NCI Building Systems Reports Third Quarter Fiscal 2009 Earnings
- Net Cash From Operating Activities of $35.3 Million -
Sep 9, 2009 4:46:00 PM
HOUSTON, Sept. 9 /PRNewswire-FirstCall/ -- NCI Building Systems, Inc. (NYSE: NCS) today reported financial results for the third quarter ended August 2, 2009.
Third Quarter 2009 Financial Results
"We succeeded in returning to profitability in the third quarter despite continued difficult market conditions, marked by a significant year-over-year decline in nonresidential construction activity in our commercial and industrial sectors," noted Norman C. Chambers, Chairman, President and Chief Executive Officer. "Cost reduction programs that have been implemented over the past 10 months resulted in sequential declines in the non-material component of cost of goods sold and SG&A of 17% and 9.2%, respectively. Year-over-year, these expenses were down 49.7% and 31.9%, respectively. Lower costs combined with pricing discipline enabled us to report much improved operating results on a sequential basis."
"Additionally, each of our business segments posted operating profits in the third quarter, which speaks to the strength of our market position and the efficiency of our integrated business model," Mr. Chambers said.
For the third quarter, sales were $238.4 million, up 6.1% sequentially from sales of $224.7 million in the 2009 second quarter but down 50.1% from the $477.6 million reported for last year's third quarter. Gross margin was 25.6%. Selling, general and administrative expenses declined 9.2% sequentially and 31.9% from last year's third quarter.
The Company reported net income of $4.0 million, or $0.20 per diluted share, which included a $1.2 million restructuring charge related to severance and plant closings. Exclusive of this charge, net income would have been $4.8 million, or $0.25 per diluted share. On the same basis, exclusive of all special charges, the Company incurred a net loss for the 2009 second quarter of $7.2 million, or $0.37 per diluted share. For last year's third quarter, the Company reported net income of $31.9 million, or $1.63 per diluted share.
Inventory levels decreased sequentially by 21.4% to $75.9 million from $96.6 million in the prior quarter. Measured in tons, inventory on hand at the end of the third quarter was approximately 21% lower than the end of the prior quarter. Annualized inventory turnover was 8.3 turns for the third quarter, compared to 5.3 turns in the prior quarter and 7.4 turns in the year-ago quarter.
During the third quarter, the Company invested $3.7 million in property and equipment. Year-to-date capital spending amounted to $17.9 million. Fourth quarter capital expenditures are expected to approximate $5 million.
Third Quarter 2009 Segment and Manufacturing Performance
The Company reported operating income of $10.3 million, which is detailed in the table below.
NCI BUILDING SYSTEMS, INC.
BUSINESS SEGMENTS
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS
RECONCILIATION OF OPERATING INCOME (LOSS)
TO ADJUSTED OPERATING INCOME (LOSS)
EXCLUDING SPECIAL CHARGES
FOR THE THREE MONTHS ENDED AUGUST 2, 2009
(Unaudited)
(In thousands)
Operating "Adjusted"
Income Operating
(Loss), Restructuring Asset Income
GAAP Basis Charges Impairment Loss (A)
---------- ------- ---------- --------
Metal coil coating $1,023 $30 $- $1,053
Metal components 13,162 70 - 13,232
Engineered building
systems 9,038 1,109 26 10,173
Corporate (12,959) 4 - (12,955)
-------- --- --- --------
Total operating
income $10,264 $1,213 $26 $11,503
------- ------ --- -------
(A) The Company discloses a tabular comparison of "Adjusted" operating income (loss), which is a non-GAAP measure because it is instrumental in
Comparing the results from period to period. "Adjusted" operating income
(loss) should not be considered in isolation or as a substitute for
operating income (loss) as reported on the face of our statement of
income.
"During this period of difficult market conditions, each of our three business segments has taken action to flatten the organizational structures of their sales forces, bringing senior sales executives closer to the customer and enabling them to better manage market share and improve margins," Mr. Chambers said. "Additionally, we continue to effectively address those markets that have been most resilient to the downturn. The major fall off in commercial and industrial business activity again made the institutional part of our business, which includes government funded work, one of our most important markets."
"As a result of our marketing programs and our market leadership position, we were able to report sequential growth in sales for our Components and Coatings segments and stabilized sales for our Buildings group in the third quarter," Mr. Chambers noted. "Operating profitability was impressive in light of the significant year-over-year revenue fall-off that was absorbed by each of our business segments as a result of the combination of reduced demand and lower steel prices," Mr. Chambers said.
In the third quarter, the Buildings group's manufacturing expense per ton shipped improved to its lowest level in seven quarters. While the commercial and industrial markets for this group remained depressed, there was a noticeable increase in the small building market, as individual end users took advantage of reduced steel costs. International, government and military projects continue to offer opportunities for the Buildings group. NCI has committed significant resources to identifying and qualifying opportunities in the government and military arena, as projects funded by stimulus dollars begin to move forward.
The Components group also benefited from cost reductions and efficiencies. Manufacturing expense per ton and SG&A expense per ton improved to the lowest levels in seven quarters. The broader market for Components is not as depressed as the market for the Buildings group. Specifically, the agricultural related portion of the Components group's market continued to show improvement, increasing 74% in tons/day sequentially and is expected to remain strong through the end of the fiscal year. Additionally, the Components group benefits from serving a large repair and retrofit segment of the industry that is generally more resilient during economic downturns than other market sectors.
The Coaters group continues to increase market share, including both package and toll sales, outside of the metal building construction market. Third quarter external volume processed was up 32% sequentially. Efficiency metrics have improved and manufacturing expense per ton and SG&A expense per ton for the quarter, improved to the lowest levels in seven quarters.
Total tonnage shipped by NCI's Components and Buildings groups in the third quarter was up 18.7% sequentially, but 45.6% below last year's third quarter. Utilization rate moved up sequentially to 51% from 40% in the 2009 second quarter.
The Buildings group backlog was $285 million at the end of the 2009 third quarter, higher than the prior quarter on a steel price-adjusted basis.
Cost reduction programs, which began in November 2008, have resulted in the migration from 43 manufacturing facilities to 32. Overlapping and less efficient operations have been eliminated, and more automation and lean manufacturing tools have been utilized.
Market Environment
Nonresidential construction activity measured in square feet declined significantly from the comparable period in 2008 but stabilized from the previous quarter. McGraw Hill reported that new construction activity measured in square feet was down 48% calendar year to date through July compared to 2008 levels, and NCI's traditionally strong commercial and industrial markets were off approximately 60% as reflected in McGraw-Hill's July report.
The AIA's Architectural Billing Index published for July indicated that inquiry levels have somewhat stabilized and remain positive, but billings are still negative. McGraw-Hill is now forecasting that nonresidential construction activity measured in square feet will be 35% lower in calendar 2009 compared to calendar 2008. Steel prices have increased from trough levels in June, but were 51% lower than the comparable period in July 2008 according to the CRU North American steel price index.
Recent Corporate Developments
On August 14, 2009, NCI announced that it had entered into a definitive investment agreement with Clayton, Dubilier & Rice Fund VIII, L.P. (the "CD&R Fund"), a fund managed by Clayton, Dubilier & Rice, Inc., under which the CD&R Fund would invest $250 million in the Company through the purchase of newly issued Convertible Participating Preferred Shares. The investment is part of a comprehensive solution to address NCI's near term debt repayment obligations, reduce debt by $323 million and position the Company for future growth. As previously reported, the completion of the CD&R transaction is subject to a number of conditions, including the completion of an exchange offer for at least 95% of the aggregate principal amount of the Company's existing convertible notes; completion of the refinancing of the Company's existing senior secured debt facility; entry into a new asset-based revolving credit facility; and other customary closing conditions.
On September 1, 2009, NCI announced that it had amended its investment agreement with the CD&R Fund to amend the terms of the exchange offer contemplated by the investment agreement. As previously reported, under the terms of the amended investment agreement, the Company's existing convertible noteholders will receive $500 cash and 390 shares of common stock for each $1000 principal amount tendered and not withdrawn in the exchange offer, and the CD&R Fund will continue to invest $250 million in the Company through the purchase of newly issued Convertible Participating Preferred Shares for a pro forma ownership of 68.5%.
On September 1, 2009, NCI also announced that, in connection with the execution of the amended investment agreement, it entered into a lock-up and voting agreement with the holders of over 75% of the aggregate principal amount of the Company's outstanding convertible notes, in which such noteholders agreed to tender their notes in the exchange offer under the amended terms and, to the extent such noteholders hold loans under the Company's existing credit facility to support the refinancing of the Company's existing credit facility. Subsequent to the announcement of the execution of the lock-up and voting agreement, additional holders of the Company's outstanding convertible notes have entered into the agreement, increasing the aggregate principal amount of the convertible notes covered by the lock-up and voting agreement from 75% to more than 79%.
Outlook
"We are facing continued weakness in nonresidential construction activity, and industry forecasts do not indicate any meaningful improvement this year or next," noted Mr. Chambers. "Within this challenging environment, we remain cautious, working to align our resources with demand levels while addressing new market opportunities and broadening our geographic reach."
"We are pleased to have achieved profitability in the third quarter; while fourth quarter operating results will reflect our significantly reduced cost structure, they will be affected by revenue levels, product mix and sequential steel price trends, which are difficult to predict at this time."
"Our recently-announced transaction with CD&R will give us the flexibility to ride out the current economic crisis and benefit from our strong market position and industry-leading efficiencies once market conditions improve," Mr. Chambers said.
NCI Building Systems, Inc. is one of North America's largest integrated manufacturers of metal products for the nonresidential building industry. NCI is comprised of a family of companies operating manufacturing facilities across the United States and Mexico, with additional sales and distribution offices throughout the United States and Canada.
Important Information About the Exchange Offer and This Communication:
This communication is not an offer to sell or purchase or an offer to exchange or a solicitation of acceptance of an offer to sell or purchase or offer to exchange. Any such offer or solicitation shall be made solely by means of a prospectus, related letter of transmittal and other offer documents, as described below.
In connection with the commencement of the exchange offer by the Company to acquire all of the Company's outstanding 2.125% Convertible Senior Subordinated Notes due 2024 (the "convertible notes"), issued under that indenture, dated as of November 16, 2004, between the Company and The Bank of New York, as trustee, in exchange for cash and shares of Company common stock, the Company will file with the U.S. Securities and Exchange Commission (the "SEC") a registration statement on Form S-4 (which will include a preliminary prospectus), a tender offer statement on Schedule TO and related documents and materials. Investors and security holders are strongly urged to carefully review the registration statement, the preliminary prospectus, the tender offer statement and the other related documents and materials filed with the SEC, including the final prospectus described below, when available, as well as any amendments and supplements thereto, when available, because they will contain important information about the Company, the proposed exchange offer and related transactions and are the sole means by which any offer to exchange or sell, or any solicitation of any such offers, will be made.
The registration statement will contain a preliminary prospectus and related transmittal materials that will be mailed today to holders of the convertible notes. Investors and security holders may obtain a free copy of the registration statement, preliminary prospectus and transmittal materials, as well as other documents filed by the Company with the SEC, at the SEC's web site, www.sec.gov. Prior to the completion of the exchange offer, the registration statement must become effective under the securities laws, and after effectiveness, the Company will file with the SEC the final prospectus. Investors and security holders are strongly urged to carefully review the final prospectus when it is available. Free copies of NCI's filings with the SEC may also be obtained from the Company's Investor Relations Department at P.O. Box 692055, Houston, Texas 77269-2055 or by phone at (281) 897-7788.
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