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 July 3, 1998 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 August 15, 1998: 1,000
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
QUARTER ENDED JULY 3, 1998
INDEX
PART I. FINANCIAL INFORMATION
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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
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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)
JULY 3, APRIL 3,
1998 1998
------------ ----------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 2,348 $ 737
Accounts receivable 36,250 28,638
Inventories 21,176 21,929
Deferred tax assets 3,889 3,889
Prepaid expenses and other current assets 4,720 5,896
------------ ----------
Total current assets 68,383 61,089
Property, plant, and equipment 53,837 55,364
Intangible assets, net 136,210 137,036
Other assets 6,084 5,955
------------ ----------
Total assets 264,514 259,444
============ ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable 18,416 14,654
Accrued expenses 15,984 17,250
Current portion of long-term debt 2,015 1,824
------------ ----------
Total current liabilities 36,415 33,728
Long-term debt 116,070 113,543
Deferred income taxes 8,453 8,453
Other liabilities 3,915 3,709
Subordinated debt 70,000 70,000
------------ ----------
Total liabilities 234,853 229,433
Shareholder's equity
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 4,700 4,700
Additional paid-in capital 30,149 30,084
Accumulated deficit (5,189) (4,774)
------------ ----------
Total shareholder's equity 29,661 30,011
------------ ----------
Total liabilities and shareholder's equity $ 264,514 $ 259,444
============ ==========
See accompanying notes.
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
SUCCESSOR PREDECESSOR
------------------------------- -------------
QUARTER SEVEN WEEKS SIX WEEKS
ENDED ENDED ENDED
JULY 3, 1998 JUNE 27, 1997 MAY 9, 1997
-------------- --------------- -------------
Net sales $ 78,944 $ 23,681 $ 20,095
Cost of products sold 60,318 18,175 14,852
-------------- --------------- -------------
Gross profit 18,626 5,506 5,243
Selling, general and administrative 14,917 4,626 3,765
-------------- --------------- -------------
Income from operations 3,709 880 1,478
Interest expense, net 4,626 1,104 587
Other expenses - - 3,350
-------------- --------------- -------------
Loss before income taxes and extraordinary item (917) (224) (2,459)
Income tax benefit (502) (125) (846)
-------------- --------------- -------------
Loss before extraordinary item (415) (99) (1,613)
Extraordinary loss, net of tax benefit - - 715
-------------- --------------- -------------
Net loss $ (415) $ (99) $ (2,328)
============== =============== =============
See accompanying notes.
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SUCCESSOR PREDECESSOR
-------------- ---------------
QUARTER SEVEN WEEKS SIX WEEKS
ENDED ENDED ENDED
JULY 3, 1998 JUNE 27, 1997 MAY 9, 1997
-------------- --------------- -------------
Cash flows from operating activities:
Net loss $ (415) $ (99) $ (2,328)
Adjustments to reconcile net loss to net cash
provided by (used in) operations:
Extraordinary loss from early debt retirement - - 715
Depreciation and amortization 3,930 946 535
Non-cash interest expense 227 71 63
Deferred income taxes - 272 (118)
Provision for doubtful accounts 687 89 130
Compensation expense related to incentive stock units - - 3,181
Other (64) (67) (229)
Changes in operating assets and liabilities:
Accounts receivable (8,299) (271) (1,436)
Inventories 753 668 (829)
Prepaid expenses and other current assets 1,176 75 (1,540)
Accounts payable and accrued expenses 2,496 (3,569) 4,305
Other (1) (648) (1)
-------------- --------------- -------------
Net cash provided by (used in) operating activities 490 (2,533) 2,448
Investing activities:
Purchases of property, plant and equipment (1,553) (347) (198)
Proceeds from sale of property, plant and equipment 22 16 43
-------------- --------------- -------------
Net cash used in investing activities (1,531) (331) (155)
Financing activities:
Net proceeds (payments) from revolving loan 3,600 (38,668) 2,631
Proceeds from subordinated debt - 70,000 -
Proceeds from long-term debt 332 - -
Principal payments on long-term debt (1,214) (5,838) (648)
Redemption of preferred stock - (6,187) -
Payment of debt issue costs (66) (3,373) -
Payment of dividends to Holdings - (8,890) -
-------------- --------------- -------------
Net cash provided by financing activities 2,652 7,044 1,983
-------------- --------------- -------------
Increase in cash and cash equivalents 1,611 4,180 4,276
Cash and cash equivalents at beginning of period 737 4,458 182
-------------- --------------- -------------
Cash and cash equivalents at end of period $ 2,348 $ 8,638 $ 4,458
============== =============== =============
Supplementary Information:
Cash paid for interest $ 5,483 $ 14 $ 480
============== =============== =============
Cash paid for income taxes $ - $ 1,032 $ -
============== =============== =============
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 remodeling 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, which operates in
one business segment, framed windows for the new construction, repair and
remodeling market, 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 (the
"Successor") 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 of May 9, 1997 (the "Transaction"), in
which the former shareholders of RBPI Holding Corporation ("Holdings") sold all
of the common stock of Holdings. As a result, a new basis of accounting was
established, and therefore the periods before that date are not comparable to
the Successor period.
The balance sheet at April 3, 1998 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 2, 1998. 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 quarter ended July 3, 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, are
stated at 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 five years. 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 entities. The amount of impairment,
if any, is measured based on projected discounted future operating cash flows.
4. Inventories
JULY 3, 1998 APRIL 3, 1998
------------- --------------
Raw materials $ 16,994 $ 15,767
Finished goods and work-in-process 4,182 6,162
------------- --------------
$ 21,176 $ 21,929
============= ==============
5. New Accounting Pronouncements
Effective April 4, 1998, the Company adopted Statement of Position ("SOP") 98-1,
"Accounting for the Cost of Computer Software Developed or Obtained for Internal
Use," which was issued in March 1998. The SOP requires that certain costs
related to the development or purchase of internal-use software be capitalized
and amortized over the estimated useful life of the software. The SOP also
requires that costs related to the preliminary project stage and
post-implementation/operations stage of an internal-use computer software
development project be expensed as incurred. In accordance with the SOP, costs
incurred prior to the initial adoption, whether capitalized or not, have not
been adjusted. The adoption of this SOP did not have a material effect on the
results of operations.
Effective April 4, 1998, the Company adopted SFAS 130, Reporting Comprehensive
Income. The Company currently has no items of comprehensive income other than
net income (loss).
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("SOP 98-5"), Reporting of the Costs of Start-up
Activities which is effective for financial statements issued for periods
beginning after December 15, 1998. The Company believes the adoption of 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 assessing the reporting and disclosure requirements of SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information. This
statement requires a public business enterprise to report financial and
descriptive information about its reportable operating segments and related
disclosures about products, services, geographic areas and major customers. The
statement is effective for financial statements for periods beginning after
December 15, 1997, but is not required for interim financial statements in the
initial year of its application. The Company will adopt the provisions of SFAS
No. 131 in its April 2, 1999 consolidated financial statements and has not
determined if segment disclosures will be required.
The Company is also assessing the reporting and disclosure requirements of 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 in the balance sheet
and measured at fair value. The accounting for changes in fair value of a
derivative (that is, gains and losses) depends on the intended use of the
derivative and resulting designation. The statement amends and supersedes 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.
The statement is effective for financial statements for fiscal years beginning
after June 15, 1999. At the present time, the Company has not quantified the
effect of adoption or continuing impact of such adoption. The Company will
adopt the provisions of SFAS No. 133 in the first quarter of fiscal year 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
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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, KLIMA-TITE, ALPINE WINDOWS, ULTRA, BUILDERS VIEW and GAPCO. The
products are marketed across all major price points. As a result of the January
28, 1998 acquisition (the "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 insulated and thermal break windows, storm windows,
single and double-hung windows and casements. Door products include hinge
doors, storm doors and patio doors. The Company manufactures its products at
eight facilities in California, Georgia, Michigan, New Jersey, North Carolina,
Tennessee, Texas and Washington. The Company distributes its products through
an extensive nationwide network of distributors and Company distribution
facilities in Arizona, California and Louisiana. All of these products are
marketed primarily for use in new construction, manufactured housing, repair and
remodeling and to a lesser degree the do-it-yourself market.
The Company supplements its window business through the manufacture of related
products such as processed glass, custom aluminum extrusion and window
components for the Company's internal needs and 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 and a reduction in working capital
requirements. The Company also operates an aluminum scrap recasting facility on
a joint venture basis, providing approximately one-third of the Company's
aluminum billet requirements.
RESULTS OF OPERATIONS
First Quarter Ended July 3, 1998 Compared to First Quarter Ended June 27, 1997
For purpose of comparison of the quarter ended July 3, 1998 to the quarter ended
June 27, 1997, the financial statements for the six weeks ended May 9, 1997 (the
"Predecessor Period") and the seven weeks ended June 27, 1997 ("Successor
Period") have been combined. Significant fluctuations resulting from the
application of push-down of purchase accounting relating to the Transaction have
been separately identified. Additionally, significant fluctuations relating to
the Acquisition have been separately identified.
Net Sales. Net sales increased $35.1 million, or 80.3%, from $43.8 million in
the quarter ended June 27, 1997 ("Prior Period") to $78.9 million for the
quarter ended July 3, 1998 ("Current Period"). This increase was primarily due
to the Acquisition. Excluding the sales from Care-Free and the closed Living
Windows plant at Houston, Texas, net sales increased $5.1 million or 12.4% in
the Current Period compared to the Prior Period. This increase is due to an
increase in new construction sales during the Current Period compared to the
Prior Period. The sales increase in this market was impacted, however, by
product mix and competitive price pressures.
In comparing the aluminum and vinyl product sales for the Current Period to the
Prior Period, aluminum window sales were up $6.6 million or 24.4%. This was
primarily due to an increase in new construction sales and the expansion of the
product line at the Bryan, Texas facility. Vinyl window sales were up $31.5
million, or 360.4% during the Current Period compared to the Prior Period. The
increase in vinyl window sales is primarily due to the Acquisition.
Cost of Products Sold. Cost of products sold increased $27.3 million from $33.0
million for the Prior Period to $60.3 million for the Current Period. Expressed
as a percentage of net sales, cost of products sold increased from 75.4% for the
Prior Period to 76.4% for the Current Period. The Current Period includes a net
increase in non-cash costs of $0.5 million (0.6% of net sales) resulting from
the recognition in the statement of operations the effects of inventory and
fixed asset purchase accounting adjustments related to the Acquisition and the
Transaction. Also contributing to the increase in the Current Period were labor
rate increases of $0.3 million (0.4% of net sales).
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $6.5 million from $8.4 million in the Prior
Period to $14.9 million for the Current Period. Included in the increase is
$0.4 million of fees and reimbursement of out-of-pocket expenses for consulting
attributable to operating improvement initiatives. Expressed as a percentage of
net sales, selling, general and administrative expenses decreased from 19.2% in
the Prior Period to 18.9% for the Current Period. This decrease is due
primarily to the Company's continuing efforts to capitalize on its management
efficiencies while increasing sales volume, and the elimination of fixed
expenses associated with the Living Windows facility in Houston and the Fenesco
facility in Dallas.
Interest Expense, Net. Interest expense increased $2.9 million from $1.7
million in the Prior Period to $4.6 million for the Current Period. This
increase is due to a higher debt level in the Current Period as a result of the
Acquisition and the Transaction.
Income Tax Expense. The Company's effective income tax rate (state and federal
combined) was 54.7% for the Current Period as compared to an effective income
tax rate (state and federal combined) of 34.0% for the Predecessor Period and a
55.8% tax rate for the Successor Period. The tax benefit rate of 54.7% is
comparable to the 55.8% tax benefit rate in the Successor Period, and is
premised on the Company's estimate that fiscal year 1999 will generate income
before taxes and includes the effects of non-deductible expenses (primarily
amortization of goodwill) as a result of the Transaction and the Acquisition.
If the Company's estimate that income before income taxes for fiscal year 1999
changes in a subsequent interim period, or the Company does not generate income
before income taxes for fiscal year 1999, the tax benefit recognized for the
current period will be adjusted downward at such time as such determination is
made. In such a case, the effect of such change in estimate could have a
material adverse effect on results of operations for such period.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the Current Period was $0.5
million compared to $0.1 million net cash used in operating activities for the
Prior Period. This increase is primarily due to a smaller net loss in the
Current Period, offset in part by increased working capital primarily related to
increased accounts receivable.
Capital expenditures for the Current Period were $1.6 million compared to $0.5
million for the Prior Period. Capital expenditures during the Current Period
were related primarily to manufacturing automation.
Cash flows provided by financing activities in the Current Period were $2.7
million compared to cash provided by financing activities of $9.0 million in the
Prior Period. These funds were used primarily to fund the increase in working
capital (principally accounts receivable) and capital expenditures. The credit
agreement dated as of January 28, 1998 (the "Senior Credit Facility"), which
consists of term loans of $105 million and a revolving line of credit (the
"Revolver") of $40.0 million, was the principal source of cash in the Current
Period. 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 $34.4 million. As
of August 4, 1998, $12.5 million was borrowed on the Revolver. Interest on
borrowings under the Revolver, currently payable at 7.9%, is at 2.25% over the
Eurodollar rate. The Revolver agreement expires on December 31, 2003.
Interest payments on the 10 7/8% Senior Subordinated Notes due May 1, 2004 (the
"Notes) and the Senior Credit Facility represent significant obligations of the
Company. On May 1, 1998 the second semiannual interest payment on the Notes was
made in the amount of $3.8 million. Shortly after the end of the Current
Period, the Company made an interest payment on the Senior Credit Facility in
the amount of $2.3 million. The Senior Subordinated Notes are jointly and
severally, and unconditionally guaranteed, on a senior subordinated basis, by
all of the Company's wholly-owned subsidiaries.
The Company believes that, based on current and anticipated financial
performance, cash flow from operations and borrowings under the Revolver 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.
OTHER DATA - EBITDA
Quarter Ended
------------------
July 3, June 27,
1998 1997
-------- ---------
EBITDA (1) $ 7,638 $ 3,839
(1) 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 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. EBITDA
includes fees and reimbursement of out-of-pocket expenses for consulting
attributable to operating improvement initiatives of $0.5 million in the Current
Period and $0.1 million in the Prior Period.
YEAR 2000 COMPLIANCE
The Company uses a variety of hardware and software technologies in its
operations. Mainframe computer systems are utilized to operate its accounting
and certain manufacturing systems. The Company has completed its assessment of
the effect of Year 2000 on its management information systems. The upgrade, to
the latest release of its management information system software, which includes
numerous enhancements and is Year 2000 compatible, is estimated to cost
approximately $250,000 of which $100,000 was spent through July 3, 1998. The
Company expects to be Year 2000 compliant on all these systems by January, 1999,
however, no assurance can be made in this regard. The Company has initiated an
evaluation of its major vendors, customers and manufacturing facilities, but has
not completed such assessment and has not developed contingency plans in the
event Year 2000 compliance is not obtained. The Company expects to complete the
assessment by December 1998.
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.
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PART II. OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on February 5, 1998, and amended on April
10, 1998, to report that the Company purchased all of the capital stock of
Care-Free Window Group.
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: August 17, 1998 By: /S/ Virgil Lowe
-------------------
Virgil Lowe,
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)