<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, 2000
-----------------
COMMISSION FILE NUMBER: 1-14315
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NCI BUILDING SYSTEMS, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 76-0127701
- -------------------------------------- ----------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7301 Fairview
Houston, TX 77041
- ------------------------------------------ -------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 466-7788
- --------------------------------------------------------------------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
Not Applicable
- --------------------------------------------------------------------------------
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--18,141,822 shares as of January 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
January 31, 2000 and October 31, 1999
Consolidated statements of income 2
Three months ended January 31, 2000 and 1999
Condensed consolidated statements of cash flows 3
Three months ended January 31, 2000 and 1999
Notes to consolidated financial statements 4
January 31, 2000
ITEM 2. Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
PART 2. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 11
</TABLE>
<PAGE> 3
NCI BUILDING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
January 31, October 31,
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,640 $ 16,089
Accounts receivable, net 104,603 105,608
Inventories 90,089 83,988
Deferred income taxes 6,943 6,943
Prepaid expenses 6,349 5,037
--------- --------
Total current assets 214,624 217,665
Property, plant and equipment, net 199,447 197,855
--------- --------
Other assets:
Excess of costs over fair value of acquired net assets 396,444 398,606
Investment in joint ventures and other assets 37,834
41,357
--------- --------
Total assets $ 848,349 $855,483
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 37,547 $ 36,297
Accounts payable 57,038 65,209
Accrued compensation and benefits 9,934 17,021
Accrued income taxes 8,005 10,454
Other accrued expenses 20,653 28,113
--------- --------
Total current liabilities 133,177 157,094
--------- --------
Long-term debt, noncurrent portion 411,649 397,062
Deferred income taxes 24,022 24,037
--------- --------
Shareholders' equity:
Common stock 186 186
Additional paid in capital 97,508 97,289
Retained earnings 188,813 179,815
Treasury Stock (7,006) --
--------- --------
Total shareholders' equity 279,501 277,290
--------- --------
Total liabilities and shareholders' equity $ 848,349 $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
January 31,
2000 1999
-------- --------
<S> <C> <C>
Sales $232,052 $214,347
Cost of sales 172,656 160,070
-------- --------
Gross profit 59,396 54,277
Operating expenses 35,183 32,070
-------- --------
Income from operations 24,213 22,207
Interest expense 9,249 9,751
Other income 797 670
Joint venture income 104 20
-------- --------
Income before income taxes 15,865 13,146
Provision for income taxes 6,867 5,721
-------- --------
Net income $ 8,998 $ 7,425
======== ========
Net income per common and common equivalent share:
Basic $ .49 $ .41
======== ========
Diluted $ .48 $ .39
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
-2-
<PAGE> 5
NCI BUILDING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
2000 1999
-------- --------
<S> <C> <C>
Net income $ 8,998 $ 7,425
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 7,880 7,034
(Gain) loss on sale of fixed assets (66) 54
Provision for doubtful accounts 563 985
Deferred income tax provision (15) (254)
Changes in working capital:
Current assets (6,971) (3,301)
Current liabilities (25,116) (2,105)
-------- --------
Net cash provided by (used in) operating activities $(14,727) $ 9,838
Cash flows from investing activities:
Purchase of property, plant and equipment (6,113) (11,165)
Other 2,378 (1)
-------- --------
Net cash used in investing activities (3,735) (11,166)
-------- --------
Cash flows from financing activities:
Proceeds from stock options exercise 182 529
Net (payments) borrowing on revolving lines of credit 24,587 8,387
Payments on long-term debt (8,750) (7,500)
Purchase of treasury stock (7,006) --
-------- --------
Net cash provided by financing activities 9,013 1,416
-------- --------
Net increase (decrease) in cash and cash equivalents $ (9,449) $ 88
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
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<PAGE> 6
NCI BUILDING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 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 period ended January
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 consist of the following:
<TABLE>
<CAPTION>
January 31, October 31,
2000 1999
----------- -----------
<S> <C> <C>
Raw materials $ 72,068 $ 65,315
Work-in-process and finished goods 18,021 18,673
-------- -----------
$ 90,089 $ 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 components, based
upon 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 the
Management's Discussion and Analysis of Financial Condition and Results of
Operations on page 6.
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<PAGE> 7
NCI BUILDING SYSTEMS, INC.
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
January 31,
2000 1999
------- --------
<S> <C> <C>
Net income $ 8,998 $ 7,425
Add: Interest, on convertible debenture
assumed converted, net of tax 17 17
------- -------
Adjusted net income $ 9,015 $ 7,442
Weighted average common shares outstanding 18,274 18,168
Add: Common stock equivalents
Stock option plan 261 833
Convertible debentures 100 100
------- -------
Weighted average common shares outstanding,
assuming dilution 18,635 19,101
======= =======
Net income per common and common equivalent share:
Basic $ .49 $ .41
======= =======
Diluted $ .48 $ .39
======= =======
</TABLE>
NOTE 5 - 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, which is effective for the first fiscal quarter of the fiscal year
beginning after December 15, 1999, provides guidance on applying generally
accepted accounting principles to revenue recognition issues in financial
statements. The Company will adopt SAB 101 as required in the first fiscal
quarter of the fiscal year ended October 31, 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> 8
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, supplies 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 component segment including paintings 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
JANUARY 31, 2000 JANUARY 31, 1999
------------------ ------------------
% %
---- ----
<S> <C> <C> <C> <C>
SALES TO OUTSIDE CUSTOMERS:
Engineered building systems $ 76,778 33 $ 75,738 35
Metal building components 155,274 67 138,609 65
Intersegment sales 11,204 5 14,399 7
Corporate/eliminations (11,204) (5) (14,399) (7)
--------- ---- --------- ----
Total net sales (1) $ 232,052 100 $ 214,347 100
========= ==== ========= ====
OPERATING INCOME:
Engineered building systems $ 7,066 9 $ 9,153 12
Metal building components 17,549 11 13,317 10
Corporate/eliminations (402) -- (263) --
--------- ---- --------- ----
Total operating income $ 24,213 10 $ 22,207 10
========= ==== ========= ====
TOTAL ASSETS:
Engineered building systems $ 95,953 11 87,124 11
Metal building components 358,150 42 345,323 42
Corporate/eliminations 394,246 47 393,444 47
--------- ---- --------- ----
Total assets $ 848,349 100 $ 825,891 100
========= ==== ========= ====
</TABLE>
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<PAGE> 9
NCI BUILDING SYSTEMS, INC.
THREE MONTHS ENDED JANUARY 31, 2000 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1999.
Consolidated sales for the quarter ended January 31, 2000 increased by $17.7
million, or 8%, compared to the first quarter of fiscal 1999. Most of this
increase came from the metal components segment, which was up 12% compared to
the prior year. Market share gains coupled with favorable prevailing weather
accounted for the increase over the prior year.
Engineered Building Systems sales increased only 1% in the first quarter
compared to the prior year's first quarter. Although our major building systems
operations showed improvement over the prior year, one of our regional operating
companies performed below expectations and offset these increases. Incoming
orders for engineered building systems were 11% over the prior year and backlog
at the end of the quarter was up 22%. Engineered building systems accounted for
33% of total consolidated sales in the first quarter of fiscal 2000 compared to
35% in the first quarter of fiscal 1999.
Operating income of engineered building systems declined in the first quarter of
fiscal 2000 by 23% to $7.1 million compared to $9.2 million in the prior year's
first quarter. Significant under performance in one of the Company's regional
operating units coupled with a general increase in operating expenses as
discussed below resulted in this decline in operating income contribution. As a
percent of sales, engineered building systems' operating income was 9% in the
current quarter compared to 12% in the prior year. Lower sales volume than
expected resulted in a higher percentage of operating expenses which accounted
for this decline. Gross profit margins in the current quarter were comparable to
the prior year.
Metal Building Components sales increased by 12% in the first quarter compared
to the prior year's first quarter. Favorable weather aided sales growth
particularly in the rural product lines of this segment. Higher sales volume
resulted in increased utilization of the painting and coating operations of this
segment and door and component sales into the mini storage industry were
particularly strong in the first quarter. This segment accounted for 67% of
consolidated sales in the first quarter of fiscal year 2000 compared to 65% in
the prior year's first quarter.
Increased sales volume and higher utilization of plant facilities resulted in a
32% increase in operating income for the first quarter of fiscal 2000 compared
to the prior year. As a percent of sales, operating income increased from 10% in
fiscal 1999 to 11% in fiscal 2000.
Consolidated operating expenses, consisting of engineering and drafting, selling
and administrative costs, increased to $35.2 million in the first quarter of
fiscal 2000 compared to $32.1 million in fiscal 1999. This represented an
increase of 10%, which was higher than the sales growth of 8%. Operating
expenses increased at a faster rate than sales due primarily to a larger
operating and selling expense base required to support an anticipated higher
revenue base in 2000, as well as higher information technology related costs in
the first quarter of 2000 relating to the completion of various systems
implementations in the quarter. As a percent of sales, operating expenses were
15.2% in fiscal 2000 compared to 15.0% in fiscal 1999.
-7-
<PAGE> 10
NCI BUILDING SYSTEMS, INC.
Interest expense in fiscal 2000 declined to $9.2 million compared to $9.8
million in fiscal 1999. This decrease resulted from lower average debt levels in
fiscal 2000 offset by increased rate cost due to the refinancing of $125 million
in floating rate debt to a fixed rate of 9.25% with longer maturity and the
general increase in floating rate interest costs in the first quarter of fiscal
2000 as compared to rates in the first quarter of fiscal 1999.
Joint Venture operations include 50% interests in both light gauge and heavy
gauge coil coating operations in the United States and a 50% interest in a
Mexico drafting and sales operation. Total joint venture income from these three
operations increased in fiscal 2000 due to improved operations at all three
ventures.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 2000, the Company had working capital of $81.4 million
compared to $60.6 million at the end of fiscal 1999. The majority of this
increase came from a reduction in current liabilities related to payments of
year end incentives and income tax payments for fiscal 1999. During the first
quarter of fiscal 2000, the Company generated cash flow from operations before
changes in working capital components of $17.4 million. This cash flow, along
with additional borrowings under the Company's credit agreements of $15.8
million, was used to finance the $20.8 million increase in working capital, net
repurchases of Company common stock of $7.0 million and capital expenditures of
$6.1 million. Because of the seasonal nature of the Company's operations,
working capital needs are generally funded by debt borrowing early in the year
with the majority of debt reduction occurring in the second half of the year as
sales and income increase early in the year.
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 required current quarterly payments
of $8.75 million in the first quarter of 2000 and gradually increasing to $12.5
million at maturity. As of January 31, 2000, the Company had $170.1 million
outstanding under the revolving credit facility and had $152.5 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, 2000 and the Company has requested a one
year extension of the maturity date. If the 364 day revolver is not extended by
the lenders, the Company has the option to convert it to a three-year term note.
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.
-8-
<PAGE> 11
NCI BUILDING SYSTEMS, INC.
In addition, the Company has $125 million of senior subordinated notes, which
mature on May 1, 2009. The notes have an interest rate of 9.25%.
During the quarter, the Company spent $6.1 million for capital additions for
plant expansions, capital replacements and betterments and the completion of
management information systems. The Company plans to spend approximately $26
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.
IMPACT OF YEAR 2000 ISSUE
During 1999, the Company completed a review of its computer systems to identify
the systems that could be affected by the year 2000 issue and implemented its
plans to ensure that its management information systems ("MIS") and computer
software were year 2000 compliant.
To date, the company has not experienced any year 2000 problems with either its
internal MIS or with any third parties with whom it transacts business. The
Company believes that it has addressed all issues which could have a material
adverse on its business, financial condition or results of operations.
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 six months. At
January 31, 2000, the Company had $322.6 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 $3.2
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.
-9-
<PAGE> 12
NCI BUILDING SYSTEMS, INC.
- --------------------------------------------------------------------------------
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.
-10-
<PAGE> 13
NCI BUILDING SYSTEMS, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
No. 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
-11-
<PAGE> 14
NCI BUILDING SYSTEMS, INC.
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: March 15, 2000 By: /s/ ROBERT J. MEDLOCK
--------------- ------------------------
Robert J. Medlock
Executive Vice President
Chief Financial Officer
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-2000
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 6,640
<SECURITIES> 0
<RECEIVABLES> 108,519
<ALLOWANCES> 3,916
<INVENTORY> 90,089
<CURRENT-ASSETS> 214,624
<PP&E> 244,377
<DEPRECIATION> 44,930
<TOTAL-ASSETS> 848,349
<CURRENT-LIABILITIES> 133,177
<BONDS> 0
0
0
<COMMON> 186
<OTHER-SE> 279,315
<TOTAL-LIABILITY-AND-EQUITY> 848,349
<SALES> 232,052
<TOTAL-REVENUES> 232,052
<CGS> 172,656
<TOTAL-COSTS> 172,656
<OTHER-EXPENSES> 34,620
<LOSS-PROVISION> 563
<INTEREST-EXPENSE> 9,249
<INCOME-PRETAX> 15,865
<INCOME-TAX> 6,867
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,998
<EPS-BASIC> .49
<EPS-DILUTED> .48
</TABLE>
