UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended October 1, 1999 or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 333-30699
RELIANT BUILDING PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1364873
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3010 LBJ Freeway, Suite 400, Dallas, Texas 75234
(Address of principal executive offices) (Zip Code)
(972) 919-1000
(Registrant's telephone number, including area code)
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 as 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
---
Number of shares Common Stock outstanding as of November 12, 1999: 1,000
EXPLANATORY NOTE
This Form 10-Q/A is being filed to restate the consolidated financial statements
as of October 1, 1999 and for the periods then ended. The restatement of
financial position and results of operations results from adjustments identified
after the original filing of Form 10-Q on November 16, 1999.
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
QUARTER ENDED OCTOBER 1, 1999
INDEX
PART I. FINANCIAL INFORMATION
- ----------------------------------
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
PART II. OTHER INFORMATION
- -------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Signatures
PART I. FINANCIAL INFORMATION
----------------------------------
ITEM 1. FINANCIAL STATEMENTS
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
OCTOBER 1, APRIL 2,
1999 1999
------------ ----------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 1,702 $ 851
Accounts receivable, net 32,905 26,331
Inventories (note 4) 24,135 19,220
Deferred tax assets 241 2,879
Prepaid expenses and other current assets 2,051 2,001
------------ ----------
Total current assets 61,034 51,282
Property, plant, and equipment, net 51,309 50,303
Intangible assets, net (note 3) 123,636 131,794
Assets held for sale 604 5,096
Other assets 4,784 5,180
------------ ----------
Total assets 241,367 243,655
============ ==========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable 24,737 15,399
Accrued expenses 15,786 16,467
Current portion of long-term debt (note 7) 7,763 5,533
Long-term debt currently being renegotiated (note 7) 189,837 -
------------ ----------
Total current liabilities 238,123 37,399
Long-term debt, less current portion (note 7) 33 113,877
Deferred income taxes 866 3,784
Other liabilities 3,676 3,417
Subordinated debt (note 7) - 70,000
------------ ----------
Total liabilities 242,698 228,477
Shareholder's equity (deficit):
Common stock, $1.00 par value:
Authorized shares - 10,000
Issued and outstanding shares - 1,000 1 1
Preferred stock of Holdings, stated at amount contributed 4,583 4,664
Notes receivable - equity securities (100) (475)
Additional paid-in capital 30,570 30,925
Accumulated deficit (36,385) (19,937)
------------ ----------
Total shareholder's equity (deficit) (1,331) 15,178
------------ ----------
Total liabilities and shareholder's equity (deficit) $ 241,367 $ 243,655
============ ==========
See accompanying notes.
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
QUARTER ENDED
------------------------------------
OCTOBER 1, 1999 OCTOBER 2, 1998
----------------- -----------------
Net sales $ 68,006 $ 77,485
Cost of products sold 54,507 56,573
----------------- -----------------
Gross profit 13,499 20,912
Selling, general and administrative 16,721 16,441
Goodwill impairment 4,829 -
----------------- -----------------
Income (loss) from operations (8,051) 4,471
Interest expense, net 4,945 4,502
Other expenses 669 -
----------------- -----------------
Loss before income taxes (13,665) (31)
Income tax expense 396 1,030
----------------- -----------------
Net loss $ (14,061) $ (1,061)
================= =================
See accompanying notes.
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
SIX MONTHS ENDED
-------------------------------------
OCTOBER 1, 1999 OCTOBER 2, 1998
------------------ -----------------
Net sales $ 140,855 $ 156,429
Cost of products sold 109,018 117,138
------------------ -----------------
Gross profit 31,837 39,291
Selling, general and administrative 32,385 31,111
Goodwill impairment 4,829 -
------------------ -----------------
Income (loss) from operations (5,377) 8,180
Interest expense, net 9,759 9,128
Other expenses 1,041 -
------------------ -----------------
Loss before income taxes (16,177) (948)
Income tax expense (benefit) (78) 528
------------------ -----------------
Net loss $ (16,099) $ (1,476)
================== =================
See accompanying notes.
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
------------------
OCTOBER 1, 1999 OCTOBER 2, 1998
------------------ -----------------
Cash flows from operating activities:
Net loss $ (16,099) $ (1,476)
Adjustments to reconcile net loss to net cash
provided by (used in) operations:
Depreciation and amortization 5,822 6,952
Non-cash interest expense 453 454
Deferred income taxes (278) 1,020
Provision for doubtful accounts 445 1,021
Goodwill impairment 4,829 -
Other 376 (88)
Changes in operating assets and liabilities:
Accounts receivable (7,193) (6,419)
Inventories (5,288) (2,323)
Prepaid expenses and other current assets (56) 1,119
Accounts payable and accrued expenses 8,591 2,493
Other. 1,582 (2,092)
------------------ -----------------
Net cash provided by (used in) operating activities (6,816) 661
Investing activities:
Purchases of property, plant and equipment (5,940) (3,231)
Proceeds from sale of property, plant and equipment 4,619 27
------------------ -----------------
Net cash used in investing activities (1,321) (3,204)
Financing activities:
Net proceeds from revolving loan 14,400 4,100
Proceeds from long-term debt 216 343
Principal payments on long-term debt (5,569) (1,571)
Redemption of preferred stock (81) (23)
Payment of debt issue costs - (70)
Preferred stock capital contribution - 47
Proceeds from equity notes 375 -
Payment of dividends to Holdings (353) (101)
Capital contribution from Holdings - 203
------------------ -----------------
Net cash provided by financing activities 8,988 2,928
Increase in cash and cash equivalents 851 385
Cash and cash equivalents at beginning of period 851 737
------------------ -----------------
Cash and cash equivalents at end of period $ 1,702 $ 1,122
================== =================
Supplementary Information:
Cash paid for interest $ 8,987 $ 7,842
================== =================
Cash paid for income taxes $ 231 $ -
================== =================
<FN>
See accompanying notes.
Reliant Building Products, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
1. The Company
Reliant Building Products, Inc. (formerly Redman Building Products, Inc.) and
subsidiaries (the "Company") are 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.
2. Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with generally accepted accounting principles for
interim financial reporting, the instructions to Form 10-Q, and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The balance sheet at April 2, 1999 has been derived from the audited
consolidated financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
The accompanying unaudited consolidated financial statements and related notes
should be read in conjunction with the Company's audited consolidated financial
statements and related notes included in the Form 10-K filed with the Securities
and Exchange Commission on July 1, 1999. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation of the interim financial information have been included.
The results of operations for any interim period are not necessarily indicative
of the results of operations for a full year.
All significant intercompany transactions and balances have been eliminated in
consolidation. The Company utilizes a 52 or 53 week accounting period which
ends on the Friday closest to March 31. The quarters ended October 1, 1999 and
October 2, 1998 included 13 weeks.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. Intangible Assets
Intangible assets, consisting of goodwill and other intangible assets, totaled
$123.6 million at October 1, 1999. Goodwill is being amortized on a
straight-line basis over a 40-year period. Other intangible assets consist
primarily of a covenant not to compete and trademarks that are being amortized
over five years.
In the current period, the Company recorded an impairment charge of $4.8 million
to reduce the carrying value of long-lived assets (including goodwill) to their
fair value. These long-lived assets are included in the North operating segment.
The review for impairment at this location was triggered by recent operating
cash flow losses and forecasted operating cash flows below those expected at the
time the manufacturing facility was acquired. The fair value of the long-lived
assets was determined based upon management's estimate of future operating cash
flows.
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, additional impairment
of goodwill may be necessary.
4. Inventories
OCTOBER 1, 1999 APRIL 2, 1999
---------------- --------------
Raw materials. $ 15,841 $ 13,205
Finished goods and work-in-process 8,294 6,015
---------------- --------------
$ 24,135 $ 19,220
================ ==============
5. 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, four distribution centers and two extrusion
operations. The Other segment consists primarily of commercial windows and
specialty glass operations, both of which were sold on July 1, 1999. 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. Transactions between operating segments are
either at cost or predetermined mark-up percentages.
(a) Segment Sales
QUARTER ENDED SIX MONTHS ENDED
----------------------------------- ----------------------------------
OCTOBER 1, 1999 OCTOBER 2, 1998 OCTOBER 1, 1999 OCTOBER 2, 1998
---------------- ----------------- ---------------- ----------------
Segment net sales
North
External customers $ 24,657 $ 28,245 $ 50,094 $ 55,497
Intersegment 1,141 675 1,849 1,203
---------------- ----------------- ---------------- ----------------
Total 25,798 28,920 51,943 56,700
South
External customers 43,318 42,546 85,652 87,842
Intersegment 154 2,412 744 3,125
---------------- ----------------- ---------------- ----------------
Total 43,472 44,958 86,396 90,967
Other
External customers 31 6,694 5,109 13,090
Intersegment - 300 336 856
---------------- ----------------- ---------------- ----------------
Total 31 6,994 5,445 13,946
Consolidated net sales to
external customers $ 68,006 $ 77,485 $ 140,855 $ 156,429
================ ================= ================ ================
(b) Segment Profit
Segment profit represents total segment sales less the costs of goods sold.
QUARTER ENDED SIX MONTHS ENDED
------------------------------------- -----------------------------------
OCTOBER 1, 1999 OCTOBER 2, 1998 OCTOBER 1, 1999 OCTOBER 2, 1998
----------------- ------------------ ----------------- -----------------
Segment profit
North $ 5,439 $ 8,100 $ 11,272 $ 15,601
South 8,246 11,996 19,189 21,864
Other 8 1,324 1,815 2,603
Inter-segment profit
elimination (194) (508) (439) (777)
----------------- ------------------ ----------------- ----------------
Total segment profit 13,499 20,912 31,837 39,291
Selling, general and
administrative expense 16,721 16,441 32,385 31,111
Goodwill impairment 4,829 - 4,829 -
Interest expense, net 4,945 4,502 9,759 9,128
Other, net 669 - 1,041 -
----------------- ------------------ ----------------- ----------------
Consolidated loss before
income taxes $ (13,665) $ (31) $ (16,177) $ (948)
================= ================== ================= ================
6. Guarantor Subsidiaries
The Company's 10 7/8% senior subordinated notes due May 1, 2004 are jointly and
severally and fully and unconditionally guaranteed on a senior subordinated
basis by all of the Company's wholly-owned subsidiaries. Separate financial
statements and other disclosures concerning such guarantor subsidiaries have not
been presented because management has determined that such information is not
material to investors. The condensed summarized information (in thousands) of
the guarantor subsidiaries is as follows.
OCTOBER 1, APRIL 2,
1999 1999
------------ ---------
Cash and cash equivalents $ 916 $ 677
Accounts receivable, net 19,624 15,153
Raw materials 8,439 7,199
Finished product and work in process 4,519 3,142
Other current assets 1,402 3,074
Property, plant and equipment, net 30,735 33,349
Intangible assets, net 95,619 102,245
------------ ---------
Total assets $ 161,254 $ 164,839
============ =========
Accounts payable $ 11,002 $ 6,457
Accrued expenses 4,662 4,251
Current portion of long-term debt 100 624
Long-term debt 25 400
Other liabilities - 2,301
Intercompany payable 36,116 41,807
Net equity 109,349 108,999
------------ ---------
Total liabilities and net equity $ 161,254 $ 164,839
============ =========
Quarter Ended Six Months Ended
----------------------------------- --------------------------
October 1, October 2, October 1, October 2,
1999 1998 1999 1998
--------------- ------------------ ------------ ------------
Net Sales $ 45,876 $ 48,296 $ 93,171 $ 95,119
Cost of products sold 37,194 37,236 74,549 73,807
Selling, general, and administrative 11,503 11,702 21,299 22,373
Goodwill impairment 4,829 - 4,829 -
Interest expense 846 820 1,586 1,545
Income tax expense (benefit) 167 536 141 (276)
--------------- ------------------ ------------ ------------
Net loss $ (8,663) $ (1,998) $ (9,233) $ (2,330)
=============== ================== ============ ============
Net cash used by operating activities $ (6,559) $ (3,704)
Net cash provided by (used in) investing activities 123 (2,872)
Net cash provided by financing activities 6,675 7,503
------------ ------------
Increase in cash and cash equivalents $ 239 $ 927
============ ============
7. Long-term Debt Currently Being Renegotiated
On September 9, 1999, the Company began discussions with its lenders (the
"Lenders") under the Senior Credit Facility dated as of January 28, 1998 (as
amended, the "Senior Credit Facility") on alternatives to amend the Senior
Credit Facility to provide an increase in borrowing availability. These
discussions were the result of the Company's desire to continue its objectives
to refocus the organization into one of the major suppliers of aluminum and
vinyl windows.
Long-term debt currently being renegotiated consists of the following (in
thousands):
October 1, 1999
---------------
Senior Credit Facility:
Term loan A $ 38,667
Term loan B 60,087
Revolver 28,500
Senior Subordinated Notes 70,000
----------
Total long-term debt being renegotiated 197,254
Less current portion:
Long-term debt currently being renegotiated 189,837
Current maturities of long-term debt 7,417
----------
$ -
The Company has reached agreements with the Lenders under the Senior Credit
Facility and with holders of more than 80% of the principal amount of
outstanding Senior Subordinated Notes due 2004 (the "Existing Notes") on the
principal terms of a restructuring of the bank debt and the Existing Notes (the
"Restructuring"). In connection therewith, on October 1, 1999, the Lenders and
the Company executed a Second Amendment and Waiver (the "Second Amendment")
pursuant to which the Lenders waived, for a limited time period, certain
financial covenant non-compliance under the Senior Credit Facility. The waiver
is effective through the earliest of (i) January 31, 2000, (ii) the expiration
of the Company's agreement with the Bondholder Group (as hereinafter defined)
and (iii) December 31, 1999, if the Company fails to meet certain financial
requirements on that date. The Second Amendment also provides for an amendment
of financial covenants under the Senior Credit Facility and an $8.0 million
increase to the Revolver borrowing base that would be available incrementally,
if used, on the following dates (in thousands):
March 31, 2000 $2,000
June 30, 2000 2,000
December 31, 2000 2,000
March 31, 2001 500
June 30, 2001 500
September 30, 2001 500
December 31, 2001 500
The covenant amendments and borrowing base increase will not become effective
until satisfaction of certain conditions set forth in the Second Amendment,
specifically completion by the Company of an exchange offer for the Existing
Notes and contribution by existing equity owners of the Company's parent, RBPI
Holding Corporation, of a $10 million investment in the Company in the form of
equity or subordinated debt.
The Company has reached an agreement in principle, documented in a Term Sheet
Agreement dated November 1, 1999 (the "Term Sheet"), with holders of more than
80% of the principal amount of Existing Notes (the "Bondholder Group") on the
terms of an exchange offer (the "Exchange Offer") pursuant to which the Company
will issue an equal principal amount of new notes (the "New Notes") for Existing
Notes validly tendered. The New Notes will provide the Company with the option,
instead of paying interest in cash, to accrue interest payments until maturity
(at rates up to 100 basis points higher) for three years beginning November 1,
1999. The remaining terms of the New Notes will be substantially the same as
the terms of the Existing Notes. Consummation of the Exchange Offer is subject
to execution of definitive documentation and to a number of conditions. The
Company's obligation to accept Existing Notes for exchange is conditioned upon,
among other conditions, receipt of tenders from holders of at least 95% in
principal amount of Existing Notes (the "Tender Condition"), the new $10 million
investment by current equity owners, and effectiveness of the financial covenant
amendments and the Revolver borrowing base increase provided for by the Second
Amendment. In the event that the Tender Condition is not satisfied and the
other conditions to the Exchange Offer are satisfied or waived, the Company may
elect to file a prepackaged Chapter 11 plan of reorganization containing
substantially the same terms as the Exchange Offer. Members of the Bondholder
Group have agreed, subject to documentation, to vote in favor of a prepackaged
plan.
Because the conditions to effectiveness of the covenant amendments in the Second
Amendment have not yet been satisfied and the waiver contained therein expires
in less than one year, in accordance with generally accepted accounting
principles regarding classification of debt, the Company has classified its
indebtedness under the Senior Credit Facility and the Existing Notes as current
debt. As of October 1, 1999, the long-term debt payable, by its terms, within
one year is $7.8 million and the long-term debt that has been classified as
current, due to the Restructuring not yet having been completed, is $189.8
million.
The Company reasonably expects that the Restructuring will be consummated by
January 31, 2000. Upon completion of the Restructuring before the next balance
sheet reporting date and the Company's compliance with the amended financial
covenants under the Senior Credit Facility, that portion of the restructured
debt that is not due within one year will be reclassified as long-term debt.
The Company believes that the completion of the Restructuring will enable
adequate funds to be available to meet the Company's cash requirements for
capital expenditures, working capital and scheduled principal and interest
payments. The Company's ability to satisfy its future capital requirements will
depend on future capital expenditure requirements and the Company's future
financial performance, which will be subject to general economic conditions and
competitive and other factors, including factors beyond the Company's control.
If the Restructuring is not consummated, the Lenders may accelerate the
obligations under the Senior Credit Facility and the Company may not have the
financial resources needed to make such payment. In addition, failure to
complete the Restructuring could have a material adverse effect on the Company's
financial position, results of operations and liquidity and could result in the
commencement of a Chapter 11 reorganization case under the Bankruptcy Code.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
--------------------------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
-------------------------------------
THE COMPANY
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,
CARE-FREE, ALPINE WINDOWS, and BUILDERS VIEW. The products are marketed across
all major price points. As a result of the January 28, 1998 acquisition of all
the capital stock of Care-Free Window Group ("Care-Free"), a privately held
vinyl window company, the Company has developed a significant national
manufacturing and marketing presence. Window products include 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 the
do-it-yourself market.
The Company manufactures its products at eight facilities strategically located
throughout the U.S. within two geographic regions, North and South (See note 5
to Company's unaudited consolidated financial statements for more information
regarding its operating segments). The Company distributes its products
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 also operates Company owned
distribution facilities in Phoenix, Arizona; Ontario, California; Metairie,
Louisiana and Dallas, Texas.
The Company supplements its window business through the manufacture of related
products such as custom aluminum extrusion and window components ("non-core
products") for the Company's internal needs and for sale to third parties. The
Company believes that its vertically integrated operations provide significant
manufacturing flexibility, a reliable supply of low-cost components and a
reduction in working capital requirements.
RESULTS OF OPERATIONS
Second Quarter Ended October 1, 1999 Compared to Second Quarter Ended October 2,
1998
Net Sales. Net sales decreased $9.5 million, or 12.2%, from $77.5 million in
the quarter ended October 2, 1998 ("Prior Period") to $68.0 million for the
quarter ended October 1, 1999 ("Current Period"). Approximately $5.5 million of
the decrease in net sales results from the sale of the commercial window and
specialty glass operations of the Other segment on July 1, 1999. Net sales were
also impacted by the discontinuance of product lines sold to customers that are
not the strategic focus of the Company and lower than expected sales of a new
product line intended to replace existing lines. Net sales were positively
impacted by revenues generated from sales to a national home center chain under
an exclusive supply contract for stores in Texas and Oklahoma.
Cost of Products Sold. Cost of products sold decreased $2.1 million from $56.6
million for the Prior Period to $54.5 million for the Current Period. Expressed
as a percentage of net sales, cost of products sold increased from 73.0% for the
Prior Period to 80.2% for the Current Period. This increase in cost of products
sold as a percentage of net sales is primarily the result of charges recorded
for the write-down and disposal of raw material used in the production of
discontinued product lines. In addition, cost of products sold was negatively
impacted by manufacturing inefficiencies resulting from the start-up of new
products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $16.4 million in the Prior Period and $16.7 million
for the Current Period. Included in the Current Period is approximately $0.2
million of severance charges for a former officer of the Company.
Goodwill Impairment. The Company recorded an impairment charge of $4.8 million
to reduce the carrying value of long-lived assets (including goodwill) to their
fair value. These long-lived assets are included in the North operating segment.
The review for impairment at this location was triggered by recent operating
cash flow losses and forecasted operating cash flows below those expected at the
time the manufacturing facility was acquired. The fair value of the long-lived
assets was determined based upon management's estimate of future operating cash
flows.
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, additional impairment
of goodwill may be necessary.
Other Expenses, Net. Other expenses, net for the Current Period consists of an
impairment charge of $0.5 million to reduce the carrying amount of an unutilized
building and land that is held for sale to its estimated net realizable value
and a $0.2 million loss recorded upon the sale of a trademark and associated
manufacturing equipment of a non-core business.
Interest Expense, Net. Interest expense increased $0.4 million from $4.5
million in the Prior Period to $4.9 million for the Current Period. This
increase is due to a higher debt level in the Current Period.
Income Tax Expense. The income tax expense of $0.4 million (State and Federal
combined) is comprised of $0.1 million of state expense, $2.7 million of
potential deferred Federal income tax benefit, and $3.0 million of valuation
allowance established against deferred tax assets. The valuation allowance was
established to reduce deferred taxes, primarily net operating loss
carryforwards, to an amount where realization in future periods is considered to
be more likely than not. The allowance was determined based on the weight of
available evidence which consists primarily of taxable losses in recent years,
the types and amounts of existing temporary differences and the expiration dates
of the operating loss carryforward.
Six Months Ended October 1, 1999 Compared to Six Months Ended October 2, 1998
Net Sales. Net sales decreased $15.5 million, or 10.0%, from $156.4 million in
the six months ended October 2, 1998 ("Prior YTD Period") to $140.9 million for
the six months ended October 1, 1999 ("Current YTD Period"). Approximately $5.5
million of the decrease in net sales results from the sale of the commercial
window and specialty glass operations of the Other segment on July 1, 1999. Net
sales were also impacted by the discontinuance of product lines sold to
customers that are not the strategic focus of the Company and lower than
expected sales of a new product line intended to replace existing lines. Also
impacting net sales were unrecovered sales resulting from weather related delays
in the housing starts in the Northwest and continued pricing pressures in the
manufactured housing market. Net sales were positively impacted by revenues
generated from sales to a national home center chain under an exclusive supply
contract for stores in Texas and Oklahoma.
Cost of Products Sold. Cost of products sold decreased $8.1 million from $117.1
million for the Prior YTD Period to $109.0 million for the Current YTD Period.
Expressed as a percentage of net sales, cost of products sold increased from
74.9% for the Prior YTD Period to 77.4% for the Current YTD Period. This
increase in cost of products sold as a percentage of net sales is primarily the
result of charges recorded for the write-down and disposal of raw material used
in the production of discontinued product lines and manufacturing inefficiencies
resulting from the start-up of new products. In addition, the Company has
recorded approximately $0.8 million in connection with the start-up of the
supply contract with a national home center chain.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.3 million from $31.1 million in the Prior
YTD Period to $32.4 million for the Current YTD Period. This increase is due
primarily to increased expenses associated with the national marketing and sales
organization and incremental costs related to the wind down of the businesses
sold during the Current YTD Period.
Goodwill Impairment. The Company recorded an impairment charge of $4.8 million
to reduce the carrying value of long-lived assets (including goodwill) to their
fair value. These long-lived assets are included in the North operating segment.
The review for impairment at this location was triggered by recent operating
cash flow losses and forecasted operating cash flows below those expected at the
time the manufacturing facility was acquired. The fair value of the long-lived
assets was determined based upon management's estimate of future operating cash
flows.
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, additional impairment
of goodwill may be necessary.
Other Expenses, Net. Other expenses, net for the Current YTD Period consists
of an impairment charge of $0.5 million to reduce the carrying amount of an
unutilized building and land that is held for sale to its estimated net
realizable value and a $0.2 million loss recorded upon the sale of a trademark
and associated manufacturing equipment of a non-core business. Also, included
in other expenses, net were losses in the first quarter related to the sale of
the commercial window and specialty glass operations.
Interest Expense, Net. Interest expense increased $0.7 million from $9.1
million in the Prior YTD Period to $9.8 million for the Current YTD Period.
This increase is due to a higher debt level in the Current YTD Period.
Income Tax Expense. The income tax benefit of $0.1 million (State and Federal
combined) is comprised of $0.2 million of state expense, $3.3 million of
potential deferred Federal income tax benefit, and $3.0 million of valuation
allowance established against deferred tax assets. The valuation allowance was
established to reduce deferred taxes, primarily net operating loss
carryforwards, to an amount where realization in future periods is considered to
be more likely than not. The allowance was determined based on the weight of
available evidence which consists primarily of taxable losses in recent years,
the types and amounts of existing temporary differences and the remaining
expiration dates of the operating loss carryforward.
LIQUIDITY AND CAPITAL RESOURCES
Net cash (used in)/provided by operating activities was $(6.8) million for the
Current YTD Period and $0.7 million in the Prior YTD Period. The decrease in
cash provided from operating activities is the result of comparatively lower
results of operations.
Capital expenditures for the Current YTD Period were $5.9 million compared to
$3.2 million for the Prior YTD Period. Investing cash flows also includes the
proceeds from the sale of non-strategic assets at the commercial window facility
in Bryan, Texas and the sale of the specialty glass subsidiary.
Cash flows provided by financing activities in the Current YTD Period were $9.0
million compared to $2.9 million in the Prior YTD Period. Current YTD Period
cash provided by financing activities was used primarily to fund capital
expenditures, interest payments and other working capital requirements.
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 funds from operations and
borrowings under the Senior Credit Facility. The amount available as of October
28, 1999, under the revolving line of credit (the "Revolver") is approximately
$2.2 million. As of October 28, 1999, $30.9 million was borrowed and $2.8
million in letters of credit were outstanding under the Revolver. Interest on
the borrowings under the Revolver, which is currently payable at 8.7%, is at
3.25% over the Eurodollar rate. The Revolver agreement expires on December 31,
2003.
On September 9, 1999, the Company began discussions with its lenders (the
"Lenders") under the Senior Credit Facility dated as of January 28, 1998 (as
amended, the "Senior Credit Facility") on alternatives to amend the Senior
Credit Facility to provide an increase in borrowing availability. These
discussions were the result of the Company's desire to continue its objectives
to refocus the organization into one of the major suppliers of aluminum and
vinyl windows.
The Company has reached agreements with the Lenders under the Senior Credit
Facility and with holders of more than 80% of the principal amount of
outstanding Senior Subordinated Notes due 2004 (the "Existing Notes") on the
principal terms of a restructuring of the bank debt and the Existing Notes (the
"Restructuring"). In connection therewith, on October 1, 1999, the Lenders and
the Company executed a Second Amendment and Waiver (the "Second Amendment")
pursuant to which the Lenders waived, for a limited time period, certain
financial covenant non-compliance under the Senior Credit Facility. The waiver
is effective through the earliest of (i) January 31, 2000, (ii) the expiration
of the Company's agreement with the Bondholder Group (as hereinafter defined)
and (iii) December 31, 1999, if the Company fails to meet certain financial
requirements on that date. The Second Amendment also provides for an amendment
of financial covenants under the Senior Credit Facility and an $8.0 million
increase to the Revolver borrowing base that would be available incrementally,
if used, on the following dates (in thousands):
March 31, 2000 $2,000
June 30, 2000 2,000
December 31, 2000 2,000
March 31, 2001 500
June 30, 2001 500
September 30, 2001 500
December 31, 2001 500
The covenant amendments and borrowing base increase will not become effective
until satisfaction of certain conditions set forth in the Second Amendment,
specifically completion by the Company of an exchange offer for the Existing
Notes and contribution by existing equity owners of the Company's parent, RBPI
Holding Corporation, of a $10 million investment in the Company in the form of
equity or subordinated debt.
The Company has reached an agreement in principle, documented in a Term Sheet
Agreement dated November 1, 1999 (the "Term Sheet"), with holders of more than
80% of the principal amount of Existing Notes (the "Bondholder Group") on the
terms of an exchange offer (the "Exchange Offer") pursuant to which the Company
will issue an equal principal amount of new notes (the "New Notes") for Existing
Notes validly tendered. The New Notes will provide the Company with the option,
instead of paying interest in cash, to accrue interest payments until maturity
(at rates up to 100 basis points higher) for three years beginning November 1,
1999. The remaining terms of the New Notes will be substantially the same as
the terms of the Existing Notes. Consummation of the Exchange Offer is subject
to execution of definitive documentation and to a number of conditions. The
Company's obligation to accept Existing Notes for exchange is conditioned upon,
among other conditions, receipt of tenders from holders of at least 95% in
principal amount of Existing Notes (the "Tender Condition"), the new $10 million
investment by current equity owners, and effectiveness of the financial covenant
amendments and the Revolver borrowing base increase provided for by the Second
Amendment. In the event that the Tender Condition is not satisfied and the
other conditions to the Exchange Offer are satisfied or waived, the Company may
elect to file a prepackaged Chapter 11 plan of reorganization containing
substantially the same terms as the Exchange Offer. Members of the Bondholder
Group have agreed, subject to documentation, to vote in favor of a prepackaged
plan.
Because the conditions to effectiveness of the covenant amendments in the Second
Amendment have not yet been satisfied and the waiver contained therein expires
in less than one year, in accordance with generally accepted accounting
principles regarding classification of debt, the Company has classified its
indebtedness under the Senior Credit Facility and the Existing Notes as current
debt. As of October 1, 1999, the long-term debt payable, by its terms, within
one year is $7.8 million and the long-term debt that has been classified as
current, due to the Restructuring not yet having been completed, is $189.8
million.
The Company reasonably expects that the Restructuring will be consummated by
January 31, 2000. Upon completion of the Restructuring before the next balance
sheet reporting date and the Company's compliance with the amended financial
covenants under the Senior Credit Facility, that portion of the restructured
debt that is not due within one year will be reclassified as long-term debt.
The Company believes that the completion of the Restructuring will enable
adequate funds to be available to meet the Company's cash requirements for
capital expenditures, working capital and scheduled principal and interest
payments. The Company's ability to satisfy its future capital requirements will
depend on future capital expenditure requirements and the Company's future
financial performance, which will be subject to general economic conditions and
competitive and other factors, including factors beyond the Company's control.
If the Restructuring is not consummated, the Lenders may accelerate the
obligations under the Senior Credit Facility and the Company may not have the
financial resources needed to make such payment. In addition, failure to
complete the Restructuring could have a material adverse effect on the Company's
financial position, results of operations and liquidity and could result in the
commencement of a Chapter 11 reorganization case under the Bankruptcy Code.
OTHER DATA - EBITDA
Quarter Ended Six Months Ended
--------------------------------- ------------------------
October 1, October 2, October 1, October 2,
1999 1998 1999 1998
-------------- ----------------- ----------- -----------
EBITDA (1) $ (280) $ 7,494 $ 5,274 $ 15,132
(1) The Company defines EBITDA as income from operations before
depreciation, amortization and impairment of long-lived assets including
goodwill. 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. The Current and Current YTD
Periods include charges related to costs to position the Company on a
going-forward basis for both manual and technical process improvements, charges
recorded for the write-down of material for discontinued product lines, charges
in connection with the start-up of the supply contract with a national home
center chain and severance charges for a former officer of the Company.
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
November 1999 and completion of the contingency plans by the end of November
1999.
To date, the Company has incurred approximately $462,000 in Year 2000 related
expense. It is estimated that an additional $88,000 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 remainder of the year.
NEW ACCOUNTING PRONOUNCEMENTS
The Company is 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.
FORWARD LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. All 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;
(v) effect of discussions of changes to the covenants in the Senior Credit
Facility and the Exchange Offer for the Existing Notes; (vi) and 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.
PART II. OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.1 Second Amendment and Waiver, dated as of November 1, 1999, to
the Credit Agreement dated January 28, 1998 (as amended by
the Amendment and Waiver dated as of March 31, 1999) 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".
Exhibit 10.2 Consent and Waiver, dated as of November 15, 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".
.
Exhibit 10.3 Term Sheet, dated as of November 1, 1999, between Reliant
Building Products, Inc. and certain holders of Senior
Subordinated Notes due 2004.
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period.
Signatures
Pursuant to the requirements 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.
Reliant Building Products, Inc.
(Registrant)
Date: February 3, 2000 By: /s/ William Snyder
William K. Snyder,
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)