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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, 2001
COMMISSION FILE NUMBER: 1-14315
NCI BUILDING SYSTEMS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 76-0127701
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10943 N. Sam Houston Parkway W.
Houston, TX 77064
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(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--18,098,196 shares as of February 28, 2001
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NCI BUILDING SYSTEMS, INC.
INDEX
PAGE NO.
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PART 1. FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated balance sheets 1
January 31, 2001 and October 31, 2000
Consolidated statements of income 2
Three months ended January 31, 2001 and 2000
Condensed consolidated statements of cash flows 3
Three months ended January 31, 2001 and 2000
Notes to condensed consolidated financial statements 4 - 6
January 31, 2001
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 10
PART 2. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 11
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NCI BUILDING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
January 31, October 31,
2001 2000
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,897 $ 2,999
Accounts receivable, net 98,378 119,368
Inventories 109,037 98,612
Deferred income taxes 4,986 4,986
Prepaid expenses 7,898 7,482
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Total current assets 228,196 233,447
Property, plant and equipment, net 230,722 231,042
Excess of costs over fair value of acquired net assets 396,167 395,073
Other assets, primarily investment in joint ventures 19,902 20,358
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Total assets $ 874,987 $ 879,920
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 44,047 $ 42,806
Accounts payable 49,860 74,400
Accrued compensation and benefits 15,436 21,383
Accrued income taxes 1,170 3,194
Other accrued expenses 16,370 26,007
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Total current liabilities 126,883 167,790
--------- ---------
Long-term debt, noncurrent portion 404,524 374,448
Deferred income taxes 23,559 23,574
Shareholders' equity:
Common stock 186 186
Additional paid in capital 96,178 97,224
Retained earnings 235,754 231,754
Treasury stock (12,097) (15,056)
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Total shareholders' equity 320,021 314,108
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Total liabilities and shareholders' equity $ 874,987 $ 879,920
========= =========
See accompanying notes to condensed consolidated financial statements.
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NCI BUILDING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended January 31,
2001 2000
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Sales $ 216,562 $ 232,052
Cost of sales 164,845 172,656
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Gross profit 51,717 59,396
Operating expenses 36,217 35,183
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Income from operations 15,500 24,213
Interest expense 9,494 9,249
Other income, net (611) (901)
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Income before income taxes 6,617 15,865
Provision for income taxes 2,617 6,867
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Net income $ 4,000 $ 8,998
========= =========
Income per common and common equivalent share:
Basic $ .23 $ .49
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Diluted $ .22 $ .48
========= =========
See accompanying notes to condensed consolidated financial statements.
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NCI BUILDING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
Three Months Ended January 31,
2001 2000
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Cash flows from operating activities:
Income before extraordinary loss $ 4,000 $ 8,998
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 8,970 7,880
Gain on sale of fixed assets (4) (66)
Provision for doubtful accounts 545 563
Deferred income tax benefit (15) (15)
Changes in working capital:
Current assets 9,518 (6,971)
Current liabilities (42,195) (25,116)
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Net cash used in operating activities $(19,181) $(14,727)
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Cash flows from investing activities:
Purchase of property, plant and equipment (3,746) (6,113)
Acquisition of Midland Metals, Inc. (5,521) --
Other 1,007 2,378
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Net cash used in investing activities (8,260) (3,735)
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Cash flows from financing activities:
Proceeds from stock options exercise 1,341 182
Net borrowings on revolving lines of credit 41,318 24,587
Payments on long-term debt (10,000) (8,750)
Purchase of treasury stock (320) (7,006)
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Net cash provided by financing activities 32,339 9,013
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Net increase (decrease) in cash and cash equivalents $ 4,898 $ (9,449)
======== ========
See accompanying notes to condensed consolidated financial statements.
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NCI BUILDING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 31, 2001
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. Certain prior year amounts have been reclassified to conform
with the current year presentation. Operating results for the three-month period
ended January 31, 2001 are not necessarily indicative of the results that may be
expected for the fiscal year ended October 31, 2001.
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, 2000 filed with the Securities and Exchange
Commission.
NOTE 2 -- INVENTORIES
The components of inventory are as follows:
January 31, October 31,
2001 2000
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(in thousands)
Raw materials $ 78,559 $ 75,209
Work in process and finished goods 30,478 23,403
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$109,037 $ 98,612
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NOTE 3 - BUSINESS SEGMENTS
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 segment's 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.
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NCI BUILDING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 31, 2001
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:
Three Months Ended January 31,
2001 2000
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(in thousands, except per share data)
Net income $ 4,000 $ 8,998
Add: Interest, net of tax on convertible
debenture assumed converted
17 17
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Adjusted net income $ 4,017 $ 9,015
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Weighted average common shares outstanding 17,739 18,274
Add: Common stock equivalents
Stock options 275 261
Convertible debentures 100 100
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Weighted average common shares
outstanding, assuming dilution 18,114 18,635
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Income per common and common equivalent share:
Basic $ .23 $ .49
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Diluted $ .22 $ .48
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NOTE 5 - ACQUISITIONS
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. In December 2000, the Company
bought substantially all of the assets of Midland Metals, Inc., an Iowa-based
manufacturer of metal building components for $5.5 million in cash.
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 fourth
fiscal quarter of 2001 and is evaluating the effect that such adoption may have
on its consolidated results of operations and financial position.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("FAS 133"), Accounting for Derivative
Instruments and Hedging Activities. FAS 133, as amended, is effective for all
fiscal years beginning after June 15, 2000. FAS 133 requires that all
derivatives be recorded on the balance sheet at fair value. Changes in the fair
value of derivatives is required to be recorded each period in current earnings
or
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other comprehensive income, depending on whether a derivative is designated as
part of a hedged transaction and the type of hedge transaction. The ineffective
portion of all hedges is required to be recognized in earnings. NCI adopted FAS
133 effective November 1, 2000, and such adoption did not have a material effect
on consolidated results of operations or financial position.
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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.
During the quarter ended January 31, 2001, the Company reclassified
administrative expenses incurred by corporate headquarters from identified
reportable segments to corporate expenses for purposes of management reporting.
Financial data for prior periods has been restated to conform to the current
presentation.
THREE MONTHS ENDED THREE MONTHS ENDED
JANUARY 31, 2001 JANUARY 31, 2000
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% %
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SALES TO OUTSIDE CUSTOMERS:
Engineered building systems .......... $ 74,973 35 $ 76,778 33
Metal building components ............ 141,589 65 155,274 67
Intersegment sales ................... 11,670 5 11,204 5
Corporate/eliminations ............... (11,670) (5) (11,204) (5)
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Total net sales ................. $ 216,562 100 $ 232,052 100
--------- --------- --------- ---------
OPERATING INCOME:
Engineered building systems .......... $ 9,372 13 $ 9,545 12
Metal building components ............ 12,657 9 20,910 13
Corporate/eliminations ............... (6,529) -- (6,242) --
--------- --------- --------- ---------
Total operating income .......... $ 15,500 7 $ 24,213 10
--------- --------- --------- ---------
TOTAL ASSETS:
Engineered building systems .......... $ 86,609 10 $ 95,953 11
Metal building components ............ 385,523 44 358,150 42
Corporate/eliminations ............... 402,855 46 394,246 47
--------- --------- --------- ---------
Total assets .................... $ 874,987 100 $ 848,349 100
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NCI BUILDING SYSTEMS, INC.
THREE MONTHS ENDED JANUARY 31, 2001 COMPARED TO THREE MONTHS ENDED JANUARY 31,
2000
Consolidated sales for the quarter ended January 31, 2001 decreased by $15.5
million, or 6.7%, compared to the first quarter of fiscal 2000. Exceptionally
poor weather conditions reduced construction activity this winter much more than
normal, causing shipments in all aspects of the Company's business to be
delayed. Weather conditions have been more severe than those experienced in the
past four or five years. These conditions accounted for the bulk of the decline
in sales for the first quarter. These conditions continued into February and
will impact sales and earnings performance in the second quarter.
Engineered Building Systems sales decreased by 2.4% in the first quarter
compared to the prior year's first quarter. All divisions were impacted by
weather related delays during the quarter. Based on published information, the
decrease in sales was less than experienced by the Company's major competitors.
Incoming orders for engineered building systems were 1.0% over the prior year
and backlog at the end of the quarter was up 7.5%.
Operating income of the engineered building systems segment declined in the
first quarter of fiscal 2001 by 1.8% to $9.4 million compared to $9.5 million in
the prior year's first quarter. The decrease in operating income was in line
with the decrease in sales for the period. As a percent of sales, engineered
building systems' operating income was 12.5% in the current quarter compared to
12.4% in the prior year.
Metal Building Components sales decreased by 8.8% in the first quarter compared
to the prior year's first quarter. The majority of this decline resulted from
the more severe weather conditions being experienced this quarter compared to
the prior year. Both the mini storage and rural sections of the components
business were impacted by the unfavorable weather to a greater degree than other
sections. Lower sales led to lower utilization of the coating plants and the
severe weather resulted in lost production days in some mid-west and northern
components plants, with resultant adverse impact on margins. Coupled with higher
energy costs, primarily a doubling of natural gas costs in the first quarter,
operating income of the building components segment declined by 39.5% in fiscal
2001 compared to fiscal 2000. As a percent of sales, operating income was 8.9%
compared to 13.5% in the prior year's first quarter.
Consolidated operating expenses, consisting of engineering and drafting, selling
and administrative costs, increased to $36.2 million in the first quarter of
fiscal 2001 compared to $35.2 million in fiscal 2000. This represented an
increase of 2.9% compared to the sales decline of 6.7%. Due to seasonal factors,
the first half of the fiscal year is historically not as strong as the second
half and operating expense increases tend to be proportionally higher in the
first half of the fiscal year. As a percent of sales, operating expenses were
16.7% in fiscal 2001 compared to 15.2% in fiscal 2000.
Interest expense in fiscal 2001 increased to $9.5 million compared to $9.2
million in fiscal 2000. This increase resulted from a higher borrowing rate in
fiscal 2001 compared to fiscal 2000 based on higher LIBOR and prime rates.
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LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 2001, the Company had working capital of $101.3 million
compared to $65.7 million at the end of fiscal year 2000. The majority of this
increase came from a reduction in current liabilities related to payments of
year-end incentives, timing of trade accounts payable and income tax payments
for fiscal year 2000. During the first quarter of fiscal 2001, the Company
generated cash flow from operations before changes in working capital components
of $13.5 million. This cash flow along with borrowing under the Company's senior
revolving credit agreements of $31.3 million, was used to finance the $35.6
million increase in working capital, the $5.5 million acquisition of Midland
Metals and capital expenditures of $3.7 million. Because of the seasonal nature
of the Company's operations, working capital needs are generally funded by debt
borrowing in the first half of 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 $240 million senior credit facility from banks which includes
a $40 million 364 day facility that matures on April 30, 2001, unless renewed,
and a $200 million revolver which matures on July 1, 2003. In addition, the
Company has a term loan which matures on July 1, 2003 and requires quarterly
payments of $10.0 million currently and gradually increasing to $12.5 million at
maturity. As of January 31, 2001, the Company had $207.0 million outstanding
under the revolving credit facility and had $115.0 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 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 Company intends to request a one year extension of the maturity date of the
364-day revolver. If the 364-day revolver is not extended by the lenders, the
Company has the option to convert it to a term note that would mature on July 1,
2003. 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 a rate of 9.25%.
During the quarter, the Company spent $3.7 million for capital additions for
plant expansions and capital replacements and betterments. In addition, the
Company spent $5.5 million to acquire the assets and business of Midland Metals,
Inc. The Company plans to spend approximately $15 million in capital additions
in fiscal 2001, in addition to the Midland Metals, Inc. acquisition. 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.
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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.
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, 2001, the Company had $322.0 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.
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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
acquisitions 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, 2000. 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.
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NCI BUILDING SYSTEMS, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None
(b) REPORTS ON FORM 8-K
None
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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 14, 2001 By: /s/ Robert J. Medlock
----------------------
Robert J. Medlock
Executive Vice President and
Chief Financial Officer
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