UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 28, 2003
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-81808
BUILDING MATERIALS CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
Delaware 22-3276290
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1361 Alps Road, Wayne, New Jersey 07470
(Address of Principal Executive Offices) (Zip Code)
(973) 628-3000
(Registrant's telephone number, including area code)
None
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
See Table of Additional Registrants Below.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ NO / /
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES / / NO /X/
As of November 11, 2003, 1,015,010 shares of Class A Common Stock, $.001 par
value, and 15,000 shares of Class B Common Stock, $.001 par value, of the
registrant were outstanding. There is no trading market for the common stock of
the registrant. As of November 11, 2003, each of the additional registrants had
the number of shares outstanding which is shown on the table below. There is no
trading market for the common stock of the additional registrants. As of
November 11, 2003, no shares of the registrant or the additional registrants
were held by non-affiliates.
ADDITIONAL REGISTRANTS
State or other Address, including zip code and
jurisdiction of Commission File No./ telephone number, including area
Exact name of registrant as incorporation or No. of Shares I.R.S. Employer code, of registrant's principal
specified in its charter organization Outstanding Identification No. executive offices
- ------------------------ ------------ ----------- ------------------ -----------------
Building Materials Delaware 10 333-69749-01/ 1361 Alps Road
Manufacturing Corporation 22-3626208 Wayne, NJ 07470
(973) 628-3000
Building Materials Delaware 10 333-69749-02/ 300 Delaware Avenue
Investment Corporation 22-3626206 Suite 303
Wilmington, DE 19801
(302) 427-5960
2
Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Third Quarter Ended Nine Months Ended
-------------------- -----------------------
Sept.29, Sept. 28, Sept. 29, Sept. 28,
2002 2003 2002 2003
--------- --------- ----------- -----------
(Thousands)
Net sales.............................. $ 357,100 $ 459,887 $ 1,045,751 $ 1,209,142
--------- --------- ----------- -----------
Costs and expenses, net:
Cost of products sold................ 242,400 318,900 723,637 849,630
Selling, general and administrative.. 74,607 91,315 218,064 246,855
Gain on sale of assets............... - - - (5,739)
--------- --------- ----------- -----------
Total costs and expenses, net...... 317,007 410,215 941,701 1,090,746
--------- --------- ----------- -----------
Operating income....................... 40,093 49,672 104,050 118,396
Interest expense....................... (13,787) (14,730) (41,536) (42,029)
Other expense, net..................... (1,753) (1,248) (6,147) (5,525)
--------- --------- ----------- -----------
Income before income taxes............. 24,553 33,694 56,367 70,842
Income tax provision................... (8,839) (12,130) (20,293) (25,503)
--------- --------- ----------- -----------
Net income............................. $ 15,714 $ 21,564 $ 36,074 $ 45,339
========= ========= =========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
3
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
December 31, Sept. 28,
ASSETS 2002 2003
Current Assets: --------- ---------
Cash and cash equivalents............................................. $ 96,173 $ 22,257
Accounts receivable, trade, less allowance
of $1,484 and $1,758 in 2002 and 2003, respectively............. 21,901 297,068
Accounts receivable, other............................................ 41,924 5,893
Inventories........................................................... 119,482 140,819
Other current assets.................................................. 3,543 4,612
--------- ---------
Total Current Assets................................................ 283,023 470,649
Property, plant and equipment, net...................................... 346,116 336,250
Goodwill, net of accumulated amortization
of $16,370 in 2002 and 2003, respectively............................. 63,294 63,294
Deferred income tax benefits............................................ 15,330 -
Tax receivable from parent corporations................................. 10,250 10,250
Other noncurrent assets................................................. 25,386 30,404
--------- ---------
Total Assets............................................................ $ 743,399 $ 910,847
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt.................................. $ 45,326 $ 2,283
Accounts payable...................................................... 73,220 88,228
Payable to related parties............................................ 12,621 12,681
Loan payable to related party......................................... - 37,840
Accrued liabilities................................................... 50,917 67,269
Reserve for product warranty claims................................... 14,900 14,900
--------- ---------
Total Current Liabilities............................................. 196,984 223,201
--------- ---------
Long-term debt less current maturities.................................. 545,802 670,150
--------- ---------
Reserve for product warranty claims..................................... 18,387 17,136
--------- ---------
Deferred income tax liabilities......................................... - 9,627
--------- ---------
Other liabilities....................................................... 13,347 14,444
--------- ---------
Stockholders' Equity (Deficit):
Series A Cumulative Redeemable Convertible
Preferred Stock, $.01 par value per share; - -
400,000 shares authorized; no shares issued.........................
Class A Common Stock, $.001 par value per share, 1,300,000
shares authorized; 1,015,010 shares issued and outstanding.......... 1 1
Class B Common Stock, $.001 par value per share;
100,000 shares authorized; 15,000 shares
issued and outstanding.............................................. - -
Loans receivable from parent corporation.............................. (2,648) (40,563)
Retained earnings (accumulated deficit)............................... (28,474) 16,851
--------- ---------
Total Stockholders' Equity (Deficit)................................ (31,121) (23,711)
--------- ---------
Total Liabilities and Stockholders'
Equity (Deficit)..................................................... $ 743,399 $ 910,847
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
4
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
-------------------
Sept. 29, Sept. 28,
2002 2003
-------- --------
(Thousands)
Cash and cash equivalents, beginning of period........... $ 46,387 $ 96,173
-------- --------
Cash provided by (used in) operating activities:
Net income ............................................ 36,074 45,339
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Gain on sale of assets............................. - (5,739)
Depreciation ...................................... 28,755 29,180
Amortization....................................... 1,542 1,534
Deferred income taxes.............................. 19,504 24,957
Noncash interest charges........................... 3,726 4,006
Increase in working capital items...................... (73,242) (124,792)
Decrease in reserve for product warranty claims........ (3,132) (1,251)
Proceeds (repayments) from sale/repurchase
of accounts receivable................................ 15,274 (105,388)
Change in net receivable from/payable to related
parties/parent corporations.......................... 4,204 60
Other, net............................................. (95) 667
-------- --------
Net cash provided by (used in) operating activities...... 32,610 (131,427)
-------- --------
Cash provided by (used in) investing activities:
Capital expenditures................................... (15,829) (23,307)
Proceeds from sale of assets........................... - 9,315
-------- --------
Net cash used in investing activities.................... (15,829) (13,992)
-------- --------
Cash provided by (used in) financing activities:
Proceeds from loan payable to parent corporation....... - 38,351
Proceeds from issuance of long-term debt............... - 327,407
Repayments of long-term debt........................... (4,317) (246,699)
Distributions to parent corporations................... (1,945) (15)
Loans to parent corporation............................ (85) (38,426)
Financing fees and expenses............................ (222) (9,115)
-------- --------
Net cash provided by (used in) financing activities...... (6,569) 71,503
-------- --------
Net change in cash and cash equivalents.................. 10,212 (73,916)
-------- --------
Cash and cash equivalents, end of period................. $ 56,599 $ 22,257
======== ========
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized)................. $ 38,007 $ 39,511
Income taxes......................................... 1,525 451
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
5
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Building Materials Corporation of America ("BMCA" or the "Company") was
formed on January 31, 1994 and is a wholly-owned subsidiary of BMCA Holdings
Corporation ("BHC"), which is a wholly-owned subsidiary of G-I Holdings Inc.
("G-I Holdings"). G-I Holdings is a wholly-owned subsidiary of G Holdings Inc.
The consolidated financial statements of the Company reflect, in the opinion of
management, all adjustments necessary to present fairly the financial position
of the Company at September 28, 2003, and the results of operations and cash
flows for the periods ended September 29, 2002 and September 28, 2003. All
adjustments are of a normal recurring nature. These consolidated financial
statements should be read in conjunction with the annual consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2002 (the "2002 Form 10-K").
Note 1. Inventories
Inventories consist of the following:
December 31, Sept. 28,
2002 2003
-------- --------
(Thousands)
Finished goods .................... $ 80,911 $ 90,356
Work-in-process ................... 11,850 11,798
Raw materials and supplies ........ 30,068 42,438
-------- --------
Total ............................. 122,829 144,592
Less LIFO reserve ................. (3,347) (3,773)
-------- --------
Inventories ....................... $119,482 $140,819
======== ========
Note 2. Contingencies
Asbestos Litigation Against G-I Holdings
In connection with its formation, the Company contractually assumed
and agreed to pay the first $204.4 million of liabilities for asbestos-related
bodily injury claims relating to the inhalation of asbestos fiber ("Asbestos
Claims") of its parent, G-I Holdings. As of March 30, 1997, the Company had paid
all of its assumed asbestos-related liabilities. In January 2001, G-I Holdings
filed a voluntary petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code due to Asbestos Claims. This proceeding remains pending.
Claimants in the G-I Holdings bankruptcy, including judgment
creditors, might seek to satisfy their claims by asking the bankruptcy court to
require the sale of G-I Holdings' assets, including its holdings of BMCA
Holdings Corporation's common stock and its indirect holdings of the Company's
common stock. Such action could result in a change of control of the Company. In
addition, those creditors may seek to file Asbestos Claims against the Company
(with approximately 1,900 alleged Asbestos Claims having been filed against the
Company as of September 28, 2003). The Company believes that it will not sustain
any liability in connection with these or any other asbestos-related claims. On
February 2, 2001, the United States Bankruptcy Court for the
6
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note 2. Contingencies (Continued)
District of New Jersey issued a temporary restraining order enjoining any
existing or future claimant from bringing or prosecuting an Asbestos Claim
against the Company. By oral opinion, on June 22, 2001, and written order
entered February 22, 2002, the court converted the temporary restraints into a
preliminary injunction, prohibiting the bringing or prosecution of any such
Asbestos Claim against the Company. On February 7, 2001, G-I Holdings and BMCA
filed an action in the United States Bankruptcy Court for the District of New
Jersey seeking a declaratory judgment that BMCA has no successor liability for
Asbestos Claims against G-I Holdings and that it is not the alter ego of G-I
Holdings (the "BMCA Action"). On May 13, 2003, the United States District Court
for the District of New Jersey overseeing the G-I Holdings' Bankruptcy Court
withdrew the reference of the BMCA Action from the Bankruptcy Court, and this
matter will be heard by the District Court directly. The BMCA Action is in the
pretrial discovery stage, and as a result, it is not possible to predict its
outcome, although the Company believes its claims are meritorious. While the
Company cannot predict whether any additional Asbestos Claims will be asserted
against it, or the outcome of any litigation relating to those claims, the
Company believes that it has meritorious defenses to any claim that it has
asbestos-related liability, although there can be no assurances in this regard.
On or about February 8, 2001, a creditors' committee established in
G-I Holdings' bankruptcy case filed a complaint in the United States Bankruptcy
Court, District of New Jersey against G-I Holdings and the Company. The
complaint requests substantive consolidation of BMCA with G-I Holdings or an
order directing G-I Holdings to cause BMCA to file for bankruptcy protection.
BMCA and G-I Holdings intend to vigorously defend the lawsuit. The plaintiffs
also filed for interim relief absent the granting of their requested relief
described above. On March 21, 2001, the bankruptcy court denied plaintiffs'
application for interim relief. In November 2002, the creditors' committee,
joined in by the legal representative of future demand holders, filed a motion
for appointment of a trustee in the G-I Holdings' bankruptcy. In December 2002,
the bankruptcy court denied the motion. The creditors' committee appealed such
ruling to the United States District Court which denied such appeal on June 27,
2003. On July 25, 2003, the creditors' committee filed an appeal of the District
Court's ruling to the Third Circuit Court of Appeals, which matter remains
pending.
For a further discussion with respect to the history of the foregoing
litigation and asbestos-related matters, see Notes 5, 12 and 17 to Consolidated
Financial Statements contained in the Company's 2002 Form 10-K.
Environmental Litigation
The Company, together with other companies, is a party to a variety
of proceedings and lawsuits involving environmental matters under the
Comprehensive Environmental Response Compensation and Liability Act, and similar
state laws, in which recovery is sought for the cost of cleanup of
7
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note 2. Contingencies (Continued)
contaminated sites or remedial obligations are imposed, a number of which are
in the early stages or have been dormant for protracted periods. The Company
refers to these proceedings and lawsuits as "Environmental Claims". At most
sites, the Company anticipates that liability will be apportioned among the
companies found to be responsible for the presence of hazardous substances at
the site. The Company believes that the ultimate disposition of such matters
will not, individually or in the aggregate, have a material adverse effect on
the liquidity, financial position or results of operations of the Company.
Tax Claim Against G-I Holdings
The Company and certain of its subsidiaries were members of the
consolidated group (the "G-I Holdings Group") for Federal income tax purposes
that included G-I Holdings in certain prior years and, accordingly, would be
severally liable for any tax liability of the G-I Holdings Group in respect of
those prior years.
On September 15, 1997, G-I Holdings received a notice from the
Internal Revenue Service (the "IRS") of a deficiency in the amount of $84.4
million (after taking into account the use of net operating losses and foreign
tax credits otherwise available for use in later years) in connection with the
formation in 1990 of Rhone-Poulenc Surfactants and Specialties, L.P. (the
"surfactants partnership"), a partnership in which G-I Holdings held an
interest. G-I Holdings has advised the Company that it believes that it will
prevail in this tax matter arising out of the surfactants partnership, although
there can be no assurance in this regard. The Company believes that the ultimate
disposition of this matter will not have a material adverse effect on its
business, financial position or results of operations. On September 21, 2001,
the IRS filed a proof of claim with respect to such deficiency against G-I
Holdings in the G-I Holdings' bankruptcy. If such proof of claim is sustained,
the Company and/or certain of the Company's subsidiaries together with G-I
Holdings and several current and former subsidiaries of G-I Holdings would be
severally liable for a portion of those taxes and interest. G-I Holdings has
filed an objection to the proof of claim. If the IRS were to prevail for the
years in which the Company and/or certain of its subsidiaries were part of the
G-I Holdings Group, the Company would be severally liable for approximately
$40.0 million in taxes plus interest, although this calculation is subject to
uncertainty depending upon various factors including G-I Holdings' ability to
satisfy its tax liabilities and the application of tax credits and deductions.
8
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note 3. New Accounting Pronouncements
In November 2002, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" ("FIN 45"). FIN 45 clarifies the requirements for a guarantor's
accounting for and disclosures of certain guarantees issued and outstanding. The
provisions of FIN 45 apply to guarantee contracts that contingently require the
guarantor to make payments (in cash, financial instruments, other assets, shares
of stock or provision of services) to the guaranteed party for guarantees such
as: a financial standby letter of credit; a market value guarantee on either a
financial or nonfinancial asset owned by the guaranteed party; and a guarantee
of the collection of the scheduled contractual cash flows from financial assets
held by a special-purpose entity. FIN 45 also applies to indemnification
contracts and indirect guarantees of indebtedness of others. The requirements of
FIN 45 for the initial recognition and measurement of the liability for a
guarantor's obligations are to be applied only on a prospective basis to
guarantees issued or modified after December 31, 2002; however, the Company
provides product warranties, which are only subject to the disclosure
requirements under FIN 45. (See table below.) A subsidiary's guarantee of the
debt of its parent is not subject to the initial recognition and measurement
provisions of FIN 45 but are subject to its disclosure requirements. The Company
has adopted the disclosure requirements of FIN 45 and applied the recognition
and measurement provisions for all guarantees entered into or modified after
December 31, 2002, and noted no material effect on the financial condition or
results of operations of the Company.
The reserve for product warranty claims consists of the following for
the third quarter and nine months ended September 29, 2002 and September 28,
2003, respectively:
Third Quarter Ended Nine Months Ended
-------------------- -----------------
Sept. 29, Sept. 28, Sept. 29, Sept. 28,
2002 2003 2002 2003
-------- --------- -------- ---------
(Thousands)
Beginning balance................... $ 35,765 $ 32,266 $ 37,641 $ 33,287
Charged to cost of products sold.... 4,848 5,968 15,347 15,519
Deductions.......................... (6,433) (6,198) (18,808) (16,770)
Other............................... 329 - 329 -
-------- -------- -------- --------
Ending balance...................... $ 34,509 $ 32,036 $ 34,509 $ 32,036
======== ======== ======== ========
9
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note 3. New Accounting Pronouncements (Continued)
In December 2002, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure" ("SFAS No. 148"), an amendment of FASB Statement No.
123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 148
provides alternative methods of transition for any entity that voluntarily
changes to the fair value based method of accounting for stock-based employee
compensation. It also amends the disclosure provisions of SFAS No. 123 to
require prominent disclosures about the effects on reported net income of an
entity's accounting policy decisions with respect to stock-based employee
compensation. SFAS No. 148 also amends Accounting Principles Board Opinion No.
28 "Interim Financial Reporting" ("APB No. 28"), to require disclosures about
those effects in interim financial information beginning with the Company's
first quarter ended March 30, 2003. The Company currently accounts for its
long-term incentive units granted to certain employees under the accounting
prescribed by applying FASB Interpretation No. 28, "Accounting for Stock
Appreciation Rights and Other Variable Stock Option and Award Plans" ("FIN 28"),
which requires an entity to measure compensation as the amount by which the Book
Value (as defined in the Plan) of the incentive units covered by the grant
exceeds the option price or value specified of such incentive units at the date
of grant. Changes, either increases or decreases, in the Book Value of those
incentive units between the date of grant and the measurement date result in a
change in the measure of compensation for the right or award. The Company
expects to continue to account for its long-term incentive units under the
accounting prescribed by FIN 28 and has adopted the additional disclosure
provisions of SFAS No. 148. Compensation expense for such incentive units was
$0.4 and $0.7 million for the third quarter ended September 29, 2002 and
September 28, 2003, respectively, and $1.8 and $2.2 million for the nine months
ended September 29, 2002 and September 28, 2003, respectively. The Company's pro
forma net income under SFAS No. 123 would have been the same as actual net
income.
Note 4. Termination of Accounts Receivable Securitization Agreement
In July 2003, the Company terminated its Accounts Receivable
Securitization Agreement ("the Securitization Agreement"), at which time it
repurchased its undivided interest in receivables previously sold to a special
purpose subsidiary, BMCA Receivables Corporation, without recourse, which in
turn sold them to a third party, without recourse. In connection with the
termination of the Securitization Agreement in July 2003, the Company repaid
$115.0 million of amounts outstanding under such agreement and increased
accounts receivable and long-term debt by $115.0 million. In addition, the
Company liquidated BMCA Receivables Corporation effective August 2003.
Note 5. Long-Term Debt
In July 2003, the Company entered into a new $350.0 million Senior
Secured Credit facility (the "New Credit Facility"). The initial borrowings
under the New Credit Facility were primarily used to repay amounts outstanding
under the Company's existing $210.0 million Secured Revolving Credit Facility
due August 2003, to repay the $115.0 million outstanding under the Accounts
10
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note 5. Long-Term Debt (Continued)
Receivable Securitization Agreement due December 2004 and to repay the $7.0
million Precious Metal Note due August 2003. The New Credit Facility has a final
maturity date of November 15, 2006, subject to certain conditions, is secured by
a first priority lien on substantially all of the Company's assets and the
assets of its subsidiaries and is guaranteed by all of its current and future
subsidiaries. Availability under the New Credit Facility is based upon eligible
Accounts Receivable, Inventory, and Property, Plant and Equipment (collectively
the "Collateral"), as defined in the New Credit Facility, and includes a
sub-limit for letters of credit of $100.0 million. The New Credit Facility bears
interest at a floating rate based on the lenders' Base Rate, the federal funds
rate or the Eurodollar rate, each as defined in the New Credit Facility. The New
Credit Facility requires mandatory repayments of excess cash, as defined, on the
tenth day of each month. The Company is also required to pay unused commitment
fees associated with the New Credit Facility. Borrowings outstanding under the
New Credit Facility which are included in long-term debt amounted to $124.0
million at September 28, 2003.
Under the terms of the New Credit Facility and the indentures
governing the Company's 7 3/4% Senior Notes due 2005, the 8 5/8% Senior Notes
due 2006, the 8% Senior Notes due 2007, and the 8% Senior Notes due 2008
(collectively the "Senior Notes"), the Company is subject to certain financial
covenants. These financial covenants include, among others, interest coverage,
minimum EBITDA (earnings before income taxes and extraordinary items increased
by interest expense, depreciation, goodwill and other amortization), as defined,
limitations on the amount of annual capital expenditures and indebtedness,
restrictions on restricted payments, including dividends and distributions to
the Company's parent corporations and on incurring liens, and restrictions on
investments and other payments. In addition, if a change of control as defined
in the New Credit Facility occurs, the New Credit Facility could be terminated
and the loans under the New Credit Facility accelerated by the holders of that
indebtedness. If that event occurred, it would cause the Company's outstanding
Senior Notes to be accelerated. As of September 28, 2003, the Company was in
compliance with all covenants under the New Credit Facility and the indentures
governing the Senior Notes.
The Senior Notes are secured by a second-priority lien on the assets
securing the New Credit Facility for so long as the first-priority lien remains
in effect, subject to certain limited exceptions and have been guaranteed by the
subsidiaries that guaranteed the New Credit Facility. In connection with
entering into the New Credit Facility, the Company entered into an Amended and
Restated Security Agreement, which grants a security interest in the Collateral
in favor of the collateral agent on behalf of the lenders under the New Credit
Facility and the holders of the Company's outstanding Senior Notes. The Company
also entered into an Amended and Restated Collateral Agent Agreement, which
provides, among other things, the Company maintain a lockbox and depository
control agreement for the benefit of the secured parties and the sharing of
proceeds with respect to any foreclosure or other remedy in respect of the
Collateral.
11
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note 5. Long-Term Debt (Continued)
In July 2003, the Company exercised an Early Buyout Option on certain
machinery and equipment located at its Chester, South Carolina glass mat
manufacturing facility for $19.7 million. In addition, in July 2003, the Company
entered into a new $19.7 million Secured Loan (the "Chester Loan"), with the
proceeds being used to repay the $19.7 million obligation associated with the
Early Buyout Option discussed above. The Chester Loan is secured by a sole
security interest in the machinery and equipment, matures in July 2010, requires
monthly payments of principal and interest commencing in August 2003 and bears a
fixed annual interest rate of 7.41%.
The Company makes loans to, and borrows from, our parent corporations
from time to time at prevailing market rates. On July 1, 2003 the Company loaned
BMCA Holdings Corporation $37.8 million and on July 9, 2003, BMCA Holdings
Corporation loaned the Company $37.8 million. As of September 28, 2003, BMCA
Holdings Corporation owed the Company $38.3 million, including interest of $0.5
million and the Company owed BMCA Holdings Corporation $38.3 million, including
interest of $0.5 million.
In September 2003, the Company used proceeds from the New Credit
Facility to repay its outstanding 10 1/2% Senior Notes at maturity, aggregating
$35.0 million plus accrued interest.
Note 6. Guarantor Financial Information
All of the Company's subsidiaries are guarantors under the Company's
$350.0 million Senior Secured Credit Facility and the Senior Notes. These
guarantees are full, unconditional and joint and several. In addition, Building
Materials Manufacturing Corporation ("BMMC"), a wholly-owned subsidiary of the
Company, is a co-obligor on the 8% Senior Notes due 2007.
The Company and BMMC entered into license agreements, effective
January 1, 1999, for the right to use intellectual property, including patents,
trademarks, know-how, and franchise rights owned by Building Materials
Investment Corporation, a wholly-owned subsidiary of the Company, for a license
fee stated as a percentage of net sales. The license agreements are for a period
of one year and are subject to automatic renewal unless either party terminates
with 60 days written notice. Also, effective January 1, 1999, BMMC sells all
finished goods to the Company at a manufacturing profit.
Presented below is condensed consolidating financial information for
the Company, the guarantor subsidiaries and the non-guarantor subsidiary. This
financial information should be read in conjunction with the Consolidated
Financial Statements and other notes related thereto. Separate financial
information for the Company, the guarantor subsidiaries and the non-guarantor
subsidiary is not included herein, because management has determined that such
information is not material to investors.
12
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note 6. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Third Quarter Ended September 29, 2002
(Thousands)
(Unaudited)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------
Net sales............................................ $ 326,837 $ 30,263 $ - $ 357,100
Intercompany net sales............................... 15,347 233,793 (249,140) -
--------- --------- --------- ---------
Total net sales.................................... 342,184 264,056 (249,140) 357,100
--------- --------- --------- ---------
Costs and expenses, net:
Cost of products sold.............................. 255,201 236,339 (249,140) 242,400
Selling, general and administrative................ 56,288 18,319 74,607
Transition service agreement (income) expense...... 25 (25) -
--------- --------- --------- ---------
Total costs and expenses, net...................... 311,514 254,633 (249,140) 317,007
--------- --------- --------- ---------
Operating income..................................... 30,670 9,423 - 40,093
Equity in earnings of subsidiaries................... 9,787 - (9,787) -
Intercompany licensing income (expense), net......... (9,805) 9,805 -
Interest expense..................................... (9,744) (4,043) (13,787)
Other income (expense), net.......................... (1,860) 107 (1,753)
--------- --------- --------- ---------
Income before income taxes........................... 19,048 15,292 (9,787) 24,553
Income tax provision................................. (3,334) (5,505) (8,839)
--------- --------- --------- ---------
Net income........................................... $ 15,714 $ 9,787 $ (9,787) $ 15,714
========= ========= ========= =========
13
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note 6. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Third Quarter Ended September 28, 2003
(Thousands)
(Unaudited)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------
Net sales............................................... $ 430,085 $ 29,802 $ - $ 459,887
Intercompany net sales.................................. 22,197 306,580 (328,777) -
--------- --------- --------- ---------
Total net sales....................................... 452,282 336,382 (328,777) 459,887
--------- --------- --------- ---------
Costs and expenses, net:
Cost of products sold................................. 348,161 299,516 (328,777) 318,900
Selling, general and administrative................... 72,365 18,950 91,315
Transition service agreement (income) expense......... 25 (25) -
--------- --------- --------- ---------
Total costs and expenses, net......................... 420,551 318,441 (328,777) 410,215
--------- --------- --------- ---------
Operating income........................................ 31,731 17,941 - 49,672
Equity in earnings of subsidiaries...................... 21,122 - (21,122) -
Intercompany licensing income (expense), net............ (18,092) 18,092 -
Interest expense........................................ (11,661) (3,069) (14,730)
Other income (expense), net............................. (1,287) 39 (1,248)
--------- --------- --------- ---------
Income before income taxes.............................. 21,813 33,003 (21,122) 33,694
Income tax provision.................................... (249) (11,881) (12,130)
--------- --------- --------- ---------
Net income.............................................. $ 21,564 $ 21,122 $ (21,122) $ 21,564
========= ========= ========= =========
14
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note 6. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Nine Months Ended September 29, 2002
(Thousands)
(Unaudited)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------
Net sales.............................................. $ 956,768 $ 88,983 $ - $1,045,751
Intercompany net sales................................. 48,654 677,695 (726,349) -
--------- --------- --------- ---------
Total net sales...................................... 1,005,422 766,678 (726,349) 1,045,751
--------- --------- --------- ---------
Costs and expenses, net:
Cost of products sold................................ 765,430 684,556 (726,349) 723,637
Selling, general and administrative.................. 163,759 54,305 218,064
Transition service agreement (income) expense........ 75 (75) -
--------- --------- --------- ---------
Total costs and expenses, net........................ 929,264 738,786 (726,349) 941,701
--------- --------- --------- ---------
Operating income....................................... 76,158 27,892 - 104,050
Equity in earnings of subsidiaries..................... 28,624 - (28,624) -
Intercompany licensing income (expense), net........... (28,703) 28,703 -
Interest expense....................................... (29,263) (12,273) (41,536)
Other income (expense), net............................ (6,551) 404 (6,147)
--------- --------- --------- ---------
Income before income taxes............................. 40,265 44,726 (28,624) 56,367
Income tax provision................................... (4,191) (16,102) (20,293)
--------- --------- --------- ---------
Net income............................................. $ 36,074 $ 28,624 $ (28,624) $ 36,074
========= ========= ========= =========
15
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note 6. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Nine Months Ended September 28, 2003
(Thousands)
(Unaudited)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------
Net sales............................................. $1,122,975 $ 86,167 $ - $1,209,142
Intercompany net sales................................ 62,140 818,487 (880,627) -
--------- --------- --------- ---------
Total net sales..................................... 1,185,115 904,654 (880,627) 1,209,142
--------- --------- --------- ---------
Costs and expenses, net:
Cost of products sold............................... 929,183 801,074 (880,627) 849,630
Selling, general and administrative................. 192,167 54,688 246,855
Gain on sale of assets.............................. - (5,739) (5,739)
Transition service agreement (income) expense....... 75 (75) -
--------- --------- --------- ---------
Total costs and expenses, net....................... 1,121,425 849,948 (880,627) 1,090,746
--------- --------- --------- ---------
Operating income...................................... 63,690 54,706 - 118,396
Equity in earnings of subsidiaries.................... 59,089 - (59,089) -
Intercompany licensing income (expense), net.......... (47,405) 47,405 -
Interest expense...................................... (31,994) (10,035) (42,029)
Other income (expense), net........................... (5,775) 250 (5,525)
--------- --------- --------- ---------
Income before income taxes............................ 37,605 92,326 (59,089) 70,842
Income tax (provision) benefit........................ 7,734 (33,237) (25,503)
--------- --------- --------- ---------
Net income............................................ $ 45,339 $ 59,089 $ (59,089) $ 45,339
========= ========= ========= =========
16
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note 6. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Balance Sheet
December 31, 2002
(Thousands)
(Unaudited)
Non-
Parent Guarantor Guarantor Elim-
Company Subsidiaries Subsidiary inations Consolidated
------- ------------ ---------- -------- ------------
ASSETS
Current Assets:
Cash and cash equivalents.............. $ 60 $ 96,113 $ - $ - $ 96,173
Accounts receivable, trade, net........ 8,216 13,685 - 21,901
Accounts receivable, other............. 6,294 845 34,785 41,924
Inventories............................ 78,066 41,416 - 119,482
Other current assets................... 1,575 1,968 - 3,543
------- -------- ------- -------- --------
Total Current Assets................. 94,211 154,027 34,785 283,023
Investment in subsidiaries............... 437,856 - - (437,856) -
Intercompany loans including accrued
interest............................... 59,903 (59,903) - -
Due from (to) subsidiaries, net.......... (195,599) 192,889 2,710 -
Property, plant and equipment, net....... 36,075 310,041 - 346,116
Goodwill, net............................ 40,080 23,214 - 63,294
Deferred income tax benefits............. 15,330 - - 15,330
Tax receivable from parent corporations.. 10,250 - - 10,250
Other noncurrent assets.................. 6,486 18,900 - 25,386
-------- -------- ------- -------- --------
Total Assets............................. $504,592 $639,168 $37,495 $(437,856) $743,399
======== ======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt... $ 34,820 $ 10,506 $ - $ - $ 45,326
Accounts payable....................... 29,249 43,971 - 73,220
Payable to related parties, net........ 2,788 9,833 - 12,621
Accrued liabilities.................... 18,802 32,115 - 50,917
Reserve for product warranty claims.... 14,900 - - 14,900
-------- -------- ------- --------- --------
Total Current Liabilities............ 100,559 96,425 - 196,984
Long-term debt less current maturities... 404,071 141,731 - 545,802
Reserve for product warranty claims...... 17,935 452 - 18,387
Other liabilities........................ 13,148 199 - 13,347
-------- -------- ------- --------- --------
Total Liabilities........................ 535,713 238,807 - 774,520
Total Stockholders' Equity (Deficit)..... (31,121) 400,361 37,495 (437,856) (31,121)
-------- -------- ------- --------- --------
Total Liabilities and Stockholders'
Equity (Deficit) ................... $504,592 $639,168 $37,495 $(437,856) $743,399
======== ======== ======= ========= ========
17
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note 6. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Balance Sheet
September 28, 2003
(Thousands)
(Unaudited)
Parent Guarantor
Company Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents.............. $ 13 $ 22,244 $ - $ 22,257
Accounts receivable, trade, net........ 279,324 17,744 297,068
Accounts receivable, other............. 5,209 684 5,893
Inventories............................ 89,456 51,363 140,819
Other current assets................... 2,348 2,264 4,612
------- -------- --------- --------
Total Current Assets................. 376,350 94,299 470,649
Investment in subsidiaries............... 459,450 - (459,450) -
Intercompany loans including accrued
interest............................... 43,013 (43,013) -
Due from (to) subsidiaries, net.......... (314,866) 314,866 -
Property, plant and equipment, net....... 38,547 297,703 336,250
Goodwill, net............................ 40,080 23,214 63,294
Tax receivable from parent corporations.. 10,250 - 10,250
Other noncurrent assets.................. 13,332 17,072 30,404
-------- -------- --------- --------
Total Assets............................. $666,156 $704,141 $(459,450) $910,847
======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt... $ - $ 2,283 $ - $ 2,283
Accounts payable....................... 36,721 51,507 88,228
Payable to related parties, net........ 2,514 10,167 12,681
Loan payable to related party.......... 37,840 - 37,840
Accrued liabilities.................... 29,186 38,083 67,269
Reserve for product warranty claims.... 14,900 - 14,900
-------- -------- --------- --------
Total Current Liabilities............ 121,161 102,040 223,201
Long-term debt less current maturities... 528,240 141,910 670,150
Reserve for product warranty claims...... 16,589 547 17,136
Deferred income tax liabilities.......... 9,627 - 9,627
Other liabilities........................ 14,250 194 14,444
-------- -------- --------- --------
Total Liabilities........................ 689,867 244,691 934,558
Total Stockholders' Equity (Deficit)..... (23,711) 459,450 (459,450) (23,711)
-------- -------- --------- --------
Total Liabilities and Stockholders'
Equity (Deficit) ................... $666,156 $704,141 $(459,450) $910,847
======== ======== ========= ========
18
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note 6. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 29, 2002
(Thousands)
(Unaudited)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Consolidated
--------- ------------ ---------- ------------
Cash and cash equivalents, beginning of period....... $ 133 $ 46,254 $ - $ 46,387
--------- --------- --------- --------
Cash provided by (used in) operating activities:
Net income......................................... 7,450 28,624 36,074
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation................................... 1,860 26,895 28,755
Amortization................................... - 1,542 1,542
Deferred income taxes.......................... 19,504 - 19,504
Noncash interest charges....................... 2,715 1,011 3,726
(Increase) decrease in working capital items....... (20,314) 2,039 (54,967) (73,242)
Increase (decrease) in reserve for
product warranty claims........................... (3,373) 241 (3,132)
Proceeds from sale of accounts receivable.......... 15,274 - 15,274
Change in net receivable from/payable to
related parties/parent corporations............... (20,734) (30,029) 54,967 4,204
Other, net......................................... 577 (672) (95)
--------- --------- --------- --------
Net cash provided by operating activities............ 2,959 29,651 - 32,610
--------- --------- --------- --------
Cash provided by (used in) investing activities:
Capital expenditures............................... (832) (14,997) (15,829)
--------- --------- --------- --------
Net cash used in investing activities................ (832) (14,997) - (15,829)
--------- --------- --------- --------
Cash provided by (used in) financing activities:
Repayments of long-term debt....................... - (4,317) (4,317)
Distributions to parent corporations............... (1,945) - (1,945)
Loans to parent corporation........................ (85) - (85)
Financing fees and expenses........................ (222) - (222)
. --------- --------- --------- --------
Net cash used in financing activities................ (2,252) (4,317) - (6,569)
--------- --------- --------- --------
Net change in cash and cash equivalents.............. (125) 10,337 - 10,212
--------- --------- --------- --------
Cash and cash equivalents, end of period............. $ 8 $ 56,591 $ - $ 56,599
========= ========= ========= ========
19
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note 6. Guarantor Financial Information - (Continued)
Building Materials Corporation of America
Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 28, 2003
(Thousands)
(Unaudited)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Consolidated
------- ------------ ---------- ------------
Cash and cash equivalents, beginning of period....... $ 60 $ 96,113 $ - $ 96,173
-------- --------- --------- --------
Cash provided by (used in) operating activities:
Net income (loss).................................. (13,750) 59,089 45,339
Adjustments to reconcile net income(loss)to net
cash provided by (used in) operating activities:
Gain on sale of assets......................... - (5,739) (5,739)
Depreciation................................... 2,003 27,177 29,180
Amortization................................... - 1,534 1,534
Deferred income taxes.......................... 24,957 - 24,957
Noncash interest charges....................... 2,939 1,067 4,006
(Increase) decrease in working capital items....... (158,941) (636) 34,785 (124,792)
Increase (decrease) in reserve for product
warranty claims................................... (1,346) 95 (1,251)
Repayments from repurchase of accounts receivable.. (105,388) - (105,388)
Change in net receivable from/payable to
related parties/parent corporations............... 173,378 (138,533) (34,785) 60
Other, net......................................... 540 127 667
-------- -------- --------- --------
Net cash used in operating activities................ (75,608) (55,819) - (131,427)
-------- -------- --------- --------
Cash provided by (used in) investing activities:
Capital expenditures............................... (4,438) (18,869) (23,307)
Proceeds from sale of assets....................... - 9,315 9,315
-------- -------- --------- --------
Net cash used in investing activities................ (4,438) (9,554) - (13,992)
-------- -------- --------- --------
Cash provided by (used in) financing activities:
Proceeds from loan payable to parent corporation... 38,351 - 38,351
Proceeds from issuance of long-term debt........... 307,676 19,731 327,407
Repayments of long-term debt....................... (218,677) (28,022) (246,699)
Distributions to parent corporations............... (15) - (15)
Loans to parent corporation........................ (38,426) - (38,426)
Financing fees and expenses........................ (8,910) (205) (9,115)
-------- --------- --------- ---------
Net cash provided by (used in) financing activities.. 79,999 (8,496) - 71,503
-------- --------- --------- ---------
Net decrease in cash and cash equivalents............ (47) (73,869) - (73,916)
-------- --------- --------- ---------
Cash and cash equivalents, end of period............. $ 13 $ 22,244 $ - $ 22,257
======== ========= ========= =========
20
BUILDING MATERIALS CORPORATION OF AMERICA
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Third Quarter 2003 Compared With
Third Quarter 2002
We recorded net income in the third quarter of 2003 of $21.6 million
compared with net income of $15.7 million in the third quarter of 2002,
representing an increase of $5.9 million or 37.6%. The increase in net income
for the third quarter of 2003 was primarily attributable to higher operating
income.
Net sales for the third quarter of 2003 were $459.9 million,
representing an increase of $102.8 million or 28.8% over third quarter of 2002
net sales of $357.1 million. Higher net sales were primarily due to higher unit
volumes and higher average selling prices of both residential and commercial
roofing products.
Operating income in the third quarter of 2003 was $49.7 million
compared with $40.1 million in the third quarter of 2002, representing an
increase of $9.6 million or 23.9%. Operating results were positively affected by
higher net sales partially offset by higher raw material costs, principally
asphalt, due to higher crude oil prices, together with an increase in selling,
general and administrative expenses due to higher volume related distribution
and selling costs. Selling, general and administrative expenses as a percentage
of net sales in the third quarter of 2003, declined to 19.9% compared with 20.9%
in the third quarter of 2002.
Interest expense for the third quarter of 2003 increased to $14.7
million from $13.8 million for the same period in 2002, primarily due to higher
average borrowings partially offset by a lower average interest rate. Other
expense, net was $1.3 million for the third quarter of 2003 compared with $1.8
million for the same period in 2002.
Results of Operations - Nine Months 2003 Compared With
Nine Months 2002
We recorded net income of $45.3 million for the first nine months of
2003 compared with net income of $36.1 million for the first nine months of
2002, representing an increase of $9.2 million or 25.5%. The increase in net
income for the first nine months of 2003 was attributable to a $3.7 million
after-tax gain on sale of property together with higher operating income.
Net sales for the first nine months of 2003 were $1,209.1 million,
representing an increase of $163.3 million or 15.6% over the first nine months
of 2002 net sales of $1,045.8 million. Higher net sales were primarily due to
higher unit volumes and higher average selling prices of both residential and
commercial roofing products.
Operating income for the first nine months of 2003 was $118.4 million
compared with $104.1 million for the first nine months of 2002, representing an
increase of $14.3 million or 13.7%. The increase in operating results for the
21
BUILDING MATERIALS CORPORATION OF AMERICA
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
first nine months of 2003 was primarily attributable to higher net sales
together with the $5.7 million pre-tax gain on sale of property, partially
offset by higher raw material costs, principally asphalt, and higher selling,
general and administrative expenses due to higher volume related distribution
and selling costs. Selling, general and administrative expenses as a percentage
of net sales for the first nine months of 2003, declined to 20.4% compared with
20.9% for the first nine months of 2002.
Interest expense for the first nine months of 2003 increased to $42.0
million from $41.5 million for the same period in 2002, primarily due to higher
average borrowings partially offset by a lower average interest rate. Other
expense, net was $5.6 million for the first nine months of 2003 compared with
$6.2 million for the same period in 2002.
Liquidity and Financial Condition
Net cash outflow during the first nine months of 2003 was $145.4
million, before financing activities, and included the use of $131.4 million of
cash for operations and the reinvestment of $23.3 million for capital programs,
which was offset in part by $9.3 million of proceeds from the sale of assets.
Cash invested in additional working capital totaled $124.8 million
during the first nine months of 2003, primarily reflecting an increase in trade
accounts receivable of $275.2 million, which included $169.8 million due to the
seasonality of our business and $105.4 million due to net repayments from the
repurchase of accounts receivable from the termination of our Accounts
Receivable Securitization Agreement (see below), and an increase of $21.3
million in inventories. Working capital also reflects a decrease in accounts
receivable, other of $36.0 million, of which $34.8 million represents the
receivable from the third party, which previously purchased certain of our trade
accounts receivable, and a $31.4 million increase in accounts payable and
accrued liabilities.
Net cash provided by financing activities totaled $71.5 million
during the first nine months of 2003, reflecting $38.4 million in proceeds from
a loan payable to parent corporation, $327.4 million of proceeds from the
issuance of long-term debt, of which $307.7 million relates to borrowings under
the new $350.0 million Senior Secured Credit Facility (see below), together with
$19.7 million of proceeds related to the Chester, South Carolina facility
Secured Loan (see below). Financing activities also included $246.8 million in
repayments of long-term debt, of which $183.7 million related to the new $350.0
million Senior Secured Credit Facility, $35.0 million related to the repayment
of our 10 1/2% Senior Notes, $19.7 million related to the repayment of the
Chester, South Carolina lease obligation and the repayment of our $7.0 million
Precious Metal Note. In addition, financing activities included $38.4 million of
distributions and loans to our parent corporations and $9.1 million in financing
fees and expenses.
22
BUILDING MATERIALS CORPORATION OF AMERICA
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
In May 2003, we sold property in Ontario, California for net cash
proceeds of approximately $9.3 million, which resulted in a pre-tax gain of
approximately $5.7 million.
In July 2003, we entered into a new $350.0 million Senior Secured
Credit Facility, which we refer to as the New Credit Facility. The initial
borrowings under the New Credit Facility were primarily used to repay amounts
outstanding under our existing $210.0 million Secured Revolving Credit Facility
due August 2003, to repay our $115.0 million Accounts Receivable Securitization
Agreement due December 2004 and to repay our $7.0 million Precious Metal Note
due August 2003. The New Credit Facility has a final maturity date of November
15, 2006, subject to certain conditions, is secured by a first priority lien on
substantially all of our assets and the assets of our subsidiaries and is
guaranteed by all of our current and future subsidiaries. Availability under the
New Credit Facility is based upon eligible Accounts Receivable, Inventory, and
Property, Plant and Equipment (collectively the "Collateral"), as defined, in
the New Credit Facility and includes a sub-limit for letters of credit of $100.0
million. The New Credit Facility bears interest at a floating rate based on the
lenders' Base Rate, the federal funds rate or the Eurodollar rate, each as
defined in the New Credit Facility. The New Credit Facility requires mandatory
repayments of excess cash, as defined, on the tenth day of each month. We are
also required to pay unused commitment fees associated with the New Credit
Facility. Borrowings outstanding under the New Credit Facility which are
included in long-term debt amounted to $124.0 million at September 28, 2003.
Under the terms of the New Credit Facility and the indentures
governing our 7 3/4% Senior Notes due 2005, our 8 5/8% Senior Notes due 2006,
our 8% Senior Notes due 2007, and our 8% Senior Notes due 2008, which we refer
to as our Senior Notes, we are subject to certain financial covenants. These
financial covenants include, among others,
o interest coverage, as defined,
o minimum consolidated EBITDA (earnings before income taxes and
extraordinary items increased by interest expense, depreciation,
goodwill and other amortization), as defined,
o limitations on the amount of annual capital expenditures and
indebtedness,
o restrictions on restricted payments, including dividends and
distributions to our parent corporations and on incurring liens, and
o restrictions on investments and other payments. In addition, if a
change of control as defined in the New Credit Facility occurs, the
New Credit Facility could be terminated and the loans under the New
Credit Facility accelerated by the holders of that indebtedness. If
that event occurred, it would cause our outstanding Senior Notes to
be accelerated.
23
BUILDING MATERIALS CORPORATION OF AMERICA
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
As of September 28, 2003, we were in compliance with all covenants
under the New Credit Facility and the indentures governing our Senior Notes.
Our Senior Notes are secured by a second-priority lien on the assets
securing the New Credit Facility for so long as the first-priority lien remains
in effect, subject to certain limited exceptions and have been guaranteed by our
subsidiaries that guaranteed the New Credit Facility. In connection with
entering into the New Credit Facility, we entered into an Amended and Restated
Security Agreement, which grants a security interest in the Collateral in favor
of the collateral agent on behalf of the lenders under the New Credit Facility
and the holders of our outstanding Senior Notes. We also entered into an Amended
and Restated Collateral Agent Agreement, which provides, among other things,
that we maintain a lockbox and depository control agreement for the benefit of
the secured parties and the sharing of proceeds with respect to any foreclosure
or other remedy in respect of the Collateral.
In July 2003, we exercised an Early Buyout Option on certain
machinery and equipment located at our Chester, South Carolina glass mat
manufacturing facility for $19.7 million. In addition, in July 2003, we entered
into a new $19.7 million Secured Loan, which we refer to as the Chester Loan,
with the proceeds being used to repay the $19.7 million obligation associated
with the Early Buyout Option discussed above. The Chester Loan is secured by a
sole security interest in the machinery and equipment, matures in July 2010,
requires monthly payments of principal and interest commencing in August 2003
and bears a fixed annual interest rate of 7.41%.
In July 2003, we terminated our Accounts Receivable Securitization
Agreement, which we refer to as the Securitization Agreement, at which time we
repurchased our undivided interest in receivables previously sold to a special
purpose subsidiary of ours, BMCA Receivables Corporation, without recourse,
which in turn sold them to a third party, without recourse. In connection with
the termination of the Securitization Agreement in July 2003, we repaid $115.0
million of amounts outstanding under such agreement. At September 28, 2003, the
effect of the above transaction increased accounts receivable and long-term debt
by $105.4 million. We also liquidated BMCA Receivables Corporation effective
August 2003.
We make loans to, and borrow from, our parent corporations from time
to time at prevailing market rates. On July 1, 2003 we loaned BMCA Holdings
Corporation $37.8 million and on July 9, 2003, BMCA Holdings Corporation loaned
us $37.8 million. As of September 28, 2003 BMCA Holdings Corporation owed us
$38.3 million, including interest of $0.5 million and we owed BMCA Holdings
Corporation $38.3 million, including interest of $0.5 million.
24
BUILDING MATERIALS CORPORATION OF AMERICA
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
In September 2003, we used proceeds from the New Credit Facility to
repay our outstanding 10 1/2% Senior Notes at maturity, aggregating $35.0
million plus accrued interest.
As a result of the foregoing factors, cash and cash equivalents
decreased by $73.9 million during the first nine months of 2003 to $22.2
million.
See Note 2 to Consolidated Financial Statements for information
regarding contingencies.
In May 2003, we entered into a long-term contract with a subsidiary
of International Specialty Products Inc. ("ISP"), an affiliate, to purchase
substantially all of our colored roofing granules and algae-resistant granules
requirements, except for the requirements of certain of our roofing plants that
are supplied by third parties.
We have contracts with two different asphalt terminal suppliers where
asphalt imported from Venezuela or other suppliers is stored prior to its use at
our plants. These asphalt terminals are located at the Ports of Tampa, Florida
and Savannah, Georgia and are used to service our plants at those sites. We are
obligated to pay these suppliers for use of these terminals under these
contracts through 2008 and 2005, respectively. Monthly pricing is fixed and
includes capital improvements made at each asphalt terminal by its owner.
During the first six months of 2003, the petroleum industry strike in
Venezuela continued to adversely impact the asphalt supply and pricing for the
U.S. roofing industry; however, during the third quarter of 2003, these
pressures have eased, although the cost of asphalt continues to be high relative
to historical levels. We do not anticipate any future disruption in the supply
of asphalt, although no assurances can be provided in that regard.
* * *
Forward-looking Statements
This Quarterly Report on Form 10-Q contains both historical and
forward-looking statements. All statements other than statements of historical
fact are, or may be deemed to be, forward-looking statements within the meaning
of section 27A of the Securities Act and section 21E of the Securities Exchange
Act of 1934. These forward-looking statements are only predictions and generally
can be identified by use of statements that include phrases such as "believe,"
"expect," "anticipate," "intend," "plan," "foresee" or other words or phrases.
Similarly, statements that describe the Company's objectives, plans or goals
also are forward-looking statements. The Company's operations are subject to
certain risks and uncertainties that could cause actual results to
25
BUILDING MATERIALS CORPORATION OF AMERICA
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
differ materially from those contemplated by the relevant forward-looking
statements. The forward-looking statements included herein are made only as of
the date of this Quarterly Report on Form 10-Q and the Company undertakes no
obligation to publicly update forward-looking statements to reflect subsequent
events or circumstances. No assurances can be given that projected results or
events will be achieved.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Reference is made to Management's Discussion and Analysis of
Financial Condition and Results of Operations in the 2002 Form 10-K for a
discussion of "Market-Sensitive Instruments and Risk Management". There were no
material changes in such information as of September 28, 2003 and there was no
hedging activity in the quarter ended September 28, 2003.
Item 4. CONTROLS AND PROCEDURES
Our management, with the participation of the Chief Executive Officer
and Chief Financial Officer, conducted an evaluation of the effectiveness of our
disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) as of the end of the period covered by this report. Based on
this evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, our disclosure controls and
procedures are effective in recording, processing, summarizing and reporting, on
a timely basis, information required to be disclosed by us in the reports filed,
furnished or submitted under the Exchange Act.
There have not been any changes in our internal control over
financial reporting during the fiscal quarter to which this report relates that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
26
BUILDING MATERIALS CORPORATION OF AMERICA
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
As of September 28, 2003, approximately 1,900 alleged
asbestos-related bodily injury claims relating to the inhalation of asbestos
fiber are pending against Building Materials Corporation of America. See Note 2
to Unaudited Consolidated Financial Statements above.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) The registrants filed a news release on Form 8-K dated July 17, 2003
regarding the announcement of the new $350 million Senior Secured
Credit Facility.
(c) The registrants filed a news release on Form 8-K dated July 31, 2003
regarding results of operations for the quarterly period ended June
29, 2003. The information set forth in Item 12 of this Form 8-K was
furnished to the Securities and Exchange Commission and not "filed"
pursuant to Section 18 of the Securities Exchange Act of 1934, as
amended.
27
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, each Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
BUILDING MATERIALS CORPORATION OF AMERICA
BUILDING MATERIALS MANUFACTURING CORPORATION
DATE: November 11, 2003 BY: /s/John F. Rebele
----------------- ----------------------------------
John F. Rebele
Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
DATE: November 11, 2003 BY: /s/James T. Esposito
----------------- ----------------------------------
James T. Esposito
Vice President and Controller
(Principal Accounting Officer)
28
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant listed below has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
BUILDING MATERIALS INVESTMENT CORPORATION
DATE: November 11, 2003 BY: /s/John F. Rebele
----------------- ----------------------------------
John F. Rebele
Senior Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
29