<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: April 30, 1998
---------------
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, TX 77041
- ------------------------------------ ----------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 466-7788
- --------------------------------------------------------------------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
Not Applicable
- --------------------------------------------------------------------------------
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL 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, $.01 Par Value--8,258,809 shares as of April 30, 1998
------------------------------------------------------------------
<PAGE> 2
NCI BUILDING SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PART 1. FINANCIAL STATEMENTS PAGE NO.
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed consolidated balance sheets
April 30, 1998 and October 31, 1997. 1
Condensed consolidated statements of income
Three months ended April 30, 1998 and 1997. 2
Condensed consolidated statements of cash flows
Six months ended April 30, 1998 and 1997. 3
Notes to condensed consolidated financial
statements April 30, 1998. 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 5-6
PART 2. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K. 7
</TABLE>
<PAGE> 3
NCI BUILDING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, October 31,
1998 1997
------------- -------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 37,972,000 $ 32,166,000
ACCOUNTS RECEIVABLE 35,954,000 47,006,000
INVENTORIES 40,725,000 37,381,000
OTHER CURRENT ASSETS 4,695,000 4,405,000
------------- -------------
119,346,000 120,958,000
PROPERTY, PLANT AND EQUIPMENT 74,381,000 70,532,000
LESS-ACCUMULATED DEPRECIATION (22,623,000) (19,309,000)
------------- -------------
51,758,000 51,223,000
OTHER ASSETS:
EXCESS OF COSTS OVER FAIR VALUE 20,361,000 22,273,000
OTHER 5,237,000 1,878,000
------------- -------------
25,598,000 24,151,000
------------- -------------
$ 196,702,000 $ 196,332,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
NOTES PAYABLE AND CURRENT
PORTION OF LONG-TERM DEBT $ 47,000 $ 47,000
ACCOUNTS PAYABLE 14,993,000 23,921,000
OTHER CURRENT LIABILITIES 12,996,000 20,244,000
------------- -------------
28,036,000 44,212,000
------------- -------------
LONG-TERM DEBT, NONCURRENT PORTION
AND DEFERRED INCOME TAXES 4,249,000 4,305,000
------------- -------------
SHAREHOLDERS' EQUITY:
COMMON STOCK 83,000 81,000
PAID IN CAPITAL 55,262,000 51,110,000
RETAINED EARNINGS 109,072,000 96,624,000
------------- -------------
164,417,000 147,815,000
------------- -------------
$ 196,702,000 $ 196,332,000
============= =============
</TABLE>
NOTE: THE BALANCE SHEET AT OCTOBER 31, 1997 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 APRIL 30,
1998 1997
------------ ------------
<S> <C> <C>
SALES $ 95,349,000 $ 91,637,000
COST OF SALES 68,735,000 67,943,000
------------ ------------
GROSS PROFIT 26,614,000 23,694,000
OPERATING EXPENSES 17,389,000 15,825,000
------------ ------------
OPERATING INCOME 9,225,000 7,869,000
INTEREST EXPENSE 37,000 40,000
OTHER INCOME (793,000) (351,000)
------------ ------------
(756,000) (311,000)
------------ ------------
INCOME BEFORE TAXES 9,981,000 8,180,000
PROVISION FOR INCOME TAXES 3,585,000 2,997,000
------------ ------------
NET INCOME $ 6,396,000 $ 5,183,000
============ ============
NET INCOME PER SHARE - BASIC $ .78 $ .64
============ ============
NET INCOME PER SHARE - DILUTED $ .73 $ .61
============ ============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-2-
<PAGE> 5
NCI BUILDING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30,
1998 1997
------------- -------------
<S> <C> <C>
SALES $ 192,672,000 $ 174,512,000
COST OF SALES 140,621,000 128,408,000
------------- -------------
GROSS PROFIT 52,051,000 46,104,000
OPERATING EXPENSES 34,030,000 30,363,000
------------- -------------
OPERATING INCOME 18,021,000 15,741,000
INTEREST EXPENSE 84,000 77,000
OTHER INCOME (1,492,000) (765,000)
------------- -------------
(1,408,000) (688,000)
------------- -------------
INCOME BEFORE TAXES 19,429,000 16,429,000
PROVISION FOR INCOME TAXES 6,981,000 6,095,000
------------- -------------
NET INCOME $ 12,448,000 $ 10,334,000
============= =============
NET INCOME PER SHARE - BASIC $ 1.52 $ 1.29
============= =============
NET INCOME PER SHARE - DILUTED $ 1.44 $ 1.22
============= =============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-3-
<PAGE> 6
NCI BUILDING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30,
1998 1997
------------ ------------
<S> <C> <C>
CASH FROM OPERATIONS $ 10,036,000 $ 6,401,000
------------ ------------
INVESTING ACTIVITIES:
PURCHASE OF PROPERTY, PLANT & EQUIPMENT (3,959,000) (4,038,000)
ACQUISITION OF CARLISLE -- (6,230,000)
OTHER (2,439,000) (626,000)
------------ ------------
(6,398,000) (10,894,000)
------------ ------------
FINANCING ACTIVITIES:
PROCEEDS FROM STOCK OPTIONS EXERCISE 2,194,000 749,000
REPAYMENT OF DEBT AND OTHER (26,000) (25,000)
------------ ------------
2,168,000 724,000
------------ ------------
INCREASE (DECREASE) IN CASH $ 5,806,000 (3,769,000)
============ ============
</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)
APRIL 30, 1998
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated 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 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 and six months ended April 30, 1998 are not necessarily
indicative of the results that may be expected for the year ended October
31, 1998.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report to Shareholders
for the year ended October 31, 1997.
NOTE 2 -- INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
April 30, October 31,
1998 1997
----------- -----------
<S> <C> <C>
Raw Materials $31,898,000 $28,943,000
Work in process and finished goods 8,827,000 8,438,000
----------- -----------
$40,725,000 $37,381,000
=========== ===========
</TABLE>
NOTE 3 - NET INCOME PER SHARE
Basic earnings per common share is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per
common share considers the effect of common stock equivalents. The computations
are as follows:
<TABLE>
<CAPTION>
Three Months Ended April 30, Six Months Ended April 30,
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net income 6,396 5,183 12,448 10,334
Add: Interest, net of tax on convertible denbenture
assumed converted 17 17 34 34
----- ----- ------ ------
Adjusted net income 6,413 5,200 12,482 10,368
Weighted average common shares outstanding 8,228 8,066 8,195 7,985
Add: Common stock equivalents
Stock option plan 464 432 448 483
Convertible debentures 50 50 50 50
----- ----- ------ ------
Weighted average common shares
outstanding, assuming dilution 8,742 8,548 8,693 8,518
Net Income per share - Basic 0.78 0.64 1.52 1.29
===== ===== ====== ======
Net Income per share - Diluted 0.73 0.61 1.44 1.22
===== ===== ====== ======
</TABLE>
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<PAGE> 8
NCI BUILDING SYSTEMS, INC.
NOTE 4 - SUBSEQUENT EVENTS
On May 4, 1998, the Company acquired the outstanding stock of Metal Building
Components, Inc.("MBCI") for $550 million in cash and 700,000 shares of the
Company's common stock. MBCI designs, manufactures, sells and distributes metal
components for commercial, industrial, architectural, agricultural and
residential construction uses. MBCI also processes its own hot roll coil metal
for use in component manufacturing, as well as processing hot roll coil metal
and toll coating light gauge metal for use by other parties in the construction
of metal building components and numerous other products. The funds for this
acquisition were provided from the proceeds of a new $600 million credit
facility from several banks under which the Company initially borrowed $540
million. The facility includes a $200 million five year term loan, a $200
million five year revolving loan and a $200 million 364 day revolving loan which
is convertible into a three year term loan under certain conditions,
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
THREE MONTHS ENDED APRIL 30, 1998 COMPARED TO THREE MONTHS ENDED APRIL 30, 1997.
Sales in the second quarter of fiscal year 1998 increased by $3.7 million, or
4%, compared to the second quarter of fiscal year 1997. This increase was due
primarily to the increase in market penetration of building system sales and
higher sales in the component division. Wet weather in the West, Southeast and
Southwest United States delayed shipments in the second quarter of 1998 and
reduced expected sales during the quarter.
Gross profit in the second quarter increased $2.9 million, or 12%, compared to
the prior year's second quarter. Gross margin percentage increased from 25.9%
last year to 27.9% in the current quarter. This increase resulted from better
utilization and control of manufacturing costs, improved margins in the
components business and stable raw material costs in the current year.
Operating expenses which consist of engineering, selling and administrative
costs increased by $1.6 million, or 10%, in the current quarter compared to
the same period last year. As a percent of sales, operating expenses were 18.2%
compared to 17.3% a year ago. This increase was primarily of salaries and
commissions for additional employees hired to support the increased volume of
orders and sales over the prior year. As a percent of sales, these costs
increased because of lower sales than expected due to adverse weather in the
second quarter which delayed the shipment of customer orders.
Interest expense decreased by $3,000 in the current quarter compared to the
prior year's second quarter due to normal repayment of debt. Other income
increased by $442,000 in the current quarter due to a higher level of
investable cash this year compared to last year and other income related to
joint venture activities.
Income before income taxes increased by $1.8 million, or 22%. Improved gross
margins accounted for most of this improvement for the current quarter. In the
prior year, income levels were impacted by start up costs associated with the
acquisition of Carlisle in February 1997.
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<PAGE> 9
SIX MONTHS ENDED APRIL 30, 1998 COMPARED TO SIX MONTHS ENDED APRIL 30, 1997.
Sales for the six months ended April 30, 1998 increased by $18.2 million. This
increase resulted from increased market penetration in both the metal building
systems and components markets.
Gross margins for the six months ended April 30, 1998 increased by $5.9 million,
or 13%, compared to the same period a year ago. This increase was slightly
higher than the 10% increase in sales due to the improvement in gross margins
for the second quarter discussed above,
Operating expenses, which consist of engineering, selling and administrative
costs, increased by $3.7 million, or 12%, for the six months ended April 30,
1998 compared to the same period last year. As a percent of sales, operating
expenses were 17.7% compared to 17.4% a year ago. This increase was primarily
due to adverse weather in the first and second quarters which delayed the
shipment of customer orders.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operations from cash flow from
operations, bank borrowing and sale of equity in the Company. The Company has no
outstanding balance under either of its credit facilities and has not borrowed
any funds in the six month period.
During the six months, the Company spent $4.0 million in capital additions for
its manufacturing plants. All of the funds for these additions were funded from
internally generated cash.
At April 30, 1998, the ratio of current assets to current liabilities was
4.3 to 1 compared to 2.7 to 1 at October 31, 1997. Cash flow generated from
operations before changes in current assets and liabilities was $24.6 million.
On May 4, 1998, the Company acquired the outstanding stock of Metal Building
Components, Inc. ("MBCI") for $550 million in cash and 700,000 shares of the
Company's common stock. MBCI designs, manufactures, sells and distributes metal
components for commercial, industrial, architectural, agricultural and
residential construction uses. MBCI also processes its own hot roll coil metal
for use in component manufacturing, as well as processing hot roll coil metal
and toll coating light gauge metal for use by other parties in the construction
of metal building components and numerous other products. The funds for this
acquisition were provided from the proceeds of a new $600 million credit
facility from several banks under which the Company initially borrowed $540
million. The facility includes a $200 million five year term loan, a $200
million five year revolving loan and a $200 million 364 day revolving loan which
is convertible into a three year term loan under certain conditions.
Liquidity in future periods will be dependent on internally generated cash
flows, the ability to obtain adequate external financing for expansion, when
needed, and the amount of increased working capital necessary to support
expected growth. Based on current capitalization, it is expected future cash
flows from operations and the availability of alternative sources of external
financing should be sufficient to provide adequate liquidity in future periods
and to meet the Company's obligations under its new credit facility.
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and is
implementing its plan to resolve the issue. The Year 2000 problem is a result of
computer programs being written using two digits (rather than four) to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculations. The
Company presently believes that, with modifications to existing software and
converting to new software, the Year 2000 problem will not pose
-7-
<PAGE> 10
significant operational problems for the Company's computer systems as so
modified and converted. The Company is well under way with its project plans and
expects to complete systems corrections by December 31, 1998. The related cost
is not expected to be material to the Company's results of operations or
financial position.
- --------------------------------------------------------------------------------
This Form 10-Q may contain forward-looking statements concerning the business
and operations of the Company. Although the Company believes that the
expectations reflected in these forward-looking statements are reasonable, these
expectations and the related statements are subject to risks, uncertainties, and
other factors that could cause the actual results to differ materially from
those projected. These risks, uncertainties, and factors include, but are not
limited to, industry cyclicality and seasonality, adverse weather conditions,
fluctuation in customer demand and order pattern raw material pricing,
competitive activity and pricing pressure, the ability to make strategic
activities accretive to earnings, and general economic conditions affecting the
construction industry as well as other risks detailed in the Company's filings
with the Securities and Exchange Commission, including its annual report on Form
10-K for the year ended October 31, 1997. The Company expressly disclaims any
obligation to release publicly any updates or revisions to these
forward-looking statements to reflect any change in its expectations.
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<PAGE> 11
NCI BUILDING SYSTEMS, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) There were no reports filed under Form 8-K for the quarter ended
April 30, 1998.
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: June 12,1998
-------------
/s/ ROBERT J. MEDLOCK
--------------------------------------
Robert J. Medlock
Vice President and
Chief Financial Officer
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<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<CASH> 37,972,000
<SECURITIES> 0
<RECEIVABLES> 37,588,000
<ALLOWANCES> 1,634,000
<INVENTORY> 40,725,000
<CURRENT-ASSETS> 119,346,000
<PP&E> 74,381,000
<DEPRECIATION> 22,623,000
<TOTAL-ASSETS> 196,702,000
<CURRENT-LIABILITIES> 28,036,000
<BONDS> 0
0
0
<COMMON> 83,000
<OTHER-SE> 164,334,000
<TOTAL-LIABILITY-AND-EQUITY> 196,702,000
<SALES> 192,672,000
<TOTAL-REVENUES> 192,672,000
<CGS> 140,621,000
<TOTAL-COSTS> 33,894,000
<OTHER-EXPENSES> (1,492,000)
<LOSS-PROVISION> 136,000
<INTEREST-EXPENSE> 84,000
<INCOME-PRETAX> 19,429,000
<INCOME-TAX> 6,981,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,448,000
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.44
</TABLE>
