<PAGE>
[LOGO]
August 27, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of NCI
Building Systems, Inc. (the "Company") to be held at 2:00 p.m. local time, on
Tuesday, September 29, 1998, at the offices of the Company located at 7301
Fairview, Houston, Texas. At this meeting you will be asked to:
(i) Approve an amendment to the Company's Restated Certificate of
Incorporation that would increase the number of authorized shares of
Common Stock from 25,000,000 to 50,000,000; and
(ii) Transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
It is important that your shares be represented at the meeting; therefore,
if you do not expect to attend in person, please sign and date the enclosed
proxy and return it in the enclosed envelope at your earliest convenience.
Very truly yours,
/s/ C.A. Rundell, Jr.
CHAIRMAN OF THE BOARD
Houston, Texas
August 27, 1998
<PAGE>
NCI BUILDING SYSTEMS, INC.
7301 FAIRVIEW
HOUSTON, TEXAS 77041
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 29, 1998
------------------------
A Special Meeting of Stockholders of NCI Building Systems, Inc., a Delaware
corporation (hereinafter the "Company"), will be held at the offices of the
Company located at 7301 Fairview, Houston, Texas, on Tuesday, September 29,
1998, at 2:00 p.m. local time. The special meeting will be held for the
following purposes:
1. Approval of an amendment to the Company's Restated Certificate of
Incorporation that would increase the number of authorized shares of
Common Stock, $0.01 par value per share ("Common Stock"), from 25,000,000
to 50,000,000; and
2. The transaction of such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
Only stockholders of record at the close of business on August 26, 1998 are
entitled to notice of, and to vote at, the meeting or any adjournments thereof.
A list of stockholders entitled to vote at the meeting will be available at the
meeting for examination by any stockholder.
It is desirable that as large a proportion as possible of the stockholders'
interests be represented at the meeting. WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING, IT IS REQUESTED THAT THE ENCLOSED FORM OF PROXY BE PROPERLY EXECUTED
AND PROMPTLY RETURNED TO THE COMPANY IN THE ENCLOSED ADDRESSED AND STAMPED
ENVELOPE. You may revoke the proxy at any time before the proxy is exercised by
delivering written notice of revocation to the Secretary of the Company, by
delivering a subsequently dated proxy or by attending the meeting and
withdrawing the proxy. Please date, sign and return the enclosed proxy
immediately in the stamped envelope provided.
By Order of the Board of Directors
/s/ Donnie R. Humphries
DONNIE R. HUMPHRIES,
SECRETARY
Houston, Texas
August 27, 1998
<PAGE>
NCI BUILDING SYSTEMS, INC.
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL............................................................................... 1
ACTION TO BE TAKEN AT MEETING......................................................... 1
PERSONS MAKING THE SOLICITATION....................................................... 1
QUORUM AND VOTING..................................................................... 2
PROPOSAL TO APPROVE AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION TO INCREASE
AUTHORIZED CAPITAL STOCK............................................................ 2
OUTSTANDING CAPITAL STOCK............................................................. 3
THE MBCI ACQUISITION.................................................................. 5
General............................................................................. 5
Reasons for the MBCI Acquisition.................................................... 6
Terms of the MBCI Acquisition....................................................... 7
Selected Historical and Pro Forma Consolidated Financial Information................ 10
Comparative Data.................................................................... 13
Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................ 14
Business............................................................................ 21
MANAGEMENT............................................................................ 31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................ 34
STOCKHOLDERS' PROPOSALS............................................................... 34
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..................................... 35
FORWARD-LOOKING INFORMATION........................................................... 36
MISCELLANEOUS......................................................................... 36
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
</TABLE>
<PAGE>
NCI BUILDING SYSTEMS, INC.
7301 FAIRVIEW
HOUSTON, TEXAS 77041
(713) 466-7788
------------------------
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 29, 1998
GENERAL
This Proxy Statement is furnished to stockholders of NCI Building Systems,
Inc., a Delaware corporation (the "Company"), in connection with the
solicitation of proxies to be used at the Special Meeting of Stockholders of the
Company to be held September 29, 1998 (the "Special Meeting"). Proxies in the
form enclosed will be voted at the meeting if properly executed, returned to the
Company before the Special Meeting and not revoked. Any stockholder giving such
a proxy may revoke it at any time before it is voted by delivering written
notice of revocation to the Secretary of the Company, by delivering a
subsequently dated proxy or by attending the meeting, withdrawing your proxy and
voting your shares personally. Your attendance at the meeting will not
constitute automatic revocation of the proxy.
This Proxy Statement and the enclosed proxy form are first being sent to
stockholders on or about August 28, 1998.
On June 24, 1998, the Board of Directors declared a 2 for 1 split of the
Company's Common Stock in the form of a stock dividend, which was paid on July
23, 1998 to holders of the Common Stock of record as of the close of business on
July 8, 1998. Unless specifically noted otherwise in this Proxy Statement, the
information relating to the Common Stock set forth herein reflects the split of
the Common Stock and the issuance of the additional shares to effectuate the
stock split.
ACTION TO BE TAKEN AT MEETING
When stockholders have appropriately specified how their proxies should be
voted, the proxies will be voted accordingly. Unless the stockholder otherwise
specifies therein, the accompanying proxy will be voted (i) FOR the proposed
amendment to increase the authorized shares of Common Stock of the Company and
(ii) at the discretion of the proxy holders, either FOR or AGAINST any other
matter or business that may properly come before the meeting. The Board of
Directors does not know of any such other matter or business.
PERSONS MAKING THE SOLICITATION
The accompanying proxy is being solicited by the Board of Directors of the
Company. The cost of soliciting your proxy will be borne entirely by the Company
and no other person or persons will bear such costs either directly or
indirectly. In addition to the use of the mails, proxies may be solicited by
personal interview, telephone and telegram by directors and regular officers and
employees of the Company. The Company may also engage the services of a proxy
solicitation firm to assist in the solicitation of proxies. The Company
estimates that the fee of any such firm will not exceed $7,500 plus
reimbursement of reasonable out-of-pocket expenses. In addition, the Company has
requested brokerage firms and other custodians, nominees and fiduciaries to
forward copies of the Proxy Statement and form of proxy to the beneficial owners
of Common Stock held of record by such persons and to request authority for
execution of the proxies. The Company will reimburse such record holders for
their reasonable out of pocket expenses in doing so.
<PAGE>
QUORUM AND VOTING
The presence in person or by proxy of the holders of a majority of the
outstanding shares of the Common Stock is necessary to constitute a quorum at
the Special Meeting of Stockholders. Each outstanding share of Common Stock is
entitled to one vote. Abstentions will be included in vote totals and, as such,
will have the same effect as a negative vote on each proposal. Broker non-votes
(i.e., shares held by brokers or nominees as to which they have no discretionary
power to vote on a particular matter and have received no instructions from the
beneficial owners or persons entitled to vote thereon), if any, will not be
included in vote totals and, as such, will have no effect on any proposal. The
proposed amendment to the Restated Certificate of Incorporation to increase the
authorized shares of Common Stock, and all other matters that properly come
before the Special Meeting must be approved by the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock.
PROPOSAL TO APPROVE AMENDMENT TO RESTATED
CERTIFICATE OF INCORPORATION TO INCREASE
AUTHORIZED CAPITAL STOCK
The Board of Directors believes that it is desirable for the stockholders to
consider and act upon a proposal to amend the Company's Restated Certificate of
Incorporation (the "Certificate"). Pursuant to the proposal, the currently
authorized shares of Common Stock will be increased from 25,000,000 to
50,000,000. The Company also has 1,000,000 authorized shares of Preferred Stock
which will not be changed under the proposal.
Of the 25,000,000 currently authorized shares of Common Stock, 9,012,241
shares were issued as of July 8, 1998 and 1,906,823 shares were reserved on that
date for issuance in connection with the Company's Nonqualified Stock Option
Plan, as amended and restated ("Stock Option Plan"), the Company's 401(k) Profit
Sharing Plan and a convertible debenture. As a result of the 2 for 1 stock split
declared by the Board of Directors on June 24, 1998, an additional 9,012,241
shares of Common Stock were issued on July 23, 1998 to holders of record of the
Common Stock on July 8, 1998 and an additional 1,906,823 shares were reserved
for issuance in connection with the Stock Option Plan, the Company's 401(k)
Profit Sharing Plan and a convertible debenture. As of August 26, 1998, the
record date for the Special Meeting (the "Record Date"), 18,054,482 shares were
issued and outstanding and 3,783,646 shares were reserved for issuance. As a
result of the above, only an additional 3,161,872 unreserved shares of Common
Stock are available for issuance.
The Board of Directors believes that the proposed amendment to the
Certificate would benefit the Company by providing greater flexibility for
raising additional capital to fund the Company's internal growth and acquisition
strategies, repay indebtedness, fund stock-related employee benefits, and fund
other working capital and general corporate requirements. The Company has filed
a registration statement for a public offering of up to 4,370,000 shares of
Common Stock of which up to 4,070,000 shares will be sold for the account of the
Company and the remaining shares will be sold for the account of selling
stockholders. The net proceeds of the shares sold by the Company, if the public
offering is completed, will be used primarily to prepay commercial bank
indebtedness of the Company incurred by the Company to fund its acquisition of
Metal Building Components, Inc. in May 1998 (the "MBCI Acquisition"). In
connection with the MBCI Acquisition, the Company issued an aggregate of
1,400,000 unregistered shares of Common Stock (with an approximate fair market
value of $32.2 million) at the closing to certain officers and employees of MBCI
in exchange for their future interests in MBCI's senior management incentive
plan. Information with respect to the MBCI Acquisition is set forth in this
Proxy Statement. See "The MBCI Acquisition." The Company has no plans to issue
Common Stock in any transaction that would result in a change in control of the
Company. The increase in the authorized capital of the Company is not for the
purpose of approving the authorization of additional shares of common stock to
be used in any specific acquisition.
2
<PAGE>
If the proposed amendment is delayed or not adopted, the Company may be
required to delay, postpone or reduce the size of the contemplated public
offering to a smaller number of shares of Common Stock than otherwise desirable
or possible. In addition, the Company may find it necessary to convene a special
meeting of stockholders before the Company could consummate any other
transaction in which the number of shares of Common Stock that would be issued,
together with all other new issuances of Common Stock after the record date for
the Special Meeting, would exceed 3,161,872. This could potentially add to the
costs of a future transaction and the added time necessary to prepare for and
hold a stockholders' meeting could serve as a disincentive for third parties
otherwise interested in making an investment in, or entering into such
transaction with, the Company.
The Board will determine whether, when, and on what terms the issuance of
shares of Common Stock may be warranted in connection with any of the foregoing
purposes. Depending upon the consideration per share received by the Company for
any subsequent issuance of Common Stock, such issuance could have a dilutive
effect on those stockholders who paid a higher consideration per share for their
stock. Also, future issuances will increase the number of outstanding shares of
Common Stock, thereby decreasing the percentage ownership in the Company (for
voting, distributions and all other purposes) represented by existing shares of
Common Stock. The availability for issuance of the additional shares of Common
Stock and any issuance thereof may be viewed as having the effect of
discouraging an unsolicited attempt by another person or entity to acquire
control of the Company. The Company is not aware of any person or entity who is
seeking to acquire control of the Company. If the proposed amendment is
approved, all or any of the authorized shares of Common Stock may be issued
without further action by the stockholders and without first offering such
shares to the stockholders for subscription.
Other than increasing the authorized shares of Common Stock from 25,000,000
to 50,000,000, the proposed amendment in no way changes the Certificate.
The Board has unanimously adopted resolutions setting forth the proposed
amendment to the Certificate, declaring its advisability and directing that the
proposed amendment be submitted to the stockholders for their approval at the
Special Meeting on September 29, 1998. If adopted by the stockholders, the
amendment will become effective upon filing as required by the General
Corporation Law of Delaware.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE AMENDMENT
OF THE CERTIFICATE, AS PROPOSED ABOVE.
OUTSTANDING CAPITAL STOCK
The Record Date for stockholders entitled to notice of, and to vote at, the
Special Meeting is August 26, 1998. At the close of business on the Record Date
the Company had 18,054,482 shares of Common Stock issued and outstanding and
entitled to vote at the Special Meeting.
The following table sets forth, as of July 31, 1998 (the "Ownership Date"),
the number of shares of Common Stock beneficially owned by (1) each person or
group known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (2) each director, (3) the Company's Chief Executive
Officer and each of the Company's four other most highly compensated executive
officers, and
3
<PAGE>
(4) all directors and executive officers as a group. Except as otherwise
indicated, each of the persons or groups named below has sole voting power and
investment power with respect to such Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
-------------------------
NAME OF BENEFICIAL NUMBER OF
OWNER OR GROUP SHARES PERCENT
- - --------------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Johnie Schulte, Jr. (2).......................................................... 933,698 5.1%
A.R. Ginn (3).................................................................... 500,000 2.8%
Daniel D. Zabcik (4)............................................................. 312,010 1.7%
C.A. Rundell, Jr. (5)............................................................ 256,218 1.4%
Kenneth W. Maddox (3)............................................................ 238,000 1.3%
Gary L. Forbes (6)............................................................... 200,500 1.1%
Leonard F. George (7)............................................................ 146,028 *
John T. Eubanks (8).............................................................. 125,250 *
Alvan E. Richey, Jr. (9)......................................................... 71,554 *
Robert J. Medlock (10)........................................................... 61,948 *
Thomas C. Arnett (11)............................................................ 40,574 *
William D. Breedlove (12)........................................................ 32,078 *
Robert N. McDonald (12).......................................................... 18,078 *
All executive officers and directors as a group (twelve persons) (13)............ 2,944,132 15.9%
</TABLE>
- - ------------------------
* Less than one percent
(1) Includes shares beneficially owned by such persons, including shares owned
pursuant to the NCI 401(k) Profit Sharing Plan. If a person has the right to
acquire beneficial ownership of any shares by exercise of options within 60
days after the Ownership Date, such shares are deemed beneficially owned by
such person and are deemed to be outstanding solely for the purpose of
determining the percentage of the Common Stock that he owns. Such shares are
not included in the computations for any other person.
(2) Includes options to purchase 168,666 shares held by Mr. Schulte which were
exercisable as of the Ownership Date. Mr. Schulte holds options to purchase
an additional 77,500 shares which were not exercisable at that date. The
principal business address of Mr. Schulte is 7301 Fairview, Houston, Texas
77041.
(3) Shares received in connection with the MBCI Acquisition.
(4) Includes 90,000 shares held in a testamentary trust, of which Mr. Zabcik is
sole trustee, for the benefit of his children, 38,294 shares held by a
family general partnership, of which Mr. Zabcik has management authority,
and options to purchase 40,500 shares held by Mr. Zabcik which were
exercisable as of the Ownership Date. Mr. Zabcik holds options to purchase
an additional 3,500 shares which were not exercisable at that date.
(5) Includes options to purchase 12,500 shares held by Mr. Rundell which were
exercisable as of the Ownership Date. Mr. Rundell holds options to purchase
an additional 77,500 shares which were not exercisable at that date.
(6) Includes 200,000 shares held by Equus II Incorporated, of which Mr. Forbes
is a Vice President and may be deemed to share voting and investment power
with respect to such shares. Mr. Forbes disclaims beneficial ownership of
such shares. Includes options to purchase 500 shares held by Mr. Forbes
which were exercisable as of the Ownership Date. Mr. Forbes holds options to
purchase an additional 3,500 shares which were not exercisable at that date.
(7) Includes options to purchase 146,028 shares held by Mr. George which were
exercisable as of the Ownership Date. Mr. George holds options to purchase
an additional 65,500 shares which were not exercisable at that date.
4
<PAGE>
(8) Includes 100,250 shares issuable with respect to a convertible debenture
that was exercisable as of the Ownership Date and options to purchase 25,000
shares held by Mr. Eubanks that were exercisable as of the Ownership Date.
Mr. Eubanks also holds options to purchase an additional 45,000 shares which
were not exercisable at that date.
(9) Includes options to purchase 71,554 shares held by Mr. Richey which were
exercisable as of the Ownership Date. Mr. Richey holds options to purchase
an additional 52,000 shares which were not exercisable at that date.
(10) Includes options to purchase 61,948 shares held by Mr. Medlock which were
exercisable as of the Ownership Date. Mr. Medlock holds options to purchase
an additional 49,000 shares which were not exercisable at that date.
(11) Includes 40,074 shares held by La Plaza Partnership. Mr. Arnett is a
general partner of La Plaza Partnership and may be deemed to share voting
and investment power with respect to such shares. Includes options to
purchase 500 shares held by Mr. Arnett which were exercisable as of the
Ownership Date. Mr. Arnett holds options to purchase an additional 3,500
shares which were not exercisable at that date.
(12) Includes options to purchase 32,078 and 18,078 shares held by Messrs.
Breedlove and McDonald, respectively, which were exercisable as of the
Ownership Date. Each of Messrs. Breedlove and McDonald holds options to
purchase an additional 3,500 shares which were not exercisable at that date.
(13) In addition to the shares identified in notes (2) through (12), includes
options to purchase 5,000 shares held by other officers which were
exercisable as of the Ownership Date. These other officers also hold options
to purchase an additional 5,000 shares which were not exercisable at that
date.
THE MBCI ACQUISITION
Unless the context otherwise requires in this Proxy Statement, (i) "NCI"
means NCI Building Systems, Inc., its subsidiaries (including limited
partnerships) and unconsolidated affiliates and predecessors, but excludes MBCI
(as defined herein), (ii) "MBCI" means, prior to NCI's acquisition of MBCI (the
"MBCI Acquisition") through the purchase of all the capital stock of Amatek
Holdings, Inc., the former indirect parent company of MBCI ("Amatek"), Metal
Building Components, Inc., its subsidiaries and unconsolidated affiliates and,
after the MBCI Acquisition, the acquired operations of MBCI and (iii) the
"Company" means NCI and MBCI. References to NCI's or the Company's "fiscal year"
mean the fiscal year of NCI or the Company ended October 31 of the year
specified.
GENERAL
On May 4, 1998, NCI acquired all of the outstanding capital stock of Amatek
from BTR Australia Limited (the "Seller"), an indirect wholly owned subsidiary
of BTR plc, for a purchase price of $600 million, including cash of $550
million, pursuant to a Stock Purchase Agreement dated as of March 25, 1998, and
amended May 4, 1998 (as amended, the "Purchase Agreement"). At the time of the
MBCI Acquisition, Amatek had no operations other than MBCI. In connection with
the MBCI Acquisition, NCI issued an aggregate of 1,400,000 unregistered shares
of its Common Stock (with an approximate fair market value of $32.2 million) at
the closing to certain officers and employees of MBCI in exchange for their
future interests in MBCI's senior management incentive plan.
NCI financed the MBCI Acquisition by obtaining a new $600 million credit
facility (the "Senior Credit Facility") from a syndicate of lenders. The Senior
Credit Facility consists of a $200 million five-year revolving credit facility
(the "Five-Year Revolver"), a $200 million five-year term loan facility (the
"Term Loan") and a $200 million 364-day revolving credit facility (the "364-Day
Revolver"). Borrowings under the Senior Credit Facility may also be used for
working capital and other general corporate purposes. See "--Management's
Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources."
5
<PAGE>
The following table sets forth the estimated cash sources and uses of funds,
including transaction costs, for the MBCI Acquisition and the cost of the Common
Stock issued to MBCI officers and employees (in millions):
<TABLE>
<CAPTION>
SOURCES OF FUNDS
- - --------------------------------------------------------------------------------
<S> <C>
Cash................................................................. $ 27.8
Senior Credit Facility:
Term Loan.......................................................... 200.0
Five-Year Revolver................................................. 140.0
364-Day Revolver................................................... 200.0
Issuance of Common Stock(a).......................................... 32.2
---------
Total............................................................ $ 600.0
---------
---------
<CAPTION>
USE OF FUNDS
- - --------------------------------------------------------------------------------
<S> <C>
Cash purchase price.................................................. $ 550.0
Estimated transaction costs.......................................... 17.8
Issuance of Common Stock(a).......................................... 32.2
---------
Total............................................................ $ 600.0
---------
---------
</TABLE>
- - ------------------------
(a) Represents approximate fair market value of 1,400,000 unregistered shares of
Common Stock.
The closing sale price for a share of Common Stock, as reported by Nasdaq,
on March 25, 1998, the last trading day preceding the announcement of the
proposed MBCI Acquisition, was $20.125 (as adjusted for the 2 for 1 stock
split).
REASONS FOR THE MBCI ACQUISITION
The Company believes that the combined NCI and MBCI operations will be able
to continue to grow sales, income from operations, net income and net income per
share by capitalizing on the following strengths:
LEADING MARKET POSITIONS AND SCALE OF OPERATIONS. The Company is the
largest manufacturer of metal components for the nonresidential building
industry and one of the largest suppliers of pre-engineered metal building
systems in the United States. In addition, the Company is one of the largest
independent providers of coated steel. As a result of its leading market
positions and scale of operations, the Company has expanded its geographic
scope to meet customer product and delivery needs, realized production
efficiencies and improved its ability to attract builders and other
customers.
BALANCE BETWEEN NEW CONSTRUCTION AND REPAIR AND RETROFIT
END-MARKETS. Prior to the MBCI Acquisition, NCI's business was focused
primarily on pre-engineered metal building systems, demand for which is
driven primarily by new building construction. The Company currently derives
a majority of its sales and net income from metal components sales, which
are used in a number of repair and retrofit applications as well as new
construction. Management believes that the balance between these end markets
reduces the impact on the Company of slowdowns in new construction activity
and provides enhanced growth opportunities.
LOW COST SUPPLIER. The Company strives to be the low-cost supplier to
its customers by maintaining low production and distribution costs. The
Company's large scale manufacturing capabilities provide purchasing
efficiencies and enhance productivity through the sharing of best practices
between metal components and pre-engineered metal building systems
operations. In addition, the Company's "hub and spoke" system of satellite
manufacturing facilities places the locations for the manufacture of
secondary structural framing and covering systems and final distribution
closer to the customer, thereby reducing transportation costs and delivery
times. The MBCI Acquisition also
6
<PAGE>
provided the Company with in-house coil painting and coating operations, a
significant cost element in metal components manufacturing. The Company is
shifting its coating needs from third-party providers to its own production,
thereby increasing coating utilization and recapturing margin paid to third
parties.
BROAD PRODUCT LINES AND DIVERSE CUSTOMER BASE. The addition of MBCI's
metal components operations, including metal coating and painting, to NCI's
pre-engineered metal building systems has enabled the Company to become one
of the largest integrated suppliers in the industry, offering a wider
variety of products and services. In addition, the Company has a broad and
diversified customer base with significant cross-selling opportunities. The
Company's integrated and expanded product lines provide the Company with
significant new marketing opportunities to increase sales to existing
customers and obtain new customers by offering single-source metal building
solutions to all of its customer base.
NATIONWIDE COVERAGE. The MBCI Acquisition provides the Company with the
opportunity to expand substantially its manufacturing, selling and
distribution presence into new geographic markets. The Company's
pre-engineered metal building systems facilities in the South, Southwest and
West complement its metal components facilities nationwide. The addition of
MBCI's metal components locations in the Northeast and Northwest provide the
Company with access to new regional markets for the Company's pre-engineered
metal building systems. Management believes that the Company's geographic
diversity will limit the impact from an economic downturn in any particular
region.
EXPERIENCED MANAGEMENT TEAM. The Company's senior management team has
an average of over 20 years of industry experience and has significantly
increased its depth as a result of the MBCI Acquisition. The management
teams of NCI and MBCI share similar business philosophies and historically
have demonstrated an ability to grow sales and net income in times of
strong, as well as adverse, economic conditions. Management attributes this
ability to effectively marketing its products, strategically locating new
manufacturing facilities, controlling expenses, maintaining flexibility in
capital budgeting, reducing production and distribution costs and
successfully completing and integrating acquisitions. In addition, the two
management teams have successfully identified and completed nine
acquisitions in the last five years.
TERMS OF THE MBCI ACQUISITION
THE FOLLOWING SUMMARY OF THE TERMS AND CONDITIONS OF THE MBCI ACQUISITION AS
SET FORTH IN THE PURCHASE AGREEMENT IS NOT INTENDED TO BE A COMPLETE DESCRIPTION
OF ALL MATERIAL INFORMATION RELATING TO THE MBCI ACQUISITION AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TERMS OF THE PURCHASE AGREEMENT, A COPY OF
WHICH MAY BE OBTAINED UPON REQUEST FROM THE COMPANY.
PURCHASE PRICE ADJUSTMENT. The Purchase Agreement provides that the
$550,000,000 cash purchase price paid to Seller at the closing of the MBCI
Acquisition will be adjusted by the amount that the Net Worth (as defined
therein) of MBCI and its subsidiaries on the May 4, 1998 Closing Date, as
determined by an independent audit, was more or less than $202,000,000 (which
amount is the Minimum Net Worth as defined therein). Management does not expect
such adjustments to be material.
REPRESENTATIONS AND WARRANTIES OF PARTIES. The Purchase Agreement contains
customary representations and warranties of Seller with respect to (i) corporate
organization and power, (ii) good standing and authority, (iii) subsidiaries,
(iv) capital structure, (v) financial statements, (vi) absence of certain
changes since December 31, 1997, (vii) title to assets, (viii) non-contravention
of any material contract, or other agreement, document or instrument, or any
applicable judgment, order, decree, statute, rule, law, or regulation, (ix)
litigation and claims, (x) intellectual property, (xi) compensation and benefit
plans, (xii) related party contracts, (xiii) insurance, (xiv) taxes, (xv)
environmental matters, (xvi) compliance with applicable laws, and (xvii)
broker's fees. At the Closing, the Seller confirmed that its representations and
7
<PAGE>
warranties were true and correct in all material respects on the Closing Date
except as otherwise permitted by the Purchase Agreement. The representations and
warranties of the Seller relating to capitalization and title to shares, assets
and liabilities of Amatek, and taxes survive until the expiration of the
applicable statute of limitations. The representations and warranties of the
Seller relating to environmental matters survive for a period of three (3) years
following the Closing Date. All other representations and warranties of the
Seller survive for a period of six (6) months following the Closing Date.
The Purchase Agreement also contains limited but customary representations
and warranties of NCI with respect to (i) corporate organization, good standing,
qualification and power, (ii) authority and enforceability, (iii) compliance and
absence of conflict with laws and other instruments, (iv) broker's fees, (v)
investment intent, and (v) ability to consummate the transaction. At the
Closing, NCI confirmed that its representations and warranties were true and
correct in all material respects on the Closing Date except as otherwise
permitted by the Purchase Agreement. The representations and warranties of NCI
survive until the expiration of the applicable statute of limitations.
CERTAIN COVENANTS. The Purchase Agreement contains various other customary
covenants by the parties regarding actions to be taken prior to or in connection
with the Closing, including covenants regarding access to information, the use
of reasonable best efforts to take all necessary actions to consummate the
transaction in an expeditious manner, the continued operation of the Amatek and
MBCI businesses in the ordinary course and compliance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, as well as covenants regarding
settlement of inter-company payables and receivables, filing of tax returns and
payment of taxes. In addition, the parties agreed after the Closing to cooperate
as reasonably necessary with respect to potential lawsuits, actions or other
proceedings or investigations, the preparation of taxes, and the supply or
preparation of other documents requested by a governmental authority. NCI agreed
to retain records with respect to each of the purchased companies for a period
of six years and also acknowledged that the names "BTR" and "Amatek," and their
related logos, and all variants thereof, were not conveyed in connection with
the transaction. The Company agreed to change the names of Amatek, Inc. and
Amatek Holdings, Inc. promptly after Closing, which was done.
INDEMNIFICATION. The Purchase Agreement contains provisions for
indemnification by the parties of each other with regard to various
contingencies, with environmental and tax matters being the subject of separate
covenants. With respect to non-environmental and non-tax matters, each of Seller
and NCI has agreed to indemnify and hold harmless the other from and against any
claims, losses, obligations, damages, demands, and liabilities arising from a
breach by the indemnifying party of any its representations, warranties or
covenants contained in the Purchase Agreement, except that: (i) individual
claims for indemnification of less than $250,000 may not be made by NCI against
Seller; (ii) indemnification claims may not be made by NCI against Seller with
respect to otherwise indemnifiable losses to the extent they were reflected as
liabilities in the December 31, 1997 consolidated balance sheet of Amatek; (iii)
indemnification claims by NCI for $250,000 or greater may be made but not until
the aggregate of all such claims exceeds $15,000,000, in which case NCI shall be
entitled to indemnification only to the extent such losses exceed $15,000,000;
and (iv) the maximum aggregate liability for indemnification by the Seller is
$15,000,000. Indemnification claims by NCI with regard to breaches of the
representations, warranties and covenants of Seller as to title to shares and
the capital structures of Amatek, MBCI and their subsidiaries, the assets and
liabilities of Amatek, payment and settlement of intercompany accounts and
post-closing adjustment are not subject to these monetary limits.
With regard to environmental matters, the Seller has agreed to indemnify and
hold harmless NCI from and against any claims, losses, obligations, damages,
demands, and liabilities arising from (i) a breach by Seller of any
representation or warranty contained in the Purchase Agreement that relates to
permitting, reporting, record keeping, emissions or discharge limitations,
monitoring, storage, handling, transportation, manifesting or other
environmental compliance obligation ("Compliance Losses") or (ii)
government-mandated action or third-party claims that relate to discharges into
or other contamination of the environment occurring prior to the Closing Date
("Remediation Losses"), at any facility owned or operated by Amatek, MBCI or any
of their subsidiaries or at any third-party operated, off-site waste disposal
facility to which hazardous substances were transported, disposed or stored by
any of them. With
8
<PAGE>
regard to facilities owned or operated by MBCI and its subsidiaries and to
third-party operated waste disposal facilities to which any of MBCI and its
subsidiaries transported, disposed or stored hazardous substances ("MBCI Related
Facilities"), indemnification claims by NCI against Seller for Compliance Losses
or Remediation Losses may not be made until such time as all Compliance Losses,
on the one hand, or all Remediation Losses, on the other hand, with respect to a
single MBCI Related Facility exceed $250,000 (a "Qualifying Facility Loss") and
the aggregate of all Qualifying Facility Losses (including the first $250,000
thereof) exceeds $3,000,000, at which time Seller is obligated to indemnify NCI
against 50% of all such Qualifying Facility Losses that exceed $3,000,000 until
the aggregate amount of all Qualifying Facility Losses exceed $25,000,000. The
maximum indemnification liability of Seller under this provision is $11,000,000.
These monetary limitations are not applicable to indemnification obligations of
Seller with respect to Compliance Losses and Remediation Losses that are
incurred by NCI with regard to facilities that, prior to Closing, were owned or
operated by Amatek and its subsidiaries (other than MBCI and its subsidiaries)
or that are third-party operated waste disposal facilities to which, prior to
Closing, any of Amatek or its subsidiaries (other than MBCI and its
subsidiaries) transported, disposed or stored hazardous substances. If NCI
maintains insurance policies covering Compliance Losses and Remediation Losses
at MBCI Related Facilities, it is obligated to equally share with Seller any
proceeds of such policies that exceed the amount of such losses that NCI has not
been reimbursed from sources other than (i) Seller pursuant to the
indemnification obligations described above and (ii) such insurance policies.
With regard to tax liabilities, Seller indemnified NCI against liability for
any income, franchise, sales, payroll or other taxes applicable to Amatek, MBCI
and their subsidiaries that are due or payable for periods ending on or prior to
the Closing Date, to the extent the tax liability exceeds the amounts reserved
on the books and records of the acquired companies as of the Closing Date. NCI
also indemnified Seller against liability for any income, franchise, sales,
payroll or other taxes applicable to Amatek, MBCI and their subsidiaries that
are due or payable for periods commencing after the Closing Date.
BTR PLC AS A PARTY. BTR plc executed and delivered and became a party to
the Purchase Agreement for purposes of making the same covenants and becoming
obligated to NCI in the same manner as Seller with regard to (i) post-closing
adjustments to the purchase price, (ii) payment and discharge of any liabilities
(including environmental liabilities) of Amatek and its subsidiaries other than
MBCI and its subsidiaries, (iii) settlement of intercompany accounts, (iv)
indemnification for environmental, tax and other matters, and (v) other
miscellaneous covenants.
GOVERNING LAW. The Purchase Agreement is governed by New York law.
FEDERAL INCOME TAX CONSEQUENCES. The Company did not recognize any taxable
gain or loss as a result of the MBCI Acquisition.
9
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
THE COMPANY--PRO FORMA
The following table presents selected unaudited pro forma condensed combined
financial information of the Company for the fiscal year ended October 31, 1997,
the six months ended April 30, 1998 and as of April 30, 1998. The unaudited pro
forma condensed combined statements of income give effect to the MBCI
Acquisition as if it had occurred on November 1, 1996. The unaudited pro forma
condensed combined balance sheet data give effect to the MBCI Acquisition as if
it had occurred on April 30, 1998. The unaudited pro forma financial information
is not necessarily indicative of either the future results of operations or the
results of operations that would have occurred if the MBCI Acquisition had been
completed on the indicated dates. In the MBCI Acquisition, NCI acquired all of
the capital stock of Amatek. The unaudited pro forma financial information
reflects only the results of operations and financial condition of Amatek for
the periods and as of the dates indicated. Because Amatek had a fiscal year
ended December 31, the unaudited pro forma financial information presented for
the year ended October 31, 1997, and the six months ended April 30, 1998
includes financial information of Amatek for the year ended December 31, 1997
and the six months ended March 31, 1998. The selected unaudited pro forma
financial information should be read in conjunction with NCI's historical
consolidated financial statements and notes thereto incorporated herein by
reference and Amatek's historical consolidated financial statements and notes
thereto, the Unaudited Pro Forma Condensed Combined Financial Statements and
notes thereto and "--Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
OCTOBER 31, 1997 APRIL 30, 1998
----------------- ---------------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
STATEMENT OF INCOME DATA:
Sales......................................................................... $ 815.7 $ 388.3
Cost of sales................................................................. 611.7 293.9
------ ------
Gross profit.................................................................. 204.0 94.4
Operating expenses............................................................ 108.8 56.5
------ ------
Income from operations........................................................ 95.2 37.9
Interest expense.............................................................. 44.4 22.2
Nonrecurring gain(1).......................................................... 3.3 3.3
Other income.................................................................. 2.7 1.6
------ ------
Income before income taxes.................................................... 56.8 20.6
Provision for income taxes.................................................... 25.4 9.0
------ ------
Net income.................................................................... $ 31.4 $ 11.6
------ ------
------ ------
Net income per share:
Basic....................................................................... $ 1.79 $ 0.65
------ ------
------ ------
Diluted..................................................................... $ 1.70 $ 0.62
------ ------
------ ------
Weighted average number of common shares:
Basic....................................................................... 17.5 17.8
Diluted..................................................................... 18.5 18.8
OTHER FINANCIAL DATA:
EBIDTA(2)..................................................................... $ 125.7 $ 56.8
Capital expenditures.......................................................... 38.5 14.5
<CAPTION>
AS OF
APRIL 30, 1998
---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................................... $ 104.9
Property, plant and equipment, net............................................ 155.7
Total assets.................................................................. 814.6
Total debt.................................................................... 541.7
Shareholders' equity.......................................................... 196.6
</TABLE>
- - ------------------------
(1) Nonrecurring gain reflects insurance recoveries for fire damage to MBCI's
Lubbock, Texas plant in 1997.
(2) EBITDA (net income before interest expense, taxes, depreciation and
amortization and minority interest) is not a measure of financial
performance under generally accepted accounting principles, but is presented
here to provide additional information about the Company's operations.
EBITDA should not be considered as an alternative to, or more meaningful
than, net income or cash flows as an indicator of the Company's operating
performance or as a better measure of liquidity. EBITDA presented above may
not be comparable to similarly titled measures of other companies. See NCI's
and Amatek's consolidated financial statements for information regarding
NCI's and MBCI's operating, investing and financing cash flow activities.
10
<PAGE>
NCI
The selected historical consolidated financial information presented below
for, and as of the end of, each of the years in the five-year period ended
October 31, 1997, is derived from NCI's audited consolidated financial
statements. The selected historical consolidated financial information for, and
as of the end of, the six months ended April 30, 1997 and 1998, is derived from
the unaudited consolidated financial statements of NCI. In the opinion of
management, the unaudited results of operations for, and as of the end of, the
six months ended April 30, 1997 and 1998, include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of such
information. The unaudited consolidated results of operations for the interim
periods are not necessarily indicative of the results that may be expected for
the full fiscal year. The selected historical financial information is not
necessarily indicative of the future results of operations. The following
financial information should be read in conjunction with and is qualified by
reference to "--Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations of NCI" included elsewhere in this
Proxy Statement and NCI's consolidated historical financial statements and notes
thereto incorporated by reference herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL
YEAR ENDED OCTOBER 31, 1996 30,
----------------------------------------------------- ------------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales.............................................. $ 134.5 $ 167.8 $ 234.2 $ 332.9 $ 407.7 $ 174.5 $ 192.7
Cost of sales...................................... 99.8 124.1 169.8 241.4 299.4 128.4 140.6
--------- --------- --------- --------- --------- ----------- -----------
Gross profit....................................... 34.7 43.6 64.4 91.5 108.3 46.1 52.1
Operating expenses................................. 25.1 28.2 38.1 53.1 66.0 30.4 34.1
--------- --------- --------- --------- --------- ----------- -----------
Income from operations............................. 9.6 15.4 26.3 38.4 42.3 15.7 18.0
Interest expense................................... 0.2 0.1 0.1 0.1 0.2 0.1 0.1
Other income....................................... 0.4 0.7 0.8 1.6 2.0 0.8 1.5
--------- --------- --------- --------- --------- ----------- -----------
Income before income taxes......................... 9.8 16.0 27.0 39.9 44.1 16.4 19.4
Provision for income taxes......................... 3.5 5.7 10.0 15.1 16.2 6.1 7.0
--------- --------- --------- --------- --------- ----------- -----------
Net income......................................... $ 6.3 $ 10.3 $ 17.0 $ 24.8 $ 27.9 $ 10.3 $ 12.4
--------- --------- --------- --------- --------- ----------- -----------
--------- --------- --------- --------- --------- ----------- -----------
Net income per share:
Basic............................................ $ 0.52 $ 0.82 $ 1.36 $ 1.60 $ 1.73 $ 0.65 $ 0.76
--------- --------- --------- --------- --------- ----------- -----------
--------- --------- --------- --------- --------- ----------- -----------
Diluted.......................................... $ 0.48 $ 0.77 $ 1.26 $ 1.51 $ 1.64 $ 0.61 $ 0.72
--------- --------- --------- --------- --------- ----------- -----------
--------- --------- --------- --------- --------- ----------- -----------
Weighted average number of common shares:
Basic............................................ 12.2 12.4 12.5 15.5 16.1 16.0 16.4
Diluted.......................................... 13.2 13.4 13.5 16.5 17.1 17.0 17.4
OTHER FINANCIAL DATA:
EBITDA(1).......................................... $ 11.6 $ 18.3 $ 30.3 $ 45.8 $ 52.2 $ 20.3 $ 23.9
Capital expenditures............................... 8.2 5.9 5.8 10.3 11.3 4.0 4.0
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital.................................... $ 15.5 $ 16.9 $ 31.7 $ 52.0 $ 76.7 $ 60.9 $ 91.6
Property, plant and equipment, net................. 16.1 22.2 25.6 42.8 51.2 47.1 51.8
Total assets....................................... 46.7 63.4 83.1 158.3 196.3 165.5 196.9
Total debt......................................... 2.2 0.4 0.4 1.8 1.7 1.7 1.7
Shareholders' equity............................... 28.7 39.7 57.7 116.2 147.8 129.1 164.4
</TABLE>
- - ------------------------
(1) EBITDA (net income before interest expense, taxes, depreciation and
amortization and minority interest) is not a measure of financial
performance under generally accepted accounting principles, but is presented
here to provide additional information about NCI's operations. EBITDA should
not be considered as an alternative to, or more meaningful than, net income
or cash flows as an indicator of NCI's operating performance or as a better
measure of liquidity. EBITDA presented above may not be comparable to
similarly titled measures of other companies. See NCI's consolidated
financial statements for information regarding NCI's operating, investing
and financing cash flow activities.
11
<PAGE>
MBCI
The selected historical consolidated financial information presented below
for, and as of the end of, each of the three years in the period ended December
31, 1997, is derived from the audited consolidated financial statements of
Amatek. The selected historical consolidated financial information for, and as
of the end of, (i) the two years ended December 31, 1994, and (ii) the three
months ended March 31, 1997 and 1998, is derived from the unaudited consolidated
financial statements of Amatek. In the opinion of management, the unaudited
results of operations for the three months ended March 31, 1997 and 1998,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such information. The unaudited results of
operations for the interim periods are not necessarily indicative of the results
that may be expected for the full fiscal year. The selected historical financial
information is not necessarily indicative of the future results of operations.
The following financial information should be read in conjunction with and is
qualified by reference to "--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations of MBCI" and Amatek's
historical consolidated financial statements and notes thereto included
elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
----------------------------------------------------- ------------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales........................................... $ 226.5 $ 279.8 $ 315.7 $ 362.9 $ 408.0 $ 82.5 $ 84.2
Cost of sales................................... 170.8 209.4 234.0 271.3 312.4 63.9 68.9
--------- --------- --------- --------- --------- ----------- -----------
Gross profit.................................... 55.7 70.4 81.7 91.6 95.6 18.6 15.3
Operating expenses.............................. 20.7 24.8 24.9 29.7 36.7 8.5 9.6
--------- --------- --------- --------- --------- ----------- -----------
Income from operations.......................... 35.0 45.6 56.8 61.9 58.9 10.1 5.7
Interest income, net............................ 0.1 0.7 1.4 1.9 2.0 0.3 0.3
Unusual/nonrecurring gain(1).................... 0.0 0.0 0.0 0.0 3.3 0.0 0.0
Other income (expense).......................... 0.0 0.0 (1.3) (0.3) 0.1 (0.2) (0.2)
--------- --------- --------- --------- --------- ----------- -----------
Income before income taxes...................... 35.1 46.3 56.9 63.5 64.3 10.2 5.8
Provisions (benefit) for income taxes........... 14.5 20.5 23.0 24.9 24.6 4.1 2.2
--------- --------- --------- --------- --------- ----------- -----------
Net income...................................... $ 20.6 $ 25.8 $ 33.9 $ 38.6 $ 39.7 $ 6.1 $ 3.6
--------- --------- --------- --------- --------- ----------- -----------
--------- --------- --------- --------- --------- ----------- -----------
OTHER FINANCIAL DATA:
EBITDA(2)....................................... $ 38.3 $ 49.9 $ 61.0 $ 69.0 $ 71.2 $ 11.8 $ 9.3
Capital expenditures............................ 5.2 13.1 12.5 21.1 27.2 5.8 1.6
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital................................. $ 20.4 $ 27.0 $ 28.0 $ 35.0 $ 72.3 $ 51.6 $ 76.1
Property, plant and equipment, net.............. 44.9 54.7 63.2 84.7 104.1 89.0 104.0
Total assets.................................... 96.6 137.8 166.9 220.5 249.8 264.8 243.2
Total debt...................................... 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Stockholder's equity............................ 66.4 93.7 126.5 165.0 204.8 224.9 208.4
</TABLE>
- - ------------------------
(1) Unusual/nonrecurring gain reflects insurance recoveries for fire damage to
Lubbock, Texas plant in 1997.
(2) EBITDA (net income before interest expense, taxes, depreciation and
amortization and minority interest) is not a measure of financial
performance under generally accepted accounting principles, but is presented
here to provide additional information about MBCI's operations. EBITDA
should not be considered as an alternative to, or more meaningful than, net
income or cash flows as an indicator of MBCI's operating performance or as a
better measure of liquidity. EBITDA presented above may not be comparable to
similarly titled measures of other companies. See Amatek's consolidated
financial statements for information regarding MBCI's operating, investing
and financing cash flow activities.
12
<PAGE>
COMPARATIVE DATA
The following tables set forth certain per share data for NCI and Amatek on
a historical and on a pro forma basis, giving effect to the MBCI Acquisition,
using the purchase method of accounting. The unaudited pro forma per share data
provided below is not necessarily indicative of the results of operations or the
financial position which would have occurred had the MBCI Acquisition been
consummated on the indicated dates or which may be attained in the future and
should be read in conjunction with the historical consolidated financial
statements of NCI and the notes thereto incorporated by reference herein, the
historical consolidated financial statements of Amatek and notes thereto and the
Unaudited Pro Forma Condensed Combined Financial Statements included elsewhere
in this Proxy Statement.
NCI--HISTORICAL
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
YEAR ENDED SIX MONTHS ENDED
OCTOBER 31, 1997 APRIL 30, 1998
----------------- -----------------
<S> <C> <C>
Per share data:
Book value.............................................................. $ 9.10 $ 9.95
Cash dividends declared................................................. -- --
Net income--basic....................................................... $ 1.73 $ 0.76
Net income--diluted..................................................... $ 1.64 $ 0.72
</TABLE>
AMATEK--HISTORICAL
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------- -------------------
<S> <C> <C>
Per share data:
Book value......................................................... $ 58,510.86 $ 1,743.92
Cash dividends declared............................................ -- $ 1,502.69
Net income......................................................... $ 11,354.29 $ 58.70
</TABLE>
THE COMPANY--PRO FORMA
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
YEAR ENDED SIX MONTHS ENDED
OCTOBER 31, 1997 APRIL 30, 1998
----------------- -----------------
<S> <C> <C>
Per share data:
Book value.............................................................. N/A $ 10.97
Cash dividends declared................................................. -- --
Net income--basic....................................................... $ 1.79 $ 0.65
Net income--diluted..................................................... $ 1.70 $ 0.62
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION INCLUDED
ELSEWHERE IN THIS PROXY STATEMENT, NCI'S CONSOLIDATED FINANCIAL STATEMENTS AND
THE NOTES THERETO INCORPORATED BY REFERENCE HEREIN AND AMATEK'S CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS PROXY
STATEMENT.
RESULTS OF OPERATIONS OF NCI
Prior to the MBCI Acquisition, NCI designed, manufactured and marketed
pre-engineered metal building systems, self-storage buildings, overhead doors,
metal home framing systems and various metal components for metal buildings for
commercial, industrial, agricultural, governmental, community service and
residential uses. NCI marketed these products nationwide both through authorized
builder networks totaling over 1,200 builders and a direct sales force under
several brand names, including "Metallic Buildings," "Mid-West Steel Buildings,"
"A & S Buildings," "NCI Building Components," "All American Systems," "Steel
Systems," "DBCI" and "Mesco."
The following table presents, as a percentage of sales, certain selected
consolidated financial data of NCI for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales........................................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................................ 72.5 72.5 73.4 73.6 73.0
--------- --------- --------- --------- ---------
Gross profit................................................. 27.5 27.5 26.6 26.4 27.0
Operating expenses........................................... 16.3 16.0 16.3 17.4 17.7
--------- --------- --------- --------- ---------
Income from operations....................................... 11.2 11.5 10.3 9.0 9.4
Interest expense............................................. 0.0 0.0 0.0 0.0 0.0
Other income................................................. 0.4 0.5 0.5 0.4 0.7
--------- --------- --------- --------- ---------
Income before income taxes................................... 11.6 12.0 10.8 9.4 10.1
Provision for income taxes................................... 4.3 4.5 4.0 3.5 3.6
--------- --------- --------- --------- ---------
Net income................................................... 7.3% 7.5% 6.8% 5.9% 6.5%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
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, or
10%. This increase was due primarily to increased market penetration in both the
metal building systems and components markets.
Gross profit for the six months ended April 30, 1998 increased by $5.9
million, or 13%, compared to the same period a year ago. Gross margin increased
from 26.4% in the first six months of fiscal 1997 to 27.0% in the first six
months of fiscal 1998. This increase was slightly higher than the 10% increase
in sales due the improvement in gross margins resulting from better utilization
and control of manufacturing costs, improved gross margins in the components
business and stable raw material costs in the current year.
Operating expenses, which include selling, engineering, general 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 percentage 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.
14
<PAGE>
FISCAL 1997 COMPARED TO FISCAL 1996
Sales in fiscal 1997 increased by $74.9 million, or 22%, compared to fiscal
1996. The acquisition of the facilities of Carlisle Engineered Metals ("ECI") in
February 1997 and the inclusion of Mesco Metal Buildings Division ("Mesco") for
the whole fiscal year 1997 accounted for approximately $23 million of this
increase. The remaining increase of approximately $50 million, or 15%, resulted
from growth of sales in NCI's door division due to geographic expansion,
building systems sales growth due to increased builder recruitment and a full
year's operation of NCI's Atwater plant and growth in NCI's components division.
Gross profit increased by $16.8 million, or 18%, compared to fiscal 1996.
Gross profit dollars increased at a slower rate than sales due to price
competition earlier in the year, bad weather in the first half of 1997, which
impacted plant efficiencies, and slightly higher raw material costs. In
addition, growth in the component and door sales, which have lower gross margins
than building systems, impacted gross profit. As a result, the gross margin
percentage in 1997 declined from 27.5% to 26.6%.
Operating expenses increased by $13.0 million, or 24%, compared to fiscal
1996. These expenses increased at a slightly higher rate than sales due to the
additional expenses resulting from the acquisition of ECI, additional sales
expense to support the marketing of steel frame housing and continued geographic
expansion of NCI's sales and marketing effort.
Interest expense increased $5,000 in fiscal 1997 as a result of the $1.5
million debenture issued in April 1996 being outstanding all of 1997. Other
income, which consists primarily of interest income, increased by $413,000 in
fiscal 1997. This increase was the result of a higher level of cash invested
during the year.
Provision for income taxes increased by 8% in fiscal 1997 and decreased as a
percent of sales from 4.5% in fiscal 1996 to 4.0% in fiscal 1997. During the
year, NCI changed the corporate structure of certain operating units which
reduced the amount of state income paid by these units.
FISCAL 1996 COMPARED TO FISCAL 1995
Sales in fiscal 1996 increased by $98.7 million, or 42%, compared to fiscal
1995. The acquisitions of Doors and Buildings Components, Inc. ("DBCI") in
November 1995 and Mesco from Anderson Industries, Inc. in April 1996 accounted
for $58.7 million of this increase. Excluding the fiscal 1996 sales of these two
acquisitions, sales increased in fiscal 1996 by 17% compared to the prior year.
This growth resulted from increased market penetration by NCI in the metal
building market, expansion into the western United States with the opening of a
new plant in California and growth of NCI's components division.
Gross profit increased in fiscal 1996 by $27.1 million, or 42%, compared to
fiscal 1995. This increase was in line with the increase in sales experienced
for the year. Gross margin of 27.5% was the same as the margin achieved in
fiscal 1995. Slight increases in raw material costs during the year were offset
by spreading fixed manufacturing costs over a higher sales base.
Operating expenses increased $15.0 million, or 39%, compared to fiscal 1995.
Selling, general and administrative expenses increased slightly faster than
sales due to the establishment of a west coast sales function to support the new
plant location and additional expenses resulting from the two acquisitions made
in fiscal 1996. Engineering expenses as a component of operating expenses
increased at a slower rate than sales due to increased sales of products which
require less engineering effort such as DBCI products and components.
Interest expense increased by $52,000 as a result of the issuance of a $1.5
million subordinated debenture in connection with the acquisition of Mesco.
Other income, which consists primarily of interest income, increased by $764,000
in fiscal 1996 compared to fiscal 1995. This increase resulted primarily from
the higher level of cash invested during the year and slightly higher average
rates of return on invested cash.
15
<PAGE>
Provision for income taxes increased by 50.4% in fiscal 1996 and increased
as a percent of sales from 4.3% to 4.5%. This increase was due to the increase
in state income taxes in fiscal 1996 compared to the prior year.
RESULTS OF OPERATIONS OF MBCI
Prior to the MBCI Acquisition, MBCI designed, manufactured, sold and
distributed metal components for the building industry, including one of the
widest selections of roofs, walls, fascia, mansard and various trim accessories
for commercial, industrial, agricultural and residential construction uses. In
addition, MBCI processed its own hot roll coil metal for use in metal components
manufacturing, as well as processing hot roll coil and toll coating light gauge
metal for use by other parties in the manufacture of metal components and
numerous other products, including heating and air conditioning systems, water
heaters, lighting fixtures and office furniture. MBCI marketed its products
nationwide through a direct sales force under several brand names, including
"Metal Building Components," "American Building Components," "Metal Coaters of
Georgia," "Metal-Prep" and "DOUBLECOTE."
The following table presents, as a percentage of sales, certain selected
consolidated financial data of MBCI for the periods indicated:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEAR ENDED OCTOBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales........................................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................................ 74.1 74.8 76.6 77.4 81.8
--------- --------- --------- --------- ---------
Gross profit................................................. 25.9 25.2 23.4 22.6 18.2
Operating expenses........................................... 7.9 8.2 9.0 10.4 11.4
--------- --------- --------- --------- ---------
Income from operations....................................... 18.0 17.1 14.5 12.2 6.8
Interest income, net......................................... 0.4 0.5 0.5 0.3 0.3
Unusual/nonrecurring gain.................................... 0.0 0.0 0.8 0.0 0.0
Other income (expense)....................................... (0.4) (0.1) 0.0 (0.2) (0.2)
--------- --------- --------- --------- ---------
Income before income taxes................................... 18.0 17.5 15.8 12.3 6.9
Provision for income taxes................................... 7.2 6.9 6.0 5.0 2.6
--------- --------- --------- --------- ---------
Net income................................................... 10.7% 10.6% 9.7% 7.4% 4.3%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
Sales for the three months ended March 31, 1998 increased by $1.7 million,
or 2%, from the same period in 1997. The additional revenues were attributable
to increased metal building components and hot roll coil sales. Light gauge
steel painting revenues declined 14% as major customers attempted to reduce
inventories. The increase in revenues was offset by an aggregate of $2.7 million
in credit memos written to customers in April 1998 to resolve invoices with
questioned or disputed items. Sales for the three months ended March 31, 1998
have been restated to reflect this subsequent adjustment.
Gross profit decreased by $3.3 million, or 18%, in the first quarter of
1998, and decreased as a percentage of sales from 22.6% for the same period in
1997 to 18.2%. This decrease in gross profit resulted primarily from the
adjustment to sales as a result of the April 1998 credit memos and an inventory
adjustment of $1.0 million resulting from the scrapping of partial metal coils
in April 1998. Cost of sales for the three months ended March 31, 1998 have been
restated to reflect this subsequent inventory adjustment. The decrease in gross
profit was also due to a change in product mix as higher margin steel painting
decreased as a percentage of total sales.
16
<PAGE>
Operating expenses increased $1.1 million, or 12%, for the first three
months of 1998 due to costs of opening new plants in the western United States
in 1997. These expenses were not offset by related sales, since the new plants
did not make a significant revenue contribution due to both the seasonality of
the business and limited operations in the period.
Other income decreased slightly in the first three months of 1998 due to
losses in MBCI's DOUBLECOTE joint venture offset by interest income on advances
to DOUBLECOTE.
1997 COMPARED TO 1996
Sales in 1997 increased by $45.1 million, or 12%, as MBCI furthered its
expansion into the western United States metal components market during the
year, opening plants in Boise, Idaho, Salt Lake City, Utah, and Phoenix,
Arizona. MBCI also expanded its architectural panel capacity in the Memphis,
Tennessee plant. Total metal components sales rose by $33.5 million, or 11%. The
largest increases came in commercial/industrial and agricultural products. Metal
coating and painting sales increased by $11.5 million, or 19%, as MBCI increased
its efforts to expand prepainted packaged coil sales. MBCI did not realize
significant revenues from the new metal components plants during the year as
markets were being developed.
Gross profit increased by $4.1 million, or 4%, in 1997 compared to 1996. The
gross margin percentage declined from 25.2% in 1996 to 23.4% in 1997, primarily
because of competitive pressures in the metal components sector. The strength of
the construction market encouraged competition to add capacity and attempt to
expand market share with pricing. Metal coating and painting gross margins also
declined due to a change in product mix. Prepainted coil package sales, which
have lower gross margins than toll coil coating, increased as a percentage of
total metal coating and painting sales.
Operating expenses increased by $7.0 million, or 24%, in 1997 compared to
1996 due primarily to plant additions in Utah, Idaho and Arizona. This expansion
into the western U.S. market required additional sales and management personnel
and related administrative costs.
In February 1997, the Lubbock, Texas metal components plant sustained major
fire damage. The facility was rebuilt and resumed operations in July 1997.
Insurance recoveries over cost basis resulted in a nonrecurring gain of $3.3
million. Other income increased by $387,000 in 1997 based on positive results in
MBCI's DOUBLECOTE joint venture.
1996 COMPARED TO 1995
MBCI's sales in 1996 increased by $47.1 million, or 15%, compared to 1995
with new facilities driving growth. Metal building construction did not
experience the dynamic growth that occurred in 1995, but shipments remained
strong. MBCI added a metal components plant in Adel, Georgia to service the
growing southeast market, primarily commercial/industrial. MBCI's Atlanta
facility, which had served the region before the addition of the Adel plant,
continued to run at near capacity due to strong demand. In April 1996, MBCI
purchased the operating assets of Steelco Metal Products ("Steelco"), a division
of Alta Industries, Ltd. for approximately $22 million. This acquisition was the
first step in expansion into the western U.S. market and provided a solid base
for future growth. MBCI took advantage of Steelco's strong reputation and loyal
customer base while improving efficiency through MBCI's aggressive, centralized
management style. The Steelco acquisition added $21.7 million in sales of metal
components in 1996. Metal coating and painting sales were at approximately the
same level as 1995 with seasonal capacity limiting growth.
Gross profit increased by $9.9 million, or 12%, in 1996 compared to 1995.
Although competitive pricing in the metal components industry began to increase
in the last half of 1996, MBCI maintained a gross margin percentage in excess of
25%.
Operating expenses increased by $4.8 million, or 19%, in 1996 compared to
1995, with a majority of the increase being attributable to the new plant and
the Steelco acquisition. As a percentage of sales, operating expenses increased
from 7.9% in 1995 to 8.2% in 1996.
17
<PAGE>
Other expense, which consisted of MBCI's equity in the losses of its
DOUBLECOTE joint venture, decreased by $1.0 million in 1996. This decrease was
the result of improved results of operations at DOUBLECOTE.
LIQUIDITY AND CAPITAL RESOURCES
NCI had cash and cash equivalents of $38.0 million at April 30, 1998,
compared to $17.2 million at April 30, 1997. Working capital was $91.6 million
and $60.9 million at April 30, 1998 and 1997, respectively.
MBCI had cash and cash equivalents of $1.3 million at March 31, 1998,
compared to $4.6 million at March 31, 1997. Working capital was $78.5 million
and $51.9 million at March 31, 1998 and 1997, respectively.
CASH FLOW
NCI has historically funded its operations with cash flow from operations,
bank borrowing and the sale of Common Stock. Internal cash generation has been
aided, in the opinion of management, by a compensation program under which
bonuses are earned based on achieving specified return on assets goals. This
program encourages management of the balance sheet as well as the income
statement.
NCI's net cash flow from operations increased to $24.5 million in fiscal
1997 from $28.6 million in fiscal 1996. MBCI's net cash flow from operations
decreased to $11.6 million in 1997 from $44.2 million in 1996. The decrease is
primarily the result of an $11.1 million increase in inventories, a $2.9 million
increase in trade receivables and a $12.3 million decrease in accounts payable
and accrued liabilities.
Based on the current capitalization of the Company, it is expected future
cash flow from operations and availability of alternative sources of financing
should be sufficient to provide adequate liquidity in future periods. Liquidity
in future periods will be dependent on internally generated cash flows, the
ability to obtain adequate financing for capital expenditures and the amount of
increased working capital necessary to support expected growth. There can be no
assurance that liquidity would not be impacted by a severe decline in general
economic conditions and higher interest rates which would affect the Company's
ability to obtain external financing.
LONG-TERM DEBT
At April 30, 1998, NCI's total debt, including current portion, was $1.7
million, representing a convertible debenture issued in connection with the
Mesco acquisition and an industrial revenue bond. NCI had no borrowing
outstanding under its prior revolving credit facilities and had not borrowed
during the first six months of the fiscal year.
On May 4, 1998, the Company acquired all of the outstanding capital stock of
Amatek from Seller, for a purchase price of $600 million, including cash of $550
million. The Company financed the MBCI Acquisition by obtaining a new $600
million Senior Credit Facility from a syndicate of lenders. See "The MBCI
Acquisition--General."
In March 1998, the Company entered into the Senior Credit Facility with the
lenders for the establishment of a $600 million credit facility. The Senior
Credit Facility consists of (i) the Five-Year Revolver, a five-year revolving
credit facility of up to $200 million, of which up to $20.0 million may be
utilized in the form of commercial and standby letters of credit, (ii) the Term
Loan, a five-year term loan facility in the principal amount of up to $200
million, and (iii) the 364-Day Revolver, a 364-day revolving credit facility of
up to $200 million. In addition to funding the MBCI Acquisition, borrowings
under the Senior Credit Facility may be used for working capital and other
general corporate purposes. The initial funding of $140.0 million under the
Five-Year Revolver, $200.0 million under the Term Loan and $200.0 million under
the 364-Day Revolver occurred on May 4, 1998, the date on which the MBCI
Acquisition was consummated (the "Acquisition Date"). Loans and letters of
credit under the Five-Year Revolver will be available, and amounts repaid under
the Five-Year Revolver may be reborrowed, at any
18
<PAGE>
time until July 1, 2003, subject to the fulfillment of certain conditions
precedent, including the absence of default under the Senior Credit Facility.
The Term Loan was fully drawn down as of the Acquisition Date, and amounts
repaid under the Term Loan may not be reborrowed. The Company's obligations
under the Senior Credit Facility are secured by the pledge of all capital stock,
partnership interests and other equity interests of the Company and its
subsidiaries. All obligations under the Senior Credit Facility are also
guaranteed by each of the Company's corporate subsidiaries and operating limited
partnerships. The Senior Credit Facility contains customary financial and
restrictive covenants with amounts and ratios negotiated between the Company and
the lenders.
The Senior Credit Facility provides for loans bearing interest, at the
Company's option, as follows: (i) Base Rate loans, Base Rate plus a margin that
ranges from 0% to 0.50%; and (ii) LIBOR loans, Adjusted LIBOR plus a margin that
ranges from 0.75% to 2.00%. "Base Rate" is the higher of NationsBank's prime
rate or the overnight Federal funds rate plus 0.5%, and "Adjusted LIBOR" is the
applicable London interbank offered rate adjusted for reserves, if any. In each
case, the margin is adjusted based on the Company's most recently determined
ratio of funded debt to EBITDA (as defined in the Senior Credit Facility). The
Senior Credit Facility currently bears interest at LIBOR plus 2.00%. With the
application of the net proceeds of the Offering to repay a portion of the
364-Day Revolver, the Company anticipates the LIBOR margin will decrease to
1.375% as a result of the matrix pricing. The Company currently has an interest
rate swap agreement in place, which limits the Company's variable interest rate
exposure on the Term Loan. The agreement applies to the full principal amount of
the Term Loan and caps interest on LIBOR loans at 5.89% plus the applicable
LIBOR margin.
Loans under the Five-Year Revolver mature on July 1, 2003. Loans under the
Term Loan are payable in successive quarterly installments beginning on October
31, 1998, in quarterly payment amounts beginning with $7.5 million and gradually
increasing to $12.5 million on the maturity date. The 364-Day Revolver is part
of the Senior Credit Facility and matures on May 3, 1999. If the 364-Day
Revolver is not repaid by the Company or extended by the Lenders, the Company
has the option to convert it to a three-year term note. Borrowings may be
prepaid and voluntary reductions of the unutilized portion of the Five-Year
Revolver may be made at any time, in certain agreed upon minimum amounts,
without premium or penalty but subject to LIBOR breakage costs. The Company is
required to make mandatory prepayments on the Senior Credit Facility upon the
occurrence of certain events, including the sale of assets and the issuance and
sale of equity securities, in each case subject to certain exceptions. As of
July 31, 1998, the Company had $499.0 million outstanding under the Senior
Credit Facility.
CAPITAL EXPENDITURES
During fiscal 1997, NCI invested $11.3 million in capital additions,
including a new plant built in Monterrey, Mexico at a cost of approximately $2.0
million and expansion of its plant in Ennis, Texas for approximately $1.0
million. The remainder was spent primarily at other plant locations to increase
production capacity. All of these expenditures were paid from internally
generated cash.
During 1997, MBCI had capital expenditures of $27.2 million, including the
construction of new plants ($5.0 million), the purchase of real property in
Phoenix, Arizona ($5.3 million), the rebuilding of the Lubbock, Texas plant
destroyed by fire ($4.8 million) and the expansion of the Memphis, Tennessee
plant ($2.0 million).
On May 21, 1998, the Company purchased the plant and equipment of California
Finished Metals, Inc. for $15.0 million in order to expand its metal coating and
painting operations to the western U.S. The Company anticipates that capital
expenditures for the remainder of 1998 will be $14.0 million, including $1.0
million in anticipated capital expenditures to update the new California
facility. The Company anticipates that these capital expenditures will be
financed primarily through internally generated funds.
Acquisitions of additional assets and businesses are expected to continue to
be an important part of the Company's strategy for growth. The Company would,
under certain circumstances, need to obtain additional debt and/or equity
financing to fund such acquisitions.
19
<PAGE>
INFLATION
Inflation has not significantly affected the Company's financial position or
operations. Metal building systems sales are affected more by the availability
of funds for financing construction than by the rate of interest charged by the
lender. No assurance can be given that inflation or the prime rate of interest
will not fluctuate significantly, either or both of which could have an adverse
effect on the Company's operations.
ACCOUNTING STANDARDS
During the first quarter of fiscal 1998, NCI adopted Financial Accounting
Standards Board ("FASB") Statement No. 128, Earnings Per Share, which is
effective for financial statements issued for periods ending after December 15,
1997. Prior period net income per share amounts have been restated to conform
with Statement No. 128.
FASB Statement No. 130, Comprehensive Income, is effective for financial
statements for fiscal years beginning after December 15, 1997. The Company is
not required to adopt Statement No. 130 until its 1999 fiscal year, although the
Company may adopt it before that time. The adoption of Statement No. 130 would
not have a significant impact on the Company's financial statements nor would
the Company's earlier adoption of Statement No. 130 have a significant impact on
the Company's financial statements for prior years.
In June 1997, the FASB issued Statement No. 131, Disclosure about Segments
of an Enterprise and Related Information, which is effective for the Company's
fiscal year ending October 31, 1999. The Company is evaluating the segments that
will be reported under Statement No. 131.
IMPACT OF THE YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs having been written
using two digits rather than four to define the applicable year. Any computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
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 attempt to ensure that its management information
systems and computer software are year 2000 compliant. Management believes that
with modifications to existing software and converting to new software, the year
2000 issue will not pose significant operational problems for the Company's
computer systems. The Company expects to complete any necessary systems
modifications and conversions by the end of 1998. Although the ability of third
parties with whom the Company transacts business to address adequately their
year 2000 issue is outside the Company's control, the Company is discussing with
its vendors and customers the possibility of any interface difficulties that may
affect the Company.
The Company's year 2000 plan is part of the Company's overall upgrade of its
management information systems, which is currently in progress. Management
expects the upgrade to be completed with respect to a substantial majority of
the Company's operations by the end of 1998 and that the upgrade for the
remaining operating divisions will be completed in the first six months of 1999.
The Company currently believes that the year 2000 issue will not have a
material adverse impact on the operations of the Company and that costs to
become year 2000 compliant will not have a material adverse effect on the
Company's future results of operations or financial condition.
20
<PAGE>
BUSINESS
GENERAL
The Company is one of North America's largest integrated manufacturers of
metal products for the building industry, with 38 manufacturing and distribution
facilities located in 18 states and Mexico. The Company sells metal components
as well as complete, pre-engineered metal building systems, offering one of the
most extensive metal product lines in the building industry with well-recognized
brand names. Management believes that the Company's leading market positions and
strong track record of growth and profitability have resulted from its focus on
improving manufacturing efficiency, controlling overhead costs, developing new
markets and successfully identifying and integrating strategic acquisitions. In
May 1998, NCI acquired MBCI, thereby doubling its sales, becoming the largest
domestic manufacturer of nonresidential metal components and significantly
improving its product mix. On a pro forma basis giving effect to the MBCI
Acquisition, the Company's sales and income from operations were $815.7 million
and $95.2 million, respectively, for the 12-month period ended October 31, 1997.
Prior to the MBCI Acquisition, MBCI designed, manufactured, sold and
distributed metal components for the building industry, including one of the
widest selections of roofs, walls, fascia, mansard and various trim accessories
for commercial, industrial, agricultural and residential construction uses. In
addition, MBCI processed its own hot roll coil metal for use in metal components
manufacturing, as well as processing hot roll coil and toll coating light gauge
metal for use by other parties in the manufacture of metal components and
numerous other products, including heating and air conditioning systems, water
heaters, lighting fixtures and office furniture. MBCI marketed its products
nationwide through a direct sales force under several brand names, including
"Metal Building Components," "American Building Components," "Metal Coaters of
Georgia," "Metal-Prep" and "DOUBLECOTE."
METAL COMPONENTS. With a market share at least twice that of its largest
competitor, the Company is the largest domestic supplier of metal components to
the nonresidential building industry. The Company designs, manufactures, sells
and distributes one of the widest selections of metal roof and wall systems,
overhead doors, fascia, mansard and various trim accessories for commercial,
industrial, architectural, agricultural and residential construction and repair
and retrofit uses. The Company is also one of the largest independent providers
of hot roll and light gauge metal coil coating and painting services and
products. The Company coats and paints hot roll coil metal for use in its own
metal components manufacturing, as well as processing hot roll coil metal and
toll coating light gauge metal for use by third parties. The Company markets its
metal components products and coating and painting services nationwide primarily
through a direct sales force under several brand names, including "Metal
Building Components," "American Building Components," "DBCI," "MBCI," "Metal
Coaters of Georgia," "Metal-Prep," "DOUBLECOTE" and "Metal Coaters of
California." On a pro forma basis giving effect to the MBCI Acquisition, the
Company's sales of metal components and coating and painting services were
$569.1 million, or 69.8% of total sales, for the 12-month period ended October
31, 1997.
PRE-ENGINEERED METAL BUILDING SYSTEMS. NCI is one of the largest domestic
suppliers of pre-engineered metal building systems. The Company designs,
manufactures and markets pre-engineered metal building systems, self-storage
building systems and metal home framing systems for commercial, industrial,
agricultural, governmental, community service and residential uses. The Company
markets these systems nationwide through authorized builder networks totaling
over 1,200 builders and a direct sales force under several brand names,
including "Metallic Buildings," "Mid-West Steel Buildings," "A & S Buildings,"
"All American Systems," "Steel Systems" and "Mesco." On a pro forma basis giving
effect to the MBCI Acquisition, the Company's sales of pre-engineered metal
building systems were $246.6 million, or 30.2% of total sales, for the 12-month
period ended October 31, 1997.
Prior to their combination, NCI and MBCI both demonstrated strong growth in
sales and income from operations. NCI has achieved five-year compound annual
growth rates of 38.9% and 49.6%, respectively, in sales and income from
operations. MBCI has achieved five-year compound annual growth rates of 15.3%
and 16.2%, respectively, in sales and income from operations.
21
<PAGE>
BUSINESS STRATEGY
The Company's management has developed business strategies to capitalize on
the Company's strengths. The Company's primary business strategies include the
following:
PURSUE STRATEGIC GROWTH OPPORTUNITIES. Throughout its history, the Company
has increased its sales and net income through a combination of selective
acquisitions and internal growth. Since 1993, the Company has successfully
acquired and integrated seven companies and is in the process of integrating
MBCI and a subsequently acquired metal coating and painting operation.
Management's disciplined acquisition strategy is focused on the identification
of suppliers of metal products and services that can be relatively quickly
assimilated into the Company's operations and that offer opportunities to expand
the Company's product line, further vertically integrate its operations or
broaden its geographic reach. In order to expand its geographic coverage and
increase manufacturing capacity, the Company has also constructed nine new
manufacturing facilities in the last five years and has formed four joint
ventures to expand into new markets and to increase market penetration of
existing markets.
LEVERAGE EXISTING DISTRIBUTION CHANNELS TO INCREASE SALES OF METAL
COMPONENTS. The Company seeks to penetrate further the metal components market,
primarily for metal roofing and wall systems. Currently, the Company sells its
products under well-recognized brand names through various distribution channels
to a broad range of end users. These channels include, among others, (i)
authorized builders, (ii) building materials manufacturers, distributors and
retailers, (iii) roofing systems installers, (iv) contractors and end users and
(v) builders of self-storage facilities. The Company plans to increase sales and
net income by utilizing its multiple distribution channels to market its
expanded range of metal components products to existing and new customers.
CONTINUE TO ENHANCE FLEXIBLE, COST-EFFECTIVE PRODUCTION FACILITIES AND
PROCESSES. The Company's commitment to providing its customers with quality
products on a timely basis at competitive prices remains a key element of its
business strategy. As a result, management is focused on continuous cost
reduction including realization of opportunities to (i) aggressively manage the
purchase of raw materials, (ii) further automate its manufacturing operations to
reduce process costs and improve product quality and (iii) capitalize on the
breadth of the Company's geographic coverage to provide customers with rapid
delivery.
INCREASE SALES OF PRE-ENGINEERED METAL BUILDING SYSTEMS IN NEW AND EXISTING
GEOGRAPHIC MARKETS. The addition of MBCI's metal components locations
nationwide provides the Company with an opportunity to expand sales of the
Company's pre-engineered metal building systems in existing markets and provides
access to new regional markets in the Northeast and Northwest. By utilizing
MBCI's nationwide metal components manufacturing facilities as platforms for
expansion, the Company is well positioned to increase sales of pre-engineered
metal building systems in markets that previously had been difficult for NCI to
serve on a cost-effective basis.
22
<PAGE>
ACQUISITIONS AND JOINT VENTURES
ACQUISITIONS. The following table describes NCI's and MBCI's combined
acquisition activity since 1993:
<TABLE>
<CAPTION>
PURCHASE
PRICE
SELLER DATE ACQUIRED (IN MILLIONS) BUSINESS ACQUIRED LOCATIONS
- - --------------------------------- ------------- --------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Ellis Building Components, Inc. Oct. 1994 $ 4.9 Metal building systems Tallapoosa, GA
and metal components
Royal Metal Buildings, Inc. Mar. 1995 0.9 Metal building systems Hobbs, NM
and metal components
Doors & Building Components, Inc. Nov. 1995 14.7 Doors and interior metal Douglasville, GA;
components Chandler, AZ
Carlisle Engineered Metals, Inc. Mar. 1996 2.8 Metal components (West Lodi, CA
coast division)
Anderson Industries, Inc. Apr. 1996 22.3 Metal building systems, Southlake, TX;
metal components, metal Chester, SC
roofs and components
(Mesco division)
Alta Industries Apr. 1996 19.0 Metal components (Steelco Salt Lake City, UT;
division)
Carlisle Engineered Metals, Inc. Feb. 1997 6.2 Insulated panels and Stratford, TX;
metal components Jemison, AL
(division)
BTR plc May 1998 600.0 Metal components and Houston, TX
metal coating and other facilities in U.S.
painting (MBCI)
Chicago Metallic Corporation May 1998 15.0 Metal coating and Rancho Cucamonga, CA
painting (California
Finished Metals)
</TABLE>
JOINT VENTURES. The Company has also formed the following joint ventures:
<TABLE>
<CAPTION>
OPERATIONS PERCENTAGE
JOINT VENTURE BEGUN OWNERSHIP BUSINESS LOCATION
- - -------------------------------------------- ---------- ------------- ------------------------ -------------------
<S> <C> <C> <C> <C>
DOUBLECOTE, L.L.C. Apr. 1995 50% Metal coating and Jackson, MS
painting
Metallic de Mexico, S.A. de C.V. Nov. 1995 50% Drafting and marketing Monterrey, Mexico
Building Systems de Mexico, S.A. de C.V. July 1997 51% Primary structures for Monterrey, Mexico
metal building systems
Midwest Metal Coating, L.L.C. (1) 50% Metal coating and Granite City, IL
painting
</TABLE>
- - ------------------------
(1) Expected to commence operations in the first quarter of 1999.
23
<PAGE>
PRODUCTS AND MARKETS
The Company's product lines consist of metal components for the building
industry and pre-engineered metal building systems. On an actual and pro forma
basis, giving effect to the MBCI Acquisition, NCI's and the Company's sales,
respectively, for the periods indicated attributable to these product lines were
approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------------------
PRO FORMA
1995 1996 1997 1997
-------------------- -------------------- -------------------- --------------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Metal components.................. $ 60.3 25.8% $ 119.9 36.0% $ 161.2 39.5% $ 569.1 69.8%
Metal building systems............ 173.9 74.2 213.0 64.0 246.6 60.5 246.6 30.2
--------- --------- --------- --------- --------- --------- --------- ---------
Total sales....................... $ 234.2 100.0% $ 332.9 100.0% $ 407.8 100.0% $ 815.7 100.0%
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
METAL COMPONENTS. The Company's metal components consist of individual
components, including secondary structural framing, covering systems and
associated metal trims, that are sold directly to contractors or end users for
use in the building industry, including the construction of metal buildings. The
Company also stocks and markets metal component parts for use in the maintenance
and repair of existing buildings. Specific component products consist of end and
side wall panels, roof panels, purlins, girts, partitions, header panels and
related trim and screws. The Company believes it offers the widest selection of
metal components in the building industry.
Purlins and girts, which are medium gauge, roll formed steel components, are
supplied to builders for secondary structural framing. The Company custom
produces purlins and girts for its customers and offers the widest selection of
sizes and profiles of purlins and girts in the United States. Covering systems,
consisting of wall and roof panels, protect the rest of the structure and the
contents of the building from the weather, while also contributing to the
structural integrity of the building.
The Company's metal roofing products are attractive and durable. The Company
uses standing seam roof technology to replace traditional built-up and
single-ply roofs as well as to provide a distinctive look to new construction.
The Company manufactures and designs metal roofing systems for sales to regional
metal building manufacturers, general contractors and subcontractors. The
Company believes it has the broadest line of standing seam roofing products in
the building industry. The Company has also developed and patented a retrofit
metal panel, Retro-Registered Trademark-, that is used to replace wall and roof
panels of metal buildings. Retro-Registered Trademark- can be installed over the
top of existing metal panels to remodel or preserve a standing structure.
Although metal roofing is somewhat more expensive than traditional roofing in
upfront costs, its durability and low maintenance costs make metal roofing a
lower cost roofing product after the first 10 years.
The Company manufactures overhead doors and interior and exterior doors for
use in metal and other buildings. The Company is one of the largest suppliers in
the U.S. of roll-up doors to builders of self-storage facilities.
The Company provides its own metal coating and painting products and
services for use in component manufacturing. As a toll coater of hot roll steel
coils, the Company also provides pre-painted hot roll coils to manufacturers of
metal building systems and metal components. Either a customer provides coils
through its own supply channels, which are processed by the Company, or the
Company purchases hot roll coils and processes them for sale as a packaged
product. The Company also pre-paints light gauge steel coils for steel mills,
which supply the painted coils to various industrial users, including metal
building systems and metal components manufacturers and manufacturers of
lighting fixtures.
The Company's metal coating and painting operations apply a variety of paint
systems to metal coils. The process generally includes cleaning and painting the
coil and slitting it to customer specifications. The Company believes that
pre-painted metal coils are a better quality product, environmentally cleaner
and more cost-effective than painted metal products prepared in other
manufacturers' in-house painting
24
<PAGE>
operations. Painted metal coils also offer manufacturers the opportunity to
produce a broader and more aesthetically pleasing range of products.
PRE-ENGINEERED METAL BUILDING SYSTEMS. Pre-engineered metal building
systems consist of pre-engineered structural beams and panels that are welded
and roll formed in a factory and shipped to a construction site complete and
ready for assembly. The Company designs an integrated metal building system that
meets customer specifications and allows easy on-site assembly by the builder or
independent contractor. Pre-engineered metal building systems typically consist
of three systems:
- PRIMARY STRUCTURAL FRAMING. Primary structural framing, fabricated from
heavy-gauge steel, supports the secondary structural framing, roof, walls
and all externally applied loads. Through the primary framing, the force
of all applied loads is structurally transferred to the foundation.
- SECONDARY STRUCTURAL FRAMING. Secondary structural framing consists of
medium-gauge, roll-formed steel components called purlins and girts.
Purlins are attached to the primary frame to support the roof. Girts are
attached to the primary frame to support the walls. The secondary
structural framing is designed to strengthen the primary structural
framing and efficiently transfer applied loads from the roof and walls to
the primary structural framing.
- COVERING SYSTEMS. Covering systems consist of roof and wall panels. These
panels not only lock out the weather but also contribute to the structural
integrity of the overall building system. Roof and siding panels are
fabricated from light-gauge, roll-formed steel. Accessory components
complete the pre-engineered metal building system. These components
include doors, windows, gutters and interior partitions.
SALES, MARKETING AND CUSTOMERS
METAL COMPONENTS. The Company sells metal components directly to regional
manufacturers, contractors, subcontractors, distributors, lumberyards,
cooperative buying groups and other customers under the brand names "Metal
Building Components," "American Building Components" and "MBCI." Roll-up doors,
interior and exterior doors, interior partitions and walls, header panels and
trim are sold directly to contractors and other customers under the brand names
"Doors & Building Components" or "DBCI." These components also are produced for
integration into self storage and pre-engineered metal building systems sold by
the Company.
The Company markets its components products within four product lines: (i)
commercial/industrial; (ii) architectural; (iii) wood frame builders; and (iv)
residential. Customers include regional metal building systems manufacturers,
general contractors, subcontractors, roofing installers, architects and
end-users. Commercial and industrial businesses are heavy users of metal
components and metal buildings systems. Standing seam roof and architectural
customers are growing in importance. As metal buildings become a more acceptable
building alternative and aesthetics become an increasingly important
consideration for end users of metal buildings, the Company believes that
architects are participating in metal building design and purchase decisions to
a greater extent. Wood frame builders also purchase the Company's metal
components through distributors, lumberyards, cooperative buying groups and
chain stores for various uses, including agricultural buildings. Residential
customers are generally contractors building upscale homes that require an
architect-specified product.
The Company's metal components sales operations are organized into four
geographic regions. Each region is headed by a general sales manager supported
by individual plant sales managers. Each local sales office is located adjacent
to a manufacturing plant and is staffed by a direct sales force responsible for
contacting customers and architects and a sales coordinator who supervises the
sales process from the time the order is received until it is shipped and
invoiced. The regional and local focus of the Company's customers requires
extensive knowledge of local business conditions.
The Company provides its customers with product catalogs tailored to its
product lines, which include product specifications and suggested list prices.
Certain of the Company's catalogs are available on-line
25
<PAGE>
through the Internet, which enables architects and other customers to download
drawings for use in developing project specifications. Customers place orders
via telephone or facsimile to a sales coordinator at the regional office who
enters it onto a standard order form. The form is then sent via computer to the
plant and downloaded automatically to the production machines.
The Company has a small number of national accounts for its coating and
painting products and services and relies on a single sales manager. The Company
also has a metal coating joint venture, which has an independent sales force.
PRE-ENGINEERED METAL BUILDING SYSTEMS. The Company sells pre-engineered
metal building systems to builders nationwide under the brand names "Metallic
Buildings," "A&S Buildings" and "Mesco," respectively. The Company markets
pre-engineered metal building systems through an in-house sales force to
authorized builder networks of over 1,200 builders. The Company markets
pre-engineered metal building systems under the brand name "Mid-West Steel
Buildings" directly to contractors in Texas and surrounding states using an
in-house sales force. The Company also sells pre-engineered metal building
systems under the name "All American Systems" and various private labels.
The Company's authorized builder networks consist of independent general
contractors which market the Company's Metallic Buildings, A&S Buildings and
Mesco products to end users. Most of the Company's sales of pre-engineered metal
building systems outside of Texas and surrounding states are through its
authorized builder networks. The Company relies upon maintaining a satisfactory
business relationship for the continued receipt of job orders from its
authorized builders and does not consider the builder agreements to be material
to its business. During fiscal 1997, the Company's largest customer for
pre-engineered metal building systems accounted for less than 2% of the
Company's total sales.
The Company enters into an agreement with an authorized builder, which
generally grants the builder the non-exclusive right to market the Company's
products in a specified territory and which is cancelable by either party on 60
days notice. The agreements do not prohibit the builder from marketing metal
building systems of other manufacturers. The Company establishes an annual sales
goal for each builder and provides to the builder sales and pricing information,
design and engineering manuals, drawings and assistance, application programs
for estimating and quoting jobs and advertising and promotional literature. The
Company also defrays a portion of the builder's advertising costs and provides
volume purchasing and other pricing incentives to encourage them to deal
exclusively or principally with the Company. The builder is required to maintain
a place of business in its designated territory, provide a sales organization,
conduct periodic advertising programs and perform construction, warranty and
other services for customers and potential customers. An authorized builder
usually is hired by an end user to erect a metal building system on the
customer's site and provide general contracting and other services ancillary to
the completion of the project. The Company sells its products to the builder,
which generally includes the price of the building as a part of its overall
construction contract with its customer.
MANUFACTURE AND DESIGN
METAL COMPONENTS. The Company operates 37 facilities used for manufacturing
of metal components for the building industry, including its metal coating and
painting operations. The Company believes this broad geographic penetration
gives it an advantage over its components competitors because major elements of
a customer's decision are the speed and cost of delivery from the manufacturing
facility to the product's ultimate destination. With the exception of the
Company's architectural and standing seam products, the Company is not involved
in the design process for the components it manufactures. The Company also owns
a fleet of trucks to deliver its products to its customers in a more timely
manner than most of its competitors.
The Company's doors, interior partitions and other related panels and trim
products are manufactured at dedicated plants in Georgia, Texas and Arizona. The
products are roll-formed or fabricated at each plant using roll-formers and
other metal working equipment. Orders are processed at the Georgia plant and
sent to the appropriate plant, which is generally determined in a manner to
obtain the lowest shipping cost.
26
<PAGE>
METAL COATING AND PAINTING. The Company operates two metal coating and
painting facilities from which it primarily services its own needs and the needs
of other metal components manufacturers through the processing of hot rolled
steel coils. Metal coating and painting processes involve applying various types
of chemical treatments and paint systems to flat rolled continuous coils of
metal, including steel and aluminum, giving the coils a baked-on finish that
both protects the metal and makes it more attractive. Initially, various metal
substrates in coil form are flattened, cleaned and pretreated. The metal is then
coated, oven cured, cooled, recoiled and packaged for shipment. Slitting and
embossing services can also be performed on the coated metal prior to shipping
pursuant to customer specifications. Hot roll steel coils typically are used in
the production of secondary structural framing of metal buildings and other
structure applications. Painted light gauge steel coils are used in the
manufacture of products for building exteriors, metal doors, lighting fixtures
and appliances. The Company's metal coating operation is one of only two metal
coaters in the United States to receive the Supplier Excellence Award from
Bethlehem Steel Corporation.
The Company is a joint venture partner in two metal coating operations. The
Company owns 50% of an existing metal coating joint venture with a processing
plant in Jackson, Mississippi. The Company also owns 50% of a new joint venture,
which has acquired land in Granite City, Illinois and is building a hot rolled
coil coating facility that is expected to commence operations in the first
quarter of 1999. The new facility will be used to slit and coat hot rolled coils
of medium gauge steel for use in manufacturing purlins and girts. The Company
has agreed to purchase a substantial portion of its production requirements for
that product from the new joint venture.
PRE-ENGINEERED METAL BUILDING SYSTEMS. After the Company receives an order,
the Company's engineers design the metal building system to meet the customer's
requirements and to satisfy applicable building codes and zoning requirements.
In order to expedite this process, the Company uses computer-aided design and
engineering systems to generate engineering and erection drawings and a bill of
materials for the manufacture of the pre-engineered metal building system. The
Company employs approximately 185 engineers and draftsmen in this area.
Once the specifications and designs of the customer's project have been
finalized, the manufacturing process of frames and other building systems begins
at one of the Company's six manufacturing facilities in Texas, Georgia, South
Carolina or Tennessee or its joint venture facility in Mexico. The fabrication
of the primary structural framing consists of a process in which pieces of rigid
steel plates are punched and sheared and then routed through an automatic
welding machine and sent through further fitting and welding processes. The
secondary structural framing and the covering subsystem are roll-formed steel
products that are manufactured at the Company's full manufacturing facilities as
well as its regional satellite plants. In roll forming, pre-finished coils of
steel are unwound and passed through a series of progressive forming rolls which
form the steel into various profiles of medium-gauge structural shapes and
light-gauge sheets and panels.
Once manufactured, structural framing members and covering systems are
shipped to the job site for assembly. The Company generally is not responsible
for any on-site construction. The time elapsed between the Company's receipt of
an order and shipment of a completed building system has typically ranged from
four to eight weeks, although delivery can extend somewhat longer if engineering
and drafting requirements are extensive.
The Company owns 51% of a joint venture, which began operation of a framing
facility in Monterrey, Mexico in July 1997. The Company purchases substantially
all of the framing systems produced by the Mexico joint venture.
RAW MATERIALS
The principal raw material used in the manufacture of the Company's
pre-engineered metal building systems and component products is steel.
Components are fabricated from common steel products produced by mills including
bars, plates, sheets and galvanized sheets. On a combined basis for their
respective 1997 fiscal years, NCI and MBCI purchased an aggregate of
approximately 80% of their steel
27
<PAGE>
requirements from National Steel Corporation and Bethlehem Steel Corporation. No
other steel supplier accounted for more than 10% of the combined steel purchases
for the same period. The Company believes concentration of its steel purchases
among a small group of suppliers that have mills and warehouse facilities in
close proximity to the Company's facilities enables it, as a large customer of
those suppliers, to obtain better service and delivery. These suppliers
generally maintain an inventory of the types of materials required by the
Company, enabling the Company to utilize a form of "just-in-time" inventory
management with regard to raw materials.
The Company does not have any long-term contracts for the purchase of raw
materials. A prolonged labor strike against one of its principal domestic
suppliers could have a material adverse effect on the Company's operations.
Alternative sources, however, including foreign steel, are currently believed to
be sufficient to maintain required deliveries.
BACKLOG
On a combined basis at April 30, 1998, the total backlog for orders for
NCI's and MBCI's products believed by the Company to be firm was $138.8 million.
This compares with a total backlog for NCI's products of $110.0 million at
October 31, 1997, and $85.6 million at October 31, 1996, and for MBCI's products
of $16.1 million at December 31, 1997, and $14.9 million at December 31, 1996.
The increases in backlog reflect the results of the marketing activities of NCI
and MBCI and market demand. Backlog primarily consists of pre-engineered metal
building systems. Job orders generally are cancelable by customers at any time
for any reason and, occasionally, orders in the backlog are not completed and
shipped for reasons that include changes in the requirements of the customers
and the inability of customers to obtain necessary financing or zoning
variances. None of the backlog at April 30, 1998, currently is scheduled to
extend beyond April 30, 1999.
COMPETITION
The Company competes with a number of other manufacturers of metal
components and metal building systems for the building industry, ranging from
small local firms to large national firms. Most of these competitors operate on
a regional basis, although the Company believes that at least four other
manufacturers of metal building systems and several manufacturers of metal
components have nationwide coverage. In addition, the Company and other
manufacturers of metal components and metal building systems compete with
alternative methods of building construction, which may be perceived as more
traditional, more aesthetically pleasing or having other advantages. Competition
is based primarily on price, speed of construction, quality of builder/dealer
networks, the ability to provide added value in the design and engineering of
buildings and, among manufacturers of metal components and metal building
systems, service, quality and delivery times.
REGULATORY MATTERS
The Company's operations are subject to a wide variety of federal, state and
local laws and regulations governing, among other things, emissions to air,
discharges to waters, the generation, handling, storage, transportation,
treatment, and disposal of hazardous substances and other materials and health
and safety matters. Laws protecting the environment generally have become more
stringent than in the past and are expected to continue to do so. Environmental
laws and regulations generally impose "strict liability," which means that in
some situations the Company could be exposed to liability for cleanup costs, and
"toxic tort" or other damages as a result of conduct that was lawful at the time
it occurred or conduct of, or conditions caused by, prior operators or other
third parties, regardless of fault on the part of the Company. The Company
believes it is in substantial compliance with all environmental standards
applicable to its operations. However, there can be no assurance that cleanup
costs, natural resource damages, criminal sanctions, "toxic tort" or other
damages arising as a result of environmental laws and costs associated with
complying with changes in environmental laws and regulations will not be
substantial and will not have a material adverse effect on the Company's
financial condition. From time to time, claims have been made against the
Company under environmental laws. The Company has insurance coverage for certain
28
<PAGE>
environmental claims and certain locations after payment of the applicable
deductible. The Company does not anticipate material capital expenditures to
meet current environmental quality control standards. There can be no assurance
that more stringent regulatory standards will not be established that might
require such expenditures.
The Company is also subject to federal, state and local laws and regulations
governing occupational safety and health, including review by the federal
Occupational Health and Safety Administration and similar state agencies. The
Company believes it is in substantial compliance with applicable laws and
regulations, and compliance does not have a material adverse affect on the
Company's business.
The pre-engineered metal building systems manufactured by the Company must
meet zoning and building code requirements promulgated by local governmental
agencies.
PATENTS, LICENSES AND PROPRIETARY RIGHTS
The Company has a number of United States patents and pending patent
applications, including patents relating to metal roofing systems and metal
overhead doors. The Company does not, however, consider patent protection to be
a material competitive factor in its industry. The Company also has several
registered trademarks and pending registrations in the United States.
EMPLOYEES
As of June 30, 1998, the Company had approximately 3,700 employees, of whom
over 2,700 were manufacturing and engineering personnel. The Company regards its
employee relations as satisfactory.
The Company's employees are not represented by a labor union or collective
bargaining agreement, although the United Steel Workers of America petitioned
the National Labor Relations Board to be recognized as the collective bargaining
representative of the production and maintenance employees of the Company's
Tallapoosa, Georgia facility. An election for that purpose was held in January
1996 and the union lost the election to be recognized as the collective
bargaining representative of such employees. A similar election was held at the
Company's Mattoon, Illinois facility in November 1997 and the United Steel
Workers of America lost that election.
LEGAL PROCEEDINGS
The Company is involved in various legal proceedings that the Company
considers to be in the normal course of business. Management believes that such
litigation will not have a material adverse effect on the Company's results of
operations or financial condition.
PROPERTIES
The Company conducts manufacturing operations at the following facilities:
<TABLE>
<CAPTION>
SQUARE OWNED
FACILITY PRODUCTS FEET OR LEASED
- - ---------------------------------------- ---------------------------------------- --------- -----------
<S> <C> <C> <C>
Chandler, Arizona Doors and related metal components 35,000 Leased
Tomlinson, Arizona Metal components(1) 65,980 Owned
Atwater, California Metal components(2) 85,700 Owned
Rancho Cucamonga, California Metal coating and painting 98,000 Owned
Tampa, Florida Metal components(3) 28,775 Owned
Adel, Georgia Metal components(1) 59,550 Owned
Douglasville, Georgia Metal components(4) 110,536 Owned
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
SQUARE OWNED
FACILITY PRODUCTS FEET OR LEASED
- - ---------------------------------------- ---------------------------------------- --------- -----------
<S> <C> <C> <C>
Douglasville, Georgia Doors and related metal components 60,000 Owned
Marietta, Georgia Metal coating and painting 125,700 Owned
Tallapoosa, Georgia Metal building systems(5) 246,000 Leased
Metal components
Napa, Idaho Metal components(6) 42,900 Owned
Mattoon, Illinois Metal components(2) 90,600 Owned
Shelbyville, Indiana Metal components(6) 66,450 Owned
Nicholasville, Kentucky Metal components(7) 41,280 Owned
Monterrey, Mexico(8) Metal building systems(9) 64,125 Owned
Jackson, Mississippi Metal components(2) 96,000 Owned
Jackson, Mississippi(10) Metal coating and painting 363,200 Owned
Omaha, Nebraska Metal components(7) 51,750 Owned
Hobbs, New Mexico Metal components(2) 60,800 Leased
Rome, New York Metal components(6) 57,700 Owned
Oklahoma City, Oklahoma Metal components(1) 59,695 Owned
Chester, South Carolina Metal building systems(5) 124,000 Owned
Metal components
Caryville, Tennessee Metal building systems(5) 193,800 Owned
Metal components
Memphis, Tennessee Metal coating and painting 61,500 Owned
Nesbitt, Tennessee Metal components(1) 71,720 Owned
Ennis, Texas Metal components and studs 33,000 Owned
Grand Prairie, Texas Metal components(1) 48,027 Owned
Houston, Texas Metal components 97,000 Owned
Houston, Texas Metal components(4) 209,355 Owned
Houston, Texas Metal coating and painting 39,550 Owned
Houston, Texas(11) Metal building systems(5) 382,000 Owned
Metal components
Doors
Lubbock, Texas Metal components(1)(7) 64,320 Owned
San Antonio, Texas Metal components(6) 52,360 Owned
Southlake, Texas Metal building systems(5) 123,000 Owned
Metal components
Stafford, Texas Metal components 105,000 Leased
Stafford, Texas Metal components 56,840 Leased
Salt Lake City, Utah Metal components(1) 93,150 Owned
Colonial Heights, Virginia Metal components(1) 37,000 Owned
</TABLE>
- - ------------------------
(1) Secondary structures and covering systems.
(2) Includes secondary structures and covering systems.
(3) Covering products.
30
<PAGE>
(4) Full product range.
(5) Primary structures, secondary structures and covering systems.
(6) Covering systems.
(7) Specialized products.
(8) The Company owns a 51% interest in a joint venture.
(9) Primary structures.
(10) The Company owns a 50% interest in a joint venture.
(11) Includes 33,600 square feet used for the Company's principal executive
offices.
The Company also maintains several drafting office facilities and retail
locations in various states. These additional facilities are subject to
short-term leases.
The Company believes that its present facilities are adequate for its
current and projected operations. As part of the integration plan implemented in
connection with the MBCI Acquisition, the Company is reviewing its manufacturing
facilities and considering the consolidation or closure of certain facilities as
part of its efforts to maximize production efficiencies.
MANAGEMENT
The directors, executive officers and other key managers of the Company, and
their ages as of July 31, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - -------------------------------- --- ----------------------------------------------------------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
C. A. Rundell, Jr............... 66 Chairman of the Board and Class II Director
Johnie Schulte, Jr.............. 63 President, Chief Executive Officer, President and Chief
Executive Officer of Metal Buildings Division and Class III
Director
A. R. Ginn...................... 59 Executive Vice President and Chief Operating Officer, President
and Chief Executive Officer of Metal Components Division,
Chief Executive Officer of Metal Coaters Division and Class I
Director
Leonard F. George............... 46 Executive Vice President of Metal Buildings Division and Class
III Director
Robert J. Medlock............... 58 Vice President, Treasurer and Chief Financial Officer and Vice
President, Chief Financial Officer and Treasurer of Metal
Buildings Division
Kenneth W. Maddox............... 51 Vice President, Vice President and Chief Financial Officer of
Metal Components Division and Metal Coaters Division and Class
I Director
Donnie R. Humphries............. 48 Secretary and Vice President, Human Relations of Metal Buildings
Division
Thomas C. Arnett................ 65 Class I Director
William D. Breedlove............ 58 Class III Director
Gary L. Forbes.................. 54 Class II Director
Robert N. McDonald.............. 70 Class II Director
Daniel D. Zabcik................ 69 Class I Director
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION
- - -------------------------------- --- ----------------------------------------------------------------
<S> <C> <C>
OTHER KEY MANAGERS:
Jerry D. Boen................... 51 Vice President, Marketing of Metal Components Division
David B. Curtis................. 38 President of Doors & Building Components Division
Charles W. Dickinson............ 47 Vice President, Sales of Metal Components Division
John T. Eubanks................. 57 President of Mesco Metal Buildings Division
Kelly R. Ginn................... 37 Vice President, Manufacturing of Metal Components Division
John W. Holmes.................. 47 President of Metal Prep Division
Richard F. Klein................ 59 President and Chief Operating Officer of Metal Coaters Division
Fredrick D. Koetting............ 39 Vice President, Operations of Metal Buildings Division
Alvan E. Richey, Jr............. 62 Vice President, Sales and Marketing of Metal Buildings Division
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS:
C.A. Rundell, Jr. has served as a director and Chairman of the Board of the
Company since April 1989. Since October 1997, Mr. Rundell has been President,
Chief Executive Officer and a director of Tyler Corporation, a provider of
information management systems and services for county governments and other
enterprises and a distributor of automotive aftermarket parts. Mr. Rundell
served as Chairman of the Board of Tyler Corporation from October 1996 until
October 1997, and as its temporary Chief Executive Officer from October 1996 to
March 1997. Since May 1988, Mr. Rundell has owned and operated Rundell
Enterprises, a sole proprietorship engaged in providing acquisition and
financial consulting services to various business enterprises. From 1977 to
1988, Mr. Rundell was the President, Chief Executive Officer and a director of
Cronus Industries, Inc. (now Business Records Corporation) ("Cronus"). Mr.
Rundell is also a director of Dain Rauscher Corporation, a holding company for a
full-service regional brokerage and investment banking company, and Tandy Brands
Accessories, Inc., a manufacturer of accessories for men, women and boys.
Johnie Schulte, Jr. a founder of the Company, has been a director, President
and Chief Executive Officer of the Company since 1984 and as the President and
Chief Executive Officer of the Metal Buildings Division since May 1998. Mr.
Schulte founded and was President of Mid-West Steel Buildings Co., Inc. from
1970 until its sale to American Buildings Company ("ABC"), a metal building
manufacturer, in 1980. Mr. Schulte remained as President of the Mid-West
Metallic Division of ABC until 1984, when he left to form the Company. Mr.
Schulte has spent 44 years in the metal building industry.
A.R. Ginn has served as a director and as Executive Vice President and Chief
Operating Officer of the Company, President and Chief Executive Officer of the
Metal Components Division and Chief Executive Officer of the Metal Coaters
Division since May 1998. Previously, he served as a director and the President
of MBCI since 1976 and was Chief Executive Officer of the Metal Coaters Division
of MBCI from 1987 to 1998. Mr. Ginn has over 40 years of experience in the metal
building and components industry. Mr. Ginn worked for four years with A&S Steel
Buildings and spent 14 years with Metallic Building Company, where he was Vice
President of Operations for seven years. Mr. Ginn is the father of Kelly R.
Ginn.
Leonard F. George has served as a director of the Company since March 1993
and as an Executive Vice President of the Metal Buildings Division since May
1998. Previously, Mr. George served as Executive Vice President of the Company
since September 1992 and as the President of the A&S Division from October 1992
until December 1992. From 1987 to September 1992, Mr. George was employed as
President, Vice President of Engineering, Assistant Vice President of
Engineering and Regional Sales Manager of ABC. Mr. George has spent over 20
years in the metal building industry.
Robert J. Medlock has served as Vice President and Chief Financial Officer
of the Company since February 1992 and as Vice President, Chief Financial
Officer and Treasurer of the Metal Buildings
32
<PAGE>
Division since May 1998. Mr. Medlock served as the Chief Financial Officer and
Treasurer of Enviropact, Inc., an environmental services company, from 1989 to
1991. He was the Vice President and Chief Financial Officer of ABC from 1973 to
1978. After the acquisition of ABC by Cronus, he became Vice President and
Controller of Cronus and served in that capacity from 1979 until 1981. Mr.
Medlock is a certified public accountant.
Kenneth W. Maddox has served as a director and as Vice President of the
Company and Vice President and Chief Financial Officer of the Metal Components
Division and the Metal Coaters Division since May 1998. Previously, he served as
the Chief Financial Officer and Treasurer of MBCI since 1980. Mr. Maddox is a
certified public accountant.
Donnie R. Humphries has been Secretary of the Company since 1985 and Vice
President, Human Relations of the Metal Buildings Division since May 1998. Mr.
Humphries previously served as Vice President, Human Relations of the Company
since 1997. Mr. Humphries was employed by Mid-West Steel Buildings Co., Inc.
from 1976 to 1980 and by ABC from 1980 to 1985. Mr. Humphries has over 21 years
of experience in the metal building industry.
Thomas C. Arnett has served as a director of the Company since April 1989.
Mr. Arnett is currently retired and manages his own investments. Mr. Arnett was
an Executive Vice President of Cronus from 1977 to 1985 and served as a director
of Cronus from 1977 to 1988.
William D. Breedlove has served as a director of the Company since March
1992. Mr. Breedlove has been Vice Chairman of Hoak Breedlove Wesneski & Co., an
investment banking firm, since August 1996. Previously, he served as Chairman
and Managing Director of Breedlove Wesneski & Co., a private merchant banking
firm, for over five years. In addition, Mr. Breedlove served as a director of
Cronus from 1984 to 1988.
Gary L. Forbes has served as a director of the Company since December 1991.
Mr. Forbes has been a Vice President of Equus II Incorporated, an investment
company, since November 1991. Mr. Forbes is also a director of Consolidated
Graphics, Inc., a commercial printing company, Advanced Technical Products,
Inc., a manufacturer of high performance composite parts, and Drypers
Corporation, a manufacturer of disposable diapers. Mr. Forbes is a certified
public accountant.
Robert N. McDonald has served as a director since March 1992. Mr. McDonald
was a marketing consultant for ABC from 1985 until February 1992 and served as a
director of that company from 1989 to 1990. From 1956 to 1970, Mr. McDonald was
employed by Butler Manufacturing Company, a metal building manufacturer, and
served as Vice President of Marketing for ABC from 1970 to 1978.
Daniel D. Zabcik has been a director of the Company since April 1989 and
served as an Executive Vice President of the Company from April 1989 until
October 1993, when he resigned as an officer and assumed part-time employee
status. Since 1986, Mr. Zabcik has also served as a director of Southwest Bolt,
Inc., a distributor of structural bolts. From 1980 until April 1989, Mr. Zabcik
was employed as President, Executive Vice President and Vice Chairman of the
Mid-West Metallic division of ABC. Mr. Zabcik has spent over 40 years in the
metal building industry. Mr. Zabcik is a licensed engineer and served on the
Executive Committee of the MBMA in 1993.
The Board of Directors is comprised of four Class I Directors, three Class
II Directors and three Class III Directors. The terms of the Class I, Class II,
and Class III directors will expire at the annual meeting of stockholders held
in 2000, 2001 and 1999, respectively. At each of those annual meetings and
thereafter, directors will be elected for a three-year term to succeed the
directors of the same class whose terms are then to expire. Officers of the
Company serve at the discretion of the Board of Directors.
OTHER KEY MANAGERS:
Jerry D. Boen has served as Vice President, Marketing of the Metal
Components Division since May 1998. Previously, he served as Vice President of
Marketing of MBCI since 1980. Prior to joining MBCI, Mr. Boen was a sales
manager for another building components company.
33
<PAGE>
David B. Curtis has served as President of the Doors & Building Components
Division of the Company since it was acquired from Doors & Building Components,
Inc. in November 1995. Mr. Curtis was the founder of Doors & Building
Components, Inc. and served as its President and Chief Executive Officer for
more than five years.
Charles W. Dickinson has served as Vice President, Sales of the Metal
Components Division since May 1998. Previously, he served as Vice President of
Sales of MBCI since 1991 and was employed by MBCI for more than 16 years. Mr.
Dickinson has over 23 years of experience in the metal building and components
industry.
John T. Eubanks has served as President of the Mesco Metal Buildings
Division of the Company since 1989. Mesco Metal Buildings was a division of
Anderson Industries, Inc. prior to April 1, 1996, at which time it was acquired
by a subsidiary of the Company.
Kelly R. Ginn has served as Vice President, Manufacturing of the Metal
Components Divisions since May 1998. Previously, he served as Vice President of
Manufacturing of MBCI since 1990. Prior to joining MBCI in 1985, Mr. Ginn worked
as a Plant Superintendent for a large metal building manufacturer. Mr. Ginn has
19 years of experience in the metal building and components industry. Mr. Ginn
is the son of A.R. Ginn.
John W. Holmes has served as President of the Metal Prep Division since May
1998. Previously, he served as President of Metal Prep, Inc., a subsidiary of
MBCI, since 1996. Mr. Holmes was employed by MBCI for over 16 years and served
as Sales Manager for two of MBCI's plants and as President of American Building
Company, a subsidiary of MBCI. Before joining MBCI in 1981, Mr. Holmes was a
Regional Manager for a metal building components manufacturer.
Richard F. Klein has served as President and Chief Operating Officer of the
Metal Coaters Division since May 1998. Previously, he served as President of
Metal Coaters, Inc., a subsidiary of MBCI, since 1987. Before joining MBCI in
1987, Mr. Klein spent nine years as Vice President of a large coil coating
concern.
Fredrick D. Koetting has been Vice President, Operations of the Metal
Building Division since May 1998. He previously served as a Vice President of
the Company since May 1994. Prior to joining the Company in May 1994, Mr.
Koetting served as an Account Manager for National Steel Corporation, a steel
supplier of the Company, from 1991 until May 1994. Mr. Koetting served as a
Manager of Customer Service for Granite City Steel, a division of National Steel
Corporation, from 1989 until 1991.
Alvan E. Richey, Jr. has been Vice President, Sales and Marketing of the
Metal Buildings Division since May 1998. He previously served as Vice President,
Sales and Marketing of the Company since July 1995. Mr. Richey has also been
President of the A&S Division since December 1992. Prior to joining the Company
in September 1992, Mr. Richey was employed by ABC for over 22 years. Mr. Richey
has over 29 years of experience in the metal building industry.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Southwest Bolt, Inc., a corporation of which Mr. Zabcik is a director and
owns 25% of the capital stock, is the Company's primary supplier of structural
bolts. In fiscal 1997, the Company made purchases from Southwest Bolt, Inc., in
the amount of $1.9 million.
STOCKHOLDERS' PROPOSALS
Stockholders may submit proposals on matters appropriate for stockholder
action at subsequent annual meetings of the Company consistent with Rule 14a-8
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). For such proposals to be considered for inclusion in the Proxy Statement
and Proxy relating to the Company's annual meeting to be held in 1999, the
Secretary of the Company must receive them on or before October 2, 1998. Such
proposals should be directed to NCI Building Systems, Inc., 7301 Fairview,
Houston, Texas, 77041, Attention: Secretary.
34
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROXY STATEMENT INCORPORATES CERTAIN DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS
TO SUCH DOCUMENTS UNLESS SUCH DOCUMENTS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE WITHOUT CHARGE, TO ANY PERSON TO WHOM THIS PROXY
STATEMENT IS DELIVERED UPON WRITTEN OR ORAL REQUEST, AND BY FIRST CLASS MAIL (OR
OTHER EQUALLY PROMPT MEANS) WITHIN ONE BUSINESS DAY OF RECEIPT OF SUCH REQUEST.
REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECTED TO NCI BUILDING SYSTEMS, INC.,
7301 FAIRVIEW, HOUSTON, TEXAS 77041, ATTENTION: DONNIE R. HUMPHRIES, SECRETARY.
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE
BY SEPTEMBER 20, 1998.
The information in the following documents filed by the Company with the
Securities and Exchange Commission (the "Commission") (File No. 0-14315)
pursuant to the Exchange Act, is incorporated by reference with this Proxy
Statement:
(a) Annual Report on Form 10-K for the fiscal year ended October 31,
1997, including Pages 16-25 of the Company's 1997 Annual Report to
Shareholders and the information required herein by Item 402 (executive
compensation) from the Company's Proxy Statement dated January 30, 1998,
filed in definitive form on January 28, 1998. With the exception of pages
16-25 no other part of the 1997 Annual Report to Shareholders is
incorporated by reference herein;
(b) Quarterly Reports on Form 10-Q for the fiscal quarters ended January
31 and April 30, 1998;
(c) Current Report on Form 8-K dated May 4, 1998, and filed with the
Commission on May 19, 1998, with respect to the Company's acquisition of
MBCI, as amended by Current Report on Form 8-K/A filed with the Commission
on July 20, 1998, Current Report on Form 8-K/A, Amendment No. 2, filed with
the Commission on August 5, 1998 and Current Report on Form 8-K/A, Amendment
No. 3, filed with the Commission on August 25, 1998 (expressly including
Exhibits 2.1 and 2.2 to the Form 8-K);
(d) Current Report on Form 8-K dated June 24, 1998, and filed with the
Commission on July 9, 1998, with respect to the dividend of preferred stock
purchase rights;
(e) the description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed with the Commission on
July 20, 1998; and
(f) Current Report on Form 8-K dated August 21, 1998, with respect to
the Company's audited consolidated financial statements.
All reports and documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement and prior to the Special Meeting shall be deemed to be
incorporated by reference into this Proxy Statement and to be a part hereof from
the filing of such documents. Any statement made herein or in documents
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for the purposes of this Proxy Statement to the extent
that a statement contained herein or in any other subsequently filed documents
that also are incorporated or deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement.
The information relating to the Company contained in this Proxy Statement
should be read together with the information in the documents incorporated by
reference.
35
<PAGE>
FORWARD-LOOKING INFORMATION
This Proxy Statement contains forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than historical or current facts, including, without
limitation, statements about the business, financial condition, business
strategy, plans and objectives of management and prospects of the Company, are
forward-looking statements. When used in this Proxy Statement the words
"anticipates," "believes," "estimates," "expects," "intends," "plans" and
"predicts," and similar statements that a result or event "should" occur and
similar expressions as they relate to the Company or its management, are
intended to identify forward-looking statements. Although the Company believes
that the expectations reflected in the forward-looking statements are
reasonable, these expectations and the related statements are not guarantees of
future performance and are subject to risks, uncertainties and other factors
that could cause the actual results to differ materially from those projected.
These risks, uncertainties and other factors include, but are not limited to,
the ability to integrate MBCI and other acquisitions, the ability to service
indebtedness and obtain additional capital, industry cyclicality, fluctuations
in customer demand and other patterns, the ability to make strategic activities
accretive to net income, raw material availability and pricing, seasonality and
adverse weather conditions, competitive activity and pricing pressure, changes
in tax and other governmental rules and regulations applicable to the Company,
new technological developments and general economic conditions affecting the
construction industry, as well as other risks detailed in this Proxy Statement
and in filings of the Company with the Commission. Certain of these risks and
uncertainties are beyond the ability of the Company to control and, in many
cases, the Company cannot predict the occurrence of these risks and
uncertainties. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results may vary
materially from those stated. Important factors that could cause actual results
to differ materially from the Company's expectations are disclosed elsewhere in
this Proxy Statement. The Company expressly disclaims any obligation to release
publicly any updates or revisions to these forward-looking statements to reflect
any changes in its expectations.
MISCELLANEOUS
The Board of Directors knows of no business other than that set forth above
to be transacted at the Special Meeting. If other matters requiring a vote of
the stockholders arise, the persons designated as proxies will vote the shares
of Common Stock represented by the proxies in accordance with their judgment on
such matters.
The information contained in the Proxy Statement relating to the security
holdings of the directors and officers of the Company is based upon information
received from the individual directors and officers. All information relating to
any beneficial owner of more than 5% of the Company's Common Stock is based upon
information contained in reports filed by such owner with the Securities and
Exchange Commission.
A representative of Ernst & Young LLP, the Company's independent auditors,
is expected to be present at the Special Meeting and will have the opportunity
to make a statement. The representative will be available to answer appropriate
stockholder questions.
By Order of the Board of Directors
/s/ Donnie R. Humphries
Donnie R. Humphries,
SECRETARY
Houston, Texas
August 27, 1998
36
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Consolidated Financial Statements of Amatek
Report of Ernst & Young LLP............................................................................. F-2......
Consolidated Balance Sheets--December 31, 1996 and 1997, and March 31, 1998 (Unaudited)................. F-3
Consolidated Statements of Operations--Years Ended December 31, 1995, 1996 and 1997, and for the Three
Months Ended March 31, 1997 and 1998 (Unaudited)...................................................... F-4......
Consolidated Statements of Cash Flows--Years Ended December 31, 1995, 1996 and 1997, and for the Three
Months Ended March 31, 1997 and 1998 (Unaudited)...................................................... F-5
Consolidated Statements of Stockholder's Equity--Years Ended December 31, 1995, 1996 and 1997, and for
the Three Months Ended March 31, 1998 (Unaudited)..................................................... F-6
Notes to Consolidated Financial Statements.............................................................. F-7
Unaudited Pro Forma Condensed Combined Financial Statements
Unaudited Pro Forma Condensed Combined Balance Sheet--April 30, 1998.................................... F-13
Unaudited Pro Forma Condensed Combined Statement of Income--Twelve Months Ended October 31, 1997........ F-14
Unaudited Pro Forma Condensed Combined Statement of Income--Six Months Ended April 30, 1998............. F-15
Notes to Unaudited Pro Forma Condensed Combined Financial Statements.................................... F-16
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholder
Amatek Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Amatek
Holdings, Inc. and subsidiaries (the "Company"), as of December 31, 1997, and
1996, and the related consolidated statements of operations, cash flows, and
stockholder's equity for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements 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 wheth 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Amatek
Holdings, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Houston, Texas
August 5, 1998
F-2
<PAGE>
AMATEK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1996 1997
---------- ---------- MARCH 31,
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 3,622 $ 7,012 $ 1,345
Accounts receivable:
Trade, net of allowance for doubtful accounts of $576, $658, and $395... 41,942 44,599 43,162
Other................................................................... 2,835 6,659 3,737
Inventories............................................................... 32,410 43,479 47,516
Prepaid expenses.......................................................... 2,004 2,715 3,419
Income taxes receivable................................................... -- 437 --
Deferred tax asset........................................................ 853 1,186 1,186
---------- ---------- -----------
Total current assets........................................................ 83,666 106,087 100,365
Property, plant, and equipment:
Land...................................................................... 4,390 5,916 6,227
Buildings and improvements................................................ 31,104 40,845 41,425
Machinery and equipment................................................... 72,381 88,354 90,283
Construction-in-progress.................................................. 11,659 8,272 7,116
---------- ---------- -----------
119,534 143,387 145,051
Less accumulated depreciation............................................. (34,813) (39,252) (41,088)
---------- ---------- -----------
84,721 104,135 103,963
Receivable from affiliate................................................... 19,261 1,364 --
Investments in and advances to DOUBLECOTE................................... 19,031 19,200 19,415
Intangible assets........................................................... 13,822 13,652 13,612
Other assets................................................................ -- 5,325 5,871
---------- ---------- -----------
Total assets................................................................ $ 220,501 $ 249,763 $ 243,226
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................................... $ 32,638 $ 18,174 $ 9,288
Accrued liabilities....................................................... 13,495 15,659 11,526
Income taxes payable...................................................... 2,544 -- 3,426
---------- ---------- -----------
Total current liabilities............................................... 48,677 33,833 24,240
Deferred tax liability...................................................... 6,776 11,142 10,588
Stockholder's equity:
Common stock--par value $-0-; 119,500, 3,500, 3,500 shares issued and
outstanding at March 31, 1998, December 31, 1997, and December 31,
1996.................................................................... 2,600 2,600 182,172
Additional paid-in capital................................................ 4,380 4,380 4,380
Retained earnings......................................................... 158,068 197,808 21,846
---------- ---------- -----------
Total stockholder's equity.................................................. 165,048 204,788 208,398
---------- ---------- -----------
Total liabilities and stockholder's equity.................................. $ 220,501 $ 249,763 $ 243,226
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
AMATEK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------------------- ----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales............................................. $ 315,737 $ 362,867 $ 407,967 $ 82,505 $ 84,172
Cost of sales..................................... (234,042) (271,299) (312,329) (63,896) (68,864)
----------- ----------- ----------- ---------- ----------
Gross profit...................................... 81,695 91,568 95,638 18,609 15,308
Selling, general, and administrative
expenses........................................ (24,900) (29,652) (36,637) (8,543) (9,598)
Equity in income (losses) of DOUBLECOTE........... (1,293) (304) 83 (170) (161)
Interest income, net.............................. 1,379 1,871 2,019 267 267
Unusual/nonrecurring gain......................... -- -- 3,284 -- --
----------- ----------- ----------- ---------- ----------
Income before income taxes........................ 56,881 63,483 64,387 10,163 5,816
Provision for income taxes........................ (22,993) (24,920) (24,647) (4,096) (2,206)
----------- ----------- ----------- ---------- ----------
Net income........................................ $ 33,888 $ 38,563 $ 39,740 $ 6,067 $ 3,610
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
AMATEK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................ $ 33,888 $ 38,563 $ 39,740 $ 6,067 $ 3,610
Adjustments to reconcile net income to net cash (used
in) provided by operating activities:
Depreciation and amortization....................... 4,136 5,477 6,844 1,639 2,019
Provision for deferred income taxes................. 82 716 4,033 1,866 (554)
Provision for losses on accounts receivable......... 71 (266) 262 1,867 (82)
Changes in operating assets and liabilities:
Increase in accounts receivable--trade............ (1,980) (5,517) (2,919) 924 1,519
Increase in other accounts receivable............. 134 (2,326) (3,824) (1,357) 2,922
Increase in inventories........................... 5,383 (6,744) (11,069) 102 (4,037)
Increase in prepaid expenses...................... (123) (1,163) (711) 208 (704)
(Increase) decrease in other assets............... (432) 1,018 (5,962) 84 (546)
(Decrease) increase in accounts payable and
accrued liabilities............................. 2,307 13,169 (12,300) (18,808) (13,019)
(Decrease) increase in income taxes payable....... (1,438) 1,239 (2,544) 1,053 3,426
---------- ---------- ---------- ---------- ----------
Net cash (used in) provided by operating activities... 42,028 44,166 11,550 (6,355) (5,446)
INVESTING ACTIVITIES
Purchase of property, plant, and equipment............ (12,501) (21,146) (27,166) (5,847) (1,646)
Proceeds from sale of property, plant, and
equipment........................................... 32 73 1,632 -- --
Advances to and investments in DOUBLECOTE............. (2,835) (2,000) (86) (369) (376)
Cash paid for acquired business....................... -- (21,221) -- -- --
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities................. (15,304) (44,294) (25,620) (6,216) (2,022)
FINANCING ACTIVITIES
Net borrowings under credit facilities................ (4,754) -- -- -- --
Proceeds to related party............................. (21,471) 1,080 17,460 13,549 1,801
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) financing activities... (26,225) 1,080 17,460 13,549 1,801
---------- ---------- ---------- ---------- ----------
Net (decrease) increase in cash and cash
equivalents......................................... 499 952 3,390 978 (5,667)
Cash and cash equivalents at beginning of year........ 2,171 2,670 3,622 3,622 7,012
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end of year.............. $ 2,670 $ 3,622 $ 7,012 $ 4,600 $ 1,345
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
AMATEK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994................................... $ 2,600 $ 4,380 $ 85,617 $ 92,597
Net income................................................... -- -- 33,888 33,888
---------- ----------- ----------- -----------
Balance at December 31, 1995................................... 2,600 4,380 119,505 126,485
Net income................................................... -- -- 38,563 38,563
---------- ----------- ----------- -----------
Balance at December 31, 1996................................... 2,600 4,380 158,068 165,048
Net income................................................... -- -- 39,740 39,740
---------- ----------- ----------- -----------
Balance at December 31, 1997................................... 2,600 4,380 197,808 204,788
Net income................................................... -- -- 3,610 3,610
Dividend to Parent............................................. -- -- (179,572) (179,572)
Capital contribution from Parent............................... 179,572 -- -- 179,572
---------- ----------- ----------- -----------
Balance at March 31, 1998 (UNAUDITED).......................... $ 182,172 $ 4,380 $ 21,846 $ 208,398
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
AMATEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OWNERSHIP AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
All outstanding common stock of Amatek Holdings, Inc. ("AHI"), is owned by
Amatek Limited (the "Parent," which is an Australian company), a wholly owned
subsidiary of BTR Nylex (an Australian company), which is ultimately owned by
BTR plc (a British company). AHI is a manufacturer of steel roofing and siding
products. Principal markets are in the continental United States.
The consolidated financial statements include the accounts of AHI and all
majority-owned subsidiaries (the "Company"). The Company's investment in
DOUBLECOTE, L.L.C. ("DOUBLECOTE"), is accounted for using the equity method (see
Note 9). All significant intercompany balances and transactions have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of all cash balances and highly liquid
investments which have a maturity of three months or less when acquired.
INVENTORY
Inventories are valued at the lower of cost or market, determined on the
first-in, first-out method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. The cost of repairs and
maintenance is charged to operations as incurred. Depreciation of property,
plant, and equipment is provided on a straight-line basis over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Building and improvements............................ 40 years
Machinery and equipment.............................. 4 to 13 years
Computer and office equipment........................ 3 to 10 years
</TABLE>
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. This statement
generally requires a periodic review of long-lived assets for indications that
their carrying amounts may not be recoverable, and governs the measurement and
disclosure of any resulting impairment loss. Its application did not have a
material impact on the Company's financial position or results of operations.
INCOME TAXES
The Company uses SFAS No. 109, ACCOUNTING FOR INCOME TAXES, in accounting
for income taxes. This statement requires an asset and liability approach for
financial accounting and reporting of income taxes.
INTANGIBLE ASSETS
Goodwill of $15,479,000, $15,333,000, and $14,777,000, which relates to the
acquisition of certain assets and other stockholder interest at March 31, 1998
and December 31, 1997 and 1996, respectively, is being amortized on a
straight-line basis over 20 years. Accumulated amortization of goodwill was
$1,867,000, $1,681,000, and $955,000 as of March 31, 1998 and December 31, 1997
and 1996, respectively.
F-7
<PAGE>
AMATEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. OWNERSHIP AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments (cash, accounts
receivable, and accounts payable) approximates fair value.
MANAGEMENT ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to 1996 financial information in
order to conform to 1997 presentation.
In the opinion of management, the unaudited consolidated financial
statements include all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of the financial position as of
March 31, 1998, and the results of operations and cash flows for each of the
three-month periods ended March 31, 1998 and 1997. Although management believes
the disclosures in these financial statements are adequate to make the
information presented not misleading, certain information and footnote
disclosures normally included in annual audited financial statements prepared in
accordance with generally accepted accounting principals have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The results of operations and the cash flows for the three-month
period ended March 31, 1998 are not necessarily indicative of the results to be
expected for the full year.
2. INVENTORIES
The components of inventories were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1997
--------- --------- MARCH 31
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.............................................. $ 22,581 $ 34,638 $ 35,247
Finished goods............................................. 9,829 8,841 12,269
--------- --------- -----------
Total...................................................... $ 32,410 $ 43,479 $ 47,516
--------- --------- -----------
--------- --------- -----------
</TABLE>
3. NOTES PAYABLE TO BANK
The Company had an overdraft line of credit facility for $10 million which
terminated on March 31, 1998. There were no advances outstanding at March 31,
1998 and December 31, 1997 and 1996.
4. RELATED PARTY TRANSACTIONS
The Company periodically advances funds to its Parent and charges the Parent
interest at a rate which approximates prime for net advances. In addition, the
Company remits its federal income taxes payable to
F-8
<PAGE>
AMATEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
the Parent (see Notes 5 and 7). Based on intercompany lending rates for advances
and payables with similar terms, the fair value of these advances approximates
their carrying values.
5. FEDERAL INCOME TAX
The provisions for federal income taxes are composed of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current income taxes............................... $ 22,917 $ 24,203 $ 20,612 $ 2,229 $ 2,761
Deferred income taxes.............................. 76 717 4,035 1,867 (555)
--------- --------- --------- --------- ---------
Total.............................................. $ 22,993 $ 24,920 $ 24,647 $ 4,096 $ 2,206
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The effective income tax rate of the Company approximates the sum of the
statutory federal income tax rate and certain state income tax rates less
related federal tax benefit.
Significant components of the Company's deferred tax assets and liabilities
were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
------------------------------------------------- ------------------------
1996 1997 1998
---------------------- ------------------------- ------------------------
CURRENT LONG-TERM CURRENT LONG-TERM CURRENT LONG-TERM
--------- ----------- ------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Property......................... $ -- $ (9,442) $ -- $ (14,069) $ -- $ (14,368)
Insurance reserves............... 461 -- 782 -- 782 --
Bad debt reserve................. 147 -- 248 -- 248 --
Inventory........................ 245 -- 183 -- 183 --
Deferred compensation and
incentive plan................. -- 2,660 -- 2,931 -- 3,780
Other............................ -- 11 (27) -- (27)
--------- ----------- ------------ ----------- ----------- -----------
Total............................ $ 853 $ (6,771) $ 1,186 $ (11,138) $ 1,186 $ (10,588)
--------- ----------- ------------ ----------- ----------- -----------
--------- ----------- ------------ ----------- ----------- -----------
Total deferred tax assets........ $ 3,524 $ 4,346 $ 4,993
----------- ----------- -----------
Total deferred tax liabilities... (9,442) (14,298) (14,395)
----------- ----------- -----------
Net deferred tax liability....... $ (5,918) $ (9,952) $ (9,402)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
6. LEASES
The Company leases certain equipment (primarily vehicles) and operating
facilities under operating leases expiring at various dates through 2000. Total
rental expense under operating leases was $1,514,000,
F-9
<PAGE>
AMATEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LEASES (CONTINUED)
$1,291,000, and $1,096,000 in 1997, 1996, and 1995, respectively. Aggregate
minimum lease payments under operating leases are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 508
1999........................................................ 567
2000........................................................ 391
2001........................................................ 72
---------
$ 1,538
---------
---------
</TABLE>
7. SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest during the years ended December 31, 1997, 1996, and
1995 was $81,000, $80,000, and $131,000, respectively. Cash paid for income
taxes during the years ended December 31, 1997, 1996, and 1995 was $24,349,000,
$21,402,000, and $23,639,000, respectively.
8. EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) savings plan for its full-time employees. The
Company matches 100% of employee-elected pre-tax contributions to a maximum of
4% of their salaries. The Company's contributions were $1,132,000, $943,000, and
$830,000 in 1997, 1996, and 1995, respectively.
An Incentive Compensation Plan (the "Plan") was established in 1992, in part
because of the purchase of the minority interest of a partnership of which
certain officers of the Company were limited partners. Under the terms of the
Plan, an annual contribution is determined based upon the Company's earnings and
revenues. Annual contributions are placed in trust (with the trustee,
NationsBank) and vest to participants over a seven- to ten-year period. In the
event that a participant voluntarily leaves the Company or is terminated for
"good cause," the unvested portion of contributions to the Plan is forfeited to
the Company. The contributions were $4,302,000, $3,714,000, and $2,766,000 for
1997, 1996, and 1995, respectively.
9. INVESTMENT IN DOUBLECOTE
The Company, through a subsidiary, owns 50% of the common stock in
DOUBLECOTE, a corporate joint venture.
F-10
<PAGE>
AMATEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INVESTMENT IN DOUBLECOTE (CONTINUED)
Summarized financial information of DOUBLECOTE is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1996 1997
---------- ---------- MARCH 31
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets..................................................... $ 7,266 $ 8,165 $ 9,210
Noncurrent assets.................................................. 30,524 28,601 28,102
---------- ---------- -----------
Total assets....................................................... $ 37,790 $ 36,766 $ 37,312
---------- ---------- -----------
---------- ---------- -----------
Liabilities--advances from stockholder............................. $ 36,232 $ 36,404 $ 37,157
Other liabilities.................................................. 2,753 1,390 1,505
Stockholder's equity:
Contributed capital.............................................. 2,000 2,000 2,000
Accumulated deficit.............................................. (3,195) (3,028) (3,350)
---------- ---------- -----------
Total liabilities and stockholder's equity......................... $ 37,790 $ 36,766 $ 37,312
---------- ---------- -----------
---------- ---------- -----------
Sales.............................................................. $ 28,034 $ 30,348 $ 6,427
Cost of sales...................................................... (24,682) (26,150) (5,722)
---------- ---------- -----------
Gross profit....................................................... 3,352 4,198 705
Selling, general, and administrative expenses...................... (964) (1,080) (303)
Interest expense................................................... (2,997) (2,952) (724)
---------- ---------- -----------
Net income (loss).................................................. $ (609) $ 166 $ (322)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
The facility owned by DOUBLECOTE was completed and began operations in 1995.
DOUBLECOTE is charged interest at prime for advances by the Company. Total
interest income earned by the Company was $1,500,000 in 1997 and 1996 and
$1,465,000 in 1995.
10. LUBBOCK PLANT FIRE
In February 1997, the Company's Lubbock, Texas, plant sustained major damage
from a fire. The Company has since rebuilt the plant, and resumed operations in
July 1997.
The Company maintains insurance under one policy for both property damage
and business interruption applicable to its production facilities. The policy
provides coverage subject to a $25,000 deductible. Insurance recoveries as of
December 31, 1997 included $1.5 million for property damage and $500,000 for
business interruption. The Company is pursuing additional recoveries of $4
million related to the damage of the Lubbock plant.
Insurance recoveries for property damage associated with events of this type
require the recognition of a new cost basis for the rebuilt facility. As a
result, the Company has recognized a $3.3 million unusual/ nonrecurring
adjustment in its income statement for the year ended December 31, 1997. Total
spending to restore the Lubbock plant was approximately $4.8 million.
11. ACQUISITION OF BUSINESS
On April 1, 1996, the Company purchased certain assets of Steelco Metal
Construction Products and Construction Metals ("Steelco") for a total cost of
approximately $21,221,000. Steelco was engaged in the manufacturing of steel
roofing and siding products. The acquisition was accounted for as a purchase.
The
F-11
<PAGE>
AMATEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. ACQUISITION OF BUSINESS (CONTINUED)
excess of the purchase price over the fair values of the net assets acquired of
$11,266,000 has been recorded as goodwill and is being amortized over a period
of 20 years. The statement of operations for 1996 includes the operating results
of Steelco since the date of acquisition.
12. YEAR 2000 (UNAUDITED)
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 major system failure or miscalculation. The Company
presently believes that, with modifications to existing software and converting
to new software, the Year 2000 problem will not pose significant operational
problems for the Company's computer systems as so modified and converted.
However, if such modifications or conversions are not made, or not completed
timely, the Year 2000 issue could have a material impact on the Company's
operations.
13. COMMITMENTS AND CONTINGENCIES
In March 1998, the Company entered into an agreement with NCI Building
Systems, Inc. to purchase 100% of the stock of the Company, which was effective
May 4, 1998. Upon the successful completion of this acquisition, certain
executives of the Company will receive compensation payments totaling
approximately $8.5 million.
F-12
<PAGE>
NCI BUILDING SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
APRIL 30, 1998
-------------------------------------------------------------------------
PRO FORMA
NCI AHI AHI AHI ACQUISITION PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS ADJUSTED ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...... $ 37,972 $ 1,345 $ (1,345)(B) $ -- $ (27,800)(C) $ 10,172
Accounts receivable, net....... 35,954 46,899 46,899 82,853
Inventory, net................. 40,725 47,516 47,516 88,241
Deferred income taxes.......... 3,462 1,186 1,186 4,648
Prepaid expenses............... 1,233 3,419 3,419 4,652
---------- ---------- ----------- ---------- ----------- -----------
Total current assets........... 119,346 100,365 (1,345) 99,020 (27,800) 190,566
Property, plant and equipment.... 74,381 145,051 145,051 219,432
Accumulated depreciation......... (22,623) (41,088) (41,088) (63,711)
---------- ---------- ----------- ---------- ----------- -----------
51,758 103,963 -- 103,963 -- 155,721
Goodwill......................... 20,361 13,612 13,612 393,000(C) 426,973
Capitalized debt issue
costs.......................... -- -- -- 10,822(K) 10,822
Investment in and advances to
DOUBLECOTE..................... -- 19,415 19,415 19,415
Other assets..................... 5,237 5,871 5,871 11,108
---------- ---------- ----------- ---------- ----------- -----------
Total assets..................... $ 196,702 $ 243,226 $ (1,345) $ 241,881 $ 376,022 $ 814,605
---------- ---------- ----------- ---------- ----------- -----------
---------- ---------- ----------- ---------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term
debt......................... $ 47 $ -- $ $ -- $ 22,500(E) $ 22,547
Accounts payable............... 14,993 9,288 9,288 24,281
Accrued expenses............... 13,658 11,526 11,526 10,875(C) 36,059
Accrued income taxes........... (662) 3,426 3,426 2,764
---------- ---------- ----------- ---------- ----------- -----------
Total current liabilities...... 28,036 24,240 -- 24,240 33,375 85,651
Long-term debt, non-current
portion........................ 1,653 -- -- 517,500(E) 519,153
Deferred income taxes............ 2,596 10,588 10,588 13,184
Shareholders' equity:
Common stock................... 166 182,172 182,172 (182,158)(F) 180
Additional paid-in capital..... 55,179 4,380 4,380 27,806(F) 87,365
Retained earnings.............. 109,072 21,846 (1,345)(B) 20,501 (20,501)(F) 109,072
---------- ---------- ----------- ---------- ----------- -----------
Total shareholders' equity..... 164,417 208,398 (1,345) 207,053 (174,853) 196,617
---------- ---------- ----------- ---------- ----------- -----------
Total liabilities and
shareholders' equity........... $ 196,702 $ 243,226 $ (1,345) $ 241,881 $ 376,022 $ 814,605
---------- ---------- ----------- ---------- ----------- -----------
---------- ---------- ----------- ---------- ----------- -----------
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
F-13
<PAGE>
NCI BUILDING SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED OCTOBER 31, 1997
------------------------------------------------
HISTORICAL PRO FORMA
---------------------- ACQUISITION PRO FORMA
NCI AHI ADJUSTMENTS COMBINED
---------- ---------- ----------- -----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue.................................................. $ 407,751 $ 407,967 $ -- $ 815,718
Cost of sales............................................ 299,407 312,329 -- 611,736(D)
---------- ---------- ----------- -----------
Gross profit............................................. 108,344 95,638 -- 203,982
Operating expenses....................................... 66,055 36,637 9,825(G) 108,771(D)
(3,746)(G)
---------- ---------- ----------- -----------
Income from operations................................... 42,289 59,001 (6,079) 95,211
Equity income in DOUBLECOTE.............................. -- 83 -- 83
Nonrecurring gain........................................ -- 3,284 -- 3,284
Interest expense......................................... (163) -- (42,050)(H) (44,377)
(2,164)(H)
Other income............................................. 1,999 2,019 (1,390)(I) 2,628
---------- ---------- ----------- -----------
Income (loss) before taxes............................... 44,125 64,387 (51,683) 56,829
Provision for income taxes............................... 16,238 24,647 (15,488)(J) 25,397
---------- ---------- ----------- -----------
Net income............................................... $ 27,887 $ 39,740 $ (36,195) $ 31,432
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Net income per share:
Basic.................................................. $ 1.73 -- -- $ 1.79
---------- -----------
---------- -----------
Diluted................................................ $ 1.64 -- -- $ 1.70
---------- -----------
---------- -----------
Weighted average number of common shares:
Basic.................................................. 16,127 -- 1,400(F) 17,527
Diluted................................................ 17,085 -- 1,400(F) 18,485
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
F-14
<PAGE>
NCI BUILDING SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30, 1998
------------------------------------------------
HISTORICAL PRO FORMA
---------------------- ACQUISITION PRO FORMA
NCI AHI ADJUSTMENTS COMBINED
---------- ---------- ----------- -----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue...................................................... $ 192,672 $ 195,695 $ -- $ 388,367
Cost of sales................................................ 140,621 153,306 -- 293,927(D)
---------- ---------- ----------- -----------
Gross profit................................................. 52,051 42,389 -- 94,440
Operating expenses........................................... 34,030 19,458 4,913(G) 56,548(D)
(1,853)(G)
---------- ---------- ----------- -----------
Income from Operations....................................... 18,021 22,931 (3,060) 37,892
Equity income in DOUBLECOTE.................................. -- 14 -- 14
Nonrecurring gain............................................ -- 3,284 -- 3,284
Interest expense............................................. (84) -- (21,025)(H) (22,191)
(1,082)(H)
Other income................................................. 1,492 761 (695)(I) 1,558
---------- ---------- ----------- -----------
Income (loss) before taxes................................... 19,429 26,990 (25,862) 20,557
Provision for income taxes................................... 6,981 9,763 (7,751)(J) 8,993
---------- ---------- ----------- -----------
Net income................................................... $ 12,448 $ 17,227 $ (18,111) $ 11,564
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Net income per share:
Basic...................................................... $ 0.76 -- -- $ 0.65
---------- -----------
---------- -----------
Diluted.................................................... $ 0.72 -- -- $ 0.62
---------- -----------
---------- -----------
Weighted average number of common shares:
Basic...................................................... 16,390 -- 1,400(F) 17,790
Diluted.................................................... 17,386 -- 1,400(F) 18,786
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
F-15
<PAGE>
NCI BUILDING SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(A) BASIS OF PRESENTATION--The Unaudited Pro Forma Condensed Combined financial
statements are presented to give pro forma effect to the acquisition of
Amatek Holdings, Inc. and Subsidiaries (AHI).
The purchase method of accounting has been used in preparing the Unaudited
Pro Forma Condensed Combined Financial Statements of NCI Building Systems,
Inc. (the Company) with respect to the acquisition of AHI. The Unaudited Pro
Forma Condensed Combined Statements of Income for the six months ended April
30, 1998 and fiscal year ended October 31, 1997 combine the results of
operations for the Company's six months ended April 30, 1998 and fiscal year
ended October 31, 1997 with AHI's results for the six months ended March 31,
1998 and fiscal year ended December 31, 1997, respectively. The Unaudited
Pro Forma Condensed Combined Balance Sheet as of April 30, 1998 combines the
balance sheet of the Company as of April 30, 1998 with AHI's balance sheet
as of March 31, 1998. The Unaudited Pro Forma Condensed Combined Statements
of Income give effect to the AHI acquisition as if it had occurred on
November 1, 1996. AHI's results of operations for the three months ended
March 31, 1998 have been restated to reflect adjustments to revenues and
cost of sales of $2.7 million (related to customer credit memos) and $1.0
million (related to an inventory write-off of scrap metal), respectively,
which were taken by AHI in April 1998. The Unaudited Pro Forma Condensed
Combined Balance Sheet gives effect to the AHI acquisition as if it had
occurred on April 30, 1998. Purchase accounting values have been assigned on
a preliminary basis and will be adjusted upon the completion of a valuation
study. Management does not expect such adjustments to be material.
Due to the different fiscal year ends of the Company and AHI as discussed
above, AHI's results of operations for the three months ended December 31,
1997 are included in both the Unaudited Pro Forma Condensed Combined
Statements of Income for the six months ended April 30, 1998 and fiscal year
ended October 31, 1997, and AHI's results of operations for the month ended
April 30, 1998 are excluded from the Unaudited Pro Forma Condensed Combined
Statement of Income for the six months ended April 30, 1998. AHI's revenues
and net income for the three months ended December 31, 1997 were $111.5
million and $13.6 million, respectively, which includes a nonrecurring
pre-tax gain of $3.3 million from insurance recoveries related to a plant
fire. AHI's revenues and net loss for the month ended April 30, 1998 were
$37.2 million and $4.0 million, respectively, which net loss includes a
nonrecurring pre-tax charge related to the acquisition of $8.6 million for
payments to certain AHI management required due to change in control of AHI.
In June 1998, the Company's Board of Directors approved a two-for-one common
stock split effective for shareholders of record on July 8, 1998. Share and
per share amounts have been restated to reflect the stock split.
(B) The unaudited condensed balance sheet for AHI as of March 31, 1998 has been
adjusted to exclude cash not acquired as subject to the stock purchase
agreement.
(C) To reflect the purchase of AHI for consideration of $550.0 million in cash
plus 1,400,000 shares of Company common stock valued at $32.2 million issued
to AHI employees to replace the management
F-16
<PAGE>
NCI BUILDING SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS (CONTINUED)
incentive plan in place at AHI. In addition, there are estimated to be $17.8
million in transaction costs. Goodwill has been preliminarily calculated as
follows:
<TABLE>
<S> <C>
Purchase Price:
Cash.................................................... $ 550,000
Equity issued........................................... 32,200
Estimated transaction costs............................... 17,800
Less: Net assets acquired................................. 207,000
---------
Goodwill.................................................. $ 393,000
</TABLE>
(D) Anticipated synergies and cost savings resulting from internal rather than
third party coating of NCI products, plant consolidations, sales and
marketing consolidation, purchasing efficiencies and administrative cost
savings and efficiencies of approximately $15 million annually have not been
reflected in the above Unaudited Pro Forma Condensed Combined Financial
Statements.
(E) For purposes of the Unaudited Pro Forma Condensed Combined Balance Sheet,
the proceeds for the AHI acquisition were assumed to have been provided with
$27.8 million of available cash and additional borrowings as follows:
<TABLE>
<S> <C>
AHI net assets acquired, plus excess of purchase price
over net assets......................................... $ 600,000
Less:
Excess cash used to fund acquisition...................... 27,800
Equity issued............................................. 32,200
---------
$ 540,000
Current portion........................................... $ 22,500
Long-term portion......................................... $ 517,500
</TABLE>
(F) To record the elimination of the AHI stock acquired, offset by the impact on
shareholders' equity of the additional 1,400,000 shares of Company common
stock issued to certain officers and employees of AHI in exchange for their
interests in AHI's management incentive plan.
(G) To record additional amortization expense associated with the goodwill
generated from the AHI acquisition (assigned useful life of 40 years),
offset by elimination of a management incentive charge incurred by AHI on a
historical basis.
(H) To record additional interest expense and amortization of debt issuance
costs related to debt incurred in connection with the acquisition of AHI.
(I) To eliminate daily cash investment interest income for the portion of the
Company's excess cash utilized for the acquisition.
(J) To record the tax effect on the pro forma adjustments.
(K) To record cost related to the issuance of debt, as discussed in Note (E).
F-17
<PAGE>
NCI BUILDING SYSTEMS, INC.
7301 FAIRVIEW
HOUSTON, TEXAS 77041
(713) 466-7788
-------------------
SUPPLEMENT TO PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 29 1998
AUGUST 27, 1998
This Supplement to Proxy Statement is furnished to stockholders of NCI
Building Systems, Inc., a Delaware corporation (the "Company"), to correct an
error set forth in the Company's Proxy Statement, dated August 27, 1998 (the
"Proxy Statement"), distributed in connection with the solicitation of proxies
to be used at the Special Meeting of Stockholders of the Company to be held
September 29, 1998, and should be read in conjunction with the Proxy Statement.
The Balance Sheet Data (at end of period) for the three months ended March
31, 1997 included in the selected historical consolidated financial information
for Amatek Holdings, Inc. ("Amatek"), under the caption "Selected Historical and
Pro Forma Consolidated Financial Information--MBCI" set forth on Page 12 of the
Proxy Statement erroneously reflects the following data:
Working capital $ 51.6 million
Total assets $264.8 million
Stockholder's equity $224.9 million
The correct Balance Sheet Data information is as follows:
Working capital $ 52.0 million
Total assets $210.7 million
Stockholder's equity $171.1 million
By Order of the Board of Directors
DONNIE R. HUMPHRIES,
SECRETARY
<PAGE>
NCI BUILDING SYSTEMS, INC.
The undersigned hereby (i) acknowledges receipt of the Notice dated August
27, 1998, of the Special Meeting of Stockholders of NCI Building Systems, Inc.
(the "Company") to be held at the Company's offices located at 7301 Fairview,
Houston, Texas on Tuesday, September 29, 1998 at 2:00 p.m., local time, and the
Proxy Statement in connection therewith; and (ii) appoints C.A. Rundell, Jr. and
Johnie Schulte, and each of them, his proxies with full power of substitution,
for and in the name, place and stead of the undersigned, to vote upon and act
with respect to all of the shares of Common Stock of the Company standing in the
name of the undersigned or with respect to which the undersigned is entitled to
vote and act, at the meeting and at any adjournment thereof, and the undersigned
directs that his proxy be voted as follows:
<TABLE>
<S> <C>
(a) Proposal to approve an amendment to Restated Certificate of Incorporation to increase the
number of authorized shares of Common Stock from 25,000,000 to 50,000,000.
/ / FOR / / AGAINST / / ABSTAIN
(b) In the discretion of the proxies on any other matter that may properly come before the
meeting or any adjournment thereof.
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE. IF NO SPECIFICATION IS MADE,
THIS PROXY WILL BE VOTED FOR THE MATTERS SPECIFICALLY REFERRED TO ABOVE.
If more than one of the proxies named above shall be present in person or by
substitute at the meeting or any adjournment thereof, both of the proxies so
present and voting, either in person or by substitute, shall exercise all of the
proxies hereby given.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
The undersigned hereby revokes any proxy or proxies heretofore given to vote
upon or act with respect to such Common Stock and hereby ratifies and confirms
all that the proxies, their substitutes, or any of them may lawfully do by
virtue hereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
DATED:__________________________
________________________________
________________________________
Please date this Proxy and sign
your name exactly as it appears
hereon. Where there is more than
one owner, each should sign.
When signing as an attorney,
administrator, executor,
guardian or trustee, please add
your title as such. If executed
by a corporation, the Proxy
should be signed by a duly
authorized officer.
Please date, sign and mail this
proxy card in the enclosed
envelope. No postage is
required.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
NCI Building Systems, Inc.
We have audited the accompanying consolidated balance sheets of NCI Building
Systems, Inc. as of October 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended October 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements 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 NCI Building
Systems, Inc. at October 31, 1997 and 1996 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
October 31, 1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
----------------------------
ERNST & YOUNG LLP
Houston, Texas
December 8, 1997
except for Note 9, as to which the date is
July 31, 1998
