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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended October 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-14315
NCI BUILDING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
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)
Registrant's telephone number, including area code: (713) 466-7788
Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.01
par value
Securities registered pursuant to Section 12(g) of the Act: None
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 January 4, 1999, was $414,275,401.
The number of shares of common stock of the registrant
outstanding on January 4, 1999, was 18,182,534.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Parts I and II of this Annual
Report is incorporated by reference from the registrant's 1998 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 17, 1999.
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PART I
ITEM 1. BUSINESS.
GENERAL
NCI Building Systems, Inc. (the "Company" or "NCI") is one of North
America's largest integrated manufacturers of metal products for the building
industry, with 38 manufacturing and distribution facilities located in 18 states
and Mexico. The Company sells metal components as well as complete metal
building systems, offering one of the most extensive metal product lines in the
building industry with well-recognized brand names. Management believes that the
Company's leading market positions and strong track record of growth and
profitability have resulted from its focus on improving manufacturing
efficiency, controlling overhead costs, developing new markets and successfully
identifying and integrating strategic acquisitions. In May 1998, the Company
acquired Metal Building Components, Inc. ("MBCI") for an aggregate of $593
million (the "MBCI Acquisition"), thereby doubling its revenue base, becoming
the largest domestic manufacturer of nonresidential metal components and
significantly improving its product mix. The Company's sales and income from
operations were $675.3 million and $81.4 million, respectively, for the fiscal
year ended October 31, 1998.
Metal Components. With a market share at least twice that of its
largest competitor, the Company is the largest domestic supplier of metal
components to the nonresidential building industry. The Company designs,
manufactures, sells and distributes one of the widest selections of metal roof
and wall systems, overhead doors, fascia, mansard and various trim accessories
for commercial, industrial, architectural, agricultural and residential
construction and repair and retrofit uses. The Company is also one of the
largest independent providers of hot roll and light gauge metal coil coating and
painting services and products. The Company coats and paints hot roll coil metal
for use in its own metal components manufacturing, as well as processing hot
roll coil metal and toll coating light gauge metal for use by third parties. The
Company markets its metal components products and coating and painting services
nationwide primarily through a direct sales force under several brand names,
including "Metal Building Components," "American Building Components," "DBCI,"
"MBCI," "Metal Coaters," "Metal-Prep" and "DOUBLECOTE." The Company's sales of
metal components and coating and painting services were $411.2 million, or 60.9%
of total sales, for the fiscal year ended October 31, 1998.
Metal Building Systems. The Company is one of the largest domestic
suppliers of metal building systems. The Company designs, manufactures and
markets metal building systems, self-storage building systems and metal home
framing systems for commercial, industrial, agricultural, governmental,
community service and residential uses. The Company markets these systems
nationwide through authorized builder networks totaling over 1,200 builders and
a direct sales force under several brand names, including "Metallic Buildings,"
"Mid-West Steel Buildings," "A & S Buildings," "All American Systems," "Steel
Systems" and "Mesco." The Company's sales of metal building systems were $264.1
million, or 39.1% of total sales, for the fiscal year ended October 31, 1998.
Prior to their combination, NCI and MBCI both demonstrated strong
growth in sales and income from operations. NCI achieved a five-year compound
annual growth rate of 38.9% and 49.6%, respectively, in sales and income from
operations for its five fiscal years ended October 31, 1997. MBCI achieved a
five-year compound annual growth rate of 15.3% and 16.2%, respectively, in sales
and income from operations for its five fiscal years ended December 31, 1997.
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.
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INDUSTRY OVERVIEW
The building industry encompasses a broad range of metal products,
principally composed of steel, sold through a variety of distribution channels
for use in diverse applications. These metal products include metal components
and complete metal building systems.
Metal Components. Manufacturers of metal components for the building
industry supply pre-formed components, including roof and wall panels, doors,
partitions, related trim, accessories and other metal components used in metal
building systems and other repair, retrofit and new construction applications
for commercial, industrial, agricultural and residential uses. Metal components
are used in a wide variety of construction applications, including purlins and
girts, roofing, walls, doors, trim and other parts of traditional commercial,
industrial, agricultural and residential buildings as well as in architectural
applications and complete metal building systems. Management estimates the metal
components market (including roofing applications) to be a multi-billion dollar
market, although market data is limited. Metal components are used to a greater
extent in repair and retrofit applications than in new construction of metal
building systems and, therefore, management believes that the metal components
business exhibits less cyclicality than the metal building systems business.
Management believes that metal products have gained and continue to gain a
greater share of new construction and repair and retrofit markets due to
increasing acceptance and recognition of the benefits of metal products in
building applications.
Metal roofing accounts for a significant portion of the overall metal
components market, but a relatively small percentage (approximately 5%) of the
large commercial roofing market estimated at over $20 billion annually. As a
result, management believes that significant opportunities exist for metal
roofing, with its advantages over conventional roofing materials, to increase
its overall share of this market. Metal roofing systems have several advantages
over conventional roofing systems, including the following:
o Lower Lifecycle Cost. The total cost over the life of metal
roofing systems is lower than that of conventional roofing
systems for both new construction and retrofit roofing. For
new construction, the cost of installing metal roofing is
greater than the cost of conventional roofing. Yet, the longer
life and lower maintenance costs of metal roofing make the
cost more attractive. For retrofit roofing, although
installation costs are 60-70% higher for metal roofing due to
the need for a sloping support system, the lower ongoing costs
more than offset the initial expenditure.
o Increased Longevity. Metal roofing systems generally last for
20 years without requiring major maintenance or replacement,
compared to five to ten years for conventional roofs. The cost
of leaks and roof failures associated with conventional
roofing can be very high, including damage to building
interiors and disruption of the functional usefulness of the
building. Metal roofing prolongs the intervals between costly
and time-consuming repair work.
o Attractive Aesthetics and Design Flexibility. Metal roofing
systems allow architects and builders to integrate colors and
geometric design into the roofing of new and existing
buildings, providing an increasingly fashionable means of
enhancing a building's aesthetics. Conventional roofing
material is generally tar paper or a gravel surface, and
building designers tend to conceal roofs made with such
materials.
Metal Building Systems. Metal building systems consist of structural
beams and panels that are welded and roll formed in a factory and shipped to a
construction site complete and ready for assembly. Metal building systems
manufacturers design an integrated system that meets applicable building code
requirements. These systems consist of primary structural framing, secondary
structural members (i.e., purlins and girts) and covering for roofs and walls.
Over the last fifteen years, metal building systems have significantly increased
penetration of the market for non-residential low rise structures and are being
used in a broad variety of other applications. According to the Metal Building
Manufacturers Association, reported sales of metal building systems have
increased from approximately $1.5
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billion in 1993 to $2.5 billion in 1997. The Company believes this increase has
resulted primarily from (i) the significant cost advantages offered by these
systems, (ii) increased architectural acceptance of metal building systems for
construction of commercial and industrial building projects, (iii) advances in
design versatility and production processes and (iv) a strong general economic
environment. The Company believes the cost of a metal building system generally
represents approximately 15-20% of the total cost of constructing a building,
which includes land cost, labor, plumbing, electrical, heating and air
conditioning systems installation and interior finish. 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 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, warehouses, factories and distribution centers,
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:
o Shorter Construction Time. In many instances, it takes less
time to construct a metal building than other building types.
In addition, because most of the work is done in the factory,
the likelihood of weather interruptions is reduced.
o More Efficient Material Utilization. The larger metal building
systems manufacturers use computer-aided analysis and design
to fabricate structural members with high strength-to-weight
ratios, minimizing raw materials costs.
o Lower 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 for
traditional building methods.
o Greater 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.
o Lower Maintenance Costs. Unlike wood, metal will not
deteriorate because of cracking, rot or insect damage.
Furthermore, factory-applied roof and siding panel coatings
resist cracking, peeling, chipping, chalking and fading.
CONSOLIDATION
Over the last several years, there has been consolidation in the
metal components and metal building systems industry, which includes a large
number of small local and regional firms. Management believes that this industry
will continue to consolidate, driven by the needs of manufacturers to increase
manufacturing capacity, achieve greater process integration and add geographic
diversity in order to meet customers' product and delivery needs, improve
production efficiency and manage costs.
PRODUCTS AND MARKETS
The Company's product lines consist of metal components for the
building industry and metal building systems. The Company's sales, respectively,
for the periods indicated attributable to these product lines were approximately
as follows:
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<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
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1994 1995 1996 1997 1998
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(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Metal building systems......... $126.7 75.5% $173.9 74.3% $213.0 64.0% $246.6 60.5% $264.1 39.1%
Metal components............... 41.1 24.5% 60.3 25.7% 119.9 36.0% 161.2 39.5% 411.2 60.9%
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Total revenues................. $167.8 100% $234.2 100% $332.9 100% $407.8 100% $675.3 100%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
</TABLE>
Metal Components. The Company's metal components consist of
individual components, including secondary structural framing, covering systems
and associated metal trims, that are sold directly to contractors or end users
for use in the building industry, including the construction of metal buildings.
The Company also stocks and markets metal component parts for use in the
maintenance and repair of existing buildings. Specific component products
consist of end and side wall panels, roof panels, purlins, girts, partitions,
header panels and related trim and screws. The Company believes it offers the
widest selection of metal components in the building industry.
Purlins and girts, which are medium gauge, roll formed steel
components, are supplied to builders for secondary structural framing. The
Company custom produces purlins and girts for its customers and offers the
widest selection of sizes and profiles of purlins and girts in the United
States. Covering systems, consisting of wall and roof panels, protect the rest
of the structure and the contents of the building from the weather, while also
contributing to the structural integrity of the building.
The Company's metal roofing products are attractive and durable. The
Company uses standing seam roof technology to replace traditional built-up and
single-ply roofs as well as to provide a distinctive look to new construction.
The Company manufactures and designs metal roofing systems for sales to regional
metal building manufacturers, general contractors and subcontractors. The
Company believes it has the broadest line of standing seam roofing products in
the building industry. The Company has also developed and patented a retrofit
metal panel, Retro-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. Although metal roofing is somewhat
more expensive than traditional roofing in upfront costs, its durability and low
maintenance costs make metal roofing a lower cost roofing product after the
first 10 years.
The Company manufactures overhead doors and interior and exterior
doors for use in metal and other buildings. The Company is one of the largest
suppliers in the U.S. of roll-up doors to builders of self-storage facilities.
The Company provides its own metal coating and painting products and
services for use in component manufacturing. As a toll coater of hot roll steel
coils, the Company also provides pre-painted hot roll coils to manufacturers of
metal building systems and metal components. Either a customer provides coils
through its own supply channels, which are processed by the Company, or the
Company purchases hot roll coils and processes them for sale as a packaged
product. The Company also pre-paints light gauge steel coils for steel mills,
which supply the painted coils to various industrial users, including
manufacturers of metal building systems, metal components and lighting fixtures.
The Company's metal coating and painting operations apply a variety
of paint systems to metal coils. The process generally includes cleaning and
painting the coil and slitting it to customer specifications. The Company
believes that pre-painted metal coils are a better quality product,
environmentally cleaner and more cost-effective than painted metal products
prepared in other manufacturers' in-house painting operations. Painted metal
coils also offer manufacturers the opportunity to produce a broader and more
aesthetically pleasing range of products.
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Metal Building Systems. Metal building systems consist of structural
beams and panels that are welded and roll formed in a factory and shipped to a
construction site complete and ready for assembly. The Company designs an
integrated metal building system that meets customer specifications and allows
easy on-site assembly by the builder or independent contractor. Metal building
systems typically consist of three systems:
o Primary Structural Framing. Primary structural framing,
fabricated from heavy-gauge steel, supports the secondary
structural framing, roof, walls and all externally applied
loads. Through the primary framing, the force of all applied
loads is structurally transferred to the foundation.
o Secondary Structural Framing. Secondary structural framing
consists of medium-gauge, roll-formed steel components called
purlins and girts. Purlins are attached to the primary frame
to support the roof. Girts are attached to the primary frame
to support the walls. The secondary structural framing is
designed to strengthen the primary structural framing and
efficiently transfer applied loads from the roof and walls to
the primary structural framing.
o Covering Systems. Covering systems consist of roof and wall
panels. These panels not only lock out the weather but also
contribute to the structural integrity of the overall building
system. Roof and siding panels are fabricated from
light-gauge, roll-formed steel. Accessory components complete
the metal building system. These components include doors,
windows, gutters and interior partitions.
SALES, MARKETING AND CUSTOMERS
Metal Components. The Company sells metal components directly to
regional manufacturers, contractors, subcontractors, distributors, lumberyards,
cooperative buying groups and other customers under the brand names "Metal
Building Components," "American Building Components" and "MBCI." Roll-up doors,
interior and exterior doors, interior partitions and walls, header panels and
trim are sold directly to contractors and other customers under the brand names
"Doors & Building Components" or "DBCI." These components also are produced for
integration into self storage and metal building systems sold by the Company.
The Company markets its components products within four product
lines: (i) commercial/industrial; (ii) architectural; (iii) wood frame builders;
and (iv) residential. Customers include regional metal building systems
manufacturers, general contractors, subcontractors, roofing installers,
architects and end-users. Commercial and industrial businesses are heavy users
of metal components and metal buildings systems. Standing seam roof and
architectural customers are growing in importance. As metal buildings become a
more acceptable building alternative and aesthetics become an increasingly
important consideration for end users of metal buildings, the Company believes
that architects are participating in metal building design and purchase
decisions to a greater extent. Wood frame builders also purchase the Company's
metal components through distributors, lumberyards, cooperative buying groups
and chain stores for various uses, including agricultural buildings. Residential
customers are generally contractors building upscale homes that require an
architect-specified product.
The Company's metal components sales operations are organized into
four geographic regions. Each region is headed by a general sales manager
supported by individual plant sales managers. Each local sales office is located
adjacent to a manufacturing plant and is staffed by a direct sales force
responsible for contacting customers and architects and a sales coordinator who
supervises the sales process from the time the order is received until it is
shipped and invoiced. The regional and local focus of the Company's customers
requires extensive knowledge of local business conditions.
The Company provides its customers with product catalogs tailored to
its product lines, which include product specifications and suggested list
prices. Certain of the Company's catalogs are available on-line through the
Internet, which enables architects and other customers to download drawings for
use in developing project
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specifications. Customers place orders via telephone or facsimile to a sales
coordinator at the regional office who enters it onto a standard order form. The
form is then sent via computer to the plant and downloaded automatically to the
production machines.
The Company has a small number of national accounts for its coating
and painting products and services and relies on a single sales manager. The
Company's metal coating joint venture has an independent sales force.
Metal Building Systems. The Company sells metal building systems to
builders nationwide under the brand names "Metallic Buildings," "A&S Buildings"
and "Mesco." The Company markets metal building systems through an in-house
sales force to authorized builder networks of over 1,200 builders. The Company
markets metal building systems under the brand name "Mid-West Steel Buildings"
directly to contractors in Texas and surrounding states using an in-house sales
force. The Company also sells metal building systems under the name "All
American Systems" and various private labels.
The Company's authorized builder networks consist of independent
general contractors which market the Company's Metallic Buildings, A&S Buildings
and Mesco products to end users. Most of the Company's sales of metal building
systems outside of Texas and surrounding states are through its authorized
builder networks. The Company relies upon maintaining a satisfactory business
relationship for the continued receipt of job orders from its authorized
builders and does not consider the builder agreements to be material to its
business. During fiscal 1998, the Company's largest customer for metal building
systems accounted for less than 2% of the Company's total sales.
The Company enters into an agreement with an authorized builder,
which generally grants the builder the non-exclusive right to market the
Company's products in a specified territory and which is cancelable by either
party on 60 days notice. The agreements do not prohibit the builder from
marketing metal building systems of other manufacturers. The Company establishes
an annual sales goal for each builder and provides to the builder sales and
pricing information, design and engineering manuals, drawings and assistance,
application programs for estimating and quoting jobs and advertising and
promotional literature. The Company also defrays a portion of the builder's
advertising costs and provides volume purchasing and other pricing incentives to
encourage them to deal exclusively or principally with the Company. The builder
is required to maintain a place of business in its designated territory, provide
a sales organization, conduct periodic advertising programs and perform
construction, warranty and other services for customers and potential customers.
An authorized builder usually is hired by an end user to erect a metal building
system on the customer's site and provide general contracting and other services
ancillary to the completion of the project. The Company sells its products to
the builder, which generally includes the price of the building as a part of its
overall construction contract with its customer.
MANUFACTURE AND DESIGN
Metal Components. The Company operates 37 facilities used for
manufacturing of metal components for the building industry, including its metal
coating and painting operations. The Company believes this broad geographic
penetration gives it an advantage over its components competitors because major
elements of a customer's decision are the speed and cost of delivery from the
manufacturing facility to the product's ultimate destination. With the exception
of the Company's architectural and standing seam products, the Company is not
involved in the design process for the components it manufactures. The Company
also owns a fleet of trucks to deliver its products to its customers in a more
timely manner than most of its competitors.
The Company's doors, interior partitions and other related panels and
trim products are manufactured at dedicated plants in Georgia, Texas and
Arizona. The products are roll-formed or fabricated at each plant using
roll-formers and other metal working equipment. Orders are processed at the
Georgia plant and sent to the appropriate plant, which is generally determined
in a manner to obtain the lowest shipping cost.
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Metal Coating and Painting. The Company operates two metal coating
and painting facilities for hot rolled, medium gauge steel coils and two metal
coating and painting facilities for painting light gauge steel coils. These
facilities primarily service the needs of the Company, but the Company also
processes steel coils at these facilities for other manufacturers. Metal coating
and painting processes involve applying various types of chemical treatments and
paint systems to flat rolled continuous coils of metal, including steel and
aluminum, giving the coils a baked-on finish that both protects the metal and
makes it more attractive. Initially, various metal substrates in coil form are
flattened, cleaned and pretreated. The metal is then coated, oven cured, cooled,
recoiled and packaged for shipment. Slitting and embossing services can also be
performed on the coated metal prior to shipping pursuant to customer
specifications. Hot roll steel coils typically are used in the production of
secondary structural framing of metal buildings and other structure
applications. Painted light gauge steel coils are used in the manufacture of
products for building exteriors, metal doors, lighting fixtures and appliances.
The Company's metal coating operation is one of only two metal coaters in the
United States to receive the Supplier Excellence Award from Bethlehem Steel
Corporation.
The Company is a joint venture partner in two metal coating
operations. The Company owns 50% of an existing metal coating joint venture with
a processing plant in Jackson, Mississippi for painting light gauge steel coils.
The Company also owns 50% of a new joint venture, which has acquired land in
Granite City, Illinois and is building a hot rolled coil coating facility that
is expected to commence operations in early 1999. The new facility will be used
to slit and coat hot rolled coils of medium gauge steel for use in manufacturing
purlins and girts. The Company has agreed to purchase a substantial portion of
its production requirements for that product from the new joint venture.
Metal Building Systems. After the Company receives an order, the
Company's engineers design the metal building system to meet the customer's
requirements and to satisfy applicable building codes and zoning requirements.
In order to expedite this process, the Company uses computer-aided design and
engineering systems to generate engineering and erection drawings and a bill of
materials for the manufacture of the metal building system. The Company employs
approximately 185 engineers and draftsmen in this area.
Once the specifications and designs of the customer's project have
been finalized, the manufacturing process of frames and other building systems
begins at one of the Company's six manufacturing facilities in Texas, Georgia,
South Carolina or Tennessee or its joint venture facility in Mexico. The
fabrication of the primary structural framing consists of a process in which
rigid steel plates are punched and sheared and then routed through an automatic
welding machine and sent through further fitting and welding processes. The
secondary structural framing and the covering subsystem are roll-formed steel
products that are manufactured at the Company's full manufacturing facilities as
well as its components plants. In roll forming, pre-finished coils of steel are
unwound and passed through a series of progressive forming rolls which form the
steel into various profiles of medium-gauge structural shapes and light-gauge
sheets and panels.
Once manufactured, structural framing members and covering systems
are shipped to the job site for assembly. The Company generally is not
responsible for any on-site construction. The time elapsed between the Company's
receipt of an order and shipment of a completed building system has typically
ranged from four to eight weeks, although delivery can extend somewhat longer if
engineering and drafting requirements are extensive.
The Company owns 51% of a joint venture, which began operation of a
framing facility in Monterrey, Mexico in July 1997. The Company purchases
substantially all of the framing systems produced by the Mexico joint venture.
RAW MATERIALS
The principal raw material used in the manufacture of the Company's
metal building systems and component products is steel. Components are
fabricated from common steel products produced by mills including bars, plates,
sheets and galvanized sheets. During the 1998 fiscal year, the Company purchased
an aggregate of approximately 80% of its steel requirements from National Steel
Corporation and Bethlehem Steel Corporation. No other steel supplier
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accounted for more than 10% of the combined steel purchases for the same period.
The Company believes concentration of its steel purchases among a small group of
suppliers that have mills and warehouse facilities in close proximity to the
Company's facilities enables it, as a large customer of those suppliers, to
obtain better service and delivery. These suppliers generally maintain an
inventory of the types of materials required by the Company, enabling the
Company to utilize a form of "just-in-time" inventory management with regard to
raw materials.
The Company does not have any long-term contracts for the purchase of
raw materials. A prolonged labor strike against one of its principal domestic
suppliers could have a material adverse effect on the Company's operations.
Alternative sources, however, including foreign steel, are currently believed to
be sufficient to maintain required deliveries. BACKLOG
At October 31, 1998, the total backlog for orders for the Company's
products believed by the Company to be firm was $137 million. This compares with
a total backlog for NCI's products of $110 million at October 31, 1997 and for
MBCI's products of $16.1 million at December 31, 1997. The increases in backlog
reflect the results of the marketing activities of the Company and market
demand. Backlog primarily consists of metal building systems. Job orders
generally are cancelable by customers at any time for any reason and,
occasionally, orders in the backlog are not completed and shipped for reasons
that include changes in the requirements of the customers and the inability of
customers to obtain necessary financing or zoning variances. None of the backlog
at October 31, 1998 currently is scheduled to extend beyond October 31, 1999.
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
components and metal building systems for the building industry, ranging from
small local firms to large national firms. Most of these competitors operate on
a regional basis, although the Company believes that at least four other
manufacturers of metal building systems and several manufacturers of metal
components have nationwide coverage. In addition, the Company and other
manufacturers of metal components and metal building systems compete with
alternative methods of building construction, which may be perceived as more
traditional, more aesthetically pleasing or having other advantages. Competition
is based primarily on price, speed of construction, quality of builder/dealer
networks, the ability to provide added value in the design and engineering of
buildings and, among manufacturers of metal components and metal building
systems, service, quality and delivery times.
REGULATORY MATTERS
The Company's operations are subject to a wide variety of federal,
state and local laws and regulations governing, among other things, emissions to
air, discharges to waters, the generation, handling, storage, transportation,
treatment, and disposal of hazardous substances and other materials and health
and safety matters. Laws protecting the environment generally have become more
stringent than in the past and are expected to continue to do so. Environmental
laws and regulations generally impose "strict liability," which means that in
some situations the Company
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could be exposed to liability for cleanup costs, and "toxic tort" or other
damages as a result of conduct that was lawful at the time it occurred or
conduct of, or conditions caused by, prior operators or other third parties,
regardless of fault on the part of the Company. The Company believes it is in
substantial compliance with all environmental standards applicable to its
operations. There can be no assurance, however, that cleanup costs, natural
resource damages, criminal sanctions, "toxic tort" or other damages arising as a
result of environmental laws and costs associated with complying with changes in
environmental laws and regulations will not be substantial and will not have a
material adverse effect on the Company's financial condition. From time to time,
claims have been made against the Company under environmental laws. The Company
has insurance coverage for certain environmental claims and certain locations
after payment of the applicable deductible. The Company does not anticipate
material capital expenditures to meet current environmental quality control
standards. There can be no assurance that more stringent regulatory standards
will not be established that might require such expenditures.
The Company is also subject to federal, state and local laws and
regulations governing occupational safety and health, including review by the
federal Occupational Health and Safety Administration and similar state
agencies. The Company believes it is in substantial compliance with applicable
laws and regulations, and compliance does not have a material adverse affect on
the Company's business.
The metal building systems manufactured by the Company must meet
zoning and building code requirements promulgated by local governmental
agencies.
PATENTS, LICENSES AND PROPRIETARY RIGHTS
The Company has a number of United States patents and pending patent
applications, including patents relating to metal roofing systems and metal
overhead doors. The Company does not, however, consider patent protection to be
a material competitive factor in its industry. The Company also has several
registered trademarks and pending registrations in the United States.
EMPLOYEES
As of October 31, 1998, the Company had approximately 3,700
employees, of whom over 2,700 were manufacturing and engineering personnel. The
Company regards its employee relations as satisfactory.
The Company's employees are not represented by a labor union or
collective bargaining agreement, although the United Steel Workers of America
petitioned the National Labor Relations Board to be recognized as the collective
bargaining representative of the production and maintenance employees of the
Company's Tallapoosa, Georgia facility. An election for that purpose was held in
January 1996 and the union lost the election to be recognized as the collective
bargaining representative of such employees. Similar elections were held at the
Company's Mattoon, Illinois facility in November 1997 and the Rancho Cucamongo,
California facility in August 1998, and the United Steel Workers of America lost
those elections.
"This Annual Report 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 the
Company's filings 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."
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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 10th day of
February, 1999.
NCI BUILDING SYSTEMS, INC.
By: /s/ Robert J. Medlock
------------------------------------------
Robert J. Medlock, Executive Vice Chief
Financial Officer
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