UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended July 4, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-81808
BUILDING MATERIALS CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
Delaware 22-3276290
(State of Incorporation) (I. R. S. Employer
Identification No.)
1361 Alps Road, Wayne, New Jersey 07470
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (973) 628-3000
See table of additional registrants.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES /X/ NO / /
As of August 16, 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 August 16, 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.
<PAGE>
<TABLE>
ADDITIONAL REGISTRANTS
<CAPTION>
Registration Address, including zip
State or other No./I.R.S. code and telephone number,
jurisdiction of No. of Employer including area code, of
Exact name of registrant as incorporation Shares Identification registrant's principal
specified in its charter or organization Outstanding No. executive offices
- --------------------------- --------------- ----------- --------------- ----------------------------
<S> <C> <C> <C> <C>
Building Materials
Manufacturing Corporation.... Delaware 10 333-69749-01/ 1361 Alps Road
22-3626208 Wayne, NJ 07470
(973) 628-3000
Building Materials
Investment Corporation....... Delaware 10 333-69749-02/ 300 Delaware Avenue
22-3626206 Wilmington, DE 19801
(302) 427-5960
</TABLE>
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Second Quarter Ended Six Months Ended
-------------------- -----------------
June 28, July 4, June 28, July 4,
1998 1999 1998 1999
-------- -------- -------- --------
(Thousands)
Net sales ............................. $286,227 $310,494 $498,656 $573,422
-------- -------- -------- --------
Costs and expenses:
Cost of products sold ............... 200,496 218,392 358,530 410,474
Selling, general and administrative.. 58,507 62,471 106,381 118,746
Goodwill amortization ............... 510 508 1,002 1,017
-------- -------- -------- --------
Total costs and expenses........... 259,513 281,371 465,913 530,237
-------- -------- -------- --------
Operating income ...................... 26,714 29,123 32,743 43,185
Interest expense ...................... (12,713) (12,862) (25,405) (24,696)
Other income, net...................... 4,086 7,067 14,353 6,557
-------- -------- -------- --------
Income before income taxes ............ 18,087 23,328 21,691 25,046
Income taxes .......................... (7,055) (8,632) (8,459) (9,268)
-------- -------- -------- --------
Net income ............................ $ 11,032 $ 14,696 $ 13,232 $ 15,778
======== ======== ======== ========
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
1
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS
July 4,
December 31, 1999
1998 (Unaudited)
------------ -----------
(Thousands)
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 24,987 $ 53,041
Investments in trading securities................. 95,134 855
Investments in available-for-sale securities...... 56,461 63,104
Investments in held-to-maturity securities........ 6,358 -
Other short-term investments...................... 22,671 1,718
Accounts receivable, trade, net................... 24,249 35,038
Accounts receivable, other........................ 54,795 62,391
Receivable from related parties, net.............. - 56,568
Inventories....................................... 93,364 124,731
Other current assets.............................. 4,144 5,114
--------- ---------
Total Current Assets............................ 382,163 402,560
Property, plant and equipment, net.................. 314,400 325,903
Excess of cost over net assets of businesses
acquired, net .................................... 72,093 71,201
Deferred income tax benefits........................ 60,427 47,685
Other assets........................................ 18,410 19,250
--------- ---------
Total Assets........................................ $ 847,493 $ 866,599
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt................................... $ - $ 48
Current maturities of long-term debt.............. 4,273 4,776
Accounts payable.................................. 71,613 83,495
Payable to related parties, net................... 5,430 -
Accrued liabilities............................... 59,893 58,544
Reserve for product warranty claims............... 20,239 16,100
--------- ---------
Total Current Liabilities....................... 161,448 162,963
--------- ---------
Long-term debt less current maturities.............. 588,413 590,356
--------- ---------
Reserve for product warranty claims................. 28,393 22,622
--------- ---------
Other liabilities................................... 24,366 21,143
--------- ---------
Stockholders' Equity:
Series A Cumulative Redeemable Convertible
Preferred Stock, $.01 par value per share;
200,000 shares authorized; no shares issued - -
Class A Common Stock, $.001 par value per share;
1,300,000 shares authorized; 1,015,010 shares
issued and outstanding ......................... 1 1
Class B Common Stock, $.001 par value per share;
100,000 shares authorized; 15,000 shares
issued and outstanding ......................... - -
Additional paid-in capital........................ 89,400 92,447
Accumulated deficit............................... (24,644) (8,866)
Accumulated other comprehensive loss ............. (19,884) (14,067)
--------- ---------
Stockholders' Equity ........................... 44,873 69,515
--------- ---------
Total Liabilities and Stockholders' Equity ........ $ 847,493 $ 866,599
========= =========
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
2
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended
-------------------
June 28, July 4,
1998 1999
-------- --------
(Thousands)
Cash and cash equivalents, beginning of period........... $ 12,921 $ 24,987
-------- --------
Cash provided by (used in) operating activities:
Net income ............................................ 13,232 15,778
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation ...................................... 12,378 14,500
Goodwill amortization.............................. 1,002 1,017
Deferred income taxes.............................. 8,358 8,893
Noncash interest charges........................... 14,920 2,290
Increase in working capital items...................... (43,931) (87,625)
Purchases of trading securities........................ (61,049) (124,696)
Proceeds from sales of trading securities.............. 77,111 224,452
Change in net receivable from/payable to related
parties.............................................. 45,987 (61,998)
Other, net............................................. 2,867 (11,984)
-------- --------
Net cash provided by (used in) operating activities...... 70,875 (19,373)
-------- --------
Cash provided by (used in) investing activities:
Capital expenditures................................... (23,548) (26,680)
Acquisition............................................ (43,468) -
Purchases of available-for-sale securities............. (32,808) (56,469)
Purchases of held-to-maturity securities............... - (1,401)
Proceeds from sales of available-for-sale securities... 96,604 59,493
Proceeds from held-to-maturity securities.............. 499 7,758
Proceeds from sales of other short-term investments.... - 21,145
-------- --------
Net cash provided by (used in) investing activities...... (2,721) 3,846
-------- --------
Cash provided by (used in) financing activities:
Proceeds from sale of accounts receivable.............. 7,478 43,494
Increase (decrease) in short-term debt................. (24,833) 48
Proceeds from issuance of long-term debt............... - 3,500
Decrease in borrowings under revolving credit facility (34,000) -
Repayments of long-term debt........................... (1,629) (2,865)
Decrease in loan receivable from related party......... 6,152 -
Financing fees and expenses............................ (176) (596)
-------- --------
Net cash provided by (used in) financing activities...... (47,008) 43,581
-------- --------
Net change in cash and cash equivalents.................. 21,146 28,054
-------- --------
Cash and cash equivalents, end of period................. $ 34,067 $ 53,041
======== ========
3
<PAGE>
BUILDING MATERIALS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - (Continued)
Six Months Ended
-------------------
June 28, July 4,
1998 1999
--------- --------
(Thousands)
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized)............. $ 10,279 $ 22,732
Income taxes..................................... 800 958
Acquisition of Leslie-Locke business:
Fair market value of assets acquired............... $ 59,318
Purchase price of acquisition...................... 43,468
--------
Liabilities assumed................................ $ 15,850
========
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Building Materials Corporation of America (the "Company") is a 97%-owned
subsidiary of GAF Building Materials Corporation ("GAFBMC"), which is an
indirect, wholly-owned subsidiary of G-I Holdings Inc. ("G-I Holdings"). G-I
Holdings is a wholly-owned subsidiary of GAF Corporation ("GAF"). The
consolidated financial statements of the Company reflect, in the opinion of
management, all adjustments necessary to present fairly the financial position
of the Company at July 4, 1999, and the results of operations and cash flows for
the periods ended June 28, 1998 and July 4, 1999. All adjustments are of a
normal recurring nature. These financial statements should be read in
conjunction with the annual financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998 (the "Form 10-K").
Note 1: Comprehensive Income
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
-------------------- -----------------
June 28, July 4, June 28, July 4,
1998 1999 1998 1999
--------- -------- -------- -------
(Thousands)
<S> <C> <C> <C> <C>
Net income .................................... $11,032 $14,696 $13,232 $15,778
------- ------- ------- -------
Other comprehensive income (loss), net of tax:
Change in unrealized gains (losses) on
available-for-sale securities:
Unrealized holding gains (losses)
arising during the period, net of
income tax (provision) benefit of $378,
$2,986, $(1,471) and $4,656 .............. (589) 6,983 2,305 7,192
Less: Reclassification adjustment
for gains included in net income, net of
income taxes of $2,913, $570, $7,215
and $807................................... 4,559 971 11,289 1,375
------- ------- ------- -------
Total other comprehensive income (loss)........ (5,148) 6,012 (8,984) 5,817
------- ------- ------- -------
Comprehensive income........................... $ 5,884 $20,708 $ 4,248 $21,595
======= ======= ======= =======
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1. Comprehensive Income (Continued)
Changes in the components of "Accumulated other comprehensive loss" for the
six months ended July 4, 1999 are as follows:
Unrealized
Losses on Minimum Accumulated
Available- Pension Other
for-sale Liability Comprehensive
Securities Adjustment Loss
-------------- ---------- -------------
(Thousands)
Balance, December 31, 1998 ... $(16,928) $ (2,956) $(19,884)
Change for the period ........ 5,817 - 5,817
-------- -------- --------
Balance, July 4, 1999 ........ $(11,111) $ (2,956) $(14,067)
======== ======== ========
Note 2: Inventories:
Inventories consist of the following:
December 31, July 4,
1998 1999
------------ ---------
(Thousands)
Finished goods .................. $ 58,266 $ 83,700
Work in process ................. 8,488 10,077
Raw materials and supplies ...... 27,296 31,640
-------- --------
Total ........................... 94,050 125,417
Less LIFO reserve ............... (686) (686)
-------- --------
Inventories ..................... $ 93,364 $124,731
======== ========
Note 3. Nonrecurring Charges
In July 1998, the Company recorded a pre-tax nonrecurring charge of $7.6
million related to a grant to its former President and Chief Executive Officer
of 30,000 shares of restricted common stock of the Company (a portion of which
such officer transferred to trusts for the benefit of his children) and related
cash payments to be made over a period of time (substantially all of which was
earned) in connection with the termination by an affiliate of preferred stock
options and stock appreciation rights held by such officer. Of the $7.6 million
charge, $2.5 million represented the value as of the date of grant of the 30,000
shares of restricted common stock, and $5.1 million represented the aggregate
amount of the cash payments to which such officer was entitled (subject to
certain future vesting requirements). The shares of restricted stock are subject
to certain rights of the Company to purchase, and of such
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3. Nonrecurring Charges (Continued)
officer and the trusts to sell to the Company, such shares at Book Value
(as defined).
Effective June 30, 1999, such officer terminated his employment with the
Company. In connection with this termination, the Company's obligation to such
officer to pay an aggregate of $3.0 million (representing the balance of the
cash payments described above) was cancelled and treated as a capital
contribution. Accordingly, such amount has been reflected as an increase in
additional paid-in-capital. In addition, the Company expects the agreement
between the Company and such officer and the trusts relating to the restricted
common stock will be terminated and that the restricted common stock will be
cancelled or exchanged in consideration for equity to be issued to such officer
and the trusts in one or more parents of the Company.
Note 4: Contingencies
Asbestos Litigation Against GAF
In connection with its formation, the Company contractually assumed and
agreed to pay the first $204.4 million of liabilities for asbestos-related
bodily injury claims relating to the inhalation of asbestos fiber ("Asbestos
Claims") (whether for indemnity or defense) of its parent, GAFBMC, relating to
then-pending cases and previously settled, but not paid, cases as of January 31,
1994, and no other asbestos liabilities of GAFBMC. As of March 30, 1997, the
Company had paid all of its assumed asbestos-related liabilities.
GAF has advised the Company that, as of June 26, 1999, it is defending
approximately 126,000 pending alleged Asbestos Claims (having received notice of
approximately 30,200 new Asbestos Claims during the first six months of 1999)
and has resolved approximately 311,500 Asbestos Claims (including approximately
18,000 in the first six months of 1999). GAF's current estimated average cost
for Asbestos Claims resolved in 1998 (including Asbestos Claims disposed of at
no cost to GAF) is approximately $3,600 per claim. 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 and 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
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 4: Contingencies (Continued)
the Company, and such enforcement could result in a change of control with
respect to the Company.
For further information regarding the history of the foregoing litigation
and asbestos-related matters, see "Item 3. Legal Proceedings" and Note 3 to
Consolidated Financial Statements contained in the Company's Form 10-K.
Environmental Litigation
The Company, together with other companies, is a party to a variety of
proceedings and lawsuits involving environmental matters ("Environmental
Claims"), in which recovery is sought for the cost of cleanup of contaminated
sites, a number of which Environmental Claims are in the early stages or have
been dormant for protracted periods. At most sites, the Company anticipates that
liability will be apportioned among the companies found to be responsible for
the presence of hazardous substances at the site. The Company believes that the
ultimate disposition of such matters will not, individually or in the aggregate,
have a material adverse effect on the business, results of operations or
financial position of the Company.
For further information regarding environmental matters and other
litigation, reference is made to "Item 3. Legal Proceedings" contained in the
Company's Form 10-K.
Tax Claim Against GAF
On September 15, 1997, GAF received a notice from the Internal Revenue
Service (the "Service") of a deficiency in the amount of $84.4 million (after
taking into account the use of net operating losses and foreign tax credits
otherwise available for use in later years) in connection with the formation in
1990 of Rhone-Poulenc Surfactants and Specialties, L.P. (the "surfactants
partnership"), a partnership in which a subsidiary of GAF, GAF Fiberglass
Corporation ("GFC"), held 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.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 5. 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, 2000, but
may be adopted earlier. If the Company had adopted SFAS No. 133 as of January 1,
1999, 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 6. Subsequent Event
Effective July 9, 1999, the Company called for the redemption on August 16,
1999 of the remaining $29.9 million of the Company's 11 3/4% Senior Deferred
Coupon Notes due 2004. The redemption price is 105.875% of the principal amount
outstanding plus accrued interest up to the redemption date. The call premium in
connection with the extinguishment of such debt will be recorded as an
extraordinary item, net of tax, of approximately $1.1 million, in the third
quarter of 1999.
Note 7. Guarantor Financial Information
Effective January 1, 1999, Building Materials Corporation of America
("BMCA" or "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
Company's bank credit facility (the "Credit Agreement"), 11 3/4% Senior Deferred
Coupon Notes due 2004 (the "Deferred Coupon Notes"), and the Company's 7 3/4%
Senior Notes due 2005, the 8 5/8% Senior Notes due 2006, the 8% Senior Notes due
2007 (the "2007 Notes") and the 8% Senior Notes due 2008 (collectively, 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. The guarantees of BMIC and
BMMC are full, unconditional and joint and several.
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.
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 7. Guarantor Financial Information - (Continued)
Presented below is condensed consolidating 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.
<TABLE>
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Second Quarter Ended June 28, 1998
(Thousands)
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............................. $ 232,969 $ - $ 53,258 $ - $ 286,227
Intercompany net sales................ 746 145,604 20,061 (166,411) -
--------- --------- --------- --------- ---------
Total net sales....................... 233,715 145,604 73,319 (166,411) 286,227
--------- --------- --------- --------- ---------
Costs and expenses:
Cost of products sold............... 169,233 137,965 59,709 (166,411) 200,496
Selling, general and administrative. 39,737 7,639 11,131 58,507
Goodwill amortization............... 160 350 510
--------- --------- --------- --------- ---------
Total costs and expenses.............. 209,130 145,604 71,190 (166,411) 259,513
--------- --------- --------- --------- ---------
Operating income...................... 24,585 - 2,129 - 26,714
Equity in earnings of subsidiaries.... 1,329 (1,329) -
Interest expense, net................. (7,085) (2,758) (2,870) (12,713)
Other income (expense), net........... (1,557) 5,743 (100) 4,086
--------- --------- --------- --------- ---------
Income (loss) before income taxes..... 17,272 2,985 (841) (1,329) 18,087
Income tax (provision) benefit........ (6,240) (1,134) 319 (7,055)
--------- --------- --------- --------- ---------
Net income (loss)..................... $ 11,032 $ 1,851 $ (522) $ (1,329) $ 11,032
========= ========= ========= ========= =========
</TABLE>
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 7. Guarantor Financial Information - (Continued)
<TABLE>
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Second Quarter Ended July 4, 1999
(Thousands)
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............................. $ 248,731 $ - $ 61,763 $ - $ 310,494
Intercompany net sales................ 2,791 166,372 18,144 (187,307) -
--------- --------- --------- --------- ---------
Total net sales....................... 251,522 166,372 79,907 (187,307) 310,494
--------- --------- --------- --------- ---------
Costs and expenses:
Cost of products sold............... 187,265 151,172 67,262 (187,307) 218,392
Selling, general and administrative. 41,542 10,104 10,825 62,471
Goodwill amortization............... 160 348 508
Transition service agreement
(income) expense.................. (250) 250 -
--------- --------- --------- --------- ---------
Total costs and expenses.............. 228,717 161,526 78,435 (187,307) 281,371
--------- --------- --------- --------- ---------
Operating income...................... 22,805 4,846 1,472 - 29,123
Equity in earnings of subsidiaries.... 10,367 (10,367) -
Intercompany licensing income
(expense), net...................... (7,462) 7,462 -
Interest expense, net................. (6,280) (3,559) (3,023) (12,862)
Other income (expense), net........... (2,188) 9,255 7,067
--------- --------- --------- --------- ---------
Income (loss) before income taxes..... 17,242 18,004 (1,551) 23,328
Income tax (provision) benefit........ (2,546) (6,659) 573 (10,367) (8,632)
--------- --------- --------- --------- ---------
Net income (loss)..................... $ 14,696 $ 11,345 $ (978) $ (10,367) $ 14,696
========= ========= ========= ========= =========
</TABLE>
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 7. Guarantor Financial Information - (Continued)
<TABLE>
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Six Months Ended June 28, 1998
(Thousands)
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............................. $ 415,317 $ - $ 83,339 $ - $ 498,656
Intercompany net sales................ 1,410 264,146 34,941 (300,497) -
--------- --------- --------- --------- -----------
Total net sales....................... 416,727 264,146 118,280 (300,497) 498,656
--------- --------- ---------- --------- -----------
Costs and expenses:
Cost of products sold............... 313,712 249,621 95,694 (300,497) 358,530
Selling, general and administrative. 72,545 14,525 19,311 106,381
Goodwill amortization............... 320 682 1,002
--------- --------- ---------- --------- ----------
Total costs and expenses.............. 386,577 264,146 115,687 (300,497) 465,913
--------- --------- ---------- --------- ----------
Operating income...................... 30,150 - 2,593 - 32,743
Equity in earnings of subsidiaries.... 6,266 (6,266) -
Interest expense, net................. (15,235) (5,253) (4,917) (25,405)
Other income (expense), net........... (3,330) 17,783 (100) 14,353
--------- --------- ---------- --------- -----------
Income (loss) before income taxes..... 17,851 12,530 (2,424) (6,266) 21,691
Income tax (provision) benefit........ (4,619) (4,761) 921 (8,459)
--------- --------- ---------- --------- -----------
Net income (loss)..................... $ 13,232 $ 7,769 $ (1,503) $ (6,266) $ 13,232
========= ========= ========== ========= ===========
</TABLE>
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 7. Guarantor Financial Information - (Continued)
<TABLE>
Building Materials Corporation of America
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 28, 1998
(Thousands)
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Consolidated
--------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents, beginning of period....... $ 35 $ 12,061 $ 825 $ 12,921
--------- --------- --------- ---------
Cash provided by(used in)operating activities:
Net income(loss)..................................... 6,966 7,769 (1,503) 13,232
Adjustments to reconcile net income(loss)to net
cash provided by(used in)operating activities:
Depreciation..................................... 1,623 7,621 3,134 12,378
Goodwill amortization............................ 320 682 1,002
Deferred income taxes............................ 8,358 8,358
Noncash interest charges......................... 14,920 14,920
(Increase)decrease in working capital items.......... (37,274) 18,506 (25,163) (43,931)
Purchases of trading securities...................... (61,049) (61,049)
Proceeds from sales of trading securities............ 77,111 77,111
Change in net receivable from/payable to
related parties.................................... 73,047 (58,598) 31,538 45,987
Other, net........................................... (1,462) 4,412 (83) 2,867
--------- --------- --------- ---------
Net cash provided by(used in)operating activities.... 66,498 (4,228) 8,605 70,875
--------- --------- --------- ---------
Cash provided by(used in)investing activities:
Capital expenditures............................... (2,251) (12,825) (8,472) (23,548)
Acquisition........................................ (43,468) (43,468)
Purchases of available-for-sale securities......... (32,808) (32,808)
Proceeds from sales of available-for-sale
securities........................................ 96,604 96,604
Proceeds from held-to-maturity securities.......... 499 499
--------- --------- --------- ---------
Net cash provided by(used in)investing activities.... (45,719) 51,470 (8,472) (2,721)
--------- --------- --------- ---------
Cash provided by(used in)financing activities:
Proceeds from sale of accounts receivable........... 7,478 7,478
Decrease in short-term debt........................ (24,833) (24,833)
Decrease in borrowings under revolving credit
facility........................................ (34,000) (34,000)
Repayments of long-term debt....................... (266) (1,323) (40) (1,629)
Decrease in loan receivable from related party..... 6,152 6,152
Financing fees and expenses........................ (176) (176)
--------- --------- --------- ---------
Net cash used in financing activities................ (20,812) (26,156) (40) (47,008)
--------- --------- --------- ---------
Net change in cash and cash equivalents.............. (33) 21,086 93 21,146
--------- --------- --------- ---------
Cash and cash equivalents, end of period............. $ 2 $ 33,147 $ 918 $ 34,067
========= ========= ========= =========
</TABLE>
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 7. Guarantor Financial Information - (Continued)
<TABLE>
Building Materials Corporation of America
Condensed Consolidating Balance Sheet
December 31, 1998
(Thousands)
<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>
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 7. Guarantor Financial Information - (Continued)
<TABLE>
Building Materials Corporation of America
Condensed Consolidating Statement of Income
Six Months Ended July 4, 1999
(Thousands)
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................................. $ 459,686 $ - $ 113,736 $ - $ 573,422
Intercompany net sales.................... 3,792 312,640 34,188 (350,620) -
--------- --------- --------- ----------- ---------
Total net sales........................... 463,478 312,640 147,924 (350,620) 573,422
--------- --------- --------- ----------- ---------
Costs and expenses:
Cost of products sold................... 351,476 283,462 126,156 (350,620) 410,474
Selling, general and administrative..... 77,842 19,572 21,332 118,746
Goodwill amortization................... 320 697 1,017
Transition service agreement (income)
expense............................... (500) 500 -
--------- --------- --------- ---------- ---------
Total costs and expenses................ 429,138 303,534 148,185 (350,620) 530,237
--------- --------- --------- ---------- ---------
Operating income (loss).................... 34,340 9,106 (261) - 43,185
Equity in earnings of subsidiaries........ 13,936 (13,936) -
Intercompany licensing income (expense),
net..................................... (13,791) 13,791 -
Interest expense, net..................... (13,570) (5,486) (5,640) (24,696)
Other income (expense), net............... (4,054) 10,611 6,557
--------- --------- --------- --------- ---------
Income (loss) before income taxes......... 16,861 28,022 (5,901) (13,936) 25,046
Income tax (provision) benefit............ (1,083) (10,368) 2,183 (9,268)
--------- --------- --------- --------- ---------
Net income (loss)..........................$ 15,778 $ 17,654 $ (3,718) $ (13,936) $ 15,778
========= ========= ========= ========= =========
</TABLE>
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 7. Guarantor Financial Information - (Continued)
<TABLE>
Building Materials Corporation of America
Condensed Consolidating Balance Sheet
July 4, 1999
(Thousands)
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............... $ 274 $ 46,950 $ 5,817 $ - $ 53,041
Investments in trading securities....... 855 855
Investments in available-for-sale
securities............................ 63,104 63,104
Other short-term investments............ 1,718 1,718
Accounts receivable, trade.............. 35,038 35,038
Accounts receivable, other.............. 60,094 613 1,684 62,391
Receivable from(payable to) related
parties, net.......................... 62,320 (5,541) (211) 56,568
Inventories............................. 64,182 20,468 40,081 124,731
Other current assets.................... 2,082 1,810 1,222 5,114
------- --------- --------- --------- ---------
Total Current Assets.................. 188,952 129,977 83,631 - 402,560
Investment in subsidiaries................ 264,092 (264,092) -
Intercompany loans including accrued
interest................................ 150,673 (150,673) -
Due from(to)subsidiaries, net............. (98,492) 136,251 (37,759) -
Property, plant and equipment, net........ 33,121 177,134 115,648 325,903
Excess of cost over net assets of
businesses acquired, net................ 19,060 52,141 71,201
Deferred income tax benefits.............. 47,685 47,685
Other assets.............................. 14,469 4,445 336 19,250
--------- --------- --------- --------- ---------
Total Assets.............................. $ 619,560 $ 447,807 $ 63,324 $(264,092) $ 866,599
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt......................... $ - $ 48 $ - $ - $ 48
Current maturities of long-term debt.... 1,204 3,508 64 4,776
Accounts payable........................ 40,186 28,126 15,183 83,495
Accrued liabilities..................... 21,143 25,412 11,989 58,544
Reserve for product warranty claims..... 15,000 1,100 16,100
--------- --------- --------- --------- ---------
Total Current Liabilities............. 77,533 57,094 28,336 - 162,963
Long-term debt less current maturities.... 435,092 155,065 199 590,356
Reserve for product warranty claims....... 18,495 4,127 22,622
Other liabilities......................... 18,925 2,218 21,143
--------- --------- --------- --------- ---------
Total Liabilities......................... 550,045 212,159 34,880 - 797,084
--------- --------- --------- --------- ---------
Stockholders' equity, net................. 69,515 235,648 28,444 (264,092) 69,515
--------- --------- --------- --------- ---------
Total Liabilities and Stockholders' Equity $ 619,560 $ 447,807 $ 63,324 $(264,092) $ 866,599
========= ========= ========= ========= =========
</TABLE>
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 7. Guarantor Financial Information - (Continued)
<TABLE>
Building Materials Corporation of America
Condensed Consolidating Statement of Cash Flows
Six Months Ended July 4, 1999
(Thousands)
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Consolidated
--------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents, beginning of period....... $ 3 $ 21,746 $ 3,238 $ 24,987
--------- --------- --------- ---------
Cash provided by(used in)operating activities:
Net income(loss)..................................... 1,842 17,654 (3,718) 15,778
Adjustments to reconcile net income(loss)to net
cash provided by(used in)operating activities:
Depreciation..................................... 1,281 9,139 4,080 14,500
Goodwill amortization............................ 320 697 1,017
Deferred income taxes............................ 8,893 8,893
Noncash interest charges......................... 2,290 2,290
Increase in working capital items.................... (57,593) (6,741) (23,291) (87,625)
Purchases of trading securities...................... (124,696) (124,696)
Proceeds from sales of trading securities............ 224,452 224,452
Change in net receivable from/payable to
related parties.................................... 6,373 (100,899) 32,528 (61,998)
Other, net........................................... (5,710) (6,635) 361 (11,984)
--------- --------- --------- ---------
Net cash provided by(used in)operating activities.... (42,304) 12,274 10,657 (19,373)
--------- --------- --------- ---------
Cash provided by(used in)investing activities:
Capital expenditures............................... 120 (18,765) (8,035) (26,680)
Purchases of available-for-sale securities......... (56,469) (56,469)
Purchases of held-to-maturity securities........... (1,401) (1,401)
Proceeds from sales of available-for-sale
securities....................................... 59,493 59,493
Proceeds from held-to-maturity securities.......... 7,758 7,758
Proceeds from sales of other short-term
investments....................................... 21,145 21,145
--------- --------- --------- ---------
Net cash provided by(used in)investing activities.... 120 11,761 (8,035) 3,846
--------- --------- --------- ---------
Cash provided by(used in)financing activities:
Proceeds from sale of accounts receivable.......... 43,494 43,494
Increase in short-term debt........................ 48 48
Proceeds from issuance of long-term debt........... 3,500 3,500
Repayments of long-term debt....................... (614) (2,208) (43) (2,865)
Financing fees and expenses........................ (425) (171) (596)
--------- --------- --------- ---------
Net cash provided by (used in) financing activities.. 42,455 1,169 (43) 43,581
--------- --------- --------- ---------
Net change in cash and cash equivalents.............. 271 25,204 2,579 28,054
--------- --------- --------- ---------
Cash and cash equivalents, end of period............. $ 274 $ 46,950 $ 5,817 $ 53,041
========= ========= ========= =========
</TABLE>
17
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Second Quarter 1999 Compared With
Second Quarter 1998
The Company recorded second quarter 1999 net income of $14.7 million
compared with $11.0 million in the second quarter of 1998. The 33.6% increase in
net income was primarily the result of higher operating and other income, net,
partially offset by increased interest expense.
The Company's net sales for the second quarter of 1999 were $310.5 million,
an 8.5% increase over second quarter 1998 sales of $286.2 million. The sales
growth was due to net sales gains in residential products together with the
inclusion of the LL Building Products, Inc. business, acquired in June 1998,
partially offset by declines in commercial roofing products. The increase in net
sales of the Company's residential roofing products reflected higher sales
volumes and average selling prices, while the decline in net sales of commercial
roofing products resulted from lower sales volumes and average selling prices.
Operating income for the second quarter of 1999 was $29.1 million, a 9.0%
increase compared with $26.7 million in the second quarter of 1998. The improved
operating income was achieved due to a reduction in selling, general and
administrative expenses as a percentage of net sales to 20.1% in the second
quarter of 1999 from 20.4% in the second quarter of 1998 and the inclusion of
the LL Building Products, Inc. business, partially offset by a decline in the
gross margin from 30.0% in 1998 to 29.7% in 1999. The decline in the gross
margin was attributable to lower average pricing, partially offset by reduced
manufacturing costs.
Interest expense for the second quarter of 1999 was $12.9 million compared
with $12.7 million in the same period in 1998, due primarily to higher average
borrowings, partially offset by lower average interest rates. The lower average
interest rates resulted from the refinancing of $279.7 million in aggregate
principal amount at maturity of the Company's 11 3/4% Senior Deferred Coupon
Notes due 2004 with substantially all of the net proceeds from the issuances of
$150 million in aggregate principal amount of the Company's 7 3/4% Senior Notes
due 2005 and $155 million in aggregate principal amount of the Company's 8%
Senior Notes due 2008 in July and December 1998, respectively.
Other income, net, for the second quarter of 1999 was $7.1 million compared
with $4.1 million in the second quarter of 1998, with the increase resulting
from higher investment income.
Results of Operations - Six Months 1999 Compared With
Six Months 1998
For the first six months of 1999, the Company recorded net income of $15.8
million compared with $13.2 million for the first six months of 1998. The 19.7%
increase in net income resulted from higher operating income and lower interest
expense, partially offset by lower other income, net.
The Company's net sales for the first six months of 1999 were $573.4
million, a 15.0% increase over last year's sales of $498.7 million. The sales
18
<PAGE>
growth was due to net sales gains in residential roofing products together with
the inclusion of the LL Building Products, Inc. business, acquired in June 1998,
partially offset by lower net sales in commercial roofing products. The increase
in net sales of residential roofing products resulted from higher sales volumes
and average selling prices, while the decline in net sales of commercial roofing
products resulted from lower average selling prices.
Operating income for the first six months of 1999 was $43.2 million
compared with $32.7 million for the first six months of 1998. The 32.1%
improvement in operating income was attributable to higher gross profit margins
due to improved pricing administration and reduced manufacturing costs, together
with the inclusion of the LL Building Products, Inc. business. Partially
offsetting these improvements were higher selling, general and administrative
expenses due to the LL Building Products, Inc. acquisition and costs incurred to
achieve the higher net sales. Selling, general and administrative expenses for
the first six months of 1999, as a percentage of net sales, declined to 20.7%
from 21.3% for the same period in 1998.
Interest expense declined to $24.7 million for the first six months of 1999
from $25.4 million for the same period in 1998, due primarily to lower average
interest rates, partially offset by higher average borrowings.
Other income, net, for the first six months of 1999 was $6.6 million
compared with $14.4 million in the same period in 1998. The decline was
principally due to lower investment income and higher other expenses.
Liquidity and Financial Condition
Net cash outflow during the first six months of 1999 was $15.5 million
before financing activities, and included the use of $19.4 million of cash for
operations, the reinvestment of $26.7 million for capital programs, and the
generation of $30.5 million from net sales of available-for-sale and
held-to-maturity securities and other short-term investments.
Cash invested in additional working capital totaled $87.6 million during
the first six months of 1999, primarily reflecting a seasonal increase in
inventories of $31.4 million and a $61.9 million increase in receivables,
including an $8.8 million increase in the receivable from the trust which
purchases certain of the Company's trade accounts receivable, partially offset
by a $6.6 million increase in accounts payable and accrued liabilities. The net
cash used for operating activities was net of a $99.8 million cash inflow from
net sales of trading securities and also included a $62.0 million net cash
outflow for related party transactions, which included $68.7 million of advances
to the Company's parent companies.
Net cash provided by financing activities totaled $43.6 million during the
first six months of 1999, mainly reflecting $43.5 million in proceeds from the
sale of the Company's trade receivables and $3.5 million proceeds from the
issuance of an industrial revenue bond.
As a result of the foregoing factors, cash and cash equivalents increased
by $28.1 million during the first six months of 1999 to $53.0 million, excluding
$65.7 million of trading and available-for-sale securities and other short-term
investments.
19
<PAGE>
See Note 4 to Consolidated Financial Statements for information regarding
contingencies.
Year 2000 Compliance
The Company has implemented a Year 2000 program (i) to address its year
2000 issues, i.e., the inability of 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 it has remediated
substantially all of its core systems. The Company has also evaluated and
believes it has remediated substantially all of its personal computers,
mainframe computers and 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.
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, 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 end of the third quarter of 1999.
The Company has requested compliance information in the form of
questionnaires sent to significant vendors and customers. When appropriate, a
lack of a response to these questionnaires was followed by direct contact. The
Company has received compliance information from substantially all of its
significant vendors and customers. Each of these significant vendors and
customers has advised the Company that they are or expect to be ready for the
Year 2000 by the end of 1999.
Notwithstanding the compliance information received from vendors, the
Company is moving forward with contingency plans that include the identification
of secondary suppliers to minimize the impact of any Year 2000 related issues
that may develop. The secondary suppliers are being contacted in the form of
direct questionnaires to determine their readiness for Year 2000 issues. The
Company expects this phase of the project to be completed by the end of the
third quarter of 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 $800,000 to date and anticipates that
additional outside costs should approximate no more than an additional $200,000
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
20
<PAGE>
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 Quarterly Report on Form 10-Q contains both historical and
forward-looking statements. All statements other than statements of historical
fact are, or may be deemed to be, forward-looking statements within the meaning
of section 27A of the Securities Act 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 Quarterly Report on Form 10-Q 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.
21
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Form 10-K for a discussion of
"Market-Sensitive Instruments and Risk Management." As of December 31, 1998,
equity-related financial instruments employed by the Company to reduce market
risk included long contracts valued at $35.2 million and short contracts valued
at $143.2 million. At July 4, 1999, the Company had no remaining long contracts
and the value of short contracts was $2.1 million. Since the Company
marks-to-market such instruments each month, there was no economic cost to the
Company to terminate these instruments.
22
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Plaintiffs Joseph Rossi, Rossi Florence Corp. and Rossi Roofing Inc. filed
a complaint in the United States District Court for the District of New Jersey
on December 24, 1992 against several roofing and siding manufacturers, including
GAF Building Materials Corporation, several roofing and siding distributors and
one national purchasing cooperative, alleging that defendants participated in a
group boycott against plaintiffs to keep plaintiffs from competing in the
Northern New Jersey roofing and siding distribution market in violation of the
Sherman Act, 15 U.S.C. section 1, et seq., and state antitrust laws. Plaintiffs
also asserted a tortious interference claim against defendants under New Jersey
state law. Plaintiffs are seeking unspecified damages, including treble and
punitive damages, and attorney's fees. The District Court entered summary
judgment in favor of GAF Building Materials Corporation and four other
defendants in March 1997. The United States Court of Appeals for the Third
Circuit reversed the District Court's judgment with respect to GAF Building
Materials Corporation and two other defendants. The matter is scheduled for
trial in the United States District Court for the District of New Jersey in
September 1999. In connection with its formation, the Company assumed any
liability that may arise from this action. GAF Building Materials Corporation
has advised the Company that it intends to defend this action vigorously and
believes that it will prevail on all of plaintiffs' claims, although there can
be no assurance in this regard.
For information relating to certain other legal proceedings, see "Item 3.
Legal Proceedings - Other Litigation" contained in the Form 10-K and "Part II,
Item 1. - Legal Proceedings" contained in the Company's Quarterly Report on Form
10-Q for the quarter ended April 4, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only.
(b) No Reports on Form 8-K were filed during the quarter ended July 4, 1999.
23
<PAGE>
SIGNATURES
-----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrants listed below have duly caused this report
to be signed on their behalf by the undersigned, thereunto duly authorized.
BUILDING MATERIALS CORPORATION OF AMERICA
BUILDING MATERIALS MANUFACTURING CORPORATION
BUILDING MATERIALS INVESTMENT CORPORATION
DATE: August 16, 1999 BY: /s/William C. Lang
--------------- ------------------
William C. Lang
Executive Vice President,
Chief Administrative Officer
and Chief Financial Officer
(Principal Financial Officer)
DATE: August 16, 1999 BY: /s/James T. Esposito
--------------- --------------------
Vice President and Controller
(Principal Accounting Officer)
24
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SECOND
QUARTER 1999 10-Q OF BUILDING MATERIALS CORPORATION OF AMERICA AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000927314
<NAME> BUILDING MATERIALS CORPORATION OF AMERICA
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUL-04-1999
<CASH> 53,041
<SECURITIES> 63,959
<RECEIVABLES> 35,038
<ALLOWANCES> 0
<INVENTORY> 124,731
<CURRENT-ASSETS> 402,560
<PP&E> 325,903
<DEPRECIATION> 0
<TOTAL-ASSETS> 866,599
<CURRENT-LIABILITIES> 162,963
<BONDS> 590,356
0
0
<COMMON> 1
<OTHER-SE> 69,514
<TOTAL-LIABILITY-AND-EQUITY> 866,599
<SALES> 573,422
<TOTAL-REVENUES> 573,422
<CGS> 410,474
<TOTAL-COSTS> 410,474
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,696
<INCOME-PRETAX> 25,046
<INCOME-TAX> 9,268
<INCOME-CONTINUING> 15,778
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,778
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
