<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED: January 31, 1998
----------------
COMMISSION FILE NUMBER: 0-19885
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NCI BUILDING SYSTEMS, INC.
- -------------------------------------------------------------------------------
(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 (ZIP CODE)
EXECUTIVE OFFICES)
(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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICAL DATE.
Common Stock, $.01 Par Value--8,182,741 shares as of January 31, 1998
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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
January 31, 1998 and October 31, 1997. 1
Condensed consolidated statements of income
Three months ended January 31, 1998 and 1997. 2
Condensed consolidated statements of cash flows
Three months ended January 31, 1998 and 1997. 3
Notes to condensed consolidated financial
statements January 31, 1998. 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 5-6
PART 2. OTHER INFORMATION
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ITEM 6. Exhibits and Reports on Form 8-K 7
</TABLE>
<PAGE> 3
NCI BUILDING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, October 31,
1998 1997
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(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 30,713,000 $ 32,166,000
ACCOUNTS RECEIVABLE 38,505,000 47,006,000
INVENTORIES 43,792,000 37,381,000
OTHER CURRENT ASSETS 4,393,000 4,405,000
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117,403,000 120,958,000
PROPERTY, PLANT AND EQUIPMENT 72,627,000 70,532,000
LESS-ACCUMULATED DEPRECIATION (20,971,000) (19,309,000)
------------ ------------
51,656,000 51,223,000
OTHER ASSETS:
EXCESS OF COSTS OVER FAIR VALUE 20,673,000 22,273,000
OTHER 3,621,000 1,878,000
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24,294,000 24,151,000
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193,353,000 $196,332,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
NOTES PAYABLE AND CURRENT
PORTION OF LONG-TERM DEBT $ 47,000 $ 47,000
ACCOUNTS PAYABLE 15,766,000 23,921,000
OTHER CURRENT LIABILITIES 17,272,000 20,244,000
------------ ------------
33,085,000 44,212,000
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LONG-TERM DEBT, NONCURRENT PORTION
AND DEFERRED INCOME TAXES 4,277,000 4,305,000
------------ ------------
SHAREHOLDERS' EQUITY:
COMMON STOCK 82,000 81,000
PAID IN CAPITAL 53,233,000 51,110,000
RETAINED EARNINGS 102,676,000 96,624,000
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155,991,000 147,815,000
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$193,353,000 $196,332,000
============ ============
</TABLE>
NOTE: THE BALANCE SHEET AT OCTOBER 31, 1997 HAS BEEN DERIVED FROM THE AUDITED
FINANCIAL STATEMENTS AT THAT DATE. SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
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NCI BUILDING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JAN. 31,
1998 1997
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<S> <C> <C>
SALES $ 97,323,000 $ 82,875,000
COST OF SALES 71,886,000 60,465,000
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GROSS PROFIT 25,437,000 22,410,000
OPERATING EXPENSES 16,641,000 14,537,000
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OPERATING INCOME 8,796,000 7,873,000
INTEREST EXPENSE 47,000 37,000
OTHER INCOME (699,000) (414,000)
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(652,000) (377,000)
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INCOME BEFORE TAXES 9,448,000 8,250,000
PROVISION FOR INCOME TAXES 3,396,000 3,098,000
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NET INCOME $ 6,052,000 $ 5,152,000
============= =============
NET INCOME PER SHARE - BASIC $ .74 $ .64
============= =============
NET INCOME PER SHARE - DILUTED $ .70 $ .61
============= =============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE> 5
NCI BUILDING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JAN. 31,
1998 1997
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<S> <C> <C>
CASH FROM OPERATIONS $ 1,176,000 $ 2,475,000
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INVESTING ACTIVITIES:
PURCHASE OF PROPERTY, PLANT
AND EQUIPMENT (2,135,000) (1,709,000)
OTHER (646,000) (75,000)
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(2,781,000) (1,784,000)
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FINANCING ACTIVITIES:
PROCEEDS FROM STOCK OPTIONS EXERCISE 165,000 522,000
REPAYMENT OF DEBT AND OTHER (13,000) (12,000)
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152,000 510,000
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INCREASE (DECREASE) IN CASH $ (1,453,000) $ 1,201,000
============= =============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE> 6
NCI BUILDING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JANUARY 31, 1998
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the
three months ended January 31, 1998, are not necessarily indicative of the
results that may be expected for the year ended October 31, 1998.
For further information, refer to the financial statements and footnotes
thereto included in the Company's Annual Report to Shareholders for the
year ended October 31, 1997.
NOTE 2 - INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
January 31, October 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Raw Materials $ 34,919,000 $ 28,943,000
Work in process and finished goods 8,873,000 8,438,000
--------------- ---------------
$ 43,792,000 $ 37,381,000
=============== ===============
</TABLE>
NOTE 3 - NET INCOME PER SHARE
Basic earnings per common share is computed by dividing net income by the
weighted average number of common shares outstanding. The computation of diluted
earnings per common share considers the effect of common stock equivalents. The
number of shares used in the computation of basic and diluted earnings per share
was 8,162,000 and 8,643,000 respectively, for the three months ended January
31, 1998, and 7,995,000 and 8,437,000 respectively for the three months ended
January 31, 1997.
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NCI BUILDING SYSTEMS, INC.
ITEM 2.- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Result of Operations
THREE MONTHS ENDED JANUARY 31, 1998 COMPARED TO THE THREE MONTHS ENDED
JANUARY 31, 1997.
Sales in the first quarter of fiscal year 1998 increased by $14.4 million, or
17% compared to the first quarter of fiscal year 1997. This increase was due
primarily to the increase in market penetration of building system sales and
higher sales in the component division. The new manufacturing facilities for
components and insulated panels which were not present in the prior year added
sales of $2.2 million in the first quarter of 1998.
Gross profit in the first quarter increased $3.0 million, or 14%, compared to
the prior year's first quarter. Gross margin percentage declined from 27.0%
last year to 26.1% in the current quarter. The increased level of component
sales including the Company's door division accounted for this decline since
their gross margin percentage is lower than building sales.
Operating expenses which consist of engineering, selling and administrative
costs increased by $2.1 million, or 14%, in the current quarter compared to the
same period last year. As a percent of sales, operating expenses were 17.1%
compared to 17.5% a year ago. The dollar increase was primarily related to
salaries and commissions for additional employees hired to support the increase
volume of orders and sales over the prior year. As a percent of sales,
operating expenses declined due to spread of the fixed cost element over the
higher sales base.
Other income increased by $285,000 in the current quarter due to a higher level
of investable cash this year compared to last year and a somewhat higher
earnings rate on investments.
Income before income taxes increased by $1.2 million, or 15%, as a result of
the increased sales volume. As a percent of sales, income before taxes was
9.7% in the current quarter compared to 10.0% in the same quarter a year ago.
The decline was primarily from the change in gross profit percentage in the
current quarter.
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<PAGE> 8
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operations from cash flow from
operations and bank borrowing. It maintains a revolving credit facility with a
bank lender that provides for a maximum credit on an unsecured basis of $6.0
million which matures in March, 1999. The Company has no outstanding balance
under this facility and has not borrowed any funds in the current quarter.
During the quarter, the Company spent $2.1 million in capital additions for its
manufacturing plants and for improvements in it's management information
systems. All of the funds for these additions were funded from internally
generated cash.
At January 31, 1998, the ratio of current assets to current liabilities was 3.5
to 1 compared to 2.7 to 1 at October 31, 1997. Cash flow generated from
operations before changes in current assets and liabilities was $8.7 million.
Liquidity in future periods will be dependent on internally generated cash
flows, the ability to obtain adequate external financing for expansion, when
needed, and the amount of increased working capital necessary to support
expected growth. Based on current capitalization, it is expected future cash
flows from operations and the availability of alternative sources of external
financing should be sufficient to provide adequate liquidity in future periods.
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and is
implementing its plan to resolve the issue. The Year 2000 problem is a result
of computer programs being written using two digits (rather than four) to
define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Company presently believes that, with modifications to
existing software and converting to new software, the Year 2000 problem will
not pose significant operational problems for the Company's computer systems as
so modified and converted. The Company is well under way with its project plans
and expects to complete systems corrections by December 31, 1998. The related
cost is not expected to be material to the Company's results of operations or
financial position.
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"This Form 10-Q may contain forward-looking statements concerning the business
and operations of the Company. Although the Company believes that the
expectations reflected in these forward-looking statements are reasonable,
these expectations and the related statements are subject to risks,
uncertainties, and other factors that could cause the actual results to differ
materially from those projected. These risks, uncertainties, and factors
include, but are not limited to, industry cyclicality and seasonality, adverse
weather conditions, fluctuation in customer demand and order pattern raw
material pricing, competitive activity and pricing pressure, the ability to
make strategic activities accretive to earnings, and general economic
conditions affecting the construction industry as well as other risks detailed
in the Company's filings with the Securities and Exchange Commission, including
its annual report on Form 10-K for the year ended October 31, 1997. The Company
expressly disclaims any obligation to release publicity any updates or
revisions to these forward-looking statements to reflect any change in its
expectations."
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<PAGE> 9
NCI BUILDING SYSTEMS, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
*10.20 Amendment No. 1 to the NCI Building Systems, Inc. Nonqualified Stock Option Plan
*27 Financial Data Schedule
</TABLE>
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* Filed herewith
(b) There were no reports filed under Form 10-K for the quarter ended
January 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NCI BUILDING SYSTEMS, INC.
--------------------------
(Registrant)
/s/ ROBERT J. MEDLOCK
Date: March 15, 1998 --------------------------
--------------------- Robert J. Medlock
Vice President and
Chief Financial Officer
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<PAGE> 10
EXHIBIT
INDEX
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
*10.20 Amendment No. 1 to the NCI Building Systems, Inc. Nonqualified Stock Option Plan
*27 Financial Data Schedule
</TABLE>
- -------------------
*Filed herewith
<PAGE> 1
AMENDMENT NO. 1
TO THE
NCI BUILDING SYSTEMS, INC.
NONQUALIFIED STOCK OPTION PLAN
MARCH 4, 1998
The NCI Nonqualified Stock Option Plan (amended and restated as of
December 12, 1996) (the "Plan") is hereby amended as follows:
1. Section 9 of the Plan is hereby restated in its entirety as
follows:
9. RIGHTS OF ESTATE OR BENEFICIARIES IN EVENT OF DEATH. If a
participant dies prior to termination of his or her right to exercise an
option in accordance with the provisions of the Plan or his or her stock
option agreement without having totally exercised the option, the option
may be exercised during the remainder of the Option Period by the
participant's estate or by the person who acquired the right to exercise
the option by bequest or by reason of the death of the participant,
either pursuant to the laws of descent and distribution or by beneficiary
designation; however, the option must be exercised prior to the date of
expiration of the Option Period or one year from the date of the
participant's death, whichever first occurs. The participant may
designate a beneficiary to exercise an option pursuant to this Section 9
in the event of his or her death on a form designated by the Board for
such purpose.
2. Section 13 of the Plan is hereby restated in its entirety as follows:
13. NON-ASSIGNABILITY. Options may not be transferred other than
by will or by the laws of descent and distribution or by a beneficiary
designation made by the participant. During a participant's lifetime,
options granted to a participant may be exercised only by the
participant.
Signed to be effective the date first written above.
/s/ DONNIE R. HUMPHRIES
--------------------------------
Donnie R. Humphries, Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 3,071,000
<SECURITIES> 0
<RECEIVABLES> 40,051,000
<ALLOWANCES> 1,546,000
<INVENTORY> 43,792,000
<CURRENT-ASSETS> 116,182,000
<PP&E> 72,627,000
<DEPRECIATION> 20,971,000
<TOTAL-ASSETS> 193,353,000
<CURRENT-LIABILITIES> 33,085,000
<BONDS> 0
0
0
<COMMON> 82,000
<OTHER-SE> 155,909,000
<TOTAL-LIABILITY-AND-EQUITY> 193,353,000
<SALES> 97,323,000
<TOTAL-REVENUES> 97,323,000
<CGS> 71,886,000
<TOTAL-COSTS> 16,593,000
<OTHER-EXPENSES> 699,000
<LOSS-PROVISION> 48,000
<INTEREST-EXPENSE> 47,000
<INCOME-PRETAX> 9,448,000
<INCOME-TAX> 3,396,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,052,000
<EPS-PRIMARY> .74
<EPS-DILUTED> .70
</TABLE>
