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: April 30, 1997
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Commission file number: 0-19885
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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.)
7301 Fairview
Houston, Texas 77041
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(Address of principal executive offices) (Zip Code)
(713) 466-7788
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Registrant's telephone number, including area code
Not Applicable
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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 -- 8,069,818 Shares as of April 30, 1997
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2
NCI BUILDING SYSTEMS, INC.
INDEX
PART 1. FINANCIAL STATEMENTS PAGE NO.
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Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets
April 30, 1997 and October 31, 1996. 1
Condensed consolidated statements of income
Three months ended April 30, 1997 and 1996. 2
Condensed consolidated statements of income
Six months ended April 30, 1997 and 1996. 3
Condensed consolidated statements of cash flows
Six months ended April 30, 1997 and 1996. 4
Notes to condensed consolidated financial
Statements April 30, 1997. 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 7-9
PART 2. OTHER INFORMATION
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Item 4. Submission of Matters to Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 11
3
NCI BUILDING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
APRIL 30, OCTOBER 31,
1997 1996
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(UNAUDITED) (NOTE)
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 17,175,000 $ 20,944,000
ACCOUNTS RECEIVABLE 36,455,000 37,749,000
INVENTORIES 36,323,000 28,693,000
OTHER CURRENT ASSETS 3,838,000 3,224,000
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93,791,000 90,610,000
PROPERTY, PLANT AND EQUIPMENT 63,279,000 56,243,000
LESS-ACCUMULATED DEPRECIATION (16,201,000) (13,491,000)
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47,078,000 42,752,000
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OTHER ASSETS:
EXCESS OF COST OVER FAIR VALUE 21,874,000 22,673,000
OTHER 2,713,000 2,291,000
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24,587,000 24,964,000
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$165,456,000 $158,326,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
NOTES PAYABLE AND CURRENT
PORTION OF LONG-TERM DEBT $ 47,000 $ 47,000
ACCOUNTS PAYABLE 19,194,000 21,527,000
OTHER CURRENT LIABILITIES 13,620,000 17,077,000
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32,861,000 38,651,000
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LONG-TERM DEBT, NONCURRENT PORTION,
AND DEFERRED INCOME TAXES 3,445,000 3,500,000
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SHAREHOLDERS' EQUITY:
COMMON STOCK 81,000 80,000
PAID IN CAPITAL 49,999,000 47,359,000
RETAINED EARNINGS 79,070,000 68,736,000
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129,150,000 116,175,000
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$165,456,000 $158,326,000
============ ============
NOTE: THE BALANCE SHEET AT OCTOBER 31, 1996 HAS BEEN DERIVED FROM THE AUDITED
FINANCIAL STATEMENTS AT THAT DATE
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NCI BUILDING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED APRIL 30,
1997 1996
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SALES $91,637,000 $72,171,000
COST OF SALES 67,943,000 52,624,000
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GROSS PROFIT 23,694,000 19,547,000
OPERATING EXPENSES 15,825,000 11,818,000
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OPERATING INCOME 7,869,000 7,729,000
INTEREST EXPENSE 40,000 24,000
OTHER (INCOME) EXPENSE (351,000) (427,000)
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(311,000) (403,000)
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INCOME BEFORE INCOME TAXES 8,180,000 8,132,000
PROVISION FOR INCOME TAXES 2,997,000 3,081,000
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NET INCOME $ 5,183,000 $ 5,051,000
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NET INCOME PER SHARE $ .61 $ .60
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NCI BUILDING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
SIX MONTHS ENDED APRIL 30,
1997 1996
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SALES $174,512,000 $139,521,000
COST OF SALES 128,408,000 102,590,000
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GROSS PROFIT 46,104,000 36,931,000
OPERATING EXPENSES 30,363,000 23,094,000
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OPERATING INCOME 15,741,000 13,837,000
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INTEREST EXPENSE 77,000 27,000
OTHER (INCOME) EXPENSE (765,000) (809,000)
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(688,000) (782,000)
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INCOME BEFORE INCOME TAXES 16,429,000 14,619,000
PROVISION FOR INCOME TAXES 6,095,000 5,546,000
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NET INCOME 10,334,000 9,073,000
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NET INCOME PER SHARE $ 1.22 $ 1.13
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NCI BUILDING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
SIX MONTHS ENDED APRIL 30,
1997 1996
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CASH FROM OPERATIONS $ 6,401,000 $ 6,235,000
INVESTING ACTIVITIES:
PURCHASE OF PROPERTY, PLANT (4,038,000) (4,342,000)
AND EQUIPMENT
ACQUISITION OF DBCI --- (11,000,000)
ACQUISITION OF MESCO --- (19,963,000)
ACQUISITION OF CARLISLE (6,230,000) (2,522,000)
OTHER (626,000) (281,000)
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(10,894,000) (38,108,000)
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FINANCING ACTIVITIES:
NET PROCEEDS FROM SALE OF STOCK --- 24,770,000
PROCEEDS FROM STOCK OPTIONS EXERCISE 749,000 673,000
BORROWING AND REPAYMENT OF DEBT
AND OTHER (25,000) (24,000)
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724,000 25,419,000
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INCREASE (DECREASE) IN CASH $ (3,769,000) $ (6,454,000)
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NCI BUILDING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 30, 1997
NOTE 1 -- BASIS OF PRESENTATION
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The accompanying unaudited condensed 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 for footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month and six month periods ended April 30, 1997, are
not necessarily indicative of the results that may be expected for the year
ended October 31, 1997.
For further information, refer to the financial statements and footnotes
thereto included in the Company's Annual Report to Shareholders for the
year ended October 31, 1996.
NOTE 2 -- INVENTORIES
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The components of inventory consist of the following:
APRIL 30, OCTOBER 31,
1997 1996
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Raw materials $ 29,635,000 $ 21,515,000
Work in process 6,688,000 7,178,000
and finished goods ------------ ------------
$ 36,323,000 $ 28,693,000
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NOTE 3 -- NET INCOME PER SHARE
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Net income per common share is computed by dividing net income after income
taxes by the weighted average number of common shares outstanding, after giving
effect to common stock equivalents. The number of shares used in the
computation for the three months ended April 30, 1997 and 1996 was 8,498,199
and 8,388,220, respectively. The number of shares used in the computation for
the six months ended April 30, 1997 and 1996 was 8,467,624 and 8,009,921,
respectively.
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NOTE 4 -- ACQUISITIONS
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In November 1995, the Company acquired substantially all the assets and assumed
certain liabilities of Doors and Building Components, Inc. (DBCI), a
manufacturer of overhead doors, for approximately $18.0 million. The excess of
cost over the fair value of the acquired net assets was approximately $11.8
million. In April 1996, the Company acquired substantially all the assets and
assumed certain liabilities of Mesco Metal Buildings (MESCO) for approximately
$22.0 million, including a cash consideration of $20.5 million and the issuance
of a $1.5 million, 7% subordinated convertible debenture due April 1, 2001.
The debenture is convertible into common stock any time after April 1, 1997, at
a conversion price of $29.925 per share and may be redeemed, at the option of
the Company, in whole or in part, at any time after April 1, 1997, at 100% of
the principal amount thereof, plus accrued interest, provided the market price
(as defined) at the time is at least 150% of the conversion rate. The excess
of cost over the fair value of the acquired net assets was approximately $10.9
million. The consolidate results of operations for fiscal 1996 include DBCI
and MESCO since the date of acquisitions. The acquisitions were accounted for
using the purchase method. Assuming the acquisitions of DBCI and MESCO had
been consummated November 1, 1995, the pro forma unaudited results of
operations are as follows (in thousands, except per share data):
Six Months Ended
April 30, 1996
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Sales $154,095
Net income $ 10,482
Net income per share $ 1.31
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months ended April 30, 1997 Compared to Three Months Ended April 30, 1996.
Sales in the second quarter of fiscal year 1997 increased by $19.5 million, or
27%, compared to the second quarter of fiscal year 1996. Approximately $5.5
million of this increase resulted from the acquisition of Mesco Building Company
(MESCO) in April 1996 which is included in the second quarter this year compared
to only one month in 1996. The remaining increase of $14 million, or 19%, was
due primarily to the increase in market penetration of building system sales
and higher sales in the component division. The new manufacturing facility in
Atwater, California which was not open in the prior year's second quarter added
to the sales in the second quarter of 1997.
Gross profit in the second quarter increased $4.1 million, or 21%, compared to
the prior year's second quarter. Gross margin percentage decline from 27.1%
last year to 25.8% in the current quarter. This decline resulted from higher
manufacturing costs associated with the operation of two new plants in 1997 and
start up costs associated with the ECI division that was established with the
Carlisle asset acquisition which closed in February 1997. These costs were not
offset by higher anticipated sales due to weather in the West, Southeast and
Southwest United States.
Operating expenses, which consist of engineering, selling and administrative
costs, increased by $4.0 million, or 34%, in the current quarter compared to the
same period a year ago. As a percent of sales, operating expenses were 17.3%
compared to 16.4% a year ago. This increase was comprised primarily of salaries
and commissions for additional employees hired to support the increased volume
of orders and sales over the prior year and the inclusion of Mesco and the ECI
division for the first time. As a percent of sales, these costs increased from
the inclusion of Mesco and the ECI division and somewhat lower sales than
expected due to adverse weather in the second quarter, which delayed the
shipment of customer orders.
Interest expense increased by $16,000 in the current quarter compared to the
prior year's first quarter due to $1.5 million in debt related to the
acquisition of Mesco.
Other income decreased by $76,000 in the current quarter due to a lower level
of investable cash this year compared to last year.
Income before income taxes increased by $48,000, or 1%. Increased manufacturing
costs and high operating expenses were not offset by higher anticipated sales
during the quarter. Start up costs associated with the ECI division in February
1997 also contributed to the increased cost levels.
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10
Six Months Ended April 30, 1997 Compared to Six Months Ended April 30, 1996.
Sales for the six months ended April 30, 1997 increased by $35.0 million, or
25%, compared to the six months ended April 30, 1996. Approximately $13.9
million, or 10%, was due to the inclusion of Mesco for the full six months of
fiscal year 1997 compared to only one month in fiscal 1996. The remaining
increase of $22.1 million, or 15%,was due to increased market penetration in
both the metal building systems and components markets.
Gross margins in the second quarter increased by $9.2 million, or 25%, compared
to the same period a year ago. This increase was in line with the increase in
sales. Higher manufacturing cost in the second quarter, as discussed above,
offset gains achieved in the first quarter of 1997.
Operating expenses which consist of engineering, selling and administrative
costs increased by $7.3 million, or 31%, in the current six month period
compared to the same period last year. As a percent of sales, operating
expenses were 17.4% compared to 16.6% a year ago. This increase was comprised
primarily of salaries and commissions for additional employees hired to support
the increased volume of orders and sales over the prior year and the inclusion
of Mesco and Carlisle for the first time. As a percent of sales, these costs
increased from the inclusion of Mesco and Carlisle and somewhat lower sales
than expected due to adverse weather in the first and second quarter which
delayed the shipment of customer orders.
Liquidity and Capital Resources
The Company has historically funded its operations from cash flow from
operations and bank borrowing. It maintains a revolving credit facility with a
bank lender that provides for a maximum credit on an unsecured basis of $6.0
million, which matures in March 1999. The Company also has a six-year reducing
line of credit with a current borrowing limit of $.8 million. The Company has
no outstanding balance under either of these credit facilities and did not
borrow any funds under these facilities during the six month period.
During the quarter, the Company spent $4.3 million in capital additions for its
manufacturing plants. All of the funds for these additions were funded from
internally generated cash.
At April 30, 1997, the ratio of current assets to current liabilities was 2.9
to 1 compared to a ratio of 2.3 at 1 at October 1996. Working capital generated
from operations before changes in current assets and liabilities was $14.0
million.
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NCI BUILDING SYSTEMS, INC.
Liquidity in future periods will be dependent on internally generated cash
flows, the ability to obtain adequate external financing for expansion, when
needed, and increased working capital necessary to support expected growth.
Based on current capitalization, it is expected future cash flows from
operations and the availability of alternative sources of external financing
should be sufficient to provide adequate liquidity in future periods.
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"This Form 10-Q may contain 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, fluctuation in customer demand and order pattern, 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, 1996. The Company
expressly disclaims any obligation to release publicity 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 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on Wednesday, March 5,
1997. At the annual meeting, a proposal was submitted to amend the Company's
Restated Certificate of Incorporation to increase the number of authorized
shares of Common Stock, $0.01 per value per share, from 15,000,000 to
25,000,000. To be adopted, the proposed amendment to increase the authorized
shares of Common Stock had to be approved by the affirmative vote of the
holders of a majority of the outstanding Common Stock on the record date for
the meeting. Of the 7,383,417 shares of Common Stock of the Company present at
the annual meeting, in person or by proxy, the votes cast for and against the
proposed amendment to the Restated Certificate of Incorporation were 7,049,266
and 311,308, respectively, with 22,843 shares abstaining. Since there were
8,029,344 shares of Common Stock outstanding on the record date, the proposed
amendment to the Restated Certificate of Incorporation was adopted.
At the annual meeting, a proposal was also submitted to amend and restate the
Company's Nonqualified Stock Option Plan. To be adopted, the proposed amendment
had to be approved by the affirmative vote of the holders of a majority of the
Common Stock present, in person or by proxy, at the meeting. Of the 7,383,417
shares of Common Stock of the Company present at the annual meeting, in person
or by proxy, the votes cast for and against the proposed amendment and
restatement of the Company's Nonqualified Stock Option Plan were 5,971,457 and
592,173, respectively, with 819,787 shares abstaining. (Of the 819,787 shares
abstaining, 795,968 did not specify their vote.) Accordingly, the proposed
amendment and restatement of the Company's Nonqualified Stock Option Plan was
adopted.
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NCI BUILDING SYSTEMS, INC.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Amendment No. 3 to Credit Agreement dated April 30, 1993
(b) None
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.
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(Registrant)
Date: June 13, 1997 --------------------------
-------------------- Robert J. Medlock
Vice President and
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
NUMBER -----------
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*4.16 Amendment No. 3 to Credit Agreement dated April 30, 1993
*27 Financial Data Schedule
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* Filed herewith