $ 4,850
========= ========= ========== =========
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 4. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Six Months Ended June 30, 2002
(Thousands)
(Unaudited)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------
Net sales............................. $ 629,931 $ 58,720 $ - $ 688,651
Intercompany net sales................ 33,308 443,901 (477,209) -
--------- --------- --------- ---------
Total net sales....................... 663,239 502,621 (477,209) 688,651
--------- --------- --------- ---------
Costs and expenses:
Cost of products sold............... 510,229 448,217 (477,209) 481,237
Selling, general and administrative. 107,472 35,985 143,457
Transition service agreement
(income) expense ................. 50 (50) -
--------- --------- --------- ---------
Total costs and expenses.............. 617,751 484,152 (477,209) 624,694
--------- --------- --------- ---------
Operating income...................... 45,488 18,469 - 63,957
Equity in earnings of subsidiaries.... 18,837 - (18,837) -
Intercompany licensing income
(expense), net...................... (18,898) 18,898 -
Interest expense...................... (19,520) (8,230) (27,750)
Other income (expense), net........... (4,691) 296 (4,395)
--------- --------- --------- ---------
Income (loss) before income taxes..... 21,216 29,433 (18,837) 31,812
Income taxes.......................... (856) (10,596) (11,452)
--------- --------- --------- ---------
Net income............................ $ 20,360 $ 18,837 $ (18,837) $ 20,360
========= ========= ========== =========
14
(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 4. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Balance Sheet
Deceember 31, 2001
(Thousands)
(Unaudited)
Non-
Parent Guarantor Guarantor Elim-
Company Subsidiaries Subsidiary inations Consolidated
--------- ------------- ------------ ----------- ------------
ASSETS
Current Assets:
Cash and cash equivalents............... $ 133 $ 46,254 $ - $ - $ 46,387
Accounts receivable, trade, net......... 10,726 12,764 - 23,490
Accounts receivable, other.............. 5,005 1,827 32,937 39,769
Inventories............................. 63,077 39,168 - 102,245
Other current assets.................... 1,487 2,403 - 3,890
--------- -------- -------- --------- --------
Total Current Assets.................. 80,428 102,416 32,937 - 215,781
Investment in subsidiaries................ 379,589 - - (379,589) -
Intercompany loans including accrued
interest................................ 81,781 (81,781) - -
Due from(to)subsidiaries, net............. (204,934) 200,863 4,071 -
Property, plant and equipment, net........ 36,466 315,601 - 352,067
Excess of cost over net assets of
businesses acquired, net................ 40,080 23,214 - 63,294
Deferred income tax benefits.............. 32,924 - - 32,924
Tax receivable from parent corporations... 9,000 - - 9,000
Other noncurrent assets................... 16,654 16,605 - 33,259
--------- --------- -------- --------- --------
Total Assets.............................. $ 471,988 $ 576,918 $ 37,008 $(379,589) $706,325
========= ========= ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt.... $ - $ 5,556 $ - $ - $ 5,556
Accounts payable........................ 19,393 38,842 - 58,235
Payable to related parties.............. 1,296 7,614 - 8,910
Accrued liabilities..................... 23,333 20,215 - 43,548
Reserve for product warranty claims..... 14,900 - - 14,900
--------- --------- -------- --------- --------
Total Current Liabilities............. 58,922 72,227 - - 131,149
Long-term debt less current maturities.... 438,374 161,522 - 599,896
Reserve for product warranty claims....... 22,358 383 - 22,741
Other liabilities......................... 13,973 205 - 14,178
--------- --------- -------- --------- --------
Total Liabilities......................... 533,627 234,337 - - 767,964
Total Stockholders' Equity (Deficit)...... (61,639) 342,581 37,008 (379,589) (61,639)
--------- --------- -------- --------- --------
Total Liabilities and Stockholders'
Equity (Deficit) ..................... $ 471,988 $ 576,918 $ 37,008 $(379,589) $706,325
========= ========= ======== ========= ========
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 4. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Balance Sheet
June 30, 2002
(Thousands)
(Unaudited)
Non-
Parent Guarantor Guarantor Elim-
Company Subsidiaries Subsidiary inations Consolidated
--------- ------------- ------------ ----------- ------------
ASSETS
Current Assets:
Cash and cash equivalents............... $ 5 $ 23,331 $ - $ - $ 23,336
Accounts receivable, trade, net......... 10,882 21,930 - 32,812
Accounts receivable, other.............. 660 1,575 99,696 101,931
Inventories............................. 78,370 36,418 - 114,788
Other current assets.................... 513 5,425 - 5,938
--------- -------- -------- --------- --------
Total Current Assets.................. 90,430 88,679 99,696 - 278,805
Investment in subsidiaries................ 464,545 - - (464,545) -
Intercompany loans including accrued
interest................................ 77,146 (77,146) - -
Due from(to)subsidiaries, net............. (255,798) 252,367 3,431 -
Property, plant and equipment, net........ 35,913 306,942 - 342,855
Excess of cost over net assets of
businesses acquired, net................ 40,080 23,214 - 63,294
Deferred income tax benefits.............. 21,997 - - 21,997
Tax receivable from parent corporations... 10,250 - - 10,250
Other noncurrent assets................... 14,165 15,925 - 30,090
--------- --------- -------- --------- --------
Total Assets.............................. $ 498,728 $ 609,981 $103,127 $(464,545) $747,291
========= ========= ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt.... $ - $ 5,774 $ - $ - $ 5,774
Accounts payable........................ 28,846 40,240 - 69,086
Payable to related parties.............. 1,420 13,989 - 15,409
Accrued liabilities..................... 22,705 29,045 - 51,750
Reserve for product warranty claims..... 14,900 - - 14,900
--------- --------- -------- --------- --------
Total Current Liabilities............. 67,871 89,048 - - 156,919
Long-term debt less current maturities.... 438,633 158,695 - 597,328
Reserve for product warranty claims....... 20,243 623 - 20,866
Other liabilities......................... 13,462 197 - 13,659
--------- --------- -------- --------- --------
Total Liabilities......................... 540,209 248,563 - - 788,772
Total Stockholders' Equity (Deficit)...... (41,481) 361,418 103,127 (464,545) (41,481)
--------- --------- -------- --------- --------
Total Liabilities and Stockholders'
Equity (Deficit) ..................... $ 498,728 $ 609,981 $103,127 $(464,545) $747,291
========= ========= ======== ========= ========
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 4. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Cash Flows
Six Months Ended July 1, 2001
(Thousands)
(Unaudited)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Consolidated
------- ------------ ----------- ------------
Cash and cash equivalents, beginning of period....... $ 9,741 $ 73,006 $ - $ 82,747
-------- --------- --------- --------
Cash provided by (used in) operating activities:
Net income (loss) ................................... (8,861) 13,711 4,850
Adjustments to reconcile net income(loss)to net
cash provided by(used in)operating activities:
Depreciation..................................... 1,367 16,153 17,520
Goodwill and other amortization.................. 1,460 359 1,819
Deferred income taxes............................ 2,294 - 2,294
Noncash interest charges......................... 1,578 609 2,187
Increase in working capital items.................... (39,176) (16,613) (38,252) (94,041)
Decrease in product warranty claims.................. (4,026) (1,105) (5,131)
Proceeds from sale of accounts receivable............ 49,999 - 49,999
Change in net receivable from/payable to
related parties/parent corporations................ (11,015) (20,875) 38,252 6,362
Other, net........................................... (4) (504) (508)
-------- -------- --------- --------
Net cash used in operating activities................ (6,384) (8,265) - (14,649)
-------- -------- --------- --------
Cash provided by(used in)investing activities:
Capital expenditures............................... (173) (7,104) (7,277)
-------- -------- --------- --------
Net cash used in investing activities................ (173) (7,104) - (7,277)
-------- -------- --------- --------
Cash provided by (used in) financing activities:
Decrease in borrowings under revolving
credit facility.................................. (1,000) - (1,000)
Repayments of long-term debt....................... (97) (3,242) (3,339)
Distributions to parent corporations............... (1,249) - (1,249)
Financing fees and expenses........................ (825) (474) (1,299)
-------- --------- --------- ---------
Net cash used in financing activities................ (3,171) (3,716) - (6,887)
-------- --------- --------- ---------
Net change in cash and cash equivalents.............. (9,728) (19,085) - (28,813)
-------- --------- --------- ---------
Cash and cash equivalents, end of period............. $ 13 $ 53,921 $ - $ 53,934
======== ========= ========= =========
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 4. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 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........................................... 1,523 18,837 20,360
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation..................................... 1,220 17,751 18,971
Goodwill and other amortization.................. - 952 952
Deferred income taxes............................ 10,927 - 10,927
Noncash interest charges......................... 1,797 697 2,494
(Increase) decrease in working capital items......... (16,605) 1,042 (66,759) (82,322)
Decrease in product warranty claims.................. (2,115) 240 (1,875)
Proceeds from sale of accounts receivable............ 15,300 - 15,300
Change in net receivable from/payable to
related parties/parent corporations................ (11,746) (49,764) 66,759 5,249
Other, net........................................... 645 (292) 353
--------- --------- --------- --------
Net cash provided by (used in) operating activities.. 946 (10,537) - (9,591)
--------- --------- --------- --------
Cash provided by (used in) investing activities:
Capital expenditures............................... (651) (9,585) (10,236)
--------- --------- --------- --------
Net cash used in investing activities................ (651) (9,585) - (10,236)
--------- --------- --------- --------
Cash provided by (used in) financing activities:
Repayments of long-term debt....................... - (2,801) (2,801)
Distributions to parent corporations............... (145) - (145)
Loan to parent corporation......................... (57) - (57)
Financing fees and expenses........................ (221) - (221)
--------- --------- --------- --------
Net cash used in financing activities................ (423) (2,801) - (3,224)
--------- --------- --------- --------
Net change in cash and cash equivalents.............. (128) (22,923) - (23,051)
--------- --------- --------- --------
Cash and cash equivalents, end of period............. $ 5 $ 23,331 $ - $ 23,336
========= ========= ========= ========
18
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Second Quarter 2002 Compared With
Second Quarter 2001
We recorded net income in the second quarter of 2002 of $17.4 million
compared with net income of $9.4 million in the second quarter of 2001. The
significant improvement in operating results in the second quarter of 2002 were
primarily due to higher net sales and lower manufacturing costs together with
lower interest expense.
Net sales for the second quarter of 2002 were $369.4 million, a 4.1%
increase over last year's net sales of $354.9 million, with the increase
primarily due to net sales gains in residential roofing products, partially
offset by decreased net sales in commercial roofing products. The increase in
net sales of residential roofing products reflected higher average selling
prices and higher unit volumes, while the decline in net sales of commercial
roofing products were attributable to lower average selling prices and slightly
lower unit volumes.
Operating income in the second quarter of 2002 was $43.4 million
compared with $32.2 million in the second quarter of 2001, representing an
increase of 34.8%. The increase in operating income was primarily attributable
to higher net sales of residential roofing products and lower manufacturing
costs, partially offset by higher selling, general and administrative expenses
and lower net sales of commercial roofing products. As a result of the initial
adoption of Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets", goodwill amortization, which amounted to
$0.5 million in the second quarter of 2001, no longer is being amortized in
2002.
Interest expense for the second quarter of 2002 decreased to $14.0
million from $15.4 million for the same period in 2001, primarily due to lower
average borrowings and a lower average interest rate. Other expense, net was
$2.1 million for the second quarter of 2002 compared with $2.0 million for the
same period in 2001.
Results of Operations - Six Months 2002 Compared With
Six Months 2001
For the first six months of 2002, we recorded net income of $20.4
million compared with $4.9 million in the first six months of 2001. The
increased net earnings in 2002 were primarily the result of higher operating
income on higher net sales and lower manufacturing and raw material costs
together with lower interest expense.
Net sales for the first six months of 2002 were $688.7 million,
compared with $619.9 million in the same period of 2001, representing an
increase of 11.1%. Net sales gains in residential roofing products were
partially offset by lower net sales in commercial roofing products. The increase
in net sales of residential roofing products reflected higher average selling
prices and higher unit volumes, while the decline in net sales of commercial
roofing products was attributable to lower average selling prices and slightly
lower unit volumes.
19
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating income for the first six months of 2002 was $64.0 million
compared with $41.8 million in 2001. The increase in operating income was
primarily attributable to higher net sales of residential roofing products and
lower manufacturing and raw material costs, partially offset by higher selling,
general and administrative expenses and lower net sales of commercial roofing
products. As a result of the adoption of SFAS No. 142, goodwill amortization,
which amounted to $1.0 million in the first six months of 2001, no longer is
being amortized in 2002.
Interest expense for the first six months of 2002 decreased to $27.8
million from $30.6 million for the same period in 2001, primarily due to lower
average borrowings and a lower average interest rate. Other expense, net was
$4.4 million for the first six months of 2002 compared with $3.5 million for the
same period in 2001.
Liquidity and Financial Condition
Net cash outflow during the first six months of 2002 was $19.8 million,
before financing activities, and included the use of $9.6 million of cash for
operations and the reinvestment of $10.2 million for capital programs.
Cash invested in additional working capital totaled $82.3 million
during the first six months of 2002, primarily reflecting seasonal increases in
accounts receivable of $86.8 million, including a $82.1 million increase in the
receivable from the third party which purchases certain of our trade accounts
receivable, and $12.5 million in inventories, partially offset by a $19.1
million increase in accounts payable and accrued liabilities. The net cash used
for operating activities also included $15.3 million of net proceeds from the
sale of accounts receivable to a third party in connection with our Accounts
Receivable Securitization Agreement and a $5.2 million net increase in the net
payable to related parties/parent corporations.
Net cash used in financing activities totaled $3.2 million during the
first six months of 2002, reflecting $2.8 million in repayments of long-term
debt,$0.2 million of distributions and loans to our parent corporations, and
$0.2 million in financing fees and expenses.
As a result of the foregoing factors, cash and cash equivalents
decreased by $23.1 million during the first six months of 2002 to $23.3 million.
See Note 2 to Consolidated Financial Statements for information
regarding contingencies.
20
* * *
Forward-looking Statements
This Quarterly Report on Form 10-Q contains both historical and
forward-looking statements. All statements other than statements of historical
fact are, or may be deemed to be, forward-looking statements within the meaning
of section 27A of the Securities Act of 1933 and section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are only predictions and
generally can be identified by use of statements that include phrases such as
"believe," "expect," "anticipate," "intend," "plan," "foresee" or other words or
phrases. Similarly, statements that describe the Company's objectives, plans or
goals also are forward-looking statements. The Company's operations are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those contemplated by the relevant forward-looking statement.
The forward-looking statements included herein are made only as of the date of
this Quarterly Report on Form 10-Q and the Company undertakes no obligation to
publicly update 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 Form 10-K for a discussion of
"Market-Sensitive Instruments and Risk Management." There were no material
changes in such information as of June 30, 2002 and there was no hedging
activity in the six months ended June 30, 2002.
21
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
As of June 30, 2002, 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
99.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) The registrants filed a report on Form 8-K dated June 21, 2002
reporting events under Item 4 thereof.
22
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 14, 2002 BY: /s/John F. Rebele
----------------- ----------------------
John F. Rebele
Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
DATE: August 14, 2002 BY: /s/James T. Esposito
----------------- --------------------
James T. Esposito
Vice President and Controller
(Principal Accounting Officer)
23
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: August 14, 2002 BY: /s/John F. Rebele
----------------- ----------------------
John F. Rebele
Senior Vice President
and Chief Financial Officer
(Principal Financial and
and Accounting Officer)
24