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FORM 10-Q/A
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
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COMMISSION FILE NUMBER: 1-14315
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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
--- ---
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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FORWARD LOOKING STATEMENTS
"This Quarterly Report contains forward-looking statements concerning our
business and operations. Although we believe 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 acquisitions
accretive to earnings, and general economic conditions affecting the
construction industry, as well as other risks detailed in our filings with the
SEC. We expressly disclaim any obligations to release publicly any updates or
revisions to these forward-looking statements to reflect any changes in our
expectations."
EXPLANATORY NOTE - RESTATEMENT
NCI Building Systems, Inc. (the "Company") is filing this amendment to its
quarterly report on Form 10-Q in order to restate its consolidated financial
statements for the first quarter of fiscal 2001. This restatement reflects an
adjustment relating to accounting and management information systems errors that
impacted certain inventories and related liabilities. The net effect for the
first quarter of fiscal 2001, after adjusting for income tax of $709,000, is a
$1,158,000 decrease to net income, from $4,000,000 to $2,842,000. The impact of
this restatement on the financial statements for the fiscal quarter ended
January 31, 2001, is summarized in Note 7 to the consolidated financial
statements contained herein.
Contemporaneously with this filing, the Company also is filing an amendment to
its Annual Report on Form 10-K for the year ended October 31, 2000 in order to
restate its consolidated financial statements for the years ended October 31,
1999 and October 31, 2000.
General information in the originally filed Form 10-Q for the quarter ended
January 31, 2001 was presented as of the original filing date or earlier, as
indicated. Unless otherwise stated, such information has not been updated in
this amended filing. Financial statement and related disclosures contained in
this amended filing reflect, where appropriate, changes to conform to the
restatements.
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE NO.
Item 1. Financial Statements
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 4-7
January 31, 2001
Item 2. Management's Discussion and Analysis of Financial 8-11
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 3. Defaults Upon Senior Securities 12
Item 6. Exhibits and Reports on Form 8-K 12
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
January 31, October 31,
2001 2000
----------- -----------
(Restated) (Restated)
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents ....................... $ 7,897 $ 2,999
Accounts receivable, net ........................ 98,378 119,368
Inventories ..................................... 98,114 87,613
Deferred income taxes ........................... 4,986 4,986
Prepaid expenses ................................ 7,898 7,482
--------- ---------
Total current assets ............................ 217,273 222,448
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
--------- ---------
Total assets .............................................. $ 864,064 $ 868,921
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ............... $ 44,047 $ 42,806
Accounts payable ................................ 54,761 77,638
Accrued compensation and benefits ............... 15,436 21,383
Other accrued expenses .......................... 11,702 23,792
--------- ---------
Total current liabilities ....................... 125,946 165,619
--------- ---------
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 ............................... 225,768 222,926
Treasury stock .................................. (12,097) (15,056)
--------- ---------
Total shareholders' equity ...................... 310,035 305,280
--------- ---------
Total liabilities and shareholders' equity ................ $ 864,064 $ 868,921
========= =========
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
--------- ---------
(Restated) (Restated)
Sales ................................ $ 216,562 $ 232,052
Cost of sales ........................ 166,432 174,724
--------- ---------
Gross profit ................... 50,130 57,328
Operating expenses ................... 36,217 35,183
--------- ---------
Income from operations ........ 13,913 22,145
Interest expense ..................... 9,774 9,249
Other income, net .................... (611) (901)
--------- ---------
Income before income taxes .... 4,750 13,797
Provision for income taxes ........... 1,908 6,081
--------- ---------
Net income ........................... $ 2,842 $ 7,716
========= =========
Income per common and common equivalent share:
Basic ......................... $ .16 $ .42
========= =========
Diluted ....................... $ .16 $ .41
========= =========
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
-------- --------
(Restated) (Restated)
Cash flows from operating activities:
Net Income ................................................. $ 2,842 $ 7,716
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 ................................... 10,432 (7,206)
Current liabilities .............................. (40,961) (23,599)
-------- --------
Net cash used in operating activities ...................... (18,191) (14,727)
-------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment ............ (3,746) (6,113)
Acquisition of Midland Metals, Inc. .................. (5,521) --
Other ................................................ 17 2,378
-------- --------
Net cash used in investing activities ...................... (9,250) (3,735)
-------- --------
Cash flows from financing activities:
Proceeds from stock options exercised ................ 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)
-------- --------
Net cash provided by financing activities .................. 32,339 9,013
-------- --------
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 CONDENSED 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/A 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
----------- -----------
(in thousands)
Raw materials ......................... $70,105 $66,696
Work in process and finished goods .... 28,009 20,917
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$98,114 $87,613
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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 upon similarities in
product lines, manufacturing process, marketing and management of its business.
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 includes value added engineering and
drafting, which are typically not part of metal building 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 hot roll
and light gauge metal coil coating and painting services and products.
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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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 ........................................... $ 2,842 $ 7,716
Add: Interest, net of tax on convertible
debenture assumed converted ............ 17 17
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Adjusted net income ......................... $ 2,859 $ 7,733
======= =======
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
======= =======
Income per common and common
equivalent share:
Basic ....................................... $ .16 $ .42
======= =======
Diluted ..................................... $ .16 $ .41
======= =======
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.
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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 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.
NOTE 7 - RESTATEMENT
The Company has restated its consolidated financial statements for the first
quarter of fiscal 2001. This restatement reflects an adjustment relating to
accounting and management information systems errors that impacted certain
inventories and related liabilities. The net effect for the first quarter of
fiscal 2001, after adjusting for income tax of $709,000, is a $1,158,000
decrease to net income, from $4,000,000 to $2,842,000.
Three Months Ended January 31
--------------------------------------------------------------
2001 2000
---------------------------- ----------------------------
As Reported As Restated As Reported As Restated
----------- ----------- ----------- -----------
Sales ........................................... $ 216,562 $ 216,562 $ 232,052 $ 232,052
Cost of sales ................................... 164,845 166,432 172,656 174,724
--------- --------- --------- ---------
Gross profit ........................... 51,717 50,130 59,396 57,328
Operating expenses .............................. 36,217 36,217 35,183 35,183
--------- --------- --------- ---------
Income from operations ................. 15,500 13,913 24,213 22,145
Interest expense ................................ 9,494 9,774 9,249 9,249
Other income, net ............................... (611) (611) (901) (901)
--------- --------- --------- ---------
Income before income taxes ............. 6,617 4,750 15,865 13,797
Provision for income taxes ...................... 2,617 1,908 6,867 6,081
--------- --------- --------- ---------
Net income ...................................... $ 4,000 $ 2,842 $ 8,998 $ 7,716
========= ========= ========= =========
Income per common and common equivalent share:
Basic .................................. $ .23 $ .16 $ .49 $ .42
========= ========= ========= =========
Diluted ................................ $ .22 $ .16 $ .48 $ .41
========= ========= ========= =========
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January 31, 2001 October 31, 2000
--------------------------- --------------------------
As Reported As Restated As Reported As Restated
----------- ----------- ----------- -----------
Inventories ................................. $109,037 98,114 98,612 87,613
Total current assets ........................ 228,196 217,273 233,447 222,448
Total assets ................................ 874,987 864,064 879,920 868,921
Accounts payable ............................ 49,860 54,761 74,400 77,638
Other accrued expenses ...................... 17,540 11,702 29,201 23,792
Total current liabilities ................... 126,883 125,946 167,790 165,619
Retained earnings ........................... 235,754 225,768 231,754 222,926
Total shareholders' equity .................. 320,021 310,035 314,108 305,280
Total liabilities and shareholders' equity .. 874,987 864,064 879,920 868,921
Commencing in April 2001, several class action lawsuits were filed against the
Company and certain of its present officers in the United States District Court
for the Southern District of Texas. The plaintiffs in the actions purport to
represent purchasers of common stock of the Company during various periods
ranging from August 25, 1999 through April 12, 2001. The complaints assert
various claims under Section 10(b) and 20(a) of the Securities Exchange Act of
1934 and seek unspecified amounts of compensatory damages, interest and costs,
including legal fees. The Company denies the allegations in the complaints and
intends to defend them vigorously. The lawsuits are at a very early stage.
Consequently, it is not possible at this time to predict whether the Company
will incur any liability or to estimate the damages, or the range of damages, if
any, that the Company might incur in connection with such actions, or whether an
adverse outcome could have a material adverse impact on the business,
consolidated financial condition or results of operations of the Company.
After completion of the restatement of its financial results for its 1999 and
2000 fiscal years and the first quarter of fiscal 2001, the Company determined
that it was not in compliance with the minimum fixed charge coverage ratio
required by its senior credit facility at October 31, 2000, and with certain
covenants and representations in its credit facility documents during the
periods restated. This noncompliance caused the Company to be in default under
its senior credit facility. On May 22, 2001, the Company's bank lenders executed
a waiver of all defaults, violations and noncompliance of the Company under the
senior credit facility that relate to the restatement of its financial results
and agreed not to exercise any rights available to them as a result of those
defaults, violations and noncompliance.
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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 hot roll and
light gauge metal coil coating and painting services and products. 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
-------------------------- --------------------------
(Restated) (Restated)
% %
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)
--------- --- --------- ---
Total net sales .......... $ 216,562 100 $ 232,052 100
========= === ========= ===
OPERATING INCOME:
Engineered building systems ... $ 9,372 13 $ 9,545 12
Metal building components ..... 11,350 8 18,842 12
Corporate/eliminations ........ (6,809) -- (6,242) --
--------- --- --------- ---
Total operating income ... $ 13,913 6 $ 22,145 10
========= === ========= ===
TOTAL ASSETS:
Engineered building systems ... $ 86,609 10 $ 95,953 11
Metal building components ..... 374,600 43 359,269 42
Corporate/eliminations ........ 402,855 47 394,246 47
--------- --- --------- ---
Total assets ............. $ 864,064 100 $ 849,468 100
========= === ========= ===
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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 37.2% in fiscal
2001 compared to fiscal 2000. As a percent of sales, operating income was 8.0%
compared to 12.1% 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 $9.8 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.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 2001, the Company had working capital of $91.3 million
compared to $56.9 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 $12.3 million. This cash flow along with borrowing under the Company's senior
revolving credit agreements of $31.3 million, was used to finance the $34.4
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
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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 senior credit facility from a syndicate of banks. At January
31, 2001, this facility consisted of (i) a revolving credit facility of up to
$200 million, (ii) a term loan facility in the original principal amount of $200
million, and (iii) a 364-day revolving credit facility of up to $40 million. At
January 31, 2001, the Company had $186.3 million outstanding under its revolving
credit facility, $20.7 million outstanding under its 364-day revolving credit
facility, and $115 million outstanding under its term loan facility. The senior
credit facility matures in total on July 1, 2003.
After completion of the restatement of its financial results for its 1999 and
2000 fiscal years and the first quarter of fiscal 2001, the Company determined
that it was not in compliance with the minimum fixed charge coverage ratio
required by its senior credit facility at October 31, 2000, and with certain
covenants and representations in its credit facility documents during the
periods restated. This noncompliance caused the Company to be in default under
its senior credit facility. On May 22, 2001, the Company's bank lenders executed
a waiver of all defaults, violations and noncompliance of the Company under the
senior credit facility that relate to the restatement of its financial results
and agreed not to exercise any rights available to them as a result of those
defaults, violations and noncompliance. In connection with this waiver and at
the request of the Company, the $40 million aggregate principal amount
outstanding at May 22, 2001 under the Company's 364-day senior revolving credit
facility was converted to a term note maturing on July 1, 2003.
Loans under the senior credit facility 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.
Borrowings under the senior credit facility may be prepaid at any time without
penalty. In addition, the Company may voluntarily reduce the unutilized portion
of the revolver at any time, in certain agreed minimum amounts, without premium
or penalty but subject to LIBOR breakage costs. Borrowings under the term loan
are payable in successive quarterly installments of currently $10 million and
gradually increase to $12.5 million at maturity. Repayments on the term loan
facilities may not be reborrowed by the Company.
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. Further, under the senior credit facility the Company is subject to
certain restrictions, including a restriction from paying cash dividends or
making other cash distributions with respect to its common stock, other than
repurchases of no more than $50 million of its common stock.
The Company has $125 million of senior subordinated notes that mature on May 1,
2009. The notes bear interest at a rate of 9.25%. The Company was not in default
under the terms of these notes as a result of the restatement of its financials.
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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NCI BUILDING SYSTEMS, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Commencing in April 2001, several class action lawsuits were filed against the
Company and certain of its present officers in the United States District Court
for the Southern District of Texas. The plaintiffs in the actions purport to
represent purchasers of common stock of the Company during various periods
ranging from August 25, 1999 through April 12, 2001. The complaints assert
various claims under Section 10(b) and 20(a) of the Securities Exchange Act of
1934 and seek unspecified amounts of compensatory damages, interest and costs,
including legal fees. The Company denies the allegations in the complaints and
intends to defend them vigorously. The lawsuits are at a very early stage.
Consequently, it is not possible at this time to predict whether the Company
will incur any liability or to estimate the damages, or the range of damages, if
any, that the Company might incur in connection with such actions, or whether an
adverse outcome could have a material adverse impact on the business,
consolidated financial condition or results of operations of the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
After completion of the restatement of its financial results for its 1999 and
2000 fiscal years and the first quarter of fiscal 2001, the Company determined
that it was not in compliance with the minimum fixed charge coverage ratio
required by its senior credit facility at October 31, 2000, and with certain
covenants and representations in its credit facility documents during the
periods restated. This noncompliance caused the Company to be in default under
its senior credit facility. On May 22, 2001, the Company's bank lenders executed
a waiver of all defaults, violations and noncompliance of the Company under the
senior credit facility that relate to the restatement of its financial results
and agreed not to exercise any rights available to them as a result of those
defaults, violations and noncompliance. In connection with this waiver and at
the request of the Company, the $40 million aggregate principal amount
outstanding at May 22, 2001 under the Company's 364-day senior revolving credit
facility was converted to a term note maturing July 1, 2003. See "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
None
(b) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K on April 13, 2001 under
"Item 5. Other Events." in which it announced that it would be restating
certain of its financial statements.
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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: June 7, 2001 By: /s/ Robert J. Medlock
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Robert J. Medlock
Executive Vice President and
Chief Financial Officer
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