UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 

FORM 10-Q 

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended August 3, 2014

 

or

 

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from          to         

 

Commission file number: 1-14315 

 

 

NCI BUILDING SYSTEMS, INC.

(Exact name of registrant as specified in its charter) 

 

Delaware	76-0127701
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

 

10943 N. Sam Houston Parkway W. Houston, TX	77064
(Address of principal executive offices)	(Zip Code)

 

(281) 897-7788

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report) 

 

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.01 par value – 73,531,748 shares as of September 4, 2014.

 

 

 

TABLE OF CONTENTS

 

		PAGE
	Part I — Financial Information
Item 1.	Unaudited Consolidated Financial Statements	2
	Consolidated Balance Sheets as of August 3, 2014 and November 3, 2013	2
	Consolidated Statements of Operations for the Fiscal Three and Nine Month Periods Ended August 3, 2014 and July 28, 2013	3
	Consolidated Statements of Comprehensive Income (Loss) for the Fiscal Three and Nine Month Periods Ended August 3, 2014 and July 28, 2013	4
	Consolidated Statements of Stockholders’ Equity for the Fiscal Nine Month Period Ended August 3, 2014	5
	Consolidated Statements of Cash Flows for the Fiscal Nine Month Periods Ended August 3, 2014 and  July 28, 2013	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	35
	Part II — Other Information
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 6.	Exhibits	36

  

 

PART I — FINANCIAL INFORMATION

 

Item 1.  Unaudited Consolidated Financial Statements.

 

NCI BUILDING SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

		August 3, 2014				November 3, 2013
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	27,664			$	77,436
Accounts receivable, net			133,532				135,368
Inventories, net			136,579				122,105
Deferred income taxes			30,803				27,736
Income tax receivable			1,601				1,112
Prepaid expenses and other			22,003				19,300
Investments in debt and equity securities, at market			5,408				4,892
Assets held for sale			5,732				2,879
Total current assets			363,322				390,828
Property, plant and equipment, net			249,493				260,918
Goodwill			75,226				75,226
Intangible assets, net			45,936				48,975
Deferred financing costs, net			3,553				4,316
Total assets		$	737,530			$	780,263
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt		$	2,384			$	2,384
Note payable			836				613
Accounts payable			115,191				144,553
Accrued compensation and benefits			46,606				40,954
Accrued interest			1,856				1,844
Other accrued expenses			62,842				61,266
Total current liabilities			229,715				251,614
Long-term debt, net			233,599				235,391
Deferred income taxes			31,615				32,185
Other long-term liabilities			8,245				8,315
Total long-term liabilities			273,459				275,891
Stockholders’ equity:
Common stock, $.01 par value, 100,000,000 shares authorized; 73,770,162 and 74,793,249 shares issued at August 3, 2014 and November 3, 2013, respectively; 73,531,748 and 74,785,726 shares outstanding at August 3, 2014 and November 3, 2013, respectively			1,460				1,471
Additional paid-in capital			627,563				638,574
Accumulated deficit			(385,809	)			(382,735	)
Accumulated other comprehensive loss			(4,663	)			(4,436	)
Treasury stock, at cost (238,414 and 7,523 shares at August 3, 2014 and November 3, 2013, respectively)			(4,195	)			(116	)
Total stockholders’ equity			234,356				252,758
Total liabilities and stockholders’ equity		$	737,530			$	780,263

 

See accompanying notes to consolidated financial statements. 

 

 

NCI BUILDING SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited) 

 

		Fiscal Three Months Ended								Fiscal Nine Months Ended
		August 3, 2014				July 28, 2013				August 3, 2014				July 28, 2013
Sales		$	361,626			$	317,201			$	978,092			$	908,184
Cost of sales, excluding gain on insurance recovery			282,061				250,163				781,016				719,440
Gain on insurance recovery			––				––				(1,311	)			––
Gross profit			79,565				67,038				198,387				188,744
Engineering, selling, general and administrative expenses			65,877				62,761				193,380				186,014
Strategic development costs			1,486				—				1,486				—
Income from operations			12,202				4,277				3,521				2,730
Interest income			60				29				110				101
Interest expense			(3,203	)			(5,159	)			(9,388	)			(17,624	)
Debt extinguishment costs, net			––				(21,491	)			––				(21,491	)
Other income (expense), net			(133	)			219				(43	)			859
Income (loss) before income taxes			8,926				(22,125	)			(5,800	)			(35,425	)
Provision (benefit) for income taxes			2,837				(9,933	)			(2,726	)			(14,264	)
Net income (loss)		$	6,089			$	(12,192	)		$	(3,074	)		$	(21,161	)
Income (loss) per common share:
Basic		$	0.08			$	(0.19	)		$	(0.04	)		$	(0.62	)
Diluted		$	0.08			$	(0.19	)		$	(0.04	)		$	(0.62	)
Weighted average number of common shares outstanding:
Basic			72,928				64,217				73,093				34,290
Diluted			74,393				64,217				73,093				34,290

 

See accompanying notes to consolidated financial statements.

 

 

NCI BUILDING SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

		Fiscal Three Months Ended								Fiscal Nine Months Ended
		August 3, 2014				July 28, 2013				August 3, 2014				July 28, 2013
Comprehensive income (loss):
Net income (loss)		$	6,089			$	(12,192	)		$	(3,074	)		$	(21,161	)
Other comprehensive income (loss), net of tax:
Foreign exchange translation losses and other, net of taxes(1)			(6	)			(32	)			(227	)			(77	)
Other comprehensive loss			(6	)			(32	)			(227	)			(77	)
Comprehensive income (loss)		$	6,083			$	(12,224	)		$	(3,301	)		$	(21,238	)

__________

(1)

Foreign exchange translation gains (losses) and other are presented net of taxes of $0 in both of the three months ended August 3, 2014 and July 28, 2013 and $0 in both the nine months ended August 3, 2014 and July 28, 2013.

 

See accompanying notes to the consolidated financial statements.

 

 

NCI BUILDING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

(Unaudited)

 

																		Accumulated
										Additional								Other
		Common Stock								Paid-In				Accumulated				Comprehensive				Treasury Stock								Stockholders’
		Shares				Amount				Capital				Deficit				Loss				Shares				Amount				Equity
Balance, November 3, 2013			74,793,249			$	1,471			$	638,574			$	(382,735	)		$	(4,436	)			(7,523	)		$	(116	)		$	252,758
Treasury stock purchases			—				—				––				—				—				(1,380,891	)			(23,796	)			(23,796	)
Retirement of treasury shares			(1,150,000	)			(12	)			(19,705	)			—				—				1,150,000				19,717				—
Issuance of restricted stock			126,913				1				(1	)			—				—				—				—				—
Excess tax benefits from share-based compensation arrangements			—				—				549				—				—				—				—				549
Foreign exchange translation loss and other, net of taxes			—				—				—				—				(227	)			—				—				(227	)
Share-based compensation			—				—				8,146				—				—				—				—				8,146
Net loss			—				—				—				(3,074	)			—				—				—				(3,074	)
Balance, August 3, 2014			73,770,162			$	1,460			$	627,563			$	(385,809	)		$	(4,663	)			(238,414	)		$	(4,195	)		$	234,356

 

See accompanying notes to the consolidated financial statements.

 

 

NCI BUILDING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

		Fiscal Nine Months Ended
		August 3, 2014				July 28, 2013
Cash flows from operating activities:
Net loss		$	(3,074	)		$	(21,161	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			26,702				26,997
Deferred financing cost amortization			830				2,994
Share-based compensation expense			8,146				10,335
Non-cash debt extinguishment costs			––				17,582
(Gain) loss on sale of property, plant and equipment			41				(38	)
Gain on insurance recovery			(1,311	)			—
Provision for doubtful accounts			334				1,424
Benefit from deferred income taxes			(3,109	)			(14,865	)
Excess tax benefits from share-based compensation arrangements			(549	)			––
Changes in operating assets and liabilities:
Accounts receivable			1,503				13,146
Inventories			(14,474	)			(29,186	)
Income tax receivable			(2	)			(1,859	)
Prepaid expenses and other			(1,287	)			(2,624	)
Accounts payable			(29,367	)			(5,561	)
Accrued expenses			5,529				(5,160	)
Other, net			34				(1,167	)
Net cash used in operating activities			(10,054	)			(9,143	)
Cash flows from investing activities:
Capital expenditures			(14,529	)			(17,545	)
Proceeds from insurance			1,311				—
Net cash used in investing activities			(13,218	)			(17,545	)
Cash flows from financing activities:
Proceeds from stock options exercised			—				674
Decrease in restricted cash			—				1,375
Payments on term loan			(1,792	)			(10,375	)
Payments on note payable			(1,172	)			(1,239	)
Proceeds from Amended ABL Facility			72,000				42,000
Payments on Amended ABL Facility			(72,000	)			(37,000	)
Payment of financing costs			(67	)			(6,215	)
Excess tax benefits from share-based compensation arrangements			549				974
Purchase of treasury stock			(23,791	)			(2,438	)
Net cash used in financing activities			(26,273	)			(12,244	)
Effect of exchange rate changes on cash and cash equivalents			(227	)			(77	)
Net decrease in cash and cash equivalents			(49,772	)			(39,009	)
Cash and cash equivalents at beginning of period			77,436				55,158
Cash and cash equivalents at end of period		$	27,664			$	16,149

 

See accompanying notes to consolidated financial statements.

 

 

NCI BUILDING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 3, 2014

(Unaudited)

 

NOTE 1 — BASIS OF PRESENTATION

 

The accompanying unaudited consolidated financial statements for NCI Building Systems, Inc. (together with its subsidiaries, unless otherwise indicated, the “Company,” “NCI,” “we,” “us,” or “our”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited consolidated financial statements included herein contain all adjustments, which consist of normal recurring adjustments, necessary to fairly present our financial position, results of operations and cash flows for the periods indicated. Operating results for the fiscal three and nine month periods ended August 3, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending November 2, 2014. Our sales and earnings are subject to both seasonal and cyclical trends and are influenced by general economic conditions, interest rates, the price of steel relative to other building materials, the level of nonresidential construction activity, roof repair and retrofit demand and the availability and cost of financing for construction projects.

 

We use a four-four-five week calendar each quarter with our year end being on the Sunday closest to October 31. The year end for fiscal 2014 is November 2, 2014. 

 

Certain reclassifications have been made to prior period amounts to conform to the current presentation. The net effect of these reclassifications was not material to our consolidated financial statements.

 

For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended November 3, 2013 filed with the Securities and Exchange Commission (the “SEC”) on December 23, 2013.

 

NOTE 2 — ACCOUNTING PRONOUNCEMENTS

 

Adopted Accounting Pronouncements

  

In February 2013, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which requires that companies present, either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. We adopted ASU 2013-02 in our first quarter in fiscal 2014. The adoption of ASU 2013-02 did not have any impact on our consolidated financial statements.

 

Recent Accounting Pronouncements

 

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, A Similar Tax Loss, or a Tax Credit Carryforward Exists (A Consensus the FASB Emerging Issues Task Force). ASU 2013-11 requires an entity to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss carryforward, or similar tax loss or tax credit carryforward, rather than as a liability when the uncertain tax position would reduce the net operating loss or other carryforward under the tax law of the applicable jurisdiction and the entity intends to use the deferred tax asset for that purpose. This amendment is effective prospectively for our first quarter in fiscal 2015 but allows optional retrospective adoption (for all periods presented). We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

 

In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 changes the requirement for reporting discontinued operations. A disposal of a component of an entity or a group of components of an entity will be required to be reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on an entity’s operations and financial results when the entity or group of components of an entity meets the criteria to be classified as held for sale or when it is disposed of by sale or other than by sale. The update also requires additional disclosures about discontinued operations, a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements, and an entity’s significant continuing involvement with a discontinued operation. This update is effective prospectively for our first quarter in fiscal 2016. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in previously issued financial statements. We are currently evaluating the potential impact of this authoritative guidance on our consolidated financial statements.

 

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for our first quarter in fiscal 2018 under either full or modified retrospective adoption. Early application is not permitted. We are currently assessing the potential effects of these changes to our consolidated financial statements.

 

NOTE 3 — GAIN ON INSURANCE RECOVERY

 

On August 6, 2013, our metal coil coating segment facility in Jackson, Mississippi experienced a fire caused by an exhaust fan failure that damaged the roof and walls of two curing ovens. The ovens were repaired and operations resumed in September 2013. During the nine month period ended August 3, 2014, we received $1.3 million from insurance proceeds, which have been separately stated as “Gain on insurance recovery” on our consolidated statement of operations. These insurance proceeds were used to purchase and install assets to rebuild the roof and walls of the affected assets. The new assets were capitalized and depreciated over their estimated useful life of 10 years.

 

NOTE 4 — INVENTORIES

 

The components of inventory are as follows (in thousands):

 

		August 3, 2014				November 3, 2013
Raw materials		$	97,192			$	87,567
Work in process and finished goods			39,387				34,538
		$	136,579			$	122,105

 

NOTE 5 — ASSETS HELD FOR SALE

 

We record assets held for sale at the lower of the carrying value or fair value less costs to sell. The following criteria are used to determine if property is held for sale: (i) management has the authority and commits to a plan to sell the property; (ii) the property is available for immediate sale in its present condition; (iii) there is an active program to locate a buyer and the plan to sell the property has been initiated; (iv) the sale of the property is probable within one year; (v) the property is being actively marketed at a reasonable sale price relative to its current fair value; and (vi) it is unlikely that the plan to sell will be withdrawn or that significant changes to the plan will be made.

 

In determining the fair value of the assets less cost to sell, we considered factors including current sales prices for comparable assets in the area, recent market analysis studies, appraisals and any recent legitimate offers. If the estimated fair value less cost to sell of an asset is less than its current carrying value, the asset is written down to its estimated fair value less cost to sell. During the third quarter of fiscal 2014, we reclassified $0.3 million of property, plant and equipment to assets held for sale related to an idled facility because this facility met the above criteria. During the second quarter of fiscal 2014, we reclassified $2.6 million of property, plant and equipment to assets held for sale related to an idled facility because this facility met the above criteria. The carrying value of assets held for sale is $5.7 million and $2.9 million at August 3, 2014 and November 3, 2013, respectively, and these amounts are included in the engineered building systems segment. All of these assets continue to be actively marketed for sale at August 3, 2014.

 

Due to uncertainties in the estimation process, it is reasonably possible that actual results could differ from the estimates used in our historical analyses. Our assumptions about property sales prices require significant judgment because the current market is highly sensitive to changes in economic conditions. We calculated the estimated fair values of assets held for sale based on current market conditions and assumptions made by management, which may differ from actual results and may result in additional impairments if market conditions deteriorate.

 

 

NOTE 6 — SHARE-BASED COMPENSATION

 

Our 2003 Long-Term Stock Incentive Plan (“Incentive Plan”) is an equity-based compensation plan that allows us to grant a variety of types of awards, including stock options, restricted stock, restricted stock units, performance share awards, stock appreciation rights, performance share units (“PSUs”), phantom stock awards and cash awards. As of August 3, 2014 and July 28, 2013, and for all periods presented, our share-based awards under this plan have consisted of restricted stock grants, PSUs and stock option grants, none of which can be settled through cash payments, and performance share awards. Both our stock options and restricted stock awards are subject only to vesting requirements based on continued employment at the end of a specified time period and typically vest over four years or earlier upon death, disability or a change of control. However, our annual restricted stock awards issued prior to December 15, 2013 also vest upon attainment of age 65 and, only in the case of certain special one-time restricted stock awards, a portion vest on termination without cause or for good reason, as defined by the agreements governing such awards. The vesting of our performance share awards is described below.

 

Our PSUs vest pro rata if an executive’s employment terminates prior to a three-year performance period ending on June 30, 2015 due to death, disability, or termination by NCI without cause or by the executive with good reason. If the executive’s employment terminates for any other reason prior to the end of the performance period, all PSUs are forfeited. If a change in control of NCI occurs prior to the end of the performance period, the performance period will immediately end at the time of the change in control and an executive will earn a percentage of the target number of PSUs based on the total shareholder return achieved determined by reference to the value of NCI Common Stock at the time of the change in control.

 

During the nine month periods ended August 3, 2014 and July 28, 2013, we recorded stock-based compensation expense of $8.1 million and $10.3 million, respectively. During the nine month periods ended August 3, 2014 and July 28, 2013, we granted 5,058 and 2,101 stock options, respectively, and the grant-date fair value of options granted during the nine month periods ended August 3, 2014 and July 28, 2013 was $9.09 and $7.22, respectively. There were no options exercised during the nine months ended August 3, 2014. Cash received from option exercises from a retired executive due to expiration in accordance with the terms of the agreement was $0.7 million during the nine months ended July 28, 2013. The actual tax benefit realized for the tax deductions from option exercises totaled $0.2 million for the nine months ended July 28, 2013.

 

The fair value of restricted stock awards classified as equity awards is based on the Company’s stock price as of the date of grant. During the nine months ended August 3, 2014 and July 28, 2013, we granted time-based restricted stock awards with a fair value of $2.6 million, representing 147,424 shares, and $6.3 million, representing 442,198 shares, respectively. Restricted stock awards issued after December 15, 2013 do not vest upon attainment of age 65, as provided by the agreements governing such awards.

 

In December 2013, we granted long-term incentive awards with performance conditions that will be paid 50% in cash and 50% in stock (“Performance Share Awards”). The final number of Performance Share Awards earned for these awards granted in December 2013 will be based on the achievement of free cash flow and earnings per share targets over a three-year period. These Performance Share Awards cliff vest three years from the date of grant and will be earned based on the performance against the pre-established targets for the requisite service period. The Performance Share Awards also vest earlier upon death, disability or a change of control. However, a portion of the awards may vest on termination without cause or after reaching normal retirement age prior to the vesting date, as defined by the agreements governing such awards. The fair value of Performance Share Awards is based on the Company’s stock price as of the date of grant. Compensation cost is recorded based on the probable outcome of the performance conditions associated with the respective shares, as determined by management. During the nine months ended August 3, 2014, we granted Performance Share Awards with a fair value of $2.2 million.

 

The Compensation Committee of our Board approved a modification to our existing long term incentive plan (“Modification”) on May 29, 2014 (the “Modification Date”). The Modification revised certain financial performance thresholds of the Performance Share Awards by making 50% of the award time-based and 50% of the award performance-based. The Modification did not result in the recognition of any incremental compensation cost on the Modification Date for the 82 employees who were impacted by the Modification.

 

NOTE 7 — EARNINGS (LOSS) PER COMMON SHARE

 

Basic earnings (loss) per common share is computed by dividing net income (loss) allocated to common shares by the weighted average number of common shares outstanding. Diluted earnings per common share, if applicable, considers the dilutive effect of common stock equivalents. The reconciliation of the numerator and denominator used for the computation of basic and diluted earnings (loss) per common share is as follows (in thousands, except per share data):

 

 

 

		Fiscal Three Months Ended								Fiscal Nine Months Ended
		August 3, 2014				July 28, 2013				August 3, 2014				July 28, 2013
Numerator for Basic and Diluted Earnings (Loss) Per Common Share:
Net income (loss)		$	6,089			$	(12,192	)		$	(3,074	)		$	(21,161	)
Less net income allocated to participating securities (1)			(50	)			––				––				––
Net income (loss) allocated to common shares		$	6,039			$	(12,192	)		$	(3,074	)		$	(21,161	)
Denominator for Basic and Diluted Earnings (Loss) Per Common Share:
Weighted average basic number of common shares outstanding			72,928				64,217				73,093				34,290
Common stock equivalents:
Employee stock options			756				––				––				––
PSUs and Performance Share Awards			709				––				––				––
Weighted average diluted number of common shares outstanding			74,393				64,217				73,093				34,290
Basic earnings (loss) per common share		$	0.08			$	(0.19	)		$	(0.04	)		$	(0.62	)
Diluted earnings (loss) per common share		$	0.08			$	(0.19	)		$	(0.04	)		$	(0.62	)

__________

(1)

Participating securities consist of the Convertible Preferred Stock, as defined below, for the period prior to its conversion to Common Stock of the Company and the unvested restricted Common Stock related to our Incentive Plan. These participating securities do not have a contractual obligation to share in losses; therefore, no losses were allocated in any periods presented above. The Convertible Preferred Stock was converted into shares of our Common Stock in the third quarter of fiscal 2013. The Unvested Common Stock related to our Incentive Plan will be allocated earnings when applicable.

 

On May 14, 2013, the Clayton, Dubilier & Rice Fund VIII, L.P. (“CD&R Fund VIII”) and Clayton, Dubilier & Rice Friends & Family Fund VIII, L.P. (collectively, the “CD&R Funds”), the holders of 339,293 Preferred Shares, as defined below, delivered a formal notice requesting the conversion of all of their Preferred Shares into shares of our Common Stock (the “Conversion”). In connection with the Conversion request, we issued the CD&R Funds 54,136,817 shares of our Common Stock. The Conversion eliminated all the outstanding Convertible Preferred Stock during our third quarter of fiscal 2013.

 

We calculate earnings (loss) per share using the “two-class” method, whereby unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are “participating securities” and, therefore, these participating securities are treated as a separate class in computing earnings (loss) per share. The calculation of earnings (loss) per share for Common Stock presented here excludes the income, if any, attributable to Series B Cumulative Convertible Participating Preferred Stock (the “Convertible Preferred Stock,” and shares thereof, “Preferred Shares”) for the period prior to their Conversion to Common Stock of the Company and the unvested restricted stock awards from the numerator and excludes the dilutive impact of those shares from the denominator. The Convertible Preferred Stock was converted into shares of our Common Stock in the third quarter of fiscal 2013. There was no income amount attributable to unvested restricted stock for the nine month period ended August 3, 2014 and no income amount attributable to Preferred Shares or unvested restricted stock for the three and nine month periods ended July 28, 2013 as the Preferred Shares and unvested restricted stock do not share in the net losses. However, in periods of net income allocated to common shares, a portion of this income will be allocable to the unvested restricted stock.

 

The number of weighted average options that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive represented approximately 26,319 shares for the three month period ended August 3, 2014. For the three month period ended August 3, 2014, 57,332 shares of the Performance Share Awards were not included in the diluted loss per common share calculation because the achievement of free cash flow and earnings per share targets had not been achieved as of August 3, 2014. In addition, the final number of Performance Share Awards earned for these awards granted in December 2013 will be based on the achievement of free cash flow and earnings per share targets over a three-year period. For both the three and nine month periods ended July 28, 2013 and the nine month period ended August 3, 2014, all options, PSUs and Performance Share Awards were anti-dilutive and, therefore, not included in the diluted loss per common share calculation.

  

NOTE 8 — WARRANTY

 

We sell weathertightness warranties to our customers for protection from leaks in our roofing systems related to weather. These warranties range from two years to 20 years. We sell two types of warranties, standard and Single Source™, and three grades of coverage for each. The type and grade of coverage determines the price to the customer. For standard warranties, our responsibility for leaks in a roofing system begins after 24 consecutive leak-free months. For Single Source™ warranties, the roofing system must pass our inspection before warranty coverage will be issued. Inspections are typically performed at three stages of the roofing project: (i) at the project start-up; (ii) at the project mid-point; and (iii) at the project completion. These inspections are included in the cost of the warranty. If the project requires or the customer requests additional inspections, those inspections are billed to the customer. Upon the sale of a warranty, we record the resulting revenue as deferred warranty revenue, which is included in other accrued expenses in our consolidated balance sheets. We recognize deferred warranty revenue over the warranty coverage period in a manner that matches our estimated expenses relating to the warranty.

 

 

The following table represents the rollforward of our acquired accrued warranty obligation and deferred warranty revenue activity for each of the fiscal nine months ended (in thousands):

 

		Fiscal Nine Months Ended
		August 3, 2014				July 28, 2013
Beginning balance		$	22,673			$	23,236
Warranties sold			2,178				2,604
Revenue recognized			(1,540	)			(1,460	)
Costs incurred and other			––				(2,234	)
Ending balance		$	23,311			$	22,146

 

NOTE 9 — LONG-TERM DEBT AND NOTE PAYABLE

 

Debt is comprised of the following (in thousands):

 

		August 3,				November 3,
		2014				2013
Credit Agreement, due June 2019 (variable interest, at 4.25% on August 3, 2014 and November 3, 2013)		$	235,983			$	237,775
Current portion of long-term debt			(2,384	)			(2,384	)
Total long-term debt, less current portion		$	233,599			$	235,391

 

Credit Agreement 

 

On June 22, 2012, in connection with the acquisition of Metl-Span LLC, a Texas limited liability company (the “Acquisition”), the Company entered into a Credit Agreement among the Company, as Borrower, Credit Suisse AG, Cayman Islands Branch, as Administrative Agent and Collateral Agent (the “Term Agent”), and the lenders party thereto. The Credit Agreement provided for a term loan credit facility in an aggregate principal amount of $250.0 million.

 

The Credit Agreement contains a number of covenants that, among other things, will limit or restrict the ability of the Company and its subsidiaries to dispose of assets, incur additional indebtedness, make dividends and other restricted payments, create liens securing indebtedness, engage in mergers and other fundamental transactions, enter into restrictive agreements, amend certain documents in respect of other indebtedness, change the nature of their business and engage in certain transactions with affiliates.

 

On June 24, 2013, the Company entered into Amendment No. 1 (the “Amendment”) to its existing Credit Agreement (the “Credit Agreement”), dated as of June 22, 2012, between NCI, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent and the other financial institutions party thereto from time to time (the “Term Loan Facility”), primarily to extend the maturity date and reduce the interest rate applicable to all of the outstanding term loans under the Term Loan Facility.

 

Pursuant to the Amendment, the maturity date of $238 million of outstanding term loans (the “Initial Term Loans”) was extended and such loans were converted into a new tranche of term loans (the “Tranche B Term Loans”) that will mature on June 24, 2019 and, prior to such date, will amortize in nominal quarterly installments equal to one percent of the aggregate initial principal amount thereof per annum. Pursuant to the Amendment, the Tranche B Term Loans will bear interest at a floating rate measured by reference to, at NCI’s option, either (i) an adjusted LIBOR not less than 1.00% plus a borrowing margin of 3.25% per annum or (ii) an alternate base rate plus a borrowing margin of 2.25% per annum. At both August 3, 2014 and November 3, 2013, the interest rate on the term loan under our Credit Agreement was 4.25%. Overdue amounts will bear interest at a rate that is 2% higher than the rate otherwise applicable.

 

The Tranche B Term Loans are secured by the same collateral and guaranteed by the same guarantors as the Initial Term Loans under the Term Loan Facility. Voluntary prepayments of the Tranche B Term Loans are permitted at any time, in minimum principal amounts, without premium or penalty, subject to a 1.00% premium payable in connection with certain repricing transactions within the first six months.

 

 

Pursuant to the Amendment, NCI will no longer be subject to a financial covenant requiring NCI to maintain a specified consolidated secured debt to EBITDA leverage ratio for specified periods. The Amendment also includes certain other changes to the Term Loan Facility.

 

Subject to certain exceptions, the term loan under the Amendment will be subject to mandatory prepayment in an amount equal to:

 

•

the net cash proceeds of (1) certain asset sales, (2) certain debt offerings, and (3) certain insurance recovery and condemnation events; and

 

•

50% of annual excess cash flow (as defined in the Amendment), subject to reduction to 0% if specified leverage ratio targets are met.

 

Amended ABL Facility

 

On May 2, 2012, the Company entered into an Amended Asset-Based Lending Facility (“Amended ABL Facility”) to (i) permit the Acquisition, the entry by the Company into the Credit Agreement and the incurrence of debt thereunder and the repayment of existing indebtedness under NCI’s existing term loan, (ii) increase the amount available for borrowing thereunder to $150 million (subject to a borrowing base), (iii) increase the amount available for letters of credit thereunder to $30 million, and (iv) extend the final maturity thereunder to May 2, 2017.

 

Borrowing availability under the Amended ABL Facility is determined by a monthly borrowing base collateral calculation that is based on specified percentages of the value of qualified cash, eligible inventory and eligible accounts receivable, less certain reserves and subject to certain other adjustments. At August 3, 2014 and November 3, 2013, the Company’s excess availability under the Amended ABL Facility was $132.6 million and $123.2 million, respectively. At both August 3, 2014 and November 3, 2013, the Company had no revolving loans outstanding under the Amended ABL Facility. In addition, at August 3, 2014 and November 3, 2013, standby letters of credit related to certain insurance policies totaling approximately $8.1 million and $10.2 million, respectively, were outstanding but undrawn under the Amended ABL Facility.

 

The Amended ABL Facility contains a number of covenants that, among other things, limit or restrict our ability to dispose of assets, incur additional indebtedness, incur guarantee obligations, engage in sale and leaseback transactions, prepay other indebtedness, modify organizational documents and certain other agreements, create restrictions affecting subsidiaries, make dividends and other restricted payments, create liens, make investments, make acquisitions, engage in mergers, change the nature of our business and engage in certain transactions with affiliates.

 

The Amended ABL Facility includes a minimum fixed charge coverage ratio of one to one, which will apply if we fail to maintain a specified minimum borrowing capacity. The minimum level of borrowing capacity as of August 3, 2014 and November 3, 2013 was $19.9 million and $18.5 million, respectively. Although the Amended ABL Facility did not require any financial covenant compliance, at August 3, 2014 and November 3, 2013, NCI’s fixed charge coverage ratio as of those dates, which is calculated on a trailing twelve month basis, was 1.95:1.00 and 2.29:1.00, respectively.

 

Loans under the Amended ABL Facility bear interest, at NCI’s option, as follows:

 

(1)

Base Rate loans at the Base Rate plus a margin. The margin ranges from 1.50% to 2.00% depending on the quarterly average excess availability under such facility, and

(2)

LIBOR loans at LIBOR plus a margin. The margin ranges from 2.50% to 3.00% depending on the quarterly average excess availability under such facility.

 

At both August 3, 2014 and November 3, 2013, the interest rate on the Amended ABL Facility was 4.75%. During an event of default, loans under the Amended ABL Facility will bear interest at a rate that is 2% higher than the rate otherwise applicable. “Base Rate” is defined as the higher of the Wells Fargo Bank, N.A. prime rate and the overnight Federal Funds rate plus 0.5% and “LIBOR” is defined as the applicable London Interbank Offered Rate adjusted for reserves.

 

Deferred Financing Costs

 

At August 3, 2014 and November 3, 2013, the unamortized balance in deferred financing costs related to both the Credit Agreement and the Amended ABL Facility was $3.6 million and $4.3 million, respectively.

 

 

Insurance Note Payable

 

As of August 3, 2014 and November 3, 2013, NCI had an outstanding note payable in the amount of $0.8 million and $0.6 million, respectively, related to financed insurance premiums. Insurance premium financings are generally secured by the unearned premiums under such policies. 

 

NOTE 10 — EQUITY INVESTMENT

 

On August 14, 2009, the Company entered into an Investment Agreement (as amended, the “Investment Agreement”), by and between the Company and CD&R Fund VIII, pursuant to which the Company agreed to issue and sell to CD&R Fund VIII, and CD&R Fund VIII agreed to purchase from the Company, for an aggregate purchase price of $250 million (less reimbursement to CD&R Fund VIII or direct payment to its service providers of up to $14.5 million in the aggregate of transaction expenses and a deal fee, paid to Clayton, Dubilier & Rice, Inc., the manager of CD&R Fund VIII, of $8.25 million), 250,000 shares of convertible preferred stock (the “Convertible Preferred Stock” and shares thereof, the “Preferred Shares”). Pursuant to the Investment Agreement, on October 20, 2009 (the “Closing Date”), the Company issued and sold to the CD&R Funds, and the CD&R Funds purchased from the Company, an aggregate of 250,000 Preferred Shares, representing approximately 39.2 million shares of Common Stock or 68.4% of the voting power and Common Stock of the Company on an as-converted basis as of the Closing Date (such purchase and sale, the “CD&R Equity Investment”).

 

In connection with the consummation of the Equity Investment, on October 19, 2009, the Company filed the Certificate of Designations of the Convertible Preferred Stock (the “Certificate of Designations”) setting forth the terms, rights, powers, and preferences, and the qualifications, limitations and restrictions thereof, of the Convertible Preferred Stock.

 

On May 14, 2013, the CD&R Funds, the holders of 339,293 Preferred Shares, delivered a formal notice requesting the conversion (“Conversion”) of all of their Preferred Shares into shares of the Company’s Common Stock. In connection with the Conversion request, we issued the CD&R Funds 54,136,817 shares of our Common Stock, representing 72.4% of the Common Stock of the Company then outstanding. Under the terms of the Preferred Shares, no consideration was required to be paid by the CD&R Funds to the Company in connection with the Conversion of the Preferred Shares. As a result of the Conversion, the CD&R Funds no longer have rights to default dividends as specified in the Certificate of Designations. The Conversion on May 14, 2013 eliminated all the outstanding Convertible Preferred Stock and increased stockholders’ equity by nearly $620.0 million, returning the Company’s stockholders’ equity to a positive balance during our third quarter of fiscal 2013.

 

On January 15, 2014, the CD&R Funds completed a registered underwritten offering, in which the CD&R Funds offered 8.5 million shares of Common Stock at a price to the public of $18.00 per share (the “Secondary Offering”). The underwriters also exercised their option to purchase 1.275 million additional shares of Common Stock. The aggregate offering price for the 9.775 million shares sold in the Secondary Offering was approximately $167.6 million, net of underwriting discounts and commissions. The CD&R Funds received all of the proceeds from the Secondary Offering and no shares in the Secondary Offering were sold by NCI or any of its officers or directors (although certain of our directors are affiliated with the CD&R Funds). In connection with this Secondary Offering, we incurred approximately $0.8 million in expenses, which were included in engineering, selling, general and administrative expenses in the consolidated statement of operations for the nine months ended August 3, 2014. At August 3, 2014 and November 3, 2013, the CD&R Funds owned 58.8% and 72.4%, respectively, of the voting power and Common Stock of the Company.

 

On January 6, 2014, NCI entered into an agreement with the CD&R Funds to repurchase 1.15 million shares of its Common Stock at the price per share equal to the price per share paid by the underwriters to the CD&R Funds in the underwritten offering (the “Stock Repurchase”). The Stock Repurchase, which was completed at the same time as the Secondary Offering, represented a private, non-underwritten transaction between NCI and the CD&R Funds that was approved and recommended by the Affiliate Transactions Committee of NCI’s board of directors. Following completion of the Stock Repurchase, NCI canceled the shares repurchased from the CD&R Funds, resulting in a $19.7 million decrease in both additional paid in capital and treasury stock.

 

NOTE 11 — FAIR VALUE OF FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

 

Fair Value of Financial Instruments

 

The carrying amounts of cash and cash equivalents, restricted cash, trade accounts receivable and accounts payable approximate fair value as of August 3, 2014 and November 3, 2013 because of the relatively short maturity of these instruments. The fair values of the remaining financial instruments not currently recognized at fair value on our consolidated balance sheets at the respective fiscal period ends were (in thousands):

 

 

		August 3, 2014								November 3, 2013
		Carrying								Carrying
		Amount				Fair Value				Amount				Fair Value
Credit Agreement, due June 2019		$	235,983			$	235,393			$	237,775			$	237,775

 

The fair value of the Credit Agreement was based on recent trading activities of comparable market instruments which are level 2 inputs.

 

Fair Value Measurements

 

ASC Subtopic 820-10, Fair Value Measurements and Disclosures, requires us to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:

 

Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets.

 

Level 2: Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborated inputs.

 

Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the assets or liabilities.

 

The following is a description of the valuation methodologies used for assets and liabilities measured at fair value. There have been no changes in the methodologies used at August 3, 2014 and November 3, 2013.

 

Money market: Money market funds have original maturities of three months or less. The original cost of these assets approximates fair value due to their short-term maturity.

 

Mutual funds: Mutual funds are valued at the closing price reported in the active market in which the mutual fund is traded.

 

Assets held for sale: Assets held for sale are valued based on current market conditions, prices of similar assets in similar condition and expected proceeds from the sale of the assets.

 

Deferred compensation plan liability: Deferred compensation plan liability is comprised of phantom investments in the deferred compensation plan and is valued at the closing price reported in the active market in which the money market, mutual fund or NCI stock phantom investments are traded.

 

The following table summarizes information regarding our financial assets and liabilities that are measured at fair value on a recurring basis as of August 3, 2014, segregated by level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):

 

		Level 1				Level 2				Level 3				Total
Assets:
Short-term investments in deferred compensation plan(1):
Money market		$	771			$	—			$	—			$	771
Mutual funds — Growth			741				—				—				741
Mutual funds — Blend			2,604				—				—				2,604
Mutual funds — Foreign blend			733				—				—				733
Mutual funds — Fixed income			—				558				—				558
Total short-term investments in deferred compensation plan			4,849				558				—				5,407
Total assets		$	4,849			$	558			$	—			$	5,407
Liabilities:
Deferred compensation plan liability		$	—			$	(5,658	)		$	—			$	(5,658	)
Total liabilities		$	—			$	(5,658	)		$	—			$	(5,658	)

__________

(1)

Unrealized holding gains (losses) for the three months ended August 3, 2014 and July 28, 2013 were $(0.1) million and $0.3 million, respectively. Unrealized holding gains (losses) for the nine months ended August 3, 2014 and July 28, 2013 were $0.1 million and $0.6 million, respectively. These unrealized holding gains (losses) are primarily offset by changes in the deferred compensation plan liability.

 

 

The following table summarizes information regarding our financial assets that are measured at fair value on a nonrecurring basis as of August 3, 2014, segregated by level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):

 

		Level 1				Level 2				Level 3				Total
Assets:
Assets held for sale(2)		$	—			$	—			$	2,280			$	2,280
Total assets		$	—			$	—			$	2,280			$	2,280

__________

(2)

Certain assets held for sale are valued at fair value and are measured at fair value on a nonrecurring basis. Assets held for sale are reported at fair value, if, on an individual basis, the fair value of the asset is less than cost. The fair value of assets held for sale is estimated using level 3 inputs, such as broker quotes for like-kind assets or other market indications of a potential selling value which approximates fair value.

 

The following table summarizes information regarding our financial assets and liabilities that are measured at fair value on a recurring basis as of November 3, 2013, segregated by level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):

 

		Level 1				Level 2				Level 3				Total
Assets:
Short-term investments in deferred compensation plan(1):
Money market		$	580			$	—			$	—			$	580
Mutual funds — Growth			725				—				—				725
Mutual funds — Blend			2,348				—				—				2,348
Mutual funds — Foreign blend			695				—				—				695
Mutual funds — Fixed income			—				544				—				544
Total short-term investments in deferred compensation plan		$	4,348			$	544			$	—			$	4,892
Total assets		$	4,348			$	544			$	—			$	4,892
Liabilities:
Deferred compensation plan liability		$	—			$	(5,036	)		$	—			$	(5,036	)
Total liabilities		$	—			$	(5,036	)		$	—			$	(5,036	)

 

The following table summarizes information regarding our financial assets that are measured at fair value on a nonrecurring basis as of November 3, 2013, segregated by level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):

 

		Level 1				Level 2				Level 3				Total
Assets:
Assets held for sale(3)		$	—			$	—			$	2,397			$	2,397
Total assets		$	—			$	—			$	2,397			$	2,397

  

(3)

Certain assets held for sale are valued at fair value and are measured at fair value on a nonrecurring basis. Assets held for sale are reported at fair value, if, on an individual basis, the fair value of the asset is less than cost. The fair value of assets held for sale is estimated using level 3 inputs, such as broker quotes for like-kind assets or other market indications of a potential selling value which approximates fair value.

 

 

NOTE 12 — INCOME TAXES

 

The reconciliation of income tax computed at the statutory tax rate to the effective income tax rate is as follows:

 

		Fiscal Three Months Ended								Fiscal Nine Months Ended
		August 3, 2014				July 28, 2013				August 3, 2014				July 28, 2013
Statutory federal income tax rate			35.0	%			35.0	%			35.0	%			35.0	%
State income taxes			3.7	%			2.8	%			(0.1	)%			2.1	%
Domestic production activities deduction			(0.4	)%			—	%			4.4	%			—	%
Canada valuation allowance			(1.1	)%			1.4	%			4.4	%			1.0	%
Non-deductible expenses			2.7	%			(1.0	)%			(12.5	)%			(1.9	)%
Other			(8.1	)%			6.7	%			15.8	%			4.1	%
Effective tax rate			31.8	%			44.9	%			47.0	%			40.3	%

 

The total amount of unrecognized tax benefit at August 3, 2014 and November 3, 2013 was $0.5 million and $0.4 million, respectively, all of which would impact our effective tax rate, if recognized. We do not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next twelve months.

 

NOTE 13 — OPERATING SEGMENTS

 

Operating segments are defined as components of an enterprise that engage in business activities and by which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker to make decisions about how to allocate resources to the segment and assess the performance of the segment. We have three operating segments: metal coil coating; metal components; and engineered building systems. All operating segments operate primarily in the nonresidential construction market. Sales and earnings are influenced by general economic conditions, the level of nonresidential construction activity, metal roof repair and retrofit demand and the availability and terms of financing available for construction. Products of our operating segments use similar basic raw materials. The metal coil coating segment consists of cleaning, treating, painting and slitting continuous steel coils before the steel is fabricated for use by construction and industrial users. The metal components segment products include metal roof and wall panels, doors, metal partitions, metal trim, insulated panels and other related accessories. The engineered building systems segment includes the manufacturing of main frames, Long Bay ^® Systems and value-added engineering and drafting, which are typically not part of metal components or metal coil coating products or services. The operating segments follow the same accounting policies used for our consolidated financial statements.

 

We evaluate a segment’s performance based primarily upon operating income before corporate expenses. Intersegment sales are recorded based on standard material costs plus a standard markup to cover labor and overhead and consist of: (i) hot-rolled, light gauge painted and slit material and other services provided by the metal coil coating segment to both the engineered building systems and metal components segments; (ii) building components provided by the metal components segment to the engineered building systems segment; and (iii) structural framing provided by the engineered building systems segment to the metal components segment.

 

Corporate assets consist primarily of cash but also include deferred financing costs, deferred taxes and property, plant and equipment associated with our headquarters in Houston, Texas. These items (and income and expenses related to these items) are not allocated to the operating segments. Corporate unallocated expenses include executive, legal, finance, tax, treasury, human resources, information technology, purchasing, marketing and corporate travel expenses. Additional unallocated expenses include interest income, interest expense and other (expense) income.

 

 

The following table represents sales, operating income and total assets attributable to these operating segments for the periods indicated (in thousands):

 

		Fiscal Three Months Ended								Fiscal Nine Months Ended
		August 3, 2014				July 28, 2013				August 3, 2014				July 28, 2013
Total sales:
Metal coil coating		$	68,324			$	56,478			$	176,898			$	155,539
Metal components			184,321				161,008				497,599				462,075
Engineered building systems			174,186				158,369				475,834				454,030
Intersegment sales			(65,205	)			(58,654	)			(172,239	)			(163,460	)
Total sales		$	361,626			$	317,201			$	978,092			$	908,184
External sales:
Metal coil coating		$	31,132			$	23,028			$	81,230			$	64,136
Metal components			162,180				140,441				437,259				406,150
Engineered building systems			168,314				153,732				459,603				437,898
Total sales		$	361,626			$	317,201			$	978,092			$	908,184
Operating income:
Metal coil coating		$	6,665			$	5,521			$	17,053			$	15,818
Metal components			10,437				8,054				19,107				19,263
Engineered building systems			11,454				6,123				13,129				14,360
Corporate			(16,354	)			(15,421	)			(45,768	)			(46,711	)
Total operating income		$	12,202			$	4,277			$	3,521			$	2,730
Unallocated other expense			(3,276	)			(26,402	)			(9,321	)			(38,155	)
Income (loss) before income taxes		$	8,926			$	(22,125	)		$	(5,800	)		$	(35,425	)

 

		August 3, 2014				November 3, 2013
Total assets:
Metal coil coating		$	81,857			$	71,118
Metal components			377,368				380,488
Engineered building systems			216,277				199,551
Corporate			62,028				129,106
Total assets		$	737,530			$	780,263

 

NOTE 14 — CONTINGENCIES

 

As a manufacturer of products primarily for use in nonresidential building construction, the Company is inherently exposed to various types of contingent claims, both asserted and unasserted, in the ordinary course of business. As a result, from time to time, NCI and/or its subsidiaries become involved in various legal proceedings or other contingent matters arising from claims, or potential claims. The Company insures against these risks to the extent deemed prudent by our management and to the extent insurance is available. Many of these insurance policies contain deductibles or self-insured retentions in amounts we deem prudent and for which we are responsible for payment. In determining the amount of self-insurance, it is the Company’s policy to self-insure those losses that are predictable, measurable and recurring in nature, such as claims for automobile liability and general liability. The Company regularly reviews the status of on-going proceedings and other contingent matters along with legal counsel. Liabilities for such items are recorded when it is probable that the liability has been incurred and when the amount of the liability can be reasonably estimated. Liabilities are adjusted when additional information becomes available. Management believes that the ultimate disposition of these matters will not have a material adverse effect on the Company’s results of operations, financial position or cash flows. However, such matters are subject to many uncertainties and outcomes are not predictable with assurance.

 

 

NCI BUILDING SYSTEMS, INC.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following information should be read in conjunction with the unaudited consolidated financial statements included herein under “Item 1. Unaudited Consolidated Financial Statements” and the audited consolidated financial statements and the notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended November 3, 2013.

 

FORWARD LOOKING STATEMENTS

 

This Quarterly Report includes statements concerning our expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied by these statements. In some cases, our forward-looking statements can be identified by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “plan,” “potential,” “predict,” “projection,” “should,” “will” or other similar words. We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that assumptions, beliefs, expectations, intentions and projections about future events may and often do vary materially from actual results. Therefore, we cannot assure you that actual results will not differ materially from those expressed or implied by our forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on any forward-looking information, including any earnings guidance, if applicable. Although we believe that the expectations reflected in the forward-looking statements are reasonable, these expectations and the related statements are subject to risks, uncertainties, and other factors that could cause the actual results to differ materially from those projected. These risks, uncertainties, and other factors include, but are not limited to:

 

•

industry cyclicality and seasonality and adverse weather conditions;

•

challenging economic conditions affecting the nonresidential construction industry;

•

volatility in the U.S. economy and abroad, generally, and in the credit markets;

•

ability to service or refinance our debt and obtain future financing;

•

the Company’s ability to comply with the financial tests and covenants in its existing and future debt obligations;

•

operational limitations or restrictions in connection with our debt;

•

recognition of asset impairment charges;

•

commodity price increases and/or limited availability of raw materials, including steel;

•

the ability to make strategic acquisitions accretive to earnings;

•

retention and replacement of key personnel;

•

enforcement and obsolescence of intellectual property rights;

•

fluctuations in customer demand;

•

costs related to environmental clean-ups and liabilities;

•

competitive activity and pricing pressure;

•

increases in energy prices;

•

the volatility of the Company’s stock price;

•

the dilutive effect on the Company’s common stockholders of potential future sales of the Company’s Common Stock held by the selling stockholders;

•

substantial governance and other rights held by the selling stockholders;

•

breaches of our information system security measures and damage to our major information management systems;

•

hazards that may cause personal injury or property damage, thereby subjecting us to liabilities and possible losses, which may not be covered by insurance;

•

changes in laws or regulations, including the Dodd–Frank Act;

•

costs and other effects of legal and administrative proceedings, settlements, investigations, claims and other matters; and

•

other risks detailed under the caption “Risk Factors” in Part II, Item 1A of this report, in our Quarterly Report on Form 10-Q for the quarterly period ended February 2, 2014 and in our most recent Annual Report on Form 10-K as filed with the SEC.

 

A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe that we have chosen these assumptions or bases in good faith and that they are reasonable. However, we caution you that assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending on the circumstances. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report, including those described under the caption “Risk Factors” in our most recent Annual Report on Form 10-K as filed with the SEC. We expressly disclaim any obligations to release publicly any updates or revisions to these forward-looking statements to reflect any changes in our expectations unless the securities laws require us to do so.

 

 

OVERVIEW

 

NCI Building Systems, Inc. (together with its subsidiaries, unless the context requires otherwise, the “Company,” “NCI,” “we,” “us” or “our”) is one of North America’s largest integrated manufacturers and marketers of metal products for the nonresidential construction industry. We provide metal coil coating services and design, engineer, manufacture and market metal components and engineered building systems primarily for nonresidential construction use. We manufacture and distribute extensive lines of metal products for the nonresidential construction market under multiple brand names through a nationwide network of plants and distribution centers. We sell our products for both new construction and repair and retrofit applications.

 

Metal components offer builders, designers, architects and end-users several advantages, including lower long-term costs, longer life, attractive aesthetics and design flexibility. Similarly, engineered building systems offer a number of advantages over traditional construction alternatives, including shorter construction time, more efficient use of materials, lower construction costs, greater ease of expansion and lower maintenance costs.

 

We use a 52/53 week year with our fiscal year end on the Sunday closest to October 31. In fiscal 2014, our year end will be November 2, 2014 which is the Sunday closest to October 31.

 

We assess performance across our operating segments by analyzing and evaluating, among other indicators, gross profit, operating income and whether or not each segment has achieved its projected sales goals. In assessing our overall financial performance, we regard return on adjusted operating assets, as well as growth in earnings, as key indicators of shareholder value.

 

Third Fiscal Quarter

 

We delivered solid results in the third quarter of fiscal 2014 as conditions improved and we entered our seasonally stronger second half of our fiscal year. We have rebounded from a weak first half, exceeding 2013’s year-to-date revenue by 8% and income from operations by 29%. Our performance in the third quarter of fiscal 2014 demonstrates that our investments in growth initiatives and commercial discipline are beginning to pay dividends reflected in higher third party sales and improving margins. Increasing volumes have allowed us to leverage the improved operational efficiencies created by the recent realignment of manufacturing operations across our operating segments. As growth in the nonresidential construction market continues to gain traction we are committed to maintaining commercial discipline and operational efficiency to maximize the benefits inherent in our integrated business model.

 

Industry Conditions

 

Our sales and earnings are subject to both seasonal and cyclical trends and are influenced by general economic conditions, interest rates, the price of steel relative to other building materials, the level of nonresidential construction activity, roof repair and retrofit demand and the availability and cost of financing for construction projects. Our sales normally are lower in the first half of each fiscal year compared to the second half because of unfavorable weather conditions for construction and typical business planning cycles affecting construction.

 

The nonresidential construction industry is highly sensitive to national and regional macroeconomic conditions. One of the primary challenges we face is that the United States economy is slowly recovering from a recession and historically low nonresidential construction activity, which began in the third quarter of 2008 and reduced demand for our products and adversely affected our business. In addition, the tightening of credit in financial markets over the same period adversely affected the ability of our customers to obtain financing for construction projects. Similar factors could cause our suppliers to experience financial distress or bankruptcy, resulting in temporary raw material shortages. While economic growth has resumed, the nonresidential construction industry continues to face significant challenges. The graph below shows the annual nonresidential new construction starts, measured in square feet, since 1967 as compiled and reported by McGraw-Hill:

 

 

 

Source: McGraw-Hill

 

When assessing the state of the metal construction market, we review information from various industry associations, third-party research, and various government reports such as industrial production and capacity utilization. One such industry association is the Metal Building Manufacturers Association (“MBMA”), which provides summary member sales information and promotes the design and construction of metal buildings and metal roofing systems. Another is McGraw-Hill Construction Information Group (“McGraw-Hill Construction”), which we review for information regarding actual and forecasted growth in various construction related industries, including the overall nonresidential construction market. McGraw-Hill Construction’s nonresidential construction forecast for calendar 2014, published in August 2014, indicates an expected increase of 8% in square footage and an increase of 11% in dollar value as compared to the prior calendar year. This represented a mixed revision of the 2014 forecast published in April, which indicated an expected increase of 10% in square footage and an increase of 10% in dollar value as compared to 2013. Additionally, we review the American Institute of Architects’ (“AIA”) survey for inquiry and billing activity for the industrial, commercial and institutional sectors. The AIA’s architecture billings index (“ABI”) is a closely watched metric, as billings growth for architecture services generally leads to construction spending growth 9 to 12 months forward. We have historically experienced a shorter lag period of 6 to 9 months when comparing the commercial and industrial ABI trends to our volume trends. An ABI reading above 50 indicates an increase in month-to-month seasonally adjusted billings and a reading below 50 indicates a decrease in month-to-month seasonally adjusted billings. AIA’s ABI published for July 2014 was above 50 at 55.8 and the commercial and industrial component of the index was above 50 at 51.2 for July 2014. This represents an increase over those indices for April 2014, when AIA’s ABI was below 50 at 49.6 and the commercial and industrial component of the index was at 50.2 for April 2014.

 

Another challenge we face both short and long term is the volatility in the price of steel. Our business is heavily dependent on the supply of steel and is significantly impacted by steel prices. For the fiscal nine months ended August 3, 2014, steel represented approximately 69% of our cost of goods sold. The steel industry is highly cyclical in nature, and steel prices have been volatile in recent years and may remain volatile in the future. Historically, we have been able to adjust our sales prices in response to increases in steel prices. Steel prices are influenced by numerous factors beyond our control, including general economic conditions domestically and internationally, the availability of raw materials, competition, labor costs, freight and transportation costs, production costs, import duties and other trade restrictions.

 

The monthly CRU North American Steel Price Index, published by the CRU Group, has increased from October 2013 to July 2014 and is higher in July 2014 compared to July 2013. The index represents purchases for forward delivery, according to a lead time, which will vary.

 

We normally do not maintain an inventory of steel in excess of our current production requirements. However, from time to time, we may purchase steel in advance of announced steel price increases. We can give no assurance that steel will be readily available or that prices will not continue to be volatile. While most of our sales contracts have escalation clauses that allow us, under certain circumstances, to pass along all or a portion of increases in the price of steel after the date of the contract but prior to delivery, for competitive or other reasons we may not be able to pass such price increases along. If the available supply of steel declines, we could experience price increases that we are not able to pass on to the end users, a deterioration of service from our suppliers or interruptions or delays that may cause us not to meet delivery schedules to our customers. Any of these problems could adversely affect our results of operations and financial condition. For additional discussion please see “Item 3. Quantitative and Qualitative Disclosures About Market Risk — Steel Prices.”

 

 

RESULTS OF OPERATIONS

 

Operating segments are defined as components of an enterprise that engage in business activities and by which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker to make decisions about how to allocate resources to the segment and assess the performance of the segment. We have three operating segments: metal coil coating; metal components; and engineered building systems. All operating segments operate primarily in the nonresidential construction market. Sales and earnings are influenced by general economic conditions, the level of nonresidential construction activity, metal roof repair and retrofit demand and the availability and terms of financing available for construction. Our operating segments are vertically integrated and benefit from similar basic raw materials. The metal coil coating segment consists of cleaning, treating, painting and slitting continuous steel coils before the steel is fabricated for use by construction and industrial users. The metal components segment products include metal roof and wall panels, doors, metal partitions, metal trim, insulated panels and other related accessories. The engineered building systems segment includes the manufacturing of main frames, Long Bay^® Systems and value-added engineering and drafting, which are typically not part of metal components or metal coil coating products or services. The manufacturing and distribution activities of our segments are effectively coupled through the use of our nationwide hub-and-spoke manufacturing and distribution system, which supports and enhances our vertical integration. The operating segments follow the same accounting policies used for our consolidated financial statements.

 

We evaluate a segment’s performance based primarily upon operating income before corporate expenses. Intersegment sales are recorded based on standard material costs plus a standard markup to cover labor and overhead and consist of: (i) hot-rolled, light gauge painted, and slit material and other services provided by the metal coil coating segment to both the metal components and engineered building systems segments; (ii) building components provided by the metal components segment to the engineered building systems segment; and (iii) structural framing provided by the engineered building systems segment to the metal components segment.

 

Corporate assets consist primarily of cash but also include deferred financing costs, deferred taxes and property, plant and equipment associated with our headquarters in Houston, Texas. These items (and income and expenses related to these items) are not allocated to the operating segments. Corporate unallocated expenses include share-based compensation expenses, and executive, legal, finance, tax, treasury, human resources, information technology, purchasing, marketing and corporate travel expenses. Additional unallocated expenses include interest income, interest expense, debt extinguishment costs and other (expense) income. See Note 13 — Operating Segments to the consolidated financial statements for more information on our segments.

 

The following table represents sales and operating income attributable to these operating segments for the periods indicated (in thousands, except percentages):

 

		Fiscal Three Months Ended																Fiscal Nine Months Ended
		August 3, 2014				%				July 28, 2013				%				August 3, 2014				%				July 28, 2013				%
Total sales:
Metal coil coating		$	68,324				19			$	56,478				18			$	176,898				18			$	155,539				17
Metal components			184,321				51				161,008				51				497,599				51				462,075				51
Engineered building systems			174,186				48				158,369				50				475,834				49				454,030				50
Intersegment sales			(65,205	)			(18	)			(58,654	)			(19	)			(172,239	)			(18	)			(163,460	)			(18	)
Total net sales		$	361,626				100			$	317,201				100			$	978,092				100			$	908,184				100
External sales:
Metal coil coating		$	31,132				9			$	23,028				7			$	81,230				8			$	64,136				7
Metal components			162,180				45				140,441				44				437,259				45				406,150				45
Engineered building systems			168,314				46				153,732				49				459,603				47				437,898				48
Total net sales		$	361,626				100			$	317,201				100			$	978,092				100			$	908,184				100
Operating income:
Metal coil coating		$	6,665							$	5,521							$	17,053							$	15,818
Metal components			10,437								8,054								19,107								19,263
Engineered building systems			11,454								6,123								13,129								14,360
Corporate			(16,354	)							(15,421	)							(45,768	)							(46,711	)
Total operating income		$	12,202							$	4,277							$	3,521							$	2,730
Unallocated other expense			(3,276	)							(26,402	)							(9,321	)							(38,155	)
Income (loss) before income taxes		$	8,926							$	(22,125	)						$	(5,800	)						$	(35,425	)

 

 

FISCAL THREE MONTHS ENDED AUGUST 3, 2014 COMPARED TO FISCAL THREE MONTHS ENDED JULY 28, 2013

 

Consolidated sales increased by 14.0%, or $44.4 million for the three months ended August 3, 2014, compared to the three months ended July 28, 2013. This increase resulted from higher tonnage volumes in our metal coil coating and metal components segments for the three months ended August 3, 2014 compared to the same period in 2013 which was driven primarily by improved demand in the end use sectors of the nonresidential construction industry that we serve compared to the prior year.

 

Consolidated cost of sales, excluding gain on insurance recovery increased by 12.8%, or $31.9 million for the three months ended August 3, 2014, compared to the three months ended July 28, 2013. This increase resulted from higher tonnage volumes in our metal coil coating and metal components segments as noted above.

 

Gross margin was 22.0% for the three months ended August 3, 2014 compared to 21.1% for the same period in the prior year. The increase in gross margins was the result of value pricing and increased operating leverage due to higher tonnage volumes.

 

Metal coil coating sales increased by 21.0%, or $11.8 million to $68.3 million in the three months ended August 3, 2014, compared to $56.5 million in the same period in the prior year. Sales to third parties for the three months ended August 3, 2014 increased $8.1 million to $31.1 million from $23.0 million in the same period in the prior year, primarily as a result of a 26.5% increase in external tons shipped due to the continued ramping up of our new facility in Middletown, Ohio and higher package sales mix compared to toll processing sales mix. Package sales include both the painting services and the sale of the steel coil while toll processing services include only the painting service performed on the steel coil already in the customer’s ownership. The remaining $3.7 million represents an increase in intersegment sales for the three months ended August 3, 2014 compared to the same period in the prior year. Metal coil coating third-party sales accounted for 8.6% of total consolidated third-party sales in the three months ended August 3, 2014 compared to 7.3% in the three months ended July 28, 2013.

 

Operating income of the metal coil coating segment increased to $6.7 million in the three months ended August 3, 2014, compared to $5.5 million in the same period in the prior year. The $1.1 million increase resulted primarily from higher external volume as noted above, partially offset by the additional cost associated with the ramp up of the new Middletown facility.

 

Metal components sales increased 14.5%, or $23.3 million to $184.3 million in the three months ended August 3, 2014, compared to $161.0 million in the same period in the prior year. This increase was primarily due to a 14.8% increase in external tons shipped, partially offset by unfavorable product mix. The external volume increase was driven by improved demand in the end use sectors we serve compared to the prior year. Sales to third parties for the three months ended August 3, 2014 increased $21.7 million to $162.2 million from $140.4 million in the same period in the prior year. The remaining $1.6 million represents an increase in intersegment sales. Metal components third-party sales accounted for 44.8% of total consolidated third-party sales in the three months ended August 3, 2014 compared to 44.3% in the three months ended July 28, 2013.

 

Operating income of the metal components segment increased to $10.4 million in the three months ended August 3, 2014, compared to $8.1 million in the same period in the prior year. The $2.4 million increase resulted primarily from higher external volume as noted above, partially offset by investments in certain growth initiatives.

 

Engineered building systems sales increased 10.0%, or $15.8 million to $174.2 million in the three months ended August 3, 2014, compared to $158.4 million in the same period in the prior year. This increase in the three months ended August 3, 2014 compared to the same period in the prior year primarily resulted from higher sales prices as a result of improved product mix supported by value oriented pricing. Sales to third parties for the three months ended August 3, 2014 increased $14.6 million to $168.3 million from $153.7 million in the same period in the prior year. The remaining $1.2 million represents an increase in intersegment sales. Engineered building systems third-party sales accounted for 46.5% of total consolidated third-party sales in the three months ended August 3, 2014 compared to 48.5% in the three months ended July 28, 2013.

 

Operating income of the engineered building systems segment increased to $11.5 million in the three months ended August 3, 2014 compared to $6.1 million in the same period in the prior year. This $5.3 million increase resulted from higher sales prices as noted above.

 

 

Consolidated engineering, selling, general and administrative expenses, consisting of engineering, drafting, selling and administrative costs, increased to $65.9 million in the three months ended August 3, 2014, compared to $62.8 million in the same period in the prior year. As a percentage of sales, engineering, selling, general and administrative expenses were 18.2% for the three months ended August 3, 2014 as compared to 19.8% for the three months ended July 28, 2013. The $3.1 million increase in engineering, selling and administrative expenses was primarily due to an increase in wages, commissions and benefits as a result of higher volumes and certain growth initiatives and investments in our sales force during the three months ended August 3, 2014.

 

Consolidated strategic development costs for the three months ended August 3, 2014 were $1.5 million. These non-recurring, non-operational costs are related to industry-specific activities that support our future growth targets and performance goals. There was no corresponding amount recorded for the three months ended July 28, 2013.

 

Consolidated interest expense decreased to $3.2 million for the three months ended August 3, 2014, compared to $5.2 million for the same period of the prior year. Interest rates on the Credit Agreement decreased on June 24, 2013 from 8% to 4.25%.

 

Consolidated debt extinguishment costs, net for the three months ended July 28, 2013 were $21.5 million. There was no corresponding amount recorded for the three months ended August 3, 2014. During our third quarter of fiscal 2013, we entered into an amendment to our Credit Agreement and recognized a one-time debt extinguishment charge of approximately $21.5 million related to the write-off of non-cash existing deferred debt issuance costs, non-cash initial debt discount write-off, prepayment penalty and fees to the creditors.

 

Consolidated provision (benefit) for income taxes was a $2.8 million provision for the three months ended August 3, 2014, compared to a $9.9 million benefit for the same period in the prior year. The effective tax rate for the three months ended August 3, 2014 was 31.8% compared to 44.9% for the same period in the prior year. The improvement in the income tax provision (benefit) was primarily the result of lower utilization of certain Canadian net operating loss carry forwards which have been previously reserved, partially offset by an increase in non-deductible expenses for the three months ended August 3, 2014 compared to the same period in the prior year.

 

Diluted income (loss) per common share improved to income of $0.08 per diluted common share for the three months ended August 3, 2014, compared to a loss of $(0.19) per diluted common share for the same period in the prior year. The change in the diluted income (loss) per common share was primarily due to the $18.2 million improvement in net income (loss) allocated to shares of our common stock resulting from the factors described above in this section, partially offset by the conversion of our Convertible Preferred Stock into shares of our common stock in the third quarter of fiscal 2013, which increased the weighted average number of shares outstanding in the current period. The Convertible Preferred Stock prior to its conversion and the unvested restricted common stock related to our Incentive Plan do not have a contractual obligation to share in losses; therefore, no losses were allocated to these shares in the three months ended July 28, 2013.

 

FISCAL NINE MONTHS ENDED AUGUST 3, 2014 COMPARED TO FISCAL NINE MONTHS ENDED JULY 28, 2013

 

Consolidated sales increased by 7.7%, or $69.9 million for the nine months ended August 3, 2014, compared to the nine months ended July 28, 2013. This increase resulted from higher tonnage volumes in our metal coil coating and metal components segments for the nine months ended August 3, 2014 compared to the same period in 2013 which was driven primarily by improved demand in the end use sectors of the nonresidential construction industry that we serve compared to the prior year. These increases were partially offset by lower tonnage volumes in our engineered building systems segment during the current period.

 

Consolidated cost of sales, excluding gain on insurance recovery increased by 8.6%, or $61.6 million for the nine months ended August 3, 2014, compared to the nine months ended July 28, 2013. This increase resulted from higher tonnage volumes in our metal coil coating and metal components segments as noted above.

 

Consolidated gain on insurance recovery for the nine months ended August 3, 2014 was $1.3 million. On August 6, 2013, our metal coil coating segment facility in Jackson, Mississippi experienced a fire caused by an exhaust fan failure that damaged the roof and walls of two curing ovens. During the fourth quarter of fiscal 2013, the ovens were repaired. We received insurance proceeds of approximately $1.3 million during the nine months ended August 3, 2014 from claims submitted. These insurance proceeds have been classified as a “gain on insurance recovery” in the consolidated statement of operations. There was no corresponding amount recorded for the nine months ended July 28, 2013. See Note 3 –– Gain on Insurance Recovery to the consolidated financial statements for more information.

 

Gross margin, including the gain on insurance recovery, was 20.3% for the nine months ended August 3, 2014 compared to 20.8% for the same period in the prior year. The decrease in gross margins was the result of an unfavorable product mix and higher transportation and manufacturing costs due to the impact of unfavorable weather conditions earlier in the period which were partially offset by the gain on insurance recovery as noted above.

 

Metal coil coating sales increased by 13.7%, or $21.4 million to $176.9 million in the nine months ended August 3, 2014, compared to $155.5 million in the same period in the prior year. Sales to third parties for the nine months ended August 3, 2014 increased $17.1 million to $81.2 million from $64.1 million in the same period in the prior year, primarily as a result of a 21.2% increase in external tons shipped due to the continued ramping up of our new facility in Middletown, Ohio and higher package sales mix compared to toll processing sales mix. Package sales include both the toll processing services and the sale of the steel coil while toll processing services include only the toll processing service performed on the steel coil already in the customer’s ownership. The remaining $4.3 million represents an increase in intersegment sales for the nine months ended August 3, 2014 compared to the same period in the prior year. Metal coil coating third-party sales accounted for 8.3% of total consolidated third-party sales in the nine months ended August 3, 2014 compared to 7.1% in the nine months ended July 28, 2013.

 

 

Operating income of the metal coil coating segment increased to $17.1 million in the nine months ended August 3, 2014, compared to $15.8 million in the same period in the prior year. The $1.2 million increase resulted primarily from the gain on insurance recovery and external volume as noted above, partially offset by the additional cost associated with the ramp up of the new Middletown facility.

 

Metal components sales increased 7.7%, or $35.5 million to $497.6 million in the nine months ended August 3, 2014, compared to $462.1 million in the same period in the prior year. This increase was primarily due to a 7.6% increase in external tons shipped, partially offset by unfavorable product mix. The external volume increase was driven by improved demand in the end use sectors we serve compared to the prior year but was partially offset by unfavorable weather conditions earlier in the period. Sales to third parties for the nine months ended August 3, 2014 increased $31.1 million to $437.3 million from $406.2 million in the same period in the prior year. The remaining $4.4 million represents an increase in intersegment sales. Metal components third-party sales accounted for 44.7% of total consolidated third-party sales in both the nine months ended August 3, 2014 and July 28, 2013.

 

Operating income of the metal components segment decreased to $19.1 million in the nine months ended August 3, 2014, compared to $19.3 million in the same period in the prior year. The $0.2 million decrease was driven by investments in certain growth initiatives, unfavorable product mix and unfavorable weather conditions earlier in the period.

 

Engineered building systems sales increased 4.8%, or $21.8 million to $475.8 million in the nine months ended August 3, 2014, compared to $454.0 million in the same period in the prior year. This increase in the nine months ended August 3, 2014 compared to the same period in the prior year resulted from higher sales prices as a result of improved product mix supported by value oriented pricing. Sales to third parties for the nine months ended August 3, 2014 increased $21.7 million to $459.6 million from $437.9 million in the same period in the prior year. The remaining $0.1 million represents an increase in intersegment sales. Engineered building systems third-party sales accounted for 47.0% of total consolidated third-party sales in the nine months ended August 3, 2014 compared to 48.2% in the nine months ended July 28, 2013.

 

Operating income of the engineered building systems segment decreased to $13.1 million in the nine months ended August 3, 2014 compared to $14.4 million in the same period in the prior year. This $1.2 million decline resulted from higher transportation and manufacturing costs which were due to weather and supply chain disruptions earlier in the period, partially offset by higher sales prices as noted above.

 

Consolidated engineering, selling, general and administrative expenses, consisting of engineering, drafting, selling and administrative costs, increased to $193.4 million in the nine months ended August 3, 2014, compared to $186.0 million in the same period in the prior year. As a percentage of sales, engineering, selling, general and administrative expenses were 19.8% for the nine months ended August 3, 2014 as compared to 20.5% for the nine months ended July 28, 2013. The $7.4 million increase in engineering, selling and administrative expenses was primarily due to an increase in wages, commissions and benefits as a result of higher volumes and certain growth initiatives and investments in our sales force as well as $0.8 million of expenses relating to the secondary offering by the CD&R Funds during the nine months ended August 3, 2014.

 

Consolidated strategic development costs for the nine months ended August 3, 2014 were $1.5 million. These non-recurring, non-operational costs are related to industry-specific activities that support our future growth targets and performance goals. There was no corresponding amount recorded for the nine months ended July 28, 2013.

 

Consolidated interest expense decreased to $9.4 million for the nine months ended August 3, 2014, compared to $17.6 million for the same period of the prior year. Interest rates on the Credit Agreement decreased on June 24, 2013 from 8% to 4.25%.

 

Consolidated debt extinguishment costs, net for the nine months ended July 28, 2013 were $21.5 million. There was no corresponding amount recorded for the nine months ended August 3, 2014. During our third quarter of fiscal 2013, we entered into an amendment to our Credit Agreement and recognized a one-time debt extinguishment charge of approximately $21.5 million related to the write-off of non-cash existing deferred debt issuance costs, non-cash initial debt discount write-off, prepayment penalty and fees to the creditors.

 

Consolidated other income, net decreased to $0.04 million for the nine months ended August 3, 2014, compared to $0.9 million for the same period of the prior year primarily due to Mexico’s foreign currency losses in the current period. 

 

Consolidated provision (benefit) from income taxes was a $2.7 million benefit for the nine months ended August 3, 2014, compared to a $14.3 million benefit for the same period in the prior year. The effective tax rate for the nine months ended August 3, 2014 was 47.0% compared to 40.3% for the same period in the prior year. The decline in the income tax benefit was primarily the result of the lower utilization of the domestic production activities deduction and the lower utilization of certain Canadian net operating loss carry forwards which have been previously reserved, partially offset by and an increase in non-deductible expenses for the nine months ended August 3, 2014 compared to the same period in the prior year.

 

 

Diluted income (loss) per common share improved to a loss of $(0.04) per diluted common share for the nine months ended August 3, 2014, compared to a loss of $(0.62) per diluted common share for the same period in the prior year. The change in the diluted loss per common share was primarily due to the conversion of our Convertible Preferred Stock into shares of our common stock in the third quarter of fiscal 2013, which increased the weighted average number of shares outstanding and the $18.1 million decrease in net income (loss) allocated to shares of our common stock resulting from the factors described above in this section. The Convertible Preferred Stock prior to its conversion and the unvested restricted common stock related to our Incentive Plan do not have a contractual obligation to share in losses; therefore, no losses were allocated to these shares in the periods presented.

 

LIQUIDITY AND CAPITAL RESOURCES

 

General

 

Our cash and cash equivalents declined from $77.4 million to $27.7 million during the nine months ended August 3, 2014. The following table summarizes our consolidated cash flows for the nine months then ended August 3, 2014 and July 28, 2013 (dollars in thousands):

 

		Fiscal Nine Months Ended
		August 3,				July 28,
		2014				2013
Net cash used in operating activities			(10,054	)			(9,143	)
Net cash used in investing activities			(13,218	)			(17,545	)
Net cash used in financing activities			(26,273	)			(12,244	)
Effect of exchange rate changes on cash and cash equivalents			(227	)			(77	)
Net decrease in cash and cash equivalents			(49,772	)			(39,009	)
Cash and cash equivalents at beginning of period			77,436				55,158
Cash and cash equivalents at end of period		$	27,664			$	16,149

 

Operating Activities

 

Our business is both seasonal and cyclical and cash flows from operating activities may fluctuate during the year and from year to year due to economic conditions. We rely on cash and short-term borrowings to meet cyclical and seasonal increases in working capital needs. These needs generally rise during periods of increased economic activity or increasing raw material prices due to higher levels of inventory and accounts receivable. During economic slowdowns, or periods of decreasing raw material costs, working capital needs generally decrease as a result of the reduction of inventories and accounts receivable.

 

Net cash used in operating activities was $10.1 million during the nine months ended August 3, 2014 compared to $9.1 million of net cash used in operating activities in the comparable period of fiscal 2013. This difference was largely driven by the increase in earnings, offset by changes in working capital over the comparable period of the prior year.

 

The primary driver for our increased use of cash for working capital needs was a $23.8 million increase in our cash used for accounts payable over the comparable period of the prior year. Our vendor payments can significantly fluctuate based on the timing of disbursements, inventory purchases and vendor payment terms. Our days payable outstanding (“DPO”) as of August 3, 2014 decreased to 32.0 days compared to 34.8 days in the prior year.

 

Cash used during the period to invest in inventory was $14.5 million for the nine months ended August 3, 2014 which was lower than the $29.2 million invested in the comparable period of the prior year. The decrease was driven by lower than anticipated volumes and a decrease in our days inventory on-hand (“DIO”), as our DIO was 44.4 days as of August 3, 2014 as compared to 48.7 days at July 28, 2013.

 

Cash generated from accounts receivable was $11.6 million lower in the current nine month period than the comparable period of the prior year. This decrease was driven by the timing of receipts but was partially offset by significant year-over-year revenue growth and a decrease in days sales outstanding (“DSO”) to 33.1 days as of August 3, 2014 from 35.8 days at July 28, 2013 as a result of improved customer payments during the current nine month period.

 

 

Investing Activities

 

Cash used in investing activities of $13.2 million during the nine months ended August 3, 2014 was lower than the $17.5 million invested in the comparable period of the prior year and related predominantly to capital expenditures for a new insulated panel system line, computer software and machinery and equipment in the current period. In the nine months ended July 28, 2013, $17.5 million was used for capital expenditures predominantly related to a new insulated panel system line, the new metal coil coating facility and computer software.

 

Financing Activities

 

Cash used in financing activities increased to $26.3 million of cash used in financing activities from $12.2 million of cash used in financing activities in the comparable prior year period. The $26.3 million used in financing activities during the nine months ended August 3, 2014 was primarily attributable to the purchase of Common Stock in the amount of $23.8 million paid primarily to the CD&R Funds in connection with the Stock Repurchase (as defined below) and $1.8 million of payments made to reduce our outstanding term loan and $1.2 million of payments made to reduce our note payable during the nine months ended August 3, 2014. The $12.2 million of cash used in financing activities during the nine months ended July 28, 2013 was primarily attributable to $10.4 million of payments made to reduce our outstanding term loan, $6.2 million payment of financing costs and $2.4 million of treasury stock purchases, partially offset by $5.0 million of net proceeds on the Amended ABL Facility during the nine months ended July 28, 2013.

 

We invest our excess cash in various overnight investments which are issued or guaranteed by the federal government.

 

Equity Investment

 

On August 14, 2009, the Company entered into an Investment Agreement (as amended, the “Investment Agreement”), by and between the Company and CD&R Fund VIII, pursuant to which the Company agreed to issue and sell to CD&R Fund VIII, and CD&R Fund VIII agreed to purchase from the Company, for an aggregate purchase price of $250 million (less reimbursement to CD&R Fund VIII or direct payment to its service providers of up to $14.5 million in the aggregate of transaction expenses and a deal fee, paid to Clayton, Dubilier & Rice, Inc., the manager of CD&R Fund VIII, of $8.25 million), 250,000 shares of Convertible Preferred Stock. Pursuant to the Investment Agreement, on October 20, 2009 (the “Closing Date”), the Company issued and sold to the CD&R Funds, and the CD&R Funds purchased from the Company, an aggregate of 250,000 Preferred Shares, representing approximately 39.2 million shares of Common Stock or 68.4% of the voting power and Common Stock of the Company on an as-converted basis as of the Closing Date (such purchase and sale, the “CD&R Equity Investment”).

 

On May 14, 2013, the CD&R Funds, the holders of 339,293 Preferred Shares, delivered a formal notice requesting the Conversion of all of their Preferred Shares into shares of our Common Stock. In connection with the Conversion request, we issued the CD&R Funds 54,136,817 shares of our Common Stock, representing 72.4% of the Common Stock of the Company then outstanding. Under the terms of the Preferred Shares, no consideration was required to be paid by the CD&R Funds to the Company in connection with the Conversion of the Preferred Shares. As a result of the Conversion, the CD&R Funds no longer have rights to dividends or default dividends as specified in the Certificate of Designations. The Conversion eliminated all the outstanding Convertible Preferred Stock and increased stockholders’ equity by nearly $620.0 million, returning our stockholders’ equity to a positive balance during our third quarter of fiscal 2013.

 

The Company filed, pursuant to the Registration Rights Agreement dated as of October 20, 2009 among the Company and the CD&R Funds, a registration statement on Form S-3 for the offer and sale of Common Stock from time to time by the CD&R Funds of their common stock. The registration statement became effective on March 28, 2013.

 

On January 15, 2014, the CD&R Funds completed a registered underwritten offering, in which the CD&R Funds offered 8.5 million shares of Common Stock at a price to the public of $18.00 per share (the “Secondary Offering”). The underwriters also exercised their option to purchase 1.275 million additional shares of Common Stock. The aggregate offering price for the 9.775 million shares sold in the Secondary Offering was approximately $167.6 million, net of underwriting discounts and commissions. The CD&R Funds received all of the proceeds from the Secondary Offering and no shares in the Secondary Offering were sold by NCI or any of its officers or directors (although certain of our directors are affiliated with the CD&R Funds). In connection with this Secondary Offering, we incurred approximately $0.8 million in expenses, which were included in engineering, selling, general and administrative expenses in the consolidated statement of operations for the nine months ended August 3, 2014. At August 3, 2014 and November 3, 2013, the CD&R Funds owned 58.8% and 72.4%, respectively, of the voting power and Common Stock of the Company.

 

On January 6, 2014, NCI entered into an agreement with the CD&R Funds to repurchase 1.15 million shares of its Common Stock at the price per share equal to the price per share paid by the underwriters to the CD&R Funds in the underwritten offering (the “Stock Repurchase”). The Stock Repurchase, which was completed at the same time as the Secondary Offering, represented a private, non-underwritten transaction between NCI and the CD&R Funds that was approved and recommended by the Affiliate Transactions Committee of NCI’s board of directors. Following completion of the Stock Repurchase, NCI canceled the shares repurchased from the CD&R Funds, resulting in a $19.7 million decrease in both additional paid in capital and treasury stock.

 

 

Debt

 

On June 24, 2013, the Company entered into Amendment No. 1 (the “Amendment”) to its existing Credit Agreement (the “Credit Agreement”), dated as of June 22, 2012, between NCI, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent and the other financial institutions party thereto from time to time (the “Term Loan Facility”), primarily to extend the maturity date and reduce the interest rate applicable to all of the outstanding term loans under the Term Loan Facility. At August 3, 2014 and November 3, 2013, amounts outstanding under the Credit Agreement were $236.0 million and $237.8 million, respectively.

 

Pursuant to the Amendment, the maturity date of the $238 million of outstanding term loans (the “Initial Term Loans”) was extended and such loans were converted into a new tranche of term loans (the “Tranche B Term Loans”) that will mature on June 24, 2019 and, prior to such date, will amortize in nominal quarterly installments equal to one percent of the aggregate initial principal amount thereof per annum. At both August 3, 2014 and November 3, 2013, the interest rate on the term loan under our Credit Agreement was 4.25%.

 

In addition to our Credit Agreement, we have entered into the Amended ABL Facility which allows aggregate maximum borrowings of up to $150.0 million. Borrowing availability on the Amended ABL Facility is determined by a monthly borrowing base collateral calculation that is based on specified percentages of the value of qualified cash, eligible inventory and eligible accounts receivable, less certain reserves and subject to certain other adjustments. The Amended ABL Facility has a maturity of May 2, 2017 and includes borrowing capacity of up to $30 million for letters of credit and up to $10 million for swingline borrowings.

 

Credit Agreement. On June 24, 2013, the Company entered into the Amendment to the Credit Agreement, dated as of June 22, 2012, between NCI, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent and the other financial institutions party thereto from time to time (the “Term Loan Facility”), primarily to extend the maturity date and reduce the interest rate applicable to all of the outstanding term loans under the Term Loan Facility. At August 3, 2014 and November 3, 2013, amounts outstanding under the Credit Agreement were $236.0 million and $237.8 million, respectively.

 

Pursuant to the Amendment, the maturity date of the $238 million of outstanding Initial Term Loans was extended and such loans were converted into the Tranche B Term Loans that will mature on June 24, 2019 and, prior to such date, will amortize in nominal quarterly installments equal to one percent of the aggregate initial principal amount thereof per annum. Pursuant to the Amendment, the Tranche B Term Loans will bear interest at a floating rate measured by reference to, at the Company’s option, either (i) an adjusted LIBOR not less than 1.00% plus a borrowing margin of 3.25% per annum or (ii) an alternate base rate plus a borrowing margin of 2.25% per annum. At both August 3, 2014 and November 3, 2013, the interest rate on the term loan under our Credit Agreement was 4.25%. Overdue amounts will bear interest at a rate that is 2% higher than the rate otherwise applicable.

 

The Tranche B Term Loans are secured by the same collateral and guaranteed by the same guarantors as the Initial Term Loans under the Term Loan Facility. Voluntary prepayments of the Tranche B Term Loans are permitted at any time, in minimum principal amounts, without premium or penalty, subject to a 1.00% premium payable in connection with certain repricing transactions within the first six months.

 

Pursuant to the Amendment, the Company will no longer be subject to a financial covenant requiring us to maintain a specified consolidated secured debt to EBITDA leverage ratio for specified periods. The Amendment also includes certain other changes to the Term Loan Facility.

 

Subject to certain exceptions, the term loan under the Amendment will be subject to mandatory prepayment in an amount equal to:

 

•

the net cash proceeds of (1) certain asset sales, (2) certain debt offerings, and (3) certain insurance recovery and condemnation events; and

•

50% of annual excess cash flow (as defined in the Amendment), subject to reduction to 0% if specified leverage ratio targets are met.

 

On June 22, 2012, in connection with the acquisition of Metl-Span LLC, a Texas limited liability company (the “Acquisition”), the Company entered into a Credit Agreement among the Company, as Borrower, Credit Suisse AG, Cayman Islands Branch, as Administrative Agent and Collateral Agent (the “Term Agent”), and the lenders party thereto. The Credit Agreement provided for a term loan credit facility in an aggregate principal amount of $250.0 million. The Credit Agreement was issued at 95% of face value, which resulted in a note discount of $12.5 million. Prior to the Amendment, the note discount was amortized over the life of the loan through May 2, 2018 using the effective interest method.

 

 

The Company’s obligations under the Credit Agreement and designated cash management arrangements and hedging agreements, if any, will be irrevocably and unconditionally guaranteed on a joint and several basis by each direct and indirect wholly owned domestic subsidiary of the Company (other than any domestic subsidiary that is a foreign subsidiary holding company or a subsidiary of a foreign subsidiary and certain other excluded subsidiaries).

 

The obligations under the Credit Agreement and the designated cash management arrangements and hedging agreements, if any, and the guarantees thereof are secured pursuant to a guarantee and collateral agreement, dated as of June 22, 2012 (the “Guarantee and Collateral Agreement”), made by the Company and other Grantors (as defined therein), in favor of the Term Agent, by (i) all of the capital stock of all direct domestic subsidiaries owned by the Company and the guarantors, (ii) up to 65% of the capital stock of certain direct foreign subsidiaries owned by the Company or any guarantor (it being understood that a foreign subsidiary holding company or a domestic subsidiary of a foreign subsidiary will be deemed a foreign subsidiary), and (iii) substantially all other tangible and intangible assets owned by the Company and each guarantor, in each case to the extent permitted by applicable law and subject to certain exceptions.

 

The Credit Agreement contains a number of covenants that, among other things, will limit or restrict the ability of the Company and its subsidiaries to dispose of assets, incur additional indebtedness, make dividends and other restricted payments, create liens securing indebtedness, engage in mergers and other fundamental transactions, enter into restrictive agreements, amend certain documents in respect of other indebtedness, change the nature of their business and engage in certain transactions with affiliates.

 

The Credit Agreement contains customary events of default, including non-payment of principal, interest or fees, violation of covenants, material inaccuracy of representations or warranties, cross default and cross acceleration to certain other material indebtedness, certain bankruptcy events, certain ERISA events, material invalidity of security interest, material judgments, and change of control.

 

The Credit Agreement also provides that the Company has the right at any time to request incremental commitments under one or more incremental term loan facilities or incremental revolving loan facilities, subject to compliance with a pro forma consolidated secured net debt to EBITDA leverage ratio. The lenders under the Credit Agreement will not be under any obligation to provide any such incremental commitments, and any such addition of or increase in commitments will be subject to pro forma compliance with customary conditions.

 

In connection with the execution of the Credit Agreement the Company, certain of the Company’s subsidiaries, Wells Fargo Capital Finance, LLC, as administrative agent (the “ABL Agent”) under the Company’s Amended ABL Facility (as defined below), and the Term Agent entered into an amendment (the “Intercreditor Agreement Amendment”) to the Company’s existing Intercreditor Agreement, dated as of October 20, 2009, providing for, among other things, the obligations under the Credit Agreement to become subject to the provisions of the Intercreditor Agreement.

 

Amended ABL Facility. On May 2, 2012, we entered into the Amended Asset-Based Lending Facility (the “Amended ABL Facility”) to (i) permit the acquisition, the entry by the Company into the Credit Agreement and the incurrence of debt thereunder and the repayment of existing indebtedness under NCI’s existing Term Loan, (ii) increase the amount available for borrowing thereunder to $150 million (subject to a borrowing base), (iii) increase the amount available for letters of credit thereunder to $30 million, and (iv) extend the final maturity thereunder to May 2, 2017.

 

The Amended ABL Facility provides for an asset-based revolving credit facility which allows aggregate maximum borrowings by NCI Group, Inc. and Robertson-Ceco II Corporation of up to $150.0 million. Borrowing availability under the Amended ABL Facility is determined by a monthly borrowing base collateral calculation that is based on specified percentages of the value of qualified cash, eligible inventory and eligible accounts receivable, less certain reserves and subject to certain other adjustments. At August 3, 2014 and November 3, 2013, our excess availability under the Amended ABL Facility was $132.6 million and $123.2 million, respectively. At both August 3, 2014 and November 3, 2013, we had no revolving loans outstanding under the Amended ABL Facility. In addition, at August 3, 2014 and November 3, 2013, standby letters of credit related to certain insurance policies totaling approximately $8.1 million and $10.2 million, respectively, were outstanding but undrawn under the Amended ABL Facility.

 

An unused commitment fee is paid monthly on the Amended ABL Facility at an annual rate of 0.50% based on the amount by which the maximum credit exceeds the average daily principal balance of outstanding loans and letter of credit obligations. Additional customary fees in connection with the Amended ABL Facility also apply.

 

 

The obligations of the borrowers under the Amended ABL Facility are guaranteed by the Company and each direct and indirect domestic subsidiary of the Company (other than any domestic subsidiary that is a foreign subsidiary holding company or a subsidiary of a foreign subsidiary that is insignificant) that is not a borrower under the Amended ABL Facility. The obligations of the Company under certain specified bank products agreements are guaranteed by each borrower and each other direct and indirect domestic subsidiary of the Company and the other guarantors. These guarantees are made pursuant to a guarantee agreement, dated as of October 20, 2009, entered into by the Company and each other guarantor with Wells Fargo Capital Finance, LLC (formerly known as Wells Fargo Foothill, LLC), as administrative agent. In connection with the Acquisition, Metl-Span became a borrower under the ABL Facility, and the Company, certain subsidiaries of the Company, and the ABL Agent entered into an amendment (the “ABL Guaranty Amendment”) to the Company’s existing Guaranty Agreement, dated as of October 20, 2009, providing for, among other things, the guarantee of the obligations of Metl-Span under the Amended ABL Facility.

 

The obligations under the Amended ABL Facility, and the guarantees thereof, are secured by a first priority lien on our accounts receivable, inventory, certain deposit accounts, associated intangibles and certain other specified assets of the Company and a second priority lien on the assets securing the term loan under the Credit Agreement on a first-lien basis, in each case subject to certain exceptions.

 

The Amended ABL Facility contains a number of covenants that, among other things, limit or restrict our ability to dispose of assets, incur additional indebtedness, incur guarantee obligations, engage in sale and leaseback transactions, prepay other indebtedness, modify organizational documents and certain other agreements, create restrictions affecting subsidiaries, make dividends and other restricted payments, create liens, make investments, make acquisitions, engage in mergers, change the nature of our business and engage in certain transactions with affiliates.

 

Under the Amended ABL Facility, a “Dominion Event” occurs if either an event of default is continuing or excess availability falls below certain levels, during which period, and for certain periods thereafter, the administrative agent may apply all amounts in the Company’s, the borrowers’ and the other guarantors’ concentration accounts to the repayment of the loans outstanding under the Amended ABL Facility, subject to the Intercreditor Agreement and certain specified exceptions. In addition, during such Dominion Event, we are required to make mandatory payments on our Amended ABL Facility upon the occurrence of certain events, including the sale of assets and the issuance of debt, in each case subject to certain limitations and conditions set forth in the Amended ABL Facility.

 

The Amended ABL Facility includes a minimum fixed charge coverage ratio of one to one, which will apply if we fail to maintain a specified minimum borrowing capacity. The minimum level of borrowing capacity as of August 3, 2014 and November 3, 2013 was $19.9 million and $18.5 million, respectively. Although our Amended ABL Facility did not require any financial covenant compliance, at August 3, 2014 and November 3, 2013, our fixed charge coverage ratio as of those dates, which is calculated on a trailing twelve month basis, was 1.95:1.00 and 2.29:1.00, respectively.

 

Loans under the Amended ABL Facility bear interest, at our option, as follows:

 

(1)

Base Rate loans at the Base Rate plus a margin. “Base Rate” is defined as the higher of the Wells Fargo Bank, N.A. prime rate and the overnight Federal Funds rate plus 0.5% and “LIBOR” is defined as the applicable London Interbank Offered Rate adjusted for reserves. The margin ranges from 1.50% to 2.00% depending on the quarterly average excess availability under such facility, and

(2)

LIBOR loans at LIBOR plus a margin. The margin ranges from 2.50% to 3.00% depending on the quarterly average excess availability under such facility.

 

At both August 3, 2014 and November 3, 2013, the interest rate on our Amended ABL Facility was 4.75%. During an event of default, loans under the Amended ABL Facility will bear interest at a rate that is 2% higher than the rate otherwise applicable.

 

Cash Flow

 

We periodically evaluate our liquidity requirements, capital needs and availability of resources in view of inventory levels, expansion plans, debt service requirements and other operating cash needs. To meet our short- and long-term liquidity requirements, including payment of operating expenses and repaying debt, we rely primarily on cash from operations. Beyond cash generated from operations, most of our Amended ABL Facility is undrawn with $132.6 million available at August 3, 2014 and $27.7 million of cash at August 3, 2014. However, we have in the past, sought to raise additional capital.

 

We expect that, for the next 12 months, cash generated from operations and our Amended ABL Facility will be sufficient to provide us the ability to fund our operations, provide the increased working capital necessary to support our strategy and fund planned capital expenditures of between approximately $10 million and $13 million for the remainder of fiscal 2014 and expansion when needed.

 

 

In the past, we have used available funds to repurchase shares of our Common Stock under our stock repurchase program. Although we did not purchase any Common Stock during the third quarter of fiscal 2014 under our stock repurchase program, we did withhold shares of restricted stock to satisfy minimum tax withholding obligations arising in connection with the vesting of awards of restricted stock related to our 2003 Long-Term Stock Incentive Plan.

 

On January 6, 2014, NCI entered into an agreement with the CD&R Funds to repurchase 1.15 million shares of its Common Stock at the price per share equal to the price per share paid by the underwriters to the CD&R Funds in the underwritten offering (the “Stock Repurchase”). The Stock Repurchase, which was completed at the same time as the Secondary Offering, represented a private, non-underwritten transaction between NCI and the CD&R Funds that was approved and recommended by the Affiliate Transactions Committee of NCI’s board of directors. Following completion of the Stock Repurchase, NCI canceled the shares repurchased from the CD&R Funds.

 

Our corporate strategy seeks potential acquisitions that would provide additional synergies in our metal coil coating, metal components and engineered building systems segments. From time to time, we may enter into letters of intent or agreements to acquire assets or companies in these business lines. The consummation of these transactions could require substantial cash payments and/or issuance of additional debt.

 

The Company may repurchase or otherwise retire the Company’s debt and take other steps to reduce the Company’s debt or otherwise improve the Company’s financial position. These actions could include open market debt repurchases, negotiated repurchases, other retirements of outstanding debt and opportunistic refinancing of debt. The amount of debt that may be repurchased or otherwise retired, if any, will depend on market conditions, trading levels of the Company’s debt, the Company’s cash position, compliance with debt covenants and other considerations. Affiliates of the Company may also purchase the Company’s debt from time to time, through open market purchases or other transactions. In such cases, the Company’s debt may not be retired, in which case the Company would continue to pay interest in accordance with the terms of the debt, and the Company would continue to reflect the debt as outstanding in its consolidated balance sheets.

 

NON-GAAP MEASURES

 

Set forth below are certain non-GAAP measures which include “adjusted” operating income (loss), adjusted EBITDA, “adjusted” net income (loss) per diluted common share and “adjusted” net income (loss) applicable to common shares. We define adjusted EBITDA as net income (loss) before interest expense, income tax expense (benefit) and depreciation and amortization, adjusted for items broadly consisting of selected items which management does not consider representative of our ongoing operations and certain non-cash items of the Company. Such measurements are not prepared in accordance with U.S. GAAP and should not be construed as an alternative to reported results determined in accordance with U.S. GAAP. Management believes the use of such non-GAAP measures, on a consolidated and operating segment basis, assists investors in understanding the ongoing operating performance by presenting the financial results between periods on a more comparable basis. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating these measures, you should be aware that in the future we may incur expenses that are the same as, or similar to, some of the adjustments in these non-GAAP measures. In addition, certain financial covenants related to our Credit Agreement and Amended ABL Facility are based on similar non-GAAP measures. The non-GAAP information provided is unique to the Company and may not be consistent with the methodologies used by other companies.

 

The following tables reconcile adjusted operating income (loss) to operating income (loss) for the periods indicated (in thousands):

 

		For the Three Months Ended August 3, 2014
										Engineered
		Metal Coil				Metal				Building
		Coating				Components				Systems				Corporate				Consolidated
Operating income (loss), GAAP basis		$	6,665			$	10,437			$	11,454			$	(16,354	)		$	12,202
Strategic development costs			––				––				––				1,486				1,486
Adjusted operating income (loss)		$	6,665			$	10,437			$	11,454			$	(14,868	)		$	13,688

 

 

		For the Three Months Ended July 28, 2013
										Engineered
		Metal Coil				Metal				Building
		Coating				Components				Systems				Corporate				Consolidated
Operating income (loss), GAAP basis(1)		$	5,521			$	8,054			$	6,123			$	(15,421	)		$	4,277

 

		For the Nine Months Ended August 3, 2014
										Engineered
		Metal Coil				Metal				Building
		Coating				Components				Systems				Corporate				Consolidated
Operating income (loss), GAAP basis		$	17,053			$	19,107			$	13,129			$	(45,768	)		$	3,521
Gain on insurance recovery			(1,311	)			––				––				––				(1,311	)
Secondary offering costs			––				––				––				754				754
Strategic development costs			––				––				––				1,486				1,486
Adjusted operating income (loss)		$	15,742			$	19,107			$	13,129			$	(43,528	)		$	4,450

 

		For the Nine Months Ended July 28, 2013
										Engineered
		Metal Coil				Metal				Building
		Coating				Components				Systems				Corporate				Consolidated
Operating income (loss), GAAP basis(1)		$	15,818			$	19,263			$	14,360			$	(46,711	)		$	2,730

__________

(1)   The Company did not incur any special charges during the three and nine months ended July 28, 2013.

 

The following tables reconcile adjusted EBITDA to Net income (loss) for the periods indicated (in thousands):

 

		4rd Quarter				1th Quarter				2st Quarter				3nd Quarter				Trailing
		November 3,				February 2,				May 4,				August 3,				12 Months
		2013				2014				2014				2014				August 3, 2014
Net income (loss)		$	8,276			$	(4,258	)		$	(4,905	)		$	6,089			$	5,202
Add:
Depreciation and amortization			9,012				8,767				8,941				8,994				35,714
Consolidated interest expense, net			3,334				3,100				3,035				3,142				12,611
Provision (benefit) for income taxes			5,410				(2,506	)			(3,057	)			2,837				2,684
Gain on insurance recovery			(1,023	)			(987	)			(324	)			––				(2,334	)
Unreimbursed business interruption costs			500				––				––				––				500
Secondary offering costs			––				704				50				––				754
Strategic development costs			––				––				––				1,486				1,486
Non-cash charges:
Stock-based compensation			4,565				3,179				2,563				2,404				12,711
Adjusted EBITDA		$	30,074			$	7,999			$	6,303			$	24,952			$	69,328

 

		4th Quarter				1st Quarter				2nd Quarter				3nd Quarter				Trailing
		October 28,				January 27,				April 28,				July 28,				12 Months
		2012				2013				2013				2013				July 28, 2013
Net income (loss)		$	6,270			$	(3,627	)		$	(5,342	)		$	(12,192	)		$	(14,891	)
Add:
Depreciation and amortization			10,355				9,122				8,809				9,066				37,352
Consolidated interest expense, net			6,226				6,244				6,149				5,130				23,749
Provision (benefit) for income taxes			3,379				(1,825	)			(2,506	)			(9,933	)			(10,885	)
Acquisition-related costs			153				––				––				––				153
Debt extinguishment costs, net			––				––				––				21,491				21,491
Non-cash charges:
Stock-based compensation			3,117				3,442				3,445				3,448				13,452
Asset impairments			13				––				––				––				13
Embedded derivative			(5	)			(5	)			(4	)			(50	)			(65	)
Adjusted EBITDA		$	29,507			$	13,351			$	10,551			$	16,960			$	70,369

 

 

The following tables reconcile adjusted diluted income (loss) per common share to loss per diluted common share and adjusted income (loss) applicable to common shares to loss applicable to common shares for the periods indicated (in thousands):

 

		Fiscal Three Months Ended								Fiscal Nine Months Ended
		August 3, 2014				July 28, 2013				August 3, 2014				July 28, 2013
Net income (loss) per diluted common share, GAAP basis		$	0.08			$	(0.19	)		$	(0.04	)		$	(0.62	)
Debt extinguishment costs, net of taxes			––				0.21				––				0.39
Gain on insurance recovery, net of taxes			––				––				(0.01	)			––
Secondary offering costs, net of taxes			––				––				0.00				––
Foreign exchange loss, net of taxes			0.00				––				0.01				––
Strategic development costs, net of taxes			0.02				––				0.01				––
Adjusted net income (loss) per diluted common share		$	0.10			$	0.02			$	(0.03	)		$	(0.23	)

 

		Fiscal Three Months Ended								Fiscal Nine Months Ended
		August 3, 2014				July 28, 2013				August 3, 2014				July 28, 2013
Net income (loss) applicable to common shares, GAAP basis		$	6,089			$	(12,192	)		$	(3,074	)		$	(21,161	)
Debt extinguishment costs, net of taxes							13,238				––				13,238
Gain on insurance recovery, net of taxes			––				––				(808	)			––
Secondary offering costs, net of taxes			––				––				464				––
Foreign exchange loss, net of taxes			183				––				508				––
Strategic development costs, net of taxes			915				––				915				––
Adjusted net income (loss) applicable to common shares		$	7,187			$	1,046			$	(1,995	)		$	(7,923	)

 

OFF-BALANCE SHEET ARRANGEMENTS

 

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of August 3, 2014, we were not involved in any unconsolidated SPE transactions.

 

CONTRACTUAL OBLIGATIONS

 

In general, purchase orders issued in the normal course of business can be terminated in whole or in part for any reason without liability until the product is received.

 

During the nine months ended August 3, 2014, we committed to a natural gas purchase obligation at volumes expected to be used and based on a market index at one of our metal coil coating facilities totaling $1.7 million over the next two years.

 

There have been no other material changes in our future contractual obligations since the end of fiscal 2013 other than the normal expiration of existing contractual obligations. See Item 7 of our Annual Report on Form 10-K for the fiscal year ended November 3, 2013 for more information on contractual obligations. See Note 9 — Long-Term Debt and Note Payable to the consolidated financial statements for more information on the material terms of our Credit Agreement and Amended ABL Facility.

 

CRITICAL ACCOUNTING POLICIES

 

Critical accounting policies are those that are most important to the portrayal of our financial position and results of operations. These policies require our most subjective judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. Our most critical accounting policies include those that pertain to revenue recognition, insurance accruals, share-based compensation, income taxes, accounting for acquisitions, intangible assets and goodwill, allowance for doubtful accounts, inventory valuation, property, plant and equipment valuation, contingencies, beneficial conversion features and dividend policy and convertible preferred stock extinguishment policy, which are described in Item 7 of our Annual Report on Form 10-K for the year ended November 3, 2013.

 

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

In July 2013, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2013-11, Income Taxes (Topic 740): Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, A Similar Tax Loss, or a Tax Credit Carryforward Exists (A Consensus the FASB Emerging Issues Task Force). ASU 2013-11 requires an entity to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss carryforward, or similar tax loss or tax credit carryforward, rather than as a liability when the uncertain tax position would reduce the net operating loss or other carryforward under the tax law of the applicable jurisdiction and the entity intends to use the deferred tax asset for that purpose. This amendment is effective prospectively for our first quarter in fiscal 2015 but allows optional retrospective adoption (for all periods presented). We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

 

In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 changes the requirement for reporting discontinued operations. A disposal of a component of an entity or a group of components of an entity will be required to be reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on an entity’s operations and financial results when the entity or group of components of an entity meets the criteria to be classified as held for sale or when it is disposed of by sale or other than by sale. The update also requires additional disclosures about discontinued operations, a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements, and an entity’s significant continuing involvement with a discontinued operation. This update is effective prospectively for our first quarter in fiscal 2016. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in previously issued financial statements. We are currently evaluating the potential impact of this authoritative guidance on our consolidated financial statements.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for our first quarter in fiscal 2018 under either full or modified retrospective adoption. Early application is not permitted. We are currently assessing the potential effects of these changes to our consolidated financial statements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Steel Prices

 

We are subject to market risk exposure related to volatility in the price of steel. For the fiscal nine months ended August 3, 2014, steel constituted approximately 69% of our cost of sales. Our business is heavily dependent on the price and supply of steel. Our various products are fabricated from steel produced by mills to forms including bars, plates, structural shapes, sheets, hot-rolled coils and galvanized or Galvalume^® — coated coils¹. The steel industry is highly cyclical in nature, and steel prices have been volatile in recent years and may remain volatile in the future. Steel prices are influenced by numerous factors beyond our control, including general economic conditions, domestically and internationally, the availability of raw materials, competition, labor costs, freight and transportation costs, production costs, import duties and other trade restrictions. Based on the cyclical nature of the steel industry, we expect steel prices will continue to be volatile.

 

Although we have the ability to purchase steel from a number of suppliers, a production cutback by one or more of our current suppliers could create challenges in meeting delivery schedules to our customers. Because we have periodically adjusted our contract prices, particularly in the engineered building systems segment, we have generally been able to pass increases in our raw material costs through to our customers. The graph below shows the monthly CRU Index data for the North American Steel Price Index over the historical five-year period. The CRU North American Steel Price Index has been published by the CRU Group since 1994 and we believe this index appropriately depicts the volatility we have experienced in steel prices. The index, based on a CRU survey of industry participants, is now commonly used in the settlement of physical and financial contracts in the steel industry. The prices surveyed are purchases for forward delivery, according to lead time, which will vary. The volatility in this steel price index is comparable to the volatility we experienced in our average cost of steel.

 

 

1

Galvalume® is a registered trademark of Biec International, Inc.

 

 

Source: www.crugroup.com

 

We normally do not maintain an inventory of steel in excess of our current production requirements. However, from time to time, we may purchase steel in advance of announced steel price increases. In addition, it is our current practice to purchase all steel inventory that has been ordered but is not in our ownership. Therefore, our inventory may increase if demand for our products declines. We can give no assurance that steel will remain available or that prices will not continue to be volatile.

 

For the fiscal nine months ended August 3, 2014, scheduled material deliveries were delayed due to impassable roads and frozen waterways during the earlier portion of the period. As a result, we absorbed higher costs to purchase steel to meet customer delivery schedules.

  

With steel accounting for approximately 69% of our cost of sales for the fiscal nine months ended August 3, 2014, a one percent change in the cost of steel would have resulted in a pre-tax impact on cost of sales of approximately $5.4 million for the nine months ended August 3, 2014, if such costs were not passed on to our customers. The impact to our financial results of operations would be significantly dependent on the competitive environment and the costs of other alternative building products, which could impact our ability to pass on these higher costs.

 

Interest Rates

 

We are subject to market risk exposure related to changes in interest rates on our Credit Agreement and the Amended ABL Facility. These instruments bear interest at an agreed upon percentage point spread from either the prime interest rate or LIBOR. Under our Credit Agreement, we may, at our option, fix the interest rate for certain borrowings based on a spread over LIBOR for 30 days to six months. At August 3, 2014, we had $236.0 million outstanding under our Credit Agreement. Based on this balance, an immediate change of one percent in the interest rate would cause a change in interest expense of approximately $2.4 million on an annual basis. The fair value of our Credit Agreement, due June 2019, at August 3, 2014 was approximately $235.4 million compared to the face value of $236.0 million. The fair value of our Credit Agreement at November 3, 2013 was approximately $237.8 million compared to the face value of $237.8 million.

 

See Note 9 — Long-Term Debt and Note Payable to the consolidated financial statements for more information on the material terms of our long-term debt.

 

 

Foreign Currency Exchange Rates

 

We are exposed to the effect of exchange rate fluctuations on the U.S. dollar value of foreign currency denominated operating revenue and expenses. The functional currency for our Mexico operations is the U.S. dollar. Adjustments resulting from the re-measurement of the local currency financial statements into the U.S. dollar functional currency, which uses a combination of current and historical exchange rates, are included in net income (loss) in the current period. Net foreign currency re-measurement gains (losses) for the three month periods ended August 3, 2014 was $(0.4) million and was $(0.6) million for the nine month periods ended August 3, 2014. Net foreign currency re-measurement losses for the three and nine month periods ended July 28, 2013 were $(0.3) million and $(0.2) million, respectively.

 

The functional currency for our Canada operations is the Canadian dollar. Translation adjustments resulting from translating the functional currency financial statements into U.S. dollar equivalents are reported separately in accumulated other comprehensive income in stockholders’ equity. The net foreign currency exchange gains (losses) included in net income (loss) for the three month period ended August 3, 2014 was $0.1 million and was $0.2 million for the three month period ended July 28, 2013. The net foreign currency exchange gains (losses) included in net income (loss) for the nine month period ended August 3, 2014 was $(0.2) million and was $0.1 million for the nine month period ended July 28, 2013. The net foreign currency translation adjustment, net of tax, and included in other comprehensive income (loss) for the three month period ended August 3, 2014 was insignificant and was $0.9 million for the nine month period ended August 3, 2014. The net foreign currency translation adjustment, net of tax, and included in other comprehensive income (loss) for the three and nine month periods ended July 28, 2013 was $0.8 million and $(0.1) million, respectively.

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of August 3, 2014. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding the required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Management believes that our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and based on the evaluation of our disclosure controls and procedures as of August 3, 2014, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at such reasonable assurance level.

 

Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

NCI BUILDING SYSTEMS, INC.

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

See Part I, Item 1, “Unaudited Consolidated Financial Statements”, Note 14, which is incorporated herein by reference.

 

Item 1A. Risk Factors.

 

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended November 3, 2013 and the factors discussed in Part II, Item 1A, “Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly period ended February 2, 2014. The risks disclosed in our previous Annual Report on Form 10-K, Quarterly Report on Form 10-Q and information provided elsewhere in this report, could materially adversely affect our business, financial condition or results of operations. Additional risks and uncertainties not currently known or we currently deem to be immaterial may materially adversely affect our business, financial condition or results of operations. Except for the additional information disclosed in our Quarterly Report on Form 10-Q for the quarterly period ended February 2, 2014, we believe there have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended November 3, 2013.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

The following table shows our purchases of our Common Stock during the second quarter of fiscal 2014:

 

ISSUER PURCHASES OF EQUITY SECURITIES

 

Period		(a) Total Number of Shares Purchased(1)				(b) Average Price Paid per Share (or  Unit)				(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs				(d) Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs(2)
May 5, 2014 to June 1, 2014			258			$	15.72				—				129,218
June 2, 2014 to June 29, 2014			2,376			$	18.51				—				129,218
June 30, 2014 to August 3, 2014			––				––				—				129,218
Total			2,634			$	18.24				—				129,218

__________

(1)

During the third quarter of fiscal 2014, 2,634 shares of restricted stock were withheld to satisfy minimum tax withholding obligations arising in connection with the vesting of awards of restricted stock. The required withholding is calculated using the closing sales price on the previous business day prior to the vesting date as reported by the NYSE.

(2)

Our board of directors has authorized a stock repurchase program. Subject to applicable federal securities law, such purchases may occur, if at all, at times and in amounts that we deem appropriate. Shares repurchased are usually retired. On February 28, 2007, we publicly announced that our board of directors authorized the repurchase of an additional 0.2 million shares of our Common Stock. There is no time limit on the duration of the program. At August 3, 2014, there were 129,218 shares of Common Stock remaining authorized for repurchase under the program.

 

Item 6. Exhibits.

 

Exhibits

 

Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Index to Exhibits immediately preceding the exhibits filed herewith and such listing is incorporated herein by reference.

 

 

SIGNATURES

 

Pursuant to the requirements 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.

 

	NCI BUILDING SYSTEMS, INC.
	(Registrant)
Date: September 9, 2014	By:	/s/ Mark E. Johnson
		Mark E. Johnson
		Executive Vice President,
		Chief Financial Officer and Treasurer

 

 

Index to Exhibits

 

*31.1		Rule 13a-14(a)/15d-14(a) Certifications (Section 302 of the Sarbanes-Oxley Act of 2002)
*31.2		Rule 13a-14(a)/15d-14(a) Certifications (Section 302 of the Sarbanes-Oxley Act of 2002)
**32.1		Certifications pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (Section 906 of the Sarbanes-Oxley Act of 2002)
**32.2		Certifications pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (Section 906 of the Sarbanes-Oxley Act of 2002)
**101.INS		XBRL Instance Document
**101.SCH		XBRL Taxonomy Extension Schema Document
**101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
**101.DEF		XBRL Taxonomy Definition Linkbase Document
**101.LAB		XBRL Taxonomy Extension Label Linkbase Document
**101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

 

__________

*

Filed herewith

**

Furnished herewith