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NCI Building Systems Reports Higher Third Quarter Results

Posted on: Tuesday, 2 September 2008, 18:00 CDT

HOUSTON, Sept. 2 /PRNewswire-FirstCall/ -- NCI Building Systems, Inc. today announced financial results for the third quarter ended July 27, 2008.

Sales for the fiscal 2008 third quarter increased 10% to $477.6 million from the $434.1 million reported for last year's third quarter. Operating income increased 31.9% to $55.7 million from $42.2 million, and operating margin reached 11.7%, an increase of 200 basis points from the 9.7% operating margin reported for last year's third quarter. Net income for the 2008 third quarter was $31.9 million or $1.63 per diluted share, an increase of 49.5% from $21.3 million, or $1.02 per diluted share in the 2007 third quarter.

Norman C. Chambers, Chairman, President and Chief Executive Officer of NCI, commented, "In the third quarter, we continued to see solid demand for our diversified steel products and systems from industrial, institutional and agricultural customers. During this period of rising steel prices, we redoubled our commitment to work with customers to improve their ability to incorporate raw material cost increases into end product pricing, as well as to design-in efficiencies that reduce the total weight and cost of our manufactured buildings systems."

"Increased profitability was driven by the exceptional performance of our Components and Coatings segments which benefited from favorable business and product mix and ongoing manufacturing and logistics improvements. Because of its comparatively longer sale-to-delivery cycle, our Buildings group experienced some operating margin contraction in the third quarter, resulting from rapidly rising steel costs. However, we continued to see reasonably good business demand from specific end markets and for more complex work, and we succeeded in bringing our plant utilization rates to near third quarter 2007 levels."

Segment Performance

The Coatings group posted year-over-year and sequential revenue growth resulting from higher steel prices and the ongoing shift in business mix from toll processing to package sales. Operating income increased significantly, reflecting the tight supply/demand situation, favorable product mix and the benefits of higher intercompany sales related to the RCC acquisition.

The Components group reported significant year-over-year and sequential revenue growth and substantial operating leverage resulting from increased revenues, commercial discipline, operating efficiencies and the ongoing benefits of the RCC acquisition.

The Buildings group achieved double-digit revenue growth, both sequentially and compared to last year's third quarter. Rapidly-rising steel prices cause mixed results in this segment, with certain customers accelerating orders to avoid potentially higher costs and others postponing or re-evaluating projects. Operating income did not keep pace with sales growth and margins narrowed to 10% in this year's third quarter, reflecting the lag time in effecting steel price increases to work in backlog. Backlog for the Buildings group was $424 million at the end of the third quarter, modestly below prior quarter levels due in part to higher sales in the quarter.

Outlook

"Rising steel prices have caused a shift in our traditional quarterly seasonality this year, as we saw a number of our Components and Buildings group customers, in particular, accelerate orders to lock-in their costs," Mr. Chambers said. "Therefore, while second half results will account for the historical 65% to 75% of NCI's full year earnings, third quarter results are expected to be the strongest of the year."

Based upon performance to date, quarter-end backlog and current bookings, the Company is increasing its guidance range for fiscal 2008 earnings per diluted share to $3.85 to $4.00 from its previous guidance range of $3.19 to $3.44. This equates to expected fourth quarter fiscal 2008 earnings per share of $1.06 to $1.21.

"We believe that NCI's ability to produce exceptionally strong financial and operating results during a period of very tough economic and business conditions is attributable to a number of factors. First, we have succeeded in capturing business from those segments of our addressable market where demand is strong, such as mining, energy, manufacturing, schools and government buildings and agriculture. Additionally, we are optimally positioned in three complementary business segments to take advantage of market demand for a broad range of products and systems. Third, we are executing on key elements of our strategic plan and are already seeing the early benefits of implementing technological advances, manufacturing efficiencies and extending our hub-and-spoke delivery system across RCC," Mr. Chambers noted.

NCI will provide an online, real-time webcast and rebroadcast of its conference call tomorrow to discuss this announcement. The live broadcast of this conference call will be available online at http://www.ncilp.com/ beginning at 10:30 a.m. (Eastern Time) on Wednesday, September 3, 2008. The online replay will be available at approximately 12:30 p.m. (Eastern Time) and continue for one week.

This release contains forward-looking statements concerning NCI's business and operations and industry conditions, including among others industry trends, steel pricing, growth expectations and margin expansion. These statements and other statements identified by words such as "guidance,""potential,""expect,""should" and similar expressions are forward looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to a number of risks and uncertainties that may cause NCI's actual performance to differ materially from that projected in such statements. Among the factors that could cause actual results to differ materially are the possibility that the anticipated benefits from the RCC acquisition cannot be fully realized; the possibility that costs or difficulties related to the integration of the RCC operations into the Company's operations will be greater than expected; industry cyclicality and seasonality; fluctuations in demand and prices for steel; the financial condition of NCI's raw material suppliers; competitive activity and pricing pressure; ability to execute NCI's acquisition strategy; and general economic conditions affecting the construction industry. Item 1A "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended October 28, 2007, identifies other important factors, though not necessarily all such factors, that could cause future outcomes to differ materially from those set forth in the forward- looking statements. NCI expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect any changes in its expectations.

NCI Building Systems, Inc. is one of North America's largest integrated manufacturers of metal products for the nonresidential building industry. The Company operates 43 manufacturing plants located in 18 states and Mexico, as well as sales and distribution facilities throughout the United States and Canada.

NCI BUILDING SYSTEMS, INC. STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data) For the Three Months Ended For the Nine Months Ended July 27, July 29, July 27, July 29, 2008 2007 2008 2007 Sales $477,596 $434,081 $1,255,228 $1,161,494 Cost of sales 349,071 324,053 940,832 878,009 Gross profit 128,525 110,028 314,396 283,485 26.9% 25.3% 25.0% 24.4% Selling, general and administrative expenses 72,810 67,781 210,673 199,530 Income from operations 55,715 42,247 103,723 83,955 Interest income 157 7 917 233 Interest expense (5,364) (7,206) (17,859) (21,918) Other income, net 808 125 1,022 804 Income before income taxes 51,316 35,173 87,803 63,074 Provision for income taxes 19,425 13,846 33,536 24,783 37.9% 39.4% 38.2% 39.3% Net income $31,891 $21,327 $54,267 $38,291 Net income per share: Basic $1.65 $1.09 $2.81 $1.95 Diluted $1.63 $1.02 $2.79 $1.82 Average shares outstanding: Basic 19,363 19,655 19,308 19,661 Diluted 19,543 20,881 19,455 21,022 Depreciation/amortization expense 8,864 9,519 27,053 26,021 Increase in sales 10.0% 8.1% Increase in diluted earnings per share 59.8% 53.3% Gross profit percentage 26.9% 25.3% 25.0% 24.4% Selling, general and administrative expenses percentage 15.2% 15.6% 16.7% 17.2% Income from operations percentage 11.7% 9.7% 8.3% 7.2% NCI BUILDING SYSTEMS, INC. CONDENSED BALANCE SHEETS (In thousands) July 27, October 28, 2008 2007 (Unaudited) ASSETS Cash and cash equivalents $39,880 $75,054 Accounts receivable, net 166,073 158,967 Inventories 226,563 137,725 Deferred income taxes 24,200 23,439 Prepaid expenses and other 21,511 15,727 Total current assets 478,227 410,912 Property and equipment, net 252,075 261,994 Goodwill 616,400 616,400 Other assets 49,994 53,752 Total assets $1,396,696 $1,343,058 LIABILITIES AND SHAREHOLDERS' EQUITY Current portion of long-term debt $920 $22,312 Note payable 1,297 - Accounts payable 144,679 130,161 Accrued expenses 129,018 129,298 Total current liabilities 275,914 281,771 Long-term debt 473,710 474,725 Deferred income taxes 44,388 43,638 Other long-term liabilities 4,034 3,228 Shareholders' equity 598,650 539,696 Total liabilities and shareholders' equity $1,396,696 $1,343,058 NCI BUILDING SYSTEMS, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) For the Nine Months Ended July 27, 2008 July 29, 2007 Net cash provided by operating activities $3,224 $42,725 Cash flows from investing activities: Acquisitions, net of cash acquired - (18,859) Capital expenditures (17,922) (33,440) Other 6,342 (401) Net cash used in investing activities (11,580) (52,700) Cash flows from financing activities: Payments on revolving line of credit - (90,500) Borrowings on revolving line of credit - 90,500 Payments on long-term debt (22,407) (710) Payments on note payable (2,595) - Proceeds from stock option exercises 489 3,787 Excess tax benefits from stock-based compensation arrangements 162 1,459 Payment of financing costs (75) (75) Purchase of treasury stock (2,224) (12,286) Net cash used in financing activities (26,650) (7,825) Effect of exchange rate changes on cash and cash equivalents (168) 216 Net decrease in cash (35,174) (17,584) Cash at beginning of period 75,054 25,038 Cash at end of period $39,880 $7,454 NCI Building Systems, Inc. Business Segments (Unaudited) (In thousands) Three Months Ended Three Months Ended July 27, 2008 July 29, 2007 % of % of Total Total Sales Sales Sales: Metal coil coating $90,732 19 $72,275 17 Metal components 214,774 45 193,140 44 Engineered building systems 280,767 59 256,323 59 Intersegment sales (108,677) (23) (87,657) (20) Total net sales $477,596 100 $434,081 100 % of % of Sales Sales Operating income: Metal coil coating $11,360 13 $8,166 11 Metal components 34,044 16 16,852 9 Engineered building systems 26,644 9 30,876 12 Corporate (16,333) - (13,647) - Total operating income (% of sales) $55,715 12 $42,247 10 $ % Inc/(Dec) Change Sales: Metal coil coating $18,457 25.5% Metal components 21,634 11.2% Engineered building systems 24,444 9.5% Intersegment sales (21,020) 24.0% Total net sales $43,515 10.0% Operating income: Metal coil coating $3,194 39.1% Metal components 17,192 102.0% Engineered building systems (4,232) -13.7% Corporate (2,686) 19.7% Total operating income (% of sales) $13,468 31.9% Nine Months Ended Nine Months Ended July 27, 2008 July 29, 2007 % of % of Total Total Sales Sales Sales: Metal coil coating $233,178 19 $195,338 17 Metal components 546,146 44 511,257 44 Engineered building systems 745,998 59 693,013 60 Intersegment sales (270,094) (22) (238,114) (21) Total net sales $1,255,228 100 $1,161,494 100 % of % of Sales Sales Operating income: Metal coil coating $20,760 9 $18,570 10 Metal components 62,869 12 38,060 7 Engineered building systems 68,242 9 67,318 10 Corporate (48,148) - (39,993) - Total operating income (% of sales) $103,723 8 $83,955 7 $ % Inc/(Dec) Change Sales: Metal coil coating $37,840 19.4% Metal components 34,889 6.8% Engineered building systems 52,985 7.6% Intersegment sales (31,980) 13.4% Total net sales $93,734 8.1% Operating income: Metal coil coating $2,190 11.8% Metal components 24,809 65.2% Engineered building systems 924 1.4% Corporate (8,155) 20.4% Total operating income (% of sales) $19,768 23.5% NCI BUILDING SYSTEMS, INC. NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS COMPUTATION OF EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AMORTIZATION AND OTHER NONCASH ITEMS ("ADJUSTED EBITDA") (Unaudited) (In thousands) Trailing 12 Months July 27, July 29, 2008 2007 Net income $79,704 $66,341 Add: Provision for income taxes 49,850 41,926 Interest expense 24,539 28,978 Depreciation and amortization 35,716 34,074 Non-cash FAS 123(R) 10,076 7,427 Adjusted EBITDA (1) $199,885 $178,746

(1) The Company discloses adjusted EBITDA, which is a non-GAAP measure, because it is a widely accepted financial indicator in the metal construction industry of a company's profitability, ability to finance its operations, and meet its growth plans. This measure is also used by NCI internally to make acquisition and investment decisions. Adjusted EBITDA is calculated based on the terms contained in the Company's credit agreement at the respective dates presented herein. Results of operations of businesses acquired are included in this measure for periods subsequent to the acquisition and are not included on a pro forma basis. Adjusted EBITDA should not be considered in isolation or as a substitute for net income determined in accordance with generally accepted accounting principles in the United States.

NCI BUILDING SYSTEMS, INC. NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS "ADJUSTED" EARNINGS PER SHARE COMPARISON (Unaudited) Fiscal Three Months Ended July 27, July 29, 2008 2007 Earnings per diluted share, GAAP basis $1.63 $1.02 Effect of convertible notes - (1) 0.05 (1) "Adjusted" diluted earnings per share(A) $1.63 $1.07 Fiscal Nine Months Ended July 27, July 29, 2008 2007 Earnings per diluted share, GAAP basis $2.79 $1.82 Effect of convertible notes - (1) 0.10 (1) "Adjusted" diluted earnings per share(A) $2.79 $1.92

(A) The Company discloses a tabular comparison of "Adjusted" earnings per diluted share, which is a non-GAAP measure because it is referred to in the text of our press releases and is instrumental in comparing the results from period to period. "Adjusted" earnings per share should not be considered in isolation or as a substitute for earnings per share as reported on the face of our statement of income.

(1) Dilutive impact for the three months ended July 29, 2007 of 926,055 shares and for the nine months ended July 29, 2007 of 1,046,274 shares of the Company's convertible notes as if they were converted during the period.

NCI Building Systems, Inc. Reconciliation of Segment Sales to Third Party Segment Sales (Internal Information) (Unaudited) (In thousands) Inc/ % 3rd Qtr 2008 3rd Qtr 2007 (Dec) Change Metal Coil Coating Total Sales 90,732 15% 72,275 14% 18,457 26% Intersegment (62,842) (49,013) (13,829) 28% Third Party Sales 27,890 6% 23,262 6% 4,628 20% Operating Income 11,360 41% 8,166 35% 3,194 39% Metal Components Total 214,774 37% 193,140 37% 21,634 11% Intersegment (34,367) (26,849) (7,518) 28% Third Party Sales 180,407 38% 166,291 38% 14,116 8% Operating Income 34,044 19% 16,852 10% 17,192 102% Engineered Building Systems Total 280,767 48% 256,323 49% 24,444 10% Intersegment (11,468) (11,795) 327 -3% Third Party Sales 269,299 56% 244,528 56% 24,771 10% Operating Income 26,644 10% 30,876 13% (4,232) -14% Consolidated Total 586,273 100% 521,738 100% 64,535 12% Intersegment (108,677) (87,657) (21,020) 24% Third Party Sales 477,596 100% 434,081 100% 43,515 10% Operating Income 55,715 12% 42,247 10% 13,468 32% NCI Building Systems, Inc. Reconciliation of Segment Sales to Third Party Segment Sales (Internal Information) (Unaudited) (In thousands) YTD YTD Inc/ % 3rd Qtr 2008 3rd Qtr 2007 (Dec) Change Metal Coil Coating Total Sales 233,178 15% 195,338 14% 37,840 19% Intersegment (158,618) (134,820) (23,798) 18% Third Party Sales 74,560 6% 60,518 5% 14,042 23% Operating Income 20,760 28% 18,570 31% 2,190 12% Metal Components Total 546,146 36% 511,257 37% 34,889 7% Intersegment (82,202) (73,063) (9,139) 13% Third Party Sales 463,944 37% 438,194 38% 25,750 6% Operating Income 62,869 14% 38,060 9% 24,809 65% Engineered Building Systems Total 745,998 49% 693,013 49% 52,985 8% Intersegment (29,274) (30,231) 957 -3% Third Party Sales 716,724 57% 662,782 57% 53,942 8% Operating Income 68,242 10% 67,318 10% 924 1% Consolidated Total 1,525,322 100% 1,399,608 100% 125,714 9% Intersegment (270,094) (238,114) (31,980) 13% Third Party Sales 1,255,228 100% 1,161,494 100% 93,734 8% Operating Income 103,723 8% 83,955 7% 19,768 24%

NCI Building Systems, Inc.

CONTACT: Norman C. Chambers, Chairman, President and Chief ExecutiveOfficer, +1-281-897-7788

Web site: http://www.ncilp.com/

Source: PRNewswire-FirstCall

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