10-K405/A 1 d88172a1e10-k405a.txt AMENDMENT NO.1 TO FORM 10-K - FISCAL END 10/31/00 1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED OCTOBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-14315 NCI BUILDING SYSTEMS, INC. (Exact name of registrant as specified in its charter) DELAWARE 76-0127701 (State or other jurisdiction) (I.R.S. employer of incorporation or organization identification no.) 10943 NORTH SAM HOUSTON PARKWAY WEST HOUSTON, TEXAS 77064 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 897-7788 Securities registered pursuant to Section 12(b) of the Act: COMMON STOCK, $0.01 PAR VALUE Securities registered Pursuant to Section 12(g) of the Act: NONE 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 period 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 [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant on January 2, 2001, was $289,570,792. The number of shares of common stock of the registrant outstanding on January 2, 2001, was 17,689,313. DOCUMENTS INCORPORATED BY REFERENCE Certain information required by Parts I and II of this Annual Report is incorporated by reference from the registrant's 2000 Annual Report to Shareholders, and certain information required by Part III of this Annual Report is incorporated by reference from the registrant's definitive proxy statement for its annual meeting of shareholders held on March 1, 2001. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- EXPLANATORY NOTE -- RESTATEMENT NCI Building Systems, Inc. (the "Company") is filing this amendment to its Annual Report on Form 10-K in order to restate our consolidated financial statements for the years ended October 31, 1999 and October 31, 2000. These restatements reflect an aggregate adjustment to net income as of October 31, 1999 and October 31, 2000 of approximately $8.8 million relating to accounting and management information systems errors that impacted certain inventories and related liabilities. The net effect for the year ended October 31, 1999, after adjusting for income tax of $794,000, is a $1,296,000 decrease to net income, from $45,873,000 to $44,577,000. The net effect for the year ended October 31, 2000, after adjusting for income tax of $4,615,000, is a $7,532,000 decrease to net income, from $51,939,000 to $44,407,000. The impact of these restatements on the accompanying financial statements is summarized in Note 11 to the consolidated financial statements contained herein. We have also included in the amendment to our Annual Report on Form 10-K for the year ended October 31, 2000, certain information regarding compensation and retirement benefits paid to our former Chairman of the Board, which were inadvertently omitted from our definitive proxy statement for our annual meeting of shareholders held on March 1, 2001. Contemporaneously with this filing, we are also filing an amendment to our quarterly report on Form 10-Q for the first quarter of fiscal 2001 in order to restate the consolidated financial statements therein. The following items of this Form 10-K/A reflect amendments made to our above-referenced Annual Report on Form 10-K: Item 1. Business Item 3. Legal Proceedings Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 8. Financial Statements and Supplementary Data Item 11. Executive Compensation Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K General information in the originally filed Annual Report on Form 10-K 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. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 3 TABLE OF CONTENTS PART I Item 1. Business.................................................... 1 Item 3. Legal Proceedings........................................... 10 PART II Item 6. Selected Financial Data..................................... 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 11 Item 8. Financial Statements and Supplementary Data................. 16 PART III Item 11. Executive Compensation...................................... 35 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................................... 42
"This Annual 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." i 4 PART I ITEM 1. BUSINESS. GENERAL NCI Building Systems, Inc. is one of North America's largest integrated manufacturers of metal products for the building industry. We operate 40 manufacturing and distribution facilities located in 18 states and Mexico. We sell metal building components and engineered building systems, offering one of the most extensive metal product lines in the building industry with well-recognized brand names. We believe that our leading market positions and strong track record of growth and profitability have resulted from our focus on: - Controlling operating and administrative costs - Managing working capital and fixed assets - Developing new markets and products - Successfully identifying strategic growth opportunities We believe that metal products have gained and continue to gain a greater share of the new construction and repair and retrofit markets. This is due to increasing acceptance and recognition of the benefits of metal products in building applications. Metal building components offer builders, designers, architects and end-users several advantages, including lower long-term costs, longer life, attractive aesthetics and design flexibility. Similarly, engineered building systems offer a number of advantages over traditional construction alternatives, including shorter construction time, more efficient use of materials, lower construction costs, greater ease of expansion and lower maintenance costs. In May 1998, we acquired Metal Building Components, Inc. ("MBCI") for a purchase price of $589 million. The MBCI acquisition, which doubled our revenue base, made us the largest domestic manufacturer of nonresidential metal building components and significantly improved our product mix. In March 2000, we acquired the remaining 50% joint interest in DOUBLECOTE, L.L.C. from our previous joint venture partner. This acquisition gives us complete control over our principal metal coating facility. In December 2000, we bought substantially all of the assets of Midland Metals, Inc., an Iowa-based manufacturer of metal building components, which gives us a stronger presence in the Midwest. We were founded in 1984 and we reincorporated in Delaware on December 31, 1991. Our principal offices are located at 10943 North Sam Houston Parkway West, Houston, Texas 77064 and our telephone number is (281) 897-7788. Unless indicated otherwise, references in this report to NCI, us, or we include our predecessors and our subsidiaries. BUSINESS SEGMENTS We have divided our 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 1 5 products or services. Our approximate sales to outside customers, operating income and total assets attributable to these business segments were as follows for the periods indicated (in thousands):
1998 1999 2000 -------------- -------------- ---------------- (RESTATED) (RESTATED) SALES TO OUTSIDE CUSTOMERS: Engineered building systems............ $277,347 41% $310,324 33% $ 333,087 33% Metal building components.............. 397,984 59 626,226 67 685,237 67 Intersegment sales..................... 25,094 4 59,692 6 47,107 5 Corporate/eliminations................. (25,094) (4) (59,692) (6) (47,107) (5) -------- --- -------- --- ---------- --- Total net sales................ $675,331 100% $936,550 100% $1,018,324 100% ======== === ======== === ========== === OPERATING INCOME: Engineered building systems............ $ 29,576 11% $ 37,509 12% $ 37,549 11% Metal building components.............. 51,497 13 70,351 11 75,691 11 Corporate/eliminations................. (1,764) -- 582 -- 430 -- -------- --- -------- --- ---------- --- Total operating income......... $ 79,309 12% $108,442 12% $ 113,670 11% ======== === ======== === ========== === TOTAL ASSETS: Engineered building systems............ $ 86,342 10% $ 88,673 10% $ 97,130 11% Metal building components.............. 352,407 43 365,417 43 392,416 45 Corporate/eliminations................. 384,788 47 402,277 47 379,375 44 -------- --- -------- --- ---------- --- Total assets................... $823,537 100% $856,367 100% $ 868,921 100% ======== === ======== === ========== ===
For more business segment information, please see the Supplementary Business Segment Information contained in Item 7. Metal Building Components. We are the largest domestic supplier of metal building components to the nonresidential building industry and have a market share at least twice that of our largest competitor. We are also one of the largest suppliers in the U.S. of roll-up doors for self-storage facilities. We design, manufacture, sell and distribute one of the widest selections of components for a variety of new construction applications as well as repair and retrofit uses. The following are the types of components we sell: - Metal roof and wall systems - Fascia - Overhead doors - Mansard accessories - Interior and exterior doors - Trim accessories
Our components are used in the following markets: - Industrial - Commercial - Governmental - Agricultural - Community - Residential
As part of our metal building components manufacturing, we also provide hot roll and light gauge metal coil coating and painting services and products. We coat and paint hot roll metal coils for our own use in metal building components manufacturing, supplying substantially all of our internal metal coating and painting requirements. On average, our own use accounts for about 65% of our production. We also coat and paint hot roll metal coils and light gauge metal for third parties for a variety of applications, including heating and air conditioning systems, water heaters, lighting fixtures and office furniture. We market our metal building components products and metal coating and painting services nationwide primarily through a direct sales force under several brand names. These brand names include "Metal Building 2 6 Components," "American Building Components," "DBCI," "MBCI," "Midland Metals," "IPS," "Metal Coaters," "Metal-Prep," "DOUBLECOTE" and "Midwest Metal Coatings." Engineered Building Systems. We are one of the largest domestic suppliers of engineered building systems. We design, manufacture and market engineered building systems, self-storage building systems and metal home framing systems for commercial, industrial, agricultural, governmental, community and residential uses. We market these systems nationwide through authorized builder networks totaling over 1,400 builders and a direct sales force under several brand names. These brand names include "Metallic Buildings," "Mid-West Steel Buildings," "A & S Buildings," "All American Systems," "Steel Systems" and "Mesco." INDUSTRY OVERVIEW The building industry encompasses a broad range of metal products, principally composed of steel, sold through a variety of distribution channels for use in diverse applications. These metal products include metal building components and engineered building systems. Metal Building Components. Manufacturers of metal components supply products to the building industry. These products include roof and wall panels, doors, metal partitions, metal trim and other related accessories. These products are used in new construction and in repair and retrofit applications for commercial, industrial, agricultural, governmental, community and residential uses. Metal building components are used in a wide variety of construction applications, including purlins and girts, roofing, walls, doors, trim and other parts of traditional buildings, as well as in architectural applications and engineered building systems. We estimate the metal building components market including roofing applications to be a multi-billion dollar market, although market data is limited. We believe that the metal building components business is less affected by economic cycles than the engineered building systems business due to the use of metal building components in repair and retrofit applications. We believe that metal products have gained and continue to gain a greater share of new construction and repair and retrofit markets due to increasing acceptance and recognition of the benefits of metal products in building applications. Metal roofing accounts for a significant portion of the overall metal building components market, but only approximately 6% of total annual roofing market expenditures, estimated at over $21 billion based on available industry information. As a result, we believe that significant opportunities exist for metal roofing, with its advantages over conventional roofing materials, to increase its overall share of this market. Metal roofing systems have several advantages over conventional roofing systems, including the following: - Lower lifecycle cost. The total cost over the life of metal roofing systems is lower than that of conventional roofing systems for both new construction and retrofit roofing. For new construction, the cost of installing metal roofing is greater than the cost of conventional roofing. Yet, the longer life and lower maintenance costs of metal roofing make the cost more attractive. For retrofit roofing, although installation costs are 60-70% higher for metal roofing due to the need for a sloping support system, the lower ongoing costs more than offset the initial cost. - Increased longevity. Metal roofing systems generally last for 20 years without requiring major maintenance or replacement. This compares to five to ten years for conventional roofs. The cost of leaks and roof failures associated with conventional roofing can be very high, including damage to building interiors and disruption of the functional usefulness of the building. Metal roofing prolongs the intervals between costly and time-consuming repair work. - Attractive aesthetics and design flexibility. Metal roofing systems allow architects and builders to integrate colors and geometric design into the roofing of new and existing buildings, providing an increasingly fashionable means of enhancing a building's aesthetics. Conventional roofing material is generally tar paper or a gravel surface, and building designers tend to conceal roofs made with these materials. Engineered Building Systems. Engineered building systems consist of engineered structural beams and panels that are welded and roll formed in a factory and shipped to a construction site complete and ready for 3 7 assembly. Engineered building systems manufacturers design an integrated system that meets applicable building code requirements. These systems consist of primary structural framing, secondary structural members like purlins and girts and covering for roofs and walls. Over the last 15 years, engineered building systems have significantly increased penetration of the market for nonresidential low rise structures and are being used in a broad variety of other applications. According to the Metal Building Manufacturers Association, reported sales of engineered building systems have increased from approximately $1.5 billion in 1993 to $2.6 billion in 1999. We believe this increase has resulted primarily from (1) the significant cost advantages offered by these systems, (2) increased architectural acceptance of engineered building systems for construction of commercial and industrial building projects, (3) advances in design versatility and production processes and (4) a favorable economic environment. We believe the cost of an engineered building system generally represents approximately 15-20% of the total cost of constructing a building, which includes land cost, labor, plumbing, electrical, heating and air conditioning systems installation and interior finish. Technological advances in products and materials, as well as significant improvements in engineering and design techniques, have led to the development of structural systems that are compatible with more traditional construction materials. Architects and designers now often combine an engineered building system with masonry, glass and wood exterior facades to meet the aesthetic requirements of customers while preserving the inherent characteristics of engineered building systems. As a result, the uses for engineered building systems now include office buildings, showrooms, retail stores, banks, schools, warehouses, factories, distribution centers, government buildings and community centers for which aesthetics and architectural features are important considerations of the end-users. In our marketing efforts, we and other major manufacturers generally emphasize the following characteristics of engineered building systems to distinguish them from other methods of construction: - Shorter construction time. In many instances, it takes less time to construct an engineered building than other building types. In addition, because most of the work is done in the factory, the likelihood of weather interruptions is reduced. - More efficient material utilization. The larger engineered building systems manufacturers use computer-aided analysis and design to fabricate structural members with high strength-to-weight ratios, minimizing raw materials costs. - Lower construction costs. The in-plant manufacture of engineered building systems, coupled with automation, allows the substitution of less expensive factory labor for much of the skilled on-site construction labor otherwise required for traditional building methods. - Greater ease of expansion. Engineered building systems can be modified quickly and economically before, during or after the building is completed to accommodate all types of expansion. Typically, an engineered building system can be expanded by removing the end or side walls, erecting new framework and adding matching wall and roof panels. - Lower maintenance costs. Unlike wood, metal will not deteriorate because of cracking, rot or insect damage. Furthermore, factory-applied roof and siding panel coatings resist cracking, peeling, chipping, chalking and fading. Consolidation. Over the last several years, there has been consolidation in the metal building components and engineered building systems industry, which includes a large number of small local and regional firms. We believe that this industry will continue to consolidate, driven by the needs of manufacturers to increase manufacturing capacity, achieve greater process integration and add geographic diversity to meet customers' product and delivery needs, improve production efficiency and manage costs. PRODUCTS AND MARKETS Our product lines consist of metal building components and engineered building systems. Metal Building Components. Our metal building components consist of individual components, including secondary structural framing, covering systems and associated metal trims, that are sold directly to 4 8 contractors or end-users for use in the building industry, including the construction of metal buildings. We also stock and market metal component parts for use in the maintenance and repair of existing buildings. Specific component products consist of end and side wall panels, roof panels, purlins, girts, partitions, header panels and related trim and screws. We believe we offer the widest selection of metal building components in the building industry. Purlins and girts are medium gauge, roll formed steel components. They are supplied to builders for secondary structural framing. We custom produce purlins and girts for our customers and offer the widest selection of sizes and profiles in the United States. Covering systems, consisting of wall and roof panels, protect the rest of the structure and the contents of the building from the weather. They also contribute to the structural integrity of the building. Our metal roofing products are attractive and durable. We use standing seam roof technology to replace traditional built-up and single-ply roofs as well as to provide a distinctive look to new construction. We manufacture and design metal roofing systems for sales to regional metal building manufacturers, general contractors and subcontractors. We believe we have the broadest line of standing seam roofing products in the building industry. We also have developed and patented a retrofit metal panel, Retro-R(R), that is used to replace wall and roof panels of metal buildings. Retro-R(R) can be installed over the top of existing metal panels to remodel or preserve a standing structure. Although metal roofing is somewhat more expensive than traditional roofing in upfront costs, its durability and low maintenance costs make metal roofing a lower cost roofing product after the first 10 years. We manufacture overhead doors and interior and exterior doors for use in metal and other buildings. We are one of the largest suppliers in the U.S. of roll-up doors to builders of self-storage facilities. During fiscal 2000, we introduced our new "pier and header" system that is used in the construction of self-storage warehouse facilities. Conventional metal building systems require approximately ten steps and processes to construct the areas between and above the doors of self-storage units. Our pier and header system requires only two and produces a facility that is more aesthetically pleasing with a clean, uncluttered profile. We provide our own metal coating and painting products and services for use in component manufacturing. We also provide pre-painted hot roll coils to manufacturers of engineered building systems and metal building components. Either a customer provides coils through its own supply channels, which are processed by us, or we purchase hot roll coils and process them for sale as a packaged product. We also pre-paint light gauge steel coils for steel mills, which supply the painted coils to various industrial users, including manufacturers of engineered building systems, metal building components and lighting fixtures. Our metal coating and painting operations apply a variety of paint systems to metal coils. The process generally includes cleaning and painting the coil and slitting it to customer specifications. We believe that pre-painted metal coils are a better quality product, environmentally cleaner and more cost-effective than painted metal products prepared in other manufacturers' in-house painting operations. Painted metal coils also offer manufacturers the opportunity to produce a broader and more aesthetically pleasing range of products. Engineered Building Systems. Engineered building systems consist of pre-engineered structural beams and panels that are welded and roll formed in a factory and shipped to a construction site complete and ready for assembly. We design an integrated engineered building system that meets customer specifications and allows easy on-site assembly by the builder or independent contractor. Engineered building systems typically consist of three systems: - Primary structural framing. Primary structural framing, fabricated from heavy-gauge steel, supports the secondary structural framing, roof, walls and all externally applied loads. Through the primary framing, the force of all applied loads is structurally transferred to the foundation. - Secondary structural framing. Secondary structural framing consists of medium-gauge, roll-formed steel components called purlins and girts. Purlins are attached to the primary frame to support the roof. Girts are attached to the primary frame to support the walls. The secondary structural framing is 5 9 designed to strengthen the primary structural framing and efficiently transfer applied loads from the roof and walls to the primary structural framing. - Covering systems. Covering systems consist of roof and wall panels. These panels not only lock out the weather but also contribute to the structural integrity of the overall building system. Roof and siding panels are fabricated from light-gauge, roll-formed steel. Accessory components complete the engineered building system. These components include doors, windows, gutters and interior partitions. During the fourth quarter of fiscal 1999, we introduced our new "Long Bay System," that allows for the construction of metal buildings with spans up to 56 feet without internal supports. This compares to spans of up to 28 feet under other engineered building systems. The LB System virtually eliminates all welding at the site, which significantly reduces erection time compared with conventional steel construction. Our LB System is designed for larger buildings that typically require less custom engineering and design than our other engineered building systems, which allows us to meet our customers needs more quickly. SALES, MARKETING AND CUSTOMERS Metal Building Components. We sell metal building components directly to regional manufacturers, contractors, subcontractors, distributors, lumberyards, cooperative buying groups and other customers under the brand names "Metal Building Components," "American Building Components," "MBCI" and "IPS." Roll-up doors, interior and exterior doors, interior partitions and walls, header panels and trim are sold directly to contractors and other customers under the brand names "Doors & Building Components" or "DBCI." These components also are produced for integration into self storage and engineered building systems sold by us. We market our components products within four product lines: commercial/industrial, architectural, wood frame builders and residential. Customers include regional engineered building systems manufacturers, general contractors, subcontractors, roofing installers, architects and end-users. Commercial and industrial businesses are heavy users of metal building components and metal buildings systems. Standing seam roof and architectural customers are growing in importance. As metal buildings become a more acceptable building alternative and aesthetics become an increasingly important consideration for end-users of metal buildings, we believe that architects are participating in metal building design and purchase decisions to a greater extent. Wood frame builders also purchase our metal building components through distributors, lumberyards, cooperative buying groups and chain stores for various uses, including agricultural buildings. Residential customers are generally contractors building upscale homes that require an architect-specified product. Our metal building components sales operations are organized into four geographic regions. Each region is headed by a general sales manager supported by individual plant sales managers. In addition, our primary metal coating facility has its own sales manager. Each local sales office is located adjacent to a manufacturing plant and is staffed by a direct sales force responsible for contacting customers and architects and a sales coordinator who supervises the sales process from the time the order is received until it is shipped and invoiced. The regional and local focus of our customers requires extensive knowledge of local business conditions. During fiscal 2000, our largest customer for metal building components accounted for less than 2% of our total sales. We provide our customers with product catalogs tailored to our product lines, which include product specifications and suggested list prices. Some of our catalogs are available on-line through the Internet, which enables architects and other customers to download drawings for use in developing project specifications. Customers place orders via telephone or facsimile to a sales coordinator at the regional office who enters it onto a standard order form. The form is then sent via computer to the plant and downloaded automatically to the production machines. 6 10 We have a small number of national accounts for our coating and painting products and services and rely on a single sales manager. Our metal coating joint venture has an independent sales force. Engineered Building Systems. We sell engineered building systems to builders nationwide under the brand names "Metallic Buildings," "A&S Buildings" and "Mesco." We market engineered building systems through an in-house sales force to authorized builder networks of over 1,400 builders. We market engineered building systems under the brand name "Mid-West Steel Buildings" directly to contractors in Texas and surrounding states using an in-house sales force. We also sell engineered building systems under the names "All American Systems" and "Steel Systems" and various private labels. Our authorized builder networks consist of independent general contractors that market our Metallic Buildings, A&S Buildings and Mesco products to end-users. Most of our sales of engineered building systems outside of Texas and surrounding states are through our authorized builder networks. We rely upon maintaining a satisfactory business relationship for continuing job orders from our authorized builders and do not consider the builder agreements to be material to our business. During fiscal 2000, our largest customer for engineered building systems accounted for less than 2% of our total sales. We enter into an agreement with an authorized builder, which generally grants the builder the non-exclusive right to market our products in a specified territory. The agreement is cancelable by either party on 60 days notice. The agreement does not prohibit the builder from marketing engineered building systems of other manufacturers. We establish an annual sales goal for each builder and provide the builder with sales and pricing information, design and engineering manuals, drawings and assistance, application programs for estimating and quoting jobs and advertising and promotional literature. We also defray a portion of the builder's advertising costs and provide volume purchasing and other pricing incentives to encourage it to deal exclusively or principally with us. The builder is required to maintain a place of business in its designated territory, provide a sales organization, conduct periodic advertising programs and perform construction, warranty and other services for customers and potential customers. An authorized builder usually is hired by an end-user to erect an engineered building system on the customer's site and provide general contracting and other services related to the completion of the project. We sell our products to the builder, which generally includes the price of the building as a part of its overall construction contract with its customer. Our LB System provides us with an entree to new larger builders. This also provides us with new opportunities to cross-sell our other products to these new builders. MANUFACTURE AND DESIGN Metal Building Components. We operate 39 facilities used for manufacturing of metal building components for the building industry, including our doors and our metal coating and painting operations. We believe this broad geographic penetration gives us an advantage over our components competitors because major elements of a customer's decision are the speed and cost of delivery from the manufacturing facility to the product's ultimate destination. With the exception of our architectural and standing seam products, we are not involved in the design process for the components we manufacture. We also own a fleet of trucks to deliver our products to our customers in a more timely manner than most of our competitors. Our doors, interior partitions and other related panels and trim products are manufactured at dedicated plants in Georgia, Texas and Arizona. Orders are processed at the Georgia plant and sent to the appropriate plant, which is generally determined based upon the lowest shipping cost. Metal component products are roll-formed or fabricated at each plant using roll-formers and other metal working equipment. In roll forming, pre-finished coils of steel are unwound and passed through a series of progressive forming rolls which form the steel into various profiles of medium-gauge structural shapes and light-gauge sheets and panels. We operate two metal coating and painting facilities for hot rolled, medium gauge steel coils and three metal coating and painting facilities for painting light gauge steel coils. These facilities primarily service our needs, but we also process steel coils at these facilities for other manufacturers. Metal coating and painting processes involve applying various types of chemical treatments and paint systems to flat rolled continuous 7 11 coils of metal, including steel and aluminum. These processes give the coils a baked-on finish that both protects the metal and makes it more attractive. Initially, various metals in coil form are flattened, cleaned and pretreated. The metal is then coated, oven cured, cooled, recoiled and packaged for shipment. Slitting and embossing services can also be performed on the coated metal before shipping according to customer specifications. Hot roll steel coils typically are used in the production of secondary structural framing of metal buildings and other structural applications. Painted light gauge steel coils are used in the manufacture of products for building exteriors, metal doors, lighting fixtures and appliances. Our metal coating operation is one of only two metal coaters in the United States to receive the Supplier Excellence Award from Bethlehem Steel Corporation. We own 50% of a joint venture that operates a hot rolled coil coating facility in Granite City, Illinois that commenced operations in April 1999. The Granite City facility is used to slit and coat hot rolled coils of medium gauge steel for use in manufacturing purlins and girts. We have agreed to purchase a substantial portion of our production requirements for that product from the Granite City joint venture. Engineered Building Systems. After we receive an order, our engineers design the engineered building system to meet the customer's requirements and to satisfy applicable building codes and zoning requirements. To expedite this process, we use computer-aided design and engineering systems to generate engineering and erection drawings and a bill of materials for the manufacture of the engineered building system. We employ approximately 237 engineers and draftsmen in this area. Once the specifications and designs of the customer's project have been finalized, the manufacturing of frames and other building systems begins at one of our six frame manufacturing facilities in Texas, Georgia, South Carolina or Tennessee or our joint venture facility in Mexico. The fabrication of the primary structural framing consists of a process in which rigid steel plates are punched and sheared and then routed through an automatic welding machine and sent through further fitting and welding processes. The secondary structural framing and the covering subsystem are roll-formed steel products that are manufactured at our full manufacturing facilities as well as our components plants. Once manufactured, structural framing members and covering systems are shipped to the job site for assembly. We generally are not responsible for any on-site construction. The time elapsed between our receipt of an order and shipment of a completed building system has typically ranged from four to eight weeks, although delivery can extend somewhat longer if engineering and drafting requirements are extensive. We own 51% of a joint venture, which began operation of a framing facility in Monterrey, Mexico in July 1997. We purchase substantially all of the framing systems produced by the Mexico joint venture. RAW MATERIALS The principal raw material used in the manufacture of our metal building components and engineered building systems is steel. Components are fabricated from common steel products produced by mills including bars, plates, sheets and galvanized sheets. During the 2000 fiscal year, we purchased approximately 90% of our steel requirements from National Steel Corporation, Bethlehem Steel Corporation and U.S. Steel. No other steel supplier accounted for more than 3% of steel purchases for the same period. We believe concentration of our steel purchases among a small group of suppliers that have mills and warehouse facilities close to our facilities enables us, as a large customer of those suppliers, to obtain better service and delivery. These suppliers generally maintain an inventory of the types of materials we require. We do not have any long-term contracts for the purchase of raw materials. A prolonged labor strike against one of our principal domestic suppliers could have a material adverse effect on our operations. Alternative sources, however, including foreign steel, are currently believed to be sufficient to maintain required deliveries. BACKLOG At October 31, 2000, the total backlog of orders for our products believed by us to be firm was $169 million. This compares with a total backlog for our products of $157 million at October 31, 1999. The 8 12 increase in backlog reflects the results of our marketing activities and market demand. Backlog primarily consists of engineered building systems. Job orders generally are cancelable by customers at any time for any reason. Occasionally, orders in the backlog are not completed and shipped for reasons that include changes in the requirements of the customers and the inability of customers to obtain necessary financing or zoning variances. None of the backlog at October 31, 2000 currently is scheduled to extend beyond October 31, 2001. COMPETITION We and other manufacturers of metal building components and engineered building systems compete in the building industry with all other alternative methods of building construction such as tilt-wall, concrete and wood, all of which may be perceived as more traditional, more aesthetically pleasing or having other advantages over our products. We compete with all manufacturers of building products, from small local firms to large national firms. In addition, competition in the metal building components and engineered building systems market of the building industry is intense. It is based primarily on: - price - speed of construction - ability to provide added value in the design and engineering of buildings - service - quality - delivery We compete with a number of other manufacturers of metal building components and engineered building systems for the building industry, ranging from small local firms to large national firms. Most of these competitors operate on a regional basis, although we believe that at least four other manufacturers of engineered building systems and several manufacturers of metal building components have nationwide coverage. REGULATORY MATTERS We must comply with a wide variety of federal, state and local laws and regulations governing the protection of the environment. These laws and regulations cover air emissions, discharges to water, the generation, handling, storage, transportation, treatment and disposal of hazardous substances, the cleanup of contamination, the control of noise and odors and other materials and health and safety matters. Laws protecting the environment generally have become more stringent than in the past and are expected to continue to do so. Environmental laws and regulations generally impose strict liability. This means that in some situations we could be exposed to liability for cleanup costs, and toxic tort or other damages as a result of conduct that was lawful at the time it occurred or because of the conduct of or conditions caused by prior operators or other third parties. This strict liability is regardless of fault on our part. We believe we are in substantial compliance with all environmental standards applicable to our operations. We cannot assure you, however, that cleanup costs, natural resource damages, criminal sanctions, toxic tort or other damages arising as a result of environmental laws and costs associated with complying with changes in environmental laws and regulations will not be substantial and will not have a material adverse effect on our financial condition. From time to time, claims have been made against us under environmental laws. We have insurance coverage applicable to some environmental claims and to specified locations after payment of the applicable deductible. We do not anticipate material capital expenditures to meet current environmental quality control standards. We cannot assure you that more stringent regulatory standards will not be established that might require material capital expenditures. We also must comply with federal, state and local laws and regulations governing occupational safety and health, including review by the federal Occupational Health and Safety Administration and similar state 9 13 agencies. We believe we are in substantial compliance with applicable laws and regulations. Compliance does not have a material adverse affect on our business. The engineered building systems we manufacture must meet zoning and building code requirements adopted by local governmental agencies. PATENTS, LICENSES AND PROPRIETARY RIGHTS We have a number of United States patents and pending patent applications, including patents and applications relating to metal roofing systems, metal overhead doors, our new pier and header system, our LB System and Retro-R(R) panel. We do not, however, consider patent protection to be a material competitive factor in our industry. We also have several registered trademarks and pending registrations in the United States. EMPLOYEES As of October 31, 2000, we had approximately 4,250 employees, of whom over 3,055 were manufacturing and engineering personnel. We regard our employee relations as satisfactory. Our employees are not represented by a labor union or collective bargaining agreement. The United Steel Workers of America petitioned the National Labor Relations Board to be recognized as the collective bargaining representative of the production and maintenance employees of our Tallapoosa, Georgia facility. A union election was held at the Tallapoosa facility in January 1996, and the union lost the election. Similar elections were held at our Mattoon, Illinois facility in November 1997 and our Rancho Cucamonga, California facility in August 1998 and November 1999. The United Steel Workers of America lost each of those elections. ITEM 3. LEGAL PROCEEDINGS. Commencing in April 2001, several class action lawsuits were filed against the Company and certain of our present officers in the United States District Court for the Southern District of Texas. The plaintiffs in the actions purport to represent purchasers of our common stock 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 our business, consolidated financial condition or results of operations. We are involved in various other legal proceedings that we consider to be in the normal course of business. We believe that these proceedings will not have a material adverse effect on our business, consolidated financial condition or results of operations. 10 14 PART II ITEM 6. SELECTED FINANCIAL DATA.
YEAR ENDED OCTOBER 31,(1) --------------------------------------------------------------------------------------------------- 1992 1993 1994 1995 1996 1997 1998 1999(2) 2000(2) ------- -------- -------- -------- -------- -------- -------- ---------- ---------- (RESTATED) (RESTATED) Sales....................... $79,008 $134,506 $167,767 $234,215 $332,880 $407,751 $675,331 $936,550 $1,018,324 Net Income.................. 3,611 6,333 10,256 17,032 24,814 27,887 37,318 44,577(3) 44,407 Net Income per Share (Diluted)................. .34 .48 .77 1.26 1.51 1.64 2.05 2.34(3) 2.43 Working Capital............. 4,835 15,511 16,885 31,687 51,958 76,746 58,393 59,254 56,913 Total Assets................ 34,187 46,733 63,373 83,082 158,326 196,332 823,537 856,367 868,921 Long-term Debt (Noncurrent Portion).................. 2,185 1,899 326 278 1,730 1,679 444,477 397,062 374,448 Shareholders' Equity........ $21,232 $ 28,655 $ 39,682 $ 57,682 $116,175 $147,815 $223,612 $275,994 $ 305,280 Average Common Shares (Assuming Dilution)....... 10,864 13,156 13,390 13,530 16,455 17,085 18,192 19,100 18,286
--------------- (1) All numbers in thousands except net income per share. (2) See Note 11 to the consolidated financial statements for a discussion of the restatement. (3) Includes an extraordinary loss on debt refinancing, net of tax, of $1.0 million or $0.05 per share. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS The following table presents, as a percentage of sales, certain selected consolidated financial data for the Company for the periods indicated:
YEAR ENDED OCTOBER 31, ------------------------------- 1998 1999 2000 ----- ---------- ---------- (RESTATED) (RESTATED) Sales....................................................... 100.0% 100.0% 100.0% Cost of sales............................................... 73.7 74.4 74.8 Gross profit...................................... 26.3 25.6 25.2 Operating expenses.......................................... 14.2 14.0 14.0 Nonrecurring acquisition expense............................ 0.3 -- -- ----- ----- ----- Income from operations............................ 11.8 11.6 11.2 Interest expense............................................ 3.1 3.8 3.8 Other income, net........................................... (0.5) (0.5) (0.2) ----- ----- ----- Income before income taxes........................ 9.2 8.3 7.6 Provision for income taxes.................................. 3.6 3.4 3.2 ----- ----- ----- Income before extraordinary loss.................. 5.6 4.9 4.4 Extraordinary loss on debt refinancing, net of tax.......... -- (0.1) -- ----- ----- ----- Net income........................................ 5.6% 4.8% 4.4% ===== ===== =====
SUPPLEMENTARY BUSINESS SEGMENT INFORMATION 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 for 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. 11 15 Products of both business segments are similar in basic raw materials used and manufacturing. Engineered building systems include the manufacturing of structural framing and supplies and value added engineering and drafting, which are typically not part of component products or services. The Company believes it has one of the broadest product offerings of metal building products in the industry. Intersegment sales consist primarily of products and services provided to the engineered buildings segment by the component segment, including painting and coating of hot rolled material. This provides better customer service, shorter delivery time and minimizes transportation costs to the customer. The following table presents the Company's supplementary business segment information (in thousands), for the periods indicated:
1998 % 1999(1) % 2000(1) % -------- --- ---------- --- ---------- --- (RESTATED) (RESTATED) Sales to outside customers: Engineered building systems............. 277,347 41 310,324 33 333,087 33 Metal building components............... 397,984 59 626,226 67 685,237 67 Intersegment sales...................... 25,094 4 59,692 6 47,107 5 Corporate/eliminations.................. (25,094) (4) (59,692) (6) (47,107) (5) -------- --- -------- --- ---------- --- Total net sales(2).............. $675,331 100 $936,550 100 $1,018,324 100 ======== === ======== === ========== === Operating income: Engineered building systems............. 29,576 11 37,509 12 37,549 11 Metal building components............... 51,497 13 70,351 11 75,691 11 Corporate/eliminations.................. (1,764) -- 582 -- 430 -- -------- --- -------- --- ---------- --- Total operating income.......... $ 79,309 12 $108,442 12 $ 113,670 11 ======== === ======== === ========== === Joint venture income: Engineered building systems............. 8 1 150 9 575 140 Metal building components............... 729 99 1,525 91 (165) (40) Corporate/eliminations.................. -- -- -- -- -- -- -------- --- -------- --- ---------- --- Total joint venture income...... $ 737 100 $ 1,675 100 $ 410 100 ======== === ======== === ========== === Investment in joint ventures: Engineered building systems............. 28 -- 178 1 303 3 Metal building components............... 25,937 100 30,301 99 9,065 97 Corporate/eliminations.................. -- -- -- -- -- -- -------- --- -------- --- ---------- --- Total investment in joint ventures...................... $ 25,965 $ 30,479 100 $ 9,368 100 ======== === ======== === ========== === Property, plant and equipment: Engineered building systems............. 33,244 19 35,931 18 42,002 18 Metal building components............... 142,637 79 153,156 77 173,837 75 Corporate/eliminations.................. 3,619 2 8,768 5 15,203 7 -------- --- -------- --- ---------- --- Total property, plant and equipment, net................ $179,500 100 $197,855 100 $ 231,042 100 ======== === ======== === ========== === Depreciation and amortization: Engineered building systems............. 5,958 33 6,893 24 7,894 24 Metal building components............... 10,346 58 17,590 62 23,080 69 Corporate/eliminations.................. 1,514 9 4,059 14 2,513 7 -------- --- -------- --- ---------- --- Total depreciation and amortization.................. $ 17,818 100 $ 28,542 100 $ 33,487 100 ======== === ======== === ========== ===
12 16
1998 % 1999(1) % 2000(1) % -------- --- ---------- --- ---------- --- (RESTATED) (RESTATED) Capital expenditures: Engineered building systems............. 7,297 35 10,067 31 12,813 44 Metal building components............... 13,233 64 17,769 53 9,217 32 Corporate/eliminations.................. 304 1 5,426 16 6,855 24 -------- --- -------- --- ---------- --- Total capital expenditures...... $ 20,834 100 $ 33,262 100 $ 28,885 100 ======== === ======== === ========== === Total assets: Engineered building systems............. 86,342 10 88,673 10 97,130 11 Metal building components............... 352,407 43 365,417 43 392,416 45 Corporate/eliminations.................. 384,788 47 402,277 47 379,375 44 -------- --- -------- --- ---------- --- Total assets.................... $823,537 100 $856,367 100 $ 868,921 100 ======== === ======== === ========== ===
--------------- (1) See Note 11 to the consolidated financial statements for a discussion of the restatement. (2) The Company is not dependent on any one significant customer or group of customers. Substantially all of the Company's sales are made within the United States. RESULTS OF OPERATIONS FOR FISCAL 2000 COMPARED TO 1999 Consolidated sales for fiscal 2000 exceeded $1 billion for the first time and totaled $1.02 billion which represents an increase of 9% as compared to fiscal 1999 sales of $936.6 million. The 2000 fiscal year growth is attributable to increased market penetration, and new sales related to the new long bay building systems in the engineered buildings segment, additional revenues in the metal building components segment related to the acquisition of DOUBLECOTE and the related consolidation of its results for the last seven months of fiscal 2000. Intersegment sales of $47.1 million represent product and services provided by the metal building components segment, principally coating and painting services to the engineered buildings segment in 2000. Engineered Building Systems sales increased approximately 7% in fiscal 2000 as compared to fiscal 1999. This increase resulted from increased market penetration due to growth in the builder customer base and wider geographical distribution, as well as the introduction of our new long bay building systems. Operating income for fiscal 2000 remained consistent with fiscal 1999 and represented 11% of sales in fiscal 2000 and 12% in fiscal 1999. The slight deterioration in operating income margins is due primarily to the building systems absorption of non-capitalizable costs associated with the consolidation and relocation of our corporate headquarters, post-implementation costs associated with the management information systems, and an increase in employee related costs related to the increase in sales. Metal Building Components sales increased in fiscal 2000 by 9% compared to fiscal 1999. The majority of this increase resulted from the DOUBLECOTE acquisition and the inclusion of DOUBLECOTE's sales for the last seven months of 2000. Operating income of this segment increased by $5.3 million or 8% in fiscal 2000 compared to fiscal 1999 and represented 11% of sales in both fiscal 2000 and 1999. This change is in line with the increase in sales volume. Consolidated operating expenses increased $11.8 million, or 9%, in fiscal 2000 as compared to fiscal 1999 which was generally in line with the 9% increase in sales. As a percent of sales, operating expenses were 14% in fiscal 1999 and 2000. Joint venture income decreased $1.3 million to $0.4 million in fiscal 2000 as compared to fiscal 1999 due primarily to the purchase of our partner's 50% ownership of DOUBLECOTE, a coil paint line whose results are included in the Company's consolidated results of operations for the last seven months of fiscal 2000. 13 17 RESULTS OF OPERATIONS FOR FISCAL 1999 COMPARED TO 1998 Consolidated sales for fiscal 1999 increased by 39% as compared to fiscal 1998. Most of this increase resulted from the inclusion of MBCI (acquired in May 1998) for the full year in 1999 compared to only six months in 1998. On a pro forma basis, the increase in sales would have been approximately 8%. Engineered Building Systems sales increased by 12% in 1999 compared to 1998 due to increased market penetration, increased geographic coverage through utilization of component plants and increased product offerings available to engineered building systems' customers after the MBCI acquisition. Operating income in 1999 increased by 27% over 1998 which represented 12% of sales compared to 11% of sales for 1998. Operating income increased at a faster rate than sales volume growth as a result of synergies of the MBCI acquisition including purchase pricing and efficiencies, vertical integration of painting and coating, lower distribution costs from broader geographical locations, improved manufacturing utilization, and product procurement from the metal component segment. Metal Building Components sales increased 57% in 1999 compared to 1998 primarily from the inclusion of the MBCI acquisition for the full year in 1999. On a pro forma basis, the sales increase would have been approximately 7% for the year. Top line sales growth has been reduced by sales which became intersegment sales after the combination of MBCI with the Company. Since 90% of coating and painting requirements of the Company are performed internally, external sales opportunities may be lost during peak periods. In addition, the external sales which are diverted to one of the Company's joint ventures may result in a reduction of sales growth. Although sales increased by 57%, operating income increased by only 37% in the current year, representing 11% of sales in 1999 compared to 13% in 1998. A more competitive pricing environment in 1999 and new competition in some market areas accounted for the decline in margin performance. Consolidated operating expenses consisting of engineering and drafting, selling and administrative costs, increased by $35 million, or 36%, in 1999 compared to 1998 which was slightly less than the 39% increase in consolidated sales. As a percent of sales, operating expenses were 14% in 1999 and 1998. Interest expense for 1999 was $35.4 million compared to $20.8 million in 1998. In May 1998, the Company borrowed approximately $540 million in bank debt to finance the acquisition of MBCI. During the last six months of 1998 and in 1999, the Company reduced its total indebtedness to $433 million. The reduction in debt coupled with lower interest costs (as leverage decreased) resulted in a lower percentage increase in interest cost being a lower percentage of sales in 1999 as compared to 1998. Joint venture income increased from $.7 million in 1998 to $1.7 million in 1999 due to the inclusion of MBCI's joint venture operations for the whole year. In April 1999, a 50% joint venture for the painting of heavy gauge hot roll coils began operation. This joint venture has incurred start up losses which reduced the overall increase in total joint venture income in 1999. LIQUIDITY AND CAPITAL RESOURCES As of October 31, 2000, the Company had working capital of $56.8 million compared to $59.3 million at the end of fiscal 1999. Better inventory management and strict credit policies allowed the Company to finance its growth with a decrease in net working capital. During fiscal 2000, the Company generated $81.8 million in cash flow from operations before changes in working capital components. This was approximately 4% higher than the $78.5 million generated in fiscal 1999. This cash flow was used primarily to fund capital additions of $28.9 million, purchase treasury stock of $20.4 million, acquire DOUBLECOTE for $24.4 million, and reduce debt by $16.1 million during fiscal 2000. The Company has a senior credit facility from a syndicate of banks. At October 31, 2000, 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 October 31, 2000, the Company had $145 million outstanding under its revolving credit facility, $20.7 million outstanding under its 364-day revolving credit facility, and $125 million under its term loan facility. The senior credit facility matures in total on July 1, 2003. 14 18 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 the ranges from 0% to 0.5% and (2) LIBOR loan 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 under the revolver at any time in certain agreed minimum amounts, without premium or penalty but subject to LIBOR breakage fees. 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 outstanding $125 million of unsecured senior subordinated notes that mature on May 1, 2009. These notes have an interest 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. For more information regarding the Company's long-term debt, see Note 2 to the consolidated financial statements included elsewhere herein. During the 2000 fiscal year, the Company spent $28.9 million in capital additions for plant expansions, development of new management information systems and a new corporate headquarters building. The Company plans to spend approximately $15.3 million on capital projects in fiscal 2001. Delays or cancellation of planned projects or changes in the economic outlook could increase or decrease capital spending from the amounts currently anticipated. Inflation has not significantly affected the Company's financial position or operations. Metal components and engineered building systems 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 and 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. 15 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. CONSOLIDATED STATEMENTS OF INCOME NCI BUILDING SYSTEMS, INC. (IN THOUSANDS, EXCEPT PER SHARE DATA)
OCTOBER 31, ---------------------------------- 1998 1999 2000 -------- ---------- ---------- (RESTATED) (RESTATED) Sales....................................................... $675,331 $936,550 $1,018,324 Cost of sales............................................... 497,862 696,999 761,702 -------- -------- ---------- Gross profit...................................... 177,469 239,551 256,622 Operating expenses.......................................... 96,100 131,109 142,952 Nonrecurring acquisition expenses........................... 2,060 -- -- -------- -------- ---------- Income from operations............................ 79,309 108,442 113,670 Interest expense............................................ (20,756) (35,449) (39,069) Other income, net........................................... 2,559 3,204 2,262 Joint venture income........................................ 737 1,675 410 -------- -------- ---------- Income before income taxes........................ 61,849 77,872 77,273 -------- -------- ---------- Provision for income taxes: Current........................................... 16,573 29,272 31,372 Deferred.......................................... 7,958 3,022 1,494 -------- -------- ---------- Total income tax............................................ 24,531 32,294 32,866 -------- -------- ---------- Income before extraordinary loss.................. 37,318 45,578 44,407 Extraordinary loss on debt financing, net of tax............ -- (1,001) -- -------- -------- ---------- Net income.................................................. $ 37,318 $ 44,577 $ 44,407 ======== ======== ========== Income per common and common equivalent share: Basic: Income before extraordinary loss....................... $ 2.17 $ 2.48 $ 2.48 Extraordinary loss, net of tax......................... -- (0.05) -- ======== ======== ========== Net income............................................. $ 2.17 $ 2.43 $ 2.48 ======== ======== ========== Diluted: Income before extraordinary loss....................... $ 2.05 $ 2.39 $ 2.43 Extraordinary loss, net of tax......................... -- (0.05) -- ======== ======== ========== Net income............................................. $ 2.05 $ 2.34 $ 2.43 ======== ======== ==========
See accompanying notes to the consolidated financial statements. 16 20 CONSOLIDATED BALANCE SHEETS NCI BUILDING SYSTEMS, INC. (IN THOUSANDS, EXCEPT PER SHARE DATA)
OCTOBER 31, ----------------------- 1999 2000 ---------- ---------- (RESTATED) (RESTATED) ASSETS Current assets: Cash and cash equivalents................................. $ 16,089 $ 2,999 Accounts receivable, net.................................. 105,608 119,368 Inventories............................................... 84,872 87,613 Deferred income taxes..................................... 6,943 4,986 Prepaid expenses.......................................... 5,037 7,482 -------- -------- Total current assets.............................. 218,549 222,448 Property, plant and equipment, net.......................... 197,855 231,042 Excess of costs over fair value of acquired net assets...... 398,606 395,073 Other assets, primarily investment in joint ventures........ 41,357 20,358 -------- -------- Total assets...................................... $856,367 $868,921 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt......................... $ 36,297 $ 42,806 Accounts payable.......................................... 68,183 77,638 Accrued compensation and benefits......................... 17,021 21,383 Other accrued expenses.................................... 37,773 23,792 -------- -------- Total current liabilities......................... 159,274 165,619 Long-term debt, noncurrent portion.......................... 397,062 374,448 Deferred income taxes....................................... 24,037 23,574 Commitments and contingencies Shareholders' equity: Preferred stock, $1 par value, 1,000,000 shares authorized, none outstanding........................... -- -- Common stock, $.01 par value, 50,000,000 authorized, 18,520,000 and 17,675,000 shares issued and outstanding, respectively.............................. 186 186 Additional paid-in capital................................ 97,289 97,224 Retained earnings......................................... 178,519 222,926 Treasury stock............................................ -- (15,056) -------- -------- Total shareholders' equity........................ 275,994 305,280 -------- -------- Total liabilities and shareholders' equity........ $856,367 $868,921 ======== ========
See accompanying notes to the consolidated financial statements. 17 21 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY NCI BUILDING SYSTEMS, INC. (IN THOUSANDS)
ADDITIONAL COMMON PAID-IN TREASURY RETAINED SHAREHOLDERS' STOCK CAPITAL STOCK EARNINGS EQUITY ------ ---------- -------- -------- -------------- Balance, October 31, 1997............... $ 82 $51,109 $ -- $ 96,624 $147,815 Proceeds from exercise of stock options, including tax benefit thereon............................ 2 4,317 -- -- 4,319 Two-for-one split of common stock..... 82 (82) -- -- -- Shares issued in connection with purchase of MBCI................... 14 32,186 -- -- 32,200 Shares issued for contribution to 401(k) plan........................ 1 1,959 -- -- 1,960 Net income............................ -- -- -- 37,318 37,318 ---- ------- -------- -------- -------- Balance, October 31, 1998............... 181 89,489 -- 133,942 223,612 Proceeds from exercise of stock options, including tax benefit thereon............................ 3 3,076 -- -- 3,079 Shares issued for contribution to 401(k) plan........................ 2 4,724 -- -- 4,726 Net income (Restated)................. -- -- -- 44,577 44,577 ---- ------- -------- -------- -------- Balance, October 31, 1999 (Restated).... 186 97,289 -- 178,519 275,994 Treasury stock purchases.............. -- -- (20,416) -- (20,416) Proceeds from exercise of stock options, including tax benefit thereon............................ -- 202 -- -- 202 Treasury stock reissued for stock options exercised.................. (604) 1,442 -- 838 Shares issued from treasury stock for contribution to 401(k) plan........ -- 337 3,918 -- 4,255 Net income (Restated)................. -- -- -- 44,407 44,407 ---- ------- -------- -------- -------- Balance, October 31, 2000 (Restated).... $186 $97,224 $(15,056) $222,926 $305,280 ==== ======= ======== ======== ========
See accompanying notes to the consolidated financial statements. 18 22 CONSOLIDATED STATEMENTS OF CASH FLOWS NCI BUILDING SYSTEMS, INC. (IN THOUSANDS)
OCTOBER 31, ----------------------------------- 1998 1999 2000 --------- ---------- ---------- (RESTATED) (RESTATED) Cash flows from operating activities: Income before extraordinary loss......................... $ 37,318 $ 45,578 $ 44,407 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......................... 17,818 28,542 33,487 Gain on sale of fixed assets.......................... (32) (11) (201) Provision for doubtful accounts....................... 2,625 2,402 2,645 Extraordinary loss on debt refinancing, net of tax.... -- (1,001) -- Deferred income tax provision......................... 7,958 3,022 1,494 Changes in operating assets and liabilities, net of effect of acquisitions: Accounts, notes and other receivables................. (3,663) (8,749) (7,403) Inventories........................................... 9,951 (6,871) (1,472) Prepaid expenses...................................... 109 (823) (2,056) Accounts payable...................................... 24,189 5,489 7,856 Accrued expenses...................................... 13,772 26,650 (5,917) --------- --------- -------- Net cash provided by operating activities................ 110,045 94,228 72,840 Cash flows from investing activities: Proceeds from sale of fixed assets....................... 98 1,561 383 Acquisition of Metal Building Components, Inc. .......... (553,510) -- -- Acquisition of California Finished Metals, Inc. ......... (15,458) -- -- Acquisition of DOUBLECOTE, L.L.C. ....................... -- -- (24,408) Changes in other noncurrent assets....................... (24,450) (9,574) 2,780 Capital expenditures..................................... (20,834) (33,262) (28,885) --------- --------- -------- Net cash used in investing activities.................... (614,154) (41,275) (50,130) Cash flows from financing activities: Proceeds from stock options exercised.................... 2,494 952 721 Net (payments) borrowings on revolving lines of credit... 281,600 (136,112) 20,145 Borrowings on long-term debt............................. 200,000 125,000 -- Payments on long-term debt............................... (7,552) (31,303) (36,250) Purchase of treasury stock............................... -- -- (20,416) --------- --------- -------- Net cash provided by (used in) financing activities...... 476,542 (41,463) (35,800) Net increase (decrease) in cash and cash equivalents....... (27,567) 11,490 (13,090) Cash at beginning of period................................ 32,166 4,599 16,089 --------- --------- -------- Cash at end of period...................................... $ 4,599 $ 16,089 $ 2,999 ========= ========= ========
See accompanying notes to the consolidated financial statements. 19 23 NCI BUILDING SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Reporting Entity These financial statements include the operations and activities of NCI Building Systems, Inc. and its subsidiaries (the "Company") after the elimination of intercompany accounts and balances. The Company designs, manufactures and markets metal building systems and components for commercial, industrial, agricultural and community service use. (b) Revenue Recognition The Company recognizes revenues when the following conditions are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectibility is reasonably assured. Adequate provision is made, upon shipment, for estimated product returns, and warranties. Costs associated with shipping and handling of products are included in cost of sales. (c) Accounts Receivable The Company reports accounts receivable net of the allowance for doubtful accounts of $3,309,000 and $3,656,000 at October 31, 1999 and 2000, respectively. Trade accounts receivable are the result of sales of building systems and components to customers throughout the United States and affiliated territories including international builders who resell to end users. All sales are denominated in United States dollars. Credit sales do not normally require a pledge of collateral; however, various types of liens may be filed to enhance the collection process. (d) Inventories Inventories are stated at the lower of cost or market value, using specific identification or the weighted-average method for steel coils and other raw materials. The components of inventory are as follows:
OCTOBER 31, ----------------- 1999 2000 ------- ------- (IN THOUSANDS) Raw materials............................................... $65,999 $66,696 Work-in-process and finished goods.......................... 18,873 20,917 ------- ------- $84,872 $87,613 ======= =======
(e) Property, Plant and Equipment Property, plant and equipment are stated at cost and depreciated over their estimated useful lives. Depreciation is computed using the straight-line method for financial reporting purposes and both straight-line and accelerated methods for income tax purposes. Depreciation expense for the years ended October 31, 1998, 1999 and 2000 was $9,970,000, $13,468,000 and $19,005,000, respectively. The Company capitalizes certain costs related to internal use software in accordance with Statement of Position 98-1, Accounting for the Costs of Computer Software Developed for Internal Use. 20 24 NCI BUILDING SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Property, plant and equipment consist of the following:
OCTOBER 31, ------------------- 1999 2000 -------- -------- (IN THOUSANDS) Land........................................................ $ 12,417 $ 12,912 Buildings and improvements.................................. 87,893 104,883 Machinery, equipment and furniture.......................... 115,768 150,187 Transportation equipment.................................... 4,721 4,609 Computer software and equipment............................. 17,759 27,188 -------- -------- 238,558 299,779 Less accumulated depreciation............................... (40,703) (68,737) -------- -------- $197,855 $231,042 ======== ========
Estimated useful lives for depreciation are: Buildings and improvements............................ 10 - 40 years Machinery, equipment and furniture.................... 5 - 13 years Transportation equipment.............................. 3 - 10 years Computer software and equipment....................... 5 - 7 years
(f) Statements of Cash Flows For purposes of the statement of cash flows, the Company considers all highly liquid investments with an original maturity date of three months or less to be cash equivalents. Total interest paid for the years ended October 31, 1998, 1999 and 2000 was $16,733,000, $30,198,000 and $37,186,000, respectively. Income taxes paid, including refunds and prepayments, for the years ended October 31, 1998, 1999 and 2000 were $19,915,000, $13,247,000 and $42,885,000 (of which $11,748,000 related to 1999, but was payable in 2000), respectively. Non-cash investing or financing activities included: $2,343,000 for the 2000 401(k) plan contributions through the third fiscal quarter of 2000, and $1,912,000 for the related 1999 contributions which were paid in common stock in 2000; $2,301,000 for the 1999 401(k) plan contributions through the third fiscal quarter of 1999 and $2,425,000 for the related 1998 contributions which were paid in common stock in 1999; and $1,960,000 for the 1997 contribution paid in common stock in 1998. (g) Excess of Cost Over Fair Value of Acquired Net Assets Excess of cost over fair value of acquired net assets is amortized on a straight-line basis over periods of fifteen to forty years. Accumulated amortization as of October 31, 1999 was $21,581,000, and $32,802,000 as of October 31, 2000. The carrying value of goodwill is reviewed if the facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on the undiscounted cash flows of the entity acquired over the remaining amortization period, the Company's carrying value of the goodwill would be reduced by the estimated shortfall of cash flows. (h) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 21 25 NCI BUILDING SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (i) Advertising Costs Advertising costs are expensed as incurred. Advertising expense was $2,301,000, $3,851,000 and $3,083,000 in 1998, 1999 and 2000, respectively. (j) Long-Lived Assets Impairment losses are recognized when indicators of impairment are present and the estimated undiscounted cash flows are not sufficient to recover the assets carrying amount. Assets held for disposal are measured at the lower of carrying value or estimated fair value, less costs to sell. (k) Stock-Based Compensation The Company uses the intrinsic value method in accounting for its stock-based employee compensation plans. (l) Pending Accounting Changes 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 are 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 will be recognized in earnings. NCI has elected to adopt FAS 133 effective November 1, 2000, and accordingly, NCI will be required to adjust hedging instruments to fair value in the balance sheet and recognize the offsetting gains or losses as adjustments to be reported in net income or other comprehensive income, as appropriate. NCI believes that such adoption will not have a material effect on its consolidated results of operations or financial position. 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. (m) Business Segments The Company adopted FAS No. 131, Disclosures About Segments of an Enterprise and Related Information, in 1999. The Company has divided its operations into two reportable segments: engineered building systems and metal building components, based upon similarities in product lines, manufacturing processes, marketing and management of its businesses. Products of both segments are similar in basic raw materials used and manufacturing. The engineered building systems segment includes the manufacturing of structural framing and supplies and value added engineering and drafting, which are typically not part of component products or services. The reporting segments follow the same accounting policies used for the Company's consolidated financial statements. Management evaluates a segments' performance based upon operating income. Intersegment sales are recorded based on prevailing market prices, and consist primarily of products and services provided to the engineered building systems segment by the metal building components 22 26 NCI BUILDING SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) segment, including painting and coating of hot rolled material. Information with respect to the segments is included in the three-year comparison labeled Supplementary Business Segment Information on page 11. NOTE 2. LONG-TERM DEBT
OCTOBER 31, ------------------- 1999 2000 -------- -------- (IN THOUSANDS) Five-year revolving credit line with banks bearing interest at a rate of 30-day LIBOR plus 1.375% (8.0% at October 31, 2000), maturing on July 1, 2003........................... $124,800 $145,000 Five-year term loan payable to banks bearing interest at a rate of 90-day LIBOR plus 1.375% (8.1% at October 31, 2000) repayable beginning on October 31, 1998, in quarterly installments beginning with $7.5 million and gradually increasing to $12.5 million on the maturity date, July 1, 2003........................................ 161,250 125,000 364-day revolving credit facility with banks bearing interest at a rate of 30-day LIBOR plus 1.375% (8.0% at October 31, 2000) maturing on May 1, 2001................. 20,688 20,688 Unsecured senior subordinated notes bearing interest at a rate of 9.25%, maturing on May 1, 2009.................... 125,000 125,000 Note payable to employee bearing interest at 7%, maturing April 1, 2001, with an option to convert into common stock at $14.96 per share....................................... 1,500 1,500 Other....................................................... 121 66 -------- -------- 433,359 417,254 Current portion of long-term debt........................... (36,297) (42,806) -------- -------- $397,062 $374,448 ======== ========
Aggregate required principal reductions are as follows:
YEAR ENDED OCTOBER 31, ---------------------- (IN THOUSANDS) 2001............................................ $ 42,806 2002............................................ 46,260 2003............................................ 203,188 2004............................................ -- 2005 and thereafter............................. 125,000 -------- $417,254 ========
The Company has a senior credit facility from a syndicated group of banks, which consists of (i) a five-year revolving credit facility of up to $200 million, of which up to $20 million may be utilized in the form of commercial and standby letters of credit, (ii) a five-year term loan facility and (iii) a 364-day revolving credit facility which originally provided for up to $200 million. Loans and letters of credit under the five-year revolver will be available, and amounts repaid may be reborrowed at any time until July 2003, subject to the fulfillment of certain conditions precedent, including the absence of default under the facility. If the 364-day revolver is not repaid by the Company or extended by the lenders, the Company has the option to convert it to a term note maturing on July 1, 2003. The Company's obligations under the senior credit facility are secured by the pledge of all capital stock, partnership interests and other equity interests of the Company's domestic subsidiaries. All obligations are also guaranteed by each of the Company's domestic corporate subsidiaries and operating limited partnerships. The senior credit facility contains customary financial and restrictive covenants with amounts and ratios negotiated between the Company and the lender. The Company is required to make 23 27 NCI BUILDING SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. On May 5, 1999, the Company completed its offering of $125 million of unsecured Senior Subordinated Notes due 2009 (the "Notes"). The net proceeds of the offering, approximately $121 million, were used to repay a portion of outstanding borrowings under the existing senior credit facility. The indenture governing the Notes provides for interest at 9.25%, and the Notes mature on May 1, 2009. The indenture governing the Notes also contains covenants restricting certain activities and transactions by the Company and its subsidiaries including dividends, repurchases of stock, incurrence of additional debt and liens, investments in non-wholly owned entities or ventures and acquisitions or mergers, unless certain financial tests and other requirements are met. In 1999, as a result of the offering of the Notes, the Company reduced the maximum available borrowings under its 364-day revolver from $200 million to $40 million. During 1999, the restructuring of the existing senior credit facility resulted in the write-off of approximately $1.6 million ($1.0 million after tax) in deferred financing costs. At October 31, 1999 and 2000, the remaining unamortized balance in deferred financing costs relating to the senior credit facility and the Notes were $4,429,000 and $3,549,000, respectively. At October 31, 2000, the fair value of the Company's long-term debt, based on current interest rates and quoted market prices, was $409.8 million, compared with the carrying amount of $417.3 million. NOTE 3. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Taxes on income from continuing operations consist of the following:
YEAR ENDED OCTOBER 31, --------------------------- 1998 1999 2000 ------- ------- ------- (IN THOUSANDS) Current: Federal............................................... $15,371 $26,835 $28,501 State................................................. 1,202 2,437 2,871 ------- ------- ------- Total current......................................... 16,573 29,272 31,372 Deferred: Federal............................................... 7,292 2,760 1,378 State................................................. 666 262 116 ------- ------- ------- Total deferred........................................ 7,958 3,022 1,494 ------- ------- ------- Total provision......................................... $24,531 $32,294 $32,866 ======= ======= =======
24 28 NCI BUILDING SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The reconciliation of income tax computed at the United States federal statutory tax rate to the effective income tax rate is as follows:
YEAR ENDED OCTOBER 31, ----------------------- 1998 1999 2000 ---- ---- ----- Statutory federal income tax rate........................... 35.0% 35.0% 35.0% State income taxes.......................................... 2.1% 2.3% 2.7% Non-deductible goodwill amortization........................ 2.7% 4.3% 4.1% Other....................................................... (0.1)% (0.1)% 0.7% ---- ---- ----- Effective tax rate.......................................... 39.7% 41.5% 42.5% ==== ==== =====
Significant components of the Company's deferred tax liabilities and assets are as follows:
OCTOBER 31, -------------------- 1999 2000 -------- -------- (IN THOUSANDS) Deferred tax assets Inventory................................................. $ 1,693 $ 1,539 Bad debt reserve.......................................... 1,328 1,416 Accrued insurance reserves................................ 1,480 2,006 Deferred compensation..................................... 1,416 754 Other reserves............................................ 1,026 1,364 -------- -------- Total deferred tax assets......................... 6,943 7,079 Deferred tax liabilities Depreciation and amortization............................. 21,098 22,174 Other..................................................... 2,939 3,493 -------- -------- Total deferred tax liabilities.................... 24,037 25,667 -------- -------- Net deferred tax liability........................ $(17,094) $(18,588) ======== ========
Other accrued liabilities includes income tax receivable of $2,215,000 at October 31, 2000 and accrued income taxes of $9,660,000 at October 31, 1999. NOTE 4. OPERATING LEASE COMMITMENTS Total rental expense incurred from operating non-cancelable leases for the years ended October 31, 1998, 1999 and 2000 was $5,527,000, $6,795,000 and $7,279,000, respectively. Aggregate minimum required annual payments on long-term operating leases at October 31, 2000 were as follows:
YEAR ENDED OCTOBER 31, --------------- (IN THOUSANDS) 2001................................................. $3,618 2002................................................. 3,031 2003................................................. 907 2004................................................. 480 2005................................................. 207 ------ $8,243 ======
25 29 NCI BUILDING SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5. SHAREHOLDERS' RIGHTS PLAN In June 1998 the Board of Directors adopted a Shareholders' Rights Plan in which one preferred stock purchase right ("Right") was declared as a dividend for each common share outstanding. Each Right entitles shareholders to purchase, under certain conditions, one one-hundredth (1/100th) of a share of newly authorized Series A Junior Participating Preferred Stock at an exercise price of $62.50. Rights will be exercisable only if a person or group acquires beneficial ownership of 20% or more of the common shares or commences a tender or exchange offer, upon consummation of which such person or group would beneficially own 20% or more of the common shares. In the event that a person or group acquires 20% or more of the common shares, the Rights enable dilution of the acquiring person's or group's interest by providing for a 50% discount on the purchase of common shares by the non-controlling shareholders. The company will generally be entitled to redeem the Rights at $0.005 per Right at any time before a person or group acquires 20% or more of the common shares. Rights will expire on June 24, 2008 unless earlier exercised, redeemed or exchanged. NOTE 6. PREFERRED, COMMON, AND TREASURY STOCK Preferred Stock The Company has 1 million shares of authorized preferred stock, none of which was outstanding as of October 31, 2000. Common Stock The Company has 50 million shares of authorized common stock, of which 18,520,000 and 17,675,000 were outstanding at October 31, 1999 and 2000, respectively. In June 1998, the Company's Board of Directors approved a two-for-one split of the Common Stock effective for stockholders of record on July 8, 1998. Share and per share amounts have been restated to reflect the stock split. Treasury Stock On November 3, 1999, the Company's Board of Directors authorized the repurchase of 1.0 million shares of the Company's common stock, and an additional 1.5 million shares on November 7, 2000. Subject to applicable federal securities law, such purchases occur at times and in amounts that the Company deems appropriate. No time limit was placed on the duration of the repurchase program. Shares repurchased are reserved for later re-issuance in connection with possible future acquisitions, the Company's stock option and 401(k) profit sharing plans. As of October 31, 2000, the Company had repurchased 1,219,508 shares of its common stock for $20.4 million since the inception of the repurchase program in November 1999. Changes in treasury common stock were as follows:
NUMBER OF SHARES AMOUNT --------- ------- (IN THOUSANDS) Balance, October 31, 1999................................... -- $ -- Purchases................................................. 1,220 20,416 Issued in exercise of stock options....................... (88) (1,442) Issued in 401(k) contributions............................ (239) (3,918) ----- ------- Balance, October 31, 2000................................... 893 $15,056 ===== =======
26 30 NCI BUILDING SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7. STOCK OPTION PLAN The Board of Directors has approved a non-statutory employee stock option plan. This plan includes the future granting of stock options to purchase up to 4,100,000 shares as an incentive and reward for key management personnel. Options expire ten years from date of grant. Generally, the right to acquire the option shares is earned in 25% increments over the first four years of the option period. Stock option transactions during 1998, 1999 and 2000 are as follows (in thousands, except per share amounts):
WEIGHTED AVERAGE NUMBER OF EXERCISE SHARES PRICE --------- -------- Balance, October 31, 1997................................... 1,709 $ 8.94 Granted................................................... 517 23.65 Cancelled................................................. (22) (14.56) Exercised................................................. (313) (7.98) ----- ------- Balance, October 31, 1998................................... 1,891 $ 13.06 Granted................................................... 118 22.72 Cancelled................................................. (37) (13.27) Exercised................................................. (271) (3.57) ----- ------- Balance, October 31, 1999................................... 1,701 $ 15.23 Granted................................................... 503 15.88 Cancelled................................................. (217) (19.00) Exercised................................................. (103) (7.02) ----- ------- Balance, October 31, 2000................................... 1,884 $ 15.42 ===== =======
Options exercisable at October 31, 1998, 1999, and 2000 were 910,000, 929,000 and 1,423,000, respectively. The weighted average exercise prices for options exercisable at October 31, 1998, 1999 and 2000 were $6.67, $11.11 and $13.73, respectively. Exercise prices for options outstanding at October 31, 2000 range from $2.83 to $28.13. The weighted average remaining contractual life of options outstanding at October 31, 2000 is 6.5 years. The following summarizes additional information concerning outstanding options as of October 31, 2000: Options Outstanding
RANGE OF NUMBER OF WEIGHTED-AVERAGE EXERCISE PRICES OPTIONS REMAINING LIFE EXERCISE PRICE --------------- --------- ---------------- -------------- $ 2.83 - 11.50 452,000 3.1 years $ 6.48 $12.00 - 15.75 791,000 7.4 years $14.80 $16.38 - 28.13 641,000 7.7 years $22.49 --------- 1,884,000 =========
Options Exercisable
WEIGHTED-AVERAGE RANGE OF EXERCISE PRICES NUMBER OF OPTIONS EXERCISE PRICE ------------------------ ----------------- ---------------- $ 2.83 - 11.50 452,000 $ 6.48 $12.00 - 15.75 665,000 $14.71 $16.38 - 28.13 306,000 $22.31 --------- 1,423,000 =========
27 31 NCI BUILDING SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In accordance with the terms of APB No. 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of the grant, the Company records no compensation expense for its stock option awards. The weighted average grant-date fair value of options granted during 1998, 1999 and 2000 was $12.07, $12.83 and $9.49, respectively. These values were estimated using the Black-Scholes option-pricing model with the following weighted average assumptions: no expected dividend, expected volatility of 38.4% for 1998 and 1999, and 50.0% for 2000, risk free interest rates ranging from 4.6% to 5.9% for 1998, 4.4% to 6.2% for 1999, and 6.2% to 6.8% for 2000, and expected lives of 7 years. Had compensation expense been recorded based on these values, the Company's income and earnings per share would have been as follows (in thousands, except per share data):
YEAR ENDED OCTOBER 31, --------------------------- 1998 1999 2000 ------- ------- ------- Proforma income before extraordinary loss............... $35,887 $43,615 $42,917 Proforma income per share before extraordinary loss: Basic.............................................. $ 2.08 $ 2.38 $ 2.40 Diluted............................................ $ 1.98 $ 2.29 $ 2.35
Because options vest over several years and additional options grants are expected, the effects of these calculations are not likely to be representative of similar future calculations. NOTE 8. NET INCOME PER SHARE Basic and diluted net income per share computations are as follows:
YEAR ENDED OCTOBER 31, --------------------------- 1998 1999 2000 ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Income before extraordinary item........................ $37,318 $45,578 $44,407 Interest, net of tax, on convertible debenture assumed converted.......................................... 66 66 66 ------- ------- ------- Adjusted income before extraordinary loss............... 37,384 45,644 44,473 Extraordinary loss on debt refinancing, net of tax.... -- (1,001) -- ------- ------- ------- Adjusted net income..................................... $37,384 $44,643 $44,473 ======= ======= ======= Weighted average common shares outstanding.............. 17,212 18,378 17,904 Common stock equivalents: Stock options...................................... 880 622 282 Convertible debenture.............................. 100 100 100 ------- ------- ------- Weighted average common shares outstanding, assuming dilution.............................................. 18,192 19,100 18,286 ======= ======= =======
28 32 NCI BUILDING SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Income per common and common equivalent share: Basic: Income before extraordinary loss...................... $2.17 $ 2.48 $2.48 Extraordinary loss.................................... -- (0.05) -- ----- ------ ----- Net income............................................ $2.17 $ 2.43 $2.48 ===== ====== ===== Diluted: Income before extraordinary loss...................... $2.05 $ 2.39 $2.43 Extraordinary loss.................................... -- (0.05) -- ----- ------ ----- Net income............................................ $2.05 $ 2.34 $2.43 ===== ====== =====
NOTE 9. EMPLOYEE BENEFIT PLAN The Company has a 401(k) profit sharing plan (the "Savings Plan") which covers all eligible employees. The Savings Plan requires the Company to match employee contributions up to a certain percentage of a participant's salary. No other contributions may be made to the Savings Plan. Contributions expense for the years ended October 31, 1998, 1999 and 2000 were $2,575,000, $4,144,000 and $3,677,000, respectively for contributions to the Savings Plan. NOTE 10. 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 $24.4 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. 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 $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 funds for this acquisition were provided from the proceeds of a $600 million bank credit facility under which the Company initially borrowed $540 million. The acquisition was accounted for using the purchase method of accounting. The excess of cost over the fair value of the acquired assets was approximately $389 million. The consolidated results of operations for 1998 include MBCI since the date of acquisition. NOTE 11. RESTATEMENT The Company has restated its consolidated financial statements for the years ended October 31, 1999 and October 31, 2000. These restatements reflect an aggregate adjustment to net income as of October 31, 1999 and October 31, 2000 of approximately $8.8 million relating to accounting and management information systems errors that impacted certain inventories and related liabilities. The net effect for the year ended October 31, 1999, after adjusting for income tax of $794,000, is a $1,296,000 decrease to net income, from 29 33 NCI BUILDING SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) $45,873,000 to $44,577,000. The net effect for the year ended October 31, 2000, after adjusting for income tax of $4,615,000, is a $7,532,000 decrease to net income, from $51,939,000 to $44,407,000.
OCTOBER 31, 1999 OCTOBER 31, 2000 ------------------------- ------------------------- AS REPORTED AS RESTATED AS REPORTED AS RESTATED ----------- ----------- ----------- ----------- Sales......................................... $936,550 $936,550 $1,018,324 $1,018,324 Cost of sales................................. 694,909 696,999 749,555 761,702 -------- -------- ---------- ---------- Gross profit................................ 241,641 239,551 268,769 256,622 Operating expenses............................ 131,109 131,109 142,952 142,952 Nonrecurring acquisition expenses............. -- -- -- -- -------- -------- ---------- ---------- Income from operations...................... 110,532 108,442 125,817 113,670 Interest expense.............................. (35,449) (35,449) (39,069) (39,069) Other income, net............................. 3,204 3,204 2,262 2,262 Joint venture income.......................... 1,675 1,675 410 410 -------- -------- ---------- ---------- Income before income taxes.................. 79,962 77,872 89,420 77,273 -------- -------- ---------- ---------- Provision for income taxes Current..................................... 30,066 29,272 35,987 31,372 Deferred.................................... 3,022 3,022 1,494 1,494 -------- -------- ---------- ---------- Total income tax.............................. 33,088 32,294 37,481 32,866 -------- -------- ---------- ---------- Income before extraordinary loss............ 46,874 45,578 51,939 44,407 Extraordinary loss on debt financing, net of tax......................................... (1,001) (1,001) -- -- -------- -------- ---------- ---------- Net income.................................... $ 45,873 $ 44,577 $ 51,939 $ 44,407 ======== ======== ========== ========== Income per common and common equivalent share: Basic: Income before extraordinary loss......... $ 2.55 $ 2.48 $ 2.90 $ 2.48 Extraordinary loss, net of tax........... (0.05) (0.05) -- -- -------- -------- ---------- ---------- Net income............................... $ 2.50 $ 2.43 $ 2.90 $ 2.48 ======== ======== ========== ========== Diluted: Income before extraordinary loss......... $ 2.46 $ 2.39 $ 2.84 $ 2.43 Extraordinary loss, net of tax........... (0.05) (0.05) -- -- -------- -------- ---------- ---------- Net income............................... $ 2.41 $ 2.34 $ 2.84 $ 2.43 ======== ======== ========== ========== Inventories................................... $ 83,988 $ 84,872 $ 98,612 $ 87,613 Total current assets.......................... 217,665 218,549 233,447 222,448 Total assets.................................. 855,483 856,367 879,920 868,921 Accounts payable.............................. 65,209 68,183 74,400 77,638 Other accrued expenses........................ 38,567 37,773 29,201 23,792 Total current liabilities..................... 157,094 159,274 167,790 165,619 Retained earnings............................. 179,815 178,519 231,754 222,926 Total shareholders' equity.................... 277,290 275,994 314,108 305,280 Total liabilities and shareholders' equity.... 855,483 856,367 879,920 868,921
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 30 34 NCI BUILDING SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. 31 35 NCI BUILDING SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following two tables present unaudited quarterly results for fiscal years 1999 and 2000 as reported and as restated. This restatement affects the third and fourth quarters of fiscal 1999 and all four quarters of fiscal 2000. The first and second quarter of 1999 are not affected by this restatement.
AS REPORTED ----------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Fiscal Year 1999 Sales............................................ $214,347 $217,365 $243,770 $261,068 Gross profit..................................... 54,277 54,384 63,450 69,530 Income before taxes.............................. 13,146 15,373 22,461 28,982 Income before extraordinary loss................. 7,425 8,948 13,495 17,006 Extraordinary loss on debt refinancing, net of tax........................................... -- -- (1,001) -- -------- -------- -------- -------- Net Income............................... $ 7,425 $ 8,948 $ 12,494 $ 17,006 Net income per common and common equivalent share(1) Basic:........................................... $ 0.41 $ 0.49 $ 0.73 $ 0.92 Extraordinary loss............................ -- -- (0.05) -- -------- -------- -------- -------- Net income.................................... $ 0.41 $ 0.49 $ 0.68 $ 0.92 Diluted:......................................... 0.39 0.47 0.71 0.89 Extraordinary loss............................ -- -- (0.05) -- -------- -------- -------- -------- Net income.................................... $ 0.39 $ 0.47 $ 0.66 $ 0.89 Fiscal Year 2000 Sales............................................ $232,052 $232,766 $272,749 $280,757 Gross profit..................................... 59,396 61,410 72,479 75,484 Income before income taxes....................... 15,865 17,525 25,249 30,781 -------- -------- -------- -------- Net income....................................... $ 8,998 $ 10,071 $ 14,901 $ 17,969 Net income per common and common equivalent share(1) Basic:........................................ $ 0.49 $ 0.56 $ 0.84 $ 1.02 Diluted:...................................... $ 0.48 $ 0.55 $ 0.82 $ 1.00
--------------- (1) The sum of the quarterly income per share amounts do not equal the annual amount reported, as per share amounts are computed independently for each quarter and for the full year based on the respective weighted average common shares outstanding. 32 36 NCI BUILDING SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS RESTATED ----------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Fiscal Year 1999 Sales............................................ $214,347 $217,365 $243,770 $261,068 Gross profit..................................... 54,277 54,384 62,437 68,453 Income before taxes.............................. 13,146 15,373 21,448 27,905 Income before extraordinary loss................. 7,425 8,948 12,867 16,338 Extraordinary loss on debt refinancing, net of tax........................................... -- -- (1,001) -- -------- -------- -------- -------- Net Income............................... $ 7,425 $ 8,948 $ 11,866 $ 16,338 Net income per common and common equivalent share(1) Basic:........................................... $ 0.41 $ 0.49 $ 0.70 $ 0.88 Extraordinary loss............................ -- -- (0.05) -- -------- -------- -------- -------- Net income.................................... $ 0.41 $ 0.49 $ 0.65 $ 0.88 Diluted:......................................... 0.39 0.47 0.67 0.86 Extraordinary loss............................ -- -- (0.05) -- -------- -------- -------- -------- Net income.................................... $ 0.39 $ 0.47 $ 0.62 $ 0.86 Fiscal Year 2000 Sales............................................ $232,052 $232,766 $272,749 $280,757 Gross profit..................................... 57,328 59,459 67,723 72,112 Income before income taxes....................... 13,797 15,574 20,493 27,409 -------- -------- -------- -------- Net income....................................... $ 7,716 $ 8,861 $ 11,952 $ 15,878 Net income per common and common equivalent share(1) Basic:........................................ $ 0.42 $ 0.50 $ 0.67 $ .90 Diluted:...................................... $ 0.41 $ 0.48 $ 0.66 $ .89
--------------- (1) The sum of the quarterly income per share amounts do not equal the annual amount reported, as per share amounts are computed independently for each quarter and for the full year based on the respective weighted average common shares outstanding. 33 37 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders NCI Building Systems, Inc. We have audited the accompanying consolidated balance sheets of NCI Building Systems, Inc. as of October 31, 2000 and 1999, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended October 31, 2000. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of NCI Building Systems, Inc. at October 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended October 31, 2000, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note 11, the Company has restated its financial statements for the years ended October 31, 2000 and 1999. /s/ ERNST & YOUNG LLP Houston, Texas December 4, 2000 except for Note 11, as to which the date is May 23, 2001 34 38 PART III ITEM 11. EXECUTIVE COMPENSATION. SUMMARY COMPENSATION TABLE The following table shows information regarding compensation paid to our Chief Executive Officer, each of our four other most highly paid persons who were executive officers at the end of the 2000 fiscal year and to Mr. C.A. Rundell, Jr., who served as our Chairman of the Board until his retirement in July 2000 (collectively, the "Named Executive Officers"), with respect to each of our last three fiscal years based on salary and bonus earned during each fiscal year.
LONG-TERM COMPENSATION ------------- SECURITIES ANNUAL COMPENSATION UNDERLYING ALL OTHER NAME AND ---------------------- OPTIONS COMPENSATION PRINCIPAL POSITION YEAR SALARY($) BONUS($) (#)(1) ($)(2) ------------------ ---- --------- -------- ------------- ------------ A. R. Ginn......................... 2000 $420,000 $253,594 15,000 $ 8,750 Chairman of the Board 1999 400,000 293,640 -- 10,000 1998 200,000(3) 297,475 -- 636 Johnie Schulte..................... 2000 $420,000 $253,594 15,000 $ 8,750 President and Chief 1999 400,000 293,640 -- 10,000 Executive Officer 1998 338,333(4) 256,875 40,000 -- C.A. Rundell, Jr. ................. 2000 $209,692 $126,797 --(5) $31,910 Former Chairman of 1999 200,000 146,820 -- 33,159 the Board 1998 165,833 125,625 40,000 33,160 Robert J. Medlock.................. 2000 $206,666 $124,405 10,000 $55,070 Executive Vice President and 1999 193,333 146,820 -- 56,319 Chief Financial Officer 1998 158,383 120,000 30,000 56,316 Kenneth W. Maddox.................. 2000 $206,666 $124,405 10,000 $ 8,750 Executive Vice President, 1999 199,834(3) 146,820 -- 10,000 Administration 1998 99,500 99,500 -- 3,586 Donnie R. Humphries................ 2000 $109,750 $ 47,333 5,000 $ 7,847 Secretary 1999 101,250 51,109 -- 7,849 1998 89,025 45,000 -- 7,754
--------------- (1) Options to acquire shares of common stock. (2) This column is comprised of: (a) our matching contribution under our 401(k) plan and (b) with respect to Messrs Rundell and Medlock, an amount which represents the increase in present value during each of the three fiscal years of a vested retirement benefit under our supplemental retirement plan as shown in the following table:
PAYABLE INCREASE IN BEGINNING AT AGE PRESENT VALUE ---------------- -------------- Rundell....................................... 70 2000 $23,160 1999 23,159 1998 23,160 Medlock....................................... 65 2000 $46,320 1999 46,319 1998 46,316
(3) Represents the salary paid to Messrs. Ginn and Maddox from May 1998 (after our acquisition of MBCI) until October 1998. 35 39 (4) We paid Mr. Schulte a base salary of $285,000 per year in his capacity as Chief Executive Officer of NCI from November 1997 until May 1998. In May 1998, Mr. Schulte's base salary was increased to $400,000 per year. (5) During fiscal 2000, we granted Mr. Rundell options to purchase 15,000 shares of common stock. We canceled these shares upon Mr. Rundell's retirement in July 2000. OPTION GRANTS DURING 2000 FISCAL YEAR The following table sets forth the options granted during fiscal 2000 to the Named Executive Officers under our stock option plan. We did not grant any stock appreciation rights during fiscal 2000.
INDIVIDUAL GRANTS -------------------------------------------- POTENTIAL REALIZABLE % OF TOTAL VALUE AT ASSUMED OPTIONS ANNUAL RATES OF STOCK GRANTED TO EXERCISE PRICE APPRECIATION FOR OPTIONS EMPLOYEES OR BASE OPTION TERM GRANTED IN FISCAL PRICE EXPIRATION ----------------------- NAME (#) YEAR ($/SH) DATE 5%($) 10%($) ---- ------- ---------- -------- ---------- ---------- ---------- A.R. Ginn......................... 15,000 3% $15.75 12-8-09 $384,826 $612,722 Johnie Schulte.................... 15,000 3% $15.75 12-8-09 $384,826 $612,722 C.A. Rundell, Jr.(1).............. -- -- -- -- -- -- Robert J. Medlock................. 10,000 2% $15.75 12-8-09 $256,551 $408,514 Kenneth W. Maddox................. 10,000 2% $15.75 12-8-09 $256,551 $408,514 Donnie R. Humphries............... 5,000 1% $15.75 12-8-09 $128,275 $204,257
--------------- (1) During fiscal 2000, we granted Mr. Rundell options to purchase 15,000 shares of common stock. We canceled these shares upon Mr. Rundell's retirement in July 2000. OPTION EXERCISES DURING 2000 FISCAL YEAR AND FISCAL YEAR END OPTION VALUES The following table provides information related to options exercised by the Named Executive Officers and the number and value of options held at fiscal year end. We do not have any outstanding stock appreciation rights. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY SHARES OPTIONS AT FY-END OPTIONS AT FY-END ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/ NAME ON EXERCISE REALIZED(1) UNEXERCISABLE UNEXERCISABLE(1) ---- ----------- ----------- ---------------------- -------------------- A.R. Ginn........................ -- -- 0/15,000 $ 0/$ 0 Johnie Schulte................... -- -- 70,000/35,000 $ 65,625/$ 0 C.A. Rundell, Jr.(2)............. -- -- -- -- Robert J. Medlock................ -- -- 92,948/28,000 $661,545/$3,938 Kenneth W. Maddox................ -- -- 0/10,000 $ 0/$ 0 Donnie R. Humphries.............. -- -- 10,000/ 5,000 $ 28,125/$ 0
--------------- (1) Value is calculated on the basis of the difference between the option exercise price and the market value of our common stock on the exercise date or at the end of our fiscal year, as appropriate. (2) We canceled all of Mr. Rundell's options upon his retirement in July 2000. 36 40 LONG-TERM INCENTIVE PLAN AWARDS DURING 2000 FISCAL YEAR The following table provides information related to awards under our Management Incentive Plan to the Named Executive Officers during fiscal 2000. LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK PRICE BASED PLANS PERFORMANCE OR OTHER ------------------------- NAME PERIOD UNTIL MATURATION(1) TARGET(2) MAXIMUM(2) ---- -------------------------- ----------- ----------- A.R. Ginn............................. May 1, 2003 $ 732,027 $ 732,027 Johnie Schulte........................ -- -- -- C.A. Rundell, Jr. .................... -- -- -- Robert J. Medlock..................... -- -- -- Kenneth W. Maddox..................... May 1, 2003 $1,056,211 $1,056,211 Donnie R. Humphries................... -- -- --
--------------- (1) For a description of the terms and conditions, including the appropriate performance standard, of the Management Incentive Plan, please see "-- Employment and Change-in-Control Agreements." (2) The amounts reported in these columns are the market value of the trust accounts as of January 8, 2001 established under the Management Incentive Plan for the benefit of Messrs. Ginn and Maddox. The amounts to be paid to Messrs. Ginn and Maddox at payout will be these amounts, as adjusted for any increases resulting from investment gains or decreases resulting from investment losses from January 8, 2001 until payout. In connection with our acquisition of MBCI in May 1998, we deposited $684,760 for Mr. Ginn and $993,370 for Mr. Maddox into trusts under the Management Incentive Plan. COMPENSATION OF DIRECTORS Directors of NCI who are employees of NCI do not receive compensation as directors. We pay non-employee directors an annual fee of $20,500 plus expenses incurred and $3,000 for each meeting of our board of directors or committee meeting attended. From March 1997 until December 15, 2000, each non-employee director received an annual grant of options to purchase 2,000 shares of common stock under our stock option plan. Effective December 15, 2000, each non-employee director will receive grants of options to purchase shares having a fair market value of $30,000 (if the non-employee director serves as the chairman of a committee) or $25,000 (if the non-employee director does not serve as the chairman of a committee) under our stock option plan on June 15 and December 15 of each year, provided, that the non-employee director has served as a director for at least six months. In addition, upon election to our board of directors, each new non-employee director will receive an initial grant of options to purchase 5,000 shares of common stock. We have a deferred compensation agreement with Mr. McDonald, under which the payment of $65,000 earned by him for special services in 1993 has been deferred until 2004. Interest on the deferred compensation is accruing at the annual rate of 1 1/2% below the prime interest rate of our principal lending bank. EMPLOYMENT AND CHANGE-IN-CONTROL AGREEMENTS Under the terms of an employment agreement, Mr. Schulte agreed to serve in an executive capacity for us through December 1995, and thereafter for successive one-month periods until his discharge by us, his voluntary resignation or his death or disability, at a minimum annual salary of $125,000. His base salary rate may be increased at the discretion of our board of directors. If Mr. Schulte's employment with us is terminated, whether by voluntary termination by Mr. Schulte or by termination with or without cause by us, Mr. Schulte has agreed not to compete with us within a 500-mile radius of any of our manufacturing facilities for a three-year period after his termination. In consideration of Mr. Schulte's covenant not to compete, Mr. Schulte is entitled to receive 100% of his then current base salary for the first 30 days after a termination or discharge and will thereafter receive 75% of his base salary for the remainder of the three-year period. In 37 41 addition, Mr. Schulte may continue to participate in our group health insurance plan. We may elect to cease making noncompete payments to Mr. Schulte at any time, in which case Mr. Schulte would be relieved of his covenant not to compete. We maintain a supplemental retirement plan, which is a nonqualified, unfunded benefit plan under which designated key employees are eligible to receive monthly benefits following their retirement with us. If a participating key employee dies before retirement, his designated beneficiary is eligible to receive monthly preretirement survivor benefits. Our board of directors determines the amount of retirement benefit to be payable to an eligible employee at the time our board of directors designates the employee as eligible to participate in our supplemental retirement plan. Generally, a participant becomes vested in his retirement benefit under the Supplemental Plan at the rate of 10% for each year of service with us and becomes fully vested upon his disability or upon the occurrence of a change in control of NCI. Mr. Medlock, among others, is currently a participant in our supplemental retirement plan. The benefit payable to Mr. Medlock, beginning at age 65, is $100,000 per year for 10 years. We have acquired life insurance policies to be used to discharge our obligations under our supplemental retirement plan. We have entered into split dollar life insurance agreements with specified key employees, including Mr. Schulte. Under these agreements, the key employees are the owners of life insurance policies providing death benefits. We advance the annual premium on each policy and the insured employee pays income tax on the one-year term cost of his policy. Each insured employee has collaterally assigned an interest in his respective policy to us in an amount equal to the premiums paid by us. The policy on Mr. Schulte covers him and his wife and provides a death benefit of $5,000,000, payable after the death of both Mr. Schulte and his wife. Before its acquisition by us in May 1998, MBCI maintained the Metal Building Components, Inc. Executive Management Deferred Compensation Plan (the "MBCI Compensation Plan") and the Metal Building Components, Inc. Long-Term Management Incentive Scheme (the "MBCI Incentive Plan"). At the same time as our acquisition of MBCI in May 1998, MBCI paid the participants in the MBCI Incentive Plan the vested portion of the amounts being held for their accounts under the MBCI Incentive Plan and that plan was terminated. The unvested portions of their accounts were forfeited to us and deposited into a trust established under the Metal Building Components, L.P. and Metal Coaters Operating, L.P. Management Incentive Plan and related trust agreements (the "Management Incentive Plan") for officers of MBCI, including $684,760 for the account of Mr. Ginn and $993,370 for the account of Mr. Maddox. We also issued 1,400,000 unregistered shares of our common stock at the closing of the MBCI acquisition, which we booked at a value of $32.2 million for financial reporting purposes, to officers and employees of MBCI. The stock issuances included 500,000 shares to Mr. Ginn, which we booked at a value of $11,500,000 for financial reporting purposes, and 238,000 shares to Mr. Maddox, which we booked at a value of $5,474,000 for financial reporting purposes. These stock issuances were in exchange for their future interests in the MBCI Incentive Plan, their withdrawal from the MBCI Incentive Plan and their consent to the termination of the MBCI Compensation Plan. The funds held under the Management Incentive Plan are invested by the trustee, a national banking association, and may not be invested in our common stock. The amounts held in trust for the participants in the Management Incentive Plan, after taking into account any investment income and losses on those amounts, will be held in trust for the account of each participant until May 1, 2003 unless earlier forfeited and distributed to us as specified in the Management Incentive Plan. During fiscal 1999, we amended the plan for three officers, other than Messrs. Ginn and Maddox, to allow them to vest early in a specified percentage of their trust account. In consideration of the early vesting, these officers agreed to defer their receipt of their remaining trust account until September 30, 2004 and agreed to extend some of their obligations under the Non-Competition Agreement (defined below). On the appropriate date, the entire balance then held in trust for the participants will become 100% vested. Promptly following vesting, we will distribute to each participant the entire balance of his individual trust account and all undistributed income, if either: (1) the participant, on that date, is then and has, since the date of our acquisition of MBCI, continuously been employed by us and has not, during that period, breached or violated the covenants in a Confidentiality, Non-Competition and Non-Solicitation Agreement, dated May 1, 1998 (the "Non-Competition Agreement"), by and among us and 38 42 the participants in the Management Incentive Plan; or (2) the participant is not our employee on that date but (a) the participant either died or justifiably terminated his employment as a result of listed actions or events, including a change in control of NCI; and (b) during the continuous period beginning with our acquisition of MBCI and ending on that date, the participant has not breached or violated the covenants in the Non-Competition Agreement. Messrs. Ginn and Maddox are parties to the Non-Competition Agreement, in which they have agreed that they will not compete with us until the later of May 1, 2003 or the second anniversary of the termination of their employment with us for any reason whatsoever. If Messrs. Ginn or Maddox breach this covenant or other specified covenants in the Non-Competition Agreement, they will forfeit their rights to receive distributions under the Management Incentive Plan. In July 2000, we entered into an agreement with C.A. Rundell in connection with his retirement. In recognition of his many years of service to our shareholders and NCI, we paid Mr. Rundell his then current base salary for the last three months of fiscal 2000, a cash bonus under our Bonus Program as if he had served as our Chairman of the Board for all of fiscal 2000, and a lump sum payment of $412,500 in consideration of his agreement not to compete with us for a two-year period ending August 1, 2002. We also provided Mr. Rundell with coverage under our standard health and other employee benefit programs during the last three months of fiscal 2000. At his retirement date, Mr. Rundell was 90% vested in our supplemental retirement plan which entitles Mr. Rundell, after reaching the age of 70, to receive $45,000 a year for ten years. We also agreed with Mr. Rundell to cancel all of the outstanding options he held under our stock option plan, and, as part of our publicly announced share repurchase program, we purchased from Mr. Rundell the 150,000 shares of our common stock that he owned for an aggregate of $2.83 million, based on the closing sale price for our common stock on the date we signed the agreement with Mr. Rundell. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee of our board of directors is responsible for determining executive compensation. Mr. Breedlove, Mr. Forbes and Mr. McDonald are the only members of the Compensation Committee. Neither Mr. Breedlove, Mr. Forbes nor Mr. McDonald is an officer or employee of NCI. REPORT OF THE COMPENSATION COMMITTEE The principal elements of compensation provided to executive and other officers, including Mr. Johnie Schulte, our President and Chief Executive Officer, historically have consisted of a base salary, supplemented with the opportunity to earn a bonus under our annual cash bonus program ("Bonus Program"). The bonus amount is based on the return on operating assets of NCI for the fiscal year, as calculated in accordance with the Bonus Program ("ROA"), except that bonuses of our executive and most senior officers are based on a combination of ROA and minimum increases in earnings per share. Option grants under our stock option plan also have been utilized as a principal component of compensation. Mr. Schulte is entitled to receive a minimum annual salary of $125,000 under his employment agreement with us. Subject to this minimum, Mr. Schulte's base salary rate may be adjusted at the discretion of our board of directors based upon factors that our board of directors deems appropriate. For the first two months of fiscal 2000, NCI paid Mr. Schulte a salary of $400,000 per year, which was his minimum annual salary during fiscal 1999. In December 1999, our board of directors approved a 6% increase to Mr. Schulte's salary, increasing his annual compensation to $424,000 per year. The board of directors approved the increase based on NCI's performance during fiscal 1999. In December 2000, our board of directors approved another 6.1% increase in salary for Mr. Schulte bringing his minimum annual salary for the remainder of fiscal 2001 to $450,000. Our board of directors approved this increase based on Mr. Schulte's assumption of additional responsibilities as well as NCI's performance for fiscal 2000. Under our Bonus Program, Level 1 and Level 2 participants are eligible for the award of an annual cash bonus equal to a percentage of their respective base salaries, based upon our achievement of both a minimum ROA and a minimum increase in earnings per share for the fiscal year. No cash bonuses are awarded to Level 1 or Level 2 participants if both ROA and earnings per share growth are less than 20% or ROA is less 39 43 than 10%. The percentage of base salary payable as a bonus increases proportionately with increases in the ROA and earnings per share growth achieved. The maximum bonus for Level 1 participants, including Messrs. Ginn, Maddox, Medlock, Rundell and Schulte is 127.5% of base salary. The maximum bonus for Level 2 participants is 85% of base salary. In addition, under the Bonus Program, Level 3 and Level 4 participants are eligible for the award of a cash bonus equal to a percentage of their respective base salaries, based upon our achievement of a minimum ROA for the fiscal year. No cash bonuses are awarded to Level 3 or Level 4 participants if the ROA is less than 20%. If ROA is between 20% and 30%, Level 3 participants are eligible for the award of a cash bonus equal to 25% of base salary and an additional 2.50% of base salary for each 1% increment in ROA over 20%. The maximum bonus for Level 3 participants, including Mr. Humphries, is 50% of base salary. If ROA is between 20% and 30%, Level 4 participants are eligible for the award of a cash bonus equal to 12.5% of base salary and an additional 1.25% of base salary for each 1% increment in ROA over 20%. The maximum bonus for Level 4 participants is 25% of base salary. In December 2000, the Committee approved a change to the Bonus Program for Level 3 participants for fiscal 2001. The Committee, working with senior management, classified Level 3 participants into five categories based on levels of responsibility and profits generated by the participant's manufacturing facility. The minimum bonuses for Level 3 participants range from 15% of base salary to 25% of base salary if ROA is 20%. If ROA is between 20% and 30%, the bonus for Level 3 participants will increase proportionally, up to a maximum bonus for each category equal to double the minimum bonus. For example, if ROA is 20% or more, a Level 3 participant with a minimum bonus of 15% will be eligible for the award of a cash bonus equal to 15% of base salary and an additional 1.50% of base salary for each additional 1% increment in ROA over 20%, up to a maximum ROA of 30%. The Committee believes that the Bonus Program allows us to provide base compensation to our management group below comparable rates paid by other companies, in exchange for generous bonuses when warranted by our performance. The Compensation Committee also believes that including the achievement of earnings per share growth as an additional bonus criteria for top management provides incentives to maximize stockholder value and growth, while retaining the historical ROA incentive to aggressively manage asset accounts and income and expense categories. Some members of management also receive benefits under NCI's supplemental plan, the split dollar life insurance agreements, the Management Incentive Plan and the various other arrangements described above under "Employment and Change-in-Control Agreements." The Compensation Committee believes that benefit programs such as these, which address the unique circumstances of executives in light of limitations imposed on benefits payable from qualified welfare, profit-sharing and retirement plans, are critical in attracting and retaining quality executives. At this time, based on our current executive structure, we do not believe it is necessary to adopt a policy with respect to qualifying executive compensation in excess of $1.0 million for deductibility under Section 162(m) of the Internal Revenue Code of 1986. This report is submitted by the members of the Compensation Committee. WILLIAM D. BREEDLOVE GARY L. FORBES ROBERT N. MCDONALD In accordance with the rules and regulations of the SEC, the above report of the Compensation Committee and the performance graph appearing below shall not be deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulations 14A or 14C of the Securities Exchange Act of 1934 or to the liabilities of Section 18 of the Exchange Act and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, notwithstanding any general incorporation by reference of this annual report into any other filed document. 40 44 STOCK PERFORMANCE CHART The following chart compares the yearly percentage change in the cumulative stockholder return on our common stock from November 1995 to the end of the fiscal year ended October 31, 2000 with the cumulative total return on the New York Stock Exchange Index and the MG Industry Group 634 -- General Building Materials, a peer group. The comparison assumes $100 was invested on November 1, 1995 in our common stock and in each of the foregoing indices and assumes reinvestment of dividends. [PERFORMANCE GRAPH]
------------------------------------------------------------------------------------------------------------------------ Fiscal Year Ending Company/Index/Market 10/31/1995 10/31/1996 10/31/1997 10/30/1998 10/29/1999 10/31/2000 ------------------------------------------------------------------------------------------------------------------------ NCI Building Systems 100.0 140.96 156.72 186.02 136.02 133.88 General Building Materials 100.0 117.52 136.01 141.84 134.09 129.29 NYSE Market Index 100.0 122.11 158.87 183.26 212.62 229.94
41 45 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The following documents are filed as a part of this report: 1. Consolidated financial statements (see Item 8). 2. Consolidated financial statement schedules. Schedule II -- Valuation and Qualifying Accounts All other schedules are omitted because they are inapplicable or the requested information is shown in the financial statements or noted therein.
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3. -- Exhibits. 3.1 -- Restated Certificate of Incorporation of NCI (filed as Exhibit 3.1 to NCI's registration statement no. 33-45612 and incorporated by reference herein) 3.2 -- Certificate of Amendment to Restated Certificate of Incorporation of NCI (filed as Exhibit 3.1.1 to NCI's registration statement no. 33-45612 and incorporated by reference herein) 3.3 -- Certificate of Amendment to Restated Certificate of Incorporation of NCI (filed as Exhibit 3.3 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1994 and incorporated by reference herein) 3.4 -- Certificate of Amendment to Restated Certificate of Incorporation of NCI (filed as Exhibit 2.4 to NCI's registration statement on Form 8-A filed with the SEC on July 20, 1998 and incorporated by reference herein) 3.5 -- Certificate of Amendment to Restated Certificate of Incorporation of NCI (filed as Exhibit 3.5 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 3.6 -- Amended and Restated By-Laws of NCI, as amended through February 5, 1992 (the "By-Laws") (filed as Exhibit 3.2 to NCI's registration statement no. 33-45612 and incorporated by reference herein) 3.7 -- Amendment No. 1 to By-Laws (filed as Exhibit 3.7 to NCI's registration statement no. 333-80029 and incorporated by reference herein) 3.8 -- Amendment No. 2 to By-Laws of NCI (filed as Exhibit 3.8 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1999 and incorporated by reference herein) *3.9 -- Amendment No. 3 to By-Laws 4.1 -- Form of certificate representing shares of Company's common stock (filed as Exhibit 1 to NCI's registration statement on Form 8-A filed with the SEC on July 20, 1998 and incorporated by reference herein) 4.2 -- Credit Agreement, dated March 25, 1998 (the "Credit Agreement"), by and among NCI, Bank of America, N.A. (as successor in interest to NationsBank, N.A.), as administrative agent ("BOA"), NationsBanc Montgomery Securities LLC, as arranger and syndication agent, UBS AG, as documentation agent ("UBS"), and the several lenders named therein (filed as Exhibit 4.3 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein)
42 46
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.3 -- First Amendment to Credit Agreement, dated May 1, 1998, among NCI, BOA, UBS and the parties named therein (filed as Exhibit 4.4 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.4 -- Second Amendment to Credit Agreement, dated May 5, 1998, among NCI, BOA, UBS and the parties named therein (filed as Exhibit 4.5 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.5 -- Waiver, Consent and Third Amendment to Credit Agreement, dated May 5, 1999, among NCI, BOA, UBS and the parties named therein (filed as Exhibit 4.5 to NCI's registration statement no. 333-80029 and incorporated by reference herein) *4.6 -- Fourth Amendment to Credit Agreement, dated October 30, 2000, among NCI, BOA, UBS and the parties named therein 4.7 -- Master Assignment and Acceptance, dated as of May 6, 1998, among BOA, UBS and the several lenders named therein (filed as Exhibit 4.6 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.8 -- Facility A Notes (Revolving Credit), dated May 6, 1998, of NCI in favor of lenders named therein (filed as Exhibit 4.7 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.9 -- Facility B Notes (Term Loan), dated May 6, 1998, of NCI in favor of lenders named therein (filed as Exhibit 4.8 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.10 -- Guaranty, dated May 1, 1998, between BOA and A&S Building Systems, L.P. (filed as Exhibit 4.10 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.11 -- Guaranty, dated May 1, 1998, between BOA and NCI Building Systems, L.P. (filed as Exhibit 4.11 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.12 -- Guaranty, dated May 1, 1998, between BOA and NCI Holding Corp. (filed as Exhibit 4.12 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.13 -- Guaranty, dated May 1, 1998, between BOA and NCI Operating Corp. (filed as Exhibit 4.13 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.14 -- Guaranty, dated May 1, 1998, between BOA and Metal Building Components, L.P. (formerly MBCI Operating, L.P.) (filed as Exhibit 4.16 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.15 -- Guaranty, dated May 1, 1998, between BOA and Metal Coaters Operating, L.P. (filed as Exhibit 4.17 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.16 -- Guaranty, dated May 13, 1998, between BOA and Metal Coaters of California, Inc. (filed as Exhibit 4.18 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein)
43 47
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.17 -- Pledge Agreement, dated May 1, 1998, between NCI and BOA (filed as Exhibit 4.19 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.18 -- Pledge Agreement, dated May 1, 1998, between NCI Holding Corp. and BOA (filed as Exhibit 4.20 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.19 -- Assignment of Partnership Interests, dated May 1, 1998, between NCI Operating Corp. and BOA (filed as Exhibit 4.22 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.20 -- Assignment of Partnership Interests, dated May 1, 1998, between NCI Holding Corp. and BOA (filed as Exhibit 4.23 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.21 -- Promissory Note, dated May 5, 1998, of NCI Holding Corp. in favor of NCI (filed as Exhibit 4.26 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.22 -- Note Pledge Agreement, dated May 5, 1998, between NCI and BOA (filed as Exhibit 4.27 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.23 -- 7% Convertible Subordinated Debenture dated April 1, 1996, due April 1, 2001, between NCI Building Systems, Inc. and John T. Eubanks (filed as Exhibit 4.15 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1996 and incorporated by reference herein) 4.24 -- Rights Agreement, dated June 24, 1998, between NCI and Harris Trust and Savings Bank (filed as Exhibit 2 to NCI's registration statement on Form 8-A (filed with the SEC on July 9, 1998 and incorporated by reference herein) 4.25 -- First Amendment to Rights Agreement, dated June 24, 1999, by and between NCI and Harris Trust and Savings Bank (filed as Exhibit 3 to NCI's registration statement on Form 8-A, Amendment No. 1 filed with the SEC on June 25, 1999 and incorporated by reference herein) 10.1 -- Employment Agreement, dated April 10, 1989, between NCI and Johnie Schulte, Jr. (filed as Exhibit 10.1 to NCI's registration statement no. 33-45612 and incorporated by reference herein) 10.2 -- Amendment to Employment Agreement, dated February 21, 1992, between NCI and Johnie Schulte, Jr. (filed as Exhibit 10.1.1 to NCI's registration statement no. 33-45612 and incorporated by reference herein) *10.3 -- Amended and Restated Bonus Program, as amended and restated on December 11, 1998, September 9, 1999 and December 7, 2000 *10.4 -- Stock Option Plan, as amended and restated on December 14, 2000 *10.5 -- Form of Nonqualified Stock Option Agreement *10.6 -- Form of Incentive Stock Option Agreement 10.7 -- 401(k) Profit Sharing Plan (filed as Exhibit 4.1 to NCI's registration statement no. 33-52078 and incorporated by reference herein) 10.8 -- Form of Metallic Builder Agreement (filed as Exhibit 10.10 to NCI's registration statement no. 33-45612 and incorporated by reference herein)
44 48
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.9 -- Form of A&S Builder Agreement (filed as Exhibit 10.17 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1992 and incorporated by reference herein) 10.10 -- Stock Purchase Agreement, dated March 25, 1998, by and among BTR Australia Limited and NCI, and joined therein for certain purposes by BTR plc (filed as Exhibit 2.1 to NCI's Current Report on Form 8-K dated May 19, 1998 and incorporated by reference herein) 10.11 -- Letter Agreement, dated May 4, 1998, by and among NCI, BTR Australia Limited and BTR plc, amending the Stock Purchase Agreement (filed as Exhibit 2.2 to NCI's Current Report on Form 8-K dated May 19, 1998 and incorporated by reference herein) 10.12 -- Note Purchase Agreement, dated April 30, 1999, by and among NCI, the guarantors named therein, Warburg Dillon Read LLC, Montgomery NationsBanc Securities LLC, First Union Capital Markets Corp. and Bear, Stearns & Co. Inc. (filed as Exhibit 10.18 to NCI's registration statement no. 333-80029 and incorporated by reference herein) 10.13 -- Registration Rights Agreement, dated May 5, 1999, by and among NCI, the guarantors named therein, Warburg Dillon Read LLC, Montgomery NationsBanc Securities LLC, First Union Capital Markets Corp. and Bear, Stearns & Co. Inc. (filed as Exhibit 10.19 to NCI's registration statement no. 333-80029 and incorporated by reference herein) 10.14 -- Indenture, dated May 5, 1999, by and among NCI, the guarantors named therein and Harris Trust Company of New York (filed as Exhibit 10.20 to NCI's registration statement no. 333-80029 and incorporated by reference herein) **10.15 -- Agreement Regarding Retirement, dated July 31, 2000, between NCI and C.A. Rundell, Jr. *13 -- 2000 Annual Report to Shareholders. With the exception of the information incorporated by reference into Items 5 and 7A of this Form 10-K, the 2000 Annual Report to Shareholders is not to be deemed filed as part of this Form 10-K. *21 -- List of Subsidiaries **23 -- Consent of Independent Auditors
--------------- * Previously filed ** Filed herewith (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. 45 49 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 on the 7th day of June, 2001. NCI BUILDING SYSTEMS, INC. By: /s/ ROBERT J. MEDLOCK ---------------------------------- Robert J. Medlock, Executive Vice President and Chief Financial Officer 46 50 NCI BUILDING SYSTEMS, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT ADDITIONS BALANCE AT BEGINNING OF CHARGED TO COSTS END OF DESCRIPTION PERIOD AND EXPENSES DEDUCTIONS(1) PERIOD ----------- ------------ ---------------- ------------- ---------- Year ended October 31, 2000: Reserves and allowances deducted from asset accounts: Allowance for uncollectible accounts and backcharges................... $3,309,000 $2,645,000 $2,298,000 $3,656,000 Year ended October 31, 1999: Reserves and allowances deducted from asset accounts: Allowance for uncollectible accounts and backcharges................... $2,321,000 $2,402,000 $1,414,000 $3,309,000 Year ended October 31, 1998: Reserves and allowances deducted from asset accounts: Allowance for uncollectible accounts and backcharges................... $1,498,000 $2,625,000 $1,802,000 $2,321,000
--------------- (1) Uncollectible accounts, net of recoveries. 47 51 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3. -- Exhibits. 3.1 -- Restated Certificate of Incorporation of NCI (filed as Exhibit 3.1 to NCI's registration statement no. 33-45612 and incorporated by reference herein) 3.2 -- Certificate of Amendment to Restated Certificate of Incorporation of NCI (filed as Exhibit 3.1.1 to NCI's registration statement no. 33-45612 and incorporated by reference herein) 3.3 -- Certificate of Amendment to Restated Certificate of Incorporation of NCI (filed as Exhibit 3.3 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1994 and incorporated by reference herein) 3.4 -- Certificate of Amendment to Restated Certificate of Incorporation of NCI (filed as Exhibit 2.4 to NCI's registration statement on Form 8-A filed with the SEC on July 20, 1998 and incorporated by reference herein) 3.5 -- Certificate of Amendment to Restated Certificate of Incorporation of NCI (filed as Exhibit 3.5 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 3.6 -- Amended and Restated By-Laws of NCI, as amended through February 5, 1992 (the "By-Laws") (filed as Exhibit 3.2 to NCI's registration statement no. 33-45612 and incorporated by reference herein) 3.7 -- Amendment No. 1 to By-Laws (filed as Exhibit 3.7 to NCI's registration statement no. 333-80029 and incorporated by reference herein) 3.8 -- Amendment No. 2 to By-Laws of NCI (filed as Exhibit 3.8 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1999 and incorporated by reference herein) *3.9 -- Amendment No. 3 to By-Laws 4.1 -- Form of certificate representing shares of Company's common stock (filed as Exhibit 1 to NCI's registration statement on Form 8-A filed with the SEC on July 20, 1998 and incorporated by reference herein) 4.2 -- Credit Agreement, dated March 25, 1998 (the "Credit Agreement"), by and among NCI, Bank of America, N.A. (as successor in interest to NationsBank, N.A.), as administrative agent ("BOA"), NationsBanc Montgomery Securities LLC, as arranger and syndication agent, UBS AG, as documentation agent ("UBS"), and the several lenders named therein (filed as Exhibit 4.3 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.3 -- First Amendment to Credit Agreement, dated May 1, 1998, among NCI, BOA, UBS and the parties named therein (filed as Exhibit 4.4 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.4 -- Second Amendment to Credit Agreement, dated May 5, 1998, among NCI, BOA, UBS and the parties named therein (filed as Exhibit 4.5 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.5 -- Waiver, Consent and Third Amendment to Credit Agreement, dated May 5, 1999, among NCI, BOA, UBS and the parties named therein (filed as Exhibit 4.5 to NCI's registration statement no. 333-80029 and incorporated by reference herein)
52
EXHIBIT NUMBER DESCRIPTION ------- ----------- *4.6 -- Fourth Amendment to Credit Agreement, dated October 30, 2000, among NCI, BOA, UBS and the parties named therein 4.7 -- Master Assignment and Acceptance, dated as of May 6, 1998, among BOA, UBS and the several lenders named therein (filed as Exhibit 4.6 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.8 -- Facility A Notes (Revolving Credit), dated May 6, 1998, of NCI in favor of lenders named therein (filed as Exhibit 4.7 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.9 -- Facility B Notes (Term Loan), dated May 6, 1998, of NCI in favor of lenders named therein (filed as Exhibit 4.8 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.10 -- Guaranty, dated May 1, 1998, between BOA and A&S Building Systems, L.P. (filed as Exhibit 4.10 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.11 -- Guaranty, dated May 1, 1998, between BOA and NCI Building Systems, L.P. (filed as Exhibit 4.11 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.12 -- Guaranty, dated May 1, 1998, between BOA and NCI Holding Corp. (filed as Exhibit 4.12 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.13 -- Guaranty, dated May 1, 1998, between BOA and NCI Operating Corp. (filed as Exhibit 4.13 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.14 -- Guaranty, dated May 1, 1998, between BOA and Metal Building Components, L.P. (formerly MBCI Operating, L.P.) (filed as Exhibit 4.16 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.15 -- Guaranty, dated May 1, 1998, between BOA and Metal Coaters Operating, L.P. (filed as Exhibit 4.17 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.16 -- Guaranty, dated May 13, 1998, between BOA and Metal Coaters of California, Inc. (filed as Exhibit 4.18 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.17 -- Pledge Agreement, dated May 1, 1998, between NCI and BOA (filed as Exhibit 4.19 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.18 -- Pledge Agreement, dated May 1, 1998, between NCI Holding Corp. and BOA (filed as Exhibit 4.20 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.19 -- Assignment of Partnership Interests, dated May 1, 1998, between NCI Operating Corp. and BOA (filed as Exhibit 4.22 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.20 -- Assignment of Partnership Interests, dated May 1, 1998, between NCI Holding Corp. and BOA (filed as Exhibit 4.23 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein)
53
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.21 -- Promissory Note, dated May 5, 1998, of NCI Holding Corp. in favor of NCI (filed as Exhibit 4.26 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.22 -- Note Pledge Agreement, dated May 5, 1998, between NCI and BOA (filed as Exhibit 4.27 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1998 and incorporated by reference herein) 4.23 -- 7% Convertible Subordinated Debenture dated April 1, 1996, due April 1, 2001, between NCI Building Systems, Inc. and John T. Eubanks (filed as Exhibit 4.15 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1996 and incorporated by reference herein) 4.24 -- Rights Agreement, dated June 24, 1998, between NCI and Harris Trust and Savings Bank (filed as Exhibit 2 to NCI's registration statement on Form 8-A (filed with the SEC on July 9, 1998 and incorporated by reference herein) 4.25 -- First Amendment to Rights Agreement, dated June 24, 1999, by and between NCI and Harris Trust and Savings Bank (filed as Exhibit 3 to NCI's registration statement on Form 8-A, Amendment No. 1 filed with the SEC on June 25, 1999 and incorporated by reference herein) 10.1 -- Employment Agreement, dated April 10, 1989, between NCI and Johnie Schulte, Jr. (filed as Exhibit 10.1 to NCI's registration statement no. 33-45612 and incorporated by reference herein) 10.2 -- Amendment to Employment Agreement, dated February 21, 1992, between NCI and Johnie Schulte, Jr. (filed as Exhibit 10.1.1 to NCI's registration statement no. 33-45612 and incorporated by reference herein) *10.3 -- Amended and Restated Bonus Program, as amended and restated on December 11, 1998, September 9, 1999 and December 7, 2000 *10.4 -- Stock Option Plan, as amended and restated on December 14, 2000 *10.5 -- Form of Nonqualified Stock Option Agreement *10.6 -- Form of Incentive Stock Option Agreement 10.7 -- 401(k) Profit Sharing Plan (filed as Exhibit 4.1 to NCI's registration statement no. 33-52078 and incorporated by reference herein) 10.8 -- Form of Metallic Builder Agreement (filed as Exhibit 10.10 to NCI's registration statement no. 33-45612 and incorporated by reference herein) 10.9 -- Form of A&S Builder Agreement (filed as Exhibit 10.17 to NCI's Annual Report on Form 10-K for the fiscal year ended October 31, 1992 and incorporated by reference herein) 10.10 -- Stock Purchase Agreement, dated March 25, 1998, by and among BTR Australia Limited and NCI, and joined therein for certain purposes by BTR plc (filed as Exhibit 2.1 to NCI's Current Report on Form 8-K dated May 19, 1998 and incorporated by reference herein) 10.11 -- Letter Agreement, dated May 4, 1998, by and among NCI, BTR Australia Limited and BTR plc, amending the Stock Purchase Agreement (filed as Exhibit 2.2 to NCI's Current Report on Form 8-K dated May 19, 1998 and incorporated by reference herein)
54
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.12 -- Note Purchase Agreement, dated April 30, 1999, by and among NCI, the guarantors named therein, Warburg Dillon Read LLC, Montgomery NationsBanc Securities LLC, First Union Capital Markets Corp. and Bear, Stearns & Co. Inc. (filed as Exhibit 10.18 to NCI's registration statement no. 333-80029 and incorporated by reference herein) 10.13 -- Registration Rights Agreement, dated May 5, 1999, by and among NCI, the guarantors named therein, Warburg Dillon Read LLC, Montgomery NationsBanc Securities LLC, First Union Capital Markets Corp. and Bear, Stearns & Co. Inc. (filed as Exhibit 10.19 to NCI's registration statement no. 333-80029 and incorporated by reference herein) 10.14 -- Indenture, dated May 5, 1999, by and among NCI, the guarantors named therein and Harris Trust Company of New York (filed as Exhibit 10.20 to NCI's registration statement no. 333-80029 and incorporated by reference herein) **10.15 -- Agreement Regarding Retirement, dated July 31, 2000, between NCI and C.A. Rundell, Jr. *13 -- 2000 Annual Report to Shareholders. With the exception of the information incorporated by reference into Items 5 and 7A of this Form 10-K, the 2000 Annual Report to Shareholders is not to be deemed filed as part of this Form 10-K. *21 -- List of Subsidiaries **23 -- Consent of Independent Auditors
--------------- * Previously filed ** Filed herewith