<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED: July 31, 1997
COMMISSION FILE NUMBER: 0-19885
NCI BUILDING SYSTEMS, INC.
- -------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 76-0127701
- -------------------------------------- ---------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7301 Fairview
Houston, Texas 77041
- ---------------------------------------- ---------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 466-7788
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
Not Applicable
- -------------------------------------------------------------------------------
FORMER NAME, FORMER ADDRESS AND FORMER FINANCIAL YEAR,
IF CHANGED SINCE LAST REPORT.
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 periods, 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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.O1 Par Value - 8,083,376 Shares as of July 31, 1997
<PAGE> 2
NCI BUILDING SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PART 1. FINANCIAL STATEMENTS PAGE NO.
--------
<S> <C>
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets
July 31, 1997 and October 31, 1996. 1
Condensed consolidated statements of income
Three months ended July 31, 1997 and 1996. 2
Condensed consolidated statements of income
Nine months ended July 31, 1997 and 1996. 3
Condensed consolidated statements of cash flows
Nine months ended July 31, 1997 and 1996. 4
Notes to condensed consolidated financial statements
July 31, 1997. 5-6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. 7-9
PART 2. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
<PAGE> 3
NCI BUILDING SYSTEMS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1997 1996
-------------- --------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 30,222,000 $ 20,944,000
ACCOUNTS RECEIVABLE 40,906,000 37,749,000
INVENTORIES 38,126,000 28,693,000
OTHER CURRENT ASSETS 3,750,000 3,224,000
-------------- --------------
113,004,000 90,610,000
PROPERTY, PLANT AND EQUIPMENT 64,596,000 56,243,000
LESS-ACCUMULATED DEPRECIATION (17,741,000) (13,491,000)
-------------- --------------
46,855,000 42,752,000
-------------- --------------
OTHER ASSETS:
EXCESS OF COST OVER FAIR VALUE 21,472,000 22,673,000
OTHER 4,610,000 2,291,000
-------------- --------------
26,082,000 24,964,000
-------------- --------------
$ 185,941,000 $ 158,326,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
NOTES PAYABLE AND CURRENT
PORTION OF LONG-TERM DEBT $ 47,000 $ 47,000
ACCOUNTS PAYABLE 26,322,000 21,527,000
OTHER CURRENT LIABILITIES 18,691,000 17,077,000
-------------- --------------
45,060,000 38,651,000
-------------- --------------
LONG-TERM DEBT, NONCURRENT PORTION,
AND DEFERRED INCOME TAXES 3,477,000 3,500,000
-------------- --------------
SHAREHOLDERS' EQUITY:
COMMON STOCK 81,000 80,000
PAID IN CAPITAL 50,282,000 47,359,000
RETAINED EARNINGS 87,041,000 68,736,000
-------------- --------------
137,404,000 116,175,000
-------------- --------------
$ 185,941,000 $ 158,326,000
============== ==============
</TABLE>
NOTE: THE BALANCE SHEET AT OCTOBER 31, 1996 HAS BEEN DERIVED FROM THE AUDITED
FINANCIAL STATEMENTS AT THAT DATE.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE> 4
NCI BUILDING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
--------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
SALES $ 112,484,000 $ 91,980,000
COST OF SALES 82,710,000 66,504,000
-------------- --------------
GROSS PROFIT 29,774,000 25,476,000
OPERATING EXPENSES 17,559,000 14,301,000
-------------- --------------
OPERATING INCOME 12,215,000 11,175,000
-------------- --------------
INTEREST EXPENSE 48,000 46,000
OTHER (INCOME) (486,000) (366,000)
-------------- --------------
(438,000) (320,000)
-------------- --------------
INCOME BEFORE INCOME TAXES 12,653,000 11,495,000
PROVISION FOR INCOME TAXES 4,682,000 4,356,000
-------------- --------------
NET INCOME $ 7,971,000 $ 7,139,000
============== ==============
NET INCOME PER SHARE $ .94 $ .85
============== ==============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- 2 -
<PAGE> 5
NCI BUILDING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED July 31,
1997 1996
------------- -------------
<S> <C> <C>
SALES $ 286,996,000 $ 231,501,000
COST OF SALES 211,118,000 169,094,000
------------- -------------
GROSS PROFIT 75,878,000 62,407,000
OPERATING EXPENSES 47,922,000 37,395,000
------------- -------------
OPERATING INCOME 27,956,000 25,012,000
------------- -------------
INTEREST EXPENSE 125,000 73,000
OTHER (INCOME) EXPENSE (1,251,000) (1,175,000)
------------- -------------
(1,126,000) (1,102,000)
------------- -------------
INCOME BEFORE INCOME TAXES 29,082,000 26,114,000
PROVISION FOR INCOME TAXES 10,777,000 9,902,000
------------- -------------
NET INCOME $ 18,305,000 $ 16,212,000
============= =============
NET INCOME PER SHARE $ 2.16 $ 1.99
============= =============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE> 6
NCI BUILDING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JULY 31,
1997 1996
------------ ------------
<S> <C> <C>
CASH FROM OPERATIONS $ 22,600,000 $ 17,317,000
------------ ------------
INVESTING ACTIVITIES:
PURCHASE OF PROPERTY, PLANT (5,376,000) (7,974,000)
AND EQUIPMENT
ACQUISITION OF DBCI -- (11,000,000)
ACQUISITION OF MESCO -- (20,613,000)
ACQUISITION OF CARLISLE ASSETS (6,230,000) (2,522,000)
OTHER (2,670,000) (1,959,000)
------------ ------------
(14,276,000) (44,068,000)
------------ ------------
FINANCING ACTIVITIES:
NET PROCEEDS FROM SALE OF STOCK -- 24,770,000
PROCEEDS FROM STOCK OPTIONS EXERCISE 931,000 696,000
BORROWING AND REPAYMENT OF DEBT
AND OTHER 23,000 (36,000)
------------ ------------
954,000 25,430,000
------------ ------------
INCREASE (DECREASE) IN CASH $ 9,278,000 $ (1,321,000)
============ ============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE> 7
NCI BUILDING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JULY 31, 1997
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information for footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three-month and nine-month periods ended July 31, 1997,
are not necessarily indicative of the results that may be expected for the
year ended October 31, 1997.
For further information, refer to the financial statements and footnotes
thereto included in the Company's Annual Report to Shareholders for the
year ended October 31, 1996.
NOTE 2 -- INVENTORIES
The components of inventory consist of the following;
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1997 1996
----------- -----------
<S> <C> <C>
Raw materials $31,032,000 $21,515,000
Work in process
and finished goods 7,094,000 7,178,000
----------- -----------
$38,126,000 $28,693,000
=========== ===========
</TABLE>
NOTE 3 -- NET INCOME PER SHARE
Net income per common share is computed by dividing net income after
income taxes by the weighted average number of common shares outstanding,
after giving effect to common stock equivalents. The number of shares used
in the computation for the three months ended July 31,1997 and 1996 was
8,477,000 and 8,393,000, respectively. The number of shares used in the
computation for the nine months ended July 31, 1997 and 1996 was 8,471,000
and 8,138,000, respectively.
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<PAGE> 8
NCI BUILDING SYSTEMS, INC.
NOTE 4 -- ACQUISITIONS
In November 1995, the Company acquired substantially all the assets and
assumed certain liabilities of Doors and Building Components Inc.,
(DBCI), a manufacturer of overhead doors, for approximately $18.0 million.
The excess of cost over the fair value of the acquired net assets was
approximately $11.4 million. In April, 1996, The Company acquired
substantially all the assets and assumed certain liabilities of Mesco
Metal Buildings (Mesco) for approximately $22.3 million, including a cash
consideration of $20.8 million and the issuance of a $1.5 million, 7%
subordinated convertible debenture due April 1, 2001. The excess of cost
over the fair value of the acquired net assets was approximately $10.9
million. The consolidated results of operations for 1996 include DBCI and
MESCO since the dates of acquisition. The acquisitions were accounted for
using the purchase method. Assuming the acquisitions of DBCI and MESCO had
been consummated November 1, 1995, the pro forma unaudited results of
operations are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Nine Months Ended July 31,
1996
----------
<S> <C>
Sales $ 246,045
Net income $ 17,621
Net income per share $ 2.16
</TABLE>
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<PAGE> 9
NCI BUILDING SYSTEMS, INC.
ITEM 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1997 COMPARED TO THREE MONTHS ENDED JULY 31, 1996.
Sales in the third quarter of fiscal year 1997 increased by $20.5 million,
or 22%, compared to the third quarter of fiscal year 1996. This increase
was due to the increased industry demand in the metal building business,
increase in the Company's builder organization and increased market
penetration in the components division of the Company.
Gross profit for the third quarter of fiscal 1997 increased $4.3 million,
or 17%, compared to the prior year's third quarter. Gross profit
percentage decreased from 27.7% last year to 26.5% in the current year.
This decrease in gross profit percentage resulted primarily from the
increased percent of sales derived from components which have slightly
lower gross margins than metal building systems.
Operating expenses which consist of engineering, sales and administrative
costs, increased by $3.3 million, or 23%, in the current quarter compared
to the same period a year ago. The dollar increase resulted primarily from
the increased sales and marketing efforts to build backlog and sales at
four facilities added in 1997. As a percent of sales, operating expenses
were 15.6% compared to 15.5% a year ago.
The increase in other income of $120,000 in the current quarter compared
to the third quarter last year resulted primarily from higher interest
income on the invested cash due to higher average investments in the
quarter and higher rates of return compared to the prior year.
Income before income taxes increased by $1.2 million, or 10%. The
increase was less than the sales increase as a result of the lower gross
margin percentage and the slight increase in operating expenses as a
percent of sales. As a percent of sales, pre-tax income was 11.2% in the
current quarter of fiscal 1996 compared to 12.5% in the same quarter a
year ago.
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<PAGE> 10
NCI BUILDING SYSTEMS, INC.
NINE MONTHS ENDED JULY 31, 1997 COMPARED TO NINE MONTHS ENDED JULY 31, 1996.
Sales of $287.0 million for the nine months ended July 31, 1997 increased
$55.5 million or 24% over the same period a year ago. Approximately $15.6
million, or 7%, was due to the inclusion of Mesco for the full nine months
of fiscal year 1997 compared to only four months in fiscal 1996. Factors
which contributed to the remaining increase were increased sales through
the authorized builder organization, increased market penetration in the
components business and continued geographic expansion primarily in the
western area of the United States.
Gross profit of $75.9 million increased 22% for the nine-month period
ended July 31, 1997 compared to the same period a year ago. This increase
was comparable to the sales increase for the period. As a percent of
sales, gross profit was 26.4% in the current period compared to 27.0% in
the same period last year. Slightly higher component sales as a percent of
total sales primarily accounted for the decrease in gross profit margin
percent.
Operating expenses increased $10.5 million, or 28%, compared to the nine
months ended July 31, 1996. As a percent of sales, operating expenses were
16.7% and 16.2%, respectively, for the nine month periods ended July 31,
1997 and 1996. The dollar increase in expenses resulted from the higher
level of sales for the current period primarily in the area of selling
expenses. The slight increase as a percent of sales resulted from higher
marketing costs to build sales at four additional facilities, introduction
of new products and geographical expansion.
Interest expense increased by $52,000 due to debt incurred in connection
with the acquisition of Mesco. Other income increased by $76,000 as a
result of higher income from invested cash in the current year.
As a percent of sales, income of taxes decreased to 10.1% from 11.3% in
the prior year as a result of the decrease in gross margin percent and the
higher level of operating expenses in the current year compared to 1996.
LIQUIDITY AND CAPITAL RESOURCES
The company has historically funded its operations from cash flow from
operations, equity sales of its common stock and bank borrowing. It
maintains a revolving credit facility with a bank leader that provides for
a maximum credit on an unsecured basis of $6.0 million, which matures in
March 1999. The Company had no outstanding balance under its revolving
credit facility at July 31, 1997 and did not borrow under its credit
agreement during the current year.
During the quarter, the Company spent $1.3 million in capital additions
related primarily to the expansion of its plant in Ennis, Texas to be used
in its components operations, purchase of computer hardware and software,
and purchase of manufacturing equipment at all locations to enhance
productivity.
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<PAGE> 11
NCI BUILDING SYSTEMS, INC.
At July 31, 1997, the ratio of current assets to current liabilities was
2.5 to 1 compared to a ratio of 2.3 to 1 at October 31, 1996 and had
outstanding funded debt of $1.7 million.
Liquidity in future periods will be dependent on internally generated cash
flows, the ability to obtain adequate financing for capital expenditures
and expansion, when needed, and the amount of increase working capital
necessary to support expected growth. Based on current capitalization, it
is expected that future cash flows from operations and the availability of
alternative sources of external financing should be sufficient to provide
adequate liquidity in future periods.
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<PAGE> 12
NCI BUILDING SYSTEMS, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORK 8-K
(a) None
(b) There were no reports filed under Form 8-K for the quarter ended
July 31,1997
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.
NCI BUILDING SYSTEMS, INC.
--------------------------
(Registrant)
Date: September 15, 1997 /s/ Robert J. Medlock
----------------------- ---------------------------
Robert J. Medlock
Vice President and
Chief Financial Officer
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<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 30,222,000
<SECURITIES> 0
<RECEIVABLES> 42,522,000
<ALLOWANCES> 1,616,000
<INVENTORY> 38,126,000
<CURRENT-ASSETS> 113,004,000
<PP&E> 64,596,000
<DEPRECIATION> 17,741,000
<TOTAL-ASSETS> 185,941,000
<CURRENT-LIABILITIES> 45,060,000
<BONDS> 0
0
0
<COMMON> 81,000
<OTHER-SE> 137,323,000
<TOTAL-LIABILITY-AND-EQUITY> 185,941,000
<SALES> 286,996,000
<TOTAL-REVENUES> 286,996,000
<CGS> 211,118,000
<TOTAL-COSTS> 47,880,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 42,000
<INTEREST-EXPENSE> 125,000
<INCOME-PRETAX> 29,082,000
<INCOME-TAX> 10,777,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,305,000
<EPS-PRIMARY> 2.16
<EPS-DILUTED> 0
</TABLE>
