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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-K
(Mark one)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended April 3, 1998.
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________________ to _____.
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 (IRS Employer Identification Number)
incorporation or organization)
3010 LBJ FREEWAY, SUITE 400
DALLAS, TEXAS 75234
(Address of executive offices, including zip code)
(972) 919-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) and (g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all copies 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 that 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 [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant - NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
As of June 30, 1998, the registrant had 1,000 shares of Common Stock
outstanding.
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ITEM 1. BUSINESS
GENERAL
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 and GAPCO, across all major price points.
While the Company has sales throughout the United States, the Company's windows
and doors have historically been manufactured and marketed primarily in the
West, Southwest, and Southeast regions of the country. More recently, as a
result of the January 28, 1998 acquisition of all of the capital stock of
Care-Free Window Group ("Care-Free"), a privately held vinyl window company,
the Company has developed a significant national marketing and manufacturing
presence.
Sales in the Company's historical "Primary Market," consisting of
fifteen states including Alabama, Arizona, California, Colorado, Florida,
Georgia, Illinois, Kentucky, Louisiana, Nevada, New Mexico, North Carolina,
Tennessee, Texas and Virginia, represented 72% of the Company's $195 million
net sales for the fifty-three week period ended April 3, 1998 (the "1998
Period"). With the Care-Free acquisition, the Company's "Primary Market" will
include all the continental 48 states except Delaware, Maine, Montana, New
Hampshire, North Dakota, South Dakota, Vermont and Wyoming.
Historically, the Company has emphasized the sale of aluminum windows,
which are the products of choice in the Company's Primary Market. The
preference for aluminum windows in the Company's Primary Market is attributable
to aluminum's lower cost, greater durability, ease of installation and lower
maintenance requirements, as well as the reduced need for thermal efficiency in
homes in moderate southern climates. Over the past four years, however, the
Company has increased its focus on the sale of vinyl windows, which the Company
believes is the fastest growing component of the window industry. The
acquisition of Care-Free establishes a major national presence in the vinyl
window business to complement the Company's historical strength in the aluminum
window 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 as well as 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.
The Company manufactures and distributes a broad line of aluminum and
vinyl window products at eight manufacturing facilities in California, Georgia,
Michigan, New Jersey, North Carolina, Tennessee, Texas and Washington, as well
as at distribution facilities in Louisiana, Arizona, and California. 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. 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.
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The Company's extensive distribution network includes over 700
distributors nationwide. The Company believes it has established relationships
with many of the strongest distributors in its markets as a result of its broad
product offerings across all major price points, well recognized brand names,
reputation for high quality products and commitment to providing the highest
levels of service in the industry. These factors have resulted in a loyal
distributor base characterized by low turnover. No single distributor
accounted for more than 10% of the Company's total net sales during the 1998
Period. The Company also owns and operates three distribution facilities,
which contributed approximately 3.1% of the Company's net sales in the 1998
Period.
The Company markets its products through a sales force consisting of
approximately 78 commissioned factory sales representatives who provide
distributors with ongoing technical, marketing and sales support. These sales
representatives have an average of approximately ten years of experience with
the Company and generally have long-standing relationships with customers,
which the Company believes contribute to customer loyalty. These sales
representatives are primarily market segment focused and report to four market
segment vice presidents who report to the Senior Vice President of Sales and
Marketing.
INDUSTRY OVERVIEW
The United States window industry consists of two markets, residential
and commercial. The residential window market consist of new construction,
manufactured housing, repair and remodel and do-it-yourself markets. The
Company competes primarily in the residential new construction market, although
the acquisition of Care-Free provides the Company with a balanced market
presence in the new construction the repair and remodel and the manufactured
housing markets. The residential window market is divided into three
submarkets according to type of frame material: aluminum, vinyl and wood. The
market share of aluminum, vinyl and wood windows in the new construction market
varies by region. A homebuilder's or homeowner's choice of frame material is
often based upon such considerations as cost, thermal efficiency, maintenance,
aesthetic preferences and regional norms.
Aluminum
In the Company's historical Primary Market, aluminum is the window
material of choice and regional standard because of its low cost, durability
and suitability to warm climates. Because aluminum is the least expensive
window alternative, homebuilders generally prefer aluminum to control costs.
The popularity of aluminum in Southern regions has been offset by declining
market share in the Northern United States. Aluminum is not utilized as
frequently in the Northern regions of the United States due to traditional
architectural trends, lower aesthetic appeal and the superior insulating
qualities of wood and vinyl windows.
Vinyl
Vinyl windows are generally less expensive and slightly less thermally
efficient than wood, more expensive and thermally efficient than aluminum, and
compete with low-end wood products and high-end aluminum products.
Historically, vinyl windows have not been as popular as aluminum windows in
warmer climates because of their increased cost and because early vinyl windows
suffered from ultra violet degradation, which caused the vinyl to become
brittle and crack after prolonged exposure to the sun. Over
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the past five years, however, demand for vinyl windows has increased as
manufacturers such as the Company improved the quality, the thermal efficiency,
product appearance and offered vinyl windows at more competitive prices.
Wood
Wood is the most thermally efficient window material; however, it is
generally the most expensive and requires the greatest amount of maintenance.
Wood windows are generally the most popular in the colder climates of the
northern states. Although unit sales of "all wood" windows have declined, wood
window manufacturers have stabilized their market share by offering aluminum-
clad and vinyl-clad products. Due to concerns about the nation's timber
resources and the maintenance issues surrounding all wood windows, it is
anticipated that the trend towards aluminum-clad and vinyl-clad wood windows
will continue.
The Company primarily competes in the aluminum and vinyl, or non-wood,
new construction submarket of the United States residential window market (the
"Non-Wood Segment"). The Non-Wood Segment is highly fragmented and
historically has consisted of a large number of relatively small, independent
businesses serving discrete local markets and a small number of multi-regional
operators. Relative to smaller competitors, larger multi-regional operations
such as the Company benefit from several competitive advantages, including
economies of scale in purchasing, manufacturing and distribution, the ability
to attract and retain strong distributors and the ability to service major
builders on a national basis.
STOCK PURCHASE AND ACQUISITION
On May 9, 1997, Wingate Partners, L.P. and certain selling
stockholders sold the common stock of RBPI Holding Corporation ("Holdings") to
Reliant Partners L.P. ("Reliant Partners"), Reliant Partners II, L.P. ("Reliant
Partners II"), and certain senior executives of the Company. The aggregate net
consideration paid for the acquisition was $90.2 million consisting of $30.1
million in cash and $9.8 million of seller notes to the selling shareholders
(total purchase price), repayment of certain existing indebtedness of the
Company and the redemption of preferred stock of Holdings.
On January 28, 1998, the Company purchased all of the capital stock of
Care-Free (the "Acquisition"), a privately held vinyl window manufacturing
company, for $120.9 million. The Company financed the Acquisition through $5.0
million of additional equity from its shareholder, $7.4 million in cash, and
$111.9 million of a $145.0 million new bank credit facility.
COMPETITION
The non-wood new construction and repair and remodel markets are
highly fragmented and regionalized. Typical competitors are privately owned,
regional companies with sales under $100 million. No one company holds a
dominant position on a national basis. The Company's competitors include
Caradon/Better Bilt, Atrium and Metal Industries in aluminum windows and Summit
and Certainteed in vinyl windows, as well as numerous other smaller regional
competitors in both types of window frame materials. Competition is generally
regional and is based on customer service, price, product quality, brand name
recognition, and breadth of product line. Other competitors may be less highly
leveraged with greater capital resources and be in a stronger position to
withstand down-turn in the market.
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EMPLOYEES
As of June 5, 1998, the Company employed approximately 3,050 full-time
employees, of which approximately 102 were represented by a union at the
Company's Bryan, Texas facilities and 103 were represented by a union at the
South Hackensack, New Jersey facility. The contracts covering the Company's
unionized employees at the Bryan, Texas and South Hackensack, New Jersey
facilities expire in December 1998 and February 2000 respectively. The Company
also hires approximately 500 seasonal employees during the peak season, which
lasts from April to October. The Company believes its relationship with its
employees is good.
INFLATION AND RAW MATERIALS
The rate of inflation over recent years has been relatively low and
has not had a significant effect on the Company's results. The Company
purchases aluminum, vinyl, glass and other raw materials from various
suppliers. While all such materials are available from numerous independent
suppliers, commodity raw materials are subject to fluctuations in price that
may not reflect the rate of general inflation. These materials fluctuate in
price based on supply and demand. There have been historical periods of rapid
and significant movements in the price of aluminum, both upward and downward.
The Company has historically mitigated the effects of these fluctuations by
passing through price increases to its customers after a period of 60 to 90
days.
SEASONALITY AND CYCLICALITY
The Company's business is seasonal. The warmer months generally allow
for a higher level of building, generating a higher level of sales for the
Company. Consequently, the second and third quarters of the calendar year have
traditionally represented the highest level of sales during the year. Demand
for the Company's products is influenced by the level of new home construction
activity and the demand for replacement products. Trends in the housing sector
of the economy may directly affect the financial performance of the Company.
Accordingly, the overall strength of the United States economy, interest rates,
rate of job formation, consumer confidence and availability of consumer credit,
as well as demographic factors such as the rate of household formation and
population shifts have a direct bearing on the Company.
BACKLOG AND MATERIAL CUSTOMERS
The Company has no material long-term contracts. Orders are generally
filled within five to ten days of order receipt, with the exception of
commercial orders, which have lead times of 90-150 days. The Company's backlog
is subject to fluctuation due to various factors, including the size and timing
of orders for the Company's products. For the 1998 Period, no customer
accounted for 10% or more of the Company's sales.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
The Company is subject to extensive and changing environmental laws
and regulations pertaining to the discharge of certain materials into the
environment, the handling and disposal of wastes (including solid and hazardous
wastes) or otherwise relating to health, safety and protection of the
environment. As
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such, the nature of the Company's operations and previous operations by others
at real property currently or formerly owned or operated by the Company expose
the Company to the risk of claims under environmental, health and safety laws
and regulations. Based on its experience to date, the Company does not expect
such claims, or the costs of compliance with environmental, health and safety
laws and regulations, to have a material impact on its capital expenditures,
earnings or competitive position. The Company believes it is in compliance in
all material respect with such environmental laws and regulations. Capital
expenditures for environmental matters were not material for the 1998 Period
and are not expected to be material for fiscal year 1999.
The Company is associated with two Superfund sites that are being
investigated or undergoing remediation pursuant to CERCLA. The Company is a
Potentially Responsible Party ("PRP") at the Chemical Recycling, Inc. or "CRI"
Superfund site in Wylie, Texas. The Company is a very small contributor at the
CRI site, being assigned less than 1.275% of the damages based on its waste
volume at the site. The site was a solvent reclamation facility, and the
Company sent paint sludges and waste xylene to the site for recycling. The
site has soil and groundwater contamination, with the contaminants of concern
being solvents such as vinyl chloride, acetone, dichloroethene, toluene, and
xylene. Some areas of soil have metal contamination. Major removal actions
have occurred; however, the final remediation action plan has not been
prepared. According to the studies performed by the site's steering committee,
affected groundwater has not migrated off-site. According to the EPA general
counsel in charge of the site, the site is low priority compared to other sites
in the region. There are 115 PRPs at this site with approximately 85 that are
members of the site's steering committee. Two main PRPs, Glidden and Sherwin
Williams, account for 50% of all liability. The Company's costs to date
associated with this site have been less than $50,000.
The second site is the SAAD Trousdale Road landfill in Nashville,
Tennessee. There is no documentation linking the Company to the site, and
costs paid to the generator group to date have been $55,000. Because of the
lack of documentation linking the Company to the site, it is not expected that
the costs will increase materially in the future. Records indicate that,
through agreements with the site's steering committee and EPA, the Company will
not receive any orders from EPA or be allocated further costs for continuing
work because the Company does not have a volume contribution assigned to it
(because of the lack of records showing it used the site). There are 49 PRPs
who have received orders from the EPA for remediation. Soil contaminants of
concern at the site are benzene, ethyl benzene, tetrachloroethane, toluene,
trichloroethane, and vinyl chloride. The facility was a waste oil disposal
facility from the 1970s to the 1980s, resulting in impacted soil and
groundwater. In 1995, the EPA determined that groundwater remediation would
not be required but indicated that further soil remediation was necessary as
well as a study of the potential impact to a nearby stream. Additional removal
actions were completed in 1996; no further activities have occurred since then.
INTELLECTUAL PROPERTY
The Company holds no licenses, patents or copyrights. However,
ALENCO, KLIMA-TITE, WINDOWMAN and CARE-FREE are registered trademarks of the
Company, and GAPCO, ALENCO, LIVING WINDOWS, ALPINE WINDOWS, ULTRA, and BUILDERS
VIEW are trade names used in and associated with the Company's business.
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ITEM 2. PROPERTIES
The Company's operations are principally conducted at twelve owned or
leased facilities. The Company believes that its plants and equipment are
modern and well-maintained and provide adequate production capacity to meet the
expected demand for its products.
Listed below are the principal manufacturing facilities operated by
the Company:
<TABLE>
<CAPTION>
Location Principal Product Owned/Leased
- -------- ----------------- ------------
<S> <C> <C>
Bryan, Texas Residential Windows Owned/Leased(a)
Bryan, Texas Commercial Windows Owned
Dallas, Texas Residential Doors(b) Leased
Dallas, Texas Processed Glass Leased
Fresno, California Residential Windows Leased
Gallatin, Tennessee Residential Windows Owned
Asheville, North Carolina Residential Windows Owned
Peachtree City, Georgia Residential Windows(b) Owned
Peachtree City, Georgia Window Components Owned
South Hackensack, New Jersey Residential Windows Leased
Charlotte, Michigan Residential Windows Owned
Bothell, Washington Residential Windows Leased
</TABLE>
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(a) A portion of the facility is owned and a portion of the facility is leased.
(b) As part of the Company's 1998 restructuring initiatives, the Company sold
its residential door operations June 1998. Additionally, the Company
provided reserves for the restructuring relating to the Peach Tree City,
Georgia residential windows manufacturing facility as part of its
Southeastern United States capacity evaluation. The Company plans to
complete the restructuring by December 1998.
In addition, the Company leases space in New Orleans, Louisiana, Walnut,
California and Phoenix, Arizona for use as distribution facilities and
maintains its corporate headquarters in a leased facility in Dallas, Texas.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in litigation arising in the
ordinary course of its business, none of which is expected to have a material
adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There is no established public trading market for the Company's outstanding
equity securities.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial and operating data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Consolidated Financial Statements
and Supplementary Data contained herein. The statement of operations and
balance sheet data for the forty-seven weeks ended April 3, 1998, six weeks
ended May 9, 1997 and the four fiscal years ended March 28, 1997, are derived
from the audited financial statements of the Company.
<TABLE>
<CAPTION>
Predecessor(a) Successor(a)
------------------------------------------------------------------------ -------------
Fiscal Year Ended(b) or Period Ended
------------------------------------------------------------------------
Six Weeks Forty-Seven
April 1, March 31, March 29, March 28, Ended Weeks Ended
1994 1995 1996 1997 May 9, 1997 April 3, 1998
-------- -------- --------- -------- ----------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales $123,166 $137,184 $173,271 $174,401 $ 20,095 $ 174,769
Cost of products sold 96,964 106,760 133,337 131,474 14,852 $ 134,783
-------- -------- -------- -------- -------- ---------
Gross Profit $ 26,202 $ 30,424 $ 39,934 $ 42,927 $ 5,243 $ 39,986
Selling, general and
administrative $ 20,723 $ 23,620 $ 31,498 $ 32,724 $ 3,765 $ 35,308(e)
Restructuring charges -- -- -- -- -- $ 1,044
-------- -------- -------- -------- -------- ---------
Income from Operations $ 5,479 $ 6,804 $ 8,436 $ 10,203 $ 1,478 $ 3,634
Interest expense, net $ 4,282 $ 4,843 $ 6,125 $ 5,381 $ 587 $ 9,164
Other expenses $ 150 $ 359 $ 753 $ 577 $ 3,350 $ --
Income tax expense
(benefit) $ 612 $ 833 $ 753 $ 1,892 $ (846) $ (1,167)
Extraordinary loss(c) -- $ 552 $ -- $ -- $ 715 $ 411
-------- -------- -------- -------- -------- ---------
Net income (loss) $ 435 $ 217 $ 805 $ 2,353 $ (2,328) $ (4,774)
======== ======== ======== ======== ======== =========
BALANCE SHEET DATA (AT
PERIOD END):
Working capital $ 15,481 $ 17,980 $ 14,340 $ 17,301 $ 21,456 $ 27,361
Total assets $ 59,504 $ 70,666 $ 76,769 $ 73,077 $ 79,540 $ 259,444
Long-term obligations $ 36,979 $ 41,282 $ 44,933 $ 43,327 $ 45,558 $ 185,367
Redeemable preferred stock $ 4,483 $ 4,720 $ 5,312 $ 6,119 $ 6,187 $ --
Shareholders' equity $ 1,960 $ 1,740 $ 1,953 $ 3,913 $ 4,698 $ 30,011
OTHER FINANCIAL DATA:
Net cash provided by (used
in) operating activities $ 5,448 $ 949 $ 8,348 $ 4,400 $ 2,448 $ 4,544
Net cash used in investing
activities $ (1,909) $ (4,515) $ (9,285) $ (3,234) $ (155) $(125,646)
Net cash provided by (used
in) financing activities $ (3,436) $ 3,445 $ 1,006 $ (1,117) $ 1,983 $ 117,381
EBITDA(d) $ 9,555 $ 11,055 $ 12,681 $ 15,069 $ 2,013 $ 12,136
Depreciation and
amortization $ 4,076 $ 4,251 $ 4,245 $ 4,866 $ 535 $ 8,502
Capital expenditures $ 2,043 $ 4,628 $ 5,631 $ 3,516 $ 198 $ 3,624
Cash interest expense $ 3,667 $ 3,098 $ 5,767 $ 5,243 $ 480 $ 4,524
</TABLE>
See Notes to Selected Financial Data
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NOTES TO SELECTED FINANCIAL DATA
(a) As discussed in Note 2 "Stock Purchase," to the accompanying
consolidated financial statements, the acquisition of Holdings by
Reliant Partners, and "push-down" of the basis of accounting on May 9,
1997, affects the comparability of information in the selected
financial data. Amounts for the period subsequent to May 9, 1997
(Successor period) are presented on the new basis of accounting
established as of such date; the six-week period ended May 9, 1997,
and the fiscal years ended March 28, 1997, March 29, 1996, March 31,
1995 and April 1, 1994 represent the Predecessor basis of accounting.
Additionally see Note 3 "Acquisition" for discussion of the purchase
of Care-Free on January 28, 1998.
(b) Fiscal year 1994 was a 53-week period, all other full fiscal years
were 52 weeks.
(c) The Company recorded extraordinary losses of $552,000 which is net of
a tax benefit of $297,000, $715,000 which is net of tax benefit of
$369,000 and $411,000 which is net of tax benefit of $212,000, related
to the write-off of debt issuance costs and an original issue discount
in connection with its September 1994 debt refinancing, the May 1997
acquisition of Holdings (the Transaction - See ITEM 13. CERTAIN
RELATIONS AND RELATED TRANSACTIONS -- Agreement with George Group),
and January 1998 Senior Credit Facility, respectively.
(d) 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. In addition, EBITDA measures presented
may not be comparable to other similarly titled measures of other
companies.
(e) Includes $1.3 million in fees and reimbursement of out-of-pocket
expenses for consulting attributable to operating improvement
initiatives.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIFTY-THREE WEEK PERIOD ENDED APRIL 3, 1998 COMPARED TO FISCAL YEAR ENDED MARCH
28, 1997
For purpose of comparison of the fifty-three week period ended April
3, 1998 (the "1998 Period") to the fiscal year ended March 28, 1997, the
financial statements for the six weeks ended May 9, 1997 (Predecessor) and the
47 weeks ended April 3, 1998 (Successor period) have been combined.
Significant fluctuations resulting from the application of the push-down of
purchase accounting have been separately identified.
NET SALES. Net sales increased $20.5 million, or 11.7%, from $174.4
million in fiscal year 1997 to $194.9 million in the 1998 Period. This
increase was primarily attributable to the Care-Free acquisition which
increased net sales by $19.3 million. Aluminum window sales reflected a
decrease of
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$3.9 million, or 3.1%, from $126.1 million in fiscal year 1997 to $122.2
million in the 1998 Period, primarily the result of customers converting to
vinyl windows at the Company's Bryan, Texas and Fresno, California facilities
and the closure of the Houston, Texas facility. Vinyl window sales increased
$22.0 million, or 75.7%, from $29.0 million in fiscal year 1997 to $51.0
million in the 1998 Period. This increase in vinyl window sales was primarily
the result of the Care-Free acquisition. The Company's other facilities
increased vinyl sales by $2.7 million, or 9.4% in the 1998 Period due to
improved market penetration in the Company's existing markets, including North
Carolina, Georgia, and Tennessee, expansion in new geographic markets and
aluminum customers converting to vinyl windows.
COST OF PRODUCTS SOLD. Cost of products sold increased $18.1 million
from $131.5 million in fiscal year 1997 to $149.6 million in the 1998 Period.
Expressed as a percentage of net sales, cost of products sold increased from
75.4% in fiscal year 1997 to 76.8% in the 1998 Period. This increase was
primarily due to $2.7 million (1.4% of net sales) resulting from the flow
through in the statement of operations of inventory step-up and fixed asset
write-up related to the acquisition of the Company and the purchase of
Care-Free, $1.0 million (0.5% of net sales) in wage and related benefit
increases offset by $0.6 million (0.3% of net sales) in efficiency
improvements. The Care-Free acquisition increased cost of product sold by
$15.1 million which had a nominal negative impact on Company margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $6.4 million from $32.7 million in fiscal
year 1997 to $39.1 million in the 1998 Period. Expressed as a percentage of
net sales, selling, general and administrative expenses increased from 18.8% in
fiscal year 1997 to 20.1% in the 1998 Period. This increase was primarily due
to $2.8 million related to the addition of Care-Free plants, $1.3 million in
consulting fees attributable to operating improvement initiatives, $1.0 million
in additional amortization of intangibles resulting primarily from the increase
of goodwill related to the acquisition of the Company and the purchase of
Care-Free, and $0.5 million of costs associated with the integration of
Care-Free's operations and personnel into the Company.
RESTRUCTURING CHARGES. Reserves for the closing and consolidation of
certain facilities were established in the 47-weeks ended April 3, 1998.
INTEREST EXPENSE. Net interest expense increased $4.3 million from
$5.4 million for fiscal year 1997 to $9.7 million for the 1998 Period. This
increase was due to a higher debt level in the 1998 Period as a result of the
acquisition of the Company and the purchase of Care-Free.
INCOME TAX EXPENSE. The Company's effective income tax rate (state
and federal combined) was 44.6% for fiscal year 1997 compared to a 34.0% tax
benefit for the six-week period ended May 9, 1997 and a 21.1% tax benefit for
the 47-week period ended April 3, 1998. The decrease in the effective income
tax benefit rate for the 47-week period reflects an increase in nondeductible
expenses (primarily amortization of goodwill) as a percentage of pre-tax loss.
FISCAL YEAR ENDED MARCH 28, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 29, 1996
NET SALES. Net sales increased $1.1 million, or .7%, from $173.3
million in fiscal year 1996 to $174.4 million in fiscal year 1997. This
increase resulted primarily from a $1.8 million increase in
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window sales partially offset by a decrease in third-party extrusion sales.
Aluminum window sales reflected a decrease of $4.2 million, or 3.2%, from
$130.3 million in fiscal year 1996 to $126.1 million in fiscal year 1997,
primarily the result of customers converting to vinyl windows at the Company's
Gallatin facility and the loss of single glazed business at Living Windows.
Vinyl window sales increased $6.2 million, or 27.1%, from $22.9 million in
fiscal year 1996 to $29.1 million in fiscal year 1997. This increase in vinyl
window sales was primarily the result of improved market penetration in the
Company's existing markets, including California, Georgia, Tennessee and
Alabama, expansion in new geographic markets and aluminum customers converting
to vinyl windows.
COST OF PRODUCTS SOLD. Cost of products sold decreased $1.9 million
from $133.3 million in fiscal year 1996 to $131.5 million in fiscal year 1997.
Expressed as a percentage of net sales, cost of products sold decreased from
77.0% in fiscal year 1996 to 75.4% in fiscal year 1997. This improvement was
primarily due to the (i) reduction in aluminum costs and (ii) reduction in
material and labor costs associated with automated glass cutting and insulated
glass manufacturing at certain of the Company's manufacturing facilities. In
addition, fiscal year 1996 included an inventory write-down of approximately
$1.1 million, which was the result of spoilage in excess of standard at the
Company's Fresno, California plant that occurred during fiscal year 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.2 million from $31.5 million in fiscal
year 1996 to $32.7 million in fiscal year 1997. Expressed as a percentage of
net sales, selling, general and administrative expenses increased from 18.2% in
fiscal year 1996 to 18.8% in fiscal year 1997. This increase was primarily
related to health and medical insurance expenses of $1.1 million due to
increased enrollment and large claims associated with a few employees, and
expenses associated with the ongoing program to upgrade and fully integrate the
Company's information system at all its facilities. These increases were
partially offset by a reduction in workers' compensation expense.
INTEREST EXPENSE. Net interest expense decreased $0.7 million from
$6.1 million for fiscal year 1996 to $5.4 million in fiscal year 1997 as a
result of a lower debt level and lower interest rates under the Old Credit
Facility.
INCOME TAX EXPENSE. The Company's effective income tax rate was 48.3%
for fiscal year 1996 compared to 44.6% in fiscal year 1997. This decrease
reflects a decrease in nondeductible expenses (primarily amortization of
goodwill) as a percentage of pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
Interest payments on the Company's 10-7/8 Senior Subordinated Notes
due May 1, 2004 (the "Notes") and the credit agreement dated as of January 28,
1998 (the "Senior Credit Facility") represent significant obligations of the
Company. The Notes require semi-annual interest payments in May and November.
The Senior Credit Facility requires quarterly interest payments in April, July,
October, and January. In addition to its debt service obligations, the
Company's remaining liquidity demands relate to capital expenditures and
working capital needs. For the 1998 Period, the Company spent $3.8 million
relating to manufacturing automation, vinyl manufacturing equipment, computer
systems and maintenance projects. In fiscal year 1999, the Company anticipates
that maintenance capital expenditures will total approximately $2.2 million.
In addition, expenditures primarily for cost reductions, manufacturing
12
<PAGE> 13
automation and computer systems will likely total $2.8 million. The Company's
working capital needs are seasonal, and historically have peaked during the
second and third fiscal quarters.
The Company's primary sources of liquidity are cash flows from
operations and borrowings under the Senior Credit Facility. The Senior Credit
Facility consists of term loans of $105 million and a revolving line of credit
(the "Revolver") of $40 million. The amount available as of June 23, 1998
under the Revolver's borrowing base, equal to 85% of eligible receivables and
50% of eligible inventory, is approximately $21.8 million. As of June 23,
1998, $11.9 million was borrowed and $2.1 million in letters of credit were
outstanding under the Revolver. Interest on the borrowings under the Revolver,
which is currently payable at 7.9%, is at 2.25% over the Eurodollar rate. In
addition, the Company must pay an annual commitment fee of 1/2 of 1% of the
unused portion of the Revolver, quarterly. The Revolver agreement expires on
December 31, 2003. The term loan portion of the Senior Credit Facility is
comprised of a $40 million, six-year senior secured term loan (the "Term loan
A") with interest payable at 2.25% over the Eurodollar rate and a $65 million,
six and one-quarter year senior secured term loan (the "Term loan B") with
interest payable at 2.5% over the Eurodollar rate. Term loan A matures in 20
consecutive quarterly installments commencing on June 30, 1999. The first
three quarterly installments are $667 thousand, the next four scheduled
installments are $2.0 million, followed by the remaining installments at $2.5
million per quarter. Term loan B matures in 24 consecutive quarterly
installments beginning on June 30, 1998. The first three scheduled quarterly
installments are $250 thousand, followed by 20 quarterly installments of $187.5
thousand, with a remaining balance of $60.5 million payable on March 31, 2004.
The Company believes that, based on current and anticipated financial
performance, cash flow from operations and borrowings under the 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 expenditure 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.
The Company's working capital and debt service requirements are funded
through the cash flow from operations and funds available under the Revolver.
As of June 23, 1998 the amount available under the Revolver is approximately
$21.8 million. The Company's future operating performance and ability to repay
or refinance the Notes and the Senior Credit Facility will also be subject to
future economic conditions and to financial, business and other factors, many
of which are beyond the Company's control.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 16 "New Accounting Pronouncements" of the notes to the
consolidated financial statements included elsewhere herein.
MANAGEMENT INFORMATION SYSTEMS
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 and
expects to be Year 2000 compliant on all these systems by January, 1999. The
Company has not completed its
13
<PAGE> 14
assessment of the effect and the related cost of Year 2000 on its manufacturing
operations, vendors and customers.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. All of 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to the Company for this annual report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are listed in the accompanying Index to
Financial Statements on page F-1 of this report.
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<PAGE> 15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Previously reported in the Registrant's Current Report on Form 8-K
dated October 21, 1997.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides information concerning the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
David G. Fiore 50 Chairman, President, Chief Executive Officer
Virgil D. Lowe 54 Chief Financial Officer, Senior Vice President,
Director
William B. Redpath 37 Senior Vice President -- Operations
Charles E. Still 56 Vice President
Bradford E. Bernstein 31 Director
Michael L. George 58 Director
Steven B. Gruber 40 Director
Robert B. Henske 37 Director
James M. Patell 49 Director
</TABLE>
David G. Fiore joined the Company in October 1992 and until January
1994 he served as Executive Vice President responsible for the Company's
operating divisions in the western United States. He is currently Chairman of
the Board of Directors and has served as President and Chief Executive Officer
of the Company since January 1994. Prior to joining the Company, Mr. Fiore
served two years as President of Cal-Tex Industries, the parent company of
three aluminum window manufacturers based in San Diego, California, as well as
three years as President of General Aluminum, a Cal-Tex Industries subsidiary.
Mr. Fiore received a Bachelor of Science degree from the State University of
New York at Buffalo and a Master of Business Administration degree from
Syracuse University.
Virgil D. Lowe has served as Senior Vice President and Chief Financial
Officer of the Company since May 1997 and became a director of the Company in
1997. In November 1994, Mr. Lowe was elected as Secretary and Treasurer of the
Company. While he continues to serve as Secretary, Mr. Lowe resigned as
Treasurer on February 2, 1998. Mr. Lowe joined the Company as Controller in
June 1988.
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<PAGE> 16
Prior to joining the Company, Mr. Lowe was employed by Continental Can Company
for 17 years. During his employment with Continental Can Company, he
progressed from Cost Accountant to Director of Accounting for Beverage
Operations. Mr. Lowe received a Bachelor of Science degree in Accounting from
East Texas Baptist University.
Charles E. Still has served as the Company's Vice President of
Engineering since June 1982. During his 37-year career with the Company, Mr.
Still has held positions including Designer, Graphics Supervisor, Design
Engineer, Manager and Design Engineer and Director of Product Engineering. Mr.
Still received a Bachelor of Science degree in Architecture from Texas A&M
University.
William B. Redpath joined the Company on January 28, 1998 as Senior
Vice President -- Operations. Mr. Redpath is responsible for manufacturing
and operating functions. Mr. Redpath served as Senior Vice President,
Operations (East) of Care-Free Aluminum Products, Inc. from 1996 to its
acquisition by the Company on January 28, 1998. In his capacity as Senior Vice
President, Operations (East) Mr. Redpath was responsible for manufacturing,
purchasing, engineering, customer service and administration for the three
plants in the East. Mr. Redpath has fourteen years of building products
experience and has previously served as the General Manager of the Company's
Bryan, Texas facility. Prior to that, Mr. Redpath served as Vice President of
Manufacturing for AFG Distribution. Mr. Redpath received a degree in
Operations Management from the University of Nebraska at Kearney.
Bradford E. Bernstein became a director of the Company in 1997. Mr.
Bernstein is a Managing Director and has served as a Principal, Vice President
and Associate of Oak Hill Partners, Inc., a private investment company, since
1992. From 1991 to 1992, Mr. Bernstein worked at Patricof & Co. Ventures.
Prior to that, from 1989 to 1991, he worked at Merrill Lynch & Co.
Michael L. George became a director of the Company in 1997. Since
1984, Mr. George has been Chairman of the Board of George Group, Inc. ("George
Group"), an acquisition and management consulting firm based in Dallas, Texas.
Mr. George holds a Bachelor of Science degree in Physics from the University of
California and a Master of Science degree in Physics from the University of
Illinois.
Steven B. Gruber became a director of the Company in 1997. From March
1992 to the present, Mr. Gruber has been a Managing Director of Oak Hill
Partners, Inc. From May 1990 to March 1992, he was a Managing Director of
Rosecliff, Inc. Since February 1994, Mr. Gruber has also been an officer of
Insurance Partners Advisors, L.P., an investment advisor to Insurance Partners,
L.P. Since October 1992, he has been a Vice President of Keystone, Inc.
(formerly known as Robert M. Bass Group, Inc.). From 1981 to 1990, Mr. Gruber
was a managing director and co-head of High Yield Securities and held various
other positions at Lehman Brothers, Inc. He is also a director of Superior
National Insurance Group, Inc., Grove Worldwide, LLC, MVE HOLDINGS, INC., and
several private companies related to Keystone, Inc., Insurance Partners, L.P.
and Oak Hill Partners, Inc..
Robert B. Henske became a director of the Company in 1997. From
January 1997 to the present, Mr. Henske has been a Vice President of Keystone,
Inc. and a Principal of Arbor Investors, L.L.C., a private investment firm.
From January 1996 to December 1996, he was Executive Vice President and Chief
Financial Officer of American Savings Bank, F.A., a federally-chartered thrift.
From January 1986 to January 1996, he was a partner and held various other
positions with Bain & Company, a management consulting firm.
16
<PAGE> 17
James M. Patell became a director of the Company in 1997. Mr. Patell
received his undergraduate and masters degree from Massachusetts Institute of
Technology and his doctorate from Carnegie Mellon University. He has taught at
Stanford University since 1979 where he currently serves as director of
Stanford Integrated Manufacturing Association and holds the chair of Herbert
Hoover Professor of Public and Private Management. Mr. Patell has served on
the Board of Directors, Center for Quality of Management -- West since 1994,
Stanford-ITESM Strategic Management Program to Mexico (1993-1995) and MBA
Enterprises Corps (1990-1992).
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid
during the 1998 Period for services rendered in all capacities to the Company
and its subsidiaries by certain of the Company's executive officers
(collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Name and Fiscal --------------------- --------------------------- All Other
Principal Position Year Salary Bonus(a) SARs(b) Stock Options(g) Compensation
- ------------------ ----- ------ ------- ------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
David G. Fiore 1998 $ 201,250 $ 61,173 -- 26,386 $ 1,334,521(c)
President, Chief 1997 $ 175,000 $ 166,873 $ 265,600 -- $ 6,626 (c)
Executive Officer 1996 $ 162,500 $ 118,621 $ 531,200 -- $ 15,983(c)
Virgil D. Lowe 1998 $ 124,750 $ 30,587 -- 10,556 $ 201,896(d)
Senior Vice President, 1997 $ 87,750 $ 83,437 $ 53,120 -- $ 7,184(d)
Chief Financial Officer 1996 $ 82,500 $ 59,311 -- -- $ 16,157(d)
William B. Redpath 1998 $ 25,500 $ 103,280 -- 12,500 $ 2,548(e)
Senior Vice President-
Operations
Charles E. Still 1998 $ 86,500 $ 21,967 -- 2,637 $ 83,486(f)
Vice President 1997 $ 71,583 $ 58,962 -- -- $ 7,042(f)
1996 $ 8,500 $ 37,959 -- -- $ 14,017(f)
</TABLE>
- ---------------
(a) Bonuses are based on operating performance. For corporate employees
with Company-wide responsibility, the bonus is based on the operating
income of the entire Company.
(b) Based on a value of $26,560 per unit, which is the value of the Units
upon consummation of the Transaction (as hereinafter defined). See
Note (a) to table entitled "Aggregated SAR and Stock Option Exercises
in the Last Fiscal Year and Fiscal Year-End SAR and Stock Option
Values."
(c) Consists of $2,152 paid by the Company for health and life insurance,
$9,939 in contributions to the Company's 401(k) plans, $1,062,400 for
the exercise of Units and a $250,000 transaction bonus upon the
closing of the Transaction and $10,030 in reimbursements for taxes
attributable to these payments in 1998; $3,126 paid by the Company for
health and life insurance and $3,500 in contributions to the Company's
401(k) plans in 1997; and $2,770 paid by the Company for health and
life insurance, $7,189 in reimbursements for taxes attributable to
such health and life insurance payments and $6,024 in contributions to
the Company's 401(k) plans in 1996.
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<PAGE> 18
(d) Consists of $2,592 paid by the Company for health and life insurance,
$8,270 in contributions to the Company's 401(k) plans, $185,920 for
the exercise of Units upon the closing of the Transaction and $5,114
in reimbursements for taxes attributable to these payments in 1998;
$4,301 paid by the Company for health and life insurance, $250 in
reimbursements for taxes attributable to such health and life
insurance payments and $2,633 in contributions to the Company's 401(k)
plans in 1997; and $8,456 paid by the Company for health and life
insurance, $3,145 in reimbursements for taxes attributable to such
health and life insurance payments and $4,556 in contributions to the
Company's 401(k) plans in 1996.
(e) Consists of $616 paid by the Company for health and life insurance and
$1,932 in contributions to the Company's 401(k) plans in 1998.
(f) Consists of $6,594 paid by the Company for health and life insurance,
$5,212 in contributions to the Company's 401(k) plans, $66,400 for the
exercise of Units upon the closing of the Transaction and $5,280 in
reimbursements for taxes attributable to these payments in 1998;
$4,894 paid by the Company for health and life insurance and $2,148 in
contributions to the Company's 401(k) plans in 1997; and $8,456 paid
by the Company for health and life insurance, $3,145 in reimbursements
for taxes attributable to such health and life insurance payments and
$4,556 in contributions to the Company's 401(k) plans in 1996.
(g) All options granted are for common stock of Holdings.
Stock Option Grants in the Last Fiscal Year
The following table sets forth information relating to stock options
granted during the 1998 Period to the Named Executive Officers.
INDIVIDUAL GRANTS(1)
<TABLE>
<CAPTION>
Number of % of Total
Securities Options Granted Exercise or Grant Date
Underlying to Employees Base Price Expiration Present
Name Options Granted(2) in Fiscal Year ($/Shares) Date Value(3)
- ---- ------------------ --------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
David G. Fiore 26,386 37.87% $20.00 05/09/07 $9.74
Virgil D. Lowe 10,556 15.15% $20.00 05/09/07 $9.74
William B. Redpath 12,500 17.94% $20.00 03/24/08 $8.56
Charles E. Still 2,637 3.79% $20.00 05/09/07 $9.74
</TABLE>
- ---------------
(1) All options granted are for the common stock of Holdings.
(2) Options vest ratably over five years.
(3) Based on the Black-Scholes Option Pricing Model.
18
<PAGE> 19
Aggregated SAR and Stock Option Exercises in the Last Fiscal Year and
Fiscal Year-End SAR and Stock Option Values
The following table provides information relating to the number and
value of stock appreciation rights ("SARs") exercised and stock options held by
the Named Executive Officers at April 3, 1998. All SARs were exercised during
the 1998 Period and no stock options were exercisable as of April 3, 1998.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In The-Money Options
Shares Value Options at Fiscal Year-End at Fiscal Year-End
Acquired on Received --------------------------- -------------------------------
Name Type of Grant Exercise(#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
David G. Fiore SAR(a) -- $ 1,062,400 -- -- -- --
Stock Options -- -- -- 26,386 -- --
Virgil D. Lowe SAR(a) -- $ 185,920 -- -- -- --
Stock Options -- -- -- 10,556 -- --
William B. SAR(a) -- -- -- -- -- --
Redpath Stock Options -- -- -- 12,500 -- --
Charles E. Still SAR(a) -- $ 66,400 -- -- -- --
Stock Options -- -- -- 2,637 -- --
</TABLE>
- ---------------
(a) Certain employees of the Company and Holdings were granted Incentive
Units (the "Units") giving them right to receive incentive
compensation in connection with certain defined events. The
Transaction (See ITEM 13. CERTAIN RELATIONS AND RELATED TRANSACTIONS
- Agreement with George Group) was such an event and triggered the
redemption of the Units. The value of the Units prior to the
Transaction was unascertainable because the Units were not exercisable
until a merger, consolidation, sale, transfer, or disposition of 50%
or more of Holding's outstanding common stock or assets, and the value
of the Units was based upon the consideration received in such
transaction. However, upon the close of the Transaction on May 9,
1997 the value of the Units for Messrs. Fiore, Lowe and Still was
$1,062,400, $185,900 and $66,400, respectively.
Bonus Plan and Other Benefit Programs
The Company maintains a bonus plan providing for annual bonus awards
to executives and certain other key general managers. Such bonus amounts are
based on meeting Company-wide and divisional performance goals established by
the Company's Board of Directors. These employees also participate in employee
benefit programs including health insurance, group life insurance and a savings
and supplement retirement plan (401(k) plan) on the same basis as other
employees of the Company.
Nonqualified Stock Option Plan
Holdings adopted a Nonqualified Stock Option Plan (the "Plan") in
order to provide incentives to certain officers and employees of Holdings and
the Company by granting them options to purchase common stock of Holdings. The
Plan is administered by the Board of Directors of Holdings, which has
19
<PAGE> 20
broad authority in administering and interpreting the Plan. Options granted
under the Plan ("Options") are nonqualified stock options which do not qualify
under Section 422A of the Internal Revenue Code (the "Code"). Unless the award
granting an Option provides otherwise, upon the termination of an employee for
other than Cause (as defined in the Plan), vested options may be exercised at
any time until three months after the date of termination (one year if due to
death or disability of the employee). In the event the employee is terminated
for Cause, all Options terminate immediately. In addition, for a period of one
year after an employee's termination of employment for any reason, Holdings has
the option to purchase such Options at a price equal to the difference between
the fair market value of the shares of common stock for which such Options are
exercisable by such employee and the exercise price of such Options.
The Options vest upon such terms as the Board of Directors determines,
provided that in the event of a change of control of Holdings, Options which
are not exercisable at such time become immediately exercisable. The exercise
price for each Option is the fair market value of the common stock of Holdings
on the date of grant. Holdings has granted options to purchase 69,663 shares
of its common stock to certain members of the Company's senior management.
Holdings may issue options to purchase an additional 6,591 of its shares of
common stock under the Plan.
Compensation of Directors
The Directors of the Company are not compensated for their services as
such nor for their participation on any Board Committees.
Employment Agreements with Named Executive Officers
The Company currently has employment agreements with David G. Fiore
and Virgil D. Lowe. Mr. Fiore's agreement is for a three-year term; provided,
however, that each year after the end of the first year of the agreement, the
term will be extended for an additional year unless either the Company or Mr.
Fiore gives notice of its or his intention to terminate the agreement as of the
then effective termination date. Mr. Fiore is to receive an annual base salary
of at least $175,000 and standard benefits available to other executives of the
Company. If his employment is terminated for Cause, Mr. Fiore is entitled to
receive his salary and benefits through the date of termination. In the event
of a termination other than for Cause, Mr. Fiore is entitled to his full base
salary during the remainder of the term plus the bonus, if any, earned by, but
not paid to, Mr. Fiore prior to the termination date. The Company must also
maintain in effect for the remainder of the term all employee benefit plans
relating to hospitalization, medical, life insurance and disability programs in
which Mr. Fiore was enrolled immediately prior to termination. Mr. Fiore is
also subject to a non- competition agreement during the term of the agreement
and for a period of one year after termination.
Under Mr. Lowe's agreement, he is to receive an annual salary of at
least $77,500 and standard benefits available to other executives of the
Company. Upon termination of his employment by the Company for Cause, Mr. Lowe
is to receive his salary and benefits through the date of termination. In the
event of a termination other than for Cause, Mr. Lowe is entitled to 12 months
of base pay, plus a pro rata share of the bonus, if any, which he otherwise
would have been entitled to for the then current fiscal year. The Company must
also maintain in effect for a period of 12 months after termination all
employee benefit plans relating to hospitalization, medical, life insurance and
disability programs in which Mr. Lowe was enrolled immediately prior to
termination.
20
<PAGE> 21
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors formed a Compensation Committee
during fiscal year 1998, which consists of Messrs. Bernstein, George and
Henske. None of the members of the Compensation Committee are officers or
employees of the Company or any of its subsidiaries or former officers or
employees of the Company or any of its subsidiaries. Mr. George is Chairman of
the Board of George Group. (See ITEM 13, CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS for further information about the relationship of the Company and
George Group.)
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is a wholly owned subsidiary of Holdings. Holdings'
address is 3010 LBJ Freeway, Suite 400, Dallas, Texas 75234. The following
table sets forth certain information regarding the beneficial ownership of the
shares of common stock of Holdings by each person who owns more than five
percent (5%) of the outstanding shares of common stock of Holdings and by the
directors and executive officers of the Company, individually and as a group.
<TABLE>
<CAPTION>
Number of Percentage
Five Percent Stockholders Shares of Shares
- ------------------------- ------------ -----------
<S> <C> <C>
Reliant Partners, L.P.(a) 478,002 47.01%
201 Main Street, Suite 3100
Fort Worth, Texas 76102
Reliant Partners II, L.P.(b) 478,000 47.01%
201 Main Street, Suite 3100
Fort Worth, Texas 76102
Officers and Directors
- ----------------------
David G. Fiore(c) 26,776 2.61%
Virgil D. Lowe(c) 12,266 1.19%
William B. Redpath(c) 10,153 0.99%
Charles E. Still(c) 3,028 0.29%
Bradford E. Bernstein -- --
Michael L. George -- --
Steven B. Gruber -- --
Robert B. Henske -- --
James M. Patell -- --
All executive officers and directors
as a group (9 persons) 52,223 5.08%
</TABLE>
21
<PAGE> 22
- ---------------
(a) The general partner of Reliant Partners, L.P. is Group 31, Inc.
("Group 31"). J. Taylor Crandall is the sole stockholder of Group 31.
Accordingly, Mr. Crandall may be deemed to be the beneficial owner of
these shares. Mr. Crandall disclaims beneficial ownership of these
shares.
(b) The general partner of Reliant Partners II, L.P. is FW Group Genpar,
Inc. ("Group Genpar"). David G. Brown is the sole stockholder of
Group Genpar. Accordingly, Mr. Brown may be deemed to be the
beneficial owner of these shares. Mr. Brown disclaims beneficial
ownership of these shares.
(c) Includes shares which may be acquired upon the exercise of options
exercisable within 60 days as of the date hereof by Messrs. Fiore,
Lowe and Still for 5,277, 2,113 and 527, respectively.
22
<PAGE> 23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Agreements with George Group
On May 9, 1997, pursuant to a Stock Purchase Agreement, as amended
(together with the related agreements, the "Stock Purchase Agreement"), Reliant
Partners, Reliant Partners II and certain senior executives of the Company
(collectively, the "Purchasers") acquired all the outstanding common stock of
Holdings from Wingate Partners, L.P. and certain other selling stockholders
(collectively, the "Selling Stockholders"). The aggregate consideration paid
for such acquisition was $90.2 million consisting of $30.1 million in cash and
$9.8 million of seller notes to the selling shareholders (total purchase
price), repayment of certain existing indebtedness of the Company and the
redemption of preferred stock of Holdings (the "Preferred Redemption"). The
acquisition by Purchasers of all the outstanding common stock of Holdings, the
Preferred Redemption and the repayment of certain existing indebtedness of the
Company are referred to hereinafter collectively as the "Transaction."
Reliant Partners and Reliant Partners II were formed by, among others,
employees of George Group for the purpose of effecting the Transaction. The
Company paid George Group an advisory fee of approximately $1.0 million at the
closing of the Transaction as compensation for its services as an advisor in
connection with the Transaction.
The Company has entered into a consulting agreement with George Group
whereby George Group will provide consulting services to the Company, including
services with respect to strategic planning, operations and financial matters.
For such services, George Group has been paid cash fees in an amount of $0.6
million and reimbursed for its out-of-pocket expenses of $0.5 million in the
1998 Period. In addition, for such services to be performed in the future for
the Company (including Care-Free), George Group will be paid cash fees
estimated to be $2.2 million and will be reimbursed for out-of- pocket
expenses. George Group has advised the Company that it estimates its
engagement will be completed within 18 months from the date of the purchase of
Care-Free. In addition, upon the Company's meeting certain performance targets
agreed upon between Reliant Partners, Reliant Partners II and George Group,
certain employees of George Group will receive an increased limited partnership
interest in each of Reliant Partners and Reliant Partners II. The Company has
agreed to indemnify George Group, its owners, employees and agents from
liabilities and claims relating to or arising from the engagement of George
Group, other than those resulting from negligence or willful misconduct of
George Group. Michael L. George, a director of the Company, is the Chairman
of the Board of George Group.
Change of Control Arrangement with Mr. Fiore
Upon consummation of the Transaction, Mr. Fiore, pursuant to a
Transaction Incentive Agreement dated as of January 1, 1997 with the Company,
received a transaction bonus of $250,000 in cash and will also receive $200,000
payable on a deferred basis over five years.
Payments to Wingate Partners, L.P.
In fiscal years 1996 and 1997, the Company paid $350,000 to Wingate
Partners, L.P. for management services. Prior to the Transaction, Wingate
Partners, L.P. was the Company's controlling
23
<PAGE> 24
stockholder. The arrangement with Wingate Partners, L.P. was terminated upon
consummation of the Transaction.
Stockholders Agreement and Registration Rights Agreement
In connection with the Transaction, Holdings entered into an agreement
(the "Stockholders Agreement") with Reliant Partners, Reliant Partners II, and
the employees of the Company who own shares of common stock of Holdings (the
"Management Investors"). Holdings also entered into a Registration Rights
Agreement (the "Registration Rights Agreement") with the Management Investors.
The following is a summary description of the principal terms of the
Stockholders Agreement and the Registration Rights Agreement, and is subject to
and qualified in its entirety by reference to the Stockholders Agreement and
Registration Rights Agreement.
General Prohibition on Transfers. The Stockholders Agreement
prohibits transfer of common stock of Holdings, except for transfers in
compliance with the Stockholders Agreement.
Right of First Refusal. Sales of shares of common stock of Holdings
by a Management Investor are subject to a right of first refusal in favor of
Holdings, Reliant Partners, Reliant Partners II, and the other Management
Investors.
Tag-Along and Drag-Along Rights. If Reliant Partners and Reliant
Partners II propose to transfer common stock of Holdings representing more than
50% of the aggregate number of shares of common stock of Holdings owned by
them, other than in a registered public offering or other permitted
transaction, the Management Investors will, under certain circumstances, have
the option to sell to the same offeree their common stock on the same terms on
a pro rata basis. If Reliant Partners and Reliant Partners II propose to sell
or otherwise transfer for value to an unaffiliated third party 85% or more of
the common stock of Holdings owned by them, they will have the right under
certain circumstances to require the Management Investors to sell or transfer a
pro rata portion of their common stock to such party on the same terms.
Management Repurchase. All shares of common stock of Holdings held by
a Management Investor are subject to repurchase by Holdings, Reliant Partners
and Reliant Partners II for a specified period of time following the
termination of employment of such Management Investor for any reason.
Registration Rights. The Management Investors are each entitled to an
unlimited number of "piggyback" registration rights at any time following any
initial public offering by Holdings of its common stock. In addition, at such
time as Holdings becomes eligible to register securities on Form S-3 under the
Securities Act, Management Investors holding at least 50% of the shares of
common stock then held by all Management Investors will be entitled to make one
demand to require Holdings to register under the Securities Act their shares of
common stock of Holdings. The exercise of the demand and piggyback rights are
subject to other limitations and conditions that are customary in registration
rights agreements.
24
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are included in this report.
(1) FINANCIAL STATEMENTS:
The consolidated financial statements are listed in
the accompanying Index to Financial Statements on
page F-1 of this report.
(2) FINANCIAL STATEMENT SCHEDULES:
Financial Statement Schedule II: Valuation and
Qualifying Accounts on page S-1 of this report.
(3) EXHIBITS:
The exhibits filed with or incorporated by reference
in this report are listed in the Exhibit Index
beginning on page E-1 of this report.
(b) REPORTS ON FORM 8-K
A Current Report on Form 8-K was filed on February 5, 1998,
and amended on April 9, 1998, to report that the Company
purchased all of the capital stock of Care-Free Window Group.
25
<PAGE> 26
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
As of April 3, 1998, May 9, 1997, and March 28,1997 and for the forty-seven
weeks ended April 3, 1998, six weeks ended May 9, 1997, year ended March 28,
1997 and year ended March 29, 1996
<TABLE>
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Shareholder's Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9 to F-23
</TABLE>
F-1
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Reliant Building Products, Inc.
We have audited the accompanying consolidated balance sheet of Reliant Building
Products, Inc., (a wholly-owned subsidiary of RBPI Holding Corporation) and
subsidiaries (Successor) as of April 3, 1998, and the related consolidated
statements of operations, shareholder's equity, and cash flows for the period
from May 9, 1997 to April 3, 1998 (Successor period). In connection with our
audit of the Successor consolidated financial statements, we have also audited
the financial statement schedule for the Successor period listed at the index
at Item 14(a)(2). These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the aforementioned Successor consolidated financial statements
present fairly, in all material respects, the financial position of Reliant
Building Products, Inc. and subsidiaries as of April 3, 1998, and the results
of their operations and their cash flows for the Successor period, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic Successor consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
As discussed in note 2 to the consolidated financial statements, effective May
9, 1997, the former shareholders of RBPI Holding Corporation sold all of the
common stock of RBPI Holding Corporation in a business combination accounted
for as a purchase. As a result of the acquisition, the consolidated financial
information of Reliant Building Products, Inc. for the period after the
acquisition is presented on a different cost basis than that for the periods
before the acquisition and, therefore, is not comparable.
KPMG PEAT MARWICK LLP
Dallas, Texas
June 19, 1998
F-2
<PAGE> 28
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Reliant Building Products, Inc.
We have audited the accompanying consolidated balance sheets of Reliant
Building Products, Inc. (formerly Redman Building Products, Inc.) and
subsidiaries as of May 9, 1997 and March 28, 1997, and the related consolidated
statements of operations, shareholder's equity, and cash flows for the six week
period ended May 9, 1997 and each of the two years in the period ended March
28, 1997. Our audits also included the financial statement schedule listed in
the Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Reliant Building
Products, Inc. and subsidiaries at May 9, 1997 and March 28, 1997, and the
consolidated results of their operations and cash flows for the six week period
ended May 9, 1997 and each of the two years in the period ended March 28, 1997,
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Dallas, Texas
September 19, 1997
F-3
<PAGE> 29
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands of dollars, except share data)
<TABLE>
<CAPTION>
Successor Predecessor
--------- -----------------------
April 3, May 9, March 28,
Assets 1998 1997 1997
------ --------- -------- --------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 737 4,458 182
Accounts receivable, net 28,638 19,038 17,732
Inventories:
Raw materials 15,767 10,431 9,883
Finished products and work-in-process 6,162 5,388 5,107
Federal income tax receivable 4,993 1,664 517
Deferred tax assets 3,889 1,504 1,434
Prepaid expenses and other current assets 903 814 491
--------- -------- --------
Total current assets 61,089 43,297 35,346
Property, plant, and equipment at cost:
Land and buildings 20,979 17,175 17,020
Machinery and equipment 40,014 33,085 33,086
--------- -------- --------
60,993 50,260 50,106
Less accumulated depreciation and amortization (5,629) (26,519) (26,054)
--------- -------- --------
55,364 23,741 24,052
Intangible assets, net 137,036 9,874 9,943
Debt issuance costs, net 5,465 30 1,177
Other assets 490 2,598 2,559
--------- -------- --------
Total assets $ 259,444 79,540 73,077
========= ======== ========
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 30
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands of dollars, except share data)
<TABLE>
<CAPTION>
Successor Predecessor
--------- -----------------------
April 3, May 9, March 28,
Liabilities and Shareholder's Equity 1998 1997 1997
------------------------------------ --------- -------- --------
<S> <C> <C> <C>
Current liabilities:
Accounts payable $ 14,654 8,569 7,503
Accrued expenses 17,250 9,253 6,703
Current portion of long-term debt 1,824 3,644 3,464
Current portion of subordinated debt -- 375 375
--------- -------- --------
Total current liabilities 33,728 21,841 18,045
Long-term debt, less current portion 113,543 36,217 34,108
Deferred income taxes 8,453 3,858 3,906
Other liabilities 3,709 335 334
Subordinated debt, less current portion 70,000 5,322 5,380
Redeemable Preferred Securities:
Redeemable preferred stock -- 6,187 6,119
Redeemable common stock warrants -- 1,082 1,272
--------- -------- --------
Total Redeemable Preferred Securities -- 7,269 7,391
Commitments and Contingencies (notes 7 and 14)
Shareholder's equity:
Common stock, $1.00 par value,
Authorized 10,000 shares, issued
and outstanding 1,000 1 1 1
Preferred stock of Holdings, stated at amount
contributed 4,700 -- --
Additional paid-in capital 30,094 9,783 6,670
Accumulated deficit (4,774) (5,086) (2,758)
--------- -------- --------
Total shareholder's equity 30,011 4,698 3,913
--------- -------- --------
Total liabilities and shareholder's equity $ 259,444 79,540 73,077
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 31
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands of dollars)
<TABLE>
<CAPTION>
Successor Predecessor
----------- --------------------------------------
Forty-seven Six weeks Year Year
weeks ended ended ended ended
April 3, May 9, March 28, March 29,
1998 1997 1997 1996
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $174,769 20,095 174,401 173,271
Cost of products sold 134,783 14,852 131,474 133,337
-------- -------- -------- --------
Gross profit 39,986 5,243 42,927 39,934
Selling, general and administrative 35,308 3,765 32,724 31,498
Restructuring charges 1,044 -- -- --
-------- -------- -------- --------
Income from operations 3,634 1,478 10,203 8,436
Interest expense 9,494 587 5,391 6,145
Interest income 330 -- 10 20
Other expenses, net -- 3,350 577 753
-------- -------- -------- --------
Income (loss) before income taxes and
extraordinary loss (5,530) (2,459) 4,245 1,558
Income tax expense (benefit) (1,167) (846) 1,892 753
-------- -------- -------- --------
Income (loss) before extraordinary loss (4,363) (1,613) 2,353 805
Extraordinary loss, net of tax benefits of $212
in 1998 and $369 in 1997 411 715 -- --
-------- -------- -------- --------
Net income (loss) $ (4,774) (2,328) 2,353 805
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 32
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
Consolidated Statements of Shareholder's Equity
(In thousands of dollars)
<TABLE>
<CAPTION>
Additional
Common Common Preferred Paid-In Accumulated
Shares Stock Stock Capital Deficit Total
--------- --------- --------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1995 (Predecessor) 1,000 $ 1 -- 7,655 (5,916) 1,740
Net income -- -- -- 805 805
Accrual of redeemable preferred stock
dividend -- -- (400) -- (400)
Other -- -- (192) -- (192)
--------- --------- --------- --------- ---------- ---------
Balance at March 29, 1996 (Predecessor) 1,000 1 -- 7,063 (5,111) 1,953
Net income -- -- -- 2,353 2,353
Accrual of redeemable preferred stock
dividend -- -- (371) -- (371)
Other -- -- (22) -- (22)
--------- --------- --------- -------- ---------- --------
Balance at March 28, 1997 (Predecessor) 1,000 1 6,670 (2,758) 3,913
Net loss -- -- -- (2,328) (2,328)
Accrual of redeemable preferred stock
dividend -- -- (68) -- (68)
Incentive stock units liability paid
by shareholder -- -- 3,181 -- 3,181
--------- --------- --------- -------- ---------- --------
Balance at May 9, 1997 (Predecessor) 1,000 1 -- 9,783 (5,086) 4,698
Establishment of Successor basis -- -- -- 32,525 5,086 37,611
Dividends paid to Holdings -- -- (12,559) -- (12,559)
Net loss -- -- -- (4,774) (4,774)
Preferred Stock Issuance contributed
by Holdings -- 4,700 -- -- 4,700
Capital Contributions from Holdings -- -- 335 -- 335
--------- --------- --------- -------- ---------- --------
Balance at April 3, 1998 (Successor) 1,000 $ 1 4,700 30,094 (4,774) 30,011
========= ========= ========= ======== ========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 33
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands of dollars)
<TABLE>
<CAPTION>
Successor Predecessor
----------- --------------------------------------
Forty-seven Six weeks Year Year
weeks ended ended ended ended
April 3, May 9, March 28, March 29,
1998 1997 1997 1996
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,774) (2,328) 2,353 805
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Extraordinary loss 411 715 -- --
Depreciation and amortization 8,502 535 4,866 4,245
Noncash interest expense 604 63 666 678
Deferred income tax benefit (1,333) (118) (176) (480)
Provision for doubtful accounts 293 130 331 1,345
Compensation expense related to incentive
stock units -- 3,181 -- --
Other (179) (229) 224 (257)
Changes in operating assets and liabilities,
exclusive of acquisition accounting:
Accounts and notes receivable 384 (1,436) 627 (2,529)
Inventories 311 (829) (206) 4,560
Prepaid expenses and other current assets (2,573) (1,540) 49 (701)
Accounts payable and accrued expenses 494 4,305 (4,803) 697
Other assets 2,406
Other (2) (1) 469 (15)
--------- -------- -------- --------
Net cash provided by operating
activities 4,544 2,448 4,400 8,348
Cash flows from investing activities:
Purchase of property, plant, and equipment (3,624) (198) (3,516) (5,631)
Proceeds from sales of property, plant,
and equipment 76 43 282 93
Proceeds from sales of warehouse operations -- -- -- 1,797
Acquisitions, net of cash acquired (122,098) -- -- (5,544)
-------- -------- -------- --------
Net cash used in investing
activities (125,646) (155) (3,234) (9,285)
Cash flows from financing activities:
Net proceeds (payments) from Revolving loan 8,300 2,631 625 (2,926)
Proceeds from subordinated debt 70,000 -- -- --
Proceeds from long-term debt 105,000 -- 2,600 4,197
Principal payments on long-term debt (45,545) (648) (4,685) (175)
Redemption of preferred stock (6,187) -- (5,386) --
Payment of debt issue costs (6,663) -- (72) (90)
Preferred stock capital contribution 4,700 -- 5,969 --
Capital contribution from Holdings 335 -- -- --
Payment of dividends to Holdings (12,559) -- -- --
Payment of preferred stock dividend -- -- (168) --
-------- -------- -------- --------
Net cash provided by (used in)
financing activities 117,381 1,983 (1,117) 1,006
-------- -------- -------- --------
Increase (decrease) in cash and
cash equivalents (3,721) 4,276 49 69
Cash and cash equivalents at beginning
of period 4,458 182 133 64
-------- -------- -------- --------
Cash and cash equivalents at end of period $ 737 4,458 182 133
======== ======== ======== ========
Supplementary Information:
Cash paid for interest $ 4,524 480 5,243 5,767
======== ======== ======== ========
Cash paid for income taxes $ 2,319 -- 1,470 1,594
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 34
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars)
(1) Summary of Significant Accounting Policies
(a) 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.
(b) Basis of Presentation and Consolidation
The Company is a wholly-owned subsidiary of RBPI Holding
Corporation (Holdings). On May 9, 1997 the former
shareholders of Holdings sold all of the common stock of
Holdings (the Transaction) as described further in note 2. As
a result of the Transaction, a new basis of accounting was
established on that date (Successor) and therefore the periods
before that date are not comparable to the Successor period.
All amounts as of and for the periods ended May 9, 1997, March
28, 1997 and March 29, 1996 represent the Predecessor basis of
accounting. All significant intercompany accounts and
transactions have been eliminated in consolidation. The
Company utilizes a 52- or 53-week accounting period which ends
on the Friday closest to March 31. Each of the years ended
March 28, 1997 and March 29, 1996 included 52-weeks.
(c) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and
liabilities to prepare these consolidated financial statements
in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(d) Financial Instruments
The carrying amount of cash and cash equivalents, accounts
receivable and accounts payable approximate fair value due to
the short maturity of these instruments. The fair value of
long-term debt is presented at values which approximate fair
values at April 3, 1998 due to the instruments bearing
interest rates at market rates. Subordinated debt with a
carrying value of $70,000, had a fair value of $72,600 at
April 3, 1998.
F-9
<PAGE> 35
(e) Accounts Receivable
Credit is extended to customers in the normal course of
business under normal trade terms. The Company has
established an allowance for doubtful accounts of $2,335,
$1,340, and $1,309, at April 3, 1998, May 9, 1997 and March
28, 1997, respectively, based upon the expected collectibility
of its receivables. The Company wrote-off accounts
receivable, net of recoveries, of $979, $66, $542 and $361,
for the forty-seven week period ended April 3, 1998, six-week
period ended May 9, 1997 and for the years ended March 28,
1997 and March 29, 1996, respectively.
(f) Long-Lived Assets
Effective March 30, 1996, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." This statement requires
the Company to review long-lived assets and certain
identifiable intangibles for impairment whenever events or
changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying
amount of the asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value
less costs to sell. The adoption of this statement had no
material effect on the financial condition or results of
operations of the Company for the year ended March 28, 1997
and all subsequent periods reported on.
(g) Inventories
Inventories are valued at the lower of cost or market. Cost
is determined on the last-in, first-out method, which is
essentially the same as using the first-in, first-out method.
(h) Depreciation and Amortization
Buildings, leasehold improvements, and machinery and equipment
are depreciated using the straight-line method over the
estimated useful lives of the assets (buildings - 10 to 20
years; leasehold improvements - 10 years; machinery and
equipment - 2 to 10 years). Capital leases are amortized over
the shorter of the useful life of the leased asset or the
lease term. Capital lease amortization is included in
depreciation and amortization expenses.
(i) Intangible Assets
Intangible assets, consisting of goodwill and other intangible
assets, are stated at cost. Goodwill of $138,198 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
F-10
<PAGE> 36
cash flows. At April 3, 1998, no such impairment existed.
Accumulated amortization of intangible assets totaled $1,558
at April 3, 1998.
(j) Cash Equivalents
The Company considers all short-term highly liquid
instruments, with an original maturity date of three months or
less, to be cash equivalents.
(k) Revenue Recognition
Revenue is recognized upon customer receipt. Estimated
returns and allowances are not significant.
(l) Advertising Costs
Advertising costs are expensed as incurred. Advertising costs
were $1,188, $82, $863 and $627 for the forty-seven weeks
ended April 3, 1998, six weeks ended May 9, 1997 and for the
years ended March 28, 1997 and March 29, 1996, respectively.
(m) Product Warranty
The Company's products are sold under warranty against defects
in material and workmanship for a period ranging from one to
ten years. An allowance for estimated future warranty is
recorded in the period products are sold.
(n) Income Taxes
The Company accounts for income taxes using the asset and
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax
bases and operating loss carryforwards. Deferred tax assets
and liabilities are measured using enacted rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date. The Company's operations are included in
the consolidated tax return of Holdings. Income taxes have
been calculated as if the Company filed a tax return on an
individual basis.
(o) Stock-Based Compensation
The Company has adopted the disclosure provisions of SFAS No.
123, Accounting for Stock-Based Compensation, which requires
pro forma disclosure of net income as if the SFAS No. 123 fair
value method had been applied. The Company continues to apply
the provisions of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, for the
preparation of its basic consolidated financial statements.
(p) Reclassifications
Certain amounts have been reclassified to conform to the 1998
presentation.
F-11
<PAGE> 37
(2) Stock Purchase
On May 9, 1997, Wingate Partners, L.P. and certain selling
stockholders sold the common stock of Holdings to Reliant Partners.
The selling stockholders received $30,100 in cash and $9,800 of seller
notes. In addition, the $6,200 of outstanding preferred stock was
redeemed. In connection with the Transaction, the Company recognized
$3,200 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, $44,300 of existing
long-term debt was repaid. The Company also recognized an
extraordinary charge of $715 which is net of a tax benefit of
approximately $369 relating to the extinguishment of this debt for the
six weeks ended May 9, 1997.
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 consolidated
financial statements for the period 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 acquired and liabilities assumed of the Company
based upon estimates of their fair values, with the remainder
allocated to goodwill as follows:
<TABLE>
<S> <C>
Total purchase price $ 39,900
Transaction costs 2,158
--------
Total purchase price 42,058
Less:
Net book value of assets acquired (4,698)
Seller transaction costs (250)
Predecessor goodwill 9,492
--------
Excess of cost over net book
value of assets acquired $ 46,602
========
Adjustments to record assets acquired
and liabilities assumed at fair value:
Inventory $ 209
Property, plant and equipment 6,034
Other assets 138
Retirement of redeemable common
stock warrants 1,082
Other liabilities, primarily
postretirement benefits (1,991)
Deferred tax liabilities (477)
Establishment of reserves for
closure of Houston facility concurrent
with the Transaction (3,151)
Goodwill 44,758
--------
$ 46,602
========
</TABLE>
F-12
<PAGE> 38
(3) Acquisition
On January 28, 1998, the Company purchased all of the capital stock of
Care-Free Window Group ("Care-Free"), a privately held vinyl window
manufacturing company, for $120,900 (the Acquisition). The Company
financed the Acquisition through $5,000 of additional equity from its
shareholder, $7,400 in cash, and $111,900 from a new bank credit
facility.
In connection with the Acquisition, the Company replaced its $25,000
credit facility with the new credit facility comprised of a $40,000,
six-year senior secured credit facility (Revolving loan), a $40,000,
six-year secured term loan ("Term loan A"), and a $65,000, six-year
secured term loan ("Term loan B").
The Acquisition was accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations."
The operations of Care-free have been included in the accompanying
consolidated financial statements from the acquisition date. The
purchase price was allocated first to tangible and identifiable
intangible assets acquired and liabilities assumed based upon
preliminary estimates of their fair values, with the remainder
allocated to goodwill as follows:
Calculation of excess of cost over book value:
<TABLE>
<S> <C>
Purchase of CFA $ 120,918
Acquisition costs 584
---------
Total purchase price $ 121,502
=========
</TABLE>
The purchase price was allocated as follows:
<TABLE>
<S> <C>
Current assets $ 20,116
Property, plant and equipment 27,941
Intangible assets 93,440
Current liabilities (11,759)
Reserve for closure of Care-Free facilities (1,453)
Debt assumed in Acquisition (1,953)
Deferred taxes (4,830)
---------
$ 121,502
=========
</TABLE>
(4) Proforma Financial Information (Unaudited)
The following unaudited pro forma financial information summarizes the
combined results of operations of the Company as if the Transaction
(note 2) and Acquisition (note 3) had occurred as of March 30, 1996.
The pro forma financial information does not necessarily reflect the
results of operations that would have occurred had the Transaction and
Acquisition occurred on March 30, 1996, and does not purport to
represent what the Company's consolidated results of operations might
be for any future period.
F-13
<PAGE> 39
<TABLE>
<CAPTION>
Year Ended
---------------------------
April 3, March 28,
1998 1997
--------- ------------
(Unaudited)
<S> <C> <C>
Net sales 302,804 291,052
Income (loss) before income taxes (3,929) 1,414
Income (loss) before extraordinary loss (3,050) 431
Net Income (loss) (4,176) 431
</TABLE>
(5) Long-Term Debt and Subordinated Debt
(a) Long-Term Debt
<TABLE>
<CAPTION>
Successor Predecessor
--------------- -----------------------------------
April 3, 1998 May 9, 1997 March 28, 1997
------------- ----------- --------------
<S> <C> <C> <C>
New credit facility:
Term loan A $ 40,000 -- --
Term loan B 65,000 -- --
Revolving loan 8,300 -- --
Old credit facility:
Senior term loan -- 16,827 17,327
Capital expenditure loan -- 4,600 4,600
Revolving loan -- 17,241 14,610
Note payable -- 749 749
Other notes payable 2,067 444 286
---------- ---------- ----------
115,367 39,861 37,572
Less current portion (1,824) (3,644) (3,464)
---------- ---------- ----------
$ 113,543 36,217 34,108
========== ========== ==========
</TABLE>
The new credit facility consisting of the Term loan A, Term loan B and
a Revolving loan are collateralized by all the assets of the Company.
The new credit facility is subject to covenants that, among other
things, impose limitations on capital expenditures and investments,
restrict certain payments and distributions and require the Company to
maintain certain financial ratios. At April 3, 1998 the Company had
complied with all covenants under its new credit facility.
Term loan A and Term loan B have interest payable in quarterly
installments at Eurodollar rates plus 2.25% and 2.50%, respectively.
The interest rates at April 3, 1998 approximated 7.88% and 8.13% for
Term loan A and Term loan B, respectively.
As part of its new credit facility, the Company is required to
effectively fix its interest rate cost within a defined interest rate
range on a minimum of $55,000 of its total outstanding Term loans. As
a result of this requirement the Company entered into an arrangement
with its primary lender in which the interest rate range is 7.50% to
8.25% (Term loan A) and 7.75% to 8.50% (Term loan B) on $55,000 of its
total outstanding Term loans. Interest rate changes in the Eurodollar
which cause the interest cost to be in excess of the cap of 8.25% and
8.50%, respectively, are reimbursed
F-14
<PAGE> 40
to the Company by the bank, while interest rate cost below the 7.50%
and 7.75%, respectively, are paid to the bank by the Company,
effectively locking the Company's minimum and maximum interest rates
on $55,000 of its outstanding Term loans at the ranges discussed
above. The Company is subject to credit risk, which is inherent in
all swaps, and has minimized such risk through the use of its primary
lender. There are no fees associated with the arrangement and through
April 3, 1998 interest rates have not fallen outside of the ranges.
At April 3, 1998, the Company had additional borrowing availability of
$21,000 under its Revolving loan, which is limited to 85% of the
eligible accounts receivable plus 50% of eligible inventory. The
Revolving loan bears interest based on the prime rate plus 1.25% or
the Eurodollar rate plus 2.5%, at the Company's option, (7.88% at
April 3, 1998) and is due December 2003. The Company must pay an
annual commitment fee of 1/2 of 1% of the unused portion of the
Revolving loan payment quarterly. In addition, at April 3, 1998, the
Company had outstanding letters of credit totaling $2,600.
(b) Subordinated Debt
<TABLE>
<CAPTION>
Successor Predecessor
-------------- -----------------------------------
April 3, 1998 May 9,1997 March 28, 1997
------------- ---------- --------------
<S> <C> <C> <C>
Subordinated notes $ 70,000 -- --
Subordinated notes payable to
related parties -- 4,600 4,600
Promissory note payable to
Redman Industries, Inc. -- 1,097 1,155
---------- -------- ---------
$ 70,000 5,697 5,755
========== ======== =========
</TABLE>
In connection with the Transaction, certain existing indebtedness of
the Company was repaid subsequent to May 9, 1997, including amounts
outstanding under the old credit facility, subordinated note payables,
and promissory note payable. The repayment was financed through the
offering of $70,000, 10 7/8% senior subordinated notes maturing May
2004. The 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.
The notes are subject to covenants that among other things, impose
limitations on capital expenditures, investments and restrict certain
payments and distributions. At April 3, 1998, the Company had
complied with all covenants under its senior subordinated notes.
F-15
<PAGE> 41
(c) Guarantor Subsidiaries
The condensed summarized information of these guarantor subsidiaries
is as follows. 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>
Successor Predecessor
------------- ----------------------------
April 3, 1998 May 9,1997 March 28, 1997
------------- ---------- --------------
<S> <C> <C> <C>
Cash and cash equivalents $ -- 295 44
Accounts receivable, net 17,160 7,470 7,121
Raw materials 7,921 3,297 3,402
Finished product and work in process 2,693 2,260 2,200
Other current assets 5,862 1,525 3,169
Property, plant and equipment, net 32,717 3,850 3,937
Intangible assets, net 105,290 1,095 1,101
---------- ---------- ----------
Total assets $ 171,643 19,792 20,974
========== ========== ==========
Accounts payable 7,452 1,388 1,278
Accrued expenses 5,543 1,205 971
Current portion of long-term debt 887 440 410
Long-term debt 1,180 550 566
Other liabilities 4,678 420 421
Intercompany payable 32,327 26,240 26,567
Net equity 119,576 (10,451) (9,239)
---------- ---------- ----------
Total liabilities and net equity $ 171,643 19,792 20,974
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Successor Predecessor
------------- ---------------------------------------
Forty-seven Six weeks Year Year
weeks ended ended ended ended
April 3, May 9, March 28, March 29,
1998 1997 1997 1996
------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net Sales $ 74,066 7,358 61,913 58,700
Cost of products sold 61,674 6,149 53,809 49,986
Selling, general, and administrative 17,667 2,916 13,889 13,823
Interest expense 1,315 125 1,413 1,372
Income tax benefit (2,201) (620) (2,438) (2,276)
---------- ---------- --------- --------
Net loss $ (4,389) (1,212) (4,760) (4,205)
========== ========== ========= ========
Net cash provided by (used) in operating
activities $ (4,243) 609 (7,917) (2,175)
Net cash used in investing activities (1,163) (11) (922) (5,042)
Net cash provided by (used in) financing
activities 5,111 (347) 8,776 7,413
---------- ---------- --------- --------
Increase (decrease) in cash and cash
equivalents $ (295) 251 (63) 196
========== ========== ========= ========
</TABLE>
(d) Debt Issuance Costs
Debt issuance costs relate to costs incurred in the placement
of the Company's long-term debt and Subordinated debt and are
being amortized on a straight-line basis which approximates
the effective interest method, over the terms of the
respective loans (six to seven years). Amortization expense
for the forty-seven weeks ended April 3, 1998 was $604 and has
been included as interest expense in the accompanying
consolidated financial
F-16
<PAGE> 42
statements. As part of the Acquisition, the Company replaced
its existing credit facility and recognized an extraordinary
charge for debt issuance costs of $411, which is net of a tax
benefit of $212.
The annual maturities of long-term debt at April 3, 1998 are:
<TABLE>
<CAPTION>
Long-Term Debt Subordinated Debt Total
-------------- ----------------- -----
<S> <C> <C> <C>
1999 $ 1,824 -- 1,824
2000 5,490 -- 5,490
2001 9,690 -- 9,690
2002 10,750 -- 10,750
2003 10,750 -- 10,750
Thereafter 76,863 70,000 146,863
----------- ------ -------
$ 115,367 70,000 185,367
=========== ====== =======
</TABLE>
(6) Preferred Stock and Common Stock Warrants of Holdings
(a) Preferred Stock - Successor Period
On January 28, 1998, Holdings issued 940,084 shares (1,000,000 shares
authorized) of $0.01 par Series C cumulative preferred stock for $5.00 per
share. The preferred stock ranks ahead of the authorized and outstanding
common stock with respect to dividend rights and rights on liquidation,
winding up and dissolution of Holdings. The holders of the shares of
preferred stock are entitled to receive, when and as declared by the Board
of Directors, fully cumulative cash dividends at the annual rate of $0.75
per share. The intent of the Company is to fund all dividends declared on
the preferred stock. Holdings' preferred stock has been classified in the
Company's shareholder's equity, at the amount contributed by Holdings, as
the redemption of such shares is under the sole control of Holdings.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of Holdings, the holders of shares of preferred
stock then outstanding shall be entitled to be paid out of the assets of
Holdings an amount in cash equal to $5.00 for each share outstanding plus
an amount in cash equal to all accrued, but unpaid dividends. At April 3,
1998 no dividends had been declared.
(b) Redeemable Preferred Stock and Common Stock Warrants - Predecessor
Periods
On April 29, 1996, Holdings entered into a Preferred Stock Purchase
Agreement with an outside glass supplier for the issuance and sale to the
investor of 6,000 shares of its authorized but unissued 10% cumulative
nonvoting preferred stock, $0.01 par value, for a purchase price of $1,000
per preferred share. The preferred stock was mandatorily redeemable by
Holdings under certain circumstances, including a transaction that results
in a change of control of Holdings. The proceeds from the purchase were
used to redeem previously outstanding preferred stock totaling $5,400,
including all accrued but unpaid dividends. As part of the Transaction
dated May 9, 1997, the redeemable preferred stock was redeemed for a total
of $6,200.
In connection with the issuance of the old credit facility, Holdings
issued redeemable warrants to the senior lenders to purchase 30,928 shares
of Holdings' common stock. The warrants are exercisable at $1 per share
and expire on September 8, 1999. The warrants contain a put provision that
would require Holdings to repurchase the warrants at a price based upon
various formulas. The redeemable
F-17
<PAGE> 43
warrants were recorded at their original stated value of $770 plus
accretion from their original stated values. In conjunction with the
Transaction dated May 9, 1997, the warrants were retired for $1,082.
As Holdings had no source of funds other than the Company, any mandatory
redemption of the preferred stock issued by Holdings, or a put exercise
under the redeemable warrants could be funded only from dividends by the
Company to Holdings. As such, the Company has reflected the preferred
stock issued pursuant to the Preferred Stock Purchase Agreement and
redeemable warrants at the Company level as redeemable securities.
(7) Leases
At April 3, 1998, the Company has noncancelable commitments under
operating leases consisting primarily of manufacturing and corporate
facilities through fiscal year 2005 as follows:
<TABLE>
<S> <C>
1999 $ 5,341
2000 4,595
2001 3,205
2002 2,562
2003 2,267
Thereafter 7,365
---------
Total Minimum Payments $ 25,335
========
</TABLE>
Rent expense was $3,558, $200, $4,100 and $3,700 for the forty-seven weeks
ended April 3, 1998, six weeks ended May 9, 1997, and years ended March
28, 1997 and March 29, 1996, respectively.
(8) Income Taxes
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Successor Predecessor
--------------- ------------------------------------------
Forty-seven Six weeks Year Year
weeks ended ended ended ended
April 3, May 9, March 28, March 29,
1998 1997 1997 1996
--------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Current:
Federal $ (264) (778) 1,668 1,021
State 430 50 400 212
--------- ------- ------ -------
166 (728) 2,068 1,233
--------- ------- ----- -----
Deferred:
Federal (1,170) (118) (158) (385)
State (163) -- 18 95
--------- ------- ------ -------
(1,333) (118) (176) (480)
$ (1,167) (846) 1,892 753
--------- ------- ------ -------
</TABLE>
F-18
<PAGE> 44
The Company recorded current tax benefits of $264 and $778 for the
forty-seven weeks ended April 3, 1998 and the six weeks ended May 9, 1997,
respectively. The current tax benefits will be realized through the
carryback of net operating losses to offset taxable income reported in
prior years and are reflected in taxes receivable at the respective
balance sheet dates.
Actual income tax expense (benefit) differs from the "expected" income tax
expense (benefit) (computed by applying the U.S. federal corporate tax
rate of 34% to income (loss) before income taxes and extraordinary loss),
as follows:
<TABLE>
<CAPTION>
Successor Predecessor
-------------- -----------------------------------------
Forty-seven Six weeks Year Year
weeks ended ended ended ended
April 3, May 9, March 28, March 29,
1998 1997 1997 1996
-------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Provision at statutory rate $ (1,880) (836) 1,443 530
Amortization of goodwill 464 13 96 96
Business meals and entertainment 71 7 30 34
State taxes, net of federal benefit 178 33 264 77
Other -- (63) 59 16
---------- --------- -------- --------
Total $ (1,167) (846) 1,892 753
---------- -------- -------- --------
</TABLE>
Deferred income taxes are determined using the liability approach, which
considers the future tax consequences of differences between financial
accounting and tax bases of assets and liabilities. The temporary
differences that comprise deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
Successor Predecessor
------------- --------------------------
April 3, May 9, March 28,
1998 1997 1997
------------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Insurance reserves $ 349 338 338
Allowance for doubtful accounts 797 458 449
Employee benefits 1,206 588 557
Retiree benefit obligation 607 -- --
Restructuring reserves 1,258 -- --
Product warranty 532 178 197
Other 510 257 212
------ ------- -------
Total gross deferred tax assets 5,259 1,819 1,753
Less valuation allowance -- -- --
------- ------- -------
Net deferred tax assets 5,259 1,819 1,753
------- ------- -------
Deferred tax liabilities:
Book-over-tax basis of inventory 110 351 355
Property, plant and equipment 9,079 3,433 3,480
State deferred taxes 382 -- --
Other 252 389 390
------- ------- -------
Total gross deferred tax liabilities 9,823 4,173 4,225
------- ------- -------
Deferred tax liability $ 4,564 2,354 2,472
------- ------- -------
</TABLE>
F-19
<PAGE> 45
In assessing the realizability of deferred income tax assets,
management considers whether it is more likely than not that some
portion or all of the deferred income tax assets will not be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the
period in which those temporary differences become deductible.
Based primarily upon the reversal of existing taxable temporary
differences, management believes it is more likely than not that
the Company will realize the benefits of these deductible
differences.
(9) Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
Successor Predecessor
------------- -------------------------
April 3, May 9, March 28,
1998 1997 1997
------------- --------- -----------
<S> <C> <C> <C>
Employee compensation and benefits $ 5,193 5,558 3,774
Insurance 1,027 1,285 995
Interest 4,685 463 443
Product warranty 969 191 244
Sales incentives 678 499 304
Restructuring reserve 2,306 -- --
Other 2,392 1,257 943
--------- ------- -------
$ 17,250 9,253 6,703
--------- ------- -------
</TABLE>
(10) Restructuring Reserves
In connection with the Transaction and the Acquisition, the Company
established restructuring reserves relating to the closure of certain
corporate and functional facilities. The reserves were recorded in
accordance with Emerging Issues Task Force (EITF) No. 95-3 Recognition of
Liabilities in Connection with a Purchase Business Combination.
Additionally, other restructuring reserves were established and charged to
operations relating to closing and consolidation of certain facilities.
The reserves were recorded in accordance with EITF No. 94-3 Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity. The reserve activity follows:
<TABLE>
<S> <C>
Balance at May 9, 1997 (Predecessor) $ --
Provisions:
Transaction - increase in goodwill 3,151
Acquisition - increase in goodwill 1,453
Charged to statement of operations 1,044
Cash payments (1,948)
--------
Balance at April 3, 1998 $ 3,700
--------
</TABLE>
At April 3, 1998, the remaining restructuring reserve of $3,700 relates
primarily to lease commitments and severance payments. The Company
expects to complete its plan of restructuring by December 31, 1998. At
April 3, 1998 the Company has classified $1,394 of the restructuring
reserve as non-current relating to lease commitment periods, and is
included in other liabilities.
F-20
<PAGE> 46
(11) Pension Plans and Postretirement Benefit Plans
The Company sponsors defined contribution retirement plans (401(k)) and a
supplemental retirement plan covering substantially all its employees.
Eligible employees may contribute up to 15% of their compensation (19% at
one subsidiary). The Company matches 50% of the first 6% deferred by the
employees, (the lesser of 25% of the employee's contribution or 1% of the
employee's annual salary at one subsidiary). Employees are eligible to
participate in the 401(k) plan after one year of employment and vest in the
Company's matching contribution ratably over five years. Defined
contribution expense for the plans was $651, $41, $599 and $572 for the
forty-seven weeks ended April 3, 1998, six weeks ended May 9, 1997, and
years ended March 28, 1997 and March 29, 1996, respectively.
The Company provides medical and life insurance benefits to retired
employees and their dependents under an employer sponsored plan at one of
its manufacturing facilities. Generally, the plan pays for most medical
expenses reduced by payments made by government programs and any plan
deductibles. The Company is self-insured for these costs and has no plan
assets.
The following table sets forth the amount included in the accumulated
postretirement benefit obligation (APBO) in the Company's consolidated
balance sheet at April 3, 1998:
<TABLE>
<S> <C>
Retirees $ 693
Fully Eligible Plan Participants 1,093
--------
Total APBO $ 1,786
========
</TABLE>
The APBO was determined using an assumed discount rate of 7 1/2%. The
assumed medical cost trend rate is 9%, decreasing gradually to 5% over
nine years.
(12) Incentive Stock Plans
(a) Stock Option Plan - Holdings
Holdings adopted a Stock Option Plan (the Plan) on January 28, 1998 in
order to provide incentives to certain officers and employees of the
Company by granting options to purchase common stock of holdings. Stock
options totaling 69,663 were granted during the forty-seven weeks ended
April 3, 1998. The options were granted with an exercise price of $20 per
share, equal to the fair value on such dates. The options vest ratably
over five years and expire after ten years from the date of grant.
At April 3, 1998, 69,663 options were outstanding, none of which were
exercisable and 6,591 options were available for grant. For a period of
one year after an employee's termination of employment for any reason,
Holdings has the option to purchase such options at a price equal to the
difference between fair market value of such shares, for which options are
exercisable by such employee, and the exercise price. The Company had
recorded no compensation expense and any difference that may exist in the
future between the fair market value and exercise price of $20 per share
upon a cash settlement, will be charged to expense in the period that such
options are settled.
The Company has adopted the disclosure only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. Accordingly, no compensation
cost has been recognized for the stock option
F-21
<PAGE> 47
plan. Had compensation cost for the Company's stock option plan been
determined for grants based on the fair value at the grant date of awards
consistent with the provisions of SFAS No. 123, the Company's net loss
would have increased from $(4,774) to $(4,834) for the forty-seven weeks
ended April 3, 1998.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions: no dividend yield; expected volatility of 0%;
risk-free interest rates of 5.58% to 6.67%; and expected lives of ten
years. The weighted average fair value per share of the options granted
during the period is estimated to be $9.50.
(b) Incentive Stock Units - Predecessor
The Company and certain officers and key executives (the Employees) had
entered into separate Incentive Stock Units Agreements (the Units)
whereby, upon the occurrence of certain transactions or events, the
Employees were entitled to receive compensation based upon a prescribed
formula. On May 9, 1997, such event occurred (see note 2) triggering the
exercise of the units. As a result, the Company recognized $3,200 of
compensation expense related to the incentive stock units which is
included in other expense for the six weeks ended May 9, 1997.
(13) Related Party Transactions
The Company was charged $1,283, $39, $350, and $528 by various related
parties for the forty-seven week period ended April 3, 1998, the six weeks
ended May 9, 1997 and the years ended March 28, 1997 and March 29, 1996,
respectively, for management services and consulting fees.
The Company purchased $11,037 and $9,985 of glass in the years ended March
28, 1997 and March 29, 1996, respectively from the predecessor preferred
stockholders.
(14) Commitments And Contingencies
The Company is involved in various claims, suits, and complaints
incidental to its business. In the opinion of management, these claims
and legal proceedings will not have a material adverse effect on the
Company's consolidated financial position, results of operations or
liquidity.
As part of the Transaction, Holdings issued $9,800 of notes payable to
the selling stockholders (Seller Notes). The Seller Notes are due May
2007, with interest payable semi-annually at an interest rate of 10%, with
the base rate increasing. Holdings has the option to defer the scheduled
interest payments. Such deferral causes the interest rate on such
scheduled payments to increase to 12%. The Seller Notes are unsecured.
Such Seller Notes have not been "pushed-down" to the Company because the
Company has not guaranteed or pledged its assets with respect to the
Seller Notes. Future principal and interest payments on the Seller Notes
are expected to be funded by the Company, through the payment of dividends
as principal and interest payments are made on the Seller Notes as
required. The Seller Notes are subject to covenants that, among other
things, impose limitations on additional indebtedness, capital
expenditures, investments, restrict certain payments and distributions on
Holdings and the Company. At April 3, 1998, the Company had complied with
all covenants under its Seller Notes.
F-22
<PAGE> 48
(15) Credit Risk Concentrations
Concentrations of credit risk with respect to trade receivables are
limited due to the Company's wide variety of customers and the many
markets to which the Company's products are sold, as well as the many
different geographic areas in which such customers and markets are
located. As a result, at April 3, 1998, the Company does not believe it
has any significant concentrations of credit risk. No single customer in
the forty-seven week period ending April 3, 1998, the six week period
ended May 9, 1997, or the years ended March 28, 1997 or March 29, 1996
accounted for more than 10% of net sales.
(16) New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, Reporting Comprehensive Income and SFAS No. 131, Disclosure about
Segments of an Enterprise and Related Information. SFAS No. 130
requires that an enterprise report, by major components and as a single
total, the change in its net assets during the period from nonowner
sources. SFAS No. 131 establishes annual and interim reporting standards
for an enterprise's operating segments and related disclosures about its
products, services, geographic areas and major customers. Adoption of
these statements will not impact the Company's consolidated financial
position, results of operations or cash flows, and any effect will be
limited to the form and content of its disclosures. Both statements are
effective for fiscal years beginning after December 15, 1997. The Company
currently has no items of comprehensive income other than net income
(loss). The Company has not yet completed its analysis of SFAS 131 and
whether segment disclosure may be required in the future.
In March 1998, Statement of Position (SOP) 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use, was issued.
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 the post-implementation/operations stage
of an internal-use computer software development project to be expensed as
incurred. The SOP is effective for fiscal years beginning after December
15, 1998 and will be applied on a prospective basis.
F-23
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) 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.
Date: July 1, 1998 RELIANT BUILDING PRODUCTS, INC.
By:/s/ VIRGIL D. LOWE
----------------------------------
Virgil D. Lowe, Vice President
POWER OF ATTORNEY
We, the undersigned directors and officers of Reliant Building Products,
Inc., hereby appoint David G. Fiore and Virgil D. Lowe, or either of them, our
true and lawful attorneys and agents, to do any and all acts and things in our
name and on our behalf in our capacities indicated below, which said attorneys
and agents, and each of them, may deem necessary or advisable to enable such
corporation to comply with the Securities Exchange Act of 1934, as amended, and
any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with this Annual Report on Form 10-K, including,
without limitation, power and authority to sign for us, or any of us, in our
names in the capacities indicated below, any and all amendments hereto, and we
hereby ratify and confirm that such attorneys and agents, or each of them,
shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ DAVID G. FIORE Chairman, President and Chief July 1, 1998
- ---------------------------- Executive Officer
David G. Fiore
/s/ VIRGIL D. LOWE Director and Chief Financial July 1, 1998
- ---------------------------- Officer (Principal Financial and
Virgil D. Lowe Accounting Officer)
/s/ BRADFORD E. BERNSTEIN Director July 1, 1998
- --------------------------
Bradford E. Bernstein
/s/ MICHAEL L. GEORGE Director July 1, 1998
- ----------------------------
Michael L. George
/s/ STEVEN B. GRUBER Director July 1, 1998
- ----------------------------
Steven B. Gruber
/s/ ROBERT B. HENSKE Director July 1, 1998
- ----------------------------
Robert B. Henske
/s/ JAMES M. PATELL Director July 1, 1998
- --------------------
James M. Patell
</TABLE>
<PAGE> 50
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
No annual report to security holders covering the Registrant's last fiscal
year and no proxy statement, form of proxy or other soliciting material with
respect to any annual or other meeting of security holders has been sent to
security holders of the Registrant.
<PAGE> 51
Schedule II
RELIANT BUILDING PRODUCTS, INC.
AND SUBSIDIARIES
Valuation and Qualifying Accounts
(In thousands of dollars)
Additions Charged to:
<TABLE>
<CAPTION>
Balance at Costs Balance at
beginning and Other end of
Description of period expenses (1) Deductions period
----------- ---------- -------- ---- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended March 29, 1996
- Predecessor $ 941 1,057 -- (361) 1,637
Year ended March 28, 1997
- Predecessor 1,637 214 -- (542) 1,309
Six weeks ended May 9, 1997
- Predecessor 1,309 97 -- (66) 1,340
Forty-seven weeks ended April 3, 1998
- Successor 1,340 380 1,594 (979) 2,335
Reserve for inventory obsolescence:
Year ended March 29, 1996
- Predecessor 29 27 -- -- 56
Year ended March 28, 1997
- Predecessor 56 43 -- -- 99
Six weeks ended May 9, 1997
- Predecessor 99 23 -- (3) 119
Forty-seven weeks ended April 3, 1998
- Successor 119 318 700 (350) 787
</TABLE>
(1) Represents the acquisition balances at the date of the Care-Free
acquisition.
S-1
<PAGE> 52
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
2.1 Stock Purchase Agreement dated as of March 27, 1997 by and between the Stockholders named therein and
Reliant Partners, L.P.*
2.2 First Amendment to Stock Purchase Agreement dated as of May 9, 1997 by and between Reliant Partners, L.P.,
Reliant Partners II, L.P., David G. Fiore, Virgil D. Lowe, Jack L. Morris, Rodney Vickers, Charles E. Still
and James R. Trigg, Jr. and the Stockholders named herein*
2.3 Stock Purchase Agreement dated December 17, 1997 between Reliant Building Products, Inc. as "Buyer" and the
Stockholders, Warrant Holders, and Option Holders of CFS Holding Company as "Sellers" (incorporated by
reference from the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 26,
1997)
3.1 Restated Certificate of Incorporation of Reliant Building Products, Inc.*
3.2 Certificate of Amendment to Certificate of Incorporation of Reliant Building Products, Inc. filed September
7, 1993*
3.3 Certificate of Amendment to Certificate of Incorporation of Reliant Building Products, Inc. filed May 8,
1997*
3.4 Bylaws of Redman Building Products, Inc.*
4.1 Indenture dated as of May 9, 1997, between the Company, the Guarantors and Bank One, Columbus NA, as
Trustee, relating to the Notes.*
4.2 Form of 10 7/8% Senior Subordinated Notes due 2004, Series B (included in Exhibit 4.1)*
10.1 Stockholders Agreement dated as of May 9, 1997 by and among RBPI Holding Corporation and the Stockholders
named therein*
10.2 Registration Rights Agreement date as of May 9, 1997 by and among RBPI Holding Corporation and the
Stockholders named therein*
10.3 Consulting Agreement dated as of May 9, 1997 by and between the Company and George Group, Inc.*
10.4 Acquisition Advisory Services Fee Letter dated March 27, 1997 by and between RBPI Holding Corporation and
George Group Inc.*
</TABLE>
<PAGE> 53
<TABLE>
<S> <C>
10.5 Employment Agreement dated as of April 1, 1997 by and between the Company and David G. Fiore*
10.6 Employment Agreement dated as of March 31, 1994 by and between the Company and Virgil D. Lowe*
10.7 RBPI Holding Corporation Nonqualified Stock Option Plan*
10.9 Credit Agreement dated January 28, 1998 between RBPI Holding Corporation and Reliant Building Products,
Inc. as "Borrower," Canadian Imperial Bank of Commerce as "Documentation Agent," and The Chase Manhattan
Bank as "Administrative Agent" (incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarterly period ended December 26, 1997)
10.10 Guarantee and Collateral Agreement between RBPI Holding Corporation and Reliant Building Products, Inc. as
"Borrower" and The Chase Manhattan Bank as "Administrative Agent." (incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the quarterly period ended December 26, 1997)
21.1 Subsidiaries of the Company
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* Incorporated by reference from the Registrant's Registration Statement on
Form S-4, Registration No. 333-30699, dated July 2, 1997.
<PAGE> 1
EXHIBIT 21
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION OF
SUBSIDIARY INCORPORATION
- ---------- ---------------
<S> <C>
Alpine Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Washington
Care Free Aluminum Products, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Michigan
CFA Holding Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
RBP of Arizona, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
RBP Custom Glass, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
RBP Fenesco, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
RBP of Texas, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
RBP Trans, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Ultra Building Systems, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . New Jersey
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RELIANT
BUILDING PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE 46 WEEKS ENDED APRIL 3, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> APR-03-1998
<PERIOD-START> MAY-10-1997
<PERIOD-END> APR-03-1998
<CASH> 737
<SECURITIES> 0
<RECEIVABLES> 30,973
<ALLOWANCES> 2,335
<INVENTORY> 21,929
<CURRENT-ASSETS> 61,089
<PP&E> 60,993
<DEPRECIATION> 5,629
<TOTAL-ASSETS> 259,444
<CURRENT-LIABILITIES> 33,728
<BONDS> 183,543
0
4,700
<COMMON> 1
<OTHER-SE> 25,320
<TOTAL-LIABILITY-AND-EQUITY> 259,444
<SALES> 174,769
<TOTAL-REVENUES> 174,769
<CGS> 134,783
<TOTAL-COSTS> 134,783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 293
<INTEREST-EXPENSE> 9,494
<INCOME-PRETAX> (5,530)
<INCOME-TAX> (1,167)
<INCOME-CONTINUING> (4,363)
<DISCONTINUED> 0
<EXTRAORDINARY> 411
<CHANGES> 0
<NET-INCOME> (4,774)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
