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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, 1999
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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.)
7301 Fairview
Houston, TX 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
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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--18,363,310 shares as of January 31, 1999
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NCI BUILDING SYSTEMS, INC.
INDEX
PART 1. FINANCIAL STATEMENTS PAGE NO.
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ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated balance sheets 1
January 31, 1999 and October 31, 1998
Consolidated statements of income 2
Three months ended January 31, 1999 and 1998
Condensed consolidated statements of cash flows 3
Three months ended January 31, 1999 and 1998
Notes to consolidated financial 4
statements January 31, 1999
ITEM 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART 2. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 10
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NCI BUILDING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
January 31, October 31,
1999 1998
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 4,687 $ 4,599
Accounts receivable, net 89,836 99,261
Inventories 89,058 78,001
Deferred income taxes 6,867 6,495
Prepaid expenses 4,899 4,214
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Total current assets 195,347 192,570
Property, plant and equipment, net 186,318 179,500
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Other assets:
Excess of costs over fair value of acquired net assets 404,548 413,288
Other assets, primarily investment in 39,678 38,179
joint ventures
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Total assets $ 825,891 $ 823,537
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 31,297 $ 31,297
Accounts payable 60,422 62,694
Accrued compensation and benefits 7,629 16,261
Other accrued expenses 24,119 23,925
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Total current liabilities 123,467 134,177
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Long-term debt, noncurrent portion 445,364 444,477
Deferred income taxes 21,389 21,271
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Shareholders' equity:
Common stock 184 181
Additional paid in capital 94,120 89,489
Retained earnings 141,367 133,942
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Total shareholders' equity 235,671 223,612
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Total liabilities and shareholders' equity $ 825,891 $ 823,537
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See Accompanying Notes to 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,
1999 1998
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Sales $ 214,347 $ 97,323
Cost of sales 160,070 71,886
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Gross profit 54,277 25,437
Operating expenses 32,070 16,641
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Income from operations 22,207 8,796
Interest expense 9,751 47
Other (income) expense (670) (699)
Joint venture (income) expense (20) --
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Income before income taxes 13,146 9,448
Provision for income taxes 5,721 3,396
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Net income $ 7,425 $ 6,052
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Net income per share - basic $ .41 $ .37
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Net income per share - diluted $ .39 $ .35
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See Accompanying Notes to 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,
1999 1998
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Net income $ 7,425 $ 6,052
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 7,034 2,205
(Gain) loss on sale of fixed assets 54 --
Provision for doubtful accounts 985 282
Deferred income tax provision (254) (15)
Changes in working capital:
Current assets (3,301) 1,820
Current liabilities (2,105) (9,168)
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Net cash provided by operating activities $ 9,838 $ 1,176
Cash flows from investing activities:
Purchase of property, plant and equipment (11,165) (2,135)
Other (1) (646)
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Net cash used in investing activities (11,166) (2,781)
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Cash flows from financing activities:
Proceeds from stock options exercise 529 165
Borrowings on line of credit and notes 77,500 --
Principal payments on long-term debt, line of credit
and notes payable (76,613) (13)
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Net cash provided by financing activities 1,416 152
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Net increase (decrease) in cash and cash equivalents $ 88 $ (1,453)
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See Accompanying Notes to Consolidated Financial Statements
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NCI BUILDING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 31, 1999
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, 1999, are not necessarily indicative of the results that may be expected for
the fiscal year ended October 31, 1999.
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, 1998, filed with the Securities and
Exchange Commission.
NOTE 2 -- INVENTORIES
The components of inventory consist of the following:
January 31, October 31,
1999 1998
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Raw materials $ 69,221 $ 55,190
Work in process and finished goods 19,837 22,811
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$ 89,058 $ 78,001
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NCI BUILDING SYSTEMS, INC.
NOTE 3 -- 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,
1999 1998
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Net income 7,425 6,052
Add: Interest, net of tax on convertible
debenture assumed converted 17 17
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Adjusted net income 7,442 6,069
Weighted average common shares outstanding 18,168 16,325
Add: Common stock equivalents
Stock option plan 833 861
Convertible debentures 100 100
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Weighted average common shares
outstanding, assuming dilution 19,101 17,286
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Net income per share - Basic .41 .37
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Net income per share - Diluted $ .39 $ .35
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NCI BUILDING SYSTEMS, INC.
NOTE 4 - ACQUISITION
On May 4, 1998, the Company acquired Metal Building Components, Inc. ("MBCI")
through the purchase of all of the outstanding capital stock of Amatek Holdings,
Inc. from BTR Australia Limited, a wholly owned subsidiary of BTR plc, for a
purchase price of approximately $589 million, including cash of $550 million
(plus transaction costs) and 1.4 million shares of the Company's common stock
valued at $32.2 million. MBCI designs, manufactures, sells and distributes metal
components for commercial, industrial, architectural, agricultural and
residential construction uses. MBCI also processes its own hot roll coil metal
for use in component manufacturing, as well as processing hot roll coil metal
and toll coating light gauge metal for use by other parties in the construction
of metal building components and numerous other products. The acquisition was
accounted for using the purchase method. The excess of cost over the fair value
of the acquired assets was approximately $389 million, based on the preliminary
purchase price allocation, which may be adjusted upon final valuation of certain
assets and liabilities. The consolidated results of operations for the first
quarter ended January 31,1998 exclude MBCI, since it was acquired after the
first quarter.
The unaudited pro forma results presented below for the three months ended
January 31, 1998 combine the results of operations for the Company's three
months ended January 31, 1998 with MBCI's results for the three months ended
December 31, 1997.The unaudited pro forma results of operations are as follows
(in thousands, except per share data):
Three Months Ended
January 31, 1998
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Sales $ 208,846
Net income $ 10,732
Net income per share - basic $ .61
Net income per share - diluted $ .58
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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
THREE MONTHS ENDED JANUARY 31, 1999 COMPARED TO THREE MONTHS ENDED
JANUARY 31, 1998
Sales in the first quarter of fiscal 1999 increased by $117.0 million, or 120%,
compared to the first quarter of fiscal 1998. Substantially all of this increase
resulted from the inclusion of Metal Buildings Components, Inc. ("MBCI"), which
was acquired in May 1998, in the first quarter of fiscal 1999.
Gross profit for the first quarter increased $28.8 million, or 113%, compared to
the prior years' first quarter. Gross margin percentage declined from 26.1% last
year to 25.3% in the current quarter. The increased mix of component sales
versus building system sales (resulting primarily from the acquisition of MBCI)
accounted for this decline, since component gross margin percentage is lower
than building systems. Due to the integration of MBCI's component operations
with NCI's component operations after the acquisition, intercompany sales
between units and the transfer of operational control of several manufacturing
facilities, it is not possible to calculate the separate impact of MBCI on the
gross margin percentage of the company.
Operating expenses, which consist of engineering, selling and administrative
costs, increased $15.4 million, or 93%, in the current quarter compared to the
same period last year. As a percent of sales, operating expenses were 15.0%
compared to 17.1% a year ago. The dollar increase was primarily due to the
inclusion of MBCI in the current quarter. As a percentage of sales, operating
expenses declined due to the spread of the fixed cost element over the higher
sales base and a lower level of operating expenses in component operations as
compared to building systems operations.
Interest expense increased by $9.7 million in the current quarter which resulted
from the funds borrowed to finance the MBCI acquisition in May, 1998.
Income before income taxes increased by $3.7 million, or 39%, as a result of the
increased sales volume, and improved operating expense percentages offset by the
increased interest expense for the period. As a percent of sales, income before
taxes was 6.1% in the current quarter compared to 9.7% in the same quarter a
year ago. The decline was primarily a result of the interest expense incurred in
the first quarter of fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
At January 31,1999, the Company had working capital of $71.7 million
compared to $58.4 million at October 31,1998. The increase in working capital
resulted primarily from a reduction of current liabilities related to the
payment of accrued expenses for the year end incentive payments in the first
quarter, a reduction in trade accounts payable and income tax payments made.
During the first quarter of fiscal 1999, the Company generated $15.2 million in
cash flow from operations before changes in working capital components.
On May 4, 1998, the Company acquired all of the outstanding capital
stock of Amatek
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Holdings, Inc. from BTR Australia Limited, a wholly owned subsidiary of BTR plc,
for a purchase price of approximately $589 million, including cash of $550
million (plus transaction costs) and 1.4 million shares of common stock valued
at $32.2 million. The Company financed the acquisition of MBCI by obtaining a
new $600 million senior credit facility from a bank. During fiscal 1998, this
facility was reduced by the Company to $540 million to better reflect future
needs.
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 NationsBank, 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 0.5% on base rate loans and 1.75% on LIBOR loans. The Company
currently has an interest rate swap agreement in place which caps interest on
LIBOR loans at 5.89% plus the applicable LIBOR margin for the principal amount
of the term loan which was $185 million at the end of January 1999.
Loans under the five-year revolver mature on July 1, 2003. Loans under
the term loan are payable in successive quarterly installments beginning on
October 31, 1998 beginning with $7.5 million and gradually increasing to $12.5
million on the maturity date. As of January 31, 1999, the Company had $485
million outstanding under the senior credit facility. The 364-day revolver
matures April 30, 1999 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
agreed upon 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.
During the quarter, the Company spent $11.1 million in capital
additions for plant expansion, maintenance, capital replacements and betterments
and the development of new management information systems. The Company plans to
spend approximately $27 million in capital additions in fiscal 1999. Delays or
cancellation 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 metal building system 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 THE YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs having been
written using two digits rather than four to define the applicable year. Any
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
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The Company has conducted a review of its computer systems to identify
the systems that could be affected by the year 2000 issue and is implementing
its plan to attempt to ensure that its management information systems ("MIS")
and computer software are year 2000 compliant. This review is part of the
Company's overall upgrade of its MIS, which is currently in progress and
includes the installation of new systems. As a result, the Company has no
separate budget for year 2000 compliance. Expenses relating to reviewing and
assessing systems are included in historical operating expenses as part of
management information expenses and have not been separately identified.
Management believes that with installation of the new systems, conversion to new
software and modifications to existing software, the year 2000 issue will pose
no significant operational problems for the Company. The Company expects to
complete the MIS upgarde, all new installations, conversions and necessary
systems modifications and conversions by early fall 1999. There can be no
assurance, however, that the Company will be able to install and maintain year
2000 compliant MIS and software. The Company does not have a contingency plan
with respect to the year 2000 issue if the MIS upgrade is not completed or is
delayed beyond the end of 1999. The failure of the Company to address
adequately, and in a timely manner, the year 2000 issue, including ensuring that
the Company's MIS and software are year 2000 compliant, could have a material
adverse effect on the Company's business, results of operations and financial
condition.
To date, the Company has not identified any information technology
assets under the control of the Company that present a material risk of not
being year 2000 ready or for which a suitable alternative cannot be implemented
or is not being implemented. As the Company's MIS upgrade is implemented, the
Company may identify assets that present a risk of a year 2000-related
disruption. It is also possible that such a disruption could have a material
adverse effect on the Company's business, financial condition and results of
operations
The Company is currently discussing with its vendors and customers the
possibility of any year 2000 interface difficulties that may affect the Company.
The ability of third parties with whom the Company transacts business to address
adequately their year 2000 issue is, however, outside the Company's control. If
any third parties who provide goods or services that are critical to the
Company's business activities fail to appropriately address their year 2000
issues, there could be a material adverse effect on the Company's business,
results of operations and financial condition.
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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
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, 1998. 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
27 Financial Data Schedule
(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 17, 1999 /s/ ROBERT J. MEDLOCK
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Robert J. Medlock
Executive Vice President and
Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule