UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended December 26, 1997 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.)
3030 LBJ Freeway, Suite 300, 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 February 4, 1998: 1,000
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
QUARTER ENDED DECEMBER 26, 1997
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)
COMPANY PREDECESSOR
------------- ------------
DECEMBER 26, MARCH 28,
1997 1997
------------- ------------
ASSETS (Unaudited)
Cash . . . . . . . . . . . . . . . . . . . $ 8,881 $ 182
Accounts and notes receivable. . . . . . . 18,785 17,732
Inventories. . . . . . . . . . . . . . . . 14,672 14,990
Deferred tax assets. . . . . . . . . . . . 1,434 1,434
Prepaid expenses and other current assets. 1,168 1,008
------------- ------------
Total current assets . . . . . . . . . . . . 44,940 35,346
Property, plant, and equipment, net. . . . . 28,881 24,052
Intangible assets, net . . . . . . . . . . . 42,226 9,943
Other assets . . . . . . . . . . . . . . . . 3,851 3,736
------------- ------------
Total assets . . . . . . . . . . . . . . . . $ 119,898 $ 73,077
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . . . $ 7,002 $ 7,503
Accrued expenses . . . . . . . . . . . . . 8,358 6,703
Current portion of long-term debt. . . . . 2 3,839
------------- ------------
Total current liabilities. . . . . . . . . . 15,362 18,045
Long-term debt . . . . . . . . . . . . . . . - 34,108
Deferred income taxes. . . . . . . . . . . . 5,183 3,906
Other liabilities. . . . . . . . . . . . . . 1,980 334
Subordinated debt. . . . . . . . . . . . . . 70,000 5,380
Redeemable securities. . . . . . . . . . . . - 7,391
------------- ------------
Total liabilities. . . . . . . . . . . . . . 92,525 69,164
Shareholders' equity
Common stock, $1.00 par value:
Authorized shares - 10,000
Issued and outstanding shares - 1,000. . 1 1
Additional paid-in capital . . . . . . . . 27,392 6,670
Retained earnings (accumulated deficit). . (20) (2,758)
------------- ------------
Total shareholders' equity . . . . . . . . . 27,373 3,913
------------- ------------
Total liabilities and shareholders' equity . $ 119,898 $ 73,077
============= ============
See accompanying notes.
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
THREE MONTHS ENDED
---------- -------------
COMPANY PREDECESSOR
---------- -------------
DEC. 26, DEC. 27,
1997 1996
--------- -------------
Net sales. . . . . . . . . . . . . . $ 42,684 $ 41,418
Cost of products sold. . . . . . . . 32,566 31,057
--------- -------------
Gross profit . . . . . . . . . . . . 10,118 10,361
Selling, general and administrative. 8,343 8,334
--------- -------------
Income from operations . . . . . . . 1,775 2,027
Interest expense, net. . . . . . . . 2,014 1,094
Other expenses . . . . . . . . . . . 24 294
--------- -------------
Income (loss) before income taxes. . (263) 639
Income tax expense . . . . . . . . . 16 307
--------- -------------
Net income (loss). . . . . . . . . . $ (279) $ 332
========= =============
See accompanying notes.
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
COMPANY PREDECESSOR
------------- -------- ---------
THIRTY-THREE SIX NINE
WEEKS WEEKS MONTHS
ENDED ENDED ENDED
------------- -------- ---------
DEC. 26, MAY 9, DEC. 27,
1997 1997 1996
------------- -------- ---------
Net sales. . . . . . . . . . . . . . . . $ 111,878 $ 20,095 $ 139,107
Cost of products sold. . . . . . . . . . 84,923 14,852 105,412
------------- -------- ---------
Gross profit . . . . . . . . . . . . . . 26,955 5,243 33,695
Selling, general and administrative. . . 21,156 3,765 24,412
------------- -------- ---------
Income from operations . . . . . . . . . 5,799 1,478 9,283
Interest expense, net. . . . . . . . . . 5,168 587 3,993
Other expenses . . . . . . . . . . . . . 24 3,350 577
------------- -------- ---------
Income (loss) before income taxes &
extraordinary items. . . . . . . . . . 607 (2,459) 4,713
Income tax expense (benefit) . . . . . . 581 (846) 2,117
------------- -------- ---------
Income (loss) before extraordinary loss. 26 (1,613) 2,596
Extraordinary loss, net of tax benefit . - 715 -
------------- -------- ---------
Net income (loss). . . . . . . . . . . . $ 26 ($2,328) $ 2,596
============= ======== =========
See accompanying notes.
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
COMPANY PREDECESSOR
------------- -------------------------
THIRTY-THREE SIX WEEKS NINE MONTHS
WEEKS ENDED ENDED ENDED
------------- ----------- ------------
DEC. 26, MAY 9, DEC. 27,
1997 1997 1996
------------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . $ 26 ($2,328) $ 2,596
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Depreciation and amortization. . . . . . . . . . . . . 4,855 535 3,851
Provision for doubtful accounts. . . . . . . . . . . . 249 130 86
Provision for deferred income taxes. . . . . . . . . . (411) (118) 454
Non-cash interest expense. . . . . . . . . . . . . . . 489 63 524
Gain on sale of assets . . . . . . . . . . . . . . . . (1) - (30)
Extraordinary loss from early debt retirement. . . . . - 715 -
Minority interest. . . . . . . . . . . . . . . . . . . - (190) 166
Other. . . . . . . . . . . . . . . . . . . . . . . . . (281) (39) 43
Compensation expense related to incentive stock units. - 3,181 -
Changes in operating assets and liabilities:
Accounts and notes receivable. . . . . . . . . . . . 4 (1,436) 844
Inventories. . . . . . . . . . . . . . . . . . . . . 1,147 (829) (421)
Prepaids & other current assets. . . . . . . . . . . 162 (1,540) (551)
Accounts payable . . . . . . . . . . . . . . . . . . (4,027) 1,506 (2,832)
Accrued expenses . . . . . . . . . . . . . . . . . . (1,035) 2,800 (525)
Other. . . . . . . . . . . . . . . . . . . . . . . . 2,394 (2) (19)
-------------- ----------- -------------
Net cash provided by operating activities . . . . . . . . . 3,571 2,448 4,186
INVESTING ACTIVITIES:
Purchases of property, plant and equipment . . . . . . . (2,857) (198) (2,699)
Proceeds from sale of property, plant and equipment. . . 61 43 211
-------------- ----------- -------------
Net cash used in investing activities . . . . . . . . . . . (2,796) (155) (2,488)
FINANCING ACTIVITIES:
Proceeds from revolver borrowings. . . . . . . . . . . . - 20,202 152,190
Repayments of revolver borrowings. . . . . . . . . . . . (38,668) (18,071) (155,970)
Proceeds from subordinated debt offering . . . . . . . . 70,000 - -
Proceeds from other long-term debt . . . . . . . . . . . - - 2,600
Repayments of borrowings . . . . . . . . . . . . . . . . (6,889) (148) (600)
Debt issue costs . . . . . . . . . . . . . . . . . . . . (3,658) - -
Proceeds from sale of preferred stock by parent. . . . . - - 5,969
Redemption of preferred stock. . . . . . . . . . . . . . (6,187) - (5,386)
Dividends paid to Holdings . . . . . . . . . . . . . . . (10,950) - (168)
-------------- ----------- -------------
Net cash provided by (used in) financing activities . . . . 3,648 1,983 (1,365)
-------------- ----------- -------------
Increase in cash. . . . . . . . . . . . . . . . . . . . . . 4,423 4,276 333
Cash and cash equivalents at beginning of period. . . . . . 4,458 182 133
-------------- ----------- -------------
Cash and cash equivalents at end of period. . . . . . . . . $ 8,881 $ 4,458 $ 466
============== =========== =============
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") is primarily engaged in the manufacture of
aluminum and vinyl, or non-wood, framed windows for the residential new
construction market. The Company supplements its window business through the
manufacture of related products such as value-added glass processing, custom
aluminum extrusion and window components for the Company's internal needs and
for sale to third parties. The Company has manufacturing facilities in Texas,
Georgia, Tennessee, and California and most of its customers are located in
the West, Southwest and Southeastern United States.
2. Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company
and Redman Building Products, Inc. (the "Predecessor") 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 Predecessor's financial results represent activity prior to the closing of
the stock purchase agreement (the "Transaction") as described in note 3.
The balance sheet at March 28, 1997 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 Prospectus dated
September 5, 1997 included in the Company's Amendment No. 2 to the
Registration Statement on Form S-4 (Registration No. 333-30699) as filed with
the Securities and Exchange Commission (the "Registration Statement"). 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 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 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. Stock Purchase
On May 9, 1997, Wingate Partners, L.P. and certain selling stockholders sold
the common stock of RBPI Holding Corporation ("Holdings") to Reliant Partners.
The selling stockholders received $30.1 million in cash and $9.8 million of
seller notes. In addition, the $6.0 million of outstanding preferred stock
was redeemed. In connection with the Transaction, the Company recognized $3.5
million of compensation expense which is reflected in other expense in the
statement of operations for the six weeks ended May 9, 1997. In connection
with the Transaction and with the proceeds from the Senior Subordinated notes
sold in conjunction therewith (the "Initial Offering"), $44.3 million of
existing long-term debt was repaid. The Company also recognized an
extraordinary charge of $715,000 which is net of a tax benefit of
approximately $423,000 relating to the extinguishment of this debt.
4. Pro-forma Effects of the Transaction and Initial Offering
The following represents pro-forma information of the Company, for the
periods indicated. The unaudited pro-forma financial information gives effect
to the Transaction, the Initial Offering, the application of the net proceeds
therefrom, and the closure of the Company's Houston manufacturing facility as
if they had occurred on March 30, 1996:
(IN THOUSANDS)
PRO-FORMA
----------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ -------------------------------
DEC. 26, 1997 DEC. 27, 1996 DEC. 26, 1997 DEC. 27, 1996
--------------- -------------- --------------- --------------
Net sales. . . . . . . . . . . . . $ 41,306 $ 38,328 $ 125,704 $ 127,286
Income (loss) before income taxes. (211) 473 (1,770) 4,749
Net income (loss). . . . . . . . . (246) 266 (1,536) 2,674
OTHER DATA:
Pro forma EBITDA (a) . . . . . . . 3,427 3,669 12,237 14,302
(a) 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.
EBITDA as defined includes, in the nine month period ended December 27, 1997,
a $0.7 million flow-through charge relating to the step-up of inventory value
resulting from the purchase transaction on May 9, 1997. Also included are
$0.5 million and $0.6 million of consulting fees in the three and nine months
ended December 26, 1997, respectively.
5. Inventories
Inventories are valued at the lower of cost or market. Cost is determined on
the LIFO method. Inventories consisted of the following:
(IN THOUSANDS)
COMPANY PREDECESSOR
------------------- ----------------
DECEMBER 26, 1997 MARCH 28, 1997
------------------- ----------------
Raw Materials . $ 9,891 $ 9,883
Work-in-process 475 846
Finished goods. 4,309 4,264
LIFO reserve. . (3) (3)
------------------- ----------------
$ 14,672 $ 14,990
=================== ================
6. Intangible Assets
Intangible assets, consisting of goodwill and other intangible assets, are
stated on the basis of cost. Goodwill is being amortized on a straight-line
basis over a 40 year period. Other intangible assets consisting primarily of
a covenant not to compete are being amortized over 5 years. Recoverability of
carrying value of intangible assets is evaluated on a recurring basis with
consideration toward recovery through future operating results on an
undiscounted basis.
7. Subsequent Events
On December 22, 1997 the Company announced an agreement to purchase all of the
capital stock of Care-Free Window Group (the "Acquisition" or "Care-Free"), a
privately held vinyl window company, for $125.9 million including fees and
other expenses and excluding liabilities assumed. The company will finance
the Acquisition through $5.0 million of additional equity from it's investor
group, $9.0 million in cash, and $111.9 million of a $145.0 million new bank
facility provided by The Chase Manhattan Bank, CIBC Oppenheimer and certain
other participating banks. The new bank facilities are comprised of a $40.0
million, six-year senior secured credit facility, a $40.0 million, six-year
senior secured term loan, and a $65.0 million, six -year secured term loan.
The new $40.0 senior secured credit facility replaces the Company's $25.0
million credit facility. The transaction closed on January 28, 1998.
Care-Free, headquartered in East Lansing , Michigan, is an established name in
the vinyl window industry, supplying the new construction, manufactured
housing, and repair and remodel segments of the market. It operates five
manufacturing plants located in Charlotte, Michigan; Bothell, Washington;
Asheville, North Carolina; South Hackensack, New Jersey; and Walnut,
California. Care-Free markets its products under the Care-Free, Klimatite,
Alpine and Ultra brands.
The acquisition will be accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations." The
aggregate purchase price will be allocated to the underlying assets and
liabilities based upon their respective estimated fair market values at the
date of acquisition, with the remainder allocated to goodwill. Based on
preliminary estimates which will be finalized at a later date, the excess of
purchase price over the fair value of the net assets acquired ("goodwill") was
approximately $70 million, which will be amortized over 40 years. The results
of operations for the acquired business will be included in the Company's
consolidated financial statements beginning January 28, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
- -------- --------------------------------------------------------------------
FINANCIAL CONDITION
-------------------
RESULTS OF OPERATIONS
Three Months Ended December 26, 1997 Compared to Three Months Ended December
27, 1996
Net Sales. Net sales increased $1.3 million, or 3.1%, from $41.4 million in
the third quarter of fiscal year 1997 to $42.7 million for the comparable
period of fiscal year 1998. Excluding the sales from the Living Windows plant
at Houston, Texas, which was consolidated with the Bryan, Texas facility in
November, net sales increased $2.6 million or 6.6% in the third quarter of the
current fiscal year compared to the same quarter of the last fiscal year.
During the third quarter of fiscal year 1998, weighted average single family
housing starts in the Company's primary market increased 3.7% compared to the
third quarter of fiscal year 1997.
In comparing the aluminum and vinyl segments for the third quarter of fiscal
year 1998 to the third quarter of fiscal year 1997, aluminum window sales were
flat. This was primarily due to an increase in housing starts being offset by
the Living Window operations and customer conversion to vinyl windows. Vinyl
window sales were up $0.4 million, or 5.7% during the third quarter of fiscal
year 1998 compared to the same quarter of the previous year. The increase in
vinyl window sales is primarily due to increased housing starts and customer
conversion from aluminum to vinyl windows. Extrusion sales to third parties
increased $1.2 million or 114.3% in the third quarter of fiscal year 1998
compared to the third quarter of fiscal year 1997.
Cost of Products Sold. Cost of products sold increased $1.5 million, or 4.9%,
from $31.1 million for the third quarter of fiscal year 1997 to $32.6 million
for the comparable period of fiscal year 1998. Expressed as a percentage of
net sales, cost of products sold increased from 75.0% for the third quarter of
fiscal year 1997 to 76.3% for the comparable period of fiscal year 1998. This
increase was primarily due to increased manufacturing costs incurred related
to the move of the Living Windows product line to the Bryan facility and
first-time retail window orders which were offered at a discount.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $8.3 million in the third quarter of fiscal year
1997 and fiscal year 1998. Expressed as a percentage of net sales, selling,
general and administrative expenses decreased from 20.1% in the third quarter
of fiscal year 1997 to 19.5% for the comparable period of fiscal year 1998.
This decrease primarily reflects the fixed nature of these expenses compared
to higher net sales and the elimination of fixed expenses associated with the
Living Windows facility in Houston.
Interest Expense, Net. Interest expense increased $0.9 million from $1.1
million in the third quarter of fiscal year 1997 to $2.0 million for the
comparable period of fiscal year 1998. This increase is due to higher average
debt levels during the third quarter of fiscal year 1998 when compared to the
third quarter of fiscal year 1997.
Income Tax Expense. The Company's effective income tax rate (state and
federal combined) was 6.1% for the third quarter of fiscal year 1998 as
compared to an effective income tax rate (state and federal combined) of 48.0%
for the comparable period of fiscal year 1997. The tax expense for the third
quarter ended December 26, 1997 is a result of non-deductible expenses
(primarily amortization of goodwill which increased significantly as a result
of the purchase transaction on May 9, 1997) being added to the pre-tax loss of
$263 thousand.
Nine Months Ended December 26, 1997 Compared to Nine Months Ended December 27,
1996
For purpose of the comparison of the nine months ended December 26, 1997 to
the same period in fiscal 1997, the financial statements for the six weeks
ended May 9, 1997 (Predecessor) and the 33 weeks ended December 26, 1997
(Company, successor period) have been combined. Significant fluctuations
resulting from the application of the push-down of purchase accounting have
been separately identified.
Net Sales. For the first nine months of fiscal year 1998, net sales of $132.0
million were $7.1 million, or 5.1% lower than the first nine months of fiscal
year 1997. Excluding the sales from the Living Windows Plant at Houston,
Texas, net sales decreased 2.0% in the first nine months of the current fiscal
year compared to the same period of the last fiscal year. During the first
nine months of fiscal year 1998, weighted average single family housing starts
in the Company's primary market were flat when compared to the same period of
the previous year.
Comparing the aluminum and vinyl market segments for the first nine months of
fiscal year 1998, aluminum window sales of $90.9 million were $10.4 million,
or 10.3% lower than the comparable period of fiscal year 1997. Excluding
Living Windows Sales, the decrease in aluminum window sales for the first nine
months of fiscal year 1998 is $5.8 million, or 6.5% when compared to the
comparable period of fiscal year 1997. The decrease in aluminum window sales
is primarily due to the Living Window operations, below market sales
performance at the Fresno, California and Gallatin, Tennessee operations, as
well as customer conversion to vinyl windows. Vinyl window sales reflected an
increase of $1.8 million, or 7.9% for the first nine months of fiscal year
1998 over the same period of fiscal year 1997. The vinyl window sales growth
is primarily due to increased market penetration in California, Georgia,
Missouri, and Kansas, and aluminum customers conversion to vinyl windows.
Cost of Products Sold. For the first nine months of fiscal year 1998, cost of
products sold of $99.8 million were $5.6 million, or 5.3% lower than the first
nine months of fiscal year 1997. Expressed as a percentage of net sales, cost
of products sold decreased from 75.8% for the first nine months of fiscal year
1997 to 75.6% for the first nine months of fiscal year 1998.
This decrease was primarily due to a reduction in material and labor costs
associated with automated glass cutting and insulated glass manufacturing
offset by the flow through in the statement of operations of a purchase
accounting adjustment of $0.7 million of inventory step-up, and manufacturing
costs incurred related to the move of the Living Windows product line to the
Bryan facility.
Selling, General and Administrative Expenses. In the first nine months of
fiscal year 1998, selling, general and administrative expenses increased from
$24.4 million for the first nine months of fiscal year 1997 to $24.9 million,
an increase of $0.5 million, or 2.1%. Expressed as a percentage of net sales,
selling, general and administrative expenses increased from 17.5% for the
first nine months of fiscal year 1997 to 18.9% for the comparable period of
fiscal year 1998. This increase primarily reflects the fixed nature of these
expenses compared to lower net sales.
Interest Expense, Net. In the first nine months of fiscal year 1998, interest
expense increased $1.8 million to $5.8 million, an increase of 44.1% over the
comparable period of fiscal year 1997. This increase is due to higher average
debt levels during the first nine months of fiscal year 1998 when compared to
the comparable period of fiscal year 1997.
Other Expense. In the first nine months of fiscal year 1998, other expense
increased $2.8 million to $3.4 million over the comparable period of fiscal
year 1997. This increase is primarily due to $3.5 million of compensation
expense in connection with the purchase transaction on May 9, 1997.
Income Tax Expense. The Company's effective income tax rate (state and
federal combined) was 34.4% for the six week period ended May 9, 1997 and
95.7% for the thirty-three week period ended December 26, 1997 as compared to
an effective income tax rate (state and federal combined) of 44.9% for the
nine months ended December 27, 1996. The increase in the effective income tax
rate for the thirty-three week period ended December 26, 1997 is primarily due
to non-deductible expenses (primarily amortization of goodwill which increased
significantly as a result of the purchase transaction on May 9, 1997).
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the first three quarters of
fiscal year 1998 was $6.0 million compared to $4.2 million for the nine month
period of fiscal year 1997. This increase is primarily due to changes in
operating assets and liabilities, including $2.4 million of cash received
relating to an insurance deposit which was converted to a letter of credit.
Capital expenditures for the first nine months of the 1998 fiscal year were
$3.0 million compared to $2.5 million for the comparable period of fiscal year
1997. Capital expenditures are typically funded by cash flow from operations.
Cash flows provided by financing activities in the first nine months of fiscal
year 1998 were $5.6 million compared to cash used by financing activities of
$1.4 million in the comparable period of fiscal year 1997. A $70.0 million
note was the principal source of cash in the fiscal 1998 period. These funds
were used to repay the revolver, retire debt, pay dividends, and redeem
preferred stock and common stock warrants. The Company's primary sources of
liquidity are cash flows from operations and borrowings under a credit
agreement dated as of January 28, 1998 (the "Senior Credit Facility") among
the Company, certain other participating banks, and The Chase Manhattan Bank,
as administrative agent. The credit agreement consists of term loans of $105
million and a revolving line of credit (the "Revolver") of $40 million. The
Revolver is subject to availability under the borrowing base. The amount
currently available under the borrowing base, equal to 85% of eligible
receivables and 50% of eligible inventory, is approximately $18.5 million. As
of February 3, 1998, $6.9 million was borrowed on the Revolver to help finance
the January 28, 1998 acquisition of Care-Free Windows. Interest on borrowings
under the Revolver is payable at 2.25% over the eurodollar rate, currently
7.9%. The Revolver agreement expires on December 31, 2003.
The term loan portion of the new credit agreement is comprised of a $40
million, six-year senior secured term loan (the "Term Loan A") with interest
payable at 2.25% over the eurodollar rate and a $65 million, six and one
quarter-year senior secured term loan (the "Term Loan B") with interest
payable at 2.5% over the eurodollar rate. Term Loan A matures in 20
consecutive quarterly installments commencing on June 30, 1999. The first
three quarterly installments are $667 thousand, the next four scheduled
installments are $2.0 million, followed by the remaining installments at $2.5
million per quarter. Term Loan B matures in 24 consecutive quarterly
installments beginning on June 30, 1998. The first three scheduled quarterly
installments are $250 thousand, followed by 20 quarterly installments of
$187.5 thousand, with a remaining balance of $60.5 million payable on March
31, 2004.
Interest payments on the 10 7/8% Senior Subordinated Notes (the "Notes")
represent significant obligations of the Company. On November 3, 1997 the
first semiannual interest payment was made in the amount of $3.6 million.
After making the payment, the Company had remaining cash in excess of $7.0
million. At the end of the third quarter of fiscal year 1998, the cash
balance was $8.9 million.
The Company believes that, based on current and anticipated financial
performance, cash flow from operations and borrowings under the $40.0 million
Senior Credit Facility will be adequate to meet anticipated requirements for
capital expenditures, working capital and scheduled principal and interest
payments (including interest payments on the Notes and any amounts outstanding
under the Senior Credit Facility). The ability of the Company to satisfy its
capital requirements will be dependent upon future capital expenditure
requirements, and the future financial performance of the Company, which in
turn will be subject to general economic conditions and to financial, business
and other factors, including factors beyond the Company's
control.
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; 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.
PART II. OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 2.1 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".
Exhibit 10.1 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 10.2 Guarantee and Collateral Agreement between RBPI Holding
Corporation and Reliant Building Products, Inc. as "Borrower"
and the Chase Manhattan Bank as "Administrative Agent".
(b) Reports on Form 8-K
On October 21, 1997, Reliant Building Products, Inc. filed a Form 8-K. The
Form 8-K filing was for item 4, Changes in Registrant's Certifying Accountant.
On October 17, 1997, the Company changed independent accountants from Ernst &
Young, LLP to KPMG Peat Marwick LLP.
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 4, 1998 By: /s/ Virgil Lowe
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Virgil Lowe,
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)