<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-19885
NCI BUILDING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C>
DELAWARE 76-0127701
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
7301 FAIRVIEW
HOUSTON, TEXAS 77041
(Address of principal executive offices) (Zip code)
</TABLE>
Registrant's telephone number, including area code: (713) 466-7788
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant on December 31, 1997, was $251,590,239.
The number of shares of common stock of the registrant outstanding on
December 31, 1997, was 8,177,911.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Parts I and II of this Annual Report is
incorporated by reference from the registrant's 1997 Annual Report to
Shareholders, and information required by Part III of this Annual Report is
incorporated by reference from the registrant's definitive proxy statement for
its annual meeting of shareholders to be held on March 4, 1998.
================================================================================
<PAGE> 2
PART I
ITEM 1. BUSINESS.
GENERAL
NCI Building Systems, Inc. (the "Company") designs, manufactures and
markets metal building and framing systems, self-storage buildings, overhead
doors and other building components for commercial, industrial, agricultural,
community service and residential uses. The Company markets its products
nationwide through direct sales forces and authorized builder networks under
several brand names, including "Metallic Buildings," "Mid-West Steel Buildings,"
"A&S Buildings," "NCI Building Components," "All American Systems," "Steel
Systems," "Mid-West Metallic", "DBCI" and "Mesco". The Company operates from a
total of 18 manufacturing facilities in the United States and Mexico. It
manufactures framing systems as well as components at five of the facilities,
framing systems only at one facility, and components only at the regional
"satellite" plants.
In April 1989, the Company leased and assumed operation of the Houston
facilities of the Mid-West Metallic division of American Buildings Company and
purchased that facility in 1993. This facility with its framing capacity,
together with the acquisition of the rights to use the "Mid-West" and "Metallic"
names, enabled the Company to expand its product lines from building components
to metal building systems and resulted in a substantial increase in the
Company's authorized builder network in Texas and surrounding states. The
Company also established satellite manufacturing plants in Illinois, Mississippi
and California in 1991, 1994 and 1996, respectively, to serve the regional
markets surrounding those plants and to enhance the Company's ability to develop
and serve authorized builder networks in those regions. In June 1996, the
Company acquired a metal stud manufacturing facility and equipment in Ennis,
Texas from Alabama Metal Industries Corporation. In July 1997, a joint venture
51%-owned by the Company opened a facility in Monterrey, Mexico to manufacture
framing systems.
The Company also has acquired a number of other businesses in the last five
fiscal years. In October 1992, the Company purchased 100% of the capital stock
of A&S Building Systems, Inc., a manufacturer of metal building systems having a
manufacturing facility with framing capacity in Caryville, Tennessee and a
network of approximately 170 authorized builders located primarily in
southeastern and midwestern states. In October 1994, the Company acquired
substantially all of the assets and business of Ellis Building Components, Inc.,
a manufacturer of metal building systems having a manufacturing facility with
framing capacity in Tallapoosa, Georgia. In March 1995, the Company acquired
substantially all of the assets and business of Royal Metal Buildings, Inc., a
manufacturer of metal building systems and components with a manufacturing
facility in Hobbs, New Mexico, which the Company operates as a regional
satellite plant. In November 1995, the Company acquired substantially all of the
assets and business of Doors & Building Components, Inc., a manufacturer of
roll-up steel overhead doors and interior steel components for self-storage
systems with manufacturing facilities in Douglasville, Georgia and Chandler,
Arizona. In March 1996, the Company purchased the equipment and operating assets
used by Carlisle Engineered Metals, Inc. in its west coast component business
and transferred those assets and the acquired business to the Company's Atwater,
California facility when it was completed. In April 1996, the Company purchased
substantially all of the assets and business of the Mesco Metal Buildings
division of Anderson Industries, Inc., a manufacturer of metal building systems
having manufacturing facilities with framing capacity in Southlake, Texas and
Chester, South Carolina. In February 1997, the Company acquired substantially
all of the remaining assets, the insulated panel business and the remaining
components business of Carlisle Engineered Metals, Inc. The purchase included a
components manufacturing facility in Jemison, Alabama and leases of two
facilities in Stafford, Texas, one used for components manufacturing and the
other used for manufacturing insulated panels.
The Company was founded in 1984 and was reincorporated in Delaware on
December 31, 1991. Its principal offices are located at 7301 Fairview, Houston,
Texas 77041 and its telephone number is (713) 466-7788. Unless indicated
otherwise, references herein to the Company include its predecessors and its
subsidiaries.
<PAGE> 3
INDUSTRY OVERVIEW
Metal building systems are marketed for use primarily in the construction
of low-rise, non-residential structures of up to 150,000 square feet. Based upon
information published by the Metal Building Manufacturers Association ("MBMA"),
on a square footage basis metal building systems accounted for approximately 69%
of the structures of that type constructed in 1996.
In the early years of the industry, metal building systems were most often
used for factories, warehouses, distribution centers and other applications in
which the exterior appearance of the building was not as significant a
consideration to customers as construction cost, efficiency, speed of
construction and other factors. Technological advances in products and
materials, as well as significant improvements in engineering and design
techniques, have led to the development of structural systems that are
compatible with more traditional construction materials. Architects and
designers now often combine a metal building system with masonry, glass and wood
exterior facades in order to meet the aesthetic requirements of potential
customers while preserving the inherent characteristics of metal building
systems. As a result, the uses for metal building systems now include office
buildings, showrooms, retail stores, banks, schools and government and community
centers for which aesthetics and architectural features are important
considerations of the end users.
In its marketing efforts the Company and other major manufacturers
generally emphasize the following characteristics of metal building systems to
distinguish them from other methods of construction:
Short Construction Time. In many instances, it takes less time to construct
a metal building in comparison to other building types. In addition, since most
of the work is done in the factory, the likelihood of weather interruptions is
reduced.
Efficient Material Utilization. The larger metal building manufacturers use
computer-aided analysis and design to fabricate structural members with high
strength-to-weight ratios, minimizing raw materials costs.
Low Construction Costs. The in-plant manufacture of metal building systems,
coupled with automation, allows the substitution of less expensive factory labor
for much of the skilled on-site construction labor otherwise required.
Ease of Expansion. Metal building systems can be modified quickly and
economically before, during or after the building is completed to accommodate
all types of expansion. Typically, a building system can be expanded by removing
the end or side walls, erecting new framework and adding matching wall and roof
panels.
Low Maintenance Costs. Unlike wood, metal will not deteriorate because of
cracking, damp rot or insect damage. Furthermore, factory-applied roof and
siding panel coatings resist cracking, peeling, chipping, chalking and fading.
Industry demand for metal building systems is cyclical, dependent to a
large degree upon the level of non-residential construction activity, the
availability of financing for construction projects, interest rates and other
factors that affect the construction industry. According to information
published by the MBMA, industry-wide metal building system sales increased from
approximately $1.0 billion in 1982 to approximately $1.7 billion in 1989, then
declined to approximately $1.2 billion by 1991 at which time the industry began
experiencing year-to-year increases, to approximately $2.2 billion by 1996.
PRODUCTS
Metal building systems consist of pre-engineered structural beams and
panels that are manufactured in a factory and shipped to a construction site
complete and ready for assembly. The Company designs and engineers each metal
building system to meet customer specifications and to allow for easy on-site
assembly by builders or independent contractors. Metal building systems
typically consist of three subsystems: (1) primary structural framing; (2)
secondary structural framing; and (3) the covering subsystem, which includes the
roof and walls.
2
<PAGE> 4
Primary Structural Framing. The 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. The 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 Subsystem. The covering subsystem consists of roof and siding
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 metal building system. These components include doors, windows, gutters and
interior partitions.
The Company's metal building component products consist of end and side
wall panels, roof panels, purlins, girts and other individual components that
otherwise are used in metal building systems, which are sold directly to end
users or to contractors for use in constructing small buildings that do not
require the design or structural features of complex building systems. The
Company also stocks and markets metal component parts for use in the maintenance
and repair of existing metal buildings and buildings constructed of materials
other than metal. Other component products manufactured by the Company include
roll-up doors, interior and exterior doors, lockers, partitions, wall and header
panels and related trim.
The Company has developed and patented a retrofit metal panel, Retro-R(R),
that is used to replace wall and roof panels of metal buildings. Retro-R(R) can
be installed over the top of existing metal panels to remodel or preserve a
standing structure.
During the previous five fiscal years, the Company's revenues attributable
to metal building systems and to components were approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Metal building systems....... $104,792 $126,665 $173,882 $212,998 $246,569
Components................... 29,714 41,102 60,333 119,882 161,182
-------- -------- -------- -------- --------
Total revenues..... $134,506 $167,767 $234,215 $332,880 $407,751
======== ======== ======== ======== ========
</TABLE>
SALES AND MARKETING
The Company sells its products under multiple brand names through various
distribution channels. These channels include (i) sales through the Company's
authorized builder networks, (ii) direct sales to contractors and (iii) private
label sales to certain large builders. Management believes that its
multi-channel distribution strategy promotes brand loyalty, improves customer
service and increases sales. With each distribution channel, the Company's
engineering, manufacturing and marketing personnel work directly with the
builder or contractor to establish job specifications and modifications,
determine the appropriate pricing for the Company's products and services,
generate drawings and establish production and delivery schedules. The Company
sells to builders and contractors on customary payment terms.
The Metallic division and A&S sell metal building systems to builders
nationwide under the brand names "Metallic Buildings" and "A&S Buildings,"
respectively. Since the Company acquired Mesco on April 1, 1996, that division
also sells metal building systems under the brand name "Mesco". During fiscal
1996 and fiscal 1997, the combined metal building systems sales of the Metallic
division and A&S were $143.3 million and $155.8 million, respectively. During
the last seven months of fiscal 1996, the metal building systems sales of Mesco
were $17.9 million, and in fiscal 1997, those sales were $32.0 million. The
Metallic division markets through an in-house sales force of approximately 49
persons to an authorized builder network of 441 builders. A&S has its own
authorized builder network of 300 builders managed by an in-house sales force of
3
<PAGE> 5
approximately 14 persons. Mesco has an authorized builder network of 131
builders and an inhouse sales force of 20 persons.
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. 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.
Most of the Company's metal building system sales 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 authorized builder accounted for less than 2% of the Company's
total metal building systems sales.
The Mid-West division primarily markets metal building systems under the
brand name "Mid-West Steel Buildings" directly to contractors in Texas and
surrounding states using a sales force of ten persons. The Company also sells
metal building systems through the All American division under the name "All
American Systems" and various private labels.
Metal building components are sold directly to contractors and other
customers by the NCI Building Components division under the brand name "NCI
Building Components." The NCI Building Components division utilizes an in-house
sales force of approximately 60 persons. Roll-up doors, interior and exterior
doors, lockers, interior partitions and walls and header panels and trim are
sold directly to contractors and other customers by the Doors & Building
Components division under the brand names "Doors & Building Components" or
"DBCI". These components also are produced by that division for integration into
self storage and metal building systems sold by other divisions of the Company.
The Doors & Building Components division has an in-house sales force of
approximately 6 persons.
The Company also seeks to develop niche markets, which may initially
represent a small percentage of sales but present growth opportunities and other
advantages. The Company's Steel Systems division sells its self-storage systems
and components under the brand name "Steel Systems." Development of the Classic
Metal Homes division's metal framing systems for residential-use homes continued
through fiscal 1997.
The Company also markets its products to international builders.
Approximately 2.3%, 4.4% and 2.1% of the Company's sales in fiscal 1995, fiscal
1996 and fiscal 1997, respectively, were to customers located in foreign
countries. No single foreign country has represented a steady market for the
Company's products. Foreign sales are made in United States dollars and under
letters of credit.
DESIGN AND MANUFACTURE
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. 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 building
system.
4
<PAGE> 6
Once the specifications and designs of the customer's project have been
finalized, the manufacturing process begins at one of the Company's five full
manufacturing facilities in Texas, Georgia, South Carolina or Tennessee or at
the frame manufacturing facility in Monterrey, Mexico operated by the Company's
joint venture. 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. This process is the most labor intensive in the fabrication
of metal building systems.
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. The
fabrication of the secondary framing and covering subsystems is more automated
and, thus, is less labor intensive than that of the primary structural framing.
Once manufactured, structural framing members and covering subsystems are
shipped to the job site for assembly by local contractors. 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 doors, lockers, interior partitions and other panels and trim products
of the Doors & Building Components division are manufactured at plants in
Georgia, Texas and Arizona, each of which operates independently of the
Company's other component plants. The products are roll-formed or fabricated at
each plant using roll-formers and other metal working equipment. Orders are
processed at the division's home office in Georgia and sent to the appropriate
plant, which is generally determined in a manner to obtain the lowest shipping
cost. The division's capacity allows it to ship orders in a two- to three-week
time period.
RAW MATERIALS
The principal raw material used in the manufacture of the Company's metal
building and component products is steel. Components are fabricated from common
steel products produced by mills including bars, plates, sheets and galvanized
sheets. In fiscal 1997, the Company purchased more than 40% of its steel
requirements from National Steel Corporation. No other steel supplier accounted
for more than 6% of the Company's steel purchases. 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 facilities of the
Company enables it, as a large customer of those suppliers, to obtain better
service and delivery than many other steel purchasers. 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 expects moderate steel price increases
during fiscal 1998.
The Company does not have any long-term contracts for the purchase of raw
materials. A prolonged labor strike against one or more 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.
JOINT VENTURES
In 1997, the Company formed and now owns 51% of a joint venture to build
and operate a framing facility in Monterrey, Mexico. This facility began
operation in July 1997. The Company purchases substantially all of the framing
systems produced by this joint venture. The Company also formed and now owns 50%
of a joint venture which will acquire land in southern Illinois and build a hot
rolled coil coating facility that is expected to commence operations in calendar
1998. The facility will be used to slit and coat hot rolled coils of medium
gauge steel for use in manufacturing purlins and girts. The Company, which uses
coated coils in manufacturing metal building systems, has agreed to purchase a
substantial portion of its production requirements for that product from the
joint venture.
5
<PAGE> 7
BACKLOG
At October 31, 1997, the total backlog for orders believed by the Company
to be firm was $110 million. This compares with a total backlog of $85.6 million
at October 31, 1996 and $65.6 million at October 31, 1995. The increases in
backlog reflect the results of the marketing activities of the Company,
particularly the expansion of its authorized builder networks, market demand and
the acquisitions and satellite plant openings completed by the Company since
1992. 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 October 31, 1997 currently is scheduled to extend beyond
October 31, 1998.
WARRANTIES
The Company provides a limited warranty on all fabricated products. This
warranty generally provides for repair or replacement of fabricated and
roll-formed materials, but does not include the cost of field installation. The
Company also passes through to its customers certain warranties it receives on
paint coatings, which vary from three to 20 years, and the 20-year warranties it
receives on galvalume coated steel. To respond to certain competitive
situations, the Company may provide a limited weather tightness warranty of up
to 20 years covering potential leakage on certain roofing systems offered by the
Company. The Company has not experienced any significant claims under any of its
warranties.
COMPETITION
The Company competes with a number of other manufacturers of metal building
systems and components, ranging from small local firms to large national firms,
some of which may have greater financial, management and marketing resources
than the Company. Most of these competitors operate on a regional basis,
although the Company believes that four other manufacturers of metal building
systems and several manufacturers of components have nationwide coverage. In
addition, the Company and others in the metal building systems and components
industry compete with alternative methods of building construction. Competition
is based primarily on such factors as price, speed of construction, quality of
builder/dealer networks, the ability to provide added value in the design of
buildings and, among metal building and component manufacturers, service,
quality and delivery times.
Based on data reported to the MBMA for the calendar year 1996 the Company
believes it ranks as the second largest domestic manufacturer of metal building
systems, with approximately 15% of total reported industry sales. The Company
believes that the largest metal building manufacturer has approximately 23% of
industry sales reported to the MBMA. Reliable information about component sales
and the Company's ranking in that market is not available. Foreign companies are
not presently a significant factor in the domestic marketplace, and the Company
does not expect them to be in the near future because of transportation costs
and the short lead times generally required by customers.
REGULATORY MATTERS
The Company's manufacturing facilities are subject to water and air
pollution control standards mandated by federal, state and local laws. The
Company believes it is in substantial compliance with all environmental
standards applicable to its operations. The Company does not anticipate material
capital expenditures to meet current environmental quality control standards,
but there can be no assurance that more stringent regulatory standards will not
be established which might require such expenditures. The 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 perpetual, nonexclusive license from Metal Building
Components, Inc. to manufacture, distribute, market and sell its standing seam
roof systems. The Company does not consider the license to be material to its
business due to the availability of other standing seam roof systems, including
its own roof
6
<PAGE> 8
system. The Company has a United States patent on its Retro-R(R) retrofit metal
panel and has applied for another patent with respect to its Retro-R(R) panel.
Another patent application is pending for a vented closure for a metallic
roofing system. Patent protection is not considered by the Company to be a
material competitive factor in its industry.
The Company has registered trademarks in the United States for "Metallic"
and design, "Retro-R", "Pittsburgh Loc", "Trapezoidal Loc", "NCI" and design,
"A&S Building Systems", "Mid-West Steel Building Company", design for Mid-West
Steel, "Classic Metal Home" and design, "A&S" and design, "Mesco" and design and
"ARS" and design. In addition, the Company has pending U.S. trademark
registrations for "Royal K-70", "Dura-20", "VL-12", "VL-16", "VL-18", "Metallic
Building Company", "Steel System" and design, "NCI Express" and design, "NCI
Building Components", "NCI", "DBCI", "All American Systems", "NCI" and design
and "Vertical Loc." The "Metallic" and design mark is also pending registration
in Mexico.
EMPLOYEES
As of October 31, 1997, the Company employed approximately 2,472 employees,
of whom 156 were management and supervisory personnel, 206 were administrative
personnel, 218 were sales personnel, 227 were engineers and draftsmen, and 1,665
were manufacturing personnel. The Company's employees are not represented by a
labor union or collective bargaining agreement although, in January 1996 and
November 1997, unions petitioned for but lost elections to be recognized as the
collective bargaining representative for production and maintenance employees at
the Tallapoosa, Georgia facility and production employees at the Mattoon,
Illinois facility. The Company regards its employee relations as satisfactory.
ITEM 2. PROPERTIES.
The Company conducts manufacturing operations at the following facilities:
<TABLE>
<CAPTION>
SQUARE OWNED/
FACILITY PRODUCTS FEET LEASED
-------- -------- ------ ------
<S> <C> <C> <C>
Houston, Texas (acquired 1989) Metal building systems(1) 382,000 Owned
Components
Overhead doors
Tallapoosa, Georgia (acquired 1992) Metal building systems(1) 246,000 Leased
Components
Caryville, Tennessee (acquired 1992) Metal building systems(1) 193,800 Owned
Components
Chester, South Carolina (acquired 1996) Metal building systems(1) 124,000 Owned
Components
Southlake, Texas (acquired 1996) Metal building systems(1) 123,000 Owned
Components
Houston, Texas (opened 1984) Components 97,000 Owned
Jackson, Mississippi (opened 1994) Secondary structures 96,000 Owned
Covering subsystems
Components
Mattoon, Illinois (opened 1991) Secondary structures 90,600 Owned
Covering subsystems
Components
Atwater, California (opened 1996) Secondary structures 85,700 Owned
Covering subsystems
Components
Hobbs, New Mexico (acquired 1995) Secondary structures 60,800 Leased
Covering subsystems
Components
</TABLE>
7
<PAGE> 9
<TABLE>
<CAPTION>
SQUARE OWNED/
FACILITY PRODUCTS FEET LEASED
- ------------------------------------------------- ----------------------------- --------- ---------
<S> <C> <C> <C>
Douglasville, Georgia (acquired 1995) Overhead doors 60,000 Owned
Components
Chandler, Arizona (acquired 1995) Overhead doors 35,000 Leased
Components
Ennis, Texas (acquired 1996) Components 33,000 Owned
Studs
Stafford, Texas (acquired 1997) Components 99,600 Leased
Stafford, Texas (acquired 1997) Insulated panels 57,000 Leased
Jemison, Alabama (acquired 1997) Components 41,000 Owned
Monterrey, Mexico (opened 1997) Structural 64,125 Owned(2)
</TABLE>
- ---------------
(1) Includes primary structures, secondary structures and covering subsystems.
(2) The Company owns a 51% interest in a joint venture which owns this facility.
The principal executive offices of the Company occupy 33,600 square feet of
the principal manufacturing facility in Houston. The principal offices of A&S,
DBCI and Mesco occupy 16,000 square feet of the Caryville facility, 4,000 square
feet of the Douglasville facility, and 16,800 square feet of the Southlake
facility, respectively. The Company also maintains several drafting office
facilities and retail locations in various states. These office and retail
facilities are subject to short-term leases.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various legal proceedings that the Company
considers to be in the normal course of business. Management of the Company
believes that such litigation will not result in any material losses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
8
<PAGE> 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The information required by this Item is incorporated by reference from the
Company's 1997 Annual Report to Shareholders, bottom of page 28, regarding the
market for common stock of the Company.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is incorporated by reference from the
Company's 1997 Annual Report to Shareholders, top of page 1.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by this Item is incorporated by reference from the
following portions of the Company's 1997 Annual Report to Shareholders:
Management's Discussion and Analysis of Results of Operations and Financial
Condition, pages 26 through 28.
9
<PAGE> 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements and supplementary financial
information are incorporated by reference from the indicated pages in the
Company's 1997 Annual Report to Shareholders.
<TABLE>
<CAPTION>
PAGES OF
ANNUAL REPORT
TO SHAREHOLDERS
---------------
<S> <C>
Selected Financial Data..................................... 1
Consolidated statements of income for each of the three
years in the period ended October 31, 1997................ 16
Consolidated balance sheets at October 31, 1997 and 1996.... 17
Consolidated statements of shareholders' equity for each of
the three years in the period ended October 31, 1997...... 18
Consolidated statements of cash flows for each of the three
years in the period ended October 31, 1997................ 19
Notes to consolidated financial statements.................. 20 -- 24
Report of independent auditors.............................. 25
Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ 26 -- 28
Unaudited Quarterly Financial Data.......................... 28
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
10
<PAGE> 12
PART III
The information required by Items 10 through 13 of Part III is incorporated
by reference from the indicated pages of the Company's definitive proxy
statement for its annual meeting of shareholders to be held on March 4, 1998.
<TABLE>
<CAPTION>
PAGES OF
PROXY STATEMENT
---------------
<S> <C> <C>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY............. 3 -- 6
ITEM 11. EXECUTIVE COMPENSATION...................................... 7 -- 11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
ITEM 12. MANAGEMENT.................................................. 1 -- 3
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 13
</TABLE>
11
<PAGE> 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
1. Consolidated financial statements (see Item 8).
2. Consolidated financial statement schedules.
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are inapplicable or the
requested information is shown in the financial statements or noted therein.
3. Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 -- Restated Certificate of Incorporation of the Company
(filed as Exhibit 3.1 to the Company's registration
statement no. 33-45612 and incorporated herein)
3.2 -- Certificate of Amendment to Restated Certificate of
Incorporation of the Company (filed as Exhibit 3.1.1 to
the Company's registration statement no. 33-45612 and
incorporated herein)
3.3 -- Certificate of Amendment to Restated Certificate of
Incorporation of the Company (filed as Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1994 and incorporated herein)
3.4 -- Amended and Restated By-Laws of the Company, as amended
through February 5, 1992 (filed as Exhibit 3.2 to the
Company's registration statement no. 33-45612 and
incorporated herein)
4.1 -- Form of certificate representing shares of Company's
common stock (filed as Exhibit 4.1 to the Company's
registration statement no. 33-45612 and incorporated
herein)
4.2 -- Stock Registration Agreement, dated April 10, 1989,
between the Company and Equus II Incorporated, formerly
Equus Investments II, L.P. ("Equus") (filed as Exhibit
4.2 to the Company's registration statement no. 33-45612
and incorporated herein)
4.3 -- Credit Agreement, dated April 30, 1993, between
NationsBank of Texas, N.A. and NCI Building Systems, L.P.
(filed as Exhibit 4.7 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1993 and
incorporated herein)
4.4 -- First Amendment Agreement, dated February 28, 1994,
between NationsBank of Texas, N.A. and NCI Building
System, L.P. (filed as Exhibit 4.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 31, 1994 and incorporated herein)
4.5 -- Second Amendment Agreement, dated February 28, 1995,
between NationsBank of Texas, N.A. and NCI Building
Systems, L.P. (filed as Exhibit 4.13 to the Company's
registration statement no. 33-99560 and incorporated
herein)
4.6 -- $6,000,000 Revolving Credit Note, dated April 30, 1993,
in favor of NationsBank of Texas, N.A., executed by NCI
Building Systems, L.P. (filed as Exhibit 4.8 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1993 and incorporated herein)
4.7 -- $1,750,000 Revolving Credit Note, dated February 28,
1994, in favor of NationsBank of Texas, N.A., executed by
NCI Building Systems, L.P. (filed as Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1994 and incorporated herein)
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.8 -- Guaranty, dated April 30, 1993, between NationsBank of
Texas, N.A. and the Company (filed as Exhibit 4.9 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1993 and incorporated herein)
4.9 -- Guaranty, dated April 30, 1993, between NationsBank of
Texas, N.A. and A & S Building Systems, Inc. (filed as
Exhibit 4.10 to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1993 and
incorporated herein)
4.10 -- Loan Agreement "A," dated September 1, 1991, between the
City of Mattoon and the Company (filed as Exhibit 4.11 to
the Company's registration statement no. 33-45612 and
incorporated herein)
4.11 -- $250,000 Promissory Note A, dated October 31, 1991, in
favor of the City of Mattoon executed by the Company
(filed as Exhibit 4.12 to the Company's registration
statement no. 33-45612 and incorporated herein)
4.12 -- Loan Agreement "B," dated September 1, 1991, between the
City of Mattoon and the Company (filed as Exhibit 4.13 to
the Company's registration statement no. 33-45612 and
incorporated herein)
4.13 -- $250,000 Promissory Note B, dated January 20, 1992, in
favor of the City of Mattoon executed by the Company
(filed as Exhibit 4.14 to the Company's registration
statement no. 33-45612 and incorporated herein)
4.14 -- Stock Retention and Registration Agreement, dated
November 13, 1995, by and between the Company, Doors &
Building Components, Inc., and David B. Curtis (filed as
Exhibit 4.14 to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1995 and
incorporated herein)
4.15 -- 7% Convertible Subordinated Debenture dated April 1, 1996
Due April 1, 2001 between NCI Building Systems, Inc. and
John T. Eubanks (filed as Exhibit 4.15 to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 31, 1996 and incorporated herein)
10.1 -- Employment Agreement, dated April 10, 1989, between the
Company and Johnie Schulte, Jr. (filed as Exhibit 10.1 to
the Company's registration statement no. 33-45612 and
incorporated herein)
10.2 -- Amendment to Employment Agreement, dated February 21,
1992, between the Company and Johnie Schulte, Jr. (filed
as Exhibit 10.1.1 to the Company's registration statement
no. 33-45612 and incorporated herein)
10.3 -- Summary of Bonus Program (filed as Exhibit 10.2 to the
Company's registration statement no. 33-45612 and
incorporated herein)
10.4 -- Employee Stock Option Plan (filed as Exhibit 4.1 to the
Company's registration statement no. 33-52080 and
incorporated herein)
10.5 -- Amendment No. 1 to Stock Option Plan (filed as Exhibit
4.2 to the Company's registration statement no. 33-52080
and incorporated herein)
10.6 -- Amendment No. 2 to Stock Option Plan (filed as Exhibit
10.6 in the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1992 and incorporated
herein)
10.7 -- Form of Employee Stock Option Agreement (filed as Exhibit
4.3 to the Company's registration statement no. 33-52080
and incorporated herein)
10.8 -- Form of Director Stock Option Agreement (filed as Exhibit
4.4 to the Company's registration statement no. 33-52080
and incorporated herein)
10.9 -- License Agreement, dated June 30, 1989, between Metal
Building Components, Inc. and the Company (filed as
Exhibit 10.6 to the Company's registration statement no.
33-45612 and incorporated herein)
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.10 -- 401(k) Profit Sharing Plan (filed as Exhibit 4.1 to the
Company's registration statement no. 33-52078 and
incorporated herein)
10.11 -- Form of Metallic Builder Agreement (filed as Exhibit
10.10 to the Company's registration statement no.
33-45612 and incorporated herein)
10.12 -- Form of A&S Builder Agreement (filed as Exhibit 10.17 to
the Company's Annual Report on Form 10-K for the fiscal
year ended October 31, 1992 and incorporated herein)
10.13 -- Purchase Agreement, dated September 7, 1994, between NCI
Building Systems, L.P., Ellis Building Components, Inc.,
Tony Ellis and Ronald Ellis (filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K dated October 14,
1994 and incorporated herein)
10.14 -- Amendment to Purchase Agreement, dated October 14, 1994,
between NCI Building Systems, L.P., Ellis Building
Components, Inc., Tony Ellis and Ronald Ellis (filed as
Exhibit 2.2 to the Company's Current Report on Form 8-K
dated October 14, 1994 and incorporated herein)
10.15 -- Form of Mesco Metal Buildings Agreement (filed as Exhibit
4.13 to the Company's Annual Report on Form 10-K for the
FYE October 31, 1996 and incorporated herein)
10.16 -- Amendment No. 3 to Stock Option Plan (filed as Exhibit
4.6 to the Company's Registration Statement No. 333-12921
and incorporated herein)
10.17 -- Asset Purchase Agreement, dated October 13, 1995, by and
among Doors & Building Components, Inc. David B. Curtis,
DBCI Acquisition Corp. and the Company (filed as Exhibit
2 to the Company's Current Report on Form 8-K dated
November 13, 1995 and incorporated herein)
10.18 -- Asset Purchase Agreement, dated April 1, 1996, by and
among Anderson Industries, Inc., Charles W. Anderson,
Thomas L. Anderson, Jr., John T. Eubanks, Robert K.
Landon, NCI Building Systems, L.P. and the Company (filed
as Exhibit 2 to the Company's Current Report on Form 8-K
dated April 1, 1996 and incorporated herein).
*10.19 -- Employment Agreement, dated April 1, 1996, between the
Company and John T. Eubanks.
*13 -- 1997 Annual Report to Shareholders. With the exception of
the information incorporated by reference into Items 5,
6, 7, and 8 of this Form 10-K, the 1997 Annual Report to
Shareholders is not to be deemed filed as part of this
Form 10-K.
*21 -- List of Subsidiaries
*23 -- Consent of Ernst & Young LLP
*27 -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
14
<PAGE> 16
(b) Reports on Form 8-K.
None.
This Annual Report on Form 10-K contains forward-looking statements concerning
the business and operations of the Company. Although the Company believes that
the expectations reflected in the forward-looking statements are reasonable,
these expectations and the related statements are subject to risks,
uncertainties, and other factors that could cause the actual results to differ
materially from those projected. These risks, uncertainties, and other factors
include, but are not limited to, industry cyclicality and seasonality, adverse
weather conditions, fluctuations in customer demand and other patterns, raw
material pricing, competitive activity and pricing pressure, the ability to make
strategic activities accretive to earnings, and general economic conditions
affecting the construction industry, as well as other risks detailed in this and
other filings of the Company with the Securities and Exchange Commission. The
Company expressly disclaims any obligations to release publicly any updates or
revisions to these forward-looking statements to reflect any changes in its
expectations.
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 28th day of
January, 1998.
NCI BUILDING SYSTEMS, INC.
By: /s/ JOHNIE SCHULTE
----------------------------------
Johnie Schulte,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of the 28th day of January, 1998.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ JOHNIE SCHULTE President, Chief Executive Officer and
- ----------------------------------------------------- Director (principal executive officer)
Johnie Schulte
/s/ ROBERT J. MEDLOCK Vice President, Chief Financial Officer and
- ----------------------------------------------------- Treasurer (principal financial and
Robert J. Medlock accounting officer)
/s/ THOMAS C. ARNETT Director
- -----------------------------------------------------
Thomas C. Arnett
/s/ WILLIAM D. BREEDLOVE Director
- -----------------------------------------------------
William D. Breedlove
/s/ GARY L. FORBES Director
- -----------------------------------------------------
Gary L. Forbes
/s/ LEONARD F. GEORGE Executive Vice President and Director
- -----------------------------------------------------
Leonard F. George
/s/ ROBERT N. MCDONALD Director
- -----------------------------------------------------
Robert N. McDonald
/s/ C.A. RUNDELL, JR. Director
- -----------------------------------------------------
C. A. Rundell, Jr.
/s/ DANIEL D. ZABCIK Director
- -----------------------------------------------------
Daniel D. Zabcik
</TABLE>
16
<PAGE> 18
NCI BUILDING SYSTEMS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED TO COSTS AT END
DESCRIPTION OF PERIOD AND EXPENSES DEDUCTIONS(1) OF PERIOD
----------- ---------- ---------------- ------------- ----------
<S> <C> <C> <C> <C>
Year ended October 31, 1997:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible accounts
and backcharges................... $1,629,202 $1,223,178 $1,354,232 $1,498,148
Year ended October 31, 1996:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible accounts
and backcharges................... $1,339,772 $ 680,633 $ 391,203 $1,629,202
Year ended October 31, 1995:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible accounts
and backcharges................... $1,040,828 $1,101,038 $ 802,094 $1,339,772
</TABLE>
- ---------------
(1) Uncollectible accounts, net of recoveries.
17
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
3.1 -- Restated Certificate of Incorporation of the Company
(filed as Exhibit 3.1 to the Company's registration
statement no. 33-45612 and incorporated herein)
3.2 -- Certificate of Amendment to Restated Certificate of
Incorporation of the Company (filed as Exhibit 3.1.1 to
the Company's registration statement no. 33-45612 and
incorporated herein)
3.3 -- Certificate of Amendment to Restated Certificate of
Incorporation of the Company (filed as Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1994 and incorporated herein)
3.4 -- Amended and Restated By-Laws of the Company, as amended
through February 5, 1992 (filed as Exhibit 3.2 to the
Company's registration statement no. 33-45612 and
incorporated herein)
4.1 -- Form of certificate representing shares of Company's
common stock (filed as Exhibit 4.1 to the Company's
registration statement no. 33-45612 and incorporated
herein)
4.2 -- Stock Registration Agreement, dated April 10, 1989,
between the Company and Equus II Incorporated, formerly
Equus Investments II, L.P. ("Equus") (filed as Exhibit
4.2 to the Company's registration statement no. 33-45612
and incorporated herein)
4.3 -- Credit Agreement, dated April 30, 1993, between
NationsBank of Texas, N.A. and NCI Building Systems, L.P.
(filed as Exhibit 4.7 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1993 and
incorporated herein)
4.4 -- First Amendment Agreement, dated February 28, 1994,
between NationsBank of Texas, N.A. and NCI Building
System, L.P. (filed as Exhibit 4.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 31, 1994 and incorporated herein)
4.5 -- Second Amendment Agreement, dated February 28, 1995,
between NationsBank of Texas, N.A. and NCI Building
Systems, L.P. (filed as Exhibit 4.13 to the Company's
registration statement no. 33-99560 and incorporated
herein)
4.6 -- $6,000,000 Revolving Credit Note, dated April 30, 1993,
in favor of NationsBank of Texas, N.A., executed by NCI
Building Systems, L.P. (filed as Exhibit 4.8 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1993 and incorporated herein)
4.7 -- $1,750,000 Revolving Credit Note, dated February 28,
1994, in favor of NationsBank of Texas, N.A., executed by
NCI Building Systems, L.P. (filed as Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1994 and incorporated herein)
4.8 -- Guaranty, dated April 30, 1993, between NationsBank of
Texas, N.A. and the Company (filed as Exhibit 4.9 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1993 and incorporated herein)
4.9 -- Guaranty, dated April 30, 1993, between NationsBank of
Texas, N.A. and A & S Building Systems, Inc. (filed as
Exhibit 4.10 to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1993 and
incorporated herein)
4.10 -- Loan Agreement "A," dated September 1, 1991, between the
City of Mattoon and the Company (filed as Exhibit 4.11 to
the Company's registration statement no. 33-45612 and
incorporated herein)
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
4.11 -- $250,000 Promissory Note A, dated October 31, 1991, in
favor of the City of Mattoon executed by the Company
(filed as Exhibit 4.12 to the Company's registration
statement no. 33-45612 and incorporated herein)
4.12 -- Loan Agreement "B," dated September 1, 1991, between the
City of Mattoon and the Company (filed as Exhibit 4.13 to
the Company's registration statement no. 33-45612 and
incorporated herein)
4.13 -- $250,000 Promissory Note B, dated January 20, 1992, in
favor of the City of Mattoon executed by the Company
(filed as Exhibit 4.14 to the Company's registration
statement no. 33-45612 and incorporated herein)
4.14 -- Stock Retention and Registration Agreement, dated
November 13, 1995, by and between the Company, Doors &
Building Components, Inc., and David B. Curtis (filed as
Exhibit 4.14 to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1995 and
incorporated herein)
4.15 -- 7% Convertible Subordinated Debenture dated April 1, 1996
Due April 1, 2001 between NCI Building Systems, Inc. and
John T. Eubanks (filed as Exhibit 4.15 to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 31, 1996 and incorporated herein)
10.1 -- Employment Agreement, dated April 10, 1989, between the
Company and Johnie Schulte, Jr. (filed as Exhibit 10.1 to
the Company's registration statement no. 33-45612 and
incorporated herein)
10.2 -- Amendment to Employment Agreement, dated February 21,
1992, between the Company and Johnie Schulte, Jr. (filed
as Exhibit 10.1.1 to the Company's registration statement
no. 33-45612 and incorporated herein)
10.3 -- Summary of Bonus Program (filed as Exhibit 10.2 to the
Company's registration statement no. 33-45612 and
incorporated herein)
10.4 -- Employee Stock Option Plan (filed as Exhibit 4.1 to the
Company's registration statement no. 33-52080 and
incorporated herein)
10.5 -- Amendment No. 1 to Stock Option Plan (filed as Exhibit
4.2 to the Company's registration statement no. 33-52080
and incorporated herein)
10.6 -- Amendment No. 2 to Stock Option Plan (filed as Exhibit
10.6 in the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1992 and incorporated
herein)
10.7 -- Form of Employee Stock Option Agreement (filed as Exhibit
4.3 to the Company's registration statement no. 33-52080
and incorporated herein)
10.8 -- Form of Director Stock Option Agreement (filed as Exhibit
4.4 to the Company's registration statement no. 33-52080
and incorporated herein)
10.9 -- License Agreement, dated June 30, 1989, between Metal
Building Components, Inc. and the Company (filed as
Exhibit 10.6 to the Company's registration statement no.
33-45612 and incorporated herein)
10.10 -- 401(k) Profit Sharing Plan (filed as Exhibit 4.1 to the
Company's registration statement no. 33-52078 and
incorporated herein)
10.11 -- Form of Metallic Builder Agreement (filed as Exhibit
10.10 to the Company's registration statement no.
33-45612 and incorporated herein)
10.12 -- Form of A&S Builder Agreement (filed as Exhibit 10.17 to
the Company's Annual Report on Form 10-K for the fiscal
year ended October 31, 1992 and incorporated herein)
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
10.13 -- Purchase Agreement, dated September 7, 1994, between NCI
Building Systems, L.P., Ellis Building Components, Inc.,
Tony Ellis and Ronald Ellis (filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K dated October 14,
1994 and incorporated herein)
10.14 -- Amendment to Purchase Agreement, dated October 14, 1994,
between NCI Building Systems, L.P., Ellis Building
Components, Inc., Tony Ellis and Ronald Ellis (filed as
Exhibit 2.2 to the Company's Current Report on Form 8-K
dated October 14, 1994 and incorporated herein)
10.15 -- Form of Mesco Metal Buildings Agreement (filed as Exhibit
4.13 to the Company's Annual Report on Form 10-K for the
FYE October 31, 1996 and incorporated herein)
10.16 -- Amendment No. 3 to Stock Option Plan (filed as Exhibit
4.6 to the Company's Registration Statement No. 333-12921
and incorporated herein)
10.17 -- Asset Purchase Agreement, dated October 13, 1995, by and
among Doors & Building Components, Inc. David B. Curtis,
DBCI Acquisition Corp. and the Company (filed as Exhibit
2 to the Company's Current Report on Form 8-K dated
November 13, 1995 and incorporated herein)
10.18 -- Asset Purchase Agreement, dated April 1, 1996, by and
among Anderson Industries, Inc., Charles W. Anderson,
Thomas L. Anderson, Jr., John T. Eubanks, Robert K.
Landon, NCI Building Systems, L.P. and the Company (filed
as Exhibit 2 to the Company's Current Report on Form 8-K
dated April 1, 1996 and incorporated herein).
*10.19 -- Employment Agreement, dated April 1, 1996, between the
Company and John T. Eubanks.
*13 -- 1997 Annual Report to Shareholders. With the exception of
the information incorporated by reference into Items 5,
6, 7, and 8 of this Form 10-K, the 1997 Annual Report to
Shareholders is not to be deemed filed as part of this
Form 10-K.
*21 -- List of Subsidiaries
*23 -- Consent of Ernst & Young LLP
*27 -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
20
<PAGE> 1
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of April 1,
1996, is made by and between NCI Building Systems, L.P., a Texas limited
partnership ("Employer"), and John T. Eubanks, a resident of Texas
("Employee").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this
Agreement, Employer is acquiring substantially all of the business, goodwill
and substantially all of the properties and assets of the MESCO Metal Buildings
division of Anderson Industries, Inc., a Texas corporation ("Seller"), pursuant
to that certain Asset Purchase Agreement, dated as of April 1, 1996 (the
"Purchase Agreement"), by and among Employer, NCI Building Systems, Inc.
("NCI"), Seller, Employee, Charles W. Anderson, Robert K. Landon and Thomas L.
Anderson, Jr.; and
WHEREAS, Employee was and is employed by Seller; and
WHEREAS, Employee recognizes and agrees that his agreement to become
employed by Employer and his nondisclosure, non-solicitation and
non-competition covenants, as set forth herein, are essential to the ability of
Employer to retain the goodwill related to the business of Seller being
acquired by Employer, and that Employer would not acquire such business and
goodwill but for the agreements and covenants of Employee being made herein,
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein, as well as other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Employer hereby agrees to employ Employee and Employee hereby agrees to be
employed by Employer on the following terms and conditions:
1. Employment Term. The term of employment under this Agreement
shall begin on the date first written above, and shall continue thereafter until
the fifth anniversary of such date (the "Employment Term"). The Employment Term
may be earlier terminated, as provided elsewhere in this Agreement.
2. Duties of Employee.
(a) Employee will serve as the Chief Operating Officer of
the MESCO Metal Buildings division of Employer and shall be responsible for the
supervision, control and conduct of the business of such division, shall have
additional duties as are normally assigned to the Chief Operating Officer of a
division of Employer, and any additional responsibilities which may from time
to time reasonably be designated by Employer or by Employer's parent
corporation, NCI. The duties to be assigned to and performed by Employee shall
be commensurate with his education, experience, talents, and abilities.
Employee shall report to the President of NCI.
<PAGE> 2
(b) Employee agrees during the term of this Agreement to
devote all of his business time and his best efforts, skills and abilities
exclusively to the performance of his duties as may be assigned to him from
time to time, and to the furtherance of the business of Employer and its
affiliates; provided, however, that during the first year of the Employment
Term Employee shall be entitled to spend up to 20% of his business time closing
out the affairs of Seller. Employee shall schedule the business time he devotes
to closing out the affairs of Seller in good faith, and shall use his best
efforts to schedule such business time, so as not to unreasonably interfere
with the performance of his duties to Employer in accordance with this
Agreement.
(c) Employee will perform his duties in a professional
manner and will use his best efforts, skills and abilities to promote, enhance
and preserve the business of Employer and its affiliates and the goodwill and
relationships they have with their employees, agents, representatives,
customers, suppliers, and other persons having business relations with any of
them.
3. Compensation.
(a) Employee will be paid a base salary at the rate of
$150,000 per year, and will receive an annual merit review. The base salary
will be paid on a regular and periodic basis in accordance with the normal
payroll procedures of Employer and its affiliates, prorated for any partial pay
period at the beginning or end of the employment of Employee, and subject to
required withholding under applicable tax laws. During any period of disability
of Employee, the base salary otherwise payable to Employee will be reduced by
the amount of any payments received by Employee pursuant to disability
insurance benefits coverages provided by Employer.
(b) Employee will be entitled to participate as a Level I
participant in the Management Employees Cash Bonus Program of NCI, as the same
may be amended from time to time by the Board of Directors of NCI. Bonuses, if
any, paid to Employee pursuant to such program shall be paid after the end of
each fiscal year of NCI at the same time as the same are paid to other
participants, and shall be subject to required withholding under applicable tax
laws. Employee understands that bonuses cannot be earned under such program
unless a participant is employed by NCI or one of its subsidiaries on the last
day of the fiscal year of NCI and, if the employment of a participant
terminates for any reason prior to that date, no bonus shall be payable
thereunder.
(c) Employee will be entitled to receive an option to
purchase 25,000 shares of NCI's Common Stock under NCI's Nonqualified Stock
Option Plan. The option exercise price per share shall be $28.50, the last sale
price of NCI's Common Stock, as reported by NASDAQ/NMS, on the last trading day
prior to the public announcement of the acquisition and sale contemplated by
the Purchase Agreement. Such option shall be subject to all of the terms and
provisions of NCI's Nonqualified Stock Option Plan and shall expire on February
22, 2006. As a precondition to the grant of such option, Employee shall be
required to execute and deliver to NCI the standard written option agreement
required of all option grantees pursuant to NCI's Nonqualified Stock Option
Plan.
2
<PAGE> 3
(d) During the Employment Term, Employer shall pay
premiums at an annual rate of $40,410 (or quarterly at $10,426.28) on the
existing key man life insurance policy for Employee. The insurer and the terms
and conditions of such policy are acceptable to Employer, and $5,000,000 of the
death benefit under such insurance policy shall be payable to such beneficiary
or beneficiaries as may be designated by Employee.
(e) Employee will be provided the same medical insurance
coverage, vacation, and other employee and fringe benefits (including a car
allowance) that NCI and its subsidiaries, including Employer, make available to
their employees with positions and responsibilities commensurate to those of
Employee. Employee understands and agrees that such benefits may be changed
from time to time in the sole discretion of Employer and/or NCI.
(f) Employer shall reimburse Employee for all reasonable
and proper business expenses incurred and paid by Employee in the course of the
performance of Employee's duties, to the extent the expenses are properly
documented and reimbursement is consistent with the policies and procedures of
Employer as in effect from time to time.
4. Early Termination Rights and Obligations.
(a) Either party shall have the right to terminate the
employment of Employee hereunder for any reason upon thirty (30) days written
notice.
(b) Upon termination of the employment of Employee for any
reason, whether by Employee or by Employer, Employee shall be entitled to
receive such portion of his base salary, at the rate then in effect, and the
fringe benefits that were earned by him or accrued for his account through the
date of the termination of his employment hereunder.
(c) If the employment of Employee is terminated for any
reason prior to expiration of the Employment Term, whether by Employee or by
Employer, within six months after a Change of Control, Employee shall be
entitled to receive a severance payment pursuant to this paragraph (c). If such
Change of Control occurs within two years after the date hereof, Employee shall
be entitled to receive a severance payment equal to the amount of base salary,
at the rate then in effect, that would have been paid to him through two years
from the date of such termination, and if such Change of Control occurs two or
more years after the date hereof, Employee shall be entitled to a severance
payment equal to the amount of base salary, at the rate then in effect, that
would have been paid to him through one year from the date of such termination.
The severance payment shall be paid to Employee in equal installments on the
normal employee pay days of Employer until the severance payment has been paid
in full. Each installment shall be in the same amount as the gross pay that
would have been payable to Employee on that pay day had his employment not been
terminated, less any required withholding under applicable tax laws. For the
purpose hereof, a "Change of Control" shall be deemed to have occurred if NCI
sells all or substantially all of its assets, is a party to any merger,
consolidation or corporate reorganization, or any other person makes a tender
or exchange offer for the stock of NCI and the stockholders of NCI immediately
prior to the
3
<PAGE> 4
consummation thereof own 50% or less of the common stock of the surviving,
resulting or purchasing corporation immediately following the consummation
thereof.
(d) Employer's payment of the amounts owed to Employee
pursuant to this Section 4 shall fully satisfy all obligations of Employer to
Employee under this Agreement if the employment of Employee is terminated
hereunder prior to expiration of the Employment Term, and all obligations of
Employer and Employee to each other set forth in Sections 1 through 3 of this
Agreement shall terminate and be of no further force or effect. No termination
of employment hereunder, whether by Employer or Employee and regardless of
reason, shall terminate the provisions of Sections 5 et. seq. of this Agreement
and each of such Sections shall remain in full force and effect as binding
obligations of the parties in accordance with their express terms.
5. Use or Disclosure of Trade Secrets.
(a) Employee acknowledges that in connection with his past
employment with Seller and his employment with Employer, Employee has had and
will have access to, and is and will become familiar with and make use of the
Trade Secrets of the MESCO Metal Buildings division of Seller, Employer, NCI
and one or more of the subsidiaries of NCI (collectively with Employer and NCI,
the "NCI Affiliates"), and that use of their Trade Secrets by their competitors
or the disclosure of their Trade Secrets to their competitors would provide
invaluable benefits to those competitors. As a material inducement to Employer
to enter into this Agreement and to pay to Employee the compensation stated
herein, Employee covenants and agrees that he will not, during the Employment
Term or at any time thereafter, either directly or indirectly through any
intermediary or on his own or any other person's or entity's behalf, use the
Trade Secrets for any purpose or disclose or disseminate the Trade Secrets to
any other person or entity.
(b) For purposes of this Agreement, "Trade Secrets" shall
mean any information or material that directly or indirectly relates to
Employer, NCI or another NCI Affiliate and that is proprietary or confidential
to any of them or designated by any of them as a Trade Secret and not generally
known by non-employees. Trade Secrets include, but are not limited to, the
following types of information and other information of a similar nature
(whether or not reduced to writing):
(i) information relating to the customers of an
NCI Affiliate including, but not limited to, customer lists,
information relating to customer contracts, the terms of such
contracts, key contacts, pricing, discounts and purchasing preferences
and history (collectively, "Customer Information");
(ii) information relating to the employees and
agents of, and distributors and consultants to an NCI Affiliates
including, but not limited to, lists of employees, agents, dealers,
builders, distributors and consultants, job descriptions and
functions, information relating to employment, agency, dealer,
builder, distribution, or consultant contracts, the terms of such
contracts, information relating to salaries, bonuses, commissions,
benefits, or other compensation, and performance evaluations
(collectively, "Employee Information");
4
<PAGE> 5
(iii) information relating to the vendors and
suppliers of an NCI Affiliate including, but not limited to, vendor
and supplier lists, information relating to vendor and supplier
contracts, the terms of such contracts, key contacts, pricing,
discounts, and sales and purchasing preferences and history;
(iv) procurement, engineering, drawing,
manufacturing, production, marketing, pricing, distribution, and
business acquisition plans, policies, ideas, concepts and patented or
unpatented techniques and "know-how" of an NCI Affiliate, and all
designs, drawings, models, data, documentation, research,
developments, processes, procedures, materials and literature related
thereto;
(v) financial information relating to the
business of an NCI Affiliate.
Trade Secrets also include any information described above which an NCI
Affiliate obtains from another party and which such NCI Affiliate treats as
proprietary or designates as a Trade Secret, whether or not owned or developed
by the NCI Affiliate.
6. Non-Solicitation and Non-Hire Covenants. Employee covenants and
agrees that, other than on behalf of Employer, he will not directly or
indirectly, through any intermediary or otherwise, either on his own behalf or
jointly with or as an owner of or employee, agent, representative, or
consultant for any other person, firm, or organization:
(a) solicit or induce any person or entity that at the time
is, or within six months prior thereto was, an employee, consultant, agent,
dealer, builder or distributor of Employer to leave or cease his or her
employment or other relationship with Employer for any reason whatsoever, or
hire or engage the services of any such current or former employee, consultant,
agent, dealer, builder or distributor of Employer; or
(b) solicit or induce the then existing or prospective
customers of Employer to purchase services or products that are competitive
with those marketed and/or offered for sale by Employer as of the date of
Employee's termination of employment with Employer, or market or sell any such
services or products to any then existing or prospective customer of Employer.
For purposes hereof, an "existing or prospective customer" shall mean those
persons or firms that Employer or Seller has made a sale to, provided services
to or submitted a proposal to in the 12 months preceding Employee's termination
of employment with Employer.
7. Non-Competition Covenant.
(a) Employee covenants and agrees that he will not directly
or indirectly, through any intermediary or otherwise, either on his own behalf
or on behalf of another person, company, entity or enterprise, own, manage,
operate, control, participate in or be financially or economically connected or
interested in, or be employed by or provide services, advice or other financial
or operational assistance to, any person, company, entity or enterprise that is
engaged anywhere within
5
<PAGE> 6
North America in the business of designing, engineering, manufacturing,
constructing, marketing, selling or distributing metal buildings and related
parts and components (the "Business").
(b) Employee understands and agrees that the foregoing
covenant means that he cannot be a sole proprietor, shareholder, partner,
investor or other equity owner, or a lender, creditor, lessor or other provider
of financing or other economic assistance, or a director, officer, manager,
supervisor, employee, agent, consultant, advisor or representative of, to or
for any person, company, entity or enterprise that is engaged in the Business
anywhere in North America, other than Employer or NCI.
(c) Employer agrees that the ownership of capital stock or
securities of NCI, or of capital stock of any other publicly-owned company
constituting not more than 1% of its voting securities of any such company,
shall not constitute a violation or breach of the covenant of Employee set
forth in this section.
8. Term of Covenants. The covenants set forth in Sections 6 and 7
shall remain in effect until and shall expire on the later of the second
anniversary of the date of termination of Employee's employment with Employer
or five years from the date hereof.
9. Consideration for Covenants; Reasonableness. Employee
acknowledges and agrees as follows:
(a) The Customer Information, the Employee Information and
the other Trade Secrets of Employer, NCI and the other NCI Affiliates are
unique and were developed or acquired by them through the expenditure of
valuable time and resources; that Employer, NCI and the other NCI Affiliates
derive independent economic value from these Trade Secrets not being generally
known to the public or to other persons who can obtain economic value from
their disclosure or use; that Employer, NCI and the other NCI Affiliates have
taken all prudent and necessary measures to preserve the proprietary and
confidential nature of their Customer Information, their Employee Information
and their other Trade Secrets; and that the covenants set forth in Sections 6
and 7 are the most reasonable, efficient and practical means to protect these
Trade Secrets.
(b) The covenants set forth in Sections 5, 6, 7, and 8 are
necessary to protect the goodwill of Seller and the Business being acquired
pursuant to the Purchase Agreement and thereafter accruing to Employer during
the employment of Employee hereunder, and to ensure that such goodwill will be
preserved and continued for the benefit of Employer.
(c) Due to the nature of the Business as heretofore conducted
by Seller and as contemplated to be continued and conducted by Employer, the
scope and the duration of the covenants set forth in Sections 5, 6, 7, and 8 of
this Agreement are in all respects reasonable.
(d) The covenants set forth in Sections 5, 6, 7, and 8 each
constitute a separate agreement independently supported by good and adequate
consideration and that each such
6
<PAGE> 7
agreement shall be severable from the other provisions of this Agreement and
shall survive this Agreement. The existence of any claim or cause of action of
Employee against Employer, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by Employer of the covenants
and agreements of Employee set forth in Sections 5, 6, 7 and 8.
10. Specific Performance. Employee acknowledges and agrees that the
breach by him of the provisions of Sections 6, 7 or 8 of this Agreement could
not be adequately compensated with monetary damages or other legal remedies and
would irreparably injure Employer, and, accordingly, that Employer shall be
entitled to temporary and permanent injunctive relief without the necessity of
independent proof by it as to the inadequacy of legal remedies or the nature or
extent of the irreparable harm suffered by it and that specific performance
shall be appropriate remedies to enforce the provisions of this Agreement
against Employee and Employee waives any claim or defense that there is an
adequate remedy at law for such breach. The right of Employer to such relief
shall not be construed to prevent it from pursuing, either consecutively or
concurrently, any and all other legal or equitable remedies available to it for
such breach or threatened breach, specifically including, without limitation,
the recovery of monetary damages.
11. Severability and Modification. It is the desire and intent of the
parties that the provisions of Sections 6, 7, 8, and 9 be enforced to the
fullest extent permissible under the laws and public policies of each
jurisdiction in which enforcement is sought. If any provision of Sections 6, 7,
8, or 9 relating to the time period, scope of activities or geographic area of
restrictions is declared by a court of competent jurisdiction to exceed the
maximum permissible time period, scope of activities or geographic area, the
same shall be reduced to the maximum which such court deems enforceable. If any
provision of Sections 6, 7, 8 and 9 other than those described in the preceding
sentence are adjudicated to be invalid or unenforceable, the invalid or
unenforceable provisions shall be deemed amended (with respect only to the
jurisdiction in which such adjudication is made) in such manner as to render
them enforceable and to effectuate as nearly as possible the intentions and
agreement of the parties. Furthermore, if any other provision contained in this
Agreement should be held illegal, invalid or unenforceable in whole or in part
by a court of competent jurisdiction, then it is the intent of the parties
hereto that the balance of this Agreement be enforced to the fullest extent
permitted by applicable law and, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as part of this
Agreement, a provision as similar in its terms to such invalid provision as may
be possible and be legal, valid, and enforceable.
12. Surrender of Books and Records. Employee shall on the termination
of his employment in any manner immediately surrender to Employer all lists,
books, records, and other documents incident to Employer's and affiliates'
businesses and all other property belonging to Employer or any affiliate, it
being distinctly understood that all such lists, books, records, and other
documents are the property of Employer and such affiliate.
7
<PAGE> 8
13. Waiver of Breach. The failure of Employer at any time to require
performance by Employee of any provision hereof shall in no way affect
Employer's right thereafter to enforce the same, nor shall the waiver by
Employer of any breach of any provision hereof be taken or held to be a waiver
of any succeeding breach of any provision or as a waiver of the provision
itself.
14. Attorneys' Fees. In the event of any suit or judicial proceeding
between the parties hereto with respect to this Agreement, the prevailing party
shall, in addition to such other relief as the court may award, be entitled to
reasonable attorneys' fees and costs, all as actually incurred.
15. Survival. Notwithstanding anything to the contrary contained
herein, the provisions of Section 5 et. seq. of this Agreement shall survive
the termination of employment of Employee or the termination of the Employment
Term under this Agreement.
16. Notice. All notices hereunder shall be in writing and shall be
delivered personally, sent by facsimile transmission or sent by certified,
registered or overnight mail, postage prepaid. Such notices shall be deemed to
have been duly given upon receipt, if personally delivered, upon telephonic
confirmation of receipt if sent by facsimile transmission, and if mailed, five
days after the date of mailing (two days in the case of overnight mail), in
each case addressed to the parties at the following addresses or at such other
addresses as shall be specified in writing and in accordance with this Section:
If to Employer: NCI Building Systems, L.P.
c/o NCI Building Systems, Inc.
7301 Fairview
Houston, Texas 77041
Telecopier: (713) 466-3368
Attention: Robert J. Medlock
If to Employee: The address reflected on the employment records of
Employer
17. Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or written, between the parties hereto with respect to
the subject matter hereof and contains all of the covenants and agreements
between the parties with respect thereto.
18. Modification. No change or modification of this Agreement shall
be valid or binding upon the parties hereto, nor shall any waiver of any term
or condition in the future be so binding, unless such change or modification or
waiver shall be in writing and signed by the parties hereto.
19. Governing Law and Venue. This Agreement, and the rights and
obligations of the parties hereunder, shall be governed by and construed in
accordance with the laws of the State of Texas and venue for any action
pursuant hereto shall be in the appropriate state or federal court in Harris
County, Texas.
8
<PAGE> 9
20. Arbitration.
(a) All disputes, controversies and claims between the
parties to this Agreement ("Disputes") other than proceedings to obtain
injunctive relief shall, to the fullest extent permitted by law, be solely and
finally settled by a board of arbitrators consisting of either one arbitrator
or three arbitrators as determined pursuant to this Section (the
"Arbitrators"). The arbitration proceedings shall be held in Dallas, Texas or
such other place or places as may be agreed to by both parties to the dispute.
Except as otherwise provided in this Agreement, the arbitration proceedings
shall be conducted in accordance with the then effective Commercial Arbitration
Rules (the "AAA Rules") of the American Arbitration Association (the "AAA").
(b) Within thirty (30) days of the commencing of any
arbitration proceedings by either party in accordance with the AAA Rules, both
of the parties shall attempt to agree on and then select one arbitrator (the
"Sole Arbitrator"). The Sole Arbitrator shall be a person not subject to
disqualification under Section 19 of the AAA Rules.
(c) If within such thirty (30) day period, the two parties
are unable to agree upon a Sole Arbitrator, each of them shall have five (5)
business days (following the expiration of the thirty (30) day period) to
select (and provide written notice of such selection to the other party and to
the AAA) a Qualifying Arbitrator. A "Qualifying Arbitrator" is a person who is
not: (i) any party or any Affiliate of a party; or (ii) counsel to any such
person at such time; or (iii) subject to disqualification under Section 19 of
the AAA Rules. If either party fails to select a Qualifying Arbitrator and
provide such notice within the five (5) day period, the AAA shall make such
selection. Within ten (10) days following their selection, the Qualifying
Arbitrators shall agree upon and select (and provide written notice of such
selection to the parties and to the AAA) a third arbitrator (the "Third
Arbitrator") from a list of members of the AAA's National Panel of Commercial
Arbitrators. The Third Arbitrator shall be a Qualified Arbitrator.
(d) The parties to the Dispute may submit briefs to the
Arbitrators with respect to their claims, and the Arbitrators shall hold
hearings with respect to the Disputes in accordance with the AAA Rules. The
Arbitrators shall have the power to authorize any and all forms of discovery
that are reasonable in scope, timing and cost. The final decision of the
Arbitrators shall be due on or before the thirtieth (30th) day following the
date of the last hearing with respect to the Dispute. The Arbitrators shall
make a final decision that, in their judgment: (i) is consistent with, and does
not add to, subtract from, or otherwise modify the provisions of this Agreement
and the other agreements contemplated hereby and is determined under this
Agreement and the other agreements contemplated hereby involved in the Dispute
or (ii) if the subject matter of the Disputes is not specifically addressed in
this Agreement or the other agreements contemplated hereby, is determined under
this Agreement and the other agreements contemplated hereby consistent with the
intent of the parties as supported by evidence presented in the arbitration
proceeding. The Arbitrators shall send a written statement of the decision
(signed by each Arbitrator joining in the decision) to the AAA and both
parties, but the Arbitrators shall not be required to provide reasons for their
decision. In awarding damages or other remedies or relief, the Arbitrators must
honor or
9
<PAGE> 10
abide by any applicable limitations or restrictions expressed or described in
this Agreement or the other agreements contemplated hereby.
(e) In the arbitration proceeding, except as otherwise
provided herein: (i) the fees and expenses of counsel shall be paid by the
party engaging such counsel; (ii) the fees and expenses of witnesses shall be
paid by the party producing such witnesses; (iii) the fees and expenses of each
Qualifying Arbitrator shall be borne by the party that selected him or her; and
(iv) the fees and expenses of the Third Arbitrator and the AAA, the fees and
expenses of any witness produced at the direct request of the Arbitrators, and
all other expenses of the arbitration proceeding shall be shared equally by the
parties, that is, one-half by each party.
(f) To the extent permissible under applicable law, the
parties agree that the award of the Arbitrators shall be final and not be
subject to judicial review. Judgment on the arbitration award may be entered
and enforced in any court having jurisdiction over the parties or their
respective assets. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable
law. A party enforcing any award under this Section shall be entitled to
recover the costs and expenses associated with such enforcement, including
(without limitation) reasonable attorneys' fees.
(g) Nothing contained in this Section shall limit the
rights of the parties otherwise described in this Agreement or the other
agreements contemplated hereby.
21. Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original, but all of which shall constitute
one and the same document.
22. Assignment. Employer shall have the right to assign this
Agreement and its obligations hereunder to any affiliate and any person,
corporation, partnership or other entity that acquires all or substantially all
of Employer's assets or stock, or with which Employer merges or consolidates.
The rights, duties, and benefits to Employee hereunder are personal to him, and
no such right or benefit may be assigned by him.
23. Binding Effect. This Agreement shall be binding upon the
parties hereto, together with their respective executors, administrators,
successors, personal representatives, heirs and assigns.
24. Acknowledgment Regarding Counsel. Each of the parties to this
Agreement acknowledges that he or it has had the opportunity to seek and has
sought counsel to review this Agreement and to obtain and has obtained the
advice of such counsel relating thereto.
25. Estate. If Employee dies prior to the expiration of the
Employment Term, any monies that may be due him under this Agreement as of the
date of his death will be paid to his estate.
10
<PAGE> 11
26. Captions. The captions, headings, and arrangements used in
this Agreement are for convenience only and do not in any way affect, limit,
amplify, or modify the terms and provisions hereof.
[THE NEXT FOLLOWING PAGE IS THE SIGNATURE PAGE.]
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
EMPLOYER:
NCI BUILDING SYSTEMS, L.P.
By: NCI Operating Corp., General Partner
By: /s/ Robert J. Medlock
-------------------------------------
Robert J. Medlock, Vice President and
Chief Financial Officer
EMPLOYEE:
/s/ John T. Eubanks
-----------------------------------------
John T. Eubanks
12
<PAGE> 1
EXHIBIT 13
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended October 31, (1)
------------------------------------------------
1993 1994 1995 1996 1997
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales......................................... $134,506 $167,767 $234,215 $332,880 $407,751
Net income.................................... 6,333 10,256 17,032 24,814 27,887
Net income per share.......................... .96 1.53 2.52 3.03 3.28
Working capital............................... 15,511 16,885 31,687 51,334 75,929
Total assets.................................. 46,733 63,373 83,082 157,702 195,795
Long-term debt, noncurrent portion............ 1,899 ,326 ,278 1,730 1,679
Shareholders' equity.......................... 28,655 39,682 57,682 116,175 147,815
------------------------------------------------
Average common shares and equivalents......... 6,578 6,695 6,765 8,198 8,493
------------------------------------------------
</TABLE>
(1) All numbers in thousands except net income per share.
OPERATING POLICIES
RETURN ON ASSETS
Return on assets is defined as operating income divided by average assets used
in the business (eliminating primarily cash). NCI's management and directors are
thoroughly convinced that this ratio is the best measure of operating
performance. Tight control over inventory, receivables, and fixed investment is
as important as, and interrelated to, control of the income statement. Return
on assets is a proxy for cash flow, which can reward shareholders with
undiluted growth. In fiscal year 1997, NCI earned a return on assets employed
in the business of 31%.
GROWTH
The company is dedicated to increasing its market share through strong
marketing and low cost, quality manufacturing. Special niches that provide
unusual profit and growth opportunities are sought. Overall profit growth of at
least 15% per year is an intermediate goal of the company with larger
increments possible in the short-term. This growth may be internally generated
or it may come from carefully selected acquisitions.
DIVIDENDS
The company's officers and directors are all large stock or option holders.
Thus, there is much sympathy for dividends. However, it is considered
appropriate, at this stage of the company's development and in view of the
available returns, to invest that money in the growth of the equity of the
company as opposed to paying dividends.
COMPENSATION
The company believes in providing base salaries for its management on the low
side of industry norms with opportunities, based on performance, to obtain very
high bonuses. Specifically, return on assets is the criterion for performance
measurement. Bonuses begin when the ratio of operating income divided by assets
used in the business is equal to 20%. Maximum bonuses, at a very high level,
can be earned when 30% returns are achieved. This measure is felt to be
most important because management of both the balance sheet and the income
statement are critical to long-term success, especially in a cyclical industry.
CORPORATE RESPONSIBILITY
The company is committed to the goal of being an exemplary corporate citizen.
Toward that end, we have an intense safety program ongoing in the workplace. We
also provide broad coverage health insurance to all employees. There are not
only employment, but advancement opportunities through our growth. We have
proper awareness and concern for the overall environment. Finally, we employ
high quality engineering professionals to ensure that our products are designed
using sound engineering practices and principals.
1
<PAGE> 2
CONSOLIDATED STATEMENTS OF INCOME
NCI BUILDING SYSTEMS, INC.
<TABLE>
<CAPTION>
October 31,
----------------------------------------------------
1995 1996 1997
----------------------------------------------------
<S> <C> <C> <C>
Sales................................................................ $234,214,508 $332,879,707 $407,751,324
Cost of sales........................................................ 169,814,614 241,373,691 299,407,157
------------ ------------ ------------
Gross Profit.................................................... 64,399,894 91,506,016 108,344,167
------------ ------------ ------------
Engineering.......................................................... 8,934,916 11,078,691 13,230,554
Selling.............................................................. 15,777,253 22,365,791 28,797,987
General and administrative........................................... 13,399,120 19,650,136 24,026,136
------------ ------------ ------------
Total operating expenses............................................. 38,111,289 53,094,618 66,054,677
------------ ------------ ------------
Income from operations.......................................... 26,288,605 38,411,398 42,289,490
Interest expense..................................................... (55,871) (108,203) (163,008)
Other income......................................................... 821,722 1,585,960 1,998,517
------------ ------------ ------------
Income before income taxes...................................... 27,054,456 39,889,155 44,124,999
------------ ------------ ------------
Provision (benefit) for income taxes - Note 5
Current......................................................... 10,493,151 15,898,356 15,919,709
Deferred........................................................ (470,495) (822,737) 318,173
------------ ------------ ------------
Total income tax..................................................... 10,022,656 15,075,619 16,237,882
------------ ------------ ------------
Net income........................................................... $ 17,031,800 $ 24,813,536 $ 27,887,117
============ ============ ============
Net income per common and
common equivalent share - Note 9................................ $ 2.52 $ 3.03 $ 3.28
============ ============ ============
</TABLE>
See Independent Auditor's Report and Accompanying Notes to the Consolidated
Financial Statements.
16
<PAGE> 3
CONSOLIDATED BALANCE SHEETS
NCI BUILDING SYSTEMS, INC.
<TABLE>
<CAPTION>
OCTOBER 31,
------------------------------
1996 1997
------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 20,943,664 $ 32,166,043
Accounts receivable - Trade............................................... 35,477,296 45,945,834
Other receivables - Note 11............................................... 2,271,674 1,060,459
Inventories - Note 1...................................................... 28,692,930 37,381,267
Deferred income taxes - Note 5............................................ 2,925,249 3,462,575
Prepaid expenses.......................................................... 298,702 942,105
------------ ------------
Total current assets...................................................... 90,609,515 120,958,283
Property, plant and equipment, net - Note 1.................................... 42,751,545 51,222,982
Other assets:
Excess of cost over fair value of acquired net assets - Note 1............ 22,672,916 21,072,099
Other..................................................................... 2,292,322 3,078,860
------------ ------------
Total other assets........................................................ 24,965,238 24,150,959
------------ ------------
Total assets................................................................... $158,326,298 $196,332,224
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................................... $ 47,402 $ 47,402
Accounts payable.......................................................... 21,527,027 23,921,336
Accrued compensation and benefits......................................... 7,762,288 9,688,015
Other accrued expense..................................................... 6,737,346 8,537,556
Accrued income taxes...................................................... 2,577,168 2,018,139
------------ ------------
Total current liabilities................................................. 38,651,231 44,212,448
Long-term debt, noncurrent portion - Note 3.................................... 1,729,566 1,679,256
Deferred income taxes - Note 5................................................. 1,770,255 2,625,753
------------ ------------
Contingencies - Note 8
Shareholders' equity - Note 7
Preferred stock, $1 par value, 1,000,000
shared authorized, none outstanding.................................. -- --
Common stock, $.01 par value, 25,000,000 shares authorized, 7,966,777
and 8,125,739 shares issued and outstanding, respectively............ 79,668 81,257
Additional paid-in capital................................................ 47,358,938 51,109,753
Retained earnings......................................................... 68,736,640 96,623,757
------------ ------------
Total shareholders' equity................................................ 116,175,246 147,814,767
------------ ------------
Total liabilities and shareholders' equity..................................... $158,326,298 $196,332,224
============ ============
</TABLE>
See Independent Auditor's Report and Accompanying Notes to the Consolidated
Financial Statements.
17
<PAGE> 4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NCI BUILDING SYSTEMS, INC.
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained Shareholders'
Stock Capital Earnings Equity
------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, October 31, 1994............................... $62,286 $12,728,081 $26,891,304 $39,681,671
Proceeds from exercise of stock options,
including tax benefit thereon...................... 142 145,474 -- 145,616
Shares issued for
contribution to 401K plan ......................... 478 822,920 -- 823,398
Net income.............................................. -- -- 17,031,800 17,031,800
------- ----------- ----------- ------------
Balance, October 31, 1995............................... 62,906 13,696,475 43,923,104 57,682,485
Proceeds from stock offering............................ 10,865 24,759,142 -- 24,770,007
Proceeds from exercise of stock options,
including tax benefit thereon...................... 2,458 2,722,474 -- 2,724,932
Shares issued for
contribution to 401K plan.......................... 439 1,008,847 -- 1,009,286
Shares issued in connection with the.................... 3,000 5,172,000 -- 5,175,000
purchase of DBCI
Net income.............................................. -- -- 24,813,536 24,813,536
------- ----------- ----------- ------------
Balance, October 31, 1996............................... 79,668 47,358,938 68,736,640 116,175,246
Proceeds from exercise of stock options,
including tax benefit thereon...................... 1,056 2,233,213 -- 2,234,269
Shares issued for
contribution to 401K plan.......................... 533 1,517,602 -- 1,518,135
Net income.............................................. -- -- 27,887,117 27,887,117
------- ----------- ----------- ------------
Balance, October 31, 1997............................... $81,257 $51,109,753 $96,623,757 $147,814,767
======= =========== =========== ============
</TABLE>
See Independent Auditor's Report and Accompanying Notes to the Consolidated
Financial Statements.
18
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
NCI BUILDING SYSTEMS, INC.
<TABLE>
<CAPTION>
October 31,
------------------------------------------
1995 1996 1997
------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net Income................................................. $ 17,031,800 $ 24,813,536 $ 27,887,117
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization......................... 3,226,384 5,791,493 7,876,135
(Gain)/loss on sale of fixed assets................... 3,701 1,544 (3,491)
Provision for doubtful accounts....................... 1,101,038 680,633 1,223,178
Deferred income tax (benefit)/provision............... (470,495) (822,737) 318,173
Changes in current assets and liability accounts
net of effects of acquisitions:
Increase in accounts, notes and other receivable........... (3,097,101) (9,856,815) (10,480,501)
Increase in inventories.................................... (2,482,505) (4,520,569) (5,552,212)
(Increase) decrease in prepaid expenses.................... 97,467 (35,491) (625,367)
Increase (decrease) in accounts payable.................... (2,009,477) 3,042,752 2,394,309
Increase in accrued expenses............................... 4,857,823 1,603,120 5,244,072
Increase (decrease) in income taxes payable................ (244,592) 3,843,170 334,743
------------ ------------ ------------
Net cash provided by operating activities............. 18,014,043 24,540,636 28,616,156
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from the sale of fixed assets..................... 7,181 115,071 25,000
Acquisition of Royal Buildings............................. (910,000) -- --
Acquisition of Mesco Metal Buildings....................... -- (20,631,222) --
Acquisition of Doors & Building Components, Inc............ -- (11,000,000) --
Acquisition of Carlisle Engineered Metals, Inc............. -- (2,840,117) (6,229,981)
(Increase) decrease in other noncurrent assets............. 7,725 (1,988,127) (1,146,542)
Capital expenditures....................................... (5,836,820) (10,318,399) (11,332,421)
------------ ------------ ------------
Net cash applied to investing activities.............. (6,731,914) (46,662,794) (18,683,944)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from sale of stock............................ 24,770,007 --
Exercise of stock options.................................. 71,555 749,240 1,340,477
Borrowings on line of credit and notes..................... -- -- --
Principal payments on long-term debt, line of
credit and notes payable.................................. (47,389) (84,834) (50,310)
------------ ------------ ------------
Net cash provided by (used in) financing activities... 24,166 25,434,413 1,290,167
------------ ------------ ------------
Net increase in cash.................................. 11,306,295 3,312,255 11,222,379
Cash beginning of period........................................ 6,325,114 17,631,409 20,943,664
------------ ------------ ------------
Cash at end of period........................................... $ 17,631,409 $ 20,943,664 $ 32,166,043
============ ============ ============
</TABLE>
See Independent Auditor's Report and Accompanying Notes to the
Consolidated Financial Statements.
19
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Reporting Entity
These financial statements include the operations and activities of NCI
Building Systems, Inc. and its wholly-owned subsidiaries (Company) after the
elimination of all material intercompany accounts and balances. The Company
designs, manufactures and markets metal building systems and components for
commercial, industrial, agricultural and community service use. The Company
recognizes revenues as jobs are shipped.
(b) Accounts Receivable
The Company reports accounts receivable net of the allowance for doubtful
accounts of $1,629,202 and $1,498,148 at October 31, 1996 and 1997,
respectively. Trade accounts receivable are the result of sales of buildings
and components to customers throughout the United States and affiliated
territories including international builders who resell to end users. Although
the Company's sales historically have been concentrated in Texas and
surrounding states, in recent years it has been expanding its authorized
builder organization and customer base into the midwestern states and, to a
lesser extent, into south central, southeastern and coastal states. All sales
are denominated in United States dollars. Credit sales do not normally require
a pledge of collateral; however, various types of liens may be filed to
enhance the collection process. Company management is not aware of any
significant concentrations of credit or market risks related to receivables or
other financial instruments reported in these financial statements.
(c) Inventories
Inventories are stated at the lower of cost or market value, using specific
identification for steel coils and the weighted-average method for other raw
materials. A summary of inventories follows:
<TABLE>
<CAPTION>
October 31,
---------------------------
1996 1997
----------- -----------
<S> <C> <C>
Raw materials........................... $21,514,510 $28,943,358
Work-in-process and
finished goods........................ 7,178,420 8,437,909
----------- -----------
$28,692,930 $37,381,267
=========== ===========
</TABLE>
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated over their
estimated useful lives. Depreciation is computed using the straight-line method
for financial reporting purposes and both straight-line and accelerated methods
for income tax purposes. Depreciation expense for the years ended October 31,
1995, 1996, and 1997 was $2,995,051, $4,236,397, and $5,892,509, respectively.
<TABLE>
<CAPTION>
October 31,
-----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Land.................................... $ 3,174,539 $ 3,969,005
Buildings and improvements.............. 20,136,496 23,599,534
Machinery, equipment
and furniture.......................... 31,865,638 41,393,168
Transportation equipment................ 910,801 1,089,245
Computer software....................... 155,876 480,565
------------ ------------
$ 56,243,350 $ 70,531,517
Less accumulated depreciation........... (13,491,805) (19,308,535)
------------ ------------
$ 42,751,545 $ 51,222,982
============ ============
</TABLE>
Estimated useful lives for depreciation are:
<TABLE>
<S> <C>
Buildings and improvements.................... 10-20 years
Machinery, equipment and
furniture ................................ 5-10 years
Transportation equipment ..................... 3-10 years
Computer softer .............................. 5 years
</TABLE>
(e) Cash Flows Statement
For purposes of the cash flows statement, the Company considers all highly
liquid investments with an original maturity date of three months or less to be
cash equivalents. Total interest paid for the years ended October 31, 1995,
1996 and 1997 was $55,871, $108,203 and $163,008, respectively. Income taxes
----
20
<PAGE> 7
paid for the years ended October 31, 1995, 1996 and 1997 was $11,032,810,
$12,762,769 and $15,776,040 respectively. Non-cash investing or financing
activities included: $1,518,135 for the 1996 contribution for the 401k plan
which was paid in common stock in 1997, and $1,009,286 for the 1995
contribution for the 401k plan which was paid in common stock in 1996.
(f) Excess of Cost Over Fair Value of Acquired Net Assets
Excess of cost over fair value of acquired net assets is amortized on a
straight-line basis over fifteen years. Accumulated amortization as of October
31, 1997 was $3,041,602, and $1,440,785 as of October 31, 1996. The carrying
value of goodwill is reviewed if the facts and circumstances suggest that it
may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, the Company's carrying value
of the goodwill would be reduced by the estimated shortfall of cash flows.
(g) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management 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.
(h) Advertising Costs
Advertising costs are expensed as incurred. Advertising expense was $1,196,471,
$1,267,431 and $1,415,611 in 1995, 1996 and 1997, respectively.
(i) Long-Lived Assets
In fiscal 1997, the Company adopted SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Impairment
losses are recognized when indicators of impairment are present and the
estimated undiscounted cash flows are not sufficient to recover the assets
carrying amount. Assets held for disposal are measured at the lower of carrying
value or estimated fair value, less costs to sell. The effect of adopting SFAS
No. 121 was not material to the financial statements.
(j) Stock-Based Compensation
In October 1995, the FASB issued Statement No. 123, Accounting for Stock-based
Compensation, which encourages companies to apply a new fair value approach
allowing the recognition of compensation cost related to stock options using an
option pricing model. Under Statement No. 123, companies are permitted to
continue using current accounting rules for employee stock options, but are
required to disclose pro forma net income and earnings per share information as
if the new fair value approach had been adopted. The Company has elected to
continue to use the intrinsic value method under Accounting Principles Board
Opinion No. 25 Accounting for Stock Issued to Employees (APB 25) and related
Interpretations in accounting for its employee stock options. The pro forma
information regarding net income and earnings per share, as required by
Statement No. 123, has been disclosed as if the Company had accounted for its
employee stock options under the fair value method of that Statement.
(k) Pending Accounting Changes
In February 1997, the Financial Account Standards Board issued Statement No.
128, Earnings Per Share, which is effective for financial statements issued for
periods ending after December 15, 1997. The impact of Statement No. 128 on the
calculation of earnings per share is not expected to be material.
In June 1997, the Financial Account Standards Board issued Statement No.
131, Disclosures about Segments of an Enterprise and Related Information, which
is effective for the Company's fiscal year ending October 31, 1999. The Company
does not anticipate that the adoption of this standard will have a material
impact on the financial statements.
21
<PAGE> 8
(2) NOTES PAYABLE (SHORT-TERM BORROWINGS)
The Company has a revolving unsecured credit line of $6 million with a bank
bearing interest that fluctuates with prime, (commitment fee 1/4% on unused
portion) all of which was unused at October 31, 1996 and 1997, respectively.
The revolving credit line expires in February, 1999.
(3) LONG-TERM DEBT
<TABLE>
<CAPTION>
October 31,
----------------------------
1996 1997
----------- -----------
<S> <C> <C>
Six year reducing revolving credit line of
$.7 million with a bank bearing interest
that fluctuates with prime, with $73,000
quarterly reducing borrowing base...................... $ -- $ --
Notes payable to City of Mattoon
bearing interest at 3% secured by certain
equipment, repayable in aggregate
monthly installments of $4,828 maturing
through November 2001.................................. 276,968 226,658
Note payable to employee bearing
interest at 7% maturing April 1, 2001,
with an option to convert into common
stock at $29.925 per share............................. 1,500,000 1,500,000
----------- -----------
1,776,968 1,726,658
Current portion of long-term debt...................... (47,402) (47,402)
----------- -----------
$ 1,729,566 $ 1,679,256
=========== ===========
</TABLE>
Aggregate required principal reductions are as follows:
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------------------------
<S> <C>
1998............................... 47,402
1999............................... 53,423
2000............................... 55,048
2001............................... 1,556,722
2002............................... 14,063
-----------
$ 1,726,658
===========
</TABLE>
The loan agreements related to the revolving line and short-term
borrowings contain, among other things, provisions relative to additional
borrowings and restrictions on the amount of retained earnings available for
the payment of dividends and the repurchase of common stock and provisions
requiring the maintenance of certain net worth and other financial ratios.
Under the most restrictive of these covenants, such dividends or stock
repurchases are limited to 20% of the Company's net income for any 12-month
period, which is further restricted on a quarterly basis, based on the ratio of
cash flow (Net Income plus Depreciation and Amortization) for the previous
12-month period to current maturities of long-term debt plus dividends and
stock repurchases.
The carrying amount of the Company's long-term debt approximates its fair
value.
(4) RELATED PARTY TRANSACTIONS
During 1995, 1996 and 1997, the Company purchased $1,052,829, $1,417,064 and
$1,868,922 respectively, of materials from a related party under arm's length
transactions.
(5) INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Taxes on income from continuing operations consist of the following:
<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current: Federal................ $ 9,733,381 $14,530,670 $15,478,213
State.................. 759,770 1,367,686 441,496
----------- ----------- -----------
Total current.................... 10,493,151 15,898,356 15,919,709
Deferred: Federal................ (445,063) (745,472) 304,364
State.................. (25,432) (77,265) 13,809
----------- ----------- -----------
Total deferred................... (470,495) (822,737) 318,173
----------- ----------- -----------
Total provision................... $10,022,656 $15,075,619 $16,237,882
=========== =========== ===========
</TABLE>
The reconciliation of income tax computed at the United States federal
statutory tax rate to the effective income tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate.... 35.0% 35.0% 35.0%
State income taxes................... 1.8 2.4 1.2
Other................................ 0.3 0.4 0.6
---- ---- ----
Effective tax rate................. 37.1% 37.8% 36.8%
==== ==== ====
</TABLE>
22
<PAGE> 9
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Deferred tax assets
Capitalized overhead in inventory. . . . . . . . . $1,210,913 $1,631,113
Bad debt reserve . . . . . . . . . . . . . . . . . 602,804 526,812
Accrued reserves . . . . . . . . . . . . . . . . . 637,293 595,154
Other. . . . . . . . . . . . . . . . . . . . . . . 572,876 709,496
---------- ----------
Total deferred tax assets. . . . . . . . . . . . . . 3,023,886 3,462,575
---------- ----------
Deferred tax liabilities
Depreciation and amortization. . . . . . . . . . . 1,426,749 1,674,965
Other. . . . . . . . . . . . . . . . . . . . . . . 442,143 950,788
---------- ----------
Total deferred tax liabilities . . . . . . . . . . . 1,868,892 2,625,753
---------- ----------
Net deferred tax asset (liability) . . . . . . . . . $1,154,994 $ 836,822
---------- ----------
</TABLE>
(6) OPERATING LEASE COMMITMENTS
Total rental expense incurred from operating leases for the years ended October
31, 1995, 1996 and 1997 was $2,639,201, $3,989,603 and $4,643,976 respectively.
Aggregate minimum required annual payments on long-term operating leases
at October 31, 1996 were as follows:
<TABLE>
<CAPTION>
Year Ended October 31,
----------------------------------------------------------------------
<S> <C>
1998. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,572,804
1999. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,805,843
2000. . . . . . . . . . . . . . . . . . . . . . . . . . . 914,310
2001. . . . . . . . . . . . . . . . . . . . . . . . . . . 507,912
2002. . . . . . . . . . . . . . . . . . . . . . . . . . . 251,642
----------
$6,052,511
==========
</TABLE>
(7) STOCK OPTIONS
The Board of Directors has approved a non-statutory employee stock option plan.
This plan includes the future granting of stock options to purchase up to
2,050,000 shares as an incentive and reward for key management personnel.
Options expire ten years from date of grant. The right to acquire the option
shares is earned in 25% increments over the first four years of the option
period. Stock option transactions during 1995, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
Weighted
Number Average
of Shares Exercise Price
--------- --------------
<S> <C> <C>
Balance, October 31, 1994. . . . . . . . . . . . . . 696,585 $ 5.47
Granted . . . . . . . . . . . . . . . . . . . . 79,500 17.28
Canceled. . . . . . . . . . . . . . . . . . . . 0 0
Exercised . . . . . . . . . . . . . . . . . . . (14,212) (5.03)
-------- -------
Balance, October 31, 1995. . . . . . . . . . . . . . 761,873 $ 6.71
Granted . . . . . . . . . . . . . . . . . . . . 315,000 25.50
Canceled. . . . . . . . . . . . . . . . . . . . (23,082) (19.65)
Exercised . . . . . . . . . . . . . . . . . . . (245,850) (3.04)
-------- -------
Balance, October 31, 1996. . . . . . . . . . . . . . 807,941 $ 14.78
Granted . . . . . . . . . . . . . . . . . . . . 157,000 30.46
Canceled. . . . . . . . . . . . . . . . . . . . (4,750) (24.18)
Exercised . . . . . . . . . . . . . . . . . . . (105,694) (12.68)
-------- -------
Balance, October 31, 1997. . . . . . . . . . . . . . 854,497 $ 17.87
======== =======
</TABLE>
Options exercisable at October 31, 1995, 1996, and 1997 were 547,299, 391,648,
and 420,620, respectively. The weighted average exercise prices for options
exercisable at October 31, 1995, 1996 and 1997 were $3.76, $6.01 and $9.20.
Exercise prices for options outstanding at October 31, 1997 range from $1.60 to
$37.25. The weighted average remaining contractual life of options outstanding
at October 31, 1997 is 6.3 years.
In accordance with the terms of APB No. 25, because the exercise price of
the Company's employee stock options equals the market price of the underlying
stock on the date of the grant, the Company records no compensation expense for
its stock option awards. As required by SFAS No. 123, the Company provides the
following disclosure of hypothetical values for these awards. The weighted
average grant-date fair value of options granted during 1996 was $12.10 and
during 1997 was $14.66. These values were estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions: expected
dividend of 0%, expected volatility of 32.7%, risk free interest rates ranging
from 5.5% to 6.7% for 1996 and from 6.4% to 6.9% for 1997, and expected lives of
7 years. Had compensation expense been recorded based on these hypothetical
values, the company's 1997 net income would have been $27.1 million or $3.19
per share. A similar computation for 1996 would have resulted in net income
23
<PAGE> 10
of $24.4 million, or $2.97 per share. Because options vest over several years
and additional options grants are expected, the effects of these hypothetical
calculations are not likely to be representative of similar future
calculations.
(8) LITIGATION
The Company is involved in certain litigation that the Company considers to be
in the normal course of business. Management of the Company believes that such
litigation will not result in any material losses.
(9) NET INCOME PER SHARE
Net income per common share is computed by dividing net income after income
taxes by the weighted average number of common shares outstanding during 1995,
1996 and 1997 after giving effect for common stock equivalents.
Net income per share is calculated as follows:
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------------
1995 1996 1997
-------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C>
Net income............................... $ 17,032 $ 24,814 $ 27,887
Average common shares outstanding........ 6,272 7,749 8,063
Common equivalent shares for:
Stock options....................... 493 449 430
-------- -------- --------
Average shares and equivalents........... 6,765 8,198 8,493
-------- -------- --------
Net income per share..................... $ 2.52 $ 3.03 $ 3.28
-------- -------- --------
</TABLE>
(10) EMPLOYEE BENEFIT PLAN
The Company has a 401(k) profit sharing plan (the "Savings Plan") which covers
all eligible employees. The Savings Plan requires the Company to match employee
contributions up to a certain percentage of a participant's salary. No other
contributions may be made to the Savings Plan. Contributions accrued for the
Savings Plan for the year ended October 31, 1995, 1996 and 1997 were $775,190,
$1,154,696 and $1,603,561 respectively.
(11) ACQUISITIONS
In November 1995, the Company acquired substantially all of the assets and
assumed certain liabilities of Doors and Building Components, Inc. ("DBCI"), a
manufacturer of roll-up steel overhead doors used primarily in self-storage and
commercial/industrial applications, for approximately $12 million in cash and
300,000 shares of common stock of the Company, valued at $5.2 million. Based on
the final determination of book value of the purchased assets, the price was
reduced by approximately $2.5 million of which $1.5 million is due from the
seller and was recorded as a receivable in the October 31, 1996 balance sheet.
This amount was settled in cash in December, 1996. The excess of cost over fair
value of the acquired net assets recorded was $11.4 million.
In April, 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of Mesco Metal Buildings, a division of Anderson
Industries, Inc.("Mesco"), a manufacturer of metal building systems and
components, for approximately $20.8 million in cash and a $1.5 million 7%
convertible subordinated debenture due April, 2001. The excess of cost over fair
value of the acquired net assets recorded was $10.9 million.
Accordingly, the consolidated results of operations include DBCI and Mesco
since the date of acquisition. Both acquisitions were accounted for using the
purchase method. Assuming the acquisition of DBCI and Mesco had been
consummated as of November 1, 1995, the pro forma unaudited results of
operations for the year ended October 31, 1996 are as follows:
<TABLE>
<S> <C>
Sales.................................. $ 347,404
Net income............................. 26,345
Net income per share.............. $ 3.21
</TABLE>
24
<PAGE> 11
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.
ERNST & YOUNG LLP
Houston, Texas
December 8, 1997
25
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following table presents, as a percentage of sales, certain selected
financial data for the Company for the periods indicated:
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------
1995 1996 1997
--------------------------
<S> <C> <C> <C>
Sales. . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100%
Cost of sales. . . . . . . . . . . . . . . 72.5 72.5 73.4
------ ------ ------
Gross profit . . . . . . . . . . . . . . . 27.5 27.5 26.6
Engineering expense. . . . . . . . . . . . 3.8 3.4 3.3
Selling, general and administrative
expense . . . . . . . . . . . . . . . . 12.5 12.6 13.0
Income from operations . . . . . . . . . . 11.2 11.5 10.3
Interest expense . . . . . . . . . . . . . 0.0 0.0 0.0
Other(income) expense. . . . . . . . . . . (0.4) (0.5) (0.5)
------ ------ ------
Income before income taxes . . . . . . . . 11.6 12.0 10.8
Provision for income taxes . . . . . . . 4.3 4.5 4.0
------ ------ ------
Net income . . . . . . . . . . . . . . . . 7.3% 7.5% 6.8%
====== ====== ======
</TABLE>
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 ("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 the Doors and Building Components sales due to geographic
expansion, building systems sales growth due to increased builder recruitment
and a full years' operation of the Company's Atwater plant and growth in the
component division of the Company.
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%.
Engineering costs increased $2.2 million, or 19%, which was in line with
the growth in metal building systems sales. Selling, general and administrative
costs increased by $10.8 million, or 26%, compared to the prior year. 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 Classic Steel Frame Homes effort and continued geographic expansion
of the Company's sales and marketing effort.
Interest expenses increased $5,000 in 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
year 1997. This increase was the result of higher level of cash invested during
the year.
Provision for income taxes increased by 8% in fiscal year 1997 and
decreased as a percent of sales from 4.5% in 1996 to 4.0% in 1997. During the
year, the Company 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 acquisition of Doors and Buildings Components, Inc. ("DBCI") in
November 1995 and Mesco Metal Buildings, a division of Anderson Industries,
Inc. ("Mesco") in April 1996 accounted for $58.7 million of this increase.
Excluding the 1996 sales of these two acquisitions, sales increased in 1996 by
17% compared to the prior year. This growth resulted from increased market
penetration by the Company in the metal building market, expansion into the
Western United States with the opening of a new plant in California and growth
of the component division of the Company.
Gross profit increased in fiscal 1996 by $27.1 million, or 42% compared to
fiscal 1995. This was in line with the increase in sales experienced for the
year. Gross profit percent of 27.5%
26
<PAGE> 13
was the same as the percent achieved in fiscal year 1995. Slight increases in
raw material costs during the year were offset by spreading fixed manufacturing
costs over a higher sales base.
Engineering expenses increased $2.1 million, or 24%, in fiscal 1996
compared to fiscal 1995. Engineering 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. Selling, general and administrative
expenses ("SG&A") increased $12.8 million, or 44%, compared to the prior year.
SG&A 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.
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.
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operations from cash flow from
operations, bank borrowing, and the sale of equity in the Company. Internal
cash generation has been aided, in the opinion of the Company, 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.
Net cash flow from operations before changes in working capital components
increased to $37.3 million in fiscal 1997 from $30.5 million in fiscal 1996. At
October 31, 1997, working capital was approximately $76.7 million, an increase
of $24.8 million from fiscal year 1996.
The Company maintains a revolving credit facility with a bank lender that
currently provides for a maximum credit, subject to borrowing base
requirements, of $6.0 million and a six year reducing term revolver with a
current borrowing base of $.7 million. The revolving credit facility matures in
February 1999 and bears interest at the prime rate. At October 31, 1997, the
Company had no borrowing outstanding under either revolving credit facility
and had not borrowed during the year.
During the year, the Company invested $11.3 million in capital additions
including a new plant built in Monterrey, Mexico at a cost of approximately
$2.0 million and expanded 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.
In December 1995, the Company sold in a secondary offering 1,086,000
shares of its common stock for approximately $24.8 million. The proceeds from
this offering were used to partially fund the acquisitions of DBCI and Mesco as
described in footnote 11 to the Company's consolidated financial statements.
Inflation has not significantly affected the Company's financial position
or operations. Metal building system 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 which could
have an adverse effect on the Company's operations.
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.
Historically, the majority of the Company's total assets are classified as
current assets, which consists primarily of trade receivables from customers
and raw material inventory, and the
27
<PAGE> 14
UNAUDITED QUARTERLY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ratio of "quick assets" (cash plus receivables) to current liabilities has
exceeded a 1 to 1 ratio.
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. 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.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
FISCAL YEAR 1997
Net sales................................................ $82,875 $91,637 $112,484 $120,755
Gross profit............................................. 22,410 23,694 29,774 32,513
Income before income taxes............................... 8,250 8,180 12,653 15,042
Net income............................................... 5,152 5,183 7,971 9,581
Net income per common and
common equivalent share............................. $ .61 $ .61 $ .94 $ 1.12
FISCAL YEAR 1996
Net sales................................................ $67,350 $72,171 $ 91,980 $101,379
Gross profit............................................. 17,384 19,547 25,476 29,099
Income before income taxes............................... 6,485 8,132 11,495 13,775
Net income............................................... 4,020 5,051 7,139 8,602
Net income per common and
common equivalent share(1).......................... $ 0.53 $ 0.60 $ 0.85 $ 1.03
</TABLE>
(1) The sum of the quarterly income per share amounts do not equal the annual
amount reported, as per share amounts are computed independently for each
quarter and for the full year based on the respective weighted average
common shares outstanding.
PRICE RANGE OF COMMON STOCK
The following table sets forth the quarterly high and low closing sale
prices of the Company's common stock, as reported on NASDAQ/NMS for the
prior two years. The prices quoted represent prices between dealers in
securities, without adjustments for mark-ups, mark-downs, or commissions,
and do not necessarily reflect actual transactions.
<TABLE>
<CAPTION>
FISCAL YEAR 1997 High Low
- ------------------------------------------
<S> <C> <C>
January 31............ $37.50 $26.75
April 30.............. $38.25 $29.50
July 31............... $37.88 $25.50
October 31............ $39.75 $33.50
FISCAL YEAR 1996 High Low
- ------------------------------------------
January 31............ $28.63 $21.00
April 30.............. $38.00 $26.50
July 31............... $38.50 $22.75
October 31............ $35.13 $21.75
</TABLE>
28
<PAGE> 1
EXHIBIT 21
NCI BUILDING SYSTEMS, INC.
List of Subsidiaries
NCI Holding Corp. Delaware
NCI Operating Corp. Nevada
A & S Building Systems, Inc. Texas
<PAGE> 1
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of NCI Building Systems, Inc. of our report dated December 8, 1997, included in
the 1997 Annual Report to Shareholders of NCI Building Systems, Inc.
Our audits also included the financial statement schedule of NCI Building
Systems, Inc. listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Additionally, we consent to the incorporation by reference in Registration
Statements (Form S-8 No. 333-14957 and No. 33-52078) pertaining to the 401(k)
Profit Sharing Plan of NCI Building Systems, Inc. and (Form S-8 No. 333-34899,
No. 33-52080 and No. 333-12921) pertaining to the Nonqualified Stock
Option Plan of NCI Building Systems, Inc. of our reports with respect to the
consolidated financial statements and schedules of NCI Building Systems, Inc.
for the year ended October 31, 1997.
ERNST & YOUNG LLP
Houston, Texas
January 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<CASH> 32,166,043
<SECURITIES> 0
<RECEIVABLES> 48,504,441
<ALLOWANCES> 1,498,148
<INVENTORY> 37,381,267
<CURRENT-ASSETS> 120,958,283
<PP&E> 70,531,517
<DEPRECIATION> 19,308,535
<TOTAL-ASSETS> 196,332,224
<CURRENT-LIABILITIES> 44,212,448
<BONDS> 0
0
0
<COMMON> 81,257
<OTHER-SE> 147,733,510
<TOTAL-LIABILITY-AND-EQUITY> 196,332,224
<SALES> 407,751,324
<TOTAL-REVENUES> 407,751,324
<CGS> 299,407,157
<TOTAL-COSTS> 64,841,486
<OTHER-EXPENSES> (1,998,517)
<LOSS-PROVISION> 1,213,191
<INTEREST-EXPENSE> 163,008
<INCOME-PRETAX> 44,124,999
<INCOME-TAX> 16,237,882
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,887,117
<EPS-PRIMARY> $3.28
<EPS-DILUTED> 0
</TABLE>
