<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED: July 31, 1998
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COMMISSION FILE NUMBER: 1-14315
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NCI BUILDING SYSTEMS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 76-0127701
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7301 Fairview
Houston, TX 77041
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 466-7788
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
Not Applicable
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FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT.
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIODS THAT
THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT
TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
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APPLICABLE ONLY TO CORPORATE ISSUERS
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICAL DATE.
Common Stock, $.01 Par Value--18,034,482 shares as of July 31, 1998
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<PAGE>
NCI BUILDING SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PART 1. FINANCIAL STATEMENTS PAGE NO.
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<S> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed consolidated balance sheets 1
July 31, 1998 and October 31, 1997
Condensed consolidated statements of income 2
Three months ended July 31, 1998 and 1997
Condensed consolidated statements of income 3
Nine Months ended July 31, 1998 and 1997
Condensed consolidated statements of cash flows 4
Nine months ended July 31, 1998 and 1997
Notes to condensed consolidated financial 5-7
statements July 31, 1998
ITEM 2. Management's Discussion and Analysis of Financial 8-12
Condition and Results of Operations
PART 2. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 13
</TABLE>
<PAGE>
NCI BUILDING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
July 31, October 31,
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 4,477 $ 32,166
ACCOUNTS RECEIVABLE 90,382 45,946
OTHER RECEIVABLES 1,730 1,060
INVENTORIES 74,686 37,381
DEFERRED INCOME TAXES 6,183 3,463
PREPAID EXPENSES 4,480 942
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TOTAL CURRENT ASSETS 181,938 120,958
PROPERTY, PLANT AND EQUIPMENT, NET 166,034 51,223
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OTHER ASSETS:
EXCESS OF COSTS OVER FAIR VALUE OF ACQUIRED
NET ASSETS 433,340 21,072
OTHER 28,240 3,079
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TOTAL OTHER ASSETS 461,580 24,151
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TOTAL ASSETS $809,552 $196,332
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-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
CURRENT PORTION OF LONG-TERM DEBT $ 30,047 $ 47
ACCOUNTS PAYABLE 43,801 23,921
ACCRUED COMPENSATION AND BENEFITS 9,031 9,688
OTHER ACCRUED EXPENSE 27,943 8,538
ACCRUED INCOME TAXES 2,278 2,018
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TOTAL CURRENT LIABILITIES 113,100 44,212
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LONG-TERM DEBT, NONCURRENT PORTION 470,041 1,679
DEFERRED INCOME TAXES 16,931 2,626
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SHAREHOLDERS' EQUITY:
COMMON STOCK 180 81
ADDITIONAL PAID-IN CAPITAL 89,130 51,110
RETAINED EARNINGS 120,170 96,624
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TOTAL SHAREHOLDERS' EQUITY 209,480 147,815
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $809,552 $196,332
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</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE>
NCI BUILDING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
1998 1997
---------------------------
<S> <C> <C>
SALES $229,547 $112,484
COST OF SALES 168,831 82,710
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GROSS PROFIT 60,716 29,774
OPERATING EXPENSES 30,055 17,559
NONRECURRING ACQUISITION EXPENSE 2,060 --
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TOTAL OPERATING EXPENSES 32,115 17,559
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INCOME FROM OPERATIONS 28,601 12,215
INTEREST EXPENSE 10,223 48
OTHER INCOME 932 486
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9,291 (438)
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INCOME BEFORE INCOME TAXES 19,310 12,653
PROVISION FOR INCOME TAXES 8,212 4,682
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NET INCOME $ 11,098 $ 7,971
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-------- --------
NET INCOME PER SHARE - BASIC $ .62 $ .49
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NET INCOME PER SHARE - DILUTED $ .58 $ .47
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</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE>
NCI BUILDING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
NINE MONTHS ENDED JULY 31,
1998 1997
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<S> <C> <C>
SALES $422,219 $286,996
COST OF SALES 309,452 211,118
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GROSS PROFIT 112,767 75,878
OPERATING EXPENSES 64,084 47,922
NONRECURRING ACQUISITION EXPENSE 2,060 --
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TOTAL OPERATING EXPENSES 66,144 47,922
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INCOME FROM OPERATIONS 46,623 27,956
INTEREST EXPENSE 10,307 125
OTHER INCOME 2,424 1,251
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7,883 (1,126)
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INCOME BEFORE INCOME TAXES 38,740 29,082
PROVISION FOR INCOME TAXES 15,194 10,777
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NET INCOME $ 23,546 $ 18,305
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NET INCOME PER SHARE - BASIC $ 1.39 $ 1.14
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NET INCOME PER SHARE - DILUTED $ 1.31 $ 1.08
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</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NCI BUILDING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
NINE MONTHS ENDED JULY 31,
1998 1997
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<S> <C> <C>
NET INCOME $ 23,546 $ 18,305
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 11,065 5,906
(GAIN) LOSS ON SALE OF FIXED ASSETS (16) (3)
DEFERRED INCOME TAX PROVISION (188) (45)
CHANGES IN WORKING CAPITAL:
(INC.) DEC. IN CURRENT ASSETS 2,723 (9,963)
INC. (DEC.) IN CURRENT LIABILITIES 14,491 8,400
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CASH FROM OPERATIONS $ 51,621 $ 22,600
INVESTING ACTIVITIES:
PURCHASE OF PROPERTY, PLANT & EQUIPMENT (7,426) (5,376)
ACQUISITION OF CARLISLE ENGINEERED METALS, INC. -- (6,230)
ACQUISITION OF METAL BUILDING COMPONENTS, INC. (553,265) --
ACQUISITION OF CALIFORNIA FINISHED METALS, INC. (15,458) --
OTHER (3,832) (2,670)
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(579,981) (14,276)
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FINANCING ACTIVITIES:
PROCEEDS FROM STOCK OPTIONS EXERCISE 2,310 931
BORROWINGS ON NOTES 578,900 --
REPAYMENT OF DEBT AND OTHER (80,539) 23
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500,671 954
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INCREASE (DECREASE) IN CASH $ (27,689) $ 9,278
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</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE>
NCI BUILDING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 1998
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three-month and nine-month periods ended July 31, 1998, are
not necessarily indicative of the results that may be expected for the
fiscal year ended October 31, 1998.
In June 1998, the Company's Board of Directors approved a two-for-one
common stock split effective for stockholders of record on July 8, 1998.
Share and per share amounts have been restated to reflect the stock split.
During the first quarter of fiscal 1998, the Company adopted Financial
Accounting Standards Board ("FASB") Statement No. 128, Earnings Per Share,
which is effective for financial statements issued for periods ending
after December 15, 1997. Prior period net income per share amounts have
been restated to conform with Statement No. 128.
As of May 1, 1998, the Company adopted FASB Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for reporting
and the display of comprehensive income and its components. Unrealized
gains or losses on available-for-sale securities, minimum pension
liability adjustments and foreign currency translation adjustments, which
prior to adoption were required to be reported separately in shareholders'
equity, are now required to be included in other comprehensive income.
For the periods presented, the Company's comprehensive income was the same
as net income, and the adoption of this statement had no impact on the
presentation of the financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1997 filed with the Securities and
Exchange Commission.
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<PAGE>
NOTE 2 -- INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
July 31, October 31,
1998 1997
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<S> <C> <C>
Raw materials $54,134 $28,943
Work in process and finished goods 20,552 8,438
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$74,686 $37,381
------- -------
------- -------
</TABLE>
NOTE 3 -- NET INCOME PER SHARE
Basic earnings per common share is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per
common share considers the effect of common stock equivalents. The computations
are as follows:
<TABLE>
<CAPTION>
Three Months Ended July 31, Nine Months Ended July 31,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income $11,098 $7,971 $23,546 $18,305
Add: Interest, net of tax on
convertible debenture assumed
converted 17 17 50 50
------- ------ ------- -------
Adjusted net income $11,115 $7,988 $23,596 $18,355
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------- ------ ------- -------
Weighted average common shares outstanding 18,010 16,151 16,930 16,091
Add: Common stock equivalents
Stock option plan 1,015 803 935 851
Convertible debenture 100 100 100 100
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Weighted average common shares
outstanding, assuming dilution 19,125 17,054 17,965 17,042
------- ------ ------- -------
------- ------ ------- -------
Net Income per share - Basic $ 0.62 $ 0.49 $ 1.39 $ 1.14
------- ------ ------- -------
------- ------ ------- -------
Net Income per share - Diluted $ 0.58 $ 0.47 $ 1.31 $ 1.08
------- ------ ------- -------
------- ------ ------- -------
</TABLE>
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<PAGE>
NCI BUILDING SYSTEMS, INC.
NOTE 4 - ACQUISITION
On May 4, 1998, the Company acquired Metal Buildings Components, Inc.
("MBCI") through the purchase of all of the outstanding capital stock of
Amatek Holdings, Inc. from BTR Australia Limited, a wholly owned subsidiary of
BTR plc, for a purchase price of approximately $600 million including cash of
$550 million (plus transaction costs) and 1.4 million shares of the Company's
common stock valued at $32.2 million. MBCI designs, manufactures, sells and
distributes metal components for commercial, industrial, architectural,
agricultural and residential construction uses. MBCI also processes its own
hot roll coil metal for use in component manufacturing, as well as processing
hot roll coil metal and toll coating light gauge metal for use by other
parties in the construction of metal building components and numerous other
products. The funds for this acquisition were provided from the proceeds of
a new $600 million credit facility from several banks under which the Company
initially borrowed $540 million. The facility includes a $200 million
five-year term loan, a $200 million five-year revolving loan and a $200
million 364-day revolving loan which is convertible into a three-year term
loan under certain conditions. The acquisition was accounted for using the
purchase method of accounting. The excess of cost over the fair value of the
acquired assets was approximately $393 million. The consolidated results of
operations for 1998 include MBCI since the date of acquisition. Assuming the
acquisition of MBCI had been consumated November 1, 1997, the pro forma
unaudited results of operations are as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
ENDED JULY 31, ENDED OCTOBER 31,
1998 1997
-------------- -----------------
<S> <C> <C>
SALES $617,914 $815,718
NET INCOME $ 22,662 $ 31,432
NET INCOME PER SHARE - BASIC $ 1.27 $ 1.79
NET INCOME PER SHARE - DILUTED $ 1.20 $ 1.70
</TABLE>
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<PAGE>
NCI BUILDING SYSTEMS, INC.
ITEM 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1998 COMPARED TO THREE MONTHS ENDED
JULY 31, 1997
Sales in the third quarter of fiscal 1998 increased by $117.1 million, or
104%, compared to the third quarter of fiscal 1997. Substantially all of
this growth resulted from the acquisition of Metal Buildings Components, Inc.
("MBCI") on May 4, 1998 (the "MBCI Acquisition"). Without the contribution
to sales of MBCI during the third quarter, the Company believes its sales
increase in the third quarter of fiscal 1998 would have been approximately 6%
as compared to the third quarter of fiscal 1997. Approximately two-thirds of
the sales volume was derived from the components divisions (both NCI and
MBCI), which include coil painting and commercial doors, compared to only
one-third of sales in the third quarter of fiscal 1997.
Gross profit for the third quarter of fiscal 1998 increased by $30.9 million,
or 104%, compared to the third quarter of fiscal 1997. Gross profit
percentage in the third quarter of fiscal 1998 remained flat at 26.5%
compared to the fiscal 1997 quarter. Improvement in metal building systems
margins in the third quarter of fiscal 1998 offset the somewhat lower gross
profit percentages that are historically achieved in the components business.
Operating expenses, which consist of engineering, selling and administrative
costs, increased by $12.5 million, or 71%, in the current quarter compared to
the same period a year ago. The dollar increase resulted primarily from the
inclusion of MBCI in the third quarter. As a percentage of sales, operating
expenses were 13.1% compared to 15.6% for the third quarter of fiscal 1997.
Approximately one-half of this decline as a percentage of sales was due to
the absence of engineering and drafting costs in components sales, which
reduced overall engineering and drafting costs from 3.0% of sales in the
fiscal 1997 quarter to 1.8% of sales in the fiscal 1998 quarter. The
remainder of this improvement resulted primarily from the consolidation of
the sales and marketing functions in components sales for both NCI and MBCI
and the elimination of some overlapping costs.
Nonrecurring acquisition expenses of $2.1 million in the third quarter of fiscal
1998 represented the one-time cost of severance and relocation expenses related
to the consolidation of components sales and marketing functions, estimated
costs associated with announced plant closures and consolidations and costs
associated with the integration of product lines.
Interest expense of $10.2 million in the third quarter of fiscal 1998
represented the cost of borrowed funds to finance the MBCI Acquisition and
the amortization of debt issuance costs related to such borrowings. On May
4, 1998, the Company borrowed $540 million to finance the MBCI Acquisition
and had outstanding total debt of $500.1 million at the end of July 1998.
The Company has entered into an interest rate swap agreement to fix the
interest on $200 million of this amount at
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<PAGE>
5.9% plus the applicable margin on borrowings which is currently 2.0%. The
remainder of the debt bears interest at a floating rate. In the third
quarter, the Company's effective interest rate on variable rate loans was
7.7%.
Income before income taxes increased by $6.7 million, or 53%. The increase
was less than the sales increase as a result of the increase in interest
expense, amortization of goodwill expense and nonrecurring acquisition
expenses.
Provision for income taxes increased by 75% in the third quarter of fiscal
1998, reflecting an effective tax rate of 42.5% compared to an effective tax
rate of 37.0% for the fiscal 1997 quarter. The increase in effective tax rate
resulted primarily from nondeductible amortization of $2.5 million of
goodwill expense associated with the MBCI Acquisition.
NINE MONTHS ENDED JULY 31, 1998 COMPARED TO NINE MONTHS ENDED
JULY 31, 1997
Sales for the nine months ended July 31, 1998 increased by $135.2 million, or
47%, over the same period a year ago. The MBCI Acquisition accounted for
substantially all of this increase. The Company believes that sales for the
nine-month period without the inclusion of MBCI would have increased by
approximately 6%.
Gross profit for the nine-month period increased by $36.9 million, or 49%,
compared to the same period a year ago. As a percentage of sales, gross
profit was 26.7% in the nine-month period in fiscal 1998 compared to 26.4% in
the same period in the prior year. This increase in gross profit percentage
resulted from slightly lower raw material costs in the current period,
improved plant utilization and better cost controls, which improved plant
efficiencies.
Operating expenses increased by $16.2 million, or 34%, for the nine months ended
July 31, 1998, compared to the same period last year. The dollar increase was
primarily due to the inclusion of MBCI for the third quarter of fiscal 1998. As
a percentage of sales, operating expenses were 15.2% and 16.7%, respectively,
for the nine-month periods ended July 31, 1998 and 1997. The decrease as a
percentage of sales resulted from the absence of engineering and drafting costs
in MBCI's operations (which are exclusively components operations), which
lowered the overall cost of engineering and drafting from 3.4% of sales in the
nine months ended July 31, 1997 to 2.6% in the nine months ended July 31, 1998.
Interest expense increased to $10.3 million for the nine months ended July 31,
1998 compared to $0.1 million in the fiscal 1997 period. As discussed above,
this increase resulted from an increase in borrowings to finance the MBCI
Acquisition.
Income before income taxes increased by $9.7 million, or 33%. Income before
income taxes increased at a slower rate than sales due to the increase in
interest expense, amortization of goodwill expense and nonrecurring
acquisition expenses recognized in the third quarter of fiscal 1998.
Provision for income taxes increased by 41% in the nine-month period ended
July 31, 1998, reflecting an effective tax rate of 39.2% compared to an
effective tax rate of 37.1% in the nine-month period ended July 31, 1997.
The increase in effective tax rate was due to the nondeductible amortization
of $2.5 million of goodwill expense associated with the MBCI Acquisition.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operations from cash flow from
operations, equity sales of its common stock and bank borrowings.
At July 31, 1998, the Company had working capital of $68.8 million compared to
$91.3 million at April 30, 1998. The decrease of $22.5 million was primarily
due to the MBCI Acquisition. During the quarter, the Company generated $18.2
million in cash flow from operations before changes in working capital
components.
On May 4, 1998, the Company acquired all of the outstanding capital stock of
Amatek Holdings, Inc. from BTR Australia Limited, a wholly owned subsidiary
of BTR plc, for a purchase price of approximately $600 million, including
cash of $550 million (plus transaction costs) and 1.4 million shares of
common stock valued at $32.2 million. The Company financed the MBCI
Acquisition by obtaining a new $600 million senior credit facility from a
syndicate of lenders.
The senior credit facility consists of (i) a five-year revolving credit
facility of up to $200 million, of which up to $20 million may be utilized in
the form of commercial and standby letters of credit, (ii) a five-year term
loan facility in the principal amount of $200 million, and (iii) a 364-day
revolving credit facility of up to $200 million. On May 4, 1998, the Company
borrowed $140 million under the five-year revolver, $200 million under the
five-year term loan and $200 million under the 364-day revolver to fund the
MBCI Acquisition. Loans and letters of credit under the five-year revolver
will be available, and amounts repaid may be reborrowed, at any time until
July 1, 2003, subject to the fulfillment of certain conditions precedent,
including the absence of default under the senior credit facility. The term
loan was fully drawn down as of the acquisition date, and any amounts repaid
may not be reborrowed. The Company's obligations under the senior credit
facility are secured by the pledge of all capital stock, partnership
interests and other equity interests of the Company's subsidiaries. All
obligations are also guaranteed by each of the Company's corporate
subsidiaries and operating limited partnerships. The senior credit facility
contains customary financial and restrictive covenants with amounts and
ratios negotiated between the Company and the lenders.
Loans bear interest, at the Company's option, as follows (i) base rate loans at
the base rate plus a margin that ranges from 0% to 0.5% and (ii) LIBOR loans at
LIBOR plus a margin that ranges from 0.75% to 2.0%. Base rate is defined as the
higher of NationsBank, N.A.'s prime rate or the overnight Federal funds rate
plus 0.5%, and LIBOR is defined as the applicable London interbank offered rate
adjusted for reserves. Based on its current ratios, the Company is paying a
margin of 0.5% on base rate loans and 2.0% on LIBOR loans. The Company
currently has an interest rate swap agreement in place which caps interest on
LIBOR loans at 5.89% plus the applicable LIBOR margin for the principal amount
of the term loan. In the third quarter, the Company's effective interest rate
on variable rate loans was 7.7%.
Loans under the five-year revolver mature on July 1, 2003. Loans under the term
loan are payable in successive quarterly installments beginning on October 31,
1998 beginning with $7.5 million and gradually increasing to $12.5 million on
the maturity date. As of July 31, 1998, the Company had
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<PAGE>
$498.4 million outstanding under the senior credit facility. The 364-day
revolver matures on May 3, 1999. If the 364-day revolver is not repaid by
the Company or extended by the lenders, the Company has the option to convert
it to a three-year term note. Borrowings under the senior credit facility may
be prepaid and voluntary reductions of the unutilized portion of the
five-year revolver may be made at any time, in certain agreed upon minimum
amounts, without premium or penalty but subject to LIBOR breakage costs. The
Company is required to make mandatory prepayments on the senior credit
facility upon the occurrence of certain events, including the sale of assets
and the issuance and sale of equity securities, in each case subject to
certain limitations.
During the third quarter of fiscal 1998, the Company spent $3.5 million in
capital additions for plant expansion and the development of new management
information systems. For the nine months ended July 31, 1998, the Company spent
$7.4 million in capital additions and $15.5 million in May 1998 for the
acquisition of California Finished Metals, Inc., a coil painting facility
located in California. The Company plans to spend approximately $14 million for
the balance of 1998 for capital projects, including expansion of several
facilities and expenditures for two new plant locations expected to open in
fiscal 1999. These projects, if not delayed or canceled, would require
approximately $15 million in capital spending in fiscal 1999. Addition capital
projects for 1999 will be considered and could increase capital spending above
the amounts anticipated at the current time.
Inflation has not significantly affected the Company's financial position or
operations. Metal components and metal building systems sales are affected
more by the availability of funds for construction than interest rates. No
assurance can be given that inflation or interest rates will not fluctuate
significantly, either or both of 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
expansion when needed and the amount of increased working capital necessary
to support expected growth. Based on current capitalization, it is expected
that future cash flows from operations and the availability of alternative
sources of external financing should be sufficient to provide adequate
liquidity for the foreseeable future.
IMPACT OF THE YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs having been written
using two digits rather than four to define the applicable year. Any computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
The Company has conducted a review of its computer systems to identify the
systems that could be affected by the year 2000 issue and is implementing its
plan to attempt to ensure that its management information systems ("MIS") and
computer software are year 2000 compliant. This review is part of the
Company's overall upgrade of its MIS, which is currently in progress and
includes the installation of new systems. As a result, the Company has no
separate budget for year 2000 compliance. Expenses relating to reviewing and
assessing systems are included in historical operating expenses as part of
management information expenses and have not been separately identified.
Management expects the upgrade to be completed with respect to a substantial
majority of the Company's operations by the end of 1998 and that the upgrade
for the remaining operating divisions will be completed in the first six
months of 1999. Management believes that with installation of the new
systems, conversion to new software and modifications to existing software,
the year 2000 issue will pose no significant operational problems for the
Company's MIS. The Company expects to complete all new installations,
conversions and necessary systems modifications and conversions by mid-1999.
There can be no assurance, however, that the Company will be able to install
and maintain year 2000 compliant MIS and software.
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<PAGE>
The Company is currently discussing with its vendors and customers the
possibility of any year 2000 interface difficulties that may affect the
Company. The ability of third parties with whom the Company transacts
business to address adequately their year 2000 issue is, however, outside the
Company's control.
To date, the Company has not identified any information technology assets
under the control of the Company that present a material risk of not being
year 2000 ready or for which a suitable alternative cannot be implemented or
is not being implemented. The Company does not have a contingency plan with
respect to the year 2000 issue if the MIS upgrade is not completed or is
delayed beyond the end of 1999. The failure of the Company to address
adequately, and in a timely manner, the year 2000 issue, including ensuring
that the Company's MIS and software are year 2000 compliant, could have a
material adverse effect on the Company's business, results of operations and
financial condition. As the Company's MIS upgrade is implemented, the Company
may identify assets that present a risk of a year 2000-related disruption. It
is also possible that such a disruption could have a material adverse effect
on the Company's business, financial condition and results of operations. In
addition, if any third parties who provide goods or services that are
critical to the Company's business activities fail to appropriately address
their year 2000 issues, there could be a material adverse effect on the
Company's business, results of operations and financial condition.
ACCOUNTING STANDARDS
During the first quarter of fiscal 1998, the Company adopted Financial Standards
Board ("FASB") Statement No. 128, Earnings Per Share, which is effective for
financial statements issued for periods ending after December 15, 1997. Prior
period net income per share amounts have been restated to conform with Statement
No. 128.
During the third quarter of fiscal 1998, the Company adopted FASB Statement No.
130, Comprehensive Income, which is effective for financial statements for
fiscal years beginning after December 15, 1997. The adoption of Statement No.
130 had no impact on the Company's financial statements.
FASB Statement No. 131, Disclosure about Segments of an Enterprise and Related
Information, which is effective for the Company's fiscal year ended October 31,
1999. The Company is evaluating the segments that will be reported under this
Statement.
THIS FORM 10-Q MAY CONTAIN FORWARD-LOOKING STATEMENTS CONCERNING THE BUSINESS
AND OPERATIONS OF THE COMPANY. ALTHOUGH THE COMPANY BELIEVES THAT THE
EXPECTATIONS REFLECTED IN THESE FORWARD-LOOKING STATEMENTS ARE REASONABLE,
THESE EXPECTATIONS AND THE RELATED STATEMENTS ARE SUBJECT TO RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT COULD CAUSE THE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE PROJECTED. THESE RISKS, UNCERTAINTIES AND FACTORS
INCLUDE, BUT ARE NOT LIMITED TO, INDUSTRY CYCLICALITY AND SEASONALITY,
ADVERSE WEATHER CONDITIONS, FLUCTUATION IN CUSTOMER DEMAND AND ORDER
PATTERNS, RAW MATERIAL PRICING, COMPETITIVE ACTIVITY AND PRICING PRESSURE,
THE ABILITY TO MAKE STRATEGIC ACTIVITIES ACCRETIVE TO EARNINGS, THE YEAR 2000
ISSUE, INCLUDING YEAR 2000 COMPLIANCE BY THE COMPANY AND THIRD PARTIES WITH
WHICH THE COMPANY DOES BUSINESS, AND GENERAL ECONOMIC CONDITIONS AFFECTING THE
CONSTRUCTION INDUSTRY AS WELL AS OTHER RISKS DETAILED IN THE COMPANY'S
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING ITS ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED OCTOBER 31, 1997 AND ITS REGISTRATION
STATEMENT ON FORM S-3, AS AMENDED, FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON SEPTEMBER 2, 1998. THE COMPANY EXPRESSLY DISCLAIMS ANY
OBLIGATION TO RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS TO REFLECT ANY CHANGE IN ITS EXPECTATIONS.
-12-
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed herewith:
<TABLE>
<S> <C>
4.1 Credit Agreement, dated March 25, 1998 (the "Credit Agreement")
by and among the Company, NationsBank, N.A. (as successor
in interest to NationsBank, N.A.), as administrative
agent ("NationsBank"), NationsBanc Montgomery Securities
LLC, as arranger and syndication agent, Swiss Bank
Corporation, as documentation agent ("Swiss Bank"), and
the several lenders named therein (filed as Exhibit 4.3
to the Company's registration statement no. 333-60829 and
incorporated by reference herein)
4.2 First Amendment to Credit Agreement, dated May 1, 1998, among the
Company, NationsBank, Swiss Bank and the parties named therein
(filed as Exhibit 4.4 to the Company's registration statement no.
333-60829 and incorporated by reference herein)
4.3 Second Amendment to Credit Agreement, dated May 5, 1998, among
the Company, NationsBank, Swiss Bank and the parties named
therein (filed as Exhibit 4.5 to the Company's registration
statement no. 333-60829 and incorporated by reference herein)
4.4 Master Assignment and Acceptance, dated as of May 6, 1998, among
NationsBank, Swiss Bank and the several lenders named
therein (filed as Exhibit 4.7 to the Company's
registration statement no. 333-60829 and incorporated by
reference herein)
4.5 Facility A Notes (Revolving Credit), dated May 6, 1998, of the
Company in favor of lenders named therein (filed as
Exhibit 4.7 to the Company's registration statement no.
333-60829 and incorporated by reference herein)
4.6 Facility B Notes (Term Loan), dated May 6, 1998, of the Company
in favor of lenders named therein (filed as Exhibit 4.8
to the Company's registration statement no. 333-60829 and
incorporated by reference herein)
4.7 Facility C Notes (364-day Revolving Facility), dated May 6, 1998,
of the Company in favor of lenders named therein (filed
as Exhibit 4.9 to the Company's registration no.
333-60829 and incorporated by reference herein)
4.8 Guaranty, dated May 1, 1998, between NationsBank and A&S Business
Interests, Inc. (filed as Exhibit 4.10 to the Company's registration
statement no. 333-60829 and incorporated by reference herein)
4.9 Guaranty, dated May 1, 1998, between NationsBank and A&S Building
Systems, L.P. (filed as Exhibit 4.11 to the Company's
registration statement no. 333-60829 and incorporated by
reference herein)
13
<PAGE>
4.10 Guaranty, dated May 1, 1998, between NationsBank and NCI Building
Systems, L.P. (filed as Exhibit 4.12 to the Company's
registration statement no. 333-60829 and incorporated by
reference herein)
4.11 Guaranty, dated May 1, 1998, between NationsBank and NCI Holding
Corp. (filed as Exhibit 4.13 to the Company's
registration statement no. 333-60829 and incorporated by
reference herein)
4.12 Guaranty, dated May 1, 1998, between NationsBank and NCI
Operating Corp. (filed as Exhibit 4.14 to the Company's
registration statement no. 333-60829 and incorporated by
reference herein)
4.13 Guaranty, dated May 1, 1998, between NationsBank and Metal
Building Components Holding Inc. (filed as Exhibit 4.15
to the Company's registration no. 333-60829 and
incorporated by reference herein)
4.14 Guaranty, dated May 1, 1998, between NationsBank and Metal
Coaters Holding, Inc. (filed as Exhibit 4.16 to the
Company's registration statement no. 333-60829 and
incorporated by reference herein)
4.15 Guaranty, dated May 1, 1998, between NationsBank and Metal
Building Components, L.P. (formerly MBCI Operating, L.P.)
(filed as Exhibit 4.17 to the Company's registration
statement no. 333-60829 and incorporated by reference
herein)
4.16 Guaranty, dated May 1, 1998, between NationsBank and Metal
Coaters Operating, L.P. (filed as Exhibit 4.18 to the
Company's registration statement no. 333-60829 and
incorporated by reference herein)
4.17 Guaranty, dated May 1, 1998, between NationsBank and Metal
Coaters of California, Inc. (filed as Exhibit 4.19 to the
Company's registration statement no. 333-60829 and
incorporated by reference herein)
4.18 Pledge Agreement, dated May 1, 1998, between the Company and
NationsBank (filed as Exhibit 4.20 to the Company's
registration statement no. 333-60829 and incorporated by
reference herein)
4.19 Pledge Agreement, dated May 1, 1998, between the NCI Holding
Corp. and NationsBank (filed as Exhibit 4.21 to the
Company's registration statement no. 333-60829 and
incorporated by reference herein)
4.20 Pledge Agreement, dated May 13, 1998, between the Metal Coaters
Holding, Inc. and NationsBank (filed as Exhibit 4.22 to
the Company's registration statement no. 333-60829 and
incorporated by reference herein)
4.21 Assignment of Partnerships, dated May 1, 1998, between NCI
Building Corp. and NationsBank (filed as Exhibit 4.23 to
the Company's registration statement no. 333-60829 and
incorporated by reference herein)
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<PAGE>
4.22 Assignment of Partnerships, dated May 1, 1998, between NCI
Holding Corp. and NationsBank (filed as Exhibit 4.24 to
the Company's registration statement no. 333-60829 and
incorporated by reference herein)
4.23 Assignment of Partnership Interests, dated May 1, 1998, between
Metal Building Components Holding, Inc. and NationsBank
(filed as Exhibit 4.25 to the Company's registration
statement no. 333-60829 and incorporated by reference
herein)
4.24 Assignment of Partnership Interests, dated May 1, 1998, between
Metal Coaters Holding, Inc. and NationsBank (filed as
Exhibit 4.26 to the Company's registration statement no.
333- 60829 and incorporated by reference herein)
4.25 Promissory Note, dated May 5, 1998, of NCI Holding Corp. In favor
of the Company (filed as Exhibit 4.27 to the Company's registration
statement no. 333-60829 and incorporated by reference herein)
4.26 Note Pledge Agreement, dated May 5, 1998, between the Company and
NationsBank (filed as Exhibit 4.28 to the Company's registration
statement no. 333-60829 and incorporated by reference herein)
4.27 Rights Agreement, dated June 24, 1998, between the Company and
Harris Trust and Savings Bank (filed as Exhibit 2 to the Company's
registration statement on Form 8-A and incorporated herein)
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
(i) Current Report on Form 8-K dated May 4, 1998, and filed with
the Securities and Exchange Commission (the "Commission") on
May 19, 1998, with respect to the Company's acquisition of
Metal Building Components, Inc., as amended by Current Report
on Form 8-K/A filed with the Commission on July 20, 1998,
Current Report on Form 8-K/A, Amendment No. 2, filed with the
Commission on August 5, 1998 and Current Report on Form 8-K/A,
Amendment No. 3, filed with the Commission on August 25, 1998
(ii) Current Report on Form 8-K dated June 24, 1998, and filed with
the Commission on July 9, 1998, with respect to the dividend
of preferred stock purchase rights
(iii) Current Report on Form 8-K dated and filed with the
Commission on August 21, 1998, with respect to the Company's
audited financial statements
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NCI BUILDING SYSTEMS, INC.
--------------------------
(Registrant)
Date: September 2, 1998 /s/ Robert J. Medlock
----------------- -----------------------------
Robert J. Medlock
Vice President and
Chief Financial Officer
-16-
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<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 4,477,000
<SECURITIES> 0
<RECEIVABLES> 92,112,000
<ALLOWANCES> 1,971,000
<INVENTORY> 74,686,000
<CURRENT-ASSETS> 181,938,000
<PP&E> 191,784,000
<DEPRECIATION> 25,750,000
<TOTAL-ASSETS> 809,552,000
<CURRENT-LIABILITIES> 113,100,000
<BONDS> 0
0
0
<COMMON> 180,000
<OTHER-SE> 209,300,000
<TOTAL-LIABILITY-AND-EQUITY> 809,552,000
<SALES> 422,219,000
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<CGS> 309,452,000
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<LOSS-PROVISION> 1,809,000
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<INCOME-PRETAX> 38,740,000
<INCOME-TAX> 15,194,000
<INCOME-CONTINUING> 23,546,000
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