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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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SEE TABLE OF ADDITIONAL REGISTRANTS BELOW
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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 19, 1999, 1,015,010 shares of Class A Common Stock, $.001 par
value, and 15,000 shares of Class B Common Stock, $.001 par value, of Building
Materials Corporation of America were outstanding. There is no trading market
for the common stock of Building Materials Corporation of America.
As of March 19, 1999, each of the additional registrants had the number of
shares outstanding which is shown on the table below. No shares were held by
non-affiliates.
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ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
ADDRESS, INCLUDING ZIP
STATE OR OTHER CODE AND TELEPHONE NUMBER,
EXACT NAME OF JURISDICTION OF NO. I.R.S. EMPLOYER INCLUDING AREA CODE,
REGISTRANT AS SPECIFIED INCORPORATION OR OF SHARES IDENTIFICATION OF REGISTRANT'S PRINCIPAL
IN ITS CHARTER ORGANIZATION OUTSTANDING NO. EXECUTIVE OFFICES
- ----------------------------------- ---------------- ----------- --------------- ---------------------------
<S> <C> <C> <C> <C>
Building Materials
Manufacturing Corporation........ Delaware 10 22-3626208 1361 Alps Road
Wayne, NJ 07470
(973) 628-3000
Building Materials
Investment Corporation........... Delaware 10 22-3626206 1361 Alps Road
Wayne, NJ 07470
(973) 628-3000
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PART I
ITEM 1. BUSINESS
GENERAL
Building Materials Corporation of America ("BMCA") is a leading national
manufacturer of a broad line of asphalt roofing products and accessories for the
residential and commercial roofing markets. We also manufacture specialty
building products and accessories for the professional and do-it-yourself
remodeling and residential construction industries. BMCA, incorporated under the
laws of Delaware in 1994, is a 97%-owned subsidiary of GAF Building Materials
Corporation. BMCA acquired the operating assets and certain liabilities of GAF
Building Materials Corporation in 1994. GAF Building Materials Corporation is a
wholly-owned subsidiary of G Industries Corp., which is a holding company that
also owns all of the capital stock of GAF Fiberglass Corporation. G Industries
is a wholly-owned subsidiary of G-I Holdings Inc., a wholly-owned subsidiary of
GAF Corporation. Samuel J. Heyman, Chairman of the Board of Directors and Chief
Executive Officer of GAF Corporation, G-I Holdings and GAF Fiberglass, Chairman
of the Board of Directors of BMCA and Chief Executive Officer of G Industries
and GAF Building Materials Corporation, beneficially owns (as defined in
Rule 13d-3 of the Securities Exchange Act of 1934) approximately 97% of GAF
Corporation. BMCA does business under the name "GAF Materials Corporation."
Effective January 1, 1999, BMCA transferred all of its investment assets
and intellectual property assets to Building Materials Investment Corporation, a
newly-formed, wholly-owned subsidiary of BMCA. In connection with this transfer,
Building Materials Investment Corporation agreed to guarantee all of BMCA's
obligations under its credit agreement and all of its senior notes. BMCA also
transferred all of its manufacturing assets, other than those located in Texas,
to Building Materials Manufacturing Corporation, another newly-formed,
wholly-owned subsidiary of BMCA. In connection with this transfer, Building
Materials Manufacturing Corporation agreed to become a co-obligor on BMCA's 8%
Senior Notes due 2007 and to guarantee BMCA's obligations under its credit
agreement and all of its other senior notes. Building Materials Manufacturing
and Building Materials Investment were incorporated in Delaware in 1998.
On January 1, 1997, GAF Corporation completed a series of transactions
involving its subsidiaries pursuant to which, among other things, (1) we
transferred our glass fiber manufacturing facility located in Nashville,
Tennessee and certain related assets and liabilities to GAF Fiberglass
Corporation and (2) U.S. Intec, Inc., an indirect subsidiary of GAF Corporation,
became one of our subsidiaries. In connection with these transactions, GAF
Fiberglass entered into a long-term supply agreement with us pursuant to which
GAF Fiberglass agreed to supply us with glass fiber. See Item 13,"Certain
Relationships and Related Transactions."
Our executive offices and the executive offices of Building Materials
Manufacturing and Building Materials Investment are located at 1361 Alps Road,
Wayne, New Jersey 07470 and the telephone number is (973) 628-3000.
RESIDENTIAL ROOFING
We are a leading manufacturer of a complete line of premium residential
roofing products. Residential roofing product sales represented approximately
65% of our net sales in 1998. We have improved our sales mix of residential
roofing products in recent years by increasing our emphasis on laminated
products which generally are sold at higher prices with more attractive profit
margins than our standard strip shingle products. We believe that we are the
largest manufacturer of laminated residential roofing shingles and the second
largest manufacturer of strip shingles in the United States. (Statements
contained in this report as to our competitive position are based on industry
information which we believe is reliable.)
Our two principal lines of roofing shingles are the Timberline(Registered)
series and the Sovereign(Registered) series. We also produce certain specialty
shingles principally 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
Timberline(Registered) 25 shingle, a mid-weight laminated shingle which serves
as an economic trade-up for consumers, with a 25-year limited warranty; the
Timberline(Registered) shingle, with a 30-year limited warranty, offering a
natural
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random wood shake appearance with superior fire resistance and durability; and
the Timberline Ultra(Registered) shingle, with a 40-year limited warranty, a
super heavyweight laminated shingle with the same design features as the
Timberline(Registered) 25 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) Weathermax(Trademark) shingle, a
superior performing heavyweight 3-tab shingle with a 30-year limited warranty.
Specialty Shingles. Our specialty asphalt shingles include:
Slateline(Registered) and Slateline(Registered) Color Contrast(Trademark)
shingles, offering the appearance of slate, labor savings in installation
because of their larger size and a 30-year limited warranty; the Grand
Sequoia(Registered) shingle, a premier architectural shingle with a 40-year
limited warranty; and the Country Mansion(Trademark) shingle, a distinctive high
end architectural shingle with a limited lifetime warranty.
Weather Stopper(Trademark) Roofing System. In addition to shingles, we
supply all the components necessary to install a complete roofing system. Our
Weather Stopper(Trademark) Roofing System begins with Weather Watch(Registered)
and Stormguard(Trademark) waterproof underlayments for eaves, valleys and
flashings to prevent water seepage between the roof deck and the shingles caused
by ice build-ups and wind-driven rains. Our Weather Stopper(Trademark) Roofing
System also includes Shingle-Mate(Registered) glass reinforced underlayment,
Timbertex(Registered), TimberRidge(Trademark), and Ridgetex(Trademark) 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.
COMMERCIAL ROOFING
We manufacture a full line of modified bitumen and asphalt built-up roofing
products, liquid applied membrane systems and roofing accessories for use in the
application of commercial roofing systems. We also market thermoset and
thermoplastic single-ply products. Commercial roofing represented approximately
30% of our net sales in 1998. Approximately 75% of commercial roofing industry
unit sales utilize asphalt built-up roofing, modified bitumen products and
thermoset and thermoplastic single-ply products, all of which we manufacture or
market. We believe that we are the second largest manufacturer of asphalt
built-up roofing products and the largest manufacturer of modified bitumen
products in the United States.
We manufacture glass membranes under the trademarks GAFGLAS(Registered) and
Permaglas(Registered), which are made from asphalt impregnated glass fiber mat
for use as a component in asphalt built-up roofing systems. Most of our
GAFGLAS(Registered)and Permaglas(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. We also manufacture base sheets, flashings and other roofing
accessories for use in these systems, the TOPCOAT(Registered) roofing system, a
liquid-applied membrane system designed to protect and waterproof existing metal
roofing, and roof maintenance products. In addition, we market perlite roofing
insulation products, which consist of low thermal insulation that is installed
as part of a commercial roofing application below the roofing membrane,
isocyanurate foam as roofing insulation, packaged asphalt and accessories such
as vent stacks, roof insulation fasteners, cements and coating.
We sell modified bitumen products under the Ruberoid(Registered) trademark,
and U.S. Intec sells these products under the Brai(Registered) trademark.
Modified bitumen products are used primarily in re-roofing applications or in
combination with glass membranes in GAF CompositeRoof(Trademark) systems. 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.
Effective December 1, 1998, we sold our perlite insulation manufacturing
assets to Johns Manville Corporation. As part of the transaction, we entered
into a long-term agreement with Johns Manville pursuant to which Johns Manville
agreed to supply us with perlite insulation products. This agreement will enable
us to continue to serve our commercial roofing customers that purchase those
products from us.
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SPECIALTY BUILDING PRODUCTS AND ACCESSORIES
In June 1998, we acquired substantially all of the assets of Leslie-Locke,
Inc. for approximately $43.5 million. As a result of this acquisition, we
manufacture and market a variety of specialty building products and accessories
for the professional and do-it-yourself remodeling and residential construction
industries. Specialty building products and accessories represented
approximately 5% of our net sales in 1998. These products primarily consist of
residential attic ventilation systems, metal and fiberglass air distribution
products for the HVAC industry and ornamental iron security products (including
doors, windows and fencing).
MARKETING AND SALES
We have one of the industry's largest sales forces. A staff of technical
professionals who work directly with architects, consultants, contractors and
building owners provide support to the sales force. We market our roofing and
specialty building products and accessories through our own sales force of
approximately 220 experienced, full-time employees and independent sales
representatives operating from six regional sales offices located across the
United States. A major portion of our roofing product sales are to wholesale
distributors who resell our products to roofing contractors and retailers. We
believe 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. We
believe that our nationwide coverage has contributed to certain of our roofing
products being among the most recognized and requested brands in the industry.
In September 1997, we launched our Customer Advantage(Trademark) Program to
establish a nationwide network of MasterElite(Trademark) contractors and
Authorized Installers. This program offers marketing and support services to
residential roofing contractors. We view the Master Elite(Trademark) contractors
and Authorized Installers as an effective extension of our sales force which
takes our products directly to the homeowner.
No single customer accounted for 10% or more of our net sales in 1998,
except for American Builders & Contractors Supply Company, Inc., which accounted
for approximately 11% of 1998 net sales.
RAW MATERIALS
The major raw materials required for the manufacture of our roofing
products are asphalt, mineral stabilizer, glass fiber, glass fiber mat,
polyester mat and granules. Asphalt and mineral stabilizer are available from a
large number of suppliers. We currently have contracts with several of these
suppliers and others are 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.
The major raw materials required for the manufacture of our specialty
building products and accessories are steel tubes, sheet metal products,
aluminum motors and cartons. These raw materials, other than motors, are
commodity-type products, the pricing for which is driven by supply and demand.
Prices of other raw materials used in the manufacture of specialty building
products and accessories are more closely tied to movements in inflation rates.
Substantially all of the motors used in our ventilation products are purchased
from an overseas supplier. All of these raw materials, including motors, are
available from a large number of suppliers.
Five of our roofing plants have easy access to deep water ports thereby
permitting delivery of asphalt by ship, the most economical means of transport.
Our Chester, South Carolina plant manufactures glass fiber mat substrate. We
purchase all our requirements for colored roofing granules from an affiliate,
International Specialty Products Inc. ("ISP"), (except for the requirements of
our California and Oregon roofing plants and a portion of the requirements of
our Indiana roofing plant which are supplied by a third party) under a
requirements contract. Effective January 1, 1999, this contract was amended to
cover, among other things, purchases of colored roofing granules by our
subsidiaries and was renewed for 1999. This contract is subject to annual
renewal unless terminated by either party to such agreement. We purchase a
significant portion of our glass fiber requirements from an affiliate, GAF
Fiberglass, a subsidiary of GAF, pursuant to a supply agreement.
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SEASONAL VARIATIONS AND WORKING CAPITAL
Sales of roofing and specialty building products and accessories in the
northern regions of the United States generally decline during the winter months
due to adverse weather conditions. Generally, our 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
We provide certain limited warranties covering most of our residential
roofing products for periods generally ranging from 20 to 40 years. Although
terms of warranties vary, we believe that our warranties generally are
consistent with those offered by our competitors. We also offer limited
warranties and guarantees of varying duration on our commercial roofing products
and limited warranties covering most of our specialty building products and
accessories for periods generally ranging from 5 to 10 years. From time to time,
we review the reserves established for estimated probable future warranty
claims.
COMPETITION
The roofing products industry is highly competitive and includes a number
of national competitors. These competitors in the residential roofing and
accessories markets are Owens-Corning, Tamko, Elcor and Celotex, and in the
commercial roofing market are Johns Manville, 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. We believe that we are well
positioned in the marketplace as a result of our 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 our company, have increased their laminated shingle production
capacity in recent years. We have experienced increased competition in this area
due to these factors.
Our specialty roofing products and accessories business is highly
competitive with numerous competitors due to the breadth of the product lines we
market. Major competitors include Certainteed, Solar Group, ATCO Rubber Products
and Standex Air Distribution Products.
RESEARCH AND DEVELOPMENT
We primarily focus our research and development activities on the
development of new products, process improvements and the testing of alternative
raw materials and supplies. Our 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. Our
research and development expenditures were approximately $4.5 million,
$5.4 million and $6.0 million in 1996, 1997 and 1998, respectively.
PATENTS AND TRADEMARKS
We own or license approximately 90 domestic and 81 foreign patents or
patent applications. In addition, we own or license approximately 250 domestic
and 72 foreign trademark registrations or applications. While we believe the
patent protection covering certain of our products to be material to those
products, we do not believe that any single patent, patent application or
trademark is material to our business or operations. We believe that the
duration of the existing patents and patent licenses is consistent with our
business needs.
ENVIRONMENTAL COMPLIANCE
Since 1970, federal, state and local authorities have adopted and amended a
wide variety of federal, state and local environmental laws and regulations
relating to environmental matters. These regulations affect us because of the
nature of our operations and that of our predecessor and certain of the
substances that are, or have been used, produced or discharged at our or its
plants or at other locations. We have made capital expenditures of less than
$600,000 in each of the last three years in order to comply with these
regulations (which expenditures are included in additions to property, plant and
equipment) and anticipate that aggregate capital expenditures relating to
environmental compliance in 1999 and 2000 will be approximately $800,000
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and $1,000,000, respectively. We anticipate incurring additional capital
expenditures of approximately $2,000,000 in the aggregate relating to
environmental compliance in connection with two new manufacturing facilities
that we expect to build in 1999 in Shafter, California and Michigan City,
Indiana.
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. We believe that our
manufacturing facilities comply in all material respects with applicable
regulations. Although we cannot predict whether more burdensome requirements
will be adopted in the future, we believe that any potential liability for
compliance with the regulations will not materially affect our business,
liquidity or financial position.
See Item 3, "Legal Proceedings--Environmental Litigation."
EMPLOYEES
At December 31, 1998, we employed approximately 3,300 people worldwide,
approximately 1,000 of which were subject to 14 union contracts. The contracts
are effective for three- to four-year periods. During 1998, four labor contracts
expired and were renegotiated. We believe that our relations with our employees
and their unions are satisfactory.
ITEM 2. PROPERTIES
Our corporate headquarters and principal research and development
laboratories 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. We
occupy our headquarters pursuant to our management agreement with ISP. See Item
13, "Certain Relationships and Related Transactions."
We own or lease the principal real properties described below. Unless
otherwise indicated, the properties are owned in fee. In addition to the
principal facilities listed below, we maintain sales offices and warehouses,
substantially all of which are in leased premises under relatively short-term
leases.
LOCATION FACILITY
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Alabama
Mobile.............. Plant, Warehouses*
California
Compton............. Plant*, Warehouse*
Fontana............. Plant, Sales Office
Hollister........... Plant, Plant*
Shafter............. Plant (under construction)
Stockton............ Plant, Plant, Warehouse*
Florida
Tampa............... Plant, Sales Office
Georgia
Atlanta............. Sales Office*
Monroe.............. Plant, Warehouse*
Savannah............ Plant, Sales Office
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LOCATION FACILITY
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Indiana
Mount Vernon........ Plant, Sales Office
Illinois
Romeoville.......... Sales Office*
Maryland
Baltimore........... Plant
Massachusetts
Millis.............. Plant, Sales Office, Warehouse*
Walpole............. Plant*
Minnesota
Minneapolis......... Plant, Sales Office, Warehouse*
New Jersey
North Branch........ Plant, Warehouse*
North Brunswick..... Sales Office*, Warehouse*
Wayne............... Headquarters*, Corporate Administrative Offices*,
Research Center*
New Mexico
Albuquerque......... Plant
North Carolina
Burgaw.............. Plant
Goldsboro........... Plant
Ohio
Wadsworth........... Plant*, Warehouse*
Oregon
Corvallis........... Plant
Pennsylvania
Erie................ Plant, Sales Office, Warehouse*
Wind Gap............ Plant
South Carolina
Chester............. Plant
Tennessee
Nashville........... Research Center*
Texas
Dallas.............. Plant, Sales Office, Warehouse*
Fannett............. Warehouse
Port Arthur......... Plant, Plant, Warehouse, Sales Office,
Research Center
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* Leased Property
We believe that our 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 1998, we made capital expenditures of $71.1 million relating to plant,
property and equipment, which is the highest amount of capital expenditures in
recent years.
ITEM 3. LEGAL PROCEEDINGS
Bodily Injury Claims. In connection with its formation, BMCA contractually
assumed and agreed to pay the first $204.4 million of liabilities for
asbestos-related bodily injury claims relating to the inhalation of asbestos
fiber ("Asbestos Claims") of its parent, GAF Building Materials Corporation. As
of March 30, 1997, BMCA had paid all of its assumed asbestos-related
liabilities. G-I Holdings and GAF Building Materials Corporation have jointly
and severally agreed to indemnify BMCA against any other existing or future
claims related to asbestos-related liabilities if asserted against BMCA.
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GAF Corporation has advised us that, as of December 28, 1998, it is
defending approximately 113,800 pending alleged Asbestos Claims (having received
notice of approximately 93,500 new Asbestos Claims during 1998) and has resolved
approximately 293,500 Asbestos Claims (including approximately 59,000 in 1998).
GAF Corporation has advised us that it believes that a significant portion of
the claims filed in 1998 were already pending against other defendants for some
period of time, with GAF Corporation being added as a defendant upon the lifting
in 1997 of the injunction relating to the Georgine class action settlement. This
injunction prevented plaintiffs from filing or proceeding with their Asbestos
Claims other than in accordance with the Georgine class action settlement, which
was rendered inoperable in 1997 by a United States Supreme Court ruling. GAF
Corporation's current estimated average cost for Asbestos Claims resolved in
1998 (including Asbestos Claims disposed of at no cost to GAF Corporation) is
approximately $3,500 per claim. Substantially all of the costs in respect of
these Asbestos Claims will be paid over several years. There can be no assurance
that the actual costs of resolving pending and future Asbestos Claims will
approximate GAF Corporation's estimated average costs for the Asbestos Claims
resolved in 1998.
GAF Corporation has stated that it is committed to effecting a
comprehensive resolution of Asbestos Claims. It also has stated that it is
exploring a number of options to accomplish such resolution, but there can be no
assurance that this effort will be successful.
We believe that we will not sustain any additional liability in connection
with asbestos-related claims. While we cannot predict whether any
asbestos-related claims will be asserted against us or our assets, or the
outcome of any litigation relating to such claims, we believe that we have
meritorious defenses to such claims. In addition, G-I Holdings and GAF Building
Materials Corporation have jointly and severally indemnified us with respect to
such claims, and G-I Holdings has advised us that it believes it has and will
have sufficient resources to enable it to satisfy these indemnification
obligations, if any. Should GAF Corporation or GAF Building Materials
Corporation, however, be unable to satisfy judgments against it in
asbestos-related lawsuits, its judgment creditors might seek to enforce their
judgments against the assets of GAF Corporation or GAF Building Materials
Corporation, including its holdings of our common stock. This enforcement could
result in a change of control with respect to our company. See Notes 10 and 15
to Consolidated Financial Statements.
Asbestos-in-Building Claims. GAF Corporation 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 approximately 17 years ago, GAF
Corporation has not only successfully disposed of approximately 145 such cases
at an average disposition cost (including cases disposed of at no cost to GAF
Corporation) of approximately $18,000 per case (all of which have been paid by
insurance under reservation of rights), but is a co-defendant in only three
remaining lawsuits. See "--Insurance Matters." BMCA has not assumed any
liabilities with respect to Building Claims, and G-I Holdings and GAF Building
Materials Corporation have jointly and severally agreed to indemnify BMCA
against any such liabilities in the event any such claims are asserted against
it.
Insurance Matters. GAF Corporation and G-I Holdings had available, as of
December 31, 1998, to pay asbestos-related bodily injury claims aggregate
insurance coverage of $140.7 million before discounting certain coverage (which
amount is reduced as asbestos-related liabilities are satisfied), $12.2 million
of which is the subject of negotiations with various insurers and/or the
Coverage Action described below, and which $12.2 million of coverage GAF
Corporation believes will be available to it either by agreement with its
insurance carriers or, if necessary, by legal action.
In January 1993, the members of the Center for Claims Resolution, a
non-profit organization of asbestos defendant companies, including GAF
Corporation, filed an 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 (the
"Coverage Action"). The Coverage Action seeks a declaratory judgment on behalf
of certain Center members, including GAF Corporation, against various
third-party defendant product liability insurers to the effect that those
insurers are obligated to provide coverage for Asbestos Claims. The insurers who
are defendants in GAF Corporation's amended complaint are Atlanta International,
Employers Mutual and Northbrook. The insurance carrier defendants have raised
various defenses to the Coverage Action.
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In October 1983, GAF Corporation 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 Corporation 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 Corporation's defense costs have been paid
by one of its primary carriers. While GAF Corporation expects that such primary
carrier will continue to defend and indemnify GAF Corporation, such primary
carrier has reserved its rights to later refuse to defend and indemnify GAF
Corporation and to seek reimbursement for some or all of the fees paid to defend
and resolve the Building Claims. GAF Corporation believes that it will be able
to resolve such cases for amounts within the total indemnity obligations
available from such primary carrier.
ENVIRONMENTAL LITIGATION
We, together with other companies, are 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.
In connection with its formation, BMCA contractually assumed all
environmental liabilities of GAF Building Materials Corporation relating to
existing plant sites and the business of BMCA as then conducted. The estimates
referred to below reflect those environmental liabilities assumed by BMCA and
other environmental liabilities of our company. The environmental liabilities of
GAF Building Materials Corporation which were not assumed by BMCA, for which G-I
Holdings and GAF Building Materials Corporation have agreed to indemnify BMCA,
relate primarily to closed manufacturing facilities. G-I Holdings estimates
that, as of December 31, 1998, its liability in respect of the environmental
liabilities of GAF Building Materials Corporation not assumed by BMCA was
approximately $14.1 million, before insurance recoveries reflected on its
balance sheet of $8.1 million. BMCA estimates its liability as of December 31,
1998 in respect of assumed and other environmental liabilities is $0.8 million
and expects insurance recoveries reflected on its balance sheet (discussed
below) of $0.8 million. Insurance recoveries reflected on such balance sheets
relate to both past expenses and estimated future liabilities ("estimated
recoveries").
At most sites, BMCA anticipates that liability will be apportioned among
the companies found to be responsible for the presence of hazardous substances
at the site. Although it is difficult to predict the ultimate resolution of
these claims, based on BMCA's evaluation of the financial responsibility of the
parties involved and their insurers, relevant legal issues and cost sharing
arrangements now in place, BMCA estimates that its liability in respect of all
Environmental Claims, including certain environmental compliance expenses, will
be as discussed above.
After considering the relevant legal issues and other pertinent factors,
BMCA believes that it will receive the estimated recoveries and the legal
expenses incurred by GAF on BMCA's behalf and that recoveries could be well in
excess of the estimated recoveries for all Environmental Claims, although there
can be no assurances in this regard. BMCA believes it is entitled to
substantially full defense and indemnity under its insurance policies for most
Environmental Claims, although BMCA's insurers have not affirmed a legal
obligation under the policies to provide indemnity for such claims.
In March 1995, GAF Corporation commenced litigation on behalf of itself and
its predecessors, successors, subsidiaries and related corporate entities in the
United States District Court for the District of New Jersey seeking amounts
substantially in excess of the estimated recoveries. The court dismissed this
action in December 1997 for lack of federal jurisdiction, and defendant insurers
appealed the dismissal. The appeal was denied by the Third Circuit Court of
Appeals in March 1999. In June 1997, GAF Corporation filed a similar action
against the insurers in the Superior Court of New Jersey, Somerset County, which
8
<PAGE>
action is pending. While BMCA believes that its claims are meritorious, there
can be no assurance that BMCA will prevail in its efforts to obtain amounts
equal to, or in excess of, the estimated recoveries.
We believe that we will not sustain any liability for environmental
liabilities of GAF Building Materials Corporation other than those that we have
contractually assumed or that relate to the operations of our business. While we
cannot predict whether any claims for non-assumed environmental liabilities will
be asserted against us or our assets, or the outcome of any litigation relative
to such claims, we believe that we have meritorious defenses to such claims. In
addition, G-I Holdings and GAF Building Materials Corporation have jointly and
severally indemnified us with respect to such claims. G-I Holdings has advised
us that it believes it has and will have sufficient resources to enable it to
satisfy these indemnification obligations, if any. The possible consequences to
us of the failure of G-I Holdings and GAF Building Materials Corporation to
satisfy judgments against them in environmental-related lawsuits are described
in the last paragraph of "Bodily Injury Claims."
OTHER LITIGATION
Litigation is pending between us and Elk Corporation of Dallas ("Elk") in
the United States District Court for the Northern District of Texas relating to
certain aspects of our laminated shingles, which Elk claims infringe design and
utility patents issued to it. Elk also asserts that we have appropriated the
trade dress of Elk's product. Elk seeks injunctive relief, damages and
attorneys' fees. We have sued for a declaration that Elk's patents are invalid
and unenforceable and that our shingles do not infringe any of Elk's rights, and
have sought money damages for Elk's unfair competition. On October 10, 1997, the
court issued an opinion holding that Elk's design patent is unenforceable
because it was obtained through inequitable conduct. On February 11, 1999, the
United States Court of Appeals for the Federal Circuit affirmed the lower
court's ruling of enforceability. Elk filed a petition for rehearing on February
25, 1999. We believe that the petition will be denied, and that we will prevail
on Elk's remaining claims in the United States District Court.
On or about April 29, 1996, an action was commenced in the Circuit Court of
Mobile County, Alabama against GAF Building Materials Corporation on behalf of a
purported nationwide class of purchasers of, or current owners of, buildings
with certain asphalt shingles manufactured by GAF Building Materials
Corporation. The action alleges, among other things, that such shingles were
defective and seeks unspecified damages on behalf of the purported class. On
September 25, 1998, we agreed to settle this litigation on a national,
class-wide basis for asphalt shingles manufactured between January 1, 1973 and
December 31, 1997. The court has granted preliminary approval of the class-wide
settlement pending the outcome of a fairness hearing that was held on March 12,
1999. Under the terms of the settlement, we will provide property owners whose
shingles were manufactured during this period and which suffer certain damages
during the term of their original warranty period, and who file a qualifying
claim, with an opportunity to receive certain limited benefits beyond those
already provided in their existing warranty. In October and December 1998, the
separate actions commenced in 1997 in the Superior Court of New Jersey,
Middlesex County, the Superior Court of New Jersey, Passaic County and the
Supreme Court of the State of New York, County of Nassau, and in 1996 in Pointe
Coupee Parish, Louisiana, on behalf of purported classes alleging that our
shingles were defective and seeking unspecified damages, were stayed pending the
outcome of the fairness hearing on the settlement agreement in the Mobile
County, Alabama action.
In October 1998, GAF brought suit in the Superior Court of New Jersey,
Middlesex County, on behalf of itself and on our behalf, against certain of its
insurers for recovery of the defense costs in connection with the Mobile County,
Alabama class action and a declaration that the insurers are obligated to
provide indemnification for all damages paid pursuant to the settlement of this
class action and for other damages. This action is pending.
* * *
We believe 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
our liquidity, financial position or results of operations.
9
<PAGE>
TAX CLAIM AGAINST GAF CORPORATION
On September 15, 1997, GAF Corporation received a notice from the Internal
Revenue 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., a partnership in which GAF
Fiberglass holds an interest. The claim of the IRS for interest and penalties,
after taking into account the effect on the use of net operating losses and
foreign tax credits, could result in GAF Corporation incurring liabilities
significantly in excess of the deferred tax liability of $131.4 million that it
recorded in 1990 in connection with this matter. GAF Corporation has advised us
that it believes that it will prevail in this matter, although we cannot assure
you that will be the result. We believe that the ultimate disposition of this
matter will not have a material adverse effect on our business, financial
position or results of operations. GAF, G-I Holdings and certain subsidiaries of
GAF Corporation have agreed to jointly and severally indemnify us against any
tax liability associated with the surfactants partnership, for which we would be
severally liable, together with GAF Corporation and several current and former
subsidiaries of GAF Corporation, should GAF Corporation be unable to satisfy
this liability. The possible consequences to us of the failure of GAF
Corporation to satisfy this liability are described in the last paragraph of
"Bodily Injury Claims."
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 BMCA's common stock. As of March 19, 1999,
there were two holders of record of BMCA's Class A Common Stock and three
holders of record of its Class B Common Stock. See Item 12, "Security Ownership
of Certain Beneficial Owners and Management."
ITEM 6. SELECTED FINANCIAL DATA
See page F-8.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See page F-2.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Financial Condition--Market-Sensitive
Instruments and Risk Management" on page F-5.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index on page F-1 and Financial Statements and Supplementary Data on
pages F-10 to F-41.
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 BMCA,
Building Materials Manufacturing Corporation and Building Materials Investment
Corporation. Under the By-laws of each of these companies, each director and
executive officer continues in office until that Company's next annual meeting
of stockholders and until his successor is elected and qualified. On July 15,
1998, ISP merged with and into its parent, ISP Holdings Inc., and ISP Holdings
changed its name to International Specialty Products Inc. As used in this
section, "ISP" refers to both companies.
PRESENT PRINCIPAL OCCUPATION
NAME AND POSITION HELD(1)(2) AGE AND FIVE-YEAR EMPLOYMENT HISTORY
- -------------------------------- --- -----------------------------------------
Samuel J. Heyman ............... 60 Mr. Heyman has been a director and
Director and Chairman Chairman of BMCA since its formation.
He was Chief Executive Officer of BMCA
from June 1996 to January 1999 and has
been Chief Executive Officer of GAF
Building Materials Corporation since
May 1994. He has served as a director
and Chairman and Chief Executive
Officer of ISP since its formation and
has held the same offices with GAF
Corporation, G-I Holdings and certain
of its subsidiaries for more than five
years. Mr. Heyman 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 .................... 49 Mr. Kumar has been the President, Chief
Director, President and Chief Executive Officer and a director of
Executive Officer BMCA since July 1996, January 1999 and
May 1995, respectively. He also has
been Chief Executive Officer of
Building Materials Manufacturing and
Building Materials Investment since
January 1999 and President and a
director of such corporations since
their formation. He was Chief Operating
Officer of BMCA from March 1996 to
January 1999 and of Building Materials
Manufacturing and Building Materials
Investment from their formation to
January 1999. Mr. Kumar also was
President, Commercial Roofing Products
Division, and Vice President of BMCA
from February 1995 to March 1996. Mr.
Kumar has also served as a director of
GAF Corporation since January 1999.
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.
James P. Rogers ................ 48 Mr. Rogers has been a director of BMCA
Director and Executive since its formation and Executive Vice
Vice President President of BMCA since December 1996.
He also has been Executive Vice
President of Building Materials
Manufacturing and Building Materials
Investment since their formation.
Mr. Rogers has been Executive Vice
President and Chief Financial Officer
of GAF Corporation, G-I Holdings and
certain of its subsidiaries and
Executive Vice President--Finance of
ISP since December 1996. He was Senior
Vice President of BMCA from its
formation to December 1996 and of ISP
from November 1993 to December 1996.
Mr. Rogers was Treasurer of BMCA from
its formation until December 1994.
Mr. Rogers has served as Treasurer of
G-I Holdings, GAF Corporation and
certain of its subsidiaries since March
1992.
11
<PAGE>
Richard A. Weinberg ............ 39 Mr. Weinberg has been Executive Vice
Executive Vice President, President and General Counsel of BMCA
Secretary and General since May 1998 and was Senior Vice
Counsel President and General Counsel from May
1996 to May 1998. He also has been
Executive Vice President and General
Counsel of Building Materials
Manufacturing and Building Materials
Investment since their formation. He
was Senior Vice President and General
Counsel of GAF Corporation, G-I
Holdings, ISP and certain of their
subsidiaries from May 1996 to May 1998.
He has served as Executive Vice
President and General Counsel of these
companies since May 1998. 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 GAF Building Materials Corporation
from April 1993 to May 1994.
William C. Lang ................ 55 Mr. Lang has been Senior Vice President
Senior Vice President and and Chief Financial Officer of BMCA
Chief Financial Officer since April 1997. He also has held the
same position with Building Materials
Manufacturing and Building Materials
Investment since their formation. He
was Senior Vice President and Chief
Financial Officer of Duane Reade, a
regional drug store chain, from 1993 to
1996.
Kem Scott ...................... 50 Mr. Scott has been President and Chief
Senior Vice President and Operating Officer of U.S. Intec and
General Manager, Commercial Senior Vice President and General
Roofing Products, BMCA; Manager, Commercial Roofing Products of
President and Chief Operating BMCA since October 1998. He also has
Officer, U.S. Intec been Senior Vice President and General
Manager, Commercial Roofing Products of
Building Materials Manufacturing and
Building Materials Investment since
their formation. From 1973 to October
1998, Mr. Scott held various executive
positions with the Carlisle group of
companies, a manufacturer of
elastomeric roofing systems, including
President, Carlisle Syntec Systems and
most recently from July 1997 to October
1998, President of Carlisle Europe.
William W. Collins ............. 48 Mr. Collins has been Senior Vice
Senior Vice President-- President--Marketing and Sales,
Marketing and Sales, Residential Roofing Products of BMCA
Residential Roofing since November 1997. He also has held
Products the same position with Building
Materials Manufacturing and Building
Materials Investment since their
formation. He was Vice President--
Marketing and Sales, Commercial Roofing
Products of BMCA from March 1996 to
November 1997, Vice President--Sales,
Commercial of BMCA from December 1995
to March 1996, Director of Insulation,
Accessories and Cobra(Registered)
Products of BMCA from February 1995 to
December 1995 and Director of Special
Projects of BMCA from July 1992 to
February 1995.
12
<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 four other most highly compensated executive officers of BMCA as
of December 31, 1998. The salaries and other compensation of Messrs. Heyman,
Rogers and Weinberg for services provided by them to our company are paid by ISP
in accordance with a management agreement between ISP and our company.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
--------------------------
SECURITIES
ANNUAL COMPENSATION RESTRICTED UNDERLYING
-------------------------------- STOCK SARS (S)/ ALL OTHER
NAME AND PRINCIPAL POSITION(6) YEAR SALARY BONUS(1) AWARDS OPTIONS(O)(1) COMPENSATION
- -------------------------------- ------ -------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Samuel J. Heyman ............... 1998 (6) (6) (6) (6)
Chairman and Chief 1997 (6) (6) (6) (6)
Executive Officer 1996 (6) (6) (6) (6)
Sunil Kumar .................... 1998 $305,325 $250,000 $2,490,000(2) -- $1,444,887(2)
President and Chief 1997 293,550 256,238 7,609(O) 16,737(2)
Operating Officer 1996 274,500 165,000 2,190(O)/ 13,561(2)
8,609(S)(7)
William C. Lang ................ 1998 $207,083 $ 94,145 4,200(O) $ 17,465(3)
Senior Vice President and 1997 133,888(3) 87,094(3) 3,837(O)(3) 5,682(3)
Chief Financial Officer 1996 (3) (3) (3) (3)
Donald W. LaPalme .............. 1998 $169,575 $ 53,199 2,285(O) $ 15,812(4)
Senior Vice President-- 1997 162,481 55,601 3,612(O) 17,756(4)
Operations 1996 154,750 59,774 1,200(O) 14,519(4)
William W. Collins ............. 1998 $168,000 $ 69,871 3,000(O) $ 14,899(5)
Senior Vice 1997 148,242 57,497 8,218(O) 14,509(5)
President--Marketing & Sales, 1996 128,333 42,588 900(O) 12,092(5)
Residential Roofing Products
</TABLE>
- ------------------
(1) Bonus amounts are payable pursuant to BMCA's Executive Incentive
Compensation Program, except that a portion of the bonus amounts paid to Mr.
Lang in 1997 and 1998 and to Dr. LaPalme in 1998 represented special bonus
awards to those executive officers. The stock appreciation rights (S)
relate to shares of GAF Corporation common stock. The options (O) relate to
shares of redeemable convertible preferred stock of BMCA. See "--Options/
SARs".
(2) Included in "All Other Compensation" for Mr. Kumar are $11,450, $11,450 and
$10,750 representing BMCA's contribution under the GAF Capital Accumulation
Plan in 1998, 1997 and 1996, respectively; $3,316, $3,324 and $1,636 for the
premiums paid by BMCA for a life insurance policy in 1998, 1997 and 1996,
respectively; and $1,963, $1,963 and $1,175 for the premiums paid by BMCA
for a long-term disability policy in 1998, 1997 and 1996, respectively. In
connection with the July 1998 merger of ISP Holdings and ISP, all options to
purchase shares of redeemable convertible preferred stock of ISP Holdings
and stock appreciation rights relating to ISP Holdings common stock,
including options and stock appreciation rights held by Mr. Kumar, were
cancelled. In consideration for this cancellation, Mr. Kumar was granted
15,000 shares of Class A Common Stock of BMCA and 15,000 shares of Class B
Common Stock of BMCA and, subject to satisfaction of certain future vesting
requirements through December 2003 and to his remaining our employee at such
vesting periods, Mr. Kumar is entitled to receive cash payments of
$5,073,212 in the aggregate. Mr. Kumar received $1,428,158 of these cash
payments in 1998. Included in "Restricted Stock Awards" is the value of the
common stock granted to Mr. Kumar as of the date of grant. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Mr. Kumar was elected Chief Executive Officer of BMCA,
effective January 1, 1999.
(Footnotes continued on next page)
13
<PAGE>
(Footnotes continued from previous page)
(3) Included in "All Other Compensation" for Mr. Lang are $11,200 and $2,010,
representing BMCA's contribution under the GAF Capital Accumulation Plan in
1998 and 1997, respectively; $4,459 and $2,583 for the premiums paid by BMCA
for a life insurance policy in 1998 and 1997, respectively; and $1,806 and
$1,089 for the premiums paid on a long-term disability policy in 1998 and
1997, respectively. Mr. Lang commenced employment with us in April 1997.
(4) Included in "All Other Compensation" for Dr. LaPalme are: $9,442, $11,700,
and $11,000, representing BMCA's contribution under the GAF Capital
Accumulation Plan in 1998, 1997 and 1996, respectively; $5,022, $4,781 and
$2,754 for the premiums paid by BMCA for a life insurance policy in 1998,
1997 and 1996, respectively; and $1,348, $1,275 and $765 for the premiums
paid by BMCA for a long-term disability policy in 1998, 1997, and 1996,
respectively.
(5) Included in these amounts for Mr. Collins are: $11,450, $11,513 and $10,633,
representing BMCA's contribution under the GAF Capital Accumulation Plan in
1998, 1997 and 1996, respectively; $2,122, $1,884 and $849 for the premiums
paid by BMCA for a life insurance policy in 1998, 1997 and 1996,
respectively; and $1,327, $1,112 and $610 for the premiums paid by BMCA for
a long-term disability policy in 1998, 1997 and 1996, respectively.
(6) The salary and other compensation of Mr. Heyman are paid by ISP pursuant to
our management agreement with ISP. No allocation of compensation for
services to BMCA is made pursuant to the management agreement, except that
BMCA reimbursed ISP $115,351 and $133,989 under the management agreement in
respect of bonus amounts earned by Messrs. Rogers and Weinberg,
respectively, for 1997 in connection with services performed by them for
BMCA during that year. In addition, BMCA reimburses ISP, through payment of
the management fees payable under the management agreement, for the
estimated costs ISP incurs for providing the services of these officers. See
Item 13, "Certain Relationships and Related Transactions--Management
Agreement."
(7) Excluded are options to purchase redeemable preferred stock of ISP Holdings.
As described in Note 2 above, these options were cancelled in connection
with the July 1998 merger of ISP Holdings and ISP.
OPTIONS/SARS
The following table summarizes options ("BMCA Preferred Options") to
acquire BMCA's redeemable convertible preferred stock granted during 1998 to the
executive officers named in the Summary Compensation Table above and the
potential realizable value of BMCA Preferred Options held by such persons. No
BMCA Preferred Options were exercised by such persons in 1998.
BMCA PREFERRED STOCK OPTION GRANTS IN 1998(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL RATES
OF
BOOK VALUE
NUMBER OF SECURITIES % OF TOTAL OPTIONS APPRECIATION
UNDERLYING OPTIONS GRANTED TO EMPLOYEES --------------------
GRANTED IN FISCAL 1998 5% 10%
-------------------- -------------------- -------- --------
<S> <C> <C> <C> <C>
Sunil Kumar.......... -- -- -- --
William C. Lang...... 4,200 7.5% $100,902 $222,967
Donald W. LaPalme.... 2,285 4.0 54,895 121,305
William W. Collins... 3,000 5.3 72,073 159,262
</TABLE>
- ------------------
(1) The BMCA Preferred Options represent options to purchase shares of
redeemable convertible preferred stock of BMCA. Each share of preferred
stock is convertible, at the holder's option, into shares of Class A Common
Stock of BMCA at a formula price based on Book Value (as defined in the
option agreement) as of the date of grant. The BMCA Preferred Options vest
over five years from the date of
(Footnotes continued on next page)
14
<PAGE>
(Footnotes continued from previous page)
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
BMCA's option, for a redemption price equal to the exercise price per share
plus accrued and unpaid dividends. The Class A Common Stock of BMCA issuable
upon conversion of the preferred stock is subject to repurchase by BMCA
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 five-year period from the date of grant.
BMCA PREFERRED STOCK OPTIONS/GAF CORPORATION STOCK APPRECIATION RIGHTS AND
OPTIONS/SAR VALUES
AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED BMCA PREFERRED IN-THE-MONEY BMCA PREFERRED
OPTIONS(O)/GAF CORPORATION OPTIONS (O)/GAF CORPORATION
SARs(S)(1) AT 12/31/98 SARs(S) AT 12/31/98
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------- -------------------------- ---------------------------
<S> <C> <C>
Sunil Kumar.......... 5,521/12,289(S) $ 0/$ 0
2,836/6,963(O) 55,110/82,127(2)
William C. Lang...... 767/7,270(O) 6,799/27,545(2)
Donald W. LaPalme.... 1,442/5,655(O) 28,565/37,948(2)
William W. Collins... 2,184/9,934(O) 23,568/36,319(2)
</TABLE>
- ------------------
(1) The stock appreciation rights relating to GAF Corporation common stock
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 Corporation
over the determined initial book value per share of common stock of GAF
Corportion (adjusted for the separation transactions) and interest on such
book value at a specified rate. The GAF Corporation stock appreciation
rights 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.
(2) Options for 9,799, 3,837, 4,812 and 9,118 shares of preferred stock were
in-the-money for Messrs. Kumar, Lang, LaPalme and Collins, respectively, at
December 31, 1998.
COMPENSATION OF DIRECTORS
The directors of BMCA do not receive any compensation for their services as
such.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATIONS
Compensation decisions are determined by our Board of Directors, each
member of which is also one of our executive officers. Messrs. Rogers and Heyman
are also executive officers of ISP, and Mr. Heyman is a member of the Board of
Directors of ISP. See Item 13, "Certain Relationships and Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Approximately 98.5% of our outstanding Class A Common Stock is owned of
record by GAF Building Materials Corporation. All of the outstanding common
stock of GAF Building Materials Corporation is owned of record by G Industries
which is 100% owned by G-I Holdings, which in turn is 100% owned by GAF
Corporation. All of our outstanding Class B Common Stock is owned of record by
trusts for the benefit of the children of Mr. Kumar.
The following table sets forth information with respect to the ownership of
Common Stock, as of March 19, 1999, by each other person known to us to own
beneficially more than 5% of either class of the
15
<PAGE>
Common Stock outstanding on that date, by each of our directors and by all of
our executive officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF TOTAL VOTING
TITLE OF CLASS BENEFICIAL OWNER(1) OWNERSHIP CLASS POWER
- ----------------------- ---------------------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Class A Common Stock... Samuel J. Heyman 1,000,010 98.5%(2) 97.0%(2)
Sunil Kumar 15,000 1.5% 1.5%
All directors and executive
officers of BMCA as a
group (7 persons) 1,015,010 100.0%(2) 98.5%(2)
Class B Common Stock... Sunil Kumar 15,000(3) 100.0% 1.5%
All directors and executive
officers of BMCA as a
group (7 persons) 15,000(3) 100.0% 1.5%
</TABLE>
- ------------------
(1) The business address for each of Messrs. Heyman and Kumar is 1361 Alps Road,
Wayne, New Jersey 07470.
(2) The number of shares shown as being beneficially owned (as defined in
Rule 13d-3 of the Exchange Act) by Mr. Heyman and by all directors and
executive officers of the Company as a group attributes ownership of GAF
Building Materials Corporation's shares to Mr. Heyman. As of March 19, 1999,
Mr. Heyman beneficially owned (as defined in Rule 13d-3 of the Exchange Act)
approximately 97% of the capital stock of GAF Corporation.
(3) The shares of Class B Common Stock are owned of record by trusts for the
benefit of Mr. Kumar's children. Mr. Kumar disclaims beneficial ownership of
all of these shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENTS
Pursuant to a management agreement which expires December 31, 1999, ISP (of
which our Chairman, Samuel J. Heyman beneficially owns (as defined in Rule 13d-3
of the Exchange Act) approximately 76%) provides certain general management,
administrative, legal, telecommunications, information and facilities services
to us (including the use of our headquarters in Wayne, New Jersey). ISP charged
us $4.3 million in 1998 for providing these services. These charges consist of
management fees and other reimbursable expenses attributable to us, or incurred
by ISP for our benefit. They are based on an estimate of the costs ISP incurs to
provide such services. Effective January 1, 1999, the term of the management
agreement was extended through the end of 1999, and the management fees payable
under such agreement were increased. We also allocate a portion of the
management fees payable by us under the management agreement to separate lease
payments for the use of our headquarters. Based on the services provided by ISP
in 1998 under the management agreement, the aggregate amount payable by us to
ISP under the management agreement for 1999 is expected to be approximately
$5.3 million. Certain of our executive officers receive their compensation from
ISP. ISP is indirectly reimbursed for this compensation through payment of the
management fee and other reimbursable expenses payable under the management
agreement.
As of January 1, 1997, we entered into a separate management agreement with
GAF Fiberglass under which we provide certain general management, administrative
and financial services to GAF Fiberglass. Under the management agreement which
was renewed for 1999 and expires December 31, 1999, GAF Fiberglass is obligated
to pay us an annual management fee of $1.0 million.
Due to the unique nature of the services provided under the management
agreements, comparisons with third party arrangements are difficult. However, we
believe that the terms of each of the management agreements taken as a whole are
no less favorable to us than could be obtained from an unaffiliated third party.
16
<PAGE>
CERTAIN PURCHASES
We purchase all of our colored roofing granules requirements from ISP
(except for the requirements of our California and Oregon roofing plants and a
portion of the requirements of our Indiana roofing plant which are supplied by a
third party) under a requirements contract. Effective January 1, 1999, this
contract was amended to cover, among other things, purchases of colored roofing
granules by our subsidiaries and was renewed for 1999. This contract is subject
to annual renewal unless terminated by either party to such agreement. In 1997
and 1998, BMCA and its subsidiaries purchased in the aggregate approximately
$51.1 million and $62.6 million, respectively, of mineral products from ISP.
As part of the separation transactions involving GAF and its subsidiaries
in January 1997, we transferred to GAF Fiberglass our Nashville, Tennessee
facility. GAF Fiberglass manufactures a significant portion of our glass fiber
requirements pursuant to a supply agreement on terms which we believe are at
least as favorable to us as could be obtained from an unaffiliated third party.
In 1997 and 1998, we purchased approximately $24.5 million and $26.1 million,
respectively, of glass fiber from GAF Fiberglass.
TAX SHARING AGREEMENT
We have entered into a tax sharing agreement dated January 31, 1994 with
GAF Corporation and G-I Holdings with respect to the payment of federal income
taxes and certain related matters. During the term of the tax sharing agreement,
which is effective for the period during which we or any of our domestic
subsidiaries is included in a consolidated federal income tax return filed by
GAF Corporation, we are obligated to pay G-I Holdings an amount equal to those
federal income taxes we would have incurred if we (on behalf of ourselves and
our domestic subsidiaries) filed our own federal income tax return. Unused tax
attributes will carry forward for use in reducing amounts payable by us to G-I
Holdings in future years, but cannot be carried back. If we ever were to leave
the GAF Corporation consolidated tax group (the "GAF Group"), we would be
required to pay to G-I Holdings the value of any tax attributes to which we
would succeed under the consolidated return regulations to the extent such
attributes reduced the amounts otherwise payable by us under the tax sharing
agreement. Under certain circumstances, the provisions of the tax sharing
agreement could result in us having a greater liability under the agreement than
we would have had if we (and our domestic subsidiaries) had filed our own
separate federal income tax return. Under the tax sharing agreement, we and each
of our domestic subsidiaries are responsible for any taxes that would be payable
by reason of any adjustment to the tax returns of GAF Corporation or its
subsidiaries for years prior to the adoption of the tax sharing agreement that
relate to our business or assets or the business or assets of any of our
domestic subsidiaries. Although, as a member of the GAF Group, we are severally
liable for all federal income tax liabilities of the GAF Group, including tax
liabilities not related to our business, G-I Holdings and GAF Corporation have
agreed to indemnify us and our subsidiaries for all tax liabilities of the GAF
Group other than tax liabilities (1) arising from our operations and the
operations of our domestic subsidiaries and (2) for tax years pre-dating the tax
sharing agreement that relate to our business or assets and the business or
assets of any of our 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 Corporation
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 we would have incurred if we filed our own separate federal
income tax return and the fact that we are a member of the GAF Group for federal
income tax purposes.
INTERCOMPANY BORROWINGS
BMCA makes loans to, and borrows from, G-I Holdings and its subsidiaries
from time to time at prevailing market rates (between 5.82% and 5.96% per annum)
during 1997 and 1998. The highest amount of loans made by BMCA to G-I Holdings
during 1997 and 1998 was $6.2 million. No loans were made to BMCA by G-I
Holdings and its subsidiaries during 1997 and 1998. As of December 31, 1998, no
loans were owed to BMCA by G-I Holdings, and no loans were owed by BMCA to
affiliates. In addition, BMCA makes non-interest bearing advances to affiliates,
of which $1.5 million were outstanding at December 31, 1998.
17
<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:
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------------------------
2.1 -- Reorganization Agreement, dated as of December 31, 1998, by and
among BMCA, Building Materials Manufacturing Corporation and
Building Materials Investment Corporation (incorporated by
reference to Exhibit 2.1 to BMCA's Registration Statement on
Form S-4 (Registration No. 333-69749) (the "2008 Notes S-4")).
3.1 -- Certificate of Incorporation of BMCA (incorporated by reference to
Exhibit 3.1 to BMCA's Form 10-Q for the quarter ended September
27, 1998).
3.2 -- By-laws of BMCA (incorporated by reference to Exhibit 3.2 to
BMCA's Registration Statement on Form S-4 (Registration
No. 33-81808)) (the "Deferred Coupon Note Registration
Statement").
3.3 -- Certificate of Incorporation of Building Materials Manufacturing
Corporation.
3.4 -- By-laws of Building Materials Manufacturing Corporation.
3.5 -- Certificate of Incorporation of Building Materials Investment
Corporation.
3.6 -- By-laws of Building Materials Investment Corporation.
4.1 -- Indenture, dated as of December 3, 1998, between BMCA and The Bank
of New York, as trustee (incorporated by reference to Exhibit 4.1
to the 2008 Notes S-4).
4.2 -- First Supplemental Indenture dated as of January 1, 1999 to
Indenture dated as of December 3, 1998 among BMCA, as issuer,
Building Materials Manufacturing Corporation and Building
Materials Investment Corporation, as guarantors and The Bank of
New York, as trustee (incorporated by reference to Exhibit 4.4 to
the 2008 Notes S-4).
4.3 -- Registration Rights Agreement, dated December 3, 1998, between
BMCA, Bear, Stearns & Co. Inc. and Chase Securities, Inc.
(incorporated by reference to Exhibit 4.3 to the 2008 Notes S-4).
4.4 -- 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).
4.5 -- 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 Statement on Form S-4 (Registration
No. 333-20859) (the "2006 Notes Registration Statement")).
4.6 -- Indenture, dated as of October 20, 1997, between BMCA and The Bank
of New York, as trustee (incorporated by reference to Exhibit 4.1
to BMCA's Registration Statement on Form S-4 (Registration
No. 333-41531) (the "8% Notes Registration Statement")).
4.7 -- Indenture, dated as of July 17, 1998, between BMCA and The Bank of
New York, as trustee (incorporated by reference to Exhibit 4.1 to
BMCA's Registration Statement on Form S-4 (Registration No.
333-60633) (the "2005 Notes S-4")).
4.8 -- First Supplemental Indenture, dated as of November 30, 1998, to
Indenture dated as of June 30, 1994 between BMCA as issuer and
The Bank of New York, as trustee (incorporated by reference to
Exhibit 10.5 to the 2008 Notes S-4).
4.9 -- Second Supplemental Indenture, dated as of January 1, 1999, to
Indenture dated as of June 30, 1994, as previously amended, among
BMCA, as issuer, Building Materials Manufacturing Corporation and
Building Materials Investment Corporation, as guarantors and The
Bank of New York, as trustee (incorporated by reference to
Exhibit 10.6 to the 2008 Notes S-4).
18
<PAGE>
4.10 -- First Supplemental Indenture, dated as of January 1, 1999, to
Indenture dated as of December 9, 1996 among BMCA, as issuer,
Building Materials Manufacturing Corporation and Building
Materials Investment Corporation, as guarantors and The Bank of
New York, as trustee (incorporated by reference to Exhibit 10.7 to
the 2008 Notes S-4).
4.11 -- First Supplemental Indenture, dated as of January 1, 1999, to
Indenture dated as of October 20, 1997 among BMCA, as issuer,
Building Materials Manufacturing Corporation, as co-obligor,
Building Materials Investment Corporation, as Guarantor and The
Bank of New York, as trustee (incorporated by reference to
Exhibit 10.8 to the 2008 Notes S-4).
4.12 -- First Supplemental Indenture, dated as of January 1, 1999, to
Indenture dated as of July 17, 1998 among BMCA, as issuer,
Building Materials Manufacturing Corporation and Building
Materials Investment Corporation, as guarantors and The Bank of
New York, as trustee (incorporated by reference to Exhibit 10.9 to
the 2008 Notes S-4).
10.1 -- Amended and Restated Management Agreement, dated as of January 1,
1999, among GAF, G-I Holdings, G Industries, Merick Inc.,
GAF Fiberglass, ISP, GAF Building Materials Corporation, GAF
Broadcasting Company, Inc., BMCA and ISP Opco Holdings Inc.
10.2 -- Form of Option Agreement relating to Series A Cumulative
Redeemable Convertible Preferred Stock (incorporated by reference
to Exhibit 10.9 to BMCA's Form 10-K for the year ended
December 31, 1996 (the "1996 Form 10-K")).*
10.3 -- Forms of Amendment to Option Agreement relating to Series A
Cumulative Redeemable Convertible Preferred Stock (incorporated by
reference to Exhibit 10.12 to BMCA's Form 10-K for the year ended
December 31, 1997 (the "1997 Form 10-K")).*
10.4 -- Form of Option Agreement relating to Series A Cumulative
Redeemable Preferred Stock (incorporated by reference to
Exhibit 10.13 to the 1997 Form 10-K).*
10.5 -- BMCA Preferred Stock Option Plan (incorporated by reference to
Exhibit 4.2 to BMCA's Form S-8).*
10.6 -- Tax Sharing Agreement, dated as of January 31, 1994, among GAF,
G-I Holdings and BMCA (incorporated by reference to Exhibit 10.6
to the Deferred Coupon Note Registration Statement).
10.7 -- Reorganization Agreement, dated as of January 31, 1994, among GAF
Building Materials Corporation, G-I Holdings and BMCA
(incorporated by reference to Exhibit 10.9 to the Deferred Coupon
Note Registration Statement).
10.8 -- Stock Appreciation Right Agreement, dated January 1, 1997, between
GAF Corporation and Sunil Kumar (incorporated by reference to
Exhibit 10.11 to the 1996 Form 10-K).*
10.9 -- 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 the 1996
Form 10-K).*
10.10 -- Letter Agreement, dated July 8, 1998, among BMCA, ISP Holdings and
Sunil Kumar (incorporated by reference to Exhibit 10.18 to the
2005 Notes S-4).*
21 -- Subsidiaries of BMCA (incorporated by reference to Exhibit 21 to
the 2008 Notes S-4).
23 -- Consent of Arthur Andersen LLP.
27 -- Financial Data Schedule for fiscal year 1998, which is submitted
electronically to the Securities and Exchange Commission for
information only.
- ------------------
* Management and/or compensation plan or arrangement.
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the fourth quarter of 1998.
19
<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
By: /s/ WILLIAM C. LANG
-------------------------------------
William C. Lang
Senior Vice President and Chief
Financial Officer
Date: March 30, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
- -------------------- ---------------------------------------- --------------
/s/ SAMUEL J. HEYMAN Chairman of the Board and Director March 30, 1999
- --------------------
Samuel J. Heyman
/s/ SUNIL KUMAR President, Chief Executive Officer and March 30, 1999
- -------------------- Director (Principal Executive Officer)
Sunil Kumar
/s/ JAMES P. ROGERS Executive Vice President and Director March 30, 1999
- --------------------
James P. Rogers
/s/ WILLIAM C. LANG Senior Vice President and Chief March 30, 1999
- -------------------- Financial Officer (Principal Financial
William C. Lang and Accounting Officer)
20
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANTS HAVE DULY CAUSED THIS REPORT TO BE SIGNED
ON THEIR BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
BUILDING MATERIALS MANUFACTURING CORPORATION
BUILDING MATERIALS INVESTMENT CORPORATION
By: /s/ WILLIAM C. LANG
-------------------------------
William C. Lang
Senior Vice President and Chief
Financial Officer
Date: March 30, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANTS AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
- -------------------- ---------------------------------------- --------------
/s/ SUNIL KUMAR President, Chief Executive Officer and March 30, 1999
- -------------------- Director (Principal Executive Officer)
Sunil Kumar
/s/ WILLIAM C. LANG Senior Vice President and Chief March 30, 1999
- -------------------- Financial Officer (Principal Financial
William C. Lang and Accounting Officer)
21
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
FORM 10-K
INDEX TO MANAGEMENT'S DISCUSSION AND ANALYSIS, CONSOLIDATED
FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... F-2
Selected Financial Data.................................................................................... F-8
Report of Independent Public Accountants................................................................... F-9
Consolidated Statements of Operations for the three years ended December 31, 1998.......................... F-10
Consolidated Balance Sheets as of December 31, 1997 and 1998............................................... F-11
Consolidated Statements of Cash Flows for the three years ended December 31, 1998.......................... F-12
Consolidated Statements of Stockholders' Equity for the three years ended December 31, 1998................ F-14
Notes to Consolidated Financial Statements................................................................. F-15
Supplementary Data (Unaudited):
Quarterly Financial Data (Unaudited)..................................................................... F-41
SCHEDULES
Consolidated Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts........................................................... S-1
</TABLE>
F-1
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Building Materials Corporation of America (the "Company"), an indirect
subsidiary of GAF Corporation ("GAF") and G-I Holdings Inc. ("G-I Holdings"),
was formed in January 1994 to acquire the operating assets and certain
liabilities of GAF Building Materials Corporation ("GAFBMC"), the Company's
parent. See Note 1 to Consolidated Financial Statements.
RESULTS OF OPERATIONS
1998 Compared With 1997
The Company recorded a net loss in 1998 of $10.6 million compared with net
income of $26.1 million in 1997. The net loss in 1998 reflected the impact of
$27.6 million of pre-tax nonrecurring charges ($17.1 million after-tax impact)
and after-tax extraordinary charges of $18.1 million. Excluding the effect of
these charges, the Company's results reflected higher operating and other
income, partially offset by increased interest expense.
Net sales for 1998 were $1.088 billion, a 15.2% increase over net sales for
1997 of $944.6 million, principally due to increased sales in the residential
roofing product line and the acquisition of the Leslie-Locke business in June
1998 (see Note 4 to Consolidated Financial Statements), partially offset by
lower sales in the commercial roofing product line. The increase in residential
sales resulted from higher unit volumes and average selling prices, while the
commercial roofing product line experienced declines in both unit volumes and
average selling prices.
The Company recorded pre-tax nonrecurring charges in 1998 aggregating
$27.6 million, of which $20.0 million related to the settlement of a national
class action lawsuit involving asphalt shingles manufactured between January 1,
1973 and December 31, 1997. Under the terms of the September 1998 settlement,
which has been granted preliminary approval by the court pending the outcome of
a fairness hearing, the Company will provide property owners whose GAF shingles
were manufactured during this period and which suffer certain damages during the
term of their original warranty period, and who file a qualifying claim, with an
opportunity to receive certain limited benefits beyond those already provided in
their existing warranty. If the court grants final approval of this settlement,
the settlement will resolve a class action filed against GAFBMC in Mobile
County, Alabama. Several other class action lawsuits that had been brought
against GAFBMC in 1996 and 1997 were stayed pending final approval of the Mobile
County, Alabama class action. Each of these lawsuits had alleged that certain
GAF shingles were defective and sought unspecified damages. The Company agreed
to the settlement, payments against which will be made over a number of years,
to avoid the expense required to defend such litigation. The Company believes
the court will grant final approval of the settlement, although there can be no
assurance in that regard. If the court does not grant final approval and the
settlement agreement is rendered inoperable, the Mobile County, Alabama action
would continue as if no settlement agreement had existed. In addition, the stays
of the other class actions could be lifted and those actions could continue. In
that event, the Company would reverse the pre-tax nonrecurring charge of
$20.0 million related to the settlement. In July 1998, the Company recorded a
pre-tax nonrecurring charge of $7.6 million related to a grant to its President
and Chief Executive Officer of 30,000 shares of restricted common stock of the
Company and related cash payments to be made over a specified period of time
(substantially all of which is earned) in connection with the termination by an
affiliate of preferred stock options and stock appreciation rights held by such
officer.
Operating income, before the impact of the nonrecurring charges, was
$73.5 million for 1998, a 4.9% increase over the $70.1 million recorded in 1997.
This increase in operating income was primarily attributable to improved gross
profit margins due to increased plant capacity utilization and the inclusion of
the Leslie-Locke business since its acquisition in June 1998. Partially
offsetting these improvements were higher distribution costs due to rail carrier
service problems in the first nine months of 1998, and higher selling, general
and administrative expenses resulting from broader marketing efforts.
Interest expense increased from $42.8 million in 1997 to $49.7 million in
1998, primarily due to higher debt levels, partially offset by lower average
interest rates. The lower average interest rates resulted from the
F-2
<PAGE>
refinancing of $279.7 million in aggregate principal amount at maturity of the
Company's 11 3/4% Senior Deferred Coupon Notes due 2004 (the "Deferred Coupon
Notes") with substantially all of the net proceeds from the issuances of the
7 3/4% Senior Notes due 2005 (the "2005 Notes") and 8% Senior Notes due 2008
(the "2008 Notes") on July 17 and December 3, 1998, respectively. See the
discussion below under Liquidity and Financial Condition. In connection with
these transactions, the Company recorded after-tax extraordinary losses of
$18.1 million, related to premiums paid to purchase the Deferred Coupon Notes.
Other income, net, was $15.9 million in 1998 compared with $15.5 million in
1997, with the improvement due primarily to the absence of a $3.0 million
provision recorded in 1997 for estimated obligations related to product warranty
claims for a discontinued product, and lower other miscellaneous expenses,
partially offset by $4.2 million lower investment income.
1997 Compared With 1996
The Company recorded net income in 1997 of $26.1 million compared with net
income of $17.1 million in 1996. The 53.0% increase in net income was
attributable to higher operating and other income, partially offset by higher
interest expense.
Net sales for 1997 increased $92.7 million, or 10.9%, to $944.6 million
compared with $852.0 million in 1996. The sales growth reflected increased unit
volumes of both the residential and commercial roofing product lines, as well as
the sales of the Leatherback Industries business of $30.2 million, which was
acquired in March 1997.
Gross profit margin increased to 27.3% in 1997 compared with 27.0% in 1996,
resulting primarily from lower manufacturing costs and improved product mix.
Selling, general and administrative expenses increased 11.4% to $185.7 million
in 1997 from $166.7 million in 1996, primarily reflecting increased costs of
distribution. Selling, general and administrative expenses as a percentage of
net sales increased slightly from 19.6% in 1996 to 19.7% in 1997.
Operating income in 1997 was $70.1 million, an increase of $8.7 million, or
14.2%, compared with $61.4 million in 1996. The increase in operating income was
attributable to the higher sales levels and improved margins.
Interest expense was $42.8 million in 1997 compared with $32.0 million in
1996 due to higher debt levels, primarily resulting from the issuance in
December 1996 of $100 million in aggregate principal amount of 8 5/8% Senior
Notes due 2006 (the "8 5/8% Notes") and the issuance in October 1997 of
$100 million in aggregate principal amount of 8% Senior Notes due 2007 (the
"2007 Notes").
Other income, net, was $15.5 million in 1997 compared with other expense,
net, of $1.5 million in 1996. The improvement was due principally to
$20.0 million higher investment income, partially offset by a $3.0 million
provision for estimated obligations related to product warranty claims for a
discontinued product.
LIQUIDITY AND FINANCIAL CONDITION
Net cash inflow during 1998 was $61.6 million before financing activities,
and included $88.0 million of cash generated from operations, the reinvestment
of $71.1 million for capital programs, acquisitions of $59.2 million, including
the acquisition of the Leslie-Locke business for $43.5 million, proceeds of
$29.0 million from the sale of the Company's perlite insulation manufacturing
assets, and the generation of $74.9 million from net sales of available-for-sale
and held-to-maturity securities.
Cash invested in additional working capital totaled $27.9 million during
1998, primarily reflecting increases in accounts payable and accrued liabilities
of $40.4 million, partially offset by a $10.9 million increase in inventories
and a $4.0 million increase in receivables. Accrued liabilities, including the
reserve for product warranty claims, increased by $40.7 million to
$80.1 million as a result of additional accrued interest payable, increases in
accrued distribution costs and other plant operating accruals and due to the
$8.6 million short-term portion of the $27.6 million of nonrecurring charges.
Cash from operating activities also reflected a $42.2 million cash inflow from
related party transactions as a result of repayments of advances which were made
by the Company in 1997, a $64.3 million cash outflow for net purchases of
trading securities and $17.4 million of cash
F-3
<PAGE>
inflow from an increase in other liabilities and other operating activities,
mainly reflecting $19.0 million of the nonrecurring charges and $6.6 million of
net unrealized losses on trading securities and other short-term investments.
Net cash used in financing activities totaled $49.5 million in 1998. The
Company generated $303.5 million from the issuances in 1998 of the 2005 Notes
and the 2008 Notes and $6.2 million from the repayment of a loan by a related
party. Offsetting such cash inflows was $287.9 million of repayments of
long-term debt, principally the repurchase of $279.7 million in aggregate
principal amount at maturity of the Deferred Coupon Notes, a $34.0 million
paydown of borrowings under the Company's bank credit facility, a $26.9 million
paydown of short-term borrowings, and $6.1 million of financing fees and
expenses.
As a result of the foregoing factors, cash and cash equivalents increased
by $12.1 million during 1998 to $25.0 million, excluding $180.6 million of
trading, available-for-sale and held-to-maturity securities and other short-term
investments.
In December 1998, the Company issued $155 million in aggregate principal
amount of the 2008 Notes and used substantially all of the net proceeds from
such issuance to purchase, and subsequently cancel, $147.1 million in aggregate
principal amount at maturity of the Deferred Coupon Notes.
In July 1998, the Company issued $150 million in aggregate principal amount
of the 2005 Notes and used substantially all of the net proceeds from such
issuance to purchase, and subsequently cancel, $132.6 million in aggregate
principal amount at maturity of the Deferred Coupon Notes.
The Company's bank credit facilities were replaced in August 1997 with a
new three-year, $75 million facility (the "Credit Agreement"). The terms of the
Credit Agreement provide for a $75 million unsecured revolving credit facility,
the full amount of which is available for letters of credit, provided that total
borrowings and outstanding letters of credit may not exceed $75 million in the
aggregate. As of December 31, 1998, no borrowings were outstanding under the
Credit Agreement and $29.9 million of letters of credit were outstanding. Under
the terms of the Credit Agreement, the Company is subject to certain financial
covenants, including interest coverage and leverage ratios, and dividends and
other restricted payments are limited. The Company was in compliance with such
covenants as of December 31, 1998.
Additional borrowings by the Company are subject to certain covenants
contained in the indentures relating to the 8 5/8% Notes, the 2007 Notes, the
2005 Notes, the 2008 Notes (collectively, the "Other Senior Notes"), the
Deferred Coupon Notes and the Credit Agreement. The Company is currently limited
by certain of these covenants from incurring additional debt, except under
certain limited circumstances including under the Credit Agreement and the
refinancing of existing debt.
The objectives of the Company in utilizing interest rate swap agreements
("swaps") are to lower funding costs, diversify sources of funding and manage
interest rate exposure. In June 1998, the Company terminated its outstanding
swaps related to its Deferred Coupon Notes with an aggregate ending notional
principal amount of $60.0 million, resulting in gains of $0.7 million. The gains
have been deferred and are being amortized as a reduction of interest expense
over the remaining original life of the swaps. By utilizing swaps, the Company
reduced its interest expense by $2.2, $2.0, and $1.9 million in 1996, 1997 and
1998, respectively. See Note 10 to Consolidated Financial Statements.
See Note 10 to Consolidated Financial Statements for further information
regarding the debt instruments of the Company.
Upon its formation on January 31, 1994, the Company assumed the first
$204.4 million of GAFBMC's liabilities relating to then-pending cases and
previously settled asbestos-related bodily injury cases, all of which were paid
as of March 30, 1997. See Item 3, "Legal Proceedings" for further information
regarding asbestos-related matters. At December 31, 1998, the Company had total
outstanding consolidated indebtedness of $592.7 million, of which $4.3 million
matures prior to December 31, 1999, and stockholders' equity of $44.9 million.
The Company anticipates funding such obligations from its cash and investments,
operations and/or borrowings, which may include borrowings from affiliates.
In March 1993, the Company 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 the
F-4
<PAGE>
Company based on eligible receivables outstanding from time to time. In November
1996, the Company repurchased the receivables sold pursuant to the 1993
agreement and sold them to a special purpose subsidiary of the Company, 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 the Company based
on eligible receivables outstanding from time to time. This facility expires in
December 2001.
The Company makes loans to, and borrows from, G-I Holdings and its
subsidiaries at prevailing market rates. As of December 31, 1998, no loans were
owed to the Company by G-I Holdings and no loans were owed by the Company to
affiliates. In addition, the Company makes non-interest bearing advances to
affiliates, of which $1.5 million were outstanding at December 31, 1998.
The parent corporations of the Company are essentially holding companies
without independent businesses or operations and, as such, are presently
dependent upon the cash flows of their subsidiaries, principally the Company, in
order to satisfy their obligations, including asbestos-related claims and
certain potential tax liabilities including tax liabilities relating to
Rhone-Poulenc Surfactants & Specialties, L.P., a Delaware limited partnership
which operates, among other businesses, GAF Fiberglass Corporation's ("GFC")
former surfactants chemicals business. The parent corporations of the Company
are GAF, G-I Holdings, G Industries Corp. and GAFBMC. Except for the Company,
the only significant asset of such parent corporations is GFC. GAF has advised
the Company that it expects to obtain funds to satisfy such obligations from,
among other things, dividends and loans from subsidiaries, principally the
Company, and from payments pursuant to the Tax Sharing Agreement between GAF and
the Company. The indentures relating to the Deferred Coupon Notes, the Other
Senior Notes and the Credit Agreement contain restrictions on the amount of
dividends, loans and other restricted payments, as defined therein, which may be
paid by the Company. As of December 31, 1998, after giving effect to the most
restrictive of the aforementioned restrictions, the Company could have paid
dividends and other restricted payments of up to $79.4 million. The Company does
not believe that the dependence of its parent corporations on the cash flows of
their subsidiaries should have a material adverse effect on the operations,
liquidity or capital resources of the Company. For further information, see
Notes 3, 6, 10, 14 and 15 to Consolidated Financial Statements.
The Company uses capital resources to maintain existing facilities, expand
its operations and make acquisitions. In 1999, the Company expects to build a
new fiberglass roofing mat manufacturing facility in Shafter, California and a
new residential roofing shingle manufacturing facility in Michigan City,
Indiana. Funding for the Company's capital program is expected to be generated
from results of operations, additional borrowings and leasing transactions.
The Company does not believe that inflation has had an 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.
Market-Sensitive Instruments and Risk Management
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 2 to Consolidated Financial Statements.
The Company enters into financial instruments in the ordinary course of
business in order to manage its exposure to market fluctuations in interest
rates and on its short-term investments. The financial instruments the Company
employs to reduce market risk include swaps, futures, and other hedging
instruments. The financial instruments are primarily used to hedge the Company's
debt and short-term investment portfolios. The counterparties to these financial
instruments are major financial institutions with high credit standings. The
amounts subject to credit risk are generally limited to the amounts, if any, by
which the counterparties' obligations exceed the obligations of the Company. The
Company controls credit risk through credit approvals,
F-5
<PAGE>
limits and monitoring procedures. The Company does not anticipate nonperformance
by counterparties to these instruments.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
----------------- -----------------
NOTIONAL FAIR NOTIONAL FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
(MILLIONS)
<S> <C> <C> <C> <C>
Equity-related financial instruments... $ -- $ -- $178.4 $ 0
Interest rate financial instruments.... $ 60.0 $3.1 $ -- $ --
</TABLE>
All of the financial instruments in the above table have a maturity of less
than one year.
In connection with the Deferred Coupon Notes, the Company entered into
fixed to floating interest rate swaps in order to balance out the Company's mix
of fixed and floating rate debt. As a result of the swaps, the effective
interest cost to the Company on the portion of the Deferred Coupon Notes covered
by the swaps varied at a fixed spread over LIBOR. The swaps had a notional
principal amount of $60 million and a final maturity of July 1, 1999, all of
which were terminated as of June 28, 1998.
As of December 31, 1998, equity-related financial instruments employed by
the Company to reduce market risk include long contracts valued at $35.2 million
and short contracts valued at $143.2 million, which are marked-to-market each
month, with unrealized gains and losses included in the results of operations.
As such, there is no economic cost at December 31, 1998 to terminate these
instruments and therefore the fair market value is zero.
Year 2000 Compliance
The Company has implemented a Year 2000 program (i) to address its Year
2000 issues, i.e., the inability by some IT and non-IT equipment, including
embedded technology, to accurately read and process certain dates in the Year
2000 and afterwards, (ii) to investigate the Year 2000 issues of third parties
significant to the Company's business, and (iii) to establish contingency plans
where appropriate.
The Company has completed an internal study and believes that it has
remediated substantially all of its core systems. The Company has also evaluated
and believes that it has remediated subtantially all of its personal computers,
mainframe computers and its computer network. The Company believes that the core
IT systems remediation has corrected Year 2000 programming issues in all
critical areas of the Company's business.
In addition, the Company is working with outside consultants to certify the
compliance of the Company's core systems with externally developed and published
certification standards. The Company expects to complete this certification by
the third quarter of 1999. The Company's independent third party consultants
have inventoried and evaluated substantially all of the Company's non-IT
equipment, i.e., voice mail, telephone, fire and security systems and
numerically controlled production machinery and computer-based production
equipment, and the Company is in the process of remediating and testing this
equipment. The Company expects to complete these activities by the second
quarter of 1999.
The Company has requested compliance information in the form of direct
questionnaires from vendors significant to the Company's business and is
planning to solicit compliance information from its significant customers. The
Company expects to complete this solicitation by June 1999. When appropriate, a
lack of a response to these questionnaires is being followed by additional
correspondence and finally direct contact. The Company has received compliance
information from substantially all of its key vendors. Each of these vendors has
advised the Company that they are or expect to be ready for the Year 2000 by the
end of 1999. The Company is evaluating these responses and is requesting more
information where appropriate to help the Company formulate contingency plans,
including the identification of secondary suppliers, to minimize the impact of
any Year 2000 related issues that may develop. The Company expects this phase of
evaluation to be completed by June 1999.
The Company does not believe the costs of its Year 2000 program will be
material to its financial position or results of operations. The Company has
incurred outside costs of approximately $650,000 to date and anticipates
F-6
<PAGE>
that additional outside costs should approximate no more than $1 million in the
aggregate. The Company will charge these costs, as incurred, against results of
operations.
Management believes it has taken reasonable steps in developing its Year
2000 program. Notwithstanding these actions, there can be no assurance that all
of the Company's Year 2000 issues or those of its key suppliers, service
providers or customers will be resolved or addressed satisfactorily before the
Year 2000 commences. Management believes that the most reasonably likely "worst
case scenario" resulting from Year 2000 issues could be the failure by the
Company's key suppliers, service providers, customers and other third parties to
address their Year 2000 issues. If this were to occur, then the Company's usual
channels of supply and distribution could be disrupted and the Company could
experience a material adverse impact on its business, results of operations or
financial position.
* * *
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains both historical and
forward-looking statements. All statements other than statements of historical
fact are, or may be deemed to be, forward-looking statements within the meaning
of section 27A of the Securities Act of 1933 and section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are only predictions and
generally can be identified by use of statements that include phrases such as
"believe," "expect," "anticipate," "intend," "plan," "foresee" or other words or
phrases of similar import. Similarly, statements that describe the Company's
objectives, plans or goals also are forward-looking statements. The Company's
operations are subject to certain risks and uncertainties that could cause
actual results to differ materially from those contemplated by the relevant
forward-looking statement. The forward-looking statements included herein are
made only as of the date of this Annual Report on Form 10-K and the Company
undertakes no obligation to publicly update such forward-looking statements to
reflect subsequent events or circumstances. No assurances can be given that
projected results or events will be achieved.
F-7
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
SELECTED FINANCIAL DATA
Set forth below are selected consolidated financial data of the Company.
The historical financial information gives effect to the formation of the
Company as if it had occurred on January 1, 1994 and the Company's financial
statements have been prepared on a basis which retroactively reflects the
formation of the Company at the beginning of the periods presented, except that
the Company's assumption of the first $204.4 million of liability relating to
pending and previously settled asbestos-related bodily injury cases and related
income tax benefits of $79.7 million have been reflected as a charge of
$124.7 million to stockholder's equity upon the Company's formation as of
January 31, 1994. As of January 1, 1997, U.S. Intec, Inc. ("U.S. Intec") became
a subsidiary of the Company through a capital contribution to the Company by G-I
Holdings. Accordingly, the Company's historical consolidated financial
statements include U.S. Intec's results of operations and cash flows from the
date of its acquisition by G-I Holdings (October 20, 1995), including sales of
$21.8 and $99.0 million for the years ended December 31, 1995 and 1996,
respectively, and net income (loss) of $(0.5) and $1.3 million, respectively.
See Note 1 to Consolidated Financial Statements. The results for the year 1997
include the results of the Leatherback Industries business from the date of its
acquisition (March 14, 1997), including sales of $30.2 million. The results for
the year 1998 include the results of the Leslie-Locke business from the date of
its acquisition (June 1, 1998), including sales of $53.3 million.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------ --------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales.................................................... $593.1 $687.2 $852.0 $944.6 $1,088.0
Operating income............................................. 44.7 45.9 61.4 70.1 46.0
Interest expense............................................. 13.1 24.8 32.0 42.8 49.7
Income before income taxes and extraordinary losses.......... 27.8 16.5 27.9 42.8 12.2
Income before extraordinary losses........................... 16.7 10.1 17.1 26.1 7.6
Net income (loss)............................................ 16.7 10.1 17.1 26.1 (10.6)
<CAPTION>
DECEMBER 31,
------------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------ --------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total working capital........................................ $ 36.2 $ 54.6 $247.3 $284.8 $ 220.7
Total assets................................................. 452.3 559.3 701.6 807.3 847.5
Long-term debt less current maturities....................... 229.2 310.3 405.7 555.4 588.4
Stockholders' equity (deficit)............................... (28.9) 15.8 143.2 83.0 44.9
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------ --------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Other Data:
Depreciation................................................. $ 16.8 $ 20.3 $ 23.9 $ 22.9 $ 26.6
Goodwill amortization........................................ 1.1 1.2 1.7 1.9 2.1
Capital expenditures and acquisitions........................ 54.3 54.1 25.6 77.7 130.3
</TABLE>
F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Building Materials Corporation of America:
We have audited the accompanying consolidated balance sheets of Building
Materials Corporation of America (a Delaware corporation and a 97%-owned
subsidiary of GAF Building Materials Corporation) and subsidiaries as of
December 31, 1997 and 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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-10 to F-40 of this Form 10-K, present fairly, in all material respects,
the financial position of Building Materials Corporation of America and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, 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 schedule appearing on page S-1 of
this Form 10-K is presented for the purpose of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states 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
February 12, 1999
F-9
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
-------- -------- ----------
(THOUSANDS)
<S> <C> <C> <C>
Net sales.................................................................. $851,967 $944,629 $1,087,957
-------- -------- ----------
Costs and expenses:
Cost of products sold.................................................... 622,234 686,992 776,908
Selling, general and administrative...................................... 166,706 185,653 235,416
Goodwill amortization.................................................... 1,664 1,891 2,111
Nonrecurring charges..................................................... -- -- 27,563
-------- -------- ----------
Total costs and expenses................................................. 790,604 874,536 1,041,998
-------- -------- ----------
Operating income........................................................... 61,363 70,093 45,959
Interest expense........................................................... (32,044) (42,784) (49,674)
Other income (expense), net................................................ (1,455) 15,462 15,895
-------- -------- ----------
Income before income taxes and extraordinary losses........................ 27,864 42,771 12,180
Income taxes............................................................... (10,809) (16,680) (4,628)
-------- -------- ----------
Income before extraordinary losses......................................... 17,055 26,091 7,552
Extraordinary losses, net of income tax benefits of $11,101................ -- -- (18,113)
-------- -------- ----------
Net income (loss).......................................................... $ 17,055 $ 26,091 $ (10,561)
-------- -------- ----------
-------- -------- ----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-10
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
(THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................................... $ 12,921 $ 24,987
Investments in trading securities....................................................... 62,059 95,134
Investments in available-for-sale securities............................................ 161,290 56,461
Investments in held-to-maturity securities.............................................. 499 6,358
Other short-term investments............................................................ 19,488 22,671
Accounts receivable, trade, less reserve of $2,752 and $4,035, respectively............. 13,643 24,249
Accounts receivable, other.............................................................. 50,839 54,795
Receivable from related parties, net.................................................... 11,303 --
Inventories............................................................................. 72,254 93,364
Other current assets.................................................................... 6,243 4,144
-------- --------
Total Current Assets.................................................................. 410,539 382,163
Property, plant and equipment, net........................................................ 241,946 314,400
Excess of cost over net assets of businesses acquired, net of accumulated amortization
of $8,780 and $10,891, respectively..................................................... 70,046 72,093
Deferred income tax benefits.............................................................. 35,981 60,427
Receivable from related parties........................................................... 31,661 --
Other assets.............................................................................. 17,113 18,410
-------- --------
Total Assets.............................................................................. $807,286 $847,493
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt......................................................................... $ 26,944 $ --
Current maturities of long-term debt.................................................... 3,801 4,273
Accounts payable........................................................................ 55,642 71,613
Payable to related parties, net......................................................... -- 5,430
Accrued liabilities..................................................................... 26,298 59,893
Reserve for product warranty claims..................................................... 13,100 20,239
-------- --------
Total Current Liabilities............................................................. 125,785 161,448
-------- --------
Long-term debt less current maturities.................................................... 555,446 588,413
-------- --------
Reserve for product warranty claims....................................................... 23,881 28,393
-------- --------
Other liabilities......................................................................... 19,175 24,366
-------- --------
Commitments and Contingencies.............................................................
Stockholders' Equity:.....................................................................
Series A Cumulative Redeemable Convertible Preferred Stock, $.01 par value per share;
100,000 and 200,000 shares authorized, respectively; no shares issued................. -- --
Class A Common Stock, $.001 par value per share; 1,050,000 and 1,300,000 shares
authorized, respectively; 1,000,010 and 1,015,010 shares issued and outstanding,
respectively.......................................................................... 1 1
Class B Common Stock, $.001 par value per share; 0 and 100,000 shares authorized,
respectively; 0 and 15,000 shares issued and outstanding, respectively................ -- --
Additional paid-in capital.............................................................. 86,910 89,400
Accumulated deficit..................................................................... (14,083) (24,644)
Accumulated other comprehensive income (loss)........................................... 10,171 (19,884)
-------- --------
Stockholders' Equity...................................................................... 82,999 44,873
-------- --------
Total Liabilities and Stockholders' Equity................................................ $807,286 $847,493
-------- --------
-------- --------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-11
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1997 1998
--------- --------- ---------
(THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents, beginning of year............................... $ 45,989 $ 124,560 $ 12,921
--------- --------- ---------
Cash provided by (used in) operating activities:
Net income (loss)........................................................ 17,055 26,091 (10,561)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Extraordinary losses................................................ -- -- 18,113
Depreciation........................................................ 23,857 22,936 26,579
Goodwill amortization............................................... 1,664 1,891 2,111
Deferred income taxes............................................... 10,609 16,481 4,128
Noncash interest charges............................................ 23,718 27,222 23,877
(Increase) decrease in working capital items............................. (14,905) 17,859 27,898
Purchases of trading securities.......................................... (33,824) (123,483) (189,197)
Proceeds from sales of trading securities................................ 30,394 55,378 124,931
(Increase) decrease in other assets...................................... (1,711) 1,773 483
Increase (decrease) in other liabilities................................. (4,158) (9,356) 7,779
Change in net receivable from/payable to related parties................. (341) (39,099) 42,242
Other, net............................................................... 787 (8,001) 9,581
--------- --------- ---------
Net cash provided by (used in) operating activities........................ 53,145 (10,308) 87,964
--------- --------- ---------
Cash provided by (used in) investing activities:
Capital expenditures..................................................... (25,629) (46,844) (71,073)
Acquisitions............................................................. -- (30,861) (59,187)
Proceeds from sale of assets............................................. -- -- 29,019
Purchases of available-for-sale securities............................... (139,355) (223,804) (89,324)
Purchases of held-to-maturity securities................................. -- (4,591) (6,357)
Purchases of other short-term investments................................ (660) -- --
Proceeds from sales of available-for-sale securities..................... 101,095 173,547 170,055
Proceeds from held-to-maturity securities................................ -- 11,361 499
--------- --------- ---------
Net cash used in investing activities...................................... (64,549) (121,192) (26,368)
--------- --------- ---------
Cash provided by (used in) financing activities:
Proceeds (repayments) from sale of accounts receivable................... 8,015 (35,332) (4,754)
Increase (decrease) in short-term debt................................... -- 26,944 (26,944)
(Increase) decrease in loan receivable from related party................ -- (6,152) 6,152
Proceeds from issuance of debt........................................... 99,502 99,916 304,019
Increase (decrease) in borrowings under revolving credit facility........ -- 34,000 (34,000)
Repayments of long-term debt............................................. (34,856) (3,521) (287,904)
Capital contribution from (distributions to) parent company.............. 86,077 (91,000) --
Payments of asbestos claims.............................................. (66,224) (3,062) --
Financing fees and expenses.............................................. (2,539) (1,932) (6,099)
--------- --------- ---------
Net cash provided by (used in) financing activities........................ 89,975 19,861 (49,530)
--------- --------- ---------
Net change in cash and cash equivalents.................................... 78,571 (111,639) 12,066
--------- --------- ---------
Cash and cash equivalents, end of year..................................... $ 124,560 $ 12,921 $ 24,987
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-12
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1997 1998
--------- --------- ---------
(THOUSANDS)
<S> <C> <C> <C>
Supplemental Cash Flow Information:
Effect on cash from (increase) decrease in working capital items*:
Accounts receivable................................................... $ (5,122) $ 7,773 $ (4,018)
Inventories........................................................... (8,123) 8,001 (10,853)
Other current assets.................................................. 756 (3,029) 2,367
Accounts payable...................................................... (4,096) 10,210 10,228
Accrued liabilities................................................... 1,680 (5,096) 30,174
--------- --------- ---------
Net effect on cash from (increase) decrease in working capital items....... $ (14,905) $ 17,859 $ 27,898
--------- --------- ---------
--------- --------- ---------
Cash paid during the period for:
Interest (net of amount capitalized)..................................... $ 6,442 $ 14,001 $ 19,714
Income taxes (including taxes paid pursuant to the Tax Sharing
Agreement)............................................................ 537 346 1,174
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
---------
---------
Acquisition of Leslie-Locke business:
Fair market value of assets acquired.................................. $ 59,318
Purchase price of acquisition......................................... 43,468
---------
Liabilities assumed................................................... $ 15,850
---------
---------
</TABLE>
- ------------------
* Working capital items exclude cash and cash equivalents, short-term
investments, short-term debt and net receivables from/payables to related
parties. Working capital acquired in connection with acquisitions is reflected
in "Acquisitions". The effects of reclassifications between noncurrent and
current assets and liabilities are excluded from the amounts shown above. In
addition, the increase in receivables shown above does not reflect the cash
proceeds from the sale of certain of the Company's receivables (see Note 7);
such proceeds are reflected in cash from financing activities. As discussed in
Notes 1 and 2, in connection with the Separation Transactions, G-I Holdings
made a noncash contribution to the Company in December 1996 of $2.8 million of
available-for-sale securities, $7.1 million of held-to-maturity securities and
$13.2 million of other short-term investments.
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-13
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL
STOCK AND ACCUMULATED
ADDITIONAL OTHER
PAID-IN COMPREHENSIVE ACCUMULATED COMPREHENSIVE
CAPITAL INCOME (LOSS) DEFICIT INCOME (LOSS)
---------- ------------- ----------- -------------
(THOUSANDS)
<S> <C> <C> <C> <C>
Balance, December 31, 1995.................................. $ 73,374 $ (363) $ (57,229)
Comprehensive income--year ended December 31, 1996:
Net income.............................................. -- -- 17,055 $ 17,055
---------
Other comprehensive income, net of tax:
Unrealized holding gains, net of income taxes of
$1,883............................................... 3,020 3,020
Less: Reclassification adjustment for gains included in
net income, net of income tax effect of $1,550....... 2,498 2,498
--------- ---------
Unrealized gains on available-for-sale securities....... -- 522 -- 522
Minimum pension liability adjustment.................... -- 552 -- 552
---------
Comprehensive income...................................... $ 18,129
---------
---------
Capital contribution from parent company.................. 109,326 -- --
-------- --------- ---------
Balance, December 31, 1996.................................. $182,700 $ 711 $ (40,174)
Comprehensive income--year ended December 31, 1997:
Net income.............................................. -- -- 26,091 $ 26,091
---------
Other comprehensive income, net of tax:
Unrealized holding gains, net of income taxes of
$5,043............................................... 7,886 7,886
Less: Reclassification adjustment for losses included in
net income, net of income tax effect of $1,548....... (2,422) (2,422)
--------- ---------
Unrealized gains on available-for-sale securities....... -- 10,308 -- 10,308
Minimum pension liability adjustment.................... -- (848) -- (848)
---------
Comprehensive income...................................... $ 35,551
---------
---------
Distributions to parent company........................... (91,000) -- --
Transfer of Nashville, Tennessee plant to GAF Fiberglass
Corporation............................................. (4,789) -- --
-------- --------- ---------
Balance, December 31, 1997.................................. $ 86,911 $ 10,171 $ (14,083)
Comprehensive income (loss)--year ended December 31, 1998:
Net loss................................................ -- -- (10,561) $ (10,561)
---------
Other comprehensive income, net of tax:
Unrealized holding losses, net of income tax benefit of
$10,409.............................................. (16,504) (16,504)
Less: Reclassification adjustment for gains included in
net loss, net of income tax effect of $7,064......... 11,526 11,526
--------- ---------
Change in unrealized loss on available-for-sale
securities........................................... -- (28,030) -- (28,030)
Minimum pension liability adjustment.................... -- (2,025) -- (2,025)
---------
Comprehensive income (loss)............................... $ (40,616)
---------
---------
Issuance of 30,000 shares of restricted common stock...... 2,490 -- --
-------- --------- ---------
Balance, December 31, 1998.................................. $ 89,401 $ (19,884) $ (24,644)
-------- --------- ---------
-------- --------- ---------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-14
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Building Materials Corporation of America ("BMCA" or the "Company") was
formed on January 31, 1994 and is a 97%-owned subsidiary of GAF Building
Materials Corporation ("GAFBMC"), which is a wholly-owned subsidiary of G
Industries Corp. ("G Industries"). G Industries is a wholly-owned subsidiary of
G-I Holdings Inc. ("G-I Holdings"), which is a wholly-owned subsidiary of GAF
Corporation ("GAF").
NOTE 1. FORMATION OF THE COMPANY
Effective as of January 31, 1994, GAFBMC transferred to the Company all of
its business and assets, other than three closed manufacturing facilities,
certain deferred tax assets and receivables from affiliates. The Company
recorded the assets and liabilities related to such transfer at GAFBMC's
historical costs. The Company contractually assumed all of GAFBMC's liabilities,
except (i) all of GAFBMC's environmental liabilities, other than environmental
liabilities relating to the Company's plant sites and its business as
then-conducted, (ii) all of GAFBMC's tax liabilities, other than tax liabilities
arising from the operations or business of the Company and (iii) all of GAFBMC's
asbestos-related liabilities, other than the first $204.4 million of such
liabilities (whether for indemnity or defense) relating to then-pending
asbestos-related bodily injury cases and previously settled asbestos-related
bodily injury cases which the Company contractually assumed and agreed to pay.
G-I Holdings and GAFBMC have agreed, jointly and severally, to indemnify the
Company from liabilities not assumed by the Company, including asbestos-related
and environmental liabilities not expressly assumed by the Company. See Note 3.
The Company's Consolidated Financial Statements have been prepared on a
basis which retroactively reflects the formation of the Company, as discussed
above, for all periods presented prior to 1995, except that the Company's
assumption of $204.4 million of asbestos-related liabilities described above and
related income tax benefits of $79.7 million have been reflected as a charge of
$124.7 million to stockholder's equity upon the Company's formation as of
January 31, 1994.
In October 1995, G-I Holdings acquired all of the outstanding shares of
U.S. Intec, Inc. ("U.S. Intec"), which manufactures commercial roofing products,
for a purchase price of $27.5 million and assumed $35.0 million of U. S. Intec's
indebtedness. As of January 1, 1997, U.S. Intec became a wholly-owned subsidiary
of the Company through a capital contribution to the Company by G-I Holdings.
Accordingly, the Company's historical consolidated financial statements include
U.S. Intec's results of operations and cash flows from the date of its
acquisition by G-I Holdings (October 20, 1995), including sales and net income
of $99.0 and $1.3 million, respectively, for the year ended December 31, 1996.
The Company recorded the assets and liabilities of U.S. Intec at G-I Holdings'
purchase accounting basis.
On January 1, 1997, GAF effected a series of transactions involving its
subsidiaries (the "Separation Transactions") that resulted in, among other
things, (i) the approximately 83.5% of the issued and outstanding common stock
of International Specialty Products Inc. ("ISP"), an affiliate, owned by a
subsidiary of GAF, being distributed to ISP Holdings Inc., a subsidiary of GAF,
and the capital stock of ISP Holdings being distributed to the stockholders of
GAF, (ii) the Company's glass fiber manufacturing facility in Nashville,
Tennessee, and certain related assets and liabilities, being transferred to GAF
Fiberglass Corporation ("GFC"), (iii) U.S. Intec becoming a subsidiary of the
Company and (iv) G-I Holdings making a contribution to the Company in December
1996 of $82.5 million in cash and short-term investments. As a result of the
Separation Transactions, ISP Holdings and ISP are no longer direct or indirect
subsidiaries of GAF, while the Company and GFC have remained subsidiaries of
GAF. On July 15, 1998, ISP merged with and into ISP Holdings and ISP Holdings
changed its name to International Specialty Products Inc. The Company recorded
the transfer of the Nashville facility as a distribution to its indirect parent,
G-I Holdings, at its net book value. G-I Holdings then made a capital
contribution to GFC equal to such net book value. The results of operations,
cash flows and assets and liabilities of the Nashville facility are included in
the Company's consolidated financial statements for all periods prior to the
date of transfer of January 1, 1997.
The parent corporations of the Company are GAF, G-I Holdings, G Industries
and GAFBMC. Except for the Company, the only other significant asset of such
parent corporations is GFC. As a result of the Separation
F-15
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1. FORMATION OF THE COMPANY--(CONTINUED)
Transactions, dividends from ISP are not available to GAF and G-I Holdings, and
loans from ISP to GAF, G-I Holdings and the Company are prohibited by certain of
ISP's debt instruments.
NOTE 2. 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 in conformity with generally
accepted accounting principles 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 15 (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 and losses, net of income tax effect,
are included in a separate component of stockholders' equity, "Accumulated other
comprehensive income (loss)," and were $11.1 and $(16.9) million as of
December 31, 1997 and 1998, respectively. Investments classified as
"held-to-maturity" securities are carried at amortized cost in the Consolidated
Balance Sheets.
"Other income (expense), net" includes $6.4, $26.4 and $21.5 million of net
realized and unrealized gains on securities in 1996, 1997 and 1998,
respectively. The determination of cost in computing realized gains and losses
is based on the specific identification method.
In connection with the Separation Transactions (see Note 1), in December
1996, G-I Holdings made a capital contribution to the Company of $2.8 million of
available-for-sale securities, $7.1 million of held-to-maturity securities and
$13.2 million of other short-term investments.
As of December 31, 1997 and 1998, the market value of the Company's equity
securities held long was $223.0 and $172.5 million, respectively, and the
Company had $18.6 and $144.1 million, respectively, of short positions in common
stocks, based on market value. As of December 31, 1997 and 1998, the market
value of the Company's held-to-maturity securities was $0.5 and $6.4 million,
respectively. The Company enters into equity-related financial instruments with
off-balance-sheet risk as a means to manage its exposure to market fluctuations
on its short-term investments. As of December 31, 1998, the market value of
equity-related short contracts was $143.2 million, while the value of
equity-related long contracts was $35.2 million, both of which are marked-to-
market each month, with unrealized gains and losses included in results of
operations. 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 (expense), 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.
F-16
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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
Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation is computed principally on the straight-line method
based on the estimated economic lives of the assets. The Company uses an
economic life of 5-25 years for land improvements, 10-40 years for buildings and
building equipment, and 3-20 years for machinery and equipment, which includes
furniture and fixtures. Certain interest charges are capitalized during the
period of construction as part of the cost of property, plant and equipment.
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.
To determine if goodwill is recoverable, the Company compares the net carrying
amount to undiscounted projected cash flows of the underlying businesses to
which the goodwill pertains. If goodwill is not recoverable, the Company would
record an impairment based on the difference between the net carrying amount and
fair value.
Debt Issuance Costs
Debt issuance costs are amortized to expense over the life of the related
debt.
Revenue Recognition
Revenue is recognized at the time products are shipped to the customer.
Interest Rate Swaps
Gains (losses) on interest rate swap agreements ("swaps") are deferred and
amortized as a reduction (increase) of interest expense over the shorter of the
remaining life of the swaps or the remaining period to maturity of the debt
issue with respect to which the swaps were entered.
Research and Development
Research and development expenses are charged to operations as incurred and
were $4.5, $5.4 and $6.0 million in 1996, 1997 and 1998, respectively.
Warranty Claims
The Company provides certain limited warranties covering most of its
residential roofing products for periods ranging from 20 to 40 years. The
Company also offers limited warranties and guarantees of varying duration on its
commercial roofing products and limited warranties covering most of its
specialty building products and accessories for periods ranging from 5 to
10 years. Income from warranty contracts related to commercial roofing products
is recognized over the life of the agreements. The Company believes that the
reserves established for estimated probable future warranty claims are adequate.
The Company's 1997 Consolidated Statement of Operations includes a
provision of $3.0 million in connection with the Company's estimated obligations
related to product warranty claims for a discontinued product. See also Note 5.
F-17
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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, and certain other
environmental compliance expenses, as of December 31, 1998, is $0.8 million,
before reduction for insurance recoveries reflected on its balance sheet of
$0.8 million. The Company's liability is reflected on an undiscounted basis. See
Item 3, "Legal Proceedings--Environmental Litigation," which is incorporated
herein by reference, for further discussion with respect to environmental
liabilities and estimated insurance recoveries.
Accumulated Other Comprehensive Income
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for
reporting comprehensive income and its components in annual and interim
financial statements. The Company adopted SFAS No. 130 as of January 1, 1998 and
has reclassified financial statements for earlier periods. In the Company's
case, comprehensive income includes net income, unrealized gains and losses from
investments in available-for-sale securities, net of income tax effect, and
minimum pension liability adjustments. The Company has chosen to disclose
Comprehensive Income in the Consolidated Statements of Stockholders' Equity.
Changes in the components of "Accumulated other comprehensive income
(loss)" for the years 1996, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
UNREALIZED GAINS MINIMUM ACCUMULATED
(LOSSES) ON PENSION OTHER
AVAILABLE-FOR-SALE LIABILITY COMPREHENSIVE
SECURITIES ADJUSTMENT INCOME (LOSS)
------------------ ---------- -------------
(THOUSANDS)
<S> <C> <C> <C>
Balance, December 31, 1995............................... $ 272 $ (635) $ (363)
Change for the year 1996................................. 522 552 1,074
-------- -------- ---------
Balance, December 31, 1996............................... $ 794 $ (83) $ 711
Change for the year 1997................................. 10,308 (848) 9,460
-------- -------- ---------
Balance, December 31, 1997............................... $ 11,102 $ (931) $ 10,171
Change for the year 1998................................. (28,030) (2,025) (30,055)
-------- -------- ---------
Balance, December 31, 1998............................... $(16,928) $ (2,956) $ (19,884)
-------- -------- ---------
-------- -------- ---------
</TABLE>
New Accounting Standard
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement. SFAS No. 133
is effective for fiscal years beginning after June 15, 1999, but may be adopted
earlier. If the Company had adopted SFAS No. 133 for the year ended
December 31, 1998, there would have been no significant impact on results of
operations. The Company has not yet determined the timing, method or effect on
the Consolidated Balance Sheets of adoption of SFAS No. 133.
NOTE 3. ASBESTOS-RELATED BODILY INJURY CLAIMS
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
F-18
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. ASBESTOS-RELATED BODILY INJURY CLAIMS--(CONTINUED)
("Asbestos Claims") of its parent, GAFBMC. As of March 30, 1997, the Company had
paid all of its assumed asbestos-related liabilities. See also Note 1. G-I
Holdings and GAFBMC have jointly and severally agreed to indemnify the Company
against any other existing or future claims related to asbestos-related
liabilities if asserted against the Company.
GAF has advised the Company that, as of December 28, 1998, it is defending
approximately 113,800 pending alleged Asbestos Claims (having received notice of
approximately 93,500 new Asbestos Claims during 1998) and has resolved
approximately 293,500 Asbestos Claims (including approximately 59,000 in 1998).
GAF has advised the Company that it believes that a significant portion of the
claims filed in 1998 were already pending against other defendants for some
period of time, with GAF being added as a defendant upon the lifting in 1997 of
the injunction relating to the Georgine class action settlement. This injunction
prevented plaintiffs from filing or proceeding with their Asbestos Claims other
than in accordance with the Georgine class action settlement, which was rendered
inoperable in 1997 by a United States Supreme Court ruling. GAF's current
estimated average cost for Asbestos Claims resolved in 1998 (including Asbestos
Claims disposed of at no cost to GAF) is approximately $3,500 per claim.
Substantially all of the costs in respect of these Asbestos Claims will be paid
over several years. There can be no assurance that the actual costs of resolving
pending and future Asbestos Claims will approximate GAF's estimated average
costs for the Asbestos Claims resolved in 1998.
GAF has stated that it is committed to effecting a comprehensive resolution
of Asbestos Claims, that it is exploring a number of options 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.
Should GAF or GAFBMC be unable to satisfy judgments against it in
asbestos-related lawsuits, its judgment creditors might seek to enforce their
judgments against the assets of GAF or GAFBMC, including its holdings of common
stock of the Company, and such enforcement could result in a change of control
with respect to the Company. See Note 10 for information regarding the Company's
debt instruments and facilities.
For a further discussion with respect to the foregoing, see Item 3, "Legal
Proceedings," which is incorporated herein by reference.
NOTE 4. ACQUISITIONS AND DISPOSITION
On March 14, 1997, the Company acquired the assets of the Leatherback
Industries division of Hollinee Corporation, which is engaged in the manufacture
and sale of asphalt-saturated felts and other felt and construction paper
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. The results of the Leatherback business, including sales of
$30.2 million for 1997, are included from the date of acquisition; the net
effects of this acquisition were not material to 1997 results of operations.
Effective June 1, 1998, the Company purchased for approximately $43.5
million substantially all of the assets of Leslie-Locke Inc. ("Leslie-Locke"), a
wholly-owned subsidiary of Leslie Building Products, Inc., which manufactures
and markets a variety of specialty building products and accessories for the
professional and do-it-yourself remodeling and residential construction
industries from manufacturing facilities in Burgaw, North Carolina and Compton,
California. 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. The results of the Leslie-Locke business, including sales of
F-19
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. ACQUISITIONS AND DISPOSITION--(CONTINUED)
$53.3 million for 1998, are included from the date of acquisition; the net
effects of this acquisition were not material to 1998 results of operations.
Effective December 1, 1998, the Company sold its perlite insulation
manufacturing assets to Johns Manville Corporation for net cash proceeds of
approximately $29.0 million. The pre-tax gain as a result of this sale was not
significant to the Company's results of operations. In addition, as part of the
transaction, Johns Manville and the Company entered into a long-term agreement
to supply the Company with perlite insulation products, which will enable the
Company to continue to serve its commercial roofing customers. As a result, the
sale is not expected to have a material impact on the Company's results of
operations.
NOTE 5. NONRECURRING CHARGES
The Company recorded pre-tax nonrecurring charges in the third quarter of
1998 aggregating $27.6 million, of which $20.0 million related to the settlement
of a national class action lawsuit involving asphalt shingles manufactured
between January 1, 1973 and December 31, 1997. Under the terms of the September
1998 settlement, which has been granted preliminary approval by the court
pending the outcome of a fairness hearing, the Company will provide property
owners whose GAF shingles were manufactured during this period and which suffer
certain damages during the term of their original warranty period, and who file
a qualifying claim, with an opportunity to receive certain limited benefits
beyond those already provided in their existing warranty. If the court grants
final approval of this settlement, the settlement will resolve a class action
filed against GAFBMC in Mobile County, Alabama. Several other class action
lawsuits that had been brought against GAFBMC in 1996 and 1997 were stayed
pending final approval of the Mobile County, Alabama class action. Each of these
lawsuits had alleged that certain GAF shingles were defective and sought
unspecified damages. The Company agreed to the settlement, payments against
which will be made over a number of years, to avoid the expense required to
defend such litigation. The Company believes the court will grant final approval
of the settlement, although there can be no assurance in that regard. If the
court does not grant final approval and the settlement agreement is rendered
inoperable, the Mobile County, Alabama action would continue as if no settlement
agreement had existed. In addition, the stays of the other class actions could
be lifted and those actions could continue. In that event, the Company would
reverse the pre-tax nonrecurring charge of $20.0 million related to the
settlement.
In July 1998, the Company recorded a pre-tax nonrecurring charge of
$7.6 million related to a grant to its President and Chief Executive Officer of
30,000 shares of restricted common stock of the Company and related cash
payments to be made over a period of time (substantially all of which is earned)
in connection with the termination by an affiliate of preferred stock options
and stock appreciation rights held by such officer.
NOTE 6. INCOME TAXES
Income tax provision, which has been computed on a separate return basis,
consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
-------- -------- -------
(THOUSANDS)
<S> <C> <C> <C>
Federal--deferred..................................................... $ (9,241) $(14,081) $(4,082)
-------- -------- -------
State and local:
Current............................................................. (200) (200) (500)
Deferred............................................................ (1,368) (2,399) (46)
-------- -------- -------
Total state and local............................................ (1,568) (2,599) (546)
-------- -------- -------
Income tax provision.................................................. $(10,809) $(16,680) $(4,628)
-------- -------- -------
-------- -------- -------
</TABLE>
F-20
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. INCOME TAXES--(CONTINUED)
The differences between the income tax provision computed by applying the
statutory Federal income tax rate to pre-tax income, and the income tax
provision reflected in the Consolidated Statements of Operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
-------- -------- -------
(THOUSANDS)
<S> <C> <C> <C>
Statutory provision................................................... $ (9,752) $(14,970) $(4,263)
Impact of:
State and local taxes, net of Federal benefits...................... (1,019) (1,689) (355)
Nondeductible goodwill amortization................................. (484) (564) (641)
Other, net.......................................................... 446 543 631
-------- -------- -------
Income tax provision.................................................. $(10,809) $(16,680) $(4,628)
-------- -------- -------
-------- -------- -------
</TABLE>
The components of the net deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
(THOUSANDS)
<S> <C> <C>
Deferred tax liabilities related to property, plant and equipment...... $(14,742) $(14,803)
-------- --------
Deferred tax assets related to:
Expenses not yet deducted for tax purposes........................... 29,294 47,507
Net operating losses not yet utilized under the Tax Sharing
Agreement......................................................... 21,429 27,723
-------- --------
Total deferred tax assets.............................................. 50,723 75,230
-------- --------
Net deferred tax assets................................................ $ 35,981 $ 60,427
-------- --------
-------- --------
</TABLE>
As of December 31, 1998, the Company had $73.0 million of net operating
loss carryforwards available to offset future taxable income, as follows:
YEAR OF
EXPIRATION (THOUSANDS)
- ---------- -----------
2009.... $26,705
2010.... 4,271
2011.... 41,982
-------
$72,958
-------
-------
Management has determined, based on the Company's history of prior earnings
and its expectations for the future, that future taxable income will more likely
than not be sufficient to utilize fully the deferred tax assets recorded.
The Company and its subsidiaries entered into a tax sharing agreement (the
"Tax Sharing Agreement") dated January 31, 1994 with GAF and G-I Holdings under
which the Company is obligated to pay G-I Holdings an amount equal to those
Federal income taxes the Company would have incurred if the Company (on behalf
of itself and its subsidiaries) filed its own Federal income tax return. Unused
tax attributes will carry forward for use in reducing amounts payable by the
Company to G-I Holdings in future years, but cannot be carried back. If the
Company were no longer a member of the GAF consolidated 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 the Company
under the Tax Sharing Agreement. Under certain circumstances, the provisions of
the Tax Sharing Agreement could result in
F-21
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. INCOME TAXES--(CONTINUED)
the Company having a greater liability thereunder than it would have had if it
(and its subsidiaries) had filed its own separate Federal income tax return.
Under the Tax Sharing Agreement, the Company and each of its 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 the Company
or any subsidiary of the Company. Although, as a member of the GAF Group, the
Company is severally liable for all Federal income tax liabilities of every
member of the GAF Group, including tax liabilities not related to the business
of the Company, G-I Holdings and GAF have agreed to indemnify the Company and
its subsidiaries for all tax liabilities of the GAF Group other than tax
liabilities (i) arising from the operations of the Company and its subsidiaries
and (ii) for tax years pre-dating the Tax Sharing Agreement that relate to the
business or assets of the Company and its 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 the Company would have incurred if it filed its
own separate Federal income tax return and the fact that the Company is a member
of the GAF Group for Federal income tax purposes. In accordance with the Tax
Sharing Agreement, effective January 31, 1994, tax benefits generated by net
operating losses and credits will reduce future tax sharing payments to G-I
Holdings.
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 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 GAF
incurring liabilities significantly in excess of the deferred tax liability of
$131.4 million that it recorded in 1990 in connection with this matter. GAF has
advised the Company that it believes that it will prevail in this matter,
although there can be no assurance in this regard. However, if GAF is
unsuccessful in challenging its tax deficiency notice, the ability of GAF to
satisfy its tax obligation would be dependent on the cash flows of the Company
and GFC. The Company believes that the ultimate disposition of this matter will
not have a material adverse effect on its business, financial position or
results of operations. 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 GAF be unable to satisfy such liability.
NOTE 7. SALE OF ACCOUNTS RECEIVABLE
In March 1993, the Company 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 the
Company based on eligible receivables outstanding from time to time. In November
1996, the Company entered into new agreements, pursuant to which it sold the
receivables to a special purpose subsidiary of the Company, 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 the Company 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 the Company varies with LIBOR and is
included in "Other income (expense), net" and amounted to $5.2, $5.1 and $5.1
million in 1996, 1997 and 1998, respectively.
F-22
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. INVENTORIES
At December 31, 1997 and 1998, $7.8 and $10.2 million, respectively, of
inventories were valued using the LIFO method. Inventories consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
(THOUSANDS)
<S> <C> <C>
Finished goods.......................................................... $38,459 $58,266
Work in process......................................................... 10,180 8,488
Raw materials and supplies.............................................. 24,670 27,296
------- -------
Total................................................................. 73,309 94,050
Less LIFO reserve....................................................... (1,055) (686)
------- -------
Inventories............................................................. $72,254 $93,364
------- -------
------- -------
</TABLE>
NOTE 9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
(THOUSANDS)
<S> <C> <C>
Land and land improvements............................................ $ 26,052 $ 26,851
Buildings and building equipment...................................... 48,525 55,917
Machinery and equipment (including equipment under capitalized leases
of $15,466 and $12,468--see Note 10)................................ 183,108 217,094
Construction in progress.............................................. 40,775 78,337
-------- --------
Total............................................................... 298,460 378,199
Less accumulated depreciation and amortization........................ (56,514) (63,799)
-------- --------
Property, plant and equipment, net.................................... $241,946 $314,400
-------- --------
-------- --------
</TABLE>
NOTE 10. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
(THOUSANDS)
<S> <C> <C>
11 3/4% Senior Deferred Coupon Notes due 2004......................... $261,203 $ 28,273
7 3/4% Senior Notes due 2005.......................................... -- 149,401
8 5/8% Senior Notes due 2006.......................................... 99,554 99,604
8% Senior Notes due 2007.............................................. 99,268 99,343
8% Senior Notes due 2008.............................................. -- 154,165
Borrowings under revolving credit facility............................ 34,000 --
Industrial revenue bonds with various interest rates and maturity
dates to 2012....................................................... 11,125 11,125
Obligations on mortgaged properties................................... 4,230 3,248
Obligations under capital leases (Note 15)............................ 49,594 46,814
Other notes payable................................................... 273 713
-------- --------
Total............................................................... 559,247 592,686
Less current maturities............................................... (3,801) (4,273)
-------- --------
Long-term debt less current maturities................................ $555,446 $588,413
-------- --------
-------- --------
</TABLE>
F-23
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. LONG-TERM DEBT--(CONTINUED)
On December 3, 1998, the Company issued $155 million in aggregate principal
amount of 8% Senior Notes due 2008 (the "2008 Notes"). The Company used
substantially all of the net proceeds from such issuance to purchase, and
subsequently cancel, $147.1 million in aggregate principal amount at maturity of
the Company's 11 3/4% Senior Deferred Coupon Notes due 2004 (the "Deferred
Coupon Notes"). In connection with this purchase, the Company recorded an
after-tax extraordinary charge of $8.8 million.
On July 17, 1998, the Company issued $150 million in aggregate principal
amount of 7 3/4% Senior Notes due 2005 (the "2005 Notes"). The Company used
substantially all of the net proceeds from such issuance to purchase, and
subsequently cancel, $132.6 million in aggregate principal amount at maturity of
the Company's Deferred Coupon Notes. In connection with this purchase, the
Company recorded an after-tax extraordinary charge of $9.3 million.
In October 1997, the Company issued $100 million in aggregate principal
amount of 8% Senior Notes due 2007 (the "2007 Notes"). In December 1996, the
Company issued $100 million in aggregate principal amount of 8 5/8% Senior Notes
due 2006 (the "8 5/8% Notes"). In June 1994, the Company issued $310 million in
principal amount of 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, the 2005 Notes, the 2007 Notes, the 2008 Notes and the 8 5/8% Notes have
the right under the indentures governing such notes to require the Company to
purchase the Deferred Coupon Notes at a price of 101% of Accreted Value (as
defined therein) and the 2005 Notes, the 2007 Notes, the 2008 Notes and the
8 5/8% Notes (collectively, the "Other Senior Notes") at a price of 101% of the
principal amount thereof, and the Company has the right to redeem the Deferred
Coupon Notes at Accreted Value and the Other Senior 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 Deferred Coupon Notes, the Other Senior
Notes and the Credit Agreement (see below) contain covenants that, among other
things, limit the ability of the Company and its subsidiaries to pay certain
dividends or make certain other 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, 1998, after giving effect to the most
restrictive of the aforementioned restrictions, the Company could have paid
dividends and other restricted payments of up to $79.4 million. Additional
borrowings by the Company are subject to certain covenants contained in the
indentures relating to the Other Senior Notes and the Credit Agreement. The
Company is currently limited by certain of these covenants from incurring
additional debt, except under certain limited circumstances including under the
Credit Agreement and the refinancing of existing debt.
In connection with the Deferred Coupon Notes, the Company entered into
interest rate swap agreements ("swaps") with banks, with an aggregate ending
notional principal amount of $142.0 million and a final maturity of July 1,
1999, all of which were terminated as of June 28, 1998. In 1997, the Company
terminated swaps with an aggregate ending notional principal amount of $82.0
million, resulting in gains totaling $2.1 million. In June 1998, the Company
terminated swaps with an aggregate ending notional principal amount of $60.0
million, resulting in gains of $0.7 million. The gains have been deferred and
are being amortized as a reduction of interest expense over the remaining
original life of the swaps. As a result of the swaps, the effective interest
cost to the Company of the portion of the Deferred Coupon Notes covered by the
swaps varied at a fixed spread over LIBOR.
In August 1997, the Company entered into a new three-year bank credit
facility (the "Credit Agreement"). The terms of the Credit Agreement provide for
a $75 million revolving credit facility, the full amount of which is available
for letters of credit, provided that total borrowings and outstanding letters of
credit may not exceed $75 million in the aggregate. As of December 31, 1998,
$29.9 million of letters of credit were outstanding and no borrowings were
outstanding under the Credit Agreement. Under the terms of the Credit Agreement,
the
F-24
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. LONG-TERM DEBT--(CONTINUED)
Company is subject to certain financial covenants, including interest coverage
and leverage ratios, and dividends and other restricted payments are limited.
Additionally, if a change of control (as defined in the Credit Agreement)
occurs, the credit facility could be terminated and the loans thereunder
accelerated by the lenders party thereto, an event which could also cause the
Deferred Coupon Notes and the Other Senior Notes to be accelerated. As of
December 31, 1998, the Company was in compliance with such covenants. The Credit
Agreement replaced previous bank credit facilities which provided up to $42
million in total borrowings and outstanding letters of credit.
In December 1995, the Company 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, the Company
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 equipment at the Baltimore
facility. The lease term extends to December 2004. In December 1993, the Company
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. The Company has two industrial revenue bond
issues outstanding, which bear interest at short-term floating rates. Interest
rates on the foregoing obligations ranged between 3.60% and 8.87% as of
December 31, 1998.
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 independent source believed to be reliable. The
estimated fair value of the Deferred Coupon Notes as of December 31, 1997 and
1998 was $293.0 and $28.8 million, respectively. The estimated fair value of the
8 5/8% Notes as of December 31, 1997 and 1998 was $103.6 and $101.3 million,
respectively. The estimated fair value of the 2007 Notes as of December 31, 1997
and 1998 was $99.6 and $99.1 million, respectively. The estimated fair value of
the 2005 Notes and the 2008 Notes as of December 31, 1998 was $147.2 and
$154.8 million, respectively.
The aggregate maturities of long-term debt as of December 31, 1998 for the
next five years are as follows:
<TABLE>
<CAPTION>
(THOUSANDS)
-----------
<S> <C>
1999......................................................... $ 4,273
2000......................................................... 6,228
2001......................................................... 5,026
2002......................................................... 14,988
2003......................................................... 20,244
</TABLE>
In the above table, maturities for the year 2002 include $11.7 million
related to the Baltimore capital lease. Maturities for the year 2003 include
$20.2 million related to the Chester capital lease.
F-25
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11. 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
were $3.0, $3.5 and $4.2 million for 1996, 1997 and 1998, respectively.
U.S. Intec provides a defined contribution plan for eligible employees.
U.S. Intec 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 U.S. Intec were $0.2, $0.1 and
$0.1 million for 1996, 1997, and 1998, respectively.
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 for the Hourly Retirement Plan
included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1997 1998
----- ------- -------
(THOUSANDS)
<S> <C> <C> <C>
Service cost.................................................... $ 631 $ 658 $ 754
Interest cost................................................... 686 754 842
Expected return on plan assets.................................. (829) (1,034) (1,296)
Amortization of unrecognized prior service cost................. 35 30 31
----- ------- -------
Net periodic pension cost....................................... $ 523 $ 408 $ 331
----- ------- -------
----- ------- -------
</TABLE>
F-26
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11. BENEFIT PLANS--(CONTINUED)
The following tables set forth, for the years 1997 and 1998,
reconciliations of the beginning and ending balances of the benefit obligation,
fair value of plan assets, funded status, amounts recognized in the Consolidated
Balance Sheets and changes in Accumulated Other Comprehensive Income (Loss)
related to the Hourly Retirement Plan:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
(THOUSANDS)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year............................... $10,028 $11,817
Service cost.......................................................... 658 754
Interest cost......................................................... 754 842
Actuarial losses...................................................... 765 492
Benefits paid......................................................... (388) (450)
------- -------
Benefit obligation at end of year..................................... 11,817 13,455
------- -------
Change in plan assets:
Fair value of plan assets at beginning of year........................ 9,530 11,472
Actual return on plan assets.......................................... 951 (237)
Employer contributions................................................ 1,379 757
Benefits paid......................................................... (388) (450)
------- -------
Fair value of plan assets at end of year.............................. 11,472 11,542
------- -------
Reconciliation of funded status:
Funded status......................................................... (345) (1,913)
Unrecognized prior service cost....................................... 307 277
Unrecognized actuarial losses......................................... 931 2,956
------- -------
Net amount recognized in Consolidated Balance Sheets.................. $ 893 $ 1,320
------- -------
------- -------
Amounts recognized in Consolidated Balance Sheets:
Accrued benefit cost.................................................. $ (345) $(1,913)
Intangible asset...................................................... 307 277
Accumulated other comprehensive (income) loss......................... 931 2,956
------- -------
Net amount recognized................................................. $ 893 $ 1,320
------- -------
------- -------
Change for the year in accumulated other comprehensive (income) loss:
Change in intangible asset............................................ $ 30 $ 30
Change in additional minimum liability................................ 818 1,995
------- -------
Total................................................................. $ 848 $ 2,025
------- -------
------- -------
</TABLE>
In determining the projected benefit obligation, the weighted average
assumed discount rate was 7.25% and 7% for 1997 and 1998, respectively. The
expected long-term rate of return on assets, used in determining net periodic
pension cost, was 11% for 1997 and 1998.
The Company also provides a nonqualified defined benefit retirement plan
for certain key employees. Expense accrued for this plan was immaterial for
1996, 1997 and 1998.
F-27
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11. BENEFIT PLANS--(CONTINUED)
Book Value Appreciation Unit Plan
A Book Value Appreciation Unit Plan was implemented effective January 1,
1996. Under the plan, employees were granted units which vest over five years.
Upon exercise, employees are entitled to receive a cash payment based on the
increase in Book Value (as defined in the plan). Expense accrued under this plan
was $0.1, $0.4 and $1.3 million for 1996, 1997 and 1998, respectively.
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.
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
(THOUSANDS)
<S> <C> <C> <C>
Service cost.................................................................. $ 95 $ 98 $ 104
Interest cost................................................................. 597 554 467
Amortization of unrecognized prior service cost............................... -- (88) (88)
Amortization of net gains from earlier periods................................ (232) (186) (240)
----- ----- -----
Net periodic postretirement benefit cost...................................... $ 460 $ 378 $ 243
----- ----- -----
----- ----- -----
</TABLE>
The following table sets forth, for the years 1997 and 1998,
reconciliations of the beginning and ending balances of the postretirement
benefit obligation, funded status and amounts recognized in the Consolidated
Balance Sheets related to postretirement medical and life insurance benefits:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
(THOUSANDS)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year.............................. $ 7,421 $ 7,926
Service cost......................................................... 98 104
Interest cost........................................................ 554 467
Actuarial (gains) losses............................................. 209 (905)
Benefits paid........................................................ (356) (457)
-------- --------
Benefit obligation at end of year.................................... 7,926 7,135
-------- --------
Change in plan assets:
Fair value of plan assets at beginning of year....................... -- --
Employer contributions............................................... 356 457
Benefits paid........................................................ (356) (457)
-------- --------
Fair value of plan assets at end of year............................. -- --
-------- --------
Reconciliation of funded status:
Funded status........................................................ (7,926) (7,135)
Unrecognized prior service cost...................................... (790) (702)
Unrecognized actuarial losses........................................ (2,766) (3,431)
-------- --------
Net amount recognized in Consolidated Balance Sheets
as accrued benefit cost.............................................. $(11,482) $(11,268)
-------- --------
-------- --------
</TABLE>
F-28
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11. BENEFIT PLANS--(CONTINUED)
For purposes of calculating the accumulated postretirement benefit
obligation, the following assumptions were made. Retirees as of December 31,
1998 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 12% and 6% annual rate of increase in the Company's per
capita cost of providing postretirement medical benefits was assumed for 1999
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 decrease gradually to an ultimate rate of 7% and 6%, respectively, by
the year 2003 and remain at that level thereafter. The weighted average assumed
discount rate used in determining the accumulated postretirement benefit
obligation was 7.25% and 7% for 1997 and 1998, 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 as of December 31, 1997 and 1998 by $410,000 and $90,000,
respectively, and the aggregate of the service and interest cost components of
the net periodic postretirement benefit cost for the years 1997 and 1998 by
$41,000 and $6,000, respectively. A decrease of one percentage point in each
year would decrease the accumulated postretirement benefit obligation as of
December 31, 1998 by $80,000 and the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for the year 1998 by
$6,000.
NOTE 12. PREFERRED STOCK OPTION PLAN
On January 1, 1996, the Company established a plan to issue options to
certain employees to purchase shares of redeemable convertible preferred stock
("Preferred Stock") of the Company, exercisable at a price of $100 per share.
Each share of Preferred Stock is convertible, at the holder's option, into
shares of common stock of the Company at a formula price based on Book Value (as
defined in the option agreement) as of the date of grant. The options vest over
five 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 the
Company'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 the
Company under certain circumstances, at a price equal to current Book Value (as
defined in the option agreement). The exercise price of the options to purchase
Preferred Stock was equal to estimated fair value per share of the Preferred
Stock at the date of grant. No expense is recorded in connection with the
Preferred Stock options.
The following is a summary of transactions pertaining to the plan:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------ ------- -------
(NUMBER OF SHARES)
<S> <C> <C> <C>
Outstanding, January 1.................................................. -- 23,290 102,595
Granted................................................................. 23,290 84,953 57,073
Exercised............................................................... -- -- --
Forfeited............................................................... -- (5,648) (19,616)
------ ------- -------
Outstanding, December 31................................................ 23,290 102,595 140,052
------ ------- -------
------ ------- -------
Options exercisable, December 31........................................ -- 4,278 20,663
------ ------- -------
------ ------- -------
</TABLE>
F-29
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13. BUSINESS SEGMENT INFORMATION
The Company is a leading national manufacturer of a broad line of asphalt
roofing products and accessories for the residential and commercial roofing
markets. The Company also manufactures and markets specialty building products
and accessories for the professional and do-it-yourself remodeling and
residential construction industries. The residential roofing product line
primarily consists of premium laminated shingles, strip shingles, and certain
specialty shingles principally for regional markets. Sales of residential
roofing products represented 65% of the Company's net sales in 1998. The
Company's commercial roofing product line includes a full line of modified
bitumen products, asphalt built-up roofing, liquid applied membrane, and roofing
accessories. Sales of commercial roofing products and accessories represented
30% of the Company's net sales in 1998. Sales of the specialty building products
and accessories product line represented 5% of the Company's net sales in 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for
companies to report information about operating segments in annual financial
statements, based on the approach that management utilizes to organize the
segments within the Company for management reporting and decision making. In
accordance with the provisions of SFAS No. 131, the Company aggregates the
residential and commercial product lines into one operating segment, based on
the fact that they have similar economic characteristics and are similar in each
of the following areas: (i) the nature of the products and services are similar
in that they perform the same function--the protection and covering of
residential and commercial roofs; (ii) the nature of the production processes
are similar; (iii) the type or class of customer for their products and services
are similar; (iv) the residential and commercial products have the same
distribution channels, whereby the main customers are wholesalers or
distributors; and (v) regulatory requirements are generally the same for both
the residential and commercial product lines. Sales of the specialty building
products and accessories product line did not meet the quantitative thresholds
in 1998 to be considered as a reportable segment.
Revenues in 1997 and 1998 included sales to American Builders & Contractors
Supply Co., Inc., which accounted for approximately 10% and 11%, respectively,
of the Company's net sales. No other customer accounted for as much as 10% of
net sales in 1997 or 1998.
NOTE 14. RELATED PARTY TRANSACTIONS
Included in the Consolidated Balance Sheets are the following receivable
(payable) balances with related parties, which arise from operating and
financing transactions between the Company and its affiliates:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
(THOUSANDS)
<S> <C> <C>
Receivable from (payable to):
GAF/G-I Holdings/G Industries......................................... $ 9,684 $ 251
Loan receivable from G-I Holdings..................................... 6,152 --
GAFBMC................................................................ 713 1,168
GFC................................................................... (1,559) (1,304)
ISP................................................................... (3,687) (5,545)
------- -------
Receivable from (payable to) related parties, net..................... $11,303 $(5,430)
------- -------
------- -------
</TABLE>
The Company makes loans to, and borrows from, G-I Holdings and its
subsidiaries at prevailing market rates (between 5.82% and 5.96% during 1997 and
1998). The highest amount of loans made by the Company to G-I Holdings during
1997 and 1998 was $6.2 million. No loans were made to the Company by G-I
Holdings and its subsidiaries during 1997 and 1998. As of December 31, 1997,
$6.2 million in loans were owed to the Company by G-I Holdings, at a weighted
average interest rate of 5.95%, and no loans were owed by the Company to
affiliates. In addition, the Company advances funds on a non-interest bearing
basis to GAF, G-I Holdings and their subsidiaries. The balance of such advances
as of December 31, 1997 and 1998 was $41.7 and
F-30
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14. RELATED PARTY TRANSACTIONS--(CONTINUED)
$1.5 million, respectively, of which $10.0 and $1.5 million, respectively, was
classified as a short-term receivable from related parties, net, in the table
above, and $31.7 million and $0, respectively, was classified as a long-term
receivable from related parties in the Consolidated Balance Sheets. During 1997
and 1998, the Company made distributions of $91.0 million and $0, respectively,
to its parent company.
Mineral Products: The Company purchases all of its colored roofing
granules requirements (except for the requirements of its California and Oregon
roofing plants and a portion of the requirements of its Indiana roofing plant,
which are supplied by a third party) from ISP under a requirements contract.
Effective January 1, 1999, this contract was amended to cover, among other
things, purchases of colored roofing granules by the Company's subsidiaries and
was renewed for 1999. This contract is subject to annual renewal unless
terminated by either party to such agreement. Such purchases by the Company and
its subsidiaries totaled $50.5, $51.1 and $62.6 million for 1996, 1997 and 1998,
respectively. The amount payable to ISP at December 31, 1997 and 1998 for such
purchases was $2.7 and $4.9 million, respectively.
Glass Fiber Supply Agreement: The Company purchases glass fiber from an
affiliate, GFC, pursuant to an agreement which expires December 31, 2003.
Purchases under this agreement totaled $24.5 and $26.1 million for 1997 and
1998, respectively.
Management Agreements: The Company is a party to a Management Agreement
with ISP (the "Management Agreement"), which expires December 31, 1999, pursuant
to which ISP provides certain general management, administrative, legal,
telecommunications, information and facilities services to the Company
(including the use of the Company's headquarters in Wayne, New Jersey). Charges
to the Company by ISP for providing such services aggregated $5.0, $4.8 and $4.3
million for 1996, 1997 and 1998, respectively. Such charges consist of
management fees and other reimbursable expenses attributable to, or incurred by
ISP for the benefit of, the Company. Effective January 1, 1999, the term of the
Management Agreement was extended through the end of 1999, and the management
fees payable thereunder were increased. The Company and ISP also allocate a
portion of the management fees payable by the Company under the Management
Agreement to separate lease payments for the use of BMCA's headquarters. Based
on the services provided by ISP to the Company in 1998 under the Management
Agreement, the aggregate amount payable by the Company to ISP under the
Management Agreement for 1999 is expected to be approximately $5.3 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
and other reimbursable expenses payable under the Management Agreement.
As of January 1, 1997, the Company and GFC entered into a management
agreement under which the Company provides certain general management,
administrative and financial services to GFC. Under the management agreement,
which expires December 31, 1999, GFC is obligated to pay the Company an annual
management fee of $1.0 million.
Tax Sharing Agreement: See Note 6.
NOTE 15. COMMITMENTS AND CONTINGENCIES
The discussions as to legal matters involving the Company contained in
Item 3, "Legal Proceedings--Environmental Litigation" and "--Other Litigation"
are incorporated herein by reference.
GAF, G-I Holdings, G Industries and GAFBMC are presently dependent upon the
earnings and cash flows of their subsidiaries, principally the Company, in order
to satisfy their net obligations of approximately $252.3 million reflected on
their books as of December 31, 1998, plus any obligation accrued after such
date, including the asbestos-related liability discussed in Note 3 and various
tax and other liabilities (net of certain insurance receivables), including tax
liabilities relating to the surfactants partnership (discussed in Note 6). Of
such obligations, approximately $75.0 million (net of estimated insurance
recoveries of approximately
F-31
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
$57.0 million) is estimated to be payable during the twelve months ended
December 31, 1999. GAF has advised the Company that it expects to obtain funds
to satisfy such obligations from, among other things, dividends and loans from
subsidiaries (principally the Company), as to which there are restrictions under
the indentures relating to the Deferred Coupon Notes, the Other Senior Notes and
the Credit Agreement, and from payments pursuant to the Tax Sharing Agreement
between GAF and the Company. The Company does not believe that the dependence of
its parent corporations on the cash flows of their subsidiaries should have a
material adverse effect on the operations, liquidity or capital resources of the
Company. See Notes 3, 6 and 10.
The leases for certain property, plant and equipment at certain of the
Company's roofing facilities are accounted for as capital leases (see Note 10).
The Company is also a lessee under operating leases principally for warehouses
and production, transportation and computer equipment. Rental expense on
operating leases was $8.3, $9.2 and $11.0 million for 1996, 1997 and 1998,
respectively. Future minimum lease payments for properties which were held under
long-term noncancellable leases as of December 31, 1998 were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
(THOUSANDS)
<S> <C> <C>
1999................................................................... $ 6,953 $ 4,708
2000................................................................... 7,463 3,838
2001................................................................... 8,108 2,828
2002................................................................... 17,558 1,348
2003................................................................... 21,407 827
Later years............................................................ -- 2,861
-------- -------
Total minimum payments................................................. 61,489 $16,410
-------
-------
Less interest included above........................................... (14,675)
--------
Present value of net minimum lease payments............................ $ 46,814
--------
--------
</TABLE>
NOTE 16. GUARANTOR FINANCIAL INFORMATION
Effective January 1, 1999, BMCA ("Parent Company") transferred all of its
investment assets and intellectual property assets to Building Materials
Investment Corporation ("BMIC"), a newly-formed, wholly-owned subsidiary. In
connection with this transfer, BMIC agreed to guarantee all of the Company's
obligations under the Credit Agreement, the Deferred Coupon Notes and the Other
Senior Notes. BMCA also transferred all of its manufacturing assets, other than
those located in Texas, to Building Materials Manufacturing Corporation
("BMMC"), another newly-formed, wholly-owned subsidiary. In connection with this
transfer, BMMC agreed to become a co-obligor on the 2007 Notes and to guarantee
the Company's obligations under the Credit Agreement, the Deferred Coupon Notes
and the Other Senior Notes.
In addition, in connection with the above transactions, the Company and
BMMC entered into license agreements, effective January 1, 1999, for the right
to use intellectual property, including patents, trademarks, know-how, and
franchise rights owned by BMIC for a license fee stated as a percentage of net
sales. The license agreements are for a period of one year and can be terminated
with 60 days written notice. Also, effective January 1, 1999, BMMC will sell all
finished goods to the Company at a manufacturing profit.
Presented below is combined, condensed financial information for BMIC and
BMMC, prepared on a basis which retroactively reflects the formation of such
companies, as discussed above, for all periods presented. This financial
information should be read in conjunction with the Consolidated Financial
Statements and other notes related thereto.
F-32
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16. GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
BUILDING MATERIALS CORPORATION OF AMERICA
COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales...................................... $745,576 $ -- $106,391 $ -- $851,967
Intercompany net sales......................... 5,400 479,283 60,500 (545,183) --
-------- -------- -------- ---------- --------
Total net sales................................ 750,976 479,283 166,891 (545,183) 851,967
-------- -------- -------- ---------- --------
Costs and expenses:
Cost of products sold........................ 575,959 454,051 137,407 (545,183) 622,234
Selling, general and administrative.......... 119,100 25,232 22,374 166,706
Goodwill amortization........................ 641 1,023 1,664
-------- -------- -------- ---------- --------
Total costs and expenses.................. 695,700 479,283 160,804 (545,183) 790,604
-------- -------- -------- ---------- --------
Operating income............................... 55,276 -- 6,087 -- 61,363
Equity in loss of subsidiaries................. (787) 787 --
Interest expense, net.......................... (17,726) (5,073) (9,245) (32,044)
Other income (expense), net.................... (8,397) 6,946 (4) (1,455)
-------- -------- -------- ---------- --------
Income (loss) before income taxes.............. 28,366 1,873 (3,162) 787 27,864
Income tax (provision) benefit................. (11,311) (731) 1,233 (10,809)
-------- -------- -------- ---------- --------
Net income (loss).............................. $ 17,055 $ 1,142 $ (1,929) $ 787 $ 17,055
-------- -------- -------- ---------- --------
-------- -------- -------- ---------- --------
</TABLE>
F-33
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16. GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
BUILDING MATERIALS CORPORATION OF AMERICA
COMBINED CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
(THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
--------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents, beginning of year............. $ 1 $ 45,594 $ 394 $ 45,989
--------- ---------- ------- ----------
Cash provided by (used in) operating activities:
Net income (loss)........................................ 17,842 1,142 (1,929) 17,055
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation........................................ 2,551 17,044 4,262 23,857
Goodwill amortization............................... 641 1,023 1,664
Deferred income taxes............................... 10,609 10,609
Noncash interest charges............................ 23,718 23,718
(Increase) decrease in working capital items........... (17,932) 8,182 (5,155) (14,905)
Purchases of trading securities........................ (33,824) (33,824)
Proceeds from sales of trading securities.............. 30,394 30,394
(Increase) decrease in other assets.................... (1,885) 120 54 (1,711)
Decrease in other liabilities.......................... (3,098) (1,060) (4,158)
Change in net receivable from/payable to related
parties............................................. (157,095) 117,094 39,660 (341)
Other, net............................................. 2,346 1,017 (2,576) 787
--------- ---------- ------- ----------
Net cash provided by (used in) operating activities...... (122,303) 141,169 34,279 53,145
--------- ---------- ------- ----------
Cash provided by (used in) investing activities:
Capital expenditures................................... (1,705) (17,299) (6,625) (25,629)
Purchases of available-for-sale securities............. (139,355) (139,355)
Purchases of other short-term investments.............. (660) (660)
Proceeds from sales of available-for-sale securities... 101,095 101,095
--------- ---------- ------- ----------
Net cash used in investing activities.................... (1,705) (56,219) (6,625) (64,549)
--------- ---------- ------- ----------
Cash provided by (used in) financing activities:
Proceeds from sale of accounts receivable.............. 8,015 8,015
Proceeds from issuance of debt......................... 99,502 99,502
Repayments of long-term debt........................... (822) (7,960) (26,074) (34,856)
Capital contribution from parent company............... 86,077 86,077
Payments of asbestos claims............................ (66,224) (66,224)
Financing fees and expenses............................ (2,539) (2,539)
--------- ---------- ------- ----------
Net cash provided by (used in) financing activities...... 124,009 (7,960) (26,074) 89,975
--------- ---------- ------- ----------
Net change in cash and cash equivalents.................. 1 76,990 1,580 78,571
--------- ---------- ------- ----------
Cash and cash equivalents, end of year................... $ 2 $ 122,584 $ 1,974 $ 124,560
--------- ---------- ------- ----------
--------- ---------- ------- ----------
</TABLE>
F-34
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16. GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
BUILDING MATERIALS CORPORATION OF AMERICA
COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales...................................... $793,566 $ -- $151,063 $ -- $944,629
Intercompany net sales......................... 2,683 519,452 64,699 (586,834) --
-------- -------- -------- ---------- --------
Total net sales................................ 796,249 519,452 215,762 (586,834) 944,629
-------- -------- -------- ---------- --------
Costs and expenses:
Cost of products sold........................ 609,542 494,087 170,197 (586,834) 686,992
Selling, general and administrative.......... 128,153 25,365 32,135 185,653
Goodwill amortization........................ 641 1,250 1,891
-------- -------- -------- ---------- --------
Total costs and expenses.................. 738,336 519,452 203,582 (586,834) 874,536
-------- -------- -------- ---------- --------
Operating income............................... 57,913 -- 12,180 -- 70,093
Equity in earnings of subsidiaries............. 13,997 (13,997) --
Interest expense, net.......................... (26,258) (5,810) (10,716) (42,784)
Other income (expense), net.................... (11,830) 27,292 15,462
-------- -------- -------- ---------- --------
Income before income taxes..................... 33,822 21,482 1,464 (13,997) 42,771
Income taxes................................... (7,731) (8,378) (571) (16,680)
-------- -------- -------- ---------- --------
Net income..................................... $ 26,091 $ 13,104 $ 893 $ (13,997) $ 26,091
-------- -------- -------- ---------- --------
-------- -------- -------- ---------- --------
</TABLE>
F-35
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16. GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
BUILDING MATERIALS CORPORATION OF AMERICA
COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1997
(THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 35 $ 12,061 $ 825 $ -- $ 12,921
Investments in trading securities................. 62,059 62,059
Investments in available-for-sale securities...... 161,290 161,290
Investments in held-to-maturity securities........ 499 499
Other short-term investments...................... 19,488 19,488
Accounts receivable, trade........................ 13,643 13,643
Accounts receivable, other........................ 48,392 2,297 150 50,839
Receivable from (payable to) related
parties, net................................... 13,413 (2,059) (51) 11,303
Inventories....................................... 29,701 22,183 20,370 72,254
Other current assets.............................. 2,064 2,719 1,460 6,243
-------- -------- -------- ---------- --------
Total Current Assets........................... 93,605 280,537 36,397 -- 410,539
Investment in subsidiaries.......................... 233,627 (233,627) --
Intercompany loans including accrued interest....... 80,199 (80,199) --
Due from (to) subsidiaries, net..................... 23,724 171 (23,895) --
Property, plant and equipment, net.................. 32,847 138,889 70,210 241,946
Excess of cost over net assets of businesses
acquired, net..................................... 20,021 50,025 70,046
Deferred income tax benefits........................ 35,981 35,981
Receivable from related parties..................... 31,661 31,661
Other assets........................................ 12,691 3,990 432 17,113
-------- -------- -------- ---------- --------
Total Assets........................................ $564,356 $423,587 $ 52,970 $ (233,627) $807,286
-------- -------- -------- ---------- --------
-------- -------- -------- ---------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt................................... $ -- $ 26,944 $ -- $ -- $ 26,944
Current maturities of long-term debt.............. 938 2,775 88 3,801
Accounts payable.................................. 27,147 12,424 16,071 55,642
Accrued liabilities............................... 7,088 13,749 5,461 26,298
Reserve for product warranty claims............... 12,000 1,100 13,100
-------- -------- -------- ---------- --------
Total Current Liabilities...................... 47,173 55,892 22,720 -- 125,785
Long-term debt less current maturities.............. 397,926 157,212 308 555,446
Reserve for product warranty claims................. 18,078 5,803 23,881
Other liabilities................................... 18,180 995 19,175
-------- -------- -------- ---------- --------
Total Liabilities................................... 481,357 213,104 29,826 -- 724,287
-------- -------- -------- ---------- --------
Stockholders' equity, net........................... 82,999 210,483 23,144 (233,627) 82,999
-------- -------- -------- ---------- --------
Total Liabilities and Stockholders' Equity.......... $564,356 $423,587 $ 52,970 $ (233,627) $807,286
-------- -------- -------- ---------- --------
-------- -------- -------- ---------- --------
</TABLE>
F-36
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16. GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
BUILDING MATERIALS CORPORATION OF AMERICA
COMBINED CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
(THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
--------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents, beginning of year............. $ 2 $ 122,584 $ 1,974 $ 124,560
--------- ---------- ------- ----------
Cash provided by (used in) operating activities:
Net income............................................... 12,094 13,104 893 26,091
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation........................................ 3,062 14,689 5,185 22,936
Goodwill amortization............................... 641 1,250 1,891
Deferred income taxes............................... 16,481 16,481
Noncash interest charges............................ 27,222 27,222
(Increase) decrease in working capital items........... 32,601 (19,305) 4,563 17,859
Purchases of trading securities........................ (123,483) (123,483)
Proceeds from sales of trading securities.............. 55,378 55,378
(Increase) decrease in other assets.................... 3,735 (1,924) (38) 1,773
Decrease in other liabilities.......................... (7,422) (1,934) (9,356)
Change in net receivable from/payable to related
parties............................................. 46,608 (93,374) 7,667 (39,099)
Other, net............................................. 3,882 (8,507) (3,376) (8,001)
--------- ---------- ------- ----------
Net cash provided by (used in) operating activities...... 138,904 (163,422) 14,210 (10,308)
--------- ---------- ------- ----------
Cash provided by (used in) investing activities:
Capital expenditures................................... (5,436) (26,049) (15,359) (46,844)
Acquisitions........................................... (30,861) (30,861)
Purchases of available-for-sale securities............. (223,804) (223,804)
Purchases of held-to-maturity securities............... (4,591) (4,591)
Proceeds from sales of available-for-sale securities... 173,547 173,547
Proceeds from held-to-maturity securities.............. 11,361 11,361
--------- ---------- ------- ----------
Net cash used in investing activities.................... (36,297) (69,536) (15,359) (121,192)
--------- ---------- ------- ----------
Cash provided by (used in) financing activities:
Repayments from sale of accounts receivable............ (35,332) (35,332)
Increase in short-term debt............................ 26,944 26,944
Increase in loan receivable from related party......... (6,152) (6,152)
Proceeds from issuance of debt......................... 99,916 99,916
Increase in borrowings under revolving credit
facility............................................ 34,000 34,000
Repayments of long-term debt........................... (1,028) (2,493) (3,521)
Distributions to parent company........................ (91,000) (91,000)
Payments of asbestos claims............................ (3,062) (3,062)
Financing fees and expenses............................ (1,932) (1,932)
--------- ---------- ------- ----------
Net cash provided by (used in) financing activities...... (102,574) 122,435 -- 19,861
--------- ---------- ------- ----------
Net change in cash and cash equivalents.................. 33 (110,523) (1,149) (111,639)
--------- ---------- ------- ----------
Cash and cash equivalents, end of year................... $ 35 $ 12,061 $ 825 $ 12,921
--------- ---------- ------- ----------
--------- ---------- ------- ----------
</TABLE>
F-37
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16. GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
BUILDING MATERIALS CORPORATION OF AMERICA
COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales...................................... $885,364 $ -- $202,593 $ -- $1,087,957
Intercompany net sales......................... 3,413 571,038 72,188 (646,639) --
-------- -------- -------- ---------- ----------
Total net sales................................ 888,777 571,038 274,781 (646,639) 1,087,957
-------- -------- -------- ---------- ----------
Costs and expenses:
Cost of products sold........................ 658,587 538,499 226,461 (646,639) 776,908
Selling, general and administrative.......... 155,184 32,539 47,693 235,416
Goodwill amortization........................ 641 1,470 2,111
Nonrecurring charges......................... 27,563 27,563
-------- -------- -------- ---------- ----------
Total costs and expenses..................... 841,975 571,038 275,624 (646,639) 1,041,998
-------- -------- -------- ---------- ----------
Operating income (loss)........................ 46,802 -- (843) -- 45,959
Equity in loss of subsidiaries................. (581) 581 --
Interest expense, net.......................... (26,535) (11,000) (12,139) (49,674)
Other income (expense), net.................... (7,150) 23,114 (69) 15,895
-------- -------- -------- ---------- ----------
Income (loss) before income taxes and
extraordinary losses......................... 12,536 12,114 (13,051) 581 12,180
Income tax (provision) benefit................. (4,984) (4,603) 4,959 (4,628)
-------- -------- -------- ---------- ----------
Income (loss) before extraordinary losses...... 7,552 7,511 (8,092) 581 7,552
Extraordinary losses, net of income tax
benefits..................................... (18,113) (18,113)
-------- -------- -------- ---------- ----------
Net income (loss).............................. $(10,561) $ 7,511 $ (8,092) $ 581 $ (10,561)
-------- -------- -------- ---------- ----------
-------- -------- -------- ---------- ----------
</TABLE>
F-38
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16. GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
BUILDING MATERIALS CORPORATION OF AMERICA
COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1998
(THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................... $ 3 $ 21,746 $ 3,238 $ -- $ 24,987
Investments in trading securities............ 95,134 95,134
Investments in available-for-sale
securities................................ 56,461 56,461
Investments in held-to-maturity securities... 6,358 6,358
Other short-term investments................. 22,671 22,671
Accounts receivable, trade................... 24,249 24,249
Accounts receivable, other................... 52,806 323 1,666 54,795
Inventories.................................. 44,886 18,825 29,653 93,364
Other current assets......................... 125 2,893 1,126 4,144
-------- -------- -------- ---------- --------
Total Current Assets...................... 97,820 224,411 59,932 -- 382,163
Investment in subsidiaries..................... 250,156 (250,156) --
Intercompany loans including accrued
interest..................................... 140,298 (140,298) --
Due from (to) subsidiaries, net................ (27,369) 42,972 (15,603) --
Property, plant and equipment, net............. 34,620 167,587 112,193 314,400
Excess of cost over net assets of businesses
acquired, net................................ 19,380 52,713 72,093
Deferred income tax benefits................... 60,427 60,427
Other assets................................... 14,844 3,229 337 18,410
-------- -------- -------- ---------- --------
Total Assets................................... $590,176 $438,199 $ 69,274 $ (250,156) $847,493
-------- -------- -------- ---------- --------
-------- -------- -------- ---------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt......... $ 1,170 $ 3,016 $ 87 $ -- $ 4,273
Accounts payable............................. 22,688 33,248 15,677 71,613
Payable to related parties, net.............. 1,721 3,495 214 5,430
Accrued liabilities.......................... 20,257 26,181 13,455 59,893
Reserve for product warranty claims.......... 19,139 1,100 20,239
-------- -------- -------- ---------- --------
Total Current Liabilities................. 64,975 65,940 30,533 -- 161,448
Long-term debt less current maturities......... 433,929 154,265 219 588,413
Reserve for product warranty claims............ 24,159 4,234 28,393
Other liabilities.............................. 22,240 2,126 24,366
-------- -------- -------- ---------- --------
Total Liabilities.............................. 545,303 220,205 37,112 -- 802,620
-------- -------- -------- ---------- --------
Stockholders' equity, net...................... 44,873 217,994 32,162 (250,156) 44,873
-------- -------- -------- ---------- --------
Total Liabilities and Stockholders' Equity .... $590,176 $438,199 $ 69,274 $ (250,156) $847,493
-------- -------- -------- ---------- --------
-------- -------- -------- ---------- --------
</TABLE>
F-39
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16. GUARANTOR FINANCIAL INFORMATION--(CONTINUED)
BUILDING MATERIALS CORPORATION OF AMERICA
COMBINED CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
(THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
--------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents, beginning of year............. $ 35 $ 12,061 $ 825 $ 12,921
--------- ---------- ------- ----------
Cash provided by (used in) operating activities:
Net income (loss)........................................ (9,980) 7,511 (8,092) (10,561)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Extraordinary losses................................ 18,113 18,113
Depreciation........................................ 3,383 16,217 6,979 26,579
Goodwill amortization............................... 641 1,470 2,111
Deferred income taxes............................... 4,128 4,128
Noncash interest charges............................ 23,877 23,877
(Increase) decrease in working capital items........... 4,583 38,414 (15,099) 27,898
Purchases of trading securities........................ (189,197) (189,197)
Proceeds from sales of trading securities.............. 124,931 124,931
(Increase) decrease in other assets.................... (482) 761 204 483
Increase in other liabilities.......................... 7,568 211 7,779
Change in net receivable from/payable to related
parties............................................. 28,210 4,138 9,894 42,242
Other, net............................................. 3,703 7,324 (1,446) 9,581
--------- ---------- ------- ----------
Net cash provided by (used in) operating activities...... 83,744 10,099 (5,879) 87,964
--------- ---------- ------- ----------
Cash provided by (used in) investing activities:
Capital expenditures................................... (4,799) (45,637) (20,637) (71,073)
Acquisitions........................................... (59,187) (59,187)
Proceeds from sale of assets........................... 29,019 29,019
Purchases of available-for-sale securities............. (89,324) (89,324)
Purchases of held-to-maturity securities............... (6,357) (6,357)
Proceeds from sales of available-for-sale securities... 170,055 170,055
Proceeds from held-to-maturity securities.............. 499 499
--------- ---------- ------- ----------
Net cash provided by (used in) investing activities...... (63,986) 29,236 8,382 (26,368)
--------- ---------- ------- ----------
Cash provided by (used in) financing activities:
Repayments from sale of accounts receivable............ (4,754) (4,754)
Decrease in short-term debt............................ (26,944) (26,944)
Decrease in loan receivable from related party......... 6,152 6,152
Proceeds from issuance of debt......................... 304,019 304,019
Decrease in borrowings under revolving credit
facility............................................ (34,000) (34,000)
Repayments of long-term debt........................... (285,108) (2,706) (90) (287,904)
Financing fees and expenses............................ (6,099) (6,099)
--------- ---------- ------- ----------
Net cash used in financing activities.................... (19,790) (29,650) (90) (49,530)
--------- ---------- ------- ----------
Net change in cash and cash equivalents.................. (32) 9,685 2,413 12,066
--------- ---------- ------- ----------
Cash and cash equivalents, end of year................... $ 3 $ 21,746 $ 3,238 $ 24,987
--------- ---------- ------- ----------
--------- ---------- ------- ----------
</TABLE>
F-40
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
SUPPLEMENTARY DATA (UNAUDITED)
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1997 BY QUARTER 1998 BY QUARTER
------------------------------------ ------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
------ ------ ------ ------ ------ ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................. $193.3 $255.9 $274.4 $221.0 $212.4 $286.3 $313.6 $275.7
Cost of products sold................. 143.2 180.2 197.9 165.7 158.0 200.5 220.3 198.1
------ ------ ------ ------ ------ ------ ------ ------
Gross profit.......................... $ 50.1 $ 75.7 $ 76.5 $ 55.3 $ 54.4 $ 85.8 $ 93.3 $ 77.6
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
Operating income (loss)*.............. $ 9.3 $ 24.9 $ 25.6 $ 10.3 $ 6.0 $ 26.7 $ (1.2) $ 14.5
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
Interest expense...................... $ 9.8 $ 10.3 $ 10.4 $ 12.3 $ 12.7 $ 12.7 $ 12.3 $ 12.0
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before income taxes and
extraordinary losses................ $ 2.9 $ 16.6 $ 18.7 $ 4.6 $ 3.6 $ 18.1 $ (7.0) $ (2.5)
Income tax (provision) benefit........ (1.1) (6.5) (7.3) (1.8) (1.4) (7.1) 2.8 1.0
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before extraordinary
losses.............................. 1.8 10.1 11.4 2.8 2.2 11.0 (4.2) (1.5)
Extraordinary losses.................. -- -- -- -- -- -- (9.3) (8.8)
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)..................... $ 1.8 $ 10.1 $ 11.4 $ 2.8 $ 2.2 $ 11.0 $(13.5) $(10.3)
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
- ------------------
* The operating loss for the third quarter of 1998 reflects $27.6 million of
nonrecurring charges. See Note 5 to Consolidated Financial Statements.
F-41
<PAGE>
SCHEDULE II
BUILDING MATERIALS CORPORATION OF AMERICA
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 1996
(THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCE
JANUARY 1, SALES OR DECEMBER 31,
DESCRIPTION 1996 EXPENSES DEDUCTIONS 1997
- -------------------------------------------------------------- ---------- ---------- ---------- ------------
<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>
YEAR ENDED DECEMBER 31, 1997
(THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCE
JANUARY 1, SALES OR DECEMBER 31,
DESCRIPTION 1997 EXPENSES DEDUCTIONS OTHER 1997
- ---------------------------------------------------- ---------- ---------- ---------- ------ ------------
<S> <C> <C> <C> <C> <C>
Valuation and Qualifying Accounts
Deducted from Assets to Which
They Apply:
Allowance for doubtful accounts................ $ 1,974 $ 2,224 $ 1,530(a) $ 84(c) $ 2,752(b)
Allowance for discounts........................ 22,468 80,989 88,443 4,389(c) 19,403
Reserve for inventory market valuation......... 2,509 821 1,824 -- 1,506
</TABLE>
YEAR ENDED DECEMBER 31, 1998
(THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCE
JANUARY 1, SALES OR DECEMBER 31,
DESCRIPTION 1998 EXPENSES DEDUCTIONS OTHER 1998
- ------------------------------------------------------ ---------- ---------- ---------- ----- ------------
<S> <C> <C> <C> <C> <C>
Valuation and Qualifying Accounts
Deducted from Assets to Which
They Apply:
Allowance for doubtful accounts.................. $ 2,752 $ 1,419 $ 486 $350(c) $ 4,035(b)
Allowance for discounts.......................... 19,403 91,569 87,109 -- 23,863
Reserve for inventory market valuation........... 1,506 1,458 918 500(c) 2,546
</TABLE>
- ------------------
Notes:
(a) Represents write-offs of uncollectible accounts net of recoveries.
(b) The balances at December 31, 1996, 1997 and 1998 primarily reflect a reserve
for receivables sold to a trust (see Note 7 to Consolidated Financial
Statements).
(c) Represents balance acquired in acquisitions.
S-1
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------------------------
2.1 -- Reorganization Agreement, dated as of December 31, 1998, by and
among BMCA, Building Materials Manufacturing Corporation and
Building Materials Investment Corporation (incorporated by
reference to Exhibit 2.1 to BMCA's Registration Statement on
Form S-4 (Registration No. 333-69749) (the "2008 Notes S-4")).
3.1 -- Certificate of Incorporation of BMCA (incorporated by reference to
Exhibit 3.1 to BMCA's Form 10-Q for the quarter ended September
27, 1998).
3.2 -- By-laws of BMCA (incorporated by reference to Exhibit 3.2 to
BMCA's Registration Statement on Form S-4 (Registration
No. 33-81808)) (the "Deferred Coupon Note Registration
Statement").
3.3 -- Certificate of Incorporation of Building Materials Manufacturing
Corporation.
3.4 -- By-laws of Building Materials Manufacturing Corporation.
3.5 -- Certificate of Incorporation of Building Materials Investment
Corporation.
3.6 -- By-laws of Building Materials Investment Corporation.
4.1 -- Indenture, dated as of December 3, 1998, between BMCA and The Bank
of New York, as trustee (incorporated by reference to Exhibit 4.1
to the 2008 Notes S-4).
4.2 -- First Supplemental Indenture dated as of January 1, 1999 to
Indenture dated as of December 3, 1998 among BMCA, as issuer,
Building Materials Manufacturing Corporation and Building
Materials Investment Corporation, as guarantors and The Bank of
New York, as trustee (incorporated by reference to Exhibit 4.4 to
the 2008 Notes S-4).
4.3 -- Registration Rights Agreement, dated December 3, 1998, between
BMCA, Bear, Stearns & Co. Inc. and Chase Securities, Inc.
(incorporated by reference to Exhibit 4.3 to the 2008 Notes S-4).
4.4 -- 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).
4.5 -- 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 Statement on Form S-4 (Registration
No. 333-20859) (the "2006 Notes Registration Statement")).
4.6 -- Indenture, dated as of October 20, 1997, between BMCA and The Bank
of New York, as trustee (incorporated by reference to Exhibit 4.1
to BMCA's Registration Statement on Form S-4 (Registration
No. 333-41531) (the "8% Notes Registration Statement")).
4.7 -- Indenture, dated as of July 17, 1998, between BMCA and The Bank of
New York, as trustee (incorporated by reference to Exhibit 4.1 to
BMCA's Registration Statement on Form S-4 (Registration No.
333-60633) (the "2005 Notes S-4")).
4.8 -- First Supplemental Indenture, dated as of November 30, 1998, to
Indenture dated as of June 30, 1994 between BMCA as issuer and
The Bank of New York, as trustee (incorporated by reference to
Exhibit 10.5 to the 2008 Notes S-4).
4.9 -- Second Supplemental Indenture, dated as of January 1, 1999, to
Indenture dated as of June 30, 1994, as previously amended, among
BMCA, as issuer, Building Materials Manufacturing Corporation and
Building Materials Investment Corporation, as guarantors and The
Bank of New York, as trustee (incorporated by reference to
Exhibit 10.6 to the 2008 Notes S-4).
<PAGE>
4.10 -- First Supplemental Indenture, dated as of January 1, 1999, to
Indenture dated as of December 9, 1996 among BMCA, as issuer,
Building Materials Manufacturing Corporation and Building
Materials Investment Corporation, as guarantors and The Bank of
New York, as trustee (incorporated by reference to Exhibit 10.7 to
the 2008 Notes S-4).
4.11 -- First Supplemental Indenture, dated as of January 1, 1999, to
Indenture dated as of October 20, 1997 among BMCA, as issuer,
Building Materials Manufacturing Corporation, as co-obligor,
Building Materials Investment Corporation, as Guarantor and The
Bank of New York, as trustee (incorporated by reference to
Exhibit 10.8 to the 2008 Notes S-4).
4.12 -- First Supplemental Indenture, dated as of January 1, 1999, to
Indenture dated as of July 17, 1998 among BMCA, as issuer,
Building Materials Manufacturing Corporation and Building
Materials Investment Corporation, as guarantors and The Bank of
New York, as trustee (incorporated by reference to Exhibit 10.9 to
the 2008 Notes S-4).
10.1 -- Amended and Restated Management Agreement, dated as of January 1,
1999, among GAF, G-I Holdings, G Industries, Merick Inc.,
GAF Fiberglass, ISP, GAF Building Materials Corporation, GAF
Broadcasting Company, Inc., BMCA and ISP Opco Holdings Inc.
10.2 -- Form of Option Agreement relating to Series A Cumulative
Redeemable Convertible Preferred Stock (incorporated by reference
to Exhibit 10.9 to BMCA's Form 10-K for the year ended
December 31, 1996 (the "1996 Form 10-K")).*
10.3 -- Forms of Amendment to Option Agreement relating to Series A
Cumulative Redeemable Convertible Preferred Stock (incorporated by
reference to Exhibit 10.12 to BMCA's Form 10-K for the year ended
December 31, 1997 (the "1997 Form 10-K")).*
10.4 -- Form of Option Agreement relating to Series A Cumulative
Redeemable Preferred Stock (incorporated by reference to
Exhibit 10.13 to the 1997 Form 10-K).*
10.5 -- BMCA Preferred Stock Option Plan (incorporated by reference to
Exhibit 4.2 to BMCA's Form S-8).*
10.6 -- Tax Sharing Agreement, dated as of January 31, 1994, among GAF,
G-I Holdings and BMCA (incorporated by reference to Exhibit 10.6
to the Deferred Coupon Note Registration Statement).
10.7 -- Reorganization Agreement, dated as of January 31, 1994, among GAF
Building Materials Corporation, G-I Holdings and BMCA
(incorporated by reference to Exhibit 10.9 to the Deferred Coupon
Note Registration Statement).
10.8 -- Stock Appreciation Right Agreement, dated January 1, 1997, between
GAF Corporation and Sunil Kumar (incorporated by reference to
Exhibit 10.11 to the 1996 Form 10-K).*
10.9 -- 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 the 1996
Form 10-K).*
10.10 -- Letter Agreement, dated July 8, 1998, among BMCA, ISP Holdings and
Sunil Kumar (incorporated by reference to Exhibit 10.18 to the
2005 Notes S-4).*
21 -- Subsidiaries of BMCA (incorporated by reference to Exhibit 21 to
the 2008 Notes S-4).
23 -- Consent of Arthur Andersen LLP.
27 -- Financial Data Schedule for fiscal year 1998, which is submitted
electronically to the Securities and Exchange Commission for
information only.
- ------------------
* Management and/or compensation plan or arrangement.
<PAGE>
Exhibit 3.3
CERTIFICATE OF INCORPORATION
OF
BUILDING MATERIALS MANUFACTURING CORPORATION
---------------------------------------
THE UNDERSIGNED, being a natural person for the purposes of
organizing a corporation under the General Corporation Law of the State of
Delaware, hereby certifies that:
FIRST: The name of the Corporation is Building Materials
Manufacturing Corporation.
SECOND: The address of the registered office of the Corporation
in the State of Delaware is 1013 Centre Road, City of Wilmington, County of New
Castle, State of Delaware. The name of the registered agent of the Corporation
in the State of Delaware at such address is The Prentice-Hall Corporation
System, Inc.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware, as from time to time amended.
FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is 1,000, all of which shares shall
be Common Stock having a par value of $.001.
FIFTH: The name and mailing address of the incorporator is
Shelley A. Sorkin, c/o ISP Management Company, Inc., 1361 Alps Road, Wayne, New
Jersey 07470.
SIXTH: In furtherance and not in limitation of the powers
conferred by law, subject to any limitations contained elsewhere in these
articles of incorporation, By-laws of the Corporation may be adopted, amended
or repealed by a majority of the board of directors of the Corporation, but any
By-laws adopted by the board of directors may be amended or repealed by the
stockholders entitled to vote thereon. Election of directors need not be by
written ballot.
SEVENTH: (a) A director of the Corporation shall not be
personally liable either to the Corporation or to any stockholder for monetary
damages for breach of fiduciary duty as a director, except (i) for any breach
of the director's duty of loyalty to the Corporation or its stockholders, or
(ii) for acts or omissions which are not in good faith or which involve
intentional misconduct or knowing violation of the law, or (iii) for any matter
in respect of which such director shall be liable under Section 174 of Title 8
of the General Corporation Law of the State of Delaware or any amendment
thereto or successor provision thereto, or (iv) for any transaction from which
the director shall have derived an improper personal benefit. Neither amendment
nor repeal of this paragraph (a) nor the adoption of any provision of the
Certificate of Incorporation inconsistent with this paragraph (a) shall
eliminate or reduce the effect of this paragraph (a) in respect of any matter
occurring, or any cause of action, suit or claim that, but for this paragraph
(a) of this Article, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
<PAGE>
(b) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to, or testifies in, any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative in nature, by reason of the fact that such
person is or was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding to
the full extent permitted by law, and the Corporation may adopt By-laws or
enter into agreements with any such person for the purpose of providing for
such indemnification.
IN WITNESS WHEREOF, the undersigned has duly executed this
Certificate of Incorporation on this 17th day of December, 1998.
/s/ Shelley A. Sorkin
-------------------------------
Shelley A. Sorkin
Sole Incorporator
<PAGE>
Exhibit 3.4
BY-LAWS
OF
BUILDING MATERIALS MANUFACTURING CORPORATION
(a Delaware corporation)
ARTICLE I
---------
STOCKHOLDERS
------------
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in
the corporation shall be signed by, or in the name of, the corporation by the
Chairman or Vice-Chairman of the Board of Directors, if any, or by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed, and the Board of Directors may require the
owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the
General Corporation Law, the Board of Directors of the corporation may provide
by resolution or resolutions that some or all of any or all classes or series
of the stock of the corporation shall be uncertificated shares. Within a
reasonable time after the issuance or transfer of any uncertificated shares,
the corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of
fractions of a share as of the time when those entitled to receive such
fractions are determined, or (3) issue scrip or warrants in registered form
(either represented by a certificate or
<PAGE>
uncertificated) or bearer form (represented by a certificate) which shall
entitle the holder to receive a full share upon the surrender of such scrip or
warrants aggregating a full share. A certificate for a fractional share or an
uncertificated fractional share shall, but scrip or warrants shall not unless
otherwise provided therein, entitle the holder to exercise voting rights, to
receive dividends thereon, and to participate in any of the assets of the
corporation in the event of liquidation. The Board of Directors may cause scrip
or warrants to be issued subject to the conditions that they shall become void
if not exchanged for certificates representing the full shares or
uncertificated full shares before a specified date, or subject to the
conditions that the shares for which scrip or warrants are exchangeable may be
sold by the corporation and the proceeds thereof distributed to the holders of
scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof,
or by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty nor less than ten days before
the date of such meeting. If no record date is fixed by the Board of Directors,
the record date for determining stockholders entitled to notice of or to vote
at a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting. In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors, and which date shall not be more than ten
days after the date upon which the resolution fixing the record date is adopted
by the Board of Directors. If no record date has been fixed by the Board of
Directors, the record date for determining the stockholders entitled to consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is required by the General Corporation Law, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board
of Directors and prior action by the Board of Directors is required by the
General Corporation Law, the record date for determining stockholders entitled
to
2
<PAGE>
consent to corporate action in writing without a meeting shall be at the
close of business on the day on which the Board of Directors adopts the
resolution taking such prior action. In order that the corporation may
determine the stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any change, conversion, or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall be
not more than sixty days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such
rights notwithstanding that the certificate of incorporation may provide for
more than one class or series of shares of stock, one or more of which are
limited or denied such rights thereunder; provided, however, that no such right
shall vest in the event of an increase or a decrease in the authorized number
of shares of stock of any class or series which is otherwise denied voting
rights under the provisions of the certificate of incorporation, except as any
provision of law may otherwise require.
7. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the directors, provided, that the first annual
meeting shall be held on a date within thirteen months after the organization
of the corporation, and each successive annual meeting shall be held on a date
within thirteen months after the date of the preceding annual meeting. A
special meeting shall be held on the date and at the time fixed by the
directors.
- PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the directors may, from time
to time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
- CALL. Annual meetings and special meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined.
3
<PAGE>
The notice of an annual meeting shall state that the meeting is called for the
election of directors and for the transaction of other business which may
properly come before the meeting, and shall (if any other action which could be
taken at a special meeting is to be taken at such annual meeting) state the
purpose or purposes. The notice of a special meeting shall in all instances
state the purpose or purposes for which the meeting is called. The notice of
any meeting shall also include, or be accompanied by, any additional
statements, information, or documents prescribed by the General Corporation
Law. Except as otherwise provided by the General Corporation Law, a copy of the
notice of any meeting shall be given, personally or by mail, not less than ten
days nor more than sixty days before the date of the meeting, unless the lapse
of the prescribed period of time shall have been waived, and directed to each
stockholder at his record address or at such other address which he may have
furnished by request in writing to the Secretary of the corporation. Notice by
mail shall be deemed to be given when deposited, with postage thereon prepaid,
in the United States Mail. If a meeting is adjourned to another time, not more
than thirty days thence, and/or to another place, and if an announcement of the
adjourned time and/or place is made at the meeting, it shall not be necessary
to give notice of the adjourned meeting unless the directors, after
adjournment, fix a new record date for the adjourned meeting. Notice need not
be given to any stockholder who submits a written waiver of notice signed by
him before or after the time stated therein. Attendance of a stockholder at a
meeting of stockholders shall constitute a waiver of notice of such meeting,
except when the stockholder attends the meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice.
- STOCKHOLDER LIST. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city or other municipality or community
where the meeting is to be held, which place shall be specified in the notice
of the meeting, or if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
CONDUCT OF MEETING. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and if
present and acting - the Chairman of the Board, if any, the Vice-Chairman of
the Board, if any, the President, a Vice-President, or, if none of the
foregoing is in office and present and acting, by a chairman to be chosen by
the stockholders. The Secretary of the corporation, or in his absence, an
Assistant Secretary, shall act as secretary of every meeting, but if neither
the Secretary nor an Assistant Secretary is present the Chairman of the meeting
shall appoint a secretary of the meeting.
4
<PAGE>
- PROXY REPRESENTATION. Every stockholder may authorize another person
or persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
- INSPECTORS. The directors, in advance of any meeting, may, but need
not, appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors
in advance of the meeting or at the meeting by the person presiding thereat.
Each inspector, if any, before entering upon the discharge of his duties, shall
take and sign an oath faithfully to execute the duties of inspectors at such
meeting with strict impartiality and according to the best of his ability. The
inspectors, if any, shall determine the number of shares of stock outstanding
and the voting power of each, the shares of stock represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall
receive votes, ballots, or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots, or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the person presiding at the meeting, the inspector or inspectors, if
any, shall make a report in writing of any challenge, question, or matter
determined by him or them and execute a certificate of any fact found by him or
them.
- QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
- VOTING. Each share of stock shall entitle the holders thereof to one
vote. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote
on the election of directors. Any other action shall be authorized by a
majority of the votes cast except where the General Corporation Law prescribes
a different percentage of votes and/or a different exercise of voting power,
and except as may be otherwise prescribed by the provisions of the certificate
of incorporation and these Bylaws. In the election of directors, and for any
other action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the
5
<PAGE>
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing. Action taken
pursuant to this paragraph shall be subject to the provisions of Section 228 of
the General Corporation Law.
ARTICLE II
----------
DIRECTORS
---------
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of
Directors of the corporation. The Board of Directors shall have the authority
to fix the compensation of the members thereof. The use of the phrase "whole
board" herein refers to the total number of directors which the corporation
would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of one person. Thereafter the number
of directors constituting the whole board shall be at least one. Subject to the
foregoing limitation and except for the first Board of Directors, such number
may be fixed from time to time by action of the stockholders or of the
directors, or, if the number is not fixed, the number shall be one. The number
of directors may be increased or decreased by action of the stockholders or of
the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the certificate of incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may
resign at any time upon written notice to the corporation. Thereafter,
directors who are elected at an annual meeting of stockholders, and directors
who are elected in the interim to fill vacancies and newly created
directorships, shall hold office until the next annual meeting of stockholders
and until their successors are elected and qualified or until their earlier
resignation or removal. Except as the General Corporation Law may otherwise
require, in the interim between annual meetings of stockholders or of special
meetings of stockholders called for the election of directors and/or for the
removal of one or more directors and for the filling of any vacancy in that
connection, newly created directorships and any vacancies in the Board of
Directors, including unfilled vacancies resulting from the removal of directors
for cause or without cause, may be filled by the vote of a majority of the
remaining directors then in office, although less than a quorum, or by the sole
remaining director.
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the
State of Delaware as shall be fixed by the Board.
6
<PAGE>
- CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, or the President, or of a majority of the directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required
for regular meetings for which the time and place have been fixed. Written,
oral, or any other mode of notice of the time and place shall be given for
special meetings in sufficient time for the convenient assembly of the
directors thereat. Notice need not be given to any director or to any member of
a committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
- QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A
majority of the directors present, whether or not a quorum is present, may
adjourn a meeting to another time and place. Except as herein otherwise
provided, and except as otherwise provided by the General Corporation Law, the
vote of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board. The quorum and voting provisions herein
stated shall not be construed as conflicting with any provisions of the General
Corporation Law and these Bylaws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
- CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman
of the Board, if any and if present and acting, or the President, if present
and acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the
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committee. In the absence or disqualification of any member of any such
committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have
and may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE III
-----------
OFFICERS
--------
The officers of the corporation shall consist of a President, a
Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by
the Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board,
one or more Executive Vice-Presidents, one or more other Vice-Presidents, one
or more Assistant Secretaries, one or more Assistant Treasurers, and such other
officers with such titles as the resolution of the Board of Directors choosing
them shall designate. Except as may otherwise be provided in the resolution of
the Board of Directors choosing him, no officer other than the Chairman or
Vice-Chairman of the Board, if any, need be a director. Any number of offices
may be held by the same person, as the directors may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform
such duties in the management and operation of the corporation as shall be
prescribed in the resolutions of the Board of Directors designating and
choosing such officers and prescribing their authority and duties, and shall
have such additional authority and duties as are incident to their office
except to the extent that such resolutions may be inconsistent therewith. The
Secretary or an Assistant Secretary of the corporation shall record all of the
proceedings of all meetings and actions in writing of stockholders, directors,
and committees of directors, and shall exercise such additional authority and
perform such additional duties as the Board shall assign to him. Any officer
may be removed, with or without cause, by the Board of Directors. Any vacancy
in any office may be filled by the Board of Directors.
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ARTICLE IV
----------
CORPORATE SEAL
--------------
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE V
---------
FISCAL YEAR
-----------
The fiscal year of the corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
ARTICLE VI
----------
CONTROL OVER BYLAWS
-------------------
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter, or repeal
these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors
or by the stockholders.
ARTICLE VII
-----------
LIMITATION OF LIABILITY
-----------------------
No person shall be liable to the corporation for any loss or damage
suffered by it on account of any action taken or omitted to be taken by him as
a director or officer of the corporation if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, or, with respect to any criminal matter, had no reasonable
cause to believe his conduct was unlawful.
ARTICLE VIII
------------
INDEMNIFICATION
---------------
1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN THOSE
BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article
VIII, the corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer or employee of the corporation, or
is or was serving at the request of the corporation as a director, officer or
employee of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
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connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgement, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE
RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VIII, the
corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending, or completed action or suit by
or in the right of the corporation to procure a judgment in its favor by reason
of the fact that he is or was a director, officer or employee of the
corporation, or is or was serving at the request of the corporation as a
director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
In addition to the foregoing, subject to Section 3 of this Article
VIII, the corporation shall indemnify, to the fullest extent permitted by law,
any person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action or suit by or in the right of the
corporation to procure a judgement in its favor by reason of the fact that he
is or was a director, officer or employee of the corporation, or is or was
serving at the request of the corporation as a director, officer or employee of
another corporation, partnership, joint venture, trust or other enterprise
against judgments, fines and amounts paid in settlement actually incurred by
him in connection with such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation.
3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under this
Article VIII (unless ordered by a court) shall be made by the corporation upon
a determination that indemnification of the director, officer or employee is
proper in the circumstances because he has met the applicable standard of
conduct set forth in Section 1 or Section 2 of this Article VIII, as the case
may be. Such determination shall be made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (ii) if such a quorum is not obtainable, or,
even if obtainable a quorum of disinterested directors so directs by
independent legal counsel in a written opinion, or (iii) by the stockholders.
To the extent, however, that such director, officer or employee of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in defense
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of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith, without the necessity of authorization in the specific
case.
4. GOOD FAITH DEFINED. For purposes of any determination under Article
VII or Section 3 of this Article VIII, a person shall be deemed to have acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, or, with respect to any criminal action
or proceeding, to have had no reasonable cause to believe his conduct was
unlawful, if his action is based on the records or books of account of the
corporation or another enterprise, or on information supplied to him by the
officers of the corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the corporation or another
enterprise or on information or records given or reports made to the
corporation or another enterprise by an independent certified public accountant
or by an appraiser or other expert selected with reasonable care by the
corporation or another enterprise. The term "another enterprise" as used in
this Section 4 shall mean any other corporation or any partnership, joint
venture, trust or other enterprise of which such person is or was serving at
the request of the corporation as a director, officer or employee. The
provisions of this Section 4 shall not be deemed to be exclusive or to limit in
any way the circumstances in which a person may be deemed to have met the
applicable standard of conduct set forth in Sections 1 or 2 of this Article
VIII, as the case may be.
5. INDEMNIFICATION BY A COURT. Notwithstanding any contrary
determination under Section 3 of this Article VIII, and notwithstanding the
absence of any determination thereunder, any director, officer or employee of
the corporation or of another corporation, partnership, joint venture, trust or
other enterprise who is or was serving at the request of the corporation may
apply to any court of competent jurisdiction in the State of Delaware for
indemnification to the extent otherwise permissible under Sections 1 and 2 of
this Article VIII. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director, officer or
employee is proper in the circumstances because he has met the applicable
standards of conduct set forth in Sections 1 or 2 of this Article VIII, as the
case may be. Notice of any application for indemnification pursuant to this
Section 5 shall be given to the corporation promptly upon the filing of such
application.
6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred in defending or
investigating a threatened or pending action, suit or proceeding may be paid by
the corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors upon receipt of an
undertaking by or on behalf of the director, officer or employee to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this Article VIII.
7. NON-EXCLUSIVITY AND SURVIVAL OF INDEMNIFICATION. The indemnification
provided by this Article VIII shall not be deemed exclusive of any other rights
to which those seeking indemnification may be entitled under the certificate of
incorporation, any By-law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of
any court of competent jurisdiction or otherwise, both as to action in his
official capacity and as to action in another capacity while holding official
capacity
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and as to action in another capacity while holding office, it being the policy
of the corporation that indemnification of the persons specified in Sections 1
and 2 of this Article VIII, shall be made to the fullest extent permitted by
law. The provisions of this Article VIII shall not be deemed to preclude the
indemnification of any person who is not specified in Sections 1 or 2 of this
Article VIII, but whom the corporation has the power or obligation to indemnify
under the provision of the General Corporation Law, or otherwise. The
indemnification provided by this Article VIII shall continue as to a person who
has ceased to be a director, officer or employee and shall inure to the benefit
of the heirs, executors and administrators of such person.
8. INSURANCE. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer or employee of the
corporation, or is or was serving at the request of the corporation as a
director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power or the obligation to
indemnify him against such liability under the provisions of this Article VIII.
9. MEANING OF "CORPORATION" FOR PURPOSES OF ARTICLE VIII.
For purposes of this Article VIII, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees so that any person
who is or was a director, officer or employee of such constituent corporation,
or is or was serving at the request of such constituent corporation as a
director, officer or employee of another corporation partnership, joint
venture, trust or other enterprise, shall stand in the same position under the
provisions of this Article VIII with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if
its separate existence had continued.
BY-LAWSFORM
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Exhibit 3.5
CERTIFICATE OF INCORPORATION
OF
BUILDING MATERIALS INVESTMENT CORPORATION
---------------------------------------
THE UNDERSIGNED, being a natural person for the purposes of
organizing a corporation under the General Corporation Law of the State of
Delaware, hereby certifies that:
FIRST: The name of the Corporation is Building Materials
Investment Corporation.
SECOND: The address of the registered office of the Corporation
in the State of Delaware is 1013 Centre Road, City of Wilmington, County of New
Castle, State of Delaware. The name of the registered agent of the Corporation
in the State of Delaware at such address is The Prentice-Hall Corporation
System, Inc.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware, as from time to time amended.
FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is 1,000, all of which shares shall
be Common Stock having a par value of $.001.
FIFTH: The name and mailing address of the incorporator is
Shelley A. Sorkin, c/o ISP Management Company, Inc., 1361 Alps Road, Wayne, New
Jersey 07470.
SIXTH: In furtherance and not in limitation of the powers
conferred by law, subject to any limitations contained elsewhere in these
articles of incorporation, By-laws of the Corporation may be adopted, amended
or repealed by a majority of the board of directors of the Corporation, but any
By-laws adopted by the board of directors may be amended or repealed by the
stockholders entitled to vote thereon. Election of directors need not be by
written ballot.
SEVENTH: (a) A director of the Corporation shall not be
personally liable either to the Corporation or to any stockholder for monetary
damages for breach of fiduciary duty as a director, except (i) for any breach
of the director's duty of loyalty to the Corporation or its stockholders, or
(ii) for acts or omissions which are not in good faith or which involve
intentional misconduct or knowing violation of the law, or (iii) for any matter
in respect of which such director shall be liable under Section 174 of Title 8
of the General Corporation Law of the State of Delaware or any amendment
thereto or successor provision thereto, or (iv) for any transaction from which
the director shall have derived an improper personal benefit. Neither amendment
nor repeal of this paragraph (a) nor the adoption of any provision of the
Certificate of Incorporation inconsistent with this paragraph (a) shall
eliminate or reduce the effect of this paragraph (a) in respect of any matter
occurring, or any cause of action, suit or claim that, but for this paragraph
(a) of this Article, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
<PAGE>
(b) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to, or testifies in, any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative in nature, by reason of the fact that such
person is or was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding to
the full extent permitted by law, and the Corporation may adopt By-laws or
enter into agreements with any such person for the purpose of providing for
such indemnification.
IN WITNESS WHEREOF, the undersigned has duly executed this
Certificate of Incorporation on this 17th day of December, 1998.
/S/ Shelley A. Sorkin
----------------------
Shelley A. Sorkin
Sole Incorporator
<PAGE>
Exhibit 3.6
BY-LAWS
OF
BUILDING MATERIALS INVESTMENT CORPORATION
(a Delaware corporation)
ARTICLE I
---------
STOCKHOLDERS
------------
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in
the corporation shall be signed by, or in the name of, the corporation by the
Chairman or Vice-Chairman of the Board of Directors, if any, or by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed, and the Board of Directors may require the
owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the
General Corporation Law, the Board of Directors of the corporation may provide
by resolution or resolutions that some or all of any or all classes or series
of the stock of the corporation shall be uncertificated shares. Within a
reasonable time after the issuance or transfer of any uncertificated shares,
the corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
<PAGE>
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of
fractions of a share as of the time when those entitled to receive such
fractions are determined, or (3) issue scrip or warrants in registered form
(either represented by a certificate or uncertificated) or bearer form
(represented by a certificate) which shall entitle the holder to receive a full
share upon the surrender of such scrip or warrants aggregating a full share. A
certificate for a fractional share or an uncertificated fractional share shall,
but scrip or warrants shall not unless otherwise provided therein, entitle the
holder to exercise voting rights, to receive dividends thereon, and to
participate in any of the assets of the corporation in the event of
liquidation. The Board of Directors may cause scrip or warrants to be issued
subject to the conditions that they shall become void if not exchanged for
certificates representing the full shares or uncertificated full shares before
a specified date, or subject to the conditions that the shares for which scrip
or warrants are exchangeable may be sold by the corporation and the proceeds
thereof distributed to the holders of scrip or warrants, or subject to any
other conditions which the Board of Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof,
or by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty nor less than ten days before
the date of such meeting. If no record date is fixed by the Board of Directors,
the record date for determining stockholders entitled to notice of or to vote
at a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting. In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors, and which date shall not be more than ten
days after the date upon which the resolution fixing the record date is adopted
by the Board of Directors. If no record date has been fixed by the Board of
Directors, the record date for determining the stockholders entitled to consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is required by the General Corporation Law, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the corporation by delivery to its
registered office in the State of Delaware, its
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principal place of business, or an officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by the General Corporation Law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action. In order
that the corporation may determine the stockholders entitled to receive payment
of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such
rights notwithstanding that the certificate of incorporation may provide for
more than one class or series of shares of stock, one or more of which are
limited or denied such rights thereunder; provided, however, that no such right
shall vest in the event of an increase or a decrease in the authorized number
of shares of stock of any class or series which is otherwise denied voting
rights under the provisions of the certificate of incorporation, except as any
provision of law may otherwise require.
7. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the directors, provided, that the first annual
meeting shall be held on a date within thirteen months after the organization
of the corporation, and each successive annual meeting shall be held on a date
within thirteen months after the date of the preceding annual meeting. A
special meeting shall be held on the date and at the time fixed by the
directors.
- PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the directors may, from time
to time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
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- CALL. Annual meetings and special meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual
meeting shall state that the meeting is called for the election of directors
and for the transaction of other business which may properly come before the
meeting, and shall (if any other action which could be taken at a special
meeting is to be taken at such annual meeting) state the purpose or purposes.
The notice of a special meeting shall in all instances state the purpose or
purposes for which the meeting is called. The notice of any meeting shall also
include, or be accompanied by, any additional statements, information, or
documents prescribed by the General Corporation Law. Except as otherwise
provided by the General Corporation Law, a copy of the notice of any meeting
shall be given, personally or by mail, not less than ten days nor more than
sixty days before the date of the meeting, unless the lapse of the prescribed
period of time shall have been waived, and directed to each stockholder at his
record address or at such other address which he may have furnished by request
in writing to the Secretary of the corporation. Notice by mail shall be deemed
to be given when deposited, with postage thereon prepaid, in the United States
Mail. If a meeting is adjourned to another time, not more than thirty days
thence, and/or to another place, and if an announcement of the adjourned time
and/or place is made at the meeting, it shall not be necessary to give notice
of the adjourned meeting unless the directors, after adjournment, fix a new
record date for the adjourned meeting. Notice need not be given to any
stockholder who submits a written waiver of notice signed by him before or
after the time stated therein. Attendance of a stockholder at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends the meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice.
- STOCKHOLDER LIST. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city or other municipality or community
where the meeting is to be held, which place shall be specified in the notice
of the meeting, or if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
CONDUCT OF MEETING. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and if
present and acting - the Chairman of
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the Board, if any, the Vice-Chairman of the Board, if any, the President, a
Vice-President, or, if none of the foregoing is in office and present and
acting, by a chairman to be chosen by the stockholders. The Secretary of the
corporation, or in his absence, an Assistant Secretary, shall act as secretary
of every meeting, but if neither the Secretary nor an Assistant Secretary is
present the Chairman of the meeting shall appoint a secretary of the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize another person
or persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
- INSPECTORS. The directors, in advance of any meeting, may, but need
not, appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors
in advance of the meeting or at the meeting by the person presiding thereat.
Each inspector, if any, before entering upon the discharge of his duties, shall
take and sign an oath faithfully to execute the duties of inspectors at such
meeting with strict impartiality and according to the best of his ability. The
inspectors, if any, shall determine the number of shares of stock outstanding
and the voting power of each, the shares of stock represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall
receive votes, ballots, or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots, or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the person presiding at the meeting, the inspector or inspectors, if
any, shall make a report in writing of any challenge, question, or matter
determined by him or them and execute a certificate of any fact found by him or
them.
- QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
- VOTING. Each share of stock shall entitle the holders thereof to one
vote. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote
on the election of directors. Any other action shall be authorized by a
majority of the votes cast except where the General Corporation Law prescribes
a different percentage of votes and/or a different exercise of voting power,
and except as may be otherwise prescribed by the provisions of the certificate
of incorporation and these Bylaws. In the election of directors, and for any
other action, voting need not be by ballot.
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8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. Action taken pursuant to this
paragraph shall be subject to the provisions of Section 228 of the General
Corporation Law.
ARTICLE II
----------
DIRECTORS
---------
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of
Directors of the corporation. The Board of Directors shall have the authority
to fix the compensation of the members thereof. The use of the phrase "whole
board" herein refers to the total number of directors which the corporation
would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of one person. Thereafter the number
of directors constituting the whole board shall be at least one. Subject to the
foregoing limitation and except for the first Board of Directors, such number
may be fixed from time to time by action of the stockholders or of the
directors, or, if the number is not fixed, the number shall be one. The number
of directors may be increased or decreased by action of the stockholders or of
the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the certificate of incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may
resign at any time upon written notice to the corporation. Thereafter,
directors who are elected at an annual meeting of stockholders, and directors
who are elected in the interim to fill vacancies and newly created
directorships, shall hold office until the next annual meeting of stockholders
and until their successors are elected and qualified or until their earlier
resignation or removal. Except as the General Corporation Law may otherwise
require, in the interim between annual meetings of stockholders or of special
meetings of stockholders called for the election of directors and/or for the
removal of one or more directors and for the filling of any vacancy in that
connection, newly created directorships and any vacancies in the Board of
Directors, including unfilled vacancies resulting from the removal of directors
for cause or without cause, may be filled by the vote of a majority of the
remaining directors then in office, although less than a quorum, or by the sole
remaining director.
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4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the
State of Delaware as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, or the President, or of a majority of the directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required
for regular meetings for which the time and place have been fixed. Written,
oral, or any other mode of notice of the time and place shall be given for
special meetings in sufficient time for the convenient assembly of the
directors thereat. Notice need not be given to any director or to any member of
a committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
- QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A
majority of the directors present, whether or not a quorum is present, may
adjourn a meeting to another time and place. Except as herein otherwise
provided, and except as otherwise provided by the General Corporation Law, the
vote of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board. The quorum and voting provisions herein
stated shall not be construed as conflicting with any provisions of the General
Corporation Law and these Bylaws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
- CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman
of the Board, if any and if present and acting, or the President, if present
and acting, or any other director chosen by the Board, shall preside.
7
<PAGE>
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have
and may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE III
-----------
OFFICERS
--------
The officers of the corporation shall consist of a President, a
Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by
the Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board,
one or more Executive Vice-Presidents, one or more other Vice-Presidents, one
or more Assistant Secretaries, one or more Assistant Treasurers, and such other
officers with such titles as the resolution of the Board of Directors choosing
them shall designate. Except as may otherwise be provided in the resolution of
the Board of Directors choosing him, no officer other than the Chairman or
Vice-Chairman of the Board, if any, need be a director. Any number of offices
may be held by the same person, as the directors may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform
such duties in the management and operation of the corporation as shall be
prescribed in the resolutions of the Board of Directors designating and
choosing such officers and prescribing their authority and duties, and shall
have such additional authority and duties as are incident to their office
except to the extent that such resolutions may be inconsistent therewith. The
Secretary or an Assistant Secretary of the
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corporation shall record all of the proceedings of all meetings and actions in
writing of stockholders, directors, and committees of directors, and shall
exercise such additional authority and perform such additional duties as the
Board shall assign to him. Any officer may be removed, with or without cause,
by the Board of Directors. Any vacancy in any office may be filled by the Board
of Directors.
ARTICLE IV
----------
CORPORATE SEAL
--------------
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE V
---------
FISCAL YEAR
-----------
The fiscal year of the corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
ARTICLE VI
----------
CONTROL OVER BYLAWS
-------------------
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter, or repeal
these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors
or by the stockholders.
ARTICLE VII
-----------
LIMITATION OF LIABILITY
-----------------------
No person shall be liable to the corporation for any loss or damage
suffered by it on account of any action taken or omitted to be taken by him as
a director or officer of the corporation if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, or, with respect to any criminal matter, had no reasonable
cause to believe his conduct was unlawful.
ARTICLE VIII
------------
INDEMNIFICATION
---------------
1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN THOSE
BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article
VIII, the corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal,
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administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer or
employee of the corporation, or is or was serving at the request of the
corporation as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgement, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE
RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VIII, the
corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending, or completed action or suit by
or in the right of the corporation to procure a judgment in its favor by reason
of the fact that he is or was a director, officer or employee of the
corporation, or is or was serving at the request of the corporation as a
director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
In addition to the foregoing, subject to Section 3 of this Article
VIII, the corporation shall indemnify, to the fullest extent permitted by law,
any person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action or suit by or in the right of the
corporation to procure a judgement in its favor by reason of the fact that he
is or was a director, officer or employee of the corporation, or is or was
serving at the request of the corporation as a director, officer or employee of
another corporation, partnership, joint venture, trust or other enterprise
against judgments, fines and amounts paid in settlement actually incurred by
him in connection with such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation.
3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under this
Article VIII (unless ordered by a court) shall be made by the corporation upon
a determination that indemnification of the director, officer or employee is
proper in the circumstances because he has met the applicable standard of
conduct set forth in Section 1 or Section 2 of this Article VIII, as the case
may be. Such determination shall be made (i) by the Board of Directors by a
majority
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vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (ii) if such a quorum is not obtainable, or,
even if obtainable a quorum of disinterested directors so directs by
independent legal counsel in a written opinion, or (iii) by the stockholders.
To the extent, however, that such director, officer or employee of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in defense of any claim, issue
or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith, without the necessity of authorization in the specific case.
4. GOOD FAITH DEFINED. For purposes of any determination under Article
VII or Section 3 of this Article VIII, a person shall be deemed to have acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, or, with respect to any criminal action
or proceeding, to have had no reasonable cause to believe his conduct was
unlawful, if his action is based on the records or books of account of the
corporation or another enterprise, or on information supplied to him by the
officers of the corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the corporation or another
enterprise or on information or records given or reports made to the
corporation or another enterprise by an independent certified public accountant
or by an appraiser or other expert selected with reasonable care by the
corporation or another enterprise. The term "another enterprise" as used in
this Section 4 shall mean any other corporation or any partnership, joint
venture, trust or other enterprise of which such person is or was serving at
the request of the corporation as a director, officer or employee. The
provisions of this Section 4 shall not be deemed to be exclusive or to limit in
any way the circumstances in which a person may be deemed to have met the
applicable standard of conduct set forth in Sections 1 or 2 of this Article
VIII, as the case may be.
5. INDEMNIFICATION BY A COURT. Notwithstanding any contrary
determination under Section 3 of this Article VIII, and notwithstanding the
absence of any determination thereunder, any director, officer or employee of
the corporation or of another corporation, partnership, joint venture, trust or
other enterprise who is or was serving at the request of the corporation may
apply to any court of competent jurisdiction in the State of Delaware for
indemnification to the extent otherwise permissible under Sections 1 and 2 of
this Article VIII. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director, officer or
employee is proper in the circumstances because he has met the applicable
standards of conduct set forth in Sections 1 or 2 of this Article VIII, as the
case may be. Notice of any application for indemnification pursuant to this
Section 5 shall be given to the corporation promptly upon the filing of such
application.
6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred in defending or
investigating a threatened or pending action, suit or proceeding may be paid by
the corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors upon receipt of an
undertaking by or on behalf of the director, officer or employee to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this Article VIII.
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<PAGE>
7. NON-EXCLUSIVITY AND SURVIVAL OF INDEMNIFICATION. The indemnification
provided by this Article VIII shall not be deemed exclusive of any other rights
to which those seeking indemnification may be entitled under the certificate of
incorporation, any By-law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of
any court of competent jurisdiction or otherwise, both as to action in his
official capacity and as to action in another capacity while holding official
capacity and as to action in another capacity while holding office, it being
the policy of the corporation that indemnification of the persons specified in
Sections 1 and 2 of this Article VIII, shall be made to the fullest extent
permitted by law. The provisions of this Article VIII shall not be deemed to
preclude the indemnification of any person who is not specified in Sections 1
or 2 of this Article VIII, but whom the corporation has the power or obligation
to indemnify under the provision of the General Corporation Law, or otherwise.
The indemnification provided by this Article VIII shall continue as to a person
who has ceased to be a director, officer or employee and shall inure to the
benefit of the heirs, executors and administrators of such person.
8. INSURANCE. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer or employee of the
corporation, or is or was serving at the request of the corporation as a
director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power or the obligation to
indemnify him against such liability under the provisions of this Article VIII.
9. MEANING OF "CORPORATION" FOR PURPOSES OF ARTICLE VIII.
For purposes of this Article VIII, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees so that any person
who is or was a director, officer or employee of such constituent corporation,
or is or was serving at the request of such constituent corporation as a
director, officer or employee of another corporation partnership, joint
venture, trust or other enterprise, shall stand in the same position under the
provisions of this Article VIII with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if
its separate existence had continued.
BY-LAWSFORM
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<PAGE>
Exhibit 10.1
THIS AMENDED AND RESTATED MANAGEMENT AGREEMENT is made as of January
1, 1999, by and among GAF Corporation ("GAF"), G-I Holdings Inc. ("G-I
Holdings"), G Industries Corp. ("Industries"), Merick Inc. ("Merick"), GAF
Fiberglass Corporation (formerly known as GAF Chemicals Corporation) ("GFC"),
International Specialty Products Inc. (formerly known as ISP Holdings Inc.)
("New ISP"), GAF Building Materials Corporation ("Building Materials"), GAF
Broadcasting Company, Inc. ("Broadcasting"), Building Materials Corporation of
America ("BMCA"), and ISP Opco Holdings Inc., as assignee of International
Specialty Products Inc. (the "Company"), all of which are Delaware
corporations. (GAF, G-I Holdings, Industries, Merick, GFC, New ISP, Building
Materials, Broadcasting and BMCA being hereinafter referred to collectively as
the "Overhead Group").
WHEREAS, the parties hereto are parties to an Amended and Restated
Management Agreement made as of March 3, 1992, as previously amended by
Amendments dated as of January 1, 1994, May 31, 1994, December 31, 1994,
December 31, 1995, October 18, 1996, January 1, 1997, December 31, 1997,
January 1, 1998 and March 30, 1998 (the "Existing Agreement"), and
WHEREAS, the members of the Overhead Group continue to desire to have
the Company provide certain management services to them, as more fully
described below; and
WHEREAS, the Company continues to be willing to provide such
management services to the members of the Overhead Group but will incur certain
costs and expenses relating to those services, and
WHEREAS, the parties continue to desire to pay certain of each other's
expenses for their mutual administrative convenience until such time as such
expenses can be directly billed or charged to the party that incurred them, so
long as each party that incurs such expense promptly reimburses the party that
pays the cost thereof; and
WHEREAS, in accordance with Section 8 of the Existing Agreement, the
parties desire to adjust the management fees payable to the Company under the
Existing Agreement, effective January 1, 1999, in order to more appropriately
reflect the usage of
<PAGE>
services provided by the Company and the costs to the Company of providing such
services, under the Existing Agreement; and
WHEREAS, the parties desire to amend and restate in its entirety the
Existing Agreement as hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and subject to
the conditions contained herein, the parties hereby amend and restate in its
entirety the Existing Agreement, and it is hereby agreed as follows:
1. Term. The term of this Agreement shall expire December 31, 1999.
2. Provision of Services. The Company agrees to provide to the Overhead Group,
to the extent required by each of them, the following management services,
wherever rendered (except as the location may be limited below), which shall
be provided on a continuous basis without specific request:
(i) Corporate development, corporate human resources, risk management,
accounting, payroll and control, tax, corporate finance, investment
management services, and general management services as requested
from time to time;
(ii) Legal and corporate secretarial services;
(iii) Computer services;
(iv) Except as set forth below with respect to a portion of such services
to be provided to BMCA, administrative services, including personnel
and employee benefit plan administration and telephone, telecopy,
telex, photocopy and cafeteria services at the Company's offices
located in Wayne, New Jersey (the "Wayne Site");
(v) Except as set forth below with respect to a portion of such services
to be provided to BMCA, facilities' services and utilities, such as
heat, electricity and water, at the Wayne Site.
<PAGE>
The foregoing list of services shall not be deemed exhaustive and may
be changed according to the changing business needs of the parties hereto
from time to time upon mutual agreement among such parties (all services
provided by the Company pursuant to this Section 2 being hereinafter
collectively referred to as the "Services"). It is understood and agreed by
BMCA and the Company that (a) computer services and certain administrative
services, such as telephone, telecopy, telex and photocopy, shall not be
within the scope of, or provided by the Company to BMCA under, this
Agreement and (b) to the extent that certain facilities services and
utilities are furnished to BMCA pursuant to the sublease referred to in
Section 3 of this Agreement, such services and utilities shall not be within
the scope of, or provided by the Company to BMCA under, this Section 2.
3. Management Fee. In consideration of the Company providing Services
hereunder, (i) each of the corporations listed below shall pay to the
Company a management fee (the "Management Fee") at the following respective
annual rates for the year ending December 31, 1999: BMCA (on behalf of
itself and its subsidiaries): $2,537,000, G-I Holdings (on behalf of itself
and Industries, Merick, Building Materials and Broadcasting) - $521,250; New
ISP - $104,250; and GFC - $293,168; and (ii) BMCA shall pay to the Company a
fee for the Company's provision to BMCA of treasury, acquisition and
investment management services ("Financial Services Fee") at the annual rate
of $1,653,750 for the year ended December 31, 1999. The Management Fee and
the Financial Services Fee shall be payable quarterly in arrears. In
addition to the Management Fee and the Financial Services Fee, BMCA shall
pay to a wholly-owned subsidiary of the Company sublease payments pursuant
to and in accordance with the Sublease between BMCA and such subsidiary, the
form of which is attached as Exhibit A hereto and made a part hereof.
G-I Holdings shall reimburse New ISP for all amounts paid by New ISP in
respect of the right to receive cash granted to Sunil Kumar by ISP Holdings
Inc., in accordance with the Agreement and Plan of Merger dated as of March
30, 1998 between International Specialty Products Inc. and ISP Holdings
Inc., and in exchange for stock appreciation rights and options to purchase
shares of Series A Cumulative Redeemable Convertible Preferred Stock of ISP
Holdings Inc. held by such person. Reimbursement to New ISP shall be made
promptly following receipt from New ISP by G-I Holdings of an invoice
therefor.
3
<PAGE>
4. Reimbursement of Expenses.
(i) To the extent any party to this Agreement pays any expense
attributable to another party hereto for reasons of administrative
convenience (a "Reimbursable Expense"), the party that paid the
Reimbursable Expense shall promptly bill the party that incurred such
expense for the amount thereof, and the party that incurred such
expense shall promptly pay such invoice. If a Reimbursable Expense is
part of a combined or consolidated expense billed or otherwise charged
to a single party though incurred for the benefit of more than one
party, the parties for whose benefit such expense was incurred shall
endeavor to arrange for direct billing or charging to them of their
respective portions of such expense.
(ii) Any party that bills another party for Reimbursable Expenses during a
calendar quarter shall provide to such other party, following the
completion of such quarter, a statement indicating all amounts
invoiced during such quarter and whether such amounts have been paid.
(iii) If joint insurance policies or separate policies with a shared policy
limit or deductible are issued to the parties hereto, (a) the premiums
charged for each such policy shall be allocated among them in the
manner determined by an unaffiliated actuary, insurance broker or
insurer designated by the Company's risk manager, except to the extent
premiums or rates are specifically identifiable to a party or parties,
and (b) deductibles, policy limits and policy recoveries shall be
allocated among the parties, on a policy by policy basis, in
proportion to the premiums paid by each of them; provided that clause
(b) shall only apply (x) to a policy or limit or deductible to the
extent it is exceeded, (y) to recoveries to the extent a related
deductible or policy limit is exceeded and (z) to deductibles, policy
limits or recoveries to the extent a party had a loss relating
thereto. To the extent a party receives insurance recoveries in excess
of its allocable share as provided in the preceding sentence and
another party shall have the right to receive all or portion of such
excess recoveries under the related insurance policy and in accordance
with the allocations referred to in the preceding sentence, such first
party shall, within five business days after notice thereof from the
other party, pay to the other party the amount of such
4
<PAGE>
excess recoveries such other party was entitled to receive. No person
or entity, other than the parties hereto, their subsidiaries and the
successors of the parties and their subsidiaries, shall have any
rights under this Section 4(iii) or be a third party beneficiary
hereof. This Section 4(iii) shall survive termination of this
Agreement.
(iv) Any shared third party charges, other than those referred to in
Section 4(iii), shall be allocated among the parties hereto on such
basis as the Company, in consultation with the other parties, shall
reasonably determine.
(v) If, at the request of another party hereto, the Company performs for
such party services outside of the normal scope of the Services
provided hereunder, the requesting party shall pay to the Company such
fee therefor as is reasonably designated by the Company in advance of
performing such services.
5. Warranty. The Company warrants that it will employ sufficient and properly
skilled personnel to perform the Services in a professional manner. It is
understood that the Company may enter into contracts with third party
suppliers to supply the Services and shall take into account the best
interests of the recipient thereof in negotiating the terms and conditions
of such contracts. If necessary for the Company's effective exercise of its
responsibilities hereunder, the other parties shall designate officers and
employees of the Company as their officers and employees, subject to all of
the other terms of this Agreement.
6. Records and Audit. Any party that bills another for Reimbursable Expenses
shall make and maintain accurate and complete records of such expenses and
the basis for all invoices therefor, and shall ensure that there is no
duplication in the invoicing of costs to any party. Each party that pays any
Reimbursable Expenses invoiced to it shall have the right to audit the
records relating thereto from time to time during normal business hours.
7. Amendments.
(i) The parties acknowledge that the Management Fee and Financial Services
Fee have been established to reflect the cost to the Company of
providing Services hereunder on the date hereof. In the event of a
change of circumstances that materially affects
5
<PAGE>
the cost to the Company of providing Services hereunder, including,
without limitation, a substantial increase in the Services provided by
the Company hereunder, the parties shall negotiate in good faith such
amendments to this Agreement as may be appropriate to take into
account the effect of any such changes of circumstances. Such
amendments may include, without limitation, an increase or decrease of
the Management Fee and/or the Financial Services Fee.
(ii) Subject to paragraph (iii) of this Section 7, any amendment,
modification or waiver of any provision of this Agreement shall only
be effective if evidenced by a written instrument signed by an officer
of the Company and an officer of the other party or parties affected
by such amendment, modification or waiver.
(iii) Notwithstanding anything else to the contrary contained herein, the
list of Services may be revised by mutual agreement of an officer of
each party affected thereby without the need for a written instrument.
8. Governing Law. The execution, validity, interpretation and enforcement of
this Agreement shall be governed by the internal laws of the State of New
York without regard to choice of law principles that would lead to the
application of any other state's law.
9. Amendment and Restatement. This Agreement is an amendment and restatement of
and supersedes and supplants the Existing Agreement.
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
<TABLE>
GAF CORPORATION G-I HOLDINGS
<S> <C>
By: s/s James P. Rogers By: : s/s James P. Rogers
------------------------------------- ----------------------------------
Name: James P. Rogers Name: James P. Rogers
Title: Executive Vice President Title: Executive Vice President
G INDUSTRIES MERICK INC.
By: s/s James P. Rogers By: s/s James P. Rogers
------------------------------------- ----------------------------------
Name: James P. Rogers Name: James P. Rogers
Title: Executive Vice President Title: Executive Vice President
GAF FIBERGLASS CORPORATION INTERNATIONAL SPECIALTY PRODUCTS INC.
By: s/s William C. Lang By: s/s Randall R. Lay
------------------------------------- --------------------------------------
Name: William C. Lang Name: Randall R. Lay
Title: Senior Vice President and Title: Senior Vice President and
Chief Financial Officer Chief Financial Officer
GAF BUILDING MATERIALS CORPORATION GAF BROADCASTING COMPANY
By: s/s James P. Rogers By: s/s James P. Rogers
------------------------------------- ----------------------------------
Name: James P. Rogers Name: James P. Rogers
Title: Executive Vice President Title: Executive Vice President
BUILDING MATERIALS CORPORATION ISP OPCO HOLDINGS INC.
OF AMERICA
By: s/s William C. Lang By: s/s Randall R. Lay
------------------------------------- ----------------------------------
Name: William C. Lang Name: Randall R. Lay
Title: Senior Vice President and Title: Senior Vice President and
Chief Financial Officer Chief Financial Officer
</TABLE>
7
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated February 12, 1999, included in this Form 10-K, into Building
Materials Corporation of America's previously filed Registration Statement on
Form S-8 File No. 333-60589.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-K FOR THE YEAR ENDED DECEMBER 31, 1998 OF BUILDING MATERIALS CORPORATION OF
AMERICA AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 927314
<NAME> BUILDING MATERIALS CORPORATION OF AMERICA
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 24,987
<SECURITIES> 157,953
<RECEIVABLES> 24,249
<ALLOWANCES> 4,035
<INVENTORY> 93,364
<CURRENT-ASSETS> 382,163
<PP&E> 314,400
<DEPRECIATION> 63,799
<TOTAL-ASSETS> 847,493
<CURRENT-LIABILITIES> 161,448
<BONDS> 588,413
0
0
<COMMON> 1
<OTHER-SE> 44,872
<TOTAL-LIABILITY-AND-EQUITY> 847,493
<SALES> 1,087,957
<TOTAL-REVENUES> 1,087,957
<CGS> 776,908
<TOTAL-COSTS> 776,908
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,674
<INCOME-PRETAX> 12,180
<INCOME-TAX> 4,628
<INCOME-CONTINUING> 7,552
<DISCONTINUED> 0
<EXTRAORDINARY> (18,113)
<CHANGES> 0
<NET-INCOME> (10,561)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
