-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UCPt7aFo7jgVLEesYSIZy/5RrhQeTAvjSClsU3JMqAPn7AUXbpQ969x8DIeIR19m o5q2fDQKbizXAZSo0FE5gA== 0000950134-97-000549.txt : 19970130 0000950134-97-000549.hdr.sgml : 19970130 ACCESSION NUMBER: 0000950134-97-000549 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961031 FILED AS OF DATE: 19970129 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NCI BUILDING SYSTEMS INC CENTRAL INDEX KEY: 0000883902 STANDARD INDUSTRIAL CLASSIFICATION: PREFABRICATED METAL BUILDINGS & COMPONENTS [3448] IRS NUMBER: 760127701 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19885 FILM NUMBER: 97513681 BUSINESS ADDRESS: STREET 1: P O BOX 40220 CITY: HOUSTON TEXAS STATE: TX ZIP: 77240-0220 BUSINESS PHONE: 7134667788 MAIL ADDRESS: STREET 2: P O BOX 40220 CITY: HOUSTON STATE: TX ZIP: 77240-0220 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL COMPONENTS INCORPORATED DATE OF NAME CHANGE: 19600201 10-K 1 FORM 10-K FISCAL YEAR ENDING OCTOBER 31, 1996 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-19885 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.) 7301 Fairview Houston, Texas 77041 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (713) 466-7788 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value 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. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant on January 1, 1997, was $232,101,441. The number of shares of common stock of the registrant outstanding on January 1, 1997, was 8,022,595. DOCUMENTS INCORPORATED BY REFERENCE Certain information required by Parts I and II of this Annual Report is incorporated by reference from the registrant's 1996 Annual Report to Shareholders, and 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 to be held on March 5, 1997. ================================================================================ 2 PART I ITEM 1. BUSINESS. GENERAL NCI Building Systems, Inc. (the "Company") designs, manufactures and markets metal building and framing systems, self-storage buildings, overhead doors and other building components for commercial, industrial, agricultural, community service and residential uses. The Company markets its products nationwide through direct sales forces and authorized builder networks under several brand names, including "Metallic Buildings," "Mid-West Steel Buildings," "A&S Buildings," "NCI Building Components," "All American Systems," "Steel Systems," "Mid-West Metallic", "DBCI" and "Mesco". The Company operates from a total of 13 manufacturing facilities in the United States. It manufactures framing systems as well as components at five of the facilities, and components only at the regional "satellite" plants. In April 1989, the Company leased and assumed operation of the Houston facilities of the Mid-West Metallic division of American Buildings Company, and purchased that facility in 1993. This facility with its framing capacity, together with the acquisition of the rights to use the "Mid-West" and "Metallic" names, enabled the Company to expand its product lines from building components to metal building systems and resulted in a substantial increase in the Company's authorized builder network in Texas and surrounding states. The Company also established satellite manufacturing plants in Illinois, Mississippi and California in May of 1991, 1994 and 1996, respectively, to serve the regional markets surrounding those plants and to enhance the Company's ability to develop and serve authorized builder networks in those regions. In June 1996, the Company acquired a metal stud manufacturing facility and equipment in Ennis, Texas from Alabama Metal Industries Corporation. The Company also has acquired a number of other businesses in the last five fiscal years. In October 1992, the Company purchased 100% of the capital stock of A&S Building Systems, Inc., a manufacturer of metal building systems having a manufacturing facility with framing capacity in Caryville, Tennessee and a network of approximately 170 authorized builders located primarily in southeastern and midwestern states. In October 1994, the Company acquired substantially all of the assets and business of Ellis Building Components, Inc., a manufacturer of metal building systems having a manufacturing facility with framing capacity in Tallapoosa, Georgia. In March 1995, the Company acquired substantially all of the assets and business of Royal Metal Buildings, Inc., a manufacturer of metal building systems and components with a manufacturing facility in Hobbs, New Mexico, which the Company operates as a regional satellite plant. In November 1995, the Company acquired substantially all of the assets and business of Doors & Building Components, Inc., a manufacturer of roll-up steel overhead doors and interior steel components for self-storage systems with manufacturing facilities in Douglasville, Georgia and Chandler, Arizona. In March 1996, the Company purchased the equipment and operating assets used by Carlisle Engineered Metals, Inc. in its west coast component business and transferred those assets and the acquired business to the Company's Atwater, California facility when it was completed. In April 1996, the Company purchased substantially all of the assets and business of the Mesco Metal Buildings division of Anderson Industries, Inc., a manufacturer of metal building systems having manufacturing facilities with framing capacity in Southlake, Texas and Chester, South Carolina. The Company was founded in 1984 and was reincorporated in Delaware on December 31, 1991. Its principal offices are located at 7301 Fairview, Houston, Texas 77041 and its telephone number is (713) 466-7788. Unless indicated otherwise, references herein to the Company include its predecessors and its subsidiaries. INDUSTRY OVERVIEW Metal building systems are marketed for use primarily in the construction of low-rise, non-residential structures of up to 150,000 square feet. Based upon information published by the Metal Building Manufacturers Association ("MBMA"), on a square footage basis metal building systems accounted for approximately 66% of the structures of that type constructed in 1995. 3 In the early years of the industry, metal building systems were most often used for factories, warehouses, distribution centers and other applications in which the exterior appearance of the building was not as significant a consideration to customers as construction cost, efficiency, speed of construction and other factors. 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 a metal building system with masonry, glass and wood exterior facades in order to meet the aesthetic requirements of potential customers while preserving the inherent characteristics of metal building systems. As a result, the uses for metal building systems now include office buildings, showrooms, retail stores, banks, schools and government and community centers for which aesthetics and architectural features are important considerations of the end users. In its marketing efforts the Company and other major manufacturers generally emphasize the following characteristics of metal building systems to distinguish them from other methods of construction: Short Construction Time. In many instances, it takes less time to construct a metal building in comparison to other building types. In addition, since most of the work is done in the factory, the likelihood of weather interruptions is reduced. Efficient Material Utilization. The larger metal building manufacturers use computer-aided analysis and design to fabricate structural members with high strength-to-weight ratios, minimizing raw materials costs. Low Construction Costs. The in-plant manufacture of metal building systems, coupled with automation, allows the substitution of less expensive factory labor for much of the skilled on-site construction labor otherwise required. Ease of Expansion. Metal building systems can be modified quickly and economically before, during or after the building is completed to accommodate all types of expansion. Typically, a building system can be expanded by removing the end or side walls, erecting new framework and adding matching wall and roof panels. Low Maintenance Costs. Unlike wood, metal will not deteriorate because of cracking, damp rot or insect damage. Furthermore, factory-applied roof and siding panel coatings resist cracking, peeling, chipping, chalking and fading. Industry demand for metal building systems is cyclical, dependent to a large degree upon the level of non-residential construction activity, the availability of financing for construction projects, interest rates and other factors that affect the construction industry. According to information published by the MBMA, industry-wide metal building system sales increased from approximately $1.0 billion in 1982 to approximately $1.7 billion in 1989, then declined to approximately $1.2 billion by 1991 at which time the industry began experiencing year-to-year increases, to approximately $2.3 billion by 1995. PRODUCTS Metal building systems consist of pre-engineered structural beams and panels that are manufactured in a factory and shipped to a construction site complete and ready for assembly. The Company designs and engineers each metal building system to meet customer specifications and to allow for easy on-site assembly by builders or independent contractors. Metal building systems typically consist of three subsystems: (1) primary structural framing; (2) secondary structural framing; and (3) the covering subsystem, which includes the roof and walls. Primary Structural Framing. The 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. 2 4 Secondary Structural Framing. The 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 designed to strengthen the primary structural framing and efficiently transfer applied loads from the roof and walls to the primary structural framing. Covering Subsystem. The covering subsystem consists of roof and siding 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 metal building system. These components include doors, windows, gutters and interior partitions. The Company's metal building component products consist of end and side wall panels, roof panels, purlins, girts and other individual components that otherwise are used in metal building systems, which are sold directly to end users or to contractors for use in constructing small buildings that do not require the design or structural features of complex building systems. The Company also stocks and markets metal component parts for use in the maintenance and repair of existing metal buildings and buildings constructed of materials other than metal. Other component products manufactured by the Company include roll-up doors, interior and exterior doors, lockers, partitions, wall and header panels and related trim. The Company has 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. During the previous five fiscal years, the Company's revenues attributable to metal building systems and to components were approximately as follows:
YEAR ENDED OCTOBER 31, ---------------------------------------------------------------------------- 1992 1993 1994 1995 1996 -------- -------- -------- -------- -------- (IN THOUSANDS) Metal building systems . . . . $ 61,666 $104,792 $126,665 $173,882 $212,998 Components . . . . . . . . . . 17,342 29,714 41,102 60,333 119,882 -------- -------- -------- -------- -------- Total revenues . . . . . $ 79,008 $134,506 $167,767 $234,215 $332,880 ======== ======== ======== ======== ========
SALES AND MARKETING The Company sells its products under multiple brand names through various distribution channels. These channels include (i) sales through the Company's authorized builder networks, (ii) direct sales to contractors and (iii) private label sales to certain large builders. Management believes that its multi-channel distribution strategy promotes brand loyalty, improves customer service and increases sales. With each distribution channel, the Company's engineering, manufacturing and marketing personnel work directly with the builder or contractor to establish job specifications and modifications, determine the appropriate pricing for the Company's products and services, generate drawings and establish production and delivery schedules. The Company sells to builders and contractors on customary payment terms. The Metallic division and A&S sell metal building systems to builders nationwide under the brand names "Metallic Buildings" and "A&S Buildings," respectively. Since the Company acquired Mesco on April 1, 1996, that division also sells metal building systems under the brand name "Mesco". During fiscal 1995 and fiscal 1996, the combined metal building systems sales of the Metallic division and A&S were $127.4 million and $143.3 3 5 million, respectively. During the last seven months of fiscal 1996, the sales of Mesco were $17.9 million. The Metallic division markets through an in-house sales force of approximately 45 persons to an authorized builder network of 406 builders. A&S has its own authorized builder network of 300 builders managed by an in-house sales force of approximately 16 persons. Mesco has an authorized builder network of 125 builders and an in-house sales force of 19 persons. The Company's authorized builder networks consist of independent general contractors which market the Company's Metallic Buildings, A&S Buildings and Mesco products to end users. The Company enters into an agreement with an authorized builder, which generally grants the builder the non-exclusive right to market the Company's products in a specified territory and which is cancelable by either party on 60 days' notice. The agreements do not prohibit the builder from marketing metal building systems of other manufacturers. The Company establishes an annual sales goal for each builder and provides to the builder sales and pricing information, design and engineering manuals, drawings and assistance, application programs for estimating and quoting jobs and advertising and promotional literature. The Company also defrays a portion of the builder's advertising costs and provides volume purchasing and other pricing incentives to encourage them to deal exclusively or principally with the Company. 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 a metal building system on the customer's site and provide general contracting and other services ancillary to the completion of the project. The Company sells its products to the builder, which generally includes the price of the building as a part of its overall construction contract with its customer. Most of the Company's metal building system sales outside of Texas and surrounding states are through its authorized builder networks. The Company relies upon maintaining a satisfactory business relationship for the continued receipt of job orders from its authorized builders and does not consider the builder agreements to be material to its business. During fiscal 1996, the Company's largest authorized builder accounted for less than 3% of the Company's total metal building systems sales. The Mid-West division primarily markets metal building systems under the brand name "Mid-West Steel Buildings" directly to contractors in Texas and surrounding states using a sales force of ten persons. The Company also sells metal building systems through the All American division under the name "All American Systems" and various private labels. Metal building components are sold directly to contractors and other customers by the NCI Building Components division under the brand name "NCI Building Components." The NCI Building Components division utilizes an in-house sales force of approximately 60 persons. Roll-up doors, interior and exterior doors, lockers, interior partitions and walls and header panels and trim are sold directly to contractors and other customers by the Doors & Building Components division under the brand names "Doors & Building Components" or "DBCI". These components also are produced by that division for integration into self storage and metal building systems sold by other divisions of the Company. The Doors & Building Components division has an in-house sales force of approximately six persons. The Company also seeks to develop niche markets, which may initially represent a small percentage of sales but present growth opportunities and other advantages. The Company's Steel Systems division sells its self-storage systems and components under the brand name "Steel Systems." The Classic Metal Homes division's metal framing systems for residential-use homes were in initial development during fiscal 1996. The Company also markets its products to international builders. Approximately 4.2%, 2.3% and 4.4% of the Company's sales in fiscal 1994, fiscal 1995 and fiscal 1996, respectively, were to customers located in foreign countries. No single foreign country has represented a steady market for the Company's products. Foreign sales are made in United States dollars and under letters of credit. 4 6 DESIGN AND MANUFACTURE After the Company receives an order, the Company's engineers design the metal building system to meet the customer's requirements and to satisfy applicable building codes. In order to expedite this process, the Company uses computer-aided design and engineering systems to generate engineering and erection drawings and a bill of materials for the manufacture of the building system. Once the specifications and designs of the customer's project have been finalized, the manufacturing process begins at one of the Company's five full manufacturing facilities in Texas, Georgia, South Carolina or Tennessee. The fabrication of the primary structural framing consists of a process in which pieces of rigid steel plates are punched and sheared and then routed through an automatic welding machine and sent through further fitting and welding processes. This process is the most labor intensive in the fabrication of metal building systems. The secondary structural framing and the covering subsystem are roll-formed steel products that are manufactured at the Company's full manufacturing facilities as well as its regional satellite plants. 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. The fabrication of the secondary framing and covering subsystems is more automated and, thus, is less labor intensive than that of the primary structural framing. Once manufactured, structural framing members and covering subsystems are shipped to the job site for assembly by local contractors. The Company generally is not responsible for any on-site construction. The time elapsed between the Company's 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. The doors, lockers, interior partitions and other panels and trim products of the Doors & Building Components division are manufactured at plants in Georgia, Texas and Arizona, each of which operates independently of the Company's other component plants. The products are roll-formed or fabricated at each plant using roll-formers and other metal working equipment. Orders are processed at the division's home office in Georgia and sent to the appropriate plant, which is generally determined in a manner to obtain the lowest shipping cost. The division's capacity allows it to ship orders in a two- to three-week time period. RAW MATERIALS The principal raw material used in the manufacture of the Company's metal building and component products is steel. Components are fabricated from common steel products produced by mills including bars, plates, sheets and galvanized sheets. In fiscal 1996, the Company purchased more than 40% of its steel requirements from National Steel Corporation. No other steel supplier accounted for more than 6% of the Company's steel purchases. The Company believes concentration of its steel purchases among a small group of suppliers that have mills and warehouse facilities in close proximity to the facilities of the Company enables it, as a large customer of those suppliers, to obtain better service and delivery than many other steel purchasers. These suppliers generally maintain an inventory of the types of materials required by the Company, enabling the Company to utilize a form of "just-in-time" inventory management with regard to raw materials. The Company expects moderate steel price increases during fiscal 1997. The Company does not have any long-term contracts for the purchase of raw materials. A prolonged labor strike against one or more of its principal domestic suppliers could have a material adverse effect on the Company's operations. Alternative sources, however, including foreign steel, are currently believed to be sufficient to maintain required deliveries. 5 7 BACKLOG At October 31, 1996, the total backlog for orders believed by the Company to be firm was $85.6 million. This compares with a total backlog of $65.6 million at October 31, 1995 and $62.8 million at October 31, 1994. The increases in backlog reflect the results of the marketing activities of the Company, particularly the expansion of its authorized builder networks, market demand and the acquisitions and satellite plant openings completed by the Company since 1992. Job orders generally are cancelable by customers at any time for any reason and, 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, 1996 currently is scheduled to extend beyond October 31, 1997. WARRANTIES The Company provides a limited warranty on all fabricated products. This warranty generally provides for repair or replacement of fabricated and roll-formed materials, but does not include the cost of field installation. The Company also passes through to its customers certain warranties it receives on paint coatings, which vary from three to 20 years, and the 20-year warranties it receives on galvalume coated steel. To respond to certain competitive situations, the Company may provide a limited weather tightness warranty of up to 20 years covering potential leakage on certain roofing systems offered by the Company. The Company has not experienced any significant claims under any of its warranties. COMPETITION The Company competes with a number of other manufacturers of metal building systems and components, ranging from small local firms to large national firms, some of which may have greater financial, management and marketing resources than the Company. Most of these competitors operate on a regional basis, although the Company believes that four other manufacturers of metal building systems and several manufacturers of components have nationwide coverage. In addition, the Company and others in the metal building systems and components industry compete with alternative methods of building construction. Competition is based primarily on such factors as price, speed of construction, quality of builder/dealer networks, the ability to provide added value in the design of buildings and, among metal building and component manufacturers, service, quality and delivery times. Based on data reported to the MBMA for the calendar year 1995, the Company believes it ranks as the fourth largest domestic manufacturer of metal building systems, with approximately 12% of total reported industry sales. The Company believes that the two largest metal building manufacturers taken together have approximately 40% of industry sales reported to the MBMA. Reliable information about component sales and the Company's ranking in that market is not available, but the Company is not a significant factor in that market. Foreign companies are not presently a significant factor in the domestic marketplace, and the Company does not expect them to be in the near future because of transportation costs and the short lead times generally required by customers. REGULATORY MATTERS The Company's manufacturing facilities are subject to water and air pollution control standards mandated by federal, state and local laws. The Company believes it is in substantial compliance with all environmental standards applicable to its operations. The Company does not anticipate material capital expenditures to meet current environmental quality control standards, but there can be no assurance that more stringent regulatory standards will not be established which might require such expenditures. The metal building systems manufactured by the Company must meet zoning and building code requirements promulgated by local governmental agencies. 6 8 PATENTS, LICENSES AND PROPRIETARY RIGHTS The Company has a perpetual, nonexclusive license from Metal Building Components, Inc. to manufacture, distribute, market and sell its standing seam roof systems. The Company does not consider the license to be material to its business due to the availability of other standing seam roof systems, including its own roof system. The Company has a United States patent on its Retro-R(R) retrofit metal panel and has applied for another patent with respect to its Retro-R(R) panel. Another patent application is pending for a vented closure for a metallic roofing system. Patent protection is not considered by the Company to be a material competitive factor in its industry. The Company has registered trademarks in the United States for "Metallic" and design, "Retro-R", "Pittsburgh Loc," Trapezoidal Loc", "NCI" and design, "A&S Building Systems", "Mid-West Steel Building Company", design for Mid-West Steel, "Classic Metal Home" and design, "A&S" and design, "Mesco" and design and "ARS" and design. In addition, the Company has pending U.S. trademark registrations for "Royal K-70", "Dura-20", "VL-12", "VL-16", "VL-18", "Metallic Building Company", "Steel System" and design, "NCI Express" and design, "NCI Building Components", "NCI", "DBCI", "All American Systems", "NCI" and design and "Vertical Loc." The "Metallic" and design mark is also pending registration in Mexico. EMPLOYEES As of October 31, 1996, the Company employed approximately 2,163 employees, of whom 142 were management and supervisory personnel, 189 were administrative personnel, 191 were sales personnel, 206 were engineers and draftsmen, and 1,435 were manufacturing personnel. The Company's employees are not represented by a labor union or collective bargaining agreement, although 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 the Company's Tallapoosa facility. An election for that purpose was held in January 1996 and the union lost the election to be recognized as the collective bargaining representative of such employees. The Company regards its employee relations as satisfactory. ITEM 2. PROPERTIES. The Company conducts manufacturing operations at the following facilities:
Square Owned/ Facility Products Feet Leased -------- -------- ------ ------ Houston, Texas (opened 1989) Metal building systems(1) 382,000 Owned Components; overhead doors Tallapoosa, Georgia (acquired 1992) Metal building systems(1) 246,000 Leased Components Caryville, Tennessee (acquired 1992) Metal building systems(1) 193,800 Owned Components Chester, South Carolina (acquired 1996) Metal building systems(1) 124,000 Owned Components Southlake, Texas (acquired 1996) Metal building systems(1) 123,000 Owned Components Houston, Texas (opened 1984) Components 97,000 Owned Jackson, Mississippi (opened 1994) Secondary structures 96,000 Owned Covering subsystems Components
7 9 Mattoon, Illinois (opened 1991) Secondary structures 90,600 Owned Covering subsystems Components Atwater, California (opened 1996) Secondary structures 85,700 Owned Covering subsystems Components Hobbs, New Mexico (acquired 1995) Secondary structures 60,800 Leased Covering subsystems Components Douglasville, Georgia (acquired 1995) Overhead doors 60,000 Owned Components Chandler, Arizona (acquired 1995) Overhead doors 35,000 Leased Components Ennis, Texas (acquired 1996) Components 33,000 Owned Studs
- ------------ (1) Includes primary structures, secondary structures and covering subsystems. The principal executive offices of the Company occupy 33,600 square feet of the principal manufacturing facility in Houston. The principal offices of A&S, DBCI and Mesco occupy 16,000 square feet of the Caryville facility, 4,000 square feet of the Douglasville facility, and 16,800 square feet of the Southlake facility, respectively. The Company also maintains several drafting office facilities and retail locations in various states. These office facilities are subject to short-term leases. ITEM 3. LEGAL PROCEEDINGS. The Company is involved in various legal proceedings that the Company considers to be in the normal course of business. Management of the Company believes that such litigation will not result in any material losses. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 8 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. The information required by this Item is incorporated by reference from the Company's 1996 Annual Report to Shareholders, bottom of page 31, regarding the market for common stock of the Company. During fiscal 1996, the Company issued and sold the following securities without registration under the Securities Act of 1933, as amended ("Securities Act"); no underwriters were involved in either of the transactions: In November 1995, the Company issued 300,000 shares of Common Stock to Doors & Building Components, Inc., of which David B. Curtis was the sole shareholder, in connection with the acquisition by the Company of substantially all of the assets of that company. The issuance of the Common Stock was exempt from the registration requirements of the Securities Act pursuant to Section 4(2) because the transaction did not involve a public offering. In April 1995, the Registrant issued a $1,500,000 principal amount, 7% subordinated convertible debenture due April 1, 2001, to Anderson Industries, Inc. in connection with the purchase of the Mesco Metal Buildings division of that company. The convertible debenture was concurrently distributed by that company to John T. Eubanks, its principal shareholder. The convertible debenture is convertible into Common Stock of the Company after April 1, 1997 at a conversion price of $29.925 per share. No underwriters participated in the transaction. The issuance of the convertible debenture was exempt from the registration requirements of the Securities Act pursuant to Section 4(2) because the transaction did not involve a public offering. Upon conversion thereof, the issuance of the Common Stock will be exempt from the registration requirements of the Securities Act pursuant to Section 3(a)(9) thereof. ITEM 6. SELECTED FINANCIAL DATA. The information required by this Item is incorporated by reference from the Company's 1996 Annual Report to Shareholders, top of page 1. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by this Item is incorporated by reference from the following portions of the Company's 1996 Annual Report to Shareholders: Management's Discussion and Analysis of Results of Operations and Financial Condition, pages 28 through 30. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The following consolidated financial statements and supplementary financial information are incorporated by reference from the indicated pages in the Company's 1996 Annual Report to Shareholders.
Pages of Annual Report to Shareholders --------------- Selected Financial Data 1 Consolidated statements of income for each of the three years in the period ended October 31, 1996 17
9 11 Consolidated balance sheets at October 31, 1996 and 1995 18 Consolidated statements of shareholders' equity for each of the three years in the period ended October 31, 1996 19 Consolidated statements of cash flows for each of the three years in the period ended October 31, 1996 20 Notes to consolidated financial statements 21 - 26 Report of independent auditors 27 Management's Discussion and Analysis of Results of Operations and Financial Condition 28 - 30 Unaudited Quarterly Financial Data 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 10 12 PART III The information required by Items 10 through 13 of Part III is incorporated by reference from the indicated pages of the Company's definitive proxy statement for its annual meeting of shareholders to be held on March 5, 1997.
Pages of Proxy Statement ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. 3 - 6 ITEM 11. EXECUTIVE COMPENSATION. 7 - 11 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. 1 - 3 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. 17
11 13 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. 3. Exhibits. 3.1 Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Company's registration statement no. 33-45612 and incorporated herein) 3.2 Certificate of Amendment to Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1.1 to the Company's registration statement no. 33-45612 and incorporated herein) 3.3 Certificate of Amendment to Restated Certificate of Incorporation of the Company (filed as Exhibit 3.3 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1994 and incorporated herein) 3.4 Amended and Restated By-Laws of the Company, as amended through February 5, 1992 (filed as Exhibit 3.2 to the Company's registration statement no. 33-45612 and incorporated herein) 4.1 Form of certificate representing shares of Company's common stock (filed as Exhibit 4.1 to the Company's registration statement no. 33-45612 and incorporated herein) 4.2 Stock Registration Agreement, dated April 10, 1989, between the Company and Equus II Incorporated, formerly Equus Investments II, L.P. ("Equus") (filed as Exhibit 4.2 to the Company's registration statement no. 33-45612 and incorporated herein) 4.3 Credit Agreement, dated April 30, 1993, between NationsBank of Texas, N.A. and NCI Building Systems, L.P. (filed as Exhibit 4.7 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1993 and incorporated herein) 4.4 First Amendment Agreement, dated February 28, 1994, between NationsBank of Texas, N.A. and NCI Building System, L. P. (filed as Exhibit 4.4 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1994 and incorporated herein) 4.5 Second Amendment Agreement, dated February 28, 1995, between NationsBank of Texas, N.A. and NCI Building Systems, L.P. (filed as Exhibit 4.13 to the Company's registration statement no. 33- 99560 and incorporated herein) 12 14 4.6 $6,000,000 Revolving Credit Note, dated April 30, 1993, in favor of NationsBank of Texas, N.A., executed by NCI Building Systems, L.P. (filed as Exhibit 4.8 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1993 and incorporated herein) 4.7 $1,750,000 Revolving Credit Note, dated February 28, 1994, in favor of NationsBank of Texas, N.A., executed by NCI Building Systems, L.P. (filed as Exhibit 4.6 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1994 and incorporated herein) 4.8 Guaranty, dated April 30, 1993, between NationsBank of Texas, N.A. and the Company (filed as Exhibit 4.9 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1993 and incorporated herein) 4.9 Guaranty, dated April 30, 1993, between NationsBank of Texas, N.A. and A & S Building Systems, Inc. (filed as Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1993 and incorporated herein) 4.10 Loan Agreement "A," dated September 1, 1991, between the City of Mattoon and the Company (filed as Exhibit 4.11 to the Company's registration statement no. 33-45612 and incorporated herein) 4.11 $250,000 Promissory Note A, dated October 31, 1991, in favor of the City of Mattoon executed by the Company (filed as Exhibit 4.12 to the Company's registration statement no. 33-45612 and incorporated herein) 4.12 Loan Agreement "B," dated September 1, 1991, between the City of Mattoon and the Company (filed as Exhibit 4.13 to the Company's registration statement no. 33-45612 and incorporated herein) 4.13 $250,000 Promissory Note B, dated January 20, 1992, in favor of the City of Mattoon executed by the Company (filed as Exhibit 4.14 to the Company's registration statement no. 33-45612 and incorporated herein) 4.14 Stock Retention and Registration Agreement, dated November 13, 1995, by and between the Company, Doors & Building Components, Inc., and David B. Curtis (filed as Exhibit 4.14 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1995 and incorporated herein) *4.15 7% Convertible Subordinated Debenture dated April 1, 1996 Due April 1, 2001 between NCI Building Systems, Inc. and John T. Eubanks 10.1 Employment Agreement, dated April 10, 1989, between the Company and Johnie Schulte, Jr. (filed as Exhibit 10.1 to the Company's registration statement no. 33-45612 and incorporated herein) 10.2 Amendment to Employment Agreement, dated February 21, 1992, between the Company and Johnie Schulte, Jr. (filed as Exhibit 10.1.1 to the Company's registration statement no. 33-45612 and incorporated herein) 10.3 Summary of Bonus Program (filed as Exhibit 10.2 to the Company's registration statement no. 33-45612 and incorporated herein) 13 15 10.4 Employee Stock Option Plan (filed as Exhibit 4.1 to the Company's registration statement no. 33-52080 and incorporated herein) 10.5 Amendment No. 1 to Stock Option Plan (filed as Exhibit 4.2 to the Company's registration statement no. 33-52080 and incorporated herein) 10.6 Amendment No. 2 to Stock Option Plan (filed as Exhibit 10.6 in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1992 and incorporated herein) 10.7 Form of Employee Stock Option Agreement (filed as Exhibit 4.3 to the Company's registration statement no. 33-52080 and incorporated herein) 10.8 Form of Director Stock Option Agreement (filed as Exhibit 4.4 to the Company's registration statement no. 33-52080 and incorporated herein) 10.9 License Agreement, dated June 30, 1989, between Metal Building Components, Inc. and the Company (filed as Exhibit 10.6 to the Company's registration statement no. 33-45612 and incorporated herein) 10.10 401(k) Profit Sharing Plan (filed as Exhibit 4.1 to the Company's registration statement no. 33-52078 and incorporated herein) 10.11 Form of Metallic Builder Agreement (filed as Exhibit 10.10 to the Company's registration statement no. 33-45612 and incorporated herein) 10.12 Form of A&S Builder Agreement (filed as Exhibit 10.17 to the Company's Annual Report on Form 10- K for the fiscal year ended October 31, 1992 and incorporated herein) 10.13 Purchase Agreement, dated September 7, 1994, between NCI Building Systems, L.P., Ellis Building Components, Inc., Tony Ellis and Ronald Ellis (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated October 14, 1994 and incorporated herein) 10.14 Amendment to Purchase Agreement, dated October 14, 1994, between NCI Building Systems, L.P., Ellis Building Components, Inc., Tony Ellis and Ronald Ellis (filed as Exhibit 2.2 to the Company's Current Report on Form 8-K dated October 14, 1994 and incorporated herein) *10.15 Form of Mesco Metal Buildings Agreement 10.16 Amendment No. 3 to Stock Option Plan (filed as Exhibit 4.6 to the Company's Registration Statement No. 333-12921 and incorporated herein) 10.17 Asset Purchase Agreement, dated October 13, 1995, by and among Doors & Building Components, Inc., David B. Curtis, DBCI Acquisition Corp. and the Company (filed as Exhibit 2 to the Company's Current Report on Form 8-K dated November 13, 1995 and incorporated herein) 10.18 Asset Purchase Agreement, dated April 1, 1996, by and among Anderson Industries, Inc., Charles W. Anderson, Thomas L. Anderson, Jr., John T. Eubanks, Robert K. Landon, NCI Building Systems, L.P. and the Company (filed as Exhibit 2 to the Company's Current Report on Form 8-K dated April 1, 1996 and incorporated herein). 14 16 *13 1995 Annual Report to Shareholders. With the exception of the information incorporated by reference into Items 5, 6, 7, and 8 of this Form 10-K, the 1995 Annual Report to Shareholders is not to be deemed filed as part of this Form 10-K. *21 List of Subsidiaries *23 Consent of Ernst & Young LLP *27 Financial Data Schedule - ----------- * Filed herewith (b) Reports on Form 8-K. None. 15 17 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 27th day of January, 1997. NCI BUILDING SYSTEMS, INC. By: /s/ Johnie Schulte ------------------------------------ Johnie Schulte, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of the 27th day of January, 1997. Name Title /s/ Johnie Schulte President, Chief Executive Officer and Director - -------------------------- (principal executive officer) Johnie Schulte /s/ Robert J. Medlock Vice President, Chief Financial Officer and Treasurer - -------------------------- (principal financial and accounting officer) Robert J. Medlock Director - -------------------------- Thomas C. Arnett /s/ William D. Breedlove Director - -------------------------- William D. Breedlove /s/ Gary L. Forbes Director - -------------------------- Gary L. Forbes /s/ Leonard F. George Executive Vice President and Director - -------------------------- Leonard F. George 16 18 /s/ Robert N. McDonald Director - -------------------------- Robert N. McDonald /s/ C.A. Rundell, Jr. Director - -------------------------- C. A. Rundell, Jr. /s/ Daniel D. Zabcik Director - -------------------------- Daniel D. Zabcik 17 19 NCI BUILDING SYSTEMS, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Additions Balance at ----------------- Balance Beginning Charged to Costs at End Description of Period and Expenses Deductions(1) of Period ----------- ---------- ---------------- ------------- --------- Year ended October 31, 1996: Reserves and allowances deducted from asset accounts: Allowance for uncollectible accounts and backcharges . . . . . . . . . $ 1,339,772 $ 680,633 $ 391,203 $ 1,629,202 Year ended October 31, 1995: Reserves and allowances deducted from asset accounts: Allowance for uncollectible accounts and backcharges . . . . . . . . . $ 1,040,828 $ 1,101,038 $ 802,094 $ 1,339,772 Year ended October 31, 1994: Reserves and allowances deducted from asset accounts: Allowance for uncollectible accounts and backcharges . . . . . . . . . $ 990,012 $ 651,215 $ 600,399 $ 1,040,828
- -------------- (1) Uncollectible accounts, net of recoveries. 18 20 INDEX TO EXHIBITS Sequentially Numbered Page ------------ 3.1 Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Company's registration statement no. 33-45612 and incorporated herein) 3.2 Certificate of Amendment to Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1.1 to the Company's registration statement no. 33-45612 and incorporated herein) 3.3 Certificate of Amendment to Restated Certificate of Incorporation of the Company (filed as Exhibit 3.3 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1994 and incorporated herein) 3.4 Amended and Restated By-Laws of the Company, as amended through February 5, 1992 (filed as Exhibit 3.2 to the Company's registration statement no. 33-45612 and incorporated herein) 4.1 Form of certificate representing shares of Company's common stock (filed as Exhibit 4.1 to the Company's registration statement no. 33-45612 and incorporated herein) 4.2 Stock Registration Agreement, dated April 10, 1989, between the Company and Equus II Incorporated, formerly Equus Investments II, L.P. ("Equus") (filed as Exhibit 4.2 to the Company's registration statement no. 33-45612 and incorporated herein) 4.3 Credit Agreement, dated April 30, 1993, between NationsBank of Texas, N.A. and NCI Building Systems, L.P. (filed as Exhibit 4.7 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1993 and incorporated herein) 4.4 First Amendment Agreement, dated February 28, 1994, between NationsBank of Texas, N.A. and NCI Building System, L. P. (filed as Exhibit 4.4 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1994 and incorporated herein) 4.5 Second Amendment Agreement, dated February 28, 1995, between NationsBank of Texas, N.A. and NCI Building Systems, L.P. (filed as Exhibit 4.13 to the Company's registration statement no. 33-99560 and incorporated herein) 4.6 $6,000,000 Revolving Credit Note, dated April 30, 1993, in favor of NationsBank of Texas, N.A., executed by NCI Building Systems, L.P. (filed as Exhibit 4.8 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1993 and incorporated herein) 19 21 Sequentially Numbered Page ------------ 4.7 $1,750,000 Revolving Credit Note, dated February 28, 1994, in favor of NationsBank of Texas, N.A., executed by NCI Building Systems, L.P. (filed as Exhibit 4.6 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1994 and incorporated herein) 4.8 Guaranty, dated April 30, 1993, between NationsBank of Texas, N.A. and the Company (filed as Exhibit 4.9 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1993 and incorporated herein) 4.9 Guaranty, dated April 30, 1993, between NationsBank of Texas, N.A. and A & S Building Systems, Inc. (filed as Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1993 and incorporated herein) 4.10 Loan Agreement "A," dated September 1, 1991, between the City of Mattoon and the Company (filed as Exhibit 4.11 to the Company's registration statement no. 33-45612 and incorporated herein) 4.11 $250,000 Promissory Note A, dated October 31, 1991, in favor of the City of Mattoon executed by the Company (filed as Exhibit 4.12 to the Company's registration statement no. 33-45612 and incorporated herein) 4.12 Loan Agreement "B," dated September 1, 1991, between the City of Mattoon and the Company (filed as Exhibit 4.13 to the Company's registration statement no. 33-45612 and incorporated herein) 4.13 $250,000 Promissory Note B, dated January 20, 1992, in favor of the City of Mattoon executed by the Company (filed as Exhibit 4.14 to the Company's registration statement no. 33-45612 and incorporated herein) 4.14 Stock Retention and Registration Agreement, dated November 13, 1995, by and between the Company, Doors & Building Components, Inc., and David B. Curtis (Filed as Exhibit 4.14 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1995 and incorporated herein) *4.15 7% Convertible Subordinated Debenture dated April 1, 1996 Due April 1, 2001 between NCI Building Systems, Inc. and John T. Eubanks 10.1 Employment Agreement, dated April 10, 1989, between the Company and Johnie Schulte, Jr. (filed as Exhibit 10.1 to the Company's registration statement no. 33-45612 and incorporated herein) 10.2 Amendment to Employment Agreement, dated February 21, 1992, between the Company and Johnie Schulte, Jr. (filed as Exhibit 10.1.1 to the Company's registration statement no. 33-45612 and incorporated herein) 20 22 Sequentially Numbered Page ------------ 10.3 Summary of Bonus Program (filed as Exhibit 10.2 to the Company's registration statement no. 33-45612 and incorporated herein) 10.4 Employee Stock Option Plan (filed as Exhibit 4.1 to the Company's registration statement no. 33-52080 and incorporated herein) 10.5 Amendment No. 1 to Stock Option Plan (filed as Exhibit 4.2 to the Company's registration statement no. 33-52080 and incorporated herein) 10.6 Amendment No. 2 to Stock Option Plan (filed as Exhibit 10.6 in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1992 and incorporated herein) 10.7 Form of Employee Stock Option Agreement (filed as Exhibit 4.3 to the Company's registration statement no. 33-52080 and incorporated herein) 10.8 Form of Director Stock Option Agreement (filed as Exhibit 4.4 to the Company's registration statement no. 33-52080 and incorporated herein) 10.9 License Agreement, dated June 30, 1989, between Metal Building Components, Inc. and the Company (filed as Exhibit 10.6 to the Company's registration statement no. 33-45612 and incorporated herein) 10.10 401(k) Profit Sharing Plan (filed as Exhibit 4.1 to the Company's registration statement no. 33-52078 and incorporated herein) 10.11 Form of Metallic Builder Agreement (filed as Exhibit 10.10 to the Company's registration statement no. 33-45612 and incorporated herein) 10.12 Form of A&S Builder Agreement (filed as Exhibit 10.17 in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1992 and incorporated herein) 10.13 Purchase Agreement, dated September 7, 1994, between NCI Building Systems, L.P., Ellis Building Components, Inc., Tony Ellis and Ronald Ellis (filed as Exhibit 2.1 in the Company's Current Report on Form 8-K dated October 14, 1994 and incorporated herein) 10.14 Amendment to Purchase Agreement, dated October 14, 1994, between NCI Building Systems, L.P., Ellis Building Components, Inc., Tony Ellis and Ronald Ellis (filed as Exhibit 2.2 in the Company's Current Report on Form 8-K dated October 14, 1994 and incorporated herein) *10.15 Form of Mesco Metal Buildings Agreement 21 23 Sequentially Numbered Page ------------ 10.16 Amendment No. 3 to Stock Option Plan (filed as Exhibit 4.6 to the Company's Registration Statement No. 333-12921 and incorporated herein) 10.17 Asset Purchase Agreement, dated October 13, 1995, by and among Doors & Building Components, Inc., David B. Curtis, DBCI Acquisition Corp. and the Company (filed as Exhibit 2 to the Company's Current Report on Form 8-K dated November 13, 1995 and incorporated herein) 10.18 Asset Purchase Agreement, dated April 1, 1996, by and among Anderson Industries, Inc., Charles W. Anderson, Thomas L. Anderson, Jr., John T. Eubanks, Robert K. Landon, NCI Building Systems, L.P. and the Company (filed as Exhibit 2 to the Company's Current Report on Form 8-K dated April 1, 1996 and incorporated herein) *13 1995 Annual Report to Shareholders. With the exception of the information incorporated by reference into Items 5, 6, 7, and 8 of this Form 10-K, the 1995 Annual Report to Shareholders is not to be deemed filed as part of this Form 10-K. *21 List of Subsidiaries *23 Consent of Ernst & Young LLP *27 Financial Data Schedule - --------------- * Filed herewith 22 EX-4.15 2 7% CONVERTIBLE SUBORDINATED DEBENTURE 1 EXHIBIT 4.15 THIS DEBENTURE AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY OTHER APPLICABLE SECURITIES LAWS AND MAY NOT BE TRANSFERRED ABSENT REGISTRATION THEREUNDER OR AN APPLICABLE EXEMPTION THEREFROM. NCI BUILDING SYSTEMS, INC. 7% CONVERTIBLE SUBORDINATED DEBENTURE DUE APRIL 1, 2001 $1,500,000.00 Houston, Texas April 1, 1996 NCI Building Systems, Inc., a Delaware corporation (the "Company"), for value received hereby promises to pay to John T. Eubanks, or registered assigns ("Holder"), the principal sum of ONE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($1,500,000.00) on April 1, 2001, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest at the rate of 7% per annum from April 1, 1996 on said principal sum, or so much thereof as shall be outstanding, quarterly on April 30, July 31, October 31, and January 31 of each year, commencing April 30, 1996, and at maturity. The principal and interest due hereunder shall be payable at the office or agency of the Company in Houston, Texas. 1. Conversion of Debentures. (a) The Holder shall have the right, at his option, at any time after April 1, 1997 and on or prior to April 1, 2001 (or if the Debenture is called for redemption, then to and including but not after the close of business on the date fixed for redemption, unless the Company shall default in the payment due upon redemption) to convert the principal amount of the Debenture, or any portion of which is $1,000 or an integral multiple thereof, into as many fully paid and nonassessable shares of Common Stock (as such Common Stock shall then be constituted) of the Company (the "Company Common Stock"), as the principal amount of the Debenture or portion hereof to be converted is an integral multiple of the conversion price of $29.925 per share (as adjusted as provided in the Debenture, the "Conversion Price"). (b) In order to exercise the conversion privilege, the Holder shall surrender this Debenture at the office or agency maintained by the Company in Houston, Texas and shall give written notice to the Company at such office or agency that the Holder elects to convert the Debenture or the portion specified in the notice. The notice shall also state the name or names (with address and subject to compliance with applicable securities laws to the Company's satisfaction) in which the certificate or certificates for the Company Common Stock issuable on such conversion shall be issued. The Debenture shall, unless the shares issuable on conversion are to be issued in the same name as the registered holder of the Debenture, be accompanied by instruments of transfer, in form satisfactory to the Company, duly executed by the Holder or his duly authorized attorney. As promptly as practicable after the surrender of the Debenture and the receipt of the notice, the Company shall deliver at such office or agency to the Holder, or on his written order, a certificate or certificates for the number of full shares of Company Common Stock deliverable upon the conversion of the Debenture or portion hereof, a check or cash in respect of any 2 fractional interest in a share of Company Common Stock arising upon such conversion, and a new Debenture in a principal amount equal to the unconverted portion of the Debenture so surrendered. Each conversion shall be deemed to have been effected on the date on which the Debenture shall have been surrendered and such notice received by the Company as aforesaid, and the-person or persons in whose name or names any certificate for Company Common Stock shall be issuable upon such conversion shall be deemed to have become on said date the holder or holders of record of the shares represented thereby. No adjustment shall be made for interest accrued on any Debenture that shall be converted or for dividends on any Company Common Stock that shall be delivered upon the conversion of the Debenture. (c) No fractional interest in a share of Company Common Stock shall be delivered upon conversion of the Debenture. If any fractional interest of a share of Company Common Stock would be deliverable upon the conversion of the Debenture (or specified portions thereof), the Company shall make an adjustment therefor in cash equal to the principal amount of the Debenture which would otherwise result in delivery of a fractional share. (d) If the Company shall hereafter (i) pay a dividend or make a distribution in shares of its capital stock (whether of Company Common Stock or of capital stock of any other class), (ii) subdivide the outstanding Company Common Stock into a greater number of shares, (iii) combine the outstanding Company Common Stock into a smaller number of shares, or (iv) issue by reclassification of the Company Common Stock any other shares of its capital stock, the conversion privilege and the Conversion Price in effect immediately prior to such action shall be adjusted so that the Holder of the Debenture thereafter surrendered for conversion shall be entitled to receive the number of shares of capital stock of the Company which he would have owned immediately following such action had such Debenture been converted immediately prior thereto. An adjustment made pursuant to this subsection shall become effective immediately after the record date in the case of a subdivision, combination or reclassification. If, as a result of an adjustment made pursuant to this subsection, the holder of any Debenture thereafter surrendered for conversion shall become entitled to receive shares of two or more classes of capital stock of the Company, the Board of Directors of the Company shall determine the allocation of the adjusted conversion price between or among shares of such classes of capital stock. The Company shall maintain reserved for issuance upon conversion of the Debenture a sufficient number of the securities into which the Debenture may be converted. (e) If either of the following shall occur: (i) any consolidation or merger to which the Company is a party, other than a merger in which the Company is the continuing corporation and which does not result in any reclassification of, or change (other than a change in par value or from par value to no par value or from no par value to par value, or as a result of a subdivision or combination) in, outstanding shares of the Company Common Stock, or (ii) any sale or conveyance to another corporation, person or entity of the property of the Company as an entirety or substantially as an entirety, then provision shall be made as part of the terms of such transaction so that the Holder shall have the right to convert the Debenture into the kind and amount of shares of stock and other securities and property receivable upon such consolidation, merger, sale or conveyance by a holder of the number of shares of Company Common Stock issuable upon conversion of the Debenture immediately prior to such consolidation, merger, sale or conveyance. 2 3 2. Subordination of Debentures. (a) Each holder of the Debenture by his acceptance hereof covenants and agrees that the payment of the principal of (and premium, if any) and interest on this Debenture is hereby expressly subordinated to the prior payment in full of all "Senior Indebtedness," which for purposes hereof is defined to be: (i) any indebtedness, matured or unmatured, whether or not contingent, of the Company for borrowed money or evidenced by other debentures, notes or corporate debt securities issued by the Company; (ii) any foreign exchange or interest rate contract, interest rate swap agreement or other similar agreement or arrangement designed to protect the Company or any of its subsidiaries against fluctuations in currency values or interest rates; (iii) obligations as lessee under leases of real or personal property recorded as capitalized leases or in connection with any sale and leaseback transactions; (iv) indebtedness of others of any of the kinds described in the preceding clauses (i) through (iii) assumed or guaranteed by the Company; or (v) any modification, extension, renewal or refunding of any of the obligations, indebtedness or guaranties included in the preceding clauses (i) through (iv); whether now outstanding or hereafter created or incurred, unless the instrument evidencing such indebtedness expressly provides that such indebtedness shall not be senior in right to the Debenture. (b) The Company shall not make any payment on account of the principal of, premium (if any) or interest on the Debenture, unless full payment of all amounts then due for principal, sinking fund, premium (if any) and interest on any and all Senior Indebtedness shall have been made or duly provided for in accordance with the terms of such Senior Indebtedness; and the Company shall not make any payment on account of the principal of or the premium (if any) or interest on the Debenture if, at the time thereof or immediately after giving effect thereto, there shall exist under any Senior Indebtedness, or under any agreement pursuant to which Senior Indebtedness shall have been issued, any default or any event of default which with the giving of notice and the passage of time would result in a default, which shall not have been waived, so as to entitle the holders of such Senior Indebtedness, or any trustee therefor to declare the principal of such Senior Indebtedness, if not already due and payable, to be due and payable; provided that, upon cure or waiver of such default, such payment on the Debenture postponed by this subsection shall then be due unless the terms of such waiver prohibit such payment. If, notwithstanding the provisions of this subsection, the Company shall make any payment to the Holder on account of the principal of, premium (if any) or interest on the Debenture after the happening of such a default or such an event of default, then, unless and until such default or event of default shall have been cured or waived or shall have ceased to exist, such payment shall be held by the Holder in trust for the benefit of, and shall be paid over and delivered to, the holders of Senior Indebtedness (pro rata as to each of such holders on the basis of the respective amounts of Senior Indebtedness held by them) or their representative or the trustee under the indenture or other agreement (if any) pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, for application to the 3 4 payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in accordance with the terms of such Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. The Company shall give prompt written notice to the Holder of any default under any Senior Indebtedness or under any agreement pursuant to which Senior Indebtedness may have been issued. (c) Upon (i) any acceleration of the principal amount due on the Debenture or (ii) any payment or distribution of assets of the Company of any kind or character to creditors upon any dissolution, winding up, liquidation or reorganization of the Company (whether voluntary or involuntary or in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or otherwise): (A) the holders of all Senior Indebtedness shall first be entitled to receive payment in full before the Holder is entitled to receive any payment on account of the Debenture; and (B) any payment or distribution of assets of the Company of any kind or character, to which the Holder would be entitled except for the provisions of this Section 2, shall be paid by the liquidating trustee or agent directly to the holders of Senior Indebtedness or their representative or representatives, to the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution or provision therefor to the holders of such Senior Indebtedness. (d) Subject to the prior payment in full of all Senior Indebtedness, the Holder shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of the Company applicable to the Senior Indebtedness until the Debenture shall be paid in full, and for the purpose of such subrogation no payments or distributions to the holders of the Senior Indebtedness by or on behalf of the Company or by or on behalf of the Holder shall, as between the Company and the Holder, be deemed to be payment by the Company to or on account of the Debenture. 3. Redemption of Debenture. (a) The Debenture may be redeemed, at the option of the Company, in whole or in part, at any time after April 1, 1997 and prior to maturity, upon the notice referred to below, at 100% of the principal amount thereof, plus accrued interest; provided, however, that the Company may not redeem this Debenture (in whole or in part), unless the Current Market Price (as defined in Section 3(c) hereof) of the Company Common Stock at the time the notice of redemption is mailed by the Company is at least 150% of the Conversion Price and upon or after a Change of Control. (b) The notice of redemption shall be mailed by the Company at least 30 and not more than 60 days prior to the date fixed for the redemption to the Holder at his last address as it shall appear on the registry books. Upon any partial redemption of the Debenture, the Debenture shall be surrendered to the Company in exchange for one or more new Debentures for the principal amount of the unredeemed portion of the Debenture. (c) For the purpose of any redemption under this Section 3, the "Current Market Price" per share of the Company Common Stock at any date shall be deemed to be the average of the last reported sales prices of the 20 consecutive Trading Days (as hereinafter defined) commencing 25 Trading Days 4 5 before the day a notice of redemption is mailed by the Company. As used herein, the "last reported sales price" for each day shall be (i) the last reported sales price of the Company Common Stock on the National Market System of the National Association of Securities Dealers, Inc., Automated Quotation System ("NASDAQ/NMS"), or any similar system of automated dissemination of quotations of securities prices then in common use, if so quoted, or (ii) if not quoted as described in clause (i), the mean between the high bid and low asked quotations for the Company Common Stock as reported by the National Quotation Bureau Incorporated if at least two securities dealers have inserted both bid and asked quotations for such class of stock on at least five of the 10 preceding days, or (iii) if the Company Common Stock is listed or admitted for trading on any national securities exchange, the last reported sales price, or the closing bid price if no sale occurred, of such class of stock on the principal securities exchange on which such class of stock is listed. If the Company Common Stock is quoted on a national securities or central market system, in lieu of a market or quotation system described above, the last reported sales price shall be determined in the manner set forth in clause (ii) of the preceding sentence if bid and asked quotations are reported but actual transactions are not, and in the manner set forth in clause (iii) of the preceding sentence if actual transactions are reported. If none of the conditions set forth above is met, the last reported sales price of the Company Common Stock on any day or the average of such last reported sales prices for any period shall be the fair market value of such class of stock as determined by a member firm of the New York Stock Exchange, Inc. selected by the Company. As used herein, the term "Trading Days" with respect to the Company Common Stock means (A) if such class of stock is quoted on the NASDAQ/NMS or any similar system of automated dissemination of quotations of securities prices, days on which trades may be made on such system, (B) if such class of stock is listed or admitted for trading on any national securities exchange, days on which the principal national securities exchange on which such class of stock is listed or admitted for trading is open for business or (C) if not quoted or listed as described in clause (A) or (B), days on which the New York Stock Exchange is open for business. (d) For the purpose hereof, a "Change of Control" shall be deemed to have occurred if the Company sells all or substantially all of its assets, is a party to any merger, consolidation or corporate reorganization, or any other person makes a tender or exchange offer for stock of the Company, and as a result of any such transaction the stockholders of the Company immediately prior to the consummation thereof own 50% or less of the common stock of the surviving, resulting or purchasing corporation immediately following the consummation thereof. 4. Events of Default. In case one or more of the following "Events of Default" shall have occurred and be continuing: (a) default in the due and punctual payment of any installment of interest upon the Debenture as and when the same shall become due and payable, whether or not such payment is prohibited by the provisions of Section 2, and continuance of such default for a period of 5 business days after receipt by the Company of written notice from Holder of such failure to pay; or (b) default in the due and punctual payment of the principal of (or premium, if any, on) the Debenture as and when the same shall become due and payable either at maturity, upon redemption, by declaration or otherwise, whether or not such payment is prohibited by the provisions of Section 2; or 5 6 (c) a decree or order by a court shall have been entered adjudging the Company a bankrupt or insolvent, or appointing a receiver or trustee for the affairs or assets of the Company, and such decree or order shall have remained in force undischarged or unstayed for a period of 60 days; or (d) the Company shall institute proceedings to be adjudicated a voluntary bankrupt, or shall consent to the filing of any such petition or to the appointment of a receiver or trustee or shall make an assignment for the benefit of creditors; then, so long as such Event of Default shall not have been remedied, unless the principal of the Debenture shall have already become due and payable, the Holder by notice in writing to the Company may declare the principal of the Debenture then outstanding and the interest accrued thereon, if not already due and payable, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Debenture contained to the contrary notwithstanding. 5. Governing Law. This Debenture shall be governed by and construed in accordance with the laws of the State of Texas, without regard to the conflicts of laws principles thereof. Venue for any action pursuant hereto shall be in the appropriate state or federal court in Harris County, Texas. 6. Miscellaneous. (a) Prior to due presentment for registration of transfer of this Debenture, the Company may deem and treat the registered holder hereof as the absolute owner of the Debenture (whether or not the Debenture shall be overdue and notwithstanding any notes of ownership or writing hereof made by anyone other than the Company), for the purpose of receiving payment of or on account of the principal hereof (and premium, if any) and interest hereon, for the conversion hereof and for all other purposes, and the Company shall not be affected by any notice to the contrary. All such payments or conversions shall be valid and effectual to satisfy and discharge the liability upon the Debenture to the extent of the sum or sums so paid, or the conversions so made. (b) No recourse shall be had for the payment of the principal of (or premiums, if any) or the interest on the Debenture, or for any claim based hereon, or otherwise in respect hereof, against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or otherwise, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment, or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. NCI BUILDING SYSTEMS, INC. BY: /s/ Robert J. Medlock ----------------------------------- ROBERT J. MEDLOCK, Vice President and Chief Financial Officer 6 7 (FORM OF ASSIGNMENT) FOR VALUE RECEIVED, __________________________________________ hereby sell(s), assign(s) and transfer(s) unto ___________________________________ the written Debenture, and all rights thereunder, hereby irrevocably constituting and appointing _______________________________________________ attorney to transfer said Debenture on the registry books of the Company, with full power of substitution in the premises. _______________________________________ Dated:_____________________________ NOTICE: The signature on this assignment must correspond with the name as written upon the face of the within Debenture in every particular, without alteration or enlargement or any change whatsoever. ___________________________ NOTICE: THIS DEBENTURE AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY OTHER APPLICABLE SECURITIES LAWS. NEITHER THIS DEBENTURE NOR SUCH SECURITIES MAY BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF UNLESS AT THE TIME EITHER THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THAT ACT AND OTHER APPLICABLE SECURITIES LAWS RELATING TO THE TRANSACTION, OR, IN THE OPINION OF COUNSEL TO THE HOLDER ACCEPTABLE TO THE COMPANY, THE TRANSACTION IS EXEMPT FROM REGISTRATION UNDER THAT ACT AND UNDER OTHER APPLICABLE SECURITIES LAWS. 7 EX-10.15 3 FORM OF MESCO METAL BUIDLINGS AGREEMENT 1 EXHIBIT 10.15 [MESCO LOGO] AUTHORIZED BUILDER AGREEMENT MESCO METAL BUILDINGS - P.O. BOX 20 - GRAPEVINE, TEXAS 76099-0020 - 817/488-8511 This Agreement is made and entered into by and between MESCO METAL BUILDINGS, with principal offices in Grapevine, Texas, herein called "MESCO" and "BUILDER", whose name, legal entity and address are shown below: ARTICLE 1: GENERAL PURPOSE AND TERM OF AGREEMENT The general purpose of this Agreement is to assist BUILDER as an independent building contractor who sells and erects MESCO's buildings, components, and products herein called "MESCO Buildings" and to set forth the respective functions, obligations and responsibilities of MESCO and of BUILDER. MESCO's primary objective in entering this Agreement is to develop a continuing mutually profitable relationship. To assist in the accomplishment of this objective, the term of this Agreement shall be for a period of one (1) year and shall be automatically renewed for an additional period of one (1) year, subject to the provisions of this Agreement. ARTICLE 2: AREA OF PRIMARY RESPONSIBILITY During the term of this Agreement, BUILDER undertakes and accepts responsibility for promoting, developing and maintaining the market for MESCO Buildings in the non-exclusive area of primary responsibility hereinafter described, which shall be referred to as the "Territory": Nothing herein shall be construed as in any way limiting or restricting the area or territory within, or the persons to whom, BUILDER may sell MESCO Buildings. ARTICLE 3: MUTUAL OBLIGATIONS The development of a successful builder-manufacturer relationship is based on mutual respect and the recognition of certain fundamental obligations, in recognition of these obligations; MESCO agrees to: a) respect the rights of BUILDER as an independent contractor and extend the courtesies and cooperation due him as a customer; b) develop amd manufacture quality products that provide opportunity for sales by BUILDER at competitive margins; c) assist in the development of BUILDER's sales through the planned program of cooperative promotion and advertising as provided by the Builder Advertising Assistance Program; d) make available to BUILDER such general specifications and other technical data describing MESCO Buildings and reflecting usual and standard MESCO design and manufacturing standards as are presently existing or hereafter complied by MESCO for BUILDER's aid and assistance in selecting, specifying and/or selling MESCO Buildings; e) place full responsibility for the development and management of the Territory upon the BUILDER, provided however that MESCO, upon BUILDER's request therefor, will furnish such marketing and technical assistance as MESCO may be in a position to provide to aid or assist BUILDER in increasing or effecting sales of MESCO Buildings. BUILDER agrees to: a) aggressively develop the Territory by maintaining market penetration and customer relations satisfactory to MESCO; b) develop and maintain an energetic and professional organization, capable of offering and providing at a high standard of quality, complete "turn-key" construction services including planning, design, erection and construction; c) promote and advertise MESCO Buildings and BUILDER's services in an accurate and responsible manner acceptance to MESCO throughout the Territory; d) provide sufficient qualified sales personnel to adequately cover the Territory and service all available sales inquiries; e) maintain an adequate inventory of MESCO sales aids; f) establish and maintain sound business management practices necessary to effectively administer general construction; g) provide a suitable, attractive place of business to obtain recognition with the Territory. ARTICLE 4: MESCO'S SALES POLICY MESCO intends to rely on its builder organization for sales and promotion of MESCO Buildings. When, in MESCO's opinion, circumstances exist which require otherwise, MESCO may, at its option, make sales directly to any persons or in any other manner that it may elect. In such event, MESCO may inform BUILDER of such sale in order that BUILDER may have a reasonable opportunity to bid for the erection or construction thereof. ARTICLE 5: RELATIONSHIP The relationship between BUILDER and MESCO is that of buyer and seller. Nothing herein shall be construed to constitute a franchise, partnership or joint venture between BUILDER and MESCO. BUILDER is not an agent or employee of MESCO, and BUILDER shall not, at any time, purport to act as or represent that he is an agent or employee of MESCO. Neither party to this Agreement is authorized or empowered to assume or create any obligation or responsibility, express or implied, on behalf of or in the name of the other party save and except BUILDER's delivery of MESCO's warranty on the express terms and conditions set forth therein and not otherwise. 2 ARTICLE 6: TRADEMARKS AND TRADENAMES BUILDER acknowledges that the word "MESCO" and the MESCO trademark constitute trademarks and tradenames owned by MESCO, that valuable goodwill attaches thereto, and that such words have secondary meaning in the minds of the general public. BUILDER shall not use or incorporate the word "MESCO" or any derivative thereof in the name under which BUILDER operates or conducts business. BUILDER will identify itself as an authorized MESCO builder by prominently displaying the MESCO name in all ways in which BUILDER presents itself to the public as a metal building contractor, including a prominent display of the name at BUILDER's place of business, on its stationary and on all advertising media. All listings in telephone directories or other printed matter in which the tradename and trademark MESCO is used, shall be accompanied by an identification of BUILDER in a manner to clearly indicate that BUILDER is an authorized builder of MESCO buildings. BUILDER shall submit to MESCO actual samples or accurate photographs or facsimiles of any and all intended uses of the MESCO name prior to the use thereof, for MESCO's prior written approval. ARTICLE 7: SALES AIDS AND MESCO MANUALS BUILDER agrees to purchase, upon execution of this agreement, an adequate inventory of Sales Aids. All Sales Aids will remain the property of BUILDER. MESCO will provide BUILDER with sales manuals concerning MESCO's prices, products, policies and procedures for BUILDER's use in performing this Agreement. Such sales manuals constitute trade secrets and are valuable property of MESCO, shall be held confidential by BUILDER, and will be returned by BUILDER upon request from MESCO. BUILDER shall not, without prior written consent of MESCO, copy, duplicate or reproduce or permit any person to have access to any of the information contained therein. MESCO expressly reserves the rights, at any time, to develop, formulate and promulgate new or amended pricing information, product descriptions, policies or procedures, without notice to BUILDER. BUILDER hereby agrees to observe any such new or amended expressions upon the receipt of the same from MESCO. ARTICLE 8: USE OF BUILDINGS BUILDER shall insure that all MESCO Buildings sold by BUILDER are suitable for the intended use, are adequate to withstand auxiliary loads and local weather conditions, and comply with laws, ordinances, codes and regulations of the locality where the building is located. BUILDER is solely liable and responsible for any claims, demands or damages arising by reason of breach of this provision by BUILDER and BUILDER will indemnify and save MESCO harmless from any claims, demands or damages sought against MESCO by reason thereof, including attorneys' fees and costs. BUILDER shall advise MESCO, on each purchase order, of all special requirements and conditions of use which BUILDER deems necessary for the intended use thereof. IT IS EXPRESSLY UNDERSTOOD BY BUILDER THAT NO WARRANTY, EXPRESS OR IMPLIED, WHETHER AS TO MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE SHALL EXIST, NOR SHALL THE SAME ARISE AS TO ANY ITEMS NOT SO DISCLOSED OR SPECIFIED BY BUILDER TO MESCO ON EACH PURCHASE ORDER. BUILDER expressly agrees to notify any intended customer selecting MESCO Buildings which may not be appropriate for the intended use or locality, that such use thereof is not recommended by BUILDER or by MESCO. Such notification shall be in writing, and shall further advise said customer that MESCO has no liability or responsibility under its warranty or otherwise to BUILDER or such customer by reason of using MESCO Buildings in such manner or under such circumstances. A copy of such notice by BUILDER shall be concurrently furnished MESCO. ARTICLE 9: ERECTION OF BUILDINGS BUILDER recognizes that proper erection of MESCO Buildings is of utmost importance to MESCO and to BUILDER. BUILDER agrees to provide a high standard of quality in the erection of all MESCO Buildings and to furnish or supply competent, trained and experienced erectors to accomplish the same. In those instances where BUILDER elects to have MESCO Buildings erected by an independent third party, BUILDER shall, nevertheless, be responsible for the quality and manner of such erection. In any event, BUILDER shall be responsible for all phases of erection of MESCO Buildings and for all claims demands or actions arising directly or indirectly therefrom or incident thereto. ARTICLE 10: PURCHASES BY BUILDER MESCO will sell MESCO Buildings to BUILDER at its established list prices less any applicable discounts effective at the time of purchase. MESCO reserves the right to change its published list prices and discounts at any time upon thirty (30) days written notice to BUILDER. Factory quoted list prices and applicable discount shall be binding on MESCO for a period of thirty (30) days from date of such written quotation. All orders properly submitted in writing on MESCO's forms prior to the time of any price increase shall not be affected thereby so long as they are not subsequently changed or postponed by BUILDER. All MESCO Buildings are sold F.O.B. factory, regardless of terms of credit extended. All amounts owing MESCO by BUILDER for purchases from MESCO or otherwise are expressly payable at MESCO's offices in Grapevine, Texas. ARTICLE 11: PERMITS AND TAXES BUILDER agrees that all purchases from MESCO will be outright and are for BUILDER's own use or for resale to others. BUILDER will obtain any and all permits and licenses required by any governmental agency or authority for BUILDER to conduct the business contemplated by this Agreement. Any taxes incident to the sale or use of MESCO's Buildings shall be paid by BUILDER. When required by law or if deemed necessary by MESCO, MESCO will collect any such taxes from BUILDER and remit such taxes directly to the applicable taxing authorities, in the event any particular transaction is exempt from such taxes, BUILDER shall so designate on the purchase order and furnish MESCO with such exemption or resale certificates as may be required. ARTICLE 12: PROCESSING OF ORDERS All purchase orders issued by BUILDER to MESCO shall be prepared in accordance with MESCO's Policies and Procedures than in effect and shall be submitted on forms provided by MESCO. Orders by BUILDER shall be subject to the terms and conditions of the purchase order, and shall be subject to acceptance by MESCO. Such acceptance will be acknowledged in writing by MESCO and MESCO's written acknowledgment will reflect MESCO's interpretation of BUILDER's entire requirements and specifications for the order. BUILDER understands that minor corrections may be required on BUILDER's purchase order to clarify BUILDER's pricing procedures. Each such accepted order shall constitute the contract of sale between BUILDER and MESCO for the MESCO Building thereby specified. MESCO shall fabricate or manufacture each order for MESCO Buildings in accordance with BUILDER's requirements as specified by BUILDER on each accepted purchase order. IT IS EXPRESSLY UNDERSTOOD BY BUILDER THAT NO WARRANTY, EXPRESS OR IMPLIED, WHETHER AS TO MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE SHALL EXIST, NOR SHALL THE SAME ARISE AS TO ANY ITEMS NOT SO DISCLOSED OR SPECIFIED BY BUILDER TO MESCO ON EACH PURCHASE ORDER. 3 ARTICLE 13: CHANGES IN ORDERS BUILDER may revise, postpone or cancel an order after it has been accepted by MESCO, subject to the terms and conditions of the purchase order and MESCO's Policies and Procedures, and not otherwise. All such changes in orders shall be confirmed in writing by BUILDER in form satisfactory to MESCO. BUILDER agrees that any revision, postponement or cancellation of an accepted order shall be subject to appropriate charges determined by MESCO consistent with the amount of work performed and expenses incurred on the order, including allowance for normal overhead. ARTICLE 14: SHIPPING SCHEDULES All orders should specify the delivery date desired by BUILDER. MESCO reorganizes its obligation to fill orders promptly and agrees that it will at all times use its best efforts to make shipments of ordered materials in the period shown on the order acknowledgement. However, MESCO shall not be liable for any damages due to late deliveries or delays in delivery. ARTICLE 15: TRANSPORTATION Unless otherwise designated by BUILDER, MESCO will transport MESCO Buildings by the best means available. All procedures and policies regarding transportation will be in accordance with MESCO's Policies and Procedures then in effect, and the terms and conditions of the purchase order. In the event a common carrier is used, BUILDER expressly agrees to be bound by the regulations then existing for carriers with regard to delivery, shortages and damage of materials. BUILDER accepts all risk of loss or damage to materials upon loading on BUILDER's own transportation or upon delivery to a common carrier. ARTICLE 16: SHORTAGES AND CLAIMS BUILDER agrees to inspect MESCO Buildings upon arrival at the place of delivery designated on the purchase order. Claims for shortages in shipment must be promptly reported in writing to MESCO. BUILDER understands that all such claims for alleged shortages will be disallowed unless MESCO shall have been given written notice thereof in accordance with the terms and conditions of the purchase order and MESCO's Policies and Procedures then in effect. BUILDER agrees to immediately report to MESCO any misfit which allegedly prevents the proper assembly of parts during the course of erection. BUILDER understands that all claims for correction of alleged misfits will be disallowed unless MESCO shall have been given written notice thereof in accordance with the terms and conditions of the purchase order and MESCO's Policies and Procedures then in effect, and BUILDER shall have received written authorization for the cost of repair. BUILDER expressly agrees that no set-off or deduction from the total net price due MESCO shall be made because of any alleged shortage or claim for correction of misfit. ARTICLE 17: CREDIT MESCO will review possible credit terms for BUILDER based on BUILDER's financial strength, prior payment history and current needs. Extension of credit terms will be established between BUILDER and MESCO's Manager of Credit after current operating and financial information has been submitted by BUILDER in accordance with the Policies and Procedures of MESCO then in effect. BUILDER will be advised in writing of the terms of credit extended and the conditions under which such credit remains effective. Unless terms of credit are extended by MESCO in writing, BUILDER agrees that payment is to be in readily available funds or in such other manner as may be specified by MESCO. ARTICLE 18: WARRANTIES AND GUARANTEES MESCO Buildings are warranted by MESCO only in accordance with its Manufacturer's Warranty, and not otherwise. Color coating of certain MESCO panels are guaranteed by MESCO only in accordance with its Color-Cote Guarantee. NO OTHER WARRANTIES, EXPRESS OR IMPLIED, ARE MADE BY MESCO, NO IMPLIED WARRANTIES AS TO MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE ARE MADE BY MESCO, AND BUILDER HEREBY EXPRESSLY WAIVES ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, BY MESCO. No other conduct, promises or representations shall be made by BUILDER to its customer or relied upon by BUILDER regarding MESCO Buildings. MESCO's warranties do not extend to and BUILDER hereby waives all claims for consequential damage, however occasioned, including loss of use or of profits. BUILDER acknowledges having examined MESCO's warranties and agrees to incorporate appropriate provisions relating to MESCO's warranties in each offer to sell or contract of sale entered into by BUILDER. BUILDER expressly agrees to deliver MESCO's warranties to its customers. MESCO reserves the right to revise its warranties from time to time. Any such revised warranties shall be accepted or used by BUILDER, after written notice to BUILDER thereof, in lieu of any prior warranty by MESCO. ARTICLE 19: RECORDS AND REPORTS In order that MESCO may effectively coordinate its marketing efforts, BUILDER agrees to furnish periodic reports and estimates concerning the condition of his business including operating information and sales activity which MESCO may reasonably request. BUILDER further agrees to keep his books, records and accounts in accordance with accepted accounting practice and furnish in a form acceptable to MESCO its annual financial statement. ARTICLE 20: INSURANCE MESCO shall maintain in force for the term of this Agreement Comprehensive General Liability Insurance with excess coverage of $1,000,000 including Contractual Liability, Completed Operations and Product Liability. MESCO agrees to have its insurance carrier provide BUILDER, on request, a certificate of insurance evidencing such coverage. BUILDER shall maintain in force, for the term of this Agreement, Comprehensive General Liability Insurance with limits not less than $100,000 per person, $300,000 per occurrence for bodily injury and $100,000 per occurrence for property damage including Contractual Liability, Completed Operations and Product Liability. BUILDER agrees to have its insurance carrier provide MESCO a certificate of insurance evidencing such coverage and agrees to notify MESCO at least thirty (30) days prior to any intended modification or termination of BUILDER's policy. ARTICLE 21: ASSIGNABILITY This Agreement may be assigned or transferred by BUILDER provided that the prior written consent of MESCO is obtained, subject to the provisions of this Agreement. The provisions of this article apply to any transfer by BUILDER, whether by sale, testamentary disposition, operation of law or otherwise. It is understood by BUILDER that in considering any application to MESCO for its consent to a proposed sale or transfer of this Agreement or a change in the controlling ownership of the holders of BUILDER's stock, a determination will be made by MESCO in its sole and exclusive discretion as to the party or parties who propose to continue the business operations contemplated by this Agreement, and the ability or capability of such person or persons to perform the same. MESCO's determination in this regard shall be conclusive upon BUILDER and such proposed purchaser. Except as permitted by the provisions hereof, this Agreement shall not be assigned or transferred by BUILDER. In the event of a sale or transfer in violation of the provisions hereof, the same shall constitute an act of default by BUILDER. This Agreement, its interest, value, benefits and responsibilities shall inure to the benefit of the successors and assigns of MESCO. 4 ARTICLE 22: TERMINATION MESCO or BUILDER may terminate this Agreement at any time and for any reason upon thirty (30) days prior written notice to the other party. This Agreement may be terminated by MESCO without prejudice to any remedies which it may otherwise have hereunder, on written notice to BUILDER of its election to do so, upon the occurrence of any of the following events: a) If BUILDER defaults in the performance of any of the terms and conditions of this Agreement, any purchase orders or any other agreement or contract between MESCO and BUILDER; b) If BUILDER be adjudicated bankrupt or becomes insolvent or if a receiver, whether permanent or temporary, of BUILDER's property or any part thereof, shall be appointed by a court of competent authority; c) If BUILDER shall make a general assignment for the benefit of his creditors, or shall fail to make payment of indebtedness to MESCO, as and when the same becomes due and payable, or if procedures for recognition or rearrangement of BUILDER's affairs are instituted for or against BUILDER; d) Upon conviction of BUILDER or any principal of BUILDER of any crime tending to adversely affect the ownership and the operation, management or business of BUILDER or MESCO; e) Cessation of BUILDER's business for any reason. In the event of termination of this Agreement, BUILDER shall immediately discontinue the use of MESCO's tradename and trademarks. BUILDER shall remove all forms of advertising bearing MESCO's tradename and trademark, and will not thereafter operate or do business in any manner that would tend to give the general public the impression that this Agreement is still in effect. All MESCO sales manuals shall be returned to MESCO within fifteen (15) days of such termination, otherwise, BUILDER agrees that damages of not less than five hundred (500) dollars, injunctive relief and all costs of enforcement, including reasonable attorneys' fees, shall be recoverable by MESCO from BUILDER. ARTICLE 23: FORCE MAJEURE MESCO shall not be liable for any direct or consequential damage which BUILDER or its customer may suffer by reason of MESCO's delay in performance or failure of performance under this Agreement or an accepted purchase order resulting from fire, storms, accidents, labor disturbances, regulations or acts of governmental authority, inability to secure required materials or labor, failure of machinery or equipment, or any other cause or circumstance beyond MESCO's reasonable control . The happening of any such event or the occurrence of any such delay, shall be deemed to extend the date for performance by MESCO accordingly. ARTICLE 24: GENERAL This Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the subject matter herein. No changes in this Agreement shall be valid or binding upon either party unless in writing and unless expressly declared to be a modification of this Agreement and signed by an authorized executive of each party. This Agreement, all purchase orders, invoices and all questions relating to the relationship of MESCO and BUILDER, shall be governed and interpreted in accordance with the laws of the State of Texas. If any part or provision of this Agreement, or the application of any such part or provision, shall be held illegal, invalid or unenforceable under the laws of any jurisdiction, then such illegality, invalidity or unenforceability shall not invalidate the remainder, and this Agreement shall in all other respects continue in full force and effect. Neither MESCO or BUILDER shall, by reason of the termination of this Agreement, be liable for compensation, reimbursement or damages on account of expenditures, investments, leases, improvements, commitments or loss of anticipated sales of future profits in connection with their business or goodwill; all rights or claims of such nature being hereby expressly, unconditionally and irrevocably waived by both parties. However, this shall not discharge or release BUILDER from any claim owing in conjunction with purchase orders theretofore accepted by MESCO or for actual damages resulting from breach of this Agreement by BUILDER, nor shall it release MESCO from any claims arising under its Manufacturer's Warranty or Color-Cote Guarantee. IN WITNESS WHEREOF, this Agreement shall be deemed to have been delivered as of this _______ day of ________________, 19__ at Grapevine, Tarrant County, Texas. MESCO METAL BUILDINGS BUILDER: _____________________________________ BY: ________________________________________ BY: __________________________________________ NAME: ______________________________________ NAME: ________________________________________ TITLE: _____________________________________ TITLE: _______________________________________ ADDRESS: _____________________________________ ______________________________________________
EX-13 4 1995 ANNUAL REPORT TO SHAREHOLDERS 1 EXHIBIT 13 SELECTED FINANCIAL DATA (in thousands except per share)
Year ended October 31, -------------------------------------------------------- 1992 1993 1994 1995 1996 -------------------------------------------------------- Sales . . . . . . . . . . . . . . . . . . . . . $79,008 $134,506 $167,767 $234,215 $332,880 Net Income . . . . . . . . . . . . . . . . . . 3,611 6,333 10,256 17,032 24,814 Net income per share . . . . . . . . . . . . . .67 .96 1.53 2.52 3.03 Working capital . . . . . . . . . . . . . . . . 4,835 15,511 16,885 31,687 51,958 Total assets . . . . . . . . . . . . . . . . . 34,187 46,733 63,373 83,082 158,326 Long-term debt, noncurrent portion . . . . . . 2,185 1,899 326 278 1,730 Shareholders' equity . . . . . . . . . . . . . $21,232 $28,655 $39,682 $57,682 $116,175 Average common shares and equivalents . . . . . 5,432 6,578 6,695 6,765 8,198
OPERATING POLICIES RETURN ON ASSETS Return on assets is defined as operating income divided by average assets used in the business (eliminating primarily cash). NCI's management and directors are thoroughly convinced that this ratio is the best measure of operating performance. Tight control over inventory, receivables, and fixed investment is as important as, and interrelated to, control of the income statement. Return on assets is a proxy for cash flow, which can reward shareholders with undiluted growth. In fiscal year 1996, NCI earned a return on assets employed in the business of 34%. GROWTH The company is dedicated to increasing its market share through strong marketing and low cost, quality manufacturing. Special niches that provide unusual profit and growth opportunities are sought. Overall profit growth of at least 15% per year is an intermediate goal of the company with larger increments possible in the short-term. This growth may be internally generated or it may come from carefully selected acquisitions. DIVIDENDS The company's officers and directors are all large stock or option holders. Thus, there is much sympathy for dividends. However, it is considered appropriate, at this stage of the company's development and in view of the available returns, to invest that money in the growth of the equity of the company as opposed to paying dividends. COMPENSATION The company believes in providing base salaries for its management on the low side of industry norms with opportunities, based on performance, to obtain very high bonuses. Specifically, return assets is the criterion for performance measurement. Bonuses begin when the ratio of operating income divided by assets used in the business is equal to 20%. Maximum bonuses, at a very high level, can be earned when 30% returns are achieved. This measure is felt to be most important because management of both the balance sheet and the income statement are critical to long-term success, especially in a cyclical industry. CORPORATE RESPONSIBILITY The company is committed to the goal of being an exemplary corporate citizen. Toward that end, we have an intense safety program ongoing in the workplace. We also provide broad coverage health insurance to all employees. There are not only employment, but advancement opportunities through our growth. We have proper awareness and concern for the overall environment. Finally, we employ high quality engineering professionals to ensure that our products are designed using sound engineering practices and principles. Cover: The symbol on our cover embodies our central philosophy that our suppliers, employees, and our customers are all critical parts of a coordinated team necessary to produce a product that fulfills an economic need. We all understand that each team member must work together with the others to provide the appropriate quality, service, and price, and that commitment to teamwork is what has made NCI successful. 2 CONSOLIDATED STATEMENTS OF INCOME NCI BUILDING SYSTEMS, INC.
October 31, ----------------------------------------------- 1994 1995 1996 ----------------------------------------------- Sales ........................................................... $167,766,770 $234,214,508 $332,879,707 Cost of sales ................................................... 124,125,815 169,814,614 241,373,691 ----------------------------------------------- Gross Profit ............................................... 43,640,955 64,399,894 91,506,016 ----------------------------------------------- Engineering ..................................................... 6,870,911 8,934,916 11,078,691 Selling ......................................................... 11,265,957 15,777,253 22,365,791 General and administrative ...................................... 10,064,368 13,399,120 19,650,136 ----------------------------------------------- Total operating expenses ........................................ 28,201,236 38,111,289 53,094,618 ----------------------------------------------- Income from operations ..................................... 15,439,719 26,288,605 38,411,398 Interest expense ................................................ (82,364) (55,871) (108,203) Other income .................................................... 640,892 821,722 1,585,960 ----------------------------------------------- Income before income taxes ................................. 15,998,247 27,054,456 39,889,155 ----------------------------------------------- Provision (benefit) for income taxes - Note 5 ................... Current .................................................... 5,983,924 10,493,151 15,898,356 Deferred ................................................... (241,768) (470,495) (822,737) ----------------------------------------------- Total income tax ................................................ 5,742,156 10,022,656 15,075,619 ----------------------------------------------- Net Income ...................................................... $ 10,256,091 $ 17,031,800 $ 24,813,536 =============================================== Net income per common and common equivalent share - Note 9 ........................... $ 1.53 $ 2.52 $ 3.03 ===============================================
See Independent Auditor's Report and Accompanying Notes to the Consolidated Financial Statements. 17 3 CONSOLIDATED BALANCE SHEETS NCI BUILDING SYSTEMS, INC.
October 31, --------------------------- 1995 1996 ----------- ------------ ASSETS Current assets: Cash and cash equivalents...................... $17,631,409 $ 20,943,664 Accounts receivable - Trade.................... 18,443,034 35,477,296 Other receivables - Note 11.................... 619,891 2,271,674 Inventories - Note 1........................... 16,897,455 28,692,930 Deferred income taxes - Note 5................. 1,681,992 2,925,249 Prepaid expenses............................... 185,063 298,702 ----------- ------------ Total current assets........................... 55,458,844 90,609,515 ----------- ------------ Property, plant and equipment, net - Note 1...... 25,629,382 42,751,545 ----------- ------------ Other assets: Excess of cost over fair value of acquired net assets - Note 1.............................. 1,581,945 22,672,916 Other.......................................... 412,129 2,292,322 ----------- ------------ Total other assets............................. 1,994,074 24,965,238 ----------- ------------ Total assets..................................... $83,082,300 $158,326,298 =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt.............. $ 83,402 $ 47,402 Accounts payable............................... 11,966,447 21,527,027 Accrued compensation and benefits.............. 6,575,656 7,762,288 Other accrued expense.......................... 4,436,488 6,737,346 Accrued income taxes........................... 709,692 2,577,168 ----------- ------------ Total current liabilities...................... 23,771,685 38,651,231 ----------- ------------ Long-term debt, noncurrent portion - Note 3...... 278,396 1,729,566 ----------- ------------ Deferred income taxes - Note 5................... 1,349,734 1,770,255 ----------- ------------ Contingencies - Note 6 Shareholders' equity - Note 7 Preferred stock, $1 par value, 1,000,000 shared authorized, none outstanding.......... -- -- Common stock, $.01 par value, 15,000,000 shared authorized, 6,290,595 and 7,966,777 shares issued and outstanding, respectively......... 62,906 79,668 Additional paid-in capital..................... 13,696,475 47,358,938 Retained earnings.............................. 43,923,104 68,736,640 ----------- ------------ Total shareholders' equity..................... 57,682,485 116,175,246 ----------- ------------ Total liabilities and shareholders' equity....... $83,082,300 $158,326,298 =========== ============
See Independent Auditor's Report and Accompanying Notes to the Consolidated Financial Statements. 18 4 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY NCI BUILDING SYSTEMS, INC.
Additional Common Paid-In Retained Shareholders' Stock Capital Earnings Equity --------------------------------------------------------- Balance, October 31, 1993............... $61,767 $11,958,205 $16,635,213 $ 28,655,185 Proceeds from exercise of stock options, including tax benefit thereon......... 112 87,438 -- 87,550 Shares issued for contribution to 401K plan............. 407 682,438 -- 682,845 Net income.............................. -- -- 10,256,091 10,256,091 -------------------------------------------------------- Balance, October 31, 1994............... 62,286 12,728,081 26,891,304 39,681,671 Proceeds from exercise of stock options, including tax benefit thereon......... 142 145,474 -- 145,616 Shares issued for contribution to 401K plan............. 478 822,920 -- 823,398 Net income.............................. -- -- 17,031,800 17,031,800 -------------------------------------------------------- Balance, October 31, 1995............... 62,906 13,696,475 49,923,104 57,682,485 Proceeds from stock offering............ 10,865 24,759,142 -- 24,770,007 Proceeds from exercise of stock options, including tax benefit thereon......... 2,458 2,722,474 -- 2,724,932 Shares issued for contribution to 401K plan............. 439 1,008,847 -- 1,009,286 Shares issued in connection with the purchase of DBCI...................... 3,000 5,172,000 -- 5,175,000 Net income.............................. -- -- 24,813,536 24,813,536 -------------------------------------------------------- Balance, October 31, 1996............... $79,668 $47,358,938 $68,736,640 $116,175,246 ========================================================
See Independent Auditor's Report and Accompanying Notes to the Consolidated Financial Statements. 19 5 CONSOLIDATED STATEMENTS OF CASH FLOWS NCI BUILDING SYSTEMS, INC.
October 31, -------------------------------------------- 1994 1995 1996 -------------------------------------------- Cash flows from operating activities Net Income . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,256,091 $ 17,031,800 $ 24,813,536 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization. . . . . . . . . . . . . . 2,219,558 3,226,384 5,791,493 Loss on sale of fixed assets . . . . . . . . . . . . . . -- 3,701 1,543 Provision for doubtful accounts . . . . . . . . . . . . 651,215 1,101,038 680,633 Deferred income tax benefit. . . . . . . . . . . . . . . (241,768) (470,495) (822,736) Changes in current assets and liability accounts, net of effects of acquisitions: Increase in accounts, notes and other receivable . . . . . . (1,020,612) (3,097,101) (9,856,815) Increase in inventories . . . . . . . . . . . . . . . . . . (4,975,310) (2,482,505) (4,520,569) (Increase) decrease in prepaid expenses. . . . . . . . . . . (41,103) 97,467 (35,491) Increase (decrease) in accounts payable. . . . . . . . . . . 4,768,451 (2,009,477) 3,042,752 Increase in accrued expenses . . . . . . . . . . . . . . . . 1,992,380 4,857,823 1,603,120 Increase (decrease) in income taxes payable. . . . . . . . . 751,249 (244,592) 3,843,170 -------------------------------------------- Net cash provided by operating activities. . . . . . . . 14,360,151 18,014,043 24,540,636 -------------------------------------------- Cash flows from investing activities: Proceeds from the sale of fixed assets . . . . . . . . . . . -- 7,181 115,071 Acquisition of Ellis Building Components . . . . . . . . . . (4,250,000) -- -- Acquisition of Royal Buildings . . . . . . . . . . . . . . . -- (910,000) -- Acquisition of Mesco Metal Buildings . . . . . . . . . . . . -- -- (20,631,222) Acquisition of Doors & Building Components, Inc. . . . . . . -- -- (11,000,000) Acquisition of Carlisle Engineered Metals, Inc . . . . . . . -- -- (2,840,117) (Increase) decrease in other noncurrent assets . . . . . . . 54,541 7,725 (1,988,127) Capital expenditures . . . . . . . . . . . . . . . . . . . . (5,935,522) (5,836,820) (10,318,399) -------------------------------------------- Net cash applied to investing activities . . . . . . . . (10,130,981) (6,731,914) (46,662,794) -------------------------------------------- Cash flows from financing activities: Net proceeds from sale of stock. . . . . . . . . . . . . . . -- -- 24,770,007 Exercise of stock options. . . . . . . . . . . . . . . . . . 37,040 71,555 749,240 Borrowings on line of credit and notes . . . . . . . . . . . 1,000,000 -- -- Principal payments on long-term debt, line of credit and notes payable . . . . . . . . . . . . . . . . (2,812,723) (47,389) (84,834) -------------------------------------------- Net cash provided by (used in) financing activities . . (1,775,683) 24,166 25,434,413 -------------------------------------------- Net increase in cash . . . . . . . . . . . . . . . . . . 2,453,487 11,306,295 3,312,255 Cash beginning of period . . . . . . . . . . . . . . . . . . . . 3,871,627 6,325,114 17,631,409 -------------------------------------------- Cash at end of period . . . . . . . . . . . . . . . . . . . . . $ 6,325,114 $ 17,631,409 $ 20,943,664 ============================================
See Independent Auditor's Report and Accompanying Notes to the Consolidated Financial Statements. 20 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NCI BUILDING SYSTEMS, INC. (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Reporting Entity These financial statements include the operations and activities of NCI Building Systems, Inc. and its wholly-owned subsidiaries (Company) after the elimination of all material intercompany accounts and balances. The Company designs, manufactures and markets metal building systems and components for commercial, industrial, agricultural and community service use. The Company recognizes revenues as jobs are shipped. (b) Accounts Receivable The Company reports accounts receivable net of the allowance for doubtful accounts of $1,339,772 and $1,629,202 at October 31, 1995 and 1996, respectively. Trade accounts receivable are the result of sales of buildings and components to customers throughout the United States and affiliated territories including international builders who resell to end users. Although the Company's sales historically have been concentrated in Texas and surrounding states, in recent years it has been expanding its authorized builder organization and customer base into the midwestern states and, to a lesser extent, into south central, southeastern and coastal states. 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. Company management is not aware of any significant concentrations of credit or market risks related to receivables or other financial instruments reported in these financial statements. (c) Inventories Inventories are stated at the lower of cost or market value, using specific identification for steel coils and weighted-average method for other raw materials. A summary of inventories follows:
October 31, --------------------------- 1995 1996 --------------------------- Raw materials . . . . . . . . . . . . . . $12,255,393 $21,514,510 Work-in-process and finished goods . . . . . . . . . . . 4,642,062 7,178,420 --------------------------- $16,897,455 $28,692,930 ===========================
(d) 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, 1994, 1995 and 1996 was $2,172,336, $2,995,051 and $4,236,397, respectively.
October 31, --------------------------- 1995 1996 --------------------------- Land. . . . . . . . . . . . . . . . . . . $ 1,458,993 $ 3,174,539 Buildings and improvements . . . . . . . 11,401,480 20,136,496 Machinery, equipment and furniture . . . . . . . . . . . . 21,292,363 31,865,638 Transportation equipment . . . . . . . . 582,371 910,801 Computer software . . . . . . . . . . . . 169,764 155,876 --------------------------- 34,904,971 56,243,350 Less accumulated depreciation . . . . . . (9,275,589) (13,491,805) --------------------------- $25,629,382 $ 42,751,545 ===========================
Estimated useful lives for depreciation are: Buildings and improvements . . . . . . . . 10-20 years Machinery, equipment and furniture. . . . . . . . . . . . . . . 5-10 years Transportation equipment . . . . . . . . . 3-10 years Computer software. . . . . . . . . . . . . 5 years
(e) Cash Flows Statement For purposes of the cash flows statement, the Company considers all highly liquid investments with an original maturity date of three months or less to be cash equivalents. Total 21 7 interest paid for the years ended October 31, 1994, 1995 and 1996 was $82,364, $55,871 and $108,203, respectively. Income taxes paid for the years ended October 31, 1994, 1995 and 1996 was $5,620,566, $11,032,810 and $12,762,769 respectively. Non-cash investing or financing activities included: $1,009,286 for the 1995 contribution for the 401k plan which was paid in common stock in 1995, $823,398 for the 1994 contribution for the 401k plan which was paid in common stock in 1994 and $583,000 in additional purchase price related to the acquisition of Ellis Building Components for the year ended October 31, 1994. (f) 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 fifteen years. Accumulated amortization as of October 31, 1996 was $1,440,785, and $118,056 as of October 31, 1995. 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. (g) 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. (h) Advertising Costs Advertising costs are expensed as incurred. Advertising expense was $1,054,951, $1,196,471 and $1,267,431 in 1994, 1995 and 1996, respectively. (i) Long-Lived Assets In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operation when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company will adopt Statement 121 in the first quarter of fiscal 1997 and, based on current circumstances, does not believe the effect of adoption will be material. (j) Accounting for Stock-Based Compensation In October 1995, the FASB issued Statement No. 123, Accounting for Stock-based Compensation, which encourages companies to apply a new fair value approach and to record compensation expense in the income statement measured at the grant date of the award using an option pricing model. Alternatively, companies are permitted to continue using current accounting rules for employee stock options, but will be required to provide pro forma net income and earnings per share information as if the new fair value approach had been adopted. The Company presently plans to continue to use the current accounting rules with the new disclosures required in the year ended October 31, 1997. 22 8 (2) NOTES PAYABLE (SHORT-TERM BORROWINGS) The Company has a revolving unsecured credit line of $6 million with a bank bearing interest that fluctuates with prime, (commitment fee 1/4% on unused portion) all of which was unused at October 31, 1995 and 1996, respectively. (3) LONG-TERM DEBT
October 31, ---------------------- 1995 1996 ---------------------- Six year reducing revolving credit line of $1 million with a bank bearing interest that fluctuates with prime, with $72,900 quarterly reducing borrowing base ............................. $ -- $ -- Notes payable to City of Mattoon bearing interest at 3% secured by certain equipment, repayable by certain equipment, repayable in aggregate monthly installments of $4,828 maturing through November 2001 ....................................... 325,798 276,968 Note payable to employee bearing interest at 7% maturing April 1, 2001, with an option to convert into common stock at $29.925 per share....... -- 1,500,000 Other ............................................... 36,000 -- ---------------------- 361,798 1,776,968 Current portion of long-term debt ................... (83,402) (47,402) ---------------------- $278,396 $1,729,566 ======================
Aggregate required principal reductions are as follows:
Year Ended October 31, ---------------------------------------------------------- 1997 ......................................... $ 47,402 1998 ......................................... 51,846 1999 ......................................... 53,423 2000 ......................................... 55,048 2001 ......................................... 1,556,722 Thereafter ................................... 12,527 ---------- $1,776,968 ==========
The loan agreements related to the revolving line and short-term borrowings contain, among other things, provisions relative to additional borrowings and restrictions on the amount of retained earnings available for the payment of dividends and the repurchase of common stock and provisions requiring the maintenance of certain net worth and other financial ratios. Under the most restrictive of these covenants, such dividends or stock repurchases are limited to 20% of the Company's net income for any 12-month period, which is further restricted on a quarterly basis, based on the ratio of cash flow (Net Income plus Depreciation and Amortization) for the previous 12-month period to current maturities of long-term debt plus dividends and stock repurchases. The carrying amount of the Company's long-term debt approximates its fair value. (4) RELATED PARTY TRANSACTIONS During 1994, 1995 and 1996, the Company purchased $740,573, $1,052,829 and $1,417,064 respectively, of materials from a related party under an arm's length transaction. (5) 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. 23 9 Taxes on income from continuing operations consist of the following:
Year Ended October 31, ---------------------------------------- 1994 1995 1996 ---------------------------------------- Current: Federal................... $5,630,366 $ 9,733,381 $14,530,670 State..................... 353,558 759,770 1,367,686 ---------------------------------------- Total current..................... 5,983,924 10,493,151 15,898,356 Deferred: Federal................... (233,304) (445,063) (745,472) State..................... (8,464) (25,432) (77,265) ---------------------------------------- Total deferred.................... (241,768) (470,495) (822,737) ---------------------------------------- Total provision..................... $5,742,156 $10,022,656 $15,075,619 ----------------------------------------
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, ---------------------------------------- 1994 1995 1996 ---------------------------------------- Statutory federal income tax rate... 35.0% 35.0% 35.0% State income taxes.................. 0.8 1.8 2.4 Other............................... 0.1 0.3 0.4 ---------------------------------------- Effective tax rate................ 35.9% 37.1% 37.8% ========================================
Significant components of the Company's deferred tax liabilities and assets are as follows:
1994 1995 1996 ---------------------------------------- Deferred tax assets Capitalized overhead in inventory.. $ 475,384 $ 819,766 $1,210,913 Bad debt reserve................... 374,698 495,716 602,804 Accrued reserves................... 255,960 240,738 637,293 Other.............................. 194,296 251,982 572,876 ---------------------------------------- Total deferred tax assets............ 1,300,338 1,808,202 3,023,886 ---------------------------------------- Deferred tax liabilities Depreciation and amortization...... 1,323,670 1,140,082 1,426,749 Other.............................. 114,905 335,864 442,143 ---------------------------------------- Total deferred tax liabilities....... 1,438,575 1,475,946 1,868,892 ---------------------------------------- Net deferred tax asset (liability)... $ (138,237) $ 332,256 $1,154,994 ========================================
(6) OPERATING LEASE COMMITMENTS Total rental expense incurred from operating leases for the years ended October 31, 1994, 1995 and 1996 was $1,142,105, $2,639,201 and $3,989,603 respectively. Aggregate minimum required annual payments on long-term operating leases at October 31, 1996 were as follows:
Year Ended October 31, ------------------------------------------------- 1997................................. $1,948,478 1998................................. 1,581,772 1999................................. 995,319 2000................................. 437,756 2001................................. 188,795 ---------- $5,152,120 ==========
(7) STOCK OPTIONS 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 1,550,000 shares as an incentive and reward for key management personnel. As of October 31, 1996, the following tables reflects activity for the year. Options expire ten years from date of grant. The rights to acquire the option shares is earned in 25% increments over the first four years of the option period. 24 10
Balance at Option Balance at Exercisable at Year October 31, 1995 Price Granted Canceled Exercised October 31, 1996 October 31, 1996 - ---------------------------------------------------------------------------------------------------------------------------- 1989 319,811 $1.60 -- -- (200,000) 119,811 119,811 1990 59,344 2.71 -- -- (16,500) 42,844 42,844 1992 168,093 5.66 to -- -- (5,000) 163,093 163,093 6.33 1993 46,125 12.50 -- (4,500) (13,350) 28,275 17,025 1994 89,000 16.25 to -- -- (7,500) 81,500 33,250 17.00 1995 79,500 17.00 to -- (5,250) (3,500) 70,750 15,625 18.25 1996 -- 23.00 to 315,000 (13,332) -- 301,668 -- 28.50 - ---------------------------------------------------------------------------------------------------------------------------- Total 761,873 315,000 (23,082) (245,850) 807,941 391,648 ============================================================================================================================
(8) LITIGATION The Company is involved in certain litigation that the Company considers to be in the normal course of business. Management of the Company believes that such litigation will not result in any material losses. (9) NET INCOME PER SHARE Net income per common share is computed by dividing net income after income taxes by the weighted average number of common shares outstanding during 1994, 1995 and 1996 after giving effect for common stock equivalents. Net income per share is calculated as follows:
Year Ended October 31, ------------------------------------- 1994 1995 1996 ------------------------------------- (in thousands, except per share data) Net income ................................... $10,256 $17,032 $24,814 Average common shares outstanding............. 6,217 6,272 7,749 Common equivalent shares for: Stock options ........................... 478 493 449 Average shares and equivalents ............... 6,695 6,765 8,198 Net income per share ......................... $ 1.53 $ 2.52 $ 3.03
(10) EMPLOYEE BENEFIT PLAN Effective January 1, 1992, the Company approved implementation of 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 accrued for the Savings Plan for the year ended October 31, 1994, 1995 and 1996 were $629,559, $775,190 and $1,154,696 respectively. (11) ACQUISITIONS In November 1995, the Company acquired substantially all of the assets and assumed certain liabilities of Doors and Building Components, Inc. ("DBCI"), a manufacturer of roll-up steel overhead doors used primarily in self-storage and commercial/industrial applications, for approximately $12 million in cash and 300,000 shares of common stock of the Company, valued at $5.2 million. Based on the final determination of book value of the purchased assets, the price was 25 11 reduced by approximately $2.5 million of which $1.5 million is due from the seller and is recorded as a receivable in the October 31, 1996 balance sheet. This amount was settled in cash in December, 1996. The excess of cost over fair value of the acquired net assets recorded was $11.4 million. In April, 1996, the Company acquired substantially all of the assets and assumed certain liabilities of Mesco Metal Buildings, a division of Anderson Industries, Inc. ("Mesco"), a manufacturer of metal building systems and components, for approximately $20.8 million in cash and a $1.5 million 7% convertible subordinated debenture due April, 2001. The excess of cost over fair value of the acquired net assets recorded was $10.9 million. Accordingly, the consolidated results of operations for 1996 included DBCI and Mesco since the date of acquisition. Both acquisitions were accounted for using the purchase method. Assuming the acquisitions of DBCI and Mesco had been consummated as of November 1, 1994, the pro forma unaudited results of operations for the years ended October 31 are as follows:
(Unaudited) ------------------------------------- 1995 1996 ------------------------------------- (in thousands, except per share data) Sales ................................ $305,772 $347,404 Net income ........................... 19,571 26,345 Net income per share ............... $ 2.40 $ 3.21
26 12 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders NCI Building Systems, Inc. Houston, Texas We have audited the accompanying balance sheets of NCI Building Systems, Inc. as of October 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended October 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based upon our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of NCI Building Systems, Inc. at October 31, 1996 and 1995 and the consolidated results of its operations and its cash flow for each of the three years in the period ended October 31, 1996, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Houston, Texas December 6, 1996 27 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The following table presents, as a percentage of sales, certain selected financial data for the Company for the periods indicated:
Year Ended October 31, ---------------------------- 1994 1995 1996 ---------------------------- Sales ........................................ 100.0% 100.0% 100.0% Cost of sales ................................ 74.0 72.5 72.5 ---------------------------- Gross profit ................................. 26.0 27.5 27.5 Engineering expense .......................... 4.1 3.8 3.4 Selling, general and administrative expense... 12.7 12.5 12.6 ---------------------------- Income from operations ....................... 9.2 11.2 11.5 Interest expense ............................. 0.1 0.0 0.0 Other (income) expense ....................... (0.4) (0.4) (0.5) ---------------------------- Income before income taxes ................... 9.5 11.6 12.0 Provision for income taxes ................... 3.4 4.3 4.5 ---------------------------- Net income ................................... 6.1% 7.3% 7.5% ============================
FISCAL 1996 COMPARED TO FISCAL 1995 Sales in fiscal 1996 increased by $98.7 million, or 42%, compared to fiscal 1995. The acquisition of Doors and Buildings Components, Inc. ("DBCI") in November 1995 and Mesco Metal Buildings, a division of Anderson Industries, Inc. ("Mesco") in April 1996 accounted for $58.7 million of this increase. Excluding the 1996 sales of these two acquisitions, sales increased in 1996 by 17% compared to the prior year. This growth resulted from increased market penetration by the Company in the metal building market, expansion into the Western United States with the opening of a new plant in California and growth of the component division of the Company. Gross profit increased in fiscal 1996 by $27.1 million, or 42%, compared to fiscal 1995. This was in line with the increase in sales experienced for the year. Gross profit percent of 27.5% was the same as the percent achieved in fiscal year 1995. Slight increases in raw material costs during the year were offset by spreading fixed manufacturing costs over a higher sales base. Engineering expenses increased $2.1 million, or 24%, in the current year compared to fiscal 1995. Engineering expenses increased at a slower rate than sales due to increased sales of products which require less engineering effort such as components and DBCI products. Selling, general and administrative expenses ("SG&A") increased $12.8 million, or 44%, compared to the prior year. SG&A increased slightly faster than sales due to the establishment of a west coast sales function to support the new plant location and additional expenses resulting from the two acquisitions made in the current year. Interest expense increased by $52,000 as a result of the issuance of a $1.5 million subordinated debenture in connection with the acquisition of Mesco. Other income, which consists primarily of interest income, increased by $764,000 in the current year compared to fiscal 1995. This increase resulted primarily from the higher level of cash invested during the year and slightly higher average rates of returns on invested cash. Provision for income taxes increased by 50.4% in the current year and increased as a percent of sales from 4.3% to 4.5%. This increase was due to the increase in state income taxes in the current year compared to the prior year. 28 14 FISCAL 1995 COMPARED TO FISCAL 1994 Sales in fiscal 1995 increased by $66.4 million, or 40%, compared to fiscal 1994. The acquisition of Ellis Building in Georgia in October 1994 and of Royal Buildings in New Mexico in March 1995 permitted the Company to continue its geographic expansion in the southeast and southwest region of the country. This expansion coupled with the approximately 18% growth in industry sales in 1995 accounted for the majority of the Company's increase in sales. Gross profit for fiscal 1995 increased by $20.8 million, or 48%, compared to fiscal year 1994. The improvement in gross profit percent of 1.5% of sales to 27.5% in 1995 resulted from stable raw material costs, increased plant capacity from acquired facilities, better plant utilization and spreading of fixed manufacturing costs over a higher sales volume. Engineering expenses increased $2.1 million, or 30%, compared to fiscal year 1994. Engineering expenses increased at a slower rate than sales due increased sales of products which required less engineering effort and spreading of fixed costs over the higher sales volume. Selling, general and administrative expenses increased by $7.8 million, or 37%, compared to fiscal year 1994. Selling, general and administrative increased at a slower rate than sales due to spreading of fixed costs. Interest expense decreased by $26,000 due lower outstanding debt resulting from normal scheduled repayments. Other income increased by $181,000 due to a higher average balance of invested cash and higher rates of return in fiscal year 1995 compared to the prior year. LIQUIDITY AND CAPITAL RESOURCES The Company has historically funded its operations from cash flow from operations, bank borrowing and the sale of equity in the Company. Internal cash generation has been aided, in the opinion of the Company, by a compensation program under which bonuses are earned based on achieving specified return on assets goals. This program encourages management of the balance sheet as well as the income statement. Net cash flow from operations before changes in working capital components increased to $30.5 million in fiscal 1996 from $20.9 million in fiscal 1995. At October 31, 1996, working capital was approximately $52.0 million, an increase of $20.3 million from fiscal year 1995. The Company maintains a revolving credit facility with a bank lender that currently provides for a maximum credit, subject to borrowing base requirements, of $6.0 million and a six year reducing term revolver with a current borrowing base of $1.0 million. The revolving credit facility matures in February 1997 and bears interest at the prime rate. At October 31, 1996, the Company had no borrowing outstanding under either revolving credit facility and had not borrowed during the year. During the year, the Company invested $10.3 million in capital additions including a new plant built in Atwater, CA at a cost of approximately $4.0 million, a new DBCI plant in Houston, Texas at a cost of approximately $1.0 million, and acquired a plant location in Ennis, Texas for approximately $1.2 million. The remainder was spent primarily at other plant locations to increase production capacity. All of these expenditures were paid from internally generated cash. In December 1995, the Company sold in a secondary offering 1,086,000 shares of its common stock for approximately $24.8 million. The proceeds from this offering were used partially to fund the acquisitions of DBCI and Mesco as described in Note 11 to the Company's consolidated financial statements. 29 15 Inflation has not significantly affected the Company's financial position or operations. Metal building system sales are affected more by the availability of funds for financing construction than by the rate of interest charged by the lender. No assurance can be given that inflation or the prime rate of interest will not fluctuate significantly, either or both of which could have an adverse effect on the Company's operations. Liquidity in future periods will be dependent on internally generated cash flows, the ability to obtain adequate financing for capital expenditures and the amount of increased working capital necessary to support expected growth. Historically, two-thirds of the Company's total assets are classified as current assets, which consists primarily of trade receivables from customers and raw material inventory; and the ratio of "quick assets" (cash plus receivables) to current liabilities has exceeded a 1 to 1 ratio. Based on the current capitalization of the Company, it is expected future cash flow from operations and availability of alternative sources of financing should be sufficient to provide adequate liquidity in future periods. There can be no assurance that liquidity would not be impacted by a severe decline in general economic conditions and higher interest rates which would affect the Company's ability to obtain external financing. 30 16 UNAUDITED QUARTERLY FINANCIAL DATA (in thousands, except per share data)
First Second Third Fourth Quarter Quarter Quarter Quarter -------------------------------------------- Fiscal Year 1996 Net sales ............................................ $67,350 $72,171 $91,980 $101,379 Gross profit ......................................... 17,384 19,547 25,476 29,099 Income before income taxes ........................... 6,485 8,132 11,495 13,775 Net income ........................................... 4,020 5,051 7,139 8,602 Net income per common and common equivalent share(1) ......................... $0.53 $0.60 $0.85 $1.03 Fiscal Year 1995 Net sales ............................................ $52,302 $55,873 $58,941 $ 67,099 Gross profit ......................................... 13,519 15,273 16,566 19,042 Income before income taxes ........................... 5,060 6,316 7,159 8,519 Net income ........................................... 3,194 3,947 4,523 5,368 Net income per common and common equivalent share ............................ $0.48 $0.58 $0.67 $0.79
(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. PRICE RANGE OF COMMON STOCK The following table sets forth the quarterly high and low closing sale prices of the Company's common stock, as reported on NASDAQ/NMS for the prior two years. The prices quoted represent prices between dealers in securities, without adjustments for mark-ups, mark-downs, or commissions, and do not necessarily reflect actual transactions.
Fiscal Year 1996 High Low - ------------------------------------------------------------------------- January 31 ........................................... $28.63 $21.00 April 30 ............................................. $38.00 $26.50 July 31 .............................................. $38.50 $22.75 October 31 ........................................... $35.13 $21.75 Fiscal Year 1995 High Low - ------------------------------------------------------------------------- January 31 ........................................... $19.50 $15.88 April 30 ............................................. $19.38 $16.50 July 31 .............................................. $19.50 $16.00 October 31 ........................................... $25.00 $18.50
31 EX-21 5 LIST OF SUBSIDIARIES 1 EXHIBIT 21 NCI BUILDING SYSTEMS, INC. List of Subsidiaries Doors & Building Components, Inc. Delaware NCI Holding Corp. Delaware NCI Operating Corp. Nevada A & S Building Systems, Inc. Texas EX-23 6 CONSENT OF ERNST & YOUNG L.L.P. 1 EXHIBIT 23 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of NCI Building Systems, Inc. of our report dated December 6, 1996, included in the 1996 Annual Report to Shareholders of NCI Building Systems, Inc. Our audits also included the financial statement schedule of NCI Building Systems, Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Additionally, we consent to the incorporation by reference in Registration Statements (Form S-8 No. 33-52078 and No. 333-14957) pertaining to the 401(k) Profit Sharing Plan of NCI Building Systems, Inc. and (Form S-8 No. 33-52080 and No. 333-12921) pertaining to the Nonqualified Stock Option Plan of NCI Building Systems, Inc., of our reports with respect to the consolidated financial statements and schedules of NCI Building Systems, Inc., for the year ended October 31, 1996. ERNST & YOUNG LLP Houston, Texas January 24, 1997 EX-27 7 FINANCIAL DATA SCHEDULE
5 YEAR OCT-31-1996 NOV-01-1995 OCT-31-1996 20,943,664 0 39,378,172 1,629,202 28,692,930 90,609,515 56,243,350 13,491,805 158,326,298 38,651,231 0 0 0 79,668 0 158,326,298 332,879,707 332,879,707 241,373,691 241,373,691 52,413,985 680,633 108,203 39,889,155 15,075,619 0 0 0 0 24,813,356 3.03 0
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