NCI Building Systems Achieves Earnings Guidance for First-Quarter Fiscal 2007

HOUSTON, Feb. 28 /PRNewswire-FirstCall/ -- NCI Building Systems, Inc. today announced financial results for the first quarter ended January 28, 2007. Sales increased 23% for the quarter to $359.3 million from $293.3 million for the first quarter of fiscal 2006. Net income for the first quarter of fiscal 2007 was $10.5 million, or $0.49 per diluted share, which included a $0.03 dilutive impact from NCI's 2.125% Convertible Senior Subordinated Notes (the "Notes"). Excluding the impact of the Notes, adjusted net income per diluted share was $0.52, within the Company's range of guidance for the quarter. Net income for the first quarter of fiscal 2006 was $12.9 million, or $0.62 per diluted share, which included a $0.02 dilutive impact from the Notes.

Norm Chambers, President and Chief Executive Officer of NCI, commented, "We were pleased to achieve our earnings guidance for the first quarter, a period about which we were correct to be cautious. Our Engineered Building Systems segment drove our results for the quarter, with sales growth of more than 80% and a more than doubling of operating income. This growth supported increased intersegment sales with both the Metal Components and Metal Coil Coating segments, which was more than offset by the impact of lower third- party sales at both of these businesses.

"While the business outlook for fiscal 2007 remains attractive, we now expect the combination of excess industry inventory and winter weather will affect our second quarter as it did the first, producing similar operating results. Consistent with our long-term focus on cost control and the value of a strong financial position, we have initiated an overhead expense reduction program targeting $15 million to $20 million for fiscal 2007. We are also reducing our capital expenditure plan for fiscal 2007 to approximately $50 million from our original budget of approximately $60 million. This latter decision reflects our determination to achieve our debt reduction goals, while maintaining stock repurchase flexibility and our commitment to the major manufacturing and engineering automation projects primarily being funded by our fiscal 2007 capital expenditures.

"For the first quarter of fiscal 2007, Buildings sales increased 83% to $218.0 million, including an 89% increase in third party sales. While majority of this growth in this seasonally slow quarter was related to the acquisition of Robertson-Ceco Corporation (RCC) in April 2006, the operating leverage generated by this growth, combined with increased efficiencies captured through our integration initiatives, produced an increase in operating margin for third-party Buildings sales to 10% from 9% for the first quarter of fiscal 2006. We completed the first quarter with a backlog of $365 million, nearly double the backlog of $185 million at the end of the comparable prior-year quarter.

"Components sales were $157.0 million for the latest quarter, down from $174.8 million for the comparable quarter in fiscal 2006. As expected, the Components market had an oversupply of inventory during the quarter, and we responded with commercial discipline, which we continue to believe is in our best long-term interests as the market leader, in spite of the short-term impact. The Components operating margin on third-party sales, at 9% for the quarter compared with 14% for the first quarter of fiscal 2006, reflected the deleveraging effect of this sales reduction.

"Sales for the Coatings segment were $59.2 million for the first quarter of fiscal 2007 versus $63.3 million for the first quarter of fiscal 2006, even though intersegment volume primarily related to RCC rose 25% for the quarter. As anticipated, third-party sales included a greater level of tolling, again related to heavy industry inventory levels. Due primarily to the base-loading impact of greater intersegment sales, the Coatings operating margin on third party sales increased to 28% for the latest quarter from 15% for the first quarter of fiscal 2006.

"In addition to the normal seasonal sales impact, which has been magnified by severe winter weather, we expect the second quarter of fiscal 2007 will continue to be affected by excess inventory, which will challenge our ability to expand sales in Components and Coatings. As a result, we have established our guidance for earnings per diluted share for the second quarter in a range of $0.50 to $0.55. Our guidance excludes any potential share dilution related to NCI's Notes, because that amount, if any, will be dependent upon the future price of the Company's stock

"In spite of our outlook for the first half of fiscal 2007, our quoting activity has been consistent with industry expectations for continued growth during the seasonally busy part of the year, which coincides with the second half of our fiscal year. Among these industry expectations, the Dodge Report's projected 2007 growth in industry square footage remains at 2% and dollar value at 6%. Based on our outlook for industry activity and our solid backlog, we continue to expect to produce 10% growth in tons shipped for the fiscal year and increase average plant utilization to approximately 80%. We also continue to expect our income tax rate for fiscal 2007 to be approximately 39%. Due to recent indications from steel producers, we now expect the average weighted cost of steel to increase as the fiscal year progresses.

"Based on these assumptions, we affirm our guidance for fiscal 2007 earnings per diluted share in a range of $4.55 to $4.80. Our guidance excludes any potential share dilution related to NCI's Notes, because that amount, if any, will be dependent upon the future price of the Company's stock."

Mr. Chambers concluded, "As our guidance indicates, we expect the second half of fiscal 2007 to drive the fiscal year's results consistent with historical patterns. In spite of expectations that the seasonally weak first half of the fiscal year will be somewhat below our original budgets, our substantial backlog, our cost reduction and capital expenditure initiatives and the completion of the Garco Building Systems acquisition all support our confidence in our ability to meet our guidance. The Company has made this confidence tangible through the Board's authorization of a new 1 million share stock repurchase plan."

NCI will provide an online, real-time webcast and rebroadcast of its conference call tomorrow to discuss this announcement. The live broadcast of this conference call will be available online at http://www.ncilp.com/ or http://www.earnings.com/ beginning at 10:30 a.m. (Eastern Time) on Thursday, March 1, 2007. The online replay will be available at approximately 12:30 p.m. (Eastern Time) and continue for one week.

This release contains forward-looking statements concerning NCI's business and operations and industry conditions, including among others industry trends, steel pricing, growth expectations and margin expansion. These statements and other statements identified by words such as "guidance," "potential," "expect," "should" and similar expressions are forward looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to a number of risks and uncertainties that may cause NCI's actual performance to differ materially from that projected in such statements. Among the factors that could cause actual results to differ materially are the possibility that the anticipated benefits from the RCC acquisition cannot be fully realized; the possibility that costs or difficulties related to the integration of the RCC operations into the Company's operations will be greater than expected; industry cyclicality and seasonality; fluctuations in demand and prices for steel; the financial condition of NCI's raw material suppliers; competitive activity and pricing pressure; ability to execute NCI's acquisition strategy; and general economic conditions affecting the construction industry. Item 1A "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended October 29, 2006, identifies other important factors, though not necessarily all such factors, that could cause future outcomes to differ materially from those set forth in the forward- looking statements. NCI expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect any changes in its expectations.

NCI Building Systems, Inc. is one of North America's largest integrated manufacturers of metal products for the nonresidential building industry. The Company operates 45 manufacturing and distribution facilities located in 18 states, as well as Mexico and Canada.

NCI BUILDING SYSTEMS, INC. STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data) For the Three Months Ended January 28, January 29, 2007 2006 Sales $359,303 $293,252 Cost of sales 271,619 220,843 Gross profit 87,684 72,409 24.4% 24.7% Selling, general and administrative expenses 63,649 49,698 Income from operations 24,035 22,711 Interest income 124 2,185 Interest expense (7,292) (4,176) Other income, net 214 425 Income before income taxes 17,081 21,145 Provision for income taxes 6,628 8,252 38.8% 39.0% Net income $10,453 $12,893 Net income per share: Basic $0.53 $0.64 Diluted $0.49 $0.62 Average shares outstanding: Basic 19,699 19,993 Diluted 21,214 20,652 Increase in sales 22.5% Decrease in diluted earnings per share -21.0% Gross profit percentage 24.4% 24.7% Selling, general and administrative expenses percentage 17.7% 17.0% Income from operations percentage 6.7% 7.7% NCI BUILDING SYSTEMS, INC. CONDENSED BALANCE SHEETS (In thousands) January 28, October 29, 2007 2006 (Unaudited) ASSETS Cash and cash equivalents $10,695 $25,038 Accounts receivable, net 116,072 163,814 Inventories 187,932 160,208 Deferred income taxes 22,503 22,864 Prepaid expenses and other 10,533 11,054 Total current assets 347,735 382,978 Property and equipment, net 256,620 252,580 Goodwill 614,616 614,461 Other assets 52,944 54,224 Total assets $1,271,915 $1,304,243 LIABILITIES AND SHAREHOLDERS' EQUITY Current portion of long-term debt $710 $947 Accounts payable 79,738 116,028 Accrued expenses 106,698 133,937 Total current liabilities 187,146 250,912 Long-term debt 517,037 497,037 Deferred income taxes 52,053 52,168 Other long-term liabilities 4,766 5,717 Shareholders' equity 510,913 498,409 Total liabilities and shareholders' equity $1,271,915 $1,304,243 NCI BUILDING SYSTEMS, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) For the Three Months Ended January 28, 2007 January 29, 2006 Net cash (used in) provided by operating activities (23,102) 19,098 Cash flows from investing activities: Acquisitions, net of cash acquired (155) - Capital expenditures (11,016) (4,097) Other 614 252 Net cash used in investing activities (10,557) (3,845) Cash flows from financing activities: Proceeds from stock option exercises 480 1,272 Excess tax benefits from stock- based compensation arrangements 206 769 Net borrowings on revolving line of credit 20,000 - Payments on long-term debt (237) (500) Purchase of treasury stock (804) (645) Net cash provided by financing activities 19,645 896 Effect of exchange rate changes on cash and cash equivalents (329) - Net (decrease) increase in cash (14,343) 16,149 Cash at beginning of period 25,038 200,716 Cash at end of period $10,695 $216,865 NCI Building Systems, Inc. Business Segments (Unaudited) (In thousands) Three Months Three Months $ Ended Ended Inc/ % January 28, 2007 January 29, 2006 (Dec) Change % of % of Total Total Sales: Sales Sales Metal components $157,021 44 $174,819 60 $(17,798) -10.2% Engineered building systems 218,043 61 118,825 40 99,218 83.5% Metal coil coating 59,219 16 63,301 22 (4,082) -6.4% Intersegment sales (74,980) (21) (63,693) (22) (11,287) 17.7% Total net sales $359,303 100 $293,252 100 $66,051 22.5% % of % of Operating income: Sales Sales Metal components $12,086 8 $21,215 12 $(9,129) -43.0% Engineered building systems 20,536 9 9,843 8 10,693 108.6% Metal coil coating 4,643 8 4,421 7 222 5.0% Corporate (13,230) - (12,768) - (462) 3.6% Total operating income (% of sales) $24,035 7 $22,711 8 $1,324 5.8% NCI BUILDING SYSTEMS, INC. NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS COMPUTATION OF EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AMORTIZATION AND OTHER NONCASH ITEMS ("ADJUSTED EBITDA") (Unaudited) (In thousands) Trailing 12 Months January 28, January 29, 2007 2006 Net income $71,356 $58,122 Add: Provision for income taxes 43,612 41,179 Interest expense 27,803 15,181 Depreciation and amortization 32,178 24,952 401(k) noncash contributions - 2,401 Non-cash FAS 123R 7,126 4,874 Adjusted EBITDA (1) $182,075 $146,709 (1) The Company discloses adjusted EBITDA, which is a non-GAAP measure, because it is a widely accepted financial indicator in the metal construction industry of a company's profitability, ability to finance its operations, and meet its growth plans. This measure is also used by NCI internally to make acquisition and investment decisions. Adjusted EBITDA is calculated based on the terms contained in the Company's credit agreement at the respective dates presented herein. Results of operations of businesses acquired are included in this measure for periods subsequent to the acquisition and are not included on a pro forma basis. Adjusted EBITDA should not be considered in isolation or as a substitute for net income determined in accordance with generally accepted accounting principles in the United States. NCI BUILDING SYSTEMS, INC. NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS "ADJUSTED" EARNINGS PER SHARE COMPARISON (Unaudited) Fiscal Three Months Ended January 28, January 29, 2007 2006 Earnings per diluted share, GAAP basis $0.49 $0.62 Effect of convertible notes $0.03 (1) $0.02 (1) "Adjusted" diluted earnings per share (A) $0.52 $0.64 (A) The Company discloses a tabular comparison of "Adjusted" earnings per diluted share, which is a non-GAAP measure because it is referred to in the text of our press releases and is instrumental in comparing the results from period to period. "Adjusted" earnings per share should not be considered in isolation or as a substitute for earnings per share as reported on the face of our statement of income. (1) Dilutive impact for Q1 2007 and Q1 2006 of 1,194,631 shares and 383,143 shares, respectively, of the Company's convertible notes as if they were converted during the period. NCI Building Systems, Inc. Reconciliation of Segment Sales to Third Party Segment Sales (Internal Information) (Unaudited) (In thousands) % 1st Qtr 2007 1st Qtr 2006 Inc/(Dec) Change Metal Components Total Sales 157,021 36% 174,819 49% (17,798) -10% Intersegment (22,838) (21,069) (1,769) 8% Third Party Sales 134,183 37% 153,750 52% (19,567) -13% Operating Income 12,086 9% 21,215 14% (9,129) -43% Engineered Building Systems Total 218,043 50% 118,825 33% 99,218 83% Intersegment (9,354) (8,384) (970) 12% Third Party Sales 208,689 58% 110,441 38% 98,248 89% Operating Income 20,536 10% 9,843 9% 10,693 109% Metal Coil Coating Total 59,219 14% 63,301 18% (4,082) -6% Intersegment (42,788) (34,240) (8,548) 25% Third Party Sales 16,431 5% 29,061 10% (12,630) -43% Operating Income 4,643 28% 4,421 15% 222 5% Consolidated Total 434,283 100% 356,945 100% 77,338 22% Intersegment (74,980) (63,693) (11,287) 18% Third Party Sales 359,303 100% 293,252 100% 66,051 23% Operating Income 24,035 7% 22,711 8% 1,324 6%