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 September 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 of 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, and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
---
Number of shares Common Stock outstanding as of November 5, 1997: 1,000
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
QUARTER ENDED SEPTEMBER 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
<PAGE>
PART I. FINANCIAL INFORMATION
- ----------------------------------
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
COMPANY PREDECESSOR
--------------- -------------
SEPTEMBER 26, MARCH 28,
1997 1997
--------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Cash . . . . . . . . . . . . . . . . . . . . . . $ 10,730 $ 182
Accounts and notes receivable. . . . . . . . . . 19,798 17,732
Inventories. . . . . . . . . . . . . . . . . . . 15,400 14,990
Deferred tax assets. . . . . . . . . . . . . . . 1,434 1,434
Prepaid expenses and other current assets. . . . 1,002 1,008
--------------- -------------
Total current assets . . . . . . . . . . . . . . . 48,364 35,346
Property, plant, and equipment, net. . . . . . . . 28,830 24,052
Intangible assets, net . . . . . . . . . . . . . . 42,522 9,943
Other assets . . . . . . . . . . . . . . . . . . . 3,979 3,736
--------------- -------------
Total assets. . . . . . . . . . . . . . . . . . . $ 123,695 $ 73,077
=============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . . . . . . $ 5,867 $ 7,503
Accrued expense. . . . . . . . . . . . . . . . . 11,346 6,703
Current portion of long-term debt. . . . . . . . 648 3,839
--------------- -------------
Total current liabilities. . . . . . . . . . . . . 17,861 18,045
Long-term debt . . . . . . . . . . . . . . . . . . - 34,108
Deferred income taxes. . . . . . . . . . . . . . . 6,156 3,906
Other liabilities. . . . . . . . . . . . . . . . . 1,980 334
Subordinated debt. . . . . . . . . . . . . . . . . 70,000 5,380
Redeemable securities. . . . . . . . . . . . . . . - 7,391
--------------- -------------
Total liabilities. . . . . . . . . . . . . . . . . 95,997 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). . . . . 305 (2,758)
--------------- -------------
Total shareholders' equity . . . . . . . . . . . . 27,698 3,913
--------------- -------------
Total liabilities and shareholders' equity . . . . $ 123,695 $ 73,077
=============== =============
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
THREE MONTHS ENDED
------------------------
COMPANY PREDECESSOR
---------- ------------
SEPT. 26, SEPT. 27,
1997 1996
---------- ------------
<S> <C> <C>
Net sales . . . . . . . . . . . . . $ 45,513 $ 48,293
Cost of products sold . . . . . . . 34,187 36,775
---------- ------------
Gross profit. . . . . . . . . . . . 11,326 11,518
Selling, general and administrative 8,182 8,067
---------- ------------
Income from operations. . . . . . . 3,144 3,451
Interest expense, net . . . . . . . 2,050 1,425
Other expenses. . . . . . . . . . . - 143
---------- ------------
Income before income taxes. . . . . 1,094 1,883
Income tax expense. . . . . . . . . 690 930
---------- ------------
Net income. . . . . . . . . . . . . $ 404 $ 953
========== ============
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
COMPANY PREDECESSOR
------------------- --------------------------
TWENTY SIX SIX
WEEKS ENDED WEEKS ENDED MONTHS ENDED
------------------- -------------- ----------
SEPT. 26, MAY 9, SEPT. 27,
1997 1997 1996
------------------- -------------- ----------
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . $ 69,194 $ 20,095 $ 97,689
Cost of products sold. . . . . . . . . . . . . . . . . . 52,487 14,852 74,355
------------------- -------------- ----------
Gross profit . . . . . . . . . . . . . . . . . . . . . . 16,707 5,243 23,334
Selling, general and administrative. . . . . . . . . . . 12,683 3,765 16,078
------------------- -------------- ----------
Income from operations . . . . . . . . . . . . . . . . . 4,024 1,478 7,256
Interest expense, net. . . . . . . . . . . . . . . . . . 3,154 587 2,899
Other expenses . . . . . . . . . . . . . . . . . . . . . - 3,350 283
------------------- -------------- ----------
Income (loss) before income taxes & extraordinary items
870 (2,459) 4,074
Income tax expense (benefit) . . . . . . . . . . . . . . 565 (846) 1,810
------------------- -------------- ----------
Income (loss) before extraordinary loss. . . . . . . . . 305 (1,613) 2,264
Extraordinary loss, net of tax benefit . . . . . . . . . - 715 -
------------------- -------------- ----------
Net income (loss). . . . . . . . . . . . . . . . . . . . $ 305 $ (2,328) $ 2,264
=================== ============== ==========
</TABLE>
See accompanying notes.
<PAGE>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
--------------- ----------------------------
TWENTY SIX WEEKS SIX MONTHS
WEEKS ENDED ENDED ENDED
--------------- ----------- ---------------
SEPTEMBER 26, MAY 9, SEPTEMBER 27,
1997 1997 1996
--------------- ----------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . $ 305 $ (2,328) $ 2,264
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Depreciation and amortization. . . . . . . . . . . . 3,239 535 2,526
Provision for doubtful accounts. . . . . . . . . . . 228 130 (41)
Provision for deferred income taxes. . . . . . . . . 563 (175) 582
Non-cash interest expense. . . . . . . . . . . . . . 275 63 378
Gain on sale of assets . . . . . . . . . . . . . . . (1) - (27)
Extraordinary loss from early debt retirement. . . . - 715 -
Minority interest. . . . . . . . . . . . . . . . . . - (190) 108
Other. . . . . . . . . . . . . . . . . . . . . . . . (169) (39) 38
Changes in operating assets and liabilities:
Accounts and notes receivable. . . . . . . . . . . (988) (1,436) (3,580)
Inventories. . . . . . . . . . . . . . . . . . . . 419 (829) (2,371)
Prepaids & other current assets. . . . . . . . . . 328 (322) (496)
Accounts payable . . . . . . . . . . . . . . . . . (5,162) 3,526 579
Accrued expenses . . . . . . . . . . . . . . . . . 1,953 2,800 108
Other. . . . . . . . . . . . . . . . . . . . . . . 2,203 (2) (20)
--------------- ----------- ---------------
Net cash provided by operating activities . . . . . . . . 3,193 2,448 48
INVESTING ACTIVITIES:
Purchases of property, plant and equipment.. . . . . . (1,294) (198) (1,884)
Proceeds from sale of property, plant and equipment. . 33 43 211
--------------- ----------- ---------------
Net cash used in investing activities . . . . . . . . . . (1,261) (155) (1,673)
FINANCING ACTIVITIES:
Proceeds from revolver borrowings. . . . . . . . . . . - 20,202 105,552
Repayments of revolver borrowings. . . . . . . . . . . (38,668) (18,071) (106,693)
Proceeds from subordinated debt offering . . . . . . . 70,000 - -
Proceeds from other long-term debt . . . . . . . . . . - - 2,600
Repayments of borrowings . . . . . . . . . . . . . . . (6,243) (148) (451)
Debt issue costscosts. . . . . . . . . . . . . . . . . (3,658) - -
Proceeds from sale of preferred stock by parent. . . . - - 5,969
Redemption of preferred stock. . . . . . . . . . . . . (6,187) - (5,386)
Dividends paid to Holdings . . . . . . . . . . . . . . (10,904) - -
--------------- ----------- ---------------
Net cash provided by financing activities . . . . . . . . 4,340 1,983 1,591
--------------- ----------- ---------------
Increase (decrease) in cash . . . . . . . . . . . . . . . 6,272 4,276 (34)
Cash and cash equivalents at beginning of period. . . . . 4,458 182 133
--------------- ----------- ---------------
Cash and cash equivalents at end of period. . . . . . . . $ 10,730 $ 4,458 $ 99
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 $3.4
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.
The Transaction was accounted for as a purchase in accordance with Accounting
Principles Board Opinion No. 16, "Business Combinations." The purchase
accounting adjustments associated with the transaction have been "pushed-down"
to the Company, and the accompanying unaudited consolidated financial
statements for the periods subsequent to May 9, 1997 are presented on the new
basis of accounting established as of such date. The purchase price was
allocated first to tangible and identifiable intangible assets and
liabilities of the Company based upon preliminary estimates of their fair
market values, with the remainder allocated to goodwill as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(in thousands)
Aggregate purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . $39,900
Less: Value of management incentive units . . . . . . . . . . . . . . . . . (3,431)
--------
Net purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,469
Less: Net book value of assets acquired. . . . . . . . . . . . . . . . . . . (1,518)
Seller transaction costs. . . . . . . . . . . . . . . . . . . . . . (250)
Predecessor goodwill. . . . . . . . . . . . . . . . . . . . . . . . 9,874
--------
Excess of cost over net book value of assets acquired. . . . . . . . . . . . $44,575
--------
Adjustments to record assets and liabilities acquired at fair market value:
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 424
Property, plant, and equipment . . . . . . . . . . . . . . . . . . . . . . . 6,034
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
Elimination of redeemable common stock warrants. . . . . . . . . . . . . . . 1,082
Other liabilities, primarily post-retirement . . . . . . . . . . . . . . . . (1,991)
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . (2,232)
Establishment of reserves for closure of Houston facility. . . . . . . . . . (1,918)
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,987
--------
Excess of cost over net book value of assets acquired. . . . . . . . . . . . $44,575
--------
</TABLE>
<PAGE>
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:
<TABLE>
<CAPTION>
(IN THOUSANDS)
PRO-FORMA
---------
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------- ---------------------------------
SEPT. 26, 1997 SEPT. 27, 1996 SEPT. 26, 1997 SEPT. 27, 1996
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . $ 42,442 $ 44,770 $ 83,768 $ 88,958
Income (loss) before income taxes. 1,230 1,934 (1,559) 4,276
Net income (loss). . . . . . . . . 490 1,089 (1,290) 2,408
OTHER DATA:
Pro forma EBITDA (a) . . . . . . . 4,821 5,149 8,810 10,633
</TABLE>
(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 does not include $0.7 million of the step-up of inventory
value as a result of the purchase transaction on May 9, 1997.
5. Inventories
Inventories are valued at the lower of cost or market. Cost is determined on
the LIFO method. Inventories consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
COMPANY PREDECESSOR
-------------------- ----------------
SEPTEMBER 26, 1997 MARCH 28, 1997
-------------------- ----------------
<S> <C> <C>
Raw Materials . $ 9,663 $ 9,883
Work-in-process 773 846
Finished goods. 4,967 4,264
LIFO reserve. . (3) (3)
-------------------- ----------------
$ 15,400 $ 14,990
==================== ================
</TABLE>
<PAGE>
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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
- -------- --------------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
-------------------------------------
RESULTS OF OPERATIONS
Three Months Ended September 26, 1997 Compared to Three Months Ended September
27, 1996
Net Sales. Net Sales decreased $2.8 million, or 5.8%, from $48.3 million in
the second quarter of fiscal year 1997 to $45.5 million for the comparable
period of fiscal year 1998. Excluding the sales from the Living Windows plant
at Houston, Texas, which is being consolidated with the Bryan, Texas facility,
net sales decreased 5.2% in the second quarter of the current fiscal year
compared to the same quarter of the last fiscal year. During the second
quarter of fiscal year 1998, weighted average single family housing starts in
the Company's primary market were down 2.5% when compared to the second
quarter of fiscal year 1997.
Considering the change in housing starts in their primary markets, the Fresno,
California and the Gallatin, Tennessee operations reflected an additional
decline in sales of $0.6 million, and $1.0 million, or 1.3% and 2.2% of
consolidated net sales, respectively. The Fresno operations decline in sales
is primarily due to management's decision to de-emphasize sales until the
operational issues at the plant were corrected. The Gallatin operations
decline in sales is primarily due to poor performances by two major
metropolitan distributors in Gallatin's primary markets. Management believes
the operational issues at the Fresno operations have been corrected and have
returned the focus to increasing sales by hiring additional sales personnel.
In regard to Gallatin, management is working to improve the performance of the
poor performing distributors and seeking additional distribution
opportunities.
In comparing the aluminum and vinyl segments for the second quarter of fiscal
year 1997 to the second quarter of fiscal year 1998, aluminum window sales
were down $3.2 million, or 9.0%. The decrease in aluminum window sales is
primarily due to reduced housing starts and customer conversion to vinyl
windows. Vinyl window sales were up $0.1 million, or 1.5% during the second
quarter of fiscal year 1998 compared to the same quarter of the previous year.
Cost of Products Sold. Cost of products sold decreased $2.6 million, or 7.0%,
from $36.8 million for the second quarter of fiscal year 1997 to $34.2 million
for the comparable period of fiscal year 1998. Expressed as a percentage of
net sales, cost of products sold decreased from 76.1% for the second quarter
of fiscal year 1997 to 75.1% for the comparable period of fiscal year 1998.
This improvement was primarily due to (i) a reduction in material and labor
costs associated with automated glass cutting and insulated glass
manufacturing and (ii) a decrease in other direct manufacturing costs at the
Company's Fresno, California and Houston, Texas operations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $8.1 million in the second quarter of
fiscal year 1997 to $8.2 million for the comparable period of fiscal year
1998. This slight net increase is due primarily to increases in bad debt
expense, salaries, and wages. These increases are partially offset by a
significant decrease in the management bonus. Expressed as a percentage of
net sales, selling, general and administrative expenses increased from 16.7%
in the second quarter of fiscal year 1997 to 18.0% 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. Interest expense increased $0.6 million from $1.4
million in the second 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 second quarter of fiscal year 1998 when compared to the
second quarter of fiscal year 1997.
Income Tax Expense. The Company's effective income tax rate (state and
federal combined) was 63.1% for the second quarter of fiscal year 1998 as
compared to an effective income tax rate (state and federal combined) of 49.4%
for the comparable period of fiscal year 1997. This increase in the effective
income tax rate is primarily due to an increase in non-deductible expenses
(primarily amortization of goodwill which increased significantly as a result
of the purchase transaction on May 9, 1997) as a percentage of taxable income.
Six Months Ended September 26, 1997 Compared to Six Months Ended September 27,
1996
For Purpose of the comparison of the six months ended September 26, 1997 to
the same period in fiscal 1997, the financial statements for the six weeks
ended May 9, 1997 (Predecessor) and the 20 weeks ended September 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 six months of fiscal year 1998, net sales of $89.3
million were $8.4 million, or 8.6% lower than the first six months of fiscal
year 1997. Excluding the sales from the Living Windows Plant at Houston,
Texas, net sales decreased 5.8% in the first six months of the current fiscal
year compared to the same period of the last fiscal year. During the first
six months of fiscal year 1998, weighted average single family housing starts
in the Company's primary market were down 4.1% when compared to the same
period of the previous year.
Comparing the aluminum and vinyl market segments for the first half of fiscal
year 1998, aluminum window sales of $61.5 million were $10.2 million, or 14.2%
lower than the comparable period of fiscal year 1997. Vinyl window sales
reflected an increase of $1.4 million, or 8.9% for the first half of fiscal
year 1998 over the same period of fiscal year 1997. The decrease in aluminum
window sales is primarily due to the Living Window operations, reduced housing
starts and customer conversion to vinyl windows. The vinyl window sales
growth is primarily due to increased market penetration in California,
Georgia, Missouri, and Kansas, as well as aluminum customers conversion to
vinyl windows.
Cost of Products Sold. For the first six months of fiscal year 1998, cost of
products sold of $67.3 million were $7.0 million, or 9.4% lower than the first
six months of fiscal year 1997. Expressed as a percentage of net sales, cost
of products sold decreased from 76.1% for the first six months of fiscal year
1997 to 75.4% for the first six month of fiscal year 1998. This improvement
was primarily due to (i) a reduction in material and labor costs associated
with automated glass cutting and insulated glass manufacturing and (ii) a
decrease in other direct manufacturing costs at the Company's Fresno,
California and Houston, Texas operations. These improvements were partially
offset by the flow through in the statement of operations of a purchase
accounting adjustment of $0.7 million of inventory step-up and George Group
consulting fees and expenses of $0.1 million during the first six months of
fiscal year 1998.
Selling, General and Administrative Expenses. In the first half of fiscal
year 1998, selling, general and administrative expenses increased from $16.1
million to $16.4 million, an increase of $0.3 million, or 2.3% over the first
half of fiscal year 1997. This small increase is due primarily to an increase
in bad debt expense, salaries, and wages. These increases are partially
offset by a decrease in the management bonus. Expressed as a percentage of
net sales, selling, general and administrative expenses increased from 16.5%
for the first six months of fiscal year 1997 to 18.4% 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 half of fiscal year 1998, interest
expense increased $0.8 million to $3.7 million, an increase of 29.0% over the
first half of fiscal year 1997. This increase is due to higher average debt
levels during the first half of fiscal year 1998 when compared to the first
half of fiscal year 1997.
Other Expense. In the first half of fiscal year 1998, other expense increased
$3.1 million to $3.4 million, an increase of 1083.7% over the first half of
fiscal year 1997. This increase is primarily due to $3.4 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
64.9% for the twenty week period ended September 26, 1997 as compared to an
effective income tax rate (state and federal combined) of 44.4% for the six
months ended September 27, 1996. The increase in the effective income tax
rate for the twenty week period ended September 26, 1997 is primarily due to
the increase in amortization of goodwill (which increased significantly as a
result of the purchase transaction on May 9, 1997) which is not deductible for
tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flows from operations and
borrowings under a credit agreement dated as of May 9, 1997 (the "Senior
Credit Facility") among the Company, the several lenders from time to time
parties thereto, and The Chase Manhattan Bank, as administrative agent. The
Senior Credit Facility provides the Company with a $25.0 million revolving
credit loan facility, subject to availability under the borrowing base. As of
November 5, 1997 no borrowings had been made on the Senior Credit Facility.
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 second quarter of fiscal year 1998, the cash
balance was $10.7 million.
In addition to its debt service obligations, the Company's remaining liquidity
demands relate to capital expenditures and working capital needs. For the
first half of fiscal year 1998, the Company had capital expenditures of $1.5
million relating primarily to manufacturing automation. The Company's working
capital needs are seasonal, and historically have peaked during the second and
third quarters.
The Company believes that, based on current and anticipated financial
performance, cash flow from operations and borrowings under the $25.0 million
Senior Credit Facility will be adequate to meet anticipated requirements for
capital expenditures, working capital and scheduled interest payments
(including interest payments on the notes and any amounts outstanding under
the Senior Credit Facility). However, certain capital expenditures
requirements may change, particularly if the Company should complete any
acquisitions. The ability of the Company to satisfy its capital requirements
will be dependent upon the future financial performance of the Company, which
in turn 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.
<PAGE>
PART II. OTHER INFORMATION
- -------------------------------
ITEM 6. EXHIBITS AND 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: November 7, 1997 By: /s/ Virgil Lowe
-------------------
Virgil Lowe,
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
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