HOUSTON, Dec. 10 /PRNewswire-FirstCall/ -- NCI Building Systems, Inc. today announced financial results for the fourth quarter and year ended October 28, 2007. Sales were $463.4 million for the fourth quarter of fiscal 2007 compared with $498.5 million for the same quarter in fiscal 2006. Net income for the fourth quarter of fiscal 2007 was $25.4 million, or $1.27 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 $1.30. Net income for the fourth quarter of fiscal 2006 was $28.0 million, or $1.33 per diluted share, including an $0.08 dilutive impact from the Notes.
For fiscal 2007, sales rose to $1,624.3 million from $1,570.5 million for fiscal 2006. Net income for fiscal 2007 was $63.7 million, or $3.06 per diluted share, which included a $0.15 dilutive impact from the Notes. For fiscal 2006, net income was $73.8 million, or $3.45 per diluted share, including an $0.18 dilutive impact from the Notes.
"NCI's operating and financial results for the fourth quarter and full fiscal year reflected the impact of a challenging industry environment," said Norm Chambers, President and Chief Executive Officer of NCI. "According to McGraw Hill, total low-rise nonresidential square footage starts declined 4.4% during our fiscal 2007 in contrast to a relatively strong industry performance during fiscal 2006, during which square footage increased 5.7%. These conditions contributed to a fourth quarter performance for NCI that did not meet our expectations, primarily due to lower than anticipated Metal Coil Coatings package sales and continued softness in our small buildings Metal Components business. However, we were pleased with our ability to maintain or improve our profit margins, which enabled us to meet or exceed all our profit margin goals for the fiscal year, in spite of a 7% decline in total sales on a comparable-quarter basis.
"This margin performance was consistent with the substantial operating margin improvement on third-party sales we produced for fiscal 2007 in our Buildings and Coatings segments versus fiscal 2006 and with the strong improvement in our Components margin for the second half of fiscal 2007 compared with the first half. The operating progress inherent in this accomplishment reflected continued Components commercial discipline, increased synergies in Metal Building Systems resulting from the Robertson-Ceco ("RCC") acquisition and the ongoing favorable base-loading impact on Coatings capacity utilization and operating margin from increased intersegment sales primarily related to RCC.
"Our operating progress positions us well to produce expanded operating margins and earnings per diluted share for fiscal 2008. We entered fiscal 2008 with a Buildings backlog that was 20% larger than at the start of fiscal 2007. Our ongoing work to integrate the RCC engineering systems and implement our 'hub and spoke' delivery system throughout NCI also supports our ability to expand our Buildings operating margin from 11% for fiscal 2007 to our goal of 15% for fiscal 2010. In addition, the severe industry inventory oversupply that had a significant impact on our Components and Coatings sales and margins for the first half of fiscal 2007 is not a factor for fiscal 2008. As a result, we are cautiously optimistic about our ability to produce profitable growth for fiscal 2008, although our guidance incorporates McGraw Hill's expectation that total nonresidential square footage starts will continue to decline, by approximately 6% for calendar 2008."
Segment Performance
Mr. Chambers continued, "For the fourth quarter, we achieved significant sequential-quarter progress in our Components business. A 5% increase in third-party sales for the fourth quarter of fiscal 2007 from the third quarter drove higher capacity utilization and a 32% increase in operating profit margin. With this growth, we expanded the Components third-party operating profit margin to 13% for the fourth quarter from 10% for the third quarter, meeting our goal for returning to the historic range for Component operating margins of 13% to 16%. Sales and capacity utilization for the fourth quarter of fiscal 2007 declined from the fourth quarter of fiscal 2006, in part due to the continuing softness in sales of small buildings largely to retail purchasers. Through our focus on commercial discipline, we maintained our third-party operating margin essentially even on a comparable-quarter basis, offsetting the deleveraging impact of lower comparable-quarter sales.
"Results for our Buildings business were generally in-line with our expectations for the fourth quarter. Our operating income increased 8% for the quarter from the fourth quarter of fiscal 2006 and 15% from the third quarter of fiscal 2007. We primarily attribute this growth to growing synergies related to the RCC acquisition. The increased efficiencies and productivity driven by these synergies enabled us to more than offset an 8% decrease in third-party sales from the fourth quarter of 2006 to produce an expansion in our operating margin for third-party sales to 13% for the fourth quarter of fiscal 2007 from 11% for the fourth quarter of fiscal 2006. They also contributed to an approximate 70 basis-point increase in our operating margin for third-party sales versus the third quarter of fiscal 2007. This strong margin performance enabled us to produce a 180 basis point increase in Buildings third-party operating margin for fiscal 2007 from fiscal 2006, above our goal of a 100 basis point improvement.
"Our Coatings business continued to benefit from the base-loading impact of RCC's coating requirements, which drove increased Coatings capacity utilization for the fourth quarter compared with the fourth quarter of fiscal 2006 and the third quarter of fiscal 2007. On a comparable-quarter basis, the 4% increase in intersegment sales offset the impact of a 16% decline in third- party Coatings sales. On a sequential-quarter basis, we produced a 10% increase in intersegment sales, while third-party Coatings sales declined 1%. We expanded third-party package sales for the fourth quarter of fiscal 2007 compared to the third quarter of 2007, but the increase did not build as we expected on the momentum evident in the third quarter. Nonetheless, our overall Coatings volume contributed to an operating profit margin of 28% for third-party sales for the fourth quarter of fiscal 2007. In addition, intersegment base-loading primarily accounted for the 900 basis-point increase in Coatings third-party operating margin for the full fiscal year to 30% from 21% for fiscal 2006, compared with our goal for fiscal 2007 of 26%.
Financial Guidance
"We today are establishing our earnings guidance for the first half of fiscal 2008 and for the fiscal year," added Mr. Chambers. "Among other important factors affecting guidance, we considered our fiscal 2007 financial and operating results in light of McGraw-Hill's estimate that low-rise nonresidential square footage declined 4.4% for our fiscal 2007 and that total nonresidential square footage will decline approximately 6% for calendar 2008. In addition, we completed fiscal 2007 with a Buildings backlog of $447 million, up from $373 million for the end of fiscal 2006, somewhat offsetting reduced earnings visibility during a time of economic volatility. End markets in manufacturing, mining, energy, aviation and institutional continue to reflect good demand. We expect to ship most of the Building backlog in the first half of fiscal 2008. We also do not expect to experience the same level of excess-inventory related pricing pressure that affected our Components and Coatings businesses during the first half of fiscal 2007.
"As a result, we expect to produce earnings per diluted share in our seasonally slower first half of fiscal 2008 in a range of $0.90 to $1.05, which 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, and other unusual items resulting from the Company's review of its business segments and manufacturing facilities. For the first six months of fiscal 2007, the Company produced earnings per diluted share of $0.80, which included a $0.05 dilutive impact from the Notes.
"For fiscal 2008, our guidance for earnings per diluted share, based on our operating budget, is in a range of $3.35 to $3.70. This 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, and other unusual items resulting from the Company's review of its business segments and manufacturing facilities. The Company's earnings per diluted share for fiscal 2007 were $3.06, which included a $0.15 dilutive impact from the Notes."
Summary
Mr. Chambers concluded, "Our prospects to resume our profitable growth for fiscal 2008 and beyond are supported by our leading market position, our broad, diverse customer base and our innovative and comprehensive product lines. In addition to sales-driven operating leverage, we expect to improve operating efficiencies through major ongoing technology initiatives, such as the engineering systems integration initiative made possible by the RCC acquisition, our Oracle 11i implementation and our web-based order entry system. With continued strong cash flow from operations further strengthening our financial position, we are well positioned to implement our growth strategies to produce long-term growth in earnings and shareholder value."
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 Tuesday December 11, 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 44 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 For the Three Months Ended Year Ended October 28, October 29, October 28, October 29, 2007 2006 2007 2006 Sales $463,399 $498,475 $1,624,273 $1,570,482 Cost of sales 343,454 376,765 1,221,463 1,187,151 Gross profit 119,945 121,710 402,810 383,331 25.9% 24.4% 24.8% 24.4% Selling, general and administrative expenses 72,341 70,470 271,871 246,044 Income from operations 47,604 51,240 130,939 137,287 Interest income 492 626 738 5,432 Interest expense (6,911) (7,288) (28,829) (24,915) Other income, net 566 614 1,977 1,228 Income before income taxes 41,751 45,192 104,825 119,032 Provision for income taxes 16,313 17,143 41,096 45,236 39.1% 37.9% 39.2% 38.0% Net income $25,438 $28,049 $63,729 $73,796 Net income per share: Basic $1.31 $1.43 $3.25 $3.70 Diluted $1.27 $1.33 $3.06 $3.45 Average shares outstanding: Basic 19,345 19,597 19,582 19,959 Diluted 20,077 21,135 20,793 21,395 Depreciation/amortization expense 9,514 8,906 35,535 31,089 Increase (decrease) in sales -7.0% 3.4% Increase (decrease) in diluted earnings per share -4.5% -11.3% Gross profit percentage 25.9% 24.4% 24.8% 24.4% Selling, general and administrative expenses percentage 15.6% 14.1% 16.7% 15.7% Income from operations percentage 10.3% 10.3% 8.1% 8.7% NCI BUILDING SYSTEMS, INC. CONDENSED BALANCE SHEETS (In thousands) October 28, October 29, 2007 2006 (Unaudited) ASSETS Cash and cash equivalents $75,054 $25,038 Accounts receivable, net 159,080 163,814 Inventories 137,725 160,208 Deferred income taxes 28,265 22,864 Prepaid expenses and other 16,760 15,522 Total current assets 416,884 387,446 Property and equipment, net 261,647 252,580 Goodwill 616,246 614,461 Other assets 53,752 49,756 Total assets $1,348,529 $1,304,243 LIABILITIES AND SHAREHOLDERS' EQUITY Current portion of long-term debt $19,313 $947 Accounts payable 130,161 116,028 Accrued expenses 128,977 133,937 Total current liabilities 278,451 250,912 Long-term debt 477,724 497,037 Deferred income taxes 48,802 52,168 Other long-term liabilities 3,228 5,717 Shareholders' equity 540,324 498,409 Total liabilities and shareholders' equity $1,348,529 $1,304,243 NCI BUILDING SYSTEMS, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) For the Year Ended October 28, October 29, 2007 2006 Net cash provided by operating activities $136,753 $121,514 Cash flows from investing activities: Acquisitions, net of cash acquired (20,086) (366,598) Capital expenditures (42,041) (27,056) Proceeds from sale of property, plant and equipment 6,696 285 Other (932) 23 Net cash used in investing activities (56,363) (393,346) Cash flows from financing activities: Payments on revolving line of credit (90,500) - Borrowings on revolving line of credit 90,500 - Issuance of long-term debt - 200,000 Payments on long-term debt (947) (78,511) Proceeds from stock option exercises 3,910 8,518 Excess tax benefits from stock- based compensation arrangements 1,515 4,180 Payment of financing costs (75) (594) Purchase of treasury stock (36,122) (37,572) Net cash provided (used in) by financing activities (31,719) 96,021 Effect of exchange rate changes on cash and cash equivalents 1,345 133 Net increase (decrease) in cash 50,016 (175,678) Cash at beginning of period 25,038 200,716 Cash at end of period $75,054 $25,038 NCI Building Systems, Inc. Business Segments (Unaudited) (In thousands) Three Months Ended Three Months Ended $ % October 28, 2007 October 29, 2006 Inc/(Dec) Change % of % of Total Total Sales: Sales Sales Metal components $203,776 44 $216,033 43 $(12,257) -5.7% Engineered building systems 276,654 60 298,742 60 (22,088) -7.4% Metal coil coating 77,205 17 79,645 16 (2,440) -3.1% Intersegment sales (94,236) (21) (95,945) (19) 1,709 -1.8% Total net sales $463,399 100 $498,475 100 $(35,076) -7.0% % of % of Operating income: Sales Sales Metal components $22,205 11 $23,795 11 $(1,590) -6.7% Engineered building systems 35,116 13 32,576 11 2,540 7.8% Metal coil coating 6,565 9 6,527 8 38 0.6% Corporate (16,282) - (11,658) - (4,624) -39.7% Total operating income (% of sales) $47,604 10 $51,240 10 $(3,636) -7.1% Year Ended Year Ended $ % October 28, 2007 October 29, 2006 Inc/(Dec) Change % of % of Total Total Sales: Sales Sales Metal components $715,033 44 $771,200 49 $(56,167) -7.3% Engineered building systems 969,047 60 822,963 52 146,084 17.8% Metal coil coating 272,543 17 278,814 18 (6,271) -2.2% Intersegment sales (332,350) (21) (302,495) (19) (29,855) 9.9% Total net sales $1,624,273 100 $1,570,482 100 $53,791 3.4% % of % of Operating income: Sales Sales Metal components $60,265 8 $91,998 12 $(31,733) -34.5% Engineered building systems 101,798 11 71,962 9 29,836 41.5% Metal coil coating 25,135 9 24,948 9 187 0.7% Corporate (56,259) - (51,621) - (4,638) 9.0% Total operating income (% of sales) $130,939 8 $137,287 9 $(6,348) -4.6% 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 October 28, October 29, 2007 2006 Net income $63,729 $73,796 Add: Provision for income taxes 41,096 45,236 Interest expense 28,600 24,687 Depreciation and amortization 34,683 30,289 Non-cash FAS 123(R) 8,610 7,161 Adjusted EBITDA (1) $176,718 $181,169 (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) Three Months Ended October 28, October 29, 2007 2006 Earnings per diluted share, GAAP basis $1.27 $1.33 Effect of convertible notes 0.03 (1) 0.08 (1) "Adjusted" diluted earnings per share (A) $1.30 $1.41 Year Ended October 28, October 29, 2007 2006 Earnings per diluted share, GAAP basis $3.06 $3.45 Effect of convertible notes 0.15 (1) 0.18 (1) "Adjusted" diluted earnings per share (A) $3.21 $3.63 (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 the three months ended October 28, 2007 and October 29, 2006 of 489,336 shares and 1,200,233 shares, respectively, and for the year ended October 28, 2007 and October 29, 2006 of 922,123 shares and 1,090,474 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) 4th Qtr 4th Qtr Inc/ % 2007 2006 (Dec) Change Metal Components Total Sales 203,776 36% 216,033 37% (12,257) -6% Intersegment (28,646) (31,748) 3,102 -10% Third Party Sales 175,130 38% 184,285 37% (9,155) -5% Operating Income 22,205 13% 23,795 13% (1,590) -7% Engineered Building Systems Total 276,654 50% 298,742 50% (22,088) -7% Intersegment (11,450) (11,900) 450 -4% Third Party Sales 265,204 57% 286,842 58% (21,638) -8% Operating Income 35,116 13% 32,576 11% 2,540 8% Metal Coil Coating Total 77,205 14% 79,645 13% (2,440) -3% Intersegment (54,140) (52,297) (1,843) 4% Third Party Sales 23,065 5% 27,348 5% (4,283) -16% Operating Income 6,565 28% 6,527 24% 38 1% Consolidated Total 557,635 100% 594,420 100% (36,785) -6% Intersegment (94,236) (95,945) 1,709 -2% Third Party Sales 463,399 100% 498,475 100% (35,076) -7% Operating Income 47,604 10% 51,240 10% (3,636) -7% YTD YTD Inc/ % 4th Qtr 4th Qtr (Dec) Change 2007 2006 Metal Components Total Sales 715,033 36% 771,200 41% (56,167) -7% Intersegment (101,709) (100,364) (1,345) 1% Third Party Sales 613,324 38% 670,836 43% (57,512) -9% Operating Income 60,265 10% 91,998 14% (31,733) -34% Engineered Building Systems Total 969,047 50% 822,963 44% 146,084 18% Intersegment (41,681) (41,190) (491) 1% Third Party Sales 927,366 57% 781,773 50% 145,593 19% Operating Income 101,798 11% 71,962 9% 29,836 41% Metal Coil Coating Total 272,543 14% 278,814 15% (6,271) -2% Intersegment (188,960) (160,941) (28,019) 17% Third Party Sales 83,583 5% 117,873 7% (34,290) -29% Operating Income 25,135 30% 24,948 21% 187 1% Consolidated Total 1,956,623 100% 1,872,977 100% 83,646 4% Intersegment (332,350) (302,495) (29,855) 10% Third Party Sales 1,624,273 100% 1,570,482 100% 53,791 3% Operating Income 130,939 8% 137,287 9% (6,348) -5%
