<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: July 31, 2000
COMMISSION FILE NUMBER: 1-14315
NCI BUILDING SYSTEMS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
Delaware 76-0127701
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10943 N. Sam Houston Parkway W.
Houston, TX 77064
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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(281) 897-7788
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
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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--17,737,409 shares as of July 31, 2000
<PAGE> 2
NCI BUILDING SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PART 1. FINANCIAL STATEMENTS PAGE NO.
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<S> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated balance sheets 1
July 31, 2000 and October 31, 1999
Consolidated statements of income 2
Three months ended July 31, 2000 and 1999
Consolidated statements of income 3
Nine months ended July 31, 2000 and 1999
Condensed consolidated statements of cash flows 4
Nine months ended July 31, 2000 and 1999
Notes to consolidated financial statements 5-6
July 31, 2000
ITEM 2. Management's Discussion and Analysis of Financial 7-12
Condition and Results of Operations
PART 2. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 13
</TABLE>
<PAGE> 3
NCI BUILDING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,090 $ 16,089
Accounts receivable, net 122,584 105,608
Inventories 104,998 83,988
Deferred income taxes 6,943 6,943
Prepaid expenses 7,907 5,037
--------- ---------
Total current assets 251,522 217,665
Property, plant and equipment, net 229,320 197,855
Excess of costs over fair value of acquired net assets 400,812 398,606
Other assets, primarily investment in joint ventures 17,290 41,357
--------- ---------
Total assets $ 898,944 $ 855,483
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 38,797 $ 36,297
Accounts payable 76,484 65,209
Accrued compensation and benefits 15,473 17,021
Accrued income taxes 7,286 10,454
Other accrued expenses 21,485 28,113
--------- ---------
Total current liabilities 159,525 157,094
--------- ---------
Long-term debt, noncurrent portion 417,521 397,062
Deferred income taxes 23,997 24,037
Shareholders' equity:
Common stock 186 186
Additional paid in capital 86,663 97,289
Retained earnings 227,765 179,815
Treasury stock (16,713) --
--------- ---------
Total shareholders' equity 297,901 277,290
--------- ---------
Total liabilities and shareholders' equity $ 898,944 $ 855,483
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
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<PAGE> 4
NCI BUILDING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended July 31,
2000 1999
--------- ---------
<S> <C> <C>
Sales $ 272,749 $ 243,770
Cost of sales 200,270 180,320
--------- ---------
Gross profit 72,479 63,450
Operating expenses 37,492 33,167
--------- ---------
Income from operations 34,987 30,283
Interest expense 10,220 8,697
Other income, net (816) (748)
Joint venture (income) loss 334 (127)
--------- ---------
Income before income taxes 25,249 22,461
Provision for income taxes 10,348 8,966
--------- ---------
Income before extraordinary loss 14,901 13,495
Extraordinary loss on debt financing, net of tax -- (1,001)
--------- ---------
Net income $ 14,901 $ 12,494
========= =========
Net income per common and common equivalent share:
Basic:
Income before extraordinary loss $ .84 $ .73
Extraordinary loss, net of tax -- (.05)
========= =========
Net income $ .84 $ .68
========= =========
Diluted:
Income before extraordinary loss $ .82 $ .71
Extraordinary loss, net of tax -- (.05)
========= =========
Net income $ .82 $ .66
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
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<PAGE> 5
NCI BUILDING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine Months Ended July 31,
2000 1999
--------- --------
<S> <C> <C>
Sales $ 737,567 $ 675,481
Cost of sales 544,282 503,370
--------- ---------
Gross profit 193,285 172,111
Operating expenses 108,195 96,991
--------- ---------
Income from operations 85,090 75,120
Interest expense 28,974 27,636
Other income, net (2,334) (2,310)
Joint venture (income) losses (189) (1,186)
--------- ---------
Income before income taxes 58,639 50,980
Provision for income taxes 24,669 21,112
--------- ---------
Net income before extraordinary loss 33,970 29,868
Extraordinary loss on debt financing, net of tax -- (1,001)
========= =========
Net income $ 33,970 $ 28,867
========= =========
Net income per common and common equivalent share:
Basic:
Income before extraordinary loss $ 1.89 $ 1.63
Extraordinary loss, net of tax -- (.05)
========= =========
Net income $ 1.89 $ 1.58
========= =========
Diluted:
Income before extraordinary loss $ 1.85 $ 1.57
Extraordinary loss, net of tax -- (.05)
========= =========
Net income $ 1.85 $ 1.52
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
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<PAGE> 6
NCI BUILDING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended July 31,
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Income before extraordinary loss $ 33,970 $ 29,868
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 24,940 22,060
Gain on sale of fixed assets (203) (127)
Provision for doubtful accounts 1,850 1,905
Extraordinary loss on debt refinancing, net of tax -- (1,001)
Deferred income tax benefit (40) (279)
Changes in working capital:
Current assets (32,047) (9,533)
Current liabilities (712) 21,089
--------- ---------
Net cash provided by operating activities $ 27,758 $ 63,982
--------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (21,849) (26,757)
Acquisition of DOUBLECOTE, L.L.C (22,623) --
Other 2,875 (6,322)
--------- ---------
Net cash used in investing activities (41,597) (33,079)
--------- ---------
Cash flows from financing activities:
Proceeds from stock options exercise 594 952
Net (payments) borrowings on revolving lines of credit 49,250 (133,612)
Borrowings on long-term debt -- 125,000
Payments on long-term debt (26,291) (22,540)
Purchase of treasury stock (16,713) --
--------- ---------
Net cash provided by (used in) financing activities 6,840 (30,200)
--------- ---------
Net increase (decrease) in cash and cash equivalents $ (6,999) $ 703
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
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<PAGE> 7
NCI BUILDING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2000
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, 2000, are not necessarily indicative of the results that may be
expected for the fiscal year ended October 31, 2000.
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, 1999 filed with the Securities and Exchange
Commission.
NOTE 2 -- INVENTORIES
The components of inventory are as follows:
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
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<S> <C> <C>
Raw materials $ 82,121 $ 65,315
Work in process and finished goods 22,877 18,673
-------- --------
$104,998 $ 83,988
======== ========
</TABLE>
NOTE 3 - BUSINESS SEGMENTS
The Company adopted SFAS No. 131, Disclosures About Segments of an Enterprise
and Related Information in 1999. The Company has divided its operations into two
reportable segments: engineered building systems and metal building components,
based on similarities in product lines, manufacturing processes, marketing and
management of its businesses. Products of both segments are similar in basic raw
materials used and manufacturing. The engineered building systems segment
includes the manufacturing of structural framing and supplies value added
engineering and drafting, which are typically not part of component products or
services. The reporting segments follow the same accounting policies used for
the Company's consolidated financial statements. Management evaluates a
segments' performance based upon operating income. Intersegment sales are
recorded based on prevailing market prices, and consist primarily of products
and services provided to the engineered building systems segment by the metal
building components segment, including painting and coating of hot rolled
material. Information with respect to the segments is included in Management's
Discussion and Analysis of Financial Condition and Results of Operations.
-5-
<PAGE> 8
NCI BUILDING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2000
NOTE 4 -- 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,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income before extraordinary loss $ 14,901 $ 13,495 $ 33,970 $ 29,868
Add: Interest, net of tax on convertible
debenture assumed converted 17 17 50 50
-------- -------- -------- --------
Adjusted income before
extraordinary loss 14,918 13,512 34,020 29,918
Extraordinary loss on debt refinancing,
net of tax -- (1,001) -- 1,001)
-------- -------- -------- --------
Adjusted net income $ 14,918 $ 12,511 $ 34,020 $ 28,917
======== ======== ======== ========
Weighted average common shares outstanding 17,769 18,452 17,982 18,329
Add: Common stock equivalents
Stock option plan 336 563 291 679
Convertible debentures 100 100 100 100
-------- -------- -------- --------
Weighted average common shares
outstanding, assuming dilution 18,205 19,115 18,373 19,108
======== ======== ======== ========
Basic:
Income before extraordinary loss $ .84 $ .73 $ 1.89 $1.63
Extraordinary loss, net of tax -- (.05) -- (.05)
-------- -------- -------- --------
Net income $ .84 $ .68 1.89 1.58
======== ======== ======== ========
Diluted:
Income before extraordinary loss $ .82 $ .71 $ 1.85 $ 1.57
Extraordinary loss, net of tax -- (.05) -- (.05)
-------- -------- -------- --------
Net income $ .82 $ .66 $ 1.85 $ 1.52
======== ======== ======== ========
</TABLE>
NOTE 5 - ACQUISITION
On March 31, 2000, the Company acquired its partner's 50% share of DOUBLECOTE,
L.L.C., a metal coil coating business that it developed and previously owned
jointly with Consolidated Systems, Inc., a privately held company. The
transaction was valued at approximately $22.6 million, and was accounted for
using the purchase method. The excess of cost over the fair value of the
acquired assets was approximately $10 million, based on our preliminary purchase
price allocation, which may be adjusted upon final valuation of certain assets
and liabilities.
NOTE 6 - OTHER ITEMS
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial Statements. SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. In June 2000, the SEC issued
Staff Accounting Bulletin No. 101B ("SAB 101B"), Amendment: Revenue Recognition
in Financial Statements. SAB 101B delays the implementation date of SAB 101 to
the fourth fiscal quarter for registrants with fiscal years that begin after
December 15, 1999. The Company will adopt SAB 101 as required in the forth
fiscal quarter of 2001 and is evaluating the effect that such adoption may have
on its consolidated results of operations and financial position.
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<PAGE> 9
NCI BUILDING SYSTEMS, INC.
ITEM 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company's various product lines have been aggregated into two business
segments: metal building components and engineered building systems. These
aggregations are based on the similar nature of the products, distribution of
products and management and reporting of those products within the Company. Both
segments operate primarily in the nonresidential construction market. Sales and
earnings are influenced by general economic conditions, the level of
nonresidential construction activity, roof repair and retrofit demand and the
availability and terms of financing available for construction.
Products of both business segments are similar in basic raw materials used and
manufacturing. Engineered building systems includes the manufacturing of
structural framing and value added engineering and drafting, which are typically
not part of component products or services. The Company believes it has one of
the broadest product offerings of metal building products in the industry.
Intersegment sales consist primarily of products and services provided to the
engineered buildings segment by the components segment, including painting and
coating of hot rolled material. This provides better customer service, shorter
delivery time and minimizes transportation costs to the customer.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JULY 31, 2000 JULY 31, 1999
------------------ ------------------
% %
<S> <C> <C> <C> <C>
SALES TO OUTSIDE CUSTOMERS:
Engineered building systems ....... $ 89,525 33 $ 78,909 32
Metal building components ......... 183,224 67 164,861 68
Intersegment sales ................ 13,080 5 15,460 6
Corporate/eliminations ............ (13,080) (5) (15,460) (6)
--------- --------- --------- ---------
Total net sales .............. $ 272,749 100 $ 243,770 100
--------- --------- --------- ---------
OPERATING INCOME:
Engineered building systems ....... $ 10,008 11 $ 9,676 12
Metal building components ......... 25,289 14 20,628 13
Corporate/eliminations ............ (310) -- (21) --
--------- --------- --------- ---------
Total operating income ....... $ 34,987 13 $ 30,283 12
--------- --------- --------- ---------
TOTAL ASSETS:
Engineered building systems ....... $ 108,970 12 $ 90,636 11
Metal building components ......... 391,403 44 357,024 43
Corporate/eliminations ............ 398,571 44 390,563 46
--------- --------- --------- ---------
Total assets ................. $ 898,944 100 $ 838,223 100
--------- --------- --------- ---------
</TABLE>
-7-
<PAGE> 10
NCI BUILDING SYSTEMS, INC.
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
JULY 31, 2000 JULY 31, 1999
---------------------- ----------------------
% %
<S> <C> <C> <C> <C>
SALES TO OUTSIDE CUSTOMERS:
Engineered building systems... $ 240,682 33 $ 225,367 33
Metal building components..... 496,885 67 450,114 67
Intersegment sales............ 34,772 5 43,407 6
Corporate/eliminations........ (34,772) (5) (43,407) (6)
--------- --------- --------- ---------
Total net sales.......... $ 737,567 100 $ 675,481 100
--------- --------- --------- ---------
OPERATING INCOME:
Engineered building systems... $ 25,309 11 $ 25,992 12
Metal building components..... 61,008 12 49,368 11
Corporate/eliminations........ (1,227) -- (240) --
--------- --------- --------- ---------
Total operating income... $ 85,090 12 $ 75,120 11
--------- --------- --------- ---------
</TABLE>
THREE MONTHS ENDED JULY 31, 2000 COMPARED TO THREE MONTHS ENDED JULY 31, 1999
Consolidated sales for the third quarter of fiscal 2000 increased by $29
million, or 12%, compared to the third quarter of fiscal 1999. This increase in
sales includes a $9.0 million contribution from DOUBLECOTE which was acquired on
March 31, 2000.
ENGINEERED BUILDING SYSTEMS
For the quarter, engineered building systems sales increased by $10.6 million,
or 13%, compared to the same period in 1999. This increase was above the general
increases in the metal building industry sales for the same period and resulted
from new product introduction and increased market penetration. For the quarter,
this segment accounted for 33% of total sales compared to 32% for the same
period in 1999. As of July 31, 2000, the backlog of orders for this segment was
up 11% compared to July 31, 1999.
Operating income of this segment increased in the third quarter of fiscal 2000
by 3% to $10.0 million compared to $9.7 million in the third quarter of fiscal
1999. Operating income grew less rapidly than sales due to start up costs
associated with the expansion of the Company's operations in Mexico and the
relocation and expansion of its Texas structural operations. As a percent of
engineered building systems' sales, operating income declined to 11% in the
current quarter compared to 12% in the prior year's third quarter.
METAL BUILDING COMPONENTS
For the quarter, metal building component sales increased by $18.4 million, or
11%, compared to the same period in 1999. This increase included a $9.0 million
contribution from DOUBLECOTE. This segment accounted for 67% of consolidated
sales in the third quarter of fiscal 2000 compared to 68% for the same period in
fiscal 1999.
Operating income for the third quarter of fiscal year 2000 increased by $4.7
million, or 23% over the prior year's third quarter. Operating income increased
at a faster rate than sales due to higher sales and margin contributions from
coating operations, better utilization of manufacturing facilities and improved
cost controls in the quarter.
CONSOLIDATED OPERATING EXPENSES, consisting of engineering, drafting, selling
and administrative costs, increased to $37.5 million in the third quarter
compared to $33.2 million in the third quarter last year. This represented an
increase of 13% which was slightly higher than the 12% increase in sales.
Operating expenses
-8-
<PAGE> 11
grew at a faster rate than sales due primarily to a larger operating and selling
base required to support anticipated growth in fiscal 2000 and information
technology cost related to the completion of various systems implementations in
the quarter.
INTEREST EXPENSE increased to $10.2 million in the third quarter of fiscal 2000
compared to $8.7 million in the third quarter of fiscal 1999. Increased
borrowings to fund the acquisition of DOUBLECOTE and the repurchase of common
stock and the general increase in floating rate interest rates as compared to
the prior year accounted for this increase.
JOINT VENTURE INCOME includes 50% interests in both light gauge and heavy gauge
coating operations in the United States and a 50% interest in a Mexico drafting
and sales operation. Income is recognized on the equity method of accounting. On
March 31, 2000, the company acquired the remaining 50% interest in DOUBLECOTE
(the light gauge coating operation). Since DOUBLECOTE was consolidated for the
third quarter, joint venture income represented only the remaining two
operations. This change accounted for the reduction in joint venture income for
the current quarter.
NINE MONTHS ENDED JULY 31, 2000 COMPARED TO NINE MONTHS ENDED JULY 31, 1999
Consolidated sales for the nine months ended July 31, 2000, increased by $62.1
million, or 9%, compared to the nine months ended July 31, 1999. Engineered
building systems increased 7% and metal building components was up 10% over the
prior year's nine-month period.
ENGINEERED BUILDING SYSTEMS
For the nine months, sales increased by $15.3 million, or 7%, compared to the
same period in fiscal 1999. This was up from the 3% growth experienced for the
first six months of this fiscal year. Engineered building systems accounted for
33% of total consolidated sales in the first nine months of fiscal 2000 compared
to 33% for the same period in fiscal 1999.
Operating income declined in the current nine months by $.6 million, or 3%,
compared to the same period in fiscal 1999. This decline is attributed to first
quarter results when operating income was down 23%. As a percent of sales,
operating income was 11% in the nine months ended July 31, 2000 compared to 11%
for the same period in fiscal 1999.
METAL BUILDING COMPONENTS
For the nine months, sales increased by $46.8 million, or 10%, compared to the
same period in fiscal 1999. Higher sales resulted from a general increase in
industry sales, higher volume in painting and coating resulting from increased
activity, and higher sales in the self-storage industry. This segment accounted
for 67% of total sales in the nine months ended July 31, 2000 compared to 67% in
the same period of fiscal 1999.
Operating income increased by $11.6 million, or 24%, compared to the same period
in fiscal 1999. This increase was due primarily to the increased sales volume
and higher plant utilization in the current year and higher sales contribution
from the coating operations which have a higher operating income margin. As a
percent of sales, operating income improved to 12% in fiscal 2000 compared to
10% in fiscal 1999.
CONSOLIDATED OPERATING EXPENSES increased by $11.2 million, or 12%, in the
current nine months compared to the same period of 1999. Operating expenses
increased at a faster rate than sales due to costs incurred to meet expected
increases in sales demand and technology related costs incurred to complete
projects in the nine month period. As a percent of sales, operating expenses
were 14.7% in fiscal 2000 compared to 14.4% in the same period in fiscal 1999.
INTEREST EXPENSE for the nine month period was $29.0 million compared to $27.6
million in the prior year's nine months. Lower average borrowing levels in
fiscal year 2000 were offset by higher rates in the current year.
-9-
<PAGE> 12
JOINT VENTURE operations are described under the three-month discussion. The
decline in joint venture income is related to the acquisition of DOUBLECOTE as
discussed above.
-10-
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 2000, the Company had working capital of $92.0 million compared
to $60.6 million at the end of fiscal 1999. The majority of this increase came
from an increase in receivables and inventory of $38.0 million. The Company
generated cash flow from operations before changes in working capital components
of $60.5 million during the first nine months of fiscal 2000. This cash flow,
along with additional borrowings under the Company's credit agreements, of which
$22.6 million, was used to finance the acquisition of DOUBLECOTE, $16.7 million
for the repurchase of Company common stock and capital expenditures of $21.8
million. Because of the seasonal nature of the Company's operations, working
capital needs are generally funded by debt borrowings early in the year with the
majority of debt reduction occurring in the second half of the year as sales and
income increase.
The Company has a $440 million senior credit facility from a syndicate of banks,
which includes a $40 million 364-day facility and a $200 million five-year
revolver which matures on July 1, 2003. In addition, the Company has a five-year
term loan which matures on July 1, 2003 and requires current quarterly payments
($8.75 million in the third quarter of 2000) which gradually increase to $12.5
million at maturity. As of July 31, 2000, the Company had $194.7 million
outstanding under the revolving credit facility and had $135 million outstanding
under the five-year term loan.
Loans bear interest, at the Company's option, as follows: (1) base rate loans at
the base rate plus a margin that ranges from 0% to 0.5% and (2) LIBOR loans at
LIBOR plus a margin that ranges from 0.75% to 2.0%. Base rate is defined as the
higher of the Bank of America, N.A. 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 1.375% on LIBOR loans and 0% on base rate loans.
The 364-day revolver matures on May 1, 2001. Borrowing under the senior credit
facility may be prepaid and the voluntary reduction of the unutilized portion of
the five-year revolver may be made at any time, in certain 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.
In addition, the Company has $125 million of senior subordinated notes, which
mature on May 1, 2009. The notes bear interest at the rate of 9.25%.
During the first nine months of fiscal 2000, the Company spent $21.8 million for
capital additions for plant expansions, capital replacements and betterments and
the completion of management information systems. The Company plans to spend an
additional $6 million in capital additions during fiscal 2000. Delays, changes
or cancellations of planned projects could increase or decrease capital spending
from the amounts anticipated at the current time.
Inflation has not significantly affected the Company's financial position or
operations. Metal components and engineered 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.
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<PAGE> 14
MARKET RISK DISCLOSURE
The Company is subject to market risk exposure related to changes in interest
rates on its senior credit facility, which includes revolving credit notes and
term notes. These instruments carry interest at a pre-agreed upon percentage
point spread from either the prime interest rate or LIBOR. Under its senior
credit facility, the Company may, at its option, fix the interest rate for
certain borrowings based on a spread over LIBOR for 30 days to nine months. At
July 31, 2000, the Company had $329.7 million outstanding under its senior
credit facility. Based on this balance, an immediate change of one percent in
the interest rate would cause a change in interest expense of approximately $3.3
million on an annual basis. The Company's objective in maintaining these
variable rate borrowings is the flexibility obtained regarding early repayment
without penalties and lower overall cost as compared to fixed-rate borrowings.
FORWARD LOOKING STATEMENTS
This Form 10-Q contains 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,
fluctuations in customer demand and order 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, including its annual report on Form
10-K for the year ended October 31, 1999. 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> 15
NCI BUILDING SYSTEMS, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
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<PAGE> 16
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 13, 2000 By: /s/ ROBERT J. MEDLOCK
---------------------------
Robert J. Medlock
Executive Vice President and
Chief Financial Officer
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<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
