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 October 2, 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 November 13, 1998: 1,000
<PAGE>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
QUARTER ENDED OCTOBER 2, 1998
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)
OCTOBER 2, APRIL 3,
1998 1998
------------ ----------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,122 $ 737
Accounts receivable, net 34,036 28,638
Inventories 24,252 21,929
Deferred tax assets 4,050 3,889
Prepaid expenses and other current assets 4,616 5,896
------------ ----------
Total current assets 68,076 61,089
Property, plant, and equipment 53,407 55,364
Intangible assets, net 135,632 137,036
Other assets 6,484 5,955
------------ ----------
Total assets 263,599 259,444
============ ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable 16,828 14,654
Accrued expenses 18,589 17,250
Current portion of long-term debt 1,756 1,824
------------ ----------
Total current liabilities 37,173 33,728
Long-term debt 116,483 113,543
Deferred income taxes 8,453 8,453
Other liabilities 3,239 3,709
Subordinated debt 70,000 70,000
------------ ----------
Total liabilities 235,348 229,433
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 4,724 4,700
Additional paid-in capital 29,776 30,084
Accumulated deficit (6,250) (4,774)
------------ ----------
Total shareholder's equity 28,251 30,011
------------ ----------
Total liabilities and shareholder's equity $ 263,599 $ 259,444
============ ==========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
QUARTER ENDED
--------------------------------
OCT. 2, 1998 SEPT. 26, 1997
--------------- ---------------
<S> <C> <C>
Net sales $ 77,485 $ 45,513
Cost of products sold 56,366 34,312
--------------- ---------------
Gross profit 21,119 11,201
Selling, general and administrative 16,648 8,057
--------------- ---------------
Income from operations 4,471 3,144
Interest expense, net 4,502 2,050
--------------- ---------------
Income (loss) before income taxes (31) 1,094
Income tax expense 1,030 690
--------------- ---------------
Net income (loss) $ (1,061) $ 404
=============== ===============
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
SUCCESSOR PREDECESSOR
------------------------------- -------------
SIX MONTHS TWENTY WEEKS SIX WEEKS
ENDED ENDED ENDED
OCT. 2, 1998 SEPT. 26, 1997 MAY 9, 1997
-------------- --------------- -------------
<S> <C> <C> <C>
Net sales $ 156,429 $ 69,194 $ 20,095
Cost of products sold 116,684 52,487 14,852
-------------- --------------- -------------
Gross profit 39,745 16,707 5,243
Selling, general and administrative 31,565 12,683 3,765
-------------- --------------- -------------
Income from operations 8,180 4,024 1,478
Interest expense, net 9,128 3,154 587
Other expenses. - - 3,350
-------------- --------------- -------------
Income (loss) before income taxes and extraordinary item (948) 870 (2,459)
Income tax expense (benefit) 528 565 (846)
-------------- --------------- -------------
Income (loss) before extraordinary item (1,476) 305 (1,613)
Extraordinary loss, net of tax benefit - - 715
-------------- --------------- -------------
Net income (loss) $ (1,476) $ 305 $ (2,328)
============== =============== =============
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SUCCESSOR PREDECESSOR
-------------------------------- -------------
SIX MONTHS TWENTY WEEKS SIX WEEKS
ENDED ENDED ENDED
OCT. 2, 1998 SEPT. 26, 1997 MAY 9, 1997
-------------- ---------------- -------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ (1,476) $ 305 $ (2,328)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operations:
Extraordinary loss from early debt retirement - - 715
Depreciation and amortization 6,952 3,239 535
Non-cash interest expense 454 275 63
Deferred income taxes 1,020 563 (118)
Provision for doubtful accounts 1,021 228 130
Compensation expense related to incentive stock units - - 3,181
Other (88) (170) (229)
Changes in operating assets and liabilities:
Accounts receivable (6,419) (988) (1,436)
Inventories (2,323) 419 (829)
Prepaid expenses and other current assets 1,119 328 (1,540)
Accounts payable and accrued expenses 2,493 (3,209) 4,305
Other (2,092) 2,203 (1)
-------------- ---------------- -------------
Net cash provided by operating activities 661 3,193 2,448
Investing activities:
Purchases of property, plant and equipment (3,231) (1,294) (198)
Proceeds from sale of property, plant and equipment 27 33 43
-------------- ---------------- -------------
Net cash used in investing activities (3,204) (1,261) (155)
Financing activities:
Net proceeds (payments) from revolving loan 4,100 (38,668) 2,631
Proceeds from subordinated debt - 70,000 -
Proceeds from long-term debt 343 - -
Principal payments on long-term debt (1,571) (6,243) (648)
Redemption of preferred stock (23) (6,187) -
Payment of debt issue costs (70) (3,658) -
Preferred stock capital contribution 47 (10,904) -
Payment of dividends to Holdings (101) - -
Capital contribution from Holdings 203 - -
-------------- ---------------- -------------
Net cash provided by financing activities 2,928 4,340 1,983
-------------- ---------------- -------------
Increase in cash and cash equivalents 385 6,272 4,276
Cash and cash equivalents at beginning of period 737 4,458 182
-------------- ---------------- -------------
Cash and cash equivalents at end of period $ 1,122 $ 10,730 $ 4,458
============== ================ =============
Supplementary Information:
Cash paid for interest $ 7,842 $ 14 $ 480
============== ================ =============
Cash paid for income taxes $ - $ 1,032 $ -
============== ================ =============
</TABLE>
See accompanying notes
<PAGE>
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 non-wood, 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 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, 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
<TABLE><CAPTION>
OCT. 2, 1998 APR. 3, 1998
------------- -------------
<S> <C> <C>
Raw materials $ 16,170 $ 15,767
Finished goods and work-in-process 8,082 6,162
------------- -------------
$ 24,252 $ 21,929
============= =============
</TABLE>
5. Guarantor Subsidiaries
The condensed summarized information (in thousands) of the guarantor
subsidiaries is as follows. The Company's 10 7/8% senior subordinated notes are
jointly and severally and fully and unconditionally guaranteed on a senior
subordinated basis by all of the Company's wholly-owned subsidiaries. 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.
<TABLE>
<CAPTION>
OCTOBER 2, APRIL 3,
1998 1998
----------- ---------
<S> <C> <C>
Cash and cash equivalents $ 927 $ -
Accounts receivable, net 20,521 17,160
Raw materials 8,666 7,921
Finished product and work in process 4,330 2,693
Other current assets 5,814 5,862
Property, plant and equipment, net 31,001 32,717
Intangible assets, net 104,093 105,290
----------- ---------
Total assets $ 175,352 $ 171,643
=========== =========
Accounts payable $ 7,156 $ 7,452
Accrued expenses 5,683 5,543
Current portion of long-term debt 690 887
Long-term debt 425 1,180
Other liabilities 4,503 4,678
Intercompany payable 40,782 32,327
Net equity 116,113 119,576
----------- ---------
Total liabilities and net equity $ 175,352 $ 171,643
=========== =========
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
-------------------------------------------------------------- -----------
THREE MONTHS THREE MONTHS SIX MONTHS TWENTY WEEKS SIX WEEKS
ENDED ENDED ENDED ENDED ENDED
OCTOBER 2, SEPTEMBER 26, OCTOBER 2, SEPTEMBER 26, MAY 9,
1998 1997 1998 1997 1997
-------------- --------------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C>
Net Sales $ 48,296 $ 16,726 $ 95,119 $ 25,467 $ 7,358
Cost of products sold 37,236 13,895 73,807 21,341 6,149
Selling, general, and administrative 11,702 4,151 22,373 5,168 2,916
Interest expense 820 310 1,545 486 125
Income tax expense (benefit) 536 (328) (276) (365) (620)
-------------- --------------- ------------ --------------- -----------
Net loss $ (1,998) $ (1,302) $ (2,330) $ (1,163) $ (1,212)
============== =============== ============ =============== ===========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net cash provided by (used in) operating
activities $ (3,704) $ (824) $ 609
Net cash used in investing activities (2,872) (1,095) (11)
Net cash provided by (used in) financing
activities 7,503 1,932 (347)
------------ --------------- ----------
Increase in cash and cash equivalents $ 927 $ 13 $ 251
============ =============== ==========
</TABLE>
4. 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 consensuses 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.
<PAGE>
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, 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
Second Quarter Ended October 2, 1998 Compared to Second Quarter Ended September
26, 1997
Net Sales. Net sales increased $32.0 million, or 70.2%, from $45.5 million in
the quarter ended September 26, 1997 ("Prior Period") to $77.5 million for the
quarter ended October 2, 1998 ("Current Period"). This increase was primarily
due to the Acquisition. Excluding net sales of Care-Free and the Living Windows
and Fenesco facilities which have been closed ("non-comparable operating
units"), net sales increased $3.3 million or 8.0% in the Current Period compared
to the Prior Period. This increase is primarily in new construction and
national accounts sales during the Current Period. Impacting the sales
performance of the Current Period were competitive price pressures and product
mix changes.
Excluding non-comparable operating units, aluminum window sales were up $4.0
million or 13.9%, while vinyl sales increased slightly and non-core product
sales decreased $1.0 million. The aluminum products sales increase was
primarily due to an increase in new construction and retail sales and the
expansion of the product line at the Bryan, Texas facility. Overall vinyl window
sales were up $32.8 million, or 408.4% 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 $22.1 million from $34.3
million for the Prior Period to $56.4 million for the Current Period. Expressed
as a percentage of net sales, cost of products sold decreased from 75.4% for the
Prior Period to 72.7% for the Current Period. The Current Period cost improved
1.7%, as a percentage of net sales, through the elimination of costs related to
facilities closed since the Prior Period. Also, impacting the decrease in cost
of products sold as a percentage of net sales are continuous flow manufacturing
improvement initiatives at all of the operating units, which have resulted in
productivity improvements and purchasing synergies which have resulted in raw
material savings partially offset by increased labor rates.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $8.6 million from $8.0 million in the Prior
Period to $16.6 million for the Current Period. Expressed as a percentage of net
sales, selling, general and administrative expenses increased from 17.7% in the
Prior Period to 21.5% for the Current Period. This increase is due primarily to
increased consulting fees of $1.1 million for operating improvement initiatives,
an increase in amortization of goodwill of $0.6 million, and recognition of
severance costs of $0.4 million. Also contributing to the increase was $1.1
million for the creation of a national marketing and sales organization. This
organization, the first in the Company's history, established a national
accounts group to procure nationwide mass merchandise retailers and promote its
products and capabilities through national trade publications and promotional
programs. The increased expenses are partially offset by the Company's
continuing efforts to capitalize on its management efficiencies while increasing
sales volume, and the elimination of fixed expenses associated with the closing
of the Living Windows facility in Houston and the Fenesco facility in Dallas.
Interest Expense, Net. Interest expense increased $2.5 million from $2.0
million in the Prior Period to $4.5 million for the Current Period. This
increase is due to a higher debt level in the Current Period as a result of the
Acquisition.
Income Tax Expense. Income tax expense for the Current Period of $1.0 million
as compared to the Prior Period of $0.7 million is a result of the Company
adjusting its estimated effective tax rate for fiscal 1999 in the Current
Period, including the effect of additional non-deductible goodwill amortization
resulting from the Acquisition. The change in the estimated effective tax rate
had the effect of adjusting the benefit recognized in the first quarter
ended July 3, 1998. At the current estimated level of results of operations for
fiscal 1999, the effect of non-deductible goodwill amortization will continue
to have a significant impact on the effective tax rate for the remainder of
fiscal 1999.
Six months Ended October 2, 1998 Compared to Six Months Ended September 26, 1997
For purpose of comparison of the six months ended October 2, 1998 ("Current YTD
Period") to the six months ended September 26, 1997 ("Prior YTD Period"), the
financial statements for the six weeks ended May 9, 1997 (the "Predecessor
Period") and the twenty weeks ended September 26, 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 $67.1 million, or 75.2%, from $89.3 million in
the Prior YTD Period to $156.4 million for the Current YTD Period. This
increase was primarily due to the Acquisition. Excluding non-comparable
operating units, net sales increased $9.2 million or 11.2% in the Current YTD
Period compared to the Prior YTD Period. This increase is due to an increase in
new construction and national accounts sales during the Current YTD Period
compared to the Prior YTD Period. However, sales continue to be impacted by
competitive price pressures and product mix changes.
Excluding non-comparable operating units, aluminum window sales were up $10.6
million or 19.0%, while vinyl sales decreased slightly and non-core business
sales decreased $1.0 million. The aluminum products sales increase was
primarily due to an increase in new construction and retail sales and the
expansion of the product line at the Bryan, Texas facility. Overall vinyl
window sales were up $64.3 million, or 383.4% during the Current YTD Period
compared to the Prior YTD Period. The increase in vinyl window sales is due to
the Acquisition.
Cost of Products Sold. Cost of products sold increased $49.4 million from $67.3
million for the Prior YTD Period to $116.7 million for the Current YTD Period.
Expressed as a percentage of net sales, cost of products sold decreased from
75.4% for the Prior YTD Period to 74.6% for the Current YTD Period. The Current
Period cost improved 1.7%, as a percentage of net sales, through the elimination
of costs related to facilities closed since the Prior Period. This was
partially offset by an increase in the Current YTD Period of labor rates of $0.5
million (0.3% of net sales). Also, impacting the decrease in cost of products
sold as a percentage of net sales are continuous flow manufacturing improvement
initiatives at all of the operating units, which have resulted in productivity
improvements and purchasing synergies which have resulted in raw material
savings.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $15.1 million from $16.5 million in the Prior
YTD Period to $31.6 million for the Current YTD Period. Expressed as a
percentage of net sales, selling, general and administrative expenses increased
from 18.4% in the Prior YTD Period to 20.2% for the Current YTD Period. This
increase is due primarily to increased consulting fees of $1.5 million for
operating improvements initiatives, an increase in amortization of goodwill of
$1.3 million, and recognition of severance costs of $0.4 million. Also
contributing to the increase was $1.1 million for the creation of a national
marketing and sales organization. The marketing and sales organization, the
first in the Company's history, established a national accounts group to procure
nationwide mass merchandise retailers and promote its products and capabilities
through national trade publications and promotional programs. The increased
expenses are partially offset by a decrease of $1.4 million attributable to
synergies resulting from the Acquisition and the Company's continuing efforts to
capitalize on its management efficiencies while increasing sales volume and the
elimination of fixed expenses associated with closed operating units.
Interest Expense, Net. Interest expense increased $5.4 million from $3.7
million in the Prior YTD Period to $9.1 million for the Current YTD 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 income tax expense (state and federal
combined) for the Current YTD Period of $0.5 million results from the effect of
non-deductible expenses (primarily amortization of goodwill) to the Company's
pretax loss. As compared to the Prior YTD Period the Current YTD Period
includes the additional goodwill amortization, non-deductible for tax purposes,
resulting from the Transaction and the Acquisition.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the Current YTD Period was $0.7
million compared to $5.6 million net cash provided by operating activities for
the Prior YTD Period. This decrease is due to increased working capital in the
Current YTD Period primarily related to the annual cyclical increase in accounts
receivable.
Capital expenditures for the Current YTD Period were $3.2 million compared to
$1.4 million for the Prior YTD Period. Capital expenditures during the Current
YTD Period were related primarily to manufacturing automation.
Cash flows provided by financing activities in the Current YTD Period were $2.9
million compared to cash provided by financing activities of $6.3 million in the
Prior YTD 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
YTD 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 $36.8
million. As of October 23, 1998, $13.0 million was borrowed on the Revolver.
Interest on borrowings under the Revolver, currently payable at 7.6%, 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 November 2, 1998 the 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 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 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
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------------- ---------------------------
October 2, September 26, October 2, September 26,
1998 1997 1998 1997
------------------- ----------------- ----------- --------------
<S> <C> <C> <C> <C>
EBITDA (1) $ 7,494 $ 4,733 $ 15,132 $ 8,572
</TABLE>
(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 $1.1 million in the Current
Period, $5,000 in the Prior Period, $1.6 million in the Current YTD Period, and
$0.1 million in the Prior YTD 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 $350,000 of which $200,000 was spent through October 2, 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
(non-information technology aspects of Year 2000), based on a timetable where
the assessments will be completed by December 31, 1998 and has not developed
contingency plans in the event Year 2000 issues affect the Company directly or
through its relationship with third parties. The Year 2000 remediation
timetable additionally includes a time frame for executing any corrective action
that may be required or contingency plans to be developed by March 31, 1999.
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
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on October 17, 1998, to report the
resignation of David G. Fiore as Chairman of the Board of Directors, President
and Chief Executive Officer and the appointment of Fred S. Grunewald as the
Company's Chairman of the Board, President and Chief Executive Officer.
<PAGE>
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 13, 1998 By: \s\ Virgil Lowe
--------------------------------
Virgil Lowe,
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RELIANT
BUILDING PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR
THE QUARTER ENDED OCTOBER 2, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-2-1999
<PERIOD-END> OCT-2-1998
<CASH> 1,122
<SECURITIES> 0
<RECEIVABLES> 37,183
<ALLOWANCES> 3,147
<INVENTORY> 24,252
<CURRENT-ASSETS> 68,076
<PP&E> 63,806
<DEPRECIATION> 10,399
<TOTAL-ASSETS> 263,599
<CURRENT-LIABILITIES> 37,173
<BONDS> 186,483
0
4,724
<COMMON> 1
<OTHER-SE> 23,526
<TOTAL-LIABILITY-AND-EQUITY> 263,599
<SALES> 156,429
<TOTAL-REVENUES> 156,429
<CGS> 116,684
<TOTAL-COSTS> 116,684
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,021
<INTEREST-EXPENSE> 9,135
<INCOME-PRETAX> (948)
<INCOME-TAX> 528
<INCOME-CONTINUING> (1,476)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,476)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
