FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(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, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-26703
G-I HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3483838
(State of Incorporation) (I. R. S. Employer
Identification No.)
818 Washington Street, Wilmington, Delaware 19801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (302) 429-8525
(Not applicable)
(Former name, former address and former fiscal year, if changed since last
report.)
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 12, 1996, the Registrant had 100 shares of common stock, $.01 par
value, outstanding.
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Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
G-I HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
Second Quarter Ended Six Months Ended
-------------------- ------------------
July 2, June 30, July 2, June 30,
1995 1996 1995 1996
-------- -------- -------- --------
(Thousands)
Net sales.......................... $348,200 $402,213 $654,633 $742,908
-------- -------- -------- --------
Costs and expenses:
Cost of products sold............ 225,418 260,424 430,863 486,300
Selling, general and
administrative................. 68,338 80,739 129,368 150,657
Goodwill amortization............ 3,476 3,617 6,953 7,215
-------- -------- -------- --------
Total costs and expenses....... 297,232 344,780 567,184 644,172
-------- -------- -------- --------
Operating income................... 50,968 57,433 87,449 98,736
Interest expense................... (36,559) (37,346) (71,644) (75,145)
Equity in earnings of joint venture 1,500 1,736 1,950 3,150
Other income, net.................. 7,323 10,628 14,834 23,308
-------- -------- -------- --------
Income from continuing operations
before income taxes and
extraordinary item............... 23,232 32,451 32,589 50,049
Income taxes....................... (9,047) (12,321) (12,683) (19,004)
Minority interest in income of
subsidiaries..................... (3,399) (3,914) (6,293) (7,410)
-------- -------- -------- --------
Income from continuing operations
before extraordinary item........ 10,786 16,216 13,613 23,635
Discontinued operation (Note A):
Income from discontinued
operation, net of income taxes. 529 552 500 252
-------- -------- -------- --------
Income before extraordinary item... 11,315 16,768 14,113 23,887
Extraordinary item, net of income
tax benefit of $5,016 (Note B)... - - - (8,186)
-------- -------- -------- --------
Net income......................... $ 11,315 $ 16,768 $ 14,113 $ 15,701
======== ======== ======== ========
See Notes to Consolidated Financial Statements
1
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G-I HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1995 1996
------------ ----------
ASSETS (Thousands)
Current Assets:
Cash.......................................... $ 67,987 $ 17,852
Investments in trading securities............. 23,331 12,068
Investments in available-for-sale securities.. 164,804 176,646
Investments in held-to-maturity securities.... 15,017 15,754
Accounts receivable, trade, net............... 74,548 91,790
Accounts receivable, other.................... 36,750 82,918
Insurance receivable.......................... 15,226 27,940
Inventories................................... 175,486 182,583
Deferred income tax benefits.................. 42,627 42,627
Net assets of discontinued operation.......... - 13,533
Other current assets.......................... 11,063 9,671
---------- ----------
Total Current Assets........................ 626,839 673,382
Investment in limited partnership............... 450,000 450,000
Property, plant and equipment, net.............. 708,883 710,391
Goodwill, net................................... 477,923 470,047
Insurance receivable............................ 185,216 172,514
Receivable from parent company.................. 8,662 8,629
Net assets of discontinued operation............ 13,582 -
Other assets.................................... 89,769 85,585
---------- ----------
Total Assets.................................... $2,560,874 $2,570,548
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Short-term debt............................... $ 36,199 $ 32,369
Current maturities of long-term debt.......... 9,387 3,707
Accounts payable.............................. 95,053 100,643
Accrued liabilities........................... 106,271 125,476
Reserve for asbestos claims................... 84,441 78,748
Income taxes.................................. 5,487 6,403
---------- ----------
Total Current Liabilities................... 336,838 347,346
---------- ----------
Long-term debt less current maturities.......... 1,550,347 1,565,134
---------- ----------
Deferred income taxes........................... 89,931 98,995
---------- ----------
Reserve for asbestos claims..................... 297,439 262,786
---------- ----------
Other liabilities............................... 174,429 168,105
---------- ----------
Minority interest in subsidiaries............... 113,597 118,083
---------- ----------
Shareholder's Equity (Deficit):
Common stock, $.01 par value per share;
1,000 shares authorized: 100 shares issued
and outstanding............................. - -
Additional paid-in capital.................... 50,129 50,609
Excess of purchase price over the adjusted
historical cost of the predecessor company
shares owned by GAF's shareholders.......... (72,605) (72,605)
Retained earnings............................. 6,213 19,914
Cumulative translation adjustment and other... 14,556 12,181
---------- ----------
Shareholder's Equity (Deficit).............. (1,707) 10,099
---------- ----------
Total Liabilities and Shareholder's Equity
(Deficit)..................................... $2,560,874 $2,570,548
========== ==========
See Notes to Consolidated Financial Statements
2
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G-I HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
--------------------
July 2, June 30,
1995 1996
-------- --------
(Thousands)
Cash and cash equivalents, beginning of period......... $147,144 $ 91,318
-------- --------
Cash provided by operating activities:
Net income........................................... 14,113 15,701
Adjustments to reconcile net income to net cash
provided by operating activities:
Non-cash extraordinary charge.................... - 8,143
Income from discontinued operation............... (500) (252)
Depreciation..................................... 27,253 30,423
Goodwill amortization............................ 6,953 7,215
Deferred income taxes............................ 6,718 8,309
Non-cash interest charges........................ 40,209 34,794
(Increase) decrease in working capital items......... (61,379) (54,979)
Payments of asbestos claims, net..................... (31,619) (44,756)
Change in cumulative translation adjustment.......... 7,108 (4,846)
Other, net........................................... (4,112) 8,034
-------- --------
Net cash provided by continuing operations ....... 4,744 7,786
Net cash provided by discontinued operation........ 792 301
-------- --------
Net cash provided by operating activities ........ 5,536 8,087
-------- --------
Cash used in investing activities:
Capital expenditures and acquisition................. (28,088) (30,617)
Purchases of available-for-sale securities........... (186,460) (175,511)
Purchases of held-to-maturity securities............. (9,543) (17,491)
Designation of trading securities as available-for-
sale............................................... (2,697) (18,325)
Proceeds from sales of available-for-sale securities. 113,255 186,307
Proceeds from held-to-maturity securities............ - 16,753
-------- --------
Net cash used in investing activities.............. (113,533) (38,884)
-------- --------
Cash provided by (used in) financing activities:
Proceeds from sales of accounts receivable........... 23,089 16,378
Increase (decrease) in short-term debt............... 22,856 (4,162)
Decrease in long-term debt........................... (21,865) (33,991)
Decrease in restricted cash.......................... 24,484 -
Decrease in loan from parent company................. (1,800) -
Financing fees and expenses.......................... (98) (2,460)
Dividends paid to parent company..................... (27,191) (1,531)
Subsidiary's repurchases of common stock............. (11,173) (4,816)
Other, net........................................... (164) (19)
-------- --------
Net cash provided by (used in) financing activities 8,138 (30,601)
-------- --------
Net change in cash and cash equivalents................ (99,859) (61,398)
-------- --------
Cash and cash equivalents, end of period............... $ 47,285 $ 29,920
======== ========
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized)............... $ 30,497* $ 32,188*
Income taxes....................................... 4,850 4,879
* Includes interest paid on partnership non-recourse debt of $16 million for
each of the first six months of 1995 and 1996.
See Notes to Consolidated Financial Statements
3
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The "Company" refers to G-I Holdings Inc. and its subsidiaries, and the
"Registrant" refers to G-I Holdings Inc. These financial statements reflect,
in the opinion of the Registrant, all adjustments necessary to present fairly
the financial position of the Company at December 31, 1995 and June 30, 1996,
and the results of operations and cash flows for the periods ended July 2, 1995
and June 30, 1996. All adjustments are of a normal recurring nature. These
financial statements should be read in conjunction with the annual financial
statements and notes thereto included in the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995 (the "Form 10-K").
NOTE A: Discontinued Operation
On August 1, 1996, the Company completed the sale of WAXQ, a
commercial radio station operated by GAF Broadcasting Company, Inc.
("GAF Broadcasting"), a wholly-owned subsidiary of the Company, for a
purchase price of $90 million. The gain on disposal of approximately
$47.5 million, after income taxes of approximately $26.7 million,
will be recorded in the third quarter of 1996.
Accordingly, GAF Broadcasting is reported as a discontinued
operation, and the consolidated financial statements have been
reclassified to report separately the net assets and operating
results of GAF Broadcasting. The Company's prior year financial
statements have been restated to reflect continuing operations. Net
assets of GAF Broadcasting at June 30, 1996 consisted primarily of
fixed assets and intangibles.
Summary operating results for GAF Broadcasting for the second
quarter and first six months of 1995 and 1996 are as follows:
Second Quarter First Six Months
-------------- ----------------
1995 1996 1995 1996
------ ------ ------ ------
(Thousands)
Sales $2,448 $2,281 $3,923 $3,495
Income before income taxes 779 890 732 406
Income taxes (250) (338) (232) (154)
Net income 529 552 500 252
4
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE B: Extraordinary Item
In February 1996, the Registrant completed the exchange of
$189.3 million in accreted value of its outstanding Senior Discount
Notes due 1998, representing approximately 35% of the total issue,
for $200 million of its new Senior Notes due February 15, 2006, which
bear interest payable in cash at the rate of 10% per annum. In
connection therewith, the Company recorded an extraordinary loss of
$8.2 million, net of related income tax benefit of $5 million.
NOTE C: Business Segment Information:
Second Quarter First Six Months
-------------- ----------------
1995 1996 1995 1996
------ ------ ------ ------
(Millions)
Net Sales:
ISP*...................... $171.1 $172.1 $338.9 $346.1
Building Materials........ 177.1 230.1 315.7 396.8
------ ------ ------ ------
Total................... $348.2 $402.2 $654.6 $742.9
====== ====== ====== ======
Operating Income:
ISP....................... $ 36.2 $ 38.0 $ 67.4 $ 72.2
Building Materials........ 15.8 20.7 22.8 28.3
Other..................... (1.0) (1.3) (2.8) (1.8)
------ ------ ------ ------
Total................... $ 51.0 $ 57.4 $ 87.4 $ 98.7
====== ====== ====== ======
* Excludes sales by International Specialty Products Inc. and its
subsidiaries ("ISP") to Building Materials Corporation of America
("BMCA") and U.S. Intec, Inc. ("USI").
NOTE D: On July 26, 1996, ISP refinanced its $250 million long-term revolving
credit facility and $150 million one-year revolving credit facility
with a $400 million five-year revolving credit facility (the "ISP
Credit Agreement"). Borrowings under the ISP Credit Agreement bear
interest at a floating rate based on the banks' base rate, federal
funds rate, Eurodollar rate or a competitive bid rate (which may be
based on LIBOR or money market rates), at the option of ISP.
The ISP Credit Agreement permits ISP to make loans to affiliates
and to make available letters of credit for the benefit of affiliates
in an aggregate amount of up to $75 million. As of June 30, 1996,
$2.3 million of letters of credit for the benefit of affiliates were
outstanding.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE D: (Continued)
The ISP Credit Agreement permits ISP to pay cash dividends and
make other restricted payments (as defined) of up to the sum of $50
million plus 50% of the sum of its consolidated net income (if
positive) after January 1, 1996 plus the aggregate net cash proceeds
from issuance of ISP's common stock after December 31, 1995.
In June 1996, BMCA's bank credit facilities were extended to
June 1997 on the same terms and conditions. Such facilities provide
for revolving lines of credit of up to $30 million and letters of
credit facilities of up to $39 million, provided that total
borrowings and outstanding letters of credit may not exceed $40
million.
NOTE E: Inventories consist of the following:
December 31, June 30,
1995 1996
------------ --------
(Thousands)
Finished goods..................... $106,157 $110,155
Work in process.................... 28,134 32,054
Raw materials and supplies......... 44,336 44,552
-------- --------
Total............................ 178,627 186,761
Less LIFO reserve.................. (3,141) (4,178)
-------- --------
Inventories........................ $175,486 $182,583
======== ========
NOTE F: Contingencies
Asbestos Claims Filed Against GAF
As of June 30, 1996, GAF Corporation ("GAF"), the parent of the
Registrant, had been named as a defendant in approximately 46,500
pending lawsuits involving alleged health claims relating to the
inhalation of asbestos fiber ("Asbestos Claims"), having resolved
approximately 220,000 Asbestos Claims. Plaintiffs in approximately
19,500 of the pending lawsuits were preliminary enjoined from
proceeding with their claims other than in accordance with the
pending class-action settlement of future asbestos bodily injury
claims (the "Settlement"). Since December 31, 1995, GAF has settled
approximately 18,700 Asbestos Claims and received notice of
approximately 15,500 new Asbestos Claims (of which approximately
11,900 are subject to the preliminary injunction). On May 10, 1996,
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F: (Continued)
the United States Court of Appeals for the Third Circuit (the "Third
Circuit") issued an opinion, concluding that the class action was not
certifiable as a class action, thus reversing the decision of the
lower court which (i) found the Settlement fair and reasonable and
(ii) issued the preliminary injunction. The Company intends to file
a petition for a writ of certiorari with the United States Supreme
Court to pursue an appeal of the Third Circuit's decision. The
Company continues to believe the Settlement should ultimately be
upheld on appeal, although there can be no assurance in this regard.
The reserves of GAF and the Company for asbestos bodily injury
claims, as of June 30, 1996, were approximately $341.5 million
(before estimated present value of recoveries from products liability
insurance policies of approximately $188.1 million and related
deferred tax benefits of approximately $54.9 million). Certain
components of the asbestos-related liability and the related
insurance recoveries have been reflected on a discounted basis in the
Company's financial statements. The aggregate undiscounted
liability, as of June 30, 1996, before estimated recoveries from
products liability insurance policies, was $380.9 million. The
estimate of liability for Asbestos Claims is based on the Settlement
becoming effective and on assumptions which relate, among other
things, to the number of new cases filed, the cost of resolving
(either by settlement or litigation or through the mechanism
established by the Settlement) pending and future claims, the
realization of related tax benefits, the favorable resolution of
pending litigation against certain insurance companies and the amount
of GAF's recoveries from various insurance companies.
The Company believes that the reserves established on its books
(which reflect the discounting of a portion of the liabilities),
together with anticipated available insurance proceeds, will be
sufficient to satisfy all pending Asbestos Claims and all claims
anticipated to be resolved during the ten-year period of the
Settlement. There can be no assurance, however, that the assumptions
referred to above are correct.
Although any opinion is necessarily judgmental and must be based
on information currently known, it is the opinion of GAF and the
Company, based on the assumptions referred to above and their
7
<PAGE>
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS (Continued)
NOTE F: (Continued)
analysis of their future business, financial prospects and cash
flows, that asbestos-related bodily injury claims will not,
individually or in the aggregate, have a materially adverse effect on
the respective financial positions, results of operations or
liquidity of GAF and the Company, after giving effect to the
aforementioned reserves. In the event that the Third Circuit's
decision is not reversed and the Settlement is not upheld, or the
conditions to the effectiveness of the Settlement are not satisfied,
GAF and the Company could be required to increase their estimates of
the asbestos-related liabilities and adjust any related discounts,
and it is not currently possible to estimate the range or amount of
such possible additional liability.
GAF has also been named as a co-defendant in asbestos-in-
buildings cases for economic and property damage or other injuries
based upon an alleged present or future need to remove asbestos-
containing materials from public and private buildings. Since these
actions were first initiated 13 years ago, GAF has not only
successfully disposed of approximately 140 such cases at an average
disposition cost (including cases disposed of at no cost to GAF) of
approximately $15,000 per case (all of which have been paid by
insurance under reservation of rights), but is a co-defendant in only
8 remaining lawsuits.
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, a number of which 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 estimates
that its liability in respect of all Environmental Claims and certain
other environmental compliance expenses, as of June 30, 1996, will be
approximately $29.9 million, before insurance recoveries reflected on
the Company's balance sheet (discussed below) of $12.4 million
("estimated recoveries"). In the opinion of the Company's
8
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F: (Continued)
management, the resolution of the Environmental Claims should not be,
individually or in the aggregate, material to the results of
operations, liquidity or financial position of the Company. However,
adverse decisions or events, particularly as to the liability and the
financial responsibility of the other parties involved at each site
and their insurers, could cause the Company to increase its estimate
of its liability in respect of such matters. It is not currently
possible to estimate the amount or range of any additional liability.
After considering the relevant legal issues and other pertinent
factors, the Company believes that it will receive the estimated
recoveries and it may receive amounts substantially in excess
thereof. The Company believes it is entitled to substantially full
defense and indemnity under its insurance policies for most
Environmental Claims, although the Company's insurers have not
affirmed a legal obligation under the policies to provide indemnity
for such claims.
The estimated recoveries are based in part upon interim
agreements with certain insurers. The Company terminated these
agreements in 1995 and commenced litigation seeking amounts
substantially in excess of the estimated recoveries. While the
Company believes that its claims are meritorious, there can be no
assurance that the Company will prevail in its efforts to obtain
amounts equal to, or in excess of, the estimated recoveries.
For further information regarding asbestos-related and
environmental matters, reference is made to "Item 3. Legal
Proceedings" in the Company's Form 10-K.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Second Quarter 1996 Compared With
Second Quarter 1995
The Company recorded second quarter 1996 net income of $16.8 million
compared with net income of $11.3 million in the second quarter of 1995. The
increase in net income for the second quarter of 1996 reflected higher
operating income and other income, partially offset by increased interest
expense.
The Company's second quarter operating income was $57.4 million, an
increase of 13% over last year's $51 million, resulting from higher operating
income in each of its two businesses. Net sales for the second quarter
increased by 15.5% to $402.2 million from last year's $348.2 million.
ISP's net sales (excluding sales to BMCA and USI) were $172.1 million for
the second quarter of 1996 compared with $171.1 million for the same period
last year. The sales growth was primarily attributable to increased sales
volumes and/or higher selling prices for specialty chemicals and filter
products. The higher sales reflected higher international sales, partially
offset by the unfavorable effect ($4.7 million) of the stronger U.S. dollar
relative to other currencies in certain areas of the world and by lower
domestic sales. Sales for the mineral products business (excluding sales to
BMCA and USI) decreased by $1.1 million (10%) due to lower sales volumes
resulting from a lost customer.
ISP's operating income for the second quarter of 1996 increased by 5% to
$38 million from last year's $36.2 million. The increase in operating income
was attributable to higher specialty chemicals operating income (up $3.0
million or 10%), partially offset by lower mineral and filter products results
(down $0.5 and $0.9 million, respectively). The higher specialty chemicals
operating income resulted from the higher sales levels and improved gross
margins (up 3.4 percentage points) due primarily to improved pricing.
The Company's building materials business ("Building Materials") is
conducted through two wholly-owned subsidiaries, BMCA and USI. Building
Materials' net sales for the second quarter of 1996 were $230.1 million, a 30%
increase over last year's sales of $177.1 million, primarily reflecting sales
of USI, which was acquired in October 1995, and also reflecting 17% higher BMCA
sales due to increased unit volumes of both residential and commercial roofing
products and higher average selling prices.
10
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Operating income for Building Materials for the second quarter of 1996 was
$20.7 million, a 31% increase compared with $15.8 million recorded in last
year's quarter. The higher operating income resulted from the higher sales
volumes and from improved BMCA gross margins (up .2 percentage points)
resulting primarily from higher average selling prices.
Interest expense increased to $37.3 million for the second quarter of 1996
compared with $36.6 million for the same period last year. The increase was
due primarily to higher debt levels, partially offset by the effects of lower
interest rates.
Other income, net for the second quarter was $10.6 million compared with
$7.3 million for the second quarter of 1995, with the increase primarily
attributable to higher investment income.
Results of Operations - Six Months 1996 Compared With
Six Months 1995
For the first six months of 1996, the Company recorded net income of $15.7
million compared with net income of $14.1 million for the first six months of
1995. Net income in the 1996 period reflected an extraordinary charge of $8.2
million (net of a related income tax benefit of $5 million) related to the
exchange of a portion of the Registrant's senior debt (see Note B to
Consolidated Financial Statements). Income before the extraordinary item
increased by 69% as a result of higher operating and other income, partially
offset by increased interest expense.
Operating income for the first six months of 1996 was $98.7 million, an
increase of 13% from $87.4 million in the same period last year, resulting from
higher operating income in each of the Company's two businesses. Net sales for
the first six months increased by 13.5% to $742.9 million from last year's
$654.6 million.
ISP's net sales for the first six months (excluding sales to BMCA and USI)
were $346.1 million compared with $338.9 million for the same period in 1995.
The sales growth was attributable to increased sales of specialty chemicals (up
$9.9 million), primarily reflecting increased sales volumes and higher sales
prices. This increase resulted from higher sales in all geographic regions
partially offset by the unfavorable effect ($4.2 million) of the stronger U.S.
dollar relative to other currencies in certain areas of the world. Sales for
the mineral products business (excluding sales to BMCA and USI) decreased by
$3.9 million (18%) due to lower sales volumes resulting from a lost customer
and adverse winter weather conditions in the first quarter of 1996.
11
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ISP's operating income for the first six months of 1996 increased by 7% to
$72.2 million from last year's $67.4 million. The increase in operating income
was due to higher specialty chemicals operating income (up $8.5 million or
15%), partially offset by lower mineral and filter products results (down $2.0
million each). The higher specialty chemicals operating income resulted
primarily from the higher sales levels and improved gross margins (up 3.2
percentage points) due to improved pricing and continued benefits from the
Company's re-engineering program.
Building Materials' net sales for the first six months of 1996 were $396.8
million, a 26% increase over sales of $315.7 million for the same period in
1995. The higher sales primarily reflected the sales of USI, which was
acquired in October 1995, and also reflected a 12% sales growth for BMCA due to
increased unit volumes of both residential and commercial roofing products and
higher average selling prices.
Operating income for Building Materials for the first six months of 1996
was $28.3 million, a 24% increase compared with $22.8 million for the same
period in 1995. The higher operating income resulted from higher sales and
improved margins resulting primarily from higher average selling prices.
Interest expense increased to $75.1 million for the first six months of
1996 compared with $71.6 million for the same period last year, with the
increase due primarily to higher debt levels, partially offset by lower
interest rates.
Other income, net for the first six months of 1996 was $23.3 million
compared with $14.8 million last year, with the increase attributable to higher
investment income and gains associated with ISP's program to hedge certain of
its foreign currency exposures.
Liquidity and Financial Condition
During the first six months of 1996, the Company generated $8.1 million of
cash from operations, invested $30.6 million in capital expenditures and
acquisitions, and invested $8.3 million for net purchases of available-for-sale
and held-to-maturity securities, for a net cash outflow of $30.8 million before
financing activities. Such cash outflow included $44.8 million in net payments
of asbestos claims.
Cash invested in additional working capital totaled $55 million during the
first six months of 1996. This amount principally reflected a $79.6 million
increase in receivables (including a $36 million increase in the receivable
12
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from the trust which purchases BMCA's trade accounts receivable) due mainly to
higher sales in June 1996 versus December 1995, and a $6.8 million increase in
inventories due primarily to a seasonal increase for Building Materials. Cash
from operations in the first six months of 1996 included $5.7 million in
dividends received from the GAF-Huls Chemie GmbH joint venture.
Net cash used in financing activities during the first six months of 1996
was $30.6 million, primarily comprised of a $28.8 million reduction in
borrowings under ISP's bank credit agreements, $5.2 million of net repayments
of other long-term debt, a $4.2 million decrease in short-term borrowings, and
$4.8 million for ISP's repurchases of its common stock, partially offset by
$16.4 million in proceeds from the sale of BMCA's trade receivables.
As a result of the foregoing factors, cash and cash equivalents decreased
by $61.4 million during the first six months of 1996 to $29.9 million
(excluding $176.6 million of available-for-sale securities and $15.8 million of
held-to-maturity securities).
In February 1996, the Registrant completed the exchange of $189.3 million
in accreted value of its outstanding Senior Discount Notes due 1998,
representing approximately 35% of the total issue, for $200 million of its new
Senior Notes due February 15, 2006, which bear interest payable in cash at the
rate of 10% per annum.
On August 1, 1996, the Company completed the sale of WAXQ, a commercial
radio station operated by GAF Broadcasting Company, Inc., a wholly-owned
subsidiary of the Company, to Entertainment Communications, Inc. (which in turn
transferred the station to Viacom, Inc.) for a purchase price of $90 million.
In June 1996, BMCA's bank credit facilities were extended to June 1997 on
the same terms and conditions. Such facilities provide for revolving lines of
credit of up to $30 million and letters of credit facilities of up to $39
million, provided that total borrowings and outstanding letters of credit may
not exceed $40 million. As of June 30, 1996, $33.1 million of letters of
credit were outstanding and no amounts had been borrowed thereunder.
On July 26, 1996, ISP entered into a new five-year revolving credit
facility (the "ISP Credit Agreement") with a group of banks, which provides for
loans of up to $400 million and letters of credit of up to $75 million (see
Note D to Consolidated Financial Statements).
The ISP Credit Agreement and the indentures relating to ISP's 9% Senior
Notes and BMCA's Senior Deferred Coupon Notes contain restrictions which limit
the amount of dividends and loans that may be made to affiliates, including the
Registrant. As of June 30, 1996, assuming the new ISP Credit Agreement was in
13
<PAGE>
effect, ISP could have paid dividends in the aggregate amount of $71.9 million,
of which $59.4 million would have been available to the Registrant, and could
have made loans to affiliates of $72.7 million, and BMCA could have paid
dividends of up to $41 million. In addition, as of June 30, 1996, loans in the
aggregate amount of $132.9 million were owed by ISP to the Registrant, and a
loan of $2.4 million was owed by BMCA to the Registrant.
See Note F to Consolidated Financial Statements for information regarding
contingencies.
14
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The discussion relating to legal proceedings contained in Note F to
Consolidated Financial Statements in Part I is incorporated herein by
reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only.
(b) No Reports on Form 8-K were filed during the quarter ended June 30, 1996.
15
<PAGE>
SIGNATURES
-----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
G-I Holdings Inc.
DATE: August 14, 1996 BY: /s/James P. Rogers
--------------- ---------------------------
James P. Rogers
Senior Vice President and
Chief Financial Officer
DATE: August 13, 1996 BY: /s/Jonathan H. Stern
--------------- ---------------------------
Jonathan H. Stern
Vice President and Controller
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SECOND
QUARTER 1996 10-Q OF G-I HOLDINGS INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 17852
<SECURITIES> 204468
<RECEIVABLES> 91790
<ALLOWANCES> 0
<INVENTORY> 182583
<CURRENT-ASSETS> 673382
<PP&E> 710391
<DEPRECIATION> 0
<TOTAL-ASSETS> 2570548
<CURRENT-LIABILITIES> 347346
<BONDS> 1565134
0
0
<COMMON> 0
<OTHER-SE> 10099
<TOTAL-LIABILITY-AND-EQUITY> 2570548
<SALES> 742908
<TOTAL-REVENUES> 742908
<CGS> 486300
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<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 50049
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<INCOME-CONTINUING> 23635
<DISCONTINUED> 252
<EXTRAORDINARY> (8186)
<CHANGES> 0
<NET-INCOME> 15701
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</TABLE>
