SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 29, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-81808
BUILDING MATERIALS CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
Delaware 22-3276290
(State of Incorporation) (I. R. S. Employer
Identification No.)
1361 Alps Road, Wayne, New Jersey 07470
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (973) 628-3000
(Not applicable)
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES /X/ NO / /
As of May 8, 1998, 1,000,010 shares of the Registrant's common stock were
outstanding. All of the voting stock of the Registrant is held by GAF Building
Materials Corporation.
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Quarter Ended
---------------------
March 30, March 29,
--------- ---------
(Thousands)
Net sales .................................. $193,324 $212,429
-------- --------
Costs and expenses:
Cost of products sold .................... 143,166 158,034
Selling, general and administrative....... 40,866 48,366
-------- --------
Total costs and expenses................ 184,032 206,400
-------- --------
Operating income ........................... 9,292 6,029
Interest expense ........................... (9,846) (12,692)
Other income, net........................... 3,426 10,267
-------- --------
Income before income taxes.................. 2,872 3,604
Income taxes ............................... (1,119) (1,404)
-------- --------
Net income ................................. $ 1,753 $ 2,200
======== =========
See Notes to Consolidated Financial Statements
1
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
March 29,
December 31, 1998
1997 (Unaudited)
------------ ---------
(Thousands)
ASSETS
Current Assets:
Cash and cash equivalents..................... $ 12,921 $ 12,236
Investments in trading securities............. 62,059 53,946
Investments in available-for-sale securities.. 161,290 119,593
Investments in held-to-maturity securities.... 499 -
Other short-term investments ................. 19,488 20,459
Accounts receivable, trade, net .............. 13,643 17,412
Accounts receivable, other.................... 50,839 79,321
Receivable from related parties, net.......... 5,151 26,561
Loan receivable from related party............ 6,152 -
Inventories................................... 72,254 104,093
Other current assets.......................... 6,243 7,354
--------- ---------
Total Current Assets........................ 410,539 440,975
Property, plant and equipment, net.............. 241,946 247,474
Goodwill, net................................... 70,046 69,556
Deferred income tax benefits.................... 35,981 37,077
Receivable from related parties ................ 31,661 -
Other assets.................................... 17,113 17,219
--------- ---------
Total Assets.................................... $ 807,286 $ 812,301
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Short-term debt............................... $ 26,944 $ 16,478
Current maturities of long-term debt.......... 3,801 3,875
Accounts payable.............................. 55,642 66,336
Accrued liabilities........................... 26,298 41,032
Reserve for product warranty claims........... 13,100 13,100
--------- ---------
Total Current Liabilities................... 125,785 140,821
--------- ---------
Long-term debt less current maturities.......... 555,446 548,155
--------- ---------
Reserve for product warranty claims............. 23,881 23,401
--------- ---------
Other liabilities............................... 19,175 18,561
--------- ---------
Stockholder's Equity:
Series A Cumulative Redeemable Convertible
Preferred Stock, $.01 par value per share;
100,000 shares authorized; no shares issued - -
Common stock, $.001 par value per share;
1,050,000 shares authorized;
1,000,010 shares issued and outstanding .... 1 1
Additional paid-in capital.................... 86,910 86,910
Accumulated deficit........................... (14,083) (11,883)
Accumulated other comprehensive income........ 10,171 6,335
--------- ---------
Stockholder's Equity ....................... 82,999 81,363
--------- ---------
Total Liabilities and Stockholder's Equity ..... $ 807,286 $ 812,301
========= =========
See Notes to Consolidated Financial Statements
2
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Quarter Ended
--------------------
March 30, March 29,
1997 1998
--------- ---------
(Thousands)
Cash and cash equivalents, beginning of period........... $124,560 $ 12,921
-------- --------
Cash provided by (used in) operating activities:
Net income............................................. 1,753 2,200
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation ...................................... 5,263 5,998
Goodwill amortization.............................. 428 492
Deferred income taxes.............................. 1,069 1,357
Noncash interest charges........................... 6,486 7,448
Increase in working capital items..................... (49,638) (36,827)
Purchases of trading securities....................... (24,095) (26,353)
Proceeds from sales of trading securities............. 2,807 30,368
Change in net receivable from/payable to related
parties............................................ (22,879) 10,251
Other, net............................................ (2,073) 2,515
-------- --------
Net cash used in operating activities.................... (80,879) (2,551)
-------- --------
Cash provided by (used in) investing activities:
Capital expenditures and acquisition................... (31,899) (11,731)
Purchases of available-for-sale securities............. (64,182) (16,031)
Purchases of held-to-maturity securities............... (4,598) -
Proceeds from sales of available-for-sale securities... 18,058 51,439
Proceeds from held-to-maturity securities.............. 5,955 499
-------- --------
Net cash provided by (used in) investing activities...... (76,666) 24,176
-------- --------
Cash provided by (used in) financing activities:
Proceeds (repayments) from sale of accounts receivable. (1,858) (2,944)
Increase (decrease) in short-term debt................. 42,178 (10,466)
Increase (decrease) in borrowings under revolving
credit facility...................................... 425 (14,000)
Repayments of long-term debt........................... (827) (921)
Decrease in loan receivable from related party......... - 6,152
Payments of asbestos claims............................ (3,062) -
Financing fees and expenses............................ (57) (131)
-------- --------
Net cash provided by (used in) financing activities...... 36,799 (22,310)
-------- --------
Net change in cash and cash equivalents.................. (120,746) (685)
-------- --------
Cash and cash equivalents, end of period................. $ 3,814 $ 12,236
======== ========
3
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - (Continued)
Quarter Ended
--------------------
March 30, March 29,
1997 1998
--------- ---------
(Thousands)
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized)............. $ 1,058 $ 1,006
Income taxes..................................... 101 598
Acquisition of Leatherback Industries business,
net of $8 cash acquired:
Fair market value of assets acquired............. $ 27,167
Purchase price of acquisition.................... 25,531
--------
Liabilities assumed.............................. $ 1,636
========
See Notes to Consolidated Financial Statements
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Building Materials Corporation of America (the "Company") is a wholly-
owned subsidiary of GAF Building Materials Corporation ("GAFBMC"), which is an
indirect, wholly-owned subsidiary of G-I Holdings Inc. ("G-I Holdings"). G-I
Holdings is a wholly-owned subsidiary of GAF Corporation ("GAF"). The
consolidated financial statements of the Company reflect, in the opinion of
management, all adjustments necessary to present fairly the financial position
of the Company at March 29, 1998, and the results of operations and cash flows
for the periods ended March 30, 1997 and March 29, 1998. All adjustments are
of a normal recurring nature. These financial statements should be read in
conjunction with the annual financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997 (the "Form 10-K").
Note 1: Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which
is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods is required. In
the Company's case, comprehensive income includes net income, unrealized gains
and losses from investments in available-for-sale securities, and pension
liability adjustments.
Quarter Ended
---------------------
March 30, March 29,
1997 1998
---------- ---------
(Thousands)
Net income.............................................. $ 1,753 $ 2,200
-------- --------
Other comprehensive income, net of tax:
Unrealized gains on available-for-sale securities:
Unrealized holding gains arising during the period,
net of income tax effect of $1,670 and $1,849....... 2,613 2,894
Less: Reclassification adjustment for gains
included in net income, net of income tax effect
of $547 and $4,302.................................. (858) (6,730)
-------- --------
Total other comprehensive income (loss) ................ 1,755 (3,836)
-------- --------
Comprehensive income (loss) ............................ $ 3,508 $ (1,636)
======== ========
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1. Comprehensive Income (Continued)
Changes in the components of "Accumulated other comprehensive income" for
the quarter ended March 29, 1998 are as follows:
Unrealized
Gains on Minimum Accumulated
Available- Pension Other
for-sale Liability Comprehensive
Securities Adjustment Income
---------- ---------- -------------
(Thousands)
Balance, December 31, 1997.... $11,102 $ (931) $10,171
Change for the period......... (3,836) - (3,836)
------- ------- -------
Balance, March 29, 1998....... $ 7,266 $ (931) $ 6,335
======= ======= =======
Note 2: Inventories:
Inventories comprise the following:
December 31, March 29,
1997 1998
------------ ---------
(Thousands)
Finished goods..................... $ 38,459 $ 66,051
Work in process.................... 10,180 11,652
Raw materials and supplies......... 24,670 27,445
-------- --------
Total.............................. 73,309 105,148
Less LIFO reserve.................. (1,055) (1,055)
-------- --------
Inventories........................ $ 72,254 $104,093
======== ========
Note 3: Contingencies
Asbestos Litigation Against GAFBMC
In connection with its formation, the Company contractually assumed and
agreed to pay the first $204.4 million of liabilities for asbestos-related
bodily injury claims relating to the inhalation of asbestos fiber ("Asbestos
Claims") (whether for indemnity or defense) of its parent, GAFBMC, relating to
pending cases and previously settled, but not paid, cases as of January 31,
1994, and no other asbestos liabilities of GAFBMC. As of March 30, 1997, the
Company had paid all of its assumed asbestos-related liabilities.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3. Contingencies (Continued)
GAFBMC has advised the Company that, as of March 28, 1998, it is defending
approximately 98,700 lawsuits involving alleged Asbestos Claims, having
resolved approximately 245,000 Asbestos Claims. During the first quarter of
1998, GAFBMC resolved approximately 10,500 Asbestos Claims and received notice
of approximately 29,900 new Asbestos Claims.
GAFBMC has stated that it is committed to effecting a comprehensive
resolution of Asbestos Claims, that it is exploring a number of options, both
judicial and legislative, to accomplish such resolution, but there can be no
assurance that this effort will be successful.
The Company believes that it will not sustain any additional liability in
connection with asbestos-related claims. While the Company cannot predict
whether any asbestos-related claims will be asserted against it or its assets,
or the outcome of any litigation relating to such claims, it believes that it
has meritorious defenses to such claims. Moreover, it has been jointly and
severally indemnified by G-I Holdings and GAFBMC with respect to such claims.
For further information regarding the history of the foregoing litigation
and asbestos-related matters, see "Item 3. Legal Proceedings" and Note 3 to
Consolidated Financial Statements contained in the Company's Form 10-K.
Environmental Litigation
The Company, together with other companies, is a party to a variety of
proceedings and lawsuits involving environmental matters ("Environmental
Claims"), in which recovery is sought for the cost of cleanup of contaminated
sites, a number of which Environmental Claims are in the early stages or have
been dormant for protracted periods. At most sites, the Company anticipates
that liability will be apportioned among the companies found to be responsible
for the presence of hazardous substances at the site. The Company believes
that the ultimate disposition of such matters will not, individually or in the
aggregate, have a material adverse effect on the business, liquidity, results
of operations, cash flows or financial position of the Company.
For further information regarding environmental matters and other
litigation, reference is made to "Item 3. Legal Proceedings" contained in the
Company's Form 10-K.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3. Contingencies (Continued)
Tax Claim Against GAF
On September 15, 1997, GAF received a notice from the Internal Revenue
Service (the "Service") of a deficiency in the amount of $84.4 million (after
taking into account the use of net operating losses and foreign tax credits
otherwise available for use in later years) in connection with the formation in
1990 of Rhone-Poulenc Surfactants and Specialties, L.P. (the "surfactants
partnership"), a partnership in which a subsidiary of GAF, GAF Fiberglass
Corporation ("GFC"), holds an interest. The claim of the Service for interest
and penalties, after taking into account the effect on the use of net
operating losses and foreign tax credits, could result in GFC incurring
liabilities significantly in excess of the deferred tax liability of $131.4
million that GAF recorded in 1990 in connection with this matter. GAF has
advised the Company that it believes that GFC will prevail in this matter,
although there can be no assurance in this regard. The Company believes that
the ultimate disposition of this matter will not have a material adverse effect
on its financial position or results of operations. GAF, G-I Holdings and
certain subsidiaries of GAF have agreed to jointly and severally indemnify the
Company against any tax liability associated with the surfactants partnership,
which the Company would be severally liable for, together with GAF and several
current and former subsidiaries of GAF, should GFC be unable to satisfy such
liability.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - First Quarter 1998 Compared With
First Quarter 1997
The Company recorded first quarter 1998 net income of $2.2 million
compared with $1.8 million in the first quarter of 1997. The 22.2% increase in
net income reflected higher investment income, partially offset by lower
operating income and higher interest expense.
The Company's net sales for the first quarter of 1998 were $212.4 million,
a 9.9% increase over last year's sales of $193.3 million. The sales growth
occurred in both residential and commercial products. The increase in
residential product sales reflected higher unit volumes, partially offset by
lower average selling prices. The increase in commercial product sales
reflected both higher unit volumes and higher average selling prices.
Gross profit margin decreased slightly to 25.6% in the first quarter of
1998 from 25.9% in the first quarter of 1997, resulting primarily from the
lower average residential selling prices, partially offset by lower
manufacturing costs.
Operating income for the first quarter of 1998 was $6.0 million compared
with $9.3 million in the first quarter of 1997. The decline in operating
income was attributable to increased selling, general and administrative
expenses, partially offset by the impact of higher product sales. Selling,
general and administrative expenses increased by 18.3% to $48.4 million
compared with last year's $40.9 million. In addition to higher expenses
resulting from increased sales volume, the Company incurred increased
distribution costs due to rail carrier service problems in certain regions of
the country requiring utilization of higher-cost transportation alternatives,
together with higher expenses relating to expanded marketing efforts.
Interest expense increased to $12.7 million in the first quarter of 1998
from $9.8 million last year due to higher debt levels, mainly reflecting the
issuance in October 1997 of $100 million in aggregate principal amount at
maturity of 8% Senior Notes due 2007. Other income, net, was $10.3 million for
the quarter compared with $3.4 million last year, reflecting higher investment
income.
Liquidity and Financial Condition
Net cash inflow during the first quarter of 1998 was $21.6 million before
financing activities, and included the use of $2.6 million of cash for
operations, the reinvestment of $11.7 million for capital programs, and the
generation of $35.9 million from net sales of available-for-sale and held-to-
maturity securities.
9
<PAGE>
Cash invested in additional working capital totaled $36.8 million during
the first quarter of 1998, primarily reflecting a seasonal increase in
inventories of $31.8 million and a $28.9 million increase in the receivable
from the trust which purchases the Company's trade accounts receivable,
partially offset by a $25.4 million increase in accounts payable and accrued
liabilities. Accrued liabilities increased by $14.7 million to $41.0 million
as a result of additional accrued interest payable and seasonal increases in
accrued distribution costs and other plant operating accruals. Cash from
operating activities also reflected a $10.3 million cash inflow from related
party transactions and a $4.0 million cash inflow from net sales of trading
securities.
Net cash used in financing activities totaled $22.3 million during the
first quarter of 1998, mainly reflecting a $14.0 million decrease in borrowings
under the Company's bank revolving credit facility and a $10.5 million decrease
in short-term borrowings, partially offset by a $6.2 million cash inflow from
the repayment of a loan to a related party.
As a result of the foregoing factors, cash and cash equivalents decreased
by $0.7 million during the first quarter to $12.2 million (excluding $194.0
million of trading and available-for-sale securities and other short-term
investments).
The Company has significantly upgraded its information systems
capabilities and is in the process of finalizing the roll-out of an interactive
network connecting all of its locations. In conjunction with this initiative,
the Company is addressing its "Year 2000" compliance issues and does not
believe that the costs associated with, or the impact of, these issues will
have a material adverse effect on the operations, liquidity or capital
resources of the Company. At this time, the Company has no information
concerning the impact of Year 2000 issues on its suppliers and customers.
See Note 3 to Consolidated Financial Statements for information regarding
contingencies.
10
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only.
(b) No Reports on Form 8-K were filed during the quarter ended
March 29, 1998.
11
<PAGE>
SIGNATURES
-----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BUILDING MATERIALS CORPORATION OF AMERICA
DATE: May 12, 1998 BY: /s/William C. Lang
------------ ------------------
William C. Lang
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST
QUARTER 1998 10-Q OF BUILDING MATERIALS CORPORATION OF AMERICA AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-29-1998
<CASH> 12,236
<SECURITIES> 173,539
<RECEIVABLES> 17,412
<ALLOWANCES> 0
<INVENTORY> 104,093
<CURRENT-ASSETS> 440,975
<PP&E> 247,474
<DEPRECIATION> 0
<TOTAL-ASSETS> 812,301
<CURRENT-LIABILITIES> 140,821
<BONDS> 548,155
0
0
<COMMON> 1
<OTHER-SE> 81,362
<TOTAL-LIABILITY-AND-EQUITY> 812,301
<SALES> 212,429
<TOTAL-REVENUES> 212,429
<CGS> 158,034
<TOTAL-COSTS> 158,034
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,692
<INCOME-PRETAX> 3,604
<INCOME-TAX> 1,404
<INCOME-CONTINUING> 2,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,200
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
