1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark one)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended April 2, 1999.
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 333-30699
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RELIANT BUILDING PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 75-1364873
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
3010 LBJ FREEWAY, SUITE 400
DALLAS, TEXAS 75234
(Address of executive offices, including zip code)
(972) 919-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) and (g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant - NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of June 30, 1999, the registrant had 1,000 shares of Common Stock
outstanding.
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ITEM 1. BUSINESS
GENERAL
Company Background and Products
Reliant Building Products, Inc. (the "Company") is one of the nation's
largest manufacturers of aluminum and vinyl, or non-wood, framed windows. The
Company's products are marketed under well- recognized brand names, including
ALENCO, BUILDER'S VIEW, CARE-FREE, ALPINE and GAPCO, across major price points.
The Company has a national manufacturing presence through its acquisition of
Care-Free Window Group ("Care-Free") on January 28, 1998, and as a result a
national marketing and sales strategy has been implemented.
The Company's origin in aluminum fenestration products, sold primarily
in the southern states, is a result of the moderate southern climate. The
preference for aluminum windows in this part of the U.S. is attributable to
aluminum's lower cost, greater durability, ease of installation and lower
maintenance requirements. Vinyl windows, however, offer the same attributes as
aluminum with the added benefit of thermal efficiency. Recognizing this
product's increased market potential, the Company has emphasized its vinyl
product offering. The acquisition of Care-Free establishes a major national
presence in the vinyl window business to complement the Company's historical
strength in the aluminum window markets. This complementary product offering
allows the Company to take advantage of shifts in product preferences. In
addition, its national customer base is efficiently serviced as significant
regional product preferences still exist between aluminum and vinyl.
The Company supplements its window business through the manufacture of
related products such as custom aluminum extrusion and window components for the
Company's internal needs as well as for sale to third parties. The Company
believes that its vertically integrated operations provide it with an enhanced
ability to serve its customers, significant manufacturing flexibility, a
reliable supply of low-cost components, including approximately one-third of its
aluminum billet requirements through a scrap recasting facility, and a reduction
in working capital requirements.
The Company manufactures and distributes a broad line of aluminum and
vinyl window products at eight window manufacturing facilities strategically
located throughout the U.S. within two geographic regions, North, and South (See
note 16 to Company's consolidated financial statements for more information
regarding its operating segments). Both aluminum and vinyl window products are
manufactured with product offerings including single hung, double hung, sliders
and casements. Door products include hinge doors, storm doors and patio doors.
All of these products are marketed primarily for use in new construction,
manufactured housing, repair and remodeling and national home center chains.
Sales, Marketing and Distribution
The Company sells its products primarily in the continental United
States. Its windows are distributed nationally through wholesalers and dealers,
direct sales to large national home builders (including manufactured housing),
independent contractors, national home centers and lumber yards. The Company
supplements its distribution through company operated facilities located in
Louisiana, Arizona, California, Washington and Texas.
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Distribution of the Company's products is focused in well-defined
channels of low-to-medium price new construction, remodeling and replacement,
national home center chains and manufactured housing. The Company believes it
has established relationships with many of the strongest customers in its
markets. These relationships are the result of its broad product offerings
across major price points, well recognized brand names, reputation for high
quality products and commitment to providing the highest levels of service in
the industry characterized by on-time and complete delivery. These factors have
resulted in a loyal customer base characterized by low turnover. As a result of
the Company's national scope and diversified customer base, only one customer
accounts for more than 10% of the Company's net sales during fiscal 1999.
With the acquisition of Care-Free, the Company began marketing its
products through a national marketing and sales organization. There are
approximately 56 salaried and commissioned sales representatives and
approximately 12 independent sales representatives who provide customers with
ongoing technical, marketing and sales support. These sales representatives have
an average of approximately 10 years of experience with the Company and
generally have long-standing relationships with customers, which the Company
believes contribute to customer loyalty. These sales representatives are
primarily market segment focused and report to four market segment vice
presidents who report to the Senior Vice President of Sales and Marketing.
INDUSTRY OVERVIEW
The United States window industry consists of two markets, residential and
commercial. The residential window market consists of new construction,
manufactured housing, and repair and remodel marketing channels. Residential new
construction product sales represented approximately 64% of the Company's
current fiscal year's net sales. Sales to the manufactured housing OEM market
account for 13%, with sales to the repair and remodeling market accounting for
14%. Non-core sales, such as specialty glass and aluminum extrusions were 9% of
the Company's sales. The new construction market channel is served primarily
through large lumberyards, national and regional new construction distribution,
and through Company owned distribution. The OEM manufactured housing market is
served primarily through large distribution customer who focuses specifically on
this market channel. The repair and remodeling market channel is served through
large and small specialty distributors and dealers, as well as national account
home centers.
The residential window market can also be segmented by type of frame material:
aluminum, vinyl and wood. The market share of aluminum, vinyl and wood windows
in the residential market varies by geographical region. A homebuilder's or
homeowner's choice of frame material is often based upon such considerations as
cost, thermal efficiency, maintenance, aesthetic preferences and regional norms.
Aluminum is the least expensive window alternative, and is favored by
homebuilders who seek a value alternative where temperate climates permit the
use of this low cost alternative. Where thermal efficiency is desired and
especially in the replacement and remodeling of weathered and warped wood
products, vinyl windows offer an attractive cost efficient alternative. Vinyl
windows have long overcome early objections such as weather and discoloration.
As a result, vinyl windows are by far the fastest growing frame material in the
fenestration industry.
The Company exclusively competes in the aluminum and vinyl, or
non-wood, submarket of the United States residential window market (the
"Non-Wood Segment"). The Non-Wood Segment is highly fragmented and historically
has consisted of a large number of relatively small, independent businesses
serving discrete local markets and a small number of multi-regional operators.
Relative to smaller competitors, larger multi-regional operations such as the
Company benefit from several competitive advantages, including economies of
scale in purchasing, manufacturing and distribution, the ability to attract and
retain strong distributors and the ability to service major builders on a
national basis. In addition, the Company has leveraged its multi-regional
operation to capture regional and national home center chains, including one of
the fastest growing home center retailers.
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COMPETITION
The non-wood new construction and repair and remodel markets are highly
fragmented and regionalized. Typical competitors are privately owned, regional
companies with sales under $100 million. No one company holds a dominant
position on a national basis. The Company's competitors include Atrium, American
Architectural Products and Metal Industries. Additionally, there are many
regional and local competitors in both types of window frame materials.
Competition is generally regional and is based on customer service, price,
product quality, brand name recognition, and breadth of product line. Other
competitors may be less highly leveraged with greater capital resources and be
in a stronger position to withstand down-turn in the market.
EMPLOYEES
As of June 5, 1999, the Company employed approximately 3,200 full-time
employees, of which approximately 119 were represented by a union at the
Company's Bryan, Texas facilities and 108 were represented by a union at the
South Hackensack, New Jersey facility. The contracts covering the Company's
unionized employees at the Bryan, Texas and South Hackensack, New Jersey
facilities expire in December, 2001 and February 2000 respectively. The Company
also hires approximately 500 seasonal employees during the peak season, which
lasts from April to October. The Company believes its relationship with its
employees is good.
INFLATION AND RAW MATERIALS
The rate of inflation over recent years has been relatively low and has
not had a significant effect on the Company's results. The Company purchases
aluminum, vinyl, glass and other raw materials from various suppliers. While all
such materials are available from numerous independent suppliers, commodity raw
materials are subject to fluctuations in price that may not reflect the rate of
general inflation. These materials fluctuate in price based on supply and
demand. There have been historical periods of rapid and significant movements in
the price of aluminum, both upward and downward. The Company has historically
mitigated the effects of these fluctuations by passing through price increases
to its customers after a period of 60 to 90 days.
SEASONALITY AND CYCLICALITY
The Company's business is seasonal. The warmer months generally allow
for a higher level of building, generating a higher level of sales for the
Company. Consequently, the second and third quarters of the calendar year have
traditionally represented the highest level of sales during the year. Demand for
the Company's products is influenced by the level of new home construction
activity and the demand for replacement products. Trends in the housing sector
of the economy may directly affect the financial performance of the Company.
Accordingly, the overall strength of the United States economy, interest rates,
rate of job formation, consumer confidence and availability of consumer credit,
as well as demographic factors such as the rate of household formation and
population shifts have a direct bearing on the Company.
BACKLOG AND MATERIAL CUSTOMERS
The Company has no material long-term contracts. Orders are generally
filled within five to ten days of order receipt. The Company's backlog is
subject to fluctuation due to various factors, including the size and timing of
orders for the Company's products. For fiscal 1999, one customer accounted for
approximately 10% of the Company's sales; no other customer was greater than
10%.
5
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
The Company is subject to extensive and changing environmental laws and
regulations pertaining to the discharge of certain materials into the
environment, the handling and disposal of wastes (including solid and hazardous
wastes) or otherwise relating to health, safety and protection of the
environment. As such, the nature of the Company's operations and previous
operations by others at real property currently or formerly owned or operated by
the Company expose the Company to the risk of claims under environmental, health
and safety laws and regulations. Based on its experience to date, the Company
does not expect such claims, or the costs of compliance with environmental,
health and safety laws and regulations, to have a material impact on its capital
expenditures, earnings or competitive position. The Company believes it is in
compliance in all material respect with such environmental laws and regulations.
Capital expenditures for environmental matters were not material for fiscal 1999
and are not expected to be material for fiscal year 2000.
The Company is associated with two Superfund sites that are being
investigated or undergoing remediation pursuant to CERCLA. The Company is a
Potentially Responsible Party ("PRP") at the Chemical Recycling, Inc. or "CRI"
Superfund site in Wylie, Texas. The Company is a very small contributor at the
CRI site, being assigned less than 1.275% of the damages based on its waste
volume at the site. The site was a solvent reclamation facility, and the Company
sent paint sludges and waste xylene to the site for recycling. The site has soil
and groundwater contamination, with the contaminants of concern being solvents
such as vinyl chloride, acetone, dichloroethene, toluene, and xylene. Some areas
of soil have metal contamination. Major removal actions have occurred; however,
the final remediation action plan has not been prepared. According to the
studies performed by the site's steering committee, affected groundwater has not
migrated off-site. According to the EPA general counsel in charge of the site,
the site is low priority compared to other sites in the region. There are 115
PRPs at this site with approximately 85 that are members of the site's steering
committee. Two main PRPs, Glidden and Sherwin Williams, account for 50% of all
liability. The Company's costs to date associated with this site have been less
than $50,000. The second site is the SAAD Trousdale Road landfill in Nashville,
Tennessee. There is no documentation linking the Company to the site, and costs
paid to the generator group to date have been $55,000. Because of the lack of
documentation linking the Company to the site and the absence of activity since
1996, it is not expected that the costs will increase materially in the future.
INTELLECTUAL PROPERTY
The Company holds no licenses, patents or copyrights. However, ALENCO,
KLIMA-TITE, WINDOWMAN and CARE-FREE are registered trademarks of the Company,
and GAPCO, ALENCO, LIVING WINDOWS, ALPINE WINDOWS, ULTRA, and BUILDERS VIEW are
trade names used in and associated with the Company's business.
6
ITEM 2. PROPERTIES
The Company's operations are principally conducted at eleven owned or
leased facilities. The Company believes that its plants and equipment are modern
and well-maintained and provide adequate production capacity to meet the
expected demand for its products.
Listed below are the principal manufacturing facilities operated by the
Company:
Location Principal Product Owned/Leased
- -------- ----------------- ------------
Bryan, Texas Residential Windows Owned/Leased(a)
Bryan, Texas Commercial Windows(b) Owned
Dallas, Texas Processed Glass(b) Leased
Fresno, California Residential Windows Leased
Gallatin, Tennessee Residential Windows Owned
Asheville, North Carolina Residential Windows Owned
Peachtree City, Georgia Residential Windows Owned
Peachtree City, Georgia Window Components Owned
South Hackensack, New Jersey Residential Windows Leased
Charlotte, Michigan Residential Windows Owned
Bothell, Washington Residential Windows Leased
(a) A portion of the facility is owned and a portion of the facility is leased.
(b) The Company has signed letters of intent for the sale of the commercial
windows and processed glass businesses. The Bryan, Texas facility is to be
utilized for production capacity increase at the residential window
operation. The lease for the processed glass facility will be assumed by
the purchaser.
In addition, the Company leases space in New Orleans, Louisiana, Ontario,
California and Phoenix, Arizona for use as distribution facilities and maintains
its corporate headquarters in a leased facility in Dallas, Texas.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in litigation arising in the
ordinary course of its business, none of which is expected to have a material
adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Company's outstanding
equity securities.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial and operating data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Consolidated Financial Statements
and Supplementary Data contained herein. The statement of operations and balance
sheet data for the year ended April 2, 1999, forty-seven weeks ended April 3,
1998, six weeks ended May 9, 1997 and the three fiscal years ended March 28,
1997, are derived from the audited financial statements of the Company.
FISCAL YEAR ENDED(b) OR PERIOD ENDED
---------------------------------------------------------------------
PREDECESSOR(a) SUCESSOR(a)
-------------------------------------------- -----------------------
SIX WEEKS FORTY-SEVEN
MARCH 31, MARCH 29, MARCH 28, ENDED WEEKS ENDED APRIL 2,
1995 1996 1997 MAY 9, 1997 APRIL 3, 1998 1999
--------- --------- --------- ----------- ------------- --------
STATEMENT OF OPERATIONS DATA:
Net sales $ 137,184 $ 173,271 $ 174,401 $ 20,095 $ 174,769 $281,737
Cost of products sold 106,760 133,337 131,474 14,852 134,783 216,276
--------- --------- --------- ----------- ------------- --------
Gross profit 30,424 39,934 42,927 5,243 39,986 65,461
Selling, general and
administrative(e) 23,620 31,498 32,724 3,765 35,308 60,487
Restructuring charges -- -- -- -- 1,044 (446)
--------- --------- --------- ----------- ------------- --------
Income from operations 6,804 8,436 10,203 1,478 3,634 5,420
Interest expense, net 4,843 6,125 5,381 587 9,164 18,495
Other expenses 359 753 577 3,350 -- 3,170
Income tax expense
(benefit) 833 753 1,892 (846) (1,167) (2,947)
Extraordinary loss(c) 552 -- -- 715 411 --
--------- --------- --------- ----------- ------------- --------
Net income (loss) $ 217 $ 805 $ 2,353 $ (2,328) $ (4,774) $(13,298)
========= ========= ========= =========== ============= ========
BALANCE SHEET DATE (AT
PERIOD END):
Working capital 17,980 14,340 17,301 21,456 27,361 18,979
Total assets 70,666 76,769 73,077 79,540 259,444 243,655
Long-term obligations 41,282 44,933 43,327 45,558 185,367 189,410
Redeemable preferred stock 4,720 5,312 6,119 6,187 -- --
Shareholder's equity 1,740 1,953 3,913 4,698 30,011 15,178
OTHER FINANCIAL DATA:
Net cash provided by
operating activities 949 8,348 4,400 2,448 4,544 4,447
Net cash used in investing
activities (4,515) (9,285) (3,234) (155) (125,646) (7,649)
Net cash provided by (used in)
investing activities 3,445 1,006 (1,117) 1,983 117,381 3,316
EBITDA(d) 11,055 12,681 15,069 2,013 12,136 19,551
Depreciation and amortization 4,251 4,245 4,866 535 8,502 14,131
Capital expenditures 4,628 5,631 3,516 198 3,624 7,744
Cash interest expense 3,098 5,767 5,243 480 8,890 17,600
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NOTES TO SELECTED FINANCIAL DATA
(a) The acquisition of Holdings by Reliant Partners, and "push-down" of the
basis of accounting on May 9, 1997 (the "Transaction"), affects the
comparability of information in the selected financial data. Amounts
for the periods subsequent to May 9, 1997 (Successor periods) are
presented on the new basis of accounting established as of such date;
the six-week period ended May 9, 1997, and the fiscal years ended March
28, 1997, March 29, 1996, and March 31, 1995 represent the Predecessor
basis of accounting.
(b) Fiscal year 1998 was a 53-week period, however, as a result of the
Transaction, is presented in two periods. All other fiscal years were
52 weeks.
(c) The Company recorded extraordinary losses of $552,000 which is net of a
tax benefit of $297,000, $715,000 which is net of tax benefit of
$369,000 and $411,000 which is net of tax benefit of $212,000, related
to the write-off of debt issuance costs and an original issue discount
in connection with its September 1994 debt refinancing, the Transaction
and the January 1998 Senior Credit Facility, respectively.
(d) The Company defines EBITDA as income from operations before
depreciation and amortization. The Company includes information
concerning EBITDA because it is used by certain investors as a measure
of the Company's ability to service debt. EBITDA should not be
considered in isolation or as a substitute for net income or cash flows
from operating activities presented in accordance with generally
accepted accounting principles or as a measure of a company's
profitability or liquidity. In addition, EBITDA measures presented may
not be comparable to other similarly titled measures of other
companies.
(e) Includes $3.5 million and $1.3 million in fees and reimbursement of
out-of-pocket expenses for consulting attributable to operating
improvement initiatives for the year ended April 2, 1999 and for the 47
weeks ended April 3, 1998, respectively. See ITEM 13. CERTAIN RELATIONS
AND RELATED TRANSACTIONS - Agreements with George Group.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FISCAL YEAR ENDED APRIL 2, 1999 COMPARED TO FIFTY-THREE WEEK PERIOD ENDED APRIL
3, 1998
For purpose of comparison of the fiscal year ended April 2, 1999 (the
"1999 Period") to the fifty-three week period ended April 3, 1998 (the "1998
Period"), the financial statements for the six weeks ended May 9, 1997
(Predecessor) and the 47 weeks ended April 3, 1998 (Successor period) have been
combined. Significant fluctuations resulting from the application of the
push-down of purchase accounting have been separately identified.
NET SALES. Net sales increased $86.8 million, or 44.6%, from $194.9
million in the 1998 Period to $281.7 million in the 1999 Period. This increase
was primarily attributable to the Care-Free acquisition (the "Acquisition")
which increased net sales by $95.1 million. Excluding net sales of Care-Free and
the Living Windows and Fenesco facilities which have been closed
("non-comparable operating units"), net sales were comparable. Aluminum window
sales reflected an increase of $4.4 million, or 3.9%, from $115.1 million in the
1998 Period to $119.5 million in the 1999 Period, primarily due to an increase
in new construction and national account sales. Vinyl window sales increased
$94.0 million, or 183.1%, from $51.3 million in the 1998 Period to $145.3
million in the 1999 Period. This increase in vinyl window sales was a result of
the Acquisition.
COST OF PRODUCTS SOLD. Cost of products sold increased $66.7 million
from $149.6 million in the 1998 Period to $216.3 million in the 1999 Period.
Expressed as a percentage of net sales,
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cost of products was unchanged at 76.8% in both the 1999 Period and 1998 Period.
Impacting cost of products sold were continuous flow manufacturing improvement
initiatives at all of the operating units that resulted in improved productivity
and purchasing synergies which have provided lower raw material costs.
Offsetting these savings are increased depreciation expense due to capital
expenditures for manufacturing automation projects and the write-off of
materials used in the manufacture of non-key products resulting from the
Company's continuing efforts to improve manufacturing productivity through
product rationalization.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $21.4 million from $39.1 million in the 1998
Period to $60.5 million in the 1999 Period primarily as a result of the
Acquisition. Expressed as a percentage of net sales, selling, general and
administrative expenses increased from 20.1% in the 1998 Period to 21.5% in the
1999 Period. This increase was primarily due to a $2.2 million increase in
consulting fees for the operating improvement initiatives and $3.7 million for a
new national marketing and sales organization. Also contributing to the increase
in selling, general and administrative expense, as a percentage of sales, is a
full year of goodwill amortization related to the purchase of Care-Free. These
increases were partially offset by the elimination of fixed expenses associated
with operating units closed in the third quarter of the 1998 Period.
RESTRUCTURING CHARGES. In the 1999 Period, the Company reversed
$446,000 in the restructuring charge provided in the 1998 Period as a result of
actual amounts paid differing from the original estimate, including the Company
subleasing a facility earlier than originally anticipated.
OTHER EXPENSES, NET. Other expenses consists primarily of a loss of
$3.2 million on the expected sale of certain assets, primarily machinery,
equipment and inventory, used in the manufacture and distribution of non-core
products such as commercial windows and specialty glass. The expected date of
closing on these sales is July 1999. For the 1999 Period and the 1998 Period
these assets generated approximately $19.9 million and $17.8 million in net
sales and ($63,000) and $603,000 in income (loss) before taxes, respectively.
INTEREST EXPENSE, NET. Net interest expense increased $8.7 million from
$9.8 million for the 1998 Period to $18.5 million for the 1999 Period. This
increase was primarily due to a higher debt level in the 1999 Period as a result
of the Acquisition.
INCOME TAX EXPENSE. The Company's effective income tax rate (state and
Federal combined) was 18.1% for the 1999 Period, 21.1% for the 47-week period
ended April 3, 1998, and 34.0% tax benefit for the six-week period ended May 9,
1997. The decrease in the effective income tax benefit rate for the 1999 Period
reflects an increase in nondeductible expenses (primarily amortization of
goodwill) as a percentage of pre-tax loss.
10
FIFTY-THREE WEEK PERIOD ENDED APRIL 3, 1998 COMPARED TO FISCAL YEAR ENDED MARCH
28, 1997
For purpose of comparison of the fifty-three week period ended April 3,
1998 (the "1998 Period") to the fiscal year ended March 28, 1997, the financial
statements for the six weeks ended May 9, 1997 (Predecessor) and the 47 weeks
ended April 3, 1998 (Successor period) have been combined. Significant
fluctuations resulting from the application of the push-down of purchase
accounting have been separately identified.
NET SALES. Net sales increased $20.5 million, or 11.7%, from $174.4
million in fiscal year 1997 to $194.9 million in the 1998 Period. This increase
was primarily attributable to the Acquisition which increased net sales by $19.3
million. Aluminum window sales reflected a decrease of $3.9 million, or 3.1%,
from $126.1 million in fiscal year 1997 to $122.2 million in the 1998 Period,
primarily the result of customers converting to vinyl windows at the Company's
Bryan, Texas and Fresno, California facilities and the closure of the Houston,
Texas facility. Vinyl window sales increased $22.3 million, or 76.9%, from $29.0
million in fiscal year 1997 to $51.3 million in the 1998 Period. This increase
in vinyl window sales was primarily the result of the Acquisition. The Company's
other facilities increased vinyl sales by $2.7 million, or 9.4% in the 1998
Period due to improved market penetration in the Company's existing markets,
including North Carolina, Georgia, and Tennessee, expansion in new geographic
markets and aluminum customers converting to vinyl windows.
COST OF PRODUCTS SOLD. Cost of products sold increased $18.1 million
from $131.5 million in fiscal year 1997 to $149.6 million in the 1998 Period.
Expressed as a percentage of net sales, cost of products sold increased from
75.4% in fiscal year 1997 to 76.8% in the 1998 Period. This increase was
primarily due to $2.7 million (1.4% of net sales) resulting from the flow
through in the statement of operations of inventory step-up and fixed asset
write-up related to the acquisition of the Company and the purchase of
Care-Free, $1.0 million (0.5% of net sales) in wage and related benefit
increases partially offset by $0.6 million (0.3% of net sales) in efficiency
improvements. The Acquisition increased cost of product sold by $15.1 million
which had a nominal negative impact on Company margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $6.4 million from $32.7 million in fiscal year
1997 to $39.1 million in the 1998 Period. Expressed as a percentage of net
sales, selling, general and administrative expenses increased from 18.8% in
fiscal year 1997 to 20.1% in the 1998 Period. This increase was primarily due to
$2.8 million related to the addition of Care-Free plants, $1.3 million in
consulting fees attributable to operating improvement initiatives, $1.0 million
in additional amortization of intangibles resulting primarily from the increase
of goodwill related to the acquisition of the Company and the purchase of
Care-Free, and $0.5 million of costs associated with the integration of
Care-Free's operations and personnel into the Company.
RESTRUCTURING CHARGES. Reserves for the closing and consolidation of
certain facilities were established in the 47-weeks ended April 3, 1998.
INTEREST EXPENSE. Net interest expense increased $4.3 million from $5.4
million for fiscal year 1997 to $9.7 million for the 1998 Period. This increase
was due to a higher debt level in the 1998 Period as a result of the acquisition
of the Company and the purchase of Care-Free.
INCOME TAX EXPENSE. The Company's effective income tax rate (state and
federal combined) was 44.6% for fiscal year 1997 compared to a 34.0% tax benefit
for the six-week period ended May 9, 1997 and a 21.1% tax benefit for the
47-week period ended April 3, 1998. The decrease in the effective income tax
benefit rate for the 47-week period reflects an increase in nondeductible
expenses (primarily amortization of goodwill) as a percentage of pre-tax loss.
11
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operating activities was $4.4 million for the
1999 Period compared to $7.0 million for the 1998 Period. The decrease in cash
provided from operating activities is the result of comparatively lower results
of operations partially offset by improvements in the management of working
capital.
Capital expenditures for the 1999 Period were $7.7 million compared to
$3.8 million in the 1998 Period. The Company's 1999 capital expenditures relate
to manufacturing automation, vinyl manufacturing equipment, computer systems and
capital maintenance projects. In particular, the Company invested capital to
achieve a rationalization in its product offering that will yield future
operating leverage. In fiscal year 2000, the Company anticipates that
maintenance capital expenditures will total approximately $2.6 million and
expenditures for cost reductions and productivity improvement initiatives will
likely total $6.9 million, including, manufacturing automation and computer
systems.
Cash flows provided by financing activities in the 1999 Period were
$3.3 million compared to $119.4 million in the 1998 Period. The 1999 Period
financing activities were used primarily to fund capital expenditures. Interest
and principal payments on the Company's 10-7/8 Senior Subordinated Notes due May
1, 2004 (the "Notes") and the credit agreement dated as of January 28, 1998 (the
"Senior Credit Facility") represent significant obligations of the Company. The
Notes require semi-annual interest payments in May and November. The Senior
Credit Facility requires quarterly interest payments in April, July, October,
and January. In fiscal year 2000, amounts outstanding under the Senior Credit
Facility will require principal payments of approximately $854,000 in each of
the first three quarters and $2.2 million in the fourth quarter. In addition to
its debt service obligations, the Company's remaining liquidity demands relate
to capital expenditures and working capital needs. The Company's working capital
needs are seasonal, and historically have peaked during the second and third
fiscal quarters.
The Company's primary sources of liquidity are cash flows from
operations and borrowings under the Senior Credit Facility. On March 31, 1999
the Company obtained a waiver for its breach of covenant requirements under the
Senior Credit Facility that is effective until the end of the first quarter of
fiscal year 2000 and renegotiated the financial covenant requirements beginning
July 2, 1999 through the remaining term of the Senior Credit Facility agreement.
The amount available as of June 8, 1999, under the revolving line of credit (the
"Revolver") is approximately $6.1 million. As of June 8, 1999, $26.6 million was
borrowed and $2.3 million in letters of credit were outstanding under the
Revolver. Interest on the borrowings under the Revolver, which is currently
payable at 8.0%, is at 3.00% over the Eurodollar rate. The Revolver agreement
expires on December 31, 2003. At the end of the fourth quarter of the 1999
Period, the Company entered into a contract with a large national home center
chain for the exclusive sale and distribution of its products. While the
Company's consolidated net sales are expected to increase as a result, it will
also incur certain startup costs which will increase its working capital
requirements during the first half of fiscal 2000. The Company believes that,
based on current and anticipated financial performance, cash flow from
operations and borrowings under the Senior Credit Facility will be adequate to
meet anticipated requirements for capital expenditures, working capital and
scheduled principal and interest payments on the Notes and amounts outstanding
under the Senior Credit Facility. However, capital expenditure requirements may
change, particularly if the Company should complete any acquisitions. The
ability of the Company to satisfy its capital requirements will be dependent
upon the future financial performance of the Company, which in turn is subject
to general economic conditions and to financial, business and other factors,
including factors beyond the Company's control.
12
NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5"), Reporting on the Costs of
Start-up Activities, which is effective for financial statements issued for
periods beginning after December 15, 1998. SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. The Company
believes SOP 98-5 will not have a material impact on its financial statements or
accounting policies. The Company will adopt the provisions of SOP 98-5 in the
first quarter of fiscal year 2000.
The Company is also assessing the reporting and disclosure requirements
of Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
accounting and reporting standards for derivative instruments and hedging
activities. This statement requires that all derivatives be recognized as either
assets or liabilities on the balance sheet and measured at fair value. The
accounting for changes in fair value of a derivative (that is, gains and losses)
depends upon the intended use of the derivative and resulting designation. The
statement amends and supercedes a number of existing Statements of Financial
Accounting Standards, and nullifies or modifies a number of the consensus
reached by the Emerging Issues Task Force. This statement is effective for
financial statements for fiscal years beginning after June 15, 2000. The Company
has not yet determined the impact of adopting SFAS No. 133. The Company
currently intends to adopt the provisions of SFAS No. 133 in the first quarter
of fiscal year 2002.
YEAR 2000 COMPLIANCE
Many existing computer software and hardware programs were written
using two digits rather than four to refer to the year. These computer programs
will not properly interpret the year 2000. The Company has established an
enterprise-wide program (Year 2000 Plan) to prepare its computer systems and
applications for the year 2000 and is utilizing both internal and external
resources to identify, correct and test the systems for year 2000 compatibility.
The Year 2000 Plan is divided into the following three major
components: (1) Information Systems; (2) Embedded Controls; and (3) Lifeline
Systems. Information Systems includes all hardware, computer software and
electronic data interchange. Embedded Controls includes all production equipment
and facility systems. Lifeline Systems includes utilities, services and business
relationships, including vendors and suppliers. The Year 2000 Plan is being
implemented with respect to each of these components in the following six
general phases: (1) inventory the components discussed above; (2) assess the
impact of items determined not to be Year 2000 compatible; (3) assign priorities
to identified items; (4) remediate or replace mission critical items that are
determined not to be Year 2000 compatible; (5) test mission critical items; and
(6) design and implement contingency and business continuation plans for each of
the Company's locations. The Company has substantially completed phases 1
through 4 for each of the three major components and is currently performing
phases 5 and 6. The Company anticipates completion of the testing phase in
August 1999 and completion of the continuation plans by the end of September
1999.
To date, the Company has incurred approximately $435,000 in Year 2000
related expense. It is estimated that an additional $65,000 will be incurred in
calendar year 1999 to complete the Year 2000 Plan. Expenses incurred to complete
remediation of the Year 2000 Plan are not expected to have a material impact on
the Company's results of operations or financial position. However, this
assessment is dependent on the ability of third-party suppliers and others whose
systems failures potentially could have an impact on the Company's operations to
be year 2000 compliant. The Company expects to reduce its level of uncertainty
and the adverse effect that any such failures may have through continued
assessment and development of contingency plans throughout calendar 1999
depending on circumstances encountered during the year.
13
FORWARD-LOOKING STATEMENTS
This Form 10-K contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. All of these
forward-looking statements are based on estimates and assumptions made by
management of the Company which, although believed to be reasonable, are
inherently uncertain. Therefore, undue reliance should not be placed upon such
estimates and statements. No assurance can be given that any of such estimates
or statements will be realized and actual results may differ materially from
those contemplated by such forward-looking statements. Factors that may cause
such differences include: (i) increased competition; (ii) increased costs; (iii)
loss or retirement of key members of management; (iv) changes in general
economic conditions in the markets in which the Company may from time to time
compete; and (v) changes in the number of housing starts in these markets. Many
of such factors will be beyond the control of the Company and its management.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is primarily exposed to market risk on its variable rate
debt instruments through fluctuations in interest rates. The Company strategy
for mitigating this risk consists of interest rate swap agreements, which
effectively limit the variability of interest costs by establishing a maximum
and minimum rate on $55.0 million of its Senior Credit Facility. At April 2,
1999, market interest rates were below the Company's minimum rates on the
interest rate swap agreements. The effect of a one percent change in market
rates of interest would increase annual interest expense approximately $1.0
million or decrease interest expense $0.6 million, based on balances outstanding
at April 2, 1999. Additional information relating to this agreement is provided
in notes to the consolidated financial statements of the Company. The Company
does not enter into market risk sensitive instruments for trading purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are listed in the accompanying Index to
Financial Statements on page F-1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides information concerning the directors and
executive officers of the Company:
Name Age Position
- ---- --- --------
Fred S. Grunewald 48 Chairman, President, Chief Executive Officer,
Director
Virgil D. Lowe 56 Chief Financial Officer, Senior Vice President,
Director
Linda Smith 52 Chief Information Officer, Senior Vice
President
Thomas M. Seymour 51 Senior Vice President
Bradford E. Bernstein 32 Director
Michael L. George 59 Director
Steven B. Gruber 41 Director
Robert B. Henske 38 Director
James M. Patell 50 Director
Fred S. Grunewald joined the Company in October 1998. Prior to joining
the Company, Mr. Grunewald served as President and COO of Overhead Door
Corporation. Previously, he was President and General Manager of Rubbermaid's
Home Products Division. He also held a senior management positions with Black &
Decker and General Electric. Mr. Grunewald began his career with General
Electric Company assuming responsibilities in sales, marketing, and product
management. Mr. Grunewald received a Bachelor of Arts degree from the University
of California, San Diego and a Master of Business Administration degree from the
University of Michigan.
Virgil D. Lowe has served as Senior Vice President and Chief Financial
Officer of the Company since May 1997 and became a director of the Company in
1997. In November 1994, Mr. Lowe was elected as Secretary and Treasurer of the
Company. While he continues to serve as Secretary, Mr. Lowe resigned as
Treasurer on February 2, 1998. Mr. Lowe joined the Company as Controller in June
1988. Prior to joining the Company, Mr. Lowe was employed by Continental Can
Company for 17 years. During his employment with Continental Can Company, he
progressed from Cost Accountant to Director of Accounting for Beverage
Operations. Mr. Lowe received a Bachelor of Science degree in Accounting from
East Texas Baptist University.
Linda M. Smith joined the Company in February 1999 as Senior Vice
President of Supply Chain and Chief Information Officer. Prior to joining the
Company, Ms. Smith was Vice President of the Thomas Group, an international
consulting firm with a patented process for Total Cycle Time(TM). Ms. Smith's
work experience during six and one half years with the Thomas Group includes
responsibility for recruiting, hiring, and training. Ms. Smith studied history
and political science at Lamar University and the University of Houston.
15
Thomas M. Seymour joined the Company in May 1998 as Senior Vice
President of Sales and Marketing. Prior to joining the Company, Mr. Seymour held
a variety of marketing and sales related positions during a 28 year career with
Owens Corning, most recently as Vice President Strategic Marketing, Exterior
System Business. Mr. Seymour is graduate of Grand Valley State University with a
degree in Business Administration and Economics.
Bradford E. Bernstein became a director of the Company in 1997. Mr.
Bernstein is a Managing Director and has served as a Principal, Vice President
and Associate of Oak Hill Partners, Inc., a private investment company, since
1992. From 1991 to 1992, Mr. Bernstein worked at Patricof & Co. Ventures. Prior
to that, from 1989 to 1991, he worked at Merrill Lynch & Co.
Michael L. George became a director of the Company in 1997. Since 1984,
Mr. George has been Chairman of the Board of George Group, Inc. ("George
Group"), an acquisition and management consulting firm based in Dallas, Texas.
Mr. George holds a Bachelor of Science degree in Physics from the University of
California and a Master of Science degree in Physics from the University of
Illinois.
Steven B. Gruber became a director of the Company in 1997. From March
1992 to the present, Mr. Gruber has been a Managing Director of Oak Hill
Partners, Inc. From May 1990 to March 1992, he was a Managing Director of
Rosecliff, Inc. Since February 1994, Mr. Gruber has also been an officer of
Insurance Partners Advisors, L.P., an investment advisor to Insurance Partners,
L.P. Since October 1992, he has been a Vice President of Keystone, Inc.
(formerly known as Robert M. Bass Group, Inc.). From 1981 to 1990, Mr. Gruber
was a managing director and co-head of High Yield Securities and held various
other positions at Lehman Brothers, Inc. He is also a director of Superior
National Insurance Group, Inc., Grove Worldwide, LLC, MVE HOLDINGS, INC., and
several private companies related to Keystone, Inc., Insurance Partners, L.P.
and Oak Hill Partners, Inc..
Robert B. Henske became a director of the Company in 1997. From January
1997 to the present, Mr. Henske has been a Vice President of Keystone, Inc. and
a Principal of Arbor Investors, L.L.C., a private investment firm. From January
1996 to December 1996, he was Executive Vice President and Chief Financial
Officer of American Savings Bank, F.A., a federally-chartered thrift. From
January 1986 to January 1996, he was a partner and held various other positions
with Bain & Company, a management consulting firm.
James M. Patell became a director of the Company in 1997. Mr. Patell
received his undergraduate and masters degree from Massachusetts Institute of
Technology and his doctorate from Carnegie Mellon University. He has taught at
Stanford University since 1979 where he currently serves as director of Stanford
Integrated Manufacturing Association and holds the chair of Herbert Hoover
Professor of Public and Private Management. Mr. Patell has served on the Board
of Directors, Center for Quality of Management -- West since 1994,
Stanford-ITESM Strategic Management Program to Mexico (1993-1995) and MBA
Enterprises Corps (1990-1992).
16
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid
during the 1999 Period for services rendered in all capacities to the Company
and its subsidiaries by certain of the Company's executive officers
(collectively, the "Named Executive Officers"):
Annual Compensation Long-Term Compensation
Name and Fiscal ----------------------- ----------------------------- All Other
Principal Position Year Salary Bonus(a) SARs(b) Stock Options(g) Compensation
- ------------------ ------ -------- ---------- ----------- ---------------- -------------
Fred S. Grunewald 1999 $102,083 ** -- -- 33,866 $ 417(c)
Chairman, President,
Chief Executive Officer
David G. Fiore * 1999 $ 163,844 -- -- -- $ 384,743(d)
President, Chief 1998 $ 201,250 $ 61,173 -- 26,386 $ 1,334,521(d)
Executive Officer 1997 $ 175,500 $ 166,873 $ 265,600 -- $ 6,626(d)
Virgil D. Lowe 1999 $ 166,417 -- -- -- $ 16,668(e)
Senior Vice President, 1998 $ 124,750 $ 30,587 -- 10,556 $ 201,896(e)
Chief Financial Officer 1997 $ 87,750 $ 83,437 $ 53,120 -- $ 7,184(e)
Linda M. Smith 1999 $ 21,260 ** -- -- -- --
Senior Vice President
Chief Information Officer
Tom Seymour 1999 $ 193,308 ** $ 50,000 -- 12,500 $ 79,691(f)
Senior Vice President
* Resigned effective October 1998.
** Reflects fiscal 1999 salary from date of hire.
(a) Bonuses are based on operating performance. For corporate employees
with Company-wide responsibility, the bonus is based on the operating
income of the entire Company.
(b) Based on a value of $26,560 per unit, which is the value of the Units
upon consummation of the Transaction (as hereinafter defined).
(c) Consists of $417 paid by the Company for health and life insurance.
(d) Consists of $235,947 deferred transaction bonus, $ 110,000 for
consulting, $18,134 for accrued vacation, $9,265 paid by the Company
for health and life insurance, $8,533 in contributions to the Company's
401(k) plans, and $2,864 in reimbursements for taxes attributable to
these payments in 1999; $2,152 paid by the Company for health and life
insurance, $9,939 in contributions to the Company's 401(k) plans,
$1,062,400 for the exercise of Units and a $250,000 transaction bonus
upon the closing of the Transaction and $10,030 in reimbursements for
taxes attributable to these payments in 1998; and $3,126 paid by the
Company for health and life insurance and $3,500 in contributions to
the Company's 401(k) plans in 1997.
(e) Consists of $8,209 paid by the Company for health and life insurance,
$4,880 in contributions to the Company's 401(k) plans, and $3,579 in
reimbursements for taxes attributable to these payments in 1999; $2,592
paid by the Company for health and life insurance, $8,270 in
contributions to the Company's 401(k) plans, $185,920 for the exercise
of Units upon the closing of the Transaction and $5,114 in
reimbursements for taxes attributable to these payments in 1998; and
$4,301 paid by the Company for health and life insurance, $250 in
reimbursements for taxes attributable to such health and life insurance
payments and $2,633 in contributions to the Company's 401(k) plans in
1997.
17
(f) Consists of $75,950 in Company reimbursed moving expenses, $3,741 paid
by the Company for health and life insurance in 1999.
(g) All options granted are for common stock of Holdings.
Stock Option Grants in the Last Fiscal Year
The following table sets forth information relating to stock options
granted during the 1999 Period to the Named Executive Officers.
INDIVIDUAL GRANTS(1)
Number of % of Total
Securities Options Granted Exercise or Grant Date
Underlying to Employees Base Price Expiration Fair
Name Options Granted(2) in Fiscal Year ($/Shares) Date Value(3)
- ---- ------------------ --------------- ------------ ---------- ----------
Fred S. Grunewald 33,866 49.55% $20.00 10/16/08 $7.35
Virgil D. Lowe
Linda M. Smith
Thomas M. Seymour 12,500 18.29% $20.00 06/25/08 $8.42
- --------------------------
(1) All options granted are for the common stock of Holdings.
(2) Options vest ratably over five years.
(3) Based on the Black Scholes Option Pricing Model.
18
Bonus Plan and Other Benefit Programs
The Company maintains a bonus plan providing for annual bonus awards to
executives and certain other key general managers. Such bonus amounts are based
on meeting Company-wide and divisional performance goals established by the
Company's Board of Directors. These employees also participate in employee
benefit programs including health insurance, group life insurance and a savings
and supplement retirement plan (401(k) plan) on the same basis as other
employees of the Company.
Nonqualified Stock Option Plan
Holdings adopted a Nonqualified Stock Option Plan (the "Plan") in order
to provide incentives to certain officers and employees of Holdings and the
Company by granting them options to purchase common stock of Holdings. The Plan
is administered by the Board of Directors of Holdings, which has broad authority
in administering and interpreting the Plan. Options granted under the Plan
("Options") are nonqualified stock options which do not qualify under Section
422A of the Internal Revenue Code (the "Code"). Unless the award granting an
Option provides otherwise, upon the termination of an employee for other than
Cause (as defined in the Plan), vested options may be exercised at any time
until three months after the date of termination (one year if due to death or
disability of the employee). In the event the employee is terminated for Cause,
all Options terminate immediately. In addition, for a period of one year after
an employee's termination of employment for any reason, Holdings has the option
to purchase such Options at a price equal to the difference between the fair
market value of the shares of common stock for which such Options are
exercisable by such employee and the exercise price of such Options.
The Options vest upon such terms as the Board of Directors determines,
provided that in the event of a change of control of Holdings, Options which are
not exercisable at such time become immediately exercisable. The exercise price
for each Option is the fair market value of the common stock of Holdings on the
date of grant. Holdings has granted options to purchase 89,625 shares of its
common stock to certain members of the Company's senior management. Holdings may
issue options to purchase an additional 11,223 of its shares of common stock
under the Plan.
Compensation of Directors
The Directors of the Company are not compensated for their services as
such nor for their participation on any Board Committees except for outside
directors of which the Company currently has one. This outside director has
received, under the Plan, 1,982 stock options with an exercise price of $.01 per
share and vesting of one-fifth of the shares each year for five years. The
Company has also agreed to grant to the outside director stock options to value
$25,000 for each year of service to the Board of Directors.
Employment Agreements with Named Executive Officers
The Company currently has employment agreements with Fred S. Grunewald,
Virgil D. Lowe, and Thomas M. Seymour. Mr. Grunewald's agreement is for a
five-year term. Mr. Grunewald is to receive an annual base salary of at least
$350,000 and standard benefits available to other executives of the Company. If
his employment is terminated for Cause, Mr. Grunewald is entitled to receive his
salary and benefits through the date of termination. In the event of a
termination other than for Cause, Mr. Grunewald is entitled to his full base
salary through the date of termination, and full base salary for a period of two
years from the date of termination, plus the bonus, if any, earned by, but not
paid to, Mr. Grunewald prior to the termination date. The Company must also
maintain in effect for the remainder of the term all employee benefit plans
relating to hospitalization, medical, life insurance and disability programs in
which Mr. Grunewald was enrolled immediately prior to termination. Mr. Grunewald
is also subject to a non-competition agreement during the term of the agreement
and for a period of two year after termination.
19
Under Mr. Lowe's agreement, he is to receive an annual salary of at
least $77,500 and standard benefits available to other executives of the
Company. Upon termination of his employment by the Company for Cause, Mr. Lowe
is to receive his salary and benefits through the date of termination. In the
event of a termination other than for Cause, Mr. Lowe is entitled to 12 months
of base pay, plus a pro rata share of the bonus, if any, which he otherwise
would have been entitled to for the then current fiscal year. The Company must
also maintain in effect for a period of 12 months after termination all employee
benefit plans relating to hospitalization, medical, life insurance and
disability programs in which Mr. Lowe was enrolled immediately prior to
termination.
Under Mr. Seymour's agreement, he is to receive an annual salary of at
least $210,000 and standard benefits available to other executives of the
Company. Upon termination of his employment by the Company for Cause, Mr.
Seymour is to receive his salary and benefits through the date of termination.
In the event of a termination other than for Cause, Mr. Seymour is entitled to
12 months of base pay, plus a pro rata share of the bonus, if any, which he
otherwise would have been entitled to for the then current fiscal year. The
Company must also maintain in effect for a period of 12 months after termination
all employee benefit plans relating to hospitalization, medical, life insurance
and disability programs in which Mr. Seymour was enrolled immediately prior to
termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors formed a Compensation Committee during
fiscal year 1998, which consists of Messrs. Bernstein, George and Henske. None
of the members of the Compensation Committee are officers or employees of the
Company or any of its subsidiaries or former officers or employees of the
Company or any of its subsidiaries. Mr. George is Chairman of the Board of
George Group. (See ITEM 13, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS for
further information about the relationship of the Company and George Group.)
20
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is a wholly owned subsidiary of Holdings. Holdings' address
is 3010 LBJ Freeway, Suite 400, Dallas, Texas 75234. The following table sets
forth certain information regarding the beneficial ownership of the shares of
common stock of Holdings by each person who owns more than five percent (5%) of
the outstanding shares of common stock of Holdings and by the directors and
executive officers of the Company, individually and as a group.
Number of Percentage
Five Percent Stockholders Shares of Shares
- ------------------------- --------- ----------
Reliant Partners, L.P.(a) 478,002 47.07%
201 Main Street, Suite 3100
Fort Worth, Texas 76102
Reliant Partners II, L.P.(b) 478,000 47.07%
201 Main Street, Suite 3100
Fort Worth, Texas 76102
Officers and Directors
Fred S. Grunewald(c) 21,499 2.12%
Virgil D. Lowe(c) 14,375 1.42%
Thomas M. Seymour 12,653 1.25%
Bradford E. Bernstein -- --
Michael L. George -- --
Steven B. Gruber -- --
Robert B. Henske -- --
James M. Patell 396 0.04%
All executive officers and directors
as a group (8 persons) 48,923 4.82%
(a) The general partner of Reliant Partners, L.P. is Group 31, Inc. ("Group
31"). J. Taylor Crandall is the sole stockholder of Group 31.
Accordingly, Mr. Crandall may be deemed to be the beneficial owner of
these shares. Mr. Crandall disclaims beneficial ownership of these
shares.
(b) The general partner of Reliant Partners II, L.P. is FW Group Genpar,
Inc. ("Group Genpar"). David G. Brown is the sole stockholder of Group
Genpar. Accordingly, Mr. Brown may be deemed to be the beneficial owner
of these shares. Mr. Brown disclaims beneficial ownership of these
shares.
(c) Includes shares which may be acquired upon the exercise of options
exercisable within 60 days as of the date hereof by Messrs. Lowe,
Seymour and Patell for 4,222, 2,500 and 396, respectively.
21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Agreements with George Group
On May 9, 1997, pursuant to a Stock Purchase Agreement, as amended
(together with the related agreements, the "Stock Purchase Agreement"), Reliant
Partners, Reliant Partners II and certain senior executives of the Company
(collectively, the "Purchasers") acquired all the outstanding common stock of
Holdings from Wingate Partners, L.P. and certain other selling stockholders
(collectively, the "Selling Stockholders"). The aggregate consideration paid for
such acquisition was $90.2 million consisting of $30.1 million in cash and $9.8
million of seller notes to the selling shareholders (total purchase price),
repayment of certain existing indebtedness of the Company and the redemption of
preferred stock of Holdings (the "Preferred Redemption"). The acquisition by
Purchasers of all the outstanding common stock of Holdings, the Preferred
Redemption and the repayment of certain existing indebtedness of the Company are
referred to hereinafter collectively as the "Transaction."
Reliant Partners and Reliant Partners II were formed by, among others,
employees of George Group for the purpose of effecting the Transaction. The
Company paid George Group an advisory fee of approximately $1.0 million at the
closing of the Transaction as compensation for its services as an advisor in
connection with the Transaction.
The Company has entered into a consulting agreement with George Group
whereby George Group will provide consulting services to the Company, including
services with respect to strategic planning, operations and financial matters.
For such services, George Group has been paid cash fees in an amount of $2.6
million, and $0.6 million and reimbursed for its out-of-pocket expenses of $0.7
million, and $0.5 million in the 1999 Period and 1998 Period, respectively. In
addition, for such services to be performed in the future for the Company,
George Group will be paid cash fees and reimbursed for out-of-pocket expenses
estimated to be $1.0 million in total. George Group has advised the Company that
it estimates its engagement will be completed within 18 months from the date of
the purchase of Care-Free. In addition, upon the Company's meeting certain
performance targets agreed upon between Reliant Partners, Reliant Partners II
and George Group, certain employees of George Group will receive an increased
limited partnership interest in each of Reliant Partners and Reliant Partners
II. The Company has agreed to indemnify George Group, its owners, employees and
agents from liabilities and claims relating to or arising from the engagement of
George Group, other than those resulting from negligence or willful misconduct
of George Group. Michael L. George, a director of the Company, is the Chairman
of the Board of George Group.
Stockholders Agreement and Registration Rights Agreement
In connection with the Transaction, Holdings entered into an agreement
(the "Stockholders Agreement") with Reliant Partners, Reliant Partners II, and
the employees of the Company who own shares of common stock of Holdings (the
"Management Investors"). Holdings also entered into a Registration Rights
Agreement (the "Registration Rights Agreement") with the Management Investors.
The following is a summary description of the principal terms of the
Stockholders Agreement and the Registration Rights Agreement, and is subject to
and qualified in its entirety by reference to the Stockholders Agreement and
Registration Rights Agreement.
General Prohibition on Transfers. The Stockholders Agreement prohibits
transfer of common stock of Holdings, except for transfers in compliance with
the Stockholders Agreement.
Right of First Refusal. Sales of shares of common stock of Holdings by
a Management Investor are subject to a right of first refusal in favor of
Holdings, Reliant Partners, Reliant Partners II, and the other Management
Investors.
Tag-Along and Drag-Along Rights. If Reliant Partners and Reliant
Partners II propose to transfer common stock of Holdings representing more than
50% of the aggregate number of shares of
22
common stock of Holdings owned by them, other than in a registered public
offering or other permitted transaction, the Management Investors will, under
certain circumstances, have the option to sell to the same offeree their common
stock on the same terms on a pro rata basis. If Reliant Partners and Reliant
Partners II propose to sell or otherwise transfer for value to an unaffiliated
third party 85% or more of the common stock of Holdings owned by them, they will
have the right under certain circumstances to require the Management Investors
to sell or transfer a pro rata portion of their common stock to such party on
the same terms.
Management Repurchase. All shares of common stock of Holdings held by a
Management Investor are subject to repurchase by Holdings, Reliant Partners and
Reliant Partners II for a specified period of time following the termination of
employment of such Management Investor for any reason.
Registration Rights. The Management Investors are each entitled to an
unlimited number of "piggyback" registration rights at any time following any
initial public offering by Holdings of its common stock. In addition, at such
time as Holdings becomes eligible to register securities on Form S-3 under the
Securities Act, Management Investors holding at least 50% of the shares of
common stock then held by all Management Investors will be entitled to make one
demand to require Holdings to register under the Securities Act their shares of
common stock of Holdings. The exercise of the demand and piggyback rights are
subject to other limitations and conditions that are customary in registration
rights agreements.
23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are included in this report.
(1) FINANCIAL STATEMENTS:
The consolidated financial statements are listed in the
accompanying Index to Financial Statements on page F-1 of this
report.
(2) FINANCIAL STATEMENT SCHEDULES:
Financial Statement Schedule II: Valuation and Qualifying
Accounts on page S-1 of this report.
(3) EXHIBITS:
The exhibits filed with or incorporated by reference in this
report are listed in the Exhibit Index beginning on page E-1 of
this report.
(b) REPORTS ON FORM 8-K
None
24
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
As of April 2, 1999 and April 3, 1998 and for the year ended April 2, 1999,
forty-seven weeks ended April 3, 1998, six weeks ended May 9, 1997 and year
ended March 28, 1997
PAGE
Independent Auditors' Report F-2
Independent Auditors' Report F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-6
Consolidated Statements of Shareholder's Equity F-7
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-10
F-1
25
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Reliant Building Products, Inc.
We have audited the accompanying consolidated balance sheets of Reliant Building
Products, Inc., (a wholly-owned subsidiary of RBPI Holding Corporation) and
subsidiaries (Successor) as of April 2, 1999 and April 3, 1998, and the related
consolidated statements of operations, shareholder's equity, and cash flows for
the year ended April 2, 1999 and the period from May 9, 1997 to April 3, 1998
(Successor periods). In connection with our audits of the Successor consolidated
financial statements, we have also audited the financial statement schedule for
the Successor periods listed at the index at Item 14(a)(2). These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement 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 aforementioned Successor consolidated financial statements
present fairly, in all material respects, the financial position of Reliant
Building Products, Inc. and subsidiaries as of April 2, 1999 and April 3, 1998,
and the results of their operations and their cash flows for the year ended
April 2, 1999 and the period from May 9, 1997 to April 3, 1998, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule for the Successor periods, when considered in
relation to the Successor consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
As discussed in note 2 to the consolidated financial statements, effective May
9, 1997, the former shareholders of RBPI Holding Corporation sold all of the
common stock of RBPI Holding Corporation in a business combination accounted for
as a purchase. As a result of the acquisition, the consolidated financial
information of Reliant Building Products, Inc. for the periods after the
acquisition are presented on a different cost basis than that for the periods
before the acquisition and, therefore, is not comparable.
KPMG LLP
Dallas, Texas
June 14, 1999
F-2
26
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Reliant Building Products, Inc.
We have audited the accompanying consolidated statements of operations,
shareholder's equity, and cash flows of Reliant Building Products, Inc.
(formerly Redman Building Products, Inc.) and subsidiaries for the six week
period ended May 9, 1997 and the year ended March 28, 1997. Our audits also
included the financial statement schedule listed in the index at Item 14(a).
These financial statements and schedule 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 present fairly, in
all material respects, the consolidated results of their operations and cash
flows of Reliant Building Products, Inc. and subsidiaries for the six week
period ended May 9, 1997 and the year ended March 28, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
Ernst & Young LLP
Dallas, Texas
September 19, 1997
F-3
27
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands of dollars)
SUCCESSOR
------------------------
APRIL 2, APRIL 3,
Assets 1999 1998
--------- ---------
Current assets:
Cash and cash equivalents $ 851 737
Accounts receivable, net 26,331 28,638
Inventories:
Raw materials 13,205 15,767
Finished products and work-in-process 6,015 6,162
Federal income tax receivable -- 4,993
Deferred tax assets 2,879 3,889
Prepaid expenses and other current assets 2,001 903
--------- ---------
Total current assets 51,282 61,089
Property, plant, and equipment at cost:
Land and buildings 20,676 20,979
Machinery and equipment 42,369 40,014
--------- ---------
63,045 60,993
Less accumulated depreciation and amortization (12,742) (5,629)
--------- ---------
50,303 55,364
Intangible assets, net 131,794 137,036
Debt issuance costs, net 4,568 5,465
Assets held for sale 5,096 --
Other assets 612 490
--------- ---------
Total assets $ 243,655 259,444
========= =========
See accompanying notes to consolidated financial statements.
F-4
28
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands of dollars)
SUCCESSOR
------------------------
APRIL 2, APRIL 3,
LIABILITIES AND SHAREHOLDER'S EQUITY 1999 1998
--------- ---------
Current liabilities:
Accounts payable $ 15,399 14,654
Accrued expenses 16,467 17,250
Current portion of long-term debt 5,533 1,824
--------- ---------
Total current liabilities 37,399 33,728
Long-term debt, less current portion 183,877 183,543
Deferred income taxes 3,784 8,453
Other liabilities 3,417 3,709
Commitments and Contingencies (notes 6 and 13)
Shareholder's equity:
Common stock, $1.00 par value,
Authorized 10,000 shares, issued
and outstanding 1,000 1 1
Preferred stock of Holdings, stated at amount
contributed 4,664 4,700
Notes receivable - equity securities (475) --
Additional paid-in capital 30,925 30,084
Accumulated deficit (19,937) (4,774)
--------- ---------
Total shareholder's equity 15,178 30,011
--------- ---------
Total liabilities and shareholder's
equity $ 243,655 259,444
========= =========
See accompanying notes to consolidated financial statements.
F-5
29
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands of dollars)
SUCCESSOR PREDECESSOR
------------------------- ------------------------
FORTY-SEVEN SIX WEEKS YEAR
YEAR ENDED WEEKS ENDED ENDED ENDED
APRIL 2, APRIL 3, MAY 9, MARCH 28,
1999 1998 1997 1997
---------- ----------- --------- ---------
Net sales $ 281,737 174,769 20,095 174,401
Cost of products sold 216,276 134,783 14,852 131,474
--------- --------- --------- ---------
Gross profit 65,461 39,986 5,243 42,927
Selling, general and administrative 60,487 35,308 3,765 32,724
Restructuring charges (446) 1,044 -- --
--------- --------- --------- ---------
Income from operations 5,420 3,634 1,478 10,203
Interest expense 18,567 9,494 587 5,391
Interest income 72 330 -- 10
Other expenses, net 3,170 -- 3,350 577
--------- --------- --------- ---------
Income (loss) before income
taxes and extraordinary loss (16,245) (5,530) (2,459) 4,245
Income tax (benefit) expense (2,947) (1,167) (846) 1,892
--------- --------- --------- ---------
Income (loss) before extraordinary loss (13,298) (4,363) (1,613) 2,353
Extraordinary loss, net of tax benefits
of $212 in 1998 and $369 in 1997 -- 411 715 --
--------- --------- --------- ---------
Net Income (loss) $ (13,298) (4,774) (2,328) 2,353
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
F-6
30
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
Consolidated Statements of Shareholder's Equity
(In thousands of dollars)
NOTES
RECEIVABLE ADDITIONAL
COMMON COMMON PREFERRED RELATED TO EQUITY PAID-IN
SHARES STOCK STOCK TRANSACTIONS CAPITAL
-------- -------- ----------- ----------------- ----------
Balance at March 29, 1996 (Predecessor) 1,000 $ 1 -- -- 7,063
Net income -- -- -- --
Accrual of redeemable preferred stock dividend -- -- -- (371)
Other -- -- -- (22)
-------- -------- ----------- ----------------- ----------
Balance at March 28, 1997 (Predecessor) 1,000 1 -- -- 6,670
Net loss -- -- -- --
Accrual of redeemable preferred stock dividend -- -- -- (68)
Incentive stock units liability paid by shareholder -- -- -- 3,181
-------- -------- ----------- ----------------- ----------
Balance at May 9, 1997 (Predecessor) 1,000 1 -- -- 9,783
Establishment of successor basis -- -- -- 32,525
Dividends paid to Holdings -- -- -- (12,559)
Net loss -- -- -- --
Preferred stock issuance contributed by Holdings -- 4,700 -- --
Capital contributions from Holdings -- -- -- 335
-------- -------- ----------- ----------------- ----------
Balance at April 3, 1998 (Successor) 1,000 1 4,700 -- 30,084
Equity transactions with Holdings -- (36) (475) 841
Common stock dividends declared -- -- -- --
Net loss -- -- -- --
Accrual of preferred stock dividend -- -- -- --
-------- -------- ----------- ----------------- ----------
Balance at April 2, 1999 (Successor) 1,000 $ 1 4,664 (475) 30,925
======== ======== =========== ================= ==========
ACCUMULATED
DEFICIT TOTAL
----------- ----------
Balance at March 29, 1996 (Predecessor) (5,111) 1,953
Net income 2,353 2,353
Accrual of redeemable preferred stock dividend -- (371)
Other -- (22)
----------- ----------
Balance at March 28, 1997 (Predecessor) (2,758) 3,913
Net loss (2,328) (2,328)
Accrual of redeemable preferred stock dividend -- (68)
Incentive stock units liability paid by shareholder -- 3,181
----------- ----------
Balance at May 9, 1997 (Predecessor) (5,086) 4,698
Establishment of successor basis 5,086 37,611
Dividends paid to Holdings -- (12,559)
Net loss (4,774) (4,774)
Preferred stock issuance contributed by Holdings -- 4,700
Capital contributions from Holdings -- 335
----------- ----------
Balance at April 3, 1998 (Successor) (4,774) 30,011
Equity transactions with Holdings -- 330
Common stock dividends declared (1,039) (1,039)
Net loss (13,298) (13,298)
Accrual of preferred stock dividend (826) (826)
----------- ----------
Balance at April 2, 1999 (Successor) (19,937) 15,178
=========== ==========
See accompanying notes to consolidated financial statements.
F-7
31
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands of dollars)
SUCCESSOR PREDECESSOR
-------------------------- -----------------------
YEAR ENDED FORTY-SEVEN SIX WEEKS YEAR
ENDED WEEKS ENDED ENDED ENDED
APRIL 2, APRIL 3, MAY 9, MARCH 28,
1999 1998 1997 1997
------------ ------------ ---------- ---------
Cash flows from operating activities:
Net income (loss) $ (13,298) (4,774) (2,328) 2,353
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Extraordinary loss -- 411 715 --
Depreciation and amortization 14,131 8,502 535 4,866
Noncash interest expense 967 604 63 666
Deferred income tax benefit (3,255) (1,333) (118) (176)
Provision for doubtful accounts 1,684 293 130 331
Compensation expense related to
incentive stock units -- -- 3,181 --
Estimated loss on disposition of assets 3,170 -- -- --
Other (39) (179) (229) 224
Changes in operating assets and liabilities,
exclusive of acquisition
accounting:
Accounts and notes receivable (1,604) 384 (1,436) 627
Inventories 744 311 (829) (206)
Prepaid expenses and other current
assets 3,895 (2,573) (1,540) 49
Accounts payable and accrued
expenses (748) 494 4,305 (4,803)
Other assets (1,200) 2,404 (1) 469
------------ ------------ ---------- ---------
Net cash provided by operating
activities 4,447 4,544 2,448 4,400
------------ ------------ ---------- ---------
F-8
32
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands of dollars)
SUCCESSOR PREDECESSOR
-------------------------- -----------------------
YEAR ENDED FORTY-SEVEN SIX WEEKS YEAR
ENDED WEEKS ENDED ENDED ENDED
APRIL 2, APRIL 3, MAY 9, MARCH 28,
1999 1998 1997 1997
------------ ------------ ---------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (7,744) (3,624) (198) (3,516)
Proceeds from sales of property, plant
and equipment 95 76 43 282
Acquisitions, net of cash acquired -- (122,098) -- --
------------ ------------ ---------- ---------
Net cash used in investing
activities (7,649) (125,646) (155) (3,234)
------------ ------------ ---------- ---------
Cash flows from financing activities:
Net proceeds from revolving loan 5,800 8,300 2,631 625
Proceeds from subordinated debt -- 70,000 -- --
Proceeds from long-term debt 592 105,000 -- 2,600
Principal payments on long-term debt (2,283) (45,545) (648) (4,685)
Redemption of preferred stock -- (6,187) -- (5,386)
Payment of debt issue costs (70) (6,663) -- (72)
Preferred stock capital contribution -- 4,700 -- 5,969
Equity transactions with Holdings 330 335 -- --
Payment of dividends to Holdings (1,039) (12,559) -- --
Payment of preferred stock dividend (14) -- -- (168)
------------ ------------ ---------- ---------
Net cash provided by (used in)
financing activities 3,316 117,381 1,983 (1,117)
------------ ------------ ---------- ---------
Increase (decrease) in cash and cash
equivalents 114 (3,721) 4,276 49
Cash and cash equivalents at beginning
of period 737 4,458 182 133
------------ ------------ ---------- ---------
Cash and cash equivalents at end of period $ 851 737 4,458 182
============ ============ ========== =========
Supplementary Information:
Cash paid for interest $ 17,693 4,524 480 5,243
============ ============ ========== =========
Cash paid (recovered) for income taxes $ (4,154) 2,319 -- 1,470
============ ============ ========== =========
See accompanying notes to consolidated financial statements.
F-9
33
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) THE COMPANY
Reliant Building Products, Inc. (formerly Redman Building
Products, Inc.) and subsidiaries (the "Company") is primarily
engaged in the manufacture of aluminum and vinyl, or nonwood,
framed windows primarily for the new construction, repair and
remodel, national home center chains and manufactured housing
markets. The Company has manufacturing facilities in Texas,
Georgia, Tennessee, Washington, New Jersey, Michigan, North
Carolina and California, and most of its customers are located
throughout the United States.
(b) BASIS OF PRESENTATION AND CONSOLIDATION
The Company is a wholly-owned subsidiary of RBPI Holding
Corporation (Holdings). On May 9, 1997 the former shareholders of
Holdings sold all of the common stock of Holdings (the
Transaction) as described further in note 2. As a result of the
Transaction, a new basis of accounting was established (Successor)
and therefore the periods before May 9, 1997 are not comparable to
the Successor periods. All amounts for the six week period ended
May 9, 1997 and the year ended March 28, 1997 represent the
predecessor basis of accounting. All significant intercompany
balances and transactions have been eliminated in consolidation.
The Company utilizes a 52- or 53-week accounting period which ends
on the Friday closest to March 31. Each of the years ended April
2, 1999 and March 28, 1997 included 52-weeks.
(c) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare
these consolidated financial statements in conformity with
generally accepted accounting principles.
Actual results could differ from those estimates.
(d) FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts
receivable and accounts payable approximate fair value due to the
short maturity of these instruments. The fair value of the credit
facility (as defined in note 4) is presented at amounts which
approximate fair value due to the instruments bearing interest
rates at market rates. The Company's subordinated notes had a fair
value of $58,800 and $72,600 at April 2, 1999 and April 3, 1998,
respectively, as determined by quoted market value.
F-10
34
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
(e) ACCOUNTS RECEIVABLE
Credit is extended to customers in the normal course of business
under normal trade terms. The Company has established an allowance
for doubtful accounts of $2,717 and $2,335 at April 2, 1999 and
April 3, 1998, respectively, based upon the expected
collectibility of its receivables. The Company wrote-off accounts
receivable, net of recoveries, of $1,302, $979, $66 and $542 for
the year ended April 2, 1999, the periods ended April 3, 1998 and
May 9, 1997 and the year ended March 28, 1997, respectively.
(f) LONG-LIVED ASSETS
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of the asset to
undiscounted future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the
assets. Assets held for sale are reported at the lower of the
carrying amount or fair value less costs to sell.
(g) INVENTORIES
Inventories are valued at the lower of cost or market. Cost is
determined on the last-in, first-out (LIFO) method. As of April 2,
1999 and April 3, 1998 LIFO approximates current replacement cost.
(h) DEPRECIATION AND AMORTIZATION
Buildings, leasehold improvements, and machinery and equipment are
depreciated using the straight-line method over the estimated
useful lives of the assets (buildings - 10 to 20 years; leasehold
improvements - 10 years; machinery and equipment - 2 to 10 years).
Capital leases are amortized over the shorter of the useful life
of the leased asset or the lease term. Amortization of fixed
assets under capital lease is included in depreciation and
amortization expense. Interest cost capitalized was immaterial for
all periods presented.
(i) INTANGIBLE ASSETS
Intangible assets, consisting of goodwill and other intangible
assets, are stated at cost. Goodwill of $130,830 and $136,784, net
of accumulated amortization of $4,991 and $1,504 as of April 2,
1999 and April 3, 1998, respectively, is being amortized on a
straight-line basis over an estimated useful life of 40 years.
Other intangible assets consist primarily of a covenant not to
compete and trademarks that are being amortized over five years.
F-11
35
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
The Company assesses the recoverability of goodwill by determining
whether the amortization of the balance over its remaining life
can be recovered through undiscounted future operating cash flows
of the acquired operations. The amount of impairment, if any, is
measured based on projected discounted future operating cash flows
using a discount rate reflecting the Company's average cost of
funds. At April 2, 1999 the Company believes no impairment of
goodwill has occurred. The Company's ability to fully recover the
carrying amount of goodwill through undiscounted cash flows
assumes that results of operations and cash flows in future
periods will improve from their current levels. In the event that
the market or general economic conditions affecting the Company
worsen or if management is unable to achieve its business
objectives, a portion of the goodwill may become impaired.
(j) CASH EQUIVALENTS
The Company considers all short-term highly liquid instruments,
with an original maturity date of three months or less, to be cash
equivalents.
(k) REVENUE RECOGNITION
The Company recognizes revenue as earned, which is generally upon
delivery of product to customers. Sales returns and allowances are
not significant.
(l) ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs were
$2,748, $1,188, $82 and $863 for the year ended April 2, 1999, the
periods ended April 3, 1998 and May 9, 1997 and for the year ended
March 28, 1997, respectively.
(m) PRODUCT WARRANTY
The Company's products are sold under warranty against defects in
material and workmanship for a period ranging from one to ten
years. An allowance for estimated future warranty cost is recorded
in the period the product is sold.
(n) INCOME TAXES
The Company accounts for income taxes using the asset and
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss carryforwards. Deferred tax assets and liabilities
are measured using enacted rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
F-12
36
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. The
Company's operations are included in the consolidated tax return
of Holdings. Income taxes have been calculated as if the Company
filed a tax return on a stand alone basis.
(o) STOCK-BASED COMPENSATION
The Company has adopted the disclosure provisions of SFAS No. 123,
Accounting for Stock-Based Compensation which requires pro forma
disclosure of net income as if the SFAS No. 123 fair value method
had been applied. The Company continues to apply the provisions of
Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, for the preparation of its consolidated
financial statements.
(p) RECLASSIFICATIONS
Certain amounts have been reclassified to conform to the 1999
presentation.
2) STOCK PURCHASE
On May 9, 1997, Reliant Partners purchased the common stock of Holdings
from Wingate Partners, L.P. and certain selling stockholders for $30,100
in cash and $9,800 of seller notes. In addition, $6,200 of outstanding
preferred stock was redeemed. In connection with the Transaction, the
Company recognized $3,200 of compensation expense, which is reflected in
other expenses in the statement of operations for the six weeks ended May
9, 1997 and retired $44,300 of existing long-term debt with proceeds from
Senior Subordinated notes sold in conjunction with the Transaction. The
Company recognized an extraordinary charge of $715, net of a tax benefit
of $369, relating to the extinguishment of the debt in the six weeks
ended May 9, 1997.
The Transaction was accounted for under the purchase method of accounting
and the purchase accounting adjustments associated with the Transaction
have been "pushed-down" to the Company. The consolidated financial
statements for all periods subsequent to May 9, 1997 are presented on the
new basis of accounting established on that date. The purchase price was
allocated to tangible and identifiable intangible assets acquired and
liabilities assumed of the Company based on their fair values, with the
remainder allocated to goodwill as follows:
F-13
37
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
Total purchase price, including $2,158 of acquisition costs $ 42,058
Less:
Net book value of assets acquired, excluding $9,492 of (4,794)
predecessor goodwill
Seller transaction costs 250
--------
Excess of cost over net book
value of assets acquired $ 46,602
========
Adjustments to record assets acquired and liabilities assumed at
fair value:
Inventory $ 209
Property, plant and equipment 6,034
Other assets 138
Retirement of redeemable common stock warrants 1,082
Other liabilities, primarily postretirement benefits (1,991)
Deferred tax liabilities (477)
Establishment of reserves for closure of Houston
facility concurrent with the Transaction (3,151)
Goodwill 44,758
--------
$ 46,602
========
(3) ACQUISITION
On January 28, 1998, the Company purchased all of the capital stock of
Care-Free Window Group ("Care-Free") (the Acquisition), a privately held
vinyl window manufacturing company, for $121,500, including direct
acquisition costs of $580. The Company financed the Acquisition through
$5,000 of additional equity from its shareholder, $7,400 in cash, and
$111,900 from a new bank credit facility (See Note 4).
The Acquisition was accounted for using the purchase method of accounting
and, accordingly the results of operations of Care-Free have been
included in the accompanying consolidated financial statements since the
acquisition date. The purchase price was allocated to tangible and
identifiable intangible assets acquired and liabilities assumed based
upon estimates of their fair values, with the remainder allocated to
goodwill as follows:
F-14
38
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
The purchase price was allocated as follows:
Current assets $ 19,384
Property, plant and equipment 27,941
Intangible assets 94,765
Current liabilities (12,963)
Reserve for closure of Care-Free facilities (1,453)
Debt assumed in Acquisition (1,953)
Deferred taxes (4,221)
----------
$ 121,500
==========
In the year ended April 2, 1999, the Company finalized the purchase price
allocations related to the Acquisition. As a result, goodwill increased
by $764 and identifiable intangibles increased by $821.
(4) LONG TERM DEBT
SUCCESSOR
----------------------
APRIL 2, APRIL 3,
1999 1998
---------- ---------
Senior Credit facility:
Term loan A $ 40,000 40,000
Term loan B 64,063 65,000
Revolving loan 14,100 8,300
Subordinated notes 70,000 70,000
Other notes payable 1,247 2,067
---------- ---------
189,410 185,367
Less current portion (5,533) (1,824)
---------- ---------
$ 183,877 183,543
========== =========
In connection with the Acquisition, the Company replaced its previously
existing $25,000 credit facility with a new senior secured credit
facility comprised of a $40,000 secured revolving credit facility
maturing December 2003 (Revolving loan), a $40,000 secured term loan
maturing December 2003 ("Term loan A"), and a $65,000 six-year secured
term loan maturing March 2004 ("Term loan B") (collectively "the Credit
facility"). The Company recognized an extraordinary charge for
unamortized debt issuance costs of $411, net of a tax benefit of $212,
relating to the extinguishment of the old credit facility.
F-15
39
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
The Credit facility is collateralized by all the assets of the Company
and is subject to covenants that, among other things, impose limitations
on capital expenditures and investments, restrict certain payments and
distributions and require the Company to maintain certain financial
ratios. On March 31, 1999, the Company obtained a waiver for its breach
of covenant requirements under the Credit facility that is effective
until the end of the first quarter of fiscal year 2000 and renegotiated
the financial covenant requirements beginning July 2, 1999 through the
remaining term of the Credit facility agreement. As of April 2, 1999 the
Company had complied with all remaining covenant requirements.
Term loan A and Term loan B have interest payable in quarterly
installments at Eurodollar rates plus 3.0% and 3.25%, respectively. The
interest rates at April 2, 1999 approximated 8.13% and 8.38% for Term
loan A and Term loan B, respectively.
Under the terms of the Credit facility, the Company is required to
effectively fix its interest rate cost within a defined interest rate
range on a minimum of $55,000 of its total outstanding Term loans. As a
result of this requirement the Company entered into an interest rate swap
arrangement with its primary lender in which the interest rate range is
7.50% to 8.25% (Term loan A) and 7.75% to 8.50% (Term loan B) on $55,000
of its total outstanding Term loans. Interest rate changes in the
Eurodollar which cause the interest cost to be in excess of the cap of
8.25% and 8.50%, respectively, are reimbursed to the Company by the bank,
while interest rate cost below the 7.50% and 7.75%, respectively, are
paid to the bank by the Company, effectively locking the Company's
minimum and maximum interest rates on $55,000 of its outstanding Term
loans. The Company is subject to credit risk, which is inherent in all
swaps, and has minimized such risk through the use of its primary lender.
There are no fees associated with the arrangement. The Company recorded
interest expense of $27 for the year ended April 2, 1999 under this
agreement. The fair value of this swap agreement at April 2, 1999 was
$187 out of the money to the Company.
At April 2, 1999, the Company had additional borrowing availability of
$12,600 under its Revolving loan, which is limited to 85% of the eligible
accounts receivable plus 50% of eligible inventory. The Revolving loan
bears interest based on the prime rate plus 2.00% or the Eurodollar rate
plus 3.0%, at the Company's option, (8.00% at April 2, 1999) and is due
December 2003. The Company must pay an annual commitment fee of 1/2 of 1%
of the unused portion of the Revolving loan, payable quarterly. At April
2, 1999 and April 3, 1998, the Company had outstanding letters of credit
totaling $2,163 and $2,600, respectively.
In connection with the Transaction, the Company issued $70,000, 10 7/8%
senior subordinated notes maturing May 2004. The 10 7/8% senior
subordinated notes are jointly and severally, and fully and
unconditionally guaranteed, on a senior subordinated basis, by all of the
Company's wholly-owned subsidiaries. The notes are subject to covenants
that among other things, impose limitations on capital expenditures,
investments and restrict certain payments and distributions. At April 2,
1999, the Company had complied with all covenants under its senior
subordinated notes.
F-16
40
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
Debt issuance costs are being amortized using the interest method over
the terms of the respective loans (six to seven years). Amortization
expense for the year ended April 2, 1999, the periods ended April 3, 1998
and May 9, 1997 and the year ended March 28, 1997 was $967, $604, $63 and
$666, respectively, and has been included as interest expense in the
accompanying consolidated financial statements.
The annual maturities of long-term debt at April 2, 1999 are:
LONG-TERM
DEBT
---------
2000 $ 5,533
2001 9,715
2002 10,750
2003 10,750
2004 82,662
Thereafter 70,000
---------
$ 189,410
=========
(5) PREFERRED STOCK
On January 28, 1998, Holdings issued 940,084 shares (1,000,000 shares
authorized) of $0.01 par Series C cumulative preferred stock for $5.00
per share. The preferred stock ranks ahead of the authorized and
outstanding common stock with respect to dividend rights and rights on
liquidation, winding up and dissolution of Holdings. The holders of
preferred stock shares are entitled to receive, when and as declared by
the Board of Directors, fully cumulative cash dividends at the annual
rate of $0.75 per share. The intent of the Company is to fund all
dividends declared on the preferred stock. Holdings' preferred stock has
been classified in the Company's shareholder's equity, at the amount
contributed by Holdings, as the redemption of such shares is under the
sole control of Holdings.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of Holdings, the holders of shares of preferred
stock then outstanding shall be entitled to be paid out of the assets of
Holdings an amount in cash equal to $5.00 for each share outstanding plus
an amount in cash equal to all accrued, but unpaid dividends.
During the year ended April 2, 1999, preferred shares outstanding
decreased to 930,884 as a result of the issuance of 29,288 shares and the
retirement of 38,488 shares. As of April 2, 1999, $826 of dividends had
been declared.
F-17
41
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
(6) LEASES
At April 2, 1999, the Company has noncancelable commitments under
operating leases consisting primarily of manufacturing and corporate
facilities as follows:
2000 $ 5,298
2001 5,002
2002 4,137
2003 3,698
2004 3,554
Thereafter 6,956
--------
Total Minimum Payments $ 28,645
========
Rent expense was $5,746, $3,558, $200 and $4,100 for the year ended April
2, 1999, the periods ended April 3, 1998 and May 9, 1997, and for the
year ended March 28, 1997, respectively.
(7) INCOME TAXES
The components of income tax expense (benefit), excluding the income tax
benefit related to extraordinary items, consists of the following:
SUCCESSOR PREDECESSOR
------------------------------------------- --------------------------------------------
YEAR ENDED APRIL 2, FORTY-SEVEN WEEKS SIX WEEKS ENDED YEAR ENDED MARCH 28,
1999 ENDED APRIL 3, MAY 9, 1997
1998 1997
-------------------- --------------------- ------------------- ----------------------
Current:
Federal $ -- (264) (778) 1,668
State 308 430 50 400
-------------------- --------------------- ------------------- ----------------------
308 166 (728) 2,068
-------------------- --------------------- ------------------- ----------------------
Deferred:
Federal (3,274) (1,170) (118) (158)
State 19 (163) -- (18)
-------------------- --------------------- ------------------- ----------------------
(3,255) (1,333) (118) (176)
-------------------- --------------------- ------------------- ----------------------
$ (2,947) (1,167) (846) 1,892
==================== ===================== =================== ======================
The Company recorded current tax benefits of $264 and $778 for the
periods ended April 3, 1998 and May 9, 1997, respectively, relating to
carrybacks of net operating losses to offset taxable income
F-18
42
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
reported in prior years and were reflected in Federal income tax
receivable. As of April 2, 1999, the Company has tax loss carryforwards
of $9,280 and $1,850 that expire in 20 years and 14 years, respectively.
A reconciliation of the "expected" income tax expense (benefit) using the
U.S. federal corporate tax rate of 34% applied to income (loss) before
income taxes and extraordinary loss compared to the actual income tax
expense (benefit) follows:
SUCCESSOR PREDECESSOR
----------------------- ------------------
APRIL 2, APRIL 3, MAY 9, MARCH 28,
1999 1998 1997 1997
---------- ---------- ------- ---------
Provision at statutory rate (5,523) (1,880) (836) 1,443
Amortization of goodwill 1,108 464 13 96
Assets held for sale - goodwill
impairment 1,100 -- -- --
Business meals and entertainment 131 71 7 30
State taxes, net of federal benefit 212 178 33 264
Other 25 -- (63) 59
---------- ---------- ------- ---------
Total $(2,947) (1,167) (846) 1,892
========== ========== ======= =========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are as follows:
SUCCESSOR
-------------------
APRIL 2, APRIL 3,
1999 1998
--------- --------
Deferred tax assets:
Net operating loss carryforward $ 3,785 ---
Insurance reserves 442 349
Allowance for doubtful accounts 939 797
Employee benefits 921 1,206
Retiree benefit obligation 671 607
Restructuring reserves 536 1,258
Product warranty 345 532
Other 823 510
--------- --------
Total gross deferred tax assets 8,462 5,259
--------- --------
F-19
43
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
SUCCESSOR
---------------------
APRIL 2, APRIL 3,
1999 1998
-------- --------
Deferred tax liabilities:
Book-over-tax basis of inventory $ 447 110
Property, plant and equipment 7,885 9,079
Assets held for sale 309 --
State deferred taxes 402 382
Other 324 252
-------- --------
Total gross deferred tax liabilities 9,367 9,823
-------- --------
Deferred tax liability $ 905 4,564
======== ========
In assessing the realizability of deferred income tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred income tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the period in which those temporary
differences become deductible. Based primarily upon the reversal of
existing taxable temporary differences, management believes it is more
likely than not that the Company will realize the benefits of these
deductible differences.
(8) ACCRUED EXPENSES
Accrued expenses consist of the following:
SUCCESSOR
-------------------
APRIL 2, APRIL 3,
1999 1998
-------- --------
Employee compensation and benefits $ 4,906 5,193
Insurance 1,301 1,027
Interest 4,070 4,685
Product warranty 455 969
Sales incentives 655 678
Restructuring reserves 1,508 2,306
Other 3,572 2,392
------- --------
$16,467 17,250
======= ========
F-20
44
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
(9) RESTRUCTURING RESERVES
In connection with the Transaction and the Acquisition, the Company
established restructuring reserves relating to the closure of certain
corporate and operational facilities in accordance with Emerging Issues
Task Force (EITF) No. 95-3 Recognition of Liabilities in Connection with
a Purchase Business Combination. Additionally, other restructuring
reserves were established and charged to operations relating to closing
and consolidation of certain facilities in accordance with EITF No. 94-3
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity. The reserve activity follows:
Balance at May 9, 1997 (Predecessor) $ --
Provisions:
Transaction - increase in goodwill 3,151
Acquisition - increase in goodwill 1,453
Charged to statement of operations 1,044
Cash payments (1,948)
-------
Balance at April 3, 1998 3,700
-------
Cash payments (1,679)
Reversals - included in income from operations (446)
-------
Balance at April 2, 1999 $ 1,575
=======
At April 2, 1999, the remaining restructuring reserve relates primarily
to lease commitments of which $1,508 is recorded in accrued expenses. The
reversals included in income from operations result from actual amounts
paid under the EITF No. 94-3 reserve differing from original estimates,
including the Company subleasing a facility earlier than originally
estimated.
(10) EMPLOYEE SAVINGS AND POSTRETIREMENT BENEFIT PLANS
The Company sponsors defined contribution retirement plans (401k)
covering substantially all of its employees. Defined contribution expense
for the plans was $872, $651, $41 and $599 for the year ended April 2,
1999, the periods ended April 3, 1998 and May 9, 1997 and for the year
ended March 28, 1997, respectively.
The Company provides medical and life insurance benefits to retired
employees and their dependents under an employer sponsored plan at one of
its manufacturing facilities. The Company is self-insured for these costs
and has no plan assets. Postretirement benefit cost under the plan for
the year ended April 2, 1999 was $186, of which, $153, represents
interest cost, $24 represents service cost and $9 represents actuarial
gains and losses. The accumulated postretirement benefit obligation
(APBO) of the Company as of April 2, 1999 and April 3, 1998 was $1,954
and $2,070, respectively.
F-21
45
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
The decrease in the APBO results from actuarial gains of $238 and benefit
payments of $55, partially offset by interest cost of $153 and service
cost of $24. There are no material differences between the APBO and the
accrued liability in the Company's consolidated financial statements.
The APBO was determined using an assumed discount rate of 7 1/2%. The
assumed medical cost trend rate is 9%, decreasing gradually to 5% over
nine years. The effect of a 1% increase or decrease in the health care
cost trend rate on the APBO would be $311 and $(295), respectively. The
effect of a 1% increase or decrease on the service and interest cost
components of net postretirement benefit cost would be immaterial.
(11) INCENTIVE STOCK PLANS
(a) STOCK OPTION PLAN - HOLDINGS
Holdings adopted a Stock Option Plan (the Plan) on January 28, 1998 in
order to provide incentives to certain officers and employees of the
Company. The Plan authorizes the granting of up to 10% of the outstanding
shares of Holdings. As of April 2, 1999, the Company had 100,848 shares
authorized and approximately 11,223 available for grant. The options vest
ratably over five years and expire ten years from the date of grant.
For a period of one year after an employee's termination of employment
for any reason, Holdings has the option to purchase any exercisable
options from the employees at a price equal to the difference between
fair market value of such shares and the exercise price. Any difference
that may exist in the future between the fair market value and exercise
price of $20 per share upon a cash settlement, will be charged to expense
in the period that such options are settled.
A summary of stock option activity during the period ended April 3, 1998
and the year ended April 2, 1999 follows:
SHARES
----------
Outstanding at May 9, 1997
(Predecessor) --
Granted 69,663
----------
Outstanding at April 3, 1998 69,663
(No shares exercisable)
Granted 68,348
Cancelled (48,386)
==========
Outstanding at April 2, 1999
(4,255 shares exercisable) 89,625
==========
F-22
46
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
The weighted average exercise price of all stock option activity during
the year ended April 2, 1999 and the period ended April 3, 1998 was
$20.00. The 4,255 shares that were exercisable at April 2, 1999 have a
weighted average exercise price of $20.00 and a weighted averaged
contractual life remaining of 9 years.
The Company has adopted the disclosure only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. Accordingly, no compensation
cost has been recognized for the stock options granted. Had the Company
determined compensation cost based on the fair value at the grant date
for these stock options under SFAS No. 123, the Company's net loss would
have been $(13,354) and $(4,834) for the year ended April 2, 1999 and
period ended April 3, 1998, respectively.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions: no dividend yield; expected volatility of 0%;
risk-free interest rates of 5.58% to 6.67%; and expected lives of ten
years. The weighted average fair value per share of the options granted
during the year ended April 2, 1999 and the period ended April 3, 1998 is
estimated to be $7.69 and $9.50, respectively.
(b) INCENTIVE STOCK UNITS - PREDECESSOR
The Company and certain officers and key executives (the Employees) had
entered into separate Incentive Stock Units Agreements (the Units)
whereby, upon the occurrence of certain transactions or events, the
Employees were entitled to receive compensation based upon a prescribed
formula. On May 9, 1997, such event occurred (see note 2) triggering the
exercise of the Units. As a result, the Company recognized $3,200 of
compensation expense related to the Units which is included in other
expense for the six weeks ended May 9, 1997.
(12) RELATED PARTY TRANSACTIONS
The Company was charged $3,501, $1,283 and $39 by various related parties
for the year ended April 2, 1999, and the periods ended April 3, 1998 and
May 9, 1997, respectively, for management services and consulting fees.
(13) COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims, suits, and complaints
incidental to its business. In the opinion of management, these claims
and legal proceedings will not have a material adverse effect on the
Company's consolidated financial position, results of operations or
liquidity.
F-23
47
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
The Company is involved in negotiations with former shareholders of
Care-Free relating to the final purchase price of the Acquisition. Such
negotiations may result in reductions to the purchase price and related
goodwill in future periods.
As part of the Transaction, Holdings issued $9,800 of notes payable to
the selling stockholders (Seller Notes). The Seller Notes are due May
2007, with interest payable semi-annually at an interest rate of 10%.
Holdings has the option to defer the scheduled interest payments. Such
deferral causes the base interest rate of 10% on such scheduled payments
to increase to 12%. The Seller Notes are unsecured. Such Seller Notes
have not been "pushed-down" to the Company because the Company has not
guaranteed or pledged its assets with respect to the Seller Notes. Future
principal and interest payments on the Seller Notes are expected to be
funded by the Company through the payment of common stock dividends. The
Seller Notes are subject to covenants that, among other things, impose
limitations on additional indebtedness, capital expenditures,
investments, and restrict certain payments and distributions on Holdings
and the Company. At April 2, 1999, the Company had complied with all
covenants under the Seller Notes.
(14) CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk with respect to trade receivables are
limited due to the Company's wide variety of customers and the many
markets to which the Company's products are sold, as well as the many
different geographic areas in which such customers and markets are
located. As a result, at April 2, 1999, the Company does not believe it
has any significant concentrations of credit risk. For the year ended
April 2, 1999, one customer accounted for approximately 10.1% of net
sales. For the periods ended April 3, 1998 and May 9, 1997, and the year
ended March 28, 1997, no single customer accounted for more than 10% of
net sales.
(15) ASSETS HELD FOR SALE
The Company has signed letters of intent for the sale of certain assets,
primarily machinery, equipment and inventory, used in the manufacture and
distribution of non-core products such as commercial windows and
specialty glass. The expected date of closing on these sales is July
1999. For purposes of the operating segment disclosure, these assets and
their results of operations are included in the "other" segment. For the
year ended April 2, 1999 and the period ended April 3, 1998, these assets
generated approximately $19,866 and $17,763 in net sales and $3,757 and
$3,907 in gross profit, respectively. The Company has recorded a loss of
$3,170 in the statement of operations line item "other expenses, net" for
the year ended April 2, 1999 related to the sale of these assets. The
terms of the Company's Senior Credit Facility require approximately
$4,000 of the proceeds from the sale of these assets to be used to reduce
long-term maturities of debt.
F-24
48
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
(16) SEGMENT AND RELATED INFORMATION
The Company currently manages its business by operating location and has
identified its reportable segments based primarily upon the geographic
region of the operating locations. The North region consists of three
window manufacturing facilities. The South region consists of five
window manufacturing facilities, three distribution centers and two
extrusion operations. The North and South regions manufacture and
distribute aluminum and vinyl windows for the new construction, repair
and remodel, national home center chain, and manufactured housing
markets. The Company also manufactures commercial windows and specialty
glass (see note 15). These operations have been included in the "Other"
segment for all periods presented.
The Company's assets are all domiciled within the United States and its
revenues are generated from sales to domestic customers. Net sales to
external customers for the Company's primary product groups for the year
ended April 2, 1999, the periods ended April 3, 1998 and May 9, 1997 and
the year ended March 28, 1997 were $119,500, $109,700, $12,500 and
$126,100 for aluminum products (including commercial window sales of
$10,200, $7,700, $1,500, and $9,600) and $145,300, $46,600, $4,700, and
$29,000 for vinyl products. Net sales to external customers for specialty
glass and other non-core products (excluding commercial window sales) for
the year ended April 2, 1999, the periods ended April 3, 1998 and May 9,
1999 and the year ended March 28, 1997 were $16,900, $18,500, $2,900 and
$19,300, respectively.
The accounting policies of the business segments are the same as those
described in the summary of significant accounting policies (see note
1). Transactions between operating segments are either at cost or a
predetermined mark-up percentages.
(a) SEGMENT SALES
SUCCESSOR PREDECESSOR
-------------------------- --------------------------
FORTY-SEVEN SIX WEEKS
YEAR ENDED WEEKS ENDED ENDED YEAR ENDED
APRIL 2, APRIL 3, MAY 9, MARCH 28,
1999 1998 1997 1997
---------- ----------- --------- ----------
Segment net sales
North
External customers $ 97,973 17,744 -- --
Intersegment 2,433 -- -- --
-------- -------- -------- --------
Total 100,406 17,744 -- --
South
External customers 163,407 131,891 16,734 138,406
Intersegment 765 617 84 554
-------- -------- -------- --------
Total 164,172 132,508 16,818 138,960
Other
External customers 20,357 25,134 3,361 35,995
Intersegment 2,716 3,353 475 4,679
-------- -------- -------- --------
Total 23,073 28,487 3,836 40,674
-------- -------- -------- --------
Consolidated net sales to
external customers $281,737 174,769 20,095 174,401
======== ======== ======== ========
F-25
49
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
(b) SEGMENT PROFIT
Segment profit represents total segment sales less the costs of goods
sold.
SUCCESSOR PREDECESSOR
----------------------------- ----------------------------
FORTY-SEVEN SIX WEEKS
YEAR ENDED WEEKS ENDED ENDED YEAR ENDED
APRIL 2, APRIL 3, MAY 9, MARCH 28,
1999 1998 1997 1997
---------- ----------- --------- ----------
Segment profit
North $ 26,025 3,907 -- --
South 36,419 31,429 4,558 36,894
Other 3,904 5,246 769 6,818
Inter-segment profit
elimination (887) (596) (84) (785)
-------- -------- -------- --------
Total segment profit 65,461 39,986 5,243 42,927
Selling, general and
administrative expense 60,487 35,308 3,765 32,724
Restructuring charges (446) 1,044 -- --
Interest expense, net 18,495 9,164 587 5,381
Other, net 3,170 -- 3,350 577
-------- -------- -------- --------
Consolidated income
(loss) before income
taxes and extraordinary
loss $(16,245) (5,530) (2,459) 4,245
======== ======== ======== ========
(c) SEGMENT DEPRECIATION AND AMORTIZATION EXPENSE
SUCCESSOR PREDECESSOR
---------------------------- ---------------------------
FORTY-SEVEN SIX WEEKS
YEAR ENDED WEEKS ENDED ENDED YEAR ENDED
APRIL 2, APRIL 3, MAY 9, MARCH 28,
1999 1998 1997 1997
---------------------------- --------- ----------
Depreciation and
amortization expense
North $ 2,851 323 -- --
South 5,684 4,215 314 2,667
Other 422 417 51 643
-------- -------- -------- --------
Total segment
depreciation and
amortization expense 8,957 4,955 365 3,310
Corporate depreciation
and amortization 5,174 3,547 170 1,556
-------- -------- -------- --------
Consolidated depreciation
and amortization
expense $ 14,131 8,502 535 4,866
======== ======== ======== ========
(d) SEGMENT ASSETS
Segment assets consist primarily of fixed assets, inventory, and trade
accounts receivable. The primary differences between segment assets and
consolidated assets are goodwill, other intangibles, and fixed assets
used in the Company's corporate operations.
SUCCESSOR
----------------------------
FORTY-SEVEN
YEAR ENDED WEEKS ENDED
APRIL 2, APRIL 3,
1999 1998
---------- -----------
Segment assets
North $ 39,857 49,859
South 57,616 58,815
Other 5,096 6,847
-------- --------
Total segment assets 102,569 115,521
Corporate and intangible
assets 141,086 143,923
-------- --------
Consolidated total assets $243,655 259,444
======== ========
F-26
50
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
(e) SEGMENT CAPITAL EXPENDITURES
SUCCESSOR PREDECESSOR
---------------------------- ---------------------------
FORTY-SEVEN SIX WEEKS
YEAR ENDED WEEKS ENDED ENDED YEAR ENDED
APRIL 2, APRIL 3, MAY 9, MARCH 28,
1999 1998 1997 1997
---------- ----------- --------- ----------
Segment capital
expenditures
North $ 1,789 137 -- --
South 4,158 2,574 113 2,781
Other 169 308 41 650
-------- -------- -------- --------
Total segment capital
expenditures 6,116 3,019 154 3,431
Corporate 1,628 605 44 85
-------- -------- -------- --------
Consolidated capital expenditures $ 7,744 3,624 198 3,516
======== ======== ======== ========
(17) GUARANTOR SUBSIDIARIES
The following is condensed summarized financial information of the
guarantor subsidiaries. Separate financial statements and other
disclosures concerning such guarantor subsidiaries have not been
presented because management has determined that such information would
not provide relevant material additional information to users of the
consolidated financial statements.
F-27
51
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
SUCCESSOR
-------------------------------
APRIL 2, APRIL 3,
1999 1998
-------------- --------------
Cash and cash equivalents $ 677 --
Accounts receivable, net 15,153 17,160
Raw materials 7,199 7,921
Finished product and work in process 3,142 2,693
Other current assets 3,074 5,862
Property, plant and equipment, net 33,349 32,717
Intangible assets, net 102,245 105,290
-------------- --------------
Total assets $ 164,839 171,643
============== ==============
Accounts payable $ 6,457 7,452
Accrued expenses 4,251 5,543
Current portion of long-term debt 624 887
Long-term debt 400 1,180
Other liabilities 2,301 4,678
Intercompany payable 41,807 32,327
Net equity 108,999 119,576
-------------- --------------
Total liabilities and net equity $ 164,839 171,643
============== ==============
F-28
52
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
SUCCESSOR PREDECESSOR
------------------------ ------------------------
APRIL 2, APRIL 3, MAY 9, MARCH 28,
1999 1998 1997 1997
--------- --------- --------- ---------
Net sales $ 173,566 74,066 7,358 61,913
Cost of products sold 136,654 61,674 6,149 53,809
Selling, general, and administrative 44,780 17,667 2,916 13,889
Interest expense 2,965 1,315 125 1,413
Income tax benefit (2,175) (2,201) (620) (2,438)
--------- --------- --------- ---------
Net loss $ (8,658) (4,389) (1,212) (4,760)
========= ========= ========= =========
Net cash provided by (used) in operating
activities $ 1,227 (4,243) 609 (7,917)
Net cash used in investing activities (2,821) (1,163) (11) (922)
Net cash provided by (used in) financing
activities 2,271 5,111 (347) 8,776
--------- --------- --------- ---------
Increase (decrease) in cash and cash
equivalents $ 677 (295) 251 (63)
========= ========= ========= =========
F-29
53
SIGNATURES
Pursuant to the requirements of Section 13 of 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.
Date: July 1, 1999 RELIANT BUILDING PRODUCTS, INC.
By: /s/ Virgil D. Lowe
--------------------------------
Virgil D. Lowe, Vice President
POWER OF ATTORNEY
We, the undersigned directors and officers of Reliant Building Products,
Inc., hereby appoint Fred S. Grunewald and Virgil D. Lowe, or either of them,
our true and lawful attorneys and agents, to do any and all acts and things in
our name and on our behalf in our capacities indicated below, which said
attorneys and agents, and each of them, may deem necessary or advisable to
enable such corporation to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with this Annual Report on Form 10-K,
including, without limitation, power and authority to sign for us, or any of us,
in our names in the capacities indicated below, any and all amendments hereto,
and we hereby ratify and confirm that such attorneys and agents, or each of
them, shall do or cause to be done by virtue hereof.
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/ FRED S. GRUNEWALD Chairman, President and Chief July 1, 1999
- ---------------------- Executive Officer
Fred S. Grunewald
/s/ VIRGIL D. LOWE Director and Chief Financial July 1, 1999
- ----------------------------- Officer (Principal Financial and
Virgil D. Lowe Accounting Officer)
/s/ BRADFORD E. BERNSTEIN Director July 1, 1999
- -----------------------------
Bradford E. Bernstein
/s/ MICHAEL L. GEORGE Director July 1, 1999
- -----------------------------
Michael L. George
/s/ STEVEN B. GRUBER Director July 1, 1999
- -----------------------------
Steven B. Gruber
/s/ ROBERT B. HENSKE Director July 1, 1999
- -----------------------------
Robert B. Henske
/s/ JAMES M. PATELL Director July 1, 1999
- -----------------------------
James M. Patell
54
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
No annual report to security holders covering the Registrant's last fiscal
year and no proxy statement, form of proxy or other soliciting material with
respect to any annual or other meeting of security holders has been sent to
security holders of the Registrant.
55
Schedule II
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
Valuation and Qualifying Accounts
(In thousands of dollars)
Additions Charged to:
Balance at Costs Balance
beginning and Other at end of
Description of period expenses (1) Deductions period
----------- ---------- -------- ----- ---------- ---------
Allowance for doubtful accounts:
Year ended March 28, 1997
- Predecessor 1,637 214 -- (542) 1,309
Six weeks ended May 9, 1997
- Predecessor 1,309 97 -- (66) 1,340
Forty-seven weeks ended April 3, 1998
- Successor 1,340 380 1,594 (979) 2,335
Year ended April 2, 1999
- Successor 2,335 1,684 -- (1,302) 2,717
Reserve for inventory obsolescence:
Year ended March 28, 1997
- Predecessor 56 43 -- -- 99
Six weeks ended May 9, 1997
- Predecessor 99 23 -- (3) 119
Forty-seven weeks ended April 3, 1998
- Successor 119 318 700 (350) 787
Year ended April 2, 1999
- Successor 787 1,404 -- (505) 1,686
(1) Represents the acquisition balances at the date of the Care-Free
acquisition.
S-1
56
EXHIBIT INDEX
Exhibit Description
- ------- -----------
2.1 Stock Purchase Agreement dated as of March 27, 1997 by and between the Stockholders named therein
and Reliant Partners, L.P.*
2.2 First Amendment to Stock Purchase Agreement dated as of May 9, 1997 by and between Reliant
Partners, L.P., Reliant Partners II, L.P., David G. Fiore, Virgil D. Lowe, Jack L. Morris, Rodney
Vickers, Charles E. Still and James R. Trigg, Jr. and the Stockholders named herein*
2.3 Stock Purchase Agreement dated December 17, 1997 between Reliant
Building Products, Inc. as "Buyer" and the Stockholders, Warrant
Holders, and Option Holders of CFA Holding Company as "Sellers"
(incorporated by reference from the Company's Quarterly Report
on Form 10-Q for the quarterly period ended December 26, 1997)
3.1 Restated Certificate of Incorporation of Reliant Building Products, Inc.*
3.2 Certificate of Amendment to Certificate of Incorporation of Reliant Building Products, Inc. filed
September 7, 1993*
3.3 Certificate of Amendment to Certificate of Incorporation of Reliant Building Products, Inc. filed
May 8, 1997*
3.4 Bylaws of Redman Building Products, Inc.*
4.1 Indenture dated as of May 9, 1997, between the Company, the Guarantors and Bank One, Columbus NA,
as Trustee, relating to the Notes.*
4.2 Form of 10 7/8% Senior Subordinated Notes due 2004, Series B (included in Exhibit 4.1)*
10.1 Stockholders Agreement dated as of May 9, 1997 by and among RBPI Holding Corporation and the
Stockholders named therein*
10.2 Registration Rights Agreement date as of May 9, 1997 by and among RBPI Holding Corporation and
the Stockholders named therein*
10.3 Consulting Agreement dated as of May 9, 1997 by and between the Company and George Group, Inc.*
10.4 Acquisition Advisory Services Fee Letter dated March 27, 1997 by and between RBPI Holding
Corporation and George Group Inc.*
10.5 Employment Agreement dated as of April 1, 1997 by and between the Company and David G. Fiore*
10.6 Employment Agreement dated as of March 31, 1994 by and between the Company and Virgil D. Lowe*
10.7 RBPI Holding Corporation Nonqualified Stock Option Plan*
10.9 Credit Agreement dated January 28, 1998 between RBPI Holding Corporation and Reliant Building
Products, Inc. as "Borrower," Canadian Imperial Bank of Commerce as "Documentation Agent,"
and The Chase Manhattan Bank as "Administrative Agent"
E-1
57
(incorporated by reference from the Company's Quarterly Report
on Form 10-Q for the quarterly period ended December 26, 1997)
10.10 Guarantee and Collateral Agreement between RBPI Holding
Corporation and Reliant Building Products, Inc. as "Borrower"
and The Chase Manhattan Bank as "Administrative Agent."
(incorporated by reference from the Company's Quarterly Report
on Form 10-Q for the quarterly period ended December 26, 1997)
10.11 Employment Agreement dated as of April 30, 1998 by and between
the Company and Tom M. Seymour
10.12 Employment Agreement dated as of October 16, 1998 by and between
the Company and Fred S. Grunewald
10.13 Amendment and Waiver dated March 30, 1999 to the Credit
Agreement dated January 28, 1998 between RBPI Holding
Corporation and Reliant Building Products, Inc. as "Borrower,"
Canadian Imperial Bank of Commerce as "Documentation Agent," and
The Chase Manhattan Bank as "Administrative Agent"
21.1 Subsidiaries of the Company
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
* Incorporated by reference from the Registrant's Registration Statement on
Form S-4, Registration No. 333-30699, dated July 2, 1997.
E-2