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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 33-26703
G-I HOLDINGS INC.
(Exact name of registrant as specified in its charter)
13-3483838
DELAWARE (I.R.S. Employer
(State of Incorporation) 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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 March 21, 1997, 100 shares of the Registrant's common stock were
outstanding. All of the voting stock of the Registrant is held by GAF
Corporation.
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PART I
ITEM 1. BUSINESS
G-I HOLDINGS
G-I Holdings Inc. (the 'Registrant' or 'G-I Holdings'), incorporated under
the laws of Delaware in 1988, is a wholly-owned subsidiary of GAF Corporation
('GAF'). G-I Holdings owns all of the issued and outstanding stock of G
Industries Corp. ('G Industries'), which in turn owns all of the issued and
outstanding stock of GAF Building Materials Corporation ('GAFBMC') and GAF
Fiberglass Corporation (formerly known as GAF Chemicals Corporation) ('GFC').
GAFBMC owns all of the issued and outstanding stock of Building Materials
Corporation of America ('BMCA'), which indirectly owns all of the issued and
outstanding stock of U.S. Intec, Inc. ('USI'). G-I Holdings has its principal
offices at 818 Washington Street, Wilmington, Delaware 19801, telephone (302)
429-8525. Except as the context otherwise requires, the 'Company' refers to G-I
Holdings and its subsidiaries and their predecessors.
On January 1, 1997, GAF effected a series of transactions (collectively,
the 'Separation Transactions') involving its subsidiaries that resulted in,
among other things, (1) the capital stock of ISP Holdings Inc. ('ISP Holdings')
(whose principal asset is approximately 83.5% of the issued and outstanding
capital stock of International Specialty Products Inc. ('ISP')) being
distributed to the stockholders of GAF, (2) BMCA's glass fiber manufacturing
facility in Nashville, Tennessee (and certain related assets and liabilities)
being transferred to GFC, and (3) USI becoming a subsidiary of BMCA. In
connection with the Separation Transactions, GFC entered into a long-term supply
agreement with BMCA pursuant to which GFC agreed to produce glass fiber for
BMCA. As a result of the Separation Transactions, ISP Holdings and ISP are no
longer direct or indirect subsidiaries of GAF or G-I Holdings, while BMCA and
USI and certain other assets and liabilities, including liabilities for
asbestos-related claims, remain part of G-I Holdings and GAF, but are not assets
or liabilities of ISP Holdings. The statistical data regarding the Company
presented herein gives retroactive effect to the Separation Transactions.
The Registrant intends to suspend its obligation to make filings with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended, promptly after the filing of this Annual Report on Form 10-K.
RESIDENTIAL ROOFING
BMCA is a leading manufacturer of a complete line of premium residential
roofing products, with residential roofing product sales representing
approximately 66% of the Company's net sales in 1996. BMCA has improved its
sales mix of residential roofing products in recent years by increasing its
emphasis on laminated products which generally are sold at higher prices with
more attractive profit margins than its standard strip shingle products. BMCA
believes that it is the largest manufacturer of laminated residential roofing
shingles, and the second largest manufacturer of standard shingles, in the
United States. (Statements contained herein as to BMCA's competitive position
are based on industry information which the Company believes to be reliable).
BMCA produces two principal lines of roofing shingles, the
Timberline(Registered) series and the Sovereign(Registered) series, as well as
certain specialty shingles for regional markets.
The Timberline(Registered) Series. The Timberline(Registered) Series
offers a premium laminated product line that adds dramatic shadow lines and
substantially improves the appearance of a roof. The series includes the GAF
Timberline(Registered) 25 Natural Shadow(Trademark) shingle, a mid-weight
laminated shingle which serves as an economic trade-up for consumers, with a
25-year limited warranty; the Timberline(Registered) Natural Shadow(Trademark)
shingle, with a 30-year limited warranty, offering a woodshake appearance,
enhanced visual depth and contrast simulating shadows and superior fire
resistance and durability; and the Timberline Ultra(Registered) Natural
Shadow(Trademark) shingle, with a 40-year limited warranty, a super heavyweight
laminated shingle with the same design features as the Timberline(Registered)
Natural Shadow(Trademark) shingle, together with added durability.
The Sovereign(Registered) Series. The Sovereign(Registered) Series
includes the standard 3-tab Sentinel(Registered) shingle with a 20-year limited
warranty; the Royal Sovereign(Registered) shingle, a heavier 3-tab shingle with
a 25-year limited warranty, designed to capitalize on the middle market for
quality shingles; and the Marquis(Registered) shingle, a super heavyweight 3-tab
shingle with a 30-year limited warranty.
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Specialty Shingles. BMCA's specialty asphalt shingles include:
Slateline(Registered) shingles offering the appearance of slate, labor savings
in installation because of their larger size and a 30-year limited warranty;
Stonehenge(Registered) shingles offering a unique strip shingle appearance and a
25-year limited warranty; Dubl-Coverage(Registered) Tite-On(Registered) shingles
offering a design feature that enables the shingles to lock together to form a
double layer roof, and a 25-year limited warranty; the Grand Sequoia(Registered)
shingle, a premier architectural shingle with a 40-year warranty; and the
Floridian(Registered) shingle, a unique 6-tab shingle that offers a dimensional
look with a 25-year limited warranty.
SystemRoof(Registered) Component Roofing System. In addition to shingles,
BMCA supplies all the components necessary to install a complete roofing system.
BMCA's SystemRoof(Registered) begins with Weather Watch(Registered) ice and
water barrier underlayment for eaves, valleys and flashings to prevent water
seepage between the roof deck and the shingles caused by ice build-ups. BMCA's
SystemRoof(Registered) also includes Shingle-Mate(Registered) glass reinforced
underlayment, Timbertex(Registered), Ridgetex(Trademark) and
Slateline(Registered) Hip and Ridge shingles which are significantly thicker and
larger than standard hip and ridge shingles and provide dramatic accents to the
slopes and planes of a roof and the Cobra(Registered) Ridge Vent which provides
attic ventilation.
On March 14, 1997, BMCA acquired the assets of the Leatherback Industries
division of Hollinee Corporation, which is engaged in the manufacture and sale
of asphalt-saturated roofing felts and other felt and construction paper
products.
COMMERCIAL ROOFING
BMCA manufactures a full line of modified bitumen products, asphalt
built-up roofing and roofing accessories for use in the application of
commercial roofing. Commercial roofing represented approximately 34% of the
Company's net sales in 1996. Approximately 70% of commercial roofing industry
membrane unit sales utilize asphalt built-up roofing and modified bitumen
products, both of which BMCA manufactures. The Company believes that it is the
second largest manufacturer of asphalt built-up roofing products and the largest
manufacturer of modified bitumen products in the United States.
BMCA manufactures glass membranes under the trademark GAFGLAS(Registered)
which are made from asphalt impregnated glass fiber mat for use as a component
in asphalt built-up roofing systems. Most of BMCA's GAFGLAS(Registered) products
are assembled on the roof by applying successive layers of roofing membrane with
asphalt and topped, in some applications, with gravel. Thermal insulation may be
applied beneath the membrane. BMCA also manufactures base sheets, flashings and
other roofing accessories for use in these systems and perlite roofing
insulation products, which consist of low thermal insulation that is installed
as part of a commercial roofing application below the roofing membrane. In
addition, BMCA sells isocyanurate foam as roofing insulation, packaged asphalt
and accessories, such as vent stacks, roof insulation fasteners, cements and
coating.
Modified bitumen products are sold under the Ruberoid(Registered) trademark
by BMCA and under the Brai(Registered) trademark by USI and are used primarily
in re-roofing applications. These products consist of a roofing membrane
utilizing polymer-modified asphalt, which strengthens and increases flexibility
and is reinforced with a polyester non-woven mat or a glass mat. Modified
bitumen systems provide high strength characteristics, such as weatherability,
water resistance, and labor cost savings due to ease of application.
MARKETING AND SALES
BMCA has one of the industry's largest sales forces, which is supported by
a staff of technical professionals who work directly with architects, general
contractors and owner/builders. BMCA markets its roofing products through its
own sales force of approximately 125 experienced full-time employees operating
from five regional sales offices located across the United States. USI markets
its roofing products through approximately 50 experienced full-time employees
and independent sales representatives. A major portion of BMCA's roofing product
sales are to wholesale distributors who resell BMCA's products to roofing
contractors and retailers. The Company believes that the wholesale distribution
channel offers the most attractive margins of all roofing market distribution
channels and represents the principal distribution channel for professionally
installed asphalt roofing products. BMCA believes that its nationwide coverage
has contributed to its roofing products being among the most recognized and
requested brands in the industry.
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No single customer accounted for 10% or more of the Company's 1996 sales,
except for American Builders and Contractors Supplies Co., Inc., which accounted
for approximately 11% of such sales.
RAW MATERIALS
The major raw materials required for the manufacture of BMCA roofing
products are asphalt, mineral stabilizer, glass fiber, glass fiber mat and
granules. Asphalt and mineral stabilizer are available from a large number of
suppliers and BMCA currently has contracts with several of these suppliers, with
others available as substitutes. Prices of most raw materials have been
relatively stable, rising moderately with general industrial prices, while the
price of asphalt tends to move in step with the price of crude oil.
Five of BMCA's roofing plants have easy access to deep water ports thereby
permitting delivery of asphalt by ship, the most economical means of transport.
BMCA's Chester, South Carolina plant manufactures glass fiber mat substrate.
BMCA currently purchases supplies of raw materials at reasonable costs, although
there can be no assurance that it will continue to do so. BMCA purchases from an
affiliate, ISP, substantially all its requirements for colored roofing granules
(except for the requirements of its California roofing plant which are supplied
by a third party) under a supply contract that was renewed for one year
effective January 1, 1997 and is subject to annual renewal unless terminated by
BMCA or ISP. In addition, in December 1995, USI commenced purchasing
substantially all of its requirements for colored roofing granules from ISP
(except for the requirements of its Stockton, California and Corvallis, Oregon
plants which are supplied by a third party) pursuant to a supply contract. As
part of the Separation Transactions, BMCA transferred to GFC its Nashville,
Tennessee facility, which manufactures a significant portion of BMCA's glass
fiber requirements, and entered into a supply contract with GFC under which GFC
produces glass fiber for BMCA.
SEASONAL VARIATIONS AND WORKING CAPITAL
Sales of roofing products in the northern regions of the United States
generally decline during the winter months due to adverse weather conditions.
Generally, BMCA's inventory practice includes increasing inventory levels in the
first and the second quarter in order to meet peak season demand (June through
November).
WARRANTY CLAIMS
BMCA provides certain limited warranties covering most of its residential
roofing products for periods ranging from 20 to 40 years. Although terms of
warranties vary, BMCA believes that its warranties generally are consistent with
those offered by its competitors. BMCA also offers limited warranties and
guarantees of varying duration on its commercial roofing products. The Company
currently believes that the reserves established for estimated probable future
warranty claims are adequate.
COMPETITION
The roofing products industry is highly competitive and includes a number
of national competitors, which in the residential roofing market are
Owens-Corning, Elcor and Celotex, and in the commercial roofing market are
Schuller International, Celotex, Firestone and Carlisle. In addition, there are
numerous regional competitors.
Competition is based largely upon products and service quality,
distribution capability, price and credit terms. BMCA believes that it is well
positioned in the marketplace as a result of its broad product lines in both the
residential and commercial markets, consistently high product quality, strong
sales force and national distribution capabilities. As a result of the growth in
demand for premium laminated shingles, a number of roofing manufacturers,
including BMCA, have increased their laminated shingle production capacity in
recent years and, accordingly, BMCA expects increased competition in this area.
RESEARCH AND DEVELOPMENT
BMCA's research and development activities are focused primarily on the
development of new products, process improvements and the testing of alternative
raw materials and supplies. BMCA's research and development activities,
dedicated to residential, commercial and fiberglass products, are located at
technical centers at Wayne, New Jersey, Nashville, Tennessee and Port Arthur,
Texas. BMCA's research and development expenditures were approximately $2.5
million, $3.1 million and $4.5 million in 1994, 1995 and 1996, respectively.
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PATENTS AND TRADEMARKS
BMCA owns approximately 73 domestic and 79 foreign patents and owns or
licenses approximately 138 domestic and 44 foreign trademark registrations.
While BMCA believes the patent protection covering certain of its products to be
material to those products, such patents are not of material significance to the
overall roofing-related business of BMCA.
BMCA believes that the duration of the existing patents and patent licenses
is satisfactory.
GFC
The business of GFC consists of (1) operating a glass fiber manufacturing
facility in Nashville, Tennessee, which was transferred to GFC as part of the
Separation Transactions, and (2) owning an interest in a partnership (the
'Surfactants Partnership') which operates, among other businesses, GFC's former
surfactants chemicals business. See Note 3 to Consolidated Financial Statements.
ENVIRONMENTAL COMPLIANCE
Since 1970, a wide variety of federal, state and local environmental laws
and regulations relating to environmental matters (the "Regulations") have been
adopted and amended. By reason of the nature of the operations of the Company
and its predecessor and certain of the substances that are or have been used,
produced or discharged at their plants or at other locations, the Company is
affected by the Regulations. The Company has made capital expenditures averaging
approximately $500,000 during each of the last three years in order to comply
with the Regulations (which expenditures are included in additions to property,
plant and equipment) and anticipates that aggregate capital expenditures
relating to environmental compliance in each of 1997 and 1998 will be
approximately $600,000.
The Regulations deal with air and water emissions or discharges into the
environment, as well as the generation, storage, treatment, transportation and
disposal of solid and hazardous waste, and the remediation of any releases of
hazardous substances and materials to the environment. The Company believes that
its manufacturing facilities comply in all material respects with applicable
Regulations, and, while it cannot predict whether more burdensome requirements
will be adopted in the future, it believes that any potential liability for
compliance with the Regulations will not materially affect its business,
liquidity or financial position.
The Company believes that its manufacturing facilities are being operated
in compliance in all material respects with applicable environmental, health and
safety laws and regulations, but cannot predict whether more burdensome
requirements will be imposed by governmental authorities in the future.
EMPLOYEES
G-I Holdings has no employees other than its officers.
At December 31, 1996, the Company employed approximately 2,800 people
worldwide, approximately 1,000 of which were subject to 15 union contracts. The
contracts are effective for four-year periods. During 1996, five labor contracts
expired and were renegotiated. The Company expects to renegotiate five labor
contracts during 1997. The Company believes that its relations with its
employees and their unions are satisfactory.
ITEM 2. PROPERTIES
The corporate headquarters and principal research and development
laboratories of BMCA are located at a 100-acre campus-like office and research
park owned by a subsidiary of ISP at 1361 Alps Road, Wayne, New Jersey 07470.
The premises are subject to a first mortgage.
The principal real properties either owned by, or leased to, the Company or
its subsidiaries are described below. Unless otherwise indicated, the properties
are owned in fee. In addition to the principal facilities listed below, the
Company maintains sales offices and warehouses, substantially all of which are
in leased premises under relatively short-term leases.
G-I Holdings does not directly own or lease any real property.
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<TABLE>
<CAPTION>
LOCATION FACILITY
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<S> <C>
Alabama
Mobile................ Plant, Warehouse*
Arizona
Chandler.............. Warehouse*
California
Fontana............... Plant, Sales Office
Hollister............. Plant, Plant*
Ontario............... Plant, Sales Office
Stockton.............. Plant, Plant*, Warehouse*
Florida
Tampa................. Plant, Sales Office*
Georgia
Monroe................ Plant, Warehouse*
Savannah.............. Plant, Sales Office
Indiana
Mount Vernon.......... Plant, Sales Office
Illinois
Naperville............ Sales Office*
Kentucky
Florence.............. Plant
Maryland
Baltimore............. Plant, Warehouse*
Massachusetts
Millis................ Plant, Sales Office
Minnesota
Minneapolis........... Plant, Sales Office,
New Jersey
Branchburg............ Warehouse*
North Branch.......... Plant
North Brunswick....... Sales Office*, Warehouse*
Wayne................. Headquarters*, Corporate Administrative Offices*,
Research Center*
New Mexico
Albuquerque........... Plant
Ohio
Wadsworth............. Plant*, Warehouse* Warehouse*
Oregon
Corvallis............. Plant
Pennsylvania
Erie.................. Plant, Sales Office, Warehouse*
Wind Gap.............. Plant
South Carolina
Chester............... Plant
Tennessee
Nashville............. Plant, Research Center
Texas
Beaumont.............. Plant
Dallas................ Plant, Sales Office, Warehouse*
Fannett............... Warehouse
Houston............... Plant, Warehouse, Warehouse*
Port Arthur........... Plant, Warehouse, Office
</TABLE>
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* Leased Property
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The Company believes that its plants and facilities, which are of varying
ages and are of different construction types, have been satisfactorily
maintained, are in good condition, are suitable for their respective operations
and generally provide sufficient capacity to meet production requirements. Each
plant has adequate transportation facilities for both raw materials and finished
products. In 1996, the Company made capital expenditures in the amount of $26.1
million relating to plant, property and equipment.
ITEM 3. LEGAL PROCEEDINGS
Bodily Injury Claims. As of December 31, 1996, GAF had been named as a
defendant in approximately 59,400 pending lawsuits involving alleged bodily
injury claims relating to the inhalation of asbestos fiber ('Asbestos Claims'),
having resolved approximately 223,500 Asbestos Claims. Plaintiffs in
approximately 32,100 of the pending lawsuits were preliminarily enjoined from
proceeding with their claims other than in accordance with the Settlement
described below.
The reserves of GAF and G-I Holdings for asbestos bodily injury claims, as
of December 31, 1996, were approximately $333.8 million (before estimated
present value of recoveries from products liability insurance policies of
approximately $190.5 million as described below and related deferred tax
benefits of approximately $51.7 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. See Note
1 to Consolidated Financial Statements and 'Insurance Matters.'
The estimate of liability for Asbestos Claims is based on the Settlement
described below 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. See
'--Insurance Matters.'
The actual cost of resolving pending and future Asbestos Claims is
difficult to estimate. However, based upon the experience of the Center for
Claims Resolution (the 'CCR'), a non-profit organization of asbestos defendant
companies including GAF, in settling approximately 206,600 cases since its
creation in 1988, GAF's recent average settlement costs, and the impact of the
Settlement if it becomes effective, GAF believes that its reserves, before
discounting, 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 described below. There
can be no assurance, however, that the assumptions referred to above are
correct.
On January 15, 1993, the members of the CCR entered into the Settlement to
resolve all future Asbestos Claims (other than claims of those persons who
'opted out' of the class) against GAF and other members of the CCR. The class
action was filed with the United States District Court in Philadelphia. The
Settlement, if effective, would operate to limit GAF's liability for future
Asbestos Claims to persons who do not 'opt out' of the Settlement by placing a
dollar limit on awards to such persons and a limit on the number of claims that
will be paid to such persons in any one year and over the first ten years of the
Settlement. Certain members of the class filed objections to the Settlement. Of
the approximately 86,000 'opt-out' requests, approximately 33,000 have resulted
in legal claims, with no claims having been filed with regard to the remaining
53,000 'opt-outs.' With respect to the 33,000 claims, approximately 23,000 have
already been resolved in the tort system, with approximately 10,000, which are
included in the pending lawsuits referred to above, still pending. On August 16,
1994, the District Court approved the Settlement, holding that the terms of the
Settlement are fair to the class as a whole, certified the class and entered a
preliminary injunction enjoining class members from pursuing asbestos claims
against GAF and other members of the CCR except in accordance with the
Settlement. On May 10, 1996, the United States Court of Appeals for the Third
Circuit (the 'Third Circuit') issued an opinion, concluding that the class was
not certifiable, thus reversing the decision of the District Court. On November
1, 1996, the United States Supreme Court granted GAF's petition for a writ of
certiorari and agreed to hear GAF's appeal of the Third Circuit's decision. The
appeal was heard on February 18, 1997. GAF continues to believe the Settlement
should ultimately be upheld on appeal, although there can be no assurance in
this regard.
The Settlement prescribes that all claims submitted to the CCR must provide
evidence (1) that the exposed person had occupationally-related exposure to
asbestos or an asbestos-containing product manufactured or supplied by the CCR
defendants, and (2) that the exposed person meets certain prescribed medical
criteria. The
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CCR will then evaluate the information to determine whether the claimant
satisfies the exposure and medical criteria of the Compensable Medical
Categories prescribed in the Settlement. Each claimant whose claim qualifies for
compensation will receive from the CCR a good faith offer to resolve the claim,
generally within several months after the claim is submitted. Disputes between
the claimant and the CCR with respect to whether a claim meets the asbestos
exposure or medical requirements for compensation will be resolved by
independent, neutral arbitrators or medical experts. In the event a claimant's
claim is denied, the claimant may subsequently resubmit the claim for further
consideration. Payments to claimants are to be made according to a prescribed
range of payment values, which set a minimum and maximum compensation value, and
a middle range, according to the disease with which the claimant is diagnosed.
The Settlement also sets a maximum number of claims in each Compensable Medical
Category that may be compensated in each year, which maximum case flow numbers
regulate only the timing of when claims will be paid, and not the total number
of claims that may qualify for payment.
It is anticipated that substantially all of the payments in connection with
the liability of GAF and G-I Holdings relating to Asbestos Claims will be made
by the end of the year 2004. While GAF is unable to estimate the amount of
liability with respect to claims to be resolved after such period, it believes
that it will resolve, prior to that time, substantially all the court cases
currently pending against GAF, and that it will further resolve substantially
all the claims filed under the Settlement on a relatively current basis, so that
the number of claims pending against GAF at the end of such period will be
substantially diminished from current levels. As a result of these and other
factors, GAF and G-I Holdings believe that the resolution of any claims after
such period will not, individually or in the aggregate, have a material adverse
effect on their respective financial positions, liquidity or results of
operations.
GAF and G-I Holdings believe that their reserves, which reflect the
discounting of a portion of the liabilities, adequately reflect their actual
asbestos-related liabilities. Although any opinion is necessarily judgmental and
must be based on information currently known, it is the opinion of GAF and G-I
Holdings, based on the assumptions referred to above and their 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, liquidity or
results of operations of GAF and G-I Holdings, after giving effect to the
aforementioned reserves, and will not impair the ability of GAF or G-I Holdings
to meet its respective obligations, to reinvest in its respective businesses or
to grow.
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 (see '--Insurance Matters'), GAF and G-I Holdings
could be required to increase their estimates of asbestos-related liabilities
and adjust any related discounts. It is not currently possible to estimate the
range or amount of such possible additional liability.
Asbestos-in-Building Claims. 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 ('Building Claims'). Since these
actions were first initiated 14 years ago, GAF has not only successfully
disposed of approximately 141 such cases at an average disposition cost
(including cases disposed of at no cost to GAF) of approximately $16,000 per
case (all of which have been paid by insurance under reservation of rights), but
is a co-defendant in only 7 remaining lawsuits. See '--Insurance Matters.'
Insurance Matters. GAF and G-I Holdings had available, as of December 31,
1996, to pay asbestos-related bodily injury claims aggregate insurance coverage
of $202.7 million, before discounting certain coverage, (which amount was used
in the reserve calculation referred to in 'Bodily Injury Claims' and is reduced
as asbestos-related liabilities are satisfied), $13.2 million of which is the
subject of negotiations with various insurers and/or the Settlement Coverage
Action described below, and which $13.2 million of coverage GAF believes will be
available to it either by agreement with its insurance carriers or, if
necessary, by legal action. In addition to the $202.7 million of insurance
referred to above, GAF and G-I Holdings have $57.2 million of additional
insurance which may be available to pay a portion of the Asbestos Claims, which
has not been included in the reserve calculations.
Concurrently with the filing of the class action complaint relating to the
Settlement, the members of the CCR filed a third-party action with the United
States District Court in Philadelphia against certain product liability insurers
whose policies will or may be called upon to respond to asbestos-related bodily
injury claims,
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including claims to be resolved under the Settlement (the 'Settlement Coverage
Action'). The third-party complaint seeks a declaratory judgment on behalf of
certain CCR members, including GAF, against various third-party defendant
product liability insurers to the effect that those insurers are obligated to
provide coverage for Asbestos Claims, including claims subject to the
Settlement. The insurers who are defendants in GAF's third-party complaint are:
Atlanta International, Employers Mutual, Lexington (domestic coverage),
Northbrook, Lexington (London coverage), Commercial Union, and various London
Market Insurers. The insurance carrier third-party defendants have raised
various defenses to the Settlement Coverage Action, including the impropriety of
the Settlement without prior notice to the carriers, the potential violation of
various conditions and obligations of the insured under their policies, and the
inappropriateness of the shares allocated to the CCR members.
The CCR members, including GAF, and certain products liability insurers
(other than those referred to above) which have agreed in writing to fulfill
their obligations to provide coverage with respect to Asbestos Claims, have
joined in an alternate dispute resolution proceeding ('ADR'), which seeks a
determination similar to that sought in the Settlement Coverage Action. The ADR
insurers have raised certain defenses, and no hearing date is currently
scheduled. GAF's insurers in the ADR are ITT-Hartford, Royal Insurance and the
London Market Insurers. The ADR involves $40.3 million of the $202.7 million of
coverage (and $2.8 million of the additional coverage) described above. A
favorable resolution of the Settlement Coverage Action and the ADR is a
condition to the effectiveness of the Settlement.
In October 1983, GAF filed a lawsuit in Los Angeles, California Superior
Court against its past insurance carriers to obtain a judicial determination
that such carriers were obligated to defend and indemnify it for Building
Claims. GAF is seeking declaratory relief as well as compensatory damages. This
action is presently in the pre-trial pleading stage. The parties have agreed to
hold this action in abeyance until such time as they are better able to evaluate
developments as they may occur in the Building Claims. Because such litigation
is in early stages and evidence and interpretations of important legal questions
are presently unavailable, it is not possible to predict the future of such
litigation.
In all the Building Claims, GAF's defense costs have been paid by one of
its primary carriers. While GAF expects that such primary carrier will continue
to defend and indemnify GAF, such primary carrier has reserved its rights to
later refuse to defend and indemnify GAF and to seek reimbursement for some or
all of the fees paid to defend and resolve the Building Claims. GAF believes
that it will be able to resolve such cases for amounts within the total
indemnity obligations available from such primary carrier. GAF further believes
that it would prevail if the carrier's claims for reimbursement of fees paid to
defend and resolve these cases were determined by a court.
ENVIRONMENTAL LITIGATION
The Company, together with other companies, is a party to a variety of
proceedings and lawsuits involving environmental matters ('Environmental
Claims') under the Comprehensive Environmental Response Compensation and
Liability Act ('CERCLA') and similar state laws, 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.
The Company estimates that its liability in respect of all Environmental
Claims and certain environmental compliance expenses, as of December 31, 1996,
will be approximately $15.3 million, before insurance recoveries reflected on
its balance sheet (discussed below) of $6.3 million ('estimated recoveries'). In
the opinion of management, the resolution of such matters should not be material
to the business, liquidity, results of operations, cash flows or financial
position of the Company. However, adverse decisions or events, particularly as
to the liability and the financial responsibility of the Company's insurers and
of 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.
8
<PAGE>
The estimated recoveries are based in part upon interim agreements with
certain insurers. The Company terminated these agreements in 1995, and on March
8, 1995 GAF commenced litigation on behalf of it and its subsidiaries in the
United States District Court for the District of New Jersey 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.
OTHER LITIGATION
On March 19, 1993, G-I Holdings and a newly formed subsidiary of G-I
Holdings entered into an agreement to acquire the roofing manufacturing business
of Georgia-Pacific Corporation ('G-P'), including six roofing manufacturing
facilities, which was later terminated by G-I Holdings and such subsidiary. On
July 23, 1993, G-P commenced an action, in the United States District Court for
the Southern District of New York, alleging that G-I Holdings and such
subsidiary did not have the right to terminate the agreement and seeking
unspecified damages. The Company believed that the complaint was without merit
and counterclaimed for breach of contract. Following completion of a jury trial
in February 1997, the jury determined that neither G-I Holdings, its subsidiary
nor G-P would have any liability as a result of the termination of the
agreement. G-P has filed for a judgment in its favor notwithstanding the verdict
or, in the alternative, for a new trial.
Litigation is pending between BMCA and Elk Corporation of Dallas ('Elk') in
the United States District Court for the Northern District of Texas relating to
certain aspects of BMCA's laminated shingles, which Elk claims infringe design
and utility patents recently issued to it, as well as certain proprietary
aspects of its shingles. Elk seeks injunctive relief, damages and attorneys'
fees. BMCA has sued for a declaration that Elk's patents are invalid and
unenforceable and that BMCA's shingles do not infringe any of Elk's rights, and
has sought money damages for Elk's unfair competition and certain federal
statutory violations. BMCA believes that Elk's patents are invalid and
unenforceable, that its shingles do not infringe any of Elk's rights and that it
will prevail in obtaining the requested declaratory relief and money damages.
On or about April 29, 1996, an action was commenced in the Circuit Court of
Mobile County, Alabama against GAFBMC on behalf of a purported nationwide class
of purchasers of, or current owners of, buildings with asphalt shingles
manufactured by GAFBMC since January 1979. The action alleges, among other
things, that such shingles were defective and seeks unspecified damages on
behalf of the purported class. On August 30, 1996, an action was commenced in
Johnson County, Texas, against GAF, GAFBMC and BMCA on behalf of a purported
statewide class of purchasers of laminated organic shingles, which GAF ceased
manufacturing in 1981. The Company has removed this action to the United States
District Court for the Northern District of Texas, and the plaintiffs have
sought to dismiss this action or, in the alternative, to remand the case to
state court. The action alleges, among other things, that the shingles were
defective and seeks unspecified damages on behalf of the purported class. On or
about January 7, 1997, an action was commenced in the Superior Court of New
Jersey, Middlesex County against GAFBMC on behalf of a purported nationwide
class of owners of buildings with shingles manufactured by GAFBMC who allegedly
have suffered damages since January 1991. The action alleges, among other
things, that such shingles were defective and seeks unspecified damages on
behalf of the purported class. Plaintiffs have not moved for class certification
in any of these actions.
On August 14, 1996, an action was commenced in Pointe Coupee Parish,
Louisiana, against GAF and GAFBMC on behalf of a purported nationwide class of
those who own or did own single family residences on which GAF
Timberline(Registered) shingles were installed. The Company was not served or
otherwise notified of the action until November 1996. Without any notice to the
Company, in August 1996, the court in Pointe Coupee conditionally certified the
nationwide class, reserving the right to decertify the class or otherwise modify
its order. The Company intends to appeal the state court's conditional class
certification. The action alleges that the shingles were defective and seeks an
unspecified amount of compensatory and punitive damages on behalf of the
purported class.
The Company does not believe certification of a class is warranted in any
of these actions, and intends to vigorously oppose them.
* * *
9
<PAGE>
The Company believes that the ultimate disposition of the cases described
above under 'Environmental Litigation,' 'Asbestos-in-Building Claims' and 'Other
Litigation' will not, individually or in the aggregate, have a material adverse
effect on the Company's liquidity, financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
There is no trading market for the Registrant's common stock. All of the
Registrant's Common Stock is held by GAF Corporation.
ITEM 6. SELECTED FINANCIAL DATA
See Page F-6.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See Page F-2.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index on Page F-1 and Financial Statements and Supplementary Data on
Pages F-7 to F-28.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
10
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age, position and other
information with respect to the directors and executive officers of G-I
Holdings. Each person listed below is a citizen of the United States.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME AND POSITION HELD(1) AGE AND FIVE-YEAR EMPLOYMENT HISTORY
- -------------------------------- --- -----------------------------------------
<S> <C> <C>
Samuel J. Heyman................ 58 Mr. Heyman has been a director and
Director, Chairman and Chief Chairman and Chief Executive Officer of
Executive Officer G-I Holdings since August 1988, a
director and Chairman of BMCA since its
formation and Chief Executive Officer
of BMCA since June 1996. He has served
as a director and Chairman and Chief
Executive Officer of ISP since its
formation in May 1991 and Chairman and
Chief Executive Officer of GAFBMC since
May 1994. Mr. Heyman has held the same
offices with GAF and certain of its
subsidiaries since April 1989, prior to
which he held the same position with
GAF's predecessor (the 'Predecessor
Company') from December 1983 to April
1989. Mr. Heyman has been a director of
USI since October 1995, and a Director,
Chairman and Chief Executive Officer of
ISP Holdings since its formation. He is
also the Chief Executive Officer,
Manager and General Partner of a number
of closely held real estate development
companies and partnerships whose
investments include commercial real
estate and a portfolio of publicly
traded securities.
Sunil Kumar..................... 47 Mr. Kumar has been the President, Chief
President and Chief Operating Operating Officer and a director of
Officer, BMCA BMCA since July 1996, March 1996 and
May 1995, respectively. He was
President, Commercial Roofing Products
Division, and Vice President of BMCA
from February 1995 to March 1996. He
has been Chairman of USI since March
1996 and a director of USI since
October 1995. From 1992 to February
1995, he was Executive Vice President
of Bridgestone/Firestone Inc., a retail
distributor and manufacturer of tires
and provider of automobile services.
From 1982 to 1990, Mr. Kumar was
President of Firestone Building
Products Company, and from 1990 to 1992
he was Vice President of Bridgestone/
Firestone.
Carl R. Eckardt................. 66 Mr. Eckardt has been Executive Vice
Executive Vice President President of G-I Holdings since March
1993 and of ISP Holdings since its
formation. He has been Vice Chairman of
GAF since November 1996, a director of
GAF since April 1987 and a director of
ISP since its formation. He was
Executive Vice President of GAF from
April 1989 to November 1996 and held
the same position with the Predecessor
Company from January 1987 to April
1989. He was President and Chief
Operating Officer of ISP from January
1994 to November 1996 and Executive
Vice President of ISP from its
formation to January 1994 and has
served as such since November 1996. Mr.
Eckardt was President of GFC and the
Predecessor Company's chemicals
division from 1985 to 1987. Mr. Eckardt
was Senior Vice President Worldwide
Chemicals and Senior Vice President
International Chemicals of the
Predecessor Company from 1982 to 1985
and 1981 to 1982, respectively. Mr.
Eckardt joined the Predecessor Company
in 1974.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME AND POSITION HELD(1) AGE AND FIVE-YEAR EMPLOYMENT HISTORY
- -------------------------------- --- -----------------------------------------
<S> <C> <C>
James P. Rogers................. 46 Mr. Rogers has been Executive Vice
Executive Vice President and President and Chief Financial Officer
Chief Financial Officer of GAF, G-I Holdings, ISP Holdings and
certain of their respective
subsidiaries and Executive Vice
President-Finance of ISP since December
1996, a director of BMCA since its
formation and Executive Vice President
of BMCA since December 1996. He was
Senior Vice President of such
corporations from November 1993 to
December 1996 and of BMCA from its
formation to December 1996. Mr. Rogers
has been a director and Senior Vice
President of USI since October 1995.
Mr. Rogers was Treasurer of BMCA from
its formation until December 1994. Mr.
Rogers has served as Treasurer of G-I
Holdings, GAF and certain of its
subsidiaries since March 1992 and was
Vice President-Finance of such
corporations from March 1992 to October
1993. From August 1987 to March 1992,
Mr. Rogers was Treasurer of Amphenol
Corporation, a manufacturer of
electronic connectors.
Richard A. Weinberg............. 37 Mr. Weinberg has been Senior Vice
Senior Vice President and President and General Counsel of GAF,
General Counsel G-I Holdings, ISP and certain of their
respective subsidiaries since May 1996
and of ISP Holdings since its
formation. Mr. Weinberg has been Senior
Vice President and General Counsel of
BMCA since May 1996. He was Vice
President and General Counsel of BMCA
from September 1994 to May 1996, Vice
President-Law of BMCA from May 1994 to
September 1994 and Vice President-Law
of GAFBMC from April 1993 to May 1994.
Mr. Weinberg was employed by Reliance
Group Holdings Inc., a diversified
insurance holding company, as Staff
Counsel from October 1987 to January
1990 and as Assistant Vice President
and Corporate Counsel from January 1990
to April 1993.
Louis S. Goldberg............... 60 Mr. Goldberg has been Senior Vice
Senior Vice President, President, Corporate Human Resources of
Corporate Human Resources GAF and G-I Holdings and certain of
their subsidiaries since July 1996 and
of ISP Holdings since its formation. He
has served as Senior Vice President,
Headquarters Administrative Services of
ISP since July 1996. From January 1996
to July 1996, Mr. Goldberg served as a
senior consultant to GAF. From January
1995 to January 1996, he was
Commissioner of the Department of
Administrative Services for the State
of Connecticut, and from January 1991
to December 1993 he served as
Connecticut's Commissioner of the
Department of Motor Vehicles. From
September 1989 to December 1990, he was
Senior Vice President of Staub,
Warmbold & Associates. From August 1984
to April 1989 he was Vice
President-Human Resources of Playtex,
Inc. and from February 1977 to January
1984 he was Vice President
Administration/Human Resources of The
Seagram Company Ltd.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME AND POSITION HELD(1) AGE AND FIVE-YEAR EMPLOYMENT HISTORY
- -------------------------------- --- -----------------------------------------
<S> <C> <C>
Donald W. LaPalme............... 59 Dr. LaPalme has been Senior Vice
Senior Vice President- President-Operations of BMCA and
Operations, BMCA certain of its subsidiaries since April
1996. He was Vice President-Operations
of BMCA and certain of its subsidiaries
from January 1994 to April 1996 and
held the same position with GAFBMC from
1987 to May 1994. From 1985 to 1987 he
was plant manager and Director of
Manufacturing Polymers of GFC's Calvert
City, Kentucky manufacturing facility.
From 1981 to 1984 he was Vice President
of Manufacturing of GAF's Building
Materials Division.
Danny J. Adair.................. 52 Mr. Adair has been President and Chief
President and Chief Executive Executive Officer of USI since 1982.
Officer, U.S. Intec, Inc.
Joseph J. Okaly................. 39 Mr. Okaly has been Vice President of
Vice President-Marketing and Marketing and Sales, Residential
Sales, Residential Roofing Roofing Products of BMCA since June
Products, BMCA 1996. He was Vice President-Logistics
of BMCA from December 1992 to June 1996
and Director, Distribution/Customer
Service of BMCA from January 1992 to
December 1992.
William W. Collins.............. 46 Mr. Collins has been Vice President-
Vice President-Marketing and Marketing & Sales, Commercial Roofing
Sales, Commercial Roofing Products of BMCA since March 1996. He
Products, BMCA was Vice President-Sales, Commercial of
BMCA from December 1995 to March 1996,
Director of Insulation, Accessories and
Cobra Products of BMCA from February
1995 to December 1995 and Director of
Special Projects of BMCA from July 1992
to February 1995. From February 1991 to
July 1992, he was Vice President-Sales
& Marketing of Berger Building
Products, Incorporated.
</TABLE>
- ------------------
(1) Under the Company's By-laws, each director and executive officer continues
in office until the Company's next annual meeting of stockholders and until his
successor is elected and qualified.
GAF
The following table sets forth the name, age, position and other
information with respect to each director of GAF, other than Messrs. Heyman and
Eckardt who are also directors and executive officers of GAF. Each person listed
below is a citizen of the United States. All directors other than Mr. Heyman
have served GAF as directors since April 1989. Mr. Heyman has served as director
since September 1987. Mr. Heyman and Ronnie F. Heyman are husband and wife.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME AND POSITION HELD(1) AGE AND FIVE-YEAR EMPLOYMENT HISTORY
- -------------------------------- --- -----------------------------------------
<S> <C> <C>
Ronnie F. Heyman................ 48 Mrs. Heyman is a director of GAF.
Director
</TABLE>
- ------------------
(1) Under GAF's By-laws, each director continues in office until GAF's next
annual meeting of stockholders and until his successor is elected and
qualified.
13
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation for each
of the last three fiscal years awarded to or earned by the Chief Executive
Officer and the five other most highly compensated executive officers of the
Company as of December 31, 1996.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION --------------
--------------------------------------------- SECURITIES
OTHER UNDERLYING
ANNUAL SARs(S) ALL OTHER
NAME AND PRINCIPAL POSITION(8) YEAR SALARY BONUS(1) COMPENSATION /OPTIONS(O)(1) COMPENSATION
- ----------------------------------- ---- -------- -------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Samuel J. Heyman .................. 1996 (7) (7) (7) (7) (7)
Chairman and Chief Executive 1995 (7) (7) (7) (7) (7)
Officer 1994 (7) (7) (7) (7) (7)
Sunil Kumar ....................... 1996 $285,000(2) $165,000 $ 0(2) 2,190(O)/8,609(S)(8) $ 13,561(2)
President and Chief 1995 208,336(2) 60,000(2) 31,382(2) 9,201(S) 8,475(2)
Operating Officer, BMCA 1994 (2) (2) (2) (2) (2)
Danny J. Adair .................... 1996 $216,686(3) $ 53,093 $ 0 1,550(O) $ 3,972(3)
President and Chief Executive 1995 216,686(3) 25,000(3) 0(3) 0 3,953(3)
Officer, USI 1994 (3) (3) (3) (3) (3)
Donald W. LaPalme ................. 1996 $160,000 $ 59,774 $ 0 1,200(O) $ 14,519(4)
Senior Vice President-Operations, 1995 148,500 34,000 0 0 14,381(4)
BMCA 1994 141,000 40,000 0 0 17,338(4)
William W. Collins ................ 1996 $130,000 $ 42,588 $ 0 900(O) $ 12,092(5)
Vice President-Marketing & Sales, 1995 122,000 20,000 0 0 14,149(5)
Commercial Roofing Products, BMCA 1994 107,000 0 0 0 3,655(5)
Joseph J. Okaly ................... 1996 $130,000 $ 35,763 $ 0 900(O) $ 11,212(6)
Vice President-Marketing & Sales, 1995 118,000 22,000 0 0 10,033(6)
Residential Roofing Products 1994 107,500 22,500 0 0 9,744(6)
</TABLE>
- ------------------
(1) Bonus amounts are payable pursuant to BMCA's Executive Incentive
Compensation Program. The stock appreciation rights (S) relate to shares of
GAF common stock. The options (O) relate to shares of redeemable convertible
preferred stock of BMCA. See 'Options/SARs.'
(2) Included in 'Other Annual Compensation' for Mr. Kumar are $19,897 in payment
of moving related expenses and a 'tax gross-up' of $8,711 in 1995. Included
in All Other Compensation for Mr. Kumar are $10,750 and $5,664, representing
BMCA's contribution under the GAF Capital Accumulation Plan in 1996 and
1995, respectively; $1,636 for premiums paid by BMCA in each of 1995 and
1996 for a life insurance policy; and $1,175 for the premium paid by BMCA
for a long-term disability policy in each of 1995 and 1996. Mr. Kumar
commenced employment with the Company in February 1995.
(3) Included in 'All Other Compensation' for Mr. Adair are $1,260 in each of
1996 and 1995 for a life insurance policy; $2,212 and $2,193 for premiums
paid on a long-term disability policy in 1996 and 1995, respectively; and
$500 in each of 1996 and 1995, representing the Company's contribution under
the GAF Capital Accumulation Plan. USI became a subsidiary of the Company
in 1995.
(4) Included in these amounts for Dr. LaPalme are: $11,000, $11,000 and $11,000,
representing BMCA's contribution under the GAF Capital Accumulation Plan in
1996, 1995 and 1994, respectively; $2,754, $2,646
(Footnotes continued on next page)
14
<PAGE>
(Footnotes continued from previous page)
and $5,643 for the premium paid by BMCA for a life insurance policy in 1996,
1995 and 1994, respectively; and $765, $735 and $695 for premiums paid by
BMCA for a long-term disability policy in 1996, 1995 and 1994, respectively.
(5) Included in these amounts for Mr. Collins are: $10,633, $14,149 and $3,655,
representing BMCA's contribution under the GAF Capital Accumulation Plan in
1996, 1995 and 1994, respectively; $849 for the premium paid by BMCA for a
life insurance policy in 1996; and $610 for the premium paid by BMCA for a
long-term disability policy in 1996.
(6) Included in these amounts for Mr. Okaly are: $10,390, $9,261 and $9,018,
representing BMCA's contributions under the GAF Capital Accumulation Plan in
1996, 1995 and 1994, respectively; $284, $267 and $251 for premiums paid by
BMCA for a life insurance policy in 1996, 1995 and 1994, respectively; and
$538, $505 and $475 for premiums paid by BMCA for a long-term disability
policy in 1996, 1995 and 1994, respectively.
(7) The salaries and other compensation of Messrs. Heyman, Weinberg, Rogers,
Eckardt and Goldberg are paid by ISP, an affiliate of the Company. Mr.
Heyman, Mr. Rogers and Mr. Weinberg render services to the Company pursuant
to a management agreement. See Item 13. No allocation of compensation for
services to the Company is made pursuant to such management agreement.
(8) Excluded are options to purchase redeemable convertible preferred stock of
ISP Holdings, See Note (3) to the first table under 'Options/SARs' below.
15
<PAGE>
OPTIONS/SARS
The following table summarizes options ('BMCA Preferred Options') to
acquire BMCA's Redeemable Convertible Preferred Stock and stock appreciation
rights relating to GAF Common Stock ('GAF SARs') granted during 1996 to the
executive officers named in the Summary Compensation Table above and the
potential realizable value of BMCA Preferred Options and GAF SARs held by such
persons. No BMCA Preferred Options or GAF SARs were exercised by such persons in
1996.
<TABLE>
<CAPTION>
BMCA PREFERRED STOCK OPTION (O)/GAF SAR(S) GRANTS IN 1996 (1)(2)
-----------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF BOOK
NUMBER OF SECURITIES % OF TOTAL OPTIONS/SARS VALUE APPRECIATION
UNDERLYING OPTIONS/SARS GRANTED TO EMPLOYEES ----------------------
GRANTED IN FISCAL 1996 5% 10%
----------------------- ----------------------- -------- --------
<S> <C> <C> <C> <C>
Sunil Kumar(3)....... 8,609(S) 16.4%(S) $194,363(S) $242,904(S)
2,190(O) 8.9%(O) 68,000(0) 160,000(0)
Danny J. Adair....... 1,550(O) 6.3%(O) 48,000(0) 113,000(0)
Donald W. LaPalme.... 1,200(O) 4.9%(O) 37,000(0) 88,000(0)
William W. Collins... 900(O) 3.7%(O) 28,000(0) 66,000(0)
Joseph J. Okaly...... 900(O) 3.7%(O) 28,000(0) 66,000(0)
</TABLE>
- ------------------
(1) The BMCA Preferred Options represent options to purchase shares of
Redeemable Convertible Preferred Stock of BMCA (the 'Preferred Stock'). Each
share of Preferred Stock is convertible, at the holder's option, into shares
of common stock of BMCA at a formula price based on Book Value (as defined
in the option agreements) as of the date of grant. The BMCA Preferred
Options vest over seven years from the date of grant. Dividends will accrue
on the Preferred Stock from the date of issuance at the rate of 8% per
annum. The Preferred Stock is redeemable, at the Company's option, for a
redemption price equal to the exercise price per share plus accrued and
unpaid dividends. The common stock of BMCA issuable upon conversion of the
Preferred Stock is subject to repurchase by the Company under certain
circumstances at a price equal to current Book Value. The exercise price of
the options is equal to the fair value per share of the Preferred Stock at
the date of grant. The BMCA Preferred Options have no expiration date. The
potential realizable values are calculated on the basis of a seven-year
period from the date of grant. In connection with the Separation
Transactions, options to purchase shares of redeemable convertible preferred
stock of USI held by Messrs. Kumar, LaPalme, Collins, Okaly and Adair were
canceled and exchanged for an equal number of BMCA Preferred Options and the
terms of BMCA Preferred Options were adjusted to reflect the impact of the
Separation Transactions. The information set forth above reflects such
adjustment and exchange.
(2) The GAF SARs represent the right to receive a cash payment based upon the
appreciation in value of the specified number of shares of common stock of
GAF over the determined initial book value per share of common stock of GAF
(adjusted for the Separation Transactions) and interest on such book value
at a specified rate. The GAF SARs vest over a five-year period, subject to
earlier vesting under certain circumstances including in connection with a
change of control, and have no expiration date. The potential realizable
values are calculated on the basis of a ten-year period from the date of
grant. The GAF SARs were issued to Mr. Kumar on January 1, 1997 in
connection with the Separation Transactions, in exchange for options granted
to Mr. Kumar in 1996 to purchase shares of redeemable convertible preferred
stock of GAF. The grant date of the GAF SARs is deemed to be the date of
such GAF options for vesting and other purposes.
(3) Excluded are options to purchase 24,095 shares of redeemable convertible
preferred stock of ISP Holdings ('ISP Holdings Options') issued to Mr. Kumar
on January 1, 1997 in connection with the Separation Transactions, which
have potential realizable values of $48,491 and $1,667,715 at assumed annual
rates of Book Value appreciation of 5% and 10%, respectively. Each share of
preferred stock is convertible, at the holder's option, into shares of ISP
Holdings common stock at a formula price based on the sum of the determined
initial Book Value (as defined) plus interest on such Book Value at a
specified rate. The ISP Holdings Options are exercisable at a price of
$111.44 per share and vest over seven years from the date of
(Footnotes continued on next page)
16
<PAGE>
(Footnotes continued from previous page)
grant, subject to earlier vesting under certain circumstances, including
in connection with a change of control. Dividends will accrue on the ISP
Holdings preferred stock from the date of issuance at the rate of 6% per
annum. The ISP Holdings preferred stock is redeemable, at ISP Holdings'
option, for a redemption price equal to the exercise price per share plus
accrued and unpaid dividends. The ISP Holdings common stock issuable upon
conversion of the ISP Holdings preferred stock is subject to repurchase by
ISP Holdings under certain circumstances at a price equal to current Book
Value. The ISP Holdings Options have no expiration date. The potential
realizable values are calculated on the basis of a ten-year period from the
date of grant.
BMCA PREFERRED STOCK OPTIONS/GAF STOCK APPRECIATION RIGHTS AND
OPTION/SAR VALUES AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED BMCA PREFERRED IN-THE-MONEY BMCA PREFERRED
OPTIONS(O)/GAF SARS(S) OPTIONS(O)/GAF SARS(S)
AT 12/31/96 AT 12/31/96(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------- --------------------------- ---------------------------
<S> <C> <C>
Sunil Kumar(2)....... 0/17,810(S) 0/2,190(O) $0/$9,648(S)(1)
Danny J. Adair....... 0/1,550(O) (1)
Donald W. LaPalme.... 0/1,200(O) (1)
William W. Collins... 0/900(O) (1)
Joseph J. Okaly...... 0/900(O) (1)
</TABLE>
- ------------------
(1) 9,201 GAF SARs held by Mr. Kumar were not in-the-money as of December 31,
1996. No BMCA Preferred Options were in the money as of December 31, 1996.
(2) Excluded are options to purchase 33,296 shares of ISP Holdings preferred
stock held by Mr. Kumar, none of which were exercisable and 9,201 of which
were in-the-money and had a value of $529,127 as of December 31, 1996.
COMPENSATION OF DIRECTORS
The directors of G-I Holdings do not receive any compensation for their
services as such.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding common stock of G-I Holdings (the 'Common Stock') is
owned of record by GAF.
The following table sets forth information with respect to the ownership of
Common Stock, as of March 15, 1997, by each other person known to G-I Holdings
to own beneficially more than 5% of the Common Stock outstanding on that date,
by each director of G-I Holdings and by all executive officers and directors of
G-I Holdings as a group:
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NAME AND ADDRESS OF NATURE OF PERCENT OF TOTAL VOTING
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS POWER
- ------------------ --------------------------- -------------------- ---------- ------------
<S> <C> <C> <C> <C>
Common Stock...... Samuel J. Heyman 100 100%(1) 100%(1)
1361 Alps Road
Wayne, New Jersey 07470
All directors and executive 100 100%(1) 100%(1)
officers of G-I Holdings as
a group (10 persons)
</TABLE>
(Footnote on next page)
17
<PAGE>
(Footnote from previous page)
- ------------------
(1) The number of shares shown as beneficially owned by Mr. Heyman and by all
directors and executive officers as a group attributes ownership of GAF's
shares to Mr. Heyman. As of March 15, 1997, Mr. Heyman beneficially owned
approximately 96% of the capital stock of GAF.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENTS
Pursuant to a management agreement which expires December 31, 1997, ISP
(which is controlled by G-I Holdings' Chief Executive Officer, Samuel J. Heyman)
provides certain general management, administrative and facilities services to
G-I Holdings, BMCA, USI and GFC (including the use of BMCA's headquarters in
Wayne, New Jersey), for which BMCA, USI, G-I Holdings and GFC paid ISP a
management fee of $4.7 million in 1996. In addition to the management fee, BMCA
paid approximately $.8 million to ISP in 1996 primarily for telecommunications
and information services, and G-I Holdings and BMCA paid approximately $0.5
million to ISP in 1996 for certain legal services, which in each case were not
then contemplated by the management agreement. In connection with the Separation
Transactions, the management agreement was modified to incorporate such services
into the management agreement, and, in that connection, the management fee
payable by the Company to ISP was increased to $5.4 million. Certain of the
Company's executive officers receive their compensation from ISP, with ISP being
indirectly reimbursed therefor by virtue of the management fee.
Due to the unique nature of the services provided under the management
agreement, comparisons with third party arrangements are difficult. However, the
Company believes that the terms of the management agreement taken as a whole are
no less favorable to the Company than could be obtained from an unaffiliated
third party.
CERTAIN PURCHASES
BMCA purchases from ISP all of its colored mineral granules requirements,
except for the requirements of its California roofing plant, under a
requirements contract which was renewed for one year, effective as of January 1,
1997, and is subject to annual renewal unless terminated by BMCA or ISP. In
December 1995, USI commenced purchasing substantially all of its requirements
for colored roofing granules from ISP (except for the requirements of its
Stockton, California and Corvallis, Oregon plants which are supplied by a third
party) pursuant to a supply contract. In 1996, BMCA and USI purchased in the
aggregate approximately $50.5 million of mineral products from ISP.
TAX SHARING AGREEMENTS
BMCA and its subsidiaries have entered into a tax sharing agreement dated
January 31, 1994 with GAF and G-I Holdings with respect to the payment of
federal income taxes and certain related matters (the 'Tax Sharing Agreement').
During the term of the Tax Sharing Agreement, which shall be effective for the
period during which BMCA or any of its domestic subsidiaries is included in a
consolidated federal income tax return filed by GAF, BMCA is obligated to pay
G-I Holdings an amount equal to those federal income taxes BMCA would have
incurred if BMCA (on behalf of itself and its domestic subsidiaries) filed its
own federal income tax return. Unused tax attributes will carry forward for use
in reducing amounts payable by BMCA to G-I Holdings in future years, but cannot
be carried back. If BMCA were no longer a member of the consolidated GAF tax
group (the 'GAF Group'), it would be required to pay to G-I Holdings the value
of any tax attributes it would succeed to under the consolidated return
regulations to the extent such attributes reduced the amounts otherwise payable
by BMCA under the Tax Sharing Agreement. Under certain circumstances, the
provisions of the Tax Sharing Agreement could result in BMCA having a greater
liability thereunder than it would have had if it (and its domestic
subsidiaries) had filed its own separate federal income tax return. Under the
Tax Sharing Agreement, BMCA and each of its domestic subsidiaries are
responsible for any taxes that would be payable by reason of any adjustment to
the tax returns of GAF or its subsidiaries for years prior to the adoption of
the Tax Sharing Agreement that relate to the business or assets of BMCA or any
domestic subsidiary of BMCA. Although, as a member of the GAF Group, BMCA is
severally liable for all federal income tax liabilities of the GAF Group,
including tax liabilities not related to the business of BMCA, G-I Holdings and
GAF have agreed to indemnify
18
<PAGE>
BMCA and its subsidiaries for all tax liabilities of the GAF Group other than
tax liabilities (i) arising from the operations of BMCA and its domestic
subsidiaries and (ii) for tax years pre-dating the Tax Sharing Agreement that
relate to the business or assets of BMCA and its domestic subsidiaries. The Tax
Sharing Agreement provides for analogous principles to be applied to any
consolidated, combined or unitary state or local income taxes. Under the Tax
Sharing Agreement, GAF makes all decisions with respect to all matters relating
to taxes of the GAF Group. The provisions of the Tax Sharing Agreement take into
account both the federal income taxes BMCA would have incurred if it filed its
own separate federal income tax return and the fact that BMCA is a member of the
GAF Group for federal income tax purposes.
G-I Holdings has entered into a Tax Sharing Agreement with GAF with respect
to the payment of Federal income taxes and certain related matters (the 'G-I
Holdings Tax Sharing Agreement'). During the term of the G-I Holdings Tax
Sharing Agreement, which shall extend as long as G-I Holdings is included in a
consolidated Federal income tax return filed by GAF, G-I Holdings is obligated
to pay to GAF an amount equal to those Federal income taxes G-I Holdings would
have incurred if G-I Holdings (on behalf of itself and its domestic
subsidiaries) filed its own Federal income tax return, but, in general, not in
excess of the amount of Federal income tax GAF actually pays or is required to
pay. GAF has agreed to indemnify G-I Holdings and its domestic subsidiaries for
all tax liabilities of the GAF consolidated group other than tax liabilities
arising from the operations of G-I Holdings and its domestic subsidiaries. The
G-I Holdings Tax Sharing Agreement provides for analogous principles to be
applied to any consolidated, combined or unitary state or local income taxes.
Under the G-I Holdings Tax Sharing Agreement, GAF makes all decisions with
respect to all matters relating to taxes of the GAF consolidated group.
INTERCOMPANY BORROWINGS
Prior to the consummation of the Separation Transactions, letters of credit
for the benefit of the Company were provided under ISP's revolving credit
agreement. The highest amount of such letters of credit during 1996 was
$2.3 million.
TENDER OFFER
On October 18, 1996, ISP Holdings consummated a cash tender offer and
consent solicitation (the 'Tender Offer') for all of the Senior Discount Notes
and Series B Senior Discount Notes due 1998 (the 'Discount Notes') of G-I
Holdings. Approximately 99% of the outstanding Discount Notes were tendered
pursuant to the Tender Offer and approximately $6.3 million in aggregate
principal amount at maturity remain outstanding. In connection with such offer
to purchase, ISP Holdings also obtained the consent of the tendering holders of
the Discount Notes to certain amendments (the 'Discount Note Amendments') to the
Indenture dated as of October 5, 1993 (the 'Discount Note Indenture') between
G-I Holdings and the Bank of New York, as trustee, governing the Discount Notes.
The Discount Note Amendments modified or eliminated certain restrictive
covenants contained in the Discount Note Indenture, including those covenants
that would have prohibited the Separation Transactions.
Concurrently with the consummation of the Tender Offer, G-I Holdings
purchased for cash from ISP Holdings Discount Notes tendered pursuant to the
Tender Offer (the 'Repurchase') in an amount equal to $133 million, which was
sufficient, together with the net proceeds of a note offering by ISP Holdings to
allow ISP Holdings to consummate the Tender Offer and to pay certain expenses in
connection with the Tender Offer, the Exchange Offer (as defined below) and such
note offering. All remaining Discount Notes validly tendered and purchased in
the Tender Offer by ISP Holdings (approximately $277.0 million principal amount
at maturity) were held by ISP Holdings and remained outstanding as obligations
of G-I Holdings until immediately prior to consummation of the Separation
Transactions, at which time they were contributed to G-I Holdings as a capital
contribution and canceled by G-I Holdings. In addition, immediately prior to
such capital contribution, G-I Holdings purchased from ISP Holdings Discount
Notes for an aggregate amount equal to $45.8 million representing the
sum of $45 million and the amount of fees and expenses of ISP Holdings
related to the Separation Transactions (not including those fees and
expenses already accounted for in the purchase of Discount Notes by G-I
Holdings from ISP Holdings). All Discount Notes so purchased were
canceled by G-I Holdings.
19
<PAGE>
EXCHANGE OFFER
On October 18, 1996, ISP Holdings consummated an offer to exchange (the
'Exchange Offer') $1,000 principal amount of its 9 3/4% Senior Notes due 2002
('9 3/4% Notes') for each $1,000 principal amount of G-I Holdings' Senior Notes
due 2006 (the '10% Notes'). Pursuant to the Exchange Offer, on October 18, 1996,
9 3/4% Notes in the aggregate principal amount of $199,871,000 were issued to
the former holders of the 10% Notes. Approximately 99% of the outstanding 10%
Notes were tendered pursuant to the Exchange Offer and approximately $0.1
million in aggregate principal amount remain outstanding. All 10% Notes validly
tendered and accepted in the Exchange Offer were held by ISP Holdings and
remained outstanding as obligations of G-I Holdings until immediately prior to
consummation of the Separation Transactions, at which time such 10% Notes were
contributed to G-I Holdings by ISP Holdings as a capital contribution and
canceled by G-I Holdings. In connection with such exchange offer, ISP Holdings
also obtained the consent of the tendering holders of the 10% Notes to certain
amendments (the '10% Note Amendments') to the Indenture dated as of February 14,
1996 (the '10% Note Indenture') between G-I Holdings and the Bank of New York,
as trustee, governing the 10% Notes. The 10% Note Amendments modified or
eliminated certain restrictive covenants contained in the 10% Note Indenture,
including those covenants that would have prohibited the Separation
Transactions.
SEPARATION TRANSACTIONS
Reference is made to the description of the Separation Transactions
contained in the second paragraph under Item 1. 'Business.'
Pursuant to the terms of an indemnification agreement dated as of October
18, 1996 (the 'Indemnification Agreement') among GAF, G-I Holdings, ISP
Holdings, G Industries and GFC, (i) GAF and G-I Holdings have agreed to
indemnify ISP Holdings and its subsidiaries for all liabilities of the GAF Group
as it is currently comprised (the 'Current GAF Group'), including all
liabilities for asbestos-related claims (whether for indemnity or defense) and
such group's liabilities relating to environmental matters, litigation and
employee benefits and excluding all liabilities of ISP and its subsidiaries, all
liabilities relating to the 9 3/4% Notes and ISP Holdings' 9% Senior Notes due
2003 (together the 'Notes') and all other liabilities reflected in the pro forma
consolidated balance sheet of ISP Holdings and its subsidiaries or the notes
thereto prepared in connection with the Tender Offer and the Exchange Offer,
(ii) ISP Holdings has agreed to indemnify GAF and other members of the Current
GAF Group for all liabilities of ISP and its subsidiaries, all liabilities
relating to the Notes, and all other liabilities reflected in the pro forma
consolidated balance sheet of ISP Holdings and its subsidiaries or the notes
thereto prepared in connection with the Tender Offer and the Exchange Offer
(excluding those liabilities as to which ISP Holdings is being indemnified in
accordance with clause (i)), (iii) ISP Holdings has agreed to indemnify GAF and
other members of the Current GAF Group for its accrued tax liability prior to
the Separation Transactions and (iv) GAF, G-I Holdings, G Industries and GFC
have agreed to indemnify ISP Holdings, ISP and its subsidiaries from, and
against, any and all taxes (net of any tax benefits realized by the indemnities)
that may be payable by the Current GAF Group with respect to the Separation
Transactions.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this report:
(a)(1) Financial Statements: See Index on page F-1.
(a)(2) Financial Statement Schedules: See Index on page F-1.
(a)(3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------
<S> <C>
3.1 -- Certificate of Incorporation of G-I Holdings (incorporated by
reference to Exhibit 3.1 to G-I Holdings' Annual Report on Form 10-K
for the year ended December 31, 1989 (the '1989 10-K')).
3.2 -- By-laws of G-I Holdings (incorporated by reference to Exhibit 3.2 to
the 1989 10-K).
4.1 -- Indenture, dated as of October 5, 1993 (the 'Discount Notes
Indenture'), between G-I Holdings and The Bank of New York, as
trustee (incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4 of G-I Holdings (Registration No.
33-72220) (the 'Discount Notes Registration Statement')).
4.2 -- First Supplemental Indenture dated as of October 18, 1996 to the
Discount Notes Indenture.
4.3 -- Indenture, dated as of February 14, 1996 ('10% Note Indenture'),
between G-I Holdings and The Bank of New York, as trustee
(incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form S-4 of G-I Holdings (Registration No. 333-2436)
(the 'G-I Holdings Registration Statement')).
4.4 -- First Supplemental Indenture dated as of October 18, 1996 to the 10%
Note Indenture.
10.1 -- Indenture, dated as of December 9, 1996, between BMCA and The Bank
of New York, as trustee (incorporated by reference to Exhibit 4.1 to
BMCA's Registration on Form S-4 (Registration No. 333-20859) (the
'Senior Notes Registration Statement')).
10.2 -- Indenture dated as of June 30, 1994 between BMCA and The Bank of New
York, as trustee (incorporated by reference to Exhibit 4.1 to the
Deferred Coupon Note Registration Statement).
10.3 -- Management Agreement, dated as of March 3, 1992 ('Management
Agreement'), among GAF, G-I Holdings, G Industries, ISP, GAFBMC and
GAF Broadcasting Company, Inc. (incorporated by reference to Exhibit
10.9 to the Registration Statement on Form S-4 of G-I Holdings
(Registration No. 33-72220)).
10.4 -- Amendment No. 1, dated as of January 1, 1994, to the Management
Agreement (incorporated by reference to Exhibit 10.10 to G-I
Holdings' Annual Report on Form 10-K for the year ended December 31,
1993).
10.5 -- Amendment No. 2, dated as of May 31, 1994, to the Management
Agreement (incorporated by reference to Exhibit 10.1 to G-I
Holdings' Quarterly Report on Form 10-Q for the quarter ended July
3, 1994).
10.6 -- Amendment No. 3, dated as of December 31, 1994, to the Management
Agreement (incorporated by reference to Exhibit 10.4 to ISP's Annual
Report on Form 10-K for the year ended December 31, 1994).
10.7 -- Amendment No. 4, dated as of December 31, 1995, to the Management
Agreement (incorporated by reference to Exhibit 10.6 to G-I
Holdings' Registration Statement on Form S-4 (Registration No.
333-2436)).
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------
<S> <C>
10.8 -- Amendment No. 5, dated as of October 18, 1996, to the Management
Agreement (incorporated by reference to Exhibit 10.6 to ISP
Holdings' Registration Statement on Form S-4 (Registration No.
333-17827)).
10.9 -- Amendment No. 6, dated as of January 1, 1997, to the Management
Agreement (incorporated by reference to Exhibit 10.8 to the Senior
Notes Registration Statement).
10.10 -- Tax Sharing Agreement, dated as of January 31, 1994, among GAF, G-I
Holdings and BMCA (incorporated by reference to Exhibit 10.6 to
BMCA's Registration Statement on Form S-4 (Registration No.
33-81808) (the 'Deferred Coupon Note Registration Statement').
10.11 -- Tax Sharing Agreements between GAF and G-I Holdings, and between G-I
Holdings and G Industries (incorporated by reference to Exhibit
10.11 to the Discount Notes Registration Agreement).
10.12 -- Form of Option Agreement relating to Series A Cumulative Redeemable
Convertible Preferred Stock of BMCA (incorporated by reference to
Exhibit 10.9 to BMCA's Annual Report on Form 10-K for the year ended
December 31, 1996 ('BMCA's 1996 Form 10-K')*
10.13 -- Stock Appreciation Right Agreement dated January 1, 1997 between GAF
Corporation and Sunil Kumar (incorporated by reference to Exhibit
10.11 to BMCA's 1996 Form 10-K)*
10.14 -- Amended and Restated Stock Appreciation Right Agreement dated
January 1, 1997 between GAF Corporation and Sunil Kumar
(incorporated by reference to Exhibit 10.12 to BMCA's 1996 Form
10-K)*
21 -- Subsidiaries of G-I Holdings.
27 -- Financial Data Schedule for fiscal year 1996, which is submitted
electronically to the Securities and Exchange Commission for
information only.
28 -- Stipulation of Settlement between the Class of Claimants and
Defendants represented by the Center for Claims Resolution dated
January 15, 1993 (incorporated by reference to Exhibit 28.1 to G-I
Holdings' Form 8-K reporting an event on January 5, 1993).
</TABLE>
- ------------------
* Management and/or compensatory plan or arrangement.
(b) Reports on Form 8-K
None
22
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Date: March 26, 1997 G-I HOLDINGS INC.
By: /s/ JAMES P. ROGERS
JAMES P. ROGERS
Executive Vice President and Chief
Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE TITLE DATE
- ----------------------- --------------------------------------- --------------
/s/ SAMUEL J. HEYMAN Chairman, Chief Executive Officer and March 26, 1997
Samuel J. Heyman Director (Principal Executive Officer)
/s/ JAMES P. ROGERS Executive Vice President and Chief March 26, 1997
James P. Rogers Financial Officer
/s/ JONATHAN H. STERN Vice President and Controller March 26, 1997
Jonathan H. Stern (Principal Accounting Officer)
23
<PAGE>
G-I HOLDINGS INC.
FORM 10-K
INDEX TO MANAGEMENT'S DISCUSSION AND ANALYSIS,
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
PAGE
----
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... F-2
Selected Financial Data.................................................. F-6
Report of Independent Public Accountants................................. F-7
Consolidated Statements of Income for the three years ended December 31,
1996................................................................... F-8
Consolidated Balance Sheets as of December 31, 1995 and 1996............. F-9
Consolidated Statements of Cash Flows for the three years ended December
31, 1996............................................................... F-10
Consolidated Statements of Shareholder's Equity (Deficit) for the three
years ended December 31, 1996.......................................... F-12
Notes to Consolidated Financial Statements............................... F-13
Supplementary Data (Unaudited):
Quarterly Financial Data (Unaudited)................................... F-28
SCHEDULES
Consolidated Financial Statement Schedules:
Schedule I--Condensed Financial Information of Registrant.............. S-1
Schedule II--Valuation and Qualifying Accounts......................... S-4
F-1
<PAGE>
G-I HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Prior to January 1, 1997, G-I Holdings Inc. (the 'Registrant' or 'G-I
Holdings') was a wholly-owned subsidiary of ISP Holdings Inc. ('ISP Holdings'),
which was a wholly-owned subsidiary of GAF Corporation ('GAF'). ISP Holdings was
formed on August 6, 1996 and 10 shares of its common stock were issued to GAF in
exchange for all of the capital stock of G-I Holdings, which resulted in G-I
Holdings becoming a direct wholly-owned subsidiary of ISP Holdings.
On January 1, 1997, GAF effected a series of transactions (the 'Separation
Transactions') that resulted in, among other things: (1) all shares of the
common stock of International Specialty Products Inc. ('ISP') owned by GAF and
its subsidiaries, representing approximately 83.5% of the issued and outstanding
capital stock of ISP, being distributed to ISP Holdings; (2) all of the
outstanding capital stock of G-I Holdings being distributed to GAF; (3) the
capital stock of ISP Holdings being distributed to the stockholders of GAF; (4)
U.S. Intec, Inc. ('USI') becoming a subsidiary of Building Materials Corporation
of America ('BMCA'), a wholly-owned indirect subsidiary of G-I Holdings, through
a capital contribution to BMCA by G-I Holdings, and (5) G-I Holdings making a
contribution of approximately $82.5 million in cash and short-term investments
to BMCA.
As a result of the Separation Transactions, ISP Holdings and ISP are no
longer direct or indirect subsidiaries of GAF or G-I Holdings while the assets
and liabilities of G-I Holdings and its wholly-owned subsidiaries, including
BMCA, USI and GAF Fiberglass Corporation ('GFC') (formerly known as GAF
Chemicals Corporation), are no longer assets and liabilities of ISP Holdings. As
used herein, the term 'Company' refers to G-I Holdings and its subsidiaries.
Accordingly, the results of operations and assets and liabilities of ISP,
as well as GAF Broadcasting Company, Inc. (which was sold in August 1996), have
been classified as 'Discontinued Operations' within the financial statements for
all periods presented. The following discussion is on a continuing operations
basis.
The Company, through its principal operating subsidiary, BMCA, is engaged
principally in the manufacture and sale of a broad line of asphalt roofing
products and accessories for the residential and commercial roofing markets in
the United States.
RESULTS OF OPERATIONS
1996 Compared With 1995
The Company recorded a loss from continuing operations in 1996 of $25.6
million compared with a loss from continuing operations of $23.5 million in
1995. The results in 1996 reflected $6.5 million higher interest expense and
$4.6 million lower other income, partially offset by $15.3 million higher
operating income.
Net sales for 1996 increased $164.8 million (24%) to $852 million compared
with $687.2 million in 1995. The sales growth reflected a 13% increase in sales
for BMCA (excluding the effect of USI sales) due to increased unit volumes of
both residential and commercial roofing products and higher average residential
selling prices, and also reflected USI sales of $99 million for the full year
1996 compared with $21.8 million for the period in 1995 after the date of
acquisition.
Gross profit margin improved to 26.9% in 1996 from 26.2% in 1995, resulting
primarily from higher average residential selling prices, partially offset by
higher raw material costs. Selling, general and administrative expenses
increased 24% to $169 million in 1996 from $136 million in 1995, primarily
reflecting higher distribution and selling costs to support the increased level
of sales, and also reflecting $13 million higher expenses as a result of the
inclusion of USI for the full year 1996. Selling, general and administrative
expenses as a percentage of net sales remained constant at 19.8% in both 1996
and 1995.
Operating income in 1996 was $58.4 million, an increase of $15.2 million
(35%) compared with $43.2 million in 1995. The higher operating income was
attributable to the increased sales and improved margins and included $4.3
million operating income from USI.
Interest expense was $127.6 million in 1996 compared with $121 million in
1995 due to higher average debt levels during 1996. However, as described under
'Liquidity and Financial Condition' and in Note 8 to Consolidated Financial
Statements, the Company's debt was substantially reduced in the fourth quarter
of 1996 through a series of transactions.
Other income, net, primarily reflects income from a partnership between GFC
and an affiliate of Rhone-Poulenc Inc. (the 'Partnership') of $32.3 million in
1996 and $32.4 million in 1995. Other income, net, also comprises net investment
income, expenses related to the sale of BMCA's trade accounts receivable, and
other nonoperating and nonrecurring items of income and expense; such items
totaled $.6 million of net expense in
F-2
<PAGE>
1996 compared with $4.0 million of income in 1995. The higher net expense
in 1996 reflected a $6.7 million writeoff of nonoperating fixed assets, a $3.0
million provision for environmental remediation at shut-down locations,
increased expenses related to the sale of BMCA's receivables (up $.6 million),
the write-off of costs of acquisitions not consummated ($1.4 million) and
certain litigation costs, partially offset by higher investment income (up $10.4
million) (see Note 1 to Consolidated Financial Statements).
The Company's effective tax benefit rate on pre-tax losses was 31.3% in
1996 compared with 43.4% in 1995. The favorable rate in 1995 was due primarily
to utilization of foreign tax credit carryovers.
As discussed in Note 8 to Consolidated Financial Statements, in February
1996, G-I Holdings completed the exchange of $189.3 million in accreted value of
its then outstanding Senior Discount Notes due 1998 (the 'Discount Notes') for
$200 million of its 10% Senior Notes due 2006 (the '10% Notes'). In October
1996, ISP Holdings consummated a cash tender offer for the remaining Discount
Notes. ISP Holdings also concluded an offer to exchange its new 9 3/4% Senior
Notes for $199.9 million aggregate principal amount of G-I Holdings' 10%
Notes. In connection with these transactions, the Company recorded extraordinary
losses of $31.0 million, net of related income tax benefits of $17.3 million,
representing write-offs of deferred financing fees and the premium to accreted
value of $29.4 million paid pursuant to the tender offer.
1995 Compared With 1994
The Company recorded a loss from continuing operations in 1995 of $23.5
million compared with a loss from continuing operations of $7.7 million in l994.
The results in 1995 reflected $.9 million lower operating income, $22.6 million
higher interest expense and $10.9 million lower other income.
Net sales for 1995 increased $94.1 million (16%) to $687.2 million,
compared with $593.1 million in 1994. The sales growth primarily reflected
higher unit volumes of both residential and commercial roofing products,
including $21.8 million sales of USI, acquired in October 1995, and those of the
business of International Permalite Inc. ('IPI'), acquired by BMCA in March
1994, and higher average selling prices.
Gross profit margin decreased from 28.4% in 1994 to 26.2% in 1995,
resulting principally from higher raw material costs, partially offset by the
higher average selling prices. Selling, general and administrative expenses
increased 9.9% to $136 million, primarily reflecting higher distribution and
selling costs to support the increased level of sales, and also reflecting $3.6
million of USI expenses from the date of USI's acquisition. Selling, general and
administrative expenses decreased as a percentage of net sales from 20.9% in
1994 to 19.5% in 1995.
The Company recorded operating income of $43.2 million in 1995 compared
with $44.1 million in 1994. While BMCA's operating income increased $1.2 million
(3%) to $45.9 million in 1995 compared with $44.7 million in 1994, due
principally to the higher sales volumes, partially offset by the lower margins,
such increase was more than offset by lower operating income from the Company's
insurance subsidiary, which was liquidated during 1995, and by certain operating
expenses at the parent company level.
Interest expense was $121 million in 1995 compared with $98.4 million in
1994. The increase of $22.6 million was attributable to higher debt levels,
primarily from the issuance in June 1994 of BMCA's Senior Deferred Coupon Notes
due 2004 (the 'Deferred Coupon Notes') (see Note 8 to Consolidated Financial
Statements), higher interest rates, and higher Partnership interest.
Other income, net, includes income from the Partnership of $32.4 million in
1995 and $51.2 million in 1994. Income from the Partnership in 1994 included $23
million, representing the pre-tax income from a partnership distribution of a
portion of the interest of GFC in the Partnership as a result of a settlement of
GFC's outstanding disputes relating to its interest in the Partnership. See Note
3 to Consolidated Financial Statements. Other income, net, also comprises net
investment income, expenses related to the sale of BMCA's trade accounts
receivable, and other nonoperating and nonrecurring items of income and expense;
such items totaled $4.0 million of net income in 1995 compared with $4.0 million
of net expense in 1994. The $8.0 million improvement in 1995 was due primarily
to higher net investment income (up $2.5 million) (see Note 1 to Consolidated
Financial Statements) and the absence of $4.0 million in provisions for
environmental remediation and certain litigation costs.
The Company recorded a tax benefit of $18 million in 1995 (an effective
benefit rate of 43.4%) compared with a tax provision of $.6 million in 1994. The
favorable rate in 1995 was due primarily to utilization of foreign tax credit
carryovers.
LIQUIDITY AND FINANCIAL CONDITION
GAF, G-I Holdings and G Industries Corp. are essentially holding companies
without independent businesses or operations and, as such, are presently
dependent upon the cash flow of their subsidiaries, principally BMCA, in
order to satisfy their obligations. As of December 31, 1996, such obligations
included
F-3
<PAGE>
$5.3 million of the Discount Notes, $.1 million of the 10% Notes, $333.8
million estimated present value of asbestos liability (before estimated
present value of recoveries from products liability insurance policies
of approximately $190.5 million) and approximately $163.8 million of
various tax and other liabilities of GAF and its subsidiaries, including
tax liabilities relating to the Partnership. For further information,
see Notes 1, 3, 4 and 12 to Consolidated Financial Statements. G-I
Holdings and GAF expect to obtain funds to satisfy such obligations
from, among other things, dividends and loans from subsidiaries
(principally BMCA), as to which there are restrictions under the
indentures relating to the Deferred Coupon Notes and BMCA's 8 5/8%
Senior Notes due 2006 (the '8 5/8% Notes'), and from payments pursuant
to the Tax Sharing Agreement between GAF and BMCA. As of December 31,
1996, BMCA, under the most restrictive of its debt covenants, could have
paid dividends of up to $167.5 million.
During 1996, the Company on a consolidated basis generated cash from
operations of $39.7 million, invested $25.6 million in capital expenditures,
invested $35.1 million for net purchases of available-for-sale and
held-to-maturity securities and other short-term investments, generated $89.5
million in cash from the sale of WAXQ-FM (a discontinued operation), and
generated $4.6 million from other discontinued operations, for a net cash inflow
of $73 million before financing transactions. Cash invested in additional
working capital totaled $9.1 million during 1996, mainly reflecting a $3.8
million increase in receivables and a $7.5 million increase in inventories due
to higher sales levels. The cash inflow from operating activities was net of a
$3.9 million cash outflow for net purchases of trading securities and $59
million in net payments of asbestos claims. See Note 1 to Consolidated Financial
Statements and Item 3, 'Legal Proceedings' for a discussion of asbestos claims
filed against GAF.
Net cash used in financing transactions was $2.3 million. As discussed in
Note 8 to Consolidated Financial Statements, in October 1996, ISP Holdings
consummated a tender offer for the Discount Notes and an exchange offer for the
10% Notes. Subsequent to the tender offer, G-I Holdings repurchased a total
of $178.9 million of the Discount Notes from ISP Holdings (utilizing cash on
hand and the repayment of loans owed to G-I Holdings by ISP). The remaining
Discount Notes purchased by ISP Holdings in the tender offer which were not
repurchased by G-I Holdings and the 10% Notes accepted by ISP Holdings
pursuant to the exchange offer were contributed to G-I Holdings by ISP Holdings
in December 1996 as a noncash capital contribution and cancelled by G-I
Holdings.
On December 9, 1996, BMCA issued $100 million principal amount at maturity
of the 8 5/8% Notes. BMCA utilized the net proceeds from the issuance of the
8 5/8% Notes to repay indebtedness owed by USI to G-I Holdings of approximately
$30 million and to pay the purchase price for the March 1997 acquisition of the
assets of the Leatherback Industries division of Hollinee Corporation. The
remainder will be utilized for general corporate purposes.
Financing transactions in 1996 also included a cash inflow of $117.8
million in repayments of loans owed to G-I Holdings by ISP and $8.0 million in
proceeds from the sale of BMCA's accounts receivable, partially offset by $34.9
million of repayments of long-term debt, $5.0 million of financing fees and $6.5
million in dividends paid to GAF.
As a result of the foregoing factors, cash and cash equivalents increased
by $70.7 million during 1996 to $124.6 million (excluding $106.2 million of
trading, available-for-sale and held-to-maturity securities and other short-term
investments).
As of December 31, 1996, the Company's scheduled repayments of long-term
debt for the twelve months ending December 31, 1997 aggregated $3.4 million.
The Company's investment strategy is to seek returns in excess of money
market rates on its available cash while minimizing market risks. There can be
no assurance that the Company will be successful in implementing such a
strategy. The Company invests primarily in international and domestic arbitrage
and securities of companies involved in acquisition or reorganization
transactions, including at times, common stock short positions which are offsets
against long positions in securities which are expected, under certain
circumstances, to be exchanged or converted into the short positions. With
respect to its equity positions, the Company is exposed to the risk of market
loss. See Note 1 to Consolidated Financial Statements.
In June 1996, BMCA's bank credit facilities were extended to June 1997 on
the same terms and conditions. In October 1996, a $10 million facility was
increased to $12 million and extended to October 1997. Such facilities provide
for revolving lines of credit up to $32 million and letters of credit of up to
$41 million, provided that total borrowings and outstanding letters of credit
may not exceed $42 million. As of December 31, 1996, $38.9 million of letters of
credit were outstanding and no amounts had been borrowed thereunder. Under the
F-4
<PAGE>
agreements, BMCA is subject to a minimum consolidated net worth test. As of
December 31, 1996, BMCA was in compliance with such test.
USI has a revolving credit facility, providing for borrowings of up to
$29.6 million and letters of credit of up to $2 million (such total borrowings
and outstanding letters of credit not to exceed $29.6 million), which expires in
January 1999 and is secured by, and subject to limitations based upon values of,
accounts receivable, inventories and certain manufacturing equipment. As of
December 31, 1996, there were $1.7 million of letters of credit outstanding and
no amounts had been borrowed under such facility.
Borrowings by G-I Holdings and BMCA are subject to the application of
certain financial covenants contained in the indentures relating to the Discount
Notes, the 10% Notes, the 8 5/8% Notes and the Deferred Coupon Notes. As of
December 31, 1996, G-I Holdings and BMCA were in compliance with such covenants.
The objectives of the Company in utilizing interest rate swap agreements
are to lower funding costs, diversify sources of funding and manage interest
rate exposure. As of December 31, 1996, the total notional amount of interest
rate swaps outstanding was $100.8 million, and the amount of underlying debt
relating to such swaps was $220.1 million. By utilizing interest rate swap
agreements, the Company reduced its interest expense by $0.2, $1.5 and $2.2
million in 1994, 1995 and 1996, respectively. See Note 8 to Consolidated
Financial Statements.
See Note 8 to Consolidated Financial Statements for further information
regarding the debt instruments of the Company.
In March 1993, BMCA sold its trade accounts receivable ('receivables') to a
trust, without recourse, pursuant to an agreement which provided for a maximum
of $75 million in cash to be made available to BMCA based on eligible
receivables outstanding from time to time. In November 1996, BMCA repurchased
the receivables sold pursuant to the 1993 agreement and sold them to a special
purpose subsidiary of BMCA, BMCA Receivables Corporation, without recourse,
which in turn sold them to a new trust, without recourse, pursuant to new
agreements. The new agreements provide for a maximum of $115 million in cash to
be made available to BMCA based on eligible receivables outstanding from time to
time. This facility expires in December 2001.
For further information with regard to income taxes, see Note 4 to
Consolidated Financial Statements.
The Company does not believe that inflation has had a material effect on
its results of operations during the past three years. However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.
The Company, together with other companies, is a party to a variety of
administrative proceedings and lawsuits involving environmental matters. See
Item 3, 'Legal Proceedings--Environmental Litigation' for further discussion.
The discussion as to legal matters involving the Company, including
asbestos-related matters, contained in Item 3, 'Legal Proceedings' is
incorporated herein by reference.
At December 31, 1996, the Company had foreign tax credit ('FTC')
carryforwards with expiration dates as follows:
FTC's expiring in the year:
<TABLE>
<CAPTION>
(THOUSANDS)
-----------
<S> <C>
1998...................................................... $ 5,917
1999...................................................... 6,166
-----------
Total FTC carryforwards available for tax purposes... $12,083
-----------
-----------
</TABLE>
FTC carryforwards represent amounts available to ISP and due to G-I
Holdings under the Tax Sharing Agreement. G-I Holdings intends to transfer the
remaining amount which is not utilized in its 1996 consolidated tax return,
estimated to be $12.1 million, to ISP Holdings.
FORWARD-LOOKING STATEMENTS
The discussions in this report contain both historical information and
forward-looking statements. Although the Company believes that any such
forward-looking statements are based on reasonable assumptions, these statements
involve uncertainties that affect, among other things, the Company's operations,
markets, products, services and prices. These uncertainties include economic,
competitive, governmental and technological factors.
F-5
<PAGE>
G-I HOLDINGS INC.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales................... $ 508.5 $ 559.2 $ 593.1 $ 687.2 $ 852.0
Operating income............ 33.8 41.4 44.1 43.2 58.4
Interest expense............ 82.9 90.1 98.4 121.0 127.6
Loss from continuing
operations before income
taxes.................... (324.9) (13.3) (7.1) (41.5) (37.4)
Loss from continuing
operations before
extraordinary items and
cumulative effect of
accounting change........ (194.6) (7.9) (7.7) (23.5) (25.6)
Income from discontinued
operations, net of income
taxes.................... 47.5 22.3 36.9 56.3 110.7
Net income (loss)........... (167.9) 14.4 28.0 32.8 54.2
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total working capital....... $ 257.1 $ 143.9 $ 228.0 $ 290.0 $ 426.4
Total assets................ 1,246.0 1,307.4 1,766.7 1,904.8 1,929.2
Long-term debt.............. 806.4 898.3 1,136.8 1,270.1 861.1
Shareholder's equity
(deficit)................ (42.6) (42.6) (15.8) (1.7) 445.8
</TABLE>
F-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To G-I Holdings Inc.:
We have audited the accompanying consolidated balance sheets of G-I
Holdings Inc. (a Delaware corporation and a wholly-owned subsidiary of GAF
Corporation) and subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of income, shareholder's equity (deficit) and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements and the schedules referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, appearing on
Pages F-8 to F-27 of this Form 10-K, present fairly, in all material respects,
the financial position of G-I Holdings Inc. and subsidiaries as of December 31,
1995 and 1996, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules appearing on pages S-1 to
S-4 of this Form 10-K are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 3, 1997
F-7
<PAGE>
G-I HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Net sales.................................... $593,147 $687,184 $851,967
-------- -------- --------
Costs and expenses:
Cost of products sold...................... 424,677 507,279 623,135
Selling, general and administrative........ 123,691 135,966 169,049
Goodwill amortization...................... 666 772 1,335
-------- -------- --------
Total costs and expenses................... 549,034 644,017 793,519
-------- -------- --------
Operating income............................. 44,113 43,167 58,448
Interest expense............................. (98,416) (121,019) (127,550)
Other income, net............................ 47,218 36,348 31,752
-------- -------- --------
Loss from continuing operations before income
taxes and extraordinary items.............. (7,085) (41,504) (37,350)
Income tax (provision) benefit............... (579) 17,998 11,706
-------- -------- --------
Loss from continuing operations before
extraordinary items........................ (7,664) (23,506) (25,644)
-------- -------- --------
Discontinued operations:
Income from discontinued operations, net of
income taxes............................ 36,911 56,334 67,109
Gain on sale of discontinued operation, net
of income taxes of $30,648.............. -- -- 43,637
-------- -------- --------
Income from discontinued operations.......... 36,911 56,334 110,746
-------- -------- --------
Income before extraordinary items............ 29,247 32,828 85,102
Extraordinary items, net of income tax
benefits of $733 and $17,275,
respectively............................... (1,237) -- (30,950)
-------- -------- --------
Net income................................... $ 28,010 $ 32,828 $ 54,152
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-8
<PAGE>
G-I HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
(THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................... $ 53,907 $ 124,623
Investments in trading securities............... 6,148 1,065
Investments in available-for-sale securities.... 32,799 82,016
Investments in held-to-maturity securities...... 10,399 7,169
Other short-term investments.................... 17,906 15,944
Accounts receivable, trade, less reserve of
$3,404 and $2,183............................ 14,221 10,021
Accounts receivable, other...................... 24,394 24,329
Receivable from affiliate, net.................. 9,429 --
Loan receivable from affiliate.................. 50,597 --
Insurance receivable............................ 13,413 19,113
Inventories..................................... 67,517 75,415
Deferred income tax benefits.................... 36,031 34,788
Net current assets of discontinued operations... 142,550 219,702
Other current assets............................ 6,552 3,876
---------- ----------
Total Current Assets....................... 485,863 618,061
Investment in limited partnership................. 450,000 450,000
Property, plant and equipment, net................ 233,333 223,051
Excess of cost over net assets of businesses
acquired, net of accumulated amortization of
$7,056 and $8,391............................... 47,465 47,636
Insurance receivable.............................. 179,981 177,745
Receivable from parent company.................... 8,662 9,694
Long-term loan receivable from affiliate.......... 67,237 --
Net noncurrent assets of discontinued
operations...................................... 400,679 373,266
Other assets...................................... 31,626 29,703
---------- ----------
Total Assets...................................... $1,904,846 $1,929,156
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt............ $ 8,989 $ 3,412
Accounts payable................................ 53,326 48,511
Accrued liabilities............................. 49,106 58,543
Payable to affiliate, net....................... -- 5,236
Reserve for asbestos claims..................... 84,441 75,952
---------- ----------
Total Current Liabilities.................. 195,862 191,654
---------- ----------
Long-term debt less current maturities............ 1,270,093 861,071
---------- ----------
Deferred income taxes............................. 34,188 70,942
---------- ----------
Reserve for asbestos claims....................... 297,439 257,836
---------- ----------
Other liabilities................................. 108,971 101,858
---------- ----------
Commitments and Contingencies.....................
Shareholder's Equity (Deficit):
Common stock, $.01 par value per share; 1,000
shares authorized; 100 shares issued and
outstanding.................................. -- --
Additional paid-in capital...................... 50,129 455,943
Excess of purchase price over the adjusted
historical cost of predecessor company shares
owned by GAF's stockholders.................. (72,605) (72,605)
Retained earnings............................... 6,213 54,065
Cumulative translation adjustment and other..... 14,556 8,392
---------- ----------
Shareholder's Equity (Deficit).................. (1,707) 445,795
---------- ----------
Total Liabilities and Shareholder's Equity
(Deficit)....................................... $1,904,846 $1,929,156
---------- ----------
---------- ----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-9
<PAGE>
G-I HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- --------- ---------
(THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents, beginning of
year.................................... $ 4,429 $ 67,815 $ 53,907
-------- --------- ---------
Cash provided by operating activities:
Net income.............................. 28,010 32,828 54,152
Adjustments to reconcile net income to
net cash provided by operating
activities:
Income from discontinued
operations......................... (36,911) (56,334) (110,746)
Extraordinary items.................. 1,237 -- 30,950
Depreciation......................... 16,796 20,252 24,040
Goodwill amortization................ 666 772 1,335
Deferred income taxes................ 35,192 29,435 24,496
Noncash interest charges............. 69,193 85,439 64,957
(Increase) decrease in working capital
items................................ (16,074) (9,236) (9,136)
Purchases of trading securities......... (44,260) (94) (34,234)
Proceeds from sales of trading
securities........................... 62,728 373 30,652
(Increase) decrease in other assets..... 4,498 1,504 (1,267)
Increase (decrease) in other
liabilities.......................... (7,651) 2,271 (1,588)
Payments of asbestos claims, net........ (74,895) (60,395) (58,978)
Change in net receivable from/payable to
affiliate............................ 247 (6,093) 17,291
Other, net.............................. 1,066 1,791 7,802
-------- --------- ---------
Net cash provided by operating
activities.............................. 39,842 42,513 39,726
-------- --------- ---------
Cash provided by (used in) investing
activities:
Capital expenditures and acquisitions... (54,279) (54,111) (25,629)
Proceeds from sale of discontinued
operation............................ -- -- 89,464
Other--discontinued operations.......... 4,021 2,466 4,572
Purchases of available-for-sale
securities........................... -- (111,489) (150,385)
Purchases of held-to-maturity
securities........................... -- (17,845) (29,575)
Purchases of other short-term
investments.......................... (14,592) (6,634) (660)
Proceeds from sales of
available-for-sale securities........ -- 74,063 110,086
Proceeds from held-to-maturity
securities........................... -- 7,446 32,805
Proceeds from other short-term
investments.......................... -- 3,320 2,622
-------- --------- ---------
Net cash provided by (used in) investing
activities.............................. (64,850) (102,784) 33,300
-------- --------- ---------
Cash provided by (used in) financing
activities:
Proceeds from sale of accounts
receivable........................... 12,217 7,919 8,015
Proceeds from issuance of long-term
debt................................. 195,528 40,002 99,502
Repurchase of Discount Notes from ISP
Holdings............................. -- -- (178,861)
Repayments of long-term debt............ (14,204) (10,440) (34,856)
(Increase) decrease in loans to
affiliate............................ (66,263) 15,216 117,834
Increase (decrease) in loan from parent
company.............................. 1,800 (1,800) --
Financing fees and expenses............. (6,789) (392) (5,021)
Dividends paid to parent company........ (8,130) (28,159) (6,491)
(Increase) decrease in restricted
cash................................. (24,484) 24,484 --
Other, net.............................. (1,281) (467) (2,432)
-------- --------- ---------
Net cash provided by (used in) financing
activities.............................. 88,394 46,363 (2,310)
-------- --------- ---------
Net change in cash and cash equivalents... 63,386 (13,908) 70,716
-------- --------- ---------
Cash and cash equivalents, end of year.... $ 67,815 $ 53,907 $ 124,623
-------- --------- ---------
-------- --------- ---------
</TABLE>
F-10
<PAGE>
G-I HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- --------- ---------
(THOUSANDS)
<S> <C> <C> <C>
Supplemental Cash Flow Information:
Effect on cash from (increase) decrease in
working capital items(1):
Accounts receivable..................... $(13,601) $ 1,675 $ (3,750)
Inventories............................. (6,523) (3,968) (7,539)
Other current assets.................... 295 608 1,070
Accounts payable........................ 12,034 (6,465) (4,815)
Accrued liabilities..................... (8,279) (1,086) 5,898
-------- --------- ---------
Net effect on cash from (increase)
decrease in working capital
items.............................. $(16,074) $ (9,236) $ (9,136)
-------- --------- ---------
-------- --------- ---------
Cash paid during the period for:
Interest (net of amount capitalized).... $ 25,259 $ 26,406 $ 41,592
Income taxes paid (refunded)............ 763 (8,586) 1,840
</TABLE>
- ------------------
(1) Working capital items exclude cash and cash equivalents, short-term
investments and short-term debt. Working capital acquired in connection with
acquisitions is reflected in 'Capital expenditures and acquisitions.' The
effects of reclassifications between noncurrent and current assets and
liabilities are excluded from the amounts shown above. In addition, the
increase in accounts receivable shown above does not reflect the cash
proceeds from the sale of certain of the Company's accounts receivable (see
Note 5); such proceeds are reflected in cash from financing activities. As
discussed in Notes 8, in February 1996, G-I Holdings completed a noncash
exchange of $189.3 million in accreted value of its then outstanding Senior
Discount Notes due 1998 ('Discount Notes') for $200 million of its 10%
Senior Notes due 2006 (the '10% Notes'). In October 1996, ISP Holdings Inc.
issued $199.9 million of its 9 3/4% Senior Notes due 2002 in a noncash
exchange offer for the 10% Notes, and also consummated a cash tender offer
for the Discount Notes. Subsequent to such tender offer, G-I Holdings
repurchased $178.9 million of the Discount Notes from ISP Holdings. In
December 1996, ISP Holdings Inc. made a noncash capital contribution to G-I
Holdings of $404.8 million, representing the 10% Notes acquired in the
exchange offer and the Discount Notes acquired in the tender offer that were
not repurchased by G-I Holdings.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-11
<PAGE>
G-I HOLDINGS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CAPITAL
STOCK AND CUMULATIVE RETAINED
ADDITIONAL TRANSLATION EARNINGS
PAID-IN ADJUSTMENT (ACCUMULATED
CAPITAL AND OTHER DEFICIT)
---------- ---------- ------------
(THOUSANDS)
<S> <C> <C> <C>
December 31, 1993...................... $ 50,000 $ (1,864) $(18,145)
Net income........................... -- -- 28,010
Translation adjustment............... -- 6,694 --
Dividends to parent company.......... -- -- (9,130)
Unrealized loss on available-for-sale
securities, net of $517 income tax
benefit............................ -- (886) --
Change in unrealized gain on
investments held by insurance
subsidiary......................... -- (594) --
Adjustment of unfunded pension
liability.......................... -- 2,760 --
Effect of subsidiary's purchases of
treasury stock..................... (31) -- --
---------- ---------- ------------
December 31, 1994...................... $ 49,969 $ 6,110 $ 735
Net income........................... -- -- 32,828
Translation adjustment............... -- 5,561 --
Dividends to parent company.......... -- -- (27,350)
Change in unrealized gains on
available-for-sale securities, net
of $1,503 income tax effect........ -- 2,636 --
Adjustment of unfunded pension
liability.......................... -- 249 --
Effect of exercises of subsidiary's
stock options...................... 160 -- --
---------- ---------- ------------
December 31, 1995...................... $ 50,129 $ 14,556 $ 6,213
Net income........................... -- -- 54,152
Translation adjustment............... -- (6,943) --
Dividends to parent company.......... -- -- (6,300)
Capital contribution from parent
company............................ 404,808 -- --
Change in unrealized gains on
available-for-sale securities, net
of $266 tax effect................. -- (428) --
Adjustment of unfunded pension
liability.......................... -- 1,207 --
Effect of exercises of subsidiary's
stock options..................... 717 -- --
Effect of subsidiary's issuances of
stock and options as incentives.... 289 -- --
---------- ---------- ------------
December 31, 1996...................... $ 455,943 $ 8,392 $ 54,065
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-12
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Prior to January 1, 1997, G-I Holdings Inc. (the 'Registrant' or 'G-I
Holdings') was a wholly-owned subsidiary of ISP Holdings Inc. ('ISP Holdings'),
which was a wholly-owned subsidiary of GAF Corporation ('GAF'). ISP Holdings was
formed on August 6, 1996 and 10 shares of its common stock were issued to GAF in
exchange for all of the capital stock of G-I Holdings, which resulted in G-I
Holdings becoming a direct wholly-owned subsidiary of ISP Holdings.
On January 1, 1997, GAF effected a series of transactions (the 'Separation
Transactions') that resulted in, among other things: (1) all shares of the
common stock of International Specialty Products Inc. ('ISP') owned by GAF and
its subsidiaries, representing approximately 83.5% of the issued and outstanding
capital stock of ISP, being distributed to ISP Holdings; (2) all of the
outstanding capital stock of G-I Holdings being distributed to GAF; (3) the
capital stock of ISP Holdings being distributed to the stockholders of GAF; (4)
U.S. Intec, Inc. ('USI') becoming a subsidiary of Building Materials Corporation
of America ('BMCA'), a wholly-owned indirect subsidiary of G-I Holdings, through
a capital contribution to BMCA by G-I Holdings; and (5) G-I Holdings making a
contribution of approximately $82.5 million in cash and short-term investments
to BMCA.
As a result of the Separation Transactions, ISP Holdings and ISP are no
longer direct or indirect subsidiaries of GAF or G-I Holdings, while the assets
and liabilities of G-I Holdings and its wholly-owned subsidiaries, including
BMCA, USI and GAF Fiberglass Corporation ('GFC') (formerly known as GAF
Chemicals Corporation), are no longer assets and liabilities of ISP Holdings. As
used herein, the term 'Company' refers to G-I Holdings and its subsidiaries.
Accordingly, the results of operations and assets and liabilities of ISP,
as well as GAF Broadcasting Company, Inc. (which was sold in August 1996), have
been classified as 'Discontinued Operations' within the financial statements for
all periods presented.
The Company, through its principal operating subsidiary, BMCA, is engaged
principally in the manufacture and sale of a broad line of asphalt roofing
products and accessories for the residential and commercial roofing markets in
the United States.
See Note 11 for information related to discontinued operations.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
All subsidiaries are consolidated and intercompany transactions have been
eliminated.
Financial Statement Estimates
The preparation of financial statements requires management to make certain
estimates. Actual results could differ from those estimates. In the opinion of
management, the financial statements herein contain all adjustments necessary to
present fairly the financial position and the results of operations and cash
flows of the Company for the periods presented. The Company has a policy to
review the recoverability of long-lived assets and identify and measure any
potential impairments. The Company does not anticipate any changes in management
estimates that would have a material impact on operations, liquidity or capital
resources, subject to the matters discussed in Note 12 (Commitments and
Contingencies).
Short-term Investments
For securities classified as 'trading' (including short positions),
unrealized gains and losses are reflected in income. For securities classified
as 'available-for-sale', unrealized gains (losses), net of income tax effect,
are included in a separate component of shareholder's equity (deficit),
'Cumulative translation adjustment and other,' and amounted to $1.8 and $1.3
million as of December 31, 1995 and 1996, respectively. Investments classified
as 'held-to-maturity' securities are carried at amortized cost in the
Consolidated Balance Sheets.
'Other income, net' includes $.3, $1.1 and $11.1 million of net realized
and unrealized gains and losses on securities in 1994, 1995 and 1996,
respectively. The determination of cost in computing realized gains and losses
is based on the specific identification method.
F-13
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
During the fourth quarter of 1995, the Company redesignated certain equity
securities held long (which are offsets against short positions in certain other
securities), with a fair market value of $6.3 million, as 'trading' and recorded
unrealized gains on such securities, through the date of redesignation, in the
amount of $.5 million as 'Other income.'
As of December 31, 1995 and 1996, the market value of the Company's equity
securities held long was $39.1 and $82.5 million, respectively, and the Company
had $22 and $10.2 million, respectively, of short positions in common stocks. As
of December 31, 1995 and 1996, the market value of the Company's held-to-
maturity securities was $10.4 and $7.6 million, respectively. The market values
referred to above are based on quotations as reported by various stock exchanges
and major broker-dealers. With respect to its investments in securities, the
Company is exposed to the risk of market loss.
Other short-term investments are investments in limited partnerships which
are accounted for by the equity method. Gains and losses are reflected in 'Other
income, net.' Liquidation of partnership interests generally require a 30 to 45
day notice period.
Cash and cash equivalents include cash on deposit and debt securities
purchased with original maturities of three months or less.
In accordance with the terms of the indenture for BMCA's 11 3/4% Senior
Deferred Coupon Notes due 2004 (the 'Deferred Coupon Notes') (see Note 8), BMCA
deposited $100 million of the proceeds from the issuance of the Deferred Coupon
Notes into a segregated account maintained by the trustee under the indenture
(the 'Account'). Funds in the Account could be invested only in certain
permitted investments and could be used, subject to certain exceptions, only to
fund BMCA's assumed asbestos liabilities. As of December 31, 1994, $24.5 million
remained in the Account and was invested in Eurodollar deposits purchased with a
maturity of less than three months. The Account was reduced to a zero balance in
1995.
Inventories
Inventories are stated at the lower of cost or market. The LIFO (last-in,
first-out) method is utilized to determine cost for a portion of the Company's
inventories. All other inventories are determined principally based on the FIFO
(first-in, first-out) method.
Property, Plant and Equipment
Depreciation is computed principally on the straight-line method based on
the estimated economic lives of the assets. Certain interest charges are
capitalized during the period of construction as part of the cost of property,
plant and equipment.
Excess of Purchase Price Over the Adjusted Historical Cost of Predecessor
Company Shares
Shareholder's equity (deficit) reflects a reduction of $72.6 million which
arose from a management-led buyout in March 1989 of the predecessor company to
GAF (the 'Acquisition'), because certain members of the management group owned
shares of the predecessor company's common stock before the Acquisition and own
shares of GAF after the Acquisition. Accordingly, a step-up in asset values to
fair value as required by the purchase method of accounting (which was applied
to the Acquisition) does not apply to their shares.
Excess of Cost Over Net Assets of Businesses Acquired ('Goodwill')
Goodwill is amortized on the straight-line method over a period of
approximately 40 years. The Company believes that the goodwill is recoverable.
The primary financial indicator to assess recoverability of goodwill is
operating income before amortization of goodwill. The assessment is based on an
undiscounted analysis.
Debt Issuance Costs
Debt issuance costs are amortized to expense over the life of the related
debt.
F-14
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Revenue Recognition
Revenue is recognized at the time products are shipped to the customer.
Revenues in 1996 included sales to American Builders and Contractors Supplies
Co., Inc., which accounted for 11% of the Company's net sales.
Interest Rate Swaps
Gains (losses) on interest rate swap agreements ('swaps') are deferred and
amortized as a reduction (increase) of interest expense over the remaining life
of the debt issue with respect to which the swaps were entered.
Research and Development
Research and development costs are charged to continuing operations as
incurred and amounted to $2.5, $3.1 and $4.5 million for 1994, 1995 and 1996,
respectively.
Environmental Liability
The Company, together with other companies, is a party to a variety of
proceedings and lawsuits involving environmental matters. The Company estimates
that its liability in respect of such environmental matters for its continuing
operations, and certain other environmental compliance expenses, as of December
31, 1996, is $15.3 million, before reduction for insurance recoveries reflected
on its balance sheet of $6.3 million. The Company's liability is reflected on an
undiscounted basis. See Item 3, 'Legal Proceedings--Environmental Litigation,'
which is incorporated by reference, for further discussion with respect to
environmental liabilities and estimated insurance recoveries.
Warranty Claims
BMCA provides certain limited warranties covering most of its residential
roofing products for periods ranging from 20 to 40 years. BMCA also offers
limited warranties and guaranties of varying durations on its commercial roofing
products; income from warranty contracts related to commercial roofing products
is recognized over the life of the agreements. Included in 'Accrued liabilities'
and 'Other liabilities' in the aggregate as of December 31, 1995 and 1996 are
$50.4 and $43.7 million, respectively, for estimated product warranty claims.
The Company believes that the reserves established for estimated probable future
warranty claims are adequate.
Asbestos Liability
In 1992, the Company recorded a provision of $322.5 million (before related
deferred income tax benefits of $122.5 million), representing the Company's
then-estimate of its total liability on an undiscounted basis (net of estimated
recoveries of $347.4 million from products liability insurance policies and
other liabilities previously recorded) in connection with all pending
asbestos-related bodily injury claims, and all future asbestos-related bodily
injury claims anticipated to be resolved over the 10-year period of the
Settlement described in Item 3, 'Legal Proceedings,' which is incorporated
herein by reference. Beginning in the fourth quarter of 1993, the Company began
to reflect certain components of the asbestos-related liability on a discounted
basis. The aggregate undiscounted liability as of December 31, 1996, before
estimated recoveries from products liability insurance policies, was $370.6
million and, after reflecting a discount of $36.8 million with respect to
certain components of the asbestos-related liability, was $333.8 million (before
estimated present value of recoveries from products liability insurance policies
of $190.5 million and related deferred tax benefits of $51.7 million). See Item
3, 'Legal Proceedings,' which is incorporated by reference, for further
discussion with respect to such liabilities.
The discount rate (6.25%) used to discount the affected components of the
asbestos-related liability was equivalent to the interest rate in October 1993
for securities with a 10-year maturity backed by U.S. Government agencies. As of
December 31, 1996, the expected net payments (receipts) for 1997, 1998, 1999,
2000 and 2001
F-15
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
are $58.2, $(9.8), $25.9, $35.8 and $34.3 million, respectively, and the
aggregate expected payments to be made after 2001 are $23.8 million.
Reclassifications
Certain amounts in the 1994 and 1995 Consolidated Financial Statements and
Notes to Consolidated Financial Statements have been reclassified to conform to
the 1996 presentation.
NOTE 2. ACQUISITION
In October 1995, G-I Holdings acquired all the outstanding shares of USI
for a purchase price of approximately $27.5 million and assumed $35 million of
USI's indebtedness. USI manufactures commercial roofing products. The
acquisition was accounted for under the purchase method of accounting.
Accordingly, the purchase price was allocated to the estimated fair values of
the identifiable net assets acquired, and the excess was recorded as goodwill.
USI's results of operations, including sales of $21.8 million for 1995, are
included in the Consolidated Statement of Income from the date of acquisition;
the effect was not material to consolidated operations in 1995. In connection
with the Separation Transactions, effective January 1, 1997, USI became a
wholly-owned subsidiary of BMCA through a capital contribution to BMCA by G-I
Holdings.
NOTE 3. INVESTMENT IN LIMITED PARTNERSHIP
In February 1990, GFC and one of its subsidiaries organized Rhone-Poulenc
Surfactants and Specialties, L.P. (the 'Partnership') with an affiliate of
Rhone-Poulenc Inc. ('RP') to which they contributed their respective surfactants
businesses. After the formation of the Partnership, GFC and its subsidiary
borrowed $450 million pursuant to a non-recourse loan which is secured by their
interest in the Partnership. Effective April 26, 1994, the borrowing bears a
fixed interest rate of 7.13%.
The Company's net investment in the Partnership has a net book value of $0,
represented by an asset with a carrying value of $450 million offset by the
related non-recourse Partnership debt of $450 million. Although non-recourse to
the Company, repayment of the debt is secured by a pledge of the Company's
interest in the Partnership. Income from the Partnership is included in 'Other
income, net.' Interest expense related to the non-recourse Partnership debt is
included in 'Interest expense.' Interest expense related to such debt for 1994,
1995 and 1996 was $27.2, $32.1 and $32.1 million, respectively. Income from the
Partnership was $28.2, $32.4 and $32.3 million for 1994, 1995 and 1996,
respectively (excluding, in the case of 1994, the effect of the settlement
referred to below).
On April 26, 1994, GFC settled its outstanding disputes with RP relating to
GFC's interest in the Partnership. Under the settlement, GFC agreed to terminate
its pending litigation against RP and its interest in the Partnership and
received a partnership distribution of a portion of its interest in the
Partnership of approximately $25.5 million in April 1994. The settlement
resulted in pre-tax income of $23 million, which amount is included in 'Other
income, net.' The settlement also provided that GFC would receive fixed monthly
distributions until 1999 as well as a fixed final distribution in 1999.
F-16
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. INCOME TAXES
Income tax (provision) benefit for continuing operations consists of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Federal:
Current.................... $ 34,845 $ 47,653 $ 36,423
Deferred................... (34,604) (28,694) (23,269)
-------- -------- --------
Total Federal................ 241 18,959 13,154
-------- -------- --------
State and local:
Current.................... (232) (220) (221)
Deferred................... (588) (741) (1,227)
-------- -------- --------
Total state and local...... (820) (961) (1,448)
-------- -------- --------
Income tax (provision)
benefit.................... $ (579) $ 17,998 $ 11,706
-------- -------- --------
-------- -------- --------
</TABLE>
The differences between the income tax benefit computed by applying the
statutory Federal income tax rate to pre-tax loss from continuing operations,
and the income tax (provision) benefit reflected in the Consolidated Statements
of Income, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Statutory benefit........................... $ 2,480 $ 14,526 $ 13,073
Impact of:
State and local taxes, net of Federal
benefits............................... (533) (625) (940)
Foreign tax credit ('FTC') carryover...... -- 4,416 --
Nondeductible goodwill amortization....... (233) (120) (424)
Other, net................................ (2,293) (199) (3)
-------- -------- --------
Income tax (provision) benefit.............. $ (579) $ 17,998 $ 11,706
-------- -------- --------
-------- -------- --------
</TABLE>
F-17
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. INCOME TAXES--(CONTINUED)
The components of the net deferred tax liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
(THOUSANDS)
<S> <C> <C>
Deferred tax liabilities related to:
Property, plant and equipment........................ $ 18,804 $ 20,787
Investment in limited partnership.................... 131,425 131,425
-------- --------
Total deferred tax liabilities......................... 150,229 152,212
-------- --------
Deferred tax assets related to:
FTC carryforwards.................................... (37,169) (12,083)
Expenses not yet deducted for tax purposes:
Reserve for asbestos claims, net of estimated
insurance recoveries............................ (71,990) (51,672)
All other......................................... (42,913) (52,303)
-------- --------
Total deferred tax assets............................ (152,072) (116,058)
-------- --------
Net deferred tax (asset) liability..................... (1,843) 36,154
Deferred tax assets reclassified as current............ 36,031 34,788
-------- --------
Noncurrent portion of deferred tax liability........... $ 34,188 $ 70,942
-------- --------
-------- --------
</TABLE>
At December 31, 1996, the amount of carryforwards available for Federal
income tax purposes were:
FTCs expiring in the year:
<TABLE>
<CAPTION>
(THOUSANDS)
-----------
<S> <C>
1998.................................. $ 5,917
1999.................................. 6,166
-----------
Deferred tax asset related to FTCs.... $12,083
-----------
-----------
</TABLE>
FTC carryforwards represent amounts available to ISP and due to G-I
Holdings under the Tax Sharing Agreement. G-I Holdings intends to transfer the
remaining amount which is not utilized in its 1996 consolidated tax return,
estimated to be $12.1 million, to ISP Holdings.
G-I Holdings has entered into a Tax Sharing Agreement with GAF with respect
to the payment of Federal income taxes and certain related matters (the 'G-I
Holdings Tax Sharing Agreement'). During the term of the G-I Holdings Tax
Sharing Agreement, which shall extend as long as G-I Holdings is included in a
consolidated Federal income tax return filed by GAF, G-I Holdings is obligated
to pay to GAF an amount equal to those Federal income taxes G-I Holdings would
have incurred if G-I Holdings (on behalf of itself and its domestic
subsidiaries) filed its own Federal income tax return, but, in general, not in
excess of the amount of Federal income tax GAF actually pays or is required to
pay. GAF has agreed to indemnify G-I Holdings and its domestic subsidiaries for
all tax liabilities of the GAF consolidated group other than tax liabilities
arising from the operations of G-I Holdings and its domestic subsidiaries. The
G-I Holdings Tax Sharing Agreement provides for analogous principles to be
applied to any consolidated, combined or unitary state or local income taxes.
Under the G-I Holdings Tax Sharing Agreement, GAF makes all decisions with
respect to all matters relating to taxes of the GAF consolidated group.
In connection with the Partnership, the Company has recorded a deferred tax
liability in the amount of $131.4 million. Payment of this liability (subject to
reduction to reflect utilization of the tax attributes of GAF and its
subsidiaries) is not expected earlier than 1999 under present circumstances. In
certain circumstances, the Company could be required to satisfy this liability
earlier than 1999. The Company's management believes it will have access to
sufficient funds to satisfy this liability if so required.
F-18
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. SALE OF ACCOUNTS RECEIVABLE
In March 1993, BMCA sold its trade accounts receivable ('receivables') to a
trust, without recourse, pursuant to an agreement which provided for a maximum
of $75 million in cash to be made available to BMCA based on eligible
receivables outstanding from time to time. In November 1996, BMCA entered into
new agreements, pursuant to which it sold the receivables to a special purpose
subsidiary of BMCA, BMCA Receivables Corporation, without recourse, which in
turn sold them to a new trust, without recourse. The new agreements provide for
a maximum of $115 million in cash to be made available to BMCA based on eligible
receivables outstanding from time to time. This facility expires in December
2001. The excess of accounts receivable sold over the net proceeds received is
included in 'Accounts receivable, other'. The effective cost to BMCA varies with
LIBOR and is included in 'Other income, net'.
In 1996, the Financial Accounting Standards Board issued SFAS No. 125,
relating to accounting for transfers and servicing of financial assets and
extinguishments of liabilities, which will be adopted in 1997. The Company does
not anticipate that the implementation of SFAS No. 125 will have a material
effect on the Company's results of operations or financial position.
NOTE 6. INVENTORIES
At December 31, 1995 and 1996, $6.2 and $7.6 million, respectively, of
domestic inventories were valued using the LIFO method. Inventories comprise the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
(THOUSANDS)
<S> <C> <C>
Finished goods................ $34,727 $39,420
Work in process............... 7,594 10,844
Raw materials and supplies.... 25,701 26,206
------- -------
Total.................... 68,022 76,470
Less LIFO reserve............. (505) (1,055)
------- -------
Inventories................... $67,517 $75,415
------- -------
------- -------
</TABLE>
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprises the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
(THOUSANDS)
<S> <C> <C>
Land and land improvements............................. $ 26,848 $ 26,837
Buildings and fixtures................................. 42,252 46,001
Machinery and equipment (including equipment under
capitalized leases of $20,450 and $17,660--see
Note 8).............................................. 184,369 179,626
Construction in progress............................... 22,779 19,039
-------- --------
Total............................................. 276,248 271,503
Less accumulated depreciation and amortization......... (42,915) (48,452)
-------- --------
Property, plant and equipment, net..................... $233,333 $223,051
-------- --------
-------- --------
</TABLE>
F-19
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. LONG-TERM DEBT
Long-term debt comprises of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
---------- --------
(THOUSANDS)
<S> <C> <C>
Senior Discount Notes due 1998...................... $ 509,833 $ 5,250
10% Senior Notes due 2006........................... -- 132
11 3/4% BMCA Senior Deferred Coupon Notes due
2004.............................................. 207,814 233,018
8 5/8% BMCA Senior Notes due 2006................... -- 99,504
Borrowings under revolving credit facilities........ 24,412 --
Industrial revenue bonds with various interest rates
and maturity dates to 2012........................ 19,625 19,625
Obligations on mortgaged properties................. 7,638 5,154
Obligations under capital leases (Note 12).......... 59,760 51,800
Non-recourse debt (Note 3).......................... 450,000 450,000
---------- --------
Total.......................................... 1,279,082 864,483
Less current maturities............................. (8,989) (3,412)
---------- --------
Long-term debt less current maturities.............. $1,270,093 $861,071
---------- --------
---------- --------
</TABLE>
In October 1993, G-I Holdings issued Senior Discount Notes due 1998 (the
'Discount Notes') for gross proceeds of $400 million. The Discount Notes have a
zero-coupon, accruing interest until paid in full at maturity, and were sold at
a discounted issue price representing a yield to maturity of 11.125%. In
February 1996, G-I Holdings completed the exchange of $189.3 million in accreted
value of its then outstanding Discount Notes for $200 million of its 10% Senior
Notes due 2006 (the '10% Notes'), which were subsequently subject to the
exchange offer discussed below. On October 18, 1996, ISP Holdings consummated a
cash tender offer for G-I Holdings' Discount Notes. Pursuant to the tender
offer, $346.9 million in accreted value of G-I Holdings' Discount Notes were
purchased by ISP Holdings. $178.8 million in accreted value of such Discount
Notes were subsequently repurchased by G-I Holdings (utilizing cash on hand and
the repayment of monies owed to G-I Holdings by ISP) from ISP Holdings. ISP
Holdings also concluded an offer to exchange its new 9 3/4% Senior Notes due
2002 for the 10% Notes. Pursuant to the exchange offer, $199.9 million of the
10% Notes were acquired by ISP Holdings.
All Discount Notes purchased in the tender offer (other than those Discount
Notes sold to G-I Holdings, as discussed above) and all 10% Notes accepted in
the exchange offer by ISP Holdings were contributed to G-I Holdings by ISP
Holdings as a capital contribution in December 1996, prior to the Separation
Transactions, and canceled by G-I Holdings.
In connection with the above transactions, the Company recorded
extraordinary losses of $31.0 million, net of related income tax benefits of
$17.3 million, representing write-offs of deferred financing fees and the
premium to accreted value of $29.4 million paid pursuant to the tender offer.
On December 9, 1996, BMCA issued $100 million in aggregate principal amount
at maturity of 8 5/8% Senior Notes due 2006 (the '8 5/8% Notes'). In June 1994,
BMCA issued $310 million in principal amount of the Deferred Coupon Notes for
net proceeds of $169.3 million. The Deferred Coupon Notes will accrete to face
value on July 1, 1999 and cash interest will accrue from and after that date.
Holders of the Deferred Coupon Notes and the 8 5/8% Notes have the right under
the indentures governing such notes to require BMCA to purchase the Deferred
Coupon Notes at a price of 101% of Accreted Value (as defined therein) and the
8 5/8% Notes at a price of 101% of the principal amount thereof, and BMCA has
the right to redeem the Deferred Coupon Notes at Accreted Value and the 8 5/8%
Notes at a price of 101% of the principal amount thereof, plus, in each case,
the Applicable Premium (as defined therein), together with any accrued and
unpaid interest, in the event of a Change of Control (as defined therein).
The indentures relating to the 8 5/8% Notes and the Deferred Coupon Notes
contain covenants that, among other things, limit the ability of BMCA and its
subsidiaries to pay certain dividends or make certain other
F-20
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. LONG-TERM DEBT--(CONTINUED)
restricted payments and restricted investments, incur liens, engage in
transactions with affiliates, and agree to certain additional limitations on
dividends and other payment restrictions affecting subsidiaries. As of December
31, 1996, BMCA could have paid dividends of up to $167.5 million. Under the
indentures relating to the 8 5/8% Notes and the Deferred Coupon Notes, the
incurrence of additional debt by BMCA and the issuance by BMCA of preferred
stock would be restricted unless, at the time of such issuance and after giving
effect thereto, the ratio of BMCA's consolidated net income before income taxes,
interest, depreciation and amortization expense to its consolidated interest
expense for its most recently completed four fiscal quarters is at least 2 to 1.
For the four quarters ended December 31, 1996, BMCA was in compliance with such
tests.
In connection with the Deferred Coupon Notes, BMCA entered into interest
rate swap agreements ('swaps') with banks in an aggregate ending notional
principal amount of $142 million, with a final maturity of July 1, 1999. As a
result of the swaps, the effective interest cost to BMCA of the portion of the
Deferred Coupon Notes covered by the swaps varies at a fixed spread over LIBOR.
Based on the fair value of the swaps at December 31, 1995 and 1996, BMCA would
have incurred gains of $9.3 and $8.0 million, respectively, representing the
estimated amount that would be receivable by BMCA if the swaps were terminated
at such dates. No cash interest will be paid on the swaps until maturity. The
Company may be considered to be at risk, to the extent of the costs of replacing
such swaps at current market rates, in the event of nonperformance by
counterparties. However, since the counterparties are major financial
institutions, the credit ratings of which are continually monitored by the
Company, the risk of such nonperformance is considered by the Company to be
remote.
In June 1996, BMCA's bank credit facilities were extended to June 1997 on
the same terms and conditions. In October 1996, a $10 million facility was
increased to $12 million and extended to October 1997. Such facilities provide
for revolving lines of credit of up to $32 million and letters of credit of up
to $41 million, provided that total borrowings and outstanding letters of credit
may not exceed $42 million. As of December 31, 1996, $38.9 million of letters of
credit were outstanding and no amounts had been borrowed thereunder. Under the
agreements, BMCA is subject to a minimum consolidated net worth test. As of
December 31, 1996, BMCA was in compliance with such test.
USI has a revolving credit facility, providing for borrowings of up to
$29.6 million and letters of credit of up to $2 million (such total borrowings
and outstanding letters of credit not to exceed $29.6 million), which expires in
January 1999 and is secured by, and subject to limitations based upon values of,
accounts receivable, inventories and certain manufacturing equipment. As of
December 31, 1996, there were $1.7 million of letters of credit outstanding and
no amounts had been borrowed under the facility. The interest rate on that
portion of the loans which is collateralized by accounts receivable and
inventories is at the prime rate; that portion which is collateralized by
manufacturing equipment is at a fixed rate of 7%.
In December 1995, BMCA consummated a $40 million sale-leaseback of certain
equipment located at its Chester, South Carolina roofing facility, in a
transaction accounted for as a capital lease, and the gain has been deferred.
The lessor was granted a security interest in certain equipment at the Chester
facility. The lease term extends to December 2005. In December 1994, BMCA
consummated a $20.4 million sale-leaseback of certain equipment located at its
Baltimore, Maryland roofing facility, in a transaction accounted for as a
capital lease, and the gain has been deferred. The lessor was granted a security
interest in the land, buildings, and certain other equipment at the Baltimore
facility. The proceeds were used in part to repay $12 million outstanding under
a loan obtained in 1990 which was secured by the same equipment. The lease term
extends to December 2004. In December 1993, BMCA obtained a loan of $7.3
million, which is secured by manufacturing equipment located at its Dallas
plant. The loan is being repaid over a seven-year period and has a fixed
interest rate. BMCA has three industrial revenue bond issues outstanding, which
bear interest at short-term floating rates. Interest rates on the foregoing
obligations ranged between 3.65% and 8.87% as of December 31, 1996.
The Company believes that the fair value of its non-public indebtedness
approximates the book value of such indebtedness, because the interest rates on
such indebtedness are at floating short-term rates. With respect to the
Company's publicly traded debt securities, the Company has obtained estimates of
the fair values from an
F-21
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. LONG-TERM DEBT--(CONTINUED)
independent source believed to be reliable. The estimated fair value of the
Deferred Coupon Notes as of December 31, 1995 and 1996 was $210.8 and $268.9
million, respectively. The estimated fair value of the 8 5/8% Notes as of
December 31, 1996 was $100 million. The Registrant's remaining Discount Notes
and 10% Notes are no longer publicly traded.
The aggregate maturities of long-term debt as of December 31, 1996 for the
next five years are as follows:
<TABLE>
<CAPTION>
(THOUSANDS)
-----------
<S> <C>
1997.... $ 3,412
1998.... 8,953
1999.... 4,009
2000.... 5,865
2001.... 4,827
</TABLE>
In the above table, 1998 maturities include the Discount Notes at the
accreted value of $5.3 million as of December 31, 1996.
NOTE 9. BENEFIT PLANS
Eligible, full-time employees of the Company are covered by various benefit
plans, as described below.
Defined Contribution Plan
The Company provides a defined contribution plan for eligible employees.
The Company contributes up to 7% of participants' compensation and also
contributes fixed amounts, ranging from $50 to $750 per year depending on age,
to the accounts of participants who are not covered by a Company-provided
postretirement medical benefit plan. The aggregate contributions by the Company
related to continuing operations were $2.6, $2.7 and $3.0 million for 1994, 1995
and 1996, respectively.
USI provides a defined contribution plan for eligible employees. USI may
contribute a discretionary matching contribution equal to 100% of each
participant's eligible contributions each plan year up to a maximum of $500 for
each participant. Such contributions by USI were immaterial for the period in
1995 after the acquisition of USI and were $157,000 for 1996.
Defined Benefit Plans
The Company provides a noncontributory defined benefit retirement plan for
hourly employees (the 'Hourly Retirement Plan'). Benefits under this plan are
based on stated amounts for each year of service. The Company's funding policy
is consistent with the minimum funding requirements of ERISA.
The Company's net periodic pension cost related to continuing operations
for the Hourly Retirement Plan included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
----- ----- -----
(THOUSANDS)
<S> <C> <C> <C>
Service cost........................................ $ 501 $ 463 $ 631
Interest cost....................................... 551 598 686
Actual income on plan assets........................ (380) (432) (829)
Net deferral and amortization of unrecognized prior
service cost and actuarial losses................. 175 97 35
----- ----- -----
Net periodic pension cost........................... $ 847 $ 726 $ 523
----- ----- -----
----- ----- -----
</TABLE>
F-22
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. BENEFIT PLANS--(CONTINUED)
The following table sets forth the funded status of the Hourly Retirement
Plan for continuing operations:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
(THOUSANDS)
<S> <C> <C>
Accumulated benefit obligation:
Vested............................................... $ 7,623 $ 8,407
Nonvested............................................ 1,266 1,621
------- -------
Total accumulated benefit obligation................... $ 8,889 $10,028
------- -------
------- -------
Projected benefit obligation........................... $ 8,889 $10,028
Fair value of plan assets, primarily publicly traded
stocks and U.S. Government securities................ (7,092) (9,530)
------- -------
Projected benefit obligation in excess of plan
assets............................................... 1,797 498
Unrecognized prior service cost........................ (368) (338)
Unrecognized net loss.................................. (635) (83)
------- -------
Unfunded accrued pension cost.......................... $ 794 $ 77
------- -------
------- -------
</TABLE>
At December 31, 1996, the difference between the 'Projected benefit
obligation in excess of plan assets' and the 'Unfunded accrued pension cost', in
the amount of $421,000, was recorded by the Company as a liability, offset by an
intangible asset in the amount of $338,000 and a reduction of shareholder's
equity in the amount of $83,000. The foregoing amounts will be amortized to
expense over a period of approximately 15 years, as the Company continues to
fund the benefits under the Hourly Retirement Plan.
In determining the projected benefit obligation, the weighted average
assumed discount rate was 7.5% and 7.75% for 1995 and 1996, respectively. The
expected long-term rate of return on assets, used in determining net periodic
pension cost, was 9% for 1995 and 11% for 1996.
The Company also provides a nonqualified defined benefit retirement plan
for certain key employees. Expense accrued for this plan and charged to
continuing operations was immaterial for 1994, 1995 and 1996.
Preferred Stock Option Plan
On January 1, 1996, BMCA issued options to certain employees to purchase
24,509 shares of Redeemable Convertible Preferred Stock ('Preferred Stock') of
BMCA, exercisable at a price of $100 per share. Each share of Preferred Stock is
convertible, at the holder's option, into 0.76 shares of common stock. The
options vest over seven years. Dividends will accrue on the Preferred Stock from
the date of issuance at the rate of 8% per annum. The Preferred Stock is
redeemable, at BMCA's option, for a redemption price equal to $100 per share
plus accrued and unpaid dividends. The Preferred Stock, and common stock
issuable upon conversion of Preferred Stock into common stock, is subject to
repurchase by BMCA under certain circumstances, at a price equal to current Book
Value (as defined). The exercise price of the options to purchase Preferred
Stock was equal to the estimated fair value per share of the Preferred Stock at
the date of grant. No expense is accrued in connection with the preferred stock
option plan.
Stock Appreciation Rights
GAF has issued stock appreciation rights ('SARs') to certain officers of
the Company and its subsidiaries related to 84,761 shares of GAF's Common Stock.
The SARs represent the right to receive a cash payment based upon the
appreciation in value of the specified number of shares of common stock of GAF
over the sum of the determined initial Book Value (as defined) per share of
common stock of GAF plus interest on such Book Value at a specified rate. The
SARs vest over a five-year period, subject to earlier vesting under certain
circumstances including in connection with a change of control. Compensation
expense related to SARs was $.1, $.5 and $.9 million for 1994, 1995 and 1996,
respectively.
F-23
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. BENEFIT PLANS--(CONTINUED)
Income Appreciation Unit Plan and Book Value Appreciation Unit Plan
BMCA provides an Income Appreciation Unit Plan, an employee incentive
program based on the operating performance of BMCA. Expense accrued for the plan
was $1.1, $.2 and $.4 million for 1994, 1995 and 1996, respectively.
The Income Appreciation Unit Plan was terminated as of December 31, 1996,
and the values were frozen as of that date. Participants who hold vested units
will be entitled to receive cash payment equal to the value of their vested
units as of December 31, 1996 and, as the remaining units become vested, holders
will be entitled to receive additional cash payment for such value.
A BMCA Book Value Appreciation Unit Plan was implemented effective January
1, 1996. Under the plan, employees were granted units which vest over seven
years. Upon exercise, employees are entitled to receive a cash payment based on
the increase in Book Value (as defined). Expense accrued under this plan for
1996 was $.1 million.
Postretirement Medical and Life Insurance
The Company generally does not provide postretirement medical and life
insurance benefits, although it subsidizes such benefits for certain employees
and certain retirees. Such subsidies were reduced or ended as of January 1,
1997.
The following table shows the components of the accrued postretirement
health care cost obligation related to continuing operations as of December 31,
1995 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
(THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees, dependents and beneficiaries eligible for
benefits.......................................... $19,435 $11,943
Active employees fully eligible for benefits......... 1,193 1,131
Active employees not fully eligible for benefits..... 1,154 1,182
------- -------
Total accumulated postretirement benefit obligations... 21,782 14,256
Fair value of plan assets.............................. -- --
Unrecognized prior service cost and net gain........... 5,469 8,793
------- -------
Accrued postretirement benefit obligation.............. $27,251 $23,049
------- -------
------- -------
</TABLE>
Net periodic postretirement benefit cost related to continuing operations
included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995 1996
------ ------ ------
(THOUSANDS)
<S> <C> <C> <C>
Service cost.................................... $ 86 $ 79 $ 95
Interest cost................................... 1,409 1,488 1,303
Amortization of net gain from earlier periods... (290) (590) (278)
------ ------ ------
Net periodic postretirement benefit cost........ $1,205 $ 977 $1,120
------ ------ ------
------ ------ ------
</TABLE>
For purposes of calculating the accumulated postretirement benefit
obligation, the following assumptions were made. Retirees as of December 31,
1996 who were formerly salaried employees (with certain exceptions) were assumed
to receive a Company subsidy of $700 to $1,000 per year. For retirees over age
65, this subsidy may be replaced by participation in a managed care program.
With respect to retirees who were formerly hourly employees, most such retirees
are subject to a $5,000 per person lifetime maximum benefit. Subject to such
lifetime maximum, a 13% and 7% annual rate of increase in the Company's per
capita cost of providing postretirement medical benefits was assumed for 1997
for such retirees under and over age 65, respectively. To the extent that the
lifetime maximum benefits have not been reached, the foregoing rates were
assumed to
F-24
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. BENEFIT PLANS--(CONTINUED)
decrease gradually to 7% and 6%, respectively, by the year 2003 and remain at
that level thereafter. The weighted average discount rate used in determining
the accumulated postretirement benefit obligation was 7.5% and 7.75% for 1995
and 1996, respectively.
The health care cost trend rate assumption has an effect on the amounts
reported. To illustrate, increasing the assumed health care cost trend rates by
one percentage point in each year would increase the accumulated postretirement
benefit obligation for continuing operations as of December 31, 1996 by $646,000
and the aggregate of the service and interest cost components of the net
periodic postretirement benefit cost for continuing operations for the year 1996
by $170,000.
NOTE 10. RELATED PARTY TRANSACTIONS
Mineral Products: BMCA purchases all of its colored roofing granules
requirements (except for the requirements of the California roofing plant) from
ISP, an affiliate of the Company, under a requirements contract which was
renewed in 1996 and is subject to annual renewal unless terminated by BMCA or
ISP. Such purchases totaled $42.5, $45.7 and $48.1 million for 1994, 1995 and
1996, respectively. The amount payable to ISP at December 31, 1995 and 1996 for
such purchases was $2.7 and $3.5 million, respectively. In addition, in December
1995, USI commenced purchasing substantially all of its requirements for colored
roofing granules from ISP (except for the requirements of its Stockton,
California and Corvallis, Oregon plants) pursuant to a requirements contract
which expires December 31, 1997. Such purchases totaled $.1 million for 1995
and $2.4 million for 1996. The amount payable by USI to ISP for such purchases
was $.1 million at each of December 31, 1995 and 1996.
Management Agreement: The Company is a party to a Management Agreement
with ISP (the 'Management Agreement'), which expires December 31, 1997, pursuant
to which ISP provides certain general management, administrative and facilities
services to G-I Holdings and its subsidiaries, including BMCA, USI and GFC
(including the use of the Company's headquarters in Wayne, New Jersey), for
which the Company paid ISP a management fee of $4.4, $4.5 and $4.9 million for
1994, 1995 and 1996, respectively. In addition to the management fee, BMCA paid
to ISP approximately $.7 million in each of 1994 and 1995 and $.8 million in
1996, primarily for telecommunications and information services, and the Company
paid approximately $.3, $.2 and $.5 million to ISP in 1994, 1995 and 1996,
respectively, for certain legal services, which in each case were not
encompassed within the Management Agreement. In connection with the Separation
Transactions, the Management Agreement was modified to incorporate such
services, and, in that connection, the total charges for management fees were
increased to an annual rate of $5.4 million, effective January 1, 1997.
Tax Sharing Agreement: See Note 4.
NOTE 11. DISCONTINUED OPERATIONS
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 $43.6 million, after income taxes of $30.6 million, was
recorded in the third quarter of 1996. Accordingly, GAF Broadcasting is reported
as a discontinued operation.
F-25
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11. DISCONTINUED OPERATIONS--(CONTINUED)
As a result of the Separation Transactions, ISP, as well as GAF
Broadcasting, are reflected as discontinued operations in the Consolidated
Financial Statements. Summary operating results of such discontinued operations
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Sales..................................... $605,567 $697,076 $720,714
-------- -------- --------
-------- -------- --------
Income before income taxes................ $ 72,139 $107,964 $126,299
Income taxes.............................. (26,588) (39,324) (45,477)
Minority interest in income of ISP........ (8,640) (12,306) (13,713)
-------- -------- --------
Income before extraordinary items......... $ 36,911 $ 56,334 $ 67,109
-------- -------- --------
-------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
(THOUSANDS)
<S> <C> <C>
Assets
Current assets........................ $ 343,552 $ 348,528
Other noncurrent assets............... 982,968 975,789
---------- ----------
Total assets....................... $1,326,520 $1,324,317
---------- ----------
---------- ----------
Liabilities
Current liabilities................... $ 201,002 $ 128,826
Long-term debt........................ 280,254 310,294
Other noncurrent liabilities.......... 188,438 175,999
Minority interest in ISP.............. 113,597 116,230
---------- ----------
Total liabilities.................. $ 783,291 $ 731,349
---------- ----------
---------- ----------
</TABLE>
NOTE 12. COMMITMENTS AND CONTINGENCIES
GAF, G-I Holdings and G Industries Corp. are presently dependent upon the
earnings and cash flow of their subsidiaries, principally BMCA, in order to
satisfy their obligations. As of December 31, 1996, such obligations included
$5.3 million of the Discount Notes, $.1 million of the 10% Notes, $333.8 million
estimated present value of asbestos liability discussed in Note 1 (before
estimated present value of recoveries from products liability insurance policies
of approximately $190.5 million), and approximately $163.8 million of various
tax and other liabilities, including tax liabilities relating to the Partnership
discussed in Note 3. Of such obligations, $78.6 million (net of related
insurance recoveries of $17.7 million) is estimated to be payable during 1997.
GAF, G-I Holdings and G Industries Corp. expect to obtain funds to satisfy such
obligations from, among other things, dividends and loans from subsidiaries
(principally BMCA), as to which there are restrictions under the indentures
relating to the Deferred Coupon Notes and the 8 5/8% Notes (see Note 8), and
from payments pursuant to the Tax Sharing Agreement between GAF and BMCA.
The discussion as to legal matters involving the Company contained in Item
3, 'Legal Proceedings' is incorporated herein by reference.
Leases for certain property, plant and equipment at BMCA's Baltimore,
Maryland and Chester, South Carolina roofing facilities are accounted for as
capital leases (see Note 8). The Company also has operating leases principally
for transportation, production and data processing equipment. Rental expense on
operating leases for continuing operations was $7.1, $7.0 and $8.3 million for
1994, 1995 and 1996, respectively. Future minimum
F-26
<PAGE>
G-I HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
lease payments for properties which were held under long-term noncancelable
leases as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(THOUSANDS)
<S> <C> <C>
1997...................................... $ 6,862 $ 4,396
1998...................................... 6,862 3,126
1999...................................... 6,862 1,748
2000...................................... 7,302 1,158
2001...................................... 8,108 467
Later years............................... 38,964 148
------- ---------
Total minimum payments.................... 74,960 $11,043
---------
---------
Less interest included above.............. (23,160)
-------
Present value of net minimum payments..... $51,800
-------
-------
</TABLE>
F-27
<PAGE>
G-I HOLDINGS INC.
SUPPLEMENTARY DATA (UNAUDITED)
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1995 BY QUARTER 1996 BY QUARTER
------------------------------------ ------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
------ ------ ------ ------ ------ ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... $138.6 $177.1 $191.9 $179.6 $166.7 $230.2 $251.6 $203.5
Cost of products sold............... 104.3 127.7 138.6 136.7 124.6 166.2 180.5 151.9
------ ------ ------ ------ ------ ------ ------ ------
Gross profit........................ $ 34.3 $ 49.4 $ 53.3 $ 42.9 $ 42.1 $ 64.0 $ 71.1 $ 51.6
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
Operating income.................... $ 5.3 $ 14.7 $ 16.4 $ 6.8 $ 7.1 $ 19.4 $ 22.5 $ 9.4
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
Loss from continuing operations
before income taxes and
extraordinary items............... $(14.7) $ (6.4) $ (4.1) $(16.3) $(13.7) $ (3.2) $ (9.0) $(11.4)
Income tax benefit.................. 5.4 2.0 1.0 9.6 4.7 .8 2.7 3.5
------ ------ ------ ------ ------ ------ ------ ------
Loss from continuing operations
before extraordinary items........ (9.3) (4.4) (3.1) (6.7) (9.0) (2.4) (6.3) (7.9)
------ ------ ------ ------ ------ ------ ------ ------
Discontinued operations:
Income from discontinued
operations, net of income
taxes........................... 12.1 15.7 14.9 13.6 16.1 19.2 16.8 15.1
Gain on sale of discontinued
operation, net of income
taxes........................... -- -- -- -- -- -- 43.6 --
------ ------ ------ ------ ------ ------ ------ ------
Income from discontinued
operations........................ 12.1 15.7 14.9 13.6 16.1 19.2 60.4 15.1
------ ------ ------ ------ ------ ------ ------ ------
Income before extraordinary items... 2.8 11.3 11.8 6.9 7.1 16.8 54.1 7.2
Extraordinary items, net of related
income tax benefits............... -- -- -- -- (8.2) -- -- (22.8)
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)................... $ 2.8 $ 11.3 $ 11.8 $ 6.9 $ (1.1) $ 16.8 $ 54.1 $(15.6)
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
F-28
<PAGE>
SCHEDULE I
G-I HOLDINGS INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
G-I HOLDINGS INC. PARENT COMPANY
UNCONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Equity in income of subsidiaries............................ $ 33,006 $ 40,430 $ 97,478
Interest expense............................................ (54,139) (66,152) (69,147)
Interest income on loans and note receivable from related
parties................................................... 47,864 52,135 46,452
Other income (expense), net................................. (1,609) 2,220 3,614
-------- -------- --------
Income before income taxes and extraordinary items.......... 25,122 28,633 78,397
-------- -------- --------
Income tax (provision) benefit:
Current................................................ 16,218 (20) (21)
Deferred............................................... (13,330) 4,215 6,726
-------- -------- --------
Total income tax benefit............................... 2,888 4,195 6,705
-------- -------- --------
Extraordinary items, net of income tax benefits of $17,275.. -- -- (30,950)
-------- -------- --------
Net income.................................................. $ 28,010 $ 32,828 $ 54,152
-------- -------- --------
-------- -------- --------
</TABLE>
S-1
<PAGE>
SCHEDULE I
G-I HOLDINGS INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
G-I HOLDINGS INC. PARENT COMPANY
UNCONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- --------
(THOUSANDS)
<S> <C> <C>
Current Assets:
Cash and cash equivalents..................................... $ 7,583 $ 2
Investments in trading securities............................. 52 --
Investments in available-for-sale securities.................. 849 --
Investments in held-to-maturity securities.................... 10,398 --
Other short-term investments.................................. 15,837 --
Other current assets.......................................... 1,301 1,289
-------- --------
Total Current Assets............................................ 36,020 1,291
Note receivable from G Industries Corp.......................... 448,507 --
Investment in subsidiaries...................................... 100,971 477,812
Deferred income tax benefits.................................... 9,239 47,063
Deferred financing costs and other assets....................... 11,172 4,776
-------- --------
Total Assets.................................................... $605,909 $530,942
-------- --------
-------- --------
</TABLE>
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
<TABLE>
<S> <C> <C>
Current Liabilities:
Loans payable to related parties, net......................... $ 42,424 $ 12,693
Accounts payable and accrued liabilities...................... 7,085 9,923
Payable to related parties, net............................... 26,474 17,965
-------- --------
Total Current Liabilities....................................... 75,983 40,581
-------- --------
Long-term debt.................................................. 509,833 5,382
-------- --------
Deferred taxes payable to related party......................... 17,632 31,340
-------- --------
Other liabilities............................................... 4,168 7,844
-------- --------
Shareholder's Equity (Deficit):
Common stock, $.01 par value per share; 1,000 shares
authorized; 100 shares issued and outstanding.............. -- --
Additional paid-in capital.................................... 50,129 455,943
Excess of purchase price over the adjusted historical cost of
predecessor company shares owned by GAF's stockholders..... (72,605) (72,605)
Retained earnings............................................. 6,213 54,065
Cumulative translation adjustment and other................... 14,556 8,392
-------- --------
Shareholder's Equity (Deficit).................................. (1,707) 445,795
-------- --------
Total Liabilities and Shareholder's Equity (Deficit)............ $605,909 $530,942
-------- --------
-------- --------
</TABLE>
S-2
<PAGE>
SCHEDULE I
G-I HOLDINGS INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
G-I HOLDINGS INC. PARENT COMPANY
UNCONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents, beginning of
year...................................... $ 1 $ 15,941 $ 7,583
-------- -------- --------
Cash provided by operating activities:
Net income................................ 28,010 32,828 54,152
Extraordinary items....................... -- -- 30,950
Non-cash interest expense................. 49,499 54,823 38,012
Non-cash interest income.................. (41,397) (41,796) (37,849)
Deferred income taxes..................... 13,330 (4,215) (6,726)
(Increase) decrease in working capital
items.................................. 2,399 1,369 3,041
Purchases of trading securities........... (44,260) (94) (410)
Proceeds from sales of trading
securities............................. 42,511 373 257
Increase (decrease) in payable to related
parties................................ 2,831 12,869 (5,883)
Change in investment in and advances to
affiliates............................. (55,268) (47,204) (73,972)
Other, net................................ 5,083 (1,118) 2,966
-------- -------- --------
Net cash provided by operating
activities....................... 2,738 7,835 4,538
-------- -------- --------
Cash provided by (used in) investing
activities:
Acquisition of subsidiary................. -- (27,538) --
Purchases of available-for-sale
securities............................. -- (65,783) (11,030)
Purchases of held-to-maturity
securities............................. -- (17,845) (29,575)
Purchases of other short-term
investments............................ (14,592) (4,565) --
Proceeds from sales of available-for-sale
securities............................. -- 65,645 8,925
Proceeds from held-to-maturity
securities............................. -- 7,447 32,876
Proceeds from other short-term
investments............................ -- 3,320 2,622
-------- -------- --------
Net cash provided by (used in)
investing activities............. (14,592) (39,319) 3,818
-------- -------- --------
Cash provided by (used in) financing
activities:
Repurchase of Discount Notes from ISP
Holdings............................... -- -- (178,861)
Increase (decrease) in loan from parent
company................................ 1,800 (1,800) --
Change in loans to/from related parties,
net.................................... 70,807 53,180 258,017
Financing fees and expenses............... (514) (95) (2,482)
Dividends paid to parent company.......... (8,130) (28,159) (6,491)
Capital contributions to affiliates....... (35,575) -- (86,077)
Other..................................... (594) -- (43)
-------- -------- --------
Net cash provided by (used in)
financing activities............. 27,794 23,126 (15,937)
-------- -------- --------
Net change in cash and cash equivalents..... 15,940 (8,358) (7,581)
-------- -------- --------
Cash and cash equivalents, end of year...... $ 15,941 $ 7,583 $ 2
-------- -------- --------
-------- -------- --------
</TABLE>
S-3
<PAGE>
SCHEDULE II
G-I HOLDINGS INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-------------------------------------------------------
BALANCE CHARGED TO BALANCE
JANUARY 1, SALES OR DECEMBER 31,
DESCRIPTION 1994 EXPENSES DEDUCTIONS 1994
- ----------------------------------------------- ---------- ---------- ---------- ------------
(THOUSANDS)
<S> <C> <C> <C> <C>
Valuation and Qualifying Accounts
Deducted from Assets to Which
They Apply:
Allowance for doubtful accounts........ $ 1,251 $ 666 $ 9(a) $ 1,908(b)
Allowance for discounts................ 17,041 56,988 58,594 15,435
Reserve for inventory market
valuation........................... 574 222 192 604
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------------
BALANCE CHARGED TO BALANCE
JANUARY 1, SALES OR DECEMBER 31,
DESCRIPTION 1995 EXPENSES DEDUCTIONS OTHER 1995
- ----------------------------------------------- ---------- ---------- ---------- ------- ------------
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Valuation and Qualifying Accounts
Deducted from Assets to Which
They Apply:
Allowance for doubtful accounts ....... $ 1,908 $ 478 $ 920(a) $ 1,751(c) $ 3,217(b)
Allowance for discounts................ 15,435 65,057 61,695 -- 18,797
Reserve for inventory market
valuation........................... 604 -- 30 -- 574
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------
BALANCE CHARGED TO BALANCE
JANUARY 1, SALES OR DECEMBER 31,
DESCRIPTION 1996 EXPENSES DEDUCTIONS 1996
- ----------------------------------------------- ---------- ---------- ---------- ------------
(THOUSANDS)
<S> <C> <C> <C> <C>
Valuation and Qualifying Accounts
Deducted from Assets to Which
They Apply:
Allowance for doubtful accounts........ $ 3,217 $ 716 $ 1,959(a) $ 1,974(b)
Allowance for discounts................ 18,797 73,936 70,265 22,468
Reserve for inventory market
valuation........................... 574 2,025 90 2,509
</TABLE>
- ------------------
Notes:
(a) Represents write-offs of uncollectible accounts net of recoveries.
(b) The balance at December 31, 1994 principally represents a reserve for
receivables sold to a trust (see Note 5 to Consolidated Financial
Statements) and is reflected in the Consolidated Balance Sheets as a
reduction of 'Accounts receivable, other.' The balances at December 31, 1995
and 1996, in addition to representing such reserve for receivables sold to a
trust include a reserve of $1,261,000 and $647,000, respectively, related to
USI trade receivables.
(c) Represents balance acquired in an acquisition.
S-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------
<S> <C>
3.1 -- Certificate of Incorporation of G-I Holdings (incorporated by
reference to Exhibit 3.1 to G-I Holdings' Annual Report on Form 10-K
for the year ended December 31, 1989 (the '1989 10-K')).
3.2 -- By-laws of G-I Holdings (incorporated by reference to Exhibit 3.2 to
the 1989 10-K).
4.1 -- Indenture, dated as of October 5, 1993 (the 'Discount Notes
Indenture'), between G-I Holdings and The Bank of New York, as
trustee (incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4 of G-I Holdings (Registration No.
33-72220) (the 'Discount Notes Registration Statement')).
4.2 -- First Supplemental Indenture dated as of October 18, 1996 to the
Discount Notes Indenture.
4.3 -- Indenture, dated as of February 14, 1996 ('10% Note Indenture'),
between G-I Holdings and The Bank of New York, as trustee
(incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form S-4 of G-I Holdings (Registration No. 333-2436)
(the 'G-I Holdings Registration Statement')).
4.4 -- First Supplemental Indenture dated as of October 18, 1996 to the 10%
Note Indenture.
10.1 -- Indenture, dated as of December 9, 1996, between BMCA and The Bank
of New York, as trustee (incorporated by reference to Exhibit 4.1 to
BMCA's Registration on Form S-4 (Registration No. 333-20859) (the
'Senior Notes Registration Statement')).
10.2 -- Indenture dated as of June 30, 1994 between BMCA and The Bank of New
York, as trustee (incorporated by reference to Exhibit 4.1 to the
Deferred Coupon Note Registration Statement).
10.3 -- Management Agreement, dated as of March 3, 1992 ('Management
Agreement'), among GAF, G-I Holdings, G Industries, ISP, GAFBMC and
GAF Broadcasting Company, Inc. (incorporated by reference to Exhibit
10.9 to the Registration Statement on Form S-4 of G-I Holdings
(Registration No. 33-72220)).
10.4 -- Amendment No. 1, dated as of January 1, 1994, to the Management
Agreement (incorporated by reference to Exhibit 10.10 to G-I
Holdings' Annual Report on Form 10-K for the year ended December 31,
1993).
10.5 -- Amendment No. 2, dated as of May 31, 1994, to the Management
Agreement (incorporated by reference to Exhibit 10.1 to G-I
Holdings' Quarterly Report on Form 10-Q for the quarter ended July
3, 1994).
10.6 -- Amendment No. 3, dated as of December 31, 1994, to the Management
Agreement (incorporated by reference to Exhibit 10.4 to ISP's Annual
Report on Form 10-K for the year ended December 31, 1994).
10.7 -- Amendment No. 4, dated as of December 31, 1995, to the Management
Agreement (incorporated by reference to Exhibit 10.6 to G-I
Holdings' Registration Statement on Form S-4 (Registration No.
333-2436)).
10.8 -- Amendment No. 5, dated as of October 18, 1996, to the Management
Agreement (incorporated by reference to Exhibit 10.6 to ISP
Holdings' Registration Statement on Form S-4 (Registration No.
333-17827)).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------
<S> <C>
10.9 -- Amendment No. 6, dated as of January 1, 1997, to the Management
Agreement (incorporated by reference to Exhibit 10.8 to the Senior
Notes Registration Statement).
10.10 -- Tax Sharing Agreement, dated as of January 31, 1994, among GAF, G-I
Holdings and BMCA (incorporated by reference to Exhibit 10.6 to
BMCA's Registration Statement on Form S-4 (Registration No.
33-81808) (the 'Deferred Coupon Note Registration Statement').
10.11 -- Tax Sharing Agreements between GAF and G-I Holdings, and between G-I
Holdings and G Industries (incorporated by reference to Exhibit
10.11 to the Discount Notes Registration Agreement).
10.12 -- Form of Option Agreement relating to Series A Cumulative Redeemable
Convertible Preferred Stock of BMCA (incorporated by reference to
Exhibit 10.9 to BMCA's Annual Report on Form 10-K for the year ended
December 31, 1996 ('BMCA's 1996 Form 10-K')*
10.13 -- Stock Appreciation Right Agreement dated January 1, 1997 between GAF
Corporation and Sunil Kumar (incorporated by reference to Exhibit
10.11 to BMCA's 1996 Form 10-K)*
10.14 -- Amended and Restated Stock Appreciation Right Agreement dated
January 1, 1997 between GAF Corporation and Sunil Kumar
(incorporated by reference to Exhibit 10.12 to BMCA's 1996 Form
10-K)*
21 -- Subsidiaries of G-I Holdings.
27 -- Financial Data Schedule for fiscal year 1996, which is submitted
electronically to the Securities and Exchange Commission for
information only.
28 -- Stipulation of Settlement between the Class of Claimants and
Defendants represented by the Center for Claims Resolution dated
January 15, 1993 (incorporated by reference to Exhibit 28.1 to G-I
Holdings' Form 8-K reporting an event on January 5, 1993).
</TABLE>
- ------------------
* Management and/or compensatory plan or arrangement.
<PAGE>
Exhibit 4.2
- --------------------------------------------------------------------------------
G-I HOLDINGS INC.
AND
THE BANK OF NEW YORK,
Trustee
----------------
FIRST SUPPLEMENTAL INDENTURE
Dated as of October 18, 1996
TO
INDENTURE
Dated as of October 5, 1993
----------------
Senior Discount Notes
Due October 1, 1998
and
Series B Senior Discount Notes
Due October 1, 1998
- --------------------------------------------------------------------------------
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of October 18, 1996,
between G-I HOLDINGS INC., a Delaware corporation (the "Company"), and
THE BANK OF NEW YORK, a New York banking corporation (the "Trustee"),
having its Corporate Trust Office at 101 Barclay Street, New York, New
York 10286.
RECITALS
WHEREAS, the Company and the Trustee have executed and
delivered the Indenture, dated as of October 5, 1993 (the "Original
Indenture" and capitalized terms used herein without definition have
the respective meanings specified therein), governing the terms of the
Company's Senior Discount Notes due 1998 and Series B Senior Discount
Notes due 1998 (collectively, the "Notes"); and
WHEREAS, ISP Holdings Inc. ("ISP Holdings") has solicited
the consent of the holders of the Notes to certain amendments (the
"Amendments") to the Original Indenture pursuant to that certain Offer
to Purchase and Consent Solicitation Statement of ISP Holdings, dated
September 13, 1996, as amended (the "Offer to Purchase"); and
WHEREAS, Holders representing a majority in aggregate
principal amount of the Notes have delivered their consent to the
Amendments; and
WHEREAS, Section 9.02 of the Original Indenture permits the
Company, when authorized by resolution of its Board of Directors, and
the Trustee, to amend the Original Indenture with the written consent
of the Holders of a majority in aggregate principal amount of the
Notes then outstanding; and
WHEREAS, the Board of Directors of the Company has adopted
such a resolution in order to reflect the Amendments pursuant to this
First Supplemental Indenture; and
WHEREAS, the Company desires to enter into this First
Supplemental Indenture in order to amend the Original Indenture as of
the Effective Time (as defined herein);
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, it is mutually covenanted and
agreed for the equal and ratable benefit of all Holders of the Notes
as follows:
<PAGE>
ARTICLE ONE
AMENDMENTS TO ORIGINAL INDENTURE
At the Effective Time, each of the following sections of the
Original Indenture shall be modified as follows:
A. Definitions.
-----------
(i) Section 1.01 shall be amended by adding the following
definitions in their appropriate alphabetical location:
"ISP Holdings Transactions" means the consummation of a
-------------------------
tender offer, exchange offer and senior note offering of ISP
Holdings Inc., on substantially the terms described in that
certain Offer to Purchase and Consent Solicitation
Statement, dated September 13, 1996, as amended, of ISP
Holdings Inc.
"Spin Off Transactions" means the consummation of a series
---------------------
of transactions involving GAF's subsidiaries on
substantially the terms described in that certain Offer to
Purchase and Consent Solicitation Statement, dated September
13, 1996, as amended, of ISP Holdings Inc. that will, among
other things, result in the capital stock of ISP Holdings
Inc. being distributed to the stockholders of GAF.
(ii) Section 1.01 shall be amended further by deleting each
of the following definitions in its entirety:
"Linden Dividend"
---------------
"Linden Property"
---------------
"Permitted Lien"
--------------
"Restricted Investment"
---------------------
"Restricted Payment"
------------------
<PAGE>
"Tax Sharing Agreements"
----------------------
"Unrestricted Affiliate"
----------------------
B. Covenants.
---------
(i) The text of each of the following Sections shall be
deleted in its entirety and replaced, in each case, by the words
"Intentionally Omitted":
Section 4.12. Limitation on Restricted Payments and
-------------------------------------
Restricted Investments.
----------------------
Section 4.13. Limitation on Liens.
-------------------
Section 4.14. Limitation on Transactions with Affiliates.
------------------------------------------
Section 4.15. Limitation on Investments in Non-Recourse
-----------------------------------------
Subsidiaries by ISP Subsidiaries and BMC Subsidiaries.
-----------------------------------------------------
Section 4.16. Limitation on Dividend and Other Payment
----------------------------------------
Restrictions Affecting Subsidiaries.
-----------------------------------
Section 4.20. Consents, etc.
--------------
(ii) Each of the following Sections shall be amended to
read in its entirety as follows:
Section 4.04. Payments of Taxes and Other Claims. G-I
----------------------------------
Holdings shall, and shall cause each of its Subsidiaries (other than
Non-Recourse Subsidiaries) to, pay or discharge or cause to be paid or
discharged, before any penalty accrues from the failure to so pay or
discharge, all material taxes, assessments and governmental charges
levied or imposed upon it or any of such Subsidiaries or upon the
income, profits or property of it or any of such Subsidiaries,
provided that there shall not be required to be paid or discharged any
--------
such tax, assessment or charge if the amount, applicability or
validity thereof is being contested in good faith by appropriate
proceedings and adequate provision therefor has been made.
Section 5.01. When G-I Holdings May Merge, etc. G-I
--------------------------------
Holdings shall not consolidate with or merge with or into or sell,
assign, transfer or lease all or substantially all of its properties
and assets (either in one transaction or series of
<PAGE>
related transactions) to any Person, unless G-I Holdings shall be the
continuing Person, or the resulting, surviving or transferee Person
(if other than G-I Holdings) shall be a corporation organized and
existing under the laws of the United States or any State thereof or
the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, all the obligations of G-I
Holdings under the Securities and this Indenture, and this Indenture
shall remain in full force and effect.
In connection with any consolidation, merger, sale,
assignment, transfer or lease contemplated by this Section 5.01, G-I
Holdings shall deliver, or cause to be delivered, to the Trustee, in
form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger, sale, assignment, transfer or lease and
the supplemental indenture in respect thereto comply with this
Article V and that all conditions precedent herein provided for
relating to such transaction have been complied with.
Section 6.01. Events of Default. An "Event of Default"
-----------------
occurs if:
(1) G-I Holdings defaults in the payment of
interest on any Security when the same becomes due and
payable and the default continues for a period of 30
days;
(2)(i) G-I Holdings defaults in the payment of
the principal of any Security when the same becomes due
and payable at maturity or otherwise or (ii) G-I
Holdings fails to redeem or repurchase Securities when
required pursuant to this Indenture or the Securities;
(3) G-I Holdings fails to comply with Section
5.01;
(4) G-I Holdings fails to comply for 30 days
after notice with any of its obligations under
Sections 4.03, 4.06, 4.09, 4.10, 4.11 and 4.17;
(5) G-I Holdings fails to comply for 60 days
after notice with its other agreements contained in
this Indenture or the Securities (other than those
referred to in clauses (1)-(4) above); or
<PAGE>
(6) G-I Holdings or any of its Significant
Subsidiaries (A) admits in writing its inability to pay
its debts generally as they become due, (B) commences a
voluntary case or proceeding under any Bankruptcy Law
with respect to itself, (C) consents to the entry of a
judgment, decree or order for relief against it in an
involuntary case or proceeding under any Bankruptcy
Law, (D) consents to the appointment of a Custodian of
it or for substantially all of its property, (E)
consents to or acquiesces in the institution of a
bankruptcy or an insolvency proceeding against it, (F)
makes a general assignment for the benefit of its
creditors, or (G) takes any corporate action to
authorize or effect any of the foregoing.
A Default under clauses (4) or (5) is not an Event of
Default until the Trustee or the Holders of at least 25% in aggregate
principal amount of the outstanding Securities notify G-I Holdings in
writing of the Default, and G-I Holdings does not cure the Default
with the time specified in such clause after receipt of such notice.
Such notice shall be given by the Trustee if so requested in writing
by the Holders of at least 25% in aggregate principal amount of the
outstanding Securities. When a Default under clause (4) or (5) is
cured or remedied within the specified period, it ceases to exist.
(iii) Each of Sections 4.09, 4.10 and 4.11 shall be amended
by modifying the ratio set forth in subparagraph (a) of each such
Section to read "at least 1.00 to 1.00." Section 4.09 shall further
be amended by deleting subparagraph (e) therein in its entirety. Each
of Sections 6.02 and 7.07 shall be amended by changing each reference
therein to clause (7) of Section 6.01 to be a reference to clause (6)
of Section 6.01.
(iv) Subparagraph (a) of Section 4.06 shall be amended to
read in its entirety as follows:
(a) G-I Holdings will file with the Trustee and provide
Securityholders, within 15 days after it files them with the
Commission (and only to the extent that it files them with the
Commission), copies of its annual report and the information,
documents and other reports (or copies of such portions of any of the
foregoing as the Commission may by rules and regulations prescribe)
which the Company is required to file with the Commission pursuant to
Section 13 of 15(d) of the Exchange Act, without exhibits in the case
of Securityholders, unless G-I
<PAGE>
Holdings is requested in writing by the Securityholders. G-I Holdings
also will comply with the TIA Section 314(a).
(v) Subparagraph (a) of Section 4.18 shall be amended to
read in its entirety as follows:
(a) G-I Holdings shall not, and shall not permit any of its
Subsidiaries, directly or indirectly, to consummate an Asset Sale
unless:
(1) in the case of an Asset Sale by G-I Holdings or any
Specified Subsidiary, G-I Holdings shall commit to apply the Net
Cash Proceeds of such Asset Sale within 300 days of the
consummation of such Asset Sale, and shall apply such Net Cash
Proceeds within 360 days of receipt thereof, (i) to invest in the
businesses that G-I Holdings and its Subsidiaries (other than
businesses engaged in through Non-Recourse Subsidiaries) are
engaged in at the time of such Asset Sale or any like or related
business, (ii) to pay the Debt referred to in the last sentence
of the definition thereof or make provision for the payment
thereof, through an escrow or other fund, and/or (iii) to offer
to purchase the Securities in a tender offer (a "Net Proceeds
Offer") at a redemption price equal to 100% of the Accreted Value
thereof; provided that G-I Holdings may defer making a Net
--------
Proceeds Offer until the aggregate Net Cash Proceeds from Asset
Sales to be applied pursuant to this clause (1)(iii) equal or
exceed $20,000,000; and
(2) in the case of an Asset Sale by any ISP Subsidiary or
any BMC Subsidiary, such ISP Subsidiary or BMC Subsidiary, as the
case may be, shall apply the Net Cash Proceeds of such Asset Sale
within one year of receipt thereof, (i) to invest in the
businesses that G-I Holdings and its Subsidiaries (other than
businesses engaged in through Non-Recourse Subsidiaries) are
engaged in at the time of such Asset Sale or any like or related
business, (ii) to pay the Debt referred to in the last sentence
of the definition thereof or make provision for the payment
thereof, through an escrow or other fund, (iii) to pay or satisfy
Debt or Preferred Stock of any ISP Subsidiary or any BMC
Subsidiary, as the case may be, and/or (iv) to make a Net
Proceeds Offer at a redemption price equal to 100% of the
Accreted Value thereof; provided that G-I Holdings may defer
--------
making a Net Proceeds Offer until the aggregate Net Cash Proceeds
from Asset Sales to be applied pursuant to clause (2)(iv) equal
or exceed $20,000,000;
<PAGE>
provided that (i) G-I Holdings and its Subsidiaries may retain up to
--------
$5,000,000 of Net Cash Proceeds from Asset Sales in any twelve-month
period (without complying with clauses (1) or (2)), and (ii) any Asset
Sale that would result in a Change of Control shall not be governed by
this Section 4.18 but shall be governed by the provisions described
under Section 4.17 and paragraph 5(a) of the Securities.
(vi) Subparagraph (b) of Section 8.01 shall be amended to
read in its entirety as follows:
(b) Subject to Sections 8.01(c), 8.02 and 8.06, G-I
Holdings may at any time terminate (i) all its obligations under the
Securities and this Indenture ("legal defeasance"), or (ii) its
obligations under Sections 4.03, 4.04, 4.06, 4.08 through 4.11 and
4.17 through 4.19 and the operation of Section 6.01(3), 6.01(4),
6.01(5) and 6.01(6) (with respect only to Significant Subsidiaries)
("covenant defeasance").
(vii) The penultimate paragraph of Section 8.02 shall be
amended to read in its entirety as follows:
Notwithstanding the foregoing provisions of this Section,
the conditions set forth in the foregoing paragraphs (2), (3), (4),
(5), (6), and (7) need not be satisfied so long as, at the time G-I
Holdings makes the deposit described in paragraph (1), (i) no Default
under Section 6.01(1), 6.01(2) or 6.01(6) has occurred and is
continuing on the date of such deposit and after giving effect thereto
and (ii) either (x) a notice of redemption has been mailed pursuant to
Section 3.03 providing for redemption of all the Securities 30 days
after such mailing and the provisions of Section 3.01 with respect to
such redemption shall have been complied with or (y) the Stated
Maturity of all of the Securities will occur within 30 days. If the
conditions of the preceding sentence are satisfied G-I Holdings shall
be deemed to have exercised its covenant defeasance option.
(viii) The following new Section shall be added:
Section 5.03. Spin Off Transactions. Notwithstanding any
---------------------
provision in this Indenture to the contrary, the Spin Off Transactions
and the ISP Holdings Transactions may be consummated under all
circumstances and without satisfying any conditions.
<PAGE>
ARTICLE TWO
MISCELLANEOUS
A. Governing Law.
-------------
The laws of the State of New York shall govern this First
Supplemental Indenture without regard to the principles of conflict of
laws.
B. Counterparts.
------------
This First Supplemental Indenture may be executed in
counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
C. Survival.
--------
This First Supplemental Indenture and the Original Indenture
shall henceforth be read together. Except as expressly set forth
herein, the Original Indenture shall remain unchanged and in full
force and effect in accordance with its terms.
D. Effective Time.
--------------
For purposes of this First Supplemental Indenture, the
"Effective Time" shall mean such time as is immediately prior to ISP
Holdings purchasing, by accepting for payment, all Notes validly
tendered (and not withdrawn) pursuant to the terms of the Offer to
Purchase.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
First Supplemental Indenture to be executed and delivered as of the
date first above written.
G-I HOLDINGS INC.
By: /s/: James P. Rogers
--------------------
Name: James P. Rogers
Title: Senior Vice President
THE BANK OF NEW YORK
By: /s/: Walter N. Gitlin
---------------------
Name: Walter N. Gitlin
Title: Vice President
<PAGE>
Exhibit 4.4
- --------------------------------------------------------------------------------
G-I HOLDINGS INC.
AND
THE BANK OF NEW YORK,
Trustee
----------------
FIRST SUPPLEMENTAL INDENTURE
Dated as of October 18, 1996
TO
INDENTURE
Dated as of February 14, 1996
----------------
10% Senior Notes due 2006
and
Series B 10% Senior Notes due 2006
- --------------------------------------------------------------------------------
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of October 18, 1996,
between G-I HOLDINGS INC., a Delaware corporation (the "Company"), and
THE BANK OF NEW YORK, a New York banking corporation (the "Trustee"),
having its Corporate Trust Office at 101 Barclay Street, New York, New
York 10286.
RECITALS
WHEREAS, the Company and the Trustee have executed and
delivered the Indenture, dated as of February 14, 1996 (the "Original
Indenture" and capitalized terms used herein without definition have
the respective meanings specified therein), governing the terms of the
Company's Series B 10% Senior Notes due 2006 (the "Notes"); and
WHEREAS, ISP Holdings Inc. ("ISP Holdings") has solicited
the consent of the holders of the Notes to certain amendments (the
"Amendments") to the Original Indenture pursuant to that certain
Exchange Offer Circular and Consent Solicitation Statement of ISP
Holdings, dated September 13, 1996, as amended (the "Exchange Offer
Circular"); and
WHEREAS, Holders representing a majority in aggregate
principal amount of the Notes have delivered their consent to the
Amendments; and
WHEREAS, Section 9.02 of the Original Indenture permits the
Company, when authorized by resolution of its Board of Directors, and
the Trustee, to amend the Original Indenture with the written consent
of the Holders of a majority in aggregate principal amount of the
Notes then outstanding; and
WHEREAS, the Board of Directors of the Company has adopted
such a resolution in order to reflect the Amendments pursuant to this
First Supplemental Indenture; and
WHEREAS, the Company desires to enter into this First
Supplemental Indenture in order to amend the Original Indenture as of
the Effective Time (as defined herein);
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, it is mutually covenanted and
agreed for the equal and ratable benefit of all Holders of the Notes
as follows:
<PAGE>
ARTICLE ONE
AMENDMENTS TO ORIGINAL INDENTURE
At the Effective Time, each of the following sections of the
Original Indenture shall be modified as follows:
A. Definitions.
-----------
(i) Section 1.01 shall be amended by adding the following
definitions in their appropriate alphabetical location:
"ISP Holdings Transactions" means the consummation of a
-------------------------
tender offer, exchange offer and senior note offering of ISP
Holdings Inc., on substantially the terms described in that
certain Exchange Offer Circular and Consent Solicitation
Statement, dated September 13, 1996, as amended, of ISP
Holdings Inc.
"Spin Off Transactions" means the consummation of a series
---------------------
of transactions involving GAF's subsidiaries on
substantially the terms described in that certain Exchange
Offer Circular and Consent Solicitation Statement, dated
September 13, 1996, as amended, of ISP Holdings Inc. that
will, among other things, result in the capital stock of ISP
Holdings Inc. being distributed to the stockholders of GAF.
(ii) Section 1.01 shall be amended further by deleting each
of the following definitions in its entirety:
"Linden Dividend"
---------------
"Linden Property"
---------------
"Permitted Lien"
--------------
"Restricted Investment"
---------------------
"Restricted Payment"
------------------
<PAGE>
"Tax Sharing Agreements"
----------------------
"Unrestricted Affiliate"
----------------------
B. Covenants.
---------
(i) The text of each of the following Sections shall be
deleted in its entirety and replaced, in each case, by the words
"Intentionally Omitted":
Section 4.12. Limitation on Restricted Payments and
-------------------------------------
Restricted Investments.
----------------------
Section 4.13. Limitation on Liens.
-------------------
Section 4.14. Limitation on Transactions with Affiliates.
------------------------------------------
Section 4.15. Limitation on Investments in Non-Recourse
-----------------------------------------
Subsidiaries by ISP Subsidiaries and BMC Subsidiaries.
-----------------------------------------------------
Section 4.16. Limitation on Dividend and Other Payment
----------------------------------------
Restrictions Affecting Subsidiaries.
-----------------------------------
Section 4.20. Consents, etc.
--------------
(ii) Each of the following Sections shall be amended to
read in its entirety as follows:
Section 4.04. Payments of Taxes and Other Claims. G-I
----------------------------------
Holdings shall, and shall cause each of its Subsidiaries (other than
Non-Recourse Subsidiaries) to, pay or discharge or cause to be paid or
discharged, before any penalty accrues from the failure to so pay or
discharge, all material taxes, assessments and governmental charges
levied or imposed upon it or any of such Subsidiaries or upon the
income, profits or property of it or any of such Subsidiaries,
provided that there shall not be required to be paid or discharged any
--------
such tax, assessment or charge if the amount, applicability or
validity thereof is being contested in good faith by appropriate
proceedings and adequate provision therefor has been made.
Section 5.01. When G-I Holdings May Merge, etc. G-I
--------------------------------
Holdings shall not consolidate with or merge with or into or sell,
assign, transfer or lease all or substantially all of its properties
and assets (either in one transaction or series of
<PAGE>
related transactions) to any Person, unless G-I Holdings shall be the
continuing Person, or the resulting, surviving or transferee Person
(if other than G-I Holdings) shall be a corporation organized and
existing under the laws of the United States or any State thereof or
the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, all the obligations of G-I
Holdings under the Securities and this Indenture, and this Indenture
shall remain in full force and effect.
In connection with any consolidation, merger, sale,
assignment, transfer or lease contemplated by this Section 5.01, G-I
Holdings shall deliver, or cause to be delivered, to the Trustee, in
form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger, sale, assignment, transfer or lease and
the supplemental indenture in respect thereto comply with this
Article V and that all conditions precedent herein provided for
relating to such transaction have been complied with.
Section 6.01. Events of Default. An "Event of Default"
-----------------
occurs if:
(1) G-I Holdings defaults in the payment of
interest on any Security when the same becomes due and
payable and the default continues for a period of 30
days;
(2)(i) G-I Holdings defaults in the payment of
the principal of any Security when the same becomes due
and payable at maturity or otherwise or (ii) G-I
Holdings fails to redeem or repurchase Securities when
required pursuant to this Indenture or the Securities;
(3) G-I Holdings fails to comply with Section
5.01;
(4) G-I Holdings fails to comply for 30 days
after notice with any of its obligations under
Sections 4.03, 4.06, 4.09, 4.10, 4.11 and 4.17;
(5) G-I Holdings fails to comply for 60 days
after notice with its other agreements contained in
this Indenture or the Securities (other than those
referred to in clauses (1)-(4) above); or
<PAGE>
(6) G-I Holdings or any of its Significant
Subsidiaries (A) admits in writing its inability to pay
its debts generally as they become due, (B) commences a
voluntary case or proceeding under any Bankruptcy Law
with respect to itself, (C) consents to the entry of a
judgment, decree or order for relief against it in an
involuntary case or proceeding under any Bankruptcy
Law, (D) consents to the appointment of a Custodian of
it or for substantially all of its property, (E)
consents to or acquiesces in the institution of a
bankruptcy or an insolvency proceeding against it, (F)
makes a general assignment for the benefit of its
creditors, or (G) takes any corporate action to
authorize or effect any of the foregoing.
A Default under clauses (4) or (5) is not an Event of
Default until the Trustee or the Holders of at least 25% in aggregate
principal amount of the outstanding Securities notify G-I Holdings in
writing of the Default, and G-I Holdings does not cure the Default
with the time specified in such clause after receipt of such notice.
Such notice shall be given by the Trustee if so requested in writing
by the Holders of at least 25% in aggregate principal amount of the
outstanding Securities. When a Default under clause (4) or (5) is
cured or remedied within the specified period, it ceases to exist.
(iii) Each of Sections 4.09, 4.10 and 4.11 shall be amended
by modifying the ratio set forth in subparagraph (a) of each such
Section to read "at least 1.00 to 1.00." Section 4.09 shall further
be amended by deleting subparagraph (e) therein in its entirety. Each
of Sections 6.02 and 7.07 shall be amended by changing each reference
therein to clause (7) of Section 6.01 to be a reference to clause (6)
of Section 6.01.
(iv) Subparagraph (a) of Section 4.06 shall be amended to
read in its entirety as follows:
(a) G-I Holdings will file with the Trustee and provide
Securityholders, within 15 days after it files them with the
Commission (and only to the extent that it files them with the
Commission), copies of its annual report and the information,
documents and other reports (or copies of such portions of any of the
foregoing as the Commission may by rules and regulations prescribe)
which the Company is required to file with the Commission pursuant to
Section 13 of 15(d) of the Exchange Act, without exhibits in the case
of Securityholders, unless G-I
<PAGE>
Holdings is requested in writing by the Securityholders. G-I Holdings
also will comply with the TIA Section 314(a).
(v) Subparagraph (a) of Section 4.18 shall be amended to
read in its entirety as follows:
(a) G-I Holdings shall not, and shall not permit any of its
Subsidiaries, directly or indirectly, to consummate an Asset Sale
unless:
(1) in the case of an Asset Sale by G-I Holdings or any
Specified Subsidiary, G-I Holdings shall commit to apply the Net
Cash Proceeds of such Asset Sale within 300 days of the
consummation of such Asset Sale, and shall apply such Net Cash
Proceeds within 360 days of receipt thereof, (i) to invest in the
businesses that G-I Holdings and its Subsidiaries (other than
businesses engaged in through Non-Recourse Subsidiaries) are
engaged in at the time of such Asset Sale or any like or related
business, (ii) to pay the Debt referred to in the last sentence
of the definition thereof or make provision for the payment
thereof, through an escrow or other fund, (iii) to offer to
purchase the Old Notes in a tender offer pursuant to the Old
Indenture to the extent required by the Old Indenture, and/or
(iv) to offer to purchase the Securities in a tender offer (a
"Net Proceeds Offer") at a redemption price equal to 100% of the
principal thereof plus accrued interest thereon to the date of
redemption; provided that G-I Holdings may defer making a Net
--------
Proceeds Offer until the aggregate Net Cash Proceeds from Asset
Sales to be applied pursuant to this clause (1)(iv) equal or
exceed $20,000,000; and
(2) in the case of an Asset Sale by any ISP Subsidiary or
any BMC Subsidiary, such ISP Subsidiary or BMC Subsidiary, as the
case may be, shall apply the Net Cash Proceeds of such Asset Sale
within one year of receipt thereof, (i) to invest in the
businesses that G-I Holdings and its Subsidiaries (other than
businesses engaged in through Non-Recourse Subsidiaries) are
engaged in at the time of such Asset Sale or any like or related
business, (ii) to pay the Debt referred to in the last sentence
of the definition thereof or make provision for the payment
thereof, through an escrow or other fund, (iii) to pay or satisfy
Debt or Preferred Stock of any ISP Subsidiary or any BMC
Subsidiary, as the case may be, (iv) to offer to purchase the Old
Notes in a tender offer pursuant to the Old Indenture to the
extent required by the Old Indenture, and/or (v) to make a Net
Proceeds Offer at a redemption
<PAGE>
price equal to 100% of the principal thereof plus accrued
interest thereon to the date of redemption; provided that G-I
--------
Holdings may defer making a Net Proceeds Offer until the
aggregate Net Cash Proceeds from Asset Sales to be applied
pursuant to clause (2)(v) equal or exceed $20,000,000;
provided that (i) G-I Holdings and its Subsidiaries may retain up to
--------
$5,000,000 of Net Cash Proceeds from Asset Sales in any twelve-month
period (without complying with clauses (1) or (2)), and (ii) any Asset
Sale that would result in a Change of Control shall not be governed by
this Section 4.18 but shall be governed by the provisions described
under Section 4.17 and paragraph 5(a) of the Securities.
(vi) Subparagraph (b) of Section 8.01 shall be amended to
read in its entirety as follows:
(b) Subject to Sections 8.01(c), 8.02 and 8.06, G-I
Holdings may at any time terminate (i) all its obligations under the
Securities and this Indenture ("legal defeasance"), or (ii) its
obligations under Sections 4.03, 4.04, 4.06, 4.08 through 4.11, 4.17
through 4.19 and 4.21 and the operation of Section 6.01(3), 6.01(4),
6.01(5) and 6.01(6) (with respect only to Significant Subsidiaries)
("covenant defeasance").
(vii) The penultimate paragraph of Section 8.02 shall be
amended to read in its entirety as follows:
Notwithstanding the foregoing provisions of this Section,
the conditions set forth in the foregoing paragraphs (2), (3), (4),
(5), (6), and (7) need not be satisfied so long as, at the time G-I
Holdings makes the deposit described in paragraph (1), (i) no Default
under Section 6.01(1), 6.01(2) or 6.01(6) has occurred and is
continuing on the date of such deposit and after giving effect thereto
and (ii) either (x) a notice of redemption has been mailed pursuant to
Section 3.03 providing for redemption of all the Securities 30 days
after such mailing and the provisions of Section 3.01 with respect to
such redemption shall have been complied with or (y) the Stated
Maturity of all of the Securities will occur within 30 days. If the
conditions of the preceding sentence are satisfied G-I Holdings shall
be deemed to have exercised its covenant defeasance option.
(viii) The following new Section shall be added:
Section 5.03. Spin Off Transactions. Notwithstanding any
---------------------
provision in this Indenture to the contrary, the Spin Off
<PAGE>
Transactions and the ISP Holdings Transactions may be consummated
under all circumstances and without satisfying any conditions.
ARTICLE TWO
MISCELLANEOUS
A. Governing Law.
-------------
The laws of the State of New York shall govern this First
Supplemental Indenture without regard to the principles of conflict of
laws.
B. Counterparts.
------------
This First Supplemental Indenture may be executed in
counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
C. Survival.
--------
This First Supplemental Indenture and the Original Indenture
shall henceforth be read together. Except as expressly set forth
herein, the Original Indenture shall remain unchanged and in full
force and effect in accordance with its terms.
D. Effective Time.
--------------
For purposes of this First Supplemental Indenture, the
"Effective Time" shall mean such time as is immediately prior to ISP
Holdings accepting for exchange all Notes validly tendered (and not
withdrawn) pursuant to the terms of the Exchange Offer Circular.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
First Supplemental Indenture to be executed and delivered as of the
date first above written.
G-I HOLDINGS INC.
By: /s/: James P. Rogers
---------------------
Name: James P. Rogers
Title: Senior Vice President
THE BANK OF NEW YORK
By: /s/: Walter N. Gitlin
---------------------
Name: Walter N. Gitlin
Title: Vice President
<PAGE>
Exhibit 21
LIST OF SUBSIDIARIES
--------------------
STATE OF
--------
COMPANY INCORPORATION D/B/A
- ------- ------------- -----
G-I Holdings Inc. Delaware
G Industries Corp. Delaware
GAF Building Materials Corporation Delaware
Building Materials Delaware GAF Materials
Corporation of America Corporation & Old
American Products
U.S. Intec Holdings Inc. Delaware
U.S. Intec, Inc. Texas Tri-Ply Corporation
Exterior Technologies Corporation Texas
Intec Marine Inc. Texas
USI Materials Inc. Delaware
GAF Leatherback Corp. Delaware
BMCA Insulation Products Inc. Delaware
BMC Warehousing Inc. Delaware
GAFTECH Corporation Delaware
South Ponca Realty Corp. Delaware
GAF Real Properties Inc. Delaware
BMCA Receivables Corp. Delaware
Pequannock Valley Claim Service Delaware
Company, Inc.
GAF Premium Products Inc. Delaware
Wind Gap Real Property Acquisition Delaware
Corp.
GAF Fiberglass Corporation Delaware
Merick Inc. Delaware
GAF Broadcasting Company, Inc. Delaware
GAF Properties Inc. Delaware
Q 104.3 Listeners Club Inc. Delaware
ACI Inc. Georgia
General Aniline & Film Corporation Delaware
BWater Corp. Delaware
GAF Roofing Manufacturing Corp. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORM 10-K OF G-I HOLDINGS INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 124,623
<SECURITIES> 90,250
<RECEIVABLES> 10,021
<ALLOWANCES> 2,183
<INVENTORY> 75,415
<CURRENT-ASSETS> 618,061
<PP&E> 223,051
<DEPRECIATION> 48,452
<TOTAL-ASSETS> 1,929,156
<CURRENT-LIABILITIES> 191,654
<BONDS> 861,071
0
0
<COMMON> 0
<OTHER-SE> 445,795
<TOTAL-LIABILITY-AND-EQUITY> 1,929,156
<SALES> 851,967
<TOTAL-REVENUES> 851,967
<CGS> 623,135
<TOTAL-COSTS> 623,135
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 127,550
<INCOME-PRETAX> (37,350)
<INCOME-TAX> (11,706)
<INCOME-CONTINUING> (25,644)
<DISCONTINUED> 110,746
<EXTRAORDINARY> (30,950)
<CHANGES> 0
<NET-INCOME> 54,152
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
