UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended January 1, 1999 or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 333-30699
RELIANT BUILDING PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1364873
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3010 LBJ Freeway, Suite 400, Dallas, Texas 75234
(Address of principal executive offices) (Zip Code)
(972) 919-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months or for such shorter period as the registrant was
required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Number of shares Common Stock outstanding as of February 12, 1999: 1,000
<PAGE>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
QUARTER ENDED JANUARY 1, 1999
INDEX
PART I. FINANCIAL INFORMATION
- ----------------------------------
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
PART II. OTHER INFORMATION
- -------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
----------------------------------
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JANUARY 1, APRIL 3,
1999 1998
------------ ----------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,272 $ 737
Accounts receivable, net 28,602 28,638
Inventories 22,345 21,929
Deferred tax assets 4,050 3,889
Prepaid expenses and other current assets 3,483 5,896
------------ ----------
Total current assets 59,752 61,089
Property, plant, and equipment 52,760 55,364
Intangible assets, net 134,729 137,036
Other assets 6,046 5,955
------------ ----------
Total assets 253,287 259,444
============ ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable 15,555 14,654
Accrued expenses 14,370 17,250
Current portion of long-term debt 1,800 1,824
------------ ----------
Total current liabilities 31,725 33,728
Long-term debt 116,163 113,543
Deferred income taxes 7,356 8,453
Other liabilities 3,255 3,709
Subordinated debt 70,000 70,000
------------ ----------
Total liabilities 228,499 229,433
Shareholder's equity
Common stock, $1.00 par value:
Authorized shares - 10,000
Issued and outstanding shares - 1,000 1 1
Preferred stock of Holdings, stated at amount contributed 4,701 4,700
Additional paid-in capital 29,463 30,084
Accumulated deficit (9,377) (4,774)
------------ ----------
Total shareholder's equity 24,788 30,011
------------ ----------
Total liabilities and shareholder's equity $ 253,287 $ 259,444
============ ==========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
QUARTER ENDED
--------------------------------
JAN. 1, 1999 DEC. 26, 1997
--------------- ---------------
<S> <C> <C>
Net sales $ 65,043 $ 42,684
Cost of products sold 50,000 32,566
--------------- ---------------
Gross profit 15,043 10,118
Selling, general and administrative 14,180 8,343
--------------- ---------------
Income from operations 863 1,775
Interest expense, net 4,482 2,014
Other expenses - 24
--------------- ---------------
Loss before income taxes (3,619) (263)
Income tax expense (benefit) (492) 16
--------------- ---------------
Net loss $ (3,127) $ (279)
=============== ===============
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
SUCCESSOR PREDECESSOR
----------------------------------- -------------
NINE MONTHS THIRTY-THREE WEEKS SIX WEEKS
ENDED ENDED ENDED
JAN. 1, 1999 DEC. 26, 1997 MAY 9, 1997
-------------- ------------------- -------------
<S> <C> <C> <C>
Net sales $ 221,472 $ 111,878 $ 20,095
Cost of products sold 166,684 84,923 14,852
-------------- ------------------- -------------
Gross profit 54,788 26,955 5,243
Selling, general and administrative 45,745 21,156 3,765
-------------- ------------------- -------------
Income from operations 9,043 5,799 1,478
Interest expense, net 13,610 5,168 587
Other expenses - 24 3,350
-------------- ------------------- -------------
Income (loss) before income taxes and extraordinary item (4,567) 607 (2,459)
Income tax expense (benefit) 36 581 (846)
-------------- ------------------- -------------
Income (loss) before extraordinary item (4,603) 26 (1,613)
Extraordinary loss, net of tax benefit - - 715
-------------- ------------------- -------------
Net income (loss) $ (4,603) $ 26 $ (2,328)
============== =================== =============
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SUCCESSOR PREDECESSOR
------------------------------------ -------------
NINE MONTHS THIRTY-THREE WEEKS SIX WEEKS
ENDED ENDED ENDED
JAN. 1, 1999 DEC. 26, 1997 MAY 9, 1997
-------------- -------------------- -------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ (4,603) $ 26 $ (2,328)
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Extraordinary loss from early debt retirement - - 715
Depreciation and amortization 10,025 4,855 535
Non-cash interest expense 680 489 63
Deferred income taxes (1,097) (411) (118)
Provision for doubtful accounts 776 249 130
Compensation expense related to incentive stock units - - 3,181
Other 48 (282) (229)
Changes in operating assets and liabilities:
Accounts receivable (740) 4 (1,436)
Inventories (416) 1,147 (829)
Prepaid expenses and other current assets 2,252 162 (1,540)
Accounts payable and accrued expenses (1,979) (5,062) 4,305
Other. (2,224) 2,394 (1)
-------------- -------------------- -------------
Net cash provided by operating activities 2,722 3,571 2,448
Investing activities:
Purchases of property, plant and equipment (4,788) (2,857) (198)
Proceeds from sale of property, plant and equipment 61 61 43
-------------- -------------------- -------------
Net cash used in investing activities (4,727) (2,796) (155)
Financing activities:
Net proceeds (payments) from revolving loan 4,000 (38,668) 2,631
Proceeds from subordinated debt - 70,000 -
Proceeds from long-term debt 528 - -
Principal payments on long-term debt (1,932) (6,889) (648)
Redemption of preferred stock (146) (6,187) -
Payment of debt issue costs (70) (3,658) -
Preferred stock capital contribution 147 (10,950) -
Payment of dividends to Holdings (630) - -
Capital contribution from Holdings 643 - -
-------------- -------------------- -------------
Net cash provided by financing activities 2,540 3,648 1,983
-------------- -------------------- -------------
Increase in cash and cash equivalents 535 4,423 4,276
Cash and cash equivalents at beginning of period 737 4,458 182
-------------- -------------------- -------------
Cash and cash equivalents at end of period $ 1,272 $ 8,881 $ 4,458
============== ==================== =============
Supplementary Information:
Cash paid for interest $ 15,526 $ 4,709 $ 480
============== ==================== =============
Cash paid (recovered) for income taxes $ (2,008) $ 2,181 $ -
============== ==================== =============
</TABLE>
See accompanying notes.
<PAGE>
Reliant Building Products, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
1. The Company
Reliant Building Products, Inc. (formerly Redman Building Products, Inc.) and
subsidiaries (the "Company") are primarily engaged in the manufacture of
aluminum and vinyl or nonwood, framed windows primarily for the new
construction, repair and remodeling market. The Company supplements its window
business through the manufacture of related products such as value-added glass
processing, custom aluminum extrusion and window components for the Company's
internal needs and for sale to third parties. The Company, which operates in
one business segment, framed windows for the new construction, repair and
remodeling market, has manufacturing facilities in Texas, Georgia, Tennessee,
Washington, New Jersey, Michigan, North Carolina and California, and most of its
customers are located throughout the United States.
2. Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company (the
"Successor") and Redman Building Products, Inc. (the "Predecessor") have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting, the instructions to Form 10-Q, and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The Predecessor's financial results represent activity prior to the
closing of the stock purchase agreement of May 9, 1997 (the "Transaction"), in
which the former shareholders of RBPI Holding Corporation ("Holdings") sold all
of the common stock of Holdings. As a result, a new basis of accounting was
established, and therefore the periods before that date are not comparable to
the Successor period.
The balance sheet at April 3, 1998 has been derived from the audited
consolidated financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
The accompanying unaudited consolidated financial statements and related notes
should be read in conjunction with the Company's audited consolidated financial
statements and related notes included in the Form 10-K filed with the Securities
and Exchange Commission on July 2, 1998. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation of the interim financial information have been included.
The results of operations for any interim period are not necessarily indicative
of the results of operations for a full year.
All significant intercompany transactions and balances have been eliminated in
consolidation. The Company utilizes a 52 or 53 week accounting period which
ends on the Friday closest to March 31. The quarter ended January 1, 1999
included 13 weeks.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. Intangible Assets
Intangible assets, consisting primarily of goodwill, totaling $134.7 million at
January 1, 1999 and are being amortized on a straight-line basis over a 40-year
period. The Company evaluates the recoverability of goodwill by determining
whether the amortization of the balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired entities. The
amount of impairment, if any, is measured based on projected discounted future
operating cash flows. Given the level of losses incurred during the first nine
months it is reasonably possible that the Company's estimate that it will
recover the carrying value of intangible assets could change in the near future.
4. Inventories
<TABLE>
<CAPTION>
<S> <C> <C>
JAN. 1, 1999 APR. 3, 1998
------------- -------------
Raw materials $ 15,813 $ 15,767
Finished goods and work-in-process 6,532 6,162
------------- -------------
$ 22,345 $ 21,929
============= =============
</TABLE>
5. Guarantor Subsidiaries
The condensed summarized information (in thousands) of the guarantor
subsidiaries is as follows. The Company's 10 7/8% senior subordinated notes are
jointly and severally and fully and unconditionally guaranteed on a senior
subordinated basis by all of the Company's wholly-owned subsidiaries. Separate
financial statements and other disclosures concerning such guarantor
subsidiaries have not been presented because management has determined that such
information is not material to investors.
<TABLE>
<CAPTION>
JANUARY 1, APRIL 3,
1999 1998
----------- ---------
<S> <C> <C>
Cash and cash equivalents $ 624 $ -
Accounts receivable, net 16,027 17,160
Raw materials 8,806 7,921
Finished product and work in process 3,562 2,693
Other current assets 5,802 5,862
Property, plant and equipment, net 30,521 32,717
Intangible assets, net 103,621 105,290
----------- ---------
Total assets $ 168,963 $ 171,643
=========== =========
Accounts payable $ 4,591 $ 7,452
Accrued expenses 5,268 5,543
Current portion of long-term debt 690 887
Long-term debt 400 1,180
Other liabilities 4,503 4,678
Intercompany payable 40,545 32,327
Net equity 112,966 119,576
----------- ---------
Total liabilities and net equity $ 168,963 $ 171,643
=========== =========
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------------------------------------------------------------- -----------
THREE MONTHS THREE MONTHS NINE MONTHS THIRTY-THREE WEEKS SIX WEEKS
ENDED ENDED ENDED ENDED ENDED
JANUARY 1, DECEMBER 26, JANUARY 1, DECEMBER 26, MAY 9,
1999 1997 1999 1997 1997
-------------- -------------- ------------- -------------------- -----------
<S> <C> <C> <C> <C> <C>
Net Sales $ 40,997 $ 14,573 $ 136,116 $ 40,040 $ 7,358
Cost of products sold 33,307 12,183 107,114 33,524 6,149
Selling, general, and administrative 10,754 3,606 33,127 8,774 2,916
Interest expense 778 293 2,323 779 125
Income tax expense (benefit) (617) (505) (893) (870) (620)
-------------- -------------- ------------- -------------------- -----------
Net loss $ (3,225) $ (1,004) $ (5,555) $ (2,167) $ (1,212)
============== ============== ============= ==================== ===========
Net cash provided by (used in) operating
activities $ (3,385) $ (1,111) $ 609
Net cash used in investing activities (3,476) (2,570) (11)
Net cash provided by (used in) financing
activities 7,485 3,718 (347)
------------- -------------------- -----------
Increase in cash and cash equivalents $ 624 $ 37 $ 251
============= ==================== ===========
</TABLE>
6. Debt Covenants
The Company's credit agreement dated as of January 28, 1998 (the "Senior Credit
Facility") contains covenants that impose limitations on capital expenditures
and investments, restrict certain payments and distributions and require the
Company to maintain certain financial ratios, as defined. The Company complied
with all required covenants at January 1, 1999, accordingly the related debt is
classified according to its contractual terms. The Company has assessed it may
not meet one of its financial ratio covenants at April 2, 1999. The Company is
in the process of negotiating changes to the Senior Credit Facility covenants
included in the debt agreement with the Senior Credit Facility lender however,
it has not yet reached a definitive agreement. Management expects successful
conclusion to such an agreement before the end of the fourth quarter. If the
Company fails to successfully negotiate such an agreement and thereby fails to
meet the covenants, then the Senior Credit Facility lender will have the right
to demand immediate repayment of the debt, which had a balance outstanding of
$116.6 million at January 1, 1999. Additionally, the revolving facility, which
had an unused availability of $16.9 million at January 1, 1999, would not be
available to the Company. The Company's debt covenants relating to the Senior
Subordinated Notes provide that such debt is due immediately upon the failure of
covenants covered by any other debt agreements.
7. New Accounting Pronouncements
Effective April 4, 1998, the Company adopted Statement of Position ("SOP") 98-1,
"Accounting for the Cost of Computer Software Developed or Obtained for Internal
Use," which was issued in March 1998. The SOP requires that certain costs
related to the development or purchase of internal-use software be capitalized
and amortized over the estimated useful life of the software. The SOP also
requires that costs related to the preliminary project stage and
post-implementation/operations stage of an internal-use computer software
development project be expensed as incurred. In accordance with the SOP, costs
incurred prior to the initial adoption, whether capitalized or not, have not
been adjusted. The adoption of this SOP did not have a material effect on the
results of operations.
Effective April 4, 1998, the Company adopted SFAS 130, Reporting Comprehensive
Income. The Company currently has no items of comprehensive income other than
net income (loss).
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("SOP 98-5"), Reporting on the Costs of Start-up
Activities which is effective for financial statements issued for periods
beginning after December 15, 1998. The Company believes the adoption of SOP
98-5 will not have a material impact on its
financial statements or accounting policies. The Company will adopt the
provisions of SOP 98-5 in the first quarter of fiscal year 2000.
The Company is assessing the reporting and disclosure requirements of SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information. This
statement requires a public business enterprise to report financial and
descriptive information about its reportable operating segments and related
disclosures about products, services, geographic areas and major customers. The
statement is effective for financial statements for periods beginning after
December 15, 1997, but is not required for interim financial statements in the
initial year of its application. The Company will adopt the provisions of SFAS
No. 131 in its April 2, 1999 consolidated financial statements and has not
determined if segment disclosures will be required.
The Company is also assessing the reporting and disclosure requirements of SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards for derivative
instruments and hedging activities. This statement requires that all
derivatives be recognized as either assets or liabilities in the balance sheet
and measured at fair value. The accounting for changes in fair value of a
derivative (that is, gains and losses) depends on the intended use of the
derivative and resulting designation. The statement amends and supersedes a
number of existing Statements of Financial Accounting Standards, and nullifies
or modifies a number of the consensuses reached by the Emerging Issues Task
Force. The statement is effective for financial statements for fiscal years
beginning after June 15, 1999. At the present time, the Company has not
quantified the effect of adoption or continuing impact of such adoption. The
Company will adopt the provisions of SFAS No. 133 in the first quarter of fiscal
year 2001.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
- --------------------------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
-------------------------------------
THE COMPANY
Reliant Building Products, Inc. (the "Company"), is one of the nation's largest
manufacturers of aluminum and vinyl, or non-wood, framed windows. The Company's
products are marketed under well-recognized brand names including ALENCO,
CARE-FREE, KLIMA-TITE, ALPINE WINDOWS, ULTRA, BUILDERS VIEW and GAPCO. The
products are marketed across all major price points. As a result of the January
28, 1998 acquisition (the "Acquisition") of all the capital stock of Care-Free
Window Group ("Care-Free"), a privately held vinyl window company, the Company
has developed a significant national manufacturing and marketing presence.
Window products include insulated and thermal break windows, storm windows,
single and double-hung windows and casements. Door products include hinge
doors, storm doors and patio doors. The Company manufactures its products at
eight facilities in California, Georgia, Michigan, New Jersey, North Carolina,
Tennessee, Texas and Washington. The Company distributes its products through
an extensive nationwide network of distributors and Company distribution
facilities in Arizona, California and Louisiana. All of these products are
marketed primarily for use in new construction, manufactured housing, repair and
remodeling and to a lesser degree the do-it-yourself market.
The Company supplements its window business through the manufacture of related
products such as processed glass, custom aluminum extrusion and window
components ("non-core products") for the Company's internal needs and for sale
to third parties. The Company believes that its vertically integrated
operations provide it with an enhanced ability to serve its customers,
significant manufacturing flexibility, a reliable supply of low-cost components
and a reduction in working capital requirements. The Company also operates an
aluminum scrap recasting facility on a joint venture basis, providing
approximately one-third of the Company's aluminum billet requirements.
RESULTS OF OPERATIONS
Third Quarter Ended January 1, 1999 Compared to Third Quarter Ended December 26,
1997
Net Sales. Net sales increased $22.3 million, or 52.4%, from $42.7 million in
the quarter ended December 26, 1997 ("Prior Period") to $65.0 million for the
quarter ended January 1, 1999 ("Current Period"). This increase was due to the
Acquisition. Excluding net sales of Care-Free and the Living Windows and Fenesco
facilities which have been closed ("non-comparable operating units"), net sales
decreased $3.9 million or 9.4% in the Current Period compared to the Prior
Period. This decrease compared to Prior Period is primarily in new construction
sales. Also, impacting the Current Period sales performance were competitive
price pressures and product mix changes.
Excluding non-comparable operating units, aluminum window sales were down $2.1
million or 7.5%, while vinyl sales decreased slightly and non-core product sales
decreased $1.3 million. The aluminum products sales decrease as compared to
prior period was primarily due to a decrease in new construction sales. Overall
vinyl window sales were up $27.1 million, or 348.5% during the Current Period
compared to the Prior Period. The increase in vinyl window sales is due to the
Acquisition.
Cost of Products Sold. Cost of products sold increased $17.4 million from $32.6
million for the Prior Period to $50.0 million for the Current Period.
Expressed as a percentage of net sales, cost of products sold increased from
76.3% for the Prior Period to 76.9% for the Current Period. The Current Period
costs were impacted by increases in non-variable manufacturing costs that
resulted in a 1.1% increase, as a percent of net sales, in the Current Period as
compared to the Prior Period. Partially offsetting this increase in
non-variable cost of products sold as a percentage of net sales are continuous
flow manufacturing improvement initiatives at all of the operating units, which
have resulted in productivity improvements and purchasing synergies which have
provided savings in raw material costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $5.9 million from $8.3 million in the Prior
Period to $14.2 million for the Current Period. Expressed as a percentage of net
sales, selling, general and administrative expenses increased from 19.5% in the
Prior Period to 21.8% for the Current Period. This increase is due primarily to
increased consulting fees of $0.8 million for operating improvement initiatives,
an increase in amortization of goodwill of $0.6 million, and severance costs of
$0.5 million. Also contributing to the increase was $0.5 million for the
creation of a national marketing and sales organization. This organization, the
first in the Company's history, established a national accounts group to procure
nationwide mass merchandise retailers and promote its products and capabilities
through national trade publications and promotional programs. The increased
expenses are partially offset by the Company's continuing efforts to capitalize
on its management efficiencies and the elimination of fixed expenses associated
with the closing of the Living Windows facility in Houston and the Fenesco
facility in Dallas.
Interest Expense, Net. Interest expense increased $2.5 million from $2.0
million in the Prior Period to $4.5 million for the Current Period. This
increase is due to a higher debt level in the Current Period as a result of the
Acquisition.
Income Tax Expense. The income tax benefit for the Current Period of $0.5
million results primarily from tax losses which are available to the Company in
the future.
Nine months Ended January 1, 1999 Compared to Nine Months Ended December 26,
1997
For purpose of comparison of the Nine months ended January 1, 1999 ("Current YTD
Period") to the nine months ended December 26, 1997 ("Prior YTD Period"), the
financial statements for the six weeks ended May 9, 1997 (the "Predecessor
Period") and the thirty-three weeks ended December 26, 1997 ("Successor Period")
have been combined. Significant fluctuations resulting from the application of
push-down of purchase accounting relating to the Transaction have been
separately identified. Additionally, significant fluctuations relating to the
Acquisition have been separately identified.
Net Sales. Net sales increased $89.5 million, or 67.8%, from $132.0 million in
the Prior YTD Period to $221.5 million for the Current YTD Period. This
increase was primarily due to the Acquisition. Excluding non-comparable
operating units, net sales increased $5.3 million or 4.3% in the Current YTD
Period compared to the Prior YTD Period. This increase is due to an increase in
new construction and national accounts sales during the Current YTD Period
compared to the Prior YTD Period. However, sales continue to be impacted by
competitive price pressures and product mix changes.
Excluding non-comparable operating units, aluminum window sales were up $10.6
million or 10.1%, while vinyl sales decreased $0.9 million and non-core business
sales decreased $2.3 million. The aluminum products sales increase was
primarily due to an increase in new construction and national account sales and
the expansion of the product line at the Bryan, Texas facility. Overall vinyl
window sales were up $91.4 million, or 372.3% during the Current YTD Period
compared to the Prior YTD Period. The increase in vinyl window sales is due to
the Acquisition.
Cost of Products Sold. Cost of products sold increased $66.9 million from $99.8
million for the Prior YTD Period to $166.7 million for the Current YTD Period.
Expressed as a percentage of net sales, cost of products sold decreased from
75.6% for the Prior YTD Period to 75.3% for the Current YTD Period. The Current
YTD Period cost improved 1.1%, as a percentage of net sales, through the
elimination of costs related to facilities closed since the Prior Period. Also,
impacting the decrease in cost of products sold as a percentage of net sales are
continuous flow manufacturing improvement initiatives at all of the operating
units, which have resulted in productivity improvements and purchasing synergies
which have provided savings in raw material costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $20.8 million from $24.9 million in the Prior
YTD Period to $45.7 million for the Current YTD Period. Expressed as a
percentage of net sales, selling, general and administrative expenses increased
from 18.9% in the Prior YTD Period to 20.7% for the Current YTD Period. This
increase is due primarily to increased consulting fees of $2.4 million for
operating improvements initiatives, an increase in amortization of goodwill of
$1.9 million, and severance costs of $0.9 million. Also contributing to the
increase was $1.9 million for the creation of a national marketing and sales
organization. The marketing and sales organization, the first in the Company's
history, established a national accounts group to procure nationwide mass
merchandise retailers and promote its products and capabilities through national
trade publications and promotional programs. The increased expenses are
partially offset by a decrease of expenses attributable to synergies resulting
from the Acquisition and the Company's continuing efforts to capitalize on its
management efficiencies and the elimination of fixed expenses associated with
closed operating units.
Interest Expense, Net. Interest expense increased $7.8 million from $5.8
million in the Prior YTD Period to $13.6 million for the Current YTD Period.
This increase is due to a higher debt level in the Current Period as a result of
the Acquisition and the Transaction.
Income Tax Expense. The Company's income tax expense of $36 thousand (state
and federal combined), is comprised of $0.5 million of state expense and $0.5
million of federal benefit. The federal tax benefit of $0.5 million results
primarily from tax losses which are available to the Company in the future.
Intangible Assets. Intangible assets, consisting of primarily goodwill,
totaling $134.7 million at January 1, 1999 is being amortized on a straight-line
basis over a 40-year period. Given the level of losses incurred during the first
nine months it is reasonably possible that the Company's estimate that it will
recover the carrying value of intangible assets could change in the near future.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operating activities was $2.7 million for the Current YTD
Period and $6.0 million for the Prior YTD Period. The decrease in cash provided
from operating activities is the result of comparatively lower results of
operations partially offset by lower working capital requirements.
Capital expenditures for the Current YTD Period were $4.8 million compared to
$2.9 million for the Prior YTD Period. Capital expenditures during the Current
YTD Period were related primarily to manufacturing automation.
Cash flows provided by financing activities in the Current YTD Period were $2.5
million compared to cash provided by financing activities of $5.6 million in the
Prior YTD Period. Current YTD Period cash provided by financing and operating
activities were used primarily to fund the interest payments and capital
expenditures. The credit agreement dated as of January 28, 1998 (the "Senior
Credit Facility"), which consists of term loans of $105 million and a revolving
line of credit (the "Revolver") of $40.0 million, was the principal source of
cash in the Current YTD Period. The Revolver is subject to availability under
the borrowing base. The amount available under the borrowing base, equal to 85%
of eligible receivables and 50% of eligible inventory, is approximately $29.4
million at January 1, 1999. As of January 20, 1999, $12.5 million
was borrowed on the Revolver. Interest on borrowings under the Revolver,
currently payable at 7.3%, is at 2.25% over the Eurodollar rate. The Revolver
agreement expires on December 31, 2003.
Interest payments on the Senior Credit Facility and the 10 7/8% Senior
Subordinated Notes due May 1, 2004 (the "Notes") represent significant
obligations of the Company. Interest payments are due on March 1, 1999 in the
amount of $2.0 million and May 3, 1999 in the amount of $3.8 million on the
Senior Credit Facility and the Notes, respectively. The Notes are jointly and
severally, and unconditionally guaranteed, on a senior subordinated basis, by
all of the Company's wholly-owned subsidiaries.
The Company believes, based on current and anticipated financial performance and
successful renegotiations of changes to covenants in the Senior Credit Facility
(discussed below), cash flow from operations and borrowings under the Revolver
will be adequate to meet anticipated requirements for capital expenditures,
working capital and scheduled principal and interest payments (including
interest payments on the Notes and amounts outstanding under the Senior Credit
Facility). The ability of the Company to satisfy its capital requirements will
be dependent upon future capital expenditure requirements, and the future
financial performance of the Company, which in turn will be subject to general
economic conditions and to financial, business and other factors, including
factors beyond the Company's control.
The Company's Senior Credit Facility contains covenants that impose limitations
on capital expenditures and investments, restrict certain payments and
distributions and require the Company to maintain certain financial ratios, as
defined. The Company complied with all required covenants at January 1, 1999,
accordingly the related debt is classified according to its contractual terms.
The Company has assessed it may not meet one of its financial ratio covenants at
April 2, 1999. The Company is in the process of negotiating changes to the
Senior Credit Facility covenants included in the debt agreement with the Senior
Credit Facility lender however, it has not yet reached a definitive agreement.
Management expects successful conclusion to such an agreement before the end of
the fourth quarter. If the Company fails to successfully negotiate such an
agreement and thereby fails to meet the covenants, then the Senior Credit
Facility lender will have the right to demand immediate repayment of the debt,
which had a balance outstanding of $116.6 million at January 1, 1999.
Additionally, the revolving facility, which had an unused availability of $16.9
million at January 1, 1999, would not be available to the Company. The
Company's debt covenants relating to the Senior Subordinated Notes provide that
such debt is due immediately upon the failure of covenants covered by any other
debt agreements.
OTHER DATA - EBITDA
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- --------------------------
<S> <C> <C> <C> <C>
January 1, December 26, January 1, December 26,
1999 1997 1999 1997
------------ ------------- ----------- -------------
EBITDA (1) $ 3,935 $ 3,390 $ 19,067 $ 11,962
</TABLE>
(1) The Company defines EBITDA as income from operations before depreciation
and amortization. The Company includes information concerning EBITDA because it
is used by certain investors as a measure of the Company'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. EBITDA
includes fees and reimbursement of out-of-pocket expenses for consulting
attributable to operating improvement initiatives of $1.3 million in the Current
Period, $0.5 million in the Prior Period, $3.0 million in the Current YTD
Period, and $0.6 million in the Prior YTD Period.
YEAR 2000 COMPLIANCE
The Company uses a variety of hardware and software technologies in its
operations. Mainframe computer systems are utilized to operate its accounting
and certain manufacturing systems. The Company has completed its assessment of
the effect of Year 2000 on its management information systems. The upgrade, to
the latest release of its management information system software, which includes
numerous enhancements and is Year 2000 compatible, is estimated to cost
approximately $500,000 of which $275,000 was spent through January 1, 1999. The
Company expects to be Year 2000 compliant on all these systems by March, 1999,
however, no assurance can be made in this regard. The Company is currently
performing an evaluation of its major vendors, customers and manufacturing
facilities (non-information technology aspects of Year 2000), based on a
timetable where the assessments will be completed by March 31, 1999 and has not
developed contingency plans in the event Year 2000 issues affect the Company
directly or through its relationship with third parties. The Year 2000
remediation timetable additionally includes a time frame for executing any
corrective action that may be required or contingency plans to be developed by
March 31, 1999.
FORWARD LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. All these forward-looking
statements are based on estimates and assumptions made by management of the
Company which, although believed to be reasonable, are inherently uncertain.
Therefore, undue reliance should not be placed upon such estimates and
statements. No assurance can be given that any of such estimates or statements
will be realized and actual results may differ materially from those
contemplated by such forward-looking statements. Factors that may cause such
differences include: (i) increased competition; (ii) increased costs; (iii) loss
or retirement of key members of management; (iv) changes in general economic
conditions in the markets in which the Company may from time to time compete;
(v) effect of negotiation of changes to the covenants in the Senior Credit
Facility; (vi) changes in the number of housing starts in these markets. Many
of such factors will be beyond the control of the Company and its management.
<PAGE>
- ------
PART II. OTHER INFORMATION
- -------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Reliant Building Products, Inc.
(Registrant)
Date: February 12, 1999 By: /S/ Virgil Lowe
------------------------------
Virgil Lowe,
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RELIANT
BUILDING PRODUCTS, INC. AND SUBSIDIARIES' CONSOLIDATED FINANCIAL STATEMENTS FOR
THE QUARTER ENDED JANUARY 1, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-2-1999
<PERIOD-END> JAN-1-1999
<CASH> 1,272
<SECURITIES> 0
<RECEIVABLES> 31,135
<ALLOWANCES> 2,533
<INVENTORY> 22,345
<CURRENT-ASSETS> 59,752
<PP&E> 65,297
<DEPRECIATION> 12,537
<TOTAL-ASSETS> 253,287
<CURRENT-LIABILITIES> 31,725
<BONDS> 186,163
0
4,701
<COMMON> 1
<OTHER-SE> 20,086
<TOTAL-LIABILITY-AND-EQUITY> 253,287
<SALES> 221,472
<TOTAL-REVENUES> 221,472
<CGS> 166,684
<TOTAL-COSTS> 166,684
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 776
<INTEREST-EXPENSE> 13,575
<INCOME-PRETAX> (4,567)
<INCOME-TAX> 36
<INCOME-CONTINUING> (4,603)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,603)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
